5 Things You Need To Know To Successfully Do Business In China, With Professor Tomas Casas

We need a call for “good elites.” We are at an age of disruption and disruption is necessary. Populism is naïve, even when popular discontent is legitimate. Elites are necessary, and they must be incentivized to be good for the economy, society and the health and strength of the nation. They must convert the unavoidable forces of disruption into wealth, some of it will naturally be in the form of public global goods. The “good elites movement” would in this sense identify on the basis of economic analysis, the most productive coalitions and elites in society. That is, the established corporations, the innovation and entrepreneurial ecosystems, the knowledge worker classes, the efficient SME clusters, that create new wealth in the economy and deliver public goods across society like quality jobs or technological progress. If we can objectively and compellingly establish the good elites, then the political system and society will support them, rather than the not-so-good rent-seeking dominant coalitions. When elites are good, we all prosper.

I had the pleasure of interviewing Tomas Casas, who is Member of the Academic Board and visiting professor at the SKOLKOVO Business School, as well as professor at Switzerland’s University of St.Gallen and Director of its China Competence Center. He has over 20 years’ experience in Asia, both in China and Japan in the start-ups, the corporate and academic worlds. In partnership with Chinese businessmen, he launched a series of technology companies. His experience and knowledge was fully leveraged in the design of the new cutting-edge HKUST-SKOLKOVO EMBA for Eurasia where he will mentor people from all across the globe on how to do business in China.

Thank you so much for doing this with us! What is your “backstory”?

I have been moving around the world. After graduating from Wharton thought that I was destined for a career in Wall Street. Instead I move the Japan. After an enriching and learn-full corporate stint in Tokyo I came to China to study language and culture. Without much thought I started doing business with my Chinese classmates. It was at the turn of the century, there were not so many foreigners in China at then, and very few restrictions of business. Coming from Japan or Europe to China, one was in search of business and economic freedom. It was an exciting time where everything was possible. Everybody was very entrepreneurial.

With my classmates at the university we started some companies — that was a lovely ride. We successfully exited some companies; other startups went bankrupt. Some of these businesses are still existing and prospering. At some point, I decided to switch mindsets and careers and became an academic. However, business, innovation, wealth creation do all remain my area of interest. The same goes for China where I’ve been invested for a long time now. Having both an academic and entrepreneurial background allows me to provide advice on partnerships and business in China and Asia in general.

We know that it is not always easy for a foreigner to do business in China. Can you share an interesting story about a challenge that you faced, and how you overcame it?

The most important challenge for me — as well as for any foreigner — was to become Chinese in terms of understanding the culture, the mentality. That means not only dinner conversations, but how you fight with partners or sell to clients. During the process of becoming Chinese, you cannot lose your own roots or your own approaches to business and values. Speaking from my own and others’ experience, a formula to success is to select and appropriate what you deem to be the best practices from both Chinese and Western cultures. For instance, you can learn from Chinese how to be agile and entrepreneurial. However, it is important not to lose your strategic vision or method that Chinese sometimes lack. In the combination you have the advantage. As a person who started many companies in cooperation with Chinese co-founders, it took me 4–5 years of full immersion into the linguistic, cultural and business environment to “become partially Chinese” (you don’t need to become fully Chinese). Interestingly, at some stages in my career I went close to native. The reflective and intellectual training associated with an academic career, including delivering executive education, helped me to retain my European identity while finding an Asian balance.

Are you working on any new or exciting projects now?

Recently I’ve contributed to the pedagogical design, the academic content, the associated research initiatives and the launch of the new EMBA for Eurasia Programme. It is a joint dual degree program of HKUST Business School in Hong Kong and Russian SKOLKOVO Business School. It was established specifically for those who intend to innovate and do business across Eurasia, and leverage the framework of the Belt and Road Initiative (BRI). The education process will take place in 7 different countries and the programme will boast a diverse body of Eastern and Western students. We are expecting an important part of our students to be entrepreneurs. It is always exciting to teach people, particularly about business. Continuous education is one of the most significant trends in management, a growth market if you well, especially high-level executive education in Asia related to innovation.

What advice would you give to other business owners who do business in China, to help their employees to thrive?

Often firm in the Chinese market — including Western companies working in China — do not give Chinese employees enough autonomy. My advice would be to give the Chinese employees the possibility to realize their dreams, to be innovative and intrapreneurial, within the context of the existing organization.

Salaries in China are high, and the China market offers fascinating projects for ambitious managers. However, foreign firms often have excessive processes and rules. One ought to allow employees to experiment, to let them to try out new things, specially allow them to fail. At the end of the day if you have Chinese innovation within your foreign-owned company, you will very rapidly become a Chinese company with localized products, technologies and marketing approaches. Your products will not only have been adjusted to local requirement, you will be able to incorporate a lot of local knowledge into your offerings, knowledge that like a boomerang, can benefit the foreign firm and its customer back home.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards, who helped you to get where you are? Can you share a story about that?

I would not talk about a specific person or situation. Especially since I did now undergo a dramatic challenge or was nudged into an epiphany or sudden realization of any kind. My advice is general and simple: have high goals, stay course and build a network of support. The network takes years to build, and it goes in many directions: business, government, academia, friends for the sake of friendship. Together you make progress towards your goal which in a way becomes shared; you exchange information. It’s a disciplined, non-stop type of process– you’re constantly being helped, and in reciprocity you also go out of the way to support others with their goals.

What do you think are the new untapped markets in China that may become the next “big thing”?

Speaking from a business advisory point of view, my answer is going to be quite obvious: wherever innovation sees new markets emerge. Often economic trends come from the West, from America. You can look at what’s exciting there — as a rule of thumb that will see a boom in China.

Yet at the same time this will not always the only direction. I can see now that China is going to be far more innovative and much sooner than most of us expected 10 or 20 years ago. There are things that arise here before they appear on the Western markets. Though for now, only in specific areas. For instance, clean energy, machinery, fintech or medical instruments. Recently I met a small Chinese company — SMTP — that specializes in surgical instruments. As you can imagine instruments to drill your backbone during surgery usually generate heat, which negatively impacts the healing process. Doctors at Swiss hospitals when testing SMTP were impressed by the small heat print that the Chinese device left.

We keep hearing about the “Trade War”. What are your thoughts about it? Given the unknowns, how do firms plan to pivot?

This is one of our biggest worries. Different companies are responding differently. For instance, we know many cases of firms producing in China to sell back to the US, that will move their production away from China, sometimes to the US but also to Thailand or Europe. Basically, many firms will have to adjust their value chain in such a way that there is less of import and export. This is not very efficient, but firms will find ways of dealing with it … at a cost. Business always adjusts. Look at Harley Davidson, they will now be shipping bikes made in Asia to. In short, adaptation to the trade war conditions is inconvenient and costly for everyone; it is disruptive. Still, it can be managed. For global growth this does not bode well. We all have to fight for an open world with unobstructed trade.

What are your “5 Things You Need To Know To Successfully Do Business In China.”

1. Find your niche. It is not necessarily going to be the same niche you occupy in other countries. For instance, the Swiss company Bühler, a leading global producer of equipment for the food industry. It always has been positioned in the highest quality and price category, at the very top of the market. However, after they acquired a Chinese company 15 years ago, they entered the mid-market in China. These actions brought them huge growth and success. Sometimes it is crucial to re-position yourself for the Chinese market. Do not always go for the high-end Chinese. Otherwise the local players in the low end market will, as they upgrade their capabilities, face you as they raise to the top. And when they do they will have a much larger customer bases that you.

2. Go digital. Businessmen do not need to be reminded of the importance of digital channels. China has its own digital channels which are different from the rest of the world. I remember when Mercedes-Benz became one of the first Western car manufacturers to promote its products through Weibo and WeChat (the leading Chinese social media). There were headlines like “Mercedes-Benz to sell limited-edition cars on Sina Weibo” — a brilliant move, which led to stunning growth. Other shortly followed.

3. Trust the Chinese. Allow them to be innovative. Do not be captive to stereotypes that Chinese are not creative or trustworthy. To give them opportunities, is good business and you will see innovation. China’s science powers are phenomenal and so are the emerging ecosystems. There are so many areas where China is leading — supercomputing engineering, IT hardware, speech recognition, genomics and many other.

4. Establish your own sales channels, your network of distributors and partners. This applies to most countries, but the Chinese market is much bigger and much more sophisticated. The applies whether you are a Russian software firms of sell water. Incidentally managing the channels and resellers well is the reason behind the success of firms like Wahaha. When we analyze the main reasons why some startups are successful while others fail, it is often the quality of sales channels. And relatedly clear sales and incentives strategies.

5. Learn from the Chinese. Facebook is learning from Tencent and its supper App WeChat. Flexibility and willingness to experiment — these are the qualities that I have always admired in my Chinese business partners. Being agile and opportunistic — you can trace down these traits behind many Chinese successes.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

It is the statement of Angelus Silesius, German philosopher and theologian: “Freund, so du etwas bist, so bleib doch ja nicht stehn: Man muß aus einem Licht fort in das andre gehn” — “My friend, as long as you are something, don’t stay still: one must go from one light forth into the next”.

As mentioned earlier, I was a privileged European student who to an Ivey League school for colleague, but upon graduation resisted the temptation to stay in America and moved to Japan. In Tokyo got acquainted with the culture and ended up working at a large Japanese electronics multinational. Then it was time to move again, and China was the destination. While studying I had the chance to start companies. When things were not going well, we sold firms and sometimes closed them. In good times we developed our businesses further. Then I decided to pursue an academic track and got my PhD at the University of St.Gallen in Switzerland. I would say that the strategy was to always push myself into unfamiliar areas, regardless of the cost, where I could learn something and develop personally. You know the catfish metaphor — the catfish in the fish tank keeps the sardines moving and alive. Put a catfish in your life to stay agile.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I don’t have influence, but I believe in the influence of narratives to transform the world. Narratives can be powered by academic knowledge. Let me be specific. The theories of economist Mancur Olson show that dominant coalitions or elites are an essential part of any political economy system; no social system works without elites, because they have lower coordination costs. Elites can be corporations, aristocrats, technological innovator entrepreneurs, labor unions or civil servants. Now, the elites of the economy can either productively create wealth or they can transfer wealth from others to themselves. Who are the elites that create wealth and who are the elites that just receive transfers without giving society a proper quid pro quo? This is a very tricky question theoretically in economics, as well as one that is methodologically delicate. Still with some colleagues at SKOLKOVO and NES, and at partner universities in Europe and China we think it is addressable.

If the question is tractable and we knew who the good elites are, we would try to come up with policies that would encourage them and their activities creating public goods, and would dis-incentivize wealth transfer activities by the not-so-good elites.

Let me give you an example. Health care costs in the US are about 17% of GDP. In Germany, it is maybe 9%, and the German health care is pretty good. Why does it cost so much in America? US economists have blamed certain dominant coalitions in the sector, such as some in the health insurance industry. For every doctor there is a multiple of insurance experts (at the doctors’ office and at the insurance company) to haggle over insurance payments and claims. So in the American health system, one can ask, who creates wealth (the doctor?) and who are the agents that transfer it around? Or look at Honk Kong; why are real estate prices the most unaffordable ones in the world and from what business sector do most Hong Kong billionaires hail? Could one say that certain elites in the US, Asia or elsewhere are unproductively, burdening society with, let’s say, excessive costs?

So back to your question about a movement; it would be a call for “good elites.” We are at an age of disruption and disruption is necessary. Populism is naïve, even when popular discontent is legitimate. Elites are necessary, and they must be incentivized to be good for the economy, society and the health and strength of the nation. They must convert the unavoidable forces of disruption into wealth, some of it will naturally be in the form of public global goods. The “good elites movement” would in this sense identify on the basis of economic analysis, the most productive coalitions and elites in society. That is, the established corporations, the innovation and entrepreneurial ecosystems, the knowledge worker classes, the efficient SME clusters, that create new wealth in the economy and deliver public goods across society like quality jobs or technological progress. If we can objectively and compellingly establish the good elites, then the political system and society will support them, rather than the not-so-good rent-seeking dominant coalitions. When elites are good, we all prosper.