The “American Dream” is a concept so deeply ingrained in our nation’s mythos that it scarcely needs definition.
But is there an analog in China? Does the world’s largest—and fastest-growing—economy present a comparable path to a better life through industry and innovation?
A new book by Xiao-Ping Chen of the University of Washington Foster School of Business explores what it takes to be a successful homegrown entrepreneur in the People’s Republic of China, a nation whose government has been far more supportive of state- and foreign-owned enterprises.
“While Chinese economic growth has focused primarily on governmental policies and institutional factors, we propose that the success of private firms has primarily been due to the ‘visible hands’ of these entrepreneurs,” says Chen, a professor of management and the Philip M. Condit Endowed Chair in Business Administration at the Foster School.
In “Leadership of Chinese Private Enterprises,” Chen and co-authors Anne Tsui and Yingying Zhang examine 13 established private businesses that have flourished in China, identifying a key set of personal attributes shared by their founders.
Behind the economic miracle
The miraculous economic rise of the world’s most populous country, controlled by its Communist Party, is a story of two distinct paths. One is top-down, centrally managed capitalism which gave disproportionate advantage to state-owned and foreign-owned firms. And the other is bottom-up, decentralized grassroots capitalism that gave rise to private entrepreneurship.
The second path—homegrown entrepreneurship—now generates more than 60 percent of China’s gross domestic product and employs 70 percent of its workforce. With this outsized impact, you’d expect that private firms would enjoy the vigorous support of a powerful central government.
Instead, the government has historically thrown financial and regulatory obstacles in the way of Chinese entrepreneurs.
“One explanation for this economic miracle is that the government did a great job fanning the flames of free enterprise,” Chen says. “But in our observation, that’s not the case at all. In fact, grassroots entrepreneurship in China has encountered huge barriers in almost every area.”
So how have entrepreneurs succeeded despite the challenges?
To find the answer, Chen, Tsui and Zhang conducted extensive interviews with the exemplar founders of prominent Chinese firms in four industry groups:
- Financial services – Xinjun Liang of Fosun Group, Dongsheng Chen of Taikang Life Insurance, and Weihua Ma of China Merchant Bank.
- Information technology and e-commerce – Jiren Liu of Neusoft, Chuanzhi Liu of Lenovo, Fansheng Guo of HC360.com, and Jack Ma of Alibaba.
- Construction and real estate — Lun Feng of Beijing Vantone, Shi Wang of Vanke, and Shengzhe Nie of Tecsun.
- Consumer goods and retail – Ning Li of Li-Ning Company, Quinghou Zong of Wahaha, and Jianguo Wang of Five-Star/Kidswant.
Each founder’s experience, presented in a separate chapter, reads like a case study of his company’s improbable rise. Taken together, though, the interviews reveal a suite of key entrepreneurial attributes and actions that have lead to private firm success in China.
Concentric Model of Firm Leadership
By analyzing this group of entrepreneurial exemplars, the authors have developed a “Concentric Model of Private Firm Leadership.”
In the outside rings of this model are eight management principles: 1. holding on to moral and ethical principles, 2. engaging in humanistic management, 3. market development, 4. business sustainability, 5. pursuing innovation, 6. constant transformation; 7. building organizational capability, and 8. a dual system that consists of structure and culture, accountability and flexibility, and empowerment and control.
These principles radiate from a common set of personal attributes the authors observed in their entrepreneurs. They call these the “Four Ds:” determination (perseverance and commitment); discipline (to ensure consistency, meritocracy and professionalism); duality-focus (embracing conflict and balancing the short and long term, modernity and tradition, self and other interests); and divinity belief (driving uncompromised integrity, gratitude and compassion).
“These attributes,” Chen explains, “allowed the entrepreneurs to develop strategies balancing the interest of multiple stakeholders—customers, employees, suppliers and society—to focus on both short-term returns and the long-term development of the firm, to lead with modern methods guided by traditional cultural philosophies, and to maintain humility and integrity while acting with determination, boldness and discipline.”
But the very core of these successful ventures—the center of the model—is the proto-attribute of reflective thinking.
“We consider this attribute to be fundamental,” adds Chen, “since it enables leaders to reflect on and learn from their own personal experiences, from the observations of others’ successes and failures, and from reading the words of great thinkers and leaders who changed the world in their lifetimes.”
Sharing the wealth
Of course, the success of private firms in China is the result of more than just the sum of founder attributes. Chen says that these entrepreneurs have also developed an extensive and intricate internal social network, known as guanxi in China, as a mechanism of reciprocal support in overcoming financial and regulatory hurdles.
She cites numerous studies demonstrating how entrepreneurs use guanxi networks for control, collaboration and mutual support. These networks provide resource acquisition as a substitute for incomplete (or unwilling) formal institutions, such as state-owned banks. And their social and political capital is essential to securing venture funding and promoting sustained growth.
“Leadership of Private Chinese Enterprises” considers the experience of 13 alpha-entrepreneurs succeeding against the odds in a specifically difficult environment. But Chen says that the book offers valuable insights to entrepreneurs well beyond China.
“Taken in a larger context,” she says, “our analysis of these Chinese founders offers deep insight and a managerial recipe for entrepreneurial success in any competitive and inhospitable environment.”