New Asian Emperors E-Book

George T. Haley

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2012

Seitenzahl: 304

Beschreibung

Southeast Asia has a population of more than half a billion, yet its economy is dominated by about 40 families, most of Overseas Chinese descent. Their conglomerates span sectors as diverse as real estate, telecommunications, hotels, industrial goods, computers and sugar plantations. New Asian Emperors shows how and why Overseas Chinese companies continue to dominate the region and have extended their reach in East Asia, despite the Asian financial and SARS crises of the past decade. The authors base their conclusions on in-depth structured interviews spanning a decade with the often elusive Overseas Chinese CEOs including Li Ka-shing, Stan Shih, Victor Fung, Stephen Riady and Sukanto Tanoto, as well as on the strategic information that their companies use. The analysis of the New Asian Emperors' present-day management techniques and practices draws on the history, culture and philosophical perspectives of the Overseas Chinese in Southeast Asia. In the midst of today's global economic crisis, this book also takes a fresh look at the role and management practices of the Overseas Chinese as they continue to create some of Asia's wealthiest and most successful companies. New Asian Emperors explains: * The sources and characteristics of Overseas Chinese management * Whether Overseas Chinese management practices will spread in the same way that Japanese management did in the 1970s * Whether Western management technologies have found themselves outmaneuvered in Asia's post-crisis arena * The Overseas Chinese managers' strategies for the informational black hole of Southeast Asia and what Western managers can learn from them * The New Asian Emperors' unique strategic perspectives and management styles revealed through exclusive, in-depth interviews * The implications for successfully co-operating and competing with the Overseas Chinese of Southeast Asia New Asian Emperors offers key insights into the Overseas Chinese and the important role that cultural roots play in their dominance of Southeast Asian business.

Leseprobe

CONTENTS

Preface

Acknowledgments

PART I The Foundations of Understanding

CHAPTER 1 Introducing the Overseas Chinese of Southeast Asia

Patterns of Chinese Migration

Who Are the Overseas Chinese?

What Is a Network?

The Role of the Overseas Chinese in Southeast Asia

The Role of the Overseas Chinese Worldwide

Following Chapters

CHAPTER 2 Confucianism Plus: The Philosophical and Cultural Roots of the Overseas Chinese

Confucianism’s Influence on Chinese Trade and Economics

The Family

The Relationships and Ethical Behavior

Differing Ethical Concepts

CHAPTER 3 The Overseas Chinese Today: Not the Family Business, But the Family as a Business

What Is a Chinese Network?

Historical and Environmental Effects on the Overseas Chinese Business Networks

Distinguishing Cultural Traits

How Networks Permeate Formal Structures

PART II The Foundations of Analysis

CHAPTER 4 Introduction to an Informational Void: The Black Hole of Southeast Asia

The Informational Black Hole of Southeast Asia

Operating in an Informational Black Hole

CHAPTER 5 Strategic Management of the Overseas Chinese Business Groups: Deciphering Patterns

Tacit Knowledge and the Informational Black Hole

Strategic Planning and the Networks

A Summary of Overseas Chinese Management Practices

PART III The Implications for Business

CHAPTER 6 In the Aftermath of the Asian Crises: Revolution or Evolution?

The Path of Destruction

The Post-crises Evolution of Overseas Chinese Business Groups

Competitive Advantages of the Overseas Chinese

Competitive Disadvantages of the Overseas Chinese

CHAPTER 7 Competitive Implications of the Overseas Chinese: Doing Business with the New Asian Emperors

General Implications for Multinationals

Specific Implications for Multinationals

Implications for Regional Governments

Implications for Researchers

Speculations About the Future

The Adaptive-Action Road Map

BIBLIOGRAPHY

APPENDIX: List of Interviewees

INDEX

Copyright © 2009 John Wiley & Sons (Asia) Pte. Ltd.

Published in 2009 by John Wiley & Sons (Asia) Pte. Ltd.

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This book is dedicated to our families and in memory of

James B. Haley

(1916–1988)

Dr. C. Venkatesan

(1924–1998)

Tan Thye Bee

(1914–1992)

PREFACE

ABOUT A DECADE AGO, and in the middle of the Asian financial crisis, we published our first book together, New Asian Emperors: The Overseas Chinese, Their Strategies and Competitive Advantages. In that book, we questioned the assumptions foreign companies make when formulating and implementing strategic decisions for Southeast Asia. We called the region an informational black hole, and The Economist (2001) labeled our book as “important research.”

Popular wisdom, and some research, has suggested that much has changed in Southeast Asia after the crisis. We set out to determine whether our research supported these views. In the process, we interviewed several more of the New Asian Emperors as well as CEOs in Asia, Mexico, and the U.S. We also added new archival data and conducted new research on the informational black hole. We believe our findings, encapsulated in this new book, may surprise you.

We conclude that important changes have occurred, but that other authors and researchers have glossed over the changes that we observed. The informational black hole remains, and the New Asian Emperors continue to exploit it. Simultaneously, the best of the Emperors are striving to develop the skills necessary to compete against Western companies on Western terms and in Western environments. We invite you to enter their world, and see if you can play. Plus ça change, plus c’est la même chose.

George T. Haley

Usha C. V. Haley

Chin Tiong Tan

ACKNOWLEDGMENTS

A BOOK OF THIS NATURE cannot be written with the interest of a day or the support of one person. We owe special thanks to the thousands of executives on whom many of our ideas have been tested and refined. In particular, the New Asian Emperors listed in the Appendix, among others, gave generously of their time, expertise, and understandings of Overseas Chinese business operations and environments so that we could interpret and project them for this book.

This book would not have been possible without the support and faith of our publishers, John Wiley & Sons. In particular, Nick Wallwork, Janis Soo and Joyce Poh of Wiley supported this project from the start, became friends over its course, and were always willing to listen, provide suggestions, and encourage us (sternly) to meet something resembling deadlines.

I would like to thank the many elderly Chinese retirees who, when I was a child in Texas, babysat with me and told me wonderful stories of the homeland they left behind and the sages who so influenced their thoughts and lives.

Finally, we owe special thanks to our families for their tolerance and sacrifice of time. Usha and I have to thank our two cats: Comet Baby, for her constant advice and unstinting support; and Marmalade, who frequently stayed up with us through the night while we wrote the book in Connecticut. Both cats loyally stood on watch to inform us when we should check for emails from Chin Tiong in Singapore! Comet Baby passed away on January 9, 2009, after giving us happiness for 17 and a half years.

Additionally, we respectfully dedicate this book to the memory of two very special people who fueled our interest in Asia: my father, James B. Haley, whose love of history and philosophy has inspired me throughout my life; and Usha’s father, my father-in-law, Dr. C. Venkatesan, whose understanding of Asian business served as both guide and motivation.

George T. Haley

Deep River, Connecticut, March 2009

My father’s Asian values of extraordinary hard work, controlled passion, learning, humility, devotion to his family, and sense of duty inspired and awed me. The struggles he encountered, first while managing a foreign multinational and then while starting and running his own companies in India, enlightened me; he always recounted the strife with humor and met it with intelligence, determination, and courage. I respectfully dedicate this book to my father, Dr. C. Venkatesan (Papa), a fighter to the last . . . the best of the Asian Emperors.

Usha C. V. Haley

Deep River, Connecticut, March 2009

In addition to the above, I must thank my wife Siaw Peng for her understanding and support over the years, my children, Bryan, Melvyn and Stephanie for their eagerness to see one more book by their dad on the bookshelf. Lastly, I have to thank my PA, Ms Tan Poh Ling, for her secretarial and editorial assistance on the manuscript. Respectfully, I dedicate this book to a very special New Asian Emperor, my father, Tan Thye Bee. Before his passing, his deep involvement in the family business and the Chinese networks of South East Asia provided much insights to my understanding of the various issues we discussed in the book.

Chin Tiong Tan

Singapore, March 2009

PART I

The Foundations of Understanding

CHAPTER 1

Introducing the Overseas Chinese of Southeast Asia

One generation passes away, and another generation comes; but the earth abides forever . . . . That which has been is what will be, that which is done is what will be done, and there is nothing new under the sun.

—Ecclesiastes

The epigraph summarizes the history of the Overseas Chinese and the Chinese merchant classes. The Chinese merchant classes struggled against periodic campaigns of persecution in China to gain prosperity and their dreams of a good life for their families and children; the Overseas Chinese merchants struggled against periodic campaigns of persecution in their various new homelands to gain prosperity and their dreams of a good life for their families and children; and today, the Overseas Chinese struggle against periodic campaigns of persecution in many of their present homelands to gain their dreams of prosperity and a good life for their families and children. Though our book focuses on the corporate giants and their strategic evolution, we emphasize that the great majority of the Overseas Chinese who must face the travails of their people are not the superrich of Asia but those who are still struggling and, basically, “fighting the good fight.”

The Overseas Chinese, contrary to what the name would imply, do not form one people, but groups of diverse people. Like the mainland brethren they left behind, they differ by regional groupings, cultural groupings, and linguistic groupings to a much greater degree than most U.S.-born American citizens do, and almost as much physically as Americans do. Like the other great imperial populations of the latter half of the 20th century, Russia and the U.S., the Chinese people, and particularly their overseas populations, have shown great proficiency in creating and accumulating wealth when their governments permitted them to do so. This combination of courage, skills, and intelligence has created something most of the Chinese emperors of the past passionately avoided: an overseas colonial empire. The colonial empire does not constitute the traditional political empire of old but appears more akin to the economic empire that many accuse the U.S. of building. In some few instances such as Singapore and Taiwan (we will speak of Taiwan as an autonomous state although the Mainland Chinese government considers it a province), the Overseas Chinese serve as this empire’s political barons; but in every instance, they dominate as the commercial emperors of this New Asian Empire. As we discuss later, despite the hardships spawned by the 1997 Asian crisis and the 2002 Severe Acute Respiratory Syndrome (SARS) crisis, most of the Overseas Chinese companies remain intact and have displayed a hearty vigor as well as adaptability in the face of external shocks.

Westerners frequently view the Chinese people as one homogeneous population, and the Chinese as always having been under the sway of an all-powerful central imperial bureaucracy until the arrival of the Europeans. Neither belief holds true. The Chinese people constitute a population of diverse religions, subcultures, and ethnic groups. Western China contains one of the earliest, and best-preserved, burial sites of a Caucasian population anywhere in the world. The local population in the region continues to manifest such physical characteristics as lighter, brown-colored hair and freckles more frequently than the norm for other Asian populations.

Frequently, the Chinese empire formed a domain in name only. Warlords from different areas would rise to challenge the center, sometimes supplanting the center. Invaders would breach Chinese defenses and create their own empires, introducing elements of their own cultures as they assimilated into the Chinese population. The center would collapse and China would break down into warring realms of various sizes and power. Frequently, the provinces would simply ignore the center’s directives when they wanted to and were able to do so.

The merchant classes of the southern coastal regions would most frequently ignore the center’s directives. These southern, coastal people dominated the various waves of Overseas Chinese who emigrated from China over the centuries. When the Chinese emperors periodically tried to block overseas commerce, contacts, and emigration, the southeastern Chinese provinces continued to press forward with their trading and emigration to wherever opportunities seemed to abound. In efforts to stop international trade and contacts, various Chinese emperors embarked on prohibitive measures (this is a very short and incomplete list):

In 1424, the Ming emperor Hung-hsi banned foreign expeditions of any kind and scuttled an imperial fleet to emphasize his point.

In 1661, the Manchu emperor K’ang-hsi banned travel and evacuated coastal regions of China to about 10 miles inland.

In 1712, K’ang-hsi requested foreign governments to repatriate Chinese emigrants so they could be executed.

From 1717 until his death, K’ang-hsi once again initiated a ban on travel. The emperor died in 1722, but his successors continued the ban until 1727, when they lifted it after 10 years of dismal failure.

Not long after K’ang-hsi, European intrusions into China and Southeast Asia, and constant rebellions against the Manchu emperors by other ethnic Chinese, denied the emperors this kind of freedom of action.

In 1959, Mao Tse-tung called on the Overseas Chinese to return home. Of the many millions of Overseas Chinese, Mao’s ships picked up 100,000 seeking to come home (Hall and Kirk, 1988).

In 1911, the Overseas Chinese communities finally responded in kind to the Manchu dynasty’s many punitive campaigns and policies against them and their mainland brethren: they financed Sun Yat-sen’s overthrow of the Manchus. The Overseas Chinese were, and remain, the epitome of capitalistic humanity.

Patterns of Chinese Migration

The Overseas Chinese whom we discuss and who form the focus of this book are these capitalist traders. Though people generally think of the Overseas Chinese as traders, other groups also make up the Overseas Chinese communities. Wang Gungwu (1992), in his book China and the Chinese Overseas, discussed four patterns of Chinese migration. He identified the four patterns as:

1. The trader pattern

2. The coolie pattern

3. The sojourner pattern

4. The descent or re-migrant pattern

The trader pattern

The trader pattern represents those Chinese of commercial or professional classes who went overseas for reasons of business or employment. These people usually worked for their personal benefit or for domestic Chinese businessmen’s benefit, usually but not always as relatives of some sort. If their overseas efforts met with success, more relations and associates would follow and work to expand the businesses further.

The coolie pattern

The coolie pattern represents another group of Chinese who sought their fortune overseas. These individuals usually originated from the peasant classes, or were landless laborers, or the urban poor. They went overseas on labor contracts, and many returned to China when their contracts came to an end. A large number, however, stayed to build their fortune and future in a new home. This pattern has supplied the bulk of today’s Overseas Chinese population.

The sojourner pattern

The sojourners of the Overseas Chinese communities left China to act as representatives of the Chinese culture and way of life. They appeared during a time when Chinese governments were trying to reexert their control over the increasingly wealthy Overseas Chinese communities. The sojourners perceived their duty as lobbying local governments for the rights to establish Chinese schools to educate the children of local Chinese in the Chinese language and in accordance with Chinese customs. They also sought to encourage local Overseas Chinese to remain faithful to their culture and country, and importantly to their government.

The re-migrant pattern

A growing number of Overseas Chinese do not speak the Chinese language, have never set foot in China, and have even emigrated from the countries in which their ancestors originally settled. These ethnic Chinese, socially and frequently even culturally, form members of their local national societies in every way imaginable.

Though we focus primarily on those Overseas Chinese who began to build their fortunes as merchants, the greatest number of today’s Overseas Chinese commercial aristocracy in Southeast Asia descended from people who fit into the coolie and sojourner patterns. Regardless of which pattern the present-day Overseas Chinese businessmen and women descended from, they are supreme business practitioners, resourceful and daring, yet rarely so daring as to be foolhardy.

Who Are the Overseas Chinese?

The bulk of Southeast Asians are, at least in part if not primarily, of Chinese origin (waves of Chinese emigration to the countries of Southeast Asia have occurred for literally thousands of years); yet generally only those people migrating to Southeast Asia in the last one or two waves of migration are considered Overseas Chinese. Most Southeast Asians considered this group to be those who arrived in their new homelands sometime in the later years of the 19th century or in the 20th century. Guangdong’s and Fujian’s coastal regions (to the immediate north and northeast of Hong Kong), as well as Hainan Island (between the Gulf of Tonkin and the South China Sea) dominated the last few waves of immigration. Figure 1.1 shows these coastal regions and the island. Eight primary groups of Chinese emigrated from these areas at this time (as enumerated by dialect and subdialect groupings) to the several countries of Southeast Asia:

FIGURE 1.1:Origins in China of the Main Dialects and Subdialects of the Overseas Chinese

1. Fuzhou

2. Hokchia

3. Henghua

4. Hokkien

5. Teochiu

6. Hakka

7. Cantonese

8. Hainanese

When the groups left China, they tended to settle among their own people in the countries to which they went. Hence, one or two of these Chinese communities tend to dominate the Overseas Chinese populations of individual Southeast Asian countries. One or two of the linguistic groups may also dominate particular trades and professions. Table 1.1 presents a breakdown of the Overseas Chinese populations of the various Southeast Asian countries. For two of them, Cambodia and Myanmar, the figures are estimates. During the Pol Pot regime in Cambodia, the Chinese, primarily city dwellers, suffered especially badly and reliable figures for their population do not exist. Myanmar has never released reliable figures on its Overseas Chinese population.

TABLE 1.1:The Overseas Chinese in Southeast Asia

As Table 1.1 shows, the Hokkien and Teochiu people tend to dominate in most Southeast Asian countries. Historical and geographical reasons contribute to this dominance. Throughout its history, China has alternated between outward-looking expansionist regimes and inward-looking isolationist regimes. The Hokkien and Teochiu homelands lacked good farmlands but possessed relatively good ports on their coasts. Their physical distance from the historical Chinese capitals also allowed them to escape the center’s notice, with the help of local authorities. Hence, under isolationist Chinese regimes that discouraged international trade and contacts, the Hokkien and Teochiu people could openly use their seafaring skills for domestic trade and fishing and had a substantial incentive to do so. Conversely, expansionist regimes that supported international trade also encouraged Hokkien and Teochiu efforts to build trading relationships. Wealth would flow into these groups’ homelands through their presence in Chinese trading circles. When circumstances changed again and isolationists dominated policy, the Hokkien and Teochiu could not surrender the prosperity they had gained through trade, and they circumvented the central authorities whenever and however they could. With only subsistence farming possible, trade with other regions within China served essential needs for these groups. They used their domestic trade and shipping, and their contacts in local and central governments, to cover their activities and maintain an international trading presence. The manner in which this presence evolved had several important effects on the how the Overseas Chinese have historically conducted their business.

ADMIRAL CHENG HO

Patron Saint of Chinese Trade and Internationalism

THE MING EMPEROR YUNG-LO (reigned 1402–1424) was the last true internationalist among China’s precommunist rulers. The great admiral Cheng Ho served as the primary instrument of his international exploration, and to a limited extent maritime imperialism. Cheng Ho was a eunuch of Mongolian ancestry and a Muslim who, during Yung-lo’s reign, led six great voyages (he made a total of seven). The voyages averaged two years each in length, and there are recorded visits to 30 countries, as well as Hormuz at the entrance to the Red Sea, and Jeddah on the west coast of the Arabian Peninsula.

Cheng Ho’s voyages did not resemble the sailing of two or three lonely ships as the European voyages of exploration did. Rather, his were major fleets with better than 20,000 men, upwards of 60 of the largest wooden capital ships ever made, and fleets of support vessels numbering more than 200 ships. During his trips, Cheng Ho established treaties with foreign powers such as Malacca (in present day Malaysia), where he established a Chinese naval base, presented gifts to foreign rulers, and accepted tribute from them; collected many strange and exotic creatures for the Imperial Menagerie; acquired new skills; and kept an eye out for new and potentially valuable trade goods and markets that Chinese merchants could profitably exploit. He also showed the military capability and skills of the Chinese navy by defeating and capturing or killing several rulers who challenged his fleet or refused to pay tribute to his Emperor; among them were the ruler of Ceylon, whom he deported to China after settling a pretender in his place; and the ruler of Sri Vijaya (in Sumatra), who was sent to China for execution (he was a Chinese pirate who had usurped the local throne).

Cheng Ho’s voyages ended on the death of Yung-lo: during his one-year reign, Yung-lo’s son Hung-hsi made a clean sweep of various court factions and placed almost complete power firmly in the hands of the Confucian-dominated bureaucracy. The bureaucracy ordered all imperial records of Cheng Ho’s voyages to be destroyed.

Thanks to his accomplishments, Cheng Ho is primarily viewed as having functioned in the development of trade and scholarship. Wherever you find a large number of Overseas Chinese, you will find temples and statues dedicated to this patron saint of their enterprise and vision.

In Table 1.1, the large “Other” category for Myanmar arises because the largest group of ethnic Chinese in this country originate from traditional homelands spanning the common border of Myanmar and China. The ethnic Chinese population along Myanmar’s border with China has both historically lived in Myanmar and migrated across the poorly controlled border rather than emigrating from the coastal regions of China.

Table 1.2 presents the total population of the countries under consideration, together with the total Chinese populations. The table clearly reveals the substantial populations of these countries. Indonesia alone forms the fourth most populous nation on earth. The proportion of the Overseas Chinese varies from nation to nation but overall remains relatively small at just over 10 percent. Though the Overseas Chinese form a relatively small percentage of local populations, they command their local economies.

TABLE 1.2:The Total and Chinese Populations of Southeast Asia and Taiwan

Table 1.3 sketches the Overseas Chinese communities’ economic influence in the Southeast Asian economies. As the table reveals, except in the Chinese-dominated countries the percentage of Gross National Product (GNP) generated by the Overseas Chinese in each country far outstrips the relative proportion of the population. Even in Singapore, a predominantly Chinese country, the percentage of GNP generated by the Overseas Chinese is greater than their share of the population. Historically, many people have recognized the Chinese merchant communities’ energy and drive. One of Louis XV’s ministers once complained that “what France needs is a touch of the Chinese spirit” (Fernandez-Armesto, 1995, p. 296).

The Overseas Chinese companies are especially important to East Asian economies. In Thailand, Malaysia, Singapore, and Taiwan, the companies and their affiliates that were listed on the stock exchanges accounted for 24.3, 24.9, 39.6 and 56.2 percent, respectively, of these exchanges’ total market capitalization in 2002 (Chang, 2006).

TABLE 1.3:Economic Participation of the Overseas Chinese in Southeast Asian Economies

Source: Table compiled from de Vienne (2004).

Country

Chinese as Percentage of Total Population 2002

Percentage of Gross National Product Generated by Chinese 2002

Brunei

a

29.3

40.0

Cambodia

2.3

10.0

Indonesia

3.3

10.0

Laos

3.1

9.4

Malaysia

25.7

42.0

Myanmar

4.0

12.0

Philippines

2.8

8.4

Singapore

76.8

81.0

Thailand

11.0

33.0

Vietnam

1.5

4.5

Southeast Asia

5.3

30.0

Note: a In Brunei, Chinese often do not hold citizenship, and businesses are held in partnership with local citizens.

De Vienne (2004) argued that those countries in which you find the largest number of Overseas Chinese generating the greatest proportion of national GNP form a direct line from Southern China to the Indian Ocean. This line also represents the maritime leg of the myriad trade routes collectively called the Silk Road and suggests that this leg of the Silk Road was dominated by Chinese traders.

What Is a Network?

Most know that the Overseas Chinese operate in networks; but a common perception erroneously assumes that these networks stem exclusively from clans or families. Strachan (1976) argued that perceptions of loyalty and trust normally associated with family or kinship groups permeate business groups (such as the Overseas Chinese) in contrast to other collections of firms under common financial control. Indeed, trust constitutes the primary factor required for the formation of the networks; hence, members of a familial clan are often preferred members of networks. Granovetter (2005) stated the importance of identifying the axes of solidarity for formation of these business groups. Three other traditional foundations for Overseas Chinese networks are the localities of origin, the dialects or subdialects spoken, and the traditional guilds (though one or a few locality-based groups tend to dominate individual guilds). Increasingly, with the Overseas Chinese companies’ growth; the Southeast Asian economies’ enhanced complexity; the region’s interconnectedness with other, global, economic regions; and more diverse and dispersed investments, simple trust is becoming the primary determinant of who is and is not a member of a network. Here is a summary of the types and bases for the development of Overseas Chinese networks:

Network Type

Basis for Network

Clan grouping

By family surname

Locality grouping

By locality of origin in China

Dialect grouping

By dialect or subdialect spoken

Guild grouping

By craft practiced

Trust grouping

By prior experience or recommendation

Ultimately, a “network” constitutes a tool. This tool builds trust, speeds decision making, facilitates high-quality decision making, builds customer satisfaction, and in the final analysis generates competitive advantages for network members. These benefits accrue whether speaking of a network comprising separate and independent companies or executives within the same firms. Ram Charan (1991, p. 49) described networks in this fashion: “Networks are designed to empower managers to talk openly, candidly, and emotionally without fear, to enrich the quality of their decisions, to test each other’s motives and build trust, and to encourage them to evaluate problems from the perspective of what is right for the customer and the company rather than from narrow functional or departmental interests.” He was referring to internal networks within firms, but he could just as well have been referring to the external networks of the Overseas Chinese. The Overseas Chinese networks serve several functions. They consist of independent individuals of all kinds, businessmen and women from companies with and without ownership links, government bureaucrats, professionals and academics, private investors, and just friends.

On the surface, the Overseas Chinese form classic external networks. However, the networks also display interconnectedness, derived from one of the four traditional bases for network formation listed just above, which transform them into internal networks. An individual has a place within a clan, linguistic, locality, or guild group, and also within the fifth, nontraditional trust group. Thus, the Overseas Chinese networks actually approximate external networks with some characteristics of internal networks.

Charan’s categorizations of networks shed light on the Overseas Chinese networks. First, Charan stated: “Networks are designed to empower managers to talk openly, candidly, and emotionally without fear.” Family (clan), friendship (locality, linguistic, or guild group), and trust form the building blocks of Overseas Chinese networks. Intense trust in the people with whom one deals enables one to communicate with them “openly, candidly, and emotionally,” without fear that what one tells them will be used to one’s detriment or future embarrassment. Embarrassment forms a special risk in Chinese societies, which place great emphasis on “face.” Thus the networks constitute tools of empowerment for their members. The networks allow their members to discuss important information, and through this discussion generate the best possible decisions for the networks’ managers and companies. As later chapters will elaborate, given Asia’s business environments, informed decision making is of crucial benefit for members of the networks. In reality, strategic decisions sometimes go wrong, for both networks and non-network-based institutions such as Western multinational corporations. For example, Apple at one time dominated the personal computer industry, fought a valiant rearguard effort once IBM entered the business, but chose the wrong strategy; until Steve Jobs led Apple back to success through innovative new products, it had severe problems maintaining profitability under the old business model. General Motors, still one of the world’s greatest manufacturing concerns, is struggling to maintain market share. Its U.S. market share has fallen to 24 percent (Maynard, 2007), and it is presently facing the prospect of seeking government support to avoid bankruptcy. The Overseas Chinese firms have made similar strategic mistakes.

Second, Charan argued that with respect to their members, networks exist “to enrich the quality of their decisions.” This refers to the networks’ ability to transmit and analyze information that considers the entire set of implications and meanings accompanying the information. Without the richness of openly available and acquirable information that managers can find in Western industrial democracies, information serves as a tremendous competitive advantage to companies operating in Asia. By depending on, and expanding, the ability to acquire information through a network, managers increase their chance of acquiring information that will resolve the business puzzles confronting them, and give them tangible advantage against competitors.

Third, Charan stated that networks exist “to test each other’s motives and build trust.” Both halves of this statement have crucial importance for the Overseas Chinese networks. For several reasons we consider later in the book, in regard to Chinese culture members need to test trust in the networks. Importantly, trust does not constitute a transferable asset in the Chinese culture; consequently, Chinese business relationships often do not yield personal recommendations and endorsements. If one network member vouches for an outsider, then the network will give the outsider the benefit of the doubt, but only because the endorser assumes responsibility for the outsider’s trustworthiness. If the outsider fails the trust placed in him, he jeopardizes his honor as well as the honor and judgment of the individual who vouchsafed him. The endorsing member of the network will lose face and incur debt. Hence, networks’ members test motives to build trust to where it can form the sole basis for substantial investment decisions.

Finally, Charan argued that for its members a network can “encourage them to evaluate problems from the perspective of what is right for the customer and the company rather than from narrow functional or departmental interests.” Though Overseas Chinese networks incorporate members who own or represent independent entities, this statement still has validity when one replaces the phrase “narrow functional or departmental interests” with “narrow personal or company interests.” For an Overseas Chinese network to prosper and continue, all its members participating in a particular business enterprise must benefit from it. Without such mutuality of benefit, essential mutuality of interest and trust cannot exist. The network will collapse in a frenzy of vengeance for true and imagined deceits, and in the network’s firms freezing into inaction due to inability to trust their information.

Mutualities of interest and trust increase when the networks consist of groups of people who, for the most part, have common experiences and worldviews, and who have worked successfully together, preferably over an extended period. Most members also use mutuality of interest in another fashion, building a focus for activities that eliminate the need to recheck constantly what other members do in joint projects. This lax surveillance constitutes both a strength and a weakness. However trusted an individual and consistent his or her past behavior, potential gains or costs may tempt the person to break with network partners or to break faith. Because of the high level of implicit trust, the members can initially break faith without being easily detected.

High costs can accrue to such breach of faith, especially if not detected quickly. An example came to light on June 25, 1997, when Thailand’s newly appointed finance minister, Thanong Bidaya, went to the Thai central bank with his top three aides and demanded to see its financial records. The collapse of the Thai baht occurred seven days later, when the Thai government was forced to unpeg the baht from the U.S. dollar (Nanto, 1998).

Prior to the crisis, the Thai Finance Ministry had guaranteed the Thai banks and financial institutions’ financial creditworthiness. As some Thai institutions’ creditworthiness became suspect owing to an increasingly high level of debt to foreign lenders, the ministry reiterated guarantees to calm local markets, foreign lenders, and currency speculators. To ensure its ability to honor guarantees, the Finance Ministry requested confirmation from the Thai Central Bank on the foreign currency reserves that the bank held for the Thai government. The ministry, under Thanong’s predecessor, Amnuay Viravan, could not get a response. Finally, Thailand’s prime minister, Chavalit Yongchaiyudh, lost patience and appointed Thanong, president of the Thai Military Bank, as the new minister of finance.

When he took office, Thanong and his three top aides in the ministry immediately went to the currency office and personally inspected the bank’s books. What they found exceeded their worst nightmares. Reported reserves should have covered almost 60 days of Thai imports; in actuality, they could cover only two days’ imports. The Central Bank’s chief currency trader had tied up most of its currency reserves in forward contracts. Additionally, the Central Bank had already lent more than US$8 billion to struggling Thai banks and finance companies. The largest Thai finance company, Finance One, was on the ropes and teetering badly even after having already received more than US$1.4 billion in government loans. With no more funds to lend, the Finance Ministry informed Finance One and select news media that funds had dried up. The same message went out to 15 other troubled financial institutions.

The Central Bank’s officers had not reported the true state of affairs six months earlier to the government and public because the officers would have lost face. When the ministry’s call for confirmation of foreign currency holdings arrived, the Central Bank’s officers could not bear the embarrassment of admitting their losses, and they simply refused to respond. Once the new finance minister came and inspected the books personally, the jig was up. He transmitted his findings to the government. The revelations shattered the Thai people’s confidence, as well as that of local and foreign investors, leading to collapse of the Thai economy and financial markets and eventually to the East Asian currency and financial crisis.

Although Charan adequately presented the network organization’s benefits, there are important flaws in his thesis. As Charan stated (p. 52), “Companies don’t build networks so that managers will ‘like’ or behave like ‘family.’” In truth, companies don’t build networks at all; people do. Companies can build teams, and teams can prove enormously effective management tools, but teams are not networks. Companies can also create environments to formally recognize networks and encourage them to flourish, and by so doing, use networks to accomplish the companies’ goals and objectives.