A GM chief's lesson in Chinese capitalism
Now that China is the world's largest auto market, it is an uncomfortable fact that China is unknown territory for many Western auto executives.
At last, a study guide is available. This summer Wiley & Sons is publishing American Wheels, Chinese Roads: The Story of General Motors in China, Michael Dunne's lively account of General Motors' difficult adjustment to China's brand of capitalism.
Dunne is president of Dunne & Co., a Hong Kong investment advisory firm that specializes in Asia's automotive markets. He spent the last two decades working in Beijing and Shanghai. He currently divides his time between China and Jakarta, where he lives with his wife, Merlien, and their three children.
The following excerpt from Chapter 9, "Signing the Deal," details GM Chairman Jack Smith's awkward encounter with Chinese protocol as he tries to arrange a signing ceremony for GM's joint venture with Shanghai Automotive Industry Corp.
A shrill warning rippled through the phone lines of the GM China chain of command on a Sunday night in late March 1997: "If we don't have the signing on Tuesday, heads will roll!"
These clipped words were not so much a threat as a call of urgency, like sirens directing people into bomb shelters before an air attack. GM Chairman Jack Smith was coming to China to sign documents, and he had no time for disappointment.
Phil Murtaugh, the general manager of GM's Shanghai Operations, had spent most of 1996 working out details of the joint venture during long hours across a conference room table from SAIC officials.
Murtaugh's people were understandably anxious. Smith had reluctantly agreed to cancel important meetings in Detroit to make the thirteen-hour haul over the Pacific to Beijing on one condition: that he would sign the joint venture agreements with the Chinese to form Shanghai General Motors.
Confirming a meeting in China is almost never an easy thing. Signing a contract in China is never, ever, ever easy. And never, ever certain. It is a source of tremendous angst when headquarters demands certainty where none exists.
In spite of all of the genuine goodwill and the fact that all the terms had been agreed on, China still had the final say about when the signing would take place.
And China wasn't talking.
The plan seemed simple and straightforward enough. The signing ceremony was to take place on Tuesday morning in the Great Hall of the People, the massive center of power located on one side of Tiananmen Square. Jack Smith would meet with Chinese Premier Li Peng to sign the agreements and then pose for a photo session.
But it was Sunday night, Smith was already on the plane, and the Chinese officials in Beijing were still not confirming the meeting. But they were not denying the meeting either.
Michael Dunne: Covers GM’s entry into China
The Gore factor
The issue, GM finally discovered that evening, had to do with a visit from U.S. Vice President Al Gore. By sheer coincidence, Gore planned to be in Beijing that week. He was not coming for the signing, of course. For Gore to attend a ceremony in China marking the creation of a new GM manufacturing plant would send the wrong message to the unions back in America. Unions were huge backers of the Democratic Party. In fact, the vice president's people had not been in contact with GM at all, nor had Gore and his lieutenants ever even spoken with Jack Smith.
Chinese foreign affairs officials in Beijing, on the other hand, found it extremely odd that Gore had no plans to attend the signing ceremony. Did the U.S. government not consider this joint venture important? From their point of view, it would be very poor form to have Premier Li Peng sign an agreement with the head of a U.S. company while the vice president was off visiting the Great Wall. If Gore did not feel the signing was a priority, then maybe Li Peng had better things to do with his time, too.
The GM people scrambled late into the night with U.S. State Department officials in Beijing. By dawn, they received word that Al Gore would, in fact, be able to attend the ceremony. By midday, the Chinese government reciprocated with its own confirmation. The Tuesday morning signing event was back on, although it would not follow anything resembling the original script.
When Tuesday morning rolled around and the GM entourage arrived at the Great Hall of the People for the signing ceremony, they were instructed to wait outside the doors of the meeting room. Inside, Li Peng was already holding court with his guest, Al Gore, and the vice president's team of aides. Minutes felt like hours, and there was no indication as to when Jack Smith and his people would be allowed to enter the room, shake hands, and sign the documents.
Finally, more than an hour after the appointed time, the doors were flung open and the GM team was ushered to the front of the room. Gore and Li Peng had completed their business tête-à-tête -- with no business people present. But now, at long last, GM got its shot. Smith was ushered toward Li, the two men shook hands, photos were snapped, they shook hands again. And then, just like that, it was over. The meeting with Li Peng, months in planning, was over in less than a hundred seconds.
The GM executives and their partners from Shanghai soon found themselves outside the room, stunned, wondering: What just happened?
The next morning's China Daily, the national English language newspaper, featured front-page print and photos marking the historic meeting between Li Peng and Al Gore to commemorate the formation of the Shanghai GM joint venture.
The GM people felt a mixture of annoyance and relief -- Gore had hijacked their event, but the deal was signed.
Later that week, the mayor of Shanghai hosted a celebration dinner for Jack Smith and the new partners in Shanghai. As fate would have it, Gore's people intervened in that event too, with Secret Service personnel taking charge of the seating arrangements. At a dinner to celebrate the creation of the largest Chinese-American joint venture in history, the chairman of General Motors was not even invited to the head table. In the receiving line, people heard Tipper Gore ask her husband: "Which one is Jack Smith?"
A senior GM executive who was present in Beijing later observed wryly, "After Al Gore invented the Internet and before he decided to save the world from global warming, he hijacked GM's joint venture ceremony in China." But the congenial Jack Smith took the slights in stride.
Not every company operating in China can expect such dramatic intrusions, but they happen more often than one might expect. Politicians frequently visit China just so they can say that they have been to China. Once on the ground, they need some key accomplishments from their China visit for their constituents back home.
The pressure that this growing phenomenon puts on the "guys on the ground" is huge. Presidents of foreign companies operating in China, like Phil Murtaugh, are given enormous economic accountability. But in reality, they are responsible for so much more -- like the ulcer-inducing, anxiety-making responsibility for managing the unforeseen intrusion of the vice president of the United States and his entourage. This task appears nowhere in the job description.
Even more stressful for frontline executives is the disconnect that exists between the expectations of the boss back at headquarters and what is realistically feasible in China. "Heads will roll" may or may not have been an exaggeration. But there is no question that when the CEO asks whether the meeting is confirmed, the blood pressure goes up and the stomach goes haywire.
What goes through the mind of the China-based executive as he considers his reply?
Yes, boss, we are doing everything within our power to secure the meeting. Everything. And I want so badly to be able to report that the meeting is confirmed that, ultimately, that's just what I'll end up doing. And then I will hold my breath.
Because anyone who has ever set foot in China for more than ten days knows that nothing happens easily and no meetings are ever certain. In fact, in cases where a meeting gets confirmed in writing, days before the actual date, it means that the meeting is, ironically, really looking very doubtful. Boss, you cannot possibly imagine how things work in China.
Planning for the visit by Jack Smith to sign the joint venture agreement had been tortuous. The Chinese central government was initially unresponsive. The Gore delegation came in very late and then took over the proceedings.
"Don't worry," the SAIC guys had said, in an effort to comfort their new friends at GM, "we'll organize a signing event in Shanghai just for ourselves if the Beijing meeting falls through."
In the end, the planned ceremonies -- in Beijing and in Shanghai -- had never really taken place. But the signing had. And, in the end, that was all that mattered.
Excerpted from American Wheels, Chinese Roads: The Story of General Motors in China by Michael J. Dunne. Copyright 2011 by John Wiley & Sons Inc.