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12: Pt.2 The China Business Conundrum · Rittener Reflections

• Ken (00:00) I want to say that if you were to ask me what my summary judgment would be of the four years we spent in China, and then the four years after that where I continued to work with the bait going back and forth, I would say that the experience in China was an amazing one. I would do it all over again. It was fascinating. We loved our years in China. That's on the one side. On the other side, I would say, The Chinese Communist Party, which is ultimately your joint venture partner because the Chinese Communist Party controls everything it wants to and it wanted to control this. They are, ⁓ in my opinion, an extremely difficult joint venture partner, not one that you would deliberately enter into a relationship with a second time. Jeff (00:39) Mm-hmm. Jeff (01:06) Welcome to episode 12, part two of written reflections, a forum for addressing the dynamic, complex and essential nature of cross border trade in our ever changing world. I hope you all enjoyed listening to Ken Wilcox, who is the former CEO of Silicon Valley bank. during our first segment of, ⁓ episode 12, where we talked about the importance of leading as it relates to culture. I'm excited to share this second part of our conversation in this second segment as we talk about doing business in China. Now, I was really quite eager to hear what Ken had to say ⁓ since I myself have spent a good portion of my career working in and with China. This conversation caused me to to pause for a second and think about all the incredible people I met and I worked with, and also the amazing opportunities I had ⁓ to experience just the wonders of the Chinese culture and also just the realities of the geopolitics. I recall my first trip to China was in 2003. And my last trip was in 2023. So during those 20 years, I think I visited China more than a dozen, maybe two dozen times. I met many, many times at the Intel facilities. I had the opportunity to meet with a number of our customers. I met with many government officials. I had the opportunity to present on numerous occasions some conferences, just so many stories that I have that I could share. And so maybe in fact, this might be a good podcast for the future. But today I want to encourage you to take in the candid and real feedback from Ken. He spent four years in Shanghai establishing a joint venture between Silicon Valley Bank and the Pudong Development Bank. And he's also the author of a new book, the China Business Conundrum, ensure that win-win doesn't mean Western companies lose twice. Jeff (03:37) Ken, you wrote a second book, which I have I don't have and I have not read, will confess. But the book is titled The China Business Conundrum. ensure that win-win doesn't mean Western companies lose twice. And so it's fascinating. I'm looking forward to reading this book, give us some background. I know you spent time in China. You were there to establish a joint venture. Give us some insight into the book, why you wrote it, and any relevant background we should know. Ken (03:52) Mm. Sure, yeah. So after sending teams into China for about 10 years and accompanying them for a couple of weeks out of every year for 10 years, we finally came to the conclusion at SVB, Silicon Valley Bank, that we wanted to establish a presence in China. And our reasoning was very simple. We felt that it was important to be active in all the innovation centers around the world. And we had already set up very successful operations in Israel and in the UK and in various other places around the world, also India. And we finally got the opportunity to go to China. And actually the Beijing, the government in Beijing signaled to us that they were anxious to have us come. Almost in exactly the same moment when I was set to retire after 10 years as CEO. 2010, I was old enough. It was time for me to move on. We had a succession plan at SVB. It was locked and loaded. And Beijing said they want us to come to China. Our board considered the opportunity. They voted unanimously to go to China. and build this joint venture bank. And they looked around, they couldn't find anybody who wanted to go. Not that people were against going to China. was more, you know, they've got kids in school, their spouse has a great job. They all had reasons to stay put. And so the board asked me if I'd like to, rather than retire, go to China. So I did something pretty unusual, and that is I ended up reporting to the person who succeeded me as CEO. Jeff (05:39) Yeah. Ken (05:52) I went to China and we spent four years there in conjunction with or in collaboration with Shanghai Pudong Development Bank, which was our joint venture partner, built this technology-oriented bank in China intended to be somewhat like SVB to the extent possible. I want to say that if you were to ask me what my summary judgment would be of the four years we spent in China, and then the four years after that where I continued to work with the bait going back and forth, I would say that the experience in China was an amazing one. I would do it all over again. It was fascinating. We loved our years in China. That's on the one side. On the other side, I would say, The Chinese Communist Party, which is ultimately your joint venture partner because the Chinese Communist Party controls everything it wants to and it wanted to control this. They are, in my opinion, an extremely difficult joint venture partner, not one that you would deliberately enter into a relationship with a second time. so when I came back, Jeff (06:52) Mm-hmm. Ken (07:06) I thought that again, I'd done a lot of journaling, so I had a huge stack of papers. I decided it would be important to write a book in order to help other people who are contemplating this kind of a move. Because quite frankly, even though there are lots of books on the market about China today, they are almost all with very, very few exceptions. Almost all of them are written by either academicians, or people in think tanks, or journalists. Journalists are the best in the group, in my opinion, of the group that I just mentioned, but almost none of them are written by people who actually done business. And you ask yourself, why is that? And I think, personally, I think there are two reasons why that's true. One of them is they fear retribution on the part of the Chinese Communist Party. In other words, the Chinese Communist Party doesn't like you writing things that are negative and they're afraid of what after effect they might have on them personally or on their corporation. And the other thing is virtually everybody that goes there. I know this is a strong statement and a bold statement and one that will in general a lot of disagreement. But I think virtually everybody that goes there gets taken. gets to find a word taken advantage of, misled, fooled, and they end up not doing as well as they thought they were going to do. But they don't want to admit it. For obvious reasons, I think. Who wants to write a book saying, guess what, I was really stupid. I got taken advantage of. In retrospect, I was a fool. And I just want to explain that to all of you. Jeff (08:29) Right. you Ken (08:49) That's pretty unusual. So I felt that it was really important to write this book. Jeff (08:55) Well, I'm glad you did because it sounds like you're one of the few that was brave enough to tackle this. In the book, you talk about this idea of win-win called the win-win illusion. Can you kind of describe that and how did you experience that? Ken (09:05) Mm-hmm. Yeah, so first of all, I would like to underscore that I went to China with what I call an open heart and an open mind. And I also went to China with an approach to negotiation or working with partners that I had learned in the U.S. And I'm not to say it's not to say that everybody in the U.S. does exactly what I'm about to describe. Jeff (09:13) Yeah. Yeah, right. Ken (09:36) But it is to say that most people in my age bracket and presumably many people younger than me have taken a negotiation course at some point in their career. negotiation courses in the US tend to focus on the concept of getting to yes. There is a book out that was created in the early 80s called Getting to Yes. It was an offshoot of something called the Harvard Negotiation Project. And whether people realize it or not, to the extent that they take courses in how to negotiate, they're usually based on this concept. And the concept is you and I are trying to do something together, but you represent one company and I represent another. It's incumbent on us to figure out what each other needs and to craft a solution that will make both parties relatively happy that will benefit both of us. I assumed that it would work that way in China. It does not. The Chinese approach to negotiation, and I'm puning all Chinese people. I'm saying fundamentally the party's approach is not based on getting to yes. It's based on, fundamentally it's based on the art of war. And if you've read The of War, a very small book, you can read it in 45 minutes. It was written a few thousand years ago. The primary points in The Art of War are you need to win at all costs. The ends justify the means. Any method that you can employ that will cause you to win or result in your winning is a positive. And you should... You should, to the extent possible, rather than actually fighting, because this is after all about war, you should try to fool your competitor, manipulate your competitor, intimidate your competitor, and do it in a way that results in your winning and them losing. And if you can do it without, you know, firing a shot, so to speak, so much better because you don't get hurt. And that is So right before I left for China to actually move there after many, trips, but to actually move there, I read a little book that was written by a very famous sinologist, a person who studies China at MIT, published in, I think, 1982. His name was Lucien Pai. And the title of the book is Chinese negotiation, commercial negotiation techniques. And it articulates exactly what I just said. If you're going to negotiate against the party, expect them to try to intimidate you, try to fool you, try to manipulate you, try to deceive you. In the end, they want to win. And not only they want them to win, but they want you to lose. And I thought this has got to be BS. That guy's got to be one of the most jaded people on his looshin' pie. And within a year, I figured out that he was Jeff (12:24) Mm-hmm. Ken (12:35) He was spot on because everything that he describes in that book, I experienced. I think Americans in general have two big problems when they go to China to take their business model and install it in China. two big problems. One of them is that they haven't read Lucien Pye's book. And the other thing is that, and this may sound a little abstract, but all of us build what I call mental models that are based on our experience. And our mental models are based on our experience in the US. And then we take them to other countries and we superimpose them on those other countries. If you're taking your mental models that you developed, whether you realize it or not, through your experiences in the U.S. and you try to apply them, superimpose them on the U.K. or Germany or France or Israel, they'll work pretty well. Not perfectly, but well enough. But if you try to apply them in China, you'll be worse off than if you had none at all. because China is so different from the US. That's not to say it's bad, it's to say it's different. And your mental models won't work. And I'll give you one example before I leave this point, because I it sounds a little abstract. In the US, we grew up, especially in Silicon Valley, thinking that business is over here and government's over here. and party doesn't even play a role. And I remember when I first got to Silicon Valley, actually attending speeches where relatively famous people in the semiconductor industry were saying, don't go to Washington, it's a waste of your time. Don't have anything to do with government, avoid it. If you have a mental model based on that thought and you take it to China, you're at a severe disadvantage from the get-go because the Chinese Communist Party controls the Chinese government and both of them in tandem control business to the extent that they want to. It's not to say they control every single business, but they control the ones they want to. and they control those foreign companies that come into China to the extent that they want to. And my conversation partner at Shanghai Pudong Development Bank was a member de facto, was a member of the government of Shanghai. He was a member of the Chinese Communist Party and he was a banker. in the first year I used to ponder when I was speaking with him, which was almost every day. Which hat is he wearing right now? Is this his banker hat or his government hat or his party hat? And it took me at least a year before I figured out he didn't even know he had hats. In his mind, it was all the same thing. He didn't differentiate. It was all exactly the same thing. He would be shocked if I were to tell him he had three hats. And I felt that sometimes he was wearing this one and other times this one and other times this one. I know that a lot of Americans go over there and some of them are smart enough that within a couple of months they figure out what I just said. And some of them are there for years and never figure it out. Jeff (15:59) Right, right. So what advice would you give someone? Let's say I'm gonna go to China and start a business. What advice would you give me in this context, right? Yeah, okay. Ken (16:07) Well, this is what I would say. First of all, prepare. Try to learn a lot before you go in order to shorten the amount of time you have to spend learning once you get there. The second thing I would say is try to take all of your mental models and put them on the shelf. And when you get there, look around you, observe, and try to figure out what you really see, not what you think you see. And the third one, I would say, and this is probably the biggest point in the book, be aware that the Chinese Communist Party has a game plan. When companies come from the US or from elsewhere into China, there's a game plan. Sometimes it takes two years or three years to get through the game plan. Sometimes it takes 40 years. In the case of General Motors, it's taken almost 40 years, but it's happening now. And I would say the same is true of Apple, by the way. And that is the game plan is, first of all, treat you like visiting royalty. Roll out the red carpet. Alleged to help you in every way possible. That's number one. After a period of time, phase two will ensue. Phase two is figure out what knowledge you have that we Chinese would like to have and extract it in any way possible. Sometimes it's insisting that you teach other companies your technology. Sometimes it's as bold-faced as insisting you hand over your technology. Sometimes it's just stealing it from you. and ultimately building a competitor in China. And phase three is where that competitor not only eclipses you in China, but then decides to go global and ultimately is in a good position to potentially eclipse you globally as well. And that is something that very few people either realize or are willing to acknowledge and certainly don't. like talking about it. But I think it is such a truism that it ultimately applies to almost every company that's doing anything worthwhile. Jeff (18:30) So that brings up an interesting thought is, there are many people in the US government in particular that are calling for US companies to decouple from China, just completely decouple. What are your thoughts? mean, is that maybe the best way to go forward? Or if not, and then how do you make sense of being in China? Ken (18:41) Yes. Yeah. Well, it's the easiest way, but in my mind, it's somewhat of a compound. But first of all, it's actually not the easiest way because decoupling is almost impossible. The supply chains have become so incredibly intertwined and complicated that it would take a lot of artificial intelligence to help us figure out how to decouple. And it probably would still be borderline impossible to accomplish. Jeff (18:53) Right. Yeah Yeah. Yeah. Ken (19:20) So the best thing to do is to figure out how to deal with it. Dealing with it is not, you know, for 30 years or 40 years, we were dealing with it like this. If we're just really nice to China and invite them into the world order, which we've created, and admit them to the WTO and, you know, and give in here, there, and everywhere, they will see the benefits of being like us. And they'll become like us and everything will be gloriously harmonious. only recently, in the last couple of years, if people almost done a hairpin turn after 40 years of thinking what I just said, people are now going to the other extreme. my God, this is horrible. We've got to decouple. Well, that's probably not going to work either. So the best thing to do is figure out how to compete and start competing. and drop the sentimentality. The whole idea that somebody's gonna become just like us if we're nice to them is in retrospect, I think, somewhat ridiculous. Jeff (20:25) Good point. know, Ken, we're really running out of time here. It's amazing how fast time has gone by. I wanted to get into another topic called, I call 2025 the year of uncertainty, but maybe I'll just ask you one question, thinking about our world today and what's happening, because there's a lot going on between US and China, as you know, and then we can wrap it up. the question I wanted to ask you is, you you It's in the news every day, US, China, Trump has a position that he's kind of pursuing. How affected do you think Trump's strategy and his plans are? mean, do you think at the end of the day it will work or where do see this going? Ken (21:05) Well, I think the good news, if there's any, is that Trump is willing to fight. That's good news. The bad news is the way he goes about it, I really don't feel is going to work. And I'll tell you why in a single... And that is, you read the, today is what, the 26th? 27th of May. Look at the New York Times, 27th of May, or any other major newspaper. Putin just said he's ridiculous. Said that Trump is ridiculous because he's a nutcase. He's overly dramatic. His histrionics are beyond the pale. Jeff (21:31) 27th of May. Ken (21:51) And this is the same Putin whom Trump brags about having such a good relationship with. I don't think that the way he approaches it is going to work. And it's largely because he's so erratic and because he's so overly dramatic. You know, people that spend a lot of time communicating with people in China, and I do that, will tell you that There are a lot of people in China today that laughingly refer to Trump as the nation builder. And by that, they mean he's building our nation for us, not the US. Because if you look at all of his initiatives in the last couple of months, Jeff (22:21) Hmm. Mm-hmm. Ken (22:30) a huge number of them really weaken us over time. And by implication, they strengthen China because China can move into the void that we're exiting. So I don't think it's gonna work. I'm happy with the fact that he's willing to engage. That part's good. Jeff (22:47) Yeah, right, right. Ken (22:51) But the way he goes about it, I don't think is going to work. Jeff (22:54) is going to work. I so appreciate your time spent with me today. And I wanted to just, in closing, I wanted to basically just let people know that, you you can learn more from Ken through these two books, these wonderful books that he's written. The first book he wrote, Leading Through Culture. how real leaders create cultures that motivate people to achieve great things. And I think you heard a bit of that here today. And the China business conundrum ensure that win-win doesn't mean Western companies lose twice. And I think you got a good sense of the challenges about doing business in China and the way to approach that. So I would encourage you to get both of those books and spend some more time learning from Ken. And Ken, I've learned a lot from you. today and I really appreciate all your insights and the things that you shared with us. Any last thing you wanted to say before we sign off? Ken (23:46) Yeah, coincidentally, there is one last thing I want to say. Thank you. And that is I want I hope that people listen long enough if they listen at all, they listen long enough to hear this sentence. I am not anti-Chinese or anti-China. It's the Chinese Communist Party that I have my beef beef with the Chinese people are just great. And we had a wonderful time. but we're not trying to impugn China in any way, or form. Jeff (24:15) Yeah, that has been my experience in the many years that I've dealt with many people in China. I love going to China. I love the Chinese people and I'm so I'm with you on that. So thank you for for stating that. Yes. Yes. So again, thanks, Ken. And we'll talk again real soon. Ken (24:24) Thank you. Thanks much. Jeff (24:29) you have been listening to part two of episode 12 of Written Reflections, a fantastic discussion on doing business in China. I encourage you to purchase Ken's book, The China Business Conundrum, ensure that win-win doesn't mean Western companies lose twice, where there is so much more valuable insight from Ken. Now, speaking of books and of China, during the past month, I have attended two book discussions and signings that have been held by Ambassador Laban, former ambassador of Singapore. These were held up in San Francisco. The first was an opportunity to hear the author Patrick Magee, ⁓ who just released his book titled Apple in China. And the second was from Ambassador Michael Sullivan. Ambassador Sullivan spent time during the first Trump administration and into the Biden administration as the ambassador to Russia. So he lived through the ⁓ beginning of the Russian invasion of Ukraine. And he also recently released a book titled Midnight in Moscow. Jeff (25:41) I enjoyed the discussions on both of these books during the book signing. And these books are of real interest to me because as I've recently described earlier, I've spent quite a bit of time in China. And I've also taken two trips to Russia back in the late 90s and early 2000s. And so I think I will enjoy both books as they will be relevant to my own experiences. And I think maybe they may be the basis for me to publish an episode to this podcast with some of my thoughts and findings and experiences from both of these books. So stay tuned for that. Until we meet again, enjoy your summer. It does go by fast. I will speak to you all real soon.