When Mitch Free first went to China, he didn't know a thing about the place. He listened. He learned.
On the Avenue Free doesn't speak a lick of mandarin. But Southern manners translate.
The elevator doors open on the 44th floor, and Mitch Free exits, turning left into the raw office space of a towering Shanghai building. There are cement floors, exposed piping, floor-to-ceiling windows. Just ahead of him, to the east, the gleaming ball of the Oriental Pearl TV tower. To his left, the north, the swooping Shanghai Grand Theatre and the aptly named Tomorrow Square. Commercial buildings radiate in all directions, swallowed by yellowish smog.
"Our CEO, Mitch Free," one of his Chinese employees announces to three real estate agents gathered to show him around new office space he's thinking of renting. They look him over, this bull-chested Atlanta man with gelled blond hair and pale eyes that focus so intently on whoever is speaking that it looks as if he's reading the person's lips. He greets them politely; he always seems to remember that he's only a visitor here.
"This is scary, all this space," Free says a few minutes later. Just over a year after he opened his Shanghai branch of MFG.com, an online parts design and manufacturing exchange, the company has outgrown its current space. Big as this space seems, his general manager warns that MFG.com will outgrow it by the end of the year if its work force in China rises from 52 to 104, as expected.
Free asks whether the floor number, 44, is bad luck. He has learned to ask that, just as he has learned to ask whether the landlord will take care of installing carpeting and a ceiling (in China, it's customary to hand over a totally bare office) and about finding a feng shui consultant to assess the space. The entourage walks around the floor. Outside, far below, a seven-layer highway twists around itself and then spools out in several directions. It looks like a child's Lego fantasy, a concept that shouldn't be able to exist in the real world. Free scans the vast, empty floor. "How much space? From there until where?" he asks. "Actually, everything you see," says the agent.
When Free launched his business, in 2000, China never figured into his plans. MFG.com is an exchange where manufacturers and suppliers meet to do business. Say a manufacturer needs a part for a computer hard drive or a car door. It uploads design specs onto MFG.com, and suppliers bid on the job. The site took off, and Free soon noticed something he hadn't expected: Chinese manufacturers had found their way to the site, asking how they could pay MFG.com's $5,000 a year average annual fee for the right to bid on projects. Intrigued, Free flew to Shanghai, invited some of these manufacturers to dinner, and visited their factories. Meanwhile, U.S. customers were clamoring for greater access to low-cost Asian manufacturers. By mid-2005, says Free, "I really didn't have a choice. I had to open in China."
Not long ago, China was a place where American businessmen stayed in dingy hotels and dutifully chewed chicken feet and deer penis at ceremonial dinners. No more. Free eats blue-cheese burgers, sushi, and rack of lamb in Shanghai. He drinks Tsingtaos and Bombay and tonics and French wine. These days, Shanghai is full of Americans. The flight from Chicago to Shanghai could be a trip to Wal-Mart (NYSE:WMT) headquarters in Bentonville, Arkansas: lots of American men in short-sleeved shirts talking about factories and production. In the basement of the Shanghai building where MFG.com has its current office, there's a Starbucks (NASDAQ:SBUX) and a McDonald's (NYSE:MCD). After a day or two in Shanghai, the place can seem deceptively familiar.
But of course it is different, very different. It may be teeming with Westerners, but China remains a profoundly challenging place for foreigners to do business. It's not just the laws, the accounting system, and the banking regulations. That's the easy stuff. What's really tough is fathoming the business culture, the way workers relate to their employers and even just the way sales get done. And, of course, there's the language barrier. Each interaction has its own nuance, its own way of unrolling. Sure, China's brand of capitalism is raw and full of energy, just as it often is in America. But that's where the similarities stop. And American entrepreneurs risk losing everything if they get China wrong.
When Free first showed up in China, he knew he had a lot to learn. Though he is confident and curious, he knows what he doesn't know. He had never traveled abroad before his mid-20s. A man whose college career lasted six weeks, Free says he has read only 10 books in his life, one of them about China. He approached the place with an open mind. He searched for young Chinese managers who had excellent English skills and could show him the way. He listened carefully and was polite to everyone he met. And his efforts are paying off. China accounted for 11 percent of MFG.com's $22.8 million in sales in 2007. This year China sales are on track to reach $6 million, with overall sales of about $35 million.
But Free, who travels to Shanghai once every two or three months, is still clearly feeling his way in China. Even getting to work can be a challenge. On his way to his office one recent morning, Free gets as far as the elevator bank, then is overtaken by a swarm of people who push him aside and cram into the elevators. He moves and waits and loses his place, missing one elevator car, then another, then a third. He finally stakes out a spot in front of an elevator, and, at last, the doors open to reveal his general manager, James Jin, smiling serenely at the back of the car. (Jin takes the elevator down to the basement level, then rides back up to outwit the hordes.)
When he started looking for a Chinese general manager, Free wasn't sure someone like Jin existed. Free had hired a recruiting firm to send him candidates, and its top picks barely spoke English. "It was starting to scare me," Free says. "Not only were there language issues; there were obvious cultural issues. I was going to abort." But just before he abandoned the idea of opening a Shanghai office, Free threw a dinner for some manufacturing clients, among them a particularly serious and taciturn fellow. The next morning, Free got a call at his hotel room. "He says in perfect English, 'How can we work together?' " It was Jin; the quiet guy from the dinner had tracked him down. Free soon realized Jin would make a great general manager. He is a Beijing native who graduated from the Thunderbird School of Global Management, near Phoenix, and worked in manufacturing in the U.S. before returning to China. He also turned out to have an American-style sense of play. He calls his boss a "crack-ass cracker."
Managers like Jin, who can bridge the two cultures, are hard to find and don't come cheaply. Jin earns $250,000 a year, plus stock options; in Atlanta, Free says, he would pay someone in the same position $175,000, with about 40 percent fewer stock options. "When I started to get into negotiations with James, I was thinking 50K a year, maybe," Free says. "I was taken aback." IT managers and sales and business-development executives can expect as much as $100,000 a year, about what they would make in Atlanta. Below the top tier, though, salaries drop sharply. A sourcing engineer, who reviews design specifications, earns about $15,000 a year here. In the U.S., Free says, the same employee would earn $100,000, and in Europe, $120,000.
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