Ted Fishman, the author of China, Inc. and a good friend, shocked me and the audience in Florida in late 2005 when he stated, matter of factly, that there are 85 million private companies in China, more than three times as many as the 25 million in the United States. Ted and I were serving on a China panel together, and I learned something that day that I still cannot get out of my mind. I always knew that China is an entrepreneurial country, but I had no idea as to the sheer magnitude of the numbers– until then, that is.

Entrepreneurism in China is infectious, and there is no known antidote or cure as far as I can see. It seems like everyone in China—young, old, Chinese, non Chinese— is starting some type of business. If you aren’t an entrepreneur before you get here, I guarantee you; you will become one before you know it.

Despite the difficulties of doing business in China and the fact that the country is already the third-largest economy in the world, China remains one of the best places in the world to start and build a business. Why? First, the economy is growing at double-digit rates, so whatever business you pick, it is likely to have a strong wind at its back.

Second, China is a large economy, but it is also one that is in an embryonic stage of development. That means there are many “gaps” that need to be filled. How many times have you met someone who has just returned from his or her first trip to China and is literally brimming with ideas for new opportunities in China? That’s because there are a lot of opportunities and gaps to be filled. Services and products that are readily available and familiar in a well-developed economy may not be so available or familiar here. Finally, despite China’s rapid development, it’s surprising how many otherwise well-informed business people around the world are not even aware that there may be opportunities for their products or services in China. If you happen to spot one of these “opportunity gaps,” don’t assume that it will soon be filled. The people or companies most likely to fill it may not even be aware it exists.

Having gone down the entrepreneurial road myself, I am always happy to help those that are beginning their own journey in whatever way that I can. That is why I was more than happy to accept an invitation by Jim James and Matt Lewis to speak to the Beijing chapter of the Entrepreneurs’ Organization (EO). EO is an organization that represents a global network of more than 6,600 business owners in 38 countries. Founded in 1987 by a group of young entrepreneurs, EO provides a platform that enables entrepreneurs to learn from each other.

The event in Beijing was well-attended, and I was delighted to meet many people whom I have known by name over the years, but whom I had not yet had the opportunity to meet in person. Most in attendance have been in Beijing and China for several years, so it was a very experienced group. I was particularly happy to meet Paul Denlinger, who not only wrote a review of my book, but also wrote about the event on his blog, The China Vortex.

I congratulate Jim and Matt for their hard work in building the Beijing Chapter of EO. In Jim’s words, “EO is a forum for entrepreneurs to share, learn and support one another here in Beijing. We welcome people who are taking risks, making decisions and building a business here in China.”

 If you would like more information about EO Beijing, you may contact Jim directly by e-mail:jim@eastwestpr.com

“How do you build trust with your Chinese managers and employees?” was the first question on the sheet I held in front of me. I was standing in the lobby of the Dow Jones building in lower Manhattan, waiting to meet with Li Yuan of The Wall Street Journal Online. In our interview, Li Yuan wanted to discuss the issue of building trust in relationships in China, and had sent me a list of proposed questions ahead of time.

Born and raised in China, Li Yuan instinctively understands the importance of mutual trust in China, which is why she wanted it as the focus for our interview. When I first went to China, everyone continually referred to “mutual trust,” and the importance of establishing it, as the key to developing successful relationships in the country. In fact, the words were said so many times that I began to think of them as a platitude. But, did my new Chinese colleagues really believe so strongly in their meaning, or were they just saying the words?

Having been here for 15 years now, I have found that the words, “mutual trust,” are probably the two most important in the Chinese language. If you can ever truly achieve it—if your managers, employees, partners or customers really believe that you trust them— everything in China begins to change.

Harry S. Truman, the straight talking, “the buck stops here,” president of the United States, was from the “Show Me” state of Missouri. If you are trying to convince someone from Missouri of something, words only go so far, you have to show them. “Don’t tell me, show me,” they are apt to say.

In my 15 years in China, I have found that everyone here is from Missouri. The Chinese hold their judgment and look at what you do, not what you say.

With your managers and employees, the way you convince them that they have your trust is to empower them. You not only have to give them the title and the position, you have to give them the authority and the responsibility to carry out their duties. If they happen to falter, they must believe that you are there to help them, not criticize them.

With partners, customers and government officials, it works the same way. Filled with enthusiasm, many come to the country with grand promises of what they are going to do. When those promises are forgotten, as too often happens, the gulf between the two parties remains wide. On the other hand, a high level of trust begins to develop when actions follow words. Trust is something that is earned in China, and there is no shortcut to achieving it.

All of this and more is discussed in the interview with Li Yuan. Click here to listen to it in its entirety.

In the Jan/Feb 2008 issue of Far Eastern Economic Review, I reviewed a new book by Jimmy Hexter and Jonathan Woetzel, “Operation China: From Strategy to Execution.”

The authors are both McKinsey partners who have spent many years in China. Operation China, published by Harvard Business School Press, draws on their own extensive experiences in this country; in-depth interviews with the executives responsible for China operations at over 40 multinational corporations; and thousands of interviews conducted by McKinsey staff in 30 cities throughout China.

In the FEER review, I list what I consider to be the three main messages of the book:

1. China is changing and is now turning the corner from an emerging market, where local context drives strategic and operating decisions, to a maturing one where top-quality execution is a cornerstone for success.
2. Despite the tens of thousands of foreign and multinational companies already in China, MNCs are here in varying degrees. Some are committed and positioning themselves to be market leaders; others are only beginning to make China a significant part of their global operations; and still others aren’t so sure, only have a toe in the water, and are waiting to see how things go.
3. It’s time for MNCs to get off the fence and get serious about integrating China into their global operations. The stakes of not doing so are enormous.

To reinforce this last message, the authors issue a stark warning: “We believe global companies that cannot succeed in China will cease to be global companies at all.” Due to the sheer scale of the China market, the warning they sound is not a matter of crying wolf and should be taken seriously by every company, large or small. If it is not already, China will soon be the largest market for nearly every product. Companies that take a large share in China will by definition have a large share of the global market.

In addition to being the world’s largest market, however, China is also its most competitive. In product after product, all of the major players from around the globe have now set up shop in the country, and competition is fierce among them for a share of this large and growing market. Also fighting for their fair share, though, is a steady stream of new companies, spawned in China, which tend to establish their competitive positions initially through low price, and then improve their quality and technology levels and grow larger as the China market develops.

In automobiles, for example, all of the global assemblers already have plants in China— General Motors, Ford, PSA, Toyota, Nissan, Honda, Hyundai, you name it—–but so do new market entrants such as Chery, Geely, Great Wall and BYD (the list goes on). Once these local companies utilize their low cost structures to gain scale in China, their next stop is the international market. (China’s local car companies already have 30 percent of the domestic market, and vehicle exports increased by 78 percent to over 600,000 units in 2007).

That is why good execution in China is so critical. Global companies will ultimately have to compete not only with traditional competitors in their home markets, but also with this new breed of Chinese companies.

In Operation China, the authors cite the chilling story of Galanz, a Chinese company that is now the world’s largest maker of microwave ovens, as an example of what can happen and of just how critical success in China is for today’s market leaders. Attracted by the large potential for microwave ovens, Galanz entered the market in 1991. It soon matched the foreign brands on performance, but then began hammering them on price. By 1998, Galanz held over 61.4 percent of the China market. The inevitable next stop was the vast non-China market. By 2002, Galanz had slashed prices by 80 percent, and the company held a 40 percent share of the global market. In 10 years, Galanz had gone from a new entry in its own market to the global leader, defeating its foreign competitors in China as well as in their own home markets along the way.

As a result of their own extensive experiences in China and the wealth of research material available at McKinsey, real life examples of what works and what doesn’t in China abound in Operation China. The book is well done and well researched. I enjoyed reading it and recommend it to anyone interested in benchmarking operational best practices here.