An outsider enters China, Inc

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Bill Barney knew he wasn’t in Kansas any more when he received his contract from his new bosses at China Netcom, the Beijing-controlled telecommunications company. It ran to dozens of pages and was entirely in Chinese. Mr Barney remembers his lawyer taking one look at it and saying: “Well, this isn’t going to work.”

Mr Barney was president and chief operating officer at Asia Global Crossing, whose US parent had gone bankrupt, when a China Netcom-led consortium acquired the regional undersea cable operator in March 2003.

After Mr Barney, his lawyer and China Netcom agreed on a revised contract – in English – he retained his position at the Hong Kong-based company, which was re-christened Asia Netcom and later became a wholly owned subsidiary of the state-owned Chinese telecommunications giant.

“We reached a happy medium,” Mr Barney says of the contract negotiations. At issue was the fact that state company contracts in China are typically drafted for government officials who are paid relatively modest salaries yet entrusted with the management of vast state assets. They typically entail more personal liability than western executives are comfortable with.

The successful conclusion of the contract negotiations made Mr Barney that rarest of creatures – a western executive working at the highest levels of a Chinese state-owned company. In November 2005, he rose even higher, becoming Asia Netcom’s chief executive officer. His often strange experiences in both capacities left him with insights that are instructive for any non-Chinese manager facing a move to the fast-growing Asian economy.

“Board meetings would sometimes start with an eight-hour presentation that was read [in Chinese],” Mr Barney remembers. “It was like a party congress essentially. You just listened to it and afterwards tried to understand what they had said.”

The recruitment of senior expatriate executives is becoming more common at Chinese companies, especially at financial institutions where such appointments are often a condition of strategic stake sales to foreign investors.

The 40-year-old American executive is, however, freer than his peers to talk about life in corporate China. Mr Barney’s adventure as a Chinese government employee finally ended last August, when China Netcom sold Asia Netcom to an investment group led by Ashmore Investment Management, Spinnaker Capital and Clearwater Capital Partners, three private equity firms. After this second change of ownership in three years, Mr Barney again retained his position at the company.

Also unlike most expatriates appointed to senior financial sector posts but not to the top job, Mr Barney sat in the chief executive’s chair and therefore was directly responsible to a Chinese government-appointed chairman and board of directors.

“The chairmen gave me my marching orders – every strategic matter was discussed with them,” says Mr Barney, who worked with two chairmen during his time under China Netcom. “Asia Netcom operated within a set of parameters. Under certain circumstances [such as large capital expenditures and the annual budget] we needed their approval.”

As head of a Hong Kong-based company that had been acquired by a Chinese operation, Mr Barney did not have to deal with a top-to-bottom internal party structure, as exists at China’s state-controlled banks, insurers and large industrial companies such as China Netcom.

Expatriates working inside Chinese companies where the party maintains a strong presence are reluctant to talk about the subject openly. But privately, most say that as long as party officials feel they have been appraised of important decisions, they will not interfere.

China Netcom did despatch a director-level “liaison” executive who had an office a few doors down from Mr Barney’s. But the liaison kept a low profile, and Mr Barney agrees that the key to dealing with such supervision is transparency. “So long as you’re doing things openly they don’t seem to care.”

Mr Barney’s job was also made easier by the fact that China Netcom did not demand dramatic changes at its new acquisition. Instead it viewed Asia Netcom as a valuable source of knowledge and skills. “They did a lot of learning from us,” Mr Barney says.

The parent, for example, dispatched about 40 of its employees to learn from Asia Netcom’s finance and engineering departments. China Netcom was eager to absorb western best practices – figuring out, for example, how Asia Netcom performed certain functions with a fraction of the staff numbers that its parent company did.

Mr Barney discovered, too, that China Netcom and Asia Netcom had fundamentally different priorities. Like most large Chinese companies, China Netcom was focused on opportunities in its vast home market. Asia Netcom, by way of contrast, was in Hong Kong looking outwards, operating a 19,800km cable network running from Japan in the north to Singapore in the south, and was eager to expand into a recovering market.

“Within the Chinese ecosystem, they had to get China Netcom stabilised and on a path,” Mr Barney says, adding that his parent’s executives were very concerned about controlling capital expenditure and maximising return on equity. “They were laser-focused on that issue.”

Other factors can reinforce the inward-looking tendency of Chinese companies. Its executives can often find it difficult to venture abroad, for reasons ranging from internal guidelines to visa hurdles in countries such as the US.

“The guys that run state-owned enterprises are government officials and there are a lot of rules that go with that,” Mr Barney says. “You talk about running a global business, but they sometimes had trouble getting out of the country for two or three weeks to learn about it.”

Asia Netcom executives also discovered that common ownership does not preclude serious rivalries between Chinese state-owned firms.

China Netcom, for example, had a relatively weak presence in south China compared with its main fixed-line rival, China Telecom, making the latter an attractive potential partner for Asia Netcom. But China Telecom was understandably wary of any company controlled by one of its main competitors.

“China Netcom was a double-edged sword. We couldn’t operate with China Telecom very easily,” Mr Barney says. “For us, the challenge was how to operate in the south because China Netcom didn’t have a very strong network in the south.”

Since its independence from China Netcom, Asia Netcom is better placed to work with China’s major telecoms companies and also invest in its network. “Now we’ve got aggressive shareholders that want to do the right thing and expand,” Mr Barney says.

Earlier this week, Asia Netcom announced plans for the construction of its first trans-Pacific cable, which will more than double existing capacity between Asia and North America. The company raised more than $650m in private equity financing for the project, which will be only the fourth trans-Pacific cable system, compared with 14 across the Atlantic.

Comparing life under his new private equity masters with that under his former bosses at China Netcom, Mr Barney notes that one thing never changes, no matter whom you report to: “Running companies is all about trust – if the board trusts you, they trust you.”

Bill Barney on how to get ahead in the Chinese corporation

■“Understand the network inside the company – know who does what and how it operates.”

■“Don’t believe for a second that it’s all foreign to a western structure. People think they’re going into a black box, but it’s not.”

■“Listen and watch. You tend to come into [a Chinese company] will all sorts of preconceived notions. It’s a common myth that Chinese companies are very different from western ones.”

■“I found [the language barrier] a benefit. I probably speak 20 words of Mandarin. But going through a translator gives you time to think – it helps you in a reactive sense.”

■On the other hand, Mr Barney admits that, with a translator at meetings and lunches, relationships can take longer to develop.

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