Analyst David Scott Lewis Shares His China Perspective

You can never know what’s going to come out of David Scott Lewis’ mouth next — but you should know whatever he says will be insightful and you’d better pay attention. An ex-METAGroup analyst who — along with many others — lost his job when the company was acquired by Gartner Research, he had never been to China, aside from Hong Kong. But not so many months ago, he moved overseas because little was keeping him in the US and love beckoned from afar (and online). The last time we caught up with him — in July 2005, when he'd returned home for a brief visit to speak at the AlwaysOn conference at Stanford University — he was providing consulting services in China, primarily to US clients trying to locate just the right service providers to work with.In this interview, Mr. Lewis supplies a no-holds-barred rundown on the current state of the outsourcing business in China. Part 1 of a three-part article.

Is it easy for an American to get a job in China?

David Scott Lewis: Well, because I was sponsored by a software park, it was easy for me. If you don't have connections, it can be difficult to get a visa. I mean you can go for 30 days, but to get for one-year multiple entry… Once you're in the loop, it's very easy to stay in the loop, but to get in the loop could be a little bit difficult, which is good for us. Keeps other people away.

[Then] we have to look at the market dynamics there. If he is willing to take a job that would put him in on the high end of the food chain in China, he would have to get over the sticker shock in what that really means in dollars. With a project manager, he can make about $18,000 to $22,000 and he would be at the high end of the food chain. He could get a really good apartment — a two-bedroom apartment in a really cool part of Shanghai for about 7,000 Yuan, so that would be about $840 to $850 a month.

All the Americans are happiest in Shanghai, although the industry is the highest level in Beijing. There are better engineers in Beijing but the Americans have more fun in Shanghai. There is an American comedy club in Shanghai. There are 120,000 or more Westerners in Shanghai and it's very easy for the Americans to adapt. Beijing tends to be a little more traditional. Being a political center, there are a lot of issues there.

My big problem in Beijing is that at the high tech center where all the fun is, the Haidian District and the Chaoyang District, are nowhere near each other and they are like on opposite ends of the city. To try to get across traffic for rush hour. It could take you an hour and a half. In Shanghai the subway system is better, and it's more organized.

Are you enjoying it?

No.

So hold on. You are not enjoying being in China?

No. I am not really enjoying it. It's kind of a miserable existence. But it's an interesting existence and it's very challenging. Every day is different. When I talk to my friends here, besides my friends that work at Google, everybody else is basically depressed. They are wondering when they are going to get caught in the next layoff. In China it's frustrating, but there is an energy level that we don't feel here. It's kind of like here in the late '90s before the bubble burst, but the difference would be that it's still a Wild West mentality.

Like here there was still the structure of the venture industry and all that. There it's not. You could be coming out of left field and wind up striking it rich, and you could come with all the right credentials and totally fail.

There is no rhyme or reason to anything in China whatsoever as to how things work. But that could be good for a lot of people, because there are no rules and it's a matter of how well you can adapt and learn the situation. Everything we are taught here, with a few exceptions, is wrong. The New York Times gets China and nobody else does. The [San Jose Mercury News] doesn't; the [San Francisco] Chronicle doesn't; the [Los Angeles] Times doesn't; none of them do. Time magazine doesn't, Newsweek doesn't. They don't cover China well, and when they cover China, it's a cover story and the cover stories are usually pretty flaky. The New York Times is consistent. They cover China very well, frequently. They do a good job because the Chinese pissed them off last year. They imprisoned one of their [researchers, Zhao Yan], so the New York Times decided to go for the blood, and in the process they have done a good job.

What kinds of mistakes do the other publications make?

They are what I would call the tourist analyst and what I call the tourist executives. We get a lot of those in China. We all laugh. All the expats laugh. They come in for a week or two, and they become China experts. They have been there two weeks, and now they are experts of China, and they get it all wrong and the Chinese are very good at putting on a show. The art of BS in China excels anything here, and because of the language and cultural problems, they can smell us that we have no clue.

Like one venture capitalist who made a comment in writing. He said, "I go to China and everybody speaks English. People are learning English." …Well, you are taking limos, you are staying at five-star hotels.

You can go to some cities in China — big software development centers like Xi'an, Wuhan, Shengdu — and you can go a whole week and not one person will speak English. Their writing is pretty poor. We call it "Chinglish" — Chinese English. They can read English fairly well. But they can't speak. And the main reason they can't speak is that they get no practice… Their verbal skills are very, very poor.

The expats, on the other hand, we tend to learn to speak. Reading is much more difficult. And writing — we will all be dead before we can write because of the stroke sequencing. It's tough for foreigners to write Chinese. Most of us learn a little bit to speak.

There's a constant comparison going on with India and China. Is that the wrong way to look at it?

Yes. I wrote in one of my columns about that. India is actually increasing the gap. When I say this at the Chinese conferences, they are ready to crucify me because the Chinese don't like that. The Chinese and Indians have a lot of cultural issues, and the Indians are going there to kind of try to teach the Chinese what to do. The Chinese don't take this well. So like Zensar has a joint venture in Shenzhen, and the CEO is a great guy; he lives with a bottle of aspirin. The guy at Satyam, [B. Ramalinga Raju], lives with a bottle of aspirin. They can't communicate or they will say things, and the Chinese will say things back to them, and then they go off and do something [else].

The Indians have more of a US software development mentality. They kind of get it. The Chinese perpetually say things to make you happy. There are issues about that.

Certain things like intellectual property rights are just part of the culture and I am reluctant to give value judgments on it — like with guanxi and the illegal payments and so on.

My concern about guanxi [literally, "relationships"], for instance, isn't that it's immoral or unethical — it's inefficient. As the country grows, it's not likely that my cousin's best friend is the guy that we should back; but he is the guy that is going to give more of a kickback to me and my cousin, so he gets the contract. This is not efficient for a country that is growing at the size it's at, and government forces recognize it.

When we talk about the government and how they react, the central, provincial and municipal governments act very differently. The central government kind of gets it. I don't necessarily agree with everything they are doing. They are cracking down on religion, which doesn't make sense to me. I usually don't see a lot of religious people creating disturbances in countries — well, maybe in some countries but not in the sense of a Christian thing; I don't see that. They react that way, and I kind of understand where they are coming from, but I don't agree with it.

The provincial governments compete against each other, and then the municipal governments compete against each other. There was an article in a recent…Chinese journal and it was on what they call the hypercompetition problem that exists in China. There is hypercompetition. There are no margins — no one makes money at all. It's all about cash flow and market share and land grab. It's a natural land grab for everybody on everything. Everybody thinks this far ahead [putting his hand six inches in front of his face]. There is no strategy at all.

…The Chinese government has ideas about infrastructure built out, but besides infrastructure, there really isn't any planning. There is very little planning on the part of the central government. And then on the provincial level it's even shorter. At the municipal level it's like for next week. That is how far the planning goes out. It's very poor in that sense.

The really smart people wind up in the central government but they're technocrats and their country is run by technocrats, and I always like to remind them gently that the two worst presidents in the United States were both engineers: Hoover and Carter.

[I say,] "You guys are all Chingwa [University] grads that are engineers, so don't pat yourself on the back too much. Just be careful that things may not be best managed by an entire army of technocrats." They kind of get it.

You are seeing the idea of people with legal backgrounds starting to gain power. The problem is getting a law degree there is kind of like becoming a legal secretary here. It's very easy to get a law degree there. Law degrees really mean nothing. That is a problem. So the lawyer class — the legal class in China — of practitioners is weak. It isn't top-tier people at all; it's generally second- or third-tier universities, which are usually not very good universities. China recognizes this as a problem but it's going to take time to change that.

Do you ever worry about what you say and the reaction you'll get?

My most critical piece was on manners.

I really gave it to them on that, and I called it, "What China Needs is Emily Post." See, that is not something that really affects the government. It makes the Chinese feel bad about themselves. They are very proud. So they felt bad about it. It hurt their feelings. Chinese are really into this hurting feelings stuff. It's really like a national thing.

They didn't like my piece, but I'm criticizing that they allow their kids to go to the bathroom in a mall right there [holding his arms out in front of him]. And the way people spit; it's just unbelievable. Just stuff that really doesn't need to be that way.

I understand, you have villagers now that are coming into cities, and they don't know any better, and the villagers are not educated.

In Shanghai you don't see much of it, but even in Shanghai they have three major posters throughout the city: One shows spit in the form of a nuclear bomb. It says, "Don't spit." The other one says, "Wash your hands frequently." The third is, "Open your windows and get fresh air." There are a lot of indoor pollutants so you need to really air out your place.

So Shanghai gets it. The people are better educated in Beijing so they kind of get it. Shenzhen gets it… Dalian is a very clean city. But in most of China it's a problem.

Useful Links:

Your China Strategy Development: Advice from an Analyst, Part 2

/content/c051005a.asp

 

The Current State of Services Outsourcing in China, Part 3

/content/c051006a.asp