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The Sichuan earthquake has been distressing.  The only bright side is seeing China and the international community working together to raise funds for the victims.  PayPal is doing it’s small part by offering free payment processing for MSN’s Project Hope.

I was quite proud to hear that eBay was donating a total of 1m RMB, a combination of employee donations, corporate matching program, China Business Unit contributions, and eBay Foundation donation.  Then I heard my friend say Coke donated 10m!

This article is fascinating, explaining the theory that China is suffering through 5 major disasters to balance out the future greatness of the Olympics:
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=1212&Itemid=34

Social Businesses in China

            Muhammad Yunnus’ book Banker to the Poor opened my mind to a new type of philanthropy – venture philanthropy – where donations to a Microfinance Institution are loaned out, repaid at an extremely high rate, and then reinvested.  The thought that my small donation not only made a significant impact to the loan recipient but also was recycled appealed greatly to my entrepreneurial bent.  After all, I wanted my hard-earned cash to be well-spent.

            Now the Nobel Laureate has written a new book – Creating a World Without Poverty – which I hope will open the minds of business people around the world as his first book had done for me.

            In the United States particularly, we have come to assume that a business’ mission must be to “maximize shareholder value”.  Yunus defines these as PMBs, or Profit-Maximizing Businesses.  In his new book, he shows us there can be another way, “Social Businesses” which are “cause-driven” instead of profit-driven.

            This concept may be seen as radical, or even heretical, because it conflicts with our US point-of-view favoring free market capitalism.  In a Stanford VTSS (Values, Technology, Science and Society) class, I learned that changing society’s values is perhaps the hardest and slowest thing of all, often lagging science and technology advancements by 10 or more years.  We cling to our values and customs, not necessarily because they are right or the best, but because we are afraid of change; we are comfortable with the status quo.

            However, in China, this concept of Social Business is not so radical because the relics of the Communist infrastructure, the State-Owned Enterprises (SOEs), are similar in result, though not in purpose.  In other words, SOEs were not created for a socially-minded cause, but they were one of the last social safety nets, the “iron rice bowl.”  But due to foreign competitive pressures from China joining the WTO (World Trade Organization), these inefficient dinosaurs are being dismantled and/or restructured, causing millions of workers to be laid off.  Currently, China has an estimated 220-300 million people under the poverty line.  The poor people are a powerful destabilizing force, and thus the Chinese government strongly supports, and sometimes even demands, businesses to accept social responsibility.

            I hope Social Businesses can inherit the mantle from SOEs to help the poor, but in a much more efficient and productive structure, one which combines the rigor of a capitalistic, incentive-driven structure with a socially-minded cause.  I was inspired by the Skoll Foundation and the Omidyar Foundation before I first heard of microfinance.  These two foundations decided to form as a for-profit corporation, forgoing the benefits of a non-profit legal status in favor of the disciplined, for-profit model.

            I wish local Chinese entrepreneurs would be the founders of these Social Businesses in China, but frankly I think in the short term, the Chinese are enjoying their freedom to pursue capitalism without restraint; as Deng Xiaoping said, “To be rich is glorious.”  It’s understandable because they do not have the feeling of security yet, so they spend all their energy building their own safety net.

            Thus, I see the Western companies seeking to build their business in China as the most likely candidates to create these Social Businesses.  In a few cases, the companies will do so to “support the personal goals or values of a powerful or respected corporate leader,” as Yunus explains.  But I think Yunus raises 2 other reasons that make perfect business sense for China:

1. To win the friendship and support of government regulators or legislators who are considering laws that might affect the company
2. To gain a foothold in a new market that holds promise for the future but is currently unprofitable – while also earning points in the court of public opinion

As most successful CEOs in China are aware, GR (Government Relations) is critical to the success of the company.  Foreign companies are often at a disadvantage to local Chinese companies because the local executives have much better “guanxi,” loosely translated as relationships and influence, with the government officials, cutting through the endless red tape.  However, aligning a company’s business objectives with the government’s social mandates, such as the Central Committee’s Five-Year Plan, could help the company gain much guanxi.  For example, the 11th Five-Year Plan for National Economy and Social Development decided “to get rich first, will give way to “common prosperity” in a bid to bridge the growing gap between the rich and the poor, and to avoid polarization of society.”  A company that created a social business focused programs on the poor would be helping the government fulfill its publicly-stated goals, tremendously helping that company in its GR and thus could benefit its PMB-side of the business by securing licenses that otherwise were elusive.

Dr. Yunus’ second reason is also extremely relevant for China.  Most MNCs (Multi-National Corporations) attempt to enter China via the “tier 1 cities/provinces” such as Beijing, Shanghai, and Guangdong.  These provinces represent the greatest concentration of wealth and sophistication, but they are also the most costly to penetrate because of the competition.  Social Businesses that help the poor will be targeting the forgotten or ignored provinces, and thus creating a flanking strategy by gaining market share around the tier 1 regions.  Furthermore, it will help burnish the image of an MNC, distinguishing it from the typical foreign “invader.”

      In summary, I love Dr. Yunus’ vision for the “Future of Capitalism.”  I believe the concept will actually be more acceptable in China than in the US because of China’s socialistic government.  For China, the question isn’t whether companies should have social missions along with their profit goals, but how should they be structured to be more efficient and productive than their horribly outdated SOEs.  While I can dream of a day when Chinese companies and entrepreneurs will form Social Businesses, I believe in the near term, Western MNCs will lead the charge, not necessarily out of altruism but for solid business reasons.

After a great year at Geni, I have decided to return to PayPal China.  My old/new boss Jeff wrote up a perfect return email:

Dear All –

It is with my greatest pleasure to welcome Alan Tien back. Commencing March 3^rd, Alan will start his new role in the capacity of Chief Operating Officer of PayPal China, reporting directly to me. 

Alan is not a stranger to most of us - before he took up the Beibao 贝宝 (PayPal.com.cn) Country Product Manager role in Shanghai in July, 2005, Alan had been a senior API PM, Merchant Features with PayPal in San Jose since 2002.  Last March, Alan was invited to join and launch Geni.com in China. 

For those who knew him well, you’d agree to my characterization of Alan being a person who is not only extremely intellectually bright particularly when it comes to strategic thinking and innovation, but also an entrepreneurial leader with a track record of success - in his 16+ year profession across international product management, marketing and business consulting with both large MNCs and small start-ups, Alan has demonstrated his equal proficiency in technology and business with rapidly increasing management responsibility and leadership scope.

Please join me to welcome Alan Tien back and congratulate him for his new and expanded role with PayPal China. Thanks and regards.

Love this picture, taken off Nanjing Lu, center of Shanghai.  Explain to me how this is Good Housekeeping?  It’s MY idea of good housekeeping to have a roomful of beautiful women all dressed up but I don’t think I’m the target market.

Services in China are ridiculously affordable.  In other words, labor is cheap.  We pay our ayi (nanny, maid, cook all in one) double the going rate, and it’s still a great deal, at least half to a quarter of US costs.  We get massages all the time, not just because we invested in Diva Life.  And haircuts include a long massage and hairwash.  Here’s Kyle at our favorite hair salon:

Taxi rides start at 11 RMB.  I still think that’s only slightly more than a dollar, but with the dollar is devaluing so quickly, it’s $1.50 now.  Rides in town center only add a few “kuai” to the bill, so we never worry about bar hopping or visiting friends after we’ve sent our driver home - yes, we have a driver, but it’s really like leasing a car and the driver comes with it.  The great side benefit of cabs is that you can drink and not drive. 

Also, there’s no tipping, except included service charges at hotels and fine restaurants.  It’s galling to go back to the US and have to add another 15% onto restaurant bill.  If you try to tip here, half the time they want to give it back to you.  There’s one time when a waiter ran after our party for a block to give the tip back.

Yes we feel spoiled and pampered here.  But it makes up for all the annoyances of living in China, well-documented in the government’s attempt to teach the whole country manners before the Olympics.