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Last Updated: Wednesday, 2 June, 2004, 10:18 GMT 11:18 UK
Succeeding in China - the hard way
Chinese workers in car factory
Mr Clissold's fund invested in automated components for cars
In a last of a series of special reports for BBC World Service, Global Business reports on a second industrial revolution and the upheavals which are changing not only China but the whole world.

Tim Clissold, a man who invested successfully in a country closed to foreign competition, warned of some of the vast array of problems that meet potential investors in the world's fastest-growing economy.

Mr Clissold first identified China's potential in 1988, and got a job seeking out suitable investment targets for overseas investors hoping China was set to reach the point of economic take-off. Together with a small group of other investors, he began seriously looking at factories in 1993, and chose to put money into automated components for vehicles.

The investors planned to consolidate a number of small companies to end up with a market leader, and raised $420m in the space of a year.

You have to adapt, and accept certain things which, in a Western context, can be repugnant
Tim Clissold
"There were an enormous amount of difficulties in implementing change in the Chinese factories," Mr Clissold told BBC World Service's Global Business programme.

"Nobody likes change, and it's probably even more difficult from distant foreigners who come into China and expect you to behave in a Western way."

Power struggles

Mr Clissold explained that many problems were created by the continual power struggles between both people in the government and the ruling Communist party, and their orders to those in charge of the businesses.

And then there was added pressure because he found it difficult to explain these power conflicts to investors who believed they owned the companies.

Factory in China
A number of factory bosses were implicated in fraud or theft
Mr Clissold said that at one meeting, called to fire a Chinese general manager, the Chinese directors had failed to attend, and a quorum could not be formed. The same thing happened twice more until he was eventually voted out without the Chinese directors' consent.

However, the manager simply refused to leave and carried on running the factory anyway.

As it was impossible to physically remove him, Mr Clissold's group eventually resorted to sending in another manager.

"So you've got two general managers sitting there, issuing contrary orders, and the whole business immediately turns into complete chaos," he said.

He outlined the problems the investors had encountered with some of the managers, including one who was running a parallel factory, using the same supplies and making the same things - competing, in effect, with himself.

Other instances involved outright fraud, with one general manager entering letters of credit worth $5m for non-existent equipment, cashing them in Hong Kong, and then absconding.

"Other ones tended to be much more subtle than that," he added.

"It's always slightly less clear-cut in China."

Mr Clissold recalled that when in pursuit of the man who had taken the $5m, even the anti-corruption bureau proved to be corrupt.

"We saw this slightly unshaven man behind a desk with ashtray littered around," he said.

"He roused himself with some difficulty and said he would investigate, but first he needed a car and some working capital."

Getting tough

Mr Clissold said that he and the fund had toughened their approach over time, with the key moment for him personally being when at the age of 38, a viral infection caused him to have a heart attack - and then another two days later.

This, he said, had made him revise both his personal life and his attitude towards doing business in China.

"I came back with a completely different attitude, that if we lose it we lose it, but there are more important things in life," he said.

"I think that gave me the strength to really grasp the nettle. We then took on the Chinese factory directors in a much more determined way."

Mr Clissold said that the group eventually realised they were being "very clumsy and naive about it, and tackling it in a very Western way.

"By the end of five years when we'd gone through these battles, we were really dealing with it in a very Chinese way. We got far more effective at being able to get what we wanted."

He explained that the company had soon adapted a different firing process - sacking a manager privately in a room alone, quickly ratifying the decision in a board meeting, and then calling company people on mobile phones to immediately arrange the changing of any legal documents relating to the sacked manager's status.

"If you're going to fire a Chinese general manager, you need to do it in a manner which is utterly determined and leaves no room for error," he added.

'It's a game'

Eventually, the fund was restructured into a Chinese automotive components company.

Mr Clissold is no longer part of it - he now uses his experience to rescue companies that have got into trouble.

"The real lesson that I take from all this is that you can't come to China and expect it to work in the way that the United States does, or that Europe does, and be successful," he said.

"You have to adapt, and accept certain things which, in a Western context, can be repugnant.

"One of the most difficult things to accept is that in a Western context, a contract is a contract. Life in China is a constant negotiation... it's a game."

You can hear Global Business on BBC World Service every Saturday at 18:32 GMT in Europe.


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