“Mr China” explains how things are never what they seem in Chinese business.

Jack Perkowski: Well, I made a lot of mistakes. I made some of them more than once, unfortunately. When I look at every mistake I made, it’s because I didn’t listen hard enough and I reacted too quickly. I kind of gave in to the American instinct to kind of; you just react.

In China, things are never quite what they appear to be. It takes a long time to really understand what really is going on behind the scenes, and what somebody’s really trying to tell you.

So I would say the mistakes that I’ve made had been when I acted too quickly. And there was a case where one of our general managers was doing some things that the alarmist around me kind of called my attention to, and frankly, I kind of listened too closely to them, rather than taking a deep breath, and really try to understand the situation a little quicker.

And we end up removing that general manager because of what they were saying he was doing. And I later found out that was a big mistake and I really ended up apologizing to our Chinese partner because I’d reacted too quickly. So every one of my mistakes kind of falls into a category like that where I just didn’t listen hard enough and I acted too quickly.

Question: Case study: Trial by fire

Jack Perkowski: Well, the biggest thing to me is the fact that the Chinese have a substantially different and lower cost perspective.

When I first went to China, companies would come in with very good products and they think they were priced right for the China market and end up being too expensive. Or companies would come in, and they would think that because they now have a plant in China that they have a very cost effective plant.

Be it they find that in China, there are all these other plants that are much, much lower cost. And so, a lot of people wonder how can these products be too high priced for that market? How can my plant in China be so cost uncompetitive with local Chinese companies? And what I’ve discovered, and this kind of came to me about 1998 or 1999 is that the Chinese have a much different and lower cost perspective. They look at money differently.

I always carry around with me two bills, one is 100-RMB bill, one is 100 US. And when I tell people those two bills are looked at exactly the same way in their respective countries. You can’t get a bill larger than 100 US in the US. You can’t get a bill larger than 100 RMB in China. When I, as an American, look at that 100-RMB bill, I instinctively, even though I’ve been in China for 15 years, I divide it by 8 and I really see $12.50. When a Chinese, no matter how wealthy they are, look at that same 100 RMB, they see more like what I see when I look at a 100 US, completely different cost perspective.

And once you sort of understand that and internalize that, then you start to understand how the markets in China start to work, and why those foreign goods are too high priced for the market, and why these Chinese companies can be so cost competitive.

It seems like a very simple concept, but once you understand, it starts to explain a lot about China, and that’s what I mean when I talk about these little bits of logic.

Question: What has been your most valuable lesson in leadership?

Jack Perkowski: I think you’ve got to lead by doing. I think people, like I said before, people when somebody comes in a leadership position, everybody said, I don’t care how big their credentials they have and they may have work for a very famous company in the United States, but you know what, if that company doesn’t have much in China, nobody in China even knows what that company.

So it might be a $10 billion company here and nobody in China, none of our general managers even know what that company does, they won’t even know what a big company is. So what you’ve done elsewhere, doesn’t really doesn’t really count for a lot. All these general managers know that managing in China is probably one of the more difficult assignments in the world. And so, they want to, so, okay, show me what you can do in China. And the only way that you can really lead in China is by establishing that individual credibility. They have to view you as somebody, first of all, is willing to roll up their sleeves.

Secondly, somebody that can really teach them something or tell them something or really show them how to do something. And once you do that, they follow. And then, the other part of this is doing what you said you’re going to do. So you get up and you say that we’re going to do this, we’re going to do that, and you go and you do it, then you get the credibility. But leadership is not something that somebody can confer. Or, you can’t confer that kind of power on somebody. Everybody’s got to earn it in China. And that doesn’t make any difference how senior you are or how junior you are, you’ve got to do the same thing.

Question: Who have been your mentors?

Jack Perkowski: I’ve got a really good team of people that surround me. A guy named Wilson Ni who’s our head of Sales and Marketing. Wilson has worked for me for 10 years. He came, he went to Tsinghua University, one of the leading universities in China. Worked three and a half years for Daimler, three and a half years for General Motors, joined us in 1997, 1998 when we were struggling. And Wilson is a very, very smart guy because he interfaces with the marketplace and all of our general managers in his day to day activities. He’s always coming in and telling me things about the market and what’s happening and every time I talked to Wilson, I learn. Okay. So he’s sort of one individual.

There’s a guy who was the Chairman of [Yuchai] [IB]. This guy’s a bigger than life guy. He took a very small agricultural diesel engine maker in [Yuchai]; made it into the largest diesel engine company in China. No small feat concerning what he had to go through to in that whole process.

He obviously has a vision for the whole industry. He’s someone I got to know very early. And so, he’s somebody that I’ve learned a lot from.

[Dong Yang] who was used to be the general manager of BAIC, Beijing Automotive Industry Corporation. They’re a partner of ours in one of our joint ventures. Every time I meet him, he gives me some insight about the market or whatever that tends to corroborate what I’ve been seeing, but having him say it, means that I know that I’m on the right track.

A lot of people like that around China, that I interface with or have interfaced with that you kind of get a piece here and a piece there, and you put it together with your own experience and you’ll start to get much clearer or bigger picture.

Recorded on: September 22, 2008