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China: Slowly But Surely

China: Slowly But Surely

Far below the 21st-floor windows of the shining steel and glass Aetna tower lie the broad boulevards and twisting back alleys of Shanghai. Cramped alley stalls are hung with bolts of silk, freshly slaughtered fowl, jeans, running shoes, oranges, eels, pirated software, music CDs, songbirds in bamboo cages, jade earrings and designer watch knock-offs. You name it, it's sold in this restless port city of 17 million.

When Elwood Chen leans over stacked desk chairs still wrapped in plastic and masking tape to look out those windows, the project manager for the information technology department startup for Pacific-Aetna Life Insurance Co. Ltd. in Shanghai sees only limitless opportunity. Through the double-pane windows it's hard to hear the din of traffic and construction below, but a palm against the cool glass can feel the noise, the pulse of the city. "This is a great country," the Taiwanese expatriate says.

Deadlines

In October 1997, after seven years of entrance applications with China, Aetna got permission from the Bank of the People of China (PBOC) to prepare a fifty-fifty joint venture partnership between Aetna Life Insurance Co. of America and its Chinese counterpart, China Pacific Insurance Co. Pacific-Aetna is the first joint venture enterprise licensed by the People's Republic to sell life insurance in China.

With the government's biannual agents-licensing examination to be administered on June 14, 1998, the partnership needed the business up and running in a four-month flash, a tall order in the country that invented civil service examinations more than 250 years ago and has been mired in bureaucracies ever since. Chen felt the time pressure to get Pacific-Aetna's Shanghai operation running. If any agent missed the June examinations, the next shot at taking the test would be December 1998; Aetna would have to endure another six months of rents, salaries, electricity and phone bills without a single yuan coming through the door.

Aetna had the IT expertise, the insurance experience, the capital, the will and the precious national bank permission. The energetic, no-nonsense 33-year-old Elwood Chen had the IS assignment.

The Business

How do you put together the IT shop for the home office of an insurance company with a potential market of one-quarter of the world's population? Remember that this is a developing nation where vendor reliability, available support, infrastructure and competent staff are all question marks. And don't forget that this developing nation is the People's Republic of China, a country where two generations of centrally administered social programs have left the population more than a bit vague on the notion of life insurance. Finally, bear in mind that in China the idea of hedging a bet against premature death has about it the grim scent of very bad luck.

But the potential rewards of cracking open the insurance market can be great, according to James C.W. Kao, senior manager of Pacific-Aetna. Kao, also a Taiwanese expatriate, who made his mark selling policies throughout Taiwan.

When Kao started, life insurance was nothing more than a no-win gamble to the ethnic Chinese population of Taiwan. But 15 years later, life insurance has penetrated 80 per cent of that market. (In the United States, by comparison, Kao says that 300 per cent of the population carries life insurance-a statistic that indicates the U.S. market is a trifle oversold.) Kao sees the same sales challenge on the mainland that he saw in Taiwan. At the moment, less than 3 per cent of the people in Shanghai carry life insurance; in all of mainland China, the figure is less than 1 per cent. In other words, if the Chinese life insurance industry enjoys only half the success of Taiwan, in 15 years the volume of sales will grow by 40 times. That's a lot of yuan on the line, and it will take hard work to earn it, since life insurance-the only legal insurance product in the country-can be sold just one policy at a time.

First Things First

When it came time to prioritise projects, Chen knew just where to start. He points to his fingers one at a time to tick off his duties in the order in which he will do them:-- Select vendors and procure equipment.

-- Set up the computer room.

-- Set up the network and office automation.

-- Manage the migration to host/application/environment.

-- Test, refine and tune onsite systems.

-- Train and educate users and technical staff.

-- Support business operations (with systems to be imported from Taiwan).

Chen looked to the Taiwanese business process model as a starting place. Benson Chen, Elwood Chen's boss (no relation) and Aetna's CIO and vice president for the Greater China region, believes that newness combined with the company's multinational experience confers an advantage on the Shanghai office. "The system in Taiwan is not a package," he says. "It was built piece by piece, so the workflow is not smooth. When we reengineer the process in Shanghai, we hope to modify the workflow to make it more streamlined."The Pacific-Aetna Shanghai team is small, and as a member of that core group of executives, Elwood Chen plays several roles: IT leader always, HR leader at times and even PR leader when required. At this stage of Aetna's Mainland China Project, Elwood Chen's day-to-day responsibilities include meeting with vendors and with building, elevator, fire and plumbing inspectors and interviewing candidates for his IT staff, not to mention attending after-hours social engagements with bank, labour and tax officials. In fact, such contact with government representatives is so important and expected a part of an executive's life in China that the Chinese have a word for the resulting social lubricant: guanxi (gwan-zhee). Chen believes relationship building is an art.

"Different people require different handling," he says and adds, laughing, "Never do business in a bureaucrat's office. Get them out!"TrainingAetna's task in China is more complicated than simply coming into a developing market; in fact, the object is to create a market where there is none. Benson Chen says, "[In Shanghai] we don't expect employees to know what a system, workflow or even the insurance product is." Furthermore, company policy and Chinese law mandate that Aetna's workforce be drawn from local talent, except for the managerial group allowed into China, which will eventually transfer its skills to Chinese nationals.

Elwood Chen stands in the postconstruction litter of one of Aetna's two state-of-the-art classrooms, ruefully traces his fingertips over a minor defect in the drywall finish and reports that Pacific-Aetna expected to conduct three 100-person orientation sessions to begin its search for the 55 agent-candidates who would take the June government licensing test. But a single small ad in the Shanghai paper garnered 1,000 applications-triple the number Chen expected. Of the 1,000 applicants, about 250 wanted internal IT staffing jobs. The rest were eager to become insurance agents. So while naked cabling awaited connection to servers, Chen's first and most pressing IT task became to ready the microphones, projector monitors and lighting in the classrooms slated for agent training.

Chen's budget originally allowed for five IT employees. Salaries for entry-level IT personnel range from $US 250 per month to just over $US 400; a section chief can earn twice that, and department managers as much as $US 1,200-good pay in a country where housing, medical and transportation costs are subsidised. But from those first 250 applicants, he garnered only one hire.

Chen required between two and three years of IT experience and was confident he would find such people. But while most of those applicants had hardware expertise, Chen especially needed software experts and database managers and programmers who knew Cobol, Visual Basic or Visual C++ to operate the IBM AS/400 that would be the linchpin of the office system.

Chen personally interviewed every viable candidate. He is happy with his initial hires because they form a core around which he hopes to build. They include the following:-- A recent college graduate, a beginner in software engineering.

-- A woman with an MBA in economics who is in charge of the administrative arm of Aetna's IS department.

-- A man with four years' experience with IBM's AS/400, "a rare find" recommended to Chen by IBM.

-- A Microsoft Corp.-certified engineer with three years of experience (there are only about 100 certified engineers in all of Shanghai, reports Chen).

-- A woman with one-and-a-half years' IT experience hired as a liaison between internal end users and the IT department.

Incentives

Anyone who has ever scored a key to the executive washroom can appreciate the thought that has gone into Aetna's office design. So that employees will have visual cues to indicate personal career advancement, the carpeting of Aetna's office will be Colour-coded: blue on the executive side, a pale mauve in the more open spaces where line workers will share desks and workstations. Another example of how much planning has gone into nonmonetary incentives: The chairs of team and general managers have armrests; agents' chairs do not.

As for maintaining trained IT staff who are liable to be lured away with salary offers that can double their wages-a problem that is endemic to every IT shop in the world-Elwood Chen is a realist. "I do nothing special. They will probably eventually leave anyway," he says. "Anything you do is probably a waste."Procure and DeployWhile the business and core IT staff were taking shape, Elwood Chen implemented the master plan for deploying his systems. Some of Aetna's system architecture is shipped in from Taiwan; some is designed specifically for China. All of the application systems are a mix of Microsoft products, IBM system software and proprietary software. For example, the computer room design was recommended by IBM Corp., complete with cabling and air-conditioning to keep hardware at optimal operating conditions. Network equipment and cabling, PC procurement and installation, communications equipment procurement and installation -- each hardware detail was scheduled to be completed within a window of a day. Chen notes that every IT executive in China must pay special attention to vendors' delivery schedules, as his experience tells him that deliveries arrive late 90 percent of the time. "Add a buffer of about one week," he notes wryly. "If I want a desktop with a full configuration, I may get it on time, but it will be missing a network adaptor, a CD-ROM drive or something else."Chen advises executives who will follow his lead in China to buy from at least two local vendors, just to keep bids competitive. A lazy negotiator who settles on one supplier might pay top yuan and never know it. Benson Chen says, "Elwood is good at negotiating prices," and Elwood Chen reports that he trains his staff in this managerial skill by allowing them to accompany him to negotiations. Knowing that the best way to develop trust is to tolerate risk, when he thinks they are ready, he allows them to negotiate deals on their own.

"If they make a bad deal, that's OK. It's part of their experience," Elwood Chen says.

To Chen's credit, the Mainland China Project is under budget in every phase, except setting up the computer room. One week in May he met with a desktop dealer and was pleased to negotiate a deal that included support and maintenance at no additional charge. A day later, he supervised a new printer's installation; that same afternoon he met with a network equipment dealer, less to make a deal than to solidify a relationship. Chen's bywords for every system purchase are efficient, integrated, localised, standardised and workable.

Nothing to it.

Lessons Learned

Kao believes that the key to success for Pacific-Aetna is local managerial control. On the technology side, for example, Aetna-Canada is using Unix on an IBM AS/9000, an inappropriate setup for Pacific-Aetna. "Our independence is the best way to organise," says Kao. Benson Chen recommends that when a company chooses an IT manager for its Chinese operation, "the person has to be a coach and a teacher, not a delegator." Elwood Chen-Benson's choice for IT manager and project manager-agrees. Elwood Chen believes resistance to change in business practices is generational, not cultural, and so understands his own role to be that of an educator. Aetna's first act in China, for example, even before it struck a deal with joint venture partner China Pacific Insurance, was to open its Experience Repository, a knowledge management database of companywide best practices that is housed in Taiwan, to the executives of China Pacific.

If Aetna's commitment to China is as strong as Elwood Chen's, the company will do well. Chen's workday is frequently more than 12 hours long. He thought for three months before relocating his young family to Shanghai from Taiwan, but the decision to relocate was more than a career tactic; his parents and grandparents were mainlanders before politics and history moved them to where Chen was born. When he looks out his window over Shanghai, he faces inland. He says without regret, "My wife and I have returned home. We will never go back."Precision PlanningDuring 1997/98 Pacific-Aetna scheduled its Shanghai IT implementation down to the dayNOVEMBER 20IT white paper finalisedNOVEMBER 21AS/400 app environment finalisedDECEMBER 10Sign contracts for AS/400DECEMBER 31Two AS/400s arriveJANUARY 10Two AS/400s are set upFEBRUARY 28Computer room OKFEBRUARY 28Cabling backbone OKMARCH 9LAN and WAN OKMARCH 23Cabling floor layer OKAPRIL 25One member of app staff arrivesMAY 2Two members of app staff arriveMAY 11 to JUNE 6User trainingJUNE 1Agency operations beginJUNE 8 to JUNE 27User real-case simulation testingJULY 1Operation startup(Source: Pacific-Aetna)Do the Right ThingsMotorola, the largest American player in China, has learned the art of what is possible.

Ask any Chinese government minister which company has done everything right in China and chances are the answer will come back: Motorola. Motorola (China) Electronics Ltd. has seven joint venture partners in the People's Republic, with lines of business that include semiconductors, consumer electronics and smart card production. With the largest single capital investment of any U.S. company at US$1.2 billion, and an 11-year history of doing business on the mainland, Motorola knows a thing or two about how to conduct business in China.

Lucien Wang, Motorola's director of corporate telecommunications and information security for Asia-Pacific, recommends that information executives coming to China "learn the art of what is possible." He suggests that the way to negotiate successfully is to seek to de-escalate. "Never take your case to a higher authority," he cautions-the business culture of China places a premium on an individual's pride and position.

Wang illustrates business best practice by describing how Motorola wanted to consolidate its call centres for radio, mobile telephones, two-way radios and consumer advice with its help desk for 50 million pager customers to a single Beijing site. Wang took advantage of the multinational's experience by first sending teams of IT workers to investigate construction and design strategies at Motorola sites around the world. They returned to Beijing with a plan, but that plan was held up when China PTT, the public telecom company, wanted to sell Motorola only a Centrex system. PTT measures its productivity by the number of lines it installs, a benchmark that would favour Centrex. But based on Motorola's own research, its teams had settled on a cheaper, faster and more efficient PBX trunk system.

Negotiations with PTT were at an impasse. Did Motorola insist? Did Motorola demand?Nah. Wang knew his best bet was to educate his Chinese business partners so well they would have to come to the same conclusions Motorola already had: "We prepared a four-page list of functional objectives and then point by point showed that the Centrex system was deficient on 20 per cent of them." With its business needs made plain, Motorola's negotiators then asked the PTT people, "So what can we do?" The ploy allowed PTT to offer Motorola the very solution Motorola wanted but as PTT's idea. After a 12-month process that Wang admits might have taken only two weeks in the United States, Motorola got its PBX system.

As an executive, Wang is reassured by Motorola's objective in China, which he says is "to stay here forever," and he takes satisfaction from Motorola's pioneering role. Wang is pleased his efforts gained his company a competitive advantage. He reports that Motorola's neighbour in a nearby office complex, Hewlett-Packard Co., closely watched Motorola's negotiations. Now, he says, "Hewlett-Packard wants to cook the same dish."Will it be able to?Wang barely smiles. He shrugs as if he wishes the company luck but has doubts about its likely success.

Pier Pressure

The single most important piece of hardware in Pacific-Aetna Life Insurance Co.

Ltd.'s startup Shanghai office is the IBM Corp. AS/400 because all Aetna's Taiwanese systems can migrate to it with ease. For one thing, the AS/400's double-byte operating system can handle the three or four keystrokes per ideograph necessary to type Chinese. In fact, the AS/400 is so vital that Elwood Chen, project manager for the information technology department startup for Pacific-Aetna Life Insurance Co. Ltd., planned a little redundancy and ordered two just to be safe.

If you've ever planned a big project down to the last detail, or dropped your breakfast toast jelly-side down, you know how the story goes from here.

Naturally, that's the piece of equipment that hit a snafu. Someone in the Taiwan office forgot to apply for the correct license when he shipped the units to Shanghai, and instead of being designated for internal use, the Taiwanese customs agents suspected the two machines might be for sale. For internal use, Taiwan imposes an 8 percent tax for exportation, but hardware to be sold can't leave port without a 40 percent tariff. Until the matter was cleared up, the machines sat idle on the dock awaiting a customs stamp.

What did Chen do? Chen is a pro. His project-implementation schedule has a precision that makes Swiss railroad schedules look slovenly. Chen understands the importance of planning in a country where the word patience is the executive's mantra and flexibility is his secret weapon. Most of all, Chen understands that IT must support the business. Budgets are nice, but business is business.

You guessed it. "We paid the 40 percent," says Chen, and smiles. "But we paid only for one. We'll wait to get it right on the other.

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