Dazed, bruised and confused. That's how leaders of global automakers and suppliers operating in China feel these days. Since 2020, they have seen their once formidable China sales and profit machines vanish. As a group global automakers will sell 8 million fewer vehicles in China this year than they did in 2020. Eight million! People at headquarters are asking some tough questions: Where did things go wrong? And could it have been avoided? This is where a person with years of first-hand experience in China becomes valuable. Meet Mitch Presnick, a visiting fellow at Harvard and before that, the founder of the Super 8 Motel franchise in China. Mitch knows China and gives it to us straight. The Chinese are not boy scouts, he reminds us. It's necessary to negotiate super hard, and to keep negotiating even when you think the job is done. Sounds exhausting, right? Well, that's the bar for survival in China – for Chinese people just as much as for foreigners. In today's conversation, Mitch lets us know what's required to compete and recommend tools that will serve us well not only in China but in dealing with Chinese businesses as they go global.
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Episode Transcript
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Speaker 1 (00:02):
Where top executives and crazy entrepreneurs gathered to talk about
the future of electric vehicles. This is a Driving with
Done podcast.
Speaker 2 (00:12):
Hello and welcome to the Driving with Done podcast. I
am your host, Michael Dunn. Dazed, bruised, and beaten down.
That's how global automakers and suppliers operating in China feel
these days. Why well, since twenty twenty, they've seen their
once formidable Chinese sales and profit machines vanish as a group.
(00:36):
This year, automakers from abroad will sell eight million fewer
vehicles in China than they did in twenty twenty eight million.
People at headquarters in Munich, Nagoya, Detroit, Wolfsburg Soul are
asking some tough questions. Where did things go wrong? And
(00:57):
could it all have been avoided. This is where a
person with years of first time experience in China becomes valuable.
Meet Mitch Presnick, a visiting fellow at Harvard and before that,
a founder of the Super eight motel franchise in China.
Mitch knows China and he gives it to us straight. Hey,
the Chinese are not boy scouts. He reminds us. It's
(01:20):
necessary to negotiate super hard and keep negotiating even when
you think the job is done. Sounds exhausting, right, Well,
that's the new bar for survival in China for Chinese people,
just as much as it is for foreigners. In today's conversation,
Mitch lets us know what's required to compete and recommends
tools that will serve us well, not only inside China,
(01:42):
but in dealing with Chinese businesses as they go global.
Let's get to it with Mitch Presnick on the Driving
with Dune Podcasting. Hello, Mitch's in the Fairbanks Center, Harvard.
(02:02):
Welcome and thank you so much for joining the Driving
with Done Podcasts.
Speaker 3 (02:06):
Great to be here, Michael, nice to see you.
Speaker 2 (02:09):
Let's get right into it, right to the heart of
the matter. You know, no warm up necessary question for you.
You've been in Asia, living and working there for more
than thirty five years. What have you seen? Is the
number one thing that American business people get wrong about China?
Speaker 3 (02:26):
Well, that's a great question. The main thing I think
people get wrong about China is they assume that what
we're seeing today is emblematic of their recent history as
a country that is dominated by a single party, a
communist party, when in fact, what we're seeing as a
country that has almost five thousand years of collectivism, of authoritarianism,
(02:52):
of rule by man or rule of law, or rule
by law rather than rule of law. People think that
this is some kind of a new thing because it's
new for us. But for the last twenty five hundred years,
China has basically been in this particular configuration. They just
call it other things, and there wasn't so ideological, but
(03:14):
it was very similar, even down to ip prediction and
the lack of it, even down to the fact that
they play fast and loose with rules, even the fact
that there is a you know, this hyper competitive market.
All of these things that people assume are somehow new
because they're new for us. The city is that China
has always been this way currently.
Speaker 2 (03:33):
So if we take that historical context, is it fair
to then think of the Chinese Commanist Party as the
latest dynasty in a run of many dynasties.
Speaker 3 (03:43):
I mean, compared to many of the dynasties. I think
that it's actually it's actually favorably compared, just for the
fact that it's not one one leader who decides everything
and literally no institutions around them. To really I mean,
one could argue that in the dynastic past that you know,
there were other institutions that had power. The you know,
obviously the local mandarin officials had a lot of power,
(04:03):
the eunuchs within the within the forbidden cities had power.
But ultimately, yeah, I think what we're seeing is just
an iteration of what we've seen for many, many tens
of centuries.
Speaker 2 (04:14):
That has deep implication because it means that we shouldn't
expect that China would flip over to a representative democracy.
Far from it. They have had their system for a
long time. It's familiar to them, it's comfortable for them,
and the idea of going to a full fledged democracy
may not even be in the picture. I don't know,
what do you think.
Speaker 3 (04:35):
When one thinks about the number of dynasts, the number
of empires that have come and gone in their time
m hm, the Byzantine Empire, the Persian Empire, the Roman Empire,
I could go on and on, the Peloponnesian Empire, all
of the Greek, ancient Greek empires, like even the empires
in Asia. One is forced to accept the idea that
they've seen it all and they've decided, for whatever reason
(04:55):
that they like their way better. So yes, one should
assume that it's very unlikely. And I think this is
a very hard pill for many to swallow, is that
the West and its ideas of individualism and you know,
the rights of the individual being primary over the needs
of the group, these are not ideas that China will
ever come to. I also think it's actually quite unhelpful
(05:17):
to assume that we in the West are going to
be able to guide them towards something else. I don't
think the historical record has shown any evidence that that's possible.
I don't think even in our recent history, I don't
think it's shown any evidence that that's possible. Quite the opposite, actually,
And I think the frustration you're seeing in the West is,
you know, there's always going to be a lot of
(05:39):
stress and tension when one sees an outcome different from
their expectations, so one can change the outcome or change
their expectations. For thirty years, we've been trying to change
the outcome, and I would argue it's now time to
try to change our expectations, and not because we agree
with everything they're doing, but it does make a lot
more sense to live in objective reality. And play that
(06:03):
rather than the opposite, which is to hope against hope
that somehow they're going to become more like what we
want them to be, or that you know, either from
internal or external dynamics, that they will you know, change
into something else. I think that it's a very unlikely scenario.
The clear indication to me is that the smart play
(06:25):
is to make conservative assumptions about China and then work
with that reality. And then there are implications, of course,
of what that reality looks like. And it doesn't necessarily mean,
you know, taking either the hawk or the dove position,
but it does mean taking a pragmatic, mercantilist, interest based,
unemotional position.
Speaker 2 (06:45):
Work within the realities that are not those that we
hope to see. All right. In that context, imagine tomorrow
morning you wake up and there's a call from DC.
It's President Trump and he's about to give Seizing Ping
a call to try to broke are a grand deal.
What's your advice to President and Trump?
Speaker 3 (07:03):
I would probably tell him, first of all, unlike a
lot of the people that work with you, you're a pragmatist,
you're a deal maker. You're not going to be surprised
to hear me say that they are vertically integrated, long
term focused, resilient, you know, and very willing to, you know,
go to the mattress, as it were, to pursue what
(07:23):
they see as their national interest, in their national goals.
So let's work with that. Let's not necessarily let our
emotions or our ideology drive what I would consider to be,
you know, continuing own goals, continuing missteps by overplaying our hand.
We have a few cards. I think President Trump is
well aware of what they are. We dominate several industries,
(07:46):
not least of which global finance, but also global education.
We dominate global entertainment, and to a large degree, global
healthcare and pharmaceuticals. These are things that the US does
exceptionally well. Those are our cards to play. So I
would say, you know, play your cards and be willing
to be tough, but also be willing to make a deal.
(08:07):
And as we're seeing in time after time, we're seeing
him to be a very pragmatic not in the beginning,
but in the final conversation, he seems to be quite pragmatic,
and I think that's incredibly encouraging. I don't think we
can say that about many of the presidents we've had
in the past twenty five years, they've always been some
form of you know, doves have always thought that if
(08:30):
we engaged with China they would become more like us,
and the hawks assume that if we put pressure on
China then we could slow their rise or slow their
technology improvements or I think that both of those ideas
were flawed because they were based on overly emotional and
(08:50):
frankly ideologically flawed ideas that we're not going to make
them more like us. They are a collective ast society.
They do not believe in some of the things that
we hold to be true, and therefore we're going to
have to move one way or the other. President Trump
to a relationship which is based on interests. I think
this wouldn't be anything that shocks him. I think he's
(09:10):
actually probably already there. I mean, he's a he's a
property developer. He's all about vision and what would be.
That's what property developers do. They look at a piece
of land and they think, what could this be. I
think that's that's probably what he's doing already in the
relationship to what I would I would just tell him
to trust his instincts. Now, I would probably, you know,
I would probably encourage him to at least consider the
(09:32):
costs of some of the things we're doing in the
short term in order to achieve those ends. If you've
read his book The Art of the Deal, which I've read,
this is right out of the playbook from the nineteen eighties.
So it's not like this is a new idea. These
aren't new ideas, and he does feel strongly about these ideas.
I would just tell him, just you know, be aware
that you know, there's always a cost and a benefit
(09:53):
to any action. And he would probably say, I know that,
So I don't think. I don't think there's all I
can really share with other.
Speaker 2 (10:00):
Than that, what would you say? So and we get
into negotiations, are trying to forge a deal, he might
ask you, what does China want? What's most important to China?
Speaker 3 (10:10):
I think they would they would probably say they want
they internally, they want harmony, instability, and the ability to
to you know, provide a better life for their people.
The Communist Party of China is under great pressure to
make sure they're delivering real value because you know, Chinese
are pragmatic. I mean, they are historically pragmatic and they
are very good at cutting through the hyperbole, so you know,
(10:33):
so obviously they need to be able to deliver as
a as a ruling party, and that means that they
you know, that they've got some pressure on them to
do that, and I think, you know, we can make
that more difficult or easier, but ultimately I think that
what they want is to do that to be able
to get their folks a better life. And I think
one specific thing is they're well aware that they are
(10:56):
now sort of in that in that stage of economic
develop meant that many would call the middle income you know,
the potential for the middle income trap. So for them
to ensure that they get over that period, as Taiwan
and Japan and Korea and other countries have done, they
can either do that with or without the most powerful
(11:19):
economy in the developed world, the most powerful economy in
the G twenty. And obviously doing that with the US
is going to be easier, it's going to be it's
going to be probably less risky and probably faster. So
I would think that to the extent that they could
have a good relationship with the United States in that process,
I think they would welcome that. I think they'd even
(11:41):
be willing to, as I think President Trump has rightly ascertained,
I think they'd be willing to come to the table
and speak about those things. But they're also aware that
they're holding cards that we really, you know, we really
are affected by right They dominate rare earths, as you
know very well, and specifically some right earth that they're
just aren't really a lot of other places to get it.
(12:01):
I mentioned this in my August twenty twenty four Harvard
Business Review article, and I was roundly criticized. I was
roundly criticized for saying that China led the US in
many areas of critical technologies, especially in applied technologies.
Speaker 2 (12:20):
And how did that criticism come from? That's from other
from Americans or.
Speaker 3 (12:23):
Yeah, I mean, yeah, just you know, I mean, you know,
there are there there were people that said, well, you know,
even if it's true, there are people that just won't
accept that it's true. Although that wasn't my opinion. That
was from the Australian Strategic Policy Institute. And and you know,
an ultra hawkish organization in in Australia. I think they're
based in Canberra, and and they basically, you know, looked
(12:47):
at in peer reviewed, cross referenced papers, you know who
was leading which areas. And what really struck me was
that not only that they were leading in so many
areas that we thought we were ahead, but also that
that they were better at applying those technologies in ways
that were highly scalable manufacturing and automation and areas related
(13:08):
to the Fourth Industrial Revolution where the world is moving.
And so I thought, you know, I don't know why
we're not talking about this. I don't know why this
isn't already on the minds of folks. But I don't
care if it's if it's you know, if it's going
to give oxygen to the opponent. I want to work
an objective reality so that we can take this seriously,
(13:31):
so we can stop making conservative we can stop making
optimistic assumptions and then finding ourselves once and again blindsided
by Chinese developments in evs and battery storage and AIS
and oh, I'm running out of fingers. Let's just start
to work with where we are, and let's take this.
If it's a competition, let's take it very seriously. And
(13:52):
where you come to with that line of thinking is
an idea that for the things that America wishes to do,
which is to re sure some manufacturing, especially highly automated manufacturing,
restore some technological competitiveness in areas where we fallen behind,
to rebuild some supply chain controls, those three things. As
I said earlier, with China, it's actually going to be faster, cheaper,
(14:17):
and far less risky to accomplish those three things with Chinese,
maybe not cooperation, but at least without their active without
their active you know, desire to hold us back from
achieving those things. So it's a time to be practical.
It's a time to be an owl. It's a time
(14:37):
to be unemotional. It's a time for the thinking of
people like doctor Kissinger from the very beginning. And I
know this because I've spoken I had spoken with him
about it, felt that getting emotionally involved with China wasn't
the right idea, and falling in love with China. There's
a really great professor at MIT here in Cambridge named
doctor Huang ya Hung and and doctor Huang said, the
(15:01):
problem with the US channel relationship is we got married
before we asked each other's religions. I think it's a
great quote. I think it's a great quote. Because what
underlines that quote is the idea that it was an
emotionally based relationship that either either we're engaged with them
because we're falling in love with them, or we're we're
(15:21):
we're decoupling from them because that we're you know, we're
you know, we're we're we're we've just.
Speaker 2 (15:26):
We discovered they're cheating on us.
Speaker 3 (15:28):
Yeah, they're right exactly, And in the reality was we
were we were supposed to basically have a very important
relationship of convenience. They use our capabilities and our advantages
and things like global global financial markets, and we use
their ca and things like advanced manufacturing. And we work
together where we can, and we don't work together where
(15:48):
we where we don't see an opportunity. And certainly for
things where there's a national security component and I'm not
talking about everything like some would like to say, but
you know, for things there's really a duel use component,
then we avoid working together. And that makes perfect sense.
But if you're talking about bringing over Chinese vs to
the US, tell me which is riskier from a national
(16:09):
security perspective? Is it riskier avoid bringing in Chinese evs?
Because there's a small possibility that we aren't able to
control how those evs are operated in the US. Unlikely
if they come in as a minority partner of a
JV in the United States with let's say Ford is
the majority and we're doing we're designing the you know,
(16:31):
the computer systems, and they have no access to that,
and it's a factory which is majority owned by Ford.
Explain to me again how they're going to put in
a back door. Explain how they're going. But on the
other hand, how risky is it for us to be
on the outside looking in? Where in China is developing
technologies around ev that are one to two generations about
anything we've got, and even you know, and even by
(16:52):
D you know, which is of course now just surpassed
Tesla as you know very well in sales. Even BYD
for all his trouble, has figured out, you know, how
to dominate the market in so many different countries. And
why are we on the outside of that looking in?
Tell me which is riskier for national security? If you
ever think that it's important for us to be a
(17:13):
player in evs, and of course it is. So this
is the point that I think people forget, is that
when we look at risk. It has to be viewed
through a lens of relative risk. This idea of absolute risk,
it's not a realistic approach unless you're sitting in a
in a nation's capital like Washington or Beijing. But in
(17:33):
the real world where the most of us, the rest
of us have to live, then absolute risk just isn't
a concept that most of us can relate to because
we don't have the look of only looking at one risk.
We have to look at relative risks and decide how
to mitigate the ones that we can and pursue the
ones that are you know, that are that are the
most you know.
Speaker 2 (17:52):
Existential to some extent, maybe as Americans, we've gotten comfortable
with being number one for so long that we feel
as though we want zero risk options. And that may
not be back to your original point, realistic anymore. There's
going to be risks.
Speaker 3 (18:07):
Yeah, I think that, you know, there seems to be
a lag. When I first came here to the Fairbank Center,
I assumed that the majority of my work would be
just in sort of showing folks that that there was
a new and third option between engagement and decoupling, and
actually what I've.
Speaker 2 (18:26):
Spent a lot about this too. Yeah, that's right, the owl.
Speaker 3 (18:30):
That's right.
Speaker 2 (18:31):
Talk about that a little bit.
Speaker 3 (18:33):
Yeah, so, you know, so we talked about hawks and doves.
Let me talk about owls. Owls. Owls are approaching this
relationship like a scientist. We don't have emotions in the
whole thing, and we're not bound by ideology and the
idea of whether China is or isn't prosecuting it's it's
leadership in places like Shinjong or t bed or Hong
(18:53):
Kong or Taiwan, those aren't. They're very important, but they're
not important to this conversation, which is, do we want
to engage or disengage with China in areas where it
benefits us more than them to do so? And I
argue than in a lot of areas of technology and
certainly in evs it benefits us more than them to
do so. So now we're in that place. I think
owls are unique and that there's not a lot of us,
(19:17):
but owls is not. I didn't create the concept. I
mean that was actually you know, people who've read my
niekey Asia op at piece from April this year think
that I created the term. I did not create the term.
I the first I ever heard of it, right, but
a term that you know that doctor Kissinger talked about.
And I will mention something about owls. I mean, although
we're very different from hawks, we're both predator. Birds are
(19:40):
not exactly you know. We we're patient, we sit, we wait,
and then we strike.
Speaker 2 (19:44):
We're not pass that pushovers, not standing, not observers. But
you're active.
Speaker 3 (19:49):
Yeah, I wou. I would say in many ways, owls
probably caucus with hawks more easily than we do, dug
because we don't love an ideal world. And anyone who's
lived in China for thirty plus years will probably not
have Pollyanna view of China. You know, as Ambassador Jim
Lily told me in nineteen ninety, you know that, you know,
(20:10):
for all their wonderful attributes, the Chinese are not boy scouts.
And I never forgot that. And my mentor was Sidney Rittenberg,
the American who went over before the end of World
War two, got to know the leadership was in Yan'an
after the the you know, the Long March, and he actually,
you know, spent the next forty five years in China
(20:31):
and he was jailed twice, first by Mao and second
by Jung Ching and the Gang of Four. So I mean,
my education is certainly not a dubbish education on China,
you know. And I had to deal with trying to
develop a hotel chain in China where we didn't have
the benefit of the ability to rely on the legal
system to protect us. And we were running a franchise
(20:54):
business where you know, normally a franchise business would rely
heavily on the legal structure. We would always win our cases,
but we weren't always able to exit on the rulings.
Speaker 2 (21:05):
Let's pivot to that. I've been wanting to get to
this topic in particular because I'm aware that you built
up the Super eight motel chain in China. I think
there's over one thousand locations. Now take us back to
the very starting point of that initiative. How does one
do that in China?
Speaker 3 (21:22):
Well, first of all, I should mention that before I
even went to China, I wrote a business plan in
nineteen eighty seven.
Speaker 2 (21:31):
Wait a second, nineteen eighty seven.
Speaker 3 (21:33):
Yeah, I wrote a business plan on seven that China
would need brands and brand systems, and that China was
coming out of you know, thirty five forty years of
command communism and now would be trying to learn about
ideas like intellectual property and brands and you know, in
brand systems and platforms. And I thought, well, if there's
(21:55):
one thing that the US does very well and we
do very well, it's platforms, right, We're extremely good at platforms, economy, businesses.
So I thought, all right, that's the plan I'm going
to someday. I'm going to bring an American brand to China.
I looked around. After spending time working with a couple
of American companies, I ran government affairs for Budweiser for
eight years. I started a public affairs firm in China
(22:17):
called Apco. I started the China operations of Appco as
an entrepreneur, as an employee, and then when it came
time to dust off my original business plan, this was
two thousand and two, I was running Edelman, one of
the big five public relations agencies. And I looked around
and I looked at fitness center chains like Bali. I
looked at, you know, some food and beverage type properties.
(22:41):
But I eventually decided that what China desperately needed was
a brand system that could rationalize the lower end of accommodation.
And China did not have economy hotel brands at the time,
nor did they have franchising. So I brought those two concepts.
Speaker 2 (22:57):
That's a great points. Do you either go into China,
do you have the shine allow of the four seasons,
or I don't know, Hyatt Hilton, But then it dropped off.
There was nothing below a certain price point.
Speaker 3 (23:08):
It dropped off precipitously. I remember traveling with some classmates
in Inner Mongolia in nineteen eighty eight. It was like
the October first holiday and we were in some little
guesthouse and the beds that we you know, that we
were sleeping in had no sheets, like a bull blanket,
and we were and for a pillow, we were using
this kind of bean bag. It was like, you know,
(23:30):
clearly beans inside of a burlap sack. And I said
to the guy, I said, why don't you put you know,
sheets on the bed and charge more? And he said,
in China, travel is a luxury, so nobody else other
than a foreign or whatever, asked for sheets. And I
remember thinking to myself, Okay, there's an opportunity here to
go even then. So yeah, so I went around and
(23:53):
I looked around for a brand that I could license
because I was doing this as a startup without any capital,
and I knew I couldn't start Mitch Presdick Inns because
there was nobody that was going to listen to me.
And moreover, they were they weren't going to pay franchise
fees to me when it was just me. So I
knew I'd have to get a brand, and I reached
(24:15):
out to a bunch of the brands, and Super eight,
the US economy hotel chain was owned by the time
a company called Sendant, which is now Wyndham. And I said, hey, guys,
here's a here's a market research plan, and here's a
here's a market development plan, and if you would like
to develop Super eight in China, then please be my guest.
This this plan is yours. If you want me to
(24:36):
execute this plan, you're gonna have to sell me the
rights have the capital. But I told I told investors
I had the brand, and I told the brand that
I had the capitol. Well, I put it in two
thousand and seven President Trump then mister Trump, before he
was president. He was actually the keynote speaker at the
Super eight International Convention. I haven't really talked about this. Actually,
(24:56):
you're getting an exclusive. He was the keynote speaker at
our Super eight Internet convention, and he and I spent
twenty minutes just talking about China and Super and he
was fascinated to hear that that we were doing this.
I had to write the franchise law of China. I
had to draft it anyway, and I did it because
of my days at VAPCO. I knew. I knew that
the way that you could present ideas to China was
(25:18):
that you give them great research in terms of how
other countries are managing a an issue.
Speaker 2 (25:23):
And it always angry to see how it works in
other countries.
Speaker 3 (25:25):
Yeah, you know, And I just said, here's here's the
kind of here's the kind of regulations you might see
in the EU and the US and Canada and Australia.
You're welcome to this if you want to write a
franchise law. I sure appreciate it, because I don't think
I can do this without it. And I brought that
research to them and and sort of similar to Wyndham,
they accepted my idea, and you know, they then wrote
a franchise law, which.
Speaker 2 (25:46):
Who would they be? Is that a ministry in Beijing
or or.
Speaker 3 (25:49):
Yeah, that was that was that was mothcomm at the time.
Speaker 2 (25:51):
Okay, mothcom right, and you.
Speaker 3 (25:53):
Know, and uh and look to their credit. The benefit
for China to bring in these brands. Remember in in
in the US and the West, the economy hotels came
well before the online travel agents came, so you know,
there was already this idea that the lower end of
travel could be standardized and clean and safe. But in
(26:15):
China there was a very fragmented market. Owners were losing money,
guests were unhappy, but they weren't paying much for their unhappiness,
and the online travel agents were making forty or more
percent of the top line revenue from every single guest
they delivered. Now, I knew that that was a very
imbalanced value chain. And if there's one thing entrepreneurs can't
(26:37):
stand is to see an imbalanced value chain. So I
knew that that would be you know, that would be
something that would resonate. But everyone told me it was
a bad idea, Michael. Everybody told me, they said, Chinese
won't pay their franchise fees. Even if they pay the
franchise fees, they're going to you know, they're going to
try to get around and they're going to create fake safe.
Speaker 2 (26:56):
Great, I'm going to raise my hand. I would that's
my first thought. How do you get everybody to pay?
Was that tell us something?
Speaker 3 (27:03):
Huh? Terribly difficult because if you weren't able to deliver.
The way you can actually get people to pay is
if you're delivering much more value to your partner than
they're delivering to you at every given moment in time,
not just once, you have to do it forever. Very
difficult to sustain that because you know, in any relationship,
there's going to be points where they're benefiting more than
(27:25):
you are, and there's other points where you're benefiting more
than they are. In the minute you're benefiting more than
they are, they're going to try to retrade because yes,
just that's not the way they do business with us,
that's the way they do business with.
Speaker 2 (27:36):
Each other in pros.
Speaker 3 (27:38):
Yes, it's a calldator's arena. And you know, I was
more willing to accept that than a mini And also,
you know, we were able to, you know, to put
in a kill switch that you know, our our reservation
system was set up in such a way that anything
we delivered would go through our proprietary software. So if
they didn't pay their fees and they liked the revenue
(27:59):
they were generating through our through our you know, property
management system and our you know central rez, then they
had to pay and so that kind of helped level things.
But it wasn't because of the agreements. In fact, when
we would sign an agreement.
Speaker 2 (28:13):
We wasn't because of the agreements. That's so important.
Speaker 3 (28:16):
The agreement, like the agreement in China, is a memorialization
of a period in time when everyone believes something and
feels a certain way. It's more of a historical document
than an actual agreement. And by the way, that's not
that's not a concept that is new. That's how Chinese
had always viewed agreements. They were sort of more you know, transactional, relational, situational,
(28:39):
and ever changing based on the dynamics and how they changed. So,
you know, accepting these ideas in China was helpful. It
didn't make it any easier. We had all manner of
challenges and you know, what's.
Speaker 2 (28:51):
An example of a challenge that you'd have in China
that someone in America would go, what.
Speaker 3 (28:55):
Well, at one point, when we were just at about
one hundred properties, we actually had a franchise revolt where
every single franchisee except for four of them UH decided
that they would stop paying fees and they would collectively
bargain with us. And we knew at headquarters that first
of all, we didn't have a choice because to to
agree to the things that they were asking collectively, we
(29:18):
would lose the license. So we didn't have a choice.
But even beyond that, we knew that once we went
down that road of having them run things, we would
have a hard time guaranteeing our quality because they would
they would decide that that you know, that that you
know quality was sort of a negotiable item. And when
when you're a foreign brand in China, you don't have
a lot of advantages to begin with, you have a
lot of disadvantages. So we don't have the benefit of
(29:40):
bentuse we would say in Chinese right local, local, localized uh,
you know, knowledge or localized power. So we had the
one advantage which we were a foreign brand, so no
one was going to be shocked when we when we
insisted on brand standards on you know, on UH, you know,
certain certain processes and systems that might seem superfluous or
(30:03):
excessive to them. But we wanted to make sure we
had the highest customer ratings in the business, so that
all of our hotels could generate a higher premium on
their average daily rate. And that was the one thing
we had, and we we had to, you know, basically
negotiate against all of our franchises. And I had to
come into a room where they thought I was going
to come and negotiate, and I had to sort of,
(30:23):
you know, I had to sort of pull a Trump
and I had to say, I'm going to burn this
whole thing down. Anything that you were asking for pleasant,
But I knew that it was. It was no choice,
it was necessary. I had to basically negotiate super super
hard to the point where, you know, look, when I
first told everyone I wanted to do super eight, everyone
(30:44):
told me it was a bad idea. And when I
when I went into this negotiation, all my staff told
me it was a bad idea. But I knew that if.
Speaker 2 (30:52):
They wanted to give and take or what was their.
Speaker 3 (30:55):
Yeah, they wanted us to give and take. They wanted
us to you know, show sincerity and to and I
did show sincerity and I did try to be very
really reasonable. I even explained to them in very reasonable
terms why I couldn't accept any of their requests. But
I had to say, all of your requests are impossible
and for me to accept. And if you if you
asked me to do that, I'm just gonna shut the
(31:16):
whole thing down. So either either we you know, we
we start by taking you taking the knife away from
our throat, or let's just burn this whole thing down.
And I knew they didn't want to burn this whole
thing down because they were actually doing very well, Like
many of our franchises were generating a two or three
year payback on their properties, which is unheard of in
(31:36):
western countries, and they were doing well, and some of
them had ten or fifteen properties by that point. So
I knew that they didn't want to do that, and
I didn't want to do that. So you know, that
was a case where I had to play hard ball.
Speaker 2 (31:46):
Was it resolved right there on the spot or it
took some weeks of back and forth.
Speaker 3 (31:51):
No, I mean, you have to give people a chance
to give face, right you had to. I sort of said,
you go back and you talk about it and let
you know. And of course I had to make an
exact sample of the instigators. I had to I had
to terminate, which was tough because I was good friends
with one of them. But you know, you can't really
allow them to continue in there, or it would be
you know, my Chinese staff told me it would be
(32:11):
considered you know, excessively uh weak for me to allow
them to stay. So I had to. I had to
terminate the ring leaders. But everyone else, everyone else came
back in and you know, and uh and then we
were able to live on to new days. But it
was I mean, it was a high wire act. I mean, honestly,
there's there's only I think, to my knowledge, five American
entrepreneurs who ever went to China and built a national
(32:33):
business on a shoe string. It's just not really done.
I did it with five hundred thousand dollars a startup
capital seed capital to begin with. Of course we raised
subsequent rounds, but I mean, when I started the business,
that's really not something that Wi'd recommend, especially not in China.
Speaker 2 (32:47):
So what was your secret superpower? What what separate or
where do the other people who tried to do that
go wrong?
Speaker 3 (32:54):
What?
Speaker 2 (32:54):
What what falls apart?
Speaker 3 (32:56):
Well? I got some good advice from Richard Branson wants
at a bar in Hong Kong where he said, and
this is something he's said many times, but I had
never read him talk about this. He said, you know,
if you don't have any money, you've got to be
willing to make a fool of yourself. And I didn't
want to necessarily make a fool of myself, but I
was willing to. I was willing to quote Mao, and
(33:17):
I was willing to sort of try to show a
great deal of respect for Chinese culture. And I would
quote Confucius and I would quote so and you know,
and I would get out there and I, you know,
and I can speak extemporaneously in Chinese because I've been
well trained by a wonderful institution, Peaking University, where I, did,
you know, spent two years, So you know, I would basically,
(33:39):
I use myself as the marketing tool. And I also
made sure that we were very closely aligned with government's goals.
And government wanted a safe, clean, lower economy accommodation market,
and they wanted examples that they could point to to
get everyone else on board. And I knew that as
a foreign brand, that would be, you know, an easier
(34:01):
way for us to develop affinity, uh than you know,
than than many local brands even could do. I don't
think I don't think my local brand competitors could quote
maw in those days. But I could, because you know,
I could say, you know, a single spark can start
a prairie fire, or people are the deciding factor.
Speaker 2 (34:20):
That wins a lot of trust and confidence. This guy's
taking the time to learn the language and the culture
and the history, and he's and you can see their
shoulders relax and they're just like, yeah, okay, he gets.
Speaker 3 (34:31):
Us right, and you know, and I and I have
to say, like, you know, it's it's it's it's something
that a lot of foreigners dismiss when they're in China.
They assume that, you know that the way to do
businesses to is to sort of tell them how it's
going to be and to actually take the time, you know,
to show respect, maybe even a little bit of patience
(34:52):
and humility, if you know, calm. You know, that's what
That's what Sydney Rittenberg would always tell me, right that,
you know, success in China was patient's candor and three
times the preparation.
Speaker 2 (35:03):
Then patients candor and three times you know, it's just a
small world. I had an opportunity. I met him one
day Your's I think it was nineteen eighty eight, Ginny
Kampski's company, I think was it investor or a client.
I just saw him at lunch, said what a fascinating character.
So his advice was patience, candor, and.
Speaker 3 (35:23):
Three times the preparation that you were used to doing.
And actually, if you look at Chinese negotiating, you just
look at how well they prepare. I mean it's not
always a parent, but they really do have their message
points down, they have their strategy down. You know, they're
they're they're very good at I mean, just look at
the kinds of projects that they can execute at scale, right,
(35:45):
not least of which is the modern Economic Miracle, which
is just modern China. But look at three quarters Dam,
look at the Great Wall, look at you know that
any of their massive projects, Look at the forty eight
thousand kilometers of high speed rail that they've built. They're
very good at executing at scale. And I believe it's
because of you know, their approaches, and you know, well,
(36:06):
amongst many things, uh, patient and and all prepared. But
of course there's a lot of pragmatism. There's a lot
of vertical integration, there's a lot of long term focus,
there's a lot of hybridizing the best things they see
from Japan, Germany, US and anywhere else they can borrow from.
They're not going to be they're not going to be
hamstrung by ideology. Oh, these guys are capitalists, so we're
(36:27):
not gonna we're not gonna listen to that. You know,
they're not gonna worry about that. They're gonna see you know,
black cats and white cats and all that, and they're
gonna they're gonna just pick the ones that they think
can kill the mice. Right. So they're very, very resilient,
both individually and societally. And then they're very and they're
just very good at coordinating at scale. I think you
(36:47):
know the fact, I mean, not everyone likes this in
the West, but they do live by this premise that
the needs of the group out weigh the needs of
the individual. And and where I think you can see
that idea play out most obviously is in nature. Right.
You don't see any place in nature where the needs
of the individual that way the needs of the group,
not even in our historical past, right, I mean, you know,
(37:08):
the elders in a tribe when they got to the
point they couldn't move along, they would set them up
by a tree and they would say, you know, bye,
and they would I'm not saying that's exactly that's exactly
where we'd want to be. I mean, obviously we've we've
evolved a little bit, but there's something to be said
for being aligned to bigger energy forces, and I think
they've got that benefit.
Speaker 2 (37:27):
There's a if I'm not mistake, I'm trying to remember,
there's this saying in Chinese ego nentry etaw long sanga
answery etao chong, which which always confused me. Right, that's
what is it? One one man is a dragon. Three
men make a worm. So there is this for everything
we understand about China, there's this counterpoint. Right, So the
(37:48):
Chinese themselves at times look at the Japanese success in
soccer or other endeavors and go, well, they know how
to work as a team, and we actually fall down there.
So just as much as I agree with what you
just said about you know, the greater good, there's also
this other dimension of China where the individual they have
a lot of confidence and they don't have a lot
(38:08):
of Can you work that out for me a little bit?
Speaker 3 (38:10):
Sure? I think if you take they're so practical that
they understand that for every rule there's an exception and
and for every idea there is a an equally important counterpoint,
that there's no absolutes. I think that would be an
idea I wish we would pick up a little more
directly in the West, that you know that speaking in brittle,
zero sum, absolutist terms has not served our interests speaking
(38:34):
in relative terms where we you know, we accept that
that ideas always have a counterpoint, and that there's no
to do things. I think that that if there was
one thing I wish we would co opt from their
from their mindset, it would be that it would be
you know, it would be it would be quite a
creative for the difficult national goals that we're trying to achieve.
Speaker 2 (38:53):
Yes, yes, absolutely, Next question, So have we have we
hit that? The main one is you had that vault
at super eight and you tempted down and got through.
There are there other things that you would advise a
business person going into China to be aware of, what
are the other possible land mines or potholes that they'd encounter.
Speaker 3 (39:13):
Well, I would think, first of all, I think that
most Western businesses were used to sort of, you know,
focusing on our principles and our goals and our ideas,
and there's very little there's very little flexibility in our approach, right.
Their approach is constantly informed by new information, new inputs.
(39:36):
I was always struck by the idea that, you know,
I worked for a couple of Chinese companies over the years.
One was a property developer in nineteen ninety two, the
founder of the company, the CEO, was the son of
the then chairman of the Bank of China. So you know,
so I was working for a Chinese company in Hong Kong,
and I was always struck by the idea that we
would sit in a room with the senior managers and
(39:56):
everyone would agree on something, and then the next day
I would find out that that decision was thrown out.
Why it was thrown out, Well, because we just learned X,
Y and Z. And I said, well, no, but why
wasn't that new information just incorporated into the decision instead
of throwing out the old decision, Because then, you know,
how do you how do you rule without without you
(40:17):
know these you know, these ideas you know in place,
and they said, you've got to understand in China, we
don't have the luxury of doing that. I think if
there's one thing that foreigners would do well to understand,
it's it's that China really does operate that way. We
tend to ego centrically assume that the way they treat
us is somehow unfair. They're not fair with each other, right,
(40:42):
I mean, and that's I mean, but there are rules
even when they're unfair with each other. There there's some
kind of a face giving process or something that they
try to do when they can't. And everyone's supposed to
understand because you know, there's a lot of kabuki theater
in China. Just you mentioned Japan. Just like in Japan,
there's a lot of kabuki theater and some of the
ways they do business. And I think understanding that that
(41:04):
reality helps a lot. You know. The Chinese expression is
you know, dau shimshan chang shimiga. Whichever mountain you go to,
you you sing the local song. That's not just in China,
but China is not one China. China is eight major
regions and lots of little places, and you know this
is where, this is where. You know, some people say, oh,
(41:24):
you see, he's gone to local. He's he's now trying
to explain Sunza and he's trying to explain these ideas,
and he's clearly been co opted, he's clearly been compromised.
But the reality is it's it's also true. These ideas
are true.
Speaker 2 (41:41):
And just as the Chinese person coming to America would say,
California is different from Texas, different from main, huge differences
and if you really want to get America, you better
drill down and start to understand those geographic differences too.
Speaker 3 (41:54):
The problem is we tend in the West to start
with our ideas and then we and we solve for
the variable of how to get to those how to
how to prove out those ideas. And you can really
see it if you go to a place like the uh,
you know, the China conversation on x formerly Twitter, you
can really see people trying to solve for the outcomes
that they believe are inevitable, and those variables don't always work.
(42:18):
And it's a it's a tough conversation because the minute
you you present primate face the evidence then they immediately say, well,
you're compromise or I can't. I can't right, because it's
too hard for Because remember, and and I'm quite sympathetic
to this, everybody looks at the world through the lenses
they've given themselves, and that's how they make the world
makes sense. If anyone's read Plato's Cave, they're well aware that.
(42:41):
You know that when people are sort of in a
cave in darkness, well, watching the shadows on the on
the wall, and then if somebody were to like break
their chains and go out of the cave and see
it would be painful for a while and confusing. It
wouldn't make sense. Well, I mean when I watched the
debate on Twitter, what I what I think people forget is,
you know, try to tell people who have a worldview
(43:02):
that makes sense to them because of the lenses they
take off. Trying to tell them to take off their lenses,
you're actually a direct threat to them, and that's not
actually a helpful thing. So I don't try to do
that at all. I just try to say, let's at
least agree on some basic facts. Let's disagree that you know,
China is here, They're probably not there. China is not
falling off a cliff. The historical evidence doesn't show that
(43:26):
anything that we're going to do is going to push
them off that cliff. So if you're looking at that
and you're hoping for that, if you're Gordon Chang or
whoever is kind of hoping for that outcome, you know,
the historical record says that you're more likely than not
to be disappointed if disagree on that, And then you
know what, everything else we can work on the rest
in time.
Speaker 2 (43:45):
If you're the head a new committee and the Trump
administration about US competitives globally, what's the job to be done?
How do we you know someone outside of China would
say what they enjoy advantages in scale, speed, supply chains,
a subsidies, state alignment. Is it possible to compete with China?
(44:05):
And if so, what's our single most important thing to
get to be done?
Speaker 3 (44:09):
I mean, the best time to planet tree is twenty
years ago. Right, that's the same I think the of
the I mean, I would I mean, since we can't
do that, I would say, first and foremost, we need
vertical integration. We need to basically, you know, if you're
if you're trying to address a national objective like staying
relevant in you know, advanced materials. Then you want to
get all of your companies in you know, in the
(44:31):
US has extraordinarily competent multinational companies, and let's get all
those companies in a room with the relevant offices from
the US government and folks from you know, from you know,
from the academic world. You know, dare I say, from
Harvard and from MIT and Stanford and get in a
room with government and let's say, all right, guys, this
is a national goal. Let's figure out how we're going
(44:52):
to address this goal together. And what do you need?
What coordination do you need? This is not a time
for us to believe in the invisible hand. This is
a time to make sure that we don't get relegated.
Speaker 2 (45:00):
That's real.
Speaker 3 (45:01):
Yeah, that's that's national goal.
Speaker 2 (45:03):
It's been a long time since we had a national goal.
Speaker 3 (45:06):
Right, I mean, but when it turns out that America,
when it wants to it can actually do very well
with national goals. Look, we put a man on the moon,
you know, within the nineteen sixties, as we promised, and
it was all because of public private partnerships and vertical integration.
That would be My job number one would be getting
everybody in the room and have everyone singing from the
same hymn sheet and say, however we however we feel
(45:26):
about individualism, this is a time for us to get
around the problem and address it like a white blood cell,
you know, group attacks of virus. Let's go after this
the way China does. Let's take a few plages from
their playbook and let's learn from them. And know that
doesn't mean that we're sympathizing with the communist you know, ideology.
It just means we're looking at how do we stay relevant?
(45:47):
How do we pragmatically compete? That's what I would say,
That would be job number one.
Speaker 2 (45:52):
Can we get there absent an event like Pearl Harbor
or Spotnik where we're really alarmed as a nation. Can
we get before a crisis hits us?
Speaker 3 (46:02):
You know, for a long time I've said that that
that there needs to be the creation of a completely
different paradigm in US China relations. That I've been saying
this since as early as twenty sixteen, because people talk
about the decoupling era starting with Trump, but actually even
as early as twenty eleven and twelve. And you know this,
you know, the American business community was going back into
(46:23):
Washington and saying, hey, this is different. We're not we're
not seeing the kinds of improvements we need to see
on our IP protection and other things. We need to
start coordinating. And government took the wrong message from that,
not we need to coordinate together and avoid being you know,
divided and conquered. We need to you know, we need
to work together. They took the message, Okay, China's not
played by the rules. Let's go from being their friend
(46:45):
to being there there's their you know, their mortal enemy,
which honestly, I don't think that was the message the
business community was trying to send, but that was the
oputting message that was received. So I would say, you know,
first things first is we need to we need a
new paradigm, and that new paradigm as it's being created,
is not going to be a pleasant thing to go through.
As much as someone might dislike the way these you know,
(47:09):
Liberation Day tariffs were executed, I mean, however it happens,
the reality is the status quo was not taking us
to a place that we want to go. It was
taken sustainable, unsustainable debts and an imbalanced manufacturing percentage of
GDP and an inability to compete in key technologies, and
(47:30):
those were not things that were going to just change
by themselves. The expression is, if you want to make
an omeal, you got to break a few eggs. I
wish it could be different. I don't necessarily believe that,
you know, the administration is necessarily playing four dimensional chests
here and they know what's going on. But I do
believe that the fact that Trump is a developer and
a business person by background, I do think that is
(47:53):
a strategic opportunity that we would not have if a
typical career politician.
Speaker 2 (47:59):
Politician, Yeah, it would be status quo or just small
adjustments to the status quo. It wouldn't be what I
see with the tariffs and libration is one giant shove
at what was is that? No, that thing doesn't work anymore.
Speaker 3 (48:12):
Yeah. Everyone talks about the idea that you know that
they disliked the way that President Trump is going about
making these changes, but nobody's talking about the fact that
that when it comes down to it, he is willing
to be pragmatic and compromise and take a different tack.
I mean, you know, and so I mean I think
that there's something to be said for that. I'm not
I'm not I'm not a political I'm not a political person.
(48:33):
I'm quite a political effect. But I do acknowledge from
a practical standpoint that you know, all right, everybody likes
to complain about what's happening, and there's a lot to
complain about. But on the other hand, who was doing
something else about? It? Was about this? You know? We
were just wishing to pass the graveyard, yes, and I
was wondering when we were going to start taking it seriously,
for better or worse. The administration is now well on
(48:55):
board with the idea of the need for a reset.
I think that was probably inevitable, and I think it's welcome.
I don't like the way it's happening, but I definitely
like the fact that it's it's happening.
Speaker 2 (49:05):
Mitch brilliant insights. You bring such a wealth of experience,
hands on. What I love about it is you can
talk at thirty thousand feet, but you're also there in
the trenches in China. You understand what it means. You know,
in the old days, when you'd have to get on
the bus or get off the bus and the people
getting off the bus wanted to get off at the
same time, and you just have to get in there
(49:25):
and grind and put your shoulder to it and find
a way or wait for the next stop. Like sometimes
I couldn't even get off at my stop because yeah,
that's love, that grittiness. How do people get a hold
of you? I'm sure they're gonna have questions and comments
for you. What's the best way to get hold of you?
Speaker 3 (49:41):
Yeah, I mean, they can find me on LinkedIn, Mitch Presnick.
They can certainly, you know, send me an email Mitch
Presidick at yahoo dot com and my tc chpr E
s N I c K at Yahoo. You know, those
are both public public emails. And yeah, of course if
they reach.
Speaker 2 (49:56):
Out to find you at Harvard right now, right, yeah, they.
Speaker 3 (49:59):
Can certainly find me. Year. I mean, you know, I'm
in the last days of a two year visiting fellowship.
What's next?
Speaker 2 (50:05):
I didn't know it was nearing the nearing the completion.
What's next?
Speaker 3 (50:09):
Well, yeah, I mean, these are visiting fellowships. They tend
to be, you know, a limited time appointment. I'm very
grateful to have a chance to be you know, perhaps
you know the best place in the United States to
really study these ideas at the Fairbank Center, the you
know legendary Fairbank Center for Chinese Studies where some some
of the best Chinese scholarship has taken place out of
(50:29):
the West. Yeah, I mean, I mean, I'm right now,
I'm in the process of specking out with a group
of investors a factory. I mean, we want to eat
our own cooking. I'm I'm basically, you know, looking to
put together a factory where we're going to reshore American manufacturing.
And I want to create a young Banchong, you know,
a sample factory that I can point to and say
this is what this is what are reshoring can look like.
(50:51):
We're going to have a minority Chinese partner who is
manufacturing in China right now. They're gonna ship over all
of their equipment, They're gonna ship over the inputs. We're
going to make this stuff. I'm not gonna say where yet,
but we're the stuff in the US, and uh and
the economics work out. And it also, I think people
don't realize something about tariffs is that when they were implemented,
people assume they were designed just to hurt the other country.
(51:14):
When in fact they were really designed to motivate board
rooms all over the United States to change their supply.
Speaker 2 (51:20):
Supplys look at manufacturing at home, yeah right.
Speaker 3 (51:23):
You know, you know how allergic we are in the
United States to CAPEX, and it's not something that I think,
you know, can be done without some CAPEX. But I mean,
on the other hand, to offer the opportunity for Chinese
partners in areas that have strategic importance to the US,
like in our case, we're looking at medical devices, stuff
that really need to be able to manufacture here. And honestly,
I mean, China manufacturers between eighty and one hundred percent
(51:46):
of many of the medical device products that are you know,
sold in the United States right now. So let's get
some of it over here. Let's you know, man have
a little more control over the supply, and let's you know,
let's see if we can't then replicate that in areas
you know that are only in areas that are politically viable.
We're not looking to do anything. We're not trying to
create any you know, c at l Ford agreements. You know,
(52:09):
we know how fraud those kinds of things are. But
for something that's you know, highly automated relatively important from
a strategic standpoint to build here and you know where
the Chinese have, uh, you know, have great experience, you know,
instead of competing against forty other factories all making syringes,
and then they can come in, they can come in
as a minority partner of an American JV here and uh,
(52:30):
we we own it and we control the majority of
an end to end, but we can benefit from their
experience and and manufacturers we're gonna build. We're going to
build a couple of factories in the US and and
uh and then hopefully you know, be able to replicate
that out phenomenal.
Speaker 2 (52:44):
I love the taking the theory and applying it to
practical realities. That's beautiful, well done.
Speaker 3 (52:51):
Thank you, thank you.
Speaker 2 (52:52):
Well.
Speaker 3 (52:52):
You know, it's great to meet you and great to
spend time Michael.
Speaker 2 (52:55):
Which I hoped we could meet in person soon wherever
that might be China, in Asia or here in the
United States.
Speaker 3 (53:02):
Yeah, and look forward to that. And thanks for all
the work you do. I follow you closely. I always
appreciate your insights are extraordinarily relevant and important in this time.
Speaker 2 (53:11):
Thank you, thank you. All right, all right, Mitch, we'll
see you around.
Speaker 3 (53:14):
Thanks.
Speaker 2 (53:23):
Three valuable takeaways from this conversation with mister Presidik. One,
the Chinese have seen it all and well, they like
their system better. Americans should not expect China to convert
to democracy anytime soon, just as China should not expect
the US to be a nation led by a one
party state with a communist party in charge. We Americans
(53:46):
probably need to replace our missionary zeal with some pragmatism
based in reality. Two Mitch quoted Huang Yai Shang, professor
from MIT. We got married before we asked each other's religions. Yes,
we have deeply different societies and values. The intoxicating allure
(54:07):
of making money led us to avoid uncomfortable underlying differences
in our world views. It's time to square that up.
And three America is, yes, indeed, facing a massive challenge
China's run out in front, in particular when it comes
to manufacturing. Our starting point is to rediscover America's ability
(54:29):
to be a manufacturing powerhouse, from cars to batteries to chips.
It's time now. I've heard from many of you asking
me not to forget a little language lesson at the end.
Love that, Let's go this week's word is win win.
In Chinese, win win is chuang ying chuang ying. Chuang
(54:53):
means double ying means win chuang ying. But be careful.
In the Chinese likes bi win win can often mean
the Chinese side wins twice. Hey, that's the kind of
practical realism Mitch is talking about. Hey, if you've enjoyed
this episode of the Driving With Done podcasts, share it
(55:14):
with a friend, send me a DM. Love to hear
from you, comments, questions. I am Michael Dunn and this
is the Driving with Done podcast.
Speaker 1 (55:25):
Where you meet the experts creating the technologies that will
power tomorrow's cars electric autonomous software. To find this is
a Driving with Done podcast.
Speaker 3 (55:36):
Thank you for joining.
Speaker 1 (55:38):
This episode of the Driving with Done podcast. To connect
with Michael Dunn, visit Doneinsights dot com or find Michael
on x or LinkedIn. This is the Driving with Done
podcast
Where top executives and crazy entrepreneurs gathered to talk about
the future of electric vehicles. This is a Driving with
Done podcast.
Speaker 2 (00:12):
Hello and welcome to the Driving with Done podcast. I
am your host, Michael Dunn. Dazed, bruised, and beaten down.
That's how global automakers and suppliers operating in China feel
these days. Why well, since twenty twenty, they've seen their
once formidable Chinese sales and profit machines vanish as a group.
(00:36):
This year, automakers from abroad will sell eight million fewer
vehicles in China than they did in twenty twenty eight million.
People at headquarters in Munich, Nagoya, Detroit, Wolfsburg Soul are
asking some tough questions. Where did things go wrong? And
(00:57):
could it all have been avoided. This is where a
person with years of first time experience in China becomes valuable.
Meet Mitch Presnick, a visiting fellow at Harvard and before that,
a founder of the Super eight motel franchise in China.
Mitch knows China and he gives it to us straight. Hey,
the Chinese are not boy scouts. He reminds us. It's
(01:20):
necessary to negotiate super hard and keep negotiating even when
you think the job is done. Sounds exhausting, right, Well,
that's the new bar for survival in China for Chinese people,
just as much as it is for foreigners. In today's conversation,
Mitch lets us know what's required to compete and recommends
tools that will serve us well, not only inside China,
(01:42):
but in dealing with Chinese businesses as they go global.
Let's get to it with Mitch Presnick on the Driving
with Dune Podcasting. Hello, Mitch's in the Fairbanks Center, Harvard.
(02:02):
Welcome and thank you so much for joining the Driving
with Done Podcasts.
Speaker 3 (02:06):
Great to be here, Michael, nice to see you.
Speaker 2 (02:09):
Let's get right into it, right to the heart of
the matter. You know, no warm up necessary question for you.
You've been in Asia, living and working there for more
than thirty five years. What have you seen? Is the
number one thing that American business people get wrong about China?
Speaker 3 (02:26):
Well, that's a great question. The main thing I think
people get wrong about China is they assume that what
we're seeing today is emblematic of their recent history as
a country that is dominated by a single party, a
communist party, when in fact, what we're seeing as a
country that has almost five thousand years of collectivism, of authoritarianism,
(02:52):
of rule by man or rule of law, or rule
by law rather than rule of law. People think that
this is some kind of a new thing because it's
new for us. But for the last twenty five hundred years,
China has basically been in this particular configuration. They just
call it other things, and there wasn't so ideological, but
(03:14):
it was very similar, even down to ip prediction and
the lack of it, even down to the fact that
they play fast and loose with rules, even the fact
that there is a you know, this hyper competitive market.
All of these things that people assume are somehow new
because they're new for us. The city is that China
has always been this way currently.
Speaker 2 (03:33):
So if we take that historical context, is it fair
to then think of the Chinese Commanist Party as the
latest dynasty in a run of many dynasties.
Speaker 3 (03:43):
I mean, compared to many of the dynasties. I think
that it's actually it's actually favorably compared, just for the
fact that it's not one one leader who decides everything
and literally no institutions around them. To really I mean,
one could argue that in the dynastic past that you know,
there were other institutions that had power. The you know,
obviously the local mandarin officials had a lot of power,
(04:03):
the eunuchs within the within the forbidden cities had power.
But ultimately, yeah, I think what we're seeing is just
an iteration of what we've seen for many, many tens
of centuries.
Speaker 2 (04:14):
That has deep implication because it means that we shouldn't
expect that China would flip over to a representative democracy.
Far from it. They have had their system for a
long time. It's familiar to them, it's comfortable for them,
and the idea of going to a full fledged democracy
may not even be in the picture. I don't know,
what do you think.
Speaker 3 (04:35):
When one thinks about the number of dynasts, the number
of empires that have come and gone in their time
m hm, the Byzantine Empire, the Persian Empire, the Roman Empire,
I could go on and on, the Peloponnesian Empire, all
of the Greek, ancient Greek empires, like even the empires
in Asia. One is forced to accept the idea that
they've seen it all and they've decided, for whatever reason
(04:55):
that they like their way better. So yes, one should
assume that it's very unlikely. And I think this is
a very hard pill for many to swallow, is that
the West and its ideas of individualism and you know,
the rights of the individual being primary over the needs
of the group, these are not ideas that China will
ever come to. I also think it's actually quite unhelpful
(05:17):
to assume that we in the West are going to
be able to guide them towards something else. I don't
think the historical record has shown any evidence that that's possible.
I don't think even in our recent history, I don't
think it's shown any evidence that that's possible. Quite the opposite, actually,
And I think the frustration you're seeing in the West is,
you know, there's always going to be a lot of
(05:39):
stress and tension when one sees an outcome different from
their expectations, so one can change the outcome or change
their expectations. For thirty years, we've been trying to change
the outcome, and I would argue it's now time to
try to change our expectations, and not because we agree
with everything they're doing, but it does make a lot
more sense to live in objective reality. And play that
(06:03):
rather than the opposite, which is to hope against hope
that somehow they're going to become more like what we
want them to be, or that you know, either from
internal or external dynamics, that they will you know, change
into something else. I think that it's a very unlikely scenario.
The clear indication to me is that the smart play
(06:25):
is to make conservative assumptions about China and then work
with that reality. And then there are implications, of course,
of what that reality looks like. And it doesn't necessarily mean,
you know, taking either the hawk or the dove position,
but it does mean taking a pragmatic, mercantilist, interest based,
unemotional position.
Speaker 2 (06:45):
Work within the realities that are not those that we
hope to see. All right. In that context, imagine tomorrow
morning you wake up and there's a call from DC.
It's President Trump and he's about to give Seizing Ping
a call to try to broke are a grand deal.
What's your advice to President and Trump?
Speaker 3 (07:03):
I would probably tell him, first of all, unlike a
lot of the people that work with you, you're a pragmatist,
you're a deal maker. You're not going to be surprised
to hear me say that they are vertically integrated, long
term focused, resilient, you know, and very willing to, you know,
go to the mattress, as it were, to pursue what
(07:23):
they see as their national interest, in their national goals.
So let's work with that. Let's not necessarily let our
emotions or our ideology drive what I would consider to be,
you know, continuing own goals, continuing missteps by overplaying our hand.
We have a few cards. I think President Trump is
well aware of what they are. We dominate several industries,
(07:46):
not least of which global finance, but also global education.
We dominate global entertainment, and to a large degree, global
healthcare and pharmaceuticals. These are things that the US does
exceptionally well. Those are our cards to play. So I
would say, you know, play your cards and be willing
to be tough, but also be willing to make a deal.
(08:07):
And as we're seeing in time after time, we're seeing
him to be a very pragmatic not in the beginning,
but in the final conversation, he seems to be quite pragmatic,
and I think that's incredibly encouraging. I don't think we
can say that about many of the presidents we've had
in the past twenty five years, they've always been some
form of you know, doves have always thought that if
(08:30):
we engaged with China they would become more like us,
and the hawks assume that if we put pressure on
China then we could slow their rise or slow their
technology improvements or I think that both of those ideas
were flawed because they were based on overly emotional and
(08:50):
frankly ideologically flawed ideas that we're not going to make
them more like us. They are a collective ast society.
They do not believe in some of the things that
we hold to be true, and therefore we're going to
have to move one way or the other. President Trump
to a relationship which is based on interests. I think
this wouldn't be anything that shocks him. I think he's
(09:10):
actually probably already there. I mean, he's a he's a
property developer. He's all about vision and what would be.
That's what property developers do. They look at a piece
of land and they think, what could this be. I
think that's that's probably what he's doing already in the
relationship to what I would I would just tell him
to trust his instincts. Now, I would probably, you know,
I would probably encourage him to at least consider the
(09:32):
costs of some of the things we're doing in the
short term in order to achieve those ends. If you've
read his book The Art of the Deal, which I've read,
this is right out of the playbook from the nineteen eighties.
So it's not like this is a new idea. These
aren't new ideas, and he does feel strongly about these ideas.
I would just tell him, just you know, be aware
that you know, there's always a cost and a benefit
(09:53):
to any action. And he would probably say, I know that,
So I don't think. I don't think there's all I
can really share with other.
Speaker 2 (10:00):
Than that, what would you say? So and we get
into negotiations, are trying to forge a deal, he might
ask you, what does China want? What's most important to China?
Speaker 3 (10:10):
I think they would they would probably say they want
they internally, they want harmony, instability, and the ability to
to you know, provide a better life for their people.
The Communist Party of China is under great pressure to
make sure they're delivering real value because you know, Chinese
are pragmatic. I mean, they are historically pragmatic and they
are very good at cutting through the hyperbole, so you know,
(10:33):
so obviously they need to be able to deliver as
a as a ruling party, and that means that they
you know, that they've got some pressure on them to
do that, and I think, you know, we can make
that more difficult or easier, but ultimately I think that
what they want is to do that to be able
to get their folks a better life. And I think
one specific thing is they're well aware that they are
(10:56):
now sort of in that in that stage of economic
develop meant that many would call the middle income you know,
the potential for the middle income trap. So for them
to ensure that they get over that period, as Taiwan
and Japan and Korea and other countries have done, they
can either do that with or without the most powerful
(11:19):
economy in the developed world, the most powerful economy in
the G twenty. And obviously doing that with the US
is going to be easier, it's going to be it's
going to be probably less risky and probably faster. So
I would think that to the extent that they could
have a good relationship with the United States in that process,
I think they would welcome that. I think they'd even
(11:41):
be willing to, as I think President Trump has rightly ascertained,
I think they'd be willing to come to the table
and speak about those things. But they're also aware that
they're holding cards that we really, you know, we really
are affected by right They dominate rare earths, as you
know very well, and specifically some right earth that they're
just aren't really a lot of other places to get it.
(12:01):
I mentioned this in my August twenty twenty four Harvard
Business Review article, and I was roundly criticized. I was
roundly criticized for saying that China led the US in
many areas of critical technologies, especially in applied technologies.
Speaker 2 (12:20):
And how did that criticism come from? That's from other
from Americans or.
Speaker 3 (12:23):
Yeah, I mean, yeah, just you know, I mean, you know,
there are there there were people that said, well, you know,
even if it's true, there are people that just won't
accept that it's true. Although that wasn't my opinion. That
was from the Australian Strategic Policy Institute. And and you know,
an ultra hawkish organization in in Australia. I think they're
based in Canberra, and and they basically, you know, looked
(12:47):
at in peer reviewed, cross referenced papers, you know who
was leading which areas. And what really struck me was
that not only that they were leading in so many
areas that we thought we were ahead, but also that
that they were better at applying those technologies in ways
that were highly scalable manufacturing and automation and areas related
(13:08):
to the Fourth Industrial Revolution where the world is moving.
And so I thought, you know, I don't know why
we're not talking about this. I don't know why this
isn't already on the minds of folks. But I don't
care if it's if it's you know, if it's going
to give oxygen to the opponent. I want to work
an objective reality so that we can take this seriously,
(13:31):
so we can stop making conservative we can stop making
optimistic assumptions and then finding ourselves once and again blindsided
by Chinese developments in evs and battery storage and AIS
and oh, I'm running out of fingers. Let's just start
to work with where we are, and let's take this.
If it's a competition, let's take it very seriously. And
(13:52):
where you come to with that line of thinking is
an idea that for the things that America wishes to do,
which is to re sure some manufacturing, especially highly automated manufacturing,
restore some technological competitiveness in areas where we fallen behind,
to rebuild some supply chain controls, those three things. As
I said earlier, with China, it's actually going to be faster, cheaper,
(14:17):
and far less risky to accomplish those three things with Chinese,
maybe not cooperation, but at least without their active without
their active you know, desire to hold us back from
achieving those things. So it's a time to be practical.
It's a time to be an owl. It's a time
(14:37):
to be unemotional. It's a time for the thinking of
people like doctor Kissinger from the very beginning. And I
know this because I've spoken I had spoken with him
about it, felt that getting emotionally involved with China wasn't
the right idea, and falling in love with China. There's
a really great professor at MIT here in Cambridge named
doctor Huang ya Hung and and doctor Huang said, the
(15:01):
problem with the US channel relationship is we got married
before we asked each other's religions. I think it's a
great quote. I think it's a great quote. Because what
underlines that quote is the idea that it was an
emotionally based relationship that either either we're engaged with them
because we're falling in love with them, or we're we're
(15:21):
we're decoupling from them because that we're you know, we're
you know, we're we're we're we've just.
Speaker 2 (15:26):
We discovered they're cheating on us.
Speaker 3 (15:28):
Yeah, they're right exactly, And in the reality was we
were we were supposed to basically have a very important
relationship of convenience. They use our capabilities and our advantages
and things like global global financial markets, and we use
their ca and things like advanced manufacturing. And we work
together where we can, and we don't work together where
(15:48):
we where we don't see an opportunity. And certainly for
things where there's a national security component and I'm not
talking about everything like some would like to say, but
you know, for things there's really a duel use component,
then we avoid working together. And that makes perfect sense.
But if you're talking about bringing over Chinese vs to
the US, tell me which is riskier from a national
(16:09):
security perspective? Is it riskier avoid bringing in Chinese evs?
Because there's a small possibility that we aren't able to
control how those evs are operated in the US. Unlikely
if they come in as a minority partner of a
JV in the United States with let's say Ford is
the majority and we're doing we're designing the you know,
(16:31):
the computer systems, and they have no access to that,
and it's a factory which is majority owned by Ford.
Explain to me again how they're going to put in
a back door. Explain how they're going. But on the
other hand, how risky is it for us to be
on the outside looking in? Where in China is developing
technologies around ev that are one to two generations about
anything we've got, and even you know, and even by
(16:52):
D you know, which is of course now just surpassed
Tesla as you know very well in sales. Even BYD
for all his trouble, has figured out, you know, how
to dominate the market in so many different countries. And
why are we on the outside of that looking in?
Tell me which is riskier for national security? If you
ever think that it's important for us to be a
(17:13):
player in evs, and of course it is. So this
is the point that I think people forget, is that
when we look at risk. It has to be viewed
through a lens of relative risk. This idea of absolute risk,
it's not a realistic approach unless you're sitting in a
in a nation's capital like Washington or Beijing. But in
(17:33):
the real world where the most of us, the rest
of us have to live, then absolute risk just isn't
a concept that most of us can relate to because
we don't have the look of only looking at one risk.
We have to look at relative risks and decide how
to mitigate the ones that we can and pursue the
ones that are you know, that are that are the
most you know.
Speaker 2 (17:52):
Existential to some extent, maybe as Americans, we've gotten comfortable
with being number one for so long that we feel
as though we want zero risk options. And that may
not be back to your original point, realistic anymore. There's
going to be risks.
Speaker 3 (18:07):
Yeah, I think that, you know, there seems to be
a lag. When I first came here to the Fairbank Center,
I assumed that the majority of my work would be
just in sort of showing folks that that there was
a new and third option between engagement and decoupling, and
actually what I've.
Speaker 2 (18:26):
Spent a lot about this too. Yeah, that's right, the owl.
Speaker 3 (18:30):
That's right.
Speaker 2 (18:31):
Talk about that a little bit.
Speaker 3 (18:33):
Yeah, so, you know, so we talked about hawks and doves.
Let me talk about owls. Owls. Owls are approaching this
relationship like a scientist. We don't have emotions in the
whole thing, and we're not bound by ideology and the
idea of whether China is or isn't prosecuting it's it's
leadership in places like Shinjong or t bed or Hong
(18:53):
Kong or Taiwan, those aren't. They're very important, but they're
not important to this conversation, which is, do we want
to engage or disengage with China in areas where it
benefits us more than them to do so? And I
argue than in a lot of areas of technology and
certainly in evs it benefits us more than them to
do so. So now we're in that place. I think
owls are unique and that there's not a lot of us,
(19:17):
but owls is not. I didn't create the concept. I
mean that was actually you know, people who've read my
niekey Asia op at piece from April this year think
that I created the term. I did not create the term.
I the first I ever heard of it, right, but
a term that you know that doctor Kissinger talked about.
And I will mention something about owls. I mean, although
we're very different from hawks, we're both predator. Birds are
(19:40):
not exactly you know. We we're patient, we sit, we wait,
and then we strike.
Speaker 2 (19:44):
We're not pass that pushovers, not standing, not observers. But
you're active.
Speaker 3 (19:49):
Yeah, I wou. I would say in many ways, owls
probably caucus with hawks more easily than we do, dug
because we don't love an ideal world. And anyone who's
lived in China for thirty plus years will probably not
have Pollyanna view of China. You know, as Ambassador Jim
Lily told me in nineteen ninety, you know that, you know,
(20:10):
for all their wonderful attributes, the Chinese are not boy scouts.
And I never forgot that. And my mentor was Sidney Rittenberg,
the American who went over before the end of World
War two, got to know the leadership was in Yan'an
after the the you know, the Long March, and he actually,
you know, spent the next forty five years in China
(20:31):
and he was jailed twice, first by Mao and second
by Jung Ching and the Gang of Four. So I mean,
my education is certainly not a dubbish education on China,
you know. And I had to deal with trying to
develop a hotel chain in China where we didn't have
the benefit of the ability to rely on the legal
system to protect us. And we were running a franchise
(20:54):
business where you know, normally a franchise business would rely
heavily on the legal structure. We would always win our cases,
but we weren't always able to exit on the rulings.
Speaker 2 (21:05):
Let's pivot to that. I've been wanting to get to
this topic in particular because I'm aware that you built
up the Super eight motel chain in China. I think
there's over one thousand locations. Now take us back to
the very starting point of that initiative. How does one
do that in China?
Speaker 3 (21:22):
Well, first of all, I should mention that before I
even went to China, I wrote a business plan in
nineteen eighty seven.
Speaker 2 (21:31):
Wait a second, nineteen eighty seven.
Speaker 3 (21:33):
Yeah, I wrote a business plan on seven that China
would need brands and brand systems, and that China was
coming out of you know, thirty five forty years of
command communism and now would be trying to learn about
ideas like intellectual property and brands and you know, in
brand systems and platforms. And I thought, well, if there's
(21:55):
one thing that the US does very well and we
do very well, it's platforms, right, We're extremely good at platforms, economy, businesses.
So I thought, all right, that's the plan I'm going
to someday. I'm going to bring an American brand to China.
I looked around. After spending time working with a couple
of American companies, I ran government affairs for Budweiser for
eight years. I started a public affairs firm in China
(22:17):
called Apco. I started the China operations of Appco as
an entrepreneur, as an employee, and then when it came
time to dust off my original business plan, this was
two thousand and two, I was running Edelman, one of
the big five public relations agencies. And I looked around
and I looked at fitness center chains like Bali. I
looked at, you know, some food and beverage type properties.
(22:41):
But I eventually decided that what China desperately needed was
a brand system that could rationalize the lower end of accommodation.
And China did not have economy hotel brands at the time,
nor did they have franchising. So I brought those two concepts.
Speaker 2 (22:57):
That's a great points. Do you either go into China,
do you have the shine allow of the four seasons,
or I don't know, Hyatt Hilton, But then it dropped off.
There was nothing below a certain price point.
Speaker 3 (23:08):
It dropped off precipitously. I remember traveling with some classmates
in Inner Mongolia in nineteen eighty eight. It was like
the October first holiday and we were in some little
guesthouse and the beds that we you know, that we
were sleeping in had no sheets, like a bull blanket,
and we were and for a pillow, we were using
this kind of bean bag. It was like, you know,
(23:30):
clearly beans inside of a burlap sack. And I said
to the guy, I said, why don't you put you know,
sheets on the bed and charge more? And he said,
in China, travel is a luxury, so nobody else other
than a foreign or whatever, asked for sheets. And I
remember thinking to myself, Okay, there's an opportunity here to
go even then. So yeah, so I went around and
(23:53):
I looked around for a brand that I could license
because I was doing this as a startup without any capital,
and I knew I couldn't start Mitch Presdick Inns because
there was nobody that was going to listen to me.
And moreover, they were they weren't going to pay franchise
fees to me when it was just me. So I
knew I'd have to get a brand, and I reached
(24:15):
out to a bunch of the brands, and Super eight,
the US economy hotel chain was owned by the time
a company called Sendant, which is now Wyndham. And I said, hey, guys,
here's a here's a market research plan, and here's a
here's a market development plan, and if you would like
to develop Super eight in China, then please be my guest.
This this plan is yours. If you want me to
(24:36):
execute this plan, you're gonna have to sell me the
rights have the capital. But I told I told investors
I had the brand, and I told the brand that
I had the capitol. Well, I put it in two
thousand and seven President Trump then mister Trump, before he
was president. He was actually the keynote speaker at the
Super eight International Convention. I haven't really talked about this. Actually,
(24:56):
you're getting an exclusive. He was the keynote speaker at
our Super eight Internet convention, and he and I spent
twenty minutes just talking about China and Super and he
was fascinated to hear that that we were doing this.
I had to write the franchise law of China. I
had to draft it anyway, and I did it because
of my days at VAPCO. I knew. I knew that
the way that you could present ideas to China was
(25:18):
that you give them great research in terms of how
other countries are managing a an issue.
Speaker 2 (25:23):
And it always angry to see how it works in
other countries.
Speaker 3 (25:25):
Yeah, you know, And I just said, here's here's the
kind of here's the kind of regulations you might see
in the EU and the US and Canada and Australia.
You're welcome to this if you want to write a
franchise law. I sure appreciate it, because I don't think
I can do this without it. And I brought that
research to them and and sort of similar to Wyndham,
they accepted my idea, and you know, they then wrote
a franchise law, which.
Speaker 2 (25:46):
Who would they be? Is that a ministry in Beijing
or or.
Speaker 3 (25:49):
Yeah, that was that was that was mothcomm at the time.
Speaker 2 (25:51):
Okay, mothcom right, and you.
Speaker 3 (25:53):
Know, and uh and look to their credit. The benefit
for China to bring in these brands. Remember in in
in the US and the West, the economy hotels came
well before the online travel agents came, so you know,
there was already this idea that the lower end of
travel could be standardized and clean and safe. But in
(26:15):
China there was a very fragmented market. Owners were losing money,
guests were unhappy, but they weren't paying much for their unhappiness,
and the online travel agents were making forty or more
percent of the top line revenue from every single guest
they delivered. Now, I knew that that was a very
imbalanced value chain. And if there's one thing entrepreneurs can't
(26:37):
stand is to see an imbalanced value chain. So I
knew that that would be you know, that would be
something that would resonate. But everyone told me it was
a bad idea, Michael. Everybody told me, they said, Chinese
won't pay their franchise fees. Even if they pay the
franchise fees, they're going to you know, they're going to
try to get around and they're going to create fake safe.
Speaker 2 (26:56):
Great, I'm going to raise my hand. I would that's
my first thought. How do you get everybody to pay?
Was that tell us something?
Speaker 3 (27:03):
Huh? Terribly difficult because if you weren't able to deliver.
The way you can actually get people to pay is
if you're delivering much more value to your partner than
they're delivering to you at every given moment in time,
not just once, you have to do it forever. Very
difficult to sustain that because you know, in any relationship,
there's going to be points where they're benefiting more than
(27:25):
you are, and there's other points where you're benefiting more
than they are. In the minute you're benefiting more than
they are, they're going to try to retrade because yes,
just that's not the way they do business with us,
that's the way they do business with.
Speaker 2 (27:36):
Each other in pros.
Speaker 3 (27:38):
Yes, it's a calldator's arena. And you know, I was
more willing to accept that than a mini And also,
you know, we were able to, you know, to put
in a kill switch that you know, our our reservation
system was set up in such a way that anything
we delivered would go through our proprietary software. So if
they didn't pay their fees and they liked the revenue
(27:59):
they were generating through our through our you know, property
management system and our you know central rez, then they
had to pay and so that kind of helped level things.
But it wasn't because of the agreements. In fact, when
we would sign an agreement.
Speaker 2 (28:13):
We wasn't because of the agreements. That's so important.
Speaker 3 (28:16):
The agreement, like the agreement in China, is a memorialization
of a period in time when everyone believes something and
feels a certain way. It's more of a historical document
than an actual agreement. And by the way, that's not
that's not a concept that is new. That's how Chinese
had always viewed agreements. They were sort of more you know, transactional, relational, situational,
(28:39):
and ever changing based on the dynamics and how they changed. So,
you know, accepting these ideas in China was helpful. It
didn't make it any easier. We had all manner of
challenges and you know, what's.
Speaker 2 (28:51):
An example of a challenge that you'd have in China
that someone in America would go, what.
Speaker 3 (28:55):
Well, at one point, when we were just at about
one hundred properties, we actually had a franchise revolt where
every single franchisee except for four of them UH decided
that they would stop paying fees and they would collectively
bargain with us. And we knew at headquarters that first
of all, we didn't have a choice because to to
agree to the things that they were asking collectively, we
(29:18):
would lose the license. So we didn't have a choice.
But even beyond that, we knew that once we went
down that road of having them run things, we would
have a hard time guaranteeing our quality because they would
they would decide that that you know, that that you
know quality was sort of a negotiable item. And when
when you're a foreign brand in China, you don't have
a lot of advantages to begin with, you have a
lot of disadvantages. So we don't have the benefit of
(29:40):
bentuse we would say in Chinese right local, local, localized uh,
you know, knowledge or localized power. So we had the
one advantage which we were a foreign brand, so no
one was going to be shocked when we when we
insisted on brand standards on you know, on UH, you know,
certain certain processes and systems that might seem superfluous or
(30:03):
excessive to them. But we wanted to make sure we
had the highest customer ratings in the business, so that
all of our hotels could generate a higher premium on
their average daily rate. And that was the one thing
we had, and we we had to, you know, basically
negotiate against all of our franchises. And I had to
come into a room where they thought I was going
to come and negotiate, and I had to sort of,
(30:23):
you know, I had to sort of pull a Trump
and I had to say, I'm going to burn this
whole thing down. Anything that you were asking for pleasant,
But I knew that it was. It was no choice,
it was necessary. I had to basically negotiate super super
hard to the point where, you know, look, when I
first told everyone I wanted to do super eight, everyone
(30:44):
told me it was a bad idea. And when I
when I went into this negotiation, all my staff told
me it was a bad idea. But I knew that if.
Speaker 2 (30:52):
They wanted to give and take or what was their.
Speaker 3 (30:55):
Yeah, they wanted us to give and take. They wanted
us to you know, show sincerity and to and I
did show sincerity and I did try to be very
really reasonable. I even explained to them in very reasonable
terms why I couldn't accept any of their requests. But
I had to say, all of your requests are impossible
and for me to accept. And if you if you
asked me to do that, I'm just gonna shut the
(31:16):
whole thing down. So either either we you know, we
we start by taking you taking the knife away from
our throat, or let's just burn this whole thing down.
And I knew they didn't want to burn this whole
thing down because they were actually doing very well, Like
many of our franchises were generating a two or three
year payback on their properties, which is unheard of in
(31:36):
western countries, and they were doing well, and some of
them had ten or fifteen properties by that point. So
I knew that they didn't want to do that, and
I didn't want to do that. So you know, that
was a case where I had to play hard ball.
Speaker 2 (31:46):
Was it resolved right there on the spot or it
took some weeks of back and forth.
Speaker 3 (31:51):
No, I mean, you have to give people a chance
to give face, right you had to. I sort of said,
you go back and you talk about it and let
you know. And of course I had to make an
exact sample of the instigators. I had to I had
to terminate, which was tough because I was good friends
with one of them. But you know, you can't really
allow them to continue in there, or it would be
you know, my Chinese staff told me it would be
(32:11):
considered you know, excessively uh weak for me to allow
them to stay. So I had to. I had to
terminate the ring leaders. But everyone else, everyone else came
back in and you know, and uh and then we
were able to live on to new days. But it
was I mean, it was a high wire act. I mean, honestly,
there's there's only I think, to my knowledge, five American
entrepreneurs who ever went to China and built a national
(32:33):
business on a shoe string. It's just not really done.
I did it with five hundred thousand dollars a startup
capital seed capital to begin with. Of course we raised
subsequent rounds, but I mean, when I started the business,
that's really not something that Wi'd recommend, especially not in China.
Speaker 2 (32:47):
So what was your secret superpower? What what separate or
where do the other people who tried to do that
go wrong?
Speaker 3 (32:54):
What?
Speaker 2 (32:54):
What what falls apart?
Speaker 3 (32:56):
Well? I got some good advice from Richard Branson wants
at a bar in Hong Kong where he said, and
this is something he's said many times, but I had
never read him talk about this. He said, you know,
if you don't have any money, you've got to be
willing to make a fool of yourself. And I didn't
want to necessarily make a fool of myself, but I
was willing to. I was willing to quote Mao, and
(33:17):
I was willing to sort of try to show a
great deal of respect for Chinese culture. And I would
quote Confucius and I would quote so and you know,
and I would get out there and I, you know,
and I can speak extemporaneously in Chinese because I've been
well trained by a wonderful institution, Peaking University, where I, did,
you know, spent two years, So you know, I would basically,
(33:39):
I use myself as the marketing tool. And I also
made sure that we were very closely aligned with government's goals.
And government wanted a safe, clean, lower economy accommodation market,
and they wanted examples that they could point to to
get everyone else on board. And I knew that as
a foreign brand, that would be, you know, an easier
(34:01):
way for us to develop affinity, uh than you know,
than than many local brands even could do. I don't
think I don't think my local brand competitors could quote
maw in those days. But I could, because you know,
I could say, you know, a single spark can start
a prairie fire, or people are the deciding factor.
Speaker 2 (34:20):
That wins a lot of trust and confidence. This guy's
taking the time to learn the language and the culture
and the history, and he's and you can see their
shoulders relax and they're just like, yeah, okay, he gets.
Speaker 3 (34:31):
Us right, and you know, and I and I have
to say, like, you know, it's it's it's it's something
that a lot of foreigners dismiss when they're in China.
They assume that, you know that the way to do
businesses to is to sort of tell them how it's
going to be and to actually take the time, you know,
to show respect, maybe even a little bit of patience
(34:52):
and humility, if you know, calm. You know, that's what
That's what Sydney Rittenberg would always tell me, right that,
you know, success in China was patient's candor and three
times the preparation.
Speaker 2 (35:03):
Then patients candor and three times you know, it's just a
small world. I had an opportunity. I met him one
day Your's I think it was nineteen eighty eight, Ginny
Kampski's company, I think was it investor or a client.
I just saw him at lunch, said what a fascinating character.
So his advice was patience, candor, and.
Speaker 3 (35:23):
Three times the preparation that you were used to doing.
And actually, if you look at Chinese negotiating, you just
look at how well they prepare. I mean it's not
always a parent, but they really do have their message
points down, they have their strategy down. You know, they're
they're they're very good at I mean, just look at
the kinds of projects that they can execute at scale, right,
(35:45):
not least of which is the modern Economic Miracle, which
is just modern China. But look at three quarters Dam,
look at the Great Wall, look at you know that
any of their massive projects, Look at the forty eight
thousand kilometers of high speed rail that they've built. They're
very good at executing at scale. And I believe it's
because of you know, their approaches, and you know, well,
(36:06):
amongst many things, uh, patient and and all prepared. But
of course there's a lot of pragmatism. There's a lot
of vertical integration, there's a lot of long term focus,
there's a lot of hybridizing the best things they see
from Japan, Germany, US and anywhere else they can borrow from.
They're not going to be they're not going to be
hamstrung by ideology. Oh, these guys are capitalists, so we're
(36:27):
not gonna we're not gonna listen to that. You know,
they're not gonna worry about that. They're gonna see you know,
black cats and white cats and all that, and they're
gonna they're gonna just pick the ones that they think
can kill the mice. Right. So they're very, very resilient,
both individually and societally. And then they're very and they're
just very good at coordinating at scale. I think you
(36:47):
know the fact, I mean, not everyone likes this in
the West, but they do live by this premise that
the needs of the group out weigh the needs of
the individual. And and where I think you can see
that idea play out most obviously is in nature. Right.
You don't see any place in nature where the needs
of the individual that way the needs of the group,
not even in our historical past, right, I mean, you know,
(37:08):
the elders in a tribe when they got to the
point they couldn't move along, they would set them up
by a tree and they would say, you know, bye,
and they would I'm not saying that's exactly that's exactly
where we'd want to be. I mean, obviously we've we've
evolved a little bit, but there's something to be said
for being aligned to bigger energy forces, and I think
they've got that benefit.
Speaker 2 (37:27):
There's a if I'm not mistake, I'm trying to remember,
there's this saying in Chinese ego nentry etaw long sanga
answery etao chong, which which always confused me. Right, that's
what is it? One one man is a dragon. Three
men make a worm. So there is this for everything
we understand about China, there's this counterpoint. Right, So the
(37:48):
Chinese themselves at times look at the Japanese success in
soccer or other endeavors and go, well, they know how
to work as a team, and we actually fall down there.
So just as much as I agree with what you
just said about you know, the greater good, there's also
this other dimension of China where the individual they have
a lot of confidence and they don't have a lot
(38:08):
of Can you work that out for me a little bit?
Speaker 3 (38:10):
Sure? I think if you take they're so practical that
they understand that for every rule there's an exception and
and for every idea there is a an equally important counterpoint,
that there's no absolutes. I think that would be an
idea I wish we would pick up a little more
directly in the West, that you know that speaking in brittle,
zero sum, absolutist terms has not served our interests speaking
(38:34):
in relative terms where we you know, we accept that
that ideas always have a counterpoint, and that there's no
to do things. I think that that if there was
one thing I wish we would co opt from their
from their mindset, it would be that it would be
you know, it would be it would be quite a
creative for the difficult national goals that we're trying to achieve.
Speaker 2 (38:53):
Yes, yes, absolutely, Next question, So have we have we
hit that? The main one is you had that vault
at super eight and you tempted down and got through.
There are there other things that you would advise a
business person going into China to be aware of, what
are the other possible land mines or potholes that they'd encounter.
Speaker 3 (39:13):
Well, I would think, first of all, I think that
most Western businesses were used to sort of, you know,
focusing on our principles and our goals and our ideas,
and there's very little there's very little flexibility in our approach, right.
Their approach is constantly informed by new information, new inputs.
(39:36):
I was always struck by the idea that, you know,
I worked for a couple of Chinese companies over the years.
One was a property developer in nineteen ninety two, the
founder of the company, the CEO, was the son of
the then chairman of the Bank of China. So you know,
so I was working for a Chinese company in Hong Kong,
and I was always struck by the idea that we
would sit in a room with the senior managers and
(39:56):
everyone would agree on something, and then the next day
I would find out that that decision was thrown out.
Why it was thrown out, Well, because we just learned X,
Y and Z. And I said, well, no, but why
wasn't that new information just incorporated into the decision instead
of throwing out the old decision, Because then, you know,
how do you how do you rule without without you
(40:17):
know these you know, these ideas you know in place,
and they said, you've got to understand in China, we
don't have the luxury of doing that. I think if
there's one thing that foreigners would do well to understand,
it's it's that China really does operate that way. We
tend to ego centrically assume that the way they treat
us is somehow unfair. They're not fair with each other, right,
(40:42):
I mean, and that's I mean, but there are rules
even when they're unfair with each other. There there's some
kind of a face giving process or something that they
try to do when they can't. And everyone's supposed to
understand because you know, there's a lot of kabuki theater
in China. Just you mentioned Japan. Just like in Japan,
there's a lot of kabuki theater and some of the
ways they do business. And I think understanding that that
(41:04):
reality helps a lot. You know. The Chinese expression is
you know, dau shimshan chang shimiga. Whichever mountain you go to,
you you sing the local song. That's not just in China,
but China is not one China. China is eight major
regions and lots of little places, and you know this
is where, this is where. You know, some people say, oh,
(41:24):
you see, he's gone to local. He's he's now trying
to explain Sunza and he's trying to explain these ideas,
and he's clearly been co opted, he's clearly been compromised.
But the reality is it's it's also true. These ideas
are true.
Speaker 2 (41:41):
And just as the Chinese person coming to America would say,
California is different from Texas, different from main, huge differences
and if you really want to get America, you better
drill down and start to understand those geographic differences too.
Speaker 3 (41:54):
The problem is we tend in the West to start
with our ideas and then we and we solve for
the variable of how to get to those how to
how to prove out those ideas. And you can really
see it if you go to a place like the uh,
you know, the China conversation on x formerly Twitter, you
can really see people trying to solve for the outcomes
that they believe are inevitable, and those variables don't always work.
(42:18):
And it's a it's a tough conversation because the minute
you you present primate face the evidence then they immediately say, well,
you're compromise or I can't. I can't right, because it's
too hard for Because remember, and and I'm quite sympathetic
to this, everybody looks at the world through the lenses
they've given themselves, and that's how they make the world
makes sense. If anyone's read Plato's Cave, they're well aware that.
(42:41):
You know that when people are sort of in a
cave in darkness, well, watching the shadows on the on
the wall, and then if somebody were to like break
their chains and go out of the cave and see
it would be painful for a while and confusing. It
wouldn't make sense. Well, I mean when I watched the
debate on Twitter, what I what I think people forget is,
you know, try to tell people who have a worldview
(43:02):
that makes sense to them because of the lenses they
take off. Trying to tell them to take off their lenses,
you're actually a direct threat to them, and that's not
actually a helpful thing. So I don't try to do
that at all. I just try to say, let's at
least agree on some basic facts. Let's disagree that you know,
China is here, They're probably not there. China is not
falling off a cliff. The historical evidence doesn't show that
(43:26):
anything that we're going to do is going to push
them off that cliff. So if you're looking at that
and you're hoping for that, if you're Gordon Chang or
whoever is kind of hoping for that outcome, you know,
the historical record says that you're more likely than not
to be disappointed if disagree on that, And then you
know what, everything else we can work on the rest
in time.
Speaker 2 (43:45):
If you're the head a new committee and the Trump
administration about US competitives globally, what's the job to be done?
How do we you know someone outside of China would
say what they enjoy advantages in scale, speed, supply chains,
a subsidies, state alignment. Is it possible to compete with China?
(44:05):
And if so, what's our single most important thing to
get to be done?
Speaker 3 (44:09):
I mean, the best time to planet tree is twenty
years ago. Right, that's the same I think the of
the I mean, I would I mean, since we can't
do that, I would say, first and foremost, we need
vertical integration. We need to basically, you know, if you're
if you're trying to address a national objective like staying
relevant in you know, advanced materials. Then you want to
get all of your companies in you know, in the
(44:31):
US has extraordinarily competent multinational companies, and let's get all
those companies in a room with the relevant offices from
the US government and folks from you know, from you know,
from the academic world. You know, dare I say, from
Harvard and from MIT and Stanford and get in a
room with government and let's say, all right, guys, this
is a national goal. Let's figure out how we're going
(44:52):
to address this goal together. And what do you need?
What coordination do you need? This is not a time
for us to believe in the invisible hand. This is
a time to make sure that we don't get relegated.
Speaker 2 (45:00):
That's real.
Speaker 3 (45:01):
Yeah, that's that's national goal.
Speaker 2 (45:03):
It's been a long time since we had a national goal.
Speaker 3 (45:06):
Right, I mean, but when it turns out that America,
when it wants to it can actually do very well
with national goals. Look, we put a man on the moon,
you know, within the nineteen sixties, as we promised, and
it was all because of public private partnerships and vertical integration.
That would be My job number one would be getting
everybody in the room and have everyone singing from the
same hymn sheet and say, however we however we feel
(45:26):
about individualism, this is a time for us to get
around the problem and address it like a white blood cell,
you know, group attacks of virus. Let's go after this
the way China does. Let's take a few plages from
their playbook and let's learn from them. And know that
doesn't mean that we're sympathizing with the communist you know, ideology.
It just means we're looking at how do we stay relevant?
(45:47):
How do we pragmatically compete? That's what I would say,
That would be job number one.
Speaker 2 (45:52):
Can we get there absent an event like Pearl Harbor
or Spotnik where we're really alarmed as a nation. Can
we get before a crisis hits us?
Speaker 3 (46:02):
You know, for a long time I've said that that
that there needs to be the creation of a completely
different paradigm in US China relations. That I've been saying
this since as early as twenty sixteen, because people talk
about the decoupling era starting with Trump, but actually even
as early as twenty eleven and twelve. And you know this,
you know, the American business community was going back into
(46:23):
Washington and saying, hey, this is different. We're not we're
not seeing the kinds of improvements we need to see
on our IP protection and other things. We need to
start coordinating. And government took the wrong message from that,
not we need to coordinate together and avoid being you know,
divided and conquered. We need to you know, we need
to work together. They took the message, Okay, China's not
played by the rules. Let's go from being their friend
(46:45):
to being there there's their you know, their mortal enemy,
which honestly, I don't think that was the message the
business community was trying to send, but that was the
oputting message that was received. So I would say, you know,
first things first is we need to we need a
new paradigm, and that new paradigm as it's being created,
is not going to be a pleasant thing to go through.
As much as someone might dislike the way these you know,
(47:09):
Liberation Day tariffs were executed, I mean, however it happens,
the reality is the status quo was not taking us
to a place that we want to go. It was
taken sustainable, unsustainable debts and an imbalanced manufacturing percentage of
GDP and an inability to compete in key technologies, and
(47:30):
those were not things that were going to just change
by themselves. The expression is, if you want to make
an omeal, you got to break a few eggs. I
wish it could be different. I don't necessarily believe that,
you know, the administration is necessarily playing four dimensional chests
here and they know what's going on. But I do
believe that the fact that Trump is a developer and
a business person by background, I do think that is
(47:53):
a strategic opportunity that we would not have if a
typical career politician.
Speaker 2 (47:59):
Politician, Yeah, it would be status quo or just small
adjustments to the status quo. It wouldn't be what I
see with the tariffs and libration is one giant shove
at what was is that? No, that thing doesn't work anymore.
Speaker 3 (48:12):
Yeah. Everyone talks about the idea that you know that
they disliked the way that President Trump is going about
making these changes, but nobody's talking about the fact that
that when it comes down to it, he is willing
to be pragmatic and compromise and take a different tack.
I mean, you know, and so I mean I think
that there's something to be said for that. I'm not
I'm not I'm not a political I'm not a political person.
(48:33):
I'm quite a political effect. But I do acknowledge from
a practical standpoint that you know, all right, everybody likes
to complain about what's happening, and there's a lot to
complain about. But on the other hand, who was doing
something else about? It? Was about this? You know? We
were just wishing to pass the graveyard, yes, and I
was wondering when we were going to start taking it seriously,
for better or worse. The administration is now well on
(48:55):
board with the idea of the need for a reset.
I think that was probably inevitable, and I think it's welcome.
I don't like the way it's happening, but I definitely
like the fact that it's it's happening.
Speaker 2 (49:05):
Mitch brilliant insights. You bring such a wealth of experience,
hands on. What I love about it is you can
talk at thirty thousand feet, but you're also there in
the trenches in China. You understand what it means. You know,
in the old days, when you'd have to get on
the bus or get off the bus and the people
getting off the bus wanted to get off at the
same time, and you just have to get in there
(49:25):
and grind and put your shoulder to it and find
a way or wait for the next stop. Like sometimes
I couldn't even get off at my stop because yeah,
that's love, that grittiness. How do people get a hold
of you? I'm sure they're gonna have questions and comments
for you. What's the best way to get hold of you?
Speaker 3 (49:41):
Yeah, I mean, they can find me on LinkedIn, Mitch Presnick.
They can certainly, you know, send me an email Mitch
Presidick at yahoo dot com and my tc chpr E
s N I c K at Yahoo. You know, those
are both public public emails. And yeah, of course if
they reach.
Speaker 2 (49:56):
Out to find you at Harvard right now, right, yeah, they.
Speaker 3 (49:59):
Can certainly find me. Year. I mean, you know, I'm
in the last days of a two year visiting fellowship.
What's next?
Speaker 2 (50:05):
I didn't know it was nearing the nearing the completion.
What's next?
Speaker 3 (50:09):
Well, yeah, I mean, these are visiting fellowships. They tend
to be, you know, a limited time appointment. I'm very
grateful to have a chance to be you know, perhaps
you know the best place in the United States to
really study these ideas at the Fairbank Center, the you
know legendary Fairbank Center for Chinese Studies where some some
of the best Chinese scholarship has taken place out of
(50:29):
the West. Yeah, I mean, I mean, I'm right now,
I'm in the process of specking out with a group
of investors a factory. I mean, we want to eat
our own cooking. I'm I'm basically, you know, looking to
put together a factory where we're going to reshore American manufacturing.
And I want to create a young Banchong, you know,
a sample factory that I can point to and say
this is what this is what are reshoring can look like.
(50:51):
We're going to have a minority Chinese partner who is
manufacturing in China right now. They're gonna ship over all
of their equipment, They're gonna ship over the inputs. We're
going to make this stuff. I'm not gonna say where yet,
but we're the stuff in the US, and uh and
the economics work out. And it also, I think people
don't realize something about tariffs is that when they were implemented,
people assume they were designed just to hurt the other country.
(51:14):
When in fact they were really designed to motivate board
rooms all over the United States to change their supply.
Speaker 2 (51:20):
Supplys look at manufacturing at home, yeah right.
Speaker 3 (51:23):
You know, you know how allergic we are in the
United States to CAPEX, and it's not something that I think,
you know, can be done without some CAPEX. But I mean,
on the other hand, to offer the opportunity for Chinese
partners in areas that have strategic importance to the US,
like in our case, we're looking at medical devices, stuff
that really need to be able to manufacture here. And honestly,
I mean, China manufacturers between eighty and one hundred percent
(51:46):
of many of the medical device products that are you know,
sold in the United States right now. So let's get
some of it over here. Let's you know, man have
a little more control over the supply, and let's you know,
let's see if we can't then replicate that in areas
you know that are only in areas that are politically viable.
We're not looking to do anything. We're not trying to
create any you know, c at l Ford agreements. You know,
(52:09):
we know how fraud those kinds of things are. But
for something that's you know, highly automated relatively important from
a strategic standpoint to build here and you know where
the Chinese have, uh, you know, have great experience, you know,
instead of competing against forty other factories all making syringes,
and then they can come in, they can come in
as a minority partner of an American JV here and uh,
(52:30):
we we own it and we control the majority of
an end to end, but we can benefit from their
experience and and manufacturers we're gonna build. We're going to
build a couple of factories in the US and and
uh and then hopefully you know, be able to replicate
that out phenomenal.
Speaker 2 (52:44):
I love the taking the theory and applying it to
practical realities. That's beautiful, well done.
Speaker 3 (52:51):
Thank you, thank you.
Speaker 2 (52:52):
Well.
Speaker 3 (52:52):
You know, it's great to meet you and great to
spend time Michael.
Speaker 2 (52:55):
Which I hoped we could meet in person soon wherever
that might be China, in Asia or here in the
United States.
Speaker 3 (53:02):
Yeah, and look forward to that. And thanks for all
the work you do. I follow you closely. I always
appreciate your insights are extraordinarily relevant and important in this time.
Speaker 2 (53:11):
Thank you, thank you. All right, all right, Mitch, we'll
see you around.
Speaker 3 (53:14):
Thanks.
Speaker 2 (53:23):
Three valuable takeaways from this conversation with mister Presidik. One,
the Chinese have seen it all and well, they like
their system better. Americans should not expect China to convert
to democracy anytime soon, just as China should not expect
the US to be a nation led by a one
party state with a communist party in charge. We Americans
(53:46):
probably need to replace our missionary zeal with some pragmatism
based in reality. Two Mitch quoted Huang Yai Shang, professor
from MIT. We got married before we asked each other's religions. Yes,
we have deeply different societies and values. The intoxicating allure
(54:07):
of making money led us to avoid uncomfortable underlying differences
in our world views. It's time to square that up.
And three America is, yes, indeed, facing a massive challenge
China's run out in front, in particular when it comes
to manufacturing. Our starting point is to rediscover America's ability
(54:29):
to be a manufacturing powerhouse, from cars to batteries to chips.
It's time now. I've heard from many of you asking
me not to forget a little language lesson at the end.
Love that, Let's go this week's word is win win.
In Chinese, win win is chuang ying chuang ying. Chuang
(54:53):
means double ying means win chuang ying. But be careful.
In the Chinese likes bi win win can often mean
the Chinese side wins twice. Hey, that's the kind of
practical realism Mitch is talking about. Hey, if you've enjoyed
this episode of the Driving With Done podcasts, share it
(55:14):
with a friend, send me a DM. Love to hear
from you, comments, questions. I am Michael Dunn and this
is the Driving with Done podcast.
Speaker 1 (55:25):
Where you meet the experts creating the technologies that will
power tomorrow's cars electric autonomous software. To find this is
a Driving with Done podcast.
Speaker 3 (55:36):
Thank you for joining.
Speaker 1 (55:38):
This episode of the Driving with Done podcast. To connect
with Michael Dunn, visit Doneinsights dot com or find Michael
on x or LinkedIn. This is the Driving with Done
podcast
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