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February 22, 2005

Building Business With Value: A Conversation with one of China's most Successful Young Entrepreneurs Yi Bo Shao

After graduating from college, Yi Bo Shao was unsure of his future plans. If he pursued physics—one of his majors at Harvard College, the path was clear: “invent something fantastic and win a Nobel Prize,” he joked. But in business—the track he finally chose—there is no Nobel Prize or surefire measure for success. “Sure, money is one gauge—but only one, and certainly not the most important one.”

Yi Bo Shao is founder of EachNet and Chairman of eBay EachNet, China's leading e-commerce company. Invited to Fletcher by the International Business Program Global Speaker Series on February 21st, he discussed his path to success and made observations about doing business in China.

Bo inspired his audience with the rags-to-riches tale of EachNet, and how it evolved from a small company with only $400,000 in start-up capital to the largest private equity investment across all industries in China in 2000. In telling his story, he focused on three main challenges to doing business in China.

One challenge is the lack of human capital, but perhaps not for long.

“China is short of capable managers,” according to Bo. Chinese people now in their 40s and 50s grew up during China’s Cultural Revolution and as a result many are unprepared for many of the challenges of a contemporary, globalized business environment.

“Even though the Chinese government has bravely opened up the marketplace,” continued Bo, “China has still had to supplement its lack of human capital with returnees [people born in China who spent their formative years studying abroad], and people from Hong Kong and Taiwan.”

“But that will change,” Bo added. “Chinese people in their 30s today have many more opportunities than their parents did, and in five or ten years these people will do really well.”

Another challenge was finding foreign investors willing to invest in China.

In 1999 when Bo and his EachNet partners were raising venture capital money, a friend advised them to only seek investors who were already comfortable with and had done business in China. “At that time there was a great deal of risk—at least in perception—in investing in China,” he recalled.

Friends in business told Bo that it would be a waste of time to try to convince new people to take that risk.

“But today, it’s a different matter,” he held. “There are many investors looking into China, and raising money is much easier.

As of 2005, securing financial capital is no longer as big a problem in China. “This is good news for us entrepreneurs, but not perhaps for investors, who are going to have to learn some lessons [about doing business in China],” he added. “There is a bit of over-enthusiasm among foreign investors in the short term, but the long term future is bright.”

The final challenge Bo noted was government relations—though he did not see Chinese government involvement in business as a real obstacle.

“There is still a lot of prejudice out there about corruption and other various problems in China,” Bo noted. “And there is no question that the government in China plays a bigger role in business than in almost any other country.” The Chinese government controls very valuable assets such as licenses and real estate—assets that are not fairly distributed according to normal market mechanisms.

“On the other hand,” Bo noted, “we need to keep in mind that some degree of this happens everywhere in the world, even in the United States.” In China there are ways to make things happen—maybe not traditional market mechanisms—but there is an effective system all the same.

The intersection between business and government in China depends on the industry and the stage of business, said Bo. “Building relationships with local and provincial government officials in the China is not so different from hiring lobbyists in Washington, it just happens at an earlier stage in the business in China.”

In response to Ralitza Gueorguieva (MALD ’05) who inquired about EachNet’s competitors, Bo responded that competition is fierce because the potential prize is large, but EachNet won for three reasons. Having the right team was one of the reasons.

“We also had the right motivation: our focus was not on going public, we recruited the right people who stayed with us, and we spent a lot of time treating customers well. Finally, investors trusted us and believed in the vision of our business.”

In business, said Bo, trust is key. For him, the goal was not money. “I was never in this to get rich,” he said, “my objective was always to build a business with value.”

Article by Claire Topal, MALD '05

Posted by jessica at February 22, 2005 12:30 PM