Mr. China (35 page)

In the summer, Fang, the General Manager of Three Ring, together with his sales manager, Yang Ping, had somehow arranged a meeting with one of the members of the Mongolian Parliament who they
hoped would introduce them to distributors. Sensing that it would be an interesting trip, Jenny had tagged along. She came back highly upset. Her normal equilibrium had been severely knocked and it
took me several days to persuade her to tell me what had happened.

Apparently, they had all set off on the overnight train journey and arrived in Ulan Bator, the Mongolian capital, on the following day. The main meeting was several days later so there was time
for sightseeing. Fang had hired a translator since Mongolian and Mandarin are mutually unintelligible languages. On the second day the translator took them on a ‘picnic’ out in the
grasslands. After several hours’ drive out into the grasslands in a couple of battered Jeeps, Jenny discovered that a ‘picnic’ meant a few hunks of roasted mutton washed down with
several bottles of vodka. She was the only girl on the trip and she didn’t drink so it was only natural that she felt uncomfortable in the remote site on a hillside miles from anywhere.
Moreover, there were a number of ragged-looking wild dogs roaming about. Jenny had been frightened of dogs since she was a child and this added to her discomfort.

Fang and the translator drank heavily and soon got into an argument. Yang Ping passed out and Jenny spent quarter of an hour trying to get him back into one of the Jeeps. Then she tried to calm
the argument, which was still raging, but Fang and the translator were too drunk to listen to her. They were standing on opposite sides of a low table with their red faces pressed up against each
other, screaming at the top of their lungs. By this time, Jenny was truly frightened and she made her way back to the Jeep.

Suddenly the translator took a step back and in an instant pulled out a knife, rushed at Fang and with one movement sliced Fang’s ear clean off, just above the earhole. Everyone was too
frightened or drunk to react as the translator ran to one of the Jeeps and drove off. The shock of the wounding put Fang almost into a trance, and there was a lot of blood. Jenny eventually managed
to get them back to the city but it had been a horrifying experience. To crown it all, one of the other salesmen who had not been on the picnic had severely criticized Jenny for not trying to find
Fang’s ear. She was absolutely livid and yelled at them that it had been eaten by one of the wild dogs. Then she packed her bags and came back to Beijing.

I would have found the whole story a little far-fetched if I hadn’t known the participants. But the proof came out at the next board meeting. Fang was completely bald so there was no way
to hide the injury. He attended the meeting with a badly shaped plastic ear stuck to the side of his head. The remains of his ear were eventually reconstructed rather imperfectly by surgery and I
heard that Fang was a little more careful with drink after the experience. Madame Wu said gleefully, ‘What did you expect?’ when she heard the news.

Jenny still won’t talk to him.

Lin’s first full year showed a marked improvement in the business results, partly because of an unusually hot summer. We knew he wasn’t perfect but he seemed to be
pulling the business in the right direction. But as 1998 rolled on, it was clear that this upturn had only been a temporary reversal of our fortunes. A strong new competitor had emerged in the
market. The Yanjing Brewery had been founded by a local entrepreneur and as Beijing’s only Chinese-owned independent brewery, it had received many favourable government incentives. It grew
rapidly and became a ferocious rival. Without a level playing field, Five Star found it harder and harder to compete and was slowly pushed out of the city centre towards the suburbs where prices
were lower and distribution costs higher.

Under this intensifying pressure, Five Star quickly defeated Lin and his cheery optimism gave way to a morose exhaustion. Five Star employed eighteen hundred people existing in a state of almost
total isolation from the markets outside. The main building had offices arranged like monastery cells off long passages coated to waist height with dark green gloss paint. It was the absolute image
of a Victorian lunatic asylum. This layout only added to the managers’ sense of psychological isolation, while on the factory floor there were three times too many workers so there was never
enough for them to do. They sat around in offices with the doors closed, drinking tea and reading newspapers. Laying them off in those days was impractical; there was still no social security
system in China.

The indolence was infectious – what was the point in working hard if colleagues could sit around all day for the same salary? Boredom was a major problem so middle managers engaged in
constant infighting. This incessant feuding led to the formation of tight cliques so that dismissing incompetent staff or even moving employees between departments would involve the most exhausting
and draining battles. Extended families worked at the brewery and these blood bonds made promotion on merit virtually impossible. Many Chinese people share the same family names, such as Chang,
Chen, Wang or Li, so it was well-nigh hopeless for an outsider to try and work out the true relationships.

There were absolutely no business systems or rules. Nothing was ever written down in a systematic or ordered way and quality control was a shambles. In the summer, it hit rock bottom and a
popular local saying seemed to sum it all up in four rhyming characters:
‘
wu xing bu xing
’ ‘Five Star’s no
good!’

I went to Brewery Number Two many times and watched the bottling line during the busy summer months. Towards the end of the process, just before the caps are forced on, the bottles pass in front
of a brightly lit white board so that the operators can see through the glass and gauge the level of beer inside. Occasionally a bottle will have been slightly misplaced on the automatic fillers
and end up only half full. It is the operator’s job to grab these bottles as they pass in front of the white board and pull them out of the production line.

I watched the operators gossiping and making halfhearted grabs for the occasional bottle but generally watching the containers go past, sometimes even less than half full. Whenever I went over
to yell at them the operators looked at me as though I was a madman. They had grown so used to lax management that they just didn’t bother any more and, together with a thousand other ills,
it was having a terrible effect in the market place. There was a similar deterioration at some of the licensee factories that were producing Five Star in other parts of China, so I ordered a
survey. I wasn’t encouraged by the result. When the report arrived, I saw that the licensee breweries had been divided into four categories. The second category was called ‘Breweries
reconstructed from fertilizer plants.’

Late that summer, I was given several samples of our beer that had been recovered from the Beijing market. One bottle had leaves in the bottom, several contained only an inch of beer, and
another was full but contained a large ball of adhesive tape. We could never figure out how it ever got in there. I had a case of cans that were perfect – except that they were empty.

The worst instance of incompetence was a bottle that had not been washed properly during the cleaning process. Most breweries in China used bottles many times, collecting the empties from the
market. Five Star recycled old bottles by putting them through a machine where they were scrubbed and cleaned before being refilled and labelled. In this case, the original label had not been
washed off and was still stuck next to the new Five Star label. It was dirty brown, frayed and wrinkled and read
Soy Sauce.

(Years later I met a manager from the Fosters joint venture in Tianjin who had experienced similar problems. He was once shown a bottle that must have been used for pickling garlic and had been
found in the market. The bottle had been returned to the brewery for recycling in the normal way, put through the whole production process, filled with Fosters lager, neatly labelled, capped, and
sent back out into the market packed with garlic bulbs! A dazed customer had returned it to a supermarket.)

On top of the quality issue, we had a very confused image in the market. As Yanjing, the upstart brewery in the eastern suburbs, pushed us out, instead of fighting back by reinforcing the brand
image Lin kept changing the labels and bringing out new brands. Some of these only lasted for a few months and we ended up with countless different labels, names and colours for the same product.
There was Five Star, Nine Star, Five Star Lite, Five Star 10 degree, 11 degree, 12 degree, Fresh Beer, Cherry Beer, Clear Beer, All Malt, Export Beer and finally Green Beer. Draught beer was
available in kegs, which were marketed as ‘15 litre buckets’. The labels within each category were inconsistent and the famous Five Star logo appeared in variant forms in red or blue or
gold – or a combination of these. The actual beer inside this profusion of different packaging was all exactly the same. Lin was convinced that his new packaging would help revive the brand
but we felt the opposite. I tried to illustrate the point by asking him which companies he felt had strong brand images and when he picked Coca-Cola I asked him how often he had seen blue Coca-Cola
cans. He just replied, ‘Ah, yes, but beer is different!’

So I would press on and say, ‘Well, how about green Budweiser or orange Carlsberg?’

‘Yes, but they are foreign brands.’

‘Well, OK, how about purple Tsingtao labels? Tsingtao’s always green, right?’

‘Yes, but Tsingtao is in Shandong.’ And so on until I was exhausted of further examples.

Finally I came across ‘Red Beer’. In contrast to the other types, this was actually a different beer from the normal lager product. It was a deep rich red colour and Lin told me
about a ‘special situation in Tianjin’, a town some seventy miles south-east of Beijing, where consumers were apparently clamouring for dark-coloured beer. I found out months later
that, in fact, a fire had broken out at the malthouse in one of the hoppers and a big batch of grain had been badly singed. Rather than discard it, the workers were told to pick out the badly burnt
bits and use the rest. Whilst the colour of ‘Red Beer’ probably attracted a bit of attention, it had a distinct taste of charcoal.

At the launch of the new red brand, Lin held a party for distributors in the Brewery Number Two. Halfway through the celebrations the stocks ran out and he hastily sent a truck down to Brewery
Number One, only narrowly avoiding becoming the first person literally to fail to organize a piss-up in a brewery.

With volumes falling dangerously and losses mounting, there was little choice but to cut costs. But the Chinese side were terrified of upsetting the workforce and resorted to endless
prevarication and delay. Board meetings got worse and worse. At one there was a huge row after we insisted again on using uniform colouring on our labels and Madame Wu told me that I was
‘talking in dog farts!’ The ensuing fight was only brought under control when Lin, who was often caught between the two of us, promised to stop using red labels and bottle tops and
focus only on the traditional blue colour for the Five Star logo. I confirmed the agreement several times (‘Blue! You’ll only use blue!’) and Madame Wu stalked off, muttering
under her breath. Two days later I went to the brewery for a meeting with Lin. It was a Saturday morning and dreadfully hot, and my temper had been frayed by the traffic on the way over. The
constant hooting and barging had scuffed my nerves. My mood darkened as I stepped over a large turd on the doorstep of the brewery. I was fuming and I asked myself how the hell any customers put up
with Five Star as I stomped round into the yard at the back of the office building. On impulse I stuck my head into the bottling-line workshop and, sure enough, row upon row of bottles were
crashing through the fillers. Blood throbbed in my temples as I saw the red labels and bottle tops churning through the machines. It was my defining moment of despair after the agreement with Lin
just two days earlier only to use blue. I called Pat from some derelict office on the ground floor and screamed down the crackling wire, ‘This guy’s gotta go!’

During the following few months, as I searched for a replacement to Lin, I suddenly received a fax out of the blue. It came from a man called Ren. The fax claimed that he had
run several breweries and that the Five Star brand needed revamping. I certainly agreed with that. It concluded with the question: ‘Why don’t you try me?’ We arranged for him to
come to Beijing for an interview and he told me the following story.

Originally from Shanghai, Ren had moved to Hong Kong as a boy and had later been educated in the United States. Fluent in English, Mandarin and Cantonese, he had returned to China in 1984 and
had ended up running a brewery in Hongzhou, a small seaside town on the mainland just up the coast from Hong Kong. In 1992, he persuaded Carlsberg to grant the brewery a licence. Carls-berg was one
of the few foreign brands available in hotels all over China. After a few years, Carlsberg decided to expand up in Shanghai and Ren went to set up the new project. When it was completed, he was
offered a desk job in Hong Kong. He declined and found a job running an edible-oils business in Jiangxi. But his heart was still in the beer business and he wanted to get back into it.