Leadership Deficit

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Tang Haisong imagined the toughest part of setting up his Internet start-up would be getting the final forms approved by Beijing's fossilized bureaucracy. But that was nothing compared to when the baseball-capped chairman of Etang.com began hiring for his company, which aims to become the leading website catering to China's youth: good managers, he discovered, were harder to find than efficient bureaucrats. In terms of Internet technology, China is only five years behind the West, says Tang, who graduated from Harvard Business School in 1998. But in management expertise, we're at least two decades behind.
There's no dearth of entrepreneurial spirit in China, but business enthusiasm doesn't equal managerial acumen. The country has one of the highest small-business bankruptcy rates in the region. China may have opened its markets, says Tang, but it doesn't have enough skilled people to make it work effectively. The nation has only 9,000 locally trained Masters of Business Administration, or M.B.A.s. In comparison, the United States churns out 70,000 M.B.A. graduates each year. Worse, those who do secure a cherished spot in one of China's 56 M.B.A. programs don't necessarily emerge with the skills needed to compete in a cutthroat economy. Even the Education Ministry concedes that its business schools are in a very primitive stage. Most professors parrot information from outdated textbooks and have no practical experience to share with students. How can I trust my teachers if they've never dealt with a market economy? asks an M.B.A. student at Peking University. They have Ph.D.s in economic models that no longer exist.

China's B-schools stress rote memorization rather than the flexible problem-solving skills required by real-life managers. Nor is student participation encouraged, so budding professionals have little chance to practice important presentation skills and debating techniques. China's government directly manages the country's education system, says Liu Ji, executive president of the China Europe International Business School (ceibs) in Shanghai, a venture funded by the city's municipal government and the European Union. The lack of competition means that China's business schools lack the openness and diversity needed to support the nation's economic reforms.

The rise in the number of Western-funded programs like ceibs shows how seriously both the Education Ministry and foreign governments view the problem. We looked around Asia and saw that China had the greatest need for management training, says Rui Shujie, account manager at the Center for Business Skills Development, which began operating in Shanghai two years ago in affiliation with Arizona's Thunderbird school of international management. We have the skills that Chinese are not being provided with at local institutions. Despite steep tuition and an English-language curriculum, a few such programs are raking in applicants because diplomas--even if they're only for quasi-M.B.A. degrees--guarantee students their pick of jobs. In order to attract the best of the bunch to their boardrooms, some multinational firms are even doling out thousands of dollars in tuition themselves.

The importance of such human investment is also dawning on an unlikely business sector: China's threadbare state-owned enterprises. Forced to compete in a leaner, meaner economy, some of these firms are lavishing costly training on their managers in order to ensure long-term survival. At ceibs, nearly half of executive M.B.A. students are being funded by state firms like China Non-Ferrous Metal Industry and China Eastern Airlines.

In the past, managers at state enterprises simply worked their way up the factory line, landing in an office after a couple decades of dedicated service at the plant. But with the red ink overflowing, state firms have had no choice but to raise salaries and provide extensive training to their staff. Many managers welcome that commitment, especially since some fear that a glass ceiling at multinationals stunts their rise because they are local hires. I have committed 13 years to my company, says Hou Yunfu, a 35-year-old engineer whose ceibs tuition is being funded by China National Petroleum Corp.'s Daqing Geophysics Institute. It's good that they are now willing to support me, even if it's 10 years later than most people get their M.B.A.s.

Ironically, with even the state sector combing through business-school rosters for potential employees, start-ups like Tang's may have a tougher time attracting top-notch managers. When the Internet entrepreneur started nosing around for a human-resources director to oversee his 160 employees, he expected to sift through dozens of résumés from qualified applicants. In the end, only four met his specifications. One of the things we talked about at Harvard Business School was the ability to deal with unexpected problems creatively and quickly, says Tang. Until China's business reality catches up with its economic ambitions, Tang and others will have to rely on such improvisation to make ends meet.