Beauty of business flows from the truth
13/8/2004 14:14
Shanghai's effort to develop its service industry has largely paid off,
but more needs to be done to enhance business ethics.
The service sector now
accounts for 46.9 percent of the city's gross domestic product. Mayor Han Zheng
predicted last month that the proportion will grow to about 48 percent by the
end of this year.
Shanghai has long been a manufacturing powerhouse in the
country, producing well-known cars and ships among other things. While it
continues to lead the nation in this regard, a parallel focus on the service
industry - finance, retail, entertainment, etc - is justifiable if the city
wants to excel among a number of competitive cities.
The need to boost the
service industry becomes even more urgent as Shanghai shifts some of its
traditional manufacturing businesses to adjacent regions in the Yangtze River
Delta.
A key issue needs to be resolved to pave the way for faster growth in
the service industry: lack of integrity.
Hua Min, director of the Institute
of World Economy at Fudan University, says few companies would choose
outsourcing in a market where people have no trust in potential business
partners.
Outsourcing is a key engine of the service industry. If you have no
time to clean your apartment, you hire someone else to do it. Hence the rise of
cleaning companies. If you have no time to study legal cases, you hire a lawyer.
Hence the rise of law firms. If you have no time to collect information from
around the world, you buy a newspaper. Hence the rise of journalists.
It's
easy to see that trust is a vital and fragile link in the business chain. No
trust, no outsourcing.
When you know your lawyer might forge your will; a
physician might give you the wrong prescription; a newspaper could lie; or your
flight will be delayed, why pay for their service?
Media reports have been
rife about business cheating in various forms. This may not be unique to
Shanghai, but the city is not immune to it.
It is good news that Shanghai
officials declared war on fake accounting and other immoral business practices
in a high-profile conference on Wednesday.
Provide good ethics and
independent bodies to enforce relevant regulations and watch the service
industry blossom. Adam Smith has told us that it is not from the benevolence of
the butcher, the brewer, or the baker that we expect our dinner, but from their
regard to their own interest. Thinking about one's own interest is human nature,
but it shouldn't go too far.
Dishonest business behavior should be recorded
and made available to the public when necessary. The government should regulate
the service industry and punish those who violate set rules. Self-regulation has
proven to be inefficient everywhere in the world. Look at what accountants and
lawyers did in most of the US capital market scandals.
Dishonesty is by no
means a trivial thing. Here a sociological perspective might help economists a
little bit. Harvard Business School Professor Michael E. Porter, in his book
entitled "The Competitive Advantage of Nations," answers the question of why
some market environments give impetus for industry improvement while others do
not.
First things first, the precondition for improvement of the market
environment is that corporations and individuals have integrity.
The
relationship between the market environment and corporations is similar to that
of a good school and its students. If the school is a good place for eager
learners, bet on it nurturing more future elites.
Still, there are other
problems that could affect the development of Shanghai's service
industry.
Chen Xian, a professor of the Shanghai Academy of Social Sciences,
says a sluggish stock market during the past few years may have had a negative
effect on the city's finance sector.
Moreover, central government regulations
also influence local financial institutions.
But even if all those issues
were addressed, Shanghai's service industry still couldn't take off if you
simply don't trust the person you are doing business with.
Helen Sun
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