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Made in Kunming

- By Zach Church

Last spring, eight MIT Sloan students arrived in a remote corner of China to work with the country’s most promising women entrepreneurs. Their charge? Advise and expand companies amidst the chaos of a booming economy.

When Hao (Hailey) Wu arrived in Kunming, China, last March, her work appeared well defined. Since 1999, local crafts company Nankan had manufactured gifts—handbags, purses, and the like— to sell to tourists. Now, with one of its founders participating in the Goldman Sachs 10,000 Women Initiative, it was exploring how to best grow the business. Nankan had expanded from six to 200 employees, and its leadership was pondering a tempting purchase: four acres of land offered at deep discount by the Chinese government. But the company only needed about three-quarters of an acre—maybe even less—for a new plant. So, should Nankan buy it? Wu, a 2013 graduate of MIT Sloan’s Master of Finance program, was in China with MBA student Jonathan Barker and two students from Kunming’s Yunnan University to answer that question.

Right away, the team hit a snag.

“They don’t have income statements. They don’t have cash flow. They don’t have basic balance sheets. They don’t have any financial data,” Wu recalled. “It’s very difficult... we need to know your revenue. We need to know your liability.”

What was a single yes/no decision became a financial riddle, and a challenge that might vex even a seasoned consultant. Wu’s team—assembled as part of MIT Sloan’s unique China Lab action learning program—could not do 14 years of financial forensics, not in the 10 days they had onsite. Pressed, they found a solution regardless, developing a series of decision trees, corresponding net present value calculations, and spreadsheets that could respond to changing financial data. Nankan’s leadership could adjust data with what information they had or became aware of in the future.

The team ultimately recommended renting a new plant, arguing that purchasing the land, building a new plant, and developing the remainder of the land could result in a sapping of available cash and force the company into a risky shift in its business model.

That Wu even landed in Kunming at all, frustrated over missing data and advising on a critical business decision, is the result of a chain of global relationships among MIT Sloan, Kunming’s Yunnan University, and Goldman Sachs’ innovative 10,000 Women Initiative, which provides business education to women entrepreneurs in developing areas of the world.

If Wu’s work for the Nankan crafts company sounds like an exasperating mess, that’s because it was, nearly by design. Unlike staid internships or traveling to make connections, MIT Sloan’s China Lab is meant to be a challenge where failure is always an option and success requires all the more ingenuity and know-how.

“We re-create chaos,” said MIT Sloan professor Yasheng Huang, the founder of the China Lab. “Entrepreneurship—a lot of it is about navigating chaotic situations.”

Kunming is a chaotic situation, though it wasn’t always. The capital of China’s second-poorest province, it was once the country’s geographic afterthought. The inland province— Yunnan—borders as much of Laos, Vietnam, and Myanmar as it does the rest of China. Though modern connections with Hanoi stretch back to French colonial days, Kunming wasn’t connected to Shanghai by rail until the 1960s.

There were upsides to the isolation deep in Southwest China. Less industry has spared Kunming some of the intense smog of China’s largest cities. All the better to enjoy what’s known as the City of Eternal Spring, where palm trees are present and average highs hover in the 60–75° F range year-round. Yunnan province has long been a tourist destination for much of Southeast Asia.

Still, it is China. And Kunming, a city of 3.5 million, is booming with the rest of the country. The growth is evident in new transportation infrastructure. A six-line subway system is under construction. The new airport “makes [Boston airport] Logan look like a fifth-tier city,” said Peter Kurzina, the MIT Sloan senior lecturer who mentors the school’s China Lab students in Kunming.

Kurzina, a turnaround specialist, graduated from the MIT Sloan Fellows program in 1988 and returned to campus in 2004 to teach Managing in Adversity with senior lecturer Howard Anderson. He first traveled to Kunming in the summer of 2012 to teach in the 10,000 Women Initiative.

A five-year, $100 million effort, the 10,000 Women Initiative is underway in 43 locations around the world and has nearly 100 educational and nonprofit partners. It was China Lab founder Huang who convinced the initiative’s leadership at Goldman Sachs to work in Kunming. MIT Sloan already had a decade-plus relationship with Kunming’s Yunnan University, whose faculty travel to Cambridge to work with MIT Sloan faculty.

But with the 10,000 Women Initiative, Huang upped the ante. Not only would Kunming’s most promising women entrepreneurs receive free management education at Yunnan, but they also would take classes with Kurzina and be eligible to work with a team of MIT Sloan China Lab students—free consulting work from some of the most promising business school students in the United States and China.

Kurzina, for his part, fell hard for Kunming and the entrepreneurial energy of students in the 10,000 Women Initiative.

“I really thought I might be talking to 43 women from 43 different villages working on small, local businesses,” he says. “Instead, I worked with a wide variety, aged probably early 20s through early 50s. Two of them had businesses doing US$1.5 million-plus a year. Some were just starting businesses, but they were all very entrepreneurial, and they were very amazing.”

During the 10,000 Women Initiative classes, the entrepreneurs competed in a business plan competition, which Kurzina helped to judge.

The winner of the competition was Fei Xuemei, the vice president of preserved flower company Holyflora. Through an eco-friendly process, Holyflora replaces natural fluids in fresh flowers with biodegradable preservatives that allow the flowers to maintain their fresh look for several years.

Founded in 2010, Holyflora grew to become one of the leading preserved flower companies in China and had its eyes on the international market. But like the Nankan craft factory, hard work and instinct could only take Holyflora so far. Xuemei knew she needed business expertise. She was thrilled to be accepted to the 10,000 Women Initiative, where she attended classes at Yunnan University and studied with Kurzina.

Impressed by Xuemei, Kurzina traveled to the Holyflora factory and met with management staff there. Holyflora was later matched with an MIT Sloan China Lab team, and Kurzina was asked to return to Kunming as mentor to eight MIT Sloan students working on China Lab projects at Holyflora, Nankan, and two other Kunming companies.

Yasheng Huang

The China Lab began in 2008, the brainchild of MIT Sloan professor and associate dean Yasheng Huang. MIT Sloan’s action learning programs—a series of “labs” that bring students around the world for trial-by-fire real-life consulting projects—were growing at a rapid clip, following a decade of success with the Entrepreneurship Lab and the Global Entrepreneurship Lab (E-Lab and G-Lab, respectively).

Today’s MIT Sloan action learning programs include 13 labs and a series of study tours. Students from across the School’s programs have taken to the unique learning model. A full 75 percent of MBA students participate in at least one action learning project (and some do as many as three). Every member of the 2012 Master of Finance class completed at least one project. All told, MIT Sloan students have finished action learning projects with more than 400 small and medium-sized companies over the past decade.

Huang wanted to see that same energy focused on China, where MIT Sloan already had strong relationships with leading business schools like Yunnan University. China’s boom was in full swing, and Huang saw a win-win opportunity.

“It occurred to me that I could use our students to help small and medium-sized entrepreneurs in China who otherwise couldn’t afford the consulting advice that would make a real difference in their businesses,” he said.

For students: “I think what’s unique is you get inside a Chinese entrepreneurial firm. You get close to Chinese entrepreneurs. They tell you things they may not tell you if you don’t do this project with them. You get data you may not get if you don’t do this project with them. So in that sense, I just don’t think you can get the kind of exposure our students get by doing anything else.”

During China Lab projects, MIT Sloan students do real consulting work. China Lab—like all of MIT Sloan’s action learning programs—is not an internship, it is not a mentorship, and it is not an apprenticeship. Students are expected to produce results that rival the work of the top global consulting firms.

Students in MIT Sloan’s action learning labs also work almost exclusively with entrepreneurs managing small and medium-sized companies. Sure, Huang says, you could send a China Lab team to a multinational corporation with a Beijing office. But that would be missing the point.

“We emphasize entrepreneurs because we like entrepreneurs,” Huang said. “My own view is that entrepreneurs are the future of economic development in any country, including China. But the other reason we like them is because almost every decision an entrepreneur makes is a high-level strategic decision. If you work with a big company, you will be given a very well-defined task. You don’t learn as much, because it’s well defined.”

“The way I look at working with a big company is it’s a bit like filling in the blanks,” he said. “So there are blanks that they need you to fill in, but they don’t want to spend the time, and they don’t have the expertise. Whereas, if you work with a local entrepreneur, it’s like filling in a whole page. They need it all. It can be anything. There is a lot of frustration, no question about it. But that’s life. Life is frustrating.”

For Shriya Palekar, an MBA student at MIT Sloan, the China Lab might be better described as challenging. Palekar and Charu Shirai, MBA ’13, were assigned to work with Fei Xuemei and her growing preserved flower company, Holyflora.

Each China Lab project begins in January, when two MIT Sloan students are paired with two students at a partner university in China. The team of students works together remotely until March, at which point the MIT Sloan students travel to China for about two weeks. The project continues there in its most fervent phase, with students working in offices and factories, investigating the business.

Work continues after MIT Sloan students return to Cambridge. Their Chinese counterparts join them there in late spring. Together, the group finalizes its reports and recommendations. Along the way, the goal of the project tends to morph and grow.

“The project scope evolved a bit from the time we first got the application to where we’re at now,” Palekar said about her work with Holyflora. “When we got there, it got a lot more detailed. It was originally supposed to be, ‘Figure out where we can market our products.’ We got there and they had just been approached by the sourcing company that provides all sorts of imports to Pier 1 Imports, as well as the sourcing company that does that for Restoration Hardware.”

Holyflora vice president Xuemei first approached MIT Sloan about hosting a China Lab team with hopes that the team would continue to develop a full business plan for the growing company. But when she met the team students—Palekar is American, Shirai is Japanese—she saw an opportunity to tap their experience with those markets and expand Holyflora’s distribution base there.

“I thought, ‘How can I use this opportunity to help my company?’” Xuemei said. “We wanted Shriya to help us do some market research. Already we had been approached by American companies, and now we know more about what our customers really need, what they want.”

Palekar was struck by how much trust Xuemei and her co-founder put in the student team.

“It was an incredible experience because they were so invested in the project,” she said. “They were treating us like we worked at McKinsey or Bain. That was the level of expectation. I think all Sloanies are go-getters; we’re very excellence-oriented people. But it was a level of accountability that I haven’t felt since I left my job [in healthcare].”

“I think because of our work, Holyflora—being a company that has a strong management skill set and intuition—I think they gained a lot more of the nuanced understanding of the customer and the market and how it works,” she said. “Part of it was the analytical capabilities, the market research capabilities that my project partner and I brought to the table.”

The China Lab team ultimately recommended that Holyflora focus its efforts on entering the wedding flower market in China, improving price competitiveness in Japan, and winning a valuable sourcing contract with a Hong Kong agent to increase sourcing to the United States.

Xuemei admitted to once being skeptical about the need for business education and telling a partner that developing a business plan was a waste of time. Her work with Goldman Sachs’ 10,000 Women Initiative, with MIT Sloan faculty, and with the team of China Lab students has changed that.

“Honestly speaking, doing this business is really very hard,” Xuemei said. “Sometimes you want to give up. Sometimes I think if I give up, it’s OK for me. I can go back to my family. I can still have a very good life.”

“Now I try to study more and more. I’m happier than before. I can imagine what my company’s future is.”...