Christine Lu from The China Business Network has a podcast interview with my good friend Eric Rosenblum, GM of Global Strategy for RealNetworks. Once upon a time, back in the Bubble, Eric–who’d just left BCG–helped found a dotcom called ChinaNow.com, a bilingual city guide, where he was COO and I was editor-in-chief. Eric ran RealNetworks in Beijing for the last few years, and I’ve heard it said by many a person that he was the only laowai they’d ever met who really knew how to do business in China. I’ve seen him in action, and though he might not be the only one, he’s certainly one of the few. (For the record, I’m not). Eric was a groomsman at my wedding four years ago. He and his family moved to Seattle last spring–a great loss for all of us here in the ‘Jing, who loved attending the lavish Sunday brunches he and his wife Titi threw and miss the company of his adorable kids.

Here’s what Eric had to say about that question we all hear so often: Why is it that American companies seem condemned to screw it up so badly in China? He’s got some unconventional answers besides the usual failure-to-empower-local-management and painfully-slow-decision-cycle, which of course are very real reasons. Read on beyond the jump for the really interesting stuff. (Transcribed here with the blessing of Ms. Lu!)

Within the world of technology companies, and information technology companies, I think that there are a number of problems. If you think about it, in the last six or seven years this whole market has evolved around the world, and in China the competitors have been established for about the same time that the U.S. competitors have. So it’s not that the U.S. competitors necessarily have an advantage of great insight or time even in their own markets, let alone in China. And the companies that have been set up in China—the local operations that have been set up in China by U.S. corporations–also have to deal with the fact that these companies are really located deep down in the organization chart. So to make this pretty clear, if you’re running eBay China, the head of eBay China is reporting to someone who has the title of [head of] eBay International, who reports to someone who has a higher level title, who reports to the CEO…

And so the head of eBay China would be competing against a competitor who makes their decisions themselves. Decisions that it takes someone who’s head of eBay China perhaps a week long… the head of their competitor can make that same decision in 15 minutes while consulting with their general staff. And so in a market that changes as fast as it does in this industry, American companies or foreign companies in general are setting themselves up to have a very, very long decision cycle. And it’s difficult when you’re competing against very well-financed thoughtful competition that can make the decisions much faster.

Ms. Lu then asks him, “How much of this is a company’s lack of due diligence when entering the market?” I like Eric’s answer to this one:

Actually, I think that’s an interesting point. I think due diligence is often overdone by foreign companies entering China. They don’t think about their own operational capabilities. So, for example, if I were a Yahoo or an eBay or a Google or a Real Networks, which is my current employer—we tend to do pretty thorough due diligence, and there’s a lot of attention paid to the market, to market forces, and what strategic advantages we have. It’s a very classic sort of consulting or business school exercise. But what people fail to realize is that after entering, that structurally we will set ourselves up for very slow decision-making cycles, very inefficient processes; we tend to underestimate the amount of support that that operation will need. So that if we simply take a group of our people out from Mountain View, California, or from Seattle or from Boston and stick them in China, regardless of how well we do our homework—no one ever puts in their business plan that we assume that we’ll be inefficient, and we assume that communication will be difficult. People often tend to discount the difficulties of those sorts of factors. But they tend to spend a lot of time thinking about the local market, and thinking about the classic due diligence questions. So in the case of due diligence I would say that it’s just the opposite—people tend to at least define due diligence as a classic exercise that takes into account… all the stuff in the business school textbooks, and tend to underemphasize their own internal structural problems that will lead them to have difficulties.

Christine (who tells me, via Facebook, that as an ambitious 22-year-old back during the Bubble she’d met with Eric and I to discuss her women’s portal startup) then suggests correctly that part of the problem is a sort of ADD, compounded by short-term thinking on the part of the American mother ship. He agrees:

The mentality with this kind of startup in China—not just a startup, but a corporation like Google or Yahoo or eBay—I think that their attention span has been fostered by the fact that these companies themselves are only 10 years old, or less, and they’ve been tempered by thinking of things in one year or three year cycles. And so there’s a lot of initial excitement, and none of them have struggled through really hard times, so I think their attention tends to wane after a year or so of struggle.

I think all companies tend to demand results now. So I don’t think that’s necessarily particular to information technology or to China in particular. But I do think, though, that there’s something particular about foreign companies setting up offices in remote locations and expecting that they will be able to operate with the same speed, freedom, and consistency that they do back home. And it’s not just that China’s different.

China is different, of course. I think Eric’s dead-on when he explains precisely what’s so different:

The difference with China—a lot of people like to say that China’s different, because you just can’t understand it… I think that’s a crutch. To me China is different for a very simple reason, which is [that] investors are interested in China, which means that local Chinese companies have gotten a lot of funding. So it’s not like you’re competing in a country without an established VC market, or a country without great engineers, or a country that doesn’t have a lot of investment capital pouring in, willing to stake themselves against you. So the reason China is different for me is that all the factors that make the U.S. a competitive market also exist in China, except people have less money to pay for your product: The competition is probably even fiercer. And you’re trying to get decisions across five thousand miles, which is very slow. So of course you have trouble competing with a well-funded local company. It’s extremely egotistical to even imagine you could.

Listen to the podcast for yourself for the rest of the goodies. He’s surprisingly sanguine about MySpace.cn’s chances, and to an extent I agree–at least insofar as the team (led by MSN veteran Luo Chuan) really has been empowered and given on-the-ground decision-making authority, as Eric points out. That’s certainly a necessary condition. Whether it’s sufficient is another matter entirely. I’ve never believed that a U.S. Internet company can’t make it in China, but there sure as hell aren’t any shining examples of any that have.