After Microsoft decided to set up a research lab in China in 1998, authors Bob Buderi and Gregory Huang tagged along to find out how one of the West’s leading corporations tackled innovation and partnership with a developing economic giant. Says Buderi, “We tried to tell the story through the eyes of the people involved. We went to parties with them; played basketball with them….We hope in the process we’ve drawn out lessons of doing business with any emerging nation, in ways that are more fun and memorable than any management treatise.”

Microsoft, say the authors, went at the problem of opening up the China market in a way that was a departure for most Western companies. Instead of focusing on sales or cheap manufacturing possibilities, Bill Gates imagined tapping into China’s vast pool of talented computer science students and harnessing their energy in a way that would be mutually beneficial to Microsoft and China. He visited China’s top leaders repeatedly over the years, building a relationship and opening doors. He practiced Guanxi, a Chinese term that conveys trust and mutuality. Says Huang, the “most important principle is that relationships must be nurtured over time. They can’t be bought or rushed.”

Microsoft found the perfect person to head the venture – Kai-Fu Lee, who became one of the key characters in Guanxi. Born in Taiwan and educated in the U.S., Kai-Fu understood how to sell Microsoft’s idea to Chinese officials and academics. He recruited the cream of the crop, says Huang, and hired senior staff to mentor young talent. There were bumps along the way: Brilliant as they were, young recruits, says Buderi, “were used to following specific instructions and wouldn’t dream of taking off on their own course.” This sparked a crisis in the lab, leading to much longer training times.

Within a few years, the lab built up five core areas of expertise, in speech recognition, multimedia, graphics, wireless, and search, and began pumping out world-class papers and patents.

Paradoxically, note the authors, Microsoft’s success has inspired imitators, most notably Google, which snapped up Kai-Fu Lee to launch a similar lab in China. Vicious lawsuits notwithstanding, the authors believe “Microsoft had a nice run, but things will get better now with competition.”