Navigating China in “Interesting Times”
By Douglas Dew, Managing Director & Leader of B-M China’s Public Affairs Practice
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With China’s relative importance to many foreign multin
ationals increasing in these undoubtedly “interesting times” and China’s own role and responsibility in global affairs increasing – foreign companies need to renew efforts to build and enhance institutional understanding of China and the Chinese development agenda.
Why? Because China is changing fast and so in some ways are its expectations for foreign business and foreign investment. Because for many the stakes and risks are higher due to the global financial mess and uncertainty and its local impacts. Because there are new and continuing opportunities to be realized – despite and as a consequence of the crisis. Indeed, “understanding China” and its development agenda in these times and beyond can be a source of significant global competitive advantage in a range of areas.
In a still relatively opaque operating environment, the key of course is to make sure that “understanding” is based on substantive knowledge concerning evolving local stakeholder expectations and the changing business and public policy context – as opposed to outdated assumptions and guesswork.
The ability to build corporate reputation and to manage and mitigate issues in the world’s key growth market are but two aspects of this competitive advantage – that can be enhanced by more substantive “China understanding”. In fact the most successful foreign companies are able to align their entire business strategy in China with this constantly evolving agenda – recognizing that business success and failure can often be attributed to the degree of alignment achieved.
When we look at the current environment for foreign MNCs in China – we need for example to understand that there was already evidence of a growing ambivalence towards foreign–owned enterprises established and doing business in this country – well before any potential protectionist sentiments generated by the recent economic downturn. Indeed, understanding underlying, more long–standing concerns and Chinese strategy vis a vis foreign investment is in our view far more productive than trying to anticipate potential protectionist measures in the short–term.
China continues to be very much focused on calibrating how it utilizes foreign investment. During the past two years for example there has been much greater emphasis placed on the qualitative aspects of foreign investment than on the quantitative (even if in the short–term economic contributions are favored once again, particularly at the local level, because of the crisis). As China pursues an overall shift from extensive to intensive growth it will continue to evolve an approach that is more selective about foreign investment. This will include greater relative emphasis on areas involving technology and knowledge transfers – coupled with various other strategies to overcome a perceived overreliance on foreign technology and foreign market dominance in certain areas of the economy, as well as to retain and develop home–grown Chinese “national champion” companies. The recent decision by China’s Ministry of Commerce to decline Coca–Cola Co.’s proposed acquisition of China Huiyuan Juice Group Ltd – a “famous Chinese brand” – can for example be understood from this perspective (irrespective of the official basis of the decision).
It also needs to be understood that growing ambivalence in recent years may partly explain the huge number of crises and issues management situations to which foreign companies have increasingly been prey in China. The current economic crisis and its impacts in some ways increase the risks of crisis in certain areas – but these risks were already very much apparent. Crises and issues have touched a wide range of industries including automotive, healthcare, cosmetics, food and nutrition, chemicals and plastics, technology and electronics, and energy and resources. In fact, no industry is immune, with many of the world’s leading brands finding themselves in crisis mode in China for extended periods and experiencing the accompanying financial and business consequences.
These situations have further fed intense debate about MNC corporate responsibility and accountability in the Chinese media and within the Chinese government. Issues and allegations have included serious environmental contamination and degradation incidents, major product quality and safety lapses, cultural insensitivities, corruption and breaches of ethics, monopolistic practices, labor and consumer rights violations – among others – with overarching suggestions that some MNCs apply “double standards” to China. Given the increased importance of China to many MNCs – and in some ways hardening Chinese stakeholder attitudes – obvious care needs to be taken in these times in managing issues that might escalate to crisis and in ensuring that the handling of a crisis – does not become the crisis.