Western negotiators may see a silver lining in the dark clouds hanging over China’s economy
Western negotiators in China have had a tough time since the crash of 2008. Not only were the economies in the US and Europe hit hard, but China’s resilience gave rise to all kinds of talk about “new economic paradigms” and “the end of the American Age”. Chinese businesses seemed to be rewriting the management textbooks, and pundits were quick to find teachable lessons in Beijing’s deft approach to neo-capitalism. Western negotiators found themselves in a weak position – they had neither cash positions nor business methods to leverage in a China buoyed by government cash and widespread confidence in homegrown commercial leadership. All of those expensive western MBAs and glossy business journals started looking irrelevant and useless.
But as the global slowdown approaches the half-decade mark, Western negotiators in China are starting to see opportunities in the mainland markets. Americans and Europeans – used to boom-bust cycles – took the 2008 onslaught in stride, but China’s nouveau riche have been heading for the exits as gloomy economic news piled up faster than inventory in SOE warehouses. Western millionaires may send their cash overseas, but they keep their kids at home. In China, the emotional pendulum seems to have swung from “Mandarin of the Universe” to economic refugee at the first sign of GDP weakness.
What does China Inc.’s bumpy landing mean for Western business? In a word – leverage.
The bargaining position for US negotiators in China hasn’t been this strong in years:
1. USA is the calm, steady safe haven again. Remember back to 2008 when all the globo-pundits were talking about the end of the American Generation? The Asian Age? The China Generation? The Bo Dynasty? They were predicting riots and unrest in US cities as chaos forced anyone of means to flee for his life. We may have our issues, but we’re still standing. China, however, has been a little quick to hit the panic button. At least our rich kids keep their passports.
2. The China middle-class market is no longer a lock-out that you can’t touch. In the post-crash days, it was briefly cool for well-heeled Mainlanders to buy local – but as China Inc. stumbles, confidence is down and investment has dried up. Even if the trend shifts from ostentatious super-lux brands to low-profile value buying, Western labels are still the first choice.
3. Brands, brands, brands. In China, the low cost model has crapped out, and the SOEs are drowning in their own inventory. Climbing the tech ladder is a long, slow slog. Chinese companies from automakers to oil companies want to build or buy name brands that they can take global. Western names and know-how are in demand again.
4. A new wish list for China business owners – export markets and international presence. What’s old is what’s new as Chinese look for Western expertise to keep their economy churning. It’s not capital or manufacturing technology this time – branding, international sales and process R&D are the deal points that count.
5. You’re (relatively) rich again.The local flippers are pulling up stakes. Chinese who made money in real estate or from cheap labor are cashing out and heading for the exits. Banks are cutting back and international investors are getting nervous. The China Miracle is looking a little risky for the first time in recent memory. American expanders have traction again for the first time in half a decade. But this time, don’t play the sucker game of driving prices to the bottom – pay a fair price but find ways to push quality up.
It’s a new G2 world, and the US and China are the hottest couple in the trailer park. It’s time to revisit expansion plans and dust off those business cards from potential Chinese partners who didn’t have time for you a couple of years ago. Your position is strong and you have deal points to leverage – for now. It can all go south on you tomorrow, so don’t dawdle. There’s always another fiscal cliff around the corner…
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