Chaos Under Heaven and the Opportunities are Abundant

A scary, intransigent Beijing can be great for American business

I like and respect the Chinese people well enough, but I am skeptical about the sudden air of invincibility that the business press is bestowing upon Beijing. Commentators have gone from gushing about Shanghai’s skyline (2000s) to post crash resignation about the rise of China. China may in fact ascend to world dominance someday, somehow, some way – but it won’t be with this set of leaders or this playbook. Censorship of your own population, bullying your neighbors, massive capital flight, widespread IP theft, and institutionalized corruption are the signs of weakness – not

Learn to negotiate successfully in China
Learn to Negotiate Successfully in China

instruments of strength.

They are also indicators of potential profit. Today’s conversation is about micro threats, massive opportunities and sustainable competitive advantage. American managers and strategists should start worrying when Beijing begins getting things right. Right now, the situation in China is made for MNCs or internationally-oriented SMEs looking to expand markets.

 

Western planners have to stop sounding like chicken little warning about falling skies and start looking as the reality on the ground:

1) China is scary which makes the US look safe and reliable. Whether it’s with suspicious allies on the Pacific Rim or Chinese comparison shoppers in the department store, China is the best PR spokesman America has ever had. Mature readers remember the USA getting chased of Clarke Air Force Base in the Philippines, flags burned in S. Korea (the original gangnam style) and anti-US rallies in Japan. They may not love us now — but they are scared to death of China and want us to stay engaged and close.

2) China overpays for sketchy assets in Europe and US that it can’t manage. In 2010 Wen Jiaobao told the G20 to go to hell – now Beijing is discussing credit terms. Someone will have to manage these acquisitions – look for partnership and management contracts.

3) The PLA’s massive hacking campaign may be a despicable act of aggression – but stealing last year’s technology means that China Inc. is training their markets to use our platforms and products – and doing cheap market research for US firms smart enough to exploit it. Chinese IP thieves may tweak US designs, but that means Chinese engineering talent won’t be designing any category-killing upstart products or technologies.

American planners have a bad habit of being overly skeptical about their own challenges and limitations and too ready to believe the PR of the competition. Chinese management is tactical – not strategic. They react and copy. American managers can counter this by planning on having Chinese steal their ideas — and using China as a laboratory. Western companies will find it easier to solve new problems than safeguard old secrets.

If you need an example from today’s headlines, just look at YUM and the mess that KFC is in because the chickens it bought from local farms were overloaded with antibiotics and hormones. YUM has thus far reacted typically – apologizing profusely and dropping its smaller providers. But Sam Su, YUM China hinted at a more proactive strategy that could give the chain a sustained competitive advantage. From the WSJ:  “Mr. Su said in an interview that Yum is working with international poultry suppliers to help them enter the Chinese market or to invest in China’s domestic suppliers to improve their quality. Yum will have future announcements on bringing additional poultry players to the market, Mr. Su said, declining to comment further.” If MNCs can safeguard the food supply chain (and succeed where the government has failed) then they will regain their market dominance – and price premium.

Cellphones are a great example of how typical MNC marketing is failing. Apple is having trouble in China because the cream of that market already has their 500 dollar phones. The mass market is willing to settle for 75% of the hardware features for 25% of the price — particularly when networks are providing all the benefits of ownership for free or pay-as-you go transaction charges. But cheap smart handsets aren’t something that only Chinese consumers want. The same thing is going to happen everywhere. We can guess now – in 2013 – that by 2015 most of all new cellphones will retail for under $200 bucks. Apple and Samsung can fight the future by fussing with expensive offerings and relying on an oligarchy of network providers to create barriers to entry, or they can study the free market laboratory that is China and get to the answer first.

As Western strategists, Chinese management techniques should be your biggest asset. When I saw the headlines about Chinese hackers plundering US databases I panicked — but I relaxed as soon as I saw it was the PLA. None of that stolen data will ever find its way to anyone useful. We keep telling ourselves that Chinese management teams are all warrior scholars with ninja hacking skills and the ability to see into the future — it’s just not so. When I worked with Chinese managements I was stunned by how reactive, unimaginative and stodgy they were.

In China, American brands may come and go, but Brand America is consistently strong and usually favorable. Chinese companies and institutions still judge their success and progress against the US yardstick — and our products command premium prices and high ratings. American marketers have learned to play to their strengths with Chinese consumers — but now business planners have to study the same lessons. Disengaging or delaying from China because the government is obnoxious or the regulations are unfair is ridiculous. This is your moment. What you should be scared of is a friendly PRC with a human face and a level playing field — by then it will be too late for you and your competitive advantages will be gone.

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