China and MNCs: Rough Patch or End of the Marriage?

MNCs in China have always negotiated differently than WFOEs or JVs.

When it comes to negotiating in China SMEs  and entrepreneurs shouldn’t be scared off by the troubles of Glaxo  or Sanofi – necessarily.   The headline problems are more politics than business – and that is a different kind of negotiation.  Whether you are an owner, department head or front-line negotiator – your job is to keep your head down, appear Chinese enough to win market acceptance, and stay in control of quality and HR.   Keeping an eye on the bottom line is much easier, however, when you aren’t looking over your shoulder to see who is coming after you.

China has always had a special relationship with MNC

Beijing has always had a love-hate thing with extra-territorial entities.  China’s history with the outside world has always been fraught — privateers and trading companies have threatened China’s sovereignty, taken advantage of internal conflicts, and played the role of hired thug, drug peddlers and enforcers for European governments.  But multinationals have also stepped up to provide financing, assume risk and supply technology that sovereign governments could not or would not. Whether it was “Most Favored Nation”  debates, post-Tiananmen rapprochement or human rights debates, the MNC has always had China’s back in Washington, New York and Brussels.  K Street lobbyists and NY-based PR firms have always been the clearest, most persuasive voices defending Beijing.

Deng Xiaoping’s experiment with reforms might have faltered were it not for the steady flow of cash from HK-based international banks — and giant manufacturers who gave Chinese policy makers and SOE managers an extended master-class in how to rationalize the production process.   While governments and diplomats chided China about human rights and international misdeeds, multinational corporations stood up for China (for reasons of their own) in the halls of Congress and the back rooms where trade deals were made.

Separated at Birth

PRC and MNC have a shared value system that makes their match an enduring one.

First, neither is overburdened by morality when it came to individual liberties or rights.  Beijing and C-Suite HQs have always shared a belief that the mass of humanity was expendable.  The cancer villages of the PRC  and toxic spills of the MNC (BhopalDeepwater Horizon, etc ) are united by a certain type of pragmatism that only a handful of institutions can pull off.  The CCP and corporate boards are both driven by self-reinforcing survival mechanisms that will always bring them back to one another.

But what makes it even more likely that the two partners will get past this rough patch is that both Beijing and the MNC C-suite share a flexible view of history.  Both camps are remarkably pragmatic and stoic when it serves their purposes.  This isn’t the first time that the CCP has butted heads with MNCs – there have been waves of expulsions, vilification and nationalization of assets before.  The two sides always make nice when it serves their purposes.

MNC’s “get it”

China has been a huge source of profit and opportunity for MNCs — largely because the extraterritorial leadership “gets” China.  They don’t ask questions, are quick to cave in to Beijing, and can be relied on for their discretion.   While MNCs are accused of pulling strings and controlling the backrooms of Washington DC and European capitals, in China they profit from taking precisely the opposite approach.  They don’t care a bit about policy, power or control.  They are pure opportunists — bending whichever way the prevailing wind blows and doing as they are told.  There are no candle-lit vigils or impassioned defenses for the good company-men caught following orders in bribery or price-fixing scandals.  “Remember the Rio Tinto 4!” was never a thing.

Of Cogs and Company Men

That brings up an important point for front-line negotiators.  Expats are supposed to understand that life abroad means that they don’t have the same protections that they enjoy back home – and that neither the consulate nor the company counsel give a damn about them.  It’s up to you to understand your exposure (high), know what recourse you have (none) and whom you can rely on (no one).  You are much better off disputing company policy (before you do anything dodgy) than explaining to the local authorities after the fact.  As we’ve stated here before — “but everyone does it,”  “some guy told me it was legal,” and “but I didn’t know it was against the law” are not legal justifications.  They are all admissions of guilt.

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