China Business Reality Check – It’s not fair and isn’t getting better. Deal with it.
For Westerners, doing business in China is
going through anther sea change — so this is a good time to take a fresh look at the operating environment as it impacts on international management decisions.
- 1) The business environment in China isn’t fair to Westerners.
- 2) China is one of the top two economies in the World by just about any standard.
- 3) Negotiating and operating successfully in China will probably get tougher before it gets easier.
- 1) Chinese government / CCP policies give an automatic edge to all Chinese businesses compared to Western operations.
- 2) Western companies can’t make money in China.
- 3) China is about to go bust / will quickly see how much it needs Western good will.
- 1) China is more capitalist than any other economy at any time.
- 2) Chinese companies have it just as tough if not tougher than Western firms.
- 3) The situation is worse in the West / the situation is improving in China.
Let’s look at each one of these in a little more detail.
Reality #1: China isn’t fair to Western businesses. It just isn’t. Let’s accept it and move on. Western companies pay more, take longer, have fewer options, and are more likely to be prosecuted/penalized than local firms. Now, here’s the business point you have to take away from this – it doesn’t matter if there are good historical, cultural, or political reasons; it doesn’t matter if Chinese firms are treated just as badly or worse when they go abroad; and it doesn’t matter if Western firms used to get preferential treatment, so today’s unfair treatment is somehow “fair” in some obscure way. That’s all just academic theory or babyish whining. Man-up and play to win. All that matters is that you, as an international manager, are going to be held to the letter of the law and will always face slower, more stringent treatment from the bureaucracy. You know it, you have time to plan for it, and you have to deal with it. Literally. You have to structure your business plans and negotiating strategy to compensate for harsher, unequal treatment from bureaucratic authorities. Stop trying to cut corners or assume you can get local treatment. If you are getting advice from locals, make sure you are have some kind of filter i’n place to make sure they understand the ‘Xpat Factor’. You aren’t in Kansas anymore, so stop managing or structuring deals as though you were.
Reality #2: You’re going to be in China or you’re going to be out of China. If you don’t need to be here, then for God’s sake go home and stack your paper were it’s easier, fairer, and you have some kind of legal recourse. For the rest of you, commit to the real costs of being a serious player in China. You will have to change your standard operating procedure, find new profit models, and will have to give up at least some of your intellectual property. Your lawyers will tell you about protecting yourself from the downside – and there is a lot of value to what they say (though their US-based solutions will almost always backfire). But you also have to talk to your marketing people to find out what can happen on the upside. Did Microsoft really not have any idea that there might eventually be pushback for a Western firm owning 98% + of all the professional and government desktops in China?!? Google, Microsoft, Qualcomm, Cisco – hasn’t anyone in any of these cutting-edge “smart” firms ever heard of scenario analysis? What happens if you start winning big in a market where the unelected government makes up the rules at will?
If you can’t afford to sit out this market, then you certainly can’t afford to get kicked out. Plan for success, and anticipate what is going to press the buttons of xenophobic, panic-prone bureaucrats.
Reality #3: It’s only getting harder. During the Google crack-down, one of the common Chinapologist refrains was “China won’t permanently ban the most popular search engine in the world because the people won’t tolerate it and/or business will suffer.” Your version of common wisdom and simple logic just doesn’t work here. Chinese policy makers are completely rational – but their end goals and preferred methods aren’t related to yours in any way. They can fake the numbers and direct the blame anywhere they want – what they can’t do is lose control of the system they run. Everything is secondary to orderly control. That’s where you come in – or rather, where you exit. You may consider yourself a head-down, eyes-on-the-bottom-line, apolitical businessman who just wants to do your job and get on with life, but to the bureaucrats you will always be a threat and challenge to the status quo. The fine print in Deng Xiaoping’s “black cat white cat” speeches was that once dependable SOEs and trusted Party members could deliver needed economic growth, then the sketchier foreign elements would become unnecessary. We’re not there yet, but clearly the CCP policymakers are preparing for a day when foreign players have a very limited & controlled place on the team. The WTO won’t help, the State Department won’t help, and the Chamber of Commerce won’t help. And before you start talking about the will of the people or power of the market, ask your Chinese associates what search engine they use.
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