We’ve seen this before. A new CEO with limited China experience introduces himself to the international business community with tough
talk and big promises about China and the rest of Asia. Then reality rears its ugly head.
The new US administration is doing what new US senior managers in China do best – sending conflicting messages, missing opportunities, and making sweeping pronouncements that are just about impossible to implement.
What can we expect moving forward?
Expect to watch the needle swing back and forth between Partner and Competitor pretty sharply for a while yet as the new trade bosses find their footing. Here are the potential flashpoints you should be watching.
Intellectual property protection
Tariffs or “border adjustments”
Christianity in China
Yes, the Taiwan card has been played, but you can expect to see it massively overplayed at least once again in the near future. The present administration has probably forgotten the Taiwan call & tweet , and is hoping that the tough talk on North Korea will amount to little more than a photo-op. And that’s your problem(s).
China Negotiation Pro Tip: Start Reading the Chinese People’s Daily. The news is fake, but the sentiment is real.
Takeaway: The People’s Daily and other Xinhua-driven official news outlets offer Western decision-makers valuable insights into 1) CCP official policy and 2) Street level sentiment of Chinese public.
As we enter a new period of increasing tension and trade barriers, individual decision-makers
will once again have to scramble for real, actionable news about China. I want to point you in an unexpected direction: the Xinhua News Agency / People’s Daily. By now we have all learned about the dangers of filter bubbles and echo chambers (at least that’s what my Facebook feed tells me), so I’m offering up a cheap & easy means of getting direct access to genuine CCP official views. Here are the links:
There is uncertainty in US-China business right now. Whatever your politics, there’s no denying that the business environment is going to shift in unknown and unpredictable ways over the next year or so. Let’s talk about how to make this work for you.
Tactical Ambiguity = Using Uncertainty as a Bargaining Chip
Strategic ambiguity is about long-term planning. Tactical ambiguity means turning an unclear situation into a valuable bargaining chip. Don’t minimize the impact of uncertainty or try to put an optimistic spin on everything. Chinese counter-parties generally fear chaos, and plan for success on global markets. Both of those buttons are lighting up bright red — so this is an opportunity to reframe your negotiations and planning sessions. You know your counter-party’s hopes and fears right now, and your job is to turn that to your advantage.
China is a unique place with a culture, especially its business culture, that continues to confound western business people no end, and not just in obvious ways. There is nuance too.
Whatever ethical norms you’ve come to expect, they don’t apply in China. Why should they?
This is a truly different place. The more opportunity there is to profit personally from your operations through fraud, the greater temptation there will be to take advantage of you and your company – and in ways you would never suspect. Think unbridled Wild West.
Will weaker Chinese growth strengthen your negotiating position?
The Chinese economy has been slowing for the last few quarters, and whether it is a controlled application of bureaucratic brakes or the start of a skid into a recessionary ditch, some international business people see China’s deceleration as an opportunity. International negotiators who believe that a slowing Chinese economy gives foreigners more leverage are, however, over-optimistic at best. There may be isolated cases were individual private Chinese businesses will be motivated to sweeten their offers in the face of a domestic slowdown, but it would be unwise to assume that Chinese counterparties are all feeling desperate. Westerners who calculate that the bureaucracy is going to become more welcoming to foreign businesses need to realize that a couple of years of slower growth will probably make their challenges in Beijing more severe.
Is it worth the effort and investment for foreign firms to do business in China? The answer depends on who you are and what you want from the market – and that’s a problem.
I spent a month in China trying to answer the question, “is it still worthwhile for Westerners to try doing business in China?” The international business press has been focusing on Beijing’s prosecution of the infamous Anti-Monopoly Law and use of national security claims to restrict foreign firms’ access to China’s burgeoning middle-class markets. Overseas readers of the WSJ and Forbes could easily get the impression that foreign brands are being chased out of China on a tide of xenophobic resentment and anti-foreign fervor – but it’s simply not the reality on the ground.
Mario Cavolo and Andrew Hupert take two different views on China’s emerging business environment.
China’s economic and regulatory policies are a work in progress that are constantly evolving. Lately the pendulum seems to be swinging against the interests of multinationals, but the reality defies easy answers or rash generalizations. ChinaSolved.com presents for your consideration two different views on recent developments and future directions of Chinese economic policy:
China’s Evolving Business Environment Favorable to Some
Mario Cavolo, Vice President – Media/PR Training; Scott PR China, www.scottpr.cn and author of China: The Big Lie? published by Long River Press, North America
Mario Cavolo reminds us that not all the China business changes are negative – and some beneficiaries of recent policies are the good guys.
Any worthy China watcher has noticed the increasingly unfavorable trend toward foreign entities present here, whether it is reporting on security issues with Microsoft and Apple or the recent position papers by the European and American Chambers delivering a somber rather than upbeat view of the current business environment in terms of ease of doing business. It’s not all bad, but we wish it was better.
The Chinese bureaucracy is much more tolerant of overseas companies that spend than of overseas companies that earn in China. That means integrated MNCs must adjust their business models – and their approach to regulators – when they are selling.
Western negotiators in China are finally coming to accept
that no matter what the deal on the table may be, their most significant counterparty is the Chinese government bureaucracy. The Chinese government has a much different attitude towards international businesses coming to China to buy or manufacture as opposed to those coming to China to sell and market. International managers are still coming to grips with this dichotomy, and it is causing problems and costing money.
Ask not what China can do for you – ask what China wants from you.
China bears and the Chinapologists are spreading myths that lead to terrible business decisions. The truth lies somewhere between these two extreme – and dangerous viewpoints.
Last week we talked about China realities. The ultimate conclusion was that while the Chinese business environment isn’t fair, it’s still the best game in town in terms of growth and opportunity. As a China negotiator and decision-maker, you have to decide early – go all in or get completely out for good. China is a terrible place for half-measures.
Two types of China myths. China bear and Chinapologists.
Chinapologists are the China experts who support and spread the orthodox China party line. You can usually spot them because they tend to preface every statement with, “I’m not supporting the Chinese party line but…” and then they proceed to do so. When a Chinese person does this it’s pretty easy to spot them as either 50 Cent Army (paid posters on online chat and BBS sites, who are alleged paid half a mao – or fifty cents – for each pro-government entry) or direct beneficiaries of Chinese policy. It has become common for Westerners living in China for a long time or hoping to curry favor with bureaucrats or officials to actively defend Chinese policies that many Westerners consider unfair or discriminatory. Sometimes these Chinapologists feel they are winning points with decision-makers who will soon repay the favor; sometimes they got to this position via a slippery slope of defending elements of Chinese business or society that they genuinely believe in- but ended up completely in the China camp; and sometimes they are merely mouthing politically correct positions in public while take a much more realistic stance in private or with paying customers. However they may have come to act as apologists for the Chinese bureaucracy, their arguments usually fall into one of three main categories:
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.