Understanding today’s China

Shanghai Getty

If you want to succeed in the China market beyond 2017, it’s critical that you first understand it. Stephen N. Anderson explains how, despite the many doubts and risks involved, international companies have succeeded in taking it on.

Today, China provides significant business and financial opportunities. It is well known not just for being the largest global supplier of parts and goods but its own rising businesses and an educated middle class of a new generation of business leaders and consumers – estimated to be 350 million people.

In addition, China is becoming independently strong in leading technology and increasingly competitive in major industry sectors. On October 10th The New York Times reported that Beijing, “has called for one out of every five cars sold in China to run on alternative fuel by 2025”.  In September, China issued rules that would require the world’s carmakers to sell more alternative-energy cars in China if they wanted to continue to sell traditional petroleum-fueled cars.

In the past, China has been the subject of economic and business speculation and intense analysis, particularly during the past 25 years. Some of the experience and findings continue to lay doubts in the minds of businesses, investors and banks who are interested, but concerned, about the risks articulated.

The new challenges of global competition and acquisition raise more concerns, and opportunities. One example, of many, of how China’s industries can no longer be labeled just as low cost product producers for others is Zhejiang Geely Holding Group, a conglomerate based in Hangzhou.

In 2010, the company moved up the industry ranking from manufacturing refrigerator parts to acquiring Volvo, the Swedish automaker, from Ford of America. Then in October 2017, Geely acquired 51.5% of Saxo Bank, a Danish investment bank headquartered in Copenhagen.

Saxo is no ordinary investment bank. It was very early in adopting online securities trading and invests heavily in financial technology.

The early concerns about dealing with China have entered curbside language:

• Doubts about a communist country being able to succeed in global commerce were prevalent early on and still echo.

• Reports and charges have been made regarding theft of US and other countries’ technology by Chinese companies.

• Difficulty in negotiations, including what seemed to be agreements by negotiating teams turning into no agreement the following meeting.

• The concept of what was written on contracts, discussed in meetings and verbally agreed to, were not subscribed to.

• Creativity was not something the Chinese could do because of their rigid education system and restrictive family culture.

• China’s banking system was failing due to bank lending policies, that could cause the entire country to find itself in economic default.

Despite all of those doubts from the past potentially standing in the way, a sufficient number of non-Chinese companies have been successful in the country due to what in retrospect seems common sense. The layer that preceded the “common sense” was learning and understanding that long-standing cultures like China operate on well-established and trusted processes and criteria.

These businesses have learned how to succeed in the “zhongguo” or middle kingdom that, from the outside, is a complex dragon. Others can learn from their experience. And, as in most cases, knowledge and recognition of your customers’ expectations is essential to sustainable success. It wasn’t that the spooky risks had disappeared. They learned what were real, and what were not, and how to become successfully immersed in the country in order to become trusted and understood.

What relevance do these cultural, “getting to know the villagers” suggestions have today, given the emergence of China from being the global low cost manufacturing source of choice to setting new standards and acquiring leading businesses everywhere outside of China?

“China’s GDP has grown nearly 10 percent a year as it has successfully revised its economic strategy from centrally-planned to a market-based economy.”

The concerns, speculation and misunderstanding about China did not inhibit the country’s successful growth. China’s GDP has grown nearly 10 percent a year as it has successfully revised its economic strategy from centrally-planned to a market-based economy. Mark that as creativity on a very large scale.

Success through learning

Taking a look at what some leading “western” brands have done to establish a foundation for success in China can contribute to learning and success.

In January 1999 Starbucks opened its first store in mainland China. Granted, that was 18 years ago, and before the China we see today.

Starbucks has adopted well. Turning a tea drinking nation to one that savours coffee. They intend to grow from their current level of 2,800 stores to more than 5,000 by 2021.

Smooth sailing since 1999? Not really. In 2007, a store in the Forbidden City was closed. A TV anchorman, Rui Chenggang, blogged that the store “tramples over Chinese culture.”

So what has Starbucks done to avoid being further rejected by a culture unaccustomed to coffee?

• Developed a strategy specific to making the Chinese customer experience be Chinese, starting with partnering with smaller, local companies for supplies and services.

• Selective hiring of its employees, all Chinese.

• It pays above standard wages, and provides employees with high level training.

• Established recognition with “Coffee Master” title for those who pass a test after training.

• Worked closely with local government officials.

• In January of this year, Starbucks began establishing subsidised housing accommodation for its more than 30,000 employees in China.

 

Silicon Valley Bank (SVB) is another example. Based in San Jose, California and focused heavily on technology company customers, SVB established its first relationship in Asia in 1990, and in 2005 set up a subsidiary – SVB Business Partners Shanghai.

They then spent the next five years developing business relationships in China, and in 2010 established another subsidiary – SVB Business Partners Beijing.

Both subsidiaries served local technology companies and venture capital investors, providing advisory services and offshore US dollar-based investment support for their Chinese company customers.

Most important, bank management learned from their Chinese subsidiaries the value of relationships and how to nurture them in China.

Then in 2011, the bank’s CEO, Ken Wilcox, moved to China to lead the China strategy, leaving Tom Becker to run the business in the US. That move, in itself, was key.

Hierarchy is very important in Chinese culture. His presence established a commitment and credibility at the highest level. The bank then moved select employees to China who could assimilate to this new culture and maintain the bank’s strong internal culture.

It has worked. From losses in 2012 to profitability in 2013, and providing additional double digit assets for the bank to manage from the Chinese subsidiaries.

The Hinge Years- Need for Economic & Political Change in the U.S.

This is the time to create strategies that differentiate your company or government policy, that accurately reads your customer’s (citizen’s) needs and addresses them with your products even with things that they could not imagine but that advance their lives and the next generation as well.

Marquis has experienced the benefits of making an opportunity out of chaos. And if a “bubble” created by a combination of business and government is the chaos, we look for opportunities.

The bigger issue is: Can business and government harness a common strategy for the 22nd century?

The concern regarding facing a new “bubble” in the U.S. economy in 2016 cannot be relegated just to the business and financial engines and their leaders alone. They all are looking into their organizations and externally for a strategy that has the strength of a common cause that binds business and government together, without requiring a global war.

Government is facing its own “bubble” as the voting citizens struggle with the stagnation of the present and reach out desperately for hopeful phrases and promises for the world they want, but do not have.

In the just released book, “Disruptpolitics. US: Declaring Independence From The Special Interest State” by James Strock , the author writes in the Preface: “Nearly everyone – outside of Washington, D.C. – is having similar thoughts: What is to be done to put our country back on track?”

Then he goes on to say: “The dawn of the twenty-first century is notable for the extraordinary disruption and progress that is remaking our lives and work. There are untold opportunities for leadership and service for individuals and networks and organizations.

“At the same time, our government institutions are isolated and inert. Our office holders are captive to outdated and unsustainable patterns of thought and action.

“Our government’s dysfunction is disserving us. It’s not merely a lost opportunity; it is impeding our progress. For the time being, with much of the rest of the world in even worse shape, mediocrity might seem sufficient. But it’s not. If there’s one thing we know, it’s that disruption is coming. Other nations will move into whatever space we leave open for their aspiration and assertion.

“That is just what the United States did during our turn as a rising power.”

Strategy has a strong military DNA, but it has been successfully adopted by business over the post World War II years and become more adept and sophisticated just as military confrontations with an enemy have had to become.

Listen to the practical meaning of the following to see if it could be adopted by business and government.

When a company (or government) is in maintenance mode, operating as though nothing has changed, it is suicidal. Taking a page from the statistician, and the father of quality assurance, Edwards S. Deming, “One requirement for innovation is faith that there will be a future. Innovation, the foundation of the future, can not thrive unless the top management (aka: government) has declared unshakable commitment to quality and productivity.”

Think of Deming’s advice, the concept of strategy and the concepts proposed in what follows as a hybrid of government and commerce. Not one dominating the other, but collaborating (not lobbying).

That is not to suggest turning into a pessimist such as the scrap dealer or the mortician, rather, as optimists, we turn lemons into lemonade.

Here is the hard part. As the chaos “bubble” begins, focus on retaining your customers. Work at giving them a positive experience. On a scale of 1-10, target at least an 8. And you do that by providing added value over and above what they expected. Connect your delivered value to your customer expectations.

Where our future is emerging from

Future Growth Champions R&D Speed & Innovation

Strategy Execution Essential for Ultimate Commercial Success

Marquis Advisory sees innovation acceleration worldwide in many sectors from agriculture to transportation. Countries with the strongest innovation and infrastructure will be global economic leaders.

For more than 20 years we have served innovative business ventures at different plateaus of their development, providing comprehensive strategic planning and execution for new market entry and/or new products introductions as a complimentary integration of management teams.

Our current engagements are in three of the top 13 innovation countries Continue reading Where our future is emerging from

Notes on Capital Flows into the US

In trying to determine the factors that go into the flow of capital, and whether or not a particular country is a safe place to invest, there are a number of variables to consider. Marquis Advisory Group works with international companies looking to enter the US, thus it’s in our interest to be aware of these factors. One of our advisors, Dr. Patrick Caragata, founder of Rapid Ratings, and a former Chief Economist for New Zealand, recently wrote this note to his staff and shared this with us.

Factors that influence the flow of capital into the US Continue reading Notes on Capital Flows into the US

Lessons from James Strock on Environmental Protection and the Government

This is a part of a series of excerpts from the book, Leadership in Environmental Issues: What Works ©, by managing partner Stephen Anderson. This excerpted material is from Chapter 2 on James M. Strock.

A consistent, thematic question for everyone involved in environmental issues is, “Can government legislate and enforce consistently enough to save our global climate?”

There is now a spirited public debate about whether and how environmental change can be achieved in the twenty-first century. Continue reading Lessons from James Strock on Environmental Protection and the Government

Lessons from Randy Hayes, Founder of Rainforest Action Network

This is a part of a series of excerpts from the book, Leadership in Environmental Issues: What Works ©, by managing partner Stephen Anderson. This excerpted material is from Chapter 4 on Randy Hayes, Founder of Rainforest Action Network.

“The most important environmental policy is economic policy.” – Randy Hayes

It is hard to imagine what Randy Hayes is best known for because he has done so many things – award winning filmmaker, city government environmental policy maker, environmental activist and now founder of a Washington, D.C. think tank. Continue reading Lessons from Randy Hayes, Founder of Rainforest Action Network