This is the second part of my two part blog post on China. I wrote last week about the Re-emergence of China and the Three Big F's - this week I want to focus on the unique form of capitalism that exists in China today and why, if you are a business owner, you need to have a "China Strategy."
1. Capitalism, with Chinese characteristics: When you visit the major cities in China such as Beijing or Shanghai, you might feel like you are in world class modern city like New York City or London, but don’t confuse the trappings of modern life with free markets or lifestyles. Deng Xiao Ping, the former leader of the Communist Party of China, coined the phrase “Socialism with Chinese Characteristics,” in the 80’s, and today I would turn that phrase around to characterize modern China as “Capitalism, with Chinese Characteristics.” Anyone who has done business in China knows about the far-reaching arm of the local and provincial governments and the need to develop relationships with officials there who will look favorably upon your business and help you succeed. But the hand that giveth can also taketh away, and if you find yourself on the wrong side of the relationship, as the American company Google recently experienced, life can get very difficult in a significant way.
In his recent book “The End of the Free Market: Who Wins the War Between States and Corporations,” author and diplomat Ian Bremmer paints the grim view of a future Chinese market where state-controlled companies use their clout to sell goods to the world and reinvest those proceeds into solidifying political power rather than fueling economic growth. Mr. Bremmer compares “state capitalism” in China to a soccer match where the government controls the referees and many of the players, such that it improves the chances of predicting the game’s outcome, in contrast to the type of “mixed capitalism” practiced in US and Europe, where referees exist only to ensure enforcement of the recognized rules and the players engage in genuine competition.
2. Come for the low labor costs, stay for the markets: Given the inherent risks for foreign companies to do business in China as outlined above and elsewhere, why would anyone do it? I think many companies are in this quandary – whenever I talk about doing business with or in China, invariably there is someone who asks the “China Question”, i.e., “how do I know I won’t be cheated and/or have my product immediately copied when I go to China?” Fair question – the answer is you don’t know, and you must take all precautions necessary, certainly, but I believe the balance is shifting more towards the benefits of being in China outweighing the risks, and as China shifts from a net producer to the world to one that consumes more goods and services, it will be a huge driver of growth for many years to come.
In the article “Is It Too Late To Enter China?” in the April 2010 Harvard Business Review, the author Edward Tse writes that the original reasons Western companies were in China, low labor and operational costs, are becoming less relevant now and that more and more international companies need to develop a China strategy that integrates not just sourcing from, but also selling and marketing to the burgeoning Chinese market in order to be successful.
So there you have it, my thoughts and reflections on China and the challenges and opportunities it represents. I certainly don't claim to be a China expert, but as President of a company that does business internationally, it is critical for me to learn more about the issues this vast country will face in the coming decades. I believe that the future of BRI, and many companies like ours, will be significantly impacted by the developments there.
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