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2013 Jul.31

China: Risky Business? Or Businesses Taking Risks?

David SchlesingerBusiness, China

chinafile1-300x75 (1)ChinaFile invited me to take part in a stimulating debate about whether China business is getting riskier. The full back-and-forth is here.

 

 

 

My contribution said:

“Although China is politically important, it is not a remunerative field for us, and it will be some time before we reap the fruits of our enterprise.”

That statement, from the annual report of my old company, Reuters, in December 1900 would not sound out of place in many a boardroom today, well over a century later. Modern day boards would have to add the words “economically important” to the first clause, both to reflect the reality of China’s being the world second largest economy and to underscore the continuing frustrations in trying to realize profit and value from their investments there.

The current onslaught of bad news about China—much of it real, some of it the pendulum-swing of pundits piling on—certainly makes China business seem like risky business. A slowing economy, growing social pressures, looming crackdowns or public relations campaigns against foreign companies—none of these are good signs for companies hoping to swiftly reap the fruits of their labors.

Some executives are scurrying to look for the next best opportunity in Myanmar or the Philippines or Indonesia. But for those who stay, and for their boards, this may be a necessary reset in expectations that actually leads to healthier and more sustainable investments.

China’s torrid growth rates led to huge pressures on executives to outperform the economy as a whole.

Corporate one-upmanship in a media environment that seemingly celebrated golden successes up every fetid Beijing alleyway led to foolish decisions.

Board impatience for results meant business foundations weren’t laid properly.

Now that China bears are having their day, smart companies will go back and ensure the basics are right. That’s hard, slow, unglamorous work. But it sure beats having your executives jailed, your reputation sullied or your cut-corners exposed.

With growth rates slowing, social pressures rising, crackdowns on shady business practices looming and local media campaigns against targeted companies intensifying, what’s a CEO to do?

First, fix the talent agenda. Too many companies serve their star China hires badly. Training, rotations outside of China, true promotion prospects, fair pay and a shattering of any remaining glass ceilings will build loyalty, company culture and an ethos that will ensure true successes.

Second, fix the compliance agenda. If there’s one clear lesson from the Glaxo Smith Kline debacle it is that ethics and compliance have to be a fundamental part of company culture at every level and at every stage.

Third, fix the government relations agenda. It isn’t enough to have the global CEO fly in once a year for a banquet with senior officials. Understanding how the company’s agenda fits – or diverges – from the country’s priorities is necessary on an ongoing basis. Picking up early signals of discontent or warnings about investigations can head off public relations or judicial disasters.

Fourth, fix the localization agenda. China needs Chinese products. Too many companies still try to force global solutions onto a very local market without making the necessary changes to transform themselves into local companies.

Fifth, fix the acquisition agenda. Ensure that local companies you buy truly add knowledge and understanding of the local market – and that you learn from them and not just run roughshod in an attempt to suck up sales.

Now is the time to fix the foundations before the next swing of the sentiment pendulum again creates unrealistic expectations for growth, unrealistic pressures on executives and indefensible actions by some of those entrusted with the risky business of doing business in China.

BUSINESSCHINA
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