Hard to wake despite an 11 hour sleep - the alarm went off at 11:00 pm Sydney time, making it an early California morning. Thankfully Linda at The Ritz-Carlton hotel was willing to find the espresso machine and make a double to start the heart.
The first session is entitled, “The Impact of Globalisation.” A panel has been invited to address the issues. They include:
- Kirk Stewart, EVP, APCO Worldwide
- Dr Kenneth Lieberthal, University of Michigan
- Geoff Davis, Unitus
- Debjani Deb, EmPower Research
The focus of this panel is on Asia Pacific, with an emphasis on China and India.
Dr Lieberthal began the address, “Challenges Presented by China and India.”
Dramatical reductions in costs of transportation and communications has fundamentally changed the way we do business. The re-schaping of the world through globalisation has happened with leadership from the West. But as China takes the lead and India grows we’re getting new perspectives.
China’s record is fantastic - 10% growth in GDP every year since 1978. Some argue it’s as high as 13% to 14% per annum. Foreign trade has increased 30% per year every year over 30 years. The increase last year alone was larger than all of India’s foreign trade. China now has largest foreign trade reserves of any country - ever.
China is working hard to be the point of final assembly, and move up the value chain to be adding higher value. Much of this has been driven by the five-level political system, where national encourages regions to grow GDP, etc. This has made it a highly competitive system where all territories are cometing to grow. The Chinese Communist Party has used competition and reward to drive growth across the country.
China has welcomed growth and is willing to undertake social changes as a result. Yet India has not been willing to make similar changes. “China has been willing to break some domestic eggs,” said Lieberthal. China is exceeding because they started in 1978, whereas India did not begin until 1991.
In India, change is accelerating and growing. English is spoken with total fluency, world-class technical and managerial systems, deeply-rooted politcal systems, and dyaspria spread across the globe yet still connected to the home country. Media is pushing for continued economic reform.
Inidia invests more in infrastructure than any other nation one earth.
What does this mean for mulitnationals? Both countries are important but in different ways.
India provides outsourcing opportunities and are starting to compete globally. The government is usually the problem, not the solution.
In China there are major domestic market opportunities. If you’re not involved in China as a global manufacturer your competitors certainly are. China cannot be ignored and the pressures the country places on changes in the global economy make it impossible to ignore.
How do MNCs treat China today? Many enter with products developed elsewhere and make minor modifications and sell them domestically. There is also a use of CHina manufacturing.
Yet six major issues are changing the way MNCs interact with China - ignore them at your own peril.
- Managing Reputational Risk: Many companies have multi-level supply chains in China (contractors with sub-contractors, etc). This exists in an environment with inadequate regulatory environment - the economy is growing too fast). Poor business ethics. “Let me change that - no business ethics,” said Lieberthal. The economy has grown to fast and there were no business ethics to begin. Drive for low cost and terrible corrpution. Leads to environmental and safety issues, as well as product quality.What does this mean for companies? First, who is part of your company - contractors lie to inspectors. Second, how do you set up corporate communciations to manage reputation irsk. Bad news travels immediately -sometimes by Chinese competitors work to spread the bad news. How do you protect yourself with inadequate law enforcement? Someone is hurt and they’ll sue your MNC. “The deep pockets are not in China,” said Lieberthal.How far is it reasonable to push cost savings? Suppliers are keen to get the business.
The brand “China” has poor reputation and it can bring your company down.
- Relations between China Team and Global Business Units: China management need to have the resources to get work done - so they need authority to act. How do you manage the relations with head office leaders? Leads to challenegs with authority - they make decisions fast. How much of the decision-making do you devolve - and will you get good quality decision? In Lieberthal’s opinion no MNC has solved this to their full satisfaction.
- Product development: Typical MNCs bring in products developed elsewhere and make minor modifications. There are costs to sticking with that approach. It limits your customer base to the top of the pyramid. For you to get a broad customer base you need to drive 60% to 70% of the cost out of your product. There is an enormously large middle market - that is mainly owned by Chinese companies. They use this knowledge and expertise to then attack the top of the pyramid. So how do you compete for the mass market? Deeply research the problems in the market from a Chinese situation. Then specify the price point that any solution will need to be to achieve mass market penetration. Then turn it over to your Chinese team. The implications are very disturbing. You want to use technology to drain cost out of the price point of your product - not to add value or enhacements. China and India are vital sources for new products that are developed locally and then can be exported globally. Then you have to find ways to leverage your knowledge globally. How do you do this - when most MNCs are set up with IP and systems developed at WHQ then deployed globally, versus top-up. You may need to base a mjor division in China.
- HR Issues
How do you instill HR systems that deal with corruption, teamwork, quality. Employees join your company and have no prior experience with any of these issues. How do you recruit experience - when there’s no grey hair in China? How do you identify and leverage the pertinent cultural differences? If you don’t resolve then you’ll fail to leverage your people. You need to build your training programs from the bottom up (HR training assumes employees bring a lot of skills). - The Business Model Change: MNCs are used to operating using the “Washington Consensus” -”the west knows best” is the old model. Now are we heading towards a “Beijing Consensus”? China is succeeding without using the typical Western model.
- Challenge of Shifting Centres of Initiative: Globalisation started in the West. But now China and India are using technological innovations to create disruptive business models. You can’t assume the West will remain the only centre of technological development. The shift in attitudes is already being seen in areas such as IP.
Conclusions: Implications of the rise of China and India. Major impacts of international supply chains, differences in human capital, environment, speed of innovation.
More important China sees its success and sees it as the rightful new power in the global economy. The old “West is best” model is being superceded with a shoft towards the East. Global competition is changing - and this impacts corporate communications dramatically.
