January 08,2008

Chinese Companies "Go Global":3 Dos and 3 Don'ts for Chinese CEOs

By Brion Tingler
Today, China’s economy is taking the world by storm.  Her companies are stronger than they have ever been within China and they are hunting for growth opportunities.  For many companies, this will mean looking abroad and "Going Global."
  In this is a new era for China and her companies, there will be successes, and failures.  So what are some things a Chinese CEO should think about as he creates a global strategy and makes his company into one of the lucky and successful?  Below is a perspective on the situation and challenges, as well as 3 do’s and 3 don’ts to consider.

First a bit of perspective.  When I first visited China in 1998, one acquaintance could not understand why I would go to China for a summer vacation.  Even when I moved to Beijing in 2001, the year China joined WTO, nobody was thinking about Chinese companies "Going Global."  During those first few years, I advised a number of multinational foreign companies on their domestic marketing and communications programs.  Then, people in my business and other service providers like bankers and lawyers, were almost entirely focused on helping US and European-based companies get a "lay of the land" in China.

What a difference a couple of years make! We’ve started to see a few brave Chinese companies take their first steps abroad. Lenovo’s acquisition of IBM’s PC business, Haier’s organic growth and brand-building in the US, the Bear-CITIC, and ICBC-Standard Bank deals are all great examples.

These companies were all front-runners in realizing that, to remain leaders within China, they also needed to expand abroad and study global best practices.  Today, it seems like every week another Chinese auto company says it’s going to be the next Toyota.

While the handful of companies mentioned earlier are at the leading edge of this trend.  Research by IBM and Fudan University has identified 60 Chinese companies with "global potential."

Another important aspect of "Going Global" are the international IPOs.  In this year alone, 68 Chinese companies have IPO’ed outside of China raising more than $11 billion in capital.  Chinese companies are using their global IPOs, not only to raise money, but also to study best practices in business management, corporate governance and marketing communications.

While the Globalization trend for Chinese companies has begun, there are four groups of challenges as Chinese companies "jump into the sea."

First, there are business cultural practices that will constrain Chinese companies?expansion.  Here are just a few of the largest: 

  • Chinese companies rely too heavily on guanxi rather than contracts.  Guanxi is a necessary supplement for any business plan and strong legal covenants, but should not be allowed to take the place of primacy of place it holds within China, but in other countries, guanxi is not nearly as important as it is in China.

  • Chinese companies follow a deeply ingrained Chinese habit to limit ties with non-Chinese.  I have attended numerous China-related events in the US I have been one of only a few laowai in the room.

  • Chinese companies are great negotiators, but relentless bargaining can create a short term focus that blinds companies to the bigger picture, long-term strategic view.

Second, even though the overwhelming majority of Chinese products are of top quality, the "Made in China" brand is under attack around the world.  In a recent survey of consumers outside China, the brand consultant, Interbrand, found 66% of global consumers believed that the "Made in China" label hurts Chinese companies?prospects.  The number one adjective used by these same global consumers to describe Chinese goods was "cheap."  18th on this list of 21 was "safe."

Third, the legal and regulatory environment that Chinese companies face the moment they step outside the China can be daunting. Back in 2004, China Life got beaten up when the United States Securities and Exchange Commission found that the company was under investigation by the Chinese government and had failed to disclose this to investors.  

Fourth, as we saw with US companies going into China, there is a natural human proclivity to think that what gave us success at home is what is going to work abroad.  This is rarely true.  You must be willing to reexamine the most basic assumptions about your business and new target customers before you head abroad.

With all of these challenges, what’s a Chinese company to do? 

Well, Chinese companies have had a front row seat in watching the rest of the world companies make some colossal mistakes setting up shop in China. Going all the way back to the 1980s and Beijing Jeep, many blue chip foreign companies have stumbled as they took their first steps in China.  Chinese companies must draw on the lessons from this recent history.

But, let’s be a bit more specific.  Here are 3 "do’s" and 3 "don’ts" to consider:

3 Do’s

1.       Do build your corporate, or company brand.  This is particularly important because of the crisis of confidence "Made in China" is facing today. The emotional bonds created by a strong corporate brand are like a bank account that companies can draw on in difficult times.   

We’ve seen this with Haier, who is doing an impressive job building its corporate brand in the US.  The company recently bought a historic landmark building in Manhattan and renamed it the Haier Building.  This is one manifestation of the company’s strategy to portray a solid, stable image of quality and reliability to US consumers. 

But, keep in mind building a corporate brand goes beyond buying famous buildings in foreign countries.  It requires a real investment, not just of money, but of the time of the smartest people within your organization.  Translating the intangible elements and values that your company stands for and constructing the foundational elements of your company’s global brand is not "child’s play."

2.      Do show the human face of your company.  Hire senior people at critical foreign postings who are not only bilingual, but also bicultural.  Then, find ways of getting them out to meet media, government, customers and society influencers.  This really does help.  As representatives of Chinese companies, you are the ambassadors of China to the world.  The world needs to know you if they are ever to get to know the real China. 

3.      Do hire seasoned advisors, not just people you’ve heard have guanxi. As we all know, the differences between the US and China are vast. So why wouldn’t you hire qualified firms that can help navigate these differences?  CNOOC’s difficulties with Unocal are a good example.  I sincerely believe that much of the trouble CNOOC encountered was caused by irrational anti-China fears in Washington, DC, but, did you know that the company initially hesitated to hire a US law firm?  This is virtually unheard of in any other country in the world. 

Conversely, during Lenovo’s acquisition of IBM, the company brought in an experienced team of communications, legal and government affairs professionals to lay the groundwork for a strong, but appropriately calibrated announcement of the deal.  Lenovo knew about the powerful Committee on Foreign Investment in the United States (C.F.I.U.S.) and the need to assuage its fears and manage its relationship with this powerful US government body.  In case you are wondering, C.F.I.U.S. is a committee of government officials from different parts of the US government that have the ability to review foreign investment if it is deemed to have an affect on US national security.  All the media and Washington DC lobbying efforts were tailored to ensure that the deal was communicated in a non-confrontational, business-benefit focused manner.

Good advisors in banking, law, public and investor relations and advertising can help you bridge gaps both in business strategy, and brand building.

 3 Don’ts

1.      Don’t think that the way you did it back home will work here.  Ru xiang sui su, la! (When in Rome, do as the Romans) We can also remember the words of a very wise and pragmatic man: "buguan bai mao, hei mao, zhua zhu lao shu, jiu shi hao mao" (It does not matter if it’s a black cat or white cat, as long as it catches mice).  Find the method that works best, and use that.  Don’t get stuck on one strategy or custom.  For example, in China the government plays a much larger role in the economy than governments in other countries.  Chinese companies cannot expect the same kind of support that they receive from the Chinese government at home, when they do business abroad. A perfect example of this can be seen in the "Made in China" toy crisis.  Chinese manufacturers expected the Chinese government to defend them around the world.  The government has responded well, but it cannot solve this problem on its own.  Chinese companies must proactively communicate to global consumers who are currently afraid to buy "Made in China" products.  In fact, I recently spoke to a senior Chinese diplomat who said, "the Chinese government should not be the only party to speak on behalf of Chinese toy manufacturers to the US media. Chinese companies should come to the US to defend their products and processes, because they have the technical expertise in this area."  

2.     Don’t rely on sponsorships without investing additional time and resources in the asset.  Being a Global TOP Olympic or NBA sponsor is indeed a great thing, but Chinese companies need to be prepared to invest beyond the sponsorship fee if they want to really exploit these assets.  Two examples: adidas, a sponsor of the Beijing Organizing Committee for the Olympic Games, recently brought its entire global team of marketing and communications professionals to Beijing, to make sure they all were familiar with the city and the different Olympic venues. During the 1996 Atlanta Olympics, Coca-Cola invested nine times the amount of the sponsorship fee in exploiting this asset. Sponsorships should be looked at as platforms for other activities, not an end in and of themselves.  This means bringing a carefully considered mix of advertising, PR, VIP hosting at the events and grass roots or guerrilla marketing to bear.

3.     Don’t ignore the power of a global listing.  Being listed on the NASDAQ or NYSE is a stamp of approval on the business, management and corporate governance of a company.  Not only do you raise cash, but you have an opportunity to start to build your brand among global consumers with significant influence and spending power.  It may also help your business.  Just ask Suntech, who has seen its US business explode, partially as a result of the awareness its skyrocketing IPO provided.

 In closing, it is even more important to keep in mind that over the next year China and her relationship with the rest of the world is going to be under a microscope.  In particular, the US-China relationship will be closely scrutinized.  By this time in 2008, we will have seen:

  • a turbulent holiday shopping season (now through December 25th).  This is an significant event for the US economy which is much more driven by consumer spending than China’s.  Holiday sales shopping is closely watched by the US government and media.

  • a National People’s Congress meeting in Beijing (March 2008)

  • the US presidential primaries, which will choose the final two candidates for the US Presidential elections (Now through September 2008)
  • the Olympics (August 2008)
  • the election of a new President in the US (November 2008)

This is going to have an effect on Chinese companies?efforts in the US and around the world.  You need to prepare your globalization strategy with these important events in mind.

While there may be challenges ahead, no country’s companies are better prepared to "chi ku" (eat bitterness) and thrive in difficult circumstances. 

( Brion Tingler is an Associate Director at Gavin Anderson & Company, a leading worldwide advisor on corporate and financial communications. This article was adapted from remarks Mr. Tingler gave to at the China Institute’s Annual Executive Summit in New York City on November 9, 2007.)

 

 

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