Recently the media has been shouting about the aggressive purchases Chinese companies are making abroad, e.g. Lenovo’s purchase of IBM’s PC division, Haier’s bid for Maytag, and the CNOOC’s (China National Offshore Oil Company) push to grab Unocal. Interestingly enough, these three case studies are being welcomed with somewhat contrasting gestures.[i] While the Lenovo deal is championing the company to the #3 spot in the world PC market and the CNOOC/Unocal deal will bring much needed oil and gas assets to China, the growing Sino-U.S. economic interdependence is proving to ruffle the feathers for some while at the same time creating a new “wild west� for opportunists. The Lenovo and Maytag deals seem to be getting relatively warm reviews, but the CNOOC is taking a mild beating from the media and the foreign politicians who are involved in the game. With these two different responses camps are forming and the fate of China’s integration into the world economy is being speedily decided. Chinese purchases of foreign companies are a sign of what is to come, how the world responds is critical to economic and political stability.The Xenophobic Response
With the CNOOC raking large portions of its capital at cheap prices from the Chinese government, questions of fair play are popping up and the cautious and conservative are blowing whistles. The unique business-government ties in China can make loan rates for connected Chinese companies literally interest free. This poses a problem for foreign private firms in China having to compete with local Chinese companies. QuoteFurther, when Chinese organizations funded by inexpensive government loans begin to buy assets outside of their own borders, like the CNOOC purchase of Unocal for example, financially the playing field may not be level and the Chinese government happily finds itself in a an unusually advantageous position. In other words, in return for the cheap loan, Chinese companies owe the government a favor (like getting oil to China non-commercially). This results in the sort of action recently seen in Washington—politicians scrambling to block China’s purchases of new assets.
Glossing over the popular media one can readily see that anytime the Chinese government is involved in big-business deals, even tangentially, cries of foul play arise. Could this have to do with the fact that over 170,000 Chinese government officials were accused of corruption last year alone or does it have more to do with a misunderstanding of the role government plays in China’s economic development? Without a thorough understanding of China’s strategy to develop its economy, xenophobic and hasty reactions may hurt economic and political stability in the Asia-Pacific region, a stability that affects the global marketplace.
Business-government ties in China over the past 20 years are interesting to say the least, and it these ties that have been a cause for concern. In contemporary China, legal norms borrowed from the Anglo-European world have largely informed and assisted China in its recent economic and political development. These norms, while bringing legitimacy and attraction to the eyes of foreign counterparts and investors, have possibly misplaced the juxtaposition of business-government ties and formal law and legal institutions. With this, the conservative (and possibly required) approach for foreign interests has been to keep a watchful eye on Chinese executives and their dealings with the Chinese government. Is there another way to approach China?
The other side of the coin looks at these recent bids by China as an opportunity. It is a safe bet to say that China is only doing what any country would do when beginning to have economic success. Quote 2The opportunist might argue that there is no deviant measure being taken by the Chinese government holding close ties with its private firms, but simply acting paternalistically to insure that the private firms are able to manage their fresh economic success in a very competitive and capitalist economic environment.
The economic interdependence of China and the United States is a strong sign that China’s growth is healthy and that the global market will eventually benefit. Those who see opportunity in recent Chinese asset acquisition understand the complex nature of Chinese business-government ties. Sumner La Croix, Senior Economist at the East-West Center in Honolulu says, “The growing interdependence of China with the U.S. and other markets worries many U.S. policymakers but is really a very positive development…It provides the Chinese government with clear incentives to participate in international efforts to maintain the health of the world economy and to resolve economic and political crises in the Asia Pacific region. China’s need for prosperous, stable trade partners in Asia may help to ensure that as it becomes more of a regional leader, it will act responsibly.”[ii]
Very possibly the business-government ties in China may prove beneficial in solving some of the region’s problems. The opportunist welcomes these recent moves by China realizing that the game is much more complex than is initially apparent.
Quite possibly, the Lenovo deal is being welcomed in a way that the CNOOC/Unocal deal is not because the Lenovo deal is more about the mixing of high level leadership positions rather than a simple Chinese takeover of foreign assets. Interestingly half of the top positions in the new Lenovo hierarchy are Chinese and half are Americans. Something is afoot here…Is the attempt to block the CNOOC/Unocal deal simply because of the Chinese government’s involvement? Would the American politicians and lobbyist be making a move to block the CNOOC/Unocal deal if half of the top brass were to be American? The word on the street is that American CEO’s will increasingly be outsourced to Chinese companies to teach the top Chinese brass “the way.� The chart below reflects the important mixing of leadership positions in the Lenovo purchase:

As these executives begin to work together in a new “mixed� hierarchy will American CEO’s have just as much to learn as the Chinese managers, if not more? This mixing of leadership is a new step in Sino-U.S. business practice. There will be a new “generation� of China-experienced U.S. executives and managers in the next ten years, and the bet is that the tune they sing will be very different once they begin to report their own findings. These experienced executives will be much savvier in dealing with the Chinese and they will have a much more thorough understanding of why business-government ties are so important in China, i.e. these managers will be much clearer on the way Chinese culture affects business.
In response to this new “mixed� hierarchy Stephen Ward, an American and the “new� CEO of Lenovo says in July’s edition of Wired magazine that, “At the highest level, I would say that working across cultures is working across cultures…You be respectful, work hard, and get the job done.�[iv] Really? Is this approach too simplistic? This statement could be called into question, especially across cultures as diverse as America and China. With the Chinese government in bed with private Chinese companies, and China’s private entrepreneurs aligning their interests with the government is simple “hard work� the most successful way for foreign executives to approach their stints with Chinese companies?
What Stephen Ward means by “hard work� becomes the important question in this case. If he is referring to the kind ditch-digging hard work that traditionally needs to be done to build the foundations of a company then he has a lot to learn. A strong pick-axe and a lot of brawn will not work. When multinational, global business is the game, hard work often means deep cultural understanding and sensitivity to the politics of a region. Savvy and culturally sensitive leadership will be needed.
The call is for business owners and high level executives to re-think their position on what constitutes cross-cultural leadership. High emotional intelligence is required when working with the Chinese. A deep study of the culture and optimistic, yet thoughtful responses to the business climate in China are needed to insure the foreigner success in China. A savvy response from foreign business leaders, not hasty approaches and ill-informed opinions will best help the foreign business-person in China. The old way of doing business internationally may need re-tooling so that China’s connection economy can successfully integrate into the world economy.
[i] See The Economist, July 2nd – 8th, 2005, pgs. 12, 67-69.
[ii] Sumner La Croix, East-West Wire, July 15, 2005, East-West Center, Honolulu, Hawaii.
[iii] Adapted from Wired, 13.07, July 2005, pg. 148.
[iv] Wired, 13.07, July 2005, pg. 148.

TomorrowToday Global