By Andrew Hupert
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What will be the role for international entrepreneurs in China’s emerging 2-track economy?
China’s economic development is being pulled in two diverging directions as Beijing struggles to steer a course through this global recession. On one hand, collapsing international demand for Chinese exports has led policy-makers to stimulate the domestic economy with a massive state-directed infrastructure and employment-oriented spending programs. On the other hand, rational leaders know that they can’t simply write off the external economy that has underpinned China’s stunning success over the last decade.
The result is that China will transition to a new 2-track solution that attempts to chart a middle course – a carefully orchestrated set of domestic policies existing in harmony with a vibrant international, market-driven economy.
The question for international managers in China is – where does your business fit in, and how should you guide your company’s development to take advantage of the new economic reality?
2 big trends are shaping China’s future economic development:
State-driven domestic economy
Infrastructure, development of China’s interior and employment-oriented regulations are the hallmarks of Beijing’s new economic policies. The Big Stim is just the beginning of a long term effort by policy-makers to take new control over China’s wild economy. State planning is in (again); anything-goes free market entrepreneurialism is out. While this doesn’t necessarily exclude international businesses, it definitely means that we will all be playing by new – and not particularly level – set of rules and regs. Even private businesses will be expected to play a policy role.
Privatized, internationalized international economy
The external economy has played a huge role in China’s development – especially over the last decade – and no one is ready to close the door on global trade and foreign investment just yet. There will be plenty of room in the new China for internationally-minded managers who can facilitate the movement of investment inward – or help ambitious Chinese corporates set up new facilities abroad. Beijing will always be enthusiastic about keeping Chinese factories busy with overseas manufacturing orders, but the prognosis for international demand picking up to 2007 levels is not good.
What should international managers in China do to survive and prosper from the next phase in China’s economic development?
1) Make your choice and place your bets. There was a time you could stake out a position by just finding bits of the market that were underserved. International marketers hung up a shingle and waited for clients and customers to show up. International managers in China used to describe their business models with phrases like “organic development” and “localizing overseas models”. No more. There’s simply too much competition and too little demand to try to be all things to all people. Chinese domestic markets and multinational markets have diverged, and you try to serve both at your own peril.
2) No more 1st mover advantage. Chinese partners and clients have a deeper appreciation of ‘new and improved’ than other actors. Chinese deal-makers operate under the assumption that there was always a new and potentially better opportunity just beyond the horizon. When YOU were that new player things were just dandy. Now, however, the new guy is a revitalized Chinese entity (very possibly a State owned one) or an innovative foreign invested company that is just entering the market. Brand loyalty has to be earned everywhere, but in China it is a daily affair. Businesses that rely on last year’s models are going to find themselves out-dated in a hurry.
3) Make trends your friends. China has a new position in the global economy, and you want to position yourself for maximum benefit. The new Chinese mega-trends are the middle-class domestic markets, Chinese firms expanding internationally and new foreign direct investment by Western firms searching for fresh markets. Manufacturing models are out, service industries are in.
Andrew Hupert, ChinaSolved