China’s Emerging Economy

China’s Emerging Economy

When China starting opening its borders 25 years ago, no one could forecast with certainty how the market would develop.  Every visionary leader sought a way to infiltrate the Chinese market, and eventually the opportunities started to emerge. Joint ventures were soon the answer to the question so many sought. With the correct positioning, firms had the option to enter under direction of a partnership with a government run partner.

These JV’s were and continue to be a highly stipulated transaction with majority ownership going to the Chinese government run entity. Agreement to the JV by the entering firm has several boilerplate requirements, one of them being the demand for transference of intellectual property. This has been a limiting factor for many firms with highly proprietary recipes or patented processes.

While some firms have resisted entrance due to the entrance stipulations, it has been at the expense of market share and profits. While some firms have rejected the terms, their competitors have not slowed in search of additional market share opportunities. Lack of entrance for these companies has then been nothing but a decrease in potential market share in a growing mega power.   

So if the government run companies have access to the knowledge of their partners and all information is transferred and improved by the locals, what restricts the Chinese government from shutting back down on itself and supporting its own needs, then becoming an exporter competing in the JV’s home markets?

Importing patented ideas and technologies is something that has been forced on the partners of the Chinese government. Whether pushed or pulled into the market, firms that have moved into China have experienced exponential growth in an emerging giant. So how have they been able to stop, slow or limit the transfer of information and intellectual property?

At one of my site visits in China, a company that has requested to remain unnamed has done a Greenfield project outside Beijing in an economic growth zone. Purchasing the land and building a market presence has been their major goal. While the manufacturing at this plant is limited, the footprint of their property shows they are poised for a large growth and expansion as the market develops. A spokesman said that they are building trust and following a long-term strategy of relationship development with the local and regional officials.

So what has China been unable to import over the last 25 years? I will make it simple and clarify: the correct answer would be creativity and customer service. So lets look at these two growth opportunities and the obstacles that will have to be overcome.

·      First what is creativity and what can or cannot be transferred?

·      Second, what is customer service and does it matter if they have it?

Creativity in my mind is the ability to come up with an original thought or way of doing or viewing something that has not been applied to the current situation or process.

While Confucius said there is nothing new under the Sun, I would argue that there are new situations brought on by changes in society, in which previous tools and resources have not yet been applied.  This then gives creative opportunities that have not yet been explored. In an emerging economy like China, there are opportunities that have not yet occurred due to the sheer size of the market. If there were no diversity in the world, there would be no variables that require adjustments and creative thoughts. For example the Art of War by Sun Tzu, he applies methodologies of war and strategy to business. Freakinomics challenges the market formation in different lights. These are creative because they are taking an existing tool and using it to view other possible opportunities in different fields. Looking at management styles in communistic, vs. military environments.    

Customer Service, Conrad Hilton was a pioneer in the Hotel Industry taking to a large scale what was once only available at your parent’s home or an intimate Bed and Breakfast.

Listening to a conversation in Chinese (mandarin) you may think that the sender and receiver are infuriated at each other, only to be told that they were expressing their love for each other.

So what is the international definition of customer service?

Is it proud and haughty to think that customer service should operate at the highest possible level? Should international customer service be treated as separate playing fields? Can we demand separate treatment of front line staff that may not understand the intricacies of international cultures? I think if you were Conrad you would say an emphatic, yes!

Can these soft skills be trained and imported? So far after 25 years I would say that unless you are in a geographically international area you should not expect them... while I am an eternal optimist, I do not know that these skill sets can be taught. A colleague said that we could only hope to embrace differences and nurture an environment conducive to creative behavior.

Can our customer service be exported to a country like India? I think the market gave the answer to this temporary solution. People like to hear someone who sound similar to themselves, it gives a feeling of connection and an instant rapport. Would a country then who speaks little to no English, have an opportunity to give customer service across the world? The opportunity to outsource customer service has expired; those firms who wish to develop long-term client service relationships are insourcing and reaping the rewards. If the US will not give customer service to the Chinese and the Chinese have no way of facilitating customer service this becomes a mute point.

The Chinese government has some creativity. This cannot be argued,  but whether it was purposeful or accidental is yet to be determined when they try to replicate and nationalize it. 

The questions now raised and how they will be approached over the next 30 years may determine their sustainability.