Published

27

Oct

2020

Commentary

What Does Your Organization Want To Do About China?

Given all the controversies involving COVID-19, Huawei, TikTok, WeChat, Hong Kong, trade, tariffs, human rights, Taiwan, and tensions with India and in the South China Sea, many of us expected that what to do about China would be a major issue during the US presidential campaign.  But between the relentless pandemic, ongoing social protests, a fierce Supreme Court debate, and other events, this hasn’t happened, and voters still have little idea of what either candidate hopes to achieve going forward, other than being “tough of China,” whatever that might mean.

But whoever wins next week’s election, deciding what to do about China begins with how we think about China.  The figure below presents our framework for assessing China’s uniquely multi-dimensional challenge.  The key message is that nations, industries, and individual companies should have strategies for each of the four vectors shown.  They need a plan that recognizes China’s importance as the world’s largest market, its position as the world’s largest supplier/manufacturer, its increasing competitiveness in an ever-expanding range of industry sectors, and its rapidly increasing military and geopolitical influence and power.  The balance of these four forces varies greatly by company, industry, and nation.

Figure 1 The challenge from China is uniquely multi-dimensional

In our recent report we use this framework to help the US, ‘the West,’ and their allies develop a long-term revitalization and competitiveness strategy.  We recommend five initiatives in each of the four dimensions above – basic things such as national efforts in advanced technologies, strategic self-sufficiency, greater trade transparency, incentivizing reshoring, better coordination with like-minded nations, closer ties with India, insistence on reciprocity, increased productivity, winning today’s global talent and culture wars, and the central role of information technology leadership in most of these areas.  Taken together, these twenty actions are fully capable of meeting the challenge from China, which has plenty of its own weaknesses. It’s much more a question of will than means.

In the report’s concluding section, we use this same framework to explore what these four dimensions mean for individual organizations.  Our focus is on two main questions: 

  • What government policies and actions does your organization want -- and not want?
  • Do your organization’s China strategies and operations need to change -- and if so how?

To assist clients in answering these questions, we have developed two self-assessment exercises. The first assessment is designed to help clients systematically identify and discuss the main China policy actions now being considered.  Your organization’s executives, business leaders, and government and public relations teams should develop a consensus regarding how important each of the policy options below are to your firm’s future.  As you can see, there are a great many possibilities.   

Figure 2 What Government policies do you – and your industry – want?

What Government policies to you – and your industry – want?

In just about all of these areas, we stress the importance of not just your organization’s priorities, but also those of your industry.  When addressing difficult or sensitive China matters such as reciprocity, value chain dependencies, technology licensing and/or transfers, environmental and/or labour norms, information security, self-censorship, and the like, there is often considerable strength in numbers and collective action.  Unfortunately, few industries are used to cooperating with their competitors on such matters due to strategic, tactical, and antitrust concerns.  But unless an industry speaks with a unified voice, it can be easy for China to intimidate any one organization, and difficult for government policymakers to make fully informed decisions in areas that often involve complex trade-offs.

Our second assessment probes the issue of how organizations might need to change over the coming months and years.  This exercise consists of some fifty questions.  A dozen representative ones are provided below.

  1. Do you see China more as a market, a supplier, or a competitor – now & going forward?
  2. Which areas of today’s China tensions are you most concerned about?
  3. Are your China operations transparent to the government and the general public?
  4. Is data about your China investments, imports, tech transfers & dependencies readily available?
  5. Where does China play across your end-to-end supply/demand chain – now and going forward?
  6. Do Chinese firms have fundamentally lower costs than you do for the same level of quality?
  7. Does your firm accept different rules and norms within China than it does in its home market?
  8. Does your firm urge its executives and employees not to criticize China?
  9. Does your industry speak collectively on key China issues and controversies?
  10. In what areas is China ahead or behind in your industry?
  11. What are the main disruption from China scenarios in your industry?
  12.  Are your firm’s short-term and long-term China priorities aligned or in conflict?

While these are all important questions, we put particular emphasis on the need for increased transparency.  Today, for example, most of the US/China trade deficit isn’t the result of American consumers buying products from Chinese companies; it comes from American consumers buying products from American companies that source them from China.  If these products were sourced from elsewhere – or made domestically – much of the China trade deficit would disappear.  Imagine if it was easy to see exactly how much of the annual trade deficit comes from imports by Walmart, Apple, Target, Nike, and others.  Such metrics would create strong downward public pressure, and provide a powerful way to track changes over time.  Greater transparency would also help us manage China-related dependencies, technology transfers, investments, wage levels, and more.  Right now, this type of information is often difficult or even impossible to obtain.

While clients can take both of these assessments online, we recognize that most of these questions will be matters of internal debate, and often confidential in nature.  Therefore, we fully expect that many clients will choose to use these tools internally.  (Of course, LEF can also lead or moderate any such discussions.)  Either way, we hope that you use these two assessments and the report itself to shape your answers to the What to do about China question.  While COVID-19 is the biggest disruption of today, and climate change may well be the biggest disruption of the 21st century, the rise of China will likely be the biggest business and technology story of the 2020s.  There’s much work to be done.

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