Nigeria Content Online

In the past year,
global giants like Rio Tinto, Google and Apple have found that events
in China will not only impact share value but, potentially, a company’s
global revenues and brand. A multinational company’s overall industry
position is now often closely tied to its China performance.

China is the
world’s number one exporter with gross domestic product forecast by
many to soon surpass Japan’s. Many Chinese firms are clearly low margin
businesses at home, the twin opportunities of emerging domestic
consumption and actively securing footholds abroad bodes that Chinese
companies will grow in stature.

This growing
competition from China comes in the form of a new wave of cross border
merger and acquisition deals, purchases of new technologies and
investing in the supply chains for critical raw materials. Meanwhile,
growing sophistication permits China’s leading players to provide
competitive financing and bid responses for large industrial and
government infrastructure projects.

The once sleeping
Dragon is wide awake in its own lair while also roaming out of it and
international companies must rethink and retool.

Shareholders,
corporate boards and managements need to dig deeper and start to
understand that many companies do not have the correct China strategy,
structure and leadership because the attention the country gets at the
corporate level is still below what is needed to achieve success there.

In the early years
of China’s Open Door Policy the country was viewed by most
international businesses as a market for the future. To play the
football analogy in this World Cup year, foreign companies can no
longer afford to consider China as a pre-season exhibition game. It is
now a critical away game with the significance of a World Cup
qualifier. The final result of the China game, may determine a
company’s world ranking and industry dominance.

With Chinese
companies moving offshore, Fortune 500 companies are properly
double-tasking their China executives to perform in the domestic market
as well as execute strategies to protect overseas markets from Chinese
competition.

The ability to
consistently deliver proactive and intelligent responses to
opportunities and challenges in China begins at senior board level.

International
companies would be wise to create a rigorous China management team
exercising genuine independent thinking and, most importantly, to
listen to them. The corporate world is full of former China executives
who quit in disgust because head office wouldn’t listen to what they
were being told.

Companies will
benefit from having an active and independent China Board or Advisory
Team feeding views to the senior board rather than viewing the China
operations as those of a branch plant.

For the best
results, foreign companies in China should embrace processes that
address critical issues and time-sensitive decisions including:

• Should additional internal capital or external capital be allocated to expand market share in China?

Is it time to consider a merger or acquisition with a Chinese domestic player?

What is the correct
strategy to enable China’s emerging research and development capability
to contribute to business development?

What is the best way to protect intellectual property and brands?

Are there sufficient oversight and a strong governance processes in place in China operations?

Does the China theatre have a crisis management process and team in place, to deal with vital issues like “reputation”?

Are government
affairs, including community, public and media relations processes part
of the China team’s mandate and performance review?

Is the local operation compliant to local environmental and labour laws and regulations?

A company’s
response to the emerging challenges and opportunities in China will be
company specific. Experienced and empowered China-based oversight of
operations is the common trait vital to designing and implementing
business solutions.

Most Western
companies are still feeling their way through the regulatory, political
and market complexities of doing business in China and more often than
not additional input is crucial to the issue of making the right
business decisions while preserving a company’ core values. Foreign
companies must also recognise that the challenges of implementing and
sustaining market position and investment returns in a post-WTO Chinese
marketplace are increasingly complex. The old ways of China hands and
“relations (guanxi)” has evolved into a mature corporate environment.
Clearly, many of the perceptions created by the existing business
literature about China are outdated.

In the past, the
oversight processes in China for foreign companies were often a
rubber-stamp process. Governance and internal reviews comprised only
internal employees based in China or drawn from the parent company’s
regional operations.

Foreign vested
firms rarely empowered local, independent boards or advisory council to
provide oversight, leadership, experience and control.

Western companies
operating in China now have a star choice: they can pay the costs for
boards, advisory groups and governance or face a higher recovery cost
later, when poor governance ensures that an investment in China falters
or fails.

Unfortunately just
as failures of integrity exist outside of China they also may transpire
within China. This alone should be a motivation to want to strengthen
local governance of what is now a mission critical market.

John Gruetzner and Alan Reid are principals of Intercedent, which has provided investment services in China since 1991.