The Job of the China CEO
Working with the government is a vital skill in doing business in China; but not easy to acquire
There are only a few multinationals that can claim to have figured out China. Carrefour would stake a claim to be one of them. The French retailer, and the world’s second largest, started off in a small way in 1995. Today, it runs a chain of 79 stores. Experts reckon Carrefour has found the right formula to win in China. But the successful run hasn’t come without its share of mistakes.
In February 2001, in the midst of a strong roll-out, Carrefour got a severe rap on its knuckles. It had opened stores without the Central government’s permission, the State Trade and Economic Commission said. So over the next two years, the company had to stop expansion and restructure its existing 27 stores to meet the Central government’s requirements. That was a severe blow to Carrefour’s growth plans. Says Laurie Underwood, co-author of ‘China CEO’ (with Juan A. Fernandez), “Through the late 1990s, retail joint ventures (like Carrefour’s) started side-stepping the slow Central government approval process by working directly with local governments — who were eagerly welcoming the foreign players in. Carrefour was especially ambitious and fast in this process. Because of its expansion speed, [it] became a target of the Central government. When that happened, [it was] forced to halt everything until [it] had appeased the Central government.”
Carrefour’s experience, as Underwood puts it, has become a warning post for all companies that entered or expanded in China since then. In some cases, the regulation changed overnight. In some other cases, the government has chosen to interpret the existing rules differently across the country. And in quite a few cases, the government has suddenly adopted a protectionist attitude in a bid to guard local companies from competition from multi-national corporations (MNC).
Now, it isn’t as if foreign companies aren’t well-versed with the idea of government relations in other countries. Yet, in China, this invariably tends to be a steep learning curve for expat chief executive officers (CEOs). For most companies, the effort behind government relations in China is far more intense compared to the other countries they are present in. It is not uncommon for CEOs in China to spend 60-65 percent of their time on cultivating government relations.
A foreigner needs a new lens to understand the role of the Chinese government in business. The clues lie in the way locals perceive the mandarins. There is a widespread acceptance that the government will exercise its “will” and it is better to be on its right side. There are no discussions, no arguments — just plain acceptance.
MNCs come to China with baggage from their home country — assumptions that the government functions around a mandate of the people. Says Jonathan Story, Emeritus Professor of International Political Economy, INSEAD, and author of ‘China Uncovered: What you need to know to do business in China’, “You have to be able to work the government very effectively. Since it is a party and a state in parallel, there are multiple veto points. If you alienate someone, you can find your project stopped or delayed.”
