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(originally published by Booz & Company)


Getting China Right

Booz & Company’s Edward Tse believes that, despite the challenges in today’s headlines, companies should take a long-term view when shaping their China strategy.

The practice of doing business in China has come into question in the early months of 2010. The disputes between Google Inc. and the Chinese government have been one factor; others have included the continued concerns raised in the West about China’s currency policy, and in China about Western financial policies. Moreover, questions about intellectual property protection in China have not gone away. At the same time, the consumer markets within the country are more vibrant as its pace of growth increases, and Chinese businesses are becoming innovative, fierce competitors within their country, and increasingly in the world outside. There has never been a time when getting China right is more important — or more difficult.

In this interview, conducted in London in March, strategy+business raised these issues with Edward Tse, author of The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010). Tse also wrote “The China Challenge,” the cover story in s+b’s Spring 2010 issue. He is a senior partner with Booz & Company and the firm’s chairman for Greater China; he has been advising companies in China and about China for more than 20 years. Tse has written extensively, in our pages and elsewhere, about China’s role in global political and business affairs. Here, he looks more closely at the tensions that are raising concerns among some businesspeople, at the reasons most companies cannot afford to ignore China, and at the long-term trends that will likely supersede today’s headlines.

Note: This transcript contains some material not used in the video.

S+B: What do you say to business leaders who are wondering, “Do I really have prospects in China?”
I think leaders of global companies have to step back and try to understand what China means to their business. They also have to understand what China has been achieving over the last couple of decades, since it started its economic reforms. Ignoring China is not an option. But the only way a company can take advantage of its massive opportunities is by placing its China activities in a global context — as part of an integrated web of capabilities, including manufacturing, marketing and sales, innovation, new business model incubation, and talent development.

I would recommend that global executives not pay too much attention to the day-to-day news. Instead they should step back and take a longer view.

S+B: What does that mean? How long is the appropriate distance to look?
You could begin by looking back to the start of economic reform by Deng Xiaoping in the late 1970s. And, more precisely, to 1992, when Deng made his now famous visit to Shenzhen. It was called the “Southern visit” at the time, to one of the places where entrepreneurial China got its start. And it was basically to set the tone: “Look, we’ve got to continue to open up and integrate ourselves into the global economy.” Over the decades since, China has held true to that path — and it will continue to do so, at least for the next couple of decades.

It’s important to recognize that China is still undergoing tremendous changes. In the early 2000s, China was seen as principally a source of goods for export and a potential market for multinationals. Now we’re going to see a wave of Chinese-developed products, Chinese multinationals, and Chinese money entering the global economy.

For example, China has become an incubator for every kind of business — from tiny startups to giant multinationals, both foreign and homegrown. Local companies are building platforms with sufficient scale to take their business worldwide. International companies will go to China to integrate this vast market and sourcing hub with their global strategies and operations.

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