S+B: How would you sum up the relationship between entrepreneurial China and official China, in a nutshell?
TSE: There are so many contradictory features. You’ve got entrepreneurial people at the grassroots level who are very independent-minded. They’re very quick on their feet. They’re prone to fearless experimentation: imitating other companies here and there, trying new ideas, and then, if they fail, rapidly adapting and moving on.
On the other side, the Chinese government has channeled its efforts deliberately: It has been building good infrastructure across China, enabling companies to do business in a very efficient and effective manner. The Chinese have put in place institutional money — for example, from sovereign wealth funds or pension funds — to channel into the investment community within and outside of China.
S+B: What will China look like in 20 years?
TSE: China will definitely continue to grow. It will increase not only its economic power, but also its geopolitical power in the world. It will be not only a large consumer market, but a strong breeding ground for innovations. Twenty years from now, for a lot of global companies, China will be at the center of their strategies.
I think large multinationals will increasingly have to face this issue. What does China — or, for that matter, China, India, and all so-called emerging markets — mean to them? These companies are coming to realize that they need to integrate more and more of their value chains into China and India. They need to be close to these markets, because of their size. They need the ability to understand the needs of their customers in emerging markets, and turn them into product and service offerings quickly, by having on-the-ground facilities for product development and R&D.
S+B: Which elements of China’s new business culture will be particularly challenging for more established enterprises?
TSE: China’s business culture is built around fast decision making in an environment that often seems opaque. Companies that need to collect a lot of data and analyze it before they can move will clearly be at a disadvantage. The challenge for most Western enterprises therefore is to figure out how their own strengths can be applied in a business environment that moves quickly and produces opportunities overnight, but that is also hard to predict.
- Art Kleiner is editor-in-chief of strategy+business and the author of The Age of Heretics (2nd ed., Jossey-Bass, 2008).