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 / Winter 2010 / Issue 61(originally published by Booz & Company)


Best Business Books 2010: China

China’s modern approach to environmental protection mirrors the approach it embraced for economic development: Devolve authority to local officials, open the door to private actors, invite participation from the international community, and retain only weak central control. But the result is a patchwork of environmental protection in which a few wealthy regions with strong leaders and international ties improve, while most of the country continues to deteriorate. Economy, who is the C.V. Starr Senior Fellow and director for Asia studies at the Council on Foreign Relations, argues that no matter what resources are invested, China will need to fundamentally reform the local political scene — enhancing transparency, the rule of law, official accountability, and resource pricing — to ensure that the environment will not produce a severe drag on economic growth and a challenge to the political system. “China’s reform process has brought an extraordinary dynamism and energy to both the nature of China’s environmental challenges and its environmental protection efforts,” she writes. “Yet it also increases the uncertainty in attempting to chart China’s future environmental path.”

As for the likely outcome, Economy envisions three possible scenarios, handicapping none: China goes green to its own benefit and the benefit of the rest of the world, inertia sets in and the status quo continues, or an environmental meltdown in China (triggered by a prolonged economic downturn in which the Chinese focus even more intently on economic development at the expense of the environment) shakes the world. The United States, with its potential to transfer technology, and “its strong environmental enforcement apparatus and history of public participation in environmental protection,” could play an important role in a positive outcome, she notes. “The environment provides a natural and nonthreatening vehicle to advance U.S. interests not only in China’s environmental protection efforts but also in its basic human rights practices and trade opportunities,” she writes. At the same time, bold leadership will be required to put in place the mechanisms to make true reform and change possible.

Four Chinas

The business environment for foreign players in China has grown more difficult in recent years as the government has endeavored to substitute domestic companies for overseas investors — to the consternation of the latter, who are being squeezed out of their present market shares. Consequently, much of the old advice about navigating China’s difficult business environment has become outdated. In The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy, Booz & Company’s Chairman of Greater China Edward Tse, who was born in Hong Kong and educated in the United States, provides a comprehensive update, summing up the current environment and relating the key tales that are crucial to understanding it. (Disclosure: Booz & Company publishes strategy+business.)

Tse takes an umbrella approach to describing China’s business milieu. He says that China’s economy has four principal drivers: Open China, with its emerging consumer potential that offers short-term retail opportunities and longer-term market share challenges; Competitive China, with its entrepreneurial energy and nascent innovation that is fostering highly competitive indigenous companies; Official China, with its state capitalism and economic liberalization; and One World China, with its myriad business links and interdependencies with the rest of the world.

Tse’s main thesis is that China’s global influence has grown to the point where companies can no longer separate their China strategies from their global strategies — they must be integrated. “China is still typically viewed as a place ‘out there,’ a stand-alone location isolated from other aspects of global business,” he writes. “That will change.”

As China continues to innovate, it will make a bigger contribution to the laboratory of global production, and its global value chains will increasingly bring together “companies from China and other countries in unprecedented networks of businesses that cross national lines,” Tse writes. He points to Sam Palmisano’s globalization strategy at IBM, as well as those of KFC, Microsoft, Procter & Gamble, Coca-Cola, Pepsi, and Sweden’s Tetra Pak, as examples of the success that such integrated strategies can deliver.

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