Five reasons why it’s time for CEOs to help shape the China debate

There’s a major disconnect between Washington and America’s CEOs. As Chinese President Hu Jintao prepares to arrive in the United [...]

April 12 2006 by William J. Holstein


There’s a major disconnect between Washington and America’s CEOs. As Chinese President Hu Jintao prepares to arrive in the United States on April 18, Washington is beating a steady protectionist drum against China. But many American CEOs have huge stakes in the Chinese market. Why are they so silent? It’s time for them to help Washington chart a more realistic strategy. Here’s why:

Reason No. 1: The current mix of proposals being weighed in Washington, ranging from demanding that the Chinese allow their currency to appreciate to cracking down on copyright violations, won’t work. What we’re witnessing is one of history’s most dramatic economic transformations, as China emerges onto the world stage. These remedies are just bandaids.

Reason No. 2: There’s a very real chance that Washington could do something stupid that would affect the operations of General Motors or Motorola or Microsoft or countless other U.S. corporations. China has become a major source of sales growth and profitability even for a company the size of GM. Yet the Bush Administration has quibbled with the Chinese over whether the Hu visit actually qualifies as a “state visit.” Even a symbolic slight against him could have deep impact.

Reason No. 3: There’s a better way. The right way to respond to China is to get the American economic house in order, meaning dealing with federal budget deficits and energy dependency, and then helping American companies ride on the back of the Chinese dragon. Sage U.S. executives such as Hank Greenberg, with decades of experience in China, see big opportunities for U.S. companies in areas such as environmental controls and health care. Let’s innovate, and make money from China’s continued growth.

Reason No. 4: The composition of China’s exports to the U.S. is very different from that of Japan or South Korea. By some accounts, a majority of the goods are coming from “foreign-invested entities,” meaning U.S., Hong Kong, Taiwan, Japanese and Korean companies. If economists knew how to analyze the real impact of trade, they would conclude that a significantly higher percentage of American companies benefit from China’s exports than from, say, Japan’s flow of goods to the U.S.

Reason No. 5: American CEOs, as a group, have spent long periods of time on the ground in China, but there is almost no one in the Administration or Congress who has the same level of knowledge about China. In effect, Washington is intellectually bankrupt and is seeking the same sorts of solutions that failed with Japan. If CEOs want to see an intelligent, long-term policy emerge from Washington, they’re going to have to help shape it.

What are your thoughts? eMail me at bholstein@chiefexecutive.net.


Response To: Five reasons why it’s time for CEOs to help shape the China debate

To begin with, I largely agree with your China position. However, judging from the general level of ignorance in Washington, I fully expect a “slight” from the Bush administration for the simple reason that they (the Chinese) are perceived as an easy target. Delivering the Latin American masses as
voters welcomed into the country with open arms will likely be offset by an attack on the Chinese, because there are no votes there. There is nothing  that this administration does any more that appears to have much intelligent thought behind it. And since incompetence also reigns in the halls of
Congress with no organized or cohesive long term planning, there is no person in Washington in power to offset the early stages of Alzheimer’s that is evident in many members of this administration, as well as the halls of Congress. And that is indeed very sad.

In my own dealings with various parts of the government I have found that purchasing decisions are not being made on the basis of the best products, solutions, or price, but rather almost entirely on whom you are connected with. I have watched the government on both the state and Federal level
spend as much as 50% more for decidedly inferior solutions. I have often seen 5 people doing tasks that could easily be done by just 2 or 3. Frankly, only at the municipal levels do I ever see some semblance of competence in purchasing decisions and even there it varies widely from town to town. And in my home state of New Jersey we now see the game of how much can we raise
the pay and resultant retirement income of our state employees and beauracrats just before they retire, because that taxpayer money that they are receiving is perceived as funny money, not a cost and a burden on our economy. So general incompetence reigns in American government, but we do
have an easy out, “Let’s Blame it all on the Chinese!”.

America is no longer on a slow ride to decay, we are now on an increasingly aggressive slope picking up speed, and rather than looking in the mirror at ourselves and taking the appropriate aggressive actions, we play the blame game. If we continue our rapid decline as a manufacturing power we will
eventually reach the point where we are no more than a paper tiger and irrelevant. The Chinese realize this. They are not stupid. They graduate many times the number of engineers and technically trained as we do. Far too many of our children want careers in entertainment, sports, or broadcasting.
Our corporations fail to adequately reward the technically competent and then we lament the lack of people to fill those roles. Most corporations do not appropriately compensate the technically competent engineer or manager who is forthright and talented enough to take a stand to do the right thing and make the tough decisions. And then they reward the team player that never makes waves, and never takes a chance because they want to be perceived as “team players”. We have evolved as a nation and as corporations largely into decision by committee, which is often no decision at all, but
rather a way to postpone decision making, or pass / share the blame.

America did not become the economic superpower it was, by squashing the talented individual who was willing to take risks. Our corporations now largely reward the individuals who do not produce things, but rather we reward those who manipulate cash without actually generating anything of
long term value. Those few companies that do use and recognize technical talent do thrive and prosper. The others, who have stifled innovation and long term product development, are merely playing a shell and delaying game that pulls a bluff until eventually the entire organization will rapidly
implode on itself, or merge with another that is in similar straits in the misconceived perception that the synergies of merger will make everything all right.

The Chinese realize that for the bottom line, it really all is about making a dollar, and making as many of those as they can. In America, we now largely look and figure  what fits into our core business, and how do we slot ourselves so that we fit into one of those tidy business group sectors
that make it easy for Wall Street to judge our performance. Resultantly, we jettison profitable operations because they do not fit the core as perceived by some analyst or overpaid management consultant guru. The problem is, that it really still is about making dollars, and not about fitting some
misperceived Wall Street nitch.

It is time to put sound leadership, management, and engineering principles to work to save this country while there is still a chance to do so. In Asia, the principles behind Industrial Engineering are largely put to use and they profit from it. Those principles work here as well with American
workers as is particularly evident in the use of them by Toyota. In America, many companies do not even know what an Industrial Engineer is. It is time to wake up, smell the coffee, drink the caffeinated Pepsi, and get to work. Make Intelligent decisions. Reward the Brightest Technical Talent and They
Will Grow Your Company! Bloated management and zealous bean counting produce
no returns. The Chinese Know That. And if we do not make intelligent decisions now, in 20-25 years at the most, they may just own us. Yep, let’s just blame it all on the Chinese!

Let’s put American innovation and the spirit of the individual to work while there is still time to do so, and before many of our brightest minds have been retired too soon by the relocation of American manufacturing and engineering. It is time to let many of our older technical workers and
engineers put their valuable experience to work. There is nothing that is a greater waste than wasted experience and talent. While some of these workers in their 50′s and 60′s are slowing down, many are not and yet we push them aside for the inexperienced starters and foreign workers and their H-1Bs. Let’s rededicate ourselves to solving our energy problems as the start. A moon race style investment in alternative energy development would have been a far greater investment with return, than the continued waste of resources on Iraq, and simultaneously reduce our dependence on unstable parts of the world and the recurring pollution inherent in existing technologies. Such a
move would sooner get us to energy independence and maybe even allow us to market these technologies to the Chinese. After all, they do need the energy to produce all of those goods for us.

Sincerely,

Robert Rack, President, BarCodeAmerica.com / RDG


Response To: Five reasons why it’s time for CEOs to help shape the China debate

Although my Company (Wholesale distribution of specialty steel products) is located in Canada and our sales to the U.S. market represent only a small percentage of total sales, Canada’s dependency on a healthy economy of  ’our big brother to the South’ has every Canadian CEO follow U.S. Government trade policies and actions with keen interest.

Having traveled to China at least once annually for the past 30 years, I cannot help but marvel at the development and progress of  China’s industry and infra-structure.  In contrast to Russia, China has managed to gradually move towards some form of capitalism without having relinquished  ultimate control by it’s Central Government. No matter how one feels about the lack of a democracy,  China’s Government deserves all the credit for creating an industrial powerhouse which  has every other Industrial Nation shaking in itjlunas boots.

During the 70′s and 80′s, it was mainly European companies and the Japanese who took advantage of the tremendous business potential in China, while North Americans concentrated mostly on importing cheap Chinese products. More recently, an increasing number of North American
companies have successfully made inroads in the Chinese market, but constant ‘China bashing’ by U.S. politicians are definitely hurting their efforts.

One also has to wonder about the U.S. insistence that China increases the value of it’s currency by as much as 20% or more, failing which the U.S. would impose special import duties of similar
magnitude. In my opinion, any increase in the Yuan would further increase the U.S. trade deficit, although it could benefit countries such as India and others to some extent.

Creating a ‘Chinese wall’ in North America will certainly be detrimental to any efforts to gain a larger share of a market which still has the biggest  growth potential of any market in the world.
 
Gary Scheichl, CEO, Vanguard Steel Ltd.