Take The Fast Boat To China
January 1 1992 by Robert W. Lear
A year ago, after returning from a business trip to the Orient, I wrote a column for this magazine that urged CEOs to take a close and personal look at their interests and opportunities in the Pacific Rim.
Now, having made a second and somewhat more intensive visitation to the area, I am even more convinced that the CEOs of most of our American companies have got to see that they have an effective Pacific Rim strategy and are developing a solid foothold there.
The Pacific Rim is bursting with people, energy, plant construction, improving standards of living, and new business ideas. The managers of its companies are positive, aggressive, able to invest long-term money, inured to risk, and willing to take the time necessary to cope with the frustrating problems of doing business in a variety of oriental cultures. To me, the single most interesting-and puzzling-area is China, for it is right now in a state of transitional flux. Great changes are occurring, but in a number of different directions. When a situation such as this occurs, it often looks like opportunity to those who are able to read the signals, and gain a position advantage over those who hang back.
What seems to be happening in China is that the ambitious provinces are moving ahead on their own steam to industrialize and to open themselves to world business. In some cases, there is full clearance from the old men in Beijing; in other cases, it appears to be done under the theory that “it is easier to apologize than to ask for permission.”
Shenzhen is 50 miles from Hong Kong in Guangdong province. Eight years ago it was nothing but rice paddies. Today it has two million people, 50-story buildings, and literally hundreds of five-story, concrete block buildings designed for manufacturing the toys, textiles, and small appliances that enterprising Hong Kong merchants have brought over for cheap, hard-working Chinese labor. The city is still growing like a weed, and when a new superhighway to Hong Kong is completed in 1994, it will be an even greater force. As one local observer said, “Instead of China taking over Hong Kong in 1997, in Shenzhen it looks like Hong Kong is taking over China.”
Also, for several years now, the Taiwanese have been establishing manufacturing and marketing beachheads on the mainland, especially in the Fujian province. Now, in formal recognition of this action, Beijing is setting up Xiamen as an official free port to cultivate such trade with Taiwan.
On the other hand, China is still a communist state with military governance, regimentation, and fear. A Tiananmentype crackdown could happen again. A shift in industrial policy-leaning away from or towards more leniency and regulation-is certainly possible.
The Japanese are everywhere. Their trading companies have permanent, Chinese-speaking representatives in all the major areas. Their major corporations are hard at work to establish technology partnerships with the Chinese-and so are the Koreans, Taiwanese, and Hong Kongers. Even Kim Ilk Sung of North Korea was in Beijing while I was there, trying to work out some deals. But the Russians, who formerly had a strong position in China, are dropping out.
American companies have a real chance right now to establish a lasting presence in China. Our biggest problem is ourselves. If our silly Congressmen put through a revocation of China‘s Most Favored Nation status, it will upset the present friendly feeling that Chinese businessmen seem to have towards their American counterparts. It will sadly damage the new industrial flowering in places like Shenzhen. It will forfeit our prospects to the Japanese.
There is no question in my mind but that China has begun a long march towards industrialization and world-trading status. As the CEO of a North American or European company, if you haven’t yet gone personally to the Pacific Rim to see what your company is doing and how it is getting set for the ultimate trade competition with China, then you had better get going or you’ll miss the fast boat to China.
Robert W. Lear is Executive-in-Residence at Columbia Business School, and is former CEO of F. & M. Schaefer Corp. He is the author of How to Turn Your MBA Into a CEO.