How Business Can Thrive in China's New Era

October 28, 2018

The last in a four-part series, Fulcrum looks at some of the key ways the China of the past is quickly being thrown out the window. 

 

We’ve now taken a thorough look at the drivers behind China’s New Era, as well as the shifting priorities and enforcement mechanisms fast-tracking its emergence. Above all, the key concept to keep in mind is China’s desire to evolve from the world’s factory to its premier service provider. As we have seen already, this is going to take a streamlining of industrial operations, massive capital investments into a new generation of white-collar workers, and the adoption of cutting-edge technologies, automation, and industrial robotics.

 

It’s also going to take the active participation of, and collaboration with, business to ensure its success. A quick lesson in Chinese policymaking is important to understand why.

 

The powers that be in Beijing have been passing down a number of new enforcement mechanisms, targets, and quotas over the past several years to realize China’s New Era. These then weave their way from the capital, to provincial administrations, and finally to the local level. As these targets and quotas get passed down to more local authorities, the means to comply or accomplish them begin to diminish. Why? Capacity and expertise. Even with the proper funding, there are knowledge and skill gaps bureaucrats just cannot fill. Take wastewater for example. No matter how stringent the mechanism to combat emissions, unless a local official knows how to tactically deal with the issue there is little hope to meet a target or quota. But, while they may lack the capacity they certainly do not lack willingness. There is a critical impetus to perform, especially as their jobs are on the line.

 

This is where the private sector comes in.

 

Businesses have to find what I call their “Holy Grail opportunities.” This is where they fill the knowledge gap with expertise and support to government officials in achieving targets. Multinational corporations are particularly well positioned for this given their years of varied expertise across industries and markets. If you are an established brand with a mature supply chain operation, how can you contribute your knowledge and skills as a business to help a provincial government reduce waste and emissions? What social or human resource programs, effective globally, can be adapted to the Chinese market as a means of up-skilling domestic workers? How can your business help facilitate the emergence of this New Era and become a positive part of the China narrative? Identifying the specific needs of the governmental stakeholders where you operate, and mapping these against your operational strengths, will help your business thrive in this New Era.

 

Many companies operating in China have already found these Holy Grail opportunities and are capitalizing on them to realize success.

 

IKEA, for example, is helping streamline operations throughout the country’s industrial manufacturing sector. Since coming to China nearly two decades ago, the Swedish retailer has worked with thousands of suppliers to improve environmental, health, and safety standards at their factories. Businesses still come to China thinking they can pressure suppliers on price, shopping around for the cheapest costs possible. IKEA, though, views its suppliers as long-term partners. Through a combination of auditing, education, capacity building, and open dialogue, IKEA understood early on that when their suppliers perform well, they perform well. This has benefited the company greatly, with China continuing to be its highest growing market.

 

On more of the social side, Wal-Mart has created programs to develop tomorrow’s leaders among China’s female workers. The Women in Factories program educates women throughout the company’s Chinese supply chain on topics of skill development, leadership, communications, and crisis management. This program is aimed primarily at blue-collar factory workers. To date, half a million female workers have participated in the Women in Factories program. What this means is that not only does Wal-Mart gain higher performance at its factories, but is also contributing to the advancement of China’s lower-tier working population on a massive scale. From the perspective of this New Era, the company is helping to realize China’s dreams of a service-oriented workforce.

 

Beijing knows full well the golden opportunity it has at the dawning of this New Era. Geopolitical changes the world over are only making this more salient. For China, this New Era is the chance to reinvent and position itself as a true global leader. Given the massive investments in areas like green technology, public pronouncements around service upgrading and a focus on workers, and clear tightening of enforcement mechanisms, it’s clear China is taking this opportunity very seriously. A decade from now, don’t expect China’s leaders to do a mea culpa and say they misjudged what was possible. In this New Era, there is no room for failure.

 

As such, it is imperative for business to jump on the proverbial bandwagon. I’m not talking here about endorsing one political system over another, which is something business leaders may be concerned about. This is primarily about thriving and adapting for success, which all savvy executives can relate to. All told, don’t think of this New Era as a poetic way the current administration sees itself. Rather, consider this New Era the new normal.

 

 

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