Strategizing Geo-economics: Engaging the Chinese
Syed Hasan Javed^*

The rise of China in modern times has made it all the more essential to understand the basic principles of China’s social, economic and financial norms and trends; in particular its business acumen, evident ever more so in its entrepreneurial prowess. China’s economic practices are set to have a tremendous impact on 21^st century. It is upon further research that it can be established that unlike other countries, China’s rise to power in the last few years, is a consequence of its soft power values, which transcend long-held means of expansion; that of wars, loot and plunder, discovery and acquisition of natural resources or foreign aid.

Hence, knowledge of Chinese business and entrepreneurial practices can act as ‘Force Multipliers’ for international business, globalized trade relations and diplomacy, among other notions of effective governance. In the early years of the Open Door Policy in 1980s, the Chinese were at a point where they were figuring out how to successfully propose and materialize joint ventures, dependent on Western capital and financial knowledge. However, in present times, the tables have turned as the Chinese find themselves on stronger footing compared to their Western counterparts. Reflective of China’s economic evolution, China started off as a market for Western companies in the 1980s. 30 years down the line, they have ended up becoming a market for China; an economic trend that is only going to grow.

Introduction

China has won the game of globalization. That is because they have adapted to globalization a lot more effectively, learning through experiences, adversities and disruptive events in their more recent history. For instance, the devastations of the so-called Cultural Revolution from 1966-1976; a radical departure from past practices, in turn ensured the success of the Reforms and Open Door Policy in 1978. The rebellion of farmers in the Xiaogang village, Anhui Province in November 1978 helped usher in agricultural reforms which set the stage for change through Reforms and Open-Door Policy in China.

The Tiananmen Uprising in 1989 led to ‘introspection’ in the Communist Party, giving way to a second phase of reforms, endorsed through Deng Xiaoping’s tour of the southern provinces in 1992; aimed at assuring overseas Chinese and foreign investors of China’s commitment to said reforms. After the Reforms and Open-Door Policy was initiated in 1978, China’s earliest Chief Executive Officers (CEO’s) comprised of farmers, village heads and Korean War veterans. What this meant was that the knowledge of local conditions took precedence in success.

In a more contemporary context, China’s rise can be attributed to it projecting knowledge of its local settings onto the global stage; the former considered an important prerequisite for the latter. Knowledge of similar nature pertinent to the indigenous Chinese social and political milieu has also contributed to the success of some foreign Multinational Corporations (MNC’s). One of the more important aspects of such knowledge, is the development of insightful relationships; very primordial in character that compound Chinese identity with its mode of business. Such practices are exactly what MNC’s tend to build upon for an effective commercial policy in China.

Guangxi and the Art of Business Relationships

‘Guangxi’, which essentially means building relationships, varies in nature and utility. The building of Guangxi is an essential element of the Chinese business and cultural paradigm. It construes identity as perhaps one of the more important parts of doing business; a narrative that explicably sets them apart from international financial conduct. As a whole, it can be referred to as the key to sharing ambitions for prosperity, aimed at co-creating a future i.e. the community of a shared destiny.

It is this very spirit of transitioning from identity-based business practices to a material gain that beckons an understanding of the Chinese culture; its perpetual quest for innovation to empower a capacity driven approach, focused on enhancing individual and institutional capabilities. Such a distinct connection reflects Chinese identity in its economic conduct, which is why knowledge of where and how to direct local expertise is just as important for international investors as is their own financial profile.

China’s astounding success in the wake of Policy of Reforms in 1978 hence is not merely a transition from anachronistic to all the contemporary things, but a meticulously calibrated evolution in ideas; subject to varied paradigm shifts. Its product was the result of Deng Xiaoping’s success in combining Marx, money, mercantilism, modernization and management. Chairman Mao Zedong channelled Marxism and Leninism for mass mobilization to defeat the imperialist powers. It was Deng Xiaoping however, who appealed to the more basic principles of the Chinese society on the mainland; to revert to what the Chinese have been doing for centuries i.e. doing business and making money.

The aforementioned inclination toward business can be traced in the words of Deng Xiaoping who is considered to be the father of modern China. Some of the more remarkable sayings from Deng Xiaoping are as listed below:

• The Communists do not have to be poor. Socialism is not poverty. To be rich is glorious.

• Only development makes sense, otherwise others will bully you.

• The colour of the cat is not important as long as it catches mice. Results matter.

• Higher education is the key to progress. You will see how China progresses when thousands of our students come back from abroad.

• Either reform or perish. Cross the river by feeling the stones.

• Chairman Mao Zedong was 70 per cent correct and 30 per cent wrong.

In light of these references from one of the most celebrated Chinese leaders, the way that the Chinese have intelligently adapted and managed the past four decades of their rather troubled romance with the West while ensuring unprecedented access to market, technology, skills and knowledge is a brief glimpse into how potently the Chinese aim to make the most out of every opportunity.

Opportunities were there in abundance. The Chinese perceived Western willingness to engage with them as an opportunity to catch up; revamp their institutions, adopt best Western practices, obtain advanced technology, gain access to viable markets, acquire knowledge and restore their place in the community of nations. However, both ends have only achieved their expectations half way. The Chinese dream of a fully developed country is now also shared by China’s so-called 300 million ‘Americanized population’; which for a country bent on moulding its identity, culture and business around robust relationships, is a little troubling.

A Challenge is an Opportunity: Building on relationships

China’s progress has only been catalyzed by the predilection of its people to turn challenges into opportunities. The Tiananmen Uprising in June, 1989 in this regard, was in fact a ‘blessing in disguise’. While Western Sinologists were shooting out their prognosis on China closing its doors to the world, for the Chinese, it was merely a pre-emptive expression of the danger of living the ‘American Dream’ too soon. The American dream did come knocking on their doorsteps, perhaps not soon but definitely ridden with all that Chinese leaders in the latter part of the previous century, wanted to spare their people of. The uprising was used as an opportunity by the Reformist leadership to press further the policy of reforms and opening up.

The confluence of trading networks and international finance is the very notion that the Chinese were spared of when they were spared of the Western projection of the same. The Global Financial Crisis of 2007-2008 shattered the ‘American Dream’ for millions of Chinese people and projected instead, the vulnerability of the West. The disintegrating American Dream echoed collateral damages across China, disguised as income inequality, corruption and pollution. Only now has China found its own sustainable trajectory of power and prosperity, based on its shared culture and traditions broadly categorized under ‘Chinese characteristics’.

China’s next target is to transition from ‘Imitation to Innovation’. The Hǎi guī (talented returnees from America and the West, talked of by Xiaoping) do not need to build an ‘Eclectic Culture’ but rather revive China’s own ancient rich cultural heritage. The American story is only 400 years old, whereas, the Chinese have a 7000 years heritage, existing in perpetuity. The Chinese language is its own framework to understanding Chinese culture, business, management structure and style; sustainable in its own right.

The Efficacy of the Chinese Business Model

China has been the greatest beneficiary of the era of globalization, particularly after its entry in the United Nations in 1971 and its membership of the World Trade Organization (WTO) in 2001. China has harnessed the era of globalization effectively, in particular by reigning in the opportunities provided by outsourcing of production by global MNCs; modularization of production/segmentation/hybridization of the manufacturing and supply chain. The Chinese Companies benefitted enormously from the availability of ready-made knowledge in the pursuance of their digital ambitions.

They did not have to invent the wheel but choose to climb on the shoulders of those who did. The Chinese Upstart Companies availed the Digital Architecture to its optimum i.e. USB, GSM, Linux, Java etc. Yet another contributor to the success of the Chinese Companies is the ‘Internationalization of Retailing’, which provided it with access to the global supply chain. With surplus capital accumulation, Chinese companies gradually moved in for mergers and acquisitions for increased access to Western market and technology.

In this process, the Chinese market became intensively competitive. It became evident to multinationals that their success in China would result in their businesses booming internationally and vice versa. Their competitors were harnessing the local population, rich in talent and ability, to cut costs while enjoying extensive State support, providing strong impetus to the public-private partnership. Chinese Firms were fast experimenting with management autonomy/risk taking as essential attributes of success. They were also acquiring the latest skills, moving up the learning curve. The key to their success has however been the promotion of cost innovation with mass production.

Chinese Firms’ Business Strategy: Sun Tzu’s Art of War

Chinese companies have emerged on the international stage as formidable competitors, surprising even the more established market players. They brought along discarded technologies, bet on the black horse, attacked the most vulnerable and used the loose bricks, to enter the fortresses. They followed what is known in guerrilla war jargon, as the ‘Bottom up Surprise Attack Strategy’ by overwhelming their competitors through mass production and cost innovation, in a bid to drive them out of the market.

These companies even operated on marginal profits, drawing safety in numbers. They did not invent but preferred to build on what was already available. They challenged technological orthodoxies, blew away the status quo and moved away from incremental towards disruptive innovation. Learning from their overseas cousins, particularly from Hong Kong and Singapore, mainland Chinese companies acquired soft power business skills. They learnt not to be content, to evolve by innovating first and thinking after.

These firms began with their focus on low end markets, opting for niche segments and volume sales, even regarding rock bottom prices as not something bad. They further learnt to begin with peripheral markets and only gradually aimed for the core high end markets. They persevered in maintaining a low profile, cost innovation marketing, making bridgeheads and ambushing their competitors.

Conclusion

It is definitely possible to compete with the Chinese in their game and on their own turf too. But one needs knowledge of the Chinese language, literature, philosophy, culture, society, law, business, market, life and worldview. China is fast becoming a labour expensive country. While China moves into the middle and high tech ranged products to challenge developed nations, developing countries like Pakistan have an opportunity to sneak into the Chinese market. Pakistani firms can combine cost innovation and market knowledge with their niche strengths. They can harness regional connectivity and economies of scale available inside the Chinese market. If need be or so to say if it is financially feasible, they could also establish their sourcing operations in China by studying China’s consumer behaviour.

Pakistan has bright potential to easily tap into $27 billion worth of imports in which it shall also enjoy a competitive advantage. Pakistani firms ought to focus on peripheral products and surprise the Chinese in their own back yard. This needs a change in mind set of Pakistani companies, which ought to be tuned more to the development of Chinese knowledge and skills. Every major Pakistani firm eager to establish a foothold in China must build a ‘China portfolio with Chinese expertise’. If individually difficult, they may pool resources. Admittedly, this is a task easier said than possible to materialize. However, just as the Chinese learnt from the world, it is now perhaps the world’s turn to learn from China.