As the sub-title of this compact book suggests, it is primarily aimed at a specific audience: multinational corporations (MNC), particularly American MNCs, which are considering establishing or expanding their operations in China. It takes as its starting point the current stage of China's development and why China's leaders want engagement with the outside world. Lieberthal characterizes the main factors driving current economic growth as: (i) urbanization; (ii) the expansion of the middle class; (iii) the projects of growth-oriented officials. He also emphasizes the current priorities of upgrading China's technological capacity, and of making China a leader in green technology.
Compared with other books on MNC strategies in China, a key innovation is the emphasis upon the need to factor in the markets of tier two and tier three cities, rather than just the ones in the already well-known tier one cities. On the other hand, it pays virtually no attention to issues such as business culture on the mainland. An executive concerned about how to make a good impression on potential business partners in China would need to look elsewhere for details on appropriate etiquette. The term guanxi, for example, is conspicuous by its absence, though chapter three does go into detail about ways of gaining the support of local officials for projects, so in effect it does deal with some dimensions of guanxi. However, Lieberthal is also keen to stress that corporations that already have a team working in China should make the most of their skills and location, and take seriously their local expertise in formulating all the details of a strategy. This is as important as technical or professional skills.
Indeed one of the admonitions of the book is the need for corporate headquarters in the US and teams in China better to understand the different constraints under which they are all operating. He draws upon extensive experience of advising and observing the operations of American corporations in China to give telling examples of difficult dilemmas that have been presented to American companies in the past, which have forced them to rethink their standard practices for doing business abroad. Corporate headquarters need to realize that doing business in China cannot always be assimilated into a strategy that works for the rest of the world, and this message does not just apply to US multinationals. The heart of the book is chapter four, which deals with the need for adaptations of standard MNC practices to Chinese conditions, and chapter five, which focuses on managing the various types of risk.
As one of America's most distinguished commentators on politics and decision-making in the PRC, Lieberthal is particularly strong on the considerations that are likely to figure in the minds of Chinese government officials when they are contemplating proposals for co-operation with foreign corporations. He identifies three strands in their thinking: (i) profound suspicion based upon history that the West will do whatever it takes to maintain its superiority over China; (ii) a focus upon gaining technology as the key to national strength; (iii) the perceived need “to achieve a position in which the West can no longer tell China what to do and how to do it – or to inflict punishment if China proves resistant to its demands” (p. 4).
As might be expected, he stresses the importance of integrating official politics into the strategies of corporations. As he puts it: “Government relations are a strategic issue for MNCs in China” (p. 63). One chapter is devoted to explaining the “operating environment,” in particular warning about the frustrations that can come from dealing with various official agencies which operate on the basis of consensus and where no agency can force another agency of the same hierarchical rank to take a decision. Indeed, as he points out, ministers, provincial governors and the heads of large state-owned enterprises may have the same official rank, so the former cannot simply issue instructions for the others to carry them out.
Lieberthal does not disguise the various obstacles to business success in China. He lists eight of these, ranging from local protectionism, through corruption and poor protection for intellectual property, to resentment over US dominance internationally. Similarly he identifies many of the risks that confront the regime, which could affect the success of corporate plans. It is certainly not another book that simply celebrates the enormous potential of the China market. Rather it encourages potential investors to check and recheck the assumptions underlying their strategies. But, he suggests, one of the additional payoffs from successful corporate adaptation to the China market will be a more flexible mindset that can transfer this skill to succeed in other markets too.
