We have been exploring the question of “China Going Global” for several weeks on CTP, in our blog, podcast and for a series of articles commissioned by Fortune magazine’s Chinese website.  In our first installment, we discussed the trend of how more and more Chinese companies are engaging Lesser Developed Countries (LDCs) in the Southern Hemisphere where the obstacles to market entry are significantly lower than in the United States, Europe and Japan.  In these various LDCs across South America, Africa and the Middle East, the Chinese can compete on price and their ability to build informal distribution networks among the Chinese diaspora.  Overall, Chinese companies operating in LDCs around the world are displaying their characteristic dexterity going into markets that most companies from the developed world either ignore or abandoned.  In places like Bolivia, Zambia and Bangladesh, product liability laws are weak, competition in many sectors is thin and the non-contract-based business cultures there all play to Chinese companies’ strengths.  In contrast, the United States offers the Chinese none of those advantages.  It is a huge, diverse market, with establish competitors in a system that is built on a legal system dedicated to contract enforcement.  If Chinese conglomerates want to play in this sandbox, they will have to adopt an entirely different approach to how they run their businesses.  In short, they will have to learn to be less “Chinese” and more “American.”

In this episode of the CTP Video Podcast, we explore the challenges confronting China’s emerging global conglomerates as they venture across the Pacific into the United States market.  Some of the questions we explore include:

• A “brand’s” value has very different meanings in the United States than it does in China.  Chinese companies will have to follow the lead of Korean and Japanese conglomerates who spent considerable time and money to learn the subtleties of American culture so as to effectively market to this diverse population.   Whereas price and value are among the driving forces of a brand’s value in China, that is less so in the United States where a pair of Diesel jeans, for example, can sell for over $300.  If the consumer is drawn to the Diesel brand, than the $300 spent on those jeans is within an acceptable value range.  Understand that concept of “value” will be critical for Chinese companies as their adapt their marketing strategies to accommodate the US market.

• The “Made in China” (MIC) brand poses distinct problems for Chinese companies coming to the United States.  MIC is now a widely used catch-phrase for low-quality, crappy products.  Following 10 years of scandals, product recalls and sub-standard quality associated with many Chinese products, the Mainland’s MNCs will no doubt face a significant challenge shedding this burdensome baggage.

• What sector will Chinese companies likely have the most success?  Cars.  Both Michael and I agree that the auto sector is wide open for an innovative product, particularly in the mixed-fuel or hybrid sectors.  The selection of Los Angeles as BYD’s North America headquarters is yet another indication that the Chinese are going to use their innovations in hybrid and solar power auto technology to serve as the proverbial “tip of the spear.”   However, autos present tremendous risk to the brand as well.  Imagine if Geely or BYD encounter quality problems similar to what Toyota just went through.  The Japanese auto maker was able to draw on a generation of brand investment in the United States to recover its standing in the market.  Chinese companies will not be afforded the same amount of trust.  If the gas pedals on a BYD or Geely car stick as Toyota vehicles reportedly did, then the Chinese will have a public relations disaster on their hands.  Remember, all Chinese products, regardless of their quality, will have to overcome the public’s skepticism of MIC.  On top of that, there is the whole… ahem… “Communist thing.”  Yes, the American people remain oddly afraid of anything “Communist” and China is still widely referred in Washington as “Red China.”  Finally, China has built up a sizable audience of detractors who would love nothing more than to see their brands fail miserably in the United States.   In the end, the Chinese must perform exceptionally well as there is very little room for error for them to establish their brands in this environment.

• Finally, the Chinese will have to grow a thicker skin.  When things go wrong, and they will, Chinese corporate leaders and senior government officials must resist the temptation to call on their nationalistic instincts that have been used to great effect until now.  If a product is recalled, it is not a conspiracy “to contain China.”  If American consumers protest against a Chinese company, it is not because “they want hurt the feelings of the Chinese people.”  Instead, the Chinese should address the problems as local issues, work hard to influence public opinion back home (especially in the blogosphere) and show a commitment to the American consumer that Chinese MNCs are investing in the United States for the long term and will work hard to resolve problems quickly, directly and honestly as they arise.  American consumers welcome Japanese companies with a similar level of skepticism when they first started to arrive en masse in the 1980s and now, a generation later, those companies are a trusted part of millions of US consumers’ lives.  The Chinese can do the same if they learn not to over react and to communicate with their American consumer in a tone and language they are accustomed to.

So many of the requirements of how to enter the American market are similar to the necessities of what it takes to break into the Chinese market.  The Chinese always tell Western investors that in order to succeed there it requires time, patience and a lot of money.  More importantly, it also requires leaders who are culturally sensitive, speak the language and understand the consumer’s needs.  Imposing your will on the consumer will not work, either in China or the United States.  So before Chinese corporate leaders pack their bags for Los Angeles, New York and Washington, they might want to first stop by an American company operating in China to listen to their experience about what it takes to make that long journey across the Pacific.

A Bit of Background

First, it was CCTV9.  The ugly, English speaking cousin of CCTV that got a nice facelift a few years ago courtesy of Rupert Murdoch.  News Corp. advisors convinced CCTV9′s management to invest in new sets, a snazzy graphics package and replace the dour looking Chinese anchors with attractive Australians, Africans and other non-Chinese.   CCTV then leveraged its considerable political muscle to expand the network’s global distribution.  In the United States alone, CCTV9′s expanded distribution footprint is nothing short of amazing.   The channel is available on pretty much every major cable and satellite platform from DirecTV to Time Warner Cable.  You can also get your fill of watching Da Shan over the air as CCTV9 is making inroads in regional markets through digital terrestrial television stations as well.  Simply put, CCTV9′s distribution is phenomenal.  Nonetheless, CCTV9 is a tragic case study in how distribution alone is not enough.  I have yet to meet an American television viewer not affiliated with China who has ever heard of CCTV9, much less watched it, even though the channel is right there on their on screen TV guide.

Last year, the Chinese doubled-down on their English language TV investments with the launch of Blue Oceans Network, or BON Live.  Sensitive to the reaction of many international viewers that CCTV9 was simply an extension of the parent channel’s heavily censored content, the new BON brands itself as an “independent network” that produces “objective English language content for the Western world.”   While much of the content has that same “cable access” semi-professional feel to it that is so common on CCTV9, the difference with BON is that it is positioning itself as a Western channel designed exclusively for Western audiences.  That means there are few, if any, Chinese hosts and there is a pretense of independence from the government’s various media censors.

And now… CNC

That China feels the need to launch yet another network is indicative that its prior attempts have not fulfilled the government’s media objectives.  Beijing clearly perceives an injustice is being done by the international media in how it is perceived globally and the best solution is to follow the lead of the French (France24), the Russians (Russia Today) and Qatar (Al Jazeera) by deploying its own television platform to tell its story.   There is little, if any, evidence that suggests CNC will be any more successful than CCTV9 and BON Live in persuading the outside world of China’s positions on critical issues where it comes under such intense scrutiny by the international community.  On the key issues of human rights, Tibet, Taiwan and certain aspects of China’s relationship with the United States, China’s official government media simply lacks the necessary editorial credibility to be taken seriously as an impartial source of news.

Why Al Jazeera is Different

Beijing’s media leaders no doubt look to Al Jazeera as an example of how a state-funded media enterprise can have great effect in swaying public opinion.  Unfortunately for China, Al Jazeera is unique in many ways that do not benefit Beijing.   The key difference between China’s media ventures and Al Jazeera is the level of editorial independence the Qatari government affords the network’s management.  Doha provides Al Jazeera with seemingly endless resources to do pursue stories as it pleases, even if that complicates Qatar’s foreign relations.  Qatar is a staunch ally of the United States, even housing one of the largest American military bases in the Persian Gulf, yet permits Al Jazeera to feature guests and carry and editorial narrative that is constantly critical of American policies in the Gulf and towards the Arab/Muslim world at large.  It is hard to envision China permitting such editorial latitude with CNC’s editors.  Furthermore, Al Jazeera’s editorial management, both in Washington at Al Jazeera English and in Doha with its Arabic language service, is comprised of a journalists from around the world.   When Al Jazeera English launched several years ago, it cherry picked top editorial staff from the world’s leading news organizations with the offer of editorial independence.  While the full potential of that promise has predictably fallen short on some levels, overall that editorial freedom is also difficult to envision in Beijing where no such tradition exists.

What China Should Do…

There is a tremendous opportunity out there for a globally focused China-based television network that is essentially an english-language version of Phoenix TV News.  Instead of relying on its old ways of producing media, here’s what China should do:

• Engage the international media in a meaningful debate on the issues by making its government leaders more accessible to the English language media. It took years for the U.S. government to learn this lesson.  Initially, Washington avoided Al Jazeera, prohibiting its officials to appear on the network.  It then realized that by leaving a vacuum in the airspace, it allowed more time for critics to attack the administration for its Mid East policies.  Now, Arabic speaking American diplomats are regular guests on Al Jazeera.  China should follow suit by making media training in English mandatory for certain high level officials and follow the example of Beijing’s top diplomat on Africa Affairs, Liu Guijin, who appears regularly on international television to articulate China’s position and rebuff the government’s critics.

• Ease restrictions on China-based foreign correspondents to travel and access senior officials. I speak with firsthand experience here in how difficult it is to get officials in Beijing to talk on the record, or better yet on camera.  It takes days, even weeks, to get officials to agree to an interview and when they do it’s often accompanied by a long list of restrictions.  By making their officials more accessible to the foreign press corps and allowing journalists to form meaningful relationships with bureaucrats, they will find that the coverage will soften considerably.  The best example of this is in the United States where an extremely close relationship exists between the government and the media and more often than not, that close relationship often benefits the government significantly more than the media.

• Attract the best international journalists from around the world as Al Jazeera did.  To date, the quality of journalist at China’s english language networks is extremely green.  Largely, CCTV9 and BON Live, along with the China Daily and other similar outlets, are populated by journalists who are either too green to get jobs elsewhere or can’t find jobs elsewhere in the global media.  Instead, the Chinese should recruit from CNN, BBC, Al Jazeera and other established networks who have the experience to take China’s television programs to a much more sophisticated level.  Here’s the hard the part though: these experienced journalists will only come if they have assurances that they can truly tell the story as it is.  CNC’s management will have to include some international personnel and they will have to allow a greater degree of editorial freedom than they are accustomed.

In 2009 I was approached by a Hong Kong-based executive recruiter to join BON Live.  At the time, I was the Vice President of editorial affairs at the largest Chinese TV station in North America and I would have no doubt been a good fit for an endeavor like BON Live.  However, when I inquired about the degree of editorial control I would have over the programs I would manage, it was made very clear to me that I would be required to follow the guidance handed down from management on sensitive issues (those “sensitive issues” were not articulated however I knew exactly what they were: Taiwan/Tibet/June 4/etc…).  If China wants to really be taken seriously in the international TV marketplace, it will eventually have to soften those restrictions to allow for journalists with my level of experience to help them tell their very compelling story.

China is not just bringing piles of cash and construction trucks to Africa, hundreds of thousands of immigrants are also making the long journey to resettle in cities like right here in Kinshasa.  These immigrants, like Mister Chen who we profiled earlier, are coming here in search of opportunity and to build a better life for their families.  They are opening businesses large and small in out of the way neighborhoods that largely go unseen by the casual observer.  In so many ways, the Chinese entrepreneurial enthusiasm is a welcome addition to poor and dysfunctional communities that essentially operate outside of the formal economy.  In short, the Chinese are bringing desperately needed jobs, goods and services.  Human culture being what it is though, there is also tremendous risk with how the Chinese ultimately assimilate with Congolese and other African cultures.  Initially, the arrival of those Chinese business were greeted either with indifference or welcomed as a positive addition to the community.  Now, however, the first rumblings of unease are beginning to emerge as some communities find the Chinese presence to be more problematic than they had initially thought.  This issue was most recently brought to light in Namibia where the growing competition from Chinese hair salon owners prompted the government to place an outright ban on Chinese ownership of these types of beauty parlors.  Separately, I am hearing more and more firsthand reports from Congolese who have friends and relatives working on Chinese construction projects who complain that Chinese foremen are becoming increasingly aggressive with their local employees.  It has been well documented that in countries such as Congo-Brazzaville, Angola and Algeria (source: China Safari, 2009) that many Chinese employers lack cultural sensitivity skills that would endear them to local populations.

To many Chinese, these so-called “soft skills” are meaningless.  The common retort from many Chinese business owners and project managers is that local workers complain because the Chinese work harder and demand more from their employees than do African companies.  The fact that local workers are complaining about working for low wages or not being paid at all just further reinforces that Chinese mindset.   In fact, the emotional standoff between Chinese merchants and their African critics is very similar to the same arguments made about cultural insensitivity by the Chinese in certain minority -populated provinces in China.  Now, let me be very clear here.  I do not have an opinion as to whether or not the popular sentiment held by the majority Han culture in China is correct or the views of minorities who feel their cultures are being paved over.  I will leave those questions to far more learned observers.  My point is that the debate is so similar.  The Han perspective emphasizes economic development as evidence by infrastructure construction.  Sentimentality for culture or religion is rarely a priority when measured against infrastructure development in economically deprived regions.

Considering the tremendous speed the Chinese are moving in Africa, particularly here in the Democratic Republic of the Congo, there may good reason to allocate a small percentage of that investment to building cultural ties between the Chinese and their African hosts.  The Congolese, for example, seem overwhelmingly positive about the Chinese arrival.  They regard the Chinese initiatives with optimism and see their enthusiasm for Africa as welcome relief from the failed policies of the West.  That said, the DRC is an extremely volatile country where a spark can light a blaze in seconds.  If the Chinese are not carefully with their cultural investment, it could handicap their broader regional agenda.

• Chinese contractors in the Sicomines mining consortium are reported to have paid a $350 million dollar entry fee that includes some $50 million in signing bonuses given out to varies Congolese entities.
• $23 million of that $50 million is now reported to be “missing” or “unaccounted for,” according to Africa-Asia Confidential.
• The $350 million dollars was a small part of a $6 billion ore-for-infrastructure contract between Chinese state-owned companies and the Congolese mining giant Gecamines (other Congolese companies are also reported to be included in this deal).

Read the full report “Kinshasa’s Missing Millions” from Africa-Asia Confidential here…

The lack of accountability and transparency in China’s natural resource deals in both the DR Congo and across Africa are now starting to show signs that it may ultimately weaken China’s position on the continent.   Here in Kinshasa, President Joseph Kabila is making some of his first public remarks on his growing impatience with the Chinese.  It’s worth noting that Kabila’s comments are worth taking with a huge chunk of salt as he is likely posturing to pressure the Chinese to finish their infrastructure projects so he can claim credit ahead of next year’s presidential elections.  Furthermore, there is widespread speculation that Kabila himself may be among the beneficiaries of some of those “missing Kinshasa millions.”  Nonetheless, that he feels sufficiently embolden to begin using public pressure against the Chinese is noteworthy.

Kabila may in fact be following the lead of Zambian opposition leader Michael Sata who came within a hair’s breadth of winning the October 2008 presidential elections.  Sata ran his campaign on a platform opposing Chinese investment in Zambia, calling the nature of the deals unfair and “colonial.”  Sata, and potentially now Kabila, may be the first indications of growing unease over the speed, scope and scale of Chinese investments in the region.  Their main criticism: labor.  Unlike the waves of foreign investment by former colonial powers, the Chinese have added a distinctive twist to their investments.  Rather than rely on local labor to implement the huge number of infrastructure projects across the country, tens of thousands, possibly even hundreds of thousands of Chinese peasant laborers have been imported to build the ports, roads, mines and telecommunications infrastructure projects Beijing promised in return for access to the host country’s natural resources.  Before anyone else in Africa complained, Sata was a vocal critic of these deals.  If elected, he promised to re-negotiate the labor contracts to make them more equitable for Zambia by reducing the presence of Chinese workers.  Sata’s threats were heard in Beijing with the government there threatening to end its investment program in Zambia if the opposition leader was elected.  Sata lost by a very small margin.

The DR Congo and Zambia are not alone in their gnawing frustration over the use of imported Chinese labor.  In Southeast Asia, the New York Times reports growing resentment in Vietnam and other nations over the presence of Chinese workers at the expense of local labor.  So the key question now is how will Beijing react to what appears to be a small, yet discernible trend opposing their overseas labor policy:

1. Will they ignore the criticism and continue to employ the aggressive natural resource-for-infrastructure deals?
2. The Chinese are extremely sensitive to public opinion at home and have become quite adept at responding to shifting political winds.  Will they apply that same dexterity with their natural resource-driven foreign policy?
3. Will they offer a few minor face-saving public gestures to satisfy their overseas critics that provide sufficient political cover to continue their operations minus a small percentage of imported Chinese labor?

It would be unwise to bet against the Chinese.  I have done it numerous times in the past and I have regretted it later.  That said, the Chinese are in a totally new space here and they are operating without precedent in international relations.  No country has expanded its natural resource extraction footprint as quickly, aggressively and with as much man power as the Chinese have.  So Beijing must learn as it goes.  For the rest of us, this will be among the most important foreign policy lessons of our generation.

“Sticking it to the man” is an expression used in the United States when the underdog challenges authority. What so many Chinese observers misunderstand is that the widespread support of Google can largely be separated from the ongoing dispute with China.  Instead, it’s an impulsive reaction against authority.  We do it to ourselves just as much as we do it to others so contrary to popular opinion across much of China’s often nationalistic blogosphere this dispute in the eyes of most Americans has little to with China persay.   It is a concept deeply rooted in American history and critical to understand many disputes where Americans perceive that a major power (either a government, company or individual) is bullying a vulnerable constituent.

Consider the following examples:

• The recent election of Senator Scott Brown in Massachusetts was an embarrassment for President Barrack Obama and the Democratic party who control by the White House and the Congress.  Brown ran on a platform of “sticking it to the man” to challenge Obama and his party (“The Man”) so he could represent the “little guy.”

• The black civil rights movement led by Dr. Martin Luther King who challenged the government to change its laws about segregation in the 1960s.  In this case, the white-American government was “The Man” and Dr. King represented the “little guy” who led the rebellion on behalf of millions of powerless African Americans.  Dr. King was “sticking it to the man” in his fight for justice.

• The open source software movement’s battle against Microsoft highlights how this insurgent attitude extends beyond politics into the business world.  In this case, Microsoft is “The Man” who possesses a monopoly market share in the software sector that goes to great lengths to stifle innovative competitors that distribute rival applications free of charge.  Linux, Mozilla and even Google to some extent are all consider underdogs compared to the mighty Microsoft.

• Rocky! Yes, that Rocky.  Rocky is the quintessential American hero who stands up to powerful competitors (remember, “I vill cruuush you”?), powerful countries (Russia) and, later, powerful corporations.  No one sticks it to the man better than Rocky Balboa.

So in the context of how Americans perceive power relationships, we will frequently side with whichever party is perceived to be weaker.  Ironically, Google is frequently considered the more powerful side in most disputes but in this case it is out matched by the Chinese government.  Americans rally behind the underdog and that goes a long way in explaining the reaction to the dispute between Chinese authorities and the search engine giant.  Yes, there are a myriad of factors to be considered in this discussion however it is our firm belief that Chinese observers need to understand this critically important American cultural trait if they are to fully comprehend the scope of this dispute.

The “Bush-Cheney” era in American politics was characterized by pure “Realpolitk” where needs of American national security interests were paramount.  When Fallows talks of China entering its own “Bush-Cheney” phase he is referring to a policy making style that is indifferent to external criticism, heavily influenced by hardline domestic factions and boldly assertive internationally.  If we apply the “Bush-Cheney” filter to the series of controversial decisions and policies coming from Beijing, there are some obvious parallels.  It will be interesting to see if the rest of the world reacts to China’s new policy stances the same way the Bush administration was received.

One final thought to consider today:  Chinese politics are rarely as centralized and coordinated as outside observers give them credit.  It is entirely possible that the sequence of events that have raised alarms here in the West are all happenstance.    It is easy for Americans to quickly over-react to Chinese policies and moderate its response in time.   That said, the Chinese public should brace themselves for a similarly vocal response to their policies as Americans received under their own unpopular “Bush-Cheney Phase.”

Final thought on Glenn Beck: while he is a critical player in American popular culture, it is also important not overweight his importance.  Beck’s influence does not extend across the political spectrum.  He is widely followed by Republicans and conservatives while ignored or disdained by liberals and progressives.  That said, Beck’s thinking represents an important current in American politics that must be understood by Chinese observers in order to successfully gauge U.S. popular perceptions of China.

I pulled some data from Pew’s recent data on global attitudes.  No need to go into great detail here, but I believe they conduct some of the most useful research around and I trust it a lot more than I do public opinion inferences from sundry commercial market research studies.

It is also important to note that I generally trust polling numbers in China that discuss individual outlook on the world.  I think they may be infused with pride and boosterism, but I can account for that in my read.

I think it is quite interesting to note the satisfaction Chinese people have with their country’s direction, and yet their satisfaction with their household income is the lowest of the countries I’ve highlighted here.  That seems like a powerful combination that demonstrates a country motivated to achieve.

Quite a few blog entries and articles have been posted around the web regarding the CCP’s initiative to “channel public opinion.”  Authors mainly cite two pieces of information:

a) Hu Jintao’s June 20, 2008 speech on the role of news media organizations in undertaking a dialogue between the Party/Government and the public.

b) An August 13, 2009 publication of the All-China Journalist’s Association that discusses guidelines & recommendations for certain agencies that may need to respond to sudden public rancor.

The more I read about the activity of “channeling” in China (kudos to HKU’s China Media Project), the more I start to think of government “spin” in the United States.  China can’t control public opinion, and I believe they don’t seek to do so anymore as much as influence it.  Like any government, it wants to have its version of the story told.

I used to think that the Party had an unfair advantage because it controls the fourth estate so absolutely, but to see the widespread usage of and engagement of internet BBS, Blogs, and SMS information exchange, that sense of unfairness has eased.  And after living through US media coverage of our own government these past 8 years, I don’t find myself as fervently believing our own media’s independence which affects how I view the Party’s efforts at spin control.

For the most part, I view the efforts by the PRC government to build “channeling” skills as an effort to rid propaganda departments of stodgy tired phrases and rigid stubborn personalities.

Additionally, there is an emphasis on preparing for direct participation in public dialogue by officials responsible for activities that come under intense public scrutiny.

The Journalist’s Association article contains the following advice/guidelines:

A) Perceptively finding and compiling relevant information about public opinion.
(B) Correctly discriminating and screening. Ensuring the objectivity of public opinion.
(C) Carrying out tracking of [opinion] activity
(D) Scientific evaluation and analysis. To the highest degree possible,
comprehensively and objectively exposing the current state of public
opinion and what direction it is trending.
(E) Achieving a system
of regular analysis [of public opinion]. Regularly carrying out
assessment and analysis of trends in public opinion, making an
appropriate analysis of the situation.

Ok, so that isn’t the most well written set of guidelines (still a hint of party-speak in there), but it basically spells out a PR crisis response management plan that an corporation, institution and government agency has in the US.

This is not to belittle the issue of self-censorship and the risks of arbitrary imprisonment, but I do think channeling reflects the Party’s own admission that it can only have a voice in most matters, and that it has to take divergent views into consideration before acting.

1) from the Communist Party and government institutions telling the population what to think,

to 2) telling them what they’d like them to think,

to 3) telling them what they are thinking.

This latest stage coincides with the now ubiquitous activity of public opinion surveys in the PRC.

The Communist Party does not see itself as omniscient.  It actively needs to get a read on the population and balance public attitudes and perceptions against the Party’s own interests.  Since the Party’s basic interest is the retention of power and social stability, it can use public opinionto  engage in a dialogue of sorts with the public.  But assessing public opinion is getting harder these days, and it moves at a faster pace than traditional polling can sometimes keep up with.

The China Media Project at the University of Hong Kong provided a translation of a very insightful article that explains how the Party and government agencies believe public opinion can sometimes be a crisis.  The crisis articulated in the article is one of ability to react to meet or confront the opinion.  The root of this is the manner in which opinion can be expressed via the internet or mobile phones – general word of mouth.  Consensus for action among a subset of the population can be reached before the Party and government even understand the root cause.

I found this all the more interesting in light of a speech given by Hu Jintao that Drew Thompson of the Nixon Center wrote about

in his most recent paper on responses to refugee crises in the PRC.  In the paper, Drew highlights the new emergency response

planning that China has implemented which I connect to mass issue incidents that are directly related to crises of public opinion.

While I have moments of viewing this evolution with optimism and pessimism, it is, of course, only half the story because public opinion expressed through surveys and digital communication reflects only the urban and sub-urban population mindset.  There are still another 600 Million individuals who don’t have the same benefit of voice that the 700 Million wired/wireless population has.

To Be Continued….