Leon Gettler: The China Syndrome

China

China is Australia’s big opportunity but it is fraught with difficulty. There are many examples of longstanding mismatches in the China market. Foster’s, for example, assumed the Chinese would go for Australian beer, without realising that the Chinese preferred cheaper local brews to the more expensive global brand. Foster’s lost a fortune in China.

The Chinese market is big but Australian companies need to be aware of the cultural differences. Still, more Australian outfits are setting up operations there. You can read the list of examples here. They include ANZ, Commonwealth Bank, NAB, Westpac, AMP, Macquarie, PricewaterhouseCoopers, Cisco Systems, Telstra, Central Equity Group, RM Williams, Elders, Meat & Livestock Australia, Bluescope Steel Investment Management and law firms like Allens Arthur Robinson, Mallesons Stephen Jacques, Norton Rose and Baker & McKenzie.

China presents enormous opportunities for Australian business. In a fascinating address last year, Treasury Secretary Martin Parkinson said China presented Australian businesses with opportunities, but many challenges too.

“Australia must also be awake to the longer-term opportunities flowing from sustained growth in China and emerging Asia more broadly,’’ Parkinson said. “If the resources boom is the first wave of impacts on Australia, the transition to higher incomes and consumption-led growth promise two more:

- Higher demand for our agricultural commodities as higher incomes lead to changing food consumption patterns; and

- Opportunities for rapid growth in the services demanded by increasingly affluent societies.

On some projections, by the end of this decade there will be an additional 1.2 billion middle class consumers in Asia, making the region the single largest middle class market in the world.

The opportunities that come with this are tremendous. But just as it took world’s best expertise to transform our mineral wealth into the mining boom, it will take world’s best business and policy approaches to make the most of our favourable geography … Australia’s success in positioning for Asia’s middle class is not pre-ordained. To make the most of these opportunities, Australia will need to pursue a broad-based agenda to increase productivity, innovation and both labour and management skills.”

In other words, we will need a more sophisticated management culture to compete against all the other countries lining up to do business in culture. If Australian business is to succeed in China, we’ll need the best management skills.

The jailing of Rio Tinto executive Stern Hu two years ago raises questions about doing business in China. Commentators Paul Dibb and Geoffrey Barker say it’s about recognising China is a different system. But as I point out in one of my columns, it’s more about being sensitive to cultural differences, which includes attending to the primacy of relationships over formal rules, and incorporating them into strategy. Successful companies in China build relationships first, then do business.

What do we need to succeed in China? How big an opportunity is it? And what are the risks?

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One thought on “Leon Gettler: The China Syndrome

  1. Good blog Leon. Having lived in the Americas for the last three years I continue to be amazed by how over-sold the Chinese opportunity is compared to the opportunities a much more transparent and larger U.S. economy and Americas economy.

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