NOW IN 22 DIFFERENT LANGUAGES. CLICK ON THE LOWER LEFT HAND CORNER “TRANSLATE” TAB TO FIND YOURS!

By Jeff J. Brown

Pictured above: Allen J. Morrison shares his valuable new book, “Enterprise China”.

Sixteen years on the streets, living and working with the people of China, Jeff

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Text and audiovisual.

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It was great to meet Allen and learn about his book. Having lived and worked in in China for 16 years, I find his approach reasonable and realistic. Westerners can do very well in China, but they really have to up their game. The Chinese work very hard and when they have an objective, pursue it fast and relentlessly.

Here are Allen’s contact information and where to buy his books,

• The book, it has its own website: www.enterprisechina.com
• Our consulting firm’s website: https://www.globaleadinstitute.com/
• My contact email: al************@th*********.edu

Enjoy a lively and informative show!

PS: towards the end of the show, I mentioned the German concept of Vergangenheitsbewältigung, which seems to give them an advantage in working with the Chinese, versus other Western cultures. Its sense of humility and humbleness closely aligns with Confucism (https://en.wikipedia.org/wiki/Vergangenheitsbew%C3%A4ltigung).

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Audio (download at the bottom of this page),

Transcript:

Jeff J Brown: Good afternoon, everybody. This is Jeff J. Brown on the D-Day beaches of Normandy in France. And I have a special guest on the show today, Dr. Allen J. Morrison. How are you doing, Allen?

Allen J. Morrison: Jeff, great to connect with you. I’m very happy to join you. I’m doing wonderful.

Jeff: Super. I’m going to tell you a little bit about Dr. Morrison. His publicist Smith Publicity contacted me about doing a show. And since it’s all about China and I’ve lived and worked in China for 16 years. I said I want to pick this guy’s brain and see what he has to tell us. And anyway, let me just tell you about him. He’s got one of the most impressive resumes I’ve ever received. Dr. Allen J. Morrison is a professor of global management and a thought leader on Global Leadership. From 2015 to 2018, he served as the Chief Executive Officer and Director General of the Thunderbird School of Global Management at Arizona State University. And I’ve met many Thunderbird graduates in all my years traveling around the world. Dr. Morrison has authored or co-authored over 60 articles and case studies and 13 books, including his newest “Enterprise China”, which is what we’re going to be discussing today. His research has been published in a range of journals including Harvard Business Review, Strategic Management Journal, and Sloan Management Review. He’s a popular public speaker and has conducted executive seminars for a wide range of companies around the world. The list is as long as my arm, I’m not going to read all the companies, but it’s a who’s who of Fortune 500. And he also served on the board of directors of a Nasdaq-listed Chinese technology company. That’s an interesting play. And it is co-written with J. Stuart Black. Unfortunately, he could not be with us today. So welcome to the show, Allen.

Allen: Jeff, great to be here.

Jeff: Well, listen, I’ll tell the fans, I have not read Allen’s book, but I did go through it. They did send me a journalist copy. So, I spent some time going through it. It looks really interesting. And I do have three topics that I’d like to pick from Allen’s brain. And the first one is why China’s Business Enterprises have been so successful and what explains their rise in power.

Allen: Well, that’s a great question and it’s a question a lot of us outside of China, in the West are wondering, how did these Chinese companies get to be so strong, so powerful? And it really puts it in context, just in the last couple of years, Chinese companies have become the largest companies in the world. The Fortune Global 500, the largest country representation is China with 135 of the world’s top 500 companies are now Chinese. They surpassed the United States in terms of their importance on the world stage. Not only that, but Chinese companies are not just big in China, but the Chinese companies are expanding into the rest of the world. So, we’re now seeing Chinese competitors pop up on our home shores. And so, it creates some challenges. And so, with those challenges, people want to better understand what we refer to as Enterprise China.

Why have the Chinese companies been so successful? Well, I mean, there are a lot of reasons, one of which is that the Chinese tend to be smart, they work hard, and all of those normal things that we would describe as success here in the West. But the Chinese have some significant advantages in succeeding globally in their partnership with the Chinese state. Enterprise China is really the amalgamation of Chinese business and political entities. And when they partner together, they can achieve some remarkable things, as we’ve seen with the rise of these Chinese businesses. Now, it’s not all good news. There are some headwinds Chinese companies are facing some of their own making and some obviously of our making. But the Chinese have been incredibly successful in their partnership, single-minded partnership with the Chinese state.

Jeff: And also, recently, I don’t know if you’ve heard but since Xi Jinping became president in 2013, he first divested the People’s Liberation Army of all their businesses, because when I was there in the 90s, I worked with the PLA. It was like PLA Inc. But they divested the PLA of all of its corporate footprint in China. In order to make it a better, more professional army, et cetera, et cetera, et cetera, which is true. But now they are talking about civil-military cooperation and they’re really pushing the PLA to cooperate with civil entities. So now, it’s not only the state, but it’s also the military is cooperating with the private sector. And then, of course, another question I have for you is of course, and then there are these behemoths with SOEs – State-Owned enterprises.

Allen: Right, right.

Jeff: I was just trying to think, oh, I’m having a brain burp. Allen, what’s the big ChemChina about three years ago bought the second-biggest agricultural chemical company.

Allen: Yeah.

Jeff: It’s second to Monsanto. But what’s really amazing about this is, as you say, we’ll get to the SOEs, but every time an SOE buys a company overseas, it becomes an asset of the Chinese State. It’s just unbelievable.

Allen: So yeah. So let me talk just a little bit about the state. I think that would be interesting for our listeners. The state, many in the West think of the state being Beijing. And in fact, there are many State-Owned Enterprises that are controlled by Beijing, in fact of the largest enterprises, Chinese Enterprises, they do tend to be controlled by Beijing. Beijing has an organizing entity called SASAC, which actually owns 96 firms. So, of all of the Chinese enterprises, only 96 are owned by Beijing, but they’re giant firms.

Now, having said that most of the state enterprises, the vast majority, 150,000 state enterprises, not 96, 150,000 are actually owned by provincial and municipal governments. So, this is something we often don’t fully appreciate is the magnitude of involvement by municipal and provincial governments. And these are big cities, medium cities, small cities, and provinces that have equity ownership of, we could argue, for-profit enterprises. I’m arguing sometimes they’re not necessarily for profit, they’re for political purposes, but ostensibly for-profit enterprises. And so, of the 135 large global 500 Fortune Global 500 companies, 33 of those are owned by Chinese provincial and municipal organizations.

So, these are big entities, big cities in China. We have almost 120 cities in China with a population of over a million people. So, they’re massive cities and their engagement in business enterprise is significant as well. So, when we say the state, it’s not just Beijing, it’s provinces and municipal, and sometimes they are at odds. These micro-organizations or micro entities are often at odds with the state in Beijing.

Jeff: I remember before we left China in 2019, my daughter who graduated from Beijing Normal University, by the way.

Allen: Okay, great school.

Jeff: Yeah, but we went to Xiamen and we went to this wonderful health spa and it was really nice. And they had mud baths and steam baths and hot baths and all this stuff and food and everything else, and it was really first class. And then as we left in the ante-room before going out into the parking lot, well, there you go, you look up on the wall and you got these five managers in a framed picture and it’s a State-Owned Enterprise.

Allen: Oh, yeah.

Jeff: And they’re everywhere like you said, They’re I mean, hundreds of thousands were closed down during the Deng era from 1978 into the 90. But you said there’s still 150,000 of them and they’re everywhere. And they’re into everything.

Allen: They’re in everything. And, of course, we have what we call POEs – Privately Owned Or Influenced Enterprises. These are companies like Lenovo or Ant or Tencent, and ByteDance. These are privately owned, however, these entities almost invariably have some equity ownership by these states, whether it’s provincial or municipal. They have their tentacles in these companies. And beyond the equity ownership, these companies that have 50 or more employees, it’s mandated that have an office of the CCP and a representative secretary of the CCP in the head office of these privately owned enterprises.

Furthermore, as we see with the delisting of Didi in 2021 from the New York Stock Exchange, that the influence of the state is powerful. The state needs to simply communicate its wishes. And these privately owned enterprises fall in line, whether it’s on strategy, whether it’s on raising money, whether it’s on partnerships, whether it’s on listing issues, the state is dominating business decisions in China. Whether it’s privately owned or not, the state’s influence cannot be escaped.

Jeff: Yeah. I don’t know if you saw some of the information coming out of the last Party, the 20th Party Congress that just ended, what, in January, February.

Allen: Two months ago.

Jeff: Yeah, January, February. And it’s very clear that that kind of control is now going to become even more consolidated and more concentrated. I think the government sees some pretty strong headwinds coming from outside the country. I think Ukraine was a bit of a clarion call for them that they may be next. And so, you can really see they are circling the wagons and they are going to have even further CPC control at the national level. Because I really honestly think that they are kind of going into a war footing and just getting ready for any potential foreign flare-up, conflict, Taiwan, the South China Sea, et cetera.

So, yeah, it’s awesome. It’s awe-inspiring, but it’s so foreign to our typical buckaroo mentality in the West. But it works. And I even wrote an article about it a couple of years ago. I mean they went in and they cleaned the house. Of course, they essentially, Alibaba is now essentially sort of state-managed. I mean, Jack Ma just finally got to come back. But it’s essentially got state control and they don’t give Tencent and ByteDance and they don’t give them any wiggle room to try to become the next Facebook or Google. So, they really keep a really firm grip on them.

Allen: Absolutely. Right.

Jeff: Well, tell us about the nature of Enterprise China’s three-part strategy for reducing its external dependency. I did go through this section quite a bit, dominating the domestic market with indigenous firms and positioning itself to win globally. What’s the three-part strategy?

Allen: Well, we really go back to the days of Deng Xiaoping, which is now late 70 seconds really. So that’s quite some time ago when China was really a wreck of a place certainly in terms of the economy. GNP was in the few hundred dollars a year range, depending on where you were in China. Massive poverty. Deng came in and said, basically, we’ve got to do something about this. And so, they became very aggressive inviting foreign investment into the country and embracing a form of capitalism.

Fast forward, once China’s kind of got traction and the economy starts to grow and it starts to be growing at 8-10% per year, beginning really about 20 years ago, they began to sketch out and to formalize a three-part strategy for the future of the Chinese economy and Chinese businesses.

The first part was they wanted, instead of being dependent on the West, they wanted to eliminate dependencies on the West. And that’s primarily technology dependencies, but not exclusively. The second is once you can eliminate dependencies, you still now need to dominate domestically. So, they wanted to push Western companies, which had dominant positions, particularly in sensitive industries or in the industries of what we call the Fourth Industrial Revolution. They wanted to push those companies out and take control of themselves. The third leg or the third pillar of the strategy was to win globally. And to win globally means now they need to go out into the rest of the world, Chinese enterprises, and flip the dependency relationship so the rest of the world would be dependent on China.

This is China reclaiming its position as the Middle Kingdom, the center of the world. And it’s really built into Chinese Philosophy, Chinese Self-Identity, Chinese Culture, Nationalism, and their perception of their proper role in the world. And so, this is a multi-decade strategy. They’re very patient about this. And now we’re in the stage where they are kind of mopping up on dominating domestically. And now they’re moving very aggressively to winning globally. Now each of those three pillars has within it a number of what we call tactics or strategies if you will. But from a strategy perspective and a strategy professor, we talk about these as strategic tactics.

So, each of them has a series of initiatives and what the state needs to do and how they need to work with the private enterprise and with their state enterprises in terms of acquiring technology, leveraging technology, piggybacking on things like Belt and Road Initiative, what they’re doing on standards to try to control standards globally. But there’s a whole series of regulations and initiatives to support each of these three pillars. And from the West we tend to just think of, well, there’s a bunch of Chinese enterprises and all they’re doing is stealing our technology. Well, I’m not saying that does not happen. It clearly does. There’s been a ton of reports to that effect, but it’s understanding how it all fits together and what the fabric of China’s vision and strategy looks like.

Jeff: Yeah. they come out with, and as you say they largely follow through, like they have made China 2025, which freaked out Obama and Trump and they were trying to sabotage it, because the Chinese decided that by 2025, 70% of China’s high-tech needs to come from domestic sources. And as you say, they come out with these and they have these grand visions. And they look at it nationally, internationally. And it’s cohesive. It sure wasn’t cohesive when I was there in the 90s.

Allen: There was a mess.

Jeff: So that was street-level jungle capitalism. It was totally wild. But now, it’s an incredibly well-oiled machine.

Allen: So, some of those industries (aerospace, advanced rail, new materials, power equipment, machine tools, and robotics) in these industries, this is under-made in China 2025. The targeted market share for indigenous Chinese firms averages 70%. In some industries, it’s like new energy, it’s 90%. Electric vehicles, 80% of the industry will be dominated will be owned by Chinese companies. So, when we’re in the West and we’re looking at, say, what China, what a great market it is. Well, recognize that the China market for Western technology companies is only 20 or 30% at maximum what the real market is because the Chinese will own at least 70% and their preference will be for much higher. So now, having said that, there are parts of the Chinese economy that don’t have those ownership hurdles.

There, you look at old-world industries, they generally don’t have that kind of caps. So, there is still space in China for some of the traditional industries and traditional companies to compete and make money in China. China is still a market where Western companies, depending on their area of focus, can still make money.

Jeff: Yeah, you hear all these doom and gloom reports in the mainstream media. And then they do all these surveys among the American Chamber of Commerce and all these other entities. And they survey all the foreign businesses in China. And those reports are always more optimistic than what the MSM is trying to portray. And they’re usually upbeat. I mean, because I mean I was there in business for nine years and you can make money. You have to work your butt off. You’ve got to really up your game. But you can. But it is a place where money can be made.

Allen: Money can be made. And I’ve met with the Chamber. I’ve been in Shanghai and I’ve spent time talking to people and giving speeches and meeting many interest groups and having breakfast and interviewing CEOs. And what they will not tell you publicly. Again, these are the traditional companies, traditional Western companies. What they don’t tell you is how much money they are making in China. They obfuscate it. They hide it. They bury it.

And so instead of having their reports for China, it’s Asia Pacific. And instead of reporting their profits in China, they’re shipping products and they’re using transfer prices to show they’re making no money in China. Well, in fact, Singapore is making billions of dollars, and Hong Kong, and so there’s a lot of smoke and mirrors because they don’t want to be nailed for making money. In China, it’s not the politically correct thing. But again, from a Western perspective, you must be very careful in assessing China, based on what kind of industry you’re in. If you’re in this fourth industrial revolution, the industries of tomorrow, watch out, China’s got you in their crosshairs. If you’re in the old industries, the manufacturers of Spam, if you will, there’s space for you out there to compete and make money in China.

Jeff: Yeah. Also at the consumer level, like McDonald’s and consumer goods and things like that. I had another brain burp. What was I going to say? Oh yeah. And then you look at you know, who’s the CEO of Apple. He was just there last week Tim Cook. Doesn’t matter what Apple does in China, they’re making billions of dollars there. And it’s a market they could never give up, it would really hurt them badly.

So yeah, there are some telephone companies and I’m going to be going back in May for three weeks to Shenzhen. And I’m really looking forward to seeing how much it’s changed pre-COVID and now post-COVID and it’s going to be very, very interesting. Well, tell us about State-Owned Enterprises. And I mean, in terms of, oh, I remember the name of the company, ChemChina, which is state-owned, bought Syngenta. That’s what was. And it was the largest. It was 50 or 60 billion dollars.

Allen: 61 billion, I think it was.

Jeff: Yeah, yeah. It was the largest merger up to that time. And so, ironically, Syngenta is now state-owned because it’s now a giant Chinese SOE. And you did talk about how they influenced the private sector. Well, listen, any closing comments? This has been wonderful. I’ve really learned a lot.

Allen: Yeah. I would say a couple of closing comments. Number one is, China is interesting for Western companies for three reasons or should be interesting. Number one is as a market. Number two is as a supplier, as the manufacturer of the world, and the factory of the world. And number three, as a competitor in their home markets. So first off, don’t ignore Enterprise China. Okay. It could be a good market opportunity for you. It could be that they’re setting up shop next door using an American name company, even though they own it or control it.

So first off, recognize the importance of Enterprise China in the success of your company from a market perspective, from a competitive perspective. Number two, this notion of the state and the business working together in the West, we are nervous about it. Understandably, we believe in our hearts that the model can’t work. It’s somehow doomed to fail. And the evidence from China after decades is that with a different culture supporting it, I don’t believe that model has failed. And I don’t believe in certainly in the short, medium term, notwithstanding the potential for some black swan event, I think the model is going to be around and it has got many, many advantages.

Number three, China is not destined to take over the world. China has many, many problems and challenges, and the model has many, many problems and challenges. So, in China, the model of state control is a vertical model, a model of top-down power. China, as it has grown economically, is a model. It has demonstrated horizontal power. I mean power to the consumers, power to the individuals, power to the cities, and power to the provinces offsetting some of this vertical power coming down from Beijing.

Another problem and if you’ve lived in China a lot, there’s this expression called Rangfulan in China, which translates to let it rot in English, let it rot (note: 让腐烂). There is a younger group, the Gen Zs of China, often educated but now unemployed, playing video games all day, drinking too much, and largely unemployed. They are not engaging in this Enterprise China model. And there is a groundswell of public pressure against the state that is important. And then finally, I will add, well, two things.

One is demographics in China. The demographic is really going to hollow out China. They’re going to and there’s nothing they can do about this short of opening the doors to hundreds of millions of immigrants, which they won’t do, but they are going to lose over the coming generation, a population equivalent to the entire continent of Europe. They’re going to be gone. They’re going to age out and die. The birthrate is not sustainable for the population of China. And so, what you’re going to see as China shrinks, is it’s going to face huge competitive disadvantages as a base for global business.

The final thing is it’s of course, it’s up to us. And how smart are we in the West at developing at taking China seriously and developing smart competitive strategies? We are not the victims of China. We’re the victims of our own misunderstanding of China and our own lack of seriousness when it comes to competing ourselves and winning globally. So, at the end of the day, it’s going to be up to us. What are we going to do in the West? And our book, “Enterprise China” provides a lot of discussions about what we can do in the West to offset, take advantage of, and really counter the influence of Enterprise China.

Jeff: Yeah, I think one of the things that we could add for Westerners especially, is a healthy dose of humbleness, a healthy dose of, in fact, I was that way back in the 90s: I have all the answers. I know what’s best. The Chinese are not up to my level and this Western hubris that we have that we are bigger, better, faster, and smarter. But in fact, it’s the other way around.

And actually, I have a friend, a Flemish friend who’s worked in China for years and in Europe for years. And he talks about how the Germans actually have the best luck, and the best success in China. And he thinks it’s because of and actually I called him today to get the word and because of Vergangenheitsbewältigung. And that is the fact that the Germans are taught post-war about humility and humbleness and contrition for what happened in World War Two, which is very Confucian. It’s very, very Confucian.

Allen: Jeff, that’s a great insight.

Jeff: And he talks about how the Chinese work best with Germans. And he says the worst are the French and the Anglo-Saxons, because they know what to do. You can’t tell us anything. We know what’s best. Just try to be a little bit more Confucian, more humble, a little bit more open-minded, and a little bit more relational. And that has helped the Germans a lot in China.

Well, anyway, this has been a wonderful conversation, and “Enterprise China” I will put the book link on the page. And if you want to promote this and use it in yourself, you’re welcome to. I will have audio. I will have a video. I will have a transcript. And maybe one day we’ll get together and share some China war stories.

Allen: I will be able to enjoy that. Thank you. It’s good to chat with someone who’s so informed about what’s going on in China and the rest of the world.

Jeff: Allen J. Morrison, author of Enterprise China. And thank you for being on the show.

Allen: Thank you.

Jeff: Bye, bye.

###

Do yourself, your friends, family and colleagues a favor, to make sure all of you are Sino-smart: 

Google ebooks (Epub) and audiobooks:

44 Days Backpacking in China: The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass https://play.google.com/store/books/details?id=YBKHEAAAQBAJ

https://play.google.com/store/audiobooks/details?id=AQAAAECCkQXRlM

China Rising: Capitalist Roads, Socialist Destinations https://play.google.com/store/books/details?id=YNmLEAAAQBAJ

https://play.google.com/store/audiobooks/details?id=AQAAAECCfHo86M

BIG Red Book on China: Chinese History, Culture and Revolution

https://play.google.com/store/books/details?id=6Wl4EAAAQBAJ

https://play.google.com/store/audiobooks/details?id=AQAAAECCfHo86M

Amazon print and ebooks (Kindle):

44 Days Backpacking in China: The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass

https://www.amazon.com/gp/product/1484939999/

China Rising: Capitalist Roads, Socialist Destinations

https://www.amazon.com/China-Rising-Capitalist-Socialist-Destinations/dp/0996487042

BIG Red Book on China: Chinese History, Culture and Revolution

https://www.amazon.com/BIG-Red-Book-China/dp/1673322719/

Author page:

https://www.amazon.com/Mr.-Jeff-J.-Brown/e/B00TX0TDDI

Praise for The China Trilogy:

https://chinarising.puntopress.com/2018/06/30/praise-for-the-china-trilogy-the-votes-are-in-it-r-o-c-k-s-what-are-you-waiting-for/

Why and How China works: With a Mirror to Our Own History

44 Days Backpacking in China: The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass

China Rising: Capitalist Roads, Socialist Destinations

 

 

 

 

 

 

BIG Red Book on China: Chinese History, Culture and Revolution

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