Chinese companies can survive in the US, even if the odds seem stacked against them. Just look to Japan

  • Amiad Kushner and Andrew Frank say Chinese companies planning to go to the US need to anticipate public perceptions and media narratives around their actions. They could study Japan Inc, which has undertaken a successful image makeover
PUBLISHED : Tuesday, 22 January, 2019, 2:01pm
UPDATED : Tuesday, 22 January, 2019, 10:37pm

For Chinese companies planning to do or doing business in the United States, the climate looks rather bleak. A slew of high-profile accusations of intellectual property and data theft against Chinese entities, along with FBI director Christopher Wray’s pronouncement that “no country poses a broader, more severe long-term threat to our nation’s economy and cyber infrastructure than China”, have further eroded a business environment already affected by tariffs, an overhaul of the Committee on Foreign Investment in the US (CFIUS) aimed at Chinese firms, and nationalist politics on both sides.

But this does not mean Chinese companies can no longer do business in the US.

In the 1980s, anti-Japanese sentiment spread through the US, where workers resented losing jobs to Japanese auto manufacturers. In response, Japanese companies opened plants in American cities and hired American workers. They partnered with American companies and shared manufacturing techniques, and they invested in local communities through grants and charitable donations.

Indeed, improving American communities is a tradition that Japanese companies continue today through a range of conservation, education and safety programmes. More than half of America’s top 20 bestselling cars are now Japanese, illustrating the success of this integrated business and public relations approach. Chinese companies can similarly prepare for a new legal and political paradigm in the US, even as agencies throughout the US government tweak their approaches to China.

For example, the US has tightened export controls with the apparent purpose of restricting China’s access to emerging, sensitive and critical technologies. In the case of Fujian Jinhua Integrated Circuit, the Chinese state-owned company was banned from buying American components, then indicted for allegedly stealing trade secrets from an American semiconductor maker.

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Additionally, the Foreign Investment Risk Review Modernisation Act, which has expanded the role of the CFIUS in reviewing inbound investments from a national security standpoint, is clearly aimed at China. Under this legislation, the US could conduct national security reviews of investments in real estate near US military bases and of non-controlling stakes in US companies, an apparent response to a Chinese tactic of making small incremental investments to avoid scrutiny.

The accusation that Chinese government hackers stole the personal data of up to 500 million Marriott guests may also have inflamed US public opinion against China.

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In this new, volatile atmosphere, Chinese companies should consider likely public perceptions of and media narratives around their actions. Communications counsellors in the US can advise on how critical stakeholders – investors, customers, elected officials, partners or suppliers – might react should sensitive information about the companies’ operations or plans in the US become public.

These advisers can also help the companies develop effective messaging about their strategies, actions, and plans; strategise whether, when and with whom to share information; and decide how to respond to leaks if they occur, to burnish the companies’ reputation among key constituents. Even a crisis could become an opportunity for engagement: consider how a small bank in New York’s Chinatown was featured in an Oscar-nominated documentary after it was acquitted of criminal charges stemming from the 2008 financial crisis.

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In addition, local advisers can assist Chinese executives in navigating the varied and often competing interests and political environments among various states and regional governments. This understanding and perspective can help determine how to best position the company locally.

Cataloguing existing relationships with relevant national and local US elected officials, regulators, and media is another worthwhile exercise. These relationships can make the crucial difference between companies lambasted as dangerous interlopers and those which receive support or more measured responses from influential observers. US-based consultants can help foster these relationships and facilitate introductions – the sooner before they may be needed, the better.

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Although such a proactive approach to public affairs and communications may be unfamiliar to Chinese companies, it could yield significant benefits if implemented ahead of any US-based business activity.

A creative, proactive legal strategy is also critical in this environment. Skilled US counsel can assist Chinese companies in addressing risks and preventing escalation.

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For example, counsel can help Chinese companies establish internal compliance procedures to screen, evaluate and reduce risks in sectors that are likely to attract regulatory scrutiny. Notably, good-faith compliance efforts may serve as mitigating factors in the event of an enforcement action.

In the face of unpredictable enforcement, Chinese companies should retain experienced counsel with deep regulatory experience and close regulatory contacts. Chinese companies should understand that frequent dialogue between counsel and regulators is routine in the US, though it is not typical in China.

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Further, at the outset of any investigation, Chinese companies should engage with enforcement agencies. Chinese companies are often unfamiliar with the concept of self-disclosure, which is expected in the US. Experienced counsel can assist in preemptively engaging with regulators to avoid escalation of legal enforcement.

Although markedly different from just a few years ago, the business environment for Chinese companies in the US is not impossible to navigate successfully. Investing energy and time with knowledgeable advisers to understand and prepare could pay big dividends in the long term.

Amiad Kushner is a partner and head of litigation at Dai & Associates, a New York-based law firm. Andrew Frank is the founder and president of KARV Communications, a communications consulting firm with offices in New York and Los Angeles