Under ‘one world, two systems’, US companies that stay in China must evolve
- More US companies are staying in China than are deciding to leave, despite Donald Trump’s trade war rhetoric. But there is an increasing need to devise different strategies, as China’s market conditions become more sophisticated and unique
The findings were consistent with those of another report, by the US-China Business Council in August, suggesting that 87 per cent of the US companies operating in China do not want to leave.
US animosity towards China will eventually damage its own reputation, as well as the economic interests of all nations. There can be no winner in a zero-sum game.
The above-mentioned survey results and reactions are consistent with our first-hand experience of consulting for the senior management of many US companies in China.
Among those that have chosen to stay, there is an increasing need to devise different strategies for China and the US. As China’s operating environment evolves, its market conditions are becoming more sophisticated and unique. For example, in the tech sector, some aspects of the two countries are diverging and companies will need to consciously adapt.
Terry Gou, founder of Apple supplier Foxconn, expects a divide in 5G technology between China and the US, because of underlying differences in strategic positioning, development and market needs. As fifth-generation cellular networks and their commercial applications evolve, the divergence will only increase.
On a broader scale but in the same vein, the G2 – the US and China – will replace the G20 in a new leadership framework: “one world, two systems”.
China’s three-layered development model is the key to the country’s resilience. At the top, the central government sets the overarching strategy for developing a technologically advanced, innovative society. At the bottom, the thriving entrepreneurial, private-sector companies are driving China’s business innovations.
Some companies are already aware of the importance of a strategy of “one world, two systems”. For example, Toyota has realised that striking a fine balance between China and the US will be critical for its global operations. Meanwhile, it faces the delicate task of creating a strategy for meeting the industry and technological specifications unique to China.
Businesses – in particular, the entrepreneurs working in concert with governments, both local and central – will take China through new paths onto new platforms.
As a result, the industry structure, competitive conduct and financial performance for all sectors in China will evolve in their own ways. Companies, no matter whether headquartered inside or outside China, should adjust their strategies going forward.
US companies that choose to stay in China need to be much more sophisticated. Copying and pasting business models from the US to China won’t necessarily work any more. Local innovation will be critical and, in many cases, US companies will need to join with local companies and governments.
There is more room for the US and China to collaborate than fight in the face of global challenges, many of which will transcend national borders.
Edward Tse is founder & CEO, and Bill Russo is managing director, of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China