Getting On and Getting Along: US and China in the New Era
When I first met with Vivian Lin in January, we non-stop talked about our experience and visions regarding cross-culture investment and operations between US and China. Vivian is the Partner and Portfolio Manager for the China A-Share Growth strategy at William Blair Investment Management. She founded and Chairs for CFAA (Chinese Finance Association of America), a non-for-profit organization promoting US-China education and culture exchange for financial professionals. With our Chinese-American background and experience in different sectors of US-China businesses, we have a common dream to help bridging the gap between these two giant countries’ corporate governance and business practices caused by different cultures and the deviation of economic developments.
I was honored to present at CFAA August event and shared my experience and prospects from a practitioner’s standpoints regarding how to improve US-China entities operation. Working with cross-country international organizations between different cultures, I was exposed to different success and challenges of cross culture entities, and had chance to compare the differences between those challenges. As a Chinese-American professional, I am proud of China’s fast growth in the past two decades. It’s in my heart to review the challenges of US-China entities, and to help more cross-country companies become successful. To make sure I integrate these subjects from different angles, I went back to my former US colleagues and collected information regarding what they have learned from working for China owned US company, and what they would suggest to improve. Some of my colleagues wrote me very detailed contents with feeling from their hearts. My presentation reflects many suggestions from my dear colleagues. Due to confidential reason, I would not review the name of my colleagues. But I thank my colleagues for their support and contribution to my presentation and other works to come.
Future technology leader
An interesting question was raised by an audience working at an investment bank and passionate to help Chinese companies thrive in the US, “Between US and China, which country do you think will lead the technology in the next 10 years?” With China’ huge consumer market base, I believe China will lead in the next 10 years for technologies associated with consumer market, e.g. e-commerce, small business digital finance. China’ 1.4 billion population creates huge market with demands for new technologies, and for these technologies to evolve quickly. Alibaba and its affiliated company Ant Finance has proved the power of China’ consumer market of motivating and driving consumable technologies rapid flourish.
However, on scientific technologies like semiconductor, aerospace, automation, healthcare, I think 10 years is too short for China to surpass US. China’s self-funded research in science and technologies are relatively behind. A forward leap normally comes from significant breakthrough or technology importing. However, either way takes time. I remember when I worked in automation industry 10 years ago, we had hard time in relocating entire operation to China although most assembly lines were delivered our multinational clients’ China manufacture facilities. Common understanding of knowledge gap between US and China is 20-30 years in automation industry mainly due to local tenant shortage. China has advanced in AI and 5G technology fields today. However, neither AI nor 5G is independent from other related technologies.
Huawei’s fate
Huawei CFO Ms. Meng Wanzhou, daughter of Huawei’s founder Mr. Ren Zhengfei has been detained in Canada since December 2018, and charged by US for violating sanctions against Iran and banking fraud. Her extradition trial is still an on-going. In addition to Meng’s story, US strictly banned Huawei with all suppliers using US technologies. Many audiences are interested in Huawei’s fate, and ask me to comment on the factors Huawei were accused by US government. I believe those factors will review themselves sooner or later after all the investigation. I was not in a position to make any comment. However, I do believe Huawei could have done better in its operation to reduce or eliminate the chance of being accused by US government. I talked about “Export Control” during my presentation, and pointed out four pitfalls of “Export Control” compliance risks. With my experience as the CFO of a high-tech company, I believe the best way to make sure a company stay complied with “Export Control” regulation is to have an effective internal operation process and a discipline system for violation. If Huawei should have established comprehensive export control compliance policies and procedure in its international operation, maybe there would be more solid evidence today to argue for its case.
China economy grew rapidly in the past 20 years, so did China multinational companies. During the growth stage, companies’ most focus and resources are on the expansion and revenue, it’s likely to overlook back end of the business. This is the so called “growing pain” that happens on every fast-growing business. I went through the “growing pain” with my first employer in US. I understand what kind of struggles a company could experience. At certain point these challenges will force the company to slowdown, to review and improve internal operations. I think many China multinational companies are experiencing the “growing pain” at the moment. And I hope Huawei’s case can be a warning call for other companies. I emphasized this in my presentation.
Huawei is a very successful and special Chinese company, a company witnessed China’s economic growth and economic system development in the past three decades; a company with business stories mirrored China businesses evolving in this thirty years; a company created a very special corporate culture and governance model which drove its successes; a company worthy further study and research for western world to better understand China and China multinationals. I will share on future blogs Huawei business case studies regarding its “wolf culture”, rotating CEO/Chairman corporate governance model, and customer-centric business model.
Tiktok and WeChat
I was not surprised by questions regarding Tiktok and WeChat. I was also asked to compare US banning order to Tiktok and WeChat vs. Huawei. With my limited knowledge regarding Tiktok, I only commented on WeChat banning matters. I often tell my western friends that WeChat is more powerful than the combination of facebook and linkedin in the US. Most China people’s daily life and many small size China companies’ day to day business reply on WeChat. From utility bill payment to get meals delivered at your door, WeChat covers almost everything. Two years ago, I was immediately called “foreigner (WaiGuoRen)” by China taxi driver when I paid him cash, as Chinese only needed to wave their smartphones against taxi drivers’ bar code to make payment using WeChat pay. WeChat made a huge leap for China consumers’ cashless shopping behavior, and simply skipped credit card.
To compare WeChat banning order with Huawei, I will have to bring up the company who developed WeChat, Tencent. Tencent is a public company listed on Hong Kong exchange market, and its stock price increased 14,000% since IPO in 2004. As environment, social and governance (ESG) rating became widely used as part of portfolio risk assessment consideration in global capital market in 2010’s, Tencent has been one of the best ESG performers on MSCI Emerging Market ESG Index for consistent years. Therefore, the chance Tencent being accused like Huawei is rare.
In addition, I believe banning WeChat will hurt Apple badly. Apple will loss smart phone business at the 1.4 billion population China market if Chinese can’t use WeChat on Apple mobile phone any more. Therefore, Apple will fight for WeChat’s survival. Years ago, Apple CEO Tim Cook publicly commented about China’s skilled labor, efficient supply chain system, and expressed his appreciation and interest of further growth in China market. With US-China trade war and the move of weakening China-dependent global supply chain, Apple has already compromised a lot by relocating low technology production lines from China to other Asian countries with challenges to re-build the entire supply chain eco-system in those countries. My article Manufacturing Is On The Move In Asia reviews more details about Apple’s move in Asia. The supply chain relocation will add more cost to Apply’s financial statement for a few years, but won’t hurt Apple’s market share in China. However, losing China market will definitely hit Apple’s top line. I believe Apple CEO and US government will have seriously discussion regarding the impact of banning WeChat to Apple’s revenue as well as to US economy, before any further actions.
Summary
As illustrated in my presentation, US-China business experienced a “honeymoon” period from China became World Trade Organization (WTO) member in 2000 to China Foreign Direct Investment (FDI) peaked in 2016. Both countries have been refining and improving foreign investment regulations from 2017, which significantly slowed down US-China business development. I personally believe this cooling down period will allow US and China authorities to review the accomplishments and challenges during the “honeymoon”, and build a better regulated investment environment for win-win collaborations. After 2020 pandemic, ESG consideration should also become a top priority on both countries regulatory development. Therefore, I would urge US-China cross-culture business take advantage of this cooling down period to review and optimize business strategy and internal operation for future success.
Get a copy of my presentation: “A New Era for US and China Business Relations”
For anyone who has chance to read my presentation material, please feel free to leave your comments below. I am delighted to answer any questions.