MCLC: foreign businesses still struggle with Beijing

[Denton, Kirk]

MCLC LIST
From: Rowena He <rowenahe at gmail.com>
Subject: foreign businesses still struggle with Beijing
***********************************************************

Source: Harvard Business Review (6/5/13):
http://blogs.hbr.org/hbr/hbreditors/2013/06/foreign_businesses_still_strugg
le_with_beijing.html

Foreign Businesses Still Struggle with Beijing, 24 Years After Tiananmen
By Adi Ignatius

[Adi Ignatius is the Editor in Chief of Harvard Business Review.]

This week's anniversary of the 1989 Tiananmen Massacre provides a good
opportunity to revisit the thorny question of what responsibilities
foreign businesses have in dealing with a repressive government like
China's.Over the years, I've seen tough-as-nails CEOs abandon their normal
prudence when dealing with China and its potentially vast market. It's a
dangerous trap, not just for the media companies that I know best but for
any company trying to operate or expand in China.

When I worked for Time magazine in the '90s and '00s, Jerry Levin was the
chairman of our parent company, Time Warner. In addition to driving what's
generally considered the worst business deal in history (the merger of
Time Warner and AOL), he committed the classic and embarrassing
multinational-CEO faux pas of assuming (and asserting) intimacy with the
then-leader of the Chinese Communist Party, Jiang Zemin.

At the Fortune Global Forum in Beijing in 1999, Levin gave the
introduction for Jiang, who was giving the keynote speech. Levin referred
to him as "my good friend."
<http://partners.nytimes.com/library/world/asia/092999china-fortune-500.htm
l> The audience cringed — particularly in light of the fact that Chinese
authorities had banned that week's edition of Levin's flagship Time
magazine, which had carried reports on China's political exiles.

Levin succumbed to another classic trap: trying to "out-Chinese" the
Chinese. In this case he was betting that close connections (guanxi) with
leaders like Jiang were ultimately what mattered and would lead to
business breakthroughs.

In fact, Time Warner, like many multinationals, has had a hard go of it in
China. It pulled out of the cinema business in 2006
<http://articles.latimes.com/2006/nov/09/business/fi-chinafilm9> because
China's regulations prohibited foreign control of those ventures. And
Beijing has done little over the years to stop the piracy that is
devastating Time Warner's film distribution business in Asia. Pretty much
every viewing of a Time Warner movie in China these days is thought to be
either an illegal download or on a counterfeit DVD.

Chris Patten, the last Governor in Hong Kong before Britain returned the
colony to China in 1997, put it best. "If anyone can show that kowtowing
to China works, then by all means kowtow," he told a few of us at his
Government House residence shortly before the Hong Kong handover. "But
since it never seems to accomplish anything, then companies should just do
the right thing."

For Levin, that would have meant raising with Chinese authorities the
unpleasant fact that Time was banned from newsstands twice — once during
the week of the Forum and subsequently for roughly a year for another
"infraction." Despite repeated high-level visits to Beijing, Levin later
conceded that he never once raised the issue. It's unclear what effective
it might have had; it's unforgivable that he didn't try.

Rupert Murdoch learned a similar lesson. When he tried to expand his
ventures in China around the same time, he performed multiple kowtows in
full public view. As Jonathan Mirsky (no fan of Murdoch's) wrote in the
New York Review of Books
<http://www.nybooks.com/blogs/nyrblog/2011/jul/26/truth-about-murdoch-china
/>, Murdoch tried to remove from his portfolio anything China didn't like.
He sold his Hong Kong paper, the South China Morning Post, which was often
tough on Beijing. He dropped BBC from his satellite in the region after it
aired a documentary critical of Mao Zedong. And his book-publishing
company paid a huge advance to Deng Xiaoping's daughter for her singularly
uninteresting memoir. (For good measure, it also canceled plans to publish
a book by the outspoken Patten.)
All of this earned Murdoch very little. The media magnate eventually
conceded he hit a "brick wall" in China and wrote off a huge chunk of
change.

The media business is far from the only industry that has struggled to
find its footing in China (it's just the one I happen to know best). State
subsidies 
<http://blogs.hbr.org/cs/2013/04/how_chinese_subsidies_changed.html>,
copyright protection
<http://hbr.org/2010/12/china-vs-the-world-whose-technology-is-it/ar/1>,
and hacking 
<http://blogs.hbr.org/cs/2013/02/business_is_war_in_china.html> have
troubled many otherwise successful firms. But the opportunity there
<http://hbr.org/2011/06/what-the-west-doesnt-get-about-china/> is simply
too great to ignore
<http://blogs.hbr.org/ideacast/2012/09/china-and-india-are-an-opportu.html>
. And so CEOs will keep pushing ahead, trying to figure out how to develop
opportunities in a challenging business environment where the state plays
a powerful role.

My point isn't that businesspeople need to get involved in China's — or
anyone else's — politics. But they should avoid the temptation to abandon
their normal principals to "please" China, or worse to defend Beijing for
its indefensible acts, like locking up dissidents on trumped-up charges or
carrying out abominations like the Tiananmen killings 24 years ago.

The goal isn't to make friends, but to stay focused on business
principles. Multinationals need to maintain their moral and commercial
standards in China — a market that otherwise will only disappoint them.