Business Before Politics: Why Canada Needs a National Business Plan for China

Published in The Hill Times, March 22, 2017

By Amy Karam and John Gruetzner

Slide1

The Canadian government had its first round of exploratory talks with China last month as a precursor to potential negotiations for a free trade agreement. But before Canada executes a new economic arrangement with China, the first step should be completion of a national business plan to significantly increase exports of goods and services, as well as attract investment.

A bilateral trade agreement might reduce some of the irritants and obstacles to Canadian exporters. As a stand-alone solution, however, it will not actually trigger significant improvements of Canadian exports to China. Expansion of exports will require investment and retooling to service the Chinese market, in the form of a national business plan. This plan should be market driven but at catalytic points supported by the best practices of a public-private partnership. This practical blueprint should build on conceptual studies by the Conference Board and the Canada China Business Council. A private sector-led task force that includes rail companies as well as investment firms should prepare the blueprint. China as a customer should provide guidance.

Initial government support with prudent financial assistance to develop the infrastructure to service commercial development of resource projects and processing is required. Across Canada there are significant commodities like copper, coking coal, liquefied natural gas, chrome, and the wood fibre in the pine beetle forests that require infrastructure to be able to develop. A business plan will better allocate federal infrastructure funds to address the recent concerns being raised by the Parliamentary Budget Office and the Fraser Institute.

To be able to better execute this national business plan, a review of the federal government’s trade financing and market support teams is needed. Industry Canada, Export Development Canada, the Business Development Bank of Canada, and, if established, the national infrastructure bank must prudently share this financial risk. A capital pool or a joint line of credit between the China Development Bank and EDC could provide capital with better market-driven principles that is customer-driven.

Future Canadian corporate development is at risk if globally qualified capital partners, management, and boards of directors cannot be organized. The Canadian government must set an example by adding international board members based in China with business experience to key Crown corporations such as EDC, BDC, and the Canadian Commercial Corporation.

Canada should also be building on its pending position as a shareholder in the Asian Infrastructure Investment Bank, implementing a marketing strategy to maximize its participation in China’s independent “One Belt, One Road” infrastructure investment globally.

A separate high-end manufacturing strategy is required, but there are better multilateral trade protocols to use to secure a fair playing ground. China’s natural economies of scale and the Chinese government’s support for a Made in China 2025 strategy make competing in the manufacturing sector difficult.

A meaningful redesign of government trade support that includes triaging of the number of companies that receive assistance and human resources is long overdue. Part of BDC’s advisory services should be based on the ground in Canada’s top export destinations to support only its own clients. Global Affairs Canada and BDC should expand engagement of locally based resources or expand postings to five years to improve industry- and sector-specific experience. This approach dovetails with the leading exporter growth funds being considered by Canadian banks.

A better economic partnership with Beijing will not be easy, politically or tactically, to negotiate. To take the pain but still not create greater prosperity for Canadians would be a major policy mistake. For Team Canada to maximize its relationship with China, a proactive business-to-business partnership will be required.

John Gruetzner is the managing director of Intercedent Limited, an Asian-focused business advisory firm. Amy Karam is the author of The China Factor and principal at Karam Consulting. She has worked for Cisco and at Apple, Visa, and other leading companies.

Published in The Hill Times, March 22, 2017

By Amy Karam and John Gruetzner

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Competing with China on Price – Are Americans Ready for it?

Price article #4 graphic png.pngThis is the fourth article in a 5-part series on how the West can change its game to win in the new global economy. It is based on the 5Ps of Global Marketing Strategy, first introduced in The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy.

The fourth ‘P’, ‘price’ is an especially key decision factor for customers in emerging markets and is almost always a consideration for developed market customers. Price is also a primary strategic tool for emerging competitors as they expand globally. It is ‘market penetration strategy 101’ – gain credibility and new customers by giving them an offer they can’t refuse and undercutting incumbent vendors in price.

Emerging competitors like those from China have traditionally been able to do this based on their exceptionally low production costs – not only because labor costs have been so comparatively low (although this is evolving), but they have exceptional supply chain efficiencies and other cost savings due to low R&D/ innovation investments. While lower quality goods have often been the trade off for cost-conscious consumers, the benefits – such as increased buying power, excessive consumption habits, or improved margin gains – outweighed the risks. While these competitive advantages and dynamics are shifting given the economic development and growth of China (see article ‘Meet the Chinese Billionaire Who’s Moving Manufacturing to the U.S. to Cut Costs), the cost advantage elements still exist and with other emerging entrants as well.

This low pricing strategy has benefited Western consumers as well as companies that have taken advantage of low China production costs – purportedly at the cost of American jobs. But this begs the question – if America brings jobs back home per the new administration’s goals, are Americans ready for what this might mean in terms of buying power and consumption indulgence?

Further, are Americans ready to adjust competitively as they sell their higher priced goods abroad, while competing with the tenacious Chinese companies that have expanded worldwide?

The global economic growth of Chinese companies (as well as other emerging entrants) has posed an amplified challenge for Western-based companies selling premium products that come with a premium price, particularly as they expand into emerging markets but also in selling in developed markets.

How to Beat Competitive Pricing

1.   Don’t Fall into the Discounting Game – know your threshold and defend your value-add. This is a losing battle particularly against an emerging entrant desperate to penetrate a new market and make a mark. Train your sales teams to position your premium brand for all of its value, including company advantages and value-add in addition to the product quality and reliability. How about your years of expertise, company-wide support, longevity, social contributions? Also, be clear on your customers’ propensity to pay. Can they afford it or can they find a way to afford it if they really want it?

2.   Get creative – think holistically in the negotiation. Is it really a price discount they want or do they maybe really need help paying for your product (e.g. financing)? Consider new business models or partnership proposals that enable your customer to say ‘yes’ to your value-added, premium product and forgo the deep price discounting that hey originally asked for.

3.   Know your segment, know your customer and know what they want. ‘Everyone’ is not your addressable market. Market segmentation and analysis is essential, especially when expanding into new and less known countries. In the case of expansion into emerging markets, it is ideal to have customized products for local needs. Having said that, Apple did that with the iPhone5c – a less-feature rich phone at a lower price point for emerging markets. It turned out that the customers who wanted to acquire an iPhone for is premium brand notoriety, didn’t want a lesser version than what it was globally known for and preferred to pay the higher price for the full deal. While this is a narrower slice of the overall market, this was Apple’s true target customer segment. Sometimes accurately identifying your customer segment means a smaller market but it also means a sharper, optimized and more successful sales and marketing strategy.

This is just a flavor of what Western-based companies can do to better compete globally on price with the deep discounting tactics of Chinese and other emerging entrants. For more tactics and strategies on changing your game to win in the new global economy, get The China Factor, a Wiley published book, to help your company navigate these new waters. http://www.TheChinaFactorbook.com.

Amy Karam is a speaker, global expansion consultant, corporate instructor and the author of The China Factor. http://www.karamconsulting.com.

2 Ways Trump and China Together Will Make America Great Again

trump-and-china-h

This is the third article in a 5-part series on how the West can change its game to win in the new global economy. It is based on the 5Ps of Global Marketing Framework, first introduced in The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy.

Today I will address the ‘Partnerships ‘P’ and how important it is in the delicate balance of global trade. The recent stir caused by President-elect Donald Trump’s call with Taiwan and the impact on China relations is a perfect example.

The larger part of my message has been that we, the West, need to learn how to do business differently in order to better succeed in this new global economy. That means learning how our newer challengers from the East (namely China) operate, and in turn, adapting our approach accordingly to ensure future success and strength. It is no longer business as usual – the West, and the US in particular, can no longer dictate how things will go, because the power dynamic has shifted and there is too much at stake. The US and Chinese economies are too intertwined – the interdependencies are too great at this point.

And China gets this. We need to take our cue from them in terms of how they maneuvered Trump’s actions this week with respect to his taking a call from Taiwan, in addition to his bold comments about imposing high import taxes, and US dollar devaluation caused by China.

While the Chinese government was likely, and understandably, aghast at Trump’s moves, they did not come right out and say so. They recognized the importance of protecting and fostering a productive future partnership with the US, and the potential negative implications on China and its people took precedence over emotion. “..the Chinese government does not want to hurt China by hurting Trump”.[1] The Chinese government ‘officially’ stayed quiet (although they purportedly did leak out opinions indirectly through the Chinese media channels). They downplayed the situation and are taking the ‘wait and see’ party-line until he is officially the President of the USA.

In any strong relationship and partnership, there is a dance, a back and forth, a give and take, and a deep understanding of each other’s positions and interests is required. It takes an appreciation of what is truly at stake for your own party as well as the other, in order to gain a mutually successful outcome.

So let’s see if we can put this to practice given the current situation. Trump’s position is more than clear: keep China at bay because he doesn’t like its negative impact on the US economy. But if we look a bit deeper, we understand that his interests lie in protecting the American people – bringing jobs back to working class, growth for the American economy. How does he achieve that?

 2 Ways Trump and China Together Will Make America Great Again

  1. Co-opetition: The US-China divorce would be too costly – not only nationally but also on a global scale – and no one wins in the end. So, instead of shutting out China, what if Mr. Trump evolved or leveraged the China partnership for the betterment of his people? What if he looked at it differently, like through the lens of ‘co-opetition’ to see how he can make America great again? Co-opetition defined is the collaboration between business competitors, in the hope of mutually beneficial results. For example, instead of fighting for the same pool of jobs in manufacturing, what about creating and agreeing on new centers of excellence for each nation, developing a new level of expertise and skill sets of its people? Naturally, this is easier said than done; not only is diplomacy an essential element in the process, but a genuine intention for a positive outcome.
  1. Playing in Each Other’s Sandboxes: Market access is an essential element in America’s economic growth equation. China’s market potential is much too great to shut out and eliminate. For example, if Boeing was no longer permitted to sell into China, it would cost tens of thousands of American jobs – which is not congruent with Trump’s interests. Yet, a fair and equitable agreement is tough to achieve, particularly when values differ, trust is questioned, and benefits are unbalanced. Constant evaluation and a third-party governing body are helpful in getting closer to a mutually beneficial situation.

Fair global trade and amicable partnerships are not easy endeavors, given the different goals and challenges of each nation and the competitive spirit to succeed ‘first’ or more. However, ignoring the possibilities outlined above and excessive protectionism are only short-term approaches. We need to take it one-step further; we need learn from each other while protecting our interests and do things differently in order to achieve future growth and economic success.

For more on how your company can change its game to win in the new global economy, buy your copy of The China Factor.

Book Karam Consulting for speaking engagements or workshops on how to create your next gen global expansion strategy and how to equip your company with proven competitive tactics. http://www.KaramConsulting.com

 

[1] https://www.theatlantic.com/international/archive/2016/12/trump-taiwan-call-china/509600/

 

 

China Embassy Roundtable Highlights on THE “FOUR COMPREHENSIVES” STRATEGY AND CHINA’S DEVELOPMENT

 

china-embassy-invite-picI was honored to be part of the China Embassy/BLG roundtable discussion on “The 4 Comprehensives Strategy & China’s Development”, the compass for China’s direction. The Vice Minister, International Dept of the CPC Central Committee emphasized the importance of rule of law and governance and the efforts to strengthen party governance and freedom of speech in China. Having become a middle income in country he discussed the traps and challenges therein.

When asked about anti-corruption practices, the response was that as Chinese businesses are going abroad, they are training them on local country practices and asking them to abide by local laws and norms. When asked about SOEs(state owned enterprises) and how they might be contrary to the progressive business development direction that China is growing into, they said SOEs were actually developed in the process of the market economy evolution. and secondly, they are focusing SOE efforts in industries and areas where there is little or no market access – nor interest, due to low margins – thus private companies don’t often want to play here so the government ensures these initiatives happen (for example in utilities).

On the subject of innovation, they are fully inclusive of other people from other countries and believe in a collaborative approach. They have established intellectual property laws, although they admit there is room for improvement.
They did not aim to set up a wall for foreign technologies.

 

Embassy of the People’s Republic
of China in Canada

Borden Ladner Gervais LLP (BLG) invite you
to attend a roundtable discussion on

THE “FOUR COMPREHENSIVES” STRATEGY AND CHINA’S DEVELOPMENT

Honoured Guest Speaker: Mr. Guo Yezhou, Vice Minister, International Department of the CPC Central Committee

The Power of Politics in Business: 4 Keys to Your Innovation Advantage

This is the second article in a 5-part series on how to change your business strategy and be more successful in the new global economy. It is based on the 5Ps of Global Marketing Framework, first introduced in The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy.

While the dialogue in the third and last presidential debate was not surprising, it was still disappointing. Personally, the dismay stems from the lack luster and minimal attention paid to foreign trade and foreign policy. I understand the political campaign strategy of focusing on topics that voters care about – and unfortunately, foreign policy doesn’t make the top of their importance list. “We have overwhelming evidence that voters don’t know that much about the details of foreign policy,” explained Elizabeth N. Saunders, a George Washington University political scientist.[1]

But ignorance is not bliss. In fact, it is a threat to economic sustainability and to survival in global markets as well as domestically. Globalization is the new status quo and has taken over as the new world order, as the world is becoming smaller and larger at the same time. America’s competitive advantage is being threatened, not to mention its security and dominance on the world stage. Americans cannot operate in isolation and while protectionism is understandable, it is not the long-term nor sustainable solution.

Walls or Hacking – America Loses Either Way
So… Trump proposes building walls to keep foreigners out and imposing a 45% tax on Chinese imported goods, while Hillary is attracting hackers and espionage from emerging players, as a strategy to keep her out of office. Both candidates are failing to build positive bridges and partnerships with our foreign nations, and this is only bad news for Americans in so many ways.

4 Reasons Why Americans Need to Care More About Foreign Policy & Trade Relations

  1. Jobs. Both Hillary and Donald tout the need to ‘bring jobs back’ to the USA but maybe it should be more along the lines of creating different kinds of jobs in the USA that target emerging markets like China, Russia and India. China is the #3 market for American automakers, and the #2 market for the pharmaceutical industry. If Boeing could no longer sell to China, it would cost tens of thousands of American jobs. The USA needs to become very strategic about which nation gets which jobs and needs to become more creative about job creation and job retention – focusing on core competencies and competitive efficiencies.
  2. Growth. American growth is suffering. It is at less than 1%, compared to China’s 7% and India’s 8%. America’s competitive advantage is threatened and cannot afford to ‘shut out’ China with its protectionist stance but needs to tap into the market access potential in order to foster new growth abroad. The USA also needs to be careful about imposing a 45% importation tax on goods from China. Cheaper Chinese goods means a 30% increase in buying power for US citizens. I am all for less consumption and paying more for locally produced quality goods, but let’s be prepared for this shift in buying behavior.
  3. Security. Espionage at corporate and governmental levels is a security threat that is hard to recover from and affects the American people at so many layers. Emerging nations are known for using espionage and ‘borrowing’ intellectual property in order to advance their own commercial growth, thus the ongoing IP laws and discussions. Establishing stronger, foreign trade relationships and partnerships is one step closer towards ensuring more amicable and fair behaviors between nations. It’s not to say that being prudent and somewhat protective of your own nation is not important, it is saying that a balance is required between protectionism and partnerships and a longer term process is involved.
  4. Innovation Advantage. This is really the coveted prize. This is the competitive differentiator that has made America unique and great for decades. This is the skill and expertise that emerging competitors are seeking to acquire. By taking partnerships to the next level, to a ‘co-opetition’ approach, Americans can also learn from the East and others too – so the knowledge transfer and growth can go both ways, not just leak out of the USA. When Americans takes a stance of continually becoming ‘better’ and not just being ‘the best’, they will stay ahead of the innovation curve and keep their flag on top of the innovation hill. They will become innovative at being innovative.

For more recommendations and strategies on how the USA can better compete globally with China and other emerging competitors, read The China Factor. http://www.TheChinaFactorbook.com.

 

Top 3 Reasons Why Your Great Products Don’t Sell in Global Markets

Published Sept 26, 2016

This is the first article in a 5-part series on how to change your business strategy and be more successful in the new global economy. It is based on The 5Ps of Global Marketing Framework first introduced in The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy.

With the exponential growth of Chinese companies and other emerging competitors, the rules of the game have changed and success factors to winning business have shifted, particularly in emerging markets.

High-tech companies from the West have traditionally prided themselves on innovating superior quality products as the primary influencer in closing sales. ‘Our box is better than their box, so the customer will choose us.’ While this has often been the case in developed markets, this is not the prevailing outcome in emerging markets, nor in some developed markets these days. Emerging competitors from the East, especially from China, are winning customers’ business more often and gaining significant market share.

This is not just rhetoric but is proven with solid data trends from renowned analyst firm Dell’Oro Group. Looking at mobile RAN market share trends over the last 5 years, there is a shockingly consistent downward shift in market share points of top Western-based manufacturers like Nokia/Alcatel-Lucent and Ericsson, in contrast with an almost perfectly reciprocal increase in market share points of Chinese companies Huawei and ZTE. More specifically, the cumulative loss in market share points of the Western-based companies was 15.7 points down and the cumulative increase in market share points for the Chinese companies was 16.0. A strong and obvious shift that needs to be taken seriously.

There are many reasons why Western-based companies are failing worldwide. One aspect is that the needs of emerging (or evolving) markets are different than those of the West. And while brand equity and quality go a long way, emerging customers have different priorities or critical decision factors. As a result, the West needs to evolve the way it does business globally in order to survive and thrive.

The Product ‘P’ in Global Strategy by Amy Karam

Why Product Superiority Doesn’t Always Win

1. One size does not fit all. A basic business tenant is to ‘know your customer’. What do emerging customers really want and need? Do they really need your fully loaded, feature-rich router? Or do they just need basic connectivity and power-surge protection? Don’t recycle your mature products into new markets. Develop localized, market-appropriate products that satisfy their needs based on where they are in the lifecycle.

2. Product offers are not enough. Offer Solutions. Enable the “YES” choice to be you and not an emerging competitor. What many Chinese companies are good at doing, despite average (or less than average) products is they understand the encompassing needs of an emerging markets customer. I call it the ‘free fries and extra ketchup’ versus just offering a really good burger. Having local product support staff available to answer questions is important to new customers. Knowledge transfer and training is also key. Helping them figure out how to pay for your products (financing options) is also a significant component in their selection process.

3. Slow-mover disadvantage. The cliché term, analysis-paralysis is symptomatic of many risk-averse companies and causes an often-times irreparable loss of market share. Emerging markets is no longer a novelty but a necessary part of a company’s long term growth strategy and this requires a leap of faith, a higher risk tolerance and a faster time to market. Many companies take a wait and see approach, get too hung up on immediate return on investment and over-think the product development strategy. Think less, act fast, create ‘good enough’ products and get to new markets quickly before the multitude of other emerging competitors. Time-to-market is more important than getting there perfectly but too late. Think ‘good enough and now’.

Amy Karam is a speaker, global expansion consultant, corporate instructor and the author of The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy .
For more information visit http://www.karamconsulting.com.

Walls or Hackers, USA Loses Either Way

hacker-image

4 Reasons Why Caring About Foreign Policy is Critical for Survival

While the dialogue in the third and last presidential debate was not surprising, it was still disappointing. Personally, the dismay stems from the lack luster and minimal attention paid to foreign trade and foreign policy. I understand the political campaign strategy of focusing on topics that voters care about – and unfortunately, foreign policy doesn’t make the top of their importance list. “We have overwhelming evidence that voters don’t know that much about the details of foreign policy,” explained Elizabeth N. Saunders, a George Washington University political scientist.[1]

But ignorance is not bliss. In fact, it is a threat to economic sustainability and to survival in global markets as well as domestically. Globalization is the new status quo and has taken over as the new world order, as the world is becoming smaller and larger at the same time. America’s competitive advantage is being threatened, not to mention its security and dominance on the world stage. Americans cannot operate in isolation and while protectionism is understandable, it is not the long-term nor sustainable solution.

So… Trump proposes building walls to keep foreigners out and imposing a 45% tax on Chinese imported goods, while Hillary is attracting hackers and espionage from emerging players, as a strategy to keep her out of office. Both candidates are failing to build positive bridges and partnerships with our foreign nations, and this is only bad news for Americans in so many ways.

4 Reasons Why Americans Need to Care More About Foreign Policy & Trade Relations

  1. Jobs. Both Hillary and Donald tout the need to ‘bring jobs back’ to the USA but maybe it should be more along the lines of creating different kinds of jobs in the USA that target emerging markets like China, Russia and India. China is the #3 market for American automakers, and the #2 market for the pharmaceutical industry. If Boeing could no longer sell to China, it would cost tens of thousands of American jobs. The USA needs to become very strategic about which nation gets which jobs and needs to become more creative about job creation and job retention – focusing on core competencies and competitive efficiencies.
  1. Growth. American growth is suffering. It is at less than 1%, compared to China’s 7% and India’s 8%. America’s competitive advantage is threatened and cannot afford to ‘shut out’ China with its protectionist stance but needs to tap into the market access potential in order to foster new growth abroad. The USA also needs to be careful about imposing a 45% importation tax on goods from China. Cheaper Chinese goods means a 30% increase in buying power for US citizens. I am all for less consumption and paying more for locally produced quality goods, but let’s be prepared for this shift in buying behavior.
  2. Security. Espionage at corporate and governmental levels is a security threat that is hard to recover from and affects the American people at so many layers. Emerging nations are known for using espionage and ‘borrowing’ intellectual property in order to advance their own commercial growth, thus the ongoing IP laws and discussions. Establishing stronger, foreign trade relationships and partnerships is one step closer towards ensuring more amicable and fair behaviors between nations. It’s not to say that being prudent and somewhat protective of your own nation is not important, it is saying that a balance is required between protectionism and partnerships and a longer term process is involved.
  1. Innovation Advantage. This is really the coveted prize. This is the competitive differentiator that has made America unique and great for decades. This is the skill and expertise that emerging competitors are seeking to acquire. By taking partnerships to the next level, to a ‘co-opetition’ approach, Americans can also learn from the East and others too – so the knowledge transfer and growth can go both ways, not just leak out of the USA. When Americans takes a stance of continually becoming ‘better’ and not just being ‘the best’, they will stay ahead of the innovation curve and keep their flag on top of the innovation hill. They will become innovative at being innovative.

 

For more recommendations and strategies on how the USA can better compete globally with China and other emerging competitors, read The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy, a recently published Wiley book by Amy Karam.

[1] http://www.nytimes.com/2016/10/20/world/americas/donald-trump-foreign-policy.html?emc=edit_tnt_20161020&nlid=67216750&tntemail0=y