James McGregor is chairman of public affairs and strategic communications consultancy of APCO Worldwide’s Greater China region. He authored No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism and One Billion Customers: Lessons from the Front Lines of Doing Business in China. He is a former journalist for The Wall Street Journal and former CEO of Dow Jones China.
Could you talk about when you first came to China and what brought you here?
I have almost spent half of my lifetime here. I’m here by accident. I joined the Army at seventeen and ended up in Vietnam, which turned my head towards Asia and led to me being a journalist.
I came here again in 1985 and backpacked around with my sister. As my sister and I traveled around on trains and buses, inevitably some people would come up to us who spoke some English, and they would go out of their way to pump us for information while also being gracious and showing us around. You could feel the pent up ambition of this country, and the talent that was just blocked.
After that trip I concluded that this would be the country happening in my lifetime. So I went home and convinced my long-suffering wife that we move to China. I suggested we go to Taiwan first, where I’d never been, and study Mandarin.
So in 1987, at age 33, we got rid of everything we owned, and moved to Taiwan. I set up a little freelance news service (I’d been a journalist for a number of years already) and The Wall Street Journal hired me within a few months to be their Taipei bureau chief. I was there for the death of Chiang Ching-kuo, the birth of the Democratic Progressive Party and the beginning of democracy. That experience was great fun. And then, in 1990, I went to Beijing to work for The Wall Street Journal.
What’s kept you here?
The Chinese people. I really like the Chinese people. They’ve got a sense of humor, they’re hard working, and if you treat people well you can trust them with your life.
And watching this place evolve has being amazing. I mean, who gets a ringside seat and a chance to participate in the fastest change, for the largest number of people, in the shortest period of time in human history? I’ve been able to do that.
What are some of the common mistakes you see companies make in China in their public and government relations?
I have seen foreign businesses run into trouble – or even be unable to do business here – because of bad decisions from headquarters as much as trouble from China. Often this happens at American companies, because they come in and their attitude is: “We’re Americans, and this is the way we do it everywhere in the world.” And they don’t adapt. Almost everyone comes in like that, but the smart ones beat their head against a wall for a while until they adapt and figure it out.
The other thing that’s hard for businesses in China is that when China needs to learn something, they open it up to foreign companies; but once China can do it, they close up. And that’s happened in industry after industry.
You’ve got to be very aware that the government’s focus is on Chinese companies and Chinese jobs. Don’t fool yourself into thinking this is an open market. It’s not. It will be open for a while, but you’ve got to constantly be aware of what they want in your industry, what they want out of you, and what they want to do with you.
Is the primary way you do that through government relations?
Let’s define government relations. Government relations used to be about opening doors, getting somebody in the room with somebody. I remember Rudy Schlais, who built GM down here, telling me when they were bidding for the Shanghai auto contract that he was riding around Zhongnanhai in a Buick van with Jiang Zemin and his grandson. That’s old government relations. You won’t do that with Xi Jinping.
In government relations now you still have people selling meetings and claiming all their guanxi, but it’s complete BS, because no official is going to be seen helping a foreign company. The question will be: “Why are you helping? Are you corrupt?”
So what you need to do now is educate the whole ecosystem on a better way to do it that is good for China, and don’t spend time telling them it’s good for you. You’ve got to be seen for how you’re helping China.
Are there any particular companies that come to mind for you as exemplifying that attitude?
Every company’s situation is different. Let me turn this around a bit: what advice do I give companies – especially tech companies – now? I tell them you have to find a comfortable place between suicide and self destruction.
Suicide means not acknowledging that things have profoundly changed here. Just going right down the merry road you were before; saying “we know what we’re doing in China”. That’s suicide because China has changed so foreign business has to change also.
Self destruction is becoming worried and scared of the government policies to the point where you hand your business over to a Chinese competitor. You’ve got to find a comfortable area between realizing things have profoundly changed, while still finding your path here.
When you’re bringing in another senior executive every three years, it can be a problem because the Chinese employees are going to look and go “we’ve got another foreigner here who we need to treat nice and flatter, make sure they’ve got nice housing, a decent golf course, a good driver and a good secretary, and meanwhile we’ll do whatever the hell we want because we really run the place.”
One company that’s been a smart operator here is Intel. Intel has Chinese executives who have been at the company for a decade or more, as well as foreigners who have been in China with Intel for a long time. They have a smart corporate culture here not because of structure, but because the people know each other and have been working together.
You mentioned earlier that headquarters can be the biggest problem for companies over here. What advice would you give executives to help headquarters better understand what’s happening here?
It’s hard for an executive on the ground to educate a headquarters that doesn’t want to be educated. If you have a top down management style where the decisions are made by multiple levels on top and dictated down to you, then it’s pretty hard for the people here.
This is true anywhere in the world. You need to empower and trust your local management, whether that is Chinese or foreigner. Trust, but verify. Don’t be silly: you’ve still got to keep an eye on everybody so you keep your corporate culture and your company doesn’t sink into corruption and other traditional developing economy problems.
What do you think government relations teams at U.S. companies can learn from government relations teams at Chinese companies?
Well, the government relations team at a Chinese company is the CEO or founder. They spend half their time dealing with the government and their relationships, because this is a political economy.
What you can learn from them is that you better focus on your business and also focus on the government. Focusing too much on either is a bad idea. Sometimes people get so focused on the government, they forget they’re in business. They spend all this time trying to clean up some government action that’s come against them, and they feel like they’ve had a victory; meanwhile, their business is not doing so well.
When I speak to Western boards of directors, more than 90% of the questions that come back at me are about risk. If you talk to a Chinese company, risk doesn’t even come up. It’s all about opportunity. I think foreign multinationals get so scared of the Foreign Corrupt Practices Act, taking actions that could influence the company stock price, bad news coming out in the media, that we forget to think about opportunity.
The foreign companies that have done well here are ones that do focus on the opportunity and are willing to do things differently. Yum! Brands is kind of the classic example, with Sam Su and what he did with KFC. By completely adapting the menu, being gutsy, getting stores out as the real estate opened up, he built this business larger than the U.S.
You can also look at Shane Tedjarati and what he’s done with Honeywell. Their stuff was being copied and ripped off, so they decided to become the Chinese company to beat. And that’s what’s going on at the smart companies – they’re taking the bells and whistles off their products to bring the price point down, making several tiers of products to bring it where this market wants. Those companies are smart and accommodating.
Which Chinese companies do you think have done the best job expanding abroad, and what are they doing right?
Probably some we’ve never heard of. I think there’s a lot of people out there doing business quietly and trying not to be branded as a Chinese company, because they don’t want to be ‘Huawei-d’ and have politics get in the way of their business.
The private Chinese companies didn’t want to go overseas because the money was to be made here – this is a booming market, and they understood it here. And the SOEs that have gone overseas are SOEs – they’re political organizations that have a hard time adjusting to other markets. I think a lot of people now see that China’s economy is going to be a lot more challenging going forward, so now they’re going global. Now is a good time to sit back and see who really knows what they’re doing.
When do you think we will see who really knows what they’re doing? Is that 3-5 years out, or do you think we’ll have to wait longer term?
Well, all bets are off now because we’re seeing a pushback on globalization. And all these companies that basically forgot about geopolitics are going to have to get refocused on that.
You’ve got to give China some credit: they focus on jobs. I’m from Northern Minnesota where there’s mining and where there was manufacturing before it disappeared a long time ago. We just didn’t focus on jobs – it was all about free markets, making money, and just moving on without looking at the detritus of humans left behind.
But if you’re a government that picks itself, like China, then you’re pretty frightened and you better perform. And that leads to a huge focus on jobs here. I think some of that job-focused thinking will now be returning in the U.S., which is a good thing.
Last year, the Chinese company China Railway International wanted to build a railway in California, and that failed. Some people said that the company misunderstood local government in the States. If you were employed by an SOE or private company that wants to invest in the U.S., what advice would you give to help manage those relations? What kind of advice do you give to outbound investors?
My focus is inside China, but we have people in our company who work on outbound. You almost want to say the same things that were said when foreign companies came to China. Stay away from Washington; deal with local governments; maybe partner up with local companies and learn from them.
The Japanese ran into this, but then the Japanese started hiring foreigners. I have yet to see a Chinese company do a good job at hiring foreigners and keeping them – especially SOEs. I haven’t seen a senior foreign executive last more than a year at any SOE.
AVIC, this monster-sized SOE that does everything from fighter jets to missiles, they bought the airplane maker Cirrus in my hometown of Duluth, Minnesota. This airplane maker has this private plane that’s beloved by the doctors and the dentists, and it’s very good technology. Two brothers started it but they had a falling out, so AVIC went in and bought it.
The mayor hired me and APCO to help work things out with AVIC, and we were very worried about this big SOE coming to what is kind of the tech hub for this town of 85,000. But AVIC has done a very good job. They rehired one of the brothers to run it, they put money in it, they’re now investing in a jet that had been delayed, and they’ve kept the jobs at headquarters. And we’re talking about a huge SOE that’s very intertwined with the military, and at the core of the Party – but they were still able to do that. So I learned to be a little careful with my assumptions on that one at least.
What’s been the hardest thing for you to adjust to in China?
The Internet, maybe? (Laughs) I don’t know. It’s been hard for me to see the trajectory of openness change. China was on a trajectory to be more open and more part of the world, while still being uniquely China. But now there’s more and more of a strong, anti-foreign nationalism at the core of the Party, and that’s hard to adjust to because the Chinese people I know don’t think like that.