Indigenous Innovation: “How” not “If”

In the Hutong
Celebrating Hump Day
1022 hrs.

London-based China hand and attorney Geraldine Johns-Putra makes a rational case against the thrust of China’s indigenous innovation policy over at View to China, and in so doing opens a barrel of invertebrates.

I am of two minds (as I think she is) on indigenous innovation. On the one hand, I would love to see China become a global innovation leader. On the other, I see the rhetoric around the policy drawing the nation away from addressing the issues that need to be solved before China can get there, including:

  • Should government or enterprise be the primary driver of innovation?
  • What is the role of universities vs. government vs. enterprise in conducting the primary research that leads to innovation?
  • Is China’s “indigenous imitation” approach to innovation merely a phase, or will it be chronic?
  • Is innovation being hampered by the way banks allocate capital?
  • To what extent are China’s own innovators being driven offshore – or away from innovating – by loose IPR protection?
  • How do we focus on creating the truly novel and useful rather than simply reinventing the wheel (i.e., TD-SCDMA and the Godson chip?)
  • Where is the nexus between national priorities, global challenges, local capabilities, and commercial opportunity that would be the most fruitful fields of endeavor?
  • Where are other countries dropping the ball, particularly after over a decade of cuts in R&D in major Japanese, North American, and European companies?
  • And the tough one: to what extent is “indigenous innovation” merely a cover phrase for import substitution?

China is not alone in its discomfort with paying for foreign technology. The idea that key domestic industries should be held hostage to absentee technology landlords who demand hard cash merely to use their inventions was as odious to American policymakers a century ago and to Japanese leaders in the 1930s as it is to the leaders of South Korea and China today.

It is as upsetting for China to watch so much of its national purse flow into the pockets of foreign companies for intangible inputs as it is for Americans to see their national treasure siphoned into the purses of the OPEC nations. The rational response is some form of substitution.

We, as non-Chinese, need to appreciate that rather than vilify China for its refusal to support techno-rentiers, we should instead be driving a meaningful discussion on how “indigenous innovation” can be made to work not only for China, but for the world.

Ten Principles of Luxury Marketing in China

In the Hutong
Do you use ice cream in coffee shakes?
1500 hrs.

Before I do my deep-dive into the small shelf of books and articles on the PRC luxury goods industry that has been growing in my library, and before the ideas of their authors start altering my own impressions, here are ten guiding principles framing the business I’ve gleaned from working with luxury brands here.

1. Even if it is dead elsewhere, “bling” lives in China

2. Today, the majority of Chinese consumers are attracted to name brand and luxury goods because of the outward statement this makes about them and their success or style.

3. A smaller percentage of Chinese consumers are attracted to luxury goods because they believe that the brands represent superior quality,  materials, and workmanship.

4. An even smaller percentage are identity consumers, who patronize a brand because it has become a part of who they are. These people, who have evolved beyond simply showing off and who expect quality as a given, patronize a brand because they could not imagine it otherwise.

5. Pre-lux brand customers are interested in buying brands but lack the wherewithal to do so. These are the biggest buyers of knockoffs, and some of them (but not all or most) will eventually buy the real thing.

6. Be aware of the post-lux consumer. This is a consumer who can easily afford luxury goods, has a clear understanding of value,  understands that value and style can be had for less money.

7. There is also the inconspicuous lux consumer. They want the quality and value of the brand but do not want – or fear – ostentation. Coddle them.

8. Company owned brand flagship stores are an essential part of establishing and building luxury brands in China. Not only do they provide an opportunity to experience the brand, its values, and its lifestyle, they also offer an place where consumers can be assured that they are procuring a genuine product.

9. Flagship stores are an advertising expense. Think of them that way, and worry less about actual sales.

10. Often consumers will be travelers or will have the wherewithal to travel internationally. You will sell to them in China but they will buy overseas to avoid import duties. Track them aggressively to ensure their sales are credited against your marketing in China.

China’s Education and Great Wall Street

In the Hutong
Planning a Den Meeting
0834 hrs.

Superb article in The New York Times by Beijing’s own Didi Tatlow covering the issues she faces in putting her child into the Chinese educational system. It was fascinating to me as a parent, but what really grabbed me was this throwaway comment deep in the story from a friend who was commiserating with Didi about today’s Chinese school kids:

“Once, the nation’s elite wanted to be scientists and build their country. Today they want to be bankers, or stick with safe state jobs.

‘They don’t know what they want, but they hear bankers make the most money and everyone else is doing it, so that’s what they want to do,’ Hua said.”

China’s best and brightest don’t see a future in inventing or making things. They want to work for Goldman Sachs. Sounds familiar, doesn’t it? The story could just as well be quoting someone talking about undergraduates at any of America’s elite universities, as Don Peck does in the March issue of The Atlantic:

“…to an unprecedented degree, people who graduated from high school in the 2000s dislike the idea of work for work’s sake, and expect jobs and career to be tailored to their interests and lifestyle. Yet they also have much higher material expectations than previous generations, and believe financial success is extremely important. “There’s this idea that, ‘Yeah, I don’t want to work, but I’m still going to get all the stuff I want,’” Twenge told me.”

Two generations of young Chinese people have been told “to get rich is glorious,” they want to take the easiest route possible, and they see investment banking as that route.

China needs to cultivate a core of smart investment bankers to help the nation wisely invest its treasure, guide the consolidation of overbuilt industries, and extend its reach overseas. But does China want to become a nation led by its investment bankers in which the primary locus innovation is in arcane financial instruments? Or would the nation and its leaders prefer to be a global leader in science, in innovation, in solving the world’s problems and profiting richly therefrom?

If China starts siphoning its best minds into investment banking at the expense of other industries, teaching finance at the expense of creativity and innovation, the PRC may well follow America’s path into looming national insolvency.  To stop that, China’s youth need to be infused with a passion for not just doing well, but doing good.

No easy task.

Where Morozov is Wrong

In the Hutong
Recovering from Food Poisoning
1518 hrs.

Georgetown fellow Egveny Morozov wrote a must-read op/ed piece for The Wall Street Journal that is being Twittered a lot today, and deservedly so. He takes to task those who believe (including, apparently, the U.S. Secretary of State) that the route to global democracy is digital openness. This is little more than wide-eyed, hopeful utopianism, and Morozov makes a clear case for the Obama administration to back away from its current approach to Internet freedom around the world.

Where Morozov and I part ways is toward the end of the piece, where he notes:

“Diplomacy is, perhaps, one element of the U.S. government that should not be subject to the demands of “open government”; whenever it works, it is usually because it is done behind closed doors. But this may be increasingly hard to achieve in the age of Twittering bureaucrats.”

I disagree. While it would be undesirable to make Twitter and Facebook de-facto extensions of U.S. government policy, the role of public diplomacy (defined as the conduct of foreign policy by direct engagement with foreign audiences) in an increasingly transparent world is well appreciated by leaders of many of the worlds governments, including China’s. They understand that public support for the relationship between countries is increasingly as essential to strong international relations as whatever happens behind Morozov’s “closed doors.”

Public diplomacy has been dying in the United States since the fall of the Berlin Wall. This has been a foolish oversight, and Morozov is shortsighted to so lightly consign it to the dustbin just as the international relations experts are starting to ask how to most effectively update and use the tools for direct “G2C” outreach.

With public diplomacy in the early stages of a renaissance, the digital means of conducting such efforts will undoubtedly be awkward at first, but this is no reason to warn the U.S. government off of experimenting with such channels. As U.S. military and economic power wane, the Obama administration would be foolish to cast off whatever tools are available to ensure the continued influence of the United States in world affairs. We can be sure that the governments of India, China, and Russia, to say nothing of a host of non-state actors, will not do so.

The Short Game

I am going to start diversifying away from my usual 6002,000 word post length and begin blogging more links and short posts. I’ve spent the last few weeks playing with Tumblr, and I like the short format, but as Will Moss pointed out, there are only so many platforms you can spread yourself across before you start duplicating or diluting your efforts.

But not every idea, insight, or sentiment needs lengthy elaboration, nor can it be distilled into the 140 characters of Twitter. As such, I’m going to add a “short game” to Silicon Hutong. Meanwhile, my Twitter and Tumblr feeds will be moved higher up on the right column.

Let me know what you think. If it doesn’t make sense, or if it is cutting down on the value of Silicon Hutong (or if it is adding value), I would be happy to hear it.

China’s Route to Best Practices: It is not M & A

Housha Village, Beijing
Counting the fireworks stands
1414 hrs.

In a well-done post on his blog at the Council on Foreign Relations website, Brad Setser takes a contrarian view on why local Chinese banks have been happy to take foreign investment, and why the government has been happy to let them. And it wasn’t about what everyone thought it was.

“One more subtle sign the world has changed. Anderlini and Tucker report in today’s FT that China wasn’t all that interested in getting access to Western financial technology after all. China’s government let foreign banks take stakes in China’s state banks more to increase their IPO valuations than out of a desire to have the state banks emulate the US and European bank practices.”

This is compelling for several reasons, one of which is my belief that China’s first global brands will not be consumer goods companies or tech firms, but companies from the service sector. Banks may well be one of these.
But mergers and acquisitions do not teach or confer best practices upon either the acquirer or the acquired. Nor, despite all-too-regular protestations to the contrary, do they provide either party with exclusive access to some operational mojo unavailable elsewhere.

Resistance to change in any large financial institution is perhaps exceeded only by that in large marketing agency groups, and China’s banks are no exception. For this reason, partial foreign ownership will not inspire Chinese banks to alter their practices. Chinese banks will be motivated to improve their practices only when the growing demands of their customers make doing so a matter of survival, and/or when the government makes clear that a failure to do so will result in China’s central bank, the People’s Bank of China, taking some executive scalps.

When that happens, they will glean those best practices deemed appropriate to their enterprises and specific needs from any of a host of sources, from consultants and software vendors to the aggressive imitation of exemplary competitors at home or abroad. They may also manage to develop some of their own homemade, culturally appropriate best practices in the meantime.

Regardless of how they do it, the banks (and all Chinese enterprises) can acquire best practices without resorting to the expense and trouble of a corporate shopping spree. Any protests to the contrary are rationalizations of an acquisition pursued for other reasons.

Zen and the State of BYD Innovation

Starbucks Guomao 2
Tinny jazz, burnt coffee
1149 hrs.

Amid all the debate about China’s supposed “lead” in green technologies, it is worthwhile reading this article from Matt Forney and Arthur Kroeber from the Wall Street Journal last fall, wherein those two China hands offer telling insights and point a course for BYD.

“But the true competitive advantage of BYD, as with most Chinese firms, is its ability to commoditize technology products, thereby making them cheaply available to a wider range of customers. This is a useful function, and it will be critical in ensuring that new-energy products can rapidly increase market share against traditional carbon-based technologies. But there is little evidence that Chinese companies are ahead in this new-energy innovation race.”

For the moment, I tend to agree. As Christina Larson recently pointed out in Yale360, while China is extending its role as the world’s factory floor into green technology products, the country and its business leaders all too often still confuse imitation with innovation.

“The first essential fact to be aware of is that most news stories about China’s greentech gains are about manufacturing. China is becoming the wind-turbine factory to the world for much the same reasons it has long been the TV and t-shirt factory to the world: lower wages, lower land prices, fewer regulatory and other requirements, etc. This isn’t particularly surprising, and it shouldn’t be seen as a reversal of the status quo. What’s changed most dramatically in the last five years has been growing global demand. With significant government investment, Chinese factories have planned for and stepped up production accordingly.”

To summarize the sentiment, China’s growing role in greentech is about efficient manufacturing, not innovation. BYD is no exception.

Not the Imitator Forever

What we must guard against, however, is the belief that this will ever be the case. Leaving aside whatever process innovations BYD has developed to crank out its batteries, BYD may well not be doing much innovation today, but the Buffet touch and properly applied capital could help it build on its core competency and make a jump into developing genuine innovations.

There are plenty of “ifs” implicit in the preceding sentence, and BYD is unlikely introduce disruptive innovations in the next few months. But just as we should not be surprised that BYD is not an innovator today, we should not be surprised if and when that changes.

A smart businessman does not wait for his competitor to emerge before taking measures to protect his advantage. He assumes the competitor is there, and acts accordingly to build and extend his lead and to lay the groundwork for the constant renewal of that leadership. Forney and Kroeber remind us not to buy the hype coming out of BYD. I suggest it is wiser for BYD’s presumed competitors to foster a little paranoia and start figuring out how to beat them before it becomes a problem.

And Forget the Motorheads

Forney and Kroeber also note that Car and Driver magazine was scathing in their review of early BYD electric vehicle portotypes, with the magazine’s columnist saying “We drive faster in our driveways.”

Yes, that’s a great line. And it brings a smile to my face as I gaze lovingly out my window at my V6-powered suburban assault vehicle.

Levity aside, though, it would also be unwise to accept the verdicts of the automotive press on BYD’s cars. Auto reviewers are notorious testosterone junkies, and any vehicle that does not incite an involuntary glandular response is dismissed out of hand. For three quarters of a century, that worked, because North Americans (and plenty of Europeans and Japanese) were making their personal transportation decisions with the back half of their brains.

But we are entering an era where a growing number of buyers are overruling their glands in favor of an emotional response linked to a fear for the future of the planet. A niche market this may be, but BYD does not need much more than a niche, a low price, and some volume fleet sales to establish the first generation of its cars in the United States.

Those with a sense of automotive history will remember that both Toyota and Nissan were ridiculed (or worse) by the American automotive press throughout the 1960s. Yet ignoring their detractors, they created the American predilection for Japanese imports, beginning with fringe consumers, then slowly and painfully learning how to appeal to U.S. drivers based on changing consumer tastes and priorities.

Matt and Arthur (and probably Car & Driver) look at BYD and think “Yugo.”

Me, I look at BYD and think “Datsun.”

How the East Will Rise

China Construction Bank
China World Tower 2, Beijing
Watching the pre-holiday ATM rush
1129 hrs.

In the face of a growing herd of commentators foretelling the rise of China, Niall Ferguson has identified what he believes to be the six factors that gave the west an opportunity to overtake and surpass China’s early cultural and technological lead. He shares them with us in the Financial Times:

“What gave the west the edge over the east over the past 500 years? My answer is six “killer apps”: the capitalist enterprise, the scientific method, a legal and political system based on private property rights and individual freedom, traditional imperialism, the consumer society and what Weber probably misnamed the “Protestant” ethic of work and capital accumulation as ends in themselves.

Some of those things (numbers one and two) China has clearly replicated. Others it may be in the process of adopting with some “Confucian” modifications (imperialism, consumption and the work ethic). Only number three – the Western way of law and politics – shows little sign of emerging in the one-party state that is the People’s Republic.”

One could argue with Professor Ferguson’s conclusions, and as an (amateur) historian I have a problem with such deterministic models. Any number of ex post theories can be drawn to fit the facts, and Dr. Ferguson is neither the first nor the last to propose a reason for China’s failure to keep up with the rest of the world during the Ming and Qing dynasties.

For the sake of argument, though, let us grant him his six “winning” factors. In return, he must grant that had he made a case for these six factors to European leaders 500 years ago he would not have been feted for his foresight. Rather, depending on the country in which he made the case, he would been ridiculed, cashiered, excommunicated, exiled, and possibly executed.

Plainly, there was no deliberate choice or point of determination where the west consciously chose such a path. It was a series of unrelated, non-sequential choices and events that brought about these changes, each important but few if any seen at the time as critical. Indeed, as my fellow readers of alternate histories will readily point out, at any number of junctures things could have gone a very different way.

It seems equally unlikely that we could foretell with any accuracy what factors will drive the rise of an Asian or African civilization in the future, or whether they would be as palliative as the happy factors that got the west to where it is today. Indeed, to assume that the influences that brought the west to its zenith are required for the east to attain its own apogee reeks of cultural hubris, wishful thinking, or both.

The political, cultural, economic, and ideological drivers behind the rise of each successive civilization in the history of the west – Babylon, Egypt, Greece, Rome, The Caliphate, Spain, England, and America, to name a few – have varied radically from one to the next. Certainly a professor of history at Harvard would consider that. Why might he believe this time would be different?

It is (to me at least) axiomatic that the forces and factors that will determine what nation, political system, or culture leads the world in the coming centuries are probably not what we think, and are likely not what Dr. Ferguson thinks, either. Those factors will emerge over time, and we will have to leave it to historians hence to sift such insights from our future.

No one would be happier than I if Dr. Ferguson is correct. Yet while I am warmed by Dr. Ferguson’s implicit faith in the underpinnings of western civilization, we must all acknowledge that the road to the future of China and the world will likely be paved with somewhat different ideas and institutions.

The Right Tone

Third Ring Road, Beijing
The city is beginning to empty
1033 hrs.

I enjoy reading Christopher Hitchens’ work, even though he and I disagree rather frequently. Reading some of his high-handed dismissals of people who do not share his views or his tastes, however, makes me wonder: does he see himself more as a straight writer, or a provocateur?

Take this recent example from his paean to the late J.G. Ballard in the January/February issue of The Atlantic:

“As one who has always disliked and distrusted so-called science fiction (the votaries of this cult disagreeing pointlessly about whether to refer to it as “SF” or “sci-fi”), I was prepared to be unimpressed even after Kingsley Amis praised Ballard as “the most imaginative of H. G. Wells’s successors.” The natural universe is far too complex and frightening and impressive on its own to require the puerile add-ons of space aliens and super-weapons: the interplanetary genre made even C. S. Lewis write more falsely than he normally did.”

Clearly the paragraph is designed to do two things: first, to have a nudge and a guffaw with like minded readers who similarly don’t “get” science fiction; second, to belittle regular readers of science fiction as adolescent zombies.

(Full disclosure: about half of the fiction I read is science fiction, but this post is not a defense of a genre that requires no defense. For the sake of this argument, I will cop to being both puerile and a zombie.)

You could argue (as Hitchens and his editors likely would) that ol’ Chris is just trying to get a rise out of the reader in order to bring more attention to himself and his publication. I’ve got no problem with that. I am a big fan of The Atlantic, and anything that keeps it out of the growing media slag heap is fine by me. But I suspect there is something deeper going on here. I wonder if Hitchens’ comments do not mask some deeper intellectual elitism?

Hitchens appears to be of that vocal fraternity who think that those who hold views antithetical to their own are by definition cretins or ninnys. Those who like the things they do not or who hold contradictory viewpoints are not only wrong, they are feeble-minded.

This sort of intellectual intolerance and the implicit ad hominem attack it implies is understandable when encountered at a high school lunchroom. It is barely tolerable among adults of limited education. It is an inexcusable mistake when it comes from an educated liberal (note the small “l”) who tries to influence public debate.

An wise man does not begrudge another his beliefs: he takes to heart that reasonable, intelligent men can hold different views or values and still be worthy of mutual respect. This is not just a page from some literary ethical treatise, but a core premise underlying the Constitutional right to freedom of speech.

Christopher Hitchens is an intelligent man, but by belittling his readers for their beliefs and predilections he does himself, his viewpoints, and his publication a great disservice. All three deserve better.

If, on the other hand, Hitchens is beginning to see in himself some 21st century incarnation of Samuel Clemens, please let him say so. I can then take what he writes as caustic, New Journalistic humor and forever cease to take seriously anything he sets to paper.

In the meantime, I am taking a lesson from Hitchens and this post about my own tone. I beg an indulgence of my readers: If, after this post, I start taking on an intolerant tone myself, please call me on it. Don’t let me go down that route.

Why Global Internet Companies Fail in China

In the Hutong
Last Working Day Before CNY
1448 hrs.

The matter of Google in China is a growing hairball of issues that will, undoubtedly, become the subject of a book one day. Rather than try to take on the entire mess in a single go, I am going to pull it apart strand by strand to assess each of the problems in turn.

A previous employer and mentor, Mme. J.M. Claydon-Gescher, OBE, once told me that the wisest way to attack such a complex matter was to start with the biggest issue first. I haven’t done that, because the biggest issue is the entire matter China’s hospitality to foreign companies, which is a hairball unto itself that I will take on when I am done with Google.

So I decided to take on the next-biggest issue, which is why global Internet giants fail in China, and the result is on the Advertising Age site here.

If for some reason you can’t read it, let me know and I’ll repost.

A big thanks to Normandy Madden at AdAgeChina.com.

And while you’re over there, check out the free legal advice ChinaLawBlog’s Dan Harris is offering to marketers in China.

Cheerleading the Bankers

Starbucks, China World Tower 2, Beijing
In the course of human events
1001 hrs.

Contemplating the irrational messiness of China’s corporate landscape, investment bankers around the world must salivate in anticipation of the fees and bonuses that will be theirs when they finally convince China’s ambitious business leaders that mergers and acquisitions are a viable growth strategy.

Success for Whom?

The pressure to sell M&A to China’s corporate leadership must be particularly acute in the wake of the financial crisis, since the flow of such deals in the U.S. and Europe have dried to a trickle. What other reason for this recent pronouncement coming out of Wall Street’s alma mater, Wharton:

“Lenovo is probably the prime example — having bought IBM’s PC business — where [a company] did successfully use the acquisition strategy. And the main reason is that, beyond quick access to markets like the United States and Europe and so forth, they need high-end technologies and also established brands. Those are the elements that the Chinese firms have been missing. And so it fits very well to combine the strong and cost-efficient back end of Chinese firms with the branding, market access and technology that Western developed firms can offer them.”

I find it puzzling that a professor at one of the world’s most prestigious business schools is still able to characterize Lenovo’s acquisition of the IBM PC division as a “success.” The only unqualified success to date is the one for which the investment bankers received a fee. A more holistic analysis of the acquisition – such as the performance of the combined company in the wake of the merger, falling market share, and a failure to capitalize on the assets acquired – might yield a much different assessment.

Let us grant the possibility that at some point in the future, the move will have been a good one, and possibly even justifiable from a financial or brand value standpoint. The evidence to date does not support the idea that the money Lenovo spent buying IBM’s PC division would not have been better spent pursuing a more targeted, more organic, and more manageable international growth strategy.

What the evidence does appear to support – to date – is that Lenovo pursued the acquisition at the urging of an young and ambitious senior executive who managed to dazzle Lenovo’s leadership with the sheer audacity of the buyout, in the wake of an utter failure to build consensus on a realistic strategy for international expansion.

Lenovo’s own preliminary verdict on that acquisition came when Liu Chuanzhi returned last year and refocused the company’s international growth strategy on emerging markets like Russia and India, rather than the developed countries where IBM had been stronger.

Leaning Tower of Ivory

Wharton, for its part, would have served itself better with a less sanguine assessment of Lenovo’s purchase of IBM. As an institution whose primary product – and major source of alumni largess – is investment bankers, Wharton faculty must appreciate the implicit conflict of interest in publicly praising the work of its benefactors.

Knowledge at Wharton may not be a peer-reviewed publication, but the public holds members of the academy to the same high standard regardless of medium. We expect academics to be, by virtue of their sinecured isolation from the rough-and-tumble of commerce, an intellectual priesthood focused on finding and telling The Truth. We do not expect them to be tenured fanboys for Wall Street’s Big Swinging Dicks and Chicks. If the last two years have proven anything, it is that Wall Street could use more informed criticism from trusted and respected observers.

If China and her companies are proceeding cautiously in considering the value of mergers and acquisitions as a growth strategy, the record suggests that they should be encouraged to be careful. The last thing China needs is to spend her national treasure in a global corporate shopping spree. And given the size of the bonus checks in New York this year, I would suggest it is the last thing Wall Street needs as well.

It’s Not Just Toyota

Jingmi Road, Inbound
The Calm before the Snow
0919 hrs.

In an excellent piece of Wall Street Journal analysis on Toyota’s mishandling of its quality recall, Jeff Kingston points out a host of problems that routinely turn otherwise outstanding Japanese companies into headlight-bedazzled deer in the face of crisis.

We’d Rather Not Talk About It

Kingston notices that there is something in the Japanese corporate culture that causes companies in crisis to go into communications paralysis. The real story behind the Toyota recall is that even this most admired of Japanese companies is utterly incompetent when it comes to the fundamentals of strategic corporate communications.

“The shame and embarrassment of owning up to product defects in a nation obsessed wit craftsmanship and quality raises the bar on disclosure and assuming responsibility. And a high-status company like Toyota has much to lose since its corporate face is at stake.”

Kingston is brilliantly spot-on in his analysis, to the extent that his story should be translated into Japanese and duly memorized by every Japanese executive who ever seeks to sell a product outside of Japan.Did They Export This, Too?

The only problem I have with the story is that Kingston implies that this particular form of non compus corparatus is somehow uniquely Japanese when in fact the problem is endemic throughout Asia. For all of their commercial, production, and engineering prowess, most of Asia’s great companies share this giant blind-spot.

Twenty years ago, even ten, the severity of this problem might have been ignored. Protected by pliant local media all too ready to play down issues in deference to advertising dollars and coddled by governments at home and in countries where Asian firms set up large manufacturing bases, the specter of backlash was modest.

But in a world ruled by the radical transparency of the Internet, even the slightest stain on one’s corporate laundry becomes a red flag for the world to see. And it is not just bloggers and tweeters driving this change, it is also a media desperate to sustain their relevance in the new information environment, and a nascent but growing anti-corporate, anti-globalization movement seeking to prove that corporations are, by design, malignant social actors.

In such an environment, an Asian company is dangerously exposed even on good days. On bad days – days like today as Toyota grapples with its current slow-motion nightmare – the company is on trial for its life in the court of public opinion.

The Blind Side

In over a dozen years in the communications business in Asia, I have encountered  all manner of companies, startup to MNC, new and old, American, European, Japanese, Korean, Chinese, Singaporean, Australian. In all that time I have never had cause to discard my initial impression of Asian firms as almost utterly incapable of anything but the most planned, scripted, stilted and disconnected communications, suited for an age long past, and incapable of protecting themselves when the wolves come howling.

This must change, and it will, because the crises will not go away. Even after we stop reading about Melamine Milk, Lead-Laced Toys, Rotten Drywall, Tainted Dogfood and similar examples of Asian corporate moral failure, China’s companies will discover that even enterprises with the best of reputations and purest of intentions can become overnight targets of a global foaming-spittle lynch mob.

The only question is how many fine Asian companies will be permanently damaged or destroyed, how many lives must be ruined, and how many fortunes must be lost before that happens?

The Fish Stinks from the Head Office

It is time to stop seeing corporate communications as PR, to stop seeing PR as the “press wrangling” function of marketing, and to stop choosing earnest and attractive but otherwise incompetent individuals to take charge of a company’s reputation.

But let’s make this clear: the fault here does not lie in the under-staffed, under-funded, under-appreciated PR departments stashed in back offices around the region. The problem goes all the way to the top. Poor corporate communications bespeaks inattentive or incompetent corporate leadership.

Until Asia’s CEOs and managing directors start paying some careful attention to this problem, we are going to watch an embarrassing procession of our best firms self-immolate. After all of the effort to create world-class Asian companies, what a pathetic waste that would be.

A Chinese Al-Jazeera – Five Reasons this is a Good Thing

The Ascott, Beijing

WTF, February already?

1440 hrs


Recent revelations that China is planning on investing over US$7 billion in an effort to create a credible global radio and television news service using Al-Jazeera English as a model have provoked comments that range from the dismissive to the skeptical to the paranoid.

I am not convinced China is going to create a credible global voice in the near term, but I think it is only a matter of time before it happens. Rather than concern America and the world, however, we should see this effort as a positive development because even the sketchy details we have of the program suggest a new maturity in China’s approach to strategic communications, public diplomacy, and indeed world opinion.

1. China Needs to Care About What the World Thinks – the fact that China is ready to undertake this effort means that China’s senior leadership acknowledges that global opinion matters to China. This may be obvious to those of us steeped in communications, international relations, soft power, and/or public diplomacy, but it is a light-bulb moment for China’s leaders. Since declaring the People’s Republic sixty years ago, China has maintained an almost cussed independence of action, speaking and acting as if it cared nothing for what the world thought. This is apparently no longer the case, and that opens a new series of doors to influence Chinese policy.

2. If You Build It, They May Not Care – whatever else China Radio International, CCTV-4, and CCTV-9 have accomplished, their growing availability worldwide has not had much apparent effect on how China is perceived abroad. China’s leaders have learned an important lesson: they do not get a hearing purely by virtue of China’s size or growing importance.

3. Propaganda Fails – the acknowledgement that the service’s credibility depends on a level of editorial objectivity unknown elsewhere in Chinese media (including the current global radio and television services) is an implicit recognition that propaganda is dead as a tool of public diplomacy. This is not only a rejection of previous practice but of orthodox Communist communications doctrine.

4. The Audience is King – the initiative recognizes that China must communicate with the world in a way that audiences can appreciate, rather than using a the intonation and buzzwords of Chinese political orthodoxy. If you’ve ever heard a government official speak in public – or watched a Chinese newscast – you know what I mean.

5. Being Heard Means Looking Good – the initiative recognizes that China must compete in a global marketplace of information, and China’s take on world affairs will not be heard unless it is packaged and delivered in a format and context that is comfortable to non-Chinese viewers. If there is a single lesson from Al-Jazeera, this is it.

If you are not certain that China coming to these conclusions is necessarily a good thing for the rest of the world, consider this. If I have learned one lesson in my career as a communicator, it is that the more a government or company alters its approaches to appeal to an audience, the more responsive that entity becomes to its audiences in its thinking, policies, and behavior.

The unspoken secret of the “perception management” process – the part we don’t always share with our clients – is that the process changes both sides, not just the audience. This will be especially true as we move out of the Age of Broadcast and into the Age of Conversation.

I am in no way suggesting that China will suddenly change its domestic policies, drop single-party rule, or gang-stomp the Somali regime because the PRC desires greater global influence. But if China is committed to its stated global communications objectives, small but significant changes in the nation and its international relations are an inevitable result. As the Bush administration learned, global influence is unsustainable when foreign policy and strategic communications are formulated and conducted in willful ignorance of global opinion.

On the other hand, I have had some people suggest to me that, providing China sticks to its commitment to offer evenhanded reporting on its global channels, this may signal to Chinese leaders that they can use the same approach at home. At best, this is wishful thinking. Media aimed at overseas audiences will serve the purpose of building Chinese credibility abroad. Media aimed at home will remain focused on maintaining social stability and supporting the evolution of a “harmonious society.” We can expect a wide “Chinese wall” between the two.

For now, anyway.