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This China business podcast was brought to you by The China Business Show and wsRadio.com. About Janet CarmoskyJanet is a career China business specialist who brings China executional competency and strategic counsel to foreign invested businesses, and similarly advises Chinese government organizations on effective international communications and growth strategies. After earning a degree in Chinese studies from the University of Pennsylvania in 1985, Janet moved to Xi’an, married a Chinese man and spent the next 18 years - as Janet Zhang - living and doing business in China. During this time, spent mainly in Xi’an, Hong Kong, and Shanghai, with sabbaticals in Washington D.C. and Silicon Valley, she developed her extensive knowledge of China’s commercial landscape and the patterns of the US-China economic relationship. Fluent in Mandarin and Cantonese, she spent the 1980’s in trading, sourcing and buying agency projects before moving into strategy consulting with Coopers & Lybrand in Shanghai. Moving for the next 15 years between operations - mainly in China’s retail sector - and consulting, Janet held senior management positions in private equity (VP of Richina Capital), systems integration (COO, Web Connection/Chinadotcom Shanghai) and public relations (Director, Burson-Marsteller Shanghai) before moving back to the United States in 2003 to help integrate PR Newswire’s China operations into their USA base. She has written for Economist publications, authored an award-winning case for IMD and the Chinese language Harvard Business Review, and written essays for travel publisher Odyssey Guides. She speaks often - particularly to organizations new to the US-China business - on how to understand and align with, rather than struggle against, the cultural and economic forces that typically frustrate executives on both sides of the divide. Please see the transcribed podcast below:
Welcome back to the China Business Show, brought to you by Global Sources.com connecting global buyers and suppliers. Here is your host, Christine Lu. CHRISTINE LU: Investing in China, doing business in China. That’s all we seem to talk about on this show, but what about Chinese companies doing business in the U.S.? We’ve all heard about a company named Lenovo recently who bought IBM not too long ago? Is this a one off deal or is there a pattern emerging that we should know about? Janet Carmosky, President of China Prospects Inc. joins us today for this segment to tell more about Chinese investments in the U.S., Janet, welcome back to the China Business Show. JANET CARMOSKY: Hello! It’s good to be back! CHRISTINE LU: Now, American companies have invested steadily in China over the past two decades. Is there a point at which Chinese companies begin investing in America? JANET CARMOSKY: That would seem to be the question! Chinese companies essentially, when they have the intent to develop globally, invariably consider what they should do with the U.S. and a growing number of them are thinking “maybe we should invest?” Although I suppose their first response is: “Hmmm, lets get some more money from the Americans,” but they are beginning to realize that there are some things that they can’t learn without actually coming to America and trying to do business here themselves. There’s only so much you can learn about a place by bringing in funds from that place. So this is the Lenovo case, for example where the Chinese buyer realized that with the PC division of IBM on the block, they had an opportunity to learn how brand marketing, sales, external communications and all sorts of aspects of operating a company in America really worked from the inside. The Chinese want to come and invest in America, basically as a means of learning how we do it. Now is a time where it’s beginning to be more seriously considered by Chinese companies. CHRISTINE LU: That’s interesting that you mention that because I remember when it was announced; it caught a lot of people (the average American who is not plugged into, what’s going on over there). It caught a lot of Americans by surprise, a Chinese company buys IBM and what I would be interested in knowing is that in a market that is already saturated PCs. So you are saying that the whole purpose of it wasn’t necessarily to dominate or come into the market and beat Dell at their own game and the PC market, but more to learn? JANET CARMOSKY: I think that that is far more the motivations of a Chinese acquisition attempt, an acquisition within our own culture. The margins in the PC business are not very good, and that, quite frankly was one of the reasons why IBM wanted out. The Chinese on the other hand, felt that despite the low margins they would like to continue to expand in the field. The Chinese are accustomed to operating manufacturing, and sales and very low margins. That is essentially how they got into the position they are in right now with a dominating manufacturing in the world. CHRISTINE LU: Now what are some other examples of Chinese investments in America you see? JANET CARMOSKY: There are two very famous examples of failed attempts to invest in America by Chinese firms, and a few that have come into America and are really doing quite well. One of the good ones is China Telecom. China Telecom was a monopoly telephone service provider in China for a long time. They no longer have a monopoly; they had it taken away from them by the regulatory authorities - as with AT&T in the U.S.. China Telecom has an operation in the United States, essentially are here to sell phone time in China to Americans. And so, their operations, like Lenovo are very largely staffed by Americans. In other words, they're creating employment for American here. And if anyone calls China, you buy these IT cards, a lot of those are reselling the product that China Telecom is offering with their IT. Haier is a famous example of a Chinese firm that has purchased manufacturing operations in the U.S., established manufacturing in the U.S. and created a lot of employment here successfully, and at the same time an example of something that went wrong when they tried to expand further. So I’ll just sketch out as quickly as I can, Haier major manufacture of appliances: Refrigerators, primarily, based in Shangdong in China. They have a manufacturing operation in South Carolina. They have employed an American as a General Manager, and they have a large number of Americans, as I said on the payroll in their factory. Manufacturing Haier branded goods, being sold at Wal-Mart and Best Buy under the Haier brand, they also have purchased a building in NYC, renamed, you might guess, The Haier Building. CHRISTINE LU: Oh, like one of those high rises you’ll see named after a company, they’ve got one of those. JANET CARMOSKY: Yeah, the Haier building. They tried to acquire Maytag when it was on the block several years ago and they were thwarted because of public opinion. The Haier company sent out a press release announcing that it was in discussions with Maytag to acquire the manufacturing operation which was in Iowa. When media Iowa attempted to contact Haier to ask some questions, it took the Chinese a little while to get back to the media in the U.S. and they felt snubbed, and in fact they became suspicious and thought, my goodness what are the intentions of this company? They can’t just come into our community and take over this company. We can’t have them making our refrigerators - which are hardly military technology - but judging by the uproar over Haier's interest in Maytag, well..if there are military applications for washing machines, maybe I just don't know what they are. CHRISTINE LU: So is that a classic case, or is it just the Chinese way of not getting back to you right away. They probably had to go back and think about and formulate a well thought out PR strategy or answer for that. JANET CARMOSKY: They had no idea what would happen in America. What could happen and how quickly – first of all how important public opinion is in America. Second how quickly public opinion can collect in a negative way and we see that with the horrible bad press that China is getting right now with that manufacture. How quickly that negative opinion can form. Essentially to take a couple of days, bet back, by the time they had the state senator, the state congressman for the district and the local media were all up in arms that they were not selling their beloved Maytag to some secretive Chinese conglomerate, so they sold to Whirlpool instead, who shut the factory down within a year. CHRISTINE LU: That’s very ironic, isn’t it? JANET CARMOSKY: Yeah, there is no way that Haier would have shut that factory down. People wonder why did Lenovo buy IBM’s PC division when it was doing so poorly. And the reason is because there are a lot of things that they wanted to learn: brand marketing, channel strategy, working in retail with consumers in the U.S. and they considered it a case of, "Fine. we’re not going to bring in huge profits from this, but we’re not going to lose too much either, we’re going to learn a lot. That's what I think Haier would have done with the Maytag plant: learn how to grow an established business in America. They were making the investment and they were going to learn something, but people didn’t want to sell to the Chinese and so the plant closed down. CHRISTINE LU: When you mentioned this is the topic you wanted to discuss today. Honestly, I can just picture telling the average American that more and more Chinese companies will be investing in the U.S. in the coming years and having their first reaction be a very negative one in light of how China is often portrayed in the media here. I would be more then glad to get your opinion on wouldn’t these help relations between the two countries on several different levels or would it hurt if more Chinese invested money and created jobs? I don’t get it – explain to me. JANET CARMOSKY: There is a situation right now where public opinion is clearly biased against the Chinese and its unfortunate. China is a very, very large place with tens of thousands of manufacturers. But I think I might have said it before, the only real brand that the Americans know from China is “Made in China” itself and so when something goes wrong with the quality of products coming from China, which is fairly predictable because they are working on really minimal margins, so far away from the companies that they are delivering product to; and consumers, instead of this thought: that’s a bad brand or that’s a bad factory, they can only say, “Oh China product is bad.” Here is the point, there is also the negative sense that the Chinese have taken jobs out of the manufacturing sector, which is ironic because at this point, the Chinese would very much like to acquire some automotive components manufactures’ in the United States, they would like to come back and higher on those workers for automotive components that are related to the automotive field for example, and other fields in America, but they don’t have a clue as to how to court American public opinion. They have no clue, and it’s not that they have sinister intent or they are secretive as a strategy, it’s just they have no clue how important it is to communicate. CHRISTINE LU: We out of time for this segment, Janet, but you know what? I think we need a “The United States Business show in China” for that very reason. Don’t go away, when we come back Janet is going to come back and talk to us about business ethics and CSR in China. I’m Christine Lu.
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Janet Carmosky, President of China Prospects,Inc shares her insight on Chinese companies and their interest in investing in the U.S.
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