Taking Care of Business as Titans Clash

In the titanic trade clash between China and the United States, Tyler Johnson’s is a calm, sane voice. But then he is a businessman, and businessmen get things done. Johnson spent the go-go years between 2005 and 2015 growing Dell’s Asia-Pacific business. He saw the blossoming of Chimerica and now, on the cusp of what is starting to look like a nasty separation, reminds us there is an art to conducting business with another culture.

What he learned is the subject of a new book, The Way of the Laowai, a testimonial to taking a global perspective. (Laowai means outsider or alien in Mandarin.)

Take note, America: The self-selected attendees at Johnson’s “World Spins” talk were almost all Chinese. As one explained, “I want to learn how you think American companies should compete in China, from your perspective.

It’s complicated

The scale of the trade clash is enormous, and the stakes are high.

China is the world’s most populous country. Its breakneck development over recent decades has added hundreds of millions of consumers to the global marketplace while supplying a vast assemblage of low-cost goods… It is the source of roughly one-third of the world’s economic growth.

Peter S. Goodman, The New York Times

Separating business from policy is a sticky wicket, especially when two radically-different cultures have bound themselves so tightly together economically. As Li Yuan, the New York Times New New World correspondent wrote :

The two sides have plenty of reasons to distrust each other. The United States blames China for heavy job losses, theft of corporate secrets and cheating at the rules of global trade. China credits the hard work and sacrifices of its people for its success and sees the trade war as driven by American fears of a prosperous Chinese nation. (Photo/Doug Mills, The New York Times)

Li Yuan, The New York Times
Photo cohttps://www.nytimes.com/2019/05/14/business/us-china-tariffs.html
Photo courtesy of Doug Mills, The New York Times

But in the end, business is business, and sometimes getting things done requires a “whatever it takes” approach.

In China, government initiatives drive almost everything. It’s important to understand those initiatives and analyze how they figure into your business model. The more you understand what the government wants, the more likely you’ll be aligned …

Tyler Johnson

A laboratory for future innovation

Over the past 25 years, China has become what Oppenheimer Funds calls a “laboratory for future innovation” for U.S. companies. Big Tech-funded R&D centers place scientists from both countries side-by-side to crack breakthroughs in pivotal data-intensive areas including artificial intelligence and cloud computing. Microsoft Research Asia (MSRA) funds basic research in AI. Google opened an AI lab in Beijing and has a research alliance with Tencent on cloud services. Jeff Ding, a graduate student at Oxford and the force behind the China AI newsletter, is well worth following for a deeper understanding of cooperation between the two countries in R&D and technology (AI) commercialization.

But there are concerns. M.D. Anderson Cancer Center in Houston recently severed ties with three scientists over their ties to China and policy violations with research grants from the National Institute of Health. Writing in The New York Times, Mihir Zaveri noted that a report commissioned by the N.I.H. also mentioned that 39 percent of the Nobel Prizes in physics, chemistry and medicine won by Americans have gone to foreign-born scientists.

Data, ethics and national security

Research spawns innovation and ethical (cultural) concerns. The facial recognition technology that San Francisco banned out of fear it would be abused by the city’s police, is being used in some form by companies in China to save pigs from the devastating spread of untreatable African swine fever — and allegedly to suppress minority populations.

“Today’s battles are all about data, how you get it, who has access to it, and who you can share it … With 1.4 billion people (and limited enforcement of privacy laws), there is plenty of data in China.”

Tyler Johnson

Then there’s national security. At an intelligence forum sponsored by the University of Texas earlier this year, Sue Gordon, the principal deputy director of National Intelligence, acknowledged the reality of concerns over “dirty networks.”

We have to figure out a world with diverse technology we can’t control.”

Sue Gordon, Principal Deputy Director of National Intelligence
Can a Chinese company, genetically tied to the government, become a global technology leader?

Huawei, the subject of Gordon’s reference to “dirty networks,” is a stunning case study in whether a Chinese company, genetically bound to its government, can thrive as a global technology company. Huawei has made it a point to develop an entrepreneurial culture based on best-of-breed Western business processes.

“Only by learning from them with all our humility can we defeat them one day.”

Ren Zhengfei, founder, Huawei, The Huawei Story

But its blacklisting by the Trump administration is having a trickle-down impact. Just yesterday, Reuters announced Google restrictions on Huawei customers’ purchases of its proprietary offerings, a move analysts expect will hit Huawei’s European business hard.

A big world full of opportunity

At the eye of this hurricane, The Way of the Laowai is a reminder that opportunity is a matter of perspective.

There are roughly 196 countries in the world and close to 800 billion people. That’s a lot to wrap your brain around. Each of these countries is complex in its own way … In every location you want to do business in, you need a grasp of these particulars. In each place, business needs to be conducted differently… The world is big and full of opportunities if you can keep your perceptions in place.

Tyler Johnson

As proof, Johnson proudly brought along his smart, confident 13-year old, Mandarin-speaking daughter Reese, a living demonstration of all there is to be gained from learning the ways of another country. Indeed, she corrected him several times.

China and Innovation: While You Were Tweeting, the Future Happened

David Firestein, the executive director of the University of Texas’ new China Public Policy Center headlined a recent session of our speaker series, The World Spins, with some advice about competing with China.

“In the end, we’re going to have to step up and compete.  China is not our enemy. But it is our most formidable national competitor.”

Firestein, an Austin native who spent 20 years in China with the State Department and another 10 as a senior vice president at the East-West Institute, has no illusions about what’s at stake.

“It’s like a cage match in wrestling,” he explained, where one wrestler, the United States,

David Firestein, Founding Executive Director, China Public Policy Center; Clinical Professor of Public Affairs
David FIrestein, executive director of the China Public Policy Center: “In the end, we’re going to have to step up and compete.”

follows the rules, and the other, China, uses any- and everything to win. And winning means becoming the first country in history to be a brutally market-oriented authoritarian dictatorship.

In a cage match, tweets and tariffs are a poor match against a singularly focused industrial policy and a bill of rights that says:  Citizen, you stay out of politics, and we, the government, will make you rich.

One battleground:  artificial intelligence and big data

If you’re not reading Jeff Ding’s ChinaAI Newsletter, you should be. Ding, who is a graduate student at Cambridge, shares translations of Chinese policy, strategy and technology. His most recent is a report from boutique private investment firm Rising Investments on China’s Civil-Military Fusion.  The report notes that although applications based on artificial intelligence (big data, internet) need time to developed.

  • AI military applications still need a lot of time: products for the military industry require “high reliability,” so emerging technology like AI will be used as reserves and not be applied until they are mature, and the related technologies for AI (big data, internet) also have a number of security issues.
  • Intelligent weaponry and intelligent robots will have a major impact on the strategy and the tactics of future wars.

China also plans to use the same public-private partnerships that built the American technology sector to achieve its goals.

  • China did not permit non-government capital to enter into national defense industries until 2005. They are still looking for the emergence of a 50-100bn military industry private corporation on the scale of say Lockheed Martin.
  • The goal is to have over 80% of defense industry information construction technology come from private enterprise. China hopes to reach the first wave of peak civil-military fusion in 3-5 years.

Will political turmoil stifle American innovation?

Without the Dept. of Defense we wouldn’t have the Internet or email, much less venture capital and private equity.  Read Andrew Ross Sorkin’s excellent article about the push back against defense contracts among the employees of Silicon Valley technology giants. Sorkin quotes Adam Grant, a professor at the Wharton School and a member of the Defense Innovation Board, an independent federal advisory committee set up under President Barack Obama, said he believed that the partisanship that was contributing to the debate would ultimately stifle innovation.

“I worry that it will stall progress,” said Grant. “Innovation has been fueled for decades by private-public partnerships. It smacks of cutting off your nose to spite your face.”

Meanwhile, Firestein reminded us, China is in that cage match, its eye on the long-term, even as American strategy changes with an election cycle, from tweet to tweet. It’s hard to win a cage match when it’s unclear what winning looks like.

“I think we’re at the beginning of a major transformation and a technology revolution that is, by an order of magnitude, more disruptive than the internet revolution 20 years ago,” Robert Manning, a senior fellow at the Atlantic Council recently told American Public Media’s Marketplace Report.

“If we don’t get wise to these trends that are reshaping our economy and are going to affect the way we work, live and everything else, the future is going to take us by surprise.”

 

 

 

 

 

 

 

 

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