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Chinese Multinationals: Rapid Learning Curves

February 14, 2014

 

A public lecture that I gave in Vancouver is now online at Simon Fraser University. In this lecture, I make three arguments on Chinese multinational enterprises:

  • Chinese MNEs typically are at an early stage of their learning processes on international business, but they design strategies to learn, and some are on steep learning curves.
  • Chinese MNEs unusually often use “strategic asset seeking acquisitions” to strengthen their global competence base, but many still have to work out how to make use of the acquired assets.
  • State-owned Chinese MNEs benefit from conditional preferential resource access, which however creates institutional constraints both at home and abroad.

You can download the entire video from the website of Simon Fraser University, but note that the file is quite large and it hence it may take some time.

 

 

Chinese Stumble in Africa

February 3, 2014

 

Based on my experiences and communications when teaching an EMBA class in Africa I have written a column for the Financial Times, which is available here.

 

These essence of my commentary is that Chinese investment in Africa holds great potential for both China and Africa. However, not only do both parties still have to design contracts in ways that are mutually beneficial, but they have to learn more about each other’s culture to enhance interpersonal understanding in order to turn the recent wave of investment into a success.

 

While Europeans and Africans certainly also have to deal with a lot of historical legacies and prejudices, it has been my general impression from people I met that they found the relationships with the Chinese even more difficult to handle. Let me illustrate this by examples that have been cut out of the FT piece due to space constraints. I was told of an India telecom operator outsourcing some activities to a Chinese supplier, only to have staff resigning en mass because they did not want to work for a Chinese company. In another example, customers of a Chinese-owned hotel report that relationships between Ghanaian staff and Chinese managers were so bad that is seriously affected service for their event, and hence the (corporate) customer decided not to use that hotel again. Notwithstanding liabilities of Colonial history and associated resentments, Africans seem to prefer the work environment of a European or American company.

 

Such differences arise from inexperience: for many Chinese expats, their job in Africa is the first experience immersed in a foreign culture. European companies often have expats with at least some cultural sensitivity earned on earlier assignments. The shortage of internationally experienced managers is a pivotal weakness for Chinese companies as they start expanding abroad. As Chinese companies globalize, they can be expected to gradually build experience in managing international operations, and develop leaders that can engage effectively across cultural boundaries. However, at this stage, Africa-China relations are still at an early stage and both sides still have a lot to learn about each other to be able to negotiate contracts that are mutually beneficial, and to work together harmoniously.

 

There are however positive stories suggesting that such learning is taking place. At the University of Ghana 300 students enrolling to learn Chinese. And in Tanzania, a source told of Chinese expats being more popular than Europeans because they spend more time with their staff, whereas Europeans often send fly-in fly-out managers that spend little time with local communities. Hence, the picture isn't just black and white, and people from all parts of the world are taking initiatives better understand others' cultures. 

 

 

Chinese Unity meets European Fragmentation

January 13, 2014

 

Do you know the anthem of the European Union? Most European can sing - or at least to hum along - their national anthem, but few know the what the European anthem is. I actually hear it rather often, at our place all major ceremonies - such as graduations - start with "we now listen to the Chinese National Anthem and the Anthem of the European Union". That's because we are a joint-venture business school owned by Chinese and European institutions.

 

Hearing these anthems together always reminds me how different these two grand old civilizations of the world are acting on today's global stage. While for most parts China is speaking with one voice on the international stage, Europe offers a cacophony of voices as every prime minister thinks they should play global politics - and as leaders of the EU, these esteemed politicians have chosen individuals whose main qualification appears to be their promise to let the national leaders do as they like. It is not be chance that national leaders want the EU to be weak as it makes the national leaders feel powerful, and allows to use the EU as a scapegoat for all that goes wrong.

 

Looking at Europe from my vantage point in Shanghai, it is a sad comedy. While the national identities are important, they become a liability when communicating with other civilizations. For China, the appropriate partner to negotiate big issues such as trade and investment treaties with should solely be at the European level. Each time a prime minister - or for that matter a diplomat - representing one of Europe nation comes to negotiate with the Chinese leaders, it is the Chinese side that has the better cards. They can play one country against the other against the other, and so get the most favorable deal for their investments (trade is formally responsibility of the EU, but national leaders like David Cameron making promises on visit to China is weakening the European position in such agreements). Sad as it is for many in Europe, unless Europe learns to speak with one voice, it risks becoming marginalized

 

  • PS: On December 6, the Financial Times printed a letter of mine to the editor with a similar message related to a discussion in their commentary columns.

 

Chinese MNEs learn to manage acquisitions overseas.

January 5, 2014

 

The Wall Street Journal's Hong Kong office asked my opinion on how Chinese companies are enhancing their operations abroad. Their video is available here.

 

 

Why is it so tough to study Strategy?

January 4, 2014

 

Strategy teachers often face a big frustration if after all the efforts and work, students are still unhappy citing the lack of clear tools and vague decision criteria as evidence that the course was no good. The obvious answer that keeps falling on deaf ears, usually delivered in session 1, is that the real world is complex and uncertain, and designing strategy requires making decisions under uncertainty with respect to key variables (for example competitors reaction).

 

I was pleased to learn that this is not just the problem me and my friends, but it even befalls the most esteemed strategy professors-and-consultants. Dick Rumelt spells out the challenge in the words of a senior executive course participant: “This strategy staff is nonsense. Give me a break! There is no clear theory. Look, what we need is a way of knowing what will happen if we do A, versus what will happen when we do B. Then we can work out what will be the best strategy. We are actually very good at planning here. You can’t build a major aerospace system without meticulous planning. But this strategy staff seem vacuous.” [Rumelt, 2011, Good Strategy - Bad Strategy, page 242].

 

Rumelt suggests responding to this challenge, which often comes from engineers, by comparing strategy in business to a hypothesis in science. Essentially, scientists design hypotheses based on their incomplete knowledge of a field, which they then test empirically through experiments. In a similar, a business strategists has to spell out his ideas in form of a strategy - the difference though is that you will only know if your strategy works after you tried it out in practice. And if your competitors were smarter than you anticipated, even a good strategy may not deliver eternal profits. The problem in the class room is that you can't experiment; you have to convince with the power of your ideas, and your arguments.

 

 

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