News from the Secretary General

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First of all, I would like to extend a warm welcome to our new members; Inface Company A/S, CSR Capital A/S, Finnair Plc, Nilfisk-Advance Inc., CITS Travel Denmark A/S, VKR Holding A/S, Abena A/S, Rovsing Dynamics A/S, Jyske Bank A/S, Jysk Nordic, Integrated Gas Technologies ApS, Anhydro Holding A/S, and individual member Anette Dahl . I hope you will all make active use of the network, and would especially like to see you at our next meeting, which will take place on September 16, on the topics of China’s current political and economic situation, and environment and energy in relation to the Copenhagen Climate Summit in 2009.

I would also like to introduce Nicolaj Brandt-Møller who has been working at the secretariat on a permanent basis since July 2008 as Project Manager. Nicolaj holds an MSc in Economics and Business Administration (Economics of International Strategy and Governance) from Copenhagen Business School, and has spent two and a half years in South China.

During his stay in Guangzhou, he studied business and Chinese language at Sun Yat-Sen University and worked in the commercial section at the Danish Consulate General. Some of Nicolaj’s main tasks will be development of the member activities, web-site and Knowledge Base as well as recruitment of new members to the network.

Corporate China is Moving Rapidly, Facing New Challenges
In the post-Beijing Olympics environment, we are seeing a more diverse and sophisticated China, one that is on its way to becoming the world’s biggest economy, grabbing more attention –both positive and negative– than ever before. The complex set of challenges and problems that this brings about requires your full attention.

To get a grasp of how diverse these challenges are, just think about the dilemmas associated with China’s growing currency reserves, the higher inflation caused by increasing oil and food prices, China’s foreign trade surplus and the protectionist measures that are being taken in response by the EU and US, the income gap between East and West China, etc- the list goes on. Though often criticized by Western media and politicians, the Chinese government is facing these challenges quite responsibly, emphasizing gradual progress and stability instead of jumping into quick solutions.

The aftermath of the earthquake in Sichuan province is still a huge issue for the central government, and efforts to rebuild housing and infrastructure will continue to be a high priority in the foreseeable future. The support of Danish companies in China to the quake-area has been highly appreciated by Chinese authorities.

Adding to the considerations that Western companies must make, however, are a number of other factors, including new rules for foreign investment, the movement of increasingly global Chinese companies up the value-chain with innovation and IPR measures, and also political issues such as healthcare and environmental protection, which have enormous economic consequences. Corporate China is moving rapidly, and so is the central government, whose shifting policies require a great deal of focus from Western business-people.

Because of all these factors, China’s business landscape is changing rapidly. This also means that new kinds of companies are appearing, more accustomed to competing with Western businesses. Yesterday, Chinese companies could be divided into four main categories;
a. The State-Owned Enterprises (SOE)s
b. Privately owned companies
c. Joint ventures (JV) between Chinese and foreign companies
d. Wholly owned foreign enterprises (WOFE)s

While today we can see three new categories coming up;
a. The globalizers – multinational corporations with Chinese headquarters
b. “Restless adolescents” - companies en route to a greater global presence
c. Innovators and entrepreneurs – a diverse bunch, including SOE’s and small- and medium sized enterprises (SME’s)

Many of China’s most expansive, dynamic and competitive companies are state-owned. Because of the speed of which Chinese companies are developing, global executives will need a better understanding of Chinese competitors, suppliers, customers and business partners- whatever their ownership model. They also need to understand the priorities of Chinese CEO’s, including their considerations of questions concerning the government and the party, in addition to global factors like prices hikes and inflation.

Another factor to keep in mind is the trade-off that Chinese CEO’s have to make between keeping labor versus modernizing factories. We know that the business leaders in question are very good at keeping costs low. They are not using Western management instruments such as market research, or detailed consumer-preference studies. By relying on gut-feeling more than such time-consuming research, they are able to move quickly, responding to new trends in the market with great flexibility.
 
The career of a Chinese CEO often spans private sector jobs, leadership positions in state-owned companies, and top positions in the party and government bureaucracy- i.e. a line very different from the typical western CEO. This gives the Chinese CEO a very different perspective on leadership, with different values and standards than most Western CEO’s.

China is adopting Western standards quickly, though without forgetting its own values. Be aware of this process when dealing with your Chinese counterpart.

Sincerely,
Tom Jensen

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