Chinese Businesses Pay The Price In The Arab World For Not 'Blending In'
Analysis: The emergency evacuation of Chinese companies from North Africa is a harsh reminder that firms from China must do a better job of integrating in the local environment to realize their dreams of striking it rich in the Arab world.
BEIJING - China's forays into the Arab world's economic affairs started with business and trade first, now it has begun to expand to energy exploration and development, project contracting, outsourcing, bilateral investments, as well as tourism.
These are all positive developments. But let's be clear: economic interest without security protection is like a beautiful house built on a sandy beach. Hidden behind some dazzling economic statistics, China's large-scale emergency evacuation of its people from Libya this year reflects two harshly realistic points.
First, China is not indispensable to Libya's economic interests. What China offers are mainly low value-added and low-tech types of construction projects supported by cheap labor. Second, the Middle East and North African region comes with high political risks, whereas China's political influence is not yet ready to protect its own economic interests. It's a snapshot of China's current dilemma in the Arab world, or more precisely, in the future of the Middle East economy.
Realistically speaking, most Arab countries' economic environments are far from perfect. Some countries even toss out signed agreements and impose taxes targeted in a way so that Chinese enterprises bear extra high risks for their return on investment. Chinese business faces the same risks that their Western counterparts do, and these multiple realities were not erased by China's political friendship with Libya.
In fact, to protect Chinese citizens' safety overseas, the security of their property, as well as the execution of their contracts, it is necessary for Chinese enterprises to be sufficiently involved in local governance in the places where they do business. If China truly wants to fulfill its "going global" strategy (a term used in China's 10th National People's Congress), its overseas' social role will be just as important as its corporate profits.
When the chain breaks
Looking at the issue from back home, many Chinese corporations haven't yet really set up a modern enterprise system required by the market economy. That creates a series of operational problems for those firms that are looking to participate in the Arab world's economy.
At the same time, those Chinese companies pursuing the "going global" strategy must follow the basic "package investment pattern", which starts from bank loans and the building of business operations, to the hiring of construction workers, cooks and doctors, and even providing tools and materials, which are all just direct output from China.
This fully integrated investment chain, though potentially beneficial to the specific operation, also comes with serious downsides and risks: it will be hit harder when there's an upheaval in the host country; it lacks reciprocity of interests and interaction with the host country, and therefore lacks the protection mechanism that realistic interests bring; exchange rate fluctuations increase cost of projects.
Distance exists between Chinese enterprises and the local society, in business philosophy and management. Chinese people are often criticized for "not blending in." This distance is reflected in the over-emphasis on profit-making at the expense of building relationships with the locals.
In order to facilitate their internal administration, Chinese corporations prefer to hire Chinese workers, and thus are prone to inciting xenophobia. Local populations can feel that their money, resources and jobs are being taken away. Moreover, some individual Chinese enterprises that do not hold to clear legal standards also bring their bad practices abroad, such as hiring illegal workers, indulging in cut-throat competition, or doing things which conflict with local customs.
Most Arab countries follow a Western law system established by their former colonizers, so Chinese companies' absolute closed-style management is prone to provoke fines and warnings, and is not therefore conducive to their long-term development.
On the contrary, learning from the successful experiences of Lebanese, Indian and other global enterprises at actively integrating into the local community, the Chinese enterprises ought to change their approach. By using more local investment and materials, being more open, working more closely with the local community, Chinese firms can begin to be more "visible and tangible," which can only be good for business.
Read the original story in Chinese
Photo - hammercem