China International Public Relations Association (CIPRA) Golden Awards Ceremony
Ray Kotcher
Senior Partner and Chief Executive Officer, Ketchum
June 22, 2006
Thank you – shay, shay for that very warm introduction. CIPRA members, fellow public relations practitioners, dignitaries, guests, friends – it is a pleasure and an honor for me to be with you today.
First, let me offer my congratulations to CIPRA on your 15th anniversary. You have accomplished a great deal in your first 15 years, and I know the future will hold many more achievements as public relations continues to expand in China.
We at Ketchum also are celebrating an anniversary – our 10th year of partnership with Ketchum Newscan and its multi-city network in Greater China. We are so pleased with our association with Ketchum Newscan, its 180 professionals and, of course, its founders – Chief Executive Officer Kenneth Chu and President Betty Lo – and rejoice at the prospects for strong future growth in Greater China.
A giant shay-shay to Kenneth and Betty for their vision and commitment.
Today, I want to focus on the immense opportunities for Chinese companies now and in the future as you venture to foreign markets such as Europe and the U.S.A.
As you all know, for more than two decades, there has been tremendous attention on opportunities for Western companies venturing into China. Indeed, in 2004, the most recent year for such data, foreign direct investment poured into China at a record level, with more than $153 billion in new agreements, up by one-third over 2003. With that much interest and attention has come much advice and counsel about how these companies should conduct business in China.
Indeed, just look at the industry of consultants and advisory firms that emerged as Western companies began eyeing the vast Chinese consumer market. In fact, Ketchum was one of them, recognizing the potential early and linking with Kenneth and Betty’s public relations organization to help our clients as they ventured east.
Today, however I want to offer some suggestions to you and your companies as you proceed on your “Journey to the West.” Undoubtedly, many of you already are heeding or considering some of the counsel I am about to suggest and the importance of following, what I call, the “Communication Rules of the Road to the West.” This humble advice represents what others and I have learned after more than 25 years of working with clients to help them realize their communication objectives in the U.S. and elsewhere.
I will share some general concepts and words of advice about the West, relay some information about how business is conducted there and, finally, provide you with six lessons learned from watching the actions of and resulting reactions to the companies that came before you.
Let’s first assume that you and your companies already have taken some necessary steps as you enter or eye Western markets. You’ve identified significant business opportunities. You have smart business plans and strong, focused leadership. And while your companies were relatively slow to invest in the West before 2000, with your country’s “Go Global” policy encouraging Chinese businesses to build leading global brands, you are now moving quickly to expand into overseas markets -- with some notable early successes beyond Yao Ming.
Take Latin America, for instance. According to a recent report from the U.S.-based consultancy Global Insight, Chinese investment in Latin America reached a cumulative $8.3 billion in 2004, an increase of 79 percent from 2003. And from January to November 2004, Latin America represented half of China’s overseas investments.
In contrast, while the European Community is China’s biggest trading partner in goods and services, Europe is falling behind the world’s other regions in attracting China’s foreign direct investments. A survey of China’s top 50 companies showed that the U.S., Russia and other parts of Asia are more desirable places to invest than Europe, which Chinese managers view as too fragmented, bureaucratic and slow-growing.1
Still, China is investing hundreds of millions of dollars in Europe. In 2004, for instance, Chinese companies put $129 million in foreign direct investments into Germany, $128 million into Spain and $108 million into the U.K., just to name three countries there.2
But wherever your companies or clients are investing abroad, a strong communication plan helps you turn opportunity into reality. In addition, remember that just as relationships – quanxi – are vitally important in Greater China, relationships are important in the West with all your stakeholders – from consumers, vendors and partners to the media, government officials and others who can influence your products and services. While developing close and personal relationships is not perhaps as critical in the West as it is in China, it’s still important.
Let me give you a brief situation analysis of how I believe U.S., European and other Western marketplaces view China and its companies. It’s a mixed picture. While there’s significant admiration for the thriving Chinese economy, and a strong desire for China – dubbed “China Inc.” in the West – to market its products and services in the West, considerable fear exists that Chinese products and services will hurt homegrown rivals. In particular, that you will flood our markets with cheap goods of a lesser quality. As U.S. economics columnist Robert Samuelson sees it: “We cannot decide whether China is a threat or an opportunity.”3
Everything you do needs to tip the scale toward opportunity.
And to do that adequately will require you to spend quite a bit of time in the country or countries you are doing business in. You should learn from colleagues there and gain invaluable first-hand experiences. Learn what shopping is like there. Go to a supermarket if you’re selling grocery or related products. Visit a shopping mall if you’re selling clothes or consumer electronic products. And also visit those cities and regions on which you are focusing particular attention. Some of your companies and brands – Tsingtao, Haier and SVA – are excellent examples of organizations that are taking the time to understand the U.S. market in order to succeed in it.
Another key to our market is that it is getting more culturally diverse all the time and each region has its own cultural idiosyncrasies. Don’t make the mistake of thinking that the U.S. is a homogeneous market, just as some Western companies erroneously used to treat China as one homogeneous market.
Here in China you have 1.3 billion people. In the U.S. we have just under 300 million. Obviously, not as large a population as yours, but still a very large and, to my previous point, a highly diverse one.
The Hispanic, or Latino, population alone in the U.S. increased by 58 percent from 1990 to 2000, underscoring our country’s changing diversity.4 Hispanics now represent 14 percent of the population, up from 9 percent in 1990.5 And in some major urban areas, that percentage is much, much higher. The Asian population in the U.S. jumped by nearly 50 percent from 1990 to 2000 and now stands at 11.9 million, including more than 2.7 million Americans of Chinese descent.
Another statistic also illuminates America’s diversity. Some 336 languages are spoken – or signed – in the U.S.6 And which language is the third largest language in the U.S.? It’s Chinese, mostly of the Cantonese variety. More than two million Americans speak some variety of Chinese, with Mandarin becoming increasingly more prevalent. As for religions, there are some 2,000 different religious denominations in the U.S.7 Then there are the number of local, county, state and federal governmental units in the U.S., which number in the thousands. While China has 2,000 counties, for instance, the U.S. has 3,141.8
Reflecting this heterogeneous marketplace, there is a learning curve for overseas companies in the U.S. Some consultants contend overseas companies should take 18 months to get acquainted with the particular marketplace and seeking business contacts. Consider the Australian software company that tried to launch a business in Denver. By the time the owners figured out the market 12 to 18 months later, their business failed as competition zoomed right past them.9 Let me reinforce, had the company done its research first, it might be thriving today.
So to get you on your way, here are a few insights about how we Americans behave in a business context, including our values and ways we like to forge business relationships. These insights, by the way – which I generally concur with – are from a U.K. brochure, “Marketing in the USA,” issued by the government in the U.K. to help exporters avoid some of the pitfalls that have beset some of their counterparts when doing business in the U.S.10
Generally, it maintains Americans:
- Communicate feelings freely; we are verbal, straightforward, assertive and optimistic.
- Are more action-oriented, and favor a can-do, anything-is-possible attitude, making us more interested in doing deals than spending an inordinate amount of time building relationships, although we do recognize that you can’t ignore critical relationships, particularly with the decision maker.
- We frequently speak in questions, seeking opinions on a wide range of issues and matters. We tend to be more literal, digesting facts at face value.
- We are insular, with less of an understanding of world events or geographies than our counterparts in Europe, for example. Less than 10 percent of Americans have passports. Indeed, Americans seem to be turning more nationalistic, which could trigger issues with overseas companies.
- We tend to gather our information more from TV and, increasingly, the Internet, rather than from newspapers.
Here are some insights specifically about U.S. business practices, again with which I generally concur.
- American businesspeople tend to share marketing and commercial information freely.
- Perhaps because our culture is relatively young compared to yours, we do not have the sense of the long time horizons that you do. We tend to emphasize action now, debate later – so the pace of transactions is faster. We really do believe that “time is money."
- Related to that, we expect results . . . fast. We expect a bottom-line impact and work hard to deliver against those expectations.
- We assume that others have done their homework and are prepared.
- And we have a growing number of women in the corporate boardroom and among top management. For instance, women are the CEOs of eBay, Xerox and Avon to name a few.
For a brief time, let’s consider the headlines when you don’t follow some of the basic Rules of the Road to the West.
These examples are a few years old but I draw upon them because they illuminate the missteps of some Japanese companies that, not all that long ago, were building their businesses in the United States and were viewed in much the same way that Chinese companies are today.
When Mitsubishi Motor Manufacturing was sued by the U.S. Equal Employment Opportunity Commission for failing to address hundreds of alleged instances of sexual harassment at its plant central Illinois, the company paid employees to picket the Commission’s regional headquarters in Chicago. The employees had a choice: Picket or spend the day at a sexual-harassment workshop. Two thousand chose to picket. The effect: Mitsubishi created an image of defiance, intimidation and opposition to problem-solving. Not to mention the very negative national publicity around the protest that repeated the allegations of harassment.11
Then there were the visible PR miscues by Bridgestone Corp., the Japanese tiremaker that publicly denied product problems and customer complaints before it eventually recalled 6.5 million potentially defective tires in 2000. Bridgestone tried to deflect blame to drivers for their driving habits and to its tire customer, Ford. Also, Bridgestone’s CEO failed to make public appearances to apologize.12 Eventually, its PR efforts improved considerably, but the initial blunders took their toll.
And then there’s Sony. It has incurred its share of marketing and PR blunders in the U.S. by assuming that the U.S. market would accept certain consumer electronic products like the Sony MiniDisc in the portable audio market and Betamax recorder in the VCR market as readily as did Japanese consumers. Sony sold only 500,000 of its MiniDiscs in the U.S. in the first five years, compared to Japan’s sales of 5 million units in one year alone. And, in the VCR market, American consumers chose the longer-playing VHS format over the technically superior Betamax.13
These three examples all happen to involve Japanese companies and as I mentioned earlier, are each a few years old.
I want to make a quick aside here. What has been depicted as a potential Chinese “buying spree” in the States often is compared to the short-lived spurt of ill-fated overseas direct investments by Japan in the late 1980s. But three big differences exist. First, China’s resources are even bigger than Japan’s.
Second, China’s investments aren’t simply marquee names – they appear to be much more strategic. Finally, and this is where you must come in to counter what I envision, China is likely to face much more intense opposition every step of the way.
Now since the three Japanese companies blundered with their PR, they have learned invaluable lessons about doing business in the U.S. As a result, the communication and marketing blunders aren’t nearly as prevalent. The Japanese, undoubtedly, absorbed valuable insights about the U.S. that now help them market their products and services with a real understanding of what American stakeholders expect of foreign marketers. Just look at Toyota – in the U.S. it’s beating up on our own auto giants.
Other companies from countries like Korea and elsewhere have learned and are learning the same lessons as the Japanese. What lessons? Here are a few of them:
Lesson One: Communications must not simply be a situational response to events such as, say, a merger or acquisition – tell your story early and often. I think CNOOC, one of your leading oil companies, learned this lesson during its efforts last year to acquire Unocal, a large U.S. energy company that ended up marrying Chevron Corp. I believe that CNOOC had a good deal, had hired good consultants and advisers, and had made very clear that every American job would stay after a combination with Unocal.
But, the Unocal acquisition talks came at a very sensitive time in the U.S., with Americans increasingly concerned about “foreign” takeovers of U.S. companies. Those concerns are tied into America’s homeland security and safety concerns.
And, CNOOC, I think, just hadn’t done the best job developing relationships – in advance of its U.S. acquisition bid – with the media, business and political influencers, and other stakeholders. As a result, many Americans wanted to know who this Chinese “upstart” was. Meanwhile, opponents of the acquisition kept up a high-visibility campaign, polishing and honing their message to a constant and consistent warning against it.
As a result, Americans just didn’t favor such a merger, and they didn’t grasp that CNOOC, even though listed on the New York Stock Exchange, was nothing like the common American stereotype of a giant Chinese monopoly. The lesson here, I think, is that you should introduce yourself to a market you’re considering entering well before you actually make your move in that market. Let prospective investors and the general public know who you are, what you do and what your track record is. Develop relationships with influencers, including the media, who you could perhaps tap should problems arise – as they did with Unocal.
On the other hand, Lenovo Group, assisted by politically and marketing-savvy IBM, took a longer view in promoting Lenovo’s purchase of IBM’s personal computer business in December 2004. They practiced solid stakeholder relations and followed best practices in communications as well as employing a very smart transition plan from IBM to Lenovo. I’m sure that acquisition will serve as a fine communication case study someday of how to do it right in the U.S.
Tell your story early and often, be consistent, and consider all your stakeholders in maintaining this transparent relationship. This is a tougher time than it has been for overseas companies in the U.S. as Americans, perhaps because of growing anti-American feelings abroad and the fear that that creates, are becoming more xenophobic, or nationalistic.
Lesson Two: Transparency, indeed, is key. Be transparent about your U.S. operations, including adherence to the increasingly strict accountancy rules in the U.S. Some stories have emerged recently that Asian companies are listing their shares on the Hong Kong exchange and avoiding the New York Stock Exchange because of our tough and still relatively new Sarbanes-Oxley federal disclosure regulations.
My advice to you is that you always adhere to U.S. accounting rules and regulations, regardless of where your stock is traded because, over the long run, it will add to your success. You no doubt have followed the recent stories of American companies that did not follow these guidelines. Ultimately, they were punished and, in the meantime, they have caused both American consumers and investors to be a bit more wary of business overall.
Lesson Three: As the old saying goes, “When in Rome, do as the Romans do.” Simply substitute “America” and “Americans” for “Rome” and “Romans.” What do I mean? Well, too often foreign companies enter the U. S. market and don’t take advantage of relationship-building opportunities. They seem to believe that they know best and do things their way. That attitude can backfire. One foreign company seeking to buy a U.S. manufacturer, for instance, had an opportunity to talk with the governor of the state where the manufacturer was based. But officials of the foreign company didn’t think they were ready to talk to the official so they didn’t meet with him. He ultimately backed another buyer that won the business.
The lesson here: It takes time to court relationships and, in the U.S., court them in an open and transparent way. In the process you will gain valuable allies from important influencers. That includes practicing smart government relations locally, in the states and regions you will operate in, and nationally. So relationships matter.
Lesson Four: Understand what differentiates successful overseas companies in the U.S. and the critical role played by corporate social responsibility in our market. Take the time to touch the local community in a real and meaningful way.
Just as many of your companies doing business within China are becoming concerned and involved citizens and being recognized as such by the Guangming Daily, American companies strive to be good corporate citizens, as well. For instance, FedEx employs a strong corporate social responsibility ethic, helping food banks and other urban organizations provide goods and services to those Americans in need, among other community projects.
Chinese companies should strive to become valuable members of the communities in the West that they touch. You should find ways to contribute to those communities in ways other than economic.
Throughout small-town America where overseas companies now operate – many of these companies are strong corporate citizens. In St. Marys, Ohio, for instance, where a Japanese company operates a plant, the company has helped the local schools and also built a beautiful brick clock tower and gazebo in the city’s park, among other initiatives.14
Lesson Five: Engage the media early and often. Develop relationships with key media reporters and editors. Encourage your CEO and top officials to engage in a dialogue with U.S. media and gain –and then sustain – visibility. Hold get-acquainted sessions with journalists and let them get to know you – what you stand for and the scope of your operations. Develop “thought leadership” opportunities for the CEO and others. Again, be transparent and open with the media.
And today you also must factor into the equation the rapidly emerging social or personalized media – the Internet, blogs, mobile marketing, podcasts, Web sites and other new channels -- that allow people to individualize their media preferences. In the U.S., a powerful nexus has developed where traditional media and social media meet. And these personalized media are growing in popularity and power. A very fresh statistic is the most revealing: Web media is the number-one channel for information and news while Americans are in the workplace and number two when they are home.
Given the Chinese government’s censorship restrictions on the Internet – which, of course, the immensely popular Google search engine ran up against – the American public and the media, in particular, are skeptical of Chinese businesses to a degree. You will have to be aware of this.
Certainly you should be prepared for an endless number of questions that you will have about dealing with the U.S. media. Can you pitch an American journalist the same way as in China? What is the best angle to cover in the U.S.? How do you find out who covers what? How do you apply new media – blogs, mobile marketing and podcasts – in the U.S.? What magazines and trade publications are perfect outlets for our story? These are important questions to think through.
Lesson Six: Identify key influencers who can help consumers better understand your products and how they differ from competitors. Even identify detractors and seek ways to soften their misgivings. Directly engage the consumer if you’re marketing products in the U.S. Launch events like shop openings, product launches, and product sampling events. In other words, think through who can help you be successful and who might stand in your way. Plot a strategy for both of these groups.
These influencers also include investors. Since today’s financial markets are fluid, 24/7 and global, you must be able to manage the financial and investor-relations communications should your companies or government entities seek to acquire and then combine with a publicly traded enterprise in the West. You should work to understand various types of investors – including the socially active, the long-term, those who seek quarter-to-quarter growth, and others. Understanding these investor communities can be vital to your success.
What I have been suggesting to you is that while Chinese companies have huge opportunities in the U.S. and Europe, those markets are huge themselves. Indeed, the U.S. market is one of the most challenging places to do business today. To be successful, you need to know how society, business and communication work. You need to learn the “rules of the road.”
Still, the opportunity exists in the West for every Chinese company to position itself as the exemplar of the new China. Global. Transparent. Cooperative. And focused on the new bottom line – the line that captures an expanded spectrum of values and criteria for measuring an organization’s success – socially responsive actions and behaviors AND economics.
Again, thank you – shay, shay – for inviting me today. Now I would be glad to answer any of your questions.
Citations available upon request.
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