Executives Say It's Time to Partner With China

Nov. 24, 2010
GE's new global leader says companies lose more by avoiding joint-venture opportunities in China.

Industrial development in China will continue to accelerate whether U.S. manufacturers embrace growth in the region or resist it. The companies that seek ways to partner with Chinese manufacturers rather than viewing them as competitive threats can position themselves for significant expansion opportunities.

Three executives from major companies, including General Electric Corp. Vice Chairman John Rice, relayed a similar message Nov. 10 during an Ernst & Young Strategic Growth Forum discussion in Palm Desert, Calif. Companies can be successful partnering in China if they're willing to demonstrate they're committed to conducting business in Asia, said former Chrysler and Home Depot CEO Robert Nardelli.

"If you want to be in China, a customer call has to be a car ride, not an airplane across the ocean," said Nardelli, now CEO of Cerberus Operations & Advisory Company LLC. "This is a long-term commitment, and they look for your presence to show your level of commitment."

U.S. companies need to devote some time in China to gain trust from Chinese business partners, said Jeff Joerres, CEO of staffing firm Manpower Inc.

"You have to put in some very long nights. They want to trust you; they want to understand you," Joerres said. ... You have to spend time."

The panelists suggested that it's important to maintain a full-time presence in China by locating a company representative in the region. Two days before the panel discussion, General Electric announced Rice will relocate to Hong Kong to lead the company's global operations.

Rice, 53, currently serves as head of the company's technology and infrastructure division.

Effective Jan. 1, he will be responsible for all non-U.S. markets with an emphasis on high-growth markets such as China, India, the Middle East and Brazil, the company said.

GE expects global markets will account for about 60% of the company's overall sales, CEO Jeff Immelt said following the Rice announcement.

If companies want to remain competitive, the opportunities in China can't be ignored, said Rice during the panel discussion.

"There is nobody who is confused about the fact that China will be the world's largest economy at some point," Rice said. "So yes it's complicated, yes it's hard, it doesn't always play out the way you draw it on the charts, but you have to be there. Who in their right mind in the businesses that we're in are going to opt out of the world's biggest economy? I'm not going to let that happen on my watch."

GE has 24 joint ventures in China, three that were announced the same week as the E&Y event, Rice said. A joint venture in China teaches companies what it's like to be a true partner, said Rice, recalling some struggles GE faced in its initial partnerships in the country.

"Twenty years ago in our company we would be a joint-venture partner with 51%, but we ran it like we had 99.9%, and we weren't a very good partner, and we screwed up a few partnerships," Rice said. "Now, if you go in with a state-owned enterprise and you contribute your commercial avionics business, you better be prepared to create a win-win, or that thing is not going to work."

As for fears regarding the potential loss of intellectual property in China, Rice said the risk is there, but companies stand to lose more by inactivity

"Our experience is that you can protect what you need to protect," Rice said.

He noted that GE formed a joint venture 10 years ago in China to produce gas turbines and that the company had some concerns regarding intellectual property at the time. But he said the company realized that it was involved in a competitive-bidding process with competitors around the world and that if GE didn't enter the market, someone else would.

"So, are you better off sitting on the sidelines or getting in and trying to control your destiny a little bit?" Rice said. "It's a risk, but it's a risk everywhere."

Nardelli commented that it's important to not "launch and leave." Companies should maintain a presence in China after introducing a product.

"The Chinese will dedicate people, and they will absorb as much as you will allow them to absorb, and if you aren't equally matching that on the other side in the joint venture where you have shared resources and shared technologies, shame on you," Nardelli says.

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