Big Think Interview With Edward Tse

A conversation with Booz & Company’s Chairman for Greater China.
  • Transcript

TRANSCRIPT

Edward Tse: Yeah, my name is Edward Tse. I’m a senior partner with Booz and Company. I’m also Booz & Company’s chairman for greater China. We do management consulting.

Question: What does your work consist of on a day-to-day basis? 

Edward Tse:  Sure, I consult to my clients and these are usually large companies, both foreign companies trying to operate in China, as well as Chinese companies who want to be able to […] and sometimes expand outside of China, so I help with the business strategies and operations and so on.

Question: What are the major components of your “China strategy” for the West?

Edward Tse:  Sure.  You know in my book called “The China Strategy” I talk about four major themes.  The first theme is open China, meaning you know China has been trying to open itself up since the economic reform started by Deng Xiaoping in 1978 and over the last several decades China has indeed continued to open up itself to the rest of the world and try to integrate itself into the rest of the world and at the same time, there is a large scale organization that is going on in China where China is trying to turn itself into a largely urban society and actually that would mean that there will be new groups of Chinese consumers that will be emerging and these new Chinese consumers will have the affordability of buying the products and services that many multinational companies or foreign companies will be selling into China, so that is the first theme.

Second theme is what I call entrepreneurial China.  That means you know I think as many of you know the Chinese are very entrepreneurial.  Historically, you know we are very good businessmen, but with the communist rule starting in 1949 for several decades that entrepreneurism has been suppressed, but since the economic reform the Chinese government is allowing the blossoming of the entrepreneurism and today we’re seeing all sorts of Chinese privately owned companies who are into you know various industry sectors and many of them are doing really well.  So this widespread […] that is caused by the, or is driven by the entrepreneurism is very pertinent in Chinese society. 

The third theme that I talk about is official China and as many of you know the Chinese government has been taking a very major role in directing the development of the country, in particular in the Chinese economy and we have seen over the years that the Chinese government has actually been able to direct the resources very effectively to areas that China needs, in particular in laying the basic infrastructure for businesses to do their business more effectively. 

And the last theme, the fourth and last theme that I talk about was what I call one world and increasingly what we’re seeing is that for global companies no longer China is just a place to do business.  China is a growing market, a potential market, nor China is just a base for sorting products and export products back to the home countries.  Increasingly China is a base where, you know, companies need to do research and development, do product development and then integrate the China operations into the global operations, so in other words, for global companies we’re recommending that they need to treat China and for that matter India as the core when they consider their global strategies.

Question: How can U.S. corporations cater more effectively to the Chinese market?

Edward Tse: The U.S. corporations have to recognize that, you know, China is indeed a very different place to do business compared to the U.S. or for that matter any other, you know, other places where the U.S. companies may be doing business with for a long time.  The first thing that I would recommend a U.S. business to do is to have a deep understanding of what I call a Chinese context.  The context in which, you know, you need to understand the Chinese history, the Chinese culture, just about the Chinese way of doing things and for many U.S. companies that is not…  I don’t think, you know, the companies have done well enough to have that deep understanding. 

I think a lot of American companies would assume that, you know, they can take whatever products or service offering or business model that they have developed in the U.S. and they could directly apply those to China and expect that they will work in China.  In reality it’s not that easy.  You need to understand the China market, the China context and adapt your products and service offering to the local market.

Question: Will China need to adopt Western-style democracy in order to keep its economy growing?

Edward Tse:  It is hard to predict precisely how the evolution is going to sort of evolve, but if you look at the steps of today and look at you know how the Chinese people are looking at the government I say you know while obviously you know just like you know people in any other country, many of the Chinese people will have criticism towards the Chinese government, but by and large you know with respect to the development, in particular economic development, that you know Chinese… that China has gone through in the last couple of decades I would say you know the Chinese people have been very supportive of the Chinese government’s policies and you know what they have been able to achieve in terms of lifting the living standards of the Chinese.  Over time you know one will expect that as the Chinese people become wealthier and many of them will you know go outside of China to become more worldly you know you will expect that there is going to be some more feedback from the Chinese people on how the Chinese government ought to be conducted and in fact, within the Chinese government they also do recognize that in fact things cannot be sort of stagnant or it cannot be just you know stay where it is today and there is always a lot of discussions within the Chinese government as to how the government ought to be changed over time, but unlikely we’re going to see a drastic change overnight.  We’re probably going to see a gradual evolution and in fact, right now within the communist party there is quite a bit discussion about a so called internal democracy.  In other words, creating some competition within internally within the party on certain key posts of the assignments and we expect this evolution will continue to happen.

Question: Will debt to China pose a serious problem for the U.S.?

Edward Tse:  Yeah, certainly.  Anytime you owe money to other people is always […].  I think it goes without saying at the country level as well.  From the Chinese standpoint Chinese obviously see that, you know, as a way to invest their money.  At the same time China is also a bit concerned whether or not, you know, we’re putting too much within you know one basket, but at the same time you know are there are other sort of better alternatives one also needs to argue, so it’s a bit of a tenuous situation, but China is also sort of revealing or monitoring, you know, how we should be making our investments. 

Question: Will China rival the U.S. as an economic superpower in the 21st century?

Edward Tse:  I think most of the Chinese will expect that, you know, China will continue to rise in the next couple of decades overall speaking, economically and perhaps geopolitically.  For the Chinese, you know, we believe that, you know, for centuries in the past we’ve been in the center of the world.  In fact, you know, China in Chinese means the middle kingdom that we are in the middle of the world.  Rightly or wrongly that is the belief and so this is a… you know, this current or recent rise of China is for many Chinese it is just the way that we get back to where we ought to be, but the relationship between China and the U.S. will in particular U.S., need to be kept within a context of what I talk about in my book, which is open China.  China actually is a relatively open society.  China has tremendous motives of wanting to integrate into the rest of the world and the relationship with the U.S. for example I think, you know, is a very different type of relationship compared to let’s say the U.S. and the Soviet Union relationship in the Cold War era or even you know when Japan was also rising in the ‘80s the relationship in the U.S. and Japan.  I think today if you look at China and the U.S. a lot of interests are quite intertwined.  There is a lot of mutual interests.  Of course there are differences as well and that a reason… that is to be expected, but at the same time there is a tremendous amount of intertwined interests between the two countries, in particular, in terms of businesses that in fact as China continues to rise China will have to learn about, you know, how to play more effectively in the global geopolitical world, but at the same time it’s not like China will have to sort of threaten or sort of rival itself with the U.S.  I don’t think that is the motive.

Question: Is China trying to mimic the economic rise of its East Asian neighbors?

Edward Tse:  Actually as China started this economic reform back in the late ‘70s, you know, China was looking out to other economies to try to sort of learn from other economies about experiences and so on, because China was really struck about how backward China was compared to the rest of the world, so the first series of economy studies China tried to learn from were Hong Kong, Taiwan, Singapore, the so called tiger states and they you know they learned something and then the next stage of countries that you know the Chinese were trying to learn from were Korea, Japan, you know, the so-called East Asian model, and then the first stage was you know many of the western countries, the western European countries, America and so on and the Chinese were just, you know, very curious about what can work and not work.  And of course, you know, every of these markets or countries or economies are very different because the context are very different.  China is huge.  China is, you know, in a way, you know, to start with a very low base, so how can China sort of accelerate this process, so China would need to learn from the very best from the rest of the world and I say that you know China has picked up very different things from different economies in the whole process of learning from these various economies, but one thing that is in a way is also quite shocking to the Chinese was what happened in the global financial crisis back in the late…2008, and to the Chinese, you know, the abrupt collapse of the financial system and the collapse of many corporations in the west was a major shock to the Chinese, so it leaves some questions for the Chinese of you know what is actually the best operating model.  I don’t think the Chinese also have figured it out, but we certainly have learned a lot during this process.

Question: Was Google’s recent exit from China motivated by business or ethics?

Edward Tse:  Well I can’t say a comment on behalf of Google because, you know, I think that Google business executives have a very clear mind about what they’re doing, but I would only comment that you know I think when we look at China and also the opportunities for foreign companies in China I think we need to take a broader view and perhaps a longer view.  The media sector where Google is in is a rather sensitive sector for the Chinese government for the reasons that I think everybody understands and so, you know, I think, you know, it is in a way it’s not unreasonable to see you know the different perspectives between a company like Google and that of the Chinese government.  I cannot put a value judgment on who is right, who is wrong, but what my view is that that is you know only one of the data points within a broader universe of considerations and in fact, for many companies that I work with and I talk to, many foreign companies including many American companies they continue to see tremendous opportunities in China, but also they see competitive threats coming out from China, so you know, companies are not very busy in sort of saying you know what does Google mean to me.  Companies are saying what does China really mean to me in terms of both their opportunities as well as the threats or the challenges, so I say that, you know, Google is an important case because it is highly visible, but at the same time it’s only one data point within numerous data points within the universe of companies doing business in China or with China.

Question: Who will ultimately be forced to relent, the Chinese government or Google?

Edward Tse:  Well I think yeah, to what extent that China is willing to adjust the policies in this area I think is, you know, obviously that is what…That is a decision that the Chinese government should make.  With respect to Google, you know, I think they will look at it from their business standpoint towards then they can be successful in China within the current regulatory context and the fact of the matter is for many of the foreign internet companies that have been trying, you know, to go into China and try to compete within the China context many of the foreign internet companies find that it is actually pretty challenging because the local companies are actually fairly competitive, so that’s a reality that you know businesses is about competition and when you’re facing with strong competition then you know you need to be careful about you know what is the next step should you want to continue to invest the resources to try to compete along with the other guys or do you want to make a withdrawal.  Then, you know, it’s a decision that every company needs to make, but the Chinese companies are very, very competitive in their own space.

Question: How is China’s growth "nonlinear?"

Edward Tse: When I talk about nonlinearity, you know, what I usually meant was, you know, when you look at the demand side of things in China you typically will see that, you know, for sometime there is maybe a gestation period.  Things may be a little bit slow in terms of the pickup, but then all of the sudden you will see an uptick rapidly.  That is what we call a discontinuity or an inflection point and you know over the years as we do consulting in China we see that sort of discontinuities over and over again across many industry sectors and so our recommendations for foreign companies is that you know when you go into China you cannot just take a snapshot of what is going in China and try to extrapolate that you know incrementally or linearly that will be the case in the future.  Oftentimes you will miss the boat and so we would recommend business people to go in with the mindset that look, you know, if we anticipate what will happen in China and what will be the basic drivers that will drive up the demand side and then try to deeply understand how those drivers are going to manifest and what combination those driver’s manifestation will actually mean to companies, so that is what we mean by nonlinearities.

Question: How do your two home cities, Hong Kong and Shanghai, illustrate this?

Edward Tse:  Yeah, both these cities are, you know, leading cities in China.  Of course Hong Kong is, outside of mainland China, is a special economic zone, but it is still part of… officially is part of China.  You know Hong Kong has had, you know, a very successful history as you know over the last several decades, in particular under the British rule and even after the handover from the British back to Chinese Hong Kong still retains many of the major elements of what the British have left behind, in particular in the legal system, so you know the Hong Kong continues to be a major financial center for the region and is underpinned by a very reliable and very transparent legal system, whereas Shanghai clearly is a you know the leading city in all of mainland China.  It’s grown tremendously since 20, 30 years ago and today is a bona fide sort of cosmopolitan city, but in many ways very similar to Hong Kong, but at the same time you know it’s still within the tether of the mainland China, so many things Shanghai still needs to sort of catch up, in particular legal system and so on, but at the same time you know Shanghai benefits from what I call in my book official China that, you know, the Chinese government as they sort of formulate a strategy has to decide where to put resources.  In many cases Shanghai is the beneficiary of these kind of national policies and so the growth of Shanghai over the last couple of decades has been truly tremendous and we will expect Shanghai to continue to integrate with the rest of the world over time and so both Hong Kong and Shanghai are for me is tremendously interesting and I’m very lucky to be able to live in both cities.

Question: What makes you optimistic about the 21st-century economy? 

Edward Tse:  You know, as China, you know, continues to rise and perhaps India and a few other sort of so-called emerging markets I think we’re seeing a redefinition of the global geopolitical picture.  I think you know we will evolve more from a you know single superpower to perhaps multiple power, maybe not superpower, but sort of multiple power picture where everybody will see to work with everyone else in a more closer manner and I believe that notwithstanding a lot of discussion about you know protectionism and people who are trying to protect this and that and so I believe the world will move towards perhaps a more globalized environment where countries will have to work closer together on a similar agenda.  I think the U.S. will continue to play a major leadership role in many of these major geopolitical issues.  I will expect countries like China, India, Russia, and of course many of the western European powers will also play an important role.  I think a large link to others is, you know, the growth of the global multinational companies that these companies will work across national borders.  They will do businesses you know in various countries and you know in some cases they will have to apply the global processes and systems, but in many cases they also need to be very local.  You know, in places like the U.S. and China and Japan and India you have to be very local, so that ability to combine the globalness of companies as well as to become very local is going to be a real challenge of the leading multinational companies, but I am very optimistic that you know we’re going to have quite a number of these companies who can be very successful, can sort of develop the right model to take advantage of the globalization that we’ll be seeing over time.