26 Sep GOOD RELATIONS ARE HALF THE BATTLE: THE POWER OF RELATIONSHIPS AND POLITICS
When Western chambers of commerce in China describe their local market environment in annual reports, terms such as “regulatory environment”, “reforms” and “fair competition” are often included. These words reflect the fact that even after four decades of market-oriented reforms, the state still largely controls the economy. India, Russia and Mexico are hardly any different. Two-thirds of A-Share companies on China’s stock exchanges are either purely state-owned or state-controlled companies. And even private companies in China often have strong unofficial ties to the government. The government still plays a key role at all levels and has the final say in many strategic industries, from pricing and regulation to investment planning. There is practically no way around the Chinese government. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) therefore describe why good relations with politics can be important for international brand development – all details in our new Springer publication “Successful brand building in the large emerging markets”.
In addition to precise market knowledge, exact positioning and a good marketing strategy, anyone wishing to gain a foothold in these markets needs a fourth important ingredient for a successful mix: good relations with politicians and authorities, whose agenda should be known in both political and economic matters. Maintaining good relations with those in government and deciding on regulations and provisions is of paramount importance. However, successful networking, both privately and professionally, is a major challenge in these markets, not only because of the size of many target countries, but also because the government apparatus and authorities are usually not transparent and because intermediaries often still operate between local institutions and Western companies. Both their influence and their own careers are often subject to frequent changes.
The right wire: Identifying and addressing the responsible regulators
Good relations with important authorities and government contacts can be vital at a decisive moment. In the automotive industry in China, for example, there is no alternative to them at all because foreign investors are forced to enter into joint ventures with local competitors. And most of them are state-owned enterprises. One of the key challenges is to identify the relevant regulators and to keep in constant touch with them. Investors need to make sure that the people they talk to are who they claim to be. There are countless “braggarts” and fraudulent advisors who claim to have “excellent” relations with the government, often turning out later to be cunning fraudsters and storytellers. The deeper one penetrates the less developed hinterland of the large target markets, the greater the danger of encountering such charlatans.
Reinsurance: Multiple sources provide more reliable information
But even in the more developed economic centers, all connections are ultimately at the local level. The business environment in China is as diverse, multi-faceted and regionally diverse as Chinese cuisine. It may be helpful to ask various sources to make sure you have successfully networked with the right people. Many experienced businesspeople in growth markets confirm that it is more difficult than ever to maintain the right contacts in view of the multitude of political changes and structural reforms in government. And the more foreign companies expand into the hinterland in the large countries, the more they will have to deal with local officials who lack experience with foreign investors. For Western brands, this means that marketing campaigns must be well informed about current policies and reforms.
Silo mentality in the administration often blocks the flow of information
Efforts to build good relations with government or public authorities can be made more difficult by the fact that officials in growth markets are usually hardly motivated to share information with other authorities. For foreign companies, this means they have to hold several meetings on the same subject in the same authority. But there is also good news: government representatives or civil servants can also be motivated from the outside by sharing some degree of know-how with them giving them industry insights, or by adapting the topics of the meeting to the official’s own priorities and goals in order to move forward.
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