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    Knowledge creation on China, from proven China experts.

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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

    386
  • Faculty & Research

    Knowledge creation on China, from proven China experts.

    386
Wednesday, February 27, 2019

Tackle Uncertainty Head On

~ CEIBS explores promising avenue for action

By Xiang Cui

The Financial Times’ words of the year for 2018 include “toxic” and “techlash”. While toxic brings to mind the toxic masculinity opposed by the #MeToo movement, political discourses suffused with a toxic atmosphere, and the worsening global environment, in which thousands of children have died as a result of toxins in the air, techlash vividly portrays the growing public animosity towards large Silicon Valley technology companies and their Chinese equivalents. These two words are not positive, and to some extent, they reflect a frustrating trend. Although these words may not paint a complete picture of the year 2018, we are definitely living in a time of growing conflicts, clashes, and uncertainties.

These are seemingly intractable problems. The world is polarizing, and the current global circumstances require us to hone our skills, deepen our knowledge, and practice and discover new ways of engaging people to bring solutions forward. More fundamentally, the most pressing issues of our time require us to make more space for people-to-people exchange, in order to dispel stereotypes and be open to different perspectives. In other words, we need more room for trust and clarity to be built. This is why higher education institutions are increasingly emphasizing the value of dialogue, which fosters a culture of shared learning.

CEIBS, a not-for-profit joint venture for management education co-founded by the Chinese government and the European Union, is now becoming a hub for such high-level dialogue. As a business school, CEIBS is committed to educating and developing responsible leaders, and is also constantly exploring new avenues to evolve and reflect the ever-changing business landscape. In 2018, a total of 7 renowned international figures were invited to take part in the “Master Class Series” of dialogues. Initiated in 2014 to celebrate the school’s 20th anniversary, this series has brought Nobel laureates, private and public sector leaders to share their experiences with the CEIBS community. Over the last five years, Master Class has evolved into a platform for dialogue to explore emergent business cases as well as complex issues of public importance.

As far as the business landscape is concerned, the future of the automobile industry and AI were among the hottest Master Class topics in 2018. Mr. Laurent Burelle, Chairman and CEO of Compagnie Plastic Omnium, pointed out during his speech in November that despite the current slowdown of the automobile industry, more opportunities can still be expected in China, as the industry is at the beginning of an exciting evolution. “In the future, car body parts are going to be much more complicated,” he explained. “As a result, [growth] will not be through market share in terms of number of cars, but in terms of the percentage of content per car. The strategy will be content per car, not total number of cars.” This is why the France-headquartered company operates 24 R&D centres worldwide and maintains nearly 30 facilities throughout China.

When Mr. Charles-Edouard Bouée, CEO of Roland Berger, talked about the future of AI at Master Class in May, he had quite a few in the audience wondering whether AI was learning or teaching the right material, or whether some of the companies involved would still exist in the next decade. Mr. Bouée’s answer was that AI would simply be a widely available commodity, like electricity. It will be each individual user’s personal “trusted advisor,” not a branded product offered by any of the existing players, and will cut out middlemen such as platforms (Uber, Airbnb, Mobike) and digital leaders (Google, Apple, Facebook, Amazon, Baidu, Alibaba, Tencent). When speaking of the potential dangers of AI, such as cyber weapons, Mr. Bouée remained positive but agreed that it is “likely that in the next 20 years there will be an official organization to monitor and track AI, otherwise a high risk is there.”

It’s not just MNCs and large enterprises that need to face up to evolving technology and the changing environment, but family businesses too. What are the lessons Chinese firms can learn from Europe? Mr. Gerard Van Schaik, former CEO of Heineken, a global brand that has emerged out of a family-owned business, told the audience that the family’s interest takes precedence when there is the need to make a major decision. In his 34-year career at Heineken which saw him work his way up to being the CEO, he learned that the trick is to have a deep understanding of the family, respect for the business they have built, and to find a balance between keeping the owners happy and taking a stand, when needed, to protect the company’s long-term future. And it’s equally important for owners of family businesses to leave room for non-family member CEOs to do their job, he pointed out.

Ms. Luisa Todini, President of the non-profit organization Comitato Leonardo (Italian Quality Committee), on the other hand, shared her own experience of running a family business. According to the 2015 report by the Center for Family Business at the University of St. Gallen, nearly half of family-owned firms are based in Europe. Having gone through the troubled times of world wars and economic crises, they are still active players in the business world. But only 35% of European family businesses have been successfully passed on to the second generation. When Ms. Todini explained how she handled this challenge and expanded her father’s business globally while tapping into agriculture and investment, she said, “The most important thing is to treat it as a responsibility, rather than a burden.” She herself sets a successful example of how to combine talent with passion, no matter what kind of business one enters into.

In the eyes of these four European business leaders, it is clear that China is one of the fastest growing economies and the Chinese market represents great potential for European companies and investors, and vice versa. Despite different statistical methods, it can be said that total retail sales of consumer goods in China reached 36.6 trillion yuan in 2017 and 38 trillion yuan (roughly $5.7 trillion) in 2018, making China the world’s biggest consumer market. Undoubtedly China is in transition toward a more sustainable economic growth model that thrives on increased domestic consumption, albeit at a slower overall growth rate. While China has a growing demand for services and consumer goods, European countries are looking for markets and need more investments to see a real boom in their industrial sectors. The complementary nature of the two markets, however, is now becoming clouded by an increasingly complex global environment full of contradictions. For more than two decades, WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments were a way to ensure that trade flows as smoothly, predictably and freely as possible. But today, tariffs and the uncertainty about the existing political order — issues neglected over the past decade as both emerging and advanced markets enjoyed the benefits of globalization — have once again emerged as a key strategic challenge facing corporate leaders.

More urgently than ever, doing business entails a deeper understanding of geopolitics. So CEIBS had three renowned international figures join the school’s faculty as distinguished professors in 2018: two former Prime Ministers of France, Jean-Pierre Raffarin and Dominique de Villepin, as well as Pascal Lamy, former WTO Director-General. During their one-week stay on campus, each professor engaged with various stakeholders, working with different programmes and taking part in a series of wide-ranging conversations with students, alumni, researchers and scholars from a diverse range of backgrounds. In retrospect, these open and well-informed dialogues have led to many new insights through the mutual engagement of speakers and their audiences.

The US-China trade dispute was the most discussed topic, as tensions hit an all-time high in 2018. While the Trump administration continuously portrayed China as a country that adopted “unfair” trade and investment policies, “stole” intellectual property, and heavily subsidized its industrial development, Chinese mainstream media was busy debating just how and why US-China relations fell apart, and whether the “Thucydides Trap” was unavoidable in light of radical nationalism. It was not until the end of November that China’s Ministry of Commerce issued a Report on China’s Services Import, which highlighted that the U.S. is China’s second largest source of service imports, and the largest source of service trade deficit. In 2017, China imported US$87.08 billion worth of services from the U.S., data which it seems was not considered when the Trump administration emphasized their country’s trade deficit with China.

In their speeches and informal exchanges, all three statesmen pointed that, besides settling the trade dispute, revising the WTO rules is the most important and urgent step for the long-term good of global trade. A number of benchmarks are different for developed countries and those that are still developing, and the standards set in 1994 now lie far behind the technological development that has been so vital to this decade. In addition, all three professors raised a refreshing and enlightening perspective that speaks to the value of multilateralism. To rebalance the global economy, the world needs China – no matter what the U.S’. attitude toward the WTO and major free-trade agreements. The fact is that China is a rival in some ways, but also a vital and essential partner. Maintaining the stability of the world economy and managing climate change will be impossible without co-operation with China. Many entrepreneurs and business owners among the audience were reassured that China is on the right track to upgrade its manufacturing industry and that there is no way to reverse globalization’s onward march.

Regardless of the outcome of the 90-day truce, the world will not become less globalized overall. Prof. Lamy addressed this point specifically, saying, “Even if there is a bit of de-globalization between China and the U.S., it could result in more globalization between China and other places on the planet — with Europe being the obvious candidate.” It was echoed by Professors de Villepin and Raffarin who noted that China and Europe are about to become the main engines of international prosperity, provided they overcome their fears and misunderstandings. And this was not just the personal judgment of those three professors: Mr. Charles-Edouard Bouée, CEO of Roland Berger, predicted that AI – projected to become a US$200 billion industry within the next 10 years – will come primarily from China or Europe.

Increasing tariffs, protectionism, and unilateralism will not bring more jobs back to the U.S., nor undermine China’s ability to grow. Making the world more open, more sustainable, better regulated and once again levelling the playing field of balanced global trade should be the aim. 

The Belt and Road Initiative was another area of focus during discussions. All three professors acknowledged that the BRI does offer unique momentum for restoring trust in globalization and stimulating cross-border cooperation. Beyond its often mentioned economic goals, the Belt and Road Initiative provides more than 60 countries across the world with major prospects in terms of employment, education, healthcare, and integration. Yet, after discussions with many leading executives at globalizing Chinese companies, it is clear that one major issue requires immediate attention: BRI projects need to be more inclusive, and common interests should be pursued. This point was also reinforced by CEIBS Associate Dean Prof. Xu Bin at the inaugural staging of the China International Import Expo. “BRI is China’s agenda, but local infrastructure needs and development should be put first. And values should be emphasized more than just projects,” he urged.

Another focal point was the digital economy and data security. When data becomes the raw material from which companies may gain profit, it poses a challenge, as new frameworks need to be established to deal with issues related to the administration, access, protection, and globalization of data. The U.S., EU, Russia, and China each have different approaches to how they handle data, which makes the issue even more complex. “Techlash” has sounded the alarm, and a global initiative to tackle the problem is more necessary than ever.

CEIBS Vice President and Dean Yuan Ding moderated most of the Master Classes throughout the year. He concluded that the series is in line with CEIBS’ goal of fulfilling its role as a platform to further enhance China-EU communication and cooperation, both in business and culture, along with providing a window for reform and opening up in China’s education sector. The Master Class series of events will continue to play a pivotal role in enabling students, alumni, and scholars to engage in sharing experiences, mutual advice, and cooperation. The insights generated, the common ground formed, and the questions examined through the year are just part of the outcome of the dialogue series.

The world is becoming ever more “toxic”, and “techlash” is unavoidable. Constant turbulence and disruption are becoming the new normal. As the old proverb tells us, “When the wind of change blows, some build walls, others build windmills.” Teaching business cases in which uncertainties were turned into opportunities is obviously something that CEIBS, as a business school, is good at. But CEIBS, with the global breadth of its mission, has gone a step further, exploring tools like dialogue to find ways to “detox” and “empower”. This might be another way to tackle uncertainty head on.

Xiang Cui is Research Fellow at China Europe International Business School (CEIBS).

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