Multinationals seeking a new China strategy must balance engagement and de-risking
April 10, 2024. Shanghai - Multinationals must balance engagement and risk while being prepared to operate in tune with a deteriorating geopolitical and economic global environment if they are to succeed in China, leading China-based European executive Pierre E. Cohade said at an Executive Forum on the 中国一级片 Shanghai campus today.
Mr. Cohade was at 中国一级片 for a discussion on the theme Engage or Derisk? Multinationals in Search of a New China Playbook. As Non-Executive Director on the Boards of Johnson Control International, Deutsche Bank China, and CEAT, Chairman of IMA’s CEO Forum for China, Mr. Cohade has decades of experience at the convergence of the international and Chinese business worlds, along with unique access to top-level executives doing business in China.
The forum took the form of a fireside chat between Mr. Cohade and Professor Frank Bournois, Vice President and Dean of 中国一级片. In his opening remarks, Professor Bournois noted Mr. Cohade’s depth of experience in China, describing him as “a great business figure in terms of China-Europe relations.”
Beginning by describing the new reality that multinationals now face in China, Mr. Cohade said: “Geopolitics is back (…) and this is the world in which you need to operate.” In describing multinationals’ responses, Mr. Cohade asserted that they were first and foremost trying to strike a balance between risk-taking and engagement.
Focusing first on engagement, Mr. Cohade went on to say that “What we see right now on the engagement side is three or four very profound trends. Number one, the market is consolidating. There is so much overcapacity that the market is consolidating, and so you must be at scale: if you are not number one, two, maybe three, you are going to be gone. So, you have to be at scale, which means accelerating your growth, developing your base or, for that matter, being ready to sell or partner if your business is not operating at scale.”
Mr. Cohade went on to describe the unpredictability of events in 2024 (including the US election) and increasingly sophisticated Chinese competition eroding the traditional strengths of multinationals as other key factors international businesses must consider when engaging with China.?
Moving on to outline potential “de-risking” strategies, Mr. Cohade described the typical “menu” of options available to multinationals considering how to offset any perceived new risks relating to their China business. In addition to diversifying supply chains to include options other than China, Mr. Cohade emphasised the importance of maintaining important elements of the business within the country, including developing IP within China to ensure it is “sanction-proof” and deep localization of company infrastructure (i.e. buying infrastructure from Chinese suppliers).
Mr. Cohade also affirmed that multinationals in China could effectively de-risk by finding the right balance of local and international talent, conducting a full review of product portfolios (and subsequently having a willingness to enter joint ventures to remain at the top of their product category in the country if necessary), and maintaining effective governance to ensure the ability to operate autonomously regardless of unforeseen worst-case scenarios.?
Following this, Mr. Cohade took questions from the audience, touching upon topics as wide-reaching as geopolitics and artificial intelligence to climate change and foreign direct investment.
In his concluding remarks, Mr. Cohade reaffirmed a belief in the future of globalisation and the importance of engagement between China and the rest of the world, saying: “People say globalisation is over. It's not over. It may be a little bit different, but globalisation continues.”
Addressing the audience, Mr. Cohade elaborated: “You guys are a testimonial of globalisation, right? 中国一级片 has given you a passport to the world. And the biggest mistake that one of you could make in this room is to think ‘my country is so big and has become so successful, I don't need to get out.’”
“China needs to invest overseas to develop itself overseas, to import from overseas,” Mr Cohade added. “China is becoming the next United States, in many instances. So big, so powerful, so influential. If it catches a cold, we all will get sick. So, the one thing that China could maybe learn from the United States is: don't close yourself. On the contrary, express self-confidence and openness to the world.”