China today: The bridge to actionable planning

How can a senior executive distill the deluge of China reports in the media into something useful for important decisions?Along with China’s economic might, coverage of China has grown exponentially in business-related media. Over the last three years, under the influence of the pandemic, trade and investment frictions between the US and China, EU and China, and now the Australia and China relationship have all but overwhelmed us with major breaking events every week.1

It’s possible to make detailed timelines and tables of negative and positive actions China and its trading partners have taken and might take in the future, on military fronts, in trade and investment taxes and regulation, in national security and technology protection, in travel regulations and professional exchanges, and in war-

of-words headline PR claims. At this point, identifying fifty to a hundred ‘events’ would not be difficult. But taken one by one, the unfolding events often add uncertainty, not clarity, to a very fluid environment in which MNCs have to operate. Within a few days we might be presented with a claim that progress is good on implementation of the Phase 1 agreement between China and the US on one hand, and a strong, targeted trade or investment curtailment on the other. On August 24, US trade negotiators reaffirmed their commitment to the Phase 1 trade deal.2 Throughout August and early September, strong new measures were taken against leading Chinese tech companies, about which “experts say the struggle could define a new normal for US tech companies doing business in China.”3 The US elections add both interest and uncertainty as to how the US will play out its role in the future.

This is, in fact, the very definition of complexity, according to the Cambridge dictionary: “the state of having many parts and being difficult to understand . . . .”4 Complex systems do not have a visible overarching rulebook or obvious logic to their moving parts. For planning purposes, it can be helpful to try to reduce this complexity to the basic, major trends they indicate. We believe that there is generally close alignment among military fronts and related security concerns, trade and investment taxes and regulation, travel regulations and professional exchanges, and headline PR claims, in other words, the classes of events that reflect the direction of the overall relationship. This does not mean that a deteriorating diplomatic and negotiating situation could not coincide with improved receptivity in China to new foreign investment. But it does influence the overall risk profile of a new investment.

China Today : The Bridge to Actionable Planning

Unfolding events taken one by one create uncertainty, but in the aggregate they are useful in assessing if the overall situation is getting better or getting worse and then anticipating potential impacts on the business environment. For example, recent actions have focused both on individual sectors and individual companies, mostly related to technology, privacy and security. While it is impossible to foresee how any of these specific events will unfold in the future, taken together they signal an emerging risk that individual companies might be targeted for reasons unrelated to their business behavior.

In the C-suite, an internal consensus on the general trends, taking into account sector dynamics, but acknowledging that the trade and investment environment overall is getting better or getting worse, can provide a platform for a disciplined process of opportunity and risk assessment. Exercises like a skillfully facilitated scenario planning program can sharpen awareness and analytic thinking to reach an internal consensus. The large number of events reported in the media can be usefully grouped into those related to military and national security, technology controls, trade and investment constraints and incentives, economic recovery, and individual sector

dynamics. The great flow of reports on China can be organized into coherent groups for trend analysis of probability and impact. Doing so will potentially support scenario exercises and contribute to executive decision making, bridging unmanageable complexity to productive action.

Studies of executive decision making have typically identified four styles of executive decision making, hinged on high or low information inputs and preferences for a single or optional solutions.5 In a recent Harvard Business Review survey, respondents listed as the top three most important components of good CEO decision making data accessibility (88%), the ability to translate data into actionable insight (87%), and the ability to efficiently manage data from different sources and enrich data from new sources (85%).6 All three of these—all information focused—but especially the second, are the primary challenges in digesting information on China today.

Implementing an important China initiative can be challenging in the best of times, and our experience inclines us toward single options rather than multiple options, given limited organizational resources. Entering or

expanding in China for an MNC can require decisions on a broad range of issues, and the more calculating and proactive the manner in which executives cover the many bases the more likely they are to avoid surprises and disappointments. Somewhat unique to China, these issues include approach to regulators and local authorities, strategic and equity relationships with Mainland entities, local organization structure, functions, and degrees of autonomy, local and global support systems like IT, compliance assurance mechanisms, local R&D and NPD, Mainland and non-Mainland holding structures, financial management and tax optimization, options to achieve capital efficiency, and locally refined and relevant CRM. Existing organizations, relationships, and market positioning are, of course, both starting points and constraints.

In our experience, the diversity of viewpoints within MNC organizations on either side of the Pacific is greater than it has ever been since reforms began. This is in part driven by the growing size, maturity, and autonomy of Mainland based MNC organizations, playing out different views on the US-China relationship, the motives and goals of each side, and the meaning for future trade and investment. Bearing on both business and national security issues, this diversity influences not only on China discussion but that of the broader Asia Pacific region. Work is clearly needed to reach an internal consensus on the general trends in the China market and US-China relationship. Given the mass of data, with caveats related to special sector considerations, what does that say about the process needed to reach a good decision at the top?

There are three potential measures of the strength of the process to shape a successful China strategy in these uncertain times. One is how comprehensive are the elements considered, especially in terms of several unique requirements for success in China cataloged above. Another is achieving balance in the analysis, something we have previously described as “rebalancing.”

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China Today : The Bridge to Actionable Planning

Decision makers can ask how closely connected and finely balanced are assessments of growth opportunity and risk in each of these bases. The third is winning support, enthusiastic support, from key management players who might come from different points of origination in their thinking. Looking at a strong business development opportunity, decision makers could overlook or understate risks, especially if members of the analysis team divide into advocates and opponents of a plan under consideration. Plans should not be driven by the debating skills of key participants.

Given the important contributions all functional roles in a C-suite team bring to the table in a China plan, it may not be a bad idea to task each to present a balanced

view of opportunities and risks within their areas—CFO, CIO and CTO, CSO, COO—to make certain the process is strong and disciplined. A widely established risk mitigation tool might be helpful, like the CARVER approach, especially given the alignment we witness among the national security, economic competitiveness, and other areas in which risk-creating actions and reactions play out.7

Given the many moving parts in today’s global trade and investment environment, and the amplified versions of these in the US-China relationship and globally with China, distilling essential inputs into decisions has not gotten easier, even for MNCs with a substantial history in China. This is a good opportunity, then, not only to consider the specifics of a China

business growth and risk mitigation strategy and action plan, but also consider the effectiveness and the efficiency of the corporate decision process that generates them.

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Copyright © 2020 Deloitte Development LLC. All rights reserved.

Ken DeWoskinSenior Advisor Chinese Services GroupDeloitte Services LPkedewoskin@deloitte.com

AuthorJoe Guastella周国思 US Chinese Services Group LeaderDeloitte Consulting LLPjguastella@deloitte.com

ContactsLili Zheng 郑莉莉 US Chinese Services Group Deputy LeaderDeloitte Tax LLPlilizheng@deloitte.com

Endnotes1 https://www.reuters.com/investigates/special-report/australia-china-relations/

2 https://www.reuters.com/article/us-usa-trade-china-idUSKBN25L023

3 https://www.reuters.com/article/us-smic-stocks-breakingviews-idUSKBN25Z0L9 and https://www.msn.com/en-us/news/world/experts-say-trumps-war-on-tiktok-could-have-a-lasting-impact-on-trade-and-might-force-tech-companies-to-choose-between-doing-business-in-the-us-or-china/ar-BB18OWhP?li=BBnb7Kz

4 https://dictionary.cambridge.org/dictionary/english/complexity

5 https://hbr.org/2006/02/the-seasoned-executives-decision-making-style.

6 Harvard Business Review, “Analytic Services Survey, ” December 2018.

7 https://hbr.org/2018/09/a-6-part-tool-for-ranking-and-assessing-risks.