The Chinese have a saying: “Same bed, different dreams.” It can be applied to a variety of situations, including business, where two parties are interconnected yet working toward disparate goals.
This is one of the difficulties we observe when U.S. companies enter into joint ventures with companies in foreign countries. Yet, for all of the differences between countries, there are surprising similarities. To be successful internationally, it’s critical to understand your competitors and potential alliance partners, how they approach business, and how their “dreams” compare and contrast with yours.
The United States & China
U.S. and Chinese businesspeople think differently — at least that’s the prevailing viewpoint. We work with a variety of Chinese-based companies that are entrepreneurial, and their main concern, much like U.S. businesses, is procuring capital to expand. The lending situation in China is much tighter than before the financial crisis. In addition, the Chinese are finding that, as a country, they’re less competitive in the global marketplace than in the past, as wage rates are increasing and the costs of commodities and raw materials continue to escalate.
When we talk to U.S. clients, we have similar conversations. Companies aren’t as concerned with wage increases, but they’re very concerned about commodities and raw material pricing and demand. These underlying challenges plague both nations.
Of course there are differences as well. One, in particular, is that in the United States, companies tend to have a strategic plan they create, modify annually, and use as a map to monitor their businesses. This isn’t the case in China. Chinese companies are much more long-term focused and tend to look solely at top-line revenue growth; the belief is that if they can grow the top line enough, the bottom line will follow.
This philosophy is slowly changing, however. Some Chinese businesses are starting to consider the financial costs of expanding or investing in capital equipment or another facility, becoming a bit more disciplined in the process.
For U.S. companies considering a joint venture with China, it’s critical to balance business case and revenue growth expectations of both parties. Use of outside directors can often help joint venture parties learn to trust each other, but be careful — the failure rate for U.S./Chinese joint ventures is high.
India, on the other hand, is very business-case focused — much more so than we tend to be in the United States. Candidly, that can have a hampering effect. Often Indian businesspeople are slower to change course than U.S. businesses because they’re less opportunistic. Because they’re so structured in their thinking and planning, it takes very large shifts for them to react; China and the United States tend to shift much more freely — and be more nimble — because of this tendency toward opportunism.
Capital is a concern in India but not to the extent that it is in China and the United States. India’s main challenge is market access; the Indian market isn’t growing as quickly as other global markets from a consumption of goods perspective. They’re struggling to export their products, as their internal infrastructure is lacking; logistically, India is way behind the United States, China, and Brazil and has a long way to go.
For U.S. companies considering a joint venture with India, be prepared for slower responses and a desire to stick to the original plan. India’s bureaucracy means governmental decisions and changes are slow. Businesspeople are comfortable with that pace, and opportunistic U.S. parties need to be prepared for resistance, both active and passive, when business plans change quickly.
Brazil is a different animal altogether. It’s a blend between a business-plan mentality and a business-case mentality. The market is growing at such a rapid pace that to adhere consistently to a business plan is the equivalent of standing still while others run past you. This dual philosophy can be challenging at times.
There is significant inflation and cost pressure in Brazil. At the same time, companies are looking to expand because the market is growing exponentially. The country has weathered the financial crisis better than most countries around the world, and there’s a lot of opportunity domestically. Because of this, Brazil tends not to be concerned with capital but with keeping up with demand and increasing prices.
For U.S. companies considering a joint venture with Brazil, remember — Brazil has very protective measures for its domestic market and a complex tax system. If U.S. parties overly rely on their experiences with other countries or general international conventions, they’ll be surprised and disappointed to learn, “That’s not how it’s done in Brazil.”
Plante Moran Global Services advises clients on cross-border business strategy and business plan implementation. We can help globally minded organizations think through the common points and differences to navigate the global landscape more effectively.