The superior man understands what is right; the inferior man understands what will sell.
As I follow up on the various business meetings that I had in China this past month, I reflect on this quotation that has been attributed to Confucius, the famous Chinese philosopher (551-479 BC), with a certain degree of amusement.
As someone who has been developing business internationally for the past 20 years, it appears that I would fall into the category of "inferior man" (at least in the eyes of the Grand Master). On the other hand, I like to think that we Canadians have a firm grasp on "what is right" (by default, catapulting me into the ranks of the superior).
Of course, the truth is somewhere in between these two philosophical extremes.
When I apply this reasoning to Canada's trade position with China, I would argue that most Canadian business people are similarly positioned, but with a definite bias toward "superior" – which means we're nice people, just not the best sellers.
A look at the numbers will help illustrate my point.
In 2012, Canadian merchandise exports to China totalled $19.4-billion, against imports of $50.7-billion. This represents a trade deficit (in goods) for the year of $31.3-billion.
On the positive side, Canada has seen its exports to China double since 2007. What is of concern to me, though, is that our share of China's imports is only 1.1 per cent. (By comparison, Canada's share of world exports in 2010 was 2.7 per cent, the Bank of Canada estimates.) And the vast majority of what we're selling to China is commodities – including ores, slag and ash (14.4 per cent); wood pulp, paper or paperboard scraps (13.4 per cent); oil seeds, fruit and grain (12.8 per cent); and mineral fuels (11 per cent). When it comes to our trade with China, we are still very much hewers of wood and drawers of water. (See Chart 1 and Chart 2.)
The past does not always have to be an indicator of the future, but if we Canadians hope to increase our share of China's buy, and not just in natural resources but also higher value-added goods and services, we will have to become much more engaged in what is happening in that country.
As I noted in Part 1 of this two-part series, the pace and scope of economic change that has taken place in China over the past 35 years is unprecedented. A key step in becoming more engaged in the Chinese market is to understand these changes, and to adapt our market entry or expansion strategies and plans in a way that will enable us to most effectively respond to the evolving demands of modern China.
This is obviously a long-term process, and no one article will do justice to the myriad changes that are under way in China, but I thought I would highlight three noteworthy developments that I came across during my latest trip to the country:
Money is driving trade
While he was in Bangkok on Oct. 11, Chinese Premier Li Keqiang indicated that his country is considering setting up a yuan clearing bank in Thailand to meet demand for currency settlement between the two countries. The move is to encourage more trade settlement in the yuan between businesses in China and Thailand. This action would be in line with increasing circulation of the yuan in Southeast Asia, where the volume of yuan-denominated cross-border settlements reached 1.12 trillion yuan (about $182-billion U.S.) by June of this year. This type of financial diplomacy is an important element in China's foreign policy, and a key factor in facilitating greater economic integration in East and Southeast Asia.
English? No problem
While I was in Beijing, sitting in the waiting room of one of China's leading commercial developers, I couldn't help but notice what was being displayed on one of the plasma screens situated in the area – "English Debating Contest." The company was not only encouraging its employees to learn English, it was doing so in a very public, group-oriented and competitive environment. English is by no means widely spoken across China, but the race to master it by the business class and those dealing with the foreign community is certainly on.
In search of quality
In my previous article I talked about the Shanghai Tower and the Lujiazui district as symbols of modern China. What is also evident in 21st-century China is the pursuit of quality. I found this during a visit to a developer of higher-end residential properties in Shanghai. As the assistant to the chairman of the firm was providing me with an overview of his company's latest development, I couldn't help but notice that the list of suppliers working with them – Lafarge, Knauf, Henkel, Weber – were all European (predominantly German) names. The chairman was not interested in finding low-cost parts and services. He sought quality solutions that met the standards of an increasingly wealthy and demanding client base. If you consider that the government of China has established a goal of doubling both the gross domestic product and per-capita income by 2020, there is going to be a lot more demand for quality over the coming years.
The question is, will Canadian companies be front and centre in meeting at least a portion of these expanding demands, or will they let our European, American and Asian counterparts dominate the market?
If it's the latter, at least we will be able to take solace in knowing that the "inferior man" won.
William Polushin is founding director of the Program for International Competitiveness at the Desautels Faculty of Management at McGill University, and president of Amaxis Inc., a global management consulting firm. The is the second of Mr. Polushin's two-part series for Economy Lab on China. For the first part, see here.