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The Path to Success in China :: Video

12/22/2011 --

Author Michael Dunne, AB '85, MBA/AM '90, shares 20 years of business experience in China.

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ANN ARBOR, Mich.—Doing business in China isn't for the faint of heart. But fortune will smile on those with the tenacity to slug out some tough negotiations and with the patience to figure out a wildly different business landscape, says Michael Dunne, AB '85, MBA/AM '90.

He should know, since he's been doing business in China and Southeast Asia since earning his Michigan Ross degree. Dunne's recent book, American Wheels, Chinese Roads: The Story of General Motors in China, details GM's long road to success there. It was a road filled with twists, turns, and potholes yet shows that those who can navigate the terrain and and persevere will be rewarded.

Dunne shared his advice for doing business in China and Southeast Asia, along with some of his experiences, with the Ross community during a presentation Nov. 30 in Blau Auditorium.

"Do not underestimate the capability, drive, and ambition of the Chinese," Dunne said. "Know the environment you're working in and understand it's totally different than the United States. The government is in everything you do. Your Chinese partner may or may not be aligned with the government and there are shifting alliances. But don't be afraid to slug it out in China. A lot of companies get in there, stay tough, and make a lot of money."

But not everyone makes it: Success requires some deft maneuvering, he noted.

"The difference between those that make money and those that lose money is which companies were able to read the differences in China and adjust to those differences," Dunne said. "It isn't easy to adjust. It's so different from what we're used to in America."

Dunne is president of Dunne & Co. Ltd., a Hong Kong-based consulting and analysis firm. His first company was bought by J.D. Power & Associates in 2006 and he's been an Asian auto industry consultant for 20 years.

He shared his knowledge of the Chinese and Asian business landscape with three rules to remember.

The first rule is lifted from Sun Tzu's The Art of War: "Of the 36 strategies: Retreat is the best policy." For example, GM battled with rival Ford Motor Co. to win a joint venture deal with the municipality of Shanghai to build a luxury sedan. GM won out with the promise that it would have a monopoly in the segment.

But after GM won the deal, its executives heard Shanghai Automotive Industry Corp. was talking with its other partner, Volkswagen AG, about building a competing luxury sedan in China.

After some vagueness, SAIC finally explained that it felt like a father with two sons. It couldn't give one something and not the other. Volkswagen was going to build a competing product.

GM had to decide what to do. But the company realized it had to play by China's rules.

"They decided, 'Let's keep moving, we have no choice,'" Dunne said, in what proved to be a wise decision.

The second rule is that while regulations come from the top, the bottom takes countermeasures.

For instance, Chinese automaker Chery initially wanted to build a car in Wuhu. It was denied, so it asked to build an engine and the request was granted. But then Chery pointed out it now had an engine but no car. So the company was allowed to build a car, but only for sale in Wuhu.

Today Chery is China's top carmaker and exporter. It initially approached GM to build a small car under license and GM declined. Then Chery introduced a car similar to GM's $6,000 Chevrolet Spark, and it hit the market sooner and for $3,800.

"It was copied before it could be copied," Dunne said.

GM countered this by building a solid brand reputation, one that meant quality and safety. The implication was that other brands were less prestigious. That struck a note with Chinese consumers, who came to see GM's Buick and Chevy as premium brands.

"GM worked hard to build a brand," Dunne said. "The brand is powerful in China."

Rule three? Figure out what the guys at the top want. This is especially important for automakers, since all automotive assembly operations must be a joint venture with a Chinese company.

GM closed the deal with SAIC because the company worked its way into the good graces of the Shanghai government. Ford hitched its wagon to the federal government, Dunne said. In the end, Shanghai's government won out and it wanted GM as a partner.

It also helped that GM took SAIC executives to a GM plant in Brazil, where all the employees were Brazilian. It gave the Chinese officials a tangible vision of what their joint venture could become.

"Those (moves) gave the edge to GM," Dunne said.

While the Chinese generally are hard-charging, ambitious, and tough negotiators, the rest of Southeast Asia is a little more laid back, Dunne said. He remembers trying to get data from a company in Thailand during which he used a hard-charge approach.

It was the wrong move.

"They're more about, 'Let's find a way to get along and make things happen,'" Dunne said. "In Thailand, a soft touch works best."

He predicts it'll be about five years before a Chinese-made car is ready for sale in the U.S. But Chinese companies are laying the groundwork with component companies and testing operations here.

"The Chinese are here and growing, but not visible yet," Dunne said. While not visible to the public, they are having success. A Beijing-owned company in suburban Detroit is working with a Taiwanese customer to sell a new car in China.

Noted Dunne: "Talk about globalization."

Terry Kosdrosky



For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu