The Shanghai Defence

Comment from yesterday's post:

ok, but what about the fact that production is based on sweatshop conditions, that susbsistence for the general population is abysmal and that china's record on the environment is horrific. why do business with a country that should be morally and ethically denigrated because of their human rights infractions? isn't it better to make a buck somewhere else than to encourage that kind of system by rewarding it with business? ... just wondering... -B

That's a very good issue that you brought up, and I'm glad you did, because it is something that's important for us to keep in mind.

First- in regards to the subsistence for the general population, China is no different from any other developing nations through out the world. All countries that aren't first world economically prosperous countries, and in order to help bring in parity of economic equality, the country has to achieve significant economic levels of production and employment, levels of GNP and GDP, and FDI. Doing business in China and any developing world actually helps them achieve these levels. If we were to make them pariahs, and cut them out of our little 'economic club' in the west, it would do much more harm than good.

Now, as far the environmental and human rights record of China; I was impressed with the concern of the companies for the environment. All of the corporate promotion videos we saw featured a section on environmental concerns, so businesses do know that it's an issue. Whether they take it seriously, or are just paying it lip service remains to be seen, but nothing different can be said about any other western nation.

As far as the human rights record goes- that's an issue for the government to be judged by, not for the businesses to be judged by, and not for the potential consumers of the country to judged by. Anyways- it's not like Western Countries or developed nations' records human rights are lily white either.

The more that business prospers in China, the better off the country will be. It's not encouraging or rewarding the behavior of the government you outline in your post, but by making the businesses better off, you can expect a higher level of development and economic prosperity, which the developed nations of the world enjoy, and with that often comes a higher ethical standard for the government. Not always though. In the developed nations, as I said before, and will reiterate, it's not like the behavior of the government is beyond reproach.

There is the matter of competition. If your competitors are launching products in China, and your company is not, you can miss out on a brief time frame in which the market share is up for grabs. It only happens once- and if you miss it, you will probably never be able to get it back. It's significantly easier and cheaper to build market share in a region by introducing a new company, brand or product than it is to try to capture it later on. It's not about a 'me too' approach to competitive environments, it's about securing a strategically significant region. China has a population of over a billion. If you can figure out how to market to the Chinese consumer, and secure a market share, that strategically significant region is yours for defending, and that's a great position to be in!

In conclusion (man those are a lot of points to cover for a conclusion), it's always good to look at business and opportunities from all sides. As business people, we have a responsibility to actively reject the myopia of NPV as the sole criterion for investment. Some refer to this as "triple bottom line" approach. In adopting that approach, we also have to be mindful that these issues often take significant time and resources to explore and resolve, and accordance is not guaranteed, and it can lead to acrimony.

They are important things to discuss however, and I have enjoyed our discussion about it.