GLOBAL STRATEGY: The New Rules of Doing Business With China

By moving beyond a simplistic view of “decoupling,” executives can better understand and strategically respond to Western policies aimed at Chinese companies.

- By Dan Prud’homme and Max von Zedtwitz

Geopolitical tensions between the West and China are deepening. As a result, Western governments, especially in the U.S. and Europe, are hardening their rules toward Chinese companies. Although many Western executives see these policies as moving in a common direction — toward an economic decoupling — this view is too limiting. Instead, by learning to classify the policies into three distinct buckets — techno-nationalistic, techno-localistic, and protectionist — Western executives can better understand not only the risks but also the opportunities they present and respond more strategically.

Western governments have placed Chinese businesses in their crosshairs for three reasons. The first is that Chinese companies are becoming increasingly competitive globally. Once dismissive, U.S. business leaders and policy makers have come to more fully recognize Chinese companies’ innovation capabilities. Similarly, in Europe, 60% of surveyed executives said that Chinese companies’ innovations are already on par or will soon catch up with those of their own organizations. These concerns are not relegated to consumer products and business model innovations. For example, 65% of German automotive companies believe that their Chinese competitors already lead or will soon surpass them in technological innovation.