I recently had the opportunity to interview several Chinese CEOs on their plans and outlooks for the future. During one interview, a CEO highlighted the difference in thinking between western and Chinese leaders by using a metaphor of Chinese versus Western medicine. “People from the West try to solve an issue by addressing the symptoms, while we in China address the root causes. The latter will take longer, but the solution will last longer.” This issue of pursuing short-term treatment of “symptoms” versus long-term treatment of “root causes” highlights a major element of growing global competition, occurring at the levels of individual companies, governments, and even economic systems.
Today it seems that businesses (and governments) can forget—and maybe cannot accept—that global competition does not occur just between those from the same markets or mindsets, but rather competition takes place between companies and governments from around the world. In this competition, there has been and continues to be a shift in the roles and relative importance of different sets of markets. In the 1980s and 1990s, the markets (and competitors) at the center of this competition were the Triad (USA, Japan, Europe). These markets were the primary focus competition, as well as being the origin of leading competitors. By the 2000s and to an even greater extent by the 2010s, the center of this competitive focus has shifted to the BRIC (Brazil, Russia, India, China). If you have any doubt about this shift, consider the large number of firms today that focus their activities in the Triad markets on restructuring and cash generation while they focus growth activities in the BRIC. The reason for this is obvious looking at the differences in economic growth rates between the regions – the roles and positions of the markets have changed.
Here is where the symptoms versus root causes dilemma becomes most evident. In the Triad markets today, companies are driven by quarterly financial results, while the focus of their governments is driven by political systems shaped by short election cycles (as demonstrated by the recent US midterm election). At the same time, the outlook and focus of many BRIC companies and governments is on long-term investment and positioning for the future.
Just looking at China today, this difference is clear and reflected in how both companies and the government are undertaking long-term projects and infrastructure investments. Two often cited examples include the following:
- Work will be completed soon, one year ahead of schedule, on a new 1,318 km high-speed rail connection between Shanghai and Beijing. At the same time China is becoming a global leader in high-speed rail systems, investing an estimated $300 billion in high-speed rail through 2020.
- Despite current environmental challenges, or maybe because of them, China is emerging at the world’s clean energy powerhouse, with investments in renewable energy surpassing, and nearly doubling, US investments in 2009.
In each case, there is a clear focus on responding to short-term issues with long-term oriented investments, not just in the individual projects but also in the competition to develop long term technological leadership in critical areas for the future. Contrast this to the situation in the United States where the governor of New Jersey cancelled plans for even one rail tunnel between New York and New Jersey and where energy policy was taken off the political agenda due to political infighting.
If you are long-term investor, where would you put your money today? Who do you think has the advantage in the ongoing competition between companies, and governments from across these regions? Remember, from a market viewpoint, this is a competition, not a judgment on which company or government is right or wrong. One may not agree with another’s system nor mindset, but they nonetheless compete in markets everyday.
Some business leaders, when describing competitors from high growth markets, complain that they operate under different rules and different economic systems. Facing reality today requires recognizing that this situation exists and will likely increase in the future, a fact that may be hard to accept for those companies no longer at the center of global competition.
But the message and challenge for these business leaders is clear. For companies, and countries, that want to succeed in the long term, the challenge today is to move beyond addressing short-term symptoms and responding to short-term pressures to truly understanding and addressing the root causes of today’s issues and tomorrow’s opportunities. In a globally competitive world with a shifting economic center of gravity, fighting to deliver short-term results at the cost of long-term opportunities is a threat to long-term viability and success.