China the test bed for new technologies

Paul A. Laudicina, managing officer and chairman of the board with US consulting firm AT Kearney, is a frequent visitor to China. In his recent trip to Beijing, he talked to China Daily reporter Liu Baijia about the impact of the messages from the 17th National Congress of the Communist Party on businesses and how multinationals should cope with new changes in China.

Q: What messages should multinationals get from the Party congress?

A: The messages are very positive for China. Globalization, environmental degradation and demographic changes, which were discussed at the Party Congress, are three fundamental drivers to a World out of Balance, as in my book.

One of China's official policies is to achieve sustainable growth in a way that more people can benefit from it. One problem of globalization in some countries is that many people are benefiting from it but the gap between the rich and the poor is widening. When China talks about bridging such gaps, it is of fundamental interest to businesses and society.

China's message on environment is also very clear. Companies must deliver economic value to shareholders, but they should be doing it in an environmentally sustainable manner.

It makes business sense. If you look at the Dow Jones sustainability index, those of the 2,500 companies that are committed to a policy of sustainability, which we tracked across 20 years, constantly outperform the Morgan Stanley composite index companies, which do not have a corporate policy of sustainability.

So this whole question of will we continue to be able to derive benefits from integration and globalization hinges on the kind of issues the Party Congress has been discussing.

Q: What kind of changes should multinationals be making?

A: Multinationals have to find ways to be more efficient in the use of resources. They have to develop or devote more energy to finding alternative resources and natural resources through innovation. They have to find more efficient and effective ways of managing manufacturing processes, so that there are not only fewer inputs but also less environmental degradation.

The largest companies in a survey we did, which will be released as part of our annual foreign direct investment confidence report in December, shows more companies are committed to sustainability. When you ask them what are the big risks going forward, they talk about increased risks with availability and cost of supply, as well as some issues related with environmental degradation. It is when you go through a whole list of risks until the end that you find traditional macroeconomic or fiscal balance.

Relating to demographic changes, China's population over 65 will triple in the next 20 years, so we think this is a rapidly ageing society. Companies must find out what that means in terms of labor arbitrage, in terms of demands on resources. What does that mean for future consumer behavior?

We have seen the industrialized West, including Japan, is growing old and demanding more services, education, healthcare, entertainment, and leisure, but the developing world is still buying goods, so the focus of consumer behavior is shifting very rapidly between countries and within countries.

Q: Multinationals have seen a lot of challenges from companies from emerging countries, such as price wars. Do you think sustainability is going to become an advantage for multinationals this time?

A: I think it will be an advantage. It's a fundamental change in the theory of business. Sustainability is not just another important thing; it is the heart of what companies have to do. They have to fundamentally change the way they look at the world. They have to look at the whole supply chain differently because of resource constraints.

For example, if the Chinese consumers went anywhere near the prediction of Goldman Sachs, there would be 2 billion cars, if they adopt the same consumption behavior as US consumers. That would require three planets like Earth.

So China will be the test bed for all kinds of new exciting technologies. China is aware of the resource constraints upon it at this late stage of development and knows it is difficult to develop in the same way as the industrialized society has been doing.

(China Daily 11/21/2007 page15)