GE CEO Jeffrey Immelt has committed something called a gaffe, which journalist Michael Kinsley famously defined (in the context of U.S. politics) as an accidental occurrence of truth telling. Immelt has stepped in it with comments made about China. As the CEO of a multinational that does billions of dollars in business over here, trash talking about Beijing is something you usually avoid.
Let’s go to the tape. The Financial Times reported on the unfortunate utterance:
Jeffrey Immelt, General Electric’s chief executive, has launched a rare broadside against the Chinese government, which he accused of being increasingly hostile to foreign multinationals.
He warned that the world’s largest manufacturing company was exploring better prospects elsewhere in resource-rich countries, which did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of top Italian executives in Rome, accusing the Chinese government of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful.”
Before addressing what these comments say about Immelt, let’s first address the substance of what he said. Is China a protectionist country? Yes, there is some truth to this. Many of China’s policies are indeed protectionist, several of which have become less and less favorable towards foreign investors in the past few years. On the other hand, every country in the world, including the United States, practices trade protectionism, so this general statement has little value — the information it conveys is rather self evident.
Does China want GE to win?1 Generally speaking, I’m sure that Beijing would be very happy for GE to continue doing business in China, employing lots of workers and paying taxes. Sounds like a good arrangement, after all, right?
Sort of. It all gets down to what a “win” is, a concept that has baffled folks throughout history, from King Midas to Don Rumsfeld. As one blogger in the Economist noted in response to the Immelt kerfuffle, the Chinese sure know how to drive a hard bargain; it’s a good idea to wait a few years before pronouncing that new China operation a win or a loss.
Apparently Immelt has been carrying around this China angst for a while now, as Fortune‘s Heidi Moore reminds us:
This wasn’t an isolated incident. In Shanghai last month, Immelt told a group in Shangai: “I look at my American colleagues, the hardest thing to do in China is get a win-win relationship[.]”
So we’re not just talking about GE “winning” in China, the issue is whether China allows American companies to enter into “win-win” relationships. Well, this is also rather fuzzy terminology of course. Two parties to an agreement can both come out ahead, for example, even though one side obtains 99% of the benefits, while the other only receives 1%. It’s still a “win-win” situation, isn’t it?
To be charitable (for the moment), let’s assume that Immelt means that the benefits should be relatively balanced, that an investor should get a “fair deal” when coming to China. Does Immelt therefore believe that American investors are being treated unfairly?
That’s definitely what he thinks. The Economist succinctly explains exactly what is bothering folks like Immelt these days: “[T]he Chinese have always driven a hard bargain, and they have always made it clear that they will give only to get.” But what exactly is GE giving, and what is China getting, from this American investment? Hint: General Electric is a high technology company. The Wall Street Journal spells it out:
GE has been handing over technology in everything from rail locomotives to antipollution equipment to gain access to the domestic Chinese market.
For international multinationals, technology transfer has long been the quid pro quo of landing deals in China.
Foreign businesses have meekly gone along with this arrangement because they assume that since the biggest markets in everything from wind turbines to mobile phones have moved to China, you have to be in the country if you want to be No. 1, No. 2 or even No. 3 in the world. Without scale, global businesses can’t be industry leaders, they can’t remain on the frontiers of technology, and they become more vulnerable to competition. But scale means that you’ve got to be in China.
Immelt is not the first foreign investor to be upset about forced technology transfer in China, although the unofficial practice does work to the detriment of companies like GE much more than others. Does GE want to bring over its technology? Not to a Joint Venture they don’t; they would prefer to keep trade secrets offshore and limit patented technology to very restrictive licenses to corporate units that they own outright.
But when you are a big multinational technology company like GE, you need huge revenues and increasing market share to keep growing, and that means you not only need China, but you will be forced at some point to do business with large, powerful State-owned Enterprises (SOEs).
Beijing is well aware of the leverage it possesses:
That calculation gives China enormous bargaining power. It’s not as though China has to go about acquiring technology in a sly, underhanded way. In fact, it’s been quite open about what it expects in return for market access. Recently, GE upped the ante on technology transfer by injecting its entire global avionics business into a China JV as part of the price for participating in the development of a Chinese passenger jet.
In China, you have to give a little to get a little, and with all due respect to the Wall Street Journal, there are indeed many instances of “sly, underhanded” protectionist tactics going on in the China market with respect to acquisition of new technology. China may be quite open with its industrial policy and its desire to obtain new technology, but its tactics run the gamut from utter transparency to Gulf of Mexico murky.
So Immelt is not just blowing smoke here. There is some substance behind his gaffe, albeit overblown. And yet, strangely enough, he is still a world-class douche. Allow me to enumerate:
Jeff Immelt is a Douche Because
1. He is acting like a petulant child.
“Wahhhh! The Chinese are playing hardball with my company! Make ‘em stop! It’s not fair!” Grow up, for heaven’s sake.
2. He is hopelessly naive.
Look, the world is arbitrarily organized into units called countries. Along with that, there is something called nationalism and national interest. Countries generally draw on this when making decisions, preferring to help their own people first before doling out benefits to others. Is Jeff Immelt a closet liberal idealist that believes in a One World Government?
3. He was asleep when they briefed him on WTO.
Somehow Immelt and his ilk got the mistaken impression that when China joined the WTO, it meant that the country’s economic policy would somehow be guided by a classic Liberal laissez faire philosophy, that China was a convert to the Washington Consensus, and that foreign investors would be treated like royalty. For many years, foreign investors were indeed given lots of great deals, including tax breaks. But the economy here has moved on and matured, and so has Beijing’s inward foreign investment policies. Immelt must have missed that memo.
4. He believes GE is entitled to a better deal than other investors.
This is a guess on my part, but you have to wonder what a CEO thinks he’s getting in return for this type of expenditure:
General Electric spent $7 million lobbying the government in the first quarter of 2010, American Banking News reports, up from $6.8 million the previous quarter — on issues from health care reform to consumer protection.
I have no idea where that $7 million went, and I don’t want to know, but I suspect that all of those “Entertainment” line items in the government relations China budget were meant to add up to something useful for GE. You spend that much money, you probably don’t just want to be treated fairly; you want a much better deal than the next guy. And if you end up with very little after making that expenditure, it makes you look like a fool. That would piss me off too.
5. His China growth predictions were way off.
Immelt was counting on big-time numbers from China to shore up GE’s bottom line. Hasn’t happened yet, and GE’s stock price certainly doesn’t look like something to shout about. How did he get this job anyway? Was he hired by the company to be CEO or merely made Mayor of GE after a particularly heavy day of Foursquare?
Immelt’s frustration may have been fed by GE’s (GE) own missed goals in the country. While Immelt boldly predicted that GE would double its revenues in China between 2008 and 2010, they actually only grew by 12% through 2009.
6. He is a hypocrite.
I have no problem with folks talking trash about specific protectionist policies, but complaints that “the country” itself is protectionist and treats foreign companies unfairly smacks of hypocrisy coming from the CEO of an American multinational, a company that would not even exist without U.S. government contracts, or what some refer to as “corporate welfare.”
7. He is having buyer’s remorse.
Immelt needs to nut up and admit that GE knew about all these risks prior to expanding into China. The hypothetical question posed by the Wall Street Journal, “But now that they’ve relinquished some of their most valuable industrial secrets, the world’s biggest technology companies are asking themselves: Was it all worthwhile?” goes far to explain Immelt’s emotional state, but it’s a pathetic excuse. You guys knew the downside, now live with it.
8. He is demonizing China’s outward investment.
Immelt also made some choice comments about China’s presence overseas:
“China and India remain important for GE but I am thinking about what is next,” he said, mentioning what he called “most interesting resource-rich countries” in the Middle East, Africa, Latin America plus Indonesia. “They don’t all want to be colonised by the Chinese. They want to develop themselves,” he said.
Yes, these countries do not wish to be colonized by China. Bold statement. The tone here is that China is doing something it shouldn’t in these countries, and that they would prefer working with GE as a bulwark against Chinese expansion. Is this Jeff Immelt talking about foreign investment or Nehru touting the benefits of non-alignment?
Jeff Immelt may have won this week’s “plain-speaking prize” for voicing concerns shared by many foreign investors in China, but in doing so, he gave us all a glimpse of his inner douchebag, which was unfortunate. If he continues with the brainless trash talking, by the end of the summer he might very well achieve “douche nozzle” status. Keep it up, Jeff.
- I assume that Immelt’s use of “us” is a reference to “GE,” and that “win” means to be profitable in the medium to long term. [↩]