Are foreign firms in China neglecting the risk of Chinese nationalism to their business? What should companies be doing, given the recent problems Carrefour and McDonalds have had? In this interview Associate Professor Teng Binsheng tells us that ‘the effects of nationalism’ could be ‘long-lasting’ and he warns multinationals that if you ‘see your China operation only as a subsidiary then you will not respond appropriately’. He also considers Chinese companies’ strategy, and the likelihood of nationalism inhibiting the acquisition of Chinese companies by foreign firms.

Dr. Teng is an Associate Professor of Strategic Management at Cheung Kong GSB and an Associate Professor of Strategic Management at George Washington University. His current research and teaching focus is on strategic alliances, M&A, entrepreneurship and innovation, and Chinese firms' global strategies.

         Is Chinese nationalism a risk for foreign businesses?

Teng: I think there is definitely uncertainty. The difference between risk and uncertainty is quite subtle. Rising nationalism can create problems for companies both inside and outside China because you cannot fully predict how Chinese people may express their national pride, that’s why I call it uncertainty.

Foreign businesses might ask if the recent anger directed at Carrefour due to the    trouble at Olympic torch relay in Paris was a one-off event, or if there is a longer - term risk which foreign companies face due to Chinese nationalism?

Teng: I think that after 30 years of opening to the outside world China has made great strides in terms of economic development. The Chinese public realizes that the country is quite developed and they think we should have increased global status. Right now, Chinese people are taking pride in their country’s development over the past 30 years. If people are seen to be damaging or undermining China’s development then nationalism could spark up again and we can expect the effects to be long-lasting.

Teng: I think that the best thing for most multinational companies is to stay cool and to not pander to rising nationalism because there is so much uncertainty about how it will surface, and therefore it is hard to work out a long-term strategy. It is best to stay away from the issue, if you are not sure how to best take advantage of it.

But this is not a problem only confined to China - we see nationalism all over the world. If you compare China to some other East Asian countries like Korea and Japan, China is as open as they are, or even more open. Chinese consumers are open to foreign businesses, so I think foreign businesses do not need to pander to nationalism.

You think that companies should try and shy away from using nationalism in their marketing strategies?

Teng: Using nationalist feeling is a high risk strategy; you never know how things may turn out. Foreign companies should try and avoid the limelight when it comes to nationalism, however sometimes events are beyond their control - Carrefour might not have supported the Dalai Lama and yet they were still subject to boycotts and to protests. Sometimes there are conflicting messages given to Chinese people. It’s hard for people to get the whole story, which is of course the danger.

Although foreign companies should try to localize their brands to meet local consumer’s tastes and preferences, that doesn’t mean they should completely alter product or marketing. They should focus on what they do best.

Thinking about the example of Carrefour, and of McDonalds which was      seen to have not donated enough to the Sichuan earthquake, what lessons can   be learned?

Teng: One difficulty that foreign businesses face is that no-one can adequately predict what the public response will be to these kinds of events. McDonalds was perhaps only slow to donate at first because they were in the process of deciding how much to donate, but the Chinese people can be impatient. Chinese companies were able to quickly donate while foreign companies’ subsidiaries have to wait for confirmation from head office.

People in China are often not aware of the dynamics of how foreign companies are run. Instead, they see them as being unsupportive. Companies should work out how to respond quickly and appropriately. If you carry out a gesture of goodwill you should let people know. After McDonald’s made a larger donation they publicized it more widely.

Companies here also need to take a sophisticated view of PR. If you take a simplified approach and see your China operation only as a subsidiary then you will not respond appropriately. You should see yourself as a Chinese company and ask yourself what you should do to maximize image and goodwill in those terms.

If the Chinese market is important to a multinational it must have a China-specific plan which includes a separate public relations team. It is important to have a team on the ground with knowledge of China because firms in China have to be very responsive and keep a close eye on how the situation in the country is changing. Think about how different things were two months ago before the Sichuan earthquake and how they will be different in a couple of months when we are in the midst of the Olympics.

A lot of multinational companies do use Chinese companies for their PR. However their authority to do as they want may be limited as they may have to convey a message approved by the head office, so it may take them too long to implement the correct strategy.

What about Chinese companies – how do they fit in to all of this?

Teng: Chinese companies have to be careful not to risk overplaying nationalism. A good example would be the joint venture between Wahaha and Danone when a dispute arose because Danone wanted to buy out the Wahaha brand. Initially Mr Zong, the founder of Wahaha, used the nationalist card, arguing that it was a classic example of a giant multinational trying to take advantage of a local brand. The initial public response was positive and supportive of Mr Zong. Later, people began to doubt if it really was about national interests when more details became available. I think for him overdoing the China angle was a liability. Companies should show patriotism but shouldn’t make unnecessary connections – the internet makes information exchange efficient and effective. People eventually will be well informed, so you have to be fair and your message has to be fair.

What other issues related to nationalism do you think will be important for foreign companies going forward?

Teng: Another issue affecting the Chinese public’s attitude to multinational companies’ is their acquisitions of Chinese firms. Every year there are major disputes over whether companies should be allowed to buy a Chinese brand. The new anti-trust legislation comes into effect on the first of August, and aims to prevent monopolies growing in China. The initial intent of the legislation was not to deal with nationalism but to better regulate the Chinese economy and bring it inline with the outside world. But in the current context, the anti-trust law may be used to fend off foreign firms partly due to rising nationalism.