Chapter 18
The West: Politics => The Geopolitical Dimension
Get Your Government Involved, Get Involved with Your Government
Thus the expert in battle moves the enemy, and is not moved by him.
—Sun Tzu, The Art of War
As mentioned in earlier chapters, the Chinese are highly savvy and well practiced in applying political influence in business situations. Politics in this context includes a number of different aspects, which we will discuss in this chapter.
The Chinese (and other emerging countries) have utilized government-to-government influence very successfully to promote their national companies—and this has been a major source of contention for salespeople in many Western companies when doing business abroad. We touched on this in Chapter 17 when we discussed building relationships at all levels.
As much as we would like to believe that a sale should be based solely on the merits of the offer and on the ability of a company to meet and deliver on the expectations of the customer, sometimes those factors are not enough. The high-level political dimension of doing business abroad (as well as domestically) is a very critical and influential component of closing sales and is often less understood, and therefore underutilized, by Western companies.
When individuals working the deal at the execution level are not in tune with political undercurrents at the regional or national government levels, they are sometimes baffled or surprised by a customer's final choice of supplier. As we have seen, the Chinese government (and the governments of other emerging entrants) influences trade agreements that in turn impact business decisions in emerging markets.
This is not to say that Western governments do not also participate in negotiations that contribute positively to the success of their companies—almost all governments do some kind of ambassadorship on behalf of their commercial sectors. However, the coordination and assertiveness of some nations are more intensive than those of others.
If your national government is not battling for you as hard or as frequently as the governments of other countries you may be at a disadvantage, in which case it would behoove you to ask for support more often. Become more involved. Spend more time with government officials.
A critical consideration is the notion of ethics and knowing what practices are in line with a nation's philosophy and principles. The right combination is a level of coordination and assertiveness that are within ethical boundaries and accepted WTO practices.
Using the Corporate Government Affairs (GA) Group in Your Company
Our first recommendation is that you start at home base, with your own organization. If your company has a government affairs (GA) group or representative, get that group or individual on board with the sales side of the house. Historically GA groups have been focused on policy issues, and their role has primarily been interacting with and influencing government on policies that enable corporate functioning at a high level. GA groups have seldom been concerned with the business side of the organization or the sales function. However, over the past few years there has been a push for GA groups to be more involved with sales, as companies realize the impact that GA can have on global business transactions. With the growing impetus to go global and to expand into emerging markets, government involvement has become more and more necessary.
As we have seen, the practices in emerging markets and of emerging entrants are very different from those of the West. These players have different standards and ways of doing business, as well as different ethical practices. In any sales engagement there are different factors that contribute to a sale, and each has a different weight depending on the customer segment. In the case of emerging markets, there are so many geopolitical and socioeconomic considerations to making something happen that government-to-government interactions and negotiations have a much larger impact and greater importance. This is all the more reason to get the GA function working for you in your organization.
If you don't have a GA function, consider designating someone in an adjacent function or maybe even in your business development group to take on this responsibility, especially if you have an emerging-markets group in your company.
Getting the Corporate Government Affairs (GA) Group on Board
If global expansion and growth in emerging markets (with a high emphasis on sales) are promoted as high priorities or areas of investment for the organization by executive management it will be easier to convince GA that its participation is worth its time. Every function wants to—or should want to—ensure that its activities are relevant to the corporation at large; that is, to the greater organizational goals and priorities. Relevance means job security and advancement.
In my case, I was fortunate that expansion into emerging markets was a hot priority at Cisco at the time I was there, beginning at the CEO level. We had recently launched this segment as a separate region and there was a high level of investment and resources dedicated to this initiative. However, emerging-markets sales teams were being greatly challenged on government-related issues by the Chinese competition. Regional executives had made unsuccessful attempts in the past to get the GA group to assist in a sales capacity.
Timing and opportunities are often pivotal decision makers. When we approached the Cisco SVP of GA and presented the need for her group's assistance with this market challenge—assistance that would align her team with corporate priorities—she said yes, she would assist and participate. This meant that the GA group was ready to extend its mandate beyond just policy issues and into influencing sales. This represented a shift from GA's usual modus operandi.
How did we make this happen? By teaming up with a senior manager in GA who was passionate about the trade challenges from China, and who was keen to assist us in identifying exactly how GA could assist with global deal support. We created a proposal for the SVP of GA to present to the SVP of Emerging Markets, on the impact that GA could have on identified strategic accounts and countries, based on business development information sourced for her from the sales teams.
The following is a sample of the types of information collected from emerging-markets sales teams, which was used in a model that was co-created with the GA manager. This model was then used by the SVP of GA to present her involvement and the ways she could help the SVP of Emerging Markets. The proposal was specific and attached to select strategic accounts.
We determined which countries would be selected for evaluation based on the strategic priorities of the emerging-markets regional VPs first. And then we asked the sales teams the following questions:
- What is the value of near-term revenue potential or the current bid?
- What is the value of the medium- to long-term revenue potential?
- What is the targeted market share (current and future)?
- Is this a strategic account (i.e., is this a good regional reference account to have; is there a large bid coming up with high revenue potential)?
- Is this a global account (i.e., what is its reach, its affiliates in other countries)?
- What is the country's influence on ICT (information and communication technology) development in the region (i.e., is the country a trendsetter)?
Creating a GA Initiative to Support Emerging Markets
The following are some suggestions for specific actions you might include in your program or initiative that will formalize your commitment to including a political dimension in your business strategy.
- Create a program of regular, consistent meetings between EM government officials and your executives from corporate headquarters, including your CEO, SVPs, VPs, and global executives. These meetings could be held in the EM country, or invitations could be extended to EM government officials to visit your headquarters. Focus only on key EM strategic accounts, as your executives' time is valuable and limited.
- Provide country-specific updates in GA executive briefing notes for the CEO and other ranking executives. These updates could relate to competitors in that region and be included in the agendas of scheduled meetings with government officials/ministers.
- If you create a position as a competition liaison to sales (or include this responsibility in an existing position's job description), this person should keep GA informed of regional activities on a regular basis so GA can identify intelligence-sharing opportunities and influence dialog at higher levels—that is, between a C-level executive and the country's ministerial and presidential levels.
- Assign corporate and regional area-based executives to represent your company at summits and forums with ministerial presence.
- It is important to stay abreast of current government trade agreements and find opportunities for your company's contracts to be included in trade deals with a prospective customer/country.
- Select a couple of strategic EM accounts and apply your new multifaceted GA support services to address local needs. Use this as a case study to demonstrate what results can be produced from engaging at this level in other countries.
- Tactical: Solicit AC assistance with a specific bid situation in which your competitor may be employing unfair trading practices.
- Step 1: Complete the USDOC AC questionnaire.
- Step 2: Engage local trade representatives and ambassadors.
- Strategic: Leverage the proactive engagement of regional AC representatives; that is, apply preemptive influence.
- Set up and coordinate responsibilities for EM business development managers to act as regional GA representatives and coordinate through counterparts at corporate GA in Washington DC (or your country's equivalent). Responsibilities could include:
- Creating key relationship platforms with U.S. and foreign business councils and embassies.
- Identifying funding sources, such as the World Bank, the IDB, the ADB, the U.S. Agency for International Development (USAID), and the USTDA.
Know Your Priorities, Budgets
In setting up your competition program, if you are the deal-support program manager or can appoint someone to this role, know what the boundaries are and what budgets are available. If this deal-support element is important to your company, ensure that you have the budget and resources required to field these requests. Have a prioritization guideline spelled out so that you can field these requests fairly and allocate funds appropriately. For example, you may have selection criteria based on the size of the deal or whether it is part of the strategic-wins or must-win-battles list.
Government Regulatory Barriers That Hinder Competitiveness Overseas
One competitive disadvantage that the West has versus the East is the rigorous regulatory process of Western countries, particularly with respect to national security. Although well intentioned, the bureaucratic processes and procedures instituted by governments in the West have at times served as time-consuming hurdles or barriers for Western firms doing business abroad.
The Export License Process: A Bottleneck for International Business
One example of such a barrier is the process for obtaining export licenses. Some countries are more thorough than others when granting licenses to do business in emerging markets. However, any delay in issuing a license can affect your competitiveness in a deal, because it impacts your ability to deliver your product in time to the customer. When other countries do not have the same hoops to jump through, competitors from those countries are able to deliver product to customers more quickly than Western companies, which puts them at an advantage in winning the business. Even if customers prefer your solution, if you can't get the product to them in a timely manner, they will have to get a product elsewhere.
The U.S. government (USG) requires that U.S. companies obtain export licenses in order to sell to emerging markets. However, the process involved has proved to be a challenge to a company's competitiveness, as it sometimes takes two to three months, depending on the country being sold to.
Taking Action as a Company
As the liaison to the field and its primary advocate for having sales barriers addressed at corporate headquarters, I made it my job to escalate sales barriers to relevant functions and to do what it took to get barriers removed.
Your company's legal and licensing departments need to be involved and must understand the effect of your pain in detail. This will allow them to go to bat for the sales team and be proactive with pertinent government officials by briefing them about the financial impact of government policies on domestic companies. They can ask the government to modify rules in order to decrease the time it takes to get a license, but they need data and supporting evidence before they can do this. They will ask for specific examples from the sales teams in order to substantiate any complaints they make to government officials.
Once enough examples and evidence have been gathered, you can meet with the Bureau of Industry and Security (BIS), or its equivalent in your country. Take representatives from the legal, GA, and product management departments in your company, each of whom should have the necessary areas of expertise to state and support your case.
Make the case that if the government controls the export of your product to emerging countries too tightly, there are other functional and price equivalents out there provided by your competitors that could easily replace your solution and make you less competitive.
Try to get BIS (or your country's equivalent) to understand the importance of simplifying the process for your country's companies to sell globally. And if your company can afford to, assign resources to further drive policies to help your company overcome the export restrictions.
Escalating Challenges to Government
Here is a sample four-step process for acquiring the required data in order to escalate your challenges to U.S. government rules through your GA group. You can adapt this to your specific country or situation.
Step 1: Solicit Examples/Data from the Field
Examples of data to request from the field include:
- The products/solutions being positioned (if known).
- Examples of specific deals (e.g., region, customer) where your company was competing for business and lost it because of the time it took for you to obtain a license to sell.
- Potential future business that would be at stake if the process is not shortened.
- The dollar amount of the business lost or potentially lost.
State the deadline by which you need this data.
Step 2: Process the Data That You Get from the Field
Get clarification and more details when you need it. The more specific or quantified the data and information, the stronger the impact: Hard-number estimates of the revenues at stake get the government's attention.
Step 3: Close the Loop—Ensure Your Stakeholders (Sales) Know You Are on the Case
The field is busy and doesn't generally have time for marketing and support functions, unless you show value, responsiveness, and a return to its bottom line. If you ask for input, make sure you do something with the information—otherwise, you will compromise your credibility and their trust in you and they won't be as forthcoming with information in the future.
You cannot always influence others to take action, or get results (in this case from the licensing and GA groups). However, you can ensure that your stakeholders (in this case, the sales teams) know that you have not forgotten your commitment to them. This will protect your relationship and set a precedent for future requests or interactions by demonstrating that you keep your word and follow through.
Step 4: Be Tenacious and Patient
It often takes a long time to get results from collaborations with government groups, and you will not always get your desired or promised outcome. You need to try, but also keep your expectations realistic and remember that there are many faces in the realm of politics and they intertwine in many different directions.
Despite having delivered the data requested by GA, you will not be guaranteed timely results or even results in the agreed-upon area. It is up to you to make a judgment call as to whether you still want to play at a given point and at what cost. What is the return on effort? And what will be the impact of your decision on your credibility with the sales team?
The U.S. Department of Commerce (or Your Country's Equivalent) Is There to Help You
A good part of the sales-support escalations that we received were about how the Chinese government influenced and intercepted deals that EM sales representative were working on and thought they had a solid chance at winning. Which begs the question, what is our government doing for us? And so the digging began for the answer. There are some services and procedures provided by the U.S. government to assist U.S. companies that are going global. And there are equivalent organizations in other countries.
While China has five-year plans for every industry and project, the United States does not have similar initiatives because of different economic structures and political systems. Thus, it is important for you as a business to understand what your government can do for you, and in turn take advantage of all it has to offer. The following are services offered by the U.S. government to help companies overcome challenges, as well as suggestions for areas of collaboration with the government during your global expansion:
- The U.S. Commercial Service is a government agency whose mission is to help U.S. companies doing business abroad. Other countries have similar programs.
- Founded in 1980, the U.S. Commercial Service is an agency of the USDOC that assists U.S. companies, particularly small and medium-sized businesses, in selling to international markets. Its network includes 107 U.S. Export Assistance Centers throughout the United States and more than 150 overseas offices in 87 countries.
- The U.S. Commercial Service offers a number of resources, including:
- Assistance with intellectual property protection
- The Gold Key Matching Service—guidance for entrepreneurs going abroad to unfamiliar regions
- A Commercial Service rep in each multinational development bank (for example, the World Bank, the IDB)
- Prearranged B2B (business-to-business) meetings with potential overseas partners
- Background checks on potential partners in overseas markets
- Other agencies of the U.S. government that can assist American firms in worldwide markets include those that follow. Agency websites provide the information on where to start the networking.
- DOC: International Trade Administration (ITA)/AC, and the National Institute of Standards and Technology (NIST)
- Department of State: Office of the Director of IT Policy
- Office of the United States Trade Representative (USTR)
- USTDA: The USTDA provides funds for feasibility studies and shares expenses in bringing foreign government officials to the United States for business trips.
- In Section II we talked about the advantages that Chinese companies have because their government opens doors for them when they meet with high-level government officials abroad. As China Inc., government and company representatives go into trade negotiations with the intention of negotiating national-level commercial deals for Chinese companies. The closest equivalent for U.S. companies is a U.S. trade mission. Here is an example of the type of announcement that might be put out when a U.S. trade mission is in the works, and that you might want to receive on a regular basis (another advantage of connecting with your government):
U.S. Department of Commerce International Trade Administration ICT Trade Mission to Hong Kong and Singapore
To meet Southeast Asia's rising demand for innovative information and communication technologies, the U.S. Department of Commerce's Commercial Service is organizing an ICT trade mission to Hong Kong and Singapore…
The U.S. Government benefits from collaboration with industry as well. This is an example of a solicitation for input from companies:
The U.S. government is negotiating a free trade agreement with Korea and asking for industry input on what the objectives should be. We have an opportunity to help shape the terms and conditions of the agreement in a way that can help increase our business in Korea. For example, eliminating tariffs between the two countries, reducing technical requirements like standards issues, increasing competition in telecom, opening government procurement market, intellectual property rights enforcement, etc.
Fair Trade Is in the Emerging Entrants' Best Interest, Too
One fundamental difference between the West and EMs are the standards in business conduct: structure, regulations, explicit and implicit understanding of business ethics, boundaries, and so on. And the spectrum of variation runs across nations in each of those groups; that is, some EM countries have higher ethical standards than others—and so too in the West. In general terms, EMs tend to be more flexible on the boundaries that can be crossed in order to win—and EM competitors will go a bit further than internationally accepted business trade rules. From a Western perspective, these kinds of practices are considered unfair trade practices.
In the United States, the U.S. government and U.S. companies adhere to the Foreign Corrupt Practices Act (FCPA). The FCPA is a federal law that prohibits government agencies and private companies from paying bribes to foreign government officials and political figures for the purpose of obtaining business. Companies must sign a document that they will adhere to the FCPA before they can engage the AC to assist them.
While trade barriers and unfair practices take many forms, according to the U.S. Commercial Service the most common forms are:1
- Intellectual property infringement—including copyright, patents, and trademarks
- Customs procedures that are not uniformly applied
- Lack of competitive bidding for foreign government tenders
- The application of direct or indirect subsidies by a foreign government in favor of domestic suppliers
- Burdensome certification and testing requirements that are not requirements for domestic manufacturers
- Influence peddling (a corporate entity or government agency interfering with fair trade practices)
- Bribery, corruption, and requests for payoffs (factors preventing fair competition on the basis of price, quality, and service)
- Competition from unfairly traded imports (i.e., dumped or foreign government subsidized goods)
The U.S. government helps U.S. exporters resolve trade barriers every day through programs such as ITA's Trade Agreements Compliance program. There are also groups, such as the WTO, which, among other mandates, operates a system of trade rules and is a place to settle disputes.
If you believe your company has been hurt by unfair trade practices as defined by WTO international trade laws, you should enlist the support of the U.S. government. Violations of trade laws include:
- Dumping cases; that is, selling products or services below cost or giving them away for free.
- Financing offers that include exceptionally low interest rates or no payment required for five years or more.
- Influencing an RFP or bid before or after it has been issued and inserting needless requirements that allow one vendor a monopolistic advantage.
- Proactive insertion of terms intended to favor a particular competitor into U.S. trade agreements, trade balance reviews for pivotal countries, or strategy communication to AC.
One significant case of action taken against dumping in the United States took place in the solar industry. The U.S.-China solar panel trade case resulted in the United States imposing punitive antidumping tariffs on billions of dollars of solar products from China.
The problem began in 2009, when artificially cheap Chinese solar products flooded the U.S. market and devastated U.S. solar manufacturing. A solar-technology company, SolarWorld, complained that China had engaged in a collection of illegal so-called green mercantilist policies, including unfair subsidies to domestic firms, dumping products below market prices, and stealing trade secrets from competitors through cyberattacks and other forms of espionage. China went from exporting very few solar products to the United States before 2009 to shipping 49 percent of the solar panels deployed in the United States in 2013. As a result, over 25 U.S. solar manufacturers either went bankrupt or were forced to lay off workers.
The USDOC ruled in favor of SolarWorld's petition and decided to impose significant tariffs on Chinese solar modules. It blocked foreign government interference in the U.S. economy and cleared the way for the domestic production industry. “We should not have to compete with dumped imports or the Chinese government. Today's actions should help the U.S. solar manufacturing industry to expand and innovate,” stated the president of SolarWorld Industries America.2
Be Proactive before the Situation Is Critical
When you sense an unfair trade situation, it may be beneficial to make your GA group and/or the USG aware of it sooner rather than later. This will allow time for preemptive action if necessary. Simply reporting an infraction after it has occurred happens too late in the process to effect any change in that particular instance.
What you can do:
- Proactively anticipate opportunities for embassy involvement or relationship building in your country during the business-planning process.
- Keep the intelligence flowing through the company deal management tool or e-mail.
- Even if there is not an immediate situation, the more your company GA team knows, the more it can assist in a number of different ways and in a proactive manner.
Of course, there are many gray areas between what constitutes an unfair trade practice versus a stretch in creative business tactics to win business. You should give thoughtful consideration to a case before taking any action or making any allegations. There are also implications to consider, such as how an accusation might affect your trade relations with the accused country.
Some factors to be considered at your company's corporate level when deciding whether to take action on a potential unfair trade practice include the following:
- Consider getting the legal department involved.
- Weigh the bigger-picture political and commercial implications of pursuing grievances about a country's business practices.
- Consider current or upcoming tenders—how large are they in dollars? How strategic is this win? How important is this account for future business (for example, could a national build-out mean long-term entrenchment)?
- Keep your target strategic accounts on your radar to know when to get involved.
Remind Your Customers of Their Own Rules
At times, local governments forget about their own rules for tenders because they have been influenced by all the perks and schmoozing from emerging competitors, all worthy attempts to get customers sold on their offers. In these cases it may be a good idea to use the GA group's assistance to dispute potentially corrupt practices.
In one case in an African country, a local government was updating public infrastructure and was consulting the competition to drive the tendering process for the network. This resulted in a bias of the proposal toward the competitor's capabilities and raised suspicions of unethical practices by officials. The U.S. company's sales team sought to use the services of the U.S. embassy to remind local government officials of their own tendering rules. They also highlighted the amount of trade between the United States and this African country, and reminded officials of the potential opportunity cost if they did not want to play fair.
Regional sales representatives and business development people can get connected locally or report unfair trade practices using these resources:
- The embassy or consulate general from your host country.
- The U.S. and Foreign Commercial Service; speak to:
- The DOC's senior commercial officer, if available.
- The Department of State's economic officer in the economic section, if the commercial officer is not available.
- In Washington, DC, you may contact the U.S. Department of Commerce: (USDOC) International Trade Agency (ITA).3
Every region in the world is divided into theaters, and each one has an officer responsible for overseeing regional cases. The USDOC has information portals regarding issues such as trade barriers, trade complaints, and bribery. One practical, business-facing portal that helps U.S. companies that are exporting is www.export.gov; another resource is www.trade.gov (the ITA website).
You can file a trade complaint in either of the portals listed above. If the case involves a host country government, then file an advocacy case with the U.S. and Foreign Commercial Service at the U.S. embassy or the nearest consulate general. Currently, many U.S. firms are working with the USDOC worldwide to defend their interests when business conduct is not transparent.
It is also important to ask your regional sales teams to report their activities back to your company GA office or representative. The local U.S. Commercial Service officers report back to agency headquarters for guidance, so it would be beneficial for your company's GA central point of contact to be aware of any regional issues or filed complaints. This is not only to close the communication loop, but it may also serve as a double-ended influencing activity; in other words, if the U.S. government hears about the issues from a few different sources, it may have more impact and staying power.
The following is one example of successfully challenging unfair trade practices with the help of the USDOC's AC.
The USDOC's AC ensures that U.S. vendors are treated fairly in the bidding process for tenders released by overseas governments. In one case, the sales team had been working on a national network build-out for over two years and it was confident that its solution was a top contender for selection. The emerging competitor was not even close to satisfying the customer requirements. Due to government-to-government influence at the presidential level, it was suggested that the networking contract be assigned to the emerging competitor as part of trade agreement negotiations. The preexisting RFP was changed right before closing and was reissued with obscure (and unnecessary) feature requirements that only the emerging competitor could fulfill. Complaints to the AC by U.S. vendors about the annulment of the tender resulted in enforcement of a procurement resolution. This overturned the decision of termination of the tender and the customer was instructed to reevaluate the original bids.
Remember That Unfair Practices Go Both Ways
Western companies are not always in the clear when it comes to unfair trade practices either. Emerging competitors also sometimes feel unfairly treated by the United States or other Western countries. One example is the rejection of the review by the Committee on Foreign Investment in the United States (CFIUS) of Huawei's proposed purchase of 3Leaf in 2011. It was rejected based on cited national security concerns, which Huawei said were “long-standing and untrue rumors and allegations.”4
Further, the Chinese government is also concerned about cyberspying by the United States, particularly since 2013, given the revelations of former U.S. NSA contractor Edward Snowden about a cyberspying program involving U.S. firms. As a result, the Chinese government has encouraged the use of local Chinese companies, which has impacted U.S. companies' expansion into China's markets. This barrier makes it all the more important for U.S. companies to partner with China-based companies in order to tap into the significant revenue opportunity China represents. Hewlett Packard (HP) did exactly that in May 2015 when it announced that it was selling a (controlling) 51 percent stake in its Chinese server and storage business unit to Tsinghua Holdings, part of the state-owned Tsinghua University. The unit will be called H3C, and HP believes that the partnership will accelerate its growth in the country. According to HP CEO Meg Whitman, “HP is making a bold move to win in today's China. Partnering with Tsinghua, one of China's most respected institutions, the new H3C will be able to drive even greater innovation for China, in China.”5 And so the rebalancing continues, along with sheer tenacity, in order to pursue global business opportunities while playing nicely in each other's sandboxes.
Politics are always deep and complicated. Motivations are often intricate and not so obvious. Best to keep the bigger picture in mind and the implications of your short-term actions on the future.