Pawning the Family China

We’ve grown used to superlatives about the Chinese market, its billions of consumers, trillions in investments, the all-consuming maw of its energy needs.  Global companies have proved willing to do almost anything not to be left out of the competition to meet these needs, even when the costs and risks have been astonishingly high.  Now the Wall Street Journal reports on two massive deals in which GE agrees to combine its global avionics business with AVIC, the Chinese aviation company and GM expands its joint venture with SAIC, the Chinese automotive company, to sell its no frills Wuling mini-van throughout Southeast Asia.

We can leave to more competent analysts such issues as the intellectual property risk. There has already been pointed commentary on the joint venture that Kawasaki Heavy Industries and Siemens  created with a Chinese partner in high-speed railroads that has in short order produced a competitor for them all over the world.  What interests us is the increased reputation risk that GE, GM and other companies have taken on with these intense and intimate partnerships.

We make no allegations against any specific Chinese companies, but it is clear that a century or more of corporate reputation building by GE and GM is not matched by their fledgling (if giant) Chinese partners.  The ethical care and commitment to international standards across a broad swathe of business practices exemplified by companies such as these stand for respected corporate brands that have now been placed in the hands of their Chinese partners.  Having spent decades ensuring that their supply chains around the world are behaving in accordance with their own standards, these companies now arguably face reputation risk on an unprecedented scale.

In avionics henceforth, at least so it looks from the outside, GE is AVIC and AVIC is GE.  A manageable challenge, certainly, but  no-one should mistake the shift in the order of reputation risk magnitude that has taken place.

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