Not that long after the fall of the Soviet Union, I, along with others in my law firm, had to spend considerable amounts of time in fairly remote places in Russia like Vladivostok, Petropavlovsk-Kamchatsky and Yuzhno-Sakhalinsk. Things were very uncertain in that part of Russia back then and we developed certain rules to protect ourselves. For instance, we always made sure that each person had at least enough cash to buy a last minute flight to Moscow and then from there back to the United States. Before leaving, we also would contact our Russian friends (including the spouse of a Russian Federal Marshall and a couple of Vice-Governors) to ascertain where they would be while our people were there (most did not have cell phones or email) and to confirm that we could contact them if anything would happen. In other words, we planned our escape route before we even went.
A few years back, I went to Papua New Guinea to recover helicopters for a Russian client. PNG (for the conoscenti) was in the throes of various insurrections at the time (I think this is nearly always the case) and I would be going to Goroka, which was fairly near at least one of them. I spent days planning the trip and set up all sorts of contingency plans. I even grew out a beard and bought a backpack to look like a hiker, not a businessperson.
When I was a kid, I lived in Istanbul, Turkey, for around fifteen months. At the start of my stay there, everything was great, but during our last month, there was a military takeover and it was a bit jarring to see two blank-faced 17 year olds from the villages on my buses holding machine guns. i can remember my parents meeting with consular officials to plot out an exit strategy if things turned for the worse.
One of the things I have always liked about China is that none of these sorts of thing are really required.
Or are they?
It seems like every time I talk with serious China people these days, they want to talk about what is going to happen in China regarding treatment of foreigners and governmental oversight (a euphamism). I have no idea, but I do get the sense that both the media and foreigners with a business stake in China are downplaying things. In fact, I think this almost has to be the case. I say this because the media are overwhelmingly in Beijing and Shanghai and because cognitive dissonance or sheer self-interest would cause the businessperson to have those views.
Be that as it may, I am not sure one needs to believe in some sort of imminent change in China to believe it at least makes sense to be ready for it. I can tell you that virtually all companies big enough to retain risk consultancies are doing so. Frankly, I am always amazed people do not think about these sorts of things more often.
Many years ago, I had a long-time client call me to ask for my assistance on an Iraq deal he would be doing. This was not long after the fall of Saddam. I told him I wanted no part of it and that I thought he was crazy to be planning to go there. I strongly suggested he would be better off staying alive for his children than making a few more million dollars. He was initially irritated with me but called me back a couple of weeks later to tell me I had been right and he was done with Iraq. I swear it was only days later that I learned of American businessperson Jeffrey Ake (who I had heard speak in Seattle only days earlier) go missing in Iraq. Mr. Ake remains missing.
The greater the risk, the greater the money. But the greater the risk, the greater the risk.
So good for Joseph Sternberg of the Wall Street Journal for writing this article (the title to which I dare not mention) on the need to be aware of and prepare for China risks. It is just wrong to assume and act as though things cannot and will not change. As Sternberg notes, “four months ago, no one would have predicted imminent mass unrest in Tunisia, Egypt, Syria, Bahrain, Yemen or Libya” and he warns companies to “consider managers trying to evacuate staff, safeguard physical property or keep supply chains operating as smoothly as possible.” He then provides “a brief guide to keeping your business afloat if China goes kablooey”
- First, “recognize that it really could happen. Human nature is to assume the status quo will continue indefinitely.”
- “Understand where your vulnerabilities lie.” You may already have “a detailed list of expat staffers in China, their addresses and dependents, to aid in a worst-case evacuation” but you should also “track executives who might be visiting, in case one of those should happen to be in town” when something series goes down.
- Think about your specific risks. “Are your factories identifiably ‘foreign’ and is that likely to be a sore point in the eyes of local residents? Have you previously stirred controversy for hiring lower-wage workers from other regions instead of locals? Are you in a controversial industry, such as a heavily polluting one, that could make you a target…?
- What about China’s role in your supply-chain? “The key is to diversify supply chains, a practice some—though by no means all—companies already have adopted. This is not necessarily cheap. But those companies that invest in a little excess factory capacity in another country or buy insurance against supply-chain disruptions may one day find the additional expense a price worth paying.”
- Think ahead as to how you will “respond to varying degrees of disruption. What events would trigger a factory closure for a couple days, or a reduction in factory hours, or moving workers’ dependents to another area, or in the worst case an evacuation of expat staff entirely? Who would make those decisions, based on what sources of information, and how would the decision be communicated down the line. And so on.”
Say what you will, I say there is nothing wrong with being prepared.
Because of my need for excessive euphemisms here, I urge you to go read Mr. Sternberg’s entire article here. I also note that I am going to need to be doubly careful regarding comments and warn that we may have to edit some of them. That being said, what do you think?