Seventeen years ago, my parents and I came to North Carolina as immigrants.  Then, like now, North Carolina’s reality was on the verge of a big change.  The NAFTA accords would be signed in 1994, and by the end of the millennium tens of thousands of jobs and entire industries would be wiped off the table.  But, the state has kept going. It has kept changing. And, today is no exception.  The following is part one of a two part series that presents my take on how China has changed, is changing, and will change North Carolina in the days to come. Part II can be found here.

//Damjan DeNoble

At the turn of the millennium and on the heels of the hotly anticipated but ultimately sterile Y2K apocalypse, China crept into North Carolina’s public consciousness like a thundercloud shadow over a little league football game, and brought down several decisive and – by contrast to Y2K – unanticipated strikes upon the state’s already struggling textile and furniture economies.  Cheap Chinese manufacturing, powered by the factory cities of Guangzhou undermined the profitability of North Carolina’s smaller, barely town size efforts at production.  According to Richard Craver, a reporter who often covers NC and China trade developments, The Economic Policy Institute conducted a study which concluded that between 2001 and 2007 North Carolina lost a net total of 79,800 jobs to China trade.

Nevertheless, North Carolina’s economy and China’s business interests, like the title characters in a bildungsroman, have made gains in understanding their relative positions to one another.  At decades end, North Carolina’s legislators and business leaders no longer publicly deride China as an obdurate, fun-wrecking thundercloud.  Chinese companies like Lenovo have given jobs back to the state in droves, while the needs of an increasingly high-tech Chinese economy have indirectly created jobs by opening new opportunities for North Carolina’s entrepreneurs.  Recently, this past May, speaking at a ceremony announcing the signing of a fifty million dollar partnership between Research Triangle Park’s Hamner Institute and China Medical City, Governor Bev Perdue was clear in her assessment that “A lot of us want a strong relationship between China and North Carolina. That’s key to the future of the economic prowess of this state.”

No one, however, should be under any kind of illusion about the nature of this growing relationship; it is born of necessity, not of romance.  Adam Smith’s invisible Frankenstein long ago forced the hand of North Carolina’s political and business circles, and any possibility of continued economic growth for NC requires a concentrated focus on the East.  If anything, the new Sino-Carolina relationship is a shotgun marriage.

Far from a match made in Wall Street heaven, Chinese and North Carolinian business norms and strategies often run counter to one another. For one thing, the rationality governing the respective approach of either party when it comes to business deals is diametrically opposed.  The Chinese are steeped in two thousand years of Confucian business practice where winner takes all, and the highest positioned is the winner; North Carolinians are more apt to serve sweet tea and talk golf while sitting at a round table.  For another, the market focus of Chinese multinationals is bound to be centered on a China-first, developing markets second, strategy.  Employees of North Carolina based Chinese companies will be in for a world of hurt if they are not prepared to be treated as second fiddle players.

The Raleigh Lenovo experiment is illustrative of both points.  In 2004, Lenovo bought out IBM’s PC manufacturing division, making Lenovo the third largest PC maker in the world.  By 2005, it became readily apparent that having an America-based headquarters was not a sacred cow for the China based computer manufacturer, and they demanded 14 million dollars in additional tax incentives to keep their America operations headquartered in Raleigh. NC found itself unable, for the most part, to resist the company’s demands, fearing that resistance could drive the company to move its headquarters further south to Mexico or Brazil; a move that would mean the loss of some one thousand triangle jobs.  Many North Carolinians were mad, but the protests lobbed against the company centered on the fact that Lenovo was abusing tax payer money.  No one thought to think that the Chinese company saw no political risk associated with using American tax payer dollars. Even today, Lenovo’s political pressures come from Beijing, as do their social priorities.  From Beijing’s perspective, adding 14 million dollars to their bottom lines with American tax money is a pure positive gain.

Certainly there is nothing wrong with this strategy if the cost cutting practices of American companies are to be seen as any kind of moral standard; the only issue is how quickly North Carolinians can reorient themselves to being on the other side of the coin. Simply put, whether or not North Carolina will come out ahead in this relationship is entirely dependent on its business leaders’ methodical and unremitting efforts at studying just what exactly doing business with Chinese partners means.   In a 2007 Washington Post article titled In N.C., a Second Industrial Revolution, Peter S. Goodman nicely summarized an incontrovertible truth of this new reality– it is not guaranteed that every business in North Carolina will profit, only that some will.

“Some players in North Carolina’s economy have figured out how to profit from the same Chinese factory output that devastated the state’s textile industry.”

At the same time Goodman points out that China and its growing high-tech industry also have a lot riding on a positive outcome from the Sino-Carolina partnership.

“China’s business interests have found adept partners for their high tech industry aspirations in the laboratories and classrooms of the RTP.”

So, if your business is not prepared for the coming paradigm shift, do not hit the panic button quite yet; there is ample time to get ready since it is in both party’s best interest to be patient.  Nevertheless, having a certain degree of Chinese cultural awareness will increase your possibility of success. The key is finding people who can help quicken that education.  More on that in Part II.