Economy
The man who monitors the management
By Andrew Moody (China Daily)
Updated: 2011-06-25 10:29
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Consultant Joe Fuller outlines his views on the Chinese economy
BEIJING - Joe Fuller, an international management consultant, says many Chinese companies are still looking for a "safe harbor" after surviving the maelstrom of the economic crisis.
"It is hard to change direction in a typhoon. The first challenge of a captain is not to let the ship founder and most of the export companies' strategies have been about not foundering," he says.
The 53-year-old co-founder of the Monitor Group, a global management consultancy, is given to nautical metaphors, as befits someone whose ancestor was the only doctor on The Mayflower that carried the Pilgrim Fathers to New England in 1620.
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"Many Chinese companies have lived through the economic crisis but are not entirely clear where there is a safe harbor to put into," he says.
Fuller was speaking in his company's offices in the Twin Towers office complex at Jianguomenwai Avenue in Beijing. Monitor Group serves both Chinese and multinational clients.
He was in China to moderate a debate at the Boao Forum for Asia in South China's Hainan province focusing on how companies can build risk management strategies to deal with so-called "unknown unknowns", a term that certainly encompasses the financial crisis.
Fuller, who speaks with a measured New England accent, says that being able to deal with "unknown unknowns" is a vital part of business strategy, not just for commercial organizations but for governments, too.
"You are looking at whether a company has a strategy that is so robust it can hold up in the face of something that is unexpected such as an economic crisis, political crisis, major earthquake or an act of God," he says. "Often our work here involves working on things like scenario planning, using various war-gaming or game theory techniques to help decision-makers understand the implications of different patterns of outcomes."
Fuller said it is still not clear where the Chinese economy stands nearly three years after the events on Wall Street triggered a financial tsunami.
"What the (Chinese) government has done has flooded the market with liquidity, produced a massive stimulus and created massive spending on an unprecedented scale, and as a result has papered over some of the problems. The law of unintended consequences of what the government has done is yet to be understood," he says.
Fuller co-founded Monitor in 1983 shortly after leaving Harvard Business School. He says he has spent his entire life in more or less the same place.
"I was born in Cambridge, Massachusetts, both my parents were Harvard professors, I went to university and business school there and I set up a business that was originally headquartered in Harvard Square," he says.
The management consultant says if things had been only slightly different he might have had a long career in China instead.
The historian of China, John King Fairbank, who taught Fuller at Harvard, heavily influenced him.
"I was at the point of coming to China to learn Mandarin but I was wise enough to realize it would be a five-year commitment and I was a young man in a hurry," he says. "At the time also I was quite in love with my very attractive girlfriend who is my still-attractive wife."
Monitor from the outset aimed to operate at a more niche level than major competitors such as McKinsey & Co and Bain & Co.
"You would go to McKinsey if, for example, you wanted to implement a program of sourcing textiles in South Asia. We were more geared to questions that were not given to replicable answers such as questions of strategy," he says.
The company, which now employs 1,500 worldwide, found its entry into China overshadowed by events elsewhere.
Its Beijing office opened on September 12, 2001, the day after the attacks on the World Trade Center.
"I was watching the horrible events unfold in the St. Regis hotel in Beijing. I must say everyone in China couldn't have been more gracious or sympathetic. I found myself unable to return to the United States and actually spent two full days in the city museum in Shanghai," he says.
Fuller is a keen observer of the Chinese economy and is concerned by the strategies of some Chinese companies.
He says a number have taken advantage of cheap money to stockpile raw materials such as iron ore and copper because they have an almost blind confidence that these commodities will continue to rise in price.
"That has not been a good bet historically if you look at raw material prices over a 20- to 30-year period," he says.
"It may be very dangerous if assumptions of the cost of capital (remaining cheap) are invalid also."
He says some of them have been caught badly out of their depth with their attempts at financial hedging to reduce their risk exposure.
"There is an old joke about playing cards for money. If you don't know who the sucker is, you are usually it. Unfortunately, when a number of Chinese companies got opposite Morgan Stanley and Goldman Sachs to negotiate hedges, they lost tremendous amounts of money," he says.
He believes the Chinese government's aim in the 12th Five-Year Plan (2011-2015) to steer the economy from being less dependent on exports and more geared toward the domestic consumer is the right path but that it will be difficult to implement.
"It is very difficult. There are countries like South Korea that have migrated from the classic export-led East Asian model but it is something that has never been done in anything like an economy of this size," he says. Fuller says Chinese companies have to be careful in the strategies they adopt, particularly in areas like research and development.
He says there is a tendency among some to believe that investing heavily in this area is a passport to success when it actually might prove unprofitable. "You have to look no further than Japanese companies which endlessly spend fortunes on improving clock speeds on integrated circuits and improving the pixel densities on displays, " he said.
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