March 11th, 2008

Why being a risk professional in China is still tough ?

Seems to be a long, long way to go…

I start this blog with a few thought about the Chinese conception of Risk Management and the consequences this has for large consulting companies which stepped in China, thinking it should be a new Eldorado… and for me !

I came across a post from Paul Denlinger on China Vortex that points out why being a Risk Professionals in China is tough and why selling Risk Consultancy Services to Chinese companies is still far from easy.

So what’s the point ?

In the west, there is a whole industry called “risk consultancy”. Basically, this industry is built around informing large- and medium-sized corporations about risk. Originally, this was built around business risk and would answer questions like “How safe is it to invest $500M in an industrial diamond mine in the Congo. The consulting firm would then send practice consultants to the target country, where they would study sunk costs (including bribes which were never written about in the report, regulations, who was related to the president, political opposition, major competing firms, etc.) Most of these questions were positioned as questions which any board would ask the CEOs before they would greenlight an investment.

So how Chinese companies do this ?

Right now, the path many are taking is to send executives, management and staff wholesale to Africa, and basically telling them to figure things out on the ground. This is the Chinese version of “Let’s throw spaghetti at the wall and see what sticks” approach. But what happens when you don’t really have the protection of the Chinese government and local Chinese embassy, and the Africans start complaining that Chinese companies aren’t creating enough local jobs for local Africans? Obviously, these are the sorts of questions which are very complicated, since they include a social factor, in addition to the corporate and economic equation.

And why is that ?

When you are working from a low cost basis, there really is not a whole lot of need to measure risk because the only way to go is up.

On the other hand, when you have large risks but your investments are backed by the Chinese government, there is not a need to measure them either.

So do we have a chance to get involved ?

Will the Chinese companies turn to the western risk consultancies? Not likely. First of all, they are too expensive by Chinese standards; Chinese management is still very price-sensitive and is not likely to be willing to spend the large amounts which these companies charge. Also, they are not likely to entrust this kind of sensitive information to an outside firm which may recirculate some of the data for a competitor. Most Chinese companies are very tightly held, and risk is whatever the CEO thinks it is at that moment in time.

This is not going to help our profession by the way…

Read the full post here

See Other Posts

« So what’s this all about ? | Back To Top Post | Competitive Business Intelligence in China »