Five questions with Dr. Yongjian Bao: Business between Canada and China

For the second installment of our Five Questions series, Dr. Yongjian Bao, Professor of Policy, discusses Business between Canada and China.

Dr. Yongjian (YJ) Bao is a full Professor of Policy and Strategy with the Dhillon School of Business in Calgary. He received both his PhD in public policy and MPA from the University of Southern California in Los Angeles and his Bachelor of Law from Fudan University in Shanghai. He was awarded "Top 10 Thinkers and Practitioners of Innovation and Entrepreneurship" in the year of 2016 by Tsinghua Business Review and the School of Economics and Management of Tsinghua University in China. He has published articles in leading academic journals, such as Journal of Management, Journal of World Business and Journal of Business Ethics. He has 5 articles in A-level journals, and 30 articles in other leading journals of related fields. He was one of the SSHRC grant recipient in 2017.

What has the business relationship between China and Canada been like historically?

Notwithstanding periodic fluctuations, the business relationship between China and Canada has grown steadily by trade volume ever since Canada and China established a formal relationship in 1970. Canada is ranked thirteenth among China’s international trading partners while China is ranked second among Canada’s. Even before an official relationship with the Chinese government, during 1960-63, the John Diefenbaker government permitted and financed the exportation of wheat to China when China was suffering a countrywide famine. The Diefenbaker government took serious risks when offering to be the financial guarantor, because China at that time could provide no collateral. 20 million metric tons of Canadian wheat exported during 1961-70 not only saved many Chinese lives, but also planted good will for a growing future business relationship between the two countries.

Looking back, Canada proved itself a principled risk taker in building up its relations with China, with the promotion of liberalism and humanitarianism at the heart of its foreign policy. These principles have underlined Canada’s business relationship with China and worked for mutual interests in the past. To move ahead, it requires leaders from both sides to understand and acknowledge these principles and take calculated risks.

How has this relationship changed in recent times? What were some of the catalysts for these changes?

The Canada-China relationship fell to its nadir in recent years. The apparent catalyst can be traced to Canada’s detention of Ms. Wanzhou Meng, a senior executive of Huawei, at the extradition request of the U.S. and the series of subsequent retaliations from China against Canada. Ms. Meng has been accused by the American government of breaking the law when conducting business with Iran, which is against the economic embargo imposed by the American government. In retaliation, the Chinese government arrested two Canadian citizens, accused them of espionage, and banned imports of Canadian agricultural products such as canola crops and pork.

While it may appear to be a legal dispute at first glance, the fluctuating relationship reflects the bigger picture of changing geo-political situations in the world. The mounting disagreements between the U.S. and China behoove each country’s traditional allies to adjust and adapt. Before a new equilibrium of balance of global power is reached between the two largest powers, countries like Canada will have to adeptly dance around. So far, the Canadian government has been delicately standing on its principled position.

Change is not impossible but will take time and political skills. Going back to the historically effective strategy of being a “principled risk taker”, it always serves the national interests of Canada by being liberal and humanitarian in the international arena. Other countries, particularly China and the United States, need to appreciate that a steadfast and principled player like Canada could be the most reliable friend they need the most from time to time.

One of your areas of research is how foreign businesses function during tough times, how are businesses in China functioning during the COVID-19 pandemic and what impact has this had on Canadians doing business with China?

I have collected 70 cases of crisis responses during the first 60 days of the COVID-19 pandemic in China. Two initial findings caught my attention: 1) most companies were insufficiently prepared for crisis, even though top management teams were aware of the strategic value of crisis preparation. In other words, there is an obvious gap between knowing and doing. 2) two distinctive factors, the propensity to act quickly and an optimistic attitude, contributed to their swift recovery. These findings might be useful to Canadian business as well.

I also identified many practices of social entrepreneurship in collected cases. When personal protection equipment (PPE) was in a severe shortage, many companies quickly retooled their technological capabilities to assemble respirators and make face masks and other protective gear for hospitals and first responders. What’s interesting is the transformation of initial social entrepreneurship to commercial entrepreneurship. When companies initiated social entrepreneurship and created new business lines for PPE production in light of urgent market demand, many struggled to meet existing quality standards. Fortunately, with wide social acceptance of their goodwill and a tolerance for their merely functional products, as well as less stringent government regulation on new entrants of PPE makers, many companies were able to seize the window of opportunity to leverage their production capabilities into making new additional products. In the process, venturing companies made good use of social entrepreneurship at the first stage and then moved into a new commercial market segment with innovation. Enabling existing organizational capacity to make additional new products to help fight pandemic may also be a useful strategy for Canadian businesses to try. Afterall, the post COVID-19 market may never be the same. So, be brave, be open, and try new ways of using existing organizational capabilities.

Additionally, while the re-shuffling of the global supply chain may be unavoidable post-pandemic, Canadian businesses in certain industries shall continue to see business opportunities in China. Canadian companies have advantages in agricultural business, environmental technology and other natural resources. As recent data shows, while consumption of luxurious products is expected to drop considerably in China, demand for staple food products and health-related products and services is bouncing back strongly. However, companies must review their relationship with existing partners in China. Both sides must include terms regarding unexpected events in future contracts. The current slowdown induced by the pandemic may be the best time to plan for any necessary adjustment in business relations with Chinese partners for further market penetration in China in the long-term.

Given your expertise, where do you see Canada’s business relationship with China 6 months from now? A year from now?

I expect Canada’s business relationship with China to remain more or less the same in six months time as economic activities are still struggling to recover from the shock of the pandemic. A year from now, I am cautiously optimistic for the strengthening of the relationship. Chinese consumer demand for Canadian staple products will likely increase with continued economic expansion, provided that there is no further deterioration in the diplomatic relationship between the two countries stemming from the legal affairs with Ms. Meng.

In the next 6 months, repair and recovery will be the focus of the business relationship between Canada and China. A year from now, I am optimistically expecting new collaborations between companies from both sides on internationally significant ventures. For example, there might be some collaboration on developing and manufacturing a vaccine against COVID-19. On the front of environmental protection, agricultural business, and water treatment, some promising collaboration may happen too.

What recommendations do you have for Canadians interested in developing new business with China right now?

Canadians interested in developing new business with China should not be afraid of taking risks in that market, but with principles. Being a principled risk-taker is the best strategy for a Canadian company interested in developing new business with China. In addition to adherence to liberal and humanitarian values, on a practical level, Canadian businesses should consider the following three strategies.

First, insist on the middle way of doing business. Canadian companies need to prepare for a very different global market after the pandemic. People suspect that there will be two exclusive camps, one led by the U.S., the other promoted by China. My take is slightly different. The new global market might grow into three spheres in the shape of a dumbbell. There will be certain kinds of technology-sensitive market spheres, for which China and the U.S. will try to consolidate new global supply chains of their own, decoupled from each other (artificial intelligence, space industry, and high-end computing chips, just to name a few). However, in between, there will be a large market sphere with a flow of goods and services globally as before. Canadian companies should avoid being caught between the two extremes. Instead, we can take the middle ground as the fertile place to grow together with all partners around the world. In an increasingly controversial global market, the multi-cultural tradition of Canada is our strength.

Second, cultivate long-term relationship in the business community in China. For those who are interested in developing business with China right now, the timing could be tricky, but opportunities are abundant. The new generation of business entrepreneurs in China are often well-educated people with cosmopolitan perspectives, who are more open-minded and enthusiastic for fair trade and long-term relationships.

Third, be selective when entering the China market. Some areas of opportunities are more promising than others for Canadian business, such as agricultural business and products, advanced education and exchanges, and environmental technologies. These business segments fit well with the growth of China’s domestic market size and demands from large numbers of middle-class families. On geographic positioning, Canadian business needs to be cognizant of the market tiers there, and I recommend second-tier cities. The first-tier cities, including Shanghai, Beijing, Guangzhou, and Shenzhen, are teemed with international forerunners who have established brands and networks there for many years. The second-tier markets include cities that are generally the provincial capitals and booming connection cities in China’s vast network of high-speed train. My last recommendation is to get online and ride with the exploding e-commerce in China. Jing Dong (www.jd.com) and Taobao (www.taobao.com) are the two most popular e-commerce websites there. Do as the Romans do. Canadian businesses must learn to do businesses online and offline simultaneously.