Overview
Businesses and governments interact with each other at various levels. Right from the time a business enterprise is registered, throughout its existence, to the time it is dissolved if that happens, every business enterprise interacts with government bodies and regulations directly or indirectly. Businesses need a lot of support from the governments in forms of supportive policies, favourable laws, tax benefits etc. to flourish. On the other hand, governments need businesses for taxes, providing employment, building infrastructure, provide various services etc. In any ideal economic system, businesses and governments have a symbiotic relationship where both need to support each other to maximize the benefits to the society.
In the Asian regions, given the extremely complex sociocultural landscape and population heterogeneity, the business government relations are influenced by a lot of factors which both businesses and governments in other parts of the world do not have to face. In the following sections, we shall be seeing in detail how these two entities interact and the various mechanisms for managing business-government relations in the three major Asian countries – China, India and Indonesia.
Businesses are essentially about people. And at ground level, all Business-Government (henceforth referred to as B-G) relations boil down to how people interact with each other and have the capability to influence each other, and the larger population. A lot of decisions that governments take, are, quite questionably, favouring one business group over the other. While the interests of the population have to be kept paramount, and are kept so in most cases, businesses everywhere have to make sure that they do what is necessary to protect their interests; and governments have to make sure that they form laws and policies that encourage businesses to participate actively in the modern market-driven economic systems.
Having good B-G relations is extremely important for any society. Good B-G relations encourage healthy industries, better governments and an overall better society. However, the way to have good B-G relations varies across different countries and is heavily influenced by the cultural, political and historical stage that a country is in at the given time.
With the recent financial crises and natural disasters, the entire role of B-G relations and their importance has come under fresh scrutiny. While the eastern economies have been rather safe through the crises and have been praised for their conservative approach to finance and businesses in general, there have been frequent questions raised and doubts expressed about their economic policies, transparency, corruption and nepotistic approach to both governments and businesses.
China
In China, guanxi is the way of life. It is an all-pervasive social system which governs almost all the interactions the Chinese people have with each other, be it business relations, or personal ones. As businesses operate in China, they are expected to follow not just the law of the land, but also to follow the local cultural norms. There is a lot of stress on things like relationships, face-saving and personal connections in the Chinese society. These aspects are also extended to Chinese B-G relationships making it important that governments and businesses stay on good terms with each other. Also, given the political structure of China – which imparts almost absolute power to the Chinese government, businesses need to make sure that they stay on good terms with governments as it can lead to a lot of help during times of crisis.
China’s amazing growth over the last decade has been, to a great extent, fuelled by the household savings of the Chinese population which has provided the state-owned banks with funds to finance the State-owned enterprises. The state-owned banks (known as the Big four) have a lot of discretionary power and government-backing when it comes to financing most of the business deals in China. A lot of businesses continue to get financial support from these banks even though they keep making losses simply because of their guanxi with the right people. For the foreign firms setting shop in China, guanxi becomes a difficult challenge to crack given their own cultural hang-ups from their original countries. Google got into a famous spat with the Chinese government where it eventually had to pull out of China mainly because of the ideological differences and Google’s inability to understand the Chinese way of doing things.
Chinese government has been frequently accused of favouritism and a lot of Chinese business practices seem unethical when looked through a western eye. Having said that, the Chinese culture dates back to thousands of years and has survived a lot of ups and downs in history; these values are an integral part of the Chinese sociocultural fabric and hence, must be carefully looked upon by businesses while planning their China strategy.
Chinese people tend to act in similar fashion in the business as well as their personal dealings. There is a cultural connotation associated with exchanging gifts, returning favours and extending benefits to one’s kith and kin in various forms in China and this behaviour is often seen prevalent and expected in B-G interactions as well. A lot of business contracts are awarded by the government to the friends and families of the Chinese politicians. These relationships are continuously strengthened over decades of relationship building between families and hence have resulted in a very powerful clout of Chinese businessmen and officials who control a large share of Chinese businesses. In china, a lot of business happens over dinner, drinks and socializing as compared to other places where dealings are largely governed by rules and are conducted in boardrooms.
Political connections are arguably the most valuable asset that a business can hope to have in China. Politicians- present, former and future – are one of the most sought after people for both local and foreign businesses when operating in China. A lot of businesses maintain strong connections with present and former politicians by either employing them, or socializing with them. They also maintain good relations with younger politicians so that this guanxi can help them in case these politicians reach prominent positions in future.
India
India being a multiparty democracy suffers from a slow decision-making process. A lot of decisions which can be relatively easily taken in China, owing to its single-party rule, tend to be endlessly delayed and at times, strongly protested against in India. Unlike China, India has a thriving private sector which contributes to the GDP as well as to the party funds of the political parties.
The B-G relations in India have another stakeholder – the popular opinion which is a powerful force capable of influencing government decisions and abruptly changing them. Businesses therefore live under constant uncertainty when dealing with government decisions in India fearing a populist step taken by the government to appease its vote banks (in case their interests are threatened) might alter their entire planning. There are plenty of cases like the Tata Nano plant in Singur in West Bengal, protests against FDI in retail sector and protests and delays in finalizing the POSCO steel plant in Orissa even after six years of its incorporation, where such inefficiencies in the decision-making process have cost huge amounts of losses for businesses and have hampered growth.
Majority of roadblocks faced by businesses while dealing with the government in India are faced by businesses while dealing with land, public contracts or natural resources as these are the areas where the government maintains a close control. The Indian political and bureaucratic system is plagued by corruption, red-tape’ism; businesses have to handle a complicated taxation system, largely unskilled labour force, complex policy structure and poor infrastructure to survive.
The one trick that works well in India is greasing palms. Unethical and unfair as it may sound, a bribe is by far the only trusted way of getting files moving in Indian bureaucracy. While Indian government does deal in its fair share of nepotism and favouritism, it’s really the money and other monetary gains extended to everyone in the entire web of stakeholders in a business deal that eventually get it out of the door.
Another great way of improving and maintaining good B-G relations in India is for businesses to actively contribute to the improvement of the living conditions of the Indian population by building infrastructure, schools, hospitals, and trying backward integration – especially for firms dealing with farmers. This helps in the following ways:
- Improving the infrastructure, though a capital intensive process, frees the organization from depending on the highly unreliable public systems like government educational institutions, public transport systems etc and gives them a more controlled, predictable and reliable business environment.
- This kind of investment also contributes to the overall improvement of the lifestyle of the common man, thereby winning the business popular support which, to some extent, reduces the chances of a public outrage against the business which might force the government to take counterproductive measures. Firms like the Tata Group have built entire townships around their plants in India which have become role models both for other companies as well as for governments.
Indonesia
Similarly in Indonesia, having good existing relationships with government can mean a faster approval of new business ventures, speedy and favourable resolution of business conflicts and access to critical inside information on upcoming policy changes. The Indonesian government is closely involved with the process of setting a business through permits and it helps to have good relations.
Like most Asian countries, Indonesia has strong collectivistic value system and the good of the group is generally encouraged over the good of the individual. Hence, foreign firms which fulfil their obligation to those living and working in their immediate neighbourhood stand to gain significant advantages even when it comes to finding support from the government and having good B-G relations.
Indonesia is a country rich in natural resources, and Indonesians have traditionally strong land ownership concepts – meaning they are extremely protective of their land rights. Hence, it is advisable for firms like mining companies to give a higher priority to finding local support before they proceed to get the legal approvals.
With the recent reforms in the Indonesian government policies marking the end of the New Order regime, the country is in a transitional phase and hence the importance of having good B-G relationships is higher than ever. A lot of policy changes are taking place and sometimes good B-G relations can be the difference between success and failure of a business enterprise because of the valuable information access that firms with good B-G relations can have. This information can help firms with building more robust business plans.
Trust and the right network connections are key to building relationships, and, as these factors take time to develop, firms should prepare for a long innings in order to reap maximum benefits of their B-G relations in Indonesia.
The Vagabond.. 