Today is our last day in Beijing before our GPMBA class of 2011 departs China for Paris, France. We had two final company meetings with UPS and an incubator start-up, Yuanfen-Flow. Both were quite interesting, but hearing from the China Public Affairs office of UPS was most impactful for me.
Our discussion centered upon government relations and the efforts that UPS makes to synchronize policy and regulations to its business goals. Now this was not a new concept; our class met with UPS’s Public Affairs Office in Washington D.C. back in October 2010 to discuss this idea within the United States. However, as was pointed out in our conversation today, the methodologies between the US and Chinese offices are quite different for a number of reasons. Causes for disparity are largely intuitive: regime differences are motivated differently; cultural differences; UPS’s relative employment size and importance vary between China and US; and UPS’s domestic versus foreign company status makes an impact.
All of these facts and comparisons are very interesting, but what caused me to pause and really think was our speaker’s statement that the 2008 financial crisis spurred another turning point in UPS’s Chinese government relations. Our speaker commented that the China’s government began to lose belief in the strength of the very laissez-faire and market capitalism concepts that have opened the Chinese market, particularly during the past decade. This lost faith has led to much tougher Chinese regulations and an “environment of complacency,” particularly in regards to foreign companies because the government wants Chinese companies to prosper. UPS has reacted by disseminating plans into smaller steps which can be approved at local levels that may be more open to foreign companies than the central Chinese government.
The more closed attitude of the Chinese government as a result of the financial crisis is an interesting effect that is not one that I had previously considered. Particularly it can be analyzed in light of the international freedoms of the air. Bilateral agreements between countries regulate air traffic, including UPS freight planes. During the 1990s and early 2000s, there has been significant advancement in the aviation deregulation between the United States and China. However, a less open China means that advancements in securing additional air freedoms (called Open Skies Agreements) is unlikely. The 8th Freedom was highlighted as very unlikely but one that would have a significantly positive impact on UPS. This right would enable UPS to fly cargo planes point-to-point domestically within China, thus allowing UPS to truly enter the China domestic delivery service business without violating its US pilots’ union agreements that currently prevent UPS from a joint venture with a Chinese airline. It is worth noting that the 8th Air Freedom (called cabotage) is not in effect in any of the major countries of the world, so its passing between the US and China is unlikely. Yet because of the local approach taken on by major transport companies like UPS, less attention is being paid to lobbying central governments for these freedoms that could have positive economic impacts for both markets.
This view that the 2008 financial crisis could have impacted far more than just the apparent economies of the affected countries opens the door to reflect on the political, business, and regulatory aspects that may be altered for the foreseeable future. It also offers yet another level of complexity to consider in the US-China relationship, with UPS’s aviation story being just one example.