Lobbying in China

APCO treads carefully in new and growing market.

Sophisticated propaganda by private sector lobbyists, often skilled lawyers or retired civil servants, to promote a favourable regulatory environment for their businesses is a long-established, although occasionally maligned, practice in the world's most powerful democracies.

But can such techniques be applicable to China, a country where the ways of the government are shrouded in often willful obscurity?

Margery Kraus, CEO of US-based APCO Worldwide, believes that China is a fertile future market for lobbying companies - but that due allowances need to be made for China's special characteristics.

APCO has 20% of its worldwide workforce on the mainland, which accounts for 15% of the company's revenue, an amount Kraus ultimately intends to raise to 40%.

The company', which did $55 million in turnover last year, recently carried out a management buy out from NASDAQ-listed Grey Global Group, for an undisclosed sum, in order to have a freer hand in setting its strategic objectives.

Contrary to popular expectations, Kraus finds that the mainland government is increasingly welcoming to companies such as APCO, which offers public relations, consulting and relationship building services, deployed in an integrated way.

"The Chinese government is increasingly finding that lobbyists can play a useful role in organizing and presenting the views of a large number of companies. That enables the government to produce the sort of legislation which stimulates growth," she says.

If one of the functions of a democracy is to balance competing interests, it is imperative for the government to be presented with the full range of views.

It is perhaps a slightly surreal development that a lobbying company might be introducing aspects of democracy into China, but it could be happening, although couched in strictly economic terms.

A central strategy of APCO throughout its worldwide operations is to bring in 'outside stakeholders' to mobilize opinion. These include investors, customers, government officials and even upstream or downstream members of the client's industry. The goal is to broaden the debate and thereby attract legislative attention.

Thus, on the mainland, APCO was centrally involved in the Quality Brand Protection Coalition which helped companies find a common voice in the contentious area of intellectual property rights.

Over 100 foreign companies have so far banded together, and even a handful of Chinese companies have joined, finding that as they move up the scale in the intellectual value-added of their products, they are also increasingly in danger from intellectual property pirates.

"In this way, a whole industry can get together and hammer out a plan of action, instead of bombarding the government with a hundred different opinions moving up through a hundred different channels," says Kraus.

By working with foreign companies in China, adds Kraus, a lobbying company is often presenting Chinese regulators with exposure to international best practices, useful information for a country scrambling to keep up with breakneck growth.

Existing restrictions on the flow of useful information are clear. For example, although many economists estimate that two-thirds of China's GDP comes from the private sector, industry associations are all run by the government, with little or no input from the increasingly important private firms.

"And of course, the government-run trade groups are not likely to act in an independent way when advising the government," points out Kraus.

There are naturally major differences with the US, where lobbying is conducted in a very aggressive fashion - unthinkable in a far more deferential society such as China.

In the West, lobbyists have often attracted criticism for being perceived as allowing their aggression to get out of hand in their pursuit of a client's aims. Some fear that lobbying in China could multiply these fears many times over, given the lack of legal structures and open debate; and the nature of the bureaucracy.

Companies in China face a long tradition of squeeze by a bureaucracy acting as the gatekeepers to the economy, and the lack of fair regulator, since the ruling Communist Party is deeply intertwined in business through its ownership of many public assets.

It can be difficult for foreign companies not to get involved in playing the game to win contracts in the same way as many local players - through negotiations in 'smoke-filled rooms' involving backhanders, rather than by public bidding or tendering.

Foreign companies have been implicated in such scandals, notably in the case of telecoms equipment maker Lucent earlier this year.

In order to surmount these ethical problems, APCO uses the same techniques as it does in the US, such as never hiring sitting politicians and civil servants to carry out lobbying.

"In the UK, for example, we don't use sitting members of parliament, and in the US we don't use congressmen, until they have given up their official titles. Similarly in China, we only use retired civil servants, often from organizations such as the ministry of commerce, and academics," she says.

Payment models vary, from individuals joining the company as fully paid-up members of staff, to receiving a retainer, to being paid on a project basis.

Contrary to many local and international organizations, Kraus insists the company does not pay any money for mainland journalists to attend press conferences, in line with the company's code of ethics worldwide. Local journalists usually get Rmb 200 ($25) for attending a press conference and Rmb 500 for a on-one-one interview.

The issue also brings up the tricky question of how far 'localization' - the practice of substituting expensive and unavoidably culturally ignorant expats with local staff - should go. It is obviously desirable to hire locals with inside knowledge, but it is not so ideal if such staff then flout the best practices developed in the overseas market.

Kraus says they are strong believers in 'localization' in China but that when they do use expat staff, they are brought in from other Asian areas, often with decades of experience.

Ultimately, the main reason for APCO's success is probably its novel (for China) use of organization. The concept of organizing outside stakeholders makes a great deal of sense in influencing a government increasingly interested in economic efficiency. At least, as long the government does not get nervous about such non-governmental groups, as historically it has tended to do.

The next step for APCO could be as much abroad as in China, notes Kraus.

"We are increasingly seeing Chinese companies move abroad and getting involved in trade disputes. Whether it is textile quotas or Western companies resentful at being taken over by a Chinese company, we believe they are a lot more opportunities for mediating conflict and building bridges," she concludes.

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