Elizabeth Economy Lieberthal

Subject matter: Harvard Business Review Reflection

Article: Harvard Business Review| Scorched Earth
Author(s): Elizabeth Economy and Kenneth Lieberthal

Date of publication: June 2007

Introduction
The article entitled “Scorched Earth ” written by Elizabeth Economy (senior fellow for Asia with the U.S. Council on Foreign Relations in New York) and Kenneth Lieberthal (William Davidson Professor of Corporate Strategy and International Business, the China director of Davidson Institute, and the Arthur Thurnau Professor of Political Science at the University of Michigan in Ann Arbor, senior director of Stonebridge International, a Washington, D.C.–based consulting firm, and the co-author, with Geoffrey Lieberthal, of “The
Great Transition” (HBR October 2003)) was published in the Harvard Business Review of June 2007 on the pages 88 to 96. The article deals with the problem of environmental degradation in China which is of great concern for MNEs that are active in, or are going to be active in China concerning both future opportunities and risks.
Summary
The authors of this article consider the threat posed by environmental degradation as the greatest risk of doing business in China. The problem is that this topic is barely discussed within corporations.
This is a serious mistake. Multinationals may be busy with other problems, but the Chinese government, NGOs, and the Chinese press have been focused squarely on the country’s energy shortages, soil erosion, lack of water, and pollution problems. The authors believe that these problems are so severe they might constrain GDP growth. Moreover, it is from the MNEs expected to play a key role in the protection of the environment. If that does not happen, multinationals face clear risks to their operations, their workers’ health, and their reputations.
In implementing environmental issues into their strategies, foreign firms need to be both defensive and proactive. Defensive here means take steps to reduce harm and proactive means investing in environmental protection efforts.
Finally, this problem also brings some opportunities along as MNEs can use innovations that are designed for the Chinese market in the rest of the world. This means that China affects the MNEs performance in other important markets.
Review
Weaknesses and limitations relating to the content
First of all, the article only emphasizes the weaknesses of China regarding environmental issues. Instead of laying the responsibility at the Chinese government, the MNEs are somewhat kept responsible. This is quite unfair and this way, the authors create a problem that in reality is way less extensive.
Secondly, we would like to quote a part of the article:

“Despite the challenges, multinationals can’t afford not to do the right thing” (Economy, Lieberthal, 2007, p.96)
We believe that this statement is completely wrong as a lot of companies that are active in China, just do not do anything about it.
They are even encouraged to do the ‘wrong thing’ by the local governments.
Thirdly, time after time, the authors emphasize how big China’s influence is on the pollution in the world. However, this is quite logical as China is one of the biggest countries in the world. Therefore, this is really annoying and not really useful in the article.
Fourthly, referring to the challenges described, there is no clear relationship between, for instance, the spill of water by the Chinese population and MNEs. This because MNEs cannot do anything about this issue. Furthermore, it is not really the MNEs’ responsibility. Therefore we consider this challenge as superfluous. (Economy, Lieberthal, 2007)
Finally, the authors do spend enough time on the concept of using their new innovations for China (concerning environmental degradation etc.) in other key markets. This is actually the most important part of the article and therefore more attention should be paid to this concept. (Economy, Lieberthal,
2007)
Strengths of the article relating to the content and structure
To begin with, the authors have done very well in describing the environmental degradation as a problem among a long of other problems in China. The contrast described in the introduction really attracts attention. (Economy, Lieberthal, 2007) Furthermore, the article describes that MNEs can actually benefit from these environmental problems as they can use innovations from the Chinese market in other important markets. This is quite a creative consideration we could never think of. (Economy, Lieberthal, 2007) Another strong point is that the article gives advice about how to deal with the Chinese political system. A special segment of the article is dedicated to this subject.

Moving on with the subject of structure, the article is quite well structured. As a reader, you can clearly distinguish between an introduction to a problem, a detailed description of the problem(s) and finally a part dedicated to the solutions . However, there are a couple of things that we do not like about the article´s structure. First of all, concerning the discussion of China´s challenges (water, energy, soil erosion etc.), the authors spent too much time on the description of these challenges. (Economy, Lieberthal, 2007) These challenges are extensively described along with a lot of specific data which is unnecessary as the article does not directly describe how managers should cope with these challenges. Instead, the authors move on with discussion another set of risks. Then, eventually, some solutions are given. In general this is a good thing. However, we would rather have seen the solution along with the challenges and risks in order to improve the clarity of the article. And as we said before, the authors could spend less time on describing the challenges as all the specific data has no connection with the solutions given.

Relation to the course IIB
This article concerns environmental problems in China and that is a problem for all MNEs because of the fact that there is only one environment in the world and we have to make sure that does not cause unrepairable damage to that environment.
This because it crosses all borders and is not bounded to a certain location. Therefore environmental damage in China can influence business activities in other markets due to, for instance, a shortage of certain raw materials. Moreover, it can limit the possibilities of MNEs in the future. Moreover, the article discusses the opportunities of China-specific innovations that can be applied in other markets. This implies the creation of a
FSA.
Conclusion

One of the things that we have learned from this article is the fact that Chinese local governments, along with a part of the population play a bigger role than expected in the environmental degradation than expected. We assumed that most pollution derived from MNE activity in China.
Another thing that we have learned that you eventually pay a high price for your, initially cheap business activities.
After extensively analysing this article, a couple of question came to mind. First of all, the article forecasts that the environmental damage will have a great impact on China´s GDP. Quoting the article:
“China’s environmental problems are reaching the point where they could constrain its GDP growth.”
(Economy, Lieberthal, 2007, p. 90)

We would like to know if the authors, if they had the possibility, would change this statement to let it match the current circumstances. We ask this question because, in our eyes, the impact has not been that great. In the media, for instance, there is nothing said about the constraining factors on China’s GDP growth.
Another question that came to mind is the following:

According to the article, the Chinese local governments play an important role in the environmental problematic cases. (Economy, Lieberthal, 2007) Doesn’t this mean that the focus should lay at these governments rather than the organizations? In our eyes, these governments should be punished by international organizations. Such intervention would decrease the MNEs’ challenges significantly.
Moving on to our final question, we would like to know if the authors expect that this problem will be completely solved, by either the Chinese government or another institutions, in the near future?
Full reference list

Economy, E. Lieberthal, K. June 2007. Scorched Earth. Harvard Business Review. P. 88-96