One of the themes we hear in the China expat circle often these days is that people are getting sent home from their expat assignments and there will be no replacement. Business in China is not up to MNC top management’s expectations and they have decided to cut costs.
It is true that many multinational companies are not getting the results reflective of the market potential when they set sail to China. To explain why this is the case many blame the one-party political system, unfair government policies, rogue local competitors, high labor costs, but seldom because of strategy, planning and execution. However, at the same time many companies did very well in China amid operating under the same environment, how did they manage to do that?
Having lived in China for 9 years and have dealt with many businesses in various industries, here’s my observation on how MNCs can be successful in China.
Don’t believe the Western media
Before and shortly after I moved to China, I relied on the information and opinion of books, magazines to help me understand the Chinese society, culture and day-to-day protocol. After 9 years of deliberately lived outside of the expat cocoon, I have developed a realistic understanding of the Chinese society, culture and geo-economic structure and why things are the way they are. These days, when I picked up books or articles about China, 9 times out of 10 I’d cringe and sometimes even shocked. A lot of articles or books about China are filled with generalization based on sliver of events, misrepresenting government intentions, and mixing biased opinions with facts. China is too enormous and complex to be stereotyped and generalized, which is what many of these articles tried to do. As in the United States is complicated and diverse, China is 4 times more populated and hence its society is exponentially more complicated. I am amazed how anyone can make sensible personal decisions based on such information let along profitable business decisions. Publication of these materials is simply ignorant and irresponsible. Informed objectivity is the foundation to making profitable business decisions; unfortunately for a lot of executives these are what they got to learn about China.
Not forcing down the usual global strategy
The good old days of Western products, services and operational protocol being the de-facto global standards are over. The reality is Chinese products have caught up significantly from a design, quality and price stand point and have been winning consumers over. Now that they are grown and have developed a consumer base, China no longer has to play by the Western rules. Just look at the mobile phone, networking equipment, automobile and consumer electronics industries; not only does China has a captured middle class of 300 million (and growing), they are also branching off-shore into the West as well. Western companies want to get a piece of the pie need to learn to adapt to this new reality. ‘Global strategies,’ which to many companies mean extending their existing overseas strategy that worked up to this point, should be completely reevaluated. Whatever market they have conquered before, they are not as massive, as rich and as culturally different than China. The assumptions and business logic used by the executive management to yield success in the past are no longer enough in this case.
Learn a new set of assumptions in China
In the West there is a business environment and culture that was formed centuries ago and was refined after the Industrial Revolution and most recently with computerization and the Internet. In China their business system is only 36 years old, and factors such as environment, culture, societal needs and prevailing technology are continuously shaping it. To accommodate 1.3 Billion people the Chinese economic model may wound up looking very different than that of the West. As an example, when China began investing in its telecommunication infrastructure, it went straight to a heavy mobile backbone rather than the land-based system in the West. Because of that business process possibilities and cost structure can be different in China, and it is something to be taken advantage of. Many businesses I came across try to roll out their global standards in China and ended up costing more and became less competitive. Whereas the Chinese local grown business can take advantage of the local environment can offer and create new and powerful business models that attracts local customers and generate good profits.
Understand China’s economic development cycle
For any system to mature and stabilize many necessary iterations are needed. China has been experimenting the right mix of economy policies and tools to try to create a strong and sustainable economy for the past 30 years. Interesting enough, the Chinese government is very open about sharing its macro-economic plan, fiscal policies and investment directions (to be fair, they can initiate policy change at the drop of the hat sometimes too, but same in the US for example Sarbanes-Oxley after Enron, and Patriot Act after 9-11). The Five-Year Plans, the Plenums and the National Party Congresses give out clear indicators of government intentions, policies and even investment targets. However a lot of senior MNC executives do not seek to understand them and tend to ignore these policy announcements! Granted following these directions quickly does not guarantee business success, but at least the information is there and if you have an agile operation you are in a position to take advantage of it.
Understand the Chinese consumers
This topic may seem to apply to consumer goods businesses, but look deeper it affects businesses downstream as well. Like the US China is a huge country, but unlike the US the Chinese market is much less homogenous. Consumer behaviour varies from North to South, from East to West and from each tier of the tier 1 to tier 5 cities. National buying pattern of basic consumer goods such as detergents and foodstuff can be deduced and predicted using traditional methods, but more expensive high-end brand differentiable products has strong regional consumer psychology and conceptual differences that are hard to guess from some mid-sized city in the Mid-West. On top of that, there is a large group of young, digital savvy consumers with high disposable income whose on-line buying habits and sophistication level are far beyond Western digital business practitioners. The famous 36.2 Billion RMB “Double 11” one-day sale record should stimulate Western business leaders to think differently about their China strategy. Be mindful that consumption affects downstream services and raw material consumption as well. Understanding the head can often give clues on how the tail can be affected.
Localize your business decision-making
So how can businesses be successful and win in China? Take care of the areas made above and entrust people who can truly appreciate the Chinese culture and environment. In many cases it means shifting business strategy and management decisions from a global or centralised model to a distributed or local model. This does not necessary mean decisions have to be physically made in China (although there is nothing wrong with it!) but it means the corporate decision making process has to be global-centric, not headquarter-centric. This, is an attitude passed down from the very top of the senior executive rank. So be conscious when picking senior executives. Make sure your China strategy is not curtailed by people with limiting thinking or desire to keep status quo for personal reasons.
China is a place that values innovation; the ‘red tape’ that have been used as an excuse for failure to attain results applies to everyone due to ignorance of local conditions. Companies who are innovative and brave to embrace the China way are rewarded: GM, Alcatel-Lucent, Dow Corning for example, adopt to the Chinese environment and modify their process and products for the market; Tesla is not: it tried to push its products as if they are in the US and they failed miserable.
Keep an open mind and forget half of what you know when you come run a business in China. Confucius said business growth and profitability come from those who come to listen rather than talk!
One of the themes we hear in the China expat circle often these days is that people are getting sent home from their expat assignments and there will be no replacement. Business in China is not up to MNC top management’s expectations and they have decided to cut costs.
It is true that many multinational companies are not getting the results reflective of the market potential when they set sail to China. To explain why this is the case many blame the one-party political system, unfair government policies, rogue local competitors, high labor costs, but seldom because of strategy, planning and execution. However, at the same time many companies did very well in China amid operating under the same environment, how did they manage to do that?
Having lived in China for 9 years and have dealt with many businesses in various industries, here’s my observation on how MNCs can be successful in China.
Don’t believe the Western media
Before and shortly after I moved to China, I relied on the information and opinion of books, magazines to help me understand the Chinese society, culture and day-to-day protocol. After 9 years of deliberately lived outside of the expat cocoon, I have developed a realistic understanding of the Chinese society, culture and geo-economic structure and why things are the way they are. These days, when I picked up books or articles about China, 9 times out of 10 I’d cringe and sometimes even shocked. A lot of articles or books about China are filled with generalization based on sliver of events, misrepresenting government intentions, and mixing biased opinions with facts. China is too enormous and complex to be stereotyped and generalized, which is what many of these articles tried to do. As in the United States is complicated and diverse, China is 4 times more populated and hence its society is exponentially more complicated. I am amazed how anyone can make sensible personal decisions based on such information let along profitable business decisions. Publication of these materials is simply ignorant and irresponsible. Informed objectivity is the foundation to making profitable business decisions; unfortunately for a lot of executives these are what they got to learn about China.
Not forcing down the usual global strategy
The good old days of Western products, services and operational protocol being the de-facto global standards are over. The reality is Chinese products have caught up significantly from a design, quality and price stand point and have been winning consumers over. Now that they are grown and have developed a consumer base, China no longer has to play by the Western rules. Just look at the mobile phone, networking equipment, automobile and consumer electronics industries; not only does China has a captured middle class of 300 million (and growing), they are also branching off-shore into the West as well. Western companies want to get a piece of the pie need to learn to adapt to this new reality. ‘Global strategies,’ which to many companies mean extending their existing overseas strategy that worked up to this point, should be completely reevaluated. Whatever market they have conquered before, they are not as massive, as rich and as culturally different than China. The assumptions and business logic used by the executive management to yield success in the past are no longer enough in this case.
Learn a new set of assumptions in China
In the West there is a business environment and culture that was formed centuries ago and was refined after the Industrial Revolution and most recently with computerization and the Internet. In China their business system is only 36 years old, and factors such as environment, culture, societal needs and prevailing technology are continuously shaping it. To accommodate 1.3 Billion people the Chinese economic model may wound up looking very different than that of the West. As an example, when China began investing in its telecommunication infrastructure, it went straight to a heavy mobile backbone rather than the land-based system in the West. Because of that business process possibilities and cost structure can be different in China, and it is something to be taken advantage of. Many businesses I came across try to roll out their global standards in China and ended up costing more and became less competitive. Whereas the Chinese local grown business can take advantage of the local environment can offer and create new and powerful business models that attracts local customers and generate good profits.
Understand China’s economic development cycle
For any system to mature and stabilize many necessary iterations are needed. China has been experimenting the right mix of economy policies and tools to try to create a strong and sustainable economy for the past 30 years. Interesting enough, the Chinese government is very open about sharing its macro-economic plan, fiscal policies and investment directions (to be fair, they can initiate policy change at the drop of the hat sometimes too, but same in the US for example Sarbanes-Oxley after Enron, and Patriot Act after 9-11). The Five-Year Plans, the Plenums and the National Party Congresses give out clear indicators of government intentions, policies and even investment targets. However a lot of senior MNC executives do not seek to understand them and tend to ignore these policy announcements! Granted following these directions quickly does not guarantee business success, but at least the information is there and if you have an agile operation you are in a position to take advantage of it.
Understand the Chinese consumers
This topic may seem to apply to consumer goods businesses, but look deeper it affects businesses downstream as well. Like the US China is a huge country, but unlike the US the Chinese market is much less homogenous. Consumer behaviour varies from North to South, from East to West and from each tier of the tier 1 to tier 5 cities. National buying pattern of basic consumer goods such as detergents and foodstuff can be deduced and predicted using traditional methods, but more expensive high-end brand differentiable products has strong regional consumer psychology and conceptual differences that are hard to guess from some mid-sized city in the Mid-West. On top of that, there is a large group of young, digital savvy consumers with high disposable income whose on-line buying habits and sophistication level are far beyond Western digital business practitioners. The famous 36.2 Billion RMB “Double 11” one-day sale record should stimulate Western business leaders to think differently about their China strategy. Be mindful that consumption affects downstream services and raw material consumption as well. Understanding the head can often give clues on how the tail can be affected.
Localize your business decision-making
So how can businesses be successful and win in China? Take care of the areas made above and entrust people who can truly appreciate the Chinese culture and environment. In many cases it means shifting business strategy and management decisions from a global or centralised model to a distributed or local model. This does not necessary mean decisions have to be physically made in China (although there is nothing wrong with it!) but it means the corporate decision making process has to be global-centric, not headquarter-centric. This, is an attitude passed down from the very top of the senior executive rank. So be conscious when picking senior executives. Make sure your China strategy is not curtailed by people with limiting thinking or desire to keep status quo for personal reasons.
China is a place that values innovation; the ‘red tape’ that have been used as an excuse for failure to attain results applies to everyone due to ignorance of local conditions. Companies who are innovative and brave to embrace the China way are rewarded: GM, Alcatel-Lucent, Dow Corning for example, adopt to the Chinese environment and modify their process and products for the market; Tesla is not: it tried to push its products as if they are in the US and they failed miserable.
Keep an open mind and forget half of what you know when you come run a business in China. Confucius said business growth and profitability come from those who come to listen rather than talk!
