China has become a popular destination for U.S. and European Executive MBA programs doing field work and a few of them have found their way to my company looking for advice. And since we are located in a national industrial zone and we have a good relationship with the local government, I am often asked to speak with foreign executives considering establishing a presence here.
Invariably, my advice to both audiences is pretty simple:
- If you’re coming here with the idea of selling one widget to every Chinese person, don’t bother. You won’t. The Chinese market is no more homogenous than any other market. There are a few very rich people. There are millions and millions who don’t have enough money to be interested in what you’re selling – no matter what it is. And the competition is more intense than in any other market you currently compete in. An astounding number of foreign companies who are already here are not making money. And those that are, more likely than not, are making it on exports, not domestic sales. The domestic market, in short, is NOT there for the taking.
- The good news: There are no lawyers. The bad news: There is no case law. The result: Commercial disputes are difficult to predict and often impossibly difficult to resolve.
- Pick your location carefully. Foreigners tend to think of China as a giant monolith. And politically it is. But politics isn’t where most of us spend our lives and it’s not where most business is done. Local jurisdictions wield enormous power to interpret and administer regulations as they see fit, a reality reinforced by the fact that most regulations are intentionally vague in order to give the government the upper hand in enforcement and to preclude the opportunity to exploit the proverbial loophole.
- Make sure to send your most experienced ‘A’ players to run your business here. China is not a place to develop your future leadership. They will get eaten alive. Send the man or woman you can least afford to lose in their current position. And if they’re not entirely thrilled at the prospect of coming here, all the better. Life is hard here. Business is harder. You need your best players on the field.
- Put 99% of your effort into getting the right local team. Most foreign companies fail in China because they fail to get their management right. Only glance at the resumes that the recruiters bring you. The fact that a candidate speaks fluent English and has worked for a who’s who of multi-national companies doesn’t mean they share your values. And if they don’t the damage they can inflict can be crippling. It can make everything else irrelevant.
- Understand the culture. Your country leader does not need to speak the language. He or she does need to understand the culture, however. Without that you will make the wrong choice at every fork in the road. Understand how the Chinese communicate; understand the way they negotiate; understand the value they place on relationships versus words. (A lot more on all of this in future blogs.)
In a company of 450 people I am the only ex-patriate. I do, however, get a lot of support from our corporate engineering and technical staffs and all of our functional leads have dotted line reporting to their corporate counter-parts. And in general I encourage other companies to localize as much as possible as well. But only when they’re ready. And you won’t be ready as quickly as you think or hope to be.
And don’t assume that people who share your nationality and language are necessarily the answer to your people needs. A lot of foreigners here, sadly, are here for all the wrong reasons. Or they lack the experience and maturity to deal with the many challenges they face.
The people challenge, however, goes well beyond the senior management staff. Personnel development – at all levels – must be the number one priority of any company operating here. Here’s why:
- The Chinese are on a mission, a mission to lead a better life and provide safety and comfort for their families. They manage their careers accordingly. Every job is evaluated in the context of a career path. If they aren’t constantly enhancing their personal market value they will leave immediately.
- The pace of change here is incomprehensible until you are immersed in it. Your organization must be constantly updating its skills and its perspective. My entire organization is in training, both internally and externally, from the unskilled laborer to the highest level of management.
- As a foreign company your workforce will inevitably be young. Even the most experienced executives with the skill set and the desire to work for a multi-national company will have 20 years of experience or less. More often than not you’ll have a 30-year-old in a position that would normally be occupied by a 50-year old in in the West. And since the market isn’t about to give you time to catch up, you must find a way to give your organization two years of experience every six months.
And the $64,000 question from most of the groups I meet with: What about corruption?
It exists in every developing country. China is no exception. The government would be the first to admit it. I know of big multi-national companies who have pulled out of China because they ultimately concluded that they could not be successful here while at the same time remaining true to their corporate values and Code of Ethics.
I believe, however, that the government understands the need to wipe out corruption at all levels of society. Not just because it is a prerequisite to China becoming a true global leader and political and economic superpower, but because corruption, at its core, creates huge inefficiencies in the economy. When wages are no longer dirt-cheap and the rule of commercial law is firmly established China will have to compete on the overall efficiency of its value creation.
Retailers must ultimately stock their shelves with the products people want to buy. And companies must ultimately buy raw materials and supplies from the vendor who provides the best quality at the lowest price. Any personal financial transaction that compromises those objectives will ultimately bring the whole system down. In the world of efficient markets, honesty and integrity are essential to long term value creation.
And, I believe, the Chinese government understands that. You can remain committed to your Code of Ethics and be successful here. In the short term, this may create some inconvenience. And some things may take longer than they should. Ultimately, however, you will get it done.
You just need to live your values, live them consistently and transparently, and never, ever forget the importance of getting the right management in place. Everything else flows from that.
Copyright © 2013 Glassmaker in China
Notice: The views expressed in this post are strictly those of the writer acting in a personal capacity. They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.