The Management Challenge

Having arrived with the dream of selling one widget to each of the 1.3 billion Chinese most foreign companies have ultimately fallen short of their expectations here in the Middle Kingdom.  Some have already left.  Many more, I believe, will do so in the future.

Home Depot and Best Buy have both shuttered their stores and vamoosed.  Mattel closed its $30 million House of Barbie and eBay ultimately lost the domestic C2C e-tail market to local powerhouse Taobao.  Even Google failed to replicate its U.S. Internet dominance and Amazon, who appears invincible in the U.S. e-commerce market, is far behind Chinese market leaders Alibaba and JD.com.

If you are even a casual student of China you’ve probably heard the litany of reasons why.  And there’s certainly an element of truth to many of the usual suspects.  The game really is played differently here and even the most successful companies fail to adapt, listen to the wrong people, or just don’t take the time to understand the market.

The overriding reason foreign companies fail in China at such an epidemic rate, however, is really far simpler to identify, far more difficult to address.  In short, they fail to solve the management puzzle.  Despite taking painstaking care and investing exorbitant sums, their management selections, both ex-patriates and Chinese nationals alike, ultimately prove ill-suited for the challenges they inevitably face.

And the problem is getting worse.  Despite increasing the number of college graduates entering the workforce each year by 7-fold over the last decade, and despite compensation packages that are beginning to dwarf European and U.S. standards, and despite a statistically abundant pool of executives with 15 or 20 years of experience working for multi-national companies, there is a dearth of qualified senior business leaders in China today.

To be clear, if your business is just now arriving in China you will have no difficulty finding Chinese nationals who speak English with impressive fluency, demonstrate complete mastery of the language of modern business, and have admirable skill at manipulating the information technology of modern business.  And they will have impressive resumes chronicling a rocket-like rise through some of the most respected names in global business today.  You will be thrilled, I assure you.

And you might just get lucky and put together a team that will, in the end, make your business a huge success in China.  But if you’d like to hedge your bet, here are a few things to keep in mind as you assemble your China team.

I’ll start with the Chinese nationals you decide to put on your team.  Without a doubt they will be smart and hard-working.  But,

Do they share your values?

Or will they at least accept your values and live by them.  If they don’t, you could end up with a heap of trouble you don’t want or expect.

The problem is they are not going to tell you where they stand up front.  They know that Westerners often embrace an absolute moral code that they may or may not embrace on their own.  But they also know that if they tell you that you won’t hire them.

The nightmare scenario:  A well-meaning national who does things you’ve told him or her not to do because he thinks he’s protecting your interests.  You’re a foreigner; you don’t know how things are done in China; so they’re going to help you learn.  Noble intent; bad outcome.

Do they have the right experience?

The FMCG companies have a very effective organization model.  But it is very difficult to scale down and may not prepare managers for the challenges you will face.
The FMCG companies have a very effective organization model. But it is very difficult to scale down and may not prepare managers for the challenges your business will face.

The Fast-Moving-Consumer-Goods companies (Think P&G, Kraft, Unilever, Nestle, etc) were the first foreign companies to invest in China.  They always are.  And they’re good at it.  So the chances are that if you’re trying to hire a Chinese national with experience working for a multi-national company they are going to come from the FMCG industry.

The problem is that FMCG experience may not be relevant to what you need at your company.  The FMCG companies are big and they’ve developed an organizational model that is very effective but very difficult to scale down.  Except at the highest levels of the organization, jobs are often narrowly and exhaustively defined.  In the FMCG world everything revolves around well-defined processes that can be applied on a large scale with consistency even in the face of high employee turnover.

You, on the other hand, may need people with much broader skills sets, a lot of self-motivation, and an ability to define – on their own – what needs to be done.

Are they analytical?

You'll find smart in abundance.  What you probably need, however, is analytical.
You’ll find smart in abundance. What you probably need, however, is analytical.

There’s a big difference between being smart and being analytical.  And it’s the latter that most businesses need.  Smart makes for great potential but it’s the ability to analyze and interpret events and situations that generally gets the best results.

The Chinese education system turns out smart in big quantities (7 million university graduates per year).  Unfortunately, it’s emphasis on rote learning and standardized testing doesn’t typically encourage or reward analytical thinking.

Are they mature enough?

Maturity is the ability to deal with things that don’t go as planned in a calm, reasoned way.  And that often means an ability to differentiate the flame from the fire.

The reality is that people mature when they have to.  Which is why I have found that people who have suffered at some level often make the best leaders.

There is, however, a whole generation of Chinese business leaders – the pool of talent you are likely to be hiring from – who has never failed.  And the fact is that they may have been so devoted to their education and their careers that they may have few of the life experiences that give a person depth of perspective and the ability to assess situations in their broader context.

That’s not to say that they are in any way less capable or that they won’t make fantastic employees.  It is to say that past results aren’t always a proxy for future results when the future doesn’t look like the past.

And now for the ex-patriates you want to send here:

Are they in it for the right reasons?

China is an exotic experience for an ex-patriate.  An interest in that alone, however, will not make you an effective leader here.
China is an exotic experience for an ex-patriate. An interest in that alone, however, will not make you an effective leader here.

People take on ex-patriate assignments for a lot of reasons.  Not all of them are noble.  And when they’re not trouble is sure to follow.

The challenge is that you want people who are tough enough to survive but not toughened by a lack of sensitivity or humility.  Strong is good; strident is not.  Realistic is okay; jaded is not.

Are they mature enough?

As a general rule you should only send your most experienced and capable leaders to China.  They will face some of your most difficult management challenges here.

But if those people aren’t available at least send your most mature developing leaders.  Don’t be lured by the people who want to come for the exotic experience.  There is that, of course, but those folks can easily get sucked in by the exoticism and are often easily manipulated by clever employees whose cultural motivations are not completely understood by the young and inexperienced ex-pat.

Are they intellectually curious?

Above all else, the best managers are the most curious.  And intellectual curiosity is the key to surviving and being effective in an ex-pat role.
Above all else, the best managers are the most curious.  And intellectual curiosity is the key to surviving and being effective in an ex-pat role.

This is the one quality I recommend you look for in your ex-patriates above all else.  Intellectual curiosity will both help them survive the day to day rigors of living in a such a foreign and sometimes harsh culture and will give them the incentive to both learn and communicate – essential ingredients of sound leadership.

In the end, of course, putting together the right team is the key to succeeding in any business in every market in the world.  If it weren’t we could just turn it all over to the machines and go to the beach.

And it’s true that the qualities of sound leadership are pretty consistent the world over.  You can’t lead if you can’t follow.  You can’t follow if you don’t listen.  And you probably won’t listen if you know no humility.

Solving the management puzzle, however, will prove more elusive here.  I can almost guarantee it.

Half of the challenge, however, is just knowing that the challenge exists.  Beyond the shiny glass cities and beneath the two decades of double-digit economic growth lurks a gap that even the Chinese readily acknowledge; a gap that will only widen as the economy pivots away from the export-driven race to scale that has taken it this far.

Of all of the many challenges China faces in the years ahead none is greater than the need to prepare a generation of leaders who can lead its institutions: business, civil, and political alike, through the turbulent waters of change the country, the people, and the businesses of China are sure to face in the years ahead.

For your company to succeed in China you must solve the management challenge.  Most foreign companies have not.
For your company to succeed in China you must solve the management challenge. Most foreign companies have not.

Copyright © 2014 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.