MNCs in China Face Big Challenges (Part One)
I recently joined a roundtable discussion among several dozen senior executives of large international multinational companies. There were a number of interesting insights which I will share in this series of blogs.
Most participants were regional Asia-Pacific CEO level executives, representing a wide spectrum of industries and professions: fast-moving consumer goods, industrial products, IT, pharmaceuticals, financial services, law firms, etc. Some of their companies are household names, others less so, but all are very large companies.
These were not new-to-market companies as far as China or Asia is concerned, so it was especially interesting to hear them share insights into lessons learned through trial and error.
One major issue which was widely discussed was the growing (not shrinking) challenges arising from the fact that their companies’ head offices, including the C-suite as well as board of directors level, don’t understand China. This naturally has a major impact on communications and decision-making on strategy as well as operations between the China/Asia leadership and HQ.
Apart from discussions within this meeting, I’ve heard similar complaints from senior China management execs of Western companies which have been doing US$ billions of business with China annually for many years, regarding how head office just doesn’t “get it” with regard to China.
MNCs have responded to this challenge in a variety of ways.
Some have not changed structure, so China-based leadership continues to try to explain a fast-changing China to top management who didn’t really understand China five years ago and are even more confused by it today.
A variation on this theme is to have the China CEO spend half their time in head office, and half time in China. The risk here is serious dilution, not to mention an unsustainable lifestyle for the individual involved.
One long-standing problem for expats on longer-term postings to one particular international region is that they may eventually be perceived by head office as having “gone local”, and losing touch with the company’s best interests and core values. In other words, they are perceived as too quick to compromise the company’s best interests with local market needs and realities. I have known several very competent, experienced and capable “old China hands” who fell into this trap and were eventually forced to move on.
Although this risk has been around for many, many years, it is compounded in China’s case because of the market’s size, complexity, speed of change, and vastly different regulatory and legal environment.
Superficially it may seem an obvious and stupid error to get rid of a senior management hand with vast local experience (unless they’ve done something wrong), but it’s also understandable because the China knowledge gap (between local and HQ) is so great, and the managers in the field are constantly advocating that the company needs to do everything differently in China because it’s a unique market, changing so quickly, etc. etc. etc.
This dynamic creates tensions and strains trust. In reality, China is a large, complex and confusing market with less predictability and transparency than many execs at MNC head offices are comfortable with. And therefore, greater risk.
Another, smarter approach, which some large global companies have used, is to develop a long-term plan for top management (including board) succession which aims to include a certain number of key executives who have lived and worked in China and/or Asia. In some cases these are inside candidates, in some they are recruited from outside.
Most companies report that this approach has made a very positive contribution to their ability to plan and implement China and Asia business strategy.
In the coming posts I will talk about some of the HR challenges which MNCs face, balancing China and the rest of Asia, choosing a China HQ, etc.
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