5 Characteristics of Successful Companies in China

Monday, November 30, 2009 0:33

Last month as part of some advisory work, I was asked to speak to a panel of executives from an American firm who were on their exploratory trip to China. Typical to many speeches, I was asked to provide my thoughts on what made companies successful in China, and what I thought were likely to be the guideposts that they should keep in mind as they moved forward

Keeping in mind that the audience I was speaking in front of was representing one of the more well known American brands, and that they were ONLY on their exploratory trip, I spent some time running through old posts and thinking of “key characteristics”. It was a process that in many ways, like blogging, forced me to sit down and distill the millions of data points that I have been exposed to.. which in itself was somewhat therapeutic.

… and here is some of what I told them.

What do successful companies do in China?

While I am not a branding expert, and I was speaking to a “brand”, I left the obvious brand building speech for someone else aside and focused instead on the steps I have seen taken to build a solid company (internally). It is a process that I have seen go drastically wrong as firms look to enter the “market” to fast, fail to set reasonable expectations, and hire the wrong people without seeing their errors. In fact, I would argue that anyone who has spent time in China will have seen this as well.

So, my first trait of what a successful operation in China does is that they develop an appropriate definition of “China” that is kept in the proper context and respects the dynamics of the situation found within “China”. It is a trait that will be refined over time as their experience in CHina grows, but for firms entering CHina it means that an appropriate mount of time needs to be given to understand the market conditions. Realize that, above all else, China is not a single market, but many markets within the geographic boundaries of China, and that each region will have very different characteristics that will work for and against them as they build a platform… and that this will require a certain amount of flexibility going forward as well as the changing dynamics of China’s markets will bring new opportunities.

Second, in developing a platform, the best companies develop a “plan of attack” that is built on the knowledge they have amassed INHOUSE. Strategic in nature, the first layers of “The Plan” will focus on company structure (onshore vs. offshore), operations (domestic vs. export), networks (inside sales vs. agents), and commitment (investment vs. outsource), and will create a path for executives to take as the firms begins to grow. Focusing on organic growth has, and always will be, my preference, and having a core strategy of internalising the externalities of the model is a must (i.e. agents should be replaced and any outsourcing should be kept to a minimum) to build a sustainable business model.

Third, the firms that succeed will then take the time to bring in the right people to help execute and refine plans. This is perhaps one of the hardest operational steps early on, but is the one that will have the greatest long term impact (a good plan is only as good as the people executing it). For firms 3 years ago, this was made all the more difficult as the flame was the highest, and the pool of talent was at its thinnest, but that is no excuse for accepting what it available at that moment. Key executives should be planned for months before they are needed, and expat placements can only get you so far. Looking for locally based talent (foreign or Chinese) is long term the only model that will work (expats ALWAYS leave) to stabilize and build for long term growth, and firms should enter China knowing that. Risky if not done properly, local hires will be investments in knowledge bases, be critical to product placement, and be the best at building channels.

Fourth, leverage successful pilots to develop successful platforms. Rolling out a 6 city platform from day one will essentially lead to an implosion as the logistics and human capital required will be too much to handle. The best companies in China take strategic steps. Geographically, gateway cities first, second tier second, third tier third, and so on, and product wise, developing 1-2 key products that establish the brand and then introducing other products will help to build mass and market recognition, and ensure that the model is working before over investment/ commitment takes place.

Finally, the best firms are ones that are not afraid to start over, and will make the hard choices rather than hold on to dead weight. THERE ARE NO DEALS OF THE CENTURY, and I have never heard of a case where a souring JV agreement was made better by giving the partner more money. China is a place where fortunes are lost far more often than they are won, and for firms who hang on rather than execute a new strategy, lost fortunes are far more likely.

So, those were my 5 characteristics of what I felt the most successful firms did. OF COURSE, there is a much longer list of items, but at the highest levels I thought that they provided a framework that the audience could work with, and hope readers will find useful. If there are other characteristics that you have seen, feel free to leave a comment.

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4 Responses to “5 Characteristics of Successful Companies in China”

  1. Renaud says:

    November 30th, 2009 at 3:18 am

    Sounds like good advice. I hope the CEO doesn’t get too enthusiastic about China–high targets and big upfront investment can really be killers.
    It seems to be a fairly big company, so I would add something about internal controls–some external employee/body that makes sure purchasers don’t get bribed and salespersons sell under the right company name.

  2. Tim says:

    November 30th, 2009 at 3:21 am

    Rich,
    Excellent post. A few points I usually share with my clients (some that overlap with yours):
    1. Market entry requires executive level commitment – the firm is wasting time and resources developing a full-blown market-entry strategy if executives are not committed to the project. Commitment here means a genuine interest in exploring opportunities within the market and not necessarily commitment to the actual expansion in the beginning.

    2. A trusted and experienced project manager to drive the market entry process – whether it is at executive-level or senior manager level, someone ‘on the ground’ to either make decisions or give trusted advice to decision makers.

    3. Appropriate level of resources to develop the market; a realistic understanding of company’s resources you can commit along with a reasonable understanding of the market should drive your market entry model.

    4. Develop an appropriate timeline for China that includes understanding the market, realistic forecasts for growth and budget constraints.

    5. Hiring the right people based upon qualifications and not ethnicity. The answer to the question: “is it better to hire a local, overseas Chinese/returning Chinese, send an expat over or hire a locally based foreigner?” is hire the person most qualified for the position and who fits into your budget. It may be that the industry you operate in is bereft of foreign talent but that does not mean you are hiring a local Chinese because he is local.

    6. Emerging market entry requires firms to assume as little as possible about the business environment and to ask questions. The learning curve is shorter for those firms that do not simply accept ‘that is how it’s done in China.’

  3. Chris says:

    December 1st, 2009 at 10:59 pm

    A very useful topic… and good coverage of all the key issues.

    As someone who has been involved in the evolution of a business in China over 10 years, from entry strategy to maturity, the 5 key areas outlined are spot on. Commitment from HQ is required, great people who are nurtured and developed need to be recruited locally, the market and sales channels need to be understood (what are you selling where and to whom?), key compentencies need to be built ‘in-house’ within your own organisation both in China and overseas (key staff who understand the operating environment, compliance, the market, the challenges etc). Resources need to be committed, modestly at first then scale up as the opportunities mature and the business develops.

    All of this applies to business development anywhere really.

    Too many companies choose the staff they enter the China market quite poorly and through weak HR processes. As pointed out above, ‘Chinese’ or ‘China expert expat’ does not make someone an expert in your business in China.

    The right employment processes can give businesses entering China a real edge. Every employment process I have been involved with has blown me away with some of the talented local applicants I’ve met – people who can genuinely describe how they built the business of the companies they currently work for. Expat employment has generally been a little more disappointing and more hit and miss, but over time I’ve also met and hired outstanding expat managers who have made a fantastic contribution to our China business. The best expat managers have almost always spoken fluent Chinese (though not all fluent Chinese expat speaker hires are the right choice either).

    My approach has always been to directly manage employment campaigns and processes, rather than outsourcing to HR agencies. While extremely time consuming, it has the advantage of enabling you to directly select for interview candidates who have made the time and effort to make a decent and relevant application. A range of sources for employment advertising are required (zhaopin.com, local rencai websites run by Labour bureaus, sending job ads to partners & industry organisation’s key staff who may know appropriate candidates etc). Each campaign takes time and effort to design, but is worth it for delivering an organisation choice of talent. The worst position you can find yourself in is ‘recommendations’ from connections with nothing to compare against. I’ve employed quite a few people through networking, but ONLY after a competitive and open process where they have demonstrated they are outstanding.

    In interviews, your key consideration should be enabling the person to function and perform in the same context as their future day-to-day work. If the position is HQ facing then obviously the expected English level is high and global communication skills a key requirement. If the position is market facing, then bring in key senior local managers to assess the candidates demonstrated experience in operations and how they can describe how they built business for their current employer. Poor choices can be made just because candidates look good to expat or overseas staff, when the job requires China market skills and little HQ liaison.

    Once people are in place, organisations need to focus on training, development and integration into the global organisation. At the same time, the China operation needs to learn to stand on its own feet and find its market position and opportunities. As it grows, it needs to evolve and develop as appropriate in a tough regulatory and market environment.

    All of this is Business 101 for any market in the world. However it is surprising how many businesses overlook this in favour of a ‘China is different’, ‘relationships are everything’ approach that results in them bringing in people utterly unsuited to running their China operation. In any market, employing the best people who are committed professionals in their own area of expertise is key to setting up a successful and sustainable business.

  4. laptop battery at china says:

    December 22nd, 2009 at 9:19 pm

    Doing business in China, the most important thing is to learn how to deal with the Government