Success In The P.R.C. Requires Balance
Success in China requires strategic ideas balanced with executable operational plans. And often, a company's needs will change over time. A multinational may initially require assistance developing a China entry strategy, conducting due diligence and integration and establishing a baseline HR infrastructure. If all goes well, profitable expansion, organizational transformation and technology implementation may become more important. Finally, sound financial controls and processes, low cost sourcing and supplier performance assessments may be priorities throughout the business cycle.
How can multinationals optimize the value generated by their China units? This checklist raises practical success factors - and challenges - for multinationals entering or expanding in China.
Market Entry: · China is not one uniform market; it has uneven economic development and regional cultural differences. · Western-style management practice often fails in the context of Chinese business culture. · Local brands may not have the global reach and reputation of foreign ones, but they have local roots and growing loyalty.
Pricing and Profitability: · Most consumers in China are not accustomed to rising prices; a thorough understanding of segments, channels, and change management is key. · Prices often vary by region within China. · More time is required to collect, and analyze price and cost data in China compared to the U.S.A. and Europe. Human Resources: · Employee retention is a major HR challenge in China, and compensation is often not the cause of retention problems. · The three major cornerstones for employee retention in China are internal equity, career development and on-going training. · For young professionals, and Chinese returnees, career development is a major motivator to stay with a company. · Chinese staff views training as a major benefit and considers it a sign of being valued. Companies with comprehensive training programs generally enjoy lower turnover rates in China. Sourcing: · Switching to China-based sourcing will represent a significant change in how a company does business. Costs will be lower, but supplier development, management and risk will be higher. Discussions over risk-reward tradeoffs need to take place before any deal. · Supplier capabilities vary immensely within China. Onsite evaluations and due diligence studies including financial, operational, quality and social responsibility reviews must take place early on. · Relationships are important to the Chinese; it's crucial important to build a high degree of trust, communication and integration with suppliers from the outset. Systems Implementation: · Infrastructure in China is changing rapidly and what held true last year has most likely changed. · Allow adequate time for systems training, both for initial implementation and ongoing training. · If financial systems are to be changed or upgraded, it is critical to obtain local Financial Bureau certification. In some provinces this can be a very bureaucratic process. Process Improvement: · Justification for process and system improvements in China will be driven less by a cost-saving mentality and more by a market-expansion mentality. · While Chinese processes are generally simpler than U.S. or European standards, they are usually not documented and communication gaps tend to be more severe between key functional areas.
Growing a business in China presents unique challenges that should be factored into investment and profitability objectives. Temper your entry strategy with realistic expectations as you launch localize products and services, and establish an employee base in China. Finally, business operations may vary from province to province as there is no "one size fits all' concept in China. As a result, strategic ideas must be balanced with operational plans.
About the Author
Ron Hartfeil is the President at R9 International Sourcing and Consulting (http://www.r9international.com), an independent consulting firm specializing in the Consumer Goods industry. Previously, Mr. Hartfeil was the GM for Gibson Guitar, China Division, COO of Gibson's Global Baldwin brand, and Director of Global Footwear Operations at Nike, Inc.
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