The Changing Face of Management in China: Knowledge@Wharton (http://knowledge.wharton.upenn.edu/article.cfm?

articleid=1164)

The Changing Face of Management in China
Published : June 01, 2005 in Knowledge@Wharton

As China's economy evolves -- growing larger, more complex and more competitive -- so is the way that multinational corporations (MNCs) are managing their operations there. CEOs and other senior executives at MNCs in the U.S., Europe and Asia are focusing more of their time and their companies' resources on China, according to experts at the Boston Consulting Group and the Wharton School. Research by BCG suggests that the MNCs that have had the most success in China are those whose top managers have gone out of their way to stress the importance of their China businesses in relation to their global operations. At the same time, the managers on the ground in China are also changing. Expatriates still hold the most senior positions in China, but Chinese locals are assuming a greater role in both middle- and senior-management ranks.

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In years to come, multinationals will face new challenges in their China operations: nurturing the growing number of more educated and experienced Chinese managers and leveraging their China operations in a way that contributes to their global competitive advantage. In past years, the typical general manager in China was assigned the relatively straightforward task of either selling his multinational's products in that country or helping the parent firm establish operations to leverage China's strength as a low-cost producer. To be sure, these remain important responsibilities; indeed, the number of companies that wish to outsource to China is accelerating. But the demand on China managers has become more multifaceted, according to Jim Hemerling, senior vice president and director in BCG's Shanghai office. For one thing, China managers still have to address significant growth in demand in China and all of the challenges inherent in competing against foreign and domestic companies in what is already a vast, difficult market. They also must deal with the global migration of customers. Industrial companies or suppliers that provide components to assembly plants are finding that more and more of their customers are migrating their manufacturing to China either because of demand or China's attractiveness as a low-cost space. Hence, China managers must now interact with a constant stream of visits by customers from many parts of the world. Furthermore, general managers of MNCs in China must strengthen their ability to develop managerial talent -- as well as engineers and scientists -- within China. "These global forces are coming together to produce a significant change in the role required of the China GM," Hemerling says. "That person now has to be the impresario or orchestrator of a much more complex set of management demands. You already have a GM working hard to compete against foreign and domestic competition, to grow his domestic business, arranging visits, meeting customers, setting up large outsourcing organizations. Now he has to make sure his company is getting its share of the talent. That's quite a change in role. It's one thing if you're a company like General Electric that has tremendous resources and can put in place a China CEO who orchestrates those processes. But for many companies, the China GM or CEO is really stretched to meet this change in complexity." Benchmarking Best Approaches

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complicated. top-down management push is reinforced with management processes. Kodak moved its Asia headquarters to China.The Changing Face of Management in China: Knowledge@Wharton (http://knowledge. The MNC works aggressively to bring the industry value chain. Specifically. target setting and management processes. BCG also looked at how MNCs ensure sufficient global visibility of their China operations and how functions and processes are carried out. accountable sponsor at the global level. a vice president in BCG's Beijing office. at Samsung. Motorola University runs management development programs in China. Clear. and the extent of cross-product development activities. the relationship of sourcing to sales and marketing. the role of the China operation. Pepsi has stepped up its government-relations focus on the central government and less on provincial governments. Samsung set up a 300-person handset R&D laboratory in Beijing. were able to achieve some sustained focus on China and orient their companies toward accelerated activities in China. A continual. Michael Dell of Dell Computer and other CEOs visit China at least once a year. global organizations. localization and human resources development. BCG conducted a survey to benchmark the best corporate approaches to China.edu/article. Nike says its China operation will become increasingly important in the build-up to the 2008 Olympics. GE has goals of $5 billion in sales and $5 billion in sourcing by 2005." says David Michael. into China. bold targets are set internally. government and public relations. and sometimes externally. "With the survey. as distinct from the level of individual business units. China-specific products are pursued. China is made a global or regional center -. One of the key takeaways from BCG's research is that MNCs grow their China operations from the top   All materials copyright of the Wharton School of the University of Pennsylvania. The study found that leading MNCs treat China uniquely in at least 10 ways: The China operation has a very senior.for key responsibilities.upenn. the consultancy analyzed the MNCs from a number of perspectives: how the multinational manages its China operations. The MNC is willing to change its rules regarding global priorities and norms to favor China. Kodak's China organization prepares an integrated strategy across six businesses. virtually all major MNCs have China-specific products. despite being large. we tried to look at some general ways in which these MNCs.cfm?articleid=1164) In 2003.wharton. The China operation is given a truly "value-added" role. for example.or both -. Managers are nurtured for the long term. Government relations and public relations are strongly emphasized. the China CEO is one of three top group executives. including R&D. The study focused on ways in which 14 MNCs manage their overall presence in China from a broad corporate perspective.                    Page 2 of 5  .

Companies that have achieved breakthroughs in China -establishing a presence in places other than Beijing and Shanghai.000 to $300. "You can't just have a little sales arm here.cfm?articleid=1164) down. you need to bend the rules that otherwise might prevail inside your company. They also understand it's not easy." The Role of Expats Expatriates still make up the majority of CEOs and other top executives in China. more senior time and attention. pay $20. Are they putting enough effort into it? That's something that could be challenged. I think not all have upgraded the level of resources needed. establishing deeper distribution channels -. If the regular rules say you need a two-year payback from the day you set up operations.upenn. and that makes a big difference.000 a year to cover the cost of trips back home. and more investment than the near-term financial returns might otherwise warrant. "I think most of them are getting organized. "It needs to be top down because you need to reallocate global-level resources and activities if you are to really make a commitment to China. says Volkswagen and Michelin are two examples of European companies that understand the importance of China. and also pay his taxes." says Wong. MNCs are turning to Chinese executives to fill the ranks of senior and middle managers. "To accelerate investment successfully in China over time. the number-one player in the tire business in China. however.000 to $40. like R&D.edu/article." Mosquet explains. Mosquet says CEOs of European MNCs are catching on to China's importance as a market." The View from Europe Paris-based Xavier Mosquet." says Michael. "You've got to be ultimately customizing and modifying your products for the local market. it was ahead of the curve in recognizing China's potential role in its operations. given the challenge. One reason is that Chinese managers have the natural advantage of knowing the language and the culture." Additionally.wharton.bent the rules to make China a priority. They don't necessarily have a full-blown plan of what it means in terms of the scale -the role of manufacturing or the role of China in terms of technology -. Another is that the cost of transferring managers to China and supporting them and their families can be expensive." says Mosquet. "You can find really good managers in China for a lot less. senior vice president and head of BCG's operations practice in Europe. if they are not already totally organized. Increasingly." Michael explains. John Wong. You need to be able to allocate more management talent. but they understand it's an important issue of a strategic nature. however. Not every company makes it past that threshold. and in doing so struck one of the first initiatives of its kind that gave the non-Chinese company a controlling stake (51% in Michelin's case). Those who know most about it understand there will be ups and downs. do European CEOs fully understand the broader role that China can play in their global operations? "There is a general understanding of that.000 housing allowance each month.   All materials copyright of the Wharton School of the University of Pennsylvania. And you need enough value-added activity.000 a year in base salary and receive a $10." Another important finding: Bringing the industry value chain to China and building for the long term are also important. says a typical expat manager may earn $200. His firm may also give him $20.The Changing Face of Management in China: Knowledge@Wharton (http://knowledge. China is a complex market. so the cars it sells there are up to European standards.                    Page 3 of 5  .and how and to what extent they can and cannot rely on that country to provide shared services for their operations in the rest of the world. and have established well-oiled operations there. so that you can establish closer relationships with local suppliers and demonstrate commitment to local customers. "Volkswagen saw very early on that the Chinese market would be demanding and sophisticated. chairman of Asia Pacific for BCG.000 annually to educate his children in private schools. you have to understand that a China investment probably won't achieve that goal. not the bottom up.000 to $40. achieving more product customization and localization. it is still an abstraction. established a joint venture with China's top tire maker. Michelin also has been able to upgrade the standards of tires sold in China and educate consumers about the advantages of such improvements. Though Volkswagen later ran into difficulties. Not all of them think about the downs. Michelin. both locally and globally. "For many CEOs.

The MNCs that are in more of a start-up or exploratory mode are usually expat-driven. Expats play a particular and relatively narrow role in most major MNC operations.S. in large part because people in their 40s and 50s. were in school during the country's cultural revolution and were not well educated. They are too expensive. experienced managers from the People's Republic of China are.wharton. you need to be able to speak to Chinese at a level that allows for subtlety and quick interaction. they're not there to stay. It would be wrong to believe that the era of the expat is over. And often the only way to get them to go to China is to promise them a bigger and better job." Michael adds that the role of expats has narrowed. "The tight integration of China into global business necessitates expat participation. If you want to become a more sophisticated manager. in one case. The reality is you just can't manage a business by rotating a succession of people for two.or at least have been trained in the West.                    Page 4 of 5  . Most of the companies with which Mosquet has worked have made strides in local integration and have reduced the number of expatriates." For many years MNCs would assign expats to China for a period of perhaps three years and then transfer them." notes Wharton management professor Marshall Meyer. "The MNCs have treated China as a training ground." he says. and they are also relying on local mangers or expats who have a commitment to being in China for longer periods. according to Wharton's Meyer.The Changing Face of Management in China: Knowledge@Wharton (http://knowledge.maybe even for one of their own divisions -. even the chief financial officer was not an expat. and the war for Chinese talent is being waged vigorously. That's because they want to make sure what's happening in China is integrated with the rest of the world -. and that may be more permanent. It was a cumbersome approach to managing China operations because the expats would be taken out of China at just about the time they had gained the experience to do their jobs well.cfm?articleid=1164) "Multinationals are relying on expatriates less and less. "Expats bring a huge amount of value. The local China operations of many multinationals have become very large and complex. Another reason for the dearth of managers with more than 10 years' experience is that it has only been in the past decade or so that China's economy has exploded. multinationals admit that there are exceptions. "Big MNCs are beyond the strategy of rotating people in on a short-term basis. says Michael. But changing people every three years is not the most productive thing to do. increased the level of expatriates. they must rely on local teams of managers. Wanted: Young Managers Educated. In a plant serving the China market. By necessity. senior vice president and director in BCG's Chicago office and head of the firm's global operations practice. even those who point to the generally diminished role of expats in European and U. as they grow.in the same way that European multinationals have Americans in their operations. worth their weight in gold.upenn. They are seeking people for longer periods of time.edu/article." Smart MNCs have discovered the disadvantages of the three-years-and-out formula and have adjusted accordingly.or three-year time periods. like good managers anywhere. you're likely to find fewer Europeans. "The reality is that the flood of expats coming to China has never been greater. "I've seen some companies that are down to one expat manager." The demand for talented Chinese senior managers outweighs the supply. "Multinationals rely on Chinese managers who may have worked for several years for Western companies -." BCG's Michael sees the issue differently. who would be expected to assume such positions. Both in R&D and engineering they have actually." Indeed. but companies that have mature operations in China rely predominantly on local Chinese managers. who has studied Chinese companies extensively. at least temporarily. But some MNCs say it's important for that manager to have mobility. says Harold Sirkin. He adds: "Where this is less true is among companies that were using China as a place where they produce for the world. and their language skills are not sufficient. "There is just a scarcity of people with 10-plus years of experience   All materials copyright of the Wharton School of the University of Pennsylvania. not just local markets." says Wong.

and many are being trained by the multinationals themselves.upenn. marketing and sales -." One major issue that lies ahead for executives of MNCs in China is having the foresight and steadiness to manage the ebb and flow of business cycles. "The scarcity applies to manufacturing.to counterbalance the era of rapid growth that has captured the world's attention in recent years. "There are huge numbers of grads coming out of engineering and business schools who have zero to five years experience. e-prints.000 assembly-line workers helping you make products you sell all over the world. and in that respect." notes Hemerling. Before. But for companies of equal size. and managers who cut their teeth on Chinese operations 10 or 15 years ago may not be up to handling a new environment in which MNCs demand so much more from their managers in China. Mosquet predicts." Michael says. posters or plaques. notes Mosquet: "Sales in China might not constitute as big a share of their overall U. How long it takes is in the hands of the companies.although less so -.those in their 20s and 30s -.com P. "In the past it's been simple to have. It's another thing to have 10.S.S.000 R&D engineers. and you're doing well. let's say. engineering and science programs.edu/article. custom reprints. The talent is available to achieve this goal. So the job is much more challenging. the China market will inevitably experience downturns -." Another major challenge for MNCs is achieving an even greater level of integration of their Chinese business activities into the global company. not just in manufacturing but in a variety of other aspects of the company.   All materials copyright of the Wharton School of the University of Pennsylvania. This will mean planning manufacturing capacities aggressively enough to meet demand in what is the biggest market in the world but also being able to cope with a slowdown without being hurt by overcapacity.                    Page 5 of 5  . please contact PARS International: reprints@parsintl. Now you have young guys who have to get up to speed from a higher level. and managers have to pick up where the previous guy left off. According to Wong: "Ten years ago. corporate revenues as they do for European companies.S. software engineers and programmers integrated into your global operations. managers of MNCs that came to China didn't always know what they were doing. and the worst companies will never be able to do it. The best companies will be able to do this. But they hung out a shingle and headquarters said. It requires some development." Educated younger people -. As it develops. there was a lot more tolerance for a lack of profitability and mistakes.wharton. Many have earned degrees from top business. and European firms will be in the same situation." says Hemerling.cfm?articleid=1164) working for MNCs in China.' Today." This is a single/personal use copy of Knowledge@Wharton. 'You're growing from a base of zero by 10%. The next wave for companies will be to truly make a China-based capability and leverage it for the benefit of their global competitiveness. It may be that the young managers are coming along just in time. a global manufacturing platform in China. U. (212) 221-9595 x407. firms better prepared to handle downturns than European MNCs? One slight difference is that American companies tend to be larger than European companies. sales have grown. but it is available. they will have an advantage. "You have 10. Competition among companies in China is growing ever more intense. Are U.The Changing Face of Management in China: Knowledge@Wharton (http://knowledge.perhaps lengthy ones -.are in a much better position than their elders to attain positions with MNCs. For multiple copies.and in technical functions like engineering. That's now a relatively straightforward thing to do. It's an internal challenge for large companies to manage the change in the norms of the way they do business to achieve that result.