By Frank-Jürgen Richter
On reading the Global Times article “Chinese firms should start exporting managerial experience as well as technology” in late January I smiled in sympathy. What the article said is indeed true but there is no magic bullet to cure the issue. Instead time, perseverance and trust-building are needed. To an extent China’s extensive geographic spread is an issue, as is its growing middle class who look to buy “Made in China” goods. Thus the managers of Chinese firms, who may have a sufficiently large bank balance to buy firms overseas, choose to remain Chinese and serve the local market. They are not to be derided, but herein I wish to add my comments upon firms who venture abroad.
Within China market exploration only takes managers into regions where the laws are known and clients speak Chinese. Business expansion professors all state that moving to the next country over is always easier than going afar as one might presume nearest neighbours hold similar viewpoints and their languages might even be similar. Further, the time to travel between a close new venture and headquarters is quite short, even in China, where most places are not much further than 12 hours by train from Beijing, and “closer” by airplane.
The desire to integrate a foreign firm into one’s own line of business implies strong interactive management. It demands a good understanding of the foreign language and its quirky phrases, and an understanding of the behavioral traits of the others who might seem too ready to be aggressive, passive, talkative, silent and every other conundrum including expressing gender differences that prevent easy interaction. These aspects are not taught in engineering degrees or often mentioned in MBA programs. But everything involves people – being able to work with them and being able to develop trust – and that takes time and patience.
One difficulty for Chinese managerial study is that there are too few texts aligned to Chinese businesses and their case studies. Case studies allow postmodern deconstruction and a critique prior to a synthesis of paths that managers of the firm might have chosen to be more successful. As yet, few business schools in China adopt this dynamic approach but it is needed when “going global.” Too many professors adopt US textbooks as they are cheap and easily acquired. Often they give a spurious sense of confidence to the student as there are many case studies – but they have been derived from research on firms in the US. Possibly it is good research but it is not precisely applicable for a Chinese manager venturing into, say, Africa. They give too much credence to US-centric business methods, and too little to the fundamentals of good Chinese sense-making.
Let me offer one or two examples. The automotive industry once comprised of national firms prior to being bought out by a globalizing foreign firm – think of Ford, Benz, General Motors, Toyota or Nissan/Renault. They have manufacturing facilities in many countries and local managers, as well as regional group headquarters supporting the Americas, Europe plus Africa, and Asia. Corporate headquarters through regional and local management groups direct the total process of assembly via a myriad of supply chains, then to sales via distribution chains – any of which may cross international borders. The managers in local firms may have been placed by corporate headquarters to gain an understanding of foreign operations, returning later to corporate headquarters and still later move to a management post in the regional HQ. A form of guanxi is developed by these global staff which comes into play, as does the natural guanxi in China, when issues need resolving quietly and quickly. Planned managerial progression allows individual managers to appreciate national differences. If one is alone in a foreign land such interactive support is not available and quite likely, as the Global Times article has said, the foreign venture will fail.
The second example might be called “the Peninsular Effect,” a nod to Napoleon’s difficulties in Spain in the early 1800s from being too reliant on long supply chains and thus constantly short of supplies. Within globalized supply chains one might not think this applies, but it does when firms ramp-up an overseas venture. The major question is whether the foreign venturing firm should be “global while working locally” or whether they should demand fealty from at-home suppliers and persuade them to also venture overseas. If the latter, at least the main firm will have a guaranteed first tier supplier with known characteristics and the same business language. But first tier firms have a worse senior staff availability than the lead firm, they will always be totally stretched, spending most hours flying rather than managing.
At present China faces several imponderables. In general terms many firms carry considerable cash reserves so overseas acquisitions look attractive to extend their brand image. But it is too easy to hit the Peninsular Effect, and internationally experienced Chinese staffs are few. And to further confuse matters, the US, currently the leading global economy, is struggling to understand its repositioning under its new president, and the eurozone is rebooting (its Purchasing Manufacturing Index in January rose to 55.2, up from 54.9 in December) while the UK, the fifth largest global economy is about to initiate a split from the EU and is also welcoming good growth potential (its January PMI was 55.9). Where indeed ought Chinese managers invest?
I would urge caution. I would suggest Chinese firms should concentrate on hubs that will appear along the Belt and Road initiative and take the time to train managers in “long distance decision making.”
There are plenty of opportunities to invest in Europe or the UK in the near future akin to the Sino-Swiss Free Trade Agreement. Being patient and learning new skills will create a strong Chinese managerial ethos better able to confidently engage in the Americas or Africa.
The author is founder and chairman of Horasis, a global visions community. Horasis hosts the annual Horasis China Meeting – the 2017 edition of the event will be held in Sheffield, UK.