How to Internationalise Chinese Companies: The Key Issues

On the request of one of my readers, following my previous post on the subject, I am entering the text of my piece in the Mandarin-language business magazine, GLOBAL ENTREPRENEUR:

Chinese companies began to internationalise at least in some sense almost immediately after the "open up" policy was introduced in China in 1978. The generation born after that has grown up without any experience of the Soviet-style regimentation, inward-focus and isolation from the outside world that was in place earlier. This generation has also seen and benefited from the positive results of the "open up" policy.

As a result of "opening up", for every country, the questions that are raised are:
- Can internationalisation be measured?
- How internationalised are Chinese companies?
- What are the remaining barriers for Chinese internationalisation?

Can internationalisation be measured?

Yes. Many different sets of measures have been proposed. Academic debates, regarding which of these sets of measures should be adopted, are both instructive and entertaining, but as far as I can see, any set of measurement systems is more or less equally useful from a practical point of view.

Once an organisation has got the maximum benefit from using any one particular set of measures, then the organisation can certainly move on to other sets of measures, if it wishes, but what must be avoided is premature jumping around between sets of measures, because that creates more confusion than benefit.

The elements of such sets are indicated below.

However, the best set of measures for any particular company is a set that is specifically developed for that company by any experienced consultant(s).


2. How internationalised are Chinese companies in comparison to other companies?

The answer depends on which countries one chooses for comparison. Among Asian countries, Indian companies are more internationalised; but American and European companies are certainly the most international in the world. Clearly, Chinese companies have already made major strides in the last few years and are now more keen to learn as well as better organised to learn.


3. What are the remaining barriers for our internationalisation?

That question requires a longer answer. One should think of a company's internationalisation as consisting of several steps, which are part of a historical process - internationalisation has many layers or dimensions.

The first step that any company takes in order to internationalise is simply selling its products abroad. In some ways, this is the easiest thing to do. But in other ways it is quite complicated. Not only does the company have to engage with different customer tastes and different national legal requirements, but also with such issues as: doing business with foreigners (often in a foreign language!), and handling different practices regarding what is done and what is not done. Product distribution systems often vary by country. Of course there is the huge problem of currency risk - so the company, sooner or later, has to wrestle with rather sophisticated financial arrangements such as hedges, swaps and options.

If the company is successful in one or more foreign countries, it will wish to work not only through agents and other such intermediaries, but also through developing its own operations, which could include: sales, marketing, R&D, design, finance, administration, manufacture, and indeed creating a formal subsidiary in another country or countries. The moment one enters that whole combination of possibilities, one is face to face with needing to deal with some or all of the following: recruiting people from a different educational system and structure, with different work values and work-related expectations, and patterns of time-keeping and levels of autonomy, as well as different ways of indicating a "yes" or a "no" or a "let me think about it", and different ways and levels of indicating (or not indicating!) pleasure or dissatisfaction - not to mention entirely different ways of working together as teams! Which brings up, of course, the whole question of working in multi-cultural teams - and those have a whole list of their own challenges!

There is also the vexed question of how the work of subordinates is to be rated (some cultures are relatively generous in their ratings, while other cultures are relatively stingy), what organisational levels people of non-Chinese nationality should be promoted to, and so on.

Most importantly, there is the question of whether and how (and how far!) to get involved in the politics and legislative processes of the foreign country.

Many Chinese companies have now jumped over the initial steps mentioned above, so that they are confronted with a steep learning curve through the foreign companies they have acquired. For Chinese companies that acquire foreign companies, the challenge is wisdom regarding how far to maintain and even encourage different local and regional ways of doing things, versus how far to encourage, as far as possible, a uniform culture throughout the international company - and, if the company decides to go for a uniform culture around the world, then the question is: which culture? Chinese? American? German? French?

We come now to the final and most fundamental challenge: internationalising the mind-set of headquarters. It is relatively easy to run a Chinese company which does all its key activities in China, and simply exports the products (see "The first step", above). As we go down the succeeding steps, it is not only the number of challenges that increases, but also their profundity, inter-relatedness and complexity: we move from simply exporting products to having to deal with challenges at the level of the individuals, at the level of teams, at the level of divisions or subsidiaries, at the level of the organisation as a whole, and finally with the question of the organisation in its political context.

At this stage, it is worth distinguishing between "international companies", "multinational companies", "global companies" and "transnational companies":
• International ones import and export but have no investment outside the home country (the overwhelmingly important culture is that of the home country)
• Multinational ones do have investment in other countries but do not coordinate their product offerings; rather they adapt their products and service to local markets (cultural dominance at headquarters remains that of the mother country, but in the local market the dominant influence is usually the local one)
• Global ones invest and may be present in many countries but co-ordinate the marketing of their products by using a common brand in all markets (the dominant culture may be that of the home country, or it may be significantly absorptive of influences from other countries - the key is not culture but the emphasis on volume, cost control and efficiency)
• Transnational ones simultaneously pursue different degrees of coordination, integration and local adaptation in strategy as well as in operations, depending on technological, legal, financial, business and market conditions. Some activities might be globally coordinated - e.g. purchasing, R&D - while other activities may be rather more adapted to local conditions - e.g. packaging, marketing (naturally, there may or may not be a dominant culture in such a firm, or there may possibly a culture that is dominant but only among the elite in the company).

In view of all that, the principal barrier to further internationalization of Chinese companies is simply the Chinese belief that China is the centre of the world - an attitude that harks back to ancient Chinese history and culture.

Some of my Chinese friends believe that I am mistaken and that China is fully prepared to learn from foreigners. That may be more or less true at the level of individuals, but I find that is already less true when one thinks of family life, and I suggest specifically that Chinese corporations must make more deliberate and vigorous efforts to shed the old-fashioned and unhelpful mentality, particularly so as to be able to compare, study and benefit from the different ways that other countries have of developing, articulating, and implementing a company's vision, mission, structure and policies.

Further, the sooner Chinese companies actively lobby and work to get rid of political control and interference, the more effective they can be in pursuing internationalization and all its benefits.

But I want to raise a crucial question: are Chinese business leaders interested in internationalization only to make more money? If so, that will be a disaster for China as well as for the rest of the world. I very much hope the opposite: that while Chinese business leaders of course want to be very successful, they will define success not only in terms of making money but also in terms of what they do to make the world better.

What do I mean by "better"? I mean: with global rules that enhance the possibility of (i) reducing global economic volatility and vulnerability, (ii) reducing the gap between the poor and the rich, and (iii) increasing care for the environment.

That is very different from the kind of internationalization which we have at present, which is doing largely the opposite on each of these three dimensions.

I am interested, and I hope Chinese leaders will be interested, rather in the right kind of internationalization. That will benefit not only Chinese companies, or even the whole of Chinese society, it will be very good for the whole of the world.

ENDS Sphere: Related Content

Response to my interview in a Chinese business magazine

A Chinese colleague responds as follows to my interview, in a Mandarin-language business magazine, regarding the future of China in a globalising economy:

"I totally agree with you that the China-centric sentiment will hinder China's globalization process. The traditional value system was destroyed during and even before the cultural revolution. In the last three decade, it gradually comes back and with the fast economic development, some Chinese indulge themselves in the old dream of the central kingdom again. Even in management, there is a voice that the Chinese management style is better than the Western one. Personally I believe that without fully appreciating the Western management concepts, Chinese business will face big problem not only abroad, but also in their own country." Sphere: Related Content

Inexplicable Chinese cyberattcks?

Why did the Chinese launch their attacks against global software companies, against US state agencies, as well as against Indian government offices and agencies all on the same day and at the same time?

Having puzzled about the matter ever since I heard about it, here is the only explanation that I can think of: China may have reached the limit of its capacity to stimulate its economy, having already put in a fiscal and monetary stimulus of around 50% of its GDP over the last 2 years.

China is confronted with with overflowing warehouses, enormous overproduction and perhaps as much as 50% overcapacity, in real figures probably 75 million unemployed, and a credit crunch as all of China's banks are squeezed because of capital adequacy requirements and most banks are squeezed because of bad debts; China therefore faces stagflation for the foreseeable future, and a war could do China good, in the cynical calculations of some of the elite there. It would also weaken the US, Europe and Japan.

Conclusion: If the Chinese are willing to be open about their problems, and are willing to receive international help, the world may be able to help China solve its problems. Otherwise, we are pretty close to China sparking a war în relation to any or all of the following: Taiwan, Spratly Islands, India, Russia.

In view of the above, the Chinese cyberattacks can be understood as a diversionary move from its internal problems - or from the viewpoint of the outside world, as a first strike.

An interesting question is: why is Defense Secretary Gates in India right now with so many of the top defence officials from the US? Is it because, in the US assessment, China regards India as the softest target? Sphere: Related Content

The new proposals from the Commodity Futures Trading Commission

New regulations have been proposed by the Commodity Futures Trading Commission (CFTC) to try to curb speculation and domination of commodity markets by a few players.

The proposals amount to placing position limits on commodity trades. The size of the position limits is so massive that it will affect only the largest players.

This is a useful way to try to ensure that the whole market is not affected, and ensures that the biggest players are limited in their activities and impact.

One can think of it as the equivalent of the work of the UK's Monopolies and Mergers Commission which tries to prevent the natural tendency of capitalism to monopoly, by breaking up monopolies, duopolies and even oligopolies.

The only problem with the device of position limits is that it will encourage the largest players to either break up into smaller units (no bad thing even in itself), or encourage them to deal, in effect, through the layers of players immediately below the regulated level.

But I guess that if the CFTC is vigilant it can spot this and ameliorate it. The question is the ability and willingness of the CFTC to be vigilant.

Unfortunately, that is not guaranteed, if one judges on the basis of its performance over the last 25 years or so (of its 35 year existence). Sphere: Related Content

The USA's two-class society

According to the National Leadership Index published by the Center for Public Leadership at Harvard's Kennedy School of Government in the USA, some 52% of Americans believe that corporate bosses work mainly to benefit themselves, while 31% believe they work to benefit a small coterie. Only 10% of Americans believe business leaders generally work for the greater good of society. That' 83% versus 10%. My guess is that the 10% are either business leaders themselves or others who are close to them, or in positions where they can anticipate becoming business leaders themselves, while the 31% are middle-managers or those who aspire to middle-management positions. That leaves the vast majority of Americans....

If things have got that bad in the USA, usually the world's lead society in terms of trends in fashion and ideas, then we can imagine what the sentiment is or will soon be in the rest of the world.

Unless business leaders really start working for the good of society as a whole, and not only for their shareholders, we will ultimately arriv at the brink of global revolution and chaos. Sphere: Related Content

Are consumers from Emerging Markets more interested in "green" products?

According to research published by Accenture (http://newsroom.accenture.com/article_display.cfm?article_id=4921), emerging-market consumers are much more willing than their developed-world counterparts to pay a premium for products which are supposed to be environmentally friendly.

As many as 84% of consumers in China, India, Malaysia, and Singapore say they would accept a higher price for green products, compared with only 50% in the U.S., Japan, France, and Germany.

This is of course related to what people say....

The question is what people DO....

My guess is that, if research were able to be done on actual purchasing behaviour, the findings would indicate the opposite - at least if the elites are either excluded or included as a normal part of the population. Sphere: Related Content

Why do some people disfigure their bodies?

I don't know, but I am hugely reassured this morning by a survey from Pew Research
http://people-press.org/report/573

Many recent innovations are popular and seen as beneficial (e.g. cell phones, "green" products, email, and the internet).

However, some others are not particularly popular - e.g. reality TV shows and "more people getting tattoos," were seen as improvements by only 8% and 7%, respectively, but seen as "a change for the worse" by 63% and 40% respectively.

Reality TV must therefore divide people more than the survey suggests. Why? Because it is clearly hugely popular with a small number of people but clearly hugely unpopular with most others.

The same can be said for tatoos.

The only difference is: you can turn off reality TV, but you basically can't undo a tattoo.

So why do people disfigure their bodies, either more or less permanently (with tattoos) or at least temporarily (with various metal studs and loops through nose, ears, and even eyebrows, cheeks and lips)?

How come they either dislike or despise their own bodies so much?

On discussing this with a few friends, it turns out that while I consider tatoos and studs/loops as mutilation, some suggest that these could be seen in the same light as the use of perfume or cream - a sort of enhancement rather than a disfigurement. Particularly as perfumes, creams, lipstick et al can be at least mildly disliked by some people....

That is true. But I remain unpersuaded. It is far easier to stop using a particular perfume (and it has fewer after-effects!) than taking out a stud or loop, or undoing a tattoo.

Anyway, according to the survey, other things (wider acceptance of gays and lesbians, cable news talk and opinion shows, and the growing number of people with money in the stock market) also divide Americans relatively strongly.

All of which makes for interesting discussion about politically incorrect and therefore generally undiscussed topics. Sphere: Related Content

Which decade was the worst of the last five?

According to a survey by Pew Research http://people-press.org/report/573, the current decade is regarded by Americans as the worst since the Sixties.

The Sixties themselves were regarded as "positive" by 34%, while 15% regarded them as "negative"; on the other hand 42% regarded them as "neither", and 8% said they did not know.

The Seventies, Eighties and Nineties improved on those scores more or less uniformly.

The proportions were, respectively:

Positive: 40, 56, and 57 (that is, more and more people regarded them favourably)

Negative: 16, 12 and 19 (a mixed trend, but relatively minor)

Neither: 37, 27 and 22 (fewer and fewer people were sitting on the fence)

Don't knows: 7, 5 and 3 (probably the least important, but reinforcing the trend above)

From these figures, one could conclude that Americans view these decades as increasingly positive.

With the current decade, however, we see an abrupt reversal: Only 27% regard the decade as positive, 50% regard it as negative, the proportion of people who regard the decade as neither postive nor negative, as well as those who don't know drops further (respectively to 21% and 2%).

Probably many factors contribute to this sudden change in view in the USA. In India and China, I am pretty confident that most people would regard the current decade as either "positive" or at least no worse than previous decades. I wonder what the verdict would be in most other countries in the world. Sphere: Related Content

Outlook Business magazine now the best in India?

There are scores of magazines in India that cover Indian business. Some do so as only a part of their total offering. Others are wholly focussed on business in India.

Of these latter, I have no idea what the current figures are on circulation, but Outlook Business is now clearly at least one of the best in terms of content.

I have never before Tweeted even a single story from an Indian business mag, and I just tweeted two today:

1. "Indian companies that make you want to jump out of bed and rush to work!: Outlook Business magazine: http://preview.tinyurl.com/yd6ynyd"

and

2. "survey results: to win the war ahead for talent, Indian companies shd encourage better work-life balance http://preview.tinyurl.com/ye9ky3a" Sphere: Related Content

Is the USA now over-emphasising homeland security?

According to US government figures, there were NO violent deaths from terrorism on US soil in the period 2002 -2006 (when the statistics stop, but probably the figure was still zero in 2009).

The US government can no doubt argue that this is because there are now hundreds of thousands of people employed to prevent terrorism.

On the other hand, some people might like to ask: how many ordinary people are affected by these measures? Sixty six million passengers flew through Atlanta in 2008, 50 million through Heathrow, and so on.

Meanwhile, Americans might want to ponder the fact that there were a quarter of a millio (252,966 to be exact) violent deaths during 2002-2006 on US roads (not to mention those who were injured).

Moreover, there were 146,814 deaths in the USA from firearms during the same period, 2002-2006. Of those who were killed, 1610 were up to 14 years old; 12,242 were 15 to 19 years old; and 20,563 were 19 to 24 years old. That's approximately 34,000 YOUNG people killed just in these five years when no one was killed due to terrorism.

So should the US stop all measures against foreign terrorism on US soil? No, but the US might want to be more balanced and sensible about countering such terrorism.

If President Obama is serious about improving Homeland Security, I would recommend the following three steps as the minimum:

1. Decrease emphasis on gathering every conceivable bit of information on every visitor, emphasise analysis of all the information that the US already gathers through existing channels, and (more important) emphasise follow through on the basis of the information collected.

2. Throw out all the redundant information that is collected, which clogs up the possibility of adequate analysis - for example, all foreign visitors to the USA must not only give BOTH eye-scans but also all TEN fingerprints. This is overkill with a vengeance! One eye-scan and one index finger print should be more than adequate for almost any purpose but if the US wants to insist, perhaps it could be satisfied with two eye-scans and two index-finger-prints? Does the formality of the pre-travel registration really help anything beyond creating additional bother for all passengers travelling to the USA?

3. Order an assessement of the IQ of all employees connected with anything to do with homeland security. One or two agents who are not up to the mark or are mentally lazy are all that are needed to stymie a whole system - because, as in the recent case of Umar Farouk Abdulmutallab, a chain is only as strong as its weakest link. Anyone who has any contact with any official to do with TSA or homeland security knows that many of these officials may be (just) able to follow procedures, but following procedures is never going to provide security; following procedures intelligently is what is going to provide security. All TSA/ homeland security employees with an IQ of less than 120 should be let go. A slimmer but more intelligently organised and much better co-ordinated corps can help deliver security, but the present bloated, ill-organised, uncoordinated and unintelligent scattering leaves the security of the USA very much to chance.

A friend sharing a coffee break says that perhaps the US likes and wants to have a bloated, ill-organised, uncoordinated and unintelligent scattering of agents and this huge amount of undigestible information as part of scaring its own population into paying for the sales of all the security-related equipment and for providing employment during a downturn.

Another person (an American) argues even more cynically that it is part of an elaborate plot by the US elite to limit freedoms in the USA, and that the limits on freedom are going to get much tighter with even more scare-mongering.

Please let's not be that cynical! Specially at the start of a new year and a new decade! Let's be positive and seek to spread truth, intelligence, balance, justice, love and all the other good things - which are what new beginnings are all about. Sphere: Related Content