Wednesday, January 27, 2010

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

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