Strategy
By Andrew Hupert
China business is mainstream, and China competency is the new normal.
Chinese business has usually been considered an arcane specialty for American managers. Between the size of our own domestic market and the hurdles and uncertainty of doing business in China, it just seemed sensible to put China business on the back burner and leave it to the experts. Manufacturing guys and procurement teams had no choice – but for most American managers China was a distant and vaguely scary place that didn’t really play a significant role in their world.
Three things have changed in the last 5 years that turn this assumption on its head
1. The China market has become a real thing. Stable, growing and big. Giant MNCs like YUM and Starbucks already acknowledge that they can’t grow without China customers. That means China is a top line revenue item – not a bottom line expense item. The difference is that anyone involved in marketing or management or finance (i.e.: the C-Suite and those who want to climb to the C-Suite) have just become China players.
2. China is no longer cheap – but it’s still important as a supply chain hub. China used to offer rock bottom prices on raw materials, processing and finished goods. It’s gotten expensive – but it still controls big parts of the global supply chain. You might be able to get specific parts or materials cheaper elsewhere, but unless you have the wherewithal to build your own start-of-the-art assembling and logistics infrastructure, China is still important to your global competitiveness.
3. China is getting harder to manage in – not easier. More expensive. More competitive. Less forgiving. For Western managers, the stakes are higher, the investments larger, the impact of failure is easier to see. The governments are often corrupt and generally unfriendly. And nowadays you are supposed to know when the holidays are, who the prime minister is, and what the laws are. Simply put, the China bar you must clear is higher than ever, and the ground is harder when you fall.
China isn’t just a specialty anymore.
US executives who blithely admit that they don’t know anything about China are placing themselves in the same category as those who can’t use a spreadsheet or who don’t do social media. They may be able to perform their present job function, but really don’t have much to offer the company. China is mainstream, and basic China competence is the norm.
What is China competence?
China is a big place with a long history and a complicated society. Trying to become an expert on every phase of the Chinese commercial landscape is simply not possible. Here are five general areas that all up-and-coming global managers should be able to speak about on a moment’s notice when it comes to China:
- Market intelligence plan
- Strategic integration
- Risks, choke points and bottlenecks
- Communication strategy
- Growth strategy
1. Market intelligence
You don’t have to have all the answers, but you must know the questions – and have some means of figuring out if people are lying to you. Don’t make the amateur mistake of relying on competitors to furnish you with good data or value added market intelligence. What about your Chinese partners, suppliers, colleagues and staff? In China, those ARE your competitors. And the learning begins! Seriously – set up a newsreader and subscribe to a few key Linkedin group mailing lists so you can scan the entire China environment in 5 – 15 minutes every morning. Don’t rely on mainstream Western sources, or you’ll be a day late on the important stuff.
2. Strategic integration
China used to be where your operations guys got their plastic parts, but now it’s a central factor in your company’s blueprint for the 21st Century. China figures into your companies top line revenue projections, its cost structure, its marketing plan, its expenses, and more and more – its legal spending. You can’t say you understand your firm’s risk profile if you don’t know China – any more than you can project revenue and profitability without figuring in China’s middle class and B2B spending.
3. Risk analysis
In the old days, a China problem meant that the logistics or manufacturing people would get a call at 2 in the morning. Later it was the accountants and lawyers. China problems are now YOUR problems. As China goes top line, you have to be ready to answer tough questions. What happens to your 3rd quarter revenue projections if China’s minimum wage pops by 7%? What if the Chinese government wants to see the plans for your newest top-secret consumer electronics game-changer? What if your boss’ boss suddenly wants to know why sales in Zhejiang are 6% below projections? These things aren’t your fault – but they are your problem if you want to rise in the company or best your competition.
4. Communication strategy
You don’t have to be fluent in Mandarin (though 20-somethings should consider it), but you do have to develop a communication strategy. Just about everyone involved in China business knows that mainland counterparties value relationships far more than Westerners – but many Americans don’t know how to develop and maintain connections, or simply aren’t willing to go through the trouble. A big part of China competency is knowing how to keep your network strong, active and growing.
5. China isn’t the place for half measures or settling down
You always need to know what’s coming next – and if you are smart you will take steps to get out in front of the agenda. The bad news about doing business in China is that the Chinese side of a partnership never stops negotiating – they are always asking for more, even after you thought the deal was done. The good news is that you get to make demands and develop new opportunities as well – but only if you know what you are doing and where you plan to go. The China-competent professional always knows exactly what he wants and what he is willing to give up. HQs that are unprepared for the post-contract negotiation put their own people in a bind – they are struggling harder to placate and manage their own bosses than to wrangle the best deal out of the Chinese side.
Andrew Hupert is teacher, professional trainer and consultant specializing in Chinese-Western negotiation. He publishes two blogs -- www.ChinaSolved.com and www.ChineseNegotiation.com, and recently wrote a book on how to manage business conflict in China titled, "The Fragile Bridge".
Feb 24, 2013