The MNC’s guide to understanding China - Part 2

Most MNCs cannot afford to ignore the Chinese market, but what exactly are the proven leadership strategies that will secure success for the long term?

Odgers Berndtson interviewed over a dozen China-based executives across a variety of industries for our white paper ‘The challenge for multinationals in China’. In this second and final report extract, we focus on the hiring, leadership and workforce challenges of this unique market. You can read part one here.

The Chinese MNC leader

Given that localisation and cultural adaptation are the keys to succeed in this unique and challenging market, it’s no surprise that the executives we spoke to emphasized the importance of local leadership. An executive at a biotechnology company counselled, “MNCs should bring more local talent – voices that really understand the market – into their decision-making process.”

The same executive conceded, “There are some competence gaps for local executives, particularly related to communication skills.” “But,” he argued, “from a technical and business perspective they are as strong as any other leaders.”

An executive at a manufacturing company headquartered in Europe agreed: “The capability of local executives is improving and they are better at understanding and reacting to the local market than Western leaders. In addition, they tend to be more flexible than their Western counterparts and are better at challenging [old ways of thinking] and reaching for big opportunities.”

He also pointed out a downside to this optimism, however, noting, “Chinese executives can be over-confident about what they can achieve, compared to leaders from more mature markets who tend to be more humble and conservative. Chinese executives want to be able to do everything on their own.”

The CEO of a multinational manufacturing company elaborated further, “The successful MNC leader in China is more global and less insular in their thinking and understands the importance of process and discipline, instead of only focusing on results.”

“Unsuccessful leaders operate by the seat of their pants or sequester themselves in their offices instead of actively participating in the business.”

Two of the executives we spoke to observed that Chinese leaders tend to be more focused on growth rather than long-term profit. The CFO of a hi-tech manufacturer said, “The Chinese leader may have a broader strategic picture and longer-term targets, but still wants to see quick wins and gains along the way.”

He continued, “Chinese leaders are “doers, not talkers” and aim for speed rather than perfection. They thrive when they are in control of the business and can give clear directions and targets to the teams below them, from whom they expect nearly immediate execution.”

The regional president of a multinational industrial conglomerate noted that while “Chinese leaders are very quick to see opportunities and react to them” they are also “keen to maintain a rigid hierarchy.” He explained, “In the West, leaders are more open to discuss issues and challenges and to embrace diversity and display empathy.”

Undoubtedly, finding the right mix of local knowledge, business acumen and international experience is a challenge. Once the right local talent has been identified, however, an executive at a biotechnology company observed that “Chinese executives working in MNCs want to be treated the same as everyone else and not passed over for promotions by Western executives shipped in from HQ.”

The Chinese employee

One of the biggest challenges MNCs face in China is how to develop and retain talent. Chinese employees are hardworking and enthusiastic. As the regional president of a multinational industrial conglomerate noted, they “are eager to learn, adapt and change.”

The CFO of a hi-tech manufacturer added, “Chinese employees are very good at fast execution, combined with a high degree of flexibility. Therefore, strategic changes can be easily implemented at short notice.”

Still, cultivating employee loyalty can be difficult. Chinese employees are more willing to jump between jobs in order to achieve a higher salary. The regional president added, “The best people want to work for the big Chinese players where they are paid more and have more power. When they decide to come back to Western MNCs, they want to earn the same money and have a better work-life balance.”

The CEO of a multinational manufacturing company counselled that the key to cultivating loyal employees is to help them grow with the company. “We need to find ways for people to develop a career rather than just have a job,” he noted.

Cultural differences also pose a challenge.

In terms of their attitude at work, the CEO of a multinational healthcare provider described Chinese employees as “deferential”. The regional president of a multinational industrial conglomerate agreed, “Their mindset is not to challenge the leader. Chinese employees focus on pleasing and building a good relationship with the boss over everything else.” A US-based biotechnology company executive explained, “Chinese employees are used to a hierarchical structure, with clear levels of seniority and responsibilities.”

An executive at a European-headquartered semiconductor manufacturing company said one downside of this deferential attitude: “Chinese employees don’t want to take risks or stand out from the crowd.” Still, Chinese employees are excellent team players and like anywhere else, teamwork and discipline are critical to running a business in China. A US-based biotechnology company executive noted, “Chinese teams will achieve miracles if they are given a clear goal.”

Notably, just as the Chinese market is very large and diverse, the VP of an electronic component manufacturer points out that employers may encounter “significant differences in employee expectations towards their employer and different working styles, depending on which province you are in.”

Summing up the winning strategy, a U.S. semiconductor company executive advised, “Create a great product or service, cultivate a strong local leadership team and empowered employees, so the company can react quickly to market demand, and execute well.” Get three out of three right and you can succeed anywhere.

Getting it right

More than ever, succeeding in China as an MNC requires a lot of tenacity, flexibility and investment. As the VP of an electronic component manufacturer cautioned, “Companies need to have a realistic understanding of the operational realities and true business opportunities in this market. MNCs can still win big in China, but money isn’t being made as easily as it was 10 years ago.”

Research and preparation, a long-term outlook and cultural adaptation are key.

Emphasizing the importance of proper research, a multinational manufacturing company CEO advised, “MNCs need to do their due diligence on potential JV partners and on any other companies they are considering doing business with.”

Another manufacturing executive concurred: “If companies decide to join forces with a local company, the partner needs to be picked wisely and the foreign management team needs to really understand how to make the best use of their partner’s resources. A purely western management approach won’t work with a Chinese partner.”

A senior executive for a multinational bank echoed this view: “MNCs must form partnerships with local players and fund them to fight.” An executive at a US-based biotechnology company added, “Many companies hesitate to bring R&D and innovation into China. They need to have local R&D operations to succeed.”

A longer-term outlook is also essential for success. The regional president of a multinational industrial conglomerate noted, “MNCs have to invest in the Chinese market to succeed. Typical Western business goals like the obsession with quarterly results – are too short-term.”

In terms of cultural adaptation, the CFO of a circuit board manufacturer observed, “MNCs need to understand the Chinese way of doing things. Playing by the written – and even more important, unwritten – rules and demonstrating support for government strategies and policies will be rewarded.”

An executive at a multinational manufacturing company added, “Doing the groundwork, getting into the local culture and business practices, and hiring the right people is the winning formula.”

This would be sensible advice in any market, but it’s indispensable wisdom in China.

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