Taking a leaf out of foreign firms' book

Chinese companies increasingly using techniques of multinationals to pose competitive challenge

Zhou Dongsheng says he observes signs of the growing competitiveness of China when he is teaching in the lecture theater.

The professor of marketing at China Europe International Business School (CEIBS) in Shanghai lectures entrepreneurs on the Executive MBA program.

"When I taught my first classes a few years ago, much of the material was quite new to the students. Now they have read all the books about management practice and are much more sophisticated," he says.

"They also go abroad a lot and globalization is not a new concept for them at all. Chinese firms have really grown up."

The 45-year-old academic is one of the researchers of the CEIBS 2012 Survey - Challenges and Success Factors for Foreign Companies in China, in which one of the main findings was that Chinese companies posed an increasing competitive challenge to foreign multinationals.

Of the 254 senior executives from foreign companies who responded, 90 cited tougher Chinese competition as one of the biggest threats to their business, second only to finding staff, which 130 said was the biggest challenge.

Zhou says Chinese companies are not improving in isolation to foreign multinationals but are borrowing techniques from them and headhunting their key personnel.

He cites electronics giant TCL Group, which brought in former Microsoft Greater China head Wu Shihong to run its Information Technology Group spin off.

"A lot of former multinational executives are now working for private firms in China," he says.

"They have brought in a lot of new ideas about management practice and other tools to increase the productivity of these private firms."

Zhou says many of these executives do not mind taking a pay cut to work for Chinese companies.

"The salaries might not be that high but there are other incentives like stock options that can be worth a lot of money. Many multinational executives also like the challenge of working in a fast growing environment which Chinese companies can offer."

Zhou says one of the biggest problems for both Chinese and foreign multinationals in China is competing for talent, which is a finite resource, particularly skilled engineers, technical staff and middle managers.

"Competing for talent is really a war now," he says. "Yesterday I met a Chinese CEO and he told me he had to raise the salary for his people by 20 percent since other companies were doing more or less the same."

Zhou, who has been at CEIBS, one of China's leading business schools, for nine years, dismisses claims by such organizations as the American Chamber of Commerce that the regulatory framework in China is biased against foreign firms.

"I don't think that is accurate at all. I think the regulations are the same but Chinese and foreign companies interpret them differently," he says.

"When a Chinese company deals with the government and they are told, for example, that a particular regulation won't change very much in the future they accept that. The foreign company will want certainty and they will ask the government to define how big the change is likely to be. It is a cultural difference."

Zhou, who is from Kunshan in Jiangsu province, studied physics at the University of Science & Technology of China in Anhui province before switching to management studies.

"I thought China had too many physicists already and two scientists had already won the Nobel Prize so there was no chance for me," he laughs.

He began his career working for a silk trading firm selling scarves and pajamas before going on to do a PhD at the University of British Columbia in Canada.

After that he followed an academic career, taking a post of assistant professor of marketing at the City University of Hong Kong just before the handover in 1997, where he remained till joining CEIBS.

At CEIBS, he is in charge of the alumni association for the Executive MBA program and has been able to track the progress of the many leading Chinese CEOs who have passed through the course.

"It is like a Who's Who of the China corporate world. Management in China has really come on in leaps and bounds and that is why a lot of Chinese companies are now so competitive," he says.

Zhou says it is very important not to underestimate the strength of many of the foreign multinationals, and despite the current competitive pressures they are facing, they are still likely to remain a major feature of the Chinese economy.

"Multinationals have major advantages. They have the experience of being in 50 different countries and they have huge databases and knowledge. Chinese companies may be growing but they won't be taking over from multinationals in most markets," he says.

He says that foreign companies, however, will not be able to maintain their current lead indefinitely.

"I think in general it will take Chinese companies 10 or even 15 years to catch up, but in some sectors it might be sooner such as Huawei in telecommunications, for example," he says.

Zhou believes foreign multinationals are missing out on what could be major business opportunities in China by not sufficiently leveraging their expertise.

"Instead of competing on products and price they should look at widening what they offer and look at areas like consulting," he says.

"For example, the Chinese government wants to carry out healthcare reform but they have no clue how to do it. You have some healthcare companies in China which are selling products in 100 countries. They should offer free consulting to China's Ministry of Health."

Zhou says some of the most successful Chinese companies are the ones that have invested heavily in research and development such as Sany, now one of the largest heavy equipment manufacturers in the world. The Changsha, Hunan province-based company employs 70,000 worldwide.

"Fifteen or 16 years ago they were just a start-up and 98 percent of the heavy machinery market in China was dominated by German imports," he says.

"But because they have invested heavily in research and development, they now not only dominate the market in China but also globally," he says.

He says the problem is that many Chinese companies do not attach the same importance to research and development since their management often has only short-term horizons.

Despite the findings in the CEIBS survey, Zhou says doing business in China should not all be about trying to drive competitors out of business.

"If you try to kill others, what do the others do, they try to kill you as well. So you either end up dead or badly injured.

"It should not be all about competing but cooperation and trying to find partners not just in your sector but in other sectors. It requires imagination. The aim of this is not just to get a slice of the pie but to make the pie itself bigger."

andrewmoody@chinadaily.com.cn

(China Daily 05/18/2012 page6)