Rallying cry to bring on the evolution

Shift in nature of economic growth demands change in style of management, says academic

Boardroom veterans and big shots mingle in the green room of the Beijing business conference, exchanging cards and talking shop while they wait for their turn to deliver a speech or lead a panel discussion.

Appointments are casually arranged. The powerful hold court and the aspiring seek favor.

Rail thin and refined, Asia-based academic Professor Hellmut Schutte chats with a sharply-dressed Chinese businessman.

"He was the chairman of one of the big four banks," says Schutte as he moves on. "Every big story about the financial industry in China, he will be involved."

It is often said that when it comes to success in business, it is about whom you know as much as what you know.

After decades in the game, Schutte ticks both boxes, and then some.

Arguably, when it comes to analyzing some of the challenges and opportunities that lie ahead for China, and how they may relate to markets in Europe, Africa and beyond, Schutte is a man worth knowing.

And the 69-year-old, who has been working in Asia on and off since 1972, is not coy with his opinions and predictions.

He believes, for starters, that the historically low success rate of Chinese companies in places likes Europe should not necessarily be seen as a weathervane for how these ventures will eventually fare.

He reckons these forays are tantamount to testing the water, and that fairly soon the world is going to see a China that has learned how to swim.

Schutte argues that one thing that determines whether Chinese companies abroad succeed is the quality of their decision-making. This in turn comes back to management, he says.

And it is the business of management, or more specifically teaching it, that is Schutte's business.

German-born Schutte is a self-professed old-breed academic in that he earned his stripes at the coalface before moving into teaching.

He is now a distinguished professor of international management, the vice-president, and dean at the China Europe International Business School.

He also serves as an emeritus professor of international management at Insead, a leading international business school he joined in Fontainebleau, France, in 1981 after an 11-year career in marketing and investment banking.

Schutte says an evolution of management style is essential for China to shift from being a manufacturing, exports-based economy, to a consumer and services-based one.

"When one looks at industries that rely a lot on innovation and on creativity in China, they are fundamentally dominated by foreign firms. That goes from pharmaceutical to cosmetics and everything in between.

"When you look at industries where you don't have to spend a lot of money on research and development and advertising, that's where Chinese companies are very strong. One conclusion is that it takes some time to develop into more sophisticated industries."

Another conclusion is that a lot depends on management, Schutte says.

"The hard subjects of management, (like) accounting, finance, manufacturing, operations and logistics, I would venture to say, are where Chinese companies are very good. When it comes to the soft aspects of management, I would think multinational and Western firms are very good: (Things like) marketing, innovation, creativity, human resources and leadership in the general sense.

"If you ask most Chinese people to tell us what managers do, I think they would all first of all say we have 'to control our people'. If you would ask the same of Western managers, I think they would all say, 'to motivate'.

Schutte argues making employees stakeholders and innovators is key to success in the services sector, and that will require a big shift for many Chinese companies.

"It's a huge step. As soon as you move to something more sophisticated, you need the buy-in and the spirit and the energy of these people. You have to let them free, they have to innovate and they have to think outside the box and they have to come up with things.

"They (Chinese managers) have to change. They have to change from control to motivation."

While Schutte is confident the evolution of management style in China is moving in the right direction, he warns that pitfalls and hurdles lie ahead.

One of the big ones, he says, is that China is too focused on emulating the style of corporate structure and business practice common in Britain and the United States.

China should consider evolving a model closer to that practiced in Europe, he says.

"The US and UK model is much more streamlined and profit driven and short term. I think China is totally wrong to aspire to have companies which are shareholder driven. It just doesn't fit with the history and the political set-up today."

The European model, which he describes as employee or stakeholder driven, is more appropriate for China, he says.

"I think the stakeholder-driven model is what China is all about."

He cites the telecommunications giant Huawei, which he says has struck a good balance between Chinese and European corporate structures and management models.

"Huawei is, I think, worth $30 billion (22 billion euros). They are all over the world, and 60 per cent of their sales are outside China. They have been able to develop their own very interesting style, very in line with Chinese people but still inspiring their own people. Most of their staff are shareholders."

When it comes to rhetoric about China, too much weight is given to the issue of ownership, he says.

The emphasis, he argues, should be about encouraging competition. The reforms announced at last year's Third Plenum suggest China's government is on the same page.

"Companies are not good or bad companies because of ownership. My example is Singapore Airlines, one of the best airlines in the world. It's a state-owned enterprise. This is an airline that has no domestic market, so in everything they do they have to compete with everyone else. Every airline in the world flies to Singapore. It's a good example, and it's the same here in China."

Right now, Schutte says, the level of competition in China's domestic market should not be discounted as something that will eventually underpin the success of Chinese ventures abroad. He points out that multinational companies lost a lot of money when they first ventured into China.

"China opened the market (to international competition) amazingly early. If you compare it with Brazil or India or Indonesia, none of these countries have done this in such a dramatic way. Fundamentally, with the exception of the telecom industry, multinationals can go into all other industries. That has, I think, accelerated the development of these industries quite substantially.

"Chinese companies, even within their own territory, see something like international competition. That, over time, will make them much more formidable in the global arena than the Koreans and the Japanese."

Schutte's vision for CEIBS is in line with China's current focus on global expansion and investment abroad.

"I'm trying to position our school here as the leading international business school within China, and to become the leading international business school from China.

"I'd love for us to in a sense go along with all these Chinese companies that go abroad and carry the flag. The outside world is amazed that these Chinese companies dare to invest in their country. Just imagine an academic institution (from China) acquiring an academic institution somewhere in the world."

josephcatanzaro@chinadaily.com.cn

(China Daily European Weekly 02/28/2014 page32)