The No. 1 concern for U.S. companies doing business in China is talent. Most senior Chinese executives are unfamiliar with Western management techniques, so big multinationals frequently have little choice but to import talent from the States. But then the companies are headed by executives who may have little understanding of Chinese business practices.
It's a dilemma that Harold L. Sirkin knows well. A global practice leader for Boston Consulting Group Inc., Sirkin has been advising companies on their China operations for eight years. He spoke recently with BusinessWeek B-schools Editor Louis Lavelle about the rise of China's B-schools and whether the MBA holds the key to solving the multinationals' leadership problems in China.
Why is the boom in management education in China important to U.S. companies?
It's important because U.S. companies need capable managers in China. Given the growth in demand for foreign investment in China, there's a real shortage. More education -- both in the Chinese ways of doing business and the Western ways -- becomes absolutely critical to compete and grow in China.
How do you advise U.S. companies seeking a toehold in China to grapple with this problem?
We're telling clients to look inside their own organizations first for people who have the right set of experiences -- people who may have been working in China at one point and gotten MBAs in [the West]. We tell them to work with executive recruiters in China, and to look inside their own factories and say: "What talent can I push forward? And what do I need to do so that over the next three years I'm creating my own managers?" Some companies are sending people to executive MBA programs in China, some are rotating people back through the U.S., and others are scrambling and getting pretty aggressive at hiring.
Why do U.S. companies seem to prefer homegrown Chinese managers to imported U.S. ones? Is it all about costs?
It's not necessarily an expense issue. It turns out that good Chinese managers are getting expensive, too. It is because there are just different ways of doing business in China. Even inside the major cities, infrastructure problems are monumental. Making sure you have the road network, making sure you have the right truck drivers, making sure you can get in and out of the ports, making sure you can deal with other suppliers -- it's important to understand how to do business in China, and it happens in a very different way than it does in the U.S. [Also,] the person imported from New Jersey probably doesn't speak Chinese. Unless you're in a major city, you have to speak Chinese.
Is this true for all U.S. companies doing business in China?
You don't need to have Chinese talent to source in China, though you are advantaged in doing that as well. In the early days, Chinese manufacturing facilities were offering some pretty low prices -- products at a third or a quarter of what they would cost to manufacture in the U.S. Now they're becoming more savvy. So you need to have a sense of what it really costs from the supplier. Otherwise, you may get a good deal but [not] a great deal.
With Chinese B-schools turning out MBAs educated in Western techniques, will regional Chinese companies soon pose a threat to the big multinationals?
I think they already do. We're beginning to see a wave of Chinese companies challenging Western companies for position. Growth is a more important factor in how the Chinese think about their business: It's less about short-term profits and more about growth. Having MBAs with experience may embolden them a little bit more [in that direction].
And what will be the impact on the economy?
You're going to see more expansion within China and outside of China. There will be a greater focus on profitability and on efficiency. There are different social contracts, so it may be more difficult to create some of those efficiencies.
Do you foresee a time when up-and-comers at top U.S. companies ship off to China to get their MBAs and launch their careers, the way many now do in Europe?
At some point that will happen, but I don't see it in the near future. China will be a critical part of the world economy, and just like the [Americans] who go to study at INSEAD, the same thing will happen in China. But the number of people taking Mandarin is [still] quite limited. So language is going to be a barrier. There is a shortage of talent [as a result], and there will be a shortage of talent for a very long time.