China: Debunking the Myths

There are eight commonly held assumptions about doing business in China that are just plain wrong, according to two Boyden China executives

China, the most populous nation in the world, also benefits from the fastest-growing economy. In 2006, there were 15 billionaires in China. A year later, there are more than 100, according to the widely watched Hurun survey.

As part of Boyden's quarterly series to provide a better understanding of the global market for executive talent, we interviewed senior executives from Chinese companies and multinationals operating in China. We concluded that there are eight commonly held myths that distort the true picture in China. Eight is the luckiest number in China because in Mandarin it sounds like the word for "prosperity" or "fortune." Even here we can see how language in China, in its complexity, conveys more than just a word or a fact, and often more important, a spiritual meaning.

MYTH ONE: "Western companies should view the rapid development of the Chinese economy as a competitive threat to which they are vulnerable."

Executives leading multinational subsidiaries on the Chinese mainland find their role often involves "campaigning" to convince their global headquarters to overcome their concerns about sharing knowledge with their Chinese subsidiaries. Only if they do so will they rise above their current nervousness about the commercial potential for their Chinese operation.

Kahai Xie, vice-president of the Founder Group, explains: "The current competition between the Chinese and Western economies is constructive rather than destructive. So-called competition benefits both markets: As China becomes increasingly open, it creates more opportunities for the Western market. Competition builds bridges."

MYTH TWO: "The position of Asian superpower can be won by either China or India, not both."

The idea that there is only room in the global economy for one Asian superpower is supported neither by the facts, nor by the opinions of senior executives we spoke to working in Asia. The economies, historic legacies, business environments, and people in the two nations diverge too sharply for meaningful comparisons to be made.

India has advantages in terms of levels of investment. Its transport networks and legal system are more established than in China. However one of India's disadvantages is the lack of widespread computer use. "It needs a greater proliferation of modern technology," explains Francis Yuen, Trane (TT) Asia's president.

China's other advantage is its vast savings reserves. China's savings dwarf India's—$4.8 trillion, vs. India's $215 billion. These reserves create huge foreign investment opportunities.

MYTH THREE: "China is a huge, single market with weak local competition."

The size of the consumer market lures foreign investors to China, but that market is something of a mirage. The idea that China offers a billion ready-made consumers just waiting for the chance to buy Western goods represents a serious oversimplification. All those we interviewed say there is no "one China," and there is no one Chinese market. "China isn't one country, it's many countries," says Olivier Charmeil, senior vice-president for the Asia-Pacific region for Sanofi-Aventis. "Success in China requires a multicountry strategy."

MYTH FOUR: "China has a consistent management culture, which is ripe for introducing human-resource best practices."

China's organizational landscape is far more heterogeneous than many Westerners appreciate. The emergent entrepreneurial ethos and success of China's many startup ventures have produced some insight into human-resources best practices, but implementation can be uneven.

Reid Walker, a top Lenovo communications executive, explained his company's experience: "At Lenovo we adopted many HR policies from the legacy China business across our international operation (the legacy being IBM's (IBM) PC division). For example, our new performance management and incentive system is based upon many of the 'pay for performance' practices of our original China operation. These practices helped Lenovo grow from a small startup to a leading global multinational."

Most respondents agree that China operates a two-tier market in terms of HR. Multinationals make human resources part of their strategic planning, whereas Chinese companies tend to practice "personnel management" rather than integrate HR planning into the overall business strategy. Ruth Yu, HR manager at Textron (TXT) China, offers the reminder that "there were no courses in HR in Chinese universities 12 years ago. HR people have learned on the job."

MYTH FIVE: "Multinationals wishing to establish operations in China should hire Chinese 'returnees' who have valuable international experience, a non-Chinese perspective, and non-Chinese business education."

A company operating in China needs leaders that bring global perspective. However it is not the case that returnees are the only, or necessarily the best executives for providing such a perspective.

It is important to distinguish between two groups of returnees. First, there are managers who are native-born and educated, and second there are those who spent their formative years abroad. There are big cultural difficulties. Colleagues will treat them with confusion, particularly if the returnee speaks only English.

MYTH SIX: "The 'war for talent' is a Western phenomenon. No such war for talent exists in China where supply of talent outstrips demand among leading firms."

The rapid growth of China's economy increases competition for skill sets and talent.

Our executive respondents concur that there is just as much of a war for talent in China as in any other market, perhaps even more so. Opportunities and salaries are rising fast in China, and labor costs are going up. In many cases, executives are changing jobs every two to three years, usually for a 30%-50% increase in salary.

"The war for talent is very fierce in China. If anything, talent wars are worse than in Europe," concludes Bengt Hamsten, former CEO of MAN Truck & Bus.

MYTH SEVEN: "Since the reunification of Hong Kong and the People's Republic of China, the administrative and business relationships are seamless."

On the contrary: "One country, two systems" continues to be the rule for the relationship between Hong Kong and mainland China. To take one example: Where Western thought seeks one truth, Eastern thought proposes many truths, many answers to a question. The Western view is that "breakaway" cities are not allowed and things have to be run the same in every city, including the same values, politics, and economy. The Chinese view is that basically "as long as we know we are in charge, we are prepared to acknowledge that Hong Kong is different because of its history and separate development." Thus, Hong Kong has democractic elections, freedom of the press, a sound legal system and almost no corruption. In the broader view of Eastern thought, at least two apparently contradictory arguments can both be true.

MYTH EIGHT: "China is a low-cost manufacturer, not a platform for product and service innovation and the development of its own intellectual property."

China today is rapidly becoming one of the world's leading engines for innovation in proprietary technology. The Communist state legacy of "what's yours is mine" is being consigned to history with the development of China's own intellectual property structures.

This is an ongoing development and Trane's Francis Yuen takes us back to the fallacy of protectionist attitudes from multinationals in Europe and the U.S. "In the high-end goods market, it's time for multinationals to start watching their local competitors," he says. "They will start to develop high-end, competitive products, so the challenge is to develop a viable strategy for the long term and leverage resources and talent in China. Otherwise, the locals will eat your lunch as well."

In our next Asia Insight column, we'll offer Boyden's view on strategies for executive recruiting in China.

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