Multinational firms need to dump the conventional approach if they want to succeed in China
For Volkswagen AG, as for many other multinational companies, China has become a major global market. But while the Chinese car market has been growing quite rapidly at an average 49 per cent annually over the last three years, Europe's biggest car maker has under-performed, steadily losing market share. Volkswagen is not alone. Our field research with 30 multinational companies in China shows that similar stories are played out all the time as firms fail to anticipate the dynamics of the Chinese market. These firms introduce approaches they believed and used in the past but then encounter changing conditions that often render existing beliefs and practices irrelevant.
The most subtle and often overlooked source of "corporate rigidity" comes from a habitual or characteristic mental attitude. Managers have certain beliefs and often hold tightly to them to the point of rigidity, projecting misconceptions, prejudices, stereotypes, and insensitivities into their operations. Agility thrives on a foundation of broad learning and the utilization of new knowledge, for example, adopting a team-based learning approach as part of an entrepreneurial culture.
Many companies operating in China still stick to their home-based strategic planning and forecasting cycles, which can be anything up to four years. Without a set of clear, company-wide goals managers chart obscure courses or formulate policies and make decisions that do not account for dynamic local conditions. Firms should look to revise strategies frequently, shortening their strategic planning cycles to four times a year.
A source of corporate rigidity for big companies—and an area where SMEs can have an advantage—is the speed of effective decision-making and problem solving. A centrally-manipulated operating system is well ingrained in many big companies but increasingly fails to deliver the size or speed of change required for companies to keep pace with local customers, and ahead of competitors. Operational agility can be increased by restructuring for a decentralized flattened hierarchy or modifying ongoing procedures in a timely manner.
Exercising higher levels of command and control from the top can make it difficult for local talent to breathe. There can be a strong desire among able locals for freedom and responsibility, and the best approach is to manage locals locally. The Chinese are money-oriented, and evidence has suggested it is worth paying outstanding salaries for the top people, as well as ensuring there are career development packages for local staff who are eager to learn.
Mark Easterby-Smith is Professor of Management Learning at Lancaster University. He recently completed a five-year study, co-authored by Shenxue Li, University of Strathclyde Business School, of multinational activity in China.
Posted 11 March 2009 : Director.co.uk
