The logic of Chinese business strategy: East versus West: part II.

Publication: Journal of Business Strategy

Publication Date: 01-MAR-06

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COPYRIGHT 2006 SourceMedia, Inc.

Introduction

This two-part report presents the results of extensive research and in-depth analysis into the strategic assumptions and goals of 29 of the most successful Chinese and foreign companies operating in China. In this first part, which appeared in the last issue of the Journal of Business Strategy, we summarized some of the differences in Chinese and Western strategic decision-making styles. For strategic success in China, we argued for a model of managerial convergence that blends the best of Chinese and Western managerial styles. We also illustrated successful convergence through the strategic style of Victor Fung, chairman of Li & Fung. In the second part of this report, we describe our methodology and sample. We also present the new convergence model for success in China that successful companies are following. Finally, we offer recommendations for managerial practice and future research.

Our research indicates that companies that succeeded in China emphasized eight characteristics: knowledge, speed, action, results, relationships, quality, passion and legacy. These eight characteristics appeared to blend best practices from both Eastern and Western management practice. The next sections describe these characteristics in more detail.

Methodology

The CEOs and senior managers of companies generally provide strategic direction and impetus, yet most researchers on strategic planning do not have ongoing access to CEOs to undertake these studies. For this study, we had such access to 29 senior managers of the most successful foreign and local companies operating in China. Many of the managers we interviewed were at the level of CEO or chairman of the board. Most were at the level of director of strategic operations or higher. All had responsibility for deciding on which markets to enter in China, how to enter them, and in what fashion.

Table I lists the individuals we interviewed, including their titles at the time. Most of these companies had been operating in China for over five years, and all were making a profit. On average, we spent a week talking in-depth to these senior managers on issues including the quality of the data they relied on, the strategic issues they considered, how their strategic planning and projections differed from those they employed in other countries, their relations with the Chinese government, the stakeholders they considered important, their evolving relations with stakeholders, how their assessment of issues had changed over time, and their choosing of key personnel. We employed structured observation and open-ended questions, as we were looking for creative ways in which these companies had surmounted obstacles or perceived opportunities in their business environments. In addition, we supplemented our interviews with observation and secondary research sources, including data used in strategic planning that the companies provided to us.

The senior managers in our study included those of large, foreign multinationals (such as Bayer and 3M), Chinese/overseas Chinese multinationals (such as Li & Fung and Kuok Enterprises), as well as domestic highly successful Chinese companies such as SOHO Development (the largest developer in Beijing, China, and responsible for much of the construction attending Beijing's World Trade Center as well as the forthcoming Olympics). Additionally, we included several hundred shorter interviews with mid-level managers in China from a range of US-based, Asian and Overseas Chinese companies such as Motorola, Microsoft, etc.

Drivers for strategic success in China

This section elaborates on the key characteristics that Eastern and Western managers perceived as leading to strategic success in China.

Knowledge

Successful managers, both Western and Chinese, treated knowledge as a strategic investment. Their market research transcended specific projects and incorporated quantitative data with long-term strategic ramifications, as well as experiential and qualitative data. Frank Martin, president of the American Chamber of Commerce in Hong Kong, highlighted the traps of relying on traditional market research in Asia: "The numbers work very well until you get to the end of the day; then you find out they do not add up." To make strategic decisions in volatile markets, managers must have steady streams of usable data flowing into their knowledge bases--especially when operating in new markets. Understanding market trends, their positions in the past, present and future, especially bolsters strategic decisions. Michael Furst, executive director of The American Chamber of Commerce for the People's Republic of China, emphasized this point when he said, "What kind of numbers do you want? Look at the trends. Even when the exact data are wrong, the trends are usually right." Only permanent, strategically-directed and longitudinal market research enables managers to develop accurate perceptions of markets' trends.

Experiential and qualitative data also complemented quantitative data in successful companies. Experience provided the managers with interpretive lenses to translate quantitative data into useful business information. Managers also needed first-hand experience to maximize their flexibility and to minimize their response times to environmental opportunities and challenges. Consequently, for effectiveness, foreign multinationals in China must incorporate managers' experiences into their knowledge bases. Complementing longitudinal market research with qualitative data and managerial experience enhances the multinationals' capabilities to seize market initiatives and to influence their environments.

Finally, for lateral transfers of knowledge across industries and markets, companies must codify and disseminate knowledge gained through market research and managerial experience. Many Western multinationals concentrate on information systems that rely on staff-generated knowledge. Without intimate experience, staff analysts cannot transcend individual projects or see connections between projects. Conversely, line managers make routine, lateral transfers of knowledge. Chinese and Asian strategic planning especially draws on these lateral transfers (Haley et al., 1998; Redding, 1995)....

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