Beijing, 16 April 2014 – Chinese companies with active globalization strategies often fall short of growth targets in their international operations because they fail to observe three basic considerations, according to a new report, Emerging Best Practices of Chinese Globalizers: Tackle the Operational Challenges, released today by the World Economic Forum in collaboration with Strategy& (formerly Booz & Company).
- To achieve global success, Chinese businesses must address competing tensions, or polarities
- Global operating models must focus on culture, governance, processes and people
- Report offers six examples of best practice from China’s globalization champions
- Read the report and executive summary and watch introductory videos on the report
In exploring the challenges facing Chinese businesses as they build their global operations, the report identifies three competing pairs of tensions or polarities that contribute to failure to meet growth expectations. These are:
- Home Country & Host Country: Building globally unified cultures, governance structures and systems, while making commitments to local countries communities and business practices
- Consistency & Innovation: Maintaining consistency and standardization across global operations, while seeking to innovate in products, services and operating models
- Control & Empowerment: Maintaining necessary and effective management controls, while empowering local teams for operational efficiency
The conclusion was drawn through a series of comprehensive interviews and surveys of 125 Chinese globalizing companies conducted over the past 12 months. Most of the surveyed companies are regarded as globalization champions within China that have outpaced their peers in establishing global presence. These champions are most likely to claim that they have “systematic and comprehensive strategies concerning when, where and how to play in the global marketplace”. Even these companies on the fast track to globalization, however, report tensions and competing demands in overseas operations.
According to the report, the key to overcoming these tensions and growing successfully overseas is effective execution of a balanced and sustainable global operating model that addresses the three polarities in four key areas:
- Culture – Developing globally consistent values and behaviours, making strong local commitments and inspiring innovation
- Governance – Empowering overseas managers and building channels for rapid communication
- Processes – Pushing for global standardization, controlled flexibility and rigorous risk controls
- People – Developing global teams from the very top, hiring and incentivizing local talent and providing development and deployment opportunities for expatriates
“Today, the question is not either/or: Chinese globalizers really must find the right balance between these three polarities. Achieving this means developing global operating models that manage these four areas on both the strategic and the executive levels,” said Olivier Schwab, Executive Director, China, World Economic Forum Beijing Representative Office. “A number of good practices in this regard emerged in our survey and we selected six case studies in this report to showcase successful stories of Chinese companies going global,” he noted.
Steven Veldhoen, Partner, Greater China, Strategy&, and co-author of the report, said, “Today’s Chinese globalizers are facing enormous opportunities and they clearly have the ambition and intent to expand not only geographically, but also on establishing technologies, manufacturing and R&D capabilities outside China. However, they must realize that the global market is complex and varied. It is important for globalizing companies to adopt a holistic approach to recognize their own challenges and implement the full range of managements to address them.”
The report’s survey shows that, in the next five years, geographically, the United States (71%) and South-East Asia (61%) are the most commonly cited target areas for Chinese globalizers’ future expansion. Over 40% of the surveyed companies plan to expand in Europe or Latin America, with the Middle East and North Africa, sub-Saharan Africa and North East Asia also claiming significant attention. In addition, 80% or more of these companies plan to establish or expand sales and marketing and/or service operations overseas. Meanwhile, the 60% that plan to move R&D and/or production overseas in the next five years represent roughly a doubling of the number of Chinese companies that are currently siting these functions abroad.
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