Chinese leaders board and rock the boat

February 5, 2018

Chinese executives of multinational firms are full of vigour and expectations for 2018. At the first coaching sessions of the New Year, they tell me what they have just presented at headquarters and how they will change century-old European and American firms. With China driving much of the turnover, growth and profits for top industries, Chinese leaders are the new force to reckon with at global leadership teams and boards. While China still hasn’t produced a Fortune 500 multinational CEO, the debate whether that would happen is over. Now it’s just a question of time.

 

Among the many challenging issues including language, competing political and economic models, corporate traditions and more, the one that fascinates me the most is this. Do multinational leadership teams and boards understand the explosive dynamics of Chinese executives entering and eventually dominating their ranks? Do the new arrivals themselves? Does anyone? A shifting global business landscape and a furiously changing China intimidate predictions, but an attempt to see the story from an East-to-West perspective reveals clear trends.

 “As statistics from Apex Recruiter show, among the top Fortune 500 US companies, there are 75 foreign CEOs, 10 from India and none from the Chinese mainland,” lamented The Global Times, a state-owned news source last autumn. Even more regrettably, Indian CEOs dominate fields where China yearns for global leadership, including science and technology, and recently the first non-American dean in the history of Harvard Business School. Somewhat predictably knowing the medium, the article concluded that the shortcoming wasn’t a sign of weakness: smart Chinese people preferred to start their own businesses. Meanwhile, real-life dynamics look somewhat different.

 

One explanation for the shortage of Chinese top executives has been that ‘the Chinese’, very much like ‘the Japanese’, like to keep to themselves. Indeed, Japan has maintained the separation of indigenous and foreign leaders over half a century of intensive business interaction. But as Shaun Rein demonstrates in The War for China’s Wallet, China isn’t Japan: after acquiring firms abroad, their investors leave foreign leadership in place rather than imposing their own bosses and methods. Additionally, a couple of decades after China had cracked its self-built iron curtain, foreigners took top positions in firms like Huawei and Alibaba in a way still rare in Japan or Korea.

 

So, future Chinese CEOs aren’t dreamy little boys — they have corner offices in Asia, and will soon arrive at your headquarter with a cardboard box and a smile. How should you prepare?

 

Awareness: Why do you need them?
“They were so hostile to us,” a Chinese manager complained at a 2004 leadership programme I facilitated, as we debriefed his team’s trip to the USA headquarters. “Of course they were,” an american GM quipped. “You went there to take their jobs!” To understand your soon-to-be Chinese peer or boss, you first need to understand that this is not the case any more. In most Fortune 500 firms I consult, China provides much of the turnover, most of the growth and top profit margins. This will last. Multinationals still haven’t cracked the full potential of the country’s domestic market and state-dominated industries. Unlike the increasingly frugal Westerners, long-deprived China will increase consumption in the future.

 

You must also realise that Chinese executives aren’t accidental free-riders of their country’s rise. They thrive thanks to a combination of a tough upbringing and their employer’s simplistic approach. For decades, books like China CEO have shown the speed and ambition of the country’s employees on all levels, and advised courses of action: hire ahead of needs, train and promote furiously, grant bombastic titles to keep families proud. Instead, many companies have imposed leadership methods spawned in the US and EU, where the risk, dynamism and opportunity of Asian business is nonexistent. Indicators like the World Bank’s Ease of Doing Business index prove how little we know China, but local managers don’t wait until we learn: they produce results their own way, and results bear promotions.

 

Skills: Building smart bridges

Chinese executives didn’t sneak up from behind: multinationals  have pushed manager localisation for a decade. But they imagined indigenous leaders learning company values and standards. As it turned out, while firms cut expat budgets and groomed local succession, global business became obsessed with concepts like ‘lean’ and ‘agile’. Such terms perfectly describe China’s changeable economic, political and social environment where individual behaviour is a better predictor than the big picture, the way Chinese drivers watch each other rather than road signs. Since foreign talent is increasingly reluctant to consider China due to air pollution, poor internet and diminishing expat packages, the process is irreversible.

 

But companies also begin to realise the opportunities implied. While the USA and Europe turn inward, Chinese executives sharpen their international teeth, making use of a century-old immigrant network in Asia and worldwide, say CNBC and others. Meanwhile, they retain their managerial advantage in China’s restricted investment and regulatory environment, ‘arranged marriages’ through joint ventures with state-owned companies in key sectors (banking, telecom, automotive and aviation) and restricting top positions to local nationals in others (financial services and education). In a way, companies are learning to bridge regulatory and cultural gaps by placing the appropriate people on either side.

 

Habits: Growing pains, mounting gains
Humans instinctively resist change. A few Chinese leaders in global roles told me they returned from headquarters with both good news and bad. On one hand, China had surpassed previous sales records. On the other, delivering the orders would be a stretch. Such announcements often cause panic. A German CEO with deep local knowledge told me he was forbidden to reduce margins to get new deals in China — precisely the winning formula.  While foreign executives reluctantly comply or quit, battle-hardened local ones strike first, then ask questions and write reports later. It’s not poor planning, as Westerners like to think. Adjusting as you go is a conscious Chinese strategy, says this McKinsey article

 

The key to success is diverse executive teams where Chinese and global members mutually keep each other outside the comfort zone, but challenges abound. While customising hiring and leadership development methods, we struggle to persuade third-generation leaders at 150-year old firms that Chinese arrivals aren’t students any more. It is equally difficult to convince Chinese rising stars that compliant Westerners are more than relics of an ossified past. Finally, China isn’t for everyone: smart firms choose foreign interfaces carefully, assessing their adaptability and cultural intelligence. But results speak for themselves. Best practice cases show Western managers improving in strategic agility, and Chinese leaders outperforming their peers at local firms.

 

Read Next: 3 people development mistakes you'll make this year

 

 

 

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