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Leading Business Successfully in the People’s Republic of China (PRC)

January 29, 2018

 

Desmond Soh is a Consultant with Organisational Development Concepts. Prior to working with ODC, Desmond was President Asia-Pacific of Oshkosh Corporation - a U.S. Fortune 500 Special Purpose Vehicle company. In his leadership capacity, Desmond was instrumental in the successful green-field startup of profitable business operations in Greater China, India and various countries across the region.

 

The following is a reflection piece on his experience working in People's Republic of China.

 

 

 

Year 1996 was the eventful year that my family and I landed into the People’s Republic of China (PRC) after completing a stint in the United States with my former company – the World’s largest Automobile Manufacturer.

 

Instead of landing back to hometown Singapore, we landed into Shanghai Municipality as the company plans to invest in a green-field start-up to manufacture automobiles and automotive electronics components from ground zero.

 

In 1996, I wondered if the mission of trying to establish a profitable auto business in China was viable as the national average wage of professionals was only ∿US$1500/month and bicycles were the most cost-effective means of transportation. Back then, China had some 500 million bicycles and bicycle jams were observed at almost every traffic junction.

 

Sensing that I was uncomfortable, my former company’s CEO used the analogy of a “Shoe Manufacturer’s” venture into the African Continent whereby two different teams were dispatched to conduct field studies. Both teams reported back that most Africans “do not wear shoes”. The 1st team suggested dropping the business plan, whereas the 2nd team were extremely excited with the enormous opportunity as a future emerging market. Subsequently, the Shoe company decided to lean forward and chose the latter.

 

With a clear understanding of managements’ long term strategic view of China, it provided me with the needed impetus to “cheong” and charge forward with confidence.

 

During the mid-1990’s, achieving business efficiencies was a major challenge as the overall bureaucracy was stifling. For example, the process of either securing a business licence or obtaining a personal work permit was exorbitantly lengthy and requiring lots of rubber stamping by numerous government agencies.  Also, the lack of HR talent, weak infrastructure and under-developed logistics sector posed great difficulties during project execution.

 

Despite the seemingly insurmountable challenges, the automobile project was eventually successfully executed. Some personal experiences on successful leadership practices in China will be covered later.

 

In 2016, China sales accounts for approximately 50% of my former company’s total global revenues and China have surpassed the U.S. to become the World’s largest automobile manufacturer, producing 24.8 million vehicles in 2017¹.

 

Personally, the China fear-factor quickly evaporated beyond the 1st year of my engagement as the market is truly dynamic, exciting and Chinese professionals are amongst the most highly educated, smartest and hardworking people to work with.  

 

After my initial success, subsequently I was offered new leadership positions at 2 other different fortune 500 companies in the Electronics manufacturing & Heavy Equipment Industrial sector respectively. Here, I took the opportunity to reflect on prior lessons learnt and made the needed adjustments to strengthen best practices to achieve even greater success.

 

In total, I lived in China for 20 years – and took up residences in Zhuhai, Shenzhen, Suzhou, Shanghai and Beijing.

 

In the initial 10 years – life was not as pleasant. We missed hawker food, clean bathrooms, fresh air, clean drinking water etc. To reduce homesickness, we joined the Singapore-Shanghai Club to network and sing Majullah Singapura together during National Day holiday.

 

Minus the air pollution, the subsequent 10 years were very pleasant and productive. Major Chinese cities have been more cosmopolitan and there were a lot more of South East Asian and International cuisines, major shopping malls, fun activities for the family etc. The overall business environment had also become more pro-business as Chinese Central Government continue to stream-line the overall bureaucracy. 

 

Reflecting upon my China experience, I am thankful for the opportunity to witness all aspects of rapid developments unfold right before me.  With regards to managing for success in China, below is a humble sharing of my personal journey.

 

In brief, it is about “The PRC’s of Leading Business Successfully in the People’s Republic of China(PRC)”. There many aspects of the Special & China Unique Characteristics in the Chinese economy that needs to be understood to be successful.

 

Below are some of these details: -

 

Patience (P)

 

Patience in Key Operating in China as it takes time to develop the Chinese market.

 

For example, the biggest challenge in my initial years in China was trying to build a strong local team because talent acquisition was a major issue. During former Chairman Mao’s 1966-1976 Cultural Revolution, China closed its’ iron curtain to the outside world, and sent all intellectuals to the country-side farms to be “re-educated” as capitalism was viewed as the enemy of communism. As a result, China had a “lost generation” of professionals and intellectuals needed to support its economic growth plans.

 

In China, there is a saying that “姜-还是老的辣 “( An Old Ginger is the Best Ginger). However, the issue of the missing “Old Ginger” defaulted most foreign investors to start from scratch by dispatching foreign specialist to develop & train young PRC professionals in effective management best practise and leadership skills.

 

Extraordinary patience is needed when coaching and mentoring young talent. For example, at my former company - there were an incessant habit of last minute paging for people to attend unscheduled meetings. Such practices were attributed to the local business environment where unscheduled visits or ad-hoc meetings were the norm.  

 

Such practices were naturally disruptive and counter-productive. To help inculcate a change towards proactive planning, I had to persist in advanced planning for months before the desired behavioural changes occur.

 

In present day China, even though there has been significant improvement in overall people capability new challenges arise. China continually needs to train a lot more internationally-minded professionals² to help realise her dream of becoming a moderately developed nation by 2050³.

 

Because of China’s lost generation, it is very important for the incumbent leaders to remain steadfast and persistent by not lowering the “bar” when training PRC professionals so that they can acquire the needed level of international management best practices and leadership skills.

 

 

Relationships – (R)

 

My stint in China enabled me to deeply understand the importance of devoting sufficient executive time to develop both internal and external relationship so that sustainable long-term business deliverables can be achieved.

 

Internal Relationships

Regular studies by various foreign business chambers⁴ in China consistently show key talent retention and other HRM issues as the on-going top 3 concerns.

 

Retaining talent goes beyond offering competitive compensation packages. It will be important to understand the diversity amongst local employees as most come from various parts of China where dialect, food preferences, work habits, life styles etc are quite different.  For instance, Beijingnese and Shanghainese employees will likely face teamwork issues if paired together as both are intensely competitive.

 

Also, the China-unique Hukou (户口) household registration system poses additional HRM Challenges. Whilst PRC workers are free to choose where they like to work in China, most must leave their families behind as they are not accorded access to local city health care support or local schooling system etc.

 

Latest statistics show that China has some 61 million left-behind kids⁵. Though there are repeated calls for Central government to abolish the Hukou residential registration it will not likely occur in the foreseeable future. 

 

From a leadership perspective, there is a necessity to treat employees needs as equally important as business needs as this goes a long way towards successful retention.  Personally, I ensure that there are sufficient bonding sessions with key employees as part of building relationships internally. When employees feel that management are sincere with the employee care initiatives, they are likely to remain in the company.

 

External Relationships

On the business front, cultivating the right level of external relationship would be equally critical.  In the West, business relationships are mostly institutional and occurs between Business to Business (B2B).  However, in China I learnt quickly that it is friendship-1st and business-2nd.

 

As an executive on the ground, additional efforts must be invested to proactively developing interpersonal relationships with key government and customer/supplier stakeholders. Up to the early 2000’s, establishing interpersonal relationship or guanxi is often defaulted to heavy dining and drinking.

 

Most of this have been significantly reduced and social norms have improved due to President Xi’s leadership relentless austerity and anti-corruption drive. Such past business practices and even traditional festivities gift exchange like moon cakes etc to government agencies are now strictly forbidden. 

 

On the contrary, drinking tea is the now preferred form of social engagement. The greatest honour occurs when someone invites you to their homes for tea. It signifies a high level of bonding and trust.

 

Also, since PRC executives or government officials often dislike reading their emails, an effective means to stay connected would be the use of the popular WeChat APP as Facebook, Twitter etc are all not allowed to operate in China.

 

Chinese clients loved it, when you send them well wishes on important festivities or occasions etc. 

 

 

Compliance (C)

 

Lastly, Trade & Regulatory Compliance⁶ is an often-overlooked critical factor of doing business successfully in China as most companies would naturally put their full attention towards chasing top-line and improving bottom-line.

 

Compliance covers all aspect of the company. These include Customs, Legal, Operations , Finance & Tax Compliance.

 

As China continues to evolve to be an international player, the rules & regulations environment continues to be tweaked quite frequently. Keeping up with changes in the regulatory environment can be very challenging. Changes in labour laws, customs tariffs/ duties, transfer pricing, individual income tax & enterprise income tax regulations etc can have a significant impact on business profitability or viability.

 

Lessons learnt here can be very painful. In some cases, a heavy regulatory fine can wipe out a company’s entire profits earned over the past decade and render the company insolvent overnight.

 

In other extreme cases, foreign managers can land up in Chinese jails on compliance issues if they are also the designated company’s chief legal representative (法人代表). PRC Law, holds the company’s designated chief legal representative solely responsible for violations even if the incident occurred entirely at the working level only.

 

As an example, I have had an expatriate general manager friend from another company that was jailed for nearly 2 years for a major customs violation that was entirely attributed to unscrupulous working level warehouse employees who were discreetly stealing & selling off customs bonded materials into the end market.  Customs would deem such unaccounted for bonded materials (duty unpaid) as “deemed smuggling”.

 

Other examples, relate to under-declaration of the full Individual Income Tax (IIT) payable for foreign professionals working in China. If discovered, retroactive penalties would be very severe. 

 

A common safeguard would be to set a strong Tone at the Top and “Zero-Tolerance” on non-compliance matters.  Also, a best practice is to establish a dedicated cross-functional Trade & Regulatory Compliance team to develop proactive policies and procedures to ensure on-going compliance.

 

Leadership engagement would be necessary to conduct formal executive reviews at fixed intervals, my personal experience and lessons learnt shows that one should not just delegate this to functional experts within the company.   An integrated and holistic approach towards Trade & Regulatory Compliance is necessary.

 

 

Conclusion

 

Since Marco Polo arrived in China in 1274, the world has been fascinated by China and still is today.

 

China continues to change rapidly and in many ways, have surpassed the West as the World’s largest market for ecommerce and e-payments etc. Experts all agree that China will be the world’s largest economy no later than 2050*.

 

Today, China has numerous world-class tier 1 cities, super highways, high speed trains, the world’s fastest and only commercially-available magnetic elevated trains that runs at 450km/h (half the speed of a plane), modern sea ports and major improvements in overall government bureaucracy and business climate post China’s accession into the WTO in 2012.

 

China is still growing and powering ahead. There are still vast untapped business opportunities.

 

Hopefully this sharing would be beneficial in small ways to the reader.   My family and I have benefited greatly participating in China’s growth.

 

For readers whom are either embarking on a business venture or planning to grow your career in China, I wish you success.  Thank you very much.

 

 

Yours Sincerely

Desmond Soh

 

 ABOUT THE ARTICLE CONTRIBUTOR

 

 Desmond Soh is a Consultant with Organisational Development Concepts. Prior to working with ODC, Desmond was President Asia-Pacific of Oshkosh Corporation - a U.S. Fortune 500 Special Purpose Vehicle company. In his leadership capacity, Desmond was instrumental in the successful green-field startup of profitable business operations in Greater China, India and various countries across the region.

 

The following is a reflection piece on his experience working in People's Republic of China.

 

 

For feedback on the above article, or looking to contribute articles, please email to enquiries@odctraining.com.sg

 

 

 

References :

 

¹  https://www.statista.com/statistics/281133/car-production-in-china/

 

 

² http://www.chinadaily.com.cn/china/2017-04/16/content_28949481.htm

 

³ http://www.straitstimes.com/asia/east-asia/19th-party-congress-china-to-be-leading-nation-in-national-power-and-global-impact-by

 

 

⁴ https://www.amchamchina.org/about/press-center/amcham-statement/amcham-china-releases-2017-business-climate-survey

 

⁵ http://www.dailymail.co.uk/news/article-4231478/China-s-left-children-deserted-parents.html

 

 

⁶ https://www.pwccustoms.com/en/territories/china.html

 

 

* http://fortune.com/2017/02/09/study-china-will-overtake-the-u-s-as-worlds-largest-economy-before-2030/

 

 

 

 

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