China management isn’t just for specialists anymore.
International managers in China preparing for 2013 have some good news, and some bad news. The good news is that much of the uncertainty is gone from the China equation. The bad news is that the certainty is not very favorable for international managers.
We now have a pretty good idea of what the Chinese commercial landscape looks like. Chinese institutions are stable, its regulatory and bureaucratic systems are as defined as they are going to get and the competitive environment is well established. But with certainty come limits – and the new generation of China managers is going to spend more time and energy managing constraints than exploiting opportunities. In 2002, international managers in China were kept awake at night wondering if their big bet on a developing market would pay off – and how to make it work. In 2012 those same people staying up nights dealing with the paperwork, bureaucracy and compliance issues required to manage their China operation and reconcile HQ expectations. In 2002, we asked if the China market was real. In 2012 we ask if it really has to be this difficult.
Charlie Fishman just published an excellent article in The Atlantic entitled, “The Insourcing Boom” and for experienced China managers one of the most striking disclosures was that GE accountants never had a clear picture of their own true costs in China – because all they were looking were top-line prices like labor per hour and factory space per meter. Expat managers knew all too well about the problems of figuring out true costs in China, but also about the difficulty of convincing their own C-Suite about how business was done there. Wild divergences between forecasted budgets and timetables could always be explained away with a simple, “because this is China, that’s why.” Senior manager in NY and London didn’t want to be bothered by messy details of accounting pyramid schemes or QC problems in countryside workshops – and they had no solutions anyway. As long as the costs were low and the products looked good in the advertisements, everyone back in HQ was satisfied.
Old China Inc. is over. New China Inc. is just beginning.
The real future of international business in China is going through the final stages of a paradigm switch. China is a market first, a supply chain hub after that, a management center third.
First and foremost, China will be a revenue source.That’s significant to the up-and-coming generation of managers, because it means that China is not a specialty for manufacturers and cost-cutting accountants anymore. China Inc. had moved to the top line for the established Fortune 500. The export picture may be fading, but the China Market is more of a shining beacon than ever. Nowadays, what happens in China (factories) stays in China (B2B and consumer markets). And that means that China is now EVERYBODY’s business – not just the specialists.
The other China is the integrated supply chain hub. While China will never again be a center of “race to the bottom” cut rate prices for anything and everything, it is still tightly integrated into the global production chain. Two things have changed, though. First – you can’t say “I have no idea. It’s China” to explain away variances in pricing, quality and costs. But just as important, it’s not just about extruding plastic parts or assembling electronics anymore. Value added sourcing, logistics, engineers, new product development, supply chain management – and the regional management firepower that powers the whole process – now define the operations side of China business. The days of packing giant building full of low paid migrant factory hands and cranking out containers of cheap goods may be over – but China’s career as an operations center is just getting its second wind. In the modern Chinese supply chain, saying “I don’t know the real costs or timetable cuz it’s a China thing…” is going to get you fired – whether you are a shipping clerk or a CEO.
Implications for New China Hands
The implications for Western managers are simple. There will still be a need for China specialists, but from now on “TIC – This Is China” will not end discussions – it will begin them. The New China Hand will be responsible for anticipating, diagnosing and solving bottlenecks and strategic disconnects proactively and creatively. The second consequence of the evolving China commercial landscape is that now everyone will be expected to factor China into their business thinking. The China market means that the PRC is now a top-line issue – and top-line issues are the province of C-suite leaders and those climbing the corporate ladder to get there.
ChinaSolved will finish the year with a series of posts and discussions about the New China Hand. In Part 1 we’ll discuss China as a Competency – and a Specialty. Part 2 will examine the requirements of the China generalist – and offer a prescription for how firms can develop a business intelligence strategy for Chinese economic and market issues. We’ll end with a discussion of unfolding trends in Western management of China operations – and outline the career paths that New China Hands are likely to travel on their road to success.
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