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The Boyden Report: China

Multiculturalism: China’s gift to the global economy?

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This is our second study on China, inspired by predictions that by 2020 it will be the largest economy in the world. We asked a panel of experts to explore the arguments for and against the following hypothetical assertions:

With China predicted to be the largest economy in the world by 2020, Chinese business leaders will dominate and reshape global commerce.

China’s ability to reach its potential in the global economy depends on world-class, strategic HR leaders who are able to hire, develop and motivate the right executives for their organisations.

Our panel, comprised of Chinese and Western business leaders, authors and professors, very generously shared their perspectives on these two hypotheses. Their comments offer valuable insight into the opportunities and challenges presented by this extraordinary market and its exceptional culture. (Panel members are listed in the Appendix. We thank them sincerely for participating in this study).

The Boyden View, on page 17, addresses specific talent issues related to running a business and leading teams in China. It explores the need for world-class, strategic HR leaders and provides a synthesis of expert opinion and long-term commercial experience in hiring, training and motivating people in such a complex and evolving market.

Trina GordonPresident & CEOBoyden World Corporation

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The Boyden Report

Welcome to the fifth edition of The Boyden Report – a series of studies that provide a deeper understanding of the global market for talent, and the impact of fast-growth markets on senior executives leading domestic and international businesses in these countries.

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Executive Summary Understanding the Market

China’s participation in the global economy The development of “multi-polar globalisation”The legacy of social models Size does not equal power

Challenges for Multinationals

Persistent cultural opacity Integrating China into the business planIdentifying the right executives Retaining executives

Challenges for Chinese and State-Owned Enterprises

A new style of leadershipManagement through personal accountabilityManaging complexity through distributed teamsOpening the family business to professional managers

Challenges for Chinese Executives

Cultural flexibilityDeveloping the right skills

The Boyden View I Achieving growth through peopleII Leading teams in China

Endnote

Appendix: The Boyden Panel

Contents

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Executive Summary

China is a strong catalyst for recalibrating our view of the global commercial landscape. The impact of China’s participation in the world economy, its financial muscle and thirst for raw materials is changing our lives and those of generations to come.

With China predicted to become the world’s largest economy by 2020, we explore a hypothesis that Chinese business leaders will dominate and reshape global commerce. Our findings disclose the need for a significant change in mindset at every level:

• For the company – Adapting to a shift in trade patterns within China, the consequent evolution of “multi-polar globalisation” and increasing commercial diversity.

• For the business leader – Integrating China appropriately into the business plan and motivating teams through cross-cultural understanding.

• For Chinese and non-Chinese managers and executives – Becoming more flexible culturally and professionally.

As a catalyst for change, China’s appetite for transformation is very strong. However, we find there are three main barriers preventing multinationals in China and Chinese businesses from realising their potential:

• Cultural opacity• Lack of institutional trust• Scarce professional management expertise

1. Cultural opacityEach country’s culture is unique, but our participants frequently refer to a lack of common ground between Chinese and other, particularly Western, cultures in terms of ‘cultural opacity’. A complex, tonal language, together with customs rooted in ancient concepts and beliefs, leave non-nationals with limited means for developing relationships. While nationals draw upon Confucianism1 and its protocols for managing relationships, its influence in the workplace inhibits elements underlying corporate success in today’s global economy: A sense of ownership and personal accountability, strategic judgement, innovative approaches and flexible implementation.

Today’s executives in China need a new social context defined in the commercial environment by transparency, knowledge-sharing and a meritocratic culture.

2. Institutional trustOne of the foundations of this new social context is institutional trust: The belief that people unconnected to you will do the right thing at the right time for the benefit of the organisation.

Our panellists assert that institutional trust and the Chinese approach to business relationships are mutually exclusive. Extreme reliance on personal connections limits transparency and knowledge-sharing,suggesting that business leaders need to retune corporate behaviour.

Yet, it seems ironic that Westerners struggle to disseminate knowledge and expertise to champion human progress when this is a concept that resonates deeply

1 Confucius (551 – 479 BC) was a thinker and political figure who founded the Confucian school of Chinese thought, focusing on how ideals of education and behaviour would benefit society. Confucius and his disciples taught ethics, education and statesmanship based on a love for humanity, ancestor worship, reverence for parents and harmony between thought and conduct.

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Executive Summary

within contemporary China. But, with aspirations running high, individuals fear losing a personal claim on corporate success. With knowledge flowing freely between people unconnected to each other, human progress may come at a personal cost.

However, the issue is not personal, but practical. The driver for institutional trust is the ability to manage complexity and for that, business leaders need teams that are comfortable with a lack of control, transparency and diversity of opinion. From the Chinese perspective, these seeming peculiarities form a veil of Western cultural opacity, making cross-cultural understanding all the more essential.

3. Scarce professional management expertiseDue to commercial and social legacies, professional managers able to bridge the cultural divide are scarce. Chinese organisations, typically reluctant to hire executives outside the family (absent the blood ties that engender trust) need to break away from this tendency in order to compete in a globalising economy. For multinationals, competition for such managers is tough.

However, today’s aspiring leaders are aware of the importance of experience in China, and the number of non-nationals seeking opportunities in the country is growing. Those with cultural flexibility, exposure to business models in other markets and a receptive mindset will have an advantage over Chinese executives, for whom simply speaking the language may not be enough.

While these issues are common to all businesses in China, our research highlighted specific challenges for multinationals, Chinese businesses and state-owned-enterprises and for Chinese executives themselves.


1. Persistent cultural opacity – This is the major limiting factor in global commerce to and from China. As one of the few countries not colonised in its entirety, there is very little cultural understanding of China in the commercial legacy of the West.

2. Integrating China into the business plan – Chinese business leaders are increasingly aware of their important role in the global economy. Sensitivity to being “used” to run a sales office runs high in a market where expectations are growing in terms of strategic importance and boardroom influence.

3. Identifying the right people – In an environment where training and performance measurement is not rigorous, it is extremely hard to identify and hire the right executives. Given very small talent pools, some businesses depend on Asian expatriates to bridge the cross-cultural divide, while others strive to find culturally receptive individuals regardless of nationality or culture.

4. Retaining executives – Panel members advise multinationals to emulate the paternalistic legacy of state-owned enterprises, creating an environment that offers security, stature and a formal career path. They can do this by empowering subsidiary leaders, thus demonstrating to managers that they can depend on the authority of their company head – a perception that could be reinforced by giving these executives real influence in the regional boardroom in the present, and in the global boardroom of the future.


1. A new style of leadership – The growing number of non-political appointments at the CEO level will change the profile of business leaders, shifting the focus to personality rather than Party politics. Leaders will need to adopt an “old style,” authoritarian approach, retuning Confucian-based strengths to become people leaders, encouraging personal responsibility and accountability.

2. Management through personal accountability – An emphasis on personal responsibility and accountability will lead to implementation based on a team’s support of the company’s strategic goals, rather than its adherence to prescribed tactics.

3. The need for institutional trust – In a globalised business environment, institutional trust is essential for managing complexity. Large Chinese companies that are authority-based, rather than trust-based will find it increasingly difficult to manage complexity as the process of international expansion exposes the weaknesses of quasi-monopolistic franchises.

4. Professionalising the family business – In the familial corporation, growth beyond a certain size is restricted by issues of trust. Successful familial dynasties such as Li Ka-Shing’s Cheung Kong (Holdings) Ltd, which owns Fortune 500 company Hutchison Whampoa Ltd, have triumphed by appointing non-family “outsiders” to professionally run the business.

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Executive Summary

Against this backdrop, do our hypotheses hold true?

1. With China predicted to be the largest economy in the world by 2020, will Chinese business leaders dominate and reshape global commerce?

The consensus among our panellists is no.

Why? The answer lies in the executives themselves and is based on cultural flexibility.

2. Does China’s ability to reach its potential in the global economy depend entirely on world-class, strategic HR leaders who are able to hire, develop and motivate the right executives for their organisations?

The consensus among our panellists is yes.

Why? Organisations in fast-growth markets competing with long-term meritocratic cultures – for business and people – need strategic HR approaches to compete at this level.


1. Cultural inflexibility – While China’s executives have high aspirations, our panellists cite cultural inflexibility as a major limiting factor.

Future careers will be constructed against a multicultural background; therefore mono-cultural organisations will give way to multicultural organisations based on merit. This

will involve complex personal and organisational changes for the executive population. Aspiring Chinese executives will also face intense competition at home from foreigners keen to build a 21st-century career distinguished by experience in China.

2. Developing the right managers – It is not only individual potential that is in question. There is also a consensus around our second hypothesis that China’s ability to reach its potential in the global economy depends on world-class, strategic HR leaders who are able to assess, develop and deploy Chinese talent in their organisations.

According to our Chinese panellists, world-class HR expertise is the most critical factor in the transformation of Chinese companies and the growth of multinationals in China. Only through HR expertise can cultural behaviour be retuned, institutional trust be embedded, and sufficient professional managers developed for the long term.

The big change ahead for China’s business leaders is how to shape a people-driven organisation. In any country this requires HR-savvy leaders supported by strategic HR experts. In China it is a complex challenge, that through certain approaches can be overcome to the benefit of aspiring individuals and the company as a whole.

We share advice on such approaches to organisational and team leadership in the Boyden View on page 17.

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Understanding the Market

“The Chinese perception of change being very positive is a major strength for China.” Clinton Dines Chairman, Caledonia Asia and former CEO China, BHP Billiton

It is clear from our distinguished panel members that there are two fundamental questions underlying China’s status and the outlook for its business leaders.

First, how will China define itself as its participation in the global economy grows?

Second, to what extent will the legacy of social models affect business in this new era?

China’s participation in the global economyWhen China joined the World Trade Organisation in 1999, the potential impact was little understood at the time2, and by 2006 fear was masking the benefits.

China was seen as a significant competitive threat – enjoying export success3 and manufacturing efficiencies that made unions in the United States fear China would ”take away the working man’s rice bowl4.”

However, as the downturn began to cripple economies in 2007, China’s high consumption of agricultural and industrial goods gave hope to leaders around the world struggling to balance the books.

Clinton Dines, Chairman, Caledonia Asia, a hedge fund and former President, BHP Billiton China, says, “Many Western business people assume that China needs Westerners to buy their goods and shore up their exports. That is wrong, and is one of many conceits that distort the reality of China’s role in the global economy. We need China in the West more than China needs us.”

Today, “The issue attracting everyone’s attention is the pace of growth in China,” says Tim Summers, former British Consul-General in Chongqing and Managing Director of XTEChina. “It is not just China itself, but global change that has driven what many see as an ‘economic miracle,’ at the heart of which is China’s integration into the global economy 5. This has resulted not in western dependence on China, or vice versa, but a state of interdependence, demonstrated for example by the fact that over half of Chinese exports are produced by foreign-invested companies.”

From within China, Clinton Dines adds, “The perception of change being very positive is a major strength. People in China have experienced thirty years of profound change, which has generally been beneficial, so they embrace it.”

The development of “multi-polar globalisation”China’s impact on the business landscape can be seen in the development of “multi-polar globalisation,” characterised by multi-stranded business links that are changing the nature of continental, national and provincial trade.

Tim Summers says, “The nature of globalisation will change, with developing economies playing a greater role, and regional integration becoming stronger.”

In keeping with the government’s aim to rebalance the economy and foster inland development, there is already a gradual increase in continental – Eurasian – trade, according to XTEChina. This trend is shifting the balance to China’s western regions and away from traditional ocean routes.

2 See China and the Credit Crisis: the emergence of a new world order by Giles Chance, published 2010 in English by John Wiley & Sons and in Chinese, Is China Ready? published in 2011 CITIC Press 3 According to the OECD, by 2006 China had overtaken the United States to become the world’s largest exporter of information technology and communications technology goods. 4 Ee Soon Kiong, President/Chief Representative of Textron China, in The Boyden Report China: Exploding the Myths, published December 2007.5 China recorded year-on-year growth of 10.3 percent in 2010, according to the National Bureau of Statistics, www.IHSGlobalInsight.com

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Over the next decade a much greater proportion of China’s international commerce is expected to be with Asian neighbours and other developing economies, with annual total trade with ASEAN expected to reach over US$800 billion by 20206, from US$239 billion in 20107.

The expected result is greater commercial diversity among private Chinese companies, state-owned enterprises and multinational partnerships, as more complex business links develop from region to country, city to province, and country to city.

At the provincial level there are major cities or urban regions already emerging as poles of growth. In western China Summers points to areas such as the Chongqing-Chengdu economic belt, the central plains of Shaanxi province around Xi’an, and parts of the south-western provinces of Guangxi and Yunnan which border Southeast Asia. All have the potential to be competitive on a national level8.

As for the country as a whole, as shown in Exhibit 1, “Chinese companies that are successful in global industries will have strong ties with different parts of the world,” says Summers, pointing to telecoms’ penetration in Africa and growing business links with Russia.

However, success in global industries may take time. As Kirk Hwang, President, KNH Enterprise Co. Ltd. Taiwan explains, “The majority of Chinese people are not trained to work across multiple, global markets, so there is limited experience in large-scale distribution of goods and services. The people who do know how to do this are from the military, so while a number of Chinese companies participate in global business, at this stage it is mostly in collaboration with the government, for procurement purposes.”

For executives to take advantage of China’s participation in the global economy, the ability to understand different cultures and regional differences will be essential. Brian Renwick, Managing Director at Boyden China, says, “It is already so important to understand how people think in different regions and appreciate different consumer tastes and drivers of behaviour. Multi-polar globalisation is therefore sharpening the focus on executives who can be successful in China, whether Chinese, or non-Chinese.”


The legacy of social modelsThe government’s drive to rebalance the economy is perceived by some commentators as an attempt to restore social conduct to the ideal of mutual obligation and shared success, reflected in the 12th five-year programme 2011-2015 9. This harkens back to Confucianism – where relationships are explicitly articulated to maintain social stability. Dines says, “The Confucian legacy means that in China you can have fabulous experiences with Chinese staff. As long as you make sure they are clear on the objective and the tactics by which they can achieve it, they follow your direction exceptionally well.”

However, at the management level, where people have to use judgement, problem-solve, be creative and think laterally, the Confucian legacy works against strategic implementation. “Of course the probabilities are in your favour amongst 1.3 billion people and you get a few managers who are spectacular,” notes Dines, “but there are not enough of them and the influence they have on their peers is limited.”

The legacy of social models therefore remains a significant factor in business. Every business leader in China, whether local or expatriate, is clear on this issue: Never underestimate the cultural influence in China.

6 China’s Western Regions: a 2020 perspective, October 2010, XTE China7 People’s Daily, 11 January 2011 8 The southwest province of Yunnan saw growth of over 50% in its trade and investment in the first half of 2010, following the establishment of the first part of the China-ASEAN trade agreement, according to XTE China. 9 The 12th five-year programme, 2011-2015, approved by the National People’s Congress in March 2011, seeks to address growing inequality and foster more equitable wealth distribution.

Exhibit 1: China is an increasingly important trading partner with all regions

Source: IMF, Direction of Trade Statistics

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10

8

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2

0European

UnionAfrica Middle

EastWestern

HemisphereEmerging

Asia (exluding

China)

19802009

(percent of regions’ total trade)

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10 Source: Global Insight.

Looking ahead, Brian Renwick, says, “We need to evolve Confucian-style relationships carefully so that the next generation of managers is more comfortable with leading and implementing organisational strategy. We can’t wipe out the Confucian influence and nor should we want to, but we need to retune these strengths gradually, in the Chinese context.”

What is that context? First, it is important to understand size. Size does not equal powerSize is everyone’s mantra when it comes to China. However, size does not equal power and while it may be the biggest, China’s economy will not necessarily be the most powerful or dominant by 2020.

In 2010, at US$3.824 trillion, China’s GDP was 7.47% of global GDP of US$51.166 trillion. But this fact belies the day-to-day reality that per capita GDP was just US$4,35110. The need to raise living standards is therefore the driving force for the Chinese population. They do not see this being achieved through size or global domination. For a Chinese company to achieve figures that put it among the

world’s largest and most successful companies, it is not necessary to be a global player.

For Kirk Hwang, raising living standards is tied very much to energy security. He says, “Given China’s growing position in the global economy, its people are driven less by dominating the world and more by controlling their energy resources. China as a market needs a lot of raw materials, such as oil, and specialty materials for high-tech industrialisation.”

What drives the Chinese at the individual level? One global leader explains, “They do have a chauvinistic culture, due primarily to their size and incomplete understanding of how to blend their culture into the rest of the world. But they are driven by learning, by trying to understand why their culture is opaque and what to do about it, by making sure their policies and processes work in a country of this size – by the practicalities of what needs to be done.”

The issue, therefore, in a multi-polar global economy, is how to achieve corporate growth in China, through its people.

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What does this mean for companies in China?

Giles Chance, advisor to foreign companies and investors in China, author, and Visiting Professor, Guanghua Business School, Peking University says, “We now have different cultures in the world competing with each other and that is a tremendous opportunity. It is hugely positive from an economic and business point of view. The companies that are going to be able to seize such enormous new opportunities are those that can operate successfully on a global, multicultural basis.”

He continues, “China has stopped America being the dominant economic and cultural centre of the world. But it doesn’t mean the future is going to be Chinese – it means the future is going to be more multilateral and multicultural.”

The challenge for companies is the limited number of people who are able to operate on a multicultural basis. Chance says, “People who are well-educated and culturally aware will be the winners in the future – from China, from the UK, from Malaysia, from America, from Eritrea, from wherever.”

The majority of our panellists therefore expect to see the emergence of a multicultural, multilingual minority population. However, Chance warns, “It is important to note that this will be driven not just by China, but by other countries too. China is changing the world, not by ‘superimposing’ itself or trying to dominate, but by participating in the global economy.”

This multicultural environment presents four main challenges for multinationals:

• Persistent cultural opacity• Integrating China into the business plan• Identifying the right executives• Retaining executives

1. Persistent cultural opacity Our Western and Chinese panellists agree that cultural opacity is the major limiting factor in global commerce to and from China.

Despite the changes arising from greater participation in global capitalism, China remains culturally opaque to the rest of the world. Clinton Dines says, “Because China is one of the few countries in the world that in its entirety was not colonised, there is very little Western influence in China’s history, and thus no understanding of the country’s culture in the commercial legacy of the West.” Brian Renwick goes further: “When you look at China’s very long history, there has never been a time when it participated in the world as much as it does today.”

Clinton Dines says, “The challenge in China is that the nature of management is intensely contextual. It’s extremely personal because of the structure of a society and culture that puts you under obligation. It is critical to embed yourself in China’s culture as an individual and as a company in order to achieve any success.”

2. Integrating China into the business planIn the global downturn, when multinationals looked to China to maintain revenue, Chinese business leaders became increasingly aware of opportunities in the global economy. How China is integrated into the multinational business plan sends a very clear message to these leaders.


“We now have different cultures in the world competing with each other and that is a tremendous opportunity. It is hugely positive from an economic and business point of view.” — Giles Chance, advisor to businesses and investors in China

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“China has simply been a stream of revenue for multinational businesses, rather than being closely integrated and strategically on par,” says one panellist. “If companies believe China is an important economic market – a heavyweight economic powerhouse – then they need to revisit how they present themselves as a multinational,” he continues.”For instance, are they willing to establish an equal headquarters in China? If no, and a multinational sees China only as a sales office, it needs a different team – one motivated by money, rather than career development – than if it sees China truly as a strategic part of the business. If it is the latter, you need a different management team, which, if trusted to implement the strategy in China, will help to develop a culture of personal accountability.”

Chinese business leaders unanimously insist that the successful implementation of strategy in China means letting go of the reins at headquarters, trusting and empowering Chinese leaders to implement the strategy in the way they see fit.

China’s status as a market and the importance of subsidiary leaders is reflected in the boardroom, although not yet at the global level. Kirk Hwang explains, “More and more Chinese executives are on the boards of multinationals, but only at the local or regional level; they are not on the global board. Also, these board directors tend to be from Taiwan, rather than the mainland, so ‘true Chinese’ participation, as opposed to what you might call ‘international Chinese’ participation, is yet to happen.”

3. Identifying the right executivesBusiness leaders, aware that the environment for developing young talent is a major limiting factor, report a severe shortage of executives in China who are suited to an increasingly global environment.

Anthony Chow says, “We need to create a more consistent corporate environment where, for the individual, there are specific performance indicators; and for the company, more effective measurement of its investment in people. But structuring such programmes is hard for HR executives, most of whom have not had relevant exposure in their own careers.”

In the meantime, Chow foresees more Asian expatriates, or “Westernised Orientals” as he says, in the C-suite of multinationals in the near future. “The exposure they have had to multicultural or cross-cultural synergies makes it much easier for them to communicate in the C-suite,” he says.

Chow cites his experience in a multicultural environment, where most expatriates came from Asia. “We valued their cross-cultural understanding based on international exposure in a local context,” says Chow. “So, they were able to communicate with our headquarters in the United States, manage the local culture, and head teams of local employees.”

Brian Renwick takes a wider view, “Asian expatriates, returnees, experienced Westerners – yes, they can all help to cross the cultural divide. However, the only identifiable group that stands out are those executives who are directly, culturally receptive, regardless of nationality or culture. We focus on a group characterised by their capabilities, rather than their geographic heritage, although this is an interesting place to start. There is no substitute for direct contact, no matter how much more energy and time you have to put in to communicate in a multicultural organisation. And for that, we look for culturally receptive individuals.”

4. Retaining executivesFor the organisation, cultural factors remain. Still in the Chinese psyche is the paternalistic element of being “looked after” by the government. Culturally receptive individuals need to recognise that certain expectations of them as leaders will linger among their people.

Our Chinese panel members suggest that multinationals need to offer an environment in China that emulates the attraction of State-Owned Enterprises (SOEs): durable, long-term businesses, with significant stature in the market, providing a strong career path and career longevity to complement paternalistic support from the leader.

Dines says, “Private companies, particularly smaller ones, cannot offer the same degree of paternalism. Multinationals need to create an environment that offers longer-term security and an infrastructure geared to professional development.”

For one panellist, this means putting the Chinese subsidiary on an equal footing, explaining, “If a company puts China on an equal footing as joint headquarters, then it is possible to recruit and retain the right leaders, for two reasons: first, they appreciate the global position of the company and what that means – such as a durable business and dependable code of conduct; and secondly, they know they have a career path in the company, running the China business, rather than just being used. In those circumstances, then of course they stay with you.”

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Globalisation is also driving change among Chinese and state-owned enterprises, notably:

• A new style of leadership • Management through personal accountability• Managing complexity through distributed teams • Professionalising the family business

Our panellists note that some SOEs are changing quite fast, particularly those where the CEO is open-minded, trains the workers and develops the managers. They comment that these CEOs know what it takes to be an international company with an international management team, but while the State still owns a large share, the CEO is not entirely independent. One option some are considering, is to shift the balance towards public ownership, so they can engage more in international business.

Tim Summers points to diversity among state-owned enterprises, using a description that is almost counterintuitive in a Western mindset, “Some people say government and local governments are the most ‘entrepreneurial’ in China – shaping policies and incentives to drive trade and investment. It is important therefore not to see SOEs as archaic organisations; some are quite traditional, others are not.”

However, change at the executive level is slow: SOEs in manufacturing and other industries are expected to change gradually, and our panel members still anticipate a “dominant head” – a number one who has the power.

1. A new style of leadershipThere may still be a dominant head, but this will no longer be a political appointment, radically altering the profile of the leader. The most significant expected change is that personality will become a big element in the leadership role. Brian Renwick explains, “The leader of the state-owned enterprise will need to change gradually, first becoming what the West would describe as an ‘old-style, authoritarian’ CEO, in order to lead a workforce used to following specific steps and methods. They will need to retune Confucian-based strengths and morph into “people leaders,” becoming an empowering CEOs who motivate teams or regional business heads to develop their own approaches to responsibility and accountability.”

Dicky Yip notes that, “There is momentum building to suggest that state-owned enterprises should be more open in managing people and bringing in ‘new blood’ from outside; not necessarily Party members, but managers who have had exposure to other cultures and commercial enterprises. The process is ongoing, but the speed of change is quite slow.”

Part of this change process involves phasing out dependence on military expertise, because although military people can manage distribution, they are unused to managing cost. Kirk Hwang says, “This need for commercial efficiency is driving diversity, with more Japanese, Taiwanese, Europeans and Americans being hired to work in China by Chinese companies.”

2. Management through personal accountabilityIn aiming for greater commercial efficiency, Giles Chance says one of the priorities for the future is to develop a sense of personal accountability throughout management teams, discharged through having a deeper knowledge of the business.


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“It will take a long time to move away from the paternalistic hierarchy of a state-owned enterprise, where there is one father figure responsible for everything. At present, it is not necessary for senior or middle managers to know the intricacies of the company because the head runs the business and has ultimate responsibility. This has led to a lack of managerial executives who can implement strategy based on their knowledge of what the company is trying to achieve, as opposed to simply doing what the head of the company wants them to do.”

3. Managing complexity through distributed teamsInstitutional trust is the foundation for managing complexity and its absence is a major barrier to growth. Our panel members believe that institutional trust and the Chinese approach to business relationships are mutually exclusive; therefore bringing in ”new blood” could add major value in retuning the culture to address this problem.

The historic dominance of SOEs has led to business relationships based on personal trust, rather than corporate protocols supported by knowledge-sharing and a sense of mutual obligation as in the West.

“One of the things the American, Anglo-Saxon model of organisational management enables us to do is manage complexity,” says Clinton Dines. “Western organisations are run on exchanging information and have high degrees of institutionalized trust based on mutual obligation and sense of responsibility at all levels. This is how companies can have such a spread of professional managers all over the world.”

He continues, “However, Chinese business relationships are based on personal trust and this doesn’t allow the enterprise to manage complexity. One of the challenges in China is the lack of institutional trust – and it is both contextual and cultural.”

Another panel member notes, “Being ‘authority-based’ rather than trust-based means that the big state-owned corporations in China find it difficult to manage complexity well. They exist and succeed on the basis that they have ‘quasi-monopolistic franchises,’ so their effectiveness as business managers is never really tested in a competitive environment, except when they start to go overseas.”

Clinton Dines explains, “China has offered the world a compelling proposition in terms of making the right product at the right price; the sophistication of the proposition

rests at the factory in China. What is more complex and challenging for the Chinese is, say, developing a minerals resource in Africa and having to build the power station, railway line or port that goes with it. Engaging the local community and participating in another society requires the ability to manage complexity. This is where a lack of institutional trust is a major impediment.”

4. Opening the family business to professional managersIn the corporate landscape, after the big state-owned enterprise comes the familial corporation in China, which accounts for about 60% of business in the country. Clinton Dines says, “Some of these are very good and very effective, but they all come up against the same issue: when you get to a certain size, managing the business is very difficult because you can’t trust anyone except your family.”

The most successful family businesses are run by leaders who recognise the need for organisational development and growth led by professional managers, such as Li Ka-Shing in Hong Kong. Dines continues, “What has made Li Ka-Shing distinctive is the openness of his mind. His is one of the few familial dynasties that have been able, very effectively, to engage professional management. Most leaders do not share Li Ka-Shing’s comfort level in this and can’t trust outsiders.”

Given these challenges of complexity and professional management, Dines says, “The fundamental question in China’s commercial evolution is, ‘Will we ever see the emergence of a true Chinese multinational with a business structure populated by professional managers, based on institutional trust’?”

The answer lies with executives themselves and the extent to which those who thrive in a multi-polar economy can govern the tides of change.

“What has made Li Ka-Shing distinctive is the openness of his mind. His is one of the few familial dynasties that have been able, very effectively, to engage professional management.” — Clinton Dines

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This brings us back to the crux of our hypothesis:

With China predicted to be the largest economy in the world by 2020, Chinese business leaders will dominate and reshape global commerce.

Brian Renwick comments, “To some extent the Chinese – as a country, not at the individual level – are already driving and reshaping business; not deliberately, but because of what is happening to global business as a result of their greater participation.”

Tim Summers says, “The Chinese are very aspiring people – they are not sure what China will look like in 20 years’ time, so they focus on making the most of global educational and career opportunities to succeed where they can.”

What happens when these executives and other longer-term returnees come back to China? Are they sufficiently receptive and able to lead the tides of change?

Dicky Yip considers the returnee’s point of view. “A lot of private companies try to hire returnees as managers to create a mix of cultures, but this is not always easy and the pull of the State is still strong.” He points out, “It is still a major goal for young men and women in China to become an official in the government and hopefully progress to ministerial level. Of course, this is not possible if you join a private company.”

Nor is it an easy win, as Clinton Dines explains. “Returnees who have gone overseas for their education come back with an interesting suite of capacities and can be very, very helpful. But those capacities can be impeded when transposing them back into China, when you drop them back into a set of obligations and

expectations that are not easily aligned with what they’ve learned.” Such executives can be smothered by expectations. “If you are Chinese, you understand certain things and you are expected to behave a certain way; you are not a foreigner, so it is not accepted when you do things differently,” says Dines. “The only time it works is if an executive goes back to a leadership role or runs his own company.”

Despite the serious impediments we have explored at the corporate level, could Chinese executives overcome these to flex their muscles in the global economy?

Yes, on one condition: that Chinese executives seek to understand cultural flexibility and how to adapt to a multicultural environment.

We should remember that with global business still largely run along US/European approaches to corporate protocol, it is currently easier for Western managers to ‘fit in’ to a Western/American culture, than it is for Chinese executives, who would find such a culture equally ‘inflexible’. Nevertheless, for the Chinese executive faced with soaring commercial opportunities, those who understand the need for cultural flexibility will have the greatest potential.

Cultural flexibility In this next phase of multi-polar globalisation, Giles Chance says, “Multinationals will need to have people who speak several languages, not because it helps them to converse, but because it helps them to understand how people think.” For now, it is early days and as he says, “We are just beginning to see such executives among Chinese leaders who have been educated in America, and to a lesser extent, Europe.”


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The multi-polar world is beginning to take shape, but for Chinese companies it is still largely dual location at this stage; the trailblazers are mostly dot.com Chinese companies run by Chinese leaders who split their time between Silicon Valley and Beijing.

“I think it will be very hard for the Chinese to deal with the cultural complexities that will arise over the next 20 years,” says Chance. “Future careers and corporate strategies are going to be constructed against a multi-cultural background, so the old model of being able to run a single-culture organisation – whether American, British or Chinese – is going to change. Organisational strength can’t rest on one particular culture. Organisations must have a culture, but it needs to be one that recognises merit.”

Reaching out first to other fast-developing markets is not a stepping-stone.

“The key factor in being able to capitalise on and develop opportunities in other fast growth or emerging markets is understanding the infrastructure within a company and the business environment of the market in sufficient depth,” says Chance.

He maintains, “Executives in China understand their own businesses and the Chinese economy very well, but this is not necessarily the case for the countries next to them, or even South China. Executives who have worked in global consulting firms, for example, have the advantage of greater exposure to the infrastructure in fast growth markets, in terms of the business environment and organisational structure.”

Other panel members agree, noting that Chinese executives are in danger of letting the size of their economy cloud their own thinking - that being the biggest population in the world means that other people will have to come to them. “It was a myopic view 20 or 30 years ago and it still exists today,” says Chance.

How then do the Chinese capitalise on opportunities in the evolving multi-polar economy?

Developing the right skillsFor many business leaders, the opportunities and the means by which they are grasped are clear. The frustrating factor is that the Chinese are faced with a “chicken and egg” scenario.

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In order to capitalise on opportunities in other markets, Chinese executives need exposure to businesses outside China, but so far this has been limited. They have targeted countries such as Australia, America and Canada for acquisition of resources, but these countries are reportedly uncomfortable about the Chinese owning strategic production11. Nevertheless, there is increasing drive to funnel money and business globally from China. As Chance says, “Some more enlightened business leaders recognise the need to do this, but it is something they find very, very hard to do.”

He continues, “One of the difficulties facing Chinese business leaders in pursuing a global strategy is that there is insufficient managerial expertise to implement acquisition strategies. They lack the army of middle managers who have the cultural flexibility and expertise to make an acquisition truly successful.”

Money is not the issue. Developing a strategy and having the team to execute it is the challenge for Chinese businesses expanding into other markets. Chance says, “The process of developing these people only started about five years ago and it will take another generation to develop the multilingual, multi-cultural army of management that can implement China’s global strategy.”

Who can we look to and what can we do in the meantime?

Aspiring executives around the world realise the importance of experience in China for a 21st Century career. “Experience in China – or another fast developing market – is very important for the next generation of executives working in international organisations,” says one Chinese business leader. “Company leaders will want to see experience in really getting their hands dirty in these markets.”

At present, a high number of multinational executives and CEOs of subsidiaries in China are of Taiwanese origin. Kirk Hwang explains, “Their exposure to the West, an English-based education system and less restrictive passports give them an advantage over their peers on the mainland, where just moving to another province is a long and arduous process.”

Still, this is not an easy solution. Hwang points out, “The Taiwanese are socially cautious – they know they need to blend in with the local Chinese and develop good

relationships with Party officials in China, which is very important.”

However, over time this will change, as an international workforce reflects the globalisation of China, loosening corporate ties to the Party.

Chance says, “Our MBA schools in China already have more international students applying than Chinese, because these graduates want to exercise their knowledge in the Chinese context. They want to learn the practicalities – both good and bad. So, in future, if company leaders can’t find suitable Chinese people who understand the language, they will hire a non-Chinese who has working experience in China and can operate in this context.”

As China continues to experience enormous change, we look to the future and what our participants agree to be the case: China’s ability to reach its potential in the global economy depends on world-class, strategic HR leaders who are able to assess, develop and motivate Chinese talent in their organisations.

We explore how this can be achieved in the next section.

11 Financial Times, 20 January 2011, “The scuppered talks [between China’s Bright Foods and the UK’s United Biscuits and the US’s GNC] indicate that, rather than being the new buyers of last resort in the consumer sector, emerging markets groups are still learning to navigate international M&A processes.”


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I Achieving growth through people 1. Drive change at the individual levelThere has been a tendency in some countries to steer China towards what works in other markets. This is a mistake. Most Chinese business people have developed capabilities based on how SOEs are run from central Government.

Dicky Yip explains the legacy. “Beijing is a massive HR department, managing 90% of SOE leadership from central Government officials to municipal positions. That kind of HR system determines how the HR department in each SOE operates.”

Change therefore needs to be driven incrementally, at the individual level, rather than by imposing a completely different organisational structure.

2. Change the mindset at HQ to empower the local leaderDriving change at the individual level starts at the top — with empowerment. Once the leader of a Chinese business within a multinational is empowered, other key elements of HR policy can work.

Lack of empowerment is currently a huge impediment for local business leaders and is seen as critical for

The Boyden View provides a synthesis of opinion, experience and counsel, first for business leaders and HR experts shaping a people-driven enterprise; and secondly for senior executives leading teams in China.

building the business, particularly in light of strong local competition.

There is also a strong personal element for the local leader, as one Chinese executive explains, “If you don’t trust executives in China to run the operation, plan the

Collaborative strategic planning

“When I ran a local subsidiary, we enhanced our communication with our headquarters by having the leader stay in China for a few months to understand our market,” says Anthony Chow, Formerly President at Internet retailer newegg.cn.com and Ozzo Logistic, China. “Then, we created an organisational structure that blended a community of colleagues from the East and the West.”

“Together we shaped an objective point of view – fine-tuning the strategy – and this became a means of empowerment and a source of authority for local decision-making.

It was important for our business that we were a cross-cultural company - we were very much a Chinese company even though our headquarters was in the United States.”

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strategy and develop the culture – and instead make them feel they are following orders – they will not feel that the multinational is supporting their career in China. Executive churn soon becomes an issue.”

3. Address the need for transparencyTransparency is a more effective company attribute for developing trust, reducing churn and reinforcing values.

SOEs, from the party organisation down, focus on promoting from within, which limits transparency in managing people. Dicky Yip explains, “Executive training programmes are geared to moving people across departments and progressing them through the organisation, but usually still on the basis of age, department and longevity. Some performance measurement systems are being introduced into SOEs, but these are used more for reward or bonuses, rather than career development.”

He shares his own experience. “At BoCom, our graduate training programme is run with our partner HSBC, giving graduates exposure to different experiences, measuring their performance on merit and helping them develop a career path. However, very few State-owned organisations have a foreign partner with whom they can achieve this.”

4. Access HR expertise through foreign partnersAccessing HR expertise through a foreign partner can be highly effective, but rather than impose new HR practices, the foreign partner must understand first how elements of HR policy resonate within the Chinese culture.

Dicky Yip at BoCom in partnership with HSBC, explains. “When an SOE engages with a foreign partner, the partner has to retune its understanding of how decisions are made. Then, using that interpretation, the HR experts can restructure the relevant processes to get things done. However, it is not obvious and HR experts first need to invest time in deciphering group discussions. Once these are understood, HR can tap into the culture to structure programmes and policies that will work.”

5. Turn diversity to advantage in a unified culture of merit Brian Renwick advises, “Cultural diversity must be managed very closely. Western and Asian expatriates, returnees and foreign nationals are all valuable, but their interaction is complex and has enormous potential if handled with skill. The key is to use cultural diversity to create one unifying culture based on merit and corporate success, rather than individual financial gain.”

One Chinese panellist says, “We should always have expatriates in our organisation, because it is important for our business for Chinese executives to have international interaction – not just for the language, but from a policy and compliance point of view, and to open each other’s minds through exchange and rotation programmes.”

Merit-based organisations will be able to attract the best executives in the future, drawing from a rich talent pool of aspirational executives.

II Leading teams in China Using these reflexes to lead teams through growth and capitalist evolution takes time, patience and constant repetition.

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Our panellists suggest three priorities for successfully blending cultural practices with headquarters.

1. Business leaders at the HQ and in China need to create company policies together, as ‘hybrids’ – combining global company policy required for compliance, with local regulations that are required as if the company is located here.

2. An empowered leader in China who, if possible, and with the right market share, can sit on the board and has the power to implement the strategy over the long-term.

3. A loyal local following, built by an empowered leader, which has a sense of ownership and accountability, so that executives are motivated by a sense of building the company for themselves.

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1. Bridge the cultural divide“Building an effective organisation in China is about bridge-building – developing and blending the skills between Chinese and foreign excutives, and getting these groups to recognise each other’s strengths and limitations,” says Dines. “You can spot some Chinese nationals who can virtually be foreigners, but there will be a limited number of foreigners who can virtually be Chinese.”

Kirk Hwang at KNH Enterprise Co. Ltd explains the ultimate goal: “Future leaders need to address sustainability and blend together the advantages of Western and Chinese cultures to achieve organisational efficiency.”

However, this is a major challenge. As Hwang explains, “In such a fast-paced environment, people are impatient and want to grab opportunity when they can, so cross-cultural understanding is pushed aside.”

For the business leader, it is very hard. “China is personally challenging on a lot of levels,” says Dines. “Westerners find they need to be almost ‘schizophrenic’ – on one hand you are a commercially driven business manager, thinking in all the strategic frameworks that demands. On the other hand, you need to be highly contextual, which means dealing with the constant tension between the tactical, the contextual and the strategic.”

Dines concludes, “You need the capacity to be objective and you need a sense of humour. You then build, subconsciously, certain reflexes appropriate to different situations.”

2. Encourage knowledge-sharing and relate it to successIn a culture dominated by personal relationships, information becomes power.

Clinton Dines says, “The hardest thing to do when you are managing a group of Chinese is to get them to share information with each other. It’s an ongoing quest to create institutionalised trust – among Chinese and between different groups of people.”

Encouraging knowledge-sharing is a question of retuning old influences so that collective and individual success can be understood in a new context. This requires a strong HR infrastructure, so that executives feel safe in the knowledge that while they are personally accountable, recognition and success will flow from sharing knowledge.

At KNH Enterprise Company, Kirk Hwang says, “In order to create the culture we want and instill institutional trust, we seldom reward individual accomplishment. Instead we reward a team – people who achieve good results through collaboration.”

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The Boyden View

3. Relate tactical implementation to the strategic planWhen working with an executive team, Clinton Dines says, “You take an understanding of what you are trying to achieve, what the objectives are, and the overall strategic goal. And then you spend a lot of time ‘translating’ it – distilling it into terms, directions and instructions that make sense to the team. In essence, conversations that give a sense of what is required and why.”

4. Be clear on expectations of the HR head One of the biggest changes ahead for company leaders revolves around how HR expertise is used. Kirk Hwang explains, “Large Chinese companies – multi-billion dollar companies – see HR very differently to their peer organisations in the West. Chinese companies view HR experts as managers of people, benefits and salaries, rather than experts in developing leaders. This is a legacy of military authority, with people exercising their duty to the overall head or CEO rather than pursuing initiatives that build effective teams or efficient organisations. There needs to be a major change in mindset and this has to come from the head of the company.”

Anthony Chow agrees that the successful teaming of company leader and HR head is crucial, commenting, “China’s ability to compete in the new global era doesn’t come from our products. It comes from our people. For Chinese companies that do want to expand abroad, the lack of HR leaders is a serious barrier.”

He continues, “If we want our companies to grow, we must hire, train with skills, develop into management and retain our best performers. This can only happen if we have world-class HR leaders in the senior team.”

The priorities are very clear in Chow’s mind. “Company leaders need their HR experts to develop a team that delivers on two key challenges: first, get a lot of talent in; and second, make sure the best performing employees stay by helping them develop their careers. We need to shift the balance away from buying talent towards developing talent.”

5. Develop rather than “buy” peopleA lack of world-class HR expertise means that companies rely too often on buying people in, rather than training their managers and leaders.

Anthony Chow says, “Our HR managers are very strong in their tactical work, monitoring our systems and meeting resource requirements. Where they need to develop their expertise is in training, maintaining employee stability and building career paths with our people, giving them a sense of ownership in the company so that they want to join and want to stay.”

Chow is highly aware of the consequences of failing to do this. “So-called ‘soft’ skills are very hard to measure, so it is easier to buy people from the market, rather than develop our own people. The result is that we always have an insufficient pipeline of talented people coming through the company.”

However, finding the right people for a senior HR role is difficult, particularly in an SOE, where the HR department is very much part of the Party system and relies on traditional ways of finding people.

It is also becoming more difficult for SOEs to find and retain the right kind of people to become good managers. While becoming a government official is attractive, career progress is slow and rewards are less remunerative than in a private company. Dicky Yip says, “This will start to change over the next 10 years, in step with the country’s policy to reduce the influence of SOEs on the economy and open China up to more foreign enterprises, but it will be very slow and we expect a lot of the people challenges to remain, particularly in SOE-dominated industries.”

Anthony Chow sums up, “The need for world-class HR expertise is an issue today in running the company, whether a Chinese or multinational organisation, but also for tomorrow, in terms of foreign investment. China’s global position and opportunities mustn’t be compromised by a lack of talented people.”

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Brian Renwick shares what he considers to be the most important lesson in China’s journey:“We are learning the real challenges of multiculturalism through China’s participation in global capitalism, because it is such an exceptional, distinct culture. And it is right that we should all have to understand what the blending of cultures requires, because we are all interdependent in this world.”

He continues, “Protectionism, nationalistic policies – everything people do to protect themselves, hurts them in the end. We all have a cause and effect on each other, at the individual, corporate and country level. This is why we all have the same lessons to learn – to resist mono-culturalism, integrate acquisitions through approaches that resonate with local customs and build bridges wherever we can.”

Endnote

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Appendix

About the report This report was developed by Boyden World Corporation in collaboration with the strategic research and consulting group Lighthouse Global (www.lighthouseglobal.eu.com). Special thanks go to Dan Margolis, at the Strategic Communications Division of FTI Consulting (www.fd.com and www.fticonsulting.com) for his perspective and support.

The Boyden Panel Our sincere thanks go to the following business leaders who so kindly shared their insight and experiences in growing businesses in China, and helping to shape the next generation of executives through their work in academia.

Giles Chance: Advisor to foreign companies and investors in China; Author; Visiting Professor, Guanghua Business School, Peking University

Anthony Chow: Formerly President at newegg.cn.com, and Ozzo Logistic in China

Clinton Dines: Former President, BHP Billiton China, now Chairman of Caledonia Asia

Dr. Kirk Hwang: President, KNH Enterprise Co. Ltd. Taiwan

Dr. Tim Summers: Former British Consul-General Chongqing. Adjunct Associate Professor at Centre for East Asia Studies, The Chinese University of Hong Kong, Managing Director, XTEChina Consulting

Dicky Yip: CEO BoCom, Non-Executive Director, HSBC

Other participants who wish to remain anonymous

About Boyden Boyden is a global leader in the executive search industry with more than 70 offices in over 40 countries. Founded in 1946, Boyden specializes in high-level executive search, interim management, and human capital consulting across a broad spectrum of industries.

For further information and to access additional articles, papers and research from Boyden, visit www.boyden.com.

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