In the beginning of March 2021, Jörg Seitz, Mercuri Urval Austria, hosted a webinar on the “Update from China” in Cooperation with Anne Zhang, Mercuri Urval China. This is the summary and key findings from the event.
China's economic growth was merely slowed down by the Corona pandemic, but not stopped. The People’s Republic of China has also set itself ambitious goals to catch up further with the West in term of key technologies. It is therefore becoming increasingly interesting for European companies to tap into this huge market. The associated hurdles are manifold and can only be overcome with the right experts and managers on the ground.
The year 2020 marked a double turning point for the Chinese economy: on the one hand, it suffered a decline in the first quarter of the year for the first time in decades due to the Corona pandemic that broke out in Wuhan. On the other hand, it managed a brilliant comeback in the further course of the year, so that China's GDP grew by 2.3 per cent and exceeded the 100 trillion yuan mark for the first time – that corresponds to about 15.4 trillion US dollars. More than 500 million Chinese now belong to the middle class in terms of standard of living – that is more than one and a half times the entire population of the USA. With the 14th Five-Year Plan, China's government has set further major goals for the near future that consider not only quantitative but also qualitative aspects of economic development. These include health care, environmental protection and a more sustainable energy supply and production.
For a long time, China was considered an extended workbench for Western companies as a cheaper producer. Today, China is not only interesting as a production location, but also as a sales market and test laboratory for digitalisation and the development of new products and services. The consumer goods market in particular is undergoing rapid change because four Chinese IT giants have ensured that China is the first country in the world where e-commerce accounts for more than 50 per cent of the retail volume. The search engine provider Baidu, the B2B platform Alibaba, the online trading platform JD and the Internet company Tencent ensure with their tools and services that everything is available digitally and online around the clock in China's numerous metropolises. In addition, the quality awareness of Chinese consumers has increased, which is usually an advantage for European companies.
The rapid economic and social change in China open up for good business entry opportunities for European companies and their brands in various sectors. This is especially true for growth industries such as health care, environmental technologies, food inspection and packaging, electro mobility, automation and digitalisation (IoT, AI, smart cities). However, these opportunities can only be exploited if the company has a local presence. It probably does not need to be emphasised further that, given the diverse challenges that those responsible on site must master, selecting the right people is of crucial importance. This usually works best with a mixed team of expats and locals who are very familiar with the business customs in China. For these teams to function well and for communication and cooperation with the parent company to work smoothly, several personnel and cultural peculiarities need to be taken into account.
Overcoming personnel and cultural hurdles
Business models, management structures and corporate cultures that work well in Europe do not necessarily do so in China. In order not to suffer early shipwreck when entering or building up business in the People’s Republic of China, a number of things need to be taken into account.
- Thinking in all directions when it comes to filling positions
Due to the good economic development, more and more Chinese expatriates are moving back to their home country. This is a trend that should be taken into account when looking for suitable candidates, because this group of people is familiar with both cultures. In addition to sending staff from the parent company, the most important thing is to find suitable specialists and managers who have an appropriate network of relationships - called guanxi in China - within the industry and with the authorities. Since there are more and more Chinese with experience abroad or working in international companies, the selection process often offers a wide variety of options. Which one is best, depends on the individual case.
- Leadership style and structure must fit
Hierarchy and work culture are also on the move in China. Nevertheless, there are still significant differences that need to be considered when managing mixed or Chinese teams. In China, for example, more emphasis is traditionally placed on structures because they facilitate the social classification within the company and the interaction based on it. Superiors per se enjoy more authority in China than in Europe - a cultural phenomenon described as “power distance”. However, this is often a reason for younger Chinese to prefer working in international companies where the hierarchies are less strict, and the tone is more collegial. To find the right balance between the requirements of the company headquarters in Europe and the needs of the branch office in charge of business in China, special leadership personalities are needed.
- Talent cannot be tied down with money alone
Whether entering or building up business in China - for both steps it is important to clarify the relationship between the company headquarters in Europe and the business unit in China. In the process, the local teams should be enabled to operate as flexibly and independently as possible in order to be able to take advantage of opportunities. For Chinese employees, personal recognition and appreciation of achievements is not expressed in pay alone and is often more important for their motivation than a mere salary increase. Offering Chinese employees, who are significantly younger on average, long-term development and prospects of promotion is also of greater importance for their loyalty and commitment to the company. After all, personal advancement and social prestige towards family and friends go hand in hand in China.
Only those who learn succeed
Operating successfully in the Chinese market requires a continuous learning process for the entire company. In addition to local competition, the general trends in this huge country must also be considered. What worked successfully yesterday may already be outdated tomorrow. Learning in this case also means forgetting one thing or another and thinking anew. This places special demands on the experts and managers - regardless of whether they are sent from Europe or recruited locally in China. Precisely because the People’s Republic of China is developing so dynamically, it lends itself as a market where innovations can be tested. One thing, however, should be sacrosanct: The brand core as well as the corporate values and quality standards that define it!
Note: This article is based on a webinar I gave to CEOs and HR managers in early March in cooperation with Mercuri Urval Austria. If you want to be part of the next webinar or want to know more about getting started in China, please get in touch with:
Anne Zhang | Partner & Director
Mobil: +86 1590 168 2403
Jörg Peter Seitz | Partner & Director
Mobile: +43 664 8586 740
Mercuri Urval Austria | www.mercuriurval.com