Management Consulting: CHINA SPECIAL Part 1
Preconditions for success in China
In Europe and USA we can find many preconceptions about China. Living and working in the country (and in my case I did it for more than seven years) shows soon, that many of this preconceptions are totally wrong.
In this "China Special" I will focus on some topics, European companies starting economic activities in China should consider carefully, in order not to tap into pitfalls or which could become reasons for difficulties and problems.
In the part 1 we discuss about choosing the right location, the dynamic of the Chinese economy and recruiting of staff.
Nanjing Hunan Lu
Localtion Selection
In most cases already the selection of the right location - the right province and city - where to start economic activities in China becomes a first challenge. As wrong assumption China is often simplified seen as ONE country, (what it is and want to be seen politically) but China should better be compared with Europe or America as Continent. And nobody would have the idea to see the economic situation in Europe unique in Sweden, Italy, Ireland and Romania, France and Austria as "identical".
The difference of the 33 provinces in China, from Xinjiang in the northwest to Liaoning in the northeast, from Guangdong in the south to Sichuan in the southwest or between cities like Beijing or Shanghai are as different as the situations in European countries are different regarding people, economic situation and even the language.
Not fully understandable it is further, that still most economic activities of foreign companies starts in Beijing or Shanghai even a carefully made location evaluation shows in many cases the clear result, that other provinces or cities could offer better values for some economic parameters. If cities are selected where the staff turnover rate in some industries is up to 30% per year, it can be a danger for the success to settle down there.
Wrong or incomplete analysis of locations in many cases results in cost disadvantages, but once the operation has been started in an area, the transfer to another location is a big hurdle. I have seen examples where e.g. a large Austrian company in opposite to my recommendation started the operation in Shenzhen even it was very well known that at that time due to the high labor costs some industries already moved away from to area to cheaper provinces. The result of this example finally was a disaster.
If you have questions to the location evaluation in China, we offer you our consulting for this. - We use for our analysis a method with app. 40 parameters and our longtime on-site
Dynamic of the Economy
Even the dynamically economic development in China is so much fascinating, someone should not only consider the 1.3 Billion potential consumers/customers. It should be considered also the huge number of 'dynamic' competitors on the market. Enterprises starting their activities in China in many cases take such local competitors not serious enough.
A study made by the American Chamber of Commerce in China 2009 has shown that only 40% of the companies founded by US-Companies in China could ever achieve the break even.
Even after China joined the WTO there are still many sophisticated protective measures in place in order to protect local competitors. In the European Position Paper every year this is calculated, shown and discussed with the Chinese Government. (Referenced on the "EU Position Paper China 2009/2010" the disadvantage for the European Economy coming from this measures have been calculated with app. 21 Billion Euro. see P. 8)
In addition to this, the dynamic development of some regions also in terms of increasing consumer price indices (for some products up to 50% per year, especially for housing) results in an appropriate 'dynamic' development of wages and salaries. (Double digit increases for wages/salaries per year can be seen often and if that is not considered in the business case....)
For any question you have regarding that topics, we also offer you our consulting. - We use therefore our network of partners and our on-site experience.
Nanjing Railway Station Nanjing, Jiangsu (CHINA) 8/2010
Recruiting of Staff
Especially the labor intensive industries depend on enough excellent educated human resources as a key success factor. China offers a huge best educated talent pool. The number of University graduates is high and also the quality of the graduated entering the labor market is excellent in most cases. One specific problem is, that only 10% of the graduates prefer a western company and only 10% of them are really qualified for the jobs in western companies. (See more in the conference paper "Winning the War for Talents, Shanghai 2009, in the download area)
Nevertheless, recruiting in that huge talent pool is not easy. The language barrier on the one side has to be managed and on the other side there are some half-hidden mechanisms deciding who the winner in recruiting will be. The (regional) mobility of Chinese employees is fantastic (compared with Europeans). In many cases it is quite normal for people living in the north to take a job offer in the south and vice versa, be available for the interview within one or two days 2000 km away from the home after having heard about the job opportunity. (Not thinkable in Europe) On a typical Job Fair, as you can see in the picture beside) a number of 5000 companies are in competition for hiring the best of 50.000 graduates. And there are special other reasons, why it is very promising not only to recruit locally. Instead of that recruiting in many other cities can be the base of the success. (Why, we can consult you ...)
But not enough, also some other factors have to be considered, as their result is that for on job a successful hire can be done app. 100-200 candidate applications have to be screened and 10-20 personal interviews have to be done. Not to forget, that Chinese employees expect much from their companies and managers. In many cases western expats as managers are not proper trained for this or not qualified for such tasks.
The most important, but seldom known pitfall for the staff recruiting in China are the seasonal specifics to be nearly unknown in Europe. In many cases this fault is the reason for missed targets in the first year's business plans.
For any question regarding staff recruiting in China, we offer you our consulting too. - We use therefore our local partners in China and our on-site experience.
Job Fair in Hangzhou, March 2005
Clarification
These hints or "DO's and DON'T's" should not be understood as simple China critics; during the last decades I could appreciate the country and the people there so much. Nevertheless economy is also a competition and even a fight and competitors are "rivals" also and as we can learn from the excellent Chinese strategist Sunzi: "If you know your rival and yourself well, you don't need to fear about the results of hundreds of battles". This knowledge about the reality and the situation even more can contribute to a "harmonious" economic development. To support that is one of our targets for our consulting work.
Last Update / Change 07.08.2011.
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