Want to work for a Chinese company? Make sure you understand this first
To succeed at a Chinese company, aim for unrealistic targets; be courageous in a new businesses; create as many new roles as needed; and aggressively go after market share.
Over the past decade and a half, I’ve advised many expatriate executives working for multinational companies in China. I have also advised Chinese executives working for local companies in the country.
But increasingly, I am finding myself counselling foreign executives working for Chinese bosses at Chinese companies. Most of these are privately-held Chinese companies, often founded and operated by an entrepreneurial Chairman.
One thing I’ve observed among the multinational executives that I’ve worked with is just how unprepared they are to deal with the many nuances of how Chinese companies really work.
Companies are constantly revisiting their business plans and projections. It’s an environment that rewards quick decisions and the agility to grab opportunities before the competition gets there first.
Nowhere is the difference between Chinese and Western companies more salient than in the way they set targets and budgets.
The Chairman always sets “unrealistic” business targets
In Western firms, executives might look at their growth rate over the past year, and then assume they’ll grow by a reasonable increment—10 per cent, for instance—the following year.
These are backed by a bottom-up analysis of micro-segments and trends, finally adding up to the eventual target.
In many Chinese companies, the process goes something like this: call for a brainstorming meeting (usually on the weekend), and then announce that we’ll double our business over the next 3-5 years, and enter the Fortune 100/500/1000 (depends on the ambition of the Chairman) by 2020. The planning department then tries to figure out how to achieve these numbers.
To an outsider, numbers like these seem impossible to achieve.
My experience in the fast-changing environment in China today has taught me that these “unrealistic Chairmen” are precisely the entrepreneurs that are making it big.
Looking back over the past decade, I’m still amazed to see what otherwise look like unrealistic plans actually come to fruition, as Chinese teams are forced to think of out of the box and work with an entrepreneurial spirit.
Obviously, plenty of these ideas will never succeed. But some do work, and when they do, they can become incredible success stories.
Successful Chinese entrepreneurs believe that they can enter any line of (unrelated) business and compete
In the West, companies that try to get into other industries or lines of business are accused of fragmentation. Investors may slap a conglomerate discount on companies, and are generally sceptical toward companies doing business in areas where they have no prior experience.
In China, diversification is known as “building the ecosystem.” The best example can be found in financial services. Amazon wouldn’t start a bank, but Tencent started a bank (WeBank).
Alibaba created the largest money market mutual fund in the world, with over US$160 billion in assets under management. New Hope, which is a leading animal feed company, started a bank with Xiaomi the mobile phone maker.
Similarly, Wanda made its fortune in real estate, but now has a huge entertainment and media business, including the AMC cinema business.
Ping An owns several “unicorn” internet businesses, including Lu.com, the peer-to-peer lender, and Good Doctor. Several large conglomerates are developing electric cars. Tencent, Alibaba and Baidu are competing in many verticals, from food delivery to entertainment content to rental housing.
To an outsider, these moves may seem very counter intuitive, but for the Chinese entrepreneur, this is simply business as usual.
Career paths are dictated by opportunities and compensation leaps
Executives moving in and out of companies is not a new phenomenon. In China, the expectation that people have for moving across companies and industries for a promotion, of jumping a level every year and a half, is unprecedented. At many companies, new jobs and positions are being created every month.
Many multinational companies coming into China have a difficult time creating opportunities that can meet the lofty expectations of Chinese executives.
The other thing that few people grasp well is compensation. It’s not uncommon for Chinese executives to double their salary when they jump to a new company, as companies have become desperate for top talent.
Of course, it cannot go on forever. But it just highlights how the potential for massive value creation far outweighs temporary “over-compensation” costs.
Chinese Chairmen are obsessed with market share
It has been proven that the “go for market share” strategy does work in many sectors in China, something that many Western executives find difficult to rationalise.
Sector after sector, players that have played the market share game have at least guaranteed their survival, if not success, but it requires plenty of capital.
For companies that don’t have the deep pockets or investors willing to fund them, the “ticket-to-play” is an expensive one. But companies that don’t want to play the market share game risk becoming irrelevant in China.
Chinese investors and entrepreneurs have a much longer time horizon for their pay-off, and believe in the value of brand, influence, and significance in the market.
Of course, Chinese companies and entrepreneurs are a diverse bunch, and it’s dangerous to generalise.
But, if you want to be a successful executive at a top entrepreneurial Chinese company, aim for unrealistic targets; be courageous when entering new businesses; quickly create as many new roles in your organisation as are needed; and aggressively go after market share.
Joe Ngai is Managing Partner of McKinsey & Company’s Greater China practice
30 November 2017