B2B International
B2B International

December 14, 2007

Number 1

Yesterday’s post pointed towards the fact that companies operating in China can no longer simply rely on favourable margins and juicy, untapped markets. Today’s conclusion looks towards the companies to have heeded this warning and have enjoyed the greatest success in the People’s Republic. The moral, it seems, is that global best practice standards should be brought to bear on Chinese operations, but that the experience in China will also become increasingly relevant to conducting business in the rest of the world:

The companies that have enjoyed the greatest success in China appear to be those that have taken their operational practices from other countries and adapted them to take into account local conditions and norms. In essence, China should, broadly speaking, be treated much the same as other markets – effectiveness and efficiency are still the watchwords.

For instance, Alcoa, one of the world’s leading producers of aluminium products, found that introducing their tried-and-tested Western business procedures at their Shanghai operations reaped huge benefits – doubling sales volumes in the process. Preformed Line Products, a US-founded telecommunications company, sought to break down the culturally entrenched preference for highly hierarchical organisational structures in favour of more team-based solutions – resulting in levels of efficiency comparable to operations in Brazil or the US.

That said, simply transferring established, proven methods from one market to another should also be avoided; a degree of adaptation to regional needs is vital. For instance, manufacturers are now employing many more employees in Chinese retail stores to push their products over rival offerings. This is something that’s necessary in a country where consumers are only tentatively aware of what’s on offer and who are liable to change their minds about products at the last moment.

The extent of the move from “good enoughâ€? practices to using international gold standards in China is inevitably likely to vary from one company to another. In some instances, re-evaluating their entire operations, rather than simply tweaking, may be necessary.

Danfoss, a multinational manufacturer of valves and fluid handling equipment provide a case-in-point. Although the company, on the face of it, enjoyed good returns on their Chinese division, they nonetheless initiated a root-and-branch re-appraisal of business methods in the country.

What they found was that their current level of profit and growth was entirely unsustainable and that competitors would soon capture the initiative. This owed a large part to their concentrating on high-end customers only, whilst ignoring the most important features that Chinese customers needed from their products. Perhaps the largest change to be initiated was to transfer R&D operations to China itself – where engineers and designers could get a better hold on what specific products were needed there.

What Danfoss’s experience also serves to tell us is that the adoption of practices is not one-way, from outside and into China. Rather, as China becomes more competitive and an increasingly important player on the international economic stage, experiences there will help to shape the cutting edge of international best practice. In other words, Chinese businesses and divisions will become as much a part of the discourse on how to do business in, say, the US or Europe as China itself.