How Chinese CEOs do business?

The outlook and career experiences of the CEOs who head many of today’s rapidly growing and increasingly confident Chinese companies are markedly different from those of Western executives. Understanding these differences can help to explain behavior that otherwise might seem curious to the executives of many multinationals—and could also suggest competitive opportunities.

Nowhere is the contrast with Western corporate leaders starker than it is for the chief executives of state-owned Chinese enterprises. Most of these CEOs have spent their careers shuffling between the private and public sectors. A capable leader might start out as a senior provincial-level executive in a state-owned enterprise, then hold a provincial-level Communist Party post, follow it up with a stint as the CEO of the state-owned enterprise, and move back to the party infrastructure to serve as the mayor of a major city or as a provincial governor. A final career step might be attaining a senior position in the central government or the party—for instance, a seat on the State Council or the Politburo.

Because the career of a typical CEO of a state-owned enterprise usually straddles the corporate and political spheres, these chief executives pay careful attention to politics—in particular, to developments in the Communist Party. In fact, it’s not unusual for such CEOs to link the timing of long-term strategic decisions to plans outlined in the annual National People’s Congress (China’s legislature) or to other significant political events, such as trips to China by foreign leaders or the creation of new government agencies. What’s more, the symbiotic relationship between the enterprise and the state makes such CEOs sympathetic to corporate social and economic goals beyond maximizing shareholder value.

China Mobile’s rural-expansion strategy shows how one major state-owned enterprise has grown while supporting national-development goals. Since 2004, the company has extended mobile service to millions of people in the vast countryside to support the government’s rural-infrastructure program, which includes initiatives linking rural areas through a mobile-telecommunications network. Government objectives such as maintaining social stability by keeping China’s huge workforce employed and by redressing economic and social inequities are partly responsible for the importance that many CEOs of state-owned companies attach to top-line revenues. In fact, we find that chief executives in both the public and the private sector talk more about revenue growth, market leadership, and competitive advantage than about shorter-term financial objectives, such as higher earnings. The emphasis on driving top-line growth to keep factories humming and employees on payrolls often means that Chinese companies are generalists playing in several different business areas and markets.

Foreign players therefore have an opportunity to carve out niches in rapidly growing but underserved segments. Some pharma multinationals, for example, avoid head-on competition with Chinese companies in large product categories, such as antibiotics, which today accounts for as much as 30 percent of the total pharma market but is declining in importance. These multinationals are instead targeting smaller, faster-growing therapeutic areas—for instance, oncology and hypertension.

Perhaps not surprisingly in a rapidly expanding market, Chinese CEOs rely less on rigorous analysis, market research, or a detailed understanding of customer preferences than their counterparts in developed markets do. Instead, many of them make decisions instinctively, feel comfortable with rapid and flexible responses to new industry trends and shifts, and have a keen interest in holding down costs in order to boost competitiveness and to keep companies growing.

These tendencies also create opportunities for multinationals. The dealer strategies of Chinese automakers, for example, emphasize low-cost facilities in favorable locations that pull in customers. Few of these companies have focused on providing a high-quality showroom experience. GM, by contrast, applies to each of its dealerships strict customer service standards—all the way down to details such as how many seconds should elapse before a dealer greets a customer who enters a showroom and how many times a telephone should ring before a dealer answers it.

To be sure, such strategies aren’t a silver bullet for multinationals: local pharma companies continue to hold a 70 percent market share in China, and GM is locked in tough competition with other foreign carmakers and with Chinese ones as well. But unless multinationals use such approaches, success will be even more elusive. A better understanding of Chinese companies and of the executives who lead them is an important starting point when multinationals decide how to compete.

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Tags: Business Ownership, Business Strategy, CEO, Growth, Performance Managment, Portfolio of Business, Strategy