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China’s Global Companies

July 29, 2009

As you can see on my What I’m Reading page I’ve just read the article ‘Developmental Lessons from China’s Global Companies’ by Mary B. Teagarden and Dong Hong Cai, presenting their research on the successful globalisations of four Chinese manufacturers:

Lenovo, Haier, TCL Group, and Huawei.

The journey of these companies has taken place against the backdrop of the massive changes within China over the last thirty years, and it reflects the changing values of Chinese society and the Central Government: a shift from a collectivist society dominated by state owned enterprises to an entrepreneurial  society unleashed by Deng Xiaoping’s catchphrase “To Get Rich is Glorious” on his ‘inspection visit to the South of China 1992.

Indeed, according to the authors, Lenovo, Haier, TCL Group, and Huawei share an “ exceptionally strong entrepreneurial orientation”  While many Western companies are the product of a creative outburst of their founders, these Chinese companies learned a lot through licensing agreements or joint ventures with foreign companies.   At least that was the intent.  In reality the absorption of this new (foreign) knowledge was often hampered by the frequently quoted skills or talent shortage in the Chinese labour force of the 80s and 90s.

The response, and part of their success I’d like to add, was these company’s  strong focus on human resource development.

The possibly best know example is  Haier’s well known organisational culture of ‘personal responsibility and accountability’, providing a long-term development of managers.

This meant a big step away from the corporate culture of state-owned enterprises which partly still bases on the principle of seniority rather than merit, and where employees defer decisions to their supervisors rather than taking initiative themselves.

When building their business those four companies, as many others in China relied partly on imitation of existing (foreign) technologies – as observed earlier during the rise of Japanese and Korean multinationals.

This “imitation” is often labelled “intellectual property infringement outside of China, and is one of the biggest fears of any Western business doing business with or in China.

The need or the focus on ‘learning from the West’, in particular, has its roots in China’s long isolation with limited contact to countries that were developing new technologies over last 150 years.

But we only have to think back to the opening ceremony of the Olympics to be reminded that China still takes great national pride in being the cradle of the Four Great Inventions – the compass, gunpowder, paper and printing – which obviously had a huge impact on the development of China as well as of the rest of the world.

And, imitation has evolved to innovation, and all four companies now share a strong focus on Research and Development (R&D), with, for example, half of Huawei’s workforce engaged in R&D.

Mergers and acquisitions have also been identified as a fast strategy to build market share and acquire new knowledge.

The possibly biggest challenge or obstacle on their path to global dominance today is, again, human resource, particularly Chinese managers with the ability to work successfully in different cultural settings.

“It is estimated that within a decade China will need about 75,000 executive level managers competent in both Chinese and global settings”.

According to p.79-80 in Organizational Dynamics, Vol.38, No.1.

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