key to being competitive
Since China's entry into the World Trade Organization in December
2001, many of the barriers to operating directly and efficiently
in Chinese markets have fallen. As a consequence, competition
has heated up in China for MNCs, not only among themselves but
also with local Chinese companies. In this kind of frenetic marketplace
full of opportunities, what is the key to being competitive?
With great opportunities, you invariably get great competition.
That's part of the level playing field that is rapidly emerging
in China. That's why the fundamentals really count. From my trips
to China and meetings with government officials and businesses,
it is clear to me that both Chinese companies and foreign corporations
- big and small - must focus on three things if they are to compete
successfully: brand, supply chain management, and people.
brand eminence and presence is more than just a label and an advertisement.
In China, building a brand is, above all, an issue of delivering
the product or service that Chinese consumers expect at the level
they need or better. And doing that consistently, and in a quality
way that enhances your reputation among consumers and business
leaders. Businesses operating in China need to focus more on building
their brands, especially in terms of consistency.
chain management supports the brand quality by getting the right
components or solutions in place in a timely fashion. In a fast
growing market like China, supply chain management means an ability
to be flexible, to anticipate shifts in market demands whether
you are suddenly producing more laptops than desktops or having
the right number of specialists to handle a surge in IPOs. Businesses
need the right structure - a flexible structure - to serve a market
like China. This is going to be a challenge for many Chinese companies.
and perhaps most importantly, it's a matter of intellectual capital
- the right people. There is no doubt a war for talent in China,
but what cannot be forgotten is the growing importance of the
need not just to find but to keep the right people. Turnover is
as high as 40 per cent in some sectors - creating enormous challenges
for companies and forcing new ways of managing people.
a recent Deloitte Research study entitled It's 2008: Do you Know
Where Your Talent is? suggests, this will continue to be a significant
challenge, not only in China, but also in large parts of Europe
and North America.
You have alluded to the importance of intellectual capital several
times. What is unique to China?
This is a subject I am addressing on a panel at the Fortune Global
Forum on China and the New Asian Century. It is clear that new
demographic realities will shortly affect workforce markets in
China and around the world. And the potential for a shortage of
talented workers is serious. That's why the intellectual capital
strategy of corporations has to shift.
the 1990s, we were told to fight "the war for talent."
Tomorrow's battlefield will be very different. The focus will
be on more than just acquiring and retaining talent. In China,
while companies struggle with the recruitment war, they simultaneously
must address retention issues and more. Companies will need to
focus internally on identifying potential talent and then finding
the appropriate ways to develop it, deploy it and help connect
it with the other parts of the organization. In sum, companies
will need to stretch their employees, give them new and unexpected
opportunities and make sure that doing a job equates with learning
all the time.
a result of the need to retain the right people, what seems to
be emerging in China is a whole new system of rewards that reach
beyond basic compensation.
in importance will be rewards such as work-life balance, training
and development, new assignment opportunities and new ways of
recognizing a job well done. In addition, multinationals, both
Chinese and foreign, will need to provide Chinese workers with
opportunities to develop their global skills sets by working abroad.
types of benefits and rewards are especially new to China's workforce
and employers, but they also represent new horizons to be explored
with workforces everywhere.
Another issue you have spoken on many times in China is corporate
governance and its role in enhancing competitiveness. Is corporate
governance really a competitive advantage when investors seem
to be taking the risk regardless?
The answer is clearly yes - this was reinforced to me at the session
I chaired on governance at the recent Boao forum.
Chinese Government and businesses are tackling governance issues
head on. Companies are increasingly aware of the need to take
governance best practices and blend these to meet local realities,
not only in order to continue to attract investment, but also
for them to become world-class companies that can compete globally.
governance requires appropriate protocols and procedures and rules
and regulations. But it's equally important to remember that governance
is also about principles and clear objectives. And the principal
aim of good governance is to help a company achieve sustainable
recent Deloitte study entitled In the Dark, the underlying message
about governance and managing growth is clear: businesses need
to ask the broad questions about factors that drive current and
future success - factors beyond the financial indicators.
China, issues like customer satisfaction, product and service
quality, ethical conduct, reputation, operational performance,
and employee commitment are really beginning to resonate among
business and government leaders.
Chinese businesses can take the lead globally and look closely
at these issues. According to the Deloitte report, most western
CEOs feel this information is important to track and report on
but many are unable to do so. There is a real disconnect.
Beijing, Shanghai and Guangzhou are still dominant. Do you see
this changing any time soon ?
Certainly, we see a growing focus among multinational companies
on deepening their China strategy by expanding into new regions.
In a recent study we conducted, we found that CXOs of multinationals
in China thinking how to sell into third- and even fourth-tier
regions, and bringing into China the wider portfolio of sophisticated
goods and services that they typically market in other countries.
now accumulated a critical mass of experience in the country,
witnessed a substantial improvement in the domestic business environment,
and seen a very tangible increase in raw demand, foreign firms
are daring to think more ambitiously about China. They are building
on lessons learned to transform their China operations into an
increasingly important part of their global businesses.
brings a new level of complexity to their businesses in China,
and executives will need to work hard to meet the resultant demands.
Existing markets in China are also becoming more sophisticated,
suggesting that customer retention strategies, much neglected
in the past, will become increasingly important in the future.
foreign companies need to utilise China's rapidly improving infrastructure
to raise the efficiency of their distribution and sales channels,
and ideally find and develop a niche in the value chain. Looking
outwards, companies need to define and plan for the role that
their China operations can most valuably play in their global
outside of China will increasingly find themselves competing against
more China-centred multinationals. Businesses that can take the
best of both worlds - research and development capabilities from
their home markets, for example, and low-cost procedural innovation
from China - will become strong world players. Such hybrids threaten
to take global market share from multinationals that do not incorporate
China more fully into their global strategies.
What challenges do you see for Chinese and multinational companies
In American history, the west has been traditionally viewed as
a region of dreams and opportunity. I think the same holds true
for China. I recently visited Chongqing to deliver a speech. There
I was struck by the reality of vast opportunities awaiting both
Chinese and foreign companies in the west. The improvements in
infrastructure from expressways to the information highway are
very impressive. But much remains to be done.
of the biggest challenges facing businesses wanting to take advantage
of the opportunities presented by the west is attracting and developing
the right intellectual capital to go and stay there. This is something
the government is acutely aware of - and businesses need to continue
to focus on.
is still scope for additional incentives to encourage leading
minds to return and settle in the west - for example the creation
of "intellectual capital zones" that could provide a
ready source of research and development for companies locating
in western China.
not? If manufacturing can be brought to a country with an abundance
of labour, why can't "intellectual capital zones" take
hold in a country with a tradition for bold new ideas? After all,
China has been inventing and exporting ideas for centuries. Ideas
that have changed the world, such as: paper, moveable type, gunpowder,
and the compass.
need to attract the right people. This means:
innovative business strategies that are exciting to people
the right human resource strategies, including remuneration policies
that address regional differences
and developing people from widget-makers into true service providers
who know their customers
innovation maybe through centres of innovative excellence
co-operating with government to build a community
developing one's own industry as opposed to just one's own company.
I look at Deloitte in China as an example, we have:
with the government to develop accounting standards
with SAT to develop tax policy
on technology systems,
the CPA Future Leaders Summit, the first of its kind focusing
on supporting the development of China's accounting professionals
and ran courses for accountants in conjunction with the National
Accounting Institute and are now looking at the launch of the
Deloitte Institute to support learning and leadership of the industry.
simple measures will not only stop an existing brain drain, but
provide stimulation that will attract newly inbound or those returning
back to their family home.
developing a system of mutually supportive infrastructure, China's
"Go West" policy can transform the western region from
a point of departure into a desired destination.
is a special time. China has embarked on one of the greatest economic
transformations ever undertaken by any nation.
ahead, I am optimistic that valuable capital, financial and intellectua,
will choose to "Go West."
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