Foreign Experts Advisory Committee
Proposals
Going Global but with a solid governance

Contribution by mr. Airaldo  Piva                       Milan, 26/08/2013

 

 

Corporate governance

 

The gradual internationalization of the Asian companies is probably one of the most important event of this century in the world economy.

Chinese companies are well realizing  that their current advantage in resources is not anymore sustainable. China is reducing their role of  export-driven manufacturing as their working population ages and salaries increase while competitors appearing just around the corner as China’s free trade agreement with Asean will come in force since 2015.

Additionally, as China’s market opens up and foreign competitors strengthen their capability to integrate Chinese resources, Chinese companies will be at a more severe disadvantage if their organization is confined to their domestic market. Already in order to keep their share, some ones have been obliged in applying a price-war strategy, with the result of a progressive erosion of the margins. For some Chinese companies, in a medium-long term view,  no reaction will mean to take the risk to be put at the corner both in the domestic and in the international markets.

The well-known challenge for Chinese companies is to switch from a competition edge based on resources and low cost manufacturing into ‘’non price factors’’. Today the purpose behind Chinese companies going global both through an organic growth and/or M&As, must be not simply to expand their  markets but specially about technology, brand, innovation  and sales channels.

As for my experience, however beside pursuing these strategic factors which are necessary to increase the profits and become global leaders, Chinese companies should put as first top priority the ‘’corporate governance’’. This should be the most urgent task but it seems to me that this aspect is often undervalued. If you get a fast and sophisticated sportive car but later you realize that you can not drive and control properly, it will be not only a waste of resources and opportunities but also very risky. Specially when company become larger and more complicated due to the expansion of the operations all over the world, top management and/or family owners must set up and implement a system of processes, structures and values to make possible the best decisions of business directions  together with a clear accountability and transparent control. However, specially for the Chinese family companies, to set up or to improve their own governance means to put in discussion their own history and culture, their consolidated boss-centre leadership style and, sometimes, even the people “face”. Competing in the global market become a kind of test of a company organizational capabilities.

Successful foreign international companies have accumulated experience during the years  how to properly use and coordinate their overseas assets so to maintain a balance between global consistency and local responsiveness.

Still Chinese companies, as for their culture and tradition, are managed by people rather then processes. Systems and formal  procedures tend to be neglected  by senior GMs and by whom believe to have a wider  vision then other people inside the organization. This flexibility can be very efficient when the company is small but as the company expand its scale, products and markets abroad, this method  will not only limit the company growth but also can be a challenge by employees who has experience in working for international companies and that can feel frustrated and in a poor cooperation environment. To invest in employing the right talents is fundamental but it will be vain without having a solid and transparent global governance.

For Chinese companies starting creating an international organization it would be also important to avoid the mistake to leave the overseas offices or plants to operate alone and isolated, trying globally to achieve a better balance between centralized and decentralized power.

The central pillar around which to build the organization capacity (for the present but also and specially for the future generations!) must be to set up a solid global governance. I found that this aspect is not always well considered, specially, as we have seen, among the Chinese family business.

Western companies should encourage and share their experience and knowledge on this, as they should have nothing to fear from the international expansion of Chinese companies and much to gain.

Even more I do think that a great help and support to Chinese companies in improving their corporate governance must come from the Foreign Experts as we should know well how to blend western management practices with Chinese culture and wisdom.

 

 

 

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