Expanding overseas needs a diverse leadership team

Many of Asia’s corporations are expanding their brands overseas. Cross-border promotion of a brand is relatively new for China and increasingly diverse for Japan. Japanese car and technology brands such as Toyota, Sony and Honda are already global household names. In China it is Alibaba and Lenovo that spring to mind.

Any company that is looking to expand internationally must ask itself whether the corporate culture be applied elsewhere? And can it be inclusive?

The number one issue is the management itself. Whether your aspiration is expanding your brand into a new country or acquiring overseas businesses and exporting your expertise, you are ultimately likely to export your management structure, style and brand values.

There is no one-size fits all management or business plan. The successful multinational usually has satellite offices that have different practices based on local laws and customs. However there  needs to be a basic corporate ethos and standards of conduct. The successful multinationals tend to have multicultural leadership that promotes equal opportunity in leadership.

That may sound too simplistic and obvious. However, often companies expanding overseas like to have senior leadership that is largely from their home nation, they do not change the acquiring company’s management and therefore do not add value beyond cash infusion. A leadership team that all looks and sounds the same puts a company at a disadvantage by shutting the door on diverse outlooks.

As companies do their due diligence on expansion, not only do they need to consider if it is strategically a fit and the finances are right, they also need to question if they have the right management team and integration plan. Establishing world-class management processes is the first step, not the last one.

Companies should ensure they have leadership programmes in place where they share the mission and strategic intent of the company. What the leadership programme looks like will vary from company to company, but having one is an absolute must, both for the home and host teams. Establishing best practice enables knowledge transfer and promotes a cohesive corporate ethos. Both the home team and the host team will need help to adapt to new ways of communication and doing business. It’s also crucial for recruitment: the best and brightest are not going to work for a company where they do not see opportunities for promotion. Leadership programmes highlight a path.

The second critical component companies need to have is genuine succession planning. Managers at both at home and overseas will need to develop new skills. Your people will need training in leadership, cultural sensitivity and the opportunity to gain experience in different parts of the business. Leadership programmes and succession planning have long been basic building blocks of world-class management

The bottom line is that as Asian companies look to expand their businesses into overseas markets they need to make sure their management teams are up for the task. Their aim should be to build a diverse leadership group that embraces best global practices.

 

Chinese bloggers vs Western bloggers

When it comes to generating sales, Chinese bloggers beat the Western bloggers by a landslide. Bloggers in China have social and technological advantages for converting fans that bloggers in the West can only dream of.

Chinese fans are OK with being sold stuff on social platforms

In the West, bloggers should be discreet about their sales pitch or completely forthright. There is no middle ground. It’s like bringing up money among friends — it happens inevitably, but all parties understand they are wading into awkward territory.

In China, social media and e-commerce are completely integrated into each other. In other words, social platforms have e-commerce functions, and e-commerce platforms have social functions. This makes the line between entertainment and commerce blurry.

A recent article from Boston Consulting Group stated: “In China, shopping is about more than just the transaction. It is about entertainment, discovery, and social engagement with friends, celebrities, and internet influencers.”

A study by Accenture found that up to 70% of Chinese Gen Z consumers — those born after 1995 — prefer buying products directly via social media than other channels. The global average is 44%.  Simply put, bloggers are at the heart of the Chinese shopping experience.

People want social media platforms to entertain them. Their favourite bloggers help them discover new products through via content. Consumers are entertained and purchase products at the same time and it’s all possible because Chinese social media platforms have e-commerce capabilities joined with them. Chinese consumers value word of mouth recommendations above all else.   As long as the content is good and the bloggers trusted they do not feel they are being used

E-commerce platforms make full use of social media and bloggers

Imagine if Amazon had its own version of Periscope built-in where people live-streamed themselves using products while fans browsed or Expedia had a travel-oriented version of Snapchat connected to its site.  Now you can see how shopping and sharing work in tandem on the Chinese net.  Most e-commerce platforms have social functions and even their own bloggers. For example, Taobao and JD.com have integrated live streaming and articles.

Western social platforms make sales inconvenient and clunky. Look at Instagram, which does not even allow URLs in a post.   Chinese bloggers have the tools to convert followers into customers easily. Their platforms gave them these.

Here’s an example: Chinese social media apps allow product links in post copy and additionally allow consumers to open the links, view the products, put them in their shopping carts and pay for them while still seeing the original post. Meipai’s video sharing app has been unrolling a feature recently for content creators to put product link tags directly in their videos. Viewers can click on an overlayed tag and buy the product while watching the video.

Live streaming platforms such as Yizhibo allow streamers to create a shopping cart of items which viewers can access and purchase by clicking an icon on the screen during the live stream.  For example, if a streamer is giving a makeup tutorial and viewers ask what products she is using, she can direct them to her cart.

“Check out my cart right here in the top right corner to learn more about the products I’m using,” makes much more likely to convert to sales than “Please find my list of products on another site.”  The first generates quick purchases, the second, bounces.

Chinese bloggers can create custom products for their followers

In China, you will find a growing trend of bloggers creating their own products and brands. With access to fast-react manufacturers who can offer small volumes and frequent changes to production lines, Chinese bloggers can create products their followers ask for. They can sell it themselves without relying on big brands.

Zhang Dayi is one such Chinese blogger. She is an expert at using online engagement to gauge her followers’ preferences. Her team avoids inventory overstocking by utilizing big data analytics to measure consumer sentiment towards newly released products. Their methods have been wildly successful. In 2016, Zhang’s store reportedly pulled in US$46m in revenue.

Chinese bloggers have an advantage. With the vast amount of resources available to them, those who understand their audience and create excellent content have the ability to not only create awareness for a brand but generate actual sales results.

China’s digital economy: A leading global force

China is now a leading force in digital technology, including virtual reality, autonomous vehicles, 3-D printing, robotics, drones, and artificial intelligence. China accounts for more than 40% of the value of worldwide e-commerce transactions, up from less than 1% about a decade ago. China has also become a major global force in mobile payments with 11 times the transaction value of the United States.

Three factors are propelling the expansion of digital China and suggest that there is far larger upside potential for digital in China than many observers appreciate.

In 2016, China had 731 million Internet users, more than the European Union and the United States combined. Beyond scale, it is the enthusiasm for digital tools among China’s younger consumers that will support growth, facilitate rapid adoption of innovation and make Chinese digital players and their business models competitive. Nearly one in five Internet users in China rely on mobile only, compared with 5% in the United States. The share of the Internet users in China making mobile digital payments is 68%, compared with only around 15% in the United States.

The three Internet giants in China are Baidu, Alibaba and Tencent. They have been building dominant positions in the digital world by taking out inefficient, fragmented, and low-quality offline markers while driving technical performance such as computing efficiency to set new world-class standards. These companies have been developing a multifaceted and multi-industry digital ecosystem that touches almost every aspect of consumers’ lives. In 2016, Baidu, Alibaba and Tencent provided 42 percent of all venture-capital investment in China, a far more prominent role than Amazon, Facebook, Google and Netflix who contributed only 5 percent of US venture-capital investment in that year. Beyond China’s big three, other digital innovators such as Xiaomi and NetEase and traditional players such as Ping An are building their own ecosystems. China’s digital players enjoy the notable advantage of close links to hardware manufacturers. The Pearl River Delta industrial hub is likely to continue to be a major producer of connected devices because of its strength in manufacturing hardware.

China moved slowly to regulate the digital sector which gave innovators plenty of space to experiment. As the market has matured, both the government and the private sector have gradually become more proactive about shaping healthier digital development through regulation and enforcement. Today, the government is playing an active role in building world-class infrastructure to support digitization as an investor, developer, and consumer.

China has increased its visible presence on the global stage and is making an increasing impact on the global economy. China runs a trade deficit in services but a trade surplus in digital services. Over the past two years, China’s top 3 Internet companies made 35 overseas deals, compared with 20 by the top three US Internet companies. Chinese digital companies are also expanding business models outside the country’s borders, and sharing their technology with foreign partners. China is already more digitized than many observers appreciate and has the potential to set the world’s digital frontier in coming decades.

 

China’s Impending Robot Revolution

Foxconn has long been considered a bellwether of Chinese manufacturing. When, four years ago, China’s largest private employer and primary assembler of Apple iPhones raised wages by up to 25% for its 1.2 million workers, manufacturers throughout China were forced to follow suit. Then in May, Foxconn announced a move of even greater import, disclosing that it had replaced 60,000 of the 110,000 workers at its giant plant in Kunshan, near Shanghai, by deploying thousands of industrial robots.

Analysts in the West either hail the coming robot revolution as a harbinger of unprecedented prosperity or warn of the widespread upheaval and massive loss of jobs it will leave in its wake. Does Foxconn’s rising robot army spell doom for the “world’s factory”?

Far from being blindsided by these new technologies, China’s private manufacturers have the opportunity, thanks to robots, to emerge stronger and more competitive than ever. China was late to embrace the robot revolution. There are still only 36 robots per 10,000 manufacturing workers in China, whereas in Japan there are 315 robots per 10,000 workers, and in South Korea, 478. But China has been moving boldly to close the gap. Beijing has set a goal of raising the robot-to-worker ratio to more than 100 by 2020.

The vast size of China’s manufacturing industry offers huge potential for economies of scale. President Xi Jinping has declared automation a national priority. Made in China 2025, an industry strategy announced by Beijing last year, provides manufacturers with billions of yuan for technological upgrades, including advanced machinery and robots. The provinces of Guangdong and Zhejiang alone have allocated $150 billion and $120 billion, respectively, over the next five years to equip factories with industrial robots.

According to the International Federation of Robotics, China was already the world’s biggest market for industrial robots in 2013. By 2014, Chinese factories accounted for 25% of the world’s industrial robots, a 54% increase over the previous year. Last year, Chinese manufacturers bought 68,000 of the 248,000 industrial robots sold globally. Industry experts expect that share to continue rising.

Along the Pearl River Delta, the familiar stereotype of the Chinese factory-thousands of workers in smocks bent over assembly lines performing the same tasks over and over-is giving way to a more complex reality in which small cadres of skilled workers toil in tandem with sophisticated machines. Midea Group, one of China’s leading appliance makers, is investing $800 million over the next five years to automate its residential air-conditioning subsidiary.

China’s leaders are also pushing for China to become not just the world’s largest robot buyer, but a leading robot maker. At the forefront of that effort are firms such as GSK CNC and Shanghai’s Siasun Robot & Automation, which are developing a range of robots for use in factories, and SZ DJI Technology Co is now the world’s largest consumer-drone maker by dollar sales.

Forecast International, a private market researcher, recently predicted that by 2023, Aviation Industry Corporation of China, a state-owned Chinese defense firm, will produce nearly $6 billion worth of unmanned aerial vehicles and control half the global market for such devices.

Yet despite the breakneck pace of transition, the risk of political instability in China is small. The country is used to rapid change. Job turnover in the manufacturing industry is 2.5 times that of the U.S. and has been so for decades.

China’s changing demographics are altering the way employers think about their labor force. They can no longer count on an endless supply of cheap workers. Labor costs have risen 15% a year since 2000. The working-age population will peak this year, and is projected to shrink 16% by 2050.

As China forges ahead with automation, there are at least three reasons to believe its chances for success are higher than the U.S., Europe or Japan.

First, China has developed a unique manufacturing ecosystem. Its companies, working in partnership with global firms, have created an extraordinarily sophisticated supply chain and built a network of collaboration between people and machines that allows for maximum flexibility at minimal capital investment. There is no parallel to this in any other economy in the world.

Second, with the possible exception of India, no other nation can match China’s capacity for producing the number of engineers necessary to oversee industrial robots at significant scale. One recent analysis concluded that each year China graduates at least three times as many engineers as the U.S.

Finally, the rising purchasing power of China’s consumers will provide a solid anchor for China-based manufacturing. Even with a slowing economy, China remains home to the world’s fastest growing middle class. Already there are 116 million middle-class and affluent households in China, with annual disposable incomes of at least $21,000. In 2000, there were just two million such households. With spending power of that magnitude, global companies have ample incentive to keep factories in China.

We see little cause to expect manufacturing to shift back to developed markets. China will not only remain the world’s factory, but it could increase the size of its manufacturing sector by as much as 22% by 2025. Western leaders would be ill-advised to imagine that these new technologies will play disproportionately to their advantage. Far from being left behind, China is at the forefront of the robot revolution.

Mr. Sneader is the chairman of McKinsey & Company, Asia. Mr. Woetzel is a director of the McKinsey Global Institute.

Aug. 3, 2016 12:30 p.m. ET
Kevin Sneader and Jonathan Woetzel