Cover: China CEO II by Juan Antonio Fernandez, Laurie ann Underwood


JUAN ANTONIO FERNANDEZ

LAURIE ANN UNDERWOOD





Wiley Logo




I dedicate this book to the China Europe International Business School (CEIBS) on the 25th anniversary of its founding. I also dedicate this book to the wonderful people at CEIBS who helped us during the work on this book. Finally, to my wife, Hanning, and my three sons, Simon, Oscar, and Daniel, who give meaning to my life.

Dr. Juan Antonio Fernandez


China CEO II is dedicated to my family—Sydney and Schafer Wilson; Dorothy and Glenn Staley; Matthew, Larry and Sally Underwood—and to my beloved and excellent partner, Eric Desvallees. Their love provided me the power to complete this book. I am also grateful to CEIBS, my alma mater, as well as to Xi'an Jiaotong Liverpool University (International Business School Suzhou) and Sino Associates for the support of my colleagues.

Dr. Laurie Ann Underwood

Foreword

It is my pleasure to endorse China CEO II, the latest China business book produced by Professors Juan A. Fernandez and Laurie A. Underwood. Both have worked and lived in China for more than 20 years, which has given them a first-hand, front-row view of the enormous changes that have transformed this county over the past two decades. In the space of time since our year 2000 MBA and EMBA graduates entered the working world, China has moved forward to become a leading global player across many fronts at once—as the world's largest exporter (and most populous nation), with the largest consumer base and the fastest growing one in terms of spending power, and now as a global leader of the digital revolution. Although rapid, China's economic progress has been steady as the nation shifted from serving as the factory of the world to an innovation powerhouse. MNCs in today's China face highly sophisticated consumers, fiercely competitive local players across nearly all industries, and a new population of local digital heroes who are changing the world order and giving China's younger generation a new set of life goals and priorities, as well as a new sense of home-grown pride. Taken together, China's multifaceted economic and social transformation is unique in the history of the world.

This book attempts to give readers a first-hand view into this multifaceted transformation through the lens of in-depth interviews with China CEOs and various experts on China. The 25 interviewees with China CEOs share their personal insights into succeeding in the new China. As a foretaste of what you will learn from of this book, some of the key qualities that the China CEOs deemed essential to success in China include passion and energy, speed of decision-making, clear vision, a shared framework, the ability to empower local teams, and the ability to make tough judgment calls in an environment of constant change and uncertainty.

Before closing, I would like to note two important trends that can be seen when comparing China CEO II with the original book published in 2006: the new book includes an increased number of Chinese CEOs and an increased number of women CEOs. Both trends are intensely positive not only for China but for the global business arena. The rise of more Chinese nationals into the top executive positions at MNCs is a positive trend that closely matches the goals of CEIBS. Likewise, the rise of more women into top executive spots in international companies in China is another trend to which CEIBS is deeply committed.

Let me conclude by reminding readers that China's importance in the world is growing—and will continue to grow for decades to come. It is our hope that this book will serve as a bridge, closing the gap between China and the rest of the world by promoting better understanding, deeper collaboration, and more beneficial interactions with multinational companies. The goal of this book is to assist both foreigners working in China and Chinese executives working internationally to better communicate and better cooperate, to the benefit of all.

Dipak Jain, President (European)
and Professor of Marketing, CEIBS

Chapter 1
Why China CEO II?

  1. China's Boom Since 2006
  2. Who's in China CEO II ?
  3. Front-Line CEO Analysis: China Then and Now

Introduction

Why did we decide to write China CEO II? Following the success of our first book—China CEO—released in 2006, we have been asked why we wanted to repeat the whole exercise again 14 years later. Why again seek interviews with top executives running large-scale operations for high-profile multinational companies (MNCs) in China? Was there really a need to write a new edition of the same book?

The short answer to this question is: yes. By 2020, the time was right to embark on China CEO II for one main reason: China has changed—dramatically. And meanwhile, interest in working in or with China from the rest of the world remains as strong and vibrant as it was in 2006. Thus, the advice given by our interviewees in 2006—detailing how to lead large teams and complex operations for MNCs in China—needed updating.

What we didn't know until we began conducting interviews is whether another China CEO book was needed. Given China's high-profile and rising global presence in both the international business and political arenas during the country's 40 years of reform and opening, perhaps most non-Chinese executives working in or with China already knew how to succeed here. Maybe enough information was available—online and digitally—to offer the resources needed to close cultural gaps and to prevent business mistakes from being made.

But as soon as we conducted the first interviews for China CEO II, we confirmed another compelling reason to write this book: multinational companies still grapple with significant challenges when operating in China. Namely, foreign companies—and the executives running them—continue to face difficulties, including cultural differences between an MNC's home country and China, misunderstandings caused by geographical distance or psychological separation from a company's top executives, and problems caused by variations in standards or misalignments in business communications norms, negotiating styles, or operating procedures. After the first two interviews for the potential new book, we felt affirmed in the value of our endeavor to again gather first-hand information and advice through in-depth interviews with those holding top executive positions at selected high-profile multinational companies with large-scale operations in China. As with the first book, we interviewed only those holding the position of China CEO or the equivalent position in the language of their company. Each of our interviewees had been in his or her position for at least one year at the time of our interview. This time period was essential for us to feel that the challenges detailed and advice given had survived the test of time and that the CEOs' advice will therefore be fully useful to our readers. (Most had been in the role of leading China operations for their company for at least five years.)

“…[M]ultinational companies still grapple with significant challenges when operating in China.”

—Authors of China CEO II

China's Boom Since 2006

To help readers to grasp the extremely fast pace of change underway in China today, we offer a snapshot of the giant strides the nation has made in terms of both economic and societal development between the publishing of China CEO (in 2006) and China CEO II (in 2020). Consider these changes:

Economic development tells only part of the story of China's transformation during the years between the writing of our first and second books. Those 14 years also saw the country gain significant clout in the international business and diplomatic circles as it changed from a developing to a developed nation.

In terms of political recognition, China also measurably gained stature on the world diplomatic stage since 2006. For example, the country moved from being invited as a Guest Developing Nation to G8 summits in 2008 to hosting the G20 summit in the city of Hangzhou in 2016. In addition, the central government's Belt and Road Initiative, launched in 2013, has caught the world's attention as an ambitious campaign for China to strengthen its diplomatic and trade ties with 64 countries located along the former Silk Road. Another example is the central government's high-profile China International Import Expo (CIIE), first held in 2018 to improve the nation's international image regarding trade practices and to promote the China market globally. Hosted by Chinese President Xi Jinping, the event featured Microsoft's Bill Gates alongside Alibaba's Jack Ma as guests and attracted more than a million attendees from 172 countries, regions, and organizations.16 And in the global arena of environmental protection, China has, in recent years, emerged as a proactive international participant. For example, immediately after President Donald Trump removed the US from the Paris Agreement in 2017, China strengthened its commitment to the accord. In the months and years that followed, China has been widely seen as stepping into the void created after the exit of the US to become the new world leader in climate change.

In all the ways mentioned above, we as authors recognize that we now live and work in a vastly different China than the one in which we published China CEO in 2006. Thus, it was high time to start a new book from scratch, interviewing a new set of current top executives of MNCs in China. Our goal, and our wish for our readers, is to present detailed, relevant, and useful advice gleaned directly from today's China CEOs regarding the most commonly experienced challenges faced by all who lead teams and manage complex operations in China today.

“...[W]e now live and work in a vastly different China than the one in which we published China CEO in 2006. Thus, it was high time to start a new book from scratch.”

—Authors of China CEO II

Who's in China CEO II ?

When the interviews conducted for the first and second editions of this book are compared, several very clear differences emerge. First, all 20 of the China CEOs we originally interviewed were male. Additionally, all 20 held citizenship outside China. In fact, only one of the original CEOs had been born a citizen of the PRC but had later received a US passport.

Not so for China CEO II. This time, among the 25 China CEOs included in the book—including 7 working for the same companies as the original China CEO book—8 were born in China (including the Hong Kong Special Administrative Region), although 3 of these later changed their citizenship. Meanwhile, 4 are women (all of them ethnically Chinese, and three PRC nationals).

“This time, among the 25 China CEOs included in the book… 8 were born in China… [and] 4 are women”

—Authors of China CEO II

The new set of CEO interviewees show more subtle but also important differences from their predecessors: Many of the 20 China CEOs interviewed in 2006 were senior executives nearing the end of their careers. They were very experienced, having worked in many countries, and China was their last step. And many were sent to China to open their company's operations or to expand them significantly. The CEO of L'Oréal China in 2006 described arriving in China with one assistant and a suitcase full of cosmetic samples. The CEO of Siemens in 2006 told us of working out of a Friendship Hotel in Beijing with one secretary. Others told of the extreme pace of expansion many MNCs experienced during the early 2000s. The former China heads of both Carrefour and Coca-Cola, for example, described to us very fast expansion throughout China during that earlier time.

Another clearly visible change is the increase in average working time in China among the new group of CEOs, illustrating the increased recognition among MNCs of the benefits of promoting an executive with extensive prior China experience into the top domestic role. While the initial group of 20 China CEOs had worked in China for an average of five years, the new batch of 25 top executives for China had worked domestically for an average of nearly 15 years (an average of 19 years for Chinese citizens, 10 years for non-Chinese).

“While the initial group of 20 China CEOs had worked in China for an average of five years, the new batch of 25 top executives for China had worked domestically for an average of nearly 15 years.”

—Authors of China CEO II

And finally, the new set of 25 China CEOs interviewed in 2019 were generally younger than the first set, and most were thus still building their careers. In fact, after meeting with us for this book, interviewee Stéphane Rinderknech, China CEO for L'Oréal, went on to be promoted to a global role within his firm. Shortly before our publishing date, Mr. Rinderknech was named as president and CEO of L'Oréal USA, executive vice president North America, and a member of the group's executive committee. Many of our interviewees commented that, today, the top executive role for China is not generally seen by MNCs as a final career stop for senior executives but more often as a necessary position for an executive to hold before joining a company's top global echelons. This change provides more evidence of the rising importance of China as a key market for MNCs worldwide.

As an expert in the executive recruitment field, Korn Ferry's top China executive, Charles Tseng, acknowledges this trend: “China is clearly becoming a ‘must posting' for up-and-coming CEOs. . . . Executives who go to China are on an inside track to take on bigger positions—because of the size of China market, because of the complexity and the recognition that companies and businesses have of the importance of the unique China market to their future business, and because of the tough conditions in China. Tough means that it's not a traditional classic economy. Executives who come here gain a great deal in living through this very different environment.”

“China is clearly becoming a ‘must posting' for up-and-coming CEOs.… Executives who go to China are on an inside track to take on bigger positions.”

—Charles Tseng, Chairman, Asia Pacific, China, Korn Ferry

L'Oréal's Rinderknech describes the new importance a posting in China holds for many MNCs: “For all top talents of L'Oréal, China is a must for their career-building, because this is where you learn so much.” After spending “eight fascinating years in this country,” Rinderknech leaves these words of wisdom to his successor and other incoming executives taking positions here: “You have to know China from the inside. It's not something that you can theorize. You have to live it; you have to make it work. You have to connect with the Chinese, and you have to understand the way they think. It's an absolute must. You have to go and survive this battle. China is very exciting, and it's very unforgiving.”

“For all top talents of L'Oréal, China is a must for their career-building, because this is where you learn so much.… You have to go and survive this battle. China is very exciting, and it's very unforgiving.”

— Stéphane Rinderknech, CEO, China, L'Oréal

China CEOs Interviewed  

Company HQ Name Title Gender Nationality
ABB Switzerland Chunyuan Gu Chairman and CEO, China M China
AB InBev Belgium Frederico Freire  BU President, China M Brazil
Bayer Germany Celina Chew President, Greater China F Australia (born in Singapore)
Bosch Germany Chen Yudong President, China M US (born in China)
Carrefour France Thierry Garnier President/CEO, China; CEO, Asia; Group Vice President M France
Coca-Cola US Curt Ferguson President, Greater China and Korea M US
IKEA Sweden Freda Zhang Country Commercial VP, China F China
Korn Ferry US Charles Tseng Chairman, Asia Pacific M Malaysia (born in Singapore)
LEGO Denmark Jacob Kragh General Manager, China M Denmark
L'Oréal France Stéphane Rinderknech CEO, China M France 
Mango Spain David Sancho CEO East Asia and India M Spain
Manulife-Sinochem Canada Kai Zhang President and CEO, China F US (born in China)
Marriott International US Rainer Burkle Area Vice President, Luxury, Greater China M Germany
Maserati Italy Alberto Cavaggioni Managing Director, China M Italy
Microsoft US Alain Crozier CEO, Greater China Region M France (born in Canada)
NIIT India Kamal Dhuper President, China M India
Philips Holland Andy Ho Leader, Greater China M Canadian (born in Hong Kong SAR, China)
SAP Germany Clas Neumann Head of Global SAP Labs; Sr. Vice President, Head of Fast-Growth Market Strategy Group M Germany
Scania Sweden Mats Harborn Executive Director, China (also President, European Chamber of Commerce in China) M Sweden
Sony Japan Hiroshi Takahashi Chairman and President, China (also Sr. Vice President Sony Corp) M Japan
Standard Chartered UK Jerry Zhang Executive Vice Chairman and CEO, China F China
Tata Sons* India James Zhan President, China M Hong Kong, SAR (born in mainland China)
Udacity US Robert Hsiung Managing Director, China M Canada
Victoria's Secret / Lbrands Int'l US Arun Bhardwaj President, Greater China M New Zealand (born in India)
Volvo Cars Sweden Xiaolin Yuan President and CEO, Asia Pacific (also Sr. Vice President Volvo Cars Group) M China

*Holding company of Tata Group

China Experts and Consultants Interviewed  

Company HQ Name Title Gender Nationality
American Chamber of Commerce, Shanghai US Kenneth Jarrett President M US
China Cooperation Fund (underwritten by Goldman Sachs), MTS Systems Corp, Nottingham University Business School, Ningbo US (UK for NUBS) Kenneth Yu Advisor, Board Member, Advisor (respectively) (also: former President, 3M Greater China) M Singapore (born in Hong Kong, SAR, China)
Community Center Shanghai China Zhen Zeng Executive Director F  China
Economist Corporate Network UK Mary Boyd Director, Shanghai F Canadian
McKinsey & Company Global Jonathan Woetzel Senior Partner (also Director, McKinsey Global Institute) M US

Note: In some cases, the China CEOs and experts listed in the two charts changed job positions or companies after the interviews were completed. The comments and quotations in this book reflect the views they held at the time of the interview.

Front-Line CEO Analysis: China Then and Now

From the preceding list, one interviewee was included in both editions of the books. We were extremely pleased to include Kenneth Yu in both editions. In 2006, Yu was China CEO of 3M; in 2020, he was a board chairman and academic, business, and financial advisor to several business funds and organizations (see the chart on page 8). Given his previous and present professional roles, we chose him as an excellent source to comment on the key changes in China pertaining to successful MNCs. In the rest of Chapter 1, we recap Yu's six keys to success for executives running international companies in today's China.

The first key to success from Yu was to recognize that “both Chinese businessmen and consumers are getting much more sophisticated.” He clarifies: “I am talking about customers, about suppliers, about competitors. Chinese people are not just getting smarter but also getting a lot more sophisticated. This is one of the major changes.”

For MNCs, this shift in mindset creates both advantages and disadvantages. “This means more sophisticated, high-technology products can find their customers. That's nice. But don't forget that Chinese customers are no longer just buying ‘good enough' products or accepting whatever is available. They can afford to pay, but they also want to have value for the money they spend. The bottom line, my fellow MNC CEOs, is: When you come to China, don't assume there are gold nuggets waiting for you to pick them up. You gotta be good, because your competitors are good. You gotta be good to earn your bread!”

“When you come to China, don't assume there are gold nuggets waiting for you to pick them up. You gotta be good, because your competitors are good.”

—Kenneth Yu, advisor, CCF & MTS

The second critical key to success is to recognize that the main driver transforming China's business environment over the past 13 years has been the rapid rise of domestic Chinese competitors. To MNCs in China, he says: “Today, Chinese competitors are more challenging than non-Chinese competitors. In fact, they are actually creating more pressure on foreign enterprises.”He reminds MNCs that this development, in which local competitors gain ground, has previously occurred elsewhere in Asia. “This is not new. Look at Japan; look at Korea. In the 1950s and 60s, who were the tech providers in these countries? MNCs. But in Japan today, it's all Japanese. In Korea today, it's all Korean. So what we see in China is not something very new. History is repeating itself.” The challenge, he emphasizes, is that for many MNCs, China remains a key market for the company's future growth. Success, then, increasingly depends on beating newly powerful local competitors in their own home courts.

Third, Yu notes that local employees have also become “much more effective and sophisticated.” He explains the change: “They know more, they learn fast. And over these past two decades, there are many well-educated Chinese students coming from overseas and from domestic Chinese universities.” And today, Yu cautions, Chinese graduates of top domestic schools are not necessarily interested in working for MNCs. “Graduates from China's ‘Ivy League' universities are now supporting not just the MNCs but also the state-owned enterprises. And these graduates are good; they are not like 15 years ago, when the last book was written. Things have changed.” What does that mean for China CEOs of foreign companies? “MNC leadership: you have to recognize that on the positive side, there are a lot more resources for you to deploy. But on the negative side, your competitors are also getting these talents.”

Fourth, the pace of China's evolution has picked up speed over the past 13 years. Yu notes: “This one is obvious—everyone sees it but sometimes we forget it. That is, the speed of change.” He advises incoming foreign managers to observe the rampant growth and success of WeChat, of Alipay, and of China's high-speed trains, as well as studying the rapid expansion of electric vehicles. “Look at the building of highways and infrastructure in China. The country is making changes so fast and doing things so quickly that the speed often scares people.”

Yu also points to a new entrepreneurial spirit that has taken root in China since 2006. Yu calls this new mindset “the new culture of risk-taking throughout the populace.” He explains: “What do I mean by that? This is really a cultural change.” He uses himself as an example to explain the shift in thinking: “Although I was born and grew up in Hong Kong, I am ethnically Chinese. My parents and grandparents were born in mainland China. I was brought up with that influence. We were taught to be careful, to take our time.” Today, as an ethnic Chinese, he feels a new mindset taking root. “In today's world, you have to be fast. In China, the environment has created this new culture of ‘You gotta do it!' And: ‘Don't wait until everything is proven or approved. Just do it!' And: ‘If you have to make changes along the way, we'll do it later.'”

“In today's world, you have to be fast. In China, the environment has created this new culture of ‘You gotta do it!' And: ‘Don't wait until everything is proven or approved. Just do it!' And: ‘If you have to make changes along the way, we'll do it later.'”

—Kenneth Yu, advisor, CCF & MTS

Fifth, Yu says that China's new technology companies—including Alibaba, Tencent, and Baidu—follow this “just do it” mindset. “These are fantastic companies that have grown at breakneck speed because they are willing to roll the dice. They are willing to take the risk.” And following the rise of the domestic tech companies, Yu says, other private companies and even SOEs are following suit today. “It's not just them.” In fact, the culture of entrepreneurialism has roots in China's changing political environment, he says. “This culture of risk-taking probably originated from the leadership in Beijing.” Yu mentions that, under Premier Zhu Rongji, China invested heavily in expanding its infrastructure—an investment that has now paid off. Under Zhu, Yu says, the Chinese leadership had the “foresight” to fund ambitious infrastructure projects, such as Shanghai's second ring road, and expansions to the high-speed rail and maglev transportation systems. He adds: “I don't think Zhu Rongji or the central government leadership expected that Shanghai would grow to what it is now. But they were willing to take the risk.” Today, an adventurous new mindset now permeates Chinese society. He adds: “This is the ‘new normal' among Chinese entrepreneurs: they are willing to take the risk. Some fail, some collapse—no question. But if you look, there are winners all over the place.”

In his final key message to MNCs, Yu emphasizes his confidence in the continuing importance of China going forward. “The Chinese economy is growing way beyond the point of no return; there's no going back,” he comments. “As the GDP grows bigger, it would be naive to expect that the country can keep on growing at 6 or 7%. It just won't happen. But on a PPP basis, China is already the world's biggest economy. At current prices, it's number two after the US and—depending on whose prediction you look at—it's only a matter of years until the Chinese economy, even at current prices, will catch up with the US.”

His advice? Go with the flow. “Quite frankly, I don't think this is such a big deal. The US has 330 millions people; China has 1.4 billion—four times the population. Plus a track record of building the economy at a break-neck rate. So what's the big surprise? It should happen.” He advocates growing with China rather than competing against it. “I would not worry about it. On the other hand, I would think about this: What are the opportunities for MNCs?” He ends with a word of optimism for those MNC executives who do their homework, integrate well, and follow the right strategies in China: The Chinese economy is so big—it's big enough for everyone. I am not sure whether we have enough big companies in the world to come and share with China's future economic growth.”

In this book, our goal is to present the opportunities for MNCs to share in China's future economic growth, as described to us by our China CEO interviewees. It is our deepest hope that the information we share in this book—the hard-won advice, the front-line strategies, and the detailed insights collected directly from experienced top executives for MNCs in China as well as from veteran consultants and advisors—will serve our readers well. We wish you all a fruitful read and the very best of luck in your own China adventures.

Notes

  1. 1  http://www.aei.org/publication/dynamic-graph-of-the-day-top-ten-countries-by-gdp-1961-to-2017/.
  2. 2  https://www.weforum.org/agenda/2018/04/the-worlds-biggest-economies-in-2018/.
  3. 3  http://www.aei.org/publication/dynamic-graph-of-the-day-top-ten-countries-by-gdp-1961-to-2017/.
  4. 4  https://www.gbm.hsbc.com/insights/growth/the-world-in-2030.
  5. 5  https://www.weforum.org/agenda/2016/12/the-world-s-top-economy-the-us-vs-china-in-five-charts/.
  6. 6  https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2006/Summarytext.
  7. 7  CIA. http://www.worldstopexports.com/worlds-top-export-countries/.
  8. 8  World Bank. http://datatopics.worldbank.org/world-development-indicators/.
  9. 9  IMF. http://statisticstimes.com/economy/countries-by-projected-gdp-capita.php.
  10. 10 IMF. http://statisticstimes.com/economy/countries-by-projected-gdp-capita.php.
  11. 11 Shanghai City Government. http://www.china.org.cn/business/2019-01/28/content_74416303.htm.
  12. 12 World Bank. https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=CN.
  13. 13 World Bank. https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=CN.
  14. 14 https://data.worldbank.org/indicator/IT.NET.USER.ZS?locations=CN.
  15. 15 China Internet Network Information Center (CNNIC) https://www.chinainternetwatch.com/29010/china-internet-users-snapshot/.
  16. 16 Devan Shira & Associates. Retrieved from https://www.china-briefing.com/news.
  17. 17 https://www.businessinsider.com/time-lapse-bridge-gets-built-in-43-hours-2015-11.
  18. 18 UN Environmental Program. https://wedocs.unep.org/bitstream/handle/20.500.11822/27645/airPolCh_EN.pdf?sequence=1&isAllowed=y.