Making Chinese Companies Globally Competitive
Introduction
To be globally competitive Chinese companies are going to have to adopt internationally recognized benchmarks for corporate performance. If they do so, they will improve their reputation for quality and design, achieve global acceptance, gain market share and increase sales and profits. If they refuse to embrace these types of changes, they risk facing continued questions about financial and operational soundness.
History teaches us that companies can only compete on price for a limited period of time. China is already finding that companies in Vietnam, Sri Lanka, Morocco and Peru can deliver the same results for even lower costs. Price competition does not lead to sustainable profitability. Only performance on a broader set of metrics will deliver longer term results. Market share and financial support both depend on trust and strategy execution within global norms. A company’s desire to enter new markets or initiate an IPO in New York, Hong Kong or London may depend on meeting these standards.
Among the factors that companies must manage properly to become globally competitive are quality, transparency (communications and financial reporting), corporate governance, intellectual capital, management, leadership, brand, human capital, networks and alliances, innovation.
Management and Operations
The fundamental purpose of business is to manage operations in order to produce and sell products or services. Management, the manner in which businesses are organized is influenced by culture and by training. In this section the authors will discuss some of those factors, particularly as they pertain to the development of management in China.
Professionalism versus family
China’s size gives its policy makers a propensity for scale. Whether in government policy or business creation, bigness makes sense in a country as vast and populous as China. However, since Chinese economic reform took place in the early 80s, large numbers of family-run business have sprung up. Some of them have grown into big conglomerations but many have remained smaller. This is due to a second aspect of Chinese culture, which is that despite the size of the country – or perhaps because of it – the family unit remains very important in business creation and management.
This phenomenon attracted as employees large numbers of Chinese, many from agricultural regions in China’s interior. They frequently lacked advanced education, but had a fierce work ethic and a desire to find build a better life than that available in resource-starved rural areas. Others, known as Hai-Gui or sea turtles, returned from jobs overseas. Some of these immigrant workers were able to find jobs with large corporations , but most new employees start working for private enterprises that are family-based. While there are many benefits to family operations: trust, familiarity, and operational cohesion, family-run businesses tend to undervalue professionalism as professionalism is perceived to be weaker in generating revenue or solving problems than Guanxi.
It is not uncommon to see company owners as well as managers display a patriarchal management or “Theory X” (a cynical view of workforce motivation and competence) managerial style that discourages employee participation and hinders innovation. For instance, in the Pearl River Delta, China’s premier manufacturing hub, factory managers began to find that workers born in the 90s were not obedient compared with their workmates born in the 70s and early 80s. Origin had less to do with this than a growing awareness that their skills and experience were worth more than some employers were willing to pay. Traditional notions of loyalty were cast aside as workers, armed with knowledge gleaned from the internet via computer and cell phone, began to realize their true value in the global marketplace. As more information about what their employers were charging foreign customers for products and services became available, workers were better able to gauge their own value.
As a result, labor disputes and turnover have grown and new recruits are harder and harder to find for those factories that are reluctant to change their traditional management practices. Some business owners think that to increase salary alone can solve all these problems, but trends in employee availability suggest it cannot. For example, after 13 of its workers committed suicide, Foxconn originally claimed the workers were unusual and depressed. As the suicides continued and brought global condemnation, including embarrassment to their customers like Sony and Apple, Foxconn made a decision to improve working conditions and to offer services such as professional psychologists’ advice to workers. The result was an end to employee suicides and a lessening of worker discontent. This attention to employee engagement is a good example of the kind of change that improves productivity.
Management executives with traditional bureaucratic mindsets still find it difficult to listen to professional advice from their outside accountants, auditors and lawyers, but when customers complain about the impact on their brands, employers are forced to make changes or risk losing orders.
According to a survey by the Hong Kong Federation of Youth Groups, a significant expectation gap between employers and young employees on work performance was found. The survey covers 683 young employees aged 15-24 and employers from 43 organizations. The respondents gave their ratings in 18 categories under five major aspects: capability, work attitude, work performance, interpersonal skills and language ability. Some major ratings showing great discrepancies are (with 5 being the highest mark): Self-discipline: 2.28 (employer) vs 3.99 (employee); Sense of responsibility: 2.4 (employer) vs 4.08 (employee); Reliability while working under pressure: 2.14 (employer) vs 3.64 (employee). The expectation gap which creates misunderstanding and grievances can only be narrowed by more interaction and communication between the two parties using more professional management practices that acknowledge the value of an employee’s skill, training and experience.
These issues are not confined to family owned businesses, though they are most prevalent in operations where executives may benefit from family ties rather than management training. Even in large global corporations, fast growth often results in the promotion of skilled workers with little formal education. Whatever the situation, management must think longer term. Governance is not just for compliance or sustainability. It contributes to productivity and profitability, a particularly important consideration in times of economic uncertainty.
Governance also forms an important part of corporate reputation. Corporate social responsibility (CSR) is a growing consideration for global companies. In a post-industrial economy such as that seen in much of the west, purchasing decisions are often made as much on values Recent examples include the deceptive “Italian made” furniture made by the Da Vinci Company which was actually manufactured in China and the awful sewage mixed oil that has infuriated the mass public in China . Proper governance reduces the amount of misconduct and improves margins by focusing on which practices provide the company with its most productive opportunities. Penalties imposed on such wrongdoers in the Mainland are considered lenient when compared with developed western countries. The Enron Group and Andersen CPA Firm are vivid examples of the fate that can befall dishonest companies in the US and Europe. However, in the west, the growth of the financial services sector and their political influence have stymied recent attempts at greater regulation so Chinese companies have an opportunity to demonstrate their improved performance at a time of western dislocation.
The greatest threat to the reputation and financial stability of Chinese companies has come from the accounting scandals that have plagued newly listed firms that turned out to have spurious financials. The perception is that Chinese managements have encouraged lax accounting practices to lower their tax liabilities, to bilk western investors and to keep government regulators uninformed. The purpose of these tricks is ultimately to secure greater profits for Chinese owners and allow them greater leeway in managing their enterprises free from government oversight. The problem is that the accounting scandals have affected western perceptions of all Chinese companies – large and small, public and private – so that as of this writing in the early autumn of 2011, even the largest multinational banks and oil companies are now viewed with suspicion.
The lesson is that companies with the intention to be listed, and listed companies alike, must raise their operational integrity level and keep it consistent before, during and after the IPO process. Formalizing Board meetings, monitoring compliance, promoting integrity and empowering internal audit are major activities which could raise the professional level of companies in China.
Training
Prevention is always better than cure. It is, for one thing, almost always less expensive. Supervision and disciplinary measures only serve as tools to discover or remedy problems that have already occurred. In order to be globally competitive, entrepreneurs and managers must adopt a global mindset and follow international standards with regard to managing people, intellectual capital, inventories, production processes and the myriad other systems through which contemporary business functions. Education and training speed up that process.
While government authorities can promote international business practices and standards by various means, the company itself must take proactive as well as corrective measures internally. Training is vital to ensuring compliance. If there is a lack of resources in-house, outside professional help can be sought. The American Hotel and Lodging Educational Institute runs a standard training course named Accounting for the Non-accounting Manager. The Independent Commission Against Corruption (ICAC) in Hong Kong conducted in-house seminars for public and private organizations on commercial crimes. The Washington DC-based Worldwide Employee Relocation Council has developed an ethical training program for international assignees. Proactive enterprises must ensure that key personnel received adequate training in legal compliance, accounting standards and business ethics in order to understand and meet global expectations.
For data accuracy and integrity, knowledge and skill training are not the only sanitary exercises. Mindset is important and thus attitude training can be a significant contributor to improved performance. A strategic and long term training plan should be adopted, with consistent resources to maintain it over a period of years. There is often a temptation to axe such programs in hard times because of the pressure to maintain margins and profits. However, unethical acts often occur more frequently during difficult periods. In addition, employees will tend to take the company’s commitment to such standards more seriously if such programs are maintained when it is hard to do so, not just when it is financially easy.
Training should extend to all operational staff covering accounting, audit, procurement, logistic, marketing, sales and human resources. When the Seiko Epson Group had its IPO in Japan some years ago, it conducted a worldwide briefing to all its subsidiaries (China included). All employees were informed about the standards for the new definition of governance, transparency and disclosure in order to conform with the securities requirements.
Global supply chain management
OEM Manufacturers in China used to complain about the strict factory inspection requirements by multinational brand owners. Today, some of them have started building up their own brand, sourcing materials worldwide and outsourcing part of their production processes the same way Western brands have been doing for several decades. These companies began to realize the importance of such scrutiny of their suppliers. In the past, suppliers won a contract simply because they offered the lowest price alone. In the globally competitive world at present, more and more companies are compelled to share information with their suppliers at the same time to help them improve quality, delivery and services as well as reputation.
There are differences between supply management and supply chain management. Companies like Haier or Huawei or Hengtai, can not tolerate outsourced factories’ disregard for banned raw materials, unsafe working premises or environmental violations. In September 2011 Zambian President Michael Sata told Chinese leaders he welcomed Chinese companies investing in his country but only if they obeyed the law. The remark was made amidst the background of frequent complaints about poor pay and working conditions in Chinese-run mines in the copper-rich nation. It is an example of how national and transnational norms are beginning to govern global corporate behavior.
Until not long ago many Chinese enterprises were still managing their own cafeterias, hostels, laundry plants and even clinics and kindergartens under one roof. Now most of those non-core businesses are either terminated or outsourced. Societal, political, environmental and community concerns must now be taken into consideration at the time of outsourcing. As importantly, evidence of ethical issues violations such as bribes, kickbacks, conflicts of interest, information leaks, tender hoaxes, discrimination, unfair competition and intellectual property rights abuse must also be evaluated. Outsourcing management responsibilities cannot be left to the procurement department alone. Top management attention is mandatory.
Supply chain management monitors the movement of goods, services and information until delivery is made to the customers in a holistic and systematic way. Within the supply chain channel, information is shared and controlled, stock levels managed and cost evaluated constantly. In order to optimize mutual benefits, creating compatible corporate cultural can be the key to success or failure. Companies that are strong in managing internally but weak in managing their supply chain cannot adequately control costs or win confidence from investors and lenders.
Strategy execution
Governance and integrity starts with the Board of Directors. The Board must be held as accountable as lower level employees. Governance strategies must be drafted with an eye to global standards. Global companies understand that professional opinions from legal consultants and certified public accountants are crucial but family owned firms in China may be reluctant to invest the funds necessary to created optimal documents. The strategies should be understandable, actionable and manageable. Rules are often subject to manipulation and misinterpretation. In order to assure compliance, the board of directors should reiterate from time to time the importance of conformity to those internationally acceptable standards and make sure such strategies are understood by all managerial personnel. The growth of the internet and social media have made it relatively easy to expose unethical deeds and scandals. In addition, increasing attention to Chinese accounting and managerial shortfalls have made western investors wary and more thorough in their due diligence prior to signing deals.
How to manage the change without surrendering uniquely Chinese practices
Accounting irregularities and business wrongdoings of some New York listed Chinese firms have led to lower trust and decreased interest of foreign investors towards Chinese enterprises, both those listed overseas and those either private or listed domestically. Keeping more than one set of books and manipulating numbers are practices will no longer be as easy to achieve as they were a decade ago. For example, OEM factories that set up separated sets of computer and manual employee records just to counteract the different compliance audit requirements from international clients, should not only consider all the costs of producing and maintaining such shadow accounts but also the costs of penalties after the faults were found and the risks of losing the customers at the end. It is time to change.
Chinese companies should focus on their strong products or differentiated services as their primary selling point. If armed with a clean record, they should be able to compete in the global arena. Chinese companies have created intellectual capital such as diligence, craftsmanship, efficiency, flexibility, hospitality and social networks. If their financial reports are not attractive enough, they might well consider incorporating those intangible assets into their reports. The values of human capital, structure capital, network capital and social capital are increasing recognized worldwide. Intangibles are becoming competitive advantage that catches the attention of intelligent investors and gains their trust.
Transparency and financial reporting
In a global economy, distance and culture can be bridged by technology but only if the information being shared is trusted. Trust, in English, shares the same root as the word truth. For a business, this means that disclosures of information about the business must be factual, verifiable and extensive. It is not for the business to say what it will report and what it will not: that is for regulatory authorities and other stakeholders to determine.
Business owners and executives are frequently opposed to disclosing too much information. They usually cite as reasons the fear of revealing competitive secrets or inviting additional regulatory and tax authority scrutiny. However, global business requires greater disclosure because shared assumptions – from language to metrics – are often lacking. Transparency reduces mistrust and increases understanding. That leads to sales and profits which might not otherwise materialize. The risks inherent in communicating proactively with customers, shareholders, suppliers, lenders and government authorities are also an opportunity for the business to communicate its point of view. This sharing of information gives the company a strategic advantage because it enables the company to shape perceptions of its prospects rather than letting rumor and competition frame the conversation.
A Chinese company that has benefitted from this approach is ICBC (Industrial and Commercial Bank of China). To prepare for its IPO in 2006, the company and the government of China initiated a series of asset transfers, capital injections and non-performing loan transfers. Rather than attempting to conceal the problems, investors and analysts were informed of the actions. As a result, the bank floated the largest IPO in history up to that time. It later became the second Chinese bank permitted to open a branch in New York City. And in 2011, it was named China’s most valuable brand. It is a useful example of how the returns to transparency can exceed the returns to secrecy.
Committing the organization to transparency is only the first step in building confidence in a company’s financial statements, product quality and service ethic. Meeting global accounting standards reinforces the belief that the company adheres to strict international guidelines and that its financial condition is sound. This is particularly important in the wake of the 2008 financial crisis.
An investor who bought shares in the Chinese 68 companies that have gone public in the US since 2008 would have suffered an average loss of 24%. Had that investor bought shares in the non-Chinese companies that went public during the same period, she would have realized an average gain of 25%. The New York Stock and Nasdaq exchanges have halted trading in 21 small and midcap stocks in 2011.
The primary reason for all of this is that financial scandals based on fraudulent accounting have raised suspicions about the veracity of Chinese accounting. The ‘quality of earnings’ is a constant topic of discussion among securities analysts. It refers to the credibility of the reporting and of the analysis that went into it. Chinese companies that used firms willing to change numbers to make the company look better may have benefitted in the short term, but their long term viability is unsustainable, as events have proven. Companies like Sino Forest, Long Top Financial and Duoyuan Global Water have become synonymous with dishonest reporting, angry investors and legal investigations.
These scandals, and the others like them, have negatively affected the reputation of all Chinese companies, limiting their ability to go public or seek outside investors. The reason is that in a global economy, managers must always be assessing risk. If one company gets into trouble for whatever reason, potential customers, suppliers, lenders, insurers and investors will want to know if that risk is systemic or unique to the company in question. Insufficient information will lead them to take the most prudent course, which is to assume the risk is widespread rather than limited – until further evidence proves otherwise.
That is why the assurance provided by audited financial statements adhering to commonly accepted global standards is one of the most productive investments a company can make if it wishes to enter new markets.
The impact of transparency on market penetration can be seen in the cases of Haier and Lenovo. Both companies started out in the domestic Chinese market, but had global ambitions. To achieve their goals, the two businesses focused improving their performance on a range of intangibles that enhanced customers’ perceptions of their products. Among those factors were quality, brand and customer satisfaction. Not only did they work to win the respect and repeat business of global consumers, but they communicated how they were doing so – even though it was not required. That effort and transparency paid off: in 2009 Haier was named Number One in global market share among major appliance manufacturers. Lenovo has announced that its goal is to become the Number Two in global personal computer market share by the end of 2011.
These cases demonstrate that transparency can be a strategic asset and that it is possible to meet global disclosure standards without endangering competitive secrets. Returns to transparency outweigh returns to secrecy because the global marketplace does not offer much room for sustainable competitive advantage. Almost everyone in the wired universe uses one of two platforms: the Microsoft ‘Wintel’ (Windows/Intel) option or the Apple technology. Hardware is largely indistinguishable and has become a commodity. Business training is generally based on templates developed by a few world leaders: General Electric, Sony, Procter & Gamble, Google and Deutsche Bank among others. Harvard Business School and its offshoots have perfected the case study method. The point is that with many of the world’s leaders receiving similar training to use similar technologies in order to effect similar strategies to achieve similar results, success will often depend on intangibles.
The important secrets, such as they are, lie in management capabilities which do not appear on income statements or balance sheets. They are based on traditional verities like trust, credibility, communications and human interaction. The more that businesses and the executives who run them can identify, measure, manage and disclose those strengths, the more likely they are to achieve success.
Marketing, Brand and Reputation
Foreign products with the “Made in China” label have become commonplace. However, there is no Chinese brand included in the list of 2011 Best Global Brands published by the international brand consultancy Interbrand. Despite its sheer economic might, China hasn’t been able to create a world-class brand of its own.
Relying on low labor cost and the OEM production caused by international industry transfer, China has developed into the world’s factory in the past 20 years. Yet, this position has become increasingly awkward and unsustainable for China.
Companies competing in the global economy are finding that there is no longer a purely local economy aside from fresh produce – and even that is subject to imports as well as global standards. Sustaining competitive strength in the long term is challenging due to the intense competition for customers and market share which is increasingly driven by online sales and marketing. Companies struggle to find a dynamic competitive advantage, especially those in China which have had some success in their home markets but are new to the global market.
The advantages which Chinese companies possessed prior to the 2008 financial crisis have gradually disappeared. Being confronted with competition from low-cost and efficient manufactures in Vietnam, Indonesia, and other countries and regions, as well as the threat of trade protectionism from overseas markets, Chinese companies are finding that they have to modify their low-cost strategy and find a new growth engine.
Branding is an essential component of that new engine. According to the smiling curve economic theory, the only way for companies to move up the international value chain is to innovate and build brands. China is working to build an innovation infrastructure and has had some notable successes in the technology field. Software and emarketing companies like Alibaba and Baidu are notable examples. To be considered competitive, which opens the door to outside investment and business partnerships, Chinese companies must learn how to take the next step beyond creating the product and service by building truly global brands.
Traditionally, Chinese companies have not had a strong motivation to market or brand their products and services for global acceptance. China’s huge domestic market potential provided great opportunities for any entrepreneur able to start their own business and grow it. The OEM production mode obviated the need for Chinese companies to worry about finding markets for products because a basic level of quality was acceptable and price was the key determinant of sales. As a result, Chinese managers became less sensitive to market trends than their global competitors. But now the competitive environment has changed.
With their manufacturing cost advantage and rising reputation for quality, more Chinese companies are seeking markets abroad where margins are higher. At the same time, foreign companies are entering the Chinese market because its size is now complemented by a rising living standard, producing a middle class consumer segment which has the financial means to buy higher quality – and higher margin - products.
To be competitively successful both at home and abroad, Chinese companies are going to have to build global brands. To encourage this development, the Chinese government is investing billions through tax incentives, subsidies and direct commitments to Chinese companies to create brands that can compete effectively on global stage. However, recognition of the need is only the first step on the road to success.
The advantage of a global brand is that, once established, it enables broader marketing opportunities both in current markets and new ones. It also provides a pricing umbrella to protect margins which enables further products development while creating a barrier to entry for other potential competitors based both on customer brand familiarity and favorability as well as a cost hurdle for newer entrants who have to swallow high advertising expenditures to achieve recognition and scale.
To build a global brand, Chinese companies can either cultivate their own brands such as Galanz (a microwave manufacture which has made inroads in the west) and Kangnai, a leather shoes maker which was the first Chinese shoe manufacturer to enter the global market under its own brand. Another approach is to purchase instant global recognition through acquisitions. Lenovo’s acquisition of IBM’s PC division in 2004 and the purchase of Volvo by Chinese automaker Geely are the best examples of that strategy.
Both strategies offer marketing challenges.in terms of financial commitment and customer acceptance. Either way, Chinese companies may encounter perception issues. Though many Chinese companies have mastered advanced production technology and can manufacture high quality products, in most of foreign consumers’ minds, Made in China still represents cheap, rather than high quality. In addition, accounting scandals have caused western investors and consumers to question the quality of Chinese oversight of business behavior, particularly ethics. Western companies have had decades in which to develop their marketing. Newer Chinese businesses sometimes focus first on making as much profit as they can without understanding how poor decisions may negatively impact the longer term prospects for their business. To compete globally, a longer range point of view is essential.
Changing consumers’ negative perceptions is the first priority facing any Chinese company. Even if they are not in the same industry as those which received notoriety for faulty products, the reputation of brands new to a market are colored by consumer perceptions of other products.
Problems with food products and construction materials in particular have caused western consumers to be cautious about Chinese product quality. Effective solutions to countering this trend includes advertising improved attention to quality, obtaining third party endorsements, investing more in R&D, focusing more attention on the factors that drive customer satisfaction and rewarding customer loyalty. Building a global brand requires prolonged effort, consistent investment as well as developing a long-term strategy that emphasizes the connection between brand, customer approval and sales. The course to build a global brand is the course to build a world-class organization, because great brands are built from the inside out. Studies by Ernst & Young, PriceWaterhouseCoopers and other global consulting firms emphasize the interrelatedness between intangibles such as management credibility, employee commitment or strategy execution and financial outcomes such as stock price performance or compound annual sales growth.
In the course of building a global brand, Chinese companies must also learn how to create and manage a positive reputation, whether corporate reputation or product brand reputation. Reputation is the overall perception of various stakeholders about the business, product or service, both cognitive and affectional. A good reputation not only increases customers’ confidence in products, services, advertisement, but also enables companies achieve price premiums and win the war for talented employees. It can help companies to reinforce their competitiveness and cannot be easily imitated by rivals.
The majority of Chinese companies have a preliminary understanding of the value of a good reputation, but most of them have not previously had a strong motivation to invest in it. This is generally for the same reason that they have not invested in brand building. For large-scale companies which are state owned, profits primarily come from monopolistic industry advantage. Company leaders are often appointed by government agencies and have not had advanced training in global marketing practices. For small and medium-sized companies, the imperfection of the still developing Chinese legal system and the relatively undeveloped regulatory structure results in, light punishment of companies’ unethical behavior. Companies are not always cognizant of the bad or good will they are accumulating, all of which contributes to their global reputation. These companies haven’t fully realized the value of a good reputation. Until they have suffered comparative disadvantage, as some are starting to do, paid a price and learned a lesson from global competition, they will continue to lag their western competitors.
Especially with the fast development of internet technology and the popularity of SNS websites, a company or a brand’s reputation has become unprecedentedly fragile. One piece of negative information might result in disastrous effect for companies, such as the product crisis suffered by Otis, an American elevator company in 2010. A teenage boy was killed and dozens of people were injured when they were thrown off an escalator (Otis made) that suddenly changed direction in a busy Beijing subway station. After the accident was reported, more people in different cities reported accidents caused by Otis products on the internet, and then 7 provincial government initiated security checks of all Otis products.
A good reputation is just like the warrior’s armor, which can help protect the companies from negative news, unfair competition and deflect the longer term impact of crises like oil spills, deficient construction materials and unsafe food products or toys. Reputation reflects the perceptions of multiple stakeholders. This means that cultural factors always affect here. Chinese, like most other consumers, enjoy new products from outside their home market, but there is a perception that such products are more expensive than those produced domestically. There is also an inherent bias in favor of Chinese products, which reflects both national pride and cultural familiarity. When companies enter new markets, they must be aware of how local culture and local consumers’ perceptions affects a good reputation.
As valuable intangibles and effective tools, both brand and reputation need careful cultivation and protection. Building a valuable brand requires persistent struggle over years rather than months and sometimes over generations. There is no short cut. Chinese companies need to be confident and far-sighted when building a global brand and carefully protect its value. Insistently providing high quality products and services is the base of building a brand and good reputation. In the competition for consumers, only the companies which can provide the greatest delivered value to the customer can win.
Company strategies and tactics should fit with the overall brand positioning and product/service strategy, otherwise the brand image will be inconsistent, ineffective and perhaps counterproductive, which wastes valuable capital resources.
Effective management of the relationship between brand and customers is a challenge beyond the product itself. Chinese companies are learning that as they expand globally they now have a greater stake in respecting and protecting intellectual property rights. They are now subject to the same threats that foreign companies face entering the Chinese market. Chinese companies must learn how to protect themselves by taking advantage of the tougher IP protections available outside China. Many Chinese companies fall victim to trademark pirates abroad. The trademark of HiSense (a famous Chinese home appliance brand) was registered by Siemens in Germany and the trademarks of Baijia, Laoganma, Qiaqia (three food brands) were registered by another German company. Every large or well-known Chinese company that prepares to expand overseas faces the risk of having its trademark registered by someone else in the local market first. Without a sound legal environment, brand and reputation will be difficult to sustain and the bad money will drive out the good, such as the Italian brand Valentino’s experience in China.
Just like the root of the tree, intangibles like brand and reputation are invisible, which makes communication increasingly important. Companies that take advantage of appropriate opportunities and effective measures to communicate with local governments and consumers will do better than those that are more secretive. Research has demonstrated that returns to transparency outweigh returns to secrecy. To quickly adapt to foreign business environments, Chinese companies should learn how to effectively use business partnerships and alliances. These include advisers like bankers, accountants, lawyers and consultants to help manage the tangle of legal, financial and cultural difference inherent in international expansion. Many marketing intermediaries have already established themselves in China and have targeted overseas Chinese companies as their potential customers. For instance Ogilvy & Mather announced the launch of an official China Practice in New York to serve the growing need for communications services by China-based companies as they move into international markets. Besides traditional PR, companies may also have to pay attention to online PR, like social media and SNS websites, to better communicate with online customers rather than simply delete or block negative information.
Conclusion
In sum, as Chinese companies expand internationally and as more western companies expand into China, Chinese managers are finding that the assumptions on which they have build their businesses since the late 1970s are changing. As they become more familiar with the impact of intangibles like management credibility, strategy execution, brand, reputation, communications, innovation and human capital, this knowledge will enhance their competitive strength.
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