What it Takes for Chinese Companies to Succeed Abroad

By David De Cremer

International expansion is one of the keys to a firm’s success and stability. In this article, the author outlines how Chinese companies can become truly international in reference to the procedures and philosophies in place for one of China’s truly global companies, which is Huawei.

 

For several years now, the Chinese government is endorsing the ideas for their companies to “go out” or “go global”. The message of this endorsement is clear. It indicates that the second largest economy in the world means serious business and therefore global ambitions for its companies have moved centre stage. This ambition is further spurred via grandiose projects like the One Belt, One Road (OBOR) initiative that was launched at the end of 2014 by President Xi Jinping. This initiative focusses on motivating Chinese State and private companies to look overseas. Despite the fact that this kind of global ambition is frequently communicated by the Chinese government, critical observers do ask the question whether the true fully-functioning Chinese multinational company really exists. For example, it is still a difficult task for most Westerners – or even an impossible task – to name five global Chinese brands. Companies like Haier, Huawei, Alibaba and Lenovo are increasingly becoming household names in the West, but not all of them have achieved yet the status of a global company. In fact, most of these companies still operate predominantly in China. Of course, the fact that the Chinese market is the biggest worldwide makes that in terms of total revenue these predominantly operating local companies are doing comparatively well at a global level.

A problem with Chinese companies going abroad is that in the past they adopted predominantly a short-term focus by trying to acquire new technology and financial gains as quickly as possible. What to do with the acquired foreign company and its work force on the long-term was less of a concern to them. It made that Chinese companies did not really know how to operate in markets outside of China. As a result, negative stereotypes around the motives of Chinese companies going global quickly and firmly emerged. In fact, these stereotypes are still dominant in the mind of Western companies and governments. But things are changing. Uplifted by the ambition of the government to make China great again (see the interesting parallel with the language used by the current US president), China’s largest companies have become more sophisticated in their international ambitions and explorations. For example, the super star company Alibaba is very much aware that in order to grow further and succeed in gaining an international reputation they need to acquire a more global mindset. And this global mindset will be necessary because the founder of Alibaba, Jack Ma, has set very ambitious targets. He wants to see his company earn $1 trillion in gross value by 2020 and serve an astonishing number of two billion customers by 2036. Of course, any company is allowed to have inspiring dreams and goals, but actions do speak louder than words and Alibaba seems to have taken this wisdom seriously. Alibaba’s global footprint is steadily growing through investments being made in the neighbouring countries like in the India-based marketplace Snapdeal and in payment platforms in Thailand, South Korea and the Philippines. The real test, however, still lies in how Alibaba will fare when entering the European and US markets.

As mentioned earlier, Chinese companies may have moved from a short-term approach to a more long-term one, it does not mean that transforming a local Chinese company into a global giant has become easier. Because of the recent economic and political turbulence, the West is concerned more than ever about the fact that economic nationalism is on the rise in China. This observation makes that Chinese companies are looked upon as maybe not having at heart an open trading system. For example, the OBOR initiative is seen – because of its emphasis on developing infrastructure such as ports, roads, airports and railways – as primarily an economic rescue plan for China to deal with its overcapacity problem of, among others, steel, glass and cement.  The existence of these obstacles means that Chinese companies with global ambitions need to be well prepared and acting in proactive ways to shift a local mindset to a global one.

In the fiscal year of 2016 Huawei’s revenue reached CNY521.574 billion (US$75.103 billion) and CNY37.052 billion (US$5.335 billion) in net profit and most of this revenue comes from outside China making them a truly global performing company.

To study more closely the different steps Chinese companies need to include in preparing their organisation to enter the global market, I examined the procedures and philosophies in place for one of China’s truly global companies, which is Huawei. In the last decade, this telecom giant has succeeded in becoming a household name in Europe and Latin America (although it is still banned from doing business in the US).  The company was founded in 1987 by Ren Zhengfei and is an employee-owned company (about 98.5% of the company is owned by its employees). In the fiscal year of 2016 Huawei’s revenue reached CNY521.574 billion (US$75.103 billion) and CNY37.052 billion (US$5.335 billion) in net profit and most of this revenue comes from outside China making them a truly global performing company. To illustrate further the international nature of the company, as of Q3 2017, Huawei employs more than 32,000 international employees, working in over 160 countries. Over 19,000 Chinese employees work outside China. Having achieved such international reputation for a Chinese company requires continuous preparation and persistence to develop and train its work force to work and compete at a global level. Below, I will discuss several points on how Huawei approaches this challenge.

An important aspect of their (human) globalisation strategy concerns the way Huawei prepares Chinese employees when they are assigned to work in another country. The company usually prepares them in multiple aspects, including safety, health, language, customs paperwork, laws and regulations, local customs and etiquette.

 

1. The Use of Clear Policies and Processes

Working in a Chinese setting includes strong discipline and willingness to conform. Because teamwork is regarded in China as primarily following the instructions of leaders, Chinese employees often have difficulties to adapt to more Western management structures and ways of working. When arriving in a new country, Chinese employees therefore have many questions on how to proceed with their job and achieve success. A first barrier that international Chinese assignees thus face concerns the complex management structures, policies and lengthy work processes. It takes a lot of effort to figure these out. To address this pain point, Huawei has developed a comprehensive guide: Pre-departure Briefing and Guidelines for International Assignees from China. This guide provides all necessary information for Chinese employees to be assigned overseas, helping them better prepare themselves for the assignment.

 

2. The Use of a Language Proficiency Test

Companies investing in the language proficiency of their employees will lead to stronger and more committed relationships with clients.

Chinese companies do not have many staff on the payroll being multilingual and experienced in working in other countries. This makes that language is a barrier for international assignees. Wanda chairman Wang Jianlin identified this linguistic problem as a serious concern when he addressed students in Oxford. He said: “English is our greatest challenge. We have a lot of senior employees in Wanda. However, when going global in tourism, sports and entertainment, inadequacy in English is a huge challenge.”

Although many Chinese companies rely on the help of translators (as Western companies also do when entering the Chinese market), it is no secret that companies investing in the language proficiency of their employees will lead to stronger and more committed relationships with clients. Huawei proactively helps its employees improve their language proficiency and take on language assessment tests. The company will centrally register for recognised language tests (e.g. TOIEC) for its employees on a voluntary basis. The HR staff members then follow up on the assessment results to ensure that language will not be a problem for their international assignees. Furthermore, the company will also try to teach international employees in different locations the basics of Chinese in an effort of cultural exchange. As one Chinese employee told me, “When I was in Argentina, teams were composed of Chinese and Argentinean employees. We sat together to get to know each other, had our meetings together and visited customers together. The local employees taught us their customs, and we also had a Chinese language class for the local Argentinian team. In one of the teams I was the teacher as I am fluent in both Mandarin and Spanish.”

 

3. Training on Security, Laws and Regulations

As many Chinese companies, Huawei also has encountered the fear of Western companies that their Chinese counterpart will not adapt to foreign legal, regulatory, tax and political environments. Generally speaking, Chinese companies are usually met with suspicion and concerns about security as corporate governance is perceived as lacking or being limited in the eyes of the West. To deal with this, Huawei has developed an iLearning platform and topic-specific MOOC courses. Huawei employees can access these courses anytime they want to learn about cyber security, laws and regulations, and how to integrate into a diversified culture. Employees can also take exams for each of these courses. Each course has been assigned an instructor to provide timely support to learners. The test results are directly linked up with the international assignment process. Employees must pass required certifications to be eligible for an international assignment.

 

4. A Focus on Employee Health

Huawei believes that physical health is the prerequisite for everything they do. In fact, recently, its founder, Ren Zhengfei, has stressed the importance of Huawei as possessing organisational vitality to survive in the long term.1 This logic is actually the first line of the motto of Huawei University, which is “be healthy and strong”. The general idea is that physical exercise unites people. Huawei is thus concerned about the health of its international assignees and has taken three measures to address this issue. First, Huawei purchases business travel insurance for all international assignees to address their health problems during their assignments outside of China. Second, Huawei has all international assignees vaccinated and their health checked and prepares first aid kits for them. Third, in tough work environments (e.g. high altitude, tropical climate), Huawei provides high-quality accommodation and working environments for their employees and rents houses with screen doors and window screens to protect them from infections. The primary aim is to help their staff stay healthy in order for them to better focus on their career development in overseas offices.

 

5. A Focus on Cultural Assimilation

It is necessary to develop sophisticated and detailed procedures with the aim to help international assignees to adjust working with global standards while at the same time integrate in local cultures.

Another stereotype that exists includes the perception that Chinese companies have difficulties to escape their own national corporate culture and business practices. As a result, Chinese employees are perceived as not willing to integrate in local foreign cultures. As a response to this, Huawei tries to help international Chinese assignees integrate into a foreign culture in four ways. First, the company provides updated cultural guides and tips to help employees adapt to local culture quickly. Second, Huawei has administrative services available to all international assignees that might need help for living in a foreign country. Third, the company ensures that each international assignee will be assigned to a mentor who will help them adapt to their new workplace effectively. Fourth, to help international assignees understand their roles more clearly and improve their skills within that role, the company organises all kinds of contests within product lines. Finally, at the same time, Huawei also attempts to organise other activities to help international assignees better integrate into the local culture, including talks with new international assignees, welcome parties, visits to local facilities and so forth.

In conclusion, recent numbers show that Chinese companies are increasingly spending more money abroad than ever before. In this process of international expansion, the challenge remains for Chinese companies to prepare their work force to adopt a global mindset when it comes down to working and living in cross-cultural environments. For this reason, it is necessary to develop sophisticated and detailed procedures with the aim to help international assignees to adjust working with global standards while at the same time integrate in local cultures.

 

Featured Image: Lujiazui financial district of Shanghai © Getty Images

About the Author

David De Cremer is the KPMG Professor of Management Studies at the Judge Business School, University of Cambridge, UK, where he heads the Department of Organisational Leadership and Decision-Making. He is the author of the book Pro-active Leadership: How to overcome procrastination and be a bold decision-maker (2013) and co-author of “Huawei: Leadership, culture and connectivity” (2017).

 

Reference

1. De Cremer, D. (in press). Organisational Vitality: The Lifeline of Your Company. The European Business Review

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.