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McKinsey on China's Olympic-Strength CEOs

beijing_2008_logo.jpgWith the Olympics about to launch, there's likely to be great attention, if not over-saturation, on Chinese matters.

The McKinsey Quarterly, however, provides some interesting insights into doing business in China in its most recent issue. I'll be dropping in tidbits from time to time. Here's my first:

McKinsey consultants Andrew Grant and Richard Zhang note that many foreign business executives might be baffled by what they deem is the typical Chinese CEO. Unlike Western versions, the Chinese CEO obviously comes from a different mold -- that of a duality between corporate business dealings and strategizing public policy functions for the Communist Party.
Since so many large Chinese companies are still state-owned or partly state-owned, this is an important distinction. The career path of a Chinese CEO, Zhang and Grant write, tends to bounce between ladder climbing among enterprises, then a stint as a provincial Party operative, then a higher corporate position, followed by being the Communist mayor of a city or region, and so forth.

This certainly rings true for me. When I was a Moscow correspondent back in the 1980s before the Cold War ended, the same pattern held. There was an amazing dual Soviet system between government-owned and managed companies and endless units and subunits of the Communist Central Committee. Somehow the Chinese version still sort of works while the Russian version didn't.

Given this mindset in China, it is not unusual for major expansions or successes of a big state company to be announced the time of the National People's Congress or Communist-dominated legislative confab.

A few more insights:

  • Obviously, politics plays a much more important role in how Chinese CEO behave than how Western CEOs do.
  • Corporate strategies tend to be tightly linked to some national goal. McKinsey notes that China Mobile's rural expansion strategy meets national goals of improving agricultural life by linking farmers with mobile phones.
  • This public policy focus tends to make Chinese CEOs focus more on top line revenue growth. Why? Top line growth is an empirical figure that shows growth more quickly and thus can impress Communist officials more easily.
  • Foreign nationals operating in China can succeed by targetting their strategies away from the public policy-driven Chinese ones. For instance, if big Chinese pharma wants to make a big splash by showing growth in the sales of antibiotics, foreign drug makers can find niches in other smaller market areas such as hypertension. Understanding politcally correct market space is a smart ploy.
Interesting insights. Look for more in coming days.
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