Multinationals guide shreds old concepts

If Jimmy Hexter and Jonathan Woetzel were giving out report cards for multinational companies (MNCs), they would probably describe most of the overseas firms doing business on the mainland as underachievers who could do much better.

The problem, they say, is that companies are not setting their aspirations high enough and for that they need to look to firms like P&G, General Motors and Danfoss.

In their new book, Operation China: From Strategy to Execution, the McKinsey consultants lead off on the reassuring note that many MNCs strived and thrived in the mainland's emerging market by offering their existing catalogue of products to Chinese consumers and businesses, mainly on the eastern seaboard. Others managed to get ahead by accepting lower standards for distribution and production in return for lower costs.

But times are changing and China is making the shift to a mature market. Prices in some product classes are falling while 'costs for producing, marketing and selling, distributing goods are rising and management talent is already a scarce ... commodity'. The need for the right government relationship and the best joint-venture arrangement is being supplanted by fierce competition for growing consumer wealth.

To compete and succeed, MNCs need to engineer their mainland operations up to global standards across a range of functions, from manufacturing to human resources. The days of creating processes specifically for China, rather than adopting best international practices, are over. MNCs need to become market leaders beyond their first-tier city 'havens' and they have to factor in regional sensibilities and conditions, develop products that appeal to less affluent consumers, ratchet up manufacturing standards, take greater advantage of local sourcing options and be prepared to take a creative approach to distribution.

Operation China is a big picture for big business but there is much in the volume for smaller operators.

The text is thankfully jargon-free and so easily digestible for a decision-maker seeking a framework for a way forward. It deals more with the macro but it does offer instructive examples of successful executions. Its most salient cases in point are in the distribution and sourcing chapters. The idea that a vehicle parts dealer might be the ideal distribution partner for a printer manufacturer is illustrative of the kind of thinking being promoted in this book. So too is the description of the washing machine that not only cleans clothes but also potatoes.

The biggest question seems to hang over the issue of intellectual property rights protection. This is one area where no one example is offered to demonstrate an advisable approach and that may be because no company has found a single answer. It left me asking how domestic companies deal with the theft of their R&D.

The publishers would do well to consider releasing the book from its hardcover bindings in its next incarnation and packaging its chapters in tear-out sections to be handed out to department chiefs.