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SCMP Reporter

MULTINATIONAL corporations need to present China with a strong unified front if they are to maximise their chances of succeeding in entering this fragmented and highly diverse market place.

  A report from management consultants McKinsey and Company lays out some guidelines for succeeding in China.

  The conclusions of the authors, Jonathan Woetzel, Johannes Meier and Javier Perez, have an interesting bearing on Hong Kong's role in China's development.

  Hong Kong businesses on the mainland have managed to break into southern China in manufacturing, providing expertise and capital in return for cheap land and labour.

  Multinationals entering over the same period as the 20-year migration of Hong Kong manufacturing to southern China made their entries on similar lines. Many have established viable business entities with long-term expansion plans.

  Increasingly, there is a second generation of entrants who have been coming in with ambitions of greater breadth than the first.

  They are looking for more than just a cheap labour base for production and plan to make very long-term commitments to participate in domestic markets along with the economic development of the country.

  These second generation multinational entrants are the focus of McKinsey's work, called Solving the Puzzle.

  Multinationals have developed along a number of paths in the last three decades - always adapting to economic cycles and meeting the requirements of the national authorities where they do business. China presents a very special challenge because of its size, complex ministerial government structure layered over a strongly regional government base.

  Those multinationals that have developed strongly diverse operations with high degrees of autonomy within and across national boundaries need to refocus their spearhead into China to maximise the chances of success.

  At any one time, a multinational might have three or four different business groupings pioneering business strategies in the same country.

    This might be okay for highly developed economies, but in China this type of approach can cause confusion, cross-lines of communications with government authorities, and long delays while mainland government officials work out exactly what it is a particular multinational wants.

  'Like busy people everywhere, Chinese mayors, governors and ministry officials do not appreciate having to deal with multiple delegations from the same multinational,' say the authors.

  They argue that the fragmented approach to China does not work. What is needed is a strong China centre to achieve effective policy direction and the co-ordination of all activities of the multinational in China. This centre should have a clear mandate to lead strategy and develop implementation.

  Where there are weak joint ventures, the China centre should orchestrate the taking of majority stakes in the operations, deploy expert expatriates to key management roles and provide good outside support.

  Local management, however, needs to be developed eventually to take over the key management positions. Investing in training and development of local personnel is important.

  'While these organisational solutions must be tailored to the needs of individual companies, experience suggests they are likely to steer companies away from their characteristic hands-off, joint-venture driven approach and towards more integrated business development and management in China,' say the authors.

  Presenting a consistent and co-ordinated face to China's power bureaucracy is important, since government decision-makers control access to a wide range of business opportunities.

  The system in China responds well if it is made aware of the overall scale and purpose of the corporation's commitment to China, not just its unit-by-unit initiatives.

  Hong Kong's has been providing China centres for large corporations for quite some time. In the current environment there are obvious disadvantages for second-generation entrants when considering Hong Kong as a centre.

  There are the high office and residential rents, keeping expatriates here is costly and there is an acute shortage of professional labour.

  What the McKinsey report might be suggesting, however, is that the premium paid on developing an effective strategic centre in the territory might be well worth paying.



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