Considering China as a Source for New Management Ideas

Businesses and their managers have had to come to grips with the fact that they need to think “globally” when making decisions about organizational strategy and design.  The importance of globalization has increased with advances in information technology and transportation and firms of all sizes can now easily reach to customers and business partners around the world.  Larger companies in particular have decided to move major parts of their operations to foreign countries to take advantage of cost advantages, gain access to talent and technology and have more direct contact with consumers in large emerging markets.  Interestingly, manufacturing is just one of the activities going on in foreign countries and companies have increasingly looked to foreign scientists and engineers to carry out sophisticated research and development projects.  There has also been a steady rise in strategic alliances between companies in different countries including, in many cases, acquisitions of controlling interests in US companies by foreign firms.  In addition, the domestic marketplace in the US has been transformed by inbound investment by foreign firms interested in setting up manufacturing and sales subsidiaries in the US to increase the efficiency of their efforts to penetrate the US market. 

Globalization also means that countries all around the world are developing their own indigenous management practices that leverage their specific resources and core competencies and help to create powerful local firms that quickly capture domestic market share and make it difficult for foreign companies to enter and gain access to growing middle classes with disposable income.  An article appearing in The Economist in September 2014 cautioned against thinking that rapid growth of Chinese firms in recent years could be written off to cheap labor and/or financial support from the government rather than to the ability of managers of those firms to adopt and implement innovative managerial practices and strategies.  The article suggested that firms outside of China would do well to begin understanding Chinese management ideas before they overwhelmed foreign markets in the same way that Japanese companies practicing “lean production” stormed into the US several decades ago and highlighted the following principles based on two then-recent reports from scholars and consultants who had been studying the “Chinese approach to management”:

  • Mass production techniques, traditionally limited to manufacturing activities, are being used to accelerate product development.  Chinese companies attempt to break up the innovation process into a number of small steps and then assign large groups of people to work on each step and rely on software originally developed for managing assembly lines to coordinate the activities of each group involved in the innovation process.
  • Chinese software firms are more likely than their Western competitors to launch their new products directly into the market and rely on customers to provide feedback that can be used to rapidly make adjustments.  This approach is quite different from the traditional practice among Western firms of treading carefully into the market by releasing a “beta” version of new products to a small and select group of early users.
  • Large Chinese companies involved in technology-related industries have been willing to dispense with the hierarchy and time-consuming consensus building popular in Japanese firms and delegate authority in order to achieve and retain flexibility.  An example was provided of one company that had created large number of “mini-companies” internally, each of which reported directly to the chairman.
  • In order to attract and retain talented people with the potential to step into managerial positions Chinese companies are creating comprehensive support systems for the best candidates that include training, housing, education for their children and opportunities to travel abroad for learning and expanding their horizons.

The consensus was that Chinese companies were becoming interesting case studies of the potential advantages of accelerated product development and rapid and continuous introduction of new products; however, it was noted that these approaches made particular sense in an environment in which companies were happy to be “fast followers” that relied on copying innovations first developed in foreign markets and then adapting them quickly to distribute into the enormous mass markets in China filled with consumers hungry for Western products.  In addition, segmentation of innovation process, and aggressive staffing of each step, leveraged what the article referred to as “one of the country’s most important resources—a pool of competent but unexceptional technicians”.

The full article appears as “The China Wave” in the September 13, 2014 edition of  The Economist at page 76.  References cited in the article included P. Williamson and E. Yin, “Accelerated Innovation: the New Challenge from China”, MIT Sloan Management Review (Summer 2014), http://sloanreview.mit.edu/article/accelerated-innovation-the-new-challenge-from-china/; and T. Hout and D. Michael, “A Chinese Approach to Management”, Harvard Business Review (September 2014), https://hbr.org/2014/09/a-chinese-approach-to-management/ar/1.

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