Because of varying contexts, each new product market may really constitute a new business, with each at a vastly different point in the life cycle and with a vastly different business approach. For the mature elements of the portfolio, the company may need to defend its market share in a hotly contested environment. For the nascent pieces, the business needs to be incubated and perhaps must shoot for first-mover advantage in a rudimentary marketplace.
As the business approaches for different parts of the portfolio may differ, each of these new businesses may require a different type of organization to address the idiosyncrasies. So the manager of a multinational’s China operations is no longer “running a China.” From the business and organizational standpoint, she’s running a portfolio of Chinas, meaning an array of organizations serving a variety of segments. Consider the case of a certain paint company in China: It is expanding its core product of emulsion paint from Tier One and Tier Two cities, where the markets are already mature, into Tier Three cities that still have plenty of growth potential. In addition, it plans to introduce new offerings, such as wood-care products, into the country. This company therefore had to deal with a wide variance in business segments in widely varying markets with products in widely different stages of their life cycles. The company in turn had to devise a portfolio of strategies and organizations to sell its paint and wood-care products effectively in China.
Running a portfolio of businesses takes rare management skill, and that’s all the more true in China. Not only does the executive need to understand the various contexts of her markets, she needs to deal with the inherent constraints of any organization. Those constraints — of funding, resources, and personnel (China’s leadership bench strength is relatively shallow) — necessitate trade-offs. Running a portfolio of China businesses requires sizing up the trade-offs across multiple dimensions of context. And given the speed of change in China, running the China portfolio requires continuous reassessment of those trade-offs. The executive will need to communicate constantly with the company’s headquarters on these trade-offs and their implications for the company’s investment in China and the potential returns; frequent alignment with the headquarters is a key to success.
Therefore, executives in China need a “helicopter view” — the perspective gained by rising above the quotidian operations to discern the overall landscape and the patterns of change. The ability to recognize patterns amid of seemingly chaotic and sometimes contradictory data is invaluable. Executives must also be able to see beyond the obvious, anticipate the potential discontinuities in the marketplace, and decide appropriately how to further the company’s interests. A pure operational view focusing on near-term incremental phenomena and linear extrapolation of past data will simply not work. Success in China requires a leader who can cope with the inevitable spasms of change in the Chinese market, whether they involve supply and demand or regulatory, political, social, or economic issues. This is a leader who understands that change in any one sphere usually touches off changes in the others, and who can use that insight to help the organization thrive amid the complexity.
Reprint No. 07304
Edward Tse ([email protected]) is Booz Allen Hamilton’s managing partner for Greater China. He advises multinational and local clients on strategy, organizations, and operations.