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(originally published by Booz & Company)


Evolution on the Global Stage

Values-based leadership involves finding ways to motivate and inspire workforces that are as diverse in their cultural backgrounds as they are geographically. It does not require the abandonment of the home country’s culture, but it does require a fresh look at management behaviors that have worked well in the home market and a reemphasis on common human aspirations, concerns, and behaviors. Companies that don’t inspire their employees will find themselves challenged to keep their staff — as Japanese companies learned, to their detriment, in the 1980s and ’90s when they first expanded abroad. Nomura and Daiwa, for instance, paid high salaries to attract Western talent but suffered the cost of turnover when they couldn’t keep their new employees for more than a year.

Compare those missteps to the approach taken by British bank Standard Chartered: When it purchased Korea First Bank, it declared a “Korea Day” across its network in Africa, Asia, the Middle East, and the U.K.; in each country, staff took time out to learn about Korean culture and welcome the new Korean employees to the organization. The company repeated the exercise when it bought Hsinchu International Bank, a Taiwanese bank. This sort of welcome needs to be supported by the establishment of new, shared norms that take multiple cultures into consideration; these must be reinforced through senior management communication, promotion decisions, training, and incentive schemes. Companies such as Nestlé, HSBC, and GE have built this capability over decades. Chinese companies can look to such examples as models.

The Elephant’s Soft Power
In their attempts to quickly establish soft power, Chinese companies might learn from their counterparts in another emerging market: India. Although the two countries and their economies have much in common, the differences are substantial. China, on the one hand, has had great success in deregulating industries at the macro level, drawing in vast sums of foreign and domestic investment. India, on the other hand, has been a leader in driving innovation, resulting in the massive growth of its software and offshoring sectors. Contrasting peer companies across the two countries indicates where Chinese companies can find sources of soft power that Indian companies have used successfully in international expansion.

For instance, consider two companies that make paint and other home decor products in emerging markets: Asian Paints in India, and Huaren in China. Although not cognizant that it was applying soft power, Asian Paints, which is more than 50 years old, has been successful at exploiting every aspect of the concept. It became a technology leader by building information systems that let the company do in-store tinting and offer custom colors to customers. It developed a reputation as a management leader by adroitly addressing some difficult marketplace challenges. For instance, when the surging Indian software sector emerged as competition for its best employees, Asian Paints launched competitive compensation and performance policies.

Asian Paints addressed customers’ aspirations by introducing a line of paint products that came in smaller packages and had lower prices. Finally, Asian Paints has shown that it understands the tenets of values-based leadership. Almost from the beginning, the family-run company understood the importance of giving managers assignments in foreign countries; it now routinely brings in nonfamily members to serve as executives and board members. These traits have made Asian Paints the number one seller of paints in India and the second most recognized brand in that country, after Tata Steel. Furthermore, it has been able to apply this formula across 28 countries in various regions, including the Middle East, South Asia, and Australia, taking into consideration their diverse market needs.

Huaren, by contrast, has made few strides on the soft-power front. In its 15-year history, it has made several preliminary moves toward management leadership by recruiting foreign technology experts and sending some workers abroad for training. And it has produced its share of innovations, including a paint that is heat-proof and environmentally friendly. However, the company has not considered how those innovations might be applied to markets outside the mainland and has not made the effort to sell these products globally. As the number three paint company in China (behind two foreign competitors) and a new player on the international stage, Huaren could benefit from the lessons that Asian Paints can impart.

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  1. Charles Hampden-Turner and Fons Trompenaars, Riding the Waves of Culture: Understanding Diversity in Global Business (McGraw-Hill, 1997): A strong overview on the awareness and sensitivity necessary for cross-cultural management. Click here.
  2. Jeffrey Liker, The Toyota Way (McGraw-Hill, 2003): A study of the management principles behind the rise of Japan’s number one car company. Click here.
  3. Jeremy MacNealy, “GE: Making Money, Making a Difference,” The Motley Fool, April 9, 2007: The business case for General Electric’s increasing environmental awareness. Click here.
  4. Joe Nocera, “Running G.E., Comfortable in His Skin,” New York Times, June 9, 2007: A conversation about management with General Electric’s Jeffrey Immelt. Click here.
  5. Joseph S. Nye Jr., “Soft Power and Leadership,” Compass: A Journal of Leadership, Spring 2004: The onetime dean of Harvard University’s Kennedy School of Government talks about America’s need to persuade by means other than military force. PDF Download.
  6. Edward Tse and Andrew Cainey, “Attracting Global Interest: How Chinese Companies Can Leverage ‘Soft Power’ in the International Marketplace,” Booz Allen Hamilton white paper, August 2007: The piece on which this article is based goes into more detail for industry leaders. PDF Download.
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