Our survey also found that high-performing companies are pursuing opportunities for active mergers and acquisition activities in China to increase local market presence.

The days of foreign MNCs focusing solely on growth are disappearing fast. By combining our analysis of the high-performing companies we surveyed with our experience consulting with and advising key executives in China, five key lessons emerge for foreign MNCs on how to achieve the goal of "profitable growth".

1. Productivity as a strategic imperative

In what is still a rapid-growth market, companies are focusing on both aggressively growing revenue and improving profitability.

Whereas in the past the focus was primarily “top line”, strategic planning is being rebalanced to give more weight to productivity goals.

Leading companies are adopting cross-functional approaches to raise productivity, with managers taking a broad view of possible areas for productivity improvement.

In our work with clients we are observing two broad approaches.

Firstly, strategies are becoming more focused. A strategy lacking clarity or focus is a major source of complexity and wasted effort.

Second, companies are prioritizing operational improvement initiatives that drive productivity improvements, and allocating resources accordingly.

We cover these in the following paragraphs.

2. Operating model alignment

As China becomes more important to foreign MNCs, the balance between global control and local autonomy is changing.

For the past 10 years or so some multinational companies have been localizing their China operations to be more responsive to local market conditions, to tap into the emerging mass market in China, and to drive growth.

The results of our survey indicate high-performing companies are now recognizing that these localization efforts also improve productivity.

Companies that give more decision-making power to their in-country managers allow faster decision making than those maintaining decision control globally. Local autonomy, however, needs to be balanced with a strong risk, controls, and governance framework, so that decisions taken locally happen within agreed parameters.

Our survey also found that high-performing companies are pursuing opportunities for active mergers and acquisition activities in China to increase local market presence.

3. Proactive cost management

While cost reduction approaches are commonly used in mature markets, until recently they have been less of a priority for foreign MNCs in China.

In 2008, with their global organizations under pressure, it was common to see companies mandate cost reduction measures such as travel and headcount freezes on a global basis.

For China-based executive teams focused on growth this was seen as a blunt instrument. So what’s changed now?

As our survey results indicate, in-country management are now prioritizing locally initiated cost management programs.

As the outsourcing industry has started to mature in China, many firms have optimized their back office through shared service centers for specific non-revenue producing activities.

Processes are streamlined and non-core functions outsourced, while making sure that core information and expertise is retained.

At the same time, the capability to strategically control and reduce costs is still developing in China. As companies’ capabilities grow, approaches to cost management will evolve.

Cost reduction may be the short-term goal, but increasing the efficiency and flexibility of core business processes should be the longer-term objective.

4. Driving business value from information technology

IT can be a powerful enabler of productivity.

For foreign MNCs, China is now often included in the early releases of new IT systems being deployed globally, but companies can – and should – do more to capitalize on these investments.

When designing and implementing systems, leading companies balance the need for globally consistent processes with local needs, then work to improve the level of compliance, ensuring workarounds are minimized and all users are using the system as intended.

Our survey showed that the use of ERP tools for productivity purposes was one of the methods that differentiated high-performing companies from the rest.

Many foreign MNCs in China have been the beneficiaries of global ERP systems often rolled out as part of a global or regional program.

The initial period following a system implementation can be challenging as adjustments to work patterns are made and new technology is learned.

These survey results indicate that high-performing companies that have overcome these challenges are now seeing significant productivity benefits from their use.

5. Enhancing people development

As labor costs continue to soar, leading companies are doing more to boost the productivity of their employees. This can mean introducing innovative ways to incentivize staff and transforming process flows so as to reduce physical and technical barriers between employees.

For the foreseeable future, it’s likely that demand for skilled workers and managers will outstrip supply, so foreign MNCs must get more sophisticated in terms of their workforce planning and development.

In a tougher business environment, building effective management capability will be even more important. Leading companies are balancing general management skills with sales ability.

Training and development will of course continue to be important.

The focus of training programs will include a greater emphasis on productivity topics such as reengineering business processes, reducing costs, and improving sales effectiveness.

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China’s productivity imperative

 

 

Driving sustainable growth for China operations

 

 

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