Signs of weaker growth in China during 2015, including its stock market’s tumble, have commanded widespread attention from economic policy makers, businesspeople, and investors. Not surprisingly, the leaders of local operations of multinational companies are feeling the pressure.
Earlier this year, we surveyed more than 70 such country heads, who, for simplicity’s sake, we call China CEOs. The companies they lead cover a wide range of B2B and B2C businesses, generate more than $200 billion in China-based revenue, and in many cases are among the top five global players in their industries. Fifty-five percent tell us that their companies are growing faster than the corresponding market segments in China. Nearly 40 percent of the China CEOs were Chinese nationals; a similar proportion came from Europe or North America, the rest primarily from other countries in Asia. Roughly 90 percent work for companies based in the United States or Europe. Nearly half had more than ten years of experience in China before taking on their current roles, but roughly 30 percent had less than two years’ experience there or were new to the region.
Regardless of background, these China CEOs are under severe time constraints. Forty percent said they don’t have time to respond quickly enough to the rapid changes in the China market, and another 40 percent admit that they are hard pressed to do so. Two challenges that China CEOs say demand large amounts of their time are hitting the numbers while they cope with the downturn in demand, as well as building their local teams. Another major issue is managing headquarters, including explaining the unique Chinese context to senior management there. That’s particularly true for the subset of the sample that can be characterized as headquarters focused, who spend nearly 40 percent of their time at or dealing with headquarters. Even locally focused China CEOs spend about 20 percent of their time at or speaking with the global HQ.
Most China CEOs have direct line control over go-to-market and support functions, such as branding and corporate affairs, but limited direct line reporting in upstream areas like product development, operations, and supply-chain management. Less than 50 percent can make decisions about pricing and product strategy independently of headquarters (Exhibit 1). Among those with integrated control over country operations and commercial results, most must still involve HQ in overall China strategy, long-term multiyear plans, and annual budgeting.
Regional-reporting relationships complicated things for some. Roughly two-fifths of China CEOs report to an Asia head, 20 percent to a global CEO (Exhibit 2). Many say it’s challenging, even uncomfortable, for them to report to the Asia head, when their China businesses account for a huge proportion of Asian results. Problems include the risk that they will duplicate approaches to targeting and reaching customers made at a regional level, along with lengthy planning and decision cycles.
Time pressures and decision-making complexity are hampering China CEOs as they seek to adapt to a changing country, to customize their business models and product offerings to Chinese requirements, to compete with local competitors, and to respond nimbly to opportunities and threats.
Despite these issues, the vast majority of respondents said that China remains a top-priority growth engine for their companies—and that experience as the China head is a “rocket” to advance their own careers. However, on the whole, most don’t see the business environment in China getting any easier. Most also fear that the policy environment for multinationals in the country will get more challenging. Efforts to increase their agility by simplifying interactions with headquarters or by delayering and accelerating decision-making processes may therefore be a boon for many China CEOs and the organizations they oversee.
Companies address these challenges in different ways. Some have removed the regional structure and elevated China to a position equal to that of the rest of Asia. Others have consolidated all activities there under a China CEO with direct access to the global CEO. Several companies have built up their organic capabilities by moving full business units and global senior executives to the country. One created a China advisory board of senior global executives who coordinate and accelerate the local agenda.
Still others have taken people-based rather than structural approaches—promoting the China head to a global executive position, so that China expertise enters the boardroom. Some CEOs are addressing the slower-growth environment in today’s China by making personal commitments to remove barriers, in the cause of creating an organization that’s sufficiently nimble and responsive to the market. Efforts to attain that objective would seem to be a sensible use of time not only for executives at headquarters but also for those struggling on the front line.