Complex service solutions have been key for Western companies in making inroads into global economy

The road to manufacturing headed East many years ago, but the question now is: will service solutions head in that same direction?

Back in 1999, six of the top international truck manufacturers were from the United States or Europe. Fast-forward to today and Chinese and Indian companies are now occupying five of the top six places. Chinese trucks cost 30 percent of the price for a truck made by a Western competitor. Simply put, the market has spoken and it says a low price is more important than premium quality.

At the same time, the quality difference between products manufactured in traditional industrialized nations and new Asian powerhouses is constantly shrinking. Chinese firms have long begun to re-invest their huge profits into research and development. As a result, Chinese products are steadily increasing in quality and are beginning to match their Western contemporaries.

The West can no longer compete on price with many products produced in China and India. But they will also be less and less able to claim that their products are more expensive because of their higher quality. The changes are coming more rapidly, similar to what happened to Japanese auto manufacturers.

In the 1950s, Toyota's cars were poor in quality, but by the 1980s they had optimized their manufacturing methods and improved quality so greatly that US competitors began traveling to Japan to learn about quality and learn about their methods of production.

As Chinese and Indian manufacturers continue to improve on quality, many flagship Western corporations have had to re-evaluate their strategies. One way is to contend on an equal footing by producing non-premium products that are comparable in price with Asian products. In Europe, this strategy has been successful in other sectors, such as the short-haul airline industry, with EasyJet and Ryanair as examples.

In the technology sector, where the battle for price and quality is extremely fierce, Western companies have had to rethink not only their sales strategies, but also their management structures. Companies such as smoke detector manufacturer Siemens Cerberus ECO have employed the idea of producing, marketing and distributing "no-frills" products in China in order to compete with local manufacturers. The pilot project had some initial difficulties but, in the end, was judged a success by Siemens AG.

Moving beyond the idea of competing in the areas of price and quality, Western companies have developed what I call complex service solutions. This is where an established company, such as IBM or Siemens, leverages the expertise it has built through many years of experience (something that most Chinese companies cannot yet match) to produce complex service solutions, including consulting and auditing, among others.

The German company Voith Paper, struggling to increase its revenues by selling more of its expensive paper production machines, successfully moved into the area of complex service solutions at the end of the 2000s. The company introduced a new consulting solution that identified potential improvements in efficiency by auditing energy and quality, regardless of manufacturer. This gave Voith Paper a competitive advantage.

It demonstrated its technological and customer solutions know-how and, at the same time, increased its reputation as a trustworthy partner. That is a critical component in the service industry, particularly so if a company wants to extend its business to Asia.

Of course, it takes time and experience to develop personal customer relationships and the brand reputation required to build trust. On the one hand, complex service solutions are based on trust that the provider has the requisite market and technical knowledge. On the other hand, complex service solutions can be an important part in increasing trustworthiness in an enterprise, thus adding value to other areas of the company, such as sales or marketing.

There are four main aspects integral to a successful global complex service solutions strategy. These are the ability to think critically, creativity, the ability to lead without direct power, and the ability to work internationally. At the moment, Western companies can still acquire a competitive advantage in Asia with complex service solutions by excelling in these areas.

But how long will it take Chinese companies, for example, to hone their skills and meet or surpass the Western competition? As we take a closer look at these four areas, we will see that the skills necessary to implement a complex service solutions strategy successfully may currently be more pronounced within established companies, but are not exclusive to such.

Thinking critically is probably the most important aspect of delivering a complex service solution. The whole process is driven by people who look at a way of doing things and ask, "How could this be done more efficiently?"

Let's imagine a consulting project to optimize the internal processes within a hospital. This requires the consultant to understand the current status of processes and identify methods to improve them. Critical analytical skills cannot be acquired quickly but are a must for complex project managers, who often have to tell professionals that what is being done at the moment is not the best process.

Sophisticated creativity based on expert knowledge is another vital skill for complex service solutions. Being able to develop a superior solution for your client requires the imagination of going beyond the norm and channeling new ideas into convincing practical concepts. It also demands a preference for high quality results rather than mass market solutions, as far as the supplier and buyer are concerned.

The complexity and size of the teams characteristically put together for complex service solution projects is another potential stumbling block.

A typical consulting project will have a project manager on the customer side, a project manager from the consultancy side, with the client providing information to the consultant in order for the consultancy to be able to do its job. The consultant project manager depends on the project manager from the customer's side, but does not have any hierarchical power with which to lead the process. Compared to Western companies, Chinese firms have a stronger sense of hierarchy and tend to lead from the top down. It can therefore be very difficult to lead in China without hierarchical power - something that is central to the success of complex service solutions.

Finally, complex service solution projects often have a global reach, making international experience and multicultural cooperation essential. The project teams can span the world and may have to tap into knowledge resources from numerous locations. A consulting team from a multinational corporation might have to pool resources from their global locations to solve a particular buyer problem.

To successfully deal with conflicting "tribal" dynamics in these teams is one of the challenges. Chinese complex service solution newcomers who experience the difficulties of managing diverse interest groups will not be alone with the problems they face, but in the good company of all global corporations.

The author is dean of executive education at the European School of Management and Technology. The views do not necessarily reflect those of China Daily.

(China Daily 07/13/2012 page10)