Changed China challenges companies

Updated: 2015-08-28 08:31

By Chen Yingqun(China Daily Europe)

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Greater competition and innovation, demanding consumers and new opportunities are hallmarks

China is no longer technically an emerging market, but should be seen as a maturing market with more competition and opportunities, according to the head of a major international business consultancy.

Charles-Edouard Bouee, the French CEO of Roland Berger Strategy Consultants, a Germany-based company with some 50 offices and 2,400 employees in 36 countries, says China still faces the challenge of growing its income per capita to avoid the middle-income trap that other countries have fallen into. But the market is changing, with new players emerging in both traditional and tech sectors, and government is also changing the economy's shape.

 Changed China challenges companies

Charles-Edouard Bouee, the French CEO of Roland Berger Strategy Consultants, says China still faces the challenge of growing its income per capita to avoid the middle-income trap that other countries have fallen into. Gao Erqiang / China Daily

"For international companies, it is a new China. It still has a lot of possibilities, but they should not look at China as an emerging market but as a maturing market, where there's more competition, more opportunities. The way you have to operate is different," he says in an interview with China Daily. Bouee is based in Shanghai, Munich and Paris, according to the company's website.

There are two elements that international companies should keep in mind, he says. Chinese companies have become stronger and are not just following the low-cost model anymore, but now produce new products and ideas. Also, Chinese consumers now have many demands, and they are more educated.

"They don't just accept 'made in France' or 'made in Germany' at face value. They want to know the brand, the products," he says.

"Now there's more supply, and more competition from international firms and Chinese firms. Only those who evolve, who are willing to adapt, who develop their brands and their products, will win."

Changed China challenges companies

Bouee joined Roland Berger in 2001 as senior partner in the Paris office. He began working for the company in China in 2006 and became company CEO over a year ago. He is one of the few foreigners to get permanent residency in China.

Bouee says financial reform, hailed as the area where changes have been the most rapid and prominent, will have a huge impact on the global economy. Despite great turbulence in China's stock market and the recent depreciation of the yuan, reforms have not stopped, he says.

"China is at a phase when the banking sector and the financial sector have to be better regulated and have to evolve. All these reforms including P2P (peer-to-peer financing), lending reforms, are going the right direction, it is just a lot of things happening at the same time, with tremendous impact."

Because China's government is managing a comprehensive transformation of the economy, turbulence associated with a single measure does not taint the totality of the efforts, Bouee says. Too many people have a black-and-white view of China, with some saying everything is perfect and others that everything is terrible, he says.

He likes China's feeling of moving fast, but he also notes progress in less obvious areas, such as reform of state-owned enterprises, which multinational companies in China have long complained is too slow. He says people need to be more patient and remember that Europe also went through the same process with their SOEs.

"It is a longer process than people think, because you have to transform the employees, the mindset, you have to open up to new shareholders," he says. "What we see is a clear view from the government that SOEs should be reformed and transformed."

He says people think that because China is growing faster than Europe did, China should do everything faster than everyone else. But when it comes to companies with 50,000 or 60,000 employees, it takes time.

"I think there are a lot of things happening behind closed doors that don't make noise," he says.

The government has to be careful with SOE transformation because much of it involves public services, and it is hard to keep up the level of quality and maintain stable prices during such a big transition.

The changes, he says, can be difficult, such as transforming the company's culture from people having lifetime employment to performance-based jobs.

Chinese firms' management models have also been changing. He says different models have been used, including the European model and the military-style model. The United States' model, accompanied by a business code and consulting firms, has had influence all over the world, including China. But with China's development, it is logical it would contribute new management ideas.

"It is something emerging in China, which is driven by three things: A very strong rule of government, very strong entrepreneurship spirit and energy from the people in China, and very strong history and culture. These are the three things that are creating a new management model," he says.

"It is a very different world, in terms of technology, in terms of thinking, in terms of leadership, in terms of the second generation and third generation of people."

Bouee says, in 2009, China's management level was like a teenager, and "now it is getting closer to a grown-up, but not yet mature".

Bouee says China's management model is completely different because of the nature of China's civilization. "When it is mature, we should see the combination of a bit of what we see in Europe and the US. It will have a very strong connection with the government, because the country has been like this for 4,000 years and you cannot do business without interacting with government, which is different in some other countries. It will have much more innovation than today, and I think it will keep the ability to be very technical," he says.

Management talent has increased dramatically in China in the past few years. Because of the innovation frenzy, many talented young entrepreneurs would rather start their own companies than work for established firms. The management skills of the new Chinese generation aren't as available as they otherwise would be to large companies or consulting firms.

In the case of Roland Berger, 70 percent of its clients in China are Chinese companies, and more than 95 percent of its employees are local. Bouee says the challenges Chinese companies are facing include the need to be better organized to save costs while continuing to grow fast, as well as brand-building and brand recognition.

"We have seen the emergence of Chinese brands. We haven't seen the emergence of Chinese brands that are a reference of quality or reference for fashion, a reference for high-end products," he says.

Another challenge is how to hand over to the next generation. Good companies usually are led by a visionary leader, who may be hands-on, so it is difficult to hand over the reins, whether to the next CEO or to the next generation, Bouee says. This issue is not particular to China.

He says that despite some media reports about China's second-generation rich being profligate, he knows many who are diligent, hardworking and committed.

chenyingqun@chinadaily.com.cn

(China Daily European Weekly 08/28/2015 page32)