Want to work for a Chinese company? Know this first

Over the past decade and a half, I’ve advised many expatriate executives working for multinational companies in China. I’ve also advised Chinese executives working for local companies in China.

But increasingly, I'm finding myself counseling a new breed: foreign executives working for Chinese bosses at Chinese companies. Most of these are privately-held Chinese companies, often founded and operated by an entrepreneurial Chairman.

One thing I’ve observed among the multinational executives that I’ve worked with is just how surprised they are by the very different way that Chinese companies operate. Even for executives that have been working and living in China for several years, they are still unprepared to deal with the many nuances of how Chinese companies really work.

Much of this gap in understanding is driven by the incredibly fast pace of business in China, as well as the intuition and experience (mostly successful) of the Chinese entrepreneur. It’s an environment that rewards quick decisions and the agility to grab opportunities before the competition gets there first. Companies are constantly revisiting their business plans and projections. Priorities change as frequently as schedules. It’s an environment where change is the only constant.

Here are four of the most challenging themes that multinational executives encounter when they work for Chinese companies:

1. The Chairman always sets “unrealistic” business targets.

Nowhere is the difference between Chinese companies and Western companies more salient than in the way they do their target setting or annual budgeting.

In Western firms, executives might look at their growth rate over the past year, and then assume they’ll grow by a reasonable increment—10 percent, for instance—the following year. These are backed by a bottom-up analysis of micro-segments and trends, finally adding up to the eventual target. A process then ensues between business unit heads to manage expectations, and then the unit strives to over-perform the target so they can earn their bonuses.

In many Chinese companies, the process goes something like this: Let’s call for a brainstorming meeting (usually on the weekend), and then announce that we’ll double our business over the next 3-5 years, and enter the Fortune 100/500/1000 (depends on the ambition of the Chairman) by 2020. The planning department then tries to figure out how to achieve these numbers.

A lot of Western-trained executives would argue that target-setting processes like these prove how Chinese companies still have a long way to go on their path toward professionalization. While that may be true, my experience in the fast-changing environment in China today has taught me that these “unrealistic Chairmen” are precisely the entrepreneurs that are making it big.

Looking back over the past decade, I'm still amazed to see what otherwise look like unrealistic plans actually come to fruition. I have come to the conclusion that setting these incredible aspirations forces a lot of Chinese teams to think of out of the box and work with an entrepreneurial spirit.

One very successful Chairman once confided, “They told me they could go from 10 to 15. I told them they needed to do 100. At the end, they managed to do 60. That’s still a lot more than 15. When they start thinking about how to get to 100, it gets them out of the mindset of just aiming for 15.”

Obviously, plenty of these shoot-for-the-moon ideas will never have a chance of succeeding. Equally, the way some of these companies get there may involve quite a bit of risk-taking and massive investments. But some of these ideas do work, and when they do, they can become incredible success stories.

2. Successful Chinese entrepreneurs believe that they can enter any line of (unrelated) business and compete. Everything is up for grabs.

In the West, companies that try to get into other industries or lines of business are accused of fragmentation. Strategic departments would be tasked with analyzing whether they are the “rightful owner” of assets, and would need to thoroughly assess potential synergies and risks, before entering an adjacent line of business. Investors may slap a conglomerate discount on such companies, and are generally skeptical toward companies doing business in areas where they have no prior experience.

In China, by contrast, diversification goes by a very different name: Here, it’s called “building the ecosystem.” The best example can be found in financial services. In the last couple of years, a lot of companies that never had any previous experience got into the financial services business in China. Amazon wouldn’t start a bank, but Tencent did with WeBank. Alibaba created the largest money market mutual fund in the world, with over US$160 billion in assets under management. New Hope, which is a leading animal feed company, and Xiaomi, the mobile phone maker, started a digital bank together.

And it doesn’t stop here. Wanda made its fortune in real estate, but now has a huge entertainment and media business, including the AMC movie theater business. Ping An owns several “unicorn” internet businesses, including Lu.com, the peer-to-peer lender, and Good Doctor. Several large conglomerates are developing electric cars. Tencent, Alibaba and Baidu are competing in many verticals, from food delivery to entertainment content to rental housing. 

To an outsider, these moves may seem very counterintuitive, but for the Chinese entrepreneur, this is simply business as usual. While the jury is still out on these “ecosystem” plays (I believe that many of these may not work out), for the visionary and well-resourced players, the Chinese landscape is a once-in-a-lifetime land-grab.

3. Career paths are dictated by opportunities. It’s not a game of musical chairs; rather, it’s more like musical “ladders’.

Executives moving in and out of companies is not a new phenomenon. In China, however, this is taken to an entirely new level.

In China there’s a lot of executive turnover: People get promoted early and whole teams move across industries. And we see that across almost every industry. The expectation that people have for moving across companies and industries for a promotion, of jumping a level every year and a half, is unprecedented. At many companies, new jobs and positions are being created every month.

Many multinational companies coming into China have a difficult time adjusting to this. They typically have more stable organization structures with standardized HR guidelines and processes across geographies, and have a hard time creating career opportunities that can meet the lofty expectations of Chinese executives.

The other thing that few people grasp is compensation. Chinese companies are in such a rush to grab new opportunities they’re willing to pay a premium for talent. Executives moving across to new companies aren’t just getting 5-10 percent raises. It’s not uncommon for them to double their salary when they jump to a new company, as companies have become desperate for top talent.

This trend has reached unprecedented—and, many would argue, unsustainable—levels. Of course it cannot go on forever. But it just highlights the urgency that Chinese companies place on capturing opportunities. The potential for massive value creation far outweighs temporary “over-compensation” costs.

4. Chinese Chairmen are obsessed with market share.

In my experience, Western executives find it very difficult to understand Chinese companies’ singular obsession with market share. Conventional wisdom tells us that companies must engage in value-creating activities in order to have a sustainable business. While this may be true, in today’s vast, fast-growing, and ultra-competitive market in China, it has been proven that the “go for market share” strategy does work in many sectors.

Of course, companies need sources of capital that are willing to fund them during this brutal war for market share. But in sector after sector, players that have played the market-share game have at least guaranteed their survival, if not success.

It’s a particularly painful game for companies that don’t have the deep pockets or investors willing to fund them. The “ticket-to-play” is an expensive one. But companies that don’t want to play the market share game risk becoming irrelevant in China. You can be right in the long-term, but if you are not around, it doesn’t matter.

Chinese investors and entrepreneurs simply have a much longer time horizon for their pay-off, and perhaps a more “intuitive belief” in the value of brand, influence, and significance in the market. Over the last few years, investors (including many foreign investors) have supported this rather “brute-force” strategy.

Of course, Chinese companies and entrepreneurs are a diverse bunch, and it’s dangerous to generalize. Many of these entrepreneurs are taking on extreme levels of risk and are “betting the bank” on their new ventures. Like in any entrepreneurial environment, there are many more failures than successes, and we run the risk of selection bias when we read about these incredible stories.

And yet, despite their bold moves and nerve-bending risks—or, perhaps, because of them—many of these opportunistic and aggressive players have been rewarded.

So you want to be a successful executive at a top entrepreneurial Chinese company? Aim for unrealistic targets; be courageous when entering new businesses; quickly create as many new roles in your organization as are needed; and aggressively go after market share.

I'm the Managing Partner of McKinsey & Company’s Greater China practice. Please reach out and connect with me here on LinkedIn.

A condensed version of this article also appeared on scmp.com.