It seemed like a ready China business-book hit: Juan Antonio Fernandez and Laurie Underwood, two business professors in China, last year updated their successful book from 2006 “China CEO” with a new look at how foreign companies have been faring in the country’s fast-growing economy. “China CEO II” highlights hiring, digitalization and consumer power through interviews with 25 leading multinationals including leaders from McKinsey, Microsoft, Bayer and Coca-Cola.
Then Covid upended business globally. GDP contracted, work-from-home has become a global normal, Zoom meetings have been adopted by millions, and transportation has become disrupted. Hundreds of thousands have died, variants are still wreaking havoc from India to Brazil, and geopolitical tension has increased globally.
China’s economy has been something of an outlier. Business rebounded earlier than elsewhere owing to effective early control of the pandemic. The country enjoyed 18% year-on-year growth in GDP in the first quarter, and IPOs from the country’s businesses have been snapped up globally.
What’s ahead for multinational companies in China? To learn more, I exchanged in April with the two “China CEO II” authors. Fernandez is a leadership professor at the China Europe International School (CEIBS) in Shanghai, and Underwood is a senior consultant at Sino Associates and adjunct professor with the Xi’an Jiaotong-Liverpool University, an international business school in Suzhou. The two have an audiobook version of “China CEO II” coming out in June. Excerpts follow.
Flannery: How has the business outlook for foreign companies changed in China since your book was published a year ago? What’s the impact of Covid-19 for foreign companies, and how are they adapting?
Underwood: Because China passed through the pandemic much more quickly than most of the rest of the world, the impact on businesses here has been vastly different. Generally speaking, foreign companies in China went from the initial disruption into a ‘new normal’ faster and more efficiently than counterparts outside China.
The new normal for MNCs in China post-Covid varies mainly based on industry. As in other countries, China’s e-commerce and delivery models flourished during lockdowns and then just continued booming. Covid fueled already strong ecommerce platforms and gave rise to new ones which identified underserved consumer segments. This helped retail and FMCG (fast moving consumer goods) players who had already embraced digitization – especially those expanding into tier two and three cities, where consumer power is growing fast. MNCs which follow China’s massive e-commerce shopping days (11-11 and 6-18) and leverage trends such as livestreamed ecommerce using Chinese KOL ‘super sellers’ are flourishing. L’Oreal is an example of MNCs fully mastering China’s unique e-commerce ecosystem.
On the other hand, for MNCs that view China as one piece in their global supply chain and primarily consider China as a manufacturing site, Covid has caused more uncertainty. The pandemic, as well as poor trade relations with the U.S., has disrupted logistics and complicated customs and deliveries. Post-Covid, many international manufacturers in China who previously sourced internationally are now sourcing more from within itself China to reduce uncertainties.
Fernandez: China went into the pandemic with stronger economic growth than nearly any other nation, then quickly came out of the pandemic to see rebounding economic growth. Thus, China-based MNCs with a business strategy focused more on China have rebounded fastest. Both finance and technology came out stronger after the crisis, with growth of 6% and 13%, respectively. For the service sector, any MNCs in China focused on travel, hospitality or education all suffered the most.
Generally speaking, before Covid, many MNCs were racing to embrace and take part in China’s digitization. This trend has only increased in speed and scale post-pandemic. Foreign companies which were highly digitalized have had a milder impact from Covid.
Flannery: In the book, you note gains behind made by women in the C-suite over the years in China. Do you expect that to continue in the future?
Underwood: The increase in women in C-suite positions is probably unstoppable in China at this point. The increase in female CEOs heading MNCs in China was one of the most encouraging trends we saw in the release of our new book in 2020 compared with the original book published in 2006. Women CEO interviewees were among the most impressive top executives in the book.
Turning back to the impact of Covid, the pandemic has wreaked havoc on the professional advancement of women worldwide because women have disproportionately borne the brunt of family burdens caused by school closures as well as more often facing job cutbacks or loss. This situation has been less serious in China, but one area still lacking is the enforcement of protections for pregnant women and new mothers in the workplace, as well as equal pay for equal work.
Fernandez: While none of the 20 China CEOs interviewed in our first book were women, the China CEOs of IKEA, Bayer, Manulife-Sinochem and Standard Chartered – all women – were interviewed for the second. Today, the top executives for China at Apple, McDonalds and Starbucks are also women. This is a trend that will surely continue. In addition, today’s China also offers women opportunities in entrepreneurship. The digital revolution has made launching e-commerce businesses accessible for many women. Finally, we see very encouraging trends toward more women joining MBA, EMBA and GEMBA programs in China. In many cases, the ratio of women to men in Chinese business school programs is now close to 50-50.
Flannery: You mention in the book that great potential for businesses can be found in China’s less developed regions. To what extent has Covid fallout in China’s economy affected that outlook for the next few years?
Underwood: China’s less developed regions offer vast potential to MNCs and are generally booming across many industries now. Evidence of this can be seen in the meteoric rise of the e-commerce platform Pinduoduo, which launched in 2017 and now – amazingly — rivals Alibaba in revenue. Pinduoduo smartly targeted two consumer segments which were overlooked by Alibaba and JD.com – China’s elderly and consumer’s in less developed cities. The strategy has clearly worked.
Fernandez: When you travel in China today, you see the relentless and very rapid growth and development of the developing regions. One of the biggest drivers has been the central government’s support for eliminating poverty and supporting infrastructure modernization such as the rapid spread of the world’s best high-speed train network. Another factor: while Chinese are not traveling abroad due to Covid, they are traveling within China. Domestic travel is booming, creating vast opportunities for savvy MNCs.
Flannery: To what extend will the global push for net zero carbon create opportunities for foreign businesses?
Juan: MNCs in China are definitely taking the new net-zero deadline seriously. One example: Apple in China has already nearly reached the level of zero emissions. For MNCs, achieving net-zero is not just about money but also improved reputation and helps to attract top talent to their organization. Many MNCs are taking the lead in purpose-driven strategies, which serves to attract young Chinese who seek to make a difference with their careers. In today’s China, fewer young professionals are attracted to manufacturing; more gravitate toward the booming digital sector.