Multinationals find it helpful to have leadership and decision makers there if they want to compete inside China.
The companies are giving more autonomy to their China operations so they can move more quickly and take on local competitors in China’s large and fast-changing market. Giving more operational control to their China operations helps these companies target China as a major source of growth.
The move could also insulate the companies from some rising geopolitical risks and problems caused by remote decision-making. The problems posed by remote decision-making have been magnified during the three years that China has been isolated from the outside world due to the prevention and control of the new crown epidemic.
Japan’s Panasonic Holdings Corp. has reinvigorated in recent years in sectors including home appliances and air conditioners by giving its China operations more independence. These operations are run by a Japanese executive.
Tetsuro Homma, who served as the first person in charge of the above-mentioned restructured business, said: “We chose to become a local company in China as much as possible.” The Japanese report. This operational cycle has completely changed and we are moving much more quickly.”
Germany’s Volkswagen AG ( VOW.XE ) is sending a board member from its headquarters in a bid to revive the company’s sales in China. Over the past few years, VW’s growth has stalled as competition in the Chinese car market intensified as rivals rose, while a top decision-maker directly responsible for the Chinese market was stranded abroad during the pandemic.
The strategies of these companies mentioned above are completely different from some people’s previous views on China. These people once regarded China as the world‘s factory for exporting products to the world, and they can remotely control their business in China. However, the operational management relationship between overseas companies and their operations in China has become more complicated in recent years due to the closure of China’s borders during the epidemic, supply chain disruptions, and growing geopolitical tensions between China and Western countries.
The stakes are high these days for corporate executives from the West, especially the United States, to visit China amid souring relations between China and the West. In the latest blow to U.S.-China relations, TikTok’s chief executive was pressed by lawmakers at a House hearing on Thursday about the Chinese government’s potential influence over TikTok. TikTok is a business of Beijing-based ByteDance Ltd.
According to a survey conducted by the American Chamber of Commerce in Shanghai in October last year, 44% of the 307 member companies that responded said they were pursuing the strategy of “running business in China with Chinese thinking” (China for China). Meanwhile, 21 percent of the companies surveyed said they were in China to secure exports to the rest of the world.
Apple Inc. ( AAPL ) engineers in Cupertino, Calif., were unable to enter China during the pandemic, and the company has given engineers in China greater responsibility in recent years to maintain its product cycles, but the key Decision-making and core tasks remain concentrated in the United States. Tesla Inc. (TSLA) relied on China-based executive Tom Zhu to lead its China operations for eight years before Zhu was recalled to the United States to join its global management.
Both Panasonic and Volkswagen’s top positions in China are held by senior executives sent from headquarters. Tetsuro Honma will be promoted in 2021 and 2022, and will eventually be responsible for managing Panasonic’s entire Chinese business. After that, he will still work in China; This person is also a veteran of Panasonic in Japan.
Panasonic relies on China for about 13% of its revenue. Panasonic adjusted in 2018 after a decade of stagnant business as Chinese rivals refined designs and improved quality and market share.
Tetsuro Homma, who was in charge of Panasonic’s home appliance business at the time, was summoned by his boss to come up with a plan to drive business growth. Tetsuro Honma formed a committee of about 40 employees.
After six weeks of discussions in Japan and China, they found three main problems: one was that Panasonic did not focus on the Chinese market where consumers were located, but instead focused on Japan, where its headquarters were; The cost of the company is too high; the third is that China’s talents and resources are not fully utilized.
In the second year, Panasonic reorganized its Chinese business, letting the newly established China and Northeast Asia department be responsible for product planning, development, design, manufacturing and sales, without the participation of Japanese engineers and without the approval of the headquarters.
Panasonic said the unit had achieved double-digit revenue growth in the subsequent two fiscal years, though Panasonic expects the unit to lose ground in the current fiscal year, which ends March 31, as the coronavirus lockdowns hurt China’s economy. revenue growth will slow down.
These changes have shortened production development time, Honma said. The company aims to cut development time in half by 2024 compared to March 2022.
Panasonic’s other two business units in China – automotive systems and smart factory solutions – are not included in its China and Northeast Asia division. Honma said Panasonic did not include businesses in China and Northeast Asia that might be seen as sensitive to technology transfer risks.
Germany’s Volkswagen relies on the Chinese market for about 40 percent of its car sales, and the company’s share of the Chinese market has shrunk in the past few years.
Volkswagen’s share of the Chinese market began to loosen a few years ago as local brands jumped on the SUV boom, and VW struggled in the face of the rise of electric vehicles and factory shutdowns triggered by the pandemic. In 2021, Volkswagen’s flagship ID.4 electric SUV will go on sale in China to a lackluster reception, compared with BYD Co., 002594.SZ, 1211.HK, and NIO Local Chinese rivals such as NIO Inc. (9866.HK, NIO) have been gaining momentum.
Herbert Diess, the former CEO of Volkswagen, was directly in charge of the Chinese business during his tenure. At that time, he would go to China every few months. However, when China implemented strict epidemic prevention regulations during the epidemic, people entering the country must be isolated After several weeks, he has not been to China.
Ralf Brandstatter, a member of Volkswagen’s powerful management board, was appointed to lead China operations in August last year. He pointed to Volkswagen’s relative slowness as one of the reasons for the company’s litany of problems.
Brandstatter said in a message to employees that in China, the drive and speed of innovation is many times higher than in Europe or the United States, and no other market can offer growth potential and innovation speed close to this. The Wall Street Journal reviewed the message.
Brandstatter said in a message to employees that it takes Volkswagen a little less than four years to bring a new product to market, while the Chinese company can do it in a little more than two and a half years.
Now, Volkswagen has decided to hand over more localization decision-making power to the head of China and his team, especially in product and technology research and development. The strategy is to grow the company faster, and to that end, the company is hiring thousands of people in China and working hand in hand with local technology partners.