Gordon Orr and Jane Xing of McKinsey cornered Mary Ma for an interview and asked the normally publicity-shy CFO about her thinking on whether Chinese companies are ready to go abroad.
Her answer was interesting:
"Chinese companies are better prepared to invest abroad than many people believe."
She then goes on to point out that, after all, Chinese companies are used to competition at home, making them very competitive when they decide to go international.
Mary Doesn't Know
I have a great deal of respect for Mary Ma, and I continue to believe that when the Lenovo management team all sit down together, she's the smartest person in the room. I also credit her with much of the success the company has had in its integration after the merger with IBM's PC unit.
However, I think that oversimplifies things a bit. As Lenovo (OTCPK:LNVGY) discovered before it bought IBM, all the competition at home was not translating into great success overseas. Its tentative moves to go to battle even in small markets like Italy and Germany as well as some Asian territories left it with little to show. Apparently, there is more to success overseas than being a strong competitor at home.
Bigger is Better?
She then goes on to say that the most important thing for a Chinese company to have before going overseas is scale at home:
The most important thing for a Chinese company is to grow big enough and strong enough in its home market—in China. Probably the biggest reason for the failure of international growth is that companies lack a certain critical mass at home. Without that, they will lack the level of strategic thinking needed to manage an international organization, and they will lack managers with the necessary breadth and depth of experience.
And this is purely about size; a smaller company’s management wouldn’t have the capability even to think about operating at a global scale, nor the capacity to absorb hundreds more people and managers. The depth of Lenovo’s management meant that we could sustain our success in China and still have managers available to go anywhere we needed them, as long as there wasn’t a language barrier.
Then in the next paragraph, she talks about companies in the solar panel business, who on the other hand must go overseas first because China is not ready for what they produce.
In short, Ms. Ma, as exceedingly intelligent as she is, is teaching the wrong lessons about Chinese companies that need to go international.
So what is the answer?
Zhang Ruimin, Haier's boss, seems to get it a bit better. In an interview with BusinessWeek's Tiff Roberts back in 2004, he got closer to the answer when he talked about product design.
When we enter into overseas markets, if we don't use local resources, we cannot design and produce the products that satisfy the needs the local consumers' needs. In the past we tried to design our products in Qingdao and sell them to the U.S. These products looked like American products, but once they were released on the market we discovered that there were minor details that didn't meet the needs of American consumers.
Let's take Mr. Zhang's point one step further. The most important thing for a Chinese company expanding overseas is to have a deep understanding of the local market all the way to the top of the company, combined with local resources and talent.
Ya can talk, ya can talk, ya can bicker ya can talk, ya can bicker, bicker bicker ya can talk all ya want but is different than it was.
No it ain't, no it ain't, but ya gotta know the territory.
-- Meridith Willson, The Music Man
So the question overseas-minded Chinese companies should be asking is "where do we find the insight and understanding to make us successful in a given market."
Unfortunately, not enough are asking the right questions. And if they listen to Mary Ma's advice, they still won't be asking.