While I was in Shanghai recently, I had the opportunity to drive to a meeting with another Bain & Company partner, Bruno Lannes, who’s been in China for almost a decade. As we swung from lane to lane, weaving and honking our way through traffic, he explained to me his insights on driving in China: “I never understood what was going on when I was driving. Western rules of the road just didn’t seem to apply. And then I figured it out. In China, most drivers use the rules of skiing: the assumption of those in front is that those behind will adjust to their actions. You can turn left and right without looking behind you because it is the duty of those that can see you to respond. This even applies when you are turning onto a major road. The person turning onto a road doesn’t even look to his left, because he will simply assume that the person on the main road will see he’s turning and will slow down.”
As we mulled this over, we realized it provided a great analogy for what a lot of Western companies are doing wrong in China. They are driving, with normal rules of the road, while their Chinese competitors are skiing. This reveals itself in four main ways:
- Western companies compete with other Western companies when their real competition is a growing set of powerful Chinese companies. In three different meetings with Western executives that week, all cited the urgent need to shift their competitive sights from traditional Western competitors toward their rapidly growing Chinese rivals.
- Western companies fight today’s battles when their real competitors are fighting tomorrow’s battles. Many Western companies view China as a “back-to-basics” market, believing that it will first move to a Western stage of development and then begin to innovate from there. But as we are seeing with the Internet in China, this is a perfect example of “change blindness.” The future has already arrived in China, and as we heard from our DM100 members in Shanghai, Chinese companies understand this completely. Western companies, on the other hand, must change their mindset: It is far more likely that their China business—if it can learn to win—will transform the rest of the company. These businesses are learning in one of the world’s fastest-moving markets. They will become major exporters of new management ideas.
- Western companies pursue a “group” strategy in China rather than a China strategy for China. Few Western businesses will admit this. Most would argue aggressively that they have adopted some form of a China-first strategy (where you first sort out what is right for the China market and then figure out globally how to provide it). But talking to the teams on the ground about their day-to-day lives, you get a feeling that they are spending more time fighting the corporate group than fighting against competitors. In an unscientific survey last year, I asked leaders at 18 Western companies I visited whether group was a “value creator” or a “value destroyer” as it relates to winning in China. Seventeen teams answered “value destroyer.”
- Western companies compete as global incumbents in a world of turbulence where only insurgents can thrive. To win in China, firms need to be fast and adaptive. This is why Chinese insurgents are doing so well. The problem with most Western companies is they bring their incumbent mindset to China, running each decision “up the line” to the region and then to headquarters. This won’t work. The decision-making process is too slow, too distant from the action. This slowness is hurting them in Western markets. It is killing them in China.
It is just an idea, but it seems the only successful Western companies in China will be those that stop following the rules of the Western road, jump off the pavement and start skiing off-piste with the Chinese.