Successful Chinese companies invest time, energy and resources to build practical overseas investment strategies and supplement their internal teams with a team of Outbound Direct Investment (ODI) experts that are able to bridge the Chinese company to connect with local resources and know-how overseas.
The battle of Ningshan: The mightiest dragon cannot crush the local snake.
The world has witnessed thirty years of foreign investors coming to China. Many came with no language skills, no cultural familiarity, no sense of how things worked in China, and no understanding of the business, political and economic realities of China. Many of these foreign companies lost their money, technology and competitive advantages globally. Yet many of the companies that succeeded in China achieved global dominance. Foreign investors that succeeded were well prepared and were supported by teams of outstanding local advisors who could bridge across their own ability and knowledge gaps.
Sam Walton was that type of investor. Walmart has become the Fortune Number 1 company many years in a row because it successfully connected the China supply chain with the worldwide consumer demand. This retail chain is more profitable than all auto, oil and financial, and high tech empires on the planet. This is especially ironic since before his death, Sam Walton authored a book called “Made in America.”
So what lessons can we learn from this situation? What should Chinese companies do or not do as they internationalize? There are many other examples to consider including Alibaba, Tencent, Haier, Lenovo, Baidu and others. What is it that they did to succeed? They prepared and invested to succeed.
Successful Chinese companies invest time, energy and resources to build practical overseas investment strategies and supplement their internal teams with a team of Outbound Direct Investment (ODI) experts that are able to bridge the Chinese company to connect with local resources and know-how overseas. These successful companies hired advisors and professionals that have been operating in multiple cultures, jurisdictions and professions to help the company cross the street safely and sink roots in new markets. Some identified targeted markets by specific geographies, target customer profiles or were regional or global in nature. The companies engaged in a strategic planning process to plan their business approaches, tactics and strategies focused on specific strategic goals.
The foreign companies that invested in China and who hired savvy local advisors increased their chances of success tremendously since they accelerated their understanding of China, as well as their ability to engage, position and build local supportive networks and foundations. That, of course, put them on a positive trajectory while other competitors missed their chance. This is something most Chinese managers know from personal experience.
The ability to build a team which includes both bridging professionals who have local resources and expertise is worth considering if one enters a foreign market. It is a good approach to join together and cooperate with local snakes.
How to Assemble the ODI Advisory Team
The ODI advisory team is composed of many different types of talents and they must play well together as a team. Different talents must be considered and then selections should be made to help the company team and the external ODI team to converge.
The characteristics of the successful ODI advisory team members should include:
- A proven track record of success in cross border investment activities, whether advising foreign companies investing in China or Chinese companies investing overseas.
- A wide network of trusted service providers overseas, which can provide practical support and critical market insight during the planning and implementation stages.
- Multi-cultural background and ability to operate in more than one market and language.
- Personable and professional attitude. The damage caused to the project by big egos can be amplified in a multi-cultural environment.
- Business focus and common sense, not just technical expertise.
- Not selected based on their titles or their paper qualifications alone.
- Ability to coach the company team adapts to overseas market conditions.
- Working or living experience overseas and in China.
- Key personnel in the China company should be selected for certain tasks. They need to be matched with the right needed external professionals to supplement their skills.
The core advisory team should meet with the company core team so that a good open dynamic is established. It is important that the core internal team and the external advisory team can communicate candidly and work together smoothly so that this interaction trickles down to every level of the organization. This process is not about creating silos or mini-kingdoms.
Companies must beware of advisors who do not know China and who do not know the overseas destination. The building of a successful ODI advisor team will greatly impact the likelihood of a smooth or wintery journey, and only professionals with truly international and multicultural experience will be able to bridge cultural, knowledge, and skill gaps between the Chinese company and the overseas partner successfully.