The market has changed, how can multinational companies maintain growth?

  In a sense, multinational companies are ushering in a new node in China. In the past, multinational companies brought advanced management models, business models, and talent training mechanisms… But now, their “Chinese apprentices” have caught up with them.
  In the face of increasingly competitive local companies, the difficult market environment caused by the epidemic, and the gradual loss of policy dividends, how can multinational companies maintain their competitiveness in China and even achieve further high growth? Or, will China’s place in the strategic map of these multinationals change?
  According to Deng Min, global partner of Bain & Company and chairman of consumer goods business in Greater China, despite the turbulent international situation, China is still the main engine of global consumption growth, and multinational companies still have huge room for development in China. However, the practice of applying past successful experience in China should indeed be abandoned.
YI YiMagazine
D Deng Min

  In your opinion, in recent years, especially in the past three years after the outbreak of COVID-19, what changes have occurred in China’s market environment that will affect multinational companies in China?
  D is first of all some of the more positive effects. In the past few years, whether it is GDP growth or household disposable income, even during the epidemic, China’s growth rate has been relatively stable. Secondly, from the perspective of consumption power, China’s long-term rapid economic development has created a new middle class with strong consumption power. According to a report jointly released by Bain & Company and the World Economic Forum, by 2027, about 180 million low- and lower-middle-income households in China will enter the ranks of higher income. At the same time, new technologies are developing rapidly. Taking e-commerce as an example, China has led the innovation of digitalization. So we believe that, no matter in the past or in the future, China is still very important to the global market layout of multinational companies, or it is the most promising market, especially in the consumer goods industry that I pay more attention to.
  But at the same time, there have been several major changes in the Chinese market in the past few years, such as the consumption environment. As the way Chinese consumers interact with brands becomes more and more digital, the value points they seek in brands or products are also becoming more and more diverse. In particular, emerging local brands are becoming more and more powerful competitors of multinational companies, which brings many new challenges to the operation of multinational companies. For example, in the two tracks of soft drink and beauty makeup, new brands such as Vitality Forest and Perfect Diary and Huaxizi have appeared respectively. They all use digital means, more accurate consumer insights, and the model of launching a single explosive product. Gradually gained a place in a category that was previously dominated by multinational corporations. This is a wake-up call for multinational companies, and secondly, it provides them with a good opportunity to learn: how a new brand can create higher growth in mature categories.
  Another point that everyone may consider recently is, in the increasingly complex geopolitical and macroeconomic environment, how can a multinational company achieve better business growth in the Chinese market, so companies may focus more on how to make China Markets are better able to mitigate shocks from external risks.
  Yi According to Bain’s research, the proportion of company executives jumping from multinational companies to local companies is gradually higher than the ratio of jumping from local to multinational companies. What do you think are the main reasons?
  DAround 2000, entering a multinational company was one of the best options for university graduates, as it offered relatively competitive salaries and many global training programs. The foreign company management trainee system allows newcomers to learn the operation of mature companies in a very systematic way, which is very attractive. After 2000, multinational companies did have a period of rapid growth in China, which created many new opportunities. Some talents chose to jump to other multinational companies, which further helped the growth of multinational companies in China and formed a relatively virtuous circle. .
  In the past few years, China’s local emerging companies, including many technology and platform companies, have risen and become the place where the top talents are more willing to go. First of all, the remuneration system they can provide, whether it is salary, bonus or equity incentive, is more favored by young people. Secondly, the content of the work is also more exciting, because they do things that no one has done at present, and even lead the development direction of the future market, which can give many people a sense of mission. Finally, in terms of working methods, these local companies are more agile, more willing to trial and error, and willing to let their teams do new experiments. In comparison, multinational companies have more mature and solidified processes, so everyone’s work is more disciplined.
  However, multinational companies are not completely unattractive. They provide a systematic and global perspective, allowing newcomers to the workplace to quickly understand the operation of a mature company, which is an advantage of multinational companies. Taking the fast-moving consumer goods industry as an example, many leaders in China have grown up from the management training programs of several large multinational companies such as Procter & Gamble and Unilever. The current problem is that multinational companies are facing competition from emerging Chinese companies. How to remain highly attractive to them in the middle and late stages of their careers requires multinational companies to think more about this aspect.
  In order to adapt to the new changes in the market, multinational companies need to change their traditional practices, which requires multinational companies to change their mechanisms or change their thinking?
  D This thing is indeed easier said than done. Everyone knows that it is necessary to give full authorization to China, especially emerging businesses, such as using a completely different assessment and incentive model, so that they can better compete with local companies in order to seek growth. But it is very difficult to really do it. For example, on the premise of ensuring speed, how to achieve communication and coordination between local and headquarters (sometimes multi-level headquarters in the Asia-Pacific region and the world), in addition to balancing the global compensation system .
  Now many multinational companies will streamline their governance structures, turning three layers into two layers. Coca-Cola has merged the Chinese market into nine global regions and reports directly to the headquarters; McDonald’s and KFC are even more extreme, and they have become independent directly in China. company. In this way, China can act quickly without the need for layers of approval.
  In addition, large multinational companies once believed that scale advantage was the starting point for their success. Any new attempt, they usually formed a large business volume all at once, expecting to achieve great success with large investment. And this is not the successful model of China’s emerging brands. They are trial and error, constantly gaining new insights from consumer feedback, and then adjusting products through new insights, speeding up the launch of new products, until they try out star hits . This is what many multinational companies are learning now, that is, try to make my turn and transition faster, not the speed of an elephant’s turn.
  For example, a multinational ice cream company, they want their products to be omni-channel in China, so they have changed from channel-based KPI to more city or store consumption-oriented, which means designing a new set of processes and assessment methods. For this change, the company learned from China’s model, started with partial pilots, and gradually expanded from the initial 5 pilot cities to 40 cities in two years, and achieved positive growth in China’s market share. Now, the change is still going on.

  For multinational companies, the most important point is to clarify the positioning of the Chinese market in their global business. We always feel that for many multinational companies, China should be the second home market, which represents their long-term commitment to the Chinese market. But at the same time, it should also be clear that Chinese consumers and the competitive environment are constantly changing. This change requires them to use a more suitable local business model in China, namely the 4D model we propose – Design for Chinese Consumers (Design), Chinese Teams to Make Decisions (Decide), Execute at Chinese Speed ​​(Deliver), Chinese Business Digital.
  For example, Anheuser-Busch InBev has established a high-end company in China in order to better meet the high-end demand in China. It has more independence in terms of product channels, design processes, and the establishment of consumer digital links; Shiseido has launched many A product for the Chinese market only, not even in its home market of Japan. It has also established an office next to Alibaba in Hangzhou, which is to better study new insights of Chinese consumers with Alibaba’s innovation center. These are some attempts made by multinational companies.
  In addition to designing products or business models for the Chinese market, multinational companies should also think about how to replicate the successful experience of the Chinese market to the world, the so-called China for global, or China for the world. Because many business model innovations, digitalization and the output of Chinese consumer links in the Chinese market are ahead of the world.
  Yi, do you think it is important for the CEOs of multinational companies in China to be local talents or to understand Chinese? Why?
  D I don’t think this is the most important consideration. But we have also found a trend in recent years: more and more CEOs in China are held by local talents. This shows that the ability of this group of talents in China is getting stronger and stronger, because they are Chinese, they understand China’s national conditions better, and they are more down-to-earth. But at the same time, they have the experience of working in multinational companies in the past 20 to 30 years, and they have a very strong understanding of the company and the ability to communicate with the headquarters. Therefore, compared with the foreign executives who are airborne, the future CEOs in China are Chinese. will become more and more obvious.
  This also means that, as the CEO of a multinational company in China, communication with the headquarters is very important. Many good CEOs in China will say that the work I do the most is to ask the headquarters to stop asking questions, ask less questions, or just ask me questions. In this way, the reports and processes required by the headquarters, or the so-called interference in the Chinese business, are resolved without affecting the execution of the team.
  In the past two years, many multinational companies have failed in China, including giants like Amazon and unicorns like Airbnb. In your opinion, what is the main reason for their failure to do well in China?
  D These examples, I think, have one thing in common: when they entered the Chinese market, several large Chinese enterprises have occupied an important market position in the corresponding fields, and the business model is the same as its previous successful global business. The patterns are very similar. However, Chinese local companies are more in line with the needs of Chinese consumers or China’s national conditions, which makes these multinational companies already in the stage of needing to overtake when they enter China.
  In addition, based on different starting points and different competitive situations, these multinational companies have not made relatively rapid adjustments, or copied the successful model in the world, and have not done enough business models and localization of products, so it is difficult to Compete with China’s already successful local companies.
  In fact, many multinational companies have a first-mover advantage when they enter China. They entered China early and formed a good reputation, brand advantage, channel advantage and scale advantage in the Chinese market. At this time, even if they are impacted by some local brands, as long as they can adjust quickly, they are still a very important force in the market.