The Reasons Behind China's Successful Expansion

XING KELLY CHEN, ASSISTANT PROFESSOR AT BOCCONI, EXPLAINS THE DIFFERENCES IN STRATEGY AND CORPORATE GOVERNANCE FOR CHINESE AND ITALIAN COMPANIES

An expert in corporate governance, international business and strategies of emerging markets, Xing Kelly Chen is Assistant Professor in the Department of Management and Technology at Bocconi.

➜ Regarding corporate strategy, what is the biggest difference between China and Western economies?
In developed countries, there are very efficient intermediaries with the task of directing business. There is also a well-structured regulation system and solid legislation in terms of contract management. In China, however, this kind of infrastructure is almost completely lacking: there is no one capable of selecting talented people, there are no research companies able to identify consumer targets. Entrepreneurs must therefore face challenges alone: this leads them to create comparison business groups.

➜ What is corporate governance like in China?
The American model is generally reproduced, with a top-down approach, focusing on independent board directors and stock market listings. This system, however, requires a series of skills that China still needs to develop.

➜ What can Chinese managers and entrepreneurs learn from Western experience?
Corporate social responsibility and contract management. In Europe and the US, companies are not interested solely in profit, but have placed sustainability issues at the top of their value system. This should be the trend and goal in every country, not only those with developed economies: China is part of the global community and cannot ignore these issues. Chinese entrepreneurs and managers are often shocked by the length and detail of Western contracts. In China, business is usually based on personal relationships and oral contracts, with a certain tendency towards flexibility: any partnership can be reviewed when the parties involved no longer benefit.

➜ What can China teach the West?
Innovation. The Chinese economy is subject to sudden transformations and entrepreneurs have to invest their money without time to make careful forecasts. This allows them to learn to be great observers and to quickly identify opportunities. Industries such as real estate, tourism, sports, entertainment and startups are all involved: for instance, the offices of Cocoon have opened in London, in the Canary Wharf district, the first Chinese incubator in Europe.

➜ And regarding M&As?
To answer, I’ll quote Wang Jianlin, the Chairman of Wanda Group. He says that the key to the success of an acquisition outside China is preserving the original management, valuing local managers, motivating them and improving their performance.

➜ Why do Chinese entrepreneurs focus on abroad?
For two reasons. On one hand, the economic crisis caused a drop in prices of European companies; on the other, Chinese companies have lots of available cash to invest. After all, it’s a geographical diversification whose aim is not to move risk from one country to another, but to reduce it overall at a company level. A crisis can occur in any country, but it is unlikely that all markets will face a default at the same time.

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by Allegra Gallizia
Translated by Jenna Walker