The China Inroads team visits a whole variety of companies. One day, we’re in a factory learning how a technically complex machine washes cans for reuse; the next day, we delve into dental technologies that help minimise wear and tear. Despite this wide range of business types, we see many similarities in China-related business operations and the challenges our clients face. One issue nearly every organisation struggles with is Stakeholder Management, a topic that is more relevant than ever in today’s geopolitical landscape.
But what is Stakeholder Management, really? And why is good policy in this area crucial for the success of any company doing business in China? The stakeholder groups we most often encounter can be divided into two categories:
Stakeholders at and around (EU) headquarters:
- Our clients, funded by private equity or VC, must keep investors informed and involve them in decision-making. Within the organisation, board members and managers may also have differing opinions on the best path forward.
Local stakeholders in China:
- We often see that the local Chinese team is insufficiently involved in the decision-making process, leading to a lack of support for decisions made at headquarters. Even more damaging to the business is when valuable input from local experts is not considered, rendering the top-down “China strategy” unfeasible or ineffective.
Below, we present an example of an interesting case study where Stakeholder Management played a central role in rethinking the company’s China strategy.
The need for stakeholder management
One of our clients is a company active in energy systems, with markets and branches in Europe and China. This company has several equity investors, including Mr. X. The company’s daily management falls under a German director with extensive experience in China. He knows better than anyone that doing business in China is based on trust, earned by investing in your team and partners. The local organisation is run by a Chinese manager, the German director’s “trusted partner” who works under his supervision. But equity investor Mr. X is not satisfied with this set-up.
He questions the director’s decision-making. After all, the director has a strong affinity for China, the country that is so critically discussed in the media. Mr. X wonders whether the director assesses the local operations with enough rigour—or if personal interests are involved—after all, the director spent years living in Shanghai.The director is frustrated by the lack of understanding about the Chinese market, even within his own company. The fact that Mr. X is considering ending operations, now that the results are disappointing and additional investment is needed, is hard to accept. He senses skepticism within the management team and decides to involve an independent party, China Inroads.
How China Inroads brings clarity
Our discussions with the equity partners provide insight into their concerns. These include legitimate questions about the feasibility of the company’s goals and the impact of local innovative players on the energy sector. In this business, everything revolves around data management, which is heavily regulated in both Europe and China, with ever-changing policies. Can they, as a European company, still do business in China?
We also speak with the local team. The Chinese employees can tell their story in their own language, which helps uncover their true concerns. According to them, the only path to success is to accelerate innovation to better anticipate customer needs. This requires extensive localisation to offer not only hardware but also software locally. This would help them avoid measures by the Chinese government that discourage the use of foreign software.
We compare the input of all stakeholders and support it with a fact-based analysis, supplemented by our experiences in China. Various issues arise: can the company even stay ahead of developments in China? If you can’t beat them, shouldn’t you join them? How important is the Chinese market in relation to that of the EU or the US? At its core, the question is to what extent headquarters is willing to develop software in collaboration with a Chinese partner to stay ahead of developments locally. This proves to be a breaking point for the shareholders; full localisation would not be in the company’s best interest.
Reaching a well-supported conclusion
Based on our analysis we collectively reach a well-supported conclusion. Both the equity investor and the director—given the increasing local competition—lack confidence in the added value of the company and its products in the Chinese market and realise they are unlikely to win the race. The company consciously chooses to focus on the EU, where they are one of the market leaders, with significant potential for sustainable growth.
This case showed the added value of bringing in an objective party with expertise in the Euro-China business arena to extract the issues for all key stakeholders and help shape a strategy that is best for the business.
Every challenge is unique. Get in touch with the China Inroads team to discuss how to move your business forward.
