Lessons to be learnt from the McKinsey survey

CIOL Bureau

MUMBAI, INDIA: Going by the developments in the last few months, CEOs of large multinational companies in China are facing a herculean task, is a given. But what exactly is ailing these CEOs?

In a new report, consultancy firm McKinsey has pin-pointed the exact reasons.

Challenges first:

China—the fastest growing economy in Asia, and one of the fastest globally, gave a jolt the global investors in 2105, when it reported a 6.9 percent growth in Q32015, the weakest rate since the global financial crisis. Coupled with this, a weak stock market provided precious little to boost investor confidence.

CEOs on a difficult pitch:

Because of the turbulence, local leaders’ top multinational companies face growing uncertainties in their respective business environments.

With slow growth and a decline in the regional stock-markets, CEOs believe that they are not in the best position to oversee key decisions and guarantee agility, McKinsey found in its survey of local CEOs.

Forty percent MNC CEOs said they do not have the time to respond quickly to the rapid changes in the Chinese market. Forty percent more said they are hard pressed to do so.

The profile of the CEOs and key findings:

McKinsey & Company surveyed 70 China-based CEOs of some of the largest B2B and B2C players in the country. Of these 90 percent companies are European or US headquartered, generating more than $200 billion in revenue, 40 percent are Chinese nationals, with a similar number from Europe or North America. Half the CEOs had more than ten years’ experience before taking the lead, while around 30 percent were new to the region or had been there for less than two years.

Key findings:

The following issues plague the CEOs in China.

• Large amounts of time required to hit the numbers within the uncertainty of the downturn, combined with building their local teams.
• Navigating themselves through corporate governance structures, with in particular managing headquarters standing out.
• Headquarter-focused CEOs spend 40 percent of their time at or dealing with headquarters, while even locally focused China CEOs spend about 20 percent of their time at or speaking with the global command center.

  “This is because, while many have direct line control over support functions such as branding and corporate affairs, they face direct line reporting in upstream areas like product development, operations, and supply-chain management,” McKinsey researchers observed.

  They said:

• Fewer than 50 percent are permitted to make overall strategy decisions for China.
• Independent decisions making about pricing (40 percent) and product strategy (27 percent) were even lower
• Independent decisions about annual budget, investment stand at 35 percent, and long-term, multi-year China investment planning at 24 percent
• Hiring and firing was something that China CEOs could autonomously do at 71 percent of organizations surveyed

  Yet another complication faced by CEOs in China is the internal reporting hierarchy within the wider business. The survey found the following trends:
  
  •    41 percent of China CEOs report to an Asia head, 20 percent to the global CEO.

  •    The global functional head is the go-to for 16 percent of the respondents, while 13 percent report to the business-unit CEO.

  The McKinsey research team noted that reporting to the regional Asia head can be problematic, as China sometimes accounts for an over-large part of the Asian region’s capacity, and the reporting structure increases the risk of duplication of target customers, along with time lost due to lengthy planning and decision cycles.

  What is being done?
  
  According McKinsey, reporting can be a hobble to business performance as China CEOs and their superiors lose time through their correspondence.

  “A number of strategies including, removing the regional structure and elevating China to a position equal to that of the rest of Asia, consolidating all Chinese activities under a China CEO with direct access to the global CEO or even bringing a China CEO into an executive position within the company. Some companies are moving full business units and global senior executives to the country to boost leadership power, while others have created a dedicated China advisory board of senior global executives who coordinate and accelerate the local agenda,” the researchers highlighted.

  Our view: Kudos to McKinsey for openly writing about the problems faced by regional CXOs.

  As a journalists, we have meet CEOs who have refused a comment or not divulged figures because they either are unaware of the same or because of the global dikat they cannot speak about what’s happening in their own country. Whereas the APAC head or the global CXO visiting India doles out not only customer names as examples which can be made public, but also some numbers to be used in stories!!

  Although the reasons for the cold silence are well-known, we have often wondered if bar is lifted, India heads can articulate strategies for their countries much better.

  Do you agree?