Doing Business in China


Tanmoy Goswami

The Smart Manager
July-August 2012

Dr Santrupt Misra, CEO, Carbon Black Business; Director, Group HR and Director, Aditya Birla Management Corporation Private Limited in conversation with Tanmoy Goswami

Shanghai was not made in a day. In fact, if you were to ask the Deputy Mayor of China’s showpiece city, he would probably tell you it is work-in-progress at best, and even promptly pick your brains for suggestions to improve it. This desire to improve and the openness on which it is predicated may well be the real legend of China.

The global reputation of China’s innovation competency is doubtful at best, with the ‘copycat’ label often tarnishing its image. Is this a fair assessment of their abilities?

China is a transitional society. It may have started as a ‘copycat’, but I don’t use that term in the negative sense. I think being able to make a perfect copy is a highly innovative capability. If you can do that at a lower cost, you have even better innovative capabilities. So copying well is a form of innovation; not everybody can pull it off.

Earlier even successful companies like GE have harped on ‘stealing with pride’. That is not to say that GE ever encourages violation of IPR. Not even for a moment am I saying that violating IPR etc is the right thing to do and should be encouraged. Hear in mind—we are not talking about the legal or ethical aspect of copying here. We are alluding to the capacity of a people to learn something in its exact proportion and replicate the same. I admire the fact that the Chinese are very good at this.

There was a phase in China’s development and economic growth when perhaps they were relying heavily on copying designs. But lately, if you look at Huawei and the kind of products they are focusing on, and what Haier has done—as have most other Chinese entrepreneurs who are focusing on the cutting edge of technology—they are trying to pioneer a lot of innovations. For instance, they have been able to implement high-speed trains, which in India we have been unable to replicate.

The Chinese mindset is also one about learning. Recently, I found some awesome evidence of this trait in a newspaper editorial in one of their English dailies. It was two or three days after a rail accident. The remarkable aspect about the editorial was that while it analyzed the problem, it ended by saying “Let us not be critical about Chinese technology. Accidents of this kind happen all over the world. This episode does not reflect on Chinese engineering, technology and management capability. We must learn from this experience and recreate, reinvent and re-institutionalize things.” Now asyou know, the media in India are often extremely critical about everything. Whereas here was a newspaper that was reflective and yet managed to say “Well we have a failure, lets learn from it and move on”.

The spirit of learning afresh is alive and thriving there, I think that innovation’s key foundation is that people in a society are able to grow based on their learning. Look at their green buildings. I went to an area called Qingdao in Shandong Province, where we have a factory. Along the way I found several solar panels on every house. The houses use these panels for basic water heating, etc. The point to note is that we also have a real estate boom in India, but we don’t see solar panels as a part of the scene.

You can say the political system in China has helped. But the fact is that they have been able to do some things that we have not been able to do. So to believe that they are any less innovative than us is perhaps taking the stereotype about the Chinese people a bit over the top.

While we are on the subject of people–what are the broad differences you see in talent acquisition andmanagement in China as opposed to in India?

You have to demarcate talent between management talent and workmen. The challenge with workmen is that there are inter-state movement restrictions. Therefore, if you are located in an area, which is not industrially developed, naturally you find it difficult to garner local talent. If you do not get local talent, then you are dependent on talent from other provinces getting the necessary permit to move to new locations.

That’s one piece. The second part is that development in China has been uneven, a bit like India. So the coastal areas have developed a lot. And this has led to high wage costs in these areas. Therefore, talent mobility is high, which means retention is always a challenge. When there is a vacancy, identifying people is a challenge, because cost is always high on account of too many industries chasing too few people in the same belt.

Because of certain urban agglomerations progressing very fast, and with the quality of life improving around Shanghai or Guangzhou or places like that, within the Chinese white collar talent, there is a distinct preference for certain preferred destinations. Consequently if you are not in a preferred location of the emerging Chinese talent, then you do have a problem.

The other thing about working in China is that you are dependent on several outsourced services if you do not have an internal talent pool. You have a range of outsourced agencies. Some are very good, some extremely poor. If it’s not an attractive location, even the outsourcing agency will have relatively weaker people. So these are some of the challenges with talent management.

The other issue over there is cross-cultural communication. There is a high proportion of English-speaking Chinese that is growing. But at the same time, you are not always able to find such talent, because the better ones have more opportunities in the key coastal areas and industrial centers.

So I think the sum and substance of talent management is: do you have a strong international or employment brand? If you do, that gives you a dividend in China, just as it does anywhere else. But equally importantly, where you are located in China makes a big difference to your ability to attract and retain talent.

The Aditya Birla group has multiple operations in China (Liaoning Carbon and a JV with Hubel JingWei Chemical Fibre Company of China). What is your brand positioning?

Frankly, it will be hard to answer that question because Aditya Birla Group’s investment in China, as yet, is not huge enough to be able to focus on the brand on a large scale. We have two small Carbon Black locations and a couple of other businesses that are also not that big—fibre, for example. Up until now, we have not felt the need to make a grand splash. We try to remain as understated as possible, because that is part of our DNA, and continue to run the operations as efficiently as we can. Our intent in terms of the group brand is to be seen in the community that we operate in as a responsible corporate citizen.

Of course, as we go forward and invest more and more, which hopefully is likely in the next couple of years, we will pay more attention to branding than we have so far.

Based on your ex perience of running plants and your engagement with the local community, suppliers, etc, would you say that it is a collaborative environment that you have witnessed in China?

It is collaborative once you have a long partnership. We are in fact inspired by the partnership concept. To our pleasant surprise and contrary to popular belief, we find that a lot of international companies have strong partnerships with Chinese state-owned enterprises. So it is possible to do business with the government, and do it well.

Again, like every other society, China has its fair share of slippery partners. It is important for any enterprise operating there to find the right partners, and if you find the right partners you are able to do good business.

The point is that success in the Chinese economy and industry for a foreign investor is highly dependent on its ability to connect with the government’s decision-making structure as well as with the local community. And that is not possible without significant Chinese leaders helming your business. Therefore, if you have a partner, your entry your survival is sort of easier, because a lot of your local issues are managed by your partners. Obviously language is a critical barrier. A number of documents and government papers are in Mandarin, and so is a significant measure of everyday interaction. Therefore having a familiar face and being well connected does help, and that means we have to invest in Chinese talent all around.

In your experience, how demanding is the Chinese market?

Every market has different price points and segments. There is a segment that is of course not very demanding, but I’m pretty confident there is one that is also very demanding. Demanding in the sense that they want to set great standards.

I vividly recall my interaction with the Deputy Mayor of Shanghai a few years ago. We were a small group of people and he had an interpreter. Through the interpreter, he asked all of us that as visitors to his city, how did we experience the city and what feedback would we have for the improvement of the city and its services?

Now when a political leader asks such a specific question, it is reflective of a certain mindset. I don’t expect that a mayor or a deputy mayor or a minister in India will quiz a foreigner, “Hello, what is wrong with my city? What could I improve, from a visitor’s point of view?”

So my experience and understanding of Chinese society tells me that it is very forward looking and also highly conscious of standards.

Let’s take another example. Without going into the political controversies, China had the Olympics as we had the Commonwealth Games, and they executed it flawlessly, keeping global standards as you would have seen at the Olympics anywhere in the world. That again talks about the kind of quality they demand from themselves.

The other side of that is the high brand consciousness among the Chinese. At one level, you can say that Louis Vuitton is be ing copied. But the fact that people are buying copied Louis Vuitton means there is a certain quality aspiration.

Or take China’s track record with assembling Apple products—notwithstanding the controversies, we are all absolutely satisfied with the iPads and iPhones. Obviously the engineering, electronics, component design and manufacturing are of a certain standard, and we cannot afford to ignore that.