The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis.
From Enterprises to Companies
Period:
Rebirth (1990s) | Structural Transformation of the Economic Sphere
Edward Tse is senior partner and chairman for Greater China for consulting firm Booz & Company (Shanghai, Beijing, Hong Kong and Taipei). He has over 20 years of management consulting and senior corporate management experience and is widely known as one of the pioneers in China’s management consulting profession.
Dr. Tse has held a number of leadership positions ranging from being managing partner, China for the Boston Consulting Group, to being a member of the Consultative Editorial Board of Harvard Business Review Chinese Edition. A recognized thought leader, Dr. Tse has authored numerous articles and is author of two books: Direction – What Chinese Enterprises Should Learn (in Chinese; Winter 2007) and The China Strategy – Harnessing the Power of the World’s Fastest-Growing Economy (Spring 2010).
Dr. Tse holds a Ph.D. in Engineering and an MBA from the University of California, Berkeley where he received the Converse Prize for being the most outstanding graduate student. He also has a MS and BS in Engineering from the Massachusetts Institute of Technology.
I returned to mainland China in the early 1990s, and when I was in China, the Chinese had no concept of what a company was, they only had enterprises. And, at that time, a state-owned enterprise was really just an arm of the state, and they fulfilled the designed role by the state for each of the enterprises. Which was, of course, a very different notion than what a company is all about. But, over time, many of the Chinese enterprises turned into companies. But, when they interact with multinationals they actually find out that, "Hey, there's actually another way of running a business." And so, the Chinese companies were trying to learn from the foreign companies in many different ways, not only about technology and about products and services and so on, but, importantly, the Chinese were trying to learn about management practices, about corporate governance and the legal aspects and so on and so forth. And Chinese companies are very curious about this, they are eager to learn, because the very best Chinese companies are actually very ambitious. Many of them, of course, want to be the leaders in their industries in China and also, an increasing number of them would like to become international companies of their own right. And, in the Chinese way of saying, they want to go outside. So, more and more Chinese companies are coming to us asking us to help them design their globalization strategy. How should they internationalize? Which markets should they go to? How should they set up their product strategy? Should they form local partnerships when they go outside? And so on and so forth. So, the Chinese are learning a lot, and they continue to be very ambitious. They are believers in a lot of experimentation. They don't necessarily want to get everything sort of precise and right. They'd much rather try something, if it's 80% right and see how the market responds and then adapt. So, they work at a rythm that is much faster than the usual competitor in western multinationals. Whereas typical multinationals would typically operate in this manner, the Chinese would typically operate in a much faster rhythm. So, by the time the multinationals are ready to make decisions, the Chinese have already made cycles of decisions and have learned a great deal through their experimentation. So it's very dynamic, but we've seen more and more Chinese companies who are able to leverage this kind of model to grow very fast and more and more of them have become bonafide competitors to the multinationals and the multinationals have found it, in many cases, very surprising to see this kind of new competitor which operates in a very different way than the traditional multinational competitor.
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