By GREGORY STOLLER
Multiple times a year for nearly the past two decades, I’ve been fortunate to bring MBAs or undergrad business students to Asia to either meet with different companies about their business practices, or consult with them on strategic planning projects. In my latest trip, we visited more than 10 companies in Shanghai and Hong Kong, in industries ranging from financial services, food and beverage, manufacturing to health care.
Different trends emerge every year and 2017 didn’t disappoint: Many of the firms are ditching long-term strategic planning in favor of speed and agility, in order to obtain short-term profits and keep competitors at bay. This is a departure from prior years where many companies sacrificed market share and earnings, provided they were positioning themselves for long-term strategic planning success.
Asian business used to have a unique, homegrown approach, often shrouded behind formidable cultural cloaks. Deals had long lead times to closure and required elaborate support mechanisms, such as formal company dinners, golf outings and drinking parties. Although many of these legacy cultural norms are still in play, I was struck by how many firms had instead become transaction focused: needing to close the deal and collect the money, rather than paying homage to supporting the long-term relationship.
We formed these conclusions after our 20-person delegation got to know each company extremely well. Before departing from Boston University, and to prepare for each visit, the students worked in teams. They pulled five or more articles on each of the companies and their competitors, presented in-class strategic overviews and then wrote one-page summaries that we then we brought along to Asia. At the end of each day, we collectively debriefed on the various visits, and then after coming back to the United States, each student completed a 10-page research paper analyzing a single company’s strategy. Here are some lessons we learned:
- People needing money are price agnostic: One of the hottest startups on our docket was a peer-to-peer lending company in China. They operate a de-facto online marketplace matching lenders and borrowers, and get paid through commissions and fees. People who need immediate money to pay for cars, business expansion or seasonal loans are willing to pay interest rates in the mid 20s. By comparison, a state-owned enterprise could obtain financing in the single digits, but with reams of required paperwork. The lending firm concedes its offerings are nearly identical to competitors, so the only differentiators are honesty and volume. Their brand needs to be trustworthy and regulatory compliant, to avoid incurring the wrath of government minders. Its loans are measured in months, rather than years, thus their avoidance to focus on long-term planning. During Q&A, our host was actually unable to articulate where he predicted the firm would be 12-18 months from now, except to say likely in rapid growth mode. Well outside of the corporate boardroom, and to the customers needing money, the funds were only a few clicks away.
- Ask for the deal terms you need: No longer are firms pursuing a one size fits all strategy, in order to maintain parity with other clients. A startup credit hedge fund in Hong Kong has doubled its assets under management in less than 12 months, and since inception three years prior, has returned a CAGR in excess of 10 percent. Its business model is through either secondary lending or bond placements, with deal flow sourced throughout the Pacific Rim. None of the 50-plus lending deals they’ve completed has been standard. The only commonality has been thorough due diligence and expedited closings. On the investor side, they utilize the same nimbleness, operating an open-ended fund with contractual, on-demand funding from their limited partners. They’re willing to sacrifice consistency provided profitable deals get completed and meet their hurdle rates.
- Executives are now evaluated through what they actually get done: A global U.S. food company with operations in Shanghai is willing to profitably operate in a handful of Chinese cities, rather than checking off the box that it has a comprehensive presence throughout China’s entire eastern seaboard. For them, short-term accomplishments often beat execution against a longer-term vision and they now tether this approach with executive compensation. Though they acknowledge this might give international competitors and/or local Chinese companies a toehold in the locations they’ve passed on, at least they can better understand the cause-and-effect of their own expansion efforts. In another departure from letting the strategic tail wag the dog regarding the development of a customized, long-term “China strategy,” this firm has imported existing data analytics from similar product rollouts in Europe and Latin America to benchmark its success locally. No longer do they consider China a work in process requiring a different set of metrics; it’s treated like anywhere else.
- Watch today’s cents in order to manage tomorrow’s dollars: A multinational manufacturer in Shanghai now reviews cell-based production techniques on a weekly basis, as carefully as an asset manager might study her prior day’s stock trades. They meet as a team in a bunker adjacent to the shop floor, not only to discuss the prior week’s runs but also to make immediate changes for the following week. Except the personnel around the table aren’t just highly paid supervisory executives; they’re the hourly laborers themselves. The company translates into Chinese renowned publications on techniques such as 6-Sigma, and offers courses on manufacturing theory free of charge to each team. They return some of the achieved cost savings almost immediately to the groups that developed them. The implemented techniques are kept in a database so they can be tweaked on a weekly basis, and benchmarked against other production cells companywide. This is in stark contrast with U.S. firms, which review their manufacturing quarterly or annually, when headquarters staff visits Asia.
Classic strategic planning is, of course, still important for long-term business success. Not everything can or should be solely viewed through a compressed time-frame lens. However, the world has become a smaller place. My students were shocked how quickly “new” concepts they had studied in BU’s Questrom School of Business as early as last semester were already being fully implemented at our visit sites in Hong Kong and Shanghai. It’s so easy to forget that with only a few keystrokes online, everyone now has access to global best practices. Coupled with the need for immediate gratification by the millennial generation, companies are willing to put these into instantaneous practice, even as unique test cases.
Additionally, we noticed that gone are the days of corporate denizens barricading themselves in ornate conference rooms, while being myopically focused on executing against five-year plans adroitly developed by highly paid, external management consultants. The conference rooms we used were open air and brightly lighted, while the executives were warm and welcoming. This is yet another example of positive change in the Asian business climate and stories of success based on thoughtful, short-term execution. With nearly 20 years of past company visits and consulting engagements under my belt, seeing these changes concurrently unfold across so many diverse industries, and through such newfound, agile pragmatism was extremely refreshing.
Greg Stoller is actively involved in building entrepreneurship, experiential learning and international business programs at Boston University’s Questrom School of Business. He is also an entrepreneur and co-founder and host of the Language of Business ®, an independently produced weekly news magazine.