CHINAMacroReporter

The father of business consulting in China knows why eBay failed there

In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead.
by

|

CHINADebate

September 1, 2017
The father of business consulting in China knows why eBay failed there

By Joseph Catanzaro, INTHEBLACK

In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead. 

“There wasn’t even a concept of what a company was,” says Dr Edward Tse. “Everything was a state-owned enterprise (SOE), and a SOE is very different from a company like we know them today.”

Tse, raised in Hong Kong and educated both there and in the US, was poached from McKinsey & Company by Boston Consulting Group (BCG) in 1993. BCG was the first business consulting firm given approval by the Chinese Government to set up shop in mainland China.

The nation was beginning to open up to the world under economic reforms, and BCG saw potential in both China and Tse. It has proven to be a wise choice. Tse is held in high esteem in China: he’s the man everyone wants to know and he’s regarded as one of the best management consultants in the business. 

Made managing partner of BCG’s China practice, Tse says his initial work with China’s fledgling business community wasn’t just about convincing potential clients that his people could do a good job, but being good at convincing them what they did actually constituted a job. 

“People asked, ‘what do you guys actually do?’. We’d say, ‘well, we manage a consulting firm to advise companies’. They’d shake their heads. They couldn’t understand what a consulting firm was.”

Fast-forward two decades, and both China and its consulting industry are vastly changed. In 2016, foreign direct investment in China grew by 4.1 per cent year-on-year to US$118 billion, reports China’s Ministry of Commerce. China’s consulting sector, which is helping guide those foreign companies and local businesses, was valued at about US$3 billion in 2015 by UK-based Source Information Services. In early 2017, IBISWorld put the sector’s worth at US$25 billion. 

China business pioneer

Sitting on a high-speed train traveling at hundreds of kilometers per hour through what is now the world’s second biggest economy, Tse says he believed early on that the potential rewards of doing business in China would far outweigh the challenges. He waves away the suggestion he is the founding father of China’s now booming consulting sector, despite his role as the first to steer a practice through those uncharted waters. Instead, he puts his appointment down to “right place and right time”.

“At that time there weren’t many ethnic Chinese strategy consultants and so demand and supply made it happen,” he says. 

Others believe Tse is just being humble. 

“Edward Tse must be considered a pioneer in the field of business consulting in China,” says Shane Tedjarati, a former client and now president of Global High Growth Regions for Honeywell. “I’ve known Dr Tse for over two decades and he’s provided invaluable advice on numerous industries, including automotive and high technology.”

All Tse will admit is he was busy from the get-go. In the early 1990s, foreign firms suddenly had access to the most populous nation on the planet. 

“We [BCG] received a frenzy of inquiries and projects, right away,” Tse says. 

In the past 20 years, he has continued to advise companies on how best to enter the China market, initially at BCG, and later as Booz & Company’s senior partner and chairman for Greater China. 

Along the way he’s written award-winning books on China business strategy and management (The China Strategy in 2010 and China’s Disruptors in 2015), had board appointments on Chinese state-owned giants including Baoshan Iron & Steel, and been given government advisory roles in Hong Kong and Shanghai. 

He’s also earned himself a reputation in business circles as a China whisperer. Tse is tight-lipped about his client list, but it’s understood it includes some of the biggest names in global business, across a wide range of sectors. 

The China market evolution continues

Tse, however, is not one to rest on his laurels. He says, in China, it isn’t an option. “The China market is still evolving. The China market we knew 20 years ago is different to the market 10 years ago, and the China market today. It’s a moving target.” 

There are some big factors behind China’s ever-changing business landscape, Tse explains. Foremost is that China’s transition to a totally free market economy won’t be completed for another few decades, meaning the business landscape will continue to shift as protectionist legislation is scaled back and SOE monopolies are challenged.  

That’s one reason why Tse has continued his own evolution. Just before Booz & Company merged with PwC in 2014 (becoming Strategy&), Tse struck out on his own to found the Gao Feng Advisory Company, which is firmly rooted in China.  

After decades of telling foreign companies their China business needed to be more China-centric, Tse took his own advice. 

“China was always at the fringe, not the core, for the big multinational companies,” he says, “and that also applied to the big consulting companies, because they were headquartered in the West.”

“People asked, ‘what do you guys actually do?’… They couldn’t understand what a consulting firm was.”

Tse’s Gao Feng practice is at the front of a new wave of Chinese consulting firms that are beginning to compete with the multinational players in China. With about 100 consultants spread across Beijing, Shanghai and Hong Kong, it is still a small practice, but Tse says Gao Feng is punching above its weight and is now often “invited to compete with the big firms”. 

His first suggestion for businesses looking to break into China is not to arrogantly assume that the one-size-fits-all approach successfully used in 100 other markets will work there. This isn’t a revelation, because he’s been saying it for 20 years; the surprise is that many foreign business leaders still think their company is the exception, and does not have to adapt. 

“China’s transition from a planned economy is still going on and in my opinion it will take another few decades to complete that transition,” he says. “This is unique. I don’t know another country in the world doing this. 

“You have got a much more complex [business] ecosystem in China. The players are not just pure commercial players: you have private companies and multinationals, but you have also got SOEs who play a different ball game … the government is also very involved in driving the economy.”

Secrets of success and failure

Underestimating just how different China is, and where problems and competition may arise, has been the death knell of more than one bid to enter the China market, says Tse. This pitfall can be avoided, he adds, but it involves giving up something global head offices rarely like to relinquish: control. 

“You have to put the brainpower for the real decision-making here in China,” says Tse. 

Dr Edward Tse

Dr Edward Tse, He points to eBay’s unsuccessful 2002 bid to make it in China. The internet giant ran up the white flag after being beaten by a then much smaller home-grown company, Alibaba. It’s what can happen when a multinational doesn’t give its China office enough autonomy, says Tse. 

“eBay didn’t understand the complexities of the China market. They required everything to be done almost exactly as they they did it in the US,” he says. 

“Alibaba was smaller but its team was flexible and adapted quickly. They understood what the consumer wanted and they developed a locally accepted version of the business model. 

“If it would take a week before eBay [with its head office overseas] could make a decision and come back to China with it, during that one week Alibaba could have made five decisions. This is how Alibaba beat eBay.” 

Implementing a Western, “democratic and by consensus” management style has also often proven a mistake, adds Tse. Most of the successful companies in China, both domestic and foreign, are led by a particular brand of executive that resonates with the local Chinese workforce. 

“The … leaders who are successful at multinationals are usually in a control mode,” he says. “They tend to be viewed as the big boss, someone with authority who has a lot of decision-making power and is able to drive the business in a very local way despite what headquarters wants them to do. They are really quite good at saying this is what we do, we have vision, we have purpose, and the team will then follow.”

The Chinese consumer

The other, obvious side of the success equation is the reception from Chinese consumers. 

Tse says too many multinationals come in with a view that their core product will simply work in China, as is. Yet with little or no brand recognition to rely on, foreign products are often less appealing to consumers than local alternatives. 

Tse points to Coke as a company that did a reasonable job of adapting its product presentation to appeal to Chinese consumers and diversified its product line to capture more market share. 

“They genuinely tried to create a more locally accepted product line. At the same time, while they are trying to develop local products such as juices and Chinese tea, I think they’re still hanging too much on their core carbonated drinks.”

The biggest challenge facing businesses coming into China now, however, is digital disruption.  

Chinese consumers are accustomed to using digital payment systems, expect to be able to order almost every product online on established platforms, and have these products delivered to their door – often in less than 24 hours, says Tse. 

China’s level of technology acceptance and integration is unparalleled anywhere in the world outside of Silicon Valley. 

“If you’re headquartered outside of China, you don’t get a sense of the rapid digital disruption in China,” Tse says. “The local guys based in China know, and I’m sure they inform headquarters, but they don’t get it. They hear the words internet, mobile, digital payment, P2P (peer-to-peer); they hear the terms but don’t understand deeply the change in China.”

For those thinking they can play catch up or feel their way into the market, the first man in China’s consulting sector offers a last piece of advice: “The Chinese consumer won’t wait.” 

More

CHINAMacroReporter

February 7, 2021
'Remarks by President Biden on America's Place in the World'
“We’ll confront China’s economic abuses; counter its aggressive, coercive action; to push back on China’s attack on human rights, intellectual property, and global governance.”“But we are ready to work with Beijing when it’s in America’s interest to do so. We will compete from a position of strength by building back better at home, working with our allies and partners, renewing our role in international institutions, and reclaiming our credibility and moral authority, much of which has been lost.”“That’s why we’ve moved quickly to begin restoring American engagement internationally and earn back our leadership position, to catalyze global action on shared challenges.”
keep reading
February 7, 2021
'In Search of Today’s George Kennan'
‘Kennan provided a framework to break through the bitter divide between those who believed America should return to its prewar isolationism, and those who believed the USSR was itching for a dramatic showdown with the capitalist west.’
keep reading
February 7, 2021
' "Longer Telegram" Sets Off Fierce Global Debate'
'The fierce global debate set off this week by a thought-provoking paper - “TheLonger Telegram: Toward a New American China Strategy” – has underscored the urgency and difficulty of framing a durable and actionable U.S. approach to China as the country grows more authoritarian, more self-confident and more globally assertive.'
keep reading
August 1, 2021
'Why China Is Cracking Down on Its Technology Giants'
‘Why, you may ask, is China crushing some of its most innovative unicorns? We’re in a new era led by President Xi Jinping, and politics are in command.’
keep reading
August 1, 2021
'The most significant philosophical shift since Deng'
‘Carnage in China's financial markets signals the beginning of a new era as the government puts socialism before shareholders and regulatory changes rip apart the old playbook. According to some analysts, it is the most significant philosophical shift since former leader Deng Xiaoping set development as the ultimate priority 40 years ago.’
keep reading
July 25, 2021
How China's Middle-Class China is Transforming China and the World
‘Among the many forces shaping China's domestic transformation and its role on the world stage, none may prove more significant than the rapid emergence and explosive growth of the Chinese middle-class.’
keep reading
July 22, 2021
Part 2 | The DiDi VIE (as an example)
‘The prospectus has a diagram, above, of the corporate structure, which looks almost normal. But everything below the double arrow — the actual ride-hailing business, etc. — is slightly askew.’
keep reading
July 22, 2021
Part 1 | 'Owning Chinese Companies Is Complicated'
‘ “Variable interest entities”(VIEs): The problem with this is that it sort of sounds like you’re kidding. But this is a standard method for mainland Chinese internet companies to go public, and the market has come to accept it.’
keep reading
July 22, 2021
Part 3 | Revising the Rules
‘The Chinese government could declare “all these VIE contracts are actually a disguised form of foreign ownership, which is not allowed by the rules, so they are all void and your Didi and Alibaba shares are worthless.” ’
keep reading
July 22, 2021
China: Signals Blinking Red & Oops, We Missed the Risks
I had intended to make this issue all about ‘Variable Interest Entities’ (VIEs) and the emerging risks to about $1.8 trillion dollars’ worth of Chinese shares listed on U.S. exchanges – that is, 4% of the capitalization of the U.S. stock markets.
keep reading
July 22, 2021
'Crackdown on US listings: Will China close $1.6tn VIE loophole?'
‘If Chinese authorities start to question “Variable interest entities”(VIEs), amid the crackdown that has already battered ride-hailing company Didi Global -- another VIE user -- the resulting loss of investor trust could send shock waves through global financial markets.’
keep reading
July 18, 2021
Why the U.S. Lacks Leverage over China
During the celebration of the Chinese Communist Party’s Centennial celebration, Mr. Xi stood in the same place on the balcony facing Tiananmen Square where Mao Zedong stood when he announced the founding of the PRC; Mr. Xi wore a gray Mao suit, among a sea of blue western suits; and he centered himself right above the portrait of Mao, who is similarly attired.
keep reading
July 18, 2021
'I will aim for Mao's Status.'
‘There on the gate was Xi Jinping, Chinese president and party general secretary, in a gray Mao suit. Just below his feet was the portrait of Mao Zedong, also dressed in a gray Mao suit.’
keep reading
July 18, 2021
'US warns companies of risk of doing business in Hong Kong'
“In the face of Beijing’s decisions over the past year that have stifled the democratic aspirations of people in Hong Kong, we are taking action,” said Antony Blinken, US secretary of state. “Today we send a clear message that the US resolutely stands with Hong Kongers.”
keep reading
July 18, 2021
'Biden’s Warning on Hong Kong'
‘The pretense of Chinese and Hong Kong authorities is that their crackdown on the rule of law and dissent will have no effect on Hong Kong’s viability as an international center for trade and finance.’
keep reading
July 18, 2021
'China Plans to Exempt H.K. IPOs From Cybersecurity Reviews'
‘China plans to exempt companies going public in Hong Kong from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S.’
keep reading
July 18, 2021
Hong Kong and the Limits of Decoupling
‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’
keep reading
July 15, 2021
Part 1 | 'Joe Biden is determined that China should not displace America'
‘Biden’s emerging China strategy, while still protean, sounds of a kind with Mr Doshi’s prescription for “blunting and building”.’
keep reading
July 15, 2021
The Biden Doctrine and Its Discontents
President Biden has framed China as a threat both to the U.S. and the liberal world order.
keep reading
July 15, 2021
Part 2 | Joe Biden is determined that China should not displace America
‘Mr Biden’s aides invariably start any discussion of China strategy with the need to restore American greatness after decades of decline.’
keep reading
July 15, 2021
'What's Wrong with Biden’s new China doctrine'
‘Mr Biden’s aides invariably start any discussion of China strategy with the need to restore American greatness after decades of decline.’
keep reading
July 8, 2021
Didi: Xi Surprises Us Again
Beijing shocked the financial world when it pulled the rug out from under Didi days after its IPO on the New York Stock Exchange and also announced new regulations reigning in overseas IPOs and Chinese companies already listed.
keep reading
July 4, 2021
The Chinese Point of View
Here are a few of my thoughts on the importance of Wang Jisi’s ‘The Plot Against China.’ Yuen Yuen Ang’s ‘The Evolution of Chinese Corruption’ speaks for itself - but note especially how Mr. Xi's anti-corruption campaign could hurt China's economy. I have now lived long enough that when a friend complains about his or her spouse, I say to myself, ‘There are no doubt two sides to this story.’
keep reading
July 4, 2021
'How Corruption Powers China's Economy'
‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
keep reading
July 4, 2021
'How Beijing Sees U.S.-China Relations'
‘In Chinese eyes, the most significant threat to China’s sovereignty and national security has long been U.S. interference in its internal affairs aimed at changing the country’s political system and undermining the CCP.’
keep reading
July 1, 2021
Five Themes that Point to Where the Chinese Communist Party & China are Heading
As the Chinese Communist Party begins its second century, it’s useful to identify enduring patterns that might aid us in understanding China today and the directions it might be heading.
keep reading
July 1, 2021
From Rebel to Ruler: One Hundred Years of the Chinese Communist Party by Tony Saich
‘In our discussions, you've identified five themes that have been more or less consistent throughout the history of the party but have oscillated between different points on a continuum:’
keep reading
July 1, 2021
'From Rebel to Ruler': Tony Saich on Chinese Communism at 100
‘At so many points during its century-long existence, the CCP appeared to be in its death throes, whether as a result of external attack or self-inflicted internal strife.’
keep reading
June 27, 2021
European Chamber in China: 'Business Confidence Survey'
A mere 9% of European companies are considering moving any current or planned investment out of China, the lowest level on record. Instead, companies are strengthening their positions in JVs, onshoring supply chains and increasing spending to secure market share. The ambition not only to stay but also to expand their China footprint is more than justcapital flooding in due to optimism about growth. Companies are taking action to secure their operations in China and mitigate exposure to geopolitical trends in order to have a better chance of navigating a future that looks to be fraught with risk, at least in the near- to medium-term.
keep reading
June 27, 2021
'How China & America Should Compete'
‘China and the West urgently need a new framework for understanding the state of the world and their place in it. Such a framework must recognize, first and foremost, that properly regulated economic competition is not a zero-sum game.’
keep reading
June 27, 2021
'Jimmy Lai & the Death of Free Speech in Hong Kong'
Jimmy Lai’s tabloid, the Apple Daily, with its peculiar blend of scandal, gossip, and serious political reporting, was Hong Kong’s indispensable voice of free speech. Now that voice has been silenced, and Lai is in prison with others who tried to protect the right of Hong Kong’s citizens to speak and write freely, to be ruled by law, and to vote for their own autonomous government. Their politics are diverse Yet they stand together. When freedom is under siege, people cannot afford the narcissism of small differences that is tearing apart liberal politics in countries where people think democracy can be taken for granted.
keep reading
June 27, 2021
'European Companies in China: Between Decoupling and Onshoring'
‘Instead of leaving the market, European companies are exploring ways to separate their China operations from their global ones.’ ‘Following the Covid-19 outbreak, European companies in China spent the first few months of 2020 solemnly appraising their investment strategies.’
keep reading
June 24, 2021
'Apple Daily closed, but press freedom stays in Hong Kong'
‘Freedom of the press is a good thing. The West's freedom of speech must be consistent with national interests and public security.’
keep reading
June 24, 2021
Bitcoin’s growing energy problem: ‘It’s a dirty currency'
“Bitcoin alone consumes as much electricity as a medium-sized European country.”
keep reading
June 24, 2021
'China steps up crackdown on bitcoin mining industry'
‘China’s latest intervention places further pressure on what was once one of the world’s most vibrant markets for trading and mining digital currencies.’ ‘It comes at a time when many governments are scrutinising the industry’s effect on the environment and determining the types of financial oversight that should be applied to cryptocurrencies.’
keep reading
June 24, 2021
'Congress on China: Then and Now'
‘With the Senate voting on June 8, 2021, to adopt the United States Innovation and Competitiveness Act, it is safe to say that this is the most comprehensive action by Congress on China policy EVER.’ ‘The language of the United States Innovation and Competitiveness Act is about a long-term competition with China as opposed to war with an enemy.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.