This is the fourth in a series of eight real world examples of how western companies became aware that their ‘man’ in China was on the take.
In this series of “Eight Signs,” I suggest that you keep an eye out for behaviors and circumstances that could indicate that something is amiss in your organization.
Please treat these items as signs of potential trouble, not proof of wrongdoing. If you notice several signs adding up, you should begin to be even more vigilant, giving everything a second look.
So. Your business is growing at a “respectable” rate, a few points above China’s GDP every year. That in itself seems to indicate nothing in particular.
How in the world…
Again, I know, how could this possibly indicate anything at all about your company’s China operations? This seems so flimsy a reason to suspect the top executive of anything illicit. Maybe, maybe not.
Time for a real life example (I couldn’t make this stuff up!). An American valve manufacturer approached me with an urgent need to recruit a replacement Chief Representative/Sales Director rolled into one.
Why? The company’s two most senior managers had just ‘resigned’ after 12 years to found their own distributorship. Nothing sinister in that, right? In twelve years, these two men had led business growth from scratch to US$ 35 million in annual sales. Not great but also not shabby. Now they had left and a replacement was needed.
In short order, we found one for them. The new Chief Rep posted 92% revenue growth her first year, 42% her second year, and tripled revenues in her third year, crossing the US$ 100 million mark. In three years, the company captured US$ 150 million in revenues it never would have seen otherwise. An incredible achievement.
The same woman also introduced a second line of product and took the company into previously unexplored sectors. Eventually, the PE firm that owned the business sold out to a major multinational for a handsome profit, based on the performance our candidate turned in. She is still there, 7 years later, happily driving growth and profits (and a testament to “good fit” executive recruitment results).
For twelve years previously, the company’s owners, a PE firm, had accepted presentational drivel telling them that GDP + 2-3% was the max that they could expect from China. They never looked farther for market information, surveys, independent data, or expert opinions that would indicate otherwise. They simply accepted the word of their chief rep. When we began to contact competitors in the market in the research phase our recruitment work, we learned very quickly that our client was sitting on the best product brand name and reputation in the market worldwide – and their competition all hoped dearly that the company would never wake to that fact in China!
What was going on
What was going on? Well, the top priority of the two top executives was developing their own business on the side. My client’s business ran a distant number two in their minds. Deliver the minimum, throw in some form of justification for not delivering more, add a dash of Chinese / Western schmoozing and HQ will buy it as a matter of fact — a pretty standard formula.
Precautions you can take
If you are not keeping your finger on the pulse in China, you are inviting trouble. As mentioned in my last blog post, the law in China confers tremendous power onto the General Manager of a company. “Power corrupts, and absolute power corrupts absolutely,” so the saying goes. Constant crosscheck surveillance is a prudent and necessary safeguard if you are overseeing operations in China from a distance.
One way to do this is maintain independent 3rd party data/information sources for what your market is, what the potential for your company’s products are, what factors contribute and detract from growth in China in your sector, and what your direct competition is up to, for starters. You’ll be in a much stronger position to know what your own annual revenue growth rates should / could be. Your senior subordinate should NOT be your sole source, no matter how trustworthy he/she is.
So. Do you maintain authoritative 3rd party information flows about your market in China? Do you include these in your planning processes? Is your management team in China aware that you keep tabs on the market, on competition, on regulatory developments that might affect your business? Are you even a little knowledgeable about the market in China? If so, you are much less likely to have the wool pulled over your eyes. Just think of all the revenue that my client lost over those 12 years simply because they believed a single source without verifying for themselves. Ouch!