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

July 10, 2022
Building Biden's 'Great Wall' Around China
Whether you view it as an aggressive adversary or a nation asserting itself in ways commensurate with its rising status, China is creating risks – some subtle, some obvious - that, along with reactions of the U.S. and its allies, have to be factored, into every related business, investment, and policy strategy.
keep reading
July 1, 2022
A Debt Crisis of its Own Making
Ever since Xi Jinping announced ‘One Belt, One Road’ in 2013, I watched it expand China’s economic and geopolitical influence and lay the foundation for projecting its military power – and become by many accounts an exploiter of the developing world itself.
keep reading
June 22, 2022
No. Ukraine Won't Change Xi's Plans - or Timetable - for Taiwan
Ukraine won't speed up or delay Mr. Xi's timetable. (But it may cause him to work harder to strengthen China's military and insulate its economy from external pressure.)
keep reading
May 7, 2021
'Another China-Related Risk for Investors & Corporations: Taiwan'
"Taiwan poses the biggest geopolitical risk in Asia and is likely to only increase, a reason it has to be built into investors’ [and corporates' models]" according to Arthur Kroeber, head of research at Gavekal.
keep reading
May 5, 2021
'Western companies in China succumb to Stockholm syndrome'
‘Senator Marco Rubio of Florida has a point when he calls Delta Air Lines “the height of hypocrisy” for opposing voter legislation in the US state of Georgia while partnering with a government he accuses of being “actively engaged in genocide” in Xinjiang.’
keep reading
May 4, 2021
'The Surprising Strength of Chinese-Japanese Ties'
At their summit in April, ‘after years of veiled messaging Japanese Prime Minister Yoshihide Suga U.S. President Joe Biden, ‘formally acknowledged that they are working together to deter China’s military power in Asia and compete with China economically.’
keep reading
May 3, 2021
'How Will the Digital Renminbi Change China?'
‘China's new digital renminbi by itself will not help the currency to challenge the US dollar’s global dominance.’ ‘Its true significance instead lies in its potential to shift the competitive balance of power between the country’s technology giants and traditional banks.’
keep reading
May 2, 2021
'Fanning the Flames of War'
I recently received an email from a former U.S. ambassador and influential senior foreign policy expert taking me to task for publishing so many hawkish posts about U.S. policy toward China in the ‘China Macro Reporter.’ These are, he said, ‘in some ways fanning the flames of a potential war. Please back down, at least a bit.’ ‘This is not the Malcolm I remember or know,’ he ended.
keep reading
May 2, 2021
‘A trend for hostility toward China, inflamed under Trump, is a recipe for American failure’
‘A trend for hostility toward China, inflamed under Trump, is a recipe for American failure.’ ‘Hostility toward China, much of it misinformed historically and strategically, has deepened in the United States in recent years, with a consensus hardening among both Republicans and Democrats that China is at root an adversary that must be thwarted.’ ‘Four years under President Donald Trump have enlarged and inflamed that trend, but it is a recipe for American failure.’ ‘The Joe Biden administration needs to seriously rethink Washington’s approach to Beijing.’
keep reading
April 30, 2021
'World Economic Outlook, April 2021: Managing Divergent Recoveries'
‘The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.
keep reading
April 29, 2021
Biden China Policy: What We Know at the 100 Day Mark
Friday, April 30, marks 100 days of the Biden Presidency.On Thursday, President Biden gave a speech to a Joint Session of Congress that summed up many of policies – including those on China - as he nears the 100-day mark.And several major media outlets and think tanks are getting an early start on their analyses.Here's Senator Lindsey Graham: "I'm not very impressed with the first 100 days.”‘ "He's been a disaster on foreign policy.” ’‘ “Russia and China are already pushing him around, so I'm very worried." ’
keep reading
April 29, 2021
'Biden’s First 100 Days: Setting the Table for U.S.-China Strategic Competition'
‘Biden is focused on accumulating as much leverage as possible to deal with China from a position of strength and to dispel the growing Chinese perception that the United States is a power in decline.’
keep reading
April 29, 2021
'What Joe Biden Said About China in His First Speech to Joint Session of Congress'
“We’re in competition with China and other countries to win the 21st Century.”
keep reading
April 29, 2021
'Biden's Speech Calls for U.S. to Take On China and Russia'
‘President Biden justified his broad vision to remake the American economy as the necessary step to survive long-run competition with China
keep reading
April 29, 2021
'What does Biden’s first 100 days tell us about his approach to China?'
‘What we have learned from the first 100 days is that we are likely to have both a confrontational and competitive relationship with China, similar to Trump’s policy but with some important nuances.’
keep reading
April 29, 2021
'China's Response to Biden's Speech'
‘It is natural for the two sides to have competition in some fields, but we should advocate fair competition, like competing with each other for excellence in a racing field, not beating each other on a wrestling arena.’
keep reading
April 26, 2021
'The New Age of Autarky'
‘The United States, China, and India are each now engaged in what seems like a paradoxical enterprise: the quest to increase their global status while also turning inward to become more self-sufficient.’
keep reading
April 26, 2021
'China Inside Out: A Conversation with Susan Shirk & Tony Saich'
‘The centralization of power, quite predictably, leads to this kind of echo chamber effect, which is really quite dangerous. And it's something that we should be factoring in when we think about how to deal with China now.’
keep reading
April 24, 2021
'Xinhua News Agency on the "Strategic Competition Act of 2021" in the U.S.' | 新华社评美“2021年战略竞争法案”
‘The bill is full of Cold War mentality and ideological prejudice, wantonly misinterpreting, slandering and discrediting China's development strategy and domestic and foreign policies, and grossly interfering in China's internal affairs.’
keep reading
April 23, 2021
'A new era of bipartisanship on China in Congress?
‘The Strategic Competition Act codifies a bipartisan U.S. position on a range of China-related issues and telegraphs to U.S. allies the federal government is unified.’
keep reading
April 23, 2021
'Xi at the Climate Summit: Domestic Obstacles to Carbon Neutrality'
‘Xi’s reticence at the summit could be driven by domestic considerations. He needs to balance divergent interests between domestic industrial groups and international expectations, the need to show China’s green image and also not be seen as caving to U.S. diplomatic pressure.’
keep reading
April 21, 2021
‘Scenario One & Two: Xi Steps Down'
‘In this scenario, Xi thwarts the current consensus by handing over his leadership positions to at least one individual from the current Politburo Standing Committee (as per existing regulations).’
keep reading
April 21, 2021
'Threat of Chinese sanctions tests Japan's resolve on Taiwan'
"We advise Japan to stay away from the Taiwan question. The deeper it is embroiled in, the bigger the price it will pay." Communist Party-backed Global Times' editorial.
keep reading
April 21, 2021
‘Scenario Four: Unexpected Death or Incapacitation'
‘Even if the CCP’s claim that Xi Jinping has no designs to remain in office for life is true, his evisceration of succession norms leaves the country ill-prepared for his sudden death or incapacitation.’
keep reading
April 21, 2021
‘Scenario Three: Leadership Challenge or Coup
‘By removing de jure term limits on the office of the presidency — and thus far refusing to nominate his successor for this and his other leadership positions — Xi has solidified his own authority at the expense of the most important political reform of the last four decades: the regular and peaceful transfer of power.’
keep reading
April 20, 2021
'Xi calls for new world order (again)'
‘We must not let the rules set by one or a few countries be imposed on others, or allow unilateralism pursued by certain countries [read America] to set the pace for the whole world.’
keep reading
April 20, 2021
'Beijing won total control of Hong Kong. Now, the "brainwashing" begins.'
April 15 was not a normal Thursday in Hong Kong. That occasion, the first “National Security Education Day” since China imposed a tough security law in June, was the most visible display of Hong Kong’s fall from a relatively free, boisterous territory to an ­Orwellian place that resembles the repressive mainland.’
keep reading
April 19, 2021
‘The US-Japan Joint Statement grossly interferes in China's domestic affairs'
‘The US-Japan Joint Leaders' Statement grossly interferes in China's domestic affairs and severely violates basic norms governing international relations. China deplores and rejects it.’
keep reading
April 19, 2021
'Tokyo Flexes Its Talons'
‘The alliance with Japan is the single most important international relationship America has.’
keep reading
April 18, 2021
'Taiwan in US-Japan statement: show of resolve or diplomatic calculus?'
"The statement shunned more specific language like 'defend Taiwan' to avoid unnecessarily provoking China."
keep reading
April 17, 2021
'Is growth in China soaring or slowing?: The answer depends on how you calculate growth'
‘It was China’s fastest growth on record, underlining the strength of its recovery. Yet it also illustrates the oddities in how GDP is reported.’
keep reading
April 17, 2021
'Margaret Ng's Statement at Conclusion of Today's Trial'
‘There is no right so precious to the people of Hong Kong as the freedom of expression and the freedom of peaceful assembly.’
keep reading
April 16, 2021
U.S.-Japan Joint Leaders’ Statement: “U.S. - JAPAN GLOBAL PARTNERSHIP FOR A NEW ERA”
‘President Biden and Prime Minister Suga exchanged views on the impact of China’s actions on peace and prosperity in the Indo-Pacific region and the world, and shared their concerns over Chinese activities that are inconsistent with the international rules-based order, including the use of economic and other forms of coercion.’
keep reading
April 16, 2021
'Breaking China’s Stranglehold on the U.S. Rare Earth Elements Supply Chain'
‘China’s control of the supply of usable, refined rare earth elements undermines U.S. security and that of its allies.’
keep reading
April 16, 2021
'China’s economy springs back from pandemic hit with record growth'
“The headline year-on-year data really doesn’t tell us the story of how the economy has performed in the first quarter . . . in fact that performance was a bit disappointing. The silver lining is that March was better than the first two months.”
keep reading
April 16, 2021
'Hong Kong Newspaper Tycoon Jimmy Lai Jailed Over Role in Peaceful Protests'
“The wrongful prosecution, conviction and sentencing of these activists underlines the Hong Kong government’s intention to eliminate all political opposition in the city,”
keep reading
April 15, 2021
'Biden’s Afghanistan Withdrawal Is a Blow for China'
‘President Joe Biden’s decision to withdraw U.S. and NATO troops from Afghanistan at the end of summer is likely to confound Chinese calculations, both economic and geopolitical.’
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.