Collaboration in china paths to profit

The report is based on a survey of 183 senior executives in China, desk research, and in-depth interviews with senior executives from Chinese companies.. To gauge how deeply the concept

An Economist Intelligence Unit report Sponsored by Cisco

Collaboration in China: Paths to profi t is an Economist Intelligence Unit briefi ng paper, sponsored by the

Cisco It is the second in a series of reports focused on management issues in China, including innovation,

collaboration and personalisation The Economist Intelligence Unit conducted the analysis and wrote the

report The fi ndings and views expressed in the report do not necessarily refl ect the views of the sponsor

The report is based on a survey of 183 senior executives in China, desk research, and in-depth

interviews with senior executives from Chinese companies The author was Lina Tornquist and the editor

was Katherine Dorr Abreu The Economist Intelligence Unit thanks all those who contributed their time

and insight to this project

June 2009

© Economist Intelligence Unit Limited 2009 2

Introduction

China is a jumble of networks The country has emerged as the world’s second largest manufacturer through an intricate system of interconnected enterprises, mostly small and medium sized, each specialised at managing a portion of the giant supply chain that snakes through China and churns out everything from plastic fl owers to sophisticated computer chips

In manufacturing, new forms of collaboration-based innovation have emerged Loncin, a based motorcycle maker, keeps costs low by managing its suppliers through what is essentially an open-source system The company gives only broad specifi cations for each component, so suppliers must collaborate to design parts

Chongqing-But is China using this powerful tool effectively? To gauge how deeply the concept of collaboration has penetrated companies in China, the Economist Intelligence Unit, sponsored by Cisco, completed a survey

Who took the survey?

The online survey was fi elded in Chinese and was answered by 183

executives in China A total of 26 regions are represented, although

most respondents are located in Shanghai (22% of the total),

Beijing (20%), Jiangsu (10%) and Guangdong (10%) The survey

encompassed a variety of company ownership structures: 43% are

from private Chinese concerns; 24% from wholly-owned foreign

operations; 18% from state-owned enterprises (SOEs) or those

owned by provincial or municipal governments; 10% from joint

ventures between Chinese and foreign concerns; and 5% from other

types of companies

Companies range in size Thirty-one percent have annual

revenues of $100 million or less, 27% between $100 million and

$500 million, 9% between $500 million and $1 billion, and 33%

more than $1 billion

They represent a broad range of industries Manufacturing

accounts for 37% of respondents, fi nancial services for another 8%,

and healthcare, pharmaceuticals and biotechnology for 6%

Forty-fi ve percent are C-level executives and the others are executives and managers They have a broad range of roles: 32% are responsible for marketing and sales, 30% for strategy and business development, and 23% for general management

For further information, see the appendix at the end of this report

31 14 13 9 12 21

of 183 executives in that country in January 2009 We found that while executives in China say they value

collaboration, the concept is not always applied And there are considerable discrepancies in how the

C-suite and other executives view collaboration: the higher up in the chain of command, the more likely the

respondent is to believe that collaboration is a common practice within the company

To get a better understanding of collaboration in China, we compared the results of the 2009 survey

with those of a similar, global survey, conducted in 2007, that culminated in a report, Collaboration:

Transforming the way business works Many of the fi ndings of the China survey aligned closely with those

of the global survey, which canvassed 350 senior executives worldwide Signifi cant differences are

highlighted in the paper

© Economist Intelligence Unit Limited 2009 4

The growing interconnectedness of companies worldwide suggests that future success is tied to

collaborating across greater distances—physical and cultural—and across organisations In Collaboration:

Transforming the way business works, the Economist Intelligence Unit concluded that “the future belongs

to those who collaborate”

China’s spectacular economic growth since the early 1990s points to a very bright future But survey data indicate that the country is lagging in the global cultural shift that views collaboration as a necessary business tool Although respondents say that collaboration is widespread, the survey also indicates that it

is relatively limited across functions and geographies This points to the need for increased collaboration within China’s companies

Executives in China spend only about a quarter of their time working alone, no more than executives

do elsewhere A signifi cant number of respondents in China—67 %—say they collaborate regularly and across a broad range of issues Although less than the 77% who claimed the same degree of collaboration

in the 2007 global survey, this response is in line with the overall positive outlook on collaboration

of respondents in China Generally, they say that employees trust their colleagues and management;

companies promote an open, collaborative culture; and organisations actively encourage collaboration, even more so than in companies surveyed globally

While collaboration is viewed positively in China, the survey suggests that managers there still have

a tendency to look upwards rather than sideways Only about 40% of the executives surveyed in China collaborate with other functions within their organisations on a daily basis, compared with 55% of those surveyed globally in 2007 And in China, only 13% of respondents have ongoing day-to-day collaboration with co-workers across locations within their own organisation, compared with 35% who do so globally

Within China, the degree of collaboration varies by company structure Fifty-two percent of

Where China stands today

Two golden rules

for successful

collaboration?

“Don’t create

heroes and make

sure everyone has

the same goal.”

Yin Weidong, chief executive

offi cer, Sinovac Biotech

”Strongly agree” and “Agree” Neutral “Strongly disagree” and “Disagree”

Our company culture encourages sharing rather than secrecy Senior management explains the mutual benefits of collaboration among colleagues Employees at my company generally trust co-workers and management

Overall outlook on collaboration positive in China

respondents from joint ventures and subsidiaries of foreign fi rms say they spend 25% or more of their time

collaborating with teams in the same function, compared with only 38% in private Chinese companies

And 30% of respondents in joint ventures and wholly owned subsidiaries say they spend that amount of

time working with teams in the same location, compared with 21% in private Chinese fi rms

Despite China’s rapid economic expansion and the growing complexity of many Chinese companies,

executives are less bullish about collaboration than their global peers, especially across departments and

geographies When asked how they expect to spend their time three years from now, 21% of executives

in China say they expect to work more independently, compared to 17% who said so globally They are

generally less likely to foresee working more collaboratively outside of their function than their global

peers were two years ago

Michael A Witt and Gordon Redding, specialists in Asian business systems, point to entrenched

Source: Economist Intelligence Unit survey, January 2009.

Other functions within my organisation

Other locations within my organisation

External suppliers

External customers

External business partners

Daily collaboration less common in China than globally

(% respondents who collaborate daily with the following constituencies)

40

55 13

35 14

14

23

28 10

15

China Global Difference

Source: Economist Intelligence Unit survey, January 2009.

Working independently

Working with teams in the same function

Working with teams in the different function

Working with teams in the different locations

Working with teams at other organisations

Working with teams in the same location

In future, China’s executives less likely to collaborate outside their own functions than peers globally

(Three years from now, which of the following do you expect to spend more of your working time doing, compared to today?)

21

17

55 34

40

55 29

62 25

50 21

28

China Global Difference

© Economist Intelligence Unit Limited 2009 6

hierarchies within Chinese fi rms as barriers to collaboration In their 2008 book, The Future of Chinese Capitalism, they argue that hierarchies block collaboration between workers and management “If

you were to go to any of the millions of small and medium enterprises in China…and asked who in the organisation is responsible for effi ciency, learning and adaptiveness,” they write, “the average employee will point upwards and say ‘laoban’,” the boss

Such lack of delegation has profound implications for industry, according to the authors With the majority of decision-making pushed up the chain of command, private companies often focus on

Vaccine development in China:

Collaboration helps Sinovac take the lead

Two golden rules for successful collaboration? “Don’t create heroes and make sure everyone has the same goal,” says chief executive offi cer (CEO) Yin Weidong

His company, Sinovac Biotech, is one of China’s leading producers of vaccines and has been at the front of vaccine research since China’s outbreaks of SARS (severe acute respiratory syndrome) in 2003 and avian

fl u in 2005

Dr Yin started his research on viruses in the 1980s working as a doctor treating infectious diseases in China’s northern Hebei province Each village had several people who were infected with Hepatitis A, a cause of acute liver disease In 1984, Dr Yin was among the fi rst researchers in China to isolate the Hepatitis A virus, a fi rst step to producing a vaccine At the time, immunology in China had “no people, no funds and no facilities”, he says

That changed rapidly when the outbreak of SARS paralysed China Driven by a desire to help, researchers across the country set aside their projects

to work on mapping the disease After a delay, China’s government rallied behind them, providing funding, longer grants and stronger private-public partnerships

Sinovac, still a young company (it was founded in 2000), took the lead in developing a SARS vaccine

By emphasising the greater goal—quickly providing a vaccine—Dr Yin trumped traditional hierarchies and took a leadership position that would normally have fallen to the heavy-hitters from the government’s Ministry of Health

Dr Yin applies his golden rules—teamwork and focus on a common goal—to his research teams today

He says that too often in China, even in science, individuals are made into heroes, and treated with reverence, which strengthens hierarchies, halts dialogue and stifl es new ideas

Sinovac has been lifted by China’s rising tide of knowledge about infectious diseases Work that took

20 years when he started in 1984—isolating a virus, sequencing the virus and developing a vaccine—now takes only three The company has successfully commercialised a number of vaccines including ones for infl uenza, Hepatitis A and Hepatitis B

Collaboration has been important to Sinovac’s success The fi rm worked with an international network

of institutions and companies researching SARS, for example It now benefi ts from the increasing sophistication of China’s biopharmaceutical industry There are at least two organisations/companies, started by returning Chinese expatriates, that can sequence proteins in China

The company is also being helped through improved collaboration with the public sector

Sinovac collaborates actively with several government institutions including China’s Centre for Disease Control and the Ministry of Health

But even as China’s government dismantles many

of the walls between public and private institutions, the surveys suggest that the country may still have

a long way to go in building strong public-private partnerships Internationally, 74% of public sector workers collaborate with private sector workers;

in China, only 37% say they do so Such a lack of collaboration could mean lost opportunities for reaching common goals, including better vaccines

industries familiar to the top executive They often diversify into industries that are easy to understand

or in which the leaders have personal connections Meanwhile, China’s state sector is full of mid-level

managers who act more like conduits of decisions than decision-makers in their own right

The challenges affect external collaboration as well According to the China survey, privacy rules

(37%), cultural and language barriers (30%) and the reluctance to share information with strangers

(27%) are the largest external hindrances to collaboration

A lack of “institutional trust” in China’s business system also holds back partnerships, according to

Witt and Redding China’s legal infrastructure is not robust enough to ensure adherence to business

agreements, they write, and the economy suffers from a severe shortage of information Professionals

such as actuaries, accountants and surveyors are all still in short supply, often making it diffi cult to

perform adequate due-diligence and to form business partnerships outside trusted personal ‘guanxi’

networks

A networked system of personal relationships can work well in manufacturing, but as China’s

companies move up the supply chain to produce high-value, complex goods, processes become more

intricate and require more specialised business models The country is grooming a set of Chinese “national

champions” to be the global multinationals of tomorrow Developing collaborative skills is an important

step for these companies to compete successfully on the world stage

China is grooming

a set of “national champions” to

be the global multinationals

of tomorrow Developing collaborative skills

is an important step towards achieving that goal.

© Economist Intelligence Unit Limited 2009 8

A signifi cant obstacle to increased collaboration may be a tendency of C-suite executives to underestimate the barriers to teamwork and overestimate the extent to which management addresses such barriers In China, information hoarding is viewed as a barrier by just 17% of C-suite respondents, compared with 41%

of respondents from lower tiers of management Meanwhile, unwillingness to relinquish responsibility to partners and co-workers is considered a major problem by 40% of non-C-suite executives, compared with only 10% of C-suite respondents

There are also substantial differences between how C-suite respondents say they are addressing issues of collaboration and how less senior executives regard these efforts For example, 76% of C-suite respondents agree that collaborative technology is available to every employee; only 40% of non-C-suite executives do so

The disparity between C-suite and other executives

Source: Economist Intelligence Unit survey, January 2009.

My organisation has a formal, transparent and credible process for collaboration People who collaborate well are rewarded with greater autonomy within the company Senior management explains the mutual benefits of collaboration among colleagues Employees at my company generally trust co-workers and management

Management publicises examples of successful collaboration

My organisation has metrics to track collaboration and its benefits Senior management makes sure that collaboration technology is available to employees

We are interested in partnering with other organisations Our company culture encourages sharing rather than secrecy Through partnerships, we are able to accomplish tasks that we couldn’t do alone

C-suite and non-C-suite executives do not see eye-to-eye on collaboration in China

(Comparison of percentages of C-suite and non-C-suite repondents who “Strongly agree” with the following statements)

44 12

39 9

47 18

46 18

43 15

36 8

41 15

44 24

42 24

47 35

C-suite Other executives Difference

Stronger, formalised processes to support and assess collaborative efforts, including better planning

and feedback mechanisms, are powerful tools to make sure barriers to collaboration are actually

addressed In China, where the confl ict-averse culture may prevent staff from presenting complaints to

their superiors or allowing colleagues to lose face, such mechanisms may be particularly important to

improve teamwork

To address these types of problems, Lu Wenbing, chief executive offi cer of Little Sheep, one of China’s

largest domestic restaurant franchises, strives to ensure that complaints and ideas for management

improvements reach him He publicises his email address so all employees can communicate with him

directly Additionally, the restaurant chain allows employees and franchisees to report problems through

anonymous channels, an effort Little Sheep hopes will allow more honest feedback

Our survey indicates that top management at China’s companies tends to isolate itself and could

benefi t from an engaged approach Just 38% of respondents in China report that they or their function

collaborate regularly with general management, compared with 60% of respondents from the 2007 global

survey

Stronger, formalised processes to support and assess collaborative efforts, including better planning and feedback mechanisms, are powerful tools to make sure barriers

to collaboration are actually addressed.

© Economist Intelligence Unit Limited 2009 10

If collaboration is important to growth, how can China’s executives make all parts of their organisation work together? One way is to make collaboration worthwhile, and to overcome obstacles to teamwork The survey shows that the biggest barriers to internal collaboration at companies in China include information hoarding (31%), unwillingness to relinquish responsibility to co-workers and partners (27%), lack of buy-in (27%), insuffi cient resources and excessive workload (25%), and privacy rules and network security (24%)

Haier, a diversifi ed white goods and electronics manufacturer located in Shandong Province with 2007 revenues of $16.2bn, has sought to tear down barriers It now connects performance reviews of managers, and by extension their bonuses, to the performance of other divisions within their organisation, by linking, for example, sales and manufacturing targets

Ma Yansong, founder of the Beijing-based architecture fi rm MAD, suggests that space can also play a large role Open-plan offi ces have been popular in the West since the 1950s, but in China, members of management are often cosseted in closed-off meeting rooms and offi ces A better solution, he suggests,

is creating work spaces that balance the need for privacy with the need for openness and insight, through the use of small, glass-enclosed conference rooms and spaces that create interaction between different teams

Nokia, the Finnish mobile handset giant, realised the need for collaboration and re-built its Beijing headquarters in 2008 to house all its operational departments, including regional headquarters, R&D and design centres, and mobile phone production, as well as outside partners, on the same campus It is

Making collaboration work

Information hoarding (viewing information as a source of power) Unwillingness to relinquish responsibilities or oversight to co-workers or partners Lack of buy-in to benefits of collaboration

Insufficient resources/excess workload Privacy rules and network security Reluctance to share information with strangers

Biggest internal barriers to collaboration in China