How to Capitalize on an Expat Manager’s Strengths While Managing Limitations
By Tim Lindeman
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About Guest: Steven Yang is co-founder of Simplify Online Technology, a Toronto-based firm that specializes in helping foreign companies develop go-to-market strategies that meet the unique requirements of the China market. With a deep understanding of both Chinese and Western cultures, Steven is able to bridge the gap and communicate key China business concepts in a way that is easy for Westerners to understand.
Success in China requires effective collaboration between the foreign headquarters and the China team. Executives back home rely on Chinese staff who understand the unique requirements of the local market. And the China team relies on the headquarters to instill the corporate mission and culture. Many foreign companies use an expat manager to enable close ties with the headquarters. However, it is important to understand expat managers’ limitations and empower Chinese managers to fill the gaps in key leadership functions.
Expat managers have special advantages leading foreign companies in China
Foreign companies often know very little about China. And cultural differences make it challenging to build collaboration and trust. Expat managers can be very effective at bridging the cultural divide.
Expat managers also have clear limitations understanding China’s business culture
The China market is very unique in comparison to the West and requires a different way of doing business. The learning curve for expat managers is steep. And expats are prone to misunderstanding and bias.
Finding an expat manager with the necessary qualifications is challenging
An expat needs specialized skills to manage a Chinese team. In addition, the position requires industry experience, connections, and the mentality to deal with the fast pace of Chinese business.
Chinese staff are essential for rounding out the management team
An expat manager will only succeed with the help of a strong team of Chinese managers. It is important to empower and motivate Chinese staff to take ownership of critical business functions.
Is it Better to Hire a Chinese National or Expat Manager?
One of the most important decisions a foreign company needs to make when entering the China market is who to hire as a general manager.
Choosing a leader for your China team is especially challenging given the diverse capabilities needed for the role. This individual should be able to collaborate effectively with foreign executives and have a good understanding of the local market requirements. For technology companies, this person should also have rich industry experience and technical knowledge.
One of the first questions to think about is whether to target Chinese nationals or foreign expats for the role. There are good reasons for either approach. And you should consider both before deciding which is best for your company. Ultimately, the decision has a lot to do with your internal company culture and business needs.
If your company is just getting started in China and places a high priority on collaboration and culture, then you should carefully consider hiring an expat manager. This article provides some context and recommendations to help with your consideration.
Expat Managers as a Cultural Bridge
Choosing an expat to be your China general manager can be both convenient and practical. Company executives often have limited knowledge of the China market and culture. And establishing a working relationship based on trust can be easier with an expat who shares a common cultural background. Therefore, the primary function of an expat manager is to serve as a cultural bridge between executives and the China team. This involves communicating what is going on in China with the home office and bringing important aspects of the company culture to China.
Communication and Collaboration
In China, there is a saying: “Heaven is high and the emperor is far away.” (see endnote 1) This saying refers to the challenges that Beijing has traditionally faced when attempting to maintain control over remote regions. But this wisdom also applies to foreign companies attempting to manage remote offices.
Given China’s remote location, communication between the headquarters and Chinese staff can be challenging. There are only a few overlapping hours of the day for direct communication. And having executives make frequent business trips to China is both costly and disruptive.
An expat manager can help reduce communication barriers and provide executives with timely and reliable information about what is happening in China. This transparency can help build confidence and trust. It will also alert executives to possible future challenges, so they can provide the necessary guidance and support.
In addition to communicating with the leadership team, an expat manager can also be effective at forming relationships with colleagues throughout the home organization. This will enable collaboration with a variety of levels needed to support the success of the China business.
Another advantage that expat managers have is their ability to absorb the corporate culture and bring it to China.
Creating a sustainable culture for the China business is a balancing act. The team will need to develop a culture that is compatible with Chinese customers and staff. At the same time, the team will need to maintain core aspects of the foreign culture to enable differentiation in China and effective collaboration with the home office.
An expat manager will be able to pick up the cultural nuances and understand what aspects of the home culture are most important to reproduce in China. An expat will also be able to explain necessary refinements to the China company culture in terms that are easy for executives back home to understand. And when cultural conflicts arise, the expat can serve as a mediator to help resolve the differences.
From the perspective of the China team, having an expat manager makes a huge difference in the team dynamic. If the company were to choose a Chinese manager, the team would likely interact with the manager just like they would with a typical Chinese boss. On the other hand, with an expat manager, there is a great deal of cultural mixing that happens with every management interaction. And over time, the team members become better able to communicate and identify with colleagues back home.
Limitations of Expat Managers
While expats have unique advantages when managing the China business for foreign companies, they also have significant limitations. China has over 5,000 years of culture and traditions. And many of China’s business customs, beliefs, and values are fundamentally different than those in the West. It is very difficult for an expat manager, especially one who is not of Chinese descent, to become adept in this environment. Therefore, it is important for expat managers to realize their limitations and empower Chinese staff to perform key functions on the leadership team to fill in the capability gaps.
Expat Managers Often See China Through Tinted Glasses
It is really hard for foreigners to understand China’s business culture the same way that Chinese nationals do. In fact, even those who have been in China for a long time will miss many of the subtleties of business relationships.
Steven Yang recounts a scene from the classic movie My Fair Lady, where Audrey Hepburn says: “The difference between a lady and a flower girl is not how she behaves, but how she is treated.” (see endnote 2) Steven Yang compares this quote to expat managers working in China. “A foreigner might not really know it, but Chinese people treat them differently. As a result, the way they look at things and hear things will be very different compared with Chinese nationals.”
Some expat managers fall into the trap of thinking that the situation is better than it really is. Chinese are naturally friendly to foreigners and often say encouraging things to avoid unpleasant topics. Therefore, it is important for expat managers to realize that they should not always take this information at face value. And future results may be very different than experiences in China lead them to expect.
Expat Managers Without China Experience Will Face a Steep Learning Curve
One common choice when starting up a China business is to relocate a manager with a successful track record back home. The advantage of this approach is the manager will have a deep understanding of the company’s business and culture. However, they will have much to learn about doing business in China.
The American coffee chain Starbucks originally took this approach when they entered the China market. Howard Schultz, who was involved in the market entry strategy, reflected on this decision:
“[I am] personally responsible for almost nine years of being unsuccessful in China. […] We felt very strongly that we needed to bring a Starbucks tenured person from Seattle in the US to run Starbucks China. We did that not once, but twice. In both cases, great people, but they did not have the understanding, the sensibility of the Chinese consumer, the Chinese employee, and the marketplace.” (see endnote 3)
In Starbucks’ case, it wasn’t until they promoted Belinda Wang, a Hong Kong American with a mixed cultural background, that they were able to bring it together. (see endnote 4)
But other companies have succeeded in using corporate general managers in China. (see endnote 5) The key is to establish a team dynamic that empowers Chinese managers to take ownership of functions requiring cultural sensibility. A successful expat manager will understand the limitations of being a foreigner and collaborate with Chinese staff with an open mind.
Qualifications of an Effective China Expat Manager
While most expats share the same strengths and weaknesses in performing the role of China general manager, not all are equally qualified for the position. Below are a number of key qualifications that will help an expat manager succeed in the China market.
Chinese Language Skills
Chinese is an incredibly difficult language for foreigners to learn, and mastery requires many years of study and practice. Experienced expat managers who are proficient in Chinese are able to:
- Communicate directly and build relationships with customers, business partners, and employees
- Gain a deep understanding of Chinese culture, events, and policy changes
- Function more effectively in daily life, making it more likely that they will be able to remain in China for a prolonged period
Although most Chinese begin learning English as a second language at a young age, the general level of English proficiency is much lower than in European countries. (see endnote 6) Many Chinese professionals have few opportunities to use English and typically have a difficult time communicating with foreigners. As a result, expats who are not proficient in Chinese rely on a limited number of colleagues who speak fluent English as well as other expats living in China. (see endnote 7) This language barrier increases exposure to cultural bias and misinformation.
China Management Experience
Managing a company in China has many special challenges. An expat manager with previous China experience will be better prepared to handle:
- Human resources:
- Hiring candidates with the right capabilities needed for the China market
- Negotiating and managing wages, benefits, and commissions
- Managing employee dismissals
- Collaboration and decision making:
- Empowering Chinese staff to make the most of their capabilities and interests
- Making important decisions with confidence
- Motivating and inspiring team members to carry out the company vision
- Customer relations:
- Using appropriate business etiquette and behavior when dealing with customers and partners
- Negotiating win-win business agreements within the context of China’s business culture
- Managing difficult situations, such as missing project deadlines, issues with product quality, or handling problems collecting money
- Dealing with accounting, taxes, and Chinese legal and regulatory requirements
- Managing expenses with an understanding of the Chinese market cost structure
- Getting money in and out of China
In addition to experience working in China, it is also valuable to have specific experience in the target industry. An expat manager with industry expertise will better understand:
- Target customers and their requirements
- Competitors, differentiators, and price points
- Factors influencing budgeting, planning, and vendor selection
- Influential industry associations, events, and media
While professional networks are important anywhere in the world, they are especially valuable in China where “Guanxi,” the Chinese word for relationships, is at the foundation of many business interactions.
It is very hard to succeed without the help of trusted associates, partners, and friends. Establishing a trusted business network takes significant time. And a good understanding of the Chinese language and culture helps to grow this network. A manager with a strong business network can gain:
- Trusted advice on strategic business decisions
- Introductions to potential partners, customers, employees, industry experts, and government officials
- Insights on dealing with a wide range of Chinese cultural issues
- Moral support when facing serious business challenges
Entering China is not as simple as extending operations into an adjacent territory. The China market is different from the West in numerous ways, including the competitive environment, customer requirements, price, government regulations, and how companies market, sell and get paid for their work.
It is better to think about your China business as a startup. Not only do you need to build a team from the ground up, but you will also need to localize your product and business model. (see endnote 8) And this process will require trying different things, iterating, and figuring out what is the best product market fit.
Therefore, it is important to hire a manager who has a start-up mentality. A qualified manager should be:
- Comfortable making important decisions without direction from the headquarters
- Willing to experiment and try new things
- Resilient in the face of failure and adversity
- Prepared to roll up his or her sleeves and participate in nitty-gritty work
- Financially disciplined, because profit margins in China are typically smaller than in the West
- Capable to move fast and keep up with Chinese competitors
The last point is particularly important because even if your product is years ahead of Chinese competitors you will still need to move incredibly fast. Otherwise, it will not take long for competitors to pass you up.
Empowering Chinese Staff to Fill in the Leadership Gaps
After you hire an expat manager with qualifications to lead the China team, your next step should be to recruit Chinese employees. These employees will round out the team by bringing additional capabilities that the expat manager lacks. For example, they will be more effective at selling and communicating with Chinese customers and partners. And they will typically have deeper connections or “Guanxi” than the expat manager.
An expat manager should focus on team building and empowering Chinese employees. Even when the team is small, the expat manager should avoid micro-managing all aspects of the China business or enforcing decisions from the foreign headquarters. Instead, the expat manager should recruit capable and ambitious Chinese staff and give them clear organizational responsibilities as well as incentivize them to succeed. This also means involving Chinese managers in important strategic decisions and building consensus within the management team.
Steven Yang singles out government relations as being one area where foreign companies especially rely on Chinese staff. “Back in the early days of China’s opening up, large foreign multinationals would hire children of Communist Party members who fought in the War of Liberation. They did this because they understood the importance of government relations.” This is something that a lot of smaller foreign firms, especially American firms, are not used to. But in China, even small companies will want to nurture relations with the government, because as they grow larger it becomes more and more difficult to succeed without government support.
Carefully consider both expats and Chinese nationals to lead your China team
While expat managers have unique advantages, they also have clear weaknesses. The choice of whether to hire an expat or a Chinese national has a lot to do with your company culture and level of familiarity and comfort with the China market.
If you choose a Chinese general manager, consider using expats to bridge the cultural gap
Expats can be effective cultural bridges in positions other than the general manager. Consider placing foreigners in functions that require significant collaboration with staff back home, such as product development and support services.
If you choose an expat general manager, empower Chinese managers to take responsibility for culturally sensitive functions
In many markets, a general manager is personally responsible for sales and business development. However, with the importance of relationships in China, Chinese staff will be much more effective than expats in customer-facing roles. Government relations is another area where Chinese staff should take the lead.
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Case Study: Building Profits Through Relationships
Case Study: Analytics Software Company Goes It Alone In China
A Disciplined Approach to China Market Entry
- Source: “Tian gao, Huangdi yuan,” Wikipedia, viewed on November 24, 2019 (https://en.wikipedia.org/wiki/Tian_gao,_Huangdi_yuan)
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- Source: “My Fair Lady,” Wikipedia, viewed on November 24, 2019 (https://en.wikipedia.org/wiki/My_Fair_Lady)
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- Source: “Howard Schultz, Business Leadership,” Masterclass (https://www.masterclass.com/classes/howard-schultz-leading-a-values-based-business)
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- Source: Steven Yang, “Howard Schultz Tells The Truth Behind Starbuck Success in China,” Simplify (https://simplifyway.com/articles/howard-schultz-tells-the-truth-behind-starbucks-success-in-china/)
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- Microsoft is an example of a US technology company with successful operations in China that stations a senior corporate manager as its China head. Source: “Microsoft promotes Greater China CEO Ralph Haupter to a new role,” MS Power User (https://mspoweruser.com/microsoft-promotes-greater-china-ceo-ralph-haupter-new-role/)
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- Source: “English Levels in China: Quality of Spoken English, Signage, Etc.,” China Highlights (https://www.chinahighlights.com/travelguide/english-levels-in-china.htm)
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- While there is a significant number of professionals in China that are fluent in English, these professionals are not always the best sources of information. In my own experience, many of the people I have gotten the most valuable information from are not proficient in English. Business leaders who are focused on the China market have few opportunities to practice their English language skills.
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- Localization is one of the most important challenges that foreign businesses face when entering the China market. See also: “Case Study: Analytics Software Company Goes It Alone In China” China BizConnect, April 1, 2019 (https://chinabizconnect.com/an-analytics-software-company-goes-it-alone-in-china/)
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