Full article reprinted from "The Gray Sheet" - September 29, 2008
Find out how an informal Ernst & Young survey found it takes a minimum of two years to get basic business operations up and running in emerging Asian markets such as China.
Full article reprinted from "The Gray Sheet" - September 29, 2008
An informal Ernst & Young survey found it takes a minimum of two years to get basic business operations up and running in emerging Asian markets such as China.
The survey, presented Sept. 23 at the AdvaMed 2008 MedTech Conference in Washington, D.C., involved representatives from 12 U.S. and European medtech companies with operations in Asia.
It found that companies face difficulty finding and retaining management and sales and marketing people. Talent for leadership positions often needs to be imported, which is "very costly," Heinrich Christen, a partner with Ernst & Young, said.
In addition, retaining employees at any level is difficult because workers often have "unrealistic expectations and no loyalty," Christen said. Recruiting and training new employees is also expensive, the survey found.
Nevertheless, the Chinese market is highly attractive, Christen pointed out. "China is the world's largest market and it's largely untapped," he said.
Surveyed companies had expected annual average growth rates over the next three years of 30% to 40% for their operations in China.
The country's expanding middle class is willing to pay for imported medical devices. Moreover, Christen said, state-of-the-art hospitals are being built throughout the country, and smaller rural hospitals need to replace equipment.
Lessons From J&J
Johnson & Johnson in July completed a consumer business acquisition in China that was four years in the making, said Aileen P. Stockburger, VP-worldwide business development, medical devices and diagnostics group. J&J's usual benchmarks for closing a deal are six months, she said.
The exec noted the cultural issues that come into play for U.S. companies doing business in China.
"It takes time, it takes patience, and it takes willingness to do things differently," she said. "You can't necessarily do things the Western way because obviously the Chinese folks have their own way that they want to do things."
J&J is still struggling to retain Chinese managers, Stockburger said.
"We have quite a number of local managers that we train and then they leave," she said. "They are very, very valuable to other multinational companies in China, and I don't think we have an answer for how you retain them other than to give them opportunities and do your best to keep them satisfied."
Employee retention after an acquisition is particularly important, Stockburger added. "The people are the most important part of that company that you will be acquiring."
J&J's approach to keeping top Chinese personnel echoes its strategy in the West and includes setting up retention plans "to make sure that they will stay for a certain period of time."
The company also works to engage Chinese talent in the acquisition process "so they feel they have some ownership in that process and therefore are more likely to stay," said Stockburger.
Language And Communication Differences
English is the official language at J&J facilities around the world, but at the recently acquired business in China, almost nobody speaks it, Stockburger said. J&J has decided to continue to operate the company in Chinese.
"We are doing our best to make an exception to have this company," she noted. J&J employees in Shanghai are helping the Chinese firm with translations.
"We can't come in and change it and Americanize it or we'll ruin what they have," Stockburger said.
Whereas J&J thinks of itself as a "people-oriented," collaborative company where everyone in the meeting room is encouraged to speak up and give their point of view, Chinese employees have a more hierarchical mindset and will not talk unless given express permission by their boss, she said.
"If you ask a question they will respond yes," she said. But "yes doesn't mean, 'Yes I agree.' Yes means, 'Yes, I heard you,'" she said.
"That takes a little bit of time to understand that they're saying yes but that doesn't mean they will do what you think you just agreed would happen, and that can be frustrating coming from a U.S. mentality."
It was sometimes tricky asking for documents by e-mail even from her own J&J staff working on the deal in China, because the Chinese tend to be "reluctant to finalize," Stockburger said.
"They felt that submitting something to corporate meant that they were locking in, and they didn't want to do that."
E-mails were promised out of politeness instead of an intention to actually send them, she said. "Despite my repeated efforts of saying, 'I'm part of the team,' that didn't work."
Instead, face-to-face communication is crucial in China.
"If I wanted to see their work product, I would get on a plane and fly there. It meant quite a lot of plane trips to China, but that was the only way to do that. Now, mind you when I went there and had the meetings in person, everything would be great. They would have everything, we would have a very good meeting."
Although Stockburger and her Chinese counterparts got better at working together over time, they "did not get perfect," she said.
"Until the end, after four years of working with groups of folks, I still had to get on planes to show up to get documents that I needed."
Stockburger stressed the importance of continuing to encourage open communication with Chinese business partners.
"Just make sure you don't fool yourself into thinking you're having an open dialogue," she cautioned. "You may not be having an open dialogue; they just might be being polite and you're getting polite yeses instead of actual agreement."
- Ingrid Mezo
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