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China's Challenges

Readers write to say China will force Europe to raise its game; companies must get better at managing their intangible assets; and offshoring veterans can ease newcomers' concerns.
CFO Readers, CFO Europe Magazine
May 5, 2008

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"Losing Their Grip" (February) highlighted many of the issues faced by fast-growing firms in China. These companies are rapidly becoming suppliers, customers or competitors of many European businesses. In whichever role, they have the potential to force Europe to raise the game on many fronts, including innovation and customer service. So their success is vitally important to European — and global — growth. However, for these companies to make it on the world stage, I believe they need to focus on three areas: people, culture and governance.

In terms of people, China has a desperately short supply of managerial-level workers. For that reason, companies should nurture the staff they have and promote from within, even if it takes more time and is more expensive than recruiting externally. A key step is exposing junior managers to western norms, either via an overseas posting or a joint venture with a western firm, which can help develop the soft managerial skills that world-class firms need.

As for culture, successful businesses have, or seek to achieve, a culture of "nervous energy" or "creative tension," so that employees openly volunteer ideas, challenge others and proactively find ways to turn those ideas into action. This is difficult to achieve in the command-and-control culture long fostered in corporate China. (However, in one important respect Chinese companies excel: they're good at listening to customers and acting on their ideas at a pace that many western firms have yet to achieve.)

Finally, there's governance — a perceived weakness of many emerging-market firms. Having, or preparing for, a public listing is a good way to force good governance up the agenda. The smartest firms deliberately set the bar high, voluntarily adopting measures that increase market confidence.

Chinese companies that hone these areas will soon be blending a winning combination of their "can do" attitude with western mores and processes.

Jeremy Butler
Head, UK China Practice, KPMG
Birmingham, UK


Measuring the Immeasurable

With regards to "Above & Beyond" (February), just the fact that companies are now focusing on the link between "employee engagement" and corporate performance is a sign of the growing importance of long-term value creation. But, of course, employee engagement alone cannot create value — rather, companies must manage the entire bundle of "intangible" assets ranging from management skills to brands to patents.

Unfortunately, companies have little experience of measuring intangible assets and are generally wary on disclosing information about an area that's considered a competitive advantage. At best, most also see the measurement of intangibles as "a nice to do;" at worst, an additional reporting burden.

For several years, the European Federation of Financial Analysts' Societies has paid close attention to the measurement, disclosure and valuation of intangible intellectual capital, aiming to encourage companies to establish a systematic way of measuring and evaluating performance — not only in terms of human capital, but also "structural capital" (organisational performance) and "relational capital" (internal and external corporate networks). Combined, these will drive value.

Giampaolo Trasi
Chairman, EFFAS Commission on Intellectual Capital
Alexander G Welzl
European Co-ordinator, EFFAS CIC
Frankfurt, Germany


Learning from Experience

"Spreading Its Wings" (March) showed that amid all the enthusiasm, companies' reservations about offshore outsourcing are very valid. Agfa's divisional CFO Tim Coakley, for example, noted that transferring operations overseas is not the way to solve management shortcomings. But this shouldn't stop companies from exploring offshoring to help improve productivity, customer service or other aspects of performance.

Concerns about losing control and internal know-how through offshoring are common, as are fears about damage to reputation and the quality of service from providers. The good news is that many companies are already offshoring and newcomers can learn from their experiences.

An important lesson companies have learned is to keep service providers out of "silos" in order to build a close working relationship. To achieve that, companies should invest in an in-house team dedicated to managing the offshoring relationship and focusing on keeping lines of communication open at every level of their organisation, from the board and the CFO to operational staff.


Stuart Mackie
Business Development Director, Genesys Telecommunications
London, UK




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