1. Management
L
ike most segments of the
mainland’s economy, the
non-profit sector has grown
rapidly in the past few
years, expanding from
roughly 6,000 registered groups in
1999 to about150,000 in 2005.
However, weak management
skills and a lack of resources are
making it hard for non-profit groups
or non-governmental organisations
to meet the rising demand for their
services.
This is where huge opportunities
exist for corporations to improve
NGOs, not only with financial
assistance, but also with
organisational and infrastructural
skills that will enhance their efficacy
in the long run.
Mainland NGOs are subject to
limited funding and a skewed
distribution of scarce resources. In
2005, charitable contributions in the
mainland totalled only 0.05 per cent
of the nation’s GDP, compared with
nearly 2 per cent in the United
States. Government-affiliated NGOs
absorb 85 per cent of all available
resources, leaving little for
burgeoning grassroots groups.
Donations from mainland
companies are particularly low: on
average, leading local firms
contribute less than 0.3 per cent of
their post-tax income to charity,
compared with more than 2 per cent
at most Fortune 500 corporations.
International organisations and
firms account for 80 per cent of all
donations to mainland charities.
The private sector would make a
greater impact by directing their
money more effectively and by
helping develop the NGOs’
management and operating skills.
NGOs in the mainland need training
in basic business skills. Businesses
can encourage employees to
dedicate their time to help out or to
have them train NGO employees to
do it professionally.
Such projects offer companies
two benefits that funding alone
cannot. First, the direct transfer of
skills and services gives donors
greater control over the outcome of
their philanthropic efforts. Second,
by creating a window into the NGOs’
operations, companies can better
tailor their future donations to the
group’s needs.
An example is Sun Village, a
group in Xian province founded in
1998 to offer housing and
psychological counselling for
children of incarcerated parents.
Despite adequate funding and
demand for it to increase enrolment,
it has been very slow to expand. Its
sluggish growth is due to the lack of
managers who can organise
effectively and assist the principal in
tasks beyond day-to-day operations.
Corporate volunteers could help
by coaching Sun Village’s managers
on daily operations and fund-raising
skills, allowing head staff members
more time for strategic planning.
In addition to providing
volunteers, corporations should
rethink the way they donate to
NGOs. Most organisations direct
their donations towards programme
expenses but not the costs of
administration, fund-raising, or staff
development.
Furthermore, many donors focus
on issues that are high on the
government’s list of priorities and
are therefore widely publicised. As a
result, many NGOs amend their
programmes merely to increase the
donations they receive – even if it
means neglecting their core mission.
Corporations can encourage
NGOs to focus on programme
missions by helping them improve
the way they recruit, develop, and
retain employees. Providing the
resources to build and staff a school
is helpful, but providing teacher
training will go further towards
sustaining NGOs in the long run. At
Sun Village, for example, a
corporation might consider funding
programmes to train staff in
psychological and developmental
counselling.
The practice of making NGOs
apply annually for funding –
presumably to review their
performance – also creates undue
administrative burdens.
The success of NGOs depends on
a combined effort from public and
private sectors. Businesses can
provide proliferating NGOs with the
most useful resources – financial
and beyond – to help them build a
sustainable future for the country.
......................................................
Hai Wu is a partner in McKinsey &
Company’s Beijing office; Mark Yu-
Ting Chen is a director of Non-Profit
Partners, an organisation devoted to
supporting the development of the
nation’s non-profit sector
with Hai Wu and Mark Yu-Ting Chen
More than hard cash,
NGOs need soft skills
Lack of management
skills and resources
is making it hard for
NGOs to meet rising
demand for services
......................................................
INSIDECHINA
SOUTH CHINA MORNING POST MONDAY, AUGUST 27, 2007
Trends B5
A NEW WEEKLY SERIES LOOKING AT THE BIGGER PICTURE
TODAY THE VEHICLE INDUSTRY
Book Review
I
magine conducting business in
a country where the rule of law
is open to interpretation by
bureaucrats and it is not
unheard of for a local partner to
transfer company funds into his
own accounts, hire family members
and “… get rid of you once the
business is working”.
Yet, despite these powerful
negative conditions a new book says
are present in the mainland, there
are those lured by the challenge.
For them, China CEO: A Case
Guide for Business Leaders in China,
by Juan Antonio Fernandez and
Shengjun Liu, presents a good
starting point for learning about the
mainland business environment.
It is written primarily for
international business students and
expatriate executives in the
mainland experiencing one of the
pitfalls discussed in the book. This
means some issues will be a little ho-
hum for seasoned Hong Kong
executives, although the solutions
may not be.
Nine topics are broken down into
easy-to-digest, self-contained
chapters covering leadership,
human resources, joint ventures,
dealing with headquarters,
counterfeiters, mainland
consumers, government
relationship, expatriates, and foreign
entrepreneurs.
Each chapter begins with an
introduction to the topic followed by
a relevant case study and ends with
at least two commentaries, one from
a professor at the China Europe
International Business School and
another from a practitioner with
work experience in the mainland.
For example, the negative
business conditions are discussed in
Chapter Nine and followed by a case
study of an entrepreneur – an
American self-starter who grew his
small business into a specialist
chemical supplier to the automotive
industry.
The somewhat obvious
conclusion is that entrepreneurs
must identify the right opportunity
and have a sound market-entry
strategy. Noteworthy is the advice to
establish a wholly foreign-owned
enterprise and forgo local partners.
Also not surprising is the
revelation that the root of the high
staff turnover problem is skilled
employees and middle managers
who “…have the mentality that a
better opportunity is always waiting
just around the corner”. Equally as
true here, the authors’ solution
involves taking an employee’s entire
family’s needs into account when
presenting a work package.
Including an examination of
expatriate social lives in the
mainland confirms the importance
of personal matters that remain
unaddressed by many overseas
headquarters.
If you think you are taking a risk
by moving your family to the
mainland for a “great career
opportunity”, read the story of a
former country manager of lollypop
maker Chupa Chups. He was posted
in Shanghai only six months before
being asked to close the operation
and fire himself. Considering his
situation may at least prepare you to
ask the right questions before you
pay the deposit on a flat.
In essence, Fernandez and Liu
are saying that success hinges on
both understanding and accepting
that the rules may be very different
from what you are used to.
with Elizabeth Horscroft
A primer on doing
business in mainland
A
YouTube posting
showing Brilliance
China’s BS6 car
crumple like a can
in a German crash
test in June was a
public relations
disaster for the
mainland’s car
industry.
“Koreans build better cars. Say no to
Chinese cars,” was one comment on the
posting, highlighting the ground the
industry has to make up if it is to win the
trust of consumers outside the mainland.
There have been some successes. Chery
Automobile early last month said it would
co-operate with Chrysler to produce cars,
becoming the first Chinese carmaker to
land in the American market.
Just this month, it cemented a joint-
venture deal with Italy’s Fiat to produce
and distribute Chery and Fiat cars, paving
the way to export its products to the
western European market.
But like the Japanese and South
Koreans before them, mainland carmakers
face a tough battle building respected
global car brands. And marketing, as much
as engineering, will play a big part in
whether they will succeed or fail.
In the1960s and ’70s, the much-derided
Datsuns were labelled “Japanese junk” in
the west, with Japan’s exports considered
cheap but unreliable. Today, Japanese cars
are renowned for engineering excellence,
with the industry’s manufacturing
techniques copied by competitors.
The big question is whether mainland
carmakers can emulate their Japanese and
Korean counterparts and whether names
such as Brilliance and Chery will be the
Toyota and Hyundai of the future.
The mainland, the world’s second-
biggest car market, is still a minnow in
terms of exports but growing fast. Last year,
exports surged 97.2 per cent to 343,500
vehicles and are expected to grow to
510,000 this year. By comparison, Japan
exported 5.42 million vehicles last year.
The China Association of Automobile
Manufacturers says the country exported
241,200 vehicles in the first half of this year,
a 71.3 per cent increase from a year earlier.
For years, the industry has been making
cars for the domestic market with foreign
partners such as General Motors and
Volkswagen. Now the authorities have
given them approval to spread their wings
globally in a big way. Boosting exports is an
integral part of the industry’s11th Five-Year
Programme (2006-2010).
“When local carmakers can successfully
enlarge their market share overseas, it will
also help their brand recognition at home,”
said Tian Yamei, a senior engineer at the
association.
The first Chinese commercial vehicle
was exported by First Auto Works in1992 to
Tanzania in east Africa. Since then, Chery,
Geely Automobile Group and Great Wall
Motor have established footholds in the
Middle East, Russia and eastern Europe.
Chery has a joint-venture assembly
plant in Uruguay with Argentina’s Socma
Group. Its first model off the line will be the
Tigo, Chery’s first sport-utility vehicle.
But making inroads into western
Europe and the United States is the
ultimate prize of these carmakers as they
raise brand recognition and improve
engineering standards. Slowly but surely,
they are laying the groundwork.
Anhui-based Chery earlier last month
said it would co-operate with Chrysler to
produce small cars, becoming the first
mainland carmaker in the US market.
Zhejiang-based Geely is also planning
an overseas presence; it joined the Detroit
car show last year. Shenyang’s Brilliance
China has signed a contract with dealer
He added that the company planned to
sell its cars at less than US$10,000 per unit.
CSM Worldwide, a US consultancy
specialising in the vehicle industry, said
passenger cars would be the mainstay of
the export business and companies with
foreign partners could spearhead the drive.
“About 500,000 passenger cars will be
exported from China by 2013,” said Yale
Zhang, a director of the consultancy. “The
trend is joint-venture companies forming
long-term plans to export from China
rather than domestic carmakers.”
Honda became the first foreign
carmaker to export its Chinese-made cars,
saying early last month it planned to ship
42,000 Jazz models from the mainland to
Europe this year, up 70.7 per cent from a
year earlier.
Guangzhou Honda, a 50-50 joint
venture between Hong Kong-listed
Denway Motors and Honda, will also
invest two billion yuan to develop its own
line of vehicles, becoming the first joint-
venture carmaker to do so.
Other carmakers are trying to go it
alone. Shanghai Automotive Industry Corp
and Nanjing Automobile Group are
developing self-branded cars with the
ultimate goal of exporting.
SAIC, the largest domestic carmaker by
sales, has launched the Roewe 750 using
technology and designs it bought from MG
Rover in 2004.
Nanjing Auto, which acquired the assets
of MG Rover in 2005, hopes to turn around
its business by tapping the latter’s
established dealership networks in Britain.
However, as the mainland car industry
prepares to do battle on the global stage,
some analysts are concerned its resources
are spread too thinly. They say despite the
reforms and restructuring of the past 20
years, the process of sifting out weaker
domestic players is unfinished.
Unlike Japan, the US and Korea, which
usually have only two or three leading
carmakers, the mainland has at least10 so-
called “important” carmakers.
The State-owned Assets Supervision
and Administration Commission of the
State Council announced in March it
planned to consolidate the mainland’s vital
industries, including carmaking, with a few
“pillar” companies. In other words,
laggards would be elbowed out.
“The development of local carmakers to
go it alone without a foreign investor has
just started … eventually, they should be
able to compete with multinational
carmakers globally on a level playing field,”
said Xu Changming, director of the
Information Resources Development
Department of the State Information
Centre.
Car industry analyst Alison Seng of
Standard & Poors said exports could help
carmakers boost earnings as they face
increasingly crowded domestic markets,
but it was not a “cure-all” solution.
Criticisms aside, mainland carmakers
are expected to use traditional pricing
tactics to make inroads into foreign
markets.
“Chery and Chrysler plan to offer made-
in-China cars in the US next year for about
half the price of the US company’s
cheapest model,” Chery chairman Yin
Tongyou said.
Chrysler’s least expensive US model, the
Dodge Caliber, sells for US$13,850,
according to car sales website
Edmunds.com.
As mainland carmakers face the trials of
going global, they could do no better than
take note of Korean carmakers.
Market research firm Strategic Vision
found Hyundai tied for first place with
Nissan in a customer satisfaction survey of
27,000 Americans last year. That is a long
way from its position in the 80s as a market
pariah.
John Bonnell, director of market
intelligence in Asia-Pacific at Automotive
Resources Asia, said the Hyundai warranty
programme was key to turning consumer
perceptions around. But more importantly,
Hyundai built success at home before
attempting global expansion.
“Hyundai has got good fundamentals, a
stable market position in its home country
which it focused on before expanding
overseas,” he said.
Mainland carmakers are trying it the
other way around – banking on export
success to lift their image at home to
improve sales. It remains to be seen
whether that will lead to global triumph.
...............................................................
kandy.wong@scmp.com
Car firms face uphill
drive for success
Mainland brands need to improve quality to make
inroads into global markets, writes Kandy Wong
In high gear
SOURCE: CHINA ASSOCIATION OF AUTOMOBILE MANUFACTURERSSCMP GRAPHIC
2007*
2006
2007*
Exports (vehicles)
Total sales (m vehicles)
2006
500,000
343,500
8.5
7.22
(L97.2% vs 2005)
(L25% vs 2005)
*estimate
HSO Motors Europe to export158,000 cars
to Germany by next year.
Industry players say mainland
carmakers should not
underestimate the difficulty of
breaking into US and
European showrooms.
Fitch Ratings said Chinese
car exports would remain
focused on the emerging markets
of the Middle East, Latin America and
Russia.
“Chinese carmakers will need time to
completely meet the safety and emission
standards of developed countries,” said car
analyst Matthew Kong. “It also will take
time to establish distribution and after-
sales networks as well as brand recognition
in foreign markets.”
The Zhonghua Zunchi M1, known as
the BS6 in Europe, failed to pass a
benchmark German safety test, the
German ADAC car club announced
at the end of June. It was the
second mainland car to fail the
test after the Landwind SUV
from Jiangling Motor suffered
a similar setback in 2005.
“The BS6 model
received only one out of
five possible stars in the
crash test under
European new car
assessment
programme
regulations,”
said ADAC’s
Maximilian
Maurer.
Consumer
perceptions of poor
quality are familiar territory for
Hyundai and could provide lessons for
the mainland industry.
After Hyundai entered the US market in
1986, its cars became notorious for shoddy
workmanship. That led Hyundai to boost
quality and provide a10-year,160,000km
warranty for every vehicle sold – a
marketing move that has made it one of the
most favoured brands in the US.
“Patience is a difficult but critical part of
brand-building in the US or any other
market,” said Hyundai Motor America
chief operating officer Steve Wilhite.
“Undoubtedly, Hyundai’s still working
on brand building in the US market though
we’ve been here for two decades. The
Japanese carmakers also took as long to
firmly establish their brands in the US.”
Mr Wilhite stressed that quality was the
greatest concern for any car buyer, the very
factor the
BS6 was
found
lacking in the
German safety
test.
And it is not
only on safety
where mainland
carmakers have to
improve their
game. Geely, the
mainland’s largest
privately owned
carmaker, suffered a
setback at the Detroit
car show last year after
its cars – with their
simple curves and
straight lines that are
easy for mainland
factories to make – looked
starkly utilitarian by western standards.
“It is not surprising that [mainland]
carmakers will take a long time to gain the
confidence of consumers, just as
Volkswagen’s Polo took a long time to
secure a firm position in the Chinese
market,” said Lawrence Ang Siu-lun, an
executive director of Geely.
His assessment was in contrast to the
optimism of Geely chairman Li Shufu, who
in Detroit predicted sales of its Free Cruiser
in the US would reach100,000 a year.
Mr Li subsequently changed his story,
saying: “We’re still studying detailed plans
to reach overseas markets, without an
exact timetable for delivering the first
vehicle to the US.”
On the Web You can read this
feature and last week’s issue on
foreign exchange reserves online
by logging on to the China
section of www.scmp.com
Dmitry Sereda has not one but three mainland-
made vehicles. “I love Chinese cars. They’re
really cheap,” he said. “And the quality is not
bad.”
The 34-year-old Muscovite was not so
pleased with a Xinkai SRV that he later sold but
swears by the engine, steering, traction and
leather seating of his Safe SUV, made by Hebei-
based Great Wall Motor and his M2 by
Shenyang-based Brilliance Auto.
Mr Sereda is one of thousands of Russians
choosing mainland cars of “not bad” quality for
their cheap price. Sales tripled year on year to
22,000 units last year. Production is set to
expand 30 times from last year’s levels to more
than 450,000 vehicles per year by 2010,
PricewaterhouseCoopers car industry partner
Stanley Root wrote in July.
Avtomir, Russia’s largest dealership, sells
500 mainland-made vehicles each month.
Inkom-Avto, a leading chain, sold 2,538
mainland cars last year.
Russians in the fastest-growing budget
market see mainland sedans, at prices of
US$9,000 to US$11,000, as a value for money
buy.
The Chery Amulet, retailing for US$9,132 at
Inkom-Avto, undercuts South Korea’s US$12,830
Kia Spectra and is on par with France’s
US$9,832 Renault Logan – Russia’s second-most
popular model.
Given a choice of domestic models at the
same price, like the AvtoVAZ Priora (US$10,660)
and the GAZ Volga (US$11,419), Russians would
rather buy a foreign brand.
“[Still], the metals are low-grade and the
design outdated and overly simple,” said Yury
Glumov, director of NAMI, a car research centre
that represents Russia at international safety-
standardisation bodies.
The mainland-manufactured vehicles were
comparable in quality to Russian cars – which
tend to break down – and close to those
impoirted from South Korea but were far
behind those from Japan, said Andrei
Kolesnkov, Inkom-Avto’s spokesman
representing mainland companies.
Even so, said Yevegeny Mezhov, director of
mainland car sales at Avtomir, Russians were
happy to find in mainland cars the basics they
wanted: hydraulic engines, power steering,
turbochargers and air-conditioning.
Extras such as dual air bags, global
positioning and audio systems take a back seat.
That was why, it was meaningless to
compare mainland cars with German, Japanese
and South Korean ones, Mr Glumov said.
“For the bottom market, it’s a logical buy.”
Russians look to Chinese cars while other makes take the back seat
..............................................................
Joyce Man in Moscow