To Get Ahead in China, Companies Give Managers More Power
Panasonic and Volkswagen try to be more nimble in fast-moving market and reduce geopolitical risks
Multinational companies are discovering that to compete inside China, it helps to have leadership and decision makers there.
Companies are giving more autonomy to their local operations so they can operate more quickly and contend with domestic competition in China’s large and fast-moving marketplace. Allowing more operational control helps the companies to tap into the country as a major source of growth.
It can also shield them from some rising geopolitical risks and problems caused by remote decision-making that were magnified during the country’s three-year pandemic isolation.
Japan’s Panasonic Holdings Corp. PCRFY -0.12%decrease; red down pointing triangle
revived its fortunes in areas including household appliances and air-conditioning devices over recent years by giving more independence to its China operations, which are headed by a senior Japanese executive.
“We made the choice of becoming an insider in China as much as possible,” said Tetsuro Homma, who was the first head of Panasonic’s revamped unit. “Until then, from morning to night we were checking in with Japan. That operational cycle completely changed, and we are moving more quickly.”
Germany’s Volkswagen AG VOW -3.42%decrease; red down pointing triangle
sent in a board member from headquarters to revitalize the company’s sales in China. Growth stalled over the past few years as competition intensified with rising Chinese rivals, while a top decision maker who directly oversaw China was stuck outside the country during the pandemic.
The companies’ strategies contrast with how some viewed China previously—as a factory floor that exported products to the world and could be managed from afar. However, that relationship has gotten more complicated in recent years because of China’s closed borders during the pandemic, supply-chain disruptions and increasing geopolitical tensions with the West.
For Western, especially American, executives these days, the stakes of visiting China are high amid deteriorating ties between Beijing and the West. In the latest blow to U.S.-China relations, the chief executive of TikTok, owned by Beijing-based ByteDance Ltd., was pressed Thursday by lawmakers at a House hearing about potential Chinese government influence on the platform.
In an October survey by the American Chamber of Commerce in Shanghai, 44% of the 307 member companies that responded said they are pursuing a “China for China” strategy. Meanwhile, 21% said they are in China to export to the rest of the world.
In recent years, Apple Inc. has given its China-based engineers greater responsibilities to keep its product cycle going as Cupertino, Calif.-based engineers couldn’t travel into China during the pandemic, though key decisions and core tasks still remain centered in the U.S. Tesla Inc. relied on Tom Zhu, a locally-based executive, to lead its China business for eight years before he was called to the U.S. for a global role.
In the case of Panasonic and Volkswagen, the top positions in China are held by veteran executives sent in from headquarters. After Mr. Homma was promoted in 2021 and 2022 to ultimately oversee Panasonic’s entire China business, he remained in China; meanwhile, his successor at the China and Northeastern Asia unit, another Japanese Panasonic veteran, is also based in China.
Panasonic, which relies on China for about 13% of its revenue, made a shift in 2018 after its business stagnated for a decade as Chinese rivals boosted design, quality and market share.
Mr. Homma—then heading Panasonic’s household appliances business—was called in by his boss to come up with a plan to kick-start growth. He set up a committee of some 40 employees.
After
six weeks of meetings in Japan and China, the group identified three
major problems: instead of focusing on the Chinese market where the
consumers are, Panasonic was paying attention to Japan, where its
headquarters is; its costs were too high; and it wasn’t fully utilizing
local talent and resources.
The following year, it restructured its China business, charging its newly established China and Northeast Asia unit with product planning, development, design, manufacturing and sales, without involvement from engineers in Japan or approval from headquarters.
The unit posted double-digit revenue growth in the subsequent two fiscal years, the company said, though it expects growth to have slowed in the current fiscal year that is set to end on March 31 as China’s economy was hurt by pandemic lockdowns.
The changes cut production development time, Mr. Homma said. By 2024, the company seeks to halve its development time from where it was in March 2022.
Panasonic’s two other major business areas in China—automotive systems and smart factory solutions—aren’t included in the China and Northeast Asia unit. Panasonic didn’t include business areas that could be deemed sensitive over technology transfer risks, Mr. Homma said.
Germany’s Volkswagen, which relies on China for around 40% of its vehicle sales, saw its market share shrink over the past few years.
The auto maker’s grip on China started to loosen several years ago, as Chinese brands jumped on a sport-utility vehicle boom, while Volkswagen struggled with electric vehicles and pandemic-related factory shutdowns. The Chinese launch in 2021 of VW’s flagship ID.4 electric SUV fell flat, while domestic rivals such as BYD Co. and NIO Inc. have been on the rise.
Volkswagen’s previous CEO Herbert Diess, who directly oversaw the China business and used to visit the country every few months, didn’t go there when China’s rigid pandemic rules required arrivals to quarantine for weeks.
Ralf Brandstätter, who was brought over in August to head the company in China, is a member of its powerful management board. He pinpointed Volkswagen’s relatively slow pace as one cause of its problems.
In China, “the dynamics and speed of innovation are now many times higher than in Europe or the U.S.A.,” said Mr. Brandstätter, in a message to employees reviewed by The Wall Street Journal. “No other market offers anywhere near this growth potential and this speed of innovation.”
Volkswagen takes a little less than four years to get a new product to the market, while Chinese companies are able to do so in a little more than 2½ years, Mr. Brandstätter said in his message to employees.
Now, Volkswagen has decided to give more localized decision-making power to its China head and his team, especially for product and technology development. Its strategy is for the company to move faster and to do so, it is hiring thousands of staff in China and working with local technology partners.
Write to Yoko Kubota at yoko.kubota@wsj.com
Appeared in the March 25, 2023, print edition as 'China Managers Gain More Autonomy'.