Challenges Chinese and Russian firms face with global expansion...

by Karen Coppock
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Moscow’s SKOLKOVO Institute for Emerging Market Studies (SIEMS), a think tank that focuses on emerging markets with offices in Beijing, Moscow and India, recently released a report on Operational Challenges Facing Emerging Multinationals from Russia and China. Is definitely worth reading, but for those pressed for time, below is a short summary.

SKOLKOVO analyzed 92 Chinese and 55 Russian multinational firms and identified six main obstacles - and methods of overcoming them - to international expansion (in order of importance):

Challenge #1: Low brand recognition

• potential solution: build your brand, focus on consumers in less-loyal, more price-sensitive emerging markets
• examples (not from the report): from Bharti's (India) interest in MTN (Africa), Telmex/America Movil's (Mexico) expansion across Latin America and Huawei's (China) success in emerging markets across the globe are all examples of emerging-market firms' exploration of other emerging markets. With different perceptions of risk and cost structures than their developed-world peers, these firms may also be better positioned for success in these markets as well.
  

Challenge #2: Talent shortage

• potential solution: hire locals
• example: "VympelCom has made it a policy to gradually involve local talent in management, replacing Russian expatriates – despite the fact that successful local staffs often see the job in a multinational as a chance to leave the country. Such policies are not very characteristic of young multinationals."

Challenge #3: Unsatisfactory knowledge transfer

• potential solution: make tactic knowledge explicit and foster organizational learning
  
• example: "According to Erik Eberhardson, who had led GAZ through the integration of LDV, two of his main takeaways from the LDV integration were that “one must ‘mix’ people more actively” and that “one should pay more attention to internal communication.”

Challenge #4: Inappropriate organizational structure

• potential solution: Start with scale in mind and empower local subsidiaries while maintaining central control
• example: "managers in remote subsidiaries should have enough decision-making power to adapt to the various environments, and be accountable for results. At the same time, the corporate center should have sufficient authority to harness potential synergies, failing of which would not create additional value."

Challenge #5: Political and regulatory risks

• potential solution: be informed and prepared...the authors offer little guidance in this area aside from saying to rely on local connections, but not too heavily on one group as they may lose favor as government administrations and preferences shift..
  

Challenge #6: Complex labor costs / relations

• potential solution: Tailor HR strategies to local, cultural norms