Tony Hughes, CEO of Huthwaite International, details key methods for helping young talent in China achieve its potential.

The Global Leadership Forecast – the largest study of its kind – recently found that only 19% of Chinese leaders reported they were ‘very prepared’ to create an optimal workplace where employees deliver their very best. 

Furthermore, the report, published by Development Dimensions International (DDI), found less than a third of Chinese leaders rated themselves as highly effective in leading a younger generation, while only 30% of HR professionals said their organizations were focusing on this area. 

Those are worrying numbers, but they can also be a source of optimism—If China is one of the world’s fastest growing and largest economies despite its shortcomings in engaging and training young talent, think what could be achieved were this to be addressed.

Huge numbers of young people enter the Chinese workforce each year, and the transformative potential of better engaging and training them is hugely exciting. The business case is only strengthened when the full costs of hiring expatriate workers are calculated, while the moral case for ensuring talented young employees can fulfill their potential is self-evident.

Reaping the benefits of more engaged young talent requires a preparedness to invest time and financial resources and to develop an understanding of the types of training that will best suit different industries and individuals. Some generalizations around training can be useful, though: DDI founder William Byham, for example, has noted that high-potential learners in China prefer more action learning than people in other countries (more on that below).

That might be useful insight, but only insofar that businesses are prepared to apply it according to the specific requirements of their industry and organization. What will most likely be required is a blended approach encompassing action learning, mentoring, and job rotation, scaled to varying degrees based on individual business needs.

Action learning

Action learning – learning by doing – enjoys the dual benefits of being popular among talent in China and demonstrably effective.

While some skills – driving, for instance – can’t be learned in any meaningful way without practical application, the majority of skills are better learned through a blend of theory and practice. But accurately identifying the business case for training a specific skill, understanding why this skill gap even exists and developing a targeted action learning program can undoubtedly deliver bottom line results.

One particularly strong example from my own experience is that of Dragon TV, the premier channel of the Shanghai Media Group.

Technological shifts, changing consumption habits and the ability for provincial TV stations to broadcast nationally created new levels of competition in the Chinese TV industry. Against this backdrop, Dragon TV recognized the need to differentiate itself against its competitors and found that many of its sales team were very young, came from different backgrounds and were new to sales. 

Its subsequent role-play training program – which we helped develop – simulated real-world sales situations, allowing its young team to develop their skills, use new selling techniques in the context of their own market, review their learning and receive instant feedback.

The result was a cultural shift at the company: No longer were employees falling into classic sales traps, such as simply listing product features during sales calls. Instead they were asking intelligent, probing questions to uncover prospective customers’ business issues and how Dragon TV could address these with real benefits. The station tripled its revenue within three years following the program’s launch.

Of course, not every business implementing an action learning program will triple revenue, but if sufficient attention is paid to the challenges an organization faces and the areas in which it could achieve a competitive advantage, action learning can be a highly effective way to establish behavioral change that delivers real bottom line benefits.

Mentoring 

Mentoring can also be a hugely effective tool for building skills and engagement, particularly in China, where age and experience command such respect. Indeed, a broad range of benefits for senior and junior team members alike can be derived from a well-developed mentoring program. 

Young members get the opportunity to bolster their skillset and learn how to succeed in the organization from those who have already done so. They also become aware that senior members of the team are approachable and are happy to support them in their career.

This creates a virtuous circle in which young talent is more engaged with the company as a result of the support they receive from senior employees, making them more likely to ask a mentor for advice and increasing their likelihood of succeeding—which further boosts their engagement.

For senior team members, a mentoring program facilitates a better flow of ideas throughout the organization. Mentoring initiatives can also function as ‘reverse mentoring’ sessions, where young people can offer perspective on areas where they might have greater insight than their superiors, such as how to reach customers on social media.

That’s good for business on an obvious level – good ideas have a better chance of being implemented – but it’s also important because it engages young talent by allowing their voices to be heard and helping them to shape strategy.

Pairing mentors and mentees correctly can ensure the full potential of mentoring is realized. In the case of the reinsurer Swiss Re, this was achieved through speed dating events in China. Events such as these involve introducing potential mentors and mentees in rapid succession, facilitating effective matching of people with complementary skills, ambitions and personalities. Training senior team members in being effective mentors is equally important for enhancing these programs. 

Job rotation 

For larger businesses, providing the opportunity to rotate jobs can boost skills and retention among young talent. Employees spending time in different markets and roles will most often acquire new skills and perspectives that will be hugely valuable once they return from a secondment.

In China, job rotation has been successfully implemented by the likes of Swiss Re, while the pharmaceutical giant Pfizer has also designed career paths to better train and retain employees by allowing them to cross business units in China.

Not all organizations will be able to rotate employees across business units and geographies, of course, and training methods always need careful tailoring to the requirements of a given firm. 

All organizations should, however, recognize that changing behavior is the most effective way to change results. In China especially, a better approach to engaging and training young talent could prove transformative in realizing the latent productivity of a wide variety businesses. ♦

Michel Brekelmans, at L.E.K. Consulting, highlights untapped investment opportunities in China’s promising field of business services.

In the face of current coverage of China’s economic slowdown, one could be forgiven for thinking that Chinese markets present more risks than opportunities.  However, while China’s economic transition may pose plenty of challenges, not everything is doom and gloom—particularly in the tertiary sector. 

Wheat from chaff

One developing industry which will continue to present attractive opportunities for investors and businesses alike is business services. Said sector encompasses a diverse set of service-focused companies or firms, including:

• Professional services firms for legal services, market research, commercial property advising, consulting, and architectural practice;

• Business process outsourcing including IT managed services, product administration, fund/trust administration and cash handling;

• Facilities management such as catering, cleaning and security/safety work;

• Asset-based services operating ports, car parks, waste management, equipment rental and environmental management;

• Asset management/maintenance, such as in vehicle leasing, property management, storage and warehousing;

• Facilitation/enabling services for inspection/testing, recruitment, training, document management, and logistics/platform support;

• The public sector, as in local authority/social housing support, road maintenance, defence supply chain contracts and infrastructure administration; and

• Other services such as education, business-to-business (B2B) platforms, professional technology services and software development.

Make no mistake: Business services entails more than simply outsourcing. Successful business services operators are innovating and differentiating their offerings in order to gain and retain customers.  A high-performing business services provider in China will have five key capacities:

1) A focused growth strategy, often reliant upon initiatives which differentiate service offerings, achieve market expansion and acquire new capabilities and coverage;

2) Provision of a compelling value proposition that beats the competition, often by achieving reduced unit/activity costs, higher quality productivity or efficiencies and data analysis of the benefits of outsourcing;

3) A rigorous commercial focus on customer needs, service quality, value delivery, sales team responsiveness and discipline in the selective allocation of resources to customers/contracts;

4) Operational flexibility enabling a business services provider to be cost-responsive to the broader business environment while growing or expanding a firm’s capabilities and market share; and

5) A performance-oriented culture that places emphasis on data analysis, performance measurement and continuous improvement.

Right time, right sector

We see four key reasons to believe the Chinese business services sector will continue to present attractive prospects for investors and firms in the coming years:

1. Positive growth prospects relative to other markets

In comparison with other countries, the Chinese business services sector is still relatively underdeveloped.  As shown in Figure 1 below, the contribution of services to China’s GDP is below 40%. That is significantly lower than in the US, the UK, Singapore, South Korea and Malaysia, where services can contribute as much as 70% of GDP. 

2. Diversified yet stable customer dynamics

One of the advantages of business services companies is that they enjoy a diverse customer base which is also ‘sticky’—that is, customer relationships tend to continue unless there is a compelling reason to change to another services provider.  The customer mix for business services firms also tends to feature low customer concentration, long-term contracts and opportunities for up-selling or cross-selling

3. Historical performance both globally and domestically

In terms of long-term (five-year) total shareholder returns, the business services sector has been one of the top performing industries worldwide.  The global business services index of total shareholder returns between 2011 and 2015 was 22%, outperforming many other industries including airlines, luxury goods, chemicals, specialty retail and trucking. 

LEK’s analysis of long-term returns at the world’s top 15 business services companies shows that these market leaders delivered total shareholder returns in the range of 26-35% over five years.  In China, the business services sector has also outperformed most other sectors in recent years, with solid revenue growth of 23.8% for 2012-2014. In fact, the compound annual growth rate for the business services sector revenue was the third-highest out of a total of 17 sectors surveyed.  

4. Attractive investment and deal prospects

Chinese business services companies currently offer solid value and affordability for prospective investors.  The average price-to-earnings (P/E) ratio for the leasing and business services industry in China (78) sits well below that of other industries such as IT (114), health and social work (110), mining (103) and manufacturing (84).  Indeed, there are a number of Chinese business services firms with P/E ratios ranging from 18 to 66, as shown in Figure 2 below. 

LEK’s analysis has also identified substantial growth in M&A activity in the Chinese business services sector between 2010 and 2014.  During those years M&A activity has increased markedly, both in terms of deal numbers and deal size: from 142 deals worth a combined total of almost $USD 1 billion in 2010, to 183 deals worth $USD 6.8 billion in 2014.  Private equity/venture capital investors accounted for around 10% to 20% of participation in Chinese business services M&A transactions in 2010 and 2014.  These trends are demonstrated in more detail in Figure 3 below.   

Analysis of select M&A transactions between 2013 a
nd 2015 also confirms a broad range of Chinese business services M&A activity in terms of industry and transaction value for said period.  To name just three:

• Pactera Technology International Ltd, a China-based IT process and management outsourcing company (2013, RMB3.374 billion);

• 99Bill Corporation, the first third party consumer payment services firm allowed by the Chinese government (2014, RMB1.865 billion); and

• Xiamen XTone Animation, which creates, plans and develops animations for mobile phones (2014, RMB1.398 billion).

In light of the above, and in light of diverse scope and tight links to China’s steadily growing services sector, we believe that business services will account for a growing share of China’s GDP in the years ahead, even in the context of the “new normal” of reduced headline GDP growth. 

Michel Brekelmans is partner and managing director at L.E.K., and has been co-head of L.E.K.’s China practice based in Shanghai since 2006. L.E.K is a global consulting firm that supports clients in evaluating investments and in developing strategies and organizational capabilities that have significant impact on performance.  L.E.K has been operating in China since 1998 through offices in Shanghai and Beijing.

Editor: Hudson Lockett (@KangHexin)

Shao Qizhe, a 28-year-old University of Southern California graduate, didn’t stop starting companies after his first failure.

Shao said his first startup suffered from basic problems during its roll-out “involving every aspect of the company, and the staff wasn’t motivated.” Last March, he launched his second: A B2C e-commerce platform that only orders and sells products that consumers recommend. Whether it succeeds or not, Shao already has much in common with other Chinese entrepreneurs. 

“Entrepreneurship is not a privilege of a small number of people but the choice of many.” Those inspirational words came from Chinese Prime Minister Li Keqiang last May when he visited Beijing’s Zhongguancun, a hub of technology and Internet firms in the capital often referred to as “China’s Silicon Valley”.

It seemed like the timing could not have been better for the launch of an Internet startup in China. A day before the Li’s tour, the State Administration of Taxation urged local tax authorities to properly implement tax relief measures for startups, echoing the central government’s vow to unleash China’s potential for technological innovation. In addition to the government’s strategic decision to embrace an Internet-service economy, both local and foreign venture capital firms are pouring money into the startup industry.

China seed and startup tech investments rose to $2 billion in 2014 from $946 million in 2013, according to Hong Kong-based AVCJ Research. In the first quarter of 2015, according to Dow Jones VentureSource, the number of deals increased to 215, up 56% from the same period last year.

Quantity may have risen, but quality remains in question: It is only when the current funding frenzy leads to real firms with real products that the growth of startups will become a boon for China’s otherwise sagging economy. As investors clamor to shower entrepreneurs with millions or billions in pursuit of trillions in profit, the main challenge facing China’s early-stage startups is no longer access to funding. It’s getting their business off the ground.

Dealmakers, dealbreakers

For an early-stage company to grow into a fully fledged firm, it needs to scale up, with rapid growth in revenue, market access and staff. To achieve that, every young startup requires knowledge of business development, marketing and hiring to bring its creative ideas to fruition–a business model that can generate repeat business for the company. During this entrepreneurial adolescence small firms can benefit greatly from the guidance and mentorship of venture capitalists as they deal with challenges both unique and universal.

Zhu Xiaohu, managing partner at GSR Ventures, has warned that the survival rate for start-ups is very low. In an interview with Xinmin Weekly in May, Zhu said his firm’s statistics showed that from 2005 to the end of 2014, an average of only 2-3 Chinese venture-backed businesses went public in the US each year.

But the frequency of such listings picking up: In the first quarter of 2015, eight firms went public in China according to a review of global technology IPOs by PWC. While the mainland stock market rally might account for some of that, listings were already rising before share prices began soaring. A total of 31 Chinese Internet companies went public in 2014, 12 of them in the US, according to ITjuzi.com, a Chinese business information provider that focuses on Internet startups. That’s almost double the number of total listings the site reported in 2013.

This doesn’t necessarily reflect an improvement in funded firms’ survival rate. Instead, it may be that more venture capital firms are throwing more money at more startups, producing a net gain in successes. Huxiu, a Chinese business information and exchange platform, shows that throughout 2014, more than ten new venture capital firms were launched by venture capitalists focusing on investing in early-stage tech companies.

A matter of strategy

Among the many lessons VC firms can impart is how to avoid the market risks that most startups will face but fail to consider in the competitive and constantly changing technology sector. Companies need to learn how to be deft enough to make the necessary adjustments before the window of opportunity closes as a rival startup with a similar idea reaches the market first.

“Venture capitalists have seen so many start-ups. They have a better overall sense of the entire market,” said Han Di, a 31-year-old entrepreneur from Beijing who just launched the OSO food take-out and delivery service in one of China’s fastest growing markets.

Venture capital firms can do more than steady wobbly young startups by providing them with vital knowledge. By the time a startup meets with potential investors, it generally has little more than a small team and an idea, or possibly a product prototype. For a company to scale up it must also know how to reach potential customers.

“Sometimes, even if there’s a market out there for the product that a startup is developing, the team still needs an extra hand to gain ground in the marketplace, and venture investors can help find customers,” said Cher Liang, Senior Investment Manager at Fosun Kinzon Capital. “VCs can also help them hire people. Early-stage startups are often understaffed, especially for a variety of positions such as business development, marketing, and public relations.”

But several entrepreneurs said that during the current start-up frenzy not many venture capital firms have the time to provide anything more than money to help boost and maintain a company’s growth.

“VCs are focusing on seeing new entrepreneurs and ferreting out the best deals,” said Shao, who is currently looking to raise Series A funding for his e-commerce business. “They are too busy to take care of their portfolio companies.”

Bursting bubbles

For VC firms the majority of investments lose money, and only a small fraction ever become even marginally profitable. But with so many other investors now on the hunt for China’s next Baidu, Alibaba or Tencent, the only option is to throw money at anything that might have a chance at success and quickly move on to vet other opportunities.

That may be leading to a glut of both funding opportunities and startups, according to David Zhang, founding managing partner at Matrix Partners China. In an open letter to the CEOs of Matrix’s portfolio companies last September titled “A Bubble Is Out There”, Zhang argued that a “funding round of tens of millions of dollars or up to 100 million dollars which previously didn’t occur frequently is very common now, and the time between the funding rounds is shrinking rapidly.”

The threat of a bubble means that entrepreneurs should be sustainably building up their companies so that if one does burst they will still be able to weather a downturn thanks to running a viable, profitable business. It also makes the mentoring duties of VC firms that much more important. If both sides of the sector can’t recalibrate their expectations, China’s best source of potential innovation could suffer an overcapacity problem that is already plaguing the rest of its economy. ♦

Author: Xin Yuan (@yyyuanxin)

Editor: Hudson Lockett (@KangHexin)

Chinese is notoriously hard to learn, and chief among the culprits for this difficulty are its thousands of characters. Digital dictionaries have made the process of looking up characters far less laborious than the paper-only days, particularly with the addition of touch-screens enabling learners to simply draw any new character they see. But the process of learning the characters and understanding the roots of their meaning and pronunciation remains as tiresome and ineffective as ever.

But there may soon be an app for that thanks to the enterprising linguists at Outlier Linguistic Solutions, who are putting together a dictionary for the Chinese-English dictionary app Pleco which breaks down characters into their functional components and shows learners how to best extract meaning and sound from new ones they encounter. CER recently spoke with Ash Henson, co-founder of Outlier, about life as a linguistic entrepreneur and the Kickstarter his team recently launched to support the new dictionary’s development. 

Could you briefly introduce the idea behind your dictionary for people who haven’t heard of it before?

Well basically we’re making a Chinese character dictionary for people to actually understand characters, because they are so many misconceptions about them. Our system consists of four different types of function components [in characters]: You have your sound component and we have two types of semantic components, because there’s different ways that meaning is presented in characters, although people usually explain characters only in terms of meaning components.

There’s also form components, which explain their meaning by way of a form. For instance, the character da 大, it has the meaning big, but its form is a picture of a person, like standing in front of you. And when it gives the meaning big in a character, that’s when it’s a meaning component, and when it gives a meaning that has to do with people, [acting as] a picture of a person, that’s the form component usage.

And, what’s interesting is that, especially in your [standard dictionary], there’s almost always form components—but they’re almost always explained as meaning components. That’s one thing that’s different with our system, we explain these two different ways of expressing meaning.

Then we have sound, and we have sound formulas that show you very quickly how sound variation works within sound series. Those we haven’t published yet because I’m writing an academic paper on it. Once I get a promise of publication then I can openly talk about it, but it’s going to be in the dictionary regardless. The last type is empty-component. And it’s an empty-component because the component is actually either not what it looks like it is, or it’s just being used as a differentiator.

I don’t expect many dictionaries are funded via Kickstarter. Why did you guys choose that as a funding venue as opposed to other models?

One of the main reasons is that if we can fund ourselves, then we retain control over the project. If we were to go through a publisher, they would have a lot of say regarding content. Doing it this way, we retain both more control over content and more rights (i.e., as far as sales, etc.).

It’s [also] just to get the thing out in a reasonable amount of time for the backers, but we also have quality control people who will be looking at it and going over it and stuff. We’ve been surviving, up til now, on our own money, and Kickstarter was John’s idea. John is much more into social media and being an online presence and he tweets and all these type of things. I come from an engineering background and I went to grad school for many years while I was working and I’m in front of a computer all day long, so things like Twitter and all that don’t appeal to me because I don’t need more excuses to be in front of a computer.

It’s a tricky proposition because we have to be able to eat while we’re making the thing. Like I actually teach English and translate, but those things take a lot of time away from doing research. And we’re trying to get this funding to… Well actually not only to feed ourselves, we’re going to have a support team. We’re going to try to get the dictionary out as fast as we can, we’re hoping 6-8 months, and we need a team where basically I’m not looking anything up.

Like for the characters I’m going to do on, say, Tuesday: On Monday our team will be in here picking all of our reference books and digitizing all the information on the characters I’m going to do [the next day] and they put that in the database. On Tuesday, I’m just sitting there in front of the computer, and I’m analyzing the data. And if I hit a brick wall or something, I need more data, I just stop and I tell the assistant, “Hey, you need to go look up these characters and these resources.”

Another reason [for using Kickstarter] is that we’re basically using this product to get the company off the ground. Our mission is to make excellent products for language learning. In theory, that could be from any language to any language. For instance, I already have an idea for a piece of software that could help basically anyone master tones, but that would require hiring engineers and programmers.

The Kickstarter is not the only funding avenue we’re looking at. The Taiwanese government also has funding for start-ups, especially start-ups that have to do with tech, like with apps and stuff. Our data will be appearing in apps, well mostly in [Chinese-English dictionary app] Pleco, but we’re going to try to get funding also through the government.

As a linguistics startup, what have been some of the unexpected challenges in terms of getting things ready to even launch a Kickstarter?

You just opened up a cover on over the abyss, just on an insane amount of challenges.

Alright, well, let’s keep it to the top few.

Well I mean just to start, my partner Chris has been living in Taiwan and mainland China for 15 years. I’ve been here for almost ten years. I’ve been in grad school here [in Taiwan] for nine years, and I’ve even published a paper in Chinese. And Chris has gotten his undergraduate and master’s here. And even at that level of Chinese, dealing with the Taiwanese government and trying to get through all the paperwork and all that stuff to even get a company set up is an extremely, excruciatingly painful process.

I think that actually with Kickstarter, our biggest challenge as of now is with people that are in the know, when they see our demo they tend to be very impressed and on board with it. Newbies, on the other hand, they are a little more skeptical because they don’t have the skill set to know if it’s real or not. I’ve been doing Chinese for so long, I’m probably not the best guy to do the marketing. It’s just hard for me to get back into those shoes.

Really there’s just always a challenge coming up that you would never think about. We were trying to get everything ready for Kickstarter, and just right at the last minute we were in negotiations with Pleco and so there is this constant back and forth with changing terms and oh, we need to change this wording or that. That took several months to get through it all. And we had to settle that contract before we could even
start.

Then, at the same time, we found out we had to open up a corporation in the US so we could get a bank account in the US [to use Kickstarter]. Chris [is] German and John and I, we’re both American. And right at the last minute [the bank] like, “Oh, well your other partner is German so the three of you have to come into our office.” You can imagine that’s like 5 or 6 thousand dollars in a short amount of time to just go to their office. So we had to take Chris off of the American corporation and then write a contract between the Taiwanese corporation and the American one so that he doesn’t lose his rights.

So where does your team come from and what are your roles?

Okay so Chris Schmidt is our general manager. His background is actually political science, but he speaks Chinese at a level that most people will never reach. I speak Chinese pretty well and like I said I’ve been to grad school here for nine years, so I’ve had a ton of experience with Chinese. But Chris knows all these little bitty words. When I hear them I understand them, but he can say them, and his tones are about 99.99% perfect. And that’s not even my judgment. I’ve actually recorded him and played it for native speakers and had them judge it. So Chris brings a very advanced level of Chinese, [and that’s] why he’s the one that deals with the local government and all of that.

My background originally was engineering before I came here. My undergraduate and master’s is in engineering. And I was an engineer for probably close to nine years. And then I came to Taiwan specifically wanting to do something with Chinese characters. And so I learned old Chinese phonology in order to be able to analyze these sound series because you can’t really understand them from a Mandarin perspective. You have to understand from a historical perspective and then project forward in time to Mandarin.

I’m also getting a PhD in Chinese at National Taiwan Normal University. And I passed my qualifying exams in the area of paleography. … So I bring a strong analysis background because I was an engineer. And then I’ve got a pretty broad range in the area of paleography. So the system that we’ve got has been something I’ve been working on for many, many years. The goal is to take this ivory tower knowledge and boil it down to something that is not just understandable, but actually useful for the average person.

And John Renfroe, John is extremely valuable. In fact, Chris and I have known each other for probably nine years now, we’ve been talking about doing this dictionary now for close to that long. John came in much later about three years ago I met John. He studied Chinese full-time for about two years and then he was, he actually got into the Chinese department also at NTNU. And did a year and did pretty well within that year. But then his wife got a job in Japan so then they met and moved to Japan. She got a really good job there. One of those, you know, you can’t say no type of things.

John originally studied music, he actually scored movies. He saw the movie Hero, and the tones of Chinese really appealed to him and that’s how he got into it. He has a really good ear for the language’s pronunciation. One thing he brings to the table that Chris and I didn’t even know we needed was the online thing. The Kickstarter was part of it but he’s always on these Chinese forums, tweeting, doing social media-type things that I personally don’t have much interest in doing, even though it’s useful. I’d much rather read ancient books. ♦

Interviewer: Hudson Lockett (@KangHexin)

The takings of triad-related rackets in Hong Kong fell “about 40 percent” following protestors’ initial occupation of key districts throughout the territory, Bloomberg reported, quoting a man claiming to be a district head of the criminal organization 14K who gave his name only as Ah Lik. The protests brought to light how far such organized crime outfits will go to protect the underground economy they dominate in vice-prone places such as Mong Kok in Kowloon. There, scuffles broke out on Oct. 3 as groups of men punched, kicked and abused protestors whose presence had disrupted local businesses.