How important is a chief executive to the success of a Chinese business?
The answer if it is a state-owned company is: not at all. For private businesses, however, it seems that leaders, and their reputation, are overwhelmingly important.
Take Gome. Here’s a company that shot up to become China’s largest electrical retailer, under the stewardship of Huang Guangyu, who became China’s richest man in the process.
Since Mr Huang’s arrest last year, however, the company has plummeted, while its rival, Suning, has flourished. Results for the first nine months of this year show that Gome’s sales fell by 14% to 31.43 billion yuan, while Suning’s grew by 6.32% to 41.57 billion.
Both companies do exactly the same thing, and often have stores right next to each other. On price and service, they are often near identical. But if you ask any Chinese which one they prefer, the answer is currently Suning (presumably a year ago the answer was Gome).
There’s no tangible reason for this. The only thing I can think of is that Huang’s imprisonment tarred Gome’s brand with a suspicion of untrustworthiness among consumers.
Now that Bain Capital is on board, having bought 10% of Gome in August, the chain’s fortunes may be looking up again. Again, perhaps the fact a respected foreign company is willing to vouch for Gome has made a difference. Same-store sales in the third quarter rose 2.1%.