Avoid three fallacies in China

Lately, I have been working on a strategic project for my company’s one underperformed business in China. What amazed me that the problem in this business is so similar to that of another business I mentioned in the blog. To reflect upon what we have done mistakenly, I summarize three fallacies my company should avoid in the future. I think it is also a good lesson for other multinational companies.

1. Procrastination fallacy. Usually the cycle from making investment decision to project completion takes years to conclude. In such a fast-moving market like China, even few weeks can make differences. We can't study something for six months before come up with a recommendation. Of course we need to cautious before we pour in big money, but sometimes we also need to be opportunistic and make quick decisions. If we move too slowly, the friendly market conditions existing before would evolve and become inhospitable. And suddenly we end up spending money either at wrong time or at wrong place.

2.Credulity fallacy. When came to investment analysis, the data from sales team was easily taken as concrete, actually it was not. Sales people usually are optimistic people. In my experience, the number given by them is always rosy. So we must eliminate the bias or decoration in the figure and scrutinize every assumptions. Here I can give some tips, when I check the sales forecast made by sales, I always ask them what is the rational behind their prediction. After a series of challenging questions, the number will become more reasonalbe which can greatly improve the quality of decision.

3. Over-investment fallacy. Usually it takes us more money to build the same production facility than our rivals. So we always have a much heavier burden to carry forward than others. For example, we built a factory with an investment of six million Euros in Shanghai, our local competitors told us they can build the same with the same figure but in RMB. (I am not sure whether it is exaggerated or not, but it tells something anyway). As a company values corporate responsibility, we need invest extra money on environment protection and work safety. But in such a hype-competitive market like China, over-investment by large scale will just kill us in the cradle, not mention to fight head by head with our local rivals who always enjoys low cost advantage.

Our company is very successful in Europe and North America. But we are always baffled by the unique market conditions in China. The key here is not just repeat our business model in the developed economic regions but we need to adapt ourselves to China game rules. Otherwise, we will just flop heavily.