Hong Kong enterprises have been heading north for decades. But only in recent years, as more companies from the service industry cross the border, has managing IT in China become a burning issue for local chief information officers (CIOs).
We’ve all heard stories (sometimes nightmarish stories) about running a business in China. Despite the geographical proximity and similarities in culture and language, CIOs in Hong Kong face challenges in managing their IT shops in the mainland.
Whether they plan to establish branch offices or set up joint ventures in China, Hong Kong’s IT decision makers share four major inevitable differences: management culture, scale of business, team management and regulatory requirements.
However, differences may not necessarily mean challenges. When CIOs are aware of these differences and open to diversity, their jobs become much easier.
Management philosophy IT is an enabler for business processes. When enterprises expand their businesses to China, IT is a key enabler in bringing their established business processes and best practices to the new market, said George Fok, managing director of PCCW Solutions–the IT service arm of PCCW Ltd. provides system integration and project management services for Hong Kong enterprises and multinational corporations as well as mainland Chinese enterprises.
“IT can only enable a business process when one has been established,” said Fok. “If business users do not recognize the management philosophy behind business processes it’ll be difficult to implement the project, because the users can always find ways to manipulate the system.”
One simple example, he said, is the use of digital authorization. More established corporations are relying on IT to process business services, allowing management to grant approval by logging into the system.
“But in China, it is not surprising [to find] the manager’s password be shared among many people in the office,” said Fok. “If that’s the case, an IT system installed to enable best practices won’t be relevant.”
Business culture in China still relies on a traditional analog signature as a recognized form of authorization, he explained. Since business managers need to physically sign paper, their passwords are shared among the secretaries and assistants who print the form for them to sign on. “One way to deal with the problem is to re-adjust the process to include a written signature on top of digital approval,” said Fok.
Hong Kong CIOs encounter other examples of corporate IT culture shock. Thomas Wan, managing director of Jardine Matheson Ltd.’s Jardine OneSolution, another established Hong Kong-based IT service provider, said he had heard of cases in China where operating routers were removed by IT staff and used to test new applications.
Conflicting management cultures
While this might be minor misconduct for back-end operations, major problems often crop up when organizing front-end business processes in a joint venture (JV) operation. In order to establish a quick presence in China, many local enterprises have entered into JVs.
“It’s common that the Chinese partner will take up management control when the JV was first established, as it’s the easiest way to get the business up and running,” said Fok. “The problem of corporate culture clash between the JV partners is often revealed when the foreign partner starts to take control of the operation.”
CIOs often find it difficult to implement IT projects in China when the executives hold conflicting management models. Through working with various Hong Kong-China JVs, Wan said one typical difference is the requirement for service quality.
“Pricing priority is very high for the Chinese partner,” he said. “But sometimes they don’t put enough attention on application sustainability, application quality, business service quality and reputation of the business.”
With more returnees-mainland Chinese who returned to the country after studying or working overseas-taking up executive positions, the management culture gap appears to be narrowed.
“Although they learned about the best practices, from my discussion with people in the industry, many still lack the know-how to implement them,” said Fok. As most returnees spent only a short time overseas-perhaps a couple of years for post-graduate degree-their experience with managing and best practices is still limited, he explained. They may be more familiar with the hierarchy-based and people-oriented management style in China.
“They are definitely much liberal than the previous generation,” said Fok. “Some previous-generation Chinese management [use a] traditional management style that makes it almost impossible to introduce any business processes.”
Nevertheless, not all JV partners in China have conflicting management philosophies. For Daniel Lai, head of IT at MTR Corp. Ltd. (MTRC), working with Chinese JVs is a challenging but manageable experience.
“Working with JV partners, integrating different IT systems and corporate culture is never easy, within or outside China,” said Lai. “It often takes time to understand each other, to marry the cultural differences and smooth out the processes.”
The local railway operator expanded into China in the last couple years and is currently involved in underground railway construction and operation in Shenzhen, Shanghai and Beijing through different JVs and partnerships. He said the main purpose of these JVs was not for rapid business expansion, but instead to bring best practices to railway operation and management to the emerging Chinese market. Thus management became more open to new ideas.
“IT has never been more significant for our business they before, as we are expanding into China,” said Dennis Lam, chief financial officer of beauty and slimming service provider Angel Tong Holdings Ltd. Lam said he expects the massive scale of the China businesses to deliver much higher ROI than the firm’s Hong Kong operations.
Angel Tong Holdings has more than 20 outlets in Hong Kong providing slimming and beauty services. Although it has only one outlet in Shanghai at the moment, the company has an aggressive plan to open four more mainland outlets within the next three months.
Lam, who used to run IT for a Taiwanese-based fast food chain YongHe King in China in the late 90s, said the scale of operations and the extensive geography make IT a critical part of business operations in China.
“In Hong Kong, even if you need to visit 10 outlets from Tuen Mun to Aberdeen, you can visit them all within two days,” he said. “But business and geographical scale in China is incomparable.”
Thus IT plays a critical role in monitoring and standardizing business processes across the country. Training and certification are critical for the beauty business, so the human resources (HR) management system plays an important role at Angel Tong Holdings. To ensure service quality, the HR department keeps track of working hours and qualifications of the beauty consultants, as well as standardizing the recruitment process.
“How can we ensure that someone who was fired in Hong Kong due to misconduct won’t be rehired at our Shanghai outlet?” said Lam. “An HR system that records all the information can help us to enforce best practices across the country.”
While Lam prepares a larger scale of operations in China, Lai is running a relatively smaller and newer operation with the MTRC’s JVs in China. The railway operator currently runs seven lines in Hong Kong, has 6,000 employees and manages a property development business. In China the company’s JVs have 1,000 employees and focuses only on railway construction and operation. IT operations helped make adjustment for a less complicated corporate structure, and compensated for legacy systems.
“Because of the differences in scale and operation history, we have simplified application development lifecycle processes in China,” said Lai. “We’ve relaxed the IT governance requirements of the development process, making it more flexible to changes and alignment with local culture.”
CIOs are tasked not only with enabling businesses but managing his/her IT team. Unfortunately, CIOs cannot rely on technology to manage their IT teams in China-it takes dedicated people and a different set of expectations to manage IT staff across the border.
“In my observation, the working Chinese culture places a different value on company loyalty,” said Fok. “We don’t get as much back in return when developing company loyalty through training in China.”
Fok manages a team of 400 people in China and set up a new motivation scheme for the mainland team. Since a person’s social status in the community tends to be based on the number of titles they’re holding, it’s common for people to take up multiple positions, sometimes even for multiple companies. The incentive program is therefore based on the advancement of rankings and titles.
Employees in China, particularly technical staff, also have different attitudes towards work. With China’s academic success in research and development, IT staff tends to focus too much on technical aspects and neglect business requirements. “They might be very technical,” said Fok, “but they aren’t commercially savvy.”
While delays and extensions may be common in many IT projects, Hong Kong staff in general still aim to hit deadlines. But in China, deadlines are often irrelevant, and sometimes problems in meeting deadlines aren’t revealed until the very last moment, he added.
“I do understand the rationale behind this attitude,” said Fok. “China is such a huge country and things rarely roll out on time anyway. Projects seldom are carried out as planned, because numerous changes get into the way. Therefore mainland employees have the mentality that implementation should be a prolonged process.”
Fok’s strategy for managing his China IT team is to hire newly graduated students. “We train and educate [them] not only in IT skills, but also work ethics and [business] culture,” he said.
At the MTRC, the IT shop in Hong Kong tends to take a project management role, while its team in China carries out the technical work. But he added that managing the Chinese outsourcing provider in Zhuhai has provided tremendous insight in running an IT shop in China.
The MTRC began outsourcing its application development work to a development house in Zhuhai three and a half years ago. Currently, there are more than 30 developers providing programming, coding and testing services.
“Our outsourcing strategy has built a strong foundation for our expansion in China,” said Lai. “It allows us to understand the strength and weaknesses of Chinese IT professionals and we can reapply the management methodology as we establish an IT shop in China.”
Despite entry into the WTO and the announcement of the Closer Economic Partnership Agreement (CEPA) between the Hong Kong Special Administrative Region and China, China remains a highly regulated market. A strong and complicated regulatory framework often makes the CIO job much more difficult in China.
Choosing the right IT partner in China is also essential in dealing with the restricted telecommunications market. With more than 15 years of experience in running IT operations in China for foreign companies, Lam of Angel Tong Holdings said simply having the last-mile connection can be a nightmare.
“When I was with YongHe King, it used to take us three months just to set up telephone lines and obtain Internet access, if we applied to ISPs directly,” said Lam. However, working with system integrators (SIs) that have partnerships with local ISPs has significantly helped business expansion.
“Now we will still need at least three months to open a new branch, but the effort no longer spent on building the infrastructure or connections,” he said. “We can now spend our resources on developing localized product and marketing campaign, which are essential for retailers.”
Another major barrier is that businesses can only obtain an operating license after the government reviews and approves its accounting system to ensure their reports comply with its requirements. Choosing the right IT service providers and SIs thus become very helpful, said Lam, adding that his company hired PCCW Solutions to support Angel Tong Holdings’ Hong Kong and overseas expansions.
“When the SIs are supporting software that is pre-approved by government officials through their previous projects, it save us lots of effort to source and configure the software to match with regulatory requirements,” he said.
Fok said the easiest way to deal with this regulatory limitation is to re-configure internationally recognized software to fit local needs. Since these applications are designed around well-established business processes, re-configuring the software makes standardization easier while simultaneously meeting local needs, he added.
Apart from using technology to comply with regulatory requirements, technology can also help to get around these restrictions. “Regulations in China are often very straight on paper,” said Wan from JOS. “But there can be lots of variation when it comes to actual enforcement.”
He noted companies have used technologies and various legal business processes to work around the regulations, like China’s value-added tax (VAT), which applies to any foreign purchases that will add value to an organization’s business. One example that falls into this category is the use of pre-purchased global licensing scheme in the China offices.
While some enterprises gave up applying their global licensing scheme in China and purchased locally, others chose to download the software from the Hong Kong office, which is considered within China, to avoid the VAT, said Wan.