Liang Hongfu

Leaders need global vision

By Liang Hongfu (China Daily)
Updated: 2005-10-11 05:59

Being the first mainland company to launch a global search for a chief executive officer, Mengniu Dairy, based in the Inner Mongolia Autonomous Region, has set a precedent that all State and privately-owned enterprises should follow.

Mengniu's decision shows recognition by its chairman and board of directors that there is an urgent need for a leader with the knowledge, experience and vision to guide the company through the challenges arising not only from overseas expansion, but, more importantly, from the increasing globalization of the domestic marketplace.

Such a leader, of course, does not necessarily have to be a foreigner. There is no shortage of highly capable Chinese executives with extensive international exposure that are well qualified to take on the challenges posed by China's rapidly changing economic landscape.

As the nation marches resolutely towards a market-oriented economy, the rules of the game will not remain the same. The progressive opening of the domestic market will bring in many more foreign players who are more accustomed to dealing with free market forces that are threatening to blow away many of the old practices and business ties that have prevailed for so many years.

Such a development, no doubt, has not gone unnoticed by mainland enterprises. But Mengniu is widely credited by economists and stock analysts on the mainland and in Hong Kong, where it is listed, for having gone further than many others in refreshing its management structure and renewing its business strategy to cope with the ever-changing market conditions.

Such a daring drive is a natural progression for a company that has grown exponentially from being an obscure rural enterprise in one of the most remote regions to be the second largest supplier of dairy products in the nation - all within six years. Its achievements have caught the attention of international investors, some of which had purchased a sizable interest in the company before it went public in Hong Kong several years ago.

Since then, the company has become a perennial darling of the Hong Kong stock market. Equity participation by foreign institutions has benefited the company in more than one way. Not only is it a demonstration of confidence in the company's management from the international investment community, it also ensures the compliance of globally acceptable standards of accounting and reporting.

A public listing on the Hong Kong Stock Exchange imposes a certain degree of discipline on a company's management as investors expect good performance compared to the industry average. As such, the company's performance is measured against its counterparts not only on the mainland but also in other countries.

This pressure has apparently led the company to look beyond the mainland in search of new markets to sustain future growth. To be sure, the mainland will remain the company's major market for many years to come. But growth from the current base is expected to be slower than that of the previous six years.

More importantly, Mengniu, like many other mainland food processing companies and consumer product producers, will face increasing competition from foreign companies that are gaining greater access to mainland distribution channels, either by setting up their own networks or engaging third-party logistical support.

More foreign companies are willing to make the large investment in logistics that is necessary to tap the potential of the mainland market. Their larger presence will usher in a whole new competitive environment in which established business ties and time-honoured commercial practices are not enough.

To survive in such a market environment, mainland producers will have to learn the maxim "the customer is king." If they have any doubt about this, they need leaders with a global perspective even more than Mengniu.

(China Daily 10/11/2005 page4)