Most senior executives who oversee China operations still report to APAC regional leaders. But as China operations have contributed to an increased share of global revenues and profits, as well as R&D and supply chain, these senior executives increasingly are gaining a more visible and direct relationship with global leadership, including the board and CEO.

In some cases this is structural with China operations reporting directly to the CEO, a member of the C-suite or an operating board.

“As China continues to emerge as an economic force, aligning global strategies with China’s 5-year plan has become increasingly important for multinationals,” said Steve Mullinjer, Regional Leader of Heidrick & Struggles, Asia Pacific operations.

According to a recent study conducted by Heidrick & Struggles, a premier provider of executive search, leadership consulting and culture shaping, multinational corporations increasingly are creating direct reporting lines for their Chinese operations leader to the CEO or board.

To examine the various reporting line models employed by multinationals and how well these function, Heidrick & Struggles’ Industrial Practice surveyed 100 senior executives in the region who oversee their organization’s operations in China. More than 90% of the respondents were from U.S., European or Asian MNCs headquartered outside China.

“There has been ongoing discussion on how to structure the reporting line between regional headquarters and global headquarters, and some companies have experimented through trial and error. Our research shows that the most common reasons for lack of communication between China operations and global headquarters are cost, and insufficient organizational efficiency,” said Seth Peterson, Partner, Industrial Practice, Heidrick & Struggles.

See: HR Talent with Soft Skills to Be Most Sought After by MNCs in China

Some of the key highlights from the study include:

• The strategic importance of the China market: Close to 60% of respondents said China contributes to more than 40% of their Asia Pacific revenue. Nearly 40% reported that Chinese revenues represent 10-30% of their company’s total global earnings. More than 40% of respondents say their company’s China leader sits on the global executive committee or its equivalent, underlining the strategic importance of the China market to the overall business.
• Who do China’s Business Leaders Report to? Close to 30% of respondents said their company’s China boss reports directly to global leadership (either the CEO or the global head of a business unit). Half of China heads report to the head of Asia/APAC; 26% of the China leadership surveyed also oversee Asia/APAC operations. Nearly half of respondents said that MNCs do not give their China heads oversight of operations in the Asia/APAC region to avoid diluting the focus of the company’s China leadership.
• Reporting structures unlikely to change: Some 44% of respondents said their reporting structures had been in place from the start of their company’s involvement in China; 69% said it was unlikely these would be changed in the coming two to three years. Of those surveyed, 17% anticipate a change in their company’s reporting lines within the next two or three years; 29% are not satisfied with their company’s existing structure.

“Companies are often hesitant to make changes to the current structure because they want to avoid duplicating costs, such as costs in their finance and product design departments,” said Peterson.

“Others believe that China revenues have not yet reached a sufficient scale to justify such independent status in the next few years. It is worth noting that some respondents feel their global headquarters do not have sufficient understanding of the China market to add value through direct input,” Peterson added.

Also read: China is losing its Labour-Cost Competitiveness to Emerging ASEAN Economies

Image credit: greatplacetowork.cn