The Hard-Soft Dilemma in Managing Overseas Investments

This article focuses on a common dilemma that Chinese Companies face when investing overseas. A more comprehensive review of people related success factors is provided in the previous article: Overseas Investment: People Factors that determine Failure or Success.

Thisdilemma relates to the appointment of the top local executive in the overseas entity and what profile is most desirable. While there are many factors to be considered, for senior Chinese leaders it often comes down to the hard or soft option. First impressions during interviews and management presentations might favor the local leader who conveys a confident grasp of the business and a decisive view on the way forward: those often described as“hard-nosed” and “no-nonsense”.

However, a softer, less aggressiveforeigner might be preferred since they would presumably bemore compliant and easier to manage than a harder, more strong willed one. While either preferential impulse may be very tempting, it is wise to think more deeply about the potential consequences and to make a more nuanced decision.

If the acquired entity’s business is performing well it may continue to do well under either type of leader. However, with ownership changes there are usually changes expected by the parent company. Initially it may be very hands-off to keep from disrupting the investment but over time changes will be expected. If performance deteriorates or an expected benefit to Chinese operations is not delivered then the parent company is likely to intervene quite abruptly.

The irony is: a hard local leader has the character to drive change quickly but may resist most stubbornly when it is imposed and a soft local leader may quickly embrace the change mandate in words but struggle in taking the hard actions to bring it about.

The nuanced decision is to select a local leader who will be adaptive as the business and relationship with the parent company evolves. The more globally minded, enlightened parent company leader will know that this evolution is mutual and will drive as much adaptation on the home front as in the overseas entity.

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Lee Hawley

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