Complexity in China today is clearly framed by the demands and pressures created by rapid growth. As an emerging market, complexity exists in terms of availability of information, rapid evolution (and indeed fragmentation) in sales and distribution channels, cultural challenges, barriers to entry and rapid innovation. There are signs of change and increasing complexity to come, in concerns over rising prices, the impact of fierce competition and the growing influence of regulation.
Respondents in China report a rapid increase in complexity over the past two years. Just under half (43 percent) say that complexity has increased very significantly, and 41 percent have seen at least some increase. With only 15 percent saying that complexity has decreased or stayed the same, this puts China second in the table measuring net increase in complexity over this period, just behind Italy.
But there is a clear contrast between China and the countries of Western Europe. Recession and its problems have been a major cause of complexity for only 32 percent of respondents in China, compared with 63 percent of Italians. Other significant causes for the Chinese have been increased competition (20 percent) and, unusually among the countries surveyed, pricing pressures (12 percent).
This suggests that Chinese organizations are managing a quite different set of commercial challenges from those recorded by many European countries. The Chinese experience is one of growth, inflation, skills shortages and relatively low levels of regulation, although these are seen to be increasing. The globalization of many companies and the extended reach of regulations from other jurisdictions mean companies often have to manage multiple or overlapping regulatory regimes as they plot their strategy in this vast and growing market.
This picture is clear from the Chinese responses to questions on what constitute the largest causes of complexity for businesses today. Most respondents from other countries cited regulation as their number one, but for the Chinese, government oversight and regulation came well down the list, after information management (60 percent), operating in more countries (59 percent) and tax policy (56 percent).
For China, the most important cause of complexity was increased speed of innovation, chosen by 76 percent. In such a rapidly developing market, Chinese companies are able to adopt new technologies very quickly, or even leapfrog certain technologies entirely, in a way that their Western counterparts may struggle to match due to legacy issues and existing infrastructure. While this can give China-based businesses a clear advantage in global markets, it inevitably increases the pace of competition between businesses inside China.
Looking at the challenges presented by complexity, respondents in China were almost unanimous in choosing increased cost (93 percent) and the need for new skills (92 percent). The most popular choice in the majority of other countries, which was the need to manage more risks, came only sixth on their scale of priorities.
Future expectations of complexity told a similar story. Respondents in China were again high on the list of those expecting a further increase in complexity in the next two years, with 27 percent anticipating a very significant further increase. But the challenges are expected to come mainly from further increases in the speed of innovation (67 percent), with only 34 percent anticipating an increase in regulation, and 36 percent expecting more government oversight.
Concerns about retaining enough people with the necessary skills runs like a thread through the Chinese responses. Uniquely among the countries surveyed, respondents ranked changes to their approach to human resources alongside improvements in information management as key responses to complexity, both chosen by 85 percent.
Looking ahead two years, human resources issues are still expected to be a major issue for 63 percent of respondents, taking second place after further improvements in information management (66 percent), and just ahead of possible business reorganizations (60 percent). With 88 percent of respondents in China agreeing that businesses will need new skills to manage complexity in the future, it’s clear that while much of the world sees complexity as a problem that might be solved by improvements in use and understanding of information, for many Chinese businesses this goes hand-in-hand with a concerted effort to improve the quality of their labor forces.
But these serious issues are not deterring respondents in China from exploring the new opportunities presented by complexity. Nearly 8 in 10 (78 percent) agreed that complexity did present opportunities (although 16 percent were not sure, a high figure by global standards). The chance to develop new and better strategies was cited by 73 percent as an important opportunity, followed by opening up of new markets, chosen by 68 percent.
Significantly, only 33 percent said complexity presented opportunities to improve existing strategies, the lowest score in this category of any country in the survey.
Taken together, these results suggest a strong Chinese focus on evolving business models, confronting complexity as companies explore new methods and new markets. Strategies are being driven by a rapid and accelerating pace of innovation and constrained mainly by the need to find the right people. There are signs that the causes of complexity will change in the future as China’s economy reacts to the consequences of its own success. But for now, the complexity felt by Chinese respondents to our survey is clearly shaped by its unique and dramatic growth story.
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