What China’s changing foreigner numbers mean for business

After I posted my latest video (also see below) on changing foreigner numbers in China, quite a few executives and entrepreneurs asked me how to prepare their businesses for the dramatic changes they saw. As a reminder, a recent article by Chinese Census authorities revealed that:

The number of foreigners from advanced economies like Japan the USA, EU and South Korea are shrinking.
Immigration from developing countries, especially Myanmar, Thailand and Pakistan is on the rise.
Traditional ‘expats’ (relatively affluent foreigners paid and supported by their multinational employers) normally stay in top-tier cities while Asian immigrants with modest means disperse around the country.

Since foreigners serve as workforce, customers, brand-builders and trend-setters and even suppliers (if they start local businesses) for foreign firms in China, multinational managers must think ahead and adjust their strategies for new realities and future trends. When they ask my advice, I first caution them to stay away from two dangerous extremes that circulate online these days. “Don’t worry, they’ll come back!” Optimistic businesspeople, both local and expat, hope that ‘zero-COVID’ and China’s political friction with top trading partners are temporary glitches that will solve themselves in a year or so. They had similar opinions two years ago. “China doesn’t need foreigners anyway!” This opinion comes mainly from locals but also, very ironically, from foreigners who think China needs no other foreigners except themselves. After many online and offline conversations with business leaders, entrepreneurs and diplomats on the prospects of foreign business in China, below I’ll try to explain why both extremes are as deceitful as any other simplistic extreme views that ‘go viral’, and how international firms with operations in China can prepare themselves for the shifting reality of the coming years. Send in the singles

The shrinking of China’s expat community is the toughest on foreign families. Reasons include the collapse of the supporting services such as international schools, the tutoring industry, clinics, restaurants and so on, but also the simple fact that expat families need other expat families as friends. Expats with children are faster to leave China and more reluctant to relocate there now. Adventurous expats adapt better to a new, more predictable and culturally less diverse environment. Importantly, ‘single expats’ doesn’t necessarily mean young people. One promising candidate class is late-career experts and managers whose kids have grown and whose families can either weather long separations, or who divorced and seek bold new horizons—like moving to today’s China. Master Mandarin

When I arrived in China in 2002, locals on all levels from Director taxi driver were learning English in anticipation for proud events like the 2008 Beijing Olympics and 2010 Shanghai World Expo. Today, more Chinese people expect the world to learn Mandarin. They do, but not fast enough and not those people that Beijing tries to attract: economists, artificial intelligence experts, biochemists and so on. In this video, China CEO author Laurie Underwood and I identified Mandarin fluency as a key success factor. Executives and entrepreneurs who become fluent in Chinese can be great connectors between local market needs and global expertise. In fact, many fast-rising foreign managers in China aren’t subject-matter experts at all: they are Chinese studies, Asian studies or multilingual business graduates who get key positions because they can translate between locals who need solutions and other locals who can deliver solutions. Localise, but with limits

‘Localisation’, the practice of mentoring local managers into previously expat jobs, is a way to commit to the Chinese market, cut down costs (expat benefits amount to at least five times the remuneration of a foreigner) and assure long-term stability. But as it turns out, it also creates problems. The first generation of localised managers learned global practices from expats, but successive generations are on shakier grounds. That is especially true now that Chinese managers cannot travel. Foreign firms need expats to hold local branches accountable to global corporate culture, procedures, compliance, guard sensitive data and items like confidential documents and stamps (“chops”) and travel between locations. I suggest short-term expats at the top of the pyramid, settled foreigners or Chinese returnees below and a localised management all the way to the shop-floor. One reason for the popularity of the two extremes I mentioned above is that life would be much easier if they were true. Most foreign firms slowly realise that they must redraft their China strategies, from big-picture goals down to hiring HR management and admin. That is, as China-based expats will surely agree, ‘very mafan’ (the Mandarin word for ‘bothersome’). But mafan or not, it has to de done. The best and worst thing about China is that it reinvents itself every couple of years, and businesses must do the same. Follow my updates on my forthcoming book, Dragon Suit: The golden age of expatriate executives in China at http://www.dragonsuit.info