Vijay Vaitheeswaran | The Economist

Sparky management ideas will emerge from China

In 1917 China’s first management class was taught at Shanghai’s Fudan University. The eastern coast of China was then one of the world’s most globalised commercial centres, and entrepreneurship flourished. But war and Maoism left China’s education system in tatters. Since capitalism itself was banned for many years, there was little point in teaching business.

When management education returned to China in the early 1990s, many fantasised about a lucrative market training tens of millions. In fact, China awards only about 50,000 MBAs annually, less than half of the number in America. Moreover, though business schools on the mainland have improved a lot over the past decade, most still lack academic ambition.

The re-emergence of the market economy in China after Deng Xiaoping’s reforms has produced many frugal innovators like Huawei, a global telecoms-equipment giant, and Haier, the world’s biggest white-goods manufacturer. But this striking phenomenon has yet to be the subject of serious academic research in China, laments Lu Xiongwen, dean of Fudan University’s management school. “Current research”, he says, “is mainly about how to apply foreign-developed knowledge to the Chinese situation, not innovative work.” Meanwhile, the most important academic work on management in China is being done by scholars based outside the country.

One explanation is money. Xiang Bing, dean of Beijing’s Cheung Kong business school, insists that Chinese business schools must invest heavily in quality research for publication in the world’s best journals: “If we do not, we will remain copycats.” But many Chinese universities see business schools as cash cows, and siphon off their limited funds to subsidise other departments.

Parochialism is another snag. Western management education knows few borders, and many Chinese companies are going global, but most local business schools prefer to navel-gaze. Classes are taught almost entirely in Chinese, despite the status of English as the language of global business.

Who needs business schools?

The good news is that China’s entrepreneurs are reinventing business even as its boffins lag behind. Private firms, in industries ranging from online retailing to smart manufacturing, are global leaders when it comes to innovating management methods, business models and customer service. Alibaba, an e-commerce giant, pioneered the use of escrow in its payment system, which allows suspicious Chinese consumers to trust merchants online. WeChat, developed by Tencent, an online gaming firm, is the world’s most advanced messaging and payments platform; Silicon Valley darlings such as Facebook Messenger and WhatsApp are scrambling to follow its lead.

Innovation by Chinese firms extends still further. Edward Tse of Gao Feng, a consultancy, suggests that the best Chinese companies are now rejecting the Western business credo of core competence, which holds that firms should stick to their area of greatest expertise.

Prominent local firms are instead leading the way in something he calls “multiple jumping”. Wanxiang rose to prominence as a manufacturer of car parts; it then jumped into making electric cars; now it is investing in internet finance. Baidu started as an internet search firm; it moved into mapping and “online-offline” apps; it is now pouring funding into artificial intelligence and developing autonomous cars. Many other Chinese firms are successfully leaping from sector to sector.

Mr Tse insists this is not merely pointless empire-building. China offers a unique combination of fast growth, huge market size and rapid technological change that presents nimble firms with the opportunity to make massive returns from jumping into vast new markets. “The successful emergence of multiple jumping is the most critical event in global management science in 30 years, and the new inspiration is coming from China,” he argues.

Zhou Lin, dean of Shanghai Jiaotong University’s business school, is sceptical. He thinks much-trumpeted firms like Xiaomi, a once high-flying smartphone manufacturer and enthusiastic multiple jumper, rely too much on low prices and noisy marketing and therefore have unsustainable business models. He also argues that a lot of what seems novel about Chinese business, such as some of Baidu’s sexier investments, would not survive without government support.

The debate shows how after decades of global irrelevance, business in China is once again worth watching closely. Peter Drucker, a legendary American management thinker, believed that the great management ideas of the future could well come from the cauldron of creativity that is China. The centenary of the start of formal management education on the mainland is worth celebrating. However, it seems more likely that the great guru’s prediction will be borne out amid the cut-and-thrust of Chinese business than in the stagnant halls of the country’s management schools.