Building world-class Chinese companies

Abstract

The paper studies China's telecommunication industry and Chinese-owned companies. From analysis on the regulatory environment. corporate governance structure and management incentives, we discuss the challenges of building world-class companies in China. The paper is in two parts. In the first part, we use the frameworks of supply chain and disruptive technology to investigate the competitive landscape of China's telecom industry. We conclude that the state-owned operators dominate the entire telecom value chain. Because of the internal and external environments, these carriers have rigid technology and market outlooks. The regulatory environment reinforces the rigidity. We argue that the industry structure has stifled the emergence of truly disruptive technologies in China. In the second part, we analyze the corporate governance and management incentives of the state-owned operators in greater details. We conclude that the state imposes on the operators many, often conflicting, goals unrelated to profit maximization. As a result, the carriers have government responsibilities that are incompatible to their business goals. The problem will not be fundamentally solved until the roles of ownership. corporate governance and management are clearly defined.