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2018-10-05 04:40:09

Multinational companies lack Chinese board members, putting them at a disadvantage amid China’s increasing prominence and the rise of competition from Chinese startups, a new report says.

Only eight companies on the Financial Times Stock Exchange 350 index and seven companies on the Standard & Poor’s 500 index have a director of Chinese descent, even though “including directors with China expertise on the board is becoming increasingly essential” for multinational companies doing business in the world’s second-largest economy, according to a white paper published Thursday by human resources consultancy Russell Reynolds.

“Just over 100 Chinese individuals are currently serving as directors of publicly-traded companies in North America, Europe, or Australia,” the report said. While there are substantial numbers of Western “China experts” represented on boards, the speed of change in the Chinese economy could quickly render their knowledge obsolete, the white paper said.

The white paper cited Chinese regulations in recent years that have made it harder for former government officials to join the boards of companies as a reason for the short supply of Chinese directors.

International brands across industries have in recent years struggled to fend off increasingly sophisticated local rivals in the Chinese market, especially in China’s smaller cities. Among consumers in third-tier cities, 62.2 percent said they would pick a domestic phone brand over an international one in 2017, up from 46.7 percent in 2016, according to a survey by FT Confidential Research.

Some overseas giants have even pulled out of China after failing to attract local consumers or falling afoul of Chinese regulations and public sentiment. Japanese automaker Suzuki exited the Chinese market in September, saying that local consumers favored the bigger vehicles made by other brands. South Korean supermarket chain Lotte put all of its China stores up for sale last September, after it allowed the installation of a U.S. anti-missile system on one of its golf courses in Korea, provoking a boycott by patriotic Chinese consumers.

This is an original article by Caixin Global and has been republished with permission. The article can be found on their website here.

(Header image: People sit outside a Marks & Spencer store in Shanghai, Oct. 2, 2008. The British company, which does not have any board members of Chinese descent, pulled out of China in 2017. VCG)