Leinwand says that there are lots of opportunities for Chinese companies to offer differentiated products and services to the rest of the world. [Photo/China Daily]

Paul Leinwand of Strategy& says firms going global need to build their 'capability'

With China's economic growth slowing, it is becoming increasingly important for Chinese companies to gather new capabilities and gain more customers, said Paul Leinwand, a senior partner of Strategy&, PwC's strategy consulting business.

In his definition, a capability is a combination of processes, tools, systems, knowledge and people that create a very specific output for a company.

Leinwand is a thought leader on strategy, growth and capability building. Three of his books were published by Harvard Business Review Press. His take on slowing growth is that profitability of Chinese companies will slow as well. The right response to that would be not to cut prices to meet growth targets but to instead focus on building capability, he said.

"Any company, if it really wants to win, needs to deliver something unique to customers, something better than anyone else can provide," said the Chicago-based Leinwand.

During his recent China visit, he said that two-thirds of executives surveyed said their organizations do not have the capabilities to support their strategy.

"Capability is very distinct to what that company is doing. Actually, there is no one or two capabilities that any company should have. What companies need to do is to make sure they are clear about what they are making for the customers and what capabilities they need to execute that strategy," he said.

According to him, there are lots of opportunities for Chinese companies to offer differentiated products and services to the rest of the world, despite the rising labor cost in China that seems to have weakened the price advantage of made-in-China products.

"I think it's important for companies to recognize what they are good at and which market would value the type of differentiation.

"The biggest mistake most international companies make is that they have the sort of sense their business should be equally around the world. Before entering a new market, Chinese companies need to understand what that market values, who are the other competitors in the market and what capabilities they would need (in order to succeed)."

In his new book Strategy That Works: How Winning Companies Close the Strategy-to-Execution Gap, he discusses practices for connecting strategy and execution used by 14 successful enterprises, including Haier Group, a major home appliance maker in China.

In Haier's case study, he describes how a company actually evolves as it adopts capabilities. In his opinion, Haier kept its promise to its customers that it will make customized appliances.

He cites the instance of how Haier evolved its products based on customer demand. In the 1990s, when Haier accidentally found that many of the farmers in Southwest China's Sichuan province used its washing machines to wash potatoes, it spotted a potential rural market for a new device and went on to produce a potato-washer.

"Haier grows around its identity rather than seeking growth in different places where it does not have advantages," he said.