China’s rich market potential and rapid economic reform have made the country a prime target for multinational companies (MNCs), a growing number of which may be characterized as strategic—or "second generation"—investors.¹ No longer content with establishing a beachhead in a single product or in one region of China, these second-generation MNCs are committed to pursuing ambitious investment programs and building dominant, nationwide market positions and world-scale businesses.

But translating commitment into reality in China, as leading investors have found, takes far more than a blank check, a good product, and a careful strategy. For one thing, it demands that MNCs understand and deal effectively with the complex, often confusing web of government entities that approve and facilitate business development—especially in such highly regulated sectors as telecommunications and energy.

Internally, multinationals face the equally daunting task of coordinating business units, regional and country organizations, and support units to realize synergies, maximize impact, and contain cost duplication. Moreover, enormous time and energy are needed to manage multiple joint ventures (JVs)—still the principal means of market access for foreign investors—with local partners that typically lack the product and market knowledge, distribution reach,...