The fast economic development of China has attracted the attention of the international business community, creating a surge in foreign direct investments and international trade. Negotiating new business and trade agreements as well as establishing business subsidiaries and joint ventures, the number of foreign business people in China is increasing rapidly. The areas of managerial interface between foreign business representatives and Chinese nationals are expanding fast and an emerging academic literature is beginning to examine cross-cultural management issues in China.
China, no doubt is certainly the fastest growing and “exciting” market to be working in right now, and probably one of the most difficult for expatriates to survive in. After many years of being closed off from the world, China has opened up with a vengeance, and is therefore growing too quickly, too soon. It’s experiencing all the problems accompanying a new economic power emerging in an environment where centuries of development are trying to blend in all at once.
The New China
Westerners have been trying to get rich in China for over 150 years. However, few of them have actually been successful enough to penetrate the “market of one billion”. With the “sweeping economic reform in the People’s Republic, and the merging of Hong Kong, Taiwan and China into a financial and manufacturing “powerhouse” called Greater China, an increasing number of firms from the west now reap profits there, including H.J Heinz, McCall’s, Bausch & Lomb, and scores of others.” (www.ptvchina.com)
In fact, it was also possible that the amount of Avon Products projected sales in China at $1.5 billion in 1991, and it hit an annual profit of approximately $1 billion per year. In this case, we see that any businessperson is therefore willing to prepare and persevere on profit in the China Triangle (This includes Hong Kong, Taiwan and China).
The term “Greater China” was termed by former Communist Party Secretary, Zhao Ziyang, as reunified China that included Hong Kong, Taiwan, and Mainland China. It merged into one independent called the “MegaChina”.
In 1997, Hong Kong and Mainland China were then united again. Taiwan will most likely still remain politically independent from the Mainland, even in the near future. However, the three China’s are uniting commercially, and “the entrepreneurial synergy generated by that unity fuels economic growth that is now unsurpassed in the world.” (www.ptvchina.com) Guangdong Province in South China, for example, has kept an astonishing 12.5 percent annual economic growth rate since 1985. The political and commercial divisions between the three China’s are rapidly disappearing. The border between China and Hong Kong has started to slowly to remove itself; people on either side are starting to come together.
Economic Conditions in Mainland China
China is increasing at a steady speed as it continues to sustain rapid economic growth. China’s average annual GNP growth rate of 10 percent during Deng Xiaoping’s (famous Chinese Government) reform program starting in 1978 “outstripped” almost every other country in the world. In 1993, China ‘s GNP grew by 10 percent, industrial output was up 18 percent, and foreign trade had risen by 20 percent. In Shanghai and Guangdong Province in 1993, the GNP grew by 22 percent and 18 percent in foreign trade. China’s growth is affected by a number of sources, including the fast output of thousands of small and medium sized “village” enterprises formed as small groups, but are actually private companies which partner up with local entrepreneurs and other bigger enterprises. Another growth is the result of imported technology, which has given many Chinese firms a chance to produce foreign exchange through exports. Lastly, foreign investment has generated growth also in China. In 1993, the Chinese government approved an estimated 80,000 foreign-invested projects, with an estimated total of approximately $105 billion in value. This is equal to the approved foreign investment over the past 13 years, since China started to open up to the Western market.
Culture of each country is different from the next, there are certain objectives that favor or follow in everything that they do. In China their cultural behavior is much different from normal business industries. Most North American business people think of building “business relationship” in hints rather than as a straightforward task, in which any cultural differences can be easily overcome through “eye-to-eye” talk, informality or by having a few drinks together. In Greater China however, the meaning of the word “relationship” is much deeper.
The past government of ancient China depended upon a system of client-patron relationships to maintain stability throughout the many provinces of the country. The term for client-patron relationships was a called “kan-ch’ing”. In the past and even today, in the village level, to possess good “kan-ch’ing” was to have a sense of well being, a feeling of being at ease, in a relationship, for example, with the landlord. Those who had good kan-ch’ing would try to help each other rather than compete. For example, the landlord was dependent on the kindliness of the tenant if he was to receive his rent. The tenant normally would pay his landlord, however, if he could not pay the entire amount he would open up negotiations with the landlord. If for some reason there had been a drought, a flood, heavy rain, or insect problems, the landlord’s liability to the tenant demanded that the rent be postponed as a must for the tenant to survive. If the landlord possessed good kan-ch’ing he would not press his/her tenant for rent, and the tenant would repay him in his more plentiful years. Therefore we see that relationships and good kan-ch’ing remain vital in China’s business cultures today.
The Chinese like to maintain their business relationships through mutual exchange of gifts, favors, and promotions. “Guanxi” relationships are among Chinese business people where ever they are located, this can be described as “ingratiating personal relationships” that presume multiple obligations on the particular people”. (Jones, Stephanie 77)
These relationships can arise from the city which one’s parents were born, the university one attended, or even a direct family tie. Guanxi is the main reason why managerial positions in China are filled with family members, friends, and co-workers rather than those who are just well qualified.
Business relationships among the Chinese everywhere are clearly based on trust, obligation and dependency, however mutuality (give and take process) is the essence of their life. The Chinese carry a special ledger in their heads. A person knows exactly the debts, which they owe to others and who also owe them debts at any given time. The balancing of mutual debt never really occur, nor should it occur at all. The point of this is for the relationship to remain in a dynamic state. One person or another is at all times wanting a favor to be exchanged at some time in the future.
In the year 1978, China’s leaders established a broad program to push Chinese enterprises into the cutting edge of Asian manufacturing efficiency. However, during the late 1970s and in contrast to the previous thinking of the people, Chinese leaders realized that implementing managerial improvements along with the introduction of new technologies (hardware and software) could increase productivity into the enterprise environment. At the third Plenary Session of the Eleventh Central Committee of the Chinese Communist Party held in December of 1978 was a turning point in the evolution of industrial management in the People’s Republic. At this meeting, China’s top leaders revealed a willingness to reconsider many of the policies that in the past were considered sacred principles of the socialist system. This to many Chinese people was known as China’s Managerial Revolution.
Beginning with the introduction of new management techniques in 4,000 Siuchuan enterprises in 1979 (also in a fewer number of enterprises in Yunnan and Anhui provinces), a new industrial responsibility system was set up, and later introduced to over 36,000 industrial enterprises. These enterprises were only 16 percent of the total number of state-owned enterprises in the People’s Republic, accounting for a 70 percent of total profit making among state enterprises. The Party Secretary Zhao Ziyang, outlined four major tasks for the reform of industrial enterprises. The first consisted of strengthening the economic responsibility system, improve management in enterprises, better planning, control, and business accounting, then follows promoting capable to leading posts and overcome overstaffing through reorganizing of work units. Third is to increase worker discipline by implementing a strict reward and penalty system; lastly to tighten financial control.
After the Chinese Communist Party (CCP) took control of China in 1949, it introduced a system of enterprise management, patterned after the Soviet Union. The system then was characterized by the strong role that was attached to the CCP. The factory also felt the administrative influence of the government bureaucracy. Production “mandates” were assigned to enterprises and goods were handed over to the state to be distributed, instead of themselves. All profits and losses were the responsibility of the state, not the enterprise. With little in the way of competitive pressures to operate their manufacturing processes efficiently, most Chinese factories started to develop numerous amounts of operational and organizational problems. Many of these problems still exist today. Some of them were that they suffer from a display of shortcomings that were associated with poor shop-floor management techniques. Also quality control, product testing and inspection were incomplete; complicated products are often not tested until after being assembled. Also, the infrastructure and technology associated with transportation of goods prohibits quick response in the shipping of these products. Therefore as one Chinese philosopher suggested, Chinese factories are running with a “just in case” mentality rather than a “just in time” mentality. Chinese factories have trouble managing high-volume and high variety manufacturing endeavors. High amounts of surplus in production, causes long unproductive periods from the actual design to the accomplishment of a new product.
After many wasteful years, China’s reforms start to recognize that the enterprise manager is the turnkey for China’s new industrial advancements. Articles often appear in the Chinese newspaper about managers succeeding in the marketplace, while facing numerous amounts of obstacles. The so-called “manager hero” who takes over a factory which is in debt at the moment, then they gathers market information, and quickly comes to understand the demands of the consumers, and finds a function for the products. After that the company acts quickly to get the product into the market, then works to become number one in his municipality to eventually succeed in exporting his productions. This is how a manager in China develops his “hero” type of management and strategy. However, until now the Chinese manager has had a somewhat low position in the Chinese decision-making hierarchy. Typically, a factory director who worked with several deputies, including a chief engineer and a senior accountant headed up the order of the enterprises.
The Chinese have a large amount of experience when it comes to motivational techniques to enhance worker productivity. For example, since 1949, China has employed many incentive programs through the years, in hopes of being able to increase output, running group incentives, individual rewards, moral suasion, and emulating campaigns of piece rate and stock options.
Mao Zedong, promoted labor volunteerism based on “emulation drives”, which in turn, also inspired the formation of emulation committees in most of the country’s factories. He was given awards for successful imitation of highly “propagandized” model of factories. Since Zedong’s death, emphasis on material incentives has been increased. Therefore, incentives based on moral encouragement and those on material rewards have been combined together.
China’s Changing Society
“Social conditions in China are in great flux at the moment as increasing numbers of Chinese benefit from economic growth and modernization.” (Keenan, James 83)
As we can see, wages are still low overall, though now at the second and third level jobs, many Chinese people can now afford nicer apartments and fashionable clothes. One of the main turn points in China is that political restrictions on the common person have loosened significantly in the early 1990s as making money has become the main focus for most working people. Finding a job has become tougher as companies restructure for competitiveness, or close down because they are unnecessary. Though China is home to more than a million millionaires, there are about 200 million Chinese who can’t find work. Actually China is home to more people out of work than any other country, with 3 percent unemployed in urban areas, in a total urban workforce of 200 million. This is the main reason thousands of young people who have crowded into coastal cities seeking work far from home. It also explains why so many young people are skipping the traditional stage of working for a state company and are setting up private businesses of their own.
A manger in China may have all the technical skills as his foreign opponent, but the one with fewer personal connections will not be as effective as the other. Although the Chinese manager is being forced to address new issues like technological innovation, performance based incentive programs, and production of new products that are responsive enough to the fast changing world markets, “Guanxi” relations is still the most important.
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