Doing Business in China, Research Paper Example

In the contemporary globalised and internationalised world, the success of one’s business depends on various interdependent factors, but one on the most crucial aspects is the knowledge of business culture of the global or national partners one works with. Although the world economy became global and interdependent, the cultural and political specifics of national business environments remain unchanged and distinctive for every country which is often conditioned by the combination of distinctive historical events, geographical position, religious and cultural belief. For a business to succeed, the CEO has to know the target business culture of the potential market for investment or business partner.  The aim of this paper is to outline the features of Chinese business environment in contrast to the Western style together with specifics of doing business in three regions of China, meaning Shanghai, Tianjin and Beijing. Thus, the attention is paid to diverse factors influencing distinctiveness of doing business in China and across different regions of the country.

Difference between US and China

The business environment in China is different from the American due to the different historical, political and cultural features. From the political perspective, the regime of democracy and freedom conditioned the development of market economy a long time ago and the dominance of profit-oriented individualism in various aspects of life including, personal career development and economic growth of national corporations (Irwin 6). On the other hand, China’s communist regime was oriented on strengthening of governmental control over the economy and other aspects of life. Consequently, the principles of collectivism and social solidarity prevail over any other incentives in social and economic dynamics. Although it may seem that business negotiations with Chinese counterparts are very individualistic, the division between inner-circle partners and outsiders prevails due to the strong historical and communist internalisation of the country and dominance of family-oriented business and social relationship (Witt).

In this regard, while, from the Western perspective, business can be viewed as above the family interests, in China business is directly incorporated into family values and family working on various keep positions within that business. Chinese business culture irrespective of the democratisation of economy in the 1990s can be characterised as being traditionalist in its very core. The prevalence of traditions is due to the long history of religious belief of Confucianism in Chinese culture. As a result, the Chinese business environment is characterised by formalities, following the protocol, preserving one’s face and respect to traditional Chinese values: family, duty and order (Irwin 5). The primary problem for the Western businessmen is that in the American and Western profit-oriented business culture, the sorting out of the mutually acceptable deal is the primary target, while for the Chinese businessmen the way of the doing it matters as much the deal itself. In this regard, while American frankness and informal environment of negotiations can be a sign of mutually-beneficial incentives, for the Chinese businessmen it would be an insult and sign of the end of negotiations (Witt).

The importance of the formal status of negotiations and business conduct is also largely conditioned by the strongly hierarchical structure of the Chinese society and the dominance of a single party in all aspects of country’s life. Consequently, prescriptive and formalised behaviour became part of every aspect of Chinese life including such an important part as doing business. For the same reason of a strict hierarchy, decisions are made only on the top managerial level, while in the American business practice delegation of certain decision-making functions is common (Jayaraman 57). In this regard, in order to realise whether negotiations are treated seriously by the Chinese side, it is essential to see whether the negotiator’s position has any decision-making duties or not. In return, Chinese businessmen expect to see an equal negotiator in terms of education, the field of expertise and often even gender and age (Witt). On the other hand, the practice for the  American businessmen is to negotiate with whoever is sent and achieve the best possible deal .

Another crucial distinction between the two business cultures is the attitude to gifts and friendship in the context of business conduct. Due to the long history of formalised etiquettes and its further strengthening through the strict communist rule, the ritualization of various aspects of life prevails (Irwin 6). The best example is the significance of giving gifts during the negotiations that are aimed at showing mutual respect and seriousness of the negotiations. In this regard, gifts have to be culture-concerned in terms of significance in the Chinese culture rather than the context of the Western business (Witt). On the other hand, in the American business culture, due to the prevalence of democratic values and transparency in business, giving gifts is often considered to be a representation of bribery and an effort to influence one’s decision-making and objective judgement. From the Chinese perspective, it is just a sign of respect and the preliminary stage of negotiations.

Another crucial outcome of Chinese traditionalism and contemporary modification of Confucian beliefs is the necessity of the Western businessmen to overcome the status of an outsider and foreigner and gain trust and respect of the Chinese counterparts. This can be achieved by long-term commitments to building a friendship together with the business relationship. While, in the Western practice, business and friendship are separate matters, in the Chinese business culture being friends helps trustworthiness and fairness of negotiations and mutually beneficial outcomes (Witt). As any interpersonal relations, strengthening of one presence and effect business conduct requires time and patience. Consequently, the investment into building a functional long-term business relationship is potentially more effective than trying to make fast money on a few deals. There is simply no such term in Chinese business environment as fast money.

Differences between Shanghai, Tianjin and Beijing

Except for the overall different business culture in China, the geographical and regional differences also have to be taken into account (Jayaraman 58). The best example is the comparison between the three major cities in China in terms of their history, background and cultural impact on the business conduct and economic features. First of all, it has to be outlined that all three cities are characterised by high population and vibrant economic dynamics. Shanghai is the biggest city located in the Centre-East China with urban population of 22 million, followed by Beijing in the Northeast China with population of 19 million and Tianjin a bit South-Eastern from Beijing with the population around 11 million (‘An Introduction’). All three cities are characterised as having a long history of being key trade and transport destinations; however, today they are characterised by the different sector orientation of their economic specialisation.

The primary distinctive feature of Beijing is that it is the capital city which means it is the most influential city in the country with the most advanced administrative network and communication capacities and diverse representation of businesses from across the country and the world. Being the capital it is characterised as being cultural, educational and research and development centre of the country (‘An Introduction’). The implications of these features on doing business are diverse. Frist of all, from the administrative perspective, it is easier to open and conduct business negotiations in Beijing because most of the key administrative bodies can be found within the city. Since it is the capital, the local counterparts would know the most recent trends of doing business both in terms of the new governmental trends and also international requirements, because the city is very metropolitan. This is also largely because the city is a tourist attraction and foreign presence is part of the city’s dynamics. Still, although Beijing is the capital city, opening a business here takes up to 31 day and requires a lot of administrative procedures.

While Beijing is good for the political and representative purposes, Shanghai is characterised by the long history of trade and consequent well-developed financial, trade and transport infrastructure of a port city (‘An Introduction’). Thus, it is the largest and the richest city in the country. It is largely conditioned but its historical significance for Chinese internal and external routes of trade and further key point of opening the country to the West. The primary boost of foreign investments into Shanghai was its free-trade zone status that attracted foreign interest. In this regard, unlike the rest of the country except for Hong Kong, the customs for trade were minimal for some industries and absent for the other products. Consequently, under the conditions of strong governmental control over economy and capital across the country, Shanghai was a particularly advantageous place to invest and to and develop one’s business. However, the necessity of further decrease of capital control and liberalisation of interest rates are desired by the foreign businesses.

Due to the long history of favourable trade conduct, Shanghai characterised by the development of various sectors of the economy and consequent strong transportation infrastructure, which is a favourable point of entrance for the foreign companies. Unlike Beijing, it is more industry and manufacturing oriented. However, is also has a well-established financial sector and holds one of Chinese stock markets (‘An Introduction’). Thus, Shanghai is the place of conducting business from the foreign perspective, which also means that competition between foreign and local companies in this city would be particularly severe.

Regarding Tianjin, although it is located not far from Shanghai, its history and contemporary economic significance is different. The geographical location of Tianjin gives it access to the inner rivers of China, which means that its historical trade importance was conditioned by the transportation considerations across China. Consequently, the city is of tremendous value for the entrance of the into the national Chinese market distribution of goods across the river routes.  On the other hand, the strategic and economic significance of this port for China makes it more protected from the foreign investment and presence than in the case of Shanghai. This means that administrative and political barriers to entering this city are different than in the case of Shanghai.   Tianjin does not have the status of a free zone and conducting business in this city is regulated by the overall custom regulations applied to the rest of China.

From the cultural perspective, although Tianjin is located not far from Shanghai, since it is not a free zone and it is essential for the domestic politics, the level of internationalisation and acceptance of foreign presence is lower. Another feature of the city is that it is one of the big cities of North that give working opportunities to the traditionally less industrially developed and poorer Northern provinces (‘An Introduction’). Consequently, the majority of the population would be more conservative in their views as in the Central and Northern regions of China. The same is the case with the spoken dialogue of the Chinese language (Witt).

Comparing all three cities in terms of business culture, it can be argued that each city is more beneficial depending on the type of industry or sector the foreign company represents. For the research and development and the sector of services, Beijing and Shanghai would be more favourable, with Shanghai being Mecca for almost all of the industries including financial sector due to its free zone status. On the other hand, if company targets multi-regional entrance into the Chinese market, the location of headquarters and working with Chinese partners in Tianjin is the most favourable (Jayaraman 58). Although the process of establishing a business in Tianjin would take longer and more efforts than in Shanghai, from a long-term perspective it would be more cost-effective. Moreover, with the tendency of the Chinese government decreasing the quotas for the government owned and government regulated industries, the entrance into the Mainland China should gradually ease, making Tianjin a key to Chinese national markets.

The opportunities for the Americans to invest and do business in China

The Chines economy has plenty of opportunities to offer for the global investments mainly due to its size and continuous growth. Although the current economic growth stabilised on 7 percent, the overall predictions of the economic dynamics are vibrant. Moreover, the Chinese government wants to encourage further investment into the national economy and its strengthening on the global scale (KPMG 31). In this regard, various restrictions were taken off. For instance, previously governmental segments such as vocational training, cutting edge technologies of glass optics reacted products, water treatment plants, alternative energy development were allowed for the foreign companies to work on and introduce on the national market. However, the Chinese government remains preoccupied with the sectors reacted to the natural resources excavation and energy-use project. In order to protect the national communication and vocational sectors, activities such as domestic express parcel delivery and building and running of villas were added to prohibited activities in 2011 (KPMG 32).

These lists of allowed and not allowed activities are essential for the companies to study before thinking of entering the sector of the Chinese market they are specialised on. This categorisation is a well-known feature of doing business in China. However, once it is well-studied and all formal paperwork is processed, various segments of the Chinese market have plenty of potentials for the companies to succeed according to the laws of supply and demand (KPMG 55). On the other hand, the crucial factor of success is studying the trends within a specific regional market, because except for the foreign competitors there are also the small local firms that might seem like minor competitors but the total number and regional diversification can undermine the potential of the company within this segment of the industry. Thus, when the local Chines market is targeted, its structure and regional differences have to be taken into account (Jayaraman 58-59).

Another consideration in terms of doing business in China is that except for the national main regulations of entering the market, the local authorities specifics might be different, since the local authorities in provinces have the right of making their own regulations that might make process of doing business more complex or easy depending on the province and particular area (Witt). The main trend is that the South-Eastern part of the country due to its historical economic development is more accessible for the foreign investments than the North-Western provinces.

Conclusion

From all mentioned above it can be concluded that the Chinese business culture is very distinctive from the Western and it requires a contextual understanding of it and consequent actions for the achievement of success. Another crucial factor of doing business in China efficiently is the knowledge of regional differences and specialisation which fit some industries and investments more than the others. Chinese business environment is also characterised by long-term commitments over the fast money principle. If a foreign company demonstrated a long-term effective cooperation, it begins to be treated like an insider and receives consequent benefits over the newcomers.

Works Cited

An Introduction to China’s Largest Cities. China Highlights, 6 Jul 2015. Web. 10 Jul. 2015.

Jayaraman, K. “Doing business in China: A risk analysis” Journal of Emerging Knowledge on Emerging Markets, 1.1 (2009): 55-62. Print.

Irwin, J.  “Doing Business in China: An overview of ethical aspects.” Institute of Business Ethics, 12 Jul. 2012. Web. 10 Jul 2015.

KPMG. Investment in the People’s Republic of China. 2013. Web. 10 Jul. 2015.

Witt, M.A. “The Ten Principles For Doing Business in China” Forbes, 6 Mar.  2012. Web. 11 Jul 2015.