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International Business in China, Research Paper Example

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Words: 3396

Research Paper

Doing business in China successfully requires a thorough grounding in Chinese culture, which includes a number of assumptions and ideas about business that are very different from those characteristic of the United States and other Western countries. Where the U.S. and other Western cultures are highly individualist, and emphasize the rights and responsibilities of the individual, Chinese culture is much more collectivist, and favors group harmony and associations. In fact, the only way to do business effectively in China is to have guanxi, connections: relationships with business partners, whom one can depend on for facilitating the enterprise. Only by adapting to Chinese culture and consumer preferences can a Western firm successfully do business in China.

Culture is of profound importance for conducting business, because culture governs the rules, assumptions, and other ideas that shape human conduct. When a firm manages only ‘within-culture’, so to speak, that is to say, when its business operations embrace only one culture, a system of common cultural ideas, expectations and standards effectively unites all employees. When a firm must manage cross-culturally, however, it will find itself having to negotiate a very different set of cultural expectations. These cultural differences really do matter, because they affect what people expect in the workplace, and thus play an important role in shaping the type(s) of organizational culture that are viable for the organization.[1]

A particularly good example of the power of culture in shaping how people do business is the dimension of cultural variance known as individualism vs. collectivism. In essence, this dimension of cultural variance is concerned with priorities: individualist cultures favor the individual, prioritizing their needs and preferences, while collectivism favors the group. Generally speaking, individualist cultures favor personal responsibility, individual autonomy, and individual rights. In individualist societies, respecting the rights of the individual is often conceived of as the highest good, and obligations are thought of in terms of obligations between individuals. By contrast, collectivist cultures favor collective identity, group harmony, collaboration, and interdependence. Traditional loyalties of family and clan, as well as civic and religious loyalties, carry much more weight and are far more influential. The United States offers a very good example of a strongly individualist society, while Chinese culture, like so many other non-Western societies, is much more collectivist.[2]

This concept of individualism versus collectivism is absolutely vital for Westerners to understand if they are to do business successfully in China. In Western societies, such as the United States, it is very common to draw a clear distinction between two important spheres of life, “business” or “professional”, and “personal”. In the United States, this distinction is essential for doing business successfully, and it is part and parcel of a very individualistic American culture: there is a very strong cultural ideal of success on one’s own merit, and people who are said to have gotten jobs through family connections are often resented, and are probably much more likely to have their business credentials and accomplishments impugned.[3]

However, this concept of “business” vs. “personal” is utterly foreign to people in many non-Western cultures: what Westerners call ‘nepotism’, the favoring of family members, is often part and parcel of the social webs of kin-based obligations that people in non-Western cultures depend on to survive.[4] Again: in the United States and other Western societies, nepotism is held in contempt and in some instances may actually be illegal. In many non-Western cultures, including China, exactly the reverse is the case, and favoring kin and extended family members is often thought of as a good thing. China is actually a particularly good example of this, because in China, successful business is not so much about what you know as it is about who you know. Chinese business success depends upon a form of social capital called guanxi, which has justly attracted a great deal of attention in the international business literature. Guanxi is probably best translated as ‘connections’: relationships between individuals, typically built up through the trading of favors and sharing of information.[5]

The importance and prominence of guanxi in Chinese business has been attributed to the lack of the rule of law and to the power of the Party-run bureaucracy. The argument goes that since China began to open itself to the world since the late 1970s, guanxi became of correspondingly greater importance for cutting through red tape. This is of profound importance for understanding the legal regulatory environment for business in China: again, as with the business world in general, what matters is who one knows. Consequently, while the Western approach to business regulatory environments in Western countries depends on understanding the written law in order to comply with it, in China the only worthwhile approach is to know the right people to ‘interpret’ the law in an efficacious manner.[6]

A good example of a Western business using guanxi to successfully do business in China is that of Pierre Cardin. Opening a restaurant in Beijing required the company to obtain some twenty-eight official stamps. Shrewdly, they decided to appoint a Chinese woman, Song Huaigui, as CEO of Pierre Cardin in China. A successful cultivator and manager of guanxi, Song Huaigui masterminded Pierre Cardin’s success in China.[7] This is the kind of business strategy thinking that would be utterly alien to an American firm doing business domestically, and it is not likely to be covered in a standard treatment of strategic planning, or alongside Lean Six Sigma and Just-In-Time principles. It is worth reiterating that this is the single biggest unofficial rule for doing business in China: business in China is not about written laws and the surface features of the business environment, but rather about the human actors and agents that one knows in said environment.

A vital point: to think of guanxi as cronyism or corruption, misinterpretations which might suggest themselves to many a Western mind, is to absolutely miss the entire point of the concept. The philosophy of guanxi is reciprocity: mutual exchanges of favors and assistance, which serve as the foundation for a relationship based on trust and respect, not to mention the kind of mutual obligations that reciprocity depends on. Indeed, guanxi is rooted deeply in Chinese culture, and, in keeping with the fact that Chinese culture does not recognize a distinction between business and personal life, the very strongest kind of guanxi is that which exists between family members. Thus, guanxi is the embodiment of a very Chinese outlook on business: generally speaking, Chinese people do not want to do business with people whom they do not know.[8]

There are three kinds of guanxi. The first and strongest, jiaren, is the guanxi between extended family members. This category of extended family can include trusted non-blood relatives, including non-Chinese people: if one has been accepted into a family network, one is considered a trusted insider and participant in a jiaren-level relationship. The second kind of guanxi is that which characterizes non-family, but still quite significant, relationships. People in such relationships are shuren to each other: not family members, but still quite close. Chen gives a number of examples of this type of relationship: “people from the same town or village, former classmates, members of the same clubs or societies, or friends of friends.”[9] Finally, there are strangers, or shengren, with whom one has the third and weakest kind of guanxi. The Chinese outlook is not one of instant suspicion, but rather one of caution, and certainly a higher likelihood of reacting with suspicion: since nothing is known about a stranger, the most prudent course of action from a Chinese perspective is generally to wait and see. If a stranger proves themselves worthy of trust, they may in time move from the level of shengren to shuren, and so on. Such a transition takes time, however, and this waiting game may exhaust Western patience: after all, Westerners are used to a more ‘up front’ business culture, with a clear and pragmatic distinction between business and personal.[10]

What all of this means for a Western firm is that it must be prepared to go the distance in cultivating trust and building a relationship. Indeed, trust is central to guanxi: it is a form of social capital that depends on trust. It is no exaggeration to say that trust, as the key ingredient of guanxi, is vital for acquiring a competitive edge in China: if a firm can show itself to be sufficiently trustworthy to establish a working relationship with a Chinese contact or partner, this will enable it to acquire the guanxi necessary to do business successfully. Of course, this requires patience, a resource that a Western company cannot have too much of if it wants to do business in China. The Western philosophy of business tends to be a much more hurried one than its Chinese counterpart; Western firms that lack sufficient patience to establish the informal relationships characterized by sufficient guanxi will fail to do business in China profitably. Patience is important, because relationships must be durable and stable enough for guanxi, just like any worthwhile relationship.[11]

And as seen, guanxi has been, and still is, used as a means of cutting through bureaucratic red tape. This aspect of guanxi is integrally related to China’s recent history, since the establishment of the People’s Republic: during the Mao years, especially the Cultural Revolution, the Party attempted to suppress guanxi and the rich Confucian heritage on which it depends. However, paradoxically this had the function of reinforcing the whole concept and practice of guanxi, as a work-around for dealing with the Party’s bureaucracy. With the Party’s efforts to control the allocation of resources during the Mao years, prior to China’s market reforms under Deng beginning in the late 1970s, guanxi provided the backbone of an unofficial shadow economy. In response to the Party’s efforts at central planning and allocation, many Chinese resorted to the use of guanxi as “an alternative means for finding jobs, housing, health care, and various goods.”[12]

Of course, as with any country, succeeding in China means winning the loyalty of Chinese consumers. One American company that has been especially successful in China is Walmart, for reasons that have everything to do with the big-box retailer’s willingness to adapt itself to the Chinese market. Walmart’s success speaks to the importance of guanxi: after an abortive effort to do business in China through a partnership with a Thailand-based firm, Walmart formed a joint venture agreement with a Hong Kong-based holding company, a partnership that has served it well indeed. Today, Walmart is thriving in China, and a key part of the reason why is that it has broken with its usual business practices in order to implement “several sustainable HR and social welfare strategies”, chief among these an employee training program focused on teaching customer service.[13]

In fact, Walmart, like McDonald’s, offers an outstanding example of ‘glocalization’: the globalization of enterprise, with adaptation to local preferences and conditions. Glocalization embodies the meeting of the global and the local. Walmart changed the very layout of its stores in order to cater to Chinese consumers’ preferences, a case in point being the wider aisles and shorter checkout counters, which are designed to cater to the penchant of Chinese consumers for visiting the store more often in any given week than their U.S. counterparts. Since Chinese consumers usually have more limited storage space than their American counterparts, they prefer smaller package sizes, and Walmart has responded by selling frozen goods in open freezers, accompanied with scoops and bags that allow Chinese consumers to buy any amount. And since food is the main commodity Chinese consumers go to Walmart to buy, the franchise allocates a great deal of floor space accordingly.[14]

Being that China is a very large country with a number of very distinct regional cultures and identities, Walmart China has had to adapt not only to China, but also to a variety of differences at the regional level. Consumers in Shenzhen, a major metropolis in southern China where Walmart has expanded, have different tastes than their counterparts in northeastern China, China’s historic cradle. However, consumers across China are mistrustful of electronic products, and like to take them out of their boxes and test them before they will consider buying them, and so Walmart China has had to adjust itself to this practice as well.[15]

However, China’s contradictions between official policy and the unofficial red-tape-cutting of guanxi capital played a key role in one of the more significant challenges Walmart has faced in China: the battle over unionization. Walmart is famously anti-union, a persistent feature of its organizational culture in the United States. However, under Chinese law, specifically Article 10 of the Trade Union Law, any company with at least twenty-five workers must have a union. And yet, when the All-China Federation of Trade Unions (ACFTU) threatened a lawsuit, Walmart insisted that it had been assured by officials in the central government that it was not required to do so. As Goldstein explains, the real motivation of the ACFTU was probably the desperate quest for member dues, given the erosion of the state-owned sectors of the economy. And for its part, Walmart was probably more concerned about setting a precedent internationally than anything else, since official unions in China are seldom in any position to pose a real threat to big business.[16]

Somewhat unsurprisingly, the ACFTU won the battle and rapidly set up a series of unions. As Chan explains, the style of unionism represented by the ACFTU is top-down and extremely tame, from a management-centric perspective: Chinese official unions perform a few welfare functions, but do not engage in collective bargaining and other such activities that are par for the course for their Western counterparts. They are led from the top down, with district-level unions seeking the approval and cooperation of management in the formation of union branches—another very clear example of China’s collectivist culture, one that highlights the contrast with Western individualist cultures. Since the rules stated that employees had to request a union, and since none of Walmart’s Chinese employees had made such a request, the ACFTU was forced to resort to a style of campaigning with which it was altogether unfamiliar: grassroots activism. Although the success of the campaign may seem like a positive step forward for workers’ rights, the reality seems to be that the whole process is still very much under management control, and the new unions are unlikely to exert any real challenge to Walmart in China.[17]

These hang-ups notwithstanding, Walmart has succeeded in fostering a successful corporate culture in China, and it has done so by adapting its own corporate culture to the Chinese context. Walmart founder Sam Walton’s famous “ten rules of business” have become Walmart China’s “ten great laws for success of the cause”, a phrasing which has decidedly revolutionary implications, speaking to China’s Maoist history. Walton’s injunction for “controlling expenses” has become an entreaty to “’economize’ or ‘be thrifty’—a term familiar during Communism’s lean years in the 50s and 60s…”[18] The point is that Walmart has succeeded by adapting itself to Chinese cultural values, including cultural associations from the very recent past. In other words, Walmart is able to foster certain values that are crucial to the company’s success and self-image by adapting them to the values and expectations of contemporary Chinese business culture. It is this that has made Walmart China such a success story.

In fact, Walmart China’s corporate culture might be described as a way of life. As Davis explains, Walmart China takes seriously the Walmart slogan “My Walmart”: “Managers frequently highlight the extent to which individual employees—especially frontline employees—demonstrate the spirit of ownership to which a slogan like ‘My Wal-Mart’ speaks”, a case in point being the large and lavish product displays, a central feature of Walmart’s marketing and sales efforts in China.[19] In one instance, employees creatively fashioned an airplane from cardboard printed advertisements, placing two floor fans under the wings to suggest “jets”. It may go without saying to anyone familiar with the franchise in the United States, but this is not the sort of thing that one is likely to associate with Walmart in America. But again, as with Chinese business culture in general, Walmart China works through personal associations: employees see themselves as part of a family, and this is an association that Walmart China’s corporate culture strongly encourages and supports.[20]

All of this is very prudent, because in China, arguably even more than in America, customer service is everything. For example, Chinese customers “like to see clamor or some insistent public expression (as of support)”, and so Walmart managers have tasked employees to noisily and enthusiastically restack merchandise in plain view of customers in order to increase sales.[21] Another customer service oriented change concerns Chinese preferences for fish and shrimp: Chinese customers demand only the freshest, which means alive and swimming in tanks, and Walmart China has obliged them.[22]

An understanding of Chinese culture is foundational to doing business successfully in China. Only by understanding and working with Chinese ideas about business relationships, particularly the concept of guanxi, can a Western firm have any hope of succeeding. Business in China is more about who one knows than what one knows, and good relationships can make the difference between failure and success. Walmart is a Chinese success story, both because of its good partnerships, including a strong corporate culture, and because it has adapted to the tastes of Chinese consumers in a prime example of glocalization.

Bibliography

Bjørn, Mette, and Verner Worm. “Guanxi Capital as a Sustainable Competitive Advantage.” In China: Business Opportunities in a Globalizing Economy. Ed. Verner Worm. Copenhagen, Denmark: Copenhagen Business School Press, 2008. 113-139.

Chan, Anita. “Organizing Wal-Mart in China: Two Steps Forward, One Step Back for China’s Unions.” New Labor Forum 16, no. 2 (2007): 87-96. doi: 10.1080/10957960701279256

Chen, Ming-Jer. Inside Chinese Business: A Guide for Managers Worldwide. Allston, MA: Harvard Business School Press, 2003.

Davis, David J. “Wal-Mao: The Discipline of Corporate Culture and Studying Success at Wal-Mart China.” China Journal 58 (2007): 1-27. http://search.ebscohost.com/

Goldstein, Carl. “Wal-Mart in China.” Nation 277, no. 19 (2003): 9-10. http://search.ebscohost.com/

Lundby, Kyle, and Jeffrey Jolton, eds. Going Global: Practical Applications and Recommendations for HR and OD Professionals in the Global Workplace. San Francisco, CA: Jossey-Bass, 2010.

Marx, Elisabeth. Breaking Through Culture Shock: What You Need to Succeed in International Business. Yarmouth, MN: Intercultural Press, 1999.

Matusitz, Jonathan, and Kristin Leanza. “Wal-Mart: An Analysis of the Glocalization of the Cathedral of Consumption in China.” Globalizations 6, no. 2 (2009): 189-193. doi: 10.1080/14747730902854158

P., George. “Wal-Mart in China: Crafting Strategies to Shape Their Good Fortune.” Proceedings of the Northeast Business & Economics Association, 330. http://search.ebscohost.com/

Tian, Xiaowen. Managing International Business in China. New York: Cambridge University Press, 2007.

Ting-Toomey, Stella. Communicating Across Cultures. New York: The Guilford Press, 1999

[1] Kyle Lundby and Jeffrey Jolton, eds., Going Global: Practical Applications and Recommendations for HR and OD Professionals in the Global Workplace (San Francisco, CA: Jossey-Bass, 2010), 22-25.

[2] Lundby and Jolton, Going Global, 28; Elisabeth Marx, Breaking Through Culture Shock: What You Need to Succeed in International Business (Yarmouth, MN: Intercultural Press, 1999), 50; Stella Ting-Toomey, Communicating Across Cultures (New York: The Guilford Press, 1999), 67.

[3]Lundby and Jolton, Going Global, 28-30.

[4] Lundby and Jolton, Going Global, 28-30.

[5] Ming-Jer Chen, Inside Chinese Business: A Guide for Managers Worldwide (Allston, MA: Harvard Business School Press, 2003), 45-47; Xiaowen Tian, Managing International Business in China (New York: Cambridge University Press, 2007), 50-51

[6] Tian, Managing International Business in China, 55.

[7] Tian, Managing International Business in China, 55.

[8] Chen, Inside Chinese Business, 47.

[9] Chen, Inside Chinese Business, 48.

[10] Chen, Inside Chinese Business, 48.

[11] Mette Bjørn and Verner Worm, “Guanxi Capital as a Sustainable Competitive Advantage”, in China: Business Opportunities in a Globalizing Economy, ed. Verner Worm (Copenhagen, Denmark: Copenhagen Business School Press, 2008), 113-115.

[12] Chen, Inside Chinese Business, 47.

[13] George P., “Wal-Mart in China: Crafting Strategies to Shape Their Good Fortune”, Proceedings of the Northeast Business & Economics Association, 330, http://search.ebscohost.com/

[14] Jonathan Matusitz and Kristin Leanza, “Wal-Mart: An Analysis of the Glocalization of the Cathedral of Consumption in China,” Globalizations 6, no. 2 (2009): 189-193, doi: 10.1080/14747730902854158

[15] Matusitz and Leanza, “Wal-Mart”, 193.

[16] Carl Goldstein, “Wal-Mart in China”, Nation 277, no. 19 (2003), 9-10, http://search.ebscohost.com/

[17] Anita Chan, “Organizing Wal-Mart in China: Two Steps Forward, One Step Back for China’s Unions”, New Labor Forum 16, no. 2 (2007): 89-94, doi: 10.1080/10957960701279256

[18] David J. Davis, “Wal-Mao: The Discipline of Corporate Culture and Studying Success at Wal-Mart China,” China Journal 58 (2007): 9-10, http://search.ebscohost.com/

[19] Davis, “Wal-Mao”, 15-16.

[20] Ibid.

[21] Matusitz, “Wal-Mart”, 194.

[22] Ibid.

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