Trouble in the Middle

American-Chinese Business Relations, Culture, Conflict, and Ethics

Steven Feldman, Steven P. Feldman

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415818773
• eBook ISBN: 9781136681356
• Topic: Negocios y empresa
• Subtopic: Negocios en general

This book will help readers better understand the ethical and cultural assumptions that both American and Chinese business cultures bring to business relationships in China. It analyzes the relationships developed between the two cultures, areas where they conflict, and how these conflicts are (or are not) resolved.

These relationships are investigated in three stages. The author:

• describes and interprets American business experience in China
• describes and interprets Chinese business experience in China, including interaction with Americans
• compares these two business cultures as they are experienced in China to investigate the relationships between them, centering the cultural analysis on ethical issues.

Feldman's thorough research gets to the crux of how American and Chinese executives perceive the ethical and cultural aspects of doing business. The result is a book that will prove helpful to all those looking to expertly navigate Chinese-American business relationships.

PART 1

INTRODUCTION

1

Rationale for and Overview of the Book

The timing was terrible for the Sanlu Dairy Corporation's senior management: After having just been ordered by the government to silence any negative news as the Olympics were about to get under way, the company received irrefutable evidence that its best-selling baby formula product was laced with a deadly industrial chemical.¹ Stuck in the middle between corporate interests and responsibilities on the one hand and the Communist Party's obsession to carry out the games in the best possible light on the other, the board chair ordered a cover-up.

Early the next day, a board meeting was hastily called to approve the executive's decision. Participating in the meeting by phone was a Western executive representing Fonterra, a New Zealand dairy that is a partner and major shareholder in Sanlu. The debate started all over again. The New Zealand executive reported later that after hours of discussion, the board agreed to his demand to reverse the management team's decision and order a full product recall. Despite the vastly different business cultures between China and New Zealand, the Fonterra executive was able to convince the Chinese to put the health of infants over the Communist Party leaders' wishes for China to look spotless as much of the world's attention was focusing on it.

Whatever happened at the board meeting that day, it did not matter. Like all companies in China, indeed all public organizations, the board was part of a giant web-like structure of government officials and, above all, Communist Party committees and overseers. The government of the city where Sanlu was located, Shijiazhuang, and its Communist Party bosses overruled the board and ordered a cover-up of the poisoning threat in order to avoid bringing bad news to the nation's leaders just in their finest hour on the world stage. Hundreds of thousands of babies would become ill, and a few would die.

The purpose of this book is to investigate the ethical and cultural aspects of Chinese-American business relations. The term culture, as used in this book, is defined as the system of symbols—ideas, ideals, images, notions, standards, in short expressions of any kind—that is historically developed, socially maintained, and individually applied by members of a particular community.² The notion of the cultural middle will be the central concept used in this investigation. The concept is general; it refers to the difficult social, ideational, and emotional interaction when any two very different cultures attempt to work with each other. Though the notion is general, both the literature and this study's empirical data on ethical and cultural issues in American-Chinese business relations point strongly to specific problems in intercultural relations in China. I think the idea of trouble in the middle has particular moral relevance to cross-cultural business in China because of the Chinese political system.

Intercultural problems can be seen in the Sanlu case. After being informed that local government officials had overruled the Sanlu board, forcing the company to keep a deadly product on the market, Fonterra dithered for weeks until the New Zealand government stepped in and informed the central authorities in Beijing. Fonterra had trouble in the middle; adrift between its values and the Chinese government's desire to squash negative news, it was unable to act.

The Sanlu case also shows a different kind of trouble in the middle inside China itself that is part of the problem Fonterra faced. Once the central authorities in Beijing got wind of the problem—after the Olympics ended—the Chinese government did act. The Sanlu board chair went to prison for life, the Shijiazhuang city mayor and lower officials were fired, the city's Communist Party boss was forced out, and the nation's top administrator in charge of food inspection was forced to resign. All these officials were caught in a dilemma: either squash the news and hurt the nation's children or publicize the news and save the children but fail their superiors' orders. The administrators, all government/Party officials, were stuck in the middle between the Party and Chinese society.

Cover-ups can and do take place in all nations, but not all for the same reasons. In China the ultimate causes of this tragedy were the Party's monopoly power, its insulation from responsibility for its actions, its functioning in a world unto itself, and its shadowy nature behind the government. There is trouble in the middle in China even before the American businesses arrive. Once they do arrive, the considerable cultural differences are only exacerbated by a political situation in which it is unclear who is in charge, the line between business and politics is murky at best, and the reasons behind actions and changes are often not the reasons given.

It is into this labyrinth of political intrigue that American executives arrive, often possessing impersonal financial models and a deep preference for legal resolution of conflict. The trouble in the middle in China is that politics and culture are inseparable. It is in this context that this book analyzes American business culture, Chinese business culture, and how the two try to work with each other in China.

Overview of the Research

1. Research Purpose and Goals. The purpose of this research is to better understand the ethical and cultural assumptions American and Chinese business executives bring to business relationships and how these assumptions affect American-Chinese business relations in China. This understanding will be enhanced by analyses of the relevant literatures and empirical analyses comparing how American and Chinese executives, respectively, perceive the ethical and cultural aspects of doing business in China. Both of these approaches will include analyses of the relationships developed between the two groups, areas where they conflict, and how these conflicts are resolved, or not.

Specific methods will include these: (1) describing and interpreting American business experience in China; (2) describing and interpreting Chinese business experience in China, including experience with Americans; and (3) comparing these two sets of business experience to investigate the relationships between them. At the center of this cultural analysis is a focus on ethical issues,³ which will involve investigating the different social expectations the two cultures have for business relationships, particularly how they understand and deal with business “corruption” (both business-to-business and business-to-government), with violations of intellectual property rights, and with other business problems and processes; and how they deal with each other in regard to these issues. Business corruption in China is broadly seen as a huge problem by both foreigners and the majority of Chinese citizens, with widely varying accounts as to whether it is getting better or worse. American estimates claim it costs U.S. business tens of billions of dollars and tens of thousands of jobs each year.⁴

In addition to providing a detailed description of American and Chinese business experience of business ethics issues and how the two deal with each other in terms of these issues,⁵ this study will evaluate existing theory in the area of business ethics and develop new substantive (“grounded”) theory, presenting an original concept that arose from study data, that of the cultural middle. The cultural middle is the emotional and intellectual space between two cultures, where negotiation, compromise, miscommunication, and conflict take place.

In this context, it is important to note that a great number of business relations and transactions between American and Chinese businesses in China involve third-party “middlemen.”⁶ This fact has occasionally been noted in the literature but has been given little attention conceptually or empirically.⁷ If the idea of the cultural middle refers to the ideational and emotional “space” or interaction where two cultures attempt to make sense of each other; then the middleman is a person who specializes in working in this space, in helping each culture understand the other. Hence, analysis of the data on middlemen will be an important source of insight into the phenomenon of the cultural middle.

In the cultural middle, neither culture has priority. Yet cultural disconnectedness must be resolved in this liminal space for business activity to proceed. The problem is at once cultural and practical, but the solution is often entirely practical. Normally a compromise is not worked out; the middleman keeps the contending parties apart,⁸ absorbing the cultural conflict, providing a third-party solution, that is, doing something inconsistent with one or both cultures behind the scenes. Being a middleman is a “Don't ask, don't tell” function.

In my research on comparing American and Chinese executives' perceptions of doing business in China, especially with each other, the Chinese middleman makes an important appearance. Indeed, one of the major turning points in the field research was when a Chinese consultant educated in the United States, whom I met through a university club in Shanghai,⁹ told me, after hearing about my research focus on American-Chinese cross-cultural business relations, that I should interview middlemen because they have insight into both cultures and are right in the middle of negotiating and resolving the conflicting demands.¹⁰ Sixteen of 33 interviews with Chinese executives I conducted in China in 2007 and five of the 14 I conducted in 2010 were with executives who spent at least part of their time performing middleman functions—that is, individuals who made a business out of helping American and Chinese businesses close the gaps in communications and in conflicting demands, whether over price, time, or bribes to close a deal. Importantly, in terms of bribery, the middleman is involved in morally and culturally conflicted activities. In other words, the middleman is a moral broker of sorts who enables two business cultures with incompatible ethical and legal commitments and constraints to do business together. The description and analysis of the degree of incompatibility and how it is managed is an important contribution of this research.

The prototypical case of middleman behavior is bribe paying. American multinational corporations are, by U.S. law, not permitted to pay bribes to foreign government officials (except to get low-level officials to perform their legitimate responsibilities), and corporate policies are often even more restrictive. In many situations in China, however, it is impossible to do business without paying bribes. In the prototypical case, an American company sells goods to a middleman at a price that enables him to resell the goods to the Chinese buyer at a price acceptable to the buyer, pay bribes to all who require them, and make a profit himself. This is not an easy job, since the middleman, being in the middle, is under pressure from both sides.¹¹

The empirical data I collected on the experiences of middlemen have enabled me to develop the concept of the cultural middle with special attention to the ethical aspect. In American-Chinese business relations, the middleman can remove ethical conflict from...

Table of contents

• Cover
• Half Title
• Full Title
• Copyright
• Dedication
• Contents
• Preface
• Part One: Introduction
• Part Two: Culture and History
• Part Three: Government and Corruption
• Part Four: Culture and Conflict
• Part Five: Intellectual Property
• Conclusion: Notes on the Cultural Middle
• Epilogue: Three Years Later – 2010
• Appendix One: Methods
• Appendix Two: The Shanghai Business Environment
• Appendix Three: Data Collection
• Appendix Four: The Middleman
• Bibliography
• Index