Chinese Business

Landscapes and Strategies

Hong Liu

• Verlag: Routledge
• Jahr: 2017
• ISBN:
  9781317421757
• Auflage: 2
• Thema: Business
• Thema: Business generale

It is difficult to overstate the importance of China to the world economy, and yet the majority of books either look at Chinese business by applying Western frameworks or models to the context of China or focus on a particular aspect of business in China.

Authored by an academic expert on China, this new, completely revised edition of Chinese Business offers its readers a comprehensive and systematic body of knowledge of Chinese business. It has taken a holistic perspective, intending to achieve a balance between the academic and practical, between theory and practice and between traditional and current (Internet-based) industry. The framework of this book subsumes all the major factors that should be taken into consideration when Western companies contemplate a China strategy, including history, philosophy, ancient military classics, strategy and marketing, innovation, Internet business and human resources. The discussion of these factors is supplemented with insightful case studies.

Chinese Business, Second Edition, can be used as a textbook for undergraduates and postgraduates at business schools and as a useful reference for researchers, senior executives, consultants and government officials involved in Chinese business.

1 The nature of Chinese business

To know that we know what we know, and to know that we do not know what we do not know, that is true knowledge.

– Nicolaus Copernicus

To know what you know and what you do not know, that is true knowledge.

– Confucius

The beginning of thought is in disagreement – not only with others but also with ourselves.

– Eric Hoffer

Perspectives on doing business in China: Western versus Chinese

Why in the West do we need special books or university courses on doing business in China, the volume of which has increased greatly over the past decade (although not all academic members of staff at universities agree with the necessity of running such special courses)? Why has the volume of such books or courses not been matched by those about ‘American business’, ‘German business’ or ‘French business’? When I was teaching an in-house corporate strategy programme on Chinese business to senior executives of a major multinational corporation, a participant once asked: ‘Why should we study Chinese ways of doing business? Why shouldn’t Chinese executives learn our Western culture and practices?’ This reflects a mentality apparently typical of many Western senior executives, as well as policy-makers and academics.¹ Thus it was that the chairman of a Western company once advised me that in order to bridge cultural gaps between the West and China, I should write for Chinese senior executives, in order to help them to understand how Western businesspeople think about and make their strategic decisions, as the top executives of Western multinational corporations would be unlikely to be willing to study Chinese strategic thinking. It is necessary for Chinese executives to make their communications and intentions understood by Western counterparts in order to engage in fair competition and to forge cooperation on a win-win basis. Any Western senior executives who suffered from failing to understand Chinese strategies or behaviour would simply avoid doing business with Chinese companies, with resultant losses for both sides. Many Western companies, such as eBay, The Home Depot, Best Buy and Tesco, have failed to establish a strategic foothold in China, just because they have failed to overcome cultural barriers and so have responded inadequately to the needs and wants of Chinese consumers. In 2003, for instance, eBay, a leading global Internet company, entered China’s e-commerce market by acquiring a Chinese company, EachNet, and thus a 90 per cent share of China’s e-commerce market. Within three years, it was outdone by a Chinese newcomer, Alibaba’s Taobao, and drifted into oblivion in China. The reason for this failure is summarised as follows:

eBay’s biggest mistake was in getting the culture wrong. A ‘leave it to the experts’ attitude demoralized the original EachNet team in Shanghai, as eBay executives were parachuted in from headquarters in San Jose or other parts of the eBay empire. No matter how skilled the new arrivals, most spoke no Chinese. They faced a steep learning curve to understand the local market.²

Chinese executives do indeed also need to have a better understanding of Western culture and strategic and managerial practices in order to pursue globalisation strategies successfully. Since the Chinese government announced a ‘go global’ policy in 1999,³ Chinese cross-border mergers and acquisitions (M&As) have increased dramatically.⁴ For instance, the following UK brands are now owned by Chinese companies: Weetabix by China’s Bright Foods, Manganese Bronze by Geely, Sunseeker by Dalian Wanda, Pizza Express by Hony Capital, House of Fraser by Sanpower and Silver Cross by Fosun. However, a majority of Chinese cross-border M&As have ended up failing or underperforming, one of the main reasons being that Chinese companies have been unable to follow or understand Western M&A procedures and practices.⁵ At an early stage of Alibaba’s development involving an international dimension, its founder, Jack Ma, confessed that ‘managing a multinational organization is no easy task with the language and cultural gaps.’⁶

There are two things that Western senior executives or readers who take an interest in Chinese business should understand:

1. (1) China’s political weight and economic influence have become so significant in the international arena that Western companies, whether they like it or not, must inevitably do business or compete with Chinese ones. From 1985 to 2015, the annual growth of China’s GDP averaged 9.4 per cent,⁷ making China the world’s largest economy based on the measure of purchasing power parity (PPP) in December 2014, according to the International Monetary Fund (IMF), and the world’s largest recipient of foreign direct investment, with the world’s largest foreign reserves.⁸ The dominant role played by China in chairing the G20 meeting in Hangzhou, China, in September 2016 has reaffirmed China’s economic and political position and impact in the world. Meg Whitman, the former CEO of eBay, has asserted: ‘Whoever wins China, will win the world.’⁹ A 2016 PwC survey of 1409 CEOs in 83 countries denotes that the USA (39%) and China (34%) remain the countries from which their growth will come from.¹⁰
2. (2) Chinese culture and tradition and thus strategic behaviour are markedly different from those of the West. Misreading or misunderstanding the behaviour of Chinese decision-makers or consumers would potentially lead to losses both financially and strategically. A 2016 article in Fortune magazine asserts: ‘Indeed, China is an incredibly complex market that differs culturally, politically, and economically from the United States.’¹¹ Chinese and Western cultures have distinctively different roots: Western culture can trace its origins to Classical Greece, while Chinese culture has its foundation in ancient Chinese civilisation,¹² with the I Ching, Confucianism and Taoism being seen as moulding Chinese behaviour across the centuries. The scope for misreading and miscomprehension between the Chinese and Western people remains wide.¹³ Different traditions and values tend to result in divergent expectations or interpretations, fostering misjudgements and miscalculations in a cross-cultural setting.

There is an underlying assumption in the West that all companies should aggressively pursue technological innovation and seek to lead the world in the industries in which they operate, emulating Apple or Google/Alphabet.¹⁴ This may not be entirely true in China from a philosophical or cultural point of view. Chinese philosophy, including the I Ching, Taoism and Confucianism, has principles that explicitly contradict such assumption or actions.¹⁵ For instance, in the first hexagram of the I Ching, one is emphatically advised:

The Dragon

Lies hidden.

Do not act.

This is explained as follows:

The Master said:

He possesses Dragon Power,

But stays concealed.

He does not Change

For the World’s sake,

Does not crave success or fame.

He eschews the World.

Neither oppressed by solitude,

Nor saddened by neglect,

In Joy he Acts,

In Sorrow stands aside.

He is never uprooted.

This is the Hidden Dragon

In lowly place;

This is Yang Energy

Concealed in the deep.

The True Gentleman acts

From Perfection of Inner Strength.

His Actions are then visible daily.

Here he is Concealed,

He is

Not yet visible,

His conduct is not yet

Perfected.

He does not

Act.¹⁶

This has been found to typify the practice among Chinese-run companies¹⁷ in both the USA, China and elsewhere, in that they prefer to keep a low profile and purposely stay behind their leading competitors.¹⁸ For instance, when Thomson Reuters published its list of Top 100 Global Innovators in 2015, Huawei was not among the top 20; nor was it among the top 20 in the 2015 Global Innovation 1000 study undertaken by PwC. On the other hand, Huawei filed 3898 PCT applications in that year, ranking the highest in the world, and has maintained the top position since 2013. In 2015, Huawei licensed 769 patents to Apple, which was ranked as the world’s most innovative company, but received only 98 patent licences from the US firm in return. There are indications that Huawei deliberately keeps a controlled pace, not the fastest, in pursuit of the most advanced technological innovation, because of its founder’s ‘Middle Way’ philosophy.¹⁹ It is the founder’s conviction that too much innovation is as bad as too little. Jujitsu, NEC and Motorola are examples of companies whose overambitious innovations have exceeded market demand and brought about disastrous failures. For instance, Motorola invested $2.6 billion to develop the Iridium satellite system, the deployment of which in the late 1990s resulted in the bankruptcy of the Iridium Corporation, as the market could not afford such an expensively innovative system.

If we look at Huawei from a Western perspective, we may conclude that the company’s R&D capability is still a long way short of that of Western companies. However, from Huawei’s viewpoint, this appears to be a strategy like that of a long-distance runner, following the leader while waiting for the right moment to sprint for the line. For those who are familiar with Chinese culture, there is a well-known Chinese tradition that the grand masters of Chinese martial arts tend to go to great lengths to hide themselves, not showing their muscles or physically fighting with others, unless and until it is absolutely necessary.

Many books have been written on Chinese business under different headings, dealing with various aspects of business strategy and management in China. They are all intended to help international readers to develop or manage their businesses in China, with a view to improving their chances of success. Some are based on empirical studies of successful foreign companies in China, some on the application of Western management and organisational theories to the context of China and some on a combination of Chinese philosophies and practices with Western theories or models. More and more are now looking into how Chinese companies such as Huawei, Lenovo, Alibaba and Haier have become successful internationally. Four questions arise:

• How do our existing frameworks and models explain the behaviour of Chinese executives?
• Are the practices of successful foreign companies in China replicable by other companies?
• To what extent is the success of foreign companies in China attributable to an adaptation to unique Chinese factors?
• How can Western companies benefit from an understanding of Chinese best practices or ancient wisdom?

Research suggests that US management theories may not be shared by European and Asian countries.²⁰ On the other hand, the managerial practices of Chinese business leaders are influe...