China's state enterprises

Asian Business Studies/Hogeschool Inholland 1

China

Asian Business Studies

Ozan Can Koseley


CHINA

Reforming managerial mechanisms of Chinese state enterprises


Structural and managerial problems of the CSEs


Managerial Development in CSEs4 STAGES

Nationalization – Soviet model 1949 - One director management system - Made contribution to the heavy industry - A poor fit with Chinese communist aspirations - China had very few technically trained managers Reforms 1956-1961 - Participation of party comittees and workers Cultural revulation 1965 - Managers are discredited, revulationary workers

were given the power Current reforms 1980s


The line-function system of management

People in functional departments

Directors ideollagacilly loyal to the party

Independent system for each factory


Problems within party structure

Resbonsibilities of enterprise leaders

An ideological control over enterprise

Power distribution

Inefficient structure


Factory director

Fuctional department

Fuctional department

Sub- factory

Sub-factory

Sub-factory

Fuctional section

Workshop

Functional section

Production team

Production team

Production team

Production team


2 additional systems to manage Life-support system - Support workers off-work activites

Sociapolitical support system - ACTFU -ACWF - Communist youth league - Militia


Personnel management

Iron ruling chairs

No rights to hire or fire

Iron rice bowl

Political in doctrination


Financial Management

State financial control

Restricted funds

Delivering income

Focus on product quantity and value

Lack of using funds


Major reform measures and existing problems of the CSEs


Reforms after 1979

The experimental approach

1984 China’s Economic Structure Reform

Industry responsibility system Profit and loss contract Enterprise director leads Reduced influence of the party Increased financial responsibility

Western management techniques


But there still remains a series of major problems

The supply and demand balance has shifted to bigger supply More competition

Many CSEs still operate at a loss and depend upon state subsidies

The “Triangular debt” cycle


Why these major problems?

CSEs had not yet obtained true autonomy

Many related policies in finance, pricing, and taxation lagged behind

Many CSEs had not established good sales mechanisms

Most of the CSEs still held on the old straight-line functional model

The CSEs still had to carry heavy social burdens by maintaining their life support systems

The “three irons” problems had remained very serious


GOVERMENTAL MEASURES OF REFORMİNG THE CSES AND THEİR LİKELY İMPACTS


The regulations for transforming Managerial Mechanism of the State

Owned Enterprises

Production management power Power to price service and products Power to sell their products Import and export power Power to make investment desicions Power to dispose of their properties Power to merge


The regulations for transforming Managerial Mechanism of the State Owned Enterprises

Power to determine workforce Personal managementpower Power to setup various sub-

organizations Power to wage Power to refuse govermental

apportionment


Power to manage production Scope of production and business

Power to demand contracts

Readjustment of supply


Power to make investment desicions

Use reserve capital to invest on productive projects

International investment

Developing enterprises overseas


Power to price products and services

CSEs freely set prices


Power to import and export Choosing any foreign trade

institution

Power to participate in negotiations

Determine their own currency


Power to manage human resorces

Deciding aspects for hiring employees

Hiring from abroad

Power to allocate wages and bonuses


Regulations to intensify responsibilities

Link between total income and economic benefits

Responsibility of the directors

Responsibility of the CSEs

Corporate taxes leveled for all players


The role of government in four main areas

Establishing a macro-control management

Promoting the role of market system

Social security system

Developing public facilities and welfare institutions


Still problems to solve

Failing management

Uncertain ownership

Enterprise leadership

SOEs lag behind

Competition


The guide for CSEs

The ownership issue A shareholding system Joint-stock companies Cooperation with foreign partners Relationship CEO and Party Focusing comparative advantage Tackle corruption Strategic alliances with other

enterprises


Comparative Chinese managerial system


Organisational structure


CFBs and CSEs organisational structure

CFBs CSEs

Owned by families and regarded as private family properties

Owned by the state

Top management mainly consists of family members

Top management does not lay claim to the ownership of the businesses

Small companies Large or mid-size companies

Simple structure Overburdened with large bureaucracies

MANAGEMENT PROCESS

30Asian Business Studies/Hogeschool Inholland

Comparison of CFBs and CSEs The management process

The control process

Guanxi and Xinyong


Management process

Didactic style of leadership

Power distance


Process control

Lack of measuring employee performance

Loyalty is important


Guanxi and Xinyong

External relationships

Business ties


COMPETITIVE STRATEGIES AND TACTICS


Competitive strategies and tactics of the overseas Chinese in Southeast Asia

Low margin/high turnover Economy of scope

Political sensitivity and high degree of sophistication in forming alliances of convenience

Flexibility


CSEs in mainland China

They have not been able to develop competitive business strategies until only recently

Why?

The CSEs were dominated and overprotected by the state in terms of industrial material input, market share, and financial support

They still have to develop their competitive strategies to be able to expand or even maintain their traditional market shares.


Documents

China's state enterprises