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DOBA FACULTY
OF APPLIED BUSINESS AND SOCIAL STUDIES
MARIBOR
MASTER ASSIGNMENT
Vladimir Čitlučanin
Maribor, 2014
ii
DOBA FACULTY
OF APPLIED BUSINESS AND SOCIAL STUDIES
MARIBOR
The Analysis of Chinese Business Culture
and its Effect on International Business
(Master Assignment)
Master’s programme - International Business Management
dipl. ecc.Vladimir Čitlučanin
Maribor, 2014
Mentor: Doc. dr. Anita Maček
Co-mentor: Dr. Maja Veselič
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DECLARATION
I, hereby signed, Vladimir Čitlučanin declare the authorship of this master assignment titled
„THE ANALYSIS OF CHINESE BUSINESS CULTURE AND ITS EFFECT ON
INTERNATIONAL BUSINESS“. This assignment is the result of theoretical and practical
research carried by myself. This assignment was made with guidance and assistance of both
mentor dr. Anita Maček and comentor dr. Maja Veselič in accordance with paragraph 1 of
Article 21st of the Law on Copyrights and Related Rights (Ur. L. RS, št. 16/2007). It doesn’t
contain any material written by other author or assignment submitted by other student except
fully stated works in reference list, other sources and appendixes. There are no other co-authors
of this assignment otherwise they would be acknowledged.
I, hereby signed, Vladimir Čitlučanin have already submitted the electronic version of this
assignment to the library of DOBA FACULTY for archival purposes and give my permission for
this assignment to be available to the public in its full content.
I declare that I also allow publication of my personal data related to completion of master study
(name and surname, year and place of birth, graduation date and title of master assignment) both
on websites and other publications of DOBA FACULTY OF APPLIED BUSINESS AND
SOCIAL STUDIES MARIBOR, SLOVENIA.
Student:
Vladimir Čitlučanin
Digital signature:
iv
ACKNOWLEDGEMENTS
First of all, I would like to thank mentor, dr. Anita Maček, co-mentor, dr. Maja Veselič and dr.
Andrej Raspor for the assistance and guidance. These professors gave me both support to carry
on this ambitious research and motivation to make necessary corrections and make this
assignment a lot better and ready for practical use. It took a lot of effort to explore Chinese
business culture due to its complexity and a lot of patience and energy but it was very interesting
and inspiring all the way.
Secondly, I would like to thank my friends and family for their support and understanding.
Completion of master studies is a whole process which demands focus and dedication and, in
some way, I neglected some people in my life which I hold dear. Sorry, but the end justifies the
means and you all know that education means a lot to me and master study is just a gateway for
the next step. By completing master studies I pay respect to my grandmother Milosija, the best
grandma in the world, mother and father and younger brother who is living abroad and
experiencing Western business culture everyday. I chose to explore the East and Chinese
business culture and Chinese people whom I learned to admire a lot.
Let me thank Chinese people living in Serbia, especially in my hometown of Kraljevo whom I
interviewed and met in person and especially to Mr Zhang Zhao Hua a.k.a. Cane (Serb
nickname) who became my dear friend. He recognized my good intentions, altruism and respect
for Chinese people and helped me in this quest, generously and as much as he could. Chinese
people working together with other nations are the core of this research because it is not theory
that should be in the focus, the people should. In order to live and work together first we must
understand each other, both similarities and differences, ups and downs. I strongly believe in
friendship between nations and look forward to witness growing cooperation between Chinese
people and other nations, especially smaller nations like Serbian. This master assignment is my
small effort and modest contribution to this noble cause.
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ABSTRACT
The research problem of this master assignment is Chinese business culture, a culture of a rising
economic force in the region and in the global market with strong influence on other business
cultures and international business. Modern China is both political and economic key figure after
decades of gradual institutional reforms, steady economic growth and sustainable business
strategy with economic agenda proposed by the Chinese government. This strategy is
implemented through state companies and private owned companies both domestic and those
operating abroad together with considerable number of Chinese entrepreneurs. After many years
of isolation China gradually opened its borders and commenced significant international
cooperation with mutual benefits. This triggered large level of foreign investments which
propelled Chinese economy, living standard and salaries thus creating the strongest middle class
pool in the world. Peoples Republic of China is one of the biggest importers in the world due to
scarce resources (especially food, energy and infrastructure) and the „factory of the world“, at
the same time. These two facts shape Chinese business strategy. As a country, China has a
unique language, culture, social norms and institutional characteristics. This country performed
deep modernization in a very short period of time and under hard circumstances, somewhere
between traditional values and new social values in order to compete and cooperate with other
economic giants (G8). China has changed but it is also changing the landscape of international
business because Chinese economic ambassadors are present everywhere across the globe in its
transition from investees to investors.
The main research question which shaped the title of this master assignment is: „What are the
characteristics of Chinese business culture and how do they, with the growing Chinese economic
and political power, affect international business? “.
Chinese business culture and its modern characteristics are still under-researched and unclear for
some business partners and that may have serious consequences (missed opportunities and
unsuccessful cooperation).
The aim of this assignment is to learn more about Chinese business culture (similarities and
differences with other business cultures) in order to explain and facilitate cooperation between
Chinese and their international business partners with both good and bad examples (those bad
can be used as a lesson learned and suggestion how to avoid similar situations in the future).
Chinese economic growth was rapid, almost striking, unlike the expansion of Chinese culture,
language and social values which created a gap that may cause many business errors and missed
opportunities due to limited understanding (and short history of modern business relations). But
this is changing due to increase of cooperation in the last decades. Business analysis had been
performed both by Chinese and Western scholars and businessmen but many questions still
remain unanswered. So the focus of research are the differences and similarities between Chinese
vi
business culture and western business cultures (US, EU and business cultures of smaller
European nations such as Serbia).
The main lessons of survey used in this assignment are clear. With better understanding, small
cultural adjustments can be made on both sides and cooperation facilitated and stable on the long
run and with mutual benefits. This way, those who understand Chinese business culture better
than competitors can have an upper hand and elevate the pace of cooperation to a higher level.
Chinese partners are significant, from country that has large potential in current international
business environment. Chinese businesspeople could also use better understanding of foreign
business cultures, both regional and local, for successful implementation of economic agenda of
their country. This way they will also fulfill the business goals of their companies.
Key words: international business, Chinese business strategy, international cooperation,
Chinese business culture.
vii
SAŽETAK
Problem istraživanja ovog master rada je kineska poslovna kultura, kultura rastuće ekonomske
sile na regionalnom i globalnom tržištu sa jakim uticajem na druge poslovne culture i
međunarodno poslovanje u celini. Moderna Kina je postala vodeća ekonomska i politička figura
nakon decenijskih institucionalnih reformi, stabilnog ekonomskog rasta i održive poslovne
strategije sa ekonomskom agendom koji propisuje i nadgleda Vlada Narodne republike Kine.
Nacionalna strategija se sprovodi kroz javna i privatna preduzeća i korporacije koje posluju u
Kini i izvan nje, zajedno sa velikim brojem kineskih preduzetnika koji su prisutni na
međunarodnom tržištu. Nakon dugog niza godina izolacije, Kina je postepeno otvorila svoje
granice i započela međunarodnu saradnju koja je važna i korisna za sve učesnike na tržištu. Ovo
je privuklo značajan nivo stranih direktnih investicija u Kinu, koje su pokrenule kinesku
ekonomiju, popravile životni standard njenih građana i stvorile okruženje gde se polako formira
najveća baza srednje klase građana u svetu. Narodna republika Kina je jedna od najvećih
uvoznika na svetu zbog ograničenih sopstvenih resursa (hrana, energija i infrastruktura) a ujedno
i „svetska fabrika“. Ove dve činjenice oblikuju kinesku poslovnu strategiju. Kao država, Kina
ima jedinstven jezik, kulturu, društvene norme i institucionalne karakteristike. Ova država je
sprovela sveopštu modernizaciju u jako kratkom periodu i u teškim uslovima, negde između
tradicionalnih vrednosti i savremenih društvenih vrednosti kako bi sarađivala i takmičila se sa
vodećim svetskim ekonomskim silama (Grupe 8). Kina se menja, ali svojim uticajem menja
tokove međunarodnog poslovanja zato što su kineski „ambasadori ekonomije“svuda prisutni na
svetu u toku tranzicije iz društva u koje se investira u vodećeg svetskog investitora.
Glavno istraživačko pitanje koje je oblikovalo naslov ovog master rada je: „Koje su
karakteristike kineske poslovne kulture i kako one, uz rast kineske ekonomske i političke moći,
utiču na međunarodno poslovanje“.
Karakteristike savremene kineske poslovne culture su još uvek nedovoljno istražene i nedovoljno
jasne pojedinim poslovnim partnerima što može imati ozbiljne posledice (propuštene poslovne
prilike i neuspešne pokušaje saradnje).
Cilj odnosno svrha ovog rada su nova saznanja o kineskoj poslovnoj kulturi (sličnosti i razlike sa
ostalim poslovnim kulturama) kako bi se bolje pojasnila i olakšala saradnja između kineskih i
međunarodnih poslovnih partnera, uključujući dobre i loše primere poslovne saradnje (oni loši
mogu poslužiti kao primer, naučena lekcija i savet kako da se izbegnu slične situacije ubuduće).
Kineski ekonomski rast je brz, gotovo začuđujuće brz, za razliku od ekspanzije kineske kulture,
jezika i društvenih vrednosti čime se stvorio veliki jaz koji može dovesti do grešaka, loših
poslovnih poteza i propuštenih prilika za saradnju zbog ograničenog međusobnog razumevanja (i
kratke istorije moderne poslovne saradnje). Ali to se menja zbog povećane poslovne saradnje u
protekle dve decenije. Sprovele su se brojne poslovne analize od strane kineskih i zapadnih
stručnjaka i poslovnih ljudi ali i dalje brojna pitanja stoje otvorena i bez odgovora. Zato je fokus
viii
ovog istraživanja su razlike i sličnosti između kineske i zapadnih poslovnih kultura (SAD, EU i
poslovne kulture manjih evropskih nacija kao što je primer Srbije).
Lekcije iz sprovedene ankete su jasne. Uz bolje razumevanje, manje korekcije se mogu izvršiti
obostrano a u cilju podsticanja i obezbeđenja stabilne poslovne saradnje na dug rok, na obostranu
korist. Na ovaj način, oni koji imaju bolje razumevanje problematike kineske poslovne kulture
od konkurencije će biti u prednosti i ubrzati tempo saradnje i dostići viši nivo. Kineski poslovni
partneri su jako bitni, potiču iz zemlje koja ima sve veći potencijal u tekućoj međunarodnoj
saradnji. I kineski biznismeni mogu iskoristiti bolje poznavanje stranih poslovnih kultura,
regionalnih i lokalnih karakteristika, za uspešniju implementaciju njihove nacionalne ekonomske
agende. Na ovaj način će takođe ispuniti poslovne ciljeve svojih kompanija.
Ključne reči: međunarodno poslovanje, kineska poslovna strategija, međunarodna saradnja,
kineska poslovna kultura.
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THE LIST OF MOST COMMONLY USED ACRONYMS AND
ABBREVIATIONS
ASEAN Association of Southeast Asian Nations
B2B Business-to-Business (business transactions between two businesses)
B2C Business-to-Customer (business transactions between company and customers)
BRIC Brazil, Russia, India and China
CCP Chinese Communist Party
CCTV China Central Television
CCPIT China Council for the Promotion of International Trade
COOP-COMP Chinese Negotiation Strategy, Confucian-type Cooperation and Sun Tzu-type
Competition
EAP East Asia and the Pacific (economic region)
EBRD European Bank for Reconstruction and Development
ECA Europe and Central Asia (economic region)
EU European Union
FDI Foreign Direct Investment
FTA Free Trade Agreement
G8 Group of Eight (Canada, USA, Russia, France, Germany, Italy, Japan, UK)
GDP Gross Domestic Product
GINI INDEX Coefficient of income distribution of nationals
GUANXI Characteristic of Chinese society, dynamic networks of influence
HDI Human Development Index
IMF International Monetary Fund
JV Joint Venture
MITI Ministry of International Trade and Industry
MNC Multinational Company
x
MNE Multinational Enterprise
NGO Non-governmental Organization
OECD Organisation for Economic Co-operation and Development
PBP Population below poverty line
PPP Purchasing Power Parity
PRC People’s Republic of China
RI Risk Index
RMB Renminbi, currency of the People’s Republic of China
R&D Research and Development
SAS South Asia (economic region)
SEI Strategic Emerging Industry
SEZ Special Economic Zone
SINO Chinese (history, culture, people)
SME Small and Medium Enterprises
SOE State Owned Enterprise
UK United Kingdom
UCLA University of California, Los Angeles
USA United States of America
WB World Bank
WIPO World Intellectual Property Organization
WTO World Trade Organization
ZGTJNJ Zhongguo Tongji Nianjian – China Statistical Yearbook
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TABLE OF CONTENTS:
1. INTRODUCTION...................................................................................................................... 1
1.1 Research question ...................................................................................................................... 3
1.2 The purpose of research and goals ............................................................................................. 4
1.3 Course of study, literature review and hypothesis ..................................................................... 6
1.4 Methods (theoretical and practical approach), assumptions and limitations ............................. 9
1.5 Research plan and design ......................................................................................................... 11
1.6 Structure of master thesis ......................................................................................................... 13
2. THE CONCEPT OF CHINESE BUSINESS CULTURE .................................................... 15
2.1 Historical review and characteristics ....................................................................................... 20
2.2 The importance of Chinese business culture in international business .................................... 25
3. SINO-WESTERN BUSINESS COOPERATION ................................................................. 28
3.1 Differences in business cultures and impacts .......................................................................... 33
3.2 Changes in Chinese business culture 1977-2014 ..................................................................... 41
3.3 Effects on international business until 2014 and proposed actions in the future ..................... 44
3.4 Successful business cooperation case in practice and advice for future .................................. 47
3.5 Unsuccessful business cooperation case and lessons learned: Google .................................... 50
4. SINO-EUROPEAN BUSINESS COOPERATION .............................................................. 52
4.1 Research of current Chinese business activities in Serbia and potential in future................... 57
4.2 Findings and general recommendations for medium and small business entities ................... 60
4.3 Recommendations for Serbian local authorities ...................................................................... 68
5. HYPOTHESES REVIEW, FINDINGS AND SUGGESTIONS .......................................... 72
6. CONCLUSIONS ...................................................................................................................... 77
7. REFERENCES LIST AND OTHER SOURCES ................................................................. 80
8. APPENDIX LIST ..................................................................................................................... 88
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FIGURES:
- Figure 1. China’s Economy > GDP > Composition by sector, 2012 (page 1)
- Figure 2. The Great Wall of China (page 15)
- Figure 3. China GDP since 1960 (page 23)
- Figure 4. IMF – Chinese decade of growth (page 26)
- Figure 5. IMF – Share of World GDP in 2013 (page 26)
- Figure 6. Business in China, China-US (page 28)
- Figure 7. Hofstede’s model – China / Japan (page 34)
- Figure 8. Hofstede’s model – China / USA / Germany (page 35)
- Figure 9. Modern China (page 41)
- Figure 10. Projected growth in citation in scientific literature (page 43)
- Figure 11. Total exports consumed by China (page 44)
- Figure 12. IKEA logo (page 47)
- Figure 13. EU-China BMT Project (page 52)
- Figure 14. Chinese investments (page 53)
- Figure 15. Targeted sectors of Chinese investments (page 56)
- Figure 16. Chinese investments worldwide and investments in Serbia in 2013 (page 58)
- Figure 17. Decision to move to Serbia (page 62)
- Figure 18. Satisfaction with Serbian business climate (page 63)
- Figure 19. Satisfaction with financial performance in Serbia (page 64)
- Figure 20. Seven strategic emerging industries (page 67)
- Figure 21. PRC and RS (page 68)
xiii
TABLES:
Table 1: Research steps conducted during the course of study page (6)
Table 2: Methods used in master assignment preparations and goal achievement page (9)
Table 3: Top Ten Cultural Rules for Doing Business in China page (19)
Table 4: Western vs Chinese thinking patterns page (20)
Table 5: Rankings on the ease of doing business for 2014 page (24)
Table 6: Characteristics of successful business operations in China page (48)
Table 7: Chinese investments in UK, Germany, France, Italy and Spain 2005-13 page (54)
Table 8: Local action plan –Attract FDI from China to local level page (69)
Table 9: Serbian and Chinese business culture characteristics page (74)
xiv
APPENDIXES:
Appendix 1: The list of sampled Chinese legal entities registered in central Serbia page (89)
Appendix 2: The list of Serbian top exporting companies page (90)
Appendix 3: Survey for banking clients, sampled Chinese legal entities in Serbia page (92)
Appendix 4: The list of topics for interview with Chinese managers in Serbia page (95)
1
1. INTRODUCTION
People’s Republic of China (PRC) emerged as a rising economic and political power in the
beginning of this century. It is becoming the largest importer and exporter in the world and a
growing economic environment which will give birth to the strongest pool of middle class
consumers. Very important part of Chinese export is its culture, especially business culture and
its changing role and interaction with other business cultures in the global market especially
compared with G8 (USA, Russia, Canada, Japan, UK, Germany, France, Italy). The economic
growth and expansion increased interest in China and Chinese business practices. PRC is a vast,
most populous country in the world with huge market and a society characterized by its
complexity and diversity. Chinese economy is second largest economy of the world according to
the IMF and World Bank data (after USA) with dominant industrial and services sector. It has
lower proportion of agriculture due to smaller surface of arable land and developing technology
compared to India, Brazil, USA and many other countries. According to Nation Master statistical
review together with World Intellectual Property Organization and World Bank figures from
2012, industrial sector holds 46.6% of China’s economy followed by services with 43.7% while
agriculture holds 9.7%. Same trends remained in year 2013 (Nation Master 2014 – economy
statistics). This means that the future success of China depends on international cooperation,
access to resources (for its industry and large population) and agile commercial activites directed
outwards.
Figure 1: China’s Economy > GDP > Composition by sector, 2012
Source: NationMaster 2014. (Economy stats)
Chinese cultural expansion (language, customs, standards and social values) had a slower pace
compared to economic so many Chinese and western businesspeople and investors who tried to
cooperate failed to acknowledge the whole picture and all the implications that followed. This
2
resulted in poor knowledge of Chinese business etiquette, missed business oppportunities,
increased risks, threats and low use of potential for cooperation with international business
partners. Lack of experience of government officials, diplomats and economists and short history
in modern business cooperation backfired both at Chinese businesspeople and their foreign
partners many times in the past. But some progress was made in the past decades so today we
have many cases of successful Sino-Western cooperation (USA, UK, rest of the Europe) and
Chinese expansion in the region and other continents (mainly South America, Africa and the
Middle East). Global trade would be unimaginable without Chinese role. We feel this economic
and cultural presence globally, regionally and even locally. The success of this expansion lies in
rapid industrial, social and economic changes in China but this doesnt mean that China changed
its unique identity and traditional set of values to a larger extent. The adaptation continues
gradually as a mix of modern and traditional China to form the face of modern Chinese business
culture in macro and microeconomy sense. New and modern China also affects other business
cultures (USA, the West, Africa, Latin America and across Asia) and forms a blend which we
have today, everywhere where Chinese are involved and interact with other nations.
The question that arises is, certainly, how to facilitate the interaction of these global economic
powers (G8 of developed and other currently developing nations) and their representatives with
many other international partners (MNCs, MNEs, local communities and authorities)?
Continuous research is needed based on previous experiences, current situation and projected
trends. Only this will ensure the adaptation which will work both ways. Better understanding will
result in better cooperation instead of exhausting competition harmful for all sides. It will also
create a chance to reach the full potential of business deals, partnerships, investments and joint
ventures between the East (namely China), developed countries of the West and developing
countries in Asia, Africa and South America. Japan already managed to fullfil this task so we can
only imagine what the potential is for a country, potent and large as China. Research in Chinese
business culture based on theoretical analysis, field research and case studies may be important
for smaller communities trying to attract foreign investments i.e. companies to their hometowns
who could hire domestic workforce and bring business in developing areas. City officials and
local companies who have ongoing cooperation or plans of future cooperation with Chinese must
have people literate in Chinese business practices. We all witness efforts of governments and
local authorities to (like in Serbia) to attract foreign investments and setting up climate for
international companies who could run their business operations in the rural parts of the country
where unemployment rate is on the steady rise. In Serbia, for instance, there are many companies
already engaged in business cooperation with the Chinese and many others intend to initiate this
cooperation. The purpose of this assignment is to offer practical advice, hints and some basis of
Chinese business culture from past experiences and current trends.
3
1.1 Research question
Global market is characterized by increased connections and cooperation where all participants
try to adapt and learn from each other. Numerous business cultures have emerged and blended in
current map of international business. Cooperation between some participants is old almost as
their nations (such as between USA and European nations) and during the rich history of
cooperation they made significant improvements, connectibility and compatible views with
coordinated actions. Some of them share similar languages, values, history and institutions which
boosted business cooperation but others, mainly Asian nations, have a great deal of differences
and it took a long while to adapt to the regional and global trade requirements. Former colonies
are just a threshold and a starting point for blending in and finding new connections and
similarities (such as Singapore, Macao, Hong Kong, India and others). One of the rising
economic stars is certainly The People’s Republic of China and its importance draw interest in
its business culture as it is today. The characteristics of Chinese business culture are the result of
its complexity with a sudden openness to global markets which took place in the late 1970s. As
the Chinese economy grew so the effects on other international businesses became more evident.
Thus the questions are: “What are the characteristics of Chinese modern business culture?” How
it changed over the years in recent history and how does it affect other business cultures and
players in the global scene?”
China is one of the oldest civilizations in the world with a unique language and culture.
Throughout its longlasting history China was frequently in national and economic turmoil and
civil unrests, foreign invasion and rare periods of peace and stability. All this resulted in isolation
which lasted for many years. This means that China closed its borders and, at the same time,
showed little or no interest in the situation outside its dominion. The structure of the Chinese
lands changed from kingdoms and empires to states, republic and communist regime dominance.
Ofcourse, this rigid stance has deep roots which Chinese people feel even today. However, the
only way for China to prosper was to open its borders and engage in international business
cooperation like other big nations. Of course, China wasn’t closed off throughout the centuries. It
had periods of cultural and economic renaissance together with crisis, instability and defensive
stance towards foreigners.
Unlike other large economies, Chinese economic wonder wasn’t researched in the full extent so
the full potential of cooperation isn’t used for many nations who cooperate with Chinese
companies. This can be easily explained by economic indicators of trade and bilateral exchange
in the past, compared to those in the present which clearly shows that a lot of potential wasn’t
used in the past but the future surely looks more promising. Same goes for the Chinese side so
we can say that Chinese government is still in the learning process and advancing in big steps to
compensate the losses and missed opportunities caused by decades of isolation. Chinese are now
attracting considerable amount of foreign direct investments and show presence in many nations
across the globe and actively engage in large projects as a part of their country economic agenda
4
i.e. expansion to the new markets through increased exports and search for new resource inputs
which can sustain the growing economy such as Chinese. In the context of microeconomy, many
Chinese businessmen went abroad to set up their business operations (which also has incentives
by Chinese government) in search of positive business climate, attractive business regulations
and part of foreign market share. In order to initiate cooperation with Chinese companies, their
international business partners and foreign governmental representatives must have, at least,
some basic knowledge of Chinese business culture as a dynamic and very complex phenomenon.
This might be a serious advantage or disadvantage for those who engage in cooperation with
potential Chinese business partners. In the current situation of global crisis, every customer
counts and those prospective Clients and companies from China certainly deserve more interest
and time for preparations before actions.
1.2 The purpose of research and goals
The purpose of the research is to propose the desirable approach to Chinese business partners in
order to initiate business cooperation, alleviate negotiations and ensure the higher probability of
positive outcome. This research will include existing cooperation with US partners and
cooperation with bigger European nations which has reached some considerable level and have
active history of business relations unlike cooperation with smaller European nations which is
still underdeveloped. In the latter case, this problem hasn’t been analysed in detail due to
decreased economic potential of smaller European nations such as those is eastern and south-
eastern Europe (namely those countries which have undergone periods of economic transition
and which are market followers of their more successful western neighbours). The lack of
interest was evident on both sides because Chinese were more eagor to cooperate with well
established market leaders (grouped in G8). Germany and Sweden, for instance, are one of the
most efficient when it comes to cooperation with China. USA has even greater cooperation with
Chinese partners than any other single country in the world which results in current
interdependence. The EU integration included most of those countries while others are in the
process of admission to EU which means that new practices have been established in the regional
levels. Economic integration is oriented inside EU and outside, as a bridge to the Russian market,
Middle East and China. In order to follow the successful example of SINO-USA cooperation,
new prospective partners must learn more and adapt faster. China is growing rapidly in economic
sense so does the importance of Chinese business practices and business culture.
Therefore, research questions are set as follows:
1. What makes the difference between a success and a failure in doing business with
Chinese?
2. What were the mistakes which lead to negative case scenarios?
5
3. What are the lessons learned in modern international business, knowing that Chinese
economic expansion is ongoing and participation is on the rise?
4. What will make both sides reach win-win scenario?
5. What are the expectations of Chinese companies running business operations abroad and
the expectations of their international business partners?
6. What experience do they have and what are the points of view from both sides?
7. What could boost this cooperation or slow it down, both globally, regionally and locally
speaking?
Knowing the opportunity that rose together with Chinese economic reforms and potential which
can be used, many economists and corporate managers are aware of the importance of these
questions. Through research we will surely get some new insight about what matters. Up-to-date
findings will surely be usefull both in academic point of view and especially for people doing
business with Chinese partners on daily basis.
The goals of this research and the expected results include:
- To point out the imminent importance of China in international business (global, regional
and local);
- To single out the existing business literature, reports and studies concerning Chinese
business culture and its role in international business;
- Present case studies of positive and negative cooperation between Chinese and their
international business partners;
- Mark deficiency in application of existing knowledge and accumulate new findings and
recommendations based on theory, field research and new experiences;
- Indicate the commercial potential in cooperation and trade with Chinese companies
(importers and exporters) in the future;
- Defining a case study of current Chinese economic presence in Serbia and suggesting
modes of improvement of existing cooperation based on sample companies from field
research;
6
1.3 Course of study, literature review and hypothesis
COURSE OF STUDY
Table 1: Research steps conducted during the course of study as follows:
1. Planning of the master thesis topic, title and research question, disposition preparation with hypothesis set
and selection of initial literature and targeted aim and purpose of the research ;
2. Gathering, selection and analysis of established literature concerning the issue together with additional
reports, surveys, case studies, articles and other data available on the internet, bookstores and libraries
(theoretical preparation) ;
3. Compiling theoretical parts of master assignment and rearranging ;
4. Field research with additional analysis and data sampling from the applicative part of the research ;
5. Data presentation and interpretation, testing of hypothesis and preparation of findings ;
6. Completion of applicative form of the assignment and integration with theoretical findings.
LITERATURE REVIEW:
Plenty of professional literature in modern business, together with articles and reports, cover the
concept of Chinese Business Culture and its rising role in international business. This topic has a
historical overview and its complexity has been investigated in the past decade even though
many questions still remain unclear (such as further development of Chinese social structure, the
nature of Chinese collective spirit, face and reputation significance, socialized business relations
and complex moral of the modern vs tradiotional Chinese). Many economists, sociologists and
sinologists have been studying China, its economic and legal system, people and language,
culture and gradual reforms in Chinese complex and fragmented society. These studies have
been conducted even before but have more importance nowdays, especially during the last two
decades. Chinese authors (domestic and those expatriated) also gave significant contribution in
the studies of this field, especially those living in the west and working in the high ranking
positions in the international business map.
Some of the authors are John Graham (2003) and Mark Lam (2003) who wrote about Chinese
business negotiation type and misunderstandings which may occure during the negotiation
process with partners from other countries. They published their books in 2003, at the start of
Chinese increased economic development. Daniel D. Ding (2006) explored the nature of Chinese
business communication in mainland China which resulted in publication 'An Indirect Style in
Business Communication', while Zhu Yunxia (2000) studied her interpretation of Chinese
7
business correspondence and the informal style of Chinese business letters, business offers and
invitations. Tony Fang (2006) is also an author who tried to expose the nature of Chinese
negotiation style, the persistence, patience and gradual advancements during the process. Pyu
Lucien (1982) is also a famous Chinese American author who wrote about Chinese Commercial
Negotiating Style. So we may concure that first steps were made to increase the quality of
negotiation with Chinese business and government officials.
Chenting Su and James Littlefield (2001) are experts in Chinese Business Culture famous for the
work about Chinese business ethics and the guanxi principle of close human connections and
personal affiliations between businessmen and other business partners.
Other significant authors are Laura Nowak and D. Dong (1997) who covered the field of
intercultural differences in business based on experiences with Chinese companies and their
foreign business partners. This literature proved to be very usefull for modern businessmen
during the course of the study of Chinese business culture and implication in the business
practices.
Scott Seligman and Stefan H. Verstappen (2008) published a book named “Chinese Business
Etiquette”, where deeper knowledge of Chinese business etiquette with protocols, manners and
the business culture is presented and explained, then compared to other business cultures while
interacting.
There are many case studies about Chinese companies and their foreign business partners, doing
business in mainland China and abroad. Some of recent and most famous cases certainly include
the case of company Google and their business venture in China. Christopher Grogan wrote
about it in his case study about cross-cultural negotiations and all the ups and downs during these
long negotiations which revealed Chinese business culture and the role of Chinese government in
it. Similar are the cases with Home Depot, Tesco, Ebay and Yahoo. Besides Sino-US
cooperation, Europe is also in the spot, because of mututal interest of EU economic integration
and international cooperation simultaneously with Chinese state agenda of economic expansion
westwards.
Authors like Pye Lucien (1982) and Tony Fang (2006) wrote a lot about Chinese commercial
negotiations and the amount of patience and endurance needed before reaching agreement
suitable for both parties.
John Graham and Mark Lam (2003), gave a deeper insight in Chinese business ethics, diligence
and endurance which Chinese people show at home and abroad. They also pointed out how
situation may get out of control if Chinese feel distrust and doubt in good intentions of their
western business partner. On the other hand, authors like Scott Seligman (1999) illustrate
Chinese as industrious people with well developed business etiquette, very hospitable, reliable
and polite.
8
Authors mentioned above agree that humility is a virtue in Chinese business culture alongside
with patience during long negotiation process. What comes first to Chinese businessmen is
informal meeting and relationships and formal meeting and business deals come afterwards. It
took a long while for westerners to understand the Chinese art of gift giving but there are still
some missunderstandings which may happen to people to aquainted to Chinese customs.
Seniority and ranks are valued in China which explains how their corporate culture is formed and
explains what they expect from business partners who enter negotiations. Sending low rank
officer to negotiate with senior Chinese counterpart is definately an error which modern
businessmen cannot afford. Chinese punctuality is praised. Correspondence with Chinese
companies must be adapted and a lot of effort has been put by many authors to decipher Chinese
business corespondence and compare it with western types.
HYPOTHESIS
Research hypotheses include current claims and facts about Chinese business culture and
assumptions made by analysing previous and current experiences. The core of this assignment
are the characteristics of Chinese modern business culture in order to expand our knowledge and
explore the nature of international business thus make progress in future cooperation, locally,
regionally and globally. This main question will be analysed throughout theoretical and practical
research which will show knowledge on the issue and prove assumptions right (where they are
right) or wrong (where we fail to confirm) i.e. designing and testing hypotheses.
Chinese Business Culture is a very complex topic where many specialists (such as Google
specialists who led the company into dispute over censorhip issues and Home Depo and eBay
which abandoned Chinese market after failing to understand the guanxi principle of personal
connections in China) failed because they assumed high probability and simplified explanations
instead of looking the whole picture of it. It is complex and interdependent. Even though, some
prognostics will be made early on because Chinese progress is evident as a result of deep
economic and social reforms.
Indeed, Chinese are undergoing deep reforms and social and economical transition which makes
them interesting for foreign investors but also more powerfull as new investors who start
expansion abroad in search for new markets and resource access. China depends a lot on
resources because its growth won't be sustainable without solid resource base both at home and
abroad. Also, as the main manufacturer in the world, a global factory, China is seeking new
markets for its merchandise. That is why all the participants have need for new knowledge so
they can shape the strategy to fit their needs the best, both Chinese and their foreign partners.
As mentioned before, international business is complex and interdependent, there are many
different and sometimes opposed interests and approaches. Chinese government is still deeply
9
involved when it comes to investments outside China even though economic liberalism brough
private property and market economy in China and Chinese companies (Polajžer and Turk 2013).
The interests of the governments and private companies led by businessmen are different in
many situations but the culture of the specific region often dictates business strategy one must
employ to be successful in international business.
Cluster of hypotheses to be tested
- H1: Chinese businessmen have subtle and spiral type of logic compared to linear type of
logic in the West;
- H2: Chinese business negotiators avoid direct answers and do not express their
disagreement verbally and openly, communication is more indirect and the meaning is
implied instead of clearly stated;
- H3: Important business deals happen only if personal relationships are close (guanxi) ;
- H4: Chinese businessmen do not resolve conflict openly and directly, they rather use
third party (Chinese Intermediary);
- H5: Chinese businessmen are more patient and willing to spend a lot of time in order to
reach agreement compared to their western counterparts;
- H6: Chinese businessmen are hard to open but once they do, they form long lasting
commitments.
1.4 Methods (theoretical and practical approach), assumptions and
limitations
Table 2 : Methods used in master assignment preparations and goal achievement:
1. Collection of literature and other sources for theoretical analysis with comparation, description and
historical review of Chinese business culture development and interaction in international business ;
2. Active field research as part of theoretical hypothesis testing which includes meetings, survey, discussions
and analysis of local Chinese businesspeople ;
3. Quantitative and qualitative analysis of data gathered from theoretical and applicative research and
integration with aim to get to new findings, conclusions and recommendations ;
4. Data presentation and interpretation through descriptive method, figures, tables and appendixes specially
prepared for the purpose of this master assignment to reveal actuall trends in Chinese business culture.
The principal goal of this master assignment is to determine the nature of modern Chinese
business culture through actual practices and to determine applicability and active use of such
knowledges in dealing with Chinese companies. Recommendations will include macroeconomic
correlations but especially micro business partners and potential deals in the Republic of Serbia
and its smaller communities and SMEs.
10
So the target subjects are certainly Chinese companies in Serbia and Serbian authorities and
companies alongside with experiences between Chinese and their larger partners in the West.
The sample was narrowed to Chinese projects in Serbia and local Chinese companies and
entrepreneurs operating in central Serbia. Several research instruments have been used such as
survey, meetings, discussions and frequent visits to Chinese companies, their managers and
employees in interaction with local business partners, legal authorities, banks and others. Other
studies have been also used but mainly those consisting of Chinese companies in USA, EU, UK
and in developing countries. Statistical data and reports from these international and regional
examples have been compared to local findings in order to detect similarities and/or exceptions.
ASSUMPTIONS AND LIMITATIONS
Basic assumptions are: that Chinese business culture is rich and complex, Chinese devotion to
collectivism and common good is big, they have subtle and indirect approch in business, skilled
and persistent negotiators, their attachment to family ties and national goals is deep, personal
relationships in business are common, the embrace the concept of face and trust as xin (heart)
and ren (capability), guanxi principles put relationship before business deal etc. But there are
certain limitations which must be taken into full account before this research and during the
research process itself.
There is a problem of adequate information and full access to it which can be neutralized to some
extent with various information sources and viewpoints both from mainland China and outside.
Chinese market is a very dynamic organism and complex with changes which are daily so it is
very hard to stay in daily touch and incorporate these changes duting the assignment making
process. China is currenty undergoing deep social and economic reform with a lot of positive but
also negative effects including huge possibility of economic, political and environmental crisis
during the following years. There are also more limitations such as tendency to generalize
Chinese business culture which is quite unpredictable and deeply complex which means it is still
evolving and transforming (combining with Western practices) at the moment we speak. China is
regionally diverse and it must be also taken into full account.
Another limitation is certainly Chinese limited openess to initial interviewing and surveys made
by strangers (mosheng-ren) or aquaintances, no matter what their credentials or purpose might
be. Initial distrust is due to skepticism that researcher may be local financial inspector, police
officer, tax agent, noisy journalist or spying competitor. Chinese businessmen and entrepreneurs
are very hard to open for discussion at the start and it takes a lot of time and energy to win their
trust, gain interest and secure unreserved cooperation in this reserach. It can only be done with a
lot of effort, energy and time with help of an intermediary and personal recommendation by
other Chinese who can confirm the interviewers integrity. This endeavour also costs a lot
because reaching to a Chinese businessmen means subtle gift-giving and hosting lunches and/or
11
dinners. On the other hand, time limitation of assignment completion is much shorter than it
usually takes to form solid friendship and business ties with Chinese. That is why the sample of
Chinese businessmen interviewed in this assignment is limited and it can be only used as a good
starting point and guideline for deeper analysis. It will surely need more participants from
different parts of China and Chinese from different countries abroad to make more complex and
reliable deductions.
The contribution of this assignment will be done through detailed analysis of the Chinese
business culture in Serbia, the city of Kraljevo in particular, and then compared with other places
where Chinese companies are present in order to refine more general arguments about Chinese
business culture(s).
1.5 Research plan and design
RESEARCH PLAN
The purpose and aim of this assignment is to perform scientific research based on dialectic
method of conclusion. As mentioned, scientific research includes theoretical and empirical
approach with full and clear problem description, scientific questions and complete research with
assessments. Research combines qualitative and quantitative methods and survey, statistical data
compilation and comparation, formal and informal interviews together with non empirical
methods such as literature sourcing from different angles of perspective, comparative analysis,
historical overview with focus on current events together with other qualitative methods
(Seidman, 1991, page 45).
Research combines both qualitative and quantitative analyses of the problem. The empirical
research includes meetings or interviews and planned survey of Chinese businessmen doing
business in local communinities in Serbia, in southwest region in specific (their point of view,
their suggestions and thoughts, experiences, difficulties) and their business partners (experience
with Chinese companies, successful and unsuccessful business stories), statistical analysis of
economic indicators, media coverage review and quantitative methods. Interviews were more
informal but survey is formal and is presented as one of the appendixes of this master
assignment.
The analysis includes short interviews with local government officials in Kraljevo which are
engaged in commercial issues and Chinese businessmen who are running businesses in Kraljevo
and nearby cities in central Serbia (Kragujevac, Čačak, Kruševac, Vrnjačka Banja, Trstenik) for
a long period of time. These Chinese businessmen speak local, i.e. Serbian language, some of
them are even fluent while others are in intermediate level. Other non empirical analysis include
different sources of available literature, qualitative methods, comparative methods with an
12
historical overview of used literature and events which symbolize sino-western cooperation and
lessons learned.
List of questions for informal interview with Chinese local businessmen:
1) Are you satisfied with local banks, commercial law and regulations?
2) What would you change if you could?
3) How satisfied are you with your business partners in Serbia?
4) What do you like/dislike while doing business with local companies/customers?
5) What do you think about your company’s performance in Serbia?
6) Do you plan to stay and live in Serbia and expand your business?
7) Which companies in Serbia would you recommend to your business partners and why?
8) What do you miss from China?
9) What advantages do you have in Serbia which you didn’t have in China?
10) What kind of problems do you have in daily business routine and how do you handle
them?
The aim of this research is to offer solutions for the future cooperation, explain the nature and
complexity of Chinese business culture and facilitate interaction with other participants in the
international business with mutual benefits. This will be especially usefull for local European
companies interested in cooperation with Chinese companies and Chinese local companies
interested to deal with European companies.
Sino-European cooperation is still developing, especially in the countries which undergone
economic transition and doesn’t have economic potency as stronger EU members in the West.
There is a lot of unused potential and a chance to learn from the American and European
experiences without repetition of the same mistakes made in the past.
RESEARCH DESIGN
Chinese economic and social transition will be presented in order to explain the rise of China as
political and economic power. What dictates Chinese Business Culture, the modern China, is a
combination of tradition and Confucian set of values with collective spirit combined with
pragmatism, competition culture and new global strategy of Chinese government which is
heavily involved and embedded in modern Chinese Business Culture. The relevant data needed
13
for this research and deeper analysis have been selected from various modern business literature
and academic circles, media coverage and key people who participate in international business
activities (businessmen, politicians, scientists, journalists, linguistic and culture experts etc).
The first step was data gathering with careful selection from many sources and different points of
view and interests, data analysis and testing hypothesis and finally the presentation of the
findings and conclusions with comparation of previous studies and solutions which can be useful
in the future as the main purpose of this assignment.
In the first part of the assignment, relevant literature is presented including previous and ongoing
researches in this field of study, and several case studies were chosen in order to form the theses
which are then tested. Practical investigation and research includes: corespondence with
professors in this field of study and journalists writing about foreign companies in Kraljevo and
the region (articles will be collected from the digital archive of the city library), media coverage,
interview and surveys with local Chinese businessmen which cooperate with Chinese business
partners. Chinese language and culture is carefully explained in order to find connection with
existing economic and social reforms at home and their business behavior abroad.
1.6 Structure of master thesis
Master assignment: “The analysis of Chinese business culture and its effect on international
business” is divided in five connected units.
- This first chapter is the introduction of master thesis with specific research question,
purpose and goals. Course of study is presented with review of literature, set of
hypotheses and methods of research of Chinese business culture. The interest in the topic
grew alongside with the influence of China in the global market and business map of the
modern world, which informed the research plan, but also imposed limitations on this
particular project.
- The second chapter of the master assignment covers the concept of Chinese business
culture with historical overview and characteristics. Possible benefits of better
understanding of Chinese business culture are one of the aims of this assignment.
- The third chapter is dedicated to international cooperation of Chinese business companies
with those in the West starting from the late 1970s. Differences and its impact are
elaborated together with gradual changes and the rise of influence of Chinese business
culture on the global scene. The results of cooperation are compiled in several cases,
those of successful cooperation and those less successful. Statistical data is presented
together with business activities, key indicators and future trends and perspectives.
14
- Chapter four is reserved for European region as a secondary economic partner of the
Chinese. Following case study focuses on Serbia and business activities which are
conducted either by Chinese government or privately owned companies from the PRC. In
this unit results from the previous units combined with active field research meet and
form recommendations and general findings. Research findings of Chinese companies
interacting in these economic environments offer solutions for better understanding of the
importance of Chinese business culture, modern characteristics and recommendations for
approaching Chinese business partners on the national, regional and local levels.
- The last chapter, chapter five, contains general conclusions from all previous units. These
conclusions must ensure the, at least, satisfactory level of applicability of the master
assignment in real-life situations and solutions which will show measurable results in
negotiations with Chinese business partners.
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2. THE CONCEPT OF CHINESE BUSINESS CULTURE
Figure 2: The Great Wall of China
Source: http://www.fmprc.gov.cn/mfa_eng/ (2014)
The concept of Chinese business culture consists of two aspects: Chinese culture (which is
defined by millennial old tradition) and Chinese business (defined by the recent few decades of
economic reforms and modernization). The former gave the environment for the succeeding one
to appear, even though many contrasts remain to be settled. Chinese environment is very
complex and unique and it differs regionally as much as it differs from the rest of the world. The
culture mix is the glue of complex Chinese society which shows in the ways they speak, the
ways they think, act and the way they do business regionally and as a part of one national
agenda. International business environment is a place where many business cultures of today
interact. Business culture defines the ways how society organizes goods and services transactions
and exchange. The aim is to make profit thorough state-owned and/or private-owned companies,
which are doing business in domestic, regional and global market. Chinese business culture is
relatively new phenomenon in the global business environment which drew more interest after
rapid economic growth of PRC and larger potential for cooperation.
It consists of many backgrounds: philosophical (Confucianism, Taoism and Buddhism), modern
authoritarian politics (communist i.e. socialist state which very recently opened to reforms),
loose legal system (slow implementation of written laws and the rule of bylaws), economic
background (past isolation, current rapid industrialization, transition and economic reforms) and
social (the changing social values and norms in Chinese society). To understand the concept of
Chinese business culture, one must have deeper knowledge in each and every of these
backgrounds together with current and future interaction with international partners. This also
defines Chinese business culture (economic, political and cultural expansion and broader sphere
of influence).
Chinese culture has almost 5,000 years of active recorded history. Ancient Chinese civilization is
one of the oldest civilizations in the world, which dates from 2,100 BC and spread throughout
the world mostly over first commercial routes from the Far East. The first commerce shaped the
first Chinese business culture and trade. China is the home of some remarkable inventions which
include: alcohol, clock and compass, silk, iron, steel smelting, porcelain, gun-powder, paper and
mobile type-printing. Besides technical discoveries, China is also famous for its rich culture
which is a blend of unique philosophical and religious values. According to famous speaker,
investor and political scientist, Eric X. Li, Chinese culture has a unique communicable
16
knowledge transmitted over many Chinese generations and consists of Chinese religion and
philosophy, business culture, science, language, arts and cuisine. In order to understand the
modern Chinese business culture, we have to explore the pillars of long tradition which holds the
foundations of modern China. There are three key aspects of Chinese culture and the Chinese
way of life: Confucianism, Taoism (The yin yang principle) and Buddhism. The first two
originate in China but Buddhism is imported and later embedded in the culture. Three historical
figures emerged as teachers: Confucious, Lao Zi and Gautama Buddha. Their teachings together
with Sun Tzu stratagems and other philosophers form the pillars of Chinese culture and thus,
Chinese business culture and etiquecy (Fang, 2006, p. 50). General harmony of complex system
based on love and respect (ren & li) combined with Wu-wei principle of actions without action
show benevolence and altruism. One cannot omit the fact the PRC is a bureaucratic structure
which is slowly and gradually adapting to more flexible international environment.
Chinese business culture can be understood as combination of three components: the
bureaucratic component, Confucianism and Sun-Tzu stratagems (Fang, 2006 p.52). Although it
sounds contradictory, this is correct to some point. Recent authors (Boye 2013, Hill 2011 and
Verstappen 2008) include another component, which is the adopted norms and standards from
the western business cultures and practices, which are newly imported to Chinese business
culture as a part of its economic transition. This is just a hint of how complex Chinese business
culture is.
Findings of Tony Fang (2006, p.50) also imply that Chinese business culture creates a mixture of
a whole set of above mentioned roles:
“The Chinese negotiating strategy is essentially a combination of cooperation and competition
(termed as “coop-comp” negotiation strategy in this study). Trust is the ultimate indicator of
Chinese negotiating propensities and role choices.”
So what happened with the trust? Long Chinese history was full of internal turmoil and unrest
and Chinese people were often under pressure of foreign nations. This is where the teachings of
Sun Tzu become usefull and demonstrate Chinese defensive strategies (which are materialized in
the symbol of their country, The Great Wall of China). Behind this material wall, there is other,
invisible wall with a culture inside as rich and rewarding as those cultures outside of it.
“Four cultural threads have bound the Chinese people together for some 5,000 years, and these
show through in Chinese business negotiations. They are agrarianism, morality, the Chinese
pictographic language, and wariness of strangers.”
(Graham, John L. and N. Mark Lam. 2003, p. 32)
The uncertainty of foreign relations and negative experiences (such as Mongol invasion, Western
colonization and Japanese partial annexation followed by civil wars and many more complex
reasons) resulted in insularity of the Chinese society (just like The Forbidden City). China
remained isolated for many years. But modern China opened its borders in the late 1970s,
knowing that its future, prosperity and social progress depend on international cooperation. This
means that China must cooperate and compete in order to sustain its vast territory and ensure the
17
wellbeing of its population. To do so, Chinese government adapted to international trends and
blended its culture with the culture of others. This is how coop-comp strategy of cooperation and
competition was formed. The existing guanxi (connections) principle of wide and energetic
social networks expanded internationally and included foreign business partnetrs together with
the principle of lian (showing respect and giving face) which was adapted to international
business practices of professional respect and trust (Hu 1994 p.117, Su 2001 p.202, Luo 2007
p.94). Chinese culture retained its national interests above others and competitions strategy when
the trust in business partners is low. It also remained unique. As Red Plafker (2007, p.12) said.
“When it comes to culture, norms of etiquette, social behavior, and political sensitivitie, China is
unique.”
The Chinese concept of “face” remains one of the dominant traits in Chinese business culture as
portayed by Chinese author Hsien Chin Hu (1944) and further recognized and discussed by his
western colleagues. The “face” contains two social qualities of a decent Chinese (according to
Chinese social norms). It is prestige and social status (Hu, 1944 p.63). As Hsien Chin Hu
explained, it consists of reputation established by success in career (mianzi) and good moral
reputation (lian). One goes with another, the skills which ensure success and moral character
during that endeavour. A lot more attention is given than in the West. The “loss of face” is taken
much more seriously and can affect the life of a Chinese much more than the life of his western
colleague. Something similar can be said for the Japanese business culture and their set of moral
codes and honour. This traditional grip is loosening as the Chinese enter economic transition and
follow current market trends. But they still are pretty much carefull when it comes to their
business reputation. Chinese people were less educated in the past and had a lack of professional
experience. As an old Chinese proverb says, you can find an army of thousands of soldiers but it
is harder to find a good general (Sun Tzu, 512 BC.). This means that there is still shortage of
skilled professionals in China, even today, so those few try to adapt traditional values as an asset
not as a flaw of Chinese business culture. Chinese are still very hospitable people and place a lot
of attention and care of social standards compliance, much more than the Europeans and North
Americans try to fit in their communities. Chinese business people are fast learners and try to fit
in this set of traditional values into modern business culture. They understand that written
documents value as much as business integrity and reputation and can be used to “seal the good
deal”. In the past, business was arranged by “the handshake” and it still is that was in rural parts
of China:
“Up to recent times Chinese business men, though among the most prudent in the world, very
often concluded deals without written contract. A person with a feeling for lien can be trusted
implicitly, for lien is worth more than a fortune to those who value it.” (Hu, 1944. p. 63)
The concept of Chinese modern business culture implies continuous learning through increased
cooperation and interaction with others. A lot of effort was made by Chinese and American
officials to boost this cooperation and justify mutual expectations. Trade commissioners made
the first steps announced by high ranking political officials of both countries and that is how the
learning process started. Previous studies were theoretical and inpractical due to closeness and
reserved postures of Chinese and Western countries during the Cold war. The economic reforms
18
initiated by Deng Xiaoping in November 1978 ushered the new era of international business and
China gradually took the place where it rightfully belongs (Vogel, 2011).
The background of Chinese business culture is defined as qualities and values of Chinese
businesspeople. They are part of business research made by trade commissions across the world.
According to the Canadian trade commissioner service (part of Foreign Affairs, Trade and
Development Canada, Government of Canada 2013) the relevant qualities in business interaction
with the Chinese include: saving and giving face, respect of the rank and seniority, full respect of
Chinese government officials, patience, punctuality, politeness and modesty. One most respect
the hierarchy in business relations when dealing with the Chinese. They value personal
relationship and respect of the Chinese culture and language so any effort of understanding
and/or speaking Chinese will be taken as a sincere demonstration of goodwill and respect.
Another characteristic of Chinese business culture is the compliance to protocol which is slowly
changing because modern Chinese managers are also educated in the West and show some
flexibility, especially those representing private companies.
Besides trade commissions, many business centers and learning centers can offer some initial
guidance concerning Chinese business culture. L.A. learning center is of the many where
beginners can come in touch with Chinese culture and current experiences through customized
classes for managers. Subjective feelings and personal experiences dominate in forming opinions
and making decisions by Chinese managers (L.A. Chinese learning center 2013). They also rely
heavily on government’s policy and accept facts and empirical evidences only if the don’t
contradict one’s subjective feelings and the state doctrine. Negotiations with the Chinese imply
patience and persistence. Unlike their western counterparts, Chinese negotiators never finish
negotiation process, as long as the cooperation exists (Pye 1982, Fang 2005, Graham and Lam
2006).
Cultural rules for doing business in China are presented in the following table from the US-
China Business Solutions portal established in 2006 with purpose to strengthen the relationship
between Chinese and American businesses. It offers a clear insight, before one starts cooperation
with Chinese businessmen. It also proves that the Americans are at the top when comes to
understanding of Chinese business culture and necessary incentives.
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Table 3: Top Ten Cultural Rules for Doing Business in China
Source: http://www.uschinabiz.com (2014)
Chinese business culture, just like any other business culture, evolves through interaction with
others, over long period of time. The Americans were pioneers among Western nations and
paved the path for others to follow. But the history of relationship had its ups and downs so the
improvements were made only with deeper understanding.
It is very important to emphasize that Chinese culture cannot be observed as a unitary
phenomenon or homogenous set of values and characteristics of the whole nation. It is rather a
cultural pool of mixed regional cultures and sub-cultures dispersed in mainland China and in its
overseas territories and in Chinese diaspora around the world. However, Chinese speaking
people share broad similarities thanks to long and rich history of this country and its people. Han
Chinese bear the dominant traits but one should have in mind regional characteristics of north
and south China and local recognized nations, developed coastal line of the east and
underdeveloped central and western China. They all share the same historical pattern but Chinese
culture should be observed as a melting pot of many different cultures under the flag of Peoples
Republic of China.
20
2.1 Historical review and characteristics
Business culture is dynamic and complex even when participants share the same language,
values and beliefs. Even then misunderstandings can occure. When it comes to different cultures
and languages, probability of missuderstanding and error is far greater. That is why time frame is
needed to spot the differences in understanding and adjust business practices and the way people
think. Starting from late 1970s and Chinese economic reforms, the mutual spirit of good will and
high expectations was present between the Chinese and western business partners. But it wasn’t
easy from the start. High expectations were soon mitigated once negotiators experienced cruel
reality and differences in thinking patterns.
Table 4: Western vs Chinese thinking patterns
Cultural Values
Expressed
West
(America & most
European countries)
East
(The Chinese and Most
Asian cultures)
Type of Logic
Linear (More causal
relationships and direct
associations between A
and B)
Spiral (more roundabout
and subtle)
Expression of
Agreement and
Disagreement
More argumentative,
willing to express
disagreement verbally
More difficult to say no
even if one means no,
disagreement expressed
nonverbally
Communication of
Information
More meaning is in the
explicit, verbal message.
Use of direct language
Meaning is often implied
or must be inferred
Use of indirect language
patterns
Expression of Honesty
More overt, one is more
likely to ask the person
to “speak their mind” or
“get it out on the table” Subtle, nonverbal
Expression of Self
“I”-oriented
Sender-oriented
“We”-oriented
Receiver-sensitive
Thinking Orientation
More rule based or
based on application of
abstract principles such
as regulations or laws
Tends to take context and
the specific situation into
account in rule
interpretation
The Individual Has to have rights and Group duty
21
greater need for
autonomy and
individual achievement
preservation of harmony
Nature of the Business
Relationship
Less important, tend to
substitute relationship
for written agreement,
superficial, easy to
form, not long lasting
Most important business
cannot occur until
relationship if sound,
written agreement
secondary to quan xi, hard
to form, long lasting
Conflict Resolution
Trial or confrontation,
use of lawyers and
courts
More mediation though
trusted third parties
Time Sense During
Meetings
Be on time and end on
time.
Appointments less driven
by exact start and end
times
Conflict results
Perception of two states:
win or lose
Win-Win
To lose is to win
Lose in order to win
Source: http://www.legacee.com (2014)
The differences weren’t only present in the Sino-Western business cultures perspective but also
within Chinese culture. After millenniums of old traditional values (harmony, character, trust,
support, relationships, cooperation, honesty and collective spirit) some new values emerged as
fruits of modernization and economic transition from socialist to capitalist like societies. Those
new values characterize younger generations in China, especially Chinese businessmen
(flexibility, openness, pragmatism, survival and pride of achieving personal and national goals,
dedication to progress, target fulfillment, profit orientation, competition and growing
individualism).
Different business cultures of partners without previous interaction at first may cause distrust and
disappointment due to missed opportunities or failed expectations. The cooperation announced
by politicians was a theoretical “hot air” while in practice, the cooperation between the American
and Chinese companies at first was nothing but symbolic. Even though Americans were first to
set up negotiations with the Chinese (long before Europen partners), the effects were short
lasting and it took time to observe and learn from each other. Initial enthusiasm and latter
disillusion was present on both sides.
During the 1980s and 1990s some progress was made and exchange of culture, art and
knowledge facilitated future economic exchange. Student exchange was an opportunity for
young people to exchange ideas and knowledge after years of isolation. This period was
introduced in the book Chinese lessons: Five Classmates and the Story of the New China by John
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Pomfret (2006). The author was a student at the time (1981), and went to Chinese college where
he had an opportunity to meet Chinese people and the way of life in the PRC without restrictions
which were still present and imposed to western diplomats, businessmen and journalists by the
Chinese government. The changes in Chinese society have been monitored by this author who
later became a journalist. He met real life Chinese friends and maintained contact during these
three last decades. He understood what was like to be a Chinese at the time and today. The
differences between China then and today, is striking, starting from public display of feelings to
business matters and the policy of the Chinese state (Pomfret, 2006 p.287). “Quid pro quo”
approach of Americans during the 1980s wasn’t accepted by the Chinese at start because of their
spiral logic of business cooperation. Other initial differences between western and Chinese
business negotiators were versatile and argumentative approach versus subtle and nonverbal
Chinese. Chinese business culture was indirect at the time which frustrated western negotiators
unused to such approach to strictly defined business issues, plans and targets. At the time, the
communist grip was still strong so Chinese companies were more government oriented which
dictated the pace of negotiations and business etiquecy. Any public display of disobedience was
severely punished by the repressive government (during Cultural Revolution and at protests and
incidents at Tiananmen Square). Yet, during these hard years Chinese people showed high level
of resilence and perseverance which still characterizes Chinese people in modern PRC.
Adjustments to western-style economies started in 1979 after declaration of new economic
reforms by Deng Xiaoping. But that was just the beginning and China was still far from
achieving the goals of economic transition and social normalization. Just as Philip P. Pan (2008)
portayed in his book “Out of Mao’s Shadow”, China was struggling for a long period of time to
find the new soul and better life conditions for its people (Pan, 2008. p.22). Some argue that
huge progress in economic and social liberties was made while other point out the new problems
that Chinese people are facing (Bryan, 2010).
Companies from democratic societies were more individualistic and profit oriented with little or
no interest in the national strategy. It came secondary after achieving the goals of their
companies. The People’s Republic of China still holds some communist characteristics present in
their business culture such as: large bureaucracy, need for political support, state planned
economy, centralistic decision making, uneven regional development and distribution of goods,
rigid legal system with laws which are hard to enforce, decreased creativity and flexibility etc.
(Polajžer and Turk, 2013. p.7). That is why reforms are needed and international cooperation is
encouraged by Chinese government. The bigger the company the greater influence of the
Chinese government will be present, especially in B2B projects (Fang, 2005).
Another characteristic of that time was Chinese tendency to put emphasis on relationship before
business is discussed. Western business culture doesn’t necessary demand close relationship
when it comes down to business. Instead, many business deals were made based on written
agreements, contracts and arrangements. Western long history of law abiding and profit
orientation was confronted to the Chinese concept of face (mianzi) and personal relationship
23
networks (guanxi). Only at the very end of the last century Chinese became more legalistic in
commercial business, flexible and pragmatic in the business sense. Modern Chinese are more
tactical, reciprocal and dedicated to networking and outsourcing. This all resulted in increase of
GDP thanks to more economic freedom and openness to the world. Poverty declined as economy
grew and formed Chinese middle class.
Figure 3: China GDP Since 1960
Source: The World Bank - http://www.worldbank.org/en/country/china
This doesn’t mean that American and European business entities remained the same. Their
business cultures also evolved and adopted some of the eastern business practices from Japan,
South Korea, China and the Pacific region. International business isn’t economic arena where
only one side wins. Win-win or give-get practices are the result of flexible policies between
many participants in the global market which is more complex and interrelated than ever.
Westerners and East Asians share more common characteristics (especially South Korea and
Japan) and compatibility in business philosophy.
In modern times, the west and the east, the developed and developing countries are more
intermingled and appear both as creditors and debitors, exporters and importers, and share more
similarities than differences. The ignorance was the biggest obstacle to international trade in the
20th century and this barrier was crossed when knowledge was shared through opened borders
for trade. When it comes to cooperation and negotiation with partners of different business
cultures, Mark Buchman, famous finance instructor from UCLA, proposed the five principles
which are: plan (something in written that both sides agree on), perseverance and patience
(because doing business is complex and takes time and energy), personal relationships (native
Chinese intermediaries are a golden asset) and perfection (at least tendency not to make the same
mistake twice), (Buchman, 2012).
24
Su and Littlefield (2001 p.207) analysed: exports, joint ventures and economic cooperation as a
chance for western companies to understand the Chinese and to be understood.
“Western companies should not assume that their system and products are always superior and
should adapt their manufacturing and marketing strategies to help the Chinese gain their
important economic development goals, such as attracting foreign investment, upgrading the
infrastructure, increasing foreign exchange reserves, and introducing western technology and
management skills.”
Modern China is one of the most dynamic economies in the global scene. It is the “workshop of
the world”. Therefore, it is an inevitable partner at the negotiation table due to its growing
importance.
China is still developing as an economic environment which was clearly stated in the latest
World Bank’s Doing Business Project (from 29.10.2013.). China is still low ranked among other
competitors in the global market when it comes to ease of doing business.
Table 5: Rankings on the ease of doing business for 2014
Large economy competitors Current ranking
United States of America 4th
United Kingdom 10th
Germany 21st
Japan 27th
France 58th
Italy 65th
Russian Federation 92nd
People’s Republic of China 96th
Brazil 116th
India 134th
Source: World Bank’s Doing Business Project from 29.10.2013.
China related studies are still far from developed as the world watches how this complex society
transforms beyond any predictions. Its business culture is not a single product of one
homogenous society as many think. It is rather a complex mixture of many cultures that PRC
consists of inside and the influence of those outside the borders of mainland China. As China
25
continues learning from the international business market so does the world learn more about this
growing economy and planned regulatory reforms in the future.
2.2 The importance of Chinese business culture in international business
The importance of business culture of one country lies in its economic potential and political
power. It also draws more attention to it and creates necessity to learn its basis, legislation and
language. Once it was English language and culture because of colonization and expansion of
United Kingdom of Great Britain and later United States of America, then Spanish and
Portuguese especially in South America and French in North America, Afrika and parts of Asia.
Their cultures were dominant in the international trade and remain so today because the biggest
economies are gathered in G8 group and include the states of developed world in North America,
Europe and their former colonies. Besides the ones already mentioned, Italy, Russia and
Germany together with Scandinavian countries joined the economic powers in the beginning of
the 20th
century. But new economic powers are rising in the global scene such as: Brazil,
Mexico, India, Turkey and especially China.
Accoring to Lloyd’s Risk Index report in 2013 (which is The World’s Specialist Insurance
market), China made the biggest progress and opened many new opportunities as the fastest
growing economy in the world. It became a top priority for further analysis of market potential
for all business industries. After the world crisis in 2008 many investors turned to new
prospective markets, such as Chinese, which proved to be immune to the crisis and continued the
economic growth just at slower pace. During 2010, Chinese economy grew by 10.4% and in
2011 there was a slight economic slowdown to 9.2%. According to Chinese officials, this was
the result of currency fluctuation and shortage of skilled professionals. This is where some flaws
of Chinese business culture appeared under the light of international business and higher level of
competition outside its borders.
The economic slowdown continued in 2013 and other problems emerged, such as the price of
raw materials used in Chinese economy. This slowed down the exports and increased imports for
the first time after decades. Even though, Chinese economic growth resulted in better
employment, higher salaries and social stability unlike oin other countries which faced riots and
unreast due to economic crisis and budget deficits.
26
Figure 4: A Decade of Growth
Source: International Monetary Fund - http://www.imf.org/
Both international companies and Chinese domestic companies saw the opportunity for the rise
inside of Chinese market, where new middle class was born. This created the bigger need of
understanding Chinese business culture as one of the most important business partners in the
world. Chinese economy is second largest, after USA, and surpassed economies such as UK,
France, Germany and even Japan in the global economic race. That is why China practically
became a target for global corporations.
Figure 5: Share of World GDP
Source: International Monetary Fund - http://www.imf.org/
27
Chinese people also benefited from economic growth from improved living standards and
purchasing power. Their incomes are higher than ever before which puts Chine among middle-
income nations (but still much poorer than citizens in G8). What characterizes PRC is that
Chinese economic growth is slower but economy is still getting bigger, economy is bigger but
China is still not richer than, let’s compare with France or Italy, because their per capita incomes
are higher. China is the most populous country in the world and it is a big task to supply and
sustain economy for all that people (India is facing the similar problem). On the other side of the
medal are the human rights issues, pollution, corruption, trade imbalance and insufficient health
and pension coverage. Chinese government is designated to continuo social reforms alongside
with economic. Criticism is mostly silenced due to importance of Chinese partners. Inner
criticism is also rare but present. Philip P. Pan (2008. p.5) cited in his book Out of Mao’s
Shadow – The struggle for the soul of new China:
“Yes, China had grown more prosperous and gained international prestige. But the boom had
also left many behind, and the nation’s troubles were obvious to anyone willing to see: the
stifling limits on political and religious freedoms, the abuse of power by privileged officials, the
sweatshop conditions in the factories, the persistent poverty in the countryside, the degradation
of the environment, the moral drift of a cynical society.”
Critics are often silenced by the quarterly reports of the National Bureau of Statistics of China.
The latest report (National Bureau of Statistics 2014) in the first quarter of 2014, labelled
economic development of China as stable and sound.
“As a whole, the national economy in the first quarter of 2014 performed within a proper range
with structural adjustment, economic transformation and upgrading continuing to make progress.
However, we should keep in mind that the external environment remains complicated and
volatile and the national economy still faces downward pressure.”
Preliminary estimations in 16th
of April show 7.4% year-on-year increase in the gross domestic
product, together with increase in all industries (primary – 3.5% year on year, secondary – 7.3%
and tertiary – 7.8%). Agricultural production remained stable while industrial dropped slightly
(0.8%), market sales keep steady growth and increase in output was recorded for 324 out of 464
industrial products. The proof that Chinese middle class is growing stronger is that 12% of
increase was made in sales of consumer goods and a large increase in demand for luxurious
goods from import. The trade surpus remained but the trade imbalance was corrected by slight
decline in exports. Consumer prices remained stable throughout the past few years of global
crisis and urban and rural household income increased rapidly (this growth was more modest in
rural areas) (National Bureau of Statistics 2014). The importance of this economic power-house
to the international business is undisputable. It is an engine of international output with fast
growing market, companies with more skilled workforce and know-how. This is the changing
and developing environment which gave birth to Chinese business culture which is vibrant and
evolving to keep in line with ambitious goals of this nation.
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3. SINO-WESTERN BUSINESS COOPERATION
Figure 6. Business in China, China-US
Source: www.ladyleet.com (2014)
Modern Sino-Western business cooperation was initiated between the United States of America
and the People’s Republic of China in the early 1980s. Americans were number one trading
partner of China for decades. Not until recently the EU (in the year 2006, as a whole union as
stated by Chinese embassy in the US) surpassed USA as number one trading partner in the
world. As of year 2011, according to the EU Observer (2013), China becase the top trade partner
of EU thus putting USA on the second place. Brazil, India and Russia are still at a modest level
as trading partners and that is why both Chinese and their western partners dictate the pace of
international trade. This level cooperation largely depended on their abilities to adapt to one
another and adjust cultural traits to serve the economic goals.
Sino-western cooperation could be described as a positive approach in building cordial
relationship. The aims are mutual prosperity and success and agreement on vital economic,
political and strategic issues in the region and the world. Both government officials and business
representatives have exchanged visits and started diplomatic ties and enforced communication
which had been lasting for decades. Economic cooperation advanced so much that major
political issues are resolved with special care due to interdependency.
However, as the Chinese partners grow stronger in this relationship so does the anticipation of
possible confrontations in the future. But where is the point when this cooperation stops and
more open competition for global supremacy begins?
Current Western sanctions against Russia are only making the ties between Russian Federation
and the PRC stronger. Unlike Russians and western nations, Chinese stances on numerous
political changes in the global stage, are mostly neutral. Only regional politics limit Chinese
flexibility which could be identified as one of major threats to its cooperation capacity in the
global scale. So far, cooperation is moving forward in many fields: economy, diplomacy,
politics, science and culture.
29
As stated by the Managing Director of IMF, Christine Lagarda (2014), at the China Development
Forum: “China is about to embark on the next phase of its remarkable journey, a journey that has
propelled it to the top tier of global economy and lifted hundreds of millions of people out of
poverty in a remarkably short period of time.”. This was a sign of recognition of Chinese
importance and economic success. Chinese government managed to do so through active
cooperation with Western economies. It has supremacy on the Asian market but the future plan is
to overcome the US at the world’s biggest economic power. This cannot be done with
confrontation, only by cooperation which became the trade mark of modern Chinese business
culture and economy. It gradually changed from centrally planned to opened and market-oriented
economy which is the largest exporter and second largest importer. Without liberalization,
decentralization, autonomy of state owned companies and encouraging private-owned companies
this increase of international trade and investment wouldn’t be possible. The critics from the
west point out that graduall reforms still must continue at a faster pace in order to solve some of
the problems which follow economical and social restructuring which took place in China. Joint
problem solving is also a sign of global cooperation even though each country is responsible and
independent to create its own state policies and economic agenda. Benefits and gains are obvious
but so are the flaws and future challenges for the Chinese authorities. This refers to other global
economic powers as well, because the bigger the economy, the greater importance it has and the
greater mark it leaves on the international market. Chinese concerns and challenges can be
solved only through international (mainly western cooperation). There is a great deal of potential
to be used but also it carries a lot more of risks both to Chinese and international economic allies
just as Chinese government carefully monitors global trends and market and finds many
international trends volatile to Chinese economy. The challenges of economic development of
China mainly refer to planned increase in domestic demand, creating new jobs for growing
numbers of migrant workers, sustained crimes and corruption (which is very high in PRC),
maintaining social order and decreasing pollution which scares modern China and the world. In
addition to the already mentioned ones, China faces challenges concerning unequal development
and poverty in its rural north and west parts. Local government debt and inflation also remains
concern and will be monitored in the future. With all these characteristics, good and bad,
international cooperation between China and the West is strong, intense in volume and shows a
whole variety of traits. Strains, economic and political approach and re-approach happened,
misunderstandings and successful cooperation took place in past four decades. During this time
all sides learned from one another and gradually change to what we call today, modern
international business culture.
But what are the cultural codes that controlled and still control Chinese business moves, in macro
and micro milieu? Did they change and how much? The start of the cooperation wasn’t easy
because of the language barrier which still exists. (Boye, 2013 – preface, chapter 9)
“In the past so few Westerners learned Chinese (mostly except for some missionaries) that there
was very little communication between ordinary Chinese and Westerners – and the bulk of that
was with the Chinese who had learned English or some other foreign language. As a result very
few Westerners were ever able to fully understanding Chinese Culture.”
30
So the language studies and vicinity to ordinary Chinese, together with gradual history in cultural
exchange gave birth to authors and professionals willing to share their knowledge and experience
with general and professional public. Many western authors, as mentioned Boye Lafayette de
Mente (Scot D. Seligman, Edmund Gomez, Charles Hill and Maris Martinsons) and Chinese
authors living in the west (like Chen Ming-Jer,) agree that traditional values (positive and
negative) still play its role in Chinese society and dictate the rules of conduct and behavior.
Western partners soon became familiar with terms that define Chinese business culture and
cooperation with others as mentioned in Boye Lafayette de Mentes’ books from 2008 „Know the
Rules that Make the Difference“ and (2013) „The Chinese Way in Business: Secrets of
Successful Business Dealings in China“.
These cultural codes remain even today (Su, 2001):
a) Guanxi (the relationship network, social connections)
It is a need of every Chinese to build, maintain and grow social network with others which is
based on interdepence, favor making and favor seeking and reciprocity according to status of
participant (Luo, 2007). The good side of it is indeed closer relationship among business
partners, closeness, readiness to help and richer and more emotional cooperation in every way.
The bad side of this type of networking is certainly misuse and hard distinction between gift
giving as a mean of showing respect and good will to establish connection and giving material
goods, favours and services as a characteristic of bribery and corruption. It also means that less
respect is given to knowledgeable and skillful individuals without guanxi compared to their less
talented colleagues with “stronger guanxi”.
Implications and application in practice: Chinese business culture is still based on social
networks guanxi type. It is strongly recommended for western businessmen to acknowledge this
as an instrument which will make their cooperation with the Chinese more effective. Westerners
are foreigners to many Chinese and the only way to enter this society is by following the rules
and establishing connections with intermediaries and business partners and bureaucrats which
are vital to business aims. It is also recommended to respect the thin line between generousity
and cordiality and, on the other side, bribery and corruption.
b) Hou Men (The Back Door)
The western business practices strongly differ from the Chinese. It is an authoritarian and
hierarchical society even in modern days. Socialist (post-communist) state is packed with many
levels of decision making where certain jurisdictions and competencies are delegated to
bureaucrates in power. Legal system is far from that we have in Europe and in the West. All
important decisions are, in one way or the other, made at the back door with blessings from the
relevant people in power. This situation is about to change because modern China is striving
towards better transparency and better implementation of laws and regulations. Until then, this
fact should be considered as a must.
31
Implications and application in practice: This is especially important to Western businessmen
who attempt to establish business operations in mainland China. Making connections with the
right people is strongly advised and finding Chinese intermediaries is the best way to speed up
planned activities in China. This is also important while doing business with Chinese partners
abroad, there is always someone back at home who needs to accept and bless proposed offers.
Failing to show respect to everyone in the process, which westerners tend to do is considered as
rude by the Chinese and it may slow down negotiations or even relocate business elsewhere even
though all the facts are in Chinese favor. Official chanells of communication are one thing
(dominant in the West), unofficial are another and more important in Chinese business culture
(private meetings with Chinese businessmen and more overt communication compared to the
official).
c) Bao (Social Reciprocity)
Social justice is far from legal implementation in China. Serious steps are taken to reform the
legal system but until then justice and reciprocity in business is maintained by the feeling of
righteousness and barter. Chinese still have high moral and ethic codes and tend to keep a “good
face” as a vital part of their social status. New generations of Chinese are different and adopt
western like respect of the laws and justice but Chinese political leaders and business managers,
because of the respect of seniority, mostly belong to older generations who don’t put good name
as a contractual clause.
Implications and application in practice: Always consider having an exit strategy when it comes
to legal issue with Chinese partner. Bargaining and settlement is better way to achieve
reciprocity than insisting on interntional commerce regulations and national laws.
d) Bi (Unity)
Chinese show high level of national pride, social harmony and unity and dedication to national
interests. They are collectivist nation like other Asian nations and use their numbers to achieve
progress gradually instead of quick breakthrough which are more common to USA or EU
nations. This unity is also maintained by government control of media and restrictions of civil
rights.
Implications and application in practice: Businessmen should have in mind that their Chinese
colleagues (whether they truly mean it or not) must express loyalty to their government and show
respect. Western businessmen should do the same and show respect for their governments
because not doing so will arouse suspicion and distrust.
e) Budan Xin (Chinese Style Sincerety)
This is a cross-cultural trait that might cause many misunderstandings and problems. Chinese
understanding of sincerity is expressed more informal and indirectly while western managers
always speak up their mind openly and discuss every detail which both sides must agree on.
32
Implications and application in practice: Be prepared to show high level of flexibility while
negotiating with the Chinese and always keep in mind what is spoken and what remained
unspoken but indirectly agreed on.
f) Buhe Luoji De (Fuzzy Logic)
Cultural differences are present inside China as much as outside its borders (Nowak and Dong
1997 p.116 9 120 and p122, Boye 2008 p.62-84, Goodman 2009 p.21). Sometimes Chinese are
using traditional, sometimes socialist and even modern western type of logic (the way it suits
them best). General thinking pattern of a Chinese is holistic while in the West is more linear
which may creat confusion and misunderstanding due to different interpretation.
Implications and application in practice: While negotiating with Chinese, western managers
must adapt to circular way of thinking (to do list wont help in this case). This means that Chinese
are more holistic and less specific so one should first reach general agreement and then slowly
and gradually negotiate on each separate terms and conditions, just as Chinese do.
“In western business, contracts are final and binding, with little to no room for renegotiation
and adjustment once the contract is signed. In China however, a contract is often only the
beginning of serious negotiations, and Chinese partners almost always expect to change contract
terms after the fact.” Goodman, Sam ; Ree, Michelle, 2009 excerpt
g) Cheng (Personal Loyalty)
Chinese people learned to rely on one another much more than people in the West. Civil rights
are secured and enforced by the states and highly developed democratic societies. China is still
far from that and offer less protection to its citizens who rely more on their family and friends.
Westerners show more alienation from each other.
Implications and application in practice: Making a Chinese friend is a lot harder and it takes
much more time than in the west. But these friendships are life-long and Chinese friend will
show bigger moral obligation to maintain friendship and offer help and assistance. Having
business with Chinese without making friends at the same time may be a serious drawback in
sino-western cooperation.
h) Falu (Virtue against Law) and Hanyu (Language)
Written law still fails to be implemented and enforced in China and deciding what is legal and
what is not is sometimes subjective. Institutional reforms present in the last five years show
improvement but legal issues are still a risk in Chinese market (just have in mind how copyright
issues and plagiarism show low regulation in China).
Implications and application in practice: Chinese themselves, in the spirit of cooperation and
friendship, could offer advice in this matter of law interpretation in mainland China.
33
i) Gongwei (Flattery)
Chinese way of flattery has deep roots in their culture. In the west it is considered inappropriate
but Chinese consider it as an art of showing respect and growing personal relationship by giving
face and honours.
Implications and application in practice: Too much flattery may backfire when used to modern
and educated Chinese managers. They may take it as an insult or manipulation so professional
respect is strongly advised and more tactfulness must be given than is the case when cooperating
with western business partners.
Only after full understanding of the basics of business culture can one continue to upgrade the
knowledge and cooperation to a higher level. Sino-Western business cooperation is a constant
process of learning and adaptation where best advices come from real life experiences. The
bigger the importance of a partner, the higher is the willingness to change and adapt by the other
side. In order to enter the global economic race, China changed and adapted a lot but the learning
process goes bothways so we witness how Chinese business culture affects on international
business and business cultures of other participants. However, some differences still remain and
continue their impact.
3.1 Differences in business cultures and impacts
The obvious differences between Chinese and Western business cultures made an imprint on the
beginning of their cooperation. It wasn’t an easy start. High expectations from both nations soon
reduced to a more reasonable level. The culture, protocol and manners in China differed a lot and
it took a long while (and many business errors) to make some progress in cooperation and set up
first joint ventures and projects. Different culture dictates different values, attitudes and behavior
which could create missunderstangings and conflict without deeper consideration and
understanding. Above all China is a high context and low individualism culture which creates the
basic differences and make impact on other cultures (which are, in this case, those of low context
but high individualist). High context culture (China, Japan…) is a culture where communication
is done more implicitly and internal while low context (USA, Germany, Sweden) communication
tends to be verbal, explicit and direct (Hofstede, 2001). Differences in language, group vs.
individual focus, communication, attitude, social settings and legal system dictate cooperation in
much culturally closer nations than western compared to Chinese. Recognizing differences is the
first step towards understanding them and their impact and how it could be changed.
These intercultural differences are especially important in business matters where special
attention is given to promote better understanding, decrease difficulties and ensure success. The
bigger the difference the more attention must be given. Nowak and Dong wrote, (1997. p. 116):
”Major differences between the Chinese and the Americans include language, geography,
history, religion and political and economic systems. All of these lead to cultural differences.
Cultural differences may be interesting to tourists and to students of culture; but to business
people, they are impediments. Differences need to be recognized before they can be understood.
34
Only when we begin to understand the differences can we change our ways, adjust our business
practices to accommodate the differences, and finally communicate to our counterparts in a
mutually understandable manner.”
According to Hofstede’s research of cultural dimensions, there is a striking difference between
eastern and western cultures which thus creates the environment for the following business
cultures. Equality and individualism is highly appreciated heritage of western democratic
societies while in Chinese culture, inequality is acceptable in the collective spirit of this
hierarchical society (Hofstede, 2002). Even though Hofstedes’ researches had usefull findings,
some disagree with this generalistic approach and point to Chinese regional diversity thus
avoiding generalities and prejudices (e.g. Fang, 2003). Chinese culture, like many other in the
worder has a trait of masculine culture and women come to second place when it comes to power
distribution and ownership rights. Concerning ambiguity, Chinese society is not as focused as
western or even Japanese nation. They are prone to gradual change, slow adaptability and
flexibility. Chinese culture shows high level of pragmatism and willingness to adapt its tradition
and values to changed conditions in the market. In the west, some values remain untouched even
though it seems more symbolic than pragmatic. This pragmatism is what makes the transition of
Chinese business culture faster and more compatible to its international goals.
The following figures illustrate similarities between Chinese and Japanese cultures and
comparation and obvious differences between Chinese and two western representatives (USA
and Germany as the biggest and most influential country in EU).
Figure 7: Hofstede’s model – China / Japan
Source: http://geert-hofstede.com/china.html (2014)
35
Figure 8: Hofstede’s model – China / USA / Germany
Source: http://geert-hofstede.com/china.html (2014)
These cultural differences reflect on organizing and leading business meetings, gift giving and
entertainment, relationship building, negotiating style, business communication and
correspondence, corporate ethics, decision making and so on. Managing to understand and soften
differencies will open the door of cooperation with the Chinese both at state and corporate level.
Many international companies have shown progress in practice such as: Coca Cola, Cisco, Ikea,
IBM, Starbucks, McDonalds, L’Oreal, Garnier, Resco, BCG, McKinsey and Co. This is evident
in their balance sheets and the revenue growth in Chinese market and its proportion in total
revenues (which could be seen in their financial statements during the last decade).
a) Business meetings
Chinese were better prepared for business meetings compared to their business partners from the
west. That’s because it is deeply rooted in their culture to investigate a background of a partner
before entering negotiations in the first place. Reccomendation and credential confirmation of a
respectable intermediary is necessary. Before the meeting starts, Chinese would always expect
full detail in order to prevent any unpleasant surprises. Business meetings may spread over long
period of time because it will take time to reach agreement and final decision from the Chinese
perspectice. Having a native Chinese in your team is a big plus because it will break the language
barrier and read the context of the meeting much better then any Western manager or
professional as much as he or she is fluent in Chinese and has experience in dealing with the
Chinese.
36
Impact in practice: These differences made an impact in the starting negotiations, mostly
negative ones. Coming unprepared to a meeting with the Chinese business partners may have
some serious implications and make them back out of the negotiation. This will be taken as a
sign of disrespect especially if high rank managers are involved but it also counts for
negotiations with smaller Chinese (trade or manufacturing) companies. Western businessmen
tend to set time limits to reach decisions which should be avoided and it will only do harm to a
business deal and damage the whole negotiation. However, being punctual in the start is a must.
It is also very important to show sincere respect for Chinese culture, art, language, cuisine and
cultural protocols that Chinese are famous of.
b) Gift giving
This is something which is part of Chinese culture and business culture in the whole. In Western
societies gift giving is reserved for close friends and relatives and, when doing business,
anything but a business lunch will be taken as unserious and unprofessional, even as attempt to
bribe or manipulate. It may incline some different type of affection or intentions apart of
business ones. The Chinese business culture, however, has a long history of gift giving and it
made a gift giving a fine art in their business relations. It is a sign of good will, respect and
appretiation even though it may also be a sign of favor seeking and invitation to reciprocally
repay in future.
Impact in practice: Failing to understand and respect the gift giving protocol in Chinese
business culture may result in the loss of face by Chinese partner which will most certainly finish
off business cooperation. In practice, many companies and their managers had success in
developing relationship full of friendliness and trust and that also means that the choice of gifts
for their Chinese partners/friends was appropriate. Symbolic gifts with country and corporate
insignia are appreciated, books, foreign wines and spirits and luxurious cigars are also common
gifts for Chinese managers. These goods weren’t available to the Chinese until recently so, we
may say, that the Chinese upper and growing middle class is “hungry” of these products. Its
value is not that high, to be taken as corruption and embarrass and put in trouble western and
Chinese partners. Modern business negotiation is full of these situations. It is widely
acknowledged that Chinese art of gift giving also made changes in other business cultures which
adopted it to some level.
c) Guanxi (personal connections)
A lot has been said about Guanxi practice. Even though it’s changing, it still remains in the
bloodstream of Chinese business society. This type of networking has entered the societies in the
west and the rest of the world, especially where Chinese presence is strong economically and
where Chinese diaspora resides (EU, USA, Australia, across Asia and Pacific region and
elsewhere). These connections are the glue in the society of People’s Republic of China. Chinese
spend their whole life growing and maintaining the network of connections (family, friends,
relatives, neighbours, classmates, business partners, lawyers, doctors, local state officials, and
police). Guanxi is the Chinese way to cultivate friendship and put it in active use through giving
and receiving.
37
Impact in practice: Understanding the principles of Guanxi, in its pure and modern-modificated
forms will help business partners understand what their Chinese business partners want and
expect. Once again, having a key Chinese person to help is important. Entering Chinese network
of trust is very hard for a stranger, even today in the era of global cooperation and opened
markets with flow of people, knowledge, goods and services (resources). Many corporations
learned the hard way that people are the key in Sino-Western negotiations because of the weak
legal system back at PRC. Legal reformers in China are still long way of reduction of GUANXI
in China. One should have in mind that Chinese mostly think that the rest of the world have their
kind of Guanxi and have expectations from their western business partners which are very hard
to follow. Westerners respond differently when asked for favors while Chinese are much more
eager to comply. One should have in mind that failing to comply for Chinese request for favor
will result in loss of guanxi. Experienced negotiators from Google, Apple and Yahoo learned the
hard way the principles of Guanxi (relationship or connections building) and Mianzi (face-
keeping). These principles are still part of Chinese business culture.
d) Face giving (the concept of Mianzi)
“Face or mianzi, is arguably one of the three key motivators that govern behavior in the PRC
these days, the others being money and power.” (Seligman Scott D., 1999 p. 198)
Concept of mianzi is one of the traditional values that are slowly changing in modern China.
PRC still remains one of the least westernized Asian countries. It resulted as a need to maintain
pride at a national and personal level. China is, at one hand, nation of rich history and
accomplishments and, on the other, less developed and poor (until just recently) and far from
progressive western societies of better living standards and sophisticated technology. The fact
that millennium old China is learning from these young nations leaves marks on Chinese psyche.
Chinese are very generous and hospitable and suspicious when it comes to dealing with
strangers. Chinese people, in general, pay more attention to social status than, for instance,
Americance or Europeans. They have to need to express their progress and keep up with others.
(Seligman, 1999 p. 197-211)
Impact in practice: Personal feeling of losing face (honor, respect or good name) will more
probably result in ceasing business cooperation by Chinese who feel insulted and mistreated in
any way. It is stated before that Chinese business culture is flexible and pragmatic as a code but
when it comes to real-life situations with real people, situation may differ. Western managers are
more willing to forgive and forget insults if that’s good for the business, they just don’t take it
too personally. This is the characteristic of capitalist societies and it will take time to build up
this resilence concerning the issues of honor and face-keeping. Modern Chinese managers,
mostly those educated in the West, are able to follow modern business behavior trends unlike
their senior, tradiotional managers and politicians.
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e) Chinese style in business negotiations
Negotiation is a vital part of business cooperation. John Graham, Mark Lam, Lucian Pye and
many other authors covered this topic (Pye, 1982, p 81-98 and Graham & Lam, 2003 p 84-91).
Personal testimonials of corporate managers also give an insight when it comes to do
negotiations with the Chinese and what are the difference between Chinese and Western
practices.
Chinese commercial negotiating style includes discussing general issue. Americans and
Europeans are focused on details, one by one, until they reach agreement. Chinese consider this
as preliminary agreement and fully agree only if general conditions are met. Another
characteristic of Chinese negotiator is patience and time flexibility while Americans heavily rely
on tight schedules and dead-lines which may be the cause of frustration and conflict. These
cultural differences were the main source of difficulties in SINO-WESTERN business
negotiations either with state officials or small, medium or large corporate-executives from
China. Other sources of difficulties include lack of experience and short time-span of SINO-
WESTERN relations, political differences between socialist and capitalist economies and
differences between Chinese and international business procedures and practices.
The biggest impact on business cultures is made by cultural factors. These define Chinese as
ethical society of unwritten values and Western societies, as predominatly legalistic. The key to
understanding and improving business negotiations lies in changing the attitude of both sides and
making adjustments according to the logic and economic sense (which is the purpose of business
negotiations and divides it from political one).
Chinese approach to negotiations slowly and formally and use intermediaries. They have limited
authority to share information and mostly do it indirectly. Means of persuasion by the Chinese
are detailed questioning, patience and endurance (Chiku Nailao) until full agreement is reached.
They intend to form long-term alliances and closer relationships. That’s the Chinese style in
business negotiations. It is important to emphasize that Chinese are putting a lot of effort to catch
up with western nations. This also means changing business culture to some extent by active
learning from commercial activities, business institutes, foreign-educated Chinese managers and
Chinese corporations becoming global.
Western negotiators organize quick and informal meetings, send business offers and proposals
directly and show more impatience if reaching agreement takes too long. Instead of making long-
term deals and commitments, they insist on short-term, quick-deals.
Impact in practice: During many and long negotiations with the Chinese, their western partners
managed to change the approach and attitude toward Chinese officials and managers. The impact
was on showing more patience and endurance, restraining from making ambitious offers and
overestimating Chinese exaggerated future prospects. No matter the effort, western managers
must agree that Chinese culture which is a dominant trait in Chinese business culture still
remains under-researched area. Western corporations have acknowledged that these differences
in styles are a matter of inheritance which can be changed in order to reach the full negotiationg
potential.
39
There are some international principles of negotiation, an unwritten rule by which all the
negotiating parties must comply. This was a fine start to begin from but only experience and
frequency of negotiations shaped new stances and improved business relation which is seen in
economical and statistical reports.
Previous experience has shown that Chinese have some basic requirements when it comes to
negotiations: sufficient time to prepare and explore, sufficient time for bureaucratic procedures
necessary in PRC condition, inclusion of Chinese officials among economic representatives and
full respect of all participants and decision makers according to their rank, no time limits for
decision making, detailed overview of agreement once reached, avoiding ambitious offers which
result in disappointment after unfulfilling demands and long-term deals instead of quick deals.
f) Business communication
Analysis of western and Chinese business texts clearly show that both have the same purpose of
communication. Chinese are more circular and Westerners are more linear in it. But purpose and
the goals of communication are the same with one extra purpose in the Chinese style, which is
establishing longterm relationship and deeper cooperation in the future rather than one-shoot deal
with special offers and detailed characteristics which is implicated by western style in the
business correspondence. Both tend to create positive image, attract attention, praise products or
services, persuade and solicit response according to AIDA model which analysis clearly show.
Cultural differences and different business approaches must be dealt with care in order to
perform successful intercultural exchange and understand foreign partners.
The core of indirect approach to Chinese business coomunication is Confucianism (Zhu, 2000).
It promotes heartedness, righteousness and code of conduct. Chinese transfer role giving and role
play in their business correspondence in order to establish harmonious and stabile cooperation,
present modesty and pay homage to their partners. Chinese business corrpespondence is less
informative and more modest compared to western like offers with specific details and listed
claims. This doesn’t mean that there is a lack of professionalism in Chinese business
correspondence. It just means that they don’t put everything in written, technically organized and
listed. In western business correspondence individualism is present while in Chinese, self-
actualization comes after collective image that correspondence represents.
The core of Western business correspondence is specific offer with benefits, profit opportunity,
discounts, margins and favorable conditions and terms i.e. tangible gains. Chinese business
correspondents emphasize their wish for establishing longterm cooperation in common interest
based on mutual trust and offer intangible gains (respect, cordiality, partnership, friendship,
reliability, trust, assistance and fidelity). Both business cultures are profit seeking but Chinese
doesn’t express that directly (Nolan 2004, Shenkar 2005, Plafker and Gitman 2008). By this
indirect approach to communication, Chinese tend to keep integrity and credibility which can be
easily lost if they state offer directly and later fail to fullfil it (as Westerners occasionally do).
Another characteristic of Chinese business correspondence is personal approach and dedication
to establish personal relationship and only later mention the business issue. Western business
correspondence is strictly professional and only business partners who cooperate for many years
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sometimes add personal note to business correspondence. Chinese businessmen first want to
leave good personal impression and later introduce their business. It is a circular mix of business
and personal issues. Chinese belive that, after building stabile personal relationships, they can
more easily solve business problems and misunderstandings than with someone they don’t
consider close partner. So, indirect and circular style has an aim to build up a harmonious
business relationship on the long run instead of short-term business deals.
Impact in practice: Internationalisation of Chinese business culture draw interest on their
business correspondence and Confucian like marketing. It is strongly recommended to maintain
logical segments in business correspondence but also add personal note and emotions. Chinese
marketing activities are still developing. Thanks to cross cultural exchange, they change but also
change international marketing (at large Expos or Fairs and through other channels of
commercial communication). Chinese managed to add ethics and desired virtues to business
correspondence: modesty, politeness, respect and mutual dependence. So it is a mix of traditional
Confucian ethincs with modern advertizing strategy. When addressing to Chinese, verbally or in
written, western partners should embrace circular, ambiguous or, should we say, indirect style of
communication (Chen 2001, Schmidt 2007). Short, professional business offers with stated
benefits and required time to answer to offer just wont work with Chinese business partners.
Even the simplest invitation must be written or spoken with care and politeness.
Based on many observations of Chinese business correspondence a guideline is proposed in
order to explain the purpose of what Chinese offer and what do they expect from business
correspondence:
1 – Show respect.
2 - Build relationship.
3 – Attract attention and interest.
4 - Persuade partner to make desired action.
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3.2 Changes in Chinese business culture 1977-2014
Figure 9: Modern China
Source: http://blog.cytalk.com/ (2014)
Changes in Chinese culture and so in business culture are the result of changes in Chinese
society over the span of four decades. Ambitions targets for growth have been set in order to
follow strategy of international expansion. China experienced urbanization, migration of people,
large investments in infrastructure and economic growth which decreased poverty and improved
working conditions. However, it is facing many problems such as regional inequality, ageing
population, pollution (which kills millions of people every year and draws global concern),
corruption and deficiency in many resources (Chinese industry is the biggest coal consumer and
polluter in the world). Anti-corruption laws are targeting multinational companies instead of
domestic and state protectionism for state-owned companies is still present. Dumping as a
method of protectionism is what worries foreign investors and international corporations the
most.
Chinese middle class grew stronger and so did the numbers of urban population. According to
China Regional Forecasting Service EIU, 2013, 1 billion of Chinese are living in the cities and
by 2030 over 220 cities in China will have more than 1 million inhabitants (whole EU has just 35
such cities) and 23 of those cities will have more than 5 million inhabitants. So, Chinese society
is more urban, richer and more educated. Chinese middle class can buy goods enough to stop the
world’s recession according to some analysists. Demand for luxurious goods is on the rise (20%
of the demand of luxurious goods in the whole world and still growing). In this environment,
Chinese business culture is shaped and reshaped.
Since the age of first economic reforms in China until today, cultural norms have changed
significantly. These changes in Chinese business culture are important for those businessmen
who cooperate with Chinese business partners and need higher level of cultural competence.
Before entering Chinese market, foreign professionals must have some knowledge of language,
42
history, politic, economy, environmental and social issues and how they changed during the last
decades.
These changes brought Chinese business culture closer to international business, especially
concerning the effects of institutional reforms, market liberalization and cross-cultural exchange.
Law and business regulation made a huge step forward together with personal freedoms and civil
liberties. The rule of law was instituted in the 1990s but it still shows flaws and risk indication to
business. We might say that Chinese society has undergone some kind of a socialist revolution in
a gradual and silent manner.
Besides these big changes, very small changes were made in communication (verbal and non-
verbal) and there are still many misunderstandings and frustration present in current international
cooperation. Guanxi concept and mianzi (lian) concept lost some of its importance, especially to
younger generations. However, the concept of face is still more important in modern Asian
countries than in the west. Chinese guanxi, business protocols, etiquette and manners changed
the least because they have many positive features and stand as a Chinese brand or trade mark
(Verstappen, 2008. p. 45-67, and Seligman, 1991. p. 180-196.). Some of it are even accepted and
used in other business cultures (the art of gift giving, business entertainment etc).
The collective spirit is maintained in the People’s Republic of China and the recent economic
progress even boosted the sense of national pride and feeling of affiliation to the Chinese cause.
Rank and hierarchy still dominate the Chinese business structures but the power of politicians is
slowly decreasing over the past years. It is still advisable to show respect to elderly and people of
high rank, to avoid showing anger, frustration and enter confrontation, to refuse offer directly
and criticize.
Another new trait of Chinese business culture is the generation gap between the managers.
Seniority is still respected in Chinese society but younger urban generations show more
individualism and higher ambitions. Younger generations have been exposed to the western
culture and accepted traits such as personal determination, direct search and pursuit of happiness
and pragmatism instead of tradition and guanxi principles. In few words, young Chinese
professionals and businessmen are more willing to take their destiny in their own hands.
Younger professionals have better options for education and there is an increasing number of
skilled work-force which is changing the face of Chinese business culture rapidly. Peter
Waumans, employed in Wealth Pattern Hong Kong Ltd, observed that the future impact of the
rapidly growing number of leaders trained in law and politics in the PRC deserves great attention
(Doba Faculty - Webinar, 2014). Chinese students have better access to foreign Universities and
colleges (mostly in USA, UK and Germany). They bring some of that culture back home,
especially students of economy and social sciences but also, more educated people mean more
protests and even social unrests as a reaction to social injustice in the PRC. Younger generations
of Chinese show lower humility and humbleness than generations before. Young Chinese experts
and societies reached the top tier of science in the world.
43
Figure 10: Projected growth in citations in scientific literature
Source: https://royalsociety.org (2013)
History still plays a role in Chinese way of cooperating with the rest of the world. They still
remember periods of western colonialism and Japanese militarist interventions in China. Over
the long course of history they have been victims and this is the first time they have the chance to
take the place which they think rightfully belongs to them. As Chinese power and influence
grow, the less they are willing to make concessions (Royal Society, 2013).
Symbols still shape Chinese business culture and this old habit persists even today. Numerology
is very important to Chinese and number eight remains the desired number, symbol of success
and prosperity while numbers like four and fourteen ar those to avoid. Same goes for colours and
some items, dates and places. It is still more superstitious than any other country in the west
(Royal Society, 2013).
What remained same in Chinese business culture during the last four decades was their subtle
way of expressiong opinions and decisions. Showing interest and ground basis of knowing
Chinese culture will open the door for international partner but only the full understanding of
Chinese culture and business culture will win the Chinese heart and soul and achieve deep
appreciation and acceptance. The changes in Chinese business culture are defined by generation
gap and dictated by new generation and new features which are slowly replacing the old ones
(Royal Society, 2013).
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3.3 Effects on international business until 2014 and proposed actions in the
future
The economic growth of China had the big effect on international business. Chinese market
finally opened to international trade. Some 100-500 millions of new consumers (middle-class
buyers) made an impact on international demand pull as well. Plafker (2007) defined 8 business
sectors of growth: automotive, medical, chemicals, construction and infrastructure, energy,
finance, IT, media & entertainment. Every single of those sectors made an impact on global scale
because of the rise of new competitors (manufacturers, buyers and consumers) which can
counteract with western corporations. It was the end of Western dominance in international
trade. Several country risk are the only thing that slows China to reach its full potential and that
is risky financial sector (poor protection of creditors and loan regulations), poor insurance
coverage, corruption, poor intellectual property law and booming piracy and inefficient,
socialist-like bureaucracy (slow and huge).
Chinese economy had a steady growth which attracted foreign investors in the 1990s. FDI
promoted Chinese economic development and further economic reforms. According to Chinese
Bureau of Statistics (National Bureau of Statistics in China, 2013) over 200,000 international
companies operate in the PRC and employ millions of Chinese workers. Chinese government has
formed market economy system which attracted many TNCs and foreign skilled professionals to
move to China and bring vitality to its economic system. Technological innovation of Chinese
industries has resulted in more quality and respect on the international market. Chinese economy
merged into the world economy as a vital partner with growing import and export trade with all
other participants (developed and developing economies).
Figure 11: Total exports consumed by China
Source: http://www.bloomberg.com (2014)
More and more Chinese executives are sent abroad to lead projects and follow international
business standards. Chinese projects are ongoing across Asia, in the Middle East, in South
45
America and Africa. Soon, Chinese CEOs will lead bigger business operation in EU and North
America. John S. Bryan (1997), explains that modern PRC doesnt produce cheap toys and faulty
consumer products anymore. It became regional military power and international economic
force. The global crisis which took place in 2008 had very limited effect on Chinese economy
while Chinese economy had its role in global revitalisation and stabilization. Unlike western
governments, Chinese government always had quick solutions for economic crisis which worked
so far (injecting new capital into domestic economy). Chinese products have reached the quality
of their competitors on the market while maintaining significantly lower prices which makes
considerable savings for international consumers. The SOEs are leading the economic expansion
outside China with full support of Chinese government (National Bureau of Statistics in China,
2013).
Market socialism is a brand which China represents in the global sphere. Ernest Mandel and
(Chinese born American) Yiching Wu are one of the critics of Chinese capitalist restoration
(Bryan, 2010). Many others disagree and point out that China had made a lot of progress in the
field of market reforms, democratic restructuring of its society and reducing poverty (Pomfret
2006, Pan 2008, Bryan 2010).
Key effects on international business may be grouped in these fields: international financial
system, economic self governing and Asian integration with further regional economic and
politican expansion.
Chinese government has an open strategy of establishing high level of monetary influence (RMB
as backup currency of global financial system). During the last two decades Chinese economy
was growing app. 9% a year. It is the second largest economy in the world. The government of
PRC managed to do so even though it didn’t strictly follow the international consensus
(Washington Consensus) and it kept the vital role of government in shaping and making its
economic policy. In the west, the governmental role is much weaker. The reason is because
China wanted to keep its economic self-governing (independecy) and continue regulatory
approach to the state economy. The accent was given to state-regulation and strategy of cheaper
and more efficient production of goods for export in order to put the pressure on other develop
economies (also by depreciation of its national currency as a mean of export increase). The
impact was significant, especially for the surrounding Asian states plus Russia, Brazil and
Australia which became strong partners. But the economic power didn’t ensure the simultaneous
rise of political power of the PRC. The political power was in the hand of G7 (or G8 some argue)
until the year of global crisis, the end of 2008. The role of global authority was then more
equally shared to other countries of G20 which also include Brazil, India, Korea, Indonesia and
dominantly the People’s Republic of China (The World Bank, 2013).
The Chinese effect on international business was even greater once it rose to the major lender i.e.
creditor status (thanks to its national propensity to save) compared to Western debitors (majorly
USA because of its propensity to over-consume and spend). At the same time, China managed to
increase its financial reserves (thanks to undervalued RMB) and the only thing that stops China
from further currency manipulation are the treaties with IMF and WTO.
46
The other phenomenon which had effect on international business and politics was Asian
integration. Thanks to China, Asian nations are highly connected in the terms of trade and
production. Other Asian nations make the biggest inputs for the growing Chinese economy but
also receive the largest portion of import activities (over 40% of Chinese exports are to Asia).
This makes them all stronger and interconnected altogether (China, Japan, Korea, Taiwan,
Indonesia, Malaysia, Thailand and many other nations made economic trade agreements and
multilateral economic commitments). It also made them less vulnerable to global crisis which
source lies in the west. The only thing that remains as risk is the weakness of legal institutions
and other legal limitations in most of the Asian countries (expect South Korea, Japan and
Taiwan).
The advised future actions:
China was on a steady course of economic growth and increase of reputation and power. The
economic slow-down was a necessity after decades of higher than average growth which
happened to other Asian economic power-houses as well. This was the result of Chinese
openness and dedication to cooperation and negotiations. The modern China felt the growth of
its power and slowly shows desire to demonstrate it. This is potential risk from which Chinese
government must restrain in the future (remember the territorial and fishing rights disputes with
Taiwan, Vietnam, Philippines, Japan and North Korea). This kind of militaristic demonstration
and confrontation is unnecessary and it may damage the improving reputation of China. China
follows the bad example which USA made in the past and looks more like regional police officer
than business partner and friendly nation to all the other nations in the world. The national
strategy must return from politician rhetoric to economic negotiations which are more subtle and
more usefull in the long-run. It means that they key lies in Chinese business culture which made
a long leap forward and made China modern and successful nation of today. Besides already
mentioned, instead of general support of SOEs, Chinese government should do a lot more to
support and encourage private owned companies which are trying to expand to the international
markets. This is the strength of PRC which should be used, a vast number of smaller and flexible
SME & Es ready to penetrate the international market and continuo Chinese economic
expansion.
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3.4 Successful business cooperation case in practice and advice for future
Figure 12: IKEA logo
Source: www.ikea.com
Swedish company IKEA, famous furniture retailer is an example of successful business
cooperation between Chinese partners and their partner from the West. As the matter of fact, the
company growth nowdays strongly depends on the sales growth in the PRC. Sales rise is over
3% each year. This is the result of carefully planned market entry concerning Chinese cultural,
economic, social and political environment. Business practices and business culture of this
Swedish company were adjusted to the needs and expectation of their Chinese suppliers,
consumers, domestic work-force, domestic business partners and government officials which
were included in negotiations and business start up (Ikea, official website 2014).
First of all, management of IKEA did a market research and investigated opportunities and
threats in Chinese market. Economic trends and changes in consumer demand pull were
promising but it still took a lot of effort to create special products and business practice of
handling Chinese partners which differ a lot from partners in IKEA affiliations and branches in
the rest of the Europe, North America, Middle East, Russia and Australia (China Business
Review, The Magazine 2014).
The secret of successful cooperation was dedication and focus on clients future needs. Chinese
officials were eager to welcome Swedish company who will invest in China (show respect of
environmental issues), build up significant infrastructure (in cooperation with domestic
construction companies) and employ domestic work-force (and offer high standards of working
conditions, professional education, access to knowledge and technology for thousands of
Chinese). Four out of five biggest IKEA stores in the world are located in China (two in
Shanghai, one in Wuxi and Ningbo). This has proven credibility of a company and serious
approach to long-term cooperation (China Business Review, The Magazine 2014).
Moreover, Ikea designed special products for the Chinese buyers following their growing needs
for quality furniture (until recently many Chinese didn’t own their own houses and apartments
but economic progress changed this so many Chinese are in position to become real-estate
owners and furnish it the way they what). Special line of furniture was offered for new Chinese
customers (modern, functional and with more style than domestic furniture). They also offered
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something which other competitors failed to, a chance to help buyer and offer help, guidance and
assistance besides simple sale. Many foreign companies didn’t accept and acknowledge one trait
of Chinese culture which is long-term cooperation instead of quick sales. Post-sale activities
created loyalty among customers and increased interest among prospective, new buyers. The
winning formula included large investments in infrastructure, cooperation with Chinese
government and companies, new jobs for local work-force (training local managers and skilled
professionals), education, knowledge and technology transfer and environmental care together
with focus on customer through affordable and quality product and reliable pre and post-sale
activities. IKEA launched R&D centre in China as well (China Business Review, The Magazine
2014).
This way IKEA has proven its good intentions, respect for Chinese state and people, its culture
and many regional sub-cultures (which others didn’t notice in time, like B&Q, Home Depot and
other furniture retailers). Chinese business partners, buyers and country officials recognized the
effort and high level of professionalism and repaid it in full trust, stabile and prosperous
cooperation and loyalty. This is a good example of how two different business cultures have
found compatibility and common goals through mutual understanding and fair cooperation.
Table 6: Characteristics of successful business operations in China
Issues Keys of success
Product & service
- Post-sale services.
- Localisation, adaptation to domestic
needs and sub-cultures.
- Price range adapted to middle class.
- Various options when placing orders.
- Wide store network and own system of
distribution.
Investment
- Own instead of franchise.
- Building own factories (rural China)
and sales premises (urban China).
- Local production.
- Environmental care.
Staffing - Research, education and marketing
inside China.
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- Domestic work-force.
- Domestic managers.
- Good working conditions and wages.
Domestic competition
- Innovation.
- Western brands and quality.
- Raw material sourcing inside China.
Foreign competition
- Cooperation with local media.
- Brand awareness and prestige.
- Better quality, faster delivery and other
terms.
Legal protection & intellectual property
- Ignore piracy and avoid lawsuits, avoid
confrontation.
- Passive stand.
- Offer cooperation.
Chinese government
- Active inclusion and face giving.
- Support of regional and local state
programs and projects.
- Knowledge and technology access for
support in larger market share.
- Long-term commitment.
Source: own research
Even though many companies tried and failed in business operations in China, others succeded
like: Colgate, Coca-Cola Co., Carrefour, Starbucks, KFC, P&G, Mc Donalds’, BMW and IBM.
The fact that most of them are from the United States doesn’t mean that others are less
successful, many companies from the USA failed, almost twice as much that succeded. It is just
the fact that many European companies didn’t even try to cooperate with the Chinese and
ignoring Chinese market may be serious mistake in the very recent future. The key of success
lies in adaptation in business culture, both to national and multinational companies.
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3.5 Unsuccessful business cooperation case and lessons learned: Google
One of many examples of failed Sino-Western cooperation is the case of Google Company and
the Government of China. Negotiations between successful international company and a growing
market were promising at start and both sides shared similar starting points and desires for final
outcome. But negotiation process became complex, prolonged and unpredictable despite the
efforts. Lack of flexibility from both sides and mutual understanding (of Chinese culture and
political environment and international business practices) led to confrontation. Each side
refused to make necessary concessions concerning censorship dilemma in mainland China.
Google Company insisted in full respect of its corporate ethics and used irrational strategy to
enter the Chinese market. They failed to localize their services and to seek domestic advice and
consent from the Chinese authorities (which are still dominant in economic environment of the
country). It was already hard to penetrate into Chinese market because the SOEs have high
support from the government and better conditions to perform business from their foreign
competition. Chinese government enters negotiations with TNCs rationally, in order to attract
investment, access to knowledge and technologies and new jobs for domestic labor. This is
where Google failed to compromise.
One of the main reasons of limited success and future failure was the inability to perform deeper
market research and take into account all the interests of Chinese government in this venture
(Grogan, Brett 2006 – p 3-15). These should have been the key issues to negotiate (how to enter
the Chinese market, how to apply and enforce policies in accordance with local legislation, the
level of supervision of companies activities and business practices, brand management and HR
and R&D issues). And these should have been compared to Chinese interests and expectations
(attracting FDI, access foreign technology and new skills and knowledge, new jobs, respect of
Chinese legislation, preserving political and social stability and obedience, full control and
supervision by the state, train new professionals, protect Chinese brands in this branche like
Baidu among others).
As Tony Fang (Fang, 2006, p.54) noticed, the central team in business negotiation still remains
the Chinese bureaucracy, central decision making, internal bargaining, control of the state with
gradual opening to foreign exchange and limited reforms. Google made a limited entry to the
market but failing to comply with Chinese legislation led to blocking access, limited accessibility
and deterioration of service quality. Chinese users didn’t support the efforts of Google and
loyalty was very limited and scarce.
The mistakes which Google made was narrow interest of taking the market share in new market
of great potential, acquiring a control stake in domestic competitor Baidu, full respect of its
corporate ethics without adjusting to local rules and regulations, no limitations on censorship
51
(Brett & Grogan 2006, Case study exhibits). They were seeking access to cheaper innovation and
work-force and finally, and most importantly – making profit in a very short period of time. In
practice, it will take at least two years to become profitable in China (Grogan, 2006). Instead of
negotiating and bargaining with the Government, Google made a pressure and confrontation by
displaying messages of imposed censorhip. This way, Google became an enemy of the State and
creatied politically sensitive and tightened situation which reflected in its business activities.
They didn’t make any initial commitments nor showed enough respect.
According to Su and Littlefield (2001) Western partners should always have in mind that they
are moshengren (strangers) and they must deserve trust by making huge initial commitments
(Littlefield & Su, 2001 p 204). In this case, the right address was “Chinese censors” i.e.
government officials. Instead of gradual change and cooperation with domestic companies in this
branch, Google chose short-sighted decisions and aggressive approach.
Google Company wasn’t the only which failed with business negotiaons with the Chinese. Many
other have also failed in understanding Chinese business culture and its environment and
applying knowledge and previous ecperiences such as: Tesco, Best Buy, Home Depot, Yahoo,
eBay and many, many others. Once again, these mostly American “failures” don’t reflect the
unfitness of North American companies in general, they were just greater in numbers of
companies who seek and try to develop Sino-Western coperations which was a hard task in the
past decades.
The main reasons to become an unsuccessful business cooperation case were the following:
- lack of market research ;
- unlocalized products and services ;
- unreadiness to seek and get local advice and consent ;
- unfit management staff ;
- inappropriate management selection for Chinese market ;
- underestimation of local Chinese competition ;
- poor communication with Chinese authorities ;
- negligence of role of the Government in business issues and negotiations
The People’s Republic of China is a nationalist economy where domestic consumers are less
willing to accept foreign brands (if there are high-quality domestic brand) unless they are global
brands and something what middle class decisively wants. They intend to achieve economical
and technological parity with the western countries but not at the cost of its pride. Therefore,
MNCs must show greater knowledge of Chinese culture and psyche and offer respect and
flexibility when enter their market (Fang, 2005).
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4. SINO-EUROPEAN BUSINESS COOPERATION
Figure 13: EU-China BMT Project
Source: http://www.frankfurt-school.de (2014)
As mentioned above, EU managed to take the first place from USA when it comes to trade with
the People’s Republic of China. It became the trade partner with most of potential for further
developing their business cooperation. Joint agreements on cooperation and strategic agenda of
Sino-European cooperation were ratified by European Comission. A lot of progress was made
since 2003, the year of Strategic Partnership, and 2004, when signing of Mutual Administrative
Assistanca and Customs Agreement took place together with Agreement on Trade Facilitation as
stated by commissioners and representatives of Chinese Ministry of International Trade and
Industry. This cooperation between Europeans and Chinese became the beacon of growth in the
times of global economic crisis. First level of cooperation was mostly diplomatic (since 1975)
and later economic and trade cooperation which resulted in strategic partnership,
interdependence and consolidation during the previous years of economic crisis.
European diplomats and their advisors from economic sector spent a lot of time to research
Chinese potentials and propose transfer of technology (especially Germany), the rise of mutual
import-export activities (Britain, France …) and joint strategy (European Union through EU
Comission). As well, Europe is the single most potential source of investments in China and, at
the same time, Chinese companies mostly invest in Europe. Markets between EU and China
remained opened even in times of deep economic crisis and market volatility. This means that
very high commitment was made and dedication to further growth in business cooperation. Even
smaller European countries, such as Slovenia, initiated economic cooperation with China and
signed bilateral agreements which increased import-export activities (Polajžer & Turk, 2013).
European businessmen see China as the most important market for their companies, and the
market of the future. These strong economic ties are the result of cultural ties, gradual
negotiations and trust in the stability of EU market and its currency (Bucknall, 2002). Even in
debt crisis, Europeans managed to maintain the trust of their Chinese partners and even increase
bilateral cooperation. This is because both entities see each other as a partner they need to
continue economic development. EU countries showed more respect to Chinese government and
less interference in their internal affairs and foreign involvements (compared to USA policy).
Good communication and the respect of both institutions with understanding and cooperation
instead of confrontation and competition created positive and stimulating economic environment.
53
Ballancing trade, customs agreements, lower taxation and other trade facilitation are the results
and benefits which propelled economic indicators above other Chinese economic partners. But
there is still a lot of potential to be used because many countries of EU haven’t reached this
satisfactory level of cooperation with the Chinese and many Chinese regions also have a lot of
room for improvement. Sino-European business cooperation can be summarized by three
characteristics: constructive dialogue, consultation and shared interest. The effect of Chinese
business culture on European business culture was mostly positive, and vice versa which is
proven by forming this strategic partnership, current results and those projected in the near
future. In the past decades, PRC was the destination for the bulk of investements which triggered
the economic growth. But in recent years, China became a considerable investor worldwide.
Figure 14: Chinese investments
Source: http://www.heritage.org (2014)
EU-China 2020 Strategic Agenda for Cooperation was forged with specific clauses which
promote economic and cultural exchange and deeper synergy. This agenda clearly shows how
54
two different cultures may become compatible when it comes to shared interests. This
cooperation between EU and the PRC is a good example of active and complex cooperation in
many areas starting from peace and stability in the region and world. Other areas which are part
of this agenda are:
- Prosperity (through trade and investment, industry and information, agriculture, transport
and infrastructure) ;
- Sustainable development (science and technology, innovation, space and aerospace
programs, energy exploration, urbanization, climate change and environmental protection
policies and agreements which still need more space to get enacted) ;
- Global and regional development (with public policies and social progress) ;
- People-to-people exchange (culture and education and facilitation of other people-to-
people exchanges between two cultures).
These agreements are justified in solid examples of cooperation between China and the EU. In
the past, EU was the dominant partner and EU zone companies invested more in PRC but
nowdays, investment flows are almost in balance.
Table 7: Chinese investments in UK, Germany, France, Italy and Spain 2005-13
Year Month Investor
Quantity in
Millions Share Size Partner/Target Sector Subsector Country
2005 July Nanjing Auto $100 MG Transport Autos Britain
2006 November China Development Bank $800 1% Anglo-American Metals Britain
2007 July China Development Bank $3,040 3% Barclays Finance Banking Britain
2008 April SAFE $2,010 1% BP Energy Britain
2009 July CIC $370 1% Diageo Agriculture Britain
2009 August CIC $450 19% Songbird Estates Real estate Property Britain
2009 August Sinochem $880 100% Emerald Energy Energy Britain
2010 February CIC $960 2% Apax Finance Finance Investment Britain
2011 January CNPC $510 50% INEOS Britain Energy Britain
2012 January CIC $920 9% Thames Water Agriculture Britain
2012 May Bright Foods $1,940 60% Weetabix Agriculture Britain
2012 May SAFE $440 Real estate Property Britain
2012 June SAFE $200 10% Veolia Water Agriculture Britain
2012 July Sinopec $1,500 49% Talisman Energy Energy Oil Britain
2012 October CIC $730 10% Ferrovial Transport Aviation Britain
2012 November CIC $400 Deutsche Bank Real estate Property Britain
2012 December SAFE $110 49% One Angel Square Real estate Property Britain
2013 February Geely Auto $150 100% Manganese Bronze Transport Autos Britain
2013 February SAFE $840 40% UPP Group Real estate Property Britain
2013 June Wanda $1,090 Real estate Property Britain
2013 June Wanda $500 92% Sunseeker Transport Shipping Britain
2013 July Ping An $390 Commerz Real Real estate Property Britain
2013 October Huawei $200 Technology Telecom Britain
2007 May LinkGlobal Logistics $130 Parchim Airport Transport Aviation Germany
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2008 September Sany Heavy $140 Real estate Construction Germany
2011 January Jinsheng Industry $130 50% EMAG Other Germany
2011 June Lenovo $670 82% Medion Technology Germany
2011 July CITIC $420 KSM Castings Transport Autos Germany
2011 August SAFE $720 3% Munich Re Finance Germany
2012 January Sany Heavy $480 90% Putzmeister Real estate Construction Germany
2012 April Xuzhou CM $330 52% Schwing Real estate Construction Germany
2012 June Hanergy $510 Q-Cells Energy Alternative Germany
2012 September Shandong Heavy $930 25% Kion Real estate Construction Germany
2012 September Wuhan Iron and Steel $450 ThyssenKrupp Metals Steel Germany
2013 November CSR $400 ZF Friedrichshafen Transport Autos Germany
2013 December AVIC $260 59% KHD Real estate Construction Germany
2006 January ChemChina $480 100% Adisseo Agriculture France
2007 January ChemChina $700 Rhodia Chemicals France
2008 April SAFE $2,800 2% Total Energy France
2011 January CNPC $510 50% INEOS France Energy France
2011 August CIC $3,240 30% GDF Suez Energy France
2012 June CIC $490 7% Eutelsat Technology Telecom France
2012 September Synutra $120 Sodiaal Agriculture France
2013 January China Merchants $530 49% CMA CGM Transport Shipping France
2013 May Fosun $360 46% Club Med Other France
2008 June Zoomlion $250 60% Compagnia IFA Real estate Construction Italy
2010 May Jiangsu Zongyi $200 Energy Alternative Italy
2011 November Huawei $130 Technology Telecom Italy
2012 January Shandong Heavy $460 75% Ferretti Transport Shipping Italy
2012 December Zoomlion $240 40% Compagnia IFA Real estate Construction Italy
2009 September Unicom $1,000 1% Telefonica Technology Telecom Spain
2011 January China Unicom $500 1% Telefonica Technology Telecom Spain
2013 February HNA $310 20% NH Hoteles Real estate Property Spain
2013 July Shanghai Greenland $240 Melia Hotels Real estate Property Spain
Source: http://www.heritage.org (The American Enterprise Institute and The Heritage Foundation)
According to the Heritage Foundation (2014) total Chinese investments in the world during 2013
were near 781.5 billions $ (starting from modest 18 billions $ in 2005 it grew rapidly during the
last decade). The percentage of total investments from the perspective of sector invested in
shows the clear picture of Chinese national strategy. It is based by needs and those needs of
market and industry also shape national policy and business culture of Chinese SOEs and private
owned Chinese SMEs (under control of Chinese government in one way or the other). It is
evident that the bulk of Chinese investments are into energy, metals and transportation sector.
56
Figure 15: Targeted sectors of Chinese investments
Source: http://www.heritage.org (2014)
With deeper analysis of Chinese cooperation in the international business sphere, it is clear that
China is interested in the financial sector of USA as its major creditor. PRC needs raw materials
and agricultural sourcing from developing countries (except Australia which is exporting ore and
metals to China but its sorted in highly developed countries) and shows high interest in energy
and real estate sector in Europe. It is also involved in many infrastructural projects worldwide.
Analysis of Chinese characteristics as a country reveals these needs and causes:
1) The population growth increased demand in food and beverages.
2) Aging population and pollution increased demand for medicine and pharmacies.
3) Lack of energy for Chinese industry causes need for renewable energy sources (hydro,
solar, wind and biomass).
4) Environmental degradation as a result of growing industry based on coal reveals need for
environmental safe fixtures and fitting i.e. infrastructure.
5) The growing middle class increased demand for luxury goods and famous brands.
6) Growing numbers of educated and still in education population increased demand for
media and education services.
Based on these needs, potentials (political and economic), regional proximity and mutual
interests in economic sectors, China and its international partners (USA, EU and others from
SAS, EAP, ECA and the rest of economic regions) must create the basis of future cooperation.
Mutual satisfaction of needs is prerogative.
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The culmination of Sino-European Cooperayion may live through the new research funding
program published by EU Commission called Horizon 2020. It focuses on R&D opportunities
and proposals worth more than 15 billion EUR. International participation of Chinese scientists,
institutions and companies will be significant in these projects (IT, food, biotechnology, energy,
water, Space programs etc). Chinese and EU teams of economists, lawyers, doctors, engineers
and scientists are expected to achieve significant results.
The changes in Chinese business culture through understanding and continuous adaptation hade
a huge and positive impact on International business. Only through mutual deeper understanding
and compromise can representatives of different business culture achieve successful cooperation
based on mutual benefits. Besides obvious changes in Chinese business etiquecy, western
business cultures changed as well and show more similarities to other cultures than ever before.
The face of international business, thanks to globalization i.e. interdependence and cross-
connection, is a fine blend of adjusted cultures of developed and developing countries.
4.1 Research of current Chinese business activities in Serbia and potential
in future
Chinese and Serbian cooperation is very long and dates from the times of former Federative
Socialist Republic of Yugoslavia. Political and social similarities, at the time, were increased by
benevolence expressed by both nations (other states of former Yugoslavia share this history as
well). Although this initial cooperation was mostly diplomatic and had more cultural exchange
instead of economic, it served as a solid foundation for future economic relations. These
economic relations grew together with the growth of Chinese economy which reached its peak in
2009. During that year, PRC and Republic of Serbia signed an Agreement on economic,
technical and cooperation in infrastructural projects. China corner was formed in Serbian
Chamber of Commerce and especially unit in Chamber of Commerce in the capital Belgrade.
Same units were formed in Chinese ministries with task to promote investments, understanding
laws and regulations, banking system, market research and making connections between Chinese
and Serbian companies, and their managers.
As a part of International business networking project in 2013, Serbian-Chinese business forum
was held by representatives of Serbian and Chinese ministries, in order to promote mutual
interests, future of bilateral trade and significance of cultural understanding. The section of Asian
business studies was formed in Serbian Faculty for Political Studies and in many other faculties
(mainly in economics, law and philology)
Chinese business activities are the result of Chinese attempt to expand to this region, and
gradually compete with Russian and EU influence. Cooperation with Serbian and other nations
in West Balkan region is a part of cooperation initiated in 2012 which included 16 countries in
central and southeast Europe. Chinese intend to make it a special economic zone in the future.
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For this purpose, an investment fund of near 10 billions $ was prepared (Chinese Ministry of
Finance, 2013). The reasons are economic and political.
Speaking about Chinese business activities in Serbia, they are mostly targeted in future
placement of foreign exchange reserves (from high sufficit in international trade) and making
profit. Serbian market is seen by Chinese businessmen as an alternative and easier entry to the
market of EU. Legislative facilitations instead of strict EU norms and procedures and cultural
bonds make it an easy access for further expansion in this region (as stated in interviews with
Chinese businessmen). Chinese are already involved in some large infrastructural projects in
Serbia: bridges in Belgrade (first bridge in EU made by the Chinese), future high speed train
route from Budapest to Belgrade, projects concerning several Serbian thermal and other power
plants and recent need for large scale reconstructions. This is especially important after the
recent floods in Serbia which took place in May 2014 and draw Chinese and worldwide
attention. Chinese people living in Serbia showed solidarity with Serbian people and offered
financial help and provided help in necessities. Chinese officials in Serbia promised more
support and strong involvement in projects of rebuilding infrastructure damaged by floods.
Chinese business activities in Serbia grew, especially in the previous year 2013th
. Chinese
companies involved in these activities are China Communications Construction and Shandong
Gaosu in transportation sector and Sinomach in energy sector. Investments grew to 2.4 billions $
in very short period of time and continue to grow with a lot of potential in other sectors besides
energy and transportation. Finance, agriculture and real estate and other sectors also show a lot
of potential in future.
Figure 16: Chinese investments worldwide and investments in Serbia in 2013
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Source: http://www.heritage.org (China Global Investment Tracker)
Chinese presence continues to grow in EU and it also affects on Balkan region. Among obvious
economical interests there are other political and cultural interests of PRC in EU and Balkan
region and that is possible education of Chinese students, emigration and setting up new
businesses outside China (retailers, traders and consultants) and making more profit than in the
rest of EU.
China is becoming a very important partner of EU in general and every European nation in
particular. It is a huge market, urbanized country with over 660 cities where 500 millions of
Chinese moved up the poverty line and another 400 millions soon will (Reaching Chinese
Outbond Tourists Online, Dragon Trail Interaction, 2014). Serbia is modest in political and
economic sense compared to the PRC but one should have in mind that China is not a
homogenous society with even dispersion of economic might. It is a country with many smaller
provinces and regional centers, many of which have not been participating in international
cooperation as much as the east coast of China has. There is a lot more potential to be used and it
can be used by carefully designed strategy. The understanding and respect of Chinese culture is
just an entry to this market and other recommendations include making many solid business
contacts through intermediaries and consultants, careful approach to legal issues, background
check before negotiations and preparation of concise business documentation (as part of business
correspondence and legal issues). The understanding of Chinese needs and interests is also
important. Chinese businessmen show high interest in clean energy, IT equipment and new
technologies, biotechnology (pharmacy and medicine), transportation, new materials and raw
materials for their growing market and society of growing consumption.
The chance for Serbia and other nations of former Yugoslavia is in identifying sectors of higher
productivity in order to attract Chinese or any other FDI. Setting adjustied legal environment for
investors, education and mobilization of skilled work-force and high level of qualification
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through emphasis on higher education for special needs is of big importance. Education in
general must be adjusted to current needs on international markets. A lot has been done to adapt
to western business practices and it was worth it. The same level of dedication is needed for
Eastern (Asian) business practices.
Compared to its potential, current level of Chinese business activities and economic presence in
Serbia is still modest. Predominant cooperation is in trade and import of Chinese goods and
merchandise and recently growing Chinese investments in energy and transportation sector.
There are only three major Chinese contractors: Sinomach, China Communications Construction
and Shandong Gaosu that made market entry in 2010 and 2013.
This means that general business experience and the exchange of business culture is between
Serbian SMEs, trade partners and importers, and Chinese small companies and entrepreneurs
which opened shops and malls and other business premises across Serbia. Like everywhere
across Europe, there is hardly any town in Serbia without a Chinese store. Chinese presence is
also felt in popular tourist destinations in Serbia. It ranges from small retail shops to medium and
large wholesalers situated in Belgrade, Novi Sad, Kragujevac, Kraljevo and other cities and
towns in central Serbia and elsewhere. Cultural exchange is mainly between local Chinese
traders and their domestic business partners, banks, administration and numerous customers.
Corporate level of cooperation has just been initiated. A lot has been agreed between two
governments but there is still a lot to be done in bilateral cooperation between the People’s
Republic of China and Republic of Serbia.
4.2 Findings and general recommendations for medium and small business
entities
The survey among eight Chinese entrepreneurs in central Serbia was held in order to seek and
find information about market conditions back in China, market conditions in Serbia, their
impressions and expectations and reflexions on experiences with local partners and
administration (Appendix 1, 3 and 4). These ethnic Chinese have spent years in Serbia and
blended with domestic traders. Some of them even learned to speak Serbian while all of them
speak English. The survey was followed by voluntary interviews with Chinese managers in order
to get more insight of a life of a Chinese in Serbia. The purpose of research was to increase
understanding and awareness in local SMEs dealing with Chinese partners. More insight and
hints will be usefull for medium and small businesses starting cooperation or already cooperating
with the Chinese. As Chinese businessmen often say to partners they agree with: “You surely
understand the culture and environment of China”.
One survey was used (Appendix 3) together with interview questionnaire (Appendix 4) for those
who decided to participate in interview instead of written survey.
The findings were interesting as expected. Most of interviewed managers were encouraged by
Chinese government (through incentives and support) to start business abroad. They all agree
that living standards in the West were much higher compared to Chinese then but China is
catching up. Very few of interviewed managers showed very high or very low level of
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satisfaction of local business climate. Most of them are moderately satisfied but openly point out
what needs to be changed. Remarks start from need for better cultural acceptance to proposed
changes in commercial law. They pointed out that, as visitors they made a lot of effort to comply
with local laws and cultural demands and expect vice versa. Business performance of their firms
(all of them are satisfied with it) depends from cultural openness and flexibility in the sense of
business regulation.
The other problem is the economic crisis which shook the part of their customers in Serbia and
remains the number one concern. The question of market liquidity and decay of middle class
worries even those very successful. All of interviewed agreed that both commercial regulation
and intercultural exchange are important for the success of their companies. Missunderstanding
and differences in culture and business practices are the main source of their problems. Among
many, they pointed out problems with local administration, banks and their practices and
approach to Client (much different than in China) and problems with competition in the market
(on which Chinese traders made deep impact). As skillful tradesmen, most of them replied that
factors of risk neutralization help them avoid these problems or decrease the negative effects.
All of the interviewed hold opinion that their future plans include staying in Serbia and
expanding business activities with the help of Serbian authorities, and domestic employees and
cooperatives. They all show homesickness but living in different, European culture is a challenge
and adventure for most of them and their families who have joined them (different people, new
language and culture, cuisine, nature, low pollution, less crowd). First and even second
generations of their children was born in Serbia but they all have this habit of sending them back
to Chinese elemementary schools to learn Chinese first. Medium and higher education is planned
to western colleges and universities.
Besides several large Chinese companies involved in strategic investment operations in energy
sector in Serbia, and two companies involved in large scale infrastructure projects (bridges in
Belgrade) most of Chinese companies are privately owned trading companies. They have
business offices and retail and wholesale stores across Serbia and eight of them replied positively
to the request for survey participation which is a part of the research in this assignment. Their
managers are predominantly male Chinese (with one exception) aged 35-40. Most of them have
moved with their families and settled in Serbia. Those younger managers raised their families in
Serbia and gave their children Serbian names. But as soon as children grew up for school, they
are sent away to China to enlist in Chinese schools, in order to strengthen the cultural ties and
learn the Chinese language in the earliest age (which would be much harder when they grow up).
The sample consists of eight wholesale and retail companies specialized in trade with consumer
goods in central Serbia. Their managers are ethnic Chinese, present in the Serbian market during
the last 5 years, at least. Most of them moved from China with their families and enough capital
to start up businesses in Serbia.They are using connections from China and close ties with
Chinese manufacturers back at home. Their stores are situated in the cities of Kraljevo,
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Lazarevac, Kragujevac and Ušće i.e. central Serbia. They employ 5-15 domestic workers
together with Chinese employees, mostly relatives.
These eight managers responded positively to the research purpose and agreed to fully cooperate.
In other contacted Chinese entrepreneurs, the lack of interest, lack oftime and no willingness to
participate were present. This is mostly because of famous Chinese closeness to foreigners and a
lot more time and patience needed to establish first contact and start cooperation.This is why
eight were chosen in four different cities in central Serbia. Although the sample is small, it is
relevant because it covers selected Chinese entrepreneurs in the region of central Serbia which
are present in the Serbian market for years, show continuity in business cooperation and history
in relations with Serbian customers, business partners, administration and legislation. All of them
agreed to interview and five of them also agreed to participate in written survey while three of
them declined participation when it comes to written documents about their business and
personal opinions.With those who responded in the best way, contact was maintained for months
after initial interview and new meetings were held (such as the manager of SHUNLI
SHAOYU).They helped in further research of Chinese culture and business culture through
closer personal contact and by giving insight to Chinese values from personal perspective.
Chinese entrepreneurs from central Serbia are flexible and easily blended with local competition
and won customers and a nice share of local markets. Most of them are satisfied with the cost of
the rent and pick stores in the city centres, larger markets and shopping malls and other
commercial „hotspots“(of higher pedestrian density). They trade goods for general consumption
needs such as clothes and textiles, electronics, gadgets, shoes, suitcases and wide range of other
products. In the beginning, they used to sell only Chinese products (strict import from China) but
later on they added some goods from elsewhere following local trends and demand.The first
Chinese traders came during the early 90s but less than half of them still remained in Serbia.
They all plan to return to China only when they get very old and decide to retire. Selected
Chinese business entities participated in survey which focus was on their business plans in
Serbia, expectations, opinions and experiences through years which they spent in Serbia. Most of
interviewed Serbian Chinese (75%) named the reason for their decision to move to Serbia
because they expected better business climate and better chance for profit, while the smaller
proportion decided to move because of dissatisfaction and lack of job in China.
Figure 17: Decision to move to Serbia
Source: own research
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But many of them, half of the interviewed, put this decision in question because it is obvious that
living standard in China improved a lot which sparked the rise of domestic demand and business
opportunities.
The level of satisfaction with Serbian business climate is above average and only one of the
interviewees stated his discontent due to taxation issues, fines and other problems due to
missunderstanding.
Figure 18: Satisfaction with Serbian business climate
Source: own research
When asked what needs to be changed the most, six of the interviewed complained about high
taxes, legal obligations and financial costs but four of them made a deeper impression and
pointed out that business cultures must adjust between Serbian and Chinese companies which
cooperate in the Serbian market. Friendly attitude is not simply enough to work for business
agenda and dynamic nature of business cooperation. Cultural differences are far greater than
differences in business practices.
Compared to previous years, which all of them confirmed, they all show less satisfaction when it
comes to the financial performance of their companies and stores. Until the year 2009, they made
considerable profits and until then, gradually, revenues decrased to a more modest level. They all
address this to poverty and decrease of purchase power due to economic crisis and instability
while liquid customers prefer high quality goods and brands which are not Chinese.
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Figure 19: Satisfaction with financial performance in Serbia
Source: own research
When asked, what are the advantages of doing business in Serbia, most of Chinese businessmen
state steady demand for low cost goods and merchandise, hospitable people and low business
costs (rents, salaries etc). Dissadvantages remain limited purchasing power, high competition and
narrowing proportion of middle class in Serbia. This could be facilitated through special
economic conditions for Chinese companies, lower taxes and simplified regulation.
Chinese businessmen agree that most of the problems in daily business routine could be solved
only by better intercultural exchange and closer interaction with all participants (customers, local
administration, legal authorities, banks, accountants, tax agents, business partnerts and others).
Biggest problems due to missunderstanding and cultural and legislative differences are with local
the administration. It is still the number one issue for Chinese entrepreneur in Serbia. Many
Chinese put a lot of effort to learn Serbian or use English and understand local policies and
customs but domestic Serbian clerks and administrators don’t show enough flexibility or openess
to new cultures. This calls for new measures by official legislators to promote higher standards
for dealing with non-resident business entities and their managers.
Language barriere is huge so efforts must be made from both sides, Chinese should learn
domestic language at least to a beginner level and local schools and universities should do much
more to promote Asian studies, languages and legal and social framework.
However, both sides share the opinion about potentials for cooperation in future between
Chinese and Serbian companies. Business opportunities for Chinese companies in Serbia are
certainly access to resources and access to EU market as co-producer in Serbia which could be
used as portal to EU and Russian Federation because of existing agreements and close ties of
Serbia both with EU and with Russia.
On the other hand, opportunities for Serbian companies in the Chinese market are surely the
exporting potential to this huge market with insatiable demands for many products and services.
65
Many of Serbian products meet the strict EU standards and could find the place in the market of
mainland China or at least, to some regions of this vast territory.
It is important to state that all of the Chinese entrepreneurs are full aware of ups and downs they
had with their business endeavours in Serbia. And they all plan to stay and expand their business
in Serbia and recommend it to other potential newcomers from China.
The general characteristic of modern Chinese market is that Chinese government still has vital
role in decision making. Institutions dictate the relations between Chinese companies and foreign
business partners. Chinese market is huge and demanding and the proportion of industrial final
products in demand is decreasing while import of raw materials shows rapid increase. Import-
exports deals are done by commercial and trade contracts. Chinese market is desireable for many
foreign companies so the competition is fierce, especially between large corporations and TNCs.
Serbia had many advantages as signatory of free trade agreement. First of all, Serbia has limited
production capacities but it is attractive because of access to markets which have almost one
billion consumers. That’s why Chinese are interested in joint production and investments in
production plants in order to export goods produced in Serbia to markets which co-signed free
trade agreement with Serbia (CEFTA, EFTA, Russian Federation and Turkey). To these markets,
Serbia can export goods duty-free.
Serbia still has many exporting limitations mostly because of lack of financial funds, high prices,
and limited product range. Another issue is costs of transport and limited deliveries which cannot
satisfy demands in bigger markets such as Chinese. That is why large scale investments are
needed, such as Huawei, ZTE, Sinohydro and other large companies as good exaples for others
to follow.
Serbian products which could be sold in China are groceries, confectionery, grains, seed, frozen
raspberry and other fruit, ferrous and non-ferrous metallurgy products and cables. Some Serbian
companies satisfy EU standards and need simple certification with Chinese authorities in order to
commence export of food products. On the other hand, Chinese are more interested in energy,
minerals, technology and luxurious goods and services which cannot be found in Serbia in
desired volume, quality and brand.
According to EU SME Centre (A project funded by the European Union, 2013) there are over 22
millions of SMEs across Europe. Only about 250 thousands are exporting to Chinese market.
The unused potential is vast. Speaking of Serbia, most of potential for expansion to Chinese
market is focused on already biggest exporters and those who specialized in Chinese exports
(Appendix 2). Other SMEs also have chance to offer new line of products as Serbian exporting
brands and satisfy the growing and more sophisticated needs of Chinese market.
Speaking of business opportunities for Serbian SMEs in China, Chinese living and working in
Serbia mostly indicate to products and services of higher demand in the market of PRC: cars,
PCs, tourist travels, medical tourism, high quality food and beverage brands, mobile phones and
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equipment, jewelry, fashion wear and other luxurious goods, houses, education abroad…). A
recent study performed by KPMG in 2013 reveals the impacts of the rise of Chinese middle class
consumer. Chinese middle class purchases luxury items such as clothes, comsmetics and jewelry
and make international trips to famous tourist destinations more than ever. Online shopping is on
the rise as well alongside as brand recognition and demand in mainland China. Modern Chinese,
members of the growing middle class, have much more money to spend on luxury brands and
popular items. But this demand is much higher in economically dominant east coast of China
(packed with cities) compared to undeveloped central and west Chinese provinces. Urban
population of China is near 49.7% according to their national bureau of statistics and numbers
continue to grow. China is the single biggest auto market and sales in 2013 reached over 22
millions of automobiles (EU SME Center, 2013).
General recommendations for Serbian and other SMEs from the Balkan region can be divided in
recommendations in the economic and cultural sense. For those intending to expand to Chinese
market both are important and to those importing from Chinese partners, economic
recommendations are of higher importance. To those who cooperate with Chinese in Serbia,
cultural recommendations are highlighted. Chinese businessmen rely on personal relationships a
lot, so it’s necessary to organize special business trips to China to initiate this relationship, show
respect and dedication and learn a lot at the same time. Nothing beats first hand experience. With
those having businesses in Serbia, more intercultural exchange must be initiated and more
attention must be given by authorities. Every tax payer deserves equal rights and those foreign
even deserve some special treatment. After all they are economic residents and their positive
experience can attract more to follow their steps.
In the economic terms, SMEs must target Chinese major industries where demand is highest.
Competition is fierce and the only to succeeed is to change and adapt according to conditions on
the Chinese market and governmental plans. Chinese society is showing rapid increase of
incomes, population and demand pull. Local products and services show low quality and safety
issues, less sophisticated and limitied source so Chinese are forced to import in the future. Seven
strategic emerging industries of China (SEIs) are under global attention. Opportunities in
Chinese market are plenty and each European nation can find its place among many needs of
PRC: energy saving and waste treating as their need for clean energy, internet and mobile
communications equipment in IT sector, pharmacies, medicine and agriculture in bio-
technology, engineering equipment and new material etc. Other needs include alternative energy
plants and engineering projects and solutions (nuclear, hydro, solar, wind and bio mass) and
electric and fuel cells cars and other vehicles.
Product range and services which could be offered to Chinese consumers is wide:
- Eco-friendly products (organic food, spring water) ;
- Water filters and cleaners ;
- Medicines, services for elderly (special medical care) ;
- Food and beverages (especially famous regional brands of beer, wine, oil, coffee,
sweetmeats, spirits, meat and dairies) ;
- Fashionwear and clothes ;
- Varios sorts of other products and services.
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On the other hand, needs of Chinese industries are grouped in seven strategic emerging
industries.
Figure 20: Seven strategic emerging industries
Source: http://www.swissnexchinanews.org
(Switzerland's Outpost for Science, Technology and Culture in China)
Speaking of cultural recommendations, general finding is that, first of all, western managers
must have in mind the main difference between European and Asian cultures. Asian cultures are
of high context and relational, collective oriented and honour group values and authority. Asians
are less verbal and more patient. It takes them a lot more time to reach decision, but once they
make it – they will honour it wholly. Businessmen from the low context business cultures have
logical thinking patterns, linear and higher degree of individualism and liberty but show more
impatience in business issues. They reach decisions faster and stick to it on short term.
Understanding these differencies and adjusting to business needs is essential. Instead of pursuing
self actualization, western businesspeople must understand Chinese need for maintaining group
status, harmony, authority and values system which they hold on top. Being a patient and good
listener is highly advised (any display of impatience, confrontation, verbal or non verbal
frustration may lead to termination of any business cooperation). Instead, sincere approach and
friendly social activities before business discussion will unlock Chinese heart and open Chinese
“wallets”. It is important to understand them and see the things through their eyes. Chinese
businessmen did a lot to adjust to western values and the same amount of flexibility is expected
from their western partners in order to reach agreement based on mutual satisfaction and long-
term cooperation.
Guanxi relationships are the perfect example how Chinese cooperate, what they propose and
expect (based on trust, joint experiences, closeness and reciprocal obligations not sophisticated
corruption as some may think). Westerner must accept that he or she is a stranger entering
Chinese circle of trust. Entering this circle he or she has better chances to sign a good deal, to
improve communication and achieve many benefits. Having ethnic Chinese of high intergrity as
your intermediary is good decision. Mediator can make things happen faster for both sides.
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Cultural gap between the East and the West still exists and it needs more understanding and
appreciation. International business culture may be the missing link where similarities meet and
promote more synergy in the recent future.
4.3 Recommendations for Serbian local authorities
Figure 21: PRC and RS
Source: The World Factbook (2014)
https://www.cia.gov/library/publications/the-world-factbook/docs/flagsoftheworld.html
In general, China and Serbia have a rich tradition of friendship which is a solid base and
opportunity for Serbian economy. The goal of Serbian authorities is to attract Chinese investors
and companies to expand their activities to Serbian market. Serbian government must find the
way to exploit this current affection of Chinese authorities towards Serbia in a more efficient
manner. This Chinese affection is a Serbian advantage compared to the other countries in its
quest to seek assistance from PRC in economic development. Generations of Chinese officials
and economic and political elite, especially middle aged people, grew up in belief that Former
Yugoslavia (especially Serbia) is Chinese ally and socialist co-beligerent. That’s why Chinese
elite has positive feelings and readiness to open to Serbian partners faster than to other business
partners. But recent history shows little or no appreciation from the Serbian side and diplomatic
and economic ties are more symbolic than practical. Diplomatic practice is weak and economic
even weaker due to many reasons: low transparency, lack of solid projects and inappropriate
project documentation, missed business opportunity and failed chances to appoint delegations
and organize summits.
This situation is gradually changing and Serbs and Chinese intensify cooperation in a more
efficient way. The excess of Chinese capital is mobilised in Europe and Serbia remains
interesting destination and a hub for Balkan region. Agreement on strategic cooperation was
signed alongside with other active projects for central and Eastern Europe. What Serbian
authorities need to do is to offer new models of cooperation (such as BOT project financing,
public-private partnerships or concessions) to Chinese SOEs which are already situated in Serbia
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or plan to do so (and have access to significant financial funds). This will boost regional and
local economies, create new jobs and initiate new projects. For this reason, PRC formed CCEE
Investment Fund with 0.5 billion USD for the first phase and increase in second and following
phases (Chinese Ministry of Finance, 2013). The potential is huge. This way many projects will
be financed in central and eastern Europe, especially in energy sector. Serbian government,
especially Ministry of energy and mining, is currently lobbying to set up the offices and secretary
of this mechanism between China and EU in Belgrade.
Local authorities, the mayor with staff and members of municipal Chamber of commerce play a
very important role in creating economic environment attractive for investments. Instead of
political “hot air” present in every local election which results in broken promises and failed
expectations, local representatives must cooperate with Chamber of commerce, local associations
of SMEs in order to materialize economic development strategy of the municipality. The best to
do so is to prepare and implement local action plan with aims, necessary activities, indicators to
follow and measure degree of success of the plan and necessary participants, measures and
resources. This action plan has a same frame for all foreign investors which can be adjusted and
modified in order to attract German (like in Belgrade), Italian (like FIAT in the city of
Kragujevac) or in this case Chinese investors.
Table 8: Local action plan: Attract FDI from China to local level
AIMS – To promote foreign direct investments from China, setting up new businesses, rise
employment in the city and building infrastructure.
ACTIVITIES – Raise awareness of Chinese Business Culture and initiate school and faculty
programs and sections in order to train skilled professionals-experts in this field. Training and
motivation of current employees in local business with Chinese market, partners, needs and
potentials for cooperation. Preparation of legal frame for cooperation concerning land, fixtures
and fittings and taxation regulations for prospective investors. Resource planning and other
plans concerning possible locations for plants or factoris. Form local office with skilled
professionals trained to initiate communication and attract interest from Chinese partners.
INDICATORS – Measuring the level of achieved effects through carefull recording of educated
professionals, trained workers and rise of local awareness of Chinese culture, language and
importance of creating climate for cooperation. Media support and the number of projects and
proposals for potential Chinese business partners. Latern on, number of signed contracts and
implemented solutions. After two years, measuring effects on local economy through economic
indicators and employment.
PARTICIPANTS AND RESOURCES – staff of Mayor and city officials, local Chamber of
Commerce, Association of SMEs, employees, schools and faculties, professors, skilled
professionals, liguists, lawyers, economists, engineers and others. Project is based on new skills
and knowledges and less on financial resources which will be provided from the funds in city
budget.
Source: own work
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In detail, local action plan consists of following steps proposed:
A. AIM – To promote foreign direct investments from China, setting up new businesses,
rise employment in the city and building infrastructure.
- Educate and motivate skilled professionals for needs of cooperation with the Chinese partners.
Chinese and Chinese business culture as school subjects.
- Present possibilities and benefits of cooperation with Chinese companies.
- Promote awareness of international business and importance of Chinese language and business
culture of potential partners and investors.
- Use existing resources and skilled workers, knowledge and experiences and build new ones.
Include lawyers, linguists, economists, engineers and local businessmen. Create new teams for
preparing projects for potential Chinese investors.
B. ACTIVITIES – Raise awareness of Chinese Business Culture and initiate school and
faculty programs and sections in order to train skilled professionals-experts in this
field. Training and motivation of current employees in local business with Chinese
market, partners, needs and potentials for cooperation. Preparation of legal frame
for cooperation concerning land, fixtures and fittings and taxation regulations for
prospective investors. Resource planning and other plans concerning possible
locations for plants or factoris. Form local office with skilled professionals trained to
initiate communication and attract interest from Chinese partners.
- Relocation of professors of Chinese and related to local schools and faculties.
- Promotion of possibilities and potential of cooperation with Chinese to local public and create
awareness and supporting public opinion.
- I phase of project: Engagement of city officials and experts in engineering, business practices,
language, law and promotion. Forming interdisciplinary teams and projects/proposals
preparation. Inclusion of graduated students and/or trained professionals and other work-force.
- II phase of the project: Trained new and existing professionals are training other participants:
managers from local companies, employees and cooperate with local bureau of labour.
C. INDICATORS – Measuring the level of achieved effects through carefull recording
of educated professionals, trained workers and rise of local awareness of Chinese
culture, language and importance of creating climate for cooperation. Media support
and the number of projects and proposals for potential Chinese business partners.
Latern on, number of signed contracts and implemented solutions. After two years,
measuring effects on local economy through economic indicators and employment.
- Number of educated and trained professionals for „Chinese issues“.
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- Number of skilled professionals who joined the project.
- Number of teams engaged in projects, proposals and business relations with
prospective Chinese investors.
- Number of projects/proposals for Chinese companies.
- Number of signed contracts and initiated business ventures.
- Economic indicators in the local economy and the rise of employment.
D. PARTICIPANTS AND RESOURCES – staff of Mayor and city officials, local
Chamber of Commerce, Association of SMEs, employees, schools and faculties,
professors, skilled professionals, liguists, lawyers, economists, engineers and others.
Project is based on new skills and knowledges and less on financial resources which
will be provided from the funds in city budget.
Participants
- Professors and trainers.
- City officials and their staff (Chamber of Commerce, Bureau of Labour etc.).
- Skilled professionals (economists, lawyers, linguists, engineers).
- SMEs (managers and employees).
- Other participants.
Resources
- Existing and new human resources (skills, knowledge, experience and expertise).
- Financial resources designated for new projects and funded by city budget.
- Stimulations for the best professionals which concluded significant contracts.
- Other non-specified resources.
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5. HYPOTHESES REVIEW, FINDINGS AND SUGGESTIONS
The following chapter shows answers to the hypothesis stated in the first paragraph of master
asignment. Answers are based on the conclusions from the literature and the on findings from
research that was made.
Cluster of tested hypotheses and findings
- H1: Chinese businessmen have subtle and spiral type of logic compared to linear type of
logic in the West;
Partly true:
Modern Chinese businessmen retained some of spiral type of logic and elements of high context
Chinese culture but new generations rapidly learn from the Western colleagues and choose to
adapt. Younger Chinese professionals are more individualistic and open in communication.
- H2: Chinese business negotiators avoid direct answers and do not express their
disagreement verbally and openly, communication is more indirect and the meaning is
implied instead of clearly stated;
True:
Non-verbal and more subtle disagreement remains characteristic of modern Chinese. They still
avoid open confrontation and open declaration on issues. Instead, they prefere neutral stance and
react only when they gather all the facts and implications. This is used in politics, business and
social life.
- H3: Important business deals happen only if personal relationships are close (guanxi);
Partly true:
Modern Chinese still embrace some of their traditional cordiality and ceremonies. They pay
much more attention to personal relationship and socializing period compared to their Western
counterparts. But business deals can be concluded without too much personal attachment when it
comes to modern business because modern Chinese display higher level of pragmatism than ever
before. It is Western partners that give too much attention to Chinese tradition and omit the
pragmatic nature of modern Chinese. Too much adaptation to Chinese customs is unnecessary in
modern business negotiating but this may vary in some Chinese provinces.
- H4: Chinese businessmen do not resolve conflict openly and directly, they rather use
third party (Chinese Intermediary);
True:
Intermediary is a very important figure when it comes to business negotiating in mainland China.
Instead of losing time and face in courts, Chinese prefere subtle settlements. They are using
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intermediaries during the process. This accounts to relations with their foreign business partners
as well.
- H5: Chinese businessmen are more patient and willing to spend a lot of time in order to
reach agreement compared to their western counterparts;
True:
Chinese patience remains their cultural characteristic. When it comes to business, they show high
punctuality but also flexibility and less hurry to close up the deal. It is their strategy to test other
negotiator and get more insight of their needs and position during negotiations. They are
prepared for long meetings and discussions before reaching agreement.
- H6: Chinese businessmen are hard to open but once they do, they form long lasting
commitments.
True:
This is proven during the field research. It was very hard to make the initial contact, schedule
meetings and persuade Chinese entrepreneurs to participate in this research. Winning their trust
and proving good intentions and credibility without intermediary and strong recommendation is
highly unlikely. But once they open, after background check and enough time to get to know the
other side and build trust and interest, they are very cordial, attentive and committed friends.
They are more reliable as business partners than Western businessmen once you enter their circle
of friendship. This is proven in the case of Mr Zhao Zhan Hua (Cane), who accepted to fully
participate in this research, offer his time and energy to assist and present his nation and culture.
He is a good example of Chinese adapted to Serbian market conditions and a Chinese with true
Serbian friends in his new home.
Compatibility: Serbian and Chinese business culture
This research resulted in very interesting findings concerning Serbian and Chinese business
cultures which show more compatibility than other business cultures in the West. This is mostly
because of long history of friendly relations, similar customs and level of cordiality and
hospitality in these two nations.
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Table 9: Serbian and Chinese business culture characteristics
Business culture characteristics
Chinese Serbian Level
of compatibility
Business logic circular spiral
combined adapted to partners
medium
Proposal acception/decline indirect
non-verbal tactful
verbal open direct
low
Business communication subtle
indirect implicit
direct explicit open
low
Individuality
low collectivists conformists
subordination to rank and authority
high I -oriented
manager complex low
Thinking pattern
decisions depend more on context, situation and
partner than to rules and regulations
decisions depend more on context, situation and
partner than to rules and
regulations
high
Business authonomy
collective decisions respect of group, rank,
seniority, duty, stability and compliance to authorities
high level authonomous decisions by
managers low
Business relationship
Guanxi principle verbal agreement
personal connections friendship before business
long lasting and hard to form
verbal agreement recommendations
connections frienship
easy to form and long lasting
high
Legal issues mediation agreement
avoid confrontation
legal confrontation trial
use of lawyers and seeking justice in court
low
Meetings
punctual start less punctual end
informal meetings and long courting before business
low punctuality socializing
lunches/dinners before formal business issues start
high
Source: own findings
Personal reflections:
During this master assignment, some personal reflections came to surface. Chinese business
culture, as a modern phenomenon, depends on new generations of educated Chinese. They differ
a lot from older generations, which were the pioneers in international trade. Some of used
literature, even though recently published, is outdated and according to statements incurrent
interaction with the Chinese businessmen - far less importance is given to tradition. Some of
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points made by the authors have become superstition and prejudice according to modern
Chinese. One should have in mind huge cultural gap between Chinese generations and regional
cultural gap (between urban city clusters in the east and rural west).
Chinese culture and business culture is regionally diversified and developed east shows many
similarities to the western business cultures and principles (just like in cases of Macao, Hong
Kong, Taiwan and Singapore). General approach to Chinese business issues is impossible. Some
ground rules can be recognized but China remains complex society, socialist economy with
capitalist characteristics in some areas. It looks more like the United States of China instead of
Peoples Republic of China. Just like Americans have North and Southern state cultures, Chinese
have developed East-coast and poor central and western provinces and show even greater
differences.
The biggest difference remains tight, authoritarian government which dictates the façade of
business culture. Traditions remain more as a symbol than as guideline. People express more
openly their inner feelings, liberal opinions and pragmatic reasoning. Modern Chinese are profit
oriented just like modern businessmen in Western business cultures. Chinese outside China
display this individualism more than mainland Chinese. The aim of Western and Eastern
businessmen and politicians is similar. Only means differ. That’s why cultural understanding is
still necessary. Dealing and interaction with people remains far more complex than dealing with
fixed business tasks and targets. During active field research, new acquaintances with the
Chinese have been made which left deep mark on this assignment. It took time to make these
contacts but interest in their culture, patience and benevolence paid up.
What I have felt thoroughout this research and analysis is that Chinese are ready, willing and
able to adapt into new environments, blend and integrate everywhere in the world. This
adaptation results in some changes but the core still remains Han Chinese. Chinese in USA use
English and anglicized names and surnames and live the “American Dream” lifestyle, Chinese in
Germany became more “German” like so Han Chinese easily becomes “Hans” Chinese. Italian
Chinese can easily blend into Italian society as Marco or Luigi. They all share common Chinese
similarities but also bear some of the local traits which characterises Chinese communities living
in “China towns” of USA, Europe, Russia, Australia and/or Latin America. In the case of Serbia,
it’s even easier to spot which “Serbian” elements are adopted into Chinese base and how Serbian
Chinese behave, communicate and adapt to Serbian microcosmos. Many of interviewed Chinese
accepted some local values, learned the language and even changed their names and nicknames
(such as Mr Zhao Zhan Hua a.k.a. Cane) and named their children according to local customs
and popular names (such as Andrija, Teofil or Milan). This adaptation or integration, should we
say, is a good starting point to understand what brings this people closer to us and how we can
learn from each other, work and live in harmony.
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Suggestions for further research:
This study of complex and continuously changing Chinese business culture opened many other
areas of research. In order to achieve higher efficiency and application in practice, it must be
divided in several areas of interest. Chinese business culture and the impact on international
business are still unexplored. It is largely theoretical knowledge of scholars and academic
researchers while, more useful, practical knowledge application depends on current, real-life
experiences between businessmen and other participants in the modern markets.
Further research could be focused on new generations of Chinese managers and their future
successors, the role of government in economic diplomacy, regional diversity of China and
preparation of new strategies for modern Chinese market.
Therefore the proposed areas for subdivision and further research could be:
- Traditional and modern China (cultural gap between Chinese generations);
- Business culture and economic diplomacy between East and the West (the role of governments,
regional and local authorities);
- Business culture of SOEs and SMEs in China and their business partners from the West (up-to-
date case studies);
- Regional characteristics of business culture in PRC, implications for their foreign business
partners and expected changes in the following years:
- Preparing plan for strategic cooperation with Chinese partners (products and services with
growing demand in modern industries of China).
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6. CONCLUSIONS
Chinese culture has a long and rich history. It is a complex set of values which is unique in many
ways. China didn’t use its full potentials for centuries. It changed slowly and advanced to its
rightfull place. At first, the PRC was a follower on the global market but slowly it became the
market leader together with the USA. Modern China influences on international business as
much as other participants influence on China. The economic growth started global recognition
and interest in Chinese business culture and Chinese economic phenomenon. At first, the
Chinese were the side which made plans how to attract other partners but now, other countries
have reached the point to make plans how to fully understand and attract Chinese capital.
The most surprising fact is how fast Chinese are adapting to the international business
environment and how easily they fit and expand into various environments in the world. The
changes transformed Chinese society in a very short period of time from rigid communist state to
free market which improved the living standards of Chinese citizens.
The added value of this assignment is the review of characteristics of Chinese business culture in
the past together with Chinese tradition and values and how they changed, analysis of ongoing
characteristics, effect on international business and possible changes in the future. The findings
include recommendations for prospective partners in order to start or improve existing
cooperation with the Chinese.
The primary aim of this master assignment was to create awareness and promote importance of
Chinese business culture and its effect on international business. The impacts refer both to
cultural values (business procedures with protocols and business manners) and financial data
(statistical overview of economic indicators in international trade). Special interest was given to
the main research question of the characteristics of Chinese modern business culture and its
influence on international business (globally, regionally and locally). The macro and micro-
economic trends were examined.
First of all, attention was given to theoretical concepts of Chinese business culture, its
background and sources, tradition, historical development and gradual changes during last two
decades of increased international cooperation. Sino-Western cooperation (with emphasis on
USA-CHINA relations) is explained in general and cooperation between PRC and European
countries in particular. The analysis included existing and updated literature, business articles,
embassy portals and reports from various institutions. It also includes case studies of successful
cooperation and business failures, the analysis of the characteristics in each case and proposed
advice for future business ventures.
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Concerning business interaction between PRC and Europeans, special care was given to future
potentials and recommendations for SMEs and local authorities, all who are cooperating or have
plans to cooperate with Chinese business partners (case study the Republic of Serbia).Survey and
interviews with local Chinese businessmen (B2C) concluded the applicative research in this
master assignment and the results were constrasted with other large scale business activities
conducted in Serbia since 2010 by Chinese corporations (B2B). These combined findings and
recommendations were the aim of this master thesis.
The task was to compare these two dominant business cultures (i.e. Chinese and Western) and
seek for recommendations and practices which can be implemented in future, in business
practice. This is especially important for SMEs of smaller European nations of West Balkans,
which have limited economic and political significance in global business and need advanced
cultural skills (besides institutional creation of desirable economic environment) to attract
disproportionally larger business partner from China.
The importance of increased cultural understanding in business perspective is huge. The bigger
the differences between business partners, the more effort they must make to advance to higher
level of cooperation (and necessarily, achieve better position to compete). Business cultures may
be the bridge or the obstacle to cross. This is especially important for smaller partners trying to
reach higher compatibility as explained in Serbian case. In some areas, compatibility is already
high but in other, there is still work left to improve cooperations and neutralize negative effects
of differences and their outcome in real business situations between Serbian and Chinese
businessmen.
Chinese market is characterized by rapid economic growth and rise of importance in the
international trade, both as an exporter and importer. The rise of demand is huge and China is
transforming from global factory to global consumer. But China still remains complex
environment with unique cultural, political and social features and regional diversities (they all
deserve attention). Cultural awareness, slower than economic rise, created the intercultural gap
between east and the west. This is slowly changing thanks to past experiences, lessons learned,
current cooperation and future initiatives based on agreements on cooperation. Ignoring Chinese
as inevitable partners and avoiding cultural build-up may have serious consequences for other
participants in economic trade, both as nations and individual corporations and SMEs. The
benefits of growing cultural awareness of Chinese business culture and market characteristics are
obvious. Potentials of cooperation with Chinese partners are far greater than risks that
cooperation bears. Existing risks can be neutralized, to high extent, with additional research and
specially designed business strategies (based on cultural research, market research and detailed
legal frame preparation). Some companies see its chance in market penetration and goods and
services localization to mainland China while others find importing partners from China which
changed from producer of cheap clothes and toys to technologically advancing and more
sophisticated power-house (which kept competitive prices). In the age of global economic crisis,
international cooperation and interdependence is higher as an instrument of limiting the negative
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effects of crisis (connecting creditors and debtors, supplying markets with high demands from
markets with larger outputs, decreasing poverty, increasing employment, building resource
network and energy supply routes and even stabilizing global politics through these economic
measures). Many agreements and initiativeshave been signed and strategies proposed between
countries from all economic regions.
The analysis of Sino-Western cooperation from late 1970s until present year 2014, have shown
many differences which have been alleviated in practice through periods of gradual change and
adaptation (in culture, legal issues and flexible economic regulation). Efforts made by both sides
have resulted in booming economic indicators and the change of global economic environment
(due to rise of new economic participants such as China, Brazil and India among others). In the
start, the Chinese side was more dependent on Western assistance and showed more flexibility in
opening its market, performing significant institutional reforms, making great efforts to
understand western business practices and values and comply with them.
The situation is gradually changing and now the Chinese side is growing more independent and
dominant. This implicates that other partners in international trade must learn and adapt to
Chinese value system and business practices and assist Chinese in their domestic reforms. The
comparative analysis of United States of America and EU members and other European nations
(non-members of EU) shows similar difficulties which could be solved in the same manner. US
partners were the pioneers in trade with the Chinese in many sectors and first successes and
failures (both in political and economic diplomacy) were between the American and Chinese
companies, large corporations and politicians. These were the sources for research and studies
made by Chinese and Western scholars, commercial advisors, consultants and business
executives. These findings were useful as a starting point for the European partners which also
increased presence in global integration. There is a lot of unused potential between China and the
EU, and Chinese and the rest of the world (rest of Asia, Oceania-Pacific, Africa and South
America).
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8. APPENDIX LIST
Appendix 1: The list of sampled Chinese legal entities registered in central Serbia
Appendix 2: The list of Serbian top exporting companies
Appendix 3: Survey for banking Clients, sampled Chinese legal entities in Serbia
Appendix 4: The list of topics for interview with Chinese managers in Serbia
89
Appendix 1: The list of sampled Chinese legal entities registered in central Serbia
90
Appendix 2: The list of Serbian top exporting companies
Top Serbian exporters to Chinese market:
91
Changes in export, in the first quarter of 2014
Source: Ministry of Finance – Republic of Serbia and Serbian Chamber of Commerce
92
Appendix 3: Survey for banking clients, sampled Chinese legal entities in Serbia
The Analysis of Chinese Business Culture and its Effect on
International Business
COMPANY:
TYPE OF BUSINESS:
MANAGER:
CONTACT INFO:
1. What were the reasons to move and set up business outside China?
a) less business opportunities in China
b) better conditions for Chinese entrepreneurs abroad
2. What do you think about it now? Was it the right decision to move?
YES NO MAYBE (because of ______________________________ )
(optional answer)
3. Level of satisfaction concerning local business climate (commercial law, banks,
taxes, regulations, business partneres and customers).
o o o o o
very low low medium high very high
93
4. What needs to be changed the most and why?
a) law and regulations
b) local customs
c) taxes and obligations
d) business culture
e) other
________________________________________________________________
5. Level of satisfaction concerning the performace of your company in Serbia.
o o o o o
very low low medium high very high
6. Bigger differences between Chinese and local businessmen.
a) language and culture
b) business practices
c) both
7. Advantages and dissadvantages of doing business in Serbia.
(please name at least three of each)
________________________________________________
________________________________________________
8. What would help your company in becoming more successful in this market?
a) special economic conditions for foreign companies
b) better intercultural exchange and interaction
c) both
94
9. What kind of problems do you frequently have in your daily business routine?
a) with customers
b) with local administration and legal authorities
c) with banks, accounting and financial transactions
d) with other business partners and local competitors
10. Name three biggest business opportunities for Chinese companies in Serbia:
______________________________
______________________________
______________________________
11. Name three biggest business opportunities for Serbian companies in China:
______________________________
______________________________
______________________________
12. Your future business plans:
a) stay in Serbia and expand business
b) move elsewhere
c) return to China
Thank you for your cooperation!
95
Appendix 4: The list of topics for interview with Chinese managers in Serbia
The Analysis of Chinese Business Culture and its Effect on
International Business
Topics for interview with Chinese managers in Serbia:
- Reasons to decide to move to Serbia
- Initial expectations and first experiences
- Level of satisfaction with local banks, commercial law and regulations
- Proposed changes and how would you do things
- Level of satisfaction with customers and business partners in Serbia
- Good and bad side of doing business with local companies/customers
- Your company’s performance in Serbia so far and future business plans
- Future personal plans in Serbia
- Companies in Serbia for recommendation to Chinese partners and reasons
- Homesickness
- Advantages/dissadvantages of Serbia compared to China
- Business opportunities in Serbia, China and potentials of bilateral trade
