Chinese Culture and its Impact on the Business Environment
What legal and regulatory issues does a foreign company have to consider before doing business in China?
China, which is the most populated country in the world, has been rebounded with stagnation and again developing at a rapid rate. As the domestic consumption in the country is increasing heavily, markets experts and economists believe that the country has an ability of enormous growth in its market over the next decade. It has been seen that there is a growing trend of growth to china by small and medium-ranged companies mainly in the Midwest. But, the country is frequently called or asked for its legal questions that arise at the time of doing business in the country by a foreign company. This essay will outline the legal and regulatory that a foreign investor has to face while doing business in China. It will also address the impact of Chinese culture on the business environment of the country along with the term ‘New Normal’ in the country with the help of appropriate examples. The study also demonstrates the comparison between the states owned enterprises and Foreign Invested Enterprise and their impacts on the markets of the specified country. It will also highlight the roles and objectives of SASAC.
The fast growing business result of the country has attracted the international interest for the investment in the country. China has lately passed the US as the world’s largest economy in terms of size. The noteworthy result of the business trade of the country with small and medium size industries has stimulated vast quantities of the interaction of Multinational companies of foreign with the Chinese. The major reason for the differences between the Chinese business and the West is of the diverse cultural and ethical values that they hold, mainly plunging from the culture of Confucianism and Taoism.
The behavioural characters have influenced the country and its society that is driven mainly by the mixtures of Buddhism, Taoism, and mainly Confucianism. The Chinese cultures not only holds these traditional elements but is also influenced by the other elements that are combined with the Communist ideology and western culture and values. All these factors still determine the shape of the business culture within China today. Confucianism, which is the major tradition in the country, had played a noteworthy role within the business environment of the country. The attitudes of the people in the country differ due to the local culture and its ethnicity. The foremost reason due to which China stands out, in particular, is its differences in the individualism and/or collectivism. It has been proved that the specified country has been influenced by the Confucian values and in which, the particular business ethics is mainly influenced by this value. Understanding Confucian values can illustrate the impacts of relationships within Chinese business. The foundations of this value aim in achieving peace and coordination within the society. The principles of Confucianism are rooted in a hierarchal system where individuals show respect to their seniors, who in turn gives protection and care to them. Confucian values are responsible for governing the interpersonal skills and relations within the modern China. People in china have strong levels of trust to their senior’s friends and families but have little faith on outsiders. Chinese people are also unwilling in taking any decisions alone. They always have fear in making decisions without having the authorization from the authority. There is a lack of leadership quality in the people and always wants to work in group or team. The two most important ethics of Confucianism are Ren and Li, which are always considered as the backbone of it. Ren is referred to kind, generosity, thoughtful and selfness. On the other hand, Li teaches to be polite and respectful to old and to the family.
The Term 'New Normal'
New Normal in the sense of Business and economics is referred to the financial condition that happened in the financial crisis of 2007-2008. It also followed in the global recession of 2008-2012. This term has been used after that. China’s new normal is the sharp slowdown that is happening in the growth and possible crash. It caused grumpiness among the administrative of China when it was broadcast. After the global financial crisis in the year 2008, the country becomes seriously dependent on the investments that are debt full. Administrative and the economists recognise that is the country continue to invest at a noteworthy rate of 50% which are causing them debts at an annual rate of 15% of GDP, the country will severely face disastrous crash like Japan in 1990. Thus the new economic theory that is developing over the country is to slow down the growth rate and it is slowing down as there has to be reconstruction and rebalancing of the economy. There should also be a slowed process in the spending of the customers and technological innovation.
The financial and economical condition of the country is now adjusting to new normal after suffering from severe financial pain. The Country had an outstanding growth in GDP from 2002 to 2008. This astonishing growth was slowed down between years 2008-2014 up to 8% to 9% a year. And now it has reached to a level of 6-7%. This slower growth rate signed that the country has successfully passed the startup age and now heading towards matureness. As the economies of the countries grow and develop in size, the GDP rate gradually decreases, and for illustration, the GDP rate of US is around 2.2% and of UK it is around 1.6%.
It had become a proven fact that some famous and international brands of the West fails to achieve their desired objectives in the emerging market of China. The major reason for this is that what works in the West cannot be directly applied to Chinese people. This is the major reason for which, the world’s largest retailer company, the Wal-Mart, never success in the country. The company, after operating more than 15 years, only managed to get 405 stores. The management had to face difficult situations as the buying behavior of the Chinese people is not always price driven. People were more attracted towards the tailored made products and environments that reflect their local preferences. The company also fails in understanding the business model of the country and its people preferences. As Wal-Mart gets global recognition for its cheap and affordable products, Chinese people termed these products as cheap and unsafe for them. Citizens are more concerned about the quality rather than prices.
How Wal-Mart Failed in Doing Business in China
Another factor that was not in favor of Wal-Mart is the macro-Environmental Environment of the country. The company had invested in the country when it was having outstanding growth in its GDP. And as the country’s GDP has slowed down, foreign investors are also facing its consequences. In addition to this, the specified company was improving on store productivity to meet the preferences of the local market for the citizens rather than improving the quality of their products and services.
Foreign companies are facing severe problem in conducting business in the country because of the proposed Chinese’s corporate laws. One of the foremost problem that companies have to face is the conduction of due diligence. The market of the respective nation is always termed as a place where the normal business theory wouldn’t apply. Other problem that most foreign company faces is that the parties never fully understand the priorities of the company. The country has numerous laws for the guidance of foreign investment, whether it’s whole owned subsidiary or a partnership business with a local company. Foreign companies need to find a way to deal with all the corporate challenges, and the ways shouldn’t be inappropriate. They should also spend some time to fully understand what their goals should be in the country and how they are going to achieve it.
For western organizations, doing business in China needs careful examination of the cultural differences between the two. Here is the comparison between the state-owned enterprises and Foreign Invested Enterprises and their influences in the Chinese Market.
State-owned businesses of the country are strongly linked up with the political factors of the country. These enterprises are not performing well and resulting in giving a less outcome of 52 percent. These enterprises represent a huge sector of the economy and in recent years, it has dominated as being the world largest IPO. They have performed well in satisfying the social objectives that function according to the regulations of the government.
Foreign Invested enterprises are facing a tough situation in creating their brand image to the citizens. They are failing as the choice of the people in China is dissimilar to the western countries. It has also failed in attracting the customers by providing any influential things. These enterprises are also facing problems in the country, as the GDP growth is falling each year.
SASAC is authorized by the Council of State according to the Company Law of the People’s Republic of China and also on the basis of other administrative regulations. China’s State- owned Assets Supervision and Administration Commission of the State Council plays important responsibilities of investors and at the same time supervises the state-owned assets of the organisation within the management of the China’s Central Authority along with this it also increases the supervision of the state-owned assets. SASAC performs the responsibility of managing the preservation as well as enhancement of the worth of the state-owned assets of the managed firm. The main objective of China’s SASAC is to work out assessment criteria, even supervises the preservation and enhancement of the worth of the state-owned assets of the managed firm with the help of statistics as well as auditing. SASAC is also responsible for the work management of salaries and basic remuneration of the supervised company; even it also prepares policies and laws that regulate the income circulation of the upper executives of the managed company and at the same time systematizes execution of the laws and policies. SASAC also plays the role of both appointment and removal of the upper executives of the supervised organizations; it even evaluates their working performances with the help of legal process and also bears the responsibility of either granting rewards or inflicting punishment according to the performances in work field.
It has been found in the study that the noteworthy result of the business trade of the China with small and medium size industries has stimulated vast quantities of the interaction of Multinational companies of foreign with the Chinese. The study also address that China has recently overtaken the US as the world’s largest economy in terms of size. The study also demonstrates that the main objective of China’s SASAC is to work out assessment criteria, even supervises the preservation and enhancement of the worth of the state-owned assets of the managed firm with the help of statistics as well as auditing.
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