Advantages and Disadvantages of the China Business Model - Coursework Example

? A Comparative Analysis of the Advantages and Disadvantages of the China Business Model The Advantages and Disadvantages of the China Business Model China’s Business Model The economic nationalism that has been largely promoted by the business model implemented by China has been seen to help the country achieve relatively unprecedented level of per capita prosperity. This massive success can be seen to be reflected by the country’s prosperity in several key industries. An example of this massive growth is clearly illustrated by statistics indicate that the total number of Chinese workers who happen to be currently working on various projects that have been underwritten by China all over the world is estimated to stand at about 3.5 million as of the year 2005. This number has quickly increased to now stand at about 5.8 million workers with Africa playing host to an estimated over 1 million Chinese workers (Djik, 2009). China has experienced rapid growth that has seen the country quickly grow to become the world’s second largest luxury market in the year 2009. The attainment of a 27.5% global luxury market share caused the country to effectively surpass the United States and was able to come second only to Japan. This massive growth has been seen to be quite remarkable especially in light of the country’s market consumption in in luxury products has only been in existence for a time period of approximately 20 years (Zhang and Stening, 2009). So as to be able to critically analyze the advantages and disadvantages of the business model in use in China, it is possible to individually analyze several key aspects of the model so as to gain a better understanding of the whole model in general one of these key aspects is the business model’s private economy. The Chinese Private Economy The definition provided for the Chinese private economy as detailed by Shan (2008) is that the country’s private economy can broadly be defined as including all the various non-state-controlled and privately owned enterprises as well as the country’s own private domestic economy that can broadly be expanded to include private enterprises, the various collectively-owned enterprises as well as individual businesses in the country, others classified as being part of the private economy include the various enterprises that happen to have investments from Taiwan, Macau and Hong Kong. This definition of private economies is seen to essentially leave out foreign-invested enterprises in the definition. Advantages Attributed to the China Business Model as a Result of its Private Economy Attribute The country’s private economy helped provide a ready labor market for country’s growing rural labor force. According to various government statistics, the country’s over 250 thousand enterprises that happened to be privately owned as at 1988, were able to successfully absorb over an estimated 4 million labors. This private economy was able to make better use of various resources such as available surplus expertise and labor, and funds that were not being properly utilized by the country’s state government (Chen, 1995). The Chinese business model also advocates for preference of Chinese workers over workers of other nationalities. This is highlighted by the approach taken by the country in regards to the various contracts obtained by its companies in other countries. An illustration of this factor being that, during the recent economic crisis that severely crippled the economies of several markets around the world, China was seen to be relatively unaffected as it continued to invest in several countries ranging from the Bahamas across to various countries in Africa. In a recent deal portraying the effectiveness of the Chinese business model, one of the country’s construction companies was able to sign a deal in Bahamas that was it get contracted to build a $3 billion gambling project (Dean, 2011). China was able to capitalize on this deal by insisting on bringing in its own workers onto the site and of the about 8,150 Chinese workers that it had insisted to bring into the project, it was able to bring in 6.150 workers. By effectively utilizing their successful business model, China is seen to be able to boost its revenue earning. As compared to the individual economy, the private economy can generally be able to add more revenue income to the general state treasury as compared to an individual economy since private enterprises generally tend to have greater turnover and output value (Chen, 1995). The tendency by most Chinese to create family firms helps these firms in securing some of the inherent advantages of these firms that includes common goals and trust. The trust that it see to be widely prevalent in these firms is seen to greatly improve the working environment of these firms as the different family members working in the firm all want the firm to succeed and grow as this will result in better gains for themselves. The open interdependence, shared goals, openness and cooperation that exists in these firms helps to further positively serve these companies (Schlevogt, 2002). Family firms also cause the family members working in them to display relatively very strong motivation and dedication to these firms due to the fact that there exists a sense of belonging and ownership to these firms exhibited by the different family member (Yeung, 2003). Another inherent advantage is that these firms offer the various family members working in them the opportunity to have relatively flexible and often long working hours as well as pay (Rowley and Warner, 2005). This is mainly due to willingness of family members to help out each other as a result of the relationship that exists between them. The pay given to the persons working in these firms also tends to be fairer as compared to the pay that is given in other business models where selfish motives are seen to be prevalent. Some of the Disadvantages that Accrue to China Business Model as a Result of its Private Economy Attribute There are several disadvantages of the private economy approach aspect of the china business model key among these disadvantages is the limited market available to this market. As a result of adoption of the family firm structure, the business model is also seen to be plagued by problems limiting its access to capital that is sometimes to be essential for business growth and expansion (Phan and Butler, 2008). The inability to quickly manage to access the often much needed capital is sometimes seen to be as a result of their often small size and difficulties that they experience in attempting to secure a credible guarantor for any of the loans that they wish to obtain. Another common disadvantage that is seen to affect the model’s private economy attribute is the lack of adequate amount skilled labor available to the company (Acton, 2012). In relation to the family firm approach to the private economy attribute, most of the workers are often afforded employment based on personal rank as well as position in the family as oppose to their academic achievements. These firms also sometimes largely avoid the recruitment of new employees into the more senior level of the firms, and especially so in the event that these employees happen to not be actual family members or family friends to the firm owning the firm (Lin and Zhu, 2007). Between the years ranging from the year 2001 through to 2008, the total number of individuals employed in the country’s private sector was seen to grow to a high of 137 million from an estimated 75 million. The total employment share that was enjoyed by these private economy firms was also seen to grow from an estimated 10% to about 17.7%. This trend is clearly portrayed in the graph below (Lai, H,). The quality of management as well as the overall quality of the decision making processes is sometimes seen to be lacking in these firms. Although these firms are generally relatively easy to operate and manage when they are just but mere startups, their eventual growth can sometimes prove to be quite challenging to manage for their founders and in the event that these persons do not opt to step down and employ more competent individuals to try and tackle the emerging issues (Equist and Hommen, 2008), this can have the result of negatively affecting the company’s overall management and decision making. The private economies are often faced by some challenges such as relatively increasing operating costs, the imposition of sometimes heavy taxes on the companies by the government as well as their having to pay various heavy fees (Tseng, 1994). Companies categorized as essentially operating in the country’s private economy tend not to receive any financial support from the China government. Private economy firms also experience considerable difficulties in their attempts to try and get listed in the country’s stock exchange. This trend is clearly highlighted by the fact that by the year 2010, only about 735 companies which are seen to essentially form about 36% of the total number of listed companies found to be listed. The Chinese Management Style Attribute in the China Business Model The main Chinese management style is generally characterized by its having a relatively entrepreneurial, charismatic and very dominant leader leading the organization, the management style utilized also attempts to try and minimize al bureaucracy while utilizing the various extensive connections as well as maintaining the established family-based values. The Inherent Advantages Associated with the China Business Model due to its Management Attribute The management style generally involves a general lack of the bureaucracy that is commonly seen when in most western management styles. The Chinese management style basically involves the use of relatively very little paper work with each individual worker being assigned a specific individual role. The organizations also tend to lack any formally enforced organizational structure and have standardized integration and control systems throughout the organization. The lack of bureaucracy is seen to greatly aid in the general decision making process as it is possible for decisions to be make relatively faster than in the western management system. Another key advantage of this attribute is the entrepreneurial spirit of the management. The Chinese management structure is often seen to adopt very aggressive entrepreneurial strategies (Boue?e, 2011). These strategies designed to maximize the organization’s entrepreneurial capacity are often seen to be autocratic, involve flexible leadership that is willing to adapt to the fast changing entrepreneurial climate and opportunities available as well having excellent entrepreneurial decision making. This entrepreneurial approach is seen to help these companies in quickly maximizing any emerging opportunities to their own advantage. The Chinese management style is also seen to greatly draw on the various available network connections (Alon, 2003). While this spider web connection of a myriad of companies that are seen to mainly focus and center on family. They are not averse to also seek other benefits from other sources ranging from other companies and organizations to political influence. By growing and fully utilizing their enterprise network, companies are able to receive vital help in their operations, as well as constant favors and opportunities that essentially would not have been available to them in any way. The Chinese management style is also perceived to greatly promote family based values. The system places a lot of emphasis on the unconditional respect for any seniority in the business organization. Family loyalty is also stressed upon and the family members are required to ensure that they always remain loyal to all their family and personal relations. This essentially helps maintain good discipline within the firm (Carina, 2008). When these firms eventually diverse their operations and form other smaller firms, the main organizational features operating in the firm are often found to be homogeneous across the various private firms irrespective of whether these firms emerged from the same company or different companies. This is as opposed to the western management style where the main organizational features are seen to vary quite significantly across the various firms. Having similar organizational features is seen to help these firms in the event that they happen to have dealings with each other. The Chinese management style is also seen to be focused on increasing the entire family’s wealth, improving is welfare as well as creating possible succession avenues. The adoption of this long term focus is seen to aid in securing the future of family members as their well-being will be continuously assured. Disadvantages of the China Business Model Attributed to its Management Style Approach The lack of an established bureaucracy and the centralization of power to a single individual can have adverse effect on the whole organization as the lack of the checks and balances that are usually afforded by an established bureaucracy can result in the business organization becoming severely affected in the event that inappropriate decisions are made and implemented by the organization’s head (Wu, 2013). The small sizes of the business that is often advocated for by the Chinese management style is also seen to prevent the organization from fully realizing the inherent advantages that might accrue to the business as a result of the various economies of scale. The Chinese Guanxi Principles in its Business Culture Guanxi is commonly defined as the special relationship that happens to commonly exist between two persons. This special relationship is essentially seen to greatly aid in the facilitation of both business and other dealings (Luo, 2000). Advantages Accruing to the Chinese Business Model due to its adoption of the Guanxi Principles and Philosophy Guanxi is seen to largely contribute towards the development of a positive business culture in the China business model. The various parties are encouraged to try and perform all their responsibilities as failing to perform these responsibilities will result in their being deemed as largely been untrustworthy (Luo, 2000). The principle also promotes intangible and often unspoken commitment by the parties at play to provide each other with relatively unlimited exchange (Lai, H). This assures companies and customers of a continues supply of both services and goods. Disadvantages Accruing to the Chinese Business Model due to its Adoption of the Guanxi Principles and Philosophy There are some inherent disadvantages that are commonly attributed to the china business model Guanxi principle chief among them being that in the event that the main individual who was concerned with the setting up of a guanxi connection happens to leave the company, the firm essentially ends up losing the connection (Luo, 2000). Another key disadvantage is that as a result of the relationship being developed over long-term continuous interaction, it may take a considerable amount o time to repair any damages to the relationship. Bibliography Acton, A. Q. (2012). Issues in Innovation, Indicators, and Management in Technology: 2011 Edition. ScholarlyEditions. Alon, I. (2003). Chinese culture, organizational behavior, and international business management. Westport, CT : Quorum Books. Boue?e, C. (2011). China's management revolution : spirit, land, energy. 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