The Formal Rules and Informal Rules of China - Essay Example

Running Head: Chinese negotiation style "Critically analyze the main characteristics of Chinese negotiation style and discuss the challenges it represents for managing international business in China" [Name of writer appears here] [Name of institution appears here] Chinese negotiation style Since the 1980's, international business has been on the rise. Negotiating and building effective relationships is vital for the success of Westerners conducting business in China. As with most Asians, where ritual and personal relationships are a vital part of the smooth functioning of society, Chinese business people do not rush into discussion or negotiations. The Chinese want to get acquainted before they do business. They also want to extend hospitality to demonstrate their respect for others and their own appreciation of the finer things in life. According to international business leaders, the difference in Chinese and other cultures are the greatest challenge to doing business in China. Coping with cultural differences was ranked as the first concern among business people. Other challenges included international trade dispute affecting business partners and intellectual property issues. 'Although the international business community has made great strides in understanding China's tradition, it is still important to be sensitive to the issues raised by cultural differences.' Understanding the Chinese people Most westerners, when preparing a business trip to China arm themselves with "a handy, one-page list of etiquette how to's, carry a boatload of business cards and bring their own interpreters", that's what Chinese tipsters say. However, such advice wont sustain the kind of prolonged year in, year out associations that Chinese and western business people achieve. In fact, breakdowns between foreigners and Chinese business people happen time after time. The main cause of failure is that of the westerners, to understand the much broader context of Chinese culture and values, a problem that too often leaves western negotiators both confused and flailing. (Lin 2003) The cultural influences outlined on the PowerPoint will give a clearly defined set of elements that underpin the Chinese negotiating style. Many foreigners often find these elements as confusing, but to ignore them at any time during the negotiation process, the deal will easily fall apart. (Graham 2003) These are in order of most important: 1. Guanxi (Personal Connections) The Chinese place a premium on individual's social capital with their group of friends, relatives, and close associates. 2. Zhongjian Ren (The Mediator) Business deals for Westerners in China don't have a chance with the zhongjian ren, the intermediary. In Australia, we tend to trust others until or unless we're given reason not to. In China, suspicion and distrust characterize all meetings with strangers. 3. Shehui Dengji (Social Status) The causal style of communication in Australia, such as "You can just call me Ben" does not play well in a country where the Confucian values of obedience and deference to one's superiors remain strong. The formality goes much deeper, however - profound so, to many Westerners. 4. Renji Hexie (Interpersonal Harmony) The Chinese sayings, "A man without a smile should not open a shop," and "Sweet temper and friendliness produce money," speak volumes about the importance of harmonious relations between business partners. 5. Zhengti Guannian (Holistic Thinking) The Chinese think in terms of the whole, while Australians think sequentially and individualistically, breaking up complex negotiation tasks into a series of small issues: price, quantity, warranty, delivery and so forth. Chinese negotiators tend to talk about those issues all at once. 6. Jiejian (Thrift) China's long history of economic and political instability has taught its people to save their money, a practise known as Jiejian. Chinese business negotiators will try to save money through a lot of bargaining over price - usually through haggling. 7. Mianzi ("Face" or Social Capital) In Chinese business culture, a person's reputation and social standing rest on saving face. If Westerners cause the Chinese embarrassment or loss of composure, even unintentionally, it can be disastrous for business negotiations. 8. Chiky Nailau (Endurance and Relentless) The Chinese are famous for their work ethic. But they take diligence one step further - to endurance. Where Australians place high value on talent as a key to success, the Chinese see chiku nailao as much more important and honourable. Chinese behaviour Chinese behaviour that may affect foreign companies doing business in China is that the Chinese individuals behave very differently in groups from as an individual. When in a group, the Chinese are less flexible and not as straight forward. As an individual, however, the Chinese are very easy to deal with and flexible, especially after they get to know 'the foreigner' and become comfortable. These behavioural differences have important implications for western negotiators and managers. The structure of most Chinese negotiation teams, especially during earlier stages of negotiation, includes a team leader, and members from functional area who usually have no decision power. The table summarizes the aspect of the Chinese group dynamics. (Ma 2006) During the process the individual members are not encouraged to be creative or to take the lead. Questions have to be directed to the team leader first, who in turn will direct the question to specific team members. People from different cultures behave and interact differently, because their minds were programmed differently. Western companies doing business in China have observed that the Chinese have a set of distinctive patters on communication, interaction, negotiation and decision making that is different from westerners. The difficulties experienced by western firms in negotiating with the Chinese are legendary. While cultural differences can intensify difficulties in negotiation, it is by no means the case that all difficulties are necessarily attributed to cultural differences. How does Chinese culture affect Chinese management' A Culturalists' perspective on Chinese management maintains "the influence of Chinese cultural values on management practises is so significant that it has created the distinguishing characteristics of the Chinese managerial system". It is said that the prevailing Chinese culture has strongly influenced management in terms of centralized authority, hierarchical structures as well as informal co-ordination and control mechanisms. However, in studying Chinese management thought, although one can readily trace its development from the past to the present, it remains unclear whether this is wholly due to Chinese culture. This essay will explore cultural influence on Chinese management, followed by a brief discussion on the validity of this argument in the PRC today. There are four deep-rooted treads of culture that have bound the Chinese people for over 5000 years. The first is agrarianism, which conjures a very communal ethos, group cooperation and harmony as well as loyalty and obedience to familial hierarchy. The second thread is said to be morality: the Confucian system is said to be the social fabric of Chinese culture and has been ingrained within Chinese society for over 2000 years. Confucian scholars developed an ideology based on the moral nature of man, harmony of society, political legitimacy and order and unity and it is claimed, "the early period of intellectual ferment profoundly affected the formation of Chinese management". Confucian ideology centred on morality, virtuous rule and rigid, hierarchical socio-political relationships. Confucius stressed the importance of social hierarchy and social relationships and the requirement of harmonious operation and welfare of society. The third cultural thread is the Chinese pictographic language. Since children do have to memorise thousands of pictures rather than a sequence of letters it is believed that Chinese thinking takes on more of a holistic processing of information. (Yang 2002) Finally, due to China's long history of violent attacks, it said that this has conjured a distrust of foreigners and "trust only two things: their families and their bank accounts". This a historic background to Chinese culture, but how does this relate to Chinese management' Chinese culture is said to enforce four main features within organisations and management: respect for age and hierarchical position, group orientation, the concept of face and the importance of relationships. Respect for age and hierarchical position is supported by findings that Chinese subordinates have a relatively high 'power distance' with managers compared to other countries with managers preferring a clear distinction between themselves and subordinates. This is related to the Confucian ideals that hierarchy is a foundation of management and that all members within this hierarchy must respect this. As a result of these values, Chinese subordinates are said to be both loyal and obedient to their superiors. Although hierarchy does play a major part within management it is said that humanism within Chinese management is identified as an important value of a good-natured manger. Confucius refers humanism to courtesy, good faith, diligence and kindness resulting in a relaxed and cordial atmosphere. Due to the Chinese emphasis on the family, management tends to mix family and business matters and often reflects the family hierarchy. It is not usually formalised but based on status and seniority. In general, there are few rules and job descriptions rather based upon "obedience, trust and trustworthiness" which, again, are Confucian values. On the downside to this, the sense of hierarchy is said to destroy the sense of participation because subordinates are reluctant to present new ideas and lack of clear roles can sometimes mean the overlapping of work. Group orientation within management is attributed to a number of factors. In pre-revolutionary China, the relationship with the most importance was that of the family and due to the power differentiation within families, individuals were expected to help the other members if needs be. Particularly since 1949, the Communist party have tried to emphasise this group orientation and it is ever present within the workplace as individuals aim to work towards the benefit of the group as a whole rather than for individual gain. This is also highlighted within pay regimes (with the 'iron wage'), since individual pay bonuses have only recently been introduced after the Cultural Revolution. It is group orientation and the reflection of familial hierarchy within the workplace that leads to the paternalistic style of management that is common in the PRC. Management are regarded, although at a lesser extent today, as providers of the subordinates welfare and lifetime employment ('iron-bowl' policy). Together with money and power, face ('mianzi') is one of the three motivators that govern behaviour in China today. Face is "the recognition by others of one's social standing and position'. Rescinding an order can mean a loss of face, which is why leaders sometimes cling to policies even when subsequent events prove irrelevant or misguided. Face is strongly tied in with Confucian values and it is far more important for a Chinese manager not to loose face, than it is for a Western one. So long as person follows the moral rules of Confucian, they are believed to have face, "propriety is the norm and confrontation and conflict are taboo". The downplaying of self and upgrading of relationships is highly valued to produce cohesiveness within the hierarchy. Chinese management is hinged upon the relationships within the organisation and again, ties in with the Confucian ideals that have been present in China for centuries. In regards to China's history, one can speculate that importance of relationships has developed further from the agrarian background whereby the family acted as a self-sufficient function and relied upon relationships with other families for trade. It is certainly still of importance today considering it was recently found that three-quarters of a sample of Shanghai's managers felt that written and oral agreements were of equal importance . The high level of trust incurred in these values has resulted in relationships being based on reciprocity whereby one trusts that another will always repay the favour. The emphasis on relationships and reciprocity within Chinese ideals has given rise to 'Guanxi': a network of connections to gain a business advantage. Admittedly, there is a formal bureaucracy in place within organisations (which in part is derived from the need for hierarchy amongst the Chinese) but in practise it is one's personal connections that gets you anywhere in business. Guanxi affects Chinese management in a number of ways in terms of enforcing direct involvement, a need to build business relations, business ethics and management of relationships. (Leung 2001) It has been said that anyone who tries to do business in PRC will realise that to get something accomplished relies wholly on who you know and that you need the appropriate connections to get anywhere. The most ambitious people obtain the best positions by attaching themselves to superiors, which can breed loyalty but can also perpetuate inertia. (Woo 2001) Guanxi has been associated to the high degree of corruption since it can be used to build relationships with the regulatory officials and party members. Furthermore, guanxi encourages a strong preference for the Chinese to do business with old friends, which can be extremely inefficient at times. A fifth element I would like to add is the Business Orientation and Ethic of Chinese management. A clear link to the agrarian background is that a business leader never gives up in whatever he does, exercising extreme endurance and working very long hours. Chinese management also has an emphasis on the virtue of thrift, diligence, responsibility, promptness, co-operation and learning which, again, stems from the need to be frugal in the use of limited resources and Confucian ideals. Since the family and the farm were the basic production components, businesses have harboured the values of egalitarianism, lack of division of labour and equal inheritance rights to all sons further encouraging filial obedience, a dedication to the land or workplace and the formation of conglomerates in the PRC. Unlike Westerners, management reflects a people orientation and negotiation style emphasises the means rather than the ends. In sum, Chinese management is typified by highly centralised decision-making, low structuring of activities, paternalistic style of leadership, strong emphasis on collectivism and group behaviour, and strong family management and ownership and there is clear evidence that this has a sound cultural basis. I am a firm believer that Chinese culture has influenced the management style however I agree with the comment that "in no way can culture be an exclusive explanation" particularly in regards to the recent political and economic reforms within the country. After the liberation in 1949, Chinese society became even more ideologically-driven under the new Communist regime, a wholly new management model was adopted; a hybrid of indigenous and Soviet inspired 'Taylorist' management with dual leadership between the party and management. Lifetime employment labelled as the iron-rice bowl was actually copied from the Soviet Union as well as the nationalised wage system used to encourage egalitarianism. However, the 'cradle to grave employment' system does seem to be far more reaching than the Soviet Union since it went way beyond production which may be explained by China's cultural roots. The Cultural Revolution threw the value system in China further into chaos. Since 1978, China has looked increasingly to the West and Japan for its management models. A significant reform by the government has been referred to as 'breaking the three irons' which has involved the removal of the iron wage, iron rice bowl and iron chair of position and the establishment of three new systems (iron face, iron guts and iron hands). This comes hand-in-hand with a conscious decision by the government to have a tougher attitude toward social responsibility and society itself with the introduction of a labour contract system, floating wage system and manager engagement system. "For a relatively long period, some aspects of the Chinese management will continue to be heavily influenced by the Chinese cultural tradition" but what I have tried to emphasise here is that although the Culturalists have a very strong argument, as China develops, management models are becoming increasingly exogenous which is encouraged through government intervention. Today, China's corporate culture is said to foster unprofessional managerial behaviour since it is associated with a lack of transparency, lack of separation between government and management control and lack of independent directors and, therefore, it is likely that increasingly the influence of Western and Japanese management models will continue to grow . This effect will be accelerated by the emergence of a more highly educated workforce who are believed to be more receptive to foreign values and may therefore be more willing to accept the Western approach to management. However, as has been pointed out, Chinese management follows a logic of its own within a cultural and economic context that cannot be equated with other countries, and therefore it is important that Chinese management models do not diverge too far from its cultural roots that have played such a significant role over the centuries. Explain some of the formal and informal business rules in China There are different business rules in different countries, same as China. As usual, business rule was divided into formal rules and informal rules. In the essay, I will try to explain some of the formal and informal business rules in China. Formal Rules Formal rules refer to the rules made by laws or government regulations, according to which firms must do or cannot do in doing business. More importantly, government often plays an important role in formulating formal rules. In China, different government carries out completely different formal rules in different times. The changes of businessmen are a good example of formal rules. During the period of Mao's rules, China experienced two violent political mass movements, the Great Leap and Cultural Revolution, which inflicted great suffering on the nation. At that moment, Mao Zedong carried out the policy was "everything were belong to the Communist Party, belong to the country". In other words, the government controlled every industry lines. Nobody can be allowed to do business. However, at that moment, China government has lack of experienced people in running business, the sales volume of these firms were not as good as they owned by the previous family. And these families have escaped to overseas already, or they will be taken into jail. After Mao Zedong died in 1976, Deng Xiaoping became the most influential political official in China. Beginning in 1978 Deng took steps to repair the damage of the Cultural Revolution and initiated the Reform and Opening. The reform and Opening can be divided into three stages. The initial stage of reform took place between 1978 and September 1984. The reform in this stage was focused on the rural area. In the urban areas experiments on expanding enterprise power were carried out, and enterprises were required to pay taxes instead of handing over their profits. For special economic zones and 14 coastal open cities were established, while further emphasis was placed on opening to the world. At that moment, people began to be allowed to do some business in special economic zones. The second stage was from October 1984 to December 1991. Deng focused on the reform of state-owned enterprise, and price system reform was also major task. The government mandatory plan was decreased at a large scale and the investment authority was terminated. During this period, the China's economic was unprecedented developed in a fast speed. Some foreign investors began to enter into China and looked for their business partners. I should say that the investors gained a large number of benefits than the followers. As the first group of foreign investors, the government provided them a lot of favourable policies to encourage them to set up factories or build their own representative offices. Followed with a variety of investment, the Chinese people who were in the real estate industry have become the predecessors of millionaires in China. The third period from January 1992 to the present, the government carried out the "market economy" policy which was also proposed by Deng. In this period China's opening and modernization has reached a new and historic stage. Now it focuses on transformation and system innovation. It began to emphasize on reforming the small state-owned enterprises, and especially encourage the people to contract the companies which will be closed soon. Moreover, the government offered a great number of attractive policies to push the jobless people to explore their own business. In other words, the private firms have been established widely in the whole country. It is not only offering more and more working opportunities for all the people, but also improved the people's living standard. One study showed that by 1997, China became the world's 10th largest trading nation. With this kind of satisfaction investment environments, doing business in China has become a popular trend in all over the world. Informal Rules Informal rules are the rules from history, culture or custom which the firm refers to and sometimes pays much attention to when doing business. Although informal rules are not limited in laws or by government, they are also very important for firms to concern their special function in doing business. China is the most populous country in the world. This has meant that Chinese society and culture are complicated. In China's business system, culture always influence to Chinese business activities. When I began to discuss the China's informal rules, I have to discuss the importance of network which we called it "guanxi" in China. For example, we usually have a welcome party for our business partner when the first day business negotiation has been finished. We am aim to close the relationship with our business partner through the party. In the party, we'd like to continue our today's topic and try to create the friendly atmosphere for our business partner. Through this way, we are going to reach an oral agreement with our partner about the difficult terms and then obtain the more favourable conditions in next day's negotiation. However, the purpose of the welcome party is quite different between Chinese businessmen and foreign tradesmen. Sometimes we think we have already finished discussing the troublesome problem with them, but they don't remember they have given us any promise at the welcome party. In addition, due to the China's long history and colourful culture, the Chinese people have some special expression when they doing business. For instance, if the Chinese businessman say "let me think it over" during the negotiation, it means he disagree the negotiation terms. In Chinese culture, it is impolite to say "no" to anyone else. In our view, we should defend other people's dignity when we doing everything. If the foreigner businessman does not know anything about the culture, he might wait for the further response from this Chinese person. In fact, he had better change the relative terms as soon as possible in order to reach the contract. Of course, with the development of globalization, Chinese people's ideas and views have been refreshed already. A small example could be given to illustrate my point of view clearly. In the past years, Chinese people usually work in the same company from the first day he entered into the society until he retired. In other words, a person should be loyal to his company in the whole life. However, this kind of view has already been refreshed in these years, especially after the opening policy carried out in 1990's. If the boss is not satisfied the employee's working attitude, he can fire him. On the contrary, the employee has the same right to fire the boss if he is not satisfied the salary or work environment which the boss offered. It means nowadays employee have already got the same right as their employer in China. They can choose the interesting job and do not need to contribute the whole life to stick at a boring work. Our parents have not completely accepted this new concept, but we are enjoying it very much. We got more benefits from it; we are luckier than our parents to choose our boss and job by ourselves. Also, it makes our employer to pay more attention to care of the employees. From our part, we can get more satisfaction salary and favourable welfare from the company. It makes us luckier than our parents. Of course, this kind of things will be happened because of the times is changing all the time. In a country, the business system will be changed whenever the formal or informal rules are changed. Together with the economy development, China government is keep changing the formal rules to suitable for the market thus to get the benefits from the rules. All in all, informal rules should be obeyed while it is in line with the formal rules. When there is a confliction between the informal rules and formal rules, you have to listen to the formal rules firstly or you will break the laws thus make troubles for yourself. The better you understand of the formal rules and informal rules of China, the more profits you can obtain when you doing business in China. References Chang (1976), "Early Chinese Management Thought", California Management Review, Vol. 10, No. 2. DeWoskin, K. (2003), "China's Next Decade of Reform-The Hard Choices", The China Business Review, March-April Edition. 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