How Far Do Differences in Country Culture Affect Success or Not Chinese Business Going Overseas - Literature review Example

Differences in Country Culture and Chinese Businesses Overseas

Summary

Constant growth and increase in international business characterizes the 21st century. Companies in Europe, China, and the United States, for instance, have in the recent past focused a great deal on investing in the Third World Countries, especially in Africa and the Middle East (Hao & Yuxi, 2014, p.119). Thus, the world continues to open up for new destinations and foreign firms. Essentially, the trend follows an increase in technological innovations and rapid changes in the global corporate sector. As a result, there is cut-throat competition and flow of various business ideas and opportunities among countries, regardless of geographical location. However, every business firm or company that operates abroad often faces unlimited challenges both in the beginning and in the long- run.

In this context, the problems and challenges facing these companies tend to revolve around social, cultural, political, and financial factors. In particular, this literature review comprehensively focuses on culture, as one of the crucial investment and consumer buying behavior determinant factors, especially for Chinese businesses in foreign countries.

Morrison (2002, p. 31) argues that the 1978 cultural revolution in the republic of China, business ownership changed gradually from state governed economies to free market economy. Chinese businesspersons began sharing highly competitive market with Western countries. The trend increased owing to the privatization of former state-owned corporations and companies. In addition to increased globalization, the rest of the world started experiencing China’s influence. However, international business and interaction brought about unlimited intercultural challenges (Harvard Business Review, 2004, p.49). Therefore, managers and entrepreneurs were tasked with a difficult of approaching these challenges to ensure successful operation operations.

Culture refers to a set or group of individual norms or boundaries (Lındrıdge & Dibb, 2003, p. 282). Additionally, culture defines values. Therefore, culture is the most pervasive of the external influences in any business. Values refer to generally held orthodoxies or beliefs, which are closely connected and linked to a culture of what is desirable and acceptable. When making a decision to go international, any business must be more than ready to meet and handle unfamiliar and new corporate challenges. For example, the common cultural obstacle the company faces at the national level becomes uncommon, complex, complicated, and multifaceted at the international level. Hence, they prove difficult to deal with.

Culture usually influences businesses and co-operation in various ways. In the beginning, the business often struggles with pricing difficulties, language problems, and other forms of culture collisions (Kenna & Lacy, 1994, p. 4). The company should address these difficulties in a satisfying manner to ensure its survival and growth amidst high competition, as in the case of Huawei. In fact, correcting cultural mistakes is cumbersome and difficult. On the same note, the act of disrespecting foreign cultures destroys business operations. In this sense, foreign cultures possess different ways and methods of carrying out business activities. Therefore, developing a negative attitude and impression towards a particular culture may lead to detrimental effects on customer relations and general business expansion, as in the case of TCL (UNCTAD, 2006, P.7). The literature review bases upon the hypothesis that culture brings about both negative and positive influence for the Chinese business ventures in foreign and new environment.

Culture and Consumer Buying Behavior

Researchers argue that the consumer varying tastes and preferences complicates the process of human consumption (Deng, 2009, p. 75; Deng, 2007; & UNCTAD, 2006, p. 34). Similarly, customer loyalty and willingness to buy remains dependent on various factors, such as culture, social classes, and sub-cultures. Yakup, Micahit, and Reyhan (211, p. 109) conducted an empirical study focusing on the impact of cultural factors on the consumer buying behaviors. The study involved 1286 people randomly sampled from provinces in Turkey. The researchers collected data through interviews.

The primary data collected was analyzed alongside the available qualitative data. The researchers found that people sharing the same culture tend to consume the same types of food, watch same programs on televisions and wear same model of clothes. On sub-culture, they established that people living in close proximity also share preferences, habits, feelings, beliefs, customs, and language. Responding the question of whether a product’s relevance to culture and traditions facilitated purchasing power, 86 percent of the respondents confirmed that they only buy goods and services in line with their faith, beliefs, and other cultural determinants (Yakup, Micahit, & Reyhan, 2011, 110; Henry, 2005, p. 767).

From the study, buying behavior refers to the act and decision-making process of individuals involved in the purchasing of products, either services or goods. For this reason, any business entity should be in the best possible position to identify, comprehend, understand, and respond appropriately to some of the technical questions related to customer behavior. First, all the responsible stakeholders, especially managers, customer relations officers, and technological experts should ask why some consumers make particular purchases while others do the opposite (Bowie, 2008, p.5; Martin & Chaney, 2006, p. 26). Second, what are the essential factors, which tend to influence a great deal purchases by consumers? Third, what are the changing or unstable social, cultural, political, personal, and economic factors that influence how consumers relate with and buy from the business? Finally, what strategic measures and mechanisms are necessary to address comprehensively these conundrums?

According to Keillor and Fields (2005, p.85), the four main factors that shape and determine the consumer behavior include personal, psychological, cultural, and social. The duo further argues that these factors play an integral role in making existing, new, and potential consumers to develop and maintain both brand and product tastes and preferences. Unfortunately, it is evident as will be discussed in this literature review that marketers or businesses may not have direct control of all the factors mentioned. Nonetheless, understanding and remaining informed of their positive and adverse impact on the business operations, success, and failure is not only a crucial undertaking, but also a result-driven strategy (Kim & Mauborgne, 2005, p.34; Kolsaker, Lee-Kelley & Choy, 2004, p. 23). Such follows the fact that being conversant with every factor functions to help producers, human resource teams, and managers develop effective and realistic marketing mix strategies with the sole purpose of appealing to the target market preferences.

Decision-Making Process

In relation to that, consumers often go through five-stage decision-making process just before purchasing a given product. The stages in order include recognition of the problem, searching relevant information about the product, evaluating available alternatives or substitutes, making purchasing decision, and analysis of post purchase behaviors (Gesteland, 1999, p.16: Hoyer & Deborah, 1997, p. 19). Undoubtedly, the length of the process varies from one consumer to another. A consumer, for instance, may not make individual and isolated purchase decisions. Rather, their actions may become susceptible to influence of other people with firsthand experience with the product at hand (DeMooij, 2003, p. 201). Still, the total number of people participating in the decision decreases or increases depending on the level of complexity, involvement, and demands of the buying decision behavior. Equally important, marketers need to know other people involved in influencing the buying decision of their potential customer so that they can also aim at them by making relevant adjustments.

Business Culture in China

China is currently the second largest economy in the world after the United States. Despite the country’s rising influence in international trade, cultural dilemmas and related challenges remain a potential threat to her growth and development. The business culture is so distinct that foreign investors often face difficult marketing and establishment strategies to perform perfectly well in the market. In this section, the literature review examines the appropriate business behavior and culture in China. Bowie (2008, p. 14) employs holistic approach towards analyzing the business culture in four different countries, including China, France, United States, and Mexico.

After undertaking an extensive qualitative analysis, Bowie (2008, p. 21) found that China’s business culture is the most conservative and reserved, hence indirectly proportional to that of America. First, China expects foreigners to create and establish a contact before sending business representatives. Furthermore, such trips should be best scheduled in either April or June, and September or October. Morrison, Conaway, and Borden (1994, p. 17) argue that during this time, there are few or no Chinese holidays to conflict with international business related events and conferences. On arrival, the foreign business persons should avoid at all cost touching people. Touching such as arm squeezing and patting someone’s back usually makes the Chinese citizens uncomfortable and skeptic, especially when having the first meeting (Morrison, 2002, p. 33).

Chinese culture accepts a light handshake. However, it is the Chinese business associate to initiate the same (Morrison, Conaway & Borden, 1994, p.11). Similarly, each party is expected to bow while holding palms together, as they also face one another (Gesteland, 1999, p. 21). In any social setting, one should avoid holding eye contacts because it is a sign of disobedience and disrespect. When a foreigner enters a room with potential and existing business partners, he or she should first greet the most senior among them using relevant and appropriate titles. For example, Chinese are addressed formally using last name (surname). In case one is greeted or welcomed in applause, they are expected to return the gestures used.

Notably, the Chinese culture requires an individual to show no or little emotion when dealing with another person, regardless of whether they are foreigners or indigenous societal members. They rarely accept jokes following the fact that humor remains susceptible to different interpretations (Zhou, Fu, & Zhuang, 2008, p. 80). Additionally, Chinese businesspersons value exchange of formal business cards. Cards must be written and printed in plain lettering and printed in two languages, that is, Chinese and English. While giving out cards, one should accept it using both hands before reading and keeping the same safely. Morrison et al (1994, p. 9) posits that writing on someone’s card as he or she looks on is rendered inappropriate.

Chinese business stress is both formal and conservative. Women wear high neckline and avoid high-heeled shoes if they can make them taller than the host. Gift giving and receiving is only allowed in the immediate aftermath of creating rapport and building a strong relationship. When giving and receiving gifts, they place much emphasis on modesty and considering carefully the context and circumstance of the gift (Martin and Chaney, 2006, p. 13). For example, a clock, white flowers, or anything given as a gift in a group of at least four people may symbolize death according to the Chinese culture. Appropriate gifts should include a cognac, pen, or related items, especially for a given business situation. In addition, closed-up gifts should be opened later not immediately.

Chinese prioritize education and businesses that function to reinforce the teaching-learning process are highly appreciated and welcomed in the country (Lank & Lank, 2001, p. 21). In contrast, they reject firms, which sell products that interfere with the learners’ concentration. For example, the U.S. Mattel failed in Shangai, China because the consumers saw the company a potential threat to education wellbeing of their children. Mattel sold plastic dolls to Chinese children something that could result to over indulgence and frivolous pastime by kids (Allen, 2002, p. 516). In this sense, Mattel concentrated on making profits before analyzing the culture of its consumers. Disney, another toy manufacturing company is both successful and continues to enjoy a wider customer base in China because it has tied play and entertainment products to various English learning centers in the country.

A failed Chinese Business Venture Overseas

TCL-Thomson Electronics Merger and Acquisition

Culture remains the main cause of failure and incompetence among Chinese companies in foreign countries and market. The issue of culture and related factors can be examined in relation to mergers and acquisitions. In a study carried out by Deng (2010, 674), the research is based upon the assumption or hypothesis that acquisitions are both highly value destroying and problematic. Therefore, the sole purpose of the study is to address the acquisition failure, specifically in the case of TCL and Thomson companies. TTE is a French company while TCL is a Chinese company (Chan & Mauborgne, 2005, p. 8). The study aimed at answering two fundamental questions. First, what are the key firm or organization-level mechanisms and factors causing foreign mergers and acquisitions to fail? What are the immediate, realistic strategic mechanisms to solve acquisition problems facing Chinese companies overseas?

From the available secondary data and interviews carried out through structured questionnaires, Deng (2009, p. 74) realized that TCL set up and formed TCL-Thompson Electronics (TTE) in 2004. TTE could become an established joint venture between the two companies. When the deal was officially signed and announced in the presence of the China’s President and French Prime Minister, everyone strongly believed it could serve as a game-changer in global mergers and acquisitions. In 2005, the newly created merger, TTE lost approximately 70 million Euros. In the following year (2006), TCL embarked on restricting the entire TTE plan (Barbieri et al., 2013, p.49).

The company stopped its sales and related activities in the European market. Following additional restricting costs and business loss, TTE further lost over 250m million Euros. TCL accumulated losses worth 680 million dollars. In 2007, the company risked being delisted and the management declared it insolvent. From this scenario, TCL’s main goal involved acquiring and obtaining Thomson’s technology, brand, network, and distribution channel. Unfortunately, the company failed to identify and obtain new, external knowledge, which usually has a direct impact and influence on the performance of the business (Narasimhan et al., 2006, 512; Zeithaml, Berry & Parasuraman, 2006, p. 32).

The study found that the acquisition performance in the case of Chinese mergers and acquisitions are affected by a firm’s inability to successfully acquire, absorb, and retain foreign businesses. Such means that the company has relatively low absorptive capacity. Absorptive capacity refers to the ability of any given business entity to recognize, adopt, and assimilate new or external information to apply the same in commercial activities. First, Deng (2007, p.675) argues that TTE failed because TCL relevant knowledge about the target firm in question. TCL might have had knowledge concerning the global television industry just before moving to France.

TCL did not develop an evaluate approach to acquire important information about Thomson’s services, brands, and products. Consequently, the deal was marked by unfavorable terms ad numerous ambiguities only because of misunderstanding (Zollo & Singh, 2004, p. 1234). TCL lacked clear understanding of the terms and conditions of acquiring a firm operating in a host country. Likewise, both companies did not consider the cultural differences between France and China. Losing 250 million years in 2005, for instance, occurred following the fact that unions in Europe strongly protect the rights of workers, thus, leading to high relocation and restructuring costs (King et al., 2004, p. 188).

Although TTE remained focused to change the manner in which acquisitions work, TCL lacked combinative capabilities. For example, the company could achieve neither high performance nor competitive advantage due to poor coordination and failure to consider consumer tastes and preferences (CBC, 2006, p. 1). Combining and aligning a firm’s management skills to the need of consumers form the basis for success strategic assets in the market. Notably, application of external knowledge in the daily operations of the business involves formulating and implementing knowledge diffusion policies to distinguish success from failure of a newly formed enterprise (Lane et al., 2001, p. 1157; Sun & Wu, 2004, p.251). TCL suffered from managers and customer relations personnel with expertise and international experience in global and cross-border marketing. Therefore, the new company (TTE) did not work and relate with stakeholders with different levels of experiences and routines and those from different cultures.

In essence, issues revolving language use included persistent disagreements on how to handle compensation issues, employment and marketing strategies. TCL senior manager confirmed that they could not reach a compromise on a common, functional, and effective production strategy for TTE (Church et al. (2001, p.26). They failed to hire or consult with international business professionals on the way forward with their new acquisition. Moreover, TCL wanted to remain in charge of its major European operations by demanding for a greater hierarchical and management cultural control of the firm (CBC, 2006, p.7). Unfortunately, TCL imposed China-specific control structures leaving out French in as many dimensions as possible. As a result, French staff and employees from other cultures became frustrated and quit the firm. For example, TCL executives established that when a meeting was planned to take place in France, French staff could turn off their phones.

TCL managers failed a great deal to understand complex and constant changes in the information and communication technology industry (Hofstede, 2010, p. 51; Xu, Wan, & Pei, 2008, p. 141). The managers repetitively tried in vain to assimilate external knowledge and skills through old cognitive methods and models. After experiencing a serious of failures, they struggled to change the domestically oriented knowledge assimilation processes and cognitive structures. Undoubtedly, cognitive structure differences, conflicting behavioral norms, and value systems show that the new company lacked acquisition and assimilation capabilities concerning culture (De Geus, 1999, p.76). It is evident that TCL was completely unaware of the potential cross-border opportunities because of its managers both ignored collaboration with their French colleagues and preferred Chinese style of doing business to French styles.

Hayes (2010, p. 7) posits that TTE failed to thrive and survive in France as result of poor anticipation and unwillingness to consider changes in consumer demands. In 2004 and 2005, television companies across the globe, especially Japan gradually shifted from manufacturing projection and CRT TV sets to LCD screens. By 2006, flat-panel TV models attracted consumers in both Europe and the United States. However, TCL remained reluctant by insisting on the production of old-fashioned TV sets (Luo et al. 2011, p. 68; Beatty & Smiths, 2007, p. 84).

Later, the company announced its plans of buying flat panels from the LG. Philips LCD Company. Besides attempts and tireless efforts to prove relevance in the market, the company had already lost potential customers. In conclusion, the study suggests that Chinese companies operating overseas require an understanding of the cultural determinants that affect their acquisition deals and related business activities. In mergers and acquisitions, for instance, their managers should undergo relevant trainings to acquire global business skills and knowledge (Nadler & Tushman, 2007, p. 14).

Although the study provides and avails an insightful and challenging account on how Chinese companies should handle mergers and acquisitions, it is limited to two countries, France and China. As such, the case study may not apply to all countries because of socio-cultural, economic, and political differences. As such, the researcher should have used random sampling to select more countries, either in middle-income economies or in underdeveloped economies. Concisely, this is the first study to apply the absorptive capacity theory and arguments to examine critically Chinese mergers and acquisitions (Kotter, 2006, p.65). Therefore, it presents challenged to researchers in the corporate world to develop new techniques in examining the role of culture and other factors in the operations of businesses abroad. Referring to this research gap, practitioners and economists should not only think of new strategies, but also analyze acquisitions in innovative ways.

Successful Chinese Business Venture Overseas

Huawei

Huawei is one of the Chinese foreign direct investments (FDI) that have so far increased in the recent years (Forbes, 2013, p.1). Nevertheless, some of the key drivers functioning to encourage international investments include the strong demand by the Chinese companies to gain access to new markets, natural resources, and new technologies. Again, most of these companies tend to enjoy strengthening competitiveness and incentives from the government. According to Huawei (2010, p.31), the company has gone against all the odds to become the first Chinese company listed on the Fortune Global 500. In 2005, the company’s overseas revenues exceeded its domestic revenues in China.

Huawei outlived good performance at the international level by surpassing Ericsson in 2012 (KJones, 2010, p.12). As a result, it became the first Chinese company to lead the world in networks and telecommunications. The trend continued and remained consistent through 2013 to 2014 when Huawei realized the highest sales volume and revenue of over $46.5 billion (Hayes, 2010, p.11). By 2007, the company operated and managed more than 100 company branches across the globe. The performance of the company has brought about serious and acrimonious debates among sociologists, economists, and other business experts and stakeholders. The main conundrum is what is the underlying secret of Huawei’s success in foreign countries?

In their case study on Huawei, Hao andYuxi (2014, p. 69) first provide a brief overview why many Chinese enterprises fail in the international markets. In particular, they identify culture, as the main contributing factor. Following their analysis, Huawei’s success relies on its customer-oriented culture and flexibility in the present-day volatile market (Huawei, 2011, p.64). In the beginning, Huawei avoided developed countries, like the United States and European Union. Instead, the company concentrated its marketing in developing countries in Middle-East Asia, Latin America, and Africa. By 1995, the company entered these countries and started establishing its marketing branches (Burke et al., 2004, p. 91).

Indeed, the rational employed Huawei involves the realization that emerging markets are both sensitive to selling and buying price of goods and have lower or non-complex entry barriers. Africans, in this case, comprise of people with low income. As they work to achieve convergence in the long-run, most Africans would acquire cell phones to ensure effective communication and access to different business ideas and technological innovations. To exploit this opportunity, Huawei considered the social classes by manufacturing cheap electronic devices to Africans (Gorman, 2012, p.1). The company developed rapport through appreciation of African culture, thus forming a long-lasting consumer base in the region. Culture, therefore, denotes an important aspect of company organization regarding excellence and success in the global markets.

After establishing its many branches, Huawei entered the European and American markets (Frost & Sullivan, 2007, Oct 3). However, they started by forming partnerships, especially with leading competitors in developed countries. In fact, developed economies usually require detailed and stricter qualifications, something that interferes with entry time. Before setting up any new branch, the company often hires and consults specialists who conducted research on the viability of the local market (Liu, 2013, p.10). Undertaking extensive research enables the company to identify, evaluate, and respond appropriately to customer needs. For this reason, it uses the consumer feedback and research findings to develop and sell right services and products to meet their changing demands. The companies should invest in the market research to identify and determine essential values to integrate in their operations for customer satisfaction. The innovative research helps the corporation to tailor their products to match the international products level technologically.

As early as 2000, Huawei deploys key and experienced sales personnel in teams with aim of developing reliable, diverse markets (Zhang, & Duysters, 2010, p.71). While operating in a foreign country, half of Huawei’s staff comprises citizens of the host country. Staff are treated equally and rewarded based on performance irrespective of culture and place of origin. The company achieves fairness by recruiting only qualified, talented individuals and retains them with favorable and competitive salaries (Child, Faulkner & Pitkethly, 2001, p. 6; Greenberg, 2012). Furthermore, the company trains workers to master and practice value-driven culture and the ability to acknowledge and appreciate opinion of others at workplace. Job induction and training helps the company to ensure their employees are competitive and competent in their lines of duty. It will also help the employees to integrate the company goals and objectives thus delivering services to the expected standards.

Conclusion and Recommendations

The literature reviewed in this context clearly shows that culture plays a crucial role in determining whether or not a Chinese business enterprise will survive or fail overseas. Culture remains inextricably linked to a people’s buying behavior and investment decisions. On the same note, cultural differences dictate mergers and acquisitions, as witnessed in the case of TCL and Thomson when the two companies formed TTE in 2004 (UNCTAD, 2006, p. 23). To operate successfully in a foreign country, Chinese companies should be ready and willing to invest in effective acquisition and marketing strategies. First, they must avoid sloppy business operations, discrimination against other cultures, and ill-advised behavior towards stakeholders.

Chinese businesses wanting to exploit opportunities presented by international trade should dedicate a culture-specific strategy and team to familiarize themselves with different norms, beliefs, and habits (Huawei, 2010, p.7). The team in question should take a market-based approach towards addressing customer preferences, business adaptation in the event of an acquisition, and pricing. Additionally, the managers should recruit locals to facilitate the whole process of breaking various business deals, understanding market complexities and culture, as well as compensating for language barrier and related problems. When dealing in fast foods and electronics, for instance, the production managers should liaise with customer relations officers to ensure their products appeal to the changing local tastes.

In relation to that, just before entry and during operations in a different country, the company must consider informing the personnel and other stakeholders about the customs, beliefs, and manners in the new culture. Acknowledging and appreciating the new culture by learning the language of the host country enhances development of trust, respect, and creates an opportunity for competitive advantages (Williams, 2002, p. 250). In short, even if a particular company performs well in China, like TCL, it must be in the best possible to sell its products in the context of the foreign country, France to satisfy consumers.