Global Business Cultural Analysis: Outline
Culture is an important vector of the emotion and spirit of a nation. Chinese culture combines an immense and complex set of achievements in the most diverse fields which confer to the country, the oldest geo-political entity in the modern world. This continuity, which allowed the effective dissemination of practices and concepts, gives certain elements of Chinese culture a generalized aspect that transcends regional and historical differences. The prestige of the Chinese Empire has contributed to the expansion of its culture in the East and Southeast Asia. It has also attracted many foreigners who have enriched Chinese civilization. This paper focuses on the most diverse elements that molded China culture and the approach of conducting business in the nation. This article examines several major cultural elements in China and the United States, compares them and tries to reveal national personality for better understanding of business relationship between the two countries. Geert Hofstede’s analysis was used to do an appropriate evaluation of the two nations. This research did not end without mentioning the implications for U.S. business that wish to do business in China. The SWOT analysis as well as the situation of the Foreign direct investment (FDI) was mentioned.
China is the third largest country after Russia and Canada. In the 20th century, China developed a new wave of interest in the world. It is vital, at a time where all eyes are on China, to know its culture and its values to better understand it culture in term of business. To better understand the development of China, I will analyze four different elements. First, I will discuss the major elements and dimensions of culture in China. Second, I will analyze how these elements and dimensions have been integrated by locals conducting business in China. Third, I will analyze how those elements could be compared with United States culture and business. And fourth, I will analyze the implication for United States businesses that wish to conduct business in China.
What are the major elements and dimensions of culture in this region?
Each culture is shaped and established in special historical and social condition. The major elements and dimensions of China culture are communication, religions, ethics, attitudes, values, business manners, customs, and social cultural.
Different meaning of words across languages
Communication is one of the most important tools that individuals use to maintain relationships, whether at work or in their private lives. Every culture possesses its own mode of communication. In China, we can distinguish different types of communication. The verbal and the non-verbal are some examples of communication in China.
Verbal language. There are many Chinese dialects, but only three are widely spoken throughout the country. The most common is Mandarin, which is the official dialect of China, and is the language taught in almost all Chinese schools and used on television and in the media (Lianlian & Jones, 2005). Most Americans who learn Chinese choose to study Mandarin because of its prevalence in Chinese culture.Cantonese is the second most common dialect, and it is widely used in Hong Kong, Guangdong and southern Guangxi Zhuang. Because of it great regional concentration, many China’s immigrants and expatriates in the neighboring regions of the Pacific coast of the United States (Washington, Oregon and California) speak Cantonese. Taiwanese, another dialect, emerged from the Guangdong region. This is not as commonly understood as Mandarin or Cantonese, and is not used in the media.
Non- Verbal Communication. It plays an important role in Chinese culture. The nonverbal communication made up of gestures, of the eye contact or the expressions of the face express the emotional state of the speaker. For example, a Chinese man will raise his hand and not his finger to show disapproval and shake it from left to right. Body language is sometimes more used in Chinese Culture (Inukai, 2012). Non-verbal language is more suitable to express feelings. Non-verbal communication is done unconsciously, that is why it is considered more sincere and faithful than words. It allows Chinese to decode the thoughts and feelings of others, which is very useful for detecting a lie (Inukai, 2012). Visual contact, facial expressions, gestures, physical contact and proximity, and tone of voice are various elements of non-verbal communication.
High context vs. low context culture. China is a high context culture. High context cultures are those where social relationships are very closely related to the society (Hall, 1990). Communication does not only concern the transmission of information but also the transmission of emotions. Thus, many factors, other than pure and hard dialogue, are taken into consideration. For example, greetings take on a vital role and not only serve to create a convivial context but also to express interest or to establish links.
Religions and Beliefs
In China, religion is not different from cultural, social and political activity. The religious practice of most Chinese consists in a mixture of Buddhism, Confucianism, Taoism, and others foreign religions (Hinsbergh, 2017).
Buddhism. Introduced as early in the first century in China, Buddhism is today the most practiced religion, with over 43,000 registered temples and at least 100 million followers. Buddhism gradually gained ground, but was long time seen as a foreign religion. Buddhism was integrated by presenting religious practice that benefit not only the individual, but also the society. Buddhism had the advantage of being more structured, and well organized. This give it the advantage to become a true institutional power called “great monasteries”. (Hinsbergh, 2017). It was chosen as the official religion by some emperors.
Confucianism. Confucianism was established as a state doctrine. It is based on the teaching of the life of Confucius, especially showing the way to the disciples. Confucianism has the influence to impose its own ideology to its worshipers. It is considered above all moral, social and political doctrine. Some rituals are described as “Confucian” because they reflect the social and political structures strongly influenced by Confucianism worshiper (Hinsbergh, 2017). Confucianism is practiced by most Chinese, regardless of religious affiliation. Ideologically, the religious ceremonies, are often made in honor of Heaven and Earth. It is the responsibility of the emperor and the officials who perform the rituals to ensure the smooth running of the ceremony.
Taoism. Taoism, or rather the Taoist, appeared during the second century. In China, the term “Taoism” is used to describe schools transmitting ascetic techniques, rituals, and religious teachings from master to disciple (Hinsbergh, 2017). Their members are professionals making all sorts of specialized services: talismans, exorcisms, and different religious ceremonies. Its wisdom based on the teaching of the “tao” (the way) is at the very basis of Chinese spirituality, the root of culture and thought. A lot of Chinese people say they are inspired by Taoism.
Other religions. Protestantism and Catholicism do not develop at the same speed. In 1947, they represented between two and three percent of the population. (Yang, 2014). But Protestants have experienced an unprecedented rise in the last fifteen years and have between 40 and 70 million followers. Catholics are between 12 and 14 million and have division among the officials. Such division does not exist among Protestants, but the diversity of Protestantism makes them fragile. Islam, the Muslim religion is not expanded and is confined to a national minority. There are mainly the Huis in the south-west of the country and the Uighurs in Xinjiang province in the north-west of the country.
White, black, or yellow, all the people of the earth know the just and the unjust, but they do not all have the same idea. There are some people that distinguish good from evil, lawful actions from those that are not. In matters of morals, duties, misdemeanors or quasi-offenses, each has its own opinions and what may be called its scale of values.
Corporate social responsibility. Corporate social responsibility (CSR) is a concept more firmly rooted in Chinese law. In 2005, the law governing company law in China introduced for the first time a provision on CSR. In 2007 and 2008, several regulations continued this development. The development of CSR policies and guidelines is primarily the responsibility of the Department of Commerce, which considers CSR a major factor in transforming the economic model. International cooperation has also played an important role in the conceptual developments that precede new regulations (Ardichvili, & al. 2012). A dozen important pieces of legislation structure the legal approach to CSR. In addition to a set of technical provisions, it has repeatedly encouraged companies to set themselves ambitious targets for CSR.
The issue of Corruption. The Republic of China suffers widespread corruption. China was rated 79th out of 176 countries according to the Transparency International Corruption Perceptions Index 2016 (Corruption perception index, 2016). Corruption is a key issue in China that required the attention of the Chinese. China’s vast anti-corruption campaign has resulted in the punishment of 1.2 million people in four years, the Communist Party of China (CPC) promised to continue tracking corrupt cadres. In 2016, 57,000 CCP members surrendered to the anti-corruption authorities. Since the end of 2012, more than 7,900 of these officials have themselves been sanctioned. (Corruption perception index, 2016). Corruption is endemic in China and President Xi Jinping has been overseeing a highly-publicized campaign to eradicate it since taking office in 2012.
Values and attitudes
Chinese are proud of their 5,000 years of history and their creation of the foundations of a civilization. The importance they accord to harmony in their society, their family, and the role of gender will be discussed in this section.
Harmony and family. Harmony is a fundamental characteristic of traditional Chinese culture. The reason why harmony so important in Chinese’s mentality and culture is because Chinese need such harmony in the relationships between people to better maintain their network (Sutton, Siu, & Crossley, 2006). Confucius advocates the precept of loving others since harmony is the essential in their community.
Family is an essential value in the life of a Chinese. For most Chinese, the main social relations are first family, then friends and colleagues. When referring to the family, reference is made to at least three generations. Since the basic social unit is the family, the Chinese are disciplined and educated to sacrifice their personal well-being for the benefit of their family. This goes to the point where all those who bear the same last name offer sacrifices to the same ancestors. The family is also an economic unit. Land, patrimony, furniture, everything belongs to the family and not to the individual. In Chinese, the term “family” and the term “nation” or “homeland” are always linked. A country is called “Guojia”, which literally means “homeland and family” (Sutton, Siu, & Crossley, 2006).
The role of gender. China has a frightening feminine deficit. Girls become unwanted because they simply deprive parents of the possibility of having a son and they are considered as economic burden to the family. This leads to the practice of sex-selective abortion, as well as the neglect of girls’ premature death. This had led to a deficit of women. That deficit of women translates into a shortage of wives in the marriage market and probably a lack of births of Chinese (Bailey, 2007). Among these unexpected consequences, the gender imbalance in the marriage market offers women an opportunity for social uplift, although this does not necessarily bring benefits in terms of sexual equality.
Lack of schooling for girls and girls left behind is still a problem in China (Bailey, 2007). While the effect of economic reform on women’s education remains ambivalent, its effect on employment is nonetheless contradictory. But everything is not simply a regression. While gender discrimination embodies the life experiences of almost all women and has worsened in some areas it does provide some women with a form of autonomy and a share of power in the country. Within the family there in uncertainty in the field of domestic service, rural migrants experience a social upturn, while urban workers experience these jobs as a downgrade (Bailey, 2007).
Social status. Before the reform, China was an extremely unified and centralized society with large political, economic and ideological centers. It was entirely in the best interest of the Party – and its system of values also offered an impression of homogeneity. This situation reflected the distribution of the main resources. At the time, the government not only had the monopoly of the basic material resources of society like land, property, and income, but also, at the political level, that of power and prestige and, at the cultural level, of education and information. (Sutton, Siu, & Crossley, 2006). The country was dominated by an essentially binary structure, “state vs. people”. The population then possessed virtually no material possessions except modest furniture, clothes, cookware, bedding, and so on. Similarly, its revenues depended on the governmental distribution system.
Business Manners and Customs.
At the beginning of every business activities in China, having a good understanding of the Chinese etiquette of business is important to succeed. The Chinese value the following qualities in their business relationship: respect for elders, patience, courtesy, and modesty.
Etiquette. The handshake is always followed by the ritual exchange of business cards. The appropriate procedure for the exchange of business cards is to give and receive cards with both hands, holding the corners of the card between the thumb and forefinger (Mack, 2017). The business card represents the person who presents it and respect must be granted accordingly. When the Chinese greet someone, they do not look at the person right in the eyes, but slightly below. It is a sign of deference and respect. The Chinese are very attentive to the social position, and gave significant attention to respect (Mack, 2017). Confucian condemn people who are arrogant or haughty (Hinsbergh, 2017).
Manners. The culture of business in China is different from the other countries. Doing business in China involves a very different approach to the habits of the Western world (Gallo, 2011). Chinese do not like to mix things up. Professional proposals have a formal side that needs to be counterbalanced by a relaxing moment. In China, business is like love: whoever you are, whatever your means, take the trouble to go step by step.
The Chinese pay attention to traditional festivals which are considered as periods of relaxation during free time. In all their activities, the Chinese seek to understand life and live by respecting the laws and rules of nature (Wenfang, 2016) When they play Qin (traditional Chinese instrument) or chess, or when they do painting or calligraphy, they like to make it excellent. When they take tea, they look for the art of tea; also, when they draw, they attach themselves to the expression of real feelings. Moreover, it is essential for the Chinese to stay healthy. One of the most commonly used methods is the practice of “Tai Qi Quan” or “Qi Gong” gymnastics, which allows breathing to be balanced with nature and the universe.
How are these elements and dimensions integrated by locals conducting business in the nation?
Verbal Communication. Admittedly, English is the first foreign language taught at school in China (Lianlian & Jones, 2005). This language is therefore dreaming of Chinese’s youth who wants to work in internationally. Chinese who speak English are in high demand and have the advantage to find better jobs. Besides English, their use mandarin which is their national language since it is a factor of integration. English is a common language of work. The use of another foreign language is considering as an asset for Chinese (Lianlian & Jones, 2005). Communication play an important in every business activity.
Non-verbal communication. The non-verbal is sometimes used in business communication. The Chinese can afford to express positive emotions in a temperate way, such as joy, but more negative emotions are kept for themselves in public contexts. Expressing them shows a lack of self-control and weakness. If they are in a position of authority, it is on the other hand more acceptable for them to express them. The Chinese do not gesture much in business. Gesturing abundantly could be distracting to them during a discussion.
Religions and Beliefs
Buddhism. In China, Buddhism is the religion of the rich. This religion does not encourage people to get rich but promotes the development of people and helps businessmen. Buddhism promotes personal development which is essential to successful business (Hinsbergh, 2017). The people who contribute the most to the development of the temples are those who give the most money and have the privilege of attending meetings and participating in the life of the temple. (Hinsbergh, 2017). Different from Christianity, Buddhist did not talk about religion but “things of life” and the most common subject in China is business. Buddhism plays a positive role for business in China and many rich and opportunist people are in accord with this philosophy (Hinsbergh, 2017). It is a place for exchanges and good advice on good practices for doing business in China.
Corporate social responsibility. Ethical principles are the most significant concepts in business in China. Business ethics reflects the strength of a market economy (Armstrong, & Sweeney,1994). One of the big lessons is that companies and markets cannot regulate themselves. Financial innovation has sacrificed business ethics on the altar of extraordinary profit. Business ethics stems from transparency, objectivity, reliability, honesty and prudence. Trust is the basic ingredient of the functioning of markets in China (Sardy et al. 2008). As far as international affairs are concerned, there is a unified Confucian ethic in Chinese history.
Corruption. This is an important issue in China (Pei, 2001). In a world where some large companies have power, where the excesses of a handful of banks can paralyze the economy of the planet, it is essential to be able to rely on a set of solid, transparent and topical so that the activities of companies can produce their finest fruits by escaping the abuses of corrupts leaders (Pei, 2001).
Values and attitudes
Harmony. Chinese like to be in harmony with their business partners. They demand that their partners respect their agreement, and to whatever it cost them to honor to their engagements. Chinese merchants are people of one word. They condemn dissipations and disorders, despises laziness, and rejects dishonesties.
Family. But above all things, they hold the duties of the family sacred. In the Chinese family, the father is the absolute master. Children, even advanced in age, owe respect, obedience and veneration to their parents. The five moral virtues, the pillars of the establishment and maintenance of a social harmony respectful of hierarchical relations, are transmitted through an example-based education: “ren” which means benevolence, “yi” which means righteousness, “li” which stands for Propriety, “zhi” which means wisdom, and “xin” which means loyalty (Shi, et al. 2014).
Business manners and custom
Etiquette. Achieving consensus is essential for the Chinese. To export to China, it is imperative to understand the importance of the concept of “face” and its relationship with honor. Basically, it is the trust, respect and prestige given to a person (Stoller, 2013). Without face, impossible to do business. Chinese business people generally dress strictly. For example, in meeting, men usually wear a full suit, women, suit or dress (Stoller, 2013).
Manners. Chinese do not have to go into business right away. The “small talk” of courtesy is an indispensable prerequisite for any serious discussion. They first want to get to know who they are dealing with (Stoller, 2013). The Chinese entrepreneur conceives business only as a commercial transaction. He is interested only in the commercial potential of the product and not in its intrinsic value (Stoller, 2013).
The complexity of the Chinese social cultural context does not allow some companies to find stable standards in social regulation. As a result, many of them have been involved in the development of social responsibility policies (Wenfang, & Tang, 2016). Many companies rely on the development of human resources’ function to be the key to their performance. It is not possible to manage Chinese people like Germans, French or Americans. There is a cultural and sociological aspect that need to be respected. Management are required to understand their mentality. Moreover, they use incentives goals to keep them for the company (Wenfang, & Tang, 2016). For the Chinese, if businesses have good social policy and promotion, they are likely to keep more opportunities and have more employees.
How do both of the above items compare with US culture and business?
Similarities and difference between in China and U.S.
Communication. In the United States, English is the primarily spoken language. Spanish is the second language also in use. However, in China, English is not the first, but the mandarin. Though, English is in high used and been taught at school (Lianlian, & Jones, 2005). Many Americans consider foreign languages to be mysterious, stimulating, seductive, culturally rewarding and exotic. It is an invitation to travel. The attraction of cultural diversity may indeed be an initial motivation but it is rare that this motivation persists for the long period necessary to acquire the virtuosity sought (Lianlian, & Jones, 2005).
The situation is very different in China where the foreign language does not necessarily have exoticism. It is enough to pass one of the innumerable frontiers of the country of China to be confronted with a banal reality because the Chinese speak different languages and sometimes within the same district (Lianlian, & Jones, 2005).
Religion. Because of it attraction to the rest of the world, the United states is engorged with many religions. United States is a country where all people living in the territory can practice the religion of their choice freely. (The first amendment of United States Constitution). The religions practiced in United States included also most of those listed in China. However, while American have freedom of religion, it is not the case with Chinese. Chinese’s government limits religious practice to five officially recognized religions and only in officially approved religious premises (Yang, 2014). The Chinese government audits religions activities and the financial records of religious organizations. They also retain control over religious personnel appointments, publications, and seminary applications.
Ethics. Contrarily to China who suffers widespread corruption, and have been rated 79th out of 176 countries according to the Transparency International Corruption Perceptions Index 2016. Transparency International’s Corruption Perceptions Index (CPI), consider the United States to be one of the most effective countries in controlling corruption. American bureaucracies, courts and legal frameworks are generally credible, and the legitimacy of the regime adds a significant social force to the rule of law. (Corruption Perceptions Index, 2016) However, everything did not look good. Some indices show some imperfections. Problems also exist in the capacity of democratic processes to control corruption and to take advantage of social values.
Values and Attitudes. Contrarily to Chinese, American culture is the most individualistic. The mentality of individualism is infused in all aspects of American society, inspired by the Constitution which promotes the recognition of respect for human rights and freedom. American society encourages the pursuit of self-interest.
The Americans are very friendly and they like to help others. They are more open about discussion than people of China who are more reserved. Americans enjoy privacy and they do not want to expose themselves to on another person, so they expect others to do the same. This belief creates a misunderstanding with peoples of other cultures like Chinese who have become accustomed to more interdependent relationships.
Business manners and customs
Manners. There are enormous differences in behavior between business manners in China and in United States. The Americans are not at illogical. They know how to demonstrate a great civic attitude and an amazing living style. Punctuality is the key in any business relationships. American culture encourages individual initiative and success. In the United States, money is a priority: the concept “time is money” is taken very seriously in this business culture. Since that time is money, go straight to the basics is the key in United States. Chinese do not have the same concept of time.
In contrast of Chinese, Americans are direct in business, but they love to laugh and enjoy talking with people who have a sense of humor. They will listen to you and will accept to meet you if they think your idea or your company may interest their business. Americans avoid greetings that involve a physical contact, unless they have known for a long time. The way American greet are mostly informal. This is not a sign of lack of respect. In contrary it is because they consider everybody equal. However, in China, it is a different meaning.
Clearly, two increasingly distinct social models contrast China with the United States, with both its strengths and its weaknesses. US social inequalities are certainly a weakness, but can also be considered as an asset, especially in terms of the ability to open American borders and develop a strong opening onto the world. While Americans’ employees are encouraged to look for better occupation and do not have be loyal to their employers, Chinese’ employers are extremely faithful to their businesses and have the ability to be employ for a long time without looking for another job. Both China and the United States have an acute awareness of businesses.
Geert Hofstede analysis
The theory of Geert Hofstede is founded on the indication that value can be placed on six cultural dimensions. It is about power (equality versus inequality), collectivism (as opposed to individualism), the avoidance of uncertainty (as opposed to the acceptance of uncertainty), masculinity (as opposed to femininity), temporal orientation and pleasure (as opposed to moderation). (…..).
Power Distance Index. This criterion expresses the way in which inequalities of all kinds (physical, intellectual, wealth and power) are perceived and treated, but also the degree of acceptance and distance from authority. In the United States, the degree of distance to power is weak it scores (40). Subordinates and bosses are equal. Subordinates expect a participatory approach from superiors. Statutory mobility is strong: a subordinate can become a boss, thus reversing the relationship of authority. The external signs of power are hardly accepted. On the other hand, China scores very high (80) when the average of the Asian countries is 60. This means that Chinese society is characterized by a very high level of inequality of Power and wealth and these are accepted by individuals. On the other hand, the figure that represents authority in any organization family and business is highly respected because it has decision-making power.
Individualism versus Collectivism. This index represents the degree of integration into the group, the family or, in general, a community. It also indicates the degree of moral implication in belonging to an organization, depending on whether society is collectivist or individualistic, and in this case, the more collectivist society, the more the individual will feel a moral duty to the group to which it belongs. The United States is an Individualism culture with a score of 91. The individual is independent of the group. The satisfaction of personal interests overrides those of the organization. On the other hand, China is a country marked by a strong degree of collectivism since it has a very low degree of individualism (20), In other words, Chinese society is strongly loyal to the group, which is strongly influenced by the importance of the role of the family and the relationships within it. The autonomy of the individual is weak and decision-making is concerted. Individuals are all responsible for each member of the community.
Masculinity versus Femininity. This criterion refers to the distribution of roles between men and women and to the differences in equality that may exist between the two genders. Similarly, it constitutes a difference of values according to whether society is masculine or feminine. Indeed, Hofstede considers as masculine, societies which seek to make important the division of roles, realization of visible things, and financial gains. Cultures with a high score on the masculinity scale tend to have more obvious gender differences and tend to be more competitive and ambitious. (cited). Those with low scores have fewer gender differences and value relationships more.
The United States is a female-dominated culture. However, it scored 62 for masculinity which is high. When it come to the relationships within the family, neither parent is dominant. Distribution of gender roles are egalitarian distribution. Regarding to the reports to work, they use the intuition consensus approach, value equality. China is a relatively more masculine society with a score of 55(…). This degree is influenced by the enormous discrimination against girls in China. The birth control policy that was put in place was accompanied by a strange infant mortality rate for girls. The strong preference of boys is due both to traditional values but also to a consequence of poverty. Men hold most positions of responsibility and power. The role of women in China is very limited, although it tends to become more important in more developed cities and regions.
Uncertainty Avoidance Index. Not all cultures are concerned with the same way of implementing means that can respond to the uncertainties of the future. Also, this criterion represents the degree of tolerance of a society to uncertainty and ambiguity, or the feeling of comfort or discomfort in unframed, unstructured situations.The United States is a culture with low uncertainty control. It scored 46. They have nonchalant attitude, low anxiety level, taste of risk, and pragmatic conception of things. Whereas, China has a high degree of acceptance of uncertainty, which is characteristic of a society that does not seek control over the future. Chinese society feels less need to establish strict rules to overcome uncertainty or ambiguity.
Long Term Orientation versus Short Term Orientation. This criterion shows the prospects of a society in relation to time as well as the degree of perseverance. American businesses measure their performance on a short-term basis, with profit and loss statements being issued on a quarterly basis. This also drives individuals to strive for quick results within the work place. (Geert Hofstede, n.d). They scored 26, which is a low score. On the other hand, this is the most extreme criterion and one that most characterizes Chinese society. This means that perseverance are core values in China, values that are taught in Confucianism, deeply rooted in China.
Indulgence versus Restraint. This dimension measures the ability of a culture to meet the immediate needs and personal desires of its members (Geert Hofstede, n.d). Cultures giving value to moderation have strict social rules and norms below which drive satisfaction is regulated and discouraged. Hofstede emphasizes that cultural dimensions are only a structure for evaluating a given culture and thus to better guide the decisions to be made (Geert Hofstede, n.d). There are other factors to consider, such as personality, family history and personal wealth. The United States is an indulgent nation and scored 68. They are hardworking, but do not like to deprive themselves from fun. On the other hand, Chinese are reserved people, this is demonstrated by low score of 24 in this measurement.
What are the implications for US businesses that wish to conduct business in that region?
China is a complex market and penetrating it takes time. (Bromley, & Yang, 2006)
Whether it is to attract new customers or find a supplier or distributor, Americans entrepreneurs must be prepared to conduct business in China.
Cultural Adaptions that US Firms should expect to make when conducting Business.
There are a lot of adaption that American businessperson need to make before doing business properly in China. They need to understand the importance of relationships in China, the contract, the importance of the face, Patience, Adaption, Choice of partners, and flexibility.
Importance of relationships. In China, relation is vital and is called the “Guanxi”, which means that good relationships in the key of every business. The Chinese are very sensitive to the relationship of trust between two partners, especially if they are buyers. Relationship is also important in the Unites States, but most contracts are made without relationships, unlike business in China.
The Contract. The concept of contract is different in China. In United Stated a contract is sealed, whereas in China it is a basis for negotiation. A contract will be changed if one of the partners feels upset.China is in the process of building a business law. Lawyers in China will rely on custom, and less on texts. The Chinese law is nevertheless well detailed. In general, everything is settled by prior negotiation and the appeal is badly perceived, and gives bad reputation to both parties.
The importance of the face. Americans must understand this notion of face that dominates the social life of the Chinese before doing business in China. The face is what it is. It is the honor of the person, the respect that one gives him and the social position of the individual in a group. In business, it is essential not to lose face to an interlocutor, because otherwise the business is doomed to failure. It is also advisable to highlight, respect and be courteous towards business’s partners.
Patience. To do business with the Chinese, patience is important. This is especially true when one wishes to sell them products. Americans must know not to rush things and leave the interlocutor time to think and learn to know them better.In China, everything takes much longer, because there are usually more barriers, but most of them are all crossable.
Adaption. When you want to market a product in China, it is important that you adapt your product to local demand in terms of product packaging, positioning, communication or target level. To adapt does not mean having a Chinese name to its product.
Choice of partners. China is full of unscrupulous people who are usually specialized in the scam, but contains many trusted people with whom it is interesting to work.When traveling to China, it is imperative to be cautious, to remain open but to be wary. Finding a good partner takes time, usually scammers will be the first to find you but trusted partners are less aggressive and have already established collaborations with other companies. That is why references in China are so important.
SWOT Analysis China
The SWOT (Strengths – Weaknesses – Opportunities – Threats) is a very practical tool during a strategic diagnostic phase. It has the advantage of synthesizing the strengths and weaknesses of a company regarding the opportunities and threats generated by its environment.
Strengths. The emergence of China is an unprecedented historical phenomenon. With growth rates of 10% in recent years, it has become increasingly fascinated by the impressive success of its rapid success and ability to take advantage of the global trade. The country has indeed achieved a spectacular economic take-off. It multiplies its weight in the world economy by seven in thirty years and became the second economic power in terms of nominal GDP as well as the world’s leading exporter. In addition, China has established large industrial groups with global ambitions and is increasingly investing abroad as well as new technologies such as renewable energy and services.
The development of new technologies, particularly renewable energies, and services also underlines a desire to strengthen the technological capabilities of the Chinese economy (…). It is based on state-of-the-art technology parks, such as the one in Zhongguancun near Beijing, which concentrates research, development or service production activities and now brings together nearly 20,000 high-technology companies, including major Chinese’s companies Lenovo and American companies’ Google and Microsoft.
Today and even more in the years to come, China is a strategic center for international trade. It is therefore essential for companies to participate in his development and dynamism. The establishment of the socialist market economy is a desire for liberalization and openness. Because of the Chinese market, the number of its consumers and its vast territory, China is attracting more businesses in the nation.
Weaknesses. China depends heavily on the U.S. economy; the United States is it most important buyer. A slowdown in their economies would have a visible impact on China’s GDP. China suffers from a distorted development model of exports. His economic policy has certainly translated into a rapid increase in the volume of production but the excess of inputs (labor and capital), has been accompanied by relatively low revenue. For example, recent problems related to environmental protection and prevention of ecological risks caused by the difficulties of launching the Chinese’s subways.
There are social and geographical inequalities in the country. The gap persists between the developed and underdeveloped regions of the country despite the progress made in recent years in terms of the development of policies. This was put in place by the authorities to favor the central and west parts of the country. With a rapidly growing urbanization rate, the management of this economic transition remains problematic. Second, the rapid deterioration of their soil and water resources: 90% of the river sections along the edges of major cities are polluted while the overall cost of water scarcity is estimated at almost 1% of GDP in 2007. (…) Overall, the degradation of the country’s natural and environmental resources was estimated at 9% of GNP in 2008.
The challenge of technological innovation and the rebalancing of economic structures also call for reinforcement of creativity and education by generating new growth drivers. While China is expected to have close to 200 million university graduates by 2030, the quality of tertiary education remains a major challenge in the face of the shortage skills that many Chinese companies encounter. The objective of the authorities is to attract or bring back the talents of high-potential Chinese people living abroad, but it will also require educational reform.
Energy and resource risks remain significant. First, the decline in the country’s own resources. China’s coal reserves could be exhausted within 35 years, if consumption continues at the rate of 2010, while coal still accounts for more than 65% of energy requirements. The situation is similar for natural gas and oil reserves, resulting in increased dependence on imports
Opportunities. China has entered a second phase of economic transition. Its main challenge, on a considerable scale, is the search for stable growth, which must be based on an advanced economic model. This is mechanically called by the rise of the standard of living and the development of a consumer society of continental size. China’s ability to solve these structural problems and accelerate the readjustment of its economy will be decisive for the future and balance of the country. The upgrading of Chinese products has led West economies to invest in their productive apparatus and to innovate more so that their products become more competitive. Americans and Europeans keep a technological lead and enjoy a highly skilled workforce, engineers, researchers and entrepreneurs.
Threat. The problems of China are typical of those of emerging countries but with the particularity of its social and political model and the speed of its takeoff. The country will have to tackle several key issues to develop its economy. Also, it will have to renovate its structures and ensure a minimum growth rate to maintain social stability, as it enters a second phase of economic transition.  In a context of slowdown in 2012, initially caused by a decline in external demand, the economic priority of the Chinese authorities is justifiably maintaining stable growth in the short and medium term. China is harassed by multiple internal challenges that directly threaten it. Beijing wants to count among the great powers in a multipolar world without any threat. China seems to be challenging Westerners and this could give the West the opportunity to improve economically and even strategically.
Foreign Direct Investment (FDI) Analysis.
According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2016, China has shifted its position as the world’s first FDI-receiving country to the United States (UNCTAD, 2016). China was rated second in the level of the most attractive economies for transnational companies for 2016-2018, giving up the top spot to the United States. The absorption of FDI flows is part of China’s openness policy. In 2016, FDI flows continued to rise, reaching a record level of US $ 139 billion. (UNCTAD, 2016). FDI flows from China abroad, valued at USD 161 billion in 2016 (UNCTAD, 2016).
The Chinese market is growing rapidly and has not been too affected by the financial crisis. With a high potential, a multitude of employees and potential partners willing to learn and develop, the country is based on a low-cost production. Nevertheless, there are some factors that can delay investment, such as lack of transparency, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures that favor local businesses. I will explain the growth of FDI in China and will examine it effects on China’s economy.
Growth of Foreign Direct Investment in China. China began attracting FDI in the early 1980s, and the inflows of FDI gradually increased in the 1980s. From the early 1990s, the speed of FDI growth accelerated significantly. In 2010, FDI flows to China reached $ 106 billion, an increase of 54 times compared to1985 ($ 1.96 billion). From 1993, China became the first destination of FDI among developing countries and the second largest in the world after the United States. After a small recession during the financial crises of Asia, the pace of growth has stabilized. In 2010, FDI in China reached a record of $ 105.7 billion. However, we also observe that China is facing increasing competition from other emerging countries.
One of the main objectives of FDI is to conquer new markets. For multinationals, opportunities are most likely to emerge in an economy with a large expanding market. An analysis made by the US-China Business Council show that 75% of Western multinationals have settled in China to sell on the Chinese market. China, with 1.3 billion people, who account for 1/5 of the world’s population, have a very high potential for consumption. Although China’s GDP per capita remains very low, its economic growth and its purchasing power is building an attractive market for FDI. This is particularly true in the household appliances, automotive and pharmaceutical industries. For example, in the automotive sector, China has become the world’s largest market before the United States (Shi, et al. 2014).
Effects of FDI on the Chinese economy. Due to their considerable growth over the past 30 years, FDI today plays an irrefutable role in the Chinese economy. According to many economists, attracting FDI is a good solution to meet the investment needs in developing countries. Indeed, capital and investment are essential for the economic development of developing countries, and FDI can make a substantial contribution to it. In addition, developing countries generally prefer FDI to other forms of investment such as short-term loans. In the case of China, despite its 30 years’ growth, FDI cannot yet be considered an important source of capital. (Havrylchyk, & Poncet, 2007). In 2000, the number of jobs created by FDI was 6.42 Million, accounting for 2.77% of urban employment in China. (Davies, 2013). In 2009, jobs created by FDI rose to 17 million, accounting for 5.46% of urban landfills in China (Davies, 2013).
The presence and development of multinational enterprises in China has increased the level of nominal wages. FDI thus creates a very high level of competition with local companies in terms of the demand for local labor. Indeed, the wages earned by employees working in multinational enterprises are higher than those paid by employees of local businesses. Therefore, to attract skilled labor, local firms are sometimes forced to follow the wage level of FDI firms. This is likely to push China’s nominal wage level upward. (Davies, 2013).
The main positive effect of FDI on the Chinese economy is the transfer of technology and the improvement of human capital. The introduction of new technologies by multinational enterprises in China is often seen as a substitute for or complement to Chinese research. The contribution of FDI to international trade is related both to the volume and structure of China’s foreign trade. Therefore, companies financed by FDI play an important role in Foreign trade. Since the 1990s, China has managed to diversify its exports and gain a competitive position while maintaining a high rate of growth for its exports. China, still holding a significant share of the market in traditional sectors, has increased its market share in the household appliances, computers and communication sectors. (Huang, 2003).
The considerable growth of multinational enterprises has contributed to the growth of Chinese exports. On the other hand, the foreign currency contributed by foreign investors contributed to the increase in the balance of payments surplus and the foreign exchange reserve. China’ direct investment is expected to double by 2020, reaching 1,000 billion dollars over the next five years, according to the projection of the Chinese government.
Not to mention that Chinese investments are not limited to the purchase of existing West companies. In the first six months of 2016, 126 investments were created, rather than extensions or maintenance of existing structures. And for about $ 30 billion. At the same time, the United States had 661 investments of this type for a smaller amount of $ 23 billion. (….).
Chinese culture is marked by respect and loyalty, which makes them reliable partners. They favor the interest of the group and above all they are an extremely determined in business. China is experiencing unprecedented economic development in history. The question of its strengths and weaknesses therefore arises with acuity. Thus, the country has indeed achieved a spectacular economic take-off, multiplying its weight in the world economy by seven in thirty years and becoming the second economic power in terms of nominal GDP as well as the world’s leading exporter. In addition, China has established large industrial groups with global ambitions and is increasingly investing abroad as well as new technologies such as renewable energy and services. However, challenges remain: unbalanced development in favor of export and investment requiring a “refocusing” in favor of consumption, persisting strong social and geographical inequalities, energy and environmental risks.
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