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China Management Styles

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China is a bustling centre for low cost production and as a result, its potential is growing every day. It is argued that, China is moving from a centrally planned economy towards a market economy and internationalization due to increase globalization and market competiveness. Within that context China requires a change in their management styles, and because most of the foreign direct investment comes from the West. Chinese managers need to find a way to integrate tradition with Western theories of management (Zhang et al 2004). This paper aims to investigate different management styles in China. The discussion will be examined through political, cultural and historical perspectives. These factors will allow us to understand to underlying traditions that influence how Chinese organizations are managed. In fact, it can be argued that China has two managerial models now, the modern and the traditional one. Furthermore, China is becoming a global platform for diverse managerial techniques; both external (i.e. exported) and internal (i.e. home grown).

The Chinese management style shall be examined through several contexts. Firstly, this study will focus on the traditions that are rooted in Chinese society and how these traditions impact on the Chinese management style. Particular attention will be paid to Guanxi, Confucianism and Daoism as these are the three main traditions that have shaped Chinese culture, values and attitudes over the last thousand years. The impact of politics on management style will then be investigated. As will be discussed, the relationship between managers and communist party officials is vital in China and can determine the success or failure of a firm. Following on from this the sweeping social reforms of the 1980s and the path towards openness shall be assessed.

Market liberalisation of this time has had considerable repercussions on the traditional Chinese management style that has resulted in the adoption of a definite western style of management, particularly in Eastern China. Labour market trends and labour market participation effect on the Chinese management style shall then be assessed. Moving forward, the main types of enterprise firms in China will be distinguished. The process of opening up has resulted in the inclusion of privately owned businesses to the traditional state owned and semi state owned types of enterprises. This phenomenon has had a decided impact on the Chinese management style. The inside out perspective on Chinese management style will then be researched. In order to understand the Chinese management  style fully it is necessary to view it through an eastern contextual lens and understand how Eastern scholars perceive the style.

In conclusion, Hofestedian theory will be analysed in order to understand the impact that the Chinese culture has had on their management style. Chinese traditions We recognized that the three most influential traditions on Chinese management styles were Guanxi, Taoism and Confucianism. In literal terms guanxi means pass the gate and get connected. Some management consultants describe it as the essential informal connections for gaining approval or access to nearly everything in China (Tsang 1998). Broadly Guanxi means interpersonal associations with the implication of constant exchange of favours (Park and Luo 2001). Guanxi in China is more about the favours and benefits people do for each other rather than living and satisfaction like they are in similar relationships in the West (Wong and Tjosveld 2010). A person who fails to return a favour under guanxi is seen as untrustworthy. Moreover, the establishment of guanxi is dependent on the availability of a guanxi base which is defined as a commonality of shared identification amongst two or more people. These include the following

• Loyalty or dialect – people from same areas • Fictive Kinship – organised clans with the same surname • Kinship – related through blood or marriage • Workplace – working together for a long period of time • Trade Associations or social class – social dinners and activities • Friendship

These bases only allow for an opportunity to establish Guanxi. Guanxi is transferable, reciprocal, intangible, utilitarian, contextual, long term orientated and personal (Luo 2000)

The Chinese devote considerable time to establishing guanxi (Davies et al 1995). Su et al (2007) state that guanxi plays a key role in achieving business success in China. Guanxi allows for building of relationships which are strengthened on the foundation of trust. This minimises the risks involved in business. It is even stated that guanxi will be important as  years go by in international business as it is considerend a better form of trust than legal contracts (Dunfee and Warren, 2001). As guanxi is a form of interpersonal relationships, individuals involved will have a better understanding of how the other works and what their preferences are. The flow of information between people in the guanxi network is greatly enhanced (Chen et al 2004). This is very important for managers who wish to get the best out of their employees. Abramson and Ali (1997) state that guanxi is firstly a web of personal connections, relationships and obligations that businesspeople can use to obtain resources and advantages while secondly it is the exchange of favours and purchase of influence. Yeung & Tung (1996) found that guanxi plays a huge role in successful management.

Greater cooperation and motivation can be achieved through the enhancement of relations between individual which will lead to an organisation performing better. Wong and Tjosvold (2010) discovered that guanxi is useful for dealing with conflict and reducing conflict. Organisations where managers developed a high level of guanxi were found to reduce their use of competitive approach to conflict that in turn helped them work productively together. Managers with a low level of guanxi emphasised competitive approach in dealing with conflicts which disrupted coordination (Wong and Tjosveld 2010). There are issues with guanxi however, Shu et al (2007) suggest that not all guanxi relationships are necessary and among the necessary participants not all are equally important. The way we see guanxi from a western perspective is that it costs a lot to be effective as it is reciprocal which leads to unavoidable obligations. It can be a trap and there is the possibility of bribery, corruption and nepotism. According to Altson (1989), people with low rank in organisations may be very influential because of their guanxi relationships with those with high positions. Bribery can occur as a result of guanxi most usually in the form of irregular payments to Government officials (Dunfee and Warren 2001). There also tends to be slow decision making.

According to Taoism grasping the Tao in mere words is a futile undertaking, like trying to explain the experience of an orange to someone who has never encountered one (Cleary, 1998; Grigg, 1994; Reps & Senzaki, 1994; Shibayama, 1974; Watts, 1962, 1975, 1998, 2000).

According to Bai and Roberts (2011) Taoism is the “core thinking system” for Civilians of China and is more influential than any other philosophy on Chinese culture. The philosophy of Taoism is very hard to define. Even with thousands of studies done on the philosophy there is still no clear definition. Taoism is a philosophy that helps Chinese people study the universe, nature and mankind in general and that all things in the universe consist of two interdependent yet competing forces. This philosophy sees leadership and power as natural order outside of peoples control but in which they are part of. Xing and Sims (2011) state that Daoism makes Chinese management differ to Western management as it involves harmony, submissiveness and modesty to authority. According to Cheung and Chan (2008 ) Daoism influences managers “forbearance, humility and self-effacement”. The Taoism way does not place a high amount of emphasis on the importance of stable order but instead the importance of flexibility, change and making the most of opportunities.

In comparison, the Western leaders tend to shape and control the environment in which they operate in while Daoist leadership is about being accommodating in circumstances as they happen (Xing and Sims 2011). Daoism is a philosophy of Lao Tzu in which he explained the concept in his book “Dao Te Ching”. Dao is linked with fulfilment of life through a peaceful and natural self while Te is linked with virtue and morality (Xing and Sims 2011). From this the main principle of Daoism is derived which is Wu Wei; Wu Wei is governing without the burden of stress through a clear mind. People should not force success but instead, let it arise naturally. Daoism consists of the tenants of reversion, softness and inaction. The tenant of reversion states that in order for someone to be a leader they must also follow, they need to give in order to take and fore go in order to capture (Cheung and Chan 2008). The second tenant highlights the strength of softness and likens it to water in that the leader should have corrosive and penetrative power. They should be cunning and avoid competition. They should not be seen and take on an effortless approach. Finally a leader should not be concerned with social order and should prefer inaction with no training or applying pressure (Cheung and Chan 2008).

Confucianism plays a huge influence in Chinese culture with it being the chief cultural influence of China for centuries; it deals with the development of mankind which leads to the fulfilment of life (Wah,2010). Confucius teachings emphasised the importance of many dimensions which are applicable to leadership and management. The three most  renowned principles of Confucianism are Ren, Yi and Li (Xu 2010). Ren is also known as benevolence. This states that a manager should show goodwill and affection towards their subordinates (Rarick 2007) and promote goodwill and harmony throughout the organisation. Moreover, the manager should be seen as a role model for others in achieving goodwill and harmony in the organisation (Xu 2010). Ren helps a manager to effectively improve the productivity of their subordinates through positive and friendly relationships among them, and proposes that no person in the organisation should be discriminated against. Yi can also be referred to as righteousness.

A manager who posses Confucianism should have high morals. They must put the success of the organisation above their own personal success. If they fail to this they will not gain the trust and confidence of their workers (Wah 2010). According to Confucius “if a ruler sets himself right he will be followed without his command. If he does not set himself right, even his commands will not be obeyed” (Xu 2010). A manager must have virtue; a virtuous manager portrays the elements of ren (kindness, love, affection and harmony) to their workers (Cheung and Chan 2008). Cheung and Chan (2008) go onto say that that virtue is the most important trait of a manager as it consists of being loyal, honourable, trustworthy and unselfish (Cheung and Chan 2008). He/She must uphold their promises, be loyal and unselfish and show a strong sense of righteousness. Furthermore, a righteous manager will not show favouritism to certain employees. Lastly, Li refers to the promotion of appropriate behaviour or proper conduct in the organisation (Rarick 2007). Li is extremely important for building relationships. A manager in an organisation must be fair to employees, they should manage with the highest sense of equity and equality (Cheung & Chan 2008). However a worker must show respect to the manager and know his role within the relationship between the two.

The impact of Politics on Chinese Management

China is considered a communist state and is the only communist party led authoritarian government in the G-20 grouping of the world’s major economies. China is one of five permanent members of the United Nations Security Council and the second largest economy in the world. The Chinese Communist Party (CCP) has been in power for the last  six decades. At times there is competition among the members of the communist party which involves Chinas highest decision making bodies. Politics is often used as a strategy by most Business Organisations. In Chinese management practices, politics plays a major part in the shaping of their organisational reforms and how it affects managers as noted by Sheng et al (2011). In China it is seen as very common practice for managers to have personal relationships with government officials for competitive business advantages (Sheng et al 2011). Some scholars argue that when governments have not much power and are less capable, most managers can reach powerful government officials for personal relationships for the trust and predictability they will need to run their organisations.

Sometimes in Chinese firms where government officials are placed on boards of directors, shared profits, paying officials special fees, paid scholarships for their children to study overseas are common practices. For example executives of Chinese firms with greater personal ties with government officials possess a greater market share and return on assets as described by Peng and Lou (2000) and Li and Zang (2007) (cited in Shang et al 2011). This indicates that the stronger the degree of relationships which exists between government officials and Chinese managers, the better it is for the company overall and this represents a major competitive advantage. Political connections between managers and government officials are common practice in China. Political connections are important to firms and managers as it provide them with access to policy arrangements and aggregate industrial information (Sheng et al 2011).

The political connection offers Chinese firms access to information that are scare and hard to come by and are controlled by the Chinese government which includes information on resources such as land, bank loans, subsidies and tax breaks, this is why it is important for the Chinese managers to have political connections to obtain these resources. A study carried out on local senior manager’s .e.g. CEO and other senior managers showed that business ties had a stronger positive effect on the performance than political ties (Sheng et al 2011). Both depended on institutional and market environments.

The reason was that technology was changing more rapidly and legal enforcement was insufficient. It is known that many Chinese firms have multiple political connections as they see them as a strategic asset (Sheng et al, 2011). In 2007 approximately 800 Chinese entrepreneurs were official party members and some were delegates on China’s national congress party in the Chinese Parliament (Sheng et  al 2011). However, it must be noted that an element of danger exists when utilising political connections in order to further a company’s profitability. A number of high level Chinese businessmen have been the subject of numerous political scandals as noted in the Economist (2009 cited by Sheng et al 2011). Firms in China use political ties to maintain an edge over their competitors in order to have access to resources that are controlled by governments such as tax subsidies and project approvals.

“The Hong Kong billionaire Li Ka-Shing used his political connections to obtain valuable licenses and permission to build large real estate developments.”(Balfour 2007 cited in Sheng et al 2009).

Politics has a major impact in Chinese business dealings and as the above quote demonstrates, political connections are very important for obtaining strategic resources. One of characteristics of Chinese listed companies is that central Government has the authority of personal control in the corporate sector as noted in Sheng et.al (2011) cited by (Du et al 2008). Because of its bureaucratic nature the Chinese government appoints its own officials who possess more knowledge and are more familiar with capitalist ideals. There is also evidence that the politically appointed managers are promoted to higher ranks if they deliver good performance that will have a positive effect on the organisation (Buck et al 2008 cited in Cao et al 2009).

Towards openness (social reform era 1977 – present)

Today China’s population represents 20% of the global population. For the last two decades, China has maintained a staggering 10% annual growth in its gross domestic product (GDP). This unprecedented level of growth can be directly attributed to an economic reform programme known as reform and opening up which began in 1978 and was led by communist party reformer Deng Xiaoping. Major reforms that began at this time included opening up the country to foreign investment and allowing entrepreneurs to set up businesses. Reform  continued into the 1990s with the one state party agreeing to partially privatise many state owned enterprises and also ease protectionist policies that had isolated the state for almost a century. As a consequence of the transition to openness and easing of state control, China’s economy has become second only to the United States, and it has also resulted in immense societal change. Tsui (2004) notes this surge in economic activity and business development in China has had the knock on effect of creating professional managers and a professional management culture.

According to Tsui (2004) the best indicator of a new Chinese management class is the growth of business education in China. In reaction to the need for educated business managers China set up a formal MBA programme in 1991 with an enrolment of a little over 100 students. Today China has 62 Business schools with an annual enrolment of 32,393 students. Economic reform and the road to openness created a vastly significant Chinese managerial class. In addition, Groves et al (1995) also attests that the great reform strengthened the development of a Chinese management class. They note that this is made possible because of the development of an improved system of managerial resource allocation responsive to new market forces. Furthermore, the consensus today is that managerial assignments in state owned enterprises are still governed by the iron fist of the bureaucratic communist party that subjects its managers to hawk like supervision. However, Groves et al (1995) note that policy mechanisms introduced during the social reform era transformed Chinese managerial style. The management styles tend to be very hierarchical, with high respect for elders. Furthermore, everybody was given a role, for instance senior managers are giving orders and employees follow them. Moreover, his/her decisions cannot be questioned.

The managers are recognised as ‘father’ and as a consequence they should receive obedience and loyalty from employees. In return, manager should take care of colleagues as it is two-way relationship. Direct control from above was replaced with increased managerial responsibility and this resulted in an improvement of the efficiency of state owned firms. The first managerial reform was known as factory manager responsibility. Reformers sought to widen the authority of managers in enterprises. This was brought about by limiting communist party official’s power to intervene in state enterprises decision making process and giving the managers themselves the legal responsibility to run their firms. This system of decreased party autonomy was further enforced by reducing the number of instructions managers received from their party superiors. Therefore, the enhanced managerial control was  predominant by 1989 according to Groves et al (1995). Meanwhile, the second managerial reform introduced to illicit market efficiency was incentive driven bonuses. Funds were allocated to workers bonuses and welfare facilities in order to induce a spur in productivity.

The better a firm performed, the managers and workers would be rewarded financially. This scheme gave firms a renewed interest in profitability and also resulted in managers having increased control over their companies economic resources, as the managers themselves presided over the distribution of incentive funds; never before in communist China have nonparty officials obtained such authority over resources. A third avenue of reform that transformed managerial trends in China was to link managerial careers to firm performance. As described by Groves et al (1995) this was seen as a new mechanism to reward managers. This was implemented through the introduction of long term contracts, usually three to four years in length. Groves et al (1995) note that this tactic was in force in 92 % of state owned firms. The contracts legally required managers to meet determined performance indicators such as profitability in order to reap rewards or face penalties. As a result of this particular reform managerial career direction was determined by the evaluation of bureaucratic supervisors. Furthermore, managers in contract were obligated to invest a significant security deposit into their firms in order to secure reemployment. Similar to previous reforms this was introduced in order to ensure healthy sales and profits.

Ralston et al (1999) conducted a similar study on the impact that social reform from 1978 onwards had on Chinese management. In order to fully understand changes in managerial values, Ralston et al (1999) conducted a cross generational study comprising of the republican era ( 1911-1948), the cultural revolution era (1966-1976) and the social reform era ( 1977- Present). The authors of the study use the dependant variables of Individualism, collectivism and Confucianism as indicators of change. In the study Individualism is defined as orientation towards the self and individual accomplishment. Conversely, collectivism places greater emphasis on interpersonal harmony and the successful attainment of a group goal. From their results Ralston et al (1999) found that the new generation of managers scored significantly higher on individualism values than their older counterparts. Similarly, they scored lower on collectivist and Confucian values. This is in accordance with a later study carried out by Egri and Ralston (2004) and shows that the modernist policies, incorporated during the social reform era, has moulded young Chinese managers to value individual achievements and material gain over the traditionally held collectivist and  Confucian ideals.

It is noted by Ralston et al (1999) that this new found individualism in young Chinese managers of the social reform era is likely to make them act independently of their organisation and be more willing and open to taking risks in the pursuit of profit. Thus, a profile emerges of a 21st century manager whose style and value is undeniably more individualistic, less collectivist and less adherent to Confucian philosophy as a result of the push towards openness. However, It is argued that China lacks good-quality, experienced managers; therefore, the requirement process is very important (Dong and Liu 2010). Furthermore, Groves et al (1995) and Ralston (1999) have both demonstrated that by the end of the 1980’s, China had developed a managerial labour market that contained many of the mechanisms present in their western counterparts, but in different forms. For instance, managers could be fired for poor performance; manager’s salary was linked to firm profitability and this was enforced contractually; managers were required to post an investment in the firm, effectively giving them a stake in their companies’ performance, similar to the Western managers’ stock option. Moreover, this emerging managerial class also demonstrated a strong preference towards westernised individualistic values. Additionally, the creation of middle class, the burgeoning class, creates new customer opportunities; it also means that they want to have higher wages and as a consequence, it decreases the comparative advantage of low cost labor in China (World Business Culture 2012).

China’s customer demands were and are changing rapidly and as a result, China did not have much time to adopt to national and international competitive environments (Zhang 2009) thus the management development process has been similar. It is clear from the above analysis that the social reform era resulted in the adoption of a largely western management style. In addition, this traction towards a western way of conducting business is also evident in the regional disparity that exists in China. China’s vast landscape comprises of 6 traditional regions and over 1.2 billion people. In order to understand the Chinese management style it is vital that we understand the differences in management styles that exist across China .These regional diversities include a multitude of dialects, ethnic groups and traditional customs as described by Ralston et al (1996) in their comparative empirical study of managerial differences across Chinas regions. The regions in which Ralston et al (1996) focused their study on and the corresponding cities in which the data was collected are: North (Beijing), East (Shanghai), Central south (Guangzhou), Southwest (Chengdu) and northwest (Lanzhou).

These cities were selected 1 because represent the economic hubs of the regions. The regions were compared using Hofstedian theory and the Schwartz value system (SVS) and by breaking up the comparison into two categories: Individualism/ Cosmopolitan Chinese manager vs. Collectivist/local Chinese manager. When using the individualism/Cosmopolitan Chinese manager, Ralston et al (1996) note that individualism, defined as self-orientation that emphasizes self-sufficiency is characterised as a western value whilst collectivism has traditionally been an eastern value. As a result of three decades of development and economic opening up Eastern China has cemented its position as the leading financial region in china. The authors of the study found that values of Hong Kong managers are more individualistic than their rural counterparts. It can be argued, that the exposure to the Western values left the Hong Kong Cosmopolitan managers possessing a more Western styles of management. Moreover, the study found that the Guangzhou and Shanghai areas also had greater individualistic values as a result of their proximity to Western businesses and practices. According to Ralston et al (1996) this makes both of these regions more open to change and new ideas.

This is not surprising as Shanghai is fast becoming “the New York of China”. It is emerging as the financial and economic hub of China. Additionally, these two regions are most exposed to foreign investment and business practices. In contrast Western China has remained largely untouched by foreign development and influence and noticeably presides on the periphery of Chinese international commerce as noted by Ralston et al (1996). Cities such as Chengdu and Lanzhou in western China display a greater degree of collectivist values and the management style is indicative of that of a local Chinese manager. Collectivism and strong traditional values still dominate the management style in this part of China. However as the times change Western China is slowly beginning to move in tandem with the industrialised east. Recent years have seen a push toward the infrastructural and financial development of China. As a result of this it can be ascertained that in the coming years Western China will also see a move towards the expanding western style of management that is growing in China.

Labour market

Labour market focuses on aspects such as labour supply, relative-wages between the state-owned sector and the private sector, wage discrimination and the urban migrants.

Before China went into process of transition, China’s economy was a planned economy; thus, types of jobs or wages, were determined by government; there was no supply and demand factors recognized by the market economy. Moreover, the matching and allocation of jobs, were also carried by the government. However, since 1995 that has been changing due to increasing market liberalization. This has resulted in increasing family incomes, and therefore high wages attract more people to work. The Labour Force Participation Rate (LFPR- the percentage of the population (usually age 16 and over engaged and seeking gainful employment) in 1996 was 78.74% which in was 696.65m (employed and unemployed) out of 884.7m (the total population over 16) (Li and Zax 2003), however, this number does not include second jobs or student participation.

Additionally, according to Herd et al (2010) in last decade, each year on average, the working-age population has increased over 10 m of people. It is a big concern to create jobs for such a significant number of people. Furthermore, the average hours worked per week were 42 with a standard deviation of about 10 hour; with men tending to work slightly longer; and educated people working less. Interestingly, SOEs worked 30% less hours and had more flexibility in the working hours than the private- owned companies. It is argued that up until 2008, an average new entrant into labour has 11 years of education, which substantially boosted human capital. Meanwhile, in terms of wages, the SOEs wages were 3.34 yen per hour compared to 2.95 yen in the private sector, but that difference can be explained in lower number of hours worked (Li and Zax 2003). It is also submitted that the average for professional, technical and office workers is lower than the private sector, which is explained by the old planning system.

Additionally, it is argued, that the market reform that started over 30 years ago have widened the gap between the rural and urban areas and it is manifested in terms of the provision of infrastructure, compulsory education, health care and social insurance (Ye 2004 cited in Xinqing 2009). Also, it is submitted that whilst the employment in agriculture is declining, the official and unofficial migration to urban areas is increasing; in the last decade 200 million people moved (Herd et al 2010).

Furthermore, the labour rights in China have been widely ignored, however it is argued that the demand for the protection of workers’ rights has increased over recent years (Chen 2007). The state market development strategy neglects worker’s rights. The final goal is focused on efficiency rather than equity. Then, to certain extent the individual rights such as contracts, wages or pensions are taken into account while in relation to collectivist rights there is a lack of collective bargain power (Chen 2007). Also, it is argued that women are still highly disadvantaged, as the gap between the earnings in comparison to men is still increasing (Mauer-Fazio et al 1999 cited in Zhang et al 2004). According to Shu et al (2007), women workers have always been crucial for the Chinese economy and their role is increasing even more at the moment because they are a cheap source of labor, especially in export manufacturing industries.

Enterprise types in Chinese Firms

It is argued that in China three types of enterprise can be distinguished. The transition processes has resulted in renewing the old structures and led to development of new forms that were influenced by the capitalization and globalization. The China development of organizational cultures can be divided into three main periods. The first trace of organizational culture is placed between 1949-1976 where large and super large state owned enterprises (SOEs) developed their own management philosophy; these mainly operated in heavy industries such as mining, railways and utilities. The new enterprise culture is a renewal of the traditional enterprise values that prevailed in the 1950s (Cooke 2008). However, this type of enterprise can create some problems for a manager as it is deeply rooted in the culture of China. Furthermore, they are constrained by the China’s institutional environment and domestic agenda that not always goes in line with the market rules. As a result, promotion of the Western ideas may not be as favorable for some senior managers, especially when they are members of the CCP. Interestingly, SOEs recognize trade unions that encourage culture-building initiatives through employee care programs (Cooke 2008).

According to Hofstede (1984), these enterprises are patriotic and paternalistic in nature due to the fact that they included the interest of the state; the company and the employee all in one. Its main idea was related to setting and following behavioral norms such as honesty, diligence and endurance of hardship and thrift; in other words employees would treat their work place as home (Cooke 2008). Furthermore, under the communist structure, the most important structure was linked to ‘dan wei’; this has guaranteed workers job security throughout their lives. The membership of a group was also important as people by leaving at the same time were abandoning their rights and privileges associated with it. These included things such as food, accommodation and medical assistance.

Meanwhile, the second period is placed between the early 1980s and mid 1990s as the beginning of the transition and early reform; that is also when the second type of enterprises in China is the MNCs, joint ventures and high-tech private firms have begun to emerge in China. In comparison to the SOEs, these organizations and their managers are more exposed to the Western culture, both in terms of management and technology. Many times they get their education in the West and as a result they are found to be open-minded because they do not carry ‘the socialist enterprise baggage’ (Cooke 2008).

What is more, they are expected to be ‘modern’ in order to avoid being deemed backwards and outdated; their techniques are borrowed for the West, however are reinterpreted to the Chinese meanings and focus on productivity enhancement. Additionally, when China came into the process of change, some people would work in two places in order to secure the membership in dan wei, and at the same time be able to take advantage of new possibilities. One of the changes encouraged was entrepreneurship; increased materialistic pressures that had negative effects on the organizations The third type of enterprises are ‘non-state owned’ enterprises. This type can have similar practices to the above two discussed types. For instance, some of them associate with the governmental organization such as the All-China, trade unions or Party organizations (Cooke 2008).

Inside out perspective

However, Tsui (2009) argues that China management styles cannot be considered through the tools of the Western context; it is submitted, that due to its ‘unique social, cultural, historical and political mosaic, there is a need to explore the possibility of unique Chinese organizational and management models’ (p.5). The author believes that Western theories not always reflected in China due to different cultural and organizational underpinnings. For instance, the equity theory assumes that treating everyone the same is fair in the collectivist culture, while it is understood differently in the individualist culture that is mostly found in the Western countries. Tsui (2009) suggests the use of an ‘inside out’ approach that will help to identify the unique and important features of China management; although it requires in-depth knowledge about China. Therefore, Cooke (2008) based her research (examination of 421 articles that consider the enterprise culture) on the organizational culture management in China from the ‘inside out’ perspective and how it differs from the outsider perspective. Xin et al (2002) and Tsui et al (2009) (cited in Cooke 2008) used Shein’s (1989 cited in Cooke 2008) framework to identify the organizational culture dimensions in MNC and home firms in China. Cooke (2008) argues that the ‘inside’ dimension has some level of overlap between the ‘inside’ and ‘outside’ perspectives. The culture building categories were based on six dimensions.

The first one is employee welfare (the material welfare and physical wellbeing of employees), usually through improving living and working conditions or health-care provision. The main aim is to support them in non-work-related worries in order to concentrate on their work. Secondly, employee entertainment in the form of sports events, art competitors, theatrical performances and similar which enhances employee satisfaction, leading to the improvement of work motivation. Also through this means company can influence the ideological development so employees can conform to company’s cultural values. The third dimension is productivity enhancement; it includes quality improvement schemes, employee involvement and suggestion schemes, continuous improvement of plant and production processes and customer care initiatives. These initiatives elevate the skills and productivity levels of employee as well as the quality standard of products. The fourth factor is enterprise external relationship/ image enhancement.

The activities in this dimension seek to create and strengthen the image of management styles, employee’s behavior and product, and service quality through the participation in public events and competitions, charity functions or sponsorship and donations. In terms of ‘inside’ image enhancement it is influenced through uniforms, badges, logos and modern buildings. As a result, the activities, both the external and internal, improve organization’s reputation and enhance the employee’s identification with the company to make them be proud to be the part of it. The fifth dimension are enterprise procedures and rules through the systemization of workplace procedures and regulations, performance targets, reward and disciplinary procedures and health and safety procedures in order to create clear division of everybody’s roles within the organization. And finally, the last dimension is employee development. It has two ways; one of them focuses on technical and educational standards (skill training) and the second, on employee’s ideological thinking and behavior norms (setting role models, moral teaching of socialist and enterprise values). It is believed that these practices will enhance the consciousness of the workers and promote behavior in line with the socialist state and the enterprise (Cooke 2008).

Impact of Chinese culture on management styles

According to Hofstede (1984) Chinese culture, as argued above is paternalistic, masculine, collective and also based on harmony and egalitarianism (cited in Cooke 2008) and they are heavily influenced by the socialist values. This was illustrated in SOEs and the non-state firms, that still remain under a high influence of socialism. Managers in these firms treat their employees equally regardless of the positions they carry and what contract they have (e.g. full time or part-time). Moreover, unity, congruence and harmonization are the guiding principles, which, as argued above, are linked in the Confucian philosophy. Also, the role of collectivism is very important in many organizations and this may create a challenge for the manager as the reforms have changed that perspective for some employees. It is argued that collectivism discipline is promoted as the desired social values rather than individual rights and rewards; where the assumption of the outcome of work is the product of the whole group; no individual can be rewarded for it on his/her own. However, according to Chen (1995), contemporary Chinese, especially in the MNCs and joint ventures, would prefer differentiated rules (associated mainly with the individualistic cultures) for rewarding system (cited in Tsui 2009). Moreover, they would want them to be applied to both, materialistic and socio-emotional rewards.

Furthermore, it is argued that paternalism is another important characteristic which consists of authority, hierarchy, care, obedience, loyalty and dependence (Aycan 2006 cited in Cooke 2008). It is stated that this type of behavior is particularly visible in the SOEs. In the traditional way, it was seen in terms of creating a family relationship, although the MNCs and joint ventures use it to enhance productivity, but they do it in more exploitative ways. Also, the cultural norms of harmony, hierarchy, and “filial piety” are upheld by traditions, but challenged by the Western values; especially filial piety as this is ‘an explicit age-based norm suggesting that in order to seek harmonious relationship with their elders, young people should respect the age hierarchy in intergenerational interactions’ (Ng et al 1997; Zhang and 16

Hummert 2001 cited in Zhang et al 2005, p. 72). China has not only been going through economic transition but also a cultural one too because the young (especially educated) are changing as they are becoming more independent and individualistic and as a result, they seek for equal status in organizational means. This, on the other hand it is criticized by older Chinese people who found this behavior as irresponsible and lacking of respects for traditions (Zhang et al 2005). For instance, in terms of confrontation Chinese people are considered to be less active than people from the US; they instead focus on solution or problem solving style. However, the younger generation expresses the preferences for more competing style (Zhang et al 2005).

Another example of the increasing influence on the Chinese culture management can be found in the quality management; for instance, it is reflected in the ‘productivity’ enhancement in the form of customer service. This represents transition from the socialist values (‘to serve people’) to market liberalization (customer service). Another key influence is procedural management illustrated under the productivity enhancement dimension; for instance, most of organizations have implemented procedural handbooks.


Globalisation, ever increasing competition and rapidly advancing technologies has put arduous pressure on Chinese managers. This added to the transitions which China has undertaken in the last 3 decades has led to the creation of an unsure and uncomfortable managerial context (Wang et al 2009). There have been many transitions in China over the last 3 decades. Firstly they became more industrialised as opposed to being previously agriculturally orientated. Before, China used to be a rigid and centrally planned economy whereby it is purely market orientated. Now Chinese organisations are privately owned whereby before they were a state with a centrally controlled allocation system. China has moved from a communist regime to a more capitalist environment. China is now one of the world’s economic superpowers whereby before they had a closely self-sustained economy (Wong et al 2009). These transitions have meant that Chinese managers have changed their approach to management from bureaucratic administrators to strategic decision makers.

There has been a shift from the traditional sense whereby Chinese managers would implement decisions made by the government. Instead they now have to take on a more modern approach where they would be responsible for all business decision in terms of how they run the organisation, who they employ and what strategies they carry out. However the level of public ownership remains high which means the traditional Chinese culture is still maintained. Moreover state owned SOE are still receiving high subsidiaries from government bodies. Therefore, a high importance is placed on ownership reforms, on state-owned sectors and finally gradual government withdrawal from the labour market interaction (Li and Zax 2003). However Wang et al (2009) go onto say that managers still hold onto the old traditions and practices, such as Guanxi, Daoism and Confucianism, and apply them in their everyday managerial decisions. An overreliance on these traditional practices has meant that Chinese managers are now facing the challenge of not being able to understand other business practices.

Furthermore, the transitions have meant that the historical practices that Chinese managers possess are no longer adequate to cope in competitive environments. Wong et al (2009) state that there is a gap between the competencies a manager has and those which the organisation requires. In a report carried out by Ma (2000 cited in Wang et al 2009), it was found that Chinese managers scored much lower than their Western counterparts in terms of listening and information processing skills, thinking and analysing skills and performance evaluation skills (Wang et al 2009). Developing good ethics and uniformity has become crucial for Chinese for Chinese managers as China moves to a socialistic market economy.

A challenge facing Chinese management is making these practices more professional. From the analysis of the social reform era (1978-present) and the impact that this had on Chinese management style, one part of this study has found that the significant growth evident in the Chinese economy has spurred foreign investment in China and this has resulted in the large scale adoption of western business practices and a Western style of management. As social reforms swept through China from the 1980s onwards, Chinas economy moved from a centrally planned authoritarian system to an integrated capitalist market. This modernising move has cemented Chinas position as a leading world economy. Until recently the vast majority of foreign direct investment was centred in Eastern China. Beijing and Shanghai have emerged as the country’s economic and financial hubs. The pouring in of foreign investment into eastern China has resulted in many western companies setting up a business presence in the region. These companies are Western in nature, their employees are made up of a strong western contingent and their way of doing business has remained mainly western.

This has had the knock on effect of popularising the western Anglican style of management in China. Individualistic values have replaced the traditional Chinese style of management. The cosmopolitan Chinese manager has emerged as the typical Chinese manager and their preferred style of management is entirely western. As the Chinese economy continues to expand, revenue and investment is beginning to flow into Western China. It can be expected that over time, as a result of this economic expansion, Western China will also move towards a western business and management style. But what does this mean for China? The attainment of Western power, wealth and influence will come at a definite cost to China and its traditional collectivist management style. Over time it may be lost to modernity and progress. However, it can also be argued that Chinas continuing flirtation with Western management style, coupled with Chinas bourgeoning labour market may result in a highly efficient economy that will secure its rise to the top of global politics, economics and society.


‘Chinese culture is characterized by benevolent paternalism, masculinity, collectivism, harmony and egalitarianism (Hofstede 1984 p. 305, cited in Cooke 2008). It is believed that, the managerial culture is strongly influenced by the cultural factors, although the Western models have started playing an important role too. China has two main business systems. One of them is the business system similar to the Western models and the second one is the Chinese Communist Party (CCP) system, where it is ensured that the work followed accordingly to the central plan. Similarly, employees in the first case are given certain level of autonomy, in order to promote market economy and competitiveness. Although, it is argued that the Chinese government is proactively encouraging development of cross-cultural management skills, the recruitment and training in cross-cultural management is lacking. There are many issues related to management, especially when the political, cultural and economic environment is so complex and diversified (Dong and Liu 2010). Additionally, Tsui (2006) argues that in China there is incomplete separation of firms from state. However, with no doubt the Chinese labor market has developed along the economic reform. It is argued that, together with the development of market economy, the transformation organizational culture took place. A large number of young educated graduates have entered the labor market; as a result there a two types of workers which may result in some level of conflicts between the old and new (Zhang 2009).

Furthermore, there are three types of organizations that represent different organizational culture, namely SOEs with the ‘updated’ traditional socialist management styles, MNCs and joint ventures with the Western approach, and finally, the ‘non-stated owned’ companies that differ depending on the industry. As a result, the share of jobs in the private sector has risen, which ended the lifetime employment and led to introduction of new work laws. In summary, China culture management is relationship-driven and it is means in itself, in comparison to the Western societies where it is outcome-driven (Cooke 2008). This is illustrated in the six dimension discussed; first four are relationship- related and they activities are reflected in SOEs and non-stated owned sectors. Meanwhile, the other two namely, productivity enhancement and enterprise rules, and procedures are more linked to MNC. Therefore, it is argued that China is at early stage of enterprise culture building. Some of companies treat the organizational change with high importance, while for others it is a cosmetic exercise. And as it was illustrated above, traditions are still very visible in management decisions especially in Western China.


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