Intercultural Problems Within Joint Ventures In China

Table of contents

Table of abbreviations and Table of figures

1. Introduction

2. Structure of the Chinese industry
2.1. Growth and Direct Investments
2.2. Qualification and Training
2.3. Definition IJV

3. Chinese Culture
3.1. Language
3.2. Religion
3.3. School of thought
3.4. Values
3.4.1. Communism and Socialism
3.4.2. Confucianism
3.4.3. Collectivism and Buddhism
3.4.4. Taoism
3.5. Legal Culture
3.5.1. Laws and contracts
3.5.1.1. Possibilities to cope with the current system
3.5.2. Socialist planned Economy
3.5.3. Democratic centralism

4. Intercultural problems during certain stages of the JV process
4.1. Partner Selection
4.1.1. Cultural Traits
4.1.2. Strategic Traits
4.1.2.1. Absorptive Capability
4.1.2.2. Market Power
4.1.2.3. Product Relatedness
4.1.2.4. Market Experience
4.1.3. Organizational Traits
4.1.3.1. Firm Size
4.1.3.2. International Business Experience
4.1.3.3. Previous Cooperative Experience
4.1.3.4. Organizational Skills
4.2. Negotiations
4.2.1. Personal Connections (Guanxi)
4.2.2. The Intermediary
4.2.3. Social Status
4.2.4. Interpersonal Harmony
4.2.5. Holistic Thinking
4.2.6. Thrift
4.2.7. "Face" or Social Capital
4.2.8. Patience, Endurance and Enduring Labour

5. Management Process
5.1. Control
5.1.2. Focus of control
5.1.3. Extent of control
5.1.4. Mechanisms of control
5.1.5. Input Control
5.1.6.. Process Control
5.1.7. Output Control
5.2. Decision Making
5.3. Planning and scheduling
5.4. Managerial Pragmatism
5.5. Trust
5.5.1. Definition of Trust
5.5.2. Effects of Trust
5.5.3. The significance of trust in China
5.5.3.1. Power Distance
5.5.3.2. Individualism
5.5.3.3. Masculinity
5.5.3.4. Uncertainty avoidance
5.5.3.5. Long – term versus short – term orientation
5.6. Communication
5.6.1. Attitudes
5.6.2. Social Organization
5.6.3. Thought Patterns
5.6.4. Language
5.6.5. Nonverbal Communication
5.6.6. Body language (kinesics)
5.6.7. Body distance (Proxemics) and haptics
5.6.8. Paralanguage
5.6.9. Time
5.6.10. Communication and its Consequences
5.7. Human Resource Management
5.7.1. Work attitude
5.7.1.1. Motivation
5.7.2. Quality and Care
5.7.3. Conflict Management
5.7.4. Lay Offs

6. Survey: Opinions and cultural values of Chinese students in Germany
6.1. Findings
6.2. Possible implementation strategies
6.2.1. Redesigning the Hierarchy, work organization and communication
6.2.2. Transforming the management
6.2.3. How to address motivation and quality
6.2.4. Improving intercultural competence
6.2.5. Developing a common understanding of the firm

Bilbliography

Annex : Questionaire

Table of Abreviations:

illustration not visible in this excerpt

Table of Figures:

Figure Nr. 1 Four socialist markets in China

Figure Nr. 2 Typical structure of a joint-venture company

Figure Nr. 3 Speakers of principal Chinese and Western languages

Figure Nr. 4 Basic differences in cultural values

Figure Nr. 5 What is a contract?

Figure Nr. 6 Power and uncertainty

Figure Nr. 7 Chinese societies in comparison to Germany

Figure Nr. 8 Communication styles

Figure Nr. 9 How the meaning of gestures differs

Figure Nr. 10 Typical office spaces

Figure Nr. 11 Human Resource problems

1. Introduction

Since the reforms of 1979, the People`s Republic of China`s (PRC) economy has experienced significant growth. There is no doubt that this economic expansion has been a direct result of the opening up of Chinese companies to foreign investors. The number of sino-foreign joint-ventures, which are by the way a privileged form of investment granted by the Chinese government, has been increasing rapidly. According to Chinese statistics, at the end of 1998, Chinese-foreign joint-ventures represented approximately two thirds of about 300 000 foreign investment projects that were approved by Chinese authorities. In fact, among the developing countries, China is currently the one which attracts the most western investments. Joining the World Trade Organization (WTO) in 2001, China pushed this development even further and while other countries were fighting a recession at the same time, it was able to sustain a growth of 7.8% regarding the Gross Domestic Product (GDP), 14.1% with respect to exports and 10.4% regarding imports.^[1]

Consequently there is steady interest of foreign companies to form joint-ventures in the People's Republic of China. But whereas in the 1980ies mostly the huge corporations where entering this market, nowadays more and more midsized companies, for instance from Germany, are forming joint-ventures too. From the region “Mittelfranken” for example 320 businesses have developed ties with the People’s Republic – a plus of 60% from 1996.^[2] Many foreign firms are considering entering joint-ventures in China because this seems to offer the most attractive method for gaining access to the huge potential of the labour pool and market of China. Nonetheless, there are many warnings about the problems that have to be faced in order to establish a joint-venture in China. Chief among these is the problem of differing management styles between Foreign and Chinese partners.

Very little accurate information is available about Sino-Foreign joint-ventures.^[3] An example is the wide disparity in the reports of the numbers of Sino-German joint-ventures. It is not surprising, therefore, that the majority of research studies have focused on identifying the number and the internal structures of these joint-ventures rather than on the practical problems of managing these businesses effectively.

Beyond problems of identifying active ventures, research on Chinese-German joint-ventures is hampered by other difficulties: collecting data that is accurate, collecting data from Chinese staff and evaluating their attitudes and answers. This study seeks to overcome these difficulties by assessing the attitudes of Chinese students in Germany about the cultural differences they have experienced during their time in Germany. The cultural values which may be responsible for the existence of the attitudes are discussed at the beginning of this paper. On the other hand a study of the literature, especially of best practice papers on this topic, will be conducted. Subsequently the resulting cultural issues which may interfere with joint venture success are identified and possible solutions to these problems are suggested.^[4]

2. The Structure of the Chinese Industry

According to the type of state economic planning China's market today can be more or less classified into three categories. The enterprise director's freedom to formu­late his own marketing plan is also affected by this classification. The three forms of economic enterprises, permitted in China nowadays, are: Private, collective, and state-owned corporations. These companies are subject to various degrees of state regulations ranging from 0 to 100 percent. Following the introduction of profit-sharing schemes in 1993 and stock offerings to workers in 1997, State owned Enterprises (SOEs) have experienced productivity gains and have been relieved of the burden of social responsibility. Yet the situation of most of the SOEs remains critical.^[5] Studies reveal that Chinese SOEs are competing on the basis of cost rather than quality or new product development, and that such enterprises are susceptible to competition should protectionism cease.^[6]

The state began allowing individuals and families to establish their own businesses in 1979. There is no limit to the profit a private enterprise can earn. They are free to select, design, and advertise their products. These privately owned enterprises (POEs) are mostly small enterprises predominantly engaged in the service sector. Owned and controlled by individuals, they possess the freedom and incentives to pursue new business ventures, yet lack professional management and market orientation. In general they have also not the amount of government connections possessed by SOEs and collectives, and being outside of the allocation plan, they are unable to obtain new technology and low-cost finance. Shortage of commodities (especially repair parts) is a common problem. Leasing land rather than buying it from local government, the maintenance of guanxi relations are critical to their survival. Consequently, with the exception of labour intensive industries, POEs have flocked into the service sector rather than entered manufacturing.

Collective enterprises are actually collective entities of several state enterprises to operate side-line businesses and not, as often believed in the West, formed by a group of individuals who petition the state for permission to establish their business. In other words, they are not privately owned collectives and, therefore, have the advan­tages of material acquisition, technology-sharing, access of information available to state enterprises only, but a lesser degree of state intervention. Since they are mostly set up and controlled by local authorities, they are often referred to as town and village enterprises (TVEs).^[7]

Enterprises are also defined by Chinese economists based on the degree of state control: directives (controlled and directed by state), state guidance (indirect state control), and market adjustment (free of state regulation). Accordingly, market structures in China can be classified into four different types of plan-based and market-based systems. The table below (Table Nr.1) shows the four types of Chinese socialist market structures which have been defined by Mun Kin-Chok^[8].

On the one hand Mun's classification explains why China's market structures are different from those in free-market economies, and on the other hand why marketing in China could be difficult. Problems in these areas arise as a result of the enterprises' various degrees of autonomy in forming their own production and marketing strategies. The 400,000 state-owned enterprises operate in so called Type I, II, and III markets. All private enterprises and some collec­tives are allowed in the Type IV or free market. But private enterprises contributed only 24 % of the total national sales in 1986. The number of collective enterprises is rising. Many new collectives are being established in rural township industrial areas and Special Economic Zones. The largest percentage of China's enterprises, however, is still state owned.

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Theoretically, some state enterprises and collectives are able to operate in the Type III or direct-sales market, which allows for limited leeway in terms of setting sales goals, pricing, and promoting to the target markets. In reality, a direct-sales market is more subject to a nominal policy than a thriving new form of market mechanism in many aspects.

In consequence Chinese enterprises effectively remain units within a central plan rather than firms within a market economy, since they have neither the freedom nor the incentive to develop new products. Therefore market structures in China do not always reflect the inter-workings of market forces in spite of the reforms after the liberalisation era.^[9]

While companies of overseas ethnic Chinese (OEC) groups predominantly based in Hong Kong and Taiwan have set up wholly owned subsidiaries, Western organisations were only allowed to assume a maximum stake of 49 % in any venture. Foreign joint ventures are therefore typically formed between subsidiaries of SOEs or collectives with a foreign partner, the latter typically responsible for technology transfer to the Chinese partner. This is, however, a complex enterprise (details see Chapter 2.3. and figure 2). Permissions and licences are required, and the legal setting is only poorly defined. This creates some uncertainty, especially in manufacturing, which requires a sizeable long-term commitment of finance. The above mentioned OEC groups have been the primary vehicle for marketing Chinese products overseas and providing foreign direct investment (FDI), but they have resorted to the manufacture of labour intensive products developed elsewhere, rather than investing in China’s Research and development (R&D) capabilities.^[10]

2.1. Growth and Direct Investments

China's overall record since reforms began in 1979 is daz­zling, and its performance is in many ways improving. Annual real Gross Domestic Product (GDP) has grown about 9% a year, on average, since 1978 - an aggregate increase of some 700%. Foreign trade growth has averaged nearly 15% over the same pe­riod, or more than 2,700% in aggregate. Foreign direct investment has flooded into the country, especially throughout the past decade. In 2002, China became not only the first country since the 1980s to attract more FDI in a year than the United States (bringing in $53.2 billion while $52.7 billion flowed into the States) but received 59.6 % of all FDI invested in Asia. In the first quarter of 2003, a billion dollars a month in foreign capital poured into the Pearl River Delta near Hong Kong, where inte­grated clusters of suppliers and assemblers are becoming an awesomely efficient manufacturing base for exports of everything from circuit boards to machinery to shoes to tools. Now being the worlds sixths largest export nation, China has rapidly moved to take its place among the world's largest trading na­tions. The country has developed a powerful combination - a disciplined, low-cost labour force; a large cadre of technical personnel; tax and other incentives to attract investment; and infra structure sufficient to support efficient manufacturing operations and exports.^[11]

Like its export base, China's home market is growing strongly - in several segments, spectacularly. Four to six million new cell phone subscribers are signing up every month, for instance. Computer use is spreading more rapidly than in any other country. The automotive mar­ket is surging, making China the one place in the coming decade where carmakers can compete for a pie that is growing rather than fight over one that is not.

To cope with the decline in demand brought on by the 1997 Asian financial crisis, China made massive infra­structure investments, including a vast expansion of the rail, highway, telecom, and water management systems. These investments have improved connections among what used to be largely separate domestic markets.

The regulatory environment is also moving in the right direction, becoming more transparent. As China imple­ments its WTO commitments, more opportunities are opening up to foreign firms, which are increasingly being placed on an equal footing with indigenous companies.^[12]

2.2. Qualification and Training

Compared to other emerging markets the overall educational level in China is high. The percentage of illiterates of the total population was 6.4 % in 1992 (80 Mio.). Unofficial reports from Hong Kong estimate 20-30 %, a significantly higher number. In 1991 11.5 % of the population were visiting a higher school and almost half of the population (47 %) a middle school. Whereas the percentage of University graduates lies as low as 0.16 % (1.9 Mio.) and that of job training schools as low as 0.1 % (1.1 Mio.) In contrast to the high levels of illiterates in rural areas a high level of general knowledge can be found in the cities – this is proofed by the large number of daily and weekly newspapers (over 5000).

On the one hand a profound job training as for example in Germany does not exist in China. The technical or handicraft knowledge in manufacturing businesses is compared to western technological standard relatively low. Training in economics or management skills is highly influenced by terms of the socialist system.^[13] On the other hand in China, as in Taiwan, Korea, and Japan, companies have tended to place more empha­sis on corporate values and interpersonal skills than their Western counterparts. In addi­tion, there is a consistently high degree of governmental involvement in China with re­spect to the provision and regulation of train­ing and development for the workforce. Every company has been legally obli­gated to train its workers to a certain standard before offering them full-time employment. If a worker does not attain the required stan­dard, then that worker has to be retrained. Worker education has typically consisted of two components: cultural-political courses and scientific subjects. The former are aimed at indoctrinating employees with com­munist ideology, moral values, and patriotism, while the latter are to provide them with the basics of everyday life and work. As in many Asian countries, secondary edu­cation has traditionally emphasized the quali­ties necessary for excelling in a factory environment, particularly discipline and memorization.

Over the past two decades, the training and development of managers has become an increasingly important issue for the government to promote its economic objectives. Chinese managers are being trained in modern management techniques, as well as appropriate industrial or commer­cial skills, by the companies themselves as well as by universities, professional associations, and foreign consulting firms. Companies are working with the government to develop school criteria that will produce skilled work­ers. In addition, many multinationals, such as ABB, Ericsson, Procter & Gamble, Motorola, and Siemens, have established state-of-the-art, corporate-style, campus training centres^[14]. The establishment of cor­porate training centres sends a strong mes­sage to employees and prospective recruits that these employers are investing in China for the long term.^[15]

2.3. Definition IJV

With regard to the international cooperation of companies, especially between industrial corporations, the term joint-venture is applied if several (at least two) otherwise independent corporations have an interest in a common venture. The Joint Venture Partners participate in equity, profit and loss as well as financing and management in previously negotiated terms. The joint-venture, as a new entity, is legally independent from the founding companies. If the “mother – companies” are situated in different countries the new corporation is called an International Joint Venture.^[16]

Joint-ventures have arisen during the 1960ies. The big multi-nationals have used them as means of global expansion, especially in developing countries – in business terms the so called emerging markets. The most important aspects were to secure sources of raw materials and to get a foothold in markets difficult to enter. The form of Joint Venture was chosen only if the founding of wholly owned subsidiaries was politically banned or otherwise not possible. This was the case in many developing countries and almost all Eastern European states, at that time.^[17]

A striking development is that nowadays lots of small and midsized companies are taking part in joint ventures.

German- Chinese JVs situated in China are institutions subject to Chinese law and therefore defined following the common definition given there. With this paper, the economical term JV will be specified with respect to possible forms of cooperation as stated by the Chinese law. The term JV is therefore enclosing equity-joint-ventures as well as contractual-joint-ventures.

Equity JVs: mutual businesses with Sino-foreign interest (equity stakes) are “a legal entity under Chinese law, whose liability is limited to the company’s wealth and the payment of the owners share. The interest of the foreign partner must not be less than 25% of the total equity and is not limited to certain a percentage.

Profit and Loss have to be taken on by the partners with respect to their percentage of the registered share capital. Normally the joint management of the company is composed, due to the Chinese law, of the Board of Directors. The duration of the contract is regularly limited. It is similar to the German GmbH.

In contrast to the equity JV the cooperative or contractual joint venture can be constituted with or without an own legal entity. Under Chinese Law it differs further from the equity JV by the possibility to negotiate the distribution of liabilities and profit and loss freely. Additionally the parties may design the size, the way and the valuation of the equity shares, the form of management as well as the distribution of the goods flexibly. This form is more suitable for short-term projects, the exploitation of raw-materials, all forms of build-operate-transfer-projects as well as plant investments where the delivered plant is to be paid by the dispensable cash proceedings.

Combination types between small and midsized companies are the same.

General benefits of Joint Ventures:

- 100% subsidiaries are not allowed in some countries
- JVs allow a distribution of capital and risk
- JVs make it possible to combine the strengths while compensating weaknesses at the same time
- Foreign Partner may play an important role with respect to product adaption and distribution
- Foreign Partner promotes the integration into the economical, legal, social, and cultural framework
- Joint Ventures allow the bidding in public offerings
- Joint Ventures help to overcome entrance barriers and trade restrictions
- By means of JVs significant investment advantages and tax facilitation can be realized^[18]

and possible disadvantages:

- problems with partners
- addictions
- conflicts of interest with regard to management policy
- no complete control of management
- not free when it comes to marketing and pricing
- staffing choices have to be consented to^[19]
- very high importance of language, culture and corresponding personal relationships^[20]

A typical structure of a joint-venture in China and its relations to its environment is shown in the figure (Nr. 2)^[21] below:

illustration not visible in this excerpt

3. Chinese Culture

All scholars recognize the existence of either a single distinct Chinese civilisation dating back at least to 1500 B.C. and perhaps to a thousand years earlier, or of two Chinese civilisations one succeeding the other in the early centuries of the Christian epoch. Also it is often referred to as Confucian it is more accurate to use the term Sinic. While Confucianism is a major component of Chinese civilisation, Chinese civilisation is more than Confucianism and also transcends China as a political entity. The term Sinic, which has been used by many scholars, appropriately describes the common culture of China and the Chinese communities in Southeast Asia and elsewhere outside of China as well as the related cultures of Vietnam and Korea.^[22]

3.1. Language

The Chinese national language is Mandarin. Mandarin, of which also exist several dialects, is spoken alongside the regional dialects (Cantonese, Wu, Minanhua or Min and Hakka) so that oral communication can be difficult.^[23] The spread and the importance of the different dialects are shown in the Table (Nr. 3)^[24] below. The sole cause of the sharp rise in the number of speakers of Chinese languages is the growth of the Chinese population. During everyday life and while doing business, it is a big obstacle not to have (not to be in) command of the Chinese language (national or local dialect). Nowadays more and more Chinese managers speak English and most of the younger Chinese` English language skills allow them to conduct negotiations in this language. However, in most of the businesses and authorities you can hardly meet an older Chinese, which are usually the ones who make the final decisions, with enough English or even German language skills which would suffice for negotiations. Entrepreneurs should therefore equip/supply their experts and management personnel, at least the ones that are supposed to stay for a certain time, with competent and customs acquainted translators. These should especially be familiar with business terminology and western thinking.

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The Chinese writing is often described as ideographic and non-phonetic. It is the same for all dialects and is therefore a mean of communication between Chinese citizens from different regions. This is even more important since not all Chinese are in command of the Mandarin, as shown in Table Nr.3. Language and scripture are very closely interwoven with the way of thinking and the ideologies. The Chinese language has been characterized as emblematic and figurative by some scientists, in contrast to the phonetic western languages, and therefore conclusions of the Chinese way of thinking and Chinese logic have been drawn.

The contextual meaning of the Chinese language is crucial: In contrast to the characters spoken words and syllables are often not yet significant, but get their meaning from their position within the context (of a whole expression).

It is important to note, that language is only one part of communication, problems of understanding, which result from the different cultural backgrounds, e.g. the common religions Buddhism, Taoism and Confucianism, may be even graver.^[25]

3.2. Religion

Religion is a central defining characteristic of civilizations, and, as Christopher Dawson said, “the great religions are the foundations on which the great civilizations rest”. Of the five “world religions”, four- Christianity, Islam, Hinduism, and Confucianism – are associated with major civilizations. The fifth, Buddhism, is not. Why is this the case? Like Islam and Christianity Buddhism early separated into two main subdivisions, and like Christianity, it did not survive in the land of its birth. Beginning in the first century A.D., Mahayana Buddhism was exported to China and subsequently to Korea, Vietnam, and Japan. In these societies, Buddhism was variously adapted, assimilated to the indigenous culture (in China, for example, to Confucianism and Taoism), and suppressed. Hence, while Buddhism remains an important component of their cultures, these societies do not constitute and would not identify themselves as part of a Buddhist civilization.^[26]

3.3. School of thought

A thesis stated in several interviews is that the usage of the Chinese writing and language promotes the function of the right half of the brain as a result of its figurative character. Following this line of thought means that Chinese and other Asian peoples using Chinese based languages would have developed schools of thought influenced (marked) more heavily by the right half of the brain and are therefore more adjusted to a whole and emblematic way of thinking. This school of thought would therefore differ widely from the European one which is more oriented at linear lines of cause and effect, and is affecting Asian strategical and behavioural- patterns. The Chinese school of thought is often compared to European schools of thought prevailing in the Middle Ages and accordingly described as mythical- pre-linear and cyclical. The negotiators alternately describe all important facts regarding a certain topic from their point of view and modificate them as long as necessary to reach a bilateral agreement. Hereby neither connexions of cause and effect are stipulated nor are distinct positions, which bring with them the danger of a direct confrontation, taken up but encircling strategies are followed. Whereas the European tradition of discussion is trying to arrange facts in a line of cause and effect and to draw conclusions, often in order to find a truth independent from the participants, or to reach agreement by way of direct confrontation about the best possible way of conduct.

Aside from the cyclical character of communication there are often stated two more typical schools of thought in the Chinese way of thinking: On the one hand the way of thinking in adversaries and their equalization. This is symbolized by the terms Yin and Yang, which have entered the Chinese school of thought by way of Taoism, and which are referred to in many situations of daily life. On the other hand it is the way of thinking strategically in territorial patterns.

In contrast to the linear logic of cause-and-effect preferred by the European school of thought that connects the single elements by cause and effect, the Asian schools of thought hold the patterns, the placement and the motion of the parts with respect to each other as most important for the experience of the reality. This is true for the Interpretation and analysis of the perceived reality as well as for the means of communication and strategy development.^[27]

3.4. Values

3.4.1. Communism and Socialism

Communist values are still very important in China although many policy-shifts have taken place in recent years. There are three main reasons:

Firstly, since these values are state doctrine they are the base for all official decisions and are promoted by cyclical recurring political propaganda campaigns. They are employed as official substantiation for nearly all public and often for private decisions and actions, too.

Secondly these values represent a part of the official language, which independently from the individual will influences the thought and behaviour.

Third these values are, in contrast to the socialist countries in Eastern- Europe, closely knit or mingled with many traditional Chinese values. This is as true for the ideal course of action under the communist ethic and the Confucian ethic as well as for the orientation towards the collective under the communist and the traditional system and as well for the centralistic, highly hierarchical concept of leadership of the communist party, which at least in this respect seamlessly connects to the Confucian hierarchy of the empire. As a result of this correspondence between the two systems they are both sometimes described as oriental despotism.^[28]

3.4.2. Confucianism

Many descriptive contributions state the historical development of the Chinese Corporations within the framework of the Chinese Socialism and analyse their character and their role before and after the opening policy from 1979. The Confucian doctrine is hereby seen as the most influential of the Chinese schools of thought. Confucianism affected ethics and systematic conceptions of the Chinese until the end of the empire and is still unmistakably influencing it, even after the communist upheavals and the strong criticism of the Confucian view of the world during the “Culture Revolution”. Today Confucianism is seen as a Neo- or Meta- Confucianism, which shows hierarchical structures, but is covered heavily by socialist terms and rules. With respect to the economical development it is seen as an advancement as well as contra productive.^[29]

The Confucian system is strictly based on hierarchical behaviour within different personal, relational and official connections. Age is enjoying prestige and respect, men have a higher standing as women. Confucius (551-479 BC) developed his society system as a reaction to the experience of a chaotic, transitional period, marked by revolutions, of the Chinese empire around 500 BC. This system is principally arranging vertical, hierarchical relations. Horizontal relations between equal partners remain mostly undefined in this system and are therefore subject to chaos and power. The potential misuse of total power within the hierarchy is lessened by high-grade, ethical, behavioural codes, which are interpreted as Confucian courtesy, in Western Countries.

The strictly hierarchical system of social and economical incidents with its principles and effects contradicts the ones of the horizontal system, the latter evolving during the interaction of equal suppliers, competitors and customers by following the market economic principle. This conflict poses as a basic problem for the market economical management in china:

In the industrialized western countries a mixture of horizontal structures on the markets and in politics and vertical structures within corporations and institutions has evolved since the Industrialisation, which as opposing powers hold each other in balance and complement each other productively. Similarities can be drawn to the ambitious east-Asian industrialized countries and emerging markets like Japan, Taiwan, or Korea, where on the one hand horizontal power structures and on the other hand strictly hierarchically marked organizations and family clans complement each other.

Whereas in china the solely hierarchical regulatory term of the Confucian tradition as well as of a communist orthodoxy with Chinese imprint (marking) makes the reform of the Chinese management more difficult.

This is especially true since up to now the Chinese government has almost none effective indirect economical gearing instruments, as for example a revenue office or a system of central banks.

3.4.3 Collectivism and Buddhism

In line with the reforms of 1978 the once by state and party hampered freedom to practice ones religion freely was somewhat liberalized. The most important spiritually-religiously oriented groups are the Buddhists (Tibet Lamaists), sunnitic Moslems especially in the northwest of china, Christians, and Taoists. But Buddhism traditionally (poses) has the greatest religious influence.

All specified publications describe china as a collectively oriented society and as a high context culture.^[30] Significant of this basic socio-cultural orientation is that the individual is mostly conceived as a part of its social group context, which is highly connected in its relations. In some Asian traditions even the dead, ghosts, or gods may be part of the group hierarchy. The individual conceives itself primarily as a part of the group and is consequently defining its self esteem mostly by its position and its relations within the group. The decisive social corrective is therefore not fault like in countries of western-individual imprint but the shame that comes with the publication of a failure and which could lead to a “loss of face”.^[31]

This values which are primarily marked by social codes and the position within the group have been explained by some authors with the group oriented, collectivistic ethic of Buddhism. It is confronted with the western, monotheistic tradition where the individual is primarily responsible to a god equally superior to all people and before whom all people are equal. Correspondingly it is faced with a western world marked by the Jewish- Christian tradition which promotes an individual responsibility before a universally valid law.

In this context the most important social corrective is to be seen by fault, which is put in effect by a violation of the immanent rule of a divine law.

The result of the collective value orientation in china is a more powerful social orientation of the individual towards, but case wise interpreted, instructions of the collective, since towards an immanent universal law. This is especially true with respect/when it comes to the officials of despotic hierarchies, which are totally dependent of their superiors privately as well as officially and which therefore are inclined to generate goodwill by friendly and correct behaviour.

From this has been derived the emergence of the complex behavioural codes of the traditional Chinese role play, which have often been misinterpreted by western visitors as courtesy. As a result the behaviour is mostly determined by social context and the current role of the person and only secondly by the character and the values of the individual. The role and situation related rules mark as well the oral expression as the behaviour in all constellations of social relationships, e.g. between old and young, man and woman, superior and subordinate. The traditional collective orientation of the Chinese ethic is corresponding as well with the Confucian as with the socialist doctrine/ way of thought. It is can possibly be seen as a factor which led to the broad reception of socialist values after the revolution.^[32]

3.4.4. Taoism

Taoism which is connected with the term Lao Tse and has been conveyed like a mosaic can be viewed as an adversary concept to the hierarchical marked Confucianism and is of highly individual imprint. Similar to the Christian Gnostics the Taoist is looking for a higher level of personal evolution through perception and experience, by keeping to his personal, inner or spiritual path. The pure form of Taoism has traditionally been executed only remotely, since it widely banned an adoption of responsibility within the hierarchically structured Chinese society. It has therefore been viewed as a philosophical way of thought of monks, pensioners or drop outs.^[33]

The basic differences in cultural values and ways of thinking as described above are shown in the following table (Nr. 4):

illustration not visible in this excerpt

3.5. Legal culture

For a long time China has had no laws like civil rights, company and corporate law. Only when the necessity to suffice the requirements of foreign investors for a predictability of legal decisions arose these special laws have been created. In most cases these laws have been in effect significantly before basic civil rights. The law of Equity Joint Ventures for example has been put to effect in 1979, whereas the common rules of the civil rights date from the year 1986. A further specialty of the Chinese legislative is that there are passed very general acts at first, which are followed by precise implementing provisions later on.

The first legal provisions, as stated above, affected the Equity Joint Ventures in 1979. The foundation of Contractual Joint Ventures and Wholly Foreign Owned Enterprises (WFOE) has been approved already likewise although their legal framework was determined only years later.^[34]

The legal framework as a whole is supposed to provide security for foreign companies with respect to the expectations of the host country and the immanent organizational possibilities. This framework has not been constructed following a standard concept but case wise, for every single, immediately needed, arrangement.^[35] However the aim is to establish a normative legal system, like in Europe, in the long run and use the case wise American system only in the mean time.

As a result there emerged lots of laws and regulations for certain areas, which are as a whole difficult to oversee and which are steadily evolving. Moreover new regulations are published hesitantly only. The published provisions are often incomplete and do often not apply to new developments. Therefore there exist parallel the intern regulations of the Chinese bureaucracy – which are publicised only seldom. The Chinese bureaucracy for one is also backing away from publishing regulations, so as not to (create claims of the public) entitle the public with certain provisions beforehand. In context with the poor legal security and the intransparent judicial rulings breaches of contract are repeatedly reported. This is also important when it comes to the collection of debt if a Chinese partner is not willing to pay in full or at all.^[36]

3.5.1. Laws and contracts

Here and there cases become public where companies and institutions would not stick to existing contracts and agreements or where terms of delivery have been altered unilaterally without consultations.

Some of these problems are certainly due to differing understandings of laws and contracts and these diversities are often mentioned as a reason for intercultural difficulties. In general the Chinese are more interested in a sincere commitment to collaboration than in seemingly flawless contracts. Chinese businessmen see a contract as a precondition of progress in a business relationship, which can be negotiated and adapted if the course of events makes it necessary. This flexible handling sharply contrasts with the European understanding of legal matters, according to which contracts are seen as precise, unchangeable and binding. As a result, European managers are often puzzled by the “everything is negotiable” attitude prevailing in the Chinese business world. Foremost in southern China contracts are deemed as a pure formality and seem to be considered binding only for foreigners. Many overseas companies complain that contracts are increasingly used as a tool to claim rights from them, while the Chinese partner is in general quite lax in fulfilling its own duties. These differing perceptions of contracts in Europe and in China clearly have their roots in the incongruent socio-cultural backgrounds of Europeans and Chinese. European managers place high value in laws and contracts based on their belief in principles and their quest for certainty and truth. Raised in a contractual society, Europeans see fixed rules and standards as guarantees of a stable development. The weak legal system of the Chinese culture is therefore standing in sharp contrast to the European principle based tradition.^[37]

The different perceptions of a contract are beautifully depicted by the following graphic (Nr. 5)^[38]:

illustration not visible in this excerpt

In Europe and in the Western Hemisphere companies usually think they can avoid risk by spelling out every detail in a contract. Whereas in Asia the contract plays only a minor part and is based on the relationship. As a consequence one has to nurture this relationship in order ensure the reliability of the written agreement.^[39]

3.5.1.1. Possibilities to cope with the current system

On the one hand foreign companies are calmed down by special regulations. They are for example not subject to all parts of Chinese law. On the other hand - with the introduction of a market economy - the old frontiers between Chinese on the one side and foreigners on the other are gradually evaporating. In consequence, for example Chinese banks may be a valuable ally in a situation of conflict. Since the banks are now also very interested in the repayment of loans and can not fully trust on governmental aid anymore, they too have an interest that companies function flawlessly and prosper. In case of legal disputes between JV partners the banks sometimes even go so far as to seize the share of the Chinese partner. The foreign company is than able to buy his interest. It is also possible to exact pressure on the provincial governments and/or the city officials, by threatening to switch the city or province. A similarly useful way could be to contact the press.

If the situation is already too complicated, sometimes the only solution may be to terminate the venture and start the company anew - as a wholly foreign owned subsidiary, or as a JV with a higher rate of interest and/or a better partner. This is sometimes not only easier but even cheaper than to take legal action. More often than not, the Chinese side is not able to run the business on its own and has to give up after a short time. This is recognized by the local partners and has therefore a disciplinarian effect by its own.^[40]

3.5.2. Socialist planned Economy

The socialist economic system is essentially marked by the schools of thought of Marx, Lenin and Mao. The characteristics constituting the Chinese socialist economic system are the primacies^[41]:

- Of Marxism- Leninism
- Of the communist party
- The dictatorship of the people
- The common property of the production means
- Of the state planning
- Of Central Power
- Of equal distribution of income

Since 1978 a combination of planning and – limited market economy is aspired. This development is marked by many experiments of economic policy, especially within the special economic zones. Chinese enterprises are classified with respect to their degree of independence by six criteria into three groups and subjected to special principles of leadership: Public enterprises are guided as organs of the budget - non-profit enterprises by accounting principles and Erwerbsunternehmen are kept as profit oriented autonomous corporations. Chinese enterprises are principally kept governed according the socialist business management. Which essential characteristics are

- democratic centralism: management by the socialist state
- principle of single leadership in business management: sole responsibility and competence of the manager of a economic organisational unit
- entity of plan, budget, balance sheet and contract: state plans are the binding foundation of the corporations operations.
- Economical accounting

These principles respectively produce a different impression on the management of the Chinese corporations, on the Chinese partners, on their management experience and therefore on the management of the Joint Venture, too. Accordingly the most important socialist management principles will be represented separately as environmental factors.^[42]

3.5.3. Democratic centralism

Democratic centralism constitutes the central leadership / management of all state owned enterprises through / by the socialist state. Decisive for the cooperation with western corporations is that Chinese businesses must not be mistaken for relative autonomously deciding companies of market economies. Instead they have mostly to be viewed as means of production of the planning- and administrational- hierarchy. The state has not only a right to intervene but is although obliged to intervene if the goods do not apply to one of the three criterions “technical possible”, “solely / sub- economically aspired” or “socially desirable”. Especially the sole / sub- economical advantage of a company or a joint venture is subjected to a, in the eyes of a government official, higher economical benefit. Even if it is realised by other economical sectors, lines of business or geographical regions.

[...]

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^[1] http://www.ihk-nuenberg.de/ihk_primnav/wir_ueber_uns/kammergespraeche/canrong.jsp

^[2] http://www.ihk-nuenberg.de/ihk_primnav/wir_ueber_uns/kammergespraeche/canrong.jsp

^[3] Markterfolg in China; Physica Verlag; Michael Nippa; P. 6

^[4] Inga S. Baird/Marjorie A. Lyles/Robert Wharton; Management International Review vol. 30 Special Issue

1990; P. 54

^[5] Markterfolg in China; Physica Verlag; Michael Nippa; P. 6

^[6] Erfolgreiches Asienmanagement; Expert Verlag; Sung-Hee Lee; P. 44

^[7] Production Development within China: Cultural Difference within International Joint Ventures; A. Williams,

X. Zhang

^[8] Organization and Management in China 1979- 1990; Oded Shenkar; P. 24

^[9] Organization and Management in China 1979- 1990; Oded Shenkar; PP. 24- 26

^[10] Succesful Joint Ventures in the Heart of the Dragon; Lomg Range Planning Vol. 28; Maris G Martisons and

Choo-sin Tseng; PP. 46- 48

^[11] Wirtschaftswoche 02.10.2003; Vol. 41; PP.20- 22

^[12] Wirtschaftswoche 02.10.2003; Vol. 41; PP.26- 28

^[13] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; PP. 66-

^[14] Markterfolg in China; Physica Verlag; Michael Nippa; P. 141

^[15] Human Ressource Management; Spring 2002; Volume 41; Nr. 1; P. 69

^[16] Deutsch-chinesische Joint-Ventures; OldenbourgVerlag; A. Schuchardt; PP. 16- 18

^[17] Managing International Joint Ventures; Kogan Page; Clifford Matthews; PP.57- 82

^[18] Internationale Kooperationen und Joint Ventures; Gabler Verlag 1994; Klaus Rumer; PP. 65-

^[19] Internationale Kooperationen und Joint Ventures; Gabler Verlag 1994; Klaus Rumer; P. 65

^[20] Internationale Kooperationen und Joint Ventures; Gabler Verlag 1994; Klaus Rumer: P. 67

^[21] Production Development within China A. Williams, X. Zhang

^[22] The Clash of Civilizations and the Remaking of World Order, Touchstone 1997; Samuel P. Huntington; P.45

^[23] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; P. 67

^[24] The Clash of Civilizations and the Remaking of World Order, Touchstone 1997; Samuel P. Huntington; P.61

^[25] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; P. 67

^[26] The Clash of Civilizations and the Remaking of World Order, Touchstone 1997; Samuel P. Huntington;S.47

^[27] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; PP. 67- 69

^[28] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; P. 70

^[29] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; P. 71

^[30] Intercultural Business Communication; Cornelsen & Oxford; Robert Gibson; P. 43

^[31] Communicating Effectively With The Chinese; Sage Publications; Ge Gao, Stella Ting-Toomey;PP.55-

^[32] Deutsch-chinesische Joint -Ventures; Oldenbourg Verlag 1994; C.A. Schuchardt; P. 74

^[33] China Knigge Für Manager; Campus Verlag; Chin-Ning Chu; P.47

^[34] Erfahrungen Deutsch-chinesischer JV, Trommsdorff; Schuchardt; Lesche; P. 8

^[35] Wirtschaftswoche 02.10.2003; Nachhaltiger Erfolg; P. 96

^[36] Kleine Kniffe für große Geschäfte; China Sonderheft der Wirtschaftswoche;

^[37] Erfolgreiches Asienmanagement; Expert Verlag; Sung-Hee Lee; PP. 22-25

^[38] Intercultural Management in China; Deutscher Universitätsverlag; Nikolaus S. Lang; P. 88

^[39] International Management; Prentice Hall; Helen Deresky P. 43

^[40] Kleine Kniffe für große Geschäfte; China Sonderheft der Wirtschaftswoche

^[41] Erfahrungen Deutsch-chinesischer JV, Trommsdorff; Schuchardt; Lesche; P. 82

^[42] Erfahrungen Deutsch-chinesischer JV, Trommsdorff; Schuchardt; Lesche; PP. 83- 84