China Part 1: Business culture & success

Why is China so successful? What kind of Business culture do people have there?

These are questions which I focus on in this and also in the next blog entries. I was inspired to take a closer look at China after having read some interesting articles from Michael Freitag and Astrid Maier and my interest was also drawn to this region when I was rummaging around in a book about multinational management.

The topic business culture was already introduced by my last post where I gave an introduction with Mexico as an example to illustrate the information.

At first let us take a look at China’s business culture. In this case I would like to consider the conditions of the country, which is constantly changing. With the help of the Cultural Revolution many young people are sent to work in country areas but at the same time education is denied to others. But however in the time over the last 2 decades more Chinese people have had the chance to succeed in a business education and career and thus help to define the Chinese business culture, which is developing in a really fast way.

For giving you an overview of Chinese business culture, these are key issues:

1. Business in China is moving in a slower pace than it does in the US or in Europe. If you want to tap in the business in China it is often the case that you have to visit the country several times before you start with buying or negotiating about possible facilities.
2. Similar to Mexico, the organizational structure is very hierarchical. It might help you if you have relationships to the individuals with the highest reputation because the likelihood is high that they will be the decision makers.
3. Chinese companies do not like to say no and things that appear to be agreed upon could become an obstacle in the future so it is important that you handle as much agreements in writing as possible.
4. The last key issue is the Chinese business etiquette which was a little bit surprising for me. One advice is that you should dress up conservatively and you also should arrive on time for your appointments. You, as a negotiator, are expected to show business cards with both hands and it would be a benefit for you if you have one side of the business card in English and the other in Chinese. Furthermore it is not a secret that Chinese companies greet visitors with extravagant banquets and you should be prepared to participate in some form of drinking.

For this aspect I found that there is also a book about this issue, if you would like to grow a business in China this book may help you:

Doing Business in China for Dummies

What are the reasons for China’s success?

The country which is moving in such an impulsive way has many perspectives. They were often considered with cheap products or fake products. By the way when I talked with a Cambodian man about this issue he told me:

No we are not imitating you, we are just trying to do our stuff as good as the master.

This might be a subjective issue.

But the times where China was only the cheap location for production could be over because China is constantly improving technology, no matter whether it is in Chemistry, Cars or wind power plants. Many Chinese companies established on the Market. They use around 5 percent of their revenues for research and development and economy in China is constantly growing. I think people underestimated China in recent years because many of them may have thought that China is not a concurrent for the Western technology. They thought that they are so progressive that China could not hold on with that but obviously they were wrong. China can catch up with it and probably even go further.

The computer manufacturer Lenovo managed to be at eye level with Hewlett-Packard and Dell and Huawai constantly offers surprises in innovation.  To manage this economic improvement there are two major factors.

One is that the salaries were so low that it was easy to underbid Western companies in production costs. The second factor is the enormous demand of the huge population of China so the companies keep going on growing and the production plants are increasing in size and quality. There is always a lot of money invested in technology and every year there are more than 500 000 engineers completing their academic studies and launching their career. The state of China really supports growth in its 5-year-plans with detailed technological- and growth goals. Chinese enterprises are free and controlled at the same time. This was even considered as the “better market economy” by Hasso Plattner, chef of supervisory board of SAP. Volvo which was known as a Swedish car manufacturer with high quality standards was taken over by the Chinese car manufacturer Geely. There is no other country which invested as much in projects in Germany as China did in 2011.

About Lenovo and its ambition

I have read an interesting interview about the ambition of Chinese managers with Yang Yuanqing, CEO of Lenovo. With a remuneration of 12 million dollar per year this man is the highest paid CEO of China. As it is an interview in German language I do not want to give quotations, I rather concentrate on key aspects.

Lenovo already is the market leader in China and they have the goal to become global market leader and also to become as popular as Apple. Yang Yuanqing believes that the number of Chinese brands known all over the world will increase in the near future, which is based to the fact that there is already a broad variety of companies in the Chinese market so it is obvious that there will be several ones which evolve to global brands. He considers especially the High tech industry as one of Chinas strengths but he thinks that the Chinese industry has to become more innovative to be even more successful. Incentives for this are given by the 5-year-plans of the government in Peking which I mentioned in the text above.

I consider it as an interesting aspect that he says that on the one hand Chinese enterprises have a quite efficient organisation and supply chain but in the other hand the experience of how to lead an international enterprise is often missing. But to avoid this many Chinese enterprises take over foreign enterprises or parts of it, as for example Lenovo overtook parts of IBM (parts of its PCs) and recently they also overtook Medion. Yang Yuanqing disagrees with the rumour that China is going to buy Germany, because he verifies that with the fact that Germany is still investing more in China than the other way around. He also emphasizes that the take overs between Germany and China will help both sides and he gave the example in the take over of Medion, because the workforce have not been cut, instead they have created more jobs.

I think I have underestimated Lenovo before, because I have not expected such a big enterprise behind it before I started researching. But this is not the only example I would like to include here.

Huawei, founded and improved by Ren Zhengfei, has emerged to a leading network terminals provider. Their concept of becoming a globally known firm is typical of the Chinese Incorporation, because it is a mix of governmental promotion, low costs and the intention of gaining power combined with latest technologies. In Germany Huawei has especially become famous by selling smart phones for relatively low prices, for example the Ascent Y200 at the supermarket chain LIDL.

The next part about China will follow next week , but here I have included some links for you to inform you about two famous Chinese business men:

Here you can get information about Yang Yuanqing, CEO of Lenovo

And this link will offer you information about Ren Zhengfei who founded Huawei