Which management philosophy will prevail?
Huawei Technologies is aiming to grow mobile shipments by only a modest amount in 2017, as it gears up to go head-to-head with the hotly anticipated 10th anniversary edition of Apple’s iPhone (“China Huawei readies to take on iPhone” – Bloomberg: Beijing, July 27, 2017). The world’s number three smart-phone maker, which in 2016 declared it will some day surpass both Apple and Samsung Electronics in market share, is shooting for shipments of 140 million to 150 million units in 2017 – up marginally from 139 million in 2016. But it’s also putting the finishing touches on its most powerful device yet, the Mate 10. Huawei is the largest of a coterie of Chinese smart-phone makers that have grabbed global market share via affordable phones with premium specifications. The Mate 10 will debut right around the time Apple is expected to take the lid off its own flagship device, but will trump the iPhone in many aspects, said Richard Yu, chief of Huawei’s consumer division. “We will have an even more powerful product,” Yu said in an interview. “The Mate 10 has a much longer battery life with a full-screen display, quicker changing speed, better photographing capability and many other features that will help us compete with Apple.”
There is a plethora of literature on Japanese style of management. But we know very little about Chinese management practices. China is known for its export orientation and there is a common understanding that China has succeeded in its economic growth through export earnings. The common notion for China’s success is that it has become a successful exporter through its low-cost manufacturing. But we have to unravel the causes behind low-cost production in China.
A significant force in the Chinese economy is its Township and Village Enterprises (TVE) owned and operated by village and municipal governments. They are significant players in China; but many of them have low technology and are poorly managed. China made a major shift in enterprise ownership and has faced the rigor of market forces. Though State Owned Enterprises were a new component in China’s industrial production, they became marginalised after economic reforms since 1976. SOEs accounted for just 25% of industrial output, though it is the government’s policy to retain SOEs in key industries. Many SOEs have been converted into joint stock companies.
Chinese management is collectivist in nature and this collectivism is part of the Confucian code of ethics. However, the new generation of Chinese managers is less collectivist and more individualistic. To that extent, the Confucian ethos is receding in Chinese management practices. The Chinese management has for centuries emphasised the values of gunaxi (relationships) and renquing (obligations) even in business transactions. These relationships put emphasis on reciprocity. But in today’s Chinese management the ideas of obligations and reciprocity are crumbling before the forces of a market-oriented economy. The reciprocity, according to Chinese moral code, maintains trust between parties. A core value in Chinese management practices, which acts against the principle of free market forces, is the family-based collectivism. And the family in China is a core social unit. The business transactions in China are based on the quality of inter-personal relationships. Therefore, the Chinese believe in settling disputes through mediation rather than through court proceedings.
The concept of contract
The Western world considers contract to be an important instrument for guiding business transactions. The contract defines business relationships and obligations. It is a form of
commitment for all parties which enter into a contract. Contract is a nature of agreement which can be legally enforced and is a basis of adjudication in the case of disputes between parties.
For Western countries, business relationships and personal relationships are separate. As mentioned above, business relationships are governed by contract. For Chinese management, however, business relationships are a part of personal relationships; they do not make subtle differences between the two. Chinese management, however, does not take “the contract” very seriously. Instead, Chinese people are pragmatic and may interpret “the contract” to suit their interests when it is possible to do so. This does not mean that Chinese managers do not follow “the contract”; but they interpret the terms and conditions in “the contract” from their own perspective. Thus, “the contract” for the Chinese is not gospel. For example, the dates mentioned in “the contract” for completion of work on delivery of goods may not be complied with by Chinese management in the strict sense of the terms. In fact, the Chinese consider the penalty attached to the delay in work as a dishonest practice of Westerners. Instead, the Chinese want a lot of flexibility in “the contract.” By contrast, “the contract” is a sacrosanct document for Westerners.
Short term vs long term
Companies in the Western world usually take a short-term view of business. They want quicker profits to amortise their investment in business. This is quite in contrast to the Chinese management’s long-term view of business. Therefore, Chinese managers tend to wait for a longer time to spread their business over a larger area, which takes a long period of time. This is because the Chinese value harmony in their culture and Chinese management believes that spreading business in unnecessary haste will disrupt the society and economy. This short-term view of business may disturb the several networks of relationships that Chinese management considers valuable. As mentioned above, human relationships or interconnectedness is highly valued in Chinese business management and Chinese society. One may conclude from the above argument that Chinese people cannot run a successful business either in China or abroad. However, the post-1987 scenario in China has proved otherwise.
In fact, Chinese people are everywhere in South-East Asia as small business entrepreneurs. Chinese entrepreneurs control large portions of the economies of South-East Asia, which shows that Chinese can be superb managers and entrepreneurs. About 1% of the population of the Philippines is ethnic Chinese. Yet, the Chinese control 40% of the economy. In Indonesia and Thailand, both 4% and 10% Chinese respectively, they controlled half of the business activities in these countries by 1996. In Malaysia, about one-third of the population was ethnic Chinese in 1996 but they control two-thirds of the economy. The same is true for Hong Kong, Taiwan and Singapore, which have a majority of ethnic Chinese, and they control a major portion of the economies of these countries. Most Chinese entrepreneurs are former executives of SOEs in China, who identified an opportunity while working for the State and had the contacts to transform that opportunity into a venture.
Looking to the Chinese experiment in business management, we confront a dilemma: whether the Western way of starting and managing a business is the only way to grow a successful organisation. These strong points emerge in favour of Chinese management as compared to the Western style of management. First, the Chinese take a long-term view of business and take time to spread their wings in world-wide operations. The Chinese have proved their abilities in the manufacturing, construction and railroad sectors. Secondly, the Chinese management style proves that it is indeed possible to build business enterprises keeping human relationships in the centre. However, Western management does not believe in the centrality of human relationships in business. Could there be a meeting point between these two cultures?
Third, the Chinese people have built their business organisations on collectivist ethics and some type of centralisation in the workplace. In contrast, the Western business practices are based on individualistic ethics and a high personal achievement orientation. Successful CEOs like Jeff Bezos, Steve Jobs and Bill Gates are heroes in American society. However, such heroes are hardly mentioned in Chinese society because they attribute success to the collectivist culture, teamwork and Confucian ethics. Is there a possibility of synthesising the two systems for better productivity and work ethics? It may, however, be added that corruption is rampant in both types of societies and we still do not have a clue as to how to make business practices either in the Western world or Eastern world free of corruption.
Dr Archan Mehta has a PhD in Management and is based in India. He has over 10 years of work experience in sectors like Media, Food Services, Hospitality, Education, and Security. He is currently a Consultant.
This article appeared in the March 2018 issue of HR Future magazine.