MBL- Master Final Version 31.08.2011 by Qeis Kamran (1)

Executive Master of European and International Business Law of the University of St.Gallen M.B.L.-HSG

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Running Multinational Corporation (MNC) in China ‐‐‐‐

A survival‐‐‐‐kit for Western CEOʹs

Author

Qeis Kamran, BA, MBA- GM, MBA-PPM,

PhD. Candidate

[email protected]

Supervisor: Prof. Dr. Dr. h.c. HSG Helmuth Schröter

Universität des Saarlandes

St. Gallen, August 2011


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Dedication

No man worthy of the name ever neglects or forgets his mother…, so this work is dedicated to

my mother, my friend and my companion in science.

QK


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Table of Content

Table of Content......................................................................................................................... 3

List of Abbreviations.................................................................................................................. 5

Sources ....................................................................................................................................... 7

Executive summary .................................................................................................................. 13

1. Introduction .......................................................................................................................... 14

1.1 Understanding China................................................................................................... 19

1.2 History and culture ...................................................................................................... 21

1.3 The Chinese business and legal environment ............................................................. 25

1.4 China and the rest, a broader perspective.................................................................... 27

2. Qualities of a successful manager in China.......................................................................... 33

2.1 Management expertise................................................................................................. 35

2.2 Technical expertise...................................................................................................... 36

2.3 Legal expertise ............................................................................................................ 37

2.4 International expertise ................................................................................................. 38

2.5 Professional qualities .................................................................................................. 39

2.6 Professional global qualities ....................................................................................... 40

2.7 Personal Chinese- specific qualities............................................................................ 41

2.8 Guanxi (关系) ............................................................................................................. 45

2.9 Special leadership needs in China............................................................................... 47

2.10 Unique leadership competencies in China ................................................................. 51

3. Communication, negotiation, and additional toolkits .......................................................... 54

3.1 Strategy and execution in China.................................................................................. 57

3.2 Managing the dragon................................................................................................... 58

3.3 Human resources trends in China................................................................................ 63

3.4 Trust ........................................................................................................................ 64

3.5 Teamwork ................................................................................................................... 65

3.6 Making it work in China ............................................................................................. 66


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3.7 Business to government best practice ......................................................................... 67

3.8 Working with business partners .................................................................................. 71

3.9 Facing competition...................................................................................................... 72

3.10 Intellectual Property Rights in China ........................................................................ 73

3.11 Competition law in China ......................................................................................... 75

3.12 Understanding Chinese consumers ........................................................................... 78

3.13 Marketing in China ................................................................................................... 85

3.14 Living in China.......................................................................................................... 87

4. Summary and Conclusions................................................................................................... 90

Appendix .................................................................................................................................. 93

Resume..................................................................................................................................... 98

Statement.................................................................................................................................. 98


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List of Abbreviations

BATNA The Best Alternative to a Negotiated Agreement

BA Business Administration

BRIC Brazil, Russia, India and China

CSQ’s Critical Success Qualities

EU European Union

GS Goldman Sachs

IP Intellectual Property

JV Joint Ventures

MOU Memorandum of Understanding

MNC Managing Multinational Corporation

p. Page

P&L Profits & Losses

PWC PricewaterhouseCooper

PRC People’s Republic of China

PNAC The Project of American’s New Century

ROC Republic of China

S&P's Standards & Poor’s

VSM Viable System Model


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WTO World Trade Organization


7

Sources

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Publishing, 2000

Blackman, Carolyn, Negitiating in China, Case Studies and Strategies, Crows Nest, Australia,

Allen & Unwin Pty Ltd, 1997

Beer, Stafford, Platform for change, Chichester England, John Wiley and Sons Ltd, 1975-

1994

Charan, Ram, Know- How, The 8 skills that separate people who perform from those who

don’t, New York, Crown Publishing, 2007

Coyne, Christopher J., Can We Export Democracy,

http://www.brookings.edu/~/media/Files/rc/reports/2008/01_democracy_wittes/01_de

mocracy_wittes.pdf, 2008

Donnelly, Thomas, Rebuildingy Americas Defence, Strategy, Forces and Resources, For a

New Century, A Report of The Project for the New American Century, Washington,

2000, www.pnac.org, www.newamericancentury.org

Fan, Ying, Questioning Guanxi: Fefination, Classifacation and Implication, International

Business Review, Volume 11, Number 5, , pp. 543-561(19) October 2002

Fisher, Roger, Ury William, Patten, Bruce, Getting to YES, Negotiating Agreement Without

Giving In, New York, Penguin Books, 1981-1991

Gallo, Frank, T., Business Leadership in China, How to blend best Western Practices with

Chinese Wisdom, Singapore, John Wiley & Sons (Asia) Pte, Ltd, 2008


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Geren, Brenda L., The Chinese Work Ethic: Significance Of Confucianism, Melbourne,

http://www.wbiconpro.com/436-Brenda.pdf, 2011

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2009

Jacques, Martin, When China rules the world, New York USA, The Penguin Press, 2009

Lam, Mark N., Graham, John L., China Now, New York USA, Professional

Publishing McGraw Hill, 2007

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Strategy, Riga, Latvia, University of Latvia Department of Management and

Economics Publishing, 2011 (Conference Research Presentation)

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on business, life and leadership, Nicholas Brealey Publishing, Boston Massachusetts,

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Success, Singapore, Talisman Publishing Pte Ltd, 2003


10

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Press, 1994


11

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19.05.2011; 17:31 pm)

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(in billions of dollars) HOLDINGS 1/ AT END OF PERIOD

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Lapres, Daniel Arthur; Yuejiao Zhang, Introduction to Chinese Legal environment, URL:

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%20Introduction.pdf (12.07.2011; 15:57pm)

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12.07.2011, 17:22 pm)

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08.08.2011, 19:08 pm)

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Executive summary

China’s breathtaking ten percent growth over three decades, an unsteady foundation of

overcapitalized state-owned enterprises, a fiercely protectionist government, and a rapidly

changing business landscape, which floods and oversupplies the world market with its

products, makes it not only a vital place for multinational corporations (MNC’s) to win big in

China by its growing size of domestic market, especially in the decades to come, but at the

same time a subject of high relevance for the world of academia in particular for management

scholars and practitioners.

The purpose of this work is to provide a conceptual framework, to identify and address the

primarily challenges facing expatriate CEO’s, top managers and company presidents operating

in today’s and future’s China. In addition, to underpin and substantiate the claim of China’s

essential role in the interconnected, globalized, turbulent and changing world.

The author has applied a conceptual research method by finding and implementing key

literature available on how top managers succeed in China, how they have made it a

rewarding experience, and how the new China CEO can make the operation China a success

story for the MNC he will run.

China is fast to become the world’s factory. It has the potential to reshape the landscape of

global business and creating an environment of fierce competition between MNC’s.

According to the leading researchers (Jacques 2009; Hexter, Woetzel 2007; Fernandez,

Underwood 2006; van Agtmael 2007, Lieberthal, Lieberthal, 2004; Zhijun 2006; perkowsky

2008; et all) China and its market will set the next standards globally, thus the China CEO’s

experiences and the gained best practices for MNC’s will shape the very world of

international and Western business. Therefore, this work is written for top managers entering

the Chinese market or who are already working in China and seeking to have an

interdisciplinary work in their hands, which addresses many divers issues of their primarily

concern.


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“Nowhere in the world is there a market like this- nowhere. To me, the 21st century will be the

Chinese century. China will change the economic balance of the world.”

Guy McLeod, President Airbus China

1. Introduction

In the year 2009, China achieved a pivotal milestone in its unprecedented climb to the

Olympus of economical power by achieving a 9.6 percent share of global trade, surpassing

Germany with its 9.0 percent and the United States of America with 8.5 percent to become the

world’s largest trader.1 Indeed, China is the greatest success stories of the 21st century, a

change happening in an unprecedented pace not known in the recent history. In addition, the

West ought to change its perception of observation and understanding that this phenomenon

of economical development is different from what has been known to the traditional Western

view, navigating the long time path of winning competition and economical supremacy. It is

the first time in the modern history that one of the largest economies of the world has been

created from a developing country- not from a developed Western world.2 Furthermore, we

also need to correct our assumption and predictions of when China will surpass Unites States

(US) as the largest economies of the world. Goldman Sachs (GS) had predicted in 2006 as

figure 1 describes, that in 2025 the world largest economies will be US following by the

Chinese, Japan, India, and Germany. GS also has predicted as figure 2 describes the world in

2050, where China will become one of the world’s largest economies surpassing the US

economy.3

The Bush brothers, Cheney, Wolfowitz, Perle and Rumsfeld strategic design and observation

of the future American strategy through The Project of New American Century4 by asking:

“As the 20th century draws to a close, the United States stands as the world’s most

1 Cf. Yueh, 2011, p.1

2 See: Jacques, 2010, TED Talk, www.ted.com/talks


4 The Project of New American Century (PNAC) is a new conservative think tank based in Washington D.C.


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preeminent power. Having led the West to victory in the Cold War, America faces an

opportunity and a challenge: Does the United States have the vision to build upon the

achievement of past decades? Does the United States have the resolve to shape a new century

favorable to American principles and interests?”5, reflects a major strategic blunder by seeing

the world of the future solely through the lenses of the post cold war Soviet Union threat in

predicting and designing the West’s future 6. This problem of militarization oversees the vital

multi-polarity of the breathtaking economical power- shift and transformation of the world

lead by China.

Figure 1: Goldman Sachs predictions of the worlds largest economies in 2025.

Source: GS GLOBAL ECONOMIC WEBSITE, Economic Research from the GS Institutional Portal at

https://portal.gs.com

Deng Xiao Ping has put it magnificently, how he sees market force or its development as the

key factors in any economical system and its priority: “The proportion of planning to market

forces is not the essential difference between socialism and capitalism. A planned economy is

not equivalent to socialism, because there is planning under capitalism too; a market

5 Donnelly, 2000, preface after Wolfowitz, et al, 2000, p. II /PNAC’S founding principles

6 The current coalition against Libya and the past coalition of the willing against Iraq reflects this point


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economy is not capitalism, because there are markets under socialism too. Planning and

market forces are both means of controlling economic activity. The essence of socialism lies

in the liberation and development of the productive forces, the elimination of exploitation and

polarization, and the ultimate achievement of prosperity for all.” 7

Figure 2: Goldman Sachs predictions of the worlds largest economies in 2025.

Source: GS GLOBAL ECONOMIC WEBSITE, Economic Research from the GS Institutional Portal at

https://portal.gs.com

Deng’s words reflect the very essence of the Chinese success system, which has delivered an

unprecedented economical transition. The above projections (See figure 2) were made by solid

research analyses and respectable institutions but they still need to be revised, since they were

predicted based on researches done prior to the Western management crises8 in 2008. In the

latest projections on predicting the rise of China, a clear distinction has to be made between

the size of China’s economy and the international clout a nation wields. Although Price

Waterhouse Coopers (PWC) may predict that the Chinese economy will overtake that of the

7 Xiao Ping , 1994, p.361

8 The author, who is also a Ph.D. candidate in management strategy, he has substantial amount of evidence, that the later

crises was not of a financial origin but moreover a management and short-sightedness crises


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US by 2030, GS has corrected its suggestion to as early as 2027 and BNP Paribas goes as far

as to declare 2020 as the year in which China would be the world’s largest economical super

power.9

However the degree to which some changes may occur in real terms, are a lot more dependent

on the West’s behaviour in the time until then than anything China may actually do, this

includes also a correction in the Western management practice.10 The only problem, which

every China CEO and CEO’s in the West must rightfully observe is that the managerial tools

and models, which use to work must be revised and updated. Either managers will be working

in or they need to deal and cope with the dragon (China) in the future. Managers must

understand particularly that this rise of an economical super power to the Olympus of

prosperity has another unique and different character, and different roots namely in terms of

civilization and culture. The Chinese referring to ‘China’, means its history and civilization,

the dynasty, Confucianism, their way of thinking, quanxi (high standard of networking, see

p.42), family, filial piety, ancestral worship, the values, trust and distinctive philosophy.11 The

West sees China as the place of cheap labour, pollution, human rights violation, repression,

over-crowdedness and communism. However, in the last days China has been seen with a bit

fear of its constant performance and American Chinese- owned dept summing up to 1152.5

billion Dollars12, which has caused a slow shift in the West’s overall thinking towards China.

It is not possible to oversee the nervous and short-sighted Western behaviour lead by the US

in its geostrategic crusade towards securing the Eurasians Chessboard.13

Additionally, the main challenge, which Western managers will face in managing MNC in

China in the future is not only the lack in their training and skills but moreover the assumption

that a modern China will become like the West14 and that the Western style management will

9 See: http://optank.com/200/rise-of-china-new-world-order/

10 See: http://optank.com/200/rise-of-china-new-world-order/

11 Cf. Jacques, 2009, p196

12 See : money.cnn.com

13 The term was coined by the Grand Strategist Zbigniew Brzezinski, who also emphasized that for America The Chief

geopolitical price is Eurasia (Brzezinski;1997)



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function in the dynamic and fast pacing Chinese environment. This illusion that, “… as

countries modernize, they also westernize”15 will cost some of the most promising

management talents their career in China. Unfortunately our business schools are not ready to

say adieu to the times and theories where we were blessed with an era of continuity and where

we could manage although reductionist in nature but still with some success. As matter of fact

our business schools16 have produced a type of manager, who has serious lacks in his training

by being unable to distinguish between reality (the non-financial economy) and that of the

financial economy by being a monetarist manager.17 This type of manager will have the most

troubles in China.

The new era, which will be characterized by complexity18 will be challenging and would

require a different type of manager for whom this thesis is written. The new globally trained

manager will have additional skills and his concerns for the company would exceed the data

of the last quarter. He might need to make some choices, which will cause a temporarily pain,

but with long time successful results for the company. He will need to apply universal laws of

organization’s survival and would manage by his holistic approach. He would see the core of

his business not solely in financial engineering and stock market oriented values but moreover

in the real value he has sustainably created for and with the corporation he navigates. This

need in managerial thinking becomes more apparent in China, where the territory has different

qualities and needs different skills and management insight. The problem of our Western

strategy is reductionist, not viable and military oriented19 in terms of describing and coping

competition.20 It does not embed what is required from a strategy, where the primarily

objective is survival. The real competition for the new world is economical multipolarity,

political turbulences and uncertainties, organizational structure, civilization and culture run


16 The author has a first hand knowledge of what they teach at the business schools, he has just finalized his second MBA

and is currently pursuing his Ph.D in strategic management

17 Cf. Malik, 2006, p.10

18 Cf. Beer, 1975-1994, p.15

19 The author is referring to a war, where the rival is known and the organization is of a temporary nature and time

20 Unless we declare a war on terror


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economical revolution, ubiquitous change, and man made environmental catastrophes, as we

rightfully may observe as complexity. The job of the China CEO is to pro-actively and

ubiquitously reduce complexity. Complexity is the very stuff of the new world 21 and China is

shaping the business landscape in which the future of global management processes also

called as organizations will be embedded or affected.

1.1 Understanding China

Understanding China is not about the decline of the US economy and economical supremacy

or the West’s general addiction not only to oil but to cheap labor; it’s moreover about the rise

of the rest, lead by China.

CEOs, top managers, researchers, writers, and countries raise an essential question why some

nations advance and prosper?22 However, the better question as Porter (1990) emphasizes is;

why some countries become the home base for some of the most successful companies? Here

we find the core and decisive characteristics that a nation (government) provides its

companies to create and sustain a viable competitive advantage and business climate. We

need to look trough the above described lens (Chinese business model) to understand China

and its unique success. As the most recognizable rival to US supremacy, China will play an

especially vital role in determining the future shape of international business and politics. At

this relatively early but highly successful stage in its development, however, China does not

yet have a detailed or fixed blueprint and strategy for a new world order. Instead, competing in

Chinese visions map on to various delegitimizing strategies and scenarios about how the

transition from political and economical unipolarity to a restored global balance of power and

multipolarity will develop.23

21 Cf. Beer, 1975-1994, p.15

22 Cf. Porter, 1990, p. xxiii

23 Cf. Scheweller, Pu, 2011, p.1


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In the past four decades, China has experienced some historic events of global significance.

The first was to reestablish its legal status as a sovereign country by the Security Council and

the United Nations. The second was the open- door policy and strategy implemented in 1978.

The third was to win the bid for 2008 Olympics, which required an over seven year’s

investment in the infrastructure of over 20 billion dollars. This was more than a sporting

event, since it secured an essential place for China as the new fully integrated member of the

international community.24 The fourth was the successful entry into the World Trade

Organization (WTO). The fifth was Lenevo’s takeover of IBM’s think pad. This take -over has

a different characteristic then the general M&As and takeovers, since if properly observed, it

provide us with an answer of a vital strategic importance. If the West can read the signs it

describes the pathway China will take in the future. China with its substantial amount of cash

and financial resources will be soon on a shopping spree and will challenge the West from

two perspectives. First it will make (it has actually already made), production in the Western

world impossible and economically- uncompetitive.25 Second it will have some major

companies of strategic importance under control in the West in addition to its own companies

in China, MNC’s dependent on Chinese government’s mercy and relations, and the highly

favorable business climate. The worst scenario would be when China makes over the long run

thinking (innovation) uncompetitive in the West. This vision, however for today’s thinking

unthinkable, if it brings the MNC’s a competitive edge may be risked, for the service of profit

making or the shareholder value. “In number of respects the US now resembles an emerging

country more than the advanced economy it was some decades ago. Its industrial base is

largely gone, sold off or off-shored, and its public infrastructure is in visible despair. Because

of the severity of the real estate collapse, parts of its housing stock are being abounded and

once thriving neighborhoods are now slums. But it is in the politics, even more than in the

economy that the chaotic conditions of some emerging economies most clearly prevail.”26

24 Wang, et al, 2007, p. xiii

25 See the US domestic industry resembling a very poor quality standard

26 Grey, 2009, p. xviii- xix


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The author’s description of the West’s obsession with the short term profit and shareholder

value will pave the way and make it easier for China and other BRIC countries by bringing a

very threatening scenario into the status of high probability, which is the transformation of

cheap labor power to cheap brain power. This will result to undo the third (emerging) world’s

brain power drain, which was originally attracted globally to West’s high- tech industrial

complexes as the most famous Silicon Valley in Northern California. Now the best examples

for a Silicon Valley doubles are Zhongguancun District in Peking near the prestigious

Tsinghua University27and in other Asian countries, which have created the same kind of

environments for intellectual growth and world class R&D, as the Cyberjaya in Malaysia,

Hsinchu Science industrial Park in Taipei and Dubai’s new Media Cities for the post oil era.

Understanding China is not only about understanding it backwards, the China CEO of the

future must have the capacity to understand it forward. What is essential is to know what

China will do and be like in the future and to develop strategies, which bring more control28 to

the managerial capabilities of the Western manager navigating his organization in unfamiliar

waters. The chapters below will additionally give essential building blocks in understanding

China further.

1.2 History and culture

There are five millennia of history to study China. The Encyclopedia Britannica covers with

188 pages the Chinese history. The author’s purpose is to cover the essential period, which

explains the China as it is today and to underpin its differences from our Western observation.

The history of China revises our typical assumptions of the Western national state building

identity. The Chinese identity and its early emergence could be observed more than anything

else as one of the most essential and key factors of the China we see today. It is hardly

possible that without this strong identity a country of this size could have been remained a

27

Additional Universities of high quality are: the Fudan University, Nan'kai University, Tianjin, Peking University, Beijing,

Renmin University of China, Shanghai Jiaotong University, University of Science & Technology of China, Zhejiang

University, Beijing Normal University, Nanjing University

28 Used as a cybernetic term means „Ability to navigate“


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unified phenomenon for over two millennia.29 Figure 3 describes China at the times of the Qin

dynasty in 221 B.C., the emperor concurred all the warring states and called himself the first

emperor of the unified China. He standardized writing, measures and weighing and wanted his

kingdom to be as one. The outside forces acknowledged for the first time the existence of

another race of people and called it China after the Qin dynasty.30

Figure 3: Boundary of the Qin dynasty at its greatest extent, ca. 206 B.C.

Source: Qin Dynasty (221–206 B.C.) | Thematic Essay | Heilbrunn Timeline of Art History | The Metropolitan

Museum of Art

However, the roots of the strong cultural identity, the birth of the modern China, the customs

that we associate with China, as the mandate of heaven, the family structure established on

filial piety, its language, which used common signs and symbols, and a religion based on

ancestral worship were based on the teachings of Confucius (551-479 B.C.).31 The Han

29 Cf. Jacques, 2009, p75

30 Cf. http://library.thinkquest.org

31 Cf. Jacques, 2009, p75


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dynasty played a central role in establishing the Chinese culture and its civilization. This

civilization culture still remains and is among the vital differences to the Western national

state building culture as it is commonly accepted in the West. It was during the Han dynasty

that autonomist type of governmental rule originally designed to not disturb the peace with

non-Chinese local powers, was developed. This government rule is different from what we are

familiar with in the West.

As an example of the major difference between China and the west, we can observe the

difference between the unification of the East- and West- Germany, in which the East was

overtaken and absorbed by the West. But Hong Kong, when it went back to Chinese control,

absolute contrary to the West’s assumption of a national- state, one country, and one system,

Hong Kong still remains politically and legally different, than the mainland China. Nobody in

the West believed that China would act so differently and was hundred percent sure of China

swallowing Hong Kong as soon as it gets it’s hand on it.32 Here we see the key why China’s

very large size could not hinder its survival as one country of over 1.3 Billion people. China

simply does not mange its territory central from Peking.



24

Figure 4: Boundary of the Han empire and its Western Protectorates, ca. 220 A.D.

Source: Han Dynasty (206 B.C.–220 A.D.) | Thematic Essay | Heilbrunn Timeline of Art History | The

Metropolitan Museum of Art

Figure 5: The map of China/ Source: www.muztagh.com

The modern China as we see it today has been the result of its very strong Chinese identity

and only this can explain its unity of over two millennia. In contrary to its diversity the typical

Chinese (approx. 90%) think they are from the Han race. This is much different than the

American, Indian and Brazilian multiracial understanding of their origin. The Han identity can

be called also the cement, which has held the county of this size together.33 The Han period is

also famous for its technological advances. The most essential discoveries that still remain

and mark the Han dynasty for the world are paper and porcelain.



25

1.3 The Chinese business and legal environment

A nation’s legal system is a heritage of a particular social, political, economical and cultural

environment, and values. The development of the Chinese legal ideology can be traced back

as far as four millennia. It was at that time when the Chinese society made its transformation

from slavery to feudalism and the conflict between major interest groups induced the first

ideological dispute between the two main schools of thought- Confucianism and Legalism.34

The traditional legal common assumption was challenged in the late 1800’s. The turn of the

twentieth century marked by the foreign pressures and domestic socioeconomic unrests the

need for a social change in China’s social structure. It was at that time that a need for a formal

legal system was noticed and legal scholars and intellectuals began to start pursuing a legal

reform.35 A revision of the old legal codes began in 1902 with the Qing government (1616-

1911) by creating a national court and system. The year 1907 was marked by the efforts to

establish constitutional reforms by adopting the jury and lawyer system integrated from the

Japanese and European legal models, where the Criminal Procedure Codes and Civil

Procedures Codes were designed. Sun Yat-sen in the same and final year of the Qing’s feudal

system dynasty in 1911 overthrow the older system and founded the Republic of China

(ROC). Although the ROC provisional constitution partially adopted some of the Qing legal

system, it integrated some revolutionary laws and decrees. This national legal system faced a

setback in 1912, when the Northern government set forth a number of Qing’s codes and

decrees creating a warlord autocracy.36 It was in 1927, when the government made a

reevaluation of the Qing’s codes and created the Six Codes System, which included

constitutional law, civil law, civil procedures law, criminal law, criminal procedures law, and

administration law.37 This Nationalist’s legal system incorporated Nationalist principles

although some strong references to European Continental model were made. This resulted that

the ROC legal system to some extend shifts toward a direction of modernity, but this

34 Cf. Lam, Graham, 2007, p.86





26

development was rather a slow one because of some socio-political unrests emerging in this

period. The Communists took over the power in 1949, which resulted in the abolishment of

the Nationalist’s legal system including the Six Codes Legal System.

The resolution for a new constitution was established in 1954, which embedded a calling for

the independence of China’s judicial power. This realization and urgency of legal

establishment by the government brought many legal codes, which were designed after the

Soviet legal system. This development was abruptly halted by an anti- rightist campaign

during the years 1957- 1958. The communist doctrine in China called for all the efforts of a

judicial independence as bourgeois legal doctrines and herby caused the nation’s lawyer

system to abolish.38 Although some attempts were made to establish the judicial system back

in the early parts of the 1960s, China still experienced a period of over two decades (1966-

1976) without laws. After the end of the Cultural Revolution during the 1976, Deng Xiaoping

came to power and started the much innovative economical development. A campaign to

reestablish the rule of law and legal system in addition to a reestablishment of the socio-

economical reform were introduced. This was a major shift from a destructive socio-politics

converted to constructive socio economical development. 1978 was in terms of Constitution

for the implementation of the related laws a vital year after their destruction some 20 years

ago. These changes brought additional demands in terms of social and economical reforms,

which were adopted in 1982. This year was additionally marked with substantial revisions of

China’s previous constitutions of 1954, 1975, and 1978, and the principle of independent

judicial power.39 In the year 1997, the 15th National Congress of the Communist Party

adopted the rule of law as a basic strategy and an important goal for socialist modernization

and it committed itself to the task of building a socialist legal system with Chinese

characteristics.40 Thus in 1999, the Constitution was amended to include protection for the



40 Cf. Lapres; Yuejiao, p. 9, www.iccwbo.org


27

rule of law. The 17th National Congress in 2007 was marked by the Communist Party’s

renewal of its call for the comprehensive implementation of the rule of law.

By the end of the year 2006, 603 institutions of higher learning offered bachelor’s degrees in

law to some 300,000 students majoring in the subject. Some 333 institutions awarded master’s

degrees in law and 29 doctorate degrees. The 2008’s report on China’s Efforts and

Achievements in Promoting the Rule of Law, the State Council reaffirmed the country’s

commitment to the rule of law as China’s fundamental principle.41 Some major challenges,

which still remain for the legal experts in China are 1) the need for continued efforts to

improve the legal system, 2) the questions of the perpetuity of property rights in land; 3) the

transfer of State shares to the investing community; 4) the reform of the internal labour market

and the implementation of adequate systems of social protection; 5) increased independence

of the judiciary; 6) improved governance among all sectors of society, and in particular within

government and business where special efforts are required to reduce incidents of corruption;

7) nepotism; 8) corporate fraud; 9) insider trading; and 10) criminal-scale violations of

intellectual property.42 However, the Chinese legal system and its building may be still a very

unique experience for the China CEO. The legal experts, have opted for the most practical,

effective and adaptable solutions from whatsoever country or foreign legal tradition they may

originate, and not as a matter of principles from the common or traditional law to develop

China’s legal system.

1.4 China and the rest, a broader perspective

Despite of the creditor-debtor or seller-buyer relationship, between the two world superpowers

USA and China, they are so to say at least strange bedfellows. This special partnership or

41 Cf. Lapres; Yuejiao, p. 9, www.iccwbo.org

42 Cf. Lapres; Yuejiao, p. 11, www.iccwbo.org after; Cf. Lapres, after, the World Bank as an example, which has criticized

the extent of operations at abnormal and unfavourable prices, of the appropriation of resources for personal ends, of fraud in

the issue and trading of shares, of nepotism and favouritism including involving the Communist Party, World Bank, China

Corporate Governance Report 2003.


28

relationship is combined with a fierce competition. US Commerce Secretary Gary Locke

recently emphasized this connection as: "perhaps the most important bilateral trading

relationship in the world."43 There is a management theory called “Co-Opetition”, a word

which was coined by Ray Noorda44 and defined by Brandenburger and Nalebuff (1997) on

their book also called “Co- Opetition” to be: 1) a revolutionary new mindset that combines

cooperation and competition; and 2) the game theory strategy that's changing the game of

business. However, in this special relationship contrary to the general assumption, where both

parties are profiting from more co-opetition to bring better products to the market, being more

sufficient in using, allocating and transforming the resources into larger benefits China is on

the winning edge of the whole game. Not only it has beaten the master by its own game but

also will easily out-compete the US in the years to come. The popular mind and mainstream

thinking has not yet registered that China is no longer stuck in the primitive research and

copying- phase, as every other emerging leader went through this period of growth, including

the US. Today’s China has real R&D and the products and processes that flow from it will

change and shift this common assumption that China is a still- sleeping dragon. Soon we will

see products and theories in management and economy emerging from China and the rest of

post- American- supremacy, world economical powers, which may lead to a totally different

transformation of resources, strategies and products. The world may be flooded by Chinese

products, not as we know it as it is today, which bears the name ‘made in China’ but

moreover transformed to made of China.45 Strategists and politicians in the West are showing

concerns, that the rapid rise of China and the emerging economies will have some major

consequences for the West.46

Tony Blair in his speech in 2006 emphasized; “But the international competition is intense

and getting more so. Chinese R&D has been rising by 20% a year over the past five years.

South Korean R&D has increased ten-fold since 1971. Indian R&D is even more astonishing -

43 http://money.cnn.com

44 Ray Noorda is the founder of Novell

45 Cf. www.thejakartaglobe.com

46 See Appendix I global R&D forecast 2009-2011


29

it has trebled in a decade. Indian engineers are flooding into the world's markets - 350,000 a

year, forecast to 1.4m a year by 2015…. It is a warning to us that we have to remain world-

leaders and that knowledge also needs to be transferred from the academy to the

marketplace.”47

Figure 6: Forecasted technical strength from 2010-2015

Source: www.rdmag.com

47 Tony Blair Speech at the Royal Society in Oxford, Nov. 3, 2006, http://globalization.icaap.org


30

However, in order to keep the oligopoly of the current superpower, it requires some additional

concerns and scenario simulations, which at least need to be examined. To draw up a scenario,

let’s pretend China and India are joining forces to co-opete and to create more value for both

countries while creating the worst scenario possible for the US and possibly the West. Both

mega countries (civilisations) emphasized self reliance through local initiatives, by restriction

the flow of foreign capital and technology for nearly three decades. The Indian economy

opened its economic doors a bit more widely by at approx. the same time as it was in China.

China has been growing at rate of 10 percent and India has shown a growth of over 8 percent.

These both Asian giants have their own strengths and weaknesses, their own unique cultural

traditions and political histories. Through co-opetition they can complementarily support each

other and save a vast amount of joint energy drain. “Globalization for common good requires

coming together rather than falling apart, sharing resources and assets rather than wasting

them in endless conflicts. In the context of currently shifting global political and economic

power, no two nations are better equipped than India and China to show the world how the

common concerns of humanity can be addressed through mutual respect, friendship, healthy

competition, and sharing of resources.”48 Some scenarios may not become true in a short time

but can a super power as US afford to have no strategies for some of the realities that can

occur. History has shown that the forty year hegemony of the Soviet Union collapsed in less

than few months in 1989, which resulted in the total collapse of communist East- Europe49 in

two years. The Western world was totally surprised at that phase of Soviet’s collapse and it

still is by some of the new developments occurring in the World affaires, especially in the

middle-east. In his famous Newsweek article Niall Ferguson, British born historian and

professor of history and business at Harvard, quotes Otto von Bismark; “The statesman can

only wait and listen until he hears the footsteps of God resounding through events; then he

must jump up and grasp the hem of His coat, that is all.” 50 He argues that the unpreparedness

of the current US administration and its strategists lead by Pres. Obama has made him and the

48 Ahmad, 2008, p.1

49 As Rumsfeld called it the „New Europe“

50 Ferguson, 2011, p.1, www.newsweek.com


31

West look not only inexperienced51 but moreover it disgusted West’s two major allies in the

region as Saudi Arabia and Israel. In the case of Iran riots, nothing important was done, and

the supporters of the Islamic Republic ruthlessly crushed the demonstrations. In Egypt, it was

the cluelessness par excellence, the strategy was shifted in many directions within the shortest

time period, some days exhorting Egyptian President Hosni Mubarak to leave, other days

drawing back and recommending a so called orderly transition.52 Missing these opportunities

have clearly weekend US interests in the region and the loss to catch the wave, Bismarck

style, by lending US planned support to the youthful revolutionaries and trying to ride it in a

direction advantageous to American or general Western interests.53 The author emphasizes

that some transitions occur in a highly fast phase and time, and missing to have a grand

strategy clearly endangers the global peace and prosperity. Events like that and the overall

lack of preparedness weakens the West’s position in confronting China in the near future.

In the year 200254 the then Chinese premier, Zhu Rongji, visited India and told his Indian

hosts: “You are the first in software, and we are the first in hardware. When we put these two

together, we can become the world’s number one.”55 This should at least awaken an action

plan also in the part of the Western China CEO, who is not allowed just to think in terms of

micro level management of his organization anymore but must foresee and develop strategies

on possibly occurring changes in the real-time connected world to navigate his ship for

survival and success. This action plan should include a major focus on the MNC’s

competitiveness in China and additionally in India and other emerging countries. Furthermore,

business strategies should go towards dealing with the competition of Western MNC’s and the

Chinese domestic, for world resources they will require and markets they ought to additionally

penetrate to develop a map of their business interest’s grand strategy. Developing the right

products at the right time and staying ahead of the demand in the product- making strategy is

51 This fact was commonly known prior to his election

52 Ferguson, 2011, p.1. www.newsweek.com

53 Cf. Ferguson, 2011, p.1. www.newsweek.com

54 Precisely 40 years after the 1962 war

55 The Economist, The World in 2005, p. 49


32

essential, since the main purpose of good management still remains as the transformation of

resources and information into lasting results. As technology is growing ubiquitously in very

fast speed different solution to current problems will be provided but additionally many

different challenges will be created. Managers must allocate precisely in their usage of

resources and understand that the warfare of the future may not be solely on concurring the

land or fossil resources but moreover in technology, cyberspace and qualified human

resources.

Since the year 1998, China has tripled the amount of GDP devoted to the expansion of

education. In that period, the number of colleges has doubled and the number of students

quintupled, from 1 million in 1997 to 5.5 million in 2007. China has also developed its top

nine universities as its version of the U.S. Ivy League Universities. At a time when

universities in Europe and state universities in the U.S. are suffering the impact of budget cuts

and increase tuitions, China is now taking the path of moving in the opposite direction.56

According to the Nobel Prize-winning economist Robert Fogel of the Univ. of Chicago, this

unprecedented investment in education and research means for China that in the US, a high

school-educated worker is 1.8 times as productive and a college graduate 3 times as

productive as someone with a ninth-grade education. China is massively expanding its supply

of high school and college graduates, and although it is behind India in the services sector, as

its students learn English and train in technology, Chinese firms will enter this vast market as

well in shorter time. Fogel estimates that the increase in high-skilled workers will

substantially boost and enlarge China’s annual growth rate for a generation, taking its GDP to

more than $120 trillion by 2040.57

56 Cf. www.rdmag.com

57 Cf. www.rdmag.com


33

Figure 7: World’s largest technological gaining countries

Source: www.rdmag.com

2. Qualities of a successful manager in China

Successful managers know that they are responsible to create value from resources available

or make resources available for objectives, which need to be achieved and strategic positions

to be acclaimed. Above all they are aware of the need to mobilize others to want to achieve

extraordinary results. The chapters below will take a divers approach to the needs and

qualifications a successful China CEO ought to have. Since the China CEO and what his


34

success factors are, underpin the main focus of this thesis, we need to substantiate the claim

by some voices of experience available through the vast amount of literature on management

in China. According to the twenty most successful leaders and CEO’s interviewed in China

(Fernandez, Underwood; 2006) the main focus of the China CEO operating in the most

dynamic business environment of the world must be on the Critical Success Qualities

(CSQ’s), which are required for survival and company’s prosperity in China. (Fernandez;

Underwood 2006) emphasize that CSQ’s must be organized on a logical sequence since the

rich mixture of experience and answers obtained from the survey reveals this reality. These

levels are: Level1) Professional Qualities; 2) Level 2) Professional Global Qualities; 3) Level

3) Personal-China-specific Qualities.58

Figure 8: U-Curve Framework of Cross-Cultural Adjustment

Source: Liu & Lee, 2008; Lysgaard, 1955

Managers and companies are highly advised to additionally prepare themselves and/ or the

assigned new CEO’s to train and prepare them for the needed adjustments, which are required

regardless of - or in addition to the levels of the qualities required. As fig. 8 reveals, managers

must understand and professionally manage the bottleneck constrains of their individual

adjustments in China. Overcoming the shock period professionally will enhance the ability of

58 Fernandez, Underwood, 2006, p.14 See also (a), (i) and (ii)


35

the manager to devote himself to other more rewarding period of his adjustment and carrier

for successfully managing the company in China.

2.1 Management expertise

In the post 2008 management crises59 world managers must not only know the right answers

but they ought to at least ask the right questions. Managers’ main perception has been

manipulated by the quick successes due to the times when we were blessed by an era of

continuity not good and solid management. In today’s era of complexity (Kamran 2011, Beer

1985, Hawking 2001) managers must change their lens through which they construct and

define the reality for their business, market and the future. The false doctrine of shareholder

value (Kamran 2011, Malik 2006) has made many of the most successful and viable

companies suffer huge losses, collapse as card-houses, and being overtaken by their

competitors and rivals. These wrong- hoods made it absolutely necessary that radical changes

must be made not only how we educate our future managers but moreover to build the

foundation of Business Administration (BA) on totally different grounds. BA is not

management since these two fields are different and ask different scientific and practical

questions and their fundament of application varies strongly. The former only wants to know

the profit and how to make it and drain it to the shareholder on short term basis

(administration), but the later wants to know how to survive and give a long term return on

investment. In addition BA is more concerned about the firm without any regard to the well

being of the environment or the society, where it is embedded in, thus through solid

management a company is a productive social system of the society (Ulrich 1968- 1970-

2001). (Judt 2010) argues that the profound wrongness of our perception as a collective whole

in the last thirty years have made us forgot what something is really worth to us instead of

only caring for its price. We should ask if something is right or wrong instead of raising the

question if that something is sufficient. Even in legal issues and policies we have forgotten to

59 The author has studied substantial amount of literature concerning the 2008 financial disaster and there is only one

conclusion one can make that this was a management crises with devastating financial effects. See : Henry Mintzberg and

Fredmund Malik


36

ask, is it just, will it make a better society and a better world…, we rather ask as a company

what if we violate and not get caught, or what do we have to pay if we do get caught…., what

is cheaper, compliance or violation. Good manager are a symbol of dignity, are leaders by

action, deeds and are equipped by high morals, they manage by trust and care. They have

understood that they have to create a tangible value based on systemic input, transformation,

and output of solid results. Monetaristic management is not only short term based but it

violates the basic fundamentals of managing a business. If the main objective of the CEO is to

please the analysts from the financial market view, the decisions that are made bear no real

strategic insight and value. Not only are they very short term based decisions but they could be

at the same time fatal to the survival of the business in the long run. The China CEO must

have a laser sharp- focus on his industry and acquire the expertise necessary to align his

strategic and operative objectives. (Tappin and Cave 2008) are the few scholars, who have put

together an in depth research of the lives and the tasks of 150 CEO’s worldwide. Their

research reveals that top CEO’s today must cope and successfully manage the following five

points; 1) Profiting from “hard globalization”; 2) Decoding sustainability; 3) Surfing the third

wave of the web (Web 3,0); 4) Coping with the capital crunch; 5) Waging the first world war

for talent.60

2.2 Technical expertise

It is no surprise that professional requirements are a set of key qualities that a successful

manager must have. Technical prerequisites are essential for managing a top MNC in China.

A close look at the careers of the top 20 most successful top managers in China reveals a

rock-solid track record of technical experience as a critical starting point for an oversees

senior management position.61 Additionally, an over two decade of experience in the same

company or the same branch to give them an in depth insight of the business and industry they

are in, are essential factors to sum up the technical profile of the China CEO. The Chinese

colleagues and staff have large expectations from the newly appointed manager. The

60 Tappin, Cave, 2008, p.3ff

61 Cf. Fernandez, Underwood, 2006, p.5


37

expectations of new technical insights and expertise are high from the new expatriates.

Managers who can not deliver the essential skills and are not able to live up to the strong

expectations are programmed to run into trouble in China.62 Companies are advised to put

there best man to enter China as a senior manager.

2.3 Legal expertise

The best legal expertise that a China CEO needs to have is to understand that China is

different and is still a developing legal system. In the words of Steve Ballmer CEO of

Microsoft Corporation: “China’s not really very important to our business right now, I’d like

it to be but it’s not because of the high rate of piracy of intellectual property. We need some

IP reform in China for it to be important to our financial results. China is a less interesting

market to us than India, than Indonesia.”63 Not only in the Intellectual Property (IP) Law

area, but there are additional areas of business law, where the need for improvements is as

great. China CEO ought to know that the laws in general are loosely applied and regulated.

China is not (yet)64 an open or free market. All investments are subject to examination,

approval, and registration. There is a lack of consistency (Central, Provincial, Municipal,

County and Village) on the application of laws and regulations. Therefore, the most vital point

a CEO needs to focus on is the solid and good relations with the authorities in China, since

Chinese officials have a very broad discretion in exercising the rule of law and regulation but

above all in exercising their powers, which is very difficult to challenge. Businesses face vital

challenges in enforcing the rule of law in their disputes. All the above points make an expert

in Chinese specific law environment and experience indispensable. Having a solid legal and

business council in China is highly essential to the success of the China CEO. The legal

council must be an embedded part of the management and strategy team. There are additional

players as economical forensics, investigators, consultants, and controllers, who must

ubiquitously watch the MNC’s operations. The China CEO is highly advised to create a team


63 emertel.wordpress.com

64 To what extend China will adapt Western, capitalistic, business law and business environment models is not certain.


38

of management board who are aware of the challenges of the Chinese market and are involved

proactively in organizational decisions.

2.4 International expertise

There is no substitute for solid business experience. Companies sending top management

teams and individuals to China are aware of the fact, which skills are necessary to succeed in

the most important market of the present and the near future. To compete in the era of hard

globalization having a global mindset is the most necessary requirement. Globalization is not

just about a buzzword or cheap products of China congesting the Western markets anymore. It

is moreover the (re) integration of the Indian, Chinese and additional emerging economies’

interconnectedness and effects in the global business world on a dramatic scale.

Figure 9: Share of worlds GDP from 1820-2011 changing shares by US, Chinese

and Indian economies Source: www.beyondvc.com

China and India combined to produce nearly half the world’s economic output in 1820

compared to just 1.8% for the U.S. This remarkable growth since 1820 has benefited from

democratic institutions, a belief in capitalism, private property rights, an entrepreneurial


39

culture, abundant resources, and openness to foreign investment, the best universities,

immigration and relatively transparent markets. However, this development is to change again

and the China CEO must observe the reality of the markets and be aware of the vital changes

happening in the near future. Adaptation is another key speciality of the successful CEO. In

China adaptation is not only an essential factor of business’ success but moreover an essential

point of the adaptation is to adapt to a market, which in itself is highly dynamic and changing.

According to the Philips China CEO David Chang change in China must be understood this

way: “This is a changing world. Anyone who does not accept different ways of working won’t

succeed. You need to be able to detect and understand changes.”65 The developments of

cultural, legal and economical shifts in China clearly challenge the Western CEO to learn to

adapt to a constant adaptation. A successful China CEO is a master in learning and makes his

and his teams personal and professional growth a pivotal task of his managerial objectives.

2.5 Professional qualities

In addition to the technical and legal expertise, CEO’s, who are in charge of running MNC’s

must have variety of key qualities to be and to keep themselves at the top. Leading at the top

today is a privilege of having the opportunity to make a real difference not only in the

corporate organization but to the science of management and the global business environment.

Never before had the people at the top of organizations so much to contribute than the top

managers today. The professional most essential qualities of a successful global CEO are to be

a: 1) Corporate entrepreneur, who lives his business. He has something to prove and knows

that there is better way to do things than the common industry practice. Being a trendsetter is a

daily pursuit. He seeks breakthrough opportunities and makes them a marketable reality. 66 2)

Corporate ambassador; is the conscience of the firm. He worries about the global impact of

his business. The question here, which he asks himself is, how to transform the geo-political

landscape of his industry.67 3) Local (global) missionary is an additional fundamental attribute

65 Fernandez, Underwood, 2006, p.11

66 Cf. Tappin, Cave, 2008, p.143



40

of a CEO’s personal qualities. He wants to make a significant personal difference and at the

same time makes vital and great contributions to all the company’s stakeholders. He is team

leader and energizes his team to peak performance.68 4) Commercial executor is a quality with

a main driving focus on achieving the best results in the industry one is in. These results are a

combination of relentless attention to the details to ensure that the gap between the operational

and strategic objectives is narrowed and the needed focus on the financial value drives. There

is a vital need for highly skilled identifiers of value-enhancing corporate transactions. 5)

Trustworthiness is the currency of a successful manager. Climbing high on the ladder of

success and navigating MNC’s in foreign markets require a high degree of trust and

integrity.69

2.6 Professional global qualities

Having an adventurous spirit and being flexible to act on new insights and experiences gained

is one of the most essential qualities of a global player. Nevertheless, there are some key

qualities, which make a successful global-professional CEO. 1) The first quality is the ability

to position the business by finding the central idea that meets the global (local) customer

demands. Attracting global customers and managing the flow of business’ resources on a

broad basis accounts for a vital global professional quality of a CEO.70 2) The second global

quality is the ability to pinpoint external and environmental changes by detecting patterns

ahead of others and out the business on the offensive. The importance of this ability cannot be

ignored. Game changers have the most sensitive sensors if it comes to a change, which affects

them. Most importantly they join forces with the change and make the results proactively in

favor of the business’ goals.71 3) Managing the global social systems of business is a key

ability and major quality. Tightening the social systems between the customer’s organization

(customer’s customers and suppliers [also own] or other key stakeholders) will give the global


69 See page for more details

70 Cf. Charan, 2007,p.3

71 Cf. Charan, 2007,p.3


41

manager the ability to help his customers actively and meet the needs efficiently and

effectively. In addition, especially in China supplier management is essential to survival of the

firm. It reduces corporate piracy, fraud and business intelligence on the part of the rivals and

other intellectual property violators. But moreover it reduces the business’ crises from

environmental perspectives and human labor charges and violations.72 4) Having the right

people in the right jobs and molding a team of competent leaders to submerge their egos for a

common goal and seamless coordination make the international manager a top performer, who

deserves to be on the top.73 5) Having the ability of developing company goals, which clearly

balance between what the company can become and what is realistically achievable. These

goals must embed an identity transformational and identity preservations attributes. 6) Having

a strong focus and priorities by setting and defining specific tasks to align resources, actions,

and energies to obtain the projected objectives. A global professional reduces organizational

energy drain on ubiquitous basis.74 7) Coping with social pressure beyond the CEO’s control

is a key factor as well. Some of these pressures clearly affect the business results and have a

significant impact on its further success.75

2.7 Personal Chinese- specific qualities

There are five essential and key China-specific- qualities, which the author will explain in

details at this part. These qualities are highly useful to top level management for succeeding

especially in today’s China’s business environment. 76 The qualities are 1) humility; 2)

strength; 3) patience; 4) speed and 5) Guangxi-building (network-building) 77, which the

author would discus in a separate section of this chapter.

72 See: Nike, Puma, Adidas and other brands as H&M hired suppliers, who dumped toxic chemicals into China’s rivers and

other crises of human labour, Child labour abuses of their suppliers create a strong crises for the firm.

73 Cf. Charan, 2007, p.3

74 Cf. Charan, 2007,p.3

75 Cf. Charan, 2007,p.3




42

1) China –specific quality #1: Humility

Humility is the attribute of an able manager, especially when he enters or is operating

in foreign cultures. Importing laws and management techniques, which are not tested

or approved to be successful are dangerous acts, which will cause failure in the long-

run. Aggressive leadership style and methods will alienate the people. Leadership in

China means not having to force your view and expertise on other people. Acting as

usual (as in the West) is the first prerequisite of an unsuccessful manager in China. In

China a top manager must shift his pattern of thinking to what is different in China,

form cultural to the country’s customs and management techniques. There is no black

and white direct American management style, which works in China. In China a

successful manager is a couch or more of an influencing style.78 According to GE’s

Steve Schneider: “That’s the best way to get the best out of people.”79 Showing respect

for colleagues, peers, employees, and clients in China will create rewards of a large

proportion. Admitting not knowing everything and having a non arrogant attitude

towards Chinese business practices clearly enhances the ability of the top manager.

The most essential point is to be a part of the team or being one of them. Challenging

the ideas of a colleague as it is seen as a value input in the West will offend a Chinese

colleague severally.80 If for a new incoming manager to China the business practice

and policies seem impractical or different, there is a reason behind it, which needs to

be discovered. For Chinese maintaining his national pride is essential and a Western

CEO or top manager should never violate this essential point.



80 Cf. Fernandez, Underwood, 2006, p.14-15


43

2) China-specific quality # 2: Strength

Ekkehardt Rathgeber of Bertelsmann China explains: “being too flexible can be as

problematic as being to rigid.”81 Adaptation does not mean loosing oneself. There must

be a balance between how much to adapt and how much to keep. Achieving a business

objectives or succeeding generally in China requires a constant but at the same time

firmness. Firmness must be executed solely and truly on fundamental and absolutely

necessary changes. Importing corporate policies instead of creating new corporate cultures

will not contribute to the success of the China CEO. Here to be successful a company has

to create a company culture first and than address appropriately the culture of the host

country.82 Any introduction of a foreign culture and business practice must be shown and

implemented with care and the out most sensitivity. Finally there must be some core issues

that one must show strength and firmness. These attributes if not shown or if

compromised on, will damage the reputation and the career of the expatriate or (newly)

appointed top manager. These qualities according to the president of Microsoft China, Jun

Tang are: “integrity, passion, and respect.”83

3) China-specific quality # 3: Patience

The basic understanding of the Chinese business culture is that it takes time. It takes also

time to understand the Chinese business environment. Jean- Luc Chereau president of

Carrefour China emphasizes in his advice to the new appointed CEO or manager in China;

“to practice patience”84 and he further states that “Don’t think that one week, one month

or even one year you can understand China very well.” 85 In deed China is a time







44

consuming endeavor. According to the president of Airbus China Guy McLeod, “When

people have just arrived, they want to change things. But making quick moves in the

wrong way isn’t the right thing to do,” he goes further, “You have to be persistent in

pursuing your targeted objectives, but you also need patience- step-by-step, not a Big

Bang approach.”86

4) China-specific quality # 4: Speed

“The pace of change is so fast [in China] relative to a lot of other places that, unless it is

well articulated as an evolution, the corporate headquarters often find it hard to

understand why the company had Strategy A and now has Strategy B.” This statement is

form Gordon Orr, Director of Shanghai Offices of McKinsey & Company. This speed is in

contrary to the patience practice. As we have learned that patience is a survival skill in

managing a business endeavor in China but having the ability of adapting quickly to

change is equally essential to survival there. It is this combination of speed and patience,

which a successful China CEO must understand and live that makes the difference one of

the essential differences on being successful in China. Speed and dramatic changes in

regulations, competition, law, consumers’ tests, and preferences is a fact of business life of

managing a successful MNC in China.87 Siemens China CEO Ernst Behrens explains the

situation for International top managers in the following way; “The recent change in this

country is enormous, and the [implications of] reforms are also enormous.”88 To take an

example, we can clearly see that, if a new regulation is released in China, it goes far faster

into effect than in Europe or the US.





45

2.8 Guanxi (关关关关系系系系)

According to (Pye, 1982; Butterfield, 1983; Alston, 1989) Guanxi, (which is pronounced

gwan-see) a Chinese term referring to interpersonal connections, relations and friendship, first

appeared in the west in 1980’s in popular business literature that advised about cultural factors

affecting doing business in China.89 Guan means a door, or to close up with those who are

inside a selected group and Xi can be interpreted to be a joined chain. Thus, together, guanxi

can be translated as relationships and connections. In all the Chinese dominated societies in

Asia, people use the word quanxi to speak of someone who is very well connected, knows

many key players essential to his vocation and business needs and who is able to get things

done, not necessarily through formal channels. Thus guanxi is a social dimension and a

human factor.90 Guanxi (See also Appendix II for a summery of study’s history) has been:

1. identified as one of the most important key success factors in doing business in

China (Yeung and Tung, 1996; Abramson and Ai, 1999);

2. regarded as a source of sustainable competitive advantage (Tsang, 1998; Fock and

Woo, 1998);

3. acclaimed as marketing’s third paradigm (Ambler, 1994), thus linking the concept

with the school of relationship marketing (Simmons and Munch, 1996);

4. extolled as the future direction for the western business practices in the new century

(Lovett, et al, 1999).91

Business literature in China makes it apparent that without guanxi, a foreign company and its

management will face a dim future in China at least so say many guidebooks and scientific

papers on China business are claiming to be so (Tsang,1998; Fan, 2002; Park & Lou, 2001) .

It is also claimed that "the Chinese manager must steer through a sea of guanxi."92 Similarly,

guanxi is described by some management consultants as "the informal connections so

89 Cf. Fan, 2002, p.3

90 Cf. Lou 1997, 43

91 Fan, 2002, p.3

92 Tsang, 1998, p. 64


46

essential to gaining approval for or access to just about everything in China."93 Nevertheless,

a guanxi base alone is insufficient to establish strong guanxi. The China CEO must interact,

exchange some small or larger favours, build and maintain trust and apply credibility at all

times. Going out of the way for a colleague and working over time to establish and maintain

the relationships is a key factor. Many divers’ actions supporting the development of strong

guanxi may include invitations to visit one’s home, place of business, fancy restaurant, giving

entertainment, gifts, use of supportive intermediaries and such things as hiring the offspring of

the subject party.94 True guanxi is and can not be established merely through the one time

payment of a coarse bribe or other unethical business practices. It is not conducting in an

ethical or criminal act. (Lovett et al., 1999) emphasize that guanxi plays an important role in

the Chinese society and may serve as means of signalling trust and integrity in a system that

lacks strong background institutions and furthermore (Xin and Pearce, 1996) observe that it

may also constitute an informal network allowing individuals to bypass the inefficiencies

inherent in a communist bureaucracy. (Lovett et al., 1999) go further and claim that some

regard guanxi as the glue that holds the Chinese society together.95 Strategists observe that for

organizations to be highly successful in China, guanxi serves as a strategic tool, especially for

those without strong government ties.96 Solid business and strategy publications on doing

business in China praise highly MNC’s, who masterfully use guanxi to enter the Chinese

market. Some have such a high regard for guanxi that they advise organizations to consider

guanxi a strategic resource and recommend a constant guanxi audit and inventory. Strategists

know that their primarily focus and area of application is the future position of the firm. Good

strategist always maintain a substantial and open line of guanxi supply and actively engage in

doing favours and built and maintain relations. The China CEO, who is successful in his

industry regards guanxi as one of the most vital competitive advantages in China. ”If I had to

focus on any one massage [for the incoming managers] , I would emphasize that relationships

93 Tsang, 1998, p. 64

94 Cf. Dunfee, Warren, 2001, p.1




47

are very important…. It is really about people- relationships between people and the

confidence they have in each other. China is even more that way than Europe or in the

States.”97 (Liu, 1983 goes further and describes professional guanxi builders and enhancers;

“As though they carry special switches with them, and if you get involved with one person,

you’re suddenly involved with a whole network. …Complex personal relationships, built of

layer upon layer of interlocking connections, formed a dense net.” The China CEO must be a

professional guanxi enhancer.

2.9 Special leadership needs in China

Before the author can answer why China does need leadership more than any other country,

he will focus on some major issues prior to the presentation of his research on leadership

needs in China. “Some Westerners don’t seem to fully understand the Asian leadership virtue

of being tender in appearance and resolute in mind.” 98 These are the words of General Ban

Ki Moon on his reaction to the Western press referring to him as a low-key leader. 99 Chinese

leadership is different. It requires also a different approach than our Western leadership

practice. According to (Gallo, 2008) there are three omnipresent themes describing how to

understand this vital topic in China. 1) Chinese business leadership is in need of

improvement; 2) Simply the importing of best Western leadership practices and styles will not

be effective in China; 3) Leadership in China must blend best Western practices with Chinese

wisdom. Here the key for understanding the leadership needs are the routes of Chinese culture

and the fundament of its values. Researchers as (James, 1989; Ladany, 1988; Laaksonen,

1988; Lin, 1995) argue that, from 1977 to today or called also the Social Reform Era, initiated

by Deng Xiaoping, saw a vital shift in movement back to acceptance of Confucian values and

commerce with the West, which was prior harshly attacked during the Communist

Consolidation Era during (1949-1965). This was followed by a period of violent purges

against the educated elite, and an attempt to supplant Confucian ideals with Maoist/Leninist-

97 Fernandez, Underwood, 2006, p.1 after Dr. Gary Dirks President and CEO of British Petroleum China

98 Gallo, 2008, p.1

99 Cf. Gallo, 2008, p.1


48

communist doctrine.100 It was during that period, which denigrated anything of Western

origin.101 According to (Schwanfelder 2006) Confucius’ teachings can help to improve the

manager’s ability in a leadership position, this fact is truer in China. Understanding the

Chinese wisdom, combining it with Western leadership philosophy and the personal etiquette

gives the China CEO a generally applicable but still unique and individual style of leadership

in achieving his objectives, and building, and motivating his team. We still need to distinguish

between many sources, which affect the Chinese wisdom that a China CEO needs to master to

be an effective and successful leader. These sources are in addition to the above mentioned

Confucianism, New-Confucianism (a mix of traditional Confucianism with Buddhism, which

began in the 20th century and links it to the future) and the wisdom of Sun Zi’s (commonly

known in the West as Sun Tzu102) - The Art of War.103 Other researchers as Geert Hofstede

give culture in workplace and society a special meaning. According to (Hofstede 1967-1973)

"Culture is more often a source of conflict than of synergy. Cultural differences are a

nuisance at best and often a disaster."

100 Cf. Ralston, et al, p.3

101 Cf. Ralston, et al, p.3 (This essence of the evolution from the previous two periods (as mentioned above) under Mao's

Work for the good of Society Philosophy can be captured by (Deng's 1984, p.172) (See also: Ralson, et al, p.1) 102 Sun Tzu’s book is the oldest military treatise in the world. 103 Gallo, 2008, p. 6


49

Figure 10: Geert Hofstede’s cultural dimensions

Source: http://www.geert-hofstede.com

Hofstede’s research can be applied by the China CEO to have an understanding of the Chinese

society, culture and other additional society’s and cultures, to make a comparison, to know the

differences and to be actively educated and informed about the role of culture in the business

environment. Equipped with a deep knowledge of the Chinese society the Western mangers

will avoid violations in manners, tradition, business practice, leading the subordinates and

peers, and above all in dealing with customers. Thus, the China CEO will climb higher in the

quality and ladder of his guanxi within the Chinese society and enhance his effectiveness as a

leader and the company’s competitive advantage. Taking back the three points according to

(Gallo 2008), the first, which is the need of an improvement of the Chinese Business

Leadership, can be better understood that China comes from a long period of a planned

communist economy, where there was not much need of motivation and leadership. Now the

transition and its speed make a trained and insightful leadership style inevitable. The

additional point, which was mentioned: that an import of Western philosophies and leadership

style is just a big mistake as exporting democracy to the Middle East. “The American project

(PDI) Power Distance Index (IDV) Individualism (MAS) Masculinity (UAI) Uncertainty Avoidance Index (LTO) Long-Term Orientation See also Appendix III for details


50

to spread democracy in the Middle East in the aftermath of September 11, 2001, and the Iraq

War was doomed from the outset. That's not because the Middle East is not compatible with

democracy, but because the project was based on contradictions and erroneous

assumptions.”104 Other researchers on exporting ideologies and democracies go further and

claim that, “Occupiers and policymakers suffer from a fundamental knowledge problem. We

know what a liberal democracy looks like. We know the characteristics of a liberal

democracy—protection of private property, protection of civil rights, protection of political

rights, the rule of law, constraints on political actors, and so forth. But we know much less

about how to go about getting those characteristics where the foundations are not already in

place. This is the fundamental problem of trying to export democracy,…”105 And so do

leaders, Ashraf Ghani the former Finance Minister of Afghanistan and a candidate for the UN

Secretary General Position after Kofi Anan observes; “A public, Dewey long ago observed, is

constituted through discussion and debate. If we are to call the tyranny of assumptions into

question, and avoid dogma, the realm of the unquestioned, then we must be willing to subject

our own assumptions to debate and discussion. It is in this spirit that I join into a discussion

of one of the critical issues of our time,….”106 The challenge of the China CEO in developing

his leadership style is not to fall victim to his tyranny of assumption on how China should

work and what can be brought from the West without a deep observation of the host country,

but moreover he needs to learn how it works and where his chances are to transform the needs

successfully. The examples above are highly visible cases, where the author could give the

reader how crises are made and are at the same time avoidable, if only we go with an open

mind, the willingness to learn and show sincere interest and respect based on a long term

perspective. The China CEO must be a magnate of observation and learn from the experiences

of leaders in other fields especially politics, and apply the insight into management.

104 Telhami, 2007, p. 57 www.brookings.edu

105 Coyne, 2008, p. 11 www.brookings.edu Christopher J. Coyne

106 blog.ted.com, See also Ashraf Ghani on TED talk.


51

2.10 Unique leadership competencies in China

Unique leadership competencies in the Chinese society are the fundamental tools of a

successful China CEO. The first Western leadership assumption, which needs to be corrected,

is that, there must be a relationship between the leader and the follower. This typical

assumption is a Western cultural assumption, in China there is no need for such a

relationship107- the leader is there and so is follower.108 Although the power difference is

getting much smaller between the leader and the follower and a vital transition is at work in

the Chinese society, this Power-distance is still a fundamental pre-requisite of a Chinese

leader and a difference a Western leader must understand and practice.109 Understanding the

later, we need too go further and actively engage in understanding, which unique leadership

competencies are required from a China CEO. These competencies, which we rarely hear

about, are: 1) Wu; 2) Zhong Yong, 3) Nationalism; 4) Holistic thinking; 5) Indirectness; and

6) an insightful integration of the Western practices from a Chinese lens.

1) Wu ( 悟悟悟悟 )

Wu, which means very deep insight, is a competency, which many Chinese leaders refer to and

assume that it is highly unlikely of a Westerner’s characteristics. Wu is a highly difficult

concept to translate into English, since it has very deep Eastern routes. It is something that

Chinese think that is not possible to taught, it comes from being brought up in China and

having exposure to the Chinese wisdom. It comes from a holistic world view and consists of

two parts, namely heart on the right side and using the five senses are on the top of the

character for mouth (for asking questions) and the heart for understanding with the five

senses.110 (Gallo 2008) rightfully claims that a Westerner can learn the Wu competency; he

refers to it as a very deep understanding. This would require from the Western manager to not

rash to judgments very quick and decisions very fast, as Westerners often do. These behaviors

107 This view is in contrary to the other view of maintaining a high degree of relationships with other stakeholders

108 Cf. Gallo, 2008, p.57

109 Cf. Gallo, 2008, p.57

110 Cf. Gallo. 2008, p.59


52

are seen very negatively by the Chinese employees. The Chinese culture does not have a

system that works for everything, there is also a history behind the Chinese leaders, who made

mistakes, and were severely punished for it. Chinese culture, according to the Vice President

of human resources Asia Pacific Alcoa (China) Investment Ltd., Janet Zhong; is a very

punishing culture and leaders are very careful before they make decisions; it is here, where

they use Wu.111

2) Zhong Yong ( 中庸中庸中庸中庸 ) the doctrine of mean

Zhong Yong or another core Chinese leadership competency is the Confucian principle of

avoiding extremes. This view has a deep meaning, which is moving to the middle or the

center, rather than taking extreme positions or pro or con views. The Western leadership

doctrine requires a leader to take strong positions and get noticed. The Chinese doctrine

Zhong Yong teaches the leader to be quite, resolute and not want to get noticed. Chinese

leaders have a balanced approach; they avoid limelight, which they see as equal of being in

danger. Taking very firm position results that the Chinese think the Western CEO is not

shallow in his thinking, and this will not garner the respect the leader seeks.112

3) Nationalism

Nationalism in Chinese terms has not the meaning, which the West gives to it and its problem

with the word or for what it stands for. Nationalism in Chinese term for the business leader is

that the Chinese leader in addition to seeking profits and business success like the Western

leader has a larger mission, which is rooted in the Chinese nationalism, and is the strong

desire to make China a superior business power in the world.113 It is this collective social

mission, which differentiates a Chinese leader from a Westerner. It is understandable and

natural that a Western leader cannot and may not have the same level of affection for the

wellbeing of the Chinese society, but having a long term, honest and well mannered

111 Cf. Gallo. 2008, p.59

112 Cf. Gallo, 2008, p.60

113 Cf. Gallo, 2008, p.61


53

perspective, and leadership approach is sufficient for a Westerner to be accepted and

respected. If a Western leader is sensitive to the Chinese culture and before applying the

Western leadership practices in China understands the Chinese leadership competencies first,

he will clearly be on the path to success.

4) Zhengti Guannian (Holistic thinking)

Chinese regard themselves more as holistic thinkers than the Westerners. This view is shared

among many leaders in China.114 The Western doctrine of reductionism takes an issue and

dismantles it into many different parts to understand it, but Chinese tend to see an issue at

once. (European management style although much under the influence of the American profit

only doctrine has more holistic view). However, holistic thinking in leadership and precisely

in management is not new to the Western world. Many researchers and managers as (Beer

1959, 1975, 1985; Christopher 2007, Malik 1974) have claimed the importance of holistic

thinking and holistic management. Beer’s Viable System Model (VSM) is the most advanced

holistic organizational and management model ever designed. (See Beer 1972, 1985) The

Chinese holistic thinking combines the Wu doctrine of insightful thinking with a breadth of

thinking, which integrates all parts of an issue. It goes beyond the problem and wants to know

the roots of the causes to problem or an issue instead of prescribing a quick remedy.

5) Indirectness

Indirectness is a virtue and a constructive style of leadership in China. In China the leader

most of the times knows the action and the purpose behind it, but keeps it to him. Sometimes

no one except of the leader knows the true reason behind an action or a strategy. Chinese

leaders think in fact that too much explanation defeats and damages the purpose.115 As a main

competency of the subordinates the leader expects them to guess and to understand, what the

leader is really thinking and what his reason are for certain actions. By indirectness the

Chinese imply thoughtfulness and respect. However, this does not mean that the Chinese

114 Gallo, 2008, p. 63-64

115 Cf. Gallo, 2008, p. 65


54

leadership style does not inform the employees of the organizations objectives and goals. In

times of crises the subordinates must exactly know the situation and be able to rely on the

accurate and exact information they are receiving. Indirect approach only gives the leader

more competence and power and it is generally thought for a very constructive leadership

method.

3. Communication, negotiation, and additional toolkits

Negotiation is back and forth communication.116 In negotiation, information is critical.

Managers often have information they do not need and want; they get information that they do

not need, but above all information they want is information they do not need. The challenge

is to obtain information that a manager actually needs and they are more than he wants to pay

for or the situation he will be in, if he tries to obtain them, thus obtaining information is

giving information.117 Interaction of any form can be generally observed as communication;

only through communication control118 is maintained, executed and possible. Knowing “The

Best Alternative to a Negotiated Agreement” (BATNA)119 of one self’s and/ or an opposed

party’s may reduce a vast amount of variety120 for the negotiation system, thus it requires

precise assumptions, which also at the same time must have the capacity to be questioned as

assumptions for computing the best alternative possible. However, negotiation is about a win-

win game and leaders are better served if their interaction is about increasing their number of

their choices mutually for better agreements and results. The universally applicable law of

negotiation, to separate the people from the problem, originally introduced by (Fisher, Ury,

Patton 1997) is not applicable in China and in negotiations with the Chinese.121 Nepotism,

which means an innate-in-group collectivism (a key part of the Chinese culture) is the reason

116 Cf. Patton, 2005, p.279/ See also (Moffitt and Bordone 2005)

117 Cf. Malik, 1974, p. 229 See also: Finagle’s Law

118 Used as a cybernetic term, means; navigating

119 Ury, Fisher and Patten, 1991, p. 97

120 Used as a cybernetic term, means; number of possible states for an organization’s system to be under control

121 Cf. Lam, Graham, 2007, p.141-142


55

why we cannot just separate the people from the problem as we can do it in the Western

society especially by saying, “Oh, you should not take this personal”. However, in China when

one’s family or extended (Quandi Guaxi) or family’s stakes are at stake, everything is taken

personally.122 China CEO must have some key bargaining characteristics and negotiation

skills. These skills are: 1) Listening ability; 2) Interpersonal skills; 3) Willingness to use team

assistance; 4) Self-confidence; 5) High aspirations; 6) Social competence; 7) Influence at the

firm’s headquarter; 8) Language skills.123 To succeed in negotiation with the Chinese it is

essential to go inside the mind of the Chinese negotiator. But before we engage to that we

need to understand the Chinese In-group and Out-group characteristic.124 Social

organizations with their use of dialects, which are the fundamental part of membership in an

exclusive group are identified by their dialects and are known by their place of origin in

China.125 The Chinese principle of what we call legal environment to have the necessary

security to do business is their relationships. Thus relationships, not law provide the necessary

security and safety in their business transactions and deals. We have learned that in China

there is a large room for the interpretation of the law, this gives the relationship a superior and

strong meaning, for which they are highly treasured. What the Western CEO needs really to

understand in general and especially in contracts or in negotiations is that in China laws are

flexible.126 As (Hofstede 1980) observed, there are two characteristics of Culture’s

Consequences, individualism and collectivism. Chinese are collectivists; they belong to

certain or many groups. In China group decisions are superior to the individual decisions and

concerns. Chinese support, are highly polite and sincere to the in-group, but could be

dishonest, rude, exploitative to strangers. Thus it is acceptable to cheat strangers in business

transactions.127 The China CEO, therefore will need to invest some quality time in pre-

122 Cf. Lam, Graham, 2007, p.141-142

123 Cf. Lam, Graham, 2007, p.152

124 Blackman, 1997, p.10

125 Cf. Blackman, 1997, p. 10

126 Cf. Blackman, 1997, p. 10

127 Cf. Blackman, 1997, p.12


56

negotiation phase, which clearly can affect the outcome of the negotiation, by becoming and

in-group member of the business partner with whom or his group he is negotiating with. There

are some additional points, which are essential to be mentioned; The Chinese at any occasion

prefer saving face to frankness, attacking a person’s reputation or good name will soon bring

a strong response and revenge to the business, which should be avoided. A strong respect for

the rule of hierarchy is maintaining your counterparts face. To conclude with the deep

understanding of the mind of the Chinese negotiator, the following points are vital:

1) Chinese generally have suspicion of Westerners

2) Chinese have experiences with Western arrogance and ignorance

3) In China there is always a link or a tie between politics and business

4) Chinese have special Chinese objectives, namely to become strong, wealthy and be

respected

5) Chinese live and operate in stable communities, arousing critic from colleagues and

peers is avoided, sometime even on not expressing their views

6) The government has still control over the individual, their benefits are governed by the

party and the government, which also influences their choice of vocation and financial

rewards or title

7) Respect for people in power must be maintained

8) Time is not money in China, what is one month in a 4000 years of history

9) Bureaucratic life is a part of life, in China the approval process in addition to time

needs a certain or different process. Unexpected complications may occur at anytime

10) Contracts are flexible and the rule of moral has a long tradition128

Further reading is essential the author recommends (Lam and Graham 2008, Blackman 1997,

Fisher, Ury and Patton 1997)

128 Cf. Blackman, 1997, p. 24. ff


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3.1 Strategy and execution in China

Strategy is universally accepted as a pro active action upon a vision to achieve a better

position. Strategy is also observed as an act of making the change happen in industry, market,

and game, getting to the superior position or to the future first. (Kamran 2011) observes that;

“Calling organizational effectiveness a strategy is just as much a scientific flaw as navigating

organizations in accordance with so called “strategies”, based solely on military minded-,

shareholder oriented-, and financially reduced tactics and surgical measures. [21, p. 1]

Dysfunctional organizations per se are not the only problem moreover; we severely violate

our perception of organizational and environmental reality. In this state of chaos we not only

do not understand what we are doing but most importantly why we are doing it. We ignore the

“main duty of business”, namely “survival” [9, p. 46], and additionally we observe the

reality of the world as we can see it, via „reduction ad absurdum of mere tactics and

measures.” The author has emphasized on the role of a holistic approach in a China CEO’s

leadership practice. However, no vision and strategy is worth anything if it is followed by

poor execution. Execution requires top-quality standards for success. Indeed, top- performing

MNC’s are the very definition of superb execution outside of China. However, the key here is

to put this expertise and standards into the Chinese context. They need to select and adapt the

right performance standards, must learn to implement, apply, and share the right balance of

their expertise to the needs of their business operations in China. The China CEO must also

observe the Chinese business environment not just as an developing business environment,

but moreover use the practices and knowledge gained here as highly useful best practice in the

Western operations as well.

There is an evolution of management practice in China, which is called; Government

Relations.129 Successful China CEO’s regard their relationship with the authorities and

government not just as an ad hoc strategy but moreover as a day to day business activity and

its quality clearly as a vital competitive advantage.130 Superb management of the relations

with governmental institutions and authorities means to define, a map, and align all actors and

129 Hexter, Woetzel, 2007, p. 15

130 Cf. Hexter, Woetzel, 2007, p. 15


58

agendas on a broader basis. Here experienced CEO’s take a balanced approach and develop

plans of execution, where learning is a key indicator of performance as are results and where

they are in a constant search for improvement. The trends and factors, which influence and

count in China are – customers, competition, cost, operation, infrastructure, and people. The

bar is high and on the rise in China and the MNC, which develops strategies to get to the

future first must poses the mastery of execution to be among the winners.

3.2 Managing the dragon

“That’s because our party is very old. And it is necessary to keep some old people in the first

line. But this problem will be gradually solved.”131 On filling this stage of the thesis or how to

understand to manage the dragon the author could have combined some universally known

management theories and put them in the commonly known Chinese context. But the shelves

of many bookstores and universities are full with just that. Therefore, there would be no need

for the author’s suggestions. He has raised the issue of managing the government as a

fundamental objective but at this part some additional issues and a bit deeper insights ought to

be brought to attention of the China CEO, which need to be based on an original conceptual

research. The manager of tomorrow may not be just a micro manager in charge of his small,

medium, and large corporation, but as the companies’ and his operation’s spectrum rises, he

must manage higher altitudes and wider spectrums beyond his enterprise. When China and US

first attempted to restore their relations some forty years ago both leaders of that period had to

raise their sights beyond the immediate issues of that era (Zeitgeist).132 They had to foresee

and to deal with future amid the strong pressures which both had to overcome. Managers of

the future must be able to do the same. Strategy in the future is the proactive prerequisite of

control. Control133 is the grand- strategy of the China CEO in the (near) future. In the general

Western management literature, strategy and rivalry is defined very narrowly. We think of

strategy as dealing with the direct rival and seeing our success only through the direct rivalry

131 Kissinger, 2011, p.402 quoting Deng Xiaoping

132 Cf. Kissinger, 2011, p.529

133 The author uses control as a company’s ability to maintain its strategic supremacy over competition


59

with our most severe competition. We observe rivalry as out-competing our competitor and

beyond that our strategic management has some basic and generalist functions. In dealing with

China, its political economy and scenarios on how it will act in the future, we will see the real

challenges, occurring for us to cope with. Many of the limitations on Western and US

corporate performance in China are more tractable than the major concerns of the West about

access to the Chinese market. These issues as China’s policies on government procurement,

indigenous innovation, and intellectual property protection, among others pose serious

obstacles to Western corporations seeking to compete in the rapidly growing Chinese market,

and they rightly receive much attention especially in the U.S. government and media.134 These

limitations result from insufficient understanding among MNC’s senior managers of the

evolving Chinese opportunity and how the Chinese political system really operates and

interacts with the country’s economic enterprise.135

Contrary to Western identity with their country and political system, which generally goes to a

joining or voting for a party and their issues and hardly goes beyond the happiness of the self

there is no further real relation between the country’s people and their government. Most of

this relationship gets polished by the Western monopolistic and propagandistic media

conglomerates as the Berlusconi‘s media in Italy and Murdoch’s International media

monopoly. In a functioning democracy the media is the nervous system of the country, any

attempt to make the bottom-line of a corporation or an political agenda substitutes for

journalistic integrity will have very serious consequences for the country, its people and

society but above all its strategic position in the future affairs of the world. 136 In the Chinese

strategic moves and plays the name of the game from Peking is to keep the momentum going

and to find ways to complete China’s reemergence as a premier civilization that is both

wealthy and strong.137 “It is important, therefore, to look to China’s past to understand its

current core goals for the present and future. Using American or Western assumptions to

134 Cf. Lieberthal, 2011, 149.pp, www.brookings.edu

135 Cf. Lieberthal, 2011, 149.pp, www.brookings.edu / Means; China’s “political economy”

136 The author is not praising or in any sort of way sympathising with the Chinese political system or its human right record.

137 Cf. Lieberthal, 2011, p.2


60

understand China’s aspirations will prove of very limited utility, as this can obscure the

central objectives that are the product the country’s bitter historical experience.”138

There is a general agreement between the Chinese government, its people and the its business

world, that they commonly need to solve their absolutely central problem for China since the

mid-nineteenth century, which has been how to absorb what is necessary from the West while

maintaining the essential characteristics that make China unique and put it on a higher plane. 139 China’s system leaves a lot to be desired in terms of transparency, but there is actually a

lot more understanding of business-relevant parts of its political economy than most

executives realize. And those insights have major implications for MNC corporate strategy.140

The author proposes five issues, which will support the China CEO to achieve his objectives:

1) China started an economical warfare, the wars of the future will be fought on economical

grounds; 2) Western MNC’s must be as successful as their Chinese competitors in the Chinese

market, 1.3 billion and growing consumers cannot be ignored; 3) Chinese companies and

government will have larger stakes in the West’s political economy, economical system and

businesses; 4) China with its large inventory of qualified professionals (academia and

business) would try to position them in the West and its ever getting stronger need for

qualified workers, which would be in favor of the general Chinese grand strategy; and 5)

China would develop and enhance managerial models, theories and systems, where the West

must do its home work and train its future managers with Chinese managerial wisdom.

To get a bit deeper in the ground of the issues, we should go to some historic events that

shaped the current Western doctrine of seeing and observing the world. The history of

Western civilization especially after the seventeenth century has been an oligopoly of one

civilization’s and religion’s supremacy over the world affairs. After the retreat of the

Ottomans from Vienna, which marked the first in a series of defeats for the Islamic

civilization, the West has not been challenged by any challenge to which a serious attention

138 Lieberthal, 2011, p.2




61

should have been paid. The Muslim challengers have fought a bitter war but have lost in many

fronts, especially in developing any kind of solid strategies, threats, competition, sciences,

academia, and technologies. Everything what the Muslim world can observe today beside the

divine law as service or disservice to humanity has been developed by the West. According to

the world renowned historian and scholar Bernard Lewis; “It was the first of long series of

defeats, which in the course of the eighteen century, despite occasional rallies, brought a

decisive change in the balance of power between Islam and Christendom.”141 Therefore, it is

natural for the West by having a constant success in all major fields to ignore the Chinese

threat to an extend and speed that it is occurring. The West has maintained this balance for a

long time and even as someone, who is following the world affairs of today, would agree with

the author, that the West has extended and enhanced its power and impact over the Muslim

civilization in the last decade, the Libyan war can be considered as a very recent development.

The Russian or communist threat, which the West at that time treated as a threat to its

civilization had mainly a propagandistic nature but it was nothing more than an internal

difference in the West’s ideological perspective and the economical system from a Chinese

doctrine and Muslim viewpoint. The 1783 annexation of the Crimea by the Russians were

among the most painful losses for the Muslim civilization following by the 1783 French

occupation of Egypt.142 The Soviet long war with Afghanistan and its final demise clearly

enhanced Western influence in the region; to even a level, where mainly moderate other States

in the Eurasian continent became fundamentally occupied with a very severe Islamic

fundamentalism, which mainly was created by the West and transformed the region centuries

backwards, resulting in using it as weaponry against the communist ideology. The same

fundamentalism and regional instability can be used against China, since it shares a smaller

boarder with Afghanistan but a much larger border with Pakistan. The China CEO may not be

unaware of his political environment, he must implement and act pro-actively before a

political crises becomes his business crises.

141 Lewis, 2010, p.19

142 Lewis, 2010, p 19


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Now a different shift in political and economical challenges is happening and the manager of

the future must be a frontier in strategic understanding and games. So what is a strategy in an

era, where turbulence is part of the game? “The answer to this question ought to depend on

the foresight horizon: how far ahead, and how much, the strategist thinks he can foresee.

When the very structure of the firm's world is undergoing cascades of rapid change, and

interpretations about the identity of agents and artifacts are characterized by ambiguity, we

say that the foresight horizon is complex. We argue that strategy in the face of complex

foresight horizons should consist in an on-going set of practices that interpret and construct

the relationships that comprise the world in which the firm acts. Our discussion focuses on

two intertwined kinds of strategic practices. The first is cognitive: a firm "populates its

world" by positing who lives there and interpreting what they do. The second is structural:

the firm fosters generative relationships within and across its boundaries--relationships that

produce new sources of value that cannot be foreseen in advance.”143 (Lane, Max, 1995) go

to heart of the matter and claim that business schools trained a generation of MBA's in

optimization techniques, and strategic planning departments and consulting firms honed these

above tools to fit a myriad of particular circumstances. Strategy, especially for a period of

time as optimizing precommitment was a growth industry. And it still flourishes in some

environments, both from theoretical and practical point of view. But we see and it is fair to

say that this notion of strategy and strategic thinking and modelling is falling into increasing

disfavor in the business world, to the extent that the CEOs of some important and successful

firms will not permit the word strategy to be uttered in their presence.144 For strategy ought to

be redefined by the China CEO and he must start making a large list, wherein he ought to lay

the foundation of strategy on much more solid, broader, farsighted and interdisciplinary

ground.

143 Lane, Maxfield, 1995, p.1 144 Lane, Maxfield, 1995, p.1


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3.3 Human resources trends in China

Managers sense a great transformation in dealing with human resources management, where it

has been shifted from transactional function and perspective to more strategic one in terms of

getting the needed competitive advantage. Especially in China this transformation has been

sensed by many scholars. (Gallo 2008) observes some common changes. He emphasizes that

most of the Western human resource departments concerned themselves mainly with hiring,

rewards, titles, organization, design, organization culture, training, and development,

measuring human resource, and succession planning. The above points were considered to be

the primarily focus of the human resources department. However, today although the focus is

on the same issue, but with very different business emphasizes.145 These issues are considered

more to be matters of business rather than only through the lenses of the human resources.

The human resources leader is now an essential part of the top management and actively

participates in putting the human resources department to be more the business department

that has its focus on engagement of the people to gain competitive advantage in the market.

The terms as attraction of good and high performing people (not potentials), retention,

organization restructuring, IT technology and the future of human and machine cooperation

for competitive advantage, competency development (beyond just sending them to some

training), managing the return to human capital, leadership development, designing flexible

organizational structures and in China combining modernity of these new insights with the

typical cultural and traditional necessities and integrating them for a successful strategy are

among the themes, which will establish the China CEO’s path to success.

Here we would turn to some additional issues, which are among the basics but are

fundamentals in managing people successfully.

145 Cf. Gallo, 2008, p. 71


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3.4 Trust

“Chinese trust two things only – their families and bank accounts,” is a popular Chinese

saying.146 Trust, described by (Fukuyama 1995) in his groundbreaking comparison study is,

“the expectation that arises within a community of regular, honest and co-operative

behaviour.”147 Discussion on trust has had a high intensity for many years. One factor

increasing the debate is that several influential writers in addition to Francis Fukyama such as

(Putnam 2000) see a decline in trust, implying a significant looming problem for modern

societies.148 In several respects the modern corporation seems to nurture some virtues. To

disappoint the trust of others will bring negative consequences, and there is seldom a

significant advantage. An employee rarely has any good reasons to risk his own reputation for

bringing the company an advantage. He is following a written and an unwritten contract, as

well as work routines promoting desired behavior. 149 The core of ethical behaviour described

by (Hardin 1991) might be as in the following quotation from Russel Hardin: “Most of us are

somewhat like bank tellers: we are secured in our normal honesty by institutional

arrangements that make significant dishonesty risky, even difficult. Much of what looks like

honesty is essentially self-interest at work.”150 Gao Yong, president of Career International,

Inc., in Peking, emphasizes, “In China, we are very slow to trust others. Do you know how

hard it is to make close friends here? If you did not go to school with person, you just don’t

know them well enough to have strong trust right away.”151 (Fukuyama 1995) believes that

trust is required in company from the CEO to the all the employees to work well together.

Since China is a so called low trust society it is essential for the Western manager to get the

trust as soon and as save as possible to do real business. The best way to get trust is to be

trustworthy. Romie Littrell, emphasized about trust in China that people, which Chinese

146 Gallo, 2008, p. 91

147 Gallo, 2008, p. 91

148 Cf. Tullberg, 2008, p. 2063

149 Tullberg, 2008, p. 2063

150 Tullberg, 2008, p. 2063

151 Gallo, 2008, p. 91-92


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regard as strangers are; as meaningless objects, to some extend people to take advantage from

and to whom they have no obligations.152 If in China words are backed by deeds finally trust

will emerge. The Westerners trust each other and to some extend the foreigners sooner, and

take trust back if dishonesty has emerged, this is different in China. There trust ought to be

maintained first before believe is giving to the shared and heard words. The best advice for a

successful China CEO is to under-promise and over deliver. This advice will work very well

in China and understatement is a good advice, since there is no reason to call for other to call

one a hero by words, one has shared its better that the actions reflect that reality.

3.5 Teamwork

Traditional Chinese culture and its characteristic are embedded in hierarchy. In Chinese

culture social inequality is generally accepted in terms of hierarchical ordering of a society.

The roots of this difference lay in the difference in origins of values between the Western

world and the Chinese. The grand Confucian doctrine on governing a society, defines

hierarchy as guarantee and safeguard of a society’s well being, when this is designed to which

every level of society is obedient to the other level above of it to maintain societal stability.153

In the Chinese, researchers as (Bond & Kwang 1986; Hofstede & Bond, 1988; von Glinow &

Teagarden, 1993) observe, Confucian principles as indigenous to national culture, advocate

respect for work, discipline, thrift, protecting face, order relationships, duty to family, and

economic egalitarism.154 The history of China reveals that until its founding in 1911,

Confucianism was the official religion of China for more than 2000 years. China CEO ought

to explores the significance of Confucianism to the national culture, understand the insights,

and benefit from the work of many cross-cultural researchers that believe: ”Confucianism may

have economic implications in national development as well as the Protestant work ethic

principles of the Western world.”155 Doing hard work, frugality, and diligence are the values

152 Cf. Gallo, p. 92

153 Cf. Wang, Zhang, Goodfellow, 2007, p. 20-21

154 Geren, 2011, p. 5 155 Geren, 2011, p. 1


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of the Confucian system. (Watson Wyatt 2003) conducted a research on teamwork in China,

which looked at 10000 employees. The research indicated that Chinese business teams are

essentially stronger than the West, especially as compared to US norms.156 However, the cross-

functional team cooperation was lacking the strong relationship than in the West. (Gallo 2008)

interprets this phenomenon as reflecting on family ties and trust as a representative of this

difference to the West, since trust to the family is transferred to the work place. In addition, there

might be a severe competition with somebody not belonging to the family or another team, which

is a kind of substitutes as competition and distrust to other families. The China CEO must

understand this difference in cultural and work ethic of the primarily Chinese employees Chinese

company or a Western MNC. His challenge is to make a multicultural team work and enhance

cross- team collaboration, which is a CEO task and is vital to the smooth operation and

functioning of a company.

3.6 Making it work in China

The best advise that can be given to a China CEO is to observe the experiences, which have

been gathered by most of the successful CEO’s in the more than a quarter of century dealing

with the Chinese business environment. Still every company and industry is different, even the

times are in a constant change. However, a company in its road to success in China has to

move through a three stages of growth: 1) Entry; 2) Country development and 3) Global

integration.157 The most experienced CEO’s in China understand that at every stage of the

company’s expansion it still needs to follow long term strategies, make adjustments and that

China is not a quick run, but moreover a marathon, where a long breath, the management of

resource, and time is required to succeed. The first phase must be occupied by establishing

presence, begin to build a brand, and to learn about the operating environment.158 In addition

key people are required, who are experts at start-ups and thrive in working independently in

unstructured environments, and are highly creative to pull together resources to actively make

156 Gallo, 2008, 147

157 Cf. Liberthal, Lieberthal, 2004, p16



67

their task a success. At the next stage of company’s growth and development, which is

prolonged, complex and requires different managerial talents, the small operation of the start-

up phase becomes a larger much serious operation on a larger scale, which integrates many

operating divisions and teams.159 The third phase, also called the mainland-China phase, is

occupied to integrate regional and global operations and harmonize processes and company

objectives, while at the same time delivering a precise P&L numbers to the global headquarter

of the firm. Here is the phase, which the company’s policy, its strategy, and the challenges,

which will affect the success of the company, must be considered thoroughly. These factors

are also rightfully observed as critical success factors. 160

3.7 Business to government best practice

The famous Chinese proverb;” The rules are fix; the people are flexible,”161 is entirely true.

(Ambler and Witzel 2000) observe that rules in China are only fixed for the moment, the may

have been promulgated but overtaken before the officials, they might get around them. Since

the year 1978 the government has actively engaged in orchestrating a business environment,

which is friendly to business growth and which maximizes Chinese economic interest

domestically and globally. In China the rule of free market is not seen as by the West, in terms

of expressing an ideological principle, but moreover as means to its own ends. The rules are

subject to be changed at anytime in accordance with government’s strategy and policy.162

Government in China has many and considerable powers, while it can deny licenses and

agreements it can withdraw licenses from already existing businesses and projects. (Ambler

and Witzel, 2000) describe how in 1996 in a single day the government withdrew over two

hundred licenses from existing JV’s for divers and many reasons from lack of profitability to

disputes between partners. Without engaging in redundancy it follows that good relationships

with the divers and different branch of the government from central to provincial, is essential



161 Ambler and Witzel, 2000, p. 83

162 Ambler and Witzel, 2000, p. 83


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and can turn the wheel of bureaucracy faster and make uncertainties lower and more

predictable for the MNC operating in China. The reason why the Chinese society regards

relationships so high can be explained in their need for mutual certainty in deals and general

human endeavors. The Chinese have no common definition of a religious believe as do the

Christians or the Muslims. In addition the laws leave much room to the personal interpretation

of the official appointed, so they necessarily have to provide each other by mutual relations

based actually on self-interest.

Figure 11: Religious believes in China, Source; www.geert-hofstede.com According to (Hofstede 2001)

China’s religion is officially designated as Atheist by the State, although as already observed

by the author the concepts and teachings of the ancient Chinese philosopher Confucius

(500BC) are deeply routed into the society at large. Some religious practice is acceptable in

China; however, the government sets rigid limits on religion as well. But let’s examine the

track record of the Chinese government outside the Western media propagated version. Since

the onset of the Western management and financial crisis in 2008 China has maintained the

fastest rate of growth of any major economy, and it is emerging from the crisis to which it was


69

subjected with a lower level of government debt (as a percentage of GDP) than that of the

major industrialized countries.

(Lieberthal 2011) observe that during the same two years, which the West had many self

engineered struggles to cope with, Peking racked up other accomplishments that in its eyes are

breathtaking: “staging world-class Olympic games in the summer of 2008, coping with

widespread ethnic violence in Tibet and Xinjiang, responding effectively to the devastating

Wenquan earthquake in Sichuan province in 2008, getting through a whole series of

politically very sensitive anniversaries (including staging an extraordinary military parade

display for the sixtieth anniversary of the founding of the People’s Republic of China in

October) during the course of 2009 without major incident, and holding the World Expo in

Shanghai in 2010.”163 The Chinese management doctrine compiled this extraordinary record,

the West and especially the United States stumbled and are stumbling catastrophically. The

Economist quoted Dagong, a Chinese rating agency to the latest debt ceiling increase by the

US parties: “at this crucial juncture, neither the Democratic Party nor Republican Party has

shown any consideration for the general interest in order to argue for their own partisan

interest; they had a hard time making the correct choice in a timely manner leaving the world

in terror, which highlights the negative role of the US political system on an economic basis.

This incident will definitely exert its continuous impact on investors’ confidence in US

Treasury bonds, affecting the stability of the US debt income.”164

The management crisis, which than had a global impact by becoming a global financial crisis,

began on New York’s Wall Street and rippled across the world, was based primarily on

financial products made in America. The result has left America uncertain, shaken, poorer,

deeply in debt, still ignorant, and uncertain of its future. It has sharply diminished the luster of

the American model of doing things, punching an enormous hole in the facade of almost

unlimited capability that America had long maintained.165 But instead of learning something

out of it, the troubled US economy is still run by very poor performed part politics as the

163 Lieberthal, 2011, p. 6

164 www.economist.com

165 Cf. Lieberthal, 2011, p. 6


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examples of the today’s news reveals. China, as one of the world's largest holder of US debt,

condemned on the 6th of August the "short-sighted" political wrangling in the US and said the

world needed a new and stable global reserve currency. The official Xinhua news agency

issued an article and declared that China had 166 "every right now to demand the United States

address its structural debt problems and ensure the safety of China's dollar assets.

International supervision over the issue of US dollars should be introduced and a new, stable

and secured global reserve currency may also be an option to avert a catastrophe caused by

any single country." 167 As China and its government look forward, therefore, they see

themselves as having developed crucial momentum toward regaining China’s historic position

of wealth, power, and respect and a track record of highly effective management model for the

largely populated country on the planet. This also will surely make the long time held position

of the West in terms of business models, business schools, economic doctrines and strategic

management irrelevant. However, in dealing with government the following best practices and

voices of experience have proven to be highly effective: 1) Involve the company’s top

executive, this task is not to be delegated, China CEO as the grand communicator with the

government; 2) Hire a trustworthy and highly experienced local with substantial amount of

special guanxi with the government; 3) Understand the mindset of the government, project

and cooperative attitude, avoid confrontation; 4) Win the support at all levels, ensure for

mutual respect at all levels, keep the government informed and actively engaged in your plans,

do not confront them with unnecessary surprises; 5) Prepare thoroughly, do the organizations

homework, and be aware of the current processes of that level and all level of authorities and

6) Stand firm for your position, be clear, precise, appeal to noble motives and be not afraid to

state what you as a CEO want and what is for the benefit of all.168

166 Cf. www.guardian.co.uk

167 www.guardian.co.uk

168 Cf. Fernandez, Underwood, 2006, p. 234


71

3.8 Working with business partners

According to Seiichi Kawasaki, Director and President, Sony China, “In choosing a JV

partner, some people may want to [first] to make sure the partner has business experience.

But is I am the person choosing, trust is very important. This basically means that we can

share the same vision. Character is very important- more than business experience. A JV is

like a marriage.”169 After the decision of going into the Chinese market as a JV, independent

or wholly owned foreign enterprise, which has become much easier to decide today based on

the special needs of the MNC is made, a company is surrounded by business partners. The

China CEO is highly advised to ensure a highly effective level and degree of communication.

While he is advised to adapt to Chinese business practices and cultural differences, he still

needs to adopt the Chinese operation the company’s global operations and culture, values,

ethical, and performance standards and not to be pushed or to compromise on the mentioned

issues. The below points support the MNC to be successful and avoid unnecessary challenges

with the business partner:

• Mutual trust ( Yes it is mentioned money times, but it is a key prerequisite, which can

not be ignored)

• Good and solid communication, saving the partners face at any cost, while expressing

the position of the MNC (Indirectness is essential)

• Effective Decision- making, encouraging the Chinese partner to try new things and

that making a mistake is not a crime and is a part of mutual learning process. Creating

an environment of effective communication and mistake tolerance.

• Combining Western and Chinese ethical and business cultures, seeing the differences

as capital not as a burden.

169 Fernandez, Underwood, 2006, p. 63


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3.9 Facing competition

China as the country of many diversities requires also of fierce competition. According to

Simon Keeley Head of the Hewitt Asia Leadership Center (HALC), “China is full of

contradictions. Here we are in a socialist country, but its one of the most competitive societies

on earth.” There are two types of competition a China CEO is actively facing: 1) Global Rival

(Fellow Western MNC) and 2) Emerging domestic rivals. According to (Fernandez,

Underwood 2006) emerging fierce competition from an unexpected source, decidedly unlevel

playing fields, and a still-developing legal system, which delivers not only many uncertainties

but at the same time divers additional factors to make the Chinese market to be a murky,

confusing and frustrating terrain for MNC’s operating in China.

Facing fellow MNC’s or global rivals is also in a state of change in China. MNC’s do this in

many capabilities. The competition is not only for gaining more customers globally but also

for increasing their share on the highly important growing Chinese consumers. In addition,

they compete for better operations, coasts, their organizational structures, R&D, but above all

for better relations with the government and its approvals, which as already emphasized are

factors of vital competitive advantage in China. As the MNC’s have arrived and are present

more and more in China, the competition has matured from more of a mainly entry based

competition to a more established business operation competition and having an eye on global

company and market integration. 170

To meet the challenges in dealing with many emerging competition in the Chinese market we

need to focus on two aspects of competition from domestic opponents: The first are the Asian

competitors very well- entrenched in China, which are also learning magnates and the second

ones are the domestic rivals, who are rapidity changing to adapt to a new market-oriented

economy. The quality gaps between the Chinese (Asian) and the Western MNC’s are gone

and many Chinese rivals are raising their R&D budgets not only in their technology based

investments but also in the management and strategic based research. A wake up call for the

global MNC is not to fear the fellow MNC but the ever growing emerging Chinese or Asian

170 Cf. Fernandez, Underwood, 2006, p. 119


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competitor. According to (van Agtmael, 2007), who also originally coined the term from third

world market to emerging market economies; more than half of the companies of world- class

status operate in highly capital intensive or technology- intensive and oriented industries,

which require a very high rate of capital spending on R&D’s to maintain the very fast pacing

area of rivalry for a lasting competitive advantage. Most of these companies are located in

Asia. Asia still provides an Eldorado for the labor intensive tasks, which will remain for a

while less expensive and will make it highly difficult for companies to operate in this area in

the West. The general advice to the China CEO is to:

• Find the most demanding taskmasters and clients, this ensures the rate on engagement

• Compete always on the bigger picture and globally but do not ignore your domestic

market

• Expect to get and be in trouble. Have some scenarios built for your company, a global

player can not afford to be surprised, especially on core issues

• Get to the future first, be a game changer , look for Blue Oceans instead ofRred

Oceans (see also Kim, Mauborgne 2005)

• Mistakes are a part of the game, but make sure to not make the same mistake twice

• Vision is essential, but execution is paramount

• Persistence and patience are key, rather than flamboyance

• Built a global brand, support one to make or buy one. 171

3.10 Intellectual Property Rights in China

As it is generally observed the Intellectual Property Rights (IPR’s) in China leave much room

for improvement and security. It is probably the single greatest legal concern in China.172

According US officials an estimate of over 90 percent of the CD’s, DVD’s and software are

illegal. It’s the world’s second largest PC market, but only the 25th largest for basic software.

171 Cf. van Agtmael, 2007, p. 56

172 CF. Plafker, 2007, p. 70


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173 The newest developments are not only that they copy a product but now they copy the

whole sales and distribution system, as it has been globally revealed in July and August of

2011, where three of the elaborate fake Apple Computer stores, which mimicked the look of

the real thing, came to the world's attention after being exposed on a blog. Following the

general publicity, Chinese trade officials investigated and found five stores in Kunming China

posing as official Apple retail outlets. 174

Figure 12: Staff believe they are working in a real Apple store

Source: www.bbc.co.uk

These developments are very damaging and show the creativity of the IPR violators in China,

Apple Corporation has file over fifty lawsuits against the people, who massively violate

international IPR of the Apple Store and products. The authorities are pursuing to fight against

and to crackdown copyrights violators. The year 2009, is marked as a key year on focusing on

IPR’s in China. A series of IP laws, regulations and rules were formulated and revised

according to the practical and much demanded needs by the international business community,

which resulted in new achievements in the IP legislation work.175 The Patent Law after the 3rd

revision was implemented and the decision on the amendments of the Implementing

Regulations of the Patent Law of the People's Republic of China (draft) was reviewed and

passed.176 The third revision of the Trademark Law continued to be pushed forward and the

173 CF. Plafker, 2007, p. 70

174 www.bbc.co.uk

175 Cf. cipnews.com.cn

176 www.chinaipr.gov.cn


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revised version of the Trademark Law (for review) was submitted to the state council.177

Meanwhile, the formulation and amendments of other related regulations and rules including

the Implementing Regulations of the Trademark Law, the Regulations on Trademark

Commissioning, were carried out accordingly and the revision work of the Copyright Law

started. Another breakthrough was that the National Copyright Administration of China

(NACA) amended and issued the Implementing Measures on Copyright Administrative

Punishment.178 The advice for a Western CEO is to accept the reality in China and to

understand that amide being a police state, China is still a much lawless country and much

help is required by professional legal advisors. Since enforcements are often lax in China, the

products must be designed in a way, which makes it difficult for the infringers to counterfeit

and to steal the IP of a company. A much attention should be also paid to the business partner

and the choice of them, a strong control in ones own operation but lacking control system by

the business partners or their partners and suppliers is equally damaging and dangerous. The

China CEO should see the Chinese IPR regime as an absolute jungle and while there are steps

that a company can take, there are no guarantees179 as the Apple Store case revealed lately.

3.11 Competition law in China

The Administration for Industry and Commerce of China (AIC) at all levels is the agency for

enforcing the countering unfair competition law. AIC’s concrete punishment rendered against

activities of unfair competition include, 1) ordering to stop illegal acts; 2) confiscating illegal

proceeds; 3) imposing a fine of less than 3 times the amount of illegal proceeds and 4)

revoking the business license or being prosecuted for criminal liability.180 AIC’s mid to long

term objectives for the period from (2011 to 2020) are;

• to transform the traditional planned economy system into market economy system.

Reorganize the state-owned enterprise by way of joint operation, merger and joint

177 www.chinaipr.gov.cn

178 www.chinaipr.gov.cn 179 CF. Plafker, 2007, p.76 180 www.apeccp.org.


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stock cooperation in order to make them become the true competitive participants

in the market. Set up a market system with unified, opening, legal and fair

competition;

• through the legal and economic methods, regulate the market circulation order,

break the regional blockade and sector separation; and

• further perfect the legal system in order to meet the needs of the Chinese market

economy and world economic development.181

(Gerber 2004) sees China developing its own Competition Law, on its own terms, and on its

own institutions, traditions and goals as it has in other contexts. Furthermore (Gerber 2004)

claims that for China to accept any foreign models would be highly unlikely and thus he has

examined the relevance of the European and US competition law for the development of the

Chinese Anti Trust and Competition Law. The US competition law as being one of the most

experienced and best practiced antitrust law (Gerber 2004), which was developed in 1890 on

the pressure of populist politics of that time, since several of competitors were using

economical power to force their rivals out of the market.182 The relevance of the US model for

China is that from an evolutionary process, it produces the best (This view and perspective is

commonly held in the discussions of antitrust by the US experts), (See also Gerber, 2004)

approach.183 China’s Competition Law became effective in August 2008, but cooperation

between the U.S. and China on antitrust issues dates back approximately more than thirteen

years when China first began to develop its competition law. During the drafting process the

United States had repeated opportunities to advice and comment. Since then, U.S.-Chinese

cooperation has steadily strengthened, according to the Department of US Justice’s Antitrust

Division.184 The year 2008, as already emphasized, can be marked also as a milestone and

comprehensive competition law makeover, which has been celebrated in some quarters as a

181 www.apeccp.org.

182 Gerber, 2004, p. 316-317

183 Gerber, 2004, p. 316

184 www.winston.com


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significant step in China’s transition to a market economy.185 However, the law has been also

to some extend worrisome, for it can be used to protect national corporate champions while

keeping MNC’s out of the Chinese market. And if China, where the interpretation of general

laws is a bit wider in scope, follows this course, the options for the rest of the world are

grim.186 The Chinese competition law went into effect neutrally. For it subjected both foreign

and domestic corporations to antitrust scrutiny. The law purported to promote economic

efficiency and advance consumer welfare, which are appropriate goals of antitrust law. But

the law also contains several ominous provisions, including a clause subjecting foreign

acquisitions of Chinese corporations to a national security review.187 The law further defines

national security to include economic security, opening the door for the Chinese officials to

block any foreign transaction that significantly impacts the structure of the Chinese economy

or, as some fear that Chinese authorities simply do not like. An antitrust law that on its face is

designed to open markets can be a powerful tool to close them. As its legislative history

suggests, the law reflects the resurgence of protectionist sentiments in China following the

increase in foreign acquisitions of Chinese corporations.188 Some domestic groups favored the

law as a tool to control the conduct of state-owned companies and to abolish trade barriers

among different regions within China. Others saw the law as an opportunity to challenge

foreign multinationals that are increasingly controlling the Chinese economy.189 Only a track

record of enforcement on a long term basis will show which motivations will ultimately

prevail.190

A recent development in the Chinese – US legal relations occurred very recently, on July 27th,

2011. On this date the competition agencies of the United States and the People’s Republic of

China (PRC) signed a Memorandum of Understanding (MOU) for the purpose of fostering

185 uchicagolaw.typepad.com







78

cooperation in the enforcement of their competition laws and policies.191 Furthermore,

because MOU formalizes and extends a previously informal system of cooperation between

the two countries, it also represents the next chapter in U.S.- Chinese information sharing on

antitrust matters, which ultimately has the potential for greater legal certainty and information

flow between the world’s two largest economies.192

Advice to the China CEO is:

• in China the need to learn is large, especially in legal matters. Continuity in learning is

the key and combining the special guanxi with government and a solid legal advisor

and expert is essential, this position must be involved in all processes on proactive

basis,

• as the Chinese legal system and environment opens, MNC’s and Western CEO’s

although foreigner can actively participate in the further development of the Chinese

laws, there are several ways to offer the input and redress the problems,

• although the enforcement may be lax in China, a MNC can not afford to violate and

assume to get away with it. Compliance must be preserved,

• that his chief aim and duty is to choose the right form and organizational structure in

terms of legal entity as JV or wholly foreign owned enterprise, sometime a

representative office may be sufficient,

• that anything can be copied in China, the China CEO involves his legal team, his

product designer and his R&D team to come up with a solution and a product to make

infringements impossible to very difficult (highly labor intensive).193

3.12 Understanding Chinese consumers

MNCs and Chinese companies are competing in the world’s fastest growing market to attract

and to understand the Chinese consumers. The American Chamber of Commerce in Shanghai

191 www.winston.com

192 www.winston.com

193 CF. Plafker, 2007, p. 70


79

and booz&co have conducted a very precise survey of the Chinese consumers, which reveal

six very essential trends, which ought to be addressed by both groups of the companies.

The survey tested six Chinese consumer trends

Figure 13: AmCham Shanghai and Booz identified six fundamental trends that are impacting the Chinese

consumer market today. Source: www.booz.com

On answering the question, to what extent are companies responding to these key trends,

neither Chinese companies nor MNC’s believe that they are fully prepared for any of the

consumer trends, though the Chinese companies are a bit more optimistic than their rivals.194

194 Cf. www.booz.com


80

The MNC’s must maintain a solid balance between their success to the success of their

Chinese rival’s performance in meeting the customers demands. 195

Figure 14: Chinese and MNC’s preparedness to respond to the key trends, Source: booz.com

In both group of companies, there was remarkable accord on the largest structural hurdles that

they must overcome to address the six trends (see Figure 15). More than 70 percent of MNC’s

respondents to the survey declared that human resources challenges – chiefly, the lack of

required skills and the inability to adequately develop and retain talent – are their greatest

concerns.196 This mainly grows out of the difficulties MNC‘s are having in finding sufficient

numbers of Chinese workers with the leadership capabilities and conceptual and

communication talents they are seeking.197 The big difference and what really remarkable is,

that only 13 percent of the Chinese companies viewed human resources as an impediment.

Instead, they were far more wary about their organizational structure, processes and tools.





81

Having become so adept at low-cost manufacturing and mass-market product development,

these companies are clearly anxious about their ability to scale up their business model for a

diverse group of consumers at home and for export to overseas locations.198 The figure below

reveals, where these companies fall short.

Figure 15: The barriers that MNCs and Chinese companies say they must overcome to face critical consumer

trends are starkly different, Source: www.booz.com

To further understand the Chinese consumer: an additional trend, which shows that a shift

from saving to spending in the Chinese consumer’s behaviour is occurring. The outlook from

the Chinese consumer is optimistic, confidence is on a constantly improving scale and

immediate prospects for their financial position underpin very positive purchasing intentions.

Nevertheless, it is absolutely essential to mention that the Chinese consumers are still among

the most careful spenders of the emerging markets. (See also survey of Credit Suisse 2011)



82

Figure 16: Chinese is still the emerging market nation with highest savings ratio

Source: doc.research-and-analytics.csfb.com

Figure 17: Chinese middle class consumer’s savings ratio, which seems to be the lowest

Source: Source: doc.research-and-analytics.csfb.com


83

The savings behaviour of Chinese consumers is seemingly following a U-shape Pattern based

on survey conducted Credit Suisse 2011, i.e., savings ratios are highest for both the poor

(excluding those with no money to save) and the rich, while savings ratio are the lowest for

the middle class.199 An additional very interesting observation, which can be revealed from

the survey is that the savings ratio of the more developed Tier 1 cities is actually lower than

the less developed cities. This ought to be due to the fact that consumption culture is more

advanced in Tier 1 cities, but it also implies that the potential of consumer market

development for Tier 2 cities could actually be better in the next few years compared to Tier 1

cities, given their faster income growth and current saving of a higher proportion of their

income. This information is essential for the China CEO, so depending on his Industry he can

put his focus on how to get to the customers faster, better and smarter. Speed in the shift of

the consumer behaviour in China is a challenge, which can be reduced by knowing where to

address the consumer respectively where to be in and ahead of the trends occurring

ubiquitously.

199 Cf. doc.research-and-analytics.csfb.com


84

Figure 18: China Consumption Portfolio (CS CCP) outperformed MSCI200 China and MSCI World

significantly, Source: doc.research-and-analytics.csfb.com

To viewed the Chinese consumer with a broad brush, the above research provided an

interesting profile, who will be most impacted by the six highlighted trends taken as a whole,

and in so doing the China CEO can identify the core customer for his MNCs that hope to

thrive in China and to out compete his many domestic rivals.

Simply put, the Chinese consumer will be between 21 and 40 years old, who lives in Tier 1 or

2 cities and earn a middleclass income between 10,000 and 50,000 renminbi per month (See

Appendix). In addition, the new Chinese consumer is highly Internet-savvy and will have

grown up in the era of market liberalization and globalization, while having avoided the

hardships of previous generations. 201

200 MSCI is a global benchmark 201 Cf. www.booz.com


85

Figure 19: Reveals the top 3 actions the domestic and MNC’s choose to do to get to the consumer, Source:

www.booz.com

The consumer is more confident, bold (the gap between Chinese and the Western consumer is

getting narrower, who live in the top tier cities), as the Western consumer, more self indulgent

and indulged (if they are under 30, they probably have no siblings and were the focus of

family life in their homes) and more likely to spend money on luxury items, travel and leisure

pursuits than their parents, who probably viewed such activities as unaffordable luxuries.202

Finally figure 19 reveals the top three actions chosen by companies while being asked “How

to address the impact of the above consumer trend?”

3.13 Marketing in China

Commercial advertising returned to PRC in 1979, this at the begin young and unstable sector

has become now a large industry sector. Professional advertising or in Mandarin guang gao,

which means communicating to the public or seeing it from a broadcasting sense making

goods publicly known, has a history of oral and even musical mediums in China.203

Professional marketers in China know that the routes of today’s marketing in China still lay in

Mao’s era, although commercial advertising was nipped in the bud during those years.204All

successful doing business and marketing in China ought to integrate the socialist Chinese

persona with their capitalistic ambitions, which the West cannot oversee and which has

proven to be reliable and profitable business successes, resulting in a powerful corporate and

rising middle class China. Powerful companies as Wahaha Beverages, Lenevo and Haier

apply the very heart of marketing with Chinese characteristics. They heavily rely on the

disciplining power of corporatized Mao-speak205 and the Chairman’s famed ideology of the

202 Cf. booz.com 203 Cf. Wsng, 2008, p.5

204 Cf. Wsng, 2008, p.1

205 Mao-speak is a reference to George Orwell’s 1984 roman. Newspeak was the official language of a totalitarian regime.


86

permanent revolution.206 This spirit of powerful revolution from the original communist

thinking has turned to more capitalistic ideology but still with the overall objective of making

China prosperous. This collective identity delivers a solid ground for marketers to bring their

products to the consumers and still combine them with a touch of individualism to the

bourgeois bohemians207 (Bobo’s) and touch their emotional side. These market segment

copies the life style of the ideal Chinese rich to acquire the social status as fast as possible.

The China CEO in addition to the Western developed marketing P’s (See figure 20), appeals

to the motives of the Chinese from the growing New-Chinese perspective. The Bobos are

highly educated folk who have their foot in both the bohemian world of creativity and in the

realm of bourgeois to acclaim their place in the world of worldly success. This consumer tribe

will change the face of China and is a market companies cannot ignore.

Figure 20: The 4P’s of marketing, Source: www.masterclassmanagement.com

Advice to the China CEO is that China is a highly over communicated society in terms of

advertising and marketing. He must make the voice of his company heard by positioning the

206 Cf. Wsng, 2008, p.1

207 Are a new tribes in China for market segmentation, where the consumer identifies with given social structure segment, the

term is coined by (Wang 2008)


87

product into the mind of the consumer. He needs not too much marketing of the product but

moreover what the consumer thinks and how he relates to and feels by acquiring the product.

Designing the scenarios of the positioning school for the future by actively implementing the

future trends of the Chinese market (See figure 13), and making his product accessible to the

highly computer literate Chinese consumer will pave the way to the overall success of his

company.

3.14 Living in China

Research of more than 20 top managers reveal that expatriates and even Chinese professionals

in top companies, do not want to leave China, because they have experienced China (as its

track record shows), to be the greatest potential markets in the future. Who wants to go or

come back to US or Europe, where we are on daily basis confronted with bad news, crises and

very turbulent markets and week economical growth. The Euro is at the same level in danger

as it is with the US Dollar. China, which owns more than $1 trillion in US Treasuries and so

wasted no time weighing in after the US lost its AAA credit rating on the 6th of August

2011.208 A commentary published on the same day by the official Xinhua news agency

demanded that Washington get its fiscal act together and once again questioned the primacy of

the dollar. The commentary declared: "China, the largest creditor of the world's sole

superpower, has every right now to demand the United States to address its structural debt

problems and ensure the safety of China's dollar assets."209 This Standards & Poor’s (S&P's)

downgrade served: "as another warning shot about the long-term sustainability of the U.S.

government finances." 210 News and realities like that from the Western World make China

much more attractive for a destination to make careers, gather experience, climb the ladder of

success higher and start a new life.

However, there are additional issues, which a successful China CEO must consider for his

long term success in China. According to Victoria Hine, founding director, LifeLine

208 Cf. money.cnn.com

209 money.cnn.com

210 money.cnn.com


88

expatriates support hotline: “For the husband, his life doesn’t change much [after moving to

China]. He is in contact with the same, people, going the same job, and dealing with highly

educated, English-speaking Chinese people. Meanwhile, the wife may be dealing with very

different people- the crowds in the supermarket, the uneducated maid and driver, strangers

who don’t speak English and who may not be used to foreigners.”211 It is here where the real

mastery of the China CEO is required to combine the company’s success with his success at

home. In some MNC’s, highly qualified top managers may be extremely professional in their

company but are not seen as suitable candidates for assignments abroad, especially to China,

because of their lack of adaptability, which sets the happiness of home and private life as a

prerequisite for long term achievements. The qualities of adaptability differentiate a successful

manager in China, which as emphasized may differ from professional qualities. (Fernandez,

Underwood 2006) in their survey of 20 highly successful CEO’s in China reveal, that the

overall quality of life in China is very positive. This very good mark for China is not given

only for their professional pursuits but moreover for China as a great place to live. One must

also understand that some traits and cultural needs of the home country may be missed, which

still does not make China to be as a dissatisfied place to live. Most of the top managers, which

came to China for not more than 3-5 years assignment are living and working there for over a

decade and are very happy to be there. Some top managers also say they will be staying there

for a very long time.212 However, there are some best practice strategies that a China CEO can

apply for himself, before coming to China respectively these strategies apply to the new team

member of the MNC in China will come from the headquarter. The following activities

support the operation China to be a success and a nice and memorable time period.

1) Psychological screenings for the CEO and his Team

Access to the candidates before the China operation, in terms of soft skills, their attitude

towards a multicultural teams and work environments. Especially test and find out the level of

adaptability and change.

211 Cf. Fernandez , Underwood, 2008, p. 235

212 Fernandez , Underwood, 2008, p. 237


89

2) Assess the families

An interview of the family may be an unconventional approach, but it will reveal the openness

of the children and especially the wife (partner).

3) An offer of Pre- move, “Look-see”

The offer can make a huge amount of difference. This will include to see the housing

complexes, international schools, hospitals, supermarkets, recreation possibilities, and the

offices the top manager will work (Also visiting key stakeholders and partners may be

helpful).

4) Pre-move training and preparation

A China special- training for the top manager and his family will enhance the level of

adaptability and success in China. (Culture, history, working)

5) Language skills

Language as the most essential medium of human communication is a prerequisite for living

and working with people. Although Chinese is not an easy language to speak and learn, a bit

preparation in Chinese, to at least show that the expatriate is honestly interested in China and

the Chinese culture are door openers beyond measures. It is a part of the national pride and a

sign of friendliness to a country if somebody at least can communicates, even on a very basic

level. By showing interest, people acquire the status of being interesting; here language may

play a key role.

6) Providing ongoing support and understanding

The China CEO as a team player is ought to provide support and show interest in his

respectively the family of another colleague. It starts by making contacts and friends and start

to establish a system or network of support. Employees, who receive respect by an active

support in their private wellbeing and their feeling at home abroad, are much more motivated,

hard working and motivated than those who face many avoidable challenges at home.

Successful MNC’s know that dissatisfaction among family members is the primarily reason

for expatriate assignment failing or ending it early. 213

213 Cf. Fernendez, Underwood, 2006, p.258


90

4. Summary and Conclusions

“The world is entering a new political era.”214 The research through-out the thesis, which is

written for a holistic thinking, political aware and world affaire interested, culturally open-

minded and widely informed China CEO, has revealed the world of global business, US

unipolarity in economical and political supremacy to be in a state of a constant shift and rapid

change. The author’s reasons behind the integration of the fields of history, politics,

economics, and international business in a thesis for International Business law studies, is that

the only thing, which we as legal and business practitioners must avoid is to have the

unaffordable, narrow and shortsighted view of our world and realities. In addition, the

author’s purpose was to show that in a global environment of today all the above described

fields apply ubiquitously to succeed in business and it is really time to leave the reductionist

view behind. The emerging transition from unipolarity to a more multipolar shift of global

power balance presents a unique and unappreciated problem, not yet very well understood,

that largely explains why, contrary to the expectations of balance of power theory; a

counterbalancing reaction to U.S. primacy has not yet taken place, and respectively which

consequences this state will have on international business.215 Europe with its much diversity

and historical heritage shows no active voice and role and is in a state of a constant pursuit to

hide behind a declining superpower’s shadow. This passive reaction to follow the strategic

moves of a solely military dominated cowboy style power politics bears no long term value

for the European continent. This behavior enhances the effectiveness of the Chinese

government ruled and dominated hegemony and global dominance strategy. The West has

become the victim of its own economical and business model, and profit-mindedness (of the

Reagan-mania and Thatcherism era capitalism), originated by the Chicago school doctrine of

Milton Friedman (Klein 2008). It is precisely this shortsighted view that has given up the core

of its value and identity in the service of short-term gains and financial market dominated

(unreal) economy. As Europe is in a constant struggle to support its falling members of Euro

214 Jacques, 2009, p. 433

215 Cf. Schweller, Pu, 2001, p.1


91

zones as Greece, Italy, and Portugal, it can hardly rely on the much more troubled US Dollar.

The most audacious proposal the West has so far emanated form Peking, especially after the

historic devaluation of US’ rating by S&P’s, to call for a new global currency reduces the gap

between the worst scenario manifesting for the West’s half-functioning economic system.

China is in a constant pursuit of bringing its renminbi to the global economy and to

internationalize its currency, the recent currency swaps with South- Korea, Argentina and

Indonesia, marks and delivers insights into the strategic financial thinking of the Chinese

government.216 The China CEO ought to analyze these lurking risks and changes to avoid

surprises and strategic blunders. (Porter 1990) the nester among business strategists observes

the above key issue described by the author. He emphasizes, that the goals of a firm are

influenced by world affaires and above all through governmental policies, which directly

affects investor’s behavior and goals (Porter 1990), a vital example is the fall of the global

financial market from 3- 5 points (today as the author writes the final chapter), for the first

time after Lehman’s bankruptcy, and after the US democrat-republican public and media

circus. The more this type of behavior is promoted because of inner political objectives the

more China’s government enhances its controlling rule over the business world, resulting in

beating the West in its own game. A week Western world enhanced the chances of China’s

rise, shifting from a peaceful to more risky adventures, just as the US took advantage of its

global supremacy to become a less peaceful power. The world of propaganda from the

Chinese and the US side must not affect the soundness of the judgement of the China CEO.

His objectives are to be the helmsman of his corporation. Much hope, capital, resources and

confidence is at his disposal to make his voyage in the turbulent see ahead a safe journey and

master complexity of the business environment and the uncertainness of the conditions

imposed on his company to much weaker forces. As the author stated throughout this thesis a

long term perspective is a highly recommended advice to the China CEO, when he addresses

the market system and the Chinese government. The best strategy is to take advantage of the

week points of the Chinese economy and political system and actively shift its strengths to the

company’s favor. Decisions must serve the need of the firm’s strategic position of today and

216 Cf. Jacques, 2009, p. 434


92

tomorrow. China CEO sees globalization as a matter of replication and a spreading of his

business model to the widest possible markets to maximize the firm’s economies of scale also

in terms of experience. Taking the ever growing Chinese rival seriously not just in the Chinese

Market but moreover on global level will clearly enhance his ability to draw more accurate

strategies and scenarios for more competitive advantage. We must bear in mined that China is

much better equipped in dealing with crises as the West is, and the voices in the West, which

were actively promoting that the Western system is superior to the Chinese economical system

have getting weaker especially after the West’s 2008 crises and constant struggle for stability.

In this era businesses’ and MNC’s are not the only rivals who compete, but moreover a

competition between Western modernity to a new type of modernity lead by China is taking

place. How this new type of modernity shapes the world of business and what China with its

power-house structure actually will do remains to be seen. This new political and economical

era is the era of the China CEO, who is equipped with knowledge, training, insight, vision,

adaptability but above all an opportunity to make a difference and to become the safeguard of

tomorrow. The China CEO must keep truthful to his core value, gather the best team possible,

enhance an open entrepreneurial spirit and maintain the bigger picture in all business issues.

The precise changes would be in the area of IT censorship from the Chinese government and

its development from products made of Chinese firms and with over 400 million Chinese

users and the China CEO ought to be prepared and take some calculated risks. Being popular,

does not make a leader to be right, he has challenges not yet known, because of the speed and

the big changes happening, but he also has the greatest opportunity to make this changes help

him succeed. The US economical system was ready to embrace globalization as long as the

new world would have copied US capitalism (Grey 2009), but as the challenges of this system

reveal, it is an outdated model and the post American world (Zakaria 2008), does not want to

copy it. This reconfiguration of economy makes it an interesting era and the best place to be

in.


93

Appendix

Appendix I

Source: International Monetary Fund, R&D Magazine, Battelle, http://www.battelle.org


94

Appendix II

Summery of existing Guanxi studies, Source: Fan, 2002


95

Appendix III

Geert Hofstede Analysis on China

Power Distance Index (PDI) focuses on the degree of equality, or inequality, between people

in the country's society. High Power Distance ranking indicates that inequalities of power and

wealth have been allowed to grow within the society.

Individualism (IDV) focuses on the degree the society reinforces individual or collective,

achievement and interpersonal relationships. A High Individualism ranking indicates that

individuality and individual rights are paramount within the society.

Masculinity (MAS) focuses on the degree the society reinforces, or does not reinforce, the

traditional masculine work role model of male achievement, control, and power

Uncertainty Avoidance Index (UAI) focuses on the level of tolerance for uncertainty and

ambiguity within the society - i.e. unstructured situations. A High Uncertainty Avoidance

ranking indicates the country has a low tolerance for uncertainty and ambiguity.

Long-Term Orientation (LTO) focuses on the degree the society embraces, or does not

embrace, long-term devotion to traditional, forward thinking values. High Long-Term

Orientation ranking indicates the country prescribes to the values of long-term commitments

and respect for tradition.

Source: Geert Hofstede, http://www.cyborlink.com/besite/hofstede.htm


96

Appendix IV

The demographics of the new Chinese consumer


97

Question: Which consumers do you think will be most impacted by this consumer trend?

Source: www.booz.com


98

Resume

Qeis Kamran

Born on 01.01.1974

Studies Business Administration and management cybernetics

Degrees BA, MBA- GM, MBA- PPM, Ph.d Candidate in Management

Managing Director

Qeis Kamran, 2010/2011 Executive Master of European and International Business Law

M.B.L. – HSG at the University of St. Gallen.

Statement

I hereby confirm, that I have written this thesis without external help and that I have not used

any sources I haven’t cited.

St. Gallen, Date: 15.08.2011

Signature:

Qeis Kamran

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