China: why should you produce there?

In this section the topic is China; the fastest growing country in the world, that many consider will be the 21st century new superpower. On this post I will use the last class presentation (done by two students) in order to answer why you should produce in China, by making a comparison with Bangladesh. And after that, the concept of Guanxi will be the topic of this week question, in which we will take into account its importance in the internationalization process of the Chinese companies.
Why should you invest in China? In order to answer this question there are many aspects to be considered, amongst them are the economical part and the cultural part. The first one will be explained in the following video entitled “Is it safe to invest in China?” from the “debtcrisischannel” channel who uploaded this video from an interview on CNBC.



Maybe the video is out of date on the short term predictions so I may complement them: China already undertook measures to control liquidity on its market, the contractionist policies have yet to show some effect on the country’s economy but they are taking the right steps to prevent an economic crisis. So, in conclusion, today is safer to invest in China than when the video was made.

The second part I which I would like to spend more lines on is the culture. At first it must be said that there are cultures which facilitate change and this is an important value for the modern society and business world, since innovation (that almost every time involves change) is what currently gives the competitive advantage to any company. Let’s compare the culture of China and that of Bangladesh in order to figure out which one will be more beneficial to an enterprise.

At first it is said that the Chinese people tend to be reluctant in approaching those who they do not know, but still will work a business relation, as opposed to Bangladesh in which they only prefer to do business with the people they know, meaning it will be harder to change, for example, of supplier or clients in Bangladesh.

In Bangladesh the employee management is paternalistic, as opposed to China where the employees are just that, meaning that it is easier to change employees in China.

When adopting new managerial practices the Chinese people are not only willing to do what you do, but they also want to know what they don’t do, meaning they are willing to embrace new challenges. In Bangladesh they are resistant to Change, meaning that to change production processes in Bangladesh is harder than in China.

So to conclude we can say that in a broad sense and taking into consideration the three aspects mentioned before change gets done in China in an easier way than it gets done in Bangladesh, meaning that in China a company can adjust rapidly to new conditions allowing it to be one step ahead from the competitors that may be located in Bangladesh who have to take a long time to overcome the cultural barriers.

And now is time for this week’s question which consists in: Discuss in your blog the relevance of Guanxi and the existence of Chinese business networks as supporting factors to the internationalization process of Chinese companies.

For this purpose I will base my discussion on the theoretical base provided by the document of Chun Lisa Chen and Mark Easterby-Smith titled “Is Guanxi still working, while Chinese MNCs go global? The case of Taiwanese MNCs in the UK” which provides a solid investigation of the Guanxi on Taiwan’s internationalizing firms.

The guanxi as defined by the author of the document is “a friendship with unlimited exchange of favours” [Chen, and Easterby-Smith. 2008], which refers to a fully committed relationship between two persons. In order to translate this concept to the organizational environment it is fundamental to describe the two types of guanxi.

The first one is the vertical guanxi, which basically refers to the relations between managers and employees, the second type of guanxi is the horizontal one that refers to the network relationships that can be formed, in order to gain harmony within the society.

Having explained these concepts, now is possible to explain why is important for the Chinese firms to have this type of relations when internationalizing. The guanxi need will depend on the type of industry, for the case I am trying to present here the chosen sectors are IT and finance.

For the Financial sector, at first, a horizontal guanxi is not important when deciding the internationalization strategy, but once the company is settled they will look to form a network to support their activities. This is due to the fact that the companies seek in the developed market the advanced technology they have. The opposite happens for the IT sector which internationalizes seeking to be near to their business partners, because this will help to form a better guanxi with their customers trough face-to-face contact, which is highly appreciated in generating trust a fundamental part o guanxi.

The vertical guanxi is also found in the financial sector, specially referring to the personal selection because these firms need people who speak mandarin and also English, so they have to hire people that has been recommended. For the IT sector the vertical guanxi is considered an obstacle because in a highly competitive era hiring people from a guanxi network can become a burden for the company.

So as we see the concept of guanxi is very useful when trying to understand the type of relations formed in the Chinese enterprises, as well as in those that internationalize, and that define their policies according to this relational principle. The main conclusion is that guanxi is really important for the internationalization of the Chinese companies in the sense that this is the way the relations are going to be understood despite the difficulties they may face in the international arena, and this will foster some structures such as the end of year bonus to motivate the employees or to help the employees to save face in order to expet obedience in retribution, as well as that it must be expected that a Chinese company will never be working alone, but will always have a network supporting its activities.

For further reading chek:

Chen, I Chun Lisa and Easterby-Smith Mark. 2008. “Is Guanxi still working, while Chinese MNCs go global? The case of Taiwanese MNCs in the UK”. Human Systems Management 27: 131-142.

Youtube. 2009. “Is it safe to invest in China?”. Retrieved march 14 from the “debtcrisischannel” channel at: http://www.youtube.com/watch?v=x34QW7tHqVY