Challenges in Chinese business management



Although it has been years since China joint the WTO, business management in China, both in theory and practice, is still in a fledging phase compared to that of the developed nations. Managerial related business failures, most notably the recent fall of a large dairy manufacturer whose contaminated milk powder kills new born babies with kidney stones, may inadvertently help people to come up with a more realistic picture as to where China stands in regarding to business effectiveness. Quite often, business failures tend to be easily attributed to the lack of advanced technology or financial strength. However, the crux of the challenges for China businesses, large or small, as a close observation shown,rests primarily on the overall managerial mode and thinking, instead of technical aspects.


Unveiling this seemingly marvelous surface of an economic miracle, one finds in China a society which hasn’t yet totally shrugged off the burdens of a long feudal agrarian society and a Soviet style planned economy. Capitalism and marketing economy, though hotly talked issues nowadays, are far from being fully understood and practiced in China. Undoubtedly, as a late runner, China has to work hard and condescend itself to learn from West for management knowledge and practice. However, it takes more than simple and superficial imitations to qualify China as a world level competitor in terms of managerial efficiency and technical capacity. Could there be an appropriate mixture between the two seemingly mutually exclusive cultures, and by combining the strengths and avoiding the weaknesses from both sides, generate a business environment for China to flourish? Could there be a suitable managerial model that fits into the very nature of Chinese business environment?


It might still be a challenge for many Chinese business people to fully embrace the fact that managerial concerns and responsibilities, not financial strengths or technology advantages, are the ultimate factors that define success. Explicitly, managerial efficiency and effectiveness are everything that affects the overall performance of an organization, whether profit or nonprofit. Adhering to the right management means, first of all, that a business should be engaging itself in the right things instead of making profit, because it knows very well if the one does the right things money will always be able to take care of itself. Doing the right thing and doing it right should be the starting point for a business, but quite often, many Chinese businesses seem to be utterly obsessed with those popular and yet meaningless shibboleths such as “profit maximization” and “maximizing shareholder’s value”. Evidently, as several business failures have shown, this profit maximization without consideration of any legal or ethnical consequences mentality prevailing in China today is fatal to Chinese economy in the long run. What gives a well managed international company an upper hand in competition in most cases is not its technical or financial advances, but a well disciplined management instead. There won’t be a solid core value for an effective managerial practice without having held integrity and honesty as its main theme. To put it simple, it is hardly about being “smart” or “strong”, but utterly about being “right” all the times instead.

Close examination shows, most Chinese companies are still far from being able to put themselves on the same track as their Western counterparts in terms of managerial efficiency, even though a great percentage of their employees are trained in the so called “Western styled business education”. Take for instance in human resource practices, most Chinese companies often focus more on reducing cost than building a team. I have read some job deions that are nothing but welters of various fancy technical terms and phrases, making them positions suitable only for few geniuses, instead of ordinary people. Human resource management such as this does not start from what a person can do or will do but only from what a job requires. This person might be the one they are looking for in terms of technical qualifications and experience, but could he be a team member who accepts company’s overall philosophy? In other words, is he only applying for a job or is he developing a career? Questions such as these seem not receiving enough attention in Chinese human resources practice. Providing an effective training aimed at building a team within an organization outweighs the importance of finding people with right technical skills, for we can always train people with most skills needed to perform a job if he is the right person to begin with. If there is no team spirit to consolidate people toward one goal, they tend to be dismayed and disloyal. He will shift job as soon as he sees a bigger pay check, because what really matters is the money. In other words, he only has a job but a not a career. In Chinese job shifting is called “TiaoCao” or literally means a horse changing its stall. Frequent job shifting or “TiaoCao” among employees has had an impairing effect for both the workers and the companies. Mounting evidence of ineffective HR management practice reflects in the employee turn over rate which is said to be as high as 40%. Despite the plethoric supply of newly graduates and high unemployment rate for college educated youth, ironically it may sound; China is having a big shortage of qualified managerial workers. Most companies, including those Western ones operating in China, are constantly in exhausted struggles of staffing qualified employees for managerial positions of all levels, consequently raising the overall cost. This cost, resulted mostly from hiring and retaining employees, might have been reduced, if there had been an effective human resource management in the first place.

We have not yet seen many internationally recognized Chinese companies in either manufacturing or service fields. So far China’s strength still lies primarily in the areas of low cost manufacturing and assembling. Whether China is going to borrow, to rob, or to do whatever to get itself ahead in the chain of production may be a matter of consent among the analysts. One thing seems to be certain: It demands a new way of doing things. This might be the toughest part of all since we were told that the power of habit is most difficult to break. A Japanese executive made some very insightful comments on the calling of China as “The factory of world”, a buzz word with rising momentum nowadays: By nature, Chinese tend to be very shrewd in business dealings but somehow lack zeal in refining craftsmanship, though they obviously do not lack the caliber of performing a good work. In manufacturing fields, excellence depends largely on a hierarchically organized cooperation in which every detail is paid with great attention and each of them must be linked together to aim at one single goal: Perfection. At least that is the “secret” behind the so-called “Japanese miracle”. From a Japanese perspective, Chinese businessmen are more suitable for trading than making products. They usually are not satisfied with playing just a partial role in the whole production chain, but mostly inclined to the domination of the whole production in order to retain the largest portion of the profit. A typical Chinese way of doing business therefore stretches itself in a more horizontally organized mode than a hierarchical one as it does in Japan. Thus there might be numerous factories making virtually the same products but none of them with top quality. On the individual basis, a Chinese business might be a fierce competitor, but the industry as a whole is not competitive because of the lack of discipline and coordination among its members who are not able to move and attack like an army. Eventually most of them will find themselves hard to survive in the face of a ferocious international competition. This overlapping mode of production and investment often proves to be a big waste in natural resources and man power. One should not be misguided by the labels of “Made in China”, since in most cases; Chinese companies did not design the products, but only performed the last and least profitable part of the whole production chain: assembling and manufacturing. The core technologies related to research and design are in the hands of multinational corporations which, through patent rights and expensive technology transfer fee, also manage to keep the large portion of the profit. In these joint ventures, Chinese companies provide high quality but relatively cheap manufacturing facilities and skilled workers. In this scenario, the manufacturing equipments and facilities could quickly be rendered obsolete if designs or technologies shifted to different levels. All of these factors combined, low profit margin and cost in changing production facilities; further lower the profit of the manufacturing companies involved.

In reflection to the perspective mentioned above, the more appropriated title for China’s industrial miracle ought not to be “The factory of world”, but “The assembly factory of world” instead. Given the situation of what China is facing, the shortage of natural resources and a worsening ecological health, shifting to a high value added production mode has thus become more and more urgent as time goes on.


Internationally recognized brand names are perhaps one of the most important benefits for successful enterprises to which most Chinese companies seem to have no access. A well established brand name reminds people the core value of corporate culture that defines what the business is really about, what it stands for. It’s more of a belief system than anything else. A brand name does not express itself only in a financial or marketing sense, although successful brand name does bring in good financial results. Intuitively, it is about creating a sense of value for customers through a unique image. Intuitively, brand name goes hand in hand with a commercial culture in which it finds nourishing soil to grow and blossom. In China, a traditional agricultural society where commerce had never gained any significant social status, brand name is a rather alien term. Craftsman or merchant has traditionally been deemed as an occupation unworthy of the talented minds. Commercialism therefore never received sincere endowment from the dominating philosophy in Chinese culture: Confucianism, a moral system which wholeheartedly stressed on the importance of filial-piety and austerity. Absolute royalty to the Emperor and a kinship oriented culture preached by Confucianism had successfully prevented merchants and craftsman from organizing themselves into a Western like class with substantial political influence in traditional Chinese society. The basic rules and practices, such as financial credibility and jurisdictional protection on private property, that were essential to the proper functioning of a commercialized society, withered easily in an environment like this. The political implication of the existence of a commercial class could be detrimental to the stability of the regime. So long as China still cherishing itself in this government on top of society structure, a genuine commercialism and corporate culture could hardly sprout. It takes Western society a few centuries to nurture a sophisticated corporate culture as it is today; for China to reach a similar level there is still a long way ahead.


To take one step further, the existence and wellbeing of a commercialized society ultimately depends on the degree to which a culture values the spirit of individualism. When asked what makes Harley-Davidson such an unchallengeable icon in the motorcycle industry, the response from its executive sounds rather surprising and yet quite inspirational: “It is not the words or phrases from corporate mission statement or the images from advertisements. But a personal experience of riding on one of these rigs on the street, from the resounding noise of its rumbling engine there arrives the feeling that is nothing but that of the Harley-Davidson’s.” This zealous manifestation of its own identity and nearly scrupulous emphasis on craftsmanship are the real substance which gives birth to a great brand name, or a work of art. This feeling is yet being fully appreciated or understood, let alone being put into practice by most Chinese businesses. The absence of zeal in individualism may be one reason that hampers Chinese businesses to gain a strong foot in world market with solid brand names. The lack of a legal environment upon which a fair and honest business practice is based might be another. It is rather hard for a brand name to survive in a business environment which habitually does not respect intellectual property rights. If stealing and imitating are short cuts for success, why bother to spend millions on R&D? It is not as difficult to give birth to products as to help them grow free from the harms of their numerous imitators.

Chinese government, facing an ever deteriorating business environment, is struggling hard for a solution, and is urging companies to engage more in innovative and value added activities. Clearly cheap imitations and sheer assembly works have no future as the resource and environmental factors being taken into account. China may no longer be able to get away with the easy works of duplicating and cloning any more, it must show some talents in creating value in order to survive and exult itself into a higher level in this ever changing business arena. Innovation has been a buzz word nowadays as Chinese government keeps intensifying its rhetoric campaign urging for a better business environment. The true solution, however, rests not on passionate rhetoric of an innovation in a technical sense, but on an innovation in brainpower instead. Technology advance and financial strength are important but not essential, since they alone are unproductive without the guidance of right strategy and management. What really matters is not the superficiality but the substance, the culture, the people, the principles, the practice, and ultimately the configuration of all these elements.

Anyone who is familiar with Chinese educational system must be utterly impressed by its emphasis on memorization and technical aspects of the subjects. It habitually seldom encourages students to develop a mindset that leads to risk taking and proactive activities. Effective business education, on the other hand, is supposed to provide students with opportunities to engage themselves in real situations where they could use practical knowledge to solve problems they might be facing in the work places. Chinese business education including MBA program is still considered for the most part as a pure academic subject, whereas in fact it should be a mixture between practice and academy, or a cross functional field of studies between art and science. The goal of managerial education is not to train good technicians or clerks. It is aimed at providing society with leaders and managers who could do right things and make things happen. It is hard to reach this goal if there is not a clear defined mission and right strategy. For Chinese business education to play its role, perhaps more thoughts should be given to its overall philosophy and direction rather than superficial aspects such as textbooks or language requirements etc.

As world enters into the new century of information explosion unprecedented in the history, the future of business world seems, like never before, resting itself pivotally on the quality of knowledge workers. Although claiming to be a marketing economy with this distinctly “socialist characteristics”, business executive, nevertheless, is still a rather new thing to the Chinese business world both in concept and in practice. It is not tricks or “being smart” that makes one a good business executive. It certainly has nothing to do with these Hollywood images of fabulously dressed people living in an extravagant life style and riding on limousines. What it takes is a mindset of discipline and consistency to allow one doing the right thing and doing it effectively.

Management theory and practice must be examined in the context of the necessary cultural environment in order to make a good sense. Whatever theories and practices in management that are intended to be implanted in Chinese business soil must be first digested and understood through this complicated Chinese cultural paradigm, or they won’t be fruiting at all. It is interesting to see how China, with all its glorious cultural heritages and histories, having experienced some of the most infernal ordeals world history could ever present, will once again transform itself in our time. This unprecedented transition would be meaningless unless grounded itself on the two fundamental Western elements, namely, Capitalism and marketing economy. Yet how could this transition be a peaceful and productive one is the focal point of the attention for all Chinese watchers, business and political alike.