MBL - Master Final Version 31.08.2011 by Qeis Kamran

Executive Master of European and International Business Law of the University of St.Gallen M.B.L.
-HSG
Running Multinational Corporation (MNC) in China

A survivalkit for Western CEOs
Author Qeis Kamran, BA, MBA- GM, MBA-PPM, PhD. Candidate qeiskamran@aol.com
Supervisor: Prof. Dr. Dr. h.c. HSG Helmuth Schrter Universitt des Saarlandes St. Gallen, August 2011
Executive Master of European and International Business Law of the University of St.Gallen M.B.L.-HSG
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
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 () ............................................................................................................. 45 2.9 Special leadership needs in China............................................................................... 47 2.10Unique 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
List of Abbreviations
BATNA BA BRIC CSQs EU GS IP JV MOU MNC p. P&L PWC PRC PNAC ROC S&P's VSM The Best Alternative to a Negotiated Agreement Business Administration Brazil, Russia, India and China Critical Success Qualities European Union Goldman Sachs Intellectual Property Joint Ventures Memorandum of Understanding Managing Multinational Corporation Page Profits & Losses PricewaterhouseCooper Peoples Republic of China The Project of Americans New Century Republic of China Standards & Poors Viable System Model
WTO
World Trade Organization
Sources
Amber, Tim, Morgan Witzel, Doing Business in China, London, New York, Routledge 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, 19751994 Charan, Ram, Know- How, The 8 skills that separate people who perform from those who dont, 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
Geren, Brenda L., The Chinese Work Ethic: Significance Of Confucianism, Melbourne, http://www.wbiconpro.com/436-Brenda.pdf, 2011 Grey, John, False-Dawn-Delusions-Global-Capitalism, London, Granta Publications, 19992009 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 Kamran, Qeis, Management by Deception (MBD): The Need for Designing, A Viable Strategy, Riga, Latvia, University of Latvia Department of Management and Economics Publishing, 2011 (Conference Research Presentation) Kissinger , Henry, On China, New York, Penguin Press, 2011 Lane, David and Maxfield, Robert, Forsight, Complexity and Strategy, New Mexico,http://www.santafe.edu/media/workingpapers/95-12-106.pdf, 1995 Lieberthal, Kenneth, G. Managing the China Challenge How to Achieve Corporate Success in the People's Republic of China; Washington, Brookings Institution Press, 2011 Lieberthal Kenneth, Lieberthal Geoffrey, The Great Transition, Cambridge, MA, Harvard Business Review on Doing Business in China, 2004 Luo, Yadong, Guanxi: Principles, philosophies, and implications, Human Systems Management, 1997,16, 1, ABI/Inform Global, pg. 43, 1997 Malik, Fredmund, Effective Top management, Beyond the Failure of Corporate Governance and Shareholder Value, Weinheim, Wiley Verlag GmbH& Co. 2006 Malik, Fredmund, Strategie des Managements Komplexer Systeme, Ein Beitrag zur Management- Kybernetik evolutionrer Systeme, Bern, Haupt Verlag, 1977-1984
Moffitt, Michael, L. and Bordone, Robert, C. The Handbook of Dispute Resolution, A Publication of the Program on Negotiation at Harvard law School, San Francisco, Jossy- Bass, A Wiley imprint, 2005 Plafker, Ted, Doing Business in China, How to profit in the Worlds Fastest Growing Economy, New York, Boston, Warner Business Books, 2007 Porter, Michael, The Competitive Advantage of Nations, New York New York, Simon & Schuster Inc. 1990 Schweller Randall L. and Pu, Xiaoyu "After Unipolarity: China's Visions of International Order in an Era of U.S. Decline," International Security, Vol. 36, No. 1 (Summer 2011), pp. 41-72 Tappin, Steve; Cave Andrew, The Secrets of CEOs- 150 Global Chief Executives lift the lid on business, life and leadership, Nicholas Brealey Publishing, Boston Massachusetts, 2008 Telhami, Shibley, Exporting Democracy to the Middle East, http://www.brookings.edu/articles/2007/spring_middleeast_telhami.aspx, 2007 Tullberg, Jan, Trust The importance of trustfulness versus trustworthiness, Stockholm, The Journal of Socio-Economics 37 (2008) 20592071, 1053-5357/$ see front matter 2007 Elsevier Inc, doi:10.1016/j.socec.2007.10.004, 2008 Yueh, Linda, Re-balancing China: Linking Internal and External Reforms, Stanford University John A. and Cynthia Fry Gunn Building, 366 Galvez Street Stanford, CA 94305-6015, Stanford Center for International Development Working Paper No. 441 Wang Yuan, Zhang Xin Sheng, Goodfellow Rob, China Business Culture, Strategies for Success, Singapore, Talisman Publishing Pte Ltd, 2003
Xiao Ping, Deng, Selected Works of Deng Xiao Ping, Volume III, Beijing Foreign Languages Press, 1994
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Internet sources
Jacques Martin Talk on TED, Understanding the rise of China http://www.ted.com/talks/martin_jacques_understanding_the_rise_of_china.html (URL: 19.05.2011; 17:31 pm) http://optank.com/200/rise-of-china-new-world-order/(URL: 19.05.2011; 18:45 pm) http://money.cnn.com/2011/01/18/markets/bondcenter/treasuries/index.htm?iid=EL (URL: 21.06.2011; 17:56pm) / MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (in billions of dollars) HOLDINGS 1/ AT END OF PERIOD http://library.thinkquest.org/12255/library/dynasty/qin.html (URL: 26.06.2011, 14:30pm) Lapres, Daniel Arthur; Yuejiao Zhang, Introduction to Chinese Legal environment, URL: http://www.iccwbo.org/uploadedFiles/Bookstore/Business%20Law%20in%20China%20%20Introduction.pdf (12.07.2011; 15:57pm) http://money.cnn.com/2011/01/18/news/international/why_china_matters/index.htm (URL: 12.07.2011, 17:22 pm) http://globalization.icaap.org/content/v7.1/AqueilAhmad.html (URL:23.07.2011, 14:15 pm) http://www.thejakartaglobe.com/business/chinas-heavyweight-rd-spending/420444 (URL: 23.07. 2011, 16: 48 pm) China's Heavyweight R&D Spending,
J. Berthelsen | February 02, 2011
http://www.economist.com/theworldin/2005, The Economist, The World in 2005, p. 49 (URL: 23.07.2011, 18:23 pm)
http://www.rdmag.com/Feature-Articles/2010/12/Policy-And-Industry-Government-Funding-2011Global-RD-Funding-Forecast-The-Globalization-Of-RD/ (URL: 23.07.2011, 19:54 pm)
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http://www.rdmag.com/Featured-Articles/2009/12/Policy-And-Industry-Global-Funding-ReportEmerging-Economies-Drive-Global-R-D-Growth/ (URL: 23.07.2011, 20:41 pm) http://www.beyondvc.com/2006/09/globalization_a.html (URL: 02.08.2011, 10:32 am) http://www.geert-hofstede.com/hofstede_china.shtml (URL: 03.08.2011, 20:30 pm) http://blog.ted.com/2006/10/18/un_secretarygen/ (URL: 04.08.2011, 11:15 am)
http://www.economist.com/blogs/buttonwood/2011/08/debt-ceiling-crisis-1 (URL: 07.08.2011) http://www.bbc.co.uk/news/technology-14273444 (URL: 08.08.2011, 7:53 am) http://www.chinaipr.gov.cn/policyarticle/policy/documents/201005/648734_1.html / 2010-0506 13:15:59 Source: China IP News (URL: 08.08.2011, 8:48 am) http://www.apeccp.org.tw/doc/China/Competition/cncom1.html (URL: 08.08.2011, 9:13 am) http://www.winston.com/siteFiles/Publications/Antitrust_Briefing_08_01_11.pdf (URL: 08.08.2011, 10:00 am) http://uchicagolaw.typepad.com/faculty/2008/08/chinese-antitru.html (URL: 08.08.2011, 14:49 pm) http://www.booz.com/media/file/China_Consumer_Market_Strategies_2011.pdf (URL: 08.08.2011, 19:08 pm) http://doc.research-andanalytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=8684 01151&serialid=r7kMUpQCqCnteUW1pCxd06iQcP0dqtQI71GiA0MyDFs%3D (URL: 08.08.2011, 19:08 pm) http://www.masterclassmanagement.com/Marketing_Mix_4_Ps.jpg (URL: 09.08.2011, 9:44 am)
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Executive summary
Chinas 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 (MNCs) 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 CEOs, top managers and company presidents operating in todays and futures China. In addition, to underpin and substantiate the claim of Chinas 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 worlds factory. It has the potential to reshape the landscape of global business and creating an environment of fierce competition between MNCs. 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 CEOs experiences and the gained best practices for MNCs 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 worlds 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 worlds 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 worlds most
1 2 3 4
Cf. Yueh, 2011, p.1 See: Jacques, 2010, TED Talk, www.ted.com/talks See: Jacques, 2010, TED Talk, www.ted.com/talks The Project of New American Century (PNAC) is a new conservative think tank based in Washington D.C. 14
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 Wests 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 6
Donnelly, 2000, preface after Wolfowitz, et al, 2000, p. II /PNACS founding principles The current coalition against Libya and the past coalition of the willing against Iraq reflects this point 15
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
Dengs 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 Chinas 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 8
Xiao Ping , 1994, p.361 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 16
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 worlds largest economical super power.9 However the degree to which some changes may occur in real terms, are a lot more dependent on the Wests 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 CEOs 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 Wests 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/ See: http://optank.com/200/rise-of-china-new-world-order/ Cf. Jacques, 2009, p196 See : money.cnn.com The term was coined by the Grand Strategist Zbigniew Brzezinski, who also emphasized that for America The Chief
10 11 12 13
geopolitical price is Eurasia (Brzezinski;1997)

14
See: Jacques, 2010, TED Talk, www.ted.com/talks 17
function in the dynamic and fast pacing Chinese environment. This illusion that, as countries modernize, they also westernize15 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 organizations 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
15 16
See: Jacques, 2010, TED Talk, www.ted.com/talks 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 18 19 20
Cf. Malik, 2006, p.10 Cf. Beer, 1975-1994, p.15 The author is referring to a war, where the rival is known and the organization is of a temporary nature and time Unless we declare a war on terror 18
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 Wests general addiction not only to oil but to cheap labor; its 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 22 23
Cf. Beer, 1975-1994, p.15 Cf. Porter, 1990, p. xxiii Cf. Scheweller, Pu, 2011, p.1 19
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 years 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 Lenevos takeover of IBMs 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, MNCs dependent on Chinese governments 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 todays thinking unthinkable, if it brings the MNCs 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 25 26
Wang, et al, 2007, p. xiii See the US domestic industry resembling a very poor quality standard Grey, 2009, p. xviii- xix 20
The authors description of the Wests 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) worlds brain power drain, which was originally attracted globally to Wests 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 Dubais 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 authors 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 21
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 (221206 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 30 31
Cf. Jacques, 2009, p75 Cf. http://library.thinkquest.org Cf. Jacques, 2009, p75 22
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 Wests 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 its hand on it.32 Here we see the key why Chinas 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.
32
See: Jacques, 2010, TED Talk, www.ted.com/talks
23
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.
33
See: Jacques, 2010, TED Talk, www.ted.com/talks 24
1.3 The Chinese business and legal environment

A nations 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 1800s. The turn of the twentieth century marked by the foreign pressures and domestic socioeconomic unrests the need for a social change in Chinas 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 (16161911) 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 Qings 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 Qings codes and decrees creating a warlord autocracy.36 It was in 1927, when the government made a reevaluation of the Qings 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 Nationalists 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 35 36 37
Cf. Lam, Graham, 2007, p.86 Cf. Lam, Graham, 2007, p.87 Cf. Lam, Graham, 2007, p.88 Cf. Lam, Graham, 2007, p.88 25
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 Nationalists 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 Chinas 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 nations 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 (19661976) 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 socioeconomical 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 Chinas 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
38 39 40
Cf. Lam, Graham, 2007, p.88 Cf. Lam, Graham, 2007, p.89 Cf. Lapres; Yuejiao, p. 9, www.iccwbo.org
26
rule of law. The 17th National Congress in 2007 was marked by the Communist Partys 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 bachelors degrees in law to some 300,000 students majoring in the subject. Some 333 institutions awarded masters degrees in law and 29 doctorate degrees. The 2008s report on Chinas Efforts and Achievements in Promoting the Rule of Law, the State Council reaffirmed the countrys commitment to the rule of law as Chinas 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 Chinas 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 42
Cf. Lapres; Yuejiao, p. 9, www.iccwbo.org 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. 27
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. Todays 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 44 45 46
http://money.cnn.com Ray Noorda is the founder of Novell Cf. www.thejakartaglobe.com See Appendix I global R&D forecast 2009-2011 28
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 worldleaders 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
29
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, lets 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 Soviets 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 49 50
Ahmad, 2008, p.1 As Rumsfeld called it the New Europe Ferguson, 2011, p.1, www.newsweek.com 30
West look not only inexperienced51 but moreover it disgusted Wests 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 Wests 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 worlds 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 MNCs competitiveness in China and additionally in India and other emerging countries. Furthermore, business strategies should go towards dealing with the competition of Western MNCs and the Chinese domestic, for world resources they will require and markets they ought to additionally penetrate to develop a map of their business interests grand strategy. Developing the right products at the right time and staying ahead of the demand in the product- making strategy is
51 52 53 54 55
This fact was commonly known prior to his election Ferguson, 2011, p.1. www.newsweek.com Cf. Ferguson, 2011, p.1. www.newsweek.com Precisely 40 years after the 1962 war The Economist, The World in 2005, p. 49 31
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 Chinas annual growth rate for a generation, taking its GDP to more than $120 trillion by 2040.57
56 57
Cf. www.rdmag.com Cf. www.rdmag.com 32
Figure 7: Worlds 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
33
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 CEOs 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 (CSQs), which are required for survival and companys prosperity in China. (Fernandez; Underwood 2006) emphasize that CSQs 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 CEOs 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) 34
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 todays 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- 19702001). (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 35
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 CEOs worldwide. Their research reveals that top CEOs 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 61
Tappin, Cave, 2008, p.3ff Cf. Fernandez, Underwood, 2006, p.5 36
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: Chinas not really very important to our business right now, Id like it to be but its 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 MNCs operations. The China CEO is highly advised to create a team
62 63 64
Cf. Fernandez, Underwood, 2006, p.6 emertel.wordpress.com To what extend China will adapt Western, capitalistic, business law and business environment models is not certain. 37
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 worlds 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
38
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 wont 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, CEOs, who are in charge of running MNCs 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 66 67
Fernandez, Underwood, 2006, p.11 Cf. Tappin, Cave, 2008, p.143 Cf. Tappin, Cave, 2008, p.143 39
of a CEOs personal qualities. He wants to make a significant personal difference and at the same time makes vital and great contributions to all the companys 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 MNCs 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 customers organization (customers customers and suppliers [also own] or other key stakeholders) will give the global
68 69 70 71
Cf. Tappin, Cave, 2008, p.143 See page for more details Cf. Charan, 2007,p.3 Cf. Charan, 2007,p.3 40
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 CEOs 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 todays Chinas 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 Chinas rivers and
other crises of human labour, Child labour abuses of their suppliers create a strong crises for the firm.
73 74 75 76 77
Cf. Charan, 2007, p.3 Cf. Charan, 2007,p.3 Cf. Charan, 2007,p.3 Cf. Fernandez, Underwood, 2006, p.14 Fernandez, Underwood, 2006, p.11 41
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 longrun. 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 countrys 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 GEs Steve Schneider: Thats 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.
78 79 80
Cf. Fernandez, Underwood, 2006, p.11 Fernandez, Underwood, 2006, p.15 Cf. Fernandez, Underwood, 2006, p.14-15
42
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 patience84 and he further states that Dont think that one week, one month or even one year you can understand China very well.85 In deed China is a time
81 82 83 84 85
Fernandez, Underwood, 2006, p.17 Cf. Fernandez, Underwood, 2006, p.19 Fernandez, Underwood, 2006, p.18 Fernandez, Underwood, 2006, p.19 Fernandez, Underwood, 2006, p.19 43
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 isnt 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.
86 87 88
Fernandez, Underwood, 2006, p.19 Cf. Fernandez, Underwood, 2006, p.21 Fernandez, Underwood, 2006, p.22
44
2.8 Guanxi ()
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 1980s 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 studys 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 marketings 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 90 91 92
Cf. Fan, 2002, p.3 Cf. Lou 1997, 43 Fan, 2002, p.3 Tsang, 1998, p. 64 45
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 ones 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 MNCs, 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 94 95 96
Tsang, 1998, p. 64 Cf. Dunfee, Warren, 2001, p.1 Cf. Dunfee, Warren, 2001, p.1 Cf. Dunfee, Warren, 2001, p.1 46
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, youre 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 dont 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/Leninist97 98 99
Fernandez, Underwood, 2006, p.1 after Dr. Gary Dirks President and CEO of British Petroleum China Gallo, 2008, p.1 Cf. Gallo, 2008, p.1 47
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 managers 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 Zis (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."
100 101
Cf. Ralston, et al, p.3 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)
102 103
Sun Tzus book is the oldest military treatise in the world. Gallo, 2008, p. 6 48
(PDI) Power Distance Index (IDV) Individualism
(MAS)
Masculinity (UAI) Uncertainty Avoidance Index (LTO) LongTerm Orientation
See also Appendix III for details

Figure 10: Geert Hofstedes cultural dimensions Source: http://www.geert-hofstede.com
Hofstedes research can be applied by the China CEO to have an understanding of the Chinese society, culture and other additional societys 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 companys 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
49
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 democracyprotection 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 Coyne, 2008, p. 11 www.brookings.edu Christopher J. Coyne blog.ted.com, See also Ashraf Ghani on TED talk. 50
105 106
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 ( ) Wu, which means very deep insight, is a competency, which many Chinese leaders refer to and assume that it is highly unlikely of a Westerners 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
107 108 109 110
This view is in contrary to the other view of maintaining a high degree of relationships with other stakeholders Cf. Gallo, 2008, p.57 Cf. Gallo, 2008, p.57 Cf. Gallo. 2008, p.59 51
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 ( ) 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
111 112 113
Cf. Gallo. 2008, p.59 Cf. Gallo, 2008, p.60 Cf. Gallo, 2008, p.61 52
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. Beers 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
114 115
Gallo, 2008, p. 63-64 Cf. Gallo, 2008, p. 65 53
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 selfs and/ or an opposed partys 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 winwin 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
116 117 118 119 120 121
Cf. Patton, 2005, p.279/ See also (Moffitt and Bordone 2005) Cf. Malik, 1974, p. 229 See also: Finagles Law Used as a cybernetic term, means; navigating Ury, Fisher and Patten, 1991, p. 97 Used as a cybernetic term, means; number of possible states for an organizations system to be under control Cf. Lam, Graham, 2007, p.141-142 54
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 ones family or extended (Quandi Guaxi) or familys 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 firms 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 Cultures 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-
122 123 124 125 126 127
Cf. Lam, Graham, 2007, p.141-142 Cf. Lam, Graham, 2007, p.152 Blackman, 1997, p.10 Cf. Blackman, 1997, p. 10 Cf. Blackman, 1997, p. 10 Cf. Blackman, 1997, p.12 55
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 persons 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 56
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 CEOs 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 MNCs 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 CEOs 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
129 130
Hexter, Woetzel, 2007, p. 15 Cf. Hexter, Woetzel, 2007, p. 15 57
agendas on a broader basis. Here experienced CEOs 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

Thats 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 authors 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 operations 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
131 132 133
Kissinger, 2011, p.402 quoting Deng Xiaoping Cf. Kissinger, 2011, p.529 The author uses control as a companys ability to maintain its strategic supremacy over competition 58
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 Chinas 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 MNCs senior managers of the evolving Chinese opportunity and how the Chinese political system really operates and interacts with the countrys 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 countrys people and their government. Most of this relationship gets polished by the Western monopolistic and propagandistic media conglomerates as the Berlusconis media in Italy and Murdochs 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 Chinas reemergence as a premier civilization that is both wealthy and strong.137 It is important, therefore, to look to Chinas past to understand its current core goals for the present and future. Using American or Western assumptions to
134 135 136 137
Cf. Lieberthal, 2011, 149.pp, www.brookings.edu Cf. Lieberthal, 2011, 149.pp, www.brookings.edu / Means; Chinas political economy The author is not praising or in any sort of way sympathising with the Chinese political system or its human right record. Cf. Lieberthal, 2011, p.2 59
understand Chinas aspirations will prove of very limited utility, as this can obscure the central objectives that are the product the countrys 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
Chinas 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 MNCs 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 Wests 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 civilizations and religions 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
138 139 140
Lieberthal, 2011, p.2 Cf. Lieberthal, 2011, p.2 Cf. Lieberthal, 2011, p.2 60
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 Wests 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.
141 142
Lewis, 2010, p.19 Lewis, 2010, p 19 61
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.
143 144
Lane, Maxfield, 1995, p.1 Lane, Maxfield, 1995, p.1 62
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 CEOs 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 63
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 dont 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
146 147 148 149 150 151
Gallo, 2008, p. 91 Gallo, 2008, p. 91 Cf. Tullberg, 2008, p. 2063 Tullberg, 2008, p. 2063 Tullberg, 2008, p. 2063 Gallo, 2008, p. 91-92 64
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 societys 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
152 153 154 155
Cf. Gallo, p. 92 Cf. Wang, Zhang, Goodfellow, 2007, p. 20-21 Geren, 2011, p. 5 Geren, 2011, p. 1 65
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 crossfunctional 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 CEOs 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 CEOs in China understand that at every stage of the companys 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
156 157 158
Gallo, 2008, 147 Cf. Liberthal, Lieberthal, 2004, p16 Cf. Liberthal, Lieberthal, 2004, p17 66
their task a success. At the next stage of companys growth and development, which is prolonged, complex and requires different managerial talents, the small operation of the startup 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 companys 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 governments 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 JVs 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
159 160 161 162
Cf. Liberthal, Lieberthal, 2004, p17 Cf. Liberthal, Lieberthal, 2004, p17 Ambler and Witzel, 2000, p. 83 Ambler and Witzel, 2000, p. 83 67
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)
Chinas 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 lets 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
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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 Peoples 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 Yorks 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
163 164 165
Lieberthal, 2011, p. 6 www.economist.com Cf. Lieberthal, 2011, p. 6 69
examples of the todays 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 Chinas 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 companys 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
166 167 168
Cf. www.guardian.co.uk www.guardian.co.uk Cf. Fernandez, Underwood, 2006, p. 234 70
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 companys 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 MNCs operating in China. Facing fellow MNCs or global rivals is also in a state of change in China. MNCs 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 MNCs 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 MNCs 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 72
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&Ds 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 (IPRs) 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 CDs, DVDs and software are illegal. Its the worlds second largest PC market, but only the 25th largest for basic software.
171 172
Cf. van Agtmael, 2007, p. 56 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 IPRs 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
173 174 175 176
CF. Plafker, 2007, p. 70 www.bbc.co.uk Cf. cipnews.com.cn www.chinaipr.gov.cn 74
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. AICs 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 AICs 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
177 178 179 180
www.chinaipr.gov.cn www.chinaipr.gov.cn CF. Plafker, 2007, p.76 www.apeccp.org. 75
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 Chinas 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 Justices 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
181 182 183 184
www.apeccp.org. Gerber, 2004, p. 316-317 Gerber, 2004, p. 316 www.winston.com 76
significant step in Chinas 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 MNCs 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 Peoples Republic of China (PRC) signed a Memorandum of Understanding (MOU) for the purpose of fostering
185 186 187 188 189 190
uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com 77
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 worlds 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, MNCs and Western CEOs 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 worlds fastest growing market to attract and to understand the Chinese consumers. The American Chamber of Commerce in Shanghai
191 192 193
www.winston.com www.winston.com CF. Plafker, 2007, p. 70 78
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 MNCs 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 79
The MNCs must maintain a solid balance between their success to the success of their Chinese rivals performance in meeting the customers demands. 195
Figure 14: Chinese and MNCs 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 MNCs 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 MNCs 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.
195 196 197
Cf. www.booz.com Cf. www.booz.com Cf. www.booz.com 80
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 consumers 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)
198
Cf. www.booz.com 81
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 consumers savings ratio, which seems to be the lowest Source: Source: doc.research-and-analytics.csfb.com
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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 83
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
200 201
MSCI is a global benchmark Cf. www.booz.com 84
Figure 19: Reveals the top 3 actions the domestic and MNCs 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 todays marketing in China still lay in Maos 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 Chairmans famed ideology of the
202 203 204 205
Cf. booz.com Cf. Wsng, 2008, p.5 Cf. Wsng, 2008, p.1 Mao-speak is a reference to George Orwells 1984 roman. Newspeak was the official language of a totalitarian regime. 85
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 (Bobos) 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 Ps (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 4Ps 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
206 207
Cf. Wsng, 2008, p.1 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) 86
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 & Poors (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
208 209 210
Cf. money.cnn.com money.cnn.com money.cnn.com 87
expatriates support hotline: For the husband, his life doesnt 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 dont 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 companys success with his success at home. In some MNCs, 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 CEOs 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.
211 212
Cf. Fernandez , Underwood, 2008, p. 235 Fernandez , Underwood, 2008, p. 237 88
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 MNCs 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 89
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 openminded 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 authors 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 authors 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 superpowers 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
214 215
Jacques, 2009, p. 433 Cf. Schweller, Pu, 2001, p.1 90
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&Ps, to call for a new global currency reduces the gap between the worst scenario manifesting for the Wests 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 investors 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 Lehmans 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 Chinas 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 Chinas 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 companys favor. Decisions must serve the need of the firms strategic position of today and
216
Cf. Jacques, 2009, p. 434 91
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 firms 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 Wests 2008 crises and constant struggle for stability. In this era businesses and MNCs 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.
92
Appendix
Appendix I
Source: International Monetary Fund, R&D Magazine, Battelle, http://www.battelle.org

93
Appendix II
Summery of existing Guanxi studies, Source: Fan, 2002

94
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
95
Appendix IV The demographics of the new Chinese consumer
96
Question: Which consumers do you think will be most impacted by this consumer trend?
Source: www.booz.com
97
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 havent cited. St. Gallen, Date: 15.08.2011 Signature: Qeis Kamran
98

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

Running Multinational Corporation (MNC) in China

3.5 Teamwork ................................................................................................................... 65 3.6 Making it work in China ............................................................................................. 66

World Trade Organization

geopolitical price is Eurasia (Brzezinski;1997)

See: Jacques, 2010, TED Talk, www.ted.com/talks 17

and is currently pursuing his Ph.D in strategic management

1.1 Understanding China

1.2 History and culture

Used as a cybernetic term means Ability to navigate 21

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

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

See: Jacques, 2010, TED Talk, www.ted.com/talks 24

1.3 The Chinese business and legal environment

1.4 China and the rest, a broader perspective

Figure 6: Forecasted technical strength from 2010-2015 Source: www.rdmag.com

Cf. www.rdmag.com Cf. www.rdmag.com 32

Figure 7: Worlds largest technological gaining countries Source: www.rdmag.com

2. Qualities of a successful manager in China

2.1 Management expertise

2.2 Technical expertise

Tappin, Cave, 2008, p.3ff Cf. Fernandez, Underwood, 2006, p.5 36

2.3 Legal expertise

2.4 International expertise

2.5 Professional qualities

2.6 Professional global qualities

2.7 Personal Chinese- specific qualities

2.9 Special leadership needs in China

(PDI) Power Distance Index (IDV) Individualism

See also Appendix III for details

2.10 Unique leadership competencies in China

Gallo, 2008, p. 63-64 Cf. Gallo, 2008, p. 65 53

3. Communication, negotiation, and additional toolkits

122 123 124 125 126 127

Cf. Blackman, 1997, p. 24. ff 56

3.1 Strategy and execution in China

Hexter, Woetzel, 2007, p. 15 Cf. Hexter, Woetzel, 2007, p. 15 57

3.2 Managing the dragon

Lewis, 2010, p.19 Lewis, 2010, p 19 61

Lane, Maxfield, 1995, p.1 Lane, Maxfield, 1995, p.1 62

3.3 Human resources trends in China

Cf. Gallo, 2008, p. 71 63

152 153 154 155

3.6 Making it work in China

3.7 Business to government best practice

Lieberthal, 2011, p. 6 www.economist.com Cf. Lieberthal, 2011, p. 6 69

As China and its government look forward, therefore, they see

166 167 168

Cf. www.guardian.co.uk www.guardian.co.uk Cf. Fernandez, Underwood, 2006, p. 234 70

3.8 Working with business partners

Fernandez, Underwood, 2006, p. 63

3.9 Facing competition

Cf. Fernandez, Underwood, 2006, p. 119 72

3.10 Intellectual Property Rights in China

Cf. van Agtmael, 2007, p. 56 CF. Plafker, 2007, p. 70

CF. Plafker, 2007, p. 70 www.bbc.co.uk Cf. cipnews.com.cn www.chinaipr.gov.cn 74

3.11 Competition law in China

www.chinaipr.gov.cn www.chinaipr.gov.cn CF. Plafker, 2007, p.76 www.apeccp.org. 75

www.apeccp.org. Gerber, 2004, p. 316-317 Gerber, 2004, p. 316 www.winston.com 76

uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com uchicagolaw.typepad.com 77

3.12 Understanding Chinese consumers

191 192 193

www.winston.com www.winston.com CF. Plafker, 2007, p. 70 78