Doing Business in China:

Opportunities and Challenges

Enping Zhuang Shanghai University enpingz@hotmail.com 22nd March, 2012

Opportunities:Shanghai Strategic Mission before 2020

To build “four international centres Shanghai international economic centre Shanghai international trade centre Shanghai international financial centre Shanghai international shipping centre

Collaborations between/among countries at different levels

Business corporations

International business

Education collaboration

Challenges What is the problem in the age of globalization

1. Cultural differences / cultural conflicts

Cultural differences are unavoidable

Cultural conflicts can be avoided

2. Communication or effective communiction

3. Intercultural competence

IC Competency Model for Global Managers (MAKS-Model)

Intercultural Competence

Global

Mentality

Knowledge

Cultural

Adaptation

Communication

Skills

CultureCulture--General

Intercultural Awareness

Flexibility PsychologicalAdaptation

Communication skill

Nonverbal Communication

skill

Communication strategy

Intercultural Perspective

cultureCulture--Specific

M: Mentality A: Adaptation K: Knowledge S: Skills

History Politics

Religion system

Value Norm

CustomWay of thinking

Communication style

Intercultural Appraoch

Culture is like an iceberg

Culture A Culture B

A

A B

B

Similarity or DifferenceFrom

Little

to

Much

Management Approach

East and West

East and EastWest and West

Beliefs

Beliefs

ValuesValues

Perception

Ways of thinking

Culture A

Culture C(Culture synergy)

Culture B

Perception 　

Communication StyleCommunication

　　 style

Ways of thinking

Intercultural Approach

A B

Conflict zone

Different communication styles

♦ Direct and indirect / Explicit and implicit

♦ Verbal-based understanding

♦ Context-based understanding

♦ Speaker oriented communication style

♦ Listener- oriented communication style

Different ways of thinkingDifferent ways of thinking

Chinese English

Chinese & Korean English Spanish/Latin Russian

Analytic Way of Thinking Holistic Way of Thinking

♦ Think from specific to general

♦ Think from general to specific

Situations

Writing

Speech

Communication

Discussion

Business Negotiation

Performance Evaluation

Look what went wrong with global M/A ◆ Approximately 65% to 85% of mergers fail. A failure to develop and execute an appropriate post-merger integration (PMI) strategy. (L.J. Bourgeois, Lipi Patel, 2009) ◆ Harvard Business Review claims 70% of major acquisitions fail (David Harding, Sam Rovit, 2004)

◆ Pekala (2001) discovers that cultural integration is ignored in the majority of business combinations. This is a major reason why 60 percent to 80 percent of all business combinations undergo a slow, painful demise

◆ By some estimates, 85 percent of failed acquisitions are attributable to mismanagement of cultural issues.

(Roger Miller,2000)

◆ But how you handle cultural integration can make or break the deal. (Till Vestring, Brian King, Ted Rouse, 2003 )

What’s Wrong with the U.S. Best Buy

Best Buy, the America's largest consumer electronics retailer, closed its branded stores in China in February 2011 after its operation of 7 years.

Bust Buy intends to reopen its stores in 2012

　

Best Buy’s Failure in China

Management failure or culture integration failure?

Why Best Buy is successful in the US, but failed in China?

Should the prices be higher than competitors’

The main reason for its failture:

It adopted all the American’s management style and practice in China:

1. It employed all its staffs

2. Customers are given the freedom to look at all the

products without interference from an employee? 

3. It’s more expensive than its Chinese competitors’

Conclusion Best Buy culture or management style does not fit the

Chinese culture: management, customers and market Suggesetions♦ Best Buy should not change its name Best Buy into Chinese

name like Five Stars♦ Best Buy should not adopt all the Chinese retailor’s

management style♦ Best Buy should integrate Chinese culture with Ameican

culture in its management

Only in this way can Best Buy take up the Chinese market share

Geely-Volvo Acquisition

The Geely-Volvo deal was closed on August 2, 2010

Intercultural communication between

Volvo Chairman Lee Shufu

Volvo CEO Stefan Jacoby

Pre-merger phase and post-merger phasePre-merger phaseInterest

Market

Products

Technology

Human resources

Organization structure

Post-merger phase: Cultural integration

Integration of corporate cultures

Integration of national cultures

Post-merger issues:

People and communication

Potential problems Lee made the following promises in order to make

the deal Promise not to lay off people Promise that Volvo management has its own

autonomy, namely, Geely would not send Geely people to be involved in Volvo management

The relationship between Geely and Volvo is like brother to brother relationship

Eager to make profits as soon as possible 1.Make quick decisions 2.Start (mass) production soon 3.Expansion

Global Merger and Acqusition Is Like a

Cross-cultural Marriage

Question:

What might be the problems between the husband

and wife in their daily life?

Mutual respect and trust

Adaptation to each other

Effective communication

What problems are they facing:

Management problem?

Cultural problem? Ambiguous answer

Communication problem? Effective communication

Post-merger issues: cultural integration

People and communication

Intercultural Awareness

InterculturalSkills

Strong　

Strong　

Weak　

Management 　　 Failure

Happy Marriage

At the crossroad

Culture headache

Long time integration

Why global companies failed Firstly, managers focus on management practices Secondly, they admit that there are cultural differences in

their management, but they only identify those visible cultural differences such as differences in social systems, business rules and regulations, management practice, HR management

Thirdly, they claim they could manage international companies as they have had experience

Fourthly, minor cultural differences would not matter (between Asian cultures or European cultures)

Attitude toward Cultural Differences

Cultural Differences are double-edged swords Cultural Differences when ignored can contribute to a failure

in intercultural management because they can lead to cultural conflicts

Cultural Differences when well managed can increase your competitiveness in intercultural management because they can provide an intercultural perspective to make a judgment

Competencies for Global Managers Technical competency Managerial competency　 Intercultural competency　

Culture C is the core value or working principles for all staff in the new company to follow in their management:

How to communicate with each other How to perceive staff’s job performance How to respond How to present your views (direct or indirect) How to solve problems in the workplace (avoidance or confrontation) Culture C is neither Culture A dominance nor Culture B

dominance Culture C should be accepted by Culture A people and

Culture B people when they work together

Q & A

Thank You

for Your Attention