Business culture and environment differences between England and China

England - China

For managers conducting cross-border activity between England and China, there are a number of factors that should be considered. The differences between English and Chinese business culture are striking, and it is important to understand the nature of those differences and how they can affect business relations between the two countries. There are also significant differences in the economies of each country and again it is valuable for managers to understand these differences and how they may affect the business dealings between English companies and Chinese ones.

This report will analyze the differences between England and China from a number of perspectives. The first component of the report will focus on the macro-level environmental differences between the two, using the PESTLE framework as the basis of the analysis. The second component of the report will focus on the business culture of the two nations, including Geert Hofstede's cultural dimensions, Trompenaars cultural dimensions and the use of other cultural frameworks where additional light can be shed. The paper will conclude with a recap of the main differences between the two business cultures and some recommendations for English managers as to how best to approach cross-border activity between England and China. It should be noted that while the focus of the report will be on English managers, many of the statistics and coverage of these issues is focused on the United Kingdom. Likewise, "China" will refer to the People's Republic of China, excluding Taiwan, Macao and Hong Kong; the term "Chinese" will therefore focus on the PRC, primarily the Han majority.

PESTLE

In general, England's political climate is favourable to business. The nation has an open democracy and generally subscribes to liberalist political theory emphasizing personal and economic freedom as a mechanism to economic growth. U.S.-based think tank The Heritage Foundation (2011) compiles an economic freedom index, and the UK ranks 16th in the world, between the Netherlands and Finland. The UK is a member of the World Trade Organization, the European Union and many other multinational organizations that promote the reduction of trade barriers (CIA World Factbook, 2011). Despite being amenable to trade at the macro-level, the current UK political leadership has taken on policies that serve to reduce business confidence and harm the UK economy (Wood & Wachman, 2011). Given that political leaders seem intent of blaming the soft economy on situations like inflation that have only occurred recently after their spending cuts, a reversal of course to a more intelligent solution seems unlikely. The British political landscape is therefore currently poor for business.

The UK has the world's 9th-largest economy with GDP of $2.189 trillion in 2010. This is worth a GDP per capita of $35,100, which ranks 36th in the world (CIA World Factbook, 2011). The current estimates for GDP growth are 1.6% for 2010, following two years of economic decline. Government estimates for 2011 growth are now considered to be wildly optimistic (Wood & Wachman, 2011). The UK does not count China among its main export partners, but China is a significant import partner, accounting for 8.88% of imports to the UK, the third-highest figure for any country (CIA World Factbook, 2011).

The social environment is generally favourable in the UK. British citizens are in favour of trade in general, and have no significant objections to trade with China. In the difficult economic times low cost goods, in which China specializes, increase in appeal so the social environment is especially favourable at present for imports from China. The world's current technological environment is characterized by a rapid pace of change. The UK is one of the world's technology leaders, while China specializes in low-cost production of older technologies. China's technological capabilities are increasing, however, and it is beginning to narrow the comparative advantage gap with Western nations (LiveScience, 2007). The UK has relatively stringent environmental laws and these can create opportunity with respect to developing new technologies but can also discourage business development. The legal environment in the UK is characterized by strong rule of law, strong intellectual property protections and sophisticated dispute resolution mechanisms.

China's political environment is substantially different from that of the United Kingdom. China is a totalitarian state with Communist roots. Personal freedoms in China are minimal and the government maintains strict control over access to information (Vascellaro & Chao, 2010). China ranks 135th on the economic freedom report, between Mauritania and Cameroon (Heritage Foundation, 2011). This reflects the heavy hand of the government in almost all aspects of economic activity in China, be it directly or through the government-financed banking system. The political environment in China, however, is largely stable. Unless one of the major hot-button issues (Taiwan, Tibet, etc.) flares up and threatens to destabilize China, it is expected that the current political environment will change little going forward. China is a member of the World Trade Organization but is still relatively reluctant to engage in the process of international trade liberalization.

China is the world's 2nd largest economy, worth $9.872 trillion. This equates to a GDP per capita of $7,400. China's GDP is growing rapidly. Official estimates have China's growth rate at 10.3%, with only a slight slowdown recorded during the West's financial crisis (CIA World Factbook, 2011). While these figures need to be taken with a grain of salt -- the Chinese government has admitted that their GDP statistics are a work of fiction (Reuters, 2010) -- China's economic growth has been impressive since the country began to open its economy.

China's social environment is generally stable and supportive of government policy. China's culture emphasizes collectivism and this helps to maintain social order. In general, Chinese are a trading people and should be viewed as enthusiastic about international trade in particular. As noted above, China is closing the technological gap and developing competency in innovation. This implies that China will be able to compete more effectively in the technological environment going forward than they have in the past.

The environment poses an interesting challenge for China. On one hand, China's environmental record is appalling and the country is one of the world's most polluted, to the point where it is constricting economic growth (Patience, 2011). On the other hand, this has spurred China to take a leading role in the development and production of alternative energy technology. Part of China's economic strategy is to be the global leader in so-called 'green' energy and the country is now the world leader in wind turbines and solar panels (Bradsher, 2010). The legal environment is complex in China, and bears the heavy hand of the central government. Any foreign company operating in China or trading with China will need to either employ a well-connected legal counsel in China or do the business in Hong Kong to avoid Chinese law altogether.

Despite the differences in government, culture and other environments, there is a good framework in place for trade between China and the United Kingdom. China's low cost production appeals to British consumers. The UK does not, however, appear in the list of the top trade partners for China (CIA World Factbook, 2011). For British firms wanting to do business in China to take advantage of a competitive advantage in production cost and comparative advantage in technological innovation, it is essential to understand the political/legal environment in particular. The Chinese system is very different than the Western system. There are few legal protections for foreigners, and almost no protections for intellectual property. British firms and managers often must partner with Chinese firms in order to gain protection for their interests in the nation. Yet while the risks are high, for those firms able to navigate the complexity of the Chinese market, tremendous opportunities lie in the market's size and rapid pace of growth.

Recommendations and Conclusion

It is recommended that British managers take the different external circumstances and communication styles of the Chinese to heart. China is a strong political and cultural entity and is not likely to respond favourably to doing business with people who lack basic understanding of their culture. In particular, decision-making in China is substantially different. Only senior managers are likely to make important decisions, and even then there will be an emphasis on consensus-building rather than individual decision-making. The central government may be involved, a reflection of China's unique involvement of government in the business function.

Another recommendation is to enlist help from Hong Kong (or even Singapore), where many people are familiar with the interface between English and Chinese business culture. The differences between Chinese and English business culture relate to core beliefs about the objectives of business and the role of business is society. Therefore, even when basic communication skills are acquired, there may still be deep-seated miscommunication. Ultimately, however, if both sides are interested in making a deal, a deal will be done. To get the most out of the deal, however, may require a cultural navigator and fortunately they are available.

In conclusion, the differences between Chinese and English cultures are great, but both nations have much to benefit from trading with each other. Both countries have strong trade-driven economies, and this desire to do business provides opportunity for British managers heading to China to conduct trade. The key to successful trade with China is understanding the points on which Chinese and English business culture differ, and adjusting negotiating strategy to address those points of difference.

Appendix A: Geert Hofstede's Cultural Dimensions Histograms (from http://www.geert-hofstede.com)

China:

United Kingdom:

Works Cited:

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Bradsher, K. (2010). China leading global race to make clean energy. New York Times. Retrieved April 15, 2010 from http://www.nytimes.com/2010/01/31/business/energy-environment/31renew.html

CIA World Factbook. (2011). China. Central Intelligence Agency. Retrieved April 15, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

CIA World Factbook. (2011). United Kingdom. Central Intelligence Agency. Retrieved April 15, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Heritage Foundation. (2011). 2011 Index of Economic Freedom. Heritage Foundation. Retrieved April 15, 2011 from http://www.heritage.org/index/ranking

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Hofstede's Cultural Dimensions: The United Kingdom. (2011). Retrieved April 15, 2011 from http://www.geert-hofstede.com/hofstede_united_kingdom.shtml