England - China for Managers Conducting Cross-Border

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.

Cultural Differences

There are substantial cultural differences between the UK and China. For English managers seeking to do business in China, it is essential that these cultural differences are understand at both the underlying philosophical level and at the practical level. With respect to the former, it is essential to understand that China does not share the Western philosophical tradition, so Chinese business people operate with completely different underlying beliefs and value systems. It is essential to relate to these systems to truly succeed in the Chinese market. On the practical level, it should be understood that Chinese managers are not idiots -- they do not expect Westerners to understand every nuance of Chinese culture and are unlikely to take offense at minor gaffes. However, an effort to show deference for their culture, traditions, business practices and language will naturally be appreciated. It is with this in mind that the cultural differences between the English and Chinese will be examined.

The special role of Hong Kong as a cultural bridge between England and China cannot be ignored in this discussion. Hong Kong managers have exposure to both Chinese and English culture and economic systems. They are often fluent in both Cantonese and English, and sometimes Mandarin as well. Hong Kong's status as a go-between between the West and China makes it a unique resource for British managers seeking to make inroads into the Chinese market (Williams, 2008).

The first method of analyzing the cultural differences between China and England is to consider Geert Hofstede's cultural dimensions. The histograms for this can be found in Appendix A of this report. The United Kingdom is a highly individualistic culture, which means that emphasis is placed on individuals taking care of themselves in society. Individual achievement and expression are valued traits. This contrasts sharply with China's highly collectivist society. In collectivist societies, members are expected to look out for one another. Individual achievement is not highlighted, and loyalty levels are higher. This sharp difference in culture values means that while in the UK the profit motive is often an end, in China it is often viewed more as a means to other, social, ends. That said, trade is important and Chinese managers want to excel in part for the prestige and in part to contribute to the greater good.

The United Kingdom has a low power distance score while China has a high power distance score. Power distance refers to the acceptance of inequality in society. There is often a correlation between lower power distance and higher individualism. For managers, power distance has significant implications. In low power distance cultures such as the UK, lower-level managers are expected to make important decisions, and are empowered to do so. In high power distance cultures such as China, decision-making is less democratic. Only senior managers are expected to make decisions. This can result in frustration for English managers as their Chinese negotiating partners must frequently consult with their superiors prior to making decisions. Another implication of high power distance is that higher-level managers must be sent to negotiate with Chinese firms, when those firms are sending high-level representatives. Some insult could be taken if a Chinese CEO is meeting with a low-level manager from the UK, even if that low-level manager is empowered to make all of the decisions for his or her firm.

Another cultural dimension is masculinity, which refers to the level of aggressiveness in the culture. The UK is a more masculine culture than China, which carries a fairly neutral score from Hofstede. Higher masculinity scores correlate with higher levels of assertiveness and competitiveness. English managers are likely to be more competitive and aggressive, which can be off-putting to the Chinese. This should be factored into negotiating strategy, to ensure smooth negotiations.

Uncertainty avoidance is an important cultural dimension and there is a distinct schism between UK views of the subject and Chinese views. The UK is characterized by low uncertainty avoidance while China has higher uncertainty avoidance. This reflects English managers' superior ability to handle ambiguity, asymmetry of information and the unknown. Chinese managers seek more certainty and more clarity, and are reluctant to make decisions with information asymmetry. Chinese also have a long-term time horizon in their thinking processes. This can be best understood in that Chinese enter into business relationships, while English managers enter into transactions. The Chinese seek a long-run payoff, and are willing to make short-run sacrifices to achieve that. British managers, compelled by quarterly earnings reports to take a short-term view of business, should understand the time frame of the negotiations with which they are working.

Another set of cultural dimensions that can be analyzed in the context of English and Chinese managers is Trompenaars cultural dimensions. These seven dimensions are: universalism vs. particularism; individualism vs. collectivism; neutral vs. emotional; specific vs. diffuse; achievement vs. ascription; sequential vs. synchronic and internal vs. external control (BusinessMate.org, 2009). Of these, individualism/collectivism has been discussed already in the context of Hofstede's cultural dimensions.

Universalism vs. particularism relates to the relative importance of rules or relationships. The idea that these two exist on a continuum is a bit silly, given the example of China. Confucian ethics dictates fealty to both rules and relationships -- the two are by no means mutually exclusive. In the United Kingdom, rules are definitely the most important. This means that UK managers operating in China must understand the role that relationships play in China, while maintaining deference to the country's laws as well.

Chinese are famously neutral with respect to emotions. Displays of emotion are frowned upon in China. While the English are more emotional than the Chinese, they are probably closer to being neutral as well, so there is some common ground culturally between the two. The most important element to remember here is that emotional outbursts that would not insult a Briton could be highly insulting to the Chinese, damaging a relationship permanently. China is oriented to specific relationships, again governed by the high power distance and Confucian ethics. In Britain, relationships are much more diffuse, a function of British culture's ability to handle ambiguity.

In Chinese, status is often ascribed, and this is not dissimilar to English society. While there is some opportunity for social advancement in each society, both societies rely heavily on birthright as a dictator of status, with achievement being secondary. For the most part, there are no generalizations that can be made with respect to sequential/synchronic: in both cultures the ability to multitask relates more to the individual than it does the culture. Lastly, the English largely believe that they are in control of the environment. Individual and group actions can dictate success or failure, and it is the response of the individual to external stimulus that determines the success or failure of an outcome. China -- more or less -- shares this belief. While the Chinese truly believe themselves capable of controlling their own destiny, this is tempered somewhat by the society's high degree of collectivism. Whereas in Britain any given individual may feel as though he or she can control his or her circumstances, in China this is not necessarily the case. Collectively, they believe it but individually they may not depend on their social status.