Business in China and… Confucius? A Guide for Entrepreneurs in China

2015 August 5

John, hearing all the great things about China, its booming economy and the sea of possibilities in this rapidly growing country, starts dreaming about making easy millions. Low wages, cheap products and billions of potential customers seduce him. Finally, John, the risk-taker, leaves his home country, family and friends, and ventures off to China. To do business in one of the most ‘closed’ markets in the world.

John is a very smart businessman; he is open-minded and thinks globally. However, he ignores one tiny fact: Chinese culture is different. And soon, everything goes bad for John.

Why was it his mistake? Surely, it is convenient to just close your eyes and dive into unknown waters, hoping that everything will turn out well. And while this could be the truth in different Western countries, Eastern Asia should not be overlooked that way. China, Taiwan, Hong Kong, Macau, Korea, Japan, and Vietnam – the cultures in all these countries have been more or less influenced by Confucianism.

But what does Confucius have to do with business in modern China?

Confucian value no. 1: COLLECTIVISM

China is a collectivist society, which means that thinking differently is not seen as a good thing: you should not expect your employees bursting out with amazing, mind-blowing ideas and suggestions. Furthermore, expressing a straightforward disagreement is unacceptable and rude. Therefore, it is common to say ‘yes’, which, if not accompanied by a corresponding action, implies ‘no’. In order to avoid disagreement, some people choose to delay matters until the other side decides to give up on the issue.

You may have heard of (or become a victim yourself) a situation, when a foreigner in China asks for directions, and is always given some, even though the local Chinese person has no idea where the place he was asked about is located.

Collectivism also divides people into two segments: people who belong to one’s group (e.g. neighbors), and those who do not (e.g. foreigners), which then determines who one trusts (the former group) and who one is suspicious about (the latter). As you can see, a foreign businessman might have a hard time gaining locals’ trust and loyalty.

Confucian value no. 2: HIERARCHY AND HARMONY

Closely relating it to collectivism, Confucius praised hierarchical harmony, where everyone has and recognizes their place in the world, and complies with one’s social obligations.

Confucius’s ‘Five Cardinal Relations’ (Figure 1) describe four vertical and one horizontal relationships that lead to a high power distance in which one has to unquestionably obey and respect the superior, depend on him or her, and expect to be told what to do. Employees consequently are less initiative, and expect to be instructed rather than consulted. Learning, too, is based on observing and imitating one’s superior, rather than discussing and questioning. High power distance also constrains horizontal communication flow between the departments–a serious problem in Chinese companies.

Figure 1. Five Cardinal Relations

The Chinese regard enterprises as ideal when moral, family-like ties, rather than formal contracts, connect people in the company, as it is built on unwritten loyalty and obedience. However, while this model is relatively successful in family-owned businesses, employees in larger companies might not feel the strong attachment to their colleagues or managers, and consequently they will not be as loyal and devoted to the company.

The superior in China is also expected to be fair and kind to the employees. Confucianism emphasizes a good-natured leader who is generous, hard-working and credible. If the leader is able to create a friendly and relaxed working environment, he or she may increase the loyalty among employees and reduce turnover.

Confucian value no. 3: FACE [面子]

‘Face’ describes a person’s prestige and dignity and, in a collectivist society, makes one’s self-esteem extremely vulnerable. The importance of others’ opinion about a person in China leads to a high degree of sensitivity to criticism, anxiety about self-image, and dependency on public opinions. So be careful when criticizing your employees. Criticism should only be very moderate or carefully “written between the lines”.

What regards conflicts, the Chinese prefer to be reserved and look for a compromise, or avoid the situation whatsoever. A conflict within a group must be kept private, otherwise the whole group is belittled (loses face). In negotiations and business meetings, this kind of attitude can be both beneficial and harmful: it helps maintain a peaceful atmosphere, but it also leads to weak decisions and a lack of innovation, not to mention the anxiety which is felt when restraining one’s opinions.

In China, the critical art is knowing how to avoid responsibility. People try to work behind the scenes to maintain their face. This can lead to various faults and mistakes in the business operations. In a documentary about British businessmen in China (YouTube), the owner of a cushion factory hires a Chinese assistant. Her responsibility is to supervise the factory building process. On the way to the construction site, she calmly says: “Everything is finished. Now just make the decoration,” whereas in reality the building was not even nearly completed.

This tragicomic unwillingness among the Chinese to take responsibility for their mistakes puts businesses in a huge financial risk, and is commonly criticized by the foreign partners of joint ventures. On the other hand, some people claim that in Western firms much time is wasted while looking for someone to blame, while in Asian societies people focus on fixing the problem. It is up to you to decide which one is true.

Confucian value no. 4: GUANXI [关系]

Guanxi refers to a special relationship between two people, which usually involves mutual commitment (trust) and exchange of favors or gifts. It creates a preferential treatment that helps to get something difficult to obtain. The return of the favors (rather than expressing friendship) is so important, that if one does not ‘pay back’, he or she might lose face and trustworthiness.

In Chinese network building, la (拉 pulling) guanxi is one of the most common strategies when firms have to establish either a new relationship, or strengthen an existing one. Even though this kind of system might be useful (especially in the initial stage of the enterprise), it has its disadvantages. In the collective Chinese society, guanxi is so important, that it makes it extremely hard for new enterprises to enter the market. In the documentary “Brits Get Rich in China”, one businessman tries to open a market for his new invention in China for weeks–unsuccessfully. But as soon as he finds a local tycoon and pulls guanxi with him, the business immediately starts running.

However, it is very time consuming to build this mutual trust, and gunaxi is so strongly connected to face that in order to obtain one, a person has to develop the other: one can easily lose face when refusing to help. Imagine how difficult it becomes for the managers to focus on the company’s inner operations, when they have to constantly deal with strengthening guanxi (which also often includes tiresome dinner parties and lots of Chinese vodka).

Finally, as only those in close guanxi groups are viewed as important, it gives birth to nepotism and favoritism, which can negatively influence the credibility of formal procedures and the allocation of resources. Good luck finding investors in China when having no useful guanxi.

Recommendations

After all of this, are you still considering doing business in China? And do these things really matter? In the end, it is impossible to expect that China has a universal culture. It varies in different generations, regions and rural-industrial areas.

And even though some theorists say that Confucianism is one of the reasons for the economic miracle in the Far East, it is natural that the culture is a subject to constant change and adaption to the environment. Unlike some other countries, China was not influenced by the Western culture for a long time, but the younger generation is quickly adapting and changing Chinese business environment.

So, if your enthusiasm is still burning and the idea of business in China is as attractive as ever, at least consider these recommendations:
• Set a clear vision, so that your employees have a clear direction.
• Set professional clear responsibilities, rewards and promotional systems.
• Establish effective communication channels and meetings.
• Integrate professional development.
• Become open to new ideas; encourage a stronger participation of your employees.
• Never say ‘no’ to invitations to dinner parties.

Good luck!

Written by: Kamilė Pudžemytė

Edited by: Monika Dvirnaitė