The social values and history have shaped and formed the economical developments and the current environment of business in the People’s Republic of China. They have determined the patterns for negotiation and the Chinese perceptions of business, and their feelings towards westerners. The implicit and explicit rules that the Chinese society has on the development of businesses, and the economy in general, are very important issues for any person going into China to understand and consider. In order to achieve a successful partnership between Chinese and Western cultures it is essential to have a basic understanding of history and cultural developments that have shaped the current environment of business. The three pillars of China are economy, culture, and society.
Economy
The Chinese economy has been formed as a result of centuries of history and development, which reflect the philosophy of China and its current economical position. China started as a mainly agricultural based society with the subsistence group; the family. For more than 2000 years the Chinese economy operated under a type of feudal system; land was concentrated in the hands of a relatively small group of landowners whose income depended on rents from their peasant tenants. Agricultural taxes levied by the imperial government and crop yields subject to drought and floods kept agriculture relatively underdeveloped and organized in small units with the use of primitive methods for basic subsistence.
The conclusion of the Opium War of 1840 formally initiated a period of Western penetration of China from the coastal treaty ports. Railroads and highways were constructed, and some industrial development began. Such activity had little impact, however, on the overall Chinese economy. In effect, China was carved up into a number of competing colonial spheres of influence. Japan, which tried to attach China to its East Asia prosperity Sphere, was able to create only isolated nodes of a modern economy.
The Chinese Communist party emerged in the 1920s in the midst of a mounting economic crisis caused by foreign intervention and increased landlord influence in the countryside. For more than two decades, it expanded its control over large rural areas by introducing an agrarian program based on the control of rent and usury, and by giving power to peasant associations. On October 1, 1949, the Communist party successfully established a unified national government and economy on the mainland for the first time since the end of the imperial period in 1912. From 1949 to 1952 the emphasis was on halting inflation and ending food shortages and unemployment.
The new government initiated a land reform program that redistributed land to 300 million poor peasants into cooperative farms. In 1958 the rural people’s communes were established, and these dominated agriculture in China until the early 1980s. The commune was based on the collective ownership of all land and major tools by its members, who produced mainly to meet state planning targets and who were rewarded according to the work they performed, although basic necessities were guaranteed to all members.
In the urban-industrial sector, state ownership of property and of industrial and commercial enterprises was gradually extended. Industry grew steadily from heavy investment under the first five-year plan, and the state-owned sector achieved an overwhelming importance. The second five-year plan was introduced in 1958, trying to get China ahead into industrialization. This program was characterized by large investments in heavy industry and the establishment of small-scale versions of such industries as steel refining. The program, however, caused great disruptions in economic management and in rational economic growth, and in 1960 the program had to be abandoned.
The Chinese economy then entered a period of readjustment, but by 1965 production in many fields again approached the level of the late 1950s. The third five-year plan began in 1966, but both agricultural and industrial production were severely curtailed by the effects of the Cultural Revolution; a fourth five-year plan was introduced in 1971 as the economy began its recovery.
After eliminating the vestiges of the Cultural Revolution in 1976, China’s leaders decided to move at a faster pace on all economic fronts to make up for the loss suffered in the preceding ten years. A fifth five-year program began in 1976 but was interrupted in 1978, when the Four-Modernization program was launched. It included the modernization of agriculture, industry, national defense, and science and technology. A ten-year plan for 1976-85 stressed improvement in economic management and a larger role for private and collectively owned (as opposed to state-owned) enterprises.
This program was superseded by a more modest ten-year plan for 1981-90, but efforts to attract Western technology and investment continued, as did a program of incentives to increase agricultural production. Policies introduced in October 1984 called for further decentralization of economic planning and for increased reliance on market forces to determine the prices of consumer goods.
China has potential to be the biggest market of the world with 1.3 billion people. Furthermore, it posses billions of unexplored resources and the biggest and cheapest labor force in Asia. The size and underdevelopment make it a potential monster that has created interest in every investing and developing country in the world. The Chinese economy is an increasing economic possibility for anyone.
Culture & Society Chinese culture and society can be divided into two major periods, Imperial China and Communist China. The modern Chinese society can be defined as a combination of centuries of values and communist propaganda achievements. The imperial China had a strong class system where 90% of the people were poor and possessed limited resources to develop culturally, socially and personally. This situation led to the strength of the large family and the basis for the distinctive collectivism of China. The well being of the family and the state are the main goals for any action in society. If actions taken do not contribute to the family or the society as a whole, then the actions will not be regarded as proper. Eliminating almost any form of individualistic thinking.
The Chinese Family is the main economic unit of society. The development of the Chinese economy is based on the family. The Chinese family is the economic unit in which members produce and consume in common. Also, it is the religious unit responsible for the performing of rites required for the well being of the family. The social security of the Chinese family relies on the effective performance and interaction between religion and family.
These concepts strongly clash with western individualism collection of wealth for personal gain. A clear example of this is the overseas Chinese control family-run business empires that already dominate much of Asia. They invest billions in China, helping their ancestral homeland become the world’s fastest-growing economy. Together, China and its approximately 56 million offshore Chinese are the most important commercial and political forces for China and reflect, again the family based economic strategy that they follow.
In addition to the traditional imperial Chinese society, the Communist values shape and blend into modern Chinese philosophy. One of the early acts of the Chinese Communist party after it gained control in 1949 was to officially eliminate organized religion. Previously the dominant religions in China had been Confucianism, Taoism, and Buddhism. Most temples and schools of these four religions were converted to secular purposes. Only with the constitution of 1978 was official support again given for the allowance of formal religion in China. The constitution also stated that the Chinese population had the right to hold religious beliefs.
Moreover, China has a long and rich cultural tradition in which education has played a major role. Throughout the imperial period (221 BC-AD 1912), only the educated have held positions of social and political leadership. In 124 BC the first university was established for training prospective bureaucrats in Confucian learning and the Chinese classics. Historically, however, few Chinese have been able to take the time to learn the complex language and it’s associated literature. It is estimated that as late as 1949 only 20% of China’s population was literate. To the Chinese Communists, this illiteracy was a stumbling block for the promotion of their political programs. Therefore, the Communists combined political propaganda with educational development.
Chinese education has been strongly affected by the communism in China. Since education was for the rich and privileged during imperial age of China. One of the most ambitious programs of the Communist party has been the establishment of universal public education for their large population. In the first two years of the new government (1949-51) more than 60 million peasants enrolled in “winter schools,” or sessions, established to take advantage of the slack season for agricultural workers. Mao declared that a dominant goal of education was to reduce the sense of class distinction. This was to be accomplished by reducing the social gaps between manual and mental labor, between the city and countryside residents and between the worker in the factory and the peasant on the land.
After long periods of breaks and changes in policies colleges reopened in 1970-72. Admission was granted to many candidates because of their political leanings, party activities, and peer-group support. This method of selection ceased in 1977, as the Chinese launched their new campaign for the Four Modernizations. The governments stated goals for rapid modernization in agriculture, industry, defense, and science and technology required high levels of training. Such educational programs by necessity had to be based on theoretical and formal skills more than on political attitudes and the spirit of revolution.
After the revolution every thing changed in China. The stability of social values and structure where the highest achievement for the Chinese philosophy. These values where already deep in the Chinese culture; however, they were strengthened with communism and used into the development of China.
The Chinese society had become a combination of strong family and moral values and a country thriving for modernization and industrialization. This concept of stability as the highest achievement obstructed the development of China in the past, and still creates problems today. The sole concept of risks disturbs the grounds of Chinese culture in contrast to western society where risk is the main drive for development and investment.
Business Development in China
The radical change from imperialism and strong class differences to the equality philosophy implemented by Mao Tse Tung created the modern China. Its development from feudalism to communism created a conservative China, with very few attempts to move towards capitalism. It was through the imperial years that mercantilism and trade took place, yet it never flourished, as the capitalistic model westerners know, until China’s re-opening to the western world in the 70’s.
China has always had the elements for development. In fact, they could very well have had an industrial revolution before England. China possessed many key elements that transformed Europe into a modernized industrial economy (compass, printing, gunpowder, etc). Nevertheless, there is much more to China than just industrial and economical development. Thus, when considering developing a business in China one should always consider the cultural factors that makes the Chinese society so strong and differentiating it from western societies.
The fact that China wants to grow, does not mean that it will do it with the western models and philosophy, rather it will be with models developed from their own culture. This is the point that can be attributed to cause most of the problems between Chinese and Western cultures, and the point to be accepted in order to be successful in developing a successful business relationship in China.
Negotiating in China can be very frustrating. Differences in decision making styles and negotiating tactics cause misunderstanding and tension. Chinese culture is based on the importance of rituals and ceremonies and so is Chinese business. Business meetings are as important as the dealings during receptions. To exemplify the process of dealing with China in order to develop a productive relationship we will use the case of Kentucky Fried Chicken in China. This case includes the different problems and strategies used in the negotiation and development of business in China, specifically in setting up a foreign joint venture. However, the problems that arise and the current working environment of the Chinese economy cannot be understood without first understanding the history and the cultural revolutions that have shaped it. This brief outline of the history of China leads insight into some of the problems and the resolutions that a manager for KFC experienced during his venture with the Chinese.