Question- Discuss the unique characteristics of the Chinese business structure?
Porter in the 2008 defines strategy as the development of valuable and unique position that involves various activities. After 2001, when China joined the World Trade Organization, the business environment of China had changed drastically. It has reduced the international market entry barriers which further have helped to improve the business operations of the Chinese MNCs in the international market. The CEO of Haier Group Zhang Ruimin said that is any organization wants to address the challenges of the multinational companies of international market then it is very important to become a multinational company yourself first. He further says that the in order to dance with the wolves it’s important to become a wolf first otherwise there is chance of getting eaten up. The Chinese business is becoming dynamic in nature. It is experiencing changes both economically and politically. Economically they are changing due to the rules implemented by WTO (World Trade Organization). Politically it is experiencing transition due to development and implementation of economic and social policies and the leaders’ power which is helping in restructuring the leadership structure in the Chinese MNC s(Xiaomei 2009).
This essay will analyze the unique characteristics of the Chinese MNCs that prove them to be successful in the competitive market. The purpose of the essay will be met by understanding the characteristics that Lenovo and Haier Group follow to be successful Chinese MNCs.
From past 30 years the country China is changing drastically. The social life and the economic market of China had undergone various transformations since 1978. The country has accomplished various changes in short time unlike other countries of the world. They are also focusing on the strategies that can be learnt and implemented from other countries to develop the country.
Constant prior to China opened up to the world, the government started emphasizing to plan their arrival to the center of economy of the world. The government realized that the world is changing drastically and thus the Chinese business need to take immediate steps to avoid some mistakes. Thus the State has started developing and implementing various policies and reforms to support advancement for people and the enterprise by monitoring on their outward and inward investments.
The PEST analysis will help to understand the changes that the Chinese Market is undergoing and also help to comprehend the strategies that Lenovo and Haier Group is implementing to be the successful giants in China.
Since the year 1983, China started forming strong bonds with other nations of the world so that they can contribute in the modernization process of China. They focused on seeking support from the developed countries that could give access to the loans and also the financial institutions of the international market and also FDI (Foreign direct investment). They also emphasized on education training, business trade, technology, science and management. Since 1998 the country had experienced a happy and stable period by building strong relationships. Even after facing the financial crisis in the year 2008, China is developing a nationalistic pride through the success of economy even with the struggle of Western countries. The country, China is focusing on the development and growth by building strong relationships (Shambaugh 2013, pp. 47-52).
In the year 1971, the moment Mao Zedong started opening China, he immediately took interest in having greater access to the economic assistance and western technology (Afe.easia.columbia.edu 2014). Since the year 1977-2000, the overall trade of China has increased from USDbillion-USD5billion (Focusweb.org 2014). The FDI of China had also increased by USD$10billion in the year 1992. In the year 1993, through the support of FDI, the production volume of China has increased, there is an improvement in the efficiency of the productivity, increase in the use o upgraded technology and also high range of manufactured goods. After China joined the WTO their aggregate exchange expanded at a much more great velocity. They surpassed one nation after the other in positioning until they at long last surpassed Germany in 2009 to turn into the second biggest exchanging economy on the planet. They had an aggregate exchange of USD$ 2,208 billion (Das 2012).
Hofstede analyzes culture under five dimensions: short or long term orientation, collectivism Vs individualism, power distance, feminine Vs Masculine, uncertainty avoidance (Hofstede 2010). The power distance cultural score of China is high as the Chinese people have a tendency to acknowledge disparities in the society and go behind a leader with moderately little protest. The impact of Confucius on Chinese society further produces a long term introduction and Chinese individuals are along these lines additionally tolerating to extra assets and contribute towards a long-term objective. Chinese society is additionally more manly than ladylike. This implies that they are more achievement situated and determined to the degree that they will yield their recreation time and family time for their work. Moreover, the way of Chinese individuals is that they are collectivistic and therefore act in light of a legitimate concern for the gathering, and not just themselves. Thus, the group, whether it be colleagues, community or family, is more vital than the association then again initiate. At last, Chinese society scores low on vulnerability shirking, which implies that they can endure the obscure and adjust to changes genuinely simple (Geert-hofstede.com 2014).
Innovation through Research and Development in China is the most carried process to increase the FDI of China. The Chinese business is focusing on joint ventures with the Western companies to improve innovation and also technology. Around 50 MNCs like Intel, Microsoft, IBM etc has their R&D centers in China which emphasize on utilizing the skills of local talents for innovating and developing latest technologies. Even large MNCs like Lenovo, Huawei and Haier have established R& D centers in western countries to take advantage from their technological advancements, research capability and knowledge in developing their products (Liu and White 2001).
Chinese MNCs, classified as technology based and expertise peculiarities, access to home nation assets, and gimmicks of cultural closeness. Chinese MNCs may have a specific mastery in overseeing huge, complex markets, for example, infrastructures projects in telecom industry. Also, multinational undertakings with a Western foundation have a tendency to be accomplished in working in steady markets with transparent regulation and feeble government impact. As opposed to that, Chinese firms are likely more equipped for managing troublesome regulation and exploring around murky political obligations, given their more prominent involvement with such institutional gimmicks. Such encounters may put Chinese firms questionable in a finer position than numerous other non-Chinese firms (Morck, Yeung and Zhao 2008).
Chinese MNCs have basically market seeking, technology seeking, strategic asset seeking, diversification seeking, resource seeking. Chinese MNCs are to this degree some piece of worldwide business endeavors. The customary hypothesis on multinational endeavors offers profitable instruments to break down their exercises. On the other hand, the specific Chinese attributes in this procedure are eye-getting and make the rise of Chinese MNCs an exceptional sensation. It is getting to be progressively evident that the most paramount contrasts in the middle of Chinese and Western MNCs going global are not found in their inspirations yet in the uncommon qualities of their nation of origin as far as assets and the Chinese institutional and social connection. In advancing years, we will see whether these distinctions constitute a transitory feature of Chinese firms until they can completely contend globally or whether the hypothesis of multinational endeavors must adjust to consider these qualities as continuous components of multinational undertakings’ inspirations and systems (Andersson and Wang 2011).
Home market qualities likewise assume an imperative part for Chinese organizations. In a more extensive viewpoint, all far reaching government impedance with the exercises of firms may be seen as a component of home nation exercises. In China, for instance, organizations that have been assigned as “national champions” will get the legislature help important to beat their late-nearing drawback universally. This can incorporate monetary help and political impedance. At last, social closeness in a more extensive sense constitutes a clarification for interests in different socially proximate locales, be it genuine, physical nearness or saw vicinity because of a comparable society. These variables may take the capacity of an entryway opener and catalyser for business improvement (Gugler 2014).
The companies chosen to understand the unique characteristics of Chinese business further are Lenovo and Haier. Both the MNCs are China based companies in high-tech industry which stanch from the state owned enterprises and then transformed into private enterprise. Through their clever management and expertise they are able to manage the highest position in China. Both the companies have strong foundation in the Chinese market and easily fight with their international competitors. They do this by investing more on their research and development, building effective human resource to meet the expectations of the customers and also strong technological base. Due to their innovative strategies the companies are able to achieve the needs of the customers and also develop their brand in China.
Business strategy
Initially Lenovo was known as Legend. In 2003, they changed the name by introducing “go-global” policy. Thus they decided to keep the “Le” as it is and change “gend” with “Novo” which means new. Initially in 1990s Lenovo never had competitors as they there was not much demand of PCs. The moment government permitted the PC manufacturers to compete and the global manufacturers to dominate the market of China, Lenovo started focusing on the production of PCs rather than diversifying their product line according to the need of the customers. The moment Lenovo received their license they started focusing on the utilizing the latest technology to produce their product, this was one of the unique strategy that Lenovo utilized to sell their products in the Chinese Market. Thus they began producing the products based on the need of the Chinese customers. For instance, they pioneered Language Solution to PCs in Chinese. They immediately developed the image as Technology–Intense producer. Apart from this, since the international brands paid less attention towards the differentiation of product in China, Lenovo emphasized on various market segment starting from large enterprises to small businesses and also individual customers. Even Lenovo focused on their pricing strategy, the prices of their PCs were 2/3rd lower of their international competitors.
In the year 2004, Lenovo acquired IBM as they had already reached 30% of market share in China. Acquiring IBM would have helped the organization to grow further and improve their ability by seeking new market and needs. Later on when they recognized that they lacked in their recognition of brand, they decided to follow to paths one is make new strategies and grow by themselves and the other was by using acquisition process. To generate growth Lenovo also focused on commercial clients instead of consumer clients. In China the organization is well known for operational efficiency and also cost control. They started producing IT services and also mobile phones to meet the need of their customers.
Management style
The corporate culture of Lenovo focuses on “The Lenovo Way”, which means that the work that is done in the organization focuses on 5Ps like pioneering, planning, performing, practicing and prioritizing. Lenovo develops on the ownership with the capability for efforts to be rewarded and recognized. The ownership culture in the organization causes the employees to be committed towards the goals of the organization and also strengthen the teams in the organization to perform better. Lenovo also focused on providing various opportunities and also career paths to retain the talented employees. The organization also introduced the bonus program which also enables the employees to be committed towards the organization. Lenovo management also introduced the College Graduate Programme to develop the leaders of the organization and also changes their language to English so that all the employees can easily understand and contribute towards the success of the organization. Lastly, the diverse workforce has made the organization uniquely polycentric.
R& D Innovation
Since Lenovo began their story as a twist off of a research foundation, their prosperity is an impact of effective utilization of R&D and advancement. Amid the 1980s, they were focused on delivering motherboards and extra cuts to reinforce their capacity even before they were permitted. Amid their improvement on the Chinese advertise in the 1990s, they were focused on delivering imaginative answers for the Chinese client. They put RMB 1.8 billion in latest technologies in 2000 that check the start of new inventive abilities. They have 8 research centers in China, 3 in Beijing and 1 in Japan. Their global vicinity makes them equipped for rapidly react to different business sector and behavior of the consumer changes (Xie and White 2004).
Business Strategies
Haier mainly produces white products like wine coolers, washing machines, air conditioners and refrigerators. The main strategic choice of Haier is to gain the trust of the employees by investing on their comfort level an also salaries. To emphasize on the quality of the products Haier produces, the organization partnered with the refrigerator producer of Germany Liebherr in the year 1985. This helped them to learn about the structure, control and quality process. Through their brand name they were not only gaining the trust of the local market consumers but also the international market. Another unique strategy that led to the success of Haier Group is the implementation of the effective quality management system to give the market a quality based product (khg.edu.vn 2012). Haier, then again, chose to practice on fridges furthermore executed quality administration to guarantee high caliber on every item. They went for the top further bolstering accomplish good fortune over rivalry. Thusly, they likewise actualized models in administration, ability maintenance and corporate society. Strict quality regulations evidentially raised the quality standard of the items and subsequently the brand. Subsequently, they picked up the client’s trust and had the capacity assemble their prosperity on that (Haier.net 2014).
Haier group emphasized on two different business strategies one is generic strategies which is a continuum among the focused differentiation and differentiation instead of low price. Thus the organization has been focusing on developing innovative support systems that support both market and brand. Another strategy is the product-market strategy where the organization divided the strategy in three different phases one is the brand strategy where the organization focused on building strong reputation and credibility, then the diversification strategy which is all about developing unique products based on the need of the Chinese market which helped them to set up a strong brand image and lastly the unrelated diversification strategy which helped the organization to diversify in various other non-related industries like finance, IT, mobile, pharmaceutical etc (Muzi and Wong 2014).
Management Style
The corporate culture of Haier focuses on “Clear, Control, Everyone and Overall” which ensures that all the employees of the organization takes part in meet the daily targets of the organization. The CEO of Haier’s Zhang Ruimin emphasized on interaction more with the production worker, showed gratitude by giving gifts and also investing on their facilities. This management style helped to build up trusts, loyalty and also respect towards the company and also leader. This strategy helped Haier to meet the needs of the customers easily and also focus on continual improvement. Even the encouragement to participate in the business process helps the organization to take the responsibility to make effective organizational profits and also allows everyone in the organization to innovate variety of products to meet the market demand. These values of Haier not only help to retain the talented employees but also help them to develop their future path (Ruimin 2014).
R&D Innovation
Haier contributes somewhere around 3%-5% of its income on innovative work. Their systems are to ceaselessly ponder criticism and co-creation together with their clients. They have confidence in a company’s capacity to adjust to changes in the business sector. Subsequently, the organization has diminished the development time of new products from 6-12 months to 17 hours to 3 months. This implies that they can be significantly more responsive towards business sector changes. In the event that they constantly utilize the client’s recommendation they can likewise contend with their rivals through separation and wide item run. By including all workers currently item advancement implies that Haier can get data and input from different parts of the organization (Lin 2005).
In conclusion, after going through the secondary data from various academic journals, websites and books, the essay can be concluded by saying that the success story of Chinese MNCs lies in their innovative strategies. They offer benefits to their customers by effective partnership process with the western companies, investing in research and development and also utilizing the upgraded technology. It is observed that both the companies Haier and Lenovo are successful giants in the Chinese market due to their goal-oriented and technology differentiation. Even the support of the government which helped the Chinese firm to reduce the international entry barriers through the use of joint ventures has helped the organizations to grow in this competitive market effectively. However the organizations, Lenovo and Haier grew due to their effective management style. The management styles helped both the organization to understand the needs of the domestic and international customers and fulfill their needs.
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