Doing Business in China

>> Chinese Business Structures

Whilst the traditional Maoist approaches are long gone, an understanding of past approaches can be helpful when dealing with the new China which has emerged.

Under the Communist regime the most important structure to which an individual was linked was his or her work group or dan wei. In the past, the dan wei guaranteed workers security throughout their lives in a cradle to grave arrangement and the dan wei mentality still lingers on in large measure. It was extremely risky for a worker to leave the security of the dan wei as this meant the automatic forfeit of the rights and privileges associated with membership – and those were such basics as food, accommodation and medical assistance. In order to maintain the security blanket afforded by the dan wei and at the same time take advantage of the new opportunities arising in the new order, many people have taken on two jobs until new opportunities are viable enough to risk losing the traditional support mechanisms.

Many overseas companies who set up operations in the PRC do so in the form of a joint-venture with a Chinese organisation and there certainly seem to be manifold benefits to be accrued from doing so. Probably the biggest benefit from the joint-venture approach is that it helps the overseas entity to establish relations – via the Chinese part of the venture – into a complex network of Chinese relationships. Guanxi, or personal connections, are the all-important weapon in all business situations in the PRC. As has often been said, in China if you don’t have Guanxi, you don’t have anything. Forming a joint-venture company would seem to be the quickest and most effective way of developing good quality relationships in a country such as China. This, however, puts enormous pressure on an overseas company to ensure they have selected the right joint-venture partner. It is a mistake to rush this process or to fall-in with the first potential partner who comes along. Think out of the box. Product compatibility may be less important than connections; cost may be less important than access to a skilled workforce.

As would be expected in a Confucian society, operational structures, chains of command, management style etc. tend to be hierarchical and the introduction of more matrix-oriented approaches are bound to lead to conflict with local expectations. Never underestimate how important it is to understand, and work with, a Chinese hierarchy. Trying to circumvent the hierarchy will almost always slow a process down rather than speeding it up.

Latest version updated:: 23rd March 2017

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