Understand Chinese Business Behaviour: A historical perspective from three kingdoms to modern China. Li Yan and Taïeb Hafsi, HEC Montreal - PDF

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Understand Chinese Business Behaviour: A historical perspective from three kingdoms to modern China By: Li Yan and Taïeb Hafsi, HEC Montreal Cahier de recherche N January 2007 ISSN:

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Understand Chinese Business Behaviour: A historical perspective from three kingdoms to modern China By: Li Yan and Taïeb Hafsi, HEC Montreal Cahier de recherche N January 2007 ISSN: Copyright La Chaire de management stratégique international Walter-J. Somers, HEC Montréal. Tous droits réservés pour tous pays. Toute traduction et toute reproduction sous quelque forme que ce soit est interdite. Les textes publiés dans la série Les Cahiers de la Chaire de management stratégique international W-J.- Somers n engagent que la responsabilité de leurs auteurs. Distribué par la Chaire management stratégique international Walter-J.-Somers, HEC Montréal, 3000 chemin de la Côte-Sainte-Catherine, Montréal, Québec, H3T 2A7. All rights reserved for all countries. Any translation or alteration in any form whatsoever is prohibited. This document is intended to be used as the framework for an educational discussion and does not imply any judgment about the administrative situation presented. ABSTRACT Chinese leaders and elites study history intensively and they believe that Consider the past and you will know the present (Samovar, Porter, & Stefani, 1998). For Chinese, history is a mirror that can help to identify the future which has already happened (Drucker, 2000). Instinctively, Chinese business elites practice many strategies and tactics that are part of their history, and they are able to decode their local competitors business behaviour because they are cognizant of history. In this paper, we use the most widely read and influential Chinese historical novel, Three Kingdoms, as a proxy for Chinese history, to reveal that Chinese business behaviour is not only culturally embedded but also historically bound. From a historical perspective, we further argue that understanding Chinese age-old traditions will help foreign partners and multinational corporations (MNCs) to decode Chinese business behaviours. We take examples of some key figures and events in the Three Kingdom period to highlight Chinese core values and norms, and behavioural codes. In this paper, we present that (1) in western eyes, the actual Chinese business behaviour is deceptive, which is not in line with Chinese core values and behavioural norms. There is a paradox between Chinese core values/norms and Chinese business behavioural tactics observed, which might confuse foreigners, in particular, MNCs expatriates in China; (2) For Chinese, tactics and deceptive behaviour have three functions: first, test others sincerity, screening allies from competitors; second, protect, concealing strengths and weaknesses; third, deliver misleading information to rivals, confusing and exhausting thems. We argue that these deceptive tactics actually build a buffer zone, which is a barrier to the understanding of fundamental Chinese value-based behaviour. Thus, the paradox can be solved if one goes deeper into the relationship with Chinese crossing pass what we call a buffer zone of behaviour (BZB); and (3) we make suggestions based on a better understanding of Chinese history to help build a constructive and durable business relationship. We suggest in particular that it is important for MNCs and their expatriates to develop a better knowledge of Chinese culture, values and history. By studying Chinese history, one can have a deeper and contextualized understanding of Chinese culture, core values and behavioural norms, and improve effectiveness in doing business in china. page RÉSUMÉ Les leaders chinois et les élites chinoises étudient l'histoire intensivement, et ils croient que «considérez le passé et vous connaîtrez le présent» (Samovar, Porter, & Stefani, 1998). Pour les Chinois, l'histoire est un miroir qui peut aider «à identifier le futur qui s'est déjà passé» (Drucker, 2000). Les élites d'affaires chinoises pratiquent instinctivement beaucoup de stratégies et tactiques qui font partie de leur histoire ; et elles sont capables de décoder le comportement de leurs concurrents locaux parce qu'elles sont conscientes de l'histoire. Dans cet article, nous utilisons Les Trois Royaumes, qui est un roman historique chinois le plus largement lu et influent en chine, comme un raccourcie sur l'histoire chinoise pour suggérer que le comportement d'affaires chinois est non seulement culturellement enchâssé mais aussi largement lié à l histoire. Nous arguons que les traditions historiques chinoises aideront les dirigeants étrangers et les entreprises multinationales (EMNs) en chine à décoder des comportements d'affaires chinois. Nous prenons des exemples de quelques personnages et événements principaux de la période des trois royaumes pour révéler les valeurs, normes et des codes comportementaux importants pour la vie en Chine. Dan cet article, nous soumettons que (1) aux yeux des Occidentaux, le comportement d'affaires chinois est basé sur la tromperie, et n'est pas en conformité avec les valeurs et normes comportementales essentielles en Chine. Les dirigeants étrangers sont donc soumis à un paradoxe entre les valeurs/normes essentielles chinoises et la tactique comportementale d'affaires observée, ce qui est très confondant. (2) Mais, pour les Chinois, la tactique et le comportement trompeur ont trois fonctions : d'abord, tester la sincérité en matière de coopération et discerner les alliés des concurrents ; deuxièmement, protéger - cacher les forces et les faiblesses ; et troisièmement, fournir des informations fallacieuses - pour «confondre et épuiser» les concurrents potentiels. Nous arguons que cette tactique trompeuse établit, en effet, une zone-tampon, qui est une barrière à la compréhension du comportement fondamental chinois. Donc le paradoxe peut être résolu lorsqu on est capable de traverser cette zone-tampon comportementale (ZTC) et établir un rapport plus profond avec les chinois. Sur ces bases là, nous offrons des suggestions, basées sur une meilleure connaissance de l'histoire chinoise, qui permettent d établir un rapport d affaires constructif et durable. En particulier, nous suggérons qu'il est important pour les EMNs et leurs dirigeants en chine de développer une meilleure connaissance de la culture, des valeurs et de l'histoire chinoises. page TABLE OF CONTENTS ABSTRACT...1 RÉSUMÉ...2 TABLE OF CONTENTS...3 INTRODUCTION A HISTORICAL FILTER: THE THREE KINGDOMS AND CHINESE BUSINESS BEHAVIOURS The Three Kingdoms as a Key The Three Kingdoms and Chinese Business Environment and Behaviour A PARADOX: CORE VALUES/NORMS OF BEHAVIOURS AND DECEPTIVE BEHAVIOURAL TACTICS Chinese Core Value/Norms and Tactic Behaviour Skills...8 Table 1 - Core Values, Norms and Tactic Behavioural Skills The Paradox Explained THE BARRIERS TO FUNDAMENTAL BEHAVIOUR 10 Figure 1: Functions of Tactical Behaviour Skills BUILD A CONSTRUCTIVE AND DURABLE BUSINESS RELATIONSHIP BY UNDERSTANDING HISTORY Think and Behave Long-term Have Effective Communication with Chinese Cultivate Your Own Guanxi Establish Competitive-Cooperative Relationship with Local Competitors Study Chinese History DISCUSSION AND IMPLICATIONS 16 Appendix 1: Three Kingdoms Survey Comparison...18 Appendix 2: Principal characters in Three Kingdoms...19 REFERENCES...20 page INTRODUCTION Chinese believe that Consider the past and you will know the present (Samovar, Porter, & Stefani, 1998). They take history as a mirror and a reference to shape their own behaviour. And Chinese business mind-set believes that market is a battlefield (Chu, 1991; Fang, 2006; Luo, 2001b; Tung, 1994). Instinctively, Chinese business elites practice many strategies and tactics that are part of their history, and they are able to decode their local competitors business behaviour because they are cognizant of history. Samovar et al. (1998) argued that the nature of core Chinese values is largely the product of thousands of years of living and working together. In this paper, we use the most widely read and influential Chinese historical novel, Three Kingdoms, as a proxy for Chinese history, to reveal that Chinese business behaviour is not only culturally embedded but also historically bound. From a historical perspective, we further argue that understanding Chinese age-old traditions will help foreign partners and MNCs to decode Chinese business behaviours. We take examples of some key figures and events in the Three Kingdom period to highlight Chinese core values and norms, and behavioural codes. We intend to show that: (1) there is a paradox between Chinese core values/norms and Chinese business behavioural tactics observed, which might confuse foreigners, in particular, MNCs expatriates in China; (2) this paradox can be solved if one goes deeper into the relationship with Chinese crossing pass what we call a buffer zone of behaviour (BZB); (3) prescriptive suggestions based on a better understanding of Chinese history can help build a constructive and durable business relationship. 1. A HISTORICAL FILTER: THE THREE KINGDOMS AND CHINESE BUSINESS BEHAVIOURS Chinese leaders and elites study history intensively. Li Shimin 1, one of the most admired Emperors, once argued: Take copper plate as a mirror, put clothes in a proper manner; take people as a mirror, understand gain and loss, take history as a mirror, master (the nation s) rise and fall. For Chinese, history is a mirror that can help to identify the future which has already happened (Drucker, 2000). In China, it is common to refer to history by using thousands of history-based idioms and proverbs. Also, Chinese often look in history to find a situation or scenario similar to the one that they are facing, in search for clues and inspiration and for the related skills and tactics used successfully by famous characters. History is both a medium which transfers core values and behavioural norms, and a reference framework that guides people s behaviour. Because of this impact that history has on people s behaviour, knowing and understanding Chinese history can help in developing a better interpretation of Chinese business behaviour. Foreign managers can use their understanding of history to decode tactics or deceptive business behaviours of local competitors in the chaotic and disorderly market competition in A.D., Tang Dynasty page China. Such knowledge can help them build a constructive and durable relationship with their local partners and authorities. 1.1 The Three Kingdoms as a Key However, it is unrealistic to ask a foreign manager to go through the 24 dynasty Chinese history book to learn applications and study Chinese philosophy, to figure out an approach to Chinese business behaviours. Therefore, in this study, we use Luo s 14th century Three Kingdoms: A Historic Novel (2001) as a proxy for Chinese history. The choice of this great epic can be justified as follows: (1) it is the most widely read among Chinese classics in literature; and people all over the country share very similar opinions and interpretations about major characters and events; (2) the destructive and chaotic competitive environment of the novel resembles today s Chinese market competition in many industries, and to a great extent, behaviour of ancient rivals in the novel also resemble today s Chinese business behaviours; and (3) more importantly, for Chinese, not only is it a literary masterpiece, but also one of the most influential reference book of strategic and people management. The story is based on historic events. It depicts three kingdoms, Wei, Shu and Wu, struggles for controlling and unifying China in the last decades of the Han Dynasty and the Three Kingdom transition period ( AD). Though it is a literary classic, there is no significant discrepancy between the story and professionally reported history. The novel vividly describes an important slice of Chinese history, and details the competitive strategies and battlefield tactics, intrigues and ploys, and alliances of leaders, advisers and generals. Leadership, loyalty, heroism, military tactics and warfare strategy, treason, conspiracy, intrigues, and of course, romance, all these are embedded in the story. The novel also gives an incisive analysis of human nature. The novel clearly illustrates the Chinese historic embedded values and norms that guide people s behaviours and actions. Chinese often refer themselves and their life to the characters and events of the story, and consult it as a guide for behaviour and decision making. To test the validity of our choice of the Three Kingdoms as a proxy, we conducted indicative tests with two groups, a group of EMBA students from the remote region of Inner Mongolia and an executive group of Central China. The survey included three simple questions: 1) Have you read the novel and are you familiar with the story? 2) Which three characters do you like most and which three do you dislike most? And 3) What are the reasons for your choice? State three reasons for each of your choices. All in both groups had read the novel and were familiar with the story. 80% mentioned that in their business and life, they frequently refer to tactics and strategies described and practiced by characters of the novel. More importantly, the like most lists from both groups were identical (Appendix 1), and the dislike most lists are very similar. Result shows that people in central China and remote province identified the same core values and norms of their favourite key characters. Thus, we are reasonably justified in proposing that Chinese business people have a page shared and common understanding of this novel. While Chinese executives see the novel as an important inspiration source for strategies to succeed or survive in an intensely competitive local and global market, MNCs executives can use this novel as an historical key to understand business behaviour and strategy of their competitors in China. The novel provides a rare showcase of how Chinese formulate their strategy according to historically developed strategic principles. Using it as a key, MNCs executives can better understand their local counterparts competitive logics and mind-set. 1.2 The Three Kingdoms and Chinese Business Environment and Behaviour Here begins our tale. The empire, long divided, must unite; long united, must divide. Thus it has ever been (Ch. 1). These very first three sentences of the novel are a brief summary of Chinese history, and it appears also true for the Chinese market as a whole or any specific industry behaviour in China. Lured by the Chinese market, with an increasing affluence, and a well-educated and cheap labour force, MNCs invest heavily in China (Lieberthal & Lieberthal, 2003). They have overwhelming resources and capabilities - financial resources, management expertise, state-of-the-art technologies, and sophisticated marketing skills - and a clear competitive advantage. But with the remarkable Chinese economic growth in the last two decades, local companies growth is impressive and they prove surprisingly resilient. MNCs in China have to compete not only with international rivals, but also with these strong and fast growing local competitors (Zeng & Williamson, 2003). Guided by core values and norms of behaviours and armed with tricks and tactics learned from history, local firms competitive behaviour is often effective. In the novel, the dramatic posturings and righteous manifestoes, the unending intrigues and sudden changes of alliances, the forays and retreats, battles and campaigns, even the actual tactics and plots used, all have a familiar ring when considering the Chinese business environment. Local firms may take destructive Three Kingdoms style of competition as vivid examples to make sense of the disorderly or chaotic business competition. It does make sense in the Chinese context. Indeed, Chinese sees the market as a battlefield (Chu, 1991; Fang, 2006; Tung, 1994). In many industries, the first goal in the competitive battle is to destroy competitors and market mechanism. Faced with MNCs overwhelming forces, local competitors tend to behave destructively to drive the business environment into a chaotic situation to: (1) fish in the troubled water 2, (2) allow a new order to emerge from chaos. The destroy the old world and create a new one has been popularized by Mao s teachings. In the novel, when one warlord had enormous power, less powerful ones tried to create chaos to divert attention while growing. In practice, in a chaotic and disorderly business environment local companies seem to be doing well while MNCs get frequently lost. The suicidal price war of the 1990s and early 2000s, in appliance 2 For a description of the ancient stratagems see: Thirty-six stratagems, by an anonymous author written in about the 17th century page and beer industries, are good examples. In these industries, after a traumatic and chaotic period, local companies prevailed (Chen, 2003; Lawrence, 2000). Taking the Three Kingdoms as a metaphor for the Chinese business environment, and the behaviour of key characters as a clue for Chinese business behaviour, we analyzed the novel and derived lessons for firms involved in the Chinese market, in particular MNCs. In the story, while competing furiously with one another, competitors always try to cooperate, make alliances or peaceful deals to keep a delicate power balance. So do local firms in business competition. Confused by the deceptive behaviour of local firms, MNCs tend to neglect the fact that for Chinese subdue the enemy without fighting is always considered as the supreme excellence. If MNCs can correctly decode and interpret deceptive behaviour on the part of local firms, they could establish constructive and durable relationship with local competitors and partners, and achieve success. To support such a proposition, we use some key figures and events in the novel to describe what we believe are core Chinese values and norms pf behaviour. We then show that there is a paradox between Chinese core values/norms and observed business behaviour. We suggest that this paradox can be solved if one goes deeper into the relationship with Chinese partners and overcome what appears to be a barrier to trust. This requires surviving a sincerity testing and going through the buffer zone of behaviour (BZB). Finally, we offer suggestions as to how an attention to history can help to build a constructive, durable and fruitful business relationship. 2. A PARADOX: CORE VALUES/NORMS OF BEHAVIOURS AND DECEPTIVE BEHAVIOURAL TACTICS Though market potential and business opportunities in China are appealing, investors frequently and rightfully perceived that they are faced with a much uncertainty, not only because of the business institutional environment, but also because of Chinese business and customer behaviour (BCG, 2006). In Western media, Chinese business behaviour is perceived to be hard to predict, and poorly regulated, while business people are seen as lacking credibility (WSJ, 2006). Chinese business behaviour is based on deceptive tactics and tricks, leading frequently to a disorderly and chaotic business environment. Many foreign executives in China think that Chinese businessman can hardly be trusted (Graham & Lam, 2003). Experience highlights the fact that doing business with Chinese has always been a struggle for western executives, and decoding behaviour is seen as a major barrier for companies hoping to profit from this huge new market. Even the most successful companies, such as Danone, Unilever, or Coca-Cola, struggled to develop a good base in China (Chen and Vishwanath, 2005). After studying a large and diverse group of Chinese and western managers, Chen s (2001) argued that there is a profound misunderstanding of Chinese and their business behaviour on the part of westerners, stemming mainly from a lack of cultural knowledge. Misunderstanding runs so deep that for some, Chinese are baffling and Chinese behaviour is puzzling. However, l
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