Op-Ed Contributors

Business is not the same in China

By Wellington K. K. Chan (China Daily)
Updated: 2010-07-28 08:00

Why has China succeeded so spectacularly in the span of just three decades since the launch of Deng Xiaoping's economic reform? The reasons that are usually cited are China's compelling demographic, geographic and broad cultural factors. What is less understood is that China's success has also depended on its entrepreneurs - and their deeply rooted patterns of activity.

There are two key aspects of Chinese entrepreneurship. Traditionally, successful Chinese businessmen emphasized trust and reliability in fulfilling commitments (xinyong), the gradual development of sentiments (ganqing) with customers and suppliers, and the ability to build on networks of relationships (guanxi) that are often based on common origin or kinship. They also stressed the need to be bold, frugal and highly driven to succeed, as well as the ability to adapt to changing market conditions.

Some of these characteristics are more culturally specific than Joseph Schumpeter's description of entrepreneurship as a process of "creative destruction" might imply. But boldness and adaptability do accord with Schumpeter's emphasis on forming new combinations and doing things in new ways. For example, traditional businesses, from fabric wholesaling to banking and salt mining, evolved elaborate profit-sharing schemes among owners, partners and employees as their businesses expanded over time or into chain outlets across the country.

When new forms of business such as textile manufacturing and department stores came to China from the West in the late 19th century, Chinese businessmen quickly adopted them and adapted them to local conditions. More recently, local managers who took on McDonald's franchises transformed several aspects of the business to fit Chinese tastes and habits.

A second aspect of Chinese entrepreneurship is the kind of institutions and the management style that it embodies. I have studied many Chinese firms that flourished from the early 19th to the mid-20th century. They all seemed to have the following core features:

Small to medium size, with a relatively simple organizational structure;

Considerable overlap of ownership by individuals linked by family and kinship ties, or by partnerships among kin and family friends;

Centralized and disciplined decision-making;

Personal and family networking that encourages opportunistic diversification, transcending regional and national boundaries to expand;

Cooperation with affiliate firms to reduce transaction costs in sourcing, capital acquisition, and contracts; and

A high degree of strategic adaptability.