china's state enterprises
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A look to China's state enterprisesTRANSCRIPT
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Asian Business Studies/Hogeschool Inholland 1
China
Asian Business Studies
Ozan Can Koseley
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Asian Business Studies/Hogeschool Inholland 2
CHINA
Reforming managerial mechanisms of Chinese state enterprises
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Structural and managerial problems of the CSEs
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Managerial Development in CSEs4 STAGES
Nationalization – Soviet model 1949 - One director management system - Made contribution to the heavy industry - A poor fit with Chinese communist aspirations - China had very few technically trained managers Reforms 1956-1961 - Participation of party comittees and workers Cultural revulation 1965 - Managers are discredited, revulationary workers
were given the power Current reforms 1980s
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The line-function system of management
People in functional departments
Directors ideollagacilly loyal to the party
Independent system for each factory
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Problems within party structure
Resbonsibilities of enterprise leaders
An ideological control over enterprise
Power distribution
Inefficient structure
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Factory director
Fuctional department
Fuctional department
Sub- factory
Sub-factory
Sub-factory
Fuctional section
Workshop
Functional section
Production team
Production team
Production team
Production team
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2 additional systems to manage Life-support system - Support workers off-work activites
Sociapolitical support system - ACTFU -ACWF - Communist youth league - Militia
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Personnel management
Iron ruling chairs
No rights to hire or fire
Iron rice bowl
Political in doctrination
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Financial Management
State financial control
Restricted funds
Delivering income
Focus on product quantity and value
Lack of using funds
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Major reform measures and existing problems of the CSEs
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Reforms after 1979
The experimental approach
1984 China’s Economic Structure Reform
Industry responsibility system Profit and loss contract Enterprise director leads Reduced influence of the party Increased financial responsibility
Western management techniques
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But there still remains a series of major problems
The supply and demand balance has shifted to bigger supply More competition
Many CSEs still operate at a loss and depend upon state subsidies
The “Triangular debt” cycle
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Why these major problems?
CSEs had not yet obtained true autonomy
Many related policies in finance, pricing, and taxation lagged behind
Many CSEs had not established good sales mechanisms
Most of the CSEs still held on the old straight-line functional model
The CSEs still had to carry heavy social burdens by maintaining their life support systems
The “three irons” problems had remained very serious
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GOVERMENTAL MEASURES OF REFORMİNG THE CSES AND THEİR LİKELY İMPACTS
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The regulations for transforming Managerial Mechanism of the State
Owned Enterprises
Production management power Power to price service and products Power to sell their products Import and export power Power to make investment desicions Power to dispose of their properties Power to merge
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The regulations for transforming Managerial Mechanism of the State Owned Enterprises
Power to determine workforce Personal managementpower Power to setup various sub-
organizations Power to wage Power to refuse govermental
apportionment
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Power to manage production Scope of production and business
Power to demand contracts
Readjustment of supply
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Power to make investment desicions
Use reserve capital to invest on productive projects
International investment
Developing enterprises overseas
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Power to price products and services
CSEs freely set prices
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Power to import and export Choosing any foreign trade
institution
Power to participate in negotiations
Determine their own currency
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Power to manage human resorces
Deciding aspects for hiring employees
Hiring from abroad
Power to allocate wages and bonuses
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Regulations to intensify responsibilities
Link between total income and economic benefits
Responsibility of the directors
Responsibility of the CSEs
Corporate taxes leveled for all players
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The role of government in four main areas
Establishing a macro-control management
Promoting the role of market system
Social security system
Developing public facilities and welfare institutions
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Still problems to solve
Failing management
Uncertain ownership
Enterprise leadership
SOEs lag behind
Competition
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The guide for CSEs
The ownership issue A shareholding system Joint-stock companies Cooperation with foreign partners Relationship CEO and Party Focusing comparative advantage Tackle corruption Strategic alliances with other
enterprises
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Comparative Chinese managerial system
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Organisational structure
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CFBs and CSEs organisational structure
CFBs CSEs
Owned by families and regarded as private family properties
Owned by the state
Top management mainly consists of family members
Top management does not lay claim to the ownership of the businesses
Small companies Large or mid-size companies
Simple structure Overburdened with large bureaucracies
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MANAGEMENT PROCESS
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Comparison of CFBs and CSEs The management process
The control process
Guanxi and Xinyong
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Management process
Didactic style of leadership
Power distance
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Process control
Lack of measuring employee performance
Loyalty is important
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Guanxi and Xinyong
External relationships
Business ties
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COMPETITIVE STRATEGIES AND TACTICS
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Competitive strategies and tactics of the overseas Chinese in Southeast Asia
Low margin/high turnover Economy of scope
Political sensitivity and high degree of sophistication in forming alliances of convenience
Flexibility
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CSEs in mainland China
They have not been able to develop competitive business strategies until only recently
Why?
The CSEs were dominated and overprotected by the state in terms of industrial material input, market share, and financial support
They still have to develop their competitive strategies to be able to expand or even maintain their traditional market shares.
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