chinese managers and motivation for change

Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia

(ACESA)

Chinese Managers and Motivation for Change:

the challenges and a framework

Yuan Fang

and

Chris Hall*

Macquarie Graduate School of Management

Abstract

Chinese enterprises, both large and small, face enormous challenges in the next few years.

For managers to deal with these changes in a productive and constructive way requires

changes in management culture. This paper:

1) briefly summarises the main challenges being faced by Chinese enterprises in the short

and long term;

2) compares extant literature on management practices and culture in large and small firms

in China and the west;

3) develops and applies a conceptual framework for analysing Chinese management culture

and change, based on Triandis' dimensions of HI/HC/VI/VC.

The main conclusions of the paper are that:

• Chinese management practice, especially in SOEs, tends to be higher on Vertical

Collectivism than equivalent western management. This tends to reduce managers’

motivation for making the changes required to meet the challenges they face;

* Correspondence to: Associate Professor Chris Hall

Macquarie Graduate School of Management

Macquarie University

NSW, AUSTRALIA 2109

Email: [email protected]

Ph: +61 2 9850 7800

Fax: +61 2 9850 8630

Fang, Y., & Hall, C., ‘Chinese Managers and Motivation for Change: The Challenges and a Framework’. 1


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• To motivate Chinese managers to more effective management practice, there is a need to

change from the inflexible vertical culture to horizontal culture with more emphasis on

individualistic values. This suggests that SOEs need to learn from SME practices and the

way they accommodate Chinese culture and challenges.

Acronyms:

HI: Horizontal Individualism

HC: Horizontal Collectivism

VI: Vertical Individualism

VC: Vertical Collectivism

JVs: Joint Ventures

MNCs: Multinational Companies

SMEs: Small and Medium Enterprises

SOEs: State Owned Enterprises

TVEs: Township and Village Enterprises



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1. Introduction China has undertaken a series of economic reforms since the late 1970s. As a result, there

has been a move from central control towards more independent decision making by

managers. Enterprise development has been a major driver of economic growth, coupled

with the associated FDI (Foreign Direct Investment) and technology transfer. This has seen a

steady change so that SMEs and individual entrepreneurs have become more important.

These SMEs were, and still are predominantly collectives, such as TVEs (Town and Village

Enterprises). SMEs contributed much of the economic gains until the mid 1990s (Qian,

2002; Gibb and Li, 2003), when private enterprises started to play a more important role

(Yang, 1999). Large State-Owned Enterprises (SOEs) were central to the planned economy,

but have generally been responsible for the destruction of large numbers of jobs as they seek

improved efficiency. Most SOEs were not subject to economic or market pressures, and have

had difficulty adjusting to the progressive opening of the Chinese economy. SMEs, by

contrast, have been more flexible.

This paper seeks to explore the trends of, and similarities, and differences between Chinese

SOEs and SMEs in terms of their management culture. A modified version of Triandis’ four-

set typology is used as a framework for this analysis, and specifically to to analyse the

process of change. This conceptual framework allows the development of recommendations

and predictions aimed at improving management cultures and processes in the context of

China's unique political, economic, cultural and social context.

The paper is organised as follows. First the main challenges faced by Chinese enterprises are

summarised. Second, the importance of cultural factors as an influence on managerial culture

and motivation to change is reviewed. Third, Triandis’ HI/HC/VI/VC dimension is used as a

framework to analyse national culture. Fourth we examine the differences between

management practices in Chinese SOEs and SMEs. Fifth, we use a modified version of

Triandis' conceptual framework to show how changes in Chinese management practice can

be facilitated so as to increase the motivation to adapt.



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2. Challenges and Opportunities for Chinese Enterprises

China has shown its increasing significance economically, socially and politically on the

world stage over the last three decades. As a result, Chinese organizations and their

management practice have attracted growing attention. Three decades since China launched

its economic reforms in the late 1970s, some “hard” economic figures sketch a portrait of

China’s success stories. China has maintained an average growth rate of 8% p.a. for more

than a decade. This was largely unaffected by the 1997 Asia crisis and September 11 2001

(Hewitt, 2003). It is, of course, not coincidental that some estimates suggest that China's

GDP growth rate needs to be around 8% if unemployment is to be held in check (Hall,

2002b). China was second only to USA in terms of Purchasing Power Parity estimates of

GDP by 2000 (Wong and Lu, 2002). The vast potential market and growing favourable

policies have made China the “dream destination” (Dunne, 1995 :13) for investment and the

most popular place to set up multinational companies (MNCs) and joint ventures (JVs) in the

last few decades.

However, the other side of the coin is that China faces enormous challenges in its economy as

a whole. Chinese SOEs, once the pillar of the Chinese economy, are especially under stress.

China’s hard-won accession to WTO offers both opportunities and threats. Entry to WTO

means that only enterprises in a few selected industries can still receive government

protection for a limited number of years, while the majority of domestic enterprises will have

to face an influx of foreign competitors. By around 2010 most enterprises in most industries

will have to compete on a global playing field, although whether it will ever be quite level is

another question again.

Whether China can maintain a high rate of development and achieve further economic and

political gains depends very much on the managers and the employees of Chinese enterprises.

Managers play an especially important role as they are the people who lead, implement, and

oversee the continual change in this special historical period of transitional economy. Brown

and Porter (1996:8) pointed out that “effective and competent managers” are “the key

determinant of China’s continued modernization”. We posit that management culture is an

important factor in determining the ability of Chinese enterprises to deal with the economic

challenges they face. Other factors are also important, for example, different ownership types

(e.g., Brown and Porter, 1996; Kelley and Luo, 1999; Sun, 2000; Qian, 2002), and corporate



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governance (e.g., Tam, 1999; Shi and Weisert, 2002; Wei, 2003). However all of these tend

to be reflected in corporate culture.

3. The need to change and the cultural context

Chinese managers and their organisations, both large and small, face enormous pressure to

change. The practical issue is how to facilitate this process of change. A constellation of

factors contributes to the formation of managers’ motivation to change. Without the

motivation to change, change will not occur. Underlying managerial motivations are broader

cultural contextual aspects. However there are good reasons to believe that the managerial

culture pervading SMEs will be more adaptable and flexible than that of the larger SOEs.

There are three reasons why a broader cultural context is important:

• First of all, though culture is by no means an exclusive explanation for management

practice (Lockett, 1988), the contextual effect is still important. Contextual factors

include situational and cultural ones (Luque and Sommer, 2000). Cultural factors are

more stable and predictable; above all, culture is also “one of the most important

contexts” (Triandis, 1996:408).

• Second, national culture serves as only one of the layers of culture, yet it is an essential

one that provides the broad background for other layers of culture and has much influence

on them. Apart from national culture, regional, ethnic, occupational and organizational

cultures also have an impact on management practice (Trompenaars, 1993; Hofstede,

2001). All these, to varying degrees, reflect and are constrained by the wider national

cultural milieu. For instance, organizational culture is strongly influenced by national

culture, a classic reflection of which is the much-cited Hofstede study (Hofstede, 1980)

conducted with IBM companies worldwide. Although IBM is known for its strong

organizational culture, rich national culture differences have been identified among

subsidiaries of this multinational company. Research literature of this nature leads to the

conclusion that national culture cannot be moderated or erased by organizational culture

(Adler, 1997).



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• The third reason lies in the linking function national culture serves between value and

behaviour. As Rokeach (1968:160) put it, this is because value is “a standard or yardstick

to guide actions, comparisons, evaluations, and justifications of self and others”. Culture

and behaviour find reciprocal relationships through values and their reflection on attitudes

(Adler, 2002). The influence of culture on behaviour is a cyclic and affirmative process.

As Adler (1997) summarises, culture defines and determines the values individuals hold

in the group and thus they determine what attitudes would be appropriate and reflect their

choice of attitudes through their behaviour. Behaviour, in turn, influences the culture (see

Error! Reference source not found.), but value is acknowledged to be “the central

tenets of a society’s culture” and constitutes the “cognitive building blocks of culture”

(Nicholson and Stepina, 1998:34, 46). Tse (1998) pointed out that value is at the core of

the onion should we treat different layers of culture as onion layers.

Although national culture is important, it does not fully explain the complexity of

management. Neal (1998:137) pointed out that “National culture has become a catch-all

category that takes on the role of all those other innumerable factors that we either overlook

or ignore. We should deal with these residual factors as residual factors and not put our faith

in this catch-all category”.

Figure 1: Influence of Culture on Behavior

values behavior

culture

attitudes

Source: Adler (1997:16)



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4. A conceptual framework for understanding motivation and change in

Chinese management

Given that Chinese managers face enormous challenges, and given that culture is an

important underlying factor in determining managers’ propensity and ability to change, we

seek to develop a conceptual framework for empirical work on facilitating the change

process.

Key dimensions of national culture are its individualistic/collectivistic constructs (Kim,

Triandis et al., 1994; Triandis, 1995). Of these the HI/VI/HC/VC dimensions developed by

Triandis (1995) have received much attention. We find these the most useful to explain

differences in management culture between Chinese SOEs and SMEs. Central to Triandis’

theory of individualism and collectivism is the horizontal/vertical construct, which reflects

whether people accept inequality or perceive everyone as of equal status. To elaborate on the

four-set typology, Triandis (1995) concludes that horizontal individualism stresses sameness

and independence while horizontal collectivism sameness but interdependence. Vertical

individualists treat people as different and stress independence while vertical collectivists

hold that people are different but interdependent.

Figure 2: Conceptual Framework

VI Vertical individualism

culture imposed by individual

decisions made by a leader or boss

high China, India

high

USA

Israeli Kibbutz high

VC Vertical collectivism

culture based on group decisions, but these

are imposed through a vertical hierarchy

HI Horizontal individualism

culture based on individual decisions

made by equal but independent agents

HC Horizontal collectivism

culture based on group

consensus and equality

Australia

high



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A modified version of this is set out in figure 2. There are two main dimensions,

individualism and collectivism. Individualism runs along the vertical axis. A culture of

Vertical Individualism (VI) treats people as different and stresses independence, while a

culture of Horizontal individualism (HI) stresses the equality of the decision-making agents

as individuals. The horizontal axis registers collectivism (as opposed to individualism).

Vertical Collectivist (VC) cultures emphasise the enforcement of group decisions and values

through a vertical or hierarchical process, while Horizontal Collectivism (HC) is more a

culture of equal consensus.

A full distribution of HI/HC/VI/VC dimensions can be seen in every country and culture.

However, according to Triandis, China and India are examples of vertical collectivist

countries while Australia is horizontal individualist, and the USA vertical individualist.

Israeli kibbutzim are examples of horizontal collectivist cultures. The criterion for

categorising countries is based on the percentage of people who fall into each category. For

instance, Triandis (1995) stated that while China has all four types of cultural characteristics,

there are more Chinese people who are vertical collectivists than those of other types.

Triandis' construct develops earlier work. For example traditional practice places

individualism and collectivism at polar opposites on one continuum (e.g., Hofstede, 1980;

1991), Triandis and other researchers (Triandis, McCusker et al., 1990; Schwartz, 1994;

Triandis, 1995; Kurman and Sriram, 2002) express their concern over the unidimensionality

of this claim. They posit that rather than being two contrasting concepts, individualism and

collectivism are interdependent; there is only a difference in degree to which a culture or an

individual is closer to one pole or the other. Furthermore, an individual may in some

circumstances show individualistic attributes while in others collectivistic ones. Drawing

from Hofstede’s two dimensions, Triandis proposed a four-set typology by introducing

horizontal and vertical axes to further differentiate the cultural patterns of countries. Other

researchers (e.g., Schwartz, 1994; 1999) also reported similar findings; however, Triandis’ is

the most explicit and widely used construct. Empirical support for HI/HC/VI/VC dimensions

in a number of countries and at different levels of analysis (e.g., Singlelis, Triandis et al.,

1995 in USA; Gouveia and Clemente, 2000 in Spain) give weight to the validity of its

constructs and measurements.



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5. Management practices and culture in Chinese SOEs and SMEs

Government-enterprise relationships in China have changed significantly since the reform

process was initiated in 1978. Wei (2003) summarises the reforms in three stages:

Stage 1) end of 1978 - mid 1980s, decentralization of governmental control and delegation of

responsibilities to enterprise managers;

Stage 2) mid 1980s - early 1990s, the establishment of long-term contracts between

enterprises and administrative departments; and

Stage 3) from 1993 onwards, when there has been a steady increase in the number of

independent SMEs, and significant changes in the management of the SOEs.

The main focus of China’s economic reform is on the state-owned enterprises sector. SOEs

had been a pillar of the Chinese economy and the economic reforms of 1978 aimed to

maintain the liveliness and importance of SOEs. Wu Bangguo1 reiterated the importance of

SOEs to the Chinese economy in 1998, emphasising that a nation’s large enterprises and

enterprise types manifested a nation’s economic might (Nolan, 2002:121). The impact of

SOEs failure on China is not only financial and economic, but also social and political

(Huang, 1997). Chinese SOEs are not ready to compete on a global level playing ground

(Nolan, 2002). Even domestically, SMEs are doing far better than SOEs. More than two

decades after 1978, an enormous gap can be seen in their financial performance. Small and

medium enterprises have out-performed their giant state-owned enterprise counterparts. Since

the reforms started, China’s economic growth has come predominantly from non state-owned

enterprise. Rapid growth up until the mid 1990s came from Township and Village Enterprises

(TVEs) (Qian, 2002; Gibb and Li, 2003), since then private enterprises have caught up and

become the engine of growth (Yang, 1999).

The restructuring of the SOEs has been going on since the reforms of the early 1980s, and

was accelerated in the 1994 reforms. Accession to WTO in 2001 has increased that pressure

1 Wu Bangguo has been Vice-Premier of the State Council and secretary of the Work Committee of Large Enterprises since 1998.



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even more. Up until the 1997 Asian Crisis it was more or less officially assumed that the

Japanese kieretsu, or Korean chaebol model would be the best for the revitalised SOEs. The

qiye jituan are the Chinese equivalent. The qiye jituan emerged in the mid-1980s as

coalitions of firms from multiple industries that interact over long periods of time and that are

distinguished by the elaborate interfirm networks of lending, trade, ownership, and social

relations that comprise them. The organisational structure of these business groups resembles

a conglomerate, but their relatively exclusive internal relations make the groups highly stable

and resistant to reorganisation (Keister and Lu, 2000). The adoption of a qiye jituan model

meant that the SOEs themselves would not be privatised, but would be held in a cross holding

structure which was market-driven, and ultimately answerable to the State. Competitive

strength was assumed to come from the networks and linkages of a group of large firms.

Whilst these organisational structures (and their predecessors, like the zaibatsu) served Japan

and Korea reasonably well during critical periods of their development, it must be

remembered that this development took place in a world characterised by extensive

protectionist barriers to trade and FDI, not in the global post-WTO world that China is

competing in. Furthermore, the kieretsu and chaebol were less successful in becoming

flexible enough to cope with the sudden turbulence of the 1997 Asian Crisis (Hall, 2002b).

SMEs, especially privately owned SMEs, have grown much faster than the rest of the

Chinese economy, though from a small base in the early 1990s. It is difficult to accurately

gauge the number of SMEs in China because the basic defining characteristics used to

distinguish SMEs have been changed at least four times since the 1950s, and for most of the

1990s China used different definitions for different industries. On the best information

available, China had about 8.6 million non- agricultural SMEs in 1990 (China Yearbook,

1991), and this had actually declined to about 7.9 million by 1998 (Chen, 2000). Most of

these so-called SMEs were actually state-owned enterprises (SOEs) or Town and Village

Enterprises (TVEs); some of them were quite large, and by their nature more bureaucratic

than entrepreneurial. The number of active private sector entrepreneurs in China is even

smaller, especially considering China’s population of 1.2 billion people. In 2003 there were

only about 1.8 million private sector firms.

An examination of Chinese management culture since 1949 indicates both stability and

change. Chinese management culture may be divided into three stages: first, traditional



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management culture; second, management culture derived from communist ideology; and

third, the introduction of western management ideologies.

First, traditional management schools may be classified into those based on governance

principles, and those of strategy. Of more relevance to the current study is the school of

governance principles. Traditional Chinese management culture is most influenced by

Confucianism and of secondary significance is the legalist school. Confucian ideologies may

be summarised into three Hs; harmony, hierarchy and humanness. "Harmony" is about the

relationship of one human to others, and to nature. "Hierarchy" focusses on relationships

within the group. "Humanness" is concerned with the approaches to achieve harmony and

hierarchy. Of the three, harmony plays an essential role and sets the tone for other

characteristics. In contrast to the West’s emphasis on individuals, family units are the basis of

Confucian ideology and Confucian ideas place high emphasis on this virtue. To achieve

harmony, Confucian thought calls for obedience to authority and hierarchy. Legalist

formalisation of this value emphasises the power of bureaucratic administrative systems.

Authoritarian system and emphasis on hierarchy, which are embedded in and extended from

Confucian ideology, bring to the discipline of management a tradition of vertical relations

between leaders and followers. Furthermore, the importance of family and kinship relations

in the workplace is reflected in the fact that people are encouraged to work for collective

goals rather than for individualistic ones.

Second, apart from the traditional management culture (which may be interpreted as vertical

collectivism in Triandis’ terms), Chinese management culture, since liberation, has absorbed

newer ideas; communist ideologies from the Soviet Union from 1949 (or even earlier) to the

1960s and Western values since reform. While Communist ideology confirms the

collectivistic values of Chinese management, equality is not as deeply rooted there.

Third, a real change has occurred since China’s launch of economic reforms. A feature of

Chinese management culture since 1980 is a differentiation of management style between

SOEs and SMEs. These differences are explored in more detail below. The differences in

management culture are variously explained by factors such as the government-enterprise

relationship, ownership types, and the incentives provided to managers.



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Management Culture and change in SOEs

A feature of the Chinese management tradition is its unique integrated management entity

that differs from its western counterparts (Laaksonen, 1988). In Western countries,

management refers to management in industrial enterprises and managers are agents

employed by owners to oversee the running of an enterprise. However, in China some

managers are party appointees (Child, 1995 quoted by Shenkar, Ronen et al., 1998; Zhang

and Parker, 2002). In 1949 China’s managerial resources were grouped into five categories:

1) the existing managers of enterprises; 2) members of the Communist Party; 3) People’s

Liberation Army members; 4) higher educational institutions; and 5) the civil service

(Laaksonen, 1988). The composition of management has changed in recent years and SOEs

have seen more freedom in selection of middle managers but government still plays an

important role in top management appointments (Zhang and Parker, 2002). Perotti, Sun and

Zou (1999:169) cautioned against an overestimation of the change of managerial resources in

China, pointing to “severe entry and exit barriers to the SOE managerial labor market”. Thus,

this selection of managers has posed a management problem and developed a management

culture that strikingly resembles the management culture of the Party. However, business

management is different from public management. The management culture which they bring

into enterprises is thus different from that of people from a free-market economy background.

A larger proportion of managers of SOEs are Party appointed and hence, the problem is more

serious there. In comparison, SMEs have enjoyed more freedom in choosing their managers,

and employees.

Another factor that helps form the current Chinese management culture in SOEs is the

environment Chinese managers operate in. Managers in SOEs feel that they shoulder a heavy

social burden (e.g., housing, offering social welfare for retired ones, etc.) and have to perform

political functions (Shenkar, Ronen et al., 1998) which distract their attention from

overseeing production performances. Perotti, Sun and Zou (1999:170) summarized the roles

Chinese SOE managers have to perform as a triple responsibility: entrepreneur;

“governmental official”; and “the chief of the SOE community”. Managers who are

appointed to the positions are most concerned with having good relationships with superiors

and government (Laaksonen, 1988; Perotti, Sun et al., 1999; Sun, 2000). Ambiguity of

property rights as a result of a lack of direct correlation between managers’ compensation and



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enterprise performance leads to an over-reliance on evaluations by government officials of

managers’ performance (Sun, 2000). Boist and Liang’s finding (1992: 171 quoted by

Shenkar, et al., 1998: 52) is a good example of the misdirection of effort. According to

Shenkar et.al (1998:52), “Boisot and Liang (1992: 171) found that in China, “directors spend

the same amount of time looking down the administrative pyramid as do their western

counterparts, but four times as much time looking up, that is, on business involving one’s

superior.”

While Chinese management culture inherits the respect for hierarchy and authority from its

national culture, the vertical relationship reflected in SOE cases has a twofold dimension. In

SOEs, hierarchy is very obvious and the vertical relationship is reflected both within

enterprises and between enterprises and government. The strongest evidence for a highly

vertical organization is “the number of levels or reporting relationships between the first-line

supervisor and the senior executive (Ashkenas, Ulrich, Jick and Kerr, 1995:11) and the

symbol of vertical relationship lies in the privilege attached to different ranks (Ashkenas,

Ulrich, Jick and Kerr, 1995).

Central control and concentration of power at the top echelon of management and lack of

delegation in decision-making has historical causes. For example a one-man style of

management emerged in the period from 1949 to 1978, as a result of the introduction of

Soviet technology and equipment and Leninist-Stalinist-style communist ideology to China.

In SOEs, this one-man management is always in the form of the de facto “party secretary one

man management” (Lockett,1988:481) due to the heavy influence of party on management.

The very idea of change itself is not the preferred value in China. It is documented and

estimated that the dominant Chinese culture values are high power distance, high uncertainty

avoidance, and low individualism (Hofstede, 1980; 1991) which are diametrically opposed to

those of most organisational change and design programs: low power distance, low

uncertainty avoidance, low masculinity, and medium individualism (Sun, 2000). It is not

surprising then that the Chinese SOE managers’ motivation to change their behaviour is

weak. In recent years, Chinese SOEs face more immediate challenges to change their

practice due to the growing pressure from the government, which, in turn, makes Chinese

SOE managers feel that they need to change. However, Chinese SOE managers’ motivation



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to change is rather passive. The talk of change will continue to be largely lip service until the

economic safety and fringe benefits attached to the position of Chinese SOE managers come

to an end, and rewards are performance-related. In a nutshell, more determined resolution is

needed from the government regarding SOE reforms. Many current practices need to be

terminated: for example, “protection”, an instance of which is the allocation of managers to a

similar post in another enterprise rather than being fired if managers are not successful in

their management, and the leeway many managers exploit to keep good relationships with

government officials by offering them benefits in the form of large “other expenses” in SOE

account books (as Perotti, Sun and Zou (1999) reported). Otherwise, this culture of “lazy and

slow to adapt to change” of SOE management will continue. Another factor is the ambiguous

property rights of SOEs. There is no direct correlation between their compensation and the

performance of the enterprise they manage. Almost half of the SOEs' executives (42.7

percent) were dissatisfied with the situation (China Entrepreneur Survey System, 1995) as

quoted by Sun (2000). As the environment becomes less favourable for SOEs, they face a

loss of privileges attached to state-ownership, and an erosion of property rights.

To summarise, the management culture of SOEs is typified by a strong vertical collectivist

practice both outside the enterprise (ie as SOEs relate to government) and within the

enterprise. Although reforms have made SOE management subject to increased pressure to

perform, the management culture is still one of reacting to superiors' orders. There is thus

resistance to change and adaptability, as managers tend to be protected by the system, and are

more concerned with responding to the orders of superiors than anticipating and grasping the

opportunities created by environmental change. Only where SOEs are led by visionary

managers is there likely to be a real shift in performance, and the overall management culture

works against this.

Management Culture in Chinese SMEs

Most SMEs in China are really small SOEs. Only a relatively small proportion of SMEs are

privately owned entrepreneurial ventures. For our purposes though we focus on these

individual entrepreneurial SMEs.



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Tan (2001:359, 360), whose work is based on primary research interviews and surveys,

shows that " Significant differences were found between managers and entrepreneurs in their

reported environmental characteristics, strategic orientations, size, and firm performance,

indicating that managers are not as innovative and are less willing to make risky decisions

than entrepreneurs. Being smaller and faster than SOEs, entrepreneurial firms have adopted

some strategies that distinguish them from their larger and more established competitors.

Speed, stealth, and sound execution allow entrepreneurs to harvest first-mover advantages

and thus increase their chances for survival in a turbulent environment." This reflects broader

social and cultural changes. For example, Sun (2000: 382) noted, "Becoming wealthy by

working hard is the first priority for two-thirds of Chinese people (Tapscott, 1996: 6). The

university graduates' pursuit of autonomy, challenging and advancement in finding a job

(Sun, 1999) means a big change in work values. This is consistent with Lockett's (1988)

observation about values change in current China: there has been a growing individualism in

the mainland since 1978, even though group orientation still remains a relatively strong

feature of Chinese culture. Chang (1985) observed a similar trend in Taiwan in the early

1980s, where people were becoming more individualistic as a result of modernization."

An increasing number of multinational subsidiaries and joint ventures have entered the

Chinese market: these companies and managers (expatriate or overseas-educated) act

unconsciously as agents for change in work values (Ralston, Holt et al., 1997). With the

increasing commercial stake that US firms are taking in the Chinese market, the export of

American managerial techniques and management culture is flourishing. The introduction of

western management ideas into China is a quite recent phenomenon (Mathur, Zhang et al.,

2001), but the speed of spread is quick (Su, Zhang et al., 1998).

A feature of the management culture of SMEs is their willingness to anticipate change and

grasp opportunities. Due to the lack of advantages offered by government (Perotti, Sun et al.,

1999), SMEs tend more to “active change” in comparison to SOEs’ more passive approach.

For example, Tan (2001) observes that "entrepreneurs knew that historically the government

policy has been unstable, and a favorable entrepreneurial environment may not last. As a

result, entrepreneurs were more likely to identify a market opportunity, move in quickly and

gain rapid return. Because profits accrue directly to them, entrepreneurial incentives to accept

risk are far greater than for [SOE] managers of Chinese non-private sectors (Tan and


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Litschert 1994). Furthermore, being more tolerant of ambiguity and more comfortable with

environmental complexity and strategy novelty than [SOE] managers (Begley and Boyd

1987), entrepreneurs may deliberately seek unstructured situations. For these entrepreneurial

individuals, goal accomplishment is not predicated on uniformity, stability, or predictability,

but on complexity, dynamism, and hostility. In addition, entrepreneurs tend to be overly

optimistic in analyzing environmental information (Busenitz and Barney 1997), particularly

when they are relatively unfamiliar with the problem and/or substantial uncertainty exists"

(Tan, 2001). All this points to a strong HI orientation amongst Chinese SME managers,

motivated to capture short-term opportunities.

In summary, Chinese private SMEs have tended to adopt the western management

orientation to individualism, and for cultural reasons this has tended to be Horizontal

Individualism, blended with Horizontal Collectivism as a means of integrating with the

Chinese administrative system. Thus even in private SMEs there is a recognition of the need

to maintain relationships with others in a group, particularly where that group is influential

and determines property rights. In general though, there is a much greater motivation

amongst SME managers to seek out and take advantage of change.

6. Chinese Management and Change

Based on the foregoing, we argue that:

1. Chinese organisations, both large and small, tend to be clustered around the Collectivism

scale while their western counterparts cluster more around the Individualism scale. For

example in figure 3, Chinese SOEs are high on the VC scale while TVEs have tended to

be high on the HC scale. Some Japanese, Korean and Taiwanese joint ventures in China

have tended to make use of HC in motivating lower level managers and workers to higher

levels of performance.

2. Smaller firms, both Chinese and Western, tend to be higher on the horizontal scales, HI

and HC, than larger firms. Smaller firms are thus typically more flexible and adaptable.

As organisations grow larger, they tend to move more to a vertical culture, and become

less adaptable.






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3. Larger, more traditional and less flexible organisations in both China and the west are

high on vertical scales, while more flexible, adaptable organisations tend to be higher on

horizontal scales. An exception to this is where a visionary leader can steer an

organisation in a completely new direction, but it is relatively rare that an individual can

do this successfully for extended periods in a turbulent environment. Thus in figure 3

Chinese SOEs are high on VC, while large western firms are high on the VI scale. In

Chinese SOEs, enterprise profit and market performance are often subsumed by broader

political/party issues in the decision-making process. Large hierarchical corporations in

the west have tended to follow a more VI approach to management; decisions are made

by a leader (or a small leading elite, represented by a Board of Management) and imposed

through a hierarchy. These Vertical approaches tend to be inflexible, and have difficulty

adapting to rapid and unpredictable change. Western large firms face the problem of

adjusting to change by simply changing the leaders, but this is often done after the

problems have become obvious. Similarly, most SMEs (and many TVEs) in China are

really just small SOEs, and are high on the VC scale.

4. Smaller more flexible organisations tend to be high on the HI scale. SMEs generally tend

to use more individualistic approaches to management. Individualism and adaptability is

the hallmark of most entrepreneurial organisations. Because the organisational unit is

small, decisions tend to be made within the organisation in a more horizontal manner.

Western SMEs tend to be higher in HI, and we contend that Chinese private SMEs are

probably higher on HI than their SOE counterparts. Some (but not all) TVEs may be

higher on HC; because of their community role and context, they tend to be more

adaptable. Many large western corporations have sought more flexibility and adaptability

by means of a more HI oriented approach to management. These organisations are

structured into different business units, each of which operates fairly independently

within a broad strategic framework provided by the central leadership. Business units are

independent to varying degrees, and although there are still decisions from the top, many

important decisions are arrived at by a process of the individual efforts of independent

agents in the business units, and sometimes at work-team level within business units.



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Figure 3: Management Culture in China and the West

less flexible and adaptable

western management focus

Chinese management focus

VI Vertical individualism

management culture imposed by individual

decisions made by a leader or boss

high ▲Chinese SOEs management

high

▲traditional western hierarchical large

company management

Traditional Chinese TVE ▲ hinge

VC Vertical collectivism

management culture based on group

decisions at party level, but these are

imposed through a vertical hierarchy

HI Horizontal individualism

management culture based on individual

decisions made by equal but independent

agents

HC Horizontal collectivism

management culture based

on group consensus and equality

▲Chinese private SMEs

▲ Western SMEs

high more flexible and adaptable

All management takes place in a broader socio-political and cultural milieu. In China's case

this culture has tended to be one characterised by Collectivism, especially Vertical

Collectivism. However, the environment in which Chinese managers must now manage is

turbulent, uncertain and much more competitive than it has been before. A vertically

collectivist culture is not suited to rapid adaptation. The motivation of most managers in such

a culture is not to adapt to the environment as much as to respond to superiors. The nature of

property rights and power in China is such that superiors are not necessarily motivated to



(ACESA)

respond to environmental changes until they are forced to. The real issue then is how can

Chinese management culture be changed so that it is best suited to the changing

environment?

China is currently addressing this problem in three related ways:

1. Increase senior manager responsibility and accountability. This move is already in

place, as seen by increasing performance pressures on SOE managers. The problem is

that this might just shift SOE managers from VC more to VI, as in large western

hierarchical companies. If this happens, which is probable, it is unlikely to increase the

adaptability and flexibility of the SOEs. Organisations high on the vertical scale (VC and

VI) tend to be less adaptable.

2. Break the SOEs into smaller semi-autonomous business units. This is being done by

means of organisational restructuring, including privatisation. The problem is that many

SOE managers have had very little experience of independent, individual management.

Thus they are unlikely to be able to adopt an HI culture without some form of incentive.

They are more likely to continue with a culture of VC, or HC, neither of which will be

very flexible or adaptable.

3. Encourage the emergence of more entrepreneurs and SMEs. This is also being done, and

the growth of independent private SMEs has been exponential in recent years. However

there are still only about 1.8 million private sector entrepreneurs in China. There is no

shortage of nascent entrepreneurs in China, but only a small percentage have had practical

experience of running an SME in an independent manner. The nature of China's

bureaucratic system means that most of the 8 million or so SMEs are actually small

SOEs, and are closely integrated with the state. The emergence of a strong independent

SME sector is what has given other economies (notably Japan, Korea, and Taiwan) the

necessary flexibility and competitiveness. Estimates suggest that China needs another 50

to 60 million more experienced entrepreneurs if it is to compete effectively in a post

WTO global world, and create the necessary jobs to stave off unemployment (Hall,

2002a).



(ACESA)

In China, the motivation for management to instigate change in anticipation of external

challenges has been muted by broad cultural and organisational factors. The modified

Triandis framework used here suggests that there is a strong need to shift away from Vertical

Collectivist management culture, to a more Horizontal Individualist one. The problem is that

there is no coherently stated strategy for doing this in China. Attempts to increase the

responsibility of senior management in SOEs, and to break up the inefficient SOEs into

smaller business units have been mostly driven by financial issues. The creation of new

SMEs and toleration of entrepreneurs has been more a response to the success of the Deng

dictum "to be rich is glorious".

7. Summary and Conclusions

China faces enormous challenges in its economy as a whole. Chinese SOEs, once the pillar

of the Chinese economy, are especially under stress. With this comes the problem of rising

unemployment, especially in the less developed regions. Accession to WTO by China means

that within the next few years, most enterprises in most industries will have to compete on a

global playing field, although whether it will ever be quite level is another question again.

Currency adjustment is a question of "when" not "if", and the artificial protection that has

been offered by a fixed Yuan to a falling US dollar will be eroded in the next few years.

Financial system reform, and the addressing of the bank bad debt problem simply add to the

list of challenges.

A constellation of factors contributes to the formation of managers’ motivation to change.

Without the motivation to change, change will not occur, or if it does, it will be externally

enforced upon organisations. Effective and competent managers are a key determinant of

China’s continued adaptation and modernisation. We posit that management culture is an

important factor in determining the ability of Chinese managers to deal with the challenges

they face.



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The main conclusions of the paper are:

First, Chinese management practice, especially in SOEs tends to be higher on Vertical

Collectivism than equivalent western management, except in a relatively small proportion of

independent SMEs. This tends to reduce managers' motivation for making the changes

required to meet the challenges they face. Whilst Chinese SME managers are motivated to

adapt and cope with change, there are at present relatively few SME private SME managers,

and their motivation is oriented to short term opportunities.

Second, to motivate Chinese managers to more effective management practice, there is a

need to move from the present dominant inflexible vertical culture toward a horizontal

culture with more emphasis on individualistic values and responsibilities. This represents a

sea-change in cultural values in China, although not necessarily in the Chinese. As is

sometimes observed, the Chinese Diaspora is not lacking in entrepreneurs; it is only in China

that there is a shortage of entrepreneurs. The motivation of most managers in the present

dominant SOE management culture is not to adapt to the environment as much as to respond

to superiors. The nature of property rights and power in China is such that superiors are not

necessarily motivated to respond to environmental changes until they are forced to.

Enforcing change from the top (by changing the responsibilities of SOE management, and

breaking SOEs into small units) can only hope to have limited effect. To shift management

culture from VC and VI more to HI it will also be necessary to lead by example. That means

encouraging the growth of millions of new entrepreneurs in China, and learning from their

experiences. There does not seem to be a strategic plan for doing this.



(ACESA)

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