Doing Business in China:
Opportunities and Challenges
Enping Zhuang
Shanghai University
enpingz@hotmail.com
22nd March, 2012
Opportunities:
Shanghai Strategic Mission before 2020
To build “four international centres
 Shanghai international economic centre
 Shanghai international trade centre
 Shanghai international financial centre
 Shanghai international shipping centre
Collaborations between/among countries at different levels
Business corporations
International business
Education collaboration
Challenges

What is the problem in the age of globalization
1. Cultural differences / cultural conflicts
Cultural differences are unavoidable
Cultural conflicts can be avoided
2. Communication or effective communiction
3. Intercultural competence
IC Competency Model for Global Managers
(MAKS-Model)
Intercultural
Awareness
Psychological
Adaptation
Intercultural
Perspective
Flexibility
Cultural
Global
Adaptation
Mentality
Intercultural
Competence
Knowledge
Culture
Culture--General
History
Politics
Religion
system
culture
Culture--Specific
Value
Norm
Custom
Way of thinking
Communication style
Communication
Skills
Nonverbal
Communication skill Communication
skill
Communication
strategy
M: Mentality A: Adaptation
K: Knowledge S: Skills
Intercultural Appraoch
Culture is like an iceberg
Culture A
Culture B
Similarity or Difference
From
East and West
Little
A
B
to
East and East
West and West
A
B
Management Approach
Much
Values
Values
Intercultural Approach
Perception
Perception
Culture B
Culture A
Ways of
thinking
Ways of
thinking
Beliefs
Beliefs
Communication
style
A
B
Communication
Style
Conflict zone
Culture C
(Culture
synergy)

Different communication styles
♦ Direct and indirect / Explicit and implicit
♦ Verbal-based understanding
♦ Context-based understanding
♦ Speaker oriented communication style
♦ Listener- oriented communication style
Different ways of thinking
Chinese & Korean
Chinese
English
English
Spanish/Latin
Russian
Analytic Way of Thinking
 Holistic Way of Thinking
♦ Think from specific to general
♦ Think from general to specific

Situations
Writing
Speech
Communication
Discussion
Business Negotiation
Performance Evaluation
Look what went wrong with global M/A
◆ Approximately 65% to 85% of mergers fail.
A failure to develop and execute an appropriate post-merger
integration (PMI) strategy. (L.J. Bourgeois, Lipi Patel, 2009)
◆ Harvard Business Review claims 70% of major acquisitions
fail (David Harding, Sam Rovit, 2004)
◆ Pekala (2001) discovers that cultural integration is ignored in
the majority of business combinations. This is a major reason
why 60 percent to 80 percent of all business combinations
undergo a slow, painful demise
◆ By some estimates, 85 percent of failed acquisitions are
attributable to mismanagement of cultural issues.
(Roger Miller,2000)
◆ But how you handle cultural integration can make or break
the deal. (Till Vestring, Brian King, Ted Rouse, 2003 )
What’s Wrong with the U.S. Best Buy
Best Buy, the America's largest consumer electronics
retailer, closed its branded stores in China in February
2011 after its operation of 7 years.
Bust Buy intends to reopen its stores in 2012
Best Buy’s Failure in China
Management failure or culture integration failure?
Why Best Buy is successful in the US, but failed in China?
Should the prices be higher than competitors’
The main reason for its failture:
It adopted all the American’s management style and practice
in China:
1. It employed all its staffs
2. Customers are given the freedom to look at all the
products without interference from an employee?
3. It’s more expensive than its Chinese competitors’
Conclusion
Best Buy culture or management style does not fit the
Chinese culture: management, customers and market
Suggesetions
♦ Best Buy should not change its name Best Buy into
Chinese name like Five Stars
♦ Best Buy should not adopt all the Chinese retailor’s
management style
♦ Best Buy should integrate Chinese culture with Ameican
culture in its management
Only in this way can Best Buy take up the Chinese market
share
Geely-Volvo Acquisition
The Geely-Volvo deal was closed on August 2, 2010
Intercultural communication between
Volvo Chairman Lee Shufu
Volvo CEO Stefan Jacoby
Pre-merger phase and post-merger phase
Pre-merger phase
Interest
Market
Products
Technology
Human resources
Organization structure
Post-merger phase: Cultural integration
Integration of corporate cultures
Integration of national cultures
Post-merger issues:
People and communication
Potential problems
Lee made the following promises in order to make
the deal
 Promise not to lay off people
 Promise that Volvo management has its own
autonomy, namely, Geely would not send Geely
people to be involved in Volvo management
 The relationship between Geely and Volvo is like
brother to brother relationship
 Eager to make profits as soon as possible
1.Make quick decisions
2.Start (mass) production soon
3.Expansion
Global Merger and Acqusition Is Like a
Cross-cultural Marriage
Question:
What might be the problems between the husband
and wife in their daily life?
Mutual respect and trust
Adaptation to each other
Effective communication
What problems are they facing:
Management problem?
Cultural problem? Ambiguous answer
Communication problem? Effective communication
Post-merger issues: cultural integration
People and communication
Intercultural
Awareness
Culture headache
Strong
Happy Marriage
Long time
integration
At the crossroad
Weak
Management
Failure
Strong
Intercultural
Skills
Why global companies failed
 Firstly, managers focus on management practices
 Secondly, they admit that there are cultural differences in
their management, but they only identify those visible
cultural differences such as differences in social systems,
business rules and regulations, management practice, HR
management
 Thirdly, they claim they could manage international
companies as they have had experience
 Fourthly, minor cultural differences would not matter
(between Asian cultures or European cultures)
Attitude toward Cultural Differences


Cultural Differences are double-edged swords
Cultural Differences when ignored can contribute to a failure
in intercultural management because they can lead to cultural
conflicts
Cultural Differences when well managed can increase your
competitiveness in intercultural management because they can
provide an intercultural perspective to make a judgment
Competencies for Global Managers
 Technical competency
 Managerial competency
 Intercultural competency
Culture C is the core value or working principles for all
staff in the new company to follow in their management:
How to communicate with each other
How to perceive staff’s job performance
How to respond
How to present your views (direct or indirect)
How to solve problems in the workplace (avoidance
or confrontation)
Culture C is neither Culture A dominance nor Culture B
dominance
Culture C should be accepted by Culture A people and
Culture B people when they work together
Q&A
Thank You
for Your Attention