S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

This episode is all about managing relationships. Join us as we take on two more “Culture Map” scales: Leading and Trusting.

S2E3: Culture, Learning, and Business Part 3: Leading and Trusting

 
 
00:00 / 20:13
 
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S2E1: Culture, Learning, and Business Part 1: Evaluating, Disagreeing, and Communicating

In this episode, we discuss the evaluating, disagreeing, and communicating scales formed by Erin Meyer. Along the way, we learn why the Swiss don’t necessarily mean to be rude, the Japanese know how to read the air, and more.

S2E1: Culture, Learning, and Business Part 1: Evaluating, Disagreeing, and Communicating
International Hub: Cultural Convers...

 
 
00:00 / 15:52
 
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S1E14: Working Around the World: Part Two –Aric Johnstone, Back in the US

Earlier we heard from Aric Johnstone about his experiences working around the world. Aric moved back to the US not long after our interview. Today we hear about his experiences during his first 30 days back in his home country.

S1E14: Working Around the World: Part Two –Aric Johnstone, Back in the US

 
 
00:00 / 18:03
 
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Chinese Business Groups

Introduction

Though many professionals and investors are familiar with the Japanese keiretsu or the South Korean chaebol, fewer are familiar with Chinese qiyejituan (business groups). While they have received less attention (to date) than their counterparts, the influence of Chinese business groups is considerably more profound.1 This is evidenced by the overall dominance of qiyejituan.2

Figure 1 – Qiyejituan Structure

Chinese business groups are characterized as “coalitions of firms, bound together by varying degrees of legal and social connection, that transact in several markets under control of a dominant, or core firm.”3 The Chinese State Administration for Industry and Commerce more quantitatively defines a qiyejituan as a group where the parent firm has a capitalization of more than 50 million yuan,4  five or more group members, and total group capitalization of at least 100 million yuan.5  The firms within qiyejituan are related by means ranging from direct equity ownership to connections that are vastly more informal (See Figure 1).

Business groups operate in the same way as members of a consolidated group in the USA, meaning that group members benefit from intragroup transactions and financing. In fact, interfirm financing among business groups is so important that business groups generally have a firm solely dedicated to facilitating intragroup lending.6  Essentially, qiyejituan resemble consolidated groups in the United States, merely lacking the requisite equity ownership.

Figure 2 – Qiyejituan hierarchy

Business groups operate at three distinct levels and maintain a form similar to   pyramids with the relative opacity of icebergs:

  1. At the top, there are a relatively small number of core firms (at the beginning of 2009, there were 2,971 recognized business groups operating in the PRC);
  2. First-tier subsidiaries comprise the second level (at the beginning of 2009, business groups directly owned over 30 thousand subsidiaries); and
  3. The tertiary level consists of other affiliated firms (these firms operate as part of the group but are not controlled through direct equity ownership).

Beyond explaining substance and form, contextualizing qiyejituan requires explaining why they exist and how they fit within the Chinese cultural context.

The Need for Groups

Business groups form for various reasons, one of which is compliance with regional laws. For example, if a firm wants to expand into a new province, the new province requires the firm to do one of two things: form a subsidiary in that region or amend its charter to include operations in that province.7  Chinese firms generally choose to incorporate a new subsidiary or find an affiliate in the province, a simpler solution than amending its corporate charter. Business groups forming in order to comply with regional laws tend more closely to resemble consolidated groups in the United States than those forming due to economic factors.

Beyond complying with China’s legal system, firms also group up for economic reasons, i.e. overcoming the difficulties associated with being a part of an emerging economy.8  Underdeveloped capital markets lack the requisite infrastructure and institutional professionals needed to ensure the efficient allocation of capital. The inefficient allocation of capital tends to make financing more expensive, if available at all. Thus, grouping up allows firms to achieve greater access to financing in two ways:

  1. Grouped firms have greater bargaining power than they would individually; and
  2. Business groups can engage in intergroup financing.

Accordingly, current research shows that members of the business groups tend to achieve better financial results and bear less risk of financial distress than their non-affiliated peers.9  This stems from greater realization of potential economies of scale and cost savings. Finally, grouping allows the members to compete more effectively with foreign and domestic competitors.10

Weaknesses of Qiyejituan. While there are many benefits associated with group membership, the fact that qiyejituan operate as a group leads to the propping up of underperforming firms.11  Subsidizing weaker firms is an example of inefficient capital allocation, which results in high-performing firms lacking resources to invest in profitable projects. Consequently, grouping up to save weaker firms can come at the expense of the collective well-being.

Cultural Context

The proliferation of business groups in fully developed economies (e.g., Japan and South Korea) demonstrates the need to consider additional explanations for the formation of business groups. Chaebols and keiretsu are remnants of a time without adequate infrastructure. Their continued existence demonstrates the need for additional explanations for business groups. One convincing explanation for their consistent use stems from the fit between qiyejituan and the cultural values of long-term orientation, collectivism, and relationship-based cultures.

Long-term Orientation. The Global Leadership and Organizational Behavior Effectiveness (GLOBE) study places China as part of a cultural group referred to as Confucian Asia.12  The countries included in the Confucian Asia cultural sub-group tend to display significantly greater levels of long-term orientation than those of other groups (e.g., the United States only scores a 26).13

Figure 3 – Confucian Asia’s Cultural Values, Source: Hofstede Insights

Hofstede Insights, a cross-cultural research group, defines long-term orientation as describing “how every society has to maintain some links with its own past while dealing with the challenges of the present and future.” Given China’s score of 87, we know that tradition represents a significant factor in the decision-making process. The long-term inclination leads to an abiding trust in tried-and-true methods. Keister posits this inclination led the Chinese government to encourage Chinese firms to form groups after seeing the success of keiretsu in Japan. Given that qiyejituan have continued to achieve great success, it is likely that we will see Chinese firms form business groups—even after the Chinese economy and markets have fully developed.

Relationship-based. Research performed by Erin Meyer indicates that China is one of the most relationship-based cultures in the world. Relationship-based cultures prioritize the building up and maintenance of business relationships as a prerequisite to doing business. The importance of relationships in the Chinese business world14  is demonstrated in the cultural imperative placed on guanxi (the practice of building relationships). Although guanxi translates to mean “relationships,” it is far more nuanced in practice. Guanxi is characterized as being long-term oriented, cultivated over “continuous, long-term association and interaction”15—representing “the totality of a relationship between two business partners and as being mainly utilitarian in nature.”16  Additionally, Luo (2014) describes guanxi as “the concept of drawing on connections in order to secure favors in personal relations” and that the end result of guanxi is the formation of “an intricate, pervasive relational network….” Thus, the development of qiyejituan follows the network of guanxi, representing a natural outcome of strong relationships between firms’ owners.

Collectivism. China scores 20 on Hofstede’s Individualism-collectivism index, indicating a predilection for communal well-being as opposed to individual gain seeking. Although collectivism tends to refer to one’s individual network rather than the corporate-level network, the importance of groups and community is a salient part of the Chinese psyche. The propensity to consider the collective group’s well-being makes Chinese firms more predisposed to forming and joining groups than their peers. The reliance that Chinese individuals place on “community” leads to an interdependence, which is reflected in qiyejituan.

While many could argue that business groups represent a network of relationships based on convenience, the fact that business groups “prop up” weak or struggling firms displays the imperative placed on the overall well-being of the group and its group members. In fact, research shows that members of qiyejituan have lower cash holdings than those not belonging to a group, indicating that they are lending to struggling members in the group.17 Group members have the philosophy that all members will succeed or fail together.

Conclusion

The communal nature of Chinese society combined with the legal and economic environments provides fertile ground for the growth and proliferation of qiyejituan. Americans conducting business with firms domiciled in the PRC need to understand the nuances of the Chinese business environment. Using this knowledge, foreigners will be able to evaluate properly their prospects of competing with qiyejituan—failure to do so will lead to being ganged up on.

The Swedish Fika

Americans are obsessed with productivity. From self-help books to TED Talks, we find ourselves searching for ways to work longer and more efficiently. While diligence and efficiency are hallmarks of great professionals, are we missing something? Is there a better way than the tried and true American method? Could a Swedish tradition hold the key to increasing employee morale and developing better teams?  

Fika in the Workday

The tradition is fika, and it couldn’t be more antithetical to the American-styled business day. Twice a day, Swedes break for a half hour to fika: once in the morning and again in the afternoon.1 According to the Swedish Academy’s dictionary, fika2 refers to the daily practice of drinking coffee and tea. However, this word has a meaning far greater than a mere coffee break. While Americans use coffee breaks as opportunities to refuel and recharge, Swedes use fika as an opportunity to focus on building relationships and enjoying the moment – this means that work takes a back seat.

The Practical Elements of Fika

Fika typically consists of a beverage3 and food.4 During the fika it is customary to drink coffee, tea, soda, or hot chocolate. The beverage is typically accompanied with either a sweet (i.e. kanelbulle,5 kladkakka,6 or äppelkaka[noteApple cake[/note]) or a smörgås.7 In any case, fika isn’t about what is eaten – it’s about enjoying company.

Embracing Fika

Whether you find yourself in Sweden on business or you just want to build camaraderie with your colleagues, remember that fika is centered on building authentic relationships and enjoying the moment.

 

Works Cited

Jones, B. W. (2015, April 22). For the Love of Fika. Retrieved March 10, 2018, from http://nordiccoffeeculture.com/for-the-love-of-fika/