DIRECCIÓN DE INFRAESTRUCTURA Y SERVICIOS GENERALES

As discussed above, China has the unique characteristics that increase the environmental complexity for IJVs: 1) a “free market-based socialist economy” with Maoist’s influences, 2) a central government that is only gradually changing market mechanisms, and 3) dominated by a system of social interaction (Burgers and Padgett, 2009). Such environmental factors have an impact on IJVs at their operational level and SFJVs reflect certain significant characteristics. The following aspects draw a lot of attention in the operational level of IJVs in China: ownership, system of management, recruitment, conflict and relationship.

Ownership: in earlier times, the Chinese side was required to hold at least a 50 percent equity interest (Beamish, 1993). The previous research findings show that

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the foreign firm had a minority equity position in most of the 805 equity joint ventures formed in the PRC until 1986. Sixty percent of foreign firms had a minority equity position, 31 percent had equal equity and only 9 percent had a majority equity holding (Beamish and Wang, 1989). State-owned Chinese enterprises are encouraged to form IJVs with foreign partners, while private enterprises are not allowed to do so (Zhang and Coffin, 1999). Therefore, most of the international joint ventures are constructed by foreign companies and stated owned companies.

System of management: although this point can be debated, it has been found that the Chinese JV company does not operate as a typical Western business entity. It is more like a Chinese state enterprise with foreign senior management and imported technology (Aiello, 1991). JV is a temporary platform built by two partners. This is true of most international JVs with state-owned enterprises as Chinese partners (Fan, 1996). Such a characteristic implies that JVs in China are substantially different from Western JVs; these JVs use a special approach in their management.

In China, joint ventures are usually managed jointly by the local and foreign parent companies. In addition, the Chinese system provides for three external organs to influence joint venture operations: the Communist party, the Labour Union and government bureaucracy (Bjorkman and Lu, 2001). The system of management of IJV in China is generally as follows: at least three members comprise the Board of Directors, which is the highest decision making body of the IJV and has the authority to make all major decisions concerning the IJV. The IJV partners are responsible for appointing the board members, and representation must be in proportion to each party's respective ownership interest in the venture. Under the IJV Law, either party may elect the Chairman, who acts as the Legal Representative of the IJV. The General Manager is responsible for the daily management. The “Deputy General Manager System” means that, if one side appoints the post of General Manager, then the other side will have the right to appoint the Deputy General Manager, thereby acting as a check on the powers of the General Manager. In their study of 67 cases of intentional joint ventures in China (Child and Yan, 1999), it was found that the great majority (79%) of the IJVs had a foreign general manager, and in 84 percent of the IJVs,

G. Ma 2013... Chapter 3 SME Context in China

the general manager had a deputy general manager of his partner’s nationality. Headships of the technical and production functions were equally likely to be occupied by foreign personnel, but the heads of other functions were more likely to be Chinese. The HRM/personnel management function, which is an area where knowledge of local norms is particularly important, was headed by a Chinese national in all cases, and the majority of financial heads were also Chinese. This distribution is typical despite the preference of many foreign companies to manage the finance function in their China IJVs (Child and Yan,

1999).

Conflict: The difference of national cultures and values between the local and foreign partners is a potential source of conflict (Lau et al., 2010). In China, three main tendencies observed in the Chinese central value system are the avoidance of uncertainty, collectivism and acceptance of hierarchy and authority. Hierarchical decision-making, bureaucratic organizational structure, reactionary leadership and static management style all are characterised by Chinese culture. On the other hand. Western culture is characterised by open communication, decentralised decision-making, a flatter organisational structure, flexible management styles and individualism (Su, 1999). Previous studies indicated that conflict was associated with poor joint venture performance and power differentials often undermine inter-group harmony and cooperation in work teams (Chow and Yau, 2010).

Relationship: China is a country that believes in relationships, and partners are frequently selected for their “guanxi. ” Guanxi refers to the non-institutional structure of Chinese society that holds Chinese society together (Burgers and Padgett, 2009). Guanxi includes (1) obligations among people who belong to the same group (family, classmates, etc.), (2) obligations among people who are in frequent contact (such as co-workers), and (3) obligations between two persons by way of a third person who has guanxi with both (e.g. a friend of a friend). In China guanxi provides trust when legal infrastructure and/or specialised investments fail to do so (Burgers and Padgett, 2009). Since it believes in relationships, China is unique in the prevalence and importance of formal and informal

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networks. Developing network ties is critical to success, and foreign companies begin outside the critical networks and typically have difficulty determining who to connect with and how to establish a useful connection. The local partners have a role to contribute in the relationships and networks. Obviously, the relationship with the Chinese government is still an important determinant of joint ventures effectiveness in China (Jiang, 2006).

3.5 Summary and key reflections

To understand SME marketing in China, it is important to understand the socio-cultural differences that influence SMEs’ marketing practices. Given China has unique culture and has been in her ongoing economic system transition fi*om planned economic system to “socialist market economy” since 1979, doubtless, there are a lot differences, changes and difficulties which need to be understood, managed and overcome by these Western firms and managers. However, the review of the literature on SME marketing has found that there is insufficiency of research in SME marketing in China and an extreme lack of comparison studies of marketing between CEs and JVs. This chapter provides an overall picture of the business environment of SMEs in China. Several important characteristics of Chinese SMEs and the business environment of SMEs and IJVs in China are drawn out:

• Chinese SMEs generally have more employees than western SMEs, and most SMEs are in labour-intensive and technology-intensive industries (see section 3.3.1) . • Chinese SMEs have some specific behaviour that might be shaped by Chinese

cultural values, i.e. belief in interpersonal relationships rather than laws and contracts, lack of innovation but quickly learning and copying from others etc. (See section 3.3.3)

• The market opportunities for SMEs and SMIJVs are huge but also face many difficulties (see section 3.3.2).

• Although there is a continual improvement in the business environment for SMEs, SMEs in China still receive unequal and unjust treatment by the government and society in terms of economic and financial policies compared to those of large firms (see section 3.3.1; section 3.3.2).

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• IJV is the favoured form of the Chinese government to draw foreign direct

investment, and to introduce new technology and management skills. IJV is a quick path for Western SMEs to access Chinese markets and resources, even though the conflicts between the partners are always problematic (Section 3.4.2).

There are several key reflections:

• Research on SMEs and SME marketing from a socio-cultural perspective is scarce and this would be a meaningful attempt.

• Investigating SMEs’ attitudes and perception to China’s business environment and policy changes would be meaningful to practitioners and policy makers.

• Finding the main difficulties of SMEs and SMIJVs in conducting marketing in Chinese marketplaces would be meaningful for regulators, policy makers and educators in term of improving the environment and the systems.

• Finding how SMEs exert and use their advantages to survive and develop in China’s special environment conditions would be worthwhile both practically and academically.

G. Ma 2013... Chapter 4 Research framework

CHAPTER FOUR RESEARCH CONCEPTUAL FRAMEWORK

4.1 Introduction

The preceding chapters have provided an extensive literature review and identified the research gaps in cross-cultural influences on SME marketing, especially on marketing of CEs and JVs in China. This chapter presents the development of the general research theoretical framework, the link model of cultural values and marketing characteristics, and the research propositions for the qualitative-exploratory study (Study 1) based on the literature review and the preliminary assumption of this research. The framework, model and propositions are used and to be examined to address the research questions as outlined in Chapter 1.