Strategies for China Business

NES China: Business Ethics (A)

What is “Guanxi”?

• Loosely translated to “networking” or “relationship”• Tacit differences– Reciprocity

• Don’t accept if you can’t reciprocate• Out of obligation than gratitude

– Long-term orientation• Deep relationship for trust• Life-long responsibility

– Shift of family-based to social-based “Guanxi”• “Pin Die” means competition of family background• One-child policy

Foundation of “Guanxi”

• Based Confucius’ “he” (harmony) of kinship and friendship

• And “ren” of mutully supportive relationship

• And “li” of courtesy

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Case Analysis – Theory vs Reality

“… hire Lin Chen as a government affairs coordinator … familiar with the Chinese way of doing business”• Has “renqing” and “mianzi ”with

Mr Zhu – Close personal “guanxi” with

Central Department• Case study implied that “gift

giving” equals “achieving approval ”.

• Cultivating of “Guanxi” is a long-term process. “Gifting” may be the beginning of relationship building. They may give gifts but does not mean they will get the approval.

• Due to the country’s long history of wars and foreign invasions, the Chinese are wary of foreigners.

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Case Analysis – Theory vs Reality

“According to Chinese law, to give gifts to government officials and expect them to take advantage of their position and power to conduct illegal actions is bribery. Our intent is to motivate officials to handle our application legally but without delay. I see no serious ethical problem”.• NES was not the only company

whose application was deemed “complete and perfect”. If the official speeded up the process of approval because of gift, is it fair to other similar companies?

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Case Analysis – Theory vs Reality

“The officials say that they will consider … only when the application is deemed ‘complete and perfect’. They can always find some minor issues. But the officials insisted on their original opinion without giving a detailed explanation of the relevant legal basis”• It is a common phenomenon in

Chinese public service, although it is not definitely a rent-seeking behavior. The policy and procedure are always very complicated, obscure, fickle and flexible.

What is Bribery?

• Bribery and tipping, are they different?– Why do you tip?• Reward good service rendered• Encourage good service in the future

– Why did you bribe?• Gratuity for a favour• Induce favourable future cooperation

vs

What is Bribery?

• Only a fine line separates socially acceptable act of tipping and immoral act of bribing

• Places where people tip heavily, chances of bribes are higher

• In many less developed countries, they are understood as unsaid entitlements. It becomes corruption, only when the person takes more than his entitlement or never shares.

Are Gifting, Wining & Dining Briberies?

• Cultural norms aimed at establishing good “guanxi”, hence functioning society based on “he”– Meaningful experience together to connect – Opportunities to discuss on neutral territory– Not necessarily intended to ask one party to break laws in

order to facilitate

• Who does not like gifts?– Gifts create happiness hence create the necessary

conditions to communicate frankly and good partnership

Don’t Confuse Ethics and MoralsEthics Morals

What are they? Rules of conduct recognised in a group of people, culture, etc

Beliefs- and values-based conduct of an individual

Where they come from?

External – Society Internal – Individual

Why we do it? Because society expects it Because one believes in doing it

What if we don’t? Face ostracisation Face remorse, discomfort, etc

Variation Varies from contexts and cultures

Consistent with one’s beliefs and values, transcends cultural norms

Grey Area One who follows ethical principles may not have morals.Likewise, one could violate ethical principles to maintain morality.

A morally-bounded person may choose to follow a code of ethics (WIRDATRD)A person who has no moral could be amoral, not necessary immoral

Ethical Reasoning

Reflect on Company’s Values and PurposeEthical Sensitivity • Is there really an ethical dilemma or just dilemma?

- Why and why not? How does the situation make you feel?

Ethical Judgement

• Who are the stakeholders involved?• What are the relevant laws, outcomes and values? - What are the values in conflict causing in physical or psychological harm?

Ethical Intention • What are the internal factors affecting your choice? - Motivation, commitment, fatigue, convenience, etc• What are the external factors affecting your choice? - Professional, social, organisational, political, family, etc

Ethical Behaviour • Is moral courage needed to act on intention and/or decision?

Ethical ReasoningEthical Sensitivity

- There is no ethical dilemma in Chen’s proposed approach as it is how the society works in China. - Nonetheless, there were gaps between the trio’s personal morals and business ethics in China, and business ethics between China and Germany.

Ethical Judgement

- Nobody’s interest is sacrifised nor harm was done to anybody. - No law was broken. Law is vague of the acceptance of gifts in private capacity. - The outcomes would have benefitted the stakeholder, which included the trio tasked to set up the holding company, shareholders of the company and employees in China. - The veto factor would have been the espoused values of the company.

Ethical Intention

- No intention for the official to break the laws nor approve something illegal, but to nudge the officials to give some priority and advise accordingly.- There are possible internal motivations like careers advancement for the trio and fatigue in long-drawn approval process, and need to free up the registered captial quickly

Ethical Behaviour

- There is no moral courage involved in either the options of scrapping plan or playing along with the cultural norms.

Ethical Decision Flow

Desired Outcomes

Society

Company’s Purpose & Values

Company’s Approach

Competitors’Behaviours

• Society• As the holding company’s focus is in

China, the ethics in China should prevail when there is a conflict.

• Company’s Purpose & Values• As much as possible companies should

adapt to local practices, but being very clear not to run contrary to the company’s espouse values and the local laws.

• Competitors’ Behaviors• Benchmarking against competitors’

behaviour might not “right” own actions but it set the tacit boundary when ethics are in conflict.

• Company’s Approach• Between the basic ethical principles

and the upper boundary for grey area, the company has to decide.

Localising Ethics for Business

• When ethical values conflict, people should follow the local one as the their own values might be meaningless in the local context

• Every organisation has core values which shape the identity of the organisation. Although companies should WIRDATRD, it should not be done at the expense of their core values– WIRDATRD to survive, use local ethics– When issue transcends legality, use international norms– When no reference, use morals of higher regard

Localising Ethics for Business

• Future holding companies should develop special ethical codes to recognise local business cultures, not just China, if the cultures differs significantly.– Avoid putting staff in dilemma frequently– Setting upper and lower boundaries of business conduct

Conclusions

• It is important to understand human and cultural behaviours to succeed in China, or in any business

• We should not equate moral and ethics, and imposing our standards onto others without understanding the cultural context

• Understanding the boundaries of the playing field allows one to “thread near the line” instead of disadvantaging ourselves by the self-imposed boundaries

Disclaimers

• Our views are solely based on the academic nature of the case study and in not way represent our personal morals and ethical conduct