Lade Inhalt...

Expansion of western based companies to China

Issues, opportunities and risks related to the delegation of power

von Sebastian Hindelang (Autor) Dominik Hedrich (Autor)
Masterarbeit 2013 237 Seiten


Table of Contents

Executive Summary


Table of Contents

List of Abbreviations

List of Figures

List of Tables

1. Introduction
1.1. Background
1.2. Problem
1.3. Objective
1.4. Methodology

2. Literature review
2.1. Strategy
2.1.1. Strategy definition
2.1.2. Internationalisation strategies
2.1.3. Organisational management
2.2. Cultural aspects
2.2.1. Definition of culture
2.2.2. Values and behaviour principles in China
2.2.3. Communication
2.3. Chinese market characteristics
2.3.1. China terminology
2.3.2. Development of China
2.3.3. Labour market
2.3.4. Consumer market
2.3.5. Intellectual property
2.3.6. Corruption
2.4. Management and leadership
2.4.1. Skills required for management and leadership
2.4.2. Decision making process description
2.4.3. Strategic human resource management

3. Research design
3.1. Research objectives
3.2. Research methodology
3.3. Underlying philosophical assumption
3.4. Data collection technique
3.5. Development of questionnaire
3.6. Sample population
3.7. Conducting
3.8. Data analysis
3.9. Critical assessment and limitations

4. Analysis and presentation of the data
4.1. Interview statistics
4.2. Market findings
4.2.1. Market characteristics
4.2.2. Education system
4.2.3. Environmental factors
4.2.4. Plagiarism issues
4.2.5. Corruption issues
4.2.6. Conclusion
4.3. Cultural aspects
4.3.1. Comparison of Chinese and German culture
4.3.2. Communication principles
4.3.3. Cultural influences on company
4.3.4. Gender treatment
4.3.5. Open cultural questions
4.3.6. Conclusion
4.4. Company aspects
4.4.1. Companies in China
4.4.2. Company strategy for China
4.4.3. Human resource management aspects
4.4.4. Conclusion
4.5. Decision making
4.5.1. Organisational impact
4.5.2. Share and distribution of positions and power
4.5.3. Role of the manager
4.5.4. Conclusion

5. Conclusion and recommendations
5.1. Summary
5.2. Conclusion
5.3. Outlook

A. Societal clusters and leader styles
B. Comparison of culture models
C. Questionnaire (blank)
D. Interview 1
E. Interview 2
F. Interview 3
G. Interview 4
H. Interview 5
I. Interview 6
J. Interview 7
K. Interview 8
L. Interview 9
M. Interview 10
N. Interview 11
O. Interview 12
P. Interview 13
Q. Interview 14


Declaration in lieu of oath

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Structure of the thesis

Figure 2: Strategy hierarchy

Figure 3: Classification for internationalisation motives

Figure 4: Internationalisation model of Uppsala

Figure 5: Organisational forms

Figure 6: Three levels of uniqueness in human mental programming

Figure 7: The onion model of culture

Figure 8: The contextual continuum of differing cultures

Figure 9: GDP development from 1970 until 2011

Figure 10: Confiscated counterfeit products by origin

Figure 11: Areas of leadership

Figure 12: Situational leadership

Figure 13: A linear strategic HRM model

Figure 14: The human resource functions

Figure 15: Cultural adjustment life cycle

Figure 16: Distribution of German business locations in China

Figure 17: Three steps of grounded theory

Figure 18: Interview partners - gender, origin and age

Figure 19: Interview partners - hierarchical level and size of the company

Figure 20: Interview partners - industry, market entry and form

Figure 21: GDP of Chinas provinces 2011

Figure 22: School forms in China

Figure 23: China corruption perception index

Figure 24: Hofstedes dimensions for China and Germany

Figure 25: Pyramid of needs - compared Western countries to Asia

Figure 26: Iceberg model

Figure 27: Four sides of a message

Figure 28: Percentage of women in different positions in China

Figure 29: Market entry strategies

Figure 30: Role of the manager

List of Tables

Table 1: Cultural standards in Germany and China

Table 2: Societal clusters and leader styles

Table 3: Comparison of culture models

1. Introduction

1.1. Background

For European companies the importance of the Chinese market has increased in recent years. Due to market size and continuous growth, many European companies are expanding their business to China or are increasing their existing operations.

In a recently published survey of the European Chamber of Commerce in China (2012, p. 6) 97 per cent of the participants named China as the most important market in their globalisation strategy. More than half of the companies disclosed that more than ten per cent of their profit originates from that market. Furthermore, 60 per cent of the responses foresee further investment in China.

Nevertheless, the expansion into the Middle Kingdom can be seen as a challenge for the management of European international companies. Dealing with cultural misunderstandings, plagiarism issues, and different market characteristics require higher competencies of the leader in international business. Additionally, uncertainty of customer demands, a different supplier network and other market circumstances result in an increasing complexity

Examples of western companies discontinuing their business in China[1] as well as failed joint ventures in the past show that the environment is challenging. The disregard for cultural aspects forces companies to stop their endeavour in the land of the dragon. Therefore, qualified personnel who know the environment are essential. The question if a leader from the home country can better deal with these issues or if a local person is more appropriate will be further analysed below.

1.2. Problem

On the one hand, the Chinese market offers considerable potential to western companies. This is due to its size, its large numbers of consumers, as well as cost advantages for production and personnel.

On the other hand, the big differences to the home country have to be overcome by international western companies. Setting up and opening a foreign branch and its operation entail several challenges. The head office is far away from the location of sales and production. The subsidiary has to be integrated into the existing organisations and at the same time appropriate personnel has to be found, cultural differences need to be considered and communication and language barriers need to be overcome.

Against this backdrop the question arises how a western company can deal the characteristics of the country in order to be able to utilise them to accomplish the company objectives best. Here in particular, the decision maker plays a deciding role in the company’s ability to manage the increased complexity. The staffing of these key positions influences significantly the success on the foreign market.

1.3. Objective

The objective of this thesis is to identify the contemporary issues facing mangers of European companies in China via a primary research. Consequently, the different motives why a company goes abroad and enters into different markets are highlighted. In addition, the different ways to enter the market shall be presented.

This thesis analyses the relevant circumstances of the Chinese market for the leader. In particular, the opportunities and risks in regard to the delegation of responsibility shall be further assessed and the ways in which a manager has to adjust his or her leadership style and behaviour. In addition, the thesis shall assess how the responsibility between the head office and the local unit is usually split, as well as how to incorporate the local unit into the overall company organisation.

Besides this, the paper shows what a decision maker has to consider for a company’s market entry in China. This shall answer the questions about what cultural differences and which further aspects are important in respect to the company. As the company has to be operative in China, the decision maker also has to determine how to find sufficiently qualified employees for the local unit. In this respect the different factors which determine the attractiveness of the employer shall be identified.

As there are different cultures in these markets, the thesis shall also examine whether the leadership style has to be adjusted to incorporate the concepts of motivation and communication. It shall also answer the question whether culture has an impact on the delegation of decision making power. As the role of the local decision maker has an impact on the foreign unit, the details of the role will also be further assessed and the key differences will be determined.

Since western companies are concerned about how to deal with intellectual property rights as well as the perception of corruption, this thesis shall also assess these topics. Beside the above mentioned characteristics, the scope of this thesis is limited to the economical, competitive, societal and technological aspects. It excludes aspects of politics as well as a deeper assessment of the governmental structures and legislative processes.

1.4. Methodology

To answer the objectives of this thesis this paper follows this approach: the introduction provides the background information on why this research is relevant, including the problem definition and the objectives this research shall answer.

illustration not visible in this excerpt

Figure 1: Structure of the thesis

Source: Compiled by the authors

In the second chapter, a secondary research is conducted on what the current literature provides on this topic. It focuses on the areas of strategy, cultural aspects, and market characteristics and concludes with the assessment of management and leadership.

In the third chapter, the research design is presented in which the details of the conducted primary research in Shanghai are described.

The fourth chapter analyses and presents the conducted information of the primary research and compares it with the existing theory out of the secondary research in the focus areas of the market findings, cultural and company aspects. Finally, the role of decision making is further described.

At the end of this work, a summary, conclusion and outlook highlight the main findings. Figure 1 summarises the approach.

In addition, this thesis follows the guidelines for written assignments of the FOM Hochschule fuer Oekonomie & Management gemeinnuetzige GmbH (2004).

2. Literature review

This chapter presents the relevant literature. It starts with the strategy process and is followed by a presentation of the cultural aspects. The characteristics of the Chinese market are shown as well as the details of the management and leadership role.

2.1. Strategy

The term strategy is explained in this chapter. Consequently, the reasons for a company to expand into international markets are described. Organisational forms are also detailed to later determine an appropriate form to fit the demands of a company expanding its business to China.

2.1.1. Strategy definition

The term strategy in economics has its origin in military[2] and describes the way to achieve an end. Strategy also includes thoughts, ideas and perceptions on how to reach this goal. Chandler (1962, p. 9) describes, “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”.[3] Many more opinions exist about how to define strategy and what facets it includes.[4]

Determining the strategy process is the task of the top management. Within the strategy process, a strategy and its corresponding objectives are agreed upon. At the top of each strategy there is a vision, meaning superordinate long-term objectives (Venzin et al., 2003, p. 50). On the next level is the mission, which contains the area of activity, e.g., why the company was founded, what products and services it offers, and company values such as corporate culture and code of conduct (Venzin et al., 2003, p. 47). Figure 2 illustrates the hierarchy of the different part of the strategy.

The strategy process consists of three major parts[5] (Mintzberg et al., 2008, p. 7):

1) Strategy analysis: the goal of this step is to identify market characteristics of the target market. Strengths and weaknesses of the company are assessed. Tools commonly used in this step are Porter’s five forces (1980), SWOT-Analysis, BCG matrix or portfolio techniques
2) Strategy development: different strategic alternatives and options and their impact on business are analysed in this step. Commonly this is done using tools to analyse the stakeholders, the corporate culture or the break-even point. In addition, scoring models are used for the strategy development
3) Strategy implementation: it describes the concrete implementation of the strategy. Usually this is accomplished through an organisational change. Therefore, well-performing change management is important in this step. Objectives have to be specific, measurable, attainable, realistic and tangible (Griffin, 2007, p. 65). Those objectives can be integrated into a balance score card as a tool for the execution of the strategy (Kaplan and Norton, 1996, p. 291).

illustration not visible in this excerpt

Figure 2: Strategy hierarchy

Source: Adapted from Bamford and West, 2010, p. 64

One way to achieve the strategic goals might be to expand business to foreign markets as described in the next chapter.

2.1.2. Internationalisation strategies

Internationalisation of a company often begins with a first relationship with a distributor or customer abroad. It should be noted that internationalisation is separate from globalisation in that the term globalisation describes advantages in economies of scale. These are gained when different national markets are grouped in almost homogenous regional markets with only slightly country-specific product adaptations (Wiesner, 2004, p. 11). An effect of increasing globalisation in the last decades has been an increase in the internationalisation of companies. Trade barriers have been reduced leading to a global interconnection of markets for services and products and a higher level of competition. Companies no longer depend on a single economy and can further use scale effects.

Reasons for a company to internationalise can be divided into pull and push-factors (Gutmann and Kabst, 2000, p. 184), depending on whether the market conditions abroad attract (pull) a company to a market or whether the domestic market conditions force (push) a company to start international activity.

illustration not visible in this excerpt

Figure 3: Classification for internationalisation motives

Source: Adapted from Albaum and Duerr, 2008, p. 40

The main drivers can be grouped in three main categories: market expansion, securing resources and cost reduction (Geyer and Uriep, 2012, pp. 11–12):

Market expansion: can be driven by an individual manager’s personal interests. Holidays and business trips abroad, study abroad and family ties all provide opportunity to make contacts abroad that may later develop into business partnerships (Schmidt-Buchholz, 2001, p. 211). Foreign customers with a demand for a company’s reputable know-how can also incite expansion. On the supply side, the expansion can add a market to serve (Holtbrügge and Enßlinger, 2005, p. 370). Similarly a large customer’s order for goods and services not only for local units, but also for units abroad, creates opportunity. In this context it is also necessary to consider that the population in Europe is shrinking while the population in Asia is increasing (United Nations, p. 22).This is also complemented by advantages of economics of scale as a higher number of produced products shrink the unit costs (Burgel and Murray, 1998, p. 36).

From the risk perspective, market diversification does lower the concentrated risk of operating in one market only. Furthermore, market saturation in the home market may make increased sales unattainable. Subsequently, market expansion is required to achieve company growth.

Securing resources: the availability of resources is a further motivating factor for a company in that existing cost advantages in international markets can be harnessed. Raw materials can be bought from the most cost effective supplier independent of the country. Furthermore, technology and other resources, such as specialised workers or field experts, can be scarce in the home market (Geyer and Uriep, 2012, p. 12).

Cost reduction: cost can be seen as a push factor and as a pull factor. Lower production costs abroad, including salaries and wages, can incite a company to internationalise. Nevertheless, according to current surveys cost reduction is not the leading motive for a company to expand internationally but rather the market opportunities (Geyer and Uriep, 2012, p. 12).

To describe the steps of internationalisation of a company, the Uppsala model developed by Johanson and Vahlne (1977, p. 26) can be used. The model assumes that companies prefer to internationalise in incremental steps rather than in one big step. Johanson and Vahlne describe common patterns of internationalisation which include the establishment chain and psychic distance. The establishment chain depicts how intensively the international activities are developed. The psychic distance chain explains the need to gain experience in and knowledge of foreign markets. After empirical underpinning of these patterns, Johanson and Vahlne built the model of internationalisation. The model consists of static aspects and dynamic aspects.

illustration not visible in this excerpt

Figure 4: Internationalisation model of Uppsala

Source: Adapted from Johanson and Vahlne, 1977, p. 26

Market commitment and market knowledge are static aspects. Market commitment describes that according to its position on the establishment chain, a company has certain dependencies in foreign markets due to the activities abroad at a particular time.

Market knowledge depends on two aspects: the psychic distance and the information about a particular market the company has acquired.

Dynamic aspects are commitment decisions, meaning management decisions for further internationalisation and ongoing activities abroad, described as current activities.

Dynamic and static elements influence each other. The lack of knowledge about foreign markets leads to slow, stepwise progression. Each new decision is based on increased international experience. Knowledge is seen as the key variable; it increases the basis for decisions. The level of internationalisation advances and likewise the development of the company increases.

The Uppsala model has been often cited and has been double checked by various authors such as Cagusvil (1984), Bilkey and Tesar (1977), Malnight (1995). The criticism is that the model has an insufficient proof of stability over time. Furthermore, specific company aspects are not considered: company resources or branch specific influences. Also the phenomenon of “born globals” is hard to describe with this model. This type of company sells on international markets almost from its inception. Due to the criticism, the model has been modified with a network approach. With contacts to partners abroad, the company becomes involved in the network. This can further improve and enhance the relationship to a country. Nevertheless, the power of explanation decreases when branch and company are already in an advanced stage of internationalisation (Meckl, 2006, p. 41).

A company’s culture is formed by its flow of communication, how information is controlled or shared within the organisation. The company derives its philosophy from this basis. Philosophy, in turn, impacts the company's strategy, the type of organisation used as well as the leadership style. The strategic profile of a company can be defined as ethnocentric, polycentric, regiocentric or global (EPRG model) (Perlmutter, 1969, pp. 9–18). These profiles are explained in the following section.

Within the ethnocentric model, the company headquarter has complete control and makes all strategic decisions. In this form the culture of the home market is simply applied to all subsidiaries abroad. It can be compared to colonialism. In contrast within a polycentric model, s ubsidiaries can also decide on operational tasks and specific strategic decisions. The strategy, structure and the company principles are adapted to the local habits. When different countries are grouped into regions, they are said to be regiocentric. In this strategic profile, each region has its own headquarter. To ensure that not every regional branch develops their own work approach, their subcultures are kept under the umbrella of a common corporate culture. Within the geocentric model, the decision making power is distributed between the head office and its subsidiaries abroad. In this form, values and principles from all branch offices are combined. The goal is to create a new "symbiotic" company culture.

Based on its regional profiles, a company can derive its strategic options concerning procurement, sales and efficiency. The strategic profile shows the direction of trust and can be used as the basis for selecting the market entry form.

Although there are good reasons for internationalisation, there are also certain risks connected to it. Therefore, good risk management is necessary. Kühlmann and Haas (2009, p. 31) describe risks related to international activities.[6] Cultural risks such as conflicts in multicultural teams or an expatriate’s overemphasis of his or her own culture can occur (Kühlmann, 2009, p. 61).

In some cases quitting operations in a country can be the better choice for a company (Schmid, 2007, p. 27).

2.1.3. Organisational management

In business, organisations are seen as management functions to ensure the fulfilment of the company objectives (Laske et al., 2006, p. 13). The structural organisation is a system of units, where each unit has different responsibilities to fulfil the company’s objectives. The structure is supported by rules. These define the hierarchy and the different units (Weißenborn, 2012, p. 3). The organisation also has to support the internationalisation strategy of the company.

Meckl (2006, pp. 116–123) presented several approaches to incorporate the foreign market into the company’s organisation:

One line reporting structure: the international market is integrated into the functional (e.g., sales or purchasing) or object (e.g., product) reporting line. Advantages are either the increased efficiencies as similar functions are grouped together or object efficiencies as only coordination has to take place within the object. A disadvantage is the increased coordination effort for the function across different objects or the lack of synergy in the object oriented organisation.

Segregated international division: the foreign market’s own international division is established in addition to the existing organisation. The advantage is high resource efficiency as it realises synergies across all objects and collects expert know-how from the foreign market. The disadvantage is limited process efficiencies between the international division and the product divisions due to the coordination effort.

Regional structure: as more and more markets come into perspective, the organisation can be structured based on those. Several markets can be grouped into regions. Advantages are higher market and process efficiencies as only the coordination within the market has to take place. Further, the responsibility for the profit can be delegated to the different market divisions. The head office has the disadvantage of being responsible for coordinating the different markets, with the risk of duplicating work and failing to share knowledge and experience with different markets.

Matrix organisation: it has become the most popular organisational structure for German companies doing international business. The structure is modified so that the object and the markets represent two dimensions. The head of the object is responsible for the product globally but has to coordinate with market head for respective regional adjustments. The market head is responsible for the entire business in that market. Figure 5 shows the different organisational forms.

illustration not visible in this excerpt

Figure 5: Organisational forms

Source: Adapted from Meckl, 2006, pp. 116–123

The advantage is that both dimensions are considered whereas in other forms one dimension is regularly neglected. Accordingly, people with the know-how of the market and the object, e.g., the product, are available to harness all potentials of the market. The disadvantage is the risk of conflicting interest between the different dimensions and the need of more managers.

Whether the company follows a centralised or decentralised approach determines which organisational structure selected. In the centralised approach the head office determines the strategy execution. In the decentralised approach the foreign business units have more freedom to make decisions locally for their respective business. The underlying question is, if all markets should be treated equally to gain higher efficiency or if the markets should be treated separately so the products can be more localised. Finally, it is a question of standardisation vs. differentiation. This determines the allocation of decision making power within the company. This area of conflict needs to be considered in the organisation for international companies (Meckl, 2006, p. 95).

Depending on the level of international activity and the importance of the different markets, an adequate organisational structure should be selected by the company to support the internationalisation strategy.

2.2. Cultural aspects

International decision makers have to deal with humans cross culturally. This chapter gives a definition of what culture is and shows how it can be described in a model. The behavioural principles particular to a Western or German person are highlighted and further explained. It concludes with the communication aspects that play an important role.

2.2.1. Definition of culture

There is no unique definition of culture. One quite popular is provided by Geert Hofstede[7] (2010, p. 6) who describes culture as “the collective programming of the mind that distinguishes the members of one group or category of people from others”.

Hofstede describes that every person has their own “unique mental programming” which contains universal, group specific and individual aspects that are either inherited or learned. Figure 6 shows that culture is situated between human nature, things all human have in common like the ability to feel anger, love, or to be frightened and the individual personality, consisting of learned and inherited behaviour and personal experiences. Hofstede explains that the border between culture and personality is hard to draw. The culture level contains specific values, rituals, heroes and symbols. Like some other authors, Hofstede et al. (2010, pp. 6–7) shares the opinion that culture contains elements at the concepta (visible) and the percepta (non-visible) level. The elements can be visualised in the “onion model” in figure 7.

illustration not visible in this excerpt

Figure 6: Three levels of uniqueness in human mental programming

Source: Adapted from Hofstede et al., 2010, p. 6

The three outer levels are described as visible practices that can be recognised by an external person through observation. Values are found at the core of culture because they remain unknown to a person foreign to the culture. Values can be observed in feelings and tendencies like good vs. evil and permitted vs. forbidden. Learning and practices are influenced by the social environment and can differ according to age. Hofstede describes that culture can be seen on different levels: on a geographic level, national or regional; on an ethnic level, religious or linguistic; on gender, generation or social class; on company, organisation or even department level. The levels are not isolated from each other and can it can cause discord when one person belongs to more than one group and is influenced by more than one level (Hofstede et al., 2010, pp. 4-9, 18).

Academics have created several theories to distinguish and measure national cultures. The following section presents three models which are commonly cited in scientific cultural analyses.

Hofstede's cultural dimensions

Hofstede did research on employees at International Business Machine Corporation (IBM) to define common dimensions to determine culture. A dimension is an aspect of a culture that can be measured relative to other cultures. Based on this premise, Hofstede et al. (2010, pp. 29–30) identified six different cultural dimensions[8] that can be applied to all societies in the world. The dimensions and their meaning will be described in the following paragraphs.

illustration not visible in this excerpt

Figure 7: The onion model of culture

Source: Adapted from Hofstede et al., 2010, p. 8

Power distance (PDI) describes how people accept an unequal distribution of power in society and how government deals with people who criticise the unequal distribution (Hofstede et al., 2010, pp. 60–61).

The individual vs. collective (IDV) dimension refers to society’s collective characteristics, where people are integrated into a certain group. Interests of the group take precedence over those of a single person. In contrast, in an individualistic society, the interests of one person have a higher significance compared to those of the group (Hofstede et al., 2010, pp. 90–91).

Masculinity vs. femininity (MAS) refers to the pole a society tends toward. The masculine pole represents earnings, recognition, achievement, success and challenge, whereas the feminine pole represents caring for others, cooperation, work-life balance and employment security (Hofstede et al., 2010, pp. 138–140).

The uncertainty avoidance index (UAI) describes how people deal with the fact that the future cannot be predicted. A culture tends to be either controlling or passive with the relation to events (Hofstede et al., 2010, pp. 188–190).

Confucianism or long-term vs. short-term orientation (LTO) factor relates to values taken from Confucianism like persistence, thrift and having a sense of shame. In Confucianism these are considered as virtue. In contrast personal steadiness, protecting face and respect for tradition are seen as short term-oriented (Hofstede et al., 2010, pp. 236–238).

The dimension indulgence vs. restraint (IVR) measures the tendency of a group of people to show happiness, have a self-determined life and see the importance of leisure (indulgence). Or on the opposite end of the spectrum, there are norms and values that restrain enjoyment of leisure activities or displaying feelings of happiness (Hofstede et al., 2010, pp. 280–281).

Hofstede’s work is controversially discussed. There are certain points that are questioned, like a missing concept that the study is based on. Treating entire countries as research objects is also criticised. Questionable is the usage of standardised questionnaires to measure cultures or the focus on IBM employees only, as it might be influenced by the company culture (Reimer, 2005).

Trompenaars seven dilemmas

Fons Trompenaars[9] and Edward T. Hall developed their own theory for the analysis of cultural differences linked to the ideas of Hofstede. It was based on 50,000 questionnaires[10] that they handed out to participants of management trainings (Kutschker and Schmid, 2011, pp. 735–736). Trompenaars (1997, p. 6) defines culture as the “way in which a group of people solves problems and reconciles dilemmas” and distinguishes between national, company and profession culture. Similar to Hofstede’s illustration, national culture is described in an onion model consisting of different layers with known and unknown characteristics. They use seven different categories, called dilemmas, which are comparable to Hofstede’s dimensions, but Trompenaars has taken some other aspects into consideration and omitted others. Not all dilemmas will be detailed within this work.

This model’s advantage is that its formulation is considered more understandable than Hofstede’s. The work of Trompenaars is widely accepted in business context. It includes countries not mentioned by Hofstede.[11] The work also considers cultural differences within countries and de-links those from countries to cultural clusters across borders.

Hofstede, however, has criticised that the model is made for business and not for scientific use. Other critics refer to the number of questionnaires: the theory is considered as not scientifically sufficiently substantiated. The choice of participants has been criticised due to fact that the population are participants of management trainings who may have higher intercultural competences. Moreover, it cannot clearly be determined why Trompenaars took these seven dimensions and if they cover everything or if further dimensions are needed (Kutschker and Schmid, 2011, pp. 740–743).


The global leadership and organisational behaviour effectiveness research program (GLOBE) model is a further approach to describe culture. The aim of GLOBE study is to develop a reliable theory about the culture dependent differences in a society, organisational culture and leadership.[12] In total 170 management and social scientists in 62 countries surveyed 17,300 participants contributed to the study. This large number should ensure that the study is not negatively influenced by biased answers. Nine societal and cultural dimensions (as independent variables) and six leadership dimensions (dependant variables) were determined and measured. The cultural dimensions are (Rothlauf, 2009, p. 57):

1) Uncertainty avoidance: to which degree, uncertainties are avoided by rules, regulations or rites. 2) Power distance: acceptance of unequal distribution of power. 3) Collectivism I: the collective orientation of people for the whole society. 4) Collectivism II: the loyalty of a social group such as family, relatives and department. 5) G ender egalitarianism: how engaged a society is in abandoning existing inequalities between genders. 6) Assertiveness: how assertive is a person in interpersonal relationships. 7) Future orientation: to which degree a society thinks and behaves in future-oriented way. 8) Performance orientation: the measurement of the level of willingness of a society to reward performance. 9) Humane orientation: the dimension which shows the importance of human factors such as fairness, mutual considerations or politeness within a society (House, 2004, pp. 12–13).

In contrast to Hofstede, the cultures were not assessed within national borders but within regional clusters with sufficient commonalities. Therefore, Germany was grouped together with Austria, the Netherlands and Switzerland into the cluster “Germanic”. China was grouped with Singapore, Hong Kong, Taiwan, South Korea and Japan into the cluster “Confucian” (House, 2004, p. 1027). Out of the research a high number of leadership characteristics were identified which in the end resulted in six different leadership styles (Hoppe, 2007, p. 3). An allocation of the different styles according to the clusters can be found in appendix A.

To sum up, this model helps to describe the leadership expectations in the different culture clusters. Organisations with an appropriate corporate culture and leadership approach to the regional culture are more efficient.

Although the study is one of the largest cultural studies since Hofstede, it has been questioned whether some results are representative enough to describe subcultures which were not analysed, such as USA, India or China (Rothlauf, 2009, p. 60).


Cultural differences exist among countries or cultural clusters. Dimensions to measure these differences are difficult to define, with the result that no one theory is able to reflect the entire complexity of a culture using their measurements alone. From the company perspective, the local culture also needs to be considered when selecting the appropriate leadership style. This may conflict with the preferred leadership style of the manager. All theories have in common that they tend to stereotype culture and define patterns of “normal” or “common practice”. This bears the risk that individuality is neglected because there are people who are not “typically German” or “typically Chinese”. It also does not consider that cultures are continuously changing and do not remain static. But all of the models provide leaders with hints how to treat people with different cultural backgrounds better and to understand their behaviour (Kutschker and Schmid, 2011, pp. 775–780).

A detailed overview and differences of the presented models can be found in appendix B.

2.2.2. Values and behaviour principles in China


Confucianism is a teaching by the philosopher Confucius, who lived around 500 BC. The 2,500 year old teaching contains ethical principles without religious content.[13] It provides guidelines for behaviour, the main aspect being the unequal relationship between humans in society. According to the teaching, the stability of society can only be guaranteed through a strong hierarchy and a patriarchal system. Today it still has a major impact on daily life in China (Liang and Kammhuber, 2007, pp. 172–174).

The teaching describes the principle of “Wu lun” which defines the five human relationships. These can be seen in the relationship between father and son, ruler and subordinate, husband and wife, elder brother and younger brother and friend-to-friend. These relationships are also called the five constants (wu ch'ang). Elders and people with a higher rank are also given respect, out of respect for their wisdom and long life experience. Obedience is essentially the doctrine of final piety in the family. In families, the oldest male possesses absolute authority, meaning that all others have to be absolutely obedient and loyal (Chhokar et al., 2007, p. 879).

There are five virtues in Confucianism in regard to humanness: the virtue of benevolence, charity, and humanity; of honesty and uprightness; of knowledge; faithfulness and integrity; as well as correct behaviour, or propriety, good manners, politeness, ceremony, worship (Chhokar et al., 2007, p. 879).

The following principles also evolved out of Confucianism.

Social harmony and hierarchy

China experienced a 500-year period of war from 770 BC to 221 BC when Qin reunited the country. After this period the teachings of Confucianism and the teachings of Mengzi developed. The solution to avoid war was to put the interests of oneself into background and to focus on the interests of the community (Liang and Kammhuber, 2007, pp. 173–174).

A clear hierarchy and collectivism are important concepts for harmony among people in China. It means a stable social situation. Individuals are involved in the society according to their specific social role, which is determined by family background, profession or qualification. When strangers meet, the social hierarchy has to be determined first, which dictates everything from the order of salutation to seating arrangements (Liang and Kammhuber, 2007, pp. 174–175).

Social harmony is the highest principle in the society. Only when a relationship is in social balance can people be focused, work in a subject-oriented fashion and achieve a common objective (Liang and Kammhuber, 2007, p. 173).

Mianzi (Face)

There are two concepts in the Chinese culture that represent the term face[14]: internalised and externalised. Lian is internal “face” and includes moral values. Mian or mian zi is externalised face and includes social image (Gao and Ting-Toomey, 1998, p. 55). This is defined by Ho as “the recognition by others of one’s social standing and position, and thus must be seen as situationally defined rather than part of personality” (Lockett, 1994, p. 488). The importance in international business can be seen in the fact that mian zi is, next to money and power, one of the three key motivators in China (Seligman, 1999, p. 37). In contrast to the German expression of face, the Chinese term distinguishes between the following situations:

Diu-mian-zi (lose face): Can be an affront to personal dignity that causes a loss of face (Seligman, 1999, p. 37). Possible loss can occur, when either giving face or maintaining of relations (renqing) has been neglected, for example when somebody refuses an invitation. Or a moral loss of face can happen when there are conflicts with a person, especially, when the conflict was shown in public. Face related aspects are not only bound to a person due to the collectivist orientation (see chapter 2.2.1). A possible loss of face also affects the group the person belongs to, e.g., his family (Gao, 1996, pp. 95–96). Maintaining one’s own face can be compared to making an investment; it creates an opportunity demand things. Gao (1996) uses the term “Facework management” and emphasises the essentialness linked to aspects of personal and interpersonal relationship development (Gao, 1996, p. 96). The concept further ensures harmony and hierarchy in the Chinese culture.

Gei-mian-zi (give face) refers to giving of face to others by showing respect. A person with a higher social status can give face to someone by publicly praising their talents and achievements. Adopting someone’s ideas someone can be a sign of giving face.

Liu-mian-zi (to protect face): the Chinese spend a lot of time thinking about face and put more relevance upon it. Things that make others look up to you or envy you confer face on you (Seligman, 1999, p. 37).

Jiang-mian-zi (to emphasis face): According to G. Gao (1996, pp. 95–96) , mian zi has at least three significant implications for Chinese’s everyday life. The fear of losing face leads to self-regulation. Concern about face also prescribes the types of relationships in which a person will decide whether to disclose certain information or not.

Guanxi and renqing

Guanxi plays an important role in Chinese society. It can be seen as a personal connection or relationship between persons. In business therefore, guanxi can be a significant help in achieving goals that would otherwise be impossible. Davies et. al. (1995, pp. 209–210) expands: “guanxi seems to be the lifeblood of the Chinese business community, extending into politics and society. Without guanxi one simply cannot get anything done. With guanxi anything seems possible”. Therefore, belonging to a group and a social network is the basis for success. Relationships are often established based on a common dialect, family background, work or a clan network (Miroslawski, 2008, p. 72).

An important aspect in guanxi is r enqing. Renqing is relationship management in terms of Chinese culture. It is divided into an inner circle of a relationship in which the people know each other and an outer circle which is made up of strangers. Inside are relationships based on social closeness, respect for family and helpfulness. Outside, a person first has to fulfil several requirements to get helped by strangers. Renqing is a long-term relationship which is coined by loyalty and trust between persons. It is based on a mutual give and take principle. A lack of compensation would represent the loss of face and needs to be avoided. Accordingly, Chinese are very careful when dealing with other people (Liang and Kammhuber, 2007, p. 176). Guanxi can also be transferred, meaning the compensation for a favour does not need to be paid back immediately and can be done by a third person. This can lead to a complex relationship structure (Zwicker, 2004, p. 411).

2.2.3. Communication

Communication style can vary from country to country. Hall (1976, p. 101) distinguishes between high and low context cultures. He describes that in low-context cultures most of the information that is transmitted is found in the message. There is not much context in either the receiver or in the environment. The message has to be specific and the provided information has to be detailed to explain the context. High-context cultures are characterised by the fact that most of the information is already in the receiver and in the setting. Only minimal information is transmitted in the course of the actual communication process (Hall, 1976, p. 101).

illustration not visible in this excerpt

Figure 8: The contextual continuum of differing cultures

Source: Adapted from Hollensen, 2001, p. 162

In Germany in particular, more direct communication is preferred. The meaning of the words is taken solely from the words spoken. The context information, meaning which words are chosen and how the words are expressed is not that important. In contrast to this, in Arab countries as well as Japan and China the context is more important than the pure spoken words. Figure 8 shows the variation between them (Hollensen, 2001, p. 162).

2.3. Chinese market characteristics

The following chapter summarises the different market characteristics of China compared to Europe required for the analysis. First, an overview of China and its historical development is given. Then the current situation in the labour market and consumer market is described. Finally, an assessment of intellectual property and corruption issues in China is made.

2.3.1. China terminology

When looking at China, different terminologies are widely used. Before further presenting the details, those terminologies have to be defined. Mainland China describes the area administered by the People’s Republic of China (PRC). It excludes the area of Hong Kong, Macau and Taiwan. These were former colonies and became a dedicated special administrative region of the PRC, Hong Kong in 1997 and Macau and Taiwan in 1999 (Central Intelligence Agency, 2012b and Central Intelligence Agency, 2012d). When the communist party of China took full control of mainland China and founded the PRC in 1949, the old the government of the Republic of China fled to Taiwan (Central Intelligence Agency, 2012c). Greater China describes the area of mainland China, Hong Kong, Macau and Taiwan.

The following chapters describe the situation in Mainland China. To simplify reading only the term China will be used.

2.3.2. Development of China

For centuries China was a leading civilisation and was known for art and science. In the 19th and 20th centuries the country was beset by civil unrest, major hunger crises, military defeats and foreign occupation. After World War II, the communists, under the leadership of Mao Zedong, established an autocratic socialist system that, while ensuring China’s sovereignty, imposed strict controls over everyday life (Central Intelligence Agency, 2012a).

China underwent several major political movements in the years between 1950 until 1976. This includes the socialist transformation (1953-1956), large-scale socialist construction (1957-1966) and the Cultural Revolution (1966-1976) (Fu et al., 2007, p. 881).

The third plenum of the 11th central committee congress of the communist party of China marked the beginning of the reform and opening up policy under the leadership of Deng Xiaoping in 1978. The objective of these reforms was not the establishment of western based free market economy, but rather a careful and experimental replacement of poorly performing elements of the old system by new and better performing elements (Oberender, 2004, p. 20).

The areas of reform started with the decollectivisation of the agriculture sector. Later the introduction of a dual price system allowed state-owned industries to sell any production exceeding the plan at a market price. The reforms also provided for the establishment of special economic zones, which were relatively free of bureaucratic regulations and governmental interventions, thus attracting foreign investments (Brandt and Rawski, 2008, pp. 9–18). The reform of state owned companies starting in 1987 has further promoted a market oriented economy. This also included tax reforms, a dual banking system and price liberalisation (Oberender, 2004, p. 21). In 2001 China joined the World Trade Organisation (WTO) with the obligation to further open domestic market to foreign competition (Kraus, 2004, p. 38).

One of the most recent major decisions of the national people’s congress was the approval of the 12th five-year plan on 14 March 2011. It foresees five major goals (KPMG Advisory (China) Limited, 2011, p. 2): 1) development of China’s western regions, 2) protecting the environment and improving energy efficiency, 3) continued transitioning to an economy driven by domestic consumption instead of exports, 4) improved quality of life for citizens and 5) development of seven priority industries.[15]

illustration not visible in this excerpt

Figure 9: GDP development from 1970 until 2011

Source: Adapted from The World Bank, 2012b

The success of the above mentioned reforms can be seen in the development of the gross domestic product (GDP) which is shown in figure 9. It has very significantly increased since the start of the reform and opening up policy. In 2006 the total GDP of China exceeded that of Germany.

2.3.3. Labour market

Economically speaking, labour should be utilised where it realises the highest return. In other words, labour should go to where it is the most productive and where the best-paying jobs are. However, China’s household registration system, called hukou, and its locally administered insurance and pension systems make mobility difficult (The World Bank, 2012a, p. 32).

Since 1986 China has made an effort to set up a social system. The major pillars should be health insurance, unemployment insurance and retirement provision. In former times, these issues fell under the responsibility of state-owned companies creating a situation where employees were bound to a particular state-owned company for their entire life. This hindered or even made it impossible to transfer the acquired claims to a different employer and lead to reduced mobility among employees (Kraus, 2004, p. 44). Similarly, the current household registration system foresees no or only reduced access to social entitlements, including healthcare, education and household for rural migrants in urban areas. Only urban residents receive these social entitlements. As a result, in the year 2010 only 19.5 per cent of the population migrated across provincial boundaries as per official records, compared with 45 per cent within the Republic of Korea (The World Bank, 2012a, pp. 32–33).

Unofficial migratory labour is another phenomenon. In 2007 it is estimated that approximately 250 million workers migrated from a rural area to an urban area. However, these workers are not registered. Beside other preconditions, a work contract has to be presented. These are mostly non-existent although workers have a right to one. The majority of workers have long working hours and a low salary. As they are not registered in the new location, as highlighted in the previous chapter, access to health services or education services for their children is denied or only available at high prices that they cannot afford. As a result the supply of health services is not sufficient and the children usually remain with their relatives in their home town (Klüver, 2007).

In addition, a reduction of the labour force is expected in the next few years. This comes as a result of the one-child policy as well as the declining participation rate among older workers (The World Bank, 2012a, p. 32). The shrinking workforce and its poor mobility lead to increased salaries. This development is further supported by the government’s decision to increase the minimum wage in line with the latest five-year plan’s goal to improve the lives of Chinese citizens. On average wages have increased by approximately 20 per cent in China as a whole. As a result, China’s image and reputation as a low-wage country is already changing as new trends begin to manifest themselves. Labour intensive industries such as the textile industry, rather invest in Vietnam or Bangladesh than in China (Ricking, 2012).

2.3.4. Consumer market

The rising wages and salaries have a positive side effect on purchasing power of the Chinese consumers so the former producer of goods becomes the purchaser of the same (Ricking, 2012).

Not only is the current situation an improvement but the perspective has improved, too. Young Chinese obtain higher levels of education including international exchange programs. It is expected that the next generation of adults will consists of many more skilled, middle income workers (Kalish, 2009, p. 10). In addition, the increasing participation of women in the workforce translates into a higher level of discretionary spending by Chinese women (Kalish, 2009, p. 14). Domestic demand is likely to further increase, as this is part of the next five-year plan.

Consumer spending did not rise as much as consumer income in the same time period. The difference can be seen in an increase in household savings. Various reasons can be attributed to this increase in savings. Traditionally state-owned enterprises have been responsible for pensions and healthcare. As many of them have been privatised, this safety net has been removed. A second reason is that since the beginning of the reform and opening up policy starting in 1978, Chinese consumers have had virtually no savings. Accordingly, high savings are an effort to catch up. An additional factor is that rural Chinese tend to save a higher share of their income than urban Chinese, due to the fact that rural Chinese have almost no social safety net on which they can rely. A third reason why Chinese save is to be able to accumulate the down payment to purchase a home. A further reason seems to be the cultural bias in favour of saving. Chinese credit card holders do not usually maintain a balance, but prefer to pay off their debts as soon as they can (Kalish, 2009, pp. 14–15).

In China, the importance placed on brand name goods corresponds to the type of product and how visible it is. On the one hand, consumers are highly brand conscious when it comes to luxury products or products where quality is perceived as very important. Consequently, demand for well-known brands is higher for apparel, footwear, jewellery or cosmetics. The same applies to home-related products such as kitchen and bathroom fixtures, appliances, white goods and furniture. These products may all be seen by others, thus brand recognition is important. On the other hand, brands hardly matter for commodities or products which are rarely seen by friends and neighbours. Whether a brand is Chinese or foreign can also be of significance. In the early days of the reform and opening up policy, foreign brands were generally preferred due to their higher quality compared to state-produced products. Yet as state-owned companies were privatised and the domestic product quality improved, pride in the nation’s accomplishments compelled some consumers to favour local brands (Kalish, 2009, p. 17).

2.3.5. Intellectual property

Within western countries, such as Germany, certain prejudices exist about the Chinese attitude toward intellectual property. Those prejudices are primarily sourced out of news or television reports about counterfeit Chinese copies of European products. There have been reports that entire Apple Stores have been copied (Blattberg, 2011) and that a local clone of the Austrian UNESCO world heritage-listed village Hallstatt was built (Spiegel Online, 2011). In addition, customs officials carry out regular operations to confiscate counterfeit products (Sächsische Zeitung, 2012). Since 1977, a German organisation has annually issued a negative award for the most obvious counterfeit products. In 2012 seven out of ten awards went to Chinese companies (Aktion Plagiarius e.V., 2012a).

With its WTO accession in 2001, China committed to comply with the requirements of WTO trade related aspects of intellectual property rights agreement (Okun et al., 2010, p. xiii). Since then, in addition to other law changes, the government has reviewed laws protecting intellectual rights and sought to further improve rights of foreign companies and individuals. In the meantime, an entire legal framework to protect intellectual property rights as well as their execution rules has been established. China has realised the protection of those rights also in their own interest (Shi, 2009, p. 13). The policies are in line with increasing their level of scientific and technological innovation that is originated within the country, as well as increasing the domestic share of the value embodied in goods made by Chinese. To summarise, China would like to shift from “made in China” to “created in China” (Okun et al., 2010, pp. 1–2).

illustration not visible in this excerpt

Figure 10: Confiscated counterfeit products by origin

Source: Adapted from Federal Head Office of Finance, 2011, p. 11

As the law itself is considered compliant with international standards, it is the enforcement of the law which is considered most problematic. Enforcement methods in China fall into four categories: administrative enforcement, criminal prosecution, civil litigation and customs enforcement. Significant structural and institutional impediments hamper the enforcement capacity. These impediments include a “lack of coordination among national agencies and between subnational authorities and the central government, inadequate training and resources for enforcement and corruption and local protectionism” (Okun et al., 2010, pp. 1–8).

In a confidence survey of the German Chamber of Commerce in 2012, the issues with intellectual property rights ranked 13 out of a list of 19 business problems. In earlier studies this issue regularly ranked first of all challenges for foreign companies. Other challenges exist and the lack of skilled workers is at the forefront in the current survey (Koehn and Schmidt, 2012, p. 7).

2.3.6. Corruption

Historically speaking, corruption is not a new phenomenon in China or in any other country (Rennstich, 1990, p. 137). Next to other definitions, corruption is primarily defined by the misuse of public offices for private benefits (Senturia, 1931, p. 449).

Since the transformation process in China started, the perception of government has changed. The government was perceived as non-corrupt in 1970 (Heberer and Wegmann, 1991, p. 14). In 2012 China scored with only 39 points out of 100 (100 equals no corruption) of the corruption perception index issued by Transparency International (TRANSPARENCY INTERNATIONAL, 2012).

China is mitigating this behaviour with high penalties, so in the time frame from 1998 until 2003 more than 80.000 functionaries have been convicted (Engl, 2004, p. 393). But at high administrative levels, accusations of corruption are used to remove political opponents (Engl, 2004, p. 399).

In addition, corruption can be categorised as “spot-market-corruption”, in which only a one-off benefit is granted, and “relationship corruption”, which is dominant in the Asian area. The last one is a long standing transactional relationship between involved parties, which at execution positively influences the political decision making process (Schramm and Taube, 2001, p. 4).

The form of corruption does not necessarily correspond to its criminal prosecution, but to the tradition that it is based on within social relationships (Heberer and Wegmann, 1991, p. 11). This phenomenon is also known as guanxi, explained in chapter 2.2.2. This routine small-scale corruption especially pervades all areas of society and determines entrepreneurial behaviour (Zwicker, 2004, p. 415).

Although individuals from all societal levels engage in corrupt behaviour, the majority of the population objects to corrupt practices and is aware of the problem (Zwicker, 2004, pp. 413, 415).

2.4. Management and leadership

This chapter shows the influence of decision makers on the company performance. The distinction between management and leadership is described in detail as well as the skills required for good leadership. Analysis of the decision making process follows and finally, the chapter describes the role of strategic human resource management (SHRM). In this part, the cultural differences and challenges that leaders and managers are confronted with are also explained.

2.4.1. Skills required for management and leadership

A work psychology experiment in the 1920s showed that human relations had a positive influence on employee work performance. In response to these findings, the former Tayloristic work approach was questioned. Companies that insisted on treating workers like efficient machines recognised a disadvantage and began to search for ways to attract and retain talented employees (Bloisi, 2007, p. 8). A real change in mindset can be observed in the early 1990s due to the market transformation from a buyers-market to a consumer-market (Kotler et al., 2009, p. 78).

Leadership plays an important role. A leader has the potential to influence many people and is responsible for employee motivation and performance and finally for achieving the organisational goals to gain a competitive advantage. There is a distinction between the tasks of management and leadership. Armstrong (2008, p. 6) explains that management’s goal is to achieve a certain result by effectively utilising all required resources i.e., people, financials, facilities or material. Leadership focuses on people and deals with the question how to develop and motivate them. According to Armstrong, leadership is a necessary skill for managers, whereas leaders do not necessarily have to be managers (Armstrong, 2008, p. 7).

illustration not visible in this excerpt

Figure 11: Areas of leadership

Source: Adapted from Stock-Homburg and Wolff, 2011, p. 296

A leader has to tend to the different areas of leadership as shown in figure 11. In addition to having knowledge about a particular field, a leader also needs the ability to inspire other employees (Blake and Mouton, 1986, p. 23). Theory distinguishes mainly between the following three approaches: personal perspective, behavioural perspective and situational perspective.

Personal perspective

A concept that can be applied to leadership is Goleman’s concept of emotional intelligence (Soundview Executive Book Summaries, 2002, p. 3). It describes the application of emotions in business life. The emotional quotient (EQ) is, according to Goleman, more important than the intelligence quotient (IQ) as the IQ accounts for only 20 per cent of success. The rest is driven by the EQ. It includes factors such as the ability to recognise one’s own emotions and harness them to achieve goals. Goleman describes four dimensions with attitudes that create an advantage in being a good leader:

Self-awareness: be aware of one’s own emotions and use them for one’s own performance. Know-how to handle situations by saying what they feel. Know own strengths and weaknesses. A sense of humour, self-confidence and a willingness to learn are also important.

Self-management: control negative emotions and lead them in a positive direction. Stay calm in crisis and under pressure. Be authentic and admit faults. Show initiative and adapt to changing situations and be optimistic to achieve difficult objectives.

Social awareness: show empathy by listening and paying attention to others and understand them. Get along with people from different backgrounds. Show awareness for the forces within the organisation and the strengths and weaknesses of each player. Create a climate of satisfaction.

Relationship management: inspire others to share the common vision and mission. Build networks by influencing, pursuing and engaging people. Develop others and show serious interest in the concerns of others. Be a good coach or mentor. See where changes are necessary and negotiate between employees to find compromises. Build and enhance teamwork and collaboration.

Behavioural perspective

Besides the personal attitudes a leader should have, there are certain theories about the behaviour of the leader, mainly the leadership style. A quite common distinction can be seen in the Ohio-State-Leadership approach which distinguishes between authoritative, cooperative, bureaucratic and relationship focus. Goleman divides them into six styles (Soundview Executive Book Summaries, 2002, p. 4):

- Visionary: create a shared vision. People who share a vision work together
- Coaching: connect individual and organisational goals
- Affiliative: bring people together and solve problems in teams
- Democratic: encourage participation, get employees to support initiatives.

The last two styles are negative examples of leadership style, which are:

- Pacesetting: set high standards, build pressure. Strategy likely to fail, lose people of team
- Commanding: accept no disagreement.

Goleman states that nobody wants to work under this style of leadership and it can harm the organisation.

illustration not visible in this excerpt

Figure 12: Situational leadership

Source: Adapted from Hersey et al., 2008, p. 313

Situational perspective

The situational perspective deals with the fact that there is no one-size-fits-all style for leadership. The model shown in figure 12 developed by Hersey and Blanchard (2008, p. 313) describes the involvement of the leader depending on the maturity level of the subordinate. At first it is very task oriented; as the employee’s maturity level increases the leader should reduce task behaviour and increase relationship behaviour. Beyond a certain point of maturity, the relationship behaviour should also be reduced.

2.4.2. Decision making process description

The delegation of decision making power is an essential instrument of the design of the organisation. Delegation is empowerment of a lower position by a higher position. The competency has been handed over vertically from the top down (Schwarz, 2005, p. 90). The basic idea of the delegation is that decisions are made at the lowest level of hierarchy that has the necessary overview and the required skills to do so. The purpose of delegation is to release the higher level from routine activity. The freed time should be spent on tasks that require their responsibility and competence. At the same time delegation allows the lower level to develop skills and increases their motivation owing to their increased engagement and involvement (Staudinger and Reindl, 2010, p. 18). It needs to be considered that functional organisations have the tendency to centralise decisions as lower levels usually don’t have the required overview to assess the impact of the decision, resulting in overload at higher levels (Weuster, 2008, pp. 113–114).

In chapter 2.1.2 the EPRG-model was described. According to the level of centralisation there are also different demands for the involvement of the decision maker (Meckl, 2006, pp. 96–98):

- Ethnocentric: the foreign office or subsidiary is managed by staff from the head office country because it is perceived that they are more qualified than local personnel. The manager is involved in the decision making of the head office and applies the strategy abroad. The influence of locals is quite limited
- Polycentric: the management is recruited in the foreign subsidiary directly. The power of decision is in the specific subsidiary. The subsidiary receives less instruction from the home country. There is also less monitoring by the company headquarter. Customising products allows markets to be served that usually could not. The lack of oversight or coordination of the part of the company headquarters makes knowledge management and more difficult
- Regiocentric: national markets with fewer market entry barriers are combined into one region. The regional offices are staffed with personnel from the specific region. Nationalities of the leaders do not play an important role. More important is the homogeneity of the region
- Geocentric: the world is seen as one global market. Therefore, a global leadership style is applied. The company is seen as a network of equally treated national and regional organisations. There is high effort exercised on communication and negotiation.

The definition of the optimum centralisation level is a trade-off between the cost of coordination and the costs of self-governance. The cost of coordination represents the cost for additional reporting systems and the structures to convey and enforce orders from the head office. It also considers the possible costs for the risk that the head office takes suboptimal decisions due to the long distance to the market and resulting missed market opportunities. The costs of self governance are potential costs which could be avoided, related to duplication of tasks, missing learning curve experience and missing utilisation of economics of scale. The optimum combination is when the sum of both costs is minimal. It needs to be considered that this is only a theoretical model, the practical application it is only limited (Meckl, 2006, p. 115).

2.4.3. Strategic human resource management

In contrast to the administrative tasks of a company’s human resource (HR) department, such as hiring, creating job descriptions, creating payrolls, rewarding and developing employees, SHRM has the aim to implement HR activities with a long-term focus on management discipline and alignment with management’s strategic goals. Accordingly, HR becomes management’s strategic partner. The core assumption of this concept is seen in the fact that employees are recognised as a key variable of the company (Armstrong, 1987, p. 32).

Literature rarely distinguishes human resource management (HRM) from SHRM (Beardwell et al., 2004, p. 32). To describe the differences, first the characteristics of the term HRM are further explained. In theory, there are two approaches described as hard and soft HRM. Hard HRM sees employees as necessary resources to fulfil the goals of the organisation and is described by the Michigan matching model. It assigns tasks to HRM: selection, appraisal, reward and development. The other approach is soft HRM, influenced by the Harvard model. The model highlights the importance of a manager’s attitude toward staff and his or her ability to incorporate employees in the policy creation process within the framework of the organisation goals (Armstrong, 2006, p. 5).

Nevertheless, there are common aims of both HRM approaches. Both approaches have the intention to increase the effectiveness of the organisation. To achieve this goal, both use instruments such as knowledge management and reward management. Learning and motivation aspects are promoted by the individual treatment of the employees.

There is also a discussion about the difference between personnel management and HRM. Armstrong (2006, p. 17) says that HRM can be seen as a perspective on personnel management. He does not describe it as a new concept. The main difference in the virtue of HMR is that people are treated as a key resource.

illustration not visible in this excerpt

Figure 13: A linear strategic HRM model

Source: Adapted from Armstrong, 2006, p. 36

Apart from this, SHRM is seen as a process dealing with long-term goals and is considered part of the strategic process. The assumption is that HR strategies contribute to the strategic goals of management. Accordingly, SHRM provides a competitive advantage for a company, by securing skilled, committed and motivated employees in the organisation (Armstrong, 2006, p. 31). In contrast to this, HRM focuses more on managing people rather than gaining a competitive advantage out of them. Figure 13 describes the core processes derived from the business strategy and of SHRM.

In figure 14 the goals of HRM are redefined as an individual strategy with long term goals. To best profit from market opportunities and to manage the related risks (external factors) the company has to utilise its capabilities, especially its human resources and their skills (internal factor) to gain a competitive advantage. This is also known as strategic fit. It is also criticised due to the fact that it oversimplifies reality. Usually influences are not as linear as shown in the model (Armstrong, 2006, p. 35).

The HRM department has to handle all issues related to personnel. This includes company specific issues such as recruiting, developing and retaining employees, as well as external environment issues such as changes concerning competition, education or legislation.

illustration not visible in this excerpt

Figure 14: The human resource functions

Source: Adapted from Bloisi, 2007, p. 31

Recruitment and selection

The demand for people has to be filled with qualified personnel. Personnel that is either over or under qualified can cause problems in fulfilling the organisational goals. The personnel has to fit to the business demands (Bloisi, 2007, pp. 30–31).

Training and development

Training and development are necessary to get the best out of the employee and close the gap between current skills and knowledge and the demands of the organisation. For new employees some training is always required to become familiar with company standards, values and culture. It is also a gesture to welcome the new employee. Development focuses on more than skills. It focuses on long-term development such developing team-leaders and managers (Bloisi, 2007, p. 32).

Planning, resourcing and retention

In order to fulfil the objectives by their deadline, it is necessary to plan for the number of employees necessary. Their skill set and skill level also need to be taken into consideration. Also employee turnover has to be considered (Bloisi, 2007, p. 30).

Employee relations

Negotiations with the workforce are important to ensure a stable working environment. The HR manager has also to be aware of external changes, such as new laws and regulations which have impact on employees. In some cases, change management may be required to bring the demands of the organisation in line with these (Weber, 2001, pp. 166, 199).

Internationalisation aspects

As described in chapter 2.1.2, the internationalisation of a company is connected to several strategic decisions. One thing to consider is the choice of an appropriate human resource strategy on an international basis. SHRM on an international basis entails more challenges due to the more complex environment the company has to deal with. The choice of appropriate personnel has to be planned. Therefore, personal attitudes and specific knowledge are important (Stock-Homburg and Wolff, 2011, p. 379).

Market aspects demand an awareness of changing markets and the creation of appropriate action plans. The economic and competitive environment can change quickly. Therefore, personnel development plans have to be made for expatriates, locals and for employees from a third country. The role of leadership as stated in chapter 2.4.1 has an important impact because the leader has to deal with uncertainty and ambiguity (Ulrich and Lake, 1990, p. 126 cited Armstrong, 2011, p. 110).

As highlighted in the previous chapter, the maturity level of the company plays a deciding role in how company matters are handled. The following section highlights the different aspects of the development stage starting with the set-up of a representative office in the new foreign market. In this case, the posting of employees is usually required. In general, the company limits the development of international activities to their management. Often personnel from the home country are used to lead a new subsidiary abroad, at least in the beginning (Beardwell et al., 2004, pp. 620–621).

In regional structures the international and intercultural experience required of the regional heads is of great importance. These skills are the minimum requirement for global organisations. Often the second and third level of management can be led by a local person. While finding qualified personnel abroad can be difficult, trainings and development can mitigate the problem. The HRM has to take appropriate action to ensure employee retention, as there may be other job offers on the market (Bloisi, 2007, p. 30).

Cultural Diversity: the term cultural diversity has a large impact in an international environment. What can be a motivational factor in one country, can be exactly the opposite in another. Employee values and principles can differ. According to the findings in chapter 2.2, employees from different countries or cultural backgrounds expect different types of leadership or reward. Masculine cultures expect leaders to be assertive, decisive, aggressive, autonomous decision makers orientated on facts. Feminine cultures are more restrained; intuitive decision making and consensus have a higher priority than individual wishes (Stock-Homburg and Wolff, 2011, pp. 394–395).

Expatriate management: posting of an employee has to be planned well in advance. Using managers from home office may aim to simply fill a position, to provide management development opportunities or to support the organisational development of the new office (Beardwell et al., 2004, p. 621). The expatriate has to overcome several difficulties in the country abroad. False expectations or insufficient skills to integrate in the foreign country can lead to a failed experience. The costs for inappropriate management of expatriates are high as the early departure would jeopardise the success of the entire project (Weber, 2001, p. 261).

The challenges facing the expatriate are to overcome culture shock and to develop an appropriate leadership style for the new market. Furthermore, he or she has to overcome role-specific problems. The ability to transfer specialised knowledge, the ability to protect innovations and the ability to gain communicative competence are crucial.

Thomas et al (2007, p. 129) use the term acculturation process to describe what every expatriate goes through during his entire secondment. According to Welge and Holtbrügge (2006, p. 231) this process can be divided into e xpectation phase, culture shock, adaptation, reverse culture shock and re-adjustment. Figure 15 illustrates the different phases.

The first stage is arrival in the new country. The expats are impressed by the new insights. New contacts are established and there is still optimism about the coming challenges in the foreign country.

The second stage usually begins between three and six months into the stay. Serious conflicts can occur. Local colleagues may not behave as expected. Culture shock can set in and the risk increases that that the stay abroad will be interrupted.

If the previous stage is completed without ending the stay, the expat begins to adapt to the new country, perhaps acquiring language skills. His or her own values become only part of the assessment of situations.

Even before returning to their home country, an expat may feel that they are losing advantages gained in the foreign country. The fear of loss of status, loss of autonomy or loss of career direction may arise.

After returning home, the process of repatriation begins beginning with a period of naïve integration lasting up to six months. After that, the former expat might realise that his or her old circle of friends no longer exists and may experience feelings of alienation. This situation is known as reverse culture shock.

In the last phase, the re-adjustment, the expatriate raises realistic expectations and returns to his or her old behaviour pattern. He is finally re-integrated. To improve the whole process of repatriation, a company can provide a job before the expat returns and provide new personal career perspectives.

illustration not visible in this excerpt

Figure 15: Cultural adjustment life cycle

Source: Adapted from Welge and Holtbrügge, 2006, p. 231

Considering the different challenges of the entire acculturation process, it is also in the best interest of the company to consider the expatriate’s family unit. They can also benefit from preparation and language and intercultural training. Their stability is of benefit to the expatriate and in turn to the company.

Practical Support: this can be provided in the form of assistance with a flat, bank account, car and/or, insurance. Opportunity to contact family can be provided. Financial support and compensation are common (Stock-Homburg and Wolff, 2011, p. 269).

Training of employees abroad: to improve communication and to foster acceptance of an expatriate manager, it can be beneficial to provide employees abroad with intercultural training. The company’s corporate culture can be communicated and the advantages of implementing it or rather integrating it into to the subsidiary can be explained. It can be beneficial to hold such training in the head office. Leadership training and integration into a global management team can be appropriate actions to build a sustainable global approach (Stock-Homburg and Wolff, 2011, p. 372).

International career development: within a potential and performance assessment, the personnel of the foreign markets have to be assessed and developed according to their strengths. The cultural aspects of the country must be taken into account during assessment. Meetings for evaluation, development and improvement should guide the employee and give perspective. A job rotation or planned work abroad can be a part of this assessment.

3. Research design

The following chapter presents the research design. It starts with the research objective and the research methodology. In the following section the underlying philosophical assumptions are discussed. The different data collection techniques are presented and the best suited technique for the research objective selected. Based on this decision the different steps how to develop a questionnaire are described in the following chapter. It continues with the definition of the sample population and the how the research is conducted. The approach to analyse the gathered data complements this chapter. At the end of this section, a critical assessment and the limitations are discussed and it ends with a conclusion.

3.1. Research objectives

In literature there is a wide discussion about required skills for leaders and the cultural differences between western countries and China. Nevertheless, the questions how leaders should adjust their leading behaviour and whether different skills are required when entering into the Chinese market have been neglected.

When entering into a new market, the local unit follows different states of maturity which may also have an influence on required skills. Complexity rises when different corporate functions need to be considered, such as finance, human resources or production.

The role of the leader is crucial for the success of the endeavour of internationalisation. Accordingly, this research shall identify issues, opportunities and risks related to the delegation of power. Furthermore, it is complemented by the consideration of cultural differences between Europe and China. It shall conclude in concrete recommendations for company leaders planning a market expansion to China.

3.2. Research methodology

In order to answer the research question, the research for this thesis is split into two major parts. The first part is a secondary research project based on existing literature. The second approach is primary research to answer the research question based on the theoretical background provided within the secondary research.

The first part, the secondary research, has been described in the previous chapters. It summarises scientific theories and provides the basis for the intended primary research. For the second part, the primary research, the literature provides two major research approaches for execution: quantitative and qualitative research.

The method of quantitative research was originally developed to study natural phenomena. Meanwhile, it is also accepted in social science including survey methods, numerical methods or laboratory experiments. Quantitative researchers emphasise numbers more than anything else (Myers, 2009, p. 8). Straub et al. (2004) emphasises that “numbers come to represent values and levels of theoretical constructs and concepts and the interpretation of the numbers is viewed as strong scientific evidence of how a phenomenon works”. This approach is best when research is based on a large sample size and a generalisation to a large population is intended. It is used to find out trends or patterns that apply in different situations. For this purpose, quantitative researchers use statistical tools to analyse the data. The disadvantage is that “many social and cultural aspects of organisations are lost or treated in a superficial manner” (Myers, 2009, pp. 8–9).

The qualitative research method was first developed to study social and cultural phenomena by the social sciences. The sources for qualitative research are interviews and questionnaires, case studies, the researcher’s impressions and reactions. The most used source is the interview. It is a record of what subject matter experts have said about the topic. The collected data helps to understand people, their motivation, actions and the broader context within their work and life (Myers, 2009, pp. 8–9). They see their purpose as one of “understanding how people make sense of their lives and how people come to understand and manage day-to-day-situations” (Miles and Huberman, 1994, p. 5). Marschan-Piekkari et al. (2004, p. 8) adds that this approach is less likely to suffer from cultural bias and ethnocentric assumption compared to survey instruments and thus is recommended for subjects related to cross-cultural understanding. The disadvantage is that it is difficult to generally project the results to a larger population as the executed interviews are not sufficient, in statistical terms, to extrapolate this to the entire population (Myers, 2009, pp. 8–9).

For the decision of the research method, the authors also consider the experiments of Miroslawski (2008, p. 221). He executed a quantitative research with pre-formulated questions and had a return rate of eight out of approximately 500 questionnaires. He explains his quite low return rate with missing relationships to the prospective participants which is required in the relationship driven culture of China.

The authors select the qualitative approach given that the highlighted advantages mitigate the experiences of Miroslawski.

3.3. Underlying philosophical assumption

Myers (2009, pp. 35, 37-38) describes an additional classification for research, the underlying philosophical assumption. It guides the researchers while doing the research. For qualitative research the most prominent philosophical assumption is related to epistemology, meaning that the author can be biased during the research, due to its own beliefs and assumptions (2012b). Orlikowski et al. (1991) categorises it in: “positivist”, “interpretive” and “critical”. The different categories are defined as (Myers, 2009, pp. 37–44):

The positivist assumes that reality is objectively given and can be described by measurable properties. It is used to test a theory by an attempt to increase the predictive understanding of phenomena.

The interpretive research is only possible through social constructions, e.g., language, consciousness, shared meaning and instruments to gain access to the reality. Kaplan et al. (1994) adds that researchers do not predefine dependent and independent variables, but focus on the complexity of human sense-making as the situation emerges.

The critical research assumes that reality is historically created and that people produce and reproduce it. Although social and economic circumstances are consciously an act of change by people, the ability to do so is constrained by several factors. These are forms of social, cultural and political dominations. Rather than just describing current knowledge and beliefs, the idea is to challenge those beliefs, values and assumptions that might be taken for granted by the researched person himself.

The authors of this thesis classify themselves as interpretive researchers. As a result of this, the authors would like to find out the link between the data collected and connect them to the existing theories.

3.4. Data collection technique

In literature different data collection techniques are used for qualitative research. Most prominent techniques are interviews, participant observation and fieldwork and unpublished documents (Myers, 2009, p. 119).

Interviews are one of the most important data gathering techniques. The interview method allows the researcher to gather rich data from people in various roles and situations. The role of the interviewer is to listen, prompt, encourage and direct the interview partner. Only if the interview partner feels comfortable will they open up and talk (Myers, 2009, p. 124). Interviews can be classified into three types: structured interview, unstructured and semi-structured interviews. Structured interviews use pre-formulated questions and are usually asked in a specific order. This kind of interview minimises the role of the interviewer as there is no need for improvisation during the interview. It is used to ensure consistency across multiple interviews. This is also the disadvantage of this interview type. If the interviewer sticks to the pre-formulated questions, the interviewer might miss out on new insights, which could have been disclosed if the interviewer just asked for it. This type of interview is often used for political polling. Unstructured interviews are the opposite: they use very few or no pre-formulated questions. The advantage is that the interview partner can talk freely and tell the interviewer everything he considered important. This is also the disadvantage, the interview partner does not get into his talkative mode or the interviewer ends up with a lot of data that are not important for the topic. The semi-structured interview is a mixture of both: it uses pre-formulated questions, but there is no strict adherence to it. New or different questions emerge during the interview encouraging improvisation by the interviewer. But it remains a certain consistency across the interviews as the interviewer uses some pre-formulated questions which represent a certain structure within the interview (Myers, 2009, pp. 123–125). This allows that data collected from each respondent is systematic and ready for a comparison later on (Patton, 2002, p. 349).

Myers et al. (2007) summarises some difficulties, problems and pitfalls of interviews, e.g., lack of trust, as the interviewer is a stranger it is likely a concern about how much the interview partner can trust the interviewer. Lack of time may mean that the data gathering is incomplete. Elite bias, as the researcher may interview only certain people of high status resulting in the lack of understanding of the broader situation. Hawthorne effect, as the interviewer is not an invisible and neutral person but rather the interviewer is part of the interaction and may influence the interaction.

Participant observation or fieldwork is used by researchers when they study people of a group of persons without or limited interaction. Usually the researcher goes to the places where the persons are present and becomes part of their daily life (Thuswald, 2008, p. 64). It is recommend the researcher spends a substantial period in the field, at least twelve months. The advantage is that it enables an in-depth understanding of attitudes, beliefs, values and norms. In contrast to this, the disadvantage is that the researcher can only observe a small group at the same time and it has a tendency to be purely descriptive and makes little contribution to theory (Myers, 2009, p. 150).

In order to answer the research question best, the authors selected the semi-structured interview complemented by the participant observation or fieldwork as their data collection technique. The authors have selected the semi-structured interview approach, due to the fact it allows to have at least a consistent approach to ask the question which allows a later comparison. Nevertheless, it keeps the opportunity to get more relevant information as it emerges.

In order to add non-verbal complementary information such as the behaviour or the reaction of the interview partner, the authors decided to combine it with the participant observation or fieldwork, although the recommended duration of twelve month will not be accomplished. In order to mitigate the difficulties and problems of the interviews, the authors foresee to execute the research in China. The authors expect that the personal contact with the interview partner positively influences the communicativeness and the willingness to share knowledge. Due to the personal appearance of the researchers, the authors expect a higher willingness to participate in this research and the topic in general.

Apart from mitigating the difficulties of the interview, the travel to China allowed the authors to collect valuable information in regard to the fieldwork such as visible and subjective impressions e.g., labour conditions, state of premises or work ethics. Furthermore, this allows the authors to make their own impression of the culture and people.

3.5. Development of questionnaire

The purpose of developing the questionnaire is that all relevant questions are asked for this research. It is designed for a duration of 30 min. Fewer or additional questions can be asked in order to fit to the available time of the interview partner. As a general rule, the authors set important questions first in the questionnaire. This ensures that those questions are asked in the case that time runs short. Related questions are grouped to each other so that jumping from one subject to another is avoided. In addition, those questions are grouped into the clusters: decision making and execution, cultural aspects and company aspects. It is complemented by some statistical questions, e.g., industry and position of the interview partner in order to be able to classify the answers during the analysis. The interview grid contains open ended questions to stimulate a wide answer by the interview partner. Additionally, the formulation of questions has been considered to avoid negative impressions or a face loss of the interview partner.

The developed interview grid will be tested prior to the field work with a test population. The test population consists of friends and family of the authors, who have experience in business. The test provides two advantages: firstly, the questionnaire will be further enhanced to ask more specific questions. Secondly, the authors can practise their interview skills. As a result, unnecessary time spent by the interview partner can be avoided and a higher amount of information can be collected.

The questionnaire used can be found in the appendix C.

3.6. Sample population

As it would cause an unjustified effort to contact all western based companies in China, a sample is required. In order to gain a representative sample the area of Shanghai has been selected as a subsidiary of the German chamber of commerce and various European industries are located in Shanghai. According to a study by the German chamber of commerce in China (Heininger and Gehnen, 2007, p. 10) 47 per cent of German businesses in China are located in this area. The geographical allocation is illustrated in figure 16.

In order to gain a representative statement from the selected companies, preferred interview partners are local senior or executive staff of those companies irrespective of the nationality. The authors are aware of the elite bias as described in chapter 3.4. But due to the limited time the authors accept this problem.

The main difficulty is to reach out to the preferred interview partners. In order to mitigate this, not only German companies in Shanghai, but also European companies located in Shanghai are approached. The focus of the authors is to interview a wide range of different industries (consulting, engineering, financial institutes, law companies, logistic and medicine). The target group of this research are large companies represented in the German Dax or MDax indices. The interview partners are further complemented by representatives for European economy who can further contribute knowledge, such as representatives of chamber of commerce or representatives who spent a significant amount of time in a leading position in China but are meanwhile relocated to Germany.

illustration not visible in this excerpt

Figure 16: Distribution of German business locations in China

Source: Adapted from Heininger and Gehnen, 2007, p. 10

Due to Chinese culture, a personal introduction is very important. To be in line with this practise, the authors first created a short summary of the proposed research, including a short introduction of themselves and the university they are studying for. Second, the authors considered the importance of personal relationships. To mitigate the problems of Miroslawski as described in chapter 3.2 the authors contacted colleagues and friends within their personal network to establish a connection between interview partner and authors. As third step, a meeting between interview partner and the authors was arranged within the time frame of the field research in Shanghai.

3.7. Conducting

The interviews were conducted in the time frame from Monday, November 12, 2012 until Friday, November 23, 2012 in the area of Shanghai, China. The complementary interviews in Germany were held on Thursday, November 29 and Friday, November 30, 2012. All interviews were conducted on the condition of confidentiality and anonymity.

Although, Myers (2009, p. 134) recommends to record the interviews to have the exact words spoken by the interview partner to be able to exactly quote him, the authors decided not to record those interviews. The reasons for this decision are: first the authors believe that people talk differently when they are recorded. Thus they pay more attention on the words spoken resulting in less conveyed information. Second, the authors believe that an unrecorded interview supports the opening up within the interview and allows free discussion in which also difficult topics can be discussed. Third, the authors are not aware how those recordings would be treated within the Chinese cultural environment and do not want to risk this.

Consequently, the authors will conduct all interviews together, to collect as much data as possible. This approach offers several advantages including more concentration on conducting the discussion while another person can focus to taking notes resulting in a more balanced discussion, without interruptions. Apart from this, statements can be better interpreted and misinterpretations can be avoided by a later discussion between the authors. A further advantage of two interviewers can be seen in focusing on non-verbal aspects which can later be discussed and interpreted.

After the interview both notes of the interview are combined to have a complete as possible record of the interview. This is used later on for a further detailed analysis after the interview.

3.8. Data analysis

As stated in the previous chapter, notes from each interview are made. These are the basis for the following data analysis. The analysis of the data follows the grounded theory approach visualised in figure 17, which was developed in the late 1960’s by Barney Glaser and Anselm Strauss. The objective is to create a theory out of the data provided from the interviews. The steps are open-, axial- and selective coding (Punch, 2006, p. 108).

Within the open coding phase data is broken down, examined, compared, conceptualised and categorised. The objective of this phase is the development of categories. This is done by continuously comparison of the notes taken from the interviews (Punch, 2006, p. 108). The first step is to write down the key statements as key word on the side of the note. Whenever a new statement of an interview partner is assessed it will be compared with the previous statements of other interview partners, whether the key content is identical or if a new content has been discovered (Glaser and Strauss, 1998, p. 112).

illustration not visible in this excerpt

Figure 17: Three steps of grounded theory

Source: Compiled by the authors adapted from Punch, 2006, p. 108

In the axial coding phase the data is re-built in new ways by establishing relationships between categories (Punch, 2006, p. 108). As the coding continues and reaches a certain level of maturity the comparison changes from a simple comparison of the statements to the comparison of the statement in context with the underlying assumption. The more statements are compared, the more knowledge can be gleaned from the interview statements. All this and the different relationships of the different statements are further consolidated in a coherent whole (Glaser and Strauss, 1998, pp. 114–115).

In the selective coding phase, the core categories are selected, systematically related to other categories and validated (Punch, 2006, p. 108). The purpose of this phase is to reduce the number of statements or categories to the relevant ones. Unimportant statements will be removed. Further details will be added to the core ones. This helps to identify a common statement, which provides the basis for the theory. The theory can then be formulated with fewer but abstract concepts (Glaser and Strauss, 1998, p. 116).

It should be mentioned that some academics recommend not doing a literature review before the researcher has analysed the data. This is to ensure an open mind when analysing the data. Any bias should be avoided which may be caused by reading literature with different opinions. The idea is that the codes, categories and themes emerge from the analysis of the data not from the earlier reading (Myers, 2009, pp. 8–9). To be in line with this criticism, the authors did only a primary literature review which was required to isolate the subject of this thesis and the corresponding research proposal. The details of the literature review were executed after the analysis of the data.

3.9. Critical assessment and limitations

The provided statements of the interview partners need to be assessed critically to find out if they reflect the reality. For this purpose the authors of this thesis list several reasons below why a statement may not be treated as it has been mentioned. At the same time, this shall also demonstrate the limits of the research. The following will highlight some concern:

In 1956/57 Mao Zedong initiated the hundred flowers campaign. The citizens were invited to voice their opinion of the communist regime. It was forcibly ended after strong criticism of the government surfaced. The citizens who voiced criticism about the regime were prosecuted (Oxford Dictionary, 2012a). It ended when people were publicly criticised and condemned to prison labour camps (Short, 2001, p. 470). Based on this experience, the authors assume that Chinese interview partner may avoid raising critical comments especially to foreigners. Also in this context it might be that the Chinese want to present their country in a positive light and thus abstain from mentioning the negative side.

Related to culture and considering the principles of face, the interview partner may refuse to state negative comments which may refer to internal problems of the company. Those problems should not be disclosed to the public.

Another aspect is the language used: unless the interview partner is German, the authors used the English language to conduct the interviews. As English is not the native language for the Chinese interview partner nor for the German authors, there is a risk of losing information due to the translation. In addition, as described in chapter 2.2.3 Chinese use a high content language whereas Germans use a very low content and direct language. This includes the risk that the authors might miss indications or even wrongly interpret these.

As some interview partners were born and raised in a different culture they have a different background and experiences. Therefore, certain behavioural patterns or actions are treated as good, as an accepted way or as a common way to do something as no other experiences are gathered. A person needs to have experience with different cultures in order to evaluate it. Thus, this may carry the risk that Chinese interview partners or the authors state something that is surprisingly or even culturally not accepted by the other which might negatively influence the assessment of the statement.

When two or more representatives of a company take part in the interview, the interview partners may influence each other. Therefore, it may be possible that a lower ranking employee avoids contradicting the higher rank employee. In the end only a team statement can be gathered rather than individual assessments.

Further, due to the low number of interviewees, the results of this study could only give an indication and cannot be extrapolated to the entire population. This has to be verified in further quantitative studies.


[1] Berndes, a pan producer, relocated production back to Germany to be more flexible (Gärtner, 2012) and Ravensburger, a toy producer, relocated the production because of quality issues (Giese et al., 2012).

[2] In the military, strategy described the fundamental nature of warfare and was formed by General Clausewitz in the 19th century.

[3] Alfred Chandler can be seen as a pioneer of strategy in terms of economics.

[4] Mintzberg et al. (2008, p. 5) summarises the most important schools of thought concerning strategy

[5] Other authors call them differently and provide a different set of tools supporting each step.

[6] Other risks are political, such as the risk of expropriation, or economic risks, such as counter party risk. These will not be further assessed in this thesis.

[7] Geert Hofsteede is a Dutch scientist who did research in national cultures and cultural differences.

[8] Initially there were only four dimensions. The dimension long-term vs. short-term orientation (LTO) was added later in 1991, the last dimension indulgence vs. restraint (IVR) in 2008.

[9] Trompenaars is one of the leading experts in culture and intercultural management.

[10] Due to the requirement of having at least 100 data records per country, the sample is reduced to 30,000 data records from 55 countries (Kutschker and Schmid, 2011, p. 736).

[11] In contrast to Hofstede, Trompenaar also analysed the culture of middle and Eastern Europe.

[12] The study was initiated in 1991 by US professor Robert J. House. The original intention was to research a general concept of charismatic leadership in 20 different cultures. Out of this study a worldwide research program evolved.

[13] Some countries like South Korea classify Confucianism as a religion.

[14] The first written descriptions for the face principle can be found in the work “Zuozhuan” from the second century BC.

[15] Industries are: energy savings, environmental protection, new energy and clean energy vehicles, biotechnology, new materials, new IT and high-end manufacturing.


ISBN (eBook)
ISBN (Buch)
12.3 MB
Institution / Hochschule
FOM Hochschule für Oekonomie & Management gemeinnützige GmbH, Frankfurt früher Fachhochschule
2014 (Mai)
China Management HR Organisation Expansion Führung Kultur Culture Expatriates Talent Delegation Macht Diversity Leadership MBA Internationalisierung Globalisierung



Titel: Expansion of western based companies to China