Under Chairman Mao, the People’s Republic of China maintained a supply-driven economy and marketing was proscribed

. Deng Xiaoping ‘opened the door’ to new socialist market-orientated thinking from 1978 (Ambler et al., 1999, p.75). During the 1980’s the Chinese government, the Communist Party of China (CCP), created Special Economic Zones (SEZs) in coastal cities, such as Beijing, Shanghai and Guangzhou, as an experiment based along communist ideas, allowing foreign direct investment (FDI) into the SEZs. The principle ideas behind the SEZs were to attract FDI in science and technology to enable China to push for export-driven economic growth (Ge, 1999). Since then China has been developing into a major economic entity, with a population that constitutes one-fifth of the world’s consumers (Population Reference Bureau, 2008), a gross domestic product (GDP) of US$3,460 billion and a predicted GDP annual growth rate of 8% for 2009 (The Economist, 2009a). A recent study by HSBC and MasterCard (2007) estimated the size of the middle class in China at 87 million (2005 estimates), growing to 317 million in 2015. There has been an emergence of the “affluent” class in China over the last decade, with 2.9 million people estimated to be earning over US$60,000 in 2005, growing to 8.5 million in 2015. According to the McKinsey report “From Made in China to Sold in China” (2006), 700 million Chinese will join the international consumer class by 2020 compared with less than 100 million today. That adds up to a five-fold increase in urban consumer spending over the next twenty years to US$2.3 trillion a year. The enormous market size, rapidly increasing purchasing power, and the diversity of consumer segments have tremendous implications for domestic and international marketers (Wang & Cui, 2008 p.421-423). Geert Hofstede’s (1980) “Culture’s Consequences” is one of the most prevalent insights into crosscultural management and understanding (Fang, 2003). His work surrounds his concept of the four dimensions of national cultural variability, i.e. power distance, uncertainty avoidance, individualism and masculinity. The later revised (1991) “Cultures and Organizations” work brings in a new dimension of Confucian dynamism. This dimension is particularly important when trying to understand the Chinese culture, and how it differs from that of the UK. Chinese culture is extremely difficult to quantify. As one of the world’s oldest nations, Chinese culture has developed over 5,000 years. Confucius teachings have been a central role in Chinese beliefs. Confucius lived around 500 BC and taught lessons in practical ethics. Under Chairman Mao ruling collectivism was taught and encouraged, which still plays a huge role in Chinese society, differing from the individualism expressed in Western society. Primarily a central point to Chinese culture is the importance of guanxi (Styles & Ambler, 2003). Guanxi is the lifeblood of the Chinese business community, extending into politics and society. Without guanxi one simply cannot get anything done (Davies et al., 1995). It can also be broadly translated as “personal relationship” or “connections”. It necessitates personal interactions and always involves reciprocal obligation (Brunner & Koh, 1988). It is developed with ingenuity and creativity, supplemented by the flexibility of cultivating a relationship through a person’s network of connections (Wong & Leung, 2001, p.4).


1987)... “The best we might expect might be some local businesses. then all deals become easy”. the uniqueness of the Chinese culture makes the direct transfer of Western relationship marketing principles into China questionable (Wang. and a set of social norms that one should follow to get along well with other people (Hwang. often referring to one’s emotional responses when confronting various situations of daily life. After 4 years running a representative office the country manager concluded. However. MacInnes (1993) observed that the major contrast between Western and Chinese management practice is the emphasis on written contracts and procedures in the former. 2007). a resource that one can present to another person as a gift in the social exchange process. including reciprocity and empathy. as opposed to the specification and enforcement of contracts in the West (Davies et al. “one of the major purposes of guanxi is to generate ganqing (emotional attachment among network members) and become an insider in a group. In addition to this contrast. who did not develop the ideal guanxi networks before market entry.Relationship marketing in the Western sense focuses on establishing.166). Wong & Leung (2001. 2003). 2002).175) notes that the high score for China is because Confucian traditions are prevalent there whereas the low score for the UK is because they believe in preserving history and continuing past traditions. p.” This was unacceptable to M&S so it withdrew from China at the end of 1998 (McHardy Reid & Walsh. -2- . It has been argued that doing business in China is particularly difficult because of the higher relative importance of personal relationships. two or three regional businesses perhaps. Renqing is a unique term in Chinese cultures. Although some relationship marketing principles are regarded as a key determinant for a successful business in China. is the key to maintaining guanxi (Wang. Western relationship marketing and guanxi do share some basic characteristics such as mutual understanding and cooperative behaviour. A table in Hofstede’s original work shows the differences faced between China and the UK: of the 23 countries making up the table. developing and maintaining successful relational exchanges and good customer relationship (Berry & Parasuraman. Guanxi is based on LTO and Confucian dynamics whereas traditionally UK business is based on a more short-termed contractual basis approach. A particular example of a failed UK business venture into China was by Marks & Spencer (M&S). 2007). and personal relationships and trust in the latter. p. 1991. referring to the fifth dynamism of Hofstede’s (1991) dimensions of national cultural. trust and relational commitment underpin relationships in the West. p. picking the franchisee almost “haphazardly” and relying on their brand image in the Western world (Burt et al. Hollensen (2001.6) observe that. Confucian dynamism is related to the long-term orientation (LTO) of a country’s culture. 1995). Their initial plans were to develop a chain of retail stores as it has in many other countries – Asia in particular. and guanxi. whereas renqing. China ranks 1st for LTO whilst the UK ranks 18th behind other Western countries such as the US and Germany (Hofstede. 1991).

consisting of 13 chapters ranging from topics such as “laying a plan” to “using spies”.The implication of the differences between Western relationship marketing and guanxi in China for a UK exporter exporting to China for the first time is that they may benefit more from seeking long-term partnerships through the gradual development of guanxi networks than from relying strictly on the more familiar contact-based agreements (Standifird & Marshall. the Western approach to international strategy involves creating relationships through marketing and contractual agreements. it is also a social interaction. Although networks and guanxi are believed to be critical for market entry in Confucian societies. This cross-cultural difference may make the negotiation process for UK exporters much harder. business is not just business. A long-term relation based on ganqing commitment and friendship within the guanxi network. Partnerships need to be built on guanxi grounds where a social relationship is a prerequisite for the business relationship and interpersonal relationships underpin any business deals. they may also dampen the entrepreneurialism necessary to build a sustainable niche suggesting that under certain market conditions guanxi may have limitations (Beverland. This contrasts with Hofstede’s original work placing the UK as a weak uncertainty avoidance culture. something that a UK exporter may not have a great deal of experience in and areas of experience known by the UK exporter may not translate to an exceptional competitive advantage. 1997). 2009). 2000).246). which can be classified as indirect. in which renqing is exchanged. For the Chinese. Hence. Due to the importance placed on guanxi networks I argue that indirect exporting will hinder the success of a UK exporter to China. direct and cooperative (Hollensen. Sun Tze’s teachings are profound in everyday business in China. 2001. especially if the guanxi networks are not thoroughly in place at the time of the negotiations. As highlighted above. who lived during the Warring States Period (473-211BC). -3- . It is important to note the different modes to exporting. it is crucial for the UK exporter to learn how to successfully interact with the Chinese. A great military leader named Sun Tze. and returning renqing. wrote a military treaty named the Art of Warfare. A cooperative mode may be more appropriate to a small or medium enterprise attempting to internationalise as they may be able to make use of the export marketing groups’ already established guanxi networks. This has implications for UK exporters to China as entry will become more prescriptive under Chinese circumstance. The Chinese have a very traditional view on negotiation set in traditions dating back 2. will have a sustainable competitive advantage over outsider competitors. Sun Tze’s teachings set out a very rigid structure for Chinese negotiation and competition. p. as it will be seen as short-termed and use low levels of ganqing commitment.300 years ago. Translating this to Hofstede’s (1980) dimension of “uncertainty avoidance” highlights that China appears to display strong uncertainty avoidance. A long-termed guanxi network may be established with a distributor or agent in China as in the direct export mode. outlining the secrets of success on the battlefield (Ho & Choi. Critical to succeeding in international business is the negotiation process.

2006). condemned” illustrates the Chinese mentality regarding collectivistic sharing versus individual ownership. In Chinese tradition. convenience and green issues were of greater importance to the affluent class when making a purchase decision.. Shanzhai literally means “mountain fortress” but relates to non-branded products developed by domestic Chinese companies. This stark difference of appreciation for counterfeit goods is a barrier for UK consumer exporters wishing to internationalise into the Chinese market. it is challenged that as an economy evolves to a more developed stage. 2001. the Chinese have traditionally emphasised that the individual creators are obliged to share their developments with society. the perceived advantage of foreign goods becomes less of an impact on consumer consumption (Zhou & Wong..221). One reason for this is that the country-oforigin (COO) effect and perceived symbolic value of foreign brands from the West is deteriorating and at the same time.Referring back to collectivism. Research indicates that foreign brands manifest their impact on consumer preference through two primary motives – perceived product quality and social status or prestige (Kwok et al. The product needs to be positioned at the target audience focusing on other aspects. 2009a). This change in COO preference in China. include the HiPhone and the SciPhone. 2009). shanzhai now suggests to many a certain Chinese cleverness and ingenuity. However. who sees it as a means of self-expression (Wall Street Journal. The Chinese proverb “He that shares is to be rewarded. 2002). In contrast. Chinese consumers are showing a tendency to move away from foreign brands in favour of local offerings in some product categories (Ewing et al. The extent to which this is an issue for UK exporters depends on the type of product being exported to China. the highest form of flattery is when the student is able to faithfully reproduce the work of the teacher. a media critic in Beijing.. 2008). with perceived brand image coming third. A growing topic in world news has been the boom in “shanzhai” products. p. he that does not. the COO effect of Chinese brands is becoming less of an issue (Zhou & Wong. An important issue to take into account during an environmental analysis of China lies in the Political -4- . Shanzhai versions of Apple's iPhone. 2008)." says Han Haoyue. 2007 figures for China show that 22% of all imports are electrical machinery showing that the Chinese still prefer major electrical machinery from other countries than domestically made (The Economist. According to the HSBC & MasterCard 2007 study. The individual’s rights over creative developments are valued (Ang et al. means that UK exporters originally relying on the quality perception of goods imported from the UK may need to change their international marketing stance in order to successfully compete in China. Shanzhai culture "is from the grass roots and for the grass roots. Once a term used to suggest something cheap or inferior. for example. students in the West are taught never to plagiarize and encouraged to be original. coupled with the relatively low level of counterfeit disapproval within society.

2001). 2009a). However. 2009b). the Yuan. Some research highlights that guanxi is a corruption-prone tradition. in China misuse of power is not always treated as crime. 2009). As noted in the HSBC & MasterCard (2007) report. Tim Geithner. wants continuing economic liberalisation and sustainable growth alongside enduring political control (The Economist. The addition of official corruption highlights the importance of having guanxi networks within the Chinese government. non-branded alternatives. consists of three offences: graft. the managing director of the International Monetary Fund. information and government positions (Zhang. Corruption. In their view. Corruption. America’s treasury secretary. the most significant channels for sources of information about luxury goods were through fashion magazines. with international leaders accusing the CCP of manipulating its currency. In examining the failure of reforms in China’s personnel recruitment. bribe taking and embezzlement (Lu & Gunnison. moving up the table. It also disadvantages UK exporters into China as domestically produced competitors will be valued at much more favourable local prices. 2001). personal relationships often serve as the basis for preferential treatment or access to valued goods. “Doing Business” is a renowned annual publication compiled by the World Bank and International Finance Corporation comparing regulation in 181 world economies and the ease of doing business in each country. If the UK exporter does not have close connections with the CCP then they might receive unfair treatment relative to other competitors with connections. -5- . and Dominique Strauss-Kahn. as a distinctive crime category in China’s current criminal code. The Chinese currency. As mentioned above. In 2009 China were 83rd. has been centre to recent debate. contrasting with the UK at 6th. An underlying factor to the relevance of each environmental difference highlighted above depends heavily on the product being exported to China. China. in a broad sense. Another aspect of the PESTEL model forces an analysis of the economy. making foreign imports less attractive to the local consumers. Sun (2008) characterised the current political and economic systems in China as crony capitalism built on a kinship alliance. begin to grow and demand more global products there appears to be a shift from demanding high priced foreign goods to enjoying shanzhai goods produced locally as cheaper. a UK exporter will be able to gain market share. foreign electrical machinery is still the largest import into China suggesting that as long as pricing remains competitive to local producers. 2008). leaving the Yuan undervalued within foreign exchange markets. 2003). Since China emerged as a socialist system in 1949 it has been deeply troubled by widespread official corruption (Yu. is exploitation of entrusted power for private gains (Transparency International. in terms of the affluent class.and Legal aspects of the PESTEL analysis (Hollensen. As Chinese consumers. claim that it is “common knowledge” that the Yuan was undervalued so as to give China’s exporters an unfair advantage (The Economist. The key for a UK exporter targeting the affluent class in China is to target them through various successful marketing channels.

or look at creating a foreign subsidiary in China. p. However. principally because Chinese counter-parts perceive it as a short-term venture and require higher levels of Confucian dynamics as noted in Hofstede’s cultural model. In conclusion.business magazines and retail stores. analysed and commented on as to how these will affect a UK exporter exporting to China for the first time. The ultimate competitive advantage will come from sharing the cost advantages of local producers by establishing a production facility in China. into the market. the key differences in business environment between China and the UK have been outlined.48) how exporting is the initial link into a new foreign market. It has been determined that strong guanxi networks are essential and that they should contain a link to the Chinese government for the maximum chance to succeed. Direct export modes yield the highest levels of guanxi for exporting but should only be seen as an initial step into the Chinese marketplace. The determining factor for the level of which success is dependent on relates directly to the type of product being exported to China and the extent to which it will have to compete with domestically produced goods. It is important to see in the case of the Uppsala model (Hollensen. -6- . it is noted that exporting is generally not a good strategy for creating and maintaining guanxi. and a valid starting point for eventually investing more substantially. 2001. The importance of strong guanxi networks has been readily discussed above. From there on the UK firm should be looking to create substantial partnerships with a local counterpart. Tying in the Chinese value of business partnerships and long-term mutual exchange in the form of guanxi. even before initial business has taken place. it is extremely important for UK managers to get their longer termed ideas and reasons across to their Chinese partners early on in the social relationship. through a local partnership or FDI.

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