CHINESE BUSINESS GROUPS

lao ban (boss) and family business

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 Family business
SOE nowadays: not productive enough,a lot of capital and resouces, excess of capacity which make the unefficient.

• These typically have structures that are repeated:

– Usually only include family members around one business.
– Very small units that keep links with Chinese society
active.
– Growth is a source of conflict: the company must
professionalize the management of the business.
difficult to do: open outside the family, search for qualified managers.
source of conflict, managers vs family, if it's all mixed up personal conflict may interfere in business decisions

• Family business (clan business): the family that

started the business maintains control and takes the
main decisions (but hires managers).

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 China: Ownership

• Family group: Strong influence of Confucian society.

All members contribute with their income and have
the right to part of the family funds, while keeping
most of funds as family property and guarantee for
the future.

• The interests of the family conditions the

ownership of the company and the entry of
partners.

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 China: Organizational structure

• Structure according to the organization of the company at a

practical level:
vertical organization

– The boss (lao ban) tells the workers what tasks they are to perform.

– The boss maintains control and authority, is not interested in

delegating power and therefore does not need to design complex
organizational structures.

• Specialization (the tasks corresponding to each job are well

defined) and standardization (all workers can be easily
replaced).

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 Functional structure

• "Lao ban" syndrome (boss): desire to have a business of one’s own

– "your work is worth more than what they pay you".
self-made men/women, they value their knowledge and capacities

• Concentration in a single activity, strictly: either production or

distribution or services.
when they get bigger they open more

• No dispensable activities that increase structure and reduce the

business margin: R&D, HR, Marketing, Public Relations etc.
dont use sophisticated activities or deparments withing the company

• Commercial objectives focused on benefits: promote what

generates the most benefit; abandon what does not and is a
"distraction". 5
 Business management

Decision making:

•No formal meetings are held: savings in time

management. they consider that it's a waste of time, bc at the end the decision will be made by the boss

•Business objectives are set within the family scope. Any

bonuses are linked to the fulfilment of objectives by
work teams
•Decisions are very personal and based on experience
and intuition. not based in professional management or previous knowledge, just experience and wisedom

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 Management of external relations
• Relationships are based on trust.

• Small businesses are connected to each other in networks,

through personal relationships, family and friends (guanxi).
reputation is one of the most important thing you need to do businesses in China. The network of acquaintances
contacts and relationships you have and the opinion (muct be positive) that they have about
you.
• Xinyong (credit): informal recommendation based on the
qualities of the commercial business, meeting client orders,
respecting commitments, making payments, etc.

• It allows small businesses to respond to large challenges,

especially at the international level by subcontracting quickly
through their contacts or acquaintances.
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 Business Strategy
focused on rotation. looking for high turnover and consumption, they sell cheap products, so they force the prices down and therefore
eliminate competence being the store or business prefered by the consumer. basically, they crete lotyalty

• Access to commodity businesses with high turnover and

consumption. Intensive business hours (stores, laundries,
restaurants).

• They force down the price of competition and struggle to

reduce their own structural costs.
usually they reduce prices by reducing costs, one of these costs could be the workers salaries

• Maintain position with low prices and create loyalty in

purchasing by permanence.

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 China: Cash Generation Cycle

Opportunity hunters. Because most orders cannot be

programmed, Chinese entrepreneurs need to keep cash in order
to respond quickly when the opportunity presents itself.

Business (means): continuous movement that goes from cash

to cash
Cash Assets Stocks Customers Cash
they are opportunity hunters --> quick cash. to be that you need to have money already, so money generates more money.
ther have money prepared, so when the opportunity appears, they hunt it

"My money sleeps until we wake up again"

always some uncertainty or risk of losing money.

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 China: Cash Generation Cycle

• Run the process as quickly as possible, since we are aware of

the risk that "money will not be money again".

• To get money back fast, we have to accelerate the process:

1 - Reduce the margins “I sell faster and therefore I reduce

risks for the investment”.
2 - Liquidate operations below cost because they are less
profitable than new ones, to receive the money and reinvest
it in more profitable operations.

strong network in order to move quick, combined with cash, are the two pilars of their strategies

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 China: Cash Generation Cycle

• Opportunities: more profitable opportunities are

continuously being looked for and we often see how
new products and services appear and disappear
from catalogues.

– High rotation of products

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 China: Cash Generation Cycle
they dont ask for creadit when they dont have but when they are in a good postion. When they have enough money aside, they proceed
to ask for loans, because the conditions will be better (they already have solvency).
They banks are owned by the state, so they are not really trustworthy, and the parameter and IR can change from one day to another.

• Access to credit: in order to cope with these new

opportunities, it is customary for the Chinese to ask for credit
from banks when the business is growing and to place
money in deposits, as insurance to have credit.

Why?

• Since, in moments of crisis, the usual lines of finance are

eliminated, but the loans granted are maintained and, in
addition, the loans are negotiated at better long-term prices.

https://www.youtube.com/watch?v=6OoFZG2s2E0

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