The logic of Chinese business strategy: East versus West: part II

Abstract

Purpose

Despite close to two decades of foreign direct investment (FDI) in China, and the country's enormous market potential, most US and European multinational corporations (multinationals) have never made a profit in that country. The distribution of profits among multinationals also seems highly skewed. The latest survey on profitability showed that five US companies accounted for one‐third of equity profits among US‐based multinationals in China. This research presented in two parts proposes explanations for why multinationals fail in China and strategic solutions for profitable operations.

Design/methodology/approach

Through in‐depth interviews with 29 CEOs and directors of major, profitable US and European multinationals, Overseas Chinese companies and PRC Chinese companies, this paper proposes a model of strategic convergence for successful operations in China. The first part discusses cultural and cognitive differences between Westerners and Chinese that affect the strategies they choose. The second part proposes a strategic model of convergence, fusing the best of both Western and Chinese business practices, for strategic success in China.

Findings

The research found that profitable foreign multinationals in China appeared to modify their management practices on eight dimensions, often adopting traditional Chinese methods of strategic planning and evaluations of effectiveness, as well as relations with key stakeholders, especially the government. Yet, these multinationals continued to retain their Western norms and values in business dealings. Conversely, profitable Chinese companies that competed with these multinationals also modified their management practices in line with Western norms

Originality/value

The study has implications for the management of foreign subsidiaries in China as well as the successful management of Chinese FDI in the USA and Europe.

Citation

Haley, U.C.V. and Haley, G.T. (2006), "The logic of Chinese business strategy: East versus West: part II", Journal of Business Strategy, Vol. 27 No. 2, pp. 43-53. https://doi.org/10.1108/02756660610650037