Chinese Business: Rethinking Guanxi and Trust in Chinese Business Networks

146 Pages·2014·1.259 MB·English

by  Chee-Kiong Tong (eds.)

Chee Kiong Tong Editor
Chinese
Business
Rethinking Guanxi and Trust in Chinese
Business Networks
Chinese Business

Chee Kiong Tong
Editor
Chinese Business
Rethinking Guanxi and Trust
in Chinese Business Networks
Editor
Chee Kiong Tong
Universiti Brunei Darussalam
Bandar Seri Begawan
Brunei Darussalam
Department of Sociology
National University of Singapore
Singapore
ISBN 978-981-4451-84-0 ISBN 978-981-4451-85-7 (eBook)
DOI 10.1007/978-981-4451-85-7
Springer Singapore Heidelberg New York Dordrecht London
Library of Congress Control Number: 2014939427
© Springer Science+Business Media Singapore 2014
T his work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of
the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation,
broadcasting, reproduction on microfi lms or in any other physical way, and transmission or information
storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection
with reviews or scholarly analysis or material supplied specifi cally for the purpose of being entered and
executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this
publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s
location, in its current version, and permission for use must always be obtained from Springer.
Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations
are liable to prosecution under the respective Copyright Law.
T he use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
While the advice and information in this book are believed to be true and accurate at the date of
publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for
any errors or omissions that may be made. The publisher makes no warranty, express or implied, with
respect to the material contained herein.
Printed on acid-free paper
Springer is part of Springer Science+Business Media (www.springer.com)
Contents
1 Rethinking Chinese Business ................................................................... 1
Chee Kiong Tong
2 Centripetal Authority, Differentiated Networks:
The Social Organization of Chinese Firms in Singapore ...................... 21
Chee Kiong Tong
3 Guanxi Bases, X inyong and Chinese Business Networks ...................... 41
Chee Kiong Tong and Pit Kee Yong
4 Personalism and Paternalism in Chinese Business ................................ 63
Chee Kiong Tong and Pit Kee Yong
5 Feuds and Legacies: Confl ict and Inheritance
in Chinese Family Business ...................................................................... 77
Chee Kiong Tong
6 Rethinking Chinese Business Networks:
Trust and Distrust in Chinese Business .................................................. 97
Chee Kiong Tong
7 Singaporean Chinese Doing Business in China ...................................... 119
Kwok Bun Chan and Chee Kiong Tong
8 The Rise of China and Its Implications................................................... 131
Chee Kiong Tong
v
Chapter 1
Rethinking Chinese Business
Chee Kiong Tong
1.1 Introduction
G ranovetter and Swedberg noted that “during the early twentieth century, economists
became convinced that economics could best progress if a series of simplifying
assumptions was made that allowed formalization of the analysis with the help of
mathematics. And these assumptions usually meant that a radically non-social
approach had to be used”. Thus, economic action, for many economists, can only be
understood as essentially maximizing rational behaviour and in the process
eliminating everything else as noneconomic motives. They advised that “it is unwise
to make such a sharp separation between what is “economic” and what is “social”
( Granovetter and Swedberg 1 992: 1)”. This volume, using Chinese family fi rms and
Chinese business networks as the focus of inquiry, aims to address this very issue.
It fundamentally argues that to understand Chinese business, economic actions must
be seen as being embedded in social relations. At the same time, it will show that
social relations do not ignore economic considerations.
The volume addresses three key research problems. Firstly, it looks at Chinese
family business, focussing on the internal dynamics and organizational structures of
Chinese family fi rms. The key question is: Are Chinese family businesses truly
unique? And if they are, how and why so? Is there a particular form of capitalism to
account for the East Asian phenomena? In fact, all the chapters in this volume, to
varying degrees, deal with this central inquiry into ethnic-based distinction as an
explanation for the success of Chinese businesses.
C . K. Tong (*)
Universiti Brunei Darussalam , Bandar Seri Begawan , Brunei Darussalam
Department of Sociology , National University of Singapore ,
11 Arts Link 03-06 , 117570 Singapore , Singapore
e-mail: [email protected]
C.K. Tong (ed.), Chinese Business: Rethinking Guanxi and Trust 1
in Chinese Business Networks, DOI 10.1007/978-981-4451-85-7_1,
© Springer Science+Business Media Singapore 2014
2 C.K. Tong
Secondly, the volume explores the social foundations of Chinese business networks,
especially the inclination to incorporate personal relationships in decision making.
How do we account for the prevalence of personalism in Chinese business practices?
What is guanxi and how is it established and maintained? The volume also examines
the nature of x inyong , or interpersonal trust. Why is trust important in Chinese
business transactions? Why do the Chinese prefer to do business with kinsmen and
other Chinese? The chapters in this volume deal with the dynamics of both guanxi
and xinyong . Most studies tended to present an idealized and static model of g uanxi
and xinyong. One of the aims of this volume is to study the disparities between the
ideal model and actual reality. Moreover, it suggests that g uanxi cannot be, as often
portrayed in the literature, seen as a monolithic concept with “timeless endowments”.
Rather, guanxi and xinyong, conceptually, as well as the empirical evidence found
in this volume will demonstrate, can only be understood as historically contingent
and context dependent.
F inally, since the 1970s, the world has witnessed the phenomenal rise of China,
politically, militarily and, most signifi cantly, economically. For example, China’s
gross domestic product (GDP) in 1978 was just US$45 billion. By 2006, it has
grown to almost 2 trillion dollars. Similarly, in 1978, the GDP per capita of China
was less than US$50. By 2006, it has grown to US$1900. If we use GDP per capita
purchasing power parity (GDP PPP), it is an even more phenomenal US$7200 in
2006. China is today the second largest economy in the world, after the USA, and if
the present rate of growth continues, China will overtake the USA as the largest
economy in the world in the next 20 years. What is the impact of the rise of
China on Chinese businesses overseas? One effect of the rise of China has been
the increased investments in the Chinese economy by the Chinese overseas. Do
the concepts of guanxi and xinyong have any relevance in doing business between
co-ethnics?
1.2 Research Problematics
1.2.1 The Chinese Family Firm
1.2.1.1 The Chinese Family Firm
As noted earlier, a central question in this volume is the internal dynamics and
organizational structure of Chinese businesses. Chinese economic enterprises did
not arouse much interest in organizational studies until the extraordinary growth of
the so-called East Asian economies of Japan, Taiwan, South Korea and Singapore.
The interest in East Asian capitalism, in a sense, is understandable. The World Bank
estimates that the total economic output of Southeast Asia’s 55 million Chinese
overseas was about US$400 million in 1991 and rapidly rising to US$600 million in
1996. The ethnic Chinese control 500 of the largest corporations in Southeast Asia,
1 Rethinking Chinese Business 3
with assets amounting to US$500 billion and additional liquid assets of over 2
trillion dollars (Weidenbaum and Hughes, p. 25).
However, before we even begin to try to account for the success, and failure, of
Chinese business, it is important to explicate exactly what do we mean by Chinese
business, especially the Chinese family fi rm, which in many ways is the dominant
form of economic organization for Chinese businesses—at least in Southeast
Asia. While many scholars (Ward 1 972; Omohundro 1 981 ; Wong 1 985; Lim and
Gosling 1 983 ) have found that family fi rms are the predominant form of Chinese
business organizations, it should be noted that it is not the only way to organize
Chinese fi rms. In fact, as Chap. 4 will show, the majority of rubber fi rms in Singapore
are actually not family businesses. Also, more importantly, while many small
Chinese businesses are family fi rms, they did not, contrary to common belief, start
out that way. Given limited capital, many Chinese family fi rms began as partnerships
among friends or colleagues with a high reliance on non-kin for initial capital
outlay. However, there is a “centripetal” tendency in Chinese businesses: family
ownership, and the passing of the business to sons, is regarded as an ideal by the
informants. In this sense, while Chinese family fi rms may not start out as family
fi rms, they tend to be “family oriented”. Entrepreneurs work towards the establishment
of family ownership, and eventually they aim to keep succession within the family,
thus retaining ultimate control of the business. Family orientedness characterizes
the fabric of development of Chinese fi rms.
T he strategy is to, over time, gradually attain the majority ownership of the
company by buying out the nonfamily shareholders. Thus, Chinese family fi rms can
only be understood by analysing its pre-family fi rm development and its historical
path. The conception of a non-specifi c family fi rm must not submerge the clear
intentions of the parties involved to gear towards the outcome of a family fi rm,
whether it is one that resides as the ultimate aim from the outset or emerges as a
by-product of contingent developments.
Before proceeding, the key question is “What is a Chinese family fi rm?” Most
defi nitions (Ward 1 987 ; Miyamoto 1 984 ; Lim 1 981) tended to focus on family
ownership. I suggest Chinese family businesses cannot be surmised simply by
majority ownership of a business by a group of relatives; rather, family fi rms can
only be understood as a combination of effective control and ownership, where the
interplay of the two is a defi ning feature. Moreover, the defi nition of a family fi rm
must be recontextualized in accordance with spatial and temporal dynamics.
A proper understanding of what a Chinese family fi rm is depends, to a degree, on
the evolutionary or developmental stage of the fi rm. Just as family fi rms were not
necessarily born as such, the different stages of a fi rm’s history create different
challenges to the internal dynamics and organizational structure, including endo-
genous factors, such as ownership patterns, authority structures, division of labour
and the principles of inheritance, and the eventual “fi ssioning” or breaking away of
the family fi rm. The various chapters in the volume, which include a number of case
studies of the structural development of a number of Chinese family fi rms, address
the complexities of ownership and control as well as the problematic linkage
between the family and business.
4 C.K. Tong
1.2.1.2 Personalism, Paternalism and Professionalism
Most previous studies (Barton 1 983 ; Wong 1985 ; Hamilton and Kao 1987 ; Yeung
and Tung 1 996 ; Abrahamson and Ai 1 999 ; Hamilton 1 996 ; Low 2 000 ) suggest that
Chinese businesses are characterized by personalism: a tendency to incorporate per-
sonal relationships in decision making. Redding and Wong (1 986: 278), for example,
noted that Chinese businessmen “hold information and thus power, and dole it out
in small pieces to subordinate who thus remain more or less dependent”. The fi nd-
ings in this volume confi rm these observations. Chinese family fi rms tend to be
paternalistic, in which the founder of the business owns and manages the family busi-
ness, and decision making is highly centralized, with a low degree of delegation of
authority and responsibility. This ensures that employees go back to their superiors
for instruction, concentrating power in the hands of the founder/owner. There is a
preference to employ relatives and clansmen because they are supposedly more
trustworthy. Qualifi cations are not as important as diligence and loyalty.
P ositions of trust, especially in the ownership and handling of money, are given
to family members and close kin, ensuring that ownership will be passed to family
members, restricting the entry of outsiders into the inner circle. It is a Chinese
businessman’s dream to pass on his business to his children. Thus, as soon as they
are able to work, they are initiated into the fi rm. This centripetal authority structure
is reinforced by the integral linkage between the family as a unit and the business as
a fi rm. The authority of the Chinese father extends beyond the family unit into the
business, because the business is also considered a family activity. The role of
the founder does not end with his retirement as he continues to infl uence decision
making as the father, which facilitates the authoritative or, what Silin (1 976 ) terms,
the “didactic” role of the father/owner.
T he volume will show that even as a family fi rm grows and expands and the
organizational structure becomes larger, formalized and more complex, decision
making still refl ects a paternal-centripetal structure. In an environment where
Chinese fi rms have to compete with multinational companies, where effi ciency and
long-term planning are important, we see the rise of a professional class in large
Chinese family fi rms, with hundreds of top- and middle-level managers employed to
perform operational and technical work. Using several case studies of large Chinese
businesses, the volume will demonstrate, however, that the authority structure and
management practices largely remain personalistic and paternalistic.
I t is insuffi cient, however, to show that Chinese family fi rms are personalistic
and paternalistic. The more important questions are, “How do they account for
personalism and paternalism in Chinese family fi rms?” “What are the origins of this
particular mode of doing business?” “Why do they prefer doing business with
people that they are familiar with?” “Why the emphasis on building social relation-
ships?” The volume suggests that personalism stems from the particularities of its
historical contingencies to which it had adapted modes of operation, which in turn
became institutionalized over time as valued belief systems of which the core
ideas and practices remain resistant to change, persistence in practice despite evi-
dence and better judgement to the contrary (see diagram below). The factors that