China will need to overcome the barriers of cultural business differences if it is to maintain long-term growth, a multinational human resources organisation says.

The warning to Chinese executives from Hong Kong and UK-based Federation of International Employers (FedEE Global) secretary-general Robin Chater says “significant steps” must be made to bridge the cultural gap separating China from prospective Western markets.

Speaking from Bristol, United Kingdom to the NBR ONLINE, Mr Chater says separate cultural development created a divide between China and the world. That divide was unchallenged when foreign companies came looking for cheap manufacturing locations in the 1990s and early millennium.

“Chinese companies may be topping the IPO stakes in the NYSE – but what are they really doing with their money?

“The Chinese government is encouraging the growth of multinational companies and brands as a kind of soft power and also as a way to gain a good return from its many trillions of foreign currency holdings.

“But to be blunt, most Chinese executive haven’t got a clue how to operate in the West,” he says.

New Zealand businesses operating in China often return with stories about how starkly different the culture in the world’s second-largest economy is from the Western default. Different not just in population size and economic heft to New Zealand, but in its fundamental approach to business.

The suspicion is that Chinese business people have absorbed the superficialities of Western fashion and pop culture but have done little to learn about Western business culture.

“On almost all fronts the West is different in its approach to business from China even down to incidental things like humour and dress. Smile at a Chinese businessman and you’ll be lucky to get a smile back. Their body language and whole manner is different.

“I am old enough to have experienced the wave of high Japanese economic growth in the 1970s and 1980s and was able to adjust to diverse conduct. But just as then, it is the Asian business executive that expects their Western counterpart to adapt. I think there is a strong backlash to this in the West,” Mr Chater says.

He says Japan is a good comparison to China’s problems because it too had to find ways to adapt parts of its business culture to better operate in the global marketplace.

“The Chinese view of marketing is incredibly narrow and its seniority system stultifying. Group decision-making is qualitatively different in China, even from Japan. In Japan it reinforces group commitment, in China it asserts organisational hierarchy.

“Business networking Chinese-style is also slow and expensive. It is based on a fundamental principle of prior distrust. Whereas in the West our early uptake of the industrial revolution was led by many people working with an unspoken code of honour reinforced in some cases by religious Quaker principles of individual integrity,” he says.

Chinese President Xi Jingping’s gathering crackdown on graft, bribery and corruption indicates there is a fundamental distrust by Chinese executives not only of foreigners but also each other.

Overcoming these barriers is essential if China is to expand its share of multinational companies.

Estimates place the number of genuine Chinese-owned multinational companies at less than 1000, compared to over 30,000 registered in the US.

“Many Chinese companies do have a presence in the rest of the world. However, in investment terms, the principal location is Hong Kong. Much of that investment is in arm’s length projects, development aid, joint ventures and scattered sales offices.

“But they will only grow if they can recognise the existence of huge barriers and accept it is no loss of face to adapt and alter the way business is done. What will come out of this melting pot will be a modern Chinese culture. It will be neither traditional nor Western in its nature.

“Ironically, I think that the inspiration for the right course is in communist principles themselves,” he says.

Egalitarianism is fundamental to both Chinese communism and the emerging Western cultures, she says and China and the West have more to teach each other.

“China needs to create a domestic consumer-led market – whilst avoiding American style superficial materialism. And Europe needs to learn that its own brand of pseudo-democracy is betraying it.

“China has worked out a political system that works and that is what it can teach the world – especially to us in the West,” Mr Chater says.

nsmith@nbr.co.nz