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Is the recent rhetoric decrying China and Chinese business practices justified or merely an exercise in deflection? In other words, could the differing views between Chinese and North American cultures be based on one’s own blurred vision?  Let’s clean our lenses and take a closer look. Might we be encouraged at what we discover once we get clarity on the reasons behind such differences between the two cultures?

Indeed - people in Western culture tend to base their business perceptions on what they consider ethical business practices based on honesty, integrity and caring for your fellow man. And yet, consider that China’s approach to business on the international stage might be described by some as “an iron fist in a velvet glove” -- a metaphor for something looking harmless but plotting to build one’s own powerful, controlling force.

Given that in 2020 the estimated population of China is 1,439,323,776, compared to the whole North American continent of 592,072,2120,1 might we be forgiven if we think that everyone outside of China might feel threatened -- or at the very least nervous -- about the perceived threat of Chinese companies emerging from China’s population powerhouse and from the business practices of Chinese commercial practitioners?

The two largest English-speaking countries in North America -- the United States and Canada, -- are seen by many as rainbow, multi-faceted immigrant societies -- melting pots of different cultures where everyone has a voice and expects to be heard.

Certainly, this is the stereotype, but is it accurate? The competitive environment promoted in North America encourages openness and transparency documented at every step, and at first glance this may seem to contradict the Chinese way of doing business which is primarily based on personal and business relationships.

Thousands of years of culture separate the United States/Canada and China. Using Hofstede’s 6D Model, we see in Figures 1 and 2 that these countries are very different from one another.2

Gary2

Figure 1 USA compared with China

Gary3

Figure 2 Canada compared with China

Although North America is seen as an ethically responsible place to do business and is ranked 8th on the Transparency International’s global perceptions map,3 China is ranked a poor 77th on the global scale and 12th in the Asia Pacific region. New Zealand is ranked 1st on the global scale.

Gary4

Figure 3 Corruption Perceptions Index 2017

Practices considered unethical in the West may not be considered so in the East Asia. R.L.Tung4 suggested in 1994 that East Asians consider deception as amoral but acceptable if such deception results in a greater good -- such as the wellbeing of the state.

Confucianism steps into the picture

Liu and Stenning (2015)5 point out that as Chinese companies seek to enter and develop their organizations in the West they need to understand the value system under which Western companies operate. And it is equally incumbent on Western companies to understand that China and other East Asian societies such as Japan and Korea have operated under Confucian principles for over 1,000 years.

Five Confucian principles are pertinent to and merge with the western view of ethical business practices and business ethics; therefore, Confucian morality can be a useful foundation for contemporary business ethics. From an Eastern perspective, the five Confucian principles below may be roughly translated or interpreted as follows:

  1. Ren (benevolence) is cherished as the highest goal in morality and self-perfection, humaneness, goodness, kindness.
  1. Yi (righteousness) -- a concept for doing what is right -- needs to be backed up with simple and clear guidelines and criteria upon which correct business actions can be based. In general, this concept allows one to easily embrace globally-accepted ways of conducting business. This could be summarized as etiquette, politeness, and reciprocity.
  1. Li (ritual) promotes proper conduct in three ways. First, the rules of reciprocity and mutual respect can still be guiding principles in business behavior. Second, the role of Li – defined as unwritten law regulating civil affairs for thousands of years -- is viewed as a suitable foundation for promoting business ethics and enforcing business law. The West may view this as moral superiority and obedience.
  1. Zhi (wisdom) promotes reasonableness when problem solving. Within a business framework, not only can it relate to profound Confucian principles, but it can also promote best practices and common sense for making judgments and decisions.
  1. Xin (trust) values trustworthiness as a personal virtue reflecting trust and faith in society.

Using a Western perspective, Nyden6 (2013) identified a set of six relationship principles as reciprocity, autonomy, honesty, equity, loyalty, and integrity for Supplier Relationship Management (SRM). Researchers believe these six create an environment for behavioral change to allow the supplier relationship to flourish. Frydlinger7 (2014) further expanded these principles as listed below.

  • Reciprocity - Many sociologists and anthropologists identify reciprocity as the most universal of all social norms because it exists in all societies. Reciprocity obliges the partners of the true community to return in kind.
  • Autonomy is fundamental for the choice of collaboration instead of power. The principle obliges the partners to abstain from using power to gain benefits at the cost of others.
  • Honesty obliges the partners of the community to speak the truth about facts in the world and to be authentic about their intentions. The obligation to speak the truth is recognized in all societies, but its importance for economic success cannot be overestimated.
  • Equity obliges the partners to allocate benefits in proportion to the contribution made or to assume costs incurred by the community in proportion to the degree to which those costs were caused by each individual.
  • Loyalty says that everyone’s interests should be given equal value or concern in the community.
  • Integrity ensures that conflicts between principles are dissolved and that the underlying principles of the partnership must deal with new, unforeseen situations.

The similarities between the six SRM principles proposed by Nyden, Frydlinger7 and the five Confucian principles espoused by Liu and Stenning5 are striking, with one notable exception: Li referring to hierarchy, moral superiority, and obedience. In many instances Li contrasts with the Western notions of freedom of the individual, freedom of expression, thought and action. In general, Western societies also stress the need for a strong moral and ethical compass among supply chain professionals. Jones (1991)8 noted that an ethical decision is both legally and morally acceptable.

The typical commercial professional in North America might not recognize the Li principle, but may have an individualist approach to business, and is not too worried about rank or status. The focus is likely to be more about staying current with the latest technological innovations and movements in the supply chain and recognizing that close interaction with suppliers of goods and services is critical achieving this.

In contrast, the typical supply chain professional in China appears to have a collectivist approach to business and appears to be extremely conscious of rank and status. Chua9 (2012) stated that one of the keys to building relationships in China, is by openly sharing helpful information. Relationships are extremely important to the Chinese and they prefer doing business with people they are familiar with. This assertion is further reinforced by Ang10 (2000) who states, “The belief is that if individuals do not repay the favors of others, their relationship will become difficult and social harmony will be hard to sustain”.

Dunn and Shome (2009) believe this contrasting approach to relationships means that behaviors that are acceptable in one culture may be unethical in another.11 In any relationship there is a need to promote behaviors that will enrich the relationship and abandon those with a toxic effect. So when determining when to apply SRM principles, we must not only consider positive and negative impacts on competitive bidding processes from a legal perspective, but we should also consider the impact on supplier relationships.

Volkema and Fleury12 (2002) conclude that understanding ethical behaviors in negotiations has become one of the most important challenges for multinational companies entering the global market while Von Weltzien and Hoivik,13 (2007) contend that organizations operating internationally must function seamlessly and effectively in a diverse economy and make efforts within cultural environments to establish a common set of ethical standards internationally.

Clear communications are critical to creating successful and respectful relationships. If the purchaser assumes that liquidated damages -- or other similar contract terms -- are the normal way of doing business, but such terms are not as clearly understood by the supplier -- the relationship that is so critical to the Chinese way of doing business could be damaged. Worse, such terms -- buried in the fine print of legal detail -- may allow the purchaser to win in litigation, but, ironically, such a win could damage the successful relationship both parties had originally desired at the outset of negotiations.

That is reason behind so much stress on the clarity of contract communications in recent years. And it’s the main reason why the World Commerce & Contracting has promoted contract clarity through their Contract Design Awards, and by publishing case studies relevant to clarity or lack thereof.14

Recent experience with Chinese companies has proven that people from different cultural backgrounds have different standards and expectations during the competitive process and subsequent negotiations. Carr and Harris15 suggest that “as legal enforceability improves, rational actors will shift away from using trust and relationships and move towards explicit contracts. There is no lawyer or attorney on earth that who can draft a contract and no legal system on earth that can make you whole if you pick the wrong person to do business with.”

In conclusion, choosing the right partner to do business is the most important decision you can make irrespective of culture or nationality when entering into a contract, and managing respectful and collaborative relationships will drive incremental value and reduce risk beyond the traditional contract management process.

Educating society to better understand the unique nature of Chinese and North American cultures – and the differences between them -- will help commercial professionals engaged in the energy industries to do the following:

  • avoid ethically questionable competitions or negotiation strategies;
  • promote the necessary levels of transparency; and
  • stop making false promises.

Doing all these will help us all achieve a common level of understanding and clarity of purpose resulting in better business outcomes.

END NOTES

  1. https://www.worldometers.info/geography/7-continents/
  2. https://www.hofstede-insights.com/country-comparison/canada,china/ 
  1. https://www.transparency.org/news/feature/corruption_perceptions_index_2017 
  1. Tung, R,L. (1994) Strategic management thought in East Asia. Organisational Dynamics 22 pp.55-65. 
  1. Liu, T,Q .and Stening, B.W. (2015) The contextualization and de-contextualization of Confucian Morality: Making Confucianism relevant to China’s contemporary challenges in Business ethics. pp.825-827 
  1. Nyden, J., K Vitasek, K. and Frydlinger,D (2013),Getting to we: negotiating agreements for highly collaborative relationships, New York, NY, Palgrave Macmillan 
  1. Frydlinger, D., Nyden,J. and Vitasek, K. (2014) Unpacking Collaboration Theory: What Every Negotiator Needs To Know to Establish Successful Strategic Relationships. 
  1. Jones, T, M. (1991) Ethical decision making by individuals in organizations: An issue-contingent model. Academy of Management Review, 16(2) 366-395 
  1. Chua, R.Y.J (2012) Building Effective Relationships in China MIT Sloan Management Review, Summer 2012 pp 27-33 
  1. Ang, S.H. (2000) The power of money: a cross-cultural analysis of business-related beliefs. Journal of World Business Volume 35, Issue 1, Spring, p 46 
  1. Dunn,P and Shome, A. (2009) Cultural Crossvergence and Social Desirability Bias: Ethical Evaluations by Chinese and Canadian Business Students. Journal of Business Ethics 85 :527-543
  1. Volkema, R.J. and Fleury, M.T.L. (2002), Alternative Negotiating Conditions and the Choice of Negotiation Tactics: A Cross-Cultural Comparison, Journal of Business Ethics 36 (4) , pp 381-398
  1. Von Weltzien and Hoivik,H. (2007) East Meets West: Tacit Messages About Business Ethics in Stories Told by Chinese Managers, Journal of Business ethics 74, pp 457-469
  1. World Commerce & Contracting Waller R., Waller J., Haapio H., Crag G., Morrisseau S. (2016) Cooperation through clarity: Designing simplified contracts. Journal of Strategic Contracting and Negotiation, Volume 2, number 1/2, pp 48-68 (See also Contract Design and Simplification)
  2. Carr, C and Harris, D. (2015), Strategic Contracting in China for Foreign Firms Thunderbird International Business Review Vol. 57, No. 3 May/June 2015 p248

Content reflects views and opinions of the author and do not necessarily reflect the views and opinions of World Commerce & Contracting.

Gary Crag, Manager, Contracts and Procurement SCM at Pembina Pipeline Corporation


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