Corporate and/or National Cultures.

University Degree Business and Administrative studies

March 4, 2004

Corporate and/or National Cultures

As globalization quickening its pace, more and more corporations become increasingly interested in the markets outside their home countries’ boundaries. To the corporate executives, opportunities overseas indicate vast, almost infinite profit, but like always, “things come in a package” and the entry-barriers that could take many forms remain quite a challenge for the modern era “gold-diggers” to conquer. Among them the invisible culture barrier plays a crucial role in determine the corporate ’s success in a foreign country.

In a culture-rich developing country like China, when tangible regulations and laws are still far from being complete or flawless, people’s mentalities, values and customs should be the No.1 subject foreign corporations considering expand to China ought to study---in order to determine whether their product/service/corporate culture will be able to adapt to the Chinese culture and accepted by the Chinese society. Usually the larger adaptability capacity they have, the higher chance of success the firm will possess. In this paper we will take a quick look at the Chinese culture background, then use a few major retail multinational corporations that pioneered into the Chinese market over the past few decades and succeeded---Yum!(parent company of Kentucky Fried Chicken, Pizza Hut, etc.), Metro, and Starbucks---as examples to illustrate the importance of culture adaptation.

Chinese Culture Background

One visualizes the phrase “Chinese culture” with silk, china, tea, the Great Wall and ancient architecture, traditional calligraphy and painting, Kung-Fu, Tai-Qi, food, etcetera and etcetera, all of which symbolized the glorious “Good-Old-Days” of Chinese history. Indeed the ancient China shined for a long, long time in world history and reached its peak in the Tang Dynasty (618-907) when the enlightened emperors, although believed that China was the center of the universe, welcomed foreigners and encouraged trade whole-heartedly. As a result it absorbed foreign culture at an accelerated rate (at the time there were as many as more than 10,000 merchants coming from as far as Rome living in the ancient capital of Xian.( On Chinese chauvinism and need to keep open door policy ) and entered a period of great economic and cultural prosperity. After Tang it was Sung, then Yuan, a rather short but pacified dynasty that remained great contact with the outside world. Then there was Ming, founded by an ambitious monk who had prominent leadership talent but lacked formal education and interest of promoting development of his country and people, looked inward and focused solely on consolidating the emperors’ power. In Ming China started to recede while Europe was experiencing its Renaissance and not long after surpassed the former in most fields including technology, economy, and military affairs.

In 1644 the Manchus took over China and named their dynasty “Qing” during which art flowered and culture bloomed, but the ultra-conservative Manchus isolated themselves in the palace and dealt with the westerners with very inflexible foreign policies. The tightly shut door prevented learning from and effective communication with others, while the rulers themselves were too muddleheaded to lead the country any further. By late Qing the emperors were facing so many problems, rampant corruption, decentralization of power, rebellions everywhere, invasion of the westerns, etc., that they were finally overthrown and the country soon entered the turmoil of civil and foreign war.

From the collapse of the Qing in 1911 to the 1970s, China’s political instability and improper development strategies racked the society with extreme poverty, culture barrenness and moral vacuum. The fact that the “barbarians” in the fringe had much more powerful weapons, high quality goods, and were a lot richer gradually torn down the arrogant Chinese ego during the last century. Before Deng Xiaoping’s “open door” policy, the Chinese were forced to live in a dream that against human nature in every possible dimension one could imagine. The nation’s ineffective system led to productivity so poor that most Chinese would not hesitate to admit his/her preference of western goods over “Made in China”s. Because of more than one hundred years of isolation, the Chinese carry strong curiosity towards the outside world; and the economic weakness transformed it into intense adoration of western goods and culture. Since 1980s, western culture has been penetrating through the younger Chinese generations with accelerating speed—in the beginning through movies, readings, then TVs and relatives overseas, and now there is the all-pervasive World-Wide-Web. Therefore, as long as there is productivity and living standard disparity between China and the industrial countries, the “worship of foreign things” will remain an important part of modern Chinese culture, thus provide initial advantage to every foreign corporation wants to expand to China.

Chinese Cultural Adaptation No. 1: adapt to the modern Chinese culture

A business’s success largely depends on picking the appropriate market sector. In this case the foreign corporations need to find out whether their service/products have large demands in China. Because of the political culture in China, many foreign firms failed to make profit, even lost their investment, as a result of government favoritism to local firms and/or China’s infancy-stage Intellectual Property Protection system. It seems that the low-risk retail industry should have a bright future in China. But still, considering the income level of the majority of Chinese, ...

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Chinese Cultural Adaptation No. 1: adapt to the modern Chinese culture

Food is the only die-hard culture symbol that probably would not embarrass the Chinese’ ancestors. “Food is central for the Chinese people,” said Tom Doctoroff, Greater China CEO and Northeast Asia Area Director of J. Walter Thompson/Bridge. “It is the heart of Chinese culture and identity.( “Foreign Tastes on Chinese Palates”) Fast food is not new in China, noodle and dumpling stalls and restaurants have been an important part of Chinese food culture. Starting 1990s, as the urban Chinese’ income increases, dining-out become increasingly popular and the huge population demands food variety. Western fast food are several times more expensive than the traditional Chinese noodles and dumplings, but the Chinese are attracted to KFC, McDonald’s, Pizza Hut, because of “better services (compared to most Chinese restaurants), pleasant surroundings, high hygienic standards, fast, modest pricing, consistent food quality”(Chinese Fast-Food Companies: Playing Catch-up to Foreign Counterparts), and more important, the modernity.

The American fast food corporations did their homework of studying the modern China’s culture. On top of promoting their American image to appeal to the Chinese’s innate “foreign-brand consciousness”, they target their market mainly on the urban youngsters because unlike their rather frugal parents and grandparents who survived the 1960s grand famine, the 1970s-after generations either have their own money to spend, or have the desire to spend money that will eventually come from family members who indulge them. Today American fast food restaurants have expanded to every major Chinese city, and they are almost always crowded that one often has to wait for a seat. Scenes like kids having birthday parties in McDonald’s can only be seen in China. For them, going to Western fast food restaurants is not only for the food, but also for fun and it is “trendy”.

Besides the fast food chains, the success of Starbucks provides us with another great example of appealing to the young Chinese’ “modern culture” desire. Being a culture that has thousands-years of tea-drinking history but knew almost nothing about coffee, it embraced Starbucks with an astonishing number of 119 stores in just a few years! In large cities like Shanghai and Beijing, Starbucks has made a huge impact, especially on youth. The reason, as Peter Tan, of National Consumer Insight Director for Mindshare, pointed out, “Starbucks has positioned itself as a trendy place, and now people go there even though it’s five times more expensive than getting a coffee somewhere else.” (“Foreign Tastes on Chinese Palates”)

Chinse Cultural Adaptation No. 2: adapt to Chinese tastes and customs

Although the Chinese are happy to sample western style food, they are known for their Chinese-spice-accustomed tongues and stomachs. Most Chinese regard light-flavored western style cooking simply as “No taste!” and their digestion systems cannot even bear two consecutive meals with cheese. This makes competing with Chinese, one of the world’s oldest and most developed, cuisines a destined failure, since no one can force or lure Chinese to eat something they don’t like, even if it’s from America or Europe that presents a modern lifestyle. So the only way out is for the foreign fast food chains to adjust their food’s tastes to meet the Chinese standard of “tasting”.

This explains the recent A.C. Nielsen survey result that listed KFC to be the most recognized international brand name among Chinese, four ranks above McDonald’s. An article in ChinaOnline on September 9, 1999, entitled “McDonald’s and KFC Vie for China’s Consumers,” states that KFC’s food tastes more similar to traditional Chinese food. Soon McDonald’s adapted its menu in China to include spicy chicken wings and chicken burgers “remarkably similar to those at KFC” and have been welcomed by the consumers ever since. ( “Franchise China: She is Ready, Are You?”) Other adaptation efforts the KFC has made including the invention of “Old Beijing Twister” — a wrap modeled after the way Peking duck is served, but with fried chicken inside.

The greatest adaptation accomplished, was by Pizza Hut, Yum!’s other major fast food brand. The pizza chain’s main business is pizza delivery in its home country United States. Buffalo wing is the only distinct item on its menu full of various sizes of pizzas with different combinations of toppings. But the Chinese Pizza Hut’s fine-printed menu features a complete cuisine including a wide varieties of appetizers, salads, soups ,spaghettis, lasagnas, desserts, etc. there are seven appetizer items to choose from, named “British style” “American style” “French style” respectively, but all have the delicate Chinese taste. In the States, very few customers dine in at a Pizza Hut restaurant, not surprisingly they are roughly designed and decorated as fast food restaurants. In China, to match the food it provides, Pizza Huts are quite elegantly decorated, with well-trained hostess and waiters to greet customers warmly.

Customs and traditional holidays are important parts of culture. Celebrating local holidays not only tightens the foreign business-local consumer tie and increases customers’ trust and acceptance; it also brings tangible profit to the corporations. During the Chinese Spring Festival, the biggest holiday celebration of the year, foreign restaurants tried to create Spring Festival atmosphere to attract customers. At KFC, Colonel Sanders was dressed in traditional Chinese clothes; at Pizza Hut, pickled duck tops pizzas; and red Chinese “good-luck” knots hang in McDonald’s. Since the small and medium-sized restaurants usually close during the Spring Festival holiday, foreign fast food chains were geared to take full advantage of the opportunity. “Most people stay at home for Chinese dinner on new year’s eve, but our business gets into full swing as soon as the holiday starts,” said an employee of McDonald’s Corporation. Not only the restaurants, foreign hypermarkets like Wal-Mart, Carrefour and Metro had also started the holiday preparation months in advance in order to meet the demand of the peak grocery shopping season. According to a survey conducted by Society Survey Institute of China, urban Chinese tend to spend 1,500 to 3,000 yuan (183 to 366 US dollars) per household on average on festival costs. The Chinese holiday market is certainly big profit that no foreign retail business wants to miss.( Foreign biz cash in on Chinese holiday economy )

Chinese Cultural Adaptation No. 3: adapt to Chinese business style “Guan-Xi”

Traditional Chinese culture emphasize on the continuation of harmonious relationships among members, principles often dull or lose when compete to “Guan-Xi”, originally means “relationship” but now has an extend meaning of “connections”. The thousand-years if feudal history made China a highly hierarchical society, though unlike India, the hierarchy is deeply buried in people’s ideology. In ancient China, intellectuals were highly respected not only because they were educated but also largely for their “government official candidates” status. If after “ten years of painful hard-studying”, the man passed the emperor’s exams and was selected to govern a town or state, he became someone with power and his whole hometown folks would be proud. As soon as he started his career he was expected to spend a lot of time, energy, money, on cultivating “relationships” in the officialdom to collect useful information and receive protections from bureaucrats in the higher ranks. Often the bureaucrats collude with each other to deceive the emperors, get rid of honest and upright colleagues, and corrupt the system; almost every dynasty in the Chinese history ended this way.

Guan-Xi is also extremely important for businessman because Chinese do business based on interpersonal trust, with people having tighter relations first, e.g., relatives, classmates, people in their hometowns, and friends, to minimize risk and maximize benefit. Although anyone that has a job more or less has some sort of “power” at his position depends on what he does, those work for the government are regarded as the most powerful and those who have such “connections” are envied and respected. It is essential for foreign businesses to take time and patience to establish and maintain good relationship with government officials or someone with strong government official backgrounds.

Taking the founding of KFC in China as an example, without “Guan-Xi”, the entering of KFC could be much harder a battle to fight. In the early stage they decided to establish joint venture partnership with local entities because the time and effort spent to try to understand investment regulations, winning approval for all kinds of operating licenses, leases…were preventing them from proceeding. They first formed partnership with Beijing Corporation of Animal Production, who helped find a chicken supplier. Then another agency, the Beijing Tourist Bureau, joined because they have close contact with the government agencies that would smooth and speed up the setting up of the operations.

Chinese Cultural Adaptation No. 4: adapt corporate culture

Because of the many entry barriers, culture differences, and language difficulties, foreign businesses found themselves adopting localization as their main managerial concept.

In the fast food industry, many choose to work with at least one local partner, this forced the restaurant operators to cooperate on corporate culture, employee locals and put them in senior managerial positions because they a) truly understand the need of Chinese consumers and b) know how to deal with the government officials.

Tony Chen, spokesman for Yum! Restaurant, China, attributes the success of KFC China to capable leadership, driven by employees who know the market and culture. Most of the KFC managers are Chinese from Asian countries/regions with Chinese culture background—mainland, Taiwan, Hong Kong, Singapore, Malaysia. There are very few Caucasians working with Chen’s group. KFC also provides benefits such as housing expenses, to increase employee loyalty and create a positive corporate culture. ( “The colonel’s Chinese Invasion”)

Dr. Hans-Joachim Korber, chairman and CEO of METRO Group, the German retail giant plans to open 40 new stores in mainland in the next 5 years, stressed localization of corporation culture in his speech at the “German Chamber Luncheon” of the German Chamber of Commerce in China on November 4, 2003 : “ Another prerequisite for internationalization is the creation of an international corporate culture in which other nationalities feel at home…We build and trust on the willingness to perform and the capabilities of the local people in operating and managing our stores…METRO Group have made substantial efforts in the last few years to build up an international corporate culture and to recruit and develop international management teams.” They employ around 5,000 people in China and only about 30 are non-Chinese that proceed from other countries. Moreover, the management teams of 18 METRO stores consist of almost exclusively Chinese executives, only 2 store managers are not from China.( “International Distribution? Opportunities & Challenges in China”)

Needless to say, these foreign businesses’ trust and care to the Chinese employees increased loyalty, elevated their confidence, diminished culture estrangement between western and local employees. The strong coherence of the teams contributes directly to the corporates’ success.

In conclusion, “hidden” culture factor projects great influence on the business’s market strategy and management tactics. Only firms that studied the culture background of their foreign markets, like Yum!, could achieve great success overseas because they were able to balances themselves delicately between preserve their merits and meeting local demands.

Foreign Tastes on Chinese Palates, EuroBiz Magazine, Dec. 2003
On Chinese chauvinism and need to keep open door policy , ChinaDaily.com.cn, Dec. 2003
Chinese Fast-Food Companies:Playing Catch-up to Foreign Counterparts, Welcome-to-china.com, Nov.1996,
The colonel’s Chinese Invasion, christagala Write Now, Crista Gala,
Franchise China: She is Ready, Are You? , Ye-Sho Chen,
Foreign biz cash in on Chinese holiday economy , News Guangdong, Jan. 2004
International Distribution? Opportunities & Challenges in China, METRO Group, Nov. 2003,