The Significance of Cultural Differences for Foreign Companies

My essay is about significance of cultural differences for international companies which want to set up a business in China. To do a clearly demonstration, I break it down into 3 parts: First is an example that the culture differences affect international companies in China; Second is the significance of these cultural differences; Third is how the companies would overcome them. For the first part, there will be examples of international companies which set up a business in China. As we know, since China joined the WTO in 2001, many foreign companies were attracted by China’s huge market and lower labour cost. But some of them experienced hard times when they came into Chinese market. The unfamiliar of the cultural difference is a very important factor. From their experience, we can have a direct impression of how the culture differences would trouble for foreign companies in China. Second part is very important. As I choose China as the country. I will try to show some Chinese features, which are the Chinese cultural difference from others. I will to analysis why the cultural differences are significance and what effects they will cause. Real evidence will be given to support my idea. The third part is most critical, because it is not enough for us just know about the problems. We should find out ways to solve them. I will from four parts to demonstration, and try to cover the ways which can both improve the ability of foreign companies to deal with cultural difference in China as possible as I can. Example that the culture differences affect international companies in China: Looking back at past, we can find that China has been the first place of absorbing international capital in all developing countries for nearly 18 years. Since China joined the WTO in 2001, many international companies had been attracted by China’s huge market, lower labour cost, preferable government policies for foreign investors. But in fact, we can easily find some of them had come across a hard Why KFC had a better development than McDonalds? The reason is KFC was more careful to deal with culture difference in China. Before the year 2004, the McDonalds focus their customer group on children, and then parents and young people. Meanwhile, KFC focus on young people, then children and parents. We cannot say McDonalds strategy was wrong, because it brought great successful for it in USA. But it is not suitable in China. A survey made by China Chain Operation Association (CCFA) showed that no matter in the ratio of customers number or the ratio of money consume, the young people account for more than 60%. After 2005, McDonalds push-off its new series called â€Å"I just like it†, and changed their strategy to young people, the situation came better. This is an example of difference of the market positioning caused by the culture difference. [3] The McDonalds’ failure was not only because of this. It also ignored that people in different culture background may have different tastes. The GADLING website (2005) [4] showed that before 2005, while KFC began to create some news kinds of foods which were fit for Chinese people’s tastes, such as the Traditional Peking Chicken Loaf, Tomato and Egg Soup, the McDonalds still insisted on its western taste hamburger. In this period, the McDonalds had to cut half price to attract customers. And there was a thing which had a very bad influence about McDonalds. The Sina website [5] has some details about it. In June, 2005, McDonalds pushed a new advertisement. One scene of this advertisement is a man kneels down to beg the McDonalds lengthen the promotion period. This advertisement caused a very bad effect. Because in China, kneel down is very important and serious thing. Chinese people think kneel down to others is a sign of lost dignity. In some countries, people may regard it just as a funny advertisement. But in China, this kind of advertisement should be avoided. This is the difference of philosophy caused by different culture. It is also which the international company should be careful. The McDonalds’ example shows us how the cultural differences affect international companies in China. Then, in the following part, I will give a more clearly demonstration based on real evidence and shows what are the China’s specificity and why the culture differences is significance for international companies in China. Significance of cultural differences in China Culture is a very widely identity. For a company, we usually consider two main parts: the national culture, and the corporate culture. So when talk about Chinese culture’s influence to international firms, I will include both Chinese national culture and Chinese corporate culture. For Chinese national culture, we need to consider many parts, such as the philosophy. Because of the long history, China has formed very complete and complicated philosophy, which has a great different from western countries. Some traditional ideas are still kept in every Chinese people’s mind. A simple example is the advertisement of McDonalds mentioned above. Kneel down in China could never be a joke or used in an advertisement. Because of the influence of Confucianism, Chinese people in some parts are more conventional than western people. Some things which have a strong sex and violence implication may be forbidden by the government. The Techcn website (2009) [6] has showed that one of the reasons why Google suffer from a failure in China in 2007 is the Chinese most powerful media CCTV made it public that Google can link to some porn websites. It would be a common thing in some countries, but in China, this let Google at the disadvantage. â€Å"Abstract, Characteristics of national cultures have frequently been claimed to influence the selection of entry modes† (Bruce Kogut) [7]. After these years of developing, Chinese market has formed its own potential market culture. It means the sales models which are successful in other countries may not work in China. To take Best Buy for an example, as the world chain electronics giant, the Best Buy didn’t have a satisfactory performance in Chinese market. An report on Netease website (2010) [8] shows that after Best Buy opened the first shop in China in 2006, it only opened 7 shops in the following 4 years. And in the 2009, while the Best Buy had done a good job in global market, which has about 45 billion dollars sales, it didn’t make a profit in Chinese market. One important factor is Best Buy insisted on its traditional model, decorated the shop and hired the sales promotion person by themselves. But in China, these things are always hand to the suppliers. This cause high cost for Best Buy and also caused for discontent of the suppliers. The suppliers in China were not like the ways which Best Buy play down the publicity of product brands, while enhance the publicity of its own brand. If Best Buy can not get the support of Chinese suppliers, its failure is an understandable result. This kind of potential market rules are critical but easily to be ignored. How to overcome cultural differences After discussed the significance of cultural difference, and the bad effects they will make, we should try to find ways to overcome them. To deal with this, I will from 4 parts to analysis. First is the foreign companies should find a suitable management mode. The reason of some foreign companies failed in Chinese market was their management mode didn’t adapt to Chinese market to a large extend. Like Best Buy I had mentioned above, even though its management mode had been proved successful in North America. It didn’t work well in China. In my personal view, the main advantage of foreign companies is their tremendous capital and their foreign background. So when the foreign companies enter Chinese market, they can learn the management mode which Chinese native companies have. Then they can use their advantages to have a foothold in the Chinese market, and continuing complete their management mode based on their improved understanding about Chinese market. Second is the companies should do clearly and comprehensive market research before they come into Chinese market. The researches which are just about the market prospect are not nearly enough. They should investigate other things like Chinese culture, government policies, the operating mode of market. These kinds of research can provide the companies much more clearly understanding about Chinese market. At least they will not make some silly mistakes when they enter Chinese market. Third is about the employ of staff. To employ staff, the companies can give priority to overseas students and the people who had the experience of working in other foreign companies. These kinds of people are more easily to adapt to the different kinds of culture in the companies. Meanwhile, they can deal with things based on Chinese practical situation, which means more efficient in sometimes. And in my opinion, the top level of the company’s Chinese branch should have at least one Chinese people, it is not only because he or she has a deeply understand about China, but his or her personal networking with others can bring some help for the company. It is also kind of Chinese specific culture, networking with others sometimes are as important as own strength. The last one is staff training and internal management [10]. The foreign company should pay attention on the training of staffs. For the Chinese staffs, the training should include the part of training them to adapt the company’s culture and ways to deal with things. For the staffs from the home country, the company should train them about the Chinese culture, at least the part in relation to their professional business. And the internal management should consider about Chinese people’s value view and norms, it should be more humanization and can provide the staffs a more stable life, that’s what most of Chinese people desirous. Conclusion: To summarise, the cultural different is a very important problem which troubles most of foreign companies. For these companies, the incomprehension of Chinese people’s and market’s view about value and norms is one of the factors which limit their development in China. Things like the potential market culture of China; the cultural conflicts inside and outside the company; the different taste and tendency for Chinese people had brought a lot of problems for the foreign companies. That’s why some foreign companies which are very strength didn’t perform well in China. To overcome those problems caused by the cultural difference, the companies should do clearly and comprehensive researches for different parts of China and Chinese culture, and they should not overconfidence about their management mode even they are successful in other countries. Meanwhile, the companies should try to employ the people who are familiar about China. It can help the companies blend in Chinese society and market. The companies should also enhance the training of both Chinese staff and staff from home country. It will reduce the conflict between two cultures in the company. A humanize internal management mode and treatment which can provide staffs more stable life will also be helpful to attract Chinese people and reduce the rate of job-hopping.