Summary and discussion

Transcription

1 Summary and discussion 42 In Part I, we have concentrated on the theoretical background to Western and Chinese thinking. The way in which we consider problems is different across nations; the way we acquire and treat knowledge is different; and a joint approach to global problems is feasible but differences in upbringing, education, religion and our respective senses of belonging to separate racial communities imply incompatible problem solving approaches. Indeed, the nature of our problem solving is dynamic: we follow basic time-dependent rules according to the perceived contextual space. We highlight, therefore, decision making differences and where those may converge or diverge as globalization increases. In this respect we focus on uncertainty within the realm of economic exchange. Organizations exist to exchange resources and managers control that exchange. Exchanging knowledge does not require an understanding of how a transfer in knowledge as a resource occurs (that is called teaching) but does require an interpretation of the resource itself. The value of knowledge is in its understanding. Western economic theory seeks to explain and to predict economic trends and behavior. Economists also provide explanations for global investment decisions by modern multinational firms. Answers vary; multinationals are mere organisms mutating to global evolutionary trends, firms are the tools and toys of strong leaders, organizations are cultures (even Australian organizations), firms invest to generate short-term, quarterly performance. But we often forget that it is the manager who seeks the advantage, who arranges the loans and negotiates the contracts, who conducts economic exchange and Asian managers are different from Western managers. Can we extend Western economic concepts to explain and predict how the Chinese will behave under the changing rules of a global game? Understanding relational networks is essential in explaining Chinese practices. In the West, unfortunately, the network concept

2 China calling 43 has become confused with social connections. Chinese economic networks are systems, systems capable of effecting economic exchange without wastage but with maximum future gain. Social connections help. The Chinese call these connections guanxi. They also call their transactional and information system guanxi. There is a transaction cost associated with guanxi. Try uttering the word whilst rubbing your forefinger and thumb together it helps emphasize the cost of connections. Better still, think mobile phone networks: there is a cost of using and a cost of entering another network. A Chinese network is a system designed for economic, and telephonic, exchange. Three key functions Three functions drive the network system. Western transaction cost theory explains the benefits, trust is high and costs are low within a network. Connections create and expand resources, explained by resource base theory. Within guanxi, there is a future investment return or obligation (renqing), explicable by real option theory. The problem for the West is that managers are often taught to consider transaction cost, resource base and real option theories as separate economic explicators of investment decisions. Only recently has there been a Western realization that ambiguities arise when the theories are not integrated. The Chinese have practised a combination of all three for many centuries. The communist blinker on the Confucian eye of the Chinese trader has not dimmed an ability to spot a deal in the making. Do not let that word communism fool you Mao maintained a traditional, imperialist hierarchy. Figure I.2 provides a simple mapping. When doing deals, Western theory argues for a control over opportunism self-interest seeking with guile through contract law, but also notes that as a contract grows more complex, governance decreases (exemplified by Enron, Parmelat, et al.). The Chinese welcome complex deals. Governance then becomes relational, a traditional network control based on ostracism and the threat of losing face. A simple contract, evidenced for example by bills of exchange or lading, is not a problem. Chinese global expansion would then result in acceptance of international law for basic control systems

3 44 China calling Chinese National values Chinese Guanxi networks Improving knowledge and gaining competitive advantage Western economic theories Transaction cost, resource base and real option theory Figure I.2 A global strategic interpretation. but with relational controls governing opportunistic behavior for complex arrangements. Caveat regulator. Resource base theory also partly explains Chinese practices. Networked investments generate economic exchange under a strategy of seeking competitive advantage. If there is a weakness in resource base theory it is in the dynamics of how the resources interact when transactions take place. A combination with transaction cost theory helps explain how to best regenerate resources when conducting economic exchange. Chinese guanxi uses the transaction activity globally to expand the relational resources when larger deals are essential. Legal advice often follows, rather than precedes, the deal. The Chinese will thus rely on arbitration procedures rather than confrontation in courts of law, but will prefer arbitration after, rather than before, action. Finally, real option theory must be considered and integrated if Chinese networks are to be understood. Real option theory argues that a manager when writing a contract should also maximize any potential options for future business. The guanxi system does this through the creation of renqing (reciprocal obligations). There is, nevertheless, a manipulative element. The uncertain, implicit nature of Chinese reciprocity is not always identifiable from the initial investment in the guanxi transaction. There is, therefore, the potential for an increase, not decrease, in the uncertainty of the guanxi system, related directly to unspecified, future options generated by renqing reciprocity. Knowing you have granted an option but not knowing

4 China calling 45 its size or timing can be stressful. High levels of internal network trust ease the fear. Greed and guanxi It is, therefore, not a question of greed overcoming fear when the Chinese invest in a risky deal, but of greed overcoming guanxi. Where there is a lack of networked connections, as in the case of peasants rising up against prefectural authorities, distrustful confrontation will follow. Chinese economic exchange is integrating on a global basis, but the system of networks is fragile. Clear contractual consideration, with an unequivocal trust in international legal enforcement, is required to ease tensions. Relational trust depends upon acceptance as partners within a network. The potential for confrontation can be lessened with mutual respect. Do Brussels and Washington treat even each other in a trusting, mutually respectful fashion? Western ways are hardly harmonious. What implications for international expansion arise from our brief interpretation of Chinese economic behavior? Two important directions for investment and trade arise. Firstly, any reliance on legal controls over a contract implies that the contractual terms should be as simple as possible (law schools please note). Secondly, a longterm contract is not a short one gone wrong but a short one kept open. Any future investment returns on complex resource exchange are uncertain unless a trusting relationship of mutual reciprocity exists. In global terms, therefore, the guardians of the cultural and mineral resources of Africa and the Middle East should prefer a reciprocal Chinese relationship to a complex North American contract. Western economic theory helps explain why Chinese practices show how. The need to look at Chinese practices and their network dynamics together, in a holistic fashion, implies a parallel need for integrating Western theory. Unfortunately, there is not yet a unified economic theory acceptable to Western scholars. This is unsurprising, given the many alternatives open to challenge in their problem solving systems. The Chinese, on the other hand, are practical people and seek action, not alternatives. The expansionary nature of China s

5 46 China calling political, economic and military governance can be explained by transacting simply for what you want, by increasing your overall resources and by keeping options open. Integrated theory and unified action are the foci of Part II.