Canadian companies doing business in China : key success factors

Theoretical Background and Hypotheses The People's Republic of China (China) has become a very attractive market for multinational companies from around the world. With an average GNP growth rate of 9.9 percent over the last 15 years and 10.2 percent even in the "slowdown" year of 1995 (China Economic Indicators 1996), China's economy has become the world's third largest (Bachman 1994). If the current GNP growth rate of 14.1 percent continues, the Chinese GNP might surpass that of Japan by the turn of the century. This growth rate has produced such an amazing wealth of business opportunities for foreign companies that multinational companies have been seized by 'China fever' (Sender 1993). The investments of Canadian companies in China increased by 700 percent between 1991 and 1995 (Lok 1996). Despite these opportunities, North American companies have not been an unqualified success in China. Between 1991 and 1995, American exports to China increased by only US$ 5.5 billion while American imports from China increased by US$ 26.6 billion (US Department of Commerce 1996), despite the publicized successes of individual companies. Aggregate Canadian sales in China grew at an annual rate of 12.3 percent in 1996 but sales of non-cereal products declined by 36.0 percent (China Economic Indicators 1996) despite an ever increasing number of Canadian companies trying to do business there. North American companies may have much to learn before they can become effective competitors in the Chinese market. American companies do not seem to understand Chinese culture and may not have learned to appreciate or to cope with Chinese business behaviors (Rondinelli 1993). Canadian companies seem to have been overwhelmed with the difficulties imposed by the Chinese business environment and have not learned to present themselves and their products in ways most useful for their Chinese customers (Abramson/Ai 1994). In general, many American and Canadian companies seem to have had difficulties identifying the key success factors for doing business in China. A key success factor is a fundamental requirement that a company has to satisfy in order to stay in business, or to be successful, in a particular business environment (Fry/Killing 1989). Some management researchers have argued that this situation may exist because Western business practices may not be as effective in such an idiosyncratic culture. Companies that apply their usual business practices indiscriminately in China may obtain negative or even dangerous results. Hofstede (1992) has argued that management practices may not be universally applied because culturally defined values will affect their effectiveness in different cultural contexts. Boyacigiller and Adler (1991) have suggested that Western management techniques may specifically not apply to China, because they are based on Western cultural experience, even though both managers and researchers have in some cases assumed universality of application. Companies that have applied home country practices based on Western organizational theories do seem to have suffered a variety of setbacks in China (Ireland 1991). Along these lines, Yue (1993) has stated that Western views should be demonstrated to fit Chinese conditions before their validity can be assumed. The purpose of this research project was to attempt to identify key success factors for Canadian companies doing business in China using a variety of propositions derived from Western management theories. If, however, Western management practices were not universally applicable to conditions in China, then these Chinese conditions should be clearly specified so that only relevant propositions would be examined. Three factors seemed to characterize the Chinese business environment and the problems related to doing business in China today. First, there has been tremendous pressure on foreign companies to invest in China's economy by Chinese business and governmental persons because of the economic investment expectations (De Keijzer 1992) of the central government and the Chinese Communist Party (CCP). …