Cross Cultural Challenges and Opportunities for Indian Businesses in China

India and China are both countries with deep-rooted, ancient and traditional cultures. They both went through a cycle of prosperity and the economic downfall with the advent of colonialism, and now stand as amongst the fastest growing economies in the world. The liberalization of their markets forced them to come into contact with the global market and with each other. “Cross cultural ethical dilemmas often arise when a strongly ingrained, culturally derived practice confronts a dynamically changing business environment.

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Such dilemmas occur more often today because growth in international capital markets often involves the imposition of international business practices onto formerly isolated economies. ” (Dunfee and Warren, 2001, p. 191). This paper outlines the challenges and opportunities faced by Indian companies doing business in China, and provides suggestions on addressing these issues. Considerable literature exists that compares cultural issues between India and China offering other countries advice on how to approach cross-cultural challenges in each of these nations.

However, there are few papers addressing the adjustments Indian companies should make in order to succeed in China. As the extent of business between these nations expands, discourse on the issue becomes increasingly important. Section 2 of this paper draws a comparison between the Indian and Chinese cultures, as a reference point to illustrate the source of cultural convergence and divergence. Section 3 provides empirical evidence on challenges faced by Indian companies in China. Section 4 addresses the implications of cross-cultural challenges and provides recommendations on how to tackle these.

Lastly, section 5 summarizes the paper. 2. Comparison of Indian and Chinese Cultures The main cultural differences between India and China can be summarized as such: 1. Ethnicity and language: Chinese culture is far more homogenous than Indian culture. It evolved independently of foreign influence whereas India was invaded and occupied by many foreign groups including the Persians, Moghuls and English. 95% of China’s population comprises of the Han people who form the world’s largest ethnic group (Quer, Claver and Rienda, 2010). India on the other hand is far more diverse.

Even in terms of language, while the majority of people in China speak Mandarin, India recognizes over 22 official languages and 1600 dialects. 2. Social Structure: China’s communist regime allows for a far flatter social structure than the hierarchical structure of Indian society. There is a clear social difference between the elite and the masses in India. 3. Religion: China is primarily atheist although Taoism and Buddhism are practiced. Confucianism provides the base for the teaching moral principles especially in relation to the family and the nation.

80% of the Indian population practices Hinduism, but the minorities encompass a range of religions including Islam, Zoroastrianism, Buddhism and Sikhism amongst others. Quer, Claver and Rienda (2010) summarizes the convergent and divergent aspects of the two cultures in a succinct table. 2. 1 Political Systems Some business culture issues between India and China emerge from their vastly different political systems. Democracy in India allows its businesses several advantages over China.

Despite rampant corruption, red-tapism and the slowness of its courts, Indian companies have better defined property rights; they can use the media as a tool of free expression and have little or no direct political influence on their business operations. China on the other hand is known for extensive piracy of intellectual property; further, bureaucratic norms make it very difficult to conduct business, and business conducted through guanxi (personal connections and relationship-driven business) can do more harm than good. However, an authoritarian government has several advantages too.

For instance, the Chinese government would be able to take unpopular decisions much faster and more easily than the Indian government. 2. 2 The Role of Guanxi There is no consensus on the meaning or definition of guanxi. It could describe tight close-knit networks, interpersonal connections, a gate or pass, networking, reciprocity or nepotism. (Dunfee and Warren, 2001). The concept of guanxi, which is the Mandarin word for ‘relationship’, emerges from Confucianism.

Confucius believed that society is based on the dynamics of relationships. It is the smooth functioning of these relationships that guarantees personal and national success. Reciprocity is a necessary and expected part of guanxi. (Herman Miller, 2010). Quer, Claver and Rienda (2010) speculates the importance of guanxi for doing business in China. It proposes that China has been enjoying unprecedented growth despite the poor development of its formal institutions because the interpersonal networks formed through guanxi act as an informal penal authority preventing companies from harming each other. However, while it can offer support, it can also be the source of great uncertainty. Guanxi in its worst form is akin to corruption.

Guanxi however, is not an entirely foreign concept to Indian businesses that are used to the nuances of entering a market riddled with nepotism and large family-run organizations like the Tata Group, the Birla Group and the Ambanis. Even if in its worst form, guanxi represents corruption, India is infamous for its rampant corruption. Further, Indian culture dictates elaborate gift-giving and is also a paternalistic society where age is revered. These factors help in the establishment of guanxi or in the formation of interpersonal relationships. In this aspect, Indian businesses would thus have an advantage over American or European firms.

Market Liberalization While India and China were both rich and influential ancient economies, in the early 19th century they both suffered a great decline due to English and American colonialism. In the 20th century, they were amongst the world’s poorest and most populated nations. However, a turnabout in this bleak scenario became evident with the implementation of market-oriented economic policies. China opened its economy in 1978 when Deng Xiapong came to power. India on the other hand liberalized its markets in 1991 after a financial crisis threatened to cripple its inward-looking economy.

The liberalization of these economies led to a dynamic change in the equilibrium of the world economy. There was a great influx of FDI in China and several MNCs began setting up base in what would become the “world’s factory”. In 1996, the number of wholly-owned foreign companies exceeded the number of new joint ventures (Smith, 1998). Wholly-owned foreign companies threatened to disrupt traditional Chinese practices the most. They represented market-forces like competitive production processes, costs and distribution that clashed with the guanxi traditions most domestic companies relied on.

According to Dunfee and Warren (2001) these market-forces were more efficient because of the “appeal of the certainty of monetary debt over the ambiguity of a future social obligation imposed by guanxi”. 3. Empirical Evidence Philip (2013) outlines three examples of leading Indian auto-work companies that entered the Chinese market and struggled to scale because of cultural issues. These include Sundram Fasteners, Mahindra & Mahindra and Bharat Forge. Bharat Forge attributed its poor growth in part to a language barrier which made them unable to convey and implement strategies with the Chinese executives.

Further, it had apprehensions about its joint venture with the FAW Corporation, a Chinese state-owned enterprise. While having a State-connection allows companies to bypass the inefficiencies of the bureaucracy of a Communist authority, it also poses several obstacles. For instance, Bharat Forge complains that some of its senior management are more state representatives and less business executives. Their strategies are heavily influenced by public policy and they are intrinsically resistant to organisational changes. A more current example would be that of Apollo Tyres, one of India’s leading tyre manufacturers.

Apollo Tyres has been suffering as a result of a cultural clash in China. Its bid to acquire America’s Cooper Tire and Rubber Company for $2. 5 billion has been stalled by labour protests and union strikes at the Cooper Chengshan Tire Factory in eastern China. However as Mitchell, Crabtree and Wright (2013) posit, this issue is more intrinsic than a labour-versus-management dispute over wages; the union at the factory even rejected Cooper’s offer to pay each worker a bonus of $488 to end the strike, saying that they would only do so if the deal with Apollo was abandoned.

There is great speculation regarding the ability of the new Indian owner to handle the debt issues faced by the company. Mr. Onkar Kanwar, Apollo’s chairman, was well received in Ohio (where Cooper is based) and was able to pacify union concerns there. However, the potential culture clash prevented him from even attempting the same in China. India is generally perceived as a developing nation and there are certain connotations attached to that belief. Even in China, another developing nation, India lacks the image of an innovative and technologically advanced country.

This impacts its businesses not only in China but across the world, as is evident from the Apollo Tyres experience. On the other hand, some companies have adapted to the Chinese environment and provide a good reference point for other Indian entrants. Orind was the first wholly-owned Indian company to enter the Chinese market in 1994. In 2002, Orind China became the largest refractory exporter from China, surpassing domestic and foreign competitors (Joseph, 2004). In 2008, it gained a position amongst the largest steel refractories in the world by taking advantage of the Beijing Olympics.

This exceptional growth is attributed to the positive relationships the company was able to establish with local governments of the Bayuquan, Yingkou and Liaoning provinces. The importance of guanxi as a tool for success is evident in this example. 4. Implications and Recommendations Since the liberalization of the Indian economy in 1991, Indian businesses have been exposed to the competitive global market characterized by cost, production, distribution and technological efficiencies. If anything, these forces have only increased in the past two decades making the global economy extremely competitive.

Thus, despite cultural differences, Indian companies have few alternatives but to expand to China to forestall cost-cutting by its competitors. Further, China is an extremely attractive market due to its high labour productivity, exceptional infrastructure and large domestic market. However, Philip (2013) argues that China is not enthusiastic about Indian companies because they do not offer anything unique to the Chinese economy compared to American or European economies. There is a perception bias that Indian companies cannot compete in terms of price, quality, technology, brand pull or even cost management.

To overcome the perception bias that Indian companies suffer in China, it would be advisable for them to acquire a global presence and reputation before they venture into China. This move, whether strategic or not, has proved extremely successful for a number of companies including Aurobindo Pharma, Essel Propack, Asian Paints and VIP Industries. Chinese businesses are fundamentally based on guanxi. Being a new entrant, in addition to the perception bias, implies that it is extremely hard for an Indian company to gain a strong foothold in the Chinese market. Developing interpersonal relationships requires time.

Further, guanxi also acts as a substitute for formal institutions, making it essential for business in China. This implies that Indian companies that cannot establish a thriving personal relationship or network with their Chinese partners will not be able to succeed even if they are leaders on certain market-based vectors. As such, Indian companies should shed their short-term mentality as is inherent in Indian culture (Bhasin, 2007) and plan for the long term. Sundaram Fasteners, one of the earliest Indian entrants into China, uses a cricket analogy – “China is a test-match for us and not a 20:20” (Philip, 2003).

The political system in China is a great hindrance to Indian businesses. Joint ventures with Chinese companies can result in public policy-driven rather market-driven strategies, which might not be in the company’s best interest. The needs of the State supersede those of the individual in any communist country. It is advisable that Indian companies develop a flexible exit strategy before they enter the Chinese market to minimize risks in case of the arbitrary imposition of authoritarian action by the Communist government.

Zigang (2004) outlines cross-cultural challenges that could be experienced in China using Hofstede’s four dimensions of culture-based value systems. The paper classifies China as strong in collectivism, medium in feminism, high in uncertainty avoidance and high in centralization of authority. India on the other hand is strong in individualism. It is weak in feminism and has medium centralization of authority. India shares high uncertainty avoidance with China. These factors affect cooperative strategies, conflict management, decision-making, work-group characteristics and motivational systems as outlined in the paper.

Indian companies should take into consideration these aspects of the Chinese culture, and adjust their operations to smoothen the entry and establishment of businesses there. 5. Conclusion In conclusion, the uniqueness of the Indian and Chinese cultures requires that Indian companies make changes to their business practices before they are able to succeed in China. As the global economy becomes more and more competitive, it will be imperative for Indian businesses to expand their production base to China to preempt cost-cutting by their competitors.

Due to their deeply ingrained heritage, there is a clash of cultures that can pose as a problem. However, the convergence of certain aspects of their cultures, gives Indian businesses an advantage over their American and European counterparts. Cross-cultural challenges arise out of their political systems, language differences, social structure and an inferior perception bias of India and its businesses. Further, India and China have a great cultural divergence when compared using Hofstede’s four dimensions of culture based value systems – collectivism/ individualism, power distance, masculinity/ femininity and uncertainty avoidance.

Opportunities for Indian businesses lie mainly in the area of guanxi. While it can act as a barrier, the establishment and smooth functioning of interpersonal relationships can help a business succeed. Investing time and effort in these relationships is important. Recommendations outlined to address the challenges and take advantage of the opportunities include acquiring a global presence and reputation before venturing into China, preparing long-term plans for investment and expansion, developing a flexible exit strategy and adjusting business operations to suit the nuances of Chinese culture.