Handbook of Chinese Management 9811024588, 9789811024580

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Check-Teck Foo Editor

Handbook of Chinese Management

Handbook of Chinese Management

Check-Teck Foo Editor

Handbook of Chinese Management With 91 Figures and 29 Tables

Editor Check-Teck Foo Sun Tzu Institute Singapore, Singapore Qilu University of Technology Shandong, China

ISBN 978-981-10-2458-0 ISBN 978-981-10-2459-7 (eBook) https://doi.org/10.1007/978-981-10-2459-7 © Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

This is the world’s first ever Handbook of Chinese Management in English crafted by some of the top academics from China within their fields. Its birth in itself is clearly reflective of the rise of China. Why? Rationale: In The Straits Times article, “Evolving the China Way of Management” (April 13, 2009, p. B19), I was quoted in the press interview by Robin Chan as having said precisely this: “Process [meaning, the China Way of Management] will come as it grows into a global power.” Thus, this handbook has an emergent, historical quality to its formation: it is not just per se a handbook. At the 2010 Third (National) Conference of “管理学在中国” (guan li xue zai zhong guo) “Management inside China” in Lanzhou, as a keynote speaker, I focused too on what is emerging: “将来中国化美国 (MBA) 管理会有么新模型?” ( jiang lai zhong guo hua mei guo (MBA) guan li hui you se me xin mo xing) “Towards a Futuristic Modeling of the Chinese Transformed, American Management.” I even spoke of 1,000 years’ Wind of Global Change Theory (see Fig. 1). Change is the theme of the most insightful book of Chinese thinking: 易经 Yi Jing, otherwise known in the West as the Book of Changes. It is an archaic text of deep, ancient Chinese wisdom. Americans should realize it is impossible or, to speak plainly, sheer stupidity to even try to counter China’s rise. China bashing may seem good for gung-ho, cry out speeches that American politicians thrive on to sway votes. But the fact of the matter is American management is passé, and it is time to learn “How China Succeeds.” For this reason, the smart ones will figure out, possibly from this book, the secrets. I am confident the range of topics initially suggested for this handbook is highly relevant: strategy, leadership, technology management, innovation, managing people, teams, management accounting and corporate finance, corporate social responsibility, corporate governance, and social governance.

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Preface

Fig. 1 Dr. Check-Teck Foo’s 1,000 years theory

Yet there are others as may be seen in the handbook. In the future, emergent topics such as artificial intelligence, green management, and more will be included. For the world, as it has always been, is changing. Yes, even the ideology of management as embedded in the Chinese characters of 管理 (guan li). Professor Dr. Check-Teck Foo Founding Editor, Chinese Management Studies 1988–2010 Professor, System Engineering Management, NTU (Singapore) 2004–2011 Chair and Professor, University of St Andrews, UK Research Professor, Qilu University of Technology, Shandong Province, China Singapore, Singapore July 2023

Check-Teck Foo

Contents

Part I

Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Boundary Spanning Strategy: Case of Hong Kong Firms . . . . . . . Jin-Liang Chen and Song Lin

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Visual Representations of Knowledge for Strategy Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jianxin Ge, Sabrina Bresciani, and Hongjia Xu

17

Anticorruption Campaign and the Value of Political Connection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Peixin Li

31

Achieving Competitive Advantage Through Strategic Job Design: The Case of Service Sector in China . . . . . . . . . . . . . . Lin Lin

45

Construction of Corporate Social Responsibility in the Transition Economy of China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shubo Liu

59

Corporate Philanthropy in China: Response to Institutional Pressure and Stakeholders’ Requirements . . . . . . . . . . . . . . . . . . . Xiaoyuan Liu

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The Strategies of Connecting with Chinese Online Shoppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Riliang Qu

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From Knowledge Transfer of MNEs to Upgrading of Chinese OEM Suppliers: Theoretical Analysis and Case Study . . . . . . . . . Shenghui Wang and Jinghong Zhang

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Community Organizing: Building Social Capital as a Development Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jin Xu

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Contents

Online Financial Services Strategies for Commercial Banks in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guangli Zhang and Ye Liu

Part II 11

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Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Leading Organizational Change by a Momentum Management Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Runtian Jing and Yunan Zhao

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Successful Knowledge Transfer in Manager-Employee Relationships in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joerg Bueechl

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The Dynamic View on the Leader Trait Theory in the Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liguo Xu, Pingping Fu, and Youmin Xi

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Confucianism and Chinese Humanistic Management Pingping Fu, Qing Qu, and Bo Yang

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Contorted Leadership in Chinese Hierarchically Oriented Context: How Social Governance Influences Organizational Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lin Zhang and Xiaojun Zhang

Part III

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Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Innovation: How China Differs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qingmin Hao

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Organizational Intervention or Learning-Oriented Innovation: Evidence from Austria and China . . . . . . . . . . . . . . . . . . . . . . . . . Qingmin Hao

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The Campaign of Mass Entrepreneurship and Innovation . . . . . . Wu Qianyue

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Innovation of Internet Finance in the Era of Big Data Liyuan Wang

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The Long March to an Innovative Culture: Development of Corporate Cultures in China from the 1990s Until Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stefan Schilcher and Helmut Kasper

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The Culture of Fujian Business Yun Deng

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275 289

Contents

Part IV 22

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Managing People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

299

Learning Orientation: Managing People in China’s Banking Industry from a Different Perspective . . . . . . . . . . . . . . . . . . . . . . Nan Ning and Jue Wang

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Occupational Embeddedness and the Innovational Performance of Knowledge Employees in China . . . . . . . . . . . . . . . . . . . . . . . . . Jingtao Fu

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Ensuring Organizational Justice: Cases from Chinese State-Owned Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Donghong Cai and Xiang Yu Li

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Corporate Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Humanism Capital Value Function: Elements and Their Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ding Shenghong and Zhou Hongxia

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Paternalistic Leadership in China Anguo Fu and Zhiyu Xie

Part V 26

Part VI 27

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Corporate Social Responsibility

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Corporate Social Responsibility Practice and Education in China: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yiming Wu and Xinyue Sun

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Executive Women and Glass Ceiling in China . . . . . . . . . . . . . . . . Sharon Moore, Julie Jie Wen, Carl Yi Shi, and Cong Ren

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China’s Responsible Investment Pathway Yingcui Cai and Peiyuan Guo

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Corporate Social Responsibility Reporting System in China . . . . . Jinghua Liao

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Part VII

Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Social Governance Inside China . . . . . . . . . . . . . . . . . . . . . . . . . . . Qiuyan Zhao

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Social Governance in China: New Thought, New Practice, and New Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liqun Wei

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Contents

Rethinking of Aging Population in China to the Impact of Pension System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Keyong Dong and Zhang Dong

425

Urban Gridding as a Means of Promoting Social Governance in Beijing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jinzhu Yue

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Equalization of Basic Public Services: Theory, Current Situation, and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Luanyu Yin

445

Build the Belt and Road into “a Road of Social Security and People’s Happiness” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hongxin Wang, Tian Fu, Junlin Shao, and Siyuan Wang

457

Subjective Well-Being of the Residents in Contemporary China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jianwen Wei, Yang Han, and Yandong Zhao

471

De-administration of the Community Resident’s Committee: A Case Study Based on the Fieldwork in China . . . . . . . . . . . . . . . Peng Chen

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On System Arrangement of Governmental Social Media in Emergency Communication and Its Optimization . . . . . . . . . . . . . Dang Shengcui and Cheng Siqi

495

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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About the Editor

Check-Teck Foo was (1974–1988) Operations Officer (SAF); Industrial Relations Advisor (SNEF); Bank Manager (HR ξ Legal); Project Manager, Klockner Industrie Analagen; and Assistant Director, Corporate Planning, NPB (Spring) before joining NTU. He was a tenured Professor of System Engineering Management, Aerospace and Mechanical Engineering School, NTU. Widely consulted by companies, he founded as Director (Research) the NTU Center for Engineering and Technology Management. Dr. Foo is an award winner and has published widely (more than 100 publications) across disciplines in leading journals: Artificial Intelligence, System Engineering, CyberPsychology, Technology Management, Technovation, Management Science, Industrial Relations, HRM, and Strategic Planning. In Europe, he was Chair and Honorary Professor at the School of Management, University of St Andrews (2004–2011), and Consulting Professor at INSEAD. In the United States of America, he was a Distinguished Professor of Finance, City University of New York (ASEAN Office), and within Asia, ASEAN Distinguished Professor. With more than 100 publications across multiple disciplines, he was the Founding Editor of SSCI (2011, founded 2007) and Chinese Management Studies. He was also Consulting Editor of the Journal of Risk and Finance. Beginning as Research Professor (China’s Talent Program) at Harbin Institute of Technology (HIT) (工大), he has been Professor in more than 21 universities – for example, in top research universities like the

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University of Science and Technology, China (USTC) (科大), Fudan University (复旦), Beijing Jiaotong University (北京交通), and Northwestern Polytechnical University (西北工业) and – Consulting Professor (Patents) at Hunan University (湖南). Currently, he is Research Professor at Qilu University of Technology (齐鲁工业大学), Shandong, China. Dr. Foo has lived in London, New York, and Tokyo with interests in piano (repertoire of 300 songs) and Sun Tzu (politics, ethics, and legality of warfare) and is a connoisseur of Chinese jade and pottery. Presently, he is working with a museum in Britain and is keen to exhibit his collections.

Section Editors

Section: Innovation Prof. Qingmin Hao College of Management and Economics Tianjin University Tianjin, China

Section: Corporate Social Responsibility Prof. Lei Huang Graduate School of Business Guangdong University of Foreign Studies Guangzhou, China

Section: Strategy Prof. Song Lin Central University of Finance and Economics Beijing, China

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Section Editors

Section: Managing People Prof. Zhaohong Lin School of Management Hainan University Haikou, Hainan Province, China

Section: Leadership Prof. Dr. Xiaojun Zhang Institute of Leadership and Education Advanced Development Xi’an Jiaotong-Liverpool University Suzhou, Jiangsu, China

Section: Social Governance Prof. Qiuyan Zhao School of Sociology, China Academy of Social Management Beijing Normal University Beijing, China

Zhaohong Lin: deceased.

Contributors

Sabrina Bresciani Institute for Media and Communications Management – MCM, University of St. Gallen, St. Gallen, Switzerland Joerg Bueechl China Center Tuebingen, Tuebingen University, Tuebingen, Germany Donghong Cai Hainan University, Haikou, China Yingcui Cai SynTao Green Finance, Beijing, China Jin-Liang Chen Business School, Central University of Finance and Economics, Beijing, China Peng Chen China Academy of Social Management, Beijing Normal University, Beijing, China Yun Deng Department of Business Administration, Fujian Business University, Fuzhou, Fujian, China Keyong Dong School of Public Administration and Policy, Renmin University of China, Beijing, China Zhang Dong School of Public Administration and Policy, Renmin University of China, Beijing, China Anguo Fu Management School, Hainan University, Haikou, China Jingtao Fu Hainan University, Haikou, China Pingping Fu Nottingham University Business School China, University of Nottingham, Ningbo, China Tian Fu Academy for Global Development, Beijing Normal University, Beijing, China Jianxin Ge Business School, Central University of Finance and Economics, Beijing, China Peiyuan Guo SynTao Green Finance, Beijing, China xv

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Contributors

Yang Han Beijing Longmahui Capital Investment Company, Hong Kong, China Qingmin Hao College of Management and Economics, Tianjin University, Tianjin, China Zhou Hongxia Accounting School of Nanjing University of Finance and Economics, Nanjing, China Runtian Jing Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China Helmut Kasper Vienna University of Economics and Business, Vienna, Austria Peixin Li School of Business, Central University of Finance and Economics, Beijing, China Xiang Yu Li Hainan University, Beijing, China Jinghua Liao School of Accounting, Guangdong University of Finance, Guangzhou, China Lin Lin Business School, Central University of Finance and Economics, Beijing, China Song Lin Central University of Finance and Economics, Beijing, China Shubo Liu Central University of Finance and Economics, Beijing, China Xiaoyuan Liu Department of Strategy, Central University of Finance and Economics, Beijing, China Ye Liu Business School, Central University of Finance and Economics, Beijing, China Sharon Moore Sydney Graduate School of Management, Western Sydney University, Sydney, NSW, Australia Nan Ning School of International Business, Southwestern University of Finance and Economics, Chengdu, China Wu Qianyue Department of Finance, Shi Jiazhuang Posts and Telecommunications Technical College, Shijiazhuang, Hebei, China Qing Qu School of Economics and Management, Tsinghua University, Beijing, China Riliang Qu School of Business, Central University of Finance and Economics, Beijing, China Cong Ren School of Business, University of Sydney, Camperdown, NSW, Australia Stefan Schilcher Department of International Wine Business, IMC FH Krems University of Applied Sciences, Krems, Austria

Contributors

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Junlin Shao School of Government, Beijing Normal University, Beijing, China Dang Shengcui China Academy of Social Management, Beijing Normal University, Beijing, China Ding Shenghong Finance College of Nanjing Agricultural University, Nanjing, China Carl Yi Shi Wells International College Sydney, Sydney, NSW, Australia Cheng Siqi School of Journalism and Communication, Beijing Normal University, Beijing, China Xinyue Sun Guangdong University of Foreign Studies, Guangzhou, China Hongxin Wang School of Sociology, Beijing Normal University, Beijing, China Academy for Global Development, Beijing Normal University, Beijing, China Jue Wang School of International Business, Southwestern University of Finance and Economics, Chengdu, China Liyuan Wang College of Finance and Investment, Hebei Finance University, Baoding, Hebei, China Shenghui Wang Central University of Finance and Economics, Beijing, China Siyuan Wang Institute of Remote Sensing Satellite, CAST, Beijing, China Jianwen Wei China Academy of Social Management/School of Sociology, Beijing Normal University, Beijing, China Liqun Wei School of Sociology of Beijing Normal University, Beijing, China Julie Jie Wen School of Social Sciences, Western Sydney University, New South Wales, NSW, Australia Yiming Wu Guangdong University of Foreign Studies, Guangzhou, China Youmin Xi School of Management, Xi’an Jiaotong University, Xi’an JiaotongLiverpool University, Xi’an, China Zhiyu Xie School of Labor and Human Resources, Renmin University of China, Beijing, China Hongjia Xu Business School, Central University of Finance and Economics, Beijing, China Jin Xu Business School, Central University of Finance and Economics, Beijing, China Liguo Xu School of Management, Xi’an Jiaotong University, Xi’an, China Bo Yang Nottingham University Business School China, University of Nottingham, Ningbo, China

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Contributors

Luanyu Yin China Academy of Social Management/Sociology School, Beijing Normal University of China, Beijing, China Jinzhu Yue Publicity (Social Mobilization) Department, Social Work Committee of Beijing Municipal Committee of the CPC, Beijing, China China Academy of Social Management, Beijing Normal University, Beijing, China Social Governance Research Center, Chinese Academy of Governance, Beijing, China Guangli Zhang Business School, Central University of Finance and Economics, Beijing, China Jinghong Zhang Beijing Language and Culture University, Beijing, China Lin Zhang School of Humanities, Economics and Laws, Northwestern Polytechnical University, Xian, Shaanxi, China Xiaojun Zhang Institute of Leadership and Education Advanced Development, Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China Qiuyan Zhao School of Sociology, China Academy of Social Management, Beijing Normal University, Beijing, China Yandong Zhao School of Sociology and Population Studies, Renmin University of China, Beijing, China Yunan Zhao Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China

Part I Strategy

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Boundary Spanning Strategy: Case of Hong Kong Firms Jin-Liang Chen and Song Lin

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Boundary Spanning Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . History of the Transformation Strategies of the HKOFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Boundary Spanning Driven Transformation Strategy of HKOFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Geographic Boundary Spanning Driven Transformation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Boundary Spanning Driven Transformation Strategy . . . . . . . . . . . . . . . . . . . . . . . Technological Boundary Spanning Driven Transformation Strategy . . . . . . . . . . . . . . . . . . . . . . . . Conclusion and Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Hong Kong firms, named as Hong Kong-owned firms in the China mainland, in the Pearl River Delta contributed to economic development much during the past many years. With the global economic structure changing in the recent years, plenty of Hong Kong-owned firms in the China mainland are increasingly facing the new challenges. This chapter is to explore the boundary spanning for the transformation strategies, which can be used by the Hong Kong-owned firms confronting with the transformation challenges. Geographic boundary spanning driven transformation strategy, organizational boundary spanning driven transformation strategy, and technological boundary spanning driven transformation strategy will be discussed in this chapter. And the conclusion shows that it is

J.-L. Chen (*) Business School, Central University of Finance and Economics, Beijing, China e-mail: [email protected] S. Lin Central University of Finance and Economics, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_1

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necessary to combine the three transformation strategies according to the contingent context to find proper strategies combination to conquer the current difficulties. Keywords

Boundary spanning · Transformation strategy · Hong Kong-owned firms · Pearl River Delta

Introduction Pearl River Delta (PRD) is often used to describe the economic region, as displayed in Fig. 1, consisting of Hong Kong, Macao, and Guangdong. The three units are administratively distinct, with Hong Kong supporting the manufacturing economy in Guangdong through producer services and linking it to the rest of the world through foreign trade and investments. PRD has evolved into the “workshop of the world” with the development of the Hong Kong firms (HKFs) in Guangdong province, also named as Hong Kong-owned firms (HKOFs) in the China mainland. As the laborincentive small- and medium-scale firms, HKOFs in Guangdong province promote the economic growth of both Guangdong and Hong Kong and making this region become one of the largest factories in the world (Lin 2001). HKOFs in this area are encountering the biggest challenges in the history with the business environment changing in the recent years, although HKOFs still play important role in the PRD (Yang 2012; Zhang and Kloosterman 2016). The business environment has changed in the global, national, and regional level in the recent

Fig. 1 The map of Pearl River Delta. (From: https://en.wikipedia.org/wiki/Pearl_River_Delta)

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years (Yang 2012; Zhang and Kloosterman 2016). The global economic downturn after the 2008, the change of policies both national level and regional level, the tightened environment regulation, the rise of the labor cost and the rise of raw materials cost, and so on and so forth squeeze thousands of HKOFs those operating in labor-incentive, highly polluting manufacturing sectors (Sharif and Huang 2012). Increasingly, HKOFs are forced either to shut down or to transform from the current difficult situation. And there is no doubt the transformation is the wise decision for the HKOFs to overcome the current challenges. It is not the first time the HKOFs confront with these kinds of challenges and not the only case in the world. Actually, after the tremendous economic development from the beginning of 1950s to the end of 1970s, HKFs, the parent company of HKOFs, have undergone the challenges from the rise of the labor cost and the rise of raw materials cost and so on and so forth in Hong Kong. With the reform and open policies of China mainland in the end of the 1970s, fortunately, HKFs successfully transformed themselves from manufacturing producer to service providers with setting up the factories at Guangdong (Liao and Chan 2011; Yam et al. 2011). In addition, a large number of firms in the developed countries have undergone the industrial restructure and decline, and many successful experience and effective modes have been summarized (Hayter and Edgington 2004; Cainelli et al. 2006; Dunford 2006; Martin and Sunley 2006). Scholars have paid much attention to these kinds of transformation researches and have acquired inspiring boundary spanning insight to overcome the difficulty during the transformation process. For example, with the cases of Germany, two types of successful transformation strategies for firms to overcome the difficulty, “stayed in the industry, but left the region; or stayed in the region, but left the industry,” are identified (Schamp 2005). The “stayed in the industry, but left the region” is a relocation strategy based on the geographic boundary spanning, while the “stayed in the region, but left the industry” is a diversification strategy based on the organizational boundary spanning (Liao and Chan 2011). Whichever transformation strategy the firms prefer, the key point is the firms prefer the transformation strategy based on the boundary spanning. Boundary spanning strategy is also the best choice for the HKOFs during the transformation. Therefore, the current research stream should strengthen the insight of boundary spanning strategy. Actually, the current research attentions related to HKOFs have already been paid to the relocation strategy. For instance, with the cases of the HKOFs, the relocation patterns, the relocation entry modes, the relocation capitalism modes, and the relocation connection to the global production networks were stressed (Yang 2006, 2007; Liao and Chan 2011; Zhang and Kloosterman 2016). However, few researches related to HKOFs focus on the transformation strategy based on the other boundary spanning, such as organizational boundary spanning and technology dimension. With this in mind, the focus of this chapter is to explore the broader boundary spanning for the transformation strategies, which can be used by the HKOFs confronting with the transformation challenge. Actually, in order to survive in the environment change, geographic boundary spanning driven transformation strategy,

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organizational boundary spanning driven transformation strategy, and technological boundary spanning driven transformation strategy are useful for the HKOFs to conquer the difficulties during the transformation. Therefore, geographic, organizational, and technological boundary spanning will be discussed in this chapter. The remainder of the chapter is structured as follows. Section “Boundary Spanning Literature Review” reviews the previous researches related to the boundary spanning. Section “History of the Transformation Strategies of the HKOFs” states the history of the transformation strategies taken by the HKOFs. Section “Boundary Spanning Driven Transformation Strategy of HKOFs” presents the geographic boundary spanning driven transformation strategies, the organizational boundary spanning driven transformation strategies, and the technological boundary spanning driven transformation strategies separately. Section “Conclusion and Application” concludes the chapter with suggestions and implications.

Boundary Spanning Literature Review Boundary spanning originates from organizational search triggered by the identification of organizational problems and suppressed by the resolution of the problems (Cyert and March 1963). There are two research stage related to organizational search: local organizational search and boundary spanning organizational search. The first stage is local organizational search. At the beginning, March and Simon (1958) and Cyert and March (1963) introduce an organizational search model which firms will employ a problemistic search process for solutions until a satisficing condition to an encountered problem is met. After that, Nelson and Winter (1982) present that organizational search routine is a main driver for successful innovation. Following the strand of March and Simon (1958) and Cyert and March (1963) with the fact that the search cost increases with the search distance because of bounded rationality and the strand of Nelson and Winter (1982) with the path-dependent nature of routine, local search which is a search behavior for solutions happened in the neighborhood of the current domain is predominantly being exercised (Stuart and Podolny 1996). Many empirical researches validate this predominant tendency toward local search (Helfat 1994; Stuart and Podolny 1996; Martin and Mitchell 1998). Although local search makes the firms more expert in the current domain and build the “firstorder competence” (Rosenkopf and Nerkar 2001), it can also lead firms to develop “core rigidities” which constrains the new development or fall into “competency traps,” whereby the current knowledge is re-emphasized at the expense of integrating the new useful knowledge (Leonard-Barton 1992; Levitt and March 1988). The second stage is boundary spanning organizational search. In order to avoid the “core rigidities” and “competency traps,” boundary spanning search which is the search behavior for solutions from outside the current domain is introduced (Rosenkopf and Nerkar 2001). And three classical dimensions those consist of geographic dimension, organizational dimension, and technological dimension have been used to present the boundary spanning. Geographic boundary spanning

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is a search behavior which a firm’s search effort spans the geographic boundary, such as nation, region, city, and so on (Ahuja and Katila 2004); organizational boundary spanning is a search behavior which a firm’s search effort spans the organizational boundary (Rosenkopf and Nerkar 2001); and technological boundary spanning is a search behavior which a firm’s search effort spans the technological boundary (Rosenkopf and Nerkar 2001). Researches increasingly focus on the three boundary spanning dimensions and plenty of insights are developed. First, within the geographic boundary spanning dimension, for example, Sidhu et al. (2007) find an interesting result which geographic boundary spanning contribute to innovation whenever higher or lower level of the dynamic environment is. Tallman and Phene (2007) examine the knowledge flow within and across the geographic boundary with the data from biotechnology industry. Wang (2015) focuses on the role of firm heterogeneity in geographical boundary spanning with survey data from Zhejiang, China. Second, within the organizational boundary spanning dimension, Katila (2002) makes a distinction between the search of its own knowledge base, the search of its competitors’ knowledge, and the search of external (outside-industry) knowledge. Third, within the technological boundary spanning dimension, Ahuja and Katila (2004) examine the science (technology) boundary spanning to conclude that firms will expand technological search when the current technology base is reaching its limits. Nerkar and Roberts (2004) find the proximal technological experience has a positive effect on the success of a new product and the distal technological experience also has a positive effect on the success of a new product. Besides that, researches also focus on the combined boundary spanning of the three dimensions. For instance, Rosenkopf and Nerkar (2001) combine the organizational dimension and the technological dimension to refine four types of boundary spanning behavior: local, internal boundary spanning, external boundary spanning, and radical. Phene et al. (2006) utilize two dimension, technological space and geographic origin, to combine four types of boundary spanning for technologically proximate knowledge of international origin, technologically distant knowledge of international origin, technologically proximate knowledge of national origin, and technologically distant knowledge of national origin separately.

History of the Transformation Strategies of the HKOFs HKOFs, the HKFs’ subsidiaries, originate from HKFs and have undergone at least three transformations those divide the development history of the HKOFs into four stages: before the 1950s, from the beginning of 1950s to the end of 1970s, from the end of 1970s to the mid of 2000s, and from the mid of 2000s to now. Before the 1950s, HKFs mainly produce for Hong Kong local market and participate in a few of international trade within the framework of the Ottawa agreement (FHKI 2015). With the industrial development at the end of the nineteenth century, HKFs acquire much capital investment in the sugar industry and

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shipbuilding industry from the British. During the same period, HKFs set up the factories of matches, soap, and other product with the investment from the Chinese. In that era, the economy scale of HKFs is relatively small and has less impact on the local economy development. After that period, three turning points appear with the corresponding transformation strategies taken according to the transformation development situation in order to overcome the difficulties encountered. The first turning point is at the beginning of 1950s and the transformation strategy for the HKFs is to embed in the European and American production network. At the beginning of 1950s, a large numbers of entrepreneurs with capital and refugees with skill swarm into Hong Kong from mainland after the Civil War of China, which provides abundant resources for the industrialization of Hong Kong. With this “outside-in” resources support, HKFs successfully embed in the European and American production network to be responsible for the labor-intensive manufacturing. Hence, the labor-intensive light manufacturing transformed from the Europe and America develops including fabricated metal products, textiles and garments, electrical and optical products, toys and games, and so on and so forth (FHKI 2015). And the HKFs grow up into the largest industry whose proportion is number one in the gross domestic product of Hong Kong. From the beginning of 1950s to the end of 1970s, HKFs reach its first tremendous economic development and then encounter the second turning point (FHKI 2015). The second turning point is at the end of 1970s, and the transformation strategy for the HKFs is to move out the manufacturing activities and upgrade to manufacturing service. With the reform and open policies of China implemented after 1978, all the provinces including Guangdong provide a large number of favorable policies, so as to encourage the HKFs’ investment. Increasingly, with the strategy of moving out the manufacturing activities, HKOFs, as the HKFs’ branch plants or subcontractors, are set up in Shenzhen, Dongguan, Foshan, and several other areas of Guangdong province (Yeh 2005). Guangdong province attracts a huge amount of investment from Hong Kong. With the accumulated investment from HKFs to Guangdong, both the Guangdong’s economy and Hong Kong’s economy undergo a dramatic restructure. Guangdong becomes the HKFs’ new production site. And Hong Kong becomes the international commercial and financial center, with HKFs upgrading to more concentrate on marketing, design, finance, logistics, etc. In short, HKOFs in Guangdong function as “back factory” and HKFs function as “front shop,” named as “Qiandian Houchang” model (Yang and Sit 1995; Sit and Yang 1997). “Qiandian Houchang” model describes the labor division between Guangdong and Hong Kong, resulting in the rapid economic development of both Guangdong and Hong Kong. For Guangdong area, HKOFs concentrate mainly in labor-incentive small- and medium-scale manufacturing activities subcontracted from the HKFs, which induces in Guangdong’s export-oriented industrialization (Lin 2001). For Hong Kong area, the HKFs change from traditional labor-intensive light manufacturing sector to technology- and capital-intensive manufacturing service sector, promoting a transaction from “Made in Hong Kong” to “Made by Hong Kong.”

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The Hong Kong’s manufacturing sector declines from 41.2% in 1981 to 6% in 2002 but technology- and capital-intensive manufacturing service sector increases to 31.8% in the same period, which leads to the second tremendous economic development in Hong Kong (Yeh 2005). The “Qiandian Houchang” model performs well both in Guangdong and in Hong Kong until the third turning point in the mid of 2000s. The third turning point is at the mid of 2000s, and the transformation strategy for the HKOFs is to move out the manufacturing activities and upgrade to manufacturing service and indigenous innovation. HKOFs’ business environments in PRD change a lot with the global economic downturn, the tightened environment regulations, the transformation of policies toward foreign firms, the lack of labor, the rise of the minimum wage, and so on (Yang 2006). Actually, the business environment has changed in the global, national, and regional level in the recent years (Yang 2012; Zhang and Kloosterman 2016). In the global level, the global economic downturn after the 2008 has a major negative impact on the export markets for the HKOFs (FHKI 2015). In addition, Germany stresses the intelligent manufacturing and advances the “Industry 4.0” plan (Macdougall, 2014), the USA stresses the recovery of economy and advances the “homecoming of US manufacturing” plan (PwC 2012), and China stresses the development of science and technology and advances the “Made in China 2025” plan (State Council 2015). All these “plans” have a negative effect to the laborincentive, highly polluting HKOFs. In the national level, the policies in the PRD increasingly concern on environment and poverty rather than the growth of GDP (Liao and Chan 2011). The central government’s policies to use foreign capital strictly restrain high pollution, high energy consumption, and resource-intensive projects, as well as the overcapacity projects. Also, more policies in the PRD concerned on attracting foreign investors before have been replaced by facilitating the development of domestic firms (Liao and Chan 2011). The central government’s view on the PRD is to move laborintensive, low-value-added, and/or polluting industries out of the PRD into other parts of the region, other parts of Guangdong, or other parts of the nation and to stress the PRD’s leading role in innovation, knowledge, and creativity-based economic development. Besides, the new Labor Contract Law in 2008 enhances the rights of workers which makes temporary, seasonal, and contract-based work more difficult, reduces the labor flexibility, and increases the labor cost. In the region level, HKOFs are experiencing cost pressures and region policies pressures in the recent years. There are three aspects related to cost pressures. Firstly, it is increasingly hard for PRD to find sufficient workers to meet factories’ demand. Secondly, the rising minimum wage in the PRD brings extremely burdensome for HKOFs. Thirdly, the rising raw materials prices affect HKOFs in the PRD. Overall, the lack of immigrant labor from inland areas, the rise of the minimum wage, and the rise of raw materials prices in the PRD have huge impact on the HKOFs’ production cost. In addition, HKOFs are undergoing the region policies pressures. Over the development of the past three decades, Guangdong government has realized the

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space limit in the PRD. In order to solve the space limit in the future development, Guangdong initiates the policies of “vacate the cage and change birds” (in Chinese Teng Long Huan Niao), which entitles the labor-incentive HKOFs as the “birds” that should move out of the PRD (Liao and Chan 2011).

Boundary Spanning Driven Transformation Strategy of HKOFs The history of the transformation strategies indicates that location is always one of the important choices, which is a “pull” form in order to embed in the European and American production network at the beginning, a “push” form in order to subcontract the labor-incentive manufacturing activities to the factories in the Guangdong later, and a “relocation” form in order to move to other low-cost area to conquer the current difficulties now. Essentially, location (“pull” form, “push” form, or “relocation” form) is a geographic boundary spanning driven strategy, although the form is different in the three periods. Besides, producer service upgrading, one of the organizational boundary spanning driven strategies (industry level), is taken after the labor-incentive manufacturing activities moved into low-cost areas. And innovation driven, based on the technological boundary spanning, is chosen after the mid of 2000s. Here, in this part of the chapter, the three kinds of boundary spanning driven transformation strategies are as follows.

Geographic Boundary Spanning Driven Transformation Strategy Geographic boundary spanning driven transformation strategy is based on the geographic boundary spanning which is a search behavior of a firm to span the geographic boundary, such as nation, region, city, and so on (Ahuja and Katila 2004). One of the typical geographic boundary spanning driven transformation strategies adopted by HKOFs is location, which is “pull” form at first, “push” form later, and “relocation” form now. In the 1950s–1970s, HKFs (the parent firms of HKOFs) perform a “pull” strategy to transform into the low-cost, labor-intensive original equipment manufacturing (OEM) in order to embed in the European and American production network and produce goods for these Western countries. In the 1970s–2000s, HKFs perform a “push” strategy to move into Guangdong province (the HKFs’ subsidiaries moved into Guangdong are HKOFs) in order to develop a competitive low-cost manufacturing base due to the supply of cheap labor and favorable policies provided by Guangdong government. After the mid of 2000s, HKOFs take a “relocation” strategy according to “vacate the cage and change birds” policy in order to find lower cost OEMs to continue the location strategy. In comparison with the “pull” form location and the “push” form location, the “relocation” strategy of HKOFs in the recent years has been taken to conquer the challenges from the more complex context. According to the dynamic changes of

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environment and policies, three relocation patterns are adopted by HKOFs, namely, total relocation pattern, stratified relocation pattern, and pseudo relocation pattern (Liao and Chan 2011). The first relocation pattern is total relocation pattern. Total relocation pattern is to move to other areas outside the PRD completely, which is more adopted by the labor-intensive and polluting-prompt HKOFs with the push force of the rigid environmental regulation and the pull force of the loose pollution control elsewhere. The second relocation pattern is stratified relocation pattern. Stratified relocation pattern is to classify the firm’s products into different value groups and move the low-end groups to low-cost areas, which is more preferred by the HKOFs that are flexible to the changing situation and hope to keep the connection with the industrial chains in the PRD. The HKOFs with the stratified relocation pattern make use of the low-cost labor outside the PRD on the one hand and adapt to the increasingly rigid regulation gradually on the other hand. The third relocation pattern is pseudo relocation pattern. Pseudo relocation pattern is to merge or source the resources from the domestic firms in Chinese inland areas, which is chosen by the HKOFs those hope to make use of the resource advantage in Chinese inland areas. Overall, total relocation pattern is to move out completely, stratified relocation pattern is to move low-end groups out while keep high-end in, and pseudo relocation pattern is to merge or source from the outside.

Organizational Boundary Spanning Driven Transformation Strategy Similar with geographic boundary spanning driven transformation strategy, organizational boundary spanning driven transformation strategy is an organizational boundary spanning driven strategy, which a firm’s search effort spans the organizational boundary (Rosenkopf and Nerkar 2001). According to the innovation value chain theory, there are four kinds of organization (forward organization, backward organization, horizontal organization, and public organization) to span for search (Hansen and Birkinshaw 2007; Roper et al. 2008). First, forward organizations refer to the customers or clients; second, backward organizations refer to the suppliers; third, horizontal organizations refer to the competitors, consultants, or joint ventures; and forth, public organizations refer to the universities or public research centers. Besides the firm-level boundary spanning, industry-level boundary spanning also belongs to the organizational boundary spanning (Katila 2002). Firms can search not only the competitors to span the firm-level boundary but also the outside-industry firms to span the industry-level boundary. Actually, the typical organizational boundary spanning driven transformation strategies adopted by HKOFs (HKFs) are industry-level boundary spanning and producer services upgrading, which are higher-value-added business activities related to manufacturing. Historically, there are two transformations since the late 1970s (Tao and Wong 2004; Zhang and Kloosterman 2016). First, when the mainland adopted open-door policies after the late 1970s, many HKFs moved the labor-intensive production processes and lower-value-added manufacturing activities to the Guangdong. At

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the same time, HKFs in Hong Kong upgraded into producer service providers, who focused on the marketing, design, finance, logistics, etc. Second, since the mid of 2000s, the HKOFs in Guangdong upgrade toward producer service provider and moved the low-cost, labor-intensive manufacturing activities to other areas again, in order to conquer the challenges due to the rise of labor and production costs and the change of the environmental regulation and investment policies. Unlike the transition from product manufacturing to producer service in Hong Kong, the transition in PRD after the mid of 2000s is characterized by simultaneous expansion of both product manufacturing and producer service. The upgrading pattern to service provider of HKOFs in the recent years appears in three types: headquarters branch, parallel institute, and independent firm. The first type, headquarters branch, means that HKOFs upgrade into the branches of the Hong Kong headquarters to embed the labor-intensive part of the producer service value chain, while Hong Kong headquarters still control the higher technology part. The firms in Hong Kong provide the higher technology producer service, while HKOFs in Guangdong provide the lower technology labor-intensive producer service. The core character of headquarters branch is there is a producer service value chain connection between headquarters and HKOFs. The second type, parallel institute, means that the firms in Hong Kong and the HKOFs in Guangdong provide the same producer service. But there is no producer service value chain connection between the firms in Hong Kong and the HKOFs in Guangdong. The firms in Hong Kong and HKOFs in Guangdong may belong to the same legal subject or belong to the different legal subject. The core character of the parallel institute is both the firms in Hong Kong and the HKOFs in Guangdong provide the same producer service. The third type, independent firm, means that HKOFs upgrade into producer services providers whose registered place is Guangdong, and the legal representatives are from Hong Kong. In addition, the HKOFs mainly provide producer services for the Guangdong local market. The core character of the independent firm is the HKOFs in Guangdong have no relationships (legal or economic) with the firms in Hong Kong.

Technological Boundary Spanning Driven Transformation Strategy Technological boundary spanning, a search behavior which a firm’s search effort spans the technological boundary, is the basis of technological boundary spanning driven transformation strategy (Rosenkopf and Nerkar 2001). Technology boundary can span to the prior knowledge (old) and to the new knowledge (new) (Katila and Ahuja 2002), to the similar domain and to dissimilar domain (Rosenkopf and Nerkar 2001; Ahuja and Katila 2004), and even to science knowledge, technology knowledge, and market knowledge (Ahuja and Katila 2004; Sidhu et al. 2007). No matter which technology boundary spanning, the purpose of the typical technological boundary spanning driven transformation strategy is to drive the development of HKOFs through indigenous innovation. However, the purpose of

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geographic boundary spanning driven transformation strategy and organizational boundary spanning driven transformation strategy is different. For instance, Yam et al. (2011) indicate that the transition of HKFs from product manufacturers to producer services providers delays technological innovation in Hong Kong, due to the opportunities to use lower labor resources and materials in the Guangdong. Moreover, Huang and Sharif (2009) conclude that HKOFs are less active than Guangdong domestic firms in pursuing research and development (R&D) and indigenous innovation activities, for that HKOFs are dominated by firms from Hong Kong. In order to survive with the new challenges encountered in recent years, many HKOFs turn to focus on the indigenous innovation activities such as R&D outsourcing, R&D-focused strategic alliances and intramural R&D, and so on (Sharif et al. 2012). With indigenous innovation driven experiences accumulating, there are at least three modes that HKOFs can use to perform the technological boundary spanning driven transformation strategy, namely, indigenous technology, machine substitution, and Internet plus. First, indigenous technology is an alternative to import foreign technologies by owning and enhancing the indigenous technologies that belong to the HKOFs, so as to make the HKOFs independent of foreign technologies. The HKOFs to perform the indigenous technology mode invest a large number capital to R&D activities. Second, machine substitution is to use the automated industrial robot and reduce the number of employees in the manufacturing. Automated industrial robots are adopted to reduce manual operation in order to cope with “labor shortage.” Also, automated industrial robots can improve the efficiency to reduce the product cost. Third, Internet plus is to combine the manufacturing with the Internet so as to improve the performance of the HKOFs, for example, using the Internet to export the brand, using online to enhance design capability and using electronic commerce to sale product.

Conclusion and Application This chapter introduces three kinds of transformation strategies driven by boundary spanning activities based on the spanning search theory, namely, geographic boundary spanning driven transformation strategy, organizational boundary spanning driven transformation strategy, and technological boundary spanning driven transformation strategy. Specifically, location, which is “pull” form at first then “push” form and “relocation” form later, is the geographic boundary spanning driven transformation strategy; upgrading, which is producer services upgrading first, both product manufacturing upgrading and producer service upgrading later, is the organizational boundary spanning driven transformation strategy; indigenous innovation, which includes indigenous technology, machine substitution, and Internet plus, is technological boundary spanning driven transformation strategy. Although it is convenient for theoretical summary from the single dimension of spanning search, what are needed in reality are always dimension-combined

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boundary spanning driven transformation strategy. Actually, during the history of the transformation strategies of the HKOFs, strategy combinations are always taken to conquer the facing difficulties. For example, at the beginning of 1950s, HKFs combine the “pull” form location strategy with indigenous technology strategy to embed in the European and American production network. At the end of 1970s, HKFs combine the “push” form location strategy with producer services upgrading strategy to use the cheap labor and favorable policies in Guangdong with upgrading at the same time. After the mid of 2000s and the combined transformation, strategies taken are more complex, with three relocation patterns, three producer services upgrading types, and three indigenous innovation modes. Besides the historically empirical evidences of strategy combinations, there also have theoretical support based on the theory of boundary spanning. Till now, researches have studied the effect of the combination of the boundary spanning. For instance, Rosenkopf and Nerkar (2001) combined organizational boundary spanning and technological boundary spanning to indicate that second-order competence, “the ability of a firm to create new knowledge through recombination of knowledge across boundaries,” really mattered. Phene et al. (2006) combined two dimensions, technological boundary spanning and geographic boundary spanning, to stress the recombinant view, namely, “the new knowledge is created by combination of new components or new combinations of existing components.” Therefore, it is acceptable that the combination of the boundary spanning driven transformation strategy matters, since the combination of boundary spanning matters. It is increasingly important for HKOFs to take new combined strategies to conquer the facing difficulties, in order to survive with the new challenges encountered in recent years. However, the opinions related to the effect of combining the different transformation strategies appear inconclusive. And one of major reasons of inconclusive results is the difference of context contingent. For instance, Sharif and Huang (2012) studied the relationship between innovation strategies and relation strategies in a thin context and indicated the positive effect of the combined transformation strategies. However, Chen and Ku (2014) studied the conflict between indigenous and vacate the cage and change birds in a broad context and indicated the negative effect of the combined transformation strategies. Therefore, to find a new proper combined strategy is not an easy thing in a complex context contingent. Actually, the context contingent is more complex than ever. HKOFs promoted the economic growth of both Guangdong and Hong Kong during the past years with the particular combined strategy. However, with the global economic situation changing recently, plenty of HKOFs in PRD are increasingly facing new complex challenge, such as the global economic downturn, the tightened environment regulations, the transformation of policies toward foreign firms, the lack of labor, the rise of the minimum wage, and so on. The context contingent is more complex and the proper combined strategy before does not work. Therefore, with squeezing from the global, national, and regional level in the recent years, it is necessary to combine the geographic boundary spanning driven transformation strategy, organizational boundary spanning driven transformation strategy, and technological boundary

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spanning driven transformation strategy according to the new contingent context, to find proper strategies combination to conquer the current difficulties. Acknowledgments The authors thank the financial support from the Natural Science Foundation of China (71302128), Project of Humanities and Social Sciences by Ministry of Education in China (12YJC630011) and 2018 Education and Teaching Reform Project of Central University of Finance and Economics (2018XYJG06).

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Visual Representations of Knowledge for Strategy Communication Jianxin Ge, Sabrina Bresciani, and Hongjia Xu

Contents Introduction: Why This Chapter Matters? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of the Chapter: Communicating the Corporate Strategy Textually and Visually in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Visual Representations in Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Visual Representations and Strategy Communication Across Cultures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Research Model and Methodology: Fieldwork on Chinese Managers’ Opinion About Strategy Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) Interviews Results and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix: Three Representations for a Corporate Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

To convince employees to implement the organizational strategy is a pervasive issue in organizations: how can the communication of a corporate strategy be enhanced so that employees are committed to it? A recent experimental study found that visual representations can improve attitude toward the organizational strategy, and that a visual format improves employees’ intention to comply with the strategy only in the West but not in China. In order to explore the reasons why Westerner and Chinese subjects were found to have differing behaviors related to J. Ge (*) · H. Xu Business School, Central University of Finance and Economics, Beijing, China e-mail: [email protected] S. Bresciani Institute for Media and Communications Management – MCM, University of St. Gallen, St. Gallen, Switzerland e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_2

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strategy commitment (despite having similar attitudes), we set up a qualitative study based on interviews with 51 managers in a Chinese company. The outcome suggests that Chinese employees have a slight preference for a visual format of strategy communication, but that they would comply with the strategy in any format it is presented - because it is the duty of the top managers to develop the strategy. These results differ substantially from Western employees, which need to be persuaded by the strategy to be committed to implement it. Keywords

Strategy communication · Cross-Cultural management · Visual mapping · Strategy implementation · Strategy representations

Introduction: Why This Chapter Matters? Typically, corporate strategy is communicated in a textual format with a bulleted list of corporate objectives. Oftentimes it is conveyed as a presentation slide with bullet points. How can the communication of a corporate strategy be enhanced? Research evidences show that knowledge visualization formats can help to solve several knowledge-related problems in organizations. In particular, it has been proven that visual representations can improve the attitude toward strategy in the West and in China. However, it was found that the representational format improves employees’ intention to comply with the strategy only in the West but not in China. As it is known that societal culture has relevant effect on management and communication, it is necessary to explore the reasons for these differences in the effects of visual communication in Chinese organizations.

Overview of the Chapter: Communicating the Corporate Strategy Textually and Visually in China Based on the Geography of Thought concept (Nisbett 2003) and on the framework of knowledge visualization (Eppler and Burkard 2007), it has been hypothesized that strategy communication can be improved by utilizing a culturally appropriate visual representation for the mapping of the strategic goals (Bresciani et al. 2014). As it is demonstrated that mapping concepts visually (with text and icons) improves understanding and engagement, a laboratory study compared the performances of European and Chinese students exposed to a textual or visual representation of a corporate strategy. Results confirmed that visualization improved the attitude of all subjects (European and Chinese); however, the attitude had no effect on the commitment to implement the strategy for Chinese subjects. In order to explore the reasons why Westerner and Chinese subjects were found to have differing behaviors related to strategy commitment, we set up a qualitative study based on interviews with 51 managers in a Chinese company. The outcome of the interviews suggests

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Fig. 1 Overview of the chapter

that Chinese employees have a slight preference for a visual format of strategy communication and that they would comply with the strategy in any case because it is the duty of the top managers to develop the strategy and the communication format. These results differ substantially from Western employees, which need to be persuaded by the strategy to be committed to it (Li et al. 2010). An overview of the chapter is provided in Fig. 1.

(1) Visual Representations in Organizations Visualization originally emerged in computing science as “visualization in scientific computing” in the 1980s. In addition to the development of data visualization and information visualization, knowledge visualization was brought up by Eppler and Burkard in 2004. In their definition, knowledge visualization is a systematic approach which examines the use of visual representation to improve the management of knowledge in organizations. It “designates all graphic means that can be used to construct, assess measure, convey, or apply knowledge (i.e. complex insight, experiences, methods, etc.)” (Eppler and Burkard 2007, p. 112). In short, knowledge visualization tools make visible what people know, and could be used on all level, such as at personal, interpersonal, team, organizational, interorganizational, and societal level (Eppler and Burkard 2007). Knowledge visualization means mapping concepts graphically, by structuring text and visuals in a meaningful way. The theoretical basis of knowledge visualization are found in the picture superiority effect of images over text (Snodgrass and Vanderwart 1980), which has been widely acknowledged and used in practice. The framework for knowledge visualization developed by Eppler and Burkard (2007) includes the following five perspectives: “1) Content: what type of knowledge is visualized? 2) Purpose: why should that knowledge be visualized? 3) Targeted group: for whom is the knowledge visualized? 4) Communicative situation: in which context should it be visualized? 5) Methods: how can the knowledge be represented?” (Eppler and Burkard 2007, p. 113). This framework

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guides the application of visualization in knowledge management according to the knowledge that is visualized, the knowledge management objective, the target group, and the application situation. According to the framework, knowledge visualization formats consists of “seven main groups: structured text/tables, mental (non-material) visualization and visual storytelling, heuristic sketches, conceptual diagrams/concept maps, visual metaphors, knowledge maps, and interactive graphic environments” (Eppler and Burkard 2007, p. 114). Knowledge visualization differentiates itself from information visualization as well as data visualization regarding objects, purpose, methods, and interaction types (see Table 1). Communication is a two-way process of seeking mutual understanding: participants do not only exchange information, ideas, and feelings but also create meaning. In business, communication is a relevant duty for managers: in fact, an organization cannot operate without communication between levels, departments, and employees. According to the Shannon Weaver model of communication developed in 1949 (Shannon and Weaver 1949), the process of communication involves a sender, the act of encoding, a channel through which the message is sent, the act of decoding, and a receiver. Later the model has been integrated to include also “noise” that can disturb the communication and “feedback,” which can be sent back from the receiver to the sender. Communication issues are particularly relevant to consider in the context of strategy implementation. In fact, the most frequently observed problem which impedes strategy implementation is communication (Alexander 1985; Peng and Litteljohn 2001). During strategy communication, the information about strategy are asymmetric between senders and receivers, as senders (which is usually the top management) and receivers (the employees) are at different hierarchical levels in the company. Top management teams spend considerable resources on the development of the corporate strategy (Wang 2009). Henry Mintzberg said that “there is perhaps no process in organizations that is more demanding of human cognition than strategy formation” (1977, p. 38). However, strategies are not always implemented smoothly even in the Table 1 Comparison of data visualization, information visualization, and knowledge visualization

Objects

Data visualization Numerical data

Information visualization Numerical and nonnumerical data To create approaches for conveying abstract information in intuitive ways

Purpose

To create visual representation of data, via statistical graphics, plots, and information graphics

Methods

Computer graphics, computer images

Computer graphics, computer images

Interaction types

Human-computer interaction

Human-computer interaction

Knowledge visualization Human knowledge To improve the creation and transfer of knowledge in groups Knowledge maps, sketches, metaphors, etc. Human-human interaction

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best companies. Knowledge visualization emerges as a potential solution to the crucial problem of strategy implementation in organizations. In fact, research evidence shows that people can memorize 80% of what they’ve seen, while only 30% of what they’ve read and 10% of what they’ve heard (Bruner 1979). Pictures and images are more likely to be remembered than words: this advantage of visual over textual (or verbal) information is theorized by the so-called picture superiority effect (Snodgrass and Vanderwart 1980): pictures have advantages over words because pictures are coded more easily. This effect has been applied in education (O’Donnell et al. 2002; Suthers 2005) and communication (Sojka and Giese 2006). In management sciences, researchers have examined visual practices in a number of contexts: timelines (Yakura 2002), process maps (Fenton 2007), visualization for problem-solving (Tversky 2005), visual strategizing (Platts and Tan 2004), and visual meeting facilitation (Eppler and Burkard 2007). In the specific context of strategy communication, evidence shows that utilizing visual representations of strategy can improve the communication of business strategies (Kernbach et al. 2014).

(2) Visual Representations and Strategy Communication Across Cultures Societal culture has a relevant effect on management practices (Adler 1983) and on communication (Samovar et al. 2011). Social psychology scholar Richard Nisbett proposed the principles of Geography of Thought (2003), which assumes that the human behavior is a function of culture. By analyzing the differences between Asia and the West, Nisbett found that reasoning patterns of East Asian are based on relationships and put more emphasis on the context, while Westerners prefer abstraction and categorizations. This principle has been applied to visual communication in experimental studies: it was found that East Asians group visual elements based mainly on similarity, while Westerners group visual items mainly based on abstract categories (Nisbett 2003; Masuda and Nisbett 2006). Additionally, the concept of the Geography of Thought finds confirmation also in business context. In a study comparing the grouping preferences of business diagrams across cultures, it was found that Chinese business students clustered the visual stimuli based on their similar visual characteristics, while European subjects predominantly grouped diagrams based on their purpose (Eppler and Ge 2008). In the specific context of strategy communication, we have previously conducted a study which showed that utilizing a visual representation of strategy can improve the cognitive and affective attitude toward strategy compared to textual strategy communication (Bresciani et al. 2014) in Europe and China. More specifically, through a lab experiment conducted among European and Chinese college students, we also addressed the cross-cultural differences in the reception of corporate strategy communicated visually. The experiment showed that both Europeans and Chinese have a more positive attitude toward the strategy when the content is visualized, compared to when the strategy is communicated in a textual format.

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However, when exposed to a visual representation of the strategy, Europeans are more committed to it (compared to when they are exposed to the textual version of the strategy), while Asians are not. Chinese display equal commitment to the strategy independently of the format in which it is presented and independently of the attitude toward the strategy. It seems that Chinese would comply with the strategy independently of their attitude toward it, while Europeans are more committed when they have a more positive cognitive and affective attitude toward the strategy (Bresciani et al. 2014). These intriguing findings call for a deeper and more qualitative investigation of the motivations of Chinese employees toward strategy implementation and their relation to strategy representation. In order to fill this gap, the present study deploys qualitative methodologies to explore potential moderating factors that can affect the effectiveness of different strategy communication formats for Chinese employees’ commitment to the strategy: an investment management company in Beijing provides the context for the investigation of the issue.

(3) Research Model and Methodology: Fieldwork on Chinese Managers’ Opinion About Strategy Communication The fieldwork builds on our previous research on visual representations of strategy (Bresciani et al. 2014). It proposes to qualitatively explore the motivations that lead to the unexpected results we found in the experimental study, such as the lack of significant difference in commitment to strategy implementation for Chinese students despite the more positive attitude toward the strategy when it is represented visually. We propose to explore a number of potential moderators: the subjects’ background (such as age, gender, work experience, and education), subjects’ knowledge of strategy and of business diagrams, and the channels which are used to communicate the strategy. Figure 2 provides a graphical depiction of the research model that guides our investigation: the linear model corresponds to the research model adopted in our previous research, while the potential moderators are highlights as they are the main focus of the present investigation.

Fig. 2 Research model

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Table 2 Research design and logic connection

Method Setting Objective

Experimental study (Bresciani et al. 2014) Lab experiment Students from Europe and China taking to an artificial task Measuring the effect of visualization of strategy on attitude and the intention to comply with it

Fieldwork (present study) Face-to-face semi-structured interviews Chinese investment management company Exploring the relevance of contextual factors as moderators of communication format on the intention to implement the strategy

The connection and comparison between the previously conducted experimental study (Bresciani et al. 2014) and this current fieldwork is showed in Table 2. The exploratory fieldwork is conducted in an investment management company based in Beijing. Face-to-face interviews were conducted with 51 subjects in total: 45 employees, 5 top managers, and 1 board chairman. The interviews consisted of a first phase with semi-structured questions on strategy communication; secondly, each interviewee was exposed to visual stimuli (Comi et al. 2014). They were requested to choose one among three different representations of a corporate strategy (with the exact same content); the three representations of strategy are exactly the same as utilized for the experimental study (Bresciani et al. 2014). More specifically, the exact same (artificial) corporate strategy is provided in (1) a typical textual representation (in bullet-point format) and two visual representations: a timeline (which is an abstract and linear representation) and a mountain visual metaphor (which is a metaphorical and more concrete representation). The difference among the three representations consists in the visual background and the distribution (or mapping) of the text on the page (see Appendix Figs. 3, 4, and 5 and the explanation provided in Bresciani et al. 2014). Nisbett’s theory of the Geography of Thought has proven solid to predict crosscultural preferences related to analytic versus metaphoric communication; thus, we had predicted (Bresciani et al. 2014) that Chinese should prefer the visual format of the metaphor (Design 3), while Westerners should prefer a more analytic visual format such as the timeline (Design 2). In our previous study (Bresciani et al. 2014), we found a confirmation of these assumptions for European participants but not for the Chinese students: Chinese participants’ intention to strategy implementation was not linked to their attitude toward the strategy nor to its representation format. The purpose of the interviews is to obtain information on the context of strategy communication in the analyzed company, with questions that focus on (1) background of each subject regarding education, work experience, demographic details, etc.; (2) comprehension of business diagrams, skills of graphic tools, and knowledge about corporate strategy; (3) the occasions, channels, and problems related to strategy communication in the company; and (4) if the interviewee would comply with the corporate strategy if his suggestions are not incorporated into the strategy

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which is communicated. This last question was not asked to the board chairman since his suggestions will certainly be incorporated in the strategy.

(4) Interviews Results and Analysis We present separately the results of staffs and team leaders (n = 45) (Group 1), top executives (n = 5) (Group 2), and the company board chairman (n = 1) (Group 3). The descriptive statistics of interviewees is showed in Table 3.

Interviews with Group 1 The demographic characteristics of Group 1 are the following. The average age is 35; more specifically 31 of them have 5–10 years of work experience, and 9 of them are in mid-career with the title of department (team) leader. All have bachelor degree or above, among which 66% majored in business-related areas. Thus we conclude that most of interviewees are knowledgeable about corporate strategy and have acquired some skills in the use of business diagrams and presentation tools. The most cited channels of strategy communication in the company are the annual conference, the annual report, and executive speeches, besides the internal email system. Few communication obstacles are found in case company, and some of them have been invited to join in the discussion of strategy planning. As for the choice of strategy representation, 21 interviewees selected the visual representation of strategy in the form of the timeline (Design 2), for cognitive reasons, and because they perceived it as vivid and enlightening. The textual format was chosen by 19 interviewees (Design 1): most of the reasons being that typical text is clear and is simple to understand. Some interviewees claimed that it directly conveys the key points of the strategy, which is consistent with their cognitive models. In total, five people chose the visual format with the mountain trail metaphor Table 3 Descriptive statistics of interviewees Number Average age Gender Education

Work experiences

Position

Group 1 45 35 19 females 26 males 11 bachelor 32 master 2 Ph.D 15 years 5 36 staffs 9 department (team) managers

Group 2 5 41 2 females 3 males 1 bachelor 3 master 1 Ph.D 15 years 2

Group 3 1 47 1 male

Top executives (VP or equivalent)

Board chairman

Master

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(Design 3) for the reason that they found the strategy representation so entertaining and insightful. It needs to be mentioned that four out of the five people that chose the visual metaphor have less than 3 years’ work experience. When asked about their commitment to implement the strategy, the interviewees’ opinion is that strategy making is a duty for top executives; therefore, half of interviewees claim that they would comply with the strategy no matter what kind of content or of strategy representation format is used.

Interviews with Top Managers In the analyzed company, 80% of top-level managers have master degree or above; some have also relevant academic achievements and have studied and worked abroad for years. The company is operating in the high-tech investment field with remarkable performances; thus, it can be assumed that its top managers have a wealth of industry experience. Out of the five top managers interviewed, four have good skills in utilizing graphic tools, while one interviewee reported that he could use those tools, but he does not feel skillful. They are familiar with the common channels of strategy communication from their previous experiences, such as printed newsletter (employee magazine), meeting rooms and hallway posters, management and team meetings, emails or intranet communications, and even town hall meeting (which is rather uncommon for domestic Chinese firms). To be involved in strategy planning is one of their responsibilities. When asked to select their preferred representation of the strategy, three interviewees (out of five) selected Design 2, the visualization in the form of a timeline, as it shows clear responsibilities among strategic business units and seems actionable. They perceived that more and more visual tools are used in recent year inside and outside the company. The remaining two interviewees choose design one – the textual version – for strategy representation because they thought simple is powerful. They believe that the other two designs – especially the metaphor – are attentionattractive but could lead to different understanding. Interview with the Board Chairman The Board Chairman Mr. Bai is heavily involved in the process of strategy development, and his opinion is obviously relevant for the strategy. He insists that the strategy which needs to be regularly communicated with employees is the short-term one. Mid-term and long-term strategy goals are set according to the company’s mission and vision, and oftentimes it needs to be amended by the board of shareholders when the operation environment changes. The strategy development process in the case company is top-down, which implies the board of shareholders and executive managers are the leading figures during strategy formation. According to Mr. Bai’s perspective, strategy communication works rather smoothly within his company. Mr. Bai mentions two additional channels for strategy communication compared to what was already mentioned by his colleagues: training sessions and workshops for mid-level managers, which enable ideas from different hierarchies to reach consensus in company. He believes that usually the term of training makes people

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think about capability improvement, but this is just one side of the coin. When a strategy is launched, the priority for strategy implementation is employees’ competence in the new tasks. Therefore training sessions or workshops act as channels of strategy communication. However, only few employees could sense it. About the choice of strategy representation, Mr. Bai prefers design one, the typical textual template, to express short-term strategy in the annual conference, rather than the two visual maps. He thinks that textual representation intuitively conveys information and that the strategy goals can be directly perceived, which is helpful for understanding, memorizing, and putting them into action. Mr. Bai suggests to Chinese practitioners to be careful in utilizing metaphors because they tend to cause ambiguity during strategy communication. However other types of visual representations, such as fishbone diagrams, Gantt charts, mind maps, and so on, are often utilized for routine presentation and meetings in the company.

Summary of the Results To sum up, the study shows that a slight majority of interviewed subjects prefer the visual representation of the strategy for cognitive and affective reasons. More specifically, among the 51 interviewees (at all company levels), 24 preferred the timeline visual format, 5 selected the visual metaphor (for a total of 29 employees choosing a visual format), and 22 subjects preferred the typical textual representation (Table 4). The reasons given by the interviewees for the choice of a visual format include “it is clear,” “it is simple to understand,” “it is convincing, encouraging and inspiring,” and so on. However, the interviews indicate that for half of the subjects, the format which is used to communicate the strategy is not relevant. In other words, whichever type of strategy representation (textual or one of the two visual) was chosen by the interviewees, there is no connection to the intention to comply with the strategy. According to the model outlined in Fig. 2, we have explored the potential role of a number of additional variables. We found that the visual metaphor was preferred by younger subjects with few years of work experience. The sample also showed a good knowledge of both strategy communication and business diagrams; thus, subject’s knowledge does not seem to affect the results. Further quantitative studies are necessary to test the moderating effect of age and years of work experience on the effectiveness of visualization. How China Differs In this study we have reported on the experience of conducting fieldwork in a Beijingbased company on the topic of strategy communication. The aim was to learn about Table 4 Distribution of choice of strategy representations

Design 1: Textual representation Design 2: Visual representation in the form of a timeline Design 3: Visual representation in the form of a mountain trail metaphor

Group 1 19 21 5

Group 2 2 3 0

Group 3 1 – –

Total 22 24 5

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the environment of strategy communication, the preference for the representation (textual or visual) of strategy communication, and the attitude toward strategy implementation. In the analyzed company, strategy communication works well: strategyrelated information are transferred timely via different media. As for the choice of textual or visual representations of strategy communication, only 5 out of 51 interviewees prefer the visual mountain metaphor, which is contradiction to what has been predicted based on the Geography of Thought (Nisbett 2003). Nisbett’s theory was developed in the personal communication context, and not specifically for organizational communication, nor for visual mapping. From the results of our study, it seems that metaphorical visual communication is not perceived as appropriate as predicted in Chinese corporate environments. However, only an experimental field study could confirm if this perception is actually accurate: several studies have demonstrated that subjects are not accurately predicting communication’s effects (Ariely 2008; Bresciani and Eppler 2009). Furthermore, we found that most of the interviewees would like to engage in the strategy even they don’t understand nor agree with it. This is a core difference compared to the Western corporate word, where employees need to be convinced and engaged for getting their buy-in. We believe these results are relevant to show the differences in Chinese Management. Below we elaborate more in details on these differences. Visual Metaphors for Strategy Communication Metaphors provide “the path from the understanding something familiar to something new by carrying element of understanding from a mastered subject to a new domain” (Eppler and Burkard 2007, p. 117). That is why Aristotle calls the metaphor a tool of cognition. However, visual metaphors sometimes work as a double-edged sword because of their ambiguity. In conclusion, based on these preliminary results, managers are advised not to use visual metaphors for organizational communication in China, while they can find benefits in utilizing more analytic visual diagrams. Secondly, the demographic characteristics of the respondents should be taken in to account: younger employees might have more need of – and a more positive attitude toward – visual representations as they are born in the digital age which is predominantly visual (Neher 2013). Attitude Toward Strategy Implementation The interview results show that Chinese employees would commit to implement the company strategy, regardless to their attitude toward it. The reasons for it might be related to the culture of obedience to authorities and to the steep hierarchy in the organization. In the investigated company, many employees think it is top managers’ role to develop the strategy, while employees should comply with it. We cannot exclude that in the future, this situation may vary when the generation of post 90s walks into the workplace: The newly emerging workforce grew up in a transforming society, so do their attitude toward authorities and hierarchy. Chinese managers are thus advised to consider the issue of employees buy-in when they work with Westerners and with the Chinese youngest generations.

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(5) Conclusions The present study is intended as a follow-up of a lab experiment we conducted (Bresciani et al. 2014) comparing European and Chinese subjects. This study partly corroborates the results of the lab experiment by finding that the type of strategy representation deployed does not have a relevant impact on intention for half of the Chinese managers. In addition, it sheds light on which potential moderators and contextual variables can affect the effectiveness of strategy communication format. The sample is limited to employees of a single company: this choice is suitable for liming confounding effects but limits the application of the results to different industry settings. Due to qualitative methodology employed, the study provides first explorative evidence of the issue, but cannot prove the reasons of the effects of strategy representation on the intention to implement the strategy. Future research should investigate the topic in a quantitative study, considering the contextual factors that emerged from this study, such as the different attitudes of employees at low versus high positions within the company hierarchy and of young versus experienced employees.

Appendix: Three Representations for a Corporate Strategy See Figs. 3, 4, and 5.

Fig. 3 Design 1: Textual representation

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Fig. 4 Design 2: Visual representation in the form of a timeline

Fig. 5 Design 3: Visual representation in the form of a mountain trail metaphor

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Anticorruption Campaign and the Value of Political Connection Peixin Li

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Conceptual Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Background of the Chinese Anticorruption Campaign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Should We Think About a Firm’s Political Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Implications on Firm Value and Their Political Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why It Concerns Management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Insights from Statistical Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measures and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Did Firms Look Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Did the Anticorruption Campaign Change the Value of Political Connections? . . . . . . How Did the Anticorruption Campaign Change Corporate Political Strategy? . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Political environment has significant effects on the competitive environment of firms. In response to this, many firms adopt active corporate political activity to shape government policy in ways favorable to themselves. There are important political events in 2016. First, the United Kingdom European Union membership referendum result was announced on June 24, 2016, and United Kingdom will withdraw from the European Union. This is widely known as Brexit. Second, Donald Trump was elected in November 2016 to be the next United States president, while before the election, Hilary Clinton was in a favorite position. Both Brexit and the United States presidential election surprised the global markets and had significant impacts on the world politics and economy. We P. Li (*) School of Business, Central University of Finance and Economics, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_3

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also see firms change their operation to respond: Global financial firms may move their European headquarters from London to other European countries, and many business leaders visited the Trump Tower to talk to the United States presidentelect. It is documented that on average the stock price increased on the day when their CEOs visited the Trump Tower (See the news report by CNBC on January 11, 2017. The news can be accessed here: http://www.cnbc.com/2017/01/11/ stock-market-trump-tower-visits-prove-profitable-for-corporate-ceos.html).

Introduction Political environment has significant effects on the competitive environment of firms. In response to this, many firms adopt active corporate political activity to shape government policy in ways favorable to themselves. There are important political events in 2016. First, the United Kingdom European Union membership referendum result was announced on June 24, 2016, and United Kingdom will withdraw from the European Union. This is widely known as Brexit. Second, Donald Trump was elected in November 2016 to be the next United States president, while before the election, Hilary Clinton was in a favorite position. Both Brexit and the United States presidential election surprised the global markets and had significant impacts on the world politics and economy. We also see firms change their operation to respond: Global financial firms may move their European headquarters from London to other European countries, and many business leaders visited the Trump Tower to talk to the United States president-elect. It is documented that on average the stock price increased on the day when their CEOs visited the Trump Tower (See the news report by CNBC on January 11, 2017. The news can be accessed here: http://www.cnbc.com/2017/01/11/stock-market-trump-tower-visitsprove-profitable-for-corporate-ceos.html). Corporate political activities can take many forms such as lobbying, contributions to politicians, joining the ruling party, joining the government, hiring former or current politicians, public relations advertising, and bribery (Hillman and Hitt 1999). One popular corporate political activity is to establish political connections such as joining the government or the ruling party, or hiring former or current politician. Studies document that these political activities are widely used across firms in many different countries (Faccio 2006). The value of being politically connected has long been recognized by corporations. Corporations can benefit from their political connections in many ways, such as lower taxation, relaxed regulatory oversight, or preferential treatment by state-owned enterprises (SOEs) and competition in government contracts. The value of political connections is likely to be dependent on the political environment just like what is happening in the United Kingdom and the United States. China is currently undergoing a far-reaching anticorruption campaign. The anticorruption campaign started following the conclusion of the 18th National

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Congress of the Communist Party of China in November 2012. It is reported that more than 200,000 politicians and officials have been indicted for corruption. The campaign is part of a much wider drive to clean up malfeasance within the Party and to improve the image and leadership of the Party. As of early 2017 when we work on this article, the campaign continues to plow ahead without any signs of letting off. The extent and reach of the campaign is unprecedented and has surprised many people. There is no doubt that the campaign is having and will continue to have significant influence on China’s political system. However, little is known about how this will affect the value of corporations’ political connections and how corporations should respond to this in reformulating their corporate political strategies. In this chapter, we investigate these questions by evaluating the data on Chinese listed firms, to shed light on the importance on changing political environment on corporate political strategies. We also discuss the implications for businesses in China and around the world.

A Conceptual Overview In this section, we first discuss the institutional background of the Chinese anticorruption campaign, followed by a more detailed discussion on a firm’s political strategy. Then, we will discuss the implications which we will test in later sections.

The Background of the Chinese Anticorruption Campaign Corruption in China has grown significantly since the economic reform in the late 1970s and early 1980s. Over the past four decades, corruption has widely spread to the Chinese political system and has a far-reaching impact on the business environment. In the recent past, China has consistently been ranked below average across all the governments around the world in terms of control of corruption. Widespread corruption is considered, by people from both inside and outside the ruling Chinese Communist Party, as a threat of the legitimacy of the Party. The anticorruption campaign was initiated in order to crack down corruption and to regain legitimacy of the Party. On November 15, 2012, Xi Jinping took China’s leadership and became the General Secretary of the Chinese Communist Party during the 18th National Congress. Soon after taking office, Xi emphasized his determination to fight against official corruption followed by series of related regulations. On December 4, 2012, the Party announced the “Eight-point Regulation” which provides guidance to eliminate corruption and is considered as the beginning of the anticorruption campaign. China’s leaders before Xi also made anticorruption efforts. However, none has ever been as intensive and extensive as this anticorruption campaign. Xi argued that corruption was the major threat to legitimacy and survival of the Party and targeted both “tigers and flies.” For many people, the intensity and extensity of this

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anticorruption campaign are far beyond their expectations. By the middle of 2016, the anticorruption campaign has investigated and removed more than 200,000 officials from their office, of which hundreds are ranked at the ministry level or above. Scholars also document evidence on the effectiveness of this anticorruption in cracking down corruption in China. Qian and Wen (2015) find that China reduced imports of luxury goods, suggesting bribes and luxury consumption by government officials plummeted due to the anticorruption campaign. Lin, Morck, Yeung, and Zhao (2016) find that Chinese stocks reacted positively at the announcement of the “Eight-point Regulation” and more for private-owned enterprises than state-owned enterprises. They also find that firms spent more on entertainment and travel costs, a proxy for investment in connections, gained less. This suggests that firms that replied more on political connections before the anticorruption campaign were hurt more relative to firms which replied less on political connections.

How Should We Think About a Firm’s Political Strategy? A fundamental tenet is that resources a firm has are the major source of their competitive advantages (Wernerfelt 1984). In order to gain competitive advantages, a firm has to own resources that other firms do not have and cannot imitate. Otherwise, firms cannot make money and survive for long. Firms can be proactive in building up their resources to obtain and maintain their competitive advantages. Correct political strategy can lead to valuable resources, which can lead to superior profitability for a firm. The institutional environment, especially the political environment, a firm operates in affects the value of political resources a firm owns. The importance of the institutional environment on firm value has been widely established. One reason that Douglas North received the Nobel Prize was because of his contribution to the so-called Institutional Economies. Related theory argues that economic behavior is shaped by institutional environment. Institutions dictate the rules, both the formal legal rules (established by regulatory institutions) and the informal social norms (normative and socio-cognitive institutions) that govern both individual and structural social behavior (North 1990). The institutional theory emphasizes the importance of the context of business activities. Especially, it highlights the role of the government in shaping the institutional environment. Government policies are significant determinants of the political stability of a country, the effectiveness of a government operation, regulatory quality, and control of corruption. All of these factors are important for corporate decision making. The value of firms’ resources is context dependent. If a firm’s major competitive advantage comes from government’s regulation which limits the entry of potential competitors, policy liberalization will reduce the value of this firm. If a firm’s major competitive advantage roots in its connections with an important political figure, stepping down of this political figure may destroy firm value. If a particular form of

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Political Connections

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Firm Value

State Ownership

Political Environment Fig. 1 The conceptual framework

political strategy is less valuable, firms may reduce the usage of it and search for alternative strategies. Based on the above analysis, we propose a framework with which we will analyze the effect of the change of political environment on firms’ political strategy, as shown in Fig. 1. We argue that political connections a firm has are an important component of corporate resources, and its value to the firm depends on the political environment. A shift in political environment will change the value of political connections, and proactive firms may adapt their political strategy by adjusting the strength of political connections.

The Implications on Firm Value and Their Political Strategies We expect the tightening control on corruption will affect the value of political connections to firms and also affect their corporate political strategies. Specifically, we expect, in the anticorruption campaign period, the value of political connections are lower than the preanticorruption campaign period, and firms should reduce their use of political connections. In other words, we expect that firms will gain less from their political connections and will reduce their usage of political connections. This may happen for two reasons. First, facing a higher probability of being caught, government officials are less likely to pursue actions or policies that favor a particular group of firms relative to others in the anticorruption period. Second, firms are less likely to keep existing relations with government officials or to build up new political connections, because of the concerns that government officials may be investigated and related firms may also be investigated. One important characteristic of the Chinese economy is the prevalence of SOEs. Among the listed firms which our analysis will be based on, SOEs accounted for 50% of all the listed firms and their total assets are more than two-thirds of all the total assets of the whole public-listed sector due to their larger average firm size. We argue that SOEs are different from non-SOEs, and in particular, their reactions to the

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anticorruption campaign may also be different. First, a significant fraction of SOEs are politically connected even no one in their top management team has ever worked in the government or held any political positions. Second, a large fraction of SOEs are semi-political organizations, and their purpose is beyond profit maximization. For example, relative to other firms, they care more about employment rate. Government also treats SOEs differently, for instance, to give them cheaper credit or more government procurement. Overall, the benefits the SOEs can get from political connections may be lower than non-SOEs. Therefore, we expect the abovediscussed effects should be stronger among the non-SOEs and should be weaker or even nonexistent among the SOEs. In section “Key Insights from Statistical Analyses,” we investigate to see whether we do see these happening in the real world.

Why It Concerns Management? Corruption can be costly for both firms and the economy as a whole. Very often, government officials have discretionary power with regulations, and they may ask a “price” from firms for relaxed regulation or strengthened regulation to their rivals. Cumbersome and dishonest bureaucracies may delay the distribution of permits and licenses, thereby slowing down business activities. In corruptive societies, government officials have incentive to seek rent (Shleifer and Vishny 1994), which will increase the costs of doing business in an economy. To make things worse, government officials may exploit a country’s regulatory burden to maximize the bribes they can extract. Corruption-prone government officials may “design” the nature and amount of harassment on firms to charge them by their ability to pay. In the extreme, if government officials can say no to approval of a project, they can work as a monopoly to extract all the rent and leave nothing for entrepreneurs. Corruption also tends to hurt innovative activities because innovative activities need government-supplied goods, such as permits and import quotas, more than established activities. First, innovators may be disadvantaged relative to established firms because of lack of political connections or other political resources. Second, innovative activities are new and government officials may have more discretion over them and can extract higher rent. Third, innovators may be more financially constrained than established firms and they may not have financial resources to pay bribes (Murphy et al. 1993). Economists and political scientists have shown that corruption has negative effects on economic growth, business development, domestic investment, and foreign investments. Different from the above view, some scholars argue that corruption may be desirable under some situations. Corrupt practices may speed up business processes by paying government officials to avoid bureaucratic delay or to circumvent excessive regulations. Corruption may also incentivize government officials to work harder if they can gain more from more prosperous economy. Based on the above discussion, it is clear that managers should take the extent of corruption of a political system into account when making corporate policy.

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Corruption payment should be taken into account when evaluating the profitability of a new project. Political resources a firm has should be assessed relative to a firm’s competitors, as political resources can be valuable for competition in corruptive economy. The Chinese anticorruption campaign increases the risk that government officials face when taking bribes. It changes the corruption level of the Chinese society. We investigate the value of a particular political strategy in the next section via large sample statistical analyses and also show evidence how firms adapt their political strategy in the new environment. Our study will also reveal whether the anticorruption campaign is effective. We believe this is useful for businesses which do business in China or plan to do business in China.

Key Insights from Statistical Analyses Measures and Data In this chapter, we focus on one type of corporate political strategies: political connections. We measure the strength of a firm’s political connection as the number of politically connected top managers and directors it hires. One is considered to be politically connected if he/she was currently or formerly a government officer of either the central government or a local government, an officer in the military, a member of the National People’s Congress or a member of the Chinese People’s Political Consultative Conference. The National People’s Congress is the national legislature of China. Under the current Constitution, it is structured as a unicameral legislature, with the power to legislate, the power to oversee the operations of the government, and the power to elect the major officers of the state. The Chinese People’s Political Consultative Conference is a political advisory body in China. It consists delegates from a range of political parties and organizations, as well as independent members. The role and powers are analogous to an advisory legislative upper house. Members of the National People’s Congress and members of the Chinese People’s Political Consultative Conference are widely considered as influential political positions in China. Positions ranked lower than the county level are not considered as politically connected. Our analyses focus on public traded firms because we do not have information on other firms’ managers or directors. We manually collected top management team member and board member data from firms’ annual reports. Chinese listed firms adopt a two-tier board structure: a board of directors and a supervisory board. Members of both boards are appointed and need to report to the shareholders. The role of board of directors is somewhat similar to the one we see in Western countries. Management team makes daily operation decisions, while board of directors is in charge of strategic decisions including the appointment of top managers. The role of the supervisory board is almost purely supervision and it alone cannot make any firm operation decision. Members of both boards are considered as important figures for firms, can advise firms in operations, and also contribute political connections.

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We obtain profile information from the “Profile of Directors and Senior Managers” section of the companies’ annual reports. In addition to their names, the profile typically contains information on age, gender, education, professional background, and employment history. From the profile, we trace top managers’ and directors’ political connections. Almost all the firms reported the biography of their top managers and directors in their annual reports. We obtain the information on Chinese public listed firms from the China Stock Market & Accounting Research (CSMAR) database. The CSMAR database contains the annual accounting information and stock price information for all the Chinese public firms. SOEs are controlled by the government. The government may appoint politicians, either current or former, to be a top manager or a director. In some cases, the top managers of an SOE may be considered as very similar to government officials. Chairmen of the largest Chinese SOEs, such as Sinopec and Industrial and Commercial Bank of China, are ranked at the vice minister level and very often they are from the government and they will return to the government after their term in the firms. Because of the differences in the SOEs and non-SOEs, we do all of our analysis separately for them. The information on the ownership status of firms is also from the CSMAR database. A firm is defined as state-owned if its controlling shareholder is the government, either the central government or the local government or firms controlled by them. The anticorruption campaign was initiated at the end of 2012. We therefore focus on the period from 2010 to 2014. This is roughly two years before the campaign and two years in the campaign. We focus on this relatively short window because other factors may change in longer windows. When we write this article, firm level data for 2015 are not completely available yet. Our analysis will focus on comparing the differences in the two periods. We measure political connections for a firm by counting the number of top managers and directors (both the board of directors and the supervisory board). We measure firm performance by return on total assets (ROA) which is defined as net income dividend by firms’ total assets. To facilitate comparison, we focus on a group of firms which we have data for the whole sample period from 2010 to 2014. Therefore, we delete firms which conducted their initial public offerings (IPO) in this period and a few firms which were delisted from the stock exchanges.

How Did Firms Look Like? Table 1 shows the average number of politically connections and the average ROA for all the firms: Panel A for SOEs and Panel B for non-SOEs. In this sample period, in total there are 2153 publicly listed Chinese firms. A total of 1123 of them are controlled by the government and are classified as SOEs. The remaining 1030 firms are classified as non-state-owned. The state-owned and non-state-owned firms are roughly half and half of the sample. Out of the 1123 SOEs, 725 firms had at least one top manager or director who had political connections at the end of 2012 when the anticorruption campaign was initiated. Out of the 1030 non-SOEs, 583 had at least

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Table 1 How did firms look like? Panel A. SOEs Average Politically connected Nonpolitically connected Panel B. Non-SOEs Average Politically connected Nonpolitically connected

Number of firms

Number of political connections

ROA (%)

1123 725 398

2.01 2.76 0

3.20 5.29 3.88

1030 583 447

1.26 1.94 0

4.09 4.34 3.67

one political connection. Across all the firms, 1308 has at least one political connection. This was around 61% of the listed firm population, suggesting the prevalence of the strategy of hiring political connected people into firms. The ratio is 65% for SOEs. It is slightly higher than that of the non-SOEs, which is 57%, suggesting that SOEs are more likely to be politically connected. State ownership was also significantly correlated with the number of political connections and types of political connections. On average, one SOE had 2.01 political connections and one non-SOE only had 1.26 political connections. Number of political connected top managers (including executive directors) is 1.00 and 0.70 for SOEs and non-SOEs, respectively. Number of politically connected independent directors is 0.33 and 0.11 for SOEs and non-SOEs, respectively. Number of politically connected supervisory board members is 0.68 and 0.45 for SOEs and non-SOEs, respectively. Overall, the evidence shows that relative to other firms, SOEs are more likely to have political connections from the three groups of top managers or directors. We also observe that, in terms of number of political connections, top managers contributed the most, followed by the supervisory board the second, and the independent director group contributed the least. In our sample period, on average, Chinese publicly listed firm made 3.63% return on assets. The SOEs made 3.20% ROA on average, while the non-SOEs made 4.09%. This is consistent with the widely documented phenomenon that SOEs perform worse relative to non-SOEs. One possible reason for this performance discrepancy is that the corporate governance of the SOEs is worse due to the fact that SOEs’ ownership is so diverse that investors do not have incentive to monitor managers.

How Did the Anticorruption Campaign Change the Value of Political Connections? If the anticorruption campaign reduced the value of political connections, we should expect that the performance of firms with more political connections decreased more than other firms in the anticorruption campaign period. We sorted all the firms by their political connection status at the end of 2012 and track their average ROA from

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a 0.05

ROA

0.04 0.03 0.02 0.01 0

2010

2011

2012 Year

Non-Politically Connected

2013

2014

Politically Connected

b 0.06 0.05 ROA

0.04 0.03 0.02 0.01 0

2010

2011

Non-Politically Connected

2012 Year

2013

2014

Politically Connected

Fig. 2 The change of return on assets. Panel A: SOE. Panel B: non-SOEs

2010 to 2014. Firms with at least one politically connected top managers or directors are classified as politically connected firms and others are classified as nonpolitically connected firms. Figure 2 reports the average ROA of firms sorted by their political connections. As we can see from Fig. 2, for both the SOEs and the non-SOEs, politically connected firms performed better than nonpolitically connected ones. ROA of politically connected firms is around 1.3% and 0.6% higher than nonpolitically connected ones in the preanticorruption period for the non-SOEs and SOEs, respectively. Considering that the average mean of ROA is around 3–4%, 1.3% and 0.6% difference are not small. What is more interesting is that the performance difference between politically connected firms and nonpolitically connected firms became smaller in the anticorruption period. Specifically, the differences were 0.55% and 0.13% for SOEs

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and non-SOEs, respectively. The change for the SOE group was only 0.02%, very close to zero. However, the change for the non-SOE group was 1.17%, which was a large change. Actually, for non-SOEs, the difference of ROA for politically connected and nonpolitically connected firms in the anticorruption period disappeared almost completely. Overall, the evidence shows that the value of political connections is lower in the anti-corruption period than in the preanticorruption period, and especially so for non-SOEs. These findings confirm the predictions we discussed in sections “How Should We Think About a Firm’s Political Strategy?” and “The Implications on Firm Value and Their Political Strategies”: the value of political connection is dependent on the political environment and this relationship is moderated by the state ownership status of the firms.

How Did the Anticorruption Campaign Change Corporate Political Strategy? In this section, we try to answer the question whether the anticorruption campaign changed corporations’ political strategy. Specially, we investigate whether firms reduced their hiring of politically connected top managers or directors. And if so, was the reduction larger for SOEs than non-SOEs? Figure 3 presents the results. Panel A reports the results for all the firms, and Panel B reports the results for SOEs and non-SOEs separately. We also add a line to show the difference between SOEs and non-SOEs in Panel B. The average number of political connections for a firm was 1.66, 1.66, 1.65, 1.59, and 1.34 from 2010 to 2014. The average number is roughly constant from 2010 to 2012. It started to decrease in 2013 which was the first year of the anti-corruption campaign. The reduction was more pronounced in 2014, probably because that was when firms started to realize that the anticorruption campaign was more extensive than expected. The average number of political connections was 1.26, 1.26, 1.26, 1.22, and 1.04 for non-SOEs from 2010 to 2014. The average number of political connections was 2.02, 2.02, 2.01, 1.93, and 1.61 for SOEs. For both groups of firms, the average number of political connections kept constant in the period before anticorruption campaign. It started to decrease in 2013, but the decrease was much more pronounced in 2014 than in 2013. These observations are consistent with our hypothesis which argues that firms should reduce the usage of political connections in the anticorruption period, because the value of political connections was lower. Looking deeper to the differences between SOEs and non-SOEs, we also see another interesting finding. On average, SOEs always had a larger number of political connections than non-SOEs from 2010 to 2014. The differences were 0.76, 0.76, and 0.74 from 2010 to 2012. The difference was constant in the period before the start of the anticorruption campaign. The difference started to decrease in 2013 when it decreased to 0.71 and further reduced to 0.57 in 2014. This shows that relative to SOEs, non-SOEs decreased their number of political connections more. This provides evidence for our predictions in sections “How Should We Think

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Number of Political Connections

a

Number of Political Connections

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1.7 1.6 1.5 1.4 1.3 1.2 1.1 1

2010

2011

2012 Year

2010

2011

2012 Year

2013

2014

2.5 2 1.5 1 0.5 0

SOEs

non-SOEs

2013

2014

SOEs minus non-SOEs

Fig. 3 The change of political connections. Panel A: Average number of political connections for all firms, by year. Panel B: Average number of political connections for SOEs, non-SOEs, and their difference, by year

About a Firm’s Political Strategy?” and “The Implications on Firm Value and Their Political Strategies”: firms’ corporate political strategy is dependent on the political environment, and this relationship is moderated by the state ownership status of the firms.

Summary We summarize our main findings here. 1. On average, state-owned enterprises had a larger number of politically connected top managers and directors than non-SOEs. 2. On average, SOEs performed worse than non-SOEs.

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3. On average, firms with political connections performed better than firms without political connections. 4. The performance difference between politically connected firms and non-politically connected firm decreased in the anticorruption period, especially so for non-SOEs. 5. Given the decrease in the value of political connections, firms reduced their political connections, especially so for non-SOEs. Overall, the evidence confirms our four hypotheses about the value of political connections and corporate political strategies.

Concluding Remarks In this chapter, we investigate how the Chinese anticorruption campaign affected the value of political connections to public listed Chinese firms and how firms adjusted their corporate political strategy. We find that the anticorruption campaign reduced the value of political connections. In response, firms decreased their political connections. Our evidence suggests that political environment is an important factor affecting the effectiveness of firms’ political strategies. Firms should take this into account when forming their optimal political activities. Our study has strong and timely implications for corporations. When we write this chapter, the anticorruption campaign is still ongoing and there is not much sign of weakening. Even a smaller number of high profile government officials were investigated in 2016, we expect that the anticorruption attitude and determination of President Xi Jinping’s administration is likely to continue. The spirit of the anticorruption campaign will persist into the future. Our findings that political connections are less valuable in the anti-corruption campaign period suggests that firms with political connections may have been competing with other firms with some help from their political connections. If anything, this seems to be related to corruptive behaviors of government officials. With the anti-corruption campaign going on, the difficulty of bribery-for-favoritism increases and firms are less likely to gain from their political connections. We believe that overall, this change is beneficial for the Chinese economy. Firms now can compete by focusing more on economic weapons rather than trying to gain unlevel playing field by building up political connections. Corporate political activities can take other forms besides hiring politically connected top managers and directors. Due to data limitation, we cannot observe other forms of political activities. We conjecture that firms may develop other forms of political strategy or start to rely more on other forms of political strategies which are less affected by the anti-corruption campaign. We expect that, if the anticorruption campaign continues, we expect to observe the change of corporate political strategies.

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Acknowledgments We are grateful to the Research Grants Council of Natural Science Foundation of China (71302127 and 71772196), Young Elite Teacher Project of Central University of Finance and Economics (QYP1606), the Fundamental Research Funds for the Central Universities, Program for Innovation Research in Central University of Finance and Economics, The Special Research Fund for the Doctoral Program of Ministry of Education (20130016120001) and The Ministry of education of Humanities and Social Science project (17YJC630062).

References Faccio M (2006) Politically connected firms. Am Econ Rev 96(1):369–386 Hillman A, Hitt M (1999) Corporate political strategy formulation: a model of approach, participation, and strategy decisions. Acad Manag Rev 24(4):825–842 Lin C, Morck R, Yeung B, Zhao X (2016) Anti-corruption reforms and shareholder valuations: event study evidence from China, NBER working paper no. 22001 Murphy K, Shleifer A, Vishny R (1993) Why is rent-seeking so costly to growth? Am Econ Rev Pap Proc 83(2):409–414 North D (1990) Institutions, institutional change and economic performance. Cambridge University Press, Cambridge Qian N, Wen J (2015) The impact of Xi Jinping’s anti-corruption campaign on luxury imports in China, Yale working paper

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Achieving Competitive Advantage Through Strategic Job Design: The Case of Service Sector in China Lin Lin

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Job Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linking to Strategic Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifying Strategic Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizing Strategic Job Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cases in China: Haidilao Hot Pot Chain Restaurant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hot Pot Industry in China: Flourishing Yet Competitive Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haidilao: Starts Small, Grows Fast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy of Haidilao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Job Design in Haidilao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implications from Haidilao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

This chapter suggests that strategic job design can be adopted to foster the strategic capabilities of a firm, facilitate strategy implementation, and ultimately achieve competitive advantage by integrating strategic human resource management (SHRM) and job design literature. This study proposes a three-phase scheme for managers for implementing strategic job design: (a) to delineate what strategy the firm enacts with its related strategic capabilities for strategy realization, (b) to distinguish strategic jobs from nonstrategic jobs based on the criteria of strategic impact and performance variability, and (c) to organize strategic job characteristics that empower employees in those strategic jobs to strategically affect firm performance. Using the case of Haidilao Hot Pot, this L. Lin (*) Business School, Central University of Finance and Economics, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_4

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work demonstrates how firms can apply techniques to structure the characteristics of strategic positions such that employees are motivated and enabled to contribute to the strategy execution. Keywords

Strategic human resource management · Strategic job design · Service sector

Introduction Scholars and practitioners of strategic human resource management (SHRM) have assumed a firm’s human resources as an important potential source of sustained competitive advantage. Although many studies have indicated that investments in firm’s human capital are paid back in terms of firm-level outcomes (Combs et al. 2006), researchers continue to establish casual links. Becker and Huselid (2006) proposed that the realization of strategic capabilities is the key mechanism through which a firm gains its competitive advantage. Therefore, human resource management (HRM) practices should be aligned with a firm’s strategic capabilities to improve business process effectiveness and ultimately to become the source of a firm’s competitive advantage. Given that strategic jobs contribute disproportionately to the realization of strategic capability, Becker and Huselid (2006) insisted that HRM practices would maximize the strategic effect revolving around them. Following this line, the current chapter further proposes that strategic job design can be adopted to turn investments in HR system into the competitive advantage of firms. In this chapter, strategic job design is introduced by integrating SHRM and the job design literature. Next, a three-phase scheme is proposed for managers to implement strategic job design. Furthermore, by using Haidilao Hot Pot chain restaurant as a case, the author demonstrates how firms in the service sector can use strategic job design as a means of achieving competitive advantage. Lastly, the chapter concludes by discussing the implications of strategic job design for firms in the service sector.

Strategic Job Design A central theme of SHRM is to demonstrate that investments in a firm’s human capital, which strengthen the competencies, motivation, and performance of employees, would be paid back in firm-level outcomes (Combs et al. 2006). Although the link between HRM system and firm performance has been established (Combs et al. 2006; Huselid 1995; Liao et al. 2009), scholars have been struggling to elaborate on the mechanisms through which investments in HRM system enhance firm performance. Becker and Huselid (2006) argued that HRM practices could have strategic effect only when such practices were aligned with firm’s strategic capabilities to improve the effectiveness of strategy implementation. More specifically, they

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stated that HR practices could maximize their strategic influence only when they are invested in strategic jobs, which contribute disproportionately to a firm’s strategic capabilities. Consensus has long been reached in job design literature that a job could serve as a source of strategic effects (Conger and Kanungo 1988; Grant 2008; Spreitzer 1995). By structuring and modifying the features of a job, managers can improve employees’ motivation, performance, and well-being, and ultimately direct their efforts toward organizational goal attainment. Therefore in this chapter, the author integrates SHRM and job design literature to further propose that HRM practices should revolve around the design of strategic jobs. In doing so, managers can maximize the effect of HR investment on a firm’s strategic capabilities. Strategic job design is the process of how strategic jobs are structured and modified to drive strategic capabilities and to contribute to a firm’s competitive advantage. It starts by defining a firm’s strategic capabilities through which HR system influences strategy execution. A few jobs that substantially affect a firm’s strategic capabilities are then identified as strategic. Finally, strategic jobs are structured, enacted, and modified so that the investments in these jobs can be transformed into a firm’s strategic capabilities.

Linking to Strategic Capabilities Strategic capabilities are a bundle of tangible and intangible resources that a firm processes for strategy implementation (Becker and Huselid 2006). Strategic capabilities are usually manifested as a set of firm-embedded, firm-specific, and identifiable strategic business processes. A firm can only gain its competitive advantage by maximizing and utilizing its strategic capabilities. For example, the competitive advantage of Walmart, that is, providing its customers the widest choice of products for the cheapest price, stems from its capabilities in synthesizing logistics, just-intime order delivery, store location selection, and close relationships with and bargaining power over suppliers. Thus, HRM investment in either of these processes can potentially have a strategic effect because such practice is aligned with the strategic capabilities of Walmart and is likely to enhance business process effectiveness.

Identifying Strategic Jobs Among many jobs or positions in a firm, not all contribute equally to the realization of strategic capabilities. A few jobs in a firm often contribute more than others. Strategic jobs are jobs that disproportionately contribute to the effective implementation of firm’s strategic capabilities (Becker and Huselid 2006). HR practices could achieve optimal strategic effect when they are invested in strategic jobs. Each job is then evaluated based on its contribution to the enhancement of strategic capability. Strategic jobs could appear at any firm level, but they all share

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two primary characteristics. First, they have strategic impact. Strategic jobs directly affect the capability of a firm to execute its business strategy. Second, the variance of incumbent performance in strategic position is usually substantial. Collectively, a job that significantly affects strategic capabilities and has a wide range of incumbent performance would disproportionately affect firm performance. More specifically, whereas top performers in this position considerably contribute to a firm’s outcomes, the poor performance of incumbents disproportionately damages the strategic capability of firms.

Strategic Impact Evaluation of a given job focuses on its influence on a firm’s strategic capabilities. As previously mentioned, in Walmart, jobs embedded in core business processes (i.e., logistics, supply chains, and store location assessment) are significantly likely to be identified as strategic because of their direct association with the competitive advantage of Walmart. By contrast, although a friendly and efficient cashier can enhance customer satisfaction, the checkout counter is not seen as a strategic job, because it will not significantly affect the strategic capabilities of Walmart. Recognizing that different jobs might have differentiated contributions across various strategic capabilities within the same firm is important. Three questions are relevant to this evaluation process. 1. Which specific strategic capability is this job mostly associated with? 2. What role does this job take in acquiring the specific strategic capability? Specifically, which strategic business process does employee performance of this job affect most? 3. Does this job affect more than one strategic capability?

Performance Variability In identifying strategic jobs, measuring performance variability, which is the range between high and low performance among all incumbents occupying the same role, is vital. The practical technique is to sort them by performance and divide them into four quartiles. After doing so for all jobs identified as strategic, those with high performance variability become evident. High performance variability prompts the necessity and opportunity for improvement. When all employees perform at a high level within this given role, minimal opportunity exists for real strategic effect through HRM practices. However, if a job directly affects strategic capabilities and simultaneously demonstrates dramatic differences in the performance of job incumbents, then adequate room for intervention exists. Investment in performance improvement for strategic jobholders has a more significant return, compared with that of nonstrategic job holders. Thus, the marginal benefit of investment in strategic job positions is larger than that of nonstrategic counterparts. Clearly, managers should pay increased attention to the performance improvement of strategic job incumbent. To summarize, a few jobs with high strategic effects and wide range of incumbent performance are identified as strategic jobs. Strategic jobs contribute to the

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realization of strategic capabilities disproportionately due to the strategic effect and performance variability.

Organizing Strategic Job Characteristics After identifying the strategic jobs from the job pool of a firm, managers could highlight and promote the strategic effect of HRM practices and that of their own work by strategically allocating HRM investments to those strategic jobs. In this chapter, the author suggests that managers consult job design literature and practice guidance on how to design strategic jobs. Job design has long been and continues to be one of the fundamental themes for the microlevel research and practice in management (Grant et al. 2011). Job design refers to the processes and outcomes of how jobs, tasks, and roles are structured, enacted, and modified (Grant and Parker 2009). Job design aims to improve the motivation, performance, and well-being of employees. Accumulated evidence has indicated that job design significantly influences the behavioral, psychological, and physical outcomes of individuals. Next, the author will elaborate on the top-down and bottom-up approaches of strategic job design. These two approaches differ in their directions and actors. Managers adopt the top-down approach to design the features of strategic jobs. Simultaneously, employees can also exert their upward influence by making their jobs significantly strategic. Nevertheless, both share one common characteristic, that is, the aim to structure and modify jobs for them to have substantial strategic effect.

Top-Down Approach Top-down approach means that managers utilize legitimate influence to structure or modify the features of strategic jobs. Traditional job design research has provided valuable frameworks on what and how to do guidelines. Among them, Hackman and Oldham’s (1975) job characteristics model (JCM) is the most influential theoretical model. JCM focuses on five core job characteristics, namely, skill variety, task significance, task identity, autonomy, and feedback. A given job characterized by the above-mentioned features could enhance the intrinsic motivation, satisfaction, and performance of employees, as well as decrease absenteeism and turnover by fostering experiences of meaningfulness, responsibility, and knowledge of results, especially for those with strong needs for accomplishment and personal growth. Recently, scholars have extended the scope of JCM and have included the social context of work to the relational perspective (Grant and Parker 2009; Parker 2014). Relational perspective indicates that the work motivation, experience, behavior, and performance of employees are not only influenced by features of the job itself, as JCM suggests, but also shaped by interpersonal relationships and social interactions. Relational perspective emphasizes the social and relational characteristics of a job, social mechanisms through which job design influences the behavior of employees, social factors that moderate the effects of job design on behaviors, and social

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outcomes of job design. The four types of social characteristics are social support, interaction outside the organization, interdependence, and feedback from others. Relational perspective makes a key theoretical contribution by revealing the social mechanism through which job design influences employee behavior (Parker 2014). Social characteristics of jobs strengthen the prosocial motivation of employees other than intrinsic motivation. Preliminary empirical evidence indicates that providing employees with opportunities to interact with customers or beneficiaries enhances the prosocial motivations of employees, which in turn increase levels of customer orientation, job effort, persistence, and performance (Grant 2008; Grant et al. 2007; Liao and Subramony 2008). Based on these two major job design frameworks, the author proposes the following three tactics in designing strategic jobs that managers could adopt. Highlighting strategic significance. In strategic job design, the task significance for a given job is evaluated based on its effect on a firm’s important business outcomes. Strategic value is expected to ultimately be reflected in a firm’s performance indicators such as profit, market share, growth, shareholder return, and return on investment. However, given that firm performance is influenced by many factors other than the individual performance of a given job, focusing on intermediate outcomes, such as effectiveness of strategy implementation and strategic capabilities, is practical. Consequently, scholars and managers have found that understanding what strategic effect jobs can have and how that effect works through the strategy implementation process is necessary. Creating appropriate interdependence among strategic jobs. Interdependence is the extent to which employees depend on each other to complete their work. When more than one strategic job is associated with the same strategic capability, then the interdependence among these jobs is a key feature in strategic job design. In this case, realizing strategic capability is a function of joint effectiveness of all jobs involved. Interdependence takes two forms. Sequential interdependence occurs when the output of one position in the whole process serves as the necessary input for the operation of the next position. Reciprocal interdependence happens when employees of different positions rely on each other for necessary inputs to effectively carry out tasks and responsibilities of their own. Bearing in mind the interdependence between strategic and nonstrategic jobs. Certain jobs, which are not closely related to the implementation of a firm’s strategic capabilities, are regarded as nonstrategic. Nevertheless, all jobs contribute to a firm; otherwise, they would not exist at all. More often than not, nonstrategic positions support or facilitate the performance of strategic roles. Sequential and reciprocal interdependences exist between strategic and nonstrategic jobs. Managers should bear in mind what those nonstrategic jobs can provide to help the operation of strategic roles.

Bottom-Up Approach Although managers use job design as the channel to achieve top-down control, employees can take initiative to shape their jobs to have strategic effect. The bottomup approach is consistent with the newly developed proactive perspective in job design research (Grant and Parker 2009; Parker 2014).

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Both JCM and relational perspective assume that whereas managers are responsible for designing jobs for employees, employees passively carry out jobs and tasks structured and assigned by managers. By contrast with this viewpoint, proactive perspective emphasizes how employees take initiative to shape their own job design and work context and how these can be structured to facilitate initiative. Employees are well-documented to actively engage in job crafting or to voluntarily partake in shaping and redefining the boundaries of their jobs to improve their work experience, to search for meaning of their work, to enhance person-job fit, or to gain resource in the job, provided that opportunities are offered (Wrzesniewski and Dutton 2001). Managers can also structure jobs, roles, and tasks to encourage and support employees to take initiative and actively shape their work tasks and contexts. Job design characterized by autonomy, ambiguity, and accountability are likely to stimulate proactivity among employees. Autonomy enables employees to build confidence in their capabilities and empowers them with discretion to carry out a wide range of tasks and responsibilities effectively. Ambiguity is the presence of uncertain or equivocal expectations, whereas accountability is the responsibility to justify one’s actions when prompted by a situation wherein taking initiative is necessary. Whereas autonomy enhances can-do motivation, ambiguity and accountability generate the reason or the reason-to-do motivation to be proactive (Parker et al. 2010). By bringing the proactive perspective, job design is no longer construed as a static source of constraint and top-down control but rather a starting point for employees to demonstrate bottom-up influence. Employees who want to yield strategic effect within the firm can use multiple strategies to exert their upward influence. Strategic scanning and issue selling are among the most influential behaviors employees could employ. Strategic scanning. Employees could proactively understand a firm’s strategy and its supporting measures so that they can identify ways to ensure a fit between the strategy and the purpose of one’s own position. Alternatively, they may identify ways the organization might respond to emerging markets or actively search the environment for future organizational threats and opportunities. As a result, they can have a clear understanding of the firm’s environment and prepare themselves well for future challenges. Issue selling. Employees could also take a step further to influence the strategy formation in a firm by making decision-makers aware of key trends, developments, and events associated with their own job. Influencing a firm’s strategy formation by giving time, energy, and effort into behaviors to ensure key decision-makers are aware of issues is effective.

Cases in China: Haidilao Hot Pot Chain Restaurant This study examines whether strategic job design really help organizations gain competitive advantages, and if it does, how is it practiced. Haidilao Hot Pot Restaurant is used as an example to elaborate on this issue. With strategic job design,

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Haidilao implements a customer-oriented strategy successfully to outperform its rivals and transform itself into a highly recognized dining enterprise. The catering industry of China is dynamic and heavily competitive. Unlike western chain giants, the life expectancy of a Chinese restaurant is less than 3 years. In China, very few restaurants manage to operate in the full scale of modern corporations. However, Haidilao stands out as an exception. The business was so successful that on June 23, 2007, 200 regional managers from Yum! paid an on-site visit to observe and learn how to improve their service management. At that time, Haidilao possessed less than 20 restaurants total nationwide, whereas Yum! is one of the world’s largest restaurant enterprises which owned KFC, Pizza Hut, East Dawning, and Little Sheep stores in the country. Zhang Yong, the founder and chairman of Haidilao, stated that, “It is like the elephant learning from an ant.” Therefore, how did Haidilao grow from a small local eatery to a modern catering chain company and excel from the rest among intense market competition? What role did strategic job design play along the way? Furthermore, how is strategic job design practiced to win competitive edge?

Hot Pot Industry in China: Flourishing Yet Competitive Market As the economy of China grows rapidly, so is China’s catering industry. In the past decade, catering services in China have maintained a double-digit growth, outstripping other major markets and showing extraordinary resilience in time of declining GDP growth. According to the data released by the China Cuisine Association, the revenue of the national catering industry in 2015 reached 3.23 trillion RMB ($467.9 billion), with an annual growth of 11.7%. As the spending power of the middle class increases, the frequency of eating out also rises. An increasing number of people are going out to restaurants, cafes, and teahouses for everyday meals and gatherings with friends or relatives. This phenomenon spurred the substantial development of dining services. Meanwhile, under rapid urbanization, the booming of commercial districts and shopping malls treat good catering services and restaurants of unique character as a major selling point to attract consumers. Therefore, the catering industry underwent rapid and sustainable progress. Nevertheless, China’s catering industry is fiercely competitive. Despite the rapid growth of catering companies over the recent years, 30% of restaurants and eateries went bankrupt in 2015 alone. The catering market is fragmented, with few dominant large-scale regional players. In addition, given the vast geography of China and different taste preferences across diverse regions, the market competition becomes highly complex. In major cities, people are substantially open to various types of cuisines, leading to an environment where regional specialties and branding are important. Within China’s catering industry, the hot pot sector has made great leaps particularly. As an essential part of Chinese dining culture, hot pot is distinguished from

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other traditional Chinese cuisine. Often consumed together with large parties of friends and family, diners sit around a single pot of boiling soup and actively participate in the cooking process by dipping different manners of preprocessed vegetables and meats into a simmering soup to cook. Diners wait for the ingredients to absorb the distinct flavors in the cooking process before fishing out the cooked ingredients and eating them with all kinds of dipping sauces. Through this blend of active participation in a portion of the cooking experience and time available for socializing, the format became popular with consumers. Meanwhile, the do-ityourself style means that the quality of food does not heavily rely on chefs, making hot pot possible for an increased degree of standardization. Consequently, the business model of hot pot restaurants resemble that of standardized Western fast food chains, with an additional need for great service after food is served. Unlike many other food service formats, the barriers to the hot pot market entry are pretty low, because it does not require a complicated kitchen, as the cooking are conducted mostly by consumers. Therefore, business models are easily replicated, meaning thousands of hot pot restaurants are competing for customers throughout China. For example, the Chaoshan beef trend has swept across the nation within the last 2 years and over 2000 Chaoshan beef hot pot restaurants opened in 2015 alone, yet nearly 40% of them went out of business a year later. Additionally, the rather slow style of hot pot is confronted by changing consumer preferences. Consumers in China are leading increasingly fast-paced lives, and many have little time to dine-out or even to cook at home. As a result, consumers generally move away from fullservice dining toward other options, such as take-out or home delivery. Therefore, a well-designed corporate strategy and excellent execution is essential to survive and break away from this increasingly crowded yet fragmented market. The recipe for the success of Haidilao is its customer-oriented strategy and strategic job design.

Haidilao: Starts Small, Grows Fast With only 10,000 RMB ($ 1476) and 4 employees, Haidilao was founded in 1994 in a small city of China. Owing to its unsurpassable customer service, Haidilao established high brand awareness and achieved radical expansion within a few years. Over the past 8 years, the restaurant has ranked in the Chinese Catering Industry Top 100 and had been chosen as the Most Popular Hot Pot Restaurant from 2008 to 2011 by Dianping (a Chinese review site similar to Yelp). In 2015, its annual turnover approached 7 billion RMB ($1.03 billion), and the total number of employees reached 20,000. By early 2017, Haidilao directly owned 137 eateries in 53 cities across the nation and 8 branches overseas. In addition, Haidilao has seven major logistics centers and two ingredients processing factory in Mainland China. Clearly, Haidilao successfully evolved from a local eatery to a dominant and modern hot pot restaurant chain.

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Strategy of Haidilao How does Haidilao attract regular consumers to continuously dine-in in an already familiar format? More importantly, how does Haidilao contrive to create a sustainable advantage in the hot pot industry where competitors promptly copy anything that works? The secret lies in the vibrant, customer-centric dining experience Haidilao offers and the way it aligns its business model with strategic job design to provide superior experience. When talking about Haidilao, its extraordinary service beyond expectations is always the first thing mentioned. The business developed in all aspects that it can improve customer service. For example, unlike most Chinese restaurants with no place for waiting customers, waiting areas at Haidilao are well designed and decorated. To compensate for the time its customers might spend for waiting tables, Haidilao not only prepares a variety of free drinks and snacks but also offers free WIFI, and even manicures, shoe polishing, and hand massage. During the meal, Haidilao provides plastic bags to protect cell phones from food and grease, offers rubber bands to customers with long hair, and gives eyeglass cleaning cloths to clients with glasses to deal with the fogging issue. After dining, waiters immediately bring gum to the table. Any waiters met on the way out will smile and politely say goodbye. This attention to service helped the chain to cultivate a solid reputation among consumers that support expansion. In the philosophy and practice of Haidilao, service quality is the ultimate standard for business. Employees, especially frontline staff, are crucial resources to achieve competitive advantage rather than just a downstream of organizational strategy. In this sense, cultivating the commitment of employees to high customer service is of prime importance to SHRM practices in Haidilao. Apart from the emphasis on employee recruitment, selection, development, and compensation, Haidilao turned to strategic job design to secure the implementation of its customer-oriented strategy.

Strategic Job Design in Haidilao The idea that a job could serve as a source of strategic effects has already been discussed in job design literature (Conger and Kanungo 1988; Spreitzer 1995) and has been verified by linking job elements to financial outcomes (Grant 2008). The ultimate goal of strategic job design is to implement a strategy effectively by considering strategic capabilities, identifying strategic jobs, and organizing strategic job characteristics. Linking to strategic capabilities. The key difference between the strategic and traditional approaches of job design is found in whether the approach focuses on strategy execution and implementation. Strategic job design emphasizes building competitive advantage as the basis of a sustainable effect on corporation performance. This emphasis means that managers should not only pay attention to job characteristics which may affect job performance but also, more importantly, should concentrate on job elements which may benefit competitive advantage. By adopting

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a strategic perspective, strategic job design extends its scope of influence from the individual level to the organizational level and creates strategic value. Take Haidilao, for example, one of the biggest drivers of its success is its customer-first service provided by engaged employees. Therefore, the major purpose of strategic job design in Haidilao is to develop a proactive and dedicated workforce, which leads to the competitive advantage of the company. Although efficiency of frontline staffs or creativity of chefs does bring some financial value, they are clearly not the primary contributors to the competitive advantage of Haidilao. Identifying strategic jobs. Another key activity of strategic job design is to identify strategic jobs. All jobs are important, but not all jobs are strategic. Strategic effect and performance variability are two major attributes of strategic jobs. Jobs are strategic when they directly and significantly influence the strategic competence of organizations. Therefore, strategic jobs are not fixed to a particular level in organizations, as any kind of job and any level of position could be identified as strategic jobs. Meanwhile, the gap between high and low performers in the strategic role should be enormous to make adequate room for substantial strategic improvement through effective workforce management. Consider the case of Haidilao, its customer-first strategy indicates that it should provide reliable, proactive, considerate, and even personalized service. Delivering on these promises means that a firm should have first-class strategic capabilities in customer-facing service. Positions that touch points with customers strategically influence Haidilao. In addition, these positions could perform variably because service quality heavily depends on employees’ individual differences and organizational context. Hence, the frontline positions in Haidilao should be considered as strategic jobs. Organizing strategic job characteristics. Lastly, strategic job design means increased attention to strategic job components. Traditionally, job design involves the activating potential of job assets, such as skill variety, task identity, task significance, autonomy, and feedback. However, strategic job design emphasizes the work structure that helps create competitive advantages and facilitate strategy implementation. Identifying and organizing strategic job elements are the last pieces of strategic job design. Two means of optimizing job attributes exist: top-down and bottom-up approaches. By adopting top-down approach, managers lead in identifying and organizing strategic job characteristics. When relying on bottom-up approaches, employees also contribute to strategic job design by proactively crafting jobs. For Haidilao, frontline employees are granted with more autonomy than employees of other dining enterprises to respond quickly to unexpected situations mainly caused by customers. They can make their own decisions about whether to offer free appetizers or deductions or even waive the check. Management permission is unnecessary before responding to sudden situations. All they needed to do is fill out a form to explain the circumstances and obtain a signature from the team leader. This empowerment practice in Haidilao reflects the top-down approach of organizing job characteristics strategically, whereas the voice practice reflects the bottom-up approaches. In Haidilao, the suggestions of employees for implementation are collected and evaluated monthly. Ideas adopted would be announced on the internal website and newsletter of the company, and the proposers of the chosen ideas would

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receive cash bonus. Moreover, the frontline staff of Haidilao are encouraged to actively explore their work identity to enhance job meaningfulness, to proactively alter task boundaries to make their jobs go smoothly, and to establish genuine relationships with customers to increase their sense of belonging. By crafting jobs, the fit between employee and job increased, and employee initiative and efficiency in customer interactions also improved. Therefore, organizing strategic job characteristics through top-down and bottom-up approaches greatly strengthened the competitiveness of the corporation.

Implications from Haidilao Despite the fact that the Chinese hot pot industry is fiercely competitive, Haidilao provides a perfect example of managerial practices that build competitive advantages based on strategic job design. By linking strategic capabilities, identifying strategic jobs, and organizing strategic job characteristics, Haidilao manages to deploy its organizational competencies to execute its strategy effectively. This three-step framework not only works in Haidilao but also can be applied in other organizations. When considering the case of Xiabu Xiabu hot pot chain restaurant, the setting of strategic job design is different. Instead of the differentiation strategy adopted by Haidilao, Xiabu Xiabu has been fully committed to cost leadership strategy that helps the chain restaurant stay ahead of competition. Accounting for 52% market share within the fast casual hot pot segment, Xiabu Xiabu revamps the traditional hot pot concept into a quick-service setting to meet the needs of highly modern consumers. To achieve cost leadership strategy, Xiabu Xiabu strives to find a way of sustainably cutting costs below those of other competitors. For example, U-shaped bars instead of tables allow 30% higher density of seating yet flexible space requirement remains available. Each caterer can simultaneously serve 20 customers with efficiency, and only 3 caterers are needed in a regular store, resulting in decreased labor cost and increased table turnover rate. Individual DIY hot pot caters to both solo dinners and smaller groups flexibly. Minimal food processing and serving significantly low capital expenditure per store and facilitate its fast expansion. Therefore, delivering on its operational excellence strategy means providing best-value, reliable, and diversified ingredients. The strategic capabilities that matter most at Xiabu Xiabu involve standardized management controls, optimized procurement, and efficient logistics. Consequently, the strategic positions at Xiabu Xiabu are very likely to be specialists in supply chain management, and the key job component is standardization.

Conclusions By integrating SHRM and job design literature, the author suggests that strategic job design can be adopted to foster the strategic capabilities of a firm and to facilitate strategy implementation. With Haidilao Hot Pot as an example, the study further

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demonstrates how organizations could apply the techniques to structure the characteristics of strategic positions in a way that employees are motivated and enabled to contribute to the strategy execution. Thus, strategic job design process consists of three phases: (a) delineating what strategy the firm enacts and its related strategic capabilities for strategy realization, (b) distinguishing strategic jobs from nonstrategic jobs based on the criterion of strategic effect and performance variability, and (c) organizing strategic job characteristics so that employees in those strategic jobs are empowered to strategically affect firm performance.

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Construction of Corporate Social Responsibility in the Transition Economy of China Shubo Liu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background: The CSR Context and Institutional Changes in the Transition Economy of China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Theory of Chinese Corporate CSR Strategy: The Corporate and Entrepreneur’s Role in China’s CSR Practices Besides the State Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Theory Works: The Instigators of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Firms’ Strategic Responses in Sustainability Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Localizing and Adapting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inducing and Enacting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion and Management Implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Amid increased emphasis on sustainable development, understanding the sustainability initiative and Corporate Social Responsibility practice of companies has attracted the attention of both academia and industry. Innovative CSR practices combine environmental protection and social wellbeing as well as profit for companies. Drawing on institutional theory and employing a case study analysis of representative companies operating in China as an emerging economy, this study examines companies developing their sustainability innovation as CSR projects in a challenging context. A more general conceptual model is developed to illustrate how firms apply strategies of localizing and adapting, engaging and enacting, and dynamically achieve the aim of sustainability development based on a co-evolution mechanism in the interface between institutions and organizations. S. Liu (*) Central University of Finance and Economics, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_5

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Keywords

Corporate social responsibility · Sustainability · Institutional theory · China

Introduction Recently, a different perspective has been accepted to executives, which views corporate social responsibility (CSR) as a competitive edge (Porter and Kramer 2006). In a transition economy like China where the idea of CSR is comparably new, firms in China have different responses to CSR. While some regard environmental protection as a cost driver, others may begin to act as pioneers with strategic thinking to break the path of traditional low cost through an introduction of CSR standards. Why and how could they leverage CSR as a competitive edge in the environment where CSR lacks necessary institutional supports? Under the state’s dominant model of institutional change in China (Naughton 1996; Child et al. 2007), how are they becoming path breakers? How could these path breakers develop their strategic capabilities via CSR as they have been embedded in a rapid institutional change environment? This chapter proposes to present the strategic capacity of Chinese social responsible companies and entrepreneurs in China’s institutional change in the aspect of CSR. The Chinese transition economy and institutional transformation provides a context for these firms to perform and define CSR practices which are of a different style to Western counterparts.

Background: The CSR Context and Institutional Changes in the Transition Economy of China There are growing studies on strategic CSR or innovation CSR which means creating joint economic and social values with the entrepreneurial redesign, systems development, and action. Currently, most well-run companies have adopted the practices and gone through the “defensive” and the “compliance” stages of CSR. Managing the social and environmental footprint of economic activity is generally perceived as part of the cost of doing business. However, in the current stage of China, both the society and business world still have a rather vague understanding of CSR, and most firms following top-down approach regard CSR as a cost driver. In comparison, some other firms operating in China, including both international firms (e.g., DuPont, General Electric, Unilever, etc.) and indigenous firms, begin to act as pioneers to take CSR innovatively to gain competitive advantages. The extant literature on comparative CSR has an assumption that functioning and enabling institutional arrangements, such as strong government, market, and civil society, are necessary preconditions for responsible business practices (Matten and Moon 2008; Gjolberg 2009). Such perspective often implicitly assumes CSR

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initiatives emerge from strong institutional contexts of developed economies. As such, CSR is not likely to occur in a developing economy’s context where conditions and institutional arrangements are weak or absent (Campbell 2007). If we accept such viewpoint, how can we explain the manifestations of (non-philanthropic) CSR in challenging and non-enabling institutional contexts (refer to WEF 2011, for the examples of sustainability champions from emerging markets)? In order to solve this puzzle, it is necessary to investigate how firms pursue and achieve responsible business practices in developing economies. Firms’ sustainability innovation projects, as a representative CSR practice, provide a context for us to focus on the neglected phenomenon in developing countries and good resource of information for us to understand both the initiatives and process of their CSR practices.

The Theory of Chinese Corporate CSR Strategy: The Corporate and Entrepreneur’s Role in China’s CSR Practices Besides the State Institutions There have been a number of companies recognized as CSR pioneers whose CSR projects bring both company profits and social benefits. This is a bottom-up approach compared with the abovementioned government-led one. CSR and sustainability management may provide firms with new opportunities (Dangelico and Pujari 2010). In the literature, this new trend has been referred to as sustainability innovation (Wüstenhagen et al. 2008), which is better-managed innovations that target and integrate more criteria. Innovative CSR products and projects that integrate both environmental and social dimensions are included as types of sustainability innovation. Besides the external regulation/policy pressure and customers’ expectations for a greener brand, or “regulatory pull,” sustainability innovation presents a new source of ideas and visions leading to new business opportunities or “vision pull” (Prahalad and Hammond 2002). The construction of firms’ CSR and sustainability innovation processes provides a window for examining the interaction of environmental factors and organizations’ responses and their proactive CSR practices or strategic CSR.

How Theory Works: The Instigators of CSR In presenting findings from case companies in the field of strategic CSR and sustainability innovation, the influential forces from institutions are firstly considered and then the firm’s responses and interactions during their sustainability innovation process. Study on firms’ proactive CSR projects has revealed that it is necessary to overcome regulative, normative, and cognitive institutions in order to implement the sustainability initiatives in the innovation process. In addition, three broad themes were identified: (1) external “push,” (2) institutional nonconformity, and (3) institutional voids (see Table 1).

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Table 1 Concepts, exemplary quotes, and definitions Concept External “push”

Institutional nonconformity

Institutional voids

Exemplary quotes “The government is happy to see companies conducting sustainability and innovations. . .it is easier to get support from local banks because of the beneficial policies and regulations.” (Landsea) “Consumers’ old living habits become barriers to sustainability innovation products, e.g. consumers have been used to sodium salts and its taste. Healthier food products with less sodium salt are not welcomed by local market.” (Unilever) “Suppliers of qualified recycled packaging products were difficult to find and few understand the importance of environmental protection. . .We spent nearly half a year trying to find a local manufacturer producing green foaming products.” (Mary Kay)

Definition The external push represents the conformity where sustainability innovation ideas/products are adapted to be consistent with established interests, norms, and beliefs in the institutional environment The mismatch between expectations derived from external institutions and the expectations of the internal sustainability innovation

The absence of the importance of sustainability in the normative and cognitive pillars of institution

Firms’ Strategic Responses in Sustainability Innovation Facing the abovementioned institutional barriers or challenges, firms strategically respond in order to implement their innovative design and ideas for sustainability development (see Table 2). Such responses can be categorized into “localizing and adapting,” “engaging,” and “inducing and enacting.”

Localizing and Adapting Conducting CSR practices means integrating environmental and social responsibilities into company strategy at the firm level. And different societies are at different stages in their social and economic development. CSR innovating firms are localizing the innovation by learning and addressing local factors, such as geographic, cultural, and technological, and societal differences, and developing localized sustainability innovation products.

Engaging Engaging is another strategic response. All of the CSR pioneer companies have actively joined and established numbers of communication platforms with

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Table 2 Nonconformity/void examples and firms’ responses in their sustainability innovations Institutional pillars Regulative

Normative

Institutional nonconformity/void Motivating: some new government policies and rising standards for sustainability development, e.g., the Cleaner Production Promotion Law by the National People’s Congress of China as one of China’s key strategies for sustainable development. It is the first national law in the world to establish cleaner production as a national policya Constraining: the dated standards and the rigidity of policies, e.g., the Chinese 3-star certificate for green housing (Chinese LEED)

Company responses in sustainability innovation Conforming: infusing the governmental guideline into corporate EHS (environment, health, and safety) procedure and sticking to it in the process of innovation (Mary Kay, Philips, Landsea) Putting energy efficiency and pollution prevention as the important considerations in new product design and development projects and being consistent with the government direction toward solving social problems with sustainability innovation products (Philips) Following the regulative standards and exceeding: firms treat local regulations/laws as the basic line but pursue innovation products with outstanding sustainability performances (Philips, Unilever, Mary Kay)

Exemplary quotes “China will stop imports and sales of incandescent lamps beginning with 100 W lamps from October 2012. This new policy means opportunities for our LED products and we are developing more innovations with LED technology.” (Philips) “We aim to develop Green Products in these focal areas: energy efficiency, packaging, hazardous substances, weight, recycling and disposal and lifetime reliability. . .the government wants us to be a good example in being green and we try to keep ahead in the field by our green products.” (Unilever) “The government now tries to tackle the poverty problems in China’s remote areas and we are inventing more energysaving and economic products for consumers in those areas.” (Philips) “We are not satisfied with meeting with the governmental regulations and laws. As market leaders, we have higher standards for our own practices.” (Mary Kay) Constraining: in Engaging stakeholders “Although our green structured industries with (such as suppliers, housing is standards set by a wide professional associations, environmentally sound, variety of organizations, universities, media, and but both new and integration of government) to broadcast unproven by the Chinese sustainability concerns firms’ sustainability Building & Construction into moves very slowly innovations, grow public Association. A number of The conventional market awareness, and scholars disagreed with incentive structure does communicate for their our sustainability housing (continued)

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Table 2 (continued) Institutional pillars

Institutional nonconformity/void

Company responses in sustainability innovation

not encourage sustainability innovation

understanding of the importance of sustainability (Philips, Unilever, Mary Kay, Landsea) Collaborating with other big players/competitors: companies join their hands in setting up new norms and standards and push forward practices in sustainability innovation Establishing an incentive structure with and diffusing internal sustainability practices and standards into collaborators and suppliers: selecting suppliers and collaborators based on their sustainability performance and training them to enhance sustainability ability (Philips, Unilever, Mary Kay, Landsea)

Exemplary quotes project. . .we patiently explain our sustainability designs in all occasion not only to the association but also to potential customers, governmental institutions, and medias. . .to let them know both the technological and environmental advantages.” (Landsea) “We will not collaborate with those suppliers without environmentalprotection system.’ (Philips) ‘In search of mutually beneficial relationships, we will award business to those suppliers who are committed to living up to these expectations. As part of this joint approach, we will be there to support our suppliers in cases where they need to improve their performance. Together we will strive for continued improvement. . .Our suppliers also play a pivotal role in helping us achieve our EcoVision objectives. We continue to support them in their efforts to improve the overall sustainability of their business.” (Unilever) (continued)

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Table 2 (continued) Institutional pillars Cognitive

Institutional nonconformity/void Constraining: alternatives to habitual and conventional concerns create resistance because they are outside the norms of people’s norms of cognitive institutions, e.g., in light bulb market, price and quality are primary purchase considerations before energy saving Absence in awareness of sustainability, inertial to think about new ideas for sustainability

Company responses in sustainability innovation Inducing: building connections with and base newness on familiarity – stress on not only the energy-saving or environmental-protection features but also the factors of “functionality” and “comfort” in sustainability innovation (All companies) Adapting: localizing the innovation by addressing local factors, such as geographic, cultural, and technological and societal differences, and develop localized sustainability innovation products (Philips, Unilever, Mary Kay) Enacting: new industrial norms and standards – establishing relationships with education institutions and help them integrate sustainability literacy within existing knowledge and training system. Developing training programs for suppliers and industrial professionals (Philips, Unilever, Mary Kay) Engaging for sustainability: having conference/forums in the topic of sustainability. These events allow participants from a wide variety of backgrounds to establish working relationship, exchange business and client contacts, and, most importantly, think of sustainability and create new ideas (Philips, Unilever, Mary Kay)

Exemplary quotes “Consumers’ old living habits become barriers to sustainability innovation products, e.g. consumers have been used to sodium salts and its taste. Healthier food products with less sodium salt are not welcomed by local market. . . In order to make the consumers accept the healthier products, we try to reformulate recipes with both healthy ingredients and good taste. Our chefs and food technologists are constantly working on and we are making good progress.” (Unilever) “Most people do not buy in green housing idea firstly because of the higher price and secondly because they think sustainability and green factors are too conceptual and not practical. Most consumers are willing to pay a green price premium only if their purchase is rewarded with extra benefits, such as better environment and comfort. . .customers in China and customer from different regions in China have different expectations for our sustainability housing. For example, Chinese customers do not want a rubbish chopper in their house; people from the north especially want the heating system working more efficiently. . .so we are emphasizing on the regional design during our R & D process.” (Landsea)

Information office of the state council of the People’s Republic of China “environmental protection in China (1996–2005),” June 2006. Available at http://www.china.org.cn/english/MATERIAL/170406.htm

a

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governmental and NGO institutions for bringing in and diffusing their sustainability understandings to the policymakers and other stakeholders. Besides engaging by communications, the firms collaborate with their stakeholders and help them embed sustainability into their business during the collaborations. Since CSR refers not only to commercial practice that brings profits and benefits to companies but also to the other stakeholders of the firms, such as environment and society, CSR practice must take a broader consideration in regard to its initiation, design, implementation, and application. There are concepts of organizational learning stressing the influence of internal communications and project work, multi-stakeholder dialogues, partnerships, etc. as critical mechanisms for fostering sustainability innovations. In order to collaborate with stakeholders, all MNCs in the study have established multiple and good relationships with local stakeholders. These stakeholders come from business partners, suppliers, local communities, industrial and professional associations, universities, and government institutions. These local stakeholders often have an advantage over foreign multinationals in dealing with local institutional voids because of their experience and cultural familiarity. The engaging strategy goes beyond public relation events and activities. Instead, the firms have long-term and fruitful relationships with multiple stakeholders. To respond to institutional voids in sustainability, innovating firms also take the framing strategy in their CSR projects. For example, Landsea, the green housing developer, stresses that selling green buildings appeals to conscience first and follows with the data about the benefits for the environment. The company realizes that some people are turned off by the phase “green building” and are much more engaged by framed terms like “comfortable house” or “smart building.” Another way to overcome the nonconformity and the tendency for people to overdiscount the future is to frame sustainability innovation products around an appeal to protect the health and welfare of the next generation.

Inducing and Enacting New norms toward CSR practices are also found to be introduced in and established by the studied firms during their cooperation sustainability and CSR projects with local suppliers. Besides educating suppliers during cooperation, the firms conducting CSR also actively engage in industry programs at the national, regional, and global levels to help the industry as a whole bring about changes toward sustainability. For instance, Unilever launches The Consumer Goods Forum (CGF), which is an industry association that brings together over 400 retailers, manufacturers, service providers, and other stakeholders across 70 countries. The CGF is governed by a board of 50 CEOs from the most important retailers and manufacturers in their industry. This includes major companies headquartered in Europe and America as well as companies headquartered in Asia, Latin America, and Africa. The companies range from global businesses, such as Carrefour, Walmart, Coca-Cola, and Unilever, to national leaders such as Sobeys from Canada and Pick ‘n Pay from South Africa. The CGF aims to

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help the industry improve the way it meets the changing needs of the world’s consumers. It does this through increasing industry collaboration on noncompetitive matters, to bring efficiency and simplicity for consumers, and through supporting the exchange of knowledge and good practices. Unilever CEO Paul Polman sits on the board of the CGF and cochairs the Board Strategy Advisory Committee and the Sustainability “Pillar.”

Conclusion The institutional barriers in sustainability development in China are not only due to ineffective policies in the regulative level but also from the weak norms of sustainability in the market and industries. However, study finds that such challenging institutional context does not necessarily impede pioneer firms’ strategic CSR practices; instead, in the process of CSR and corporate sustainability innovation projects, these firms are able to develop their strategic capacity and competency. In order to create joint economic and social value, certain firms operating in China treat CSR as a strategic recourse, through which they tailor and redesign CSR standard to better fit their own needs. In addition, the sustainability innovations launched by the studied firms have dual novelties: (1) they are novel in the way of embodying new technologies and (2) they are novel in delivering new or different ideas regarding sustainability. In the aspect of CSR and sustainability initiative, firms innovating for sustainability may find themselves pitted against the existing institutional structure because they often lack legitimacy. In order to gain legitimacy, companies firstly need to learn and address the special characteristics of the institutional context. This means that they are embedded in the institutional context. In addition, the study confirms that the institutions for CSR and sustainability are weak and largely absent in China; therefore, in the case of CSR construction process in China, “legitimacy crises” originate more from the institutional void rather than in conflict with wellestablished institutions. What is more, social and economic resources are typically concentrated in the hands of a few who have limited interest in changing the institutional status quo. In most cases, the Chinese government plays a dominant role in institutional development. Under these circumstances, it does not mean that other players have no chance and changes cannot be made. In firms’ strategic proactivity on CSR and sustainability innovation projects, opportunity and interaction are central. Institutional barriers and institutional void provide opportunities for firms to infuse new beliefs, norms, and values into their stakeholders such as business partners and the local government. In responding to the institutional barriers, firms usually start with a clear objective, but how they set about achieving it is via continuous interaction with the greater environment. And opportunities can be created via interaction at the organization-environment interface. In addition, new institutional arrangements can be crafted by taking advantage of institutional voids and negotiating into corporate norms and practices.

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Discussion and Management Implication This study shows that constructing CSR can be seen as result of institutional negotiation conducted by motivated actors with insufficient institutional resources or support. For maintaining their sustainability strategy under the isomorphism pressure, firms should firstly be familiar with or embed themselves into the institutional logics; based on that, firms need to be able to leverage and mobilize support for sustainability practices from very different actors and constituencies with their agency actions. Actions and ideas adapted for CSR practices such as sustainability innovation need to be consistent with established practices and expectations in the market and fit better into established customer norms. Based on analyzing firms’ strategies in their CSR projects, a model for constructing CSR can be developed (see Fig. 1). In the diagram, the organization as a social actor firstly needs to identify the institutional characteristics which influence their CSR practices and adoption. Then, with corporate resources, such as corporate reputation, sustainability culture, and sustainability innovation experiences, they proactively seek institutional support in the local context. By studying the drives, learning, and design process and its design characteristics, three common institutional negotiation strategies have been identified for firms to interact with the external institutional environment: localizing and adapting, engaging, and enacting. These responsive strategies in firms’ CSR construction practices would be seen as a strategic response and movement to institutional context and a reflection of their institutional negotiation ability – a recombining and leveraging of their resources at hand for creatively rearranging the institutions and developing what they need. In the localizing and adapting strategy, because the state plays an essential role in the construction of the regulatory pillar for the construction of sustainability markets, companies conducting CSR projects put much importance on government policies and regulations regarding environmental protection and sustainability. Under the government-led institutional environment, firms also actively search for the institutional jumping-off point to maximize their impact in policies and regulations. In this way, firm’s leading CSR initiatives can be accepted or legitimated by the government, and the green innovation processes can proceed. For localizing, in order to address the triple bottom line as well as seek conformance with the institutional logics (especially the normative and cognitive pillars), firms as embedded actors develop their CSR practices which not only address the factor of sustainability but, more importantly, the factor of functionality. Engaged relationships or networks with stakeholders can provide a platform for the aspiring innovating firms to understand the institutional context. In addition, stakeholder engagement also helps the innovating actors to disseminate their norms and logics for CSR. It is also found that in order to effectively recombine firms’ resources to achieve a long-term goal (in sustainability), CSR and sustainability initiatives are always integrated into firm’s strategy, especially differentiation strategy or for first mover advantage. A clear vision toward sustainability as well as consistent and strong organizational support is critical for CSR practices. In addition, in CSR practices,

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External institutional contexts for sustainability innovation Nonconformity and void in

Interactionin the organization-e nvironment

Institutional logics

Corporate proactivity

Strategic Responses: Localizing& ffusing

Engaging

Enacting

Sustainability innovation / Reflected throughout Strategic CSR Institutional negotiation ability

Fig. 1 Developing sustainability innovation as strategic CSR practice

there is a combined logic from both the CSR expectations and the conventional market needs. The firms taking strategic CSR did not initiate sustainability innovations only to protect the environment but also to explore a new market and increase profits. Finally, the CSR projects investigated are conducted by experienced organizations with espoused commitment to R&D and dedication for sustainability development, which suggests that corporate sustainability can only be part of the solution to enable strategic CSR and sustainability development, and it is necessary to be complemented by the agency of other social actors.

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References Campbell JL (2007) Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Acad Manag Rev 32(3):946–967 Child J, Yuan L, Tsai T (2007) Institutional entrepreneurship in building an environmental protection system for the People’s Republic of China. Orga Stud 7:1013–1034 Dangelico RM, Pujari D (2010) Mainstreaming green product innovation: why and how companies integrate environmental sustainability. J Bus Ethics 95:471–486 Gjolberg M (2009) The origin of corporate social responsibility: global forces or national legacies? Soc Econ Rev 7:605–637 Matten D, Moon J (2008) ‘Implicit’ and ‘explicit’ CSR: a conceptual framework for a comparative understanding of corporate social responsibility. Acad Manag Rev 33(2):404–424 Naughton B (1996) Growing out of the plan: Chinese economic reform, 1978–1993. Cambridge University Press, New York Porter, M. E., & Kramer, M. R. 2006. Strategy and society. Harvard Business Review December Prahalad CK, Hammond A (2002) Serving the world’s poor, profitably. Harv Bus Rev 80(9):48–57 WEF (World Economic Forum). 2011. Redefining the future of growth: the new sustainability champions. Collaboration with Boston Consulting Group, Geneva Wüstenhagen R, Hamschmidt J, Sharma S, Starik M (2008) Sustainable innovation and entrepreneurship. Elgar, Cheltenham

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Corporate Philanthropy in China: Response to Institutional Pressure and Stakeholders’ Requirements Xiaoyuan Liu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theoretical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Institutional Background on Corporate Philanthropy in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Practices of Corporate Philanthropy in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determinants of Corporate Philanthropy in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 1: Non-state-owned Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 2: State-Owned Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 3: Western MNCs in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

As an important component of corporate social responsibility, corporate philanthropy (CP) in the context of developed countries has received increasing attention from scholars in recent years. Little attention has been paid to CP in emerging markets, especially in China. What influences CP decisions and level of giving in China? To answer this question, we integrate stakeholder and institutional theory to identify the particular determinants of CP in China. We develop a conceptual framework of the determinants of CP in China, and find that government (central and local), the media and customers (current and potential) influence enterprises’ donations in China. Moreover, we draw on case studies of three Chinese companies of different ownership type. Our findings generally indicate that CP is a strategic choice that enables Chinese enterprises to achieve a competitive

X. Liu (*) Department of Strategy, Central University of Finance and Economics, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_6

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advantage in dealing with institutional pressure and their various stakeholders’ requirements. We also provide practical implications for Chinese enterprises. Keywords

Corporate philanthropy · Stakeholder theory · Institutional theory · Determinants

Introduction Corporate philanthropy (CP), regarded as an important component of corporate social responsibility (CSR; Carroll 1999), has received increasing attention from scholars in recent years (Gautier and Pache 2015). Prior conceptual and empirical studies on CP have largely focused on examining the relationship between philanthropy and various outcomes, such as shareholder value, financial performance, sales growth, firm reputation, technological innovation, customer attitude, and government support (Williams and Barrett 2000; Wang et al. 2008a; Lev et al. 2010; Wang and Qian 2011; Gautier and Pache 2015). However, compared with the large number of studies on the outcomes of CP, extant research has paid relatively limited attention to the drivers of CP (Dennis et al. 2009; Li et al. 2015). Related studies have documented that CP is determined by a variety of factors, including personal characteristics, resources, ownership structure, board membership, and executive networks (Gautier and Pache 2015). Although these studies have helped us to understand CP activities in the context of developed countries, little attention has been paid to this issue in emerging markets, especially in China. As we know, contextual differences exist between China (i.e., the East) and developed countries (i.e., the West) in terms of institutions and cultural values, and these are manifest in contemporary management practices (Barkema et al. 2015). CP not only affects a firm’s development but also influences stakeholders’ interests. What influences CP decisions and the amount of charitable contributions in China? To answer this question, this chapter integrates stakeholder and institutional theory to identify the particular determinants of CP in China. Moreover, we draw on case studies of three Chinese companies of different ownership type. Our findings generally indicate that CP is a strategic choice that enables Chinese enterprises to achieve a competitive advantage in dealing with institutional pressure and their various stakeholders’ requirements.

Theoretical Background Stakeholder theory assumes that no company can develop without the input and participation of its stakeholders. Stakeholders include not only shareholders, creditors, employees, suppliers, and customers but also the government, the media, the local community, and local citizens (Donaldson and Preston 1995). Thus, for

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enterprises, strategic decision-making needs to consider the diverse expectations of its stakeholders. In addition to stakeholder theory, institutional theory has also widely been used to explain the phenomenon of corporate philanthropy in China (Gao and Hafsi 2015). North (1990, p. 3) defines institutions as “the rules of the game in a society or, more formally, are the humanly devised constrains that shape human interaction.” Institutional theory assumes that the strategies of firms are influenced by the “rules of the game” that are formally and informally enforced by governments and its agents (Peng and Heath 1996; Peng 2002). Institutions usually influence a firm’s strategies and behaviors through regulative, normative, and cognitive channels (Scott 2008). Such institutional factors affect CP activities. As a result, CP decisions reflect the institutional environment in the country. Institutional theory focuses mainly on institutionalized pressure groups and public opinion along with their impact on firm strategy and activities (Oliver 1991; Scott 2008).

Institutional Background on Corporate Philanthropy in China Institutions influence and regulate the CP decisions and behaviors of Chinese enterprises. Three levels of formal institutions are found in China. The first is the Charity Law of the People’s Republic of China, which came into force on September 1, 2016.This is China’s first law regulating the charitable activities of organizations and individuals. The second level includes regulations on the management of donations issued by various government agencies. These regulations are mainly used to govern the charitable activities of firms controlled by the central or local government (Li and Zhang 2011). Therefore, in contrast to non-state-owned firms, those firms owned by the state have less managerial discretion in terms of CP activities (Li et al. 2015). For example, in 2009, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council issued strengthening the management of donations by central state-owned enterprises to monitor the charitable activities of firms controlled by the central government (this document is available on the SASAC website: http://www.sasac.gov.cn). This management regulation requires SASAC approval for donations that exceed certain limits, specifically, RMB 1 million given by firms with net assets of less than RMB 10 billion, RMB 5 million donated by firms with net assets of between RMB 10 and 50 billion, and RMB 10 million from those firms with net assets of over RMB 50 billion. According to this regulation, local SASACs may also formulate and issue management regulations on donations by local state-owned enterprises to govern the charitable behaviors of firms controlled by local governments. Thus, CP activities of state-owned enterprises are strictly controlled by various government agencies. The third level refers to the management regulations of donations developed by firms themselves. Some enterprises, particularly listed companies, have formulated management regulations of donations to monitor their own CP decisions and activities. In 2013, only 2.6% of companies listed in the A-share stock market in China implemented donation regulations (this document is available at http://fund.cnfol.

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com/130502/105,1484,15000068,00.shtml). However, recently, more and more enterprises are doing so in order to regulate their CP decisions. Informal institutions, such as traditional culture, may also influence CP decisions and behaviors of Chinese firms. Traditionally, the Chinese are deeply affected by Buddhist, Daoist, and Confucian philosophies (Wang and Qian 2011). Therefore, they highly praise compassionate behaviors such as donating to charity, and the Chinese stakeholders of enterprises are more likely to accept those firms that contribute generously.

Current Practices of Corporate Philanthropy in China As the largest developing country in the world, China is now in a stage of economic and social transition. CP plays an important role in redistributing social resources, easing social conflicts, promoting social equity, and developing public relations. Therefore, with the development of China’s economy, enterprises pay more attention to charitable activities, and more and more enterprises are actively engaged in it. In November 29, 2016, the China Charity Federation issued the Annual Report on China’s Charitable Donations for the year 2015. The report shows that all corporate donations combined amounted to RMB 78.385 billion in 2015, accounting for about 70.7% of total donations made, signifying that corporations are still the main source of domestic donations. In 2015, charitable donations from private companies maintained a growth trend, accounting for more than 50% of the proportion of corporate donations. Meanwhile, in the same year, the proportion of donations by state-owned enterprises rose to 32.77% from 20.99% in 2014. The donations made by foreign-owned companies operating in China declined significantly, accounting for only 12.99% of total corporate donations in 2015, which was mainly due to the overall reduction in profits caused by global economic fluctuations. Table 1 presents the specific data of corporate donations in China from 2011 to 2015. As it shows, enterprises have become the primary provider of China’s charitable donations. Corporate donations continued to rise from 2011 to 2015, exceeding 50% of donation totals. Among other types of enterprises, private companies have been the main source for corporate donations, and state-owned enterprises also play an increasingly significant role in corporate donations.

Determinants of Corporate Philanthropy in China Key stakeholders influence the decision-making of enterprise donations in China, with the Chinese government actually playing an important role in firms’ CP decisions. First, the Chinese government is more greatly involved in the charity sector than the government of other countries (Li et al. 2015). In particular, the civil affairs department of the government tightly controls the registration of charitable organizations and strictly supervises their operation. Furthermore, government departments and state-controlled charitable organizations such as the Red Cross

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Table 1 Corporate donations in China 2011–2015 Percentage of total corporate donations

Year 2011 2012 2013 2014 2015

Corporate donations, RMB billon (percentage of total donations) 48.575 (57.50) 47.438 (58.04) 68.904 (69.67) 72.160 (69.23) 78.385 (70.7)

Stateowned enterprises 23.8 21.08 6.50 20.99 32.77

Private enterprises 57.90 57.98 51.06 40.43 52.24

Foreignowned enterprises 12.07 12 41.74 35.98 12.99

Firms from Hong Kong, Macao, and Taiwan 6.23 0.71 2.6 2

Source: Ministry of Civil Affairs (MCA) information center (http://xxzx.mca.gov.cn/)

Society of China and the China Charity Federation are the major recipients of philanthropic donations. For example, the China Charity Federation received 40.73% (or RMB 42 billon) of total donations in 2014. Second, the government controls and provides critical resources (Wang and Qian 2011). In China, the central and local governments directly control critical resources such as land, subsidies, and tax breaks (Gao and Hafsi 2015), and they also decide how to allocate these resources and to whom. Moreover, they indirectly control bank credit, energy, strategic raw materials, and other resources through state-owned or state-controlled enterprises. Therefore, having a good relationship with the government (guanxi) is critical for firms in China (Xin and Pearce 1996), as it enables them to attain these critical resources. CP can reduce the government’s fiscal burden in providing assistance to solve social problems and deal with natural disasters, especially significant given the lack of a well-developed social insurance system in today’s China (Wang and Qian 2011). This may motivate enterprises to use CP as an means of increasing their political legitimacy by getting government support for dealing with political uncertainty (Wang and Qian 2011; Gao and Hafsi 2015; Chen and Cao 2016) or to acquire critical resources controlled by the government. Thus, political connections have become a strategic resource that helps firms to achieve a competitive advantage in China. The media is also an important stakeholder that affects corporate donations. They can publicize information about an enterprise widely in order to improve its visibility and influence (Fang and Peress 2009). Some enterprises, especially listed companies, will make use of the media to issue announcements about the company’s donations. Meanwhile, some of the media also discuss and evaluate the donation behavior of these companies, thus forming public opinion and affecting decisions regarding corporate donations. In western countries, if companies donate for disaster relief, there will be little public criticism of this. However, in China, some of the public may question and be critical of companies if they appear to give too little (Shan et al. 2008). Therefore, the media’s coverage also affects enterprises’ donation decisions and behaviors in China. In addition to the government (central and local) and the media, customers (current and potential) also influence enterprises’ donations. CP is an important

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way for enterprises to fulfill their social responsibilities, which can thus enhance their reputation. Because Buddhist, Daoist, and Confucian philosophies are an integral part of Chinese cultural identity (Wang and Qian 2011), consumers respond positively to those companies that actively demonstrate social responsibility and tend to buy products or services from these enterprises. Consumer response is also a factor that companies need to consider in making decisions about donations.

Case 1: Non-state-owned Company Non-state-owned companies are more strategically motivated and have more incentive and pressure to engage in CP than other types of firms in China (Zhang et al. 2009). In the afternoon of May 12, 2008, an earthquake of immense magnitude struck Wenchuan in China’s Sichuan Province. After the earthquake, China entered into a state of emergency in order to carry out rescue and relief work. About half of the listed firms on the Chinese stock market contributed to relief efforts in response to a government call for support (Zhang et al. 2009). Vanke, one of the largest and most profitable Chinese real estate firms, rapidly donated RMB 2 million for earthquake relief. However, the public and some media outlets criticized the company for what they saw as a relatively small donation, believing that the amount did not match the financial capabilities of the company. The chairman of Vanke subsequently responded to the criticism by stating, “As chairman, I think that two million is sufficient. This is the largest single contribution granted by the board of directors. Even if the amount granted by the board were greater than this, I still believe that two million is an appropriate amount.” This statement led to further condemnation of the company and prompted a public relations crisis, resulting in a 12% decrease in its stock value in just 5 days(May 15–20). On May 21, 2008, Vanke announced a decision of its board of directors to contribute RMB100 million to support reconstruction of the disaster area. On this day, the chairman also delivered a public apology for his improper statement to the media. On June 5, an extraordinary general shareholders’ meeting was held to vote on the donation of RMB 100 million and finally received the approval of the board of directors. In this way, the Vanke donation scandal came to an end. This shows that the board of directors is normally in charge of CP decisionmaking. At the same time, it also needs to consider the expectations of the stakeholders. Chinese stakeholders are more likely to embrace those companies that contribute generously (Wang and Qian 2011). The case of Vanke exemplifies this.

Case 2: State-Owned Company Large state-owned enterprises are the mainstay of China’s national economy. Stateowned enterprises have made great contributions to the promotion of economic and social development, the protection and improvement of people’s lives, and the development of the international market. They actively demonstrate social responsibility and are increasingly important as a source of corporate donations in China.

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Sinopec Corp., as one of the largest integrated energy and chemical companies in China, is controlled by the state, which owns 70.86% of its shareholdings. Sinopec Corp. has been actively engaged in making social contributions and has implemented many public philanthropic initiatives such as the Lifeline Express program, Warm Station with Love, and volunteer services. As shown in Table 2, between 2008 and 2015, Sinopec Corp. donated a total of RMB 1,269 million for social programs, with its average annual donation exceeding RMB 158 million. These charitable donations reduce the government’s fiscal burden while promoting industrial development and supporting educational development. For example, in 2015, Sinopec Corp. gave RMB 5 million to help develop educational programs in poverty-stricken areas. In 2012, Sinopec Corp. established the Social Responsibility Management Committee of the Board of Directors, responsible for corporate social responsibility management strategy and the annual social responsibility plan, as well as for making recommendations to the board. With the reform of state-owned enterprises in China, the majority of them have established boards of directors (Jia and Zhang 2011). Corporate law in China specifically defines a board of directors as a decision-making unit. Thus, they hold the decision-making power of the enterprise, and they are the core of the corporate governance structure. The board of directors is appointed by and must report to the shareholders of the firm (Firth et al. 2007). Therefore, given the fact that the state is the controlling shareholder in these firms, the will and the interests of the government determine the CP activities of state-owned enterprises (Wang et al. 2008b; Li et al. 2015).

Case 3: Western MNCs in China Compared with the state-owned enterprises and non-state-owned enterprises, the charitable donations of multinational corporations (MNCs) in China are not satisfactory. After the Wenchuan earthquake in 2008, Chinese companies rapidly made substantial donations to support disaster relief efforts, which reflected the value of Table 2 Sinopec Corp. donations 2008–2015 Year 2008 2009 2010 2011 2012 2013 2014 2015 Total

Donation amount (RMB million) 104 174 177 90 231 245 125 123 1269

Source: Sinopec Corp. annual reports from 2008 to 2015 (http://www.sinopec.com/)

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“justice above material gains” found in Confucian culture. In contrast, MNCs that operated according to western business ethics could not understand this phenomenon and failed to respond appropriately to the disaster. Of the 123 enterprises donating more than RMB 15 million for disaster relief, only 14 were MNCs. The total donation of these enterprises was about RMB 341 million, with an average of RMB 24 million. The total and average amounts of donations for MNCs were less than those of state-owned enterprises or private enterprises. After the Wenchuan earthquake, some MNCs that did not respond in a timely fashion were strongly criticized by the public on the Internet and in some media outlets, and their products were boycotted by customers. One week after the earthquake, a “Miser” list appeared on the Internet, which criticized those MNCs that had offered little or nothing in terms of donations. Although HP, Samsung, Wal-Mart, Carrefour, Nokia, Shell, Sony, and other MNCs donated during the first period (i.e., prior to May 13, 2008), their donations, all of which were between RMB 1 and 3 million, were perceived as insufficient. In order to deal with harsh blame from the public, MNCs began to increase the amount of their donations and publicize their CP efforts. Moreover, these MNCs also sought help from the Chinese Ministry of Commerce (CMC) and requested that the CMC explain their CP activities to the public. For example, P&G was included on the “Miser” list due to its donation of merely RMB 1 million. In order to repair its damaged brand image and staunch public criticism, P&G began to increase its contributions. In July 3, 2008, through the People’s Daily Online, P&G announced that it would donate 53 RMB million in cash and products to support reconstruction of the disaster area. In fact, complex donation approval procedures make it difficult for MNCs to respond quickly. Many MNCs are obliged to pay more attention to the implementation of corporate strategy when they donate to charity (Duran and Bajo 2014). MNCs operating in China need to report and get approval for charitable contributions from their headquarters. If the donations exceed a certain amount, they will ultimately be determined by the MNCs’ boards of directors. MNCs should comply with their own decision-making policies and also respect China’s cultural traditions and public opinions when they decide on CP activities.

Conclusions and Implications What influences CP decisions and level of giving in China? Institutions and key stakeholders shape CP decisions for Chinese companies. Our findings indicate that CP is a strategic choice for Chinese enterprises dealing with institutional pressure and their various stakeholders’ requirements. Specifically, first, CP is an important method of building political connections, obtaining resources controlled by the government and gaining sociopolitical legitimacy in the Chinese context. Therefore, CP can help enterprises to achieve a competitive advantage to meet the pressure of the institutional environment (Saiia et al. 2003). Second, a firm’s board of directors is responsible for the CP decisions, and key stakeholders also influence board decisions

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regarding CP. Key stakeholders in Chinese enterprises include the government (central and local), the media, and the public, including customers. These conclusions have practical implications as well. First, CP is not only consistent with Chinese traditional values but also helps Chinese enterprises make sociopolitical gains and obtain resources from the government. This view suggests that it is beneficial for firms’ development as business executives allocate resources to CP. CP could be an important method in establishing good guanxi with the government. Second, enterprises need to establish regulations to manage their CP activities and maximize the interests of CP. Third, enterprises should disclose information on their CP in a timely fashion, letting the public know about their corporate philanthropy programs and activities. Finally, the expectations of key stakeholders cannot be ignored when the boards of directors make CP decisions. Confucian culture is popular in China, and Chinese stakeholders are more likely to embrace those firms that donate generously.

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The Strategies of Connecting with Chinese Online Shoppers Riliang Qu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Understanding the Chinese “Net Citizens” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connecting to the Chinese Online Shoppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Competing in China online retailing markets are fraught with challenges. In this chapter, we would demonstrate that the capability in understanding and embracing China unique digital landscape and consumers would afford a company a leading competitive advantage and is the key for companies to succeed in this challenging market. Specific strategies that have been applied successfully in the past would be closely examined and offered as key commendations for companies with the intension of competing and winning in the battlefields of China’s ecommerce market. Keywords

Mobile internet · Deal prone consumers · Branding power · Social interactions · Collaborative competitions

R. Qu (*) School of Business, Central University of Finance and Economics, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_7

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Introduction China’s annual online retail sales passed those of the United States in 2013. By 2018, they are estimated to reach about $610 billion—passing Europe and the United States combined. Yet though the market is vast, succeeding in China is far from easy. In this chapter, we would demonstrate that the capability in understanding and embracing China’s unique digital landscape and consumers would afford a company a leading competitive advantage and is the key for companies to succeed in this challenging market. In the next section, difficulties in understanding the Chinese online consumers and the key characteristics associated with them will be discussed by drawing on the different experiences of multinational vs. indigenous companies in China. In the following section, strategies that have been specifically developed to respond to the demands of Chinese online consumers in the past would be closely examined and offered as key commendations for companies with the intention of competing and winning in the battlefields of China’s e-commerce market. Finally, we conclude the chapter by providing a summary of our research findings and key strategy recommendations.

Understanding the Chinese “Net Citizens” Although Internet giants such as Microsoft and Google, owing to their relentless innovativeness and superior technologies, have conquered much of the world, their well-documented unsettling experiences in China suggest that the traditional “formula” of winning in commercial battlefields, i.e., the capabilities of understanding the needs of local consumers and providing products and services that match the needs better than competition, still holds and is the key in winning China’s online market competitions. Understanding the above principle is one thing; to put it to work, however, proves to be a real challenge for many western companies. Owning to China’s unique cultural, political, and economic settings, the so-called net citizens in China, i.e., those who regularly connect to the Internet using computers and other mobile devices such as mobile phones and iPad, display some remarkably different characteristics compared to their western counterparts. One of the most significant differences is that unlike their counterparts in the west who connect to the Internet mainly using PC stations at work or home, the Chinese Internet users show more preference for using mobile phones instead of PCs to connect to the Internet. The difference in the choice of online connection tools is an important one as mobile devices often do not have the kind of computing abilities possessed by personal computers and consequently do not work well with websites or online designed with PC users in mind. Companies need to recognize the differences by developing products and strategies particularly suited for mobile devices. Failing to do so would result in really bad customer experiences, eventually losses of customers as the following case of Microsoft MSN illustrates.

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Being a pioneer in the field of instant messaging service, MSN used to be the biggest service provider in the world with millions of customers worldwide using its service on a daily basis. However, back then MSN product development efforts had been focusing on improving the PC user’s experiences. Although the company had also adapted its product so that it would be used with mobile devices, the company did not see this as an important strategy when it entered the Chinese market and made little effort to improve the product for mobile device uses. In contrast, its Chinese rival Tencent Ltd. has developed and perfected one of the most successful mobile phone apps in China’s mobile Internet history, WeChat, on the basis of its PC-based QQ service. Most Chinese would consider the experiences with WeChat are much superior to that of MSN, and consequently after its launch, WeChat was readily embraced by millions of Internet users in China, which soon forced Microsoft to shut down its then outdated MSN service. Another key characteristic of Chinese Internet users, especially those online shoppers, is the predisposition for good deals. Chinese consumers’ love for bargains is probably unmatched, and nowhere in the world seems to have witnessed the power of freebies and deals in attracting the attention of consumers (Uncles et al. 2010). The experiences of eBay and Uber provide a good illustration of this characteristic and its impact. When eBay first entered the Chinese market, it had the ambition of becoming the country’s No. 1 online trading platform within 3 months. However, it soon found that its business model based on charging a fee to the sellers for using its platform was no match for its archrival Taobao’s free service model in China. Seeing the threats posed by eBay, Taobao launched its fight back strategy by making the uses of its platforms to sell completely free, which turned to be a big drew for millions of Chinese small online traders, many of which used to have to pay eBay for setting up shops there. Seeing its business was swiped away by Taobao, eBay was forced to sell its Chinese operation to another Chinese company and to withdraw from the Chinese market (Li et al. 2008). Similar to eBay, Uber also seems to underestimate the deadly impact of promotions and deep-pocket discounts on Chinese consumers. When it first entered the Chinese market, considering the then really bad experiences of Chinese consumers with the government-licensed taxi companies in most big cities, Uber’s top executives were confident that its brand awareness and equity could enable itself to establish a leading position in China’s potentially huge lucrative online private car hire business very soon without the need of providing any subsidies of fares to the consumers. However, it soon learned to its dismay that without offering discounts to customers, they would not simply get any businesses and was consequently forced to join its Chinese competitors such as Didi and Kuaidi in providing customers with subsidies as incentives of using their services. As the subsidizing games escalated, Uber lost billions of dollars in China and was forced to drop out by selling its operation to its arch competitor, Didi (Gao and Zhang 2016). Uber’s failure in China is also partly attributable to its failure to recognize the power of branding in influencing the purchasing decisions of millions of online Chinese customers. Although at the early stage of Internet commerce, consumers

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attracted to online shopping mainly were bargain hunters. In today’s online market, most consumers were no longer happy to buy something with only low prices; they also have higher expectation about product quality. Due to the omnipresence of fake and “me-too” products in China, compared with the rest of world, consumers in China in general, and online consumers in particular, often place significant trust on branded companies and products. Uber seems to underestimate this consumer characteristic as it invests little resources in brand building and instead focuses more on building a superior product. It has long been recognized in the business world that oriental people in general and Chinese people in particular tend to put friendship before business, i.e., people prefer to do business with someone they consider a friend or someone they have already maintained significant social interactions (Luo 2009). In consistency with this tradition, the Chinese “net citizens” seem to show preferences for websites or Internet services which not only help to solve a business or personal problem but also provide a platform allowing users to engage in extensive social interactions (Men and Tsai 2013). When Linkedin, the social networking website for professionals, entered the Chinese market, it failed to recognize the above characteristic as it made little adaptation to its business model which built on the belief that people would consider doing business with or hire someone they only know through a friend or an acquaintance. Although this model was proved to be successful in many western countries, it ran into difficulties in China as most people who are registered with Linkedin became inactive users.

Connecting to the Chinese Online Shoppers Given the above characteristics of Chinese Internet users, it is important for companies to understand the need to develop special strategies for their Chinese online operations. In this section we will provide some strategic guidelines which might be useful for western companies with a view of building good relationships with the targeted Chinese online consumers. Firstly, given the dominance of mobile phones used by Chinese consumers to access Internets, western companies, especially those in the retailing sector or other sectors which involve significant interactions with customers, should invest in developing reliable and easy-to-use mobile phone apps so that customers could get full access to their websites using mobile phones or tablet computers. Secondly, western Internet companies must protect themselves against possible price wars launched by their counterparts in China by securing more significant financial backings when entering the Chinese market and pay close attention to their cash flows when operating in China. The recent years have witnessed significant flood in of capitals into the Internet businesses in China. As Uber’s experience in China demonstrated, leveraging with the relative ease to access to further funding, local Chinese competitors would often resort to undercut international companies by slashing prices and engaging in price wars in order to drive international companies out of the market.

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Thirdly, western companies entering the Chinese market should remember that no matter how established they are in the home markets, their brand names probably carry very little meanings for millions of Chinese consumers, and therefore, brand building should be on top of the strategic agendas for those western companies. Internet companies owing to their origins from the “new tech” seem to have the tendency to overlook the power of the traditional media such as TV and newspapers in brand building exercises. Paradoxically, however, one of the most effective and efficient ways to build a brand from scratch in China is through TV advertisements and some sorts of sponsorship deals for popular TV shows as most TV stations in China are government-owned, and as such information acquired by consumers via watching TV is often seen as more trustworthy. Fourthly, given the currently dominant positions enjoyed by some of the biggest Internet firms in China including Alibaba, Tencent, and Baidu, known collectively as “BAT” companies, international companies could consider leveraging the trust and power of those Chinese Internet firms by establishing partnerships with those companies. Those Chinese “giants” are currently seeking to diversify their core businesses by expanding to nearly all sectors of Internet businesses, be it online education, travel, or advertising. And they also attempt to grow their businesses though internationalization which would involve significant cooperation with western companies. For example, Mr. Jack Ma, the CEO and founder of Alibaba group, recently made an announcement that his company would work closely with American government by helping American firms to export their products and services to China. Going into partnerships with those Chinese Internet giants would provide the “new kids” in town with easy and quick accesses to the distribution and marketing communication channels in China. Finally, though as we discussed above that western Internet companies should get ready to enter into pricing wars with local Chinese competitors, they could reduce the odds of that unpleasant event happening by pursuing strategies which focus on differentiation and customer values. For instance, on reflection, instead of positioning itself as a private car hire platform for everyone and inevitably competing directly on prices with the likes of Didi and Kuaidi which have abundant financial arsenals at their disposals in price wars, Uber could follow the example of Shouqi Rental, a very successful Internet platform specializing in car hires for business people, by repositioning itself as a specialist rather than a generalist by offering tailored services targeting special market segments with special needs.

Conclusion China’s online market is the most advanced and competitive in the world. Global brands will not maximize their digital commerce potential in China solely with practices and formulas that have worked for them at home. To succeed in China, companies should develop new capabilities and adopt new strategies so that they could develop a better understanding of the Chinese consumers and be in a better position to respond to the specific needs of the Chinese consumers.

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At the present time, the key characteristics of the Chinese online consumers include the following: (1) Mobile phones instead of PCs are the dominant ways to access Internets in China. (2) The majority of Chinese consumers are price conscious and deal driven in their online purchases. (3) Brands also have significant influences on Chinese consumers’ purchasing decisions. (4) Chinese consumers place significant trust on the established players in the field such as Baidu, Alibaba, and Tencent, the so-called “BAT” companies. In responding to the above characteristics, companies could consider adopting the five proven strategies we present in this chapter to allow them to build close ties with the online consumers in China, including (1) developing reliable and easy-to-use mobile phone apps, (2) securing more significant financial backings when entering the Chinese market, (3) building and maintaining strong brand presences in the market, (4) collaborating and partnering with established indigenous players, and (5) pursuing strategies which focus on differentiation and customer values.

References Gao S, Zhang X (2016, September) Understanding business models in the sharing economy in China: a case study. In conference on e-business, e-services and e-society. Springer, pp 661–672 Li D, Li J, Lin Z (2008) Online consumer-to-consumer market in China – a comparative study of Taobao and eBay. Electron Commer Res Appl 7(1):55–67 Luo P (2009) Analysis of cultural differences between west and east in international business negotiation. Int J Bus Manag 3(11):103 Men LR, Tsai WHS (2013) Beyond liking or following: understanding public engagement on social networking sites in China. Public Relat Rev 39(1):13–22 Uncles MD, Wang C, Kwok S (2010) A temporal analysis of behavioural brand loyalty among urban Chinese consumers. J Mark Manag 26(9–10):921–942

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From Knowledge Transfer of MNEs to Upgrading of Chinese OEM Suppliers: Theoretical Analysis and Case Study Shenghui Wang and Jinghong Zhang

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Proposed Conceptual Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge Transfer Activities of MNEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge Assimilation of OEM Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Upgrading of OEM Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge Transfer from MNEs to XB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge Assimilation of XB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Upgrading of XB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Participating in global value chain (GVC) under OEM arrangements provides Chinese OEM suppliers with opportunity and possibility to acquire knowledge from multinational enterprises (MNEs) and achieve capability upgrading. This chapter combines insights from GVC and organizational learning literature to develop a framework for the analysis of the process from knowledge transfer from MNEs to capability upgrading of OEM suppliers. First, the knowledge transfer activities are divided into four types based onto the nature of transfer knowledge and the knowledge classification. Second, the dynamic process in which OEM suppliers assimilate the transferred knowledge is explored. Third, the

S. Wang (*) Central University of Finance and Economics, Beijing, China J. Zhang Beijing Language and Culture University, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_8

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effect of knowledge transfer on OEM suppliers’ capability upgrading and its limitation is discussed. After the theoretical analysis, this chapter examines a Chinese kitchen-appliance company, Tsingtao XB Electrical Appliances, analyzing the knowledge transfer activities from MNEs to XB, the knowledge assimilation within XB, and the effect of knowledge transfer on XB’s capability upgrading. Keywords

GVC · Knowledge transfer · Chinese OEM suppliers · Upgrading · Tsingtao XB Electrical Appliances Company

Introduction Since 1990s, a large number of Chinese enterprises have participated in the global value chain (GVC) dominated by multinational enterprises (MNEs) under OEM arrangements. OEM arrangements offered Chinese local enterprises opportunities to leverage their labor cost advantage in international markets. Meanwhile, Chinese OEM suppliers could directly acquire technology and management knowledge from MNEs, which is crucial for their innovation and capability upgrading (Pietrobelli and Rabellotti 2011). In the GVC, MNEs and Chinese OEM suppliers play the roles of mentors and learners, respectively (Cyhn 2000). MNEs transfer necessary production, product, and management knowledge to their Chinese suppliers so that the latter could meet the requirements on standards of quality, price, and delivery time. Due to their relatively weak capabilities, Chinese suppliers need to receive the MNEs’ advices on production process, quality control, logistic management, and other operational activities. It is not only the precondition of winning OEM contracts but also the basis for their capability enhancement and upgrading (Ernst and Kim 2002). Therefore, the interaction between knowledge transfer of MNEs and learning of Chinese suppliers widely exists in the GVC. The scope and intensity of such interaction have major influence on upgrading of Chinese OEM suppliers. However, the mechanism of this kind of interaction is not clear in the existing literature and the conduits through which knowledge travels remain underexplored (Cano-Kollmann et al. 2016). This study aims to explore the process of knowledge transfer from MNEs to Chinese OEM suppliers and the effect of knowledge transfer on Chinese OEM suppliers’ capabilities by conducting a theoretical analysis and reporting a case study. The remainder of this study is organized as follows. After a brief literature review, we develop a theoretical framework that helps identify the key knowledge transfer activities of MNEs, discern the knowledge assimilation of OEM suppliers, and analyze the knowledge’s effect on various types of OEM suppliers’ capability upgrading. Following that, we report a Chinese case study using the above

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conceptual framework. Finally, we come to a conclusion and discuss the implications of our study for Chinese OEM suppliers to achieve upgrading in GVC.

Theory Background GVC theory was developed in the mid-1990s by Gereffi and his colleagues (Appelbaum and Gereffi 1994; Gereffi 1994). The theory focuses on the linkages of chain actors and the MNEs’ role in supporting local suppliers in less developed countries (LDCs) learning and innovation. Despite some debates (e.g., Bair 2009; Gibbon 2008), it is widely accepted in previous studies on how the linkages between MNEs and local supplies promote knowledge transfer from MNEs and the learning and innovation of local suppliers in LDCs (Kaplinsky 2000; Humphrey and Schmitz 2002; Pietrobelli and Rabellotti 2007). There are three main perspectives on knowledge transfer in GVC. The first, which is from the view of cluster, explores how knowledge transfer influences related industry cluster in LDCs. For instance, Schmitz (1995) analyzed the effects of global buyers’ technological assistance on competence upgrading of shoe industry in Brazil’s Sinos Valley, while Dussel Peters, Ruiz Durán, and Piore (2002) studied the knowledge transfer process from North American buyers to Mexican suppliers in garment industry. The second perspective, from the view of specific firm, analyzes knowledge transfer and technological guide of MNEs and the effects on competence improvement of suppliers. For instance, Ivarsson and Alvstam (2011) collected the data from IKEA and 23 suppliers in China and Southeast Asia and studied how Ikea’s knowledge transfer affected its suppliers’ competence building. The third perspective focuses on theoretical analysis of knowledge transfer process and its influences. For instance, Ernst and Kim (2002) developed a conceptual framework to explore the mechanism of flagships transferring knowledge to suppliers and competence formation of the latter. Previous studies have drawn a common conclusion that integration into GVC and adopting knowledge transferred from MNEs could bring upgrading opportunities to OEM suppliers in LDCs (Gereffi et al. 2005; Schmitz 2006). In the framework of GVC, capability upgrading is defined as innovation to increase the quality of suppliers’ value-added activities (Giuliani et al. 2005; Pietrobelli and Rabellotti 2006). There are four categories of upgrading in GVC, namely, product, process, functional, and interchain upgrading (Schmitz 2004): • Process upgrading: transforming inputs into outputs more efficiently by reorganizing the production system or introducing superior technology • Product upgrading: moving into more sophisticated product lines with increased unit values • Functional upgrading: acquiring new functions in the chain (or abandoning existing functions) to increase the overall skill content of activities • Interchain upgrading: using the knowledge acquired in particular chain functions to move into different sectors

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Some studies found that knowledge transfer indeed can help supplier to achieve capability upgrading, but the upgrading was restricted to process and product upgrading (Humphrey and Schmitz 2002, 2004). Function and interchain upgrading, though appealing to suppliers (Pietrobelli and Rabellotti 2007), are hard to achieve.

A Proposed Conceptual Framework In this section, we will construct a conceptual framework that links knowledge transfer of MNEs, knowledge assimilation of OEM suppliers, and capability upgrading of OEM suppliers.

Knowledge Transfer Activities of MNEs According to Polanyi (1962), knowledge can be classified into explicit and tacit knowledge. Explicit knowledge, also called encoded knowledge, refers to knowledge that can be codified in formal, systematic language and symbols and that can be combined, stored, retrieved, and transmitted easily. In contrast, tacit knowledge refers to knowledge that is hard to codify and communicate and that can be expressed and transferred only through interaction, commitment, and involvement in a specific context. Indeed, people can only acquire tacit knowledge through observation, imitation, and practice (Ernst and Kim 2002). Knowledge transfer from MNEs to OEM suppliers includes both types of knowledge. When interacting with OEM suppliers, MNEs may voluntarily transfer some knowledge (e.g., methods of quality control, production process, and blueprints) to help OEM suppliers meet the required technology and management standards. Meanwhile, though MNEs may be reluctant to transfer some knowledge nonessential to fulfill the OEM order (e.g., the design of the advanced product, the core technology secret, and the skill of brand management), it is possible that OEM suppliers still receive inflow of such knowledge. Thus, both voluntary and involuntary knowledge transfers exist between MNEs and OEM suppliers (Barba-Navaretti and Venables 2004; Castellani and Zanfei 2006). Combining knowledge classification and knowledge transfer intention of MNEs, the activities of knowledge transfer from MNEs to OEM supplier can be classified into four types (Fig. 1): • Voluntary explicit knowledge transfer: MNEs voluntarily provide explicit knowledge to OEM suppliers. In this type of transfer, codified knowledge including product blueprint, manual of equipment operation, specification of technology, manual of quality control, etc. is willingly transferred directly to OEM suppliers. • Voluntary tacit knowledge transfer: MNEs voluntarily provide tacit knowledge to OEM supplier, which may take the form of face-to-face communication, dispatching their own engineers to work with OEM suppliers’ personnel and solve technology and management problems jointly, inviting OEM suppliers’

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Explicit knowledge

Tacit knowledge

Voluntary transfer

Voluntary explicit knowledge transfer

Voluntary tacit knowledge transfer

Involuntary transfer

Involuntary explicit knowledge transfer

Involuntary tacit knowledge transfer

Fig. 1 Knowledge transfer from MNEs to OEM suppliers

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personnel to MNEs’ headquarters or subsidies to receive an on-the-spot professional training and practice. • Involuntary explicit knowledge transfer: MNEs transfer explicit knowledge to OEM suppliers passively. In this type of transfer, codified knowledge is transferred indirectly. Typically, OEM suppliers may acquire product structure or detailed information via reverse engineering, namely, disassembling a sample or component provided by MNEs to analyze it. • Involuntary tacit knowledge transfer: MNEs transfer tacit knowledge to OEM supplier involuntarily. For instance, OEM suppliers may understand the product design philosophy and methodology in the course of interacting with MNEs.

Knowledge Assimilation of OEM Suppliers Assimilation of the knowledge transferred from MNEs voluntarily and involuntarily is a process in which OEM suppliers convert the explicit and tacit knowledge dynamically into useful resource (Nonaka and Takeuchi 1995). Drawing on the framework of Nonaka and Takeuchi (1995) and Ernst and Kim (2002), we divided this process into four kinds of activities, including the conversion of MNEs’ tacit knowledge into OEM suppliers’ tacit knowledge (socialization), the conversion of MNEs’ explicit knowledge into OEM suppliers’ explicit knowledge (combination), the conversion of MNEs’ tacit knowledge into OEM suppliers’ explicit knowledge (externalization), and the conversion of MNEs’ explicit knowledge into OEM suppliers’ tacit knowledge (internalization) (Fig. 2). Facing the transferred explicit knowledge via blueprint, sample, quality control manual, product and service specification, and training handout (Ernst 2002), OEM suppliers will need to assimilate them in two ways. On the one hand, OEM suppliers will read and grasp the explicit knowledge and convert it into their own tacit knowledge. As a result, their skills in production, operation, or design will be

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Fig. 2 Knowledge assimilation of OEM suppliers

Learning intent

Socialization MNEs’ explicit and tacit knowledge

Combination Externalization Internalization

OEM suppliers’ explicit and tacit knowledge

Absorptive capacity

improved (internalization). On the other hand, OEM suppliers will combine the above codified knowledge with their original internal codified knowledge to develop new operation manual, technology regulation, and management system of their own which are suitable for their local environment and business (combination). While accessing the transferred tacit knowledge of MNEs, OEM suppliers can assimilate it via the following two processes. OEM suppliers could receive and appreciate the know-how of MNE via direct communication, observation, and imitation. They could then convert the knowledge into their own know-how and use it for problem-solving (socialization). In addition, OEM suppliers could sort out and record their understanding using documents and drawings to produce codified knowledge which is convenient to exchange and share (externalization). However, it is worth noting that factors such as learning intent (Hamel 1991) and absorptive capacity (Cohen and Levinthal 1990) can influence the processes and outcomes of knowledge assimilation. Generally, for OEM suppliers, the stronger the OEM suppliers’ learning intent and absorptive capacity, the better their knowledge assimilation effects.

Upgrading of OEM Supplier Under OEM arrangements, by acquiring and assimilating the transferred knowledge from MNEs, OEM suppliers could obtain advanced production technologies and equipment to improve their production management systems and quality control methods. Meanwhile, OEM suppliers could also use the transferred knowledge to improve their product design capability and develop better external design and internal structure. As a result, “it has developed enough internal design capability to produce export-quality merchandise with little or no assistance from its export customers in setting internal and external design specifications. . .(and) may try to broaden its range of products” (Wortzel and Wortzel 1981: 52–54),” which means product

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upgrading. The process and product upgrading are necessary to create higher production efficiency and product quality which are consistent with MNEs’ desire. Thus, MNEs are likely to actively transfer related knowledge and guide organization learning of OEM suppliers to help them achieve process upgrading and product upgrading. However, assimilation of transferred knowledge from MNEs alone has limitation to the extent of upgrading and could hardly help OEM suppliers achieve function and interchain upgrading. Especially in captive GVC, after process and product upgrading, MNEs would vigilantly watch over OEM suppliers’ desires and activities to achieve further upgrading and resist sharing their knowledge with OEM suppliers on higher-value-added activities (Navas-Aleman 2011). They would take all kinds of measures to prevent their core technology and marketing knowledge transfer to OEM suppliers. As McDermott and Corredoira (2010) observed, upgrading of LDC firms would reach the glass ceiling, and it would be difficult for them to achieve function and interchain upgrading. As a result, LDC firms could only play peripheral roles in GVC dominated by MNEs. To improve their position in GVC, firms of LDC cannot simply rely on knowledge transfer from MNEs. Instead, they should invest in learning from other sources and improving innovative capabilities (Morrison et al. 2008).

Case Study Established in 1995, Tsingtao XB Electrical Appliances Company (XB) manufactured range hood under OEM arrangement for Chinese large domestic appliance firms from the beginning, for instance, Haier, Hisense, and Aucma. From 2004, XB started to accept range hood OEM orders from MNEs and participate in GVC. Through assimilating the transferred knowledge from MNEs and building its own technology capability, XB has achieved process and product upgrading based on its improved production and product design capability.

Knowledge Transfer from MNEs to XB The first foreign customer of XB was a Korean large appliance company, whose knowledge transfer to XB at first was through regular and standardized quality audits, mainly including quality systems and product and process competence. During this process, XB acquired many informal suggestions and formal written documentations from the customer, through which XB learned how to improve its production process to achieve expected quality and price. Explicit knowledge improved its general product quality and lowered the cost significantly. The customer also gave XB some suggestions on specific problems. For example, stainless steel wire drawing is a necessary process for production of range hood. XB’s former wire drawing process was relatively simple, leading to low appearance quality of its products and inability to meet the customer’s requirement. The Korean MNE suggested that XB use ink drawing equipment. Although this equipment was

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expensive, XB still adopted the customer’s suggestion, and its products’ appearance was improved significantly as a result. In the Korean customer’s opinion, transferring explicit knowledge alone is not enough for XB to assimilate and use the equipment in production, so it also offered technology assistance in the production field. It sent its own engineers to XB to supervise the production process when needed. These engineers focused on process improvement, quality control, and error reduction, identified the problems of XB, and gave their solution suggestions. Through face-to-face communication with the foreign engineers in the production field and in technological group meeting, XB could understand and convert the tacit knowledge embedded in the product process. In the early process of production for domestic firms under OEM arrangements, XB has developed its initial product design capability. When it started to manufacture for foreign customer, all products were produced according to the blueprints offered by its customer. But XB tended to give some proposals on the product improvement after it had become familiar with its customer’s product design plan. Through communicating the proposals with its customer via telephone, email, or even face-to-face, XB acquired more tacit knowledge on its customer’s product design philosophy. As more and more XB’s product design improvement proposals were adopted and confirmed by its customer, the customer started to invite XB to take part in the new product development process more frequently and even arranged some detailed design task with XB. By virtue of joint new product development, XB not only acquired more tacit knowledge about product design but also had deep understanding on the whole development process management.

Knowledge Assimilation of XB From the beginning of dealing with foreign customer, XB realized that, to win orders, it had to improve its own technology capability, and learning from customer was an effective way to achieve this goal. Therefore, XB placed great emphasis on assimilating foreign customers’ knowledge transferred and had strong strategic intent of learning. To acquire knowledge as much as possible, XB tended to use teams to communicate with foreign customers, whether to solve the problems in production process or to design product jointly. Using this kind of organization form, on the one hand, XB could gain customer’s advice and insight more accurately and avoid omitting important explicit knowledge. On the other hand, it could interact with customer more frequently and assimilate more tacit knowledge. Moreover, after knowledge acquisition, XB would codify, store, and diffuse it within the company as soon as possible. As a rule, after one team had solved certain production problems with the assistance of customer’s engineers, the members of the team would be required to write a report which contained the causes of the problems and the corresponding solution plan. Then the operation rule would be adjusted accordingly. Furthermore, XB organized some special meetings occasionally for members of different teams to introduce the knowledge or know-how they had acquired from

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MNEs. Its technology personnel discussed the knowledge and analyzed its value to XB. XB then recorded the results of discussion and then compiled it into memos which is used to guide later production and product design. Over the past 10 years, XB continually raised the proportion of technology personnel in all its employees. Of all its over 2000 employees in 2016, there were about 150 staff whose job as related to production and product technology. At the same time, XB invested more and more funds into technology development. In 2016, five percent of its sale revenue was used for technological activities.

Upgrading of XB Through assimilating and converting the knowledge transferred from MNEs, XB has achieved process upgrading. With the quality of its product improved, its production efficiency also increased. For instance, per capita output of range hood previously was 20 in one day. Now it is 25 because of the improvement of production process and adoption of automatic equipment. Meanwhile, through learning from MNEs, XB improved its product design capability in both appearance and internal structure. At the same time, its product line was extended to oven, cooking utensil, and small appliances. Product upgrading is also successfully achieved in XB. At present, XB has developed systematic product design capability. When foreign customers make request about new product, XB can finish the design by mainly relying on its own personnel. What customers need to do is to confirm it or put forward opinions to perfect it. Along with the process and product upgrading, XB has become a leader in Chinese kitchen-appliance manufacturing industry. It now is one of the suppliers of Whirlpool, Bosch, and Westinghouse, and its market has extended to more than 50 countries in North America, Europe, Southeast Asia, and Oceania (the process from knowledge transfer of MNEs to upgrading of XB as Fig. 3). However, in the process of transferring knowledge to XB, MNEs kept highsensitivity core technology information and marketing skill to themselves. As a result, XB has not acquired enough knowledge and experience. In addition, although XB has conducted product design work, it did not have systematic R&D and did not establish a dedicated marketing unit. Its market development and brand operation capability is still very weak, while its core technology competence is absent. Moreover, XB’s product line is limited to kitchen appliances and does not enter into other industries. In general, XB has not achieved function and interchain upgrading under OEM arrangements.

Conclusion and Discussion Previous research on GVC considered that the knowledge transfer from MNEs could support upgrading and innovation of OEM suppliers. But the mechanism from knowledge transfer by MNEs to capability upgrading of OEM suppliers is under

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□ regular & standardized quality audits oral suggestions and written documentation □ suggestions on specific problem □ technology supervise in the production field process improvement, quality control and error reduction □ communication on product design improvement □ joint product design

Knowledge assimilation of XB □ strong learning intent □ using team to communicate acquiring more explicit knowledge acquiring more tacit knowledge □codifying, storage & diffusion of knowledge writing reports organizing special meetings □ raising absorptive capacity more technology personnel & investment in technology

Upgrading of XB □ process upgrading higher product quality higher production efficiency □ product upgrading higher product design capability more kitchen appliances categories

Fig. 3 From knowledge transfer of MNEs to upgrading of XB

researched. Moreover, study on specific Chinese firm is very rare in this field. To fill the gap, this study conducts a theoretical analysis, dividing the knowledge transfer activities into four types according to the willingness of MNEs to transfer knowledge and classification of knowledge transferred, exploring the dynamic mechanism that OEM suppliers convert knowledge, and analyzing the effects of knowledge transfer. Based on the theoretical analysis, this study takes a Chinese kitchen-appliance company Tsingtao XB Electrical Appliances Company as example, analyzing the knowledge transfer from MNEs to XB and how XB assimilates the knowledge for upgrading. The case study confirms the tenets of the theoretical analysis. This study has the following implications to Chinese OEM suppliers. Firstly, participating in GVC under OEM arrangements not only provides Chinese OEM suppliers with more opportunities to enter into overseas market but also provides them with the opportunities and possibilities to acquire knowledge from MNEs to improve their production process and product design capability. Secondly, Chinese OEM suppliers should take effective measures, for instance, interacting with MNEs in the form of teams, improving absorptive capacity, and codifying and storing acquired knowledge promptly, so they could encourage MNEs to transfer more knowledge. Finally, the knowledge transfer activities of MNEs could support process and product upgrading of Chinese OEM suppliers, but it could not make obvious contribution to their function and interchain upgrading. To promote the latter two upgrading, Chinese OEM suppliers must broaden their value activities, for instance, establishing their own R&D system, conducting market research, setting up their marketing channel, building their own brands, etc.

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Community Organizing: Building Social Capital as a Development Strategy Jin Xu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Wager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Gree and Xiaomi Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Gree Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Xiaomi Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

A surprising thing happened during a recent CCTV’s China Economic Person of the Year award ceremony, a “wager” between two of China’s electronic giants, Gree and Xiaomi. This in turn led many to consider the challenges facing Chinese manufacturers during in the Internet age as well as their strategies as they adapt to the new social Internetworking era. One of the difficulties that the Internet puts on these types of enterprises is how to establish the relations with users on a large scale. Through this case study, an online community-built strategy will be explored as well as the new challenges business expansion entailed. Keywords

Online social network · Strategy · Community

J. Xu (*) Business School, Central University of Finance and Economics, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_9

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Introduction Most manufacturing companies in China use a forward integration strategy that focuses obtaining on efficient gains from scales of production. However, should all manufacturers choose this type of channel integration, many of its inherit advantages will be lost, which would all lead companies to become deeply dependent on cashflow. Should this happen the conflict between production and sale sides would further intensify and thereby putting tension between factories and dealers. Furthermore, the producers will not only have trouble effectively controlling inventory but also have to constantly expand production capacity due to cash flow pressures. In Internet era, supply has exceeded demand and online product information has become plentiful. As a result getting the market to operate at supply and demand equilibrium has become more difficult. Due to these pressures, companies made adjustments by building up their on-demand consumer production business model. For traditional manufacturers, the big challenge is while large-scale production can be quickly implemented via outsourcing, but what about marketing and sales? Where will the users come from? How will large-scale sales be executed? To this matter, a large part of whether a company is able to survive over the long term depends on its ability to integrate producers and consumers into its business model and its ability to bridge its offline and online segments into its business model. Online social networks have become one of the most popular modes of communication. The resulting universe is a constellation of several social networks, each forming a community with specific purposes. The possible interaction among distinct social networks is the basis of a new emerging Internetworking scenario which enables a lot of strategic applications whose main strength will be simple the integration of various, different communities. But what happens when manufacturers move towards online social Internetworking scenarios to overcoming the drawbacks of existing strategies? This cases study gives an answer to this question.

The Wager During the CCTV’s 2013 China Economic Person of the Year award ceremony, China’s Academy Awards for those in business, the conversation between awardwinners Mrs. Dong Mingzhu, CEO of Gree Electronics, and Mr. Lei Jun, founder of smartphone maker Xiaomi, was televised. Here Mrs. Dong placed a RMB 1 billion bet that within the next five years Xiaomi’s revenue would not exceed that of Gree. What lead them to make such a bet? Dong Mingzhu and Lei Jun both come from the electronics industry. The former is the Chairwoman and CEO of Gree Electronics Appliances (Gree) and the latter is the Chairman and CEO of Xiaomi. Founded 23 years (as of 2013) ago, Gree is the world’s largest residential air-conditioning manufacturer. Xiaomi, founded in 2010, designs and sells mobile phones. Though both companies sell electronics, their approach is very much different. In 2013, Gree had 9 factories which employed over 70,000 people. Xiaomi, on the other hand, had no manufacturing facilities and

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Table 1 The comparison between Gree and Xiaomi (in 2013) Years in operation Industry Main product Factories Factory employees Retail stores Gross income

Gree 23 years Electronics Air-conditioners 9 70,000 30,000 RMB 100.7 billion yuan

Xiaomi 3 years Electronics Mobile phones 0 0 0 RMB 31.6 billion yuan

no employees in production. In terms of brick-and-mortar stores, Gree had over 30,000 while Xiaomi had none. Regarding the gross revenue, Gree posted sales of RMB 100 billion. Xiaomi’s was RMB 32 billion (see Table 1). When a guest asked Mr. Lei if he was confident in maintaining 0 in former three figures while at the same time doubling the last figure after 23 years in business, Lei Jun said yes. He stated that he believes the most important factor in Xiaomi’s profit model is to have a light asset portfolio. First, because it has no manufacturing facilities, it can select the factory that best fits its needs. Second, it applies a direct sales model to its Internet platform and therefore enjoys higher profit margins as it has no physical retail presence weighing down its cost structure. Third and most importantly, as it has no factories or retail stores, the company can focus on R&D and communicating with its users. As a result, of its 4000 employees of Xiaomi, 2500 assist with servicing customer needs and 1400 are dedicated to research and development projects. However, some guests who have the same opinion as Dong Mingzhu challenged the viability of the Xiaomi model believing that as the manufacturer has no factories, Xiaomi is effectively putting all of its eggs in the basket of others. While Lei Jun holds the view that due to the current division of labor based on specialization where everyone does the job that best suits their abilities, Xiaomi will be able to find the best factories and supply chains to fit its needs. Furthermore, Mr. Lei is of the belief that having a consumer electronics business model with a strong online component gives the company the advantage of being able to more easily communicate with the users, which in turn allows the company to focus more efforts on improving the customer’s product experience. Zhu Special Economic Zone Industiral Development Corp., the predecessor of Gree Group, was established in 1985,and Gree Electric Appliance owned by the Group was founded in 1991, which can be confirmed from the Gree official website. Dong Mingzhu joined the Group in 1990, and served as the business manager of the new company soon. Since then, she has been working in this company, which is confirmed from her biography. This company achievements cannot do without her effort, which can get glimpse of the Gree model introduction in this paper. As the debate heated up, a wager between Dong Mingzhu and Lei Jun arose. Lei Jun claimed that Xiaomi’s revenue would exceed Gree within the next 5 years (meaning 2018), if this did not happen he would give RMB 1 Yuan to Dong

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Mingzhu. Dong Mingzhu, however, was willing to raise the bet to RMB 1 billion. For a while the bet became a popular topic of discussion as it posed the stark contrast between how Gree and Xiaomi arraigning their production models.

The Gree and Xiaomi Models The Gree Model Gree Electric Appliances was founded in 1991. Since 2005, the company has been the world leader in residential air-conditioner production and sales. Since 1995 Gree has steadily increased its production volumes. However, to finance this, the company had to endure bank interest rates as high as 7%. Additionally Gree had been faced with the challenge of what to do with the excess off-season inventory. In an effort to reduce its reliance on bank funds, Dong Mingzhu pushed their dealers to purchase the air-conditioners during the off-season. In return Gree would pay interest to the dealer for this early payment. As a result Gree’s was able to solve its excess off-season inventory problem and alleviate its peak buying season supply issue. For the dealers, there were two benefits: first, they had sufficient inventory to satisfy peak season demand and second, by paying early their money would accrue interest. This new “plant-dealer alliance” model presented a win-win situation for the manufacturer and its sale force and gave the company an advantage over its competition, namely, Chunlan and Huabao who in 1996 were first and second, respectively, in terms of China air-conditioner market sales. Furthermore, Gree was able to avoid the need to continuously lower prices to undercut the competition due to excess market supply. By the end of 1996, Gree increase 17% YoY increase in air-conditioner sales catapulted the company into the top spot in the domestic air-conditioner sales rankings. In 1997, in order to resolve conflicts among some of its largest dealers, Gree decided to cooperate with four dealers and jointly establish a sales company. This not only unified the sales network but also placed all products under a uniform wholesale price model. The last part was important because it helped eliminate fighting among the various parties. The newly created “joint-stock regional distribution” model helped Gree build a low cost marketing channel which, through the prepayment mechanism, intertwined the interests of the company and dealers and helped prevent potential channel conflicts. Gree set up warehouses at dealer sites allowing the company to making use of dealer access to rapidly open the market and lower its cost for market exploration, transportation, and other operations. Also, the company gave a rebate to dealers who met certain performance requirements. In this way, the sales costs were lower and the manufacturer and dealers were incentivized to work together. By 2007, Gree had only 457 salesmen, roughly 1/9 that of Midea’s, 4154. The “quasi-banking” operation had become another highlight of the model, where the proportion of liabilities with interest, including the short-term loan and long-term loan, was far lower than Midea and Haier (two other large appliance manufacturers

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at that time in China). Additionally its noninterest liabilities including accounts payable, notes payable, deposit received, and other current liabilities represented 100% of the company’s liabilities. Relying on the deposit received from dealers and the notes payable and accounts payable generated by suppliers allowed Gree to maximize its cash flows. Using data from its 2007 annual report, by offsetting the cash inflows from the upstream and downstream against the cash outflows, Gree had a net cash inflow of RMB 5.9 billion as of December 31, 2007. Building on her sales background, Dong Mingzhu used this “cooperation and win-win” dealer-manufacturer idea as a way to combat challenges that the Internet age has placed upon her company.

The Xiaomi Model Founded in 2010, Xiaomi does not have a direct sales team, national distribution network, or any manufacturing facilities. Because of this, the company can adhere to a zero inventory, light asset model. It took Xiaomi 3 years to become the third largest e-commerce company in China which is remarkable since the company did not start selling smart phones until October 2011. For companies in the manufacturing industry, Xiaomi is considered to be an overnight success. Xiaomi outsources its mobile phone manufacturing to Inventec and has developed its own mobile operating system based on Android, MIUI. Lei Jun has repeatedly emphasized that “Xiaomi is an Internet company” instead of “a company merely selling mobile phones.” The first batch of Xiaomi users were mainly comprised of those familiar with MIUI. On MIUI platform, they became deeply involved in product R&D process. During the 50-week trial period, based on their experience these users helped test and improve the smartphone before it entered the market, therefore allowing them to feel that they had greatly contributed to the development of the Xiaomi phone. Due to its strong reputation among MIUI’s users, Xiaomi mobile phones attracted great deal of attention and as a result a strong Xiaomi community sprouted up within its first year. Through word of mouth on the Internet, Xiaomi was able to transform this newly found publicity into robust online sales during its initial launch. The idea of using the Internet community to help perfect the product for the first batch of users originated from Xiaomi’s founding partners’ own personal experiences. Lei Jun was a fan of electronic gadgets, while other partners’ interests lie in photography and robotics. All of them maintained a strong Internet presence with these hobbies and therefore were familiar with the Internet community’s lifestyle and demands. Those dissatisfied with Samsung and Apple mobile phones were Xiaomi’s target customer base. Xiaomi was able to connect with these users which in turn allowed it to establish a place in the market. However, Xiaomi has not stopped there. Based on the experiences documented during the Xiaomi online community’s first year, Xiaomi has been looking for the students interested in IT to establish an on-campus Mi Technology Club (MITC), which was intended to encourage potential talents to work with its R&D department.

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Based on this, the company has created various online community forums allowing those with similar interests and hobbies to communicate with each other. Each community forum focuses on a specific theme (see Table 2 below). Usually, the more hard-core fans dominate the forums who in turn attract ordinary users and come up with activities so the forum focus stays on Xiaomi products. The online community plans user activities such as the release of new Xiaomi products as well as new pricing deals. Xiaomi staff members imbed themselves in the various communities and directly interact with the users. Following its initial 2-year launch period, from August 2011 to August 2013, the total number Xiaomi community users reached 9.7 million (see in Table 3), participated in over 2650 activities with roughly 75 official events taking place each month (Zhang 2015). So many intensive user-related activities cannot be realized through the traditional operating mode. Effectively Xiaomi reaches users despite having no direct connection. By using the initial Mi phone to promote products launched later, such as Mi TV, Mi router, Mi wristband, Xiaomi has become an integral part of their users’ life, which allows the company to continuously receive the data on user ideas and behavior through its cloud server. Using this strategy, Xiaomi is able to provide customers with a more costeffective experience which in turn has resulted in an explosive growth in its user base. Since competitors were still operating in a traditional way, Xiaomi has been able to rapidly expand its sales and further lower the cost of its products. Table 2 Xiaomi online community forums on smart-phone Fastboot and recovery Using skills Collectors

Android software Photograph/ selfies Publication

Android games Open-source hardware MITC

Wallpaper/ music Online flea market One-city party

Coolplay Talents show Chatting room

Table 3 Traffic on Xiaomi community compared to other similar communities (2013.8)

Xiaomi community Meizu community OPPO community Huawei community Lenovo community

Alexa 3000

Launched date 2011.8

Daily posts 250,000

Posts 130 million

Users 9.7 million

20,000

4 million

4699

2006

20,000

Not available 8 million

100,000

2005

3000 (monthly) 2000

Not available 710,000

Not available 160,000

11,000

2011.9

470,000

41,949

2011.7

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Discussion The wager sheds a light on the challenges and resulting strategies that manufacturers in China are facing as more commerce moves onto the Internet. As a traditional electronics manufacturer, Gree has combined its large-scale production and sales via a “plant-dealer alliance” scheme. This is difficult for many companies to replicate as many of them lack the necessary business experience and market intelligence. Many firms, even those with better technologies and a higher profile media presence (compared to Xiaomi), have failed at gaining any traction in this market. However, the recent rapid growth of Xiaomi does not follow the development path of the more traditional electronics manufacturers. As a means of comparison, the reasons for the sudden rise of Xiaomi are as follows: 1. Quickly attracting a large number of users Xiaomi smart phone (Mi phone) users are widely spread on the Internet. As of August 2014, MIUI, the operating system of Mi phone had over 70 million users; its number of WeChat users had surpassed 6 million; participants on its community and on QQ Space both had exceeded 30 million; Lei Jun’s Weibo followers had approached 10 million; the Weibo account of Xiaomi company had 3.7 million followers; the Weibo account of Mi phone had 10 million followers; the Weibo account of Xiaomi community had 5.2 million followers; the Weibo account of Li Wanqiang, one of founders of Xiaomi, had 5 million followers; and the Weibo account of Xiaomi President, Lin Bin, had 3.9 million (Zhang 2015). 2. Connecting with users via their mobile phone The mobile phone constitutes a way for Xiaomi to acquire more users. Xiaomi does not use the traditional method for its R&D. Instead much of its R&D intelligence comes from product users online community contributions. Xiaomi makes constant improvements based on user experiences and recommendations. This allows the company to make product upgrades with little delay. By improving user experiences and listening consumer feedback, Xiaomi stays in touch with its online community of followers. 3. Increasing adhesiveness of users with online community activities Rather than focus on sales and sales volumes, the marketing core of Xiaomi is to strengthen its relationships with the users by encouraging them to engage in Xiaomi community-based activities. The marketing strategy is to create a seamless connection with its users which thereby further increases its consumer base. Eighty percent of Xiaomi target customers are active on one of four the platforms: Weibo, WeChat, Baidu’s Tieba, and QQ Space. Instead of “social marketing hype,” “simulation

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strategy,” “hunger marketing,” or “undercutting the market” tactics common among its competitors, the activities Xiaomi engaging in aims to help consumers have a better life by becoming an integral part of the users’ life.

Conclusion The social interaction between enterprise and upstream suppliers or between enterprise and downstream user are among the challenges the Internet has placed on. Much of this due to the fact that Internet had constructed a new form of social capital called virtual social capital. Social capital is an important factor which can help an enterprise gain external resources and realize gains from the integration of internal and external resources. However, existing literature mainly focuses on the impact of individuals’ social capital on enterprise. The role played by virtual social capital differs from an individual to individual which further compounds the challenges today’s firms face as they attempt to build up their virtual social capital and transform it into real social capital. Most successful enterprises share the common trait – having a large customer base, which is supported by Peter Drucker’s theory that the survival philosophy of enterprise is to find its existence value in the market, i.e., creating values for targeted consumers, instead of merely pursuing profits as profits are merely a byproduct of creating value for the customers. For both Gree and Xiaomi, the key to development is the “users.” Users are the foundation of all of their models. Companies that are capable of finding the optimum method of communicating with users will surpass their competitors and increase their chance of surviving over the long term. Understanding how users exert their influence affects establishment of a connection between companies and the “users.” Previous concepts emphasized that “the customer is always right” and that the connection between the two parties ended once the financial transaction has been completed. The current concept places more emphasis on constant interaction between the two and puts a higher value on customer input and sentiment. The long-term connection between the parties can morph into the life-time beneficial arrangement for both of them – users can participate in product design and help the enterprise promote its brand while the enterprise can provide their customers with a good value. The Internet makes this connection easier and more convenient. For enterprises, the issue is finding ways not only to connect with users, but also how to foster, bridge, and increase the interaction with users, how to improve the user experience, and how to increase user stickiness.

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To cope with challenges brought on by the Internet, many electronic manufacturers need to re-orient their model toward the Internet, shorten their value chain, and better manage their customer base. For the last point, the difficulty lies in how to establish user interactions on a large scale. As seen by practices of Xiaomi, the key is to use online communities to directly build relations with users and the ability to tap into “extremely active online communities,” a kind of virtual social capital. The virtual community as a new application form of social communication has been becoming significant. Online community strategy presents a new challenge for all enterprises. As demonstrated by Xiaomi, the essence of community is its ability to connect with the users and to create long-lasting relationships; the key to maintaining this community is to manage users both offline and online. To create an online community, first small groups of people must be trained, and then activities should be organized in a consistent fashion in order to foster a sense of community among the users. The ideas brought about by these activities may eventually evolve into enterprise strategies. Should the community fail to build a sense of comradery where users are able to interact in a constructive fashion, the enterprise will find it hard to survive. Only those who take the lead in building communities and provide good user experiences can become the integrator/organizer of the next industrial value chain. Both traditional companies and Internet companies have begun to attach greater importance to the role of the community in strategic planning. Through community activities, the producer and users form the relationship based on mutual trust and unite to foster the sense of community cooperation. However, as these enterprises expand in size and the competitors copy the ideas of others, it becomes more difficult to maintain this mutually beneficial relationship. This is a big issue waiting for solution by companies after community has been constructed. Acknowledgment The author acknowledges support for this research from Beijing Social Science Fund Project (15JGB087)

References Borzillo S, Schmitt A, Antino M (2012) Communities of practice: keeping the company agile. J Bus Strateg 33(6):22–30 Rolland N, Kaminska-Labbé R (2008) Networking inside the organization: a case study on knowledge sharing. J Bus Strateg 29(5):4–11 Wenger EC, Snyder WM (2000) Communities of practice: the organizational frontier. Harv Bus Rev 78(1):139–145 Zhang Hao. Analysis of Xiaomi strategies in 2016. http://zhanghao.baijia.baidu.com/article/419038 Zhang Xingwang (2015) Panoramic view on Xiaomi case. China Machine Press

Online Financial Services Strategies for Commercial Banks in China

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Guangli Zhang and Ye Liu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory and Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Strategic Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategies of the ICBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Baoshang Bank’s Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

The development of Internet-based financial products and services is challenging the managers of commercial banks in China. Promoting the transformation of commercial banks by offering digital products and services is an important issue. Employing the resource-based view (RBV), we analyze different strategies for large and small commercial banks to develop their own online financial services. We mainly study the cases of the Industrial and Commercial Bank of China and Baoshang Bank. Keywords

Internet finance · Strategy · Chinese commercial banks

G. Zhang (*) · Y. Liu Business School, Central University of Finance and Economics, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_10

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Introduction Since its reform and opening up in the late 1970s, China has been committed to the establishment of a market economic system. The financial services industry has undergone reforms that have included the commercialization of banking and the development of capital markets. Although Chinese capital markets have been developing rapidly, the banking system has played a more important role in social financing. At the end of 2015, there were 4262 corporate bodies employing 3.8 million people in the banking industry. Assets totaled 199.3 trillion yuan – an increase of 27 trillion yuan since the opening up. If we consider the type of institutions, largescale commercial banks accounted for 39.2% of assets. This was the largest type which includes the largest players: four state-owned banks (The four state-owned banks are the Industrial and Commercial Bank of China (ICBC), the Bank of China (BOC), the China Construction Bank (CCB), and the Agricultural Bank of China (ABC)). However, the competition in this industry has changed a great deal as many joint-equity commercial banks and city banks have grown considerably since the commercialization of banking began. In addition, just as the Internet has impacted the book publishing and music industries over the past 10 years, the digital age now is changing the financial services industry, especially in China. Internet-based financing, whose terminology was first proposed by Xie and Zou (2012), has captured substantial attention in the past 5 years. As McKinsey reported, by the end of 2015, the market size of China’s online financial sector exceeded 12 trillion yuan, and the biggest entities were third-party payments, peer-to-peer lending, and crowdfunding. Shouyixin, a Beijing company, was a pioneer in third-party payments in China beginning in 1998. Ten years later, Alipay became the biggest online payment company, occupying nearly two-thirds of market share in 2015. Eyeing this profitable pie, companies in other industries began aggressively moving toward the development of third-party payment services. For instance, Tencent – China’s largest social media company which developed QQ and WeChat – launched its “Wallet” feature that allowed users to pay online once their accounts were linked to their bank cards. At the same time, China’s peer-to-peer (P2P) lending developed so quickly that there soon were more than 2000 companies in the market, making it the largest such market in the world. Successful examples include CreditEase, which became the largest P2P lending platform in the world, and Lufax, the third largest P2P platform globally. And the market continues to quickly grow. Crowdfunding also grew tremendously. DemoHour claimed to be the largest site in China and was similar to Kickstarter in its all-or-nothing projects. DemoHour was the first crowdfunding company in China, which successfully raised funds nationwide to create some original domestic projects that were highly praised by the public. However, due to incomplete regulations and underdeveloped laws, DemoHour stayed in its primary stage of development. These new online financial products are upending traditional banking practices by attracting customers and funding. With increasingly overlapping operations, third-party

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payment is swallowing the market share of traditional commercial banks for insurance, funding, etc. Financial products that used to be sold only by commercial banks can be sold through online financial services companies which offer an even more satisfying customer experience. For instance, there are a growing number of websites offering third-party funding as well as selling insurance and other products online, which has gradually substituted for the intermediary functions of commercial banks. Online financing also has weakened the commercial banks’ payment functions. Due to mobile payment features, many operations that had been processed by banks now can be completed digitally. The growing number of third-party payment users also provides valuable information regarding consumer behavior, online shopping, and other activities, whereas traditional commercial banks typically are not privy to this information. Most traditional banks only collect customers’ information when they open accounts or apply for a loan. Further, the information obtained by digital financial firms is more transparent and up-to-date, which significantly reduces the information asymmetry and the risk of moral hazard. This competitive advantage has helped to expand the market share of the Internet-based financial companies. Moreover, the information collected by digital companies is more reliable and comprehensive than that collected by traditional commercial banks because it is based on actual transactions. At the same time, using this information has unlocked the online financial services companies’ innovation and has motivated them to understand their customers and develop more satisfying products. Alibaba, China’s largest e-commerce company, demonstrated this point vividly. Taking advantage of its huge customer base, it initiated small- and- medium-sized enterprise (SME) financing and used this information to mitigate total risks by diversifying their online investment transactions. Online financing has led to the diversification of financial products in China and to tremendous innovation in the industry. However, it inevitably has threatened the development of traditional commercial banks. As mentioned, a big threat is that digital financing has resulted in more customers transferring their assets from traditional commercial banks to online financial products. Therefore, the traditional commercial banks should renew their business strategies in terms of sustainable development. However, faced with numerous business strategies, selecting the most suitable approaches for traditional commercial banks has become a core research question. We will discuss this topic from a theoretical perspective and also by studying two real-world cases.

Theory and Framework Related Literature Why do some firms consistently outperform other firms? Over the past few decades, scholars in strategic management field have explored the resource-based view (RBV), trying to answer questions that couldn’t be fully explained by traditional economic theories. Since Wernerfelt (1984) proposed the resource-based view

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theory, many studies have explained the differences in firm performances using the RBV. Barney (1986) emphasized the appropriate circumstances under which a firm could generate more value when using resources. In 1991, Barney examined the relationship between strategic resources and sustained competitive advantage and the framework for a resource to be the source of sustained competitive advantage for a firm. Using the RBV, the strategic resources are defined by four characteristics: value, scarcity, non-imitation, and irreplaceability. Value and scarcity contribute to the competitive advantage of a firm, while the four characteristics together comprise the sustainable competitive advantage of a firm. However, there has been some criticism of the RBV. Priem and Butler (2001a, b) suspected that the resource value was determined outside of the RBV and that the RBV was not a structured theory. In response to this argument, Barney and Arikan (2001) formalized the depiction of the RBV and developed a paradox with the resource-based theory. The RBV posits that a firm’s performance depends on a sustainable competitive advantage and a firm’s resources can be divided into two types: assets and capabilities (Barney 1991). The assets are the resources accumulated by firms, while the capabilities allocate the asset efficiently (Day 1994). The RBV asserts the heterogeneity of firms, and many empirical studies have examined the links between a firm’s internal features, processes, and performance. Based on the RBV, Campbell and Park (2016) observed that resources such as social capital, entrepreneurial orientation, and strategic management contributed to the performance of a small business. Using the RBV, Wu and Li (2015) empirically studied the impact of the type of competitive strategy on the performance of 107 Chinese commercial banks; they concluded that in banks with a cost- and efficiency-oriented competitive strategy, the strategic capabilities provided a positive effect on its performance. Hou et al. (2016) examined the impact of online financing on commercial banks in China and found that it altered the sensitivity of deposit growth ratios to bank risk. Departing from these papers, we focused our research on different strategies that two types of commercial banks employed regarding digital financing. We mainly analyzed two cases: one large and one small commercial bank.

The Strategic Frameworks The chain of the Internet-based finance industry can be divided into five major areas: need discovery, standardized online services, big data, process audits, and risk management. In order to develop online financial products and services, commercial banks need to invest diversified resources that pertain to online finance professionals, transaction platforms, advertising, and other resources. There are huge differences between the big four banks and other smaller banks in terms of assets, management goals, relationships with the government, etc. Therefore, due to the resource distinctions, large and small commercial banks should develop different strategies in terms of online financial services. Large commercial banks enjoy excellent reputations, large client bases, and advanced information and risk control technologies. Hence, their strategies largely

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depend upon those resources. For instance, the Industrial and Commercial Bank of China (ICBC), the largest state-owned commercial bank, has an extraordinary reputation, which helps it go the extra mile to add value to its products. The ICBC integrated an incredibly large amount of data including information from 500 million individual accounts and 6 million corporate accounts, which enabled it to provide a high-quality financial services platform. China Construction Bank (CCB), one of the big four commercial banks in China, also adopted this philosophy. With high-quality customer resources, it has built a healthy financial ecosystem consisting of three channels (online banking, mobile banking, and WeChat (WeChat is the largest social media develop by Tencent in China; it was first released in January 2011) banking), the “Three Life Platform” (which consists of “Good Financial Business,” “Yue Life,” and “Life”), three types of innovative products (online payments, online investment banking, and network credit financing), the “Three Smart Technologies” (which includes data discovery, the financial cloud, and customer service known as “Little Wei”), and an online-to-office (O2O) service system, which aims to integrate its online financial system with a full range of traditional products and services. Additionally, the risks of a traditional financial business – ranging from liquidity to credit to market risks – still exist in online financial services, especially in the P2P business. With strong risk control technologies, large commercial banks can ensure the security of their digital financial platforms. In contrast to large commercial banks, small- and- medium-sized commercial banks should mainly focus on their unique advantages, such as a better understanding of local markets, enhanced approachability for SMEs, and flexibility and higher efficiency in financial processing, which will be discussed later. Local governments often take control of these commercial banks, which has a strong guanxi (or “network”) advantage in accessing local resources such as deposit resources. These commercial banks are more familiar with SMEs, making them more approachable compared to large commercial banks. Moreover, large commercial banks have relatively higher costs in serving SMEs. The Bank of Beijing is an excellent example; it positions itself as serving the regional economy, local businesses, and citizens under several brand names (Capital Finance, People Finance, etc.). And small businesses also have their own features and process business faster, which satisfies the special needs of SMEs. For instance, Chang’an Banks builds networks in every county and reaches customers in urban areas as well as rural areas – thus forming its own competitive advantage. In particular, a differentiation strategy for developing micro-branches is by leveraging the internet to achieve low-cost expansions. Through expansion in the counties, these banks gain a competitive advantage within the province. However, small- and- medium-sized banks need to be very cautious in the development of online financial businesses. After all, they don’t have a competitive advantage in terms of financial strength, technical strength, or operational capacity. Another strategy is focusing on a particular area and enhancing the value-added services. For example, Chengdu Bank proposed the concept of a community payment service platform. It then launched its “E-city” convenient service platform, which enabled citizens to pay fees such as electricity and gas through mobile

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banking, online banking, and self-service machines. It was the first bank to provide multichannel and around-the-clock self-service payments, which improved customer loyalty. In 2014, Baoshang Bank took the lead in establishing a highly efficient and flattened structure and gradually offered market-oriented products, information technology services, and a risk control team.

Case Study The development of digital financial services forced traditional commercial banks to explore their own business strategies. However, there were – and are – huge differences between the big four state-owned commercial banks and small commercial banks. The RBV holds that traditional commercial banks – based on their unique resources – should choose different development strategies regarding Internet-based financial businesses. Thus we investigated two cases to demonstrate the different development strategies for large and small commercial banks in regard to online financial services.

Strategies of the ICBC Background of the ICBC The Industrial and Commercial Bank of China (ICBC) is the largest bank in the world by total assets and market capitalization. Founded as a limited company on January 1, 1984, it had assets worth US $3.616 trillion as of June 2015. The ICBC embraced national as well as global markets. It has 400 institutions all over the world. It is South Africa’s Standard Bank’s largest shareholder within 18 countries, which gives it an incomparable advantage over other online financial services companies in terms of resources. Within China, the ICBC is a pioneer in regard to online financing. Its official website was established in 1997, which essentially represents the beginning of digital financial services. In 1998, mobile banking was introduced. Two years later, the ICBC launched e-banking Gao and Guo (2016). The following year, the ICBC began constructing a data warehouse along with various types of data analysis systems. The next year, all the business data collected was sent to a data center along with other important bank data. Since 2009, the ICBC has completed its data discovery platform which strengthened its product innovation and application. In order to align its commercial information resources from both inside and outside, the ICBC built a global information consulting platform. In 2015, the ICBC officially released the “e-ICBC” which was a new brand of an online financial services business that included an e-commerce platform, an e-communication platform, and an e-finance platform. Customers could trade, commission insurance business, invest, and sell bond funds on the e-commerce platform. The ICBC provided the platform at no charge to the consumer. It has made its profits mainly through the mastery of information between the business and customers in the transaction

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process. The e-communication platform is a social platform committed to facilitating the information exchange between users, providing real-time feedback on the needs of financial services, and building the base for product optimization and service improvement. This platform also is convenient for the internal management team as an online or mobile office. Not only does it protect the confidentiality of customer information, it also improves the efficiency of bank offices. ICBC also has promoted business-to-business (B2B) and business-to-government (B2G) procurement platforms, making it a “cloud” platform for government institutions, corporations, and companies’ supply chains.

Internet Financing Strategies of the ICBC In developing online financial tools, the ICBC built a comprehensive transaction platform to transfer a part of its traditional business to the Internet. This change in its business model led to a decrease in costs. Through this platform, the ICBC provided standardized financial services that notably benefited small firms. The proportion of this business gradually expanded to what is now an estimated 35% of transactions. This approach provides self-service online loans at any time of the day or night. Controlling loan risk was the core factor impacting the development of digital financial services. The ICBC built a new network financial services center where the loan risk could be controlled based on big data. Through credit standardization and upgraded transaction processing, the ICBC has provided online financial services that have “no geographical and time difference” with one click, which was a good experience for small and microenterprises and personal financial services. The data has shown that among the 240 billion transactions, 220 billion of them were done with small and microenterprises Shi and Li (2015), indicating that online financing has improved the ability of the ICBC to provide finance services to small business firms. Furthermore, the ICBC launched another product that dramatically simplified the loan process. By collaborating with core companies in the small and microenterprises’ electric supply chain, the ICBC’s operating system dock enables the supply chain’s core enterprises’ ERP systems, and network financing is fully embedded in the supply chain transactions. Through mutual authentication among information flow, material flow, cash flow, and the credit of core enterprises, small and microenterprises have been able to get loans without additional assets. The ICBC developed e-payment and an online POS, which were innovative in response to the impact of third-party payments. These new forms of payment immediately offered some security advantages for both users’ personal information and online transactions. Confronting the threat of P2P and crowdfunding, the ICBC has had its own strategy. Joy Loan is one product that uses the comprehensive credit history of a customer. When a customer consumes in a particular channel, the system can automatically approve credit or installment payments. Netcom offers a one-time loan contract that bond with small businesses. Within the valid time period and loan amount, the customer completes self-withdrawal and repayment applications. By the end of March 2015, Netcom had accumulated loans of 1.6 trillion RMB for 6.9 million customers in China.

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E-investment is the ICBC’s transaction terminal which handled the launch of Alibaba’s Yu’e Bao in which investors trade precious metals, crude oil, gold, and other products. At the end of March 2015, there were more than 150,000 e-investment customers, which was the only domestic trading platform in the banking industry for individual investors.

The Performance of the Strategies Based on the ICBC’s development of Internet-based financing, we conclude that the bank has four performance advantages. The bank’s first and most important strategic advantage is the company’s reputation. The ICBC is the largest bank in the world by assets, and its branches are located all over the world. Over time, the ICBC has accumulated a good reputation which is one of its most valuable assets. Reputation is especially important for online financial businesses since all transactions are made on the Internet which may be perceived with some skepticism. Based on this advantage, the ICBC could build a large, digital transaction platform at a relatively low cost. Second, the ICBC has an information advantage. The ICBC is the largest bank in China with plenty of customers in its traditional business. The bank can collect information such as customers’ assets, transactions, and risk preferences which are very important factors for the development of online financing. The third advantage is the large amount of customer resources in the ICBC’s traditional business. Thus the ICBC can guide some of its traditional business customers to use its online financing. This has improved the ICBC’s performance metrics such as the click-through rate and the size of transactions. And the fourth advantage is professionalization. The ICBC currently has more than 18,000 small and microenterprise loans, which is far ahead of all other financial enterprises. The bank’s core competitiveness is a risk control advantage. The ICBC regards risk management as an important performance goal and contributes many resources to further its long-term development.

Baoshang Bank’s Strategies At the end of 2015, there were 133 city banks in China, and their assets accounted for 11.4% of the entire banking industry in China. Some of the most notable city commercial banks are listed in China’s capital markets such as Baoshang Bank, the Bank of Beijing, and the Bank of Ningbo. Therefore, city commercial banks play important roles in the Chinese banking industry. In the next subsection, we will discuss Baoshang Bank’s strategies in regard to online financing.

Background of Baoshang Bank Unlike the ICBC which has the luxury of accumulating and utilizing resources globally, Baoshang Bank is a small, local city bank. Baoshang Bank was established in December 1998 in Inner Mongolia. It has 14 branches in Inner Mongolia and 4 branches outside the province: in Ningbo, Shenzhen, Chengdu, and Beijing. It has

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186 bank outlets and 27 county banks. The bank had 340.2 billion RMB (U.S. $49 billion) in 2015. Baoshang Bank also has had its own strategies for online financing which has given it competitive advantages. Its development goal has been “to be a commercial bank for small enterprises.” Constrained by limited resources, Baoshang Bank proposed a development strategy in which it would play the role of a “plug-in” instead of a “system.” This has meant that Baoshang Bank provides services for businesses and customers in the Internet economy.

Baoshang Bank’s Digital Financing Strategies Xin Liu, an administrator for Baoshang Bank, stated that with the development of Internet-based financing and increasing competition in the banking industry, the bank is committed to the vision of “the commercial bank on the internet.” Baoshang Bank is also the first joint-stock commercial bank to explore online financial services. In order to promote the development of digital financing, Baoshang Bank adjusted the department settings and turned them into a multidivisional structure. Baoshang Bank built a special, independent department to serve small enterprises. The digital banking division – one of the four business segments in its digital financing business – is qualified with separate financial resources, credit and approval policies, remuneration policies, and risk management policies. In August 2015, the digital banking business – another one of four segments – launched; this division had more than 300,000 users by the end of 2015, making it a promising business to operate. In the meantime, Baoshang Bank set up a business center, training centers, an internal control management center, and an integrated management center, which enabled it to have professional teams and technologies to run its Internet-based financing business. Accordingly, the bank changed its operational processes to align with its new strategies, which largely improved the efficiency and innovation within the organization. With the belief that small enterprises had a huge potential for growth – particularly in regard to small but high-frequency loans – Baoshang Bank realized that, as a city bank without the ability to directly compete with big firms, it had advantages in dealing with small enterprises that were very flexible and sensitive to market demands. Therefore, Baoshang Bank positioned itself as catering to small- and medium-sized start-ups, farmers and herdsmen, specialized households, and other groups engaged in the services, trades, production, transportation, and other industries located in urban and rural areas. It grouped the enterprises by small (1 to 5 million RMB) and micro (0.3 to 1 million RMB) loan amounts. Each tier had different interest rates and levels of financial services Hao and Shi (2012). In 2005, instead of following the practices of large commercial banks, Baoshang Bank sped up its small enterprise loan business. In the same year, Baoshang Bank cooperated with China Development Bank on a Micro Loan Project Cooperation Agreement. It also introduced the German company IPC’s advanced technologies and experience in the field of small enterprise loans. As many small firms lacked

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qualified financial statements, proper assets, and professional management, Baoshang Bank changed the traditional standards – such as collateral and financial statements – to evaluate a firm’s risk but used the firm’s multidimensional “soft information” to evaluate its ability to pay. The main risk management technologies included the single firm technique, the credit investigation technique, and the financial analysis technique, which are mainly based on a firm’s cash flow. In addition, Baoshang Bank developed a series of specialized loan policies and processing standards to accelerate the small loan business after the assessment of credits, which has contributed more than 40% of its entire profits and has established its key role in the online financing business. Baoshang Bank observed that an increasing number of young people without financial experience were inclined to use the Internet to manage their wealth. This trend led the bank to launch Aerobic Finance in August 2015; it was the first digital business platform for a commercial bank in China. It was designed to help young and “lazy” people digitally manage their wealth. By the end of 2015, Aerobic Finance had more than 300,000 clients with total assets of more than 800 million RMB. Equipped with a series of professional service standards and accumulated micro loan experience, Baoshang Bank has witnessed a huge increase in its small and microenterprise loan business. Thus Baoshang Bank took a different development strategy for its e-commerce platform which required more resources. In March 2014, Baoshang Bank signed an alliance agreement with an e-commerce platform (Tian Tian.com) to develop its online financial services business. They created four business models: the blank note model, the supply chain finance model, the end-customer financing model, and the co-branded card model. Baoshang Bank had planned to improve customers’ ability to finance these products rather than guide them to consume on the e-commerce platform. The information technology infrastructure was the basis for the commercial bank to develop a digital financial platform. But with limited resources, Baoshang Bank invested more resources on the construction of IT infrastructure. For example, Baoshang Bank built its own big data system which helped the bank improve the quality of its data management and internal operational effectiveness. Baoshang Bank also emphasized training of digital financial talents with respect to financial study, mathematical modeling, computer science, and so forth, which expedited market forecasting and an understanding of customer behavior. Using its internal big data system, Baoshang Bank simplified the loan pricing and risk management processes for its traditional business which lowered management costs and improved loan quality. On the other hand, unlike the business strategy of the ICBC that provides comprehensive services for its clients with plenty of resources, Baoshang Bank differentiates itself by offering extraordinary customer service, namely, taking very good care of its customers and removing hassles. In order to provide outstanding service for its customers, Baoshang Bank has proposed two core concepts: the core customer base and the core customer management team. The core customer base is the target customer who receives value from the bank and who is loyal and sticky to corporation. The main work of the core customer managers is to prospect business and create value that satisfies existing customers. The bank has employed 1000

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young, energetic loan officers with professional training who attach great importance to risk management and ethics. Building teams that were embedded with organizational culture and vision was a unique resource to the company, and it helped the bank achieve a sustained competitive advantage. Baoshang Bank set up three-member management teams which included a customer manager, a risk manager, and a product manager in order to achieve the customer-oriented belief. It also developed 15 different kinds of products designed to attract different kinds of clients to improve service quality.

The Performance of the Various Strategies The development strategy for online financial services is based on the banks’ advantages over traditional businesses, and these two kinds of businesses have distinct benefits. Baoshang Bank benefited from the development of digital financing and was able to lower its costs with fewer employees in the same workplace while attracting more customers. And the development of online financial services improved the efficiency of Baoshang Bank’s traditional business which made it more competitive. It also mastered its pricing strategy and diversified its products to improve their competitiveness, which led to higher profits. It innovated in aspects such as loan qualifications, loan rates, loan terms, and payment methods. Expanding to other geographical areas also aligned with this philosophy, as they not only served the enterprises within a city, but they extended their influence outside these cities. The bank is now nationally recognized and has demonstrated its ability to export technologies and quickly duplicate its business model, especially in the Yangtze River, the Pearl River Delta Economic Zone, and southwestern China. Overall, the development of digital financial services has helped Baoshang Bank transform its business.

Conclusions It has been generally accepted that the development of Internet-based financing has been a big challenge for traditional commercial banks in China. However, compared with other financial companies that offer third-party payments, peer-to-peer lending, and crowdfunding, only commercial banks have the rights of RMB account settlement and deposits that enable them to have significant advantages to develop online financial services. Based on development trends within China, our analysis focused on the challenges caused by online financing relative to the traditional commercial banks. Using the resource-based view theory, we studied the strategies of different traditional Chinese commercial banks in regard to the development of digital financial services. In the case of the ICBC, we found that big commercial banks could follow the trend toward digital financial services by incorporating their traditional business advantages and these two kinds of businesses could be mutually beneficial. By making full use of its established reputation and brand influence, grasp of information, large customer base, and superb risk management technologies, the ICBC has been

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competitive and has played a crucial role in the development of online financing. The development strategies for online financing adopted by Baoshang Bank led us to conclude that small commercial banks could have an advantage in serving SMEs. Via unique flexibility and efficiency, Baoshang Bank could provide high-quality service – especially in the local areas. Additionally, we provided some interesting insights for practitioners. We found that commercial banks may benefit from developing online financial services based on their own advantages in the traditional banking business. For large commercial banks, they could adopt a comprehensive development strategy. This means they could utilize more resources in developing their digital financial services to assist more types of customers – especially large clients. However, for the small commercial banks, they could deploy a strategy involving superior customer service, which means they could focus on a few businesses and strive for better performance. They could even adjust their organizational structures to better serve SMEs. Acknowledgments We acknowledge the financial support from the National Natural Science Foundation of China (Grant No. 71603274) and the Fundamental Research Funds for the Central Universities.

References Barney JB (1986) Strategic factor markets: expectations, luck, and business strategy. Manage Sci 32(10):1231–1241. https://doi.org/10.1287/mnsc.32.10.1231 Barney J (1991) Firm resources and sustained competitive advantage. J Manag 17(1):99–120 Barney JB, Arikan AM (2001) The resource-based view: origins and implications. In: Handbook of strategic management, 124–188 Campbell JM, Park J (2016) Extending the resource-based view: effects of strategic orientation toward community on small business performance. J Retail Consum Serv 34:302–308 Day GS (1994) The capabilities of market-driven organizations. J Mark 58:37–52 Haiyan Hao, Hongbin Shi (2012) The situation and enlightenment of financial support for the development of SMEs – a case study of Baoshang Bank. Huabei Finance 3:44–46. (In Chinese) Hou X, Gao Z, Wang Q (2016) Internet finance development and banking market discipline: evidence from China. J Financ Stab 22:88–100 Kejian Shi, Dan Li (2015) Innovative internet finance and better serving the real economy – talking with four people in charge of ICBC. Financialyst 9:019. (In Chinese) Le Gao, Kai Guo (2016) Analysis on internet financial strategy of industrial and commercial bank of China. Times Finance:84. (In Chinese) Ping X, Zou C (2012) The theory of internet finance. Stud Finance 12:11–22 Priem RL, Butler JE (2001a) Is the resource-based “view” a useful perspective for strategic management research? Acad Manag Rev 26(1):22–40 Priem RL, Butler JE (2001b) Tautology in the resource-based view and the implications of externally determined resource value: further comments. Acad Manag Rev 26(1):57–66 Xiaoyun Wu, Hui Li (2015) Research on the influence mechanism of bank strategic capability on performance based on competitive strategy. J Ind Eng Eng Manag (2):70–79 Wernerfelt B (1984) A resource-based view of the firm. Strateg Manag J 5(2):171–180

Part II Leadership

Leading Organizational Change by a Momentum Management Perspective

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Runtian Jing and Yunan Zhao

Contents The Concept of Momentum in Chinese Cultures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Conceptual Model of Momentum Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparisons of Three Momentum Management Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LeEco: “Myth” of Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forming the Whole Industrial Chain Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preparing for the Implementation of Whole Industrial Chain Strategy . . . . . . . . . . . . . . . . . . . . . Implementing the Whole Industrial Chain Ecological Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expanding the Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Managerial Implications from the Momentum Management Perspective . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

In Chinese cultures, the philosophical thinking about momentum offers a rich understanding of organizational change. This chapter identifies the concept of momentum in Chinese cultures and develops a conceptual model of momentum management to illustrate the relationship between human action and situational momentum. The momentum-seizing, momentum-entraining, and momentumcreating strategies are illustrated in the context of organizational change. An example of a Chinese firm is also given to help illuminate these three strategies. Managerial implications on organizational change are threefold from the momentum management perspective: change agents synchronize their change actions with the rhythms of momentum favorableness; change agents pay more attention to the “when to change” questions; the understanding of the role of leadership can be extended in organizational change context.

R. Jing (*) · Y. Zhao Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_21

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Keywords

Momentum · Shi · Organizational change · Chinese culture

People often use momentum to predict the probability of winning or losing political campaigns, sports games, and battles. In business practice, momentum is also viewed as a key concept in increasing the success rate of change initiatives (e.g., Cross et al. 2003; Fernandez and Rainey 2006; Senge et al. 1999). One of the most significant features of Chinese culture is its philosophical thinking about momentum for change. Here, the concept of momentum in Chinese is called “shi” (“势”), which is a word of associative compounds, meaning that the ball on high is just about to roll. And shi is defined as a kind of perceived powers by change agents to trigger or maintain the movement of an organization. In Chinese society, there are many famous sayings about “momentum,” for example: “momentum is like splitting the bamboo”(“势如破竹”), “implementing in favorable momentum” (“顺势而为”), “judging the timing and size up the momentum” (“审时度势”), “saving up momentum to start out”(“蓄势待发”). This chapter proceeds in five sections: Firstly, we identify the concept of momentum in Chinese cultures. Secondly, we develop a conceptual model of momentum management to illustrate the relationship between human action and situational momentum. Thirdly, we elaborate three momentum management strategies, i.e., the momentum-seizing, entraining, and creating strategies, and illustrate their context and content in details. Fourthly, we give an example to help readers understand how Chinese managers use these three momentum management strategies to help firms established, grow, and make a success. Finally, managerial implications are discussed from the momentum management perspective.

The Concept of Momentum in Chinese Cultures The concept of momentum is, in fact, a reflection of Taoist teaching of “doing the right thing at the right time” (Jing and Van de Ven 2014). According to the Taoist view, every element is composed of a “yin-yang” duality. Here, “yin” means “feminine” and corresponds to receptive, dark, and soft; “yang” means “masculine” and corresponds to active, light, and hard. Motivated by the internal “yin-yang” duality, social existence constantly and cyclically changes, and current situations eventually transform into opposing situations (Ji 2008), indicating either favorable or unfavorable momentum for an intended human action (Jing and Van de Ven 2014). In fact, Taoism has developed a very complicated methodology to help people comprehend the favorableness of momentum, by which they can choose a favorable day for some important actions (e.g., holding a wedding ceremony, moving house, or opening a business). Although some of these traditions have been abandoned in modern societies, the cultural logic to judge the timing and

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measure the momentum for their actions is still deeply rooted in the mind of Chinese people. The concept of momentum has been further developed by Sun-Tzu in his book “Art of War.” In this book, he has used a whole chapter to illustrate how skilled commanders can use momentum strategies to win a battle. Sun-Tzu is known as a Chinese military strategist and general from the sixth century BC, whose thinking about warfare is deeply affected by Taoist philosophy. For example, the Taoist paradigm “reflects a horror of war and a deep-felt yearning for peace” (Koller and Koller 2007: 244), and Sun-Tzu’s work reflects this in that the best way to achieve peace is by a swift victory or, better yet, by defeating an enemy before war is even begun. As he writes, “to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting” (Griffith 1971: 77). Such a so-called “indirect” approach to war is different from the “direct” approach in Western societies. For example, in his book, On War, Carl von Clausewitz (2007) emphasized that victory on the battlefield can be achieved only through a decisive battle of annihilation and destruction of the opposing force at any cost. Cross-cultural comparative studies show that the Chinese are more holistic in that they see more situational causal factors, whereas Westerners are more analytic and agential as they are more likely to see individual actors as causal agents of events (Nisbett et al. 2001). However, while Sun-Tzu does believe in the causal power of the situation, he nevertheless also believes in great leaders being masters of situation (Sun et al. 2008). Sun-Tzu’s book has been considered a classic philosophical work on military strategy, and has also been popularized by the business community in their pursuit of success in commerce. Actually, the purpose of strategies regarding momentum is to create a positive position, and the more overwhelming the advantage, the greater the likelihood of swift and complete success. The following three points are the key principles to understand the Chinese momentum management perspective of organizational change: (1) Momentum is a kind of perception but not an actual behavior or entity. Momentum is perception of forces behind behavior, but not the behavior or entity itself (Ginsberg and Venkatraman 1995; Jansen 2004). For example, in the book Art of War, Sun-Tzu described the momentum in battlefield as the perceived power of a round rock quickly rolling down from a high mountain (but not the rolling behavior or rock itself), which can strongly enforce the direction of a situational change. Take the above example of marriage; the psychologist can predict the next actions of the couple based on his/her perception of the tensions or trust produced from their interactions and structural forces in the social field. Sun-Tzu likens the leader’s ability to change to a property of water: there is no fixed pattern in the use of tactics in war just as there is not constant course in the flow of water. The variation and change of tactics are based on understanding all aspects of the situation. The key is to understand fully the emergent and the potential favorable and unfavorable factors (Sun et al. 2008: 164). Weak situational momentum (i.e., scattered and inconsistent episodes) is coined with low

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perceived power of change prediction. Moreover, different people may have different perceptions of a situation, due to different cognitive structures (Baron 2006). (2) Keeping harmony between human actions and momentum as a general law in guiding momentum management activities. In Sun-Tzu’s Art of War, human actions and momentum are called the normal and extraordinary forces, respectively, as the “yin” and “yang” symbols present, which can co-determine the possible change results. “In battle there are only the normal and extraordinary forces, but their combinations are limitless. For these two forces are mutually reproductive; their interactions are endless as that of interlocked rings” (Griffith 1971: 92). When momentum is favorable, it can aid human change action, a positive relation called xiangsheng (“complementary”). When momentum is unfavorable, it dampens change, a negative relation called xiangke (“conflicting”). In fact, xiangsheng and xiangke are the two sides of the relation between human action and momentum. Such a flexible role of human agency in social construction can be understood as the mutual transformation between “yin” and “yang”: What goes up will eventually come down, and what is decreasing will eventually increase. Ultimately, when human action and momentum are no longer opposed, they have reached the pivot of Tao. (3) Momentum is created by interdependent systems inside and outside of organizations. Taoist philosophy considers momentum as the results of interdependent arrangement of organizations and their elements, suggesting a systemic view to solve change problems. For example, Sun Tzu proposed that “momentum is created by the coherence of different types of things” (in Chinese “物类相应于 势”). More specifically, to examine the internal momentum of organizations for a meaningful change, people need to consider external momentum enabled by the environmental forces that may affect internal movement. For example, Chinese medicine teaches that diseases must be examined contextually to consider important external factors in the diagnosis; seemingly similar diseases affecting patients in different seasons or years should be treated differently. Inspired by this idea, we regard momentum as an integral composed by two parts, that is, internal momentum and external momentum. This distinction is consistent with our experiences in both the physical and organizational worlds that, environmental conditions affect internal momentum for change, which can afford accelerated, uniform, or decelerated processes of organizational movement (Gibson 1977; Pettigrew 2012).

A Conceptual Model of Momentum Management Many management studies pursue their definitions of momentum back to its meanings in physics (e.g., Jansen 2004; Schubert et al. 2013). According to Newtonian physics, every moving object has a tendency to keep moving in its current direction, and the term “momentum” is defined as “the force of motion, or alternatively, the force or energy associated with a moving body” (Morris 1980). In fact, momentum

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underlies any change process. By the aid of their perception, people try to fit their actions into the rhythm of momentum. In organizational change context, “leaders may build influence and momentum for change through symbolic management tactics in which openings in the environment are identified and reinterpreted as strategic opportunities” (Denis et al. 1996: 692). Definitely, the concept of momentum is very obscure, and always lies in the shadow of people’s mental logic. Meanwhile, people often use it as the springboard to change. For example, car drivers need to take a chance to pass by a car in front of them on the road, based on their perception of situational momentum; the success of new product development is dependent on a good match between the momentum of product development activities inside the firm and the pace of market maturation in the social environment (Eisenhardt 1989). In fact, the idea of momentum for change is deeply rooted in the theoretical arguments about situational power (Nisbett and Ross 1991), typically derived from Lewin’s (1947) force field theory. Inspired by natural law in the physical world, Lewin (1947) argued that the status quo of organizations exists in a process of quasistationary equilibrium, and the situation would create potent forces producing or constraining human behavior. A possible change can be examined by comparing the strength and direction of the resultant forces. For example, to predict a course of marriage, a psychologist needs to analyze the life space of the husband and wife, and the derivation of the resultant forces can give the basis for predicting their next moves in spaces. Within the paradigmatic line of Gestalt psychology, the theory claims that human behavior must be examined as part of a single interdependent field. Here, “field” refers to “a totality of coexisting social entities. . .; one of the fundamental characteristics of this field is the relative position of the entities, which are parts of the field” (Lewin 1947: 14), which can be applied to study change processes at individual, group, or organizational level. The above gestalt view has been further developed as a configuration approach of organizational analysis (Meyer et al. 1993). After the publication of Alfred Chandler’s (1962) classic work, Strategy and Structure, students of organization and strategy began to realize that an organization’s strategy, structure, and managerial processes have to “fit” with each other. A good fit can help organization achieve complementarity among its different elements or units (Lawrence and Lorsch 1967). Here, by complementarity, we mean “doing more of one thing increases the returns to doing more of another” (Milgrom and Roberts 1995: 181). However, such a “fit” has to be accentuated frequently, since external environmental changes would force organization to destroy its previous equilibrium of fit, and then try to achieve a new one with various change actions (Fiss 2007; Siggelkow 2002). During a dynamic changing process, “complementarity among a group of core activities and processes can account for the emergence of a persist pattern of change,” i.e., “momentum” (Milgrom et al. 1991: 87). Here, momentum is defined as the perceived power produced by the movement of interdependent organizational parts in the social field. Surely, as our experiences in physical and organizational world indicate, environmental conditions would affect organizational momentum for change, which can afford accelerated, uniform, or decelerated processes of

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organizational movement (Gibson 1977). Regard as a construct at organizational level, momentum is carried on by the integral of organizational parts. As organizational boundary (e.g., Santos and Eisenhardt 2005; Williamson and Winter 1993) and complexity (e.g., Levinthal and Warglien 1999; Siggelkow 2002) theories have implied, in most times, internal parts of organizations are more tightly coupled and frequently interacted than that between organizations and external environment. In this chapter, organizational change is defined as a change made by the change agents in the form, quality, or state over time of an organizational entity (Van de Ven and Poole 1995). The entity may be an individual’s job, a work group, an organizational subunit, or the overall organization. To apply the above situational view of momentum in organizational change, change agents first need to develop their understandings about the “deep structure” (Gersick 1991: 15) of organizational system composed by the entity needs to change and its interrelated parts, and how would this system work over time within the context of environmental change. The knowledge about deep structure in organizational systems is largely implicit, which may vary across different organizations and their different developmental stages (e.g., Denis et al. 1996; Ocasio and Joseph 2006). Based on above understandings, managers can work out their change actions. This is the focus of organizational complexity studies (e.g., Levinthal and Warglien 1999; Senge 1990; Siggelkow 2002). And “when to change,” rather than “what to change,” should be focused on to keep in the same line of situational momentum. Based on the above view, we elaborated an organizational change model, as shown in Fig. 1. Here, the interplay between change actions and momentum collectively formulates the change outcomes, which can be illustrated by the example of passing the puck in the game of hockey. Hockey Great Wayne Gretzky once said, to catch an exact hitting point, the players need to “go to where the puck is going, not where it had been,” and their assessment is based on not its position but its

Fig. 1 Proposed model based on situational momentum view

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momentum. The trajectory of puck isn’t always perfect, and its momentum is constantly redirected by the surrounding forces during the moving course. Thus, a “situational momentum” sense is essential for change agents, and need the training and learning how to match their actions with a favorable chance for better change outcomes. During the initial innovation process of the cochlear implant, firms had to meet the governmental requirements of legitimation, regulations, and standards (Van de Ven and Garud 1993). Meanwhile, this is also the ferment period of market explosion, and the situational momentum was developing very quickly. Thus, firms are expected to pace their product development activities into the developmental rhythm of momentum. Otherwise, they may miss the market opportunities (Alvarez and Barney 2010; Baron 2006). From a system perspective, the change outcomes in one round will become the inputs of the changes in the next round. As an internal feedback effect, in a continuous change process, the renewed organizational context after each change will serve as the initial condition for next changes (Jing and Van de Ven 2014); successful changes can win more confidence, resources, power, and employee commitment for change agents, thus creating high momentum for following changes (Denis et al. 1996; Kotter 1996; Lehman and Hahn 2013). As an external feedback effect, organizational change can adjust the relationships between internal parts and external entities, and the reformed organization may have different competitive advantages in the market (Ocasio and Joseph 2006) and different reputation and status in the social hierarchy (Magee and Galinsky 2008).

Comparisons of Three Momentum Management Strategies Momentum evolves over time, with different responding strategies of human actions. As a general principle to maintain harmony between their actions and momentum, people need to “act expediently in accordance with what is advantageous and so control the balance” (Griffith 1971: 66). More specifically, as the decision tree diagram in Fig. 2 shows, change agents need to assess and compare current and future momentums in the aspect of their favorableness in supporting certain change actions. For example, the home appliance industry in the USA was sluggish in the 1980s, and strategic choices of the industrial firms were quite diversified due to their perceptions of environmental change. The strategic change made by Whirlpool “was not a response to an immediate crisis, but rather to an anticipated market trend” (Armenakis et al. 1993: 696). The successful changes transformed Whirlpool into the world’s largest firm in the home appliance industry at that time. The above assessment is followed by three possible strategies (Jing 2017) (Table 1): (1) Momentum-Seizing Strategy When current momentum is perceived to be favorable, change agents should promptly execute the change event that is being called for; otherwise, the

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Fig. 2 Decision tree illustration of organizational change strategies

opportunity may slip away. This is called “momentum-seizing strategy” (or “yingshi” in Chinese). Here, “favorable” is defined as a momentum condition which can afford satisfactory change results. In fact, change agents always have their criteria (e.g., financial performance, employee satisfaction) to evaluate whether the change results are satisfactory or not. This is a reactive strategy, with the least requirements of cognitive capability of change agents. Here, the major duty of change agents is to monitor the development of current momentum with little influence over the direction of change. Moreover, they can employ some models and tools of organizational change to aid the assessment. For example, in the field analysis model, Lewin (1947) has proposed that the favorableness of a change field can be examined by comparing the strength of the potent forces producing or constraining human behavior. The studies on readiness for change (Armenakis et al. 1993) and commitment to change (Herscovitch and Meyer 2002) have also developed effective instruments to measure the favorableness of internal momentum.

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Table 1 Comparison of momentum management strategies of LeEco

Environment

LeEco

Momentumcreating strategy Widespread piracy

Buying copyrights Fighting against piracy

Momentum-entraining strategy Fierce competition Copyrights purchasing becoming costly External technology environment not mature Building up video site advantege Accumulating capital advantege through listing Setting up Le Entertainment Setting up TV division Cloud construction

Momentum-seizing strategy China becoming the second largest film market IT tide of Chinese TV industry Smart phone market exploding

Le Entertainment reborned and renamed Le Vision Pictures (with a new CEO) TV division independent and renamed Leshi Zhixin

(2) Momentum-Entraining Strategy When current momentum is unfavorable while future momentum is expected to be favorable, agents can purposefully delay their change actions and be careful to entrain change efforts into the rhythm of momentum change. This is called “momentum-entraining strategy” (or “jie-shi” in Chinese). Here, one important implication is that a faster pace of change is not always better in final outcomes. Accelerating the pace may result in change actions seemingly illegitimate, which would bring about more negative outcomes to the organizations. To predict the trend of momentum development, change agents need to analyze the “deep structure” that holds organizational elements together (Gersick 1991), and comprehend the links between past and current momentum. The knowledge about “deep structure” in organizational systems is largely implicit, which may vary across different organizations and their different developmental stages (e.g., Jing and Van de Ven 2014; Siggelkow 2001, 2002). Moreover, contingencies cannot be ruled out from any future prediction, and momentum entrainment is often a tradeoff between the choices of current and future actions. Thus, the risk preferences of change agents would also affect their strategic choices. Based on the above understandings, they can make their decisions about proper moment to implement change. (3) Momentum-Creating Strategy When future momentums are assessed to be unfavorable or unclear, a better choice the agents can make is to consciously affect the internal or external forces to redirect momentum development for the next step. This is called “momentumcreating strategy” (or “zao-shi” in Chinese).

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This is a proactive strategy, with the most demanding capabilities among the three strategies in Fig. 2. As the Taoist text has said, “wise people can create momentum, while mediocrity cares more about revenue” (“智者造势, 庸者算利” in Chinese). Redirecting the development of momentum for their uses requires that change agents have enough social and political skills and favorable positions in the social network (Fligstein 2001). As prior literatures indicated, there are two ways to enact ecological factors: the imposition of hierarchical power relationship among organizations, or the creation of political alliance based on cooperation (Pfeffer and Salancik 2003). Next, the case of LeEco is introduced to elaborate the momentum-seizing, entraining, and creating strategies.

LeEco: “Myth” of Ecosystem When current momentum is unfavorable, insisting on prompting change may result in strong resistance. However, when future momentum is expected to be favorable, agents can intend to delay their change actions and entrain change efforts to align with the rhythm of momentum change carefully. The development process of LeEco reflects the momentum-entraining strategy. LeEco, founded by Yueting Jia in 2004, gradually expanded from a video site company (Le.com) to a multinational conglomerate corporation, maintaining ventures in films, televisions, sports, consumer electronics, automobiles, and other businesses. Since Le.com, which is now the subsidiary of LeEco, got listed on Growth Enterprises Market (GEM) in China in 2010, its operating income rises from 0.238 billion RMB in 2010 to 21.95 billion RMB in 2016, net profit from 73.05 million RMB in 2010 to 555 million RMB in 2016, and its market value from 4.3 billion RMB in 2010 to the peak of over 150 billion RMB in 2015. Le.com was once regarded as “the flagship of Chinese GEM,” the fifth largest Internet company in China, behind Alibaba, Tencent, Baidu, and JD. And this is only one of the seven sub-ecosystems of LeEco. At the beginning of 2016, Jia announced that the total value of the whole LeEco was more than 300 billion RMB. However, LeEco admitted encountering significant financial problems in the end of 2016. In 2017, LeEco had to sell part of the equity of its subsidiaries, Le.com, Le Vision Pictures (LeVP), and Leshi Zhixin (LeZX, producing flat screen smart TVs) to obtain external financial support. Due to acute troubles, Jia resigned from the chairman of Le.com in July 2017. The rapid development LeEco has made is such a miracle, and LeEco even once became the challenger of Chinese Internet giants as Alibaba, Tencent, and Baidu. The fast growth of LeEco can never be realized without Jia’s situational momentum sense. It is because Jia has grasped the opportunities to change and keep the pace in harmony with the momentum that LeEco succeeded in key events, establishing the entire “Le-Ecosystem.” However, the strengthening of the internal momentum usually goes with the growing of enterprises. If managers could not jump out of the gradually curing

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Fig. 3 Change process of LeEco

logic of thinking and carefully re-analyze the deep structure of organizational system, then enterprises may suffer greater risk (Fig. 3).

Forming the Whole Industrial Chain Strategy The predecessor of Le.com is a division of Sinotel Technologies, also founded by Yueting Jia in 2003. At that time, China’s telecommunications industry was transited from 2G to 3G, and China’s large-scale urbanization construction had just started: a variety of buildings continued to be put into use, and the real estate industry thrived in the “Golden Decade.” Jia seized the opportunity to launch the first generation of wireless network solution, helping cover the “last mile” of wireless network, so that people could call and surf the Internet in buildings, elevators, and some other places. It is a typical application of momentum-seizing strategy. At the end of 2003, Sinotel set up the Wireless Star Division for the special wireless media business, allowing users to download and watch movies at the same time. The Wireless Star Division became independent and renamed Le.com in 2004. Based on good relations with telecom operators and SARFT (State Administration of Radio, Film and Television), Le.com launched the first domestic 3G streaming

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media live video test network with Tianjin Mobile and gradually provided mobile TV content for a number of platforms. Due to that the mainstream mobile phones could not support the popularization of Le.com’s service; Jia decided to underwrite LG C950 mobile phones in China for Chinese customer machines. And Le.com provided LG C950 mobile phone users with 2400 RMB of content usage fees as subsidies to attract customers, for the purpose of future follow-up service charges. In 2005, Le.com even invested China’s first mobile phone drama “agreement.” From the development of Sinotel and Le.com in the early stage, Jia had built the thinking framework of whole industry chain strategy. The “last mile” wireless network construction promoted the transition to the 3G era, and a more comprehensive network coverage is necessary for future video industry development; launching several streaming video networks, especially Le.com, helped build more convenient application software service; underwriting the LG C950 mobile phones was an attempt to explore hardware market, and it established the business strategy of using short-term subsidies to promote the sales of hardware terminal (e.g., mobile phone) in order to get long-term content usage fees; and mobile TV drama “agreement” was the pursuit in the content field.

Preparing for the Implementation of Whole Industrial Chain Strategy Although this whole industrial chain strategy forms in the early stage, it is not until March 2012 did Le.com announce the whole industrial chain strategy of “platform + content + terminal” to the public for the first time. And the whole industrial chain strategy has been called the ecological strategy since September 2012. In fact, the business model of Le.com only referred to the “copyright + user + platform” in its IPO listing prospectus in 2010. Compared to the early stage, it is undoubtedly a better time to implement the whole industrial chain strategy after 2010 and officially announced in 2012. Actually, Le.com has made full preparations in at least five aspects before the implementation and announcement of the ecological strategy. (1) Building up its own video site advantage. 2005–2006 is the outbreak period of China’s video site industry. There were around 500 video site companies in China at that time. Only when Le.com build up its own advantage and stand out from the fierce competition, could LeEco have the opportunity to expand parts of the industry chain and establish the whole industrial chain advantage. At that time, most video site companies spent much more money on the bandwidth, servers, and online promotion, while the content was not an important part. Besides, the domestic copyright awareness was very limited, and most video sites seldom reviewed the upload video content in order to seize more users, causing a deluge of pirated movies, which made the competition even much fiercer among the video site companies. This kind of circumstance is an unfavorable momentum for Le.com, and future momentum is perceived to be also

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unfavorable or unclear. Immediate direct change would be too costly if not possible. However, Le.com took a different strategy. Jia once said, while others disdained the copyrights, they were the first to attach importance to the copyrights in the video industry. Le.com bought a large number of copyrights at a very low price. In 2007, the average price of movies and TV series purchased by Le.com was only 17,400 RMB, and 26,800 RMB in 2008. In 2009, Le.com purchased seven times the sum of movies and TV series with the average price of only 14,700 RMB. The total purchasing cost in these 3 years was 58.5 million RMB. And Le.com had already owned the copyrights of 2324 films and 43,100 sets of TV dramas up to April 2010, including almost 60% exclusive network copyrights of domestic popular movies and TV series. Buying copyrights was not enough for the establishing of the copyrights advantage. In 2009, the copyright war broke out, and there is no doubt that Le. com was the most active one for prosecuting. Actually, Le.com established a comprehensive anti-piracy monitoring system, and signed anti-piracy agency agreement with more than 100 law firms around the country. Once the piracy video was online, Le.com could immediately warn the video site and even litigate after verification. Many users even heard the name of Le.com from the copyright lawsuit news reports for the first time. When the “copyright” became the annual hottest keyword in the video industry, the government also promulgated the Internet video industry laws on copyright and other issues, and other video site companies had to buy the copyrights from Le.com. The copyright distribution business has contributed a significant part of revenue for Le.com since then, e.g., 356 million RMB revenue of the copyright distribution business in 2011, accounting for 59% of its total operating income. And a very high barrier of copyright was established at that time. The future momentum could be perceived to be favorable, which helped Le.com stand out from the fierce competition. (2) Accumulating capital advantage through listing. Le.com got listed in Chinese GEM in 2010, becoming China’s first listed video site company. China’s highquality Internet companies are basically listed in the USA or Hong Kong, such as Alibaba, Baidu, Tencent, JD, and Tudou. Listed in the domestic GEM as a pure Internet company, Le.com is undoubtedly very unique and enjoyed a high valuation premium. By March 2017, Le.com obtained direct financing of 9.29 billion RMB and raised a total of 16.4 billion RMB. The capital advantage brought by the listing contributed to the promotion of LeEco’s ecological strategy, such as the further acquisition of copyrights, the acquisition of Dongyang Flowers Film and Television Culture, and the setting up of LeSports. (3) Setting up Le Entertainment for further layout on the content. Le.com had been looking for to expand to the front of the content industry chain as early as the acquisition of film and television drama copyrights period. Since the project of a film or a television drama was set up, Le.com begun to cooperate with outstanding directors, screenwriters, and actors in depth, accumulating enough resources

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for later into the film industry. In 2008, Le Entertainment was established, and 1 year later, the first domestic science fiction film “Metallic Attraction Kungfu Cyborg” was produced and issued successfully by Le Entertainment. (4) Setting up TV division for further layout on the terminal. Le.com started the research project of Internet TV and set up the TV division from the beginning of 2010. And the first generation of Internet set-top box, through which users can enjoy the movies and TV dramas on Le.com on demand service, was launched the next year. It was just a box, not television, but it’s the first exploration of Le. com on the terminal field. (5) Carrying out the construction of cloud, layout on the platform. Le.com owned dozens of servers, with bandwidth more than 10G, in 2009. As a video site, all the videos on it must have the support of the cloud, so the construction of the cloud is very important. Le.com has been laying CDN (Content Delivery Network) node, the content distribution network node in the country. And by September 2012, when Le.com officially launched the cloud video platform, there were nearly 200 nodes in the country, with the total bandwidth more than 1.2Tbps. More CDN nodes and greater the bandwidth brings faster loading speed, enhancing the users’ viewing experiences. In addition, the external technology environment was becoming more mature, which contributed to the implementation of the ecological strategy for LeEco. The smart phone market in China exploded since the release of iphone4. According to China’s Ministry of Industry and Commerce data, China’s smartphone sales volume reached 118 million in 2011, 258 million in 2012, and 423 million in 2013. The popularity of smart phones further lit the market for the video sites. PCs, mobile phones, and TVs became the battlefields of video sites for their multi-screen strategy.

Implementing the Whole Industrial Chain Ecological Strategy As the external environment became more and more favorable, LeEco formally entered the fields of content, terminal, and platform. In March 2010, Le Entertainment, with the new CEO, Zhao Zhang, was reborn and changed its name to Le Vision Pictures (LeVP). Zhang had served as president of Enlight Media for 5 years, producing and issuing more than 20 commercial films, and maintained 100% growth rate for 4 consecutive years, amazing the Chinese film industry. In 2012, LeVP, though just set up, produced and released six films with the box office of 625 million RMB, ranked fourth in China’s private film companies. In 2006, LeVP won the box office of 3.95 billion RMB, only second to Enlight Media, and growth rate was up to 72.5%, becoming the fastest growing film company in the industry. From 2012 to 2016, the average annual growth rate of the box office reached 58.6%, and LeVP received more than 1.5 billion RMB financing, winning the favor of China’s capital market. Besides, in 2013, Le.com acquired Dongyang Flowers Film and Television Culture, which invested in the production of a number of well-known TV series, getting the tide of

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praise in China. The rapid development of LeVP since the establishment of Le Entertainment cannot be separated from the outbreak of China’s film market. China’s total box office hit 10.17 billion RMB in 2010, exceeding 10 billion RMB for the first time. In 2012, China overtook Japan and became the world’s second largest film market. In 2016, Chinese film total box office reached 45.7 billion RMB, with the average annual growth rate of 28.5% from 2010 to 2016. Based on the accurate judgment of the external film market trend, LeVP has become a strong participant in Chinese film industry since established. In August 2012, the original TV division went independent, renamed Leshi Zhixin (LeZX), and announced the launch of smart TV in the next 9 months. The decision of research project on smart TV was also in consistency with the external market environment. Yaqin Zhang, chairman of Microsoft’s Asia-Pacific R&D group, once said in January 2012 that “a new generation of television will be the battlefield of the IT industry in next five years, and the core element of this battle will be the occupation of families.” The tide of IT in Chinese TV industry also began in 2012. In this year, the penetration rate of smart TV in China exceeded 30%, while the smart TV industry increased by 257%. Smart TV requires the capability of both the software for the system and hardware for the device, and LeEco expected to enlarge its own advantage through the combination of “hardware and software.” LeZX tried to reduce costs as much as possible, and cooperated with the world’s top foundry Foxconn. Relying on “twice the performance with half price,” LeZX redefined the TV, and its sales volume hit 0.3 million in 2013, 1.5 million in 2014, 3 million in 2015, and close to 6 million in 2016, becoming the undisputed leader brand in Chinese Internet TV industry. In September 2012, Le.com officially launched the cloud video platform. And LeCloud, separated from the platform, was founded in 2014. LeCloud invented the VaaS (Video-as-a-Service) model, based on cloud computing, big data, and video technologies. LeCloud has built nearly 400 CDN nodes by 2014, 600 by 2015, and 750 nodes in the present, with total bandwidth 30Tbps, covering more than 60 countries and regions in the world. Although the whole industry chain strategy was formed in the early stage of Le. com, the entire ecological market environment (or external momentum) was not favorable for Le.com to expand to every part of the ecosystem. For example, the country’s copyright rules were not mature, and the terminals such as mobile phones and televisions were also difficult to support a large number of videos on demand service at that time. Thus, Jia decided to wait, and in about 2010, the momentum began to become more and more favorable. On the one hand, the popularity of smart phones and TVs made it more convenient for videos on demand, and the copyright rules were improving, and the film industry was also booming. On the other hand, Chinese GEM started a new bull market since 2013, and the GEM index rose from 700 at the end of 2012, up to more than 4000 in 2015; thus the valuation of Le.com went up as well. Seizing the favorable momentum, LeEco entered the whole ecosystem and achieved great success in a very short period of time. A complete “platform + content + terminal + application” ecology was gradually clear.

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Expanding the Ecosystem However, with the founding of LeVP, LeZX, and LeCloud and the release of Internet set-top box and smart TV, LeEco did not stop the expansion of the whole ecosystem. LeEco has set up LeSports, a sports video streaming service, released smart phones (Lephone), and even started a new energy vehicle research and development project. In March 2014, the original sports channel on Le.com went independent and was renamed LeSports. In April, the State Council introduced the Document 46 to show the support of sports industry and the promotion of sports consumption. The Document 46 pointed out the direction for sports industry development and provided a policy guarantee. Since then, Alibaba, Wanda, Tencent, and other giants began to set up sports companies, expecting to catch the first-mover advantage. In the face of fierce competition, LeSports planned to expand popular events IP resources as the entry point, and create a strong user-sticky content platform, based on which introduce sports intelligent hardware products and for more value-added services. Although LeSports presented the “application + content + terminal” ecological strategy, similar to the overall strategy of LeEco, but with the entry point of sports IP, the external environment of LeSports was totally different from the LeEco, whose entry point was the copyrights of films and TV dramas. Firstly, since the introduction of the Document 46, high-quality sports events IP purchase costs have been continuously elevated in the fierce competition among the giant companies. For example, in January 2015, the five-season exclusive network broadcast right of NBA was won by Tencent Sports at the price of 500 million US dollars (around 3.1 billion RMB); in August 2015, the 2015–2020 exclusive media broadcast right of La Liga was won by PPTV’s sports company at 250 million euros (around 2 billion RMB). Despite the high costs of purchasing Sports IP, LeSports has scored about 121 worldwide top sporting events IP in 2014 and 2015, for example, the Hong Kong exclusive broadcast right of the Premier League 2016/2017–2018/ 2019 season at more than 200 million US dollars, the mainland China exclusive media broadcast right of the AFC 2017–2020 events at 110 million US dollars, and mainland China exclusive new media broadcast right of the ATP Tennis Tour 2016–2020 at 100 million US dollars. And in 2016, when the high-quality sporting events IP competition was white-hot, LeSports won the exclusive new media broadcast right of Chinese Super League 2016/2017–2017/2018 seasons at 2.7 billion RMB (around 390 million US dollars). Purchasing a large number of sports IP required the enterprise to own strong capital strength, so it was not a proper field LeEco should enter, especially when there were many other businesses for LeEco to balance at the same time. Secondly, LeSports expected to generate profits through membership fees and advertising revenues. However, facing huge copyright fees and the declining advertising revenues and number of subscription users, ESPN, the world’s most famous sports channel had to lay off to cut expenses. The environment was quite different from the expanding period of Le.com and LeVP, when the video business or movie watching market was booming.

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Thirdly, the Chinese GEM index hit the peak of over 4000 in 2015 and went down sharply to less than 2000 by the end of 2016; thus the financing capacity of Le. com was strongly limited. As a result of significant financial problems, LeSports lost the broadcast rights of Super League, AFC, F1, Tour de France, ATP, and some other core events IP in 2017. LeSports are struggling in troubles. In May 2014, LeMobile was established, and its main business was the research and development, production of smart mobile phones, and other phone-related business. LeMobile released its first generation of Lephone in April 2015. Similar to smart TVs, LeMobile tried to reduce costs of Lephones as much as possible, and meanwhile promoted Lephones’ performance as well. However, the smart phone market was more intense than the TV market. Before the introduction of LeTV, the traditional TV industry had not changed for a few decades, and was unable to meet the growing needs of users of intelligent life. Compared to traditional TV manufacturers, who just began to make a change or even not yet, LeZX’s combination of “software and hardware” model was the subversion of the television industry. However, the smart phone market in 2015 was a red sea, where Apple, Samsung, and many domestic brands (e.g., Xiaomi, Huawei, and Lenovo) were strong competitors in the industry. Apple had strong synergistic effects between its system and terminals, while Xiaomi’s phones were almost the most cost-effective one. So it was so hard for LeMobile to make phones with the special advantage. In November 2014, Jia revealed the “SEE (Super Electric Eco-system) plan.” And LeSEE was established in January 2015, which meant they entered the automobile industry formally. Like LeTV and Lephone, Le Supercar was regarded as more than an electric car, but a complete ecosystem, including the entire platform behind the car, the content, the car terminal, and the support for a series of applications. However, the research and development of a new car model means hundreds of millions of dollars’ investment for traditional automobile enterprises. LeSEE had to take heavy technical and capital pressures of making an electric car from 0 to 1. Faraday Future, the core of the LeSEE ecology chain, is also in a dilemma due to the LeEco financial problems that have taken place since 2016. And at the end of 2016, Dan Schwartz, Nevada State Treasurer, where the Faraday Future factory was located, even said that it was a Ponzi scheme when interviewed. When both current and future momentums are assessed to be unfavorable, agents can take momentum-creating strategy, and consciously affecting the internal or external forces to redirect momentum development for the next step is a better choice for the agents. In the early stage, Jia knew that if Le.com didn’t change, its outcome was undoubtedly to be stuck in the fierce competition with hundreds of video site companies. On the contrary, as Taoism teaches, unfavorable momentum can be converted into favorable momentum by brokering ecological forces for their own aim. So Le.com began to buy a large number of copyrights to establish the barrier, and was active to fight against piracy, which contributed to the crackdown on piracy implemented by the government. When current momentum is unfavorable while future momentum is expected to be favorable, agents can take momentum-entraining strategy, making preparations

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for the upcoming changes in the environment. Jia was not anxious to implement the ecological strategy in the early stage. On the contrary, he waited and made the full preparations, including the purchase of copyrights, the accumulation of capital, the construction of cloud, and the content and terminal business exploration. When the momentum becomes favorable, agents need to seize the opportunity and take momentum-seizing strategy. As the copyright rules being gradually mature, and the process of the popularity of film industry, the breakthrough of smart devices, the outbreak of capital market, the momentum became extremely favorable, LeEco implemented the whole industrial chain strategy, and then achieved great success in a short period of time. In addition, it is noteworthy that the growing process of enterprises is also accompanied by the continuous strengthening of the internal momentum. In LeEco’s case, the success of Le.com, LeVP, and LeZX strengthened the internal momentum of LeEco. As Jia once said, “LeEco has been accustomed to opening up new business when nearly in trouble of cash flows” (Fu 2013: 54). When in short of money, what LeEco learned from its previous experience was to establish a new business, which, however, did not work for all times. LeEco’s performance was not good enough, even quite bad in this respect, causing the latter serve financial crisis. When the external momentum became no longer favorable, LeEco was still following its internal momentum of continuously developing and expanding the ecosystem, making extra expansion to LeSports, LeMobile, and even LeSEE. At this time, the internal momentum became the inertia of change for LeEco. A pure strategy of “entraining” the momentum made LeEco loss of control. If enterprises cannot jump out of the gradually curing logic of thinking, and carefully re-analyze the deep structure of organizational system from time to time, they may miss the opportunity of discovering the change of environment and have to bear greater risk of survival.

Managerial Implications from the Momentum Management Perspective The momentum management perspective has important implications for management. First, the perspective emphasizes that change agents synchronize their change actions with the rhythms of momentum favorableness. When current momentum is favorable, change agents can take momentum-seizing strategy to implement change with less resistance. When momentum is predicted to become favorable in the near future, they may adopt a momentum-entraining strategy to explore the favorable chance from future environment. When facing unfavorable momentum, they may adopt a momentum creating strategy to initiate enactment upon ecological factors, in order to redirect situational momentum for a better chance to change. Despite the complexity of various change dynamics, a general law in guiding and assessing organizational change activities is to keep the harmony between human actions and momentum. Second, the perspective emphasizes that change agents pay more attention to the “when to change” questions. Despite the popular saying that timing is everything,

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the vast majority of organizational change studies have been aimed at “what to change” rather than “when to change” questions (Ofori-Dankwa and Julian 2001). However, in practice, many attempts of organizational change fail because they are executed at the wrong time when managers do not have enough awareness and control. In this sense, change agents need to develop their skills in managing momentum for change, and to avoid implementing change actions in unfavorable momentum. Finally, the perspective can extend our understanding of the roles of leadership in organizational change context. In prior transformational leadership literature, leaders as change agents have been granted strong and brilliant roles in organizational change context, and they can inspire the followers by their vision-driven behaviors (e.g., Bass and Avolio 1994; Howarth and Rafferty 2009). By contrast, in the Taoist text, it is believed that the ultimate goal of leaders is to minimize their roles in a social change process. An ideal model is called “governing without interfering” (“无为而治” in Chinese), which implies that it is often better for the leaders to think about change in advance, and plan to accomplish their change intentions by seizing, entraining, or creating favorable momentums, rather than making radical change. This echoes calls for “small-win strategy” research by organizational change scholars (Weick 1984; Reay et al. 2006). Moreover, different momentum responding strategies are associated with different ways of knowledge accumulation, with different time orientations. To build up momentum for continuous change, change agents need to learn how to constantly shift their time orientations, rather than just keep vision-oriented (i.e., a future-to-present time orientation) (Brown and Eisenhardt 1997; Ofori-Dankwa and Julian 2001). The knowledge about links in time can help change agents comprehend the “deep structure” underlying the internal and external momentum and learn to set incremental goals for each round of change.

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Successful Knowledge Transfer in Manager-Employee Relationships in China

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Joerg Bueechl

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China’s Education System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trust Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Role of the Manager and Leadership Styles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

This chapter informs about leadership and knowledge-transfer expectations in China. Specifically, this chapter unveils the impact the ancient and the modern Chinese education systems have on perceptions of hierarchy and manageremployee relationships. It will be illuminated how the trust formation process between managers and employees is facilitated in China and how it differs from the one in Western countries. There will be an overview on the main constituents of Chinese leadership as well as on different leadership styles and its main implications. Contextual factors, such as generation, industry, and geographic differences, will be considered. Finally, this chapter provides a guideline on how to successfully transfer knowledge in Western-Sino manager-employee relationships including culture-specific concepts such as guanxi and face. Keywords

Knowledge transfer · Manager-employee relationships · Trust · Hierarchy

J. Bueechl (*) China Center Tuebingen, Tuebingen University, Tuebingen, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_23

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Introduction The economic transition and development of the People’s Republic of China has been unprecedented on a global scale since 1978. Aside from important and fruitful domestic economic reforms, which allowed China to earn the status of the most important economy in Asia and the second most important economy worldwide, it continuously attracted foreign capital and international companies, which now account for over 30 million employees. Even though the Chinese economy is currently facing challenges triggered by the banking and financial crisis in 2008–2009, affecting areas such as the real estate market, the banking system, as well as overcapacities in key industries, there is still an abundance of international companies, which work with China on a monthly basis and participate in its growth. In this vein, Western companies send expatriates as well as short time assignees to China to transport their Western corporate culture and transfer knowledge necessary to produce and to assemble on site. Given the fact that the costs of an expatriation assignment including benefits and cost-of-living adjustments account for $250,000 per annum, it is of utmost importance for the Western international assignees to succeed (Cheema 2012). For these reasons Western managers need to familiarize themselves with the Chinese mentality and its corresponding leadership concepts, which date back to over 5000 years to successfully transfer ancient culture knowledge. This chapter enriches current Chinese management literature by presenting a guideline of how managers can successfully transfer knowledge in a Chinese working context. Specifically, this chapter unveils the Chinese education system including its implications for management contexts as well as how trust and relationship building processes manifest themselves in China. To follow, expectations towards managers from a Chinese perspective will be discussed. Subsequently, the success factors of various knowledge transfer and management techniques in Chinese working settings will be illustrated, followed by a conclusion.

China’s Education System As the Chinese education sector is the largest globally, one can easily notice that education deserves a very high priority in Chinese society. It is often seen as China’s most important economic feature. In order to understand how the Chinese education system works, one needs to first become familiar with Chinese historic context. Starting as early as the Sui-Dynasty, but nationwide effective under the TangDynasty, China’s military aristocracy was gradually replaced by a gentry class of scholar-bureaucrats. From this moment on, Chinese (men) could obtain a highly respected civil service post not as a result of their descent, but rather because they successfully qualified through passing the multi-stage imperial examinations. These imperial exams, which could be taken only every 3 years, took years of disciplined preparation, with success rates as low as 1–2%. Memorizing and reproducing the Four Books and Five Classics by Confucius were the main constituents of these exams. The traces of these very notions are still to be found in nowadays Chinese

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society, in which one of the key Confucian values lifelong learning is still highly valued. As a consequence, educational and academic success is still more the norm than a choice. To qualify to study at a university, high school students need to successfully pass the university entrance exam (gaokao), which examines subjects such as Chinese, Mathematics, and English as well as special electives. These exams are highly competitive as university access is restricted to students with the best results. The competition and the pressure to perform is incredibly high, and families invest a significant amount of money and other resources to increase the opportunities for their children. China’s education system is designed to teach through observation, reading, and imitation, as distinct to Western educational systems which put an emphasis on the importance of critical thinking and inquiry. The results are exams which focus on the repetition of memorized knowledge, which rewards students with a high degree of repetitive intelligence rather than those with a creative intelligence. The consequences thereof are particularly evident during the first years of working experience after university graduation as it often takes significant amount of time to train graduates on the job, particularly in areas which require a creative problem-solving approach. Important to point out, however, that education systems on each level (e.g., kindergarden, primary schools, high schools, and universities) in first-tier cities, such as Shanghai and Shenzhen, recently began to develop programs to foster aspects of creative thinking as well. These programs are sporadic phenomena rather than the norm. Moreover, the highest number of foreign exchange students in the West is Chinese. According to China’s Education Department, over 2.5 million Chinese students studied abroad in the last 34 years. Between 2007 and 2012, Chinese international students increased about 20% on a yearly basis, with almost 400,000 Chinese students abroad in the United States. To be exposed to different living styles as well as education environments effects one’s learning, thinking, and problem-solving competences. However, since 1978 only one quarter of the Chinese students studying in foreign universities returned to China for work. Concluding, even though there are recent changes in China’s education system, there is still a strong focus and to an extent a level of comfort with memorization at the expense of creative strategies towards problem-solving.

Trust Formation To form and develop trust is arguably one of the most significant aspects for successful management. Only if trust is being built, one knows that he can rely on the other, who feels a reciprocal obligation in return. Trust can be regarded as the willingness to be vulnerable to the behavior of another person, and it arises whenever people come together who share common beliefs and values. As beliefs and values differ from culture to culture, it is crucial to be aware of each value system to be able to act accordingly. When dealing with trust formation and development, Western research primarily focuses on cognitive trust, which primarily relates to competence (i.e., skillset, competences which enable someone to succeed at his job), benevolence (which represents the extent to which a person wants to do good to the other),

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and integrity (the assumption that someone adheres to a set of acceptable principles) before transcending to more affective (emotional) stages. However, instead of these aforementioned cognitive aspects of trust, Chinese seem to emphasize more emotional features of trust in the beginning of their working relationships, a phenomenon which opposes current Western management and research literature. In this vein, Chinese show a strong tendency to exchange personal cues to get to know one another before concentrating on the hard facts. An explanation why Chinese place such a strong emphasis on relationship orientation might lie in the lack of legal security in China. Therefore, seeking security and reliability from their social network helps to compensate for missing institutional security. In this vein, Western managers can form trust towards their Chinese employees through engaging in small-talk and talking about hobbies, traveling, or particularly about family matters, as family is one of the most important values in Confucian societies. The information which Chinese employees draw from private talk helps them to gain an understanding of their counterpart which invigorates the trust formation process. Both Westerners and Chinese can foster a common understanding of trustworthy behavior by transparently communicating their needs and their expectations right from the beginning. The implementation of cross-cultural trainings before international assignments helps to foster the awareness and knowledge about each other’s cultural expectations, which accelerates the trust formation process.

The Role of the Manager and Leadership Styles In order to understand leadership in China, one needs to understand the teachings of Confucius. Arguably the most prominent person in Chinese history, Confucius still influences Chinese society and management to a great extent still today. Confucianism can be regarded as a complex system of social ethics giving orientation for good conduct, hierarchy, and collectivism as well as seniority and tradition with the vision to establish and maintain societal order and harmony. Confucius defined five principle relationships which guarantee societal harmony, if being obeyed by all people: ruler-subject, father-son, husband-wife, older brother-younger brother and friendfriend (Rarick 2007). These dyadic relationships were based on propriety and reciprocity of which the first four represent a hierarchical setting and the latter an egalitarian setting. Reciprocity in this respect can be understood as mutual obligations, whereas the expectation towards hierarchical higher members of dyads (such as managers) is to be righteous and to treat subjects with benevolence while granting security. On the other hand, lower members (such as employees) are expected to be obedient and loyal in return. Therefore, Confucianism provides a moral framework which determines how people should behave in relation to others in social hierarchical contexts. The aforementioned dual role-obligations can therefore be seen as a key Confucian duty. Seniority is another integral aspect of Confucianism which has played a pivotal role throughout Chinese history. Even though there is an increase in young Chinese leaders, who are open towards Western communication and leadership behaviors, there is still the general notion in China that juniors owe seniors

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respect and obedience and that seniority correlates with hierarchy. As a result, particularly in state-owned enterprises, seniority-based wage is a still widely applied principle. In China, there are different kinds of leadership to be found. However, the most widely applied one is the paternalistic leadership style, which incorporates discipline with fatherly benevolence (Wu et al. 2012). Paternalistic leaders value loyalty as well as unquestioning obedience. Evidently paternalistic leadership comes along with authoritarian components as the leader directs his instructions downwards and expects them to be followed without hesitation. Therefore, leadership in China builds on extensive hierarchical gaps (Taylor 1989). However, the manager also has obligations which he needs to comply with towards his employees: Managers in China need to show a profound interest in the personal lives of their employees and need to enhance personal welfare. There is the expectation to provide protection and well-being in exchange for loyalty. The expectation of the employees towards their managers to participate in their personal lives and to help them with their personal problems is much more prevalent in China than in Western countries: Managers treat their employees on regular dinners, attend birthday and wedding parties, help them to expand their network for future personal and professional opportunities, and at times even support with medical bills of their employees or their parents (Wall 1990). To have frequent contact and a close personal relationship is therefore a viable indicator for the stability and the quality of the working relationship. The difference to the Western transformational leadership style compared to paternalistic leadership in East Asia is that even though transformational leaders provide individualized support to their employees, it is often restricted to the work context and does not transcend to the personal level. Western employees could interpret their manager’s interest in their personal lives as an intrusion into their private sphere. Aside the authoritarian and the benevolent element of paternalistic leadership, morality also plays a pivotal role. The manager is expected to lead by example in an unselfish way based on a high degree of integrity and moral character. His behavior is not arbitrary, but he is aware of his position as a role model at all times, which represents fairness and virtue. Another leadership style which is not as prominent as the paternalistic leadership style anymore, but which is still prevalent in central China, in state-owned enterprises and in traditional industries such as mining, is the authoritarian leadership style. Authoritarian leadership can be traced back to legalism, which was a philosophy in ancient China which stood in stark contrast to the ideals of Confucianism: Legalists strived to structure the nation and society through strict laws and regulations, followed by severe punishments for transgressors. Personal relationships and inherited privileges were seen as hazards for legal certainty. Another difference between Confucianism and Legalism was that Legalists believed that people are inherently bad, lazy, greedy, and egoistic by nature and therefore have to be forced to be good by an extensive punishment and gratification system. Moreover, the emperor considered his people to be instruments to only serve his plans. In this vein, in contrast to paternalistic leadership, authoritarian leadership is focused on control, exploitation, and the avoidance of punishment. Fear is the main motivator why employees follow their leader’s instruction.

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Cooperative leadership styles which are designed to empower employees by granting them responsibility, by promoting self-reliant and proactive behaviors and which encourage two-way dialogues and the opportunity to criticize across hierarchical levels, are rather the exception than the norm in China. Cooperative leaders can be primarily found in private-owned enterprises in first-tier cities, such as Shanghai or Shenzhen, particularly in start-ups and other companies in modern and emerging industries such as in the digital industry or in public relations. However, as cooperative or participative leadership elements run counter the implications of hierarchy, this leadership style is still largely underrepresented. If a manager promotes a pluralistic decision-making process, his employees might interpret this behavior as a weakness. This might be a sign that the manager does not know what to do in this specific situation as he relies on the input of his employees (Waldkirch 2009). When one compares Asian and Western leadership styles, differences become evident very quickly. In the USA, managers follow a management by objectives leadership style, which aims at aligning the goals of the manager with the ones of his employees. Specifically, employees can discuss how to approach tasks with their managers and are granted enough space to maneuver and to make decisions on their own. In China, a management by feeling leadership style is more common where the manager checks regularly on his employees, both on professional and on private matters, which can be related to the collectivistic value of Confucianism (Lau et al. 2007; Lin and Huang 2014). The well-being of employees has a higher value than making profit, which often is in contrast to the Western perspective. Additionally, whereas in Western countries conflicts are regarded as fruitful impulses to find creative problem-solving approaches, in China, voicing own opinions is a sign of questioning the knowledge of the manager and of jeopardizing harmony, which needs to be avoided at all times. In China, the manager still cooperates with his employees by supporting group discussions on the one hand, but by keeping the exclusive right to make decisions on the other hand. China is a collectivistic country, which implies that the group is given priority over every individual in it (Hofstede 1980). This philosophy again affects the applied leadership style. It is the task of the manager to strengthen the in-group feeling among his employees through team building measures and through seeking the dialogue to his employees as well as by taking consideration for the specific relational dynamics within his team (Chin 2015). The manager is also responsible to maintain harmony within his team by mediating conflict and pursuing the collective interests and needs of his team. Another aspect worth keeping in mind when talking about appropriate leadership styles is to pay attention to China’s generation differences. Researchers usually differentiate between the New China Generation (born before 1949), the Lost Generation (born 1949–1960), the Transitional Generation (born 1970–1979), the One-Child Generation (born 1980–1990), as well as the E-Generation (born after 1990). The values as well as the expectations towards work and the manager are shaped by the societal context, which is significantly different between each of the abovementioned generations. The New China Generation, which stands for the

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founders of the new communist China, and the Lost Generation, which had only limited access to education and which was obliged to mainly work in the primary sector, does not play a crucial role anymore as most of the generations’ representatives already retired. The Transitional Generation is more optimistic and dynamic than the previous generations and was the first one to be exposed to Western products and culture. Even though they appear to be more modern, they still inherited the traditional value system. The One-Child Generation grew up in an environment, which was shaped by a mature economy and materialism. They had the access to academic institutions, are confident, self-conscious, and are open towards new trends. Even though they commonly reject traditional moral doctrines, they still accept or even expect the paternalistic leadership style, as they have grown accustomed to it through their upbringing by their parents as well as by the still traditional education system. The E-Generation incorporated information technology into their every day’s lives, think independently, and have a higher focus on their individuality. They wish to pursue their individual dream and therefore look for a manager who increases their market value and who provides a long-term career plan in accordance with their personal goals.

Knowledge Transfer One of the key tasks of Western managers and specialists who are assigned to China is to successfully transfer knowledge. When starting to work in China or to collaborate with Chinese project members, it is of highest importance to gain a basic orientation and substantial information on colleagues and other stake holders, particularly with respect of network and hierarchical structures. In this respect one of the most influential concepts in the Chinese business context is guanxi. Guanxi can be translated as connections, relations, or relationships (Lovett et al. 1999). As regulations of national institutions were not necessarily reliable, Chinese started to find alternative ways to gain advantages, secure resources, accelerate bureaucratic processes, create business opportunities, and obtain predictability, which they primarily achieved through establishing connections or relationships. Those relationships which are related to guanxi are usually of rather informal nature and differ significantly from the business relations in the Western hemisphere: Whereas business relations in Western countries are depersonalized and primarily focus on tasks, products, and projects, which make business partners replaceable, Chinese seek to find strategic partners according to the best personal-fit, who they can rely on from a long-term perspective. The focus therefore is set on a specific person, and in the beginning of relationships strangers are regarded as potential friends, who are being offered privileges before the friendship evolves and stabilizes. However, in Western countries you need to become a friend first to be entitled to certain privileges. In organizations in China one finds significant overlaps between formal and the abovementioned informal relationships; for instance, a manager and his employees might have studied at the same university, which accelerates the relationship building process. To have guanxi also means to have a personal relationship to another

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individual which is featured by sentiment and by a feeling of obligation. Understandably guanxi might also result in conflict if the manager bestows certain employees, whom he has strong ties to, with privileges at the expense of neutrality and fairness. Furthermore, guanxi results in a feeling of obligation, which strengthens the loyalty of the employees towards the manager. As guanxi influences the power structure in organizations, it is important for the Western manager to first establish relationships to his environment which enables him to obtain the information which he needs to successfully complete his tasks. Such vital information covers issues such as how competences are being distributed throughout the organization and the projects: i.e., identifying the people who have the competence to collect and pass on information, who is allowed to make decisions and who is able to put decisions into practice, who is allowed to conduct negotiations, and who owns specific privileges. Respectively, if the Western manager does not have any guanxi yet, other stake holders might not feel committed towards him, which makes it even more difficult to delegate work or to receive information. Therefore, it is indispensable to invest a lot of time in the personal relationship building process, by spending as much informal time as possible with people that might be important for future endeavors. As China is a high-context culture, it is also often very difficult to decode messages, particularly if a conflict is involved. However, as the relationships grow, one gradually leaves the out-group and becomes an in-group member. As a result, communication patterns will become more transparent, and the words will obtain more weight which again results in continuous reliability. One effective way to expand one’s in-group is with the help of intermediaries. Intermediaries are people who share features of both sides and thus can accelerate the trust formation process. This is also the reason why it is so important to go to networking conferences and to go out for dinner with as many people as possible because it is exactly like this how one’s network is being expanded. The more the personal network is developed, the more information one obtains on contextual factors, such as who is in charge, which kind of changes might come up shortly, who is likely to drop out of the project or the company, etc. Especially when Westerners do not know so much about the business culture in China, they often experience difficulties with conflict management. Whereas Westerners tend to solve conflict in a direct and transparent way, in China conflicts are being mediated by intermediaries or solved very indirectly. This way of conflict management is attributed to the concept of face. Face in the Chinese cultural context is not only the physical face, but rather incorporates the opinions and appreciation others have about someone. It is of utmost importance always to keep and never to lose face. Face loss is induced if someone does not maintain the expectations of his social role as a manager, an employee, a parent, etc. and if this person is being embarrassed and/or criticized publicly. Whereas, in cases of misconduct, many individuals living in Western cultures feel guilt, Chinese often feel ashamed. This is because in China the society is the moral authority, whereas in the Western hemisphere the conscience plays the role of the moral authority. Therefore, in Western cultures people often feel being obligated towards themselves or towards

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a specific task, whereas Chinese rather focus on their relationships to other group members (Oetzel et al. 2001). When engaging in misconduct, Westerners rather show a tendency to temporarily lose respect for themselves as a result of a guilty conscience, whereas Chinese have the feeling that they embarrassed their collective and therefore experience face loss. In other words, while Westerners separate the task from the person, it is easier for them to cope with criticism because they detach themselves from the mistakes they made on a personal level, whereas Chinese often take criticism far more personal as there is no differentiation between task/action and the person itself. This is the main reason why it is so important not to publicly criticize Chinese as they would lose their face in front of their peers. However, the one who engages in public criticism also loses his face as he could not control himself and put the other person into this sensitive position. Therefore, when criticizing, it is important to do so in private and if possible in a neutral zone: for instance, while walking in the park or while having dinner. This context helps the person who is being criticized to deal with the situation in a better way as the topics being discussed can flip-flop between conflicts and comfortable contextual factors such as food, family, etc. Furthermore, with respect to face, Chinese have a tendency to be more afraid to be laughed at or to be excluded. The manager should therefore put a lot of effort, time, and sensitivity into the knowledge transfer process so that his employee will be well-prepared and does not feel like he is not able to complete the task, which ultimately might again result in face loss. A strategy for a Western manager is to give instructions as detailed as possible so that the employee will not be exposed to a situation in which he commits major mistakes due to a lack of knowledge. Another strategy is management by walking around by which the Western manager regularly checks up on his Chinese employee to assess if he needs more support, resources, or guidance. This proactive behavior by the manager to check on the work of his employee is not attributed to a lack of trust, but is rather a signal to show care and support and to ensure that the employee will have all the knowledge and resources necessary to succeed at his task. Furthermore, as distinct from many Western countries in which the manager delegates both the task and the responsibility, in China the responsibility usually remains with the manager. Therefore, the manager is inclined to check on his subordinate more frequently as the manager will be held accountable in case his subordinate does not succeed at accomplishing the delegated task. Successful knowledge transfer is once again closely associated with the values of Confucianism and the resulting paternalistic leadership style. As mentioned above, for centuries education with focus on memorization has played a predominant role in Chinese society. Before entering school, children are already starting to memorize and to reproduce Chinese characters. Therefore, Chinese characters influence Chinese students to think more visually than Westerners do. In this vein, particularly technical knowledge transfer is often most effective with the help of pictures that give basic orientation. Furthermore, practical examples should be included in the presentation and should precede theoretical aspects of the task. It is also helpful to repeat the core messages with different words as language barriers often exist and foreign language competences are rare particularly in central China and/or in more

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rural areas. Western managers should therefore perpetually remind themselves to speak slowly with a more simple sentence structure when giving trainings or when transferring knowledge. Another key consequence of the learning patterns in China is to repeat whatever aspect appears to be important to the Western manager as redundancy comes along with relevance. The more often specific aspects are being pointed out, the more important they are meant to be and are not to be forgotten. This also runs counter to Western mentality, where no news is often equated with good news. Moreover, when transferring knowledge, in China it is not as common to proactively ask questions during trainings compared to the USA because asking questions might result in a double-sided face loss: The trainer or manager loses his face because he did not explain well enough and the student or employee loses his face because maybe he did not pay enough attention. However, it helps to include frequent breaks, which allows participants to walk up to the trainer and ask him questions privately and thus diminishing the risk of losing face for either side. Finally, to continuously give positive feedback and to present potential future career paths are effective ways to increase loyalty and commitment as both factors are associated with support and care by the manager towards his employee.

Concluding Remarks This chapter reveals that leadership in China and the corresponding knowledge transfer is far more complex than many Western managers might expect. Even though Chinese still value the core principles of Confucianism, it is evident that the dynamics of Chinese society and economy have strong effects on how its people act and think today. This notion leads to a scattered landscape of expectations which makes it difficult to identify a single appropriate leadership style or a specific guideline on how to transfer knowledge. Indeed, despite all modernization processes which are happening in China since the Opening Reform in 1978, cultural values such as hierarchy, seniority, guanxi, and the concern of face are still prevalent and can be detected throughout the country. However, the intensity to which these values are being put into practice at the workplace heavily depends on location, industry, and generation. Therefore, when preparing for an international assignment in China, Western managers should take the personal backgrounds of their subordinates as well as the industry context into consideration. Furthermore, as the foundation for successful cross-cultural collaboration is the formation of trust, which again stems from common values, beliefs, and behaviors, managers should participate in crosscultural trainings and regular coaching sessions to obtain a profound understanding of the other culture. Regarding the formation of trust, setting a focus on relationship orientation, which often also transcends to the personal sphere also, is an important contributing factor to establish a sound business relationship. As a result, the paternalistic leadership style, which incorporates the concern for the well-being of the subordinate and which focuses on hierarchy and loyalty, is the one which is most extensively applied in China.

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While transferring knowledge, it is important for the manager to create an environment which enables both sides, manager and employee, to fulfill their part of the working relationship, that is, Western managers should adapt their communication style to the language level of the employees. Furthermore, providing as many details as possible, integrating redundancy loops as well as teaching with the help of pictures has been proven to be highly effective as Chinese learn to communicate via Chinese characters from early on. Also, the manager should always be sensitive to situations, in which conflicts might arise and protect the face of his employees as well as his own through strategies such as finding an intermediary or solving the conflict outside the working context.

References Cheema H (2012) Best cross‐cultural training practices for North American and European expatriates in China: a Delphi study. Journal of Psychological Issues in Organizational Culture 3 (3):20–47 Chin T (2015) Harmony and organizational citizenship behavior in Chinese organizations. The International Journal of Human Resource Management 26(8):1110–1129 Hofstede G (1980) Culture’s consequences. Thousand Oaks: Sage Publications Lau DC, Liu J, Fu PP (2007) Feeling trusted by business leaders in China: antecedents and the mediating role of value congruence. Asia Pacific Journal of Management 24(3):321–340 Lin KW, Huang KP (2014) Moral judgment and ethical leadership in Chinese management: the role of Confucianism and collectivism. Quality & Quantity 48(1):37–47 Lovett S, Simmons LC, Kali R (1999) Guanxi versus the market: ethics and efficiency. Journal of international business studies 30(2):231–247 Oetzel J, Ting-Toomey S, Masumoto T, Yokochi Y, Pan X, Takai J, Wilcox R (2001) Face and facework in conflict: a cross-cultural comparison of China, Germany, Japan, and the United States. Communication Monographs 68(3):235–258 Rarick CA (2007) Confucius on management: understanding Chinese cultural values and managerial practices. Journal of International Management Studies 2(2) Taylor R (1989) Chinese hierarchy in comparative perspective. The Journal of Asian Studies 48 (3):490–511 Waldkirch K (2009) Erfolgreiches Personalmanagement in China. Wiesbaden: Gabler Wall Jr, JA (1990) Managers in the People’s Republic of China. Academy of Management Perspectives 4(2):19–32 Wu M, Huang X, Chan SC (2012) The influencing mechanisms of paternalistic leadership in Mainland China. Asia pacific business review 18(4):631–648

The Dynamic View on the Leader Trait Theory in the Chinese Context

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Liguo Xu, Pingping Fu, and Youmin Xi

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yin-Yang: The Essential Feature of the Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dynamic Evolution of Leader Traits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Composite Evolution and Yin-Yang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dynamic Expression of Leader Traits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

A leader’s traits evolve over time and are expressed differently under different situations. Based on Xu et al.’ (Leadersh Q 25(6):1095–1119, 2014) research, this study focuses on the dynamic view on the leader trait theory in the Chinese context to explore the distinctive characteristics. There are three patterns (homological, converse, and composite) by which leader traits evolve. The essential feature of the Chinese culture that affects the Chinese thinking the most is the notion of “Yin-Yang.” The composite evolution is distinctive in the Chinese context. The traits leaders demonstrated under specific situations are composite in nature, which also supports the notion that traits evolve.

L. Xu (*) School of Management, Xi’an Jiaotong University, Xi’an, China e-mail: [email protected] P. Fu Nottingham University Business School China, University of Nottingham, Ningbo, China e-mail: [email protected] Y. Xi School of Management, Xi’an Jiaotong University, Xi’an Jiaotong-Liverpool University, Xi’an, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_24

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Keywords

Leader trait · Trait evolution · Trait expression · Composite trait · Yin-Yang

Introduction Traits have been defined as thoughts, emotions, motives, capacities, and patterns of behavior (Kirkpatick and Locke 1991; Kassin 2003) and “a variety of individual attributes, including aspects of personality, temperament, needs, motives and values” (Yukl 2010, p. 43). Often treated as a synonym for many other terms, including attribute, personality, characteristic, ability, and so on (Zaccaro et al. 2004), the meaning of trait has been ambiguous and confusing. Trait is a “coherent integration of personal characteristics” (Zaccaro et al. 2004, p. 104) and relates to interior (e.g., thoughts, emotions, motives, beliefs) and exterior (e.g., patterns of behavior) characteristics of a leader. Leaders’ characteristics are defined as (a) the internal aspects of the leader, which includes personality, values, and particular mental and moral attitudes (James 1920; Eberly et al. 2010; Lord et al. 2011), and (b) a complex identity structure (Hannah et al. 2011) that involves the leader’s ethical and moral beliefs, intentions, and behaviors (Bass and Bass 2008). We did not find an exact definition for attribute, but it is generally described as self-esteem, narcissism, etc., which are usually included in the lists of leader traits. Personality is defined as a particular combination of emotional, attitudinal, and behavioral response patterns of an individual, and the most widely used are the five types (the Big Five), e.g., extraversion, agreeableness, conscientiousness, neuroticism, and openness (John et al. 1991; Barrick and Mount 1991). We choose trait as the focal construct of our study because it appeared more extensively used than the other three, and defined it as an individual’s general “characteristics, including capacities, motives, or patterns of behavior” (Kirkpatick and Locke 1991, p. 48). The studies on leader traits can be traced back to 1869 when Galton stated that a leader’s traits were inherited and unchangeable (Zaccaro 2007; Xu et al. 2014). In the decades that followed, it was a commonly held belief that leader traits remain relatively stable and most people believed great leaders were born, not made (Xu et al. 2014). In the USA, one of the largest and longest nationwide surveys followed thousands of people from 1930s through to the 1980s. Researchers found that traits generally did not change over time (Fu et al. 2013). In China, most people know the sayings that “Someone has been away for just a short period of time but changed a great deal for the better when returning” (士别三日, 当刮目相看), and “One plays a double game when he/she speaks to different people” (见人说人话, 见 鬼说鬼话). The two Chinese sayings indicate that a person’s traits can change and be expressed in different situations. The dynamic of leader traits refers to the change and expression. Namely, some leader traits not only change over time but also are expressed in different situations (Xu et al. 2014). For the change of leader traits, we believe that it is true according to the theory of evolution that characteristics of all species arise through a process of mutation

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and selection in their development (Scarr 1992; Judge et al. 2009). According to Kogan (1990), the important approach to the study of trait development emphasizes the interaction between traits and contexts across the life course (e.g., Levinson 1978). “People are open systems and they exhibit both continuity and change in personality throughout the life course” (Roberts et al. 2006, p. 3). Under this approach, adaptation is the primary focus (Baltes 1997; Baltes et al. 1998), and the development of an individual is an interaction between the person and the external environment (Kegan 1982, 1994; Erikson 1968; Levinson 1978). Many psychologists (e.g., Roberts et al. 2006; Roberts and Mroczek 2008; McGue et al. 1993; Robins et al. 2001) argue that the developmental change processes of traits are a combination of inner psychological processes and external social and cultural forces. We agree that traits evolve over time (Xu et al. 2014). They can become stronger or weaker, or turn into a different one (change in nature). A leader who used to be very powerful may become gentle later as a result of a major event or some unusual experiences; vice versa, a gentle leader may also change into an autocratic dictator in due time. For leader trait expression, we believe some leader traits are expressed in different situations. When it became obvious that some traits could be learned (Funder 1991), researchers started to look into situational factors that affected leadership effectiveness, and results showed that any effect of traits on leadership behaviors depended on the situation (e.g., Yukl and Van Fleet 1992; Kenrick and Funder 1988; Diener et al. 1984). Trait activation theory, which focuses on the person-situation interaction, argues that people behave in response to traitrelevant cues (Tett and Guterman 2000) and leaders react (consciously and sub-consciously) and express suitable traits according to different situations to secure leadership effectiveness. As Tett and Guerman (2000, p. 398) explained, people high on aggression “do not always behave aggressively; they do so only in certain situations.” However, studies that use trait activation theory do not explicitly link specific types of traits with particular situations, offering little knowledge on how leaders express their traits based on trait-relevant situations (Kenrick and Funder 1988). Xu et al. (2014) cleared which types of traits are likely to be activated and which transcend situations. Therefore, Xu et al. (2014) examined that some leader traits are dynamic and can be expressed based on different situations by case study in the Chinese context (Xu et al. 2014). The dynamics of leader traits is influenced by major events in the social process, subtle cultural influence, and leaders’ learning and introspection (Xu et al. 2014). However, the culture is usually the primary factor for a person’s development in a country (Hofstede 1991). Chinese culture is one of the most high context cultures in the world due to its history (Li et al. 2011) and is influenced by a mixture of Confucianism, Taoism, and Buddhism (Li 1998). Hence, in the Chinese context, the dynamics of leader traits may be distinctive. Based on Xu et al.’s (2014) research, this paper focuses on the dynamic view on the leader trait theory in the Chinese context to explore the distinctive characteristics.

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Yin-Yang: The Essential Feature of the Chinese Context Besides family, parents, and learning, Xu et al. (2014) revealed that the impact of major events (e.g., China’s Cultural Revolution) in the social process, subtle cultural influence (e.g., Yin-Yang), and leaders’ learning and introspection are the primary factors influencing the formation and evolution of leader traits. Major events and cultural influences are external inducing factors. The leader’s learning and introspection are internal driving factors. The three factors comprehensively influence the formation and evolution of leader traits. For a person, major events are usually accidental, while culture is consequential. Therefore, culture is important for a country’s context. Chinese culture is one of the most high context cultures in the world due to its history (Li et al. 2011) and is influenced by a mixture of Confucianism, Taoism, and Buddhism (Li 1998).Chinese people’s way of thinking and behaving are simultaneously influenced by the three different religions or philosophies. The essential feature of the Chinese culture that affects the Chinese thinking the most is the notion of “Yin-Yang,” which was used by ancient Chinese to describe the fact that all universal phenomena are shaped by the integration of two opposite cosmic energies (Li 2016). It is a very figurative concept, which will be hard for Westerners to follow. But basically, Yin represents the “female” energy, such as the moon, night, weakness, darkness, softness, and femininity; while Yang stands for “male” energy, such as the sun, day, strength, brightness, hardness, and masculinity, which are used to represent the close but dynamic connections between two objects. As day folds into night and night into day, the two contain each other and form an inseparable oneness, the “Supreme Ultimate” (Capra 1991, p. 107). The Yin-Yang notion is the foundation for the Chinese thinking, accepting that means one accepts the mutually dependent and dynamic relationship between any two seemingly different or sometimes contrasting objects. Yin-Yang describes the opposites-in-unity as both partially conflicting and partially complementary (相生相克; Li 2016). “This unique epistemology balances the tradeoff and synergy between opposite elements as conflicting and complementary and, therefore, differs fundamentally from rational reductionism in Western epistemology as framed in Aristotle’s formal logic and Hegel’s dialectic” (Li 2016, p. 50). Yin-Yang balancing, as informally derived from the Yijing or I-Ching (the Book of Changes), is the root of all Chinese traditional philosophies shared by all schools of thought in history (Li 2016). Further, among all Chinese philosophical ideas, the system of Yin-Yang balancing has had the biggest influence on scholars in the West in past history (Li 2016). Under the influence of Yin-Yang, Zhang Ruimin (Chairman and CEO of Haier Group) formed the trait “Think on principle, act flexibly” (思方行圆, in Chinese) (Xu et al. 2014).

Dynamic Evolution of Leader Traits Kegan (1982, 1994) divided a person’s development into six stages: incorporative (birth–2), impulsive (2–6), imperial (6–15), interpersonal (15–24), institutional (24–40), and inter-individual (40+). In every stage, certain types of leader traits

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may be formed under the influence of the social experience of the stage, and these traits may also evolve as the person who becomes a leader and progresses through the stages. Xu et al. (2014) discovered two categories of traits: one involving changes in intensity and the other involving changes in nature in a leader’s development. They defined the former as intrinsic traits and the latter as extrinsic. For the extrinsic traits, Xu et al. (2014) found three patterns of the evolution of leader traits over time in the Chinese context: homological, converse, and composite (Xu et al. 2014). Homological evolution means that the relationship between the former trait and the new one is continuous and progressive, with the new trait being formed based on strengthening the previous trait. Wang Shi is chairman of China’s largest residential real estate enterprise, China Vanke. In his 2006 autobiography, he argued that his mischievous nature as a child evolved into an adventurous approach to entrepreneurship and leadership. Just as he tested limits in his childhood, in business Wang aimed to broaden his employees’ horizons and empower them to build better homes for the Chinese people. Wang displays homological patterns in his leadership, where his adventurous, boundary-pushing personality trait was reinforced by business success. The opposite of a homological trait evolution is a converse pattern, where existing traits are replaced by diametric ones. When Shi Yuzhu was only 29 he founded Giant Group – China’s second-largest privately held technology company in the 1990s. One of China’s best-known and controversial businesspeople, Shi was widely perceived as audacious and ambitious due to his propensity to take risks. However, he appeared to overreach, building a 72-storey office skyscraper that burdened the company with bad debts. The unfinished skyscraper became a symbol of Shi’s hubris as Giant Group collapsed in 1997 with Shi in debt of 200 million yuan (US$24 million). Shi rebuilt the corporation from scratch, but the experience had changed him. His previously reckless style was replaced by a more realistic approach that took other views into account. In April 2013, Shi resigned as CEO of Giant Interactive Group Inc. – the successor of Giant Group. His resignation statement made a point of praising the efforts of his colleagues, saying “I have always envisioned Giant becoming a mature company with a self-sustaining culture and core values, relying on the entire team to produce the results.” When leaders evolve converse personality traits, it is usually – as Shi’s account suggests – because their pre-existing style of leadership has failed convincingly. Leaders with a converse pattern of trait evolution, realizing that their previous methodologies were unsuccessful, consciously develop more effective alternate traits. The third way in which traits evolve is in a composite pattern. Here, two seemingly disparate traits combine to create a new, more effective trait. The composite evolution refers to the changes of traits that are often contradictory to each other. Leaders hovering within the two extremes look at the situation and express the appropriate trait based on the situation. Zhang Ruimin, chairman and CEO of Haier Group, was a leader whose traits developed in such a pattern. In the early 1980s, as China embarked on its economic reformation, Zhang adopted a forceful leadership style to drive through much-needed changes. In 1984, as the appointed head of an ailing refrigerator factory, Zhang was determined to ensure that product quality was

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paramount. When 76 refrigerators were found to be defective, he famously handed sledgehammers to smash the refrigerators. “I knew that I wanted to do something very important, to make a good product,” remembers Zhang. Zhang is committed to quality – every Haier employee has their own bonus-related targets – but he is equally committed to his people. He once drove 20 miles in an old, open-top threewheeler in bitterly cold weather to borrow money so that he could give his employees a Chinese New Year bonus. Zhang believes in empowering his employees to be innovators, “I wanted everyone to be their own CEO,” Zhang told Forbes in 2012, “That’s what we want. We aren’t there yet, but that’s the goal.” Displaying a composite pattern of trait evolution, Zhang combined forceful leadership and commitment to employee empowerment into one trait: “thinking on principle, acting flexibly” (Xu et al. 2014). Zhang argues that this combination of core values and flexibility allows Haier to identify and meet consumer needs quickly. In contrast, Haier’s competitors, such as large appliance manufacturers, are not as flexible and have a slower response to the market. Today, one of the sledgehammers hangs in China’s national museum in Beijing. The refrigerator factory evolved into Haier, the world’s biggest seller of domestic appliances. And Zhang is feted as one of China and the world’s most influential, respected, and visionary business leaders. Actually, the evolution of a leader’s traits usually involves all three patterns (Xu et al. 2014).

Composite Evolution and Yin-Yang The composite evolution is distinctive in the Chinese context. Three core tenets and three operating mechanisms are contained in Yin-Yang. The three core tenets are “holistic content,” “dynamic process,” and “duality integration.” The three operating mechanisms are “asymmetrical balancing” which is related to the tenet of holistic content, “transitional balancing” which is related to the tenet of dynamic process, and “curvilinear balancing” which is related to the tenet of duality integration. Asymmetrical balancing refers that one of the opponent elements is dominant while the other is subordinate in holism. Transitional balancing stresses on the dynamics of both opposite elements which can shift over time from the dominant role or the subordinate role toward their opposite side. Curvilinear balancing indicates the interactive effect of the opposite elements follows an inverted U-shaped curve. In the Chinese context, because of the influence of Yin-Yang, leaders usually take the partially conflicting and partially complementary thinking in practice. The composite evolution of leader traits emerges. The composite evolution of Zhang Ruimin’s traits is representative (Xu et al. 2014). The development of a leader is an interaction between the leader and the external environment (Kegan 1982). In order to be effective, leaders’ traits have to be accepted and respected by followers. Leaders without credibility will not be able to achieve effectiveness. The fitness of a leader in different situations is important for his or her development (Judge et al. 2009). A leader changes his/her traits usually to suit the situation. For example, Zhang’s trait evolutionary path of “Powerful ! Gentle ! ‘Think on principle, act

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flexibly’” indicates the interaction between himself and different situations he experienced. In 1984, facing the dying company, Zhang realized that he had to appear powerful to turn the bad situation around. The issuance of the “13 Rules” and the “smashing 76 defective refrigerators” demonstrated his “powerful” trait, which won the respect from his employees and established his authority. With the rapid growth of Haier, Zhang gradually formed the “gentle” trait because his powerful trait was no longer necessary or effective. Eventually, to cope with new issues and satisfy new expectations, he formed the composite trait “Think on principle, act flexibly” and expressed “powerful” or “gentle” according to different situations to achieve leadership effectiveness. The composite traits have been recognized as being necessary for a balancing and simultaneous mastery of seemingly contradictory behaviors in different situations. Zhang’s composite trait “Think on principle, act flexibly” which is also his motto (Xu et al. 2014) determines his contradictory behaviors. Even the architectural style of the central building in the Haier Industrial Park has a circle enclosed by a square symbolizing the meaning of “Think on principle, act flexibly.” “Think on principle, act flexibly” is the reflection of Yin-Yang. In fact, “Think on principle” and “act flexibly” are partially conflicting and partially complementary. The two are conflicting. However, flexibility is based on principle and they are also complementary.

Dynamic Expression of Leader Traits Composite traits often consist of traits that are contradictory to each other (Xu et al. 2014). Leaders possessing composite traits could select and express two different traits within the composite that could seem contradictory but be appropriate under certain situations. Composite traits (e.g., “Think on principle, act flexibly”) can explain and answer leaders’ contradictory behaviors, which has been regarded as a mysterious phenomenon and left open an unanswered question in leadership behavior research (Hart and Quinn 1993). The saying that “One plays a double game when he/she speaks to different people” (见人说人话, 见鬼说鬼话) can be explained by composite trait. Therefore, in the Chinese context, composite traits are primary for trait expression. Actually, the evolution and expression of leader traits are not isolated but interactive. The basis of the expression of leader traits is composite trait evolution. Leaders can hover between the two extremes of composite traits according to situations and express the appropriate traits. Composite traits involve both evolution and expression and make the expression of leader traits more meaningful. With composite traits, leaders can better respond to different situations. From the view of the evolutionary process, we found that the continual effectiveness of the expression of a trait promotes homological evolution. In the evolutionary process, the leader often expresses a certain trait according to situations and gains effectiveness. The effectiveness strengthens the leader’s confidence to evolve and form a new trait, which would be homological in nature but richer in meaning. The

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ineffectiveness of the expression of a trait according to situations promotes converse evolution. The ineffectiveness of a certain expressed trait can urge the leader to reconsider the choice and form a converse trait. For example, Shi experienced failure with the trait “unrealistic” and formed the trait “sure-footed.” The transition was converse evolution. The contradictory variety of the expression of leader traits according to situations promotes composite evolution.

Discussion and Conclusion Despite the growing attention on leader traits, the static view persists. Even in the longitudinal studies that include analysis of a leader’s early life, its actual influence on leadership effectiveness is still treated as stable (e.g., Guerin et al. 2011; Harms et al. 2011; Reichard et al. 2011; Murphy and Johnson 2011), making a seemingly dynamic process essentially static. The fact is, with all the increase in trait research, we did not find studies on how leader traits evolve over time, how they are expressed under different situations, or how evolution and expression of traits function together. Based on Xu et al.’s (2014) research, this study argues that leader traits form and evolve over time and are expressed according to situational cues and finds that composite evolution and composite traits are distinctive in the Chinese context. With the evolution of traits being a key to leader emergence (Kirkpatick and Locke 1991; Judge et al. 2009) and trait expression as a key to leadership effectiveness (Tett and Guterman 2000), the dynamic view of leader traits will enable us to understand how leader traits evolve over time and how they are expressed in different situations. This study expands and enriches leader trait theory for researchers, as well as inspires practitioners to develop certain types of traits in themselves. This study makes several contributions to the leadership field. First, we add a dynamic feature to the static leader trait theory. We adopted the interactional approach to trait development and Kegan’s (1982, 1994) stage theory and identified three patterns (homological, converse, and composite) over trait evolution and relevant influencing factors. The three patterns clearly show the dynamic features of leader traits and help us better understand a leader’s development process than the few relevant studies (e.g., Guerin et al. 2011; Harms et al. 2011; Reichard et al. 2011; Murphy and Johnson 2011) that treated leader traits statically. The dynamic approach to studying leader traits enables us to gain a three-dimensional understanding of a leader (e.g., a leader’s dynamic development, the changes of a leader traits in different situations, the relationship between a leader’s past development and present status). Adding dynamics to leader trait theories can exceed the limitations of existing research and effectively promote the development of leader trait research. Second, we find that composite evolution is distinctive in the Chinese context. In the Chinese context, because of the influence of Yin-Yang, leaders usually take the partially conflicting and partially complementary thinking in practice. The composite evolution of leader traits emerges. Composite traits are the outcomes of composite evolution of leader traits. Leaders possessing composite traits could select and express two different traits within the composite that could seem contradictory but

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be appropriate under certain situations. Composite traits can explain and answer leaders’ contradictory behaviors. It provides valuable insights to the training and development of leaders. Finally, we discovered that there is a relationship between the evolution and expression of leader traits and that expressed leader traits are usually composite, involving both evolution and expression. By studying the evolution of a trait, we can better understand its expression. Understanding the dynamic nature of the evolution and expression of leader traits will enable researchers to effectively integrate situational factors with a leader’s traits. The integration will help us better understand the evolution and expression of leader traits based on situations and understand the situation based on the dynamic evolution and expression of leader traits. Eventually, we can understand better the dynamics in the development of a leader. From the literature, we can see that the outcomes of leadership research are mostly around leader emergence and leadership effectiveness. Leader trait evolution shows that the whole process of the leader’s growth is crucial to leader emergence; and leadership effectiveness is affected by leaders’ abilities to select and express appropriate traits in different situations. Leader trait evolution and expression are not independent but rather interactive. Therefore, the two dynamic issues should be simultaneously taken into consideration when examining leader emergence and leadership effectiveness. Acknowledgments The paper was funded by the National Science Foundation of China (71772149; 71232014).

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Confucianism and Chinese Humanistic Management

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Pingping Fu, Qing Qu, and Bo Yang

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Humanistic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research on Humanistic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition of Humanistic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reasons Why Humanistic Management Thought Has Been Constrained . . . . . . . . . . . . . . . . . Why Should We Promote Humanistic Management in China? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To Promote Employees’ Well-Being at Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To Persuade Companies to Develop Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To Exemplify the Beauty of Chinese Traditional Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To Promote Humanistic Ideologies so that More Companies Could Adopt the Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Essence of Confucianism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Confucian Humanism and Chinese Humanistic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secular Humanism and Confucian Humanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chinese Scholars’ Urge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cases of Chinese Humanistic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Humanistic Management at Fotile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Humanistic Management at Good-Ark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Propositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Humanistic management, a form of management focusing on the welfare of the people, is directly affected by the culture of the society in which it is practiced P. Fu (*) · B. Yang Nottingham University Business School China, University of Nottingham, Ningbo, China e-mail: [email protected]; [email protected] Q. Qu School of Economics and Management, Tsinghua University, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_25

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more than in most other forms of management because societies have different perspectives of people’s welfare and fundamental purposes of businesses. Taking humanity as its core, Confucianism has established deep, historic roots in the Chinese society and hence has the potential for persuading Chinese companies to adopt humanistic management. This chapter explores this contention through two case studies. Both companies have benefited significantly by following Confucian virtues and by providing humanistic care and humanistic education to their employees. Based on their practices and a review of humanistic literature, we develop a conceptual model of what may be called the process of Chinese humanistic management with propositions on the key variables in the model, including Confucianism, humanistic leadership, the process of humanistic management, hedonic and eudemonic outcomes for the employees, and certain sustainable outcomes for the company. Keywords

Confucianism · Humanistic management · Humanism · Case study · Chinese humanistic management

Introduction Humanistic management and humanistic businesses are attracting increasing attention from academic researchers as well as business practitioners because they provide an alternative to the conventional, neoclassical theory, which has been blamed for systemic ailments of the global economy ranging from the financial crisis, to global inequality, and human right abuses (Laasch et al. 2015). As a form of management focusing on the welfare of people, humanistic management (HM) is close to the heart of the Chinese people because the core of Confucianism is about being humane. Thanks to its unique man-heaven unity perspective, Confucian humanism adds meaning to the ultimate purpose of humanistic management. As Chinese economy becomes stronger, more and more Western researchers are paying attention to the role Chinese traditional culture plays in the rapid development of its economy, a situation very similar to the late 1970s when many Western researchers examined the role of Japanese culture in its management practices because the Japanese economy was growing aggressively at that time (e.g., Lincoln et al. 1978; Tanner and Pascale 1978). Scholars are now regularly publishing papers examining the influence of Confucian ideologies on various managerial practices in Chinese as well as mainstream English journals (e.g., Romar 2002; Warner 2010; Lin and Ho 2009; Xu 2013; Du 2015; Li and Liang 2015; Chen 2016; Xue 2016). However, most of these analyses have been superficial and sporadic. On the other hand, because of the increasingly utilitarian nature of China’s market economy today, many Chinese people lack the spiritual support and emotional care and hence are in urgent need of a humanistic culture that respects people, cares for people, and is concerned about people (Cao et al. 2014). More and more scholars are therefore writing about humanistic management, but most of their topics are

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descriptive, such as “the role and value of humanistic management in the firm development” (Xue 2016), “Construction of modern company humanistic management culture” (Huang 2016b), and so on. However, all papers agree that enterprises should implement humanistic management to raise human dignity and value and that changes in traditional management such as specialization, standardization, hierarchies, and bureaucratic organization through humanistic management reform and innovation are important initiatives that could help cope with the emerging global economic landscape (Chen 2016). From the above summary, although it is apparent that Chinese and foreign scholars share the same belief about the vital role humanistic management can play in today’s business and social management, the absence of systematic studies has been hampering the understanding of the benefits humanistic management could bring about. It is encouraging, however, that many Chinese companies have been trying to apply traditional ideologies conscientiously to their management practices, and some have gained impressive results. For example, Fotile Kitchenware Corporation Ltd. has explicitly embraced the Confucian virtues of benevolence, righteousness, propriety, wisdom, and integrity as the core values of the company and has systematically developed a Fotile Confucian Way based on these virtues. By enthusiastically adopting these core values, the company has developed itself into a nationally popular brand and the industry leader for the past two decades. Likewise, Good-Ark Electronics has transformed its employees into happy family members by offering them humanistic care, humanistic education, and encouraging their employees to help others, and extended their love and care to those in need through voluntary services. However, such companies are still very few in number, and many of those that claim to apply traditional ideologies have not been able to achieve the desirable results for various reasons. This chapter aims to examine the connections between Chinese humanistic management and Confucianism. Specifically, it intends to fulfill four objectives: (1) to introduce humanistic management and its definition; (2) to explain why humanistic management is important to the contemporary world and why the approach has not been widely adopted; (3) to introduce Confucianism and identify its connection to Chinese Humanistic Management; (4) to show how Confucian humanism differs from Western humanism; (5) to use Fotile and GoodArk as examples to demonstrate how the humanistic practices have transformed these two companies; (6) to propose a conceptual model of the process of humanistic management; and (7) to develop propositions based on the model for future research.

Humanistic Management At the beginning of this century, humanistic management was considered “the real challenge of achieving higher moral qualities in management” and that is a good need for management. In 2009, Spitzeck et al. (2009), after writing the book Humanistic Business, gathered a number of scholars and managers interested in

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people-centered development to form the Humanistic Management Network (HMN) in 2010 to promote research on Humanistic Management. Humanistic management seeks to infuse business practices and work relationships imbued with humanistic ideals of fostering human virtues and human flourishing. For example, humanistic organizations tend to frame their values, vision, and mission by placing particular emphasis on humanistic ideals, displaying a structure and a culture that emphasizes respect and dignity for people, enabling the development of employees, and communicating information to employees in a fair, open, and transparent manner (Melé 2016).

Research on Humanistic Management Recent years have seen an increase in published conceptual papers and books on the causes, challenges, and trends in humanistic management (Melé 2009, 2013), including individualistic business ethics and humanistic management (Acevedo 2012), the integrated humanistic management model (Spitzeck 2011), the theory and practice of people-centered business (Pitzson and Kimakowitz 2014), and humanistic views in international management (Lupton and Pirson 2014). However, given the ultimate purpose of humanistic management, the views in the literature seem to be overly diversified. The notion of humanism has attracted a lot of attention in recent management research. In the domain of leadership, positive forms of leadership focusing on individuals as human beings rather than simply as workers serving an organizational “machine” and as ones showing a concern for the moral/ethical or values-based leader behaviors are receiving increased attention (e.g., Dinh et al. 2014). However, humanistic leaders themselves have been largely overlooked in previous works (Davila and Elvira 2012); we know little about their identities, their motivations, or the ways in which they exert their influence. It is also unclear how Confucianism influences humanistic leaders in China. Both philosophical inquiry and psychological research have pointed to the existence of two dimensions of human well-being: hedonic and eudemonic (Ryan and Deci 2003). The “economistic” paradigm, which underlies dominant approaches to management in capitalist societies, conceptualizes humans as maximizers of a narrow, fixed, self-interested, short-term utility function (Pirson and Lawrence 2010). Consequently, current approaches to motivating employees that are gaining worldwide acceptance are focusing mostly on satisfying employees’ hedonic needs (ibid.). Confucian humanism, on the other hand, takes a broader and more holistic perspective of human happiness and fulfillment and respects the need for both hedonic and eudemonic well-being in all. Thus, management approaches based on Confucianism seek to foster physical and mental health and ensure safety and fair play; they provide employees with opportunities to learn and grow in their work, perceive means to connect with others in meaningful ways, and experience their work as being meaningful (Baumeister and Vohs 2002; Rosso et al. 2010).

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Definition of Humanistic Management We adopt the definition by Melé (2016) in this chapter, which regards humanistic management as “a people-oriented management that seeks profits for human ends. It contrasts with other types of management that are essentially oriented toward profits, with people [being] seen as mere resources to serve this goal. . ..” Melé points out that “Humanistic Management (HM) is oriented not only towards obtaining results through people, but also, and above all, toward people themselves, showing care for their flourishing and well-being” (Melé 2016, p. 33). Although there have been companies adopting humanistic management approaches in different countries, to this day, few empirical studies can be found that examine the antecedents, processes, or outcomes of humanistic management. Humanistic management distinguishes itself from traditional management approaches in several important ways and at multiple levels (Pirson and Lawrence 2010). At the individual level, it views humans as being motivated by four basic drives and shaped by evolution as evidenced by research in neuroscience. The associated body of research has shown that, in addition to the drive to acquire (dA) and the drive to defend (dD), which are the sole concerns of the economistic view, human beings possess a drive to Bond (dB) and a drive to Comprehend (dC) (Lawrence 2007). Economistic management conceptualizes humans as maximizers of a narrow, fixed, self-interested, short-term utility function, and thus approaches motivation of employees through satisfaction of hedonic needs (mostly dA and dD). By contrast, humanistic approaches take a broader, more holistic perspective of human happiness and fulfillment, which embraces both types of well-being documented by philosophy as well as the psychological sciences: hedonic and eudemonic (Ryan and Deci 2003). While hedonic well-being sees human happiness as a function of the presence of pleasure and the absence of pain, eudemonic well-being considers self-development and self-actualization as essential to happiness and “the good life” (Boyatzis et al. 2013; Ryan and Deci 2003). Humanistic management respects the need for both hedonic and eudemonic well-being through its holistic and conceptualization of human beings.

Reasons Why Humanistic Management Thought Has Been Constrained Many scholars, both Eastern and Western, contend that a more holistic, humanistic approach to management will yield positive outcomes for employees, in terms of increased happiness and well-being, as well as for organizations, in the form of increased engagement, productivity, and effectiveness, and reduced turnover and absenteeism (Barrick et al. 2013). However, because it was initiated in the USA, the implementation of humanistic management thought has been constrained by several factors. First, for historical reasons, US society is among the most individualistic ones in the world. Relatively higher emphasis on individualism and independence have clearly shaped humanistic management in America, whereas the independent

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conception of self contrasts with the more interdependent conception in more collectivistic societies. Second, because of the historical influence of Protestant values and beliefs, as detailed in the work of Weber (Chalcraft and Harrington 1970), there is greater emphasis on personal accomplishment in the USA than in other Western societies. Societal changes since the 1960s have also resulted in a greater emphasis on individual freedom, the fulfillment of personal preferences and tastes, and the promotion of hedonic well-being. Finally, as Melé (2009) points out, much of the current discourse in the USA continues to promote humanism as a means to enhance the financial performance of business organizations, for example, “high performance work systems” (HPWSs) (e.g., Way 2002), “high performance human resource practices” (e.g., Sun et al. 2007), and “high-commitment human resource practices” (e.g., Whitener 2001). Thus, in many ways, it falls short of the ideals of humanism, which proposes that the flourishment of humans must be the end of management practices, and not merely a means (Dierksmeier 2016). Further, many of those practices that have been heavily studied should be considered imperfect or incomplete instantiations of the humanistic management ideal.

Why Should We Promote Humanistic Management in China? Judging from the number of people attending the Humanistic Management meeting at the Academy of Management Conference, one could tell that companies adopting the humanistic approach to management exist everywhere in the world. However, because different societies hold different social norms, the rationale behind adopting HM approaches might also differ from society to society. For example, while mental exercises for self-developmental purposes such as transcendental meditation, holistic healing, rebirthing, dynamic living, and the like, have been in vogue throughout North America, self-development, in the Confucian sense, is a lifelong commitment which necessitates a ceaseless process of learning. Confucian learning involves both book-learning and ritual practice as active participants in a living community. According to Tu (1985), “A distinctive feature of Confucian ritualization is an ever-deepening and broadening awareness of the presence of the other in one’s self-cultivation” (p. 114). Such fundamental differences in the concept of self are bound to result in different boundaries or different assumptions behind humanistic management practices. Without examining these underlying assumptions and basic differences, it is very hard for any company to copy such practices and transplant them into their works. May be, that is why HM models have not become mainstream approaches despite their known benefits. From a practical viewpoint, however, there is an obvious need for such a management approach. In the West, according to editors of the Academy of Management Journal jointly, “Great changes have taken place in the world since the ‘human relations’ movement started over 80 years ago. In the process, workplace and employment have been transformed substantially. However, the way employees are treated has remained surprisingly similar to that in the 1920s.” In China, there is a tendency for humanistic management to replace the controlling approach and

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remedy scientific management, but the numbers doing so remain small. Therefore, there are specific reasons why we should promote humanistic management.

To Promote Employees’ Well-Being at Work Over 700 m Chinese – roughly half of the country’s population – form part of the workforce. Since work takes up a large portion of waking hours for the majority, well-being at work contributes in important ways to overall well-being for these individuals as well as their families. Chinese people are no longer worried about mere survival; many are actually fairly well-off materially. Therefore, satisfying spiritual needs is becoming increasingly the leading concern. However, research has shown that Chinese employees face various stressors such as organizational factors (e.g., working environment and working conditions, relationship with others), social factors (e.g., medical insurance, social security), and family-related factors (e.g., child education, housing) (Jiang 2006). Mental and physical health problems are common among workers engaged in simple and repetitive jobs (Yu 2014). In addition, many workers, particularly migrant workers, get marginalized and have low social status (Wong et al. 2007). Thus, there is a great need to identify factors promoting Chinese employees’ well-being at work, both hedonic and eudemonic.

To Persuade Companies to Develop Employees Chinese companies have rapidly developed and matured over the recent nearly 40 years of economic reform. As the economic as well as business environment changes, companies are increasingly facing competition for talent, and the employment costs are becoming increasingly higher. To enhance their competitiveness and sustain growth, companies now have to switch from lowering costs and controlling human resource management mood to caring for employees and satisfying employees’ comprehensive needs, particularly their higher levels of needs. Further, how to make management more humanistic is a problem that Chinese companies now need to resolve.

To Exemplify the Beauty of Chinese Traditional Culture The Chinese government has been trying very hard to bring back traditional culture, and many foreigners including scholars have also been learning about Confucianism and Daoism. In 1988, a group of Nobel Laureates jointly issued a statement in Paris urging the whole world to turn to Confucius for ideas to develop the world in the twenty-first century. How does the Confucian humanism-based Chinese Humanistic Management differ from that of the West? Western humanism generally claims to strive for a balance among social, financial, and environmental goals (the so-called triple bottom line). Is it the same as the holistic approach, the man-heaven unity?

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Clearly clarifying these issues will not only help Chinese managers consciously adopt the humanistic approach, but also provide the best possible evidence for the usefulness of the Chinese traditional philosophy, thus helping promote it in the rest of the world.

To Promote Humanistic Ideologies so that More Companies Could Adopt the Approach Confucius believed that educating people was the most important thing in life and had always put education on top of everything else. Education is not just a task for schools and the society; it is also the responsibility of companies. Companies not only improve people’s technical abilities through training, they also transform people through education. Mr. Mao, the founder of Fotile, explicitly said that in developing excellent workers, 60% can be done through training, but the remaining 40% must be achieved through education. Education can help people understand the importance of and appreciate the true meaning of humanism. But people need to examine real practices to believe in and internalize humanistic ideologies. Humanistic management should be one of the most effective ways since over half of the population spend their days at their respective work places.

The Essence of Confucianism Chinese culture is often depicted as being unique and rich. One of its key features is the centrality of Confucianism (Ebrey 2014). Named after the Chinese scholar, Confucius (551–479 B.C.), Confucianism has been considered as the most typical Chinese philosophy; its principles and values have left an indelible mark on Chinese’ personal and social activities (Billington 2002). It represents a collection of philosophical ideas that has had a profound influence on the politics, education, religion, and family life in greater China, as well as in neighboring countries such as Korea, Japan, Singapore, and Vietnam. As a traditional school of thought, Confucianism has also gone through many ups and downs and was criticized as dross that hampered creativity and slowed China’s economic development. However, Confucianism survived and is regaining its influence with the growth in China’s economic and political power (Paramore 2016). In fact, despite great economic and social changes in China, many “ancient” Confucian ideals, practices, and obligations continue to prevail among the Chinese (Chen et al. 2002; Ebrey 2014). Over their long history, Confucian ideologies have been politicized and utilized for a variety of purposes by various emperors, and blamed for many of the social and political problems in the country. For example, the best known five basic relationships, between ruler and the follower, father and son, husband and wife, elder and younger brother, and those between friends, which were at the core of maintaining

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social order, have frequently been criticized for making Chinese people passive and non-egalitarian. Confucian ethics are often attributed to subjugating relationships of the ruler over the governed, father over son, husband over wife, elder over younger brother, etc. But in fact, the authentic governing principle of the five basic relationships is being reciprocal rather than subjugating, i.e., ruler’s humanity (perfect virtue) and follower’s dedication, father’s benevolence and son’s filial piety, elder brother’s courtesy and younger brother’s respect, husband’s and wife’s division of house chores and cooperation, and trust between friends (Tu 1985). A plausible reason for the persisting misinterpretation could be the numerous interpretations of the Confucian Analects, some of which might have distorted the original meaning due to the historical context and individual scholars’ personal motives and knowledge. Even the most popularly studied version was that the great Confucian scholar Zhu Xi, was said to have missed the original meaning of many of the phrases (Fu 2013). A distinctive feature of Confucian ritualization is an ever-deepening and broadening awareness of the presence of the other in one’s self-cultivation (Tu 1985). To Confucius, “only through the continuous opening up of the self to others that the self can maintain a wholesome personal identity” (ibid). The well-known statements in the Analects, “Wishing to establish oneself, one establishes others; wishing to enlarge oneself, one enlarges others” (Confucian Analects 6:30); “Don’t impose on others what you don’t want others to impose on you” (Confucian Analects 12:2; 15:24), emphasize the importance to help others when establishing the self. “Strictly speaking, to involve the other in our self-cultivation is not only altruistic, it is required for our own self-development” (Tu 1985, p. 114), which is fundamentally different from the Christian “Do unto others as you would have them do unto you” (Matt. 7:12). The fundamental difference between the two will naturally affect how humanisms would be defined. Among other things, Confucian ideology leads individuals to seek social harmony, reciprocal social and work relationships, and to show concern for the community. As a faithful believer in Confucianism, Mencius (372–289 B.C.) pointed out that people were born with knowledge of the good, and the ability to do good was inherent in human beings. According to him, such ability comes from the innate “four beginnings” of virtues as compassion (giving rise to “benevolence, humanity”), shame (the basis of “righteousness, rightness”), humility (giving rise to “ritual” or “propriety”), and distinguishing right from wrong (the basis for “wisdom”) (Mencius 3.6). In the Tang Dynasty period, the elite politician and scholar Dong Zhongshu listed the Five Virtues of Confucianism as Ren (benevolence or humaneness), Yi (righteousness), Li (ritual or propriety), Zhi (wisdom), and Xin (trustworthiness). Ren (benevolence or humanness) is regarded as the highest moral principle in Confucian teaching; Mencius simply put “Being Ren (humane or benevolent) is to love people” (Mencius 28). In a nutshell, Confucianism is humanistic in nature and therefore offers a natural rationale for humanistic management. To appreciate this point, we need to go back to the original texts and try to understand the true meaning while taking into account the historical background of the times the way Confucian scholars lived.

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Confucian Humanism and Chinese Humanistic Management Most humanistic management research to date has tended to be Western-centric (for an exception, see Davila and Elvira 2012). This seems particularly problematic knowing that humanism acknowledges that humans have a common nature but are also uniquely shaped by their cultural background (Melé 2016). Scholars studying humanistic management need to examine the cultural roots of the society on which the study is conducted, to properly understand it. From the perspective of management research, scholars have found that Confucianism influences the behaviors of people in an organization via the activation of a Confucianism-dominated social norm (e.g., Morris and Leung 2010). Therefore, understanding Confucian humanism and Chinese humanistic management also provides guidelines to humanistic Chinese organizations aiming to connect with foreign organizations in addressing global business and societal challenges (Maak and Pless 2009).

Secular Humanism and Confucian Humanism Genuine concern for individuals, particularly for their wellbeing and growth, is a central pillar of humanistic management (Melé 2003). However, secular humanism as represented by the Western Enlightenment movement had an instrumental rationality, which aimed at maximizing material outcomes. It led to the expansion of individual desires and egoism and, therefore, has been criticized by many Western scholars themselves for at least a half a century (Du 2014). Unlike Western humanism, Chinese humanism is embodied in Confucius’ thoughts, deeds, and ideologies. Living in a very chaotic and diverse era over 2500 years ago, Confucius committed himself to restore the rituals and the social orders established by Emperor Zhou who had lived hundreds of years before him. He did not create the humanistic tradition, but exemplified the rituals and consolidated the tradition through his teaching and persistent pursuing. There is no God in Confucianism, but there is a deep-rooted reverence for heaven in Confucian understanding of the different relationships in the world. This deep respect for the heaven (nature), according to Tang Junyi, one of the most influential contemporary Chinese philosophers, is Confucius’ unique contribution to the prosperity of mankind (Tang 1991). Du Weiming (2014) also pointed out: “Confucian spiritual humanism embodies the concept of harmony between man and nature. It transcends time, crosses cultures, applies to multi disciplines and people at different levels” (p. 3). Confucianism is not dogmatic. It pursues harmony between man and all things. That is why Du said, Confucian humanism also belongs to the world. If we go back to the origin of humanism, we will appreciate all the more the connection between Confucian humanism and humanistic management. The term “humanism” is generally understood as the realization of certain human ideals (Melé 2003). According to R. Grudin (1989, p. 723), author of the article on “humanism” in the New Encyclopedia Britannica, Humanisti (an Italian word) came from Latin studia humanitatis, which was a course of classical studies that included grammar,

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poetry, rhetoric, history, and moral philosophy. Grudin offered an explanation of the meaning of humanitas in Ancient Greece: Humanitas meant the development of human virtue, in all its approaches, to its fullest extent. The term thus implied not only such qualities as are associated to the modern word humanity – understanding, benevolence, compassion, mercy – but also such more aggressive characteristics as fortitude, judgment, prudence, eloquence, and even love of honor. . . Humanitas called for a fine balance between action and contemplation, a balance born not of compromise but of complementarity. (Grudin 1989, cited in Melé 2003, p. 78)

Based on the meaning of humanistas, Melé explained humanistic management as a style of management that emphasizes the human condition and is oriented towards the development of human virtue, in all its forms and to its fullest extent (Melé 2003, p. 79). This means that, to study humanistic management in a given society, we need to first of all understand “the development of human virtues, in all its forms” in that society.

Chinese Scholars’ Urge Over the past 30 years, Chinese philosophers from Mainland China and Taiwan, such as Du Weiming and Fu Peirong, have been actively promoting the Confucian humanism as human nature through various channels. Taiwan’s indigenous psychologist Huang Guangguo says that the most important task of Chinese intellectuals in the twenty-first century is to establish the scholarly heritage of Confucius humanism and create a new Chinese civilization by reexamining Confucianism culture while absorbing the essence of Western civilization (Huang 2016a). In fact, Confucian scholars are already contributing to the literature by explicitly balancing multiple interconnected and mutually interacting goals by proposing the four key ideas (Du 2014): (1) integration of the body, mind, soul, and spirit of the self; (2) fruitful interactions between the self and the community: family, community, nature, and heaven; (3) sustainable and harmonious human species and nature; and (4) reciprocity of relationships between the self and others. According to Melé (2016), scholars involved in the humanistic management movement use the term humanistic management in different senses, often without a deep philosophical discussion of the term. The discussion from a philosophical perspective is, however, necessary because it involves the ultimate purpose of management. Melé (2016) proposed the analysis of HM through seven propositions: (1) wholeness, (2) comprehensive knowledge, (3) human dignity, (4) development, (5) common good, (6) transcendence, and (7) stewardship-sustainability. All these propositions have a special appeal to the Chinese people because traditional Chinese culture evolved on the development of humanity, and the essence of Confucian ideologies is closely connected to the seven propositions. Using Lawrence’s (2007) renewed Darwinian Theory of human behavior, we group Melé’s seven propositions into two types: wholeness, comprehensive knowledge, human dignity, and transcendence as the drive to comprehend (dC);

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while development, common good, and stewardship-sustainability propositions are grouped into the drive to Bond (dB). There are many similar thoughts associated with Confucian humanism that resonate with the above concepts of Humanistic Management. For example, Melé (2016) stated in the propositions for humanistic wholeness and comprehensive knowledge that “Humanism recognizes the whole person, without reducing the human being to a few aspects” (p. 41) and “Humanism recognizes that humans are self-transcendent beings, seeking a meaning for their lives, and is respectful with religions and spiritual behaviors” (p. 45) while Confucius advocated “The Great person is not a utensil” (Confucian Analects 2:12). Melé (2016, p. 41) argues that “Humanism seeks a comprehensive knowledge of the human being and therefore is aware of the substantial specificity of all human beings due to the spiritual element – mind or soul – that distinguishes them from other animals, and the uniqueness of each person,” while Mencius presumed that human is differentiated from animal by that Human has “the feelings of compassion as the beginning of benevolence; the sense of shame as the beginning of righteousness; the sense of concession as the beginning of proprieties; the sense of the right and wrong as the beginning of wisdom.” The four beginnings are like four limbs of a man (Mencius, 3:6). Melé (2016, p. 42) argued that “Humanism respects, protects and promotes the constitutive dignity of every human being and the innate rights associated with such dignity,” while Confucianism believes that “No riches or ranks may induce them to corrupt; no poverty or lowliness may cause them to waver; no might or force may compel them to submit. These characteristics constitute the Great person” (Mencius 6:2) and “Riches and honors acquired by unrighteousness, are to me passing clouds” (Confucian Analects 7:16). As Humanistic management promotes common good and stewardship-sustainability, Confucian humanism believes that “The man with humanity regard as wholeness of Heaven, Earth, and All creatures and things” (Chen Hao 1032–1085). In summary, Humanistic Management (HM) provides a balanced and comprehensive view that integrates additional insights (vs. Economistic Management) with emphasis on humanity in business management that Confucian humanism provides the spiritual resources to resonate and support.

Cases of Chinese Humanistic Management To illustrate the applicability and its possible effectiveness, we will introduce two company cases, Fotile Kitchenware and Good-Ark Electronics. The two companies are located in two different provinces and belong to two very different industries. Though their approaches are somewhat different, both have been effective in making their employees happy while making the company successful. We visited the two companies over a dozen times. At Fotile, the CEO, the vice president in charge of human resource management, and 16 middle managers of Fotile were interviewed. At Good-Ark, we interviewed the founder and Chairman of the Board and the HR vice president, and we selected 20 managers and employees randomly and talked to them.

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Humanistic Management at Fotile Mao Zhongqun, a second-generation entrepreneur, had started his company right after he had got his master degree while in his mid-20s. With financial support from his dad, Mao established the brand in 5 years. After that, he came to realize the need to build the company culture and spent a couple of years making frequent trips to the country’s best universities to learn different types of philosophies. After comparing them, he decided to adopt Confucianism because “Confucian ideologies are in the blood of our people. All I had to do was to arouse them.” He started with the top management team members, and gradually created a learning atmosphere in the company, under which all employees would join the pre-work 15-minute classic reading every morning. In 2006, he explicitly announced the Confucius virtues: “benevolence, righteousness, propriety, intelligence, and credibility” as the company’s core values. However, shortly after they were announced, his marketing people complained about not being able to do business because, by sticking to the five virtues, they would not be able to compete with aggressive competitors. Mao then added five more behaviors from the Analects: “frugality, shamefulness, diligence, courageousness and rigorous.” He also set up “Enabling people to feel better about their homes” as the company mission and “To become a great company” as its vision. Greatness is exemplified by becoming a leader in four areas: quality products, home for employees, social responsibility, and sustainable business operations. The company now has over 14,000 employees. A quiet and gentle man himself, Mao has been very persistent in following his mission and working toward his vision. In 2009, he allocated 200 m2 of the company lobby to the building of a Confucius Hall (Kongzi Tang) for managers to study classics. The Hall is decorated like an ancient Confucian school with a big statue of Confucius standing beside the podium. Employees in leadership positions take monthly classes in the room. Confucius Hall is also used for training secondgeneration business people who were about to take over the business from their successful fathers. Slowly but steadily, he removed all policies that were not consistent with the core virtues and established new ways that exemplified them. For example, the company used to fine people showing up work a few minutes late. He realized the penalty-based approach was against Confucian ideas of virtue-based leadership. Therefore, in 2009 he abolished that policy. Instead, he required the immediate supervisors of the employees coming in late to talk to them in person to find out the reason behind and to offer help if needed. The new approach significantly reduced instances of tardiness and made employees feel trusted and cared for. Fotile’s continuous growth has attracted many investors; however, Mr. Mao has refused to go public. Instead, he adopted the traditional practice of issuing shares twice a year according to tenure and performance. Anyone who has worked for the company for 2 years is entitled to receiving the share. Driven by the spirit of benevolence, Mr. Mao gives generous benefits to his employees to make them feel good working in the family like company. Unlike most other companies in the region, Fotile provides employees with extra days of paid holiday and substantial amount of interest-free loans for cars, houses, or kids’ schools. He also urges all

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employees to embody the virtues and to exhibit a sincere love for the customers, for the products, and for each other. When asked if learning Confucian ideologies had affected the company’s innovation negatively, Mao said it had produced just the opposite effect because the love for the customers had driven them to look only for the best solutions rather than meet a particular standard. The company’s slogan is “Great because of love.” They produce exhaust fans that do not let out any smell or smoke. For the past 12 years, the company’s total number of patents has exceeded the sum of those by the next nine competitors. The introduction of Confucian management is believed to make significant contributions to Fotile’s competitiveness and its market performance.

Humanistic Management at Good-Ark Good-Ark was founded in 1992. Started with 68 people, it now has over 1800 employees and is the leading diode manufacturer in the country and the third largest in the world with the most comprehensive industrial chain and most complete design, manufacturing, packaging, and sales functions. The company was publicly listed in 2006. At the time of writing, with the exception of those who have retired, the remaining 68 people who had joined the company 25 years ago were still working for the company. Mr. Wu, the founder, was always seen as being a kind person. Inspired by the teachings of Chinese sages, Wu, who is also the Chairman of the Board of Directors of the company, set “the happiness of the employees and appreciation of the customers” as the core values of the company in 2009, and “To spread the Sage culture and bring happiness to people around the world” as the mission. Guided by the company’s motto: “To seek [for] inner reasons when things do not work out; and be others-oriented when making decisions,” the company started in 2010 to provide employees humanistic care and education as well as many other altruistic activities, including green environment, health promotion, philanthropic activities, and voluntary services. Since then, the company has been persistently moving toward its mission, and their effort has won much public admiration, including winning the “sustainable model” for the twenty-first century award from the UNESCO in 2013. However, all those efforts were not enough to stop some of the employees from being addicted to gambling. Where the company was located, most of the land was reclaimed from farmers who were compensated with lots of money and many people got into gambling with the extra money. Seeing this situation, Mr. Wu decided to shut down one production line to free up staff time to start an intensive valueslearning program in the Spring of 2013. The intensive program ran from 7:30 am to 9:30 pm for 5 and half days and took about 2.5 months for each employee to go through it, and it proved to be very effective. One female employee was about to get divorced because her husband had lost a lot of money in gambling and borrowed a lot of high interest loans. The family atmosphere was very intense and so was on the verge of breaking up. The learning helped her to change the way she thinks and

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enabled her to ask herself how to change her attitude toward her in-laws, her husband, and her son. She also shared the videos she watched and what she learned with her husband. Eventually, her husband realized how wrong it was for him to have gambled away the money and the family fortune, and changed. The family, including the parents and in-laws, worked together to pay back the loans. The marriage was saved; the family is now very happy. Wu adopts the traditional Chinese culture and treats the company as a big family, emphasizing filial piety (xiao shun), treating the seniors with respect and each other as siblings. He rekindles love among young employees for their parents and encourages them to write letters home on special occasions and sends the letters with presents from the company to the employees’ homes in different parts of the country. The company also offers monthly stipends for grandparents aged 80 or over, and additional vacations for those who had left their children with their grandparents to go and visit them. The intensive program has been going on every year since then. Driven by the desire to care, Good-Ark maintains a health record for each employee and puts up posters in the hallways and on dining room walls to raise employees’ awareness of the dangers of smoking. Brochures on healthy living habits are also provided. By the end of 2016, according to the company record, 102 employees had quit smoking over a period of 3 years; the turnover rate went down from 9.3% to 2.8% in 2016. However, offering humanistic care alone is not enough, it must be backed up by humanistic education; Wu says that only education could help employees understand why they should behave the way they do and for what purpose they should work and live. To him, all social organizations should be schools, offering moral education and life-long learning to their members. In addition to the 5.5-day intensive programs every year, Good-Ark organizes full-day learning every other week, and small learning breaks during the day and over meal sharing times. The company has invested a lot in encouraging its employees to learn Chinese classics, including Confucius’ Analects, Di Zi Gui (Guiding Principles for Behaviors), Qun Shu Zhi Yao (Collections of Guiding Principles), and Liao Fan Si Xun (Four Pieces of Advice from Liao Fan to His Son). In Wu’s eyes, the teachings of the Sages constitute desirable values. Learning at Good-Ark is not just about precepts (Sages’ teachings), but also real examples and the environment. Employees write about their learning and take photos of various activities, and then share them on the wall. They also watch videos of lectures delivered by various scholars and discuss various topics during their learning breaks. The topics usually include how to treat in-laws like parents, how to show respect to their parents, why harmonious families prosper, how to live in a healthy way, and what one needs to do to be happy. According to Confucius, filial piety is the most important of all virtues. Mr. Wu believes that “when employees know how to Xiaojing (show filial piety to) their parents, they will learn how to be good workers or leaders in the workplace, and good citizens in the community. . . they will know how to be dun lun jin fen (fulfilling their different roles).” Employees are not forced to accept everything they learned; instead, they are encouraged to raise questions and voice their opinions.

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Good-Ark is very careful in encouraging employees to offer their love and care to others. There is empirical evidence showing that employers offering employersupported volunteering opportunities tend to increase employees’ feelings of selfesteem and positive assessment by the employer (Booth et al. 2009; Rodell 2013). Good-Ark believes that receiving care makes people’s hearts grow tender and offering care helps them appreciate all the more what they have, which in turn makes them more caring and loving to others. Therefore, two of the eight modules Good-Ark has developed to build the happy enterprise are devoted to philanthropic activities and voluntary services. Employees need to go through a special program and get certified before they go out and do voluntary services because the company believes that people need to have correct mindsets when offering care and help to others. By the end of 2016, more than one third of the employees had become certified volunteers and were participating frequently in volunteering activities. The company also sponsored three public primary schools in Guangxi, a remote province in Southern China, for left-behind children (children whose parents are working away from home and they are under the care of their grandparents). Because there were tens of millions of such children, Good-Ark also formed affiliations with the China Central TV Station and the local government to provide care to them. All this effort made Good-Ark a role model for many. Every month, the company offers an open-day to receive visitors from all over the country. In between, they also receive important national leaders from different countries or government leaders. To systematically carry out their mission, Good-Ark has formed happy federations with four other companies, which have experienced great transformation over the past few years and have joined Good-Ark in carrying out many of the socially responsible endeavors.

Propositions Based on the cases of the above two companies and a few others, we developed a conceptual model that describes the process of Chinese humanistic management. We suggested six propositions regarding the key variables included in the model (please see Fig. 1). Among all Chinese traditional schools of thought, Confucianism expounds most profoundly the relationship between self and others. Although Daoism and Buddhism are both influential and are often integrated into Confucian ideologies, Confucianism has been synonymous with “Chinese traditional culture” (Li 1986). Over a century ago, an American missionary in China observed: “Confucianism is the base, and all Chinese are Confucianists, as all English are Saxons” (Smith 1894, p. 295). Therefore, Confucian ideologies should be used as the primary guidance for implementing humanistic management in China. Confucianism has profound and rich connotations, of which the Five Virtues of Ren (benevolence or humaneness), Yi (righteousness), Li (ritual or propriety), Zhi (wisdom), and Xin (trustworthiness) are of paramount importance; and should be reflected in the corporate ideologies of Chinese companies adopting humanistic management approaches. Ren (benevolence or humaneness)

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Social benefits & economic returns

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Oneness of man & heaven

Humanistic management practices

Confucianism

Fig. 1 Conceptual model of Confucianism and Chinese Humanistic Management

means that companies need not only care about employees but also customers, and all other stakeholders with loving hearts. Yi (righteousness) means that companies should be fair and equitable and fulfill social responsibilities. Li (propriety) means that companies must have clear regulations; and employees should know what is right and what is wrong. Zhi (wisdom) means companies should develop employees’ capabilities while improving the firm’s competitiveness. Xin (trustworthiness, credibility) means companies should maintain credibility by being accountable. Of the five virtues, Ren and Yi are the most essential and hence form the core of Chinese Humanistic Management, although humanistic companies should apply all five virtues. To cultivate employees’ whole person or develop ever-green business, Chinese companies will need to apply the five virtues, with the emphasis on Ren and Yi, but also try to achieve balance among the five. Proposition 1: Chinese companies adopting the humanistic management approach should use the five Confucian virtues for guidance with the emphasis on benevolence and righteousness, while striking a balance among all the five. From the practices of Fotile and Good-Ark, we could clearly see that two of the major humanistic practices they engage in are humanistic care and humanistic education. Humanistic care satisfies people’s material as well as emotional needs; it meets, in particular, the lower level needs of people and lays foundation for humanistic management to be effective. Humanistic education helps people clarify values and adds meaning to work and life; it helps employees generate and fulfill the higher level of needs. Together, such practices help take care of the whole person, which is the goal of humanistic management (Melé 2016). There are historical and social reasons why these two are of particular importance to Chinese firms. Most Chinese do not have religious beliefs because Confucianism and Daoism are not regarded as religions. While traditional values were criticized for many decades in China, education in schools as well as in families in China

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continues to be considered a means to getting good grades in various exams, which lead to higher degrees or jobs with higher social status. As a result, young people lack the environment needed to develop appropriate values, which makes it particularly important and necessary for companies to give young people guidance on their values and ideologies. This not only helps employees develop mentally but also brings positive influences on to the company’s culture and performance, because people who have the right mindset and meaningful purposes in life are usually the more engaged. There is much research showing that, when employees are engaged, they are the most creative and proactive (Zhang and Bartol 2010), thus making their companies do well. When companies become profitable, they can afford to provide more care for their employees, thus creating a healthy cycle. One of the common biases against Confucianism is that it only seeks spiritual outcomes, but that is not true. Confucianism is not against seeking material gains. Instead they acknowledge that rationally. For example, Confucius said: “Wealth and ranks are what men desire. But if they are not acquired in a righteous way, they should not be held; poverty and shabbiness are what men dislike, but if they cannot be avoided in a righteous manner, they should not be evaded” (Confucius Analects 4:5). Confucius went so far as to say: “If wealth is moral, I would pursue it even if I had to be a servant; if it is not moral, I would follow my heart and do what I love to.” In another dialogue, Confucius’s student Ran You asked when the Master made a remark about the numerous people they encountered during their exile, “Since they are thus numerous, what more could be done for them?” “Enrich them,” was the reply. “And when they have been enriched, what more shall be done?” Ran You asked again. The Master said: “Teach them.” Obviously, to Confucius, both wealth and happiness were important, but being happy by doing right things – was more important. Humanistic companies take a holistic approach by trying to satisfy employees’ physical, mental, emotional, as well as spiritual needs, because they fully understand that material possessions only take care of hedonic well-being while eudemonic well-being can only be fulfilled by spiritual satisfaction. Proposition 2: Companies offering employees humanistic care as well as humanistic education are more likely to fulfill employees’ hedonic and eudemonic wellbeing. Humanistic management does not affect firm performance immediately. In practice, it takes the firm some time to observe the positive effects. What is more difficult is being able to change the mindset from performance maximization to developing people. It is important for the executive leaders of a firm to have strong convictions about what they have committed themselves to doing, but the much more important condition is the resolve of the CEO of the firm, particularly when others are suspicious about the effects of such management approach and do not believe in the positive outcomes. Unless the CEO has a strong belief and is willing to lead the firm through tough times, it would be very difficult for the firm to willingly invest in

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things that do not produce immediate benefits or not to worry when they see the limited or sometimes negative balance, wondering about the validity of their decisions or simply change their mind. They simply cannot adopt the approach for the sake of doing so because employees can perceive very clearly the motives of the management. The formation of such a belief or resolution is not only related to the personal values of the leader but also his/her learning and understanding of humanism. Only when the leader clearly understands the underlying rationale and exercises selfcultivation, would he/she be mindfully behaving in ways that would set him/herself as a role model. Learning Chinese classics will enable leaders to understand the complicated relationships between people, people and society, as well as people and nature. Their understanding of Confucian humanism will strengthen their determination and commitment to take the humanistic approach in their management. Mao of Fotile and Wu of Good-Ark are both very hard learners and conscientious thinkers. Both companies have reached a very high level of understanding of humanity and formed their own philosophy of management. More importantly, they are both humanistic leaders who have set out to become great role models for their employees. Therefore, we propose: Proposition 3: A company that wants to adopt humanistic management must have humanistic leaders. Chinese leaders learning classics will enable them to become humanistic leaders. Confucianism emphasizes Yi, i.e., righteousness. Confucius is known to have declared: “Wealth and honor acquired by unethical means are to me like passing clouds” (Confucius Analects, 7:16). Being a humanistic company means to commit to doing the right things, even when they do not directly affect a company’s bottom line. Many of the things Fotile, Good-Ark, and other Chinese humanistic companies do, such as offering care to extended family members, establishing health records for all employees, are not even remotely connected to their businesses or even relating to conventional HR practices. Besides showing concern for their employees, their companies also care a lot about their suppliers and customers, as Wu of Good-Ark put it, “To touch the heart of the suppliers and customers,” and care about the society, particularly the education of the young and teenagers as well as the interests of the underprivileged. They set up schools in remote, poor regions and organized employees to go out and engage in voluntary services to help others in need. All such humanistic practices greatly mobilize the enthusiasm of the employees. Meanwhile, the “right” things they do also include adopting scientific management tactics, such as Six Sigma. They both adopted such industry-leading standards for their production process and quality control. They were least concerned about the profitmaking situation because they believed profits would follow if they focus on doing the right things. It is therefore not surprising that both companies have been growing steadily. Fotile’s growth rate has been kept at about 25% for the past two decades. Good-Ark went public in 2006, the first of its kind to be publicly listed, and has also kept its growth positively, although the rate is not as high. In fact, there other

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successful companies in China, including Haidilao (a hot pot restaurant), Jingdong (online department store), Xinyulou (a retail department store group corporation with 22 chair department stores), and Pangdonglai (also a retail department store) that have been showing great care for their employees, and providing very detailed services to the customers, fulfilling their social responsibilities while their companies have also enjoyed steady growth. They are all examples of doing well while doing good. Therefore, we propose: Proposition 4: Guided by the Confucian righteousness virtue, Chinese humanistic companies focus on maximizing social benefits rather than narrowly on economic returns. We have already mentioned that Confucianism is unique in its emphasis on Tian Ren He Yi (unity of Heaven and man). This is the most ancient concept of Chinese philosophy and Chinese culture. Tian, very roughly translated as Heaven, had many different meanings in ancient times, such as the supreme, the broad nature, and the highest principle. Therefore, the doctrine of Tian Ren He Yi also means Reverence for Nature, following the laws of nature, and living in harmony with all things. All these are shared by Confucianism and Taoism. Specifically speaking, Confucian humanism differs from Western humanism in its emphasis on explicitly integrating the body, mind, soul, and spirit of the self; self and community; human and nature; nature and the universe. It seeks the wholeness of Heaven, Earth, and all creatures and things. This kind of mentality generates a sense of reverence for everything in the universe. As Wang Yangming, a neo-Confucian scholar, put it: People should treat everything on earth, including all stakeholders, as they treat themselves (Wang, p. 159). Therefore, Chinese companies practicing humanistic management take upon themselves an obligation to do their best in everything they do; everywhere they go, they are constantly trying to strike a balance among the different forces, starting from being humane when dealing with every party. All stakeholders, employees, customers, suppliers, and business partners are positively affected by their benevolence, and will then reciprocate the kindness by doing the right things. They, too, become more humane and will want to adopt the humanistic approach to their management. Consequently, such companies achieve unexpectedly greater returns in both financial and social terms. Proposition 5: Chinese humanistic management respects the oneness of man and heaven and tries to achieve the oneness by taking care of all stakeholders with benevolence.

Discussion and Conclusion A humanistic perspective of organizations emerging as an alternative to the neo-classical, “nexus of contracts” view that many see as a significant hindrance to solving the world’s most pressing social and environmental problems, if not a direct contributor to their perpetuation and intensification (Heugens et al. 2008). The

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humanistic perspective proposes that organizations are to be seen as social communities that can and should pursue multiple goals simultaneously, even if these are at times in tension, rather than maximize a single “objective function” (such as shareholder value) (Pirson and Lawrence 2010). Du, the leading Confucian scholar, put it more explicitly: “If we do not want the market economy to lead to a market society, market family, market marriage and even market interpersonal relationship, if we want to go beyond the narrow anthropocentrism, beyond the instrumental rationality that destroys ecological environment, beyond reckless Faustian spirit and unrestrained individualism, we should pay attention to the value of Confucianism. Confucian core values are not only Chinese, but also East Asia, as well as the whole world” (Du 2014). China being the birthplace of Confucius benefits from Confucian spiritual legacy. However, most Chinese firms have not become convinced or are still skeptical about the value of Confucian ideologies because only a few decades ago, they were treated as “dross” and were seriously criticized. Also, despite the rapid growth, extreme poverty exists in 24 of the 31 provinces according to Wang and Fan, and problems such as air pollution, corruption, and concerns for food safety continue to perplex the Chinese people. The wide gap between the rich and the poor remains a major concern of the Government. Similar problems exist in other countries as well. The future of the capitalist system is now a universal concern because of the lack of sustainability, rising inequity, and the threat to “business as usual” posed by continuous decline in societal trust (Jackson and Nelson 2004). Thus, from a practical standpoint, gaining a better understanding of humanistic management seems important in light of the local (i.e., in China) and global issues that humanity is currently facing (poverty, inequalities, environment pollution, etc.). This chapter has briefly introduced the essence of Confucian humanism and discussed its connection with Humanistic Management. Using examples from two companies we have examined in depth and some others companies we have studied, and based on the literature we reviewed, this chapter developed a theoretical model on humanistic management process. We have also generated propositions for the major variables in the model. We plan to empirically test the model. We hope this chapter will inspire colleagues to start examining humanistic management so as to promote research and practice of humanistic management.

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Contorted Leadership in Chinese Hierarchically Oriented Context: How Social Governance Influences Organizational Leaders

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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leaders’ Resource-Acquiring Behaviors in the Western Context . . . . . . . . . . . . . . . . . . . . . . . . . . Social Governance in the Western Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social Governance in the Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leaders’ Resource-Acquiring Behaviors in the Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leaders’ Cognition in Compliance with the Rationality of Markets . . . . . . . . . . . . . . . . . . . . . . . Leader’s Behaviors Yield to Hidden Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cause of Leaders’ Contorted Behaviors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contorted Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Role of Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implications for Chinese Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implications for Chinese Management Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implications for Chinese Management Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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L. Zhang School of Humanities, Economics and Laws, Northwestern Polytechnical University, Xian, Shaanxi, China e-mail: [email protected] X. Zhang (*) Institute of Leadership and Education Advanced Development, Xi’an Jiaotong-Liverpool University, Suzhou, Jiangsu, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_27

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Abstract

The aim of this research is to explore the behavioral model of Chinese organizational leaders acquiring resources for the development of their organizations under the influence of hierarchically oriented social governance. The paper compares the differences between Western and Chinese contexts and conducts a grounded multi-case study to explore leadership behavioral model in the Chinese context. We argue that the Chinese social governance structure is hierarchically oriented, whereas the Western social governance structure is market oriented. Further, we define this unique inconformity found in the Chinese organizational leaders as contorted leadership, which refers to the dissonance between leaders’ cognition and their behavior when acquiring resources for the development of their organizations. The conflict between leaders’ cognition and behaviors is caused by the social governance mechanism within which leaders are embedded. We link leadership with social governance by emphasizing on the core role of social governance in allocating the resources which organizational leaders scramble for. Keywords

Leaders’ contorted behaviors · Social governance · Resource acquiring · Resource allocation · Indigenous management

Introduction Context is crucial in understanding leadership phenomena. The context of leadership is the milieu – the physical and social environment – in which leadership is observed (Liden and Antonakis 2009). All leadership theories are developed in specific contexts (Johns 2006; Rousseau and Fried 2001). Lewin (1947) first introduced the concept of context into organizational research by pointing out that behavior cannot be fully understood without consideration of the situation in which persons are embedded (Liden and Antonakis 2009). Scholars used to consider the context within the organization and simplify it as a moderator variable. Recently, researchers have been expanding the scope of context into a multilevel phenomenon. In particular, it has been demonstrated that leadership phenomena are largely influenced by the national context. As most leadership theories were developed in the Western context, leadership phenomena in the Chinese context have thus far been largely overlooked (Yukl 2010; Zhang et al. 2012). Considering the uniqueness of the Chinese cultures in which leaders are embedded, it should be interesting to investigate the unique leadership behaviors in the Chinese context. Chinese organizational leaders do behave in a unique way. For example, as the founder of Haier Group (a well-known household appliance enterprise in China), Zhang Ruimin always uses guanxi and follows the tacit rules that prevail in China (Zhang et al. 2012) to access resources from the government, even though the firm

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has decided to establish its own market mechanisms. His motto – “Think on principle, act flexibly” – indicates that there might be deviations between what leaders think and what they do. It is common for what Chinese organizational leaders want to do to be different from what they actually do; sometimes what they say is opposite to what they do. Why do Chinese leaders behave differently from Western leaders? We argue that the Chinese social governance mechanism is one of the main causes. Social governance influences leadership behaviors because it is used to allocate the crucial resources leaders want to acquire for the development of their organizations. China’s 30 years of transformation from a planned economy to a market economy led to changes in its social governance structure. China’s social governance is more complex than that of Western nations because of the mix of different rationalities. Under this social governance structure, Chinese organizational leaders may adopt different behavioral models when acquiring resources because of the coexistence of market and planned economies. We address the following two questions in this paper: (1) How does social governance differ between the Western and Chinese contexts? (2) How does the behavioral model of Chinese leaders acquiring resources for the development of their organizations differ from that of their Western counterparts? A grounded multicase study was used to explore these questions through “holistic depictions of realities that cannot be reduced to a few variables” (Gephart 2004). First, we adopt constructivist grounded theory to define leaders’ contorted behaviors. Then, we replicate and make comparisons with the other two cases. The main findings of the article are as follows: First, the Chinese social governance structure that determines resource allocation is different from that in the West. Resource allocation in the Chinese context is dominated by the hierarchical mechanism, whereas that in the Western context is dominated by the market mechanism. Second, we found that the behaviors of Chinese organizational leaders are largely contorted because of the unique social governance structure. We identified a new leadership behavioral model called contorted leadership, which refers to the deviations between leaders’ cognition and behaviors, or leaders’ inability to act according to what they think is right. Our findings have two cardinal contributions: First, we link leadership with social governance by emphasizing the core role of social governance in allocating the resources organizational leaders scramble for. Second, we identify a new kind of leadership – contorted leadership – in the Chinese context that emphasizes the contradiction between leaders’ cognition and behavior, which deepens our understanding of leadership contextualization. The article is organized into four parts. First, we review extant leadership theories to show how social governance influences leaders’ behaviors in both the Western and Chinese contexts and identify characteristics of the Chinese resource configuration mechanism. Then, we describe the research methodology of this study, followed by the results of our case studies of three organizational leaders. Finally, the contributions and limitations of the paper are discussed.

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Literature Review We will firstly reviewing leaders’ resource-acquiring behaviors in the Western context which have received lots of attention in existing researches (Ulrich and Barney 1984; Alvarez and Busenitz 2001). Further, the impact of social governance on Western leaders’ resource-acquiring behaviors will be discussed (Crossland and Hambrick 2007). Considering the difference between the Chinese and Western social governance context (Wu 2007), Chinese leaders’ resource-acquiring behaviors should have their own characteristics, which is also a pendent question that we want to explore in this paper. Therefore, we will also discuss the uniqueness of Chinese social governance and then reviewing the limited studies that could provide implications for us to investigate the resource-acquiring behaviors of Chinese leaders.

Leaders’ Resource-Acquiring Behaviors in the Western Context The resource-based view of the firm (RBV) defined that resources include “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness” (Daft1983) and proposed that “sustained competitive advantage derives from the resources a firm controls that are valuable, rare, imperfectly imitable, and not substitutable” (Barney 1991; Zhang et al. 2012). Although research on the RBV has become a dominant paradigm for strategic management research (Peteraf 1993), scholars have noticed the close interactions between firm leaders and the resources firms control (Conner 1991). Ulrich and Barney (1984) argued that an organization’s ability to control external vital resources depends on the power of its leaders. Alvarez and Busenitz (2001) highlighted three roles of leaders in acquiring resources: opportunity recognition, the ability to organize resources into a firm, and the creation of heterogeneous outputs through the firm that are superior to those in the market. To sum up, RBV provides the basic framework to understand resource, and some scholars have already noticed leaders’ role in acquiring resources. However, how the context in which leaders embedded influences leaders’ resource-acquiring behaviors still received little attention. The Western context was taken for grand in majority resource-acquiring researches so as to neglect the influence of context. This limitation leads to the difficulty for theories developed in the Western context to interpret leader’s resources acquiring behaviors in the Chinese context. In the Western context, discussion of leaders’ resource-acquiring behaviors has two basic assumptions. First, Western scholars tend to discuss resource allocation based on the principle of the market. That is, the determining criterion for resource mobility is the competence to use the resource in a more valuable manner than others. Under this principle, leaders’ behaviors confirm to the market mechanism and do not break market discipline frequently. Second, Western leaders have high commitment to the market principles they follow. When acquiring resources, they

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behave in a way consistent with their cognition. Because the market economy preserves trust and morality through full competition and severe punishment, the transaction costs of leaders’ economic activities are relatively low. Leaders have no incentives or space to acquire resources in ways that conflict with market principles and their cognition. The well-established market economy ensures that entrepreneurs can create wealth through normative behaviors and realize their personal aspirations at the same time (Zhang et al. 2012). In conclusion, to understand leaders’ resourceacquiring behaviors in the West, we should rely on the macro social governance that determines the allocation of resources and influences the behaviors of leaders.

Social Governance in the Western Context Since leaders’ ability to control external valuable resources is constrained by the broader social and economic system within which they operate (Crossland and Hambrick 2007), we should first comprehend the specific social governance structure in order to understand leaders’ resource-acquiring behaviors in a given context. We maintain that social governance has a great effect on the distribution of resources, and the different resource flow directions determine the resource configuration mechanism. That is, by controlling the flow of resources, social governance determines the entire resource configuration. Further, resource configuration in the Western context severely impacts embedded leaders’ resource-acquiring behaviors. Three kinds of basic social governance mechanisms – hierarchy, market, and network – determine the behaviors of social actors embedded in a specific context. In his famous article “The Nature of the Firm,” the economist Coase (1937) conceived of the firm as a governance structure; his key insight was that firms and markets were alternative means for organizing similar kinds of transactions (Powell 1990). Subsequently, Williamson (1975), further distinguishing views of markets and hierarchies, saw firms as separate from markets and put forward a continuum of social governance in which markets are located at one end and hierarchies at the other. In the market pole, prices capture all the relevant information necessary for exchange, whereas the hierarchy pole includes franchising, joint ventures, decentralized profit centers, and matrix management (Powell 1990). Beyond the poles of the markethierarchy continuum, Powell (1990) devised another governance structure – the network form of organization. The network governance structure describes individual groups with stable trading relationships supported by shared norms and trust behavior (Liebeskind et al. 1996). Kaneko and Imai (1987) argued that information passed through networks is “thicker” than information obtained in the market and “freer” than that communicated in a hierarchy. To sum up, the three kinds of social governance mechanisms – hierarchy, market, and network – coexist and interact with each other. The mechanisms they combine differ in different contexts and have different effects on the resource configuration in the given context. In the Western context, the market takes a dominant role in social governance structures. Markets are spontaneous coordination mechanisms that impart rationality and consistency to the self-interested actions of individuals and firms (Powell 1990).

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Because of the remarkable devices now available for fast, simple communication, no one need rely on someone else for directions in the market mechanism (Powell 1990). Therefore, the market mechanism has long been recognized as the best mechanism for economic development, as well as the ideal context for an organization’s leaders to develop themselves and exert their influence (Zhang et al. 2012). In the market governance structure, resources can be acquired freely following the price mechanism that is simple and efficient. Market-based allocation is broadly considered to be the most efficient method of resource configuration. The hierarchy mechanism plays an assisting role in the Western social governance system. A hierarchical structure can influence or determine resource allocation through its lines of authority and formal decision-making procedures. The strength of the hierarchical governance structure is its reliability (i.e., its capacity for allocating large amounts of resources of a given quality repeatedly) and its accountability (i.e., its ability to document how resources have been allocated) (DiMaggio and Powell 1983; Hannan and Freeman 1984). For example, the hierarchy governance mechanism can use rules to fix employment relationships for a long time, thus avoiding the cost of frequent personnel turnover. Whereas the market structure uses the price mechanism, the main principle of resource allocation in the hierarchy context is the power of administrative rules and superior orders. The network mechanism also assists the market mechanism in the Western context. Powell (1990) suggested the resource flow in the network structure occurs neither through discrete exchanges nor by administrative fiat but through networks of individuals engaged in reciprocal, preferential, mutually supportive actions. Networks in the Western context emphasize the reciprocal relationship between different parties. Macneil (1985) pointed out that the “entangling strings” of reputation, friendship, interdependence, and altruism become integral parts of the relationship. The main method of resource allocation in the network context is through the relationships shared by the different parties under the assumption that one party is dependent on the resources belonging to another. The three governance mechanisms – market, hierarchy, and network – all exist in the Western context, and the interactions between them are illustrated in Fig. 1. Market mechanism is the prominent principle of resource allocation in the Western social governance system, while hierarchy and network mechanisms play supporting roles to market mechanism. Most resources conform to the market rules and flow based on the price mechanism. Only a small amount of resource distribution is determined by the supplementary power and relationship mechanisms.

Social Governance in the Chinese Context As discussed above, the structure of social governance in any context can be understood by combining three basic principles: market, hierarchy, and network. Social governance in China has its own characteristics that differ from the marketoriented integrating model in the Western context because of the unique historical trajectory of its development (Xi and Zhang 2013). These unique characteristics of

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Market Social governance Hierarchy

Principle of resource allocation

Resource configuration

Power

Network

Price mechanism

Relationship

Market-based allocation, supported by hierarchy and network mechanisms

Fig. 1 Resource configuration mechanisms in the Western context

social governance influence the resource allocation in society directly. Therefore, to understand how Chinese leaders acquire resources for organizations, we should first analyze social governance in the Chinese context and identify the effects of social governance on the allocation of resources that leaders want to acquire. In this section, we will focus on the characteristics of social governance in China from a historical perspective. China has experienced major change in nearly all areas in the three decades since its establishment of a policy of reform and opening up (Boisot and Child 1988). The transition from planned economy to market economy led to a mixture of different kinds of social governance principles, which created a close interaction between the hierarchy and market mechanisms (Xi and Zhang 2013). We track these interactions by looking back at the turning point events in China’s 30-year transition (Table 1). For each event, we address two questions to examine its implications on the characteristics of social governance and resource allocation in the Chinese context: (1) What is the interacting relationship between the three principles in this event? (2) Who determined the allocation of resources in this event? The starting point for our retrospection is the establishment of the new economy. In 1952, all personal assets were nationalized by the central government, and the country began to move toward a planned economy (Wu 2007). The reform and opening-up policy enacted in 1978 made it possible for private enterprises to exist and develop (Wu 2007). Since then, many Chinese indigenous enterprises have been established and have made important contributions to the national economic development. As indicated in the table, the Chinese social governance structure has three unique features (Fig. 2). First, the market mechanism is restricted to a great degree. In the Chinese context, the hierarchical mechanism can totally determine whether the

Characteristics of social governance

Theme Summary of critical events

Time

Event 2 1983 Planned indicators Government divides production permission into planned indicators and unplanned indicators. The former has more privilege than the latter

Event 3 1986 Shareholding reform Government enacts the shareholding reform policy, encouraging enterprises to reform. Most private companies can enact the reforms only with the government’s allowance The hierarchy The The hierarchy structure of distinction of mechanism government two indicators controls the dominates social is controlled scope within governance. Even by Chinese which the though the market governance market economy is Most planned mechanism is allowed, the range indicators allowed. With in which the flow to state- government market economy owned permission, can exist is still private enterprises. controlled by companies Improper government can carry out

Event 1 1978 Reform and opening up Government enacts the reform and opening-up policy; market economy is allowed to exist. Private enterprises in China begin to emerge

In response to Chinese leaders’ appeal, the market mechanism develops in China. The hierarchy mechanism is pushed forward to create progress for the market mechanism

Event 4 1992 Xiaoping’s southern tour Deng Xiaoping, a Chinese state leader, goes to Shenzhen to support reform and opening up. The market economy develops further in China

Table 1 Analysis of critical events since the 1978 reform and opening-up policy in China

The market mechanism is restrained by the hierarchy mechanism. Economic austerity emerges as the result of macro-control; new projects sharply decline

Event 5 1993 Macroeconomic control Government enacts a severe macro-control lasting 4 years. The People’s Bank of China increases the interest rate and rectifies financial order

Accompanied by internationalization, the market mechanism is encouraged. It is still difficult for multinational corporations (MNCs) to get into resource-based industries, which are controlled by the

WTO China becomes a member of the World Trade Organization. Multinational companies in China go through strategic adjustment

Event 6 2001

The hierarchy mechanism limits private enterprises from entering some industries. The hierarchy mechanism plays a greater role than does the market mechanism

Event 7 2004 Macroeconomic control Government promotes macrocontrol in heavy industry. Private enterprises in the steel, electrolytic aluminum, and cement industries are rigorously confined

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Characteristics of resource configuration

means (like guanxi) are needed to access unplanned indicators The government’s The hierarchy government’s allocation plays a hierarchy major role. Most allocation resource are still determines controlled by the planned government. indicators. Market allocation Rent-seeking emerges is available for unplanned indicators The government uses hierarchy to allocate which companies can access more resources from the market mechanism

shareholding reforms

Market allocation creates more space for development in Chinese special economic zones, e.g., Shenzhen The government’s hierarchy allocation suddenly prevents market allocation. Government power still influences resource allocation in the market Economic development enhances the market allocation of resources. Government still controls crucial resources, which MNCs in China cannot access

hierarchy mechanism

The planning effect of governance is still obvious in resource allocation. Private enterprises cannot get sufficient resources from the market

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Hierarchy Social governance Market

Principle of resource allocation

Resource configuration

Price mechanism

Network

Power

Relationship

Hierarchy-oriented allocation supported by the market principle,with the Network principle as aramification

Fig. 2 Resource configuration mechanisms in the Chinese context

market mechanism can exist and the scope it is allowed. After 1952, there were no legal personal assets because private business was forbidden by the Chinese government. In 1978, a market economy was permitted in China, and then the market mechanism had an opportunity to play a role in resource allocation (Wu 2007). However, even though a market economy emerged, most resources were still controlled by the government. Second, the hierarchy mechanism acts as the dominant force in the social governance structure. Macroeconomic control, which refers to the government’s adjustment and control of economic operations through regulating tools, has been a very hot topic in the past three decades and is viewed as the secret of China’s economic success (Wu 2013). The Chinese government has conducted several waves of macroeconomic control over the past 30 years to ensure economic development moved in the right direction. For example, in 1993, the Chinese government began to enact severe macro-control, introducing the “prevent overheated economy” policy; the People’s Bank of China increased the interest rate and rectified financial order, inducing a sharp decline in new projects (Wang and Miu 2006). Another example occurred in 2004, when the government began to control the heavy industry field, which led many private enterprises in the steel, electrolytic aluminum, and cement industries to close down (Wu 2007). Finally, the network mechanism is a ramification of the hierarchy structure in the Chinese context. The prominent network groups in the Chinese context were shaped or even created by hierarchical power. For example, two conflicting groups in China were divided by governmental policies. One group, the state-owned enterprises (SOEs), acquires resources based on the hierarchical mechanism, whereas the

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other group, mainly comprised of private companies, gets resources based on the market principle. The different groups faced different treatment in terms of governmental regulations related to resource allocation. This division led to further polarization of SOEs and private firms. These groups usually have their own networks and tend not to build close relationships with each other. By analyzing the critical events of the Chinese economic development process since 1978, we can see that resource configuration in the Chinese context has its own characteristics and is different from that in the Western context. Although the three kinds of social governance principles – hierarchy, market, and network – and three determinants of resource flow, price mechanism, power, and relationship, all exist in both the Chinese and Western contexts, the interactions between them vary because of the distinct historical backgrounds. In the Chinese context, the social governance structure is hierarchically oriented, and the power of government plays a critical role in allocating resources. In contrast, the Western social governance structure is market oriented, and the resources are mainly allocated based on the price mechanism.

Leaders’ Resource-Acquiring Behaviors in the Chinese Context Considering the unique characteristics of the Chinese social resource structure and the resource allocation model, it is critical to pay attention to leaders’ resourceacquiring behaviors when investigating the unique characteristics of leadership in the Chinese context. Although there is little directly related research, scholars devoted to Chinese management research offer us many implications. Unlike the Western context, discussion of Chinese organizational leaders’ resource-acquiring behaviors has two basic assumptions. First, the state plays an important role in Chinese organizational leaders’ resource-acquiring behaviors. The rapid economic development in China since the country implemented its opening-up policy and transformed from a planned economy to a market economy has been studied extensively (Meyer et al. 2009; Peng 2001). Child and Tse (2001) highlighted that China is unique because the transition was entirely controlled by the state and the government has broad involvement in business affairs. Oi (1992) argued that the Chinese fiscal reforms mandate that local governments make inequitable treatment of enterprises a matter of policy. That is, Chinese governments have the right to rank enterprises preferentially in terms of their access to resources. Considering the crucial effects Chinese governments play in resource allocation (Oi 1995), relying on government is the primary way for Chinese organizational leaders to access resources. Second, guanxi has enormous influence on Chinese organizational leaders’ ability to acquire resources. Hoang and Antoncic (2003) argued that actors gain access to a variety of resources through interpersonal relationships. One kind of Chinese interpersonal relationship that had received widespread attention from scholars is guanxi. The term guanxi in the Chinese language refers to a direct particularistic tie between two individuals (Tsui and Farh 1997), formed under conditions of resource scarcity (Lin and Si 2010). Cross-cultural research has

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found that guanxi is more important in Chinese society than are personal relationships in the West (Sheer and Chen 2003). The unique socioeconomic and cultural conditions of Chinese guanxi are more likely to lead to market fragmentation, state intervention, and rent-seeking (Chen et al. 2013). In conclusion, the existing literature contributes to understanding Chinese organizational leaders’ resource-acquiring behaviors in the following three aspects. First, the researches on “Chinese transition economics” inspire us to pay attention to the rapid economic development since Chinese opening-up policy and transition (Meyer et al. 2009; Peng 2001). Second, the researches on “entrepreneur-state relationship” (Oi 1992, 1995) and “Chinese rural development” (Yep 2004) arouse our interest in the close interaction between Chinese government and organizational leaders (Child and Tse 2001). Third, the researches on “Chinese guanxi” stimulate us to realize that guanxi may help organizational leaders get resources through some crooked ways (Chen et al. 2013). However, there are still few researches that are directly related to exploring how Chinese organizational leaders acquire resources and what is the unique character of resource acquiring in the Chinese social governance structure. That is exactly what this paper wants to explore.

Methodology Research Design In order to obtain a deep understanding of Chinese local leadership phenomena and give a holistic description of the social activities observed, we conducted a two-step qualitative study combining constructive grounded theory and comparative case study. We adopted constructivist grounded theory to discover the behaviors of a Chinese organizational leader in acquiring resources for an organization. Then, we replicate the study and make comparisons with another two Chinese organizational leaders to refine and complete our results. As Gephart (2004) argued, “Qualitative research can provide thick, detailed descriptions of actual actions in real-life contexts that recover and preserve the actual meanings that actors ascribe to these actions and settings.” Moreover, Charmaz (2006) also proposed that constructivist grounded theory, which adopts the methodological procedures in Glaser and Strauss’s (1967) classical grounded theory, is a good way to create meaning attached to actors’ behaviors. Case study is an exploratory research method that emphasizes the contextual analysis of a limited number of events or conditions and their relationships (Dooley 2002). Multi-case study (Eisenhardt 1989; Yin 1984) provides opportunities for replicating and extending the propositions developed through constructivist grounded theory in our first research step (Eisenhardt 1991; Zhang et al. 2012). Following the techniques of within-case analysis and cross-case comparison helps us extend and complete the findings (Eisenhardt 1989).

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Research Sample Three leaders participated in this study: Xi, Wang, and Zhang. They come from different industries to illustrate leaders’ behaviors in acquiring resources for their enterprises. We conducted constructivist grounded research on Xi and the other two leaders as duplicate cases. A great deal of data from various sources, including interviews, observations, archival materials, organizational documents, publications, media reports, and self-reflections were collected for each leader (Table 2). Xi is a professor-turned-president at a Sino-British joint university. Born into a peasant family and educated in a large, state-owned university, Xi was promoted to dean of the business school at age 39 and then to vice president of the university at age 41. Since 2008, he has served as the executive president (EP) of a Sino-foreign cooperative university (XJTLU). After Xi was appointed as XJTLU’s EP, he presented “happy life and successful career” as the core ideology and created the “fivestar” educational mode blending the intellectual, cultural, and educational essences of the oriental and the occidental. Now, XJTLU has become a new international university with a dual culture that has received much attention. Wang is the chairman of China Vanke Co., Ltd. (Vanke). Born in a military officer family, Wang was raised in a superior environment for growth. Vanke was launched in 1984 and began to engage in the real estate business in 1988.Over more than two decades, Vanke has become the largest real estate developer in China. In 1999, Wang resigned as chief executive officer (CEO), completely deliver the administration authority to the new CEO and himself attend other activities such as climbing Table 2 Basic information for the sampled leaders Name Age Birthplace Title

Xi 56 Chinese rural EP of a Sino-UK university

Wang 62 Chinese urban Chairman of Vanke

Ownership

Sino-foreign cooperation Dean of management school, vice president of a state-owned university

Private corporation

Leadership experience

Archival data

Organizational documents, selfreflection, publications

Interviews Observation period

16 1.5 years

Manager of Shenzhen Exhibition Center of Modern Science and Education Equipment, Chairman and CEO of Vanke Chairman of Vanke Organizational documents, publications, media reports

0 0

Zhang 64 Chinese rural Chairman and CEO of Haier Group Collective enterprise Director of Qingdao factory, Chairman and CEO of Haier Group Organizational documents, publications, media reports 3 0

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mountain and continuing education. Even after his departure, the sustained growth and standardized and transparent corporate governance structure at Vanke have been widely recognized by investors. Zhang was born in an ordinary worker’s family. In 1984, Zhang was appointed director of the Qingdao refrigerator factory (predecessor of Haier Co., Ltd), which was a small, ailing collectively owned factory. After his inauguration, Zhang was particular about the quality of products. Once the fact that a consumer could not find a Haier refrigerator free of faults impacted Zhang deeply, Zhang decided to smash all the defective inventories despite heavy losses. Since then, all Haier employees have recognized the importance of high quality and excellent service. In 2000, Zhang assumed the position of chairman and CEO of Haier Group. Under his leadership, the company made tremendous achievements and became the leading Chinese household appliance brand. Unlike traditional hypothesis-testing studies, case study relies on theoretical sampling (Glaser and Strauss 1967; Eisenhardt 1989) and, thus, has the advantage in generating novel theory (Eisenhardt 1989). As Pettigrew (1988) argued, given the limited number of cases that can usually be studied, it makes sense to choose cases of extreme situations and polar types in which the process of interest is “transparently observable.” We selected the sample for three major reasons: (1) Typicality. Higher education institutes in China are mostly state-owned universities (which are quiet difference from the West); there are a handful of (not exceeding ten) private or Sinoforeign joint universities (which are influenced both by the Western context and Chinese context). Xi’s unique leadership experience of working in a national university first and in an international university later provided precious opportunities for us to explore how he acquired resources in two distinct systems and identify what is the unique character of leaders’ resource-acquiring behaviors in the Chinese social governance context. (2) Feasibility. Xi allowed us to observe him closely, select anyone to interview, and provide abundant self-reflections. In order to get sufficient firsthand materials, we have closely observed Xi’s daily activities for more than 18 months, including 2-week period of all-day observations. (3) Variety. Relating to our research purposes and theories, the three leaders come from different areas: Xi represents higher educational leaders; Wang built his company in China’s most disputed industry – real estate; and Zhang comes from the household appliance industry. The variety of the three cases chosen from different industry sectors can help us to replicate previous cases or extend emergent theory. However, we have to admit that, given the limited number of cases which can be studied and the difficult access to data, we haven’t included other types of leaders (such as political leaders, NGO leaders) in our research sample.

Research Process Step 1 Following the procedures of grounded theory, which involves paying attention to theoretical sensitivity, treatment of the literature, coding, diagramming, and so on,

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we conducted our constructive research with Xi. First, grounded theory advocates field studies with open questions (Charmaz 2006). After describing Xi’s resourceacquiring stories from secondary materials, we interviewed Xi himself and many related people, including his personal assistant, the middle-level managers at the university, his past subordinates, and many others. Sixteen in-depth interviews were conducted totally (each lasting more than 1.5 h), accumulating thousands of pages of notes, which were analyzed carefully. The main questions for Xi included: As the EP, how did you acquire resources for the development of the university? Why did you use those methods? Did you use similar methods to acquire resources in your past leadership experience? The interviews with other people were primarily focus on their opinions and evaluations of Xi’s behaviors for acquiring resources. Second, we collected data through various approaches and allowed concepts and theories to emerge through constant comparisons between the data and the theory (Glaser and Strauss 1967). Our qualitative data were obtained from interviews, observations, publications, and organizational documents, with the archival data serving as the initial source of data to get an overall view of the target. Data from these sources were triangulated to guarantee reliability. Data that could not be verified by all sources were excluded in later analyses. Finally, our analysis process strictly followed the procedures of Glaser and Strauss (1967). Before we started our research, we kept an open mind about the research object. By analyzing the data from archival documents, interviews, and observation, we first drew a clear description of Xi’s resource-acquiring process. In this step, we gained an integral understanding of our research question. The detailed coding process can be divided into four stages. The first stage started with summarizing our interview and archival data to identify many critical events in order to build an “event history database” (Garud and Rappa 1994). In the second stage, we analyzed critical events related to the target leaders’ resource acquiring and organized the selected events into first-order categories through a process of open coding (Tracey et al. 2011). Then, we sought and identified relationships between and among first-order concepts to form our axial coding (Strauss and Corbin 1990). This step was not a linear process but rather proceeded iteratively, moving among the data, emerging patterns, and literature until the data were refined into adequate conceptual themes (Eisenhardt 1989; Tracey et al. 2011). The last step was the formation of theory coding. In this stage, we completed the theoretical analysis and proposed a new type of leadership called contorted leadership.

Step 2 Based on the analysis of Xi, we expanded our results to the other two leaders (Wang and Zhang) to validate the generalizability of the contorted behaviors developed in the first step. In this comparative step, multiple data sources, such as organizational documents, publications, and media reports, were adopted, making it possible to triangulate the results. Archival data were collected to determine whether the two leaders also presented contorted behaviors when acquiring resources for their organizations. The process of data collection and analysis was conducted by the two authors, with each responsible for one of the cases. The lead author coordinated

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among the different cases to ensure consistency and connections between the data and the research questions (Zhang et al. 2012).

Results By comparing the cognition of the studied leaders with their behaviors, our data suggest that large dissonance exists between the cognition and behavior of all three leaders in acquiring resources for their enterprises. Unlike the classic leaders’ behaviors discussed in the Western context, Chinese organizational leaders show a kind of behavior that diverges from their cognition. We define this unique inconformity found in the Chinese organizational leaders as contorted leadership, which refers to the dissonance between leaders’ cognition and their behavior when acquiring resources for the development of their organizations. Chinese organizational leaders always behave in ways that largely deviate from what they think would be right. Sometimes, leaders know something is wrong but doing the wrong thing is critical for them to acquire resources. Our data also show that the conflict between leaders’ cognition and behaviors is caused by the social governance mechanism within which leaders are embedded. For Chinese organizational leaders, the government controls the resources leaders are striving for through hierarchical allocation. In order to survive in this environment, leaders sometimes should go against their principles when striving for special resources that cannot be obtained via regular competitive channels. For example, although disgusted with the behavior of gaining resources by using privilege or following hidden rules, Xi and his university at times adopted these crooked methods (e.g., offering entertainment, giving gifts) for key resources that were controlled by governmental officials. Specifically, we interpret the formation of leaders’ contorted behaviors in terms of three points: cognition, behavior, and causation of inconsistency between cognition and behavior. First, our data indicate that the targeted leaders’ cognition of how resources should be allocated in the society and how could they obtain the resources their organizations need is quite consistent with market rationality. Leaders have rational cognition when acquiring resources, which means they can clearly judge which is the right way to acquire resources. The criteria of “right” for them are obeying market rules and acquiring resources from the market. Second, we also find that leaders’ behaviors largely deviate from their cognition when acquiring resources. Even though they emphasized the importance of market rules, when acquiring resources, they always followed hidden rules that conflicted with their cognition. Finally, we argue that the primary causation of the inconsistency between leaders’ cognition and their behavior when acquiring resources is the macro social governance mechanism. Because the hierarchy mechanism plays the dominant role in the Chinese social governance framework, the government can determine the allocation of resources to a high degree. Therefore, if leaders want to access resources controlled by the government, they must maintain good guanxi with government officers, which is inconsistent with resource acquisitions based on

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market rules. The data of the three targeted leaders for these three dimensions are presented in Table 3.

Leaders’ Cognition in Compliance with the Rationality of Markets The case of Xi fully supports our argument. With leadership experience at two universities, Xi’s cognition of how higher education system resources should be allocated and how educational leaders should access resources complied with the rationality of markets. When Xi was the vice president of a state-owed university, he clearly realized that there were many unreasonable arrangements regarding resource allocation in the Chinese higher education system. For example, Xi considered the heavy reliance on the hierarchy structure when distributing resources to be the primary reason for the inefficiency and administerization of the whole Chinese higher education system. Xi found that most logistics groups in Chinese universities were still completely attached to the universities, and the universities arranged the personnel’s work and took responsibility for these groups’ profits and losses. However, in his opinion, the management mode for logistics groups should be changed according to the market mechanism to make the logistics group an independent legal person that could take responsibility for its own profits and losses according to market rules. Xi (Refer to the article (Xi and Wang 2001) published during his tenure in the logistics group) criticized the disadvantages of Chinese universities’ logistics management in an essay when he was the leader of the logistics group, as follows: (1) Administerized (行政化) management and operation. For decades, the resources that Chinese universities’ logistics groups needed were provided directly by the country; the cost and earnings of the groups were separated; the incentive system was built based on bureaucratic principals rather than the development of the business. (2) The logistic groups of Chinese universities were closed to the market, and their business was not established based on market economics. (3) The property right of the logistic groups was ambiguous, and the organizational members had no passion to devote themselves to the development of the organization.

Moreover, even after Xi left the state-owned system to work in a private Sino-British cooperative university, he still found that the Chinese higher education system had a long way to go to be a real academic community. Unlike the stated-owned university, the Sino-foreign cooperative university at which Xi currently works is out of the direct control of Chinese government. As the EP, Xi has found that there are many obstacles for private universities in developing and operating according to market and educational rules. During our interview, Xi mentioned his suggestions, which were submitted to the Chinese government in a report: [. . .] Chinese universities as independent legal entities should control the following issues rather than having them directly controlled by the government: (1) Student recruitment. Universities should have the right to decide how many students they can recruit and the

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Table 3 Analysis of critical events for the three leaders Leader Xi

Cognition The logistics group of the university should be an independent enterprise and take responsibility for its own profit and loss according to market rules

Behavior In order to implement overall reform of the logistics group of the university at which Xi was embedded, he had to conquer much resistance from hierarchy mechanism in the university

Xi actively promotes obstructing the effect of higher administrative authority on educational leaders. For example, regarding the educational funding allocation, the Chinese government should formulate an impartial and transparent education funding mechanism As the EP, Xi argued that the university should possess more autonomous rights in terms of students’ education, such as the right to decide on admissions, majors, and degree granting

To access the necessary resources controlled by the Chinese government, Xi would flexibly adjust his methods and processes to reach his objectives, sometimes even putting his principles aside and following hidden rules despite his reluctance

To achieve more autonomous rights, Xi must appeal to the Chinese government. Sometimes it is not enough to demonstrate beneficial ideas; the important thing is to get the support of officers. To impress the officers in charge of approving his reform proposal, Xi has no choice but to follow hidden rules

Cause of the inconsistency The government began the advanced reform of the marketization of the university’s logistics group in 1998. However, the university has made few changes in response to the policy. The hierarchy mechanism still controls the personnel of logistics group Educational resources are controlled by the Chinese government. Educational leaders inside and outside (e.g., state-owned and private university) the education system should exert much energy striving for more resources such as education funding Universities seldom have autonomous rights, and most rights to make decisions about university management are still centralized with the Chinese government. For example, if the university wants to change the majors it offers, it must apply to the government and submit to examination and approval by officers (continued)

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Table 3 (continued) Leader Wang

Cognition Following the rules of the market economy, the enterprise can use the price mechanism to obtain railway transportation from the market. Markets should provide equal opportunity for all enterprises

Behavior In order to access unplanned railway transportation indicators, Wang gave gifts to the director of the freight station. After his staff was rejected, he came to try again himself. In the end, the director helped without accepting gifts

Wang himself completely agrees with the market mechanism and strives to insist on following market rules. Wang announced in public more than once that he would never offer a bribe to access resources

A financial problem arose for the “Hai Shen” real estate project. In order to achieve his goal of buying out the stock of three other shareholders, Wang used a variety of means (e.g., treating, entertaining) to establish guanxi with them

Wang wanted to implement a transparent business management system and forbade bribery behaviors including offering bribes and accepting bribes. The government’s supervisory function is an enormous power but should not confine enterprises

When the “Fu Jing” real estate project was nearing completion, the government ordered construction to stop unless Wang consulted the sonin-law of a local mayor, paying a consultancy fee of 2 million RMB. Wang refused; however, he suggested that his employees learn to play golf to establish close guanxi with government officials

Cause of the inconsistency The railway transportation industry is controlled by the government. There is a distinction between planned indicators and unplanned indicators. Planned indicators are arranged by the government, whereas unplanned indicators can be acquired through crooked methods Network allocation benefits much from power allocation, so it is common for resources to flow into different interest groups in the Chinese context. Guanxi played an important role in the leader’s acquisition of resource from other cooperative partners Government has the power to supervise enterprise’s projects, and there is no clear law to limit government’s invisible authority. Therefore, it is possible to acquire resources by bribing government officials

(continued)

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Table 3 (continued) Leader Zhang

Cognition After visiting the old Qingdao electrical appliance factory, Zhang found that it was a mess. He was unwilling to be the director of such a factory. However, considering government leaders arranged for him to take the position, he acquiesced Zhang realized that quality is very important for enterprise development based on market logic. With the saying “defective products are waste products,” he emphasized zero tolerance of defective products and took responsibility for products delivered to Chinese customers In order to raise funds to build the Haier industrial garden, Zhang organized discussions with bank presidents about potential loans. Zhang intended to promote the promising future of Haier to obtaining the bankers’ support

Behavior Zhang had no choice but to be the leader of the factory under the government arrangement. He took photos of the factory in case he failed to change it and had reason to be moved to another position by the government

Cause of the inconsistency The Chinese government played a decisive role in the arrangement of stateowned enterprises. The leaders, who were government appointees, were influenced by the administrative power and acquired approval through it

After Zhang smashed unacceptable refrigerators, he faced a charge of intentionally sabotaging public property. The criticisms induced a government investigation of Zhang, which made him unhappy. Thanks to one government official’s support, Zhang avoided punishment Because of changes in the government’s policy, Zhang suddenly could not get loans from the bank. Then, Zhang came to ask the leader of the Qingdao municipal party committee for help. With the assistance of this government official, Haier had the chance to move forward with an initial public offering

Even though Zhang was appointed leader of the factory, to some extent, he also required the permission of government and was supervised by government leaders. The hierarchy governance of the Chinese government played an important role in the enterprise’s development The Chinese government changed the policy from encouraging real estate investment to confining land speculation. Obeying the government’s policy, the bank stopped providing money for enterprises

criteria of the student recruitment. (2)New program development and program adjustment. The establishment of new programs and changes to existing programs should be determined by the universities rather than approved by the government. (3) Degree-granting power. The degree-granting power should belong to universities rather than the country. (4) Staff positions. The positions and titles of the university staff should be appointed and approved by the university rather than approved by the government [. . .].

From the above analysis, we can conclude that Xi has very clear cognition of the right mechanisms for university logistics management and the autonomous rights over student recruitment, new program development, degree-granting power, and

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staff positions. It is obvious that all of his arguments are influenced by market principles and are quite consistent with the conditions of Western universities. The other two leaders also provide good examples for the analysis of leaders’ rational cognition. Wang is chairman of Vanke, a leading company in the real estate industry. Wang announced in public more than once that he would never offer a bribe to government officials to acquire resources. This cognition reveals his belief that he and his company should acquire resources through their own strength in market. Another example is Zhang, the chairman and CEO of Haier Group. Zhang widely advocated the market economy philosophy. With the saying “defective products are waste products,” he emphasized zero tolerance of defective products and took responsibility for products delivered to Chinese customers. Overall, we can see that all three leaders appreciated the market mechanism in managing their organizations. These leaders have distinct criteria for what is the right thing to do to access resources. In their minds, complying with market rules and acquiring resources from the market is the rational way.

Leader’s Behaviors Yield to Hidden Rules Our data suggest that even though the leaders have rational cognition in acquiring resources, when it comes to crucial resources, their behavior will deviate from their cognition to access the resources. The three cases of this paper indicate that despite their unwillingness to do so, sometimes leaders have to yield to hidden rules that they would be ashamed to have known to the public, including taking actions that are sometimes illegal or immoral (such as giving gifts, providing special treatment, or offering entertainment). In order to enact the overall marketization reform of the logistics group of the state-owned university at which he was vice president, Xi had to conquer much resistance. Even though his original intention was to let the logistics group compete in the market and follow the market rules, he had to seek for support through the hierarchical power structure. Moreover, Xi’s rational cognition about market regulations has not changed since he was appointed EP of an international university. Moreover, compared to the former, stated-owned university, the international university endows him with much more power to use his influence. However, he has found that the hierarchy mechanism of the Chinese government still dominates educational resources, even in the international university. In order to acquire resources from the government, he has no choice but to behave in a manner discordant from his cognition, because it is the only way to access resources. To access the necessary resources controlled by the Chinese government, Xi flexibly adjusts his methods and processes to reach his objectives, sometimes even putting his principles aside and following hidden rules despite his reluctance. For example, the Chinese government has dominant power to determine quota allocations in the international school, such as the right to decide on admissions, majors, and degree granting. To achieve more autonomous rights, Xi must appeal to the

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Chinese government. Sometimes it is not enough to demonstrate beneficial ideas; the important thing is to get the support of officials. To please the officials who have the ability to approve his reform proposals, Xi has no choice but to follow the hidden rules, that is, adopt some crooked ways to provide benefits to government officials. The results from our multi-case comparison also suggest that contorted behaviors exist when leaders acquire resources in the Chinese context across various industries. For example, even though Wang has announced in public more than once that he would never bribe for resources, the truth is not all the resources he needs can be obtained in market in the Chinese context. Sometimes he must maintain close guanxi with government officials to access the resources they control. That means that to access resources, he may be faced with the choice of bribing government officials. For example, to save the “Hai Shen” real estate project, Wang was involved in a variety of crooked activities, including offering entertainment and giving gifts to establish guanxi with other shareholders. Looking at Zhang, his famous motto “think on principle, act flexibly” is a typical reflection of Chinese organizational leaders’ contorted behaviors. Although Zhang recommend market mechanisms, he still used guanxi and followed the hidden rules to access resources from the government. For example, when loans were not available from the bank, Zhang appealed to the Qingdao municipal government official for help. Overall, by making a comparison of the three leaders, we argue that the conflict between leaders’ cognition and behavior to acquire resources for their enterprises is the essence of contorted leadership in the Chinese context.

Cause of Leaders’ Contorted Behaviors Our data reveal that the social governance mechanism which determines the flow and allocation of resources in the Chinese context is the cause of leaders’ contorted behaviors. Considering the crucial role hierarchy mechanism plays in allocating resources, contorted behaviors could benefit Chinese organizational leaders to get resource more easily. For instance, giving gifts to Chinese government officials will be a contorted behavior of contorted leaders whose cognition is in compliance with the rationality of markets. No matter how much the leader suffers from inconformity between cognition and behavior, if he wants to acquire resources controlled by the government official, he has to yield to giving gifts as it is necessary and it can really make the leader to get resources easier. In the following parts, we demonstrate more detailed information about the causes of leaders’ contorted behaviors through the in-depth analysis of the three samples. The analysis of Xi suggested that the hierarchy mechanism determined the power allocation of the Chinese government, which dominates education resource allocation. As the main leader responsible for obtaining resources, Xi’s leadership experience as both the vice president of a state-owned university and EP of an international university were influenced seriously by resource allocation mechanisms in the higher education industry in China. Since the Chinese government has a greater effect on the state-owned university, we find that Xi’s contorted

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behaviors were more obvious in his early experience as vice president of a stateowned university. In his later experience, although Xi acts as the president of an international university outside the direct control of government, he also needs to come into contact with government officers. For example, universities seldom have autonomous rights, and most rights to determine university management practices are still centralized by the Chinese government. Therefore, in order to gain more autonomous rights, Xi must apply to the government and go through the examination and approval of officers. The results from the other two leaders also support our findings. For Wang, the “Fu Jing” real estate project is a good example to illustrate how government power influences resource allocation and induces leaders’ contorted behaviors. Government had the power to order the project to stop unless Wang consulted the son-in-law of a local mayor with a consultancy fee of 2 million RMB. Government has the power to control critical resources without clear laws to limit its invisible authority. Therefore, to acquire resources, leaders engage in contorted behaviors like bribing government officials. Zhang is another example. Although Zhang resist residual thoughts about the planned economy and appeal the market economy, when considering the crucial resource, he had to yield to government officials who controlled resource allocation. Overall, our data reveal that resource configuration in the Chinese context, which is under the influence of a particular form of social governance, is the cause of leaders’ contorted behaviors.

Discussion We linked macro social governance to leaders’ resource-acquiring behavior to interpret the contorted behaviors that are often seen in Chinese organizational leaders. Our core theoretical contribution is a new kind of leadership type in the Chinese context that emphasizes the contradictions between leaders’ cognitions and behaviors, namely, contorted leadership. Another fundamental contribution of our study is connecting leadership with social governance by emphasizing the core role of social governance in allocating the resources organizational leaders scramble for. Our findings of contorted behaviors contribute much to the understanding of leadership experience in the Chinese context and enrich leadership theory from the global perspective.

Contorted Leadership Based on our analysis of Chinese organizational leaders’ behavior in acquiring resources, we add a new type of leadership – contorted leadership – which indicates the dissonance between leaders’ cognition and their behavior. The critical events showing the three leaders’ contorted behaviors are all vivid examples of the contradiction between leaders’ cognition and their behaviors in acquiring resources for their enterprises. Contorted leadership is one kind of leadership in the Chinese

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context, and the contorted means that leaders clearly realize “hinder rules” is wrong for getting resource; however they have to implement it even with suffering. While, we would like to point that the conflict between cognition and behavior is not a common feature of every Chinese organizational leader. There do exist some leaders who do not even care about the “right” way and take the hidden rules for granted to get resources. In this paper, we do not include them in the scope of “contorted leaders,” because their cognition and behavior conformably yield to the hidden rules to some extent (“unintentionally” or “intentionally”). From the perspective of social governance, we argue that Chinese hierarchically oriented social governance mechanism leads to leader’s contorted behaviors. Even if leaders’ cognition is in compliance with the rationality of markets, in order to get resources from Chinese government, leaders’ behaviors have to yield to hidden rules. Considering the significant influence of social governance, we suggest that compared to the prevalent transformational, charismatic, and ethical leadership theories developed in the Western context, contorted leadership is more suitable to explain leaders’ resource-acquiring behaviors in the Chinese context. We have made progress in deepening our understanding of Chinese leadership practice and theorizing leaders’ behaviors in the Chinese context. After deep examination of how leaders acquire resources, we argue that contorted leadership may become a new perspective from which to understand leaders’ behaviors. However, this is just a first step to understand leadership in a given context and provide an explanation embedded in the context. At least two points require further consideration in future studies. First, although we have created an initial definition of leaders’ contorted behaviors, namely, discord between leaders’ cognitions and their behaviors, more attention should be given to exploring the origins, functions, and impacts of leaders’ contorted behaviors. Second, although qualitative studies are the dominant way to contribute to fresh leadership knowledge, the quantitative method is still important in theory testing and amendment. Considering the large sample required to test hypotheses using a quantitative approach, even though we collected data from various sources and tried to duplicate our results with two additional cases, continuous quantitative study is required in the future.

The Role of Social Governance As the context in which leaders are embedded, social governance has a great effect on leaders’ behaviors. However, even though it is essential, social governance has been overlooked in scholars’ scope when it comes to leaders’ behaviors. In our research of leaders’ resource-acquiring behaviors, we find that social government is an important antecedent variable. Our deep analysis of social governance illustrates our emphasis on the decisive effect of context; we have not treated it as a moderator variable. Therefore, our comparison of social governance, a principal of resource allocation and resource configuration that differs between the Western and Chinese contexts, contributes to deepening contextualization in leadership research. Considering the divergence of social governance allows us to identify the different resource

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configuration mechanisms (different combinations of hierarchy, market, and network allocations) in different contexts. We provide a systematic comparison of Chinese and Western resource allocation, which is vital in understanding leaders’ resource-acquiring behaviors. It reminds us that different social governance has different effects on leaders’ behavior; taking social governance into consideration is essential to understand leaders’ interactions with the external environment. Although we have already attempted to link social governance to leaders’ contorted behaviors, the relationship between these two factors needs to be given more attention. How do the divided social governance mechanisms – hierarchy, market, and network – induce the conflict between leaders’ cognition and their behavior? Do the leaders’ cognition and behavior belong to different social governance mechanisms? In the social governance context, the detailed conflict process between leaders’ cognition and their contorted behavior still requires more attention in future research.

Implications for Chinese Management Implications for Chinese Management Theory Our research contributes to Chinese management theory in two ways. First, the contorted leadership we propose refreshes the understanding of leaders’ resourceacquiring behaviors in the Chinese context and enriches the findings of Chinese indigenous research. That is, contorted leadership highlights a kind of leader that aims to acquire resources for the organization and reveals dissonance between cognition and behavior for resource acquiring. Second, the cause of contorted leadership, which we attribute to Chinese social government, deepens the contextualization in Chinese management research. Echoing the idea that Chinese management phenomena are understood poorly by relying on theory developed in the Western context (Tsui 2006; Child 2009), we treat Chinese social governance factors as antecedent variables and determinant factors rather than moderator variables, as done in the majority of existing contextualized research. That is, we distinguish Chinese social governance from the context in Western countries and integrate the China-specific hierarchically oriented social governance context with leaders’ resource-acquiring behavior.

Implications for Chinese Management Practice Our findings contribute to Chinese management practice in three ways. First, we describe fully the resource configuration mechanisms in the Chinese hierarchically oriented social governance context, which is different from the Western context. We provide guidelines that allow leaders to recognize the principles of resource allocation based on different social governance mechanisms (hierarchy, market, and network) in the Chinese context. Understanding resource configuration mechanisms

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is critical for leaders trying to determine where to find resources. Second, we demonstrate the conflicts leaders may encounter in the Chinese context when attempting to acquire resources, that is, the choice of deviating from principles and yielding to hidden rules. We posed this “to be or not to be” dilemma to encourage leaders to do the “right thing” in practice: refuse contorted behaviors despite the price of missing out on some resources. Third, we point out that the hierarchically oriented context, which relies to a great extent on power principles, is principally responsible for leaders’ contorted behavior. This provides additional implications for Chinese government, which should reconsider the negative effects of hierarchically oriented social governance mechanisms. To some extent, when there is no rent, there is no rent-seeking behavior; we advocate for more transparent resource configuration mechanisms in China.

Conclusion Our aim was to gain an in-depth understanding of leaders’ behaviors in acquiring resources for their enterprises. Through our focus on the leader Xi – EP of a Sinoforeign cooperative university – we undertook a constructivist grounded study and have preliminarily found dissonance between leaders’ cognition and their behaviors in acquiring resources in the Chinese context. To understand the contorted behaviors we found in the initial case, we undertook multiple case studies, examining another two leaders from different industries, and found contorted behaviors. Significantly, the contorted leadership we found in the analysis is realistic for Chinese entrepreneurs, although it is quite distinct from the way leaders acquire resources in the Western context. In terms of the cause of leaders’ contorted behaviors, we argue that through Chinese social governance, in which the hierarchy mechanism is dominant, the government controls allocation of critical resources that leaders strive to access. Therefore, if leaders want to acquire resources from the Chinese hierarchy-allocation mechanism, contorted behaviors different from the Western context will emerge. To conclude, our core contribution is linking social governance with leaders’ behaviors to find a new contorted leadership focus in Chinese organizational leaders’ resource acquiring. Although many studies have emphasized the importance of contextualization, we take the further step of exploring how the social governance setting influences the emergence of a new and different leadership style.

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Part III Innovation

Innovation: How China Differs

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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Academic Overview for Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government Drive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New and Hi-Tech Industrial Development Zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China High-Speed Railway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China’s Lunar and Deep Space Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Shared Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . “X + Internet” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . “X+ Logistics” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tech-Oriented Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R&D Density . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Invention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Patent and Intellectual Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Based on the increasing demand for the high-quality life in China, the customers are pursuing the product of strong character, relative equality, mutual benefit, and personal experiences. The supply side structural reform is set up to improve the conditions for the entrepreneur and innovation. The government and the enterprise are driving for the creation and innovation, from new and hi-tech industrial development zone to China’s Lunar and Deep Space exploration projects, not only for the new production and technology but also for the service level and the business model. They supply the new quality product and service for the customer. Internet plus is updating the industry structure. The Internet platform Q. Hao (*) College of Management and Economics, Tianjin University, Tianjin, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_42

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smooths the block of the information asymmetry and time opportunity instance. The government reform for the financial policy and tax reform is to reduce the social cost and transaction expenses. There are still a lot that need to be improved in the Chinese hi-technology industry like cell chip and medical health and so on. Keywords

Innovation · Demand for high quality of life · Supply side reform

Introduction When the customers come to the farmer market or supermarket in China, the no cash pay is very easy to reality through their cell phone recently. Through the special website or online market, almost everything may be ordered and delivered to their home, from the daily products to the decoration materials. The consumers are very easy to buy the products and get the services through the Internet. But score years ago, the no cash payment through the online is hard to imagine for the general Chinese consumers. This innovative style is becoming normal in the daily life. And from then on, the work and life are very difficult to be proceed without the smart phone and network service. The innovation from communication system continues to change the life style. With the development of the innovation from the Internet and related technology, the information and knowledge are easy to share and search from the website. The innovation of Internet technology brings many conveniences to people daily life. So, the macro- and micro-economy unit are eager to promote the circumstance for the innovation. Thus, the many kinds of innovation model took place. The study on the innovation is becoming critical and emergency in almost every industry. This chapter will summarize some kind of innovation and give some innovative cases in China and show some different characteristics from the other countries. Different from the academic research views, this chapter will focus on the agent or unite of the innovation.

Academic Overview for Innovation From the OECD (2016) definition, innovation is to produce, adopt, and exploit a value-added novelty in economic and social spheres. Normally the innovation is defined as the process and outcome to renew, enlarge, generate, and realize the new ideas, products, services, and markets. The study of innovation has a long history, and many useful theoretical models of innovation have been developed and tested (Snow 2007). For example, many researchers focus on certain facet of innovation such as processes (generation, diffusion, adoption, implementation), types (product, process, service, technological, managerial), consequences (for the firm, industry, community, economy),

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Fig. 1 Innovation model in China

multiple aspects (antecedents, processes, typologies, attributes, consequences), and so on (Damanpour and Aravind 2012). With the change of technology and the Internet, the definition of innovation is also changed. The innovation expended to the management module and institutional change based on the Internet platform. The government realized and aware of technological innovation is a crucial factor for the economic development. The developed and developing country encouraged the social and economic system to provide effect condition for the different innovation systems, such as global innovation system, intellectual right protection system, invention promotion system, and so on. The government supports the creation and invention in the diversified way, like the hi-tech new area that gathered a lot of innovative units (WIPO 2022). In the industrial or entrepreneur level, brainstorm meeting, hi-tech equipment, and employee are all emphasized on the important factors for the competition power. The innovation is grasped as the key for the economy development and structural update to avoid falling into the develop trap. Besides the macroinfluence factors listed above, there are also a lot of financial factors that affect the innovation (Tian and Wang 2014), like financial development, stock liquidity, banking competition, venture capital, unions, and so on. For the individual characteristics, there are a strong positive association between a firm’s employee-friendliness and higher quality and quantity of corporate innovation. To improve the employee’s innovative effects, the knowledge investment, the training for technology, and knowledge sharing are usually used to enrich the ability of human resources (Hao 2021). On the other hand, the person learns the advanced knowledge to improve the cognition ability to make progress in their life or live better to get a well work position. So, based on the above overview, we set a CAR model of innovation and analyze the different innovation effect and give some related samples in China and show what is the different characters of innovation between China and the other countries. We call them the government drive innovation, market shared innovation, the technology-oriented innovation, and so on (Fig. 1).

Government Drive Innovation Chinese president Xi Jinping shows his vision for China that must be on course to being a leading innovator worldwide by 2030, the leading player in science and technology globally. He said on the Chinese Academy of Science: “Great scientific

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and technological capacity is a must for China to be strong and for people’s lives to improve.” Nowadays, the government is aware of the importance of the innovation for the economy development. Most infrastructure for innovation usually built by the public office or sector. Many government programs are made to smooth the growth of the different economies. In some government program, the state expansion and preferential tax cut for the new founded high technology companies.

New and Hi-Tech Industrial Development Zone In many provinces in China, new and hi-tech industrial development zone is planned for the projects of invention and entrepreneurship. The university – production – research group is also encouraged to gather for the co-innovation project. In addition, except for the real economic units, the financial development, stock liquidity, banking competition, and so on, these financial factors do benefit effect on the innovation (Tian and Wang 2014). The ventral capital (VC), banks lend, bond and stock, and so on, the financial condition convinced for the innovation based on some institutional condition (Choi et al. 2016). So, the innovation is not the alone effect results from the individual social units or economic organization. The innovation is the mostly the co-movement from the different power of organization. There is the ecosystem from the different units or organizations. In 2022, China has as many top 100 science and technology clusters as the United States. The top science and technology clusters are concentrated in two countries: China and the United States (WIPO 2022). Case 1: New and hi-tech industrial development zone Almost in every Chinese province, the hi-tech new area is set up to absorb the different units to work and think together. It made rapid progress in economic strength and technological innovation. The plan of the hi-tech new area promotes the local employment rate and gather many kinds of money. So, the government plays the key roles in the setup period. Some new area is oriented from the government policy bag. Over 30 years’ development, there are about 168 state hi-tech new areas. The operating incomes are about 12.35 trillion RMB yuan, net profit 726,500 million RMB yuan. From January to May 2018, and in 2017, the new registered companies are up to 1058 per day. Take Changshu National University Science & Technology Park as an example; it is established based on the approval of Ministry of Science and Technology and Ministry of Education. The government play an important role to drive these kinds of innovation. This entrepreneurship park became the innovative experiment and technological practice places for high-technical talents, like the university students and advantageous scientists. Various innovation and entrepreneurship projects gathered and grow up with the atmosphere of “High integration of science and technology, talent and capital, and efficient linkage of R&D, incubation and cultivation.” In Changshu NUSTP, the incubator and accelerator are surrounded by 140 scientific

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Table 1 The innovative units in the hi-tech zone

Units Government Political office Banks, VC Online platform University Research center Company Business Inventor Manufactory Training organization

227 Function Plant Tax, policy Money Information Idea, knowledge Technology Product Marketing Employee, human resource Equipment Hatcher, incubator

and technological companies and 98 incubated enterprises, rapidly transformed from project scattered incubation to industrial agglomeration incubation. In addition, the Scientific and Technological Financial Industrial Park has been built to attract over 20 VC firms, investment institutions, and fund companies. It manages more than four billion yuan of funds, forming fairly complete science and technology financial system consisting of angel investment, seed fund, risk investment, equity investment, and industry fund. The new area is surrounded by the related hi-tech and innovative companies and other business units. The organizations will benefit and help each other. The information, technology, money, and human resources are shared within the new area. The different units and their effects are listed in Table 1. Within the hi-tech new area, the financial policy like the tax reduction and exemption or benefit tax usually are used for the small and new firm. These policies will support the mini firms to grow up to a big giant. The free interest lending for the high invention company may apply the support for the funding. In the other hand, the venture capital and angel money are also seeking the hi-tech project to support the firms. There is some policy for the tax reduction and exemption of innovation as below: Case 2: Government policy of tax reduction for innovation Premier Li Keqiang outlined a tax reduction measures relating to the corporate income tax treatment of innovation activities. Such as, under China’s R&D super deduction incentive, a 150% deduction (i.e., 50% bonus deduction) is available for eligible R&D expenses. This rises to 175% for science and technology SMEs. China applies a general restriction of a 5-year carry-forward period to tax losses. This will now be extended to 10 years for high and new technology enterprises (HNTEs) and science and technology SMEs. This recognizes the fact that such enterprises may encounter several years of losses before a new innovation becomes profitable.

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Table 2 Tax reduction and exemption for innovation Enterprises Science and technology SMEs ATSEs and HNTEs. Individual

Items Eligible R&D expenses Staff education expenses Individual income tax (IIT)

Tax 175% deduction 8% Private pensions

China applies a limitation to tax deductions for staff education expenses. The limit is set at 2.5% of the enterprise’s salary bill, though a special 8% ceiling has applied for some time to advanced technology services enterprises (ATSEs) and HNTEs. The 8% limitation is now being expanded to all enterprises nationwide. In addition to these new tax preferences for enterprise innovation, the government is also looking to foster the greater use of private pensions through individual income tax (IIT) regime changes (Table 2).

China High-Speed Railway From the beginning of the Chinese high-speed railway industry development, the independent development and going-out strategy are made to break through the reliance on foreign technologies. The continuous innovation and systemic innovation are made in high-speed railway technologies. From introduction, digestion, absorption, and innovation to independent innovation, China has constructed high-speed railways in regions with complicated climates and geological conditions. From the official information of China Railway Corp (2017), China’s high-speed technologies are compatible with standards of different nations and work well with other leading technologies. The technologies in project construction, bullet train units, train control, power supply, operation management, and risk prevention offer reliable support to high-speed railways. Case 3: China’s high-speed technologies and sustainability For the rapid increasing demands of travelling and vacation, the high-speed railway developed very fast in China. By the end of 2022, there are more than 42 thousand kilometer high-speed railways, and the length of the high-speed railway is longer than the total length of all other nations. The operated speed from Beijing to Shanghai is up to 350 km/h. It took 5 hours from Beijing to Shanghai through bullet train with the 1220 km distance. One-day return travel become true for the Beijing and Shanghai citizen. Furthermore, Li and Foo (2014) suggest the sustainable development of highspeed railway from perspectives of operational sustainability, financial solvency, and developmental sustainability. In the future, China’s high-speed technologies need to consider more factors for the independent innovation.

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China’s Lunar and Deep Space Exploration Lunar and deep space exploration were important for one country endeavor to become a major space power. And the exploration of space needs large innovation and high technologies from different industry and units. So, the relative innovation and technology are developed to support the major project for deep space program. For the same time, the innovation is also used for the industrial production. From the news of the Lunar Exploration and Space Program Center of the China National Space Administration, China is planning four deep space exploration missions before 2030, including probes to Mars, asteroids, and Jupiter. Case 4: China’s plan of lunar and deep space technologies Based on the recent growth of space exploration, the center announced that China would launch its first Mars probe in 2020, and it was expected to orbit around land and put a rover on the Red Planet. It also plans to probe asteroids around 2022, followed by a probe in 2028 to bring Mars samples back to Earth. An exploration mission to the Jupiter system was planned around 2029. Based on China’s circumstances, an unmanned lunar research station will be built in about 10 years to accumulate technical expertise, and a lunar research and development base around 2050. The base would be operated by robots over the long term and visited by humans. Different from the developed countries, China also uses the deep space technologies to nurture the normal consumer life. We can search a lot of kind cases for this innovation both used in the deep space exploration project and our daily life. All the relevant technology and invention need to be improved for the whole program, and the expert, engineer, and researcher are gathered together to promote the project to realize the new Chinese space dream.

Market Shared Innovation Different from the government drive innovation, the other kind of innovation is the market-oriented one. We call it the market shared innovation. The technology gives the chance for the innovation to absorb within the company. The innovation combined with the separate kind industry will growth up to the new innovative industry or business model. We use the new combine industry instead of the traditional industry. The edge of the traditional industry is also melted down to share with each other. And it is difficult to clearly define that new economic unit is one industry or the other industry, because the global supply chain become very large.

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“X + Internet” E-commerce is spread around in every fields. The Internet play crucial roles in the innovation system. Based on the new production or innovation, we need to make the smarter decisions (Merton 2013). We use “X” instead of the different agents or industries, when the traditional industry meets with the Internet or online technology. The information is not only shared among the smart persons through the paper or book, but also everybody used the paperless units like cell phone or computer. Case 5: FinTech, innovation and risk management workshop The Internet not only changes the industry like finance sectors but also the individual behaviors. Finally, the financial risk also changed to a newly style. In the Major Program of National Natural Science Foundation of China (71790594), many research scholars focus their research on the Internet technology and its impact on the finance, like the stock markets and banking industry. The different information and the transaction cost are changed with the development of the Internet. When the finance industry meets with the Internet, the normal behavior of the investment and thinking of the decision are different from the traditional circumstances. So, the cell phone bank and financial innovation product are made to smooth the economy units.

“X+ Logistics” The real market is becoming virtual world. Most production market mall are shocked by the online market. The productions are not only delivered by the product firms but also by the specific logistics company. When the consumers want to buy the food, they select the logistic boy to take the bagged food from the restaurant and carry the delicious food to the customers’ desk within the designed time. The specific logistics break up and battled with each other in the metropolitan city. The other logistic is the shared bicycle in the China a lot of bike ate colored to red or blue to service from the last 1 km and the taxi driver complain with the losing customers. Case 6: Shared economy The numbers of traffic accidents ascend sharply because of the busy couriers on running motorcycle. The delivery logistic company has grown up quickly for the food ordering service of the costumer recently. In the traditional restaurant, the customer seats around the desk to order the food from the paper menu. Now the customer picks the food from the online website and pay the money with cell phone. The food will be sent to their location on time. The location is also directed through the GPS from the cell phone application. The policeman is busy to check the shared bike driver. In almost every big city, the share bike is stopped around the subway station or markets. People go to the place by bicycle instead of car driving. The competition is growing up within the

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different shared bike organizations; VC and hot money are also push into this industry. All of these samples are the specific kind of logistic tools for transmission. The goals are all divided by the specific function for the logistic. The delivery of the food makes the specific logistic company set up.

Tech-Oriented Innovation The company with the special technology will develop to a new one or better competitor in the industry. Some inventor or researcher with the special idea like to set up a tiny firm to realize their dreams. There are a lot of cases in Silicon. The innovation is not stand-alone, there are many factors in the enterprise to support the innovation as bellow.

R&D Density In the scientific research and practical operation, the research and development density is used to show the quantity of R&D in operating incomes. The R&D financial item is separated from intangible assets from 2007 in China. And this item is usually used for the future innovation ability. R&D as a crucial material is the input for the innovation system. OECD also give some research and set up a detailed database on the tax incentives for R&D and innovation. Governments increasingly rely on tax incentives to promote R&D in firms and encourage innovation.

Invention Invention is encouraged and financed by the entrepreneur and innovation. Invention usually refer to create new product or completely replace current product set or firstly introduce new process. Some time we call invention the exploratory innovation. On the other hand, exploitive innovation is to improve or contribute to an existing product or service or yield new value for the customers’ satisfaction or experience. Case 7: Third-party payment The VIP service in the 20/80 principle is only for the top wealth or top position person. Whereas the VIP shared within the electronic platform, everybody will benefit from the online bank not only from the count and VIP position. In China, the third-party payment like online pay drives the bank service from VIP to the mass people. Currently, there are about 250 third-party payment service providers in the country with licenses issued by the People’s Bank of China (PBC). Client not need to wait in the bank seats or VIP room; instead, they use cell phone to pay their consumer and dairy cost in anywhere. The no cash payment is also substitute for the credit card and check slide in most normal transactions. Although

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the third-party payment need to be registered in the People’s Bank of China, it plays an important role increasingly in the company and individual consumption. The transition cost and the delivery time will cut down very quickly.

Patent and Intellectual Right The patent is a law practice to help inventors or entrepreneurs to protect, leverage, and reexamine their intellectual property right and establish a competitive position in the specific industry. Patent sometime is to secure, develop, and protect business innovations. So, the patent-related intellectual property protection is most critical to achieving the company’s business objectives. The patent has been recognized as an important part in the organization of dynamic innovation system. We usually used the patent to analyze the output of the innovation. There are more contexts among the patent system, R&D, and technology. Case 8: Patent fees charging from competitors Many years ago, Chinese companies pay patent fee to other company for hundreds of millions of dollars a year. But recently, the American multinational technology company Apple started paying patent fees to Huawei. According to a report from the Guangdong Intellectual Property Office, Huawei licensed 769 patents to Apple in 2015, while the American company offered Huawei 98 patents in return. The report says the two companies reached a series of agreements, including patents relating to wireless communication technologies. The two companies abided by the rules of international intellectual property. The World Intellectual Property Organization show Huawei applies for the protection of its intellectual property rights outside China and solve the IPR problems through patent licensing and cooperation and so on.

New Product In the eyes of the potential buyer, the new product is not really new to the consumer. The new product accepted by the buyer will help companies improve profitability and growth. With the successful new product marketing, the company will understand consumer attitudes and sentiments about the new product purchase intent. Sometime the successful new product is the final process of innovation; it is tested by the market behind value and convenience. Cellphones have gradually become smart tools in China. Case 9: Smart phone kill the theft When you look around the walkers in the street in China. Almost everybody handed a smart phone. They use it not only to communicate with other friends, but also to pay with no cash, to entertainment.

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There is a joke in China; the theft is disappeared or killed by the smart phone. It is hard to steal the phone, because everyone will hold the cell phone almost every time. They keep their eyes on the screen of the smart phone every second, game, music, payment, learning English, searching food, GPS, and so on. There is no time for the theft to get the phone away from the owner. And at the same time, the smart phone replaced the wallet. All the money is stored in the electric account in the smart phone. There is no cash now. Even the cell phone is steeled. The theft does not know the code for the account. So, they call the smart phone killed the theft.

Conclusions The innovation is mostly different from the other countries. Most of the innovations in China are pulled by the pursuing for the better life quality and smooth working gap. In the other hand, the government wakes up to the supply side reform to reduce the redundancy of the low-level product which the customer dislike and furnish with innovation production to satisfy the special need from individual customer. The social division is also improved to service the quick progress demand and changeable satisfaction. So, the market-oriented innovation has appeared and grows up everywhere. In the individual level, the person with the special idea is now to realize their dreams in the virtual space. This is also an innovative marketing mode for the online shop. Acknowledgments The author thanks the National Social Science Fund of China (20BGL036). Contacts: [email protected], [email protected]

References China Railway Corp (2017) Innovation driving China’s high-speed railways. http://english.gov.cn/ news/top_news/2017/02/21/content_281475574165459.htm Choi B, Kumar S, Zambuto F (2016) Capital structure and innovation trajectory [J]. Organ Sci 27(5):1183–1201 Damanpour F, Aravind D (2012) Managerial innovation: conceptions, processes, and antecedents [J]. Manag Organ Rev 8(2):423–454 Hao Q (2021) Technology M&A and innovation evolution [M]. Economy Science Press, Beijing Li Y, Foo C-T (2014) Towards sustainability in the high-speed railway industry: modeling of cases from China. Chin Manag Stud 8(4):624–641 Merton R (2013) Innovation risk: how to make smarter decisions [J]. Harv Bus Rev 4:1–10 OECD (2016) Tax incentives for R&D and innovation. In: OECD science, technology and innovation outlook 2016. OECD Publishing, Paris Snow CC (2007) Innovation. Strateg Entrep J 1(1):101–102 Tian X, Wang TY (2014) Tolerance for failure and corporate innovation. Rev Financ Stud 27(1): 211–255 WIPO (2022) Global innovation index 2022: what is the future of innovation-driven growth? World Intellectual Property Organization (WIPO), Geneva. https://doi.org/10.34667/tind.46596

Organizational Intervention or Learning-Oriented Innovation: Evidence from Austria and China

17

Qingmin Hao

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theoretical Foundations and Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovation and Organizational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Intervention in Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Learning-Oriented Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovation and Organizational Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Conceptualized Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Control Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data and Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

236 238 238 238 238 239 239 239 240 240 241 241 244 245

Abstract

Based on the organizational design theory and learning theory, organizational innovation is divided into organizational intervention innovation and learningoriented innovation. The aim is to investigate the differences between these two innovations. Samples from Austria and China are analyzed through the concept model and the results show that organizational intervention and organizational learning both have an effect on performance through innovation. The organizational intervention in innovation has a strong relationship with performance, and is more important in Austria. Both managerial innovation and

Q. Hao (*) College of Management and Economics, Tianjin University, Tianjin, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_43

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technical innovation have a significant influence on performance, and the managerial innovation affects the market performance. Organizational learning-oriented innovation is more important in Chinese samples. Managerial innovation does not have a significant influence on performance; only technical innovation has a significant long-term and short-term effect on performance. Keywords

Organizational performance · Intervention in innovation · Learning-oriented innovation · Innovation capability

Introduction Innovation has been recognized as an important factor in organizational performance in both emerging countries and developed countries. Academics use a different way of studying innovation capability and have divided it into numerous levels, such as exploratory innovation and exploitative innovation, managerial and technological innovation, product innovation and process innovation, and so on. The market determines whether a creation or an invention becomes an innovation (Fig. 1). Organizational innovation is very diverse and can be broadly classified into streams. Based on our research objectives, we divided the organizational innovation into organizational intervention in innovation and organizational learning-oriented innovation as described below. Organizational intervention in innovation is based on organizational design theories, which focus predominantly on the link between structural forms and the propensity of an organization to innovation. This theory focuses on the innovation factors from inside the organization. As the innovation mostly comes from inside the organization, and the organization intervenes more, this kind of innovation is defined as organizational intervention innovation (Fig. 2).

Fig. 1 The market determines a relationship

high Market acceptance

Innovation

Invention Creation

low

Market relevance

high

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Organizational Intervention or Learning-Oriented Innovation: Evidence. . .

Fig. 2 Organizational innovation

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high Org. learning

digest

autonomous

introduce

absorb

little

Organization intervene

more

Table 1 The main differences between the two kinds of organizational innovation Organizational intervention Innovation source Focus Time of transmission Theory base

Intervention in innovation More/active

Learning innovation Little/passive

Internal organization Managerial innovation Long range

External organization Technological innovation Short range

Organizational design and change adaptation theory

Organizational cognition and learning theory

Organizational learning-oriented innovation is mostly related to the theories of organizational cognition and learning. It includes organizational change and adaptation, the organizational effect on innovation, as the innovations are all learned from outside the organization, with only little organizational intervention. The innovation from congniton is defined as organizational learning-oriented innovation, such as innovation being an important factor in merger decisions (Entezarkheir and Moshiri 2019). The processes underlying the creation of new organizational forms are summarized in Table 1. Mainly based on the knowledge management system, some questions are asked regarding the following characteristics: process architecture, commitment to learning, open-mindedness, shared vision, and system perspective. Thus, the following question may arise: is it really important for the organization to intervene in the innovation? Based on these problems, the main objective is to investigate the relationships between organizational intervention and learning-oriented organizational innovation and its conduct of organizational performance empirically from the evidence of Austria and China. The chapter is structured as follows: the second section consists of hypotheses and a brief framework, the third section is research measurement and empirical data, and the final section concludes with a sensitivity analysis and its implications.

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Theoretical Foundations and Hypotheses Innovation and Organizational Performance Innovation is generally described as the new thing or method, a combination or synthesis of knowledge in original, relevant, valued new products or services (Luecke and Katz 2003). Innovation leads to significant organizational improvements in terms of new products, internal processes, services (Davila et al. 2006). As innovation occurs in every part of an organization’s operations they can be classified into different types (Yang et al. 2009): managerial innovation, technological innovation, process, product, and market innovation, etc. (the items are drawn from the related scholars (Alegre and Chivab 2008; Wang and Ahmed 2004; Morales et al. 2007; Yang et al. 2009)). Organizational performance is mainly related to stakeholders, heterogeneous market circumstances, and time (Richard et al. 2009), based on the easy answer principle and questionnaire design, financial performance (short term) such as profit, return of investment (Panayides 2007), and nonfinancial performance (long range), such as growth, market and public relationships, with reference to the designs of researchers Morales et al. (2007) and Panayides (2007).

Organizational Intervention in Innovation The organizational intervention in innovation is the different way in which power and responsibility are allocated and work procedures (Nahm et al. 2003), such as the organizational characteristics flexibility (Miesing 2006), openness, empowerment, delegation, communication, decentralization (Koontz and Weihrich 1990), and complexity (Morales et al. 2007). The structure of bureaucracy is dependent on specialist individuals for innovation. A mission-oriented structure based on a shared vision may provide successful innovation (Bar 2005). Centralization negatively affects exploratory innovation, whereas formalization positively influences exploitative innovation, and connectedness is an important antecedent of both exploratory and exploitative innovation (Jansen et al. 2006). Thus, the hypothesis is as follows: H1: Organizational intervention is highly related to innovation

Organizational Learning-Oriented Innovation Organizational learning factors are essential capabilities or preconditions for effective knowledge management (Panayides 2007). Therin (2002) discusses the difference between organizational learning and innovation: organizational learning integrates new knowledge or combines different existing forms of knowledge into

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a new one, leading to innovation: innovation will be the by-product of the organizational learning. A high degree of effective learning capability is required for innovation capability to come to the fore in firms (Park and Kim 2006). Learning is an important process for innovation (Lampela 2009), organizational learning capability affects innovation performance (Alegre and Chivab 2008). Organizational learning positively affects performance, but mainly through innovation (Correa et al. 2007). Learning orientation is an important antecedent of a firm’s innovativeness, which in turn influences a firm’s performance; product and technical innovations are often considered major consequences of good organizational learning and knowledge management practices (Calantone et al. 2002). There is an intermediate role of innovation in the relationships among organizational learning, market orientation, and organizational performance (Weerawardena and O’Cass 2004). A firm committed to learning increased its innovation capability. Thus, the hypothesis is: H2: Organizational learning affects innovation

Innovation and Organizational Performance Unique organizational resources are important to performance, innovation results in higher performance (Hyvärinen 1990), and product innovation influenced by emotional and learning capability has a significant impact on performance (Akguna et al. 2007). Market orientation, market sensing and innovativeness (among other knowledge-related resources) have an effect on superior performance (Olavarrieta and Friedmann 2008). Therefore, in the innovation and organizational performance context, the hypothesis is: H3: Innovation directly improves organizational performance

The Conceptualized Framework Based on a set of hypotheses, the conceptualized framework includes organizational intervention, organizational learning, innovation capability, and organization performance, which are shown in Fig. 3.

Control Variables As firm size and age have a significant influence on firm innovation and performance (Rothaermel and Deeds 2004), firm age was assessed as the number of years since the firm was founded (Gulati and Higgins 2003) and firm size was indicated by the number of employees. The European Union categorizes companies with fewer than 50 employees as “small” and those with fewer than 250 as medium-sized (Morales et al. 2007).

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Control Variable: Firm size, Industry

Intervene and design formalization, flexibility, complexity

H1

Innovation:

Performance:

Managerial-, TechnologyH2

Cognition and Learning

Short term, Long range H3

Commit to learning, open mindedness, share version

Fig. 3 The conceptualized research model

As the relationship is stronger when the partners are based in the same industry and weaker when they are based across industries (Jiang and Li 2008), a firm’s factors exert a much stronger impact on performance than industry in both small/ medium-sized enterprises (SMEs) and large enterprises (Caloghirou et al. 2004). The more hierarchy in the classification, the smaller the subsamples are investigated, the hi-technology or knowledge-intensive industry, labor- and capital-intensive industry to analyze the industry’s problems. The different positions of managers are organized into a hierarchy for analysis, positions such as senior or junior managers, to analyze the hierarchy problems, which may also be tested by working experiences.

Research Design The instruments for all constructs were measured by using multiple-item scales, which were adapted from the literature and revised to fit the research context. Questionnaires were designed based on the theoretical analysis and hypotheses. About 25 items and several open questions were used to investigate. Items associated with these constructs employ five-point Likert-type scales ranging from 1 to 5 (“strongly disagree” to “strongly agree” or “rarely use” to “often use” or “not suitable” to “more suitable”) to capture the related information about this research.

Data and Sample Data and information were first collected through email survey in the form of questionnaires. The email stated the research objective. About 270 questionnaires were emailed in Austria. Data collection lasted for about 8 weeks. During this period, of the 270 questionnaires emailed, there were about 22 Austrian samples. About 70 responses were received, with a 26% response rate. After scrutinizing the returned questionnaires, the remaining 68 with completed and reasonable answers were used. The response rate of usable returns is 97%. In the Chinese data there were about 244 samples. Preliminary analyses were conducted to provide information

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about the characteristics of sample firms, including the type of company, firm size, age, employees, etc.

Measures The data analysis was conducted with the following steps: first, in order to reduce the measurement error, a pretest was administered to refine the measurement items in the questionnaire design. The items based on the review of literature for the related study are listed in Table 1. Then, after excluding some items with high cross-loadings, all other items were found to have factor loadings higher than 0.5. The average variance extracted (AVE) is computed for each variable. All the values that were obtained in Table 2 were higher than the AVE cut-off value of 0.5 and composite reliability exceeded 0.8 as advised by Wetzels et al. (2009). The average of AVE values of constructs is greater than the correlation between constructs. It indicated that the measurement had sufficient convergent validity and good discriminant validity (Wang et al. 2009). The reliability of the scales was assessed using Cronbach’s alpha, which needed to be acceptable (alpha >0.7), 0.8 for a good scale. All indicators in Table 2 satisfied the standards. The results implied that measurement had good reliability and highly internal consistency. Table 2 shows the related statistics indicators.

Results Collected data were analyzed using partial least squares (PLS) to test path models involving latent constructs indirectly observed by multiple indicators. PLS is a multivariate technique based on the structured equation modeling technique and is identified as a form of soft modeling. PLS also assisted in avoiding the necessity of a large sample size and is not sensitive to the assumptions of normality. PLS is the suitable approach to fit the research data or sample. The result was calculated by SmartPLS (Ringle et al. 2005). The relationship among organizational intervention, organizational learning, and their effects on a firm’s innovation performance was tested and the results are listed in Fig. 4.

Table 2 Composite reliabilities, average variance extracted (AVE), alpha and correlations T L I P

AVE 0.51 0.50 0.50 0.60

CR 0.85 0.84 0.87 0.85

R2

0.48 0.33

Alpha 0.80 0.82 0.83 0.83

Redundancy

0.16 0.15

T 1.00 0.71 0.60 0.45

L

I

P

1.00 0.61 0.42

1.00 0.56

1.00

Notes: CR ¼ composite reliability, T ¼ organizational Intervention, L ¼ organizational learning, I ¼ innovation, P ¼ performance

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Fig. 4 Main results

T

0.32 [6.3]

I 0.39 [6.7]

L

T

0.45

T I

0.22

L

0.59 [11.3]

2=0.39

R

I

P

0.46

R2

=0.35

[1.8]

Austria n=124

L

P

0.3 [5.0]

[4.3]

0.56

[14.3] R2=0.32 R2=0.43

0.59

[12] R2=0.49

P R2=0.34

[7.4]

China n=191

Fig. 5 Main results from different countries

Above all, the results indicate that organizational innovation explains the 33% variance in the performance. Learning capability, and structure together explain the 48% variance in innovation. The change in organizational intervention has powerful effects on the on innovation (supports H1). Innovation has a more effective impact on performance (supports H3), and the learning effect on innovation is significant (supports H2). (1) In the Austrian company, the managers in Fig. 5 paid more attention to the organizational intervention (in all the figures and below, organizational intervention is abbreviated to T, innovation is abbreviated to I, and learning is abbreviated to L), and the effect path T ! I was more powerful than in China. The path T ! I is more important than the path L ! I in Austria. The managers thought that organizational intervention innovation is the main factor for better performance, but in the Chinese company, the innovation only explained the performance at a lower level. Different than Austria, the path L ! I was more important than T ! I. (2.1) Emphasizing the different effect on innovation from intervention and learning, the Austrian company tended to like the structural-oriented innovation (the power of the relation T ! I in the Austrian company was greater than in China) and the Chinese company liked the learning-oriented innovation (the coefficient of the path L ! I in China is bigger than in Austria; Fig. 6). (2.2) If the innovation is divided into managerial innovation (abbreviated to MI) and technological innovation (abbreviated to TI), the effects of innovation on performance are recalculated, as Fig. 7 shows. (2.3) In Austria, the mediated effect of managerial innovation is almost equal to the technological innovation on performance: there are no significant differences. In

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Organizational Intervention or Learning-Oriented Innovation: Evidence. . .

0.52

T

T

0.43 [2.2]

[3.5]

I

0.28 [1.8]

L

243

0.66 [11]

R2=0.51

0.62

I

P L

Austria Senior Manager n=71

P

[7.2] R2=0.39 R2=0.42

0.25

R2=0.44

[1.3] Austria Junior manager n=53

Fig. 6 Main results from Austrian managers

0.23

T

MI

[3.2]

[7.3] 0.35 0.52 [9.0]

T

TI

[2.5] R2=0.28

MI

[6.5]

[2.0]

0.54

L

0.31

R2=0.47 0.28

0.1 [0.7]

0.57

P

[10]

R2=0.33

124 Samples from Austria

0.59

L

[13.9]

R2=0.59

P

0.39

TI

[3.1] R2=0.34

2

R =0.36

191 Samples from China

Fig. 7 Different innovation effects on performance

China, however, the effect of technological innovation is greater than that of managerial innovation: the effect of managerial innovation on performance is not significant, which implies that Chinese managers need to pay more attention to their management level to improve performance, not only introducing but also digesting and absorbing the technological innovations. They also need to improve their managerial level to integrate the innovations, as in the Austrian companies. (2.4) In Austria, the managerial innovation has an effect on both long-range performance (see Performance Long-range (PL) in Fig. 8) and short-term performance (see Performance Short-term (PS) in Fig. 8), but the technological innovation only through managerial innovation has an effect on performance. But in China, technological innovation has an effect on both long-range performance and shortterm performance; managerial innovation does not have a clear relationship. Innovation is the critically mediated path of organizational intervention or learning on performance. Usually, at almost all research levels, innovation is an important factor for performance, which was proved by Johnston (2003): strategy innovation is aimed at growing your top line, achieving new levels of performance and success. Organizational learning has an impact on performance, mainly through innovation, especially in older firms, larger firms, and senior managers, and this is also similar to the results from Weerawardena et al. (2006): firms in competitive industry tend to pursue innovative ways of performing value-creating activities, which require the development of learning capabilities, learning influence innovation, and that innovation influences a brand’s performance.

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R2 = 0.36 0.11

MI 0.64

[0.3] 0.35 [3.3]

[10.2]

0.26

MI

PL 0.36

0.74

[3.2]

[19.1]

0.58 0.27

[5.3]

[1.4]

[2.1]

TI

PL

0.19 [1.1]

PS

TI

0.43 [3.6]

PS

R2 = 0.25

N=116, Pos=1+2, Austria

N=116, Pos=1+2, China

R2 = 0.24

Fig. 8 Different innovation effects on performance

Managerial innovation and technological innovation are different with regard to their effects on long- or short-term performance.

Implication Both the organizational learning-oriented innovation and the organizational intervention innovation have strong effects on corporate performance. In our samples, especially in Austria, the organizational intervention innovation is more popular. That means that companies actively innovate new products and models in Austrian companies. In the samples in China, organizational learningoriented innovation has become more popular recently, which means that Chinese companies usually learn the innovative product and simulate the creative styles in order to improve the innovation. This is may be an essential step for companies in developing countries to make big innovations. The Chinese government encourages innovation and entrepreneurs to improve the quality of economic growth. On the other hand, it is also important to improve Chinese management levels to match the technological innovation level. The innovation is not only technological innovation but also management innovation. Apart from the two countries of China and Austria, there are more statistic data from the global innovation index (WIPO 2022). In the future, we need to extend the country samples and innovation index. It is more important to gain more knowledge about innovation for developing countries to improve their economic growth. There has been strong competition between China and the USA in innovation recently. Especially in the commercialization of innovation and the core technology in the industry. We need to cooperate with other different teams to study more information on the path to improving innovation. Acknowledgments The author thanks the National Social Science Fund of China (20BGL036). Contacts: [email protected]

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The Campaign of Mass Entrepreneurship and Innovation

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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory and Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Campaign in Haier Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Campaign in China Post Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

China’s economic development has entered a new normal; as innovation-driven development strategy was prompted, the campaign of mass entrepreneurship and innovation has become a new engine of economic development. Through the analysis of the policies, the chapter compares different situations in the campaign for manufacturing and services enterprises to boost innovation by choosing Haier Group and China Post Group as research cases, finally, and studies and summarizes the characteristics of the campaign in China. Keywords

Innovation · Mass · Transform entrepreneurship

W. Qianyue (*) Department of Finance, Shi Jiazhuang Posts and Telecommunications Technical College, Shijiazhuang, Hebei, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_44

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Introduction The reform and opening-up policy of China over the past 30 years is itself a largescale innovation. As economic globalization develops in depth, China continues to introduce technology and capital. While expanding the scope of opening-up, “Made in China” has become a symbol of the times, which indicates that China has emerged very rapidly as a manufacturing powerhouse. In the year 2010, the GDP of China was 41.3 trillion Yuan which grew faster than that of Japan. China has become the world’s second largest economy. According to the World Bank statistic data, the GNI per capita of China has been over $8000. It means that China is now a middleincome country. However, the high-speed developed technologies along with the Fourth Industrial Revolution create a new competitive environment worldwide. China’s manufacturing firms face a challenge about industrial upgrading. The new technologies such as automation and artificial intelligence have weeded out many workers in traditional enterprise. To maintain a very high growth rate in terms of GDP is very difficult now. Thus, finding new impetus of economic growth has become a top priority to China. Considering the rapid development of the economy, the driving force for China’s economic development is gradually shifting from relying on resources and low-cost labor to total innovation. The Chinese government recognized that innovation will continue to be a key point to keep the economic development sustained and healthy. Drucker made the definition that innovation is to give resources with new powers to create wealth. So, innovation is about not only creating something new but also solving real problems in new ways. There are about 900 million laborers in China, and most of them are various types of professionals. The government believed that every employee can be an innovator in some way because employees may find the key issue on rationalization of the work flow which can greatly save cost and improve efficiency. And they have the potential for innovation and practical experience. So, they are more liable to promote original innovation. With the development of “ Internet Plus,” it is much easier to communicate with people and share ideas. The original innovation can be connected in different fields. Entrepreneurs and innovation makers become more open and learn to combine functions and technology to promote innovation which is better able to meet diversified needs in shifty market nowadays. It is firmly believed in China that groups can accelerate innovation and it can create great potential of development. Considering China’s national conditions, the government found that only by inspiring the creativity of the micro market players, can the overall economy have a strong space for innovation and development. Therefore, the concept of “mass entrepreneurship and innovation” was written in the Chinese government work report 2015. The State Council also has issued a series of policies to support the innovation. Up until now, the implementation of these policies has achieved very good results in China, and the concept of “mass entrepreneurship and innovation” has become a consensus in the world. The 71st session of the United Nations General Assembly put the concept of “mass entrepreneurship and innovation” proposed by the Chinese

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government into a resolution and set up the annual World Day for Creativity and Innovation on April 21, calling on all countries around the world to jointly promote innovation and entrepreneurship. To promote the implementation of “mass entrepreneurship and innovation,” the government of China built some demonstration bases for it in succession. Driven by the series of relevant policy, the quantity and quality of the demonstration bases have been rising. The demonstration bases have played an increasingly important role in stabilizing growth, adjusting the structure, and promoting employment. In all efforts, it has formed a series of effective patterns and experience. Then the chapter discusses the “mass entrepreneurship and innovation” with Chinese characteristics from a theoretical perspective and selects two real-world cases for practical analysis.

Theory and Policy Related Literature Since Joseph Schumpeter (1911) clearly proposed the view that innovation is the fundamental driving force of economic development in his book – The Theory of Economic Development, innovation has become the research emphasis of Economics and Management. He defined development as implementing a new portfolio, so there are five situations included in the concept of development: (1) Bring in a new product, which is unfamiliar with consumers or has new features; (2) bring in a new production method, which has not been tested by related manufacturing department. And there is no need for this kind of method to be created on the basis of science discovery. A new processing method created on product commercially is also approved; (3) new open markets, into which the manufacturing department has never entered before; (4) control the new source of supply of raw materials or semifinished products; (5) and establish new forms of enterprise organization. It gives a fundamental of innovation for scholars, government, and entrepreneurs. With the development of Internet technology, the characteristics of global innovation trends turned to be more open and democratic in post-Schumpeterian innovation regime. Nikolaus Franke and Sonali K Shah (2003) first illuminated how user-innovators gather the information and assistance they need to develop their ideas and how they share and diffuse the resulting innovations. Its study shows that innovation-related information and assistance can be freely used to make interest by researchers and managers both in and out the product field. Eric Von Hippel (2005) found that user-centered innovation became more competitive and significant than manufacturer-centered innovation from an overview of the international research community perspective. Venkat Ramaswamy and Francis Gouillart (2010) empirically emphasized that “Co-creation” is the essential new mindset and practice for boosting sustainable growth, productivity, and profits in the future. They interact with thousands of corporate leaders around the world who are trying to “Co-creation” and find that the enterprise value is no longer simply created by the enterprise value chain. However, the Co-creation has become the major factor that

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involves not only the company and customers, but also the entire production and operation network including suppliers, partners, and employees into enterprise innovation process. It makes the innovation progress more open. Huang Yasheng, Wang Dan, and Zhang Shiwei (2016) indicated that social innovation is a kind of innovative organizational paradigm which can be extensively participated in, more open and transparent, in order to solve diversified problems. It is a kind of bottomup, decentralized decision-making paradigm. So, in essence it is an innovative organizational paradigm and a new organizational form for innovators and activities. They considered that China needs social innovation in the new situation. That is innovation with the potential of collective achievement. Therefore, the campaign of “mass entrepreneurship and innovation” advocated by China’s government adapted to the development of the innovation trends. It is a bottom-up innovation management reform. By analyzing the theory policies and practical cases, the promotion of China’s innovation management to economic reform and development is clearly understood.

Background In the 30 years since the implementation of the reform and opening-up policy, China’s economy has grown at a high speed. China became the world’s secondlargest economy in 2010, while China overtook the United States as the world’s largest trading nation in 2013. The high speed of economy gross has attracted worldwide attention. On the one hand, China’s economic development has a low starting point. On the other hand, due to the transition from a planned economy to a market economy, which is considered institutional innovation, the economy achieves rapid growth. And the essence of the transition is to adjust the relationship between the government and the market. Less unnecessary intervention by the government makes the market play an important role in resource allocation. With market economy generating vitality and innovation, the improved price mechanism has stimulated the creativity and productivity of individuals and enterprises. According to the data published by the National Bureau of Statistics of China, its GDP has fallen below 7% since 2015. Economic growth has slowed down in these years, which puts downward pressure on China’s economy. The government recognized that in short terms the innovation of reform and transformation have stimulated demand and then provided impetus for economic growth. However, stimulating demand alone cannot keep the economy growing sustainably. In the long term, it is the coordinated growth of supply and demand that can drive the economic growth continuously. Economic growth will slow down to a certain extent, which indicates that China’s economic growth patterns need further adjustment. As China’s economic growth is slowing down, the next round of reform in China is going to promote the reform of the supply side. The government realized that it was necessary to further adjust the border of government and enterprises. Recognizing this, the government implemented the strategy of innovation-driven development and first proposed the concept of “mass entrepreneurship and innovation” at the

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2014 Summer Davos in Tianjin. Since then, the mass entrepreneurship and innovation has become a new driving force for economic development in Chinese “new normal” economy. It is essentially a kind of bottom-up activity that relies on market mechanisms. It is conducive to promoting social equity and justice and inspiring market vigor and social creativity. In order to enhance the vitality of innovation, the government gradually turns to a service-oriented government. Therefore, the government has issued a series of laws and regulations, including creating a legal environment, improving the regulatory system, and building an open competition platform. Table 1 is a summary of key policy issued by The State Council on the mass entrepreneurship and innovation. According to the table above, it can be concluded that policies about the mass entrepreneurship and innovation were introduced more frequently in 2015; however, the subsequent policies are more specific and there are also some unlisted concrete measures and laws and regulations that promote the campaign of the mass entrepreneurship and innovation in some respects. It is observed that the function of government has been changed to provide public services and public products instead of the direct construction of investment attraction in the past. The established platforms reflect the market-oriented, open, and bottom-up nature of the mass entrepreneurship and innovation environment. Areas and enterprises that serve as demonstration bases will help create instructional examples for the mass entrepreneurship and innovation.

Operating Mechanism In the campaign of mass entrepreneurship and innovation, China’s government further transformed government functions. In the perspective of laws, the State Council issued a document to ensure implementation of the law promoting the transformation of scientific and technological achievements into real productive forces. The document said those who make the research findings and those who make great contributions to transformation of scientific and technological achievements should be rewarded by law, to enhance the enthusiasm of innovation by strengthening the legal protection of intellectual property rights. In the perspective of government services, the government has also streamlined its administration and delegated power to lower levels, in order to create a fair and competitive environment. Such as extending a one-stop service for quick approvals, strengthening the assessment and incentive of innovation-oriented state-owned enterprises, promoting all-in-one business registrations, and merging the National Tax Bureau and Local Tax Bureau. In the perspective of resources, the government attached importance to the development of cloud computing and Internet plus. Through the improvement of entrepreneurship and innovation education curriculum system and special funds for innovation and entrepreneurship among college students, the government tried to develop resources of human talents for the mass entrepreneurship and innovation. In order to accelerate the implementation of innovation-driven development strategy and comprehensively implement policies and measures to promote the

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Table 1 A Timetable of Documents Date 11/3/2015

The State Council documents Guidelines of the general office of the state council on developing maker space for mass innovation and entrepreneurship

16/6/2015

Opinions of the state council on policies and measures to vigorously promote mass entrepreneurship and innovation

26/9/2015

The state council’s guidance on accelerating the building of a platform for the mass entrepreneurship and innovation

12/5/2016

Opinions of the general office of the state council on the implementation of the mass entrepreneurship innovation demonstration bases

27/7/2017

Opinions of the state council on strengthening the implementation of the strategy of innovation-driven development to further promote the in-depth development of the mass entrepreneurship and innovation

26/9/2018

The State Council released a circular laying-out task for local governments and different ministries to upgrade the nation’s mass entrepreneurship and innovation

Main points To accelerate the building of maker space To lower barriers to innovation To encourage technologists and university students To start businesses To provide public services and strengthen fiscal and financial guidance To improve the mechanism for investment and financing business start-ups To encourage large enterprises to establish an open and innovative platform for mass entrepreneurship and innovation To provide convenient business registration service To strengthen intellectual property rights (IPR) protection and IPR trading To explore effective financing support from Banks and capital markets To build platforms for the mass entrepreneurship and innovation Issued four measures – popular entrepreneurship, crowd-sourcing, collective support for small and micro businesses and start-ups, and crowdfunding, which are actually the platforms to support the ongoing campaign A total of 28 demonstration bases will be built first and are scheduled to be completed by 2018, which will help cultivate platforms to promote innovative resource sharing and create a sound environment for mass entrepreneurship and innovation Released a guideline to detail the division of responsibilities of relevant government departments To promote government to expand administrative reform, such as promoting all-in-one business registrations, establishing demonstration zones, and strengthening supervision According to the circular, mass entrepreneurship and innovation will be upgraded to drive up employment, and integrate domestic and international innovation resources

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campaign of mass entrepreneurs and innovation, the government boosted building of mass entrepreneurship and innovation demonstration bases. The number of the first batch of the demonstration bases is 28 that includes three categories. There are 17 regional demonstration bases, 4 university and research institute demonstration bases, and 7 enterprise demonstration bases. It is conducive to effectively gathering the forces of universities, research institutes, enterprises and finance, intellectual property services, and social organizations, and exploring different types of demonstration models. The establishment of demonstration bases focuses on breaking through the policy obstacles hindering the development of entrepreneurship and innovation and can quickly form a number of replicable and popularizing innovative models and typical experiences. The different kinds of demonstration bases make the creation more convenient and make the resources more open, which contribute to stimulating the creativity of the masses. The first batch of demonstration bases was chosen in some regions of cities and provinces, as well as universities, scientific research institutions, enterprises with good performance, and Internet enterprises. So, the demonstration bases carried out a variety of forms of entrepreneurship and innovation. Using big data and Internet plus technology to build an efficient policy platform, regional demonstration bases have solved many problems, such as too many approvals at the grassroots level, difficulties in handling affairs, unsmooth investment and financing channels, and difficulties in implementation of policies. The university and research institute demonstration bases mainly provided platforms to support skills training, the commercialization of research findings, public research, and development service. Enterprise demonstration bases established the incubation platforms for entrepreneurship and innovation among employees and established data and innovative resource-sharing platforms among enterprises. It not only stimulated the innovation vitality within the enterprise, but also enhanced the innovation cooperation with other enterprises. In addition to building various platforms, other forms of entrepreneurship and innovation that carried out on the demonstration bases include strengthening innovation-oriented assessments and incentives on employees, establishing on-limits and practical maker spaces, and creating a social atmosphere of entrepreneurship and innovation through various public activities such as forums, lectures, and training courses. The first batch of demonstration bases have achieved remarkable results in combining the policies with the actual situation. In 2017, the government then decided to build 92 new demonstration bases as the second batch in some regions, universities, research institutes, and enterprises in order to promote mass entrepreneurship and innovation on a larger scale and at a higher level. In the second batch, new established demonstration bases include 45 regional demonstration bases, 26 university and research institute demonstration bases, and 21 enterprise demonstration bases. It increased social influence on the campaign of mass entrepreneurship and innovation and created a new situation in the whole society.

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Case Study The campaign of mass entrepreneurship and innovation is driven mainly by demonstration bases, while the established bases mainly related to the industry on Internet plus, made in China 2025, the integration of military and civilian, and new generation of artificial intelligence. Thus, there are different effects on the campaign of mass entrepreneurship and innovation between the demonstration bases and the others. Therefore, two types of enterprise were selected to study in different cases, and to develop a comprehensive understanding on the campaign of mass entrepreneurship and innovation in China. One case is about the Haier Group, which was selected as the first demonstration base and has achieved good results. Another case is about the China Post Group, which was not selected as the demonstration base; however, it is representative as a large state-owned modern services group on the campaign of mass entrepreneurship and innovation in China.

The Campaign in Haier Group Haier was founded at the beginning period of reform and opening-up in 1984. It transformed from the Qingdao refrigerator factory which was facing bankruptcy to one of the world’s largest manufacturers of household appliances. The continuous and healthy development of the company is driven by the innovation system focused on user needs. The company has consistently promoted an entrepreneurial, innovative spirit, continuing to devote itself to adapting to the times. The innovation management of Haier Group has become the focus of many scholar’s researches. After becoming the demonstration base of entrepreneurship and innovation, its innovation model and the platform construction have a great demonstration effect on the campaign of mass entrepreneurship and innovation. Early, Haier’s innovation was primarily a model imitation of the imported technology. Then on the stage of diversification strategy and internationalization strategy of enterprise development, Haier further explores the second innovation. And then with the development strategy shifted to globalization and networking, Haier group enhanced international competitiveness by implementing Total Innovation Management (TIM). It is clear that innovation is the inexhaustible motive force for Haier’s sustainable development. There are many characteristic innovation models implemented in Haier group. As Haier group was selected as the mass entrepreneurship and innovation demonstration base, it has injected new ideas and vitality into the construction of the base combining with its own situation. The demonstration base is promoted around Haier’s enterprise development strategy. One of the Innovation development models – “RenDanHeYi” – is to build entrepreneurship and innovation platforms in the enterprise, so that every employee has the opportunity to become the partner of the enterprise. The innovation demonstration base is the result of the transformation under this strategy. On the campaign of mass entrepreneurship and innovation, Haier group promoted in-depth development of innovation, and five subplatforms have been set up in the base.

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Through these five platforms, it provided a perfect service system for the makers who want to start a business, which greatly improves the success rate of starting up a business. 1. Maker College It was transformed from Haier Enterprise University with training for senior managers, makers and their mentors. They also cooperate in courses with Peking University and Tsinghua University. 2. Maker Space It not only provided a place for makers, but also matched development with industry, entrepreneurship, and Intelligent life. The aim is to promote an all-round, entrepreneurial environment. 3. Maker Factory Haier has opened up its own manufacturing resource such as production mold resources, production lines, and the labs of research and development, which contributed to reducing the cost of start-ups greatly. It attracted many innovative projects of small and micro enterprises. 4. Maker Service Platform Haier has taken advantage of its management advantages and set up a lot of sharing platforms. The sharing platforms provided professional services on finance, human resources, property rights, and patents and policies. It includes start-up, product design, manufacturing, sales process, and all elements of entrepreneurial services. The sharing services have improved the efficiency of entrepreneurship and innovation. 5. Innovation Resource Platform In order to combine research and development resources with entrepreneurship and innovation, Haier opened its research and development lab for makers to study and communicate. The most representative innovation resource platform is HOPE – Haier’s open innovation platform. It is a network platform where Haier and global partners interact innovation needs and seek outstanding solutions, aimed at building a professional circle of individual and a community of global innovation and interaction through knowledge and resource sharing. It can help solve practical problems efficiently and promote the communication of innovative ideas. It can be concluded that the traits of innovation became more open and shareable. The established platforms provide chance for the mass to participate in innovation activities. Through the equity incentive and ownership protection system, the

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motivation for innovation of the participants is stimulated. It is obvious that the fair and open platforms were conducive to bottom-up innovation and can create a win-win situation. Thus, in the process of building the demonstration base, Haier group has played a good demonstration role by combining its own experience and exploration. And it also has further deepened and developed its own innovation management on the campaign of mass entrepreneurship and innovation.

The Campaign in China Post Group China Post Group corporation is a large wholly state-owned enterprise; the main business scope of the group includes the following: domestic and international mail delivery services, circulation of newspapers, journals, and books, stamp issuing, production and sale of philatelic collections, postal remittance services, confidential correspondence communication, postal financial services, postal express delivery and logistics services, e-business, a variety of postal agency businesses, and other businesses as allowed by the state. Differing from manufacturing enterprises, the China Post Group undertakes the general obligation of postal services and is entrusted by the government to provide special postal services. Facing the transformation of the market economy and the requirement of modern management of stateowned enterprises, China Post Group has recognized that only by carrying out transformation and innovation can it adapt to the development of the age and improve enterprise benefits. Although not chosen as the demonstration base on the campaign of the mass entrepreneurship and innovation, China Post Group actively carried out exploration on entrepreneurship and innovation. At the level of innovation practice, China Post Group also established a collaborative innovation platform named the cloud platform, which means to encouraging millions of postemployees to give suggestions to the development of the enterprise and vigorously promote innovation from grassroots postal workers. The cloud platform covers the entire postal system and has three types including webpage, app, and WeChat versions. The cloud platform built an integrated collaborative innovation platform to create a “centralized” innovation closed loop for innovation projects release and incubation. It made innovation management more “transparent” by motivating millions of employees to contribute ideas and suggestions to the development of enterprises. At the organizational level, China Post Group established a lead innovation work group and innovation management offices to maintain and promote the construction of the cloud platform. The gold ideas are issued on the cloud platform by employees, are of great significance, and will make great contributions to enterprise innovation. And the generation process of gold ideas on the cloud platform is shown below in Fig. 1. It is clear the cloud platform has opened up communication and connection among various sectors, departments, and all employees of the group and established a “flat” postal innovation management system. It has created a fair and competitive environment and an innovative atmosphere for all employees of the enterprise, and the gold ideas screening has inspired them to be innovative and proactive.

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Fig 1 The Processing of Gold Ideas

The enterprise carried out “Striving for Innovation” activities, stimulating all postal workers’ innovation vitality. According to the China Post Group’s official statistics, more than 550,000 people logged on the cloud innovation platform and submitted 90,000 innovations, among which 87 were selected as the first batch of golden ideas. At the same time, China Post launched the 2017 National Postal Enterprises Technology Innovation Achievements and Management of Modern Innovation Achievement Assessment. Total 9 projects won first prizes for achievements in innovation of science and technology, 20 carried off second prizes, and 30 received the third prize as well as 30 gadgets. Total ten projects won first prize for enterprise management innovative achievement, 20 received second prize, and 30 won third prize. From the practice of the 87 golden ideas selected in 2017, 13 golden ideas have already been put into practice successfully and 51 golden ideas have gained a staged achievement by the end of 2018. There were 64 golden ideas in total that have already been put into practice smoothly, which account for 74% of the selected ideas. And from the point of view of the content, 41 golden ideas were related to technology including system development and function improvement, which account for 51%. In 2018, China Post selected 129 ideas as the second batch of golden ideas, which increased by 48% from 2017. The 129 ideas include 12 Brilliant golden ideas and 117 golden ideas. A total of 72 golden ideas related to the development and application of science and technology, which account for 56% of the selected ideas in 2018. Thus, it can be seen from the entrepreneurship and

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innovation activities of China Post Group that science and technology account for a large proportion. With the campaign of mass entrepreneurship and innovation carrying on, China Post Group paid more attention to innovative suggestions made from grassroots staff. On the one hand, the company takes special measures to motivate employees to think up innovation ideas. For example, some branch companies put the mass entrepreneurship and innovation task into business and product innovation incubation system and performance appraisal system. Even some branches set Key Performance Indicator for the mass entrepreneurship and innovation task. If the ideas are selected by the headquarter of group, the employees who put forward the innovative ideas also get rewarded from branches. It can be seen that the campaign of mass entrepreneurship and innovation has obtained strong support of the management of branches. On the other hand, the cloud platform established by the company has made it easy for the company management to know more about the grass-roots situation. Meanwhile, employees from different departments may share different professional innovation ideas on the cloud platform, which can enhance understanding and strengthen cooperation among departments. It is particularly important for China Post Group which is a large wholly state-owned enterprise with huge management network and a great variety of business. Besides, as a large state-owned enterprise, China Post Group bears more social responsibilities. In other aspect of innovation, it has also taken the advantages of postal channels and technology to make a greater contribution to the assault on poverty alleviation. So the campaign on the mass entrepreneurship and innovation of China Post Group not only had some positive effects on transformation and upgrading for the enterprise itself, but also had demonstration effect for other enterprises.

Conclusion The extensive popularization of information technology and Internet has promoted the economic development rapidly in the recent decade. Under such a new era, the innovation activities have also presented a series of small as well as fast characteristics. On a micro level, the renewal cycles of product and service are getting shorter. The grassroots level may tend to perceive the changes first and find the essence of the problems rather than the management layer. The bottom-up pattern of finding and solving problems is just the source of innovation and the driving force of development. Through the analysis above, it is obvious that the campaign of mass entrepreneurship and innovation in China conforms to this trend. It is obvious the campaign of the mass entrepreneurship and innovation has played a positive role in China’s economic transformation and deepening reform. It is a bottom-up innovation campaign with Chinese characteristics that conforms to the development of the times. The biggest characteristic is the acceleration of the mass innovation. With the progress of technology, the spread of technology is accelerating, which makes it easy to link thousands of creative ideas into creative

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innovation. The organizational roles of core enterprises have been ranging from leaders to platform creators. Entrepreneurs shared thoughts and ideas and then promoted the development of the whole industry with an open mind of learning. The collective achievement can easily be released in such an environment. Mass entrepreneurship and innovation are the strong driving forces for China to push the manufacturing industry to improve quality and efficiency and help it to transform and upgrade itself. Most of the demonstration bases are manufacturing enterprise or universities and regions conducive to the scientific and technological level of manufacturing industry. Under the support of the government policies, the manufacturing industry has received more attention and gained a lot of achievements on the campaign of the mass entrepreneurship and innovation. However, nonmanufacturing industries such as service industry were not listed in the demonstration base. But the relevant companies have carried out the construction of the mass entrepreneurship and innovation. The main form of the innovation on this campaign is to build various platforms which makes the mass innovation and entrepreneurship more convenient and efficient. Comparing Haier Group with China Post Group, Haier’s innovation platforms are more comprehensive and on limits. Haier’s innovative forms of cooperation are more diversified. Although there are some industry differences, the campaign of mass entrepreneurship and innovation has had a big influence on China, which played a vital role in the transformation of government functions and provided a new engine for economic development.

References Franke N, Shah SK (2003) How communities support innovative activities: an exploration of assistance and sharing among end-user. Res Policy 32(1):157–178 Ramaswamy V, Gouillart F (2010) The power of co-creation: build it with them to boost growth, productivity, and profits. Free Press, New York, ISBN 9781439181041 Schumpeter J (1911) The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. Harvard University Press, Cambridge, MA, 1934 Von Hipple E (2005) Democratizing innovation: the evolving phenomenon of user innovation. Journal für Betriebswirtschaft 55(1):63–78 Yasheng H, Dan W, Shiwei Z (2016) Innovation in innovation: how does the mode of social innovation lead theory of the mass innovation. Zhejiang People Press, Zhe Jiang, ISBN 9787213069604

Innovation of Internet Finance in the Era of Big Data

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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An Overview on Internet Finance and Big Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Connotation of Internet Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition of Big Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Relationship Between Big Data and Internet Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Analysis of Innovation Mode of Internet Finance in the Era of Big Data . . . . . . . . . . . . . . . . . . . . . Innovative Design of Internet Financial Products Through Data Mining Technology . . . . . Using Big Data Technology to Form a Social Business Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accurate Marketing Through Data Collection and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Constructing a New Four-in-One Business Service Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovative Risk Control Methods Through Big Data Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private Internet Banking Model for Inclusive Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . Internet Financial Innovation Results Under the Background of Big Data . . . . . . . . . . . . . . . . . . . . Vertical Search Model of Internet Financial Service Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Crowdfunding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third-Party Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2P Online Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2B Model of Internet Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Big data has brought about changes in the times, and Internet financial innovation has emerged. Firstly, this section outlines the connotation of Internet finance and the definition of big data and then explains the relationship between big data and Internet finance. Secondly, it analyzes the development model of Internet finance innovation in the era of big data. It can be seen that data mining technology could be used to design innovative Internet financial products; we can also use big data technology to form a social business chain and achieve precise marketing, can L. Wang (*) College of Finance and Investment, Hebei Finance University, Baoding, Hebei, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_45

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build a new four-in-one business service model, can innovate risk control methods through big data mining technology, and build a private Internet banking model for inclusive financial services. The Internet financial innovations under the background of big data include the vertical search model of Internet financial service platform, crowdfunding, third-party payment, P2P online lending, and C2B model of Internet finance. Keywords

Big data · Internet finance · Innovation · Model · Results

Introduction In the current financial field, Internet finance has attracted much attention as a new trend, and its vigorous development has had a great impact on the competitive landscape of China’s banking industry. Through an in-depth analysis of Internet financial development, it can be found that the popularization of Internet technologies such as cloud computing, social networking, and search engines has enabled Internet finance to continuously develop and innovate. In view of that, this section focuses on the research of Internet finance innovation in the era of big data.

An Overview on Internet Finance and Big Data The Connotation of Internet Finance Internet finance is an emerging area where the traditional financial industry and the Internet are combined (https://baike.baidu.com/item/互联网金融/7040983). Specifically, it is the integration of Internet spirit such as the openness, democracy, cooperation, and sharing into the status of the traditional financial industry, which has caused some changes in the financial model. Therefore, the financial industry with “Internet spirit” is collectively referred to as Internet finance. The difference between Internet finance and traditional finance lies not only in the different media used in financial services but in the comprehension of financial participants to the essence of “openness, equality, collaboration, and sharing.” More importantly, they make traditional financial services which have a series of features such as greater transparency, higher participation, better collaboration, lower intermediate costs, and easier operation by making use of tools such as the Internet and mobile Internet. Therefore, Internet finance has developed rapidly.

Definition of Big Data Big data, also called huge data, refers to the information assets which require new processing modes to have stronger decision-making power, deeper insight, and

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higher process optimization capabilities (https://baike.baidu.com/item/互联网金融/ 7040983). Its main features include large amounts, high speed, diversity, and value. The core value of big data lies in the storage and analysis of massive data (Cunyi et al. 2016). Compared with other existing technologies, the comprehensive cost of “cheap, rapid, and optimized” of big data is optimal. For Internet finance enterprises, these data information may originate from social networks and may also be provided by e-commerce platforms. Of course, they may also be records of users searching and browsing information, which verifies the fact that the sources of data information are extensive. However, for modern Internet finance companies, all of the aforementioned data information is not a normal data group, that is, there is no connection between the enterprise-user relationship management database and big data.

The Relationship Between Big Data and Internet Finance Since the releasement of “Big Data Innovation, Competitive Productivity,” cloud computing and big data have become the focus of attention and have become the main content of people’s talking topics (Hu et al. 2014). Big data has many advantages, such as large quantity, multiple types, high processing efficiency, and high commercial value. Therefore, in the process of modern massive data processing, big data has become the main processing means, and the use of big data has enabled the analysis and collation of Internet financial data. Dealing with such a number of contents has actively promoted the best application of big data in Internet financial information processing. At the same time, the adaptation of new research method such as experiments, models, algorithms, and research laws has formed a new business model in the new era. As a new type of innovative development model in the new era, Internet finance relies mainly on big data in the processing of data information. For example, thirdparty payment, crowdfunding, P2P, and other development models, making Internet finance cost-intensive, channel autonomy, interest rate marketization, and operation standardization. It can be said that due to the application of big data technology, the traditional financial services, financial products, and financial markets have all undergone fundamental changes. This has also led to the current stage of the financial system which is gradually tending toward a diversified development trend. From the point of view of innovation in the financial industry, big data technology has brought high-frequency transactions, social sentiment analysis, and accurate big data credit risk assessment to the financial industry. As shown in Fig. 1, the scale of China’s Internet financial users continues to grow, among that the number of Internet banking users is consistently higher than the size of online credit users. In 2016 and 2017, a large number of online credit platforms were listed. Under the impetus of new models such as corporate performance and cash loans, user growth has the tendency to overtake Internet banking. It is expected that by 2020, the scale of Internet banking users will exceed 300 million people.

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Analysis of Innovation Mode of Internet Finance in the Era of Big Data Innovative Design of Internet Financial Products Through Data Mining Technology With the rapid development of the Internet, the speed of information dissemination has accelerated, and the gap between user-user and user-product asymmetry has narrowed, providing favorable conditions and fertile ground for new financial model innovation and product design. Internet financial companies use data mining technology to analyze the relevance of the huge user data and massive transaction data in the Internet. They can discover the differences in the demand of different customer groups for Internet financial products and design different products to target customer groups. All of this have greatly increased customer conversion rates and laid a solid foundation for the accurate marketing of Internet financial products (Huimin 2015). On July 18, 2015, in accordance with the principles of “legal supervision, appropriate supervision, classified supervision, coordinated supervision, and innovative supervision,” ten ministries including the People’s Bank of China issued the “Guiding Opinions on Promoting the Healthy Development of Internet Finance” and proposed a series of guidelines to encourage innovation and support the steady development of Internet finance; to encourage innovation of Internet financial platforms, products, and services; to encourage mutual cooperation among business organizations; to broaden financing channels for practitioners; to adhere to the principle of simple decentralization; to implement and improve fiscal and taxation policies; and to promote credit infrastructure. It has also promoted the establishment of construction and supporting service systems and established the main forms of Internet finance such as Internet payment, online lending, equity crowdfunding, Internet fund sales, Internet insurance, Internet trust, and Internet consumer finance.

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At the same time, the continuous subdivision and further integration of traditional financial services and new Internet financial services have also provided new ideas for innovative design of financial products (Peiyu 2017).

Using Big Data Technology to Form a Social Business Chain In the Internet, different people form different social circles through different social networking sites or social software. Different groups of people have different needs for Internet financial products (Qiang and Yi 2015). Therefore, Internet finance companies can use big data technologies to interact in different social circles. The information of the target group is searched, sorted, and retrieved, and valuable information is finally obtained as an important basis for the design and marketing of Internet financial products. With the help of big data, financial customers can generate and effectively disseminate Internet financial information in a timely manner. Through organizing, retrieving, sorting, and other operations, a social commercial chain with higher value has been formed, which serves as the main basis for credit evaluation of Internet financial customers. The use of e-commerce for online shopping can ensure that the information of the buyers and sellers is not leaked. What’s more, through the user’s collection, browsing, decision-making, ordering, and a series of operational processes in the platform, the customers can make a scientifically reasonable judgment about the user’s internal needs and trading behavior; this will help to understand market information in a timely manner, gain insight into market trends, monitor business operations in real time, and use it as a basis for product sales. This will help design financial products that are more in line with customer needs and increase product sales. While increasing product sales, it will create greater economic benefits for the financial industry (Wei et al. 2015).

Accurate Marketing Through Data Collection and Analysis Finance has taken big data as its main supporting force, and, at the same time, it has actively built an Internet financial data information analysis model in the process of innovation and development (Xiaocong 2016). For example, staff members use user portraits for accurate marketing in a timely manner to achieve a reasonable optimization of the Internet financial business model and greatly increase the Internet Financial marketing management level. In order to achieve accurate marketing, we must first establish a data team and focus on the collection of data from the foundation; information collection should pay attention to the diversification and flexibility of the channel, not just rely on one business system. Taking a bank as an example, the source of basic data can come from many aspects rather than relying solely on the bank’s counter system. ATM cash registers can record customer access information, and we can also learn about customer information through bank funds; Free Wi-Fi log-in can also calculate the data of e-banking customers usage and consumption frequency. In addition, surveys can be conducted in a variety of ways,

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such as when a bank counter or an ATM cash machine queues up, a simple survey form can be provided to fill in, thus information about customer requirements and customer composition can be gotten. We should realize the organic integration of data, pay attention to the analysis and integration of data, evaluate the integrity and accuracy of data, and realize the organic connection of various data collection sources. For example, the ATM machine’s statistical records can get a certain customer’s deposit and withdrawal list, which on integration with information from bank can provide further information of customers (such as name, gender, age, address, telephone, etc.), and their bank account over a period of time. In this case, you can also learn the customer’s payment habits by the record of the customer’s payment method (cash, credit card, debit card, etc.) in the data. The third is to change the marketing organization structure. Data-driven precision marketing strategies based on data collection and data analysis will have a great impact on traditional marketing decisions, marketing tools, and marketing execution and will bring about fundamental changes in bank marketing, including organizational structure. The bank can rationally use big data to achieve accurate marketing through the establishment of a dedicated Internet finance company. The fourth is to maintain customer relationships. With the globalization of the economy and the arrival of the big data wave, banks have also begun to pay more attention to the maintenance and management of customer relationships. Good customer relationships can directly help banks quickly and effectively gain insights into the dynamics of customer demand. How to strengthen the bank’s customer relationship management, whether it can effectively manage and tap customer resources and whether it can establish long-term good relationships with customers, has become the key to the bank’s continued competitive advantage (Xuelin et al. 2016). Through the mining and analysis of past customer data, it is possible to identify the most critical factors that can affect the customer segmentation among the bank’s existing customers and subdivide the customer into more refined groups so that each group can have more associative and similar characteristics, thus banks can more specifically manage customer relationships.

Constructing a New Four-in-One Business Service Model In the context of big data and cloud computing, traditional commercial banks need to make relevant changes in accordance with the characteristics of the development of the times and strive to build a four-in-one business service model of smart banking, mobile finance, e-commerce finance, and online finance to promote the development of traditional commercial banks and Internet finance in China. Through the use of big data technology, the resources of each network point can be effectively integrated to speed up the construction of an integrated operational service security system for smart banks and commercial area banks and at the same time enrich the functions of China’s current mobile banking and integrate functions such as payment settlement and mobile life services into the development and design of mobile banking to provide convenience for people. It can launch financial products online

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by using online e-commerce platform capital flow, information flow, and other advantages. It also ensures traditional commercial banks’ better development under the impact of Internet finance. In addition, the Internet financial service platform can also push specific industry information and related financial products to users based on the user’s browsing history information. In this way, it can also play a role in digging deeper potential user groups and satisfying users’ personalized financial consumption demands. This plays a very obvious role in solving the problem of asymmetric information and capital supply and demand in the traditional financial industry (Zhenfang 2017).

Innovative Risk Control Methods Through Big Data Mining In the process of Internet financial development, risk management and control are very important tasks. Therefore, in order to effectively avoid Internet financial risks, it is necessary to actively establish an Internet financial risk management and control mechanism. One is personal information protection measures, such as the use of fingerprint unlocking, biological probes, and other modern methods to manage financial risks. This helps to avoid information leakage and fund theft; the other is the tracking of illegal information, such as using blacklist matching, IP tracking, and other methods to quickly identify abnormal behavior in the platform, thereby reducing financial risks; in addition, Internet finance companies can establish credit evaluation mechanisms for different customer groups through big data analysis. The risk control of Internet financial product innovation is mainly divided into two types: the first type is closed risk control. This type of risk control model is adopted by many Internet trading platforms, such as Taobao, Jingdong, and Vipshop. The closed-type risk control model is mainly based on closed-end credit assessment and risk control mechanisms established on the basis of massive transaction data within the trading platform; the second type is the open type of risk control. Under this type of risk control, many small and micro-Internet financial companies provide relevant customer data to an intermediate credit rating agency, and the middle credit rating agency collects big data for customers. The evaluation of credit will be provided to all small and micro-Internet financial companies, thereby realizing the risk control of Internet financial product innovation. The middle credit rating agency evaluates the customer’s credit through the collected big data and then provides it to all the small and micro-Internet financial companies, thereby realizing the risk control of Internet financial product innovation (Zheng et al. 2017).

Private Internet Banking Model for Inclusive Financial Services Unlike the traditional model of financial banking, Internet banking is based on the Internet and makes private capital as the main source of funds. For the new model of Internet banking, it cannot only rapidly expand its business domain through the advantages of networked platforms and data but also be able to form a new online

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synchronized supply chain finance model through the combination of a large customer group in the Internet and its own mature industrial chain. In addition, Internet banks can also analyze customer information of social networks and media organizations through big data technologies and build a diversified system based on enhanced supervision and risk control to form differentiated competition with traditional financial banks. And from the customer, product, and service quality, it highlights the precise and rapid value advantages. WeBank is the first private bank and Internet bank in China. It is founded by Tencent Company, Baiyeyuan, Liye Group, and other well-known private enterprises. Its headquarters is located in Shenzhen, China. Its product “micro-loan” is the first loan product in China to realize the whole process from application and approval to lending to operate on the Internet. It has the unique bright spot of universal benefit and convenience. “Micro-loan” relies on two social platforms of Tencent, QQ and Weixin, which are unsecured and need no application; customers only need their names, ID cards, and phone numbers to obtain credit lines; the quota setting of 500 yuan to 200,000 yuan can meet the microconsumption and business needs of the general public. “Microparticle Loan” circulates credit and pays back with debit; arrives at the designated account of the customer in 1 minute; and provides 7*24 hours service. With Internet technology to reach a large number of users, the extremely convenient banking services will be extended to the low-income and middle-income groups that are difficult to cover by traditional banks.

Internet Financial Innovation Results Under the Background of Big Data Internet finance is an innovative integration of the Internet and financial industries. For the innovative model of Internet finance, keeping up with user needs and technological development is the only way for the healthy development of Internet finance. At present, the innovative modes of Internet finance include crowdfunding, third-party payment, P2P online lending, and so on. Different Internet finance innovation development models correspond to different aspects of user needs and experiences, and this kind of flourishing development path is believed to grow with the rapid development of modern information technology.

Vertical Search Model of Internet Financial Service Platform With the prevalence of “Internet +” in China, traditional financial institutions have begun to optimize and upgrade their networks. The networkization of traditional financial institutions mainly means that traditional financial institutions such as commercial banks, insurance, and securities combine their businesses with Internet technologies, thus to realize financial services on the Internet and establish corresponding network platforms. The greatest significance of establishing and improving the Internet financial service platform is to provide users with a practical

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service path. The service model of the platform has a certain degree of particularity, which is embodied in the use of big data technologies, and then enables those users who are linked to material interests to have a platform for bringing together multiple types of financial goods and services. In addition, users have the autonomy to choose the platform. Vertical search means putting more professional technology into the financial field. Search engines, big data, cloud computing, social networks, and other mutual assistance make information retrieval behavior more effective. Vertical search of Internet finance makes information processing and risk assessment through network. Under the guarantee of cloud computing, information of both suppliers and demanders of funds is matched and disseminated through social networks, organized and standardized by search engines, and eventually forms a continuous and dynamic information sequence. Finally, dynamic risk pricing or dynamic default probability of any fund demander can be given. Financial vertical search makes financial information retrieval more convenient and reduces the cost of retrieval; realizes vertical search; improves the accuracy of information; evaluates and compares the risks and benefits of financial products more effectively; and improves the effectiveness of information retrieval. Just because that the construction of such an Internet financial service platform with a vertical selection function is completely based on the user’s interests, at this time, the user’s satisfaction with Internet financial products and service will have a long-term improvement.

Crowdfunding Crowdfunding refers to the innovative mode of Internet finance that raises project funds through the Internet donations or preorders (https://baike.baidu.com/item/众筹). Crowdfunding helps propaganda for artists or creative companies that have financial need through advantages of the Internet in the dissemination of information. This leads to the attention of the broad masses of the people and thus gets a certain amount of financial support. Compared with many enterprises under the market economy with the goal of maximizing profits, companies in the crowdfunding industry are more charitable. The development of crowdfunding started with the crowdfunding platform Kickstarter, which was established in April 2009 in New York, USA, to raise funds for projects with innovative solutions on the Internet. On September 22, 2015, crowdfunding successfully transformed to a public welfare company. In addition, the USA, the birthplace of crowdfunding, passed the JOBS Act on April 5, 2012, that came into effect shortly thereafter. The formal legal regulations ensure and restrict the steady development of the crowdfunding industry. For China, it is imperative to promote the standardization and legalization of crowdfunding in China in the form of legislation in the future. Domestic-related examples include Renren investment and Entertainment Bao and other domestic investment and wealth management products. Crowdfunding tools require many financial supporters and also need to manage lots of micropayment transactions. Many companies have entrusted this task to the crowdfunding platforms which is called “intermediaries.” The platform mainly operates according to the following processes: Firstly, as fund demanding side, the managers of

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the innovation project (producer) exchange information with the crowdfunding financing platform, get suggestions from the platform, and publish more detailed project information, development plans, equity allocation, and reward returns in accordance with platform rules. Secondly, when the innovation project is released on the crowdfunding financing platform, capital providers (crowdfunders) will enter the capital contribution conditions on the platform according to their own utility needs and search for eligible innovation projects and negotiate with the project managers directly. Finally, with the transferring of funds, the project manager starts production and rewards investors (The operational process description is shown in Fig. 2).

Third-Party Payment Third-party payment refers to a network platform where third-party independent agencies with a certain degree of credit guarantee and financial strength achieve transaction payment by signing cooperation agreements with major commercial banks (https://baike.baidu.com/item/第三方支付). The advantage of the thirdparty payment network platform is to reduce the cost of government and enterprises institutions to connect with the banking business, cleverly avoid competition with serviced companies in an interest-neutral manner, and cater to the individualized development needs of the serviced enterprises. As the world’s largest mobile payment manufacturer, Alipay has become a third-party payment platform that Chinese people can easily reach in their daily lives. Alipay is the originator of Alibaba Group’s “Baby” financial products, and it has developed a good reputation of Alibaba Group. Up to now, no major property safety accidents have occurred on Alipay’s trading platform, which ensures the safety of Alipay. Despitefully, the security risks of third-party payment network platforms cannot be ignored. After 2014, the central bank strengthened its supervision of the Internet financial industry.

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As an important part of the vital interests of the people, third-party payment platforms should follow the example of Alipay – an industry leader – and strengthen the security assurance of all aspects of transaction payment using third-party payment network platforms to promote the benign development of third-party payment industry. At present, China’s domestic third-party payment network platforms mainly include Alipay, Tenpay, Chinapay, etc. As shown in Fig. 3, in recent years, China’s third-party payment has developed rapidly. In 2017, the number of noncash payments in China has reached 160.878 billion. At present, China’s domestic thirdparty payment network platforms mainly include Alipay, Tenpay, Chinapay, and so on. As shown in Fig. 3, in recent years, China’s third-party payment has developed rapidly. In 2017, the number of noncash payments in China has reached 160.878 billion, the year-on-year growth rate is 28.59%, and the payment amount has reached 3759.94 trillion yuan.

P2P Online Lending P2P online lending, which is called peer-to-peer online credit in Chinese, refers to the behavior of people who use the online lending platform provided by the network credit company as the basic place to realize the lending contracts that both lenders and borrowers are satisfied with (https://baike.baidu.com/item/网贷?fromtitle¼P2P网贷 &fromid¼13866877). The borrower’s income is the contract source fund and interest which at the same time bears the contract risk, the lender repays the principal and interest when the contract term arrives, and the network credit company charges the intermediary service fee for providing online credit. In this model, there is an intermediary servant – P2P online lending platform. As shown in Fig. 4, the P2P platforms mainly provide information flow interaction, information value recognition, and other services that facilitate the completion of transactions for both parties to the network loan, but does not act as a creditor and debtor for borrowing funds. Service forms include loan information disclosure, credit review, legal procedures, investment advice, overdue loan recovery, and other value-added services. Some P2P online

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lending platforms have still not crossed the border of “non-debt debtors” even if they provide intermediate escrow settlement (not necessary, preferably quarantine) services through relevant forms (banks or third-party payment platform accounts). P2P online lending is a good example of the development of the longtail market of Internet finance. It is convenient and efficient to complete the popular private lending that traditional financial institutions cannot achieve on the network accessible to ordinary people. P2P online lending is an Internet finance innovation model that is truly beneficial to the people. As of May 2018, China’s domestic online credit platform has exceeded 7449, and the number of active investors and active borrowers in the P2P online lending industry was 4.165 million and 4.366 million, respectively. However, the unavoidable shortcomings such as high interest rates, high risks, and lack of effective supervision means of P2P network credit have inevitably put a big question mark on the development of P2P online lending in China.

C2B Model of Internet Finance The C2B model of Internet finance mainly emphasizes customer centricity. Its core is to aggregate users by gathering scattered users to form a strong purchasing group, thus changing the weak state of one-to-one bidding of users in C2B model (https://

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baike.baidu.com/item/c2b). In this mode, the users purchase a single item at a large wholesaler price during the process of network consumption, thereby effectively reducing the purchase cost. Internet finance companies can use big data to analyze the users’ credit rating, behavior, habits, needs, and other aspects, fully grasp the specific needs of users, and design a financial system that is more in line with customers’ shopping habits and needs in the future development process. They can provide customers with better financial services, to meet the diverse consumer needs of current customers, so that users get a better experience in financial activities. In the context of the era of big data, C2B model of China’s Internet finance has become an inevitable trend of finance development. However, in the long-term development process, the C2B model also faces some problems like high financial service cost and difficulty in risk control. This requires Internet finance companies to keep pace with the times and take effective measures in the future, for example, to take a series measures to strengthen risk control and cost control and lay a strong foundation for the development of Internet finance in China.

Conclusion Through the above analysis, it can be concluded that in the era of big data, the goal of improving the Internet financial system can be achieved by means of expanding and constructing the financial ecological chain. That is to say, it is probably to realize the goal of innovation development and industrial structure optimization for Internet finance enterprises. Therefore, Internet finance companies should actively research and develop new financial products to achieve the goal of increasing operating income, should form a social business chain through big data technology, achieve precise marketing through data collection and analysis, build a new four-in-one business service model, should innovate risk control through big data mining, and establish a private Internet banking model for inclusive financial services. Although big data technology cannot completely replace the value orientation and thinking mode of human consumption, we still believe that the establishment of vertical search mode of Internet financial service platform, crowdfunding, third-party payment, P2P online loan, as well as Internet finance C2B model will solve the problems related to the innovation and development of Internet financial enterprises, such as the evolution of financial situation, credit assessment, risk control, information security, and so on.

References Cunyi S, Qiu Z, Caixia W (2016) Accurate guidance of big data algorithm: credit customer identification and analysis of characteristic elements. Tax Econ 1:34–37 Hu Y, Danhui Y, Hongwei X (2014) Research on internet financial risk early warning based on big data analysis. Mod Manag Sci 4:3–5 Huimin W (2015) Value creation and model innovation of E-commerce under the background of big data. Commer Econ Res 7:76–77

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Peiyu H (2017) Research on big data application model and value based on internet finance. China Circ Econ 31(5):39–46 Qiang N, Yi H (2015) Internet finance: research on innovation, risk and its supervision policy. Yunnan Soc Sc 6:71–74 Wei Z, Lizhen C, Daohai Z, Jianqiang L (2015) SWOT analysis and strategic choice of internet finance – taking Yu’ebao as an example. Sci Technol Manag Res 35(13):9–13 Xiaocong R (2016) The dilemma and path of insurance finance development in the era of “Internet +”. Manag Modernization 36(5):11–13 Xuelin L, Jing L, Pingan Z (2016) Information technology innovation and internet finance research [J]. Technol Econ Manag Res 12:73–77 Zhenfang C (2017) Research on P2P network loan innovation and supervision issues. Econ Issues 7:53–57 Zheng Z, Fuyao W, Yuming Z (2017) Cloud innovation and internet financial ecosystem construction – taking Ali financial cloud as an example. Econ Manag Res 38(3):53–60

The Long March to an Innovative Culture: Development of Corporate Cultures in China from the 1990s Until Today

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Stefan Schilcher and Helmut Kasper

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quinn and Cameron’s Typology of Organizational Cultures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denison’s Organizational Culture Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Competing Values Framework and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Competing Values Framework–Based Studies in the PRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Culture Assessment Instrument–Based Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denison Organizational Culture Survey–Based Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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While companies in China are becoming increasingly innovative, they still have not reached their full potential. Organizational culture is widely regarded as a key to innovation success. Therefore, this chapter provides a literature review based on several empirical studies on organizational culture conducted between 1996 and 2013 in Chinese companies. This approach helps to develop a better understanding of development tendencies in Chinese companies and to identify organizational cultural traits which boost innovation or hinder creativity. The results indicate that Chinese companies have started to embrace a rational strategic- and goal-orientated market approach which positively enhanced their innovation capability by learning from competitors and conducting external information research. However, creating change, organizational learning, and a strong S. Schilcher (*) Department of International Wine Business, IMC FH Krems University of Applied Sciences, Krems, Austria H. Kasper Vienna University of Economics and Business, Vienna, Austria e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_47

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customer focus are considered to be of less importance by many companies, which may reduce the innovation capability significantly. Furthermore, Chinese national culture traits such as social harmony and face may lead to the avoidance of productive task conflicts and hence reduce the creativity of employees. Additionally, Chinese cultural traits such as hierarchy and bureaucracy can be major barriers for divergent thinking and experiments. Keywords

Organizational culture · Innovation · Competing values framework · China

Introduction China is moving from imitation to innovation. Chinese companies which participate in global supply chains such as information technology cannot afford to lag behind in innovation, while domestically Chinese companies have to compete with foreign companies who have entered the market at the high end (Yip and McKern 2014). One indicator for innovation is the number of patent applications. China reached a milestone in 2011, when the number of applications filed in China overtook the numbers filed in the USA. However, it is important to stress out that Chinese companies started to apply aggressively for patents due to governmental incentives and possibly strategic considerations such as using patents as an instrument to facilitate technology licensing, cooperation, and venture financing or as performance measurement instrument for their R&D departments (Hu et al. 2017). Organizational culture is a key to innovation success (Büschgens et al. 2013). It affects the extent to which creative solutions and innovative ways are encouraged by the shared values, norms, and assumptions. Martins and Terblanche (2003) name four determinants of organizational culture which influence creativity and innovation: strategy, structure, support mechanism, and behavior that encourages innovation and communication. Powerful enablers for an innovative strategy are shared and lived mission and vision statements (Ahmed 1998). On the other hand, structure can emphasize values which promote or restrict innovation. In general a flat structure is seen to promote innovation, while a rigid structure, focusing on control and stability, tends to hinder innovation (Martins and Terblanche 2003). Additionally, support mechanisms such as the availability of time, information, technology, and employees are positively related to the level of innovation in an organization. Furthermore, values and norms should manifest themselves into behavior that encourages innovation. Martins and Terblanche give an example the way organizations handle mistakes. A high tolerance of mistakes is seen as an essential element for innovation, whereas organizations that tend to cover up mistakes will not be able to openly discuss and learn from them (Martins and Terblanche 2003). Lastly, open communication in an organization which is based on trust is seen of similar importance as it motivates employees to generate and share ideas (Linke and Zerfass 2011).

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As companies in China start to increasingly focus on innovation and organizational culture is an essential factor to reach this goal, it is important to understand the history of development of organizational culture in China to develop a better understanding of what opportunities and dangers Chinese companies will face on their march to innovation (Yip and McKern 2014). This chapter provides a literature review based on empirical studies conducted on organizational culture in China between 1996 and 2013. Empirical studies which were either based on the organizational culture assessment instrument by Cameron and Quinn or Denison’s organizational culture survey were chosen. As both two survey instruments are based on the competing values framework, a comparison of the results can be conducted.

Organizational Culture Organizational culture is widely regarded as one of the most popular terms in management and organizational literature (Kasper 1987). One of the early examples of a book which focused on organizational culture was Peters and Waterman’s In Search of Excellence. While the deducted conclusions and in particular the choice of organizations and methodology – in the course of time, some of the organizations discussed turned out to be not “excellent” at all – are heatedly disputed (Keulen and Kroeze 2012), the popularity of the book helped to arouse interest in organizational culture among managers, consulters, and scientists (Martin and Frost 2011). Perhaps one of the most well-known models of organizational culture was developed by Schein (Schneider and Barbera 2014). Schein (1985 in Kirchler et al. 2004) defines culture as “. . .basic assumptions and beliefs that are shared by members of an organization, that operate unconsciously. . ..” Furthermore, Schein (2010) argues in his model of organizational culture that any culture can be studied at three levels: (a) artifacts, (b) espoused beliefs and values, and (c) basic underlying assumptions. He stresses out that in order to interpret (a) artifacts correctly and to know how much credence should be given to (b) espoused beliefs and values, one has to decipher the pattern of (c) basic underlying assumptions first. As basic underlying assumptions are often unique due to the history and circumstances under which an organization has developed and consequently artifacts mean different things in different settings, a direct quantitative comparison between organizations can be difficult (Denison 2001). However, authors such as O’Reilly et al. (1991) have argued persuasively that organizations can be quantitative compared at the espoused beliefs and values level.

Quinn and Cameron’s Typology of Organizational Cultures A popular espoused beliefs and values level focusing approach in the field of management is the competing values framework (CVF) developed by Quinn and Rohrbaugh (1983). The CVF has earned its popularity by limiting itself to focus on

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only three value dimensions which underlie the conceptualization of organizational effectiveness: • Flexibility versus stability: the basic dilemma of an organization to choose between emphasizing on authority, coordination, and structure or diversity, individual initiative, and adaptability • Internal versus external: the basic dilemma of an organization to choose between overall competitiveness in a changing environment and considerations regarding internal harmony • Means versus ends: the basic dilemma of an organization to choose between emphasizing on important processes such as planning and goals setting and on final outcomes such as productivity Quinn and Rohrbaugh (1983) integrated the means versus ends dimension into the other ones and established a two-dimensional framework which classifies four organizational culture effectiveness criteria models, originally named (Yu and Wu 2009) (a) human relations model, (b) open system model, (c) rational goal model, and (d) internal process model. Cameron and Quinn (2006) revised the four models and developed them into a typology of organizational cultures: • Adhocracy culture (flexibility and external focus): a culture which places a premium on innovation, entrepreneurship, and creativity. Success is defined in terms of gaining unique new products or services. • Market culture (stability and external focus): a culture which places a premium on competition and goal orientation. Success is defined in terms of market share and penetration. • Hierarchy culture (stability and internal focus): a culture which places a premium on coordination and structures. Success is defined in terms of dependable delivery, smooth scheduling, and low cost. • Clan culture (flexibility and internal focus): a culture which places a premium on commitment, human resource development, and teamwork. Success is defined in terms of concern of employees and customers. Based on this typology, the organizational culture assessment instrument (OCAI) was developed. The OCAI’s intent is to help identify an organization’s current culture and also what parts of the organizational culture should be developed further or changed in order to successfully face future challenges. The OCAI consists of 12 questions regarding current and preferred culture. Each question represents a key dimension (dominant characteristics, organizational leadership, management of employees, organization glue, strategic emphases, and criteria of success) and must be answered by splitting 100 points over a total of four descriptions representing the four different culture types derived from the CVF (Cameron and Quinn 2006). However, the OCAI is not the only assessment instrument based on the CVF. In the 1990s, Denison, a fellow colleague of Quinn and Cameron from the

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University of Michigan Business School, enhanced the CVF and developed his own culture assessment instrument (Denison and Mishra 1995).

Denison’s Organizational Culture Model Denison’s approach to organizational culture is based on the CVF and consequently very similar to the work of Quinn and Cameron (Yi 2008). However, the Denison organizational model and its corresponding Denison Organizational Culture Survey (DOCS) do not follow a typological approach but a dimensional approach (Denison and Mishra 1995). The major difference between these two approaches is that the former tries to identify a type of culture, while the latter focuses on describing a culture (Cai 2008). As in the CVF, the framework for the model developed my Denison and Mishra consists of two underlying continuums: (a) the extent to which the organizational environment demands flexibility or stability and (b) the extent to which the strategic focus of the organization is internal or external. Together, these two continuums form four quadrants, each representing a distinct cultural trait and its respective four subdimensions (Denison and Mishra 1995): • Adaptability (flexibility and external focus): the degree to which an organization has the ability to perceive and respond to the environment, customers, and changed structure and behaviors. The dimension is a product of the following three subdimensions/indices: (a) creating change, (b) customer focus, and (c) organizational learning. • Mission (stability and external focus): the degree to which an organization has a mission that gives meaning to the work of the organizational members. The dimension is a product of the following three subdimensions: (a) strategic direction and intent, (b) goals and objectives, and (c) vision. • Consistency (stability and internal focus): the degree to which an organization has the ability to create overall shared values, systems, and processes among organizational members. The dimension is a product of the following three subdimensions: (a) coordination and integration, (b) agreement, and (c) core values. • Involvement (flexibility and internal focus): the degree to which an organization is able to create a sense of ownership and responsibility among organizational members leading to a stronger personal engagement. The dimension is a product of the following three subdimensions: (a) capability development, (b) team orientation, and (c) empowerment (Fig. 1). In the corresponding DOCS, the four cultural main traits are measured with the help of a 60-item questionnaire. The items/statements must be rated with the help of a five-point Likert scale and are organized by the 12 representing subdimensions/ indices as shown in the Denison model. For a direct comparison, Fig. 2 shows the CVF framework by Quinn and Rohrbaugh, the typology of different organizational cultures (bold) by Quinn and Cameron, and the Denison model (italic) by Denison and Mishra.

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Flexibility and Discretion Flexibility Focus

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Fig. 1 Typology of organizational culture (bold) by Quinn and Rohrbaugh (1983) and the Denison model (italic) by Denison and Mishra (1995)

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Organizational culture dimensions ranked by their capability to boost innovation I. Adaptability r̄ = .31

+ Strong focus on creating change, organizational learning and the needs of customers support creativity and innovation

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+ Group and team work encourages creativity and innovation − Strong cohesion fosters groupthink and sealing off to the external world

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− Focus on internal stability. Detailed procedures, rules and hierarchy decrease organizational creativity and innovation capability

Fig. 2 Innovation ranking based on the results of Bueschgens et al. (2013). r weighted mean correlation

Competing Values Framework and Innovation In a meta-analytic review conducted by Bueschgens et al. (2013), the competing values framework was used to research the culture-innovation relationship. A literature research was conducted, and 129 studies were selected according to three criteria: Firstly, the level of analysis had to be the organization for innovativeness, culture, and climate. Secondly, measurement scales either asked for cultural values or perception of the work environment. Thirdly, the zero-order correlations of the relevant variables were needed. As not all studies published the zero-order correlations, the authors of such articles were contacted. In a next step, the cultural variables of each study were grouped according to the CVF. Figure 2 shows the weighted mean correlation results of their study. The results of the study indicated that adhocracy cultures (adaptability) are most likely to be innovative. Hierarchy cultures (consistency) on the other hand showed a

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negative correlation with innovation. Regarding clan cultures (involvement) and market culture (mission), the relationships with innovation were positive but weaker than in adhocracy cultures (adaptability). Clan cultures (involvement) are supportive cultures to their employees which most likely increase the development of new ideas by providing a feeling of psychological safety. However, a strong cohesion of employees in an organization might foster groupthink, which can hinder the development of new ideas. Regarding market culture (mission), the strong external focus implies openness to information and new ideas from outside. At the same time, the importance of planning and goal setting may lead to less experimentation and creativity (Bueschgens et al. 2013).

Competing Values Framework–Based Studies in the PRC While Denison together with Xin, Guidroz, and Zhang (2011) contributed a book chapter regarding Chinese corporate culture, they did not make use of the Denison model or based their analysis on the CVF. Instead, they followed a qualitative approach and identified the respective cultural traits of 15 different companies based on public source documents published in English and Chinese. However, there are several empirical studies regarding corporate culture in the PRC based on the CVF which will be discussed in more detail. An overview regarding these studies is presented in Fig. 3. As several studies used their own adapted terminology, the denomination used by Denison (adaptability, mission, involvement, and consistency) will be added in brackets for clarity. One of the first studies based on the CVF was published by Lao and Ngo, who conducted a self-developed mail survey among former MBA students in management positions in companies of Hong Kong, PRC, US, or British origins operating in Hong Kong (Lao and Ngo 1996). Their results indicate that Hong Kong companies were more developmental (adaptability), British companies were more hierarchical (consistency), and US companies were both developmental (adaptability) and rational (mission), whereas PRC companies were stronger and group oriented (involvement) in nature. With reference to Hofstede, Lao and Ngo (1996) argue that their results can be explained by the strong collectivistic and low masculine (assertive) orientation in PRC’s national culture.

Organizational Culture Assessment Instrument–Based Studies With respect to PRC’s internal national cultural heterogeneity, Deshpande and Farley (2003) conducted a qualitative empirical study based on the OCAI, comparing organizational cultures and personal values of managers of business to business companies in six different Chinese cities (Beijing, Tianjin, Shanghai, Wuxi, Guangzhou, and Shenzhen) and four kind of ownership types (state-owned enterprises, joint ventures, wholly owned foreign subsidiaries, and village-based enterprises). They found that regardless of city or ownership type, the cultural trait bureaucracy (consistency) was a major characteristic of all organizations. It is worth of note that

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CVF Results – Overall Ranking Authors Lao & Ngo 1996 Deshpande & Farley 2003 Mobley, Wang & Fang 2005 Ralston, Terpstra-Tong, Terpstra, Wang & Egri 2006 Liu, Zhang & Leung 2006

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Fig. 3 CVF approach–based studies regarding organizational culture in China. CVF, competing values framework; OCAI, organizational culture assessment instrument; DOCS, Denison Organizational Culture Survey; SOE, state-owned enterprises; POE, private-owned enterprises (Chinese owned); FCB, foreign-controlled businesses

wholly owned foreign subsidiaries surprisingly showed the highest measured level of bureaucracy (consistency). Additionally, the results indicated that competitiveness (mission) in all companies was limited. Only the factor “city” had a significant impact on organizational culture, as companies based in Shanghai showed to be the most entrepreneurial (adaptability). Ralston et al. (2006) conducted a similar yet quantitative empirical study based on the OCAI with the focus on different ownership types. Impetus for their study was the Chinese government’s ambitious goal to reform state-owned enterprises in key industrial sectors and transform them into “dynamic dynamos” that will power PRC’s economy in the twenty-first century. To investigate this topic, the study compared the organizational culture of state-owned enterprises with domesticowned enterprises and foreign-controlled businesses (comprising both joint ventures and wholly owned foreign subsidiaries). Altogether 435 managers participated in their study. Their overall scores indicated that the majority perceived their organizational culture type to be predominantly a clan culture (involvement), while market (mission) was the next dominant type. With regard to difference due to ownership type, the results showed that private-owned enterprises scored higher in clan (involvement) than state-owned enterprises and foreign-controlled businesses, whereas state-owned enterprises and foreign-controlled businesses score higher in market culture (mission). State-owned enterprises furthermore scored significantly

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higher in hierarchy (consistency) than private-owned enterprises. However, foreignowned enterprise scores were not significantly different. In contrast, private-owned enterprises showed to be significantly stronger in adhocracy (adaptability). Again, foreign-owned business scores were not significantly different. Another study by Liu et al. (2006) also made use of the OCAI and compared five different construction companies in Beijing, Tianjin, Langfang, Gezhouba, and Shantou. Their study is noteworthy as not only managers but also regular employees participated. Furthermore, their results indicated that regional differences actually do have an impact on organizational culture. While four out of five companies shared a similar cultural profile with a predominant hierarchy (consistency) and a strong clan (involvement) culture, the company from Shantou had a strong market (mission) culture and scored significantly lower in hierarchy (consistency). Liu et al. (2006) argue that these results might be caused due to the fact that Shantou is the only city of the sample that is located in a special economic zone during that time. Hence, the company in Shantou has had to face a more dynamic and unpredictable environment for decades, while the inland market had been relatively stable, and, therefore, the local companies focused primarily on internal procedures and rules. Organizational culture was also a variable in the study conducted by Zu et al. (2011). While the focus on the study was on total quality management and six sigma practices in 199 manufacturing companies, their classification of cultural profiles is of interest. While an overall analysis showed rational (mission) culture as strongest, followed by hierarchical (consistency), group (involvement), and lastly developmental (adaptability) culture, a cluster analysis led to a classification of four groups. The first group comprised companies with a strong emphasis on all four cultural types; the second group had a strong emphasis on both rational (mission) and hierarchical (consistency) culture but moderate emphasis on both group (involvement) and developmental (adaptability). The third group had a general moderate emphasis, and the fourth group had a general weak emphasis among all four types. The new results after cluster analysis indicated that companies with an overall strong organizational culture showed a relatively moderate emphasis on hierarchical (consistency) culture but emphasized strongly on group (involvement) and developmental (adaptability) culture. In contrast, companies with a general moderate or weak organizational culture showed a very strong emphasis on hierarchical (consistency) culture.

Denison Organizational Culture Survey–Based Studies While Denison himself did not publish any empirical results regarding organizational culture in Chinese companies, he supported Mobley et al. (2005) who used the DOCS in several organizations in the PRC and published their findings in the alumni magazine of the China Europe International Business School (CEIBS). Unfortunately, their article was not an academic paper and lacked a research goal. However, their results still provide an interesting insight in six very different Chinese companies, of which some faced serious challenges or fundamental changes. Due to this

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deliberate selection of companies with their own unique problems and challenges, the representativeness is of course limited. Yet notably, some similarities can be observed. Perhaps the most striking one is that in all companies – with the exception of one company, which scored similarly strong in all dimensions – mission was the most developed. Another interesting phenomenon is the low development of the dimension involvement in all companies. Additionally, it is worth mentioning that among the subdimensions of involvement, another interesting pattern can be observed. While all companies scored low in the subdimensions empowerment and capability development, the results for the subdimension team orientation were consistently high. A study by Li et al. (2013) on the impact of organizational culture on knowledge management in PRC’s commercial banking industry made use of the DOCS as well. They investigated 18 banks in Central China yet only included managerial staff (33 participants) into their sample. Similar to Mobley, Wang, and Fang’s case studies results, the dimension mission also scored strongest among all companies. However, in contrast to Mobley, Wang, and Fang findings, the dimension involvement scored very high, showing a consistent pattern of high scores among the subdimensions empowerment, capability development, and team orientation. The results of the comparison shown in Fig. 3 indicate that organizational cultures in China were directly influenced by the opening of the Chinese market. Whereas, in the mid-1990s toward the early 2000s, companies still focused dominantly both on an innovation and consistency; in the later years, this focus shifted toward a strong market orientation (mission). While the results of Liu et al. (2006) seem to contradict this trend on a first glance, it is worth noting that out of the five researched companies, only one was located in a special economic zone. However, this company located in a special economic zone scored highest in the dimension mission. Regarding adaptability the results indicate that Chinese companies do not tend to embrace a flexible and innovation-focused approach. In the most recent studies, these dimensions scored the lowest. Only in the 2003 study conducted by Deshpande and Farley, adaptability was ranked second. Here it is important to stress out that the companies which scored high in the dimensions were mostly located in a booming Shanghai. In conclusion it can be said that Chinese companies are mainly market oriented (mission) in their cultures, while hierarchy (consistency) and the importance of group work (involvement) still play a defining role, whereas adaptability to change and external flexibility (adaptability) and therefore a strong focus on innovation seem still mostly neglected in Chinese company cultures.

Discussion and Conclusion The competing values framework developed by Quinn and Rohrbaugh (1983) focuses on three dimensions of organizational culture which build the foundation of organizational effectiveness: flexibility versus stability, internal versus external orientation, and means versus ends. Based on this framework, two assessment instruments for organizational culture were developed. One is the qualitative

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organizational culture assessment instrument, which chooses a typological approach (Cameron and Quinn 2006), and the other one the quantitative Denison Organizational Culture Survey, which is based on 4 main dimensions and 12 subdimensions (Denison et al. 2004). The main similarity of both assessment instruments is the focus on two dimensions of the competing values framework: flexibility versus stability and internal versus external orientation. The combination of those two dimensions allows to differentiate between a flexible and external focus (adaptability), where innovation, entrepreneurship, and creativity are highly valued; a stable and external focus (mission), which puts emphasis on market orientation, strategies, and plans; a flexible and internal focus (involvement), with a strong employee orientation; and a stable and internal focus (consistency), where systems and regulations are considered to be of utmost importance. Bueschgens et al. (2013) conducted a study based on the competing values framework to research the culture-innovation relationship. Their results show a strong positive relation between innovation and the adaptability dimensions, significantly weaker positive relations between innovation and involvement and mission dimensions, and a negative relation between innovation and the consistency innovation. According to the studies discussed above, two trends can be observed. Firstly, the dimension adaptability is increasingly neglected and the least developed dimension in more recent studies. This might be the main reason why Chinese companies have not reached their full potential regarding innovation yet. Interestingly, Hofstede, Hofstede, and Minkov (2010) placed the PRC at the very top of their ranking with an extraordinary high index of 118/120 regarding long-term (pragmatic) orientation. Societies with a strong pragmatic (long-term) orientation show perseverance for achieving long-term goals and easily adapt traditions to new conditions (Tajaddini and Gholipour 2017), which should increase adaptability. Elkin, Cone, and Liao (2009) stress out in their work on Chinese pragmatism and learning organizations that Chinese companies try to change the organization to the environment instead of trying to change the environment. Furthermore, the authors argue that Chinese companies show a preference for aesthetic order (emphasis on balance, harmony, and relatedness) whereas Western organizations favor a rationalist idealistic approach for logical order (generality and substitutability of people and situations). These strong pragmatic, flexible and environment characteristics of Chinese culture seem to be in direct contradiction to the relatively low results regarding adaptability in various studies on Chinese corporate culture as shown above. However, Chinese culture is also defined by a strong power distance. Hofstede, Hofstede, and Minkov (2010) ranked the PRC at 10th–12th place out of 76 countries with an estimated index of 80/100. It can therefore be argued that pragmatism, flexibility, and adaptability to the external environment are traits only allowed to the top management and therefore are not highly developed aspects of the general Chinese organizational culture. Secondly, a trend toward a stronger market-orientated (mission) can be noted in China. This trend partially explains the boost in creativity and innovation in recent years. Chinese companies increasingly compete with foreign companies and learn

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from them and get new inputs for the development of own ideas (Yip and McKern 2014). Furthermore, strategic thinking in Chinese culture goes back to the very early period of Chinese civilization. One of the main inspiration for Chinese CEOs until today is The Art of War by Sun Tzu (Foo 2008). It is therefore not surprising that Chinese companies put a strong emphasis on mission and it can be expected that this will continue in the future. However, this also indicates that innovation in Chinese companies is strongly depending on the attitude of the top management. Moreover, employee orientation (involvement), which is positively related to innovation, and a tendency to rely on systems and regulations (consistency), which is negatively related, seem to be stable parts of organizational cultures in China. Explanations for those stable results regarding involvement and consistency can be found in the Chinese national culture. The cultural standards harmony, face, and Guanxi (personal relationships) strengthen the involvement dimension in Chinese organizations, whereas the cultural standards hierarchy and bureaucracy may explain the consistency focus (Moser et al. 2011). While involvement is positively related to innovation, the conflict avoidance aspect of the cultural standards harmony and face may lead to the avoidance of task conflicts which are necessary for fostering divergent thinking and information search (Farh et al. 2010). Therefore, in order to be able to expand their own innovation potential, Chinese companies should encourage task-related conflicts among their employees, reduce hierarchy and bureaucracy, and most importantly focus stronger on the development of the adaptability dimension of organizational culture.

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Contents Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Understanding the Fujianese Entrepreneurs Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Definition of Min . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Definition of Fujianese Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Definition of Fujian Business Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Does Theory Work in the Chinese Context? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 1: Chinese Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 2: Chinese Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 3: Chinese State Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 4: Large Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

The culture of Fujian business, which most scholars define as the “Fujianese Entrepreneurs Culture,” has existed for thousands of years in China. This unique spirit formed under the effect of factors such as the regional environment, economics, and traditional behaviors. In the late twentieth century, under the guidance of the national unified policy, Fujianese Entrepreneurs Culture has experienced new developments. An industrial cluster with local characteristics has been built and a group of new enterprises have sprung up in Fujian province, which has assumed the spirit of the Fujianese Entrepreneurs Culture with innovation, changes, courage, and boldness. For example, the Yong Hui supermarket has been a retail leader due to its service and innovations, Star-Net has specialized

Y. Deng (*) Department of Business Administration, Fujian Business University, Fuzhou, Fujian, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_48

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in innovation and first-class information and communications technology solutions, and Fuyao Group is known for its production of high-quality glass in China. Keywords

Fujianese Entrepreneurs Culture · Managing change · Innovation

Background The culture of Fujian business – which is known as “Min Shang Wen Hua” in Chinese and has been defined by many scholars as the “Fujianese Entrepreneurs Culture” – has a long history. The development of the Fujianese Entrepreneurs Culture has been influenced by three factors: the regional environment, economics, and traditional behaviors. The first factor is the regional environment. Fujian province is located in the southeastern part of China. It is a mountainous and maritime province, surrounded on three sides by mountains and facing the open sea on the fourth side (Fujian Provincial Intelligence Database). From the historical records of Fujian province, it is known that the Tang Dynasty was the beginning of the Fujian economic civilization, especially the era of the late Tang Dynasty. The northern region was invaded and harassed by the Liao Dynasty, the country was separated by the vassal state, the Silk Road was disturbed from time to time, and Yangzhou and Guangzhou encountered disasters frequently. Thus, it was a suitable time for Fujian to develop foreign trade. Meanwhile, the rivers, ditches, and harbor in Fuzhou were repaired and rebuilt, which integrated the development of Fuzhou, Lianjiang, and Quanzhou. The second factor is economics. Studies by Professor Suwenjing demonstrated that Fujianese entrepreneurs are practitioners of the oceanic culture in China (Suwenjing 2016). Fujianese entrepreneurs traveled around the world’s main settlements by seamanship from the Tang Dynasty through the Song Dynasty, Yuan Dynasty, Ming Dynasty, and Qing Dynasty; the vessels of Quanzhou and Fuzhou were the leaders of China and the world. According to historical records, an early voyage of Fujianese entrepreneurs was the western route: A Fujian vessel formed an intersected Southeast Asian sea route network by fixed interchanges with Vietnam, Kampuchea, Thailand, Malaysia, and Indonesia, and transferred at the harbors of Champa, Kampuchea, Patani, Old Harbour, and Bantam. At the same time, they connected routes from South Asia to West Asia by the base of Malacca, Aceh, to into the Indian Ocean. This sea route network was used in Zheng He’s voyages (1405–1431) in the South Seas as far as Africa. Fujianese entrepreneurs with modern significance appeared in the late nineteenth century during the Ming Dynasty’s fast development, through Fujian vessels at the harbors of Quanzhou and Xiamen. Fujianese entrepreneurs started large-scale global trade, using goods such as silk, chinaware, lacquerware, paper, medicine, sugar, and handiwork to exchange for foreign products such as clove, round cardamom, pepper, sandalwood, jewels, and cubilose. In the late Ming Dynasty and earlier Qing Dynasty, Fujianese

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entrepreneurs were more powerful than before, playing an important role in the commercial circles. The third factor is traditional behaviors.At the Second World Sino Merchants Investment forum, the scholar Guozhaojin advanced a new view: Being from a province of less land resources but many peoples, the people who lived in Fujian had only three ways forward – to migrate elsewhere, to study assiduously, or to go into business. Usually, business is based on overseas immigrants; most migration behavior was migrating overseas, to places where earning was easier. Oceanic civilization represented by Fujianese entrepreneurs is the most open civilization, and Fujianese entrepreneurs were the emissaries who disseminated Chinese civilization to the world. Fujianese behaviors were always characterized by the ocean, trade and business, openness, and migration.

Understanding the Fujianese Entrepreneurs Culture The Fujianese Entrepreneurs Culture can be understood from the concepts of Min, Fujianese entrepreneurs, and the culture itself, as described in the following sections.

The Definition of Min The term Min was first used in the Zhou Dynasty. Fujian was set up to be “MinZhong” county as an independent administrative unit on the Chinese territory after The First Emperor of Qin unified China in 221 BC. In the Tang Dynasty, the name Fujian appeared and has been used until now. According to the historical records, the administrative unit of Fujian has changed many times. It has nine cities ruled by Fujian Province, 14 city counties, 25 districts, and 46 county towns (include Kinmen). According to a study by Professor Suwenjing, “Min” is not only a shorter form of “Fujian” Province, but also an integrated concept of geographical position, different ethnic groups, and culture (Suwenjing 2009). Because China has a long history during which geographic orientation changed frequently, the concept of Min is defined in this book as the Fujian province.

The Definition of Fujianese Entrepreneurs What are Fujianese entrepreneurs? In a narrow sense, Fujianese entrepreneurs are the businesspeople of the Fujian province. In a wider sense, there are two main definitions in the academic circle. The first one considers that Fujianese entrepreneurs is general term for businesspeople from Fujian Province, including domestic workers from Fujian Province who live abroad. The second thought is that Fujianese entrepreneurs is a general term for businesspeople from Fujian Province who work in commodity production, commodity exchange, trade, and financing

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(Shurong 2015). The second definition includes Min and business, so most researchers and scholars are inclined to adopt this definition. We adopt the definition used in the book The Development of Fujianese Entrepreneurs (Suwenjing 2013) Fujianese entrepreneurs are either businesspeople who 1) come from Fujian Province and went into business in Fujian, 2) come from Fujian Province but went into business elsewhere, or )3 come from elsewhere but went into business in Fujian Province.

The Definition of Fujian Business Culture The culture of Fujian business is the Fujianese Entrepreneurs Culture, which has gradually formed since ancient times. Most researchers consider that the development of Fujian business started in the Tang Dynasty, blossomed in the Song and Liao Dynasties, was sustained in the Ming and Qing Dynasties, declined during the Opium War, and then was revived in contemporary times. In different periods, the culture formed in different characteristics, such as Mazu culture, diversity, Min culture, and so on. At the first World Fujianese Enterpreneurs Conference held in 2004, participants defined the spirit of Fujianese entrepreneurs as “wider-looking and changing, taking advantage of the trend; taking risks, fighting and wanting to win; being gregarious, having solidarity, being chivalrous, being just; loving China, loving hometown, repaying hometown, repaying China.” In Chinese, the quote was 32 words: “善观时变、顺势有为, 敢冒风险、爱拼会赢, 合群团结、豪侠仗义, 恋祖爱乡、回馈桑梓.”

How Does Theory Work in the Chinese Context? The research on Fujianese entrepreneurs in academia has focused on both the macro and micro levels. The main research on external support conditions for business growth is at the macro level. On the micro level, research has focused on single large enterprises, such as the Fuyao Group, Hengan International, ANTA Sports Products Limited, Yong Hui Supermarket, and Star-net. Other research has centered on early modern Fujianese entrepreneurs. Most research shows that Fujianese entrepreneurs can be analyzed in three stages according to the time course. The first stage is from the middle and late nineteenth century until the reforms and opening-up time. Most Fujianese entrepreneurs started in a simple industry in a different country across the ocean, strived to be successful, and then returned to and invested in the motherland, including Chen Jiageng, Lin Shaoliang, Hu Wenhu, Huang Shuangan, Chen Yonggli, Lin Wenjing, and Wang Yongqing. The second stage is the early reforms and opening-up time. With the spirit of the market economy and adventurousness, these entrepreneurs dug the first bucket of gold in life and grew stronger, including Huang Rulun, Cao Dewang, Xu Lianjie, Wu Huitian, Guo Hao, Lin Tengyi, Zhang Xuansong, Ding Zhizhong, Zhou Shaoxiong, and Ding Shuibo. The third stage includes individuals born in the 1970s and 1980s. They made remarkable achievements through entrepreneurship

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in the 1990s or after the new century, received higher education, engaged in hightech industrial operations with policy opportunities, as well as science and technology. This group includes Liu Dejian, Huang Senkun, and Chen Dongfeng. An in-depth study of the experiences of Fujianese entrepreneurs in different historical periods would provide an analysis of their entrepreneurial processes and characteristics, summarize their successful experiences and failures, and serve as a great reference for corporate innovation research. With the passage of time and changes in the country’s business environment, countless Fujianese entrepreneurs have fully promoted the entrepreneurial spirit and applied management skills to continuously expand their industries with the advent of the Internet and global economic integration. The specific forms of expression include the following four ways: (1) the transformation from family management to modern enterprise management system; (2) the establishment of the industrial group operation mode; (3) increasing attention to technology and brand development; and (4) increasing attention to building a strong Fujian business, realizing the synergy of resources and building industrial clusters.

Case 1: Chinese Industry Fujian Province is located in the southeastern part of China. Since 2001, it has adjusted its industrial structure and started to develop large-scale industrial clusters. Initially, electronics, machinery, and petrochemicals formed the leading industries in Fujian, and they have continued to implement the industry-leading promotion plans. In general, there are approximately 70 obvious industrial clusters in Fujian Province, which include approximately 36,000 industrial enterprises and more than 2.1 million employed people (LIAO Xin-pin 2014). These clusters are mainly concentrated in Quanzhou, Xiamen, and Fuzhou, with the emergence of the Chinese shoe city in Jinjiang, China’s casual clothing city in Shishi, China’s building materials township in Nan’an, China’s stone carving hometown in Hui’an, China’s citrus town in Yongchun, China’s wulong tea center in Anxi, and China’s craft ceramics center in Dehua, which have a large total scale, high market share, and brand awareness (Fig. 1).

Case 2: Chinese Service Yonghui Supermarket was established in 2001 as one of the first circulation enterprises in mainland China to introduce fresh agricultural products into modern supermarkets (YH supermarket). The company has been praised by the seven ministries and commissions of the State Department of the country as a model for the promotion of China’s agricultural reform. In the Internet era, it has developed five business models – YH supermarket, Bravo YH, City Life Plaza of Yonghui,

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Fig. 1 The industrial clusters of each city in Fujian province

Yonghui Micro Shop, and Super-Species – which have brought new life to retail. Its service concept and development ideas are as follows (YH supermarket): 1. Service concept: sunshine, smile, and gratitude Sunshine: Provide quality service to customers with the attitude of sunshine, care and help customers Smile: Smile when facing customers, pass on enthusiasm, reflect the corporate image, and draw closer to customers Gratitude: Be grateful, sincerely thank customers for their presence and support for the Yonghui cause 2. How to treat customers: Customers are the patrons of Yonghui, the neighbors of Yonghui Supermarkets in the community, the friends of Yonghui Supermarket, the partners of Yonghui Development, and the supporters of Yonghui. 3. How to develop in the future: Described below The first approach to future development was to launch a new business format, Super-Species, in 2017. Its core concepts are self-organizing innovation, self-

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reforming innovation, and accelerating iteration. Through a partnership system, the concept can realize this kind of entrepreneurship. The partner system treats each cabinet in the supermarket as a partner; every employee becomes an operator. Yonghui provides a platform for young people, scenarios, and business stratification to activate individuals to achieve collective innovation, promote enterprise development, and achieve common prosperity. A link with young people is established through the super-species platform to lead the consumer trends with the brand, thereby enhancing the value of the Yonghui brand as a platform entry point for Yonghui. The second approach is to expand multiple business models. While developing the YH supermarket, Bravo YH, City Life Plaza of Yonghui, Yonghui Micro Shop and Super-Species, platforms such as Yonghui Finance, Yonghui Logistics, Yonghui Food Industry, Yonghui Modern Agriculture, and Yonghui Media were also established. These platforms are committed to helping the development of all types of formats in Yonghui Supermarket, as well as to helping partners in the Chinese distribution and retail industry value chain address financial services needs in growth and development.

Case 3: Chinese State Enterprise Fujian Star Network Ruijie Communication Co., Ltd. (also known in short as “Star Network Ruijie”) was established in 1996 and is controlled by Fujian Electronic Information Group, a leading provider of enterprise-class networks, communications, terminal equipment, video application products, and system solutions (Starnet). The company adheres to the independent innovation and industry applications, and it is committed to the development of China’s information industry. In June 2010, Starnet Ruijie listed and became a public company with independent innovation to build its core competitiveness (stock code: 002396). It was named as one of China’s 500 Most Valuable Brands by World Brand Lab in 2017. As part of the country’s first batch of innovative enterprises, Star Network Ruijie forged an independent innovation system with enterprise research as the core and open cooperation. The six network communication research centers form the Star Network Ruijie Network Communication Research Institute, which has a national enterprise technology center, an academician workstation, a postdoctoral research station, an international science and technology cooperation base, and the only provincial network engineering laboratory in Fujian Province. As part of the first batch of technological innovation demonstration enterprises, Star Network Ruijie has repeatedly undertaken and been selected for the National Torch Program, the National 863 Program, and the National Nuclear High-Level Major Project, forming a large number of core technologies on the domestic and international levels. By the end of 2017, the company had a total of 2,669 patient applications. Star Network Ruijie is creating a higher value for customers and society with the core competitiveness of “Software, Hardware, and Service Trinity,” and is committed to

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becoming a first-class provider of information and communication technology application solutions.

Case 4: Large Enterprise To promote the understanding of Fujian enterprises, the Fuyao Group was selected as a more representative large-scale enterprise case to replace small and medium enterprises in the original catalog (fuyaogroup). Fuyao Group was founded in 1987 and focuses on automotive safety glass and industrial technology glass in Fuzhou, China. It has formed an “A+H” model that spans two major capital platforms domestically and abroad after being listed on the main board of the Shanghai Stock Exchange in 1993 and the Hong Kong Stock Exchange in 2015. After more than 30 years of development, Fuyao Group has established modern production bases in 16 provinces and cities in China, as well as 9 countries and regions (including the United States, Russia, Germany, Japan, and South Korea), and has established 6 design centers in China and the United States with approximately 26,000 employees around the world. Today, Fuyao Group has become the world’s largest professional supplier of automotive glass. The products are certified and selected by the world’s top automakers and major automakers, including Bentley, Mercedes-Benz, BMW, Audi, General Motors, Toyota, Volkswagen, Ford, Chrysler, and others. It provides global OEM services and complete solutions for automotive glass and has been rated as among the “Global Excellent Suppliers” by major automobile manufacturers. Fuyao Group is an active explorer and practitioner of “Industry 4.0.” In recent years, Fuyao Group has won the China Quality Award Nomination Award, Intelligent Manufacturing Demonstration Enterprise, National Innovation Demonstration Enterprise, National Enterprise Technology Center, and other innovation honors and qualifications. Cao Dewang, Chairman of Fuyao Group, continues to repay the motherland and his hometown during his commercial success. Since 1987, his personal donations have amounted to more than 11 billion yuan, and he is known as “the real first philanthropist.” In 2009, he won the Oscar of the corporate worl – the Ernst and Young Entrepreneur Global Award; in 2016, he won the Golden Phoenix Award, the highest award in the global glass industry. The jury said that “Cao Dewang led Fuyao Group to change the pattern of the world automotive glass industry.” During the 2018 Fujian Financial Services Entity Economic Development Forum at the Fuzhou Strait International Conference and Exhibition Center, Cao Dewang gave a keynote speech entitled “‛Anatta’ is Eternal.” (Fujian Financial Services Entity Economic Development Forum 2018) He proposed that the entrepreneur’s self-free realm – that is, the anatta in Buddhism – is to be “successful and selfless”; the entrepreneur’s broad mind is “no self,” he pointed out. The group began to shrink

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in 2015 by increasing research and development investments, expanding new technologies, enhancing enterprise competitiveness, and reducing costs to cope with the rise of factor costs. Thus, the asset-liability ratio was effectively controlled; in the first quarter of 2018, it was 42%.

Conclusion The Fujianese Entrepreneurs Culture has developed with the reform and opening up of China for more than 30 years, as well as on the basis of historical inheritance. Fujian enterprises have gradually formed many industrial clusters, which have developed in the service industry, information technology, manufacturing, and medicine. While promoting economic development and wealth accumulation, Fujianese entrepreneurs have also invested a large amount of money in charitable causes, promoted the construction of hometowns and countries, and explored more charitable models. Fujianese entrepreneurs are the practitioners of Chinese marine culture. The Fujianese Entrepreneurs Culture is an important part of Chinese business culture, and it is a business culture worthy of further exploration and research.

References 2018 Fujian Financial Services Entity Economic Development Forum, Cao Dewang talks about “anatta” is eternal”. 2018福建金服务实体经济发展论坛开曹德谈“成功无我” http://www. hxnews.com/,http://www.hxnews.com/news/fj/fz/201806/20/1549352.shtml Fujian Industrial Cluster. https://wenku.baidu.com/view/edb980cdb0717fd5360cdcb1.html Fujian Provincial Intelligence Database. http://www.fjsq.gov.cn/ fuyaogroup. http://www.fuyaogroup.com/about.html LIAO Xin-pin (2014) Contemporary Fujian Entrepreneurs’ Spiritual and Cultural Gene and Development Route. Journal of Fujian Commercial College (5):79–83 Liaoxinping (2006) On the Character of Fujian Business Culture. Journal of Fujian Commercial College (6):34–37 Shurong Z (2015) Research on merchants: origin, field and outlook. Southeast Acad Res (2):122–130 Star-net. http://www.star-net.cn/ Suwenjing (2009) Marine imagery in Fujian culture: on the unique contribution of Shu culture to Chinese civilization. J Fujian Inst Social (1):39–44 Suwenjing (2013) The general preface to the history of the development of Fujianese Enterpreneurs. J Stud Fujianese Entrep Cult (1):70–87 Suwenjing (2016) The construction of the Fujianese Enterpreneurs culture is advancing with the times – speech by the editorial board of the History of the Development of the Fujianese Enterpreneurs. J Stud Fujianese Entrep Cult (1):9–11 YH supermarket. http://www.yonghui.com.cn/

Part IV Managing People

Learning Orientation: Managing People in China’s Banking Industry from a Different Perspective

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Nan Ning and Jue Wang

Contents Human Resource in China’s Banking Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Learning Orientation as the Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An Empirical Study Focusing on the Effect of LO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

With the gradual open-up of China’s financial market to foreign banks and the intensity of competition in banking industry, commercial banks in China are facing with both internal and external pressure. One of the challenges has been the ability to attract, retain, and develop talent, which has required the banks to reevaluate their human resource strategies. High-performance work systems (HPWS) were proved to have positive effect on individual performance in Chinese banking industry. HPWS can motivate employees to perform much better in work contexts where there was a more positive organizational learning orientation. Keywords

Human Resource Management · High-performance Work Systems · Learning Orientation · China · Banking Industry

N. Ning (*) · J. Wang School of International Business, Southwestern University of Finance and Economics, Chengdu, China e-mail: [email protected]; [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_29

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Whether human resource practices are successful relies to a great extent on the specific economic business model (Boxall 2012). Contextualization is thus important to ensure greater insights into a business’ operations (Kim and Wright 2011). China has attracted considerable attention because of its rapid development and economic changes (Cooke 2009; Kim et al. 2010). From 2006, after China’s accession to the World Trade Organization, the financial industry gradually opened up to the world economic environment, bringing with it significant challenges to the financial sector and especially to the banking industry. With the gradual open-up of China’s financial market to foreign banks and the intensity of competition in banking industry, commercial banks in China are facing with both internal and external pressure. Under this circumstance, all aspects of work like quality, quantity, and complexity have raised new requirements for employees working in banks. Ten years of competition have led to domestic banks being confronted with many new issues, one of which has been the ability to attract, retain, and develop talent, which has required the banks to reevaluate their human resource strategies.

Human Resource in China’s Banking Industry In order to investigate the current situation in banks, a pilot interview has been conducted in several banks in China with around 40 employees including managers, middle-level employees, and ordinary employees, and the result of interview turned out that most of them announced that excessive workload, long working hours, and high requirement for job performance have made them feel uncomfortable and dissatisfied. However, another interesting thing is that for graduating students from another interview in universities of finance and economics in China, although banking is labeled with working pressure, working in banks is still very attractive. Some believe that banks can provide a well-developed platform for learning and exercising, which has positive influence for newcomers; others think that personal income is always linked with individual performance. Graduates believe that banks can provide an excellent platform for learning and training staff, which indicates, compared with other industries, that banks can be defined as learning organization where employers are willingly to provide an atmosphere and culture that is conducive to learning. In addition, another important characteristic of human resource in China’s banking industry is that most employees in the industry are from the younger, one-child policy generations (Cooke et al. 2016; Wang et al. 2014), who are better educated than the older generations, and do not have the same mind-set toward the egalitarian distribution system called “eating from the same big pot.”

Organizational Learning Orientation as the Key Change is the thing that never changes. When the external and internal environment changes, the organization need to adjust itself to meet the new requirements. March and Simon (1958) first come up with the idea about organizational learning. The

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behavior and the knowledge of an organization largely come from theories-in-use (Argyris and Schon 1978). Organizations try to facilitate learning to maximize the efficiency of market allocation and operation, which includes two aspects: internal aspect (organizational terms, politics, training programs) and external aspect (product, motivation, distribution, and pricing). Organizational learning can be used as a tool to examine whether the outcomes reach the expectation of the organization. If the outcomes reach expectation, it can be used to explain the effectiveness of the theories-inuse (Argyris and Schon 1978). Sinkula et al. (1997) first defined organizational learning orientation (LO) and believed that organizational learning orientation can be defined as a bunch of organizational values, which represent the preference of this organization in knowledge acquisition, directly or indirectly affecting the outcome of organizational learning. Organizational learning orientation also indicates the skeptical spirit, influencing the effectiveness of pre-learning. It usually takes really a long time to cultivate pre-learning spirit, and if the organization can learn and act before the competitors, it is much easier for them to get competitive advantage. In order to clearly describe the content of organizational learning orientation, Sinkula et al. (1997) had proposed three dimensions: commitment to learning, openmindedness, and shared vision. Commitment to learning is the basic attitude toward learning that organization embeds, which determines whether the organization is willing to supporting a bunch of values that encourages learning within the organization. In most cases, if the organization does not support organizational learning, learning behavior will be difficult to occur under the current circumstances (Normann 1985). Organization with high commitment to learning is more willing to explore the most fundamental cause and effect relationship within organizational behavior (Santos-Vijande 2005). What’s more, it can provide new solutions for uncertain market prospects and enhance the competitiveness in complex business environment (Wang and Wei 2005). Open-mindedness refers to long-term practice; in the process, the organization’s assumptions and beliefs keep detecting and correcting errors that prevent rigid organization behaviors (Santos-Vijande 2005). Shared vision is different from commitment to learn and open-mindedness, because it affects the direction of learning rather than the strength of learning, which helps to form motivations, commitments, and goals (Day 1991). Without the shared vision, it is difficult for the employees to clearly understand organization goals and objectives, how to measure outcomes, and ultimately where are we heading for.

An Empirical Study Focusing on the Effect of LO Based on current organizational learning theories with social cognitive framework (Bandura 1986), and an HRM framework, specifically KSAs (knowledge, skills, and abilities), motivation and effort, and opportunities to contribute (Jiang et al. 2012), the relationship between unit-level LO and individual performance and the moderating effect of unit-level LO on cross-level high-performance work systems (HPWS) – individual performance relationship in Chinese banking industry settings – were investigated.

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Data were taken from a banking industry HRM research project in Chengdu and Chongqing, two large, highly populated cities in the southwestern region of China. Southwest China is a developing region, so generally has lower income levels and a lack of high-quality talent compared to eastern China. Consequently, HRM is more challenging for banks in this region. To date, however, research has tended to focus on the developed regions in China (Cooke 2009; Cooke et al. 2016; Wang et al. 2014). These two cities were chosen because they are the main financial capital cities in the region, and because southwestern areas are covered less well in current HRM studies in China, which have generally focused on the better-developed eastern regions (Cooke 2009; Cooke et al. 2016; Wang et al. 2014). The banking industry, as a key element of the service sector, could provide valuable information about the effect of HPWS in a service industry, especially when contextualized within the developing Chinese economy (Cooke 2009; Qiao et al. 2015; Wang et al. 2014). Thirteen banks were included in the sample; the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China, China Construction Bank, the Bank of Chengdu, China Merchants Bank, the Shanghai Pudong Development Bank, China CITIC Bank, China Everbright Bank, China Minsheng Bank, the Bank of Communications, the Shenzhen Development Bank, and the Chongqing Bank. A mixed-method approach was adopted to collect data. After semi-structured interviews conducted (Wang et al. 2014), a questionnaire was designed to measure HPWS, individual performance, and LO. Hard copies of the questionnaires were distributed in 13 banks in Chengdu and Chongqing. A total of 2040 completed questionnaires were received, a response rate in excess of 65% (Wang et al. 2014; Cooke et al. 2016). As multilevel data were required, both individual-level information and work unit-level characteristics were examined. To ensure statistical power in the hierarchical linear modeling (HLM), work unit samples with less than five individual samples were rejected. This yielded a final cross-level sample of 1887 individual samples from 74 work units for the research model testing. The data showed that: (1) perceived unit-level LO were found to be significantly related to individual performance, and (2) relationship between perceived unit-level HPWS and individual performance was found to be specifically moderated by LO, indicating that strategic HRM such as HPWS can motivate employees to perform much better in work contexts where there was a more positive LO. When LO was not included, however, this relationship was not so significant. Therefore, these results are consistent with the importance of LO and HPWS. The finding about direct effect of perceived unit-level LO on individual performance contributes to the discussion of the cross-level issues. (3) This study also contributes to the evidence of a relationship between HPWS and individual performance (Boxall and Macky 2014; Ehrnrooth and Björkman 2012; Paauwe 2009). In comparison to organizational outcomes, individual performance is a more direct and immediate outcome of HPWS (Jiang et al. 2012; Ramsay et al. 2000). Our findings support mainstream research findings (Harley et al. 2007, 2010; Liao et al. 2009; Wu and Chaturvedi 2009; Zacharatos et al. 2005) as this study revealed that unit-level HPWS, as manifested by reward, training and development, performance appraisal, and employee participation, was positively related to individual in-role work performance.

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Although the HPWS–performance relationship has been seen as a universally good approach in most research, this relationship has been recognized as being contingent on specific organizational settings or environments (Takeuchi et al. 2007). To determine possible enhancements to the effect of HPWS, the contingency perspective is a meaningful approach for the exploration of the internal mechanisms (Batt 2002). Many employees in the Chinese banking industry are young, well-educated people from the one-child policy generations (Cooke et al. 2016; Wang et al. 2014), so are knowledge workers with different learning and cognitive styles to those of the older generations. From the KSAs’ perspective (Jiang et al. 2012), training and development practices are crucial to employee performance. Training and development can improve human capital, which in turn leads to improved employee performance (Liao et al. 2009). Performance appraisal and reward practices, which also often refer to the specific KSAs required for achievement, are therefore very important channels for information about the organization’s performance expectations (Ehrnrooth and Björkman 2012), and a commitment to learning could be related to the importance an organization attaches to learning. The more an organization values learning, the greater is the potential for cultivating a learning climate (Sinkula et al. 1997). As LO is part of an organization’s culture (Hult et al. 2004), a strong commitment to learning through training and development (Baker and Sinkula 1999) can foster a positive learning climate, enhance performance, and improve the organizational climate (Matteson and Ivancevich 1979). Tharenou et al. (2007) found training had a positive effect on HR outcomes and organizational performance but had a limited effect on financial outcomes. Sustainable organizational learning and improvement are crucial for organizational competitiveness (Salas and CannonBowers 2001) and are especially important for the continuous improvement in employee KSAs (Combs et al. 2006). With a higher LO, employee training and development can be prioritized through greater investment (Kraiger et al. 2004), meaning that individual performance can be improved through training and development in firm-specific knowledge. LO can thus strengthen the positive effects of employee training and development on individual performance (Jiang et al. 2012). From a motivational and effort perspective, motivating employees to contribute to the common goal shared within the organization is important (Jiang et al. 2012). In contrast to practices that focus on skills development, relational coordination requires more cooperation between employees with different organizational roles. For example, Gittell et al. (2010) found that HPWS had a positive effect on the relational coordination strength between people with different functions in a hospital and had a role in improving patient service efficiency and quality. Therefore, it is important that performance appraisal and reward practices fit the organizational context and are consistent with its goals. A shared vision may create a climate within which employees may more easily be motivated and achieve goals (Sinkula et al. 1997). Cross-departmental communication within an organization often suffers from a lack of coordination, resulting in barriers to information-sharing. A shared vision can assist in coordinating the different departmental interests and assist employees in

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becoming aware of the organizational expectations in terms of what they need to learn, thereby improving the quality of learning. A shared vision can increase consultation and communication between the various departments and even between managers and employees, as people will feel less isolated and have better interpersonal relationships. Further, with a shared vision, employees are more optimistic about the future. In such an environment, HPWS may have stronger effect on employee individual performance. Employee participation practices are vital if employees are to be given an opportunity to contribute (Jiang et al. 2012). HPWS that include training appraisals, rewards, and empowerment can strengthen workplace engagement and positively influence customer service (Karatepe 2013). Job embeddedness can also function as a full mediator of this relationship (Karatepe and Vatankhah 2014). Therefore, the working environment and opportunity play an important role in individual performance. Open-mindedness refers to a willingness to challenge an organization’s daily routines, norms, and values, and to be open to new information and ideas (Sinkula et al. 1997). Generally, LO has been found to be positively related to innovation in a direct or mediated way, and open-mindedness can have a strong positive effect on innovative thinking (Calantone et al. 2002; Gong et al. 2009; Hult et al. 2004; Nasution et al. 2011; Rhee et al. 2010). Open-mindedness can assist employees to adapt to sudden reorganizations or unexpected changes in work schedules, change their perspective about their work, and possibly strengthen their satisfaction with the organization’s management style. Therefore, open-mindedness can result in stronger work engagement and commitment, which can in turn enhance employees’ opportunity to contribute (Jiang et al. 2012). In conclusion, all three LO aspects play important roles in enhancing positive HPWS-individual performance relationships.

Conclusion The findings highlight several practical management implications for effective LO and HPWS adoption in service organizations with knowledge workers. The findings showed that after considering the control variables, LO accounted for 26.63% of additional between-group variance for individual performance. Therefore, organizations may achieve their desired individual performances by enhancing LO such as increasing the commitment to learning, promoting common goals within the organization, and encouraging employees to be open-minded. These findings also provide concrete suggestions of ways to enhance the positive effect of HPWS practices in these organizations. The findings showed that the moderating mechanism helped to explain 12.3% of between-group variance for individual performance. This result suggests that a commitment to learning requires a universal sharing of the organizational vision, which would then encourage employees to “think outside the box” in order to increase their open-mindedness. These factors could allow organizations to develop better LO and, in turn, realize great returns from the adoption of HPWS.

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Occupational Embeddedness and the Innovational Performance of Knowledge Employees in China

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Jingtao Fu

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background of the Occupational Embeddedness Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Occupational Embeddedness Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupational Embeddedness in the Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 1: Chinese Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 2: A Chinese Service Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 3: Chinese State Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 4: Small and Medium Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion: How China Differs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

This chapter examines the relationship between occupational embeddedness and the innovational performance of knowledge employees in China. According to an old Chinese proverb, “A person who moves keeps living.” That is to say, people in China can find better opportunities for development by moving along with their social capital or competitive advantage. The reasons for this are associated with China’s rate of development and increased inequities in the Chinese Economic Reform era, which are now similar to those in Western countries. Keywords

Occupational embeddedness · Innovational performance · Knowledge employees

J. Fu (*) Hainan University, Haikou, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_30

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Introduction The phenomenon of movement has occurred frequently in China’s history. Some famous cases include moving from the three northeast provinces out of the Pass, moving from Shanxi through the Western Pass, and moving to the South China Sea, such as to the Philippines, Malaysia, or Indonesia. In contemporary China, fluid movement has been happening between the interior and coastal regions since the Chinese Economic Reform era. For example, millions of people have moved to Guangdong province and Shanghai from Sichuan, Hunan, and Henan provinces. A passenger transport statistic reported from the Chinese New Year in 2016 also tells part of the story of fluid movement: The astronomical number of passenger trips approached 28 billion. Even if the short-distance passengers are excluded, 1 billion people took round trips between their places of birth and their current cities of residence.

Overview of the Chapter This chapter is composed of eight parts, which discuss the background of the occupational embeddedness theory, the meaning and key points of the theory, the effects on the innovational performances of knowledge employees, and its mechanisms in a Chinese context, followed by four cases in the fields of industry, service, Chinese State Enterprise (CSE) and small and medium enterprises (SME). The final section provides some suggestions for future research on this theme (Table 1).

Background of the Occupational Embeddedness Theory Mitchell et al. (2001) proposed the new concept of job embeddedness based on the fact that people are embedded in society along with work and life. The concept emphasizes the reasons that people choose to resign from job embeddedness (JE), Table 1 The diagram of this chapter

The move of knowledge employee

The destroyed for work embeddedness

The importance of occupational embeddedness

Case analysis of four different fields

Innovational performance

Employee engagement

Conclusions

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including job fit, link, and sacrifice in leaving the present job. That is to say, when JE occurs for deeply personal reasons, there are more attracting forces that cause one to remain at that job; this is similar to personal social capital (Feldman and Ng 2007). In the social capital theory, a person with more social capital will have more motivation to pursue pro-social behavior, while also curbing anti-social behavior. Initially, the theory of JE was used to explain retaining behavior or intentions (Ng and Feldman 2010). Because JE can also reflect social capital, it can be used to predict pro-social behavior, which can expand the field of retaining to innovative or organizational citizen behavior (Wang et al. 2015).

The Occupational Embeddedness Theory The first theory of JE originated from a person’s embeddedness in an organization and community in a low-mobility society (Feldman and Ng 2007). However, when employees choose to move out of their former communities or the life cycle of an enterprise is shortened, more and more employees will have to choose to move to a new location. However, some employees may remain in the same occupation across the lifespan or at least in the long term. An employee also may change organizations but remain in the same occupation. Thus, scholars have shifted the emphasis of the theory from retaining employees in a specific organization to retaining employees in a specific occupation, which can also consider social welfare (Zhang et al. 2012). An employee may embed in a specific occupation to gain more security in employment and labor contracts. According to Feldman et al. (2002), a high degree of occupational embeddedness is vital to cause knowledge employees to perform specific activities with regularly, as well as to improve their work performance. The concept of occupational embeddedness (OE) is composed of three elements—fit, link, and sacrifice, which are based on the level of occupation (Ng and Feldman 2007). A high degree of link means that a person is connected with professional organizations or peers, which will supply knowledge sharing or information exchange (Fong and Wong 2015). A high degree of fit means that a person feels that his or her skills or capabilities are compatible with the occupation and embody its merits. Finally, with a high degree of sacrifice, a person feels that it would be costly to leave his or her present occupation; thus, the employee chooses to remain in the present occupation (Chua et al. 2011). In conclusion, a high degree of fit, link, and sacrifice for embeddedness in a specific occupation mean that more resources, information, security, and restrictions effect pro-social behavior (Ng and Feldman 2009).

Occupational Embeddedness in the Chinese Context As is well known, Chinese society has experienced great change. The opportunities for knowledge employees are unequally distributed across the country, with more jobs available in southeast China and large cities such as Shanghai and Shenzhen.

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Therefore, many knowledge employees who graduated from universities or colleges in northwest and central China have chosen to leave their former community for these large cities. As more employers become non-state-owned, private enterprises, the job lifecycle has shortened; thus, many employees are expected to resign from their organizations (voluntarily or not). A person who has a high degree of OE will have more social capital and pursue pro-social behaviors, such as engagement, as well as innovation behaviors. If a person has high degree of link to a specific occupation, he or she will mobilize or use more resources because the person knows more people as to has Mianzi in China, which is a type of value resource or advantage. A high degree of fit to a specific occupation will promote attachment to the present occupation and cause the person to value the pursuit of excellent performance, because Chinese people place emphasis on reciprocity mechanis with automatic (Zenasni and Lubart 2011). A high degree of sacrifice in leaving the present occupation will cause a person to choose to remain in the present occupation and evaluate the present occupation with a high degree of work security, which is valued by many Chinese people. In other words, a high degree of OE can cause engagement. OE is associated with conditions for engagement through resource approaches, job security, and meaning, which are the preconditions for pursuing innovational performance because persistence and effort are necessary (Cheng 2014).

Case 1: Chinese Industry In recent years, Chinese media have promoted the artisan spirit, which is to say that employees who are engaged in a particular occupation for a long time never leave it. The reasons for this include that they prefer the occupation, are interested in spending much time on it, and wish to pursue it to an expert level; therefore, they will success in new methods to resolving problems. These employees are embedded in a specific occupation to high degree. One well-respected company in the telecom industry is the Honor Company, which is famous for its giant employee bonuses (averaging 180,000 Yuan per person). One of its features is its emphasis on the real performance and loyalty to the employer. The company has designed a unique salary structure that rewards OE; if the employee continues to learn and enhance his or her work by innovation, the company will provide support. Therefore the Honor Company supplies all employees with conditions to promote OE by encouraging all employees to gain and share knowledge and collaborate with others. At the Honor Company, the employee is given adequate resources to generate and experiment with new ideas and solutions by collaborating with peers, which represents the link dimension of OE. Furthermore, employees feel the company culture encourages them to explore new ideas and solutions because the company has given them mentors, opportunities, resources, and rewards. The Honor Company also values on-the-job performance over education degrees; thus, more employees appreciate the culture of the company, which can promote OE in the fit dimension.

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The leader of the Honor Company emphasizes employee loyalty and believes the company should value employees who really like the occupation. The company offers rewards on a grand scale; thus, employees appreciate the compensation for their work and do not change occupations. One of the star employees of Honor Company, Yan-woo Xu, has a low level of education but has persisted in this occupation by exerting enormous efforts to enhance his skills and become greatly successful.

Case 2: A Chinese Service Example Tourism service is the most important industry in Hainan and Yunnan provinces. According to data from the Bureau of Statistics (2015), the revenue from tourism in 2014 approached 48.5 billion Yuan, with the total gross domestic product of Hainan province in 2014 being 350 billion Yuan; thus, the revenue from tourism accounted for 13.8%, which is a significant number. However, tourism in Hainan is often portrayed negatively in the news, including stories of cheating visitors in shops and restaurants, especially in price or quality. There could be many reasons why tourist guides do those things, but some may be explained by the theory of occupation embeddedness. For example, consider the fit dimension. Many tourist guides do not have a strongly rooted belief in servicing others. They may view the occupation as a temporary one and may even have been disgraced by their friends or neighbors. Thus, the job is just seen as a method of earning money to live, without much sense of commitment. In considering the link dimension, although the government has organized tourism companies, tourism guides and non-government organizations have established ways to intimidate their associates and competitors. There have been efforts to regulate the behavior of tourism guides. However, these mechanisms have not been fully implemented. An association of tourism guides has not had a deep effect on the tourism guides because regulations from the association are lacking. Therefore, tourism guides have no incentives to engage in professional behavior. The final aspect is the sacrifice dimension. Although the tourism service industry is involved with visitors, airports, and hospitality with a seemingly bright future, the salary is low for most tourism guides and the job security is even lower. Therefore, most employees do not work as tourism guides for the long term, often changing their occupations. The weak OE means that high social capital cannot be cultivated in this occupation, with workers choosing to engage in anti-social behaviors and not pursuing innovation behavior.

Case 3: Chinese State Enterprises The present Chinese government has established many Chinese State Enterprises (CSEs) to execute a planning economy along with the former Soviet countries. In the post-Mao era, the CSEs have diminished. However, approximately 1 million employees are employed by CSEs, and most of them are knowledge workers.

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As to the effect of OE on innovation performance, the outcome is complex and also depends on organizational embedded. In the fit dimension, some employee feel unable to adapt to a culture that emphasizes discipline and hierarchy, which curb their motivation to pursue innovation performance. In the link dimension, some CSEs or specific organizations supply their knowledge employees with opportunities to collaborate with peers, such as attending conferences and forums, which is vital to pursuing innovation performance. In the sacrifice dimension, CSEs have designed salaries to emphasize seniority; thus, some workers will feel comfortable and choose to remain in their occupation and organization. Therefore, this high level of job embeddedness may have negative effects on innovation performance for individuals who lack achievement motivation (Anderson et al. 2004). However, other workers will choose to pursue innovation performance, because they appreciate the high job security and lack the fear of unemployment, which is driven by high achievement motivation.

Case 4: Small and Medium Enterprises As more people are choosing to pursue dreams of wealth and social status, they may seek employment with SMEs. SMEs have many different features than CSEs, which can influence the OE of the employees and thus its effects on innovation performance. In the fit dimension, an SME emphasizes competitiveness and prefers to design salary with much flexibility for hierarchy. Therefore, some individuals who prefer equity will feel uncomfortable and will choose to stay only for a short time, without motivation to pursue innovational performance. However, a person who prefers a challenging work environment will feel comfortable and may devote more energy to pursuing innovational performance. In the link dimension, a person with high achievement motivation will choose to collaborate with peers or discuss their new ideas or solutions with others. However, an SME may not be able to supply them with enough opportunities to learn from or collaborate with peers. Finally, in the sacrifice dimension, in contrast to CSEs, the employee will feel that leaving the organization is less costly. However, if the occupation has bright prospects, the employee may change employers but not occupations; thus, the difference of sacrifice will depend on the prospect. If the occupation has bright prospects, the employee will feel that it is valuable to exert more energy to pursuing innovational performance because they can take success in the occupation to any employer (Gong et al. 2013).

Conclusion: How China Differs China differs in several ways. First, Chinese people do not value service for others or self-regulation. Thus, to enhance occupational embeddedness, especially in the valuable link dimension, the power of professional associations should be strengthened to allow the regulation and support of employees in pursuing innovation

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performance, including knowledge sharing, group learning, and professional reputation campaigns. Secondly, the organization embeddedness between CSEs and SMEs should be reconciled. CSEs have a supply of employees with excessive embeddedness, whereas SMEs have inadequate embeddedness, which will destroy the conditions for pursuing innovational performance. In CSEs, it is easy for employees to lose the drive to expand or strengthen collaboration with peers or continuing education; however, SME employees may feel insecurity or a lack of prospects for pursuing innovation performance in a perceived short-term position.

References Anderson N, De Dreu CKW, Nijstad BA (2004) The re-utilization of innovation research: a constructively critical review of the state of the science. J Organ Behav 25(2):147–173 Cheng CY (2014) A longitudinal study of newcomer job embeddedness and sales outcomes for life insurance salespersons. J Bus Res 67(7):1430–1438 Chua RJ, Morris MW, Ingram P (2011) Embeddedness and new idea discussion in professional networks: the mediating role of affect-based trust. J Creat 44(2):85–104 Feldman DC, Ng TWH (2007) Career mobility, career embeddedness, and career success. J Manag 33(3):350–377 Feldman DC, Leana CR, Bolino MC (2002) Underemployment and relative deprivation among re‐employed executives. J Occup Organ Psychol 75(4):453–471 Fong W, Wong S (2015) Managers versus co-workers as referents: comparing social influence effects on within- and outside-subsidiary knowledge sharing. Organ Behav Hum Decis Process 126(7):1–17 Gong Y, Zhou J, Chang S (2013) Core knowledge creativity and firm performance: the moderating role of riskiness orientation, firm size and realized absorptive capacity. Pers Psychol 66(2):443–482 Mitchell TR, Holtom BC, Lee TE et al (2001) Why people stay: using job embeddedness to predict voluntary turnover. Acad Manag J 44(2):1102–1121 Ng TWH, Feldman DC (2007) Organizational embeddedness and occupational embeddedness across career stages. J Vocat Behav 70(2):336–351 Ng TWH, Feldman DC (2009) Occupational embeddedness and job performance. J Organ Behav 30(2):863–891 Ng TWH, Feldman DC (2010) The impact of job embeddedness on innovative-related behaviors. Hum Resour Manag 49(6):1067–1087 The Bureau of Statistics data. China Statistical Yearbook (2015) Beijing, China Statistics Press Wang X, Fang Y, Qureshi I et al (2015) Understanding employee innovative behavior: integrating the social network and leader-member exchange perspectives. J Organ Behav 36(1):403–420 Zenasni F, Lubart T (2011) Pleasantness of creative tasks and creative performance. Think Skills Creat 6(1):49–56 Zhang M, Fried DD, Griffith RW (2012) A review of job embeddedness: conceptual, measurement issues, and directions for future research. Hum Resour Manag Rev 22(3):220–231

Ensuring Organizational Justice: Cases from Chinese State-Owned Enterprises

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Donghong Cai and Xiang Yu Li

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Up to Eight Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Background to your Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explaining Clearly Your Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Theory Works in Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 1: Example of Distributive Justice in Dongfeng Automobile Company . . . . . . . . . . . . . Case 2: Example of Procedural Justice in Sinopec Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case 3: Example of Interpersonal Justice in Hebei Pharmaceutical Factory . . . . . . . . . . . . . . . Case 4: Example of Information Justice in Nanjing Ocean Shipping Company . . . . . . . . . . . Other Issue Related to Your Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

With the diversification of social values, people also had different understanding of a sense of fairness, especially in China. The authors describe organizational justice management system safeguarding Chinese state-owned enterprises to obtain talents, motivating talents, and retain talents.

D. Cai (*) Hainan University, Haikou, China e-mail: [email protected] X. Y. Li Hainan University, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_31

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Keywords

Organizational justice · Chinese State-Owned Enterprises · Distributive justice · Procedural justice · Interpersonal justice · Information justice

Introduction With high-speed development of Chinese economy in recent years, Chinese stateowned enterprises have made great achievements of reform while facing more challenges and opportunities. Employees have different sense of fairness because of social values diversification. Organizational justice management system is the basic safeguarding of Chinese state-owned enterprises in order to obtain, motivate, and retain talents. Organizational justice is a fair feeling of people within the organization towards the organizational system related to the interests of the individuals, policies, and measures. The chapter expounds the current situation of China’s state-owned enterprises based on organizational justice such as distributive justice, procedural justice, interpersonal justice, and information justice and how to ensure organizational justice.

Overview

Distributive justice

Procedural justice

Organizational justice

Interpersonal justice

Informational justice

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Up to Eight Issues The Background to your Theory At present, the reform of Chinese state-owned enterprises have made remarkable achievements, but state-owned enterprises still has some problems in the aspect of organizational justice. Numerous studies have demonstrated that the organization takes steps to make employees feel fair, at the same time, employees will naturally identity with the organization’s action, be willing to put in more effort to work, internalize their own values to the organization’s values, keep their goals consistent with organizational goal, and show the behavior to benefit the organization.

Explaining Clearly Your Theory The four factors of organizational justice are distributive justice, procedural justice, interpersonal justice, and information justice. Fairness of distribution is a perception of the individual’s reward, which is based on a standard of the final evaluation of the distribution of the results. Procedural justice mainly influence variables related to the organization, such as the sense of organization honor, sense of belonging, loyalty, and even behavior of job searching. Interpersonal fair is also known as social fairness. People feel the quality of the relationship between individuals. Individual attention is focused on the way to be treated in the process of implementation. Information justice refers to whether the information that enterprises convey should be know to parties or not. In another words, they should provide parties with some explanation in a specific way.

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How Theory Works in Chinese Context Western research on organizational justice is mostly based on the distribution of the material resources fairly. They focus more on individual in the relationship based on the principle of fair exchange. They advocate the individualism of western individual and pay more attention to superiors respect in the communication. However, Chinese culture emphasizes family atmosphere, pays more attention to harmony, and encourages team spirit in order to keep social relationship stable for a long time and pursue a sense of security, warmth, and the sense of belonging. Moreover, Chinese culture has the high power distance and tends to avoid uncertain situation, respect for authority, and have collectivism tendency. Thus, in the process of research, we think, due to the particularity of Chinese culture, state-owned enterprises need to make special management decision according to the special Chinese organization relationship.

Case 1: Example of Distributive Justice in Dongfeng Automobile Company Dongfeng automobile company located in Wuhan is among the four biggest car groups in China. Main business covers the full range of commercial and passenger vehicles, engines, parts, and automation level. Dongfeng automobile company’s existing total assets amount to 73.25 billion yuan with124000 employees. In August 2016, Dongfeng automobile company ranked 16th in China’s top 500 enterprises, and Dongfeng automobile company promotes EVA (economic value added) concept since 2001. In the second half of 2002, Dongfeng automobile company started implementation of the EVA salary reform. It reported that the EVA salary reform of Dongfeng automobile company has been declared “suspended” in December 2002. One reason is the distributive injustice of compensation reform. From the result of EVA of Dongfeng automobile company, compensation reform involving the interests of every enterprise plays a very important role in the reform of state-owned enterprises. It not only needed to ensure the effectiveness of the compensation incentive after the reform, it also needed to ensure the smoothness in the process of reform. Therefore, how to guarantee fairness of compensation reform is particularly important, otherwise it may make enterprise reform costly, even resulting in the failure of the reform. Fairness of payment can be divided into external and internal fairness. On the understanding of internal fairness, staffs at different position have different opinions: mid-level managers generally accept that gap of internal pay is too small, and it cannot manifest the responsibility and contribution. While lower-level employees think the gap is too large. This suggests that salary system of Dongfeng automobile company did not reflect the principle of contribution and efficiency and does not give employee enough motivation, even resulting in breeding of egalitarianism thought. In the process of reform of Chinese state-owned enterprise like Dongfeng automobile company, how to ensure distributive justice, especially internal fairness of

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compensation? According to the author’s consulting experience in some large stateowned enterprises, in general, from the following several aspects: (1) to use the scientific method and program to evaluate the position of enterprises, determine the relative value of the position in the enterprise, and build a scientific and rational compensation system; (2) to establish perfect and effective performance management system and incentive restriction mechanisms; and (3) to deal with the mutual cohesion in the process of reform.

Case 2: Example of Procedural Justice in Sinopec Group China Petroleum & Chemical Corporation (Sinopec Group), restructuring of the petroleum and petrochemical enterprise group, ranked 31st in the global top 500 enterprises. Facing lots of problems in the procedure of performance assessment, such as the unclear evaluation standard, the lack of scientificity. So the performance appraisal of Sinopec Group cannot work effectively. These factors influence the objectivity of the assessment results and authenticity seriously. And they will inevitably cause the loss of staff. Sinopec Group explored and invested much on performance appraisal actively. The CEO of Sinopec Group thinks that perfect performance appraisal system will help them to enhance organizational justice of employees. How did Sinopec Group build the performance appraisal system? First of all, they design index system of scientific evaluation through various evaluation measures. The design of evaluation index is a core work to make their performance evaluation system. Sinopec Group thinks that the design of connotation of performance evaluation must be clear and have independence and pertinence. Evaluation index system design should follow the scientific steps: (1) to design the performance evaluation indicators database, (2) to choose different performance evaluation of the properties for different position indicators and confirm the weights of different indexes, and (3) through the analysis of performance evaluation, work out the feasible evaluation standards. In order to ensure that part, the employees need have a scientific, reasonable, and fair evaluation standard to maintain and improve their work enthusiasm. The managers of state-owned enterprises need an effective job analysis and let employees have a clear understanding to make them accept the result of evaluation in mind.

Case 3: Example of Interpersonal Justice in Hebei Pharmaceutical Factory Hebei Pharmaceutical Factory was founded in the 1950s, and it has been reformed three times in 1980, 1994, and 2004. Before restructuring, due to the support of government and the generous welfare policy of state-owned enterprise, Hebei Pharmaceutical Factory has attracted a large number of excellent technical personnel. Therefore, the company’s technical level is in a leading position. The company

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successfully developed a large number of high-tech products and applied for a series of patented technology. However, with the deepening of the reform and opening of the market system, more and more excellent foreign capital enterprise and domestic enterprises grew up. Therefore, Hebei Pharmaceutical Factory was faced with cruel and severe market competition. Sales of product dropped significantly in 1996. The newly appointed general manager of Hebei Pharmaceutical Factory, LiYaoHeng, conducted a series of reform and consolidation. He advocated a new management mode that employees take part in the management in the company. Besides, they established a platform to guarantee the effective communication between the superiors and the understrappers. It effectively ensures the interactive fair atmosphere. LiYaoHeng also established an open group meeting mode, brain storm, to encourage members to express their own view. These measures let the subordinates feel being accepted by taking part in the management in the company. Interpersonal justice makes the quality of product of Hebei Pharmaceutical Factory improve gradually. And qualified rate of product has risen steadily. When employees who work in Hebei Pharmaceutical Factory feel injustice from their leaders owning so much high power and cannot express opinions, have no opportunity to participate in decision-making, and are never respected at all, they will lose spirit facing lots of work assigned by leaders. At the same time, employees have no enthusiasm for the participation in collective activity, and most of them will choose to reduce the working time or effort. In the long run, interpersonal injustice can cause conflict among colleagues, it will also cause unharmonious enterprise atmosphere. When opinions of subordinates cannot get approval, leaders shall communicate with subordinates timely, clarify the misunderstanding, and provide the clear explanation. Leaders should let employees understand the concerns and enhance the identity of the decision in the mentality and logic. At the same time, in order to promote positive behaviors, leaders in Chinese state-owned enterprises like Hebei Pharmaceutical Factory should give subordinates more rights to be informed in the decision and let employees feel that interpersonal justice offers comfort and pleasure. State-owned enterprises should also set some standards when recruiting executives. The enterprises should focus on measuring whether applicant’s authoritarian leadership is excessive.

Case 4: Example of Information Justice in Nanjing Ocean Shipping Company Nanjing Ocean Shipping Company, providing the maritime transport services of goods, was founded in 1988. As well as other state-owned enterprises, its performance changed following the market condition. By the end of 1997, with more than $40 of the accounts receivable, the Nanjing Ocean Shipping Company has accumulated losses of 4.03 million yuan, it is in a state of dying. In April 1998, the board of directors adjusted the team of leadership. Then, the Nanjing Ocean Shipping Company made a profit of 2.03 million yuan in 1999. And the profit of Nanjing Ocean

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Shipping Company is more than four million yuan in 2000.The capital increased from 10.25 million yuan to 60 million yuan in recent years. All of us cannot explain the reason of growth of Nanjing Ocean Shipping Company. After four months of investigation, we found the real reason that the Nanjing Ocean Shipping Company achieved impressive performance is to attach importance to enhance information justice. Nanjing Ocean Shipping Company mainly took two kinds of measures: (1) business process reengineering (BPR) and (2) construction of enterprise informatization. It built the office automation as soon as possible (the auxiliary office management system or OA system). This project can avoid information asymmetry, cooperate with the implementation of organization policy, reduce the resistance of reform, and improve the enthusiasm of staff. Due to the system of many state-owned enterprises like Nanjing Ocean Shipping Company, many managers of institutions have a superiority complex. Employees cannot get enough information and propose their opinions. Eventually, it leads to information deviation, policy mistakes, and lack of competitiveness. In this case, the managers should know how to convey information, how to interpret, and how to avoid information asymmetry. Information justice plays a significant part in the management of Chinese State-owned enterprises. Improving system of employee involvement will help a lot. Employees can be involved with the formulation of organization strategy, reward system, promotion system, evaluation system, and resources allocation decision. Then, it will avoid information asymmetry effectively.

Other Issue Related to Your Theory Each theory of fairness has its own practicability and innovation, but it also has its own shortcomings. Results Equity theory enlightens managers in organizations to pay attention to employees’ personal feelings when making decisions, especially when making distribution system, so that employees can feel fair in comparison. However, the result equity theory neglects the fairness in decision-making process and in interpersonal communication. The theory of procedural fairness enlightens managers in organizations to try their best to achieve procedural fairness in decisionmaking, while ignoring the fairness of the final decision-making results and the fairness in interpersonal communication. Interactive fairness theory enlightens managers in organizations to respect and treat subordinates equally in interpersonal communication, and to convey sufficient decision-making information to subordinates, while ignoring the fairness of decision-making procedures and results.

Conclusion With the reform of state-owned enterprises and the improvement of the transformation of management, Chinese state-owned enterprises should pay more and more attention to the problem of organizational justice. Therefore, this chapter expounds the current situation of China’s state-owned enterprises based on four aspects

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respectively such as distributive justice, procedural justice, interpersonal justice, and information justice. Therefore, the participative management, construction of enterprise informatization, establishment of performance appraisal system, and compensation reform will ensure organizational justice. We hope that staff will understand better the principles, advantages and disadvantages of the system, thus cooperating more with the implementation of organization policy, reducing the resistance of reform, and improving their enthusiasm by ensuring the organizational justice. We also expect to enhance the creativity and market competitiveness of Chinese stateowned enterprises by improving the organizational justice.

Paternalistic Leadership in China

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Anguo Fu and Zhiyu Xie

Contents Background and Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background of Paternalistic Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition of Paternalistic Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dimensions of Paternalistic Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authoritative Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benevolent Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moral Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cultural Roots of Paternalistic Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Authoritative Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benevolent Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moral Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro and Contra of Paternalistic Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Paternalistic leadership has been found to be prevalent in Chinese corporate organizations and government institutions. After reviewing previous researches regarding leadership styles of Chinese corporate owners, we defined paternalistic leaderships as a leadership style demonstrating strict disciplines and absolute authority, father-like benevolence, and moral incorruptibility under a “personalistic” atmosphere. By the definition, authoritarianism, benevolence, and moral are the three components of paternalistic leadership, and each has its cultural roots. On the basis of this systematic review, we try to advance our knowledge of paternalistic leadership and point out the direction for future research. A. Fu (*) Management School, Hainan University, Haikou, China e-mail: [email protected] Z. Xie School of Labor and Human Resources, Renmin University of China, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_32

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Keywords

Paternalistic leadership · Authoritative leadership · Benevolent leadership · Moral leadership

Background and Definition Background of Paternalistic Leadership Recently, the research with regard to leadership is flourishing. Researchers had brought up many leadership theories. For example, Fielder (1964) put forth the contingency theories of leadership, which examine the relationship between a leader’s effectiveness and their leadership style and environmental suitability. Burns (1978) suggested transactional leadership and transformational leadership. The former indicates there is an exchanging action between the leader and the employee. Leaders provide tangible awards to interchange employers’ effort, where the latter mentions leaders inspire or encourage employees by means of charisma, ideal, and motivation, so that employees will have the same vision with the leader, identify with the organization, and make a huge effort. To contrast with the Western society, leadership theories in Chinese society grew up slowly until Cheng et al. (2000) proposed the three-dimensional paternalistic leadership. According to Hofstede (1980), leading is adhered to the culture; hence, the style, intention, and efficiency are divergent if the cultures are distinct. This further highlights that the utilization of leadership styles by leaders is influenced not only by personal volition but also by the impact of societal culture and values. Eastern regions, such as China, Hong Kong, and Taiwan, have distinct culture from Western countries. It is more accurate to say that Western culture emphasizes on individualism and universalism, which means that the authority within members is relatively equal in Western society. On the contrary, Eastern culture stresses on familism and paternalistic, namely, the power gap between superiors and inferiors is relatively huge (Cheng et al. 2004). Owing to the significant difference between the Western and Eastern culture – Western emphasizes on individualism and universalism; however, Eastern stresses on familism and paternalistic. Hence, if we rashly apply Western leadership theories to Oriental society, we may become “cut the feet to fit the shoes” and cannot catch the correct styles and features of Eastern leading styles. Paternalistic leadership is a particular leading style in Chinese culture. The concept of paternalistic leadership can be traced back to Silin’s study (1976). Silin interviewed many large private enterprises in Taiwan and generated a detailed statement of the leadership philosophy and behavioral styles of the managers. Silin (1976) considered leading style in Chinese organization to include moral leadership, didactic leadership, centralized authority, keeping intentions ill-defined, and implementing control tactics. Those characteristics are entirely different from the Western society. Later, Redding (1990) interviewed Chinese organization managers

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in Taiwan, Hong Kong, Singapore, and Indonesia. Through the interviews, he identified a special economic culture and managing style that is called Chinese capitalism, in which paternalism is an essential factor. Westwood (1997) claimed that Chinese culture stresses on familism, paternalistic, and compliance, while Western culture emphasizes on individualism, universalism, and social justice. He then proposed a model of paternalistic headship for Chinese family businesses.

Definition of Paternalistic Leadership The definition of paternalistic leadership has evaluated year by year. Early in 1986, VanDe Veer defined paternalistic acts as those “in which a person, A, interferes with another person, S, in order to promote S’s own good.” VanDe Veer (1986) specifically ruled out maliciousness as a motive for paternalistic acts. Several years later, paternalism was defined as a father-like leadership style in which strong authority is combined with concern and considerateness by Westwood and Chan (1992). Paternalistic managers are expected to provide support, protection, and care to their subordinates (Redding et al. 1994). Developing to more modern studies, Farh and Cheng (2000) stated that paternalism stems from Confucian ideology, which is founded on social relations, such as “benevolent leader with loyal minister” and “kind father with filial son.” These principles are derived from the cultural expectations that a leader should be benevolent to their followers. More definitions of paternalistic are stated in Table 1. After integrating past researches about Chinese leadership, Farh and Cheng (2000, 94) presented a three-dimensional paternalistic leadership concept (Fig. 1). They defined paternalistic leadership as “a style that combines strong discipline and authority with fatherly benevolence and moral integrity couched in a personalistic atmosphere.” On the basis of the definition, there are three dimensions in paternalistic leadership: authoritarianism, benevolence, and morality. Authoritarianism will lead to dependence and compliance of subordinates, while benevolence will lead to gratitude and repay of subordinates, and morality will lead to subordinates’ respects and identifications. All of the three dimensions are originating from Chinese traditions: Confucianism, Legalism, and three millennia imperial society (Farh and Cheng 2000).

Dimensions of Paternalistic Leadership Leadership in Asian countries such as Chinese is oftentimes described as paternalistic leadership. Paternalistic Leadership is a native Chinese leadership style, which is deeply rooted in China’s patriarchal tradition and in Confucianism (Farh et al. 2006). Based on an extensive review of this literature, Farh and Cheng (2000) proposed a Three Dimensional Model of Paternalistic Leadership, in which Paternalistic Leadership was defined as a type of leadership that combines strong and clear authority with concern, consideration, and elements of moral leadership. At the

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Table 1 Definitions of paternalistic leadership Authors Farh and Cheng (2000) Bing (2004) Aycan et al. (2000), Pellegrini and Scandura (2006) Aycan (2006)

Gelfand et al. (2007) Pellegrini and Scandura (2008)

Definition A style that combines strong discipline and authority with fatherly benevolence and moral integrity Boss is essentially a mutated replica of one’s original authority figure: the parent A relationship in which subordinates willingly reciprocate the care and protection of paternal authority by showing conformity In paternalistic relations, the superior, at times, is like a father, close friend, or a brother who is involved in employees’ personal lives and has the right to expect personal favor from them Paternalistic leaders guide both the professional as well as the personal lives of their subordinates in a manner resembling a parent A style that combines strong discipline and authority with fatherly benevolence

heart of the model are the three dimensions of Paternalistic Leadership (i.e., authoritarian leadership, moral leadership, and benevolent leadership) and their corresponding subordinate responses. Therefore, the phenomenon of Paternalistic Leadership is hypothesized to thrive in the context of a host of facilitative social/ cultural and organizational factors. The key social/cultural factors consist of a strong emphasis on familism and the Confucian values of respect for authority, personalism/particularism, the norm of reciprocity, interpersonal harmony, and leadership by virtuous example (Chen and Farh 2010). As much as the leadership style known as paternalistic management contains some autocratic dynamism, it comes as being a bit warm and a bit fuzzy within the precincts of its approach. In its paternal aspect, it harkens in the line of a father being firm though has good intentions in the life of one’s children, and in the business limelight the subordinates. Just like most paternal beings are, except for those dads who keep saying: “I told you,” the typical paternalistic manager most of the times explains the specific reason as to why he has taken certain actions in management and for his subordinates. He is very far from being autocratic and looks after the harmony within their team. Paternalism is a cultural characteristic, more than just being a type of leadership behavior. Moreover, it is not a concept that merely signifies the quality of a relation in terms of both parties’ responsibilities and duties (Erben and Güneser 2008). Paternalism can be analyzed with respect to the parental relations or organizational level relations. Paternalistic leadership is the prevalent leadership style in Chinese business organizations. With an approach similar to patriarchy, paternalistic leadership entails an evident and powerful authority that shows consideration for subordinates with moral leadership (Cheng et al. 2004). Paternalistic leadership has three specific dimensions, i.e., authoritarianism, benevolence, and moral leadership. While benevolence and moral leadership refer to the warm consideration of the subordinates and exhibition of moralistic leadership activities, respectively,

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Fig. 1 The preliminary model of paternalistic leadership (Farh and Cheng 2000)

authoritarianism entails a stringent control and power play in the leader-follower relationship (Chen et al. 2007).

Authoritative Leadership Authoritative leadership means that a leader stresses their unquestionable and absolute authority and that they will take rigorous control over subordinates and demand complete obedience from them. The concrete behavior that characterizes authoritarian leadership includes control and domination, underestimating the ability of subordinates, building a lofty image of the leader, and instructing subordinates in a didactic style (Cheng 1995). Farh and Cheng (2000) proposed that authoritarian leadership comes from the cultural tradition of Confucianism and Legalism. In this belief of Confucianism, the father-son relationship is the major relationship rather than other social relations. Under the father-son relationship, a father has overwhelming authority that compares to the son and other family members (Cheng et al. 2000). Similar to the Chinese business, authoritarianism refers to leaders who control and demand to subordinates absolutely; simultaneously the subordinates comply and obey by the leaders’ request without dissent (Pellegrini and Scandura 2008). Farh and Cheng (2000) considered authoritarianism consists of control and domination, to underestimate subordinate ability, to build a sublime vision for the leader, and to instruct subordinates in a didactic style. These behaviors are for the sake of making subordinates respond with compliance, fear, and sense of shame. Farh and Cheng (2000) also provided some concrete behavioral instances: The leader may be unwilling to assign, using top-down communication, information secrecy, and tight control. To react to the authoritarian leadership, subordinates’ responses are such as showing public support

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for the leader, suppressing dissent views, avoiding open opposition, absolutely accepting the leader’s commands, and showing loyalty to the leader. As distinct from the supervisory power that comes with position in the West, the power of authoritative leadership reflects the cultural characteristics of familism, paternalistic control, and submission to authority that are typical of Chinese society (Westwood 1997). However, authoritative leadership is based on the legitimacy of unequal authority and rights granted to unequal roles, with more authority and rights accorded to the superior and less to the subordinate. To be sure, Confucian authoritarianism balances greater authority and rights of the superior with greater moral, social, and economic responsibilities and obligations associated with the exercise of that authority. Theoretically, at least the Confucian conception of authoritarian leadership is tightly coupled with benevolent and moral leadership.

Benevolent Leadership Farh and Cheng (2000) devoted much attention to the social and cultural forces underlying benevolent leadership, and they concluded that benevolent leadership originates in Confucianism, which highlights mutuality in social relations. And the benevolent leadership originates from the norm of reciprocity and the Confucian paradigm of the five principal relationships, namely, “the benevolent ruler with the loyal minister, the kind father with the filial son, the righteous husband with the submissive wife, the gentle elder brother with the obedient younger brother, and the kind elder with the deferent junior” (Cheng et al. 2004: 92). According to Confucian ethics, a ruler should be benevolent to his ministers and, in turn, the ministers should be loyal to the ruler. Similarly, a father should be kind to his children and, in turn, the children should show gratitude and obedience to their father. As these Confucian principles are applied to the contemporary workplace, mutual obligations on the basis of duty fulfillment emerge. Leaders demonstrate benevolence in order to fulfill a role obligation specified by cultural consensus. In response to benevolent leadership, subordinates show respect and loyalty to their benevolent leader in completion of their role obligations. In Chinese society, there is no force to compel the superior making benevolence to the inferior, but the superior will help or support the inferior due to the concept of repay. The leader makes benevolence to the subordinate in order to receive the reciprocity from the latter. Furthermore, the subordinate will be appreciated and repay a favor to the leader. This interaction could enhance the loyalty and obedience of subordinates. In benevolent leadership, the leader displays personal, overall, and long-term concern for the well-being of subordinates. For instance, a superior might offer a great deal of financial assistance to an employee who had financial difficulties. In response to the leader’s benevolence, the employee feels indebted and would reciprocate after (Farh and Cheng 2000). When each party dutifully performs their respective role, relational harmony is maintained (Cheng et al. 2009). Moreover, Farh and Cheng argued the concept of benevolent leadership is different from the

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construct of leader consideration (Fleishman 1953; Stogdill 1974) and the supportive leadership (Bowers and Seashore 1966) which is depicted in Western leadership literature. Leader consideration means the degree a leader acts in a friendly and supportive way, displays the care for the subordinates, and pays attention to their welfare, while supportive leadership refers to a leader who accepts and concerns for the needs and feelings of subordinates (Yukl 1998). Benevolence is similar to the abovementioned conception but still has some differences. First, benevolence includes not only the work domain but also personal cares. For instance, the leader may support subordinates with familial problems. Second, benevolence is long-term oriented. The leader may continue hiring old employees even though their performance is decreasing. Third, benevolence may lead to mercy granting and protection, avoiding employees to bear critical or permanent damage. Fourth, although the leader makes benevolence to subordinates, it is based on a huge gap of power; the leader will not let subordinates forgetting who the boss is (Farh and Cheng 2000). Briefly, benevolent leadership goes beyond the work domain and is also applied to personal issues, is long-term oriented, involves the granting of grace and protection to subordinates, and is exercised in the context of strong authority so that the subordinate does not forget who is boss.

Moral Leadership The ideal thinking of Confucian is keeping the order of society. In the real world, due to the incompleteness of the law system and personalistic tradition, the general public would have expectation that superiors should have good morale and deportment. Hence, the moral leadership which leaders displayed also has a great influence toward subordinates (Farh and Cheng 2000). Leaders are obligated to set a moral example for organizational members and to determine those organizational activities which may be detrimental to the values of society in general (Aronson 2001). Leaders are recognized by subordinates as “morally” superior individuals who lead because of an overwhelming superiority (Silin 1976). This superiority is manifested in two ways: (1) through a leader’s ability to translate abstract ideas about financial and commercial success into concrete reality and (2) through a leader’s ability to reject his egocentric impulses for a higher moral good (Silin 1976). Leaders who engage in a moral response are driven by more than task accomplishment. They use virtues (e.g., prudence, honesty, and justice) throughout the decision-making process to achieve a virtuous outcome. This involves the use of goal-setting strategies to achieve a solution that serves, helps, or benefits the greater good. This typically involves a consideration of one’s peers, subordinates, the boss, their organization, and some larger entity (e.g., the constitution, taxpayers, or environment) (Sekerka et al. 2009). Moral responders have goals that go beyond self-serving interests that influence the formation of their moral judgment (Sekerka et al. 2009). Moral leadership is characterized by a higher degree of personal integrity, selfcultivation, and selflessness. A moral leader should demonstrate behavior that

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conforms to social norms and virtues to set an example to others and should demonstrate that their authority is not only for personal benefit but also for the public good (Westwood 1997). The actual behavior includes unselfishness, being upright and responsible, leading by example, and not mixing personal interests with business interests (Cheng et al. 2000). Based on a year’s observation and many interviews in a large private business in Taiwan, Silin (1976) argued the leader should show financial and commercial achievement and selfless action. Undoubtedly, selflessness is a moral goodness, but financial and commercial achievement may not be the only indicators of moral leadership in Chinese society. Redding (1990) pointed out that morale is essential in Chinese society, which includes human-heartedness, filial piety, paternalism, compromise, reasonableness, and propriety. Westwood (1997) claimed that there are two dimensions of moral leadership in Oriental culture. First, the leader should display their manner and morality in order to being the paragon of other subordinates. Second, the leader should make clear that he is concerned with the benefits of all members rather than himself. Although the above researchers do not have a consentaneous opinion about moral leadership, they all agree with the morality of leaders who lead by personal example and are scrupulous in separating public from private interests (Farh and Cheng 2000). Figure 2 is the complementarity of leader and subordinate roles, and it summarizes leader behaviors under each of the three key elements of paternalistic leadership and the corresponding subordinate responses. Under authoritarian leadership, the major types of leader behaviors include asserting authority and control, underestimating subordinate competence, building a lofty image, and acting in a didactic style. The corresponding subordinate responses include compliance, obedience, respect, fear, and shame. Leader benevolence is manifested mainly in individualized care. Its corresponding subordinate responses are gratitude and willingness to reciprocate. Leader morality and integrity are demonstrated by acting unselfishly and leading by example, which in turn inspire identification and imitation by subordinates. Sinha (1990) argues the coexistence of benevolence and authority in paternalistic leadership stems from values in traditional societies pertaining to the father figure, who is not only nurturing, caring, and dependable but also authoritative, demanding, and a strict disciplinarian. Authoritarianism refers to leader behaviors that assert authority and control, whereas benevolence refers to an individual concern for employees’ personal well-being (Farh and Cheng 2000). With Cheng et al.’s (2000) delineation of three dimensions (i.e., benevolence, authoritarianism, and morality), Cheng et al. (2000) started to examine paternalism as a multidimensional construct, studying the differential impacts of different domains on outcome variables. Research using Cheng et al.’s (2000) triad model of paternalistic leadership has exclusively been conducted in China and Taiwan. Subsequent research consistently found authoritarianism to be negatively related to the other two dimensions as well as subordinate outcomes (Cheng et al. 2000). Therefore, the negative association between paternalism and authoritarianism indicates that once exploitation replaces benevolence control replaces concern. The relationship moves away from paternalism toward authoritarianism (Aycan 2006). Farh et al. (2006) found that

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Fig. 2 Paternalistic leader behavior and subordinate response (Cheng et al. 2006: 16)

subordinates who are dependent on their supervisors for work resources, benefits, and job content tend to respond more favorably to authoritarianism than those who are not dependent. Also authoritarianism had a stronger positive effect on fear of supervisor when subordinate dependence was high than when it was low. Paternalistic leadership has a positive impact on employees’ attitudes in collectivistic cultures because the care, support, and protection provided by paternalistic leaders may address employees’ need for frequent contact and close personal relationships (Gelfand et al. 2007).

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Cultural Roots of Paternalistic Leadership What are the primordial social and cultural forces in Chinese societies that render Chinese subordinates receptive to paternalistic leadership? Why does not western society exhibit the unique leadership and subordinate response like Chinese society? In these sections, Farh and Cheng (2000) further traced the culture root of each dimensional of paternalistic leadership.

Authoritative Leadership This kind of leadership is mainly from the thinking of Confucianism and Legalism. Under the thinking of Confucianism, the father/son axis is the important social relation over other social relations. Father’s authority goes beyond his children (and other family members), authority can be said absolutely. Authority and legality of paternity are from role internalization of inferior in Confucian ethics; hence, obeying authority is seen as behavior that is socially expected by inferior (Farh and Cheng 2000). Thinking of Legalism focuses on practical achievement and specific effect. According to the assumption that human nature is evil, the legalists reminded the emperor does not believe in subordinates and share authority as well. At the same time, authoritarian leaders adopting all kinds of means to control subordinates (Cheng et al. 2000).

Benevolent Leadership In thinking of Confucianism, the relationship between two people is built based on mutuality. Two principles are clear in cultural root of benevolent leadership. First, people who assume the superior roles (fathers, elder brothers, husbands, elders, and rulers) should treat those who are in inferior roles (sons, younger brothers, wives, juniors, and ministers) with kindness, gentleness, righteousness, and benevolence. Second, persons who assume the inferior roles should respect their superiors by following the principles of filial duty, obedience, submission, deference, loyalty, and obedience. In sum, the cultural roots of benevolent leadership originate from the Confucian ideal of the kind, gentle superior, and they are further cemented by practical concern for exchanging superior favors for subordinate indebtedness, personal loyalty, and obedience. All come under the umbrella of the powerful norm of reciprocity (Cheng et al. 2000).

Moral Leadership As noted earlier, Confucius believed that the cultivation of individual virtues was the foundation of society. In the realm of government, Confucius emphasized the use of moral principles, moral examples, and moral persuasion in governing. He did not

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believe in the efficacy of law and punishment, which he thought could regulate overt behaviors only, not inner thought. The most effective form of governance was therefore leading by virtue and by moral example. In sum, the importance of moral leadership has its roots in the Confucian philosophy of governance. A weak legal tradition and the rule by man further underscore the importance of moral character of those who occupy positions of authority. Figure 3 lists the cultural forces behind each of the three elements of paternalistic leadership. This study has used the concept of an iceberg to depict the idea that paternalistic leadership rests on the tip of the mass of Chinese traditional values and ideology.

Pro and Contra of Paternalistic Leadership Paternalistic leadership is still prevalent and effective in many business cultures, such as in the Middle East, Pacific Asia, and Latin America (Farh et al. 2006; Martinez 2003; Pellegrini and Scandura 2006; Uhl-Bien et al. 1990); in their research performance, paternalism is considered as an effective leadership style in many non-Western cultures. India is one of the countries where employees were found to be very high on paternalistic values, and they found no significant differences between the public and private sectors (Mathur et al. 1996). Aycan et al. (1999) even found that Indian employees valued paternalistic leadership to a greater extent than Canadians in the comparison study of Indian and Canadian business organizations on organizational culture and human resource practices. Meanwhile, Mexican employees were also suggested to have very high paternalistic values by Martinez (2003). Paternalism in this country is a successful strategy because it is derived from traditional family roles and established Catholic precept that cast employers as caretakers and family of their workers. In a recent cross-cultural study on comparison of ten- countries by Aycan et al. (2000), employees in China, Pakistan, India, Turkey, and the United States reported higher paternalistic practices than employees in Canada, Germany, Romania, Russia, and Israel. Studies on paternalistic leadership take place in the last 30 years; paternalism has also been widely researched in the Chinese business context, because some of the key elements of paternalistic leadership are deeply rooted in Chinese traditions. As suggested by Cheng et al. (2004), paternalistic is still a customary leadership style in current Chinese business organizations. Westwood (1997) purposed that paternalistic leadership is effective in the Chinese business context because it meets the “twin requirements” (compliance and harmony) of successful leadership. In fact, numerous studies conducted by Farh et al. (2006) have reported that Chinese and Taiwanese employees place a high value on paternalistic leadership. As suggested by Cheng et al. (2004), paternalistic is still a customary leadership style in current Chinese business organizations. There is flourishing study in the paternalistic leadership field practices all around the world. In the study of Mexican cultures, Morris and Pavet (1992) found paternalism fits the Mexican cultures values of respect for hierarchical relations

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Fig. 3 Cultural root of paternalistic leadership (Li et al. 2000: 108)

and strong family and personal relationship. Further research conducted field interviews with Mexican managers by Martinez (2003) and observed that the limited formalization of rules and procedures may facilitate situational-based decisionmaking, which provides greater leverage for paternalistic leaders to respond to employees’ needs and requests. Meanwhile in Malaysian business context, paternalistic leadership fits with the values and expectations of subordinates (Abdullah 1996). In Malaysia, paternalistic leadership acts as a positive reinforcement because paternalistic treatment is contingent on subordinates’ task accomplishment (Ansari et al. 2004). Like the father in a family, paternalism is believed to exercise its power within the constraint of protecting and improving the lives of its employees, which relieves considerable tension on the part of employees. This relief of tension is available not only to the employees but also to those exercising power, because the reduction of

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Table 2 Pro and contra of paternalistic leadership Pros Paternalistic leadership has positive implications in cultures in which it is rooted in Indigenous psychologies such as Confucianism (Farh and Cheng 2000)

Maccoby (2004) suggested that some of today’s best leaders are masters of manipulating the paternal transference of their followers In Turkey, research suggests that paternalistic leadership may be an effective management tool in the Middle Eastern business context (Pellegrini and Scandura 2006)

Contras Paternalistic leadership has increasingly been perceived negatively in Western management literature, which is reflected in descriptions of paternalism such as “benevolent dictatorship” (Northouse 1997) and “a hidden and insidious form of discrimination” (Colella et al. 2005) Paternalistic leaders demonstrate benevolence expressly because they want something in return and that the obligations created via benevolent acts are based on indebtedness and oppression (Uhl-Bien and Maslyn 2005) Paternalism indicates that managers take a personal interest in workers’ off-the-job lives and attempt to promote workers’ personal welfare (Pasa et al. 2001; Gelfand et al. 2007)

employees’ tension renders them more compliant and predictable (Kerfoot and Knights 1993). In paternalistic cultures, people in authority consider it an obligation to provide protection to those under their care and in exchange expect loyalty and deference (Aycan et al. 1999; James et al. 1996). Paternalistic leadership practice accumulated positive appraisal in some countries like Mexico and Malaysia mentioned above, but recent findings show negative influence of paternalistic leadership, as shown in Table 2.

Conclusion Leadership in Asian countries such as China is oftentimes described as paternalistic leadership. Paternalistic leadership is a native Chinese leadership style, which is deeply rooted in China’s patriarchal tradition and in Confucianism. However, the latest empirical evidences show that paternalistic leadership is confronting the challenge from theory and conception. First, the existing concept of paternalistic leadership overemphasizes its negative aspects (such as self-presentation and pursuing personal benefit) and overlooks the positive functions of the leaders’ prestige (such as pursuing collective goals and well-being), which does not really indicate the Indigenous connotations of Chinese leaders underscoring paternalistic authority. Second, paternalistic leadership has its innovative transformation in the process of modernization. The comparatively negative influence of paternalistic leadership to modern society should be abandoned, and the parts that positively reflect the modern Chinese value should be strengthened. Only when the positive or neutral elements of paternalistic leadership are fully understood, its cultural meanings and mechanism can be demonstrated, and thus becoming the theoretical support for the effectiveness of paternalistic leadership. Third, the impact of pan-ethnic nationalism on Chinese individuals leads to the transfer of behavioral norms developed in family life to other

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groups or organizations, thereby positioning organizations as an extension of the family from an interactional viewpoint. Consequently, the parental leadership style embodies certain parental upbringing concepts to varying degrees. Nonetheless, in the context of globalization, parents influenced by egalitarianism increasingly employ democratic approaches to educate their offspring, introducing numerous novel permutations to the parental leadership style. Last but not least, apart from all the contents mentioned above, are there any important connotations yet to be discovered? This is also an urgent question to be answered.

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Erben G, Güneser A (2008) The relationship between paternalistic leadership and organizational commitment: investigating the role of climate regarding ethics. J Bus Ethics 82:955–968 Farh JL, Cheng BS (2000) A cultural analysis of paternalistic leadership in Chinese organizations. In: Li JT, Tsui AS, Weldon E (eds) Management and organizations in the Chinese context. Macmillan, London, pp 85–127 Farh JL, Cheng BS, Chou LF, Chu XP (2006) Authority and benevolence: employees’ responses to paternalistic leadership in China. In: Tsui AS, Bian Y, Cheng L (eds) China’s domestic private firms: multidisciplinary perspectives on management and performance. Sharpe, New York, pp 230–260 Fiedler FE (1964) A contingency model of leadership effectiveness. Adv Exp Soc Psychol 1(1): 149–190 Fleishman EA (1953) The description of supervisory behavior. J Appl Psychol 37(37):1–6 Gelfand MJ, Erez M, Aycan Z (2007) Cross-cultural organizational behavior. Annu Rev Psychol 58: 479–514. https://doi.org/10.1146/annurev.psych.58.110405.085559 Hofstede GH (1980) Culture’s consequences: international differences in work-related values. Sage, Beverly Hills James K, Chen DL, Cropanzano R (1996) Culture and leadership among Taiwanese and U.S. workers: do values influence leadership ideals? In: Ruderman MN, Hughes-James MW, Jackson SE (eds) Selected research on work team diversity. American Psychological Association, Washington, DC, pp 33–52 Kerfoot D, Knights D (1993) Management, masculinity and manipulation: from paternalism to corporate strategy in financial services in Britain. J Manage Stud 30(4):659–677. https://doi.org/ 10.1111/j.1467-6486.1993.tb00320.x Li J, Tsui AS, Weldon E (2000) Management and organizations in the Chinese context. Palgrave Macmillan, London, p 108 Maccoby M (2004) Why people follow the leader: the power of transference. Harvard Bus Rev 82(9):76–85. https://doi.org/10.1023/B:GRUP.0000045748.89201.f3 Martinez PG (2003) Paternalism as a positive form of leader-subordinate exchange: evidence from Mexico. J Iberoam Acad Manag 1(3):227–242. https://doi.org/10.1108/15365430380000529 Mathur P, Aycan Z, Kanungo RN (1996) Work cultures in Indian organizations: a comparison between public and private sector. Psychol Dev Soc 8(2):199–223. https://doi.org/10.1177/ 097133369600800202 Morris T, Pavett CM (1992) Management style and productivity in two cultures. J Int Bus Stud 23(1):169–179. https://doi.org/10.1057/palgrave.jibs.8490264 Northouse PG (1997) Leadership: theory and practice. Sage, Thousand Oaks Pasa SF, Kabasakal H, Bodur M (2001) Society, organizations, and leadership in Turkey. Appl Psychol Int Rev 50(4):559–589 Pellegrini EK, Scandura TA (2006) Leader-member exchange (LMX), paternalism and delegation in the Turkish business culture: an empirical investigation. J Int Bus Stud 37(2):264–279. https://doi.org/10.1057/palgrave.jibs.8400185 Pellegrini EK, Scandura TA (2008) Paternalistic leadership: a review and agenda for future research. J Manag 34(3):566–593. https://doi.org/10.1177/0149206308321542 Redding SG (1990) The spirit of Chinese capitalism. Walter de Gruyter, New York Redding SG, Norman A, Schlander A (1994) The nature of individual attachment to theory: a review of east Asian variations. In: Triandis HC, Dunnett MD, Hough LM (eds) Handbook of industrial and organizational psychology. Consulting Psychology Press, Palo Alto, pp 674–688 Sekerka LE, Bagozzi RP, Charnigo R (2009) Facing ethical challenges in the workplace: conceptualizing and measuring professional moral courage. J Bus Ethics 89:565–579 Silin RH (1976) Leadership and value: the organizational of large-scale Taiwan enterprises. Harvard University Press, Cambridge Sinha JBP (1990) Work culture in Indian context. Sage, New Delhi Stogdill RM (1974) Handbook of leadership: a survey of theory and research. Free Press, New York

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Part V Corporate Finance

Humanism Capital Value Function: Elements and Their Relations

26

Ding Shenghong and Zhou Hongxia

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Formation of Humanism Capital Value Function of Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . The Elements of Humanism Capital Value Function and Their Relations . . . . . . . . . . . . . . . . . . . . . Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selection of Sample Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Empirical Analysis on Humanism Capital Value Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

344 344 347 349 349 349 352 353

Abstract

This chapter analyzes the classic “Cobb-Douglas production function” of production-oriented enterprises in seller’s market in industrial economy according to specialized division of labor theory, and deduces the humanism capital value function of customer-oriented enterprises in buyer’s market in Internet economy era. By analyzing the elements relations of the humanism capital value function, the optimal humanism capital structure equation of the enterprise is obtained to satisfy the value optimization of humanism capital. Moreover, it arrives at the deduction of the humanism capital value theorem and the humanism resource allocation of the enterprise. Keywords

Cobb-Douglas production function · Humanism capital value function · Production-oriented enterprise · Customer-oriented enterprise

D. Shenghong Finance College of Nanjing Agricultural University, Nanjing, China Z. Hongxia (*) Accounting School of Nanjing University of Finance and Economics, Nanjing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_51

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Introduction With the level of productivity from the underdeveloped stage to the developed stage, the commodity market transforms from the seller’s market to the buyer’s market. The business objective to adapt to the changing market is also changed from production oriented to customer oriented (Nosoohi and Nookabadi 2014). In the pursuit of “experience” in Internet economy era, with the help of technologies such as big data, cloud computing, and Internet, and its ability of integration, on the one hand, enterprises expand infinite boundaries and constantly gain access to different attributes of resources. On the other hand, with upgrading, integrating, and cross-linking of different units of production technology, the enterprises constantly adapt itself to changes in production technology and the organizational structure shows the characteristic of fragmentation and network flattening. From a contractual point of view, the nature of enterprise evolved from a complete economic contract to incomplete super contract (Shenghong and Peng 2015). Incomplete supercontract refers to incompletely covenant formed by the incomplete economic contract, social contract, and environmental contract on the basis of multiattribute and multifunction of resources. From the business model point of view, in Internet economy era with the start of human value, the traditional value chain in the supply-oriented business model is gradually disappearing, and demand-oriented Internet business model is emerging (Min and Liangyu 2015). Therefore, to adapt to business model changes, its value creation function will also experience a fundamental change.

The Formation of Humanism Capital Value Function of Enterprises In industrial economy, the enterprises pursue the production-oriented operation objective in seller’s market, and the most typical enterprise value creation model is “Cobb-Douglas production function” (Cobb and Douglas 1928). The production function is validated and its basic form is Y ¼ A(t)LαKβμ. Y represents gross industrial output value created by the enterprise; A(t) stands for the comprehensive level of production technology created by the enterprise; L refers to human capital value with certain production knowledge and skills invested by the enterprise; and the Cobb-Douglas production function assumes knowledge of the workers as: (1) knowledge skills are monotonic and (2) concave (i.e., the production set is a concave set). K is for material capital value with certain production technology invested by the enterprise; the material capital value usually refers to the net value of fixed assets. Its value unit corresponds to the unit of value of the labor force. The Cobb-Douglas production function assumes production technology as: (1) technology is monotonic (2) convex (i.e., production set is a convex set). α stands for the elastic coefficient of output of human capital in the field of production, and β stands for the elastic coefficient of the output of material capital in the field of production. μ is the stochastic interference, and μ  1. The prerequisites for the formation of the Cobb-Douglas production function are as follows: (1) The nature of the firm is a

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complete economic contract. On the one hand, the completeness of the economic contract depends on the fact that the enterprises centered on mechanized productive labor have perfectly matched the resources and the simplified system for the simple production and service. This perfect match depends on that the production technology is in an absolutely dominant position in the enterprise in the seller’s market, and the human knowledge and skills can only be used as a derivative or extension part of mechanized production technology. This kind of enterprise production situation requires extremely simple system, and the elasticity of the system is approximately zero, so that Cobb and Douglas treated it as a constant. Obviously, productionoriented business goals determine the internal system for internal production in an absolute dominant position and the external for external market in a secondary position. In other words, external system is the only extension of the internal system. Under certain conditions, the enterprise internalizes the external system in order to serve the needs of production. On the other hand, the completeness of economic contract depends on the economic resources with certainty owned by the productionoriented enterprises. Because economic resources based on deterministic economic resources “bundling” into enterprises’ economic contracts make it easier to clarify the relationship between the rights and interests of enterprise’s investors. (2) Specialized division of labor of enterprise. On the elements L and K of the CobbDouglas production function, they represent the specialized division of labor in the field of production: the transfer of material labor and the creation of human labor. The Cobb-Douglas production function implies the specialization of labor in the enterprise service field: the internal service labor for the internal of the enterprise (IS is assumed to be the variable) and the external service labor for the market outside the enterprise (the variable of their labor is ES). Cobb, C. W. and Douglas, P. H. treated enterprises as “virtual organizations,” which are essentially complete economic contracts. It can be presumed that the elasticity coefficient of the output of internal service labor (IS) in internal enterprises is 0, and the elastic coefficient of output of external service labor (ES) for outside of enterprise is 0 in the seller market. Thus, the Cobb-Douglas production function representing enterprise specialized division of labor has evolved into Y ¼ A(t)  Lα  Kβ  IS0  ES0  μ. In the era of human-oriented Internet economy, a highly developed level of productivity created a market in which supply of products is greater than demand, formulating a buyer’s market. The business objective of adapting to the change of the buyer’s market from the seller’s market is also changed from the production oriented to the customer oriented. In order to achieve customer-oriented business objectives, the enterprise mode of production changes from mechanized integrated production mode to intelligent decentralized mode of production, and human labor is more personalized than standardized in the process of transformation, in which the personality of workers is greatly respected and the value of workers is fully recognized. In order to satisfy the customer-oriented business objectives, on the one hand, enterprises reform the internal system to adapt to the intelligent decentralized production methods; on the other hand, enterprises intend to create the external system in order to meet customer demand. Technology of large data, cloud computing, Internet, Internet of Things technology, and its integration ability to build the

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Internet platform have laid a material foundation for the innovative enterprise humanism system. Based on the escalation of network cross-border and connectivity technology in the multiattribute and multifunctional network resources, the noncomplete supercontracting enterprises came into existence. The noncompleteness of the enterprise’s supercontract determines the noncompleteness of the enterprise system with the nature of contract. Compared with the completeness of the economic contract determining the completeness of the enterprise system, the elasticity coefficient of internal service labor (output) IS of the internal system of the incomplete contract is ϕ > 0, and elasticity coefficient of the service labor of the external system of enterprise ES is φ > 0. Resource dependence theory holds that interorganizational resource dependence produces external control of other organizations to specific organizations and influences power arrangement within the organization. Therefore, the internal and external systems of enterprises are interrelated and mutually transforming, as well as internal and external service labor is mutual. Although the elasticity coefficient of customer-oriented enterprise service labor output has changed, it changes the size and connotation of elastic coefficient of output of the production-oriented enterprise. Therefore, the elasticity coefficient of human capital output α and that of material capital output β in production field of productionoriented enterprise are changed into η and σ, representing the elasticity coefficient of human capital output and of material capital output in production field for the customer-oriented enterprise. A(t) standing for comprehensive level of production technology in production-oriented enterprises will also be transformed into B(t) on behalf of the integrated production technology and matching the level of integrated management for customer-oriented enterprises. This change contains the profound historical evolution of human liberation and the formation of enterprise humanism values. The development history of human society is a history for pursuit of human liberation (Marx 1979). To date, the humanist is committed to the maintenance of human dignity and the recognition of human values (Mohammed Akinola and Samuel 2016). In real life, human dignity and recognition of human values are expressed in the form of specialized division of labor (Marx 1979). In the Internet economy era stressing experiencing, customer-oriented enterprises completed the value creation layout of humanism capital through the specialized division of labor. The layout of the enterprise is as follows: The capital of the enterprise is divided into four categories: material capital (indicating the value transferring labor) and human capital in the production field (indicating the value creating labor), and organizational capital (embodying internal service labor) and relational capital in the service field (embodying external service labor) (Shenghong and Hongxia 2011). This layout reflects that the material capital and human capital indicates the level of enterprise productivity, and the organizational capital and relational capital indicates production relationship, and they are integrated into the humanism capital of enterprises. In terms of the enterprise humanism capital carrier, the enterprise resources are divided into the following four aspects: material resources (technology as core) and human resources (knowledge and skills as core) in the production field, and internal system resources (perfect rules as core) and external institutional resources

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in the service field (incomplete rules as the core) (Shenghong et al. 2012). This combination of enterprise resources and its power to match resource resources is defined as enterprise humanism resources. In the course of human society’s pursuit of human liberation, the enterprise value creation function is developed from the classic “Cobb-Douglas production function” of industrial economy era Y ¼ A(t) LαKβμ into humanism capital value function in Internet economy era representing the labor specialization under the unity of ownership and management Y ¼ A(t)  Lη  Kσ  ISϕ  ESφ  μ in the process of effective allocation of resources to their matching power. In the formula, L represents the internal material resources consumed material labor, K stands for human resources consumed by human labor, IS for internal institutional resources consumed by service enterprises, and ES for external institutional resources consumed by service enterprise. Therefore, the humanism capital value function expresses the value of specialized division of labor in the enterprise. It embodies Marx’s humanist values in the form of Marx’s generalized labor value theory. Therefore, there are L, K, IS, and ES, which constitutes the humanism resource of the enterprise. And the human rights of the enterprise humanism resources are effectively allocated to form the enterprise humanism capital. The following analyzes the relationship between various elements of the humanism capital value function from the perspective of humanism capital formation.

The Elements of Humanism Capital Value Function and Their Relations In humanism capital value function, the material capital shows the law of diminishing marginal efficiency (Keynes 1936), while human capital shows the marginal efficiency increasing law (King et al. 2012), as well as organizational capital and relational capital indicating internal and external institutional resources show the law of diminishing marginal efficiency (Huang Shao-an 2000). Thus, with time t as a variable, their efficiency laws are characterized as L(t)0 > 0 then L(t)00 < 0; K(t)0 < 0 then K(t)00 > 0; IS(t)0 > 0 then IS(t)00 < 0; ES(t)0 > 0 then ES(t)00 < 0. When the enterprise human resources maintain in a certain range, according to LagrangeCauchy theorem, η/L ¼ σ/K ¼ ϕ/IS ¼ φ/ES can be obtained. When the enterprise humanism capital value reaches the maximum, the enterprise humanism capital structure will be optimal. From this equation, the following inferences are made: Inference one: The humanism capital value theorem: the degree of optimization of enterprise humanism capital structure determines the degree of enterprise economic development (Shenghong et al. 2011). The significance is as follows: firstly, the humanism capital value theorem of the enterprise in the Internet economy era is a substitute for, or further verification of, the MM theorem (Modigliani and Miller 2008) in the industrial economy. Secondly, humanism capital structure is the core of the corporate governance structure, and the optimal humanism capital structure of

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enterprise is the ideal coordinate of the effective arrangement of the company’s system or the effective allocation of power. Thirdly, the enterprise humanism capital structure ends the historical mission that the financial capital structure in capitalemploying-labor industrial economy era substitutes for capital structure in production-oriented enterprises. Enterprise capital structure refers to the capital structure that directly embodies or characterizes the value creation of enterprises. And it leads to the return of humanism capital structure in customer-oriented enterprises under the perspective of harmony with capital and labor in Internet economy era. Inference two: The humanism resource allocation theorem: the effective allocation coefficient of humanism resources and human rights is equal. Its significance lies in the following: Firstly, it reveals the resource-based view (Wernerfelt 1984) that the enterprise’s competitive advantage stems from the special resources of the enterprise: humanism resources, the exploration of sustainable enterprises with competitive advantages emphasizes the effective arrangement of human rights according to the effective allocation of humanism resources which may enable the enterprises to earn sustainable rent. Secondly, four important assumptions of resource dependence theory are verified (Pfeffer and Salancik 1978). The resource dependence theory suggests four important hypotheses: the organization’s most important concern is survival; in order to survive, the organization needs resources, and the organization itself cannot produce these resources; the organization must interact with the factors in the environment it depends on. These factors usually include other organizations; organizational survival is based on a control of its relationship with other organizations based on the ability. The key point of the argument is that the various resources required for the survival and development of the enterprise can be obtained through the interaction of the organizational capital and the relational capital, and it emphasizes the factors of humanism resource allocation efficiency that include the culture factor, which makes up the neglect of the resource dependence theory. From the humanism capital value model, it is determined that the level of economic development of the customer-oriented enterprises depends on the human capital level and the material capital level in production field, as well as the organizational capital level and relational capital level in service field. According to the elasticity coefficient reflecting the level of humanism capital, three types of combination are proved: (1) η þ σ þ ϕ þ φ > 1, called the incremental reward type, which shows that it is favorable to expand the enterprise scale according to the existing humanism capital efficiency of enterprises (production scale and management scale) to increase the output of humanism capital in the customer-oriented enterprises. (2) η þ σ þ ϕ þ φ < 1, known as the diminishing returns type, which indicates that it is unfavorable to expand the enterprise scale according to the existing humanism capital efficiency of enterprises. (3) η þ σ þ ϕ þ φ ¼ 1, known as the constant remuneration type, which indicates that the output of humanism capital in the customer-oriented enterprises will not be improved by expanding the enterprise scale according to the existing humanism capital efficiency of the enterprise.

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Empirical Analysis Selection of Sample Data This paper selected 68 listed companies in the “Software and Information Technology Services” industry from 2010–2015. The sample data was sourced from the CSMAR database. Despite the incomplete data, the sample includes 48 listed companies. The panel analysis was performed using STATA12.0 software.

Empirical Analysis on Humanism Capital Value Function Empirical Model Test Design The humanism capital value function is Y ¼ A(t)  Lη  Kσ  ISϕ  ESφ  μ. It takes the natural logarithm on both sides of this function, i.e., lnY ¼ ln A(t) þ ln Lη þ ln Kσ þ ln ISϕ þ ln ESφ þ ln μ, LNμ obeys normal distribution of N(0, 1). Suppose the variables of lnL, lnK, lnIS, lnES, lnY, lnA(t), lnμ are matcap, humcap, orgcap, relcap, humanismcap, α, ε. α is constant and ε is random perturbations. The empirical test model derived from the humanism capital value function is: humanismcap ¼ α þ ηmatcap þ σhumcap þ φorgcap þ ϕrelcap þ e

ð1Þ

Descriptive statistical analysis is performed based on the empirical test model variables of (1).

Descriptive Statistical Analysis Statistical analysis was performed on 48 listed companies in the software and information technology services industry from 2010–2015 using STATA 12.0 software. The results of the analysis are shown in Table 1. As shown in Table 1, the difference between the maximum value and the minimum value of the variable is relatively large. Therefore, there may be instability in the sample data of the above variables. Therefore, a panel unit root test is performed on this. Unit Root Test of the Sequence In order to avoid spurious regression, it is necessary to test whether the economic variables are stable. The ADF test is performed on the sample data of L, L, IS, and ES. The test results are shown in Table 2: Table 1 Descriptive statistical analysis Variable matcap humcap orgcap relcap humanismcap

Observation no. 288 288 288 288 288

Mean 21.4057 20.1644 0.5185 0.2850 60.6412

Standard deviation 9.0815 0.9492 1.4963 0.1620 1.5673

Minimum 0.1233 3.1826 0.1396 0.0443 48.3200

Maximum 37.4292 36.2374 1.2438 0.6784 176.4400

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Table 2 ADF test result Variable humanismcap matcap humcap orgcap relcap

Type (c, t, 0) (c, 0, 2) (c, 0, 2) (c, t, 2) (c, t, 2)

ADF test statistics 5.1000 9.7248 4.5567 5.6783 11.6732

Threshold 1% 4.0521 4.0512 3.4959 4.0503 4.0512

5% 3.4548 3.4534 2.8900 3.5368 3.5376

10% 3.1528 3.1526 2.8518 3.1523 3.1524

Note: The value of parentheses indicates the sequence type, c indicates the presence of the intercept, t indicates the existence of the time trend item, and the last digit indicates the single integer order

From the ADF test results in Table 2, we can draw matcaprat, humcaprat, orgcaprat, and relcaprat as I(2), which are the second-order single integer variables. humanismcap does not contain unit roots, i.e., stationary sequences. Therefore, the selection of the above variables for the panel model estimation may have a false regression phenomenon, so it also needs cointegration analysis.

VAR-Based Cointegration Analysis According to the panel unit root test, it is found that there are secondary single integers for matcap, humcap, orgcap, and relcap. Therefore, according to the cointegration analysis method of self-vector regression proposed by Johansen in 1990 to analyze whether there is a cointegration relationship between them, hypothesis 1 is verified. According to the unit root test of the panel in the previous section, there are secondary single integers for matcap, humcap, orgcap, relcap, and humanismcap, which will be used as the exogenous variables of the autoregressive vector regression to establish the autoregressive vector regression model (2). ðmatcap, humcap, orgcap, relcapÞ0t ¼ C1 þ A1 ðmatcap, humcap, orgcap, relcapÞ0t1 þA2 ðmatcap, humcap, orgcap, relcapÞ0t2 þ B1 humanismcap ð2Þ According to Johansen’s eigenvalue-based likelihood ratio method in 1998, the autocorrelation test of Eq. (2) was performed to obtain Johansen cointegration test results as shown in Table 3. Table 3 shows the Johansen cointegration of the humanism capital structure of the LS software and information technology services industry. A cointegration relationship exists between matcap, humcap, orgcap and relcap, so that there is an interaction between matcap and humcap representing productivity of the LS company and orgcap and relcap representing relationship of the LS company. Hypothesis 1 is tested.

Vector Error Correction Model In view of the Johansen cointegration test results, there is a cointegration relationship among matcap, humcap, orgcap, and relcap; according to VAR Eq. (2), the following vector error correction model can be obtained:

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Table 3 Johansen cointegration analysis Characteristic root 0.61534 0.14856 0.10136 0.06128 0.03425

LR likelihood ratio 98.3421 38.4738 22.3452 10.3452 3.1563

5% threshold 94.15 47.21 29.68 15.41 3.76

1% threshold 103.18 54.46 35.65 20.04 6.65

Assumption of 5% (without cointegration relationship) None* Amost1 Amost2 Amost3 Amost4

ðΔhumanismcap, Δmatcap, Δhumcap, Δorgcap, ΔrelcapÞ0t ¼ C01 þ A01 ðΔhumanismcap, Δmatcap, Δhumcap, Δorgcap, ΔrelcapÞ0t1 þA02 ðΔhumanism:Δmatcap, Δhumcap, Δorgcap, ΔrelcapÞ0t2

þ

ð3Þ

A03 vecmt1t

vecm is the data expression of the final lag second-order cointegration relation of the equation under the AIC and SC information criteria. The specific coefficient matrix is as follows: 0:0522

0:0574

1:008

0:7418

0:1334

ð0:4857Þ 0:0687

ð0:5978Þ 0:0611

ð1:1183Þ 2:1098

ð0:6331Þ 1:4840

ð1:3127Þ 0:0912

ð0:8443Þ A01 ¼

A02 ¼

ð0:8216Þ ð3:1371Þ ð1:6373Þ

0:0051 ð0:3417Þ

0:0108 ð0:7879Þ

0:2124 ð1:7088Þ

0:0053 ð0:5478Þ

0:0027 ð0:3283Þ

0:0819 0:4806 0:0012 ð1:1017Þ ð0:3897Þ ð0:1197Þ

0:0776

0:0249

0:6059

0:0843

0:1387

ð0:1107Þ

ð0:2466Þ

ð0:6374Þ

ð0:6234Þ

ð1:2970Þ

0:0571 ð0:5543Þ

0:0769 0:5269 ð0:8687Þ ð0:5496Þ

0:5079 ð0:4432Þ

0:0394 ð0:3854Þ

0:0487 ð0:6121Þ

0:0075 1:2728 1:9560 0:0208 ð0:1076Þ ð1:7088Þ ð2:2069Þ ð0:2618Þ

0:0126

0:0162

0:3257

ð0:8678Þ ð1:2985Þ ð2:4087Þ 0:0046 0:0019 0:0645

0:0023 ð0:0138Þ

ð1:1599Þ 0:0116 ð0:8076Þ

0:0887

0:0265

ð0:5508Þ 0:0391

ð1:8234Þ 0:0098

ð0:4916Þ 0:0014

ð0:2168Þ 0:1134

ð0:7306Þ 0:2424

ð0:3019Þ 2:1185

ð1:0765Þ 0:1543

ð0:1096Þ

ð1:2145Þ

ð0:2388Þ

ð1:7532Þ

ð1:4387Þ

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A03 ¼ C0 ¼

0:0086

0:1569

0:0034

0:0027

0:0109

0:4779

12:4001

1:2109

1:3418

0:5801

0:1293 0:8139

1:4564 0:0312 12:8901 1:4701

0:0186 1:2879

0:0489 0:2867

From the empirical test results, the revised error term vecm has a significant effect on the composition of Δhumanism, which also shows that the relationship between the various elements of the humanism capital value function is real and indirectly tests the value theorem of human capital.

Fixed Panel Regression Test Due to the existence of secondary single integers, the traditional panel model analysis has lost its significance. Therefore, the panel regression analysis with the fixed effect through the self-vector error correction model was chosen. The results are as follows: ln humanismcapit ¼ γ 0 þ α ln humcapit þ β ln matcapit þ ϕ ln orgcapit þ φ ln relcapit þ ωit 0.1325 (0.0891)

0.5041 (0.0000)

0.3910 (0.003)

0.4092 (0.0001)

0.3043 (0.0432)

Therefore, from the above test results, it can be seen that the correlation between corporate humanism capital structure is significantly smaller than the degree of relevance between the humanism capital value of the explanatory variable, thus clearly verifying that the previous paper deduces the value theorem of humanism capital through mathematics and physics which is in line with the actual business economic development.

Conclusion Technological innovation and institutional evolution are always two parallel main lines of the evolution of the socioeconomic innovation ecosystem. On the technical level, socioeconomic actors experienced the “manual,” “automated,” and “intelligent” evolution of production technology innovations. Their dominant social and economic values have experienced “use value,” “transaction value,” and “shared value.” On the institutional level, economic entities have experienced the innovation and evolution of the economic entity contract system with the unity of ownership and management rights, separation of ownership and management rights, and integration of ownership and management rights. The evolution of value experienced property value, property value, and human rights value. As far as technology and institutions are concerned, human socioeconomic evolution has experienced a

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change from a material economy to a human-oriented economy. Its dominant social economy has experienced a “seller’s market” in which supply is less than demand and a “buyer’s market” in which supply exceeds demand. The evolution of its market demand itself has also experienced a complete evolution from low-level demand to super demand. The “Cobb-Douglas production function” expresses development laws of production-oriented enterprise under the “seller market,” and the humanism capital value function expresses the development law of customer-oriented enterprise human economy under the “buyer market.” Through analyzing the “CobbDouglas production function” of the production-oriented enterprises under the seller’s market in accordance with the principle of specialized labor division, this chapter deduces the value function of humanism capital of customer-oriented enterprise under buyer’s market in the postindustrial economy era. Through the analysis of the element relationship of the humanism capital value function, this chapter solves the enterprise’s optimal humanism capital structure equation that meets the maximum value of humanism capital, and infers the humanism capital value theorem and enterprise human resource allocation. By selecting sample data of 48 listed companies in the “software and information technology services” industry from 2010–2015, the verification of the humanism capital value theorem was verified. Acknowledgments This work was financially supported by the National Social Science Fund Project: Research on the Cloud Computing of Accounting under the Internet Configuration and Transaction Mode (16BGL062).

References Cobb CW, Douglas PH (1928) A theory of production. Am Econ Rev 18:139–165 Keynes JM (1936) General theory of employment interest and money. Macmillan, London, pp 133–137 King E, Montenegro C, Orazem P (2012) Economic freedom, human rights, and the returns to human capital: an evaluation of the Schultz hypothesis. Econ Dev Cult Chang 61(1):39–71 Marx C (1979) Economics in 1844 – philosophical manuscripts. People’s Publishing House, Beijing Min L, Liangyu L (2015) The innovation of business model in internet era: from value creation perspective. Chin Ind Econ 1:95–107 Modigliani F, Miller MH (2008) The cost of capital, corporation finance, and the theory of investment. BASE – Rev Adm Contabilidade Unisinos 5(2):154–155 Mohammed Akinola A, Samuel O (2016) An African humanist assessment of technology and moral concerns. J Pan Afr Stud 9(3):14–33 Nosoohi I, Nookabadi AS (2014) Designing a supply contract to coordinate supplier’s production, considering customer oriented production. Comput Ind Eng 74:26–36 Pfeffer J, Salancik GR (1978) The external control of organizations: a resource dependence perspective, vol 4, no 2. Social Science Electronic Publishing Shaoan H (2000) Three theoretical hypothesis on institutional change and their verification. Soc Sci Chin 4:37–49 Shenghong D, Hongxia Z (2011) Formation of humanism capital and growth of interior economics. J Econ Probl 8:14–19

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Shenghong D, Peng W (2015) The construction of theoretical framework of humanism capital accounting from perspective of human rights paradigm. J Hum Univ Sci Technol (Social Science Edition) 18(3):131–136 Shenghong D, Yingyu W, Hongxia Z (2011) An empirical research on the characteristics of corporate capital structure. J Shanxi Finance Econ Univ 12:88–99 Shenghong D, Yingyu W, Hongxia Z (2012) Acts alienation of humanism capital property rights, the faith crisis, and their value offset: theory and application. Chin J Manag Sci s2:675–684 Wernerfelt B (1984) A resource-based view of the firm. Strateg Manag J 5(5):171–180

Part VI Corporate Social Responsibility

Corporate Social Responsibility Practice and Education in China: Overview

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Contents The Appearance and Development of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CSR and Its Reflection in Traditional Chinese Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Theory of Righteousness and Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Thought of “Human-Oriented” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Thought of “Harmony Between Human and Nature” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Development and Practice of CSR in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CSR Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Practice of SOEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Practice of MNEs in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Practice of Private Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Dissemination and Education of CSR in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Dissemination of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Education of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of Chapters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

This study traces back the appearance of CSR and its development, practice, dissemination, and education in China. The study aims to review the history and development of CSR in China and promotes enterprises to strengthen CSR awareness and raise CSR management to strategic level. Literature review and case studies are used in the chapter. Cases regarding CSR practiced by SOEs, MNEs, and private enterprises in China are analyzed. The importance of education of CSR in China is raised and followed by an illustrated case.

Y. Wu (*) · X. Sun Guangdong University of Foreign Studies, Guangzhou, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_12

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Keywords

CSR in China · Education of CSR · Practice of CSR · Development of CSR

The Appearance and Development of CSR The thought of CSR originally appeared in the developed western countries in the late nineteenth century, and the earliest description of CSR was found in the article The Philosophy of Management, written by American scholar Oliver Shelton (Li Youhuan 2012: 2). In the West, the concept of enterprise in a true sense did not exist until the Industrial Revolution which witnessed the rapid development of social productivity as well as the appearance and growth of enterprises (Li Youhuan 2015: 13). During this period, influenced by social Darwinism and Laissez faire economics, most enterprises refused to take social responsibilities. The attitude to CSR at that time can be best illustrated by the words of Milton Fridman, “The social responsibilities of business is to increase its profits” (Friedman 1970). In the 1930s, an economic crisis engulfed the entire capitalist world. Along with the appearance of a series of social problems, people began to be aware of the flaws of market economy and to rethink previous view of considering profits as the sole social responsibility of enterprises. What is more, the debate between Berle and Dodd, which lasted until the end of the 1950s, reinforced the idea of CSR and drove more CSR practices (Berle 1931; Dodd 1932). From 1950s to 1970s, the concept of “CSR” gained wide recognition and its contents are also extended (Wang Man 2008). In 1980s, many enterprises introduced their code of conduct in the wake of the rise of “CSR Movement,” which focused on four basic labor rights including elimination of child labor, prohibition of discrimination, abolition of forced labor, and freedom of association and collective bargaining. Along with the development of social responsibility movement, the form of CSR movement has transformed from autonomous code of conduct of MNEs to CSR certification executed by the third party, including ISO 9000, ISO 14000, SA 8000, and the latest ISO 26000.

CSR and Its Reflection in Traditional Chinese Culture The idea that the social responsibilities of enterprises is more than making profits has been widely accepted. As for the content of social responsibilities, scholars and entrepreneurs have different opinions and the most famous one is the pyramid model of Archie B. Carroll (Fig. 1). Claimed as an international standard applicable to “all types of organizations in the private, public and non-profit sectors, whether large or small, and whether operating in developed or developing countries,” ISO 26000 gives a clear definition of CSR:

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Fig. 1 Pyramid Model of Archie B. Carroll. (Source: Carroll 1991)

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The essential characteristics of social responsibility is the willingness of an organization to incorporate social and environmental considerations in its decision making and be accountable for the impacts of its decisions and activities on society and the environment.

The idea that making profits is not the sole social responsibility of enterprises is consistent with that of righteousness and benefit in Chinese traditional culture.

The Theory of Righteousness and Benefit As an important part of Chinese traditional ethics, the theory of righteousness and benefit deals with the relationship between righteousness and benefit. The Chinese traditional ideology of righteousness and benefits consists of four links (Cao Deben and Fang Yan 2005), that is, “Man is not born without selfish desire” (“人非利不 生”), “Set rituals and morals to guide selfish desires” (“制礼义以分之”), “Thinking about all moral principles at the sight of benefits” (“见利思义”), and “Seek for profits to enrich people” (“计利富民”). To sum up, just like making profits is the basic social responsibility of enterprises, the theory of righteousness and benefit do not deny the importance of materials benefits but claimed that the way to acquire them should not go against morals.

The Thought of “Human-Oriented” The thought of “human-rooted,” which can be sourced to the Spring and Autumn Period of ancient China, is the core of Former President Hu Jintao’s thought “scientific outlook on development” thought. Guanzi (管子), recognizing the importance of the people in management, was the first to put forward theoretically the idea that “human-oriented” was the fundamental rule of governing and strengthening a country. Confucius regarded “仁” (meaning the mutual love, care, and help between people) as the core of the thought of “human-oriented” as well as the highest moral core and standard. The meaning of “仁” can be seen directly from its pictogram presented by Shuo Wen Jie Zi written by XuShen in Han dynasty (Fig. 2).

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Fig. 2 The evolution of Chinese character “仁.” (Source: http://www.shuowen.org/view/4929) 3000

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Fig. 3 The Number of CSR Report in China. (Source: Goldenbee Research on Corporate Social Responsibility Reporting in China (2022). Available from https://www.pishu.com.cn/skwx_ps/ bookdetail?SiteID¼14&ID¼14373169 [cited 5 May 2023])

The pictogram of Chinese character “仁” went through an evolution from complexity to simplicity. The early pictogram (忎) of “仁” is composed of two parts, the upper part “千” (meaning thousand) and the lower part “心” (meaning heart), putting together is thousands of hearts. Therefore, “仁” is to deal with the relationship among thousands of people. “忎” was later evolved to the simpler form shown by the second picture in the Fig. 3, which also consists of two parts, “尸” (whose ancient meaning is a person while modern meaning is corpse) and “二” (meaning two), putting together is two people. Therefore, the meaning of “仁” has transformed to dealing with the relationship between two people. The “亻” of “仁” in the third and fourth picture also means a person. In ancient China, there are five cardinal relations, in Chinese, “五伦,” that is, emperor and subject, parents and offspring, husband and wife, brothers, and friends; that is why, “仁” emphasizes the relationship between two people. The concept of CSR stresses the relationship between enterprises and stakeholders which is exactly in accordance with the thought of “human-oriented.”

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The Thought of “Harmony Between Human and Nature” Pursuing the harmony between human and nature is the core of traditional Chinese values. As a crucial part of the idea of harmony in ancient China, “the harmony between human and nature” was advocated by Confucianism, Taoism, and Buddhism. Zhang Zai in Song dynasty explicitly put forward the thought of “harmony between human and nature.” The famous remark of Lao Zi, the founder of Taoism – “Man follows the earth. Earth follows the universe. The universe follows the Tao. The Tao follows nature.” (Laozi 2016) – highlights the importance of respecting the laws of nature. The concept of CSR requires enterprises to protect the environment, denouncing the overuse and waste of natural resources, which is line with the thought of “harmony between human and nature.”

The Development and Practice of CSR in China The concept of CSR was introduced to China in the late 1990s along with the trend of globalization. The development of CSR in China is closely related to the transformation and growth of Chinese enterprises. Enterprises in China went through the transformation from planed economy to market economy, and the form of enterprises also underwent the revolution from public ownership to mixed ownership. The whole process can be mainly divided into three phases (Zhao Lianrong 2005): The age of noneconomic responsibilities (from 1949 to 1978) The age of economic responsibilities (from 1978 to 1995) The age of social responsibilities integration (from 1995 to now) The year 2006, as a new starting point for the development of Chinese CSR, is called as the first year of CSR in China (Yin Gefei 2012). In 2006, China gave credits for CSR from three aspects, including laws, the party’s platform, and central government, and it is widely approved that enterprises should take social responsibilities. In 2008, the practice of CSR in China stepped into the phase of rapid development with a number of enterprises regarding social responsibilities management as a new pattern of enterprise management. The year 2012 was regarded as the first year of CSR management in China (Yin Feige 2012). In the past decade, under the promotion and influence of government, industry associations, and social forces, CSR movement in China experienced a rapid development with enterprises having a deeper understanding of social responsibilities and devoting to the construction of a holistic system of CSR management. A group of excellent models of CSR practices have sprung up, including SOEs, MNEs in China, and private enterprises.

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Fig. 4 The number and percentage of reports of excellent level and above. (Source: https://www. csr-china.net/a/guandian/pinglun/2022/0706/5200.html)

Fig. 5 The Chinese CSR Report Composite Index since 2009. (Source: https://www.csr-china.net/ a/guandian/pinglun/2022/0706/5200.html)

CSR Report As the witness of the development of CSR, encouraging the issue of CSR report is both an important task of government to promote CSR and a significant CSR practice of enterprises. Since 2006, more and more enterprises have issued CSR reports (Figs. 4 and 5).

Practice of SOEs Since China is a socialist country with public ownership as its main body, SOEs, as organizations with special characteristics, play a dominant role in Chinese socialist market economy. SOEs have a duty to guarantee the stability and safety of national economy as well as to realize the strategic objectives of national politics and economy. Therefore, they have to undertake more social responsibilities (http://eng.csg.cn/ About_us/About_CSG/201601/t20160123_132060.html, cited 5 May 2023).

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In recent years, SOEs, especially enterprises owned by central government, have excellent performance on CSR practices. Faced with the volatile economic trends at home and abroad, enterprises owned by central government not only combine the concept of CSR with enterprises’ strategies and ordinary operations and think highly of the communication with stakeholders, but also establish a wholesome system of CSR management in order to realize the objectives of CSR practices. Case 1: “Green Windmill Model of CSG” Company profile: China Southern Power Grid CO., Ltd. (CSG) has invested in, constructed, and operated power networks in Guangdong, Guangxi, Yunnan, Guizhou, and Hainan provinces, with a total service area of 1.03 million square kilometers and 248 million people. During the “14th Five-Year Plan” and “15th Five-Year Plan” proposed by the Chinese government, CSG will promote the installation of 100 million kilowatts of new energy capacity in each of the five southern provinces and regions, and the installed capacity of new energy will increase from the current 0.5 billion kilowatts. The installed capacity of new energy will increase from the current 0.5 billion kilowatts to 250 million kilowatts in 2030, supporting the early realization of carbon peaking (http://www.nea.gov.cn/2021-06/ 05/c_139993076.htm, cited 5 May 2023). CSG understands that CSR practices are to be accountable to the economic, social, and environmental impacts on stakeholders which include government, staff, clients, partners, environment, and communities. CSG designs a green windmill model which summarizes its social responsibilities into four areas, that is, power supply responsibility, economic performance responsibility, social harmony responsibility, and environment protection responsibility (Fig. 6).

Fig. 6 Green Windmill Model of CSG. (Source: CSR Report of CSG 2010)

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Practice of MNEs in China With the acceleration of globalization, China has become a key area to attract MNEs, which has made a great contribution to the takeoff of China’s economy. Obviously, MNEs have driven the development of CSR in China by virtue of their wellestablished system of CSR management. Nevertheless, in recent years, the phenomenon of MNEs’ lacking social responsibilities never stops to occur (Guo Liyin 2011; Yang Lijuan 2011). For instance, it was disclosed that the soya-bean milk in KFC was made at a cost of 0.7 yuan by soya-bean milk power and that the baby shampoo of Johnson&Johnson contained carcinogens. Despite this, generally speaking, MNEs in China have been actively promoting CSR practices in China. Case 2: “For the Next Generation” Company profile: Sony Group (often referred to simply as Sony) is a Japanese multinational conglomerate corporation headquartered in Kōnan, Minato, Tokyo. Its diversified business includes consumer and professional electronics, gaming, entertainment, and financial services. Sony (China) Limited was found in Beijing in 1996. “For the Next Generation” is a phrase to describe Sony’s CSR direction. Sony regards the persistent commitment to education as one of its important strategies. As an outstanding corporate citizen in China, Sony (China), adhering to the idea of “for the next generation,” has established four high-quality programs in the field of education. These programs have provided children, tomorrow’s principles, the opportunity for hands-on experience that will hopefully spark their motivations to acquire skills needed to make a better society by applying the power of science (Fig. 7).

Fig. 7 Four Educational Public Service Programs of Sony (China). (Source: http://www.sony.com. cn/csr/index.html)

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Case 3: “Zero Carbon Restaurant” Company profile: McDonald’s is an American multinational fast food chain founded in 1940 and headquartered in Chicago, United States. It is the world’s leading food service organization. McDonald’s is best known for its hamburgers, cheeseburgers, and french fries, although their menu also includes other items like chicken, fish, fruit, and salads. Mcdonald’s (China) Co., Ltd. was founded in 1993. The company’s line of business includes providing management services on a contract or fee basis (https://www.bloomberg.com/profile/company/SUCACZ: CH#xj4y7vzkg, cited 5 May 2023). “Zero carbon restaurant” is the restaurant opened by McDonald’s (China) in the Shougang Park in Beijing recently. It is powered by on-site solar panels of over 2000 square meters. The new restaurant is a milestone for the company’s China unit to achieve net zero carbon emission in the country by 2050. The restaurant is designed and built in line with LEED (Leadership in Energy and Environmental Design) net zero carbon and net zero energy certification standards. In order to promote a low-carbon lifestyle, McDonald’s China will provide customers across the country with a range of green experience activities. These activities include discounted FiletO-Fish, which is made entirely of codfish that has been certified by the MSC (Marine Stewardship Council), and sealing stickers on paper bags that change color to green. The eco-charging parent-child bicycle is an achievement of McDonald’s China’s “Reinventing Good Things” project, in which consumers can pedal the bicycle to drive electricity to wirelessly charge their cell phones as well as light up the giant McDonald’s M logo (Fig. 8) (https://en.wikipedia.org/wiki/McDonald%27s, cited 5 May 2023).

Fig. 8 McDonald’s “Zero carbon restaurant.” (Source: https://www.mcdonalds.com.cn/news/ 20220920-LEED-Net-Zero-Restaurant-Grand-Opening/)

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Sustainable Filet-O-Fish

Eco-charging bicycle

Practice of Private Enterprises Compared with SOEs and MNEs in China, the overall level of CSR practices of private enterprises is relatively low. In 2015, the average score of the CSR development index of the top 100 private enterprises in China was only 26.0, reaching only two-star level at the preliminary stage as a whole (Huang Qunhui 2015: 60). It can be seen that the awareness of CSR and the level of CSR management of private enterprises in China still need to be improved.

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Fig. 9 CSR achievements of Alibaba Group. (Source: http://www.alibabagroup.com/en/about/ sustainability)

However, there are still some private enterprises performing very well in CSR practices, such as Huawei Technologies Co., Ltd., Alibaba Group Holding Limited, and China Minsheng Banking Co., Ltd. Case 4: Sustainability of Alibaba Group Company profile: Alibaba Group was established in 1999 by 18 people led by Jack Ma, a former English teacher from Hangzhou, China. Since launching its first website helping small Chinese exporters, manufacturers, and entrepreneurs to sell internationally, Alibaba Group has grown into a global leader in online and mobile commerce. Today the company and its related companies operate leading wholesale and retail online marketplaces as well as businesses in cloud computing, digital media and entertainment, innovation initiatives, and others. Alibaba Group has been highly committed to sustainable CSR projects, both through charitable endeavors and by extending the benefits of its ecosystem to the community at large. Alibaba Group believes the best approach to CSR is through embedding elements of social responsibility in its business model. Alibaba Group’s achievements in the area of CSR include creating job opportunities, alleviating poverty, and Internet approach to charity (Fig. 9).

The Dissemination and Education of CSR in China The Dissemination of CSR As the intermediary of information dissemination, media undoubtedly becomes an important driving force of CSR development of Chinese enterprises (Fig. 10).

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Fig. 10 The average number of index of social responsibilities. (Source: Baidu index, the results of the average searching number of “social responsibilities” in the Baidu index (as of May 05, 2023), https://index.baidu.com/v2/main/index.html#/trend/社会责任?words¼社会责任)

Media spreading social responsibilities: Websites: www.Xinhuanet.com, www.people.com.cn, www.csr-china.net. . . Newspapers: Southern Weekend, China WTO Tribune, 21st Century Business Herald. . . New media: Wechat, blog. . .

The Education of CSR Business schools are always being regarded as the cradles of future managers and business leaders. With the spread of CSR concept in China and the unceasing occurrence of scandals about breaching business ethics on the part of enterprises, business schools and business circles gradually realize the importance of introducing CSR into MBA education. In recent years, some business schools have actively promoted various public service programs, making contributions to social responsibilities with practical actions. Case 5: “Integrating Into Cities” School profile: East China University of Science and Technology (ECUST), located in the cultural and historic metropolitan city of Shanghai, is a key university directly led by State Education Ministry. School of Business was formally established in 1990. The school always takes it as its value to take social responsibilities. Introduction of “Integrating into cities” program: “Integrating into cities” program was initiated by ECUST School of Business in 2010. It mainly consists

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of two programs: One is to provide training to grassroots cadres in Guizhou and Yunnan aiming at improving their qualities and abilities, the other is to provide training to Shanghai immigrates aiming at upgrading their professional capabilities and change their lifestyles and views so that they can integrate into cities better.

Grass-roots cadres in Songtao County, Guizhou Province, are listening to lectures carefully

Wu Bojun, the dean of School of Business, is teaching the course of The Situation of Chinese Economy

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Conclusion The 19th Session of National Congress of the CPC, which is held in Beijing on October 18, 2017, has further promote the development of China’s socialist modernization. At this new historical point, the development of CSR in China has reached an unprecedented level. Joint efforts from all aspects are required to bring the further development of CSR in China. Besides the guidance and promotion of government and industrial associations, enterprises themselves should strengthen CSR awareness, improve the level of CSR practices, and rise CSR management to the strategic level.

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Overview of Chapters Introduction China’s economy is now at the state of New Normal. The “New Normal” means the Chinese economy has entered a new phase which is different from the high-speed growth pattern exhibited in the past. It is a new trend that features more sustainable, mid-to-high-speed growth with higher efficiency and lower costs. This brings both opportunities and challenges to enterprises in China. In order to adapt to the new normal, enterprises need to swiftly and steadily shift from profit obsession to a sustainable growth philosophy that puts more emphasis on the organic unity of economy, society, and environment. During the process of enterprise transformation, CSR, as a way to help enterprise realize sustainability, undoubtedly plays a crucial role.

References Berle AA (1931) Corporate powers as powers in trust. Harv Law Rev 44(7):1049–1074 Carroll AB (1991) The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders. Bus Horiz 34(4):39–48 Dodd EM (1932) For whom are corporate managers trustees? Harv Law Rev 45(7):1145–1163 Friedman M (1970) The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 1970 曹德本, 方妍. 中国传统义利文化研究 [J]. 清华大学学报 (哲学社会科学版), 2005, 1(20): 14–19 杨立娟. 跨国公司在华企业社会责任弱化现象及对策探讨 [J]. 中国证券期货, 2011 (11):87–88 殷格非. 2012:中国企业社会责任管理元年 [J]. WTO 经济导刊, 2012(7):72 王曼. 中国企业社会责任理论与系统研究 [D]. 天津大学管理学院, 2008 老子. 道德经 [M]. 郑州:中州古籍出版社, 2016 赵连荣. 我国企业社会责任的演变与趋势 [J]. 企业改革与管理, 2005(2):7–8 郭立银. 跨国公司在华社会责任缺失的现状与对策研究 [J]. 湖北社会科学, 2011(5): 105–108 黄群慧, 等. 中国企业社会责任研究报告 (2015) [M]. 北京:社会科学文献出版社, 2015 黎友焕. ISO 26000 在中国 [M]. 广州:中山大学出版社, 2012 黎友焕. 中国企业社会责任研究 [M]. 广州:中山大学出版社, 2015

Executive Women and Glass Ceiling in China

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Sharon Moore, Julie Jie Wen, Carl Yi Shi, and Cong Ren

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Literature Review on Women’s Status in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Findings on Career Challenges and Gender Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Demographic Sample Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Establishment of a “Glass Ceiling” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Career Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strongly Maintained Traditional Views on Gender and Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Paid and Unpaid Work Challenges for Women Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

The status of women in China has moved from two millennia of Confucian culture and patriarchy when the gap between two genders was seen as huge, via the Communist regime to promote equity and eliminate social difference, to the current era of market mechanism. The chapter argues that although the economic and social status of women continues to rise in China, the gap in career opportunities available for men and women shows little sign of narrowing, and the glass ceiling for women appears to

S. Moore Sydney Graduate School of Management, Western Sydney University, Sydney, NSW, Australia J. J. Wen (*) School of Social Sciences, Western Sydney University, New South Wales, NSW, Australia e-mail: [email protected] C. Y. Shi Wells International College Sydney, Sydney, NSW, Australia C. Ren School of Business, University of Sydney, Camperdown, NSW, Australia © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_18

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be firmly in place in the twenty-first century. Both primary and secondary data sources are utilized to describe the current position of women in business management, a privileged class compared to other women in the workforce. Survey data was collected from 406 managers, both women and men undertaking MBA studies in Guangzhou in southern China from 2002 to 2016. Data on interview and focus group discussions with a sample of 85 Chinese women business managers was also included. The research attempts to apply gender theory to the current working day reality of managers in China. After focusing on women’s opinions and experience in the interview and focus group study, the research included the experience and organizational issues of male managers to minimize any potential bias and maximize validity and reliability. Strategies developed through interview and focus group data to advance women’s equity in employment in China are explored. Keywords

China · Economic reform · Glass ceiling · Gender gap · Women · Management

Introduction China is changing dramatically from a tightly controlled communist regime, established in October 1949 when the People’s Republic of China (PRC) was declared in Beijing, to a much more laissez faire giant pursuing “socialism with Chinese characteristics,” a process that started in 1978 with the “open door” policy of economic reform (Wen and Tisdell 2001). While it is generally agreed that women’s social status improves when a society becomes more affluent, as in China, whether the gap in career opportunities between male and female continues needs exploration. The authors researched educated executive women in urban areas, a group which is normally considered to include the most privileged women in today’s China. The study includes surveys, interviews, and focus group data collected in Guangzhou during 2002 to 2016, which analyze the attitudes and aspirations of middle to senior executive women. The research concludes that although the overall social status of women continues to rise in China, the gap in career opportunities available for men and women shows no sign of narrowing, but rather is growing as women continue to have to contribute more than their male colleagues for the same level of family and public success and recognition. The glass ceiling for women appears to be firmly in place, and is becoming more severe with the progress of market mechanism in China.

Literature Review on Women’s Status in China The traditional Chinese view that the woman’s place is in the home, while never raised explicitly, has been reinforced alongside the economic reforms from the late 1970s (Tong 2003). While state ideology implied that the individual’s well-being

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was to be sacrificed for the state, women were clearly at the forefront of this sacrifice. Discrimination against women is also reflected in recruitment and human resource management policies, and it can be demonstrated that China’s economic reform has led to the continued marginalization of women in paid employment (Crompton and Sanderson 1990). Changes in service provision after economic reforms from public provision of occupational welfare to private community services may have increased women’s individual workloads. In a society where men are still viewed as superior to women (Chan 1995), and economic reform has undercut women’s status by withdrawing state assistance in welfare, recruitment, and employment (Rosen 1995), it is not surprising to find persistent gender differences continue in China. Although reforms in China have provided more opportunities for career advancement, women do not appear to have benefited as much as their male counterparts, and it is reasonable to assume that the gap between genders in career opportunity may have actually widened (Wen and Moore 2007). There is a widespread problem of visible and invisible hurdles for women to succeed in their careers in China, leading to increasing glass ceiling (Sung 2023). Throughout the Asia Pacific region, women’s representation in the academic professions and leadership positions appears to be much lower in the high education sector, where the glass ceiling still faces women leaders Neubauer and Kaur 2019). While females make up one-third of the total number of scientific researchers in China, only 5.5 percent of the academicians in the Chinese Academy of Engineering (CAE) are female. In addition, only 5 percent of the 704 Chinese Academy of Science (CAS) academicians are females (Xinhua News Agency 2007). While in the west, women have been among the first social groups to be displaced in economic restructuring (Crompton and Sanderson 1990), women in China have experienced similar marginalization as a result of economic reforms. For example, although the employment rate of women has not been falling drastically, 70 percent of factory workers made redundant in Beijing are women. Leung and Nann (1996: 172) argue that over 60 percent of displaced workers in Beijing were female. Women are also experiencing an increasing gender-based wage gap in urban China, and the gaps appear largest in the sectors with the most market influence (Li and Gustafsson 1999; Maurer-Fazio and Hughes 2002). If this trend continues, the wage gap between men and women may continue to expand. Women were paid substantially less in pre-socialist China (Maurer-Fazio and Hughes 2002). There is substantial evidence of increasing disparities between men’s and women’s incomes in China (Maurer-Fazio et al. 1999; Li and Gustafsson 1999; Sung 2023). Reforms in China since 1978 have resulted in a macro environment in which women have lost state or public support for their careers. It appears that gaps in career opportunity between male and female may have actually expanded in the post-Mao era. In order to further validate this argument, the chapter will focus mainly on the experiences of urban women, especially successful career women in urban centers, who clearly enjoy much high social recognition and better access to career development and employment opportunities than most of their sisters. The role of women in Chinese urban household has changed from “hiding behind” the

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male to many now assuming major economic responsibility for the family. This change is exemplified to a great extent by the proportion of women identifying themselves as household heads during national census (Li and Zax 2003). Despite increasing job opportunities and higher social status for urban women, it is important to examine the changes in their employment opportunities and social support. The following section uses empirical data collected from Guangzhou, China, to further substantiate this claim.

Findings on Career Challenges and Gender Discrimination Empirical studies were conducted with managers undertaking MBA studies at the Sydney Graduate School of Management joint venture with Kingold Education Centre, located in Guangzhou, southern China. The managers in the sample were students in the largest and most successful MBA program in southern China, and were selected as they represent executives as a new element in China’s burgeoning economy. Four hundred and six surveys have been collected between 2002 and 2016. Among the subjects, 281 were males, and 125 were females. Sampling was voluntary with over a 90 percent response rate. A brief analysis of the survey data follows.

Demographic Sample Data The gender distribution in the surveys reflects the focus towards gender difference, where women account for less than one-third of the sample, reflecting the decreasing numbers of women entry into MBA programs in China (Cai 2004). In fact in UWSKingold MBA program, the proportion of women has fallen from approximately 50 percent in intake one in 2001 to less than 20 percent in intake seven in 2004 (Graph 1). Although the average age of the managers in the sample was around 35, a significant number did not complete this item. During more detailed discussions, the researchers were given many examples of the ageism in recruitment and promotion, resulting in fear of indicating their age. Sample Gender distribution reflects women’s weakening position in business. Graph 1 Age distribution and the issue of ageism

20%

20%

25-30 31-35

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36-40 41-45 23%

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no answer

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Women comprise only 26.9 percent of the total sample. The skewed nature of the gender distribution in the surveys reflects the focus towards males in business, and correspondingly, the significance of the issues raised in the sample for the group of women managers. This is in dramatic contrast to the decreasing numbers of women entry into MBA programs in China (Cai 2004). In fact in UWS-Kingold MBA program, the proportion of women in the program has fallen from approximately 50 percent in intake one in 2001 to less than 23 percent in intake fourteen in 2016.

The Establishment of a “Glass Ceiling” The sample reflected significant changes in industrial production in China. For example, the proportion of managers from manufacturing fell from 32 percent in the survey conducted in 2002 to 22 percent in the survey in June 2016, reaching an average of 25 percent across all surveys. The shift from State Owned Entreprises (SOEs) to Chinese private sector and transnational companies is important for women, as private business is widely recognized as being less likely to support women than the public sector (Graph 2). Significant shifts in ownership patterns can be observed in this brief period. Proportion of samples from SOEs dropped markedly, so did those from joint ventures, while samples from solely foreign owned and transnational companies rose sharply. This may indicate the declining economic power of the State sector, and the shift from joint ventures to solely foreign owned ventures when Foreign Direct Investment (FDI) adjusts its entry criteria in China. This shift clearly accounts for the significant drop in the number of women doing MBA studies, and arguably reflects the establishment of the “glass ceiling” for Chinese women (Graph 3). The dominant proportion of line managers in the sample (45 percent) reflects two factors. First, a shift from systemic company support (paying for the tuition and time allowance) to a more individually focused position (functional and line managers are paying for their studies to advance their careers to more strategic and general management roles). Second, a more competitive market, and pressure to strive for better qualification in order to adapt to more demanding jobs and short-term roles. This shift also appears to reflect male bias against women in business and management, and much more support for male MBA students (Graph 4). Graph 2 Ownership patterns of the business

2% 22%

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12% GM national GM provincial

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15% Graph 3 Organizational role/position Graph 4 Years with the current organization

7%

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Career Mobility A decrease in average length of employment with the same organization was also apparent, and was supported by numerous examples from the subjects. The researchers were told that the average time spent in organization has decreased from 6 to 8 to 2 to 5 years, with younger male managers being more likely to move more frequently. However, women and older managers were less likely to be mobile.

Strongly Maintained Traditional Views on Gender and Roles Despite the changes in China, the traditional role of women and men are still strongly held by both genders. Attitude toward who is the main contributor of unpaid work at home, including cleaning, cooking, etc., was indicative of this. Only one woman chose men, and four (including one male) indicated both men and women should have equal share. All the other respondents selected women as the main source of unpaid domestic work. The same pattern was obvious for the question on who should play a major role in looking after the child – apart from four who indicated

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that both should take equal level of responsibility (including one male respondent), all the other participants chose women as the main carer. Reverse choice occurred for who should be the main income earner of the family – only one female chose women to be the main income earner, and seven indicated both men and women should take an equal share (including two male respondents), the rest believed that men should play the role of main income earner. It still seems to be “shameful” for a Chinese male to agree that a woman could be the primary breadwinner.

The Paid and Unpaid Work Challenges for Women Managers Men are still the main decision maker at work according to the survey data (Graph 5). This reflects traditional attitude to men’s dominant role at work place, in both paid and unpaid role. For example, the sorts of tasks men are normally involved in, such as working overtime to make an important decision, are viewed as appropriate unpaid work by both genders, in contrast women’s unpaid roles at work, including office wife, social support, organizing facilities, recreation etc., are not seen as visible or real unpaid work. This reflects a more general trend to not acknowledge women’s unpaid contribution at work. When asked whether reform has made women’s situation more difficult, only 11 said Yes (ten were females and one male), the rest regarded reform as improving women’s life. This reflects the general overall improvement in economic life and opportunities for both genders across China, particularly in the cities of southern China. However, decreasing social and family support for child rearing and continued commercialization of education has led to over 40 percent of subjects stating that life for women was becoming more difficult, and almost 80 percent of those agreeing were women. This reflects the reality that Chinese women are held responsible for the great majority of unpaid work and family support for child and elder care, as well as men’s reluctance to acknowledge their responsibility to share caring duties. A surprisingly high Yes response (over 53 percent) for the question on whether increasing demand on employees has made women’s life more difficult, reflects the common feeling of rising pressure on women, and men also agreed that women’s situation was especially vulnerable in this regard. The gender gap at work is clearly recognized in the question as to who makes decision at work. Only one female chose women as the main decision maker, and ten

Graph 5 Which gender does most unpaid work at the office

27% men women 58% 15%

both

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(including three women) preferred both men and women make decisions jointly. All the rest chose men as the main decision maker at work.

Conclusions and Implications China is increasingly viewed as a dominant player in the world’s economic future. What social and business models is it building? In particular, are the impacts of gender and income similar or different to current experience in western economies? It seems that many of the experiences observed in China are reminiscent of earlier eras of western culture. As well as gender differences, there was an almost complete absence of environmental consciousness, and Chinese businesses were just beginning to attend to concerns about social equity. At the same time women are moving away from more than 50 years of state socialism towards a more economically “liberal” but not necessarily “liberating” future. In relation to economic and class differences, the women managers included in the research represent the emergence of a new executive class of Chinese women. Further, Chinese society is rapidly constructing a set of economic and social relationships almost identical to the business and family experiences of western business over the past quarter century. While gaining a foothold in the new economy and international business, they are also experiencing some negative impacts of China’s next “great leap forward.” The retreat from the gender equity in employment, which was encouraged by the former Maoist regime, is of serious concern. The establishment of a “glass ceiling” in such a short period of time, and the seeming acceptance by men and women, and the wider society, sounds a warning for those committed to equity and productive diversity, as well as more sustainable business development. Chinese women executives face great challenges to work-life balance, are affected at a very personal level by the intensification of work in global business environments, and are embracing these challenges with gusto and stress! Their lives are very different from those experienced by their mothers who raised their families during the Cultural Revolution and their grandmothers who grew up in pre-Revolutionary China, and the speed at which this is occurring is breathtaking. Similar impacts are evident in changes in consumption patterns and increased wealth and materialism. Increasingly women are being encouraged out of paid employment into roles reminiscent of the post-WW2 retreat to the home in other western economies. Unfortunately, the “trophy wife” phenomenon is also increasingly apparent in Chinese cities and business life. Women managers interviewed in focus groups recommended that gender neutrality be replaced by gender-sensitive policies and practices that acknowledge important gender differences and economic realities. These could include upgrading labor laws to cover particular segments of the economy, better protect the rights and interests of women workers in casual jobs, ensure workplace safety, and so on. A new focus on healthy and non-discriminatory workplaces was evident, to be

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supported by central, regional, and local government legislation and policy frameworks. The following strategic issues appear significant in addressing gender issues in Chinese business today: • In this new era for China, will the relativities of women’s occupations be any different (a) from the past and (b) from western experience? • What would it take for the experience to be different – feminist leadership, social legislation, strong media models, intellectual leadership, work-based child care, return to publicly provided social infrastructure? • A post-Mao return to Confucian values fits very well with the values of neoliberalism. However, with recent experience of central planning models China has the opportunity to do something more effective for women and other equity groups. Linking economic reform with social and environmental reforms is one possibility, e.g., joint ventures to include controls around equity, community provision, and sustainability may well be the next model as China moves to slow its economic growth and develop a “Balanced Scorecard” or “Triple Bottom Line” approach to development. There are limitations to these findings from a non-representative sample. Largescale study in other provinces would also help to substantiate further the findings of the present research. Nevertheless, the gender gap among successful executives in China has so far been identified in this systematic research. The research may serve to provide valuable insights for policy making and human resource strategy in China, and encourage related research on the costs as well as benefits of the current reform strategy.

References Cai Z (2004) Analysis of Chinese Women in Joint Ventures. www.people.com.an/GB/Shenghuo/ 200 Chan CLW (1995) Gender issues in market socialism. In: Wong L, MacPherson S (eds) Social change and social policy in contemporary China. City University of Hong Kong, Hong Kong, pp 188–215 Crompton R, Sanderson K (1990) Gendered job and social change. Unwin Hyman, London Leung JCB, Nann R (1996) Authority & benevolence: social welfare in China. Chinese University of Hong Kong, Hong Kong Li S, Gustafsson B (1999) ‘Zhongguo Chengzhen Zhigong shouru de xingbei chayi fenxi’ (an analysis of gender difference in urban employees in China). In: Zhao R et al (eds) Zhongguo jumin shouru fenpei zai yanjiu: Jingji gaige he fazhan zhong de shouru fenpei (further research on the income distribution of Chinese residents: income distribution in economic reform and development). China Finance and Economics Publishing House, Beijing, pp 556–593 Li HZ, Zax JS (2003) Labor supply in urban China. J Comp Econ 31(4):795–817 Maurer-Fazio M, Hughes J (2002) The effects of market liberalization on the relative earnings of Chinese women. J Comp Econ 30(4):709–731 Maurer-Fazio M, Rawski T, Zhang W (1999) Inequality in the rewards for holding up half the sky: gender wage gaps in China’s urban labour market, 1988–1994. China J 41:55–88

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Neubauer DE, Kaur S (eds) (2019) Gender and the changing face of higher education in Asia Pacific. Springer International Publishing Rosen S (1995) Women and political participation in China. Pac Aff 68:3 Sung S (2023) The economics of gender in China: women, work and the glass ceiling. Unwin Hyman Tong J (2003) The gender gap in political culture and participation in China. Communis PostCommun 36(2):131–150 Wen J, Moore S (2007) Economic reform, urban women and ‘hidden poverty’ in China. In: Tisdell C (ed) Poverty, poverty alleviation and social disadvantage: analysis, case studies and policy. Serials Publications, New Delhi Wen J, Tisdell C (2001) Tourism and China’s economic development in China. World Scientific Publishing House, Singapore Xinhua News Agency (2007) Chinese female scientific researchers face “glass ceiling”, Woodside

China’s Responsible Investment Pathway

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Yingcui Cai and Peiyuan Guo

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of Responsible Investment in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Status of China’s Responsible Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Responsible investment is an approach to incorporate environmental, social, and governance (ESG) factors into investment decisions. In the Chinese context, responsible investment also includes the activities that use the financial tools to improve the efficient use of natural resources, solving the problems of climate change and promoting the economic transformation for the goals of ecological civilization. This chapter seeks to provide an overview of responsible investment in China. It discusses the driven forces of the rapid growth of responsible investment in China, and provides suggestions to further promote the development of responsible investment in China. Keywords

Responsible Investment · ESG · Green Finance

Y. Cai · P. Guo (*) SynTao Green Finance, Beijing, China e-mail: [email protected]; [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_19

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Introduction Conventionally, responsible investment is an approach to incorporate environmental, social, and governance (ESG) factors, with financial objectives, into investment decisions to better assess risk and generate sustainable, long-term returns (reference from the United Nations-supported Principles for Responsible Investment (UN PRI)). In the Chinese context, responsible investment also includes the activities that use the financial tools to improve the efficient use of natural resources, solving the problems of climate change and promoting the economic transformation for the goals of ecological civilization, for example, green finance, the environmental and social risk management, low carbon finance, inclusive finance and social impact investment, etc. This chapter seeks to provide an overview of responsible investment in China. It begins with the background and necessity of responsible investment inside China with the historical progress and state of the responsible investment market in China. It then discusses the driven forces of the rapid growth of responsible investment in China, including serious environmental and social problems and public attention, regulating policies and top-down approach, nonfinancial information disclosure, and domestic and international institutions, aiming to explore a deeper understanding of responsible investment activities in China. In the end, it identifies the current challenges and provides suggestions to further promote the development of responsible investment in China.

Overview of Responsible Investment in China Background In the modern society, the responsible investment initiated with the development of religious ethics, cultural traditions, and contemporary social movements mainly in Europe and the United States (see Fig. 1). Investors began to consider the application of the environmental and social impacts brought by investment activities. With the increasing participation of institutional investors, especially pension funds, responsible investment has gradually become a mainstream analytical method and investment style. In China, the responsible and sustainable spirit for the human activities can be traced as early as thousands of years ago. In the long history of Chinese civilization, Chinese people have always put an emphasis on harmony among nature, society, and humanity, which is an important component of Chinese traditional culture. For example, according to the Analects of Confucius, the master says “Wealth and prestige are what people desire. If they are not obtained in the proper way, they should not be held. Poverty and low status are what people dislike. If they are not avoided in the proper way, they should not be avoided.” This reflects that

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The Quakers in North America declared not to generate profit from arms and slave trade.

In USA, investment as an effective approach was used to protect the environment, oppose the Vietnam War and apartheid in South Africa and defend the rights of disadvantaged ethnic groups such as Blacks and Indians.

As the shareholder of General Motors, the Anglican Communian demanded that GM end all its operations in South Africa until the abolition of apartheid there. Other religious organizations gradually joined this campaign, forming a religious center ICCR (Interfaith Center on Corporate Responsibility).

Under social pressure, General Motors announced it would sell its assets in South Africa, followed by the withdrawal of about 50 U.S. companies from South Africa.

As stock broker Ms Amy Domini found some of her clients do not prefer to invest in the field of arm and tobacco. Later Ms Domin lauched the first responsible investment index Domini 400 Social Index .

Goldman Sachs invented the concept of ESG that integrates corporate governance with responsible investment factors, typically environmental and social factors,and launched a Goldman Sachs sustainable stock portfolio based on the ESG research framework.

Responsible investment is being used by more and more institutional investors, especially pension funds and insurance funds, and has gradually become a mainstream investment style

Fig. 1 Historical landmarks of global responsible investment. (Source: Decennial Report on the Responsible Investment in China) (SynTao Green Finance 2017)

Confucianism places morality and responsibility before wealth. Therefore, in Chinese tradition, responsible management means doing business in a proper way which includes not only legal but also ethical considerations. This is quite similar to the western saying Doing Well By Doing Good. China Industrial Bank, a leading bank in Chinese green finance area, follows this concept and uses Chinese words “寓义于 利” in its corporate strategy. Since the economic reforms and trade liberalization in 1978, China’s economy has been growing rapidly at an average annual rate of 9.8% from 1979 to 2012 (data from National Bureau of Statistics), while the world economy grew only 2.8% annually over the same period. With a population of more than 1.3 billion, China has become a main economic and trade power in the world. It is now the world’s largest manufacturer and holder of foreign exchange reserves, as well as the world’s second largest economy and the destination of foreign direct investment (FDI). In the meanwhile, the fast growth of economy, especially heavy industry which is energy intensive and high polluting, has made China the world’s largest emitter of greenhouse gases and brought serious environmental problems. The level of pollution in China continues to worsen, posing serious health risks to the people.

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According to the study, the costs in terms of health impact and lost productivity from China’s air pollution were equal to 6.5% of GDP each year from 2000 to 2010. It further estimated the costs as a percent of GDP of water pollution and soil degradation at an additional 2.1% and 1.1%, respectively (The Rand Corporation 2015). The imbalance in economic development has also brought many social problems.

Current Status of China’s Responsible Investment Overview Responsible investment not only provides a way to create the environment and social values, but also has a sound market logic. From the emergence of the world’s first responsible investment stock index in the 1990s to the launch of the first responsible investment fund in China about 10 years ago, responsible investment can not only reduce investment risk but also obtain better financial returns in the long run. According to the Global Sustainable Investment Alliance (GSIA), there were assets worth $22.89 trillion being professionally managed under responsible investment strategies in 2015, an increase of 68% since 2012. In relative terms, responsible investment now presents 26% of all professionally managed assets globally (data from Global Sustainable Investment Alliance 2016). Responsible investment in China is still in the early stage. However, as the environmental and social problems are becoming more and more serious, the decarbonization goals are urgent for the consideration of domestic politics, economic costs, and public health. Sustainability themed assets have attracted particular interest in China. Till 2016, these assets have grown 157% annually since 2014, from $450.9 million to $2.9 billion (data from Global Sustainable Investment Alliance 2016). After issuing the first corporate green bond in 2015, China has become the world’s largest issuer of climate-aligned bonds with $220 billion in issuances in the same year (data from Climate Bonds Initiative). As part of China’s presidency of the G20 in 2016, the government cohosted, along with the United Kingdom, a Green Finance Study Group that gathered data and experience from G20 members and international institutions on how to mobilize private capital for environmental initiatives. Mutual Funds, as the traditional market players, has undergone from scratch development process in a decade. The earliest introduction of the responsible investment concept was the Sustainable Growth Equity Fund by Bank of China Investment Management launched in 2006. And the earliest fund entitled as Corporate Social Responsibility (CSR) Fund was launched by AEGON-Industrial Funds in 2008. So far, China has 62 ESG-themed funds. The total net asset value of the fund is about USD 7 billion, of which USD 1 billion is for passive index funds (USD 1 dollar ¼ RMB 7 yuan). According to the data of China Sustainable Investment Forum, ESG-themed funds outperformed than other funds in a 3-year period (data from China Sustainable Investment Review 2022 by China Sustainable Investment Forum (China SIF)).

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Driving Forces of China’s Responsible Investment Serious Environmental and Social Problems and Public Attention As mentioned earlier, China has serious environmental and social problems with the rapid development of economy. These problems have caused public attention, e.g., air pollution and PM2.5. Environmental risks for companies in China are getting much higher. For example, PetroChina was fined RMB 1 million for a river pollution case in 2005 while it cost PetroChina RMB 200 million for another environmental allegation case in 2015. Meanwhile, cleaning the pollutants is costly. According to the estimation, the overall need of funding to solve these environmental and social problems is around USD 8–10 trillion (data from YouChange Foundation 2016). The government could only provide small portion of the funding and would like to encourage more funding from the public.

Regulating Policies and China’s Top-Down Approach Different from voluntary activities by investors, the development of responsible investment in China, especially green finance, has adopted top-down approach from the government in recent years (see Fig. 2) and has entered an accelerated period of development. For example, in 2016, China’s labeled green/climate bonds issuance increased from almost zero to about 200 billion yuan, accounting for about 39% of the world’s total labeled climate bonds and becoming the largest green bonds market in the world. Provinces and cities have established more than 20 local green industry funds. Now China has various types of green financial products including green Asset Backed Securities (ABS), green Public-Private Partnership (PPP), carbon finance, and green insurance.

Green Finance

• In August 2016, seven ministries including the People's Bank of China issued the Guiding Opinions on Building a Green Financial System, which is the first guiding document in the international community to comprehensively plan and promote green finance at the government level.

G20

• In September 2016, Green Finance was first written into the G20 Summit Communique initiated by China. The G20 Green Finance Study Group is co-chaired by the People's Bank of China and the Bank of England.

Regulators

Pilot Area for Green Finance

• Asset Management Association of China, which superivised investment activities under the supervision of China Securities Regulatory Commission (CSRC) has established partnership with UN PRI and organized a series of events to promote responsible investment.

• In June 2017, the State Council decided to establish green finance innovation pilot areas selected from five provinces (Zhejiang, Jiangxi, Guangdong, Guizhou and Xinjiang). Later, People's Bank of China together with other six ministeries issued the overall plan for details.

Fig. 2 Supports of responsible investment by Chinese government

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Improving Nonfinancial Information Disclosure The development of responsible investment market relies on the solid and timely information system, especially ESG information. The source of information comes from the disclosure by companies promoted by the regulators or from the third parties, which provide the data services. Without the nonfinancial information, the market mechanism may not form and operate. For the listed companies, corporate social responsibility reports (CSR reports) are important sources of nonfinancial information. In 2016, 763 A-share listed companies issued 771 CSR reports, of which 62.1% were by state-owned enterprises, 33.6% by private enterprises, and 4.1% by joint ventures. The China’s government has more and more requirements on nonfinancial information disclosure. For example, last year, the China Securities Regulatory Commission (CSRC) released the revised three disclosure standards, regulating the content and format of the annual, semiannual, and quarterly reports of companies that publicly issue securities, and required some big sewage disposal companies to disclose their pollution discharge. In December 2015, the Hong Kong Stock Exchange has published its new Environmental, Social and Governance (ESG) Reporting Guide, from the voluntary obligation to disclosure ESG info to a “comply or explain” mechanism. In December 2016, the Shenzhen Stock Exchange specified the concept and disclosure details for the big sewage disposal companies to disclose ESG information. Influenced by Domestic and International Organizations As China adopts top-down approach, the governments play significant role in leading responsible investment. In 2012, China Banking Regulatory Commission (CBRC) stimulated Green Credit Guidelines to promote the green credit and control the environmental and social risk for the commercial banks. In 2015, Initiated by the People’s Bank of China, the Green Finance Committee (GFC) of the China Society for Finance and Banking is one of the most important associations in the field of responsible investment in China. GFC has expanded to about 170 member institutions, including most of China’s major banks, insurance companies, funds, green businesses, and third-party service agencies. It plays an important role in establishing the financial community, cooperation between green industry and government, and promoting the formation and landing of green finance support policies. Besides the governments, the global and domestic organizations also play an essential role in promoting responsible investment in China. The United Nationssupported Principles for Responsible Investment (PRI) is an international network of investors working together to understand the implications of sustainability for investors and support signatories to incorporate the ESG issues into their investment decision-making and ownership practices. In addition, other global initiatives are the active players in China’s responsible investment fields, such as UNEP FI, WWF, and Climate Bonds Initiative. In the domestic market, China SIF is China’s leading advocacy NGO on responsible investment and green finance. It aims to promote

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the concept of responsible investment, to encourage green finance, and to facilitate sustainable development of China’s capital market. YouChange Foundation is also an active organization to promote social responsible investment, especially in poverty reduction area in China. Besides the above external driving forces, the branding consideration and market competition for social responsibility can also be the essential factors for the investors to adopt ESG issues in their portfolios.

Problems to Be Solved A. ESG issues have not fully exposed real risks for the companies and investors. For example, not all heavily polluting enterprises have been shut down and rectified; the products of these sweatshops have many buyers because of their low prices. The low penalty on pollution makes the companies ignore the environmental risk, although this situation has been changed much after the new Environmental Protection Law launched in 2015. The public does not have sufficient awareness on the ESG issues. All these problems make some listed companies and investors take a blind and passive attitude toward ESG risks. B. China is lacking sufficient data and professional tools on evaluation. ESG issues are quite new to listed companies and investors in China, without appropriate management tools to identify and manage such specialized risks. For example, financial professionals find that it is quite difficult to recognize and understand a variety of environmental pollutants. On the other hand, ESG topics are not easily measured by quantitative measures, such as risk of climate change. The lack of such tools and models makes it difficult for listed companies and investors to introduce ESG risks into the existing risk management framework. C. Insufficient market size of ESG-related investment leads to insufficient market demand, which in turn limits the market innovation and products diversity. The overall ESG funds and indices still account for a very low proportion in the market, although more ESG indices have emerged, e.g., SynTao and CaiXin launched the ESG 50 Index in December 2017. Now China has 4000 mutual funds, less than 2% of which are ESG-themed funds. Lack of demand and supply will not result in economies of scale. As a result, the related services such as ESG consulting, ESG data, ESG ratings, ESG indices, and product innovation will be hard to sustain, which in turn will limit the expansion of the market and trigger a vicious cycle. D. Public Awareness on ESG issues is not enough. Here is a case of Foxconn, the supplier of Apple products. From January to May 2010, Foxconn factory in Shenzhen had a series of 13 suicides, 10 dead, and 3 injured of its employees. The news aroused widespread concern in the community, revealing Foxconn’s corporate governance issues. However, these incidents did not reflect share price in the Hong Kong Stock Exchange. Compared to the environmental pollution and social scandals by the listed companies, these companies will be affected by their stock prices.

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Suggestions It is still a long way to go to fully develop responsible investment in China. Here are some suggestions on promoting responsible investment in China. The Chinese government should issue more favorable policies, such as tax reduction and fiscal supports and stimulate more standards to address ESG concerns. The government should encourage more nonfinancial information disclosure by listed and nonlisted companies. In addition, the government should increase the penalty for the polluting companies and provide more education on public awareness. Besides, the government should support the development of third-party service firms, research institutions, NGOs, and media to deepen the development of responsible investment in China and supervise the performance of the companies. More best practices for the leading responsible investment should be introduced to China. Investors in China are reluctant to adopt ESG factors in their portfolio as they believe it may generate less profits than the traditional investments. Therefore, Chinese investors should be better informed about best practices worldwide. For example, the leading sustainability asset management firm, Generation Funds, has proved that focusing on long-term investment may generate better rewards with their outstanding performances in the past 10 years.

Conclusion Although the development of responsible investment in China is still in the early stage, it is apparent that diverse responsible investment opportunities will arise when ESG themes and benefits are fully understood. A wide range of stakeholders, including governmental and financial institutions, global and domestic organizations, institutional and individual investors, and customers and communities, show more and more interest and support on the development of responsible and sustainable investment in China. As the amazing development of green bonds market in China, the country takes only 1 year to present the “zero to hero” story. The responsible investment market can make the impressive achievements in near future.

References Global Sustainable Investment Alliance (2016) https://www.gsi-alliance.org/members-resources/ trends-report-2016 SynTao Green Finance and AEGON-Industrial Funds (2017) https://en.syntaogf.com/products/中 国责任投十年报 The Rand Corporation (2015) https://www.rand.org/pubs/research_reports/RR861.html YouChange Foundation (2016) China Social Impact Investment Report

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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Status Quo of CSR Reports in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Voluntary to Partially Mandatory CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Do Companies Voluntarily Disclose CSR Reports? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Guidelines of CSR Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Status Quo of Assessment or Assurance on CSR Reports in China . . . . . . . . . . . . . . . . . . . . . . The Assessor or Assuror and Their Assessment or Assurance Standards . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

This chapter firstly depicts the status quo of CSR reports issued in China. It then introduces the requirements of CSR reporting from China authorities, the motivation of voluntary CSR information disclosure by companies, and the popular CSR reporting guidelines adopted in China. Finally, this part also describes the existing states of assurance, assurors, and assurance standards in China. Keywords

Corporate social responsibility report · Corporate social responsibility reporting guideline · Assessment or assurance on corporate social responsibility report · Assurance standard · Voluntary disclosure · Mandatory disclosure

J. Liao (*) School of Accounting, Guangdong University of Finance, Guangzhou, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_20

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Introduction Preparing corporate social responsibility reports is a way for companies to define their stakeholders and externally communicate with them. Stakeholders include shareholders, creditors, suppliers, customers, employees, governments, communities, and the general public. Compared with international status quos of CSR reporting and the assessment or assurance on CSR reporting, knowing about the CSR communication in China makes other countries understand more about how many Chinese companies involved in CSR reporting, why they disclose CSR information, and how they issue CSR reports and have them assessed or assured, and the reason why their unique characteristics exist is majorly because of the macro-level Chinese political system which impacts the micro-level companies’ behaviors. The author has been doing research and has a long-standing interest in CSR reporting and assessment or assurance. She positions this chapter in the context of what is known through research and also with regard to what she knows about CSR reporting and assessment or assurance.

Overview

The Status Quo of CSR Reports in China

From Voluntary to Partially Mandatory CSR Reporting

Why are Some CSR Reporting is Voluntary?

The Assessor or Assuror and their Assessment or Assurance Standards

The Status Quo of Assessment or Assurance on CSR reports in China

CSR Reporting Guidelines

The Status Quo of CSR Reports in China At the beginning of this century, 45% of the Global Fortune Top 250 companies, surveyed by KPMG in 2002, published a separate report on their (health, safety and) environmental performance, which indicated an increasing global trend of releasing stand-alone CSR reports, especially in developed countries (Fig. 1). Compared with the rapid growth in CSR reporting at that time around the world, CSR reporting practice in Mainland China just started. The first CSR report in Mainland China was published by Petro China in 2002, and this report is called

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Fig. 1 CSR reports published by GFT250. (Source: KPMG international survey of corporate sustainability reporting 2002)

2001 Health, Safety and Environment Reports. Prior to this first stand-alone CSR report, there was some CSR information disclosed in Chinese firms’ annual reports with financial information or on official websites, such as how companies pay attention to employees’ health and safety, services for the disabled or other vulnerable groups, monetary donations to the communities, and environmental protection (Image 1). To date writing this chapter, there are already 11,420 CSR reports published in China (including Mainland, Hong Kong and Macau, Taiwan), according to Material and Quantitative Indicators Database (hereafter MQID) which is operated by an independent CSR consulting firm Syntao and supported by Center for Environmental Education and Communications of China Ministry of Environmental Protection. It collects all the released CSR reports in Mainland, Hong Kong, and Macau China, some CSR reports in Taiwan China. Most of the CSR reports publishers are enterprises, public or private companies, while 1169 CSR reports are published by industry associations, kindergartens, primary schools, middle and high schools, vocational schools, universities, hospitals, media, governmental departments and institutions, welfare lottery centers, and other NGOs or NPOs (Image 2). Figure 2 depicts the trend of issuing CSR reports by listed firms in Shanghai and Shenzhen Stock Exchange, with data gained from China Stock Market & Accounting Research Database (CSMAR). It suggests that there were leaps in this amount from 2007 to 2008 and from 2009 to 2010 fiscal year. This is because mandatory requirements or rules upon CSR reports published by some types of companies have been put forward in Mainland China these years. In Hong Kong and Macau China, the number of CSR reports which are also called environmental, social, and governance (hereafter ESG) Reports has grown steadily, attributed to public recognition, encouragement by subsidiaries of multinational companies, and award schemes like the Association of Chartered Certified

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Image 1 The first CSR reports in Mainland China

Accountants (ACCA) corporate reporting at first, and due to the encouragement and then current mandatory requirements by the Stock Exchange of Hong Kong (hereafter HKEX). In Taiwan China, according to KPMG’s surveys, the CSR reporting rate has increased rapidly from less than 40% in 2011 to more than 70% in 2015, which is majorly driven by formal requirements (KPMG 2015). To be more detailed, there are 1622 CSR reports disclosed on CSRone Reporting Platform (hereafter CSRone) which is operated by an independent consulting firm Yide International. This platform claims to have the completest CSR reports collection in Taiwan. It

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Image 2 CSR reports provided by Chinese organizations other than enterprises

published a survey in 2017 which demonstrates that around 83% of Taiwan’s top 100 companies already compiled CSR reports, and among all the listed and over-thecounter (OTC) companies, the quantity of voluntary reports doubles the number of mandatory reports.

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Fig. 2 The quantity of CSR reports published by Chinese listed companies for each fiscal year

From Voluntary to Partially Mandatory CSR Reporting Prior to the first CSR report in Mainland China, China Securities Regulatory Commission (hereafter CSRC) has started to pay attention to CSR performance of listed companies since 2002, stating in the Code of Corporate Governance for Listed Companies, “While listed companies maintain their sustainable development and maximize the interests of their shareholders, they should pay attention to the welfare of their community, environmental protection, public welfare and etc., and attach importance to corporate social responsibility.” This has reminded listed companies of incorporating their social responsibility into corporate governance and daily business, under which some of them began to publish CSR reports voluntarily. Other than listed firms, some firms are encouraged to disclose CSR information by industrial or economic associations. For instance, there is an increasing number of CSR reports published by firms in textile industry, financial industry, and firms which are members of China Federation of Industrial Economics (hereafter CFIE), because of the facilitation from China National Textile and Apparel Council (hereafter CNTAC), China Banking Association (hereafter CBA), and CFIE. CSR reports in Mainland China were voluntarily disclosed until 2008. Since December 2008, CSRC has required that three types of public firms listed in Shanghai Stock Exchange (hereafter SSE) must disclose CSR reports. They are sample firms in SSE Corporate Governance Index, firms listed overseas, and firms

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listed in financial industry. At the same time, CSRC has also requested the public firms listed in the 100 index of Shenzhen Stock Exchange (hereafter SZSE) to issue CSR reports. In November 2009, the State-owned Assets Supervision and Administration Commission of the State Council (hereafter SASAC) convened a meeting which paid attention to the social responsibility of the central state-owned enterprises. At this meeting, all central state-owned enterprises were told to have to publish CSR reports within 3 years. Due to these mandatory requirements, the number of CSR reports has increased expectedly and dramatically. In Hong Kong and Macau China, ESG reports were entirely voluntary disclosures before 2016. The whole process of listed companies in Hong Kong from voluntarily to mandatorily issuing ESG reports has been stimulated by HKEX. At the beginning, HKEX published ESG Reporting Guide consultation documents in December 2011 and the results of this consultation in August 2012 in order to encourage listed companies to report ESG performance. From 1 January 2013, this guide has been attached in the appendix of HKEX Main Board Listing Rules. In 2014, HKEX examined listed companies’ ESG reporting and sent questionnaires to them so as to do further consultation. In June 2015, some disclosure obligations in the guide have been upgraded to “comply or explain” level, while others have remained to “recommended disclosures” level. On 21 December 2015, HKEX published the results of consultation and mandated all listed companies in Hong Kong to issue ESG reports following the guide from 1 January 2016. Hence all listed companies in HKEX have to disclose ESG reports currently. In Taiwan China, the Financial Supervisory Commission (hereafter FSC) plays an important role in pushing firms issuing CSR reports from entirely voluntarily to partly mandatorily. The story starts from 2010 when FSC instructed Taiwan Stock Exchange Corporation (hereafter TWSE) and Taipei Exchange (hereafter TPEX) to issue Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies which was announced in August 2011 and amended in November 2014, so as to guide listed companies in Taiwan to implement CSR and emphasize sustainable development. In 2014, cooperating with TWSE and TPEX, FSC published Rules Governing the Preparation and Filing of Corporate Social Responsibility Reports by Listed Companies requiring the largest chemical, food, finance, and insurance companies to publish an annual CSR report, which affected around 200 companies (KPMG 2015). The number of affected companies is still rising, since FSC mandated the largest companies in all industries in 2015 and it would be put into practice since 2017. In short, under the “visible” hands from the China authorities, some listed firms have to disclose their sustainability information to the public in the form of standalone CSR report. From around the world, “CSR reporting becomes the norm, driven by regulation” (KPMG 2015). In some countries, such as India, Indonesia, Malaysia, South Africa, UK, France, Denmark, and Norway, mandatory reporting requirements have stimulated a surge in CSR reporting, and their reporting rates in N100 companies (the largest 100 companies by revenue in each country) and G250 companies (top 250 companies around the world) are above 90 percent.

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Why Do Companies Voluntarily Disclose CSR Reports? Some firms disclose CSR reports in response to mandatory requirement, while other firms publish their CSR reports voluntarily. The reasons why these companies are willing to issue CSR reports can be analyzed based on the trade-off between costs and benefits. On one hand, in order to prepare understandable, readable, and even accurate CSR information, a firm may follow the international or domestic guidelines released by some organizations (this will be elaborated in the next part) and establish an internal system to record, deliver, and present CSR information, which will consume the financial and human resources of the firm. On the other hand, the benefits of issuing CSR reports come from the demands of stakeholders. Stakeholders have begun to be aware that a firm as an entity in the society, its behavior should be acceptable by other entities in the society. Stakeholders are concerned about whether the firm threatens the stakeholders’ interests by, for instance, leasing out polluted gas, shrinking employees’ benefits, and producing unhealthy or even toxic food and whether the firm cares about and does goods to stakeholders, for example, launching a project producing clean energy, safeguarding women’s rights and equality, and donating financially to the poverty. If a firm has done something causing negative effects on the society, then it is very likely that it won’t continue its business. The milk industry scandal in Mainland China in 2008 is this case. Some milk companies have been restructured or even shut down. The scandal has still impacts on Chinese consumers’ trust in baby milk powder products in China until now. In a word, a firm has to legitimatize its behavior to survive and do business continuously. Based on this, firms are eager to convey the signal to the stakeholders what and how they have and haven’t done to the society. To satisfy the informative demands of stakeholders, to demonstrate its good deeds, and in the long run to be profitable indirectly attributed to such as loyal customers and governmental supports, a firm is voluntary to publish costly CSR information. This explanation of voluntary disclosure of CSR information aligns with stakeholder theory and legitimacy theory which were originated from the western and are also applicative in China. The benefits of issuing CSR reports for Chinese companies may also come from the manipulation on customers’ attitudes. Some firms which are willing to disclose stand-alone CSR reports regard the cost of CSR reporting as the cost for selling products and services or for building brand image, which can be told from the department of the firm in charge of compiling disclosed in its CSR report, such as Brand Publicity Department, Market Construction Department, Brand and Public Communication Department, and Propaganda Department. From this perspective, it seems that firms publish CSR reports since they expect them to have the same effect of advertisements and then to contribute to firms’ economic performance. Another kind of benefits from issuing CSR reports in China may be reputational and intangible. Some state-owned companies have done well in CSR reports, and then they have been rewarded by central or local SASAC. The CEO or the chairman of these state-owned companies is politically equivalent to a governmental officer, and they face the pressure of performance assessment from the government of higher

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level. They have the motivation to improve the state-owned company’s CSR reporting practice to achieve a reward or prize since this may add value to the assessment of their performance. Some private companies’ issuing CSR reports may also be motivated by some awards, such as the awards from ACCA for companies in Hong Kong and GoldenBee CSR award from GoldenBee CSR Consulting Company which is one of the first professional organizations devoted to social responsibility and sustainable development in Mainland China.

The Guidelines of CSR Reports Deciding or having to prepare CSR reports, firms should then decide what contents should be contained in these reports. There are several guidelines they can choose to follow. One international guideline that many Chinese firms (including those in Hong Kong, Macau, and Taiwan), especially those listed or having businesses overseas, adopt is Sustainability Reporting Guidelines put forward by Global Reporting Initiative (hereafter GRI). It is the most popular CSR reporting guideline all over the world. GRI is an independent international organization since 1997 that assists businesses and governments worldwide in understanding and communicating their influences on critical sustainability issues including climate change, human rights, governance, and social well-being. GRI Sustainability Reporting Standards are developed from the first version to current fourth version G4 updated in 2016. Besides the general G4 guideline, there are guideline supplements for some industries and key indexes that further elaborate the guideline. G4 indexes system would be disclosed in the appendix of Chinese firms which disclose CSR information in CSR reports following G4 guideline. The indexes are developed from four aspects: general, economic, environmental, and social information. The principles of G4 defining the contents in CSR reports lie in four perspectives: stakeholder inclusiveness, sustainability context, materiality, and completeness. Stakeholder inclusiveness means that CSR reports should present who are organizations’ stakeholders and illustrate how organizations respond to their stakeholders’ rational expectations and interests. Sustainability context requires that CSR reports should demonstrate organizations’ performance in more diverse and wider context of sustainability, such as how organizations contribute, or aim to contribute, to the sustainability in the future; how organizations operate sustainably in different range of locations, scales, and sectors; and how organizations integrate their business strategy with sustainability. Materiality requests CSR reports to cover organizations’ significant economic, environmental, and social effects or information impacting on assessments and decisions of stakeholders. Completeness is relevant to materiality, since organizations should publish all the material CSR information that influences stakeholders’ evaluation so that organizations’ CSR performance can be assessed comprehensively by stakeholders. In other words, CSR reports should not only focus on what, why, and how the reporting entity cares about stakeholders but also cater all crucial issues that stakeholders are concerned about.

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The principles of G4 evaluating the quality of CSR reporting are from six dimensions: balance, comparability, accuracy, timeliness, clarity, and reliability. Balance indicates the balance between positive and negative aspects of organizations’ behaviors. Comparability suggests that CSR information should be selected, compiled, and presented consistently. Accuracy requires the CSR information to be accurate and detailed enough for stakeholders’ assessment. Timeliness deals with requirements on organizations’ reporting regularly and in time. Reliability claims that CSR disclosures should be prepared in a way that can be examined and that establishes the quality and materiality of the information (Image 3). Other international sustainability performance guidelines or standards for Chinese firms’ reference include AA1000, ISO26000, and ten principles of United Nations Global Compact (hereafter UNGC), Sustainable Development Goals (hereafter SDGs) by United Nations (UN). Though these guidelines strengthen CSR performance, they are also usually referred to when firms preparing CSR reports. AA1000 Principles Standard (AA1000APS) 2008 is established by AccountAbility which is a global consulting and standards firm. This standard is under revise and will be launched in 2017. ISO26000:2010 standard, developed by International Organization for Standardization, provides guidance for corporate social responsibility performance. Its core subjects consist of organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development. Ten principles from UNGC are illustrated from four aspects: human rights, labor standard, the environment, and anti-corruption. Since 25 September 2015, countries have adopted 17 goals to “end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda” (UN). They are planning to be achieved over the next 15 years.

Image 3 Part of G4 indicator indexes presented in the appendix of a 2016 CSR report in English version published by a China’s listed pharmaceutical company

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Besides international CSR reporting and CSR performance guidelines or standards, domestic ones are popular among Chinese companies as well. The earliest domestic CSR reporting guideline in Mainland China was issued by CNTAC in 2008. This guideline is called China’s textile and garment enterprises social responsibility report outline (CSR-GATEs 2008), which is particularly designed for companies in Mainland China in the textile and garment industry. There are 201 indexes in CSR-GATEs 2008 developed from GRI’s guideline (G3, the third version). Similarly, for garment companies domiciled in Hong Kong China, Oxfam Hong Kong, an international confederation aiming to reduce poverty and injustice, issued Oxfam HK Gradient Index (OGI) for these companies’ reference. Besides the textile and garment industrial CSR reporting guideline, there are other industry-specific guidelines or standards for CSR performance in real estate industry and banking industry, such as The Guideline for Corporate Social Responsibility of Real Estate Enterprises in Guangdong Province established by Guangdong Real Estate Industry Association, The Guideline for Corporate Social Responsibility of China’s Banking and Financial Institutions by CBA, and Opinions on Strengthening the Social Responsibility of Banking and Financial Institutions by China Banking Regulatory Commission (Image 4). The secondly published domestic CSR reporting guideline is particularly for Chinese listed firms in SSE, and it is called The Guideline for Compiling Corporate Social Responsibility Reports put forward by SSE in 2009. This guideline defines that the content and the title of CSR reporting can include but not be limited to CSR reports, sustainability reports, environmental responsibility reports, and corporate citizenship report. It requires companies to disclose a notice below the CSR reporting title if they report CSR information: “The Board of directors and all directors of the company guarantee that there are no false records, misleading

Image 4 Part of CSR-GATEs 2008 indicator indexes presented in the appendix of a 2008 CSR report published by a China’s listed textile company

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statements or material omissions in this report, and undertake individual and joint liabilities for the truthfulness, accuracy and completeness of the contents.” If any director cannot guarantee or has objection on the truthfulness, accuracy, and completeness of the contents of the report, the reasons and opinions shall be given separately. The guideline also mentions that the content of CSR reporting should at least include the company’s performance on social, environmental, and economic aspects. This guideline suggests that companies can disclose an index, social contribution per share, and disclose its statistical caliber. Another stock exchange in Mainland China, SZSE, also published a guideline, The Guideline for Social Responsibility of Listed Companies in SZSE which some firms are willing to refer to when compiling CSR reports, but it is about CSR performance rather than CSR reporting per se. The latest updated domestic CSR reporting guideline system is The Guideline for the Compilation of CSR reports in China (CASS-CSR 3.0) issued in 2014 by Research Center for Corporate Social Responsibility in Chinese Academy of Social Science (hereafter CASS-CSR) which established the first version of this guideline (CASS-CSR 1.0) in 2009. This guideline system is very popular among central and local state-owned enterprises, since both these enterprises and CASS-CSR are owned by the government, that is, having the similar background. When SASAC mandated central state-owned enterprises to issue CSR reports within 3 years in a meeting, CASS-CSR was also invited to participate in this meeting, and its representatives introduced their CASS-CSR 1.0 guideline there. Compared with the previous versions of the guideline, the latest one proposes a new concept, CSR Report Life Cycle Management, expecting to guide companies to involve stakeholders, identify material issues, and monitor CSR performance throughout the whole life of CSR reporting including seven aspects, organization, participation, definition, initiation, compilation, publication, and feedback, finally in order to promote CSR management via CSR reporting. Moreover, the latest version is a guideline system, not just one guideline, containing not only a general guideline but also specific guidelines for industries including general mining, coal mining, petrochemical, electric power, power supply, steel, construction, real estate, automobile manufacturing, appliance manufacturing, food, pharmaceutical, telecom service, and warehousing. The general guideline of CASS-CSR 3.0 defines the standards for the quality of CSR reports: process, materiality, completeness, balance, comparability, readability, and creativity. Process reminds enterprises of the concept, CSR Report Life Cycle Management, and taking this concept into actions. Materiality refers to the significant influence on stakeholders that is induced by the disclosures in CSR reports about key issues of sustainable development and business operation. The key issues should fit in internal corporate strategy as well as respond to external stakeholders’ concerns. Completeness requires the content of CSR reports on the one side to cover economic, social, and environmental responsibilities and on the other side to comprise corporates’ ideas, systems, measures, and performance upon social responsibility. Balance suggests that CSR reports should objectively present positive or negative information during the reporting period, ensuring that stakeholders can perform accurate evaluation on a company’s holistic performance.

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Comparability indicates that companies should disclose longitudinal and industrial data, to demonstrate performance in comparison with their past and counterparts. Readability is a requirement on the understandability of the reporting’s structure, logic, graphs and tables, terminology explanation, typesetting, etc. Creativity pays attend to the new way of CSR disclosing contents and patterns. The general guideline also builds up a series of CSR reporting indexes in six facets: introduction to the report, responsibility management, market performance, social performance, environmental performance, and report postscript. Other industry-specific guidelines in CASS-CSR 3.0 system illustrate the standards for CSR report quality and indexes in more details relevant to each industry’s context. All in all, CASS-CSR 3.0 tries to build a bridge linking domestic CSR reporting standards to the international ones like G4, ISO26000, and ten principles of UNGC. Other domestic guidelines or guiding documents for CSR reporting or CSR performance are sometimes mentioned to be followed or referred to in some companies’ CSR reports, such as national level ones, The Guiding Opinions on the Implementation of Social Responsibility by Central State-Owned Enterprises issued by SASAC, The Guidance on Classifying Social Responsibility Performance (GB/T 36002–2015) by China National Institute of Standardization (CNIS), and The Guideline on Social Responsibility of China Industrial Enterprises and Industrial Associations (GSRI-CHINA 2.0) by China Federation of Industrial Economics, as well as provincial level ones, The Guideline for Compiling Corporates’ Environmental Reports in Shandong Province, The Guideline for Compiling CSR Reports by Anhui Province Federation of Industrial Economy, The Guideline for CSR performance in Shanghai, The Opinions on the Implementation of CSR in Guizhou Province, and ESG Reporting Guide for listed companies in Hong Kong.

The Status Quo of Assessment or Assurance on CSR Reports in China When reading CSR reports, how do stakeholders or readers judge if the disclosures comply with certain guidelines and if the material information is complete and trustworthy? Of course, companies can claim by themselves in the CSR reports that their disclosures are free of material mistakes and are compiled in accordance with certain guidelines or standards. Besides, to enhance the credibility of CSR reports, companies can invite the third party to evaluate or verify the reports and then disclose the results attached with CSR reports. Some companies’ motivation to have their CSR reports assessed or assured is to gain reputational and intangible benefits as well, similar with the explanation to why they voluntarily disclose CSR reports. The assessment or assurance from the third party can be the comments, evaluation, appraisal, certification or assurance on the CSR reports’ forms, contents, authenticity, and so on. Corporates name these evaluating results as Examination Report, Inspection Declaration, Verification Statement, the Third-Party Evaluation, the Third-Party Certification, Assurance Report, etc.

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Image 5 The official webpage of COSCO Shipping Corporation on the assurance report in its 2005 CSR report

In Mainland, Hong Kong and Macau, and Taiwan China, the assessment or assurance from the third party is completely voluntary until now. The first assured CSR report (for 2005 fiscal year) in China was issued by China COSCO Shipping Corporate Limited in 2006. To date, around 17% (1950 out of 11,420) of CSR reports in China in total are assessed or assured according to MQID. The CSRone 2017 Survey shows that 48% 2016 CSR reports in Taiwan China acquired thirdparty assurance, and there is an increase in proportion of assured reports. Worldwide, there was a growth as well in independent assurance of CSR information for N100 and G250 companies from 2005 to 2015 (KPMG 2015). In most countries, assessment or assurance of CSR reports is voluntary. Distinguishingly, the French government requires listed and some non-listed companies to publish third-party verified CSR information (KPMG 2015) (Image 5).

The Assessor or Assuror and Their Assessment or Assurance Standards All over the world, companies can choose who to assess or assure their CSR reports. In 2015, of all the N100 and G250 companies’ CSR reports, their assurance providers were mostly major accountancy organizations, but the proportion of this kind of assuror slightly dropped down, compared with the condition in 2013 (KPMG 2015) (Image 6). However, in China, only around one third of assessors or assurors are accountancy organizations, and others consist of international or domestic consulting or

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Image 6 The introduction of assurance providers of N100 and G250 in KPMG 2015 survey

certification organizations, government sectors, institutional organizations, industry associations, and individual experts. Besides accountancy professionals, international consulting or certification organizations and individual experts are major assurers or assessors in China as well. Sometimes, some Chinese companies invited two or more than two kinds of assessors or assurors in the same CSR report. Most of Chinese assessor or assurors on CSR reports claim that they follow some standards when performing assessment or assurance. For example, accountancy assurors (Big Four and several domestic accounting firms) in China usually adopt International Standard on Assurance Engagements (ISAE) 3000: Assurance Engagements other than Audits or Review of Historical Financial Information, which was developed by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC), a body responsible for issuing international accounting and auditing standards for the accounting profession. Some of them also adopt the AA1000 Assurance Standard (AA1000AS) issued by AccountAbility. Using these standards, accounting professions provide two levels of assurance, limited level or reasonable level assurance, from which companies can choose one. The most significant difference between these two levels of assurance lies in the scope of assurance work under each level. The scope of assurance work in limited level is less than that in reasonable level, which means accounting professionals give opinions on only whether key social performance indexes are credible and whether CSR reports follow certain aspects of reporting guidelines or standards (such as stakeholder inclusiveness and materiality in G4) in limited level assurance service, while in reasonable level assurance service, accounting professionals ensure that all material CSR information is credible and that the internal system or process to produce CSR information within the company is also reliable. Most Chinese companies prefer to choose limited level of assurance. Another major type of assuror in China is consulting or certification organizations, including international ones like Bureau Veritas (BV), DNV GL (DNV before), Lloyd’s Register Quality Assurance (LRQA), SGS, and TUD NORD and domestic ones like Shanghai Audit Centre of Quality System (SACQS) and Running & Loving Consulting for Common Welfare (RLCCW). Each of them have their own assurance standard to follow, and they provide two levels of assurance, the same as those accounting professions provide.

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Both accounting professions and consulting or certification organizations can be called assurors, since they issue opinions on the credibility of CSR information. However, some third parties issuing opinions on CSR reports are more likely to be called assessors, since they only give opinions on the forms or contents of CSR reports. They don’t verify the reliability of CSR information or give opinions on the credibility of CSR reports. They are administration departments on product safety, environmental monitoring, or environmental protection branches in government sectors; institutional organizations in which CASS-CSR is a major assessor; industry associations including Shanxi Iron and Steel Industry Association, China Alcoholic Drinks Association (CADA), CNTAC, China General Machinery Industry Association, and China Household Electrical Appliances Association (CHEAA); and individual experts who are usually leaders or professors in government sectors, institutional organizations, or industry associations. Except for CASSCSR which has its own standard (CASS-CSR 3.0) for the assessment on CSR reports and ranks CSR reports from one star (the worst) to five stars (the best), other assessors don’t have certain standards to follow when issuing evaluation reports, yet they sometimes mention in the reports whether companies follow CSR reporting or performance guidelines or standards introduced previously in this chapter.

Conclusion Even though CSR reporting around the world is majorly driven by formal rules or regulations issued by the authorities, the timing in China is later than that in developed countries since the later reaction of the China authority. Worldwide, there are still voluntarily disclosed CSR reports, and most of them are to please the stakeholders and legitimatize companies themselves. In China, voluntary CSR disclosing practice is also driven by obtaining advertisement effects, official performance assessment in state-owned companies, and awards from professional organizations. No matter whether companies are mandated or not to disclose CSR reports, they can choose which CSR reporting guideline(s) they follow when compiling the reports. GRI reporting guideline, the most update version G4, is mostly adopted all over the world. In China, there are still some domestic guidelines developed by industrial associations, the government sector, and governmental background organizations (like CASS-CSR). In most countries including China, assessment or assurance on CSR reports is still entirely voluntary. The reason why companies are willing to have their CSR reports assessed or assured is because they try to enhance the reliability of their reports. In China, another reason of this is to obtain reputation or awards. When regarding to the assessor or assuror of CSR reports, most of them are major accountancy professions all over the world, while accounting professionals only occupy up to one third of China’s assessment or assurance market. Other major kinds of entities providing assessment or assurance service in China include consulting or certification organizations and organizations with governmental background. The major difference among these assessors or assurors is that accountancy professions and consulting

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or certification organizations issue opinions on the credibility of CSR information under two levels of assurance available for companies to choose, using international assurance standards, while organizations with governmental background only evaluate the contents or reporting forms, patterns of CSR reports, seldom using certain assessment standards. Acknowledgments Funded by Guangzhou Philosophy and Social Science Planning 2022 Annual Project (Project No.: 2022GZQN12).

References CSRone (2017) Taiwan CSR overview and trends in 2017. https://www.csronereporting.com/ report/show/2044. Accessed 27 Sept 2017 KPMG (2015) KPMG international survey of corporate sustainability reporting 2015

Part VII Social Governance

Social Governance Inside China Session Introduction of Social Governance Chapter

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Contents Social Governance “社会治理” and Chinese Path to Modernization “中国式现代化” . . . . . . Characteristics of Social Governance in the New Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter Design of Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Trend of Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Since the 18th Communist Party of China National Congress, China has stepped into a new era, and China has also started a new historic movement on the way to strengthen and innovate social governance. At the same time, China is still facing a series of severe challenges and risks in this field. This chapter is a contribution to bring together 8 outstanding experts to reflect on developments to date in social policy, theory and practice, and consider what will be needed during the 14th Five-Year Plan period and the next 15 years. Keywords

Social Governance · Chinese Path to Modernization · Harmony Society

Social Governance “社会治理” and Chinese Path to Modernization “中国式现代化” As a vital component of national governance, social governance is the joint participation of multiple social subjects, which aims to maintain social order, promote social fairness, coordinate social relations, stimulate social vitality, and improve Q. Zhao (*) School of Sociology, China Academy of Social Management, Beijing Normal University, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_52

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social progress. Social governance mainly includes social governance subject, social governance field, social governance system, social governance mechanism, and social governance method, as well as social organization governance, grass-roots governance, social problems governance, public security governance, etc. China has achieved significant progress on the way to strengthen and innovate social governance. At the same time, we should also realize that China is still facing a series of severe challenges and risks in social governance. China’s ongoing extensive, profound social reform covers social issues and problems, which will bring new tasks to social governance; rapid development of modern sciences and technologies represented by information technology has brought new variables to social governance; and the evolution of the principal social contradiction and people’s wish to live a better life have created new requirements for social governance. In face of these new situations and requirements, the social governance theories are still inadaptable, mechanisms remain unsound, and methods still lag behind the practice. All these factors compel us to further forge an efficient new pattern of social governance so as to realize social modernization.

Characteristics of Social Governance in the New Era Since the 18th Communist Party of China (CPC) National Congress, China has stepped into a new era “新时代,” and China has also started a new historic movement on the way to strengthen and innovate social governance. Furthermore, the 13th Five-Year Plan for Economic and Social Development of China set up an independent chapter to address “Social governance.” The report of the 19th Congress of the CPC elaborated a new concept of social governance featuring coconstruction “共建,” joint contribution “共治,” and shared benefits “共享.” The 14th Five-Year Plan for Economic and Social Development and the Long-Range Objectives through the Year 2035 outline the vision for China to basically achieve socialist modernization during the 14th Five-Year Plan period and the next 15 years, emphasizing the need to improve people’s well-being, enhance the level of coconstruction, joint contribution, and shared benefits, coordinate development and security, build a higher level of peaceful China, improve national quality, and promote comprehensive human development. In particular, General Secretary Xi Jinping emphasized improving the social governance system based on collaboration, participation, and shared benefits, and fostering a community of social governance in which everyone fulfills their responsibilities and shares in the benefits “人人有责、 人人尽责、人人享有的基层社会治理共同体” in the 20th Congress of the CPC. It put forward a series of new approaches to social governance and formed its theoretical and practical system of Socialism with Chinese characteristics. First, establishing a strategic objective of modernization of social governance. It, from the long-term strategic perspective, proposed the strategic objective of basically forming a modern social governance system by 2035, in consideration of the overall goal of realizing socialist modernization with Chinese characteristics in the new era. The report clearly pointed out that the modern social governance system had the following basic features: The rule of law for society is basically in place; the

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modernization of China’s system and capacity for governance is basically achieved; social civility is significantly enhanced; people are living more comfortable lives; society is full of vitality, harmony, and order; there is a fundamental improvement in the environment; and the goal of building a beautiful China is basically attained. It has drawn a concrete and promising blueprint for advancing the modernization of social governance in China. Second, fulfilling key tasks about social governance. It put forward at least the following key tasks: Improving mechanisms for preventing and defusing social tensions; Developing the public safety system and the system of public psychological services; Strengthening the crime prevention and control system; Optimizing the level of community governance and the role of social organizations; Promoting the urban and rural grassroots governance system which combines self-governance, rule of law, and rule of virtue led by party organization “党组织领导的自治法治德治相结合的城乡 基层治理体系”; Enhancing credibility building, institutionalizing volunteer services, and uplifting heightening people’s sense of social responsibility, awareness of rules, and sense of dedication; Constructing the national security system; Carrying out the Healthy China initiative; and Building a community with a shared future for mankind. Third, highlighting the institutional building in the social governance field. It emphasized the need to “step up institutional building in social governance,” which requires the timely institutionalization of significant principles in the practice of social governance, in particular institutions for education, health, population, land, social security, household registration management, social credit, nationality, etc. Fourth, identifying the new approaches to social governance. It further clarified and enhanced the importance of strengthening socialization, legalization, intellectualization, and specialization. “Socialization” “社会化” emphasizes social forces to participate in social governance; “legalization” “法治化” stresses the governance by law; “intellectualization” “智能化” means social governance should make full use of modern scientific and technological progress, especially big data, mobile Internet, and artificial intelligence; and “specialized” “专业化” requires for cultivating highquality professional groups and skills. In summary, it regarded developing a new pattern featuring coconstruction, joint contribution, and shared benefits to ensure social harmony “和谐社会” as an important part of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era “习近平新时代中国特色社会主义思想.” “Co-construction” means the multisubject interactive system of sustainable development of social governance. “Joint Contribution” indicates that, in order to get effective governance, people have to consider and design some principles, measures, and methods of governance from strategic perspectives. “Shared benefits” focuses on the people sharing the achievements of reform, development, and governance.

Chapter Design of Social Governance In this session, eight papers will focus on three key points “co-construction, joint contribution and shared benefits” to discuss frontier theoretical and practical issues from multiple perspectives in the social governance field. Social Governance of

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China attracted much more attention when authors shared their ideas at an international symposium of social Governance Modernization in 2017 than ever, and these articles were also listed into achievements of Major Project of Philosophy and Social Sciences Research, Ministry of Education, China “Research on Sociology of Socialism with Chinese characteristics” (21JZDW006). Prof. Wei Liqun’s paper “Social Governance in China: New thought, New Practices, New Vision” definitely plays a leading role in this session. He points out New Thought on Social Governance in ten aspects: people-oriented, well-being first, fairness and justice centered, combining the rule of law with the rule of virtue, institutional innovation, inheriting fine traditional culture, people-related work, community-level construction focused, general security concept, and upholding the leadership of the Party. Then he concluded new progresses in ten aspects and endeavors to probe new vision from three angels. From the “Co-construction” angle, Prof. Yin Lunyu’s paper “Equalization of Basic Public Services: Theory, Current Situation and Policies” mainly focuses on “Government responsibility” in the public service supply. She creatively presents that the traditional public service supply model should be improved for social equality in three aspects: from supply oriented to demand oriented, from extensive supply to intensive supply, and from single subject to collaborative supply. Prof. Chen Peng contributes an excellent paper “De-administration of Community Resident’s Committee: A Case Study Based on the Field Work in China” which discusses the new round reform of administration and de-administration about the Residents’ Committee that is typically a kind of important organization with Chinese characteristics. The value point is that he not only summarizes three institutional models of community, but also puts forward possibility proposals: change the idea of thinking, reconstruct the organizational orientation, optimize the configuration of functional resources, innovate the system mechanism, and strengthen the law provision for community. From the “joint contribution” angle, Prof. Wang Hongxin’s paper “Build the Belt and Road into ‘a Road of Social Security and People’s Happiness’” finds that the B&R can be built into “a road of social security and people’s happiness,” and a regional model of the community of shared future for mankind, through strengthening security cooperation with linkage, integration, openness, and coruling. Dr. Yue Jinzhu’s paper “Urban Gridding as a Means of Promoting Social Governance in Beijing” convincingly implicates that gridding is an effective carrier and effective means of urban management, social governance, public safety, and environmental remediation with an example of Beijing. Prof. Dang Shengcui’s paper “On System Arrangement of Governmental Social Media in Emergency Communication and Its Optimization” presents that institutional management of governmental social media in emergency is characterized of progressivity conductivity, comovement, and pathdependence. From the view of system analysis, she explores its optimal path by adopting the method of document analysis, policy analysis, and case study. From the “Shared benefits” angle, Prof. Wei Jianwen’s paper “Subjective Wellbeing of the Residents in Contemporary China” discusses a series of tough questions. May economic growth raise people’s subjective well-being deservedly? How

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does social structure involve in people’s life satisfaction effectively? He pointed out in conclusion that a balanced and more equal social structure with a sustainable economic development is of great essence for a better China with a much higher well-being. Prof. Dong Keyong’s paper “Rethinking of Aging Population in China to the Impact of Pension System” proposed openly and frankly that China’s status and trend of aging population has a plateau trend rather than the peak. He put great emphasis on reconstructing the pension system of three pillars of China by strategic insight with parametric innovation.

The Trend of Social Governance The social governance aims at the people’s new changes in terms of the people’s livelihood requirement, responds to the new expectations of the people, and fully embodies the public characteristics of the social governance of the new era. Basically, social governance depends on the extensive participation of its members, which means that social governance is always in a undergoing constant and dynamic development.

Social Governance in China: New Thought, New Practice, and New Vision

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Contents New Thought on Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419 New Practices on Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 New Vision on Social Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424

“A great era calls for great vision, which in turn requires great wisdom.” Since the 18th CPC National Congress, China has made great progress on social governance. Comrade Xi Jinping put forward new thought on social governance, which promoted comprehensively the new practices on social governance and reached a new realm on social governance in China.

New Thought on Social Governance Over the past 5 years since the 18th CPC National Congress, Comrade Xi Jinping proposed a series of new thought, new ideas, and new arguments on strengthening and making innovations on social governance, which is the most important innovative achievement on social governance in China. These are highlighted in ten aspects as the following: 1. People-Oriented. Upholding the principle people-oriented is the fundamental political position of Comrade Xi Jinping’s thought on social governance. “The people are the foundation of a country, and only when the people lead a good life can the country thrive.” The core of social governance is all for the people, all depending on the people, for the people’s all, and all being supervised by the L. Wei (*) School of Sociology of Beijing Normal University, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_34

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people. We need to be people-oriented. This is a principle that we should follow in everything we do in advancing economic and social development. Well-Being First. Putting people’s well-being first is the essence of Xi Jinping’s thought on social governance. “The best form of governance is to put people’s will and wellbeing first.” People’s well-being is the foundation of the people’s happiness and the basis of social harmony. Comrade Xi Jinping stressed that “We would promote the work actively to solve the basic problems of wellbeing, step up efforts to build and consolidate material basis for social stability, prevent and reduce social conflicts arising at the source. We would promote equity and sharing of development outcomes to deliver more benefits to the people.” Fairness and Justice Centered. Safeguarding and promoting social fairness and justice are at the center of Xi Jinping’s thought on social governance. “The key point of governing a country is to adhere on fairness and justice.” We must work hard to develop institutions ensuring social fairness and justice and realize a fair social environment of equal rights, equal opportunities, and fair rules for all. We must strive for common prosperity and work hard to narrow income gaps so that all the people can share in more fruits of development in a fair way and move steadily toward common prosperity. Combining the Rule of Law with the Rule of Virtue. Combining the rule of law with the rule of virtue is an important pillar of Comrade Xi Jinping’s thought on social governance. “Only rule of virtue is not sufficient for the exercise of government; only rule of law cannot carry people’s autonomy into practice.” Comrade Xi Jinping stressed that “we should integrate the rule of law with the rule of virtue, so that both of them could be compiled each other, promoted each other and reinforced each other mutually in country’s governances.” We should build up synergy of law and virtue on social governance as a result that the law stabilizes the world and the morality softens the heart. Institutional Innovation. Institutional innovation is the distinctive symbol of Comrade Xi Jinping’s thought on social governance. “No progress simply means regression.” Comrade Xi Jinping stressed that “it was imperative to make institutional innovation on strengthening and innovating social governance.” We should quicken the pace of building the following mechanisms and systems: a law-based social management system featuring the Party committee leadership, government execution, nongovernmental support, and public participation. Inheriting Fine Traditional Culture. Inheriting and promoting fine traditional Chinese culture are the distinctive features of Xi Jinping’s thought on social governance. Culture is the lifeblood of a nation and a source of innovation. Comrade Xi Jinping stressed that “without forgetting the tradition, we could open up the future; good at inheriting tradition, then we could make better innovation.” The creative transformation of Chinese splendid traditional culture could lay a solid foundation for modernization of social governance. People-Related Work. Strengthening and improving people-related work is the top priority of Xi Jinping’s thought on social governance. Comrade Xi Jinping stressed that “social governance, in essence, was engaged in people-related work

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and people service-oriented. We should solve pressing problems of keen concern to the people and raise our ability to do people-related work well.” This is the innovation and development of the Party’s mass line under new conditions. 8. Community-Level Construction Focused. Paying particular attention to community-level construction is the prominent style of Comrade Xi Jinping’s thought on social governance. Comrade Xi Jinping stressed that the focus of social governance must be on the urban and rural communities. Only the services and managements for community have been enhanced, and then the foundation of social governance would be consolidated. This shows that comrade Xi Jinping has a strong sense of the problem and deep feelings for the people. 9. General Security Concept. Establishing general security concept is a significant theory innovation of Comrade Xi Jinping’s thought on social governance. Comrade Xi Jinping stressed that we must take the people’s security as our ultimate goal, the political security as our base, the economic security as our foundation, and the military, cultural, and public security as means of guarantee to promote international security so as to establish a national security system with Chinese characteristics. 10. Upholding the Leadership of the Party. Enhancing and improving the Party’s leadership is the spirit of Comrade Xi Jinping’s thought on social governance. It is highly required on social governance to ensure that the Party plays its role as the leadership core in exercising overall leadership and coordinating the efforts of all. We should step up efforts to improve the Party conduct and government integrity and use the Party’s fine conduct to win and improve the conduct of the general public. The key point to promote modernization of social governance is to enhance the Party’s capacity to govern.

New Practices on Social Governance In the past 5 years since the 18th CPC National Congress, great progress has been made in practices of social governance in China. New breakthroughs, new progress, and new results have been achieved based on the intensive efforts both on macro and micro levels from system governance in all-round fields to urban and rural community governance. 1. Ensuring and improving people’s well-being – Combating poverty. Winning the war against poverty and lifting poor people out of poverty are the baseline task and landmark indicators for building a moderately prosperous society in all respects. From 2013 to 2016, China reduced the number of rural residents living in poverty by over 10 million in each year and 55.64 million people have been lifted out of poverty. As a result, the outlook of poor areas has improved significantly. – Promoting employment and business start-ups. We launched policies on employment and business start-ups and carried out solid work to encourage

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people to start businesses and make innovations. Social creativity has been fully unleashed. A total of 13 million new urban jobs were added over the past 4 years. – Improving the social security system. First, we unified the basic pension systems for rural residents and nonworking urban residents. Second, we worked to place the merger of reform on pensions of workers. Third, we coordinated the launching new type of social assistance system. The promulgation and implementation of the Charity Law has opened a new era of China’s modern philanthropy. – Improving housing support. We have built systems of housing support, including public rental housing, renovation of homes in rundown urban areas and dilapidated rural houses, and housing provident fund. 2. Strengthening and developing fundamental institutional innovations of social governance – Making progress in institutions securing fair access to education. First, we stepped to improve grant assisting system to students from poor families. Second, we strengthened efforts to improve governmental allowance, service procurement of government, fund and donation awards, etc. We deepened the reform of the school examination and enrollment systems. – Building modern medical and healthcare systems. First, the whole population was now basically covered by medical insurance. Second, we improved the major disease insurance system and medical assistance system. Third, we deepened the reform of healthcare system. Fourth, we made continued all-around progress in building a Healthy China and worked consistently to raise the standard of medical and healthcare services. – Improving family planning policy and responding to population aging. On one hand, we improved the supporting policies to complement the decision to allow all couples to have two children. On the other hand, we responded proactively to population aging. The innovation in population policy is a significant symbol of practice and innovation of China’s social governance in last 5 years. – Developing unified urban and rural household registration system. We deepened the reform of the household registration system and introduced the residence card system nationwide. The agricultural and nonagricultural registered residences were abolished and replaced with permanent resident. The reform in household registration system has been considered as the great institutional innovation in China’s social governance. 3. Building China’s national security To fully implement the concept of general national security, the CPC central committee decided to establish national security system characterized with unified centralized leadership, efficiency, and authority. We established the National Security Commission of CPC, adopted the outline of national security strategy and Opinions on Strengthening National Security Work, and revised National Security Law.

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4. Improving public security system Since the 18th CPC National Congress, upholding safe construction in China reached an unprecedented height. We established a unified and authoritative food safety regulatory agency; we continued our efforts to reform in ensuring workplace safety. We established the system for preventing and mitigating natural disasters and enhance monitoring, early-warning, and emergency response mechanisms. We improved the national system for cybersecurity and made innovations on the multidimensional systems for crime prevention and control. 5. Speeding up development of social integrity system Since the 18th CPC National Congress, the State Council issued the Outline of Social Credibility System Construction (2014–2020) and speeded up development of social integrity system. We stressed to promote and cultivate honesty of the youth. We worked to improve the credit rating system, put in place a national unified system of codes for rating credit, and established a platform for sharing and exchanging information on credit. 6. Strengthening community governance in urban and rural areas Over the past 5 years, the Party and government gave particular attention to the role of community in both urban and rural areas on social governance. We introduced gridding management and delicacy management on social governance and made innovation on services in all aspects for residents in both urban and rural areas. We improved deliberation and consultation in exercising urban and rural community governance. Community-level organizations of various types should be involved to integrate government administration and community-level democracy. 7. Guiding social organizations to develop in a healthy way Social organization is an indispensable force but shortcomings and difficulties in China’s social governance. We guided social organizations to develop in a healthy and orderly way and fully leveraged the fundamental role of the people on social management. We deepened reform of the management of social organizations and accelerated efforts to untie industry associations and chambers of commerce from any connections they may have with the government. We supported the participation of popular organizations on social governance in accordance with the law. 8. Developing new forms of social governance Exploring and developing new forms of social governance are the important characteristics in the new practice of China’s social governance. First, IT application was significantly expanded on social governance in accordance with the requirement of information society. Second, taking the rule of law in all respects as an opportunity, we continuously promoted to develop social governance in accordance with the

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law and institution. Since the 18th CPC National Congress, we have ushered in a new stage of the rule of law in all governance functions and society. 9. Effectively strengthening environmental protection Faster progress in work to pollution control and environmental improvement is the main task in making innovation on social governance. To build a beautiful China, we deepened reform to promote ecological progress and moved faster to establish related systems so as to create a new model of modernization that ensures humanity develops in harmony with nature. 10. Strengthening the Party’s leadership Upholding and strengthening the Party’s leadership are the institutional and organizational guarantees to fundamentally modernize social governance system and capacity for governance. Practicing strict Party self-governance and punishing corruption are the important parts of social governance that guarantee to win popular support, maintain the Party’s governance, and endure social peace and stability.

New Vision on Social Governance 1. The new vision of transformation from traditional social management to modern social governance. There is only one word difference between social management and social governance, but the latter has deeper insight and richer meanings. Social governance highlights the joint participation of multiple entities under the guidance of the Party and government and the new thought of people-oriented and well-being first. We should ensure that social governance has been guided by law in both thinking and action and resolves problems at the source in a systematic and integrated way, addressing both its symptoms and root causes. 2. The new vision of combining Chinese fine traditional culture and modern civilization. The social governance innovations over the past 5 years were developed on the combination of Chinese traditional wisdom and the Party’s experiences and lessons on country’s governance, drawing on cultural achievements of other countries. We inherited and developed China’s traditional model of social governance in creative ways and drew on advanced ideas and practices in world’s modern civilizations selectively, further highlighting the support of Chinese fine traditional culture to social governance with Chinese characteristics. 3. The new vision of international social governance oriented with building a community of shared future for all humankind. The social governance innovations over the past 5 years have taken on the characteristics of global vision, forward-looking, and humankind concerned. The thought of building a community of a shared future for all humankind proposed by Comrade Xi Jinping is a great achievement on China’s social governance by scientific analysis and practical exploration on the international and domestic environment and creates a brand new perspective on development of human society.

Rethinking of Aging Population in China to the Impact of Pension System

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Keyong Dong and Zhang Dong

Contents Status and Tendency for Aging Population Trend in China: Plateau Situation Instead of Peak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development History and Current Situation of Aging Population Trend in China . . . . . . . . Trend Prediction for Age Structure of the Population of China . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Influence of Aging Population Trend in China to Pension System: The Impact Is Chronic by the Plateau Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supply and Demand: The Old-Age Dependent Rate Is Increased, and the Burden of Providing for the Aged Is Heavy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income and Expenses: Pension Outlays Are Constantly Expanded and the Problems of Pension Liability Are Obvious . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mode of Old-Age Pension: Enormous Challenge to Pension System of Accounting on the Cash Basis from Plateau in Aged Tendency of Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Perfecting Way to China Pension System: A Long-Term Strategic Insight to Challenge the Aging Plateau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Structural Reform: Reconstruct Pension System of Three Pillars . . . . . . . . . . . . . . . . . . . . . . . . . . Parameter Reformation: Support the Sustainable Development of Pension System . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

427 427 427 431 431 432 433 434 434 435 436

Abstract

The form of development tendency in aged tendency of population determines the strategy of the economic and social policy. At present, one of the main views on the morphological research of trend development of China’s aged tendency of population is that China would reach the peak of population aging around the 2050s. This concept couldn’t accurately express the true form of the development

K. Dong (*) · Z. Dong School of Public Administration and Policy, Renmin University of China, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_35

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trend of aging population trend in China. China’s population aging would reach the most serious period before and after the 2050s, but it wouldn’t be changed later, which will last for a long time. Therefore, the aging population trend in China will enter into the aging plateau period in the long term. This judgment resolves that the impact of population aging on China’s pension system is long term, and it is necessary to reconstruct the three pillars of China’s pension system with strategic vision, which is supported by parametric reformation to deal with the long-term implication of aging of population. Keywords

Aging of population · Plateau · Peak · Pension system · Three pillars

Aging of population is an important trend in the development of the world’s population today and is increasingly becoming a major population concern in the world. China, as the largest developing country in the world, has witnessed the aging of the population in the relatively low economic development level and will have a profound impact on China’s economy and social development at present and for a long time. The study of China’s population aging could be traced back to the end of the twentieth century. The scholars focused on it in 2000 after China’s populationaging society. At this stage, the research contents on aging of population is rich, including the analysis for current situation and causes of aging of population, the trend prediction of aging of population, and the social and economic impacts of aging of population, which have directly affected many reforms of economic social policy. One of the significant viewpoints is that China will reach the “peak of aged tendency of population” around the middle of the twenty-first century (Dang Junwu 2005; Mo Long 2011; Li Jianxin 2005), which has become one of the most commonly used words of the related research in the current aging of population. The description of “peak of aged tendency of population” means that the change will occur after the peak, and the aging degree will be gradually reduced, which will decide the strategy selection to the aged tendency of population. Most of the current research cycle on the aging population trend will be extended around 2050. In view of the above, aging of population will enter into the peak, and it is necessary to do a further discussion. In order to ensure the development trend of aging population trend in China in the longer period, this paper extends the forecasting period of aging of population to 2100, to find out the true form of aging population trend in China, verifying the strategy of dealing with aging population trend in China. On the basis of discussing the main types of aging population trend in China, this paper focuses on analysis of its impact on the pension system, so as to put forward the strategy of reform in pension system.

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Status and Tendency for Aging Population Trend in China: Plateau Situation Instead of Peak Development History and Current Situation of Aging Population Trend in China Aged tendency of population refers to a dynamic process that the proportion of aged population increases due to the decline in the number of young people and the growth in the number of old people of the total population in a country or a region. According to the standard of the United Nations, if the proportion of people over the age of 60 has accounted for 10% of the total population, or the proportion of people over the age of 65 has reached 7% of the total population, this society has entered into aging society. China’s population age structure changes from the relatively young population structure into the rapid development of the elderly population. In 1953, the population of China was an adult population and began to change to a younger population. In 1964, it had become a young population (the population aged 0–14 was more than 40%, and the population aged 65 and the above was less than 4%). Since the mid-1960s, with the decline in death rate and birth rate, the population age structure had changed to the adult.1982 had become a typical adult population. After the 1990s, the median age of the population had further increased, the number and proportion of the aging population had continued to rise, the population age structure had begun to age, and the process had continued to accelerate. By 2000, China’s population aged 65 and above had accounted for 6.96% of the total population, and China has really entered into the aging country. In 2010, the proportion has reached 8.87%, which was more than 1.91% than that of 2000, and the aging of population has further developed (Table 1). With the rapid development of China’s economy, people’s living standard has gradually improved, and the medical and sanitation facilities have been enhanced. Therefore, people’s expected life has been extended. With the continued implementation of family planning policy, China’s aging rate has been accelerated. By the end of 2015, the proportion of the population aged 65 and above in the total population rose to 10.47%, an increase of 3.51% over 2000.

Trend Prediction for Age Structure of the Population of China Prediction of Development Trend on China’s Total Population and the Aging Population According to the World Population Prospects in 2015 of the United Nations, China’s total population will reach its peak by 2030, and then it will begin to decline. However, the number of elderly people aged 65 and over will further increase and

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Table 1 All previous census results and population-age structure of sampling survey in China of hundred million people, %

Year 1953 1964 1982 1990 2000 2001 2002 2003 2004 2005

Total population 5.67 6.95 10.32 11.31 12.67 12.76 12.85 12.92 13.00 13.08

Aging population aged 65 and over Number Proportion 0.25 4.41 0.25 3.53 0.49 4.78 0.63 5.57 0.88 6.96 0.91 7.10 0.94 7.30 0.97 7.50 0.99 7.58 1.01 7.69

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total population 13.14 13.21 13.28 13.35 13.41 13.47 13.54 13.61 13.68 13.75

Aging population aged 65 and over Number Proportion 1.04 7.93 1.06 8.05 1.10 8.25 1.13 8.47 1.19 8.87 1.23 9.12 1.27 9.39 1.32 9.67 1.38 10.06 1.44 10.47

Data sources: Annual data for National Bureau of Statistics of China. The data for 1953, 1964, 1982, 1990, 2000, and 2010 is the calculation of population census. The data of other years is the estimation of annual sample survey of population

reach the peak by 2060.The number of elderly people aged 65 and above will decline, but its proportion will still maintain a relatively high level in a long period (about 33%). As the aging of population is based on the proportion of the aging population in the total population, we believe that the mid-twenty-first century isn’t the peak of the aging population trend in China, but the beginning of the aging plateau, seen in Fig. 1.

Forecast of Change Tendency in Age Pyramid of the Population of China Population pyramid is an important standard for measuring the age and gender structure of a country or region. According to the World Population Prospects in 2015 of the United Nations, in the next decades of years, the shape of age pyramid in China’s population will be further changed, the bottom of the pyramid has continued to shrink, and the aging degree is increasingly serious, seen in Fig. 2. Due to the influence of two birth peaks from 1949 to 1958 and 1962 to 1977, a large number of people will be 60 years old during the period of 2013–2017 and 2022–2033.However, according to the birth peak of the third population from 1981 to 1994 caused from the inertia effect of the climax in the second population bearing, we will come to old stage before and after 2041–2054, leading to the peak of the number of aging population. With the reduction of the total population, the proportion of the aging population will remain at a high level. Until 2100, the proportion of the aging population over 60 years old will be more than 30% of the total population, and the aging of population will form a plateau period in the twenty-first century.

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Variation tendency of proportion in number of elderly people aged 65 and above in the total population from 1950 to 2100 1500000

40.00%

33.31% 33.78% 33.75% 32.90% 32.61% 27.55%

1200000

30.00%

24.59%

900000

17.18%

20.00%

12.09%

600000 6.65% 5.34% 300000 4.47% 3.65% 3.66% 4.49% 24315 23523 29604 43935 61679 84462

8.25%

110576 169606

342919 243170

420078 371390

390527

373899

356383

338998

0

10.00%

0.00% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

65+

total population

65+/ total population

Fig. 1 (Data sources: United Nations, Department of Economic and Social Affairs, Population Division (2015).World Population Prospects: The 2015 Revision, custom data acquired via website: http://esa.un.org/unpd/wpp/)

Typical Characteristics of Aging Population Trend in China Firstly, the scale of aging population is great and the development speed is fast. From the scale, China is the world’s most populous country, which is the world’s only one country whose aging population is more than hundreds of millions, accounting for one-fifth of the world’s aging population in the total population. From speed of development, China’s aging population aged 65 and above doubled from 7% to 14%, which is expected to use 27 years. However, for other countries, France has spent 115 years, Switzerland has 85 years, the United States 60 years, and even Japan with high aging degree has also spent 25 years. Secondly, the population structural aging is rapid and is modernization in advance. Developed countries have entered into aging society on the basis of the basic realization of modernization. They are rich firstly and became aged later or they are rich and aged at the same time. For example, the United States, Japan, Israel, Republic of Korea, and Singapore have turned into the aging of population, with per capita GDP of more than 10,000 US dollars. Nevertheless, China has passed into aging society without achieving the modernization and underdeveloped economy. In 2000, the per capita GDP into the society of aging population was about 3976 US dollars, which was lower than that of the average level of 7446 US dollars in the world, seen in Table 2. Thirdly, the trend of aging population comes into the plateau period rather than the peak period. From the future development, the aged population of China will last for a long time. Before and after 2060, the number of aging population will reach a peak and then will begin to drop. But, with the decline in the total population, the extent of aging of population won’t decrease. The proportion of the elderly people aged 65 and above will remain relatively high (about 33%) for a long period, which will last for the end of the twenty-first century, showing the plateau period of aging of population rather than the fastigium in the unusual context.

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Change prediction on population pyramid in 2030

Change prediction on population pyramid in 2020 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 –8.00%

–3.00% Male

2.00%

7.00%

–8.00%

–3.00% Male

Female

2.00%

7.00%

Female

Change prediction on population pyramid in 2050

Change prediction on population pyramid in 2040 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 –8.00%

–3.00% Male

2.00%

7.00%

–8.00%

Change prediction on population pyramid in 2070

2.00%

7.00%

Female

Change prediction on population pyramid in 2100 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 –8.00%

–3.00% Male

Female

–3.00% Male

2.00% Female

7.00%

–8.00%

–3.00% Male

2.00%

7.00%

Female

Fig. 2 Prediction of development trend on population pyramid in China. (Data resources: United Nations, Department of Economic and Social Affairs, Population Division (2015) World Population Prospects: The 2015 Revision, custom data acquired via website: http://esa.un.org/unpd/wpp/)

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Table 2 Comparison of China’s aging degree with per capita GDP in other countries

Country and region (year) World (2000) China (2000) The United States (1950) Japan (1970) Israel (1975) Korea (2000) Singapore (2000)

Per capita GDP (US dollar) (purchasing power parity) 7446 3976 10,645 11,579 12,270 17,380 23,356

Aging degree (%) Proportion of population aged 60 years and over 10.0 10.1 12.5

Proportion of population aged 65 years and over 6.9 6.8 8.3

10.6 11.8 11.0 10.5

7.1 7.8 7.1 7.2

Data sources: Research Group for National Population Development Strategy. General report on National Population Development Strategy Research. Beijing: China Population Publishing House, 2010: 41

The Influence of Aging Population Trend in China to Pension System: The Impact Is Chronic by the Plateau Situation Supply and Demand: The Old-Age Dependent Rate Is Increased, and the Burden of Providing for the Aged Is Heavy Under the increase of aging population and the reduction of the working-age population, the dependency ratio of aging population is constantly rising. At present, the dependency ratio of aging population in China is about 13%. According to the World Population Prospects in 2015 of the United Nations, aging population trend in China will grow rapidly over the next few decades, and the old-age dependency ratio will continuously increase. Before and after 2030, the dependency ratio of aging population in China will reach about 25%. In 2045, it will begin to exceed the level of developed countries, which will be higher than the world average level, seen in Fig. 3. The increase in the age dependency ratio of the elderly will lead to an increase in the system maintenance rate of the existing pension system. On the one hand, the expansion of demand in pension will be constantly increased due to the number of people who get the old-age pension. On the other hand, the reduction in the quantity of labor force will reduce the number of endowment insurance premium in the system, limiting the supply of old-age pension. This also means that the same number of working-age population will have to fend more elderly people and will have a heavy pension burden. In addition, China hasn’t yet achieved the modernization, and it has faced a severe aging, deepening the contradictions and dilemmas between supply and demand of pension.

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K. Dong and Z. Dong Variation predictions for average dependency ratio of aging population in China and the world (65+/15–64) from 2015 to 2100

70% 60% 50% 40% 30% 20% 10%

56%

61% 61% 60% 60% 63%

64% 64% 64% 64%

51% 52% 47% 48% 48% 47% 48% 49% 50% 43% 44% 47% 38% 40% 34% 43% 46% 30% 33% 40% 27% 36% 37% 25% 34% 35% 20% 30% 30% 31% 32% 28% 17% 26% 24% 13% 20% 22% 16% 18% 13% 14%

52%

38%

0% 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Dependency ratio of aging population in the world

Dependency ratio of aging population in the developed countries

Dependency ratio of aging population of China

Fig. 3 (Data resources: United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision, custom data acquired via website: http://esa.un.org/unpd/wpp/)

Income and Expenses: Pension Outlays Are Constantly Expanded and the Problems of Pension Liability Are Obvious The most direct manifestation of the contradiction between supply and demand of pension is the intensification of the payment imbalance in pension. From the development of the expenses and receipts in China’ s pension system, with regard to pension outlays, the number of pensioners has increased due to the aging of population. The period for receiving old-age pension has gradually increased because of the prolongation of life, leading in constant expansion of expenditure in China’s pension system by both of them. In terms of pension income, the absolute number of working-age people aged 15–64 in China has reduced in 2014, which also indicates that the number of contributors in the pension system will continue to diminish, affecting the income of the pension. Meanwhile, many working-age people don’t pay after 15 years when they meet the lowest fixed number of years for premium, which narrow the payers of payment system and reduces the income of the pension. In recent years, the growth rate of China’s basic endowment insurance fund has begun to gradually lower than the growth rate of fund expenditure, and the growth rate of funded income has decreased step by step. However, the growth rate of fund expenditure has quickened, seen in Fig. 4. Since 2001, among the employees from state-owned enterprises and collectively owned enterprises with the basic pension, the average growth of insured has been lower than that of the number of retired workers. Pension balance is facing significant pressure, with the gap of old-age pension.

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Fig. 4 (Data sources: Annual statistics bulletins on the human resources and social security career development)

From the future development of China’s receipts and disbursements of pension insurance, for pension expenditure, the proportion of pension expenditure to GDP will increase rapidly with the promotion of aging rate. According to the prediction of governmental measures to research group about the strategic research in aging of population, the proportion of China’s total pension outlays in GDP will reach 6.23% in 2020. By 2050, this proportion will rise 14.83%. It is also expected that the level of pension disbursement in China will remain high by 2050 and the plateau period in aging of population later. In terms of pension income, with the rapid increase in the aging degree, the absolute number and relative number of China’s working-age population will continue to fall. According to the data of World Population Prospects in 2015 of the United Nations, the China’s working-age population will be reduced from the current 10.0469 billion to 794.53 million in 2050. The proportion of the total population has decreased from the current 73.5% to 58.9% in 2050, and the plateau period of aging of population will remain the same after 2050. Under the influence of the everlasting aging of population, the gap of old-age pension is inevitable. If we want to maintain the existing pension system, the institutional debt problem will become more and more remarkable.

Mode of Old-Age Pension: Enormous Challenge to Pension System of Accounting on the Cash Basis from Plateau in Aged Tendency of Population Accounting on the cash basis and fully funding system are two main modes of pension insurance funds in the world. Accounting on the cash basis is for people working during the same period to pay the old-age pension to fend the current

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retirement generation. Fully funding system is arranged for the person who pays endowment insurance premium through accumulation by personal account during working lifetime, and he or she gets the relevant old-age pension in retirement. When the sum of the growth rate of the population and the growth rate of wage is greater than the market interest rate, the accounting on the cash basis has more advantages. On the other hand, the fully funding system may be more advantageous. However, if the factor, such as the transition cost, is taken into account, there is no essential difference between them. At present, there is a consensus among scholars. In terms of logic, compared with the signal accounting on the cash basis or the fully funding system, a mixed system with accounting on the cash basis and the fully funding system can reduce the risk. China’s current basic pension insurance system is theoretically a system mixed with accounting on the cash basis and the fully funding system. However, from the actual operation, because the transition cost hasn’t well handled, the empty account has been caused by the embezzlement of individual account. As a result, China’s basic endowment insurance is still an accounting on the cash basis system. For the operation of accounting on the cash basis system, in theory, it is needed to meet that the sum of growth rate of population and wage increase rate is more than the Aaron condition of real market rate, which won’t have the payment crisis. However, from the aging population trend in China, to meet the enormous challenge of Aaron condition, especially the plateau in aging of population and the reduction on rate of economic growth in a long term, it will be inevitably constrained only by accounting on the cash basis to meet the needs of the old-age pension.

The Perfecting Way to China Pension System: A Long-Term Strategic Insight to Challenge the Aging Plateau Structural Reform: Reconstruct Pension System of Three Pillars The international experience shows that it is difficult for any pension to achieve the adequacy of old-age pension and the comprehensive balance of sustainability through a number of backbones to play a role in achieving the stable income for the elderly. From the current view, the development of pension system in three pillars of China isn’t balanced. The development of the second pillar and the third pillar has been limited due to “One branch alone” of the basic pension insurance system dominated by the government. At the same time, due to the lack of tax preference, the development of enterprise annuity in the second pillar is slow, and the personal deferred taxes in the third pillar haven’t been established, leading to the low substitution rate and poor persistence in China’s pension system. China’s development tendency of aging of population will enter into a plateau period, which determines the impact on population aging in China to the pension system is chronic. There is a structural problem in the existing pension system, which is difficult to cope with the challenges brought by the aging of population in a

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long term. Therefore, the Chinese pension system must be reconstructed as soon as possible to form a balanced three-pillar development system. Firstly, we should separate between personal accounts and social pool to define social pooling account as the first-pillar public pension. By understanding the functions of the respective accounts, the social pooling account after separation between personal accounts and social pool is viewed as the public pension. Through the accounting on the cash basis, based on the covering the basic risks, the social redistribution is achieved to prevent functions of poverty of aged people. The contribution rate of the first pillar can be appropriately reduced to provide the space to the old-age pension according to other pillars. Secondly, we should regulate the individual account and merge supplementary pension and occupational annuity into the second pillar. In the pension system of three pillars in China, it should be combined with enterprise annuity and occupational pension plan according to supplement of the individual account of multichannels to form the pension plan in the second pillar. Thirdly, we should accelerate the development of volunteer thirdpillar old-age pension with tax preference as motivation. Under “One branch alone” of the basic endowment insurance and the constant reduction of substitution rate level, we should offer the extra guarantee to living quality of old people. The old-age pension in the third pillar of extension on developing personal tax is one of the important means. Meanwhile, the improvement of economic development level also provides the possibility for China to develop individual tax-extended pension system.

Parameter Reformation: Support the Sustainable Development of Pension System Firstly, we should raise retirement age. The retirement age of China is low, and the too low retirement age will increase the dependency rate of pensions system, which is not conducive to the sustainable development of the pension system. Based on the actual situation, China should gradually postpone retirement age or the age of getting a pension by learning from the international experience and taking a flexible way. Secondly, we should confirm payment base. At present, many Chinese enterprises ensure the payment base at the minimum level. Under the public pension system, we should solve the mendacity in payment base of basic endowment insurance to achieve the actualization of the payment base. This means that the increase in payment efficiency is possible to lower the rate, which will also offer the development space for the second pillar and the third pillar. Thirdly, we should improve payment years. According to China’s current policy, it is difficult to prevent the insured from stopping the payment after 15 years of reaching the statutory minimum payment period. With the continuous increase of the life expectancy at birth and the enhancement of practical work experience, for the needs of life expectancy at birth and guaranteeing the life of workers after retirement, it is advisable to improve the lowest fixed

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number of years for premium to 20 years or 25 years, which can dynamically adjust it with the improvement of life expectancy at birth. Fourthly, we should perfect investment system. With the development for many years, China’s capital market has the objective condition of appreciation on investments to the old-age pension. In the correct use of the capital market, we must strengthen the risk control of investment, perfect the investment system, and ensure the scope of investment, investment proportion, and the investment decision-making, management, and execution mechanism by strengthening the audit and supervision of fund to create a good environment for the pension investment. In summary, China’s population aging will indeed be the most serious period before and after 2050. However, it won’t be reversed after this, and it will last for a long time. China’s status and trend of aging population have a plateau trend rather than the peak. Therefore, we must reconstruct the pension system of three pillars of China by strategic insight with parametric innovation, to establish a pension system that is more sustainable and has the higher guarantee level.

References Dang Junwu (2005) Strategic thinking for China to deal with the aging society. J Cent Univ Natl (4):74–76 Gao Peiyong, Wang Dehua (2011) Comparison for financing gap analysis and countermeasures and proposals for old-age security system in China (2):18–25 Li Jianxin (2005) Changing characteristics for aging population in China during international comparison. Xuehai (6):15–19 Li Yang, Zhang Xiaojing, Chang Xin(2015) Beijing: China Social Sciences Publishing House, p 179 Mo Long (2011) Economic pressure and its regulation for China’s population aging. Popul Res (6):27–42 Research Group for Strategic Research in Governmental Measures to Aging of Population, Li Jun et al (2014) Research in aging of population and sustainable economic development. Hualing Publishing House, Beijing, p 419 Sun Qixiang, Zhu Nanjun (2015) Analysis for aging population in China. Chin Finance (24):21–23

Urban Gridding as a Means of Promoting Social Governance in Beijing

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Jinzhu Yue

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Main Development Course and Effects of Beijing’s Gridding . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Effects of Beijing’s Gridding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Function of Beijing’s Gridding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Features of Beijing’s Gridding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Significance of Beijing’s Gridding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Ideas and Goals of Beijing’s Gridding Innovations and Developments . . . . . . . . . . . . . . . . . . The Main Countermeasures and Measures of Beijing’s Gridding Innovations and Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

Gridding is an effective approach to urban management, social governance, public safety, and environmental remediation in Beijing. This chapter briefly explains the process of gridding development in Beijing, the significance of gridding, its basic characteristics, and the main functions and effects of gridding in Beijing. Simultaneously, with regard to the recent trends and developments in the Internet of Things, big data, and cloud computing, this chapter discusses the

J. Yue (*) Publicity(Social Mobilization) Department, Social Work Committee of Beijing Municipal Committee of the CPC, Beijing, China China Academy of Social Management, Beijing Normal University, Beijing, China Social Governance Research Center, Chinese Academy of Governance, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_36

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overall thinking, objectives, and the main countermeasures of current and future Grid+ innovations and developments in Beijing based on the Internet+. These projects boost the innovations of social governance service in Beijing and improve city management, social welfare programs, public safety, and environmental protection, thereby continuously advancing the information, intelligence, standards, science, and modernization of urban development construction and social governance services. Together, these contributions can accelerate the construction of Beijing City into a world-class harmonious and livable capital city. Keywords

Urban gridding · Innovation of social governance · Beijing

Introduction Gridding is effective approach to promote innovations in social service management. In recent years, the government of Beijing City developed and improved gridding in the city, which promoted innovations in and the development of urban management, welfare programs, social governance, and many other areas with remarkable results. Gridding first originated in the former Dongcheng District in Beijing and was originally used in urban management. Urban management gridding initially divided an urban area into a number of grids. The corresponding infrastructure objects were located in the grids one by one, which was convenient for daily management. Since then, with the rapid development and wide use of the Internet and other new technologies, urban gridding has expanded into new areas and technologies that have been enriched by new methods and models. In the Internet age, people, things, locations, organizations and information are continuously connected, changed, converged, integrated, and innovated in grids. This information is used extensively by geographical information systems, the Internet, the Internet of Things, big data, cloud computing, intelligent terminals, and other information technology. In particular, traditional urban management grids, social security grids, and social services grids are interconnected. The forces and resources of urban service management are deeply and organically integrated, and the relevant information and data are systematically analyzed, integrated, and applied. Urban management gridding adheres to a people-oriented, service-first approach. The sources are discovered, comprehensively managed, systematically governed, and operated according to the law. Then, a new grid system can be formed by integration, networking, information gathering, intelligentization, problem solving, continuous service provision, and real-time feedback monitoring. With a series of linkages and closed operation modes, the system continuously extends, upgrades, expands, innovates, and develops. This is the new model of urban social service governance: Grid+.

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The Main Development Course and Effects of Beijing’s Gridding The development of Beijing gridding has gone through four stages, as described in this section. First, in 2004, the former Dongcheng District in Beijing took the lead in creating urban management gridding by implementing the municipal management responsibilities and dividing the municipal roads, infrastructures, and other public areas into a number of “million meter grids” to maintain the safety of municipal facilities. Consequently, the gridding experience of Dongcheng District was rapidly promoted in the city and adopted throughout the country, which was the first stage of gridding development in Beijing City. Later, in preparing for the 2008 Olympic Games and Paralympic Games in Beijing, gridding was applied to the field of social security as an important measure to achieve a safe Olympic Games. Gridding shifted from the municipal administration to social security, from managing objects to controlling people, objects, and affairs. This was the second stage of gridding development in Beijing City. After the successful hosting of the Olympic Games and Paralympic Games in Beijing and with comprehensive promotion of the social construction of the city, gridding was again introduced into the social services management. In 2010, the government of Beijing City launched an action plan for social service management innovation and proposed the social service management gridding pilot. The “Guidelines of the Twelfth Five-Year Social Construction Plan for Beijing” were published and implemented in 2011. These guideline provided a clear proposal for building and comprehensively promoting the social service management grid system. In 2012, a promotion conference for construction of the city grid was held. Furthermore, a newly released document clearly stated that the government should comprehensively promote social service management gridding and cover all fields within 3 years. This was the third stage of gridding development in Beijing City. In 2015, while comprehensively deepening the reformation, the government of Beijing City issued the “One Plus Three” gridding file, which clearly stated a threestep goal: (1) by the end of 2015, to achieve full coverage of the district, the streets (township), and community (village) gridding systems; (2) by the end of 2016, to complete the integration of the urban management network, social security network, and social service network; and (3) by the end of 2017, to complete the city’s multigrid integration and achieve the goal of “full coverage, full function, three-level linkage, multi-network integration, integrated operation, effective management and use.” This marked the fourth stage of gridding development in Beijing. In 2016, the government of Beijing published and implemented “Guidelines of the Thirteenth Five-Year Social Governance Plan for Beijing,” which aimed to accelerate the city service management gridding innovations, as well as effectively enhance the social service precision and social governance refinement. In 2017, Beijing City issued a “three-year action plan for the of basic level social governance standardization construction” in an effort to build the 3.0 version of the innovation and upgrade Beijing’s social construction reform and management. The plan aimed to speed up the multi-network integration and implement Grid+, which would be the fourth stage of gridding development in Beijing City.

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The Effects of Beijing’s Gridding Through the unrelenting efforts of recent years, especially since 2012, the development of Beijing City’s gridding has gained good momentum. The system’s construction was entirely completed, the convergence of the three networks made breakthrough progress, policies and regulations were increasingly refined, and the overall performance was cross-promoted. Basically, the city has achieved a better urban governance service system with more scientifically sound mechanisms, more complete functions, more accurate service, more sophisticated governance, more prominent roles, and more significant effects, which have provided an effective means for a more orderly city, more vigorous social developments, and more conveniences for the residents. Beijing gridding has reduced the number of problems, increased the efficiency of solving problems, reduced government administrative costs, increased service management efficiency, decreased urban extensive management coefficients, increased governance refinement levels, decreased social disharmony factors, increased the degree of harmonious civilization, decreased the resident poverty index, and increased the happiness index.

The Function of Beijing’s Gridding The gridding has expanded from city management to social security, public services, social governance, public security, environmental protection, and many other areas. Thus, it has shifted from the simple management of objects to controlling people, objects, locations, affairs, organizations, information, and so on, with full-time, comprehensive service management. Simultaneously, InternetPlus was adapted to become GridPlus, starting a revolutionary transformation of modern city service management. This further refined city management and improved social governance, social welfare services, public safety, environmental protection, public life, and urban society.

The Features of Beijing’s Gridding Gridding has been constantly upgraded with the continuous development of information technology. The Internet, Internet of Things, big data, cloud computing, geographic information, artificial intelligence, and other new technologies provide a powerful driving force and the developmental vitality for the continuous innovation, development, and upgrading to gridding. First, the system is constantly upgraded, developing from an initial hotline call in which the situation was reported in an electronic file to a three-dimensional, informational, and networked system. Second, the scope of gridding has gradually expanded, developing from managing simple city objects and events to managing all urban management services. Third, the functions have been gradually upgraded, developing from the initial computer information registering, reporting, transporting,

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and processing, to an integrated application and the comprehensive system of “Internet Plus” urban service management. Fourth, the means have been gradually refined, developing from simple objects, events, and related information processing to accurate big data analysis, applications, and service management. Fifth, the methods are gradually becoming more scientific and detailed, shifting away from simply reporting the situation and information to a closed loop integrated processing system that assembles, finds, submits, classifies, disposes, supervises, gives feedback, and evaluates. Sixth, the modes gradually become accurate, developing from a simple classification and manual service management to point-to-point precision service and refined management with a variety of client-sides. Seventh, the efficiency has been gradually improved, with a shift from manual submission, manual disposal, and manual feedback to the current man-machine system with immediate online submission, timely analysis and disposal, and fast and efficient feedback. Eighth, the effects have gradually increased, with a shift from the past extensive control and simplification response to the present fine disposal and precision services with intensive classification and grading. Ninth, the model is gradually being integrated, developing from the past simple and extensive operation mode to the current model of integrated operation led by an integrated system with accurate big data analysis and applications.

The Significance of Beijing’s Gridding Just like people’s shopping habits have shifted from shopping at the store formerly, to the shopping center (supermarket), and now to online shopping, urban service management has developed from departmental handling of official business in the early days, to “one-stop” service, and now gridding service management. If it was a “revolution” for city management and public service to move from the departmental office to the “one-stop” service, then it is another new revolution to move from the “one-stop” service to gridding service management. Gridding has brought not only changes to work means and methods, but also a series of profound changes to ideas and thinking, institutions and mechanisms, rules and models, and especially the comprehensive and profound transformation of urban social service management. As some experts said, if the previous “one-stop” service was the first revolutionary change in the development of urban social service management, then “Grid Plus” is the second one.

The Ideas and Goals of Beijing’s Gridding Innovations and Developments Ideas determine methods and thinking determines actions. Since the 19th CPC National Congress, China has paid much greater attention to social governance promoting the level of socialization, rules of law, intellectualization, and professionalism. In this respect, the future of Beijing’s “Grid Plus” depends on the Internet, the

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Internet of Things, big data, and cloud computing as the core of innovation in the urban social service governance model. The system must follow development ideas that feature inclusion, compatibility, integration, fusion, clustering, effectiveness, and ease of use to be problem-oriented, demand-oriented, goal-oriented, innovationoriented, interest-oriented, and law-oriented. It must place more emphasis on the use of new ideas, technologies, new approaches to serve the city’s government management, social governance, social welfare services, and public safety. The system has a role to play in the community; the production, operation, and healthy growth of the enterprise; the multi-faceted needs of residents. The gridding of Beijing should accelerate the comprehensive integration of government affairs, social and public affairs, basic public services, urban public safety, population control, traffic management, health care, environmental protection, resources and energy, and other service management systems. Efficient and enhanced urban management, social governance, social welfare services, public safety, environmental protection, and social operation requires collaboration between city management, social governance, public services, environmental protection, and many other actors, including government agencies, enterprises, associations, and individual citizens. Ultimately, this will achieve transformation, innovation, and advancement of urban management, business management, community operations, and daily living. The visible hand of government, the invisible hand of the market, social autonomy, and public participation form a concerted effort and commonly force, which makes improves the residential environment, community life, and urban society, giving residents a greater sense of access and happiness.

The Main Countermeasures and Measures of Beijing’s Gridding Innovations and Developments After forming the ideas, directions, and goals, action is the key. In the next step, the government of Beijing City should focus on the implementation of the three-year action plan for Beijing’s basic level social governance standardization construction. Version 3.0 of Beijing’s social construction reformation and management innovations can be achieved by upgrading, organizing, and implementing a multi-network integrated operation and the “Grid Plus” system. The government of Beijing City should have the following goals: gridding division scientization, infrastructure standardization, team specialization, operation mechanism linkage, service management integration, data orientation, and disposal and evaluation intellectualization. The focus should be on accelerating the system coverage, strengthening team building, implementing standard and norms, refining mechanisms and processes, and accelerating the full coverage and standardization of gridding work. The government should adhere to the problem-oriented “E Open to Traffic” gridding plan as an important starting point and accelerate the multi-network

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integration of a comprehensive urban management law enforcement network, urban management network, social service management network, and social security network to achieve an integrated operation. The government should remain demand-oriented and promote the department website” pilot and “Micro Grid,” make great efforts to innovate grassroots microgovernance practices, and refine grassroots governance. The government should adhere to innovation-oriented approaches, focus on deepening the implementation of “Grid Plus,” integrate all the resources, integrate the grid system’s platform organically by combining government services and social services with market services, and enhance the intellectualization level of grassroots services. The government should adhere to serviceoriented approaches and create the grids to serve the public, non-state-owned enterprises, associations, communities, businesses, professional markets, enterprises and institutions, the party, and governments—that is, all levels and all aspects of society—so that broad masses of people experience a more personal sense of access and happiness.

Conclusion As an effective and important means of social service governance innovation, gridding has continuously boosted the practical innovation and development of Beijing City’s urban management, social welfare services, social governance, public safety, environmental protection, and many other aspects. In the future, with the continuous innovations and developments in the Internet, Internet of Things, big data, and cloud computing as the core of the Grid+ system, social service management specializations, socialization, standardizations, normalization, information, and intellectualization levels will be further enhanced. Thus, urban management, social governance, social welfare services, public safety, environmental protection, and social operations will all improve in quality and efficiency. This chapter put forward the overall thinking, objectives, and main countermeasures of the Grid+ innovations and development sin Beijing based on the present and future state of the Internet+, which improves the innovations in social governance service in Beijing and provides decision support for the government.

References Jinzhu Y (2016a) The exploration and outlook of “Gridding Plus” urban service management. J Soc Gov Rev 8(4):105–113 Jinzhu Y (2016b) “Gridding +” service: the innovation practice of urban governance in Beijing. J Natl Gov Week 97(07A):38–48s

Equalization of Basic Public Services: Theory, Current Situation, and Policies

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Luanyu Yin

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolvement of Theory and Policies of Public Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research Subjects and Critical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusions and Countermeasures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Several Countermeasures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The history of evolvement in public service theories and policies has also been a social history. The proposals of public service theories and policies have always been the outcomes of various social strata and interest groups’ gaming and a continuous political struggle against poverty, inequality, and other social issues. “Government responsibility” is the main focus of public service research, and Western governments have experienced a four-phase evolvement including enforcement, culmination, tightening, and return in its role in the public service supply. Currently the public service supply efficiency in China is relatively low, the level of satisfaction toward public service continues to decline, and there are obvious differences in “geographic structure,” “category structure,” and “supplydemand structure” in public service demand. The biggest challenge in China’s future public service system conceptualization lies in how to appropriately set the boundaries for government responsibilities. In the meanwhile, traditional public service supply model does not fit the new requirements of social development anymore and therefore urgently needs changes in three aspects: from supply L. Yin (*) China Academy of Social Management/Sociology School, Beijing Normal University of China, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_37

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oriented to demand oriented, from extensive supply to intensive supply, and from single subject to collaborative supply. It is important to reinforce the significant impact of social capital forms such as social trust, public participation in Internet, and the norm of reciprocity on political democracy and social development in order to achieve social equality. Keywords

Equalization · Public service · Government responsibility

Introduction It is clearly stated in the report to the 19th CPC National Congress that the principal contradiction facing Chinese society has involved from “the one between the evergrowing material and cultural needs of the people and the low level of social production” to “the one between unbalanced and inadequate development and the people’s ever-growing needs for a better life.” Evolution of the principal contradiction is the most accurate summarization of the characteristics of China’s current economic and social development. On the one hand, the needs of the people lie in the pursuit of fairness and justice, democracy and rule of law, and ecological environment at a deeper level rather than the simple pursuit of adequate food and clothing; on the other hand, noticeable differences in economic and social development between urban and rural areas, different regions and different social groups, still exist. Unbalanced and inadequate development seriously hinders realization of the better life of the people. In view of this situation, our work for some time to come shall be implemented on breaking and resolving this principal contraction. In essence, “inadequate development” involves the issue of development efficiency and level, which mainly means that the quality and efficiency of China’s economic development remain to be improved despite its leading position in the world in terms of economic aggregate. In order to solve this problem, in addition to maintaining a moderately high economic growth speed, it mainly depends on technological innovation and industrial upgrading. “Unbalanced development” in essence involves the issues of development structure and social equity. It specifically refers to the existing great differences in enjoying basic public services such as compulsory education, public health, and social security between urban and rural areas and different regions and different social groups. To eliminate the imbalance of development and promote social fairness, we must speed up the process of promoting the equalization of basic public services in our country. At present, basic public services in our country mainly include such eight aspects as public education, medical and healthcare, social insurance, labor employment and entrepreneurship, social services, housing security, public culture, and sports and services for the disabled, of which public education, medical and healthcare, and social insurance are more important and representative.

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Therefore, the article sets the said three aspects of basic public services as the major research subjects.

Evolvement of Theory and Policies of Public Service Government responsibility has remained as the core of public service theory evolvement. The role of governments in public service delivery has experienced a fourphase evolvement including enforcement, culmination, tightening, and return. French thought leaders defined public service. Social reformism and welfare socialism continued to strengthen the responsibility of the government. Moreover, the United Kingdom declared that in establishing a full social welfare state, the government’s responsibility of public service was fulfilled. Consequently, it was followed by the rise of neoliberalism which impacted and weakened the government’s role in welfare support. Furthermore, the Third Road Theory was persuasive in prompting the return of the government’s support and responsibility. The evolution of public service can be summarized by three characteristics. First, the evolution of public service theories and policies was part of making social history. Public service policy is the result of the struggle of many interest groups. Second, the government will not initiate and proactively undertake the responsibilities and obligations of social welfare. Third, social welfare policy is a perpetual and ongoing struggle fighting against poverty, inequality, and social issues. The above is the general universal theory of public service in the world. In China, there are three policies, which were implemented in public service since the reform, and open policy of 1978. The most important difference between the three policies is the government’s role. The first one is market omnipotence, which advocates that public service can be provided mainly by businesses or NGOs. Market omnipotence was dominant in the late 1990s. Subsequently, the former public healthcare reform during 1986–2006 implemented the market omnipotence policy, which was declared unsuccessful in 2007. Due to the lessons learned of education industrialization and the marketization of public health, the second proposal advocates that government should assume the sole responsibility and governed leadership of public service. The third proposal is collaborative governance, which means the government is merely the liaison and not the only provider. The providers and participants of public services not only include government but also include business enterprises, NGOs, individuals, interested groups, and so on. Table 1 depicts the inconsistencies of economic development with the level of public services provided. In the first stage (1949–1978), the level of economic development is the lowest, but the level of equality is the highest. In contrast, in stage 3 (1992–2006), there were a high level of economic development and a low

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Table 1 Comparisons between economic development and equality of public services Stage 1. 1949–1978 2. 1978–1992 3. 1992–2006 4. 2006–2017

Level of economic development Low Medium High High

Level of equality of public service High Medium Low Medium

level of equality. In summation, it is the government policy, not the level of economic development, which determines the level of social justice.

Research Subjects and Critical Findings China’s imbalance in economic and social development is mainly reflected in the differences between urban and rural areas and between different regions. In order to sufficiently illustrate the level of public service development in the most deprived areas in China, this research focuses on two cities and five national-level povertystricken counties in Yunnan and Guizhou provinces. We have conducted continuous fieldwork on the provision of compulsory education and public health in these areas in the past 3 years. Participants in the research include government officials from departments such as National Development and Reform Commission (NDRC), local Education Bureau and Health Bureau, township leaders, school administrators, teachers, parents, and villagers. The main findings are as follows: Compulsory education in poor rural areas in western China has been fully covered. The enrollment consolidation rate has reached 90%. Educational security system has been improved and fundamentally eliminated dropout due to poverty. Compulsory education has achieved the highest level of satisfaction among all public services. Multiple roles, overload, and high liability risk lead to a high turnover rate of teachers. Due to school merger and local natural and geographic features, primary schools in rural areas of Lijiang are mostly boarding ones. Moreover, limited by staffing and funding sizes, these schools can’t assign specific auxiliary teachers to manage students’ life. As a result, the teachers have to undertake teaching, administration, and service simultaneously. They not only have to assume the teaching responsibility but also have to take care of children aged from 6 to 13 around the clock and shoulder multiple roles as nurse, guardian, security guard, dorm supervisor, buyer, and cook. Some families just leave their children at the school, and the teachers even have to take sick children to the hospital and take care of them, which blurs the boundary of responsibilities between school and family and further overwhelms teachers that are already tensed by heavy teaching tasks (35 class hours per week). Some older teachers, especially those women teachers, find it hard to guarantee their own physical and mental health effectively. The fuzzy distinction between teaching and auxiliary work, together with the shortage of management staff, also leads to hidden risks in campus security. It is hard to ensure personal safety

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and mental health of the children due to the lack of security personnel, clinic, and psychological counselor in the school. In particular, frequent occurrence of campus security incidents has been haunting teachers with anxiety. Suffering from the around-the-clock overloading work, stress, and high risk, teachers in rural primary school can’t help but complain and seek any possible chance to quit, thus undermining the stability of the teaching team and causing serious drainage of talents and reduction of teaching quality. There is a serious shortage of the students’ dorms and classrooms, while sports and cultural facilities are idle. The shortage of the students’ dorms is a severe problem faced by rural primary schools in Lijiang. The boarding need has been strong due to inconvenient traffic in the remote mountainous area of western Yunnan and small ages of the students. However, there is a great shortage of dormitories and beds that can basically satisfy half of the need. Taking Jiaze Complete Primary School in Labai Township of Ninglang County as an example, a total of over 200 students require accommodation, while, in fact, the school has only 10 dormitories, each accommodating over 20 kids, of whom 2 kids have to share a bed. Such an inferior condition is highly exposed to risks. In some schools, teaching is still conducted in portable dwellings, which fails to meet the standards for masonry structure building. The cultural and sports facilities are uniformly purchased and allocated by the town/township governments according to the category in the “Class I Sports Establishments for Rural Primary Schools,” which fails to comply with the actual need of schools in poverty-stricken areas. There is hardly any space for arrangement of such musical instruments as electronic organ and accordion as a result of insufficient classrooms and dormitories. In particular, the lack of proper site conditions for the sports devices makes it impossible to install them securely, causing the waste of limited cultural and sports facilities. With the lack of ethnic culture education, traditional culture has been endangered or distorted. The Old Town of Lijiang was listed by UNESCO as the “World Cultural Heritage” in 1997. While the tourism-based tertiary industry contributes more than 70% to the economic growth of Lijiang (2016), the employed population in tourism accounts for one fifth of the total. Tourism has been a main support for local economic and social development; however, Dongba Culture, a core local tourism resource, is facing the risk of being distorted and lost. The closer you are getting to the Old Town, the fewer Naxi language speakers you will find; the younger the students are, the less likely they can speak the Naxi language. Languages of the ethnic minorities and some traditional cultures turn out to be just living with the senior or performing ceremonies. Promotion of urbanization is gradually squeezing the space for inheritance of traditional culture where the original “face-toface” inheritance is collapsing so that the inheritance of Dongba Culture is more and more dependent on school education, which, in fact, has problems in this regard. As state agencies, the superior competent authorities for education are far from sensitive to diversity of local ethnic minorities. The teaching arrangement is mainly based on courses of the national common culture and the examination system, leaving no institutional space for personalized educational practice. The school itself hardly bears the self-awareness for the humanistic and historical values and long-term

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benefits of the inheritance of minority culture. Traditional culture education in schools in Lijiang is highly dependent on the consciousness of school leaders and the teachers’ sense of responsibility, besides, the time for such education is limited (once every week). Moreover, it is even frequently occupied by other courses as just a supplement. Fragmented teaching is exercised without any curriculum system; besides, neither teachers nor students are motivated as it is not included in the performance assessment. It has scarce resources for preschool education and zero kindergarten enrollment rate of school-age children in some villages and towns. Lijiang has got scarce preschool resources. Some districts and counties allow primary schools to implement preschool education, while others don’t. By far, the enrollment rate of the 3-year preschool education in Lijiang is only 65%, which is far lower than the national average (80%). Kindergarten coverage presents an unbalanced pattern in different districts and counties, with the highest 100% in Gucheng District and the lowest 26% in Yongsheng Counties. According to the headmaster of Xialama Primary School, Songping Township, Yongsheng County, kindergarten enrollment rate of school-age children in this school is zero, that is, those children have never come into contact with any type of education outside their families before they enter the primary school. Such children can neither recognize or read characters of their own ethnic group nor know any Chinese characters or understand Mandarin. In schools that are short of teachers for low-grade ethnic teaching, it is even harder to educate such children. The serious consequence of the lack of preschool education is that physical and mental health of such children cannot be guaranteed so that they are easily exposed to physical or mental abuse. Some left-behind children, due to the double absence of both family care and social care, have suffered from some psychological disorders, which causes frequent occurrence of hurting or self-injury. Public healthcare needs urgent improvement in rural poor areas. In these areas, the coverage of village clinics has reached 84.7%, but the level of satisfaction among farmers who received healthcare services was only 19.6%. The main issues include poor facilities at township hospitals, limited expertise of doctors, and significant shortage of medicines at the village clinics. In addition, at least half of the drugs, even if qualified for coverage in the reimbursement list, must be purchased out of pocket by patients, which is way exceeds the means of the basic level of public healthcare coverage. The medical insurance system for rural residents is not optimal. The new rural cooperative medical care system has been initially established; however, its structure is not optimal thus resulting in a low rate of reimbursement. Taking X village of Guizhou Province as an example, the rates of inpatient reimbursement are 90%, 70%, 45%, and 30% for village clinic, township hospital, county-level hospital, and 3A hospital. This policy is aiming to encourage local primary care, respectively. Due to the inadequate medical expertise and limited healthcare facilities in village clinics, villagers must travel quite a distance to receive adequate medical healthcare at county hospitals that thus results in high medical costs and a low reimbursement rate. In other words, they cannot receive adequate treatment in their own villages.

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Conclusions and Countermeasures The survey reveals the following major problems in the primary education of poverty-stricken rural areas: 1. The government should undertake primary responsibilities in public service provision. Compulsory education has the highest level of coverage and satisfaction in the eight categories of public services, mainly because since the central government has assumed the responsibility to guarantee coverage. In the western interior regions, the central government undertakes 80% responsibility of public expenditures for compulsory education, while provincial, municipal, and county governments jointly share the remaining 20% together. In sharp contrast to this was the failure of China’s former healthcare system reform, which started in 1985 and declared a failure in 2007. A new round of healthcare reforms followed this since 2009. The main reason for the failure was the implementation of the marketoriented approach, which totally neglected the significance of public health as a basic human social service and consequently was disregarded as the government responsibility. NGOs can play an important role in the provision of public services. The research has found several characteristics demonstrated by the involvement of NGOs in compulsory education in poor areas. NGOs come from a wide range of countries and regions. In addition to Mainland China, there are also NGOs from Hong Kong, Macao, Taiwan, UNESCO, the United States, Canada, etc. Their involvement has developed diverse platforms of support from large-scale capital investment, the funding of Hope primary schools, to organizing traditional culture lessons with ethnic artists and initiating Sunshine Lunch programs, and so on. NGO services cover a wide range of schools, from cities to poor villages. More than 50 rural primary school principals surveyed in rural areas of Yunnan’s Lijiang have indicated that they have received support from independent organizations. These social service programs are adaptive and widely popular among teachers and students. 2. From the perspective of the structural characteristics of public service need, spatial difference, structural difference, and supply-demand difference exist. Spatial difference means that the development level of basic public services and the content of needs differ greatly between different regions and between urban and rural areas. Structural differences refer to the unbalanced development of various elements of basic public services. For example, the development level of services such as the enrollment rate of compulsory education is high, and people have higher satisfaction with them, while the development level for basic public health service and social security is relatively low; thus people have urgent needs for it. Supply-demand difference refers to the nonequivalence between public need and governmental supply, which the public call jokingly as “there is a kind of need which is called that the government thinks you need it.” 3. From the perspective of public service supply performance, its satisfaction has entered a “bottleneck period.” Over the past decade since 2006, China’s public service construction has been fully promoted and flourished. In a certain

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period, such an extensive supply mode has rapidly filled up a severe shortage of public service facilities and projects. Where there is investment, there is improvement of people’s living standard, no matter which area is invested or whatever the operating efficiency is. However, data in recent years show that satisfaction of public services is encountered with the bottleneck effect along with the everexpanding public financial expenditures and the ever-improving public service system. The average score of satisfaction for public services from 2005 to 2010 was 66.38 points compared with the 66.12 points from 2011 to 2015, the latter showing slight decrease rather than increase (Report by Research Team of NDRC Academy of Macroeconomic Research, 2015). This indicates that public services have crossed the period of extensive development when the public were satisfied once any investment was made and the effect of simply relying on the expansion of supply has begun to decline.

Several Countermeasures 1. Basic public service shall transform from the “supply-oriented” mode to the “demand-oriented” mode. One major cause for low public service supply efficiency and low public satisfaction now in China lies in the mismatch between supply and demand. When local governments develop public service supply objectives, they consider more about the rules, indicators, and requirements of superior authorities or just make impulsive decisions, rather than solicit opinions from the public, not to say the influence of public opinions on the decisionmaking process. The top-down supply of the government fails to match the actual need of the public, leading to great waste of social resources and impeding the process of the public to share reform results. In the context of scarce public service resources and increasing diversified public demands, the supply of public services must be changed from the top-down supply-oriented mode to the down-top demand-oriented mode. The key to the abovementioned transformation lies in that the government shall implement “hard constraint” in making decisions related to public service. The term “hard constraint” refers to that in the decision-making process; the public shall be encouraged to execute the right to vote or even the veto power so that the right of the public to express is institutionalized, thus imposing hard constraints on governmental decisions. It is clearly stipulated in the Opinions on Comprehensively Advancing the Work of Open Government issued by the State Council in February 2016 that an open government shall implement the public disclosure of decisionmaking, execution, administration, services, and results, where the disclosure of decision-making is conducted with the top priority. The “public participation, expert argumentation, risk assessment, legality review and collective discussion and decision” should be recognized as the legal procedures for major administrative decisions. “The system that stakeholders, the public, experts and media attend relevant meetings of the government shall be established to enhance transparency of decisions” (Xu 2015). In the meantime, efforts shall be made to

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foster the civic awareness of the public for active participation and self-service, and modern mass communication methods shall be fully leveraged to encourage the public to have rational participation and safeguard their legal right according to the law. 2. Promote the transformation of public services from “extensive” supply to “targeted” supply relying on big data. The “extensive” supply mainly refers to the “compensatory” supply pattern that flourishes everywhere, while the “targeted” supply means that the services are in line with the public demands and further targeted at special groups. The targeted supply aims to eliminate the weird coexistence of excessive consumption and inadequate supply of public services. The premise for targeted supply of public services is to fully grasp the public demand for service types and quantities. The advancement of modern information technology has provided powerful technical support for the transformation from extensive basic public services to targeted supply. Taking the “Net Knitting Project” of Shenzhen as an example, its database can accurately observe the distribution and change of groups including the immigrant population, the elderly population, the gestational-age population, school-age children for preschool and compulsory education, and the disabled in all communities of the city. It can help establish community health centers, public kindergartens, primary and secondary schools, and facilities for the disabled in a targeted manner according to the distribution features and types (Yin 2016). “Data-based supply” may greatly improve the pattern of mismatched supply and demand, reduce waste of social resources, and raise the efficiency of public service supply. “Targeted” supply shall be based on targeted service objects. Despite the substantial improvement of the overall public service level, the gaps between different groups and regions in enjoying public services keep widening. In the next step, the core to promoting equalization of basic public services lies in improving drawbacks rather than running neck and neck. Taking preschool education as an example, it is explicitly pointed out in the “13th Five-Year Plan” that we shall achieve a gross enrollment rate of 85% for school-age children of preschool education at the end of the planning period. However, in the actual survey, although the enrollment rate of urban children in the Eastern Region is as high as 90.3%, the same in pool rural areas of Sichuan, Yunnan, and Guizhou is still lower than 20%. The absence of education and the lack of affection are major causes for mental problems of left-behind children. Never shall equalization of basic public services be aristocratic urban kindergartens; instead, it shall be the equalization of the bottom line of public services for poverty-stricken areas and for the disadvantaged. Improving drawbacks of public services mainly relies on the reform of the fiscal system. The endorsement role of the central government finance shall be given full play and the share of its expenditures for basic public health and social security shall be increased to expand the proportion of transfer payment for public services in the underdeveloped areas so that most urgent basic public services and social security in such areas are effectively delivered. 3. Supply of basic public service shall transform from the “unitary supplier” to “coordinated supply.” The traditional unitary supply mode with the government

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as the sole subject is now seriously challenged in the current society. On one hand, the limitations of the government’s economic resources and management capabilities are constantly highlighted; on the other hand, the demands for public services keep expanding and diversifying with higher quality appeal. Obviously, it is impossible to satisfy more extensive and diversified demands with sole governmental supply in the future society. The government, instead of being an “omnipotent government” or an “unlimited government,” can only undertake limited liabilities in supplying public services. The government should directly and mainly assume the most fundamental, urgent, and extensive services, and its major responsibilities lies in “sticking to the bottom line, highlighting priorities, improving systems, and guiding expectations” (CPC Central Committee Recommendations for the 13th Five-Year Plan for Economic and Social Development 2015). According to Lester M. Salamon, “to form effective supply of public services, diversified behavioral agents shall develop, following certain collective behavior laws, diversified managements systems and organizational models for public affairs through interactions including mutual gaming, adaption and joint participation” (Salamon 2002). Rather than simple “multiple supply,” diversified supply is based on a certain cooperative mechanism and the “coordinated supply” with reasonable division of labor. The “coordinated supply” consists of the following two aspects: First, it is the collaboration between competent functional departments within the government. Second, it is the collaboration between the government and the market and the society in terms of public service supply. At present, the overall design of the role of the government concerning public services in China is lagging behind, the goal is ambiguous, the departmentalism is prominent, and the function is seriously fragmented. Mainly based on information technology, the coordinated supply requires joint efforts of the governmental agencies related to public service including the NDRC, Social Work Commission, departments of human resources and social security, and education and health departments so as to ensure overall planning, separate implementation, and integrate cooperation and efficient operation. The other aspect of “coordinated supply” is the collaboration between the government and the market and the society in public service supply. Such collaboration shall not be simply equated to government purchase of public services which is merely a way that the government improves public service supply by working with social forces. The key to promoting diversified supply of public services lies in how to stimulate social vitality. 4. Strategic transformation of public service supply shall be promoted in a staged, stepped, and regionalized manner. At present, there are great differences in the equalization levels of basic public services across all regions of China. Improvement of public services shall be planned and conducted based on actual conditions of different regions. In the Eastern Region where sound material

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basis and institutional guarantee are already in place, transition to targeted, efficient, and selective supply mode is already in progress, for which the biggest problem is no longer funds or resources but institutions and mechanisms. Therefore, it is imperative to encourage institutional innovation in the region. Informatization, in particular big data, shall serve as the technical means for establishing the public service platform, integrating relevant sectors, restructuring governmental functions, and optimizing organizational structure to realize coordinated, targeted, and efficient supply of public service. In the underdeveloped Western Region where public service supply is still at a low level, the current major demands for public services remain with funds and resources, where the central government shall increase financial inputs and continue to strengthen the function of guaranteeing their fundamental needs. The next 5 years will be the crucial period for building a moderately prosperous society in an all-round way. The equalization construction of basic public services in the Western Region should be implemented, and the projects including “targeted poverty alleviation,” “education poverty alleviation,” and “priority poverty alleviation” shall be systematically designed, planned, and coordinated, so as to improve the efficiency of social resource allocation.

References CPC Central Committee Recommendations for the 13th Five-Year Plan for Economic and Social Development (2015) P32, People’s Publishing House, November Klein P (1968) From philanthropy to social welfare. Jossey-Bass, San Francisco, p 11 cited in Federico, P53 Report by Research Team of NDRC Academy of Macroeconomic Research (2015) Salamon, L (2002) Global civil society: dimensions of the nonprofit sector, P4, Social Sciences Academic Press, Version The 13th Five-Year Plan for Promoting the Equalization of Basic Public Services, State Council January (2017) Wilensky H, Lebeaux C (1958) Industrial society and social welfare. The Free Press, New York, pp 138–140 Xu Y (2015) Disclosure of decision making is a high-end disclosure of government affairs. Chinese Public Administration, Issue 7 Yin L (2016) Functional restructuring of government public services in the vision of coordinated governance. J Beijing Normal Univ. (2)

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Hongxin Wang, Tian Fu, Junlin Shao, and Siyuan Wang

Contents Linkage and Integration: Build a Big Data and Information Sharing Platform for the B&R . . . Big Data Is an Important Technical Support for Modernizing China’s Governance System and Governance Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deep Integration of Big Data and Social Governance Innovation . . . . . . . . . . . . . . . . . . . . . . . . . Openness and Co-Ruling: Build an All-Day Security Prevention and Control System for Land, Air, and Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Build a B&R (Air/Sea) SWAT Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jointly Establish the B&R International Police Academy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strengthen Joint Anti-terrorism Drills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Exercise to Actual Combat: Deepen the Shanghai Cooperation Organization’s Anti-terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Shanghai Cooperation Organization’s Being the Main Force of Military CounterTerrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Promote SCO to Establish an Anti-terrorism Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China’s Military Anti-terrorism Forces: Go Out of the Country, to the World . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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H. Wang (*) School of Sociology, Beijing Normal University, Beijing, China Academy for Global Development, Beijing Normal University, Beijing, China e-mail: [email protected] T. Fu Academy for Global Development, Beijing Normal University, Beijing, China J. Shao School of Government, Beijing Normal University, Beijing, China S. Wang Institute of Remote Sensing Satellite, CAST, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_38

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Abstract

The Belt and Road Initiative goes through Central Asia, the South China Sea, the Middle East, and other geopolitical hotspots, where lie not only long-entrenched traditional security issues such as territory disputes and military conflicts, but also rising non-traditional ones such as terrorism and economic security. These are all obstacles to the joint construction of the B&R. By strengthening security cooperation through measures such as linkage, integration, openness and co-ruling, as well as anti-terrorism cooperation, China is prepared to fulfill its international counter-terrorism obligations. The BRI can be built into “a road of social security and people’s happiness,” and a regional model of the community of shared future for mankind. Keywords

The Belt and Road (B&R) · Security cooperation · Anti-terrorism · The Shanghai Cooperation Organization (SCO) · The community of shared future for mankind

Since the 18th CPC National Congress, the innovation of social governing has achieved fruitful results. A social governance system with Chinese characteristics has been initially established, which has explored many common experiences for international reference in ensuring that society is full of vitality, harmony, and stability. In the autumn of 2013, respectively, in Kazakhstan and Indonesia, Xi proposed the building of the Silk Road Economic Belt and the twenty-first Century Maritime Silk Road – the Belt and Road Initiative (BRI. The Belt and Road (B&R) has crossed the geopolitical hotspots such as Central Asia, the Middle East, and the South China Sea. The superposition of various traditional security and non-traditional security factors, which include territorial disputes, military friction, terrorism, and economic security, is the biggest obstacle to the BRI. The BRI aims to build a path to win-win cooperation promoting common development and prosperity and a road towards peace and friendship by strengthening mutual understanding, trust, and all-round exchanges. It is a specific practice of global governance concepts called “Building a community of shared future for mankind” from President Xi Jinping (Xi 2017a). At the 19th CPC National Congress, the new concept is one of the “14 points,” which are the basic guidelines for China to uphold and develop socialism with Chinese characteristics in the new era (Xi 2017b). In the past 5 years, over 100 countries and international organizations have given warm responses and support to the initiative. More than 100 countries and international organizations have signed cooperation agreements with China, and our circle of friends along the “B&R” is growing bigger, and there are 82 overseas economic and trade cooperation zones under construction in 24 “B&R” countries (Xu 2018). A number of influential projects have gradually landed. It’s self-evident that these projects have been constructive to escort the construction of the B&R. Xi Jinping pointed out that it is necessary to effectively promote safety and security,

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improve safety risk assessment, monitoring and early warning, and emergency response and establish a sound working mechanism at the symposium on promoting the construction of the BRI (Xi 2017c). At the end of November 2017, the first B&R Paris Conference was held in Paris. French President Emmanuel Macron attached great importance to Franco-Chinese relations and had high hopes for FrancoChinese pragmatic cooperation under the framework of “B&R.” The “BRI,” which have achieved some fruits, is of great significance in defending multilateralism globally. In order to make people live happily and create a stable society, the security jobs should be emphasized in the framework, which is the internal requirement of building a community of shared future for mankind, also the basis and guarantee of the development of the BRI.

Linkage and Integration: Build a Big Data and Information Sharing Platform for the B&R Big Data Is an Important Technical Support for Modernizing China’s Governance System and Governance Capability With the development of high-tech and network technologies such as mobile Internet, Internet of Things, artificial intelligence, “black sciences and technologies,” blockchain, etc., the global data have witnessed an explosive increase than ever before. It seems that everything can be recorded in the form of network data. A wave of new era of digitization is in full swing (Qing 2016). In other words, the whole world is being “digitalized,” big data is becoming a new infrastructure and core resource, and the information storm brought by big data is transforming our lives, work, and thoughts, which has opened a major transformation of the times (Viktor and Kenneth 2013). As the largest data resource owner and public administrator in the society, governments around the world are deeply aware of big data and actively apply it to its governance. In fact, big data will not only improve the national governance system and the modernization of governance capabilities, but also will help to improve the perception of social change and the scientific decision-making capacity. China has issued a number of documents, calling for strengthening data resource planning and management, and promoting the application of data resources (Bao and Zhang 2017). The Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (“The 13th Five-year Plan”) clearly states that the National Big Data Strategy should be implemented, and big data should be used as a basic strategic resource to fully implement the action of promoting big data development (Column 1). Column 1: Implementing the National Big Data Strategy Big data can be regarded as a basic strategic resource to implement the action of promoting big data development in an all-round way, accelerating the promotion of data resource sharing, openness, development, and application, and help the upgrading and transformation of industries and the innovation of social governance.

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Section 1 Speeding Up the Open Sharing of Government Data Comprehensively promote the efficient collection and integration of big data in key areas, deepen the correlation analysis and integration of governmental data and social data, and improve the accuracy and effectiveness of macro-control, market supervision, social governance, and public services. Based on the data from government, the exchanging platform should be unified to accelerate data sharing between cross-departments. Accelerate the construction of a unified open platform for national government data, and promote the open sharing of government information systems and public data interconnection. An open catalogue for government data sharing should be formulated to open data resources to the society in accordance with the law. Coordinate the construction of infrastructures such as national big data platforms, data centers, etc. Laws and regulations on data opening and protection, as well as governmental management methods on information resource, should be studied and formulated. Section 2 Promoting the Healthy Development of the Big Data Industry The innovative application of big data should be deepened across all industries through exploring new modes of cooperation with traditional industries. Accelerate the upgrading of the big data industry chain. Speed up key technology research in the fields of massive data collection, storage, cleaning, analysis and discovery, visualization, security, and privacy protection. Promote the development of big data hardware and software products, improve the public service support system and ecological system of the big data industry, and strengthen the standard system and quality technology infrastructure. Source: The Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (“The 13th Five-year Plan”) Beijing, 17 March, 2016, Xinhua news agency. http://www.xinhuanet.com/politics/ 2016-03/17/c_1118359811.htm

Deep Integration of Big Data and Social Governance Innovation The deep integration of big data application and social governance innovation will dramatically increase the predictability, accuracy, and efficiency of social governance. Along the B&R region, security control features high mobility, subject diversification, and vast space. Therefore, a big data and policing information sharing platform along the B&R should be jointly built. In case of an alarm, countries can be linked through the message sending system, so as to enhance the capability of risk prediction, early warning, case prevention, and rapid response and thus improve the level of social governance. To build the big data and policing information sharing platform, two problems must be solved. First, the standard of big data. Without a unified data standard, the opening and sharing of data will be restricted, resulting in difficulties in the integration and linkage of policing data and information. Therefore, countries along the B&R should coordinate the government, enterprises, and social organizations to jointly set up a unified data standard and exchange system, promote the fully

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integrated flow of big data, and constantly improve the efficiency of policing linkage. Second, intelligent processing capacity of big data. At the age of big data, the opportunity and advantage depend not only on the amount of data, but also on the quality and speed of data processing. Intelligent data processing can dig the value of big data, reveal the inherent relationship between things that human brain is difficult to recognize, find the rules or trends of crime, and trace the real-time trajectory of criminal suspects, so as to transfer the policing from retrospective work to prediction, early warning, prevention, and quick response.

Openness and Co-Ruling: Build an All-Day Security Prevention and Control System for Land, Air, and Sea With the gradual deepening of the B&R cooperation, a large amount of resources, manpower, and information are constantly flowing within this region. Due to the huge differences in culture, legal and political system among regions and countries, cross-border crimes, and cross-border absconding after crimes are increasing behind the frequent economic and financial activities, personnel exchanges, and resource flows (Ren and Zhao 2017). The main duty of police work is to ensure cooperation security and maintain social order. In the context of the B&R initiatives, the social security problems faced by countries will inevitably change accordingly. The traditional single police category and social management modes have been unable to cope with new social security issues. It’s imperative to build the cooperative linkage between domestic and international police activities. Therefore, constructing a multilevel and tridimensional international police cooperation mechanism is not only the need of the international community to jointly fight transnational crimes, but also an inevitable choice for maintaining the stability of domestic security and social order (An and Zhu 2015).

Build a B&R (Air/Sea) SWAT Team The B&R is not a “one-man show” directed by China, but an international public good participated and shared by all countries involved. To deal with organized crossborder crimes, countries should make joint efforts rather than only minding their own business. Therefore, more importance should be attached on the openness and co-ruling of the cooperation. Based on the big data and information sharing platform, countries can jointly prevent and fight accurately, so as to build an all-day security prevention and control system for land, air, and sea. Therefore, countries along the B&R should jointly establish police aviation and sailing teams, i.e., a SWAT team, responsible for regional police patrols, alarm briefings, emergency rescue, and joint exercises, so that air patrol, maritime patrol, and ground patrol can be well integrated. By doing so, countries can not only improve the capability of emergency response and synthetic combat, but also show a strong deterrent to cross-border crimes along the B&R.

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Jointly Establish the B&R International Police Academy The control and prevention system and the synthetic combat mechanism require experienced, internationalized, and sustainable anti-terrorism policing resources. We suggest those countries along the B&R learn from the well-known special operation schools to establish B&R international police colleges in Central Asia and the Middle East. Countries can dispatch the graduates to the frontlines of anti-terrorism, whose awareness, the ability of fighting, teamwork, and synthetic combat have been enhanced through strict training, so as to provide excellent anti-terrorism talents for the B&R. Dispatching the graduates to the frontlines of anti-terrorism is to contain terrorists around their bases, so as to ease the domestic anti-terrorism pressure of the B&R countries. In particular, the international police colleges should select excellent police commands, technologists, experts, and other senior talents from the world to strengthen the training of young polices in their command ability, tactical ability, and actual combat ability, injecting new blood into the security groups of B&R.

Strengthen Joint Anti-terrorism Drills In order to enhance the ability to cooperate in anti-terrorism policing among the countries along the B&R, it is necessary to have joint anti-terrorism police drills on a regular basis. There are many countries participating in the BRI, and there are also many differences among their police management system and mechanism. As such, a large number of drills are needed to enhance synergy, especially the targeted joint anti-terrorism police drills in different forms of terrorist activities for synergetic police reasons including collaboration experience between nations and coordinated capability. The joint anti-terrorism drill of China and Kyrgyzstan in 2017 called “Tianshan No.3,” is an example of joint drills of the two countries to combat transnational terrorist crimes and law enforcement security cooperation. At present, the B&R cross-country anti-terrorism police joint drills should focus on improving the joint anti-terrorism handling capabilities of countries alongside and improving synergy among various police operations units in mobile operations, joint command, and rescue support. At the same time, we should establish a normalization mechanism for joint police anti-terrorism command and cooperation relying closely on the contact system of police representatives in various countries (Wang 2018).

From Exercise to Actual Combat: Deepen the Shanghai Cooperation Organization’s Anti-terrorism The threat of terror in the B&R is becoming more and more serious. Since the 1990s, terrorism has prevailed around the world. Affected by the global Islamic renaissance movement, especially by the growing influence of “jihad,” a Salaf organization which advocates violent actions, the scope of the “Islamic State” activities not only rapidly expanded from Iraq and Syria to almost the entire Middle East, but

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also extended to Pakistan, Afghanistan, and the Russian North Caucasus, completely covering the B&R cooperation area, which not only undermines the enterprise operation as usual, but also directly threatens the security of the personnel who aspires to invest abroad and market internationally (Yin et al. 2017). Although most of the terrorist activities are attacked by non-state organizations or groups, their military forces go from strength to strength with the increasing base, collectivization, and high technology, emerging as a major threat to the rest of the countries and world’s peace, which is difficult for single conventional anti-terrorism forces such as the police force to deal with. For example, the Central Asian countries adjacent to northwest China are among those where the BRI has seen significant progress and accomplishments. However, nationalism and terrorism have been prevailing all over this area, which directly threatens the safety of foreign investment of enterprises of all relevant countries (Case 1). Case 1: Direct Investment and Political Risk Between Central Asian Countries and China Five central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan), adjacent to the area of northwest China, are the key to the construction of B&R strategic pivot and the primary target area. At the same time, the five central Asian countries have taken a positive attitude towards jointly building the BRI. The initiative has made steady progress from point to point and achieved some early results in the field of “five linkages” (“五通,” i.e., policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bonds). According to data from the China foreign direct investment bulletin, China’s stock of foreign direct investment(FDI)in the five countries increased by more than 200 times from 2003 to 2016. By the end of 2016, China was the largest trading partner and source of direct investment of Kyrgyzstan and Turkmenistan, the second largest trading partner and investment source country of Uzbekistan and Tajikistan, and the second largest trading partner and investment source country of Kazakhstan. China has about 3356 Chinese-funded enterprises registered in central Asian countries. The investment fields are mainly distributed in mining, construction, manufacturing, finance, air transport, agriculture, and other industries. Among them, direct investment in oil, gas, and mining is the most important. Various investment projects are launched, production capacity cooperation is deepened, and economic and trade cooperation parks are developing rapidly. However, since the 1990s, nationalism and terrorism have been prevailing all over this region, which not only destroys the survival environment of enterprises that rely on peaceful development, but also directly threatens the safety of foreign investment of enterprises of all relevant countries. In this regard, the situation in Tajikistan is the most serious. In 2012, Tajikistan’s government forces engaged in a battle with local illegal militants, blocking the passage of the Tajikistan-China highway, and the transportation of construction materials for many investment and cooperation projects had been hampered. Meanwhile, there has long been a dispute over water resource among Tajikistan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Pakistan, and other countries in the Amu and Syr river basins. The

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cross-border river water resources allocation and water resources protection, water conservancy facilities construction on the issue of differences and disputes, affected the national relations among these countries. Especially, water disputes caused by Ukraine and Uzbekistan influenced the transportation of goods. In May 2015, Khalid Karimov, the commander of Tajikistan’s national SWAT, announced that he had joined the Islamic State(IS), which is regarded as a symbol of a new round of radical Islamic thoughts in Tajikistan. On September 4 of the same year, Nazarzoda, the former deputy minister of defense of Tajikistan, and his followers planned and launched an attack on the central organ of the ministry of defense of Tajikistan and the interior department of the city of Vahdat. At the same time, the border situation between Tajikistan and Afghanistan is further tense, and the Taliban and the IS are becoming increasingly active, which has become the biggest external threat to the security and stability of Tajikistan. These domestic and international political factors in Tajikistan have a huge impact on economic activities. In addition, among the five central Asian countries, Kyrgyzstan is more likely to have ethnic conflicts between Kyrgyzstan and Ukraine, and religious extremist forces are active in the south of Kyrgyzstan. Turkmenistan has religious conflicts with neighboring countries, and the border areas are more affected by the extreme religious thoughts of neighboring countries. Uzbekistan’s Fergana, Samarkand, and Bukhara region are beset by religious extremist. Due to ethnic and religious conflicts, it is difficult to resolve external forces, which will have a direct impact on China’s direct investment in the five central Asian countries. Source: Institute of international trade and economic cooperation, ministry of commerce. Guide to foreign investment cooperation country (region),2017;Statistics Bulletin of the ministry of commerce on China’s FDI (2003–2017), http://fec.mofcom. gov.cn/article/tzhzcj/tzhz/upload/zgdwtzhzfzbg.pdf, visit date on October 9, 2018. Based on the need to ensure national security and national strategic interests, the military’s response to terrorist forces has become a new proposition for the global military. The “9.11” terrorist attack is a representative incident. The US military quickly dispatched troops to the Middle East countries such as Afghanistan and Iraq in the name of counter-terrorism, which stands for the highest level of response for the army to terrorist activities as a national military force. Other European countries such as Britain, Germany, France, etc., also raised anti-terrorism operations to the level of national security strategy, and set up rapid-response force aimed to directly fight terrorism by army (Qin 2017). The participation of the armed forces of the B&R countries in the fight against terrorism is not only a reasonable extension of the military’s national defense duties, but also an inevitable requirement for combating terrorist activities.

The Shanghai Cooperation Organization’s Being the Main Force of Military Counter-Terrorism Under the guidance of the core principles of legislation such as coordinating national sovereign equality, military means, political and economic measures, and respecting for the collective security system of the United Nations, the Shanghai Cooperation

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Organization (SCO) has formulated a series of anti-terrorism military legal documents, including three aspects, programmatic, principled, and operational level into account, which have formed a relatively complete anti-terrorism legal system. On this basis, the SCO has carried out a series of anti-terrorism military cooperation, which not only safeguards regional security and stability by means of a deterrent effect exerted on terrorists effectively, but also creates a brand new military cooperation model globally, which provided useful reference for dealing with the increasingly serious international counter-terrorism situation (Zhu 2010). Meanwhile, since the establishment of the Regional Anti-Terrorist Structure (RATS), multilateral cooperation mechanism has been established in combating the “three evil forces” and protecting cyber security, and the main framework of the regional security system has been set up. When the terrorists increase their power, RATS will develop more powerful. Combating the “three evil forces” relies on political and diplomatic means; the military strikes are also well prepared. The military cooperation of the SCO aims to crack down on terrorism, under which more than 10 anti-terrorism joint military exercises have been held. Facing the increasingly serious anti-terrorism situation, military exercises are no longer able to meet the requirements. The anti-terrorist forces need to transfer from exercise to actual combat, and undertake the main tasks on the anti-terrorism frontline. It is an irreversible trend.

Promote SCO to Establish an Anti-terrorism Center Terrorism is a common enemy of mankind, against which all countries should fight without delay. Early in 2014, China has put forward on the RATS council the initiative to establish the SCO anti-terrorism center, which was supported by Russia and some other countries. In recent years, anti-terrorism cooperation between the border authorities of SCO member states has been strengthened, and its role in combating terrorism and extremist propaganda has also been strengthened (Column 2). Column 2: SCO’s Anti-terrorism Effect: 2013–2017 According to Yevgeny Sesoyev, director of the Regional Anti-Terrorism Institutional Executive Committee of the Shanghai Cooperation Organization (SCO), the relevant agencies of the SCO member states suppressed more than 600 terrorist crimes, destroyed more than 500 armed training bases, and captured more than 2000 international terrorism; in addition, they seized more than 1000 homemade explosive devices, more than 50 tons of explosives, more than 10,000 guns, and more than one million bullets between 2013 and 2017. Between 2016 and 2017, SCO member states blocked more than 100,000 websites containing more than four million messages promoting terrorism and extremism. Source: Being the main frame of region security system – an exclusive interview with Yevgeny Sesoyev, director of the Regional Anti-Terrorism Institutional Executive Committee of the Shanghai Cooperation Organization (SCO), Tashkent, 23 June, 2016, Xinhua news agency. http://www.xinhuanet.com/photo/2016-06/23/ c_129085145.htm

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Therefore, on the occasion of new trends in the development of international terrorism and profound changes in the security pattern, it is suggested that China should cooperate closely with the members of the SCO Regional Anti-terrorism Agency Council, accelerate the establishment of the SCO Anti-terrorism Center, strengthen the military anti-terrorism entity function of the SCO, and push forward the military anti-terrorism action in depth of the BRI. Actively seek terrorist organization bases and strongholds, eliminate terrorism at the periphery and the source, and fundamentally safeguard regional security and stability.

China’s Military Anti-terrorism Forces: Go Out of the Country, to the World Judging from the situation of China and the BRI, there are at least 10 terrorist organizations, including particularly the East Turkistan Islamic Movement, currently carrying out extreme ideological infiltrations against China and the B&R cooperative countries and carrying out many terrorist attacks. In contrast, after the “9
11” incident, the US-led international anti-terrorism alliance became increasingly loose and disintegrated, and the military strike against the “Belt and Road” regional terrorist organizations was also reduced, allowing terrorists to breathe and new horrors to brew, which need to be vigilant highly. China’s military has always opposed to terrorism in any form, not only cracking down on violent terrorist activities at home, but also strengthening international exchanges and cooperation in this regard (Case 2). Case 2: China’s Military Anti-terrorism Forces Overseas Over the past 15 years, China and SCO members held more than 10 multilateral and bilateral joint anti-terrorism military exercises, establishing a regular exercise mechanism. In recent years, China’s military has played a positive role in deepening bilateral and multilateral military relations and improving the ability to jointly respond to new threats and new challenges. Anti-terrorism law of the People’s Republic of China, which was introduced in January 2016, defines the military’s participation in anti-terrorism tasks. Since then, the military has actually shouldered the strategic strength and legal obligations of anti-terrorism operations, it has played a key role especially in winning the war on terrorism, dealing with super-strength terrorist incidents, and anti-terrorism operations in offshore, maritime, and air operations, as well as disposal of nuclear, chemical, and biological terrorist attacks. At the same time, the Central Military Commission (CMC) of the Chinese People’s Liberation Army (PLA) was restructured and established. The CMC changed from four headquarters, including the General Staff Department (GSD), to seven departments, three commissions, five directly affiliated organizations, and 15 functional departments. The overseas operations division(OOD) is likely to be a new creation in the reshuffle. In late March 2016, the OOD director of the joint staff department of the CMC made a speech and asked questions during the two-day

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“joint evacuation-2016” China-UK first joint evacuation indoor exercise in Nanjing. This is the first time that the overseas operations department of the Chinese military has been made public. It is said that the OOD is responsible for guiding and coordinating Chinese military operations overseas. The establishment of the branch can strengthen the rapid response ability of Chinese army in overseas operations, and is more targeted and professional in planning, coordination, and other functions, which is more conducive to rapid operations. Different military operations, such as overseas escort, rescue and relief, and evacuation of overseas Chinese, have their own requirements and cannot be generalized. So the OOD needs not only “operational command capability” but also “policy capability.” The latter refers to the mastery of the national security situation and bilateral relations. For example, when the Chinese navy evacuated Chinese nationals from Yemen in 2015, we need to assess the local security situation and understand the diplomatic access to the port of Aden. In fact, the emergence of this institution is inevitable. In recent years, with the increase of overseas interests, the Chinese military’s overseas military operations have become the norm, as more and more missions such as escort, international rescue, joint military exercises, and evacuation of overseas Chinese have been conducted. And not long after, On July 11, 2017, the establishment of the PLA station in Djibouti and the launching ceremony of the troops were held at a military port terminal in Zhanjiang, Guangdong. This is the first step taken by Chinese military forces in the construction of overseas strategic fulcrums or overseas replenishment points. According to the definition of the ministry of national defense, the base is mainly used for the PLA to carry out escort, peacekeeping, and humanitarian relief missions in the gulf of Aden and waters off Somalia. Less than 2 months after establishing its first overseas base in the east African nation of Djibouti, China held its first overseas military exercise. This is the first time that Chinese soldiers stationed in Djibouti had left their bases for combat training, a live-fire drill that will help Chinese troops overseas explore new training models. Dozens of Chinese officers, armed vehicles, and others took part in the drill, which took place at the Djibouti national military police training ground. Soldiers attacked targets with pistols, automatic rifles, and machine guns. On May 12, 2018, the Chinese military base in Djibouti carried out another live-fire drill on 15 subjects, including armored cluster, multi-way pursuit, and coordinated light and heavy fire. Main source: https://military.china.com/important/11132797/20160325/ 22304058.html In the new era of the B&R and the community of shared future for mankind, the unpredictable and changeable situation confronting the countries along the B&R and the security risks and challenges cannot be ignored. In the face of new challenges, only to safeguard our homes is not the fundamental solution. China’s anti-terrorism forces should act as a model by going abroad to the frontline through military cooperation, in order to build important military strategic fulcrums and support the construction of the B&R (Liu 2017). “It is better to chase after as well as annihilate those remain enemies with braveness” (“宜将剩勇追穷寇,” from one of Mao Zedong’s poems of eight lines, The People’s Liberation Army Captures

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Nanjing, 1949), China should combat terrorism with strong army while developing its ability in the fights. By doing so, China can contribute to the world’s peace and development, and commit itself to building the community of shared future for mankind.

Conclusion China has marked the fifth anniversary of its ambitious multi-trillion project, the Belt and Road Initiative (BRI), with a symposium addressed by Xi. The meeting had proposed to solve key problems such as major projects, financial support, investment environment, risk control, and national security. Meanwhile, China had attached great importance to overseas risk prevention; it will improve the security risk prevention system and comprehensively improve overseas security and risk response capabilities (Xinhua 2018). In early January 2019, the second session of “B&R” Paris Conference was successfully held at UNESCO headquarters. The participants discussed politics and security, energy and environment, agriculture cooperation, and other issues under the framework of BRI. The meeting is believed to provide greater opportunities for China and European countries to strengthen pragmatic cooperation, promote multilateralism, and promote global governance. Terrorism is a common threat to security of all human beings, and it is the biggest obstacle to the BRI. Strengthening security cooperation with linkage, integration, openness and co-ruling, anti-terrorism cooperation, China is prepared to undertake the due obligations for the international counter-terrorism, the BRI can be built into “a road of social security and people’s happiness,” and a regional model of the community of shared future for mankind.

References An X, Zhu M (2015) On practice and innovation of international police law enforcement cooperation under the “belt and road” strategy. J Guangxi Polic Acad 3:32–36 Bao J, Zhang Y (2017) Perspectives on data governance of government departments in China. Chinese Public Administration, pp 28–34 Liu L (2017) Strategic fulcrum along the “belt and road” and military diplomatic construction. World Affair 15:62–64 Qin T (2017) Counter-terrorism situation in the early 21st century and China’s counter-terrorism military force building. China Military Sci 1:50–59 Qing L (2016) Comprehensive and profound understanding of big data to promote the modernization of governance capabilities. Xinxiang Rev 22:17–20 Ren T, Zhao Z (2017) Reflections on the construction of China’s international police cooperation mechanism – based on the “belt and road” development strategy. J Beijing Polic Colle 1:71–76 Viktor M, Kenneth C (2013) Big data: a revolution that will transform how we live, work, and think. Eamon Dolan/Houghton Mifflin Harcourt Wang K (2018) Study on international anti-terrorism police cooperation under the background of “the belt and road initiative”. J Liaoning Polic Colle 3:58–62 Xi J (2017a) Building a community of shared future for mankind. UN in Geneva, Jan 18th

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Xi J (2017b) Secure a decisive victory in building a moderately prosperous society in all respects and strive for the great success of socialism with Chinese characteristics for a new era, Delivered at the 19th National Congress of the Communist Party of China, Oct 18, 2017 Xi J (2017c) Work together to build the silk road economic belt and the 21st century maritime silk road. Belt and Road Forum for International Cooperation, Beijing, pp 14–15 Xinhua (2018) Xi gives new impetus to belt and road initiative. Xinhua Agency, Aug 28, 2018 Xu W (2018) The 5th anniversary of BRI: go forward steadily. Guangmin Daily, Aug 9, 2018 Yin Y, Wang H, Zhang W (2017) “The belt & road” strategy and China’s direct investment in the middle east: meaning political risk and suggestions. Int Trade 4:26–29+50 Zhu Y (2010) Preliminary study on international anti-terrorism military legislation – taking the Shanghai cooperation organization as an example. J Xi’an Pol Inst PLA 1:97–100

Subjective Well-Being of the Residents in Contemporary China

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当代中国人的主观幸福感 Jianwen Wei, Yang Han, and Yandong Zhao

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Research Backgrounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Development in China over the Last Four Decades . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subjective Well-Being in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theory and Explanations in Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Individual Characters and Subjective Well-Being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Development, Social Structure, and Subjective Well-Being . . . . . . . . . . . . . . . . . . . . Other Issues Related to Subjective Well-Being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

China has experienced rapid economic development since 1978, whereas the subjective well-being of the Chinese residents has been stable but not high. A large body of research has explored the factors affecting subjective well-being in China to solve the puzzle. These studies mainly focused on two kinds of factors: one is individual characters; the other is the macroeconomic and structural factors. Several theoretical expiations are discussed in the literature, such as Easterlin Paradox, post-materialism proposition, judgment model of well-being, J. Wei (*) China Academy of Social Management/School of Sociology, Beijing Normal University, Beijing, China e-mail: [email protected] Y. Han Beijing Longmahui Capital Investment Company, Hong Kong, China Y. Zhao School of Sociology and Population Studies, Renmin University of China, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_39

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“winner’s curse” and the like. Besides, the measurement of subjective well-being has been discussed in the past and formed common and simplified operationalizations in recent empirical research. These studies help to better understand subjective well-being in contemporary China and is beneficial to form a balanced and more equal social structure with a sustainable economic development, which is of great essence for a better China with a much higher well-being. Keywords

Subjective well-being · Economic development · Contemporary china

Introduction China has experienced rapid development during the past four decades since the reform and opening up in 1978. People’s incomes and material life have been improved greatly in this period because of the rapid economic growth. However, the Chinese are also disturbed by various social problems, such as the gap between the rich and the poor, the mass incidents caused by workers who are demanding for their payment, the extremely high housing price in several metropolises, and so forth. Meanwhile, the average level of happiness and life satisfaction has remained stable but not high in spite of the sustained growth of China’s GDP per capita (Wu and Tam 2015; Yuan and Zhang 2009). Under such circumstance, happiness has become more concerned with in China by not only the scholars but also the policy makers (Bian and Xiao 2014; Jiang et al. 2012; Liu et al. 2013; Wu and Tam 2015; Wu 2016; Wu and Li 2017; Yuan and Golpelwar 2013; Zhao 2012; Zhou and Xie 2016). Residents’ happiness is a “barometer” of the social governance, which is “closely related to people’s identification with the government” (Liu et al. 2013: 22). President Xi Jinping has pointed out that the Chinese Dream is the Chinese people’s dream of happiness and is closely connected with the dreams of all peoples. Hence, it is of much significance for social governance to understand and improve people’s happiness in China.

Overview of the Chapter Firstly, this chapter will introduce the economic growth and subjective well-being in China as the backgrounds. Several survey data will be used in this section. Secondly, a literature review will be shown in order to understand the subjective well-being in contemporary China. In the third place, we will clarify some other issues related to subjective well-being. At last, a brief conclusion will be presented about Chinese residents’ subjective well-being.

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(㻃) 60,000

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53,980.00

50,000 40,000 30,000 20,000 10,000 385.00 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Fig. 1 GDP per capita in China (1978–2016). (Source: National Bureau of Statistics of China. Available online: http://data.stats.gov.cn/easyquery.htm?cn=C01 (accessed on 24 October 2018)

The Research Backgrounds Economic Development in China over the Last Four Decades China’s economy has grown enormously since 1978. According to the World Bank, China was the world’s second largest economy in 2016 with a GDP of 11,199,145.16 million US dollars (about 74,412.72 billion yuan) which only seconded to the USA. It is shown that the GDP per capita in China has been increasing from 385 yuan in 1978 to 53,980 yuan in 2016 (Fig. 1). The strong economic power has provided the Chinese residents with a taste of material affluence (Wu and Tam 2015). For instance, Kahneman and Krueger (2006) pointed out that based on the Gallup’s survey, the proportion of households with the ownership of color TV rose from 40% to 82% between 1994 and 2005 and the percentage with a telephone soared from 10% to 63%. The Engel coefficient in China has declined since 1978 for both rural and urban area, suggesting that quality of life in China has improved during the past four decades (Fig. 2). However, does materially wealthier means mentally happier? In other words, does the Chinese residents feel happier or more satisfied with their life? Based on several surveys, we may have an overview of Chinese people’s subjective wellbeing.

Subjective Well-Being in China In the first place, the results of World Values Survey (WVS) will be introduced. The WVS is led by an international team of scholars, with the WVS Association and WVSA Secretariat headquartered in Vienna, Austria. More details about WVS can be referred (Inglehart et al. 2014). According to the WVS, the fraction of people who feel happy (including both “very happy” and “rather happy”) has increased from 68.44% in 1990 to 85.45% in 2012 in China (Fig. 3).

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67.7 57.5

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Urban Family Engel Coefficient (%)

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Fig. 2 Engel coefficient in China (1978–2012). National Bureau of Statistics of China. Available online: http://data.stats.gov.cn/easyquery.htm?cn=C01&zb=A0A01&sj=2016 (accessed on 24 October 2018)

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Fig. 3 The Chinese people’s feeling of happiness (1990–2012). (Source: World Values Survey. Data can be found by the link: http://www.worldvaluessurvey.org/WVSOnline.jsp. In our analysis, “Not answer” and “Don’t know” has been treated as missing values, thus the results are a little different from the Online Analysis in this website)

However, it could be found that with the upward trend of the percentage of “rather happy,” the proportion of “very happy” has fallen from 28.26% in 1990 to 15.88% in 2012 (Fig. 3). In addition, if we treat the feeling of happiness as a score with “very happy” being equal to 4, “rather happy” being 3, “not very happy” being 2 and “not at all happy” being 1, the average score of happiness in China will be stable around 3 (Fig. 4). Nevertheless, the data from the Chinese General Social Survey (GGSS) may show a somewhat different trend. The Chinese General Social Survey (CGSS) has been

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Fig. 5 The average score of Chinese people’s feeling of happiness (2003–2013). (Weighted values are shown in the figure according to Wu 2016)

launched jointly since 2003 by Hong Kong University of Science and Technology and Renmin University. More details about CGSS can be seen in Bian and Li (2012). Treating the subjective well-being as a score from 1 (very unhappy) to 5 (very happy), Wu (2016) calculated the mean during a decade since 2003 with the CGSS databases. It is shown that Chinese people’s subjective well-being has an uptrend from 3.29 to 3.77 between 2003 and 2013 (Fig. 5). Similar results can be also seen in Liu et al. (2013) and Wu and Li (2017) which are based on the CGSS as well. Besides, based on the data from Gallup’s World Poll, Crabtree and Wu (2011) pointed out that the average rating for life among the Chinese population has been below 5.0 on a 0–10 scale from 1999 to 2010 (Fig. 6). In sum, it appears that mixed results are shown about the subjective well-being in China based on different surveys. However, it is clear that in terms of the average level, the changes of happiness or life satisfaction are not so obvious, especially compared with the rapid growth of GDP per capita in China.

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10 8 6 4

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Fig. 6 The average rating for life in China (1999–2010). (Source: Gallup’s World Poll, Surveys in 1999 and 2004 used a 1-to-10 scale rather than the 0-to-10 scale)

Theory and Explanations in Chinese Context Previous studies have found that two main kinds of factors influence people’s subjective well-being: one concentrates on factors of individual level such as age, gender, household registration, education, income, wealth, and migration (Knight and Gunatilaka 2010; Wang and Vanderweele 2011; Wang and Xie 2015); the other emphasizes the macroeconomic and structural factors (Di Tella et al. 2003; Easterlin 1974, 2001; Inglehart et al. 2008; Yang 2008).

Individual Characters and Subjective Well-Being In terms of individual characters, Wang and VanderWeele (2011: 456) pointed out that “higher subjective well-being is associated with being female, higher income, being married and being employed and that subjective well-being has a U-shaped relationship with age.” Wang and Xie (2015) found out that workers in state sector have a higher level of happiness than their counterparts in private sector. Such relationships can be explained by the “instrumental logic,” which means that the nature of employment, income, work unit, and the like is resources that help people satisfy the cravings, leading to a higher subjective well-being. And compared with the British people, the “instrumental logic” only exists in China (Bian and Xiao 2014: 39). Besides, life satisfaction is also affected by structural social capital, namely, network size, neighborhood interaction, and social participation. However, household income will reduce the association between a social network size and life satisfaction but increase the relationship between social participation and life satisfaction (Yuan 2016). A finding that is a little out of expectation in individual level is that controlling for other variables, urban residents in China are unhappier than rural residents, although

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the former are socioeconomically better off than the latter (Knight and Gunatilaka 2010; Wu and Li 2017). One of the explanations for the puzzle is that the orbits of comparison differ across the two groups (Knight and Gunatilaka 2010).

Economic Development, Social Structure, and Subjective Well-Being To begin with, as for the macroeconomic level, Easterlin Paradox (Easterlin 1974, 2001) is a debate that cannot be ignored which describes the relationship between economic growth and subjective well-being. According to Easterlin Paradox, in the short period, economic growth may raise people’s subjective well-being in a country; however, in the long run, subjective well-being will not rise consistently with the growth of economy. However, Liu et al. (2013) concluded that Easterlin Paradox is not supported in their finding about the subjective well-being in China from 2003 to 2010 as the subjective well-being in China has increased with a rising economic process. On the contrary, Wu (2016) confirmed that China’s rapid economic growth has no significant effect on the change of general happiness from 2003 to 2013. As an indirect way to test the Easterlin Paradox, Wu and Li (2017) included an interaction between income and survey year, showing that the impact of income on subjective well-being decreases with China’s economic growth. In the second place, notwithstanding the indirect way to test the paradox, Wu and Li (2017) also pointed out the shortcomings of Easterlin Paradox. They argued that the paradox is based on the assumption that the effect of rising income on happiness disappears as people’s aspirations increase with income rising. However, the reason why aspirations will increase has not been addressed. In addition, people evaluate their level of income and adjust their expectations according to a reference group rather than their absolute income. It is also the reason why social comparison or relative deprivation matters (Hagerty 2000; Haller and Hadler 2006; Runciman 1966). A study in German has indicated that subjective well-being depends more on relative deprivation of income than on absolute income (D’Ambrosio and Frick 2007). Similar situation happens in China. Despite considerable income gains in absolute terms, some people are experiencing a deterioration in their relative income position due to the rapidly increasing income inequality. These “frustrated achievers” may experience a decreasing life satisfaction (Brockmann et al. 2009). However, mixed results are presented about the relationship between income inequality and subjective well-being. Some studies find out that income inequality decreases subjective well-being (e.g., Alesina et al. 2004; D’Ambrosio and Frick 2007; Fahey and Smyth 2004; Morawetz et al. 1977; Oshio and Kobayashi 2010; Schwarze and Härpfer 2007; Verme 2011), while others show income inequality has an insignificant or even positive relationship with subjective well-being (Clark 2003; Graham and Felton 2006; Kelley and Evans 2017; Ohtake and Tomioka 2004; Senik 2004). In the Chinese context, it is of great significance to know that how the income inequality affects subjective well-being, as it is known that China is experiencing a high income inequality. According to the National Bureau of Statistics of China, the

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Gini coefficient in China was 0.465 in 2016 (National Bureau of Statistics of China 2017), and from 2012 to 2015, the Gini coefficient was 0.474, 0.473, 0.469, and 0.462. Xie and Zhou (2014) found out there is a dramatic rise in income inequality and the Gini coefficient in China based on several survey data has reached over 0.5, even higher than that released by the authority. Compared with the USA, the uptrend in China is more obvious. In spite of the fact that life satisfaction or happiness in China as a whole has not declined as shown above, local income inequality has a negative effect on life satisfaction, which means provinces with a higher Gini coefficient will reduce people’s life satisfaction (Wu and Li 2017). This may because people will make comparison with a reference group typically in a local context. Mangyo and Park (2011) indicated that in urban China relatives and classmates are salient reference groups, while for Chinese rural residents, neighbors are important. Income inequality is sometimes considered as an indicator of relative deprivation. Nevertheless, relative deprivation may somewhat include one’s subjective perception which differs from income inequality as an absolutely objective indicator. Hence, it is not only a structural factor, but also an individual belief. Hu (2017) defined that subjective inequality is the joint outcome of one’s perception of real situation and normative belief about ideal state. Similarly, Wang and VanderWeele (2011: 450) measure the relative deprivation by three indicators: comparison of life quality with (i) their peers, (ii) themselves 3 years ago, and (iii) the normal people in their eyes. With such an operationalization, Wang and Vanderweele (2011) found out that relative deprivation is inversely correlated with subjective well-being in urban China. While thirdly, local economic growth has a positive effect on subjective wellbeing. And it is the annual GDP growth rate rather than GDP per capita that improves the subjective well-being (Wu and Li 2017). The main reason is that rapid economic growth is more likely to increase socioeconomic mobility (Whyte 2010; Wu 2009; Xie et al. 2012). In addition, Zhou and Xie (2016) come up with a space-time explanation from the perspective of social comparison that the rate of economic growth within the local context, rather than the difference in economic development level between regions (context), provides a reference basis leading to varying levels of life satisfaction. And last but not least, the impact of income or socioeconomic status (SES) on subjective well-being differs across regions with various levels of economic development in China, which could provide a further elaboration for Easterlin Paradox (Wu and Li 2017). Within a region of lower economic development, the effect of income or SES on life satisfaction or happiness is higher than that in a more economically developed region (Wu and Li 2017; Wu and Tam 2015). The results are similar to numerous international studies (Veenhoven 1991; Di Tella et al. 2003; Fahey and Smyth 2004; Helliwell 2003). One explanation for this observation is related to the proposition of postmaterialism, which argues that people in a richer area pursue much more nonmaterialistic issues, whereas people in poorer region have to attain basic material

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needs first. Thus, in poorer region life satisfaction or happiness depends more on economic growth (Kahneman and Krueger 2006; Mogilner 2010; Aknin et al. 2013). Another explanation is based on Tversky and Griffin’s (1991) judgment model of well-being which argues that endowment and contrast are two means by which SES affects well-being. Put it simply, endowment effects emphasize that higher income will increase people’s ability to enjoy life, leading to a higher assessment of wellbeing, while contrast effects indicate that a higher income or education may lift one’s social status compared with that in the past or with others, making people happier. Building on this, Wu and Tam (2015) proposed that economic development is an important contextual factor. Specifically, endowment effects may have a greater impact at lower levels of economic development where basic material needs take priority, while contrast effects become more important at higher levels of economic development where basic needs have been satisfied and aspirations for achievement are higher. A third explanation is proposed by Wu and Tam (2015) named “winner’s curse,” which means that those high achievers in the most developed areas may have chosen to spend more time at work and less time with their families and at leisure, leading not to increase their happiness or life satisfaction.

Other Issues Related to Subjective Well-Being Life satisfaction and happiness are the two terms mainly used as the indicators of subjective well-being in social surveys (Kahneman and Krueger 2006). Life satisfaction is regarded as a global judgment of one’s life, while happiness usually refers to an emotional state and thus sensitive to sudden changes in mood. Though differences exist, scholars often use them interchangeably (Diener and Lucas 2000; Diener and Ng 2010; Wu and Li 2017). The most common practice in a questionnaire to measure one’s subjective wellbeing is to ask the respondents about his/her global life satisfaction or happiness with only one question which is often offered three, four, or five options (e.g., 1, very happy; 2, happy; 3, medium; 4, unhappy; 5, very unhappy) or a scale with scores from 1 to 10 (Liu et al. 2013). However, the reliability and validity of such a measurement have been challenged. As part of the response, Robinson and Shaver (1969) conducted a systematic study, believing that this kind of measurement has stable reliabilities. Besides, Wilson (1967) found out that the results of selfassessments were similar to those of expert assessments, suggesting that the selfassessment method has validity. Nowadays, this kind of measurement with a one-off question has been widely applied in social surveys, including the World Values Survey, the World Database of Happiness, the General Social Survey in the USA, and also the Chinese General Social Survey.

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Conclusion People’s quality of life has benefited greatly from the rapid economic growth. Meanwhile, social and economic problems are also disturbing the Chinese residents. It has been shown that in spite of the fact that economic growth may raise people’s subjective well-being, the inequality existing in China still stunts the improvement of people’s life satisfaction or happiness. Not only economic growth but also social structure is involved in people’s life satisfaction. As Xi Jinping, the General Secretary of Communist Party of China (CPC), proposed at the 19th CPC National Congress, the principal contradiction facing Chinese society has evolved from the contradiction between the ever-growing material and cultural needs of the people and backward social production to the one between unbalanced and inadequate development and the people’s ever-growing need for a better life (Xi 2017) a balanced and more equal social structure with a sustainable economic development is of great essence for a better China with a much higher well-being.

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De-administration of the Community Resident’s Committee: A Case Study Based on the Fieldwork in China

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Contents The Basic Course of Community De-administration Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The First Stage: The Climax of 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Second Stage: The Climax of 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Third Stage: The Climax of 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Fourth Stage: The Climax of 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Basic Models of Community De-administration Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Model 1: The Separation of Community Resident’s Committee and Community Workstation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Model 2: Cancel the Street Office and Strengthen the Community . . . . . . . . . . . . . . . . . . . . . . . . Model 3: Administrative Access System of Community Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Multiple Paradoxes of Community De-administration Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . Reform Impetus: “Administrative Promotion” and “Social Participation” . . . . . . . . . . . . . . . . . Reform Goal: “De-administration” and “Marginalization” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reform Effect: “Involution” and “Collusion” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Future Trend of Community De-administration Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change the Idea of Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconstruct the Organizational Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Optimize the Configuration of Functional Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovate the System Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strengthen the Law Provision for Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

With the start of a new round of community reform in China, the issue of administration and de-administration of the residents’ committee has once again

P. Chen (*) China Academy of Social Management, Beijing Normal University, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_40

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become a hot topic. Based on the observation of the practical cases in different parts of China, this chapter summarizes three institutional models of community de-administration reform and reveals each model’s policy connotation, development course, main features, and operational effects. There are three main modes: first, “separation of residents’ committee and community workstation model,” focusing on organizational function segmentation; second, “cancel the street office and strengthen the community model,” focusing on power structure reorganization; and third, “administrative access system of community work model,” focusing on the establishment of community power list. The key to the reform of community de-administration is to excavate, cultivate, and release the social factors and mechanisms that the resident’s committee has long been restrained by the administration and to rebuild and reconstruct the balance between the “administrative” and “social” dual attributes of the residents’ committee. Keywords

Community · De-administration · Multiple paradoxes

With the start of the new round of community’s burden reduction movement, the issue of “de-administration” of community resident’s committee has once again become a hot topic in China. For a long time, the burden of community resident’s committee is too heavy and overwhelmed. “De-administration” of community resident’s committee is the core problem of urban community governance innovation. The grassroots government has made a lot of exploration and accumulated valuable experience but also has some problems. Based on the observation of the practical cases in different parts of the country, this chapter summarizes the basic course, the main modes, and the operational effect of community burden reduction reforms and put forward the key points of the further reform agenda.

The Basic Course of Community De-administration Reform The burden reduction of community resident’s committee is an old and new policy issue. From the course of community construction and development in the country, we have experienced four relatively obvious stages, basically every 5 years to reach a new climax.

The First Stage: The Climax of 2000 In the late 1980s, China put forward the reform policy of “social welfare, assumed by the society.” Entered the early 1990s, on the basis of the development of “community service,” the government proposed the idea of “community construction.” With the reform of state-owned enterprises and the emergence of laid-off workers,

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strengthening community construction and developing community reemployment have become a major task. In the process of rapid development of market economy and the gradual disintegration of unit system, “unit man” becomes “social man;” the floating population is increasing; the role of community is more and more important and is given more and more social responsibility and administrative affairs. In 2000, with the promulgation of “Ministry of Civil Affairs’ View on the Promotion of Urban Community Construction in the Country,” community construction movement began to flourish in the country; the community is increasingly becoming a “state governance unit” (Min 2007).

The Second Stage: The Climax of 2005 In 2003, China’s per capita GDP exceeded 1000 US dollars for the first time, into the international so-called social contractions highlighted period. In 2004, the 4th Plenary Session of the 16th CPC Central Committee put forward the concept of building a social harmonious society. In 2005, the seminar of “To improve the capacity of building a socialist harmonious society for the leading cadres at provincial and ministerial level” was held in the CPC Central Party School. Thus, building a socialist harmonious society has become an important strategic task of the CPC. In 2006, the Sixth Plenary Session of the 16th CPC Central Committee passed “The Decision of the CPC Central Committee on Several Major Issues in Building a Socialist Harmonious Society.” In the background of building a socialist harmonious society, “harmonious community construction” has become an important content and plays an important position and role in maintaining social stability and social order.

The Third Stage: The Climax of 2010 In 2010, the General Office of Central Committee of CPC and the State Council issued “The Opinions on Strengthening and improving the Construction of Urban Community Resident’s Committee.” This is the first policy document issued by the CPC Central Committee and the State Council in the history of the construction of urban community resident’s committees. In the face of outstanding difficulties, the document put forward targeted solutions to comprehensively strengthen and enhance the capacity of community resident’s committees. In February 2011, the seminar of “social management innovation” for provincial and ministerial level cadres was held in the Central Party School of CPC, to strengthen and innovate social management which has become a major strategic arrangement in China. In July 2011, the CPC Central Committee and State Council promulgated “The Opinion on Strengthening and innovating Social Management.” Thus, as a basic unit of grassroots units, the community plays a more prominent role in undertaking social management tasks and maintaining social stability.

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The Fourth Stage: The Climax of 2015 In 2013, the Third Plenary Session of the 18th CPC Central Committee put forward the major deployment of “social governance innovation,” and “community governance” became the basic project to promote the modernization of state governance. In the context of innovating community governance, to strengthen community consultation and stimulate community vitality have become important trends. In 2015, the Ministry of Civil Affairs and the Organization Department of the CPC Central Committee jointly issued “A Notice on Further alleviating the Burdens of the Community” and started the policy agenda of the de-administration of community resident’s committee in the form of reducing the burden and improving the efficiency. Subsequently, the CPC Central Committee and State Council issued “The Opinion on Strengthening and Improving the Urban and Rural Community Governance,” which made it clear that the promotion of community burden reduction is to fill the short board for strengthening urban and rural community governance. Thus, the issue of “community burden reduction” was raised to an unprecedented political level.

The Basic Models of Community De-administration Reform Model 1: The Separation of Community Resident’s Committee and Community Workstation In addition to community party organizations and community resident’s committee, the establishment of new community workstation specially takes the administrative affairs of the government and then clearly divides the boundaries between the community self-governance rights and the government administrative power. This kind of reform mode tries to realize the goal of restoring the autonomy of the community resident’s committee by adding new organization body and divesting its administrative function. In 1999, the Ministry of Civil Affairs issued “National Community Construction Experimental Zone Work Program” and put forward the principle of “community autonomy, the separation of decision and execution,” exploring the separation between the executive board and the implementation board in the new organizational system of community construction. This idea was mainly implemented and reflected by the mode of the separation of community resident’s committee and community workstation. The first prototype of this mode appeared in Shanghai. In 1999, in the process of exploring the implementation of the direct elections of community resident’s committee, in order to reduce the administrative burden of community resident’s committee and resettle the original committee of unsuccessful staff, community workstation came into being. As the national community construction experimental area, the Lu Wan District of Shanghai was the earliest practical example. As the pioneer area of reform and opening up, the Yantian District of Shenzhen implemented this reform mode and raised a wide range of

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impact in the country, known as the “Yantian model.” At present, this model is widely adopted throughout the country. Model 1 has important value of institutional innovation and plays a certain role in promoting the de-administration of the community resident’s committee. It mainly reflected in four dimensions: Firstly, reconstruct the community governance structure. The establishment of the community workstation adds a new element but also substantially changed the community’s governance pattern. Secondly, reduce the administrative burden of community resident’s committee. The community workstation is responsible for the administrative affairs of the government, which helps to divest the administrative functions of the community resident’s committee and make the responsibilities between the two relatively clear. Thirdly, promote the specialization of the community work. A large number of social workers are enriched into the grassroots society. Fourthly, improve the way of government’s service provision. Through the community workstation, the government purchasing services from social organization has become a more and more popular way. However, it’s worth noting that this reform model in practice also showed a few problems, mainly reflected in three aspects: Firstly, the issue of community readministration. This reform model promoted the process of de-administration but also fell into another “readministration trap.” In the actual operation, the community workstation was changed into the subordinate institutions of the street office. The trend of administrative tools is obvious, not only increased the new administrative level, but also increased the financial burden. Secondly, the community resident’s committee was marginalized. After the separation of the administrative functions from the community resident’s committee, it was hollowing and had minimal influences on the resident’s interests. Thirdly, the interest contradiction between the community resident’s committee and the community workstation. Except a small number of communities in the form of “two brands, a set of people,” most communities appeared obvious interest friction and authority contention and even resulted in system variation that the community workstation instead of the resident’s committee (Wang 2011).

Model 2: Cancel the Street Office and Strengthen the Community In order to promote the reform of the de-administration of community resident’s committee, this model intends to revoke the street office and make the community bigger and stronger. From the perspective of the restructuring of power structure, this reform model reduced the administrative level, adjusted the administrative structure, and taken off the administrative suppression, to achieve the goal for the return of autonomy of the community resident’s committee. In 2009, “The Urban Street Office Regulation” was abolished by the Standing Committee of the National People’s Congress, which removed the legal barriers for the revocation of the street office. This model was practiced in 2009 as a watershed, forming into two major reform periods. Prior to 2009, only a few cities had explored, and the scope of the trial was relatively small, mainly to revoke a single street. Except the Lu Valley community in

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Beijing, which was reluctant to maintain its operation, others returned to the pre-reform state and were reintroduced into the street system, declared failed, and thus had almost no major impact nationwide. After 2009, especially in the context of the central government’s proposal to strengthen social construction and social management, some cities listed as “national community management and service innovation experiment area” and “national social management innovation experimental unit” began to actively carry out a wide range of experimental reform and have a greater influence and raise a certain demonstration effect. For example, the “Tong ling model” in Anhui Province and “Guiyang model” in Guizhou Province were widely concerned. In these two cities, all the street offices were revoked and focus on bigger and stronger communities. They both belong to the community comprehensive system reform. This reform mode in line with the development trend of modern urban governance is a positive and useful attempt of promoting the de-administration of the community resident’s committee. Although the specific practices are different in the local governments, they have the common factors: Firstly, achieve the flat governance of the grassroots level. Through the revocation of the street office, the district managed the community directly, reduced the administrative level, expanded the community size, increased community resources, and also reduced the financial burden. Secondly, build a new community governance structure. A popular structure consisted of “community party committee,” “resident council,” and “community service center,” such as Guiyang. At the same time, the local government developed all kinds of social organizations, to promote their participation in community governance and community services. Thirdly, enhance the effectiveness of government public services. The newly established “community service center” or “community administrative affairs center” implemented “one-stop” window services which shorten the public service processes and chains and not only improved efficiency but also more targeted. However, this reform model also produced some problems and difficulties, mainly reflected in three aspects: Firstly, the staff diversion placement problem. After the cancel of street office, the first to face is how to divert the resettlement problem of the original street office staff. Secondly, the community actually becomes a “narrow street office.” In the pilot areas, a new community administrative affairs center was established, which was used to undertake the administrative and public service functions of the original street office, and the economic functions and enforcement functions were collected by the district. In the system of “isomorphic responsibility,” the function of new community is reduced, but the various tasks have surged. Thirdly, the problem of “the bottom changed, but the top not.” The burden of the resident’s committee was eliminated in the surface, set aside more autonomy space, due to the lack of top-down comprehensive reform, resulting in the revocation of the street office easily flow formalistic. The community resident’s committee still can’t be divorced from the trap of administration (Yang 2012). Fourthly, the resident’s committee can’t be autonomous. In the long-term, the community administrative dominant system, the resident’s committee, and the residents have formed a strong dependence on the government, street office suddenly revoked, the resident’s

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committee has been “unable to adapt,” and the residents also lacked the ability and habit of organizing collective action, thus resulting in the “can’t self-governance” situation.

Model 3: Administrative Access System of Community Work The third mode refers to classifying the various types of work matters of community, making a clear list of community power, implementing the administrative access system of community work, and then promoting the reform of de-administration of community resident’s committee. This reform model is essentially a kind of power list system, aimed at clarifying the functions and responsibilities of the community, rationalizing the relationship between the government and the community, and constraining the administrative tasks sink by the rigid institution. The practice of this model in the country has experienced a process of continuous standardization. In the earlier period, Dongcheng District of Beijing had formulated “The Implementation Plan for Establishing Community Work Admission System” in 2004. Since then, some provincial capitals and cities specifically designated in the state plan also carried out some experimental exploration in the individual districts, such as Taiyuan, Zhengzhou, Ningbo, and Qingdao. Under the entire grassroots management system, especially maintaining stability system, the effect of community de-administration reform in this period is not very good, and the impact is also small. Before and after the central government’s new policy of “streamlining administration and devolving power,” the community resident’s committee de-administration reform has entered into a new stage in China. Nanjing, Zhuhai, Wuhan, and other places carried out a more effective exploration. After 2015, the central government further promotes the de-administration reform of community resident’s committee comprehensively; the provinces and cities have to implement one after another. Beijing and Shanghai were the most prominent examples. Beijing has formulated and promulgated a detailed list of community functions, and Shanghai has clearly incorporated the administrative access system of community work into the newly promulgated the “Working Regulations of Community Resident’s Committee in Shanghai.” This reform model has a positive meaning. For a long time, because the policy provisions of the pilot areas were relatively rough, and lack of large policy environment, the reform achieve the actual expected results. In recent years, with the environment of governance innovation and the implementation of the power list system, the policy design of community administrative access is becoming more and more rigorous, and alleviating community burdens has become a general consensus and strong voice. Meanwhile, it’s worth noting that the mechanism of the community administrative access in the actual operation also appears a few problems. Firstly, the problem of policy versatility. Under the historical inertia, the grassroots government and functional departments use the circuitous way to exert pressure through the leaders’ instruction and greeting to achieve the administrative affairs sink into the

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community. Secondly, the problem of political transmission. The community often faces a variety of temporary administrative tasks, so that the daily work lifted up to the height of political tasks, which makes the community administrative access system in practice encounter blurred boundaries and ultimately may make the community power list become “a dead letter” (Wang 2017). Thirdly, the issue of check and accountability. As a kind of power list system, whether the community administrative access system can achieve tangible results, the key lies in a strong check and accountability mechanism. Judging from the normative documents in different local governments, the rules of accountability and check have become harsher and more operational than they were before. From the actual work effect, the burden of community resident’s committee is still not light. Maybe it needs a process to observe.

The Multiple Paradoxes of Community De-administration Reform For a long time, the reform of the community resident’s committee has always been locked in the antinomy between “administration” and “autonomy,” which also makes the reform difficult to have a substantial breakthrough (Xu and Hou 2015). From the reform practice around the point of view, the de-administration reforms of community resident’s committee were generally caught in a “multiple paradox” for three dimensions.

Reform Impetus: “Administrative Promotion” and “Social Participation” The three types of reform modes basically belong to the top-down mandatory institutional changes and mainly rely on the promotion of the strong government, the whole government-led. The reforms reduced and weakened part of the power and also spawned the expansion and reproduction of other administrative powers. This is determined by the nature of the contracted government created by the omnipotent administration. In contrast, the community is passively involved, and with lack of active and effective promotion, residents’ participation is not high and indifferent. It is also closely related to the lack of social capital and social vitality in the current community construction.

Reform Goal: “De-administration” and “Marginalization” Whether the Mode 1 or Mode 2, after the dissolution of the administrative functions of the community resident’s committee, its work becomes idle and becomes an obligatory public welfare work, and the influence on the interests of the community

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residents has become negligible. It resulted in the ability of the community resident’s committee to be evacuated, weakened, and even hollow. In fact, administrative affairs and administrative resources are not only important channels and carriers that affect the interests of residents but also an important source of authority and influence of the community resident’s committee. From some practical cases, the dissolution of the administrative functions of the community resident’s committee directly led to be marginalized and suffered the cold of the residents.

Reform Effect: “Involution” and “Collusion” In the process of state-led change, the organizational change of community resident’s committee has gone into “involution.” Although the new organizational formal elements have appeared, the organizational nature and the actual operation mechanism have not changed fundamentally (He and He 2005). The situation of organizational change in community resident’s committee can’t simply be seen as the result of administrative coercion under the pressure system but rather to see the choice and subjective initiative of the community resident’s committees in specific circumstances. This is reflected in the frequent occurrence of various “selective coping” behaviors of the community resident’s committees, as well as the default and tolerance of such acts by the higher levels of governments, especially the street office. The grassroots government and the community resident’s committee reached a collusion for achievements’ need.

The Future Trend of Community De-administration Reform Which way does the community reform choose? There are mainly two views. One holds that from the perspective of the pursuit of the purity of the mass selfgovernance organization in the legal sense, the complete de-administration of community resident’s committee is impossible (Liu and Liu 2017). It’s also the misunderstanding of the logical starting point of community de-administration reform. The other one argues that moderate de-administration of community is necessary (Some grassroots cadres hold this view, such as Xin’an Luo, the director of Zhuhai Municipal Bureau of Civil Affairs (Luo 2013)). What the community should remove is that the administrative function which should not be undertaken by the community resident’s committee. From the historical and practical point of view, it’s necessary that the community resident’s committee assumes relevant administrative affairs, which is the source of its authority. As a means of reform, the de-administration of community resident’s committee is to achieve a common goal, that is, to rebuild the community and to activate grassroots democratic autonomy. To better promote and deepen community reform, the paper suggests the critical points of the following five aspects.

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Change the Idea of Thinking After the disintegration of unit system, the “community” has been regarded as a functional replacement, mainly focused on maintaining grassroots social stability. When the policy paradigm moves from “community construction” to “community governance,” the community should realize the transition from “control” to “service,” from “stability” to “rights,” and from “total” to “limited.” At the same time, with the acceleration of urbanization and the deepening of housing reform, the traditional definition that “urban community” is the jurisdiction of the resident’s committee has not adapted to the actual development needs should re-rationalize the relationship between the “administrative community” and “living community” and make the distinction between “grassroots autonomy unit” and “administrative service unit” (Chen and Li 2016). The idea of community burden reduction reform should adhere to the “top-down” and “bottom-up” combination. Governmental promotion and social participation should be closely integrated and complement each other.

Reconstruct the Organizational Orientation Judging from the statutory duties assumed by the community resident’s committee, it itself has the “duality of government and civil.” Although the authority of the community resident’s committee has been seriously challenged in the context of the commercialization of housing reform, its political status in the grassroots social field is still solid and widely recognized. The community resident’s committee should become a kind of “hub-type social organization” in the context of social governance innovation, provide good guidance and service for all kinds of community social organizations, and market organizations to better represent and maintain the grassroots public interests. The main point of reform is to rebuild the organic balance between the “administrative” and “social” of the community resident’s committee.

Optimize the Configuration of Functional Resources For the actual work, the community resident’s committee bears the proportion of the various affairs seriously unbalanced. According to the relevant research, the community resident’s committee assumed the political and administrative affairs accounted for 80% and resident affairs only 20% (Yang and Yu 2012). This requires that the reform must focus on the value of the functional services carried by the community resident’s committee and then take the reverse cutting. The establishment of the community power list system is a feasible way, including the list of duties according to law, the list of assistance, the list of purchase services, and the list of issuing proof. The key is to strengthen the mechanism construction of verification and accountability. It is worth noting that the functional allocation of the main

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subjects of the grassroots governance must be placed in a specific community context. For different types of communities, it needs to be classified for functional configuration.

Innovate the System Mechanism The merits and demerits of community functional resource allocation depend on the design and arrangement of institutional mechanisms. The core issue of community institutional change is the reconstruction of the relationship between the government and the community. The relationship between the street office and the community resident’s committee should return from the actual “leadership” to the legal “mentorship” and establish a partnership in the specific work. Meanwhile, in the face of the “fragmentation” of current community governance, the committee resident’s committee, the homeowner’s committee, and the property companies should establish an organic integrative governance structure and then make the change from “single management” to “multiple governance.” For the internal institutional reform of the community resident’s committee, it’s necessary to consider the power status of the “community resident’s congress” and the “community member’s congress” or establish the convener system.

Strengthen the Law Provision for Community Strengthening the construction of the community laws is the fundamental policy to promote the de-administration reform of the community resident’s committee. To some extent, the reason why community administration is prone to repeated, it’s important that the existing law provision for community is not enough. Since its promulgation in 1989, “The Organic Law of the Urban Residents Committee” has not been revised for 28 years. It lagged behind the reality and needs of grassroots community development and should be revised as soon as possible. As an increasingly important governance subject, the homeowner’s committee, set by the “Property Management Regulation” in 2003 and “Property Law” in 2007, still lacks the qualification of civil subject. Some good institutional experiences in the practice of homeowner’s self-governance should be learned. In addition, “rule consciousness” and “contract consciousness” in community governance should be respected and promoted widely.

Conclusion The de-administration reform of community resident’s committee is a difficult and complicated process. In this new round of reform, we have discovered some progress and found some stubborness. For a long historical period, the return of the autonomous standard of the residents committee needs to reposition the relationship

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between the government and the community. This is also the key to cracking the mystery of community governance.

References Chen Y, Li N (2016) Shequ gongtongti kunjing yu shequ jingshen chongsu (Community dilemma and remodel of community spirit). Jilin daxue shehui kexue xuebao (Jilin Univ J Soc Sci Ed) 4:54–63 He Y, He C (2005) Zhongguo chengshi jiceng zizhi zuzhi de neijuanhua jiqi chengyin (An analysis of involution of Chinese resident’s committee and its reason). Zhongshan daxue xuebao (shehui kexueban) (J Sun Yatsen Uni) (Soc Sci Ed) 5:104–109 Liu T, Liu K (2017) Juweihui quxing zhenghua: cuowu lilun wudao xiadi qishi zhan fengche (De-administration of urban community resident’s committee: knight fighting windmill under wrong theory). Beijing shifan daxue xuebao (shehui kexue ban) (J of Beijing Normal Univ) (Soc Sci) 3:118–125 Luo X (2013) Shequ juweihui quxing zhenghua de sikao (The reflection on the de-administration of the community resident’s committee). Zhuhai tequbao (Zhuhai Spec Zone Daily), March 28 Min Y (2007) Shequ zuowei guojia zhili danyuan: dui chengshi shequ jianshe yundong guochengzhong jumin shequ canyu he shequ renzhi de gean yanjiu (Community as state governance unit: a case study on residents’ community participation and cognition in the process of community building campaign). Shehuixue yanjiu (Sociol Stud) 4:137–164 Wang Z (2011) Zhidu bianyi: cong “juzhan fenli” dao “yizhan daiju” (System variation: from the committee workstation separation to the station on behalf of the resident’s committee). Master’s thesis, East China University of Science and Technology, pp 27–30 Wang D (2017) Shequ zizhi bianxi yu fansi (An analyze and reflection on community selfgovernance). Yunnan xingzheng xueyuan xuebao (J Yunnan Administration College) 2:13–20 Xu Y, Hou L (2015) Jiceng jianshe yu shehui zhili: dangqian zhongguo shehui jianshe de liangge mingti (Grassroots construction and social governance: two propositions of social construction in modern China). Hebei xuekan (Hebei Acad J) 4:110–115 Yang H (2012) Jiedao banshichu: wenti, luxiang ji zhidu tiaojian (Street office: problem, direction and institutional addition). Nanjing shehui kexue (Nanjing Soc Sci) 4:59–63 Yang A, Yu H (2012) Xuanzexing yingfu: shequ juweihui xingdong luoji de zuzhi fenxi (Selective pressurizing-responding: an organizational study of the behavior logic of the community residents’ committee). Shehuixue yanjiu (Sociol Stud) 4:105–126

On System Arrangement of Governmental Social Media in Emergency Communication and Its Optimization

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Contents Literature Review of Emergency Management and Governmental Social Media . . . . . . . . . . . . . Symbiotic Relationship of Emergency Management and Governmental Social Media . . . . . . . Background Analysis of the Emergency Management Institutional Arrangement of Governmental Social Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Governmental Social Media for Propagating Public Opinion in Emergencies . . . . . . . . . . . . . Governmental Social Media Improves the Speed of Transmitting Responses on the Public Sentiment in Emergencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolution of the Governmental Social Media Emergency Management System . . . . . . . . . . . . . . Progressivity of Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conductivity of Institutional Arrangements: Speed of Local Governments . . . . . . . . . . . . . . . Linkage of Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Path Dependence of Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . System Optimization for Governmental Social Media in Emergency Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Actions About Emergency Management: Establishing a Macroscopic System of Social Media Crisis Transmission Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collaborative Innovation of Multiple Subjectivity: Establish a Crisis Information Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional Transformation with the Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract

After developing for more than 10 years, the function of governmental social media in emergency management has become increasingly more important with D. Shengcui (*) China Academy of Social Management, Beijing Normal University, Beijing, China e-mail: [email protected] C. Siqi School of Journalism and Communication, Beijing Normal University, Beijing, China © Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7_41

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greatly increased scale effects, constellation effects, and rich media. This chapter presents a survey on the institutional management of governmental social media in emergencies, which is characterized by progressivity, conductivity, co-movement, and path dependence. With this in mind, we propose to establish a national system of governmental social media, implement a collaborative innovation strategy of information dissemination in crises, and institute a professionalization transformation assisted by third parties to achieve maximum efficiency in governmental social media for emergency management. Keywords

Governmental social media · Emergency · Institutional arrangement · Optimization

Social media, also known as socialized media, includes forums, blogs, social networking services, and image sharing, among others. The U.S. Department of State (Foreign Affairs Manual: 5 FAM 790: Using Social Media, https://fam.state. gov/fam/05fam/05fam0790.html) defined social media as “a data technology and platform where individuals and organizations can issue, communicate, and cooperate.” Social media is mainly characterized by high interactivity and independent production by users. Globally, 3.19 billion people used social media in 2018, which accounts for 42.0% of the total population and 77.5% of Internet users (Hootsuite and We are social, “Digital in 2018 IN OCEANIA,” http://www. 3mbang.com/p-327232.html). Since Sina launched a microblog in 2009, the amount of active users has reached 0.90 billion in WeChat (“WeChat Data Report in 2017” distributed by Tencent, http://www.sohu.com/a/203437993_667510, 9th November 2017) and 0.39 billion users on the microblog (The Sina annual finian report reported by People’s Daily Online, http://media.people.com.cn/n1/2018/ 0214/c40606-29823387.html, 14th February, 2018). Governmental social media – a special type of social media operated by governmental organizations and governmental officials – has also continued to develop over this time period. Governmental social media, particularly governmental microblogs (WeChat), is a platform for virtual networks and communities based on mutual interests between users and government agencies where government agencies can share, propagate, and obtain information. Such a platform allows for real-time interactions between citizens and governments and is a new method for governments to disseminate information (Xueyan and Qiang 2013). In recent years, governmental social media has exploded, with greatly increased scale effects and constellation effects in information disclosure and public service. Through December 2017, the number of governmental microblogs verified by the Sina platform exceeded 160,000 (CNNIC 2018). Emergency information propagation and the management of governmental social media has started to develop institutional arrangements, which have attracted the attention of administrators and researchers. A report from the 19th National Congress of the Communist Party of

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China proposed that national security is the cornerstone of peace and stability in China, and safeguarding it is in the fundamental interests of Chinese people of all ethnic groups. According to the report, China should improve its national security strategy and policy, guarantee its political security, and take coordinated steps to ensure security in all areas (Xi Jinping’s report). China should improve its national security system, strengthen rule-of-law measures to enhance national security, and enhance its capacity for forestalling and fending off security risks. China must rigorously protect against and take resolute measures to combat all acts of infiltration, subversion, and sabotage, as well as violent and terrorist activities, ethnic separatist activities, and religious extremist activities. China should strengthen efforts to raise awareness of national security among all Party members and all people, as well as create a strong synergy of the whole society to safeguard national security. The report also provides much inspiration to researchers. Based on the view of system analysis, this chapter comprehensively reviews institutions for current governmental social media in emergency management, as well as reasons for the institutional arrangement of governmental social media in China in emergency management and its optimized path for the future by adopting document analysis method, using policy analysis and case studies.

Literature Review of Emergency Management and Governmental Social Media At present, governmental social media mainly focuses on governmental microblogs. By searching keywords such as “governmental microblog” and “emergency” or “governmental microblog” and “crisis,” results from HowNet indicate that research on our governmental social media and emergency information is just starting. Specifically, the research includes the following topics: 1. Research on the functions of governmental social media in emergencies. Using case studies, scholars have carried out empirical research on functions such as public opinion guidance, emotion mobilization, and rumor mitigation using governmental social media in emergencies. Foreign scholars also have discussed functions of governmental microblogs in emergency management. For example, Craig Chavez indicated that the U.S. government uses microblogs as part of a governmental early warning system for public emergencies, whereas Adam Crowe considered social media (e.g., governmental microblogs) to be active and valuable tools that play important roles in emergency management and disaster response. 2. Service specifications research on governmental social media in emergencies. Using a major fire explosion accident in Tianjin Port as an example, Chen Shiying et al. discussed research on information strategies for local governmental microblogs and proposed that there were an accelerated first response, a lack of guidance of on agenda setting, and interaction awareness and strategy. 3. Research on the propagation effects of governmental social media in emergencies. Some scholars used the “prohibiting electric motor” in Zhuhai as an

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example to study the effects of governmental microblogs in government crisis management. 4. Comparative studies based on different nationalities and propagation platforms (e.g., microblogs, WeChat). Zhang Zhian and Cao Yanhui et al. stated that governmental microblogs and WeChat may coordinate to make full use of “governmental double-micro” in the propagation of information. Xie Qihui compared crisis communication policies, practices, and effects of Chinese and American governmental microblogs, emphasizing that governmental microblogs can rely on social media and the public joining together for a functional path in the future. Scholars seldom deeply explore the institutional arrangements of governmental social media in emergencies. Most of the research results – including what Li Guanchen proposed in “Research on ‘Micro-Government Administration’ Management: Take Governmental Microblog and WeChat as Examples” – mainly focus on issuing regulations on governmental microblogs and WeChat. However, this research does not address special laws and regulations for legal protection in the development of micro-government administrations in China. As governmental social media play an increasing important role in emergency management, research on the institutional arrangement of governmental social media is urgently needed.

Symbiotic Relationship of Emergency Management and Governmental Social Media Emergency and governmental social media are naturally related to each other and have a symbiotic relationship. Emergency public information management experiences three stages of public sentiment: (1) public sentiment responses to emergency risk information management; (2) the development process of passive replies; and (3) public sentiment responses on premise of dialogue, where risk information management that respects propagation law reflects different public sentiments. A code of conduct for governmental social media in emergency management has gradually, scientifically, and systematically developed to official institutional arrangements and emergency information propagation. This reflects evidence of governmental social media and emergency response developing together. First, there are risks of public sentiment due to the explosion of emergency response development on governmental social media. The first provincial governmental social media “Yunnan on Microblog” was set up to respond to the Kunming Roswell emergency. One of factors stimulating the development of government affairs on microblogs is that governments want to disseminate official information to the public in a timely manner via a network. By reporting progress and providing information on the event, the government can stop the spread of rumors that may occur on the internet then a government is silent (Miao and Yenan 2012). Studies have reported that reasons for governmental microblogs appearing and disappearing are related to emergencies; microblogs may originate with the onset of an emergency to find and solve problems, then disappear as the emergency resolves (Xin and Qingyun 2013).

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Second, governmental social media enters into an orderliness stage with improved transmission efficiency during emergencies, However, as a whole, the government still needs to improve its preparation for emergencies. It is said that “for a thousand days the country nurtures its soldiers, and all for 1 day’s battle.” The transmission efficiency of emergency information can be checked using governmental social media. Liu Yunlai considered that microblogs are a new platform for governments to establish and improve their credibility when facing crises. The coping strategies and attitudes of governmental microblogs are important factors in testing crisis management (Yunlai 2012). Highly developed social media has features of interactivity, openness, and “decentration,” which profoundly change the generation and propagation of traditional public opinion. Governmental social media plays a critical role in skillfully deflecting information, controlling rumors, and mobilizing society. However, not all governmental social media perform the same in emergencies. There was a striking contrast between the propagation efficiency and development speed of Internet Hardware of governmental social media after the fire disaster in Tianjin and the Shanghai stampede accident, for example. This unbalance in software and hardware for governmental social media can cause a low spread of emergency information.

Background Analysis of the Emergency Management Institutional Arrangement of Governmental Social Media Responding to the public sentiment in emergencies is one important function of governmental social media. The government is the largest user of information technology and also the holder of much information. In emergencies, government have an obligation to disseminate information, respond to the public sentiment, and collect additional information. “Government is both an important behavioral agent for dealing with public emergency and a behavioral agent for issuing information, and effectively issuing information about public emergency is in favor of defusing public crisis and stabilize the society.” Emergencies have occurred frequently in recent years in China, which has attracted attention to the necessity of governmental social media.

Governmental Social Media for Propagating Public Opinion in Emergencies Governmental social media is a special type of social media. Governmental social media has a built-in institutional framework, functional localization, content for issuing and auditing mechanisms, and discourse systems, which are all influenced by organizational structure and its features to some extent. To ensure information is accurate, governmental social media is characterized by timeliness and thus can replace traditional media to some extent. In emergency crisis transmissions, governmental social media and traditional media have some similarities and differences. Their similarities are that they establish relatively complete

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information approval mechanisms, pursue accuracy and authority of information, position themselves as “rumor terminators,” and positively guide the public opinion. Through sufficient interaction with the public and well-defined operation mechanisms, governmental social media can compensate for the lag in news reporting and the information gaps in traditional media due to its journalistic processes, thus becoming a platform for propagating emergency information. In addition, good interactions on social media can diversify the methods of disseminating information about emergency situations. Governmental social media is is essentially organizational communication that integrates interpersonal communication. The transmission of information and the transmission process are like nuclear fission, with more frequent and flexible communication between audiences, although with government intervention. Furthermore, the function of emotion mobilization can satisfy a need of users after an emergency. After an emergency, beyond generally issuing information, social media can act like a window for humanistic care, a lifeline during crises, and good tool for emotion mobilization. In addition to timely and accurately disseminating information and guiding the public opinion, governmental social media can also show a caring spirit of the government and manage resource allocation during crisss.

Governmental Social Media Improves the Speed of Transmitting Responses on the Public Sentiment in Emergencies Governmental social media in China has explosively increases in terms of the total quantity, coverage, and popularity. Initially, a four-level system of central, province, municipal, and county was formed. The scale of governmental social media at the basic level can considerably influence the competitiveness of governmental microblogs. Governmental microblogs fundamentally function by interacting with the local public and providing government services. The Beijing government created a “microblog clustering” government service in 2012, which was the first governmental microblog group at the province level throughout the country. The governmental microblog group, “Shanghai Issue,” was established later and included almost 100 organizations in Shanghai that could be classified into the following categories: (1) municipal, committee, office and bureau, and social organizations; (2) district/county governments, public security sub-bureaus; (3) street offices and local police stations; and (4) public service agencies. As a governmental microblog matrix system is gradually established, cooperative links between accounts have been common in daily operation. Governmental microblogs continuously improve their awareness and capabilities of linking different departments at different levels across regions. In the matrix organization system, there is leadership guidance along a vertical administrative level and also special teams established across departments and functions for cooperative needs. In the matrix, they are united to issue information and mutually recommend accounts. In addition, related governmental departments are linked to break barriers between

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Fig. 1 Distribution map of governmental microblogs and WeChat across China by administrative regions in 2017. (The data is from the 2016 39th Chinese Internet Development Statistical Report and Internet + WeChat Government Administration in Personnel’ affairs White Paper.)

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departments and administrative offices within the system so that they can solve practical problems together. Meanwhile, the matrix can break boundaries across social media and is aimed at diversified needs, unifying microblogs and WeChat, facilitating different channels of communication, and balancing business needs to enhance administrative efficiency. In addition, governmental social media has gradually implemented features of rich media in emergency transmissions. Generally speaking, rich media includes video, audio, cartoons, and images, with the typical advantages of internet communication. Regarding the influence factors such as usage rate, application popularity, and political propagation effects, governmental social media is gradually adapting to the diversified transmission features of new media. Live video is also frequently incorporated into the microblogs of governmental social media. It can effectively promote equality between the government and citizens through social participation, mobilization, and mutual communication about public affairs (Fig. 1). Since 2016, the response speed has been remarkably improved, as have the capabilities of early warning and intervention. The governmental response rate is up to 87%. For more than 57% of events, the government responded for the first time within 24 h after an emergency happened, with 73% of events being responded to for the first time within 48 h (New Media Think Tank of People’s Daily Online, 2016 Chinese Government Affairs Public Sentiment Response Index Assessment Report). In 2016, governmental microblogs issued 70 million with a total of 260.5 billion readers throughout the country.

Evolution of the Governmental Social Media Emergency Management System North, an economist, stated that an institution includes the institutional environment and the institutional arrangement. The institutional environment is the sum of a series of basic economic rules, political rules, and cultural rules to guide society and

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individual development. The institutional arrangement is an institutional structural style used to coordinate competition and cooperation between organizations. It is reflected in two aspects: one is the establishment of rules and regulations outside organizations and among organizations, whereas the other is the establishment of an organization’s internal structure and elemental relationship. Based on a theoretical framework of institutional arrangements, this section investigates the future of institutional development in Zhenwu social media for emergency management by analyzing 26 management specifications for governmental social media in emergencies.

Progressivity of Institutional Arrangements Governmental social media systematically and scientifically disseminates information in emergencies. This involves a complex relationship between the national and local governments, among local governments, among departments within local governments, between the media and the government, and between the public and the government. Information in an emergency can be characterized by the diversified subjects.

Progressivity of Subject from High-Level Departments to Local Departments In China, the government has already systematically established social media accounts. However, the operation management has not yet developed to the level of systemization and strategy. In fact, the government has only established governmental social media management regulations in highly sensitive departments. Emergency happens in a certain manner in China – that is, the more closely related to the public’s interest, the more easily social contradictions break out. In addition, the emergency administration office is responsible for emergency management plans for natural disasters and emergency management in any emergency. Therefore, the highlevel departments prefer to establish governmental social media management regulations for local governments whose social media management is just beginning. Departments that are responsible for people’s welfare, public opinion management, and emergency management feel the most pressure from public sentiment about emergencies. Meanwhile, they also have the strictest requirements for usage specifications for governmental social media in emergency public sentiment management and take the lead in establishing governmental social media management specifications. Therefore, this is a driving force for developing an institution with the pressure on social management. Meanwhile, by analyzing local regulations, it can be seen that high-level departments tend to be specific and detailed in related regulations and have even defined emergency management regulations for governmental microblogs.

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Progressivity of Path: Regulation to Legislation After experiencing the force and development stages, governmental social media in China has entered into the orderliness stage. The main functions of governmental social media are to publish information daily, respond to public sentiment in emergencies, and be the first to publish information for the public after an emergency. In emergency management and information dissemination, most governmental social media institutional arrangements published by local governments are rigidly defined by a central institution. Therefore, it is urgent to establish central institutions and local regulations that are adapted to scale development and the cluster effect matrix of governmental social media. At present, the objectives, principles, and regulations for the use of governmental social media have been officially instituted, but they have not been legislated. They are only in the form of normative documents such as notices, opinions, and detailed rules and regulations; they have not been developed as a mature national guidance system. The related information is scattered in notices about openness in government affairs issued by government organizations, such as the General Office of the State Council, and in the emergency plans of several departments. This low level of institutional norms reduces the efficiency of governmental social media in issuing information and mobilizing resources in an emergency.

Conductivity of Institutional Arrangements: Speed of Local Governments Public opinion should be the guiding function of governmental social media. The Chinese Central Government and local governments should not aim to provide a special zone for public opinion in governmental social media when managing emergencies. Because the risk of public sentiment about emergencies has a scale effect, governmental social media should pay more attention to public opinion guidance, and prevent social media from being a “special zone for public opinion” and prevent social media from being a “special zone for public opinion” or “enclave for public opinion” in an emergency. Local governments should also devote themselves to establishing a baseline by using authoritative information to guide public opinion. They should carry out speed competitions for responding to public opinion on governmental social media. Because of a lack of guidelines for local governments in an emergency, the central government has defined principles for the speed of response to public sentiment on governmental social media. For any government affairs public sentiment related to an especially serious emergency, the government should hold a press conference within 24 h and respond to other government affairs public sentiment within 48 h. However, changing the time requirement from 24 to 5 h would show great respect for the transmission law of the “golden 4 hours” for response to public sentiment in this mobile new media era and respect the important functions of social media, such as governmental microblogs, in emergencies.

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An opinion on further enhancing the establishment of governmental microblogs issued by the Nanjing government in 2011 stipulated that “it shall issue information on the microblog within 1 hour after a disaster or emergency happens or at the first time it receives information.” Provisional regulations for governmental microblogs of the Chongqing Environmental Protection System also stipulate that the government shall issue authority information within 1 h for serious environmental events, emergencies, sensitive events, environmental crises, and difficult problems. A notice on further enhancing the establishment of governmental microblogs and WeChat in Anhui province also stipulated that “for any significant political information, important government affairs public sentiment and serious emergency related to the region or department, provincial microblog and WeChat shall issue information timely, and governmental microblogs of cities, counties and departments of provincial governments shall try their best to repost within 1 hour and WeChat subscription shall not be later than 1 work day.” Institutional arrangements by the central government are strict laws. What the central government emphasizes in a document will be what local government focuses on, in what is called a “pass of institutional arrangement focus.” Relevant regulations of local governments emphasize the accuracy of response; most of them stipulate a “first-time” principle for responding to public sentiment on emergencies. There is a “speed competition” for response to the public sentiment on emergencies among local governments. The speed principle of emergencies for governmental social media meets the timeliness principle of emergency information management and is good for improving response effect. In the “speed competition,” which lacks a scientific basis, supporting systems and related management resources may attend to one thing but miss another. Blindly emphasizing the timeliness principle in response to the public sentiment in an emergency may easily lead to mistakes from rushing to issue information without interactivity and may make it difficult to ensure accuracy.

Linkage of Institutional Arrangements For establishing and perfecting supporting systems, principles of efficiency can be emphasized to improve the information arrival rate. Linkage mechanisms for the response to public sentiment and “leader responsibility” for serious public sentiments should also be promoted. The central government should establish a faulttolerant mechanism for responding to the public sentiment. It should effectively provide mechanisms for personal responses to the public sentiment for those who dare to voice their opinion, reduce the pressure on the first responder, and also reduce the dilemma of timeliness and accuracy of social media when voicing their opinion. It should gradually set up a “leader responsibility system” to establish a priority configuration of resources. Furthermore, it should set up an emergency linkage mechanism to realize the links between the main body, resources, and flow. A Chinese “leader responsibility system” has a special administrative efficacy, which means that such affairs can attract considerable attention and be provided with prior resources. Local governments should gradually establish a “leader

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responsibility system” in governmental social media management regulations. A branched department leader verification system has already been established to verify content for governmental social media. Local governments should set up an emergency linkage mechanism to realize the main body linkages, resource linkages, and flow linkage. For example, Guangxi stipulates that the department responding to an emergency is the first responsible subject to collect governmental public sentiment and respond to it; this department needs to cooperate with the propagating department to achieve the 1-h issue system for serious emergencies. Furthermore, governmental microblogs and government websites should share information and realize the best arrival rate during a crisis. Chengdu established a linkage system for the government website and governmental microblog issuing information so as to share information. Finally, the local government should realize the system linkage to deal with public sentiment and events.

Path Dependence of Institutional Arrangements Depending on Traditional Knowledge Local governmental social media developed into the institutional arrangement stage with the acceptance of innovation. However, due to knowledge structure and shortness of the subject, it depends on a path to institutional arrangements, with a resulting structure-function imbalance in emergency management of governmental social media. Knowledge on the classification of management objects is outdated. Standards for the classification of emergencies are not the same as the four-level classification standard compiled by the national emergency office. Furthermore, there is no clear classification of a standard for response to the public sentiment on serious emergencies; therefore, disasters and emergencies are described together. Finally, there is no specific stipulation on responses to emergencies by governmental social media after an emergency happens; thus, it adopts fuzzy strategies and transferring strategies. Dependence on the Original Organization Structure Timely adjustments to an organizational structure for operational needs can enable governmental social media to issue information quickly and communicate with the public. Excessively relying on the original organizational structure may hinder its functions. At present, the operations of most governmental social media depend on the original propaganda department, and there are no scheduled training mechanisms. Thus, this can create an imbalance between functions and structure to some extent but cannot fundamentally solve the problem. Personnel in the Chinese propagation department are used to reporting policies to leadership and making them known to lower levels, collecting and summarizing internal information, and making contact with media. It lacks the ability to systematically coordinate information, professionally issue information during crises, and have a flexible discourse system. Without considering the laws of social media when issuing information, local governments still issue information simply and mechanically, as they did in the

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traditional media era. For example, the Tianjin government stipulates that two messages should be issued on the blog every day. The Wuxi government stipulates that a response to serious events should occur in 7 days. These rules reveal that a dependence on an old organization structure leads to structure-dysfunction in governmental social media.

System Optimization for Governmental Social Media in Emergency Management It is important to strengthen the capacity of governmental social media from the angle of “overall national security” and modernization of national governance. On April 15, 2014, General Secretary Xi Jingping first put forward a statement on “overall national security” at the first plenary meeting of the Central Committee of State Security. The concept of overall national security stressed that people’s security should be the purpose, political security should be the foundation, and economic security should be the basis. With military, cultural, and social security as the guarantee and the promotion of international security as the basis, the country should follow a national security road with Chinese characteristics. “Overall national security” means that the government should maintain the leadership and dominant position in the network society, and network security is an important part of national security. Xi Jingping pointed out that “network security and informatization are important strategic issues related to national security and national development and work and life of the broad masses of the people, and we should strive to build our country into a network power” (Report on “national security ‘a matter of prime importance’”. See http://www.china.org.cn/china/2014-04/16/content_32104039. htm, April 18, 2014). This emphasizes the role of governmental social media in the matter of network security. Therefore, the government should maintain the leadership and dominant position to highlight its ruling ability and management modernization level, in crises as the overall mobilization of the baton, to ensure the overall security of the country. In addition, the role of governmental social media as an e-diplomacy tool in disaster response is becoming more and more important, which has become a global consensus. As a source of instant information, the government can use social media to provide more information to military commanders, diplomats, and aid workers in times of high tension and conflict. This requires improving the crisis management level of governmental social media as an e-diplomacy tool in disaster response. However, fragmentization and path dependence of institutional arrangements for government social media in emergency management can lead to low efficiency. The ideas, national system, and functional structure must change to optimize its institution. Firstly, governmental social media should become a symbol of modernization and change to a self-innovation tool. Secondly, governmental social media management in an emergency is macroscopically universal, and the absence of the nation in such an area at present leads to fragmentization of the institutional innovation of local governments. Thirdly, the management of governmental social media has some

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trace of managing traditional media; administrative means replacing specialized guidance of the third party enables governmental social media to get half the results with twice the effort in emergencies. Therefore, a national system should be established, introducing cooperative innovation and professional power for the transformation to realize institutional optimization for governmental social media in emergencies.

National Actions About Emergency Management: Establishing a Macroscopic System of Social Media Crisis Transmission Management At present, Chinese governmental social media are operating by department according to the principle of “divide and rule,” which can effectively control what can be issued. However, crisis information management in emergencies is characterized by multidisciplinary, multiagent, multi-channel, and diverse efforts. A single propagating department that collects and issues information cannot meet requirements of the suddenly increased information in an emergency. Therefore, a national guidance system should be established for governmental social media and corresponding institutions should be compiled. First, a social media working team shall be established to be responsible for guiding governmental social media at different levels to deal with crises, collect cases, and assess performance. This team should develop a long-term strategy and stable regulations for emergency management on social media. It should also compile governmental social media operating guidance. It should stipulate what is to be issued, moral rules of the publisher, the process of publishing information, review policies, language specifications, and privacy and interlinkage resource management so as to provide operation specifications for government public departments using social media to deal with emergency effectively. In addition, it should compile a social media emergency draft, define an operating system during crises, and assign specialized persons from the department to operate social media. Finally, the team should pay close attention to network security during crises and enhance the safety supervision of social media to prevent hacking attacks.

Collaborative Innovation of Multiple Subjectivity: Establish a Crisis Information Union Large amounts of information are assembled after an emergency. The primary information is scattered among public journalists, media journalists, emergency departments, and the propagation department. Therefore, collecting and assessing information is too difficult for any single department. Instead, it requires cooperation between information subjects, planning of information resources, and integration of an information platform. During an emergency crisis, governmental social media should cooperate, work positively as multiple subjects, break barriers among

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organizations for the mutual exchange of information, open their platforms to each other, and take advantage of collaborative technology to integrate multiple functions to establish a crisis information union. This approach includes the following: 1. Data integration: It shall summarize data about the past crises to establish a database of crisis information to make a technical basis for an information flow system in future crisis. 2. (Establishment of standards: It shall pay attention to the common nature of social media as media and to emergency management systems during crises, and it should establish a system to prevent internet fraud during crises. 3. Collection of information: Besides being a window for issuing information during crises, social media is also a platform for society’s communication. Therefore, governmental social media shall make full use of organization communication to establish an opinion leader database and a circle of friends at the same time. It shall establish an emergency crisis management team and invite media counselors and citizens to participate in issuing information together. This will ensure various information antennas and diversified sources, reduce information collection costs, and promote information transmission efficiency during crises.

Professional Transformation with the Third Party Emergency information on social media has multiple values. Besides the function of issuing information, social media also has functions of providing humanistic care, serving as lifeline during crises, and acting as a resource integration path and big data center. The discourse system and usage specifications of social media update very fast. Therefore, taking a simple position of issuing information and controlling rumors for governmental social media will end up behind the development course of social media. Emergency information management in governmental social media is a highly professional business area; therefore, an institutional arrangement that focuses only on timeliness cannot ensure its efficiency. Therefore, a highly objective and professional third party must be introduced to assess usage specifications and the transmission rate of information on social media at regular intervals. Enhancing interactivity with users and establishing authority is the only road to improve the efficiency of governmental social media in emergencies.

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The People’s Government of Anhui Province (2016) A notice on further enhancing the establishment of governmental microblogs and WeChat in Anhui Province. http://xxgk.ah.gov.cn/ UserData/DocHtml/731/2016/8/19/188889855228.html The People’s Government of Chengdu Province (2018) A notice on implementation of governmental affairs opening in Chengdu in 2018. http://www.gk.chengdu.gov.cn/govInfoPub/detail. action?id=100378%26tn=6 The People’s Government of Guangxi Province (2016) A notice on overall progress of governmental affairs opening. http://www.gxzf.gov.cn/zwgk/zfwj/zzqrmzfbgtwj/2017ngzbwj/ 20170510-604002.shtml U.S. Department of State. Foreign affairs manual: 5 FAM 790: using social media. https://fam.state. gov/fam/05fam/05fam0790.html Wang H (2015) Research on social media of American government – using government’s social media application system of US general services administration as an example. Inf Doc Serv (6):105 Wang Y, Hao L, Wang T, Zhu J (2016) Mining and analysis of emergency information in sudden incidents based on social media. J Wuhan Univ (Inf Sci Ed) (3) Wenhong Z (2015) Analysis and enlightenment of retention policy of social media of American government. Inf Stud Theory Appl (9):136 Xi Jinping’s report at 19th CPC National Congress, p 44. http://www.xinhuanet.com/english/ download/Xi_Jinping's_report_at_19th_CPC_National_Congress.pdf Xiaojing L (2017) Information processing and trust judgment of social media users – based on experimental study of eye tracking. J Commun Stud (10):55 Xi Jinping’s report at 19th CPC National Congress, p 44. http://www.xinhuanet.com/english/ download/Xi_Jinping’s_report_at_19th_CPC_National_Congress.pdf Xie Qihui (2016) Governmental microblog: the practice and effects of crisis communication. Hefei University of Technology Publish, Hefei Xie Q, Shukun T, Jianxun C (2015) Analysis for social media use of American government in crisis response. Chin Emerg Manag (3):39 Xin A, Qingyun W Microblog cluster: the new tread of government reflecting to the emergent events. http://media.people.com.cn/n/2013/1022/c358381-23289609.html. 22 Oct 2013 Xueyan L, Qiang Y (2013) On the credibility of information about hot events of governmental microblogs. J Beijing Univ Posts Telecommun (Soc Sci Ed) (2) Yunlai L (2012) On the credibility of government in dealing with crisis in the era of microblogs: case study of the event of Sanya high-price seafood. Jinchuanmei (5) Zhang Zhian, Cai Yanhui (2015). Governmental microblogs and WeChat: interactive mechanism and path for deepening. Media 05:29–31

Index

A Academy of Management Journal, 174 Adaptability, 279 Adhocracy culture, 278 Adopting HM in China employees development, 175 employees’ well-being at work, 175 humanistic ideologies, 176 social norms, 174 traditional culture, 175 AEGON-Industrial Funds, 388 Age distribution, 378 Aging of population characteristics of, 429 development trend, prediction of, 427–429 history and situation of, 427 pension system (see Pension system, aging population) population pyramid, prediction on, 428 Alibaba group, 85 Alipay, 270 Anti-corruption campaign, 32 corporate political strategy, 41 period, 35 political connections, 39 Anti-terrorism, 462 Anti-terrorism law of the People’s Republic of China, 466 Anti-terrorism operations, 464 Artificial intelligence, 248 Art of War (book), 125, 126 Assessment/assurance on CSR reports, 405–406 Asset Backed Securities (ABS), 389 Association of Chartered Certified Accountants (ACCA), 396 Assurance standard, 407, 409 Asymmetrical balancing, 162 Authoritarian leadership, 149

Authoritative leadership, 329, 330, 334 Autobiography, 161 Automation, 248

B Balanced Scorecard approach, 383 Baoshang Bank’s digital financing strategies, 117–119 Baoshang Bank’s strategies, 116 B&R international police academy, 462 B&R Paris Conference, 459, 468 B&R (Air/Sea) SWAT team, 461 Bargains, 83 BAT companies, 85 Beijing gridding countermeasures and measures of, 442–443 development of, 439 effect of, 440 features of, 440–441 function of, 440 ides and goals of, 441–442 significance of, 441 “Belt and Road” regional terrorist organizations, 466 Belt and Road Initiative (BRI) aims, 458 big data, 459–461 central Asian countries, 463 China’s Military Anti-terrorism Forces, 466–468 conference, 459 “five linkages”, 463 geopolitical hotspots, 458 global governance concepts, 458 openness and co-ruling, 461–462 SCO (see Shanghai Cooperation Organization (SCO)) security risk prevention system, 468

© Springer Nature Singapore Pte Ltd. 2023 C.-T. Foo (ed.), Handbook of Chinese Management, https://doi.org/10.1007/978-981-10-2459-7

511

512 Belt and Road Initiative (BRI) (cont.) superposition, 458 symposium, 468 working mechanism, 459 Xi Jinping, 458 Benevolent leadership, 330, 331, 334 Big data, 262 black sciences and technologies, 459 challenges, 263 deep integration, 460, 461 digitalized, 459 National Big Data Strategy, 459, 460 national governance system, 459 Boundary spanning, 5 geographic, 10 literature review, 6 organizational, 11 technological, 12 Buddhism, 160 Business process reengineering, 323

C Carbon finance, 389 Career mobility, 380 C2B model, 272, 273 Cecurity cooperation, 468 Central Asian countries, 463, 464 Central Military Commission (CMC), 466 China CSR report, 362 dissemination of CSR, 370–371 education of CSR, 371 innovation (see Innovation) practice of MNEs in, 364–367 practice of private enterprises, 369 practice of SOEs, 363 China Banking Association (CBA), 398 China Banking Regulatory Commission (CBRC) stimulated Green Credit Guidelines, 390 China Charity Federation, 74, 75 China Europe International Business School (CEIBS), 283 China Federation of Industrial Economics (CFIE), 398 China National Textile and Apparel Council (CNTAC), 398 China’s economic reform, 377 China’s economy, 387 China Securities Regulatory Commission (CSRC), 390, 398 China’s education system, 146, 147

Index China’s high-quality Internet companies, 135 China’s Military Anti-terrorism Forces Anti-terrorism law of the People’s Republic of China, 466 CMC, 466 frontline through military cooperation, 467 international exchanges and cooperation, 466 OOD, 466, 467 regular exercise mechanism, 466 The PLA station in Djibouti, 467 China Southern Power Grid CO., 363 China’s telecommunications industry, 133 China Stock Market & Accounting Research (CSMAR) database, 38 Chinese Academy of Engineering (CAE), 377 Chinese Academy of Science (CAS), 377 Chinese anti-corruption campaign, 33, 37 Chinese commercial banks, 112, 119 Chinese culture, 124, 159, 160 Chinese economy, 146 Chinese education sector, 146 Chinese education system, 146 Chinese-funded enterprises, 463 Chinese General Social Survey (GGSS), 474 Chinese humanism, 178 Chinese Humanistic Management Fotile, 181–182 Good-Ark, 182–184 Ren and Yi, 185 Chinese internet users, 84 Chinese management theory, 217 Chinese medicine, 126 Chinese Ministry of Commerce (CMC), 78 Chinese OEM suppliers, 88, 96 Chinese online consumers, 82, 84 Chinese People’s Liberation Army (PLA), 466 Chinese state enterprise (CSE), 310, 314, 315 Chinese state-owned enterprises, 319 Dongfeng automobile company, 320 Hebei Pharmaceutical Factory, 321 Nanjing Ocean Shipping Company, 322 Sinopec Group, 321 Chinese traditional culture, 170, 386 Chinese traditional philosophy, 176 Chinese urban household, 377 Clan culture, 278, 281 Climate-aligned bonds, 388 Closed risk control, 267 Cloud, 136 Cobb-Douglas production function, 344, 345, 347, 353

Index Co-construction, 415 Cognitive trust, 147 Common good, 179 Community, 100 construction, 484 power list system, 492 Xiaomi, 103–105, 107 Community de-administration reform administrative access system of community work, 489–490 basic course of, 484–486 effect, 491 future trends, 491–493 goals, 490–491 impetus, 490 separation of community resident’s committee and community workstation, 486–487 street office cancellation and community strength, 487–489 Competing values framework (CVF), 277, 280, 281, 284, 285 Competitiveness, 175 Composite evolution, 161–164 Composite traits, 163 Comprehensive knowledge, 179, 180 Conceptualized research model, 240 Conceptual model of momentum management definitions, 126 external feedback effect, 129 field, 127 interdependent organizational parts, social field, 127 internal feedback effect, 129 natural law, 127 organizational analysis, 127 organizational change, 128 situational momentum, 127, 129 situational power, 127 Confucian Analects, 177 Confucian ethics, 177 Confucian humanism, 170 associated thoughts, 180 beliefs, 180 human happiness and fulfillment, 172 humanistic approach, 187 philosophers, 179 spiritual resources, 180 vs. Western humanism, 171, 188 Confucian humanism and Chinese humanistic management Chinese Scholars, 179–180 conceptual model, 185

513 cultural roots, 178 guidelines, 178 management research, 178 secular humanism, 178–179 Confucian ideologies, 170, 176, 177, 189 Confucianism, 148–150, 153, 160, 170, 327, 329, 330, 334, 337 Analects statements, 177 basic relationships, 176 believer, 177 biases, 186 Chinese culture, 176 Chinese philosophy, 176 Confucian ritualization, 177 criticism, 176 and Daoism, 175, 185 deep-rooted reverence, 178 harmony, 178 ideologies, 176 influencing humanistic leaders, 172 management approaches, 172 natural rationale, 177 and Taoism, 188 Tian Ren He Yi (unity of Heaven and man), 188 Confucianism-dominated social norm, 178 Confucian learning, 174 Confucian ritualization, 174, 177 Confucian scholars, 179 Confucian scholar Zhu Xi, 177 Confucian spiritual humanism, 178 Confucian spiritual legacy, 189 Confucian virtues, 171, 184 Confucius, 148, 178 humanism, 179 Confucius Hall (Kongzi Tang), 181 Consistency, 279 Constructivist grounded theory, 204 Content Delivery Network (CDN), 136 Conventional anti-terrorism forces, 463 Cooperative leaders, 150 Cooperative leadership styles, 150 Copyrights, 135 Corporate philanthropy (CP), in China, 79 Chinese government, 74 corporate donations, 75 customers, 75 institutional background, 73 media, 75 non-state-owned companies, 76 state-owned company, 76 western MNCs, 77 Corporate political activities, 32

514 Corporate Social Responsibility (CSR), 60 appearance and development of, 358 definition of, 358 development and practice in China, 361–370 engaging, 62 fund, 388 inducing and enacting, 66 instigators of, 61 and reflection in traditional Chinese culture, 358–361 sustainability innovation, 69 and sustainability management, 61 Corporate social responsibility reporting system, in China, 394–397 assessor/assuror and assessment/assurance standards, 406–408 Chinese organizations, 397 guidelines of CSR Reports, 401–405 status quo of assessment/assurance on CSR reports, 405–406 voluntary disclosure, 400–401 voluntary to partially mandatory CSR reporting, 398–399 Corporate social responsibility reports (CSR), 390 Corporate strategy, 18, 28 Corruption, 36 COSCO Shipping Corporation, 406 Cronbach’s alpha, 241 Cross-border river water resources allocation, 464 Crowdfunding, 110, 269 capital providers, 270 fund demanding side, 269 Cultural Revolution, 382 Curvilinear balancing, 162 Customer-oriented enterprise, 346, 348, 353

D Darwinian Theory of human behavior, 179 Data-driven precision marketing, 266 Data information analysis model customer relationships, 266 marketing organization structure, 266 statistical records, 266 Decarbonization, 388 Deep structure, 131 Demographic sample data, 378 DemoHour, 110 Demonstration bases, 253 Denison Organizational Culture Survey (DOCS), 279 Development, 179

Index Digital financial services, 114 Distributive justice, 320 Divide and rule principle, 507 Document 46, 138 Domestic and international police activities, 461 Domestic copyright awareness, 134 Domestic economic reforms, 146 Dongba Culture, 449 Dongfeng automobile company, 320–321 Du Weiming, 178, 179, 189 Dynamic dynamos, 282 Dynamic risk pricing, 269

E Easterlin Paradox, 477 East Turkistan Islamic Movement, 466 Ebay, 83 e-commerce, 230, 265 Ecommerce market, 82 Economic development in China, 473 Economic reforms, 376, 377, 387 Economic value added (EVA) concept, 320 Economistic management, 173 Economistic paradigm, 172 e-diplomacy tool in disaster response, 506 Education, 176 Educational Public Service Programs of Sony, 364 E-Generation, 150, 151 Eight-point regulation, 33 E-investment, 116 Encoded knowledge, 90 Engel coefficient in China, 473 Enterprise capital structure, 348 Environmental, social and governance (ESG) factors, 386, 388, 390–392 Environmental, social and governance (ESG) reports, 395 Environmental Protection Law, 391 Equalization, of basic public services, see Public services Ethnic and religious conflicts, 464 Evolutionary process, 163 Explicit knowledge, 90 External push, 61 External service labor, 345 External technology environment, 136 Extrinsic traits, 161

F Financial industry, 302 Financial marketing, 265

Index Financial Supervisory Commission (FSC), 399 Fiscal supports, 392 “Five linkages”, 463 Five Virtues of Confucianism, 177 Flexibility vs. stability, 278 Foreign direct investment (FDI), 387, 463 Fotile Confucian Way, 171 Fotile Kitchenware Corporation Ltd. company culture, 181 company’s slogan, 182 competitiveness, 182 Confucian ideologies, 181 Confucian virtues, 181 Confucius Hall, 181 employees benefits, 181 greatness, 181 traditional practice, 181 virtue-based leadership, 181 Four beginnings’ of virtues, 177 Four-in-one business service model, 266, 267 Foxconn, 391 Fujianese Entrepreneurs Culture case studies, 293–297 Chinese context, 292–293 Chinese service example, 293–295 Chinese state Enterprise, 295–296 definition, 291 economic factor, 290 industrial clusters in Fujian Province, 293 MIN, 291 regional environment, 290 traditional behavioral, 291 Fuyao Group, 296

G 3G, 133, 134 Gallup’s survey, 473 Gender gap, 381, 383 General Staff Department (GSD), 466 Geographic boundary spanning driven transformation strategy, 10–11 Gini coefficient in China, 478 Glass ceiling, 376, 377, 379, 382 Global financial firms, 32 Global Islamic renaissance movement, 462 Global Reporting Initiative (GRI), 401 Global responsible investment, 387 Global Sustainable Investment Alliance (GSIA), 388 Global value chain (GVC), 88, 89, 93, 96 Good-Ark Electronics core values, 182 diode manufacturer, 182 employees encouragement, 184

515 employees humanistic care and education, 182 family atmosphere, 182 filial piety, 183 happy family members, 171 happy federations, 184 humanistic care, 183 intensive values-learning program, 182 investments, 183 learning, 183 maintained health record, 183 monthly stipends, 183 Mr. Wu, the founder, 182 philanthropic activities and voluntary services, 184 sponsored public primary schools, 184 traditional Chinese culture, 183 “Governing without interfering”, 141 Governmental social media, 496 arrival rate of transmitting responses on public sentiment, 500–501 and emergency management, symbiotic relationship, 498–499 features for evolution, 501–506 institutional arrangement, 499–501 optimization, 506 propagation effect of, 497 propagation in public opinion field of emergency, 499–500 research functions in emergency, 497 service specifications research, 497 transmission efficiency of emergency, 499 Yunnan on Microblog, 498 Government drive innovation China’s high-speed technologies and sustainability, 228 China’s Lunar and Deep Space exploration, 229 Chinese high-speed railway, 228 government policy of tax reduction for innovation, 227–228 new & hi-tech industrial development zone, 226–227 Government responsibility, 447, 451 Government sectors, 408 Gree Electronics Appliances (Gree), 100, 102, 103 Green finance, 386, 387, 389–391 Green Finance Committee (GFC), 390 Green Finance Study Group, 388 Green insurance, 389 Green Public-Private Partnership (PPP), 389 Green Windmill Model of CSG, 363 Growth Enterprises Market (GEM), 132 Guanxi, 151, 152

516 H Haidilao Hot Pot Restaurant, 51–56 Haier’s innovation, 254 Healthy China initiative, 415 Hebei Pharmaceutical Factory, 321–322 Hierarchical linear modeling (HLM), 304 Hierarchy culture, 278 High-commitment human resource practices, 174 High performance human resource practices, 174 High-performance work systems (HPWS), 174, 303–306 Homological evolution, 161 Homological trait evolution, 161 Hong Kong-owned firms (HKOFs), 4 boundary spanning, 6–7 geographic boundary spanning driven transformation strategy, 10 organizational boundary spanning driven transformation strategy, 11–12 technological boundary spanning driven transformation strategy, 12–13 transformation strategies, 7 Hong Kong Stock Exchange, 390, 391 Honor Company, 312, 313 Huge data, 262 Human agency, social construction, 126 Human capital, 346 Human dignity, 171, 179 Humanism, 178 capital efficiency, 348 resource allocation theorem, 348 Humanism capital value function descriptive statistical analysis, 349 elements and relations, 347–348 empirical model test design, 349 fixed panel regression test, 352 formation, 344–347 unit root test of the sequence, 349–350 VAR-based cointegration analysis, 350 vector error correction model, 350–352 Humanistic approaches, 173 Humanistic Business (book), 171 Humanistic care, 185 Humanistic company, 186–188 Humanistic culture, 170 Humanistic education, 185 Humanistic management (HM), 170 challenges and trends, 172 companies, 173 consideration, 171 constrains, 173, 174

Index definition, 173 descriptive, 171 hedonic and eudemonic well-being, 173 human dignity and value, 171 humanistic ideals, 172 local and global issues, 189 research, 172 roles, 171 vs. traditional management approaches, 173 Humanistic Management Network (HMN), 172 Humanistic organizations, 172 Humanistic perspective, 188 Humanitas, 179 Human liberation, 347 Human-oriented Internet economy, 345 Human relations’ movement, 174 Human resource, in China’s banking industry, 302

I Incremental reward type, 348 Individual experts, 408 Industrial and Commercial Bank of China (ICBC), 114, 115 advantage, 116 internet financing strategies, 115 Industrial economy, 344, 348 Industry associations, 408 Information justice, 322–323 Information technology, 414 Innovation, 248–259, 275–278, 280, 281, 284–286 capability, 236, 239 definition, 224 government drive innovation, 225–229 market shared innovation, 229–231 tech-oriented innovation, 231–233 Innovation of social governance, Beijing gridding, see Beijing gridding Innovative modes, 268 Innovative strategy, 276 Institutional arrangement conductivity of, 503–504 linkage, 504 path dependence, 505–506 progressivity of, 502 Institutional innovation family planning policy, 422 grant assisting system, 422 modern medical and healthcare systems, 422 urban and rural household registration system, 422

Index Institutional nonconformity, 61 Institutional organizations, 408 Institutional theory, 73 Institutional voids, 61 Integrated humanistic management model, 172 Intellectualization, 415 Intelligent data processing, 461 Intermediaries, 269 Internal fairness, 320 Internal momentum, 140 Internal service labor, 345, 346 International Auditing and Assurance Standards Board (IAASB), 407 International Federation of Accountants (IFAC), 407 International sustainability performance guidelines, 402 Internet, 230 economy era, 344 finance, 263–265 financial services, 265 technology, 249 Internet-based financing, 110 Internet financial risks, 267 credit evaluation mechanisms, 267 personal information protection measures, 267 Interpersonal justice, 321 Intrinsic traits, 161 Investment fields, 463 Investment projects, 463 Involuntary explicit knowledge transfer, 91 Involuntary tacit knowledge transfer, 91 Involvement, 279 Islamic State (IS), 464 Isomorphic responsibility, 488

J Japanese culture, 170 jie-shi, 131 “Jihad”, 462 Job characteristics model (JCM), 49 Job crafting, 51 Job embeddedness (JE), 310 Joint anti-terrorism drills, 462 Joint contribution, 414–416 Judgment model of well-being, 479

K Kingold Education Centre, 378 Knowledge assimilation, of XB, 94

517 Knowledge skills, 344 Knowledge, skills and abilities (KSAs), 303, 305 Knowledge transfer, 88–90 of MNEs, 90–91 from MNEs to XB, 93–94 Knowledge transfer in manager-employee relationships, China Confucianism, 153 cultural values, 154 education system, 146, 147 face, 152 face loss, 152 Guanxi, 151, 152 high-context culture, 152 intermediaries, 152 manager and leadership styles, 148–151 positive feedback, 154 trust, 147, 148, 154 Western managers, 153–155 Knowledge visualization, 19

L Law provision for community, 493 Le.com, 134–136 Leader responsibility system, 505 Leaders’ contorted behaviors, 195, 208, 214–215 Leadership behaviors, 148 Leader traits Chinese culture, 159 composite evolution, 162–163 distinctive, 159 dynamic evolution, 160–162, 165 dynamic expression, 163–165 Galton 1869, 158 leadership effectiveness, 164 major events, social process, 159 person vs. external environment, 159 situations, 159 Yin-Yang, 160–163 Learning Chinese classics, 187 Learning orientation (LO), China’s banking industry employee participation practices, 306 HLM, 304 HPWS, 304, 306 HRM, 304 HR outcomes and organizational performance, 305 job embeddedness, 306 KSAs, 305 mixed-method approach, 304

518 Learning orientation (LO), China’s banking industry (cont.) motivational and effort perspective, 305 open-mindedness, 306 performance appraisal and reward practices, 305 practical management implications, 306 LeCloud, 137 LeEco change process, 133 Chinese Internet, 132 development process, 132 Document 46, 138 internal momentum, 140 Jia, 132 Le.com, 132 LeMobile, 139 LeSEE, 139 LeSports, 138, 139 LeTV, 139 momentum-creating strategy, 139 momentum-entraining strategy, 139 momentum management strategies comparison, 131 momentum-seizing strategy, 140 SEE plan, 139 whole industrial chain ecological strategy implementation, 136, 137 whole industrial chain strategy forms, 133, 134 whole industrial chain strategy implementation, 134–136 Yueting Jia, 2004, 132 Le-Ecosystem, 132 Le Entertainment, 136 Legalism, 149, 327, 329, 334 Legalization, 415 LeMobile, 139 Lephone, 139 LeSEE ecology chain, 139 Leshi Zhixin (LeZX), 137 LeSports, 138, 139 LeTV, 139 Le Vision Pictures (LeVP), 136 LG C950 mobile phones, 134 Life satisfaction, 476 Li (ritual/propriety), 177, 184 Logistics, 230

M Manager and leadership styles, 148–151 Managerial innovation, 243

Index Mao Zhongqun, 181 Marginal efficiency, 347 Marginalization, 377 Market culture, 278, 281 Market shared innovation, 229–231 Mass, 248, 251, 253, 254, 256, 258, 259 Material and Quantitative Indicators Database (MQID), 395 McDonald’s zero carbon restaurant, 367 Means vs. ends, 278 Melé’s propositions HM analysis, 179 special appeal, 179 Mencius (372-289 B.C.), 177 Mental and physical health problems, 175 Microblog clustering, 500 Micro-loan, 268 Microparticle loan, 268 Mission, 279 Modernization, 414, 415 Modern sciences and technologies, 414 Momentum, 124 Momentum-creating strategy, 131, 132 Momentum-entraining strategy, 131, 139 Momentum in Chinese culture “indirect” approach, 125 On War (book), 125 principles, 125, 126 shi (“势”), 124 Sun-Tzu, 125 Taoism, 124 Taoist paradigm, 125 “yin-yang”, 124 Momentum management perspective, 140, 141 Momentum management strategies comparison, LeEco, 131 human actions, 129 momentum-creating strategy, 131, 132 momentum-entraining strategy, 131 momentum-seizing strategy, 129, 130 Momentum-seizing strategy, 129, 130, 140 Moral leadership, 331–334 Multinational corporations (MNCs), 77 Mutual Funds, 388 Myth of Ecosystem, LeEco, 137

N Nanjing Ocean Shipping Company, 322 National big data platforms, 460 National big data strategy, 459, 460 Nationalism and terrorism, 463 National People’s Congress, 37

Index National security system, 415 Natural law, 127 Net citizens in China, 82 Netcom, 115 Network technologies, 459 New China Generation, 150 Newtonian physics, 126 Non-financial information disclosure, 390 Non-manufacturing industries, 259 Normalization mechanism, 462 Notion of humanism, 172

O Objective function, 189 Occupational embeddedness and innovational performance, of knowledge employee Chinese industry, 312–313 CSE, 313–314 Hainan’s tourism, 313 SME, 314 social welfare, 311 Online market, 230 Online social network, 100 Open door’ policy of economic reform, 376 Opening-Reform era, 310 Open type risk control, 267 Optimization, governmental social media, 506–508 Organizational boundary spanning driven transformation strategy, 11 Organizational change, 128, 129, 141 strategies, 130 Organizational culture, 276, 277, 283 artifacts, 277 beliefs and values, 277 Denison’s approach, 279 Quinn and Cameron typology, 277, 279 underlying assumptions, 277 Organizational culture assessment instrument (OCAI), 278 Organizational learning orientation commitment to learning, 303 definition, 303 external aspect, 303 internal aspect, 303 open-mindedness, 303 Organizational learning oriented innovation, 237–239 Organizational performance, 236, 238 Organization intervention in innovation, 238 The overseas operations division (OOD), 466, 467 Oxfam HK Gradient Index (OGI), 403

519 P Pan-ethnic nationalism, 337 Partial least squares (PLS), 241 Paternalism, 328 Paternalistic leadership, 149 authoritative leadership, 329, 330, 334 benevolent leadership, 330, 331, 334 concept of, 326 cultural root, 336 definition, 327, 328 dimensions, 327–329 moral leadership, 331–334 preliminary model of, 329 pro and contra, 335–337 style, 149, 154 Peak of population aging, see Aging of population Pearl River Delta (PRD), 4, 9 Pension system, aging population challenge, 433–434 income and expenses, 432–433 structural reform, 434–435 supply and demand, 431–432 sustainable development of, 435–436 People’s Republic of China (PRC), 376 Performance variability, 48–49 Personality, 158 Personal relationships, 149 PetroChina, 389 Plateau, in aging of population, see Aging of population Police work, 461 Policing information sharing platform, 460 Policing linkage, 461 Political environment, 32, 35 Pollution, 387 Post-Mao era, 377 P2P financial operation mode, 272 P2P online lending, 271, 272 Principles for Responsible Investment (PRI), 390 Private-owned enterprises, 283 Procedural justice, 321 Production-oriented enterprises, 345, 346, 348, 353 Propositions proposition 1, 185, 186 proposition 2, 186, 187 proposition 3, 187, 188 proposition 4, 188 proposition 5, 188 Protestant values and beliefs, 174 Psychological sciences, 173 Public safety system, 415

520 Public services, 451–452 collaborative governance, 447 economic development and equality of, 448 ethnic culture education and traditional culture, lack of, 449–450 evolution of, 447 extensive supply to targeted supply, 453 government responsibility, 451 market omnipotence, 447 multiple roles, overload and high liability risk, teachers, 448–449 preschool education and kindergarten enrollment rate, of school-age children, 450 spatial difference, 451 sports and cultural facilities, 449 strategic transformation of, 454 structural difference, 451 students’ dorms and classrooms, shortage of, 449 supply-demand difference, 451 supply-oriented mode to demand-oriented mode, 452 unitary supplier to coordinated supply, 453 Pyramid model of Archie B. Carroll, 358

Q Qualitative organizational culture assessment, 285

R R&D departments, 276 Reciprocity, 148 Reforms, 377 Regional Anti-Terrorist Structure (RATS), 465 “Reinventing Good Things” project, 367 Ren (benevolence/humanness), 177, 184 RenDanHeYi model, 254 Resource acquiring, 196, 207, 217 in Chinese context, 203–204 in western context, 196–197 Resource allocation, 195, 198–203 Resource-based view (RBV), 111 Resource-based view of the firm (RBV), 196 Resource dependence theory, 346, 348 Responsible investment in China domestic and international organizations, 390, 391 environmental and social impacts, 386 environmental and social problems and public attention, 389 ESG, 391 mutual funds, 388

Index non-financial information disclosure, 390 sustainability, 388 top-down approach, 389 Return on total assets (ROA), 38 Ruler’s humanity, 177

S SCO anti-terrorism center, 465 SCO Regional Anti-terrorism Agency Council, 466 Secular humanism, 178 Self-development, 174 Self-developmental purposes, 174 Service sector, 46 Service system innovation resource platform, 255 maker college, 255 maker factory, 255 maker service platform, 255 maker space, 255 Shanghai Cooperation Organization (SCO) anti-terrorism center, 465 Anti-terrorism effect, 465 anti-terrorism military cooperation, 465 anti-terrorism military legal documents, 465 military cooperation’s aim, 465 Regional Anti-Terrorism Institutional Executive Committee, 465 Shared benefits, 414–416 Shared economy, 230–231 Shenzhen Stock Exchange, 390 shi 124 Shouyixin, 110 Sinopec Corp., 77 Sinopec Group, 321 Sinotel, 134 Situational momentum, 125, 127–129, 132, 140 Six Sigma, 187 Small and medium enterprises (SME), 310, 314 Smart phone market, China, 136 SmartPLS, 241 Smart TV, 137 Social governance, 195, 214, 424 characteristics in new era, 414–415 China’s national security, 422 in Chinese context, 198–203 community-level construction, 421 developing new forms of, 423–424 employment and business startups, 421 environmental protection, 424 fairness and justice centered, 420 general security, 421 housing support, 422 inheriting fine traditional culture, 420

Index innovation, 460 institutional innovation, 420, 422 Party’s leadership, 421, 424 people-oriented, 419–420 people-related work, 420–421 people’s well-being, 420 poverty, 421 public security system, 423 role of, 216–217 rule of law and rule of virtue, 420 social integrity system, development of, 423 social organization, 423 social security system, 422 system, 458 trend, 417 urban and rural areas, community governance in, 423 in Western countries, 197–198 Social harmony, 415 Socialism with Chinese characteristics, 376 Socialization, 415 Social management innovation, 485 Social media definition, 496 governmental (see Governmental social media) Social modernization, 414 Social reformism, 447 Social security problems, 461 Social security system, 422 Social welfare policy, 447 Societal culture, 21 Soil degradation, 388 Specialization, 415 Speed principle of emergency, 504 Spiritual needs, 175 Stakeholder theory, 72 State-owned Assets Supervision and Administration Commission (SASAC), 73 State-owned enterprises, 282 Statistical analysis, 349 Stewardship-sustainability, 179, 180 Stock index, 388 Strategic capabilities, 47 Strategic frameworks, 112 Strategic human resource management (SHRM), 46, 47, 54 Strategic job design, 47 strategic capabilities, 47 strategic job characteristics, 49–51 strategic job identification, 47–49 Strategy, 100, 104, 105 communication, 22, 23 representations, 26

521 Stressors, 175 Subjective well-being in China, 473–475 average rating for life, 475 economic development, social structure, 477–479 feeling of happiness, 473–474 individual characters and, 476 issues related to, 479 Sun-Tzu, 125, 126 Super Electric Eco-system (SEE) plan, 139 Supply side reform, 233 Sustainability, 388 of Alibaba Group, 370 innovations, 63 Sustainable Growth Equity Fund, 388 System of public psychological services, 415

T Tacit knowledge, 90 Taipei Exchange (TPEX), 399 Taiwan Stock Exchange Corporation (TWSE), 399 Tang Dynasty, 290 Taoism, 124, 139, 160 Taoist philosophy, 125, 126 Tax reduction, 392 Technological boundary spanning driven transformation strategy, 12 Tech-oriented innovation invention, 231 new product, 232 patent and intellectual right, 232 R&D density, 231 Terrorism, 468 Terrorist activities, 463 “9.11” terrorist attack, 464 18th Communist Party of China (CPC) National Congress, 414, 458 20th Congress of the CPC, 414 The 14th Five-Year Plan for Economic and Social Development and the LongRange Objectives through the Year 2035, 414 Theory of righteousness and benefit, 359 The PLA station in Djibouti, 467 13th Five-Year Plan for Economic and Social Development, 414 Third party payment, 231–232, 270, 271 Three pillars, of China’s pension system, see Pension system, aging population “Tianshan No.3”, 462 Tong ling model, 488 Top-down approach, 389 Total Innovation Management (TIM), 254

522 Trade liberalization, 387 Traditional Chinese culture, CSR theory of righteousness and benefit, 359 thought of “harmony between human and nature”, 361 thought of “human-oriented”, 359–360 Traditional ideologies, 171 Trait(s), 158 activation theory, 159 Transactional leadership, 326 Transcendence, 179 Transformational leadership, 326 Transformation strategies, 5, 7–10 Transform entrepreneurship, 259 Transitional balancing, 162 Transitional Generation, 150, 151 Triple Bottom Line’ approach, 383 Trust, 147, 148, 154 Tsingtao XB Electrical Appliances Company, 93, 96 TV division, 136, 137

U Uber, 83 United Nations Global Compact (UNGC), 402 Unpaid work, 380, 381 Upgrading, 88, 89 of OEM supplier, 92–93 of XB, 95–96 Urban gridding, in Beijing, see Beijing gridding US-led international anti-terrorism alliance, 466 UWS-Kingold MBA program, 378, 379

V Ventral capital (VC), 226 Vertical search, 269 Video-as-a-Service (VaaS) model, 137 Video site industry, 134, 135 Visualization, 19 Voluntary disclosure, 399–401 Voluntary explicit knowledge transfer, 90 Voluntary tacit knowledge transfer, 90

W Wage gap, 377 Wang, H.T., 205, 211, 213 Water pollution, 388 WeBank, 268 WeChat, 496 Welfare socialism, 447

Index Western communication, 148 Western educational systems, 147 Western Enlightenment movement, 178 Western epistemology, 160 Western humanism, 175 Western transformational leadership style, 149 Whole industry chain strategy, 134, 137 Wholeness, 179, 180, 188 Wi-Fi log-in log, 265 Women managers, 379, 381, 382 Women’s status in China in business, 379 career mobility, 380 demographic sample data, 378 economic reforms, 377 gender-based wage gap, 377 gender issues, 383 glass ceiling, 379 paid and unpaid work challenges for women managers, 381, 382 scientific researchers, 377 traditional views on gender and roles, 380 work-life balance, 382 Work-life balance, 382 World Population Prospects in 2015, 427, 428, 431, 433 World Values Survey (WVS), 473

X Xi, Y.M., 205, 209, 210, 213, 214 Xiangke (“conflicting”), 126 Xiangsheng (“complementary”), 126 Xiaomi, 100, 103, 104 smart phone (Mi phone), 105 Xi Jinping, 419–421, 424 Xin (trustworthiness), 177, 184

Y Ying-shi, 130 Yin-Yang, 124, 160–164 Yi (righteousness), 177, 184, 185 Yonghui supermarket, 293 YouChange Foundation, 391

Z Zao-shi, 131 Zero carbon restaurant, 367 Zhang, X.J., 206, 212–214 Zhi (wisdom), 177, 184, 185