Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Bachelor Thesis Eat the food, drink the booze and settle the deal! A study of intercultural differences in China from a Swedish B2B perspective Authors: Nathalie Svedberg Tim Svensson Subject: Bachelor thesis Business administration Supervisor: Richard Owusu Examiner: Soniya Billore Level: Bachelor degree Course code: 2FE50E Date: 27th May, 2014 1 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Abstract Background: China is today regarded as Sweden’s most important business partner in Asia. Even if there are cultural differences between Sweden and China the intercultural distance has successively decreased. One of the reasons is the globalisation. Another reason is the consecutive development of Swedish-Chinese relations. The interpretation from common understanding has increased the level of trade between the nations. There is an on-going development of business co-operation between Sweden and China. The Purpose: This Bachelor Thesis will examine the differences between the Swedish- Chinese business culture and how the cultural differences affect the Swedish B2B in China. The purpose is formulated by the basis of our main research questions; “How do Swedish B2B companies perceive the cultural differences between the Swedish and Chinese way of doing business?“ and “how do Swedish companies operating in China deal with business cultural diversity in China?” Theoretical Framework: The basis of our Bachelor Thesis examines the theories within cultural dimension. The theoretical framework is based on proven studies from e.g. Hofstede’s Five Dimensions, Trompenaars Cultural Diversity, CVS, the GLOBE Study, Cross-Cultural- Communication & Adaptation and Guanxi. Methodology: We have used an abductive approach with the basis of a qualitative research strategy. The primary data is gathered from six different case studies; Scania, Ludvig Svensson AB, Formox AB, Century 21, Business Sweden and Småland-China Support Office. The empirical findings will further be interpreted with the theoretical framework, analysed and we will finish up with our conclusion. Conclusion: From the research examined we have identified a numerous of business cultural differences between Sweden and China. Even if the cultural barriers including communication, decision-making, co-operation, relations and business behaviour differs there are numerous of essential exploratory effort that can be initiated to prevent cultural misunderstandings and barriers. This fundamental will be presented as our suggestions. 2 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Preface This Bachelor Thesis is examined at the Linnaeus University during the spring term -14. First we would like to send our greatest thanks’ to our case study companies and respondents including Bo Martinsson (Scania), Hans Andersson (Ludvig Svensson), Louise Benediktsson (Century 21) and Andreas Magnusson (Formox). Furthermore we would like to thank our Swedish-China experts working at Business Sweden and Småland´s China Support Office, Hanna Elving and Wang Zhi. Furthermore we would like to thank our supervisor Soniya Billore as well as the opponents who continuously have given us valuable feedback. We would also like to express our gratefulness to our supervisor Richard Owusu for his feedback, concrete criticism, guidelines to help us during this Bachelor Thesis. Kalmar 27th May 2014 _________________________ _________________________ Nathalie Svedberg Tim Svensson 3 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Definitions for keywords based on the Oxford Dictionary Complexity: defines a composite entirety hard to understand and illustrate; something that is complicated or intricate. Culture: defines a collectivistic set of attitudes, behaviour, norms and values of a nation, group of people or social group. Intercultural/Cross-culture: defines something that takes place between two cultures; something that is the result between two cultures combined. Globalization: defines the process of businesses or organizations international development, influence or international start-up. Dynamic: defines something in continuous change, action or development. B2B: Business-to-Business; defines trade between businesses. Industrialization: defines the development of industries within a nation. Ideology: defines a set of ideas & ideals; often connected to economic and political concepts. Guanxi: defines a Chinese system based on social networks connecting relationships. The philosophy of Guanxi eases the business environment. Acculturation: defines the learning of culture. Supra-national: defines a multi-global organisation. Xenophobic defines mankind’s fear to other cultures. Hofstede’s five dimensions: defines a theoretical framework of cultural dimensions. Cultural diversity: defines the diversity of cultures within a specific nation, group or society. The Cultural diversity is used as a theoretical framework e.g. stated by Trompenaars’. The GLOBE study: defines the theoretical framework of culture, leadership & organizations. (Oxford dictionaries, 2014) 4 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Table of content 1. Introduction ....................................................................................................................... 8 1.2 Background ................................................................................................................ 8 1.3 Problem discussion .................................................................................................. 11 1.4 Previous Research .................................................................................................... 13 1.5 Research questions ................................................................................................... 15 1.6 Purpose ..................................................................................................................... 15 1.7 Delimitation ............................................................................................................. 15 1.8 Disposition ............................................................................................................... 16 2. Methodology ..................................................................................................................... 18 2.1 Abductive Approach ................................................................................................ 18 2.2 Qualitative Strategy.................................................................................................. 20 2.3 Case Study ............................................................................................................... 21 2.3.1 Choice of Case Studies ..................................................................................... 22 2.4 Data Collection ........................................................................................................ 24 2.5 Primary Data ............................................................................................................ 24 2.5.1 Structure of Interviews ...................................................................................... 25 2.5.2 The Process of Interviews ................................................................................. 25 2.5.3 Criticism to primary data .................................................................................. 27 2.6 Secondary Data ....................................................................................................... 28 2.6.1 Criticism to secondary data ............................................................................... 28 2.7 Quality of Research ................................................................................................. 29 2.7.1 Validity ............................................................................................................. 29 2.7.2 Reliability .......................................................................................................... 30 2.8 Operationalization ................................................................................................... 31 3. Theoretical Framework ................................................................................................... 34 3.1 Culture ..................................................................................................................... 34 3.2 Hofstede's Five Cultural Dimensions ...................................................................... 37 3.2.1 Power Distance ................................................................................................ 37 3.2.2 Individualism ................................................................................................... 38 3.2.3 Uncertainty Avoidance .................................................................................... 39 5 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! 3.2.4 Masculinity....................................................................................................... 40 3.2.5 Long-term & Short-term Orientation ............................................................... 40 3.3 The Chinese Value Survey ....................................................................................... 42 3.4 The GLOBE study ................................................................................................... 44 3.4.1 Nine Cultural dimensions ................................................................................. 45 3.5 Guanxi ...................................................................................................................... 46 3.6 Trompenaars’ cultural diversity ............................................................................... 47 3.6.1 Universalism and Particularism ........................................................................ 49 3.6.2 Neutral and emotional culture ........................................................................... 50 3.6.3 Specific and diffuse culture .............................................................................. 50 3.6.4 Achievement and Ascription ............................................................................ 51 3.7 Cross-Cultural Communication ............................................................................... 51 3.7.1 Hinders and Barriers to Cross-Cultural Communication .................................. 52 3.7.2 High Context Communication .......................................................................... 52 3.7.3 Low-Context Communication .......................................................................... 53 3.7.4 High- versus Low-Context Culture ................................................................... 54 3.8 Cross-Cultural Adaptation ....................................................................................... 54 3.9 Theory synthesis ...................................................................................................... 57 4. Empirical Findings .......................................................................................................... 60 4.1 Respondents ............................................................................................................. 60 4.1.1 Bo Martinsson, Scania ...................................................................................... 60 4.1.2 Hans Andersson, Ludvig Svensson AB ............................................................ 60 4.1.3 Louise Benediktsson, Century 21 China Real Estate ....................................... 61 4.1.4 Andreas Magnusson, Formox AB .................................................................... 61 4.1.5 Hanna Elving, Business Sweden ...................................................................... 61 4.1.6 Wang Zhi, Småland´s China Support Office (SCSO) ...................................... 62 4.2 The Chinese Market ................................................................................................. 62 4.3 The Chinese Businessman ....................................................................................... 63 4.4 The Time Perspective & Orientation ....................................................................... 64 4.5 Building Relations ................................................................................................... 66 4.6 Hierarchy .................................................................................................................. 69 4.7 External Decision-Makers........................................................................................ 70 6 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! 5. Analysis ............................................................................................................................ 72 5.1 Culture defined as the complexity of dynamics ....................................................... 72 5.2 Hierarchy, external decision-makers........................................................................ 74 5.3 The Chinese businessman ........................................................................................ 78 5.4 The importance of relations, Guanxi........................................................................ 80 5.5 The time orientation perspectives ............................................................................ 82 5.6 Communication ........................................................................................................ 83 5.7 Adaption to the Chinese culture ............................................................................... 85 5.4 The Swedish-China Business Interaction ................................................................ 86 6. Conclusion ....................................................................................................................... 87 7. Limitations ....................................................................................................................... 90 8. Further Research ............................................................................................................. 90 Appendix 1 ........................................................................................................................... 91 Tables & pictures .................................................................................................................. 94 References ............................................................................................................................ 95 7 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! 1. Introduction In this chapter we will examine the background of our research questions. Moreover, we will discuss globalization’s influence on business culture and how the intercultural perspective between Sweden and China diversify the way of doing business. The problem discussion will further highlight the complications of globalization, the issue of cultural diversity and examine previous research of Swedish-Chinese business culture. From here we will present our research questions followed by the purpose, delimitation and disposition. 1.2 Background Dong & Liu (2010) illustrate how companies today use the entirety of the world as a playground for doing business. Globalization is illustrated as dynamic. The dynamic is a constant change of behaviour. No longer is the domestic market the basis for business activity. Instead, business is referred to as a global opportunity. The world economy is today illustrated as one interconnected economy. Cai (2012) defines globalization as the transition of development. From here people turn a primitive segregation of certain geographic’s to a global community e.g. nations and societies turns to international clusters. Dong & Liu (2010) argues the cultural globalization process as a constant interaction that mix, share and re- design society’s culture. Furthermore Suarez-Orozco & Qin-Hilliard (2004) discuss that the globalization process is the basic transformation to what is called modern life. Suarez-Orozco & Qin-Hilliard (2004) illustrate globalization as “what happens when the movement of people, goods, or ideas amongst countries and regions accelerate”. Dong & Liu (2010) support Suarez-Orozco & Qin-Hilliard (2004) as they illustrate that companies continuously increase their internal- and external understanding of cultural diversification, a modernized pattern. Companies today are in a more continuous interaction with foreign partners. The design of internal employees forms a pattern of cultural interaction. The nation’s culture functions as the external influence on people’s behaviour. Each employee within an organization or society unconsciously and gradually adds another personal brick to the puzzle of culture. Each variable that is added to the organizations- or society’s internal culture is another external experience from the outside world. However the result of the puzzle is the design of the modernized pattern of present behaviour and knowledge. 8 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! Although, Suarez-Orozco & Qin-Hilliard further argue the world today as a contrary to history. Nowadays local societies are in constant transformation from the external outside. The reality is gradually affected by global impact. Furthermore, Suarez-Orozco & Qin- Hilliard (2004) discuss that cultural systems today transmit values, norms and knowledge to the next generation. From an economic perspective the majority of world economics define globalization as growth. In contrary Ford, Gadde, Håkansson & Snehota (2006) illustrate globalizations role in the dynamics of business. From here the authors argue that there is no stabilization on the market. The dynamics of networks e.g. relationships and companies are all affected by globalization. The authors illustrate how globalization has forced companies to deal with a more competitive surrounding, but it has facilitated the flow and exchange of information. However, the economic globalization has increased the interlink, defined by Burtless, Lawrence, Litan & Shapiro (1998) who illustrate how the business development in turn has increased global wealth. The authors further argue how the world economy has promoted the capitalism and democracy in Asia. The result from globalization is an open world. Fan & Zhang (2004) argue how globalization has increased the foreign awareness of the Chinese market. Zhang (2004) highlights the economic importance of the 21th century, the illustration of the foreign rush for Chinese opportunities. From here westerners entered the Chinese market forming joint ventures and acquisitions. In contrary, Cai (2010) illustrates how the Chinese economic boost started back in 1978. From his research Cai (2010) has presented figures illustrating that the Chinese rural and urban growth has increased more than seventeen times between 1978 and 2007. Furthermore, Cai (2010) illustrates increasing figures of trade. In 1978 China accounted for 1 percent of global trade. In 2007 the trade of goods accounted for 13.4 percent of global trade. The last decades has transformed the Chinese economy turning the nation into a superpower. The World Bank (2014) illustrate that China today is the second largest economy in the world after the US, with a positive graph of annual GDP growth, see Figure 1 below. Foremost, due to the low production cost, westerners early discovered the opportunity to outsource and move their operation and production to China. Nowadays it is not only the cheap manufacturing cost that attracts foreign companies. Instead westerners are aware of the potential of the Chinese market looking for sales and revenue. The middle class in China is growing rapidly which has increased the demand of products. Even the increased bargaining power can be related to 9 Svedberg & Svensson (2014); Eat the food, drink the booze and settle the deal! influences from the western world, trade has boosted the Chinese economy (Sweden Abroad, 2013). 100 10 Sweden China 1 2009 2010 2011 2012 0,1 Figure 1. GDP growth (annual %) (World Bank, 2014) The Swedish Research Institute for Industrial Economics (2009) argues that the Swedish economy is integrated to the world business. This is the result of the globalization since the early 1990. Since the early 1990 to present time the Swedish total export has increased by nearly 100 percent. Furthermore, as a result of the Swedish globalization process in 1990, Swedish companies have continuously expanded their foreign operations. The Swedish globalization process is driven by financial markets as well as by the development of open economies, foremost the Chinese economic development. The Swedish government (2008) argues how Sweden became the first western country to develop a diplomatic relationship with China during the mid-20th century. In 1978 the trade between Sweden and China rapidly increased as the open politics were initiated in China. The Chinese open politic was the starting point for the business interaction between Sweden and China. Today China is Sweden’s most important business- and trading partner in East Asia. According to Sweden Abroad (2013) the Swedish trade to China increased by 12 percent during 2011 targeting approximately 40 billion Swedish Crowns, 3.3 percent of Sweden’s total export. Sweden Abroad (2013) further argues that due to the western conditions of economic stagnation, China is an important market for Swedish exporting companies. Furthermore, the overall forecast for Swedish large-, medium- and small enterprises on the Chinese market is looking promising. 10