Impact of Culture on Management of Foreign SMEs in China

This chapter examines the central role played by SMEs in national economies around the world, creating employment and value added. More specifically, the chapter provides a synthesis of the current situation of SMEs in Europe, with particular reference to Italy, and their contributions to economic and social well-being. It also introduces the specific characteristics of SMEs and the opportunities and challenges they face in a globalized and digital world. In looking at the main aspects of the internationalization processes of SMEs, the chapter considers the barriers that small companies face when dealing with the Chinese market. While most part of the literature has focused its attention on examining MNCs, the challenges faced by SMEs have been neglected. The Chinese market is huge, complicated, opaque, and hyper-competitive. Over the past forty years, China’s economic reforms have been successful, making it become a major economic power. However, in the last few years, China’s economic growth has fallen from the double-digit rate and China has entered a ‘new normal’ phase, which highlights key transitions and shifts in policies to rebalance its economy to achieve a slower, but more sustainable, economic development.

This chapter examines the internationalization processes of SMEs. More specifically, it analyzes the concept of internationalization and its evolutionary path according to the main theoretical perspectives. In looking at the main aspects of the internationalization processes of SMEs, the chapter draws on the motivations that drive SMEs in internationalize their activities, the barriers that they face on the international scenario, and the impact of the internationalization process on their performance levels. The chapter continues the scholarly conversation on the pages of the previous parts by investigating the key approaches developed by the main literature to describe the internationalization process of SMEs, such as stage models, network approaches, resource-based methods, the international entrepreneurship model, and the parachuting internationalization metaphor. Recognizing the fact that some small firms conduct international activities from an early stage in their development and follow faster internationalization patterns than those suggested by traditional perspectives, the chapter also explores the phenomenon of international new ventures, born globals, and global start-ups.

This chapter analyzes the role of management in the internationalization path of SMEs. Management has been recognized by entrepreneurship and international business studies as the main factor influencing the initiation, development, maintenance, and success of SMEs’ internationalization processes. In SMEs, the owner or a limited group of people, mainly family members, are directly involved in, and responsible for, the decisions of the firm. This is believed to affect the decision-making process of the firm, and the degree and direction of the process. Following this point of view, the chapter examines the influence of specific managerial issues, such as firm-specific resources and capabilities, management attitude, perceptions, and characteristics, in the internationalization path of SMEs. More specifically, the chapter focuses on the distinction between objective (for example, age, educational level, language proficiency, and experiences acquired abroad) and subjective (for example, managers’ perceptions and beliefs, risk tolerance, innovativeness, flexibility, commitment, and dynamism) managerial characteristics, and on their role in affecting the international behavior of small firms.

This chapter offers a review, critique, and survey of the implications of culture and its dimensions for management, tracking its development as an autonomous academic field and outlining contemporary reflections on potential future trajectories, themes, and methodologies. The chapter acknowledges the effects of the globalization process, which poses tough challenges for small firms, and provides specific approaches to go beyond national boundaries by recognizing the multi-faceted, multi-layered, and dynamic nature of culture. In particular, international business studies agree that managers need the flexibility to respond positively and effectively to different practices and values in order to succeed in global business. As a consequence, cultural differences call for differences in management practices. The chapter explores the concept of culture and its evolution, by focusing on socio-cultural systems, cultural dimensions, and how they rely on the main managerial issues firms must face when dealing with international contexts. The fact that management practices must be adapted to the different local environments is also illustrated by examples with which most managers are familiar. The chapter also analyzes the main theoretical approaches to culture developed by Edward T. Hall, Florence R. Kluckhohn and Fred L. Strodtbeck, Geert H. Hofstede, Fons Trompenaars and Charles Hampden-Turner, Shalom H. Schwartz, the GLOBE project, and Tony Fang.

This chapter explores the cultural roots of the People’s Republic of China and their influence on managerial issues. China has progressively opened its market to the international competition and Western companies would like to gain access to its potential. However, differences between Chinese and Western cultures and business practices may influence the effective profitability of the investment in China. The chapter focuses on the key principles of the Chinese cultural environment, by taking into consideration the variety of contexts in which managerial issues are embedded, historical, geographical, socio-cultural, theoretical, to mention but a few. In China, a country where business relations are highly socially embedded, these aspects play a pivotal role in the shaping and advancement of daily business operations. In order to analyze the main features of the Chinese wisdom and culture, the chapter examines a set of key principles and their origins within Confucianism, Daoism, Buddhism, Mohism, and Yin-Yang thinking: guanxi, jiating, renqing, ganqing, lian and mianzi, lijie and keqi, and feng su xi guan. The chapter also provides practical examples to embrace the paradox of different views in management and support foreign practitioners in managing cultural issues in the Chinese business environment.

This chapter examines the role played by managerial characteristics and cultural intelligence, through adaptive capability, in influencing SMEs’ performance in the Chinese market. Mixed methods techniques are used in this study to accomplish this task. More specifically, we use multiple sources of evidence in order to address a broad range of contextual, attitudinal, and behavioral issues: survey, interviews, field observations, and internal and public document analysis. The quantitative analysis involved the submission of a questionnaire to 149 Italian SMEs operating in the three main economic regions of the People’s Republic of China, namely Jing-jin-ji, the Yangtze River Delta, and the Pearl River Delta, which agreed to participate in the survey. Hypotheses were then examined with SEM techniques and a hierarchical multiple regression analysis. In the qualitative analysis, five SMEs were identified. At each company, three semi-structured interviews were conducted with managers or participants who were actively involved in managerial projects. Impressions and evidence from field observation of the actions of the participants, and internal documents, such as slides used during meetings and management documentation, and public documents, such as the companies’ annual reports, were also collected. A meta-matrix, based on the three categories of managerial issues, Chinese cultural values, and SMEs’ activities in China, is then used to provide a comprehensive picture of how SMEs can deal with cultural paradoxes and manage the cultural dilemma in the Chinese environment.

This chapter considers implications of the analyses of the previous chapter by showing and explaining the findings that were reached. More specifically, the discussion of the results of the quantitative and qualitative analyses allows the reader to better understand how managerial characteristics and the ability to manage effectively in cultural diverse environments can affect SMEs’ performance in the Chinese market. In addition, the practical examples, real situations, and problems reported by entrepreneurs and managers actively involved in the Chinese market help readers and decision-makers shed light on the main managerial issues and cultural implications of conducting business in China.

In the previous chapters, we provided a conceptual framework, as well as practical examples, of the relationship between national culture, cultural distance, and managerial issues in China. By showing the links between studies on culture and international management with a rigorous mixed methods approach, our analysis shed light on how academic discourses of cultural, ethnic, or national categorizations traverse management issues of foreign SMEs in China. This chapter presents some concluding remarks, together with the main contributions to theory, practice, and policy-makers. The study confirmed that local cultural characteristics, values, beliefs, and behavioral patterns affect foreign SMEs’ management processes in China. Our analysis is useful to improve SEMs’ strategies for enhancing adaptive capabilities and performance in complex, distant, and multifaceted settings, such as the Chinese market. Our findings also support the identification of policies and measures to promote international growth and competitiveness of SMEs and local systems.