Chinese and Korean Management Styles
Category : Management Essays
Chinese and Korean Management Styles
Globalisation is a term frequently used by many but is vaguely defined. One finds trouble in even finding two authors who defines globalisation in the same, exact way. But even that being the case, there is no denying that global markets, in particular emerging ones, offer attractive potential. For many organisations it is the only approach for growth as existing markets mature with few chances for profitable opportunities. As global markets open through the increasing use of the Internet and with improved supply chains, it is likely that there are many untapped segments around the world that would open to a multinational company, regardless of the industry. More and more, the world is becoming an available global market place. To stop marketing activities at one’s home-base borders is not only arbitrary, but also short-sighted. International marketing is often defined largely in terms of the level of involvement of the company in the global marketplace, and export, multinational and global marketing are most widely considered. Multinational enterprises (MNEs) develop international marketing strategies in order to improve corporate performance though growth and strengthening their competitive advantage. However, MNEs differ in their approach to international marketing strategy development and the speed and the progress they make in achieving an international presence.
Due to the move on globalization, many countries adapted management styles that are unique to their setting and also unique in bringing effectivity and efficiency to the company. This paper shall tackle the management models adapted by the Korean and Chinese entrepreneurs and its difference and similarities to the business models used in other parts of the world.
The different strategies in different markets helped the company have an initial feel of the different markets. The different strategies also helped the company have a better understanding of how the market works. The different markets help in introducing to the company the cultures and characteristics of the markets thus it became educated with how to adjust in the different setting. Lastly the different strategies helped in making sure that the company encounters lesser problems while starting up a new market. By using different strategies the company has not committed anything that will give it more problems. In developed countries it is somewhat easier to enter because they usually have fully developed communications, distribution and transportation systems, to name but a few facilitating factors. In contrast, developing countries require a more flexible approach, since they tend to be more jealous of their national prerogatives and less advanced in their infrastructure. But their sales potential is, nevertheless, quite substantial. It can be tapped successfully, if the MNE is willing to adapt.
According to (2006), the most successful global businesses are aggressively building their global strategies around these themes: (1) increased market access because of the opening up of markets in China, Central and Eastern Europe; (2) increased market opportunities because of the deregulation of many markets, such as the financial market and privatization of state-owed utilities; (3) greater uniformity pf industry standards, encouraged, for example, by the European Union; (4) sourcing of products and components initially, but more recently services, too, from a wider range of countries, particularly those emerging markets with a high ratio of skills to cost; (5) more globally standardized products and services, particularly in areas of new technology, but increasingly in more culturally sensitive product areas, such as food; (6) common technology used in many more markets, particularly in areas of information technology, when there is a high cost of research and development that must be recovered through sales in many countries; (7) similar customer requirements leading to transnational customer segments, resulting from increased communication and travel; (8) competition from the same organisations in each major market and thus interdependence of markets; (9) global organisation strategies that increasingly treat the world as one market, among several other themes.
Marketing is a universal activity that is widely applicable, regardless of the political, social and economic systems of a country. However does it nor mean that consumers in all parts of the world must or should be satisfied in exactly the same way (Onkvisit & Shaw). This is largely the effect of globalisation to the formulation of international marketing strategies, the insertion of the adaptation of such strategies to the particular country in which the MNE operates. Consumers from various countries are significantly different due to varying culture, income, level of economic development, and so on. Therefore, consumers may use the same product without having the same need or motive, and in turn may use different products to satisfy the same need. () addressed the issue of globalisation suggesting that the quality of management processes explains why some global marketing strategies fail while others succeed, contrary to conventional wisdom that management processes for global marketing should not be highly centralised and standardised since not enough attention is paid to the inputs of local management and the learning process across the different markets. Some studies investigate the linkages between standardisation of marketing and other functions such as sourcing, manufacturing, research and development, and find such linkages to be important. The ability to carry out global marketing strategies also depends upon comparative management attributes.
Successful operations and resolution of company- and industry-specific problems depends on forging good relations with the government with which the airline is operating under, using joint ventures and large sized investments and on long-term presence in the country. This is one legal responsibility of Boeing, to follow country or area soecific impositions on the airline industry by different governments. Foreign firms had to conduct normal business operations in a politicized and bureaucratic environment. The safety of their passengers is also a legal responsibility since this would reflect on the capability of the aircraft used. When a plane crashes by accident without any outside manipulation, for example, it is almost always to be taken as a legal responsibility of the airline. Most often, the airline involved would have to pay whatever compensatory damages arise.
The government can influence company’s strategy by imposing laws and legal restrictions. Business has never been fond of government's having an activist role in establishing the ground rules under which it operates, but then organizations have no choice. Government regulatory actions can often force significant changes in industry practices and strategic approaches. And it is a company’s legal responsibility to follow government regulations. In some instances deregulation has proved to be a potent pre-competitive force in many industries including the airline industry ( 2003).
Asian business models are usually centered on traditions and family ties. Though Asia has long moved out of its traditional and feudal history, it is still quite evident in their business practices that they have not quite overcome these experiences. This paper aims to discuss these practices and their relation to modern business practice.
Korean Business Model: Chaebol
Many studies have aimed to explain the happenings inside business affiliations. In a number of countries around the world, the industrial load and most of the activities are divided between legally autonomous firms, which only share a common company name. Modern business groups are the offspring of the movement in industrialization in every country. Usually, a business group is composed of many sub-units and is mainly managed in hierarchy. But surprisingly, late-blooming countries, i.e. Asian countries, possess a far more complex and diverse than the usually known forms of business groups ( 1996). In Korea, especially in South Korea, a more known and popular business model has been adapted and successfully used throughout the years. It is known as the Chaebol, and has successfully infiltrated all aspects of the economy. The main characteristics of the Chaebol are that it is usually managed by a family or it is under a central control of member firms through mutual shareholding (1996). Due to the popularity and suitability of this model to the Korean setting, it has been adapted by any Korean entrepreneurs and has increased rapidly in the last three decades ( 1996). According to Kang, the Chaebol are not legally recognized as a single entity in the Korean economy, but still lay a major role in the play between the relationships of the government to the business sector. The increase in the number of the Korean Chaebol present in the economy is one of the key features in the country’s economic development. These Chaebols sprung forth from businesses constructed by Korean entrepreneurs over four decades ago, and these founders still exercise strong control over these businesses. Even from these beginnings, Korean Chaebols were able to expand into larger and more diversified sectors of the Korean economy. The power of behind the movement of the group, or the controlling sector, is usually in the hands of a single person, most usually referred to as the “chairman”, also the founder and owner of the said business ( 1996).
Strengths and Weaknesses of the Korean Chaebol
Social responsibility entails an individual or a group’s actions benefiting the society more than oneself or more than the group. Research and development is a social responsibility of every airline company. Boeing benefits from the systematic use of industrial research so as to increase costumers' choices each year as well as to be able to provide a safe and effective service for their costumers. The purpose of research and development, more than being able to raise profits, is to ensure an effective and safe service for the benefit of the customers. These factors became easily recognized ingredients in explaining Boeing’s success as one of the world’s top airline company.
Business owners and managers as private citizens may assume responsibility for other problems in society, such as the CEO of Boeing providing leadership for a national drive to raise money for medical research to cure childhood leukemia. The distinction between the public responsibility of businesses and the responsibility of the individuals who own and work in businesses is an important one (2002). However, the social responsibility of a member of an organization could reflect on the entire organization itself, even if it was done outside the company’s intent.
In recent years, it has been found out that the management style adapted in Korea, the Chaebol, has many weaknesses. It is the least good place for protection for investors (2002). Though the Chaebol strategy has been of wonderful use in the age of “catching up”, it has been found out that the Chaebol has a very weak governance system.
The following are the weaknesses of the Chaebol, based on the idea om family firms.
Ø Family members vs. shareholders. Family members who actively participate in managing the company may find discord with shareholders of the company since many of them may want the firm run in the way that one party may want. Inner strife may occur due to this and may lead to the downfall of the family owned firm.
Ø 3rd Generation inheritance. It is widely believed that 3rd generation inheritors may in fact lead to the future loss of the company. 3rd generation inheritors, who raised in the life of luxury and were never once allowed to experience the difficulty of earning one’s keep, may squander the wealth that the 1st and 2nd generation owners have put their heart and soul into building. But this risk is completely a subject of debate since many later generation inheritors manage the company to the greatest extent possible. It is the responsibility of the elder generations to train the younger inheritors on their responsibility as future managers of the company.
Ø Biased treatment in role ascension. Since family firms are mostly composed of family members, ascension in roles may be a great issue. Great consideration must be taken before any ascension of family members get underway. Complete and unbiased review of strengths and achievements of the family member in question must be thoroughly examined in order to create a fair and unbiased judgement as to whether the family member does indeed deserve the position, or otherwise.
Due to the dawning of the new age, and the financial crisis faced by the Korean people in 1997, many have questioned the strength of the Chaebol. Whether due to doubt or fear, the Korean entrepreneurs have adapted the Anglo-American Style, or at least incorporated some of its aspects into the Korean system. The following have been added to the Korean Commercial Act, Part III,
Ø Mandatory Outside Directors
Ø Cumulative Voting
Ø Class actions in Litigation
Ø Stock-for-stock Mergers ( 2002).
The strengths of the Korean Chaebol lie in the ability of the Chaebol to infiltrate the sectors of the economy and its relationship to the government. The success of the Chaebol was highly credited as the saving grace of the Korean economy in its times of development and crisis. This is the main strength of the Chaebol. Also, the company was held by a single person or a minority. This can be regarded as both strength and a weakness. Chaebol, in a sense, could be referred to as a family firm. Family managed firms are the building blocks of today’s international and global companies. Their existence, their management styles and even their survival has been of great importance in the continuous success of the global economy. Though family owned firms succumb to issues that face publicly owned companies on a day-to-day basis, they must also be capable of managing their own internal crises.
The Chaebol, due to many impending issues they face on a day-to-day basis, have to keep a very good management style in order to keep the edge against other competitors. By having such needs, a family firm has greater needs to acquire proper and exceptional management than publicly owned firms. But also because of many capabilities that are innate to family firms, they have greater edge on building a more corporate and business minded strategies in order to overcome many issues that face them everyday.
Chaebol are firms run by a family and is handed down from generation to generation. It may also be a company managed by a few shareholders. Often the successors chosen are the eldest children, also, if the eldest children are deemed incapable, younger and more able children are chosen as successors. But there are times when successors not from the family are chosen, more simply put, those who are affiliated to the family not by blood, but by marriage. The following are strengths possessed by the Chaebol, or family firms.
Ø Thinking on the perspective of the future. Chaebol firms tend to think on long term perspectives rather than monthly or yearly basis. Because of this, family firms tend to strive harder (especially first generation owners) in order to ensure the continuous growth and prosperity of their company. They also tend to create the company better than the predecessor since they would want to hand the firm down from generation to generation, they would also want their children to inherit a company that is stable and ready for continual change.
Ø Founding values. The founding values of the company would remain to be the sole guiding light for the firm as the firm continues to trudge in the void world of international business. Since the business of today seem to be losing it’s itself more and more and further resembles a machine rather than a group of people, founding values would remain to be something of great importance to the firm and to all its stakeholders.
Ø Innate Values. In family firms, words like trust, courage and loyalty are often heard and cherished. Also, personal relationships tend to rank higher than elevation in position or inheritance. Since family firms are based on families and family values, it is imperative for them to take better consideration of those values rather than profit, capital, and increase in other materialistic things.
Ø Continuity of management. Continuity of management is one characteristic of family firms which is unique to itself. Continuity of management may mean that employees are subjected to lesser forms of abrupt and sudden changes. Also, the company may suffer less damage upon change of leadership. The transition phase between the old management style and the new management style may render the company weak. Since that may happen in lesser occurrences for family firms, then the company may enjoy greater and more effective profit making activities with less internal damage.
Chinese Business Model
According to (2004), the Chinese business model maybe referred to as the business model which is based on the idea that customers buy items due only to the price that it comes with. The Chinese business model is characterized by strictly “business and profit” manner. This type of managerial approach has its perks and downfalls. One of the main perks of this approach is that it really does give the company the profit that they aimed for at the start of the business.
The Chinese businessmen have long been considered as shrewd businessmen. They have successfully infiltrated every country with numerous businesses ranging from clothing to food. It is because of the managerial strategy adapted that they have successfully managed and let their store flourish throughout the years.
Strengths and Weaknesses of the Chinese Business Model
The Chinese business model’s main strength is that it assures profit in the part of the company. This would ensure the longetivity and the strength of the company. Of course, profit may spell the betterment of the company that’s why it is a major factor in the business.
But also, this type of approach may call for weaknesses and negativity as well. One weakness may be that due to the fact that this model is profit oriented, the company may lose sight of the benefits that they owe the consumers and the stakeholders as well. In the theory of CSR, or Corporate Social Responsibility, it is stated there that a company has social obligations to its shareholders. It must incorporate in its goals the needs of its stakeholders. Firms are said to follow the theory of Corporate Social Responsibility, taking into consideration not only the profit to be made, but also the best things for its stakeholders. Corporate Governance as was mentioned is the method of regulating and monitoring the behaviour and practices of the company. This idea may relate in many ways in the aspect of corporate social responsibility. Corporate Social Responsibility or CSR is one of the leading theories relating to corporate governance. The theory talks about the responsibility of the corporation, or any organization for that matter, to all its stakeholders, which comprises mainly of its customers, employees, etc. The theory mainly states that the organization should keep in mind the interests of their shareholders and not only the possibility of making higher profit.
Comparisons to Other Business Models
One type of managerial approach, global sourcing, is used by many companies and they have had numerous successes and advantages over other international companies. Global sourcing is defined as a strategy which aims to utilize and effectively use the world’s efficiencies in production (2007). It is a standard step for the globalization of a firm. Global sourcing possesses a number of advantages. One, it aims to locate product sources at a cheaper cost. A firm can be given a multitude of choices of product suppliers who compete with cheap prices. Another aspect of global sourcing can be referred to as outsourcing. This process is the same as global sourcing; only it focuses on the services a specific international location may offer, at a cheaper cost. An example of this is the booming industry of Call Centers.
Marks & Spencer was able to take in this strategy and has continued expansion in a number of countries.
The international Retail Division of Marks and Spencer comprises of three areas, the Far East, Europe (excluding the UK) and North America. Currently, Marks and Spencer has franchise stores in 34 different countries ( 2007). European International retail can be divided into the Continental Europe and the Republic of Ireland and European franchise businesses. In North America the franchise business can be divided between the Brooks Brothers and Kings Super Markets. In 2001 Brooks Brothers comprised of 221 stores and Kings Super Markets comprised of 27 stores. The Far East group consists of 10 retail stores in Hongkong and few others in nearby eastern countries. In the near future, M & S plans to open a franchising store in Shanghai, which hopefully, would become its gateway onto mainland China ( 2002).
The international business scene has given Marks & Spencer an edge over competition in the age of global expansion.
In this model, we can clearly state the difference between The Asian models and the western models.
Therefore, one can conclude that there are many differences in the western and Asian business practices. One maybe that there are aspects on the business approach that the Asian companies need to perfect. For example the part wherein the company only focuses on the profit made and often forgets the relationship to the customer and the shareholders.
But also, there are similarities between western and Asian business practices. Take for example the Korean Chaebol and western family firms. Somehow, they have aspects that are of the same, more or less.
Due to the constant move to catch up with the highly industrialized world, business models must constantly be renewed and reviewed. This is not only for the betterment of the company, but also for the betterment of the economy worldwide.
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