CHAPTER 11: OVERSEAS CHINESE BUSINESS 

contents:

OVERSEAS CHINESE AS AN ECONOMIC CULTURE

    Introduction

    Ethnicity

    Chinese Capitalism

    Sources of Efficiency/Failure

GUANXI AND NETWORKS IN OVERSEAS CHINESE BUSINESS

    Basis of Guanxi in Confucian Culture

    Guanxi Network Building

    Interaction Between Guanxi, Mianzi, and Renzing

    Guanxi and the Market

EVOLUTION OF THE BAMBOO NETWORK

APPENDIX A: OVERSEAS CHINESE IN SOUTHEAST ASIA

    Indonesia

    Malaysia

    Philippines

    Thailand

OVERSEAS CHINESE AS AN ECONOMIC CULTURE:¹

To understand Asia-Pacific business systems, we studied Japanese & Korean organizational "recipes"; now we turn our attention to another noteworthy institution in the region, the Overseas Chinese family business. The business culture that we will be delineating emanates from at least seven countries: Taiwan, Hong Kong, and Singapore which have majority-Chinese populations; and Indonesia, Malaysia, Philippines, and Thailand which have Chinese minorities that play a dominant role in the economies of those countries. (Appendix A provides a brief account of the Overseas Chinese in Southeast Asia.) Many other countries might be included in the coverage --even the United States where Overseas Chinese have established an important presence-- but the focus is on the Overseas Chinese of East Asia, who have distinguished themselves by their exceptional business acumen and who are very much at the heart of the economic dynamism of the region. (China itself is not included --defined outside the "overseas" classification for purposes of the separate attention that economy deserves.)

These non-Communist Chinese had a combined population of 65 million (including Hong Kong and Macao) in 2001. Prior to the 1990s they had a GNP per capita as high as $6650, and their collective GNP might have exceeded the entire GNP of China,  and at prevailing growth rates they were projected to overtake American per capita GNP around the year 2005.²

If there is one uniting phenomenon of Overseas Chinese business, it is ethnic nationalism. The self-identification of this special business class on the basis of race, language, and culture has instilled in them an extraordinary capacity for cooperation that defines their uniqueness, creating a mutual support network.

Chinese nationalism, both international and domestic, has been a significant force since the colonial era (coinciding with the Ming Dynasty) and until modern times. This may be explained by their deteriorating international status. Chinese were politically powerless both at home and abroad even before the great wave of Chinese emigration started in the late 19th century. At home the national government was weak in facing the West and Japan, and abroad the Chinese encountered a variety of constraints. In North America, Australia and Europe they encountered racial discrimination. In Southeast Asia --the main destination of Chinese emigrants-- colonial masters did not consider local populations (which included Chinese) fit to govern themselves. Finally when independence was granted, the Chinese were usually excluded from power by the indigenous majorities who were worried by Chinese business strength. Thus their very success made them unwelcome. Even where Chinese form a large minority as in Malaysia (about one-third Chinese), the practice of keeping overseas Chinese politically weak has persisted.

It is concluded by Sinologists that Overseas Chinese minorities perceived an important source of political power to be in the power of China itself, to champion the cause of improving the status of Chinese everywhere. Such a sentimental attachment to the homeland does not seem to be shared by other overseas ethnic groups to nearly the same extreme (e.g., not the Russians nor even the Indians). It has compelled successful Overseas Chinese to try to help the disparate situation in their homeland, especially by sending money. This historic tendency has been supported by the government in China which still today allows investment from Overseas Chinese into areas otherwise excluded from foreign financial participation. The Overseas Chinese have invested far more in mainland China than companies from the United States, Europe, and Japan combined.³ Overseas Chinese capital has been accumulated and is being deployed worldwide through a distinctive form of social and business organization, the Overseas Chinese family business.

Redding calls the Overseas Chinese family business an "enigma" and a "cultural artifact". Concerning the latter characterization, Chinese history and culture legitimize a certain implacability. Overseas Chinese often remain essentially Chinese, wherever they live. Many Chinese migrants stay deeply attached to China, harboring enduring hopes of someday returning to the homeland in glory. Their traditional culture is seldom completely displaced by other identities, even American --which "says something about the vitality, validity and fundamental good sense of the set of traditional beliefs and values which unites Chinese people." (p2) Pride in their own sophisticated and unified civilization sometimes results in less inclination to adopt the diversified indigenous cultures of Southeast Asia (or, indigenous governments have been less willing to integrate the Chinese). The extent of their acculturation in Southeast Asia has varied, with rather complete assimilation in Thailand and, to a slightly lesser extent, the Philippines. Malaysian Chinese have retained their ethnic solidarity due to the relatively large size of the Chinese community, religious and cultural dissimilarities with the indigenous population, and their exclusion from political power. Singaporean Chinese are different from those in, for example, Taiwan, perhaps more cosmopolitan and conscious of a separate regional identity. The Overseas Chinese in general are certainly among the most multicultural, and the most mobile, of international ethnic groups.

Overseas Chinese family business is an "enigma" because its workings are not transparent. Chinese culture, indeed the language itself, obscures the Chinese people from the rest of the world. Non-Chinese seldom attempt the difficult task of learning the language, and those who do seldom can accommodate the subtleties of Chinese culture. Though welcome and respected, foreigners remain foreign (unless they give up their foreignness entirely as the early conquerors of China did). In business they are often dealing in products without well-known brand names, and their internal operations are guarded against outsiders and poorly understood. Their cultural traditions and therefore the work motivation, environment, and modus operandi, are not replicable elsewhere. Chinese family businesses are a "family fortress" and retain many of their characteristic attributes despite dynamic growth and change in size, technologies, products, services and markets.

It was previously argued about the Japanese that their approach to capitalism --"Producer Economics"-- might be considered a separate, distinct model, in the sense that their particular institutions and organizational behavior are significantly different (and exclusive), and at least some idiosyncrasies are viable in the long term. Redding makes a similar evaluation of the Overseas Chinese model, first by discussing the mainstream "Spirit of Capitalism", then making some assertions about a special "Spirit of Chinese Capitalism".

A fundamental view about the origins of capitalism in the Western world is based on the Hegelian notion that ideas move events (not vice versa). The "idea" that led to the emergence of capitalism in the West, in Max Weber's classical treatment, was the persistent theme of economic rationality, i.e., people are rational economic actors.

The capitalism that Weber was observing in the early 20th century had the following components:

"(1) Fixed capital invested in the production of goods on which depends the satisfaction of everyday mass needs;

(2) rationally capitalistic organization of formally free labor, including discipline;

(3) separation of business and household capital;

(4) rational bookkeeping and accounting aimed at long run, ever-renewed profitability;

(5) rational structures of law and administration;

(6) the rationalization of economic life in a shared "spirit" or ethic;

(7) orientation to opportunities open on the market." (p9)

These rational structures and processes, coupled with the equally rational behavior of competitors, leads to efficiency in capitalist business. Thus, the "spirit" of capitalism was the logic of capital accumulation, organization, hard work, and so on.

As economic rationality spread and displaced traditional cultures with their irrational myths and magic, a "spirit" of capitalism evolved. Weber, however, was less concerned with how the spirit operated than where the spirit came from in the first place. He traced it to ethics derived from 17th century Protestantism (see endnote ⁴), which encouraged diligent application to worldly tasks (for God's glory) and frugality (to abstain from worldly pleasures).

To compare Weber's depiction of the "spirit" of modern capitalism with a "spirit" of Chinese capitalism, Redding poses a series of questions: First, is Chinese capitalism distinctly different?

Weber's components of capitalism were evident to him in the practices that evolved in Europe. Many of these, however, are less applicable to characteristic practices in the Chinese family business. The separation of business and family capital is not complete, as was and is the acceptable practice in the Western business. Financial control is quite clandestine, so only partially rational. Structures of law and administration are not entirely appropriate. Thus, the Chinese family business seems a significantly different model on the whole. (It should be noted that Redding's analysis consists of assertions, and is not comprehensive at this stage. Further reading will be needed.)

If Chinese capitalist practices can be considered distinct, do these differences derive from a coherent "spirit", i.e., is it a result of different cultural values of the people practicing it? And finally, is the spirit of Chinese capitalism internally maintained and reinforced? Consideration of these questions will help us evaluate whether this "distinct" form of capitalism is viable as a separate species in the long run.

Chinese businessmen think sufficiently alike, and differently from some "normal" model. The values which compel this different thinking derive from a common source: Confucianism. And certain social forces compel conformance and serve to perpetuate the value system (e.g., face).

The next step in the logic is to ask whether there are connections between the beliefs of Confucianism and the actual behaviors in Chinese business. If these actual behaviors can be deemed a source of efficiency, this is tantamount to asking: Is culture an explanation for economic success? Though there are certainly other factors at work, culture is part of the explanation, leading as it does to the particular Overseas Chinese business "recipe".

It must be obvious by now that the "spirit" to which we refer is really the Confucian ethic, just as the spirit of the Weberian capitalist model is the Protestant ethic. An answer to the questions above can be inferred from an examination of the practices that might be identified as peculiar to the Overseas Chinese family business and their effectiveness.

Redding lists ten characteristics of Chinese family business that he asserts are "reasonably standard". (p205-6)

"(1) small scale, and relatively simple organizational structuring;

(2) normally focused on one product or market;

(3) centralized decision making with a heavy reliance on one dominant executive;

(4) a close overlap of ownership, control, and family;

(5) a paternalistic organizational climate;

(6) linked to the environment with personalistic networks;

(7) normally very sensitive to matters of cost and financial efficiency;

(8) commonly linked strongly but informally with related but legally independent organizations handling key functions such as parts supply or marketing;

(9) relatively weak in terms of creating large-scale market recognition for brands;

(10) a high degree of strategic adaptability."

Redding then structures his analysis of managerial strengths and weaknesses in Chinese family business around four fundamental requirements or categories of activity in any business:

1. Vertical cooperation --The organizational hierarchy is tightly disciplined, with the founding family as the key stakeholder. Because a sense of hierarchy is a natural cultural tendency, the organizational hierarchy is informal and personal rather than the systemic, formally structured designs of Western business. Long-lasting relationships develop within the organization between superiors and subordinates. The relatively stable hierarchies contribute to efficiency because of the strong degree of compliance with goals established from above. The basis is Confucian paternalism, a cultural value that applies to not only family members but to some extent all employees. Higher levels in the hierarchy manifest a feeling of responsibility for those below, while subordinates manifest loyalty and a willingness to work hard.

It is important to note the caveat, however, that workers are only as loyal as they are dependent in the common pursuit of profit. The common purpose of profitmaking also reduces the social gap between workers and owners/managers. In many Western firms, there is generally presumed to be a schism between management and labor; labor relations may be less conflictual in Chinese family business.

There are organizational weaknesses in paternalistic vertical cooperation. Employees not in direct line to benefit from paternal benevolence may feel like outsiders, and thus have less loyalty and motivation. Factions and cliques tend to form around particular figures in the hierarchy. Because influence is achieved by personal ties, cultivating the right people may be more important than actual job performance.

Initiative and creativity are stifled by the need for compliance. This is also reflected in a reluctance to take responsibility.

Development of new products and markets cannot transcend the decision-making scope of the boss. Even large Chinese businesses often only extend into activities where one boss can grasp all the fundamental aspects of the business --e.g., shipping and property. Whatever the business domain, it tends not to overreach the strategic knowhow of the dominant individual in the hierarchy. Most multinationals in Southeast Asia are investment companies, not tied to specific products. Their procedure is to identify opportunities, then borrow money and acquire the necessary technology through a joint venture.

2. Horizontal cooperation facilitates coordination of inter-department activities and effective external links with suppliers, contractors, etc. Such lateral relationships might in general be expected to be problematic due to the structure of society around numerous autonomous family units, with little natural community or larger group cooperation. Thus, horizontal cooperation operates according to the principles of guanxi --connections.

Going out to run one's own company is accepted as a normal reflection of ambition from the worker, as it was for the boss. In fact, the boss may provide capital to help former employees get started, often as subcontractors. The result is a constant subdivision of firms. Chinese family business is therefore a multiplicity of small firms, sometimes operating together in the functional equivalent of a single large Western firm.

While guanxi initiates a new business contact, it is xinyong (credit) (Chen p90) that maintains and builds the relationship. Goods or services are exchanged for an informal promise to pay. Xinyong also implies "credit rating", or financial reliability.

Thus, dealmaking is the basis of operating external to the firm, based on trust rather than formal contracts. This is seen as a key competitive advantage of Overseas Chinese business. Trust significantly reduces the costs of legal and systemic processes. Speed, flexibility, even reliability are also enhanced through maneuverability of informal networks (rather than having to alter fixed arrangements).

However, this basis of operating handicaps the growth of the firm. Internal cooperation (interaction between departments) is effective for the firm only among the group of people who are within the tight network of trusted key people at the core of the business. The number of people who can be personally bonded is limited. Even relatives are a problem, e.g., rivalries and jealousies emerge.

Capital contribution is limited by the need for close family ownership control. Reliance on self-financing can limit size and complexity of the business. The business may be restricted to certain forms of business with less technology, size, and scope.

Complex organizational integration is avoided, as growing organizations instead subdivide into new units, sometimes each with its own products and markets. Thus, creation of a single brand (see endnote ⁵), supported by large coordinated staffing in finance, marketing, human resources, etc, is exceptional. Redding argues that Chinese business behavior is unlikely to produce enterprises capable of competing directly with multinational corporations without significant local protectionism --which they often receive.

3. Control --The ability to achieve goal congruence within the firm is less systemic, more personalistic. Formal control systems may not be necessary because reliability is built in via key people and relationships. This means less internal auditing, reporting, etc, are required to maintain an effective, informal control system.

As the key people accumulate wisdom, experience, and respect from workers, their value to the company far exceeds outsiders who typically come and go in Western business. Personal longevity, as well as their dedication and perseverance may be an important competitive advantage of the Chinese family business. Redding elaborates:

"To understand the nature of this process, consider the attitudes likely to be adopted by a 'typical' senior manager in a family business, assuming that he is a member of the owning family. In the clearest case, he or she will be a child of the owner/chief executive. He will have learnt about the business and the industry from childhood, probably paying visits to the factory or office from a young age. He will have absorbed much information, a lot of it confidential, from family mealtime conversations. He will behave with great respect and deference towards the paterfamilias, especially if the relationship is a direct one. He will also feel a sense of family continuity and the need to perpetuate and enhance the family 'name' or reputation... He will find himself with a high level of legitimate power within the organization, as the workforce tends to identify ownership with authority." (217-8)

The long-term retention of a core of effective executives is in fact an attribute of central importance for a business to remain competitive.

On the other hand, the most crucial shortcoming of personalized control may be its limited domain --hence the vast majority of companies remain small.

Also, the boss controls information and may use this control to maintain dependency among his employees, even to ensure they cannot outperform him. At best, the overall scheme of things in the mind of the boss may provide little feedback, i.e., goal setting is regarded as an internal family affair and is not done in collaboration with all those doing the work. Without goals that are mutually agreed and objective, workers may lose motivation. Without a clear division of labour around clearly set tasks and job specifications, work efforts lack focus and time is wasted as people work out for themselves how to best contribute, and protecting their own turf and staying busy with less risky routines. This is a "problem of vertical dependence and horizontal defensiveness". (221)

Overseas Chinese businesses that venture out of the domain of personalised control may be:

--in industries requiring infrequent judgmental decisions (e.g., property);

--in industries where control is standard, thus more easily controlled or managed contractually (e.g., shipping, hotels);

--in locations where financing can be provided on the reputation of the dominant owner.

With growth, ultimately professional management is taken in, but the core deal-making is still handled by the family in the traditional way. This can lead to power conflicts between the professionals and the family entrepreneurs. Professionals still tend to be excluded from the inner circles of management. Since family owners usually retain control over pay increases and other crucial personnel matters, professional managers may lack real authority with the workforce. Also, with less formal management control systems, objective assessment of employee performance may be lacking, and top management may pay special attention to loyalty or other less professional attributes. Redding argues that firms with such unstable means of control cannot meet global competitive standards.

4. Adaptiveness --The control system (or lack of it) provides flexibility, speed, and the opportunity to move ahead on the intuitive decisions of entrepreneurs. Given the central monopoly over information, one or a few key figures probably have superior intuition. These individuals often started the business from scratch and have experience in every aspect of the business. A dual ability, to both perceive a need for change and then to manage the change is the great strength of Overseas Chinese organizations.

With the strategic flexibility that is characteristic of small-scale enterprise with simple decision-making structures, Overseas Chinese businesses can switch quickly to other products, chief executives can act decisively, and the internal economies can adjust. For instance, they change from "semi-skilled assembly of consumer expendables to skilled manufacture of durable industrial components; from low tech to high tech; from commerce to manufacturing; from plastic flowers to wigs, to toys, to printed circuit boards." (221) Typically, capital adjustment is enhanced by investing in assets that have a quick payback period or allow a change in productive technology. For example, capital invested in buildings is often for multi-purpose facilities "such as the flatted-factories of Hong Kong's dense urban industrial area, or the factory shell buildings of Singapore's Jurong industrial zone." (222)

Labor adjustment is enhanced by the "trainability" of Chinese workers, and fluid labor markets.

These enterprises perform a valuable service for their host markets by providing a dynamic pool of small and medium-sized businesses that are constantly entering or leaving the market, based on opportunistic behaviour. Myriad strategic changes by single companies make the economy as a whole dynamic.

Problems with this adaptiveness are evident. Reliance on one individual suffers from personal mistakes, and the danger to the firm of opportunistic behavior that knows no bounds. "Nor can the role of luck and fatalism be ignored, as chief executives are still found who believe in portents to guide their fortunes." (224) Ultimately the firm may abandon its 'core competence' and lose sight of its original strengths and business purposes. A more subtle weakness is that such reliance on particular individuals also denies alternatives and stifles debate, sacrificing "creative tension".

Other problems suggest a lack of adaptiveness, i.e., inherent conservatism.

The authoritarian leadership and patrimonial climate in the organization may make it less adaptive to modern (generally Western) management systems. Hofstede pointed out, for example, that 'management by objectives' requires more individualism in the organization.

Finally, lack of an institutionalized succession mechanism can undermine the long-term viability of the family enterprise. If inheritance is equally divided among sons (and more recently, daughters), each new generation may fragment the organization and subject it to unending power struggles. A Chinese saying is that "no family can stay rich for more than three generations."

GUANXI AND NETWORKS IN OVERSEAS CHINESE BUSINESS⁶

Understanding of the key Chinese concept of guanxi (personal relationship) is essential to comprehending the nature of social structure in Chinese communities. It can be translated as friendship with implications of a continual exchange of favors. Reinforcing guanxi is the extreme sensitivity in Chinese society to two other social phenomena, mianzi (face --one's dignity, self-respect, prestige) and renqing (human obligation). Chinese brought up in Chinese society are subtly inculcated with these concepts, consciously and unconsciously. Thus, despite modernization in such cosmopolitan Overseas Chinese enclaves as Taipei and Singapore, these behavioral values still significantly shape and influence daily activities, including the conduct of business.

The Chinese distinguish between those with whom they have some relationship, or connection, and strangers with whom there is no legitimizing bond. Relationships become more important than mere friendship in the Western context because Chinese maintain a different set of manners and expectations towards those people with whom they have a guanxi commitment.

Confucian social order is founded on human relationships rather than individualism. There is no concept of the individual as an isolated, separate entity, rather Confucian harmony is achieved in the context of interaction between individuals. This fact is forcefully illustrated by the Chinese character ren (benevolence and humaneness). The ideogram means two men, and ren in Confucian philosophy is "the highest attainment of moral cultivation" (King 65). While Western intellectual tradition focuses on the human psyche and individual complexes and anxieties, Confucian tradition focuses on external behavior of individuals, in terms of acceptable norms.

Thus, in the Confucian order, man is a relational being, rather than individualist or a society-based being. This is not to say a Chinese individual does not enjoy personal freedom. The Confucian individual chi (self) is a voluntary, unique entity, at the centre of his various relations. Individual face is largely bound up in the sophisticated architecture of a person's relationships. Nor can we deny the common view that Chinese are group-oriented (like the Japanese), or more specifically, family-oriented people; but this typical view grasps only part of the whole complexity. The Japanese family system differs from the Chinese family system because family ethics in Japan are based on the collective household, not on the relationships (parent-child, brother-brother, etc).

A relational being concentrates on two problems: the kind of relations to be established between individuals, but also the kind of differentiation. Social order and stability depend on differentiation in social hierarchical order, not equality and homogeneity.

Relations are of two kinds. They can be predetermined (e.g., the closest family relations, such as father-son), or constructed (e.g., friend-friend). For the former, relationship rules of differentiation are more or less universally prescribed and dictate fixed status and responsibility; but constructed relations are voluntary.

Constructed relations between individuals and the group or larger society are relatively elastic. Even family relations can extend their boundaries, from the immediate family to stretch to an entire clan, or to any person one wants to include. This gives the individual flexibility in constructing his guanxi. The basic Chinese social group is jia (family), extending to dajia (big family --including non-family members), to guojia (country family). By extending the notion of family, the individual builds relationships more effectively. Indeed, Chinese often address each other as "brother" or "sister". The Chinese family becomes a system of contacts, rather than an emotional unit as in the West.

Relationship or network building is a preoccupation of the Chinese individual. The more attributes a Chinese individual can find in common with the larger society, the more relationships can be constructed. Commonly shared attributes include kinship, native place, surname, classmate, teacher-student, coworker, dialect, etc as a basis for group identification. (See Appendix C for an illustration of an effective Overseas Chinese network --the Hakkas.)

For an individual to initiate new relationships, or engineer a network, intermediaries may be employed. La (pulling) guanxi is a common strategy for engineering one's networks. Thus, constructing relations can be exploitative, in the sense of making more of a contact than might be naturally expected. Getting things done by tsouhowmen (walking through the back door) refers to common practice in Communist China whereby a contact is used to obtain favors or special treatment by manipulating human relations to one's advantage. Rather than following prescribed bureaucratic channels (notoriously slow and uncertain in China), most Chinese consider it imperative to try some contact to obtain advantage over others in the same predicament.

China launched a series of campaigns in the early years of the Communist revolution to promote a sense of socialist spirit and class consciousness --"comradeship"-- to displace the more traditional forms of loyalty such as kinship or other individual ties. China attempted to reorient their citizens' attitudes toward the various Party organizations such as their commune. During the Cultural Revolution the ideological rhetoric and social persuasion and control was most extensive. The result was that "social order and public civility were seriously eroded. Distrust existed in all relationships, and a pervasive amorality and cynicism prevailed." (King 72) In modern Communist China the state has stepped back from its very personal role in value formation and relies on market forces. With low institutionalization of law and administrative regulation, China in the post-1978 reform era is witnessing a resurgence of the role of guanxi --with markets not yet fully developed, entrepreneurs might overcome bureaucratic obstacles to business, or obtain a special advantage in a new market niche, through guanxi. As market reforms are extended in China, a new term has come into use --guanxihu (specially connected individual or social organization) referring to connections that allow an individual preferential treatment to skirt market rationality.

Network building is used by Chinese as a cultural strategy in mobilizing social resources for goal attainment in various spheres of life. To a significant degree this cultural dynamic is a source of vitality in Chinese society. "Face" provides the social currency for everyday transactions in building one's relationships --if a person lacks face he lacks resources to use in cultivating and developing networks.

There is an ongoing process of relationship management, establishing and maintaining an individual's network through various means. In this, renqing (human obligation) and shu (reciprocity) play an important role. These two concepts are essentially one. Max Weber took reciprocity as the foundation of Confucian social ethics, but human obligation is the moral medium for guanxi. The renqing concept implies also human feelings, covering sentiments as well as social expressions or acts. It is reciprocity with a "sentimental touch" (Chen p55). Behavior norms in turn fundamentally reflect appropriate rules of equity and propriety that govern Chinese interpersonal relationships. If one neglects "gracious reciprocity" (Chen p55), that person loses face and sacrifices the morality of the relationship. One's guanxiwang (connection network) is endangered.

Renzing and guanxi are almost interchangeable concepts --guanxiwang and renqingwang are developed simultaneously. Also, renzing and mianzi represent a kind of social capital for constructing guanxi.

It is in this sense of social capital that guanxi enters the economic sphere of the Chinese business world. Chinese family businesses tend to be small and entrepreneurial, dependent to an unusually large extent on business opportunities, credit, etc provided through guanxi. To operate successfully, Chinese businessmen stress loyalty, trust, and so on --all social values that are the mainstays of the web of networks within which Chinese family businesses compete internationally.

Economic guanxi can be differentiated from social guanxi. Economic exchange is dictated by impersonal market rationality, limiting the extent of human feelings or human obligation (renzing). Whereas social guanxi is ruled by the principle of reciprocity (shu), economic reciprocity may be less binding. Economic exchange is circumscribed outside the social relationship by various deliberate means, a strategy to allow business obligations to be settled by rules of the market and insulate it from social guanxi. Thus, the folk saying goes, "Among good brothers, neat accounts are a must". A commonly heard refrain in Hong Kong is: "Money is money, guanxi is guanxi."

To engage in renzing or to establish guanxi usually incurs heavy social investment. Once established, the individual sacrifices some autonomy because of the obligation of reciprocal behavior expected. Therefore, many Chinese are careful to maintain a certain social distance, to be amiable and friendly but not intimate, so as not to raise expectations of every relationship too much. Similarly, not allowing oneself to be a debtor in a relationship is a way of keeping from being too entangled in the web of reciprocity and maintaining one's autonomy and freedom of choice for other relationships.

Many Chinese tend to condemn manipulation of guanxi and attribute such a tendency to cultural roots. Where the practice of guanxi is in conflict with more universalistic principles, most Chinese believe that there should be equity, and universal rules should ultimately take precedence over particularist behaviors to favor one's network. Professor King, a Pro-Vice-Chancellor of the Chinese University of Hong Kong, concludes: "I am inclined to think that Chinese in Communist China, like their compatriots in Taiwan and Hong Kong, have felt need for universalistic rationality in the emerging market and civil society." (King 79) Thus, Chinese societies will have to make guanxi accommodate the increasing pressure of market rationality.

EVOLUTION OF THE BAMBOO NETWORK

"The idea of loose entrepreneurial networks based around 'trust' makes western management theorists go weak at the knees --often to the amusement of the networkers themselves. 'I can’t think of an organization where in-fighting is more rife,' says one well-connected Chinese businesswoman. In truth, most groups are centralized dictatorships in which the head of the family makes nearly all the decisions." ⁷ (12) This arbitrary style was one of the best comparative advantages of Asian family firms: a founding entrepreneur who combined traits of nimble risk-taking with the nerve and gut feelings to seize good opportunities. 

Because many of the older generation of overseas Chinese grew up in hostile environments where abuse by indigenous majorities put them at a disadvantage, a central objective of Chinese entrepreneurs was to build a secure future for their children. Protecting families was the whole point of doing business. This meant amassing wealth, spreading it across countries and industries to reduce risk, and concealing it all in a web of secrecy. 'Core competence' was not confined to one business focus, rather it was based on opportunism and flexibility, avoiding reliance on any core product or single operating venue. 

The organizational structure adopted was "'pyramids': extraordinarily complex and opaque structures of private holding companies, layers upon layers of subsidiaries, as well as cross-holdings and informal links with yet more companies. Almost always, the pyramids included at least one bank with a license to take deposits, and several publicly listed subsidiaries that could issue shares in the open market. The purpose of these pyramids was to draw outside capital into the family group while retaining control over the use of this capital within the family. South-East Asia's corporate conglomerates, in other words, aimed to 'internalize' the capital markets that discipline companies in the West." ⁸

Today there is an evolution toward more professional management practices to achieve sustainable business development (discussed in the final chapter), but for now traditional management culture, particularly guanxi (connections) remains a very important ingredient to overseas Chinese business success. This helped in businesses such as property, where one handshake can clinch a deal. Most original fortunes made by the overseas Chinese in Asia were in property, which had been a sure bet until 1998. But the old style also allows firms to change direction quickly, and overseas Chinese are moving into sunrise industries. 

However, this formula has not had much demonstrated success outside of Asia, unlike the international business of the Japanese and Koreans. It is professionalism, not cronyism, which counts in America and Europe. And it is innovation which will count now that Asia can no longer compete just by applying cheap labor to borrowed technology. Guanxi does not have any clear application in consumer markets, where the need is for good products or services.

Of all the different types of relationship-building that are so important in Asia, political connections have been among the most useful. Partly for this reason perhaps, this formula has transferred easily to China. Thailand's Chinese conglomerate Charoen Pokphand first entered mainland China in 1979 and by 1999 was China's largest single foreign investor. It owns agribusiness companies, ranging all the way from farms to chicken fast-food shops, and has spread into other businesses such as beer, property, motorcycles, and telecommunications. "Charoen has been a keen employer of former politicians," observed The Economist. (1996, 12)

"In fact connections, particularly corrupt ones, will count against you soon --even in China." (15) China's membership in the World Trade Organization (WTO) compels reform, and overseas Chinese returning to their homeland to do business may find the authorities more watchful over traditional guanxi practices. 

In the past high-growth era, family practices allowed the flexibility and opportunism to exploit whatever opportunity came along, and such a formula may still be appropriate in such rapidly developing countries as China and Vietnam. "After all, in a country like Thailand, where nobody has any telecoms experience, why should a chicken-food company such as Charoen Pokphand not grab a license?" (21) However, family firms in more mature markets may have to consider specialization. Companies that want to be internationally competitive will have to focus on a few core businesses. A ‘core competence’ of opportunism is not enough if more competent multinationals are competing for the same opportunity.

Finally, the question of succession remains the ‘Achilles heel" of the family firm. "At present, with ownership and management in the same hands, all Chinese companies wobble when command passes from one generation to another." (21) For example, in 1992 the Chinese Soeryadjaya family lost control of Astra, then Indonesia’s second-biggest firm, because of enormous losses at Bank Summa, which had been run by one of the sons. Korean chaebols are similarly afflicted: Hyundai, in the midst of attempted restructuring after the 1997-98 economic crisis, allowed itself to become embroiled in a succession battle between two sons of the founding father. The key may be to separate ownership from management, as has been the practice of family firms elsewhere in the world such as Ford, Mars, and Sainsbury. Then the competence of the next generation is less important. 

Overseas Chinese are famously adaptive to their environment and an indicator of their keen respect for forces of globalization is the inclination to send their children to the West to acquire not only a western business education but also western behavioral norms, including independence. The norm is increasingly a business owned and managed by Asians educated or even born in the West.

Sophisticated education may only contribute to deal-making if the number-one son prefers to work right away at the top level rather than building up the finance and marketing groundwork. Favoritism to family members for top management positions will increasingly be regarded with skepticism by outsiders. Other professional managers would rather work for a western or Japanese firm if the overseas Chinese firm excludes them from the inner circle of family strategy-makers. Outside investors will not be forthcoming either if there is not more transparency, to apprehend such insider practices as shuffling assets between private and public companies.

Only products and services that are internationally competitive will survive as the family firms try to maintain their growth. "Without them, they will never expand outside Asia. At home, they will probably be whittled down by western companies and by younger versions of themselves. Some of the bigger family companies will achieve this transformation; many will pull themselves apart in family squabbles; a few may end up as wealthy property magnates without significant industrial interests." (22) 

"The real strength of Chinese capitalism, wherever it is based, lies in its networks of fast-moving small companies and their capacity to cope with uncertainty." (22) Thus, the dynamism of small and medium-sized companies will remain a source of success.

APPENDIX A: OPERATIONAL ENVIRONMENT OF OVERSEAS CHINESE IN SOUTHEAST ASIA

Excluding Hong Kong and Taiwan, Southeast Asia accounts for about 90% of the Overseas Chinese population. Singapore is over 3/4 Chinese, Malaysia's is about 1/3 Chinese, Thailand 12%, Indonesia 4%, and Philippines 2%. With less than 4% of the population in Indonesia, Chinese account for more than 90% of the wealth by one estimate⁹ and own all of the top ten companies. Equally impressive statistics can be cited for Chinese in the other countries. (See Figures11.1 and 11.2.) The following is a brief discussion of the operational environment for Overseas Chinese in various Southeast Asian countries.¹⁰

Indonesia:

Indonesian Chinese initially were brought in as laborers by the Dutch East India Company during the colonial era. Chinese began to establish wholesaling and retailing networks, commonly acting as intermediaries between the colonial monopoly of foreign trade and the indigenous-dominated primary sectors. "As a vulnerable minority, the Chinese attached great importance to an accommodation with the ruling class that put various limitations on their political powers and yet allowed them to make money in the economic sector." (74) Successive Indonesian governments adopted discriminatory policies. The Sukarno government sought to reverse the flow of Chinese immigrants, and in the early 1960s more than 100,000 Chinese were repatriated to China. In the wake of a failed coup in 1965, hundreds of thousands of Chinese were killed. Resentment against Chinese fueled riots that brought down the Suharto government in 1998; and the raping, killing and looting of Chinese resulted in 150,000 Chinese leaving the country and taking with them unknown billions of their wealth (estimated at as much as $100 billion, although much of that returned in subsequent years).

To reduce their exposure to such discrimination, Chinese capital has operated alongside state-owned enterprises, military-related businesses, and indigenous commodity producers. To illustrate, the National Logistics Board (BULOG), which controls trade by state monopolies, has allowed preferential trading or manufacturing rights for some Chinese companies with connections in the Army Strategic Reserve Command. The same companies "play the role of financiers to the military in return for political protection, licenses, and credit monopolies." (75) In this way, Chinese conglomerates have staked their business on military and political patronage --clustering around the very centers of power which promulgate official policies of discrimination.

Indonesia has been the slowest economy to recover from the crisis in 1998 largely because the ethnic Chinese business culture was uprooted. The impact on the economy was cited by Business Week (October 9, 2000):

-- Many professionals, managers, and entrepreneurs fled the country, taking billions of dollars with them.

-- Chinese-run conglomerates were in debt, but the owners are not around to negotiate workouts.

-- Continuing violence has kept new foreign investors away.

-- The rural credit system, in which ethnic Chinese traders made loans to indigenous farmers against future harvests, has broken down.

Malaysia:

Chinese similarly performed an intermediary function in British Malaya. With the departure of the British, the Malays have taken over government, the Indians dominate the legal professions and unions, and Chinese control much of the economy.

Ethnic tensions led to bloody riots in 1969 where about 800 people were killed. Largely as a response to the underlying causes of social conflict, the New Economic Policy (NEP) was enacted in 1971 to redress inequality in the distribution of wealth. At that time, 62% of the economy was owned by foreign-based companies, 34% by Malaysian Chinese and Indians, and only 4% held by indigenous Malays (bumiputras). Redistribution was pursued by controlling ownership and permits for new business, employment and education quotas, and government acquisitions of foreign businesses. Some of the NEP's restrictions were reduced in 1997 as Malaysia sought to deal with the effects of the financial crisis, and Prime Minister Mahathir rescinded other remnants of the policy as one of his last gestures before his retirement in 2003.

By the 1990s bumiputra ownership was over 20%, but their relative increase seemed to only represent silent ownership, and since 1999 the policy was being increasingly questioned. Chinese/Indian ownership had expanded considerably also (with foreign ownership displaced by local groups). In fact, much bumiputra ownership was by 'front men' who only put their name on the share register for hidden Chinese capitalists.

Concerning acquisitions of foreign businesses by local groups, "the Malaysian government carried out a radical strategy of taking the leap to managerial capitalism without having to go through entrepreneurial capitalism." (104) The government set up a National Equity Corporation (Permodalan Nasional Berhad --PNB) which acquired shares in formerly colonial firms, such as plantation giants Sime Darby, Guthrie Corporation, and Harrison and Crosfields. These shares were transferred to a mutual fund established and managed by PNB for bumiputra investors. Investors paid only 10% of the price of mutual fund shares in return for a guarantee that within nine years dividends would settle the balance due. Thus, it seemed that Malay entrepreneurial activities had not progressed.

Although demonstrations were held by the Malay community in August and December 2000 against a newly-formed Chinese political organization, there has been no significant violence between the Chinese and the Malays since the 1969 riots. Relations between the communities have remained relatively harmonious compared to the situation in neighboring Indonesia.

Philippines:

The Spanish colonialists used immigrant Chinese much the same as the British and Dutch did. Similarly, after independence the Overseas Chinese made commercial inroads into government and military power bases. Unlike the Muslim societies of Indonesia and Malaysia, Philippine Roman Catholic society was much more accommodating to Chinese, and many have intermarried. Even so, the government passed numerous laws to protect Filipinos from Chinese competition and inhibit Chinese immigration. In 1582 the Spanish confined Chinese traders to a walled area, where they suffered from persecution and massacres. Legislation in the 1950s and 60s barred them from certain businesses including retail trade in rice and corn. In 1973 Chinese schools were given four years to close. However, since then the Philippines has been more hospitable. (After all, 10% of Filipinos have some Chinese blood. The national hero Jose Rizal, the president of the 1899 Philippine republic, and the first woman president Corazon Aquino, all were part-Chinese.)

Thailand:

Thailand's Buddhist tolerance, and not objecting to eating or drinking habits of Chinese, has resulted in a much greater degree of harmony with immigrants. Since the 1950s the Chinese have been equal members of Thai society. Also, Thais and Chinese are racially similar, and have intermarried freely. Thus, it is less easy to even assess how many Chinese have settled in Thailand. Still, as elsewhere in Southeast Asia, Sino-Thais dominate local business. Around 90% of all investment in commercial and manufacturing sectors, and more than 50% in banking and finance, are owned by Sino-Thais.

REFERENCES

1. Chen Min (1995) Asian Management Systems: Chinese, Japanese and Korean Styles of Business, London and New York: Routledge

2. The Economist (March 9th 1996 and April 7th 2001) "Survey of Business in Asia"

3. King Yeo-chi, Ambrose (Spring 1991) "Kuan-hsi and Network Building: A Sociological Interpretation" in Daedalus Special Issue: The Living Tree: The Changing Meaning of Being Chinese Today, Vol 120 No 2, 63-84

4. Redding, S Gordon  (1990) The Spirit of Chinese Capitalism, New York: Walter de Gruyter