As the second largest economy in the world and one of the BRIC countries, China has been a major inward FDI receiver and competing ground for MNEs. Entry mode strategy has become a critical factor to the success of MNEs in China. Common among different approaches is sensitivity to the cultural nuances of Chinese society and, in particular, to the norms of government actors at the Central, Provincial and Local government levels. The role of culture in inward FDI presents unique challenges and opportunities to MNC's in establishing a presence in one of the world's largest market. Entry strategies are discussed as well as the role that culture played in specific MNC's entries. The recent anti-corruption campaign in China has brought much attention from the outside world. Its impact on MNEs business model in China was discussed in this study. Implications for HR practitioners and managers are reviewed as well.
TopBackground
Where and how to choose the location of Foreign Direct Investments (FDI) are critical decisions for MNEs (Hill, 2014). Factors including economic, technological, regulatory and cultural environment are all essential to such decisions. Due to the huge market potential and capability of being the world manufacturer, China has been one of the hotspots attracting inward FDI for decades. GM’s success in China is one of the fascinating stories of the gold miners in this market. While suffering from the shrinking market in the US which was heavily hit by the financial crisis in recent years, GM sold more cars in China than its domestic market since 2011, and the gap between the two markets is growing larger (Taylor, 2011).
Among various factors, Dunning regards national culture as a critical one affecting FDI inflows, MNEs’ strategy and activity (Dunning & Bansal, 1997; Hofstede, 1984). Specifically, culture plays an important role in the MNEs’ entry mode choice (Kogut & Singh, 1988). Taking the example of GM in China again, it is not a pure luck. Actually, GM failed with its first joint venture project producing trucks in China. Misunderstanding between the two business partners and different taste of the Chinese consumers which were caused by the cultural differences are recognized as the two major factors to the failure (Taylor, 2011). Culture has been defined as “the collective mental programming of the human mind which distinguishes one group of people from another.” Although culture basically resides in people’s mind, it becomes tangible in the situations and products of a society (Hofstede, 1984). Hill (2005) suggests that culture is a system of values and norms that are shared by a group of people and that when taken together constitute a design for living (p. 91). Culture is not static, it is progressive and evolutionary. Cultural evolution is accompanies by technological progress in human society, and interactions of different social groups (White, 1943).
Overall, the literature suggests that that Culture affects the firm’s international business operations from selection of host country, to mode of entry, to its relations with government officials, to is operations in-country including the management of its workforce (Brewer & Sherriff, 2007).
Purpose of the Study
Building on prior research, this paper are as follows:
- 1.
Discuss the role of Culture in inward Chinese FDI,
- 2.
Highlight some challenges for western MNCs in operating in the PRC,
- 3.
The anti-corruption campaign’s impact on business practices in China.
Delimitations
Research on Culture is largely an American or European line of literature and as such, its relevance to business in countries that have not experienced the cultural distance of the US and EU (particularly northern EU) countries and the PRC is open to question (Brewer & Sherriff, 2007). This research will focus on inward FDI and culture’s impact on entry modes and business strategies in the PRC.