China Economic Bulletin | No. 17 (25 February 2018)
Beyond the Headlines: The Impact on German Firms from Chinese Acquisitions – Part 4 of 5
Cultural Insights from Both Sides
Culture is a fascinating topic – it is filled with relationships, emotions, and stories. I can still remember when I just entered University of St. Gallen as a Master’s student, Professor Ruigrok of International Management described cultural difference with a game. The class of around 50 students was divided into several groups. Each group received a code for behavior and my group happened to be the one who says “no” to agree and “yes” to disagree. As you may imagine, our negotiation with another group who says “yes” for yes turned out to be a frustrating discussion. However, when we got access to the behavior codes of other groups after the game, we found each other’s behaviors not anymore irritating.
Up till now, I still believe this simple game sharply revealed the core of culture and cultural difference. Culture is externalized by rules of behavior and the key to tackle cultural difference is to understand the rules of all sides. In this article, I will review and analyze learnings regarding German-Chinese cultural differences from managers who work on the interface of these two cultures.¹
Trust: the basis
We start from trust because it is vital under all conditions. There are two elements of trust.
The first element is nearly a synonym of trust: do as you said, consistently. In one Chinese acquisition in Germany, the cooperation between the acquiring and acquired business is outstandingly constructive and long-term oriented. I was impressed by the mutual trust within this deal and asked the German manager where does it come from. His answer was simple and convincing. He said, since their first contact with the buyer, no matter whom from the buyer they deal with, no matter what the buyer promise, the buyer always delivers.
However, cultural differences make “do as you said” challenging, not because that people want to cheat, but because the same word has different connotations for each side. For instance, the “yes” problem I experienced in the business school class do exist in reality. After several years’ experience with Chinese business partners, a German manager summarized the difference regarding what “yes” mean during a meeting. According to him, when a German says yes, she means that she has the decision power and agrees. By contrast, when a Chinese says yes, she actually means that she will ask her boss for approval. Similarly, one manager mentioned his interesting side-job when working for a German company in Japan. Since he had been in Japan for a while, he was invited to meetings of other departments just to tell the Germans which “yes” from the Japanese colleagues means yes, and which “yes” means no.
One can hardly find a concept simpler than yes/no, but cultural differences can still turn such a plain concept complicated. I do not mean to discourage the readers. On the contrary, I think this straightforward example can be insightful for solutions. First of all, both sides need to accept it is a fact that one word has different connotations in different cultures, just as the fact that one document is shorter when it is in Chinese than when it is in German. Leaving out judgement helps us to focus on solutions instead of emotions. Then, one should try to communicate and bridge the gap by setting up shared rules, making frequent confirmations, and giving honest feedbacks.
The second element of trust is logic. When one partner has many unanswered “how” and “why” questions to the other, it is hard to build trust, because if one cannot understand the logic of her partner, she can hardly predict what will happen and will develop the feeling of insecurity. Cultural differences step in here firstly because more Chinese than German companies’ decision-making process lacks transparency. What makes the situation more complicated is that German employees tend to ask more “why” and “how” questions than Chinese. As a result, it is more likely that on the interface between German and Chinese business cooperation, the German side asks for an explanation but the Chinese side cannot offer the answer. This problem even exists when the decision is favorable for the German side. For example, one manager mentioned that German employees questioned the Chinese side’s decision to give the combined business one additional holiday because the German colleagues do not understand why. Lastly, cross-industry cooperation is not unusual between China and Germany. In such cooperation, mutual understanding is even more challenging because different industries may function under distinct rationales and logics.
Therefore, it is crucial that both partners understand the importance of transparency and try to figure out measures to facilitate communication. This does not necessarily require fundamental changes of either side in terms of organizational structure. For instance, after acquiring one German business, a Chinese acquirer built an investment branch mainly consist of Chinese employees with German education or work experience to communicate with the German target company. This investment branch acts as a “cultural translator” for both sides and alleviates potential cultural clash. Nevertheless, the disadvantage of this solution is increased communication cost.
The speed-comprehensiveness dilemma
For many German managers, working in China with Chinese is rewarding because it is easy to see improvement and execution. As one manager mentioned, “if you propose something in Germany, people will give you 100 reasons why it cannot work, but in China, it is executed quickly.” By contrast, the majority of them also mentioned that Chinese colleagues are sometimes too spontaneous and weak in solving a problem comprehensively. From the Chinese point of view, they deeply value the German pursuit for accuracy but find their German colleagues not flexible enough. Interestingly, all these features are different sides of one coin, or maybe one cubic.
We start from the German extreme. Ture, they present 100 or even more reasons why something new cannot work. However, after confirming that all these potential issues are solved, it is predictable that the proposal will work. Similarly, sometimes the German partners are reluctant to change but the reason behind is that they understand that one minor change may impact the entire system and the system is not yet ready for such a change. By contrast, from the Chinese extreme, execution is at the cost of comprehensiveness. I do not mean that the comprehensive approach is the better one. In Chinese market, speed and comprehensiveness is a dilemma which require both German and Chinese managers’ attention and understanding. From the business ecosystem perspective, elements in this system change so fast that too much planning is unnecessary. Additionally, Chinese clients’ expectation regarding speed is way higher than their western counterparts.
Interestingly, most interviewed managers handle the speed-comprehensiveness-flexibility topic separately, especially when talking about intercultural cooperation. In fact, even though there is no one-size-fits-all solution for this dilemma from business perspective, the cooperation gap it left can be alleviated. The solution has been mentioned- by fully communicating and understanding “why”.
Both German managers in China and Chinese managers in Germany realize the different leadership styles and employees’ leadership requirements between these two countries. Comparing to German employees, Chinese appreciate guidance and are relatively reluctant to make decisions. In comparison, German employees would like to find out their own way of solving problems, are less dependent on leaders, and as briefly mentioned before, like to ask how and why questions. Therefore, the cultural differences require managers to adjust their leadership style according to the background of their team members.
A German manager in China said the biggest change he made in leadership style was that he increased communication time with his team, because Chinese employees prefer more instructions from the leader. Relatedly, some other German managers dedicated more time in training the Chinese team to be more independent and active in decision making. By contrast, one successful Chinese manager who overseas an acquired German business summarized his key success factor in leadership as motivating the local managers with performance targets. The Chinese mother company’s team is more involved in target setting while the local German team is in charge of leading the business towards the targets. For more internationally experienced organizations, mixing employees from different cultures and creating “sandwiches” in the organizational structure can speed up mutual understanding if carefully managed. Most managers interviewed agree that the more interaction they have with colleagues from the other country, the more they reflect on cultural differences, the better they accept and cooperate with their counterparts. Nevertheless, such contact effect only holds true when both sides are openminded. Shared business interest and trust are the most frequently cited factors that contribute to open-mindedness. At the same time, local managers’ efforts to cascade such shared view and to mitigate conflicts among the teams from both sides pay off well.
What can be attributed to culture?
“There are cultural differences. It is good to have some lessons and be prepared, but I think the most important aspect is respect- nothing different from what you were taught at home when you were a kid”, said one German manager who has worked in China for over a decade. I was deeply impressed by his view, which tries to demystify the concept of culture.
In fact, not all German-Chinese differences are cultural differences. It can be differences regarding headquarter and subsidiary. More frequently, it can be differences regarding market requirement or different tasks. For instance, one successful German company built its Chinese subsidiary not as a manufacturing site as it does in other countries, but as a miniature of the German headquarter. The reason is that Chinese customers are totally different from the Western customers, so they must be served from China instead of Germany. During my conversation with two top managers from this company, they did not emphasize culture when introducing their unique business strategy in China. Instead, they view it as normal as a respond to any market requirement. In another example, one manager in charge of intercultural cooperation mentioned some tensions between the Chinese and German engineers because the former is client facing and the latter is R&D oriented. As a result, the Chinese engineers require quick and simple answers from their German colleagues because the clients require such reply. On the other hand, the German engineers refuse to give short answers because the performance of technology depends on circumstances and they need to explain all possibilities.
Sincere cultural difference believers may stress that abovementioned situations can also be attributed to culture. It could be true. However, I prefer to avoid using the word “culture” thoughtlessly because in many situations, other attributions can inspire more solutions than culture do. Take the speed-comprehensiveness dilemma as the last example in this article. When someone believes that the Chinese are not good at taking care of things around and the Germans are inflexible, or positively the Chinese are fast and the Germans are accurate, it does not help much in a meeting when the Chinese manager insist one solution must be adjusted within two months but the German manager says at least ten months are needed. The reason why Chinese demand speed may be that the client says only in this way can she justify the purchase price with future revenue because her customers are switching to the next generation of technology. The reason why the German is slow because she knows that an adjustment in this solution may require an upgrade in many parts of the system. With these reasons at hand, the meeting will more likely to become a brainstorming session instead of a negotiation about time.
The author would like to thank the Investment Promotion Bureau of Taicang High-tech Industrial Development Zone for facilitating her field research in Taicang, Jiangsu Province.
- The analysis is based on in-depth interviews of 16 Chinese acquisitions in Germany or German investments in China.
Author: Sheryl Tang