Focus on China: operating responsibly in emerging markets

Courage and leadership are required if western businesses are to uphold ethical standards when operating in China, says Judith Irwin
Students in Wuhan, China
Chinese society is heavily influenced by the traditional values associated with Confucianism, which determines how a person should act within a community or business. Photograph: Stringer Shanghai/Reuters

Almost every multinational company wants a piece of China. Now viewed as "the market of all markets", it offers a potential source of growth as markets in the developed world become saturated and stagnant.

Operating responsibly in any emerging market can be tough. What is understood as ethical and responsible business behaviour in China can differ from what is considered acceptable practice in a western context. Companies need to find a way to be culturally sensitive, yet not compromise their core values.

Chinese society is heavily influenced by the traditional values associated with Confucianism, which promotes a strict system of norms and propriety. This determines how a person should act within a community (or indeed within a business) with hierarchy a central theme. The concepts of guanxi (a deeply embedded system of relationships, personal connections, contacts and networks) and mianzi (the concept of 'face', broadly defined as pride or self-respect and its corollary – the preservation of the self-respect of others) are central to Chinese society and heavily influence business life.

The cultivation of guanxi can be thought of as a form of significant social capital and is not something casually acquired by exchanging business cards or having a single meal together. Rather, relationships are formed over time and are based on trust and reciprocity. It is common in China for an employee to take contacts with them when switching jobs as the guanxi is with the individual, not the company.

Trading competitive information among one's guanxi network may, in some cases, also be considered an acceptable practice. Convincing employees of the importance of maintaining confidentiality can be challenging.

Direct disagreement or confrontation with someone, such as a colleague or a person in a position of authority, may cause them to lose mianzi and is to be avoided. This, along with Confucian values of loyalty to one's group and respect for superiors in a hierarchy, as well as the association with negative historical events such as the Cultural Revolution, often means the willingness of the Chinese to speak up or whistleblow on colleagues is low.

As with many countries across the Asian continent, practices such as gift giving, token cash gifts ('red envelopes') at special occasions (for example during the Spring Festival or the birth of a child), and invitations to family events are still prevalent in today's business environment and serve the important function of 'giving face' or honouring a potential business partner.

Companies with strict policies on gifts and hospitality may find it difficult to uphold these and may need to take account of acceptable local practices where they do not actually challenge any of their core business principles. Where a company has operations in the UK, it should bear in mind that it is subject to the requirements set out in the UK Bribery Act (2010) which has extraterritorial reach.

Transparency International has ranked China as the 75th most corrupt country in the world (out of 185) in their 2011 Corruption Perception Index and further research found that the Chinese public view business as the most corrupt institution, closely followed by political bodies and public officials.

Upholding anti-bribery policies are particularly challenging when trying to compete on a level playing field against Chinese state-owned enterprises (SOEs), or companies in which the state has a stake. There is often a lack of separation of public officials from management in SOEs, a lack of transparency when entering joint ventures with Chinese companies, and requirement to use agents. Facilitation payments, also known as kickbacks or backhanders are a common form of bribery.

Pressures on companies operating in the Chinese market to behave responsibly are coming from various stakeholders in the country, not just from the company's home market. Civil society organisations have grown dramatically (there are now more than 425,000) and many have been instrumental in drawing attention to the behaviour of business in China.

The Chinese government has high expectations of all businesses operating in China to ensure that their ethics and CSR programmes complement their long-term strategy for social improvement as outlined in the Chinese government's successive five year plans.

Upholding the ethical standards expected in a company's home market when doing business in a country with such differing cultural mores requires courage and leadership. It can mean going against the grain and sometimes turning away business where the risk outweighs the benefits.

Judith Irwin is a senior researcher at the Institute of Business Ethics. Doing business in china: an overview of ethical aspects is available as a free download
