THE CHINESE TAO OF BUSINESS:

THE LOGIC OF

SUCCESSFUL BUSINESS

STRATEGY

THE CHINESE TAO OF BUSINESS:

THE LOGIC OF

SUCCESSFUL BUSINESS

STRATEGY

George T. Haley Usha C. V. Haley Chin Tiong Tan

John Wiley & Sons (Asia) Pte Ltd

Copyright © 2004 by John Wiley & Sons (Asia) Pte Ltd

Published in 2004 by John Wiley & Sons (Asia) Pte Ltd 2 Clementi Loop #02-01, Singapore 129809

All rights reserved.

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This publication is designed to provide general information in regard to the sub­ject matter and it is sold with the understanding that neither the Publisher, Edi­tor or Author are engaged in providing legal, accounting or other professional advice or services and do not in any way warranty the accuracy or appropriate­ness of any of the formulae or instructions discussed in the Publication nor pro­vide any warranty that use of any of the same may not cause injury, illness or damage to the user. Readers should seek appropriate advice from suitable quali­fied professionals or obtain independent advice or verification of the relevance and appropriateness of the use of any formula or instructions prior to use of these in relation to any of their activities .

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Typeset in 10.5 points, Palatino by Paul Lim. Printed in Singapore by Saik Wah Press Pte Ltd. 10 9 8 7 6 5 4

We dedicate this book to those

who instructed us in the "Way":

Helen Basila Haley, James B. Haley

and Sarah Basila;

Nandini Venkatesan and Dr. C. Venkatesan;

Indira Bellare and Vasudevrao Bellare;

Khoo Loo Eng and Tan Thye Bee

'+-o CD D o +- on t nts

ACKNOWLEDGMENTS IX

ABOUT THE AUTHORS

PART 1 I THE CIVILIZATION CHASM

Chapter 1: Understanding the civilization chasm

XI

1

3

PART 2 I THE ANCESTRY OF CHINESE STRATEGY 27

Chapter 2: Economic and ethical roots of Chinese strategy 29

Chapter 3: The historical roots of Chinese strategy 49

Chapter 4: The legal roots of Chinese strategy 69

Chapter 5: The roots of the networks 89

PART 3 I EASTERN VS. WESTERN STRATEGIC PLANNING 121

Chapter 6: The components of Chinese strategy 123

Chapter 7: Evaluating Chinese strategy 167

Chapter 8: Strategically evaluating Western strategy 209

PART 4 I TRAVELLING TOWARDS STRATEGIC CONVERGENCE 243

Chapter 9: A unified model of strategic planning 245

Chapter 10: The Silk Road of strategic planning 265

ApPENDIX A List of interviewees

ApPENDIX B Bibliography

301

305

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GEORGE T. HALEY, USHA C. V. HALEY, AND CHIN TIONG TAN USA Be SINGAPORE JULY 2004

A book of this nature requires the support and co-operation of sev­eral people. In particular, an international group of senior manag­ers gave us considerable time and valuable insights; to these man­agers (listed in Appendix A), we extend our sincere thanks .

We owe an enormous debt, too, to the businesspeople, col­leagues and students with whom we have discussed and refined the ideas in this book. We thank them all, particularly Csaaba Soos (formerly of Artesyn Technologies) Frank-Jiirgen Richter (Director for Asia, World Economic Forum), and Indra Nooyi (President and Chief Financial Officer, Pepsico ) . Winnie Hu and Austin C. T. Hu (Deputy Chief of Mission, The World Bank Office, Beij ing) pro­vided enormous assistance for our interviews in Beij ing.

We a l s o o w e s i n c e r e t h a n k s to N i c k Wa l l w o r k , M a l a r Manoharan and David Sharp o f John Wiley & Sons Publishing. Without their faith, patient support, encouragement and occasional nagging, we would never have completed this project.

This project was funded by a grant from the Scholarly Research Grant Program of the University of Tennessee, Knoxville, and we thank Oscar Fowler and David Schumann for providing this sup­port.

Tan Poh Lin, at the Singapore Management University, provided efficient help by transcribing interviews with managers.

This book went through several iterations and required co-op­eration of numerous people across myriad time zones - in Hong Kong, China, Singapore and the USA. We owe a deep debt to our families, and heartfelt thanks to our friends and colleagues, as well as George and Usha's cats, Comet Baby and Marmalade, for eas­ing strain, making life enj oyable, and for their support and pa­tience when deadlines loomed and tempers frayed .

Finally, we o w e a n intellectual and emotional debt t o our par­ents and grandparents for showing us the Way, the foundation for a meaningful life; to our ancestors, we dedicate this book.

Q) 1:: +-+-

�authors GEORGE T. HALEY George T. Haley, Ph.D. (University of Texas at Austin), is Director of the Center for International Industry Competitiveness and Professor of Industrial Marketing and International Business at the University of New Haven where he teaches in the graduate and executive programs. He has taught on the faculties of other top universities, including the Instituto Temologico y de Estudios Superiores de Monterrey (Monterrey, Mexico), the National University of Singapore (Singapore), the Queensland University of Technology (Brisbane, Australia), Thammasat University (Bangkok, Thailand) and Harvard University (Cambridge, USA) . He has also presented seminars to academics, businesspersons and government policy makers in Vietnam, Thailand, India, Singapore, Mexico, Australia and New Zealand.

A frequent public speaker for corporate executives and government policy makers worldwide, and an award-winning author, George has over 100 books, book chapters, articles and research reports. He also wrote New Asian Emperors: The Overseas Chinese, their Strategies and

Competitive Advantages, the top-selling book on Asian business strategies worldwide in 1999, also referred to as "an important study" by the Economist.

An expert on emerging and industrial markets, including the historical, cultural and legal environments in which Chinese business strategy is formulated, George consults with several multinational companies and governments in Asia, Australia, Latin America and the USA. His expertise includes strategic forecasting and the management and auditing of technology and intellectual property in emerging markets.

He is on the Review and Advisory boards of several US and European journals including International Marketing Review, Industrial

Marketing Management, Journal of Business & Industrial Marketing,

Marketing Intelligence & Planning, and the Journal of Management

Development, where he lends his expertise on Asia and other emerging economies . Additionally, he has guest edited several journal special issues on business in emerging economies and on Internet-Based B2B Marketing.

G e o r g e ' s r e s e a r c h i s r e g u l a r l y p r o f i l e d i n t h e m e d i a including the Economist, the Fa r Eastern Economic Review, CNN,

Voice of America, the Wall Street Jou rnal , the Los Angeles Times,

F o r t u n e , C hin a B u sin e s s W e ek l y , Ma rketing N e w s a n d IndustryWeek. Some of this coverage, including research and r evi e w s f o r t h e C h in e s e Ta o of B u sin e s s is a v a i l a b l e a t www. ChineseTa o . c o m . P l e a s e c o n t a c t him at gthaley@a s i a ­p acific . com or tell fax : 212-208-2468 .

USHA c. V. HALEY Usha C . V. Haley (PhD, Stern School of Business, New York University) is Director o f the Glob a l Business C enter and a Professor of International Business in the School of Business at the University of New Haven. She has more than 100 b ooks, j ournal articles, book chapters and research presentations on international strategic management. Her latest books include New Asian Emperors: The Overseas Chinese, their Strategies and

Competitive Adva n tages ( B utterworth-Heinemann ) ; Strategic

Ma n ag e m e n t in t h e A sia P a cific: Ha r n e s sing R egio n a l a n d

Orga nizational Change for Competitive Adva ntage (Butterworth­Heinemann); Mu ltinational Corporations in Political Environments

Ethics, Values and Strategies (World Scientific); and, Asian Post-Crisis

Management: Corporate a n d Governmental Strategies for S u s tainable

Competitive Adva ntage (Macmillan / Palgrave) . S h e h a s t a u g h t I n t e r n a t i o n a l B u s i n e s s a n d S t r a t e g i c

M a n a g e m e n t a t m aj o r u n i v e r s i t i e s i n t h e U n i t e d S t a t e s ( including Harvard University) , Singapore ( a t the N a tional University of Singap ore ) , Australia (at the Australian National U n i v e r s i ty ) , and M e x i c o ( a t I T E S M , M o n t e r r e y C a m p u s ) . Additionally, she has taught in maj or corporate, governmental and universities ' executive-development programs, for top and m i d d l e m a n a g e r s and p ol i c y m a k e r s , in the United States, Australia, Russia, Mexico, Hungary, V ietnam, Italy, Finland, India and Singapore . She also consults on strategic management a n d f o r e i g n d i r e c t i n v e s t m e n t f o r s e v e r a l m u l t i n a t i o n a l corporations i n North America, Australia, Europe a n d Asia,

s i t s o n s i x j o u r n a l e d i t o r i a l b o a r d s , i n c l u d i n g Jo u r n a l of

I n tern a t i o n a l Ma n ageme n t , Jo u rn a l of Orga n iza t i o n a l Cha nge

Management, Ma nagement Decis ion, Asia Pacific B u s iness Review

and Jou rnal of B u s iness Strategy, and serves as Regional Editor (Asia Pacific ) for two academic j ournals .

An expert on the multinational corporation and international strategic management, especially in Asian and emerging markets, Usha's research on China and the Asia Pacific has been regularly covered in the media and business publications including the Wall

Street Jou rnal, Wall Street Journal (Europe), Forbes, the Economist,

Barron's, Red Herring, the San Francisco Chronicle, the Salt Lake City

Tribune, CNN, PB S's WideAngle, Voice of America, Asahi Shimbun, The

China Post, The Australian, the Sydney Morning Herald, The Hindustan

Times, The Guardian, The South China Morning Post, China Business

Weekly, and several others . Some of this coverage, including r e v i e w s of T h e C h i n e s e Ta o of B u s i n e s s , may be v i e w e d at www.ChineseTao.com.

In 2 003, Usha received a Life-time Achievement Award in M a n a g e m e n t f r o m the L i t e r a t i C lub ( U K ) a n d a p an e l o f b u s i n e s s p e r s o n s , p o l i c y m a k e r s a n d a c a d e m i c s , f o r h e r c ontributions t o t h e understanding o f business i n the Asia Pacific. She currently sits on two company and governmental boards and is listed in Who's Who in America, Who's Who in the

World, Who's Who of American Women and Who's Who in American

Education. Please contact her at uhaley@asia-pacifi c . com or tell fax: 212-208-2468.

C H I N T I ONG TAN

C h i n Ti o n g Ta n ( P h D , Ma r k e t i n g, P e n n s yl v a n i a S t a t e

University) is the Provost o f Singapore Management University.

He spent 20 ye ars of his career at the National University of

S i n ga p o r e (NUS ), wh e r e he wa s P r o fe s s o r o f Ma r k e t i n g,

Chairman of E xecutive Programs of the Faculty of Business

Ad m i n i s t r a t i o n , C o -D i r e c t o r o f S t a n f o r d -NUS E xe c u t i v e

P r o gr a m a n d D i r e c t o r o f t h e NUS O ffi c e f o r C o n t i n u i n g

E ducation.

He is active in management development and consulting.

He is a sought after speaker in the US, Europe, Australia, Ne w

Zealand, Asia and South Africa . Prof Tan wa s the Ac ademic

Ad v i s o r t o S i n ga p ore Ai r l i n e ' s Ma n a ge m e n t D e v e l o p m e n t

C entre f o r 1 0 years . Organizations he has worked with include

the Standard Cha rtered Bank, Swiss Bank C orporation, C arrier,

Hewlett-Packard, Acer Computer, Altron Group (South Africa),

Mo torola (Asi a Pacific), Cultur (Finland), Akz o Nob e l (The

Netherlands), and others. He is also on the Board of Directors

of several Singapore-listed comp anies and served a s strategic

and b u s i n e s s a d v i s o r t o m a n y o r ga n i z a t i o n s . He i s P a s t

President a n d Chairman of Senate of the Marketing Institute of

Singapore.

Prof Ta n has p ub l i s h e d i n many i n t e r n a t i o n a l jo urnals

including the Journal of Consumer Research, International Journal

of Bank Marketing, Marketing and Psychology, International Journal

of Marketing, Journal of International Business Studies, Research in

Marketing, International Marketing Review, Journal of the Academy

of Marketing Science, Marketing Intelligence a n d Planning,

European Journal of Marketing, and other journals. He is also

the c o -author of Philip Kotler ' s Marketing Management: An Asian

Perspective (3rd E d ition, 2003, Prentice Ha l l ), John Quelch ' s

Strategic Marketing Cases for 21 sl Century Asia (2000, Prentice

Hall), Marketing in the New Asia (2001, Mc Gra w-Hill), New Asian

Emperors: The Overseas Chinese, Their Strategies and Competitive

Advantages (1998, B u t t e r wo r t h -He inemann), a n d Marketing

Insights for the Asia Pacific (1996, Heinemann Asia).

Part I

THE CIVILIZATION

CHASM

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� 1

UND ERSTANDING THE

CIVILIZATION CHASM

"Hence, look at the person through the person;

look at the family through the family;

look at the hamlet through the hamlet;

look at the state through the state;

look at the empire through the empire."

Tao Te Ching

Book 2, Chapter 54, Stanza 124

INTRODUCTION

The small town of Camden, South Carolina, with about 8,000

people, has a heavy Southern drawl . Locals shop at the Wal­Mart, Kmart and Piggly Wiggly. Fried chicken and steak, grits and biscuits dominate the local restaurant fare . Here, a pioneer­ing Chinese-owned factory is establishing its presence . As the first units roll off the line at the 300,OOO-square-foot, state-of­the-art refrigerator factory owned by the Qingdao-based Haier Group, one wonders whether Haier will fit well with provin­

cial Camden. The Camden plant's Chinese and US managers

say they often struggle to communicate with one another, and

much of this difficulty centers on cultural issues and assump­tions . " I think it ' s a learning situation for the Chinese on how to manage Americans, especially Southerners, " said Nelson Lindsay, the Kershaw County Economic Development Office 's director. "The Chinese had plenty of questions for local offi­cials concerning employee recruitment and benefits ," he said.! Yet the Chinese appear more comfortable than early Japanese

arrivals in delegating day-to-day operations to US managers . Bernie Tymkiw, the factory's highest-ranking US manager, with about three decades in the home-appliance industry, and its human-resource director, Gerald Reeves, said they have wide

l a t i tu d e to m a n a g e as they s e e f i t . 2 Un d er s t a n d ing the civilizational chasm appears the first order of business .

To remove workers who might clash with Haier ' s corporate

culture, prospective employees must undergo a 40-hour initia­tion program before Haier hires them. The program stresses

teamwork, safety and the importance of quality, as well as an understanding of Chinese history, culture and philosophy. In 2001, Haier flew 10 workers to China for a two-week training program to instill its corporate values . This trip included climb­ing the Great Wall .

This book provides insights for effective management by Westerners in China as well as Chinese in the West . This first chapter introduces the Tao Te Ching, which offers an understand­ing of ancient power relationships and their acceptance in mod-

ern China . The next section outlines Chinese moral, social and legal philosophies on which later chapters will elaborate. The

ensuing section delineates differences between Western and Chinese cognitive styles . Finally, the last section sketches how China's history has taken a unique trajectory because of these philosophical and cognitive differences .

THE TAO TE CHING

"Not to honor men of worth

will keep the people from contention;

not to value goods which are hard to come by will keep them from theft;

not to display what is desirable will keep them ( the people) from being unsettled of mind . "

Tao Te Ching

Book 1, Chapter 3, Stanza 8

"Heaven and earth are ruthless, and treat the myriad creatures as straw dogs;

the sage is ruthless, and treats the people as straw dogs . "

Tao Te Ch ing

Book 1, Chapter 5, Stanza 14

These two opening statements provide the essence of the

Tao Te Ching and Chinese philosophy as well as a prism to un­derstand the ancient, civilizational chasm between Chinese and Western philosophical thought . The Tao literally means the "road" or the "Way" ; yet, over the millennia of Chinese his­tory, this word has come to represent a spiritual and moral path­way. In the West, Confucius and his philosophical ideals serve as China 's cultural trademark. However, in modern-day China, and because of historical circumstances, Lao Tzu and his philo-

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sophical ideals communicated through the Tao Te Ch ing have far more daily relevance; Lao Tzu's Tao Te Ching comprises the most-translated and most-read of all Chinese books . Indeed, while C onfucianism served as the philosophy of the ruling classes and elites, Taoism emerged historically as the ideology of the common people . Confucian scholars filled China 's impe­

rial courts, providing guidance and education to the aloof aris­tocrats and their children; Taoist scholars and hermits lived in China's villages and caves, providing guidance and education to the villagers and their children.

The opening statement demonstrates the Chinese elites '

negative historical attitudes towards the creation and distribu­

tion of wealth . It provides justification for the subsistence eco­nomic system that Chinese governments have followed from ancient times, not just since the Communist Party seized con­trol in 1949 . It explains why the Chinese and Russians have re­acted differently to communist liberalization programs .

The second statement presents the traditional Chinese per­spective on useful people and tools . The importance of indi­

viduals and ideas derives from functional uses, and not from

subjective evaluations of personal worth. "Straw dogs" com­prised straw figures that the Chinese traditionally offered to the gods . Prior to making these offerings, the Chinese cared assiduously for the straw figures; after making the offerings, the supplicants crushed the straw dogs under their feet . Simi­larly, Chinese philosophy urges nurturing something or some­one that serves a purpose; but once they serve that purpose, it advocates ruthlessly discarding or crushing the now useless tool or potentially dangerous individual. Despite the many ruthless

tyrants in Western history, and several contrarian philosophers on power ( such as Machiavelli), Western Judeo/Christian/Is­

lamic philosophic dogmas and moral codes shunned the ruth­less, routine use of power. In China, the philosophy of power and rule forms the center of Confucian and Taoist philosophies and their offshoots . Consequently, Communist dogma and Chi­na's traditional philosophy viewed as acceptable the crushing

of pro-democracy protesters at Beij ing's Tiananmen Square -though the West saw these actions as shocking . Confucius saw

no justification for challenging the rulers' power and stability,

regardless of whether the rulers proved to be tyrants, abused power and ruled poorly . As he stated, "Be ready to die for the good of 'the Way' . Do not enter a state that pursues dangerous courses, nor stay in one where the people have rebelled . "3

Pursuit of behaviors in accordance with " the Way " served as the primary goal under Confucian and Taoist philosophies . Hence, by admonishing his disciples not to enter a state where the people had rebelled, Confucius was identify ing rebellion

as an unacceptable behavior under " the Way " . Confucius and Lao Tzu would have concurred that the Communist government

reacted appropriately to the Tiananmen protesters . The protest­ers should not have challenged the government, but should have packed their belongings and left the country - a move

which was somewhat easier before passports and immigration laws, of course .

CONFUCIUS4: MASTER K'UNG

Confuc i u s i s trad i t i ona l l y con s i dered to have been born i n 5 51 BC, in the state of Lu d u r i ng the Zhou dynasty, and to have d i ed in 479 Be. H i s father d i ed i n Confuc i u s ' i n fancy and h i s mother ra i sed h i m . Though he encou nte red severe constra i n ts a n d poverty, he seemed to have ea r l y success in h i s career as he obta i ned modest pub l i c offi ces w i th i n the bu reauc racy. Unfo rtu nate l y, t he Zhou dynasty was i n ser i ou s dec l i ne and the constant ebb and f low of the po l i t i ca l s i tuat ion served to d i s ru pt h i s career and asp i rat ion s . H i s home state of Lu was l ost to the e m p i re when th ree i nf l uen t i a l and wea l thy fam i l i es j o i ned together to wrest contro l of the state away from the cente r. Once h i s career as a manda r i n bu reauc rat sta l l ed , Confu c i u s l i ved as an i t i ne rant teacher and b u reaucrat i n search of h i s next post i ng . D u r i n g the Confuc i a n era, b u reauc rats cou l d trave l from state to state i n search of emp loyment . At one t i me, Confuc i us , i n

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desperat ion , cons i de red leav i ng C h i n a to seek serv i ce i n barba r i an count r ies . H i s d i ffi cu l t i es and apparent fru strat i on i n gai n i ng mate r i a l s uccess i n h i s c i v i l i zed home l a n d may h ave l ed to two tra i ts i n Confuc i an p h i l osophy. F i rst, and most i mportant ly, he exh i b i ted open d i sd a i n for persona l ga i n o r p rofi t - someth i ng, he argued, that the true gen t l eman never sought. Second , he expressed d i ssat i sfact ion w i th c i v i l i zed soc i ety and he i dea l i zed the "Nob l e Savage"

The Ana lects, i n C h i nese the Lun Yu, fo rms the p r i mary body of h i s p h i losophy that has su rv ived to the modern t i mes . The Eng l i s h tran s l at ion o f Lun Yu, "Se l ected Say i ngs" , serves a s the most accu rate desc r i pt ion of the maste rp iece - bas i ca l l y it is a co l l ect ion of say i ngs rather than a coherent text. The power of Confuc i an thought is as much a tr i bute to the d i scern i n g scho l a rs who i nterpreted h i s say i ngs over the years as it is to Confu c i us ' w i sdom and u ndersta n d i ng . Though many v i ew h i s p h i l osophy as l ofty, Confuc i u s add ressed the pract i ca l aspects of day-to-day l i v i ng a l most exc l u s ive ly . H i s g reat appea l today may stem from h i s be i ng the most h uman of "Great Off i c i a l s " , and the Great Off i c i a l of a l l humanists.

LAO Tzus: THE ULTIMATE DUALITY PARADOX

Many be l i eve that Lao Tzu was an o l der contemporary of Confuc i us. The name " Lao Tzu " actu a l l y means "The O ld Man" . Some be l i eve he was a man named L i , a h i sto r i an in cha rge of the Zhou dynasty's a rc h i ves, often ca l l ed Tan the H i stor i a n . Others state that he was a man named Lao La i Tzu , who was born i n Ch ' u , the same state as

8 Tan the H i stor i a n , a nd was a contemporary of both Confuc i u s and Tan . The h i stor i ca l b i ograph i es o f both Confuc i u s and Lao Tzu record a meet i ng between them in w h i c h Lao Tzu bested Confuc i u s . The meeti ng occu r red when Confu c i u s v i s i ted Lao Tzu for i n st ruct ion i n the r i tes and , depend i ng on whether the story i s to l d by a supporter or a c r i t i c of Confu c i u s, Confu c i u s returns e i the r show i ng respect fo r Lao Tzu 's age and great w i sdom (appropr i ate behav io r as Lao Tzu was o l der ) , o r adm i tt i ng that Lao Tzu had an u nderstandi ng fa r beyond h i s own (ad m i ss i on that he l ost face to Lao Tzu ) .

Trad i t ion has i t that Lao Tzu had ret i red from p u b l i c l i fe and was begi n n i ng a contemp lat ive l i fe, when the Keeper of the Pass out of the Zhou Emp i re's Western rea l m asked h i m to wr i te a book . Lao Tzu wrote the Tao Te Ching, in wh i ch he exp l a i n s the mea n i ng of the Way and v i rtuous behav ior. Though he wrote i t in 5 , 000 C h i nese characters, the Tao Te Ching today cons i sts of some 5 , 2 5 0 characters and has become the most tran s l ated book of C h i nese l i te ratu re and p h i l osophy. Lao Tzu then passed th rough the gates to h i s l i fe of med i tation and i nto h i story as one of the wor ld ' s greatest p h i l osophers . Fo l k lore has h i m l i v i ng for at l east 1 60 years, and some say for over 2 00 yea rs .

J u st as Lao Tzu wou l d have i n t imated in one of h i s d ua l i ty pa radoxes, the ha rder h i stor i a n s try to estab l i s h h i s ex i stence, the m o re evas i ve h i s p h y s i c a l e s se n c e becomes , a n d f i n a l l y h e d i sappears . C h i nese h i stor i a n s record h i s meet i ng wi th Confuc i u s tak i n g p l ace i n 5 1 8 BC; yet, they a l so record h i s son as a genera l i n t h e P r i n c i pa l i ty o f We i 's a rmy i n 2 73 BC A l so, many sto r i es ex i st of meet i ng s between Con fu c i u s a n d e l d e r s c h o l a r s w h o seve re ly ou tc l assed Confu c i u s . Confu c i u s ' c r i t i c s sp read these stori es over the years i n order to u nderm i ne h i s ph i losophica l credibility.

THE ESSENCE OF CHINESE PHILOSOPHY

This section surveys the building blocks of Chinese moral, so­cial and legal phi losophies and identifies reasons for the civilizational chasm with the West .

A Chinese moral philosophy

While Western moral philosophy is sprinkled with truisms such as "Thou shalt not kill" or "Thou shalt not steal" , few truisms

exist in Chinese moral philosophy. One Chinese maxim approxi­mates the Commandment "Honor thy m,other and thy father " : T h e Analects6 states, "Behave i n such a way that your father and mother have no anxiety about you, except concerning your health . " A second Chinese maxim seems like the Golden Rule : The Analects7 reads, "Do not do to others what you would not

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like yourself . " Finally, a third maxim urges following " the Way" (proper, righteous and upright behavior ) : " In the morning, hear the Way; in the evening, die content, " The Ana lects8 advises . Confucius and Lao Tzu proposed an applied philosophy of spe­cific social behaviors for followers; they espoused a moral phi­losophy based on reason, circumstances and historical prec­edent, rather than the unchanging Word of God as in the West . 9

In the West, the influential ancient Greek philosopher Aris­totle attempted to collect, to study, to classify and to categorize everything in nature in order to understand the world . This approach to organizing knowledge and to understanding the world remains highly influential in the West . Simplified, quan­titative models of specific aspects provide a greater understand­ing of the whole world. Much like Aristotle, Confucius and Lao Tzu also attempted to classify, to categorize and to understand their world, but they concentrated, rather, on human behaviors and human situations . Despite having few moral command­ments , Chinese moral p h i l o s o p hy d o e s n o t approximate situational ethics . Situational ethics generally imply flexible norms and morals that change conveniently with circumstances. Chinese morality and ethics, while situation-specific, have lim­ited flexibility. Specific and binding moral duties and appro­priate behaviors exist for every situation and derive from spe­

cific categorizations and groupings of situations and individu­als in society. The following section delineates some organiz­

ing philosophies of Chinese society .

... Chinese social philosophy

Fei Xiaotong, China's most prominent sociologist, expounded on the differences between Western and Chinese society, argu­ing that the differences amounted to a civilizational divide . 1 O

Fei stated that Western society resembles a haystack that the Chinese use to build fires; several hay stems form a bundle,

and several bundles form a haystack. In Fei's analogy, each hay stem represents a single individual that retains this individu­

ality despite voluntarily j oining a group . Voluntary groups in

Western societies incorporate social contracts that guarantee the individuals' minimal rights . Conversely, the individuals pledge loyalty to the groups, and to the overarching group, the hay­stack. Fei recognized that a hay stem can only belong to one

bundle within the haystack, while a Western individual can j oin

more than one social group .

XIAOTONG11: CREATOR OF CHINESE SOCIOLOGY

Fei Xiaotong i s one of C h i na 's most prom i nent, b r i l l i an t and comp l ex scho l a rs of the 2 0th centu ry. He p roposed that to u nderstand C h i na , one must use research and concepts o r i g i nat i ng in C h i na . Pr ior to Fe i ' s g rou n d b rea k i n g work , C h i nese soc i o l og i sts a s sumed t hat research done on Westerners , p r i mar i Iy Amer icans, wou Id app ly to t he C h i ne se . Con seq u e n t l y, w h e n F e i t r an sfe r red to Ye n c h i n g Un ivers i ty a s a j u n io r, he found that the Soc io logy department taught t h e s a m e c o u r se s a s A m e r i c a n u n i ve r s i t i e s : F e i s t u d i ed t h e fu ndamen ta l s o f soc i a l - s c i ence f i e l d resea rch w i t h a n Amer i can p rofessor, Robert Pa rk . D i s i l l u s i oned wi th Soc i o l ogy's i rre l evance to C h i n a , i n g r adu ate s c h oo l , Fe i c h a n ged h i s m aj o r a rea to Anth ropo logy, i n w h i c h he cou l d both teach and p ract ice f i e l d ­resea r c h me thodo l ogy . H e s tu d i ed fo r h i s Mas te r ' s deg ree i n Anth ropo logy at Q i ngh ua Un ivers i ty u nder another fore ign p rofessor, S. M. S h i rokogoroff, a Russ i a n Anth ropo log i st w i th a pass ion for fi e l d researc h . F i n a l l y, Fe i obta i ned h i s docto rate from t he London Schoo l of Eco n o m i c s and Po l i t i c a l S c i e n c e as a s tudent of B ron i s l aw Ma l i nowsk i . I n 1 93 8, he retu rned to C h i na to bu i l d a schoo l of Soc i o l ogy based on f i e l d research conducted i n C h i n a on C h i nese pop u l at i on s .

Fe i atta i ned p ro m i nence t h rough h is research . Th rough Wor l d War I I and the post-war years h i s reputat ion , both i n academ i c ran ks and among C h i na ' s educated u rban dwe l l ers , cont i n ued to grow. Then i n 1 949 , the C h i nese Com m u n i st Pa rty se i zed contro l and out l awed the d i sc i p l i ne o f Soc i o l ogy and Fe i ' s research . Because Fe i c h ose to stay in t he Peop l e 's Repu b l i c of C h i na ( P RO, the

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Nationa l ist government in Taiwan a l so banned his resea rch . Hong Kong, the l ast bastion of the B rit i s h Empire in Eas t Asia, a l so served as the l ast bastion of Fe i ' s Chinese-based schoo l of Socio l ogy. I n the PRC, Fei s u rvived the ha rds hips, the stif l ing censorship and the supp ression of the G reat Leap Forward and the Cu l tu ra l Revo l u tion to be offic i a l l y rec l aimed when reforms began u n der Deng Xiaoping in 1 9 7 8 . H e retu rned to h i s acade m i c l i fe and fou n ded the Chinese Socio l og i ca l Assoc i ation in 1 9 79 . Taking a more p ractica l road, he j o i ned t he gove r n men t a n d , over t he year s , se rved in seve ra l p rom i nent pos i t ions i nc l u d i ng Vice-Pres i dent of the Chi nese Peop le's Pol i t i ca l Con su l tat ive Conference, Vi ce-Cha i rman of The Standing Com m i ttee of the Nat iona l Peop le ' s Congress and V ice-Chairman of the D raft i ng Com m i ttee for the Bas i c Law of the Hong Kong Special Ad m i n i strat ive Reg ion of the PRe.

Fei represented Chinese society as the circular waves that emanate from throwing a rock into the middle of a pond . The waves form a perfect circle around some central invisible point and, as they move further from that point, become weaker.

Unlike Western society, Chinese society displays no distinct

individualism (the hay stems have tangible form while the

waves do not ) . Yet, Fei argued , in reali ty, Chinese society exhibits more egocentrism than Western society (the circular waves emanate from one central point, while the piled haystacks enclose relatively equal hay stems) Y

Fei contended that Western society consists o f individuals who v o lunteer their loyal ty to group s they choose , with reciprocal guarantees that the groups recognize the individuals'

inherent rights . In Chinese society, the individuals, forever at the center of their worlds, generate waves that begin with themselves and expand through a series of bipolar relationships into their families, lineages, localities, provinces and countries . Waves closer to the center elicit stronger relationships, and hence , gre a ter 10y a l ty. 13 A d d i t iona l ly, F e i ind i ca ted that relationships exis t between people, not between people and a b s tr a c t e n t i t i e s such as s t a t e sY The C h i n e s e s o c i e ty ' s

egocentric structure applies equally to all people within this society - to the peasant and merchant as well as to the duke

and emperor. Networks, not states, comprise the most complex organizations . To enforce their will on society, emperors or other

leaders do not employ the state ' s laws but, rather, use their networks to pressure the transgressing individuals' network to bring the individuals into line .

Chinese philosophers have always argued that society serves to extend the famil ies and the famil ie s ' preeminence has profoundly affected the evolution of Chinese society. IS Families comprise a collection of very personal relationships that elicit

specific duties and behaviors but that, generally, also tend to

forgive transgressions. Hence, Chinese society transmits highly personal perspectives and interpretations of events . As many Western managers know, doing business in China requires developing strong personal relationships with Chinese business associates ; indeed, p ersonal relationships indicate business relationships which often appear as mutations of famil ial rela tionshi ps .

F or fore ign c ompanies , p er s o n a l loya l t i e s in Chinese

business relationships have several implications . First, personal loyal t ies indicate d i fficul t ies in mainta ining arms- length perspectives in many business decisions . Second, loyalties do not extend beyond the individuals; hence, companies cannot expect goodwill to extend beyond the tenure of the executives that earned it. Individuals hold the franchises on business relationships, not the companies . Third, Chinese in�ividuals view much less harshly than Westerners transgressions and errors between equals in relationships, such as unintentional

failures to meet contractual requirements while conducting business in good faith . Finally, strong business relationships

have attendant important social obligations, commitments and expected behaviors as they extend familial relationships . The effects of this social philosophy on Chinese legal systems are examined in the following section.

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... Chinese legal philosophy

In Western societies, states maintain social order and guaran­tee certain rights to members through laws that limit other

rights and freedoms . In traditional Chinese society, social or­der is maintained through social pressures - through rites and customs - rather than through laws . 1 6 Family ties, especially

between fathers and sons, comprise the strongest and most im­portant relationships . C onsequently, parental duties include ensuring the families ' good behavior. If parents fail to main­tain appropriate behavior within their families, then the duty passes to neighborhood and village elders and, finally, to pro­

vincial and central governments .

Importantly, birth, not choice, traditionally decided group membership in China . Second, the immediately superior social units, not p olice authorities, reined in the miscreants . Social units failing in their duties became miscreants too and the next hierarchical social units attempted a return to order. Thus, net­works structured and controlled traditional Chinese society. Individuals ' rights and freedom depended entirely on whether they could control their families, on whether familial networks could control neighborhood and village elders and so on, tip to

the emperors . The state neither guaranteed individuals' rights

and freedoms nor limited individuals that could control the networks that comprise Chinese society. Thus, the Chinese never developed a rights-based legal system or cultural perspective .

Superficially, adherence to common-law or code-law systems appear to distinguish national legal systems . Yet, virtually all nations, and certainly those with extensive trade relations, have

developed their own commercial codes . Consequently, codes form primary influences, if not the foundations for national commercial laws. A deeper distinction revolves around rights­based systems, as in the industrialized West, or public-law sys­tems, as in China . 1 7 The US Declaration of Independence in 1776 heralded the first rights-based legal system by proclaiming: "We hold these truths to be self-evident: That all men are created