Modern management practices in China

By on January 3, 2011

Globalization has shrunk the whole world into a single small market. Technology, products, process and people have become easily accessible around the globe. Unlike the olden days, every country has started contributing to the global market to improve its own economy. As the saying “be a Roman, when you are in Rome” goes, the world’s highest populated country China has also started shifting its management model from the conventional planned economy to decentralized market economy in the recent years.

Planned economy

A planned economy as the name suggests is a centralized model in the sense that it depends upon a central managing body, in case of China it is none other than the central government. For centuries the Chinese management system has been a centralized system where the majority of the organizations are state-owned enterprises. State-owned enterprises as the name suggest belong to or are controlled by Chinese government bodies. It has been estimated that 81% of the total market share of the total Chinese economy is contributed by the state-owned enterprises. These organizations cater almost all the needs of the entire population by their products and services [K Schlevogt, 2000].

Market economy

The market economy, on the other hand, can be considered as the polar opposite of a planned economy. In contrast to the centralized system, market economy believes in the privatization of enterprises for the betterment of the industries. The market economy is focused on principles like individual freedom, equal contribution, and division of labour and so on. World players like the United States and the United Kingdom follow the market economy.

From centralized to a decentralized structure

But for the initiative of Deng Xiaoping, the former chairman of the Chinese People’s Political Consultative Conference, China would have never dreamt of something called market economy [Selmer J, 1998]. Yes, it is the socialist thinking of Deng that stood as an eye-opener to China. A revolution in Chinese management practices began to take place only after 1978. For his good work, Deng is considered even today as the architect of socialist thinking. China from then on has shifted gradually from a centralized management structure to a self-managed decentralized structure over the years. Further, in 1992 the Chinese government introduced the concept of ‘modern enterprises’ in which it gave the managerial autonomy to organizations thereby decreasing the interference of state government in business affairs.

The chaos

The sudden withdrawal of government from business decisions led to a lack of external support and the sudden shift of decision making to the inexperienced management. This led to a lack of internal coordination thereby leading to total chaos and confusion. These arouse the need of a concept called “Independent Director” for effectively managing an organization.

Independent directors- a revolutionary approach in China

An independent director is a person who is capable of exercising his control in an organization’s decision-making process. And while taking those decisions work exclusively for the benefit of an organization. The concept of Independent directors first was introduced in China by the China Securities Regulatory Commission in 1997, which later turned out by a success by exhibiting improved performance of the organizations.

Need for independent directors in China

The corporate management practice introduced the management by Independent directors in China keeping in mind the following reasons.

  • Protecting minority stockholders.
  • Solve problems brought by shareholders.
  • Protection of the company by being looted by its managers.
  • Equal sharing of profit.
  • Promote Foreign Investments.
  • Effective Overall management.

The changing organizational culture in China

Organizational culture can be defined as the process, practice, behaviour and discipline exhibited together by the individuals working in an organization. The shift from planned economy to market economy in China has brought into existence three different kinds of organizations in China [J. T. Li et al, 2000]. They are the state-owned enterprises, private enterprises and foreign-invested firms. Unlike Western countries, China had always been a cut above the rest. The Chinese culture is more focused on a social relationship than a professional relationship. Loyalty is expected from a person towards an individual than the working organization. To put it clearly in a Chinese organization if a boss assigns a job, the individual considers it to be done in personal favour of the boss and expects it to be reciprocated in future. The relationship is not businesslike but friendly and social. The venture of foreign countries in the Chinese market is making them slowly moves towards the western practices, however, holding their traditional principles.

The leadership style

Chinese leadership style is more focused on personal feelings and emotions than that of factors like motivation and recognition. Humanity comes first and then comes business. The major role of a leader is to look after the well being of a team and its members. For example dispute or misunderstanding among two employees may lead to a situation that one might feel like quitting the job. In Chinese management practice, the leader should come forward to resolve the conflict and establish peace among his team members.

Retention management today

The Chinese have proven to be the best retention managers since they focus on collectivism and long-term commitment rather than individualism and short-term employment. Their employee turnover is less whereas retention period is high [Tang J , 2003]. Seniority is given more importance than the fresh candidates. The Chinese are by nature self-motivated and hard working individuals. Therefore the organizations do not take extra pain in motivating the employees. On the other hand, they reward and recognize the employees based on their commitment towards the organization.

The future

With newer technologies brought in by external multinationals and strengthening of existing business by revolutionary government policies, China is now emerging out as a land of the multicultural and multi-linguistic market [Warner M, 2003]. With innovative organizational strategies and practices, China would definitely become a world player in the near future.


  • Kai-Alexander Schlevogt, The art of Chinese management:  theory, evidence, and applications, Oxford University Press, 2002.
  • Jan Selmer, International management in China: cross-cultural issues, Routledge, 1998.
  • J. T. Li, Anne S. Tsui, Elizabeth Weldon, Management and organizations in the Chinese context, Palgrave Macmillan, 2000.
  • Jie Tang, Anthony Ward, The changing face of Chinese management, Routledge, 2003
  • Malcolm Warner, The future of Chinese management, Routledge, 2003.