The Key to Successful Firm Organization is the Combination of Chinese Tradition with Western Innovations

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In an effort to expound upon the socio-cultural theories behind the lack of economic evolution in the commercial and industrial development of China from the early 1500s to the early 1900s, Professor Chan explores the history of traditional Chinese management systems. He argues that the foresight of a couple of Chinese entrepreneurs that incorporated innovative Western managerial techniques played a significant role in launching China into its modern development. While this case drew significant generalities about Chinese cultural characteristics with regards to managerial behavior as well as firm organization, ownership, and control, it makes a compelling case for how traditional Chinese merchants' reluctance to adopt Western organizational creativity was a major factor in the stagnation of the Chinese economy until the early 1900s. The single most important innovation was the combination of both traditional Chinese socio-cultural values with the more modern West-inspired techniques of organization, as exemplified by comparing and contrasting the Jui-fu-hsiang of Peking and Sincere Company case studies.

Beginning first with a discussion of the traditional Chinese firm, an exploration into Chan's description of its organization and key features lays the foundation for the complementary incorporation of Western managerial techniques such as instituting financial incentives that allowed for Sincere Company's success over that of the Jui-fu-hsiang of Peking. The ownership of the traditional Chinese firm was vested in either sole proprietors or in partners (Chan 219) and the success of the firm often lived and died with the owners. Furthermore, a strict apprenticeship system helped to reinforce the traditional organizational structure by ensuring that only those properly apprenticed could rise to senior positions within the firm (221). Traditional Chinese firms were conservative in nature and highly restrictive, which likely contributed to the stifling of innovation as well as slowed growth.

Given this general format of organization and management practice, Jui-fu-hsiang of Peking's owners--the Meng family--made several modifications, but only within the traditional boundaries, and therefore never found full-blown success as compared to Sincere Company's ownership--Ma Ying-piao's--more complete incorporation of contemporary Western techniques. First of all, the Meng family solely owned Jui-fu-hsiang of Peking (223) and they alone retained command of the business empire (225). This did not reflect the widespread share-holding that was indicative of the "truly managerial enterprise" present in Western organizational schemes (227). Additionally, the Meng family remained relatively traditional in its ownership and management practices, never fully adapting any foreign ideas. Thus, when there was a deterioration in management due to Meng family deaths, the business could not survive without their coordination and control (225).

Ma took a very different approach, which proved to be wildly successful. Borrowing from foreign business models, he chose to incorporate practices there were in direct contrast to traditional Chinese practices. First of all, he forwent the apprenticeship program and directly hired and trained both men and women from his home village despite them not having prior experience (229), opening up the ability for others in his community, not just those from affluent families (or those only of the male gender), to gain managerial experience. He also developed new strategies for furthering growth such as the creation of several-storied emporiums with new and creative department stores (230).

Alongside Ma's clever entrepreneurial risk-taking, he was also more interested in innovations of management such as supply chain management as opposed to manufacturing. By the time the Sincere Company opened at the turn of the century, he managed to garner the support of twelve partners in his venture. Not only was such a large partnership new, but he also diversified the ownership by opening it up to merchants from other countries like Australia and the United States (229). His ability to adopt Western organizational models creatively allowed him to father in a new era in Chinese business.

For what the Meng family lacked in progressive thinking, Ma seemed to make up for through pushing the limits of the traditional entrepreneurial thought, and it paid off immensely. In the case of the Jui-fu-hsiang of Peking, the strategic innovations remained within the traditional Chinese firm's organizational layout and failed to take on the more successful management practices found in the British and/or American counterpart systems. Be it fear of change or distaste for less-than-traditional forms of administrative control, the Jui-fu-hsiang failed in comparison the Sincere Company.

In conclusion, it seems that the adaption of Western models to Chinese culture proved to be the impetus for change within the business community. As is aptly demonstrated in Ma's case study, the best Chinese entrepreneurs realized that the successful importation of any foreign business model required adaptation to suit Chinese conditions (228). Since the Jui-fu-hsiang of Peking, like other traditional companies, lacked the innovative foresight to shake up the organization and operational strategy through the adoption of foreign practices, their strategies for profit sharing and sustainable growth ultimately failed. Ma's creative reforms to the system via diverse training in foreign practice and expert introduction of those ideas into traditional Chinese systems are what helped start the modernization of China's economy.

Work Cited

Chan, Wellington K. K. "The Organizational Structure of the Traditional Chinese Firm and its Modern Reform." The Business History Review 56.2 Summer 1982: 218-35. Print.