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Existence environment analysis of the German and Chinese business models

First of all, it must be emphasized that each of the two models has its own social, economic and cultural environment. The German philosopher Hegel said: what is reasonable is real; and what is real is reasonable.

The success of a model is inextricably linked to its respective existence environment. A model that is successful in one place may not possibly be, or may not be entirely suitable for another place if the living environment is different. In other words, we must first carry out an objective comparison of the existence environments of German and Chinese companies. By comparing the differences in social system, economic system, market characteristics, culture and company management between China and Germany, we can better understand the differences between the two business models in their respective livelihoods.

1. Social system

Germany is a constitutional state. The laws apply to everyone and must be followed. Almost all German companies make their own general Terms and conditions for the basis of the contract, whereby all legal points are precisely defined. The functions, area of application and instructions for use of a product as well as the quality guarantee etc. are clearly defined in Germany and laid down by law. Responsibility for problems is also fully under legal supervision. Clear legal requirements and legal responsibilities in turn lead to extremely high demands on product quality. This is the legal basis for the high quality of German products.

China is a developing country and the legal system needs to be improved. The legal definitions of product quality, responsibilities and obligations have not yet been clearly defined. There is no effective legal assessment method for product quality problems, so there is insufficient legal basis for quality requirements in China. Once a problem arises, it's more about how the problem can be solved quickly rather than clarifying responsibility. This in turn is due to the human factor in China, everything is regulated through personal relationships - vitamin B, as they say in Germany. In the event of a dispute in Germany, legal action is usually taken directly and the legal process usually closes the problem. For example, processing claims in Germany is comparatively easy. The judicial dunning procedure can be operated by everyone at low cost, in addition, from collection agencies to lawyers, there are numerous qualified service providers to whom the dunning process can be outsourced. In China, for example, the deterrent power is limited and the enforcement of legal claims is inadequate. Even if a lawsuit is won, the verdict is often not enforceable. Therefore, debt collection in China is dependent more on seller relationships. This is also the human factor. Personal relationships still have a big impact in China. There is a famous Chinese proverb about this: Everything is difficult, but everything is possible.

Germany is a developed and democratic state, guarantees human rights and promotes family values. The workers strive for healthy work and adequate vacation. They don't want to work unpaid overtime and don't like to work under high pressure. Companies don't usually encourage hard work either, with some gloomy exceptions. The personal and family interests of the employees are comprehensively protected. Company interests are less taken into account than in China.

Chinese companies see work first, employees should sacrifice themselves for the company and subordinate everything, including family, for work and career. Engagement like voluntary unpaid overtime is encouraged as a positive attitude. The 9-9-6 working hours (9: 00 a.m. to work, 9: 00 p.m. end of work and 6 days’ work a week) is normal for employees in China. Workers in private company generally work 10–12 hours a day and it is normal for them to take break only one day a week or even once a month.

German companies have strong unions that coordinate the relationships between employers and employees. The employees also pay attention to the interests of the company and actively participate in various business processes. Good relationships between employers and employees can promote the healthy development of companies, as you can see in Germany. But unions think more about the interests of workers than about the company. An example of this is a German headquarter that had to fire employees during the 2009 financial crisis. The layoffs were coordinated with the works council and were based on humanitarian principles: older and underqualified employees who had little chance of finding a new job were retained, while a large number of good and young employees who could easily find a new employer were exempted; as a result, the company's competitiveness has been severely weakened. Chinese unions, on the other hand, are fundamentally ineffective. The unions of state-owned companies take care of the simple concerns of workers and basically have no say in company management. Foreign and private companies therefore have almost no unions in China. However, the state encourages companies to form unions. It charges two percent of the company's total labor costs as union fees; the money can be reimbursed after the unions are established. Most companies prefer to forego this two percent and set up a union. The employees' desire for a union is also not strong. Chinese companies therefore have more options in terms of employee issues, are therefore more flexible overall and have lower operating costs.

2. Economic system and market characteristics

Germany has a developed and stable market economy. The market and customers change little, the market development is very predictable. This enables companies to plan accurately with optimal results. German management is based on a stable market and a high degree of planning. Planning is the main characteristic of German company management.

China is a developing country. Due to the rapid development and large fluctuations, unpredictability and uncertainty are an important feature of the Chinese market. Numerous factors of uncertainty have a negative impact on the results of the company's management. However, due to this market volatility, Chinese companies have good plasticity and flexibility. They can quickly adapt to new situations. Chinese companies operate on the basis of volatile markets, with flexibility being the biggest characteristic of Chinese companies.

Germany has a mature market economy system and most companies adhere to the rules of the game. There is less malicious competition. As long as the market is big enough, everyone will be fine and everyone will make money. The only difference is to earn more or less. However, companies lack the pressure to exist, which leads to poorer coping ability in the event of a crisis.

Malicious competition is much more widespread in the Chinese market. Almost all means are used to win orders. This significantly reduces companies' earnings and hinders their healthy development. Quality requirements are therefore often greatly reduced for cost reasons. From a different perspective, however, this type of competition means that good companies are strengthened and bad ones are eliminated. The tough competition is forcing companies to cut costs and innovate. That is why Chinese products are more competitive worldwide.

As a highly developed country with good income and prosperity, Germany attaches more importance to quality and service. The main products on the German market are therefore characterized by high quality with extremely high reliability and are sometimes lifelong. However, the prices are correspondingly high and are among the highest prices in the world. The Germans have a strong awareness of quality and are relatively insensitive to high prices if the quality is right. The pursuit of quality is therefore the main goal of German companies; High-priced production models are generally recognized in Germany.

The Chinese, on the other hand, value a favorable price-performance ratio more, so the Chinese companies tend to strive to achieve lower sales prices for their products. Chinese main products are characterized by a good price-performance ratio, whereby it is not only the price that is decisive. The pursuit of good value for money is the main goal of Chinese companies. The Chinese only accept the price that is appropriate for the respective quality, depending on the price, there is therefore a corresponding quality: If the quality is high, the correspondingly high price must be accepted, and the quality requirements of cheap products are reduced. There is a high-end, mid-end and low-end market in China. The mid-end market is the main market and much larger than the high-end market, corresponding main products are inexpensive products with acceptable quality.

Germany is a high-income country. Due to the high labor costs in Germany, labor-intensive companies in Germany are not competitive. Many companies in the traditional machine industry in Germany have developed into technology- and capital-intensive companies through mechanization and automation. The share of wage costs in the end product is very low.

Wage costs in China have increased very quickly in recent years. Many Chinese companies are now gradually implementing automation and mechanization measures to reduce costs. Nevertheless, labor-intensive companies still make up the majority of the Chinese manufacturing industry due to the still relatively low wage level and large population. The management of technology-intensive companies and labor-intensive companies is completely different: the technology-intensive company focuses on increasing production efficiency by improving the technology and introducing advanced systems, while the labor-intensive company focuses on how to motivate workers to increase production efficiency.

3. Culture and custom

The Germans are strict, serious and meticulous. They do everything exactly according to the rules and no compromises or concessions regarding the rules; they always strive for perfection. For security, one would rather do more than too little. The processes and regulations are therefore very cumbersome and complicated, which reduces efficiency.

The Chinese are flexible and adaptable. The quest for quick solutions to problems always comes first. Everything can be done to solve the problem if possible; assuming the securing of results, the following applies: the simpler, the cheaper, the better.

The Germans have a strong national pride and a feeling of superiority. They think that everything is exemplary in Germany. Others can only learn from the German model. Germans believe more in Germans than in foreigners. Most German companies therefore implement central management through the headquarter, while subsidiaries in other countries have only a few decision-making powers. Many German companies also require General Managers and financial managers to be German. Although this creates trust from the headquarter, it leads to conservatism and prevents flexible reactions to changes in the local market.

The Chinese, on the other hand, worship the Germans and believe everything Germans say. Most German companies in China take over everything unchanged from the headquarter, which is also the reason why many German companies in China cannot adapt well to the Chinese market. Due to the geographical distance and the time difference as well as the peculiarity of the Chinese market, Chinese subsidiary should have sufficient autonomy to be able to solve problems flexibly and quickly. It is not necessary to ask the head office about every detail and to wait for approval. The headquarter should decentralize its power, mainly take on a supervisory role and only intervene in the management of the branch if this is really necessary: Decentralized as much as possible and centralized as little as necessary should be the motto.

The Germans are neither enthusiastic nor skillful in cultivating relationships, they prefer to get straight to the point and do it officially. They keep their distance and do only the bare minimum.

The Chinese attach great importance to relationships and are good at building relationships. They like to build private friendships with customers before doing business with them. When the private relationship is established, the business comes and as long as the relationship with the key person of customers is good, the business remains stable.

The German nation is particularly disciplined. As long as there are rules and regulations, they are implemented uncompromisingly, even if one may have a different opinion. There is strong executive power in German companies.

Chinese have strong self-confidence. Instructions that do not meet their own requirements are ignored or adapted as they see fit.

The Germans take care to keep their faces, they like to show strength and to emphasize their own role. Modesty is not valued highly.

The Chinese recognize modesty as a virtue; the Chinese saying goes: the tallest tree is destroyed by the wind and the conspicuous bird is shot first. One should not be arrogant, but remain modest.

The Germans are not good at price negotiations and are ashamed to talk to their superiors about raising salary. The salary increase in Germany seems to be more a matter for the unions. The Germans do not like comparing the salaries of others with their own, nor do they privately ask about other people's income, which is even considered a no-go in Germany.

Chinese like to compare horizontally, especially salary differences. Even if their salary is very high, they will be unhappy if you find that others earn more at the same level.

4. Company management

German companies emphasize process orientation and demand that everything runs according to the German model. Germans attach great importance to process orientation and believe that only good processes bring good results - and only the German process can be a good process, because Germans tend to be stubborn. However, German processes are often too complex, inefficient and costly.

Chinese companies attach more importance to results orientation and say: Many roads lead to Rome. All means and methods can be used to achieve the best result, there are no fundamental restrictions. A process is only a means to a goal, as long as the result is right, it doesn't matter how it comes about or which process is used. The Chinese are always willing to try new methods and strive for high efficiency and low costs.

In Germany, high fixed wages and high social benefits are used in conjunction with low or no bonuses; incentive systems are not too common. So, more performance does not mean more income; poor work does not pay less. The work pressure of the employees is not that great, so they often lack the fighting spirit. Compared to China, Germany is still a welfare state in which salary levels are clearly defined by law and unions. The high-wage system has increased the costs of the companies accordingly and the personnel costs make up a large part of the total costs. Therefore, normal companies in Germany do not have a lot of financial scope to introduce a lucrative incentive system. company management in Germany traditionally depends more on the qualifications of German employees than on the incentive system; there are deviations only in middle to upper management due to foreign, mostly American influences, which the population tends to see negatively. This is also the reason why German companies generally have a rather low vitality.

Chinese companies attach particular importance to the implementation of performance-based motivation systems. Due to the cost structure, Chinese companies can generally get a relatively low salary plus high bonuses. Chinese companies are also putting pressure on employees to force them to work hard. Under pressure and with strong incentive mechanisms, at least from the Chinese perspective, the maximum potential of the employees is used.

The Germans pay attention to careful work, time is not so important. They assume that good products take more time. It is better not to start at all unless all details have been considered. German companies have very high demands on their products, they will not be launched on the market unless they are perfect. Chinese companies are mindful of speed: time is money, efficiency is life, they say. The importance of speed is strongly emphasized. Whoever has the product first can quickly occupy the market. Chinese products focus on solving problems quickly and satisfying market demand quickly, not striving for perfection from the start. If the main function of a product is given, it can be brought onto the market and then continuously improved.

Conclusion

In summary, the main differences between the Chinese and German business models can be compared as follows:

• High quality requirements of the German model compared to good price-performance ratio of the Chinese model.

• German legal provisions compared to the human factor in China.

• Strong employee rights in Germany compared to the performance-oriented employee concept in China.

• High degree of planning in Germany compared to high flexibility in China.

• Technology-intensive companies in Germany compared to labor-intensive companies in China.

• The high accuracy and striving for perfection of the German model compared to the high efficiency and striving for quick solutions and low costs of the Chinese model.

• The central management German model, in which the German headquarter and the Germans decide everything compared to the decentralized model, in which the Chinese subsidiary decides independently according to the local circumstances.

• Process assurance of the German model compared to results assurance of the Chinese model.

• The German culture with discipline, competence and respect as well as distance in dealing with each other compared to the Chinese culture with flexibility, modesty, restraint as well as a more intensive cultivation of relationships.

Many of the differences between the Chinese and the German model are actually relative, in many cases not contradictory, and this can also be related: high quality and a high price-performance ratio, process and result orientation, high degree of planning and high flexibility, high accuracy and high efficiency can be combined. A reasonable combination of the two models can achieve the best results. If a model were to overemphasize unilaterally, however, this could lead to very poor results. For example, overemphasizing high quality could result in unnecessarily high costs and overemphasizing low cost could result in poor quality.

Although the two models are different, they are appropriate in their respective environments. A successful model can become pointless and fail in another existential environment.

Most of the problems in various processes analyzed in this book are due to the simple copy of the German model in China, regardless of the different environment. The focus of this book is therefore on adapting the management of German companies in China to the Chinese environment. First of all, it must be emphasized that the German modern management model has an important reference meaning for the management of Chinese companies and is the basis and starting point for Chinese companies. The adaptation of the German model to the national situation in China is decisive for whether a German company can be successful in China.