The impact of economic liberalization on marketing practices in the ...

European Journal of Marketing 29,2 6 Received January 1994 Revised May 1994 Revised July 1994

The impact of economic liberalization on marketing practices in the People’s Republic of China Shengliang Deng and Jack Dart College of Commerce, University of Saskatchewan, Saskatoon, Canada Introduction In 1992, paramount leader Deng Xiaoping made a special trip to southern China to call for an acceleration of economic changes, a speech that effectively handed the reins of power to the market reform faction within the Government. The Eighth People’s Congress subsequently passed an amendment to the constitution to enshrine into law Mr Deng’s theory of the “socialist market economy”, a credo that anticipates the use of market mechanisms as a means of boosting the Chinese economy. The passing of this amendment officially replaced the planned economy with a socialist market economy, an attempt to combine the best features of both planned and market systems[1]. China’s attempts to introduce market forces into its economy are far from unique and its government leaders were influenced by the examples of sweeping economic reforms in Eastern Europe and the countries that emerged from the former USSR. The lessons gained were sobering. Increased global competition, a world recession, antiquated production facilities and the virtual non-existence of marketing infrastructures combined to batter the economies of many of these countries. The resulting inflation, unemployment and political gridlock dampened the enthusiasm of many residents and has led to a “backlash of popular discontent”[2, p. 7]. In an attempt to avoid the negative consequences experienced by its former communist allies, China is striving to walk a delicate balance to maintain its current political system, yet provide necessary economic growth[3]. With reforms have come the introduction of various Western marketing practices. The role that these practices have played in boosting China’s once ailing economy is not clear. In fact, the extent to which marketing functions have been adopted and are practised by Chinese enterprises is unknown. The purpose of this article is to examine the current status of marketing in China and the role that marketing appears to be playing in revitalizing that country’s economy. A background to China’s economic reforms is presented in the next section of this article and serves as a contrast to

European Journal of Marketing, Vol. 29 No. 2, 1995, pp. 6-22. © MCB University Press, 0309-0566

An earlier version of this paper was presented at the 6th Bi-annual International Conference of the Academy of Marketing Science in Istanbul, Turkey. The authors would like to thank Lawrence Worztel and two anonymous reviewers for their constructive comments on an earlier draft.

the more dramatic changes evident in Eastern Europe[4,5]. This is followed by a description of the methodology used in this study and by a discussion of the research findings. The article concludes with a summary and implications section. Background From 1949 until at least 1979, China functioned as a very rigid, planned economy. Under this system, state enterprises played a dominant role in China’s economy, leaving little room for collectively owned organizations and virtually excluding private firms. During these three decades, the Chinese government denied the efficacy of marketing in its economic doctrine. Except for a few enterprises involved in foreign trade, the practice of marketing, as understood in Western societies, could not be said to have existed within individual firms. Marketing decisions, such as what to produce, what prices to charge, and what channels to use, were made entirely by government officials. The state set production targets for each enterprise, distributed their products, assigned personnel, allocated supplies and equipment, took over profits and covered losses[3,6-8]. Except for very limited discretion over product design, the Chinese manager had no control over the “marketing mix” decisions[7,9]. Two reasons can be offered as to why successive Chinese governments remained opposed to enterprise-level marketing initiatives for so long. The first explanation is based on ideology. China was a rigid follower of Marxist-Leninist philosophy which equated marketing activities with bourgeois decadence. The socialist ideology contends that the purpose of marketing in capitalist societies is to solve a notorious problem of under-consumption that, in turn, is caused by the supposed low real wages of the working class[10]. Accordingly, Marxist-Leninist theory rejects marketing activities as being needless in socialist countries; rather, careful planning is assumed to cope with production and the accompanying distribution problems. To take an example, commercial advertising in the traditional Chinese view was considered to be a drain on the economy. Advertising was regarded as persuading, even manipulating, consumers to purchase things that they would not otherwise wish to consume. Hence, serving a demand based on advertising pressures rather than real needs, would lead to a fundamental misallocation of society’s resources. The second reason for opposing Western marketing practices was economic in nature. China was, and is, a developing country with a rather low gross domestic product (GDP) per capita. In view of the widespread scarcity of consumer goods, and an artificially maintained uncompetitive economic atmosphere, there was little, if any, incentive for the development of marketing activities [3]. After more than three decades of rigid economic planning, several severe problems surfaced that greatly hindered China’s economic development. Surpluses and shortages frequently appeared at various points in the system because planners were unable to gauge the intensity of customer demand, a byproduct of a market pricing system[7]. As noted by Gorden[3], planned systems can work well only in a society with a limited range of products and production technologies, wherein a limited amount of information is needed to formulate a

Marketing and economic liberalization 7

European Journal of Marketing 29,2 8

plan. As China progressed economically after 1949, the growing complexity in the menu of products available to its one billion people combined with new technologies of production resulted in a huge gap between the information planners possessed and that required to make efficient decisions. The absence of a working system of market price signals made it increasingly difficult to match supply with demand. Another problem was related to product design and innovation. Chinese managers were rewarded for fulfilling the state plan, but not for undertaking the risks of research and development. Hence, managers became risk averse, more concerned with production quotas than consumer interests, a phenomenon also evident in the former Soviet Union[11]. Furthermore, manufacturers received little feedback as to how their products moved through the distribution channels or if they reached the final consumers at all. Excessively long distribution channels with inadequate controls encouraged stealing and corruption, involving products in high demand and accumulated large and wasteful surpluses of low-demand products in downstream inventories. Finally, in the absence of promotion, consumers had little information regarding product quality or the distribution channels through which the products flowed. This further complicated the distribution problem, caused unnecessary waste, and often provided false signals to the planners as to whether a particular product was actually required. Since the economic reforms began in 1979, two fundamental changes have taken place. As the lack of adaptability and flexibility in its planned economic system became increasingly apparent, the present government shifted away from a rigid interpretation of Marxist theory and began to recognize the reality of market forces. In this regard, the Chinese government has become more pragmatic. The second change is related to the economy. More than ten years of economic reforms have produced a relatively prosperous economy in China with few shortages of consumer goods. With an increasingly abundant supply of goods and more disposable income, Chinese consumers are beginning to demand better quality products with better service. As a result, enterprises must now look beyond state planning for alternatives to stay profitable and competitive. Although the Chinese economy is still dominated by state-owned enterprises, collectively owned and private firms are growing rapidly. In 1992, there were 15.3 million private commercial units throughout the country producing a total of 113 billion yuan in gross output. The official China Daily[12] reported that private enterprises account for half of all commerce and fully three-quarters of China’s service sector. These non-state organizations paid more than 20.3 billion yuan in taxes in 1992, up 17 per cent from 1991. Their output has been increasing at an annual average of 18 per cent. Collective enterprises have also shown remarkable growth. These organizations are set up mainly by the unemployed in urban centres and operate under the principles of voluntary participation, mutual benefit and sole responsibility for profit and loss. From 1978 to 1989, such enterprises expanded in number from 264,000 to 396,000[13]. At the recently convened Eighth National People’s Congress, Premier Li (1993) reiterated the Government’s determination to push forward with economic reform.

In his report to the congress, he highlighted six areas in the Government’s effort to speed up the establishment of a socialist market economy: (1) accelerating changes in the way state enterprises operate, including the delegation of increased power and responsibility to the enterprise level management; (2) developing various new markets including those dealing in commodities, monetary instruments, labour supply, and technology; (3) additional reforms in pricing regulations; (4) reform of the employment and wage systems; (5) basic alternations in social security systems and urban housing; (6) strengthening of macro-economic management practices in the areas of finance, tax, investment, banking and economic law and regulations [14]. It is anticipated that individual enterprises will serve as the foundation for fundamental change in China and that marketing activities will play an essential role in revitalizing the economy. Today, there is abundant evidence of some of the more conspicuous elements of Western-style marketing including television commercials, newspaper advertising, billboards, carefully chosen brand names, even the slogan, “The consumer is king”. Against this backdrop of dramatic change, it is important that we achieve a greater understanding of the role of marketing in modern China. Methodology The data for this study were generated through personal interviews with a sample of general managers or presidents drawn from three major cities in China. The three locations were carefully chosen based on their level of economic openness and exposure to Western marketing concepts. Qingdao is a coastal, open city located in the south-east corner of the Shangdong Peninsula, one of China’s most affluent areas, where direct foreign investment is quite active. The pre-revolution Qingdao was a city where both local and foreign industrialists operated under capitalist concepts. Nanjing, the capital of the Guomindang Government prior to the 1949 revolution, is a highly industrialized inland open city located along the famous Yangtze River. Because of its geographical closeness to Shanghai, its management practices are heavily influenced by the Shanghai style. Xian, the ancient capital of China, is the largest city in the interior. It has a high profile for its sciences and a well-established technology base but is located far from the coast, with a sense of isolation from the West. The current article represents part of a larger study undertaken in China. The project was preceded by a thorough literature review and 30 in-depth interviews with both Western and Chinese managers to help identify and define the scope of marketing. The list of these functions is presented in Table I. The questionnaire was initially designed in English and was then translated into Chinese by one of the authors who is fluent in both languages. The Chinese version was then backtranslated into English by three Chinese faculty members, working independently,



Variables

Rank

Mean score

Standard deviation

Coefficients variation Median

What role does the marketing department play in performing the following functions? Inventory control 1 3.01 1.00 0.33 Product support service 2 2.97 0.74 0.25 Purchasing 3 2.82 0.77 0.27 Sales forecasting 4 2.77 0.81 0.29 Marketing research 5 2.75 0.73 0.27 Pricing decisions 6 2.73 0.81 0.29 Sales training 7 2.71 0.77 0.28 Quality control 8 2.71 0.85 0.32 Product planning 9 2.65 0.83 0.32 Dealer relations 10 2.63 0.83 0.32 Exporting 11 2.57 0.78 0.31 Strategic planning 12 2.50 0.92 0.37 Sales staff selection 13 2.49 0.80 0.32 Sales control 14 2.45 0.82 0.33 Physical distribution 15 2.38 0.81 0.34 Sales promotion 16 2.37 0.83 0.35 Public relations 17 2.37 0.85 0.36 Packaging 18 2.31 0.91 0.40 Advertising 19 2.25 0.85 0.38 Customer relations 20 2.10 0.93 0.44

3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

How influential is each of the following departmental heads in determining the company’s overall business strategy? Sales 1 3.99 0.89 0.22 4.0 Marketing 2 3.94 0.94 0.24 4.0 Research and development 3 3.84 0.99 0.26 4.0 Finance 4 3.72 0.88 0.24 4.0 Production 5 3.66 1.01 0.28 4.0 Personnel 6 2.88 1.01 0.35 3.0 Table I. Sample overview (n = 282)

Note: Owing to missing values, the actual cases for certain variable analyses may be fewer than the stated sample size

and revisions were made as required. The final Chinese version of the questionnaire was reviewed by a panel of native Chinese executives, each of whom had both considerable business experience and an MBA degree from a foreign business school. The consensus of the panel was that the Chinese version accurately mirrored the English version. The final Chinese version of the questionnaire was printed in the People’s Republic of China (PRC) using that country’s Chinese characters.

Six PhD candidates in management from a Chinese university were recruited to conduct personal interviews in 400 selected firms that operated with a formal marketing department. At this stage of China’s development, a mail survey presents tremendous problems both in terms of return rate and respondent understanding the nature of the questionnaire research. The six scholars were provided with the following instructions regarding sample selection: ● each interviewer was asked to interview from 40-60 respondents, who were to be selected from state owned and private/collective firms; ● respondent firms were to be selected from a wide variety of industries with no more than 20 per cent of interviews conducted in any one sector; ● interviews were to be conducted with the chief executive in the firm, typically holding the title of president or general manager; ● the company chief executives were first contacted by telephone to see if they were willing to participate in the interview – of the 400 companies contacted, 328 agreed to the interview, representing 82 per cent of the initial sample size. It was anticipated that a few respondents would be encountered with views that were clearly antithetical to the very nature of marketing. In order to relieve interviewers of the obligation of attempting to gather information while involuntarily involved in a political debate, respondents were provided with a generic description of marketing functions prior to the formal interview. In the event that the potential respondent’s understanding of the nature and scope of marketing was different from the standard description (e.g. insistence that advertising was wasteful or that marketing and selling were synonymous), the respondent was excused from this part of the project. Relatively few such individuals were encountered, although when combined with the usual problems of interview scheduling, 46 of the 328 respondents that had agreed to the interviews were eventually eliminated. Table II presents an overview of the demographic characteristics of the 282 participants in the study and some descriptors of their organizations. As in any period of rapid economic transition, new companies come and go quickly, and soon outstrip the capacity of statistical collection agencies. As a result, there was no way to verify if the resulting sample was representative of Chinese industry by category. In accordance with the exploratory nature of this study, the research was directed to an investigation of the following issues: ● To determine the relative emphasis that Chinese enterprises place on different marketing activities. Respondents were asked to rate on a fivepoint Likert scale the role played by the marketing department in performing various marketing functions (from “no role” to “very important role”). A simple mean score table is used to determine the ranking of various functions. ● To determine whether state-owned enterprises emphasize different marketing activities than collectively owned and private firms. For the



Number

Per cent

Number

Per cent

Years with firm ≤5 6 to 10 11 to 15 16 to 20 ≥21

79 68 28 31 76

28 24 10 11 27

Title in firm President/owner Vice president General manager Marketing manager

85 65 65 67

30 23 23 24

46

16

48 13 2 25 30

16 5 1 8 11

64 10

22 4

10 10 10 14

4 4 4 5

Personal Age in years ≤ 35 36 to 45 46 to 55 ≥ 56

68 127 70 17

24 45 25 6

6 91 71 67 47

2 32 25 24 17

205 77

73 27

Years in operation ≤ 10 11 to 20 21 to 30 31 to 40 41 to 50 ≤ to 50

68 79 45 59 14 17

24 28 16 21 5 6

Number of employees ≤ 50 51 to 100 101 to 200 201 to 500 ≥ 500

40 34 34 48 16

14 12 12 17 45

Annual sales last year ≤ 1 ($ millions) 1 to 5 ($ millions) 5 to 10 ($ millions) 10 to 25($ millions) ≥ 25 ($ millions)

17 65 56 76 68

6 23 20 27 24

Education level Grade school High school Some post-secondary Bachelor’s degree Graduate degree/MBA Gender Male Female

Firm

Table II. Demographic characteristics of respondents/firms (n = 282)

Type of industry Manufacturing of consumer goods Manufacturing of industrial goods Food manufacturing Wholesaling Retailing Construction Transport and communication Mining Agriculture and forestry Publishing/printing Financial services Others

●

●

●

purposes of this report, collectively owned and private enterprises were grouped and compared with state-owned operations. Basic t-tests were employed to examine differences. To determine if coastal city enterprises place a different emphasis on marketing activities than do inland enterprises. Three locations were chosen for this purpose based on their degree of economic interchange with the West and the degree of active Western investment. A Duncan analysis was used to test for potential differences. To determine whether small and medium enterprises place more importance on marketing than do large enterprises. The enterprises under study were grouped into three sizes based on employee numbers. This approach is commonly employed in Western studies and is particularly appropriate in China, where measures such as company revenues or assets are largely dictated by Government directives. This aspect of the investigation was of interest because of the apparent relative success of small firms in China, although the extent to which such achievements can be attributed to marketing is unknown. To identify the apparent influence of various functional heads, especially marketing heads, in determining overall business strategy and the differences across the situational factors under study. The purpose of this objective was to investigate the relative influence of various functions within the organization – marketing, sales, R&D, finance, production, and personnel. Respondents were asked to rate the relative influence of each functional head, whether formally recognized or de facto, on determining the overall strategy of the enterprise using a five-point scale ranging from “little influence” to “considerable influence”. T-tests and Duncan tests were conducted with differing situational factors in order to acquire additional insights.

Data analysis involved a two-stage procedure. Stage one included the analysis of primary statistics, mainly mean scores and medians. Stage two was based on group analysis techniques, such as t-tests and Duncan analyses, to identify the differences between state-owned and collective/private enterprises, across three different geographic locations, and across different company size categories. Study findings Table I presents the preliminary statistics of the analysis, including both mean score and median values for each variable and their rankings. The analysis of these preliminary statistical values reveals the relative importance of various marketing activities in the Chinese economy. They are, in descending order of importance (see Table I): ● inventory control; ● product support services; ● purchasing;



● ● ●

sales forecasting; marketing research; pricing.

These findings clearly reflect the unique nature of an economy in transition. Although a formal test comparing Chinese and Western rankings is not possible with the existing data, differences almost certainly do exist. Chinese managers rate internal variables such as inventory control, purchasing and sales forecasting much higher than tasks involving external considerations such as marketing research, customer relations, promotion and strategic planning. This is quite natural when put into the context of the Chinese experience. Under the planned economy, company managers had only to worry about meeting the state’s production quotas. They did not have to be aware of market conditions, nor even the identity of suppliers, as the state would typically allocate the required materials for production and take away the finished products[3]. With the introduction of market forces into the Chinese economy, the enterprises are now increasingly exposed to market competition. Except in some key industries, such as steel and automobiles, the state no longer issues production plans. Managers are responsible not only for material sourcing, but also for selling the finished products at market. To make a profit, the management has to ensure a smooth process from sourcing to material inventory control to production to finished goods inventory control and to the final sale. With the Government ceding control over these processes, Chinese enterprises feel the increasing urgency and thus put these functions as the top priority. In 1992, when the Government gave up control over prices, enterprise managers were suddenly faced with this responsibility. They must now work to minimize waste and maximize output to make a profit. An exception to the apparent internal orientation of Chinese managers is the fact that “product support services” is ranked second on the list. This may indicate that Chinese enterprises are beginning to understand the meaning of customer services such as price adjustments, repair parts, etc. but, perhaps more likely, it may simply reflect the fact that customers now have direct access to the organization. In other words, just as Chinese managers were suddenly faced with the problem of sourcing, they were also faced with the problem of handling customer complaints. Indeed, one interpretation of the ranking evident in Table I is that it is directly related to the immediacy of newly faced problems. As is the case elsewhere, “fire fighting” imposes a strong imperative on management resources. It is interesting to note that the marketing departments in Chinese enterprises play little role in sales promotion, public relations, packaging, advertising, and customer relations, all of which are vital in the marketing portfolio of Western managers. Maybe this phenomenon indicates that the Chinese managers practise marketing differently from Westerners, who regard customer satisfaction as the very core of marketing and usually rely heavily on promotion to influence consumers. Apparently, Chinese managers believe that as long as they have a

quality product with good product service, the product will sell itself – a traditional production orientation characteristic of sellers’ markets everywhere. Also recorded in Table I is the comparative influence of functional heads on the firm’s business strategy. As indicated, heads of sales appear to have a dominant influence although marketing heads are also viewed as being important. Especially interesting in view of historical practices is the relatively minor influence of the production head. It appears that such individuals are being pushed into the back stage as economic reform deepens. Additional insights regarding Chinese managers’ marketing practices were generated through t-tests and Duncan tests. T-test analysis was used to investigate the differences in marketing practices between state-owned enterprise managers and collective/private enterprise managers with the results as indicated in Table III. An examination of Table III reveals that collective/private enterprises place much more importance on customer satisfaction than do state-owned enterprises. The collective/private firms clearly demonstrate more activity in marketing research, quality control, product support service, packaging, dealer relations, and strategic planning, but are less active in inventory control. The apparent lack of customer orientation among state owned enterprises may be due to the fact that they are most concerned with those marketing functions more closely related to production. An examination of the role played by different managers in determining the company’s overall business strategy revealed that, as expected, production and sales managers from state-owned enterprises have considerably more power than their private/collective counterparts. Not surprisingly, marketing managers from collective/private enterprises clearly overshadow their state employed counterparts in their involvement in overall business design. A Duncan test was conducted to examine the differences among enterprises across the three geographic locations. Table IV summarizes the findings. As expected, marketing departments in Xian play a significantly less important role on almost all functional areas except for advertising and packaging as compared with their colleagues in the coastal cities of Qingdao and Nanjing. The stress put on advertising and packaging by Xian managers may reflect their marketing tactics during the transition from a planned economy to a market economy. The formerly government-controlled distribution channels are now less dependable as distributors and are increasingly reluctant to deal with remote cities. As a result, the managers in Xian have been forced to rely on a “pull strategy” to target customers directly through heavy advertising and attractive packaging. Despite Xian’s use of advertising, this inland city still appears to remain under the spell of planned economy thinking with respect to determining overall business strategy. The production managers in Xian still control overall business strategy while the coastal, open city, Qingdao, clearly demonstrates the leading role that marketing managers play in determining overall corporate strategy. A second Duncan test was conducted to test for differences among small, medium and large companies. The authors adopted the US Small Business



Means (SD) Collective/private enterprise (n = 181)

State-owned enterprise (n = 101)

t-value

Two-tail probability

What role does the marketing department play in performing the following functions? Advertising Marketing research Pricing decisions Sales training Product support service Physical distribution Quality control Sales forecasting Customer relations Sales staff selection Product planning Public relations Purchasing Exporting Sales promotion Sales control Dealer relations Packaging Inventory control Strategic planning

2.24 2.97 2.76 2.70 3.22 2.41 2.84 2.82 2.09 2.45 2.64 2.31 2.82 2.60 2.37 2.47 2.79 2.46 2.80 2.67

(0.79) (0.72) (0.74) (0.76) (0.68) (0.80) (0.85) (0.78) (0.90) (0.77) (0.81) (0.79) (0.75) (0.75) (0.78) (0.75) (0.76) (0.93) (1.14) (0.89)

2.27 2.51 2.66 2.74 2.67 2.32 2.46 2.69 2.12 2.57 2.65 2.47 2.82 2.52 2.37 2.42 2.50 2.23 3.12 2.26

(0.94) (0.76)) (0.92) (0.79) (0.84) (0.83) (0.80) (0.89) (0.98) (0.87) (0.88) (0.94) (0.82) (0.85) (0.94) (0.94) (0.95) (0.90) (0.91) (0.97)

–0.28 2.67 0.92 –0.38 2.82 0.78 3.40 1.09 –0.27 –1.05 –0.11 –1.30 –0.04 0.79 0.05 0.45 1.72 1.79 –2.37 2.02

0.78 0.02 0.36 0.70 0.00 0.43 0.00 0.28 0.79 0.30 0.91 0.17 0.97 0.43 0.96 0.66 0.10 0.08 0.02 0.05

How influential is each of the following departmental heads in determining the company’s overall business strategy? Production 3.36 (1.05) 3.82 (0.95) –3.54 0.00 Finance 3.88 (0.82) 3.41 (0.90) 4.27 0.00 Personnel 2.94 (0.94) 2.78 (1.12) 1.16 0.25 Marketing 4.03 (0.89) 3.76 (1.02) 2.22 0.03 Research and development 3.81 (0.97) 3.89 (1.03) –0.66 0.51 Sales 3.96 (0.91) 4.07 (0.85) –0.92 0.36 Table III. Ownership comparison t-value results (n = 282)

Note: Owing to missing values, the actual cases for certain variable analyses may be fewer than the stated sample size

Administration’s definitions of company size, with one modification. Because many Chinese companies have a redundant workforce, we arbitrarily doubled the number of employees used to classify Western companies. In our study, small companies were defined as having 100 or fewer employees, medium sized companies are those with employee numbers between 101 to 500, and large companies are those with more than 500 employees. Table V presents the results across the three size categories. The data on marketing activities do not provide a clear pattern as to what size of company is more sensitive to the marketing activities. Larger firms demonstrated significantly more attention to marketing research, pricing decisions and quality control, while smaller firms concentrated

Functional areas

Company location Nanjing Qingdao Xian (n = 102) (n = 55) (n = 125) F-score

Duncan test

Marketing and economic liberalization


2.10 2.84 2.84 2.76 3.03 2.39 2.84 2.78 1.98 2.35 2.68 2.31 2.80 2.60 2.29 2.51 2.59 2.13 3.03 2.51

2.08 2.79 2.59 2.78 3.17 2.31 2.79 3.04 2.10 2.57 2.64 2.27 2.98 2.77 2.54 2.45 2.98 2.50 3.56 2.84

2.46 2.63 2.67 2.63 2.79 2.40 2.52 2.62 2.22 2.60 2.61 2.48 2.75 2.46 2.36 2.39 2.47 2.41 2.69 2.32

5.63 2.17 1.88 0.83 5.21 0.19 3.69 4.40 1.51 2.37 0.20 1.22 1.47 2.52 1.40 0.44 4.10 3.32 13.47 4.71

G3>G2, G3>G1* G1>G3*** G1>G2*** N/S G3G3*** G2>G3**; G2>G1*** N/S G3>G1*** N/S N/S N/S G2>G3** N/S N/S G2>G1, G2>G3* G1G3, G1G3*; G2>G1**

17

How influential is each of the following departmental heads in determining the company’s overall business strategy? Production 3.91 3.13 4.28 35.97 G3>G2, G1>G2*; G3>G1** Finance 3.81 4.15 3.44 13.82 G2>G3, G1>G3*; G2>G1** Personnel 2.62 2.79 3.13 6.85 G3>G1*; G3>G2** Marketing 4.06 4.38 3.63 13.53 G2>G3*; G1>G3, G2>G1** Research and development 3.50 4.39 3.89 15.05 G2>G1, G3>G1*; G2>G3** Sales 3.89 4.18 4.00 1.67 G2>G1*** Note: G1 = Nanjing, G2 = Qingdao, G3 = Xian * Denotes significance at 0.01 ** Denotes significance at 0.05 *** Denotes significance at 0.10 Owing to missing values, the actual cases for certain variable analyses may be fewer than the stated sample size

more on advertising, packaging, sales forecasting, dealer relations, and inventory control. These mixed results may reveal the fact that the smaller firms do not have the resources to capture the benefits of certain marketing activities such as marketing research. Further, most small companies generally follow the market leader in terms of prices and standards of product quality. Also, it is very natural for the smaller firms to pay a lot of attention to inventory control because of their limited resources. Finally, it seems that smaller sized firms use active advertising

Table IV. Mean scores on functional areas across three geographic locations (n = 282)


Functional areas

Company size Small Medium Large (n = 74) (n = 82) (n = 126) F-score Duncan test


2.22 2.66 2.54 2.63 2.91 2.30 2.52 2.64 2.00 2.58 2.62 2.47 2.84 2.70 2.38 2.43 2.61 2.45 3.26 2.53

2.45 2.66 2.80 2.81 2.99 2.32 2.72 2.95 2.25 2.49 2.53 2.39 2.88 2.48 2.44 2.52 2.81 2.48 2.95 2.51

2.15 2.85 2.78 2.70 2.99 2.45 2.81 2.75 2.07 2.45 2.72 2.31 2.77 2.55 2.32 2.42 2.54 2.15 2.91 2.48

2.73 2.13 2.03 0.90 0.29 0.83 2.45 2.48 1.15 0.48 0.98 0.73 0.37 1.32 0.42 0.36 2.20 3.59 2.60 0.06

G2>G3** G3>G1*** G3>G1, G2>G1*** N/S N/S N/S G3>G1** G2>G1** N/S N/S N/S N/S N/S N/S N/S N/S G2>G3** G1>G3; G2>G3* G1>G3, G1>G2** N/S

How influential is each of the following departmental heads in determining the company’s overall business strategy? Production 3.45 3.66 3.77 2.24 G3>G1** Finance 3.52 3.82 3.77 2.37 G2>G1**; G3>G1*** Personnel 2.81 2.89 2.91 0.23 N/S Marketing 3.90 3.92 3.97 0.11 N/S Research and development 4.10 3.96 3.62 5.59 G1>G3*; G2>G3** Sales 4.20 3.93 3.93 2.32 G1>G2, G1>G3***

Table V. Mean scores on functional areas across three company sizes (n = 282)

Note: G1 = Small, G2 = Medium, G3 = Large * Denotes significance at 0.01 ** Denotes significance at 0.05 *** Denotes significance at 0.10 Owing to missing values, the actual cases for certain variable analyses may be fewer than the stated sample size

and attractive packaging to compete with some well established products owned by the larger companies. When viewed from a different angle, the data in Table IV suggest that larger firms are more production oriented than smaller firms. When compared with smaller organizations, production managers in large firms have significantly more influence in determining the company’s overall business strategy. In contrast, managers of R&D and sales play a relatively more significant role in determining the company’s overall business strategy in small and medium sized firms.

Discussion General marketing practices Although this study was exploratory in nature, it does provide considerable information on the nature of marketing in modern China. It is evident that the marketing practices of Chinese managers are reflective of the nature of the country’s transitional economy. Most enterprises, even if state owned, now find themselves involved in marketing because they are no longer allocated production inputs nor are their outputs assigned to prearranged buyers. This situation has prompted considerable attention to inventory control, purchasing, and sales forecasting. As the Government relaxes price controls, Chinese enterprises will have to fight for limited production resources at affordable prices in order to stay alive. Further, without a government distribution list showing producers where to ship and in what quantities, sales forecasting becomes a very serious activity. Chinese managers understand that to stay profitable they must minimize uncertainty on the input side and maximize certainty on the output side. In the view of many Chinese managers, success can be assured by good inventory controls and effective sales forecasting. This may sound somewhat naïve to Western marketers who regard consumer needs and satisfaction as the core of their marketing strategy; however, as Joy[15] pointed out, despite reforms, China is not a typical market economy. First, the Chinese economy is still dominated by state-owned enterprises. Although the central planning system may be in its last stages, the delegation of power is still somewhat controlled. Second, the cultural preference for personal rather than contractual relations has inhibited the growth of a market economy[16]. Finally, the lack of an infrastructure to promote the dissemination of information, products, and people presents a formidable obstacle[15]. As a result, marketing practices in China are still limited in their application, comparable perhaps to the early 1900s in the West. It will take a considerable time for Chinese enterprises to fully digest the various elements of marketing. In time, as consumer awareness regarding product quality and variety increases, Chinese enterprises will undoubtedly become more adept in the practices of marketing. Collective/private vs. state-owned enterprises Because of the fast growth of collectively owned and private enterprises, it is very important to assess the marketing practices of these firms as they may foreshadow future business practices in China. The data in this study indicate sharp differences in the business practices of state-owned enterprises and collective/private firms. As expected, state-owned enterprises remain production oriented although, increasingly, they do so at the risk of being left behind by more market-oriented competitors. Clearly, both types of entity need to focus more on consumer needs and satisfaction. The fact that collective/private enterprises ranked “product support services” as the most important role of marketing may be a sign of their growing commitment towards customer orientation, whether achieved on a proactive or reactive basis. This may well offer them a competitive edge and explain why they



are gaining market share from state enterprises. In contrast, the number one ranking of “inventory control” by managers of state-owned enterprises suggests a strong production orientation. Their vision is still limited to ensuring a smooth production process instead of getting to know the market better. Another important difference is that collective/private managers, especially those from larger firms, rate “marketing research” much higher than managers in state enterprises. This may explain why collective/private enterprises have grown so fast. Being more responsive to the marketplace, they have gained a competitive edge over their state counterparts. Collectively owned and private enterprises have accepted responsibility for the elements of the marketing mix, whereas state enterprises can only be partially responsible for their marketing actions. The collective/private firm is free to design products according to the needs of consumers, price the product according to the market (although market information is not always adequate) and promote to selected target markets. Although collective/private enterprises can distribute products through whatever channels they see fit, the prevalence of corruption, combined with a lack of adequate information, makes such decisions difficult. The response to market pressures by state enterprises is considerably more tentative, perhaps because the state bureaucratic machine retains considerable influence over management activities. The Government still pressures firms to meet production quotas, especially in areas where there are shortages of supplies. To make state enterprises more responsive to the market, the Government has signalled the further relaxation of controls and promised to let firms undertake increased marketing initiatives. Degree of economic openness Since 1979, the Chinese government has established a number of “special economic zones” such as Shenzhen and Zhuhai and the open cities such as Shanghai and Qingdao. The degree of economic openness of each region or city to some extent reflects the level of adoption of Western business practices. The study results support the observation that the open, coastal cities are more active in marketing initiatives than inland cities. This finding may be interpreted in two ways. Prosperity in open cities may be the result of using modern management and marketing practices. If so, the relative poverty that inland areas now suffer might be reduced if enterprises in those areas can adopt a more market-oriented management style. It is also possible that the open cities are more resistant to attempted central control and have developed a market atmosphere the Government could not easily reverse. In this regard, the Government may have to encourage the market atmosphere in inland provinces to bring the economy in line with the coastal areas. Company size In numbers, China’s giant industrial enterprises account for only 0.87 per cent of all firms, medium sized firms represent another 2.03 per cent and small enterprises make up 97.10 per cent. The industrial output value of the latter two

categories constitutes 68.5 per cent of the national total and employs 78 per cent of the total industrial labour force[13]. The role of small and medium sized firms in Chinese economy, whether collectively or privately owned, is not only important, but vital to the country’s wellbeing. Their marketing orientation will certainly influence the direction of future reforms and eventually the success of the economic transition. The fact that the large, state-owned companies were found to be more production-oriented than small and medium sized ones is of no real surprise, except for the finding that they are more active in “marketing research” and “pricing decisions” than their smaller counterparts. It is likely that smaller firms do not have the resources required to conduct regular marketing research and, in terms of pricing, simply follow the lead of larger market leaders, a not unreasonable strategy given that such firms are usually better positioned to read Government policy changes and its impact on market conditions. In the final analysis, the fact that small and medium sized companies are, overall, more accepting of marketing practices suggests that they will be well positioned to take advantage of more liberalized economic reforms. Limitations, future studies and conclusions This study represents an attempt to overcome the paucity of information relating to practices and roles of marketing that accompany China’s current economic transitional period. Because of its exploratory nature, a number of limitations were encountered. First, the sample selection process was hindered by the poor information contained in any industrial directories in China. Thus, the final sample did not achieve the standards demanded for a fully random sample. A stratified sample that accurately represents the industrial sectors may be more desirable. In addition, a future study of this type should be directed to specific, bell weather industry sectors. It is the belief of the authors that different industrial sectors will display different attitudes regarding the adoption of marketing practice since they operate under varying degrees of government regulation. Various statistical tests were directed to this premiss but were frustrated by the small sub-samples involved in the current study. A second limitation can be traced to the objectives of the overall project which restricted the study to firms that operated with a formal marketing department, undoubtedly a minority in today’s China. A better overview of actual Chinese practice would be attained by using a broader cross section of enterprises. Third, this study tried to collect objective information on the firms’ performance and correlate these measures with marketing practices. Unfortunately, the information provided was not usable because many firms under study were unable to provide comparable operating information. Further work on devising different measures of performance would be most useful and allow for a more direct assessment of the impact of various marketing activities. Finally, it must be acknowledged that the project was cumbersome to administer because of the distances involved and the fact that not all the



respondents interviewed were familiar with research of this type. These factors undoubtedly slowed the execution of the study, an unfortunate fact given the dynamic nature of the economy under investigation. The Xinhua News Agency recently reported a year-to-year gain in industrial production in China of 22.4 per cent, building on a gain in national output of 12 per cent in 1992 compared to 1991. Amid such success, China will undoubtedly attempt to continue with its incremental approach to economic reform. The success that Chinese enterprises experience in this ever-changing environment may depend on how well they adopt and adapt various Western management practices including marketing. This pilot study attempts to open an avenue for further work on the adoption of marketing practices in China. Further research will certainly add to the existing understanding of the nature of a transitional economy and provide some guidance to those countries that are trudging along the path of economic reform. References 1. People’s Daily, 30 March 1993. 2. Hooley, G.J., “Raising the Iron Curtain: marketing in a period of transition”, European Journal of Marketing, Vol. 27 Nos. 11/12, 1993, pp. 6-20. 3. Gordon, M.J., “Market socialism in China”, working paper, University of Toronto, 1991. 4. Marinov, M., Cox, T., Avlonitis, G. and Kouremenos, T., “Marketing approaches in Bulgaria”, European Journal of Marketing, Vol. 27 Nos. 11/12, 1993, pp. 35-46. 5. Shipley, D. and Fonfara, K., “Organization for marketing among Polish companies”, European Journal of Marketing, Vol. 27 Nos. 11/12, 1993, pp. 60-79. 6. Mun, K.C., “Marketing in the PRC”, in Kaynak, E. and Savitt, R., (Eds), Comparative Marketing, Praeger Publishers, New York, NY, 1984, pp. 247-60. 7. Holton, R.H., “Marketing and the modernization of China”, California Management Review, Vol. 27 No. 4, 1985, pp. 33-45. 8. Zhuang, S.C. and Whitehill, A.M., “Will China adopt Western management practices?”, Business Horizons, March-April 1989, pp. 58-64. 9. Mahatoo, W.H., “Marketing in China”, Journal of General Management, Vol. 15 No. 3, Spring 1990, pp. 63-79. 10. Marx, K., Capital (Translation), Chinese Foreign Language Publishing House, Beijing, 1970. 11. Ennew, C.T., Filatotchev, I., Wright, M. and Buck, T.W., “Constraints on the adoption of the marketing concept: the case of the former Soviet Union”, European Journal of Marketing, Vol. 27 Nos. 11/12, 1993, pp. 21-34. 12. China Daily, 9 April 1993. 13. Wu, N.T., “Rapid progress in small and medium-sized enterprises”, Beijing Review, Vol. 36 No. 14, 5-11 April 1993, pp. 16-7. 14. Wu, N.T., “Eight major tasks for reforms in 1993”, Beijing Review, Vol. 36 No. 10, 8-14 March 1993, pp. 15-17. 15. Joy, A., “Marketing in modern China: an evolutionary perspective”, Canadian Journal of Administrative Sciences, June 1990, pp. 55-67. 16. Lockett, M., “Culture and the problems of Chinese management”, Organization Studies, Vol. 9, 1988, pp. 475-96.