south china's infant economy; will it reach adulthood?

John Galvin Galvin & Associates, Ltd. 94 Hu Yeung Village Clear Water Bay Rd., Kowloon Hong Kong

There is great optimism among business people about the economic miracle created by the unlikely alliance between capitalist Hong Kong and communist South China.

Recent events surrounding Hong Kong’s Governor Chris Patten’s proposal for increased democracy in Hong Kong and China’s obstinate rejection of the proposal suggest that on the political side, all is not well. Yet, despite political uncertainties, Hong Kong business people and their mainland colleagues continue to be optimistic about China’s economic future. Nothing seems able to dampen their enthusiasm.

I know I am going against this tide of optimism, but I cannot help but wonder if in the long term this economic miracle is little more than smoke and mirrors, an economic illusion? I worry that Hong Kong is enjoying one last decade of prosperity as it turns down an economic dead end with China’s economy blindly following behind.

The issue that demands consideration is Hong Kong’s long-term economic viability and South China’s ability to develop a mature economy.

When I first arrived in Hong Kong in the early 70s, the local economy depended on

In less than two decades, the Hong Kong economy

has experienced a metamorphosis

South China’s infant economy; will it reach adulthood?

the sweat of unskilled factory workers and the ability of Hong Kong’s entrepreneurs to subcontract work from US and European companies. In less than two decades, the Hong Kong economy has experienced a metamorphosis. The entrepreneurs and their factories have departed Hong Kong for China drawn there by the availability of inexpensive land and cheap labour and pushed there by the need to remain competitive on the international market.

Hong Kong is no longer a manufacturing centre. It is now a predominantly trading and service economy supported by Chinese entrepreneurship, expatriate professional skill and a modern banking, transportation and communication infrastructure. Regard- less of its fabled economic resilience and modern facade Hong Kong still depends upon an economic strategy which is charac- teristic of developing countries.

As I see it when China opened its doors and made available its masses of cheap labour, Hong Kong gained a second chance. By repeating the economic practices associ- ated with export oriented, labour intensive manufacturing Hong Kong entrepreneurs are enjoying another decade of high earnings. If China remained a Maoist citadel closed to the world, this last chapter of British Hong Kong would have a sadder economic ending.

Economic dragons, unlike their mythical cousins, are not immortal. How long can Hong Kong and the emerging economy of South China depend upon the cheap labour of the Chinese masses and an economy which is a subordinate player in the

288 J. Galvin

international game of production sharing? My guess is not very long.

Economic resources consist of labour, land, capital, technology, materials, knowledge (scientific and management), and entrepreneurship. Entrepreneurship is more than just a mad cap, no fear of failure, buy it and sell it, work until you drop spirit, it is technological and business innovation which develops and sustains mature economic enterprises.

Hong Kong is rich in small to moderate business

entrepreneurship, possesses considerable capital, and has available a moderate amount of management

knowledge

As I see it, here are Hong Kong’s economic resources. Hong Kong is rich in small to moderate business entrepreneurship, possesses considerable capital, and has available a moderate amount of management knowledge. In the area of technology, what Hong Kong has, it has purchased not developed. Labour, particularly cheap labour, is limited, and land, what little there is, is already exhausted. Scientific knowledge is basic and practical. The facilities for scientific research and development are rudimentary. Natural resources are non- existent.

China’s economic resources, on the other hand, are land, labour, natural resources, but China desperately needs capital, technology, knowledge and entrepreneurship. My evalu- ation gives the Hong Kong-China alliance four out of seven of the vital ingredients for economic success. Not bad, but is it good enough?

At present, much of the economic activity in South China takes advantage of cheap labour, land, and Hong Kong’s entrepreneurship. The technology involved is relatively

low tech. The production process is labour intensive. For the most part Japanese, European, North American business people provide product design, production technology, marketing skills, and a market for finished products. Hong Kong entrepreneurs are the savvy middle men. The problem with this arrangement is that a regional economy, like Guangdong, dependent on its cheap labour and land, can prosper for a decade but not longer. A modicum of economic success quickly prices them out of the market. Already labour costs in parts of South China are twice what they are in other parts of China pushing businesses further North in search of cheaper land and labour.

In order to sustain continued growth, political and business leaders need to guide South China’s economy toward a more mature phase of economic development. New and more sophisticated industries are needed to replace the toy factories, the garment industry, the electronic assembly plants.

Here are several critical issues which I believe Hong Kong and Chinese business leaders need to address if Hong Kong and Southern China economies are to mature and prosper over the long term.

Long-term strategic thinking

In many ways, South China’s economic development resembles the shooting of a local, Hong Kong film. The director has a very general story, but no script. Actors, and film crew, crowd into their vans and rush from place to place making up the story and writing dialogue as they go along.

Hong Kong business people and their mainland partners need a long-term strategy of economic development. What role will South China’s economy play within the international and regional market? What factors will be crucial for long-term success? How should capital be invested? Are business leaders preparing a long-term strategic plan that will encourage mature economic development?

Journal of Strategic Change, October 1993

South China’s infant economy 289

Japan’s economic development from the end of the Second World War to the present is an example of the type of strategic planning which is required. Lacking natural resources Japan understood that it had to import raw materials, add value to them, and export to foreign countries. In line with this strategic insight, business leaders identified key strategic issues such as the development of production technology, the importance of innovation, the promotion of education, the selection of competitive niches and so forth.

Hong Kong and Chinese business leaders need to

combine rational analysis with intuitive problem

solving

As Hong Kong and Chinese business leaders face the challenges of developing China’s economy, they need to be strategist. They need to combine rational analysis with intuitive problem solving. They need to identify the critical issues and pursue these issues aggressively.

A n indigenous management culture

Hong Kong and Chinese business people can learn Western and Japanese management techniques, but the key to long-term success is their ability to make these techniques indigenous to Chinese culture. Success will not be the result of imposing North American, Japanese, or European management methods. At best, the knowledge and experience which comes from others is one side of a dynamic dialogue. Chinese managers need to learn and then adapt the basic principles of modern management to their own culture.

Are Hong Kong and Chinese business people developing a management culture of their own that can compete on the international stage? In Hong Kong many large

companies are management hybrids with a layer of expatriate management over a layer of Chinese management. These companies offer young Chinese business people the chance to learn management skills and to experience first hand how British, Americans, or Japanese run their organizations. In time these young Chinese managers will mature and hopefully they will contribute much to the development of an indigenous management culture.

Some Hong Kong companies, managed by local Chinese, have developed their own style of management which reflects an original mixture of Western and Eastern values, but it remains to be seen how influential these companies will be on the development of a management culture in China. Hong Kong managers tend to distrust their mainland colleagues and prefer to keep a tight control on their joint ventures. They are investing in training for line super- visors and staff but continue to depend on Hong Kong trained managers.

Much remains to be done to make modern management an integral aspect of Chinese culture. This is a critical area.

Organizational structures

Business leaders need to create organizational structures which can support mature economic development. Chinese businesses run into trouble as they grow larger and more complex. Keep it in the family is often the dominant management strategy. Resistance to the integration of professionals and an ability to trust non-family members limits business development. As Michael Bond of the Chinese University of Hong Kong points

Business leaders need to create organizational structures which can

support mature economic development


290 J. Galvin

out, ‘Chinese businesses only become large if they concentrate in one narrow sector where the owner is skilled and experienced, or when the company enjoys a politically assured monopoly, thereby permitting inefficiency’.

In Hong Kong and China traditional cultural values conflict with many of the practices which Japanese and Western managers employ when developing and running complex, capital intensive enterprises. In order to compete internationally, the Hong Kong and China business alliance should focus on their ability to create dynamic organizational structures which can match those that exist in the developed world.

Stemming the brain drain

For decades, Hong Kong has seen large numbers of its population depart for greener pastures and a good proportion of these emigres have been skilled professionals. As 1997 looms closer on the horizon the numbers of professionals seeking immigra- tion is likely to increase.

In China, while the pool of unskilled labour is deep, the pool of experienced professionals is like a puddle of water after a rain, shallow and drying up fast. Demand outstrips supply and despite the demand for professionals, China still has a brain drain problem. Eager students and professional people leave China in search of higher education and professional development. Many of these people do not return home.

Hong Kong and China, at this stage of development, need all the professional talent available. If the brain drain flows on, and increases, China’s infant economy will be deprived of one of the critical nutrients which ensures mature development.

Good employment prospects, challenging work, a respected role within the organiza-

development, but it is hard pressed to offer a decent family environment. Housing, education, recreation are expensive. A family with two professional adults earning good salaries may still find it difficult to maintain a middle class lifestyle which compares to Canada, US or Australia. Double digit inflation does not make it easier.

In China, professionals are in demand but they still face many hurdles as they seek employment prospects. Political patronage plays a role. Salaries may be higher than those given unskilled labour but so is the cost of quality consumer goods. Ongoing professional development is limited. Housing shortage is a chronic problem.

As long as China and Hong Kong fail to provide the things professionals desire, the brain drain will continue.

Learning to manage the professional

Hong Kong managers and their counterparts in China are pulled toward two management styles, one traditional and one modern. Which style is most effective depends on the type of worker being managed.

The traditional management style expects managers to be authoritarian and paternalistic. Managers tell staff what to do, establish guidelines and procedures that staff follow unswervingly and motivate staff with the carrot or the stick. This style is suited to managing unskilled workers.

The modern style expects managers to be more democratic, more communicative, more skilled with people, more dedicated to developing staff, and more willing to encourage staff initiatives. This style is suited to managing the educated professional.

Business leaders in Hong Kong and China are still a conservative group of people. In

Business leaders in Hong tion, professional development, a decent environment for one’s family are the things professionals desire. Hong Kong can offer its Kong and China are still a - - professionals good employment prospects, conservative group of people challenging work, and a degree of professional


South China’s infant economy 291

Hong Kong one has the colonial traditions of the great British Hongs of Jardine, Swire, the Hong Kong Bank. Among the Chinese there are many family run businesses equally steeped in traditional ways. In these businesses management practices change slowly if at all.

China’s management practices are wedded to Confucian beliefs and traditional bureaucratic practices. The legacy of China’s past, paternalistic officials, corruption, favouritism are ever present.

The management practices of Hong Kong and Chinese companies often frustrate local professionals. Generally, there are two responses to this frustration; move on to another job or fill the passive, servile role as expected.

Movement toward a more mature economy which relies on the creativity, innovation, and commitment of skilled professionals requires a simultaneous movement toward a management style which is compatible with the expectations of skilled professionals.

Training and deuelopment

The future belongs to the knowledge worker, the professional, the skilled technician, the people who produce not with blood, sweat and tears, but with their brains and hearts. Education of skilled, knowledge workers, and professional managers is a priority for any nation seeking to develop a modern economy. And, the process of education is the responsibility of both academic and business institutions.

Few Hong Kong business leaders publicly deny the need for continued development in a world which constantly changes, nevertheless a recent study reported that

In China the desire to learn is strong but there is a paucity of educational

opportunities

Hong Kong’s top directors and managers set aside little time for their own development and you can count on your fingers the companies that provide high quality training and development.

In China the desire to learn is strong but there is a paucity of educational opportunities. The problem may be getting worse as the immediate needs and rewards of commercial enterprise entice educators to abandon universities for jobs with China’s new joint ventures.

Training and development is not simply an issue of availability but also one of application. The provision of appropriate training and development programmes is important, but the development of company cultures which welcome and support the application of new knowledge is perhaps even more basic. Far too often the knowledge and skills gained in training and development programmes do not translate into practical results when staff return to work. A rigid corporate culture is a formidable foe. The enthusiasm which ac- companies new skills and knowledge wanes and dies in the stale atmosphere of corporate complacency and intransigent traditions.

A China comfortable being interdependent

During the years of orthodox communist rule Chinese leaders chose to sacrifice economic development rather than risk China’s independence. Given China’s history, this choice is understandable. Will China give up its cherished independence and join a community of nations with all the privileges and obligations which accompany political, economic and social interdependence?

Looking back on the past 30 years, one sees China like a pendulum swinging from one side to the other, opening up to the outside world then closing off to the outside world. At present, China is open to the world and many feel that this time the pendulum will defy the pull of historical precedence and remain suspended on the side of cultural, political and economic openness.


292 J. Galuin

Analysts present their rational arguments. Chinese leadership is becoming less ideological. This 1 0-year economic boom is a miracle and cannot be reversed. Stock and real estate markets are pushing China further down the capitalistic road. 1 would find all these rational arguments convincing if I could ignore the basic irrational character of human behaviour and China's deeply rooted cultural inclinations. A conservative evalua- tion would suggest that the pendulum will continue to swing, but less dramatically.

We cannot change past events and it is precarious to predict the future. But, we can learn from the past, and while we do not control our future, we can influence it. The task of managing human affairs in general and

economic affairs in particular begins with a clear understanding of the critical issues and continues with the exercise of the analytical and intuitive abilities that give us humans an advantage over fate.

Biographical note

John Galvin is a qualified psychologist currently working as a management consultant for a number of Hong Kong organizations including Cathay Pacific Airways, Mass Transit Railway Corporation and Television Broadcasts Limited. His areas of specialization are: performance management, staff development, communication, counselling, and innovation. John has over 10 years of experience working in Hong Kong, and is a fluent Cantonese speaker.

Journal of Strategic Change, October 1993 1057-92651931050287-06$08.00 @ 1993 by John Wiley & Sons, Ltd.

south china's infant economy; will it reach adulthood?

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