Dilemmas of a State-owned Enterprise in China

Chen Tonghai, the ex-chairman of Sinopec Corporation of China, was one of the members of the Communist Party. Since 1998, he was the Vice chairman of the Sinopec Corp. In 2003, he became the Chairman. During these several years, he was being corrupted and bribery including illegalized using its position for personal affairs like property acquisition, remitted money to overseas bank accounts. In 2009, he was being arrested and the Chinese government took over all of his property as well as eliminated his political rights.

All about Dilemma

Dilemma for Chen Tonghai

Since Sinopec is a state owned enterprise, the salary for the chairman is relatively low when compare to those western companies like Exxon Mobile, Chevron, etc. If the bribery does not affect the general operation of Sinopec Corp, he could see the point that he should stay away from corruption. Accounting to Pei (2007), corruption in China is almost a risk free activity. If most of the Chairmen did that kind of thing, he may believe that he can do it too. Say, if all of your classmates cheat in the examination, it will increase your incentive of cheating too.

Dilemma for Sinopec Corp.

        When the company discovered Chen’s action, Sinopec didn’t know whether it should announce it to the public and the government. After all, Sinopec Corp. is a famous company in both China and the world. If people discover the issue, it would harm the company’s goodwill. Also, shareholder would have capital loss due to this incident.

        It is just like the recent case of Alibaba. The company discovered cheating of some employee. Some buyers incur loss in their transaction. If the company didn’t announce this incident, it would just be known by some buyers and the company. If they announce the incident, some management director of the company should bear the responsibility. Therefore, it is difficult for the company to make that decision. Hopefully, Alibaba decided to announce it.

Dilemma for Big shareholder of Sinopec

        The big shareholders normally know the problem related to Chen. If they know that the company was going to announce Chen’s incident, they would sell their stock first in order to avoid capital loss. However, it constituted with insider trade and it may be unethical to do so. Due to the grey area in regulation, they may do it without breaking the law.

Dilemma for the Chinese government and court

        Should the court penalize Chen heavily or lightly? If the penalize is too heavy, it may affect the current system as well as reduce the incentive of other companies’ chairman. They may be afraid of making decision for the companies in finally they decide to do nothing and this discourage companies’ development. If the penalize is too light, citizen would believe that the government has another transaction with the business sector as well as Chen.

i.                    Ethical decision making

In China, being a government official especially in senior position enjoys a great deal of privileges and power. By making use of these kinds of authority and power, one and people surrounded can make a fortune and live an extremely luxurious life. Like Chen Tonghai in this case, he was convicted of taking US$28.7 million in bribes. This figure was underestimated as Chen transferred part of his corrupted money to overseas accounts during investigation. As the article “Corruption Threatens China’s Future” said, the odds of a corrupt official going to jail are less than 3 out of 100, corruption is a high-return, low-risk activity. For amount of money huge like millions of dollars, many people would like to risk their life to achieve that. Paying for renovation costs, house purchases or abnormal accounts on houses and free trips were some of the ways in which officials were tempted to compromise themselves. Besides, he would not thought of being caught. This is one of the tempting reasons that lure officials to take briberies. It is human nature that one put self-interest over the public interest. Driven by greediness and the low-riskiness of corruption in mainland China, it is hard to resist not engaging in any corruption activities when this has already become the norm among government departments. 

ii.                  Organizational decision making

Chen’s behavior is a severe breach of party disciplines. This kind of high-profile corruption case would bring a lot national and international attention. As a listed company, it seriously hampers the image. Moreover, since company revenues goes to a handful of senior management, the resources would be inefficiently used. Once the senior members of the company are charged, it would also affect the daily operations.

It is understandable that company employees are hard to do anything as Chen and his close friends were in charge of all the decisions of the business. So, one of the approaches is to develop an independent team in the organization to combat any corruption activities and does auditing work. But again, anything in China can be brought through bribery. Even though similar anti-corruption agent exists, implementation is still questionable. It is sad to admit that single force cannot change much on the matter of corruption.

Given the environmental factors in China as stated in the “Corruption Threatens China’s Future” article, like high involvement of government, powerful Communist party and lax enforcement etc, corruption is extremely difficult of crackdown unless a large-scale reform embark. This mostly depends on self-discipline to resist the temptation of money.

iii.                Corporate social responsibility

Sinopec, one of the largest state companies in China, should set an example on anti-corruption. Corruptions exploit the interests of general public to a handful of elites in the society. As a top listed company in China, the policies are longer a national issue but also affect how the West perceives China. As China’s determination of cracking down rampant corruption is increasing, it is wise for corporations to comply the law and regulations and fulfill its corporate social responsibilities to earn some credits from the media and the public. To specify anti-corruption, organizations should become hold an open, integrity and transparent manner. For example, disclosing annual reports to public, not falsify any documents and carefully choice the right candidate as the CEO etc.

Leadership qualities, capabilities and dilemma in managing business in the global context

Nowadays, leadership is one of the most important factors that the organization wants to be successful in the world. That means the leaders in companies should be knowledgeable, excellent and competent to direct people to achieve the goal. Moreover, leaders need to have personal characteristics and past experiences to face a current environment which is uncertain, unpredictable and uncontrollable in the complex international market.

In this case, under the management of Mr. Chen, Sinopec Corporation got into the global top 10. It proves that Chen is a capable leader to help the company achieve the business goal. He is not only capable, but also outgoing that he always communicates with his employees even the building elevator attendants. Thus, he could know more about his employees and how to manage them. In the international market, leaders should understand the needs of employees. Even if an organization can successfully identify high-potential individuals, it may not have and accurate understanding of their specific development needs (Byham, 2009). Managers should have more communication with employees to know about their personalities and needs.

Nevertheless, his decision-making is bold and creative to make the organization more successful. Open-mind and bringing new perspectives are the essential factors of a leader to present in complex international markets. This is because most of the things in the world are changing constantly that leaders should make some change to adapt it.

Even though Chen has such leadership qualities and capabilities, he failed because of corruption. The case proves that businessmen must follow the rules if they want to be success in the world. If someone break the laws in order to take some advantages, that person must be failed. He also spends 1.2 million dollars of public funds on eating and drinking with clients every month. As a top management of the company, he should make the right decision on resource allocation. This is because the resource is the important assets of the company.

When a person does business, he/she must face a problem which is very different to solve. In this case, Chen had similar problem in his business. In one side, he can earn a lot of money. In other side, he breaks the law. On average, 6000 senior local officials were prosecuted for corruption every year during this period (Pei, 2007). That means corruption is a high-return and low-risk activity. His decision may be affected by the business environment in China. Under this environment, a person may be ostracized from the majority if that person does not join the activities of corruption. In international markets, there are many dilemmas leaders need to know to solve them smoothly.

References

William C. Byham (2009), Developing the next generation of China Business leaders

M. Pei (2007), Corruption threatens china’s future

Group Experiential Exercise 2: Telling a Global Story in International Management Contexts

Environmental Sentiment and the Level of Globalization

Economic globalization impacts the environment and sustainable development in a wide variety of ways and through a multitude of channels. Globalisation goes hands in hands with trade liberalization, investment and finance, and technology diffusion etc ..... It is a worldwide phonomenon that the more one country engages in international trading with the pressure of globalisation, the more one conscious about the environment. The typical example is mainland China. The rational behind perhaps is with incrasing knowlege and technology level and accumlated waelth, people are more aware about their living standard, so they seeks more sustainable way of making their living/money. Leave aside the effectiveness of the environmental friendly schemes China has implemented, at least people are more concern about this matter. In this exercise, we shall examine the positive between globalisation and environmental setiment. We will look into this issue into 3 sectors namely governemnt, organisations and lastly the general public.

The higher the level of a globalized country, the higher the responsibility towards global issue

        In bygone days, every country just focuses on its own issues. They just care about their economic growth, political stability, and you name it. With increasing international trade and economic growth in the 20^th century, developed countries seem to have greater responsibility on the world issue. Their responsibilities includes anti-terrorism, maintain financial stability, transfer of technology to less-developed countries, etc. However, environment is a major area of concerns.

        In economics sense, “fresh air” is not a private property. This undefined property right lead to overexploitation and pollution since polluters don’t have to pay the external cost to the society. For example, an industrial firm does not need to compensate a citizen who suffered from lung cancer caused by toxic pollutants like nitrogen oxide. A country does not have to compensate the other countries if its pollutant spread around the world and destroy the ozone layer. The greenhouse effect is increasingly concerned around the world. Therefore, many treaties related to environmental protection established, like the Earth Summit in 1992, Koyoto Protocol in 1997, the World Summit in 2002, etc. From the summit, it seems that the higher the wealth of the country, the higher the responsibility of reducing the greenhouse gases.

In this century, environmental protection has been a hot topic in the world. Each country has this common problem. This problem is not only affecting health of human, but also affect global economics. Thus, people around the world are trying to find out the solution. However, a country cannot solve this problem by her and countries must cooperate. Global warming is a serious problem every country is facing and they are trying their best to reduce the impact. That proves that environmental protection is a global problem. China is one of the countries which cause serious environment damage. And the damage of China makes some negative effect to other countries. Therefore, China and other countries should solve the problem together. When countries are concerning this problem, they shift their focus from economic growth to environmental protection and cooperate to find the solution.

From Government Policies to Corporate Strategic Management

        It is wildly believe those corporations don’t like to set up the factory in the developed countries like Britain as there is strict regulation and environmental protection policies as well as high labor cost. Transnational companies like to relocate their production line to the newly industrialized countries like China and India. In the last decade, there are many manufacturing firms set up in China.

With the rising wealth in China, the Chinese government began to notice the importance of environmental protection. In the previous “Five year Plan” announced by the PRC government, the Chinese government provide a lot of subsidies for the renewable energy resources businesses like nuclear power, solar energy and wind power, etc. Apart from those renewable resource companies like the Xinjiang Goldwind Science & Technology Co., Ltd., some companies in China changed their products to fit in the current market trend due to the change in government policies as well as the consumption pattern of citizens.

Accroding to Pei (2007), Corruption poses one of the most lethal threats to China's future economic develpoment and political stability. Although policies greatly support the shift of green management in China, the effectiveness of the policies may be affected by corruption. Some government officials may not exercise the law strictly due to monetary rewards.

From Battery to Auto – BYD “Build Your Dreams”

        BYD, founded in China, is one of the largest rechargeable battery manufacturers in the world. In view of the current trend in China, BYD acquired Tsinchuan Automobile Co Ltd. in 2002 and started to manufacture electric vehicle. BYD became more famous in the world when Warren Buffett invested USD$230 million in September, 2008.

        This change is due to the fact that electric cars could reduce the pollution level caused by gasoline. It could also reduce China’s dependency on importing crude oil and it favors national security. Moreover, the “Twelfth Five Years Plan” announced by the PRC government strongly supports the innovation and manufacturing electric car. It is one of the most important strategies of China’s development.

According to Wharton (2010), China has ambitious technological development goals and maintains hospitable incentives for large technology-oriented investments. However, the industrial-development policies often conflict with the state’s desire to maintain control over political expression and media content.

Although our topic is mainly related to environmental sentiment, we did mention the impact for government. As mentioned in the previous part, corporate international strategy is strongly affected by government policy. The most difficult job for the corporation is to overcome the unfavorable political issue of the country. Take the Google case as an example, the things that Google is trying to do is violating the fundamental value of the Chinese government. This article made me remember a book I previously read, which called the 14 economic wars that China is facing.

It is troublesome to mix politics with business, however, it is inevitable. The “Toyota Accident” in 2010 is somehow a matter of political matter. I do believe that there are some problems with the defective accelerator pedals of the cars. However, did it represent there is no such  problem in  U.S. manufactured car? According to the data, there are 216 recall of car on the six connective months before January 2010. Out of the 216 recalls, Toyota accounts for only 6. The others were mainly American cars.


Companies move towards environmental friendly
As China becoming more and more globalised, the government is more concern about the environment issues. this drives the companies to consider more sustainable ways of doing businesses too.


Let's take China Shenhua Energy Company Limited as an example. China Shenhua is a world-leading coal-based integrated energy company. Its main business includes production and sales of coal, railway and port transportation of coal-related materials, as well as power generation and sales. The Company has established departments and positions responsible for environmental protection, energy conservation and emission reduction. In addition, China Shenhua continued to accelerate the implementation of the environmental protection, energy conservation and emission reduction project in mines, railways, ports and power plants. The Company vigorously develops renewable energy power projects to provide green energy and reduce emission of greenhouses gases.


http://www.csec.com/htmlen/responsibility/page_5_9_5.html


The rise of green companies in China
http://www.youtube.com/watch?v=MzNaCVnDpvI

In recent years, the Chinese government has spent over $5billion on cutting down the pollution and protecting the environment. This has inspired new business opportunities. With the carbon credit scheme, many companes are willing to cut back carbon emmisions. Under this scheme, the comapny can get back money by selling their carbon emission quata in the international market. This directly motivates more companies to go greener with monetary incentives.

Efforts of environmental protection from public

In the recent years, most people in the world being to realize the importance of environmental protection which becomes a global topic. The environment is changing rapidly that it affects the everyday life of each people. For example, global warming make the temperature increase a lot that people need to make some changing to adapt it. Furthermore, environmental issues may affect the economics of countries all over the world. It will have serious impact caused by environmental damage. Therefore, people think that we should be aware of importance of environmental protection and have some measures to improve the environment. And environmental protection is essential in the age of globalization.

As suggested by Chase (2011), "this fact creates a set of systemic constraints that require global collective action." Environmental problem needs all countries to cooperate to solve because one country is not capable to solve this serious problem. For example, the pollution made by China affects other countries which locate near China. So China and those countries need to cooperate to solve the problem. Now countries in the world are facing the same problem that they need to find the solution together.

Facing the environmental problem, people in different countries use different methods to try to solve it. In China, there are many organizations which try their best to promote the importance of environmental protection and take action. According to China Education Daily, there are the major signs in this century that more consciously participate in the public and building a green economy and social development in China.

Chinese citizens have shown an increasing level of environmental awareness, which is evident in the development of environment activism and symbolized by the organization of environmental non-governmental organizations (ENGOs) voluntary groups (Lei, 2009). That means Chinese citizens change the view of the past that they focus the impact of global warming now. There are 1.3 billion people in China which is 20 percent of the world. If Chinese citizens commit to protect the environment, it will be a great impact. Luckily, affected by globalization, Chinese citizens are more aware the issues about environmental protection and they can exchange the ideas with other people in different countries through the internet. Also civil society organizations have become a social trend that more and more people attend.

Besides China, USA is another country which has visible negative impacts to climate change in the world. Recently, not only the US government focuses the environmental problem, but also US citizens.

http://www.environmentaltrends.org/single/article/public-opinion-about-the-environment-notable-shifts-in-recent-years.html

The above diagram is the annual survey done by Gallup which is about the opinion of environmental protections. We can see that the percentage of concern for environmental protection is increasing continuously and excess the percentage of economic growth in 2008. It points out that more and more US citizens shift their concern to environmental issues from economic growth since 1984.

http://www.environmentalleader.com/2009/02/13/consumer-sentiment-on-green-topics-moves-from-skepticism-to-activism/

Moreover, there is some finding which shows that people always discuss sustainability topics in the internet. These data are gathered from blogs and discussion board. People are very easy to exchange their ideas in the internet in the world and they can know different situations in different countries. This finding shows that people have more concern about environmental issues and try to share some suggestions how to solve the problem.

All-in-all, the externality of air pollution problem is difficult to solve as the property right of clear air is not well-defined. Unless the general public, corporations as well as the governments from all over the world cooperate and identify their responsibilities, the problems won't be solve as it is a global issue.

 References:

Chase, C. (2011), Globalization: A World-Systems Perspective

Hollis, Nigel (2009), Rethinking Globalization, pp.14-16

Wharton (2010), Google’s License Renewal in China: Victory, Defeat or Stalemate?

Pei, M. (2007), Corruption Threatens China’s Future, Carnegie, p.1

Group Experiential Exercise 1

Our group name is International Union.

Reasons for “International Union”

We chose the word "international" because this name fit the course, i.e. international management. We should have a "global view". Due to globalization, every country and people is interacting with each other. We cannot live without the others. Furthermore, Hong Kong is an international financial centre and it is the mixture of different culture. Therefore, the word “international” fit this place. We chose the word "Union" because we want to work as a group. Like the European Union, different European countries merge together to form a huge single entity, it is just similar to our situation. We came from different secondary school and we finally grouped together to participate in the project. In today's commercial society, group work is important. No matter you are doing project or you are working, we should cooperate with a group of people toward a goal.

Logo for “International Union”


Figure 1: Logo for International Union

Before we start our introduction, we have to introduce our logo. You may ask why we decide to design a logo for our team. The answer is quite simple. In this course, we learn about the management aspect of the international organization. Have you ever seen a successful international organization without their logo? The answer is no. When you see a big “M”, you can have fast food there. You spend a huge amount of money to buy a motor vehicle like Toyota is partly due to its logo. We want to establish a clear identity for our group.


To begin with, the logo is the combination of the words “i” and “u”. Actually, they are the initial of our team’s name “International Union”. Why we use initial instead of the full name for our logo? Due to globalization, many transnational companies changed their logo and name to initial only. For example, “Hong Kong and Shanghai Banking Corporation” changed the logo to “HSBC” while “International Business Machine” changed the name to “IBM” only. That’s why we use “IU” only.

How about the color of the logo? We follow the major color of the CityU logo, green and blue. Apart from that, green stands for sustainability for the company and corporate responsibility. Apart from generating profit, it should protect the earth and environment. That’s why the “I” is inside the “U”. The blue part of the logo is just like the earth and the sea.

Group Members:

Figure 2: Group Photo

Left

Kong Ngo Pak, BBA Human Resource Management, City University of Hong Kong


      I am Kong Ngo Pak Ronald, a year three student from BBAHRM. My interests are playing basketball and running. I take this course because I think that the knowledge about international issues is very important in recent years and I can learn it from this course. I will try my best to work hard in this course and hope that i can use its knowledge in my career.

Middle

Li Bing Hei (Jet), BBA Business Economics, City University of Hong Kong

Glad to attend this course. I am currently a year three student majoring in economics. I used to be an exchange student to University of Victoria, Canada. My interests are playing squash and piano. I am currently the team captain of the CityU Squash Team. Regarding work experience, I used to work in the Bank of China (Hong Kong) and the accounting and finance department of Securitas Security Services (Hong Kong) Limited. I chose this course since it sound interesting. I would try to apply my economics knowledge in other areas like management.

Right

Iu Wing Lam, BBA Human Resource Management, City University of Hong Kong

       Hello. I am Iu Wing Lam Beatrice form BBAHRM year three. I take this course because I am minor in Global Business. I have a great interest in the global issues, so this course sounds interesting to me. Like any other girl, I like watching movies, traveling, listening to music, reading magazines, eating and surfing the net. Hopefully, I will enjoy my lessons and find this course beneficial to my future career. 

Goals

        We would like to learn more about the current issue in the international business organization as well as their operation. It is essential to our future career since we may be working in the transnational corporation. If we have more knowledge on the operation, we will have a high possibility of getting into those company and we could do our job more smoothly. From the course, we are looking forward to learn to communicate with the people from different culture background.

Topics that excites us the most

        We believe that crisis management will excite us the most as there are many real life examples and it is important in maintain a corporate image. For example, the car accident caused by Toyota caused a great casualty to the image of the company. However, the management skills for Toyota were acceptable and the brand and goodwill can still be maintained. Ba Wang’s shampoo had discovered some toxic substance inside. However, the management board reacted slowly and finally caused a great drop in sales. From this prospective, we believe that crisis management is a “Must Learn” topic in this course. Also, sustainability and green management sounds interesting. How can a company introduce green concepts without affecting its profitability? We are looking forward to the solution.

Other topics we want to learn

        We would like to learn about agglomeration and decentralization of the company. For example, some of the international corporations want to locate near their competitors in order to have a better supply of raw materials. However, some of the organizations tend to locate their office far away from their headquarters. We want to know what the reasons are behind and what factors facilitate the firm make such a decision.

Myth that confirm globalization

        Due to the liberalism of the market economy, trade facilitates globalization. We can find that China’s manufactured goods are around the world. American restaurant are found around our country. The formation of APEC, ASEAN and EUPHORIA further encourage globalization.