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5 Validity, Reliability, and Objectivity
be done as neatly as it would be possible within representative quantitative research. Yet following qualitative researchers such as Mason, 295 the extent to
which the research could be linked to a wider population is at least specified
The group under scrutiny is (Chinese and German) knowledge workers in
China’s German-invested manufacturing sector in (north)eastern urban China.
From the angle of internal generalizability,296 one has to consider potential variations among this population in terms of different ages, education levels, departments, positions, enterprise types, sizes, industries, and locations. The average
age of 34 years coincides with statistical data on China’s knowledge workforce
per age group, which show that their average age is also around the midthirties.297 An average age of 44 for German employees might also reflect the
respective population due to the fact that German employees usually have formerly worked in Germany before being sent to China. The education level also
reflects the usual situation for non-manual employees within FIEs in China
where Chinese employees mostly hold a bachelor degree while Germans hold a
diploma. Departments and positions share the common thread of communication
and fit well to the education level. The hierarchical difference between German
and Chinese employees reflects the current situation in FIEs in China.
Among the types of enterprises, WFOEs and Equity JVs are most prevalent.
The proportion of 10:4 mirrors the general proportion of German WFOEs and
Equity JV.298 Despite many differences between both types such as degree of control or autonomy, the fact important for this study shared by both types is that Chinese employees act as knowledge workers with the latitude how to share and disclose valuable knowledge and are needed as intermediaries to the market. They are
summarized as FIEs except otherwise specified in the empirical chapter.
German-invested enterprises with a parent company in Germany with more
than 1,000 employees dominate the sample (64%), which comes very close to
the proportion of 60% for German-invested enterprises in China as a whole.299
German-invested enterprises are mainly active in manufacturing (as opposed to
service and trade), and engineering and automotive are precisely the sectors were
See e.g. Mason 2002:39.
See e.g. Maxwell 2013: 137.
See chapter 6.2.
996 WFOEs and 438 Equity JVs in Mainland China as of Jan 17, 2009 (according to the
“German Company Directory” (http://www.german-company-directory.com/), which is administered by the German Industry & Commerce (GIC) being the service provider of the German
Chamber of Commerce in China).
299 German Chamber of Commerce in China 2007: 11.
Research Design and Methods
most German-invested enterprises operate in.300 These sectors have in common
that they have been highly competitive in China at the time of investigation.301
German-invested enterprises are largely representative for FIEs in China in
regard to valuable knowledge. All FIEs more or less have to cope with the controversial handling of knowledge by Chinese employees. Yet in terms of technological innovations and valuable knowledge at stake, German-invested enterprises are most representative for Western enterprises, that is, enterprises from Europe and North America. These are followed by Japan with other Asian countries
In terms of culture, findings must be generalized to FIEs with more caution.
Sino-German conflicts might not be the same as Sino-American conflicts or
Sino-Japanese conflicts. Only when it comes to cultural knowledge informing
the Chinese employees in FIEs, findings can be generalized to Chinese in FIEs
no matter the origin. The extent and way how this leads to conflicts with foreign
employees in the enterprise, however, strongly depends on the respective foreign
In terms of the location of the sampled enterprises, the cities and provinces
form part of the economically more advanced eastern region (东部地区) as well
as the northeastern region (东北地区).302 While the locations in the eastern region reflect the general spatial distribution of German FIEs in China, 303 the
northeastern region is not a typical location for German enterprises. Yet, most
importantly, in all regions established FIEs can be found, ensuring that cultural
knowledge informing employees working in FIEs has potentially evolved over
time. During data analysis special attention has been paid to the potential influence of the regional factor.
The external generalizability304 beyond that group is limited. In the light of
the different experiences and educational backgrounds of age cohorts in China,
generalization to Chinese employees older than the range of the sample cannot
easily be made without further researching that group. Findings cannot be gener-
300 German Chamber of Commerce in China 2007: 15.
301 See e.g. Apco Worldwide 2010, China Daily 2011, US-China Business Council 2011: 8,
302 Following the official division of the NBS (2011a), China’s 31 mainland provinces (and municipalities) are grouped into four regions, namely the eastern (东部地区), central (中部地区),
western (西部地区), and northeastern region (东北地区). This categorization is popular since
the 9th five-year-plan (1996-2000) and has focused on balancing the large regional disparities
(Taubmann 2007: 41-44). It is still considered useful for statistical purposes by the NBS
303 German Chamber of Commerce in China 2007: 10.
304 See e.g. Maxwell 2013: 137.
alized to employees in departments or in positions mainly occupied with manual
work as communication of knowledge is not their main concern.
As valuable knowledge seems to be creating conflicts mostly between China and the West, many people are tempted to easily draw on the simple and dichotomous cultural view of “East versus West”. Yet this proves to be oversimplified. Especially in the business realm, the available country-level studies show
cultural differences among employees of countries in the Western hemisphere as
well as among Asian countries.305 Findings of Chinese employees can thus not
be generalized to other employees of other Asian countries, like findings of
German employees cannot be generalized to employees from other countries in
Europe or the Western hemisphere.
The municipalities and provinces where the sampled FIEs are located are
not representative for the rest of the 26 municipalities and provinces. In China,
spatial disparities – both rural-urban and regional – are particularly large. Spatial
disparities include a higher overall education level, a much more dynamic and
developed economy as well as a more vibrant investment, legal and political
climate in eastern urban China.306 Most significant for the study’s topic is that
whereas interior provinces tend to have rich natural resource endowment and
find themselves at a mid- or pre-industrialization stage, the knowledge economy
has already taken hold in the eastern region with high knowledge intensity and
innovation capability.307 Findings can thus not be generalized to the central and
western region or rural areas. Even generalization to the eastern and northeastern
China is limited as northeastern China is less developed than eastern China and
as even within eastern China, disparities are still significant.
Contextualization of data plays a paramount role in qualitative research.308 In this
study, the sampled employees are entangled in manifold contexts which are constituent to the cultural knowledge they are informed by. The interpretation of the
findings against the background of the employees’ positioning in these contexts
yielded explanations for the phenomenon of increased leakage and insufficient
sharing of knowledge in FIEs in China. These contexts are considered in the
following three chapters.
305 Hofstede 1984, Hall 1989, Trompenaars and Hampden-Turner 1997, House et al. 2004.
306 See e.g. Lieberthal 1995: 273, Chen Chunlai 2011: 36-46 and 149, Cooke 2005: 25.
307 See e.g. Dahlman and Aubert 2001: 43-44, Naughton 2007: 4, Chen Jiagui and Wang Qin
308 Cappai 2008: 21-22.
Research Design and Methods
Apart from the contexts under scrutiny below, the empirical findings of
handling knowledge in China’s FIEs are inevitable shaped by the larger Chinese
economic, political, and legal system. To cover these influences in full depths is
well outside the scope of this study. It is aimed, however, at providing the reader
with a rough idea of the complex environment the conflicts over the handling of
valuable knowledge are embedded in.
The Chinese economy is complex. While being still in the midst of transition from a large traditional agrarian economy to an industrialized economy, the
knowledge economy is under way. Only with the introduction of Western technology in the 19th century, the industrial economy took hold in China’s large
traditional agrarian economy. Legacies of the traditional agrarian economy range
from family businesses, labor abundance, and localized incremental innovation.
China’s innovation capacity is still very much locally embedded with quick reaction to market changes by imitation, experimentation, and adaptation at the borderline or in breach of intellectual property laws. The upcoming knowledge
economy is yet largely pushed by FIEs as the main technology providers.
For more than three decades now, China is undergoing another transition
from a socialist command economy toward a market economy. The influx of the
Soviet state industrial ownership structure after 1949 is mirrored in parts by the
multifaceted ownership structure in today’s China. The current Chinese business
landscape is still characterized by state intervention combined with gradual liberalization of the market. These time-lapse transitions unfold into very different
uncertain local institutional environments, the managing of which is still crucial
to economic progress and business success in China to the present day.309
In China, the inter-relatedness of politics and economy is ubiquitous. As a
legacy of the past, the political landscape is still characterized by strong personal
rule at the top, powerful local bureaucracies, a low degree of institutionalization
complemented by informal procedures and exercise of power. Yet the Chinese
Communist Party – although still playing the leading role in state, economy, and
society – has gradually loosened control in favor of economic modernization in
the reform era. In times of rapid economic modernization and global integration
as well as pluralization of political interests in state and economy, political regulatory problems have become even more complex.
For handling this complexity of interests, economic decision power has
strongly been decentralized. Policy instruments are developed and practiced
locally, only vaguely guided by the central government. Most economic matters
are exclusively decided and handled by local governments. Local officials share
an interest in promoting economic development as they are encouraged by vari309 For further reading, refer to Naughton 2007, Rawski 1989, Spence 1990, Hu Albert G.Z. and
ous incentives. For the sake of economic growth, local officials often ignore
central policies and goals and make their own rules even when in conflict with
centrally defined goals. As a consequence, the discrepancy between central
guidelines and local implementation produces an ambiguous political business
landscape in which power of local officials is strong and successfully doing
business is highly contingent on complex relations with local officials.310
Whereas the state traditionally refrained from administering economic activity
and only interfered in the case of disruption of public order, the process of developing a concise legal framework after 1978 has sought to cope with the multitude
of interests in contemporary China. The Chinese government has recognized that
the domestic legal system was in many ways unattractive for foreigners and has put
efforts in establishing a separate legal system. During the decades, the focus has
shifted to an active consideration of the needs of the domestic economy. Distinctions between the state and the private sector, as well as between domestic and
foreign actors, gradually eroded. The strife for alignment of different investment
and ownership types in the domestic realm was flanked by the alignment of domestic trading and investment rules with international norms which ultimately led
to the entry into the World Trade Organization (WTO).
Despite an aligned and profound legal framework, enforcement in various
areas still faces numerous structural problems. The legal framework is often
inconcise and suffers from conflicting regulations which make enforcement
complicated. The processes of enforcement remain subject to the limitations of
bureaucratic politics and the overall leadership of the Chinese Communist Party.
Qualification of local judges often proves insufficient. The judiciary at different
levels is dependent from the local government, which is responsible for the appointment and dismissal of judges as well as for their salary and benefits. Local
governments in many cases have little incentive to enforce national regulations,
which can be clearly observed in the realm of the enforcement of intellectual
property rights.311 This overall situation still leaves ample room for uncertainty
for business and other actors in contemporaray China.
310 For further reading, refer to Lieberthal 1995, Heilmann and Perry 2011, Shambaugh 2011.
311 For further reading, refer to Clarke et al. 2008, Potter 2011, Heuser 2002 and 2009.
4 Compradors in China’s Foreign Enterprises
When the historian Hosea Ballou Morse as early as 1907 observed that “the
China of to-day is, with minor differences, the China of the past”312, he could not
have forseen that more than a century later this observation still proves valid.
Despite China’s rapid and visible change, deeply rooted fundamentals have continued to prevail. Indeed, the need for intermediaries for foreigners doing business in China observable in present times proved to be considerable throughout
modern Chinese history. Moreover, the foreigners’ concerns arising from the
institution of the intermediary – the so-called “comprador” – were also very
similar to those of today. The comprador can thus be regarded as the harbinger of
contemporary Chinese employees in FIEs who act as intermediaries between the
FIE and the local business environment. Compradors played not only a pivotal
role for foreign businesses (4.1), but also significantly contributed to the Chinese
economy (4.2), while inhabiting a rather ambiguous status within Chinese society (4.3). Many similarities to contemporary intermediaries, who are analyzed in
the subsequent chapter, can be found.
4.1 The Role of the Comprador for Foreign Businesses
Prior to the Opium Wars, China’s economic relations with the global trading
system were limited. From the mid-18th century until 1842, foreign trade mainly
concentrated in Guangzhou. The right of trading with foreign merchants was
exclusively granted to a group of Chinese merchants – Cohong (公行) –, who
were appointed by the Qing government. These merchants took care of and bore
responsibility for every act of the foreign merchants and their ships. This included engaging a comprador313 or maiban (买办)314, who supplied the foreign merchant with food and daily necessities and managed his daily private affairs.315
312 Morse 1920: vii.
313 A term borrowed from the Portuguese for local Chinese merchants in Guangzhou and Macao
(Bergère 1986: 46, Hao Yenping 1970: 44).
314 Maiban 买办 literally means “purchaser”. It originally referred to the official broker who
purchased supplies for the Ming dynasty (1368-1664) government (Hao Yenping 1970: 45,
Huang Yifeng et al. 1982: 1-2).
315 Morse 1910: 63-67 and 312, Bergère 1968: 26, Xu Dixin and Wu Chengming 2003: 144-145.
© Springer Fachmedien Wiesbaden 2016
C. Wang, The Subtle Logics of Knowledge Conflicts
in China’s Foreign Enterprises, DOI 10.1007/978-3-658-14184-4_4
Compradors in China’s Foreign Enterprises
With the Treaty of Nanjing in 1842, the five ports of Guangzhou, Xiamen,
Fuzhou, Ningbo, and Shanghai were opened to foreign trade, and the Cohong
monopoly was abolished. Foreigners – mostly being agents of large foreign
family enterprises – were then able to decisively expand their businesses in China: they could trade goods at prices set by free competition, they could rent and
build warehouses and residences, and they were protected by their own national
law instead of being subject to Chinese law.316 In theory, foreigners in the treaty
ports were free to trade with any Chinese merchant and pursue all transactions
necessary for trading.
In reality, however, direct trading with Chinese merchants posed serious obstacles. Language barriers, the complexity of the currency, varying systems of
weights and measures, the obscure financial status of banks or trading partners as
well as the extraordinary variety of commercial practices and social customs
were among the most obvious impediments. More subtle but even more powerful
obstacles were posed upon foreign merchants by the traditional trading system.
The limited trading routes available between different regions were controlled by
Chinese merchants. Banks only negotiated with Chinese merchants and not with
foreigners. Most significantly, market networks and credit institutions were controlled by strong guilds. The powerful Shandong shipping guild, for instance,
restricted foreigner’s loading of pulse without interference by local officials.
These guilds were – apart from commercial ties – first of all characterized by
strong familial and regional ties and thus difficult to enter by outsiders from a
certain region or family, be they Chinese or foreign. Trading with single guild
members was also an obstacle as guilds even had the power to inhibit direct
business transactions of their members. 317 Therefore, the foreign merchants,
whose crucial task was to establish trade relations in China for their employers in
their home countries, had no choice but to pursue this task via compradors,
whom they then could freely employ.318
Initially, the role of compradors as intermediaries only slowly gained significance. Supplies still exceeded the demand and communication was slow. Only
after the conclusion of the Treaty of Tianjin and the further opening of eleven
treaty ports in the late 1850s, their role became significantly more important. The
extension of telegraphic communication and steamship transportation via the newly opened Suez Canal in the 1860s also contributed strongly to their importance for
316 Morse 1910: 297-312, Morse 1918: 6, Bergère 1986: 33, Xu Dixin and Wu Chengming 2003:
317 Bergère 1986: 33-37, Hao Yenping 1970: 24-25, Morse 1918: 154-156.
318 Hao Yenping 1970: 15-17, Morse 1910: 312.
The Role of the Comprador for Foreign Businesses
foreign merchants, who became much more exposed to competition and business
risks through enhanced communication and shorter transport times.319
This trend is reflected in numbers. Whereas the group of compradors only
comprised about 250 compradors in 1854, 320 their number had increased to
10,000 by the end of the 19th century. In 1920, they reached their peak with
40,000 persons in total.321 With the number of foreigners amounting to nearly
321,000 persons in 1924, one comprador on average could be in charge for eight
foreigners. Whereas mostly the British were at the forefront of the treaty negotiations and together with other “Westerners” (in the sense of Europeans and North
Americans) are the only foreigners covered by the relevant comprador literature,
the large majority of foreigners in the early 20th century were indeed Janapanese
or Russian, with “Westerners” only making up less than 10%.322 Viewed from
this angle, the number of compradors seems to have been able to satisfy “Western” demands.
Contractually employed by the foreign enterprise, compradors were in
charge of handling the Chinese side of the enterprise’s activities, acting as intermediaries for the enterprise’s business transactions. They took care of the purchase of products from the interior, which were to be exported by the foreign
enterprise, with tea and silk being the commodities exported the most. They also
provided market information, such as price fluctuations and the competitors’
situation.323 For the import business, such as woolens and cotton, compradors
analyzed the demand on the Chinese market and introduced the foreign goods to
Chinese customers. 324 They were also responsible for the transport of goods,
mainly in the shipping business, where they dealt with customs reporting and
with Chinese officials in different ports. They even acted as interpreters and
mediators, helping to settle disputes between merchants in different ports. 325
Their tasks also included the hiring and employing of Chinese staff, which was
larger in number than the foreign employees. 326 Compradors thus completely
managed all tasks which connected the foreign enterprise with the Chinese environment. As the vast majority of foreign enterprises were active in trade, the
comprador de facto pursued the enterprise’s main business activities.
319 Xu Dixin and Wu Chengming 2003: 148 and 769, Morse 1910: 342 and 562-563, Hao Yenping
320 Hao Yenping 1970: 101.
321 Xu Dixin and Wu Chengming 2003: 148 and 769.
322 Morse and MacNair 1967: 1033-1034.
323 Hao Yenping 1970: 17 and 74-83, Morse 1918: 400-406, Chan Kai Yiu 2006: 51.
324 Huang Yifeng et al. 1982: 36-37, Xu Dixin and Wu Chengming 2003: 148.
325 Hao Yenping 1970: 74-75, Chan Kai Yiu 2006: 50, see Hao Yenping 1970: 154-159, see
Bergère 1968: 27.
326 Hao Yenping 1970: 24.
Compradors in China’s Foreign Enterprises
The most outstanding feature of the comprador system in China was their
guaranteeing of safe business transactions of their foreign principals. This included the guaranteeing of provision of cash, granting of credits as well as bearing of responsibility for insolvency of local merchants or banks. They also were
held liable for disloyalty of staff.327 By such means, foreign enterprises could
effectively minimize the business risks in an environment they perceived as
obscure and uncertain. The comprador was not only the de facto manager of the
foreign enterprise but also secured its business.
This large responsibility and latitude in doing business provided the comprador with many opportunities to be active in business himself. The significance
of these opportunities for him is reflected by his income structure. The salary
from their foreign employer indeed only constituted 17.6% of their income.
Trading on the interior market gave the comprador the opportunity to take part in
the commission system, which constituted the main source of his income
(36.8%).328 In addition to their contractual agreement, many compradors simultaneously conducted their own independent business.329 In fact, only a very small
part of his income came from his foreign employer. The large part was earned
through the comprador’s activitiy outside. This indicates that the identity of an
independent businessman must have been much stronger than the identity of an
The comprador’s strife of doing business on his own account also resulted
in business activities at the expense of his foreign employer or even included
betraying him. Functioning as treasurers, compradors could secretly use their
employer’s funds to finance their own businesses, 330 such as the well-known
comprador Chen Lianbo (陈廉伯) who used the capital of the Hong Kong and
Shanghai Banking Corporation (HSBC) to finance his silk business.331 Compradors also conducted their own businesses by using the seal of the foreign enterprise. Some of them forged a higher price list of local products and kept the surplus money for themselves.332 Also, products were manipulated before delivering
them to the employer. For instance, after a British enterprise returned tea of minor quality to the famous comprador Xu Run (徐润) which he had previously
purchased for them, the comprador mixed it a year later with tea of excellent
quality and successfully sold it again to the British merchants.333
Bergère 1968: 27, Hao Yenping 1970: 49 and 65-68, Chan Kai Yiu 2006: 50-51.
Xu Dixin and Wu Chengming 2003: 147-148 and 175.
Hao Yenping 1970: 12, Hou Zhigang 1996: 327.
Hao Yenping 1970: 94-95.
Hou Zhigang 1996: 328.
Hao Yenping 1970: 94-95.
Cao Wenjuan 1996: 8.
The Role of the Comprador for Foreign Businesses
Embezzlement, forging, and deceit must be seen, however, against the
background of modern Chinese economy, where such practices were common
among businessmen in general. In regard to compradors, the boundaries were
particularly blurred as their activities for enterprises were hard to distinguish
from their independent business transactions. Under the system of “complete
responsibility”, a distinction between personal and enterprises’ funds was even
harder to make.334 The difficulty of drawing this line is also reflected in court
decisions. Foreign enterprises sued their comprador for such malpractices but did
not necessarily win the suit since the comprador might have acted as an independent merchant according to the Sino-German mixed court’s verdict.335 As the
behavior was common in the business environment and the boundaries of funds
and activities were hard to draw, the comprador’s behavior is again to be seen in
the context of his special intermediary identity. This identity in fact resembled an
independent businessman rather than an employee.
This identity made it also inevitable that the comprador possessed a certain
kind of knowledge monopoly.336 As intermediary, the comprador possessed both
information on the business environment and exclusive information on the enterprise and the products of his foreign employer. In this exclusive position, he
could easily make use of them for grasping business opportunities. Chen
Liangbo, for instance, gathered the HSBC’s business information regarding the
government’s intent to buy silver and made use of this information by quickly
importing silver in advance to be the first to satisfy the government’s need.337
On the part of foreign enterprises, these incidents raised the questions of
trustworthiness and loyalty. Mutual trust between foreign employers and compradors was merely prevalent in the 1850s and 1860s, when doing business was
perceived as being impossible without trusting the comprador. Some foreign
businesses were strongly dependent on compradors such as Xu Run who developed the interior market for them.338 Those foreigners who were able to recruit
high quality compradors appeared to be the most successful and competitive
ones. Foreign enterprise thus had to maintain good relations with the compradors
and to secure efficient compradors in order to conduct business smoothly.339 As a
consequence, foreign merchants made concessions such as paying a commission
in addition to salary. Also, they acknowledged the comprador as a merchant in
Hao Yenping 1970: 150-151. See also chapter 4.2.
Hao Yenping 1970: 168-170.
See Liu Yunsheng 2007: 56.
Hou Zhigang 1996: 326-327.
Cao Wenjuan 1996: 7.
Hao Yenping 1970: 26.
Compradors in China’s Foreign Enterprises
the first place and usually gave consent for trading transactions on his own account, except when interfering with the enterprise’s transaction.340
When the foreign merchant’s confidence was betrayed and the comprador’s
activities had been found detrimental to the enterprise’s interests, the foreign
merchant not necessarily sanctioned his comprador but, quite the contrary, even
continued to support him. When the comprador Tang Tingshu (唐廷枢), for
example, took 80,000 taels (两) from his foreign enterprise’s account for private
purposes, his boss – although being shocked and absolutely unsatisfied with the
situation – still praised his work.341 In the first two decades, foreign merchants
were virtually completely dependent on the comprador, having no choice but to
entrust him with their business even in case of misbehavior.
With the rapid development of steamships and communication methods and
a regional shift to new treaty ports since the 1860s, the personal ties continuously
weakened. In the 20th century, the relationship became rather impersonal in nature. Compradors’ trustworthiness was then deemed insufficient by the foreign
business community which depicted them as unscrupulous bargainers. Foreign
enterprises then saw the need for putting mechanisms in place in order to control
the compradors. Methods such as requiring a cash deposit, checking the cashbook, and obtaining information via third persons were employed – albeit in a
cautious way in order to avoid too much distrust.342 The relationship of trust thus
changed into one of relative control.
While compradors were still growing in numbers and in economic strength
at the beginning of the 20th century, foreign enterprises had already induced the
transformation of the comprador system by employing different measures. Compradors were, for instance, employed as high-level employees. Their activity
level, however, soon deteriorated and the foreign employer returned to pay them
commission, which shows that in fact the comprador system was still in place.
Alternatively, the comprador’s status was changed into that of a partner or an
independent purchaser. Foreign enterprises with a monopoly on a certain product
or in a certain region installed independent distributors, who had essentially the
same function as compradors but were closely connected and relied on the foreign enterprise’s monopoly.343 Some companies only effectively gained control
by integrating salaried Chinese employees in their corporate hierarchy. They put
much effort into cultivating the Chinese employees for adequately serving the
enterprises’ needs.344 As a matter of fact, when the latitude of the former com340
Hao Yenping 1970: 161, Xu Dixin and Wu Chengming 2003: 147-148 and 163-164.
Tang Kemin 1996: 47-48.
Hao Yenping 1970: 160-168, see Chan Kai Yiu 2006: 49.
Xu Dixin and Wu Chengming 2003: 785-799.
Cochran 2000: 12-43, Chan Kai Yiu 2006: 162.