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5 Validity, Reliability, and Objectivity

5 Validity, Reliability, and Objectivity

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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

more clearly.

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

following suit.

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,

Wexler 2011.

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.

3.7 Contextualization

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

2010: 67.

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

Jefferson 2008.



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

1970: 20-44.

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.

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