Thursday, October 30, 2008

The Difference Between Chinese and Russian Entrepreneurs

The Difference Between Chinese and Russian Entrepreneurs

by Bat Batjargal

All entrepreneurs may be cut from the same basic cloth, but how they interact can be highly idiosyncratic. My study of Chinese and Russian entrepreneurs reveals distinct differences in the nature of their networks and suggests how best to approach them.

The character of institutional change and the national psyche in China and Russia explain many of the differences. Both countries are experiencing unprecedented transformations. China’s is characterized by gradual institutionalization (the creation of procedures and organizations), whereas Russia’s looks more like rapid deinstitutionalization (the dismantling of same). As for the national psyche, the Chinese tend to think concretely rather than abstractly and are drawn to harmonious and balanced ideas. In contrast, Russians tend to be keen abstract thinkers and are comfortable with contradictory thoughts and positions. These traits are reflected in the size and density of each country’s networks and the levels of trust that characterize them.

Network size. Chinese networks tend to be small and composed of family members, friends, and colleagues. China’s institutional stability—and therefore job stability—has enabled Chinese entrepreneurs to preserve their work-related networks over time. Furthermore, China’s rigid household registration system and state employment system constrain migration between localities and restrict opportunities for professional networking, while the rules of guanxi (informal connections) create barriers to network membership. In contrast, Russia’s institutional chaos has pushed entrepreneurs to build new networks and strengthen others to compensate for weak institutions. Russian entrepreneurs are more mobile than their Chinese counterparts, which has helped to vitalize and expand their networks. Finally, the social walls between members of in and out groups—that is, “us” and “them”—are less robust in Russian than in Chinese networks, which facilitates growth in the former.

Density. Because Chinese institutionalization supports close relationships, and because the Chinese strive to reduce uncertainty in their social worlds, Chinese entrepreneurs’ networks are denser than those of their Russian counterparts. That is, they have fewer “structural holes”—parts of the network where two people who are connected to a third are not themselves connected. Russian networks are more loosely knit.

Interpersonal trust. The institutional development and stability in China encourages relatively high levels of trust. A World Bank survey found that more than 50% of Chinese entrepreneurs—compared with only 16% of Russian entrepreneurs—fully agreed with the statement “Most people can be trusted.” The Russians are less trustful of third parties, even when they’ve been recommended by reliable intermediaries, and prefer to establish direct personal relationships. They perceive three-person relationships as risky.

There are no hard-and-fast rules for approaching these networks, but Westerners can expect the Chinese ones to be harder to crack at first—perhaps more demanding in their entrance requirements than the bigger, more fluid Russian networks. However, once you’re in, Chinese networks are often more likely to identify you as a member of the in group. In either case, understanding the relationships among network members is critical, as is strict adherence to social rituals, whether they involve gift giving among the Chinese or drinking vodka and socializing at bathhouses with the Russians.

Finally, don’t try to be more Chinese than the Chinese or more Russian than the Russians. You will always be perceived as a foreigner and expected to be different. Trying too hard may actually undermine the trust you’re striving to build.