The Impact Of Cultural And Institutional Features Economics Essay

The rapid development of international concern and globalisation has brought about such betterments as extremely advanced engineering, increased figure of planetary establishments, transnational companies, cross-border flow of goods, services and factors of production and others advantages. However, international concern is non without troubles. Cultural factors such as norms, value, attitude and beliefs of the societies could either be Alliess or enemies of planetary companies when perforating into a new market. Indeed, the importance of cultural diverseness to international concern patterns has been loosely discussed by many research workers. “ Culture affects all functional countries of the house ” ( Ball et al, 2008, p. 215 ) or “ Cultural clangs can easy happen and teamwork can be earnestly damaged ” ( Wall & A ; Rees, 2004, p. 328 ) . Institutional characteristics besides play an of import function in this procedure. Understanding the nature of political relations and Torahs in other states helps decrease the hazards every bit good as create a competitory advantage for planetary houses, i.e. corruptness degree, rising prices rate or institutional system.

The new universe economic order together with drastic displacement of capital flow from the West to the East has raised concerns over the importance of civilization and establishment factors during such enlargements. The broad spread between the civilizations of two hemispheres has required investors to critically make research into those factors to guarantee concern success.




Peoples Republic of China

Federal Republic of Germany


The universe ‘s largest population.

The 2nd largest economic system.

The largest exporter.

The 2nd biggest district in Asia ( universe Atlas )

Largest economic system in Europe

4th largest universe economic system

4th largest exporter


Western Asia on the western shore of the Pacific Ocean.

Central Europe, surrounding the Baltic Sea and the North Sea.





Communist State

Federal Republic


Mandarin ( functionary ) , Cantonese, Shanghainese, Hokkien-Taiwanese and others.


Trade organisations


EU, WTO, OECD, G-20, G-5, G-7, G-8, G-10aˆ¦


Renminbi ( Yuan )



Confucianism, Guanxi, Mianzi, Collectivism



Taoism, Buddhism, Muslim, Protestantism and Catholicism.

Protestantism, Roman Catholic, Muslim and others.

Table: General Information of China & A ; Germany.

Beginning: CIA ( 2012 ) The World Factbook.

Convergence and Divergence Approach

Harmonizing to Gupta & A ; Wang ( 2004 ) , states following convergence attack tend to encompass similar concern values and behaviours despite cultural differences. In contrast, divergent attack emphasizes on each state typical cultural values and continued assortment despite the globalisation procedure.

China has adopted the convergence attack when reassigning from the bid economic system into the market economic system during the 1970s and 1980s, cut down duty and trade barriers and fall ining in WTO or APEC. Besides, increased flow of investing every bit good as advanced transit and communicating engineerings has transferred China into the universe ‘s largest market every bit good as created a merge of civilization between Western and Eastern. Those motions have enabled China to catch up with other economic giants like U.S. , Japan or Germany. Nevertheless, China still differentiates itself with low cost advantage and other distinguishable cultural characteristics.

Germany has taken a similar attack. The convergence procedure can be traced back to Germany fusion of the West and the East in 1871, incorporating the state political, cultural and societal differences. Since so, Germany has grown to be the largest economic system in Europe. Germany together with other western states in EU have moved toward pecuniary and economic integrating, therefore significantly extinguish trade barriers among the members and boosted the whole brotherhood economic growing. Besides, Germany is traveling in parallel with other OECD states like U.S. or Japan to take in investing every bit good as being one of the universe ‘s largest FDI finishs. Germany ‘s convergence attack has significantly contributed to its economic strength. The state, nevertheless, still maintains its ain civilization value which is global celebrated, that is, individuality and high order.

Both China and Germany adopted the convergence attack to maximise the benefits of globalisation. However, the states differ in the extent they adopt the attack. Whereas Germany to the full integrates its pecuniary and economic policies with other EU states, China liberalize trade and markets in their ain manner, i.e. the cultivation of Guanxi in concern, maintain low cost competitory advantage which significantly differs China from other Western states.



Factor cost rising prices

Labor costs has been dramatically lifting in the past 10 old ages with the urban fabrication rewards in China being $ 4,579 per employee per twelvemonth in 2010, more than duplicating from $ 1,534 in 2003 ( Zhang, 2012 ) . Besides, expatriates in China are required to inscribe in the societal insurance strategy, which increases labour cost for foreign companies engaging exiles. In add-on, harmonizing to a study by IMF ( 2012a ) , the labour force tends to shrivel after 2012, therefore seting more force per unit area on labour costs.

Furthermore, natural stuffs and other fabrication inputs are besides reported to lift in monetary values with the buying indices lifting by an norm of 4.3 % during the decennary get downing from 2000 ( Zhang, 2012 ) . Other public-service corporation monetary values have been leveraged with the international degrees with the steady addition in natural gas monetary values and remotion of discriminatory power duties for energy intensive industries ( IMF, 2012a ) . Besides, belongings monetary value in China, despite the biennial authorities fastening policy to forestall inordinate rises, has bit by bit increased in three back-to-back months from June 2012 with the attempt to back up the decelerating economic system ( Fung, 2012 ) .

The addition in factor costs is either structural or affected by the administration policy and rising prices. The structural lifting labour cost in China is attributed to increased lower limit pay, higher outlooks of employees, mismatched instruction degrees, benefit policies, force per unit area from lifting populating cost and other relentless factors underlying China economic system ( InterChina, 2011 ) .

Tax load


East Asia & A ; Pacific


Net income Tax ( % )




Labor revenue enhancement & A ; Contributions ( % )




Other revenue enhancements ( % )




Entire Tax rate ( % net income )




Table Tax rates of China, East Asia & A ; Pacific and OECD.

Beginning: ( World Bank Group, 2012 ) .

China ‘s revenue enhancement rate is significantly higher than its neighbour states, 63.5 % compared to 34.5. The highest revenue enhancement lies in Labor revenue enhancement & A ; part of 49.6 % , duplicating that of OECD states ( 24 % ) . As can be clearly seen, revenue enhancement imposes a heavy load on companies in China, which well increased the cost of making concern in China. Besides, aliens will be taxed 11 % of their wage while their employers will lend 37 % of the wage, which besides increases the cost of using exiles in China.

RMB rating

China has moved from nail downing its currency against U.S. Dollar to drifting currency policy in 2005, which is considered as a Dirty float to hike its exports ( Hill, 2011 ) . Although China has appreciated its currency under U.S. force per unit area since 2010, the Yuan is still charged of being “ reasonably undervalued against a wide basket of currency ” ( IMF, 2012a, p. 21 ) . Hence, concerns trading in RMB can profit from undervalued RMB with cheaper cost in domestic market and exports every bit good.

Intellectual Property Infringement

Copyright and rational belongings protection is a critical issue faced by most foreign companies in China.

Table: Summary of reported losingss from IPR violation in China on the U.S. IP-intensive economic system ( based on questionnaire ) , 2009.

Beginning: United International Trade Commission ( 2011 ) .

Harmonizing to the tabular array, U.S. companies were estimated to lose $ 4.8 billion in 2009 due to infringement, largely from right of first publication. Although the IPR state of affairs has been improved, companies must accept this as an built-in portion of concern in China and invest more in R & A ; D to heighten the protection.

Shadow companies besides become an increasing concern to trade name proprietors with operations in China. They adopt names that are indistinguishable or similar to well-known hallmarks. Counterfeit merchandises flood the states, which non merely deteriorate the house ‘s repute but besides significantly affect the house ‘s net income.


High factor costs

Germany ‘s labour cost is among the highest in the universe. Harmonizing to the tabular array, mean pay per hr somewhat rose from 28.4 euro in 2008 to 30.1 euro in 2011, higher than most of the EU members and the norm of 27.6 Euro. This is notably due to its skilled workers and raised work inducements.

hypertext transfer protocol: // % 28for_enterprises_with_10_or_more_employees % 29 % 2C_2008-2011.png

Table: Per hr ( euro ) for companies with 10 or more employees

Beginning: Eurostat ( 2012 )

The principle behind the high labour cost likely lies in its high maleness index. Consequently, Germany pays greater attending to “ net incomes, acknowledgment, promotion and challenge ” ( Hodgetts, Luthans & A ; Doh, 2006 ) . Therefore, with higher academic and proficient accomplishments diligence and competency at work, employees enjoy higher wages as a consequence.

Table: House Price Percentage Change over old period in Germany.

Beginning: OECD ( 2012 )

Property monetary value is besides lifting in Germany during the past decennary, peculiarly duplicating in 2011. Besides, the universe petroleum oil monetary value is lifting, incurring higher cost for concerns in Germany and consequence in the cost rising prices in the state every bit good.




Net income Tax ( % )



Labor revenue enhancement & A ; Contributions ( % )



Other revenue enhancements ( % )



Entire Tax rate ( % net income )



Table: Tax in Germany & A ; OECD states.

Beginning: ( World Bank Group, 2012b ) .

Corporate revenue enhancement in Germany is somewhat higher than the norm of OECD states, with 46.7 % compared to 42.7 % .

Money rating

Cost of making concern in Germany is lower for companies in other EU states since Euro is used as a common currency. Specifically, currency exchange cost is diminished while borrowing cost is besides lower.

Other institutional factors

German jurisprudence does non separate between Germans and foreign subjects in footings of investing or start-ups, therefore leverage the cost of making concern in Germany. Intellectual Property is good protected by Torahs, which minimizes hazards of IP infringement loss. However, unlike China, safety and environmental criterions are zealously applied within the range of EU ordinances, therefore ; the procedure of making concern in Germany is more complicated and more dearly-won. In add-on, Germany scored 8/10 on Corruption Perception Index, connoting the safe and crystalline concern environment that cut cost in corruptness and graft ( Transparent Inc, 2012b ) .


Notably high disbursals of concerns in China may emerge from current factor cost rising prices, IP violation loss, revenue enhancement and most significantly, payoff and corruptness. Factors that cut down the cost affect its undervalued currency and proper Guanxi and Confucianism patterns. Businesss in Germany are confronting progressively higher factor costs and rising prices and relatively higher revenue enhancement. However, cost of making concern in Germany is lessened with good protected IP, crystalline authorities and its common currency with EU members.




Get downing a concern



Covering with Construction Permits



Registering Property



Geting Recognition



Protecting Investors



Paying revenue enhancements



Trading Across Boundary lines



Enforcing Contracts



Deciding Insolvency



Geting Electricity



Table: Ranking of China and Germany on Doing concern subjects.

Beginning: ( World Bank Group, 2012a, B )

The procedure of making concern in China is far lagged behind Germany, except for registering Property. China ranks the lowest in get downing concern, covering with building licenses, paying revenue enhancements and acquiring electricity. In such subjects, concerns are required to travel through many procedures and activities, which cost a important sum of clip and money..

Cultural factors

China basic cultural value lies in Confucianism, which emphasizes on “ trueness, mutual duties and honestness in covering with other people ” ( Hill, 2011, p. 107 ) . Consequently, trueness value could take down the cost of constructing cooperation between direction and workers. Besides, the construct of “ Guanxi ” is significantly stressed, which means “ relationship ” or “ web ” . This influence stretches beyond many countries from merchandise and investing blessings, imposts clearance, revenue enhancement to land usage, human resource and selling. Companies that can cultivate such relationships can ease the market incursion procedure every bit good as have channels to utilize in rough fortunes.

Misdemeanor of bureaucratic norms when concerns overuse and misconduct “ Guanxi ” , nevertheless, could ensue in graft and corruptness. China merely scored 3.6/10 of Corruption Perception Index in 2011, ranking 75 over 183 states ( Transparency International, 2012 ) . Bribery is considered an indispensible procedure to guarantee concern success in China, which important increases the cost for foreign companies. The state of affairs is wholly different for Germany when the state scores much higher in Corruption Perception Index. This is due to their civilization which emphasizes individuality and rigorous orders.


Current economic system background


China ‘s GDP has been continuously increasing during the past decennary, making 7298.10 billion US dollar in 2011 – approximately 11.77 % of the universe economic system and the 2nd largest economic system ( World Bank, 2012 ) .

However, along with the universe economic lag, China ‘s economic growing dropped to a three-year depression of 7.6 % in the 2nd one-fourth.

Figure: China GDP Annual Growth Rate

Beginning: ( National Bureau Statistics of China, 2012 ) .

Germany ‘s GDP was 3.571 trillion U.S. dollar in 2011, tantamount to 5.76 % of the universe economic system and the largest in Europe harmonizing a study by World Bank ( Tradingeconomics,2012b ) . Despite the Euro crisis and spillover effects, Germany still remains its GDP growing of 0.5 % in the 2nd one-fourth of 2012. This is due to its recent recoil in external demand and strong ingestion growing.

Germany GDP Annual Growth Rate

Figure: Germany GDP Annual Growth Rate

Beginning: ( 2012b ) .


Inflation in China has eased during the past twelvemonth, from top 6.5 % in August 2011 to 2 % in September 2012. However, it is still considered a menace to China ‘s economic system as China at the same time needs to excite demand to hike economic growing and forestall the existent estate bubble from break outing in major metropoliss ( Rowley, 2012 ) . China Inflation Rate

Figure: China Inflation Rate

Beginning: ( 2012c ) .

Figure: Germany Inflation rate

Beginning: ( 2012d ) . Germany has by and large good controlled its rising prices rate hovering at a scope of 1.7 % – 2.6 % as illustrated in the tabular array. Inflation rate picked up from 1.7 % in August 2012 to 2.1 % in September 2012, somewhat higher than the ECB ‘s mark rate of 2 % . This resulted from the addition in energy monetary value which affected the whole EU. Germany Inflation Rate


China: The state maintained the low unemployment rate hovering at 4.1 % since October 2011.


Figure: China Unemployment Rate

Beginning: Trading ( 2012e ) .

Germany ‘s unemployment rate is unstable. Despite the IMF study ( 2012, B ) measuring Germany ‘s singular public presentation in increasing employment creative activity and cut downing unemployment in the first half of 2012, recent statistics showed the increasing of unemployment rate to 6.8 % in September 2012. This is either a seasonal unemployment addition or a negative mark that Germany is going vulnerable to the spillover effects of Europe turbulency.

Germany Unemployment Rate

Figure: Germany Unemployment Rate

Beginning: Trading ( 2012f ) .

Balance of trade

Figure: China Balance of Trade

Beginning: ( 2012g ) .China has successfully maintained a trade excess since last twelvemonth due to it continuously increasing exports, except for a downswing in March 2012. Harmonizing to a study by General Administration of imposts, China exports and imports increased 9.9 % and 2.4 % , severally in September 2012, making a trade excess of 26.66 Billion USD after the crisp diminution in July 2012 ( Trading Economic, 2012e ) . However, the addition is considered impermanent by many analysts due to the continued convulsion in Europe and insecure mentality of U.S. , China ‘s largest trading spouses. China Balance of Trade

Similar to China, Germany is an export-oriented state which maintained a current history excess during the past decennary as follows.

Figure: Germany Balance of Trade

Beginning: ( 2012h ) .Germany Balance of Trade

However, exports and imports with states outside the euro country mostly contributed to the addition of trade excess as illustrated in the below chart.

Figure: Exports and Imports of Germany by finish

Beginning: IMF ( 2012, B ) .

Political economic system


China is confronting a figure of political issues. Despite being a communist state, China ‘s old system has been fragmented by the reform of decentalisation. Besides, due to its huge size and diverse parts, China must give some distant countries with a certain grade of liberty, therefore weakened the strength of its cardinal authorities. Furthermore, harmonizing to Torrens ( 2010 ) , the weak judicial system has made the state more vulnerable to political influences, payoff and corruptness every bit good as hapless legal and regulative enforcements. The unstable and undue political system has negative impacted the economic and concern environment of China. China foreign dealingss besides encounter much turbulency. The Anti-Japan protest over disputed islands has resulted in 100s of Nipponese concerns in China shuting down ( Guardian, 2012 ) .


Since its fusion, Germany has maintained a reasonably stable parliamentary authorities. Contrary to China, Germany ‘s high quality judicial government resulted from strong-based regulation of jurisprudence and civilization helps decrease political hazard i.e. payoff and corruptness. Besides the state maintains good diplomatic with other states and organisational members like EU, NATO or U.S. The authorities has successfully steered the state out of recession in 2010, yet still combating to stabilise the Euro as the largest economic system in EU. Germany ‘s part to the fund, nevertheless, encountered resistances from many citizens who failed to see the benefits in delivering mismanaged states.

Future development

Such indexs as GDP, rising prices, balance of trade and unemployment has provided a general economic state of affairs of the two economic systems.


China has provided a significant part to the universe economic recovery from 2008. Besides, harmonizing to a study by IMF ( 2012, a ) , the state is undergoing a structural alteration with invariably lower growing, eased rising prices rate, narrower trade instability over clip. Torrens ( 2010 ) emphasized the current turning point of China traveling from export and investing oriented to domestic ingestion focused. China ‘s 12th five-year program was therefore meant to hike domestic demand and command the economic growing and unemployment rate. However, China besides encounters a figure of troubles. Fabrication in China was contracted due to weak demand and high stock lists, illustrated by the lower PMI ( Purchasing Manager Index ) of HSBC ( 2012 ) . Another barrier comes from environmental debasement, lower foreign assurance over societal unrest and political instability every bit good as from other internal and external market forces, i.e. force per unit area from the society or international criterions in WTO or IMF


Germany has showed a singular economic public presentation despite the convulsion in EU crisis with increased GDP, well-contained employment rate and stable balance of trade. Nevertheless, Germany is considered non being able to stay immune. Increasing rising prices and more vulnerable banking sectors due to high purchase, dependance on sweeping finance and low capital quality and profitableness worsened the downside hazards ( IMF, 2012b ) . Business assurance, furthermore, dropped to the lowest degree since Feb 2010 to 101.4 platinums in Sept harmonizing to a study by IFO institute ( 2012 ) , bespeaking the expectedly pessimistic short-run mentality in all sectors.

Business Practices

Business key values


China is a communist state. Collectivism plays a dominant function in Chinese civilization. Since 1978, China has opened to free trade and investing. This state has made rapid alterations in both economic and political. However, there have a batch of the traditional features of Chinese concern civilization, a state with rites and regulations built-in built on the foundation of civilization and history.

Guanxi is one of the most of import factors that help investors can win when they do concern in China. Using Guanxi can minimise concern and regulative hazard in China. Guanxi means relationships or connexion. In Chinese concern civilization, people emphasize on trust and co-operation that require for constructing relationships in long clip. Guanxi is suited with the environment that less regulated and less dependable legal system as China. In China, when you know people who you do concern with better than you usually would ( Edward, 2011 ) . The guanxi can come from unit of ammunition of golf, dinners, karaoke, etc. For case, developing authorities contacts is a manner to constructing the concern relationship in China. These people have links to authorities who can assist concern with their intelligence flow or most updated policy alteration. Business proprietors can flexibly move beforehand and acquire in front of the competition.

Besides that, Mianzi is besides indispensable factor that contribute for success of foreign companies when they invest in China. Mianzi means face. It is of import issue that should be known in Chinese concern interactions. Face is combination of self-respect, pride and public repute. There are some state of affairss affecting face in context. Giving face shows respect for people ‘s feeling and senior status. Losing face relates to bad actions or making something that damage public repute.

Furthermore, Confucianism that is recognized ethical belief system in China. It based on the instructions and Hagiographas of the sixth century BCE philosopher Confucius. China follow Confucian concern ethic that dressed ores on how to form society to advance stableness and corporate public assistance. Family, organisation and society are conducted by norms, such as ruler- topic, husband- married woman, parents- kids, brothers- sisters, friend- friend. It stresses responsibility, trueness, award, regard for age and senior status.


Individuality is the cardinal value of Germany civilization, where self-actualization, sense of responsibility and duty is prioritized. This difference is good reflected in advertisement manner. Whereas Chinese ads will by and large present groups, Western, i.e German ads will demo a individual individual. Hence, houses could heighten productiveness by developing appraisal system concentrating on public presentation and self-actualization.

German are considered as the Masterss of planning. German people are ever frontward believing and cognizing what they will be making at a specific clip on a specific twenty-four hours. Detailed and careful planning that gives them sense of security. So, everything should be prepared good before meeting. German houses are wary. Therefore, concern presentation should non be excessively overdone yet sooner straightforward and clearly presented.

Besides that, there have some factors that need to cognize before get downing concern in German such as, ordinances and Torahs play of import function in Germany life and working. German concern civilization is purely follow regulations and Torahs. So, there is a low grade of flexibleness and spontaneousness ( Jodie, 2007 ) . Focus on facts is necessary thing to observe before get downing concern treatments or meeting because Germans use nonsubjective facts in their determination devising. Outcomes, solutions or consequences must be based on logical and analysis information. They do non like idealistic thoughts. Once a determination is made, it will non be changed. Concentrating on undertakings is of import when doing agendas for meeting or treatment because Germans tend to be achieve undertakings and aims at their manus. In concern treatments, Germans encourage to openly-expressed thoughts and directing unfavorable judgment that straight off work outing the jobs.

Business etiquettes




Handshakes and bowing are acceptable.

Handshakes are in get downing and coating of a meeting. A light bow is accompanied with agitating manus


Surname is used in communicating.

Contacts should be made anterior to assignments.

Titles are really of import in Germany.

Germans like to speak on the telephone.

Their work and life are wholly separate.


Conservative suits for work forces and adult females.

Business frock is really conservative.


Do non utilize manus while speaking

Inappropriate for adult male to touch a adult female in public.

Most acceptable gift is banquet and international concern gifts as quality pensaˆ¦

Should be on clip or early in meeting.

Strongly individualistic

Sudden alterations in concern minutess are unwelcome.

Punctuality is really necessary.

International concern gifts are accepted.

Table: Business etiquettes in China and Germany


China and Germany ‘s attacks to the globalized markets are both convergent and divergent. Both states are export-oriented and embracing advanced engineerings and foreign investing. Cost of making concern in two states are increasing while the economic development of are besides well influenced by the universe economic system lag and the crisis of EU. The two states besides converge in hiking domestic demand and rebalance their economic constructions. However, they still differ in many countries. China conducts protectionism and experience losingss from high IP violation and payoff & A ; corruptness due to its fragmented governmental system. Germany, on the contrary, leverages the resort area for domestic and foreign companies, maintains effectual IP protection and provides a transparent concern environment thanks to its strong based jurisprudence. Another of import implicit in factor is their cultural difference. Confucianism and Bolshevism is dominant in China, assisting diminish the cost yet at the same time worsen corruptness state of affairs. Germany, however, embraces individuality and rigorous regulations, which on one manus increases labour cost and on the other manus, enables it to maneuver out of the recession and lessened loss in IP violation and graft. All in all, companies in two states must see all environment factors including political, economic every bit good as cultural diverseness to carry on effectual concern patterns and develop in the long term.


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