Professor’s new book explains reality of corruption, role of middleman in China

Steven Feldman

In today’s highly competitive and complicated global economy, a fact of life for many executives of American multinational companies is a need to do business in China, home of the world’s second-largest and fastest-growing economy. That need opens the door to opportunities, along with cultural and ethical challenges.

Those challenges include the necessity to understand and manage corruption, according to Steven P. Feldman, a professor of business strategy and ethics at Case Western Reserve University’s Weatherhead School of Management. Feldman guides readers through realities of business in China in his new book Trouble in the Middle: American-Chinese Business Relations, Culture, Conflict, and Ethics (April 2013, Routledge Publishing Taylor & Francis Group in New York and London).

Feldman’s research is based on his interpretive methodology and gives a vivid portrait of doing business in China, where “middlemen” (male or female) commonly make connections, including secret deals and bribes.

Feldman’s book illustrates what happens in the ethical collision of two cultures. He evaluates decisions that must be carefully managed through compromise and adaptation. His research helps Americans interested in learning more about the business climate in China.

“Sometimes, just understanding each other and communicating is difficult,” he said during a recent interview, when he discussed troubles American executives typically encounter in China. “It is challenging and can lead to errors. That’s one theme in the book, and the second theme is the role of the Chinese middleman. There’s not much in the literature about that. I pick that up repeatedly, which is one of the book’s most important contributions.”

Feldman’s research is based on interviews with American and Chinese executives, who remain anonymous as a condition of his revealing interviews with them.

He also interviewed 21 Chinese middlemen, 15 men and six women. Nearly all were college graduates, and nine had graduate degrees, mostly in engineering. The average age was early 40s. One had an MBA; another was an MBA student. Just over half had worked in a state-owned enterprise before going into private business. Six of the 21 had lived in the United States. Just over half had worked for an American company. Three were educated in the United States.

“The system over there is so different, and so unclear, it’s very difficult for Americans to directly engage it,” Feldman said. “So they hire these specialists, these middlemen, who speak English and know something about American culture, but they are Chinese and have Chinese connections. They are really omnipresent in China.”

As a business ethicist, Feldman became very interested in corruption while doing research for Trouble in the Middle (2006 through 2010). He discovered that corruption is systemic, particularly business-to-government corruption. Business-to-business corruption also happens, he found.

“It’s a dictatorship. It’s very difficult to do business without dealing with the government,” Feldman said. “A lot of times, government officials want bribes.  But Americans are not allowed to pay bribes because of the Foreign Corrupt Practices Act.”

Inevitably, a middleman becomes involved. Then questions arise. What’s a gift? What’s a bribe? The answer can depend on one’s cultural perspective. Feldman frequently grabs the attention of Case Western Reserve students when he lectures about such matters concerning American-Chinese business ethics.

“One thing that happens is an American company can sell a product to the Chinese middleman. So a company no longer owns the product, and then the Chinese middleman sells the product to the Chinese end user,” he explained. “The middleman pays the required bribes that the American company was not able to pay, because of fear of breaking American law and the company’s own policies. So the middleman has a big role to play in the corruption system over there.”

But why would any American business feel compelled to deal through a third-party and also pay the cost used for a bribe? What could be driving such decisions, even as the U.S. Justice Department is becoming much more aggressive to stop it? Competition is intense.

In his book, Feldman writes: “American executives say the Chinese market is very competitive and they expect, long term, it will be the most competitive market in the world. They feel they must be able to compete in China to compete globally.”

The process to tap China markets is difficult. If U.S. companies don’t compete, companies from elsewhere will. Chinese companies may become motivated to develop a competing product or technology, leading to intellectual property theft.

Feldman’s research also digs deep into the cultural aspects of doing business in China. He shows the middleman was vital in China before that long-closed society began to open to outsiders.

“They don’t celebrate competition. They emphasize harmony. If you are an official of the state, you do pretty well. But families over the last 2,000 years have had to claw for their own survival, most often. That’s another reason why the middleman is so important, because you must know a government official to get anything done,” Feldman said.

The J. William Fulbright Foreign Scholarship Board supported Feldman’s research in Shanghai and helped place him at Shanghai International Studies University, where he taught. Shanghai is regarded as an emerging center of business in China.

Trouble in the Middle: American-Chinese Business Relations, Culture, Conflict, and Ethics is available through Routledge. For more information, visit facebook.com/troubleinthemiddle.

Feldman’s previously published books are Memory as a Moral Decision and The Culture of Monopoly Management.

 

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