The Invisible Wall : The impact of informal institutions in a Chinese business context

Abstract: The increased activity in the emerging market China has created opportunities for Western internationalised companies. Previous research has focused on changes in formal institutions in China, mostly related to MNCs operating within the market. Besides, informal institutional challenges directly affect the formal institutions and are therefore of significant importance. However, it has become vital for companies to address informal institutions as possible barriers for success. Moreover, informal institutions pose a threat since they may be unforeseen by Swedish SMEs due to institutional distance. Swedish SMEs would, therefore, benefit from a more extensive knowledge about how the challenges related to informal institutional in China, furthermore, how to manage those. To create a deeper awareness of the informal institution's impact, the following research question has been made facilitating the understanding of this matter; “How do informal institutions affect the internationalisation process of Swedish SMEs in China”. The purpose of this paper was to provide Swedish SMEs with tools and knowledge of how to manage informal institutional challenges within the Chinese market. Subjective empirical data were gathered by conducting semi-structured interviews with four Swedish manufacturing SMEs operating in China. The empirical data helped to answer the research question and furthermore contributed to the field of academia. The empirical findings unveiled how informal institutional challenges regarding country culture and business mores did aggravate Swedish SMEs internationalisation process to China. Furthermore, using incremental steps and utilising the existing network is a key for success in the Chinese market. However, the largest challenge for Swedish SMEs was to manage obstacles regarding; language, traditions & time, relationships & trust, hierarchy & corruption, copying, negotiations, guanxi & mianzi. Each institution got its own solution for success. Guanxi & mianzi are however affecting all these informal institutions to some extent.