Leadership in Chinese Small & Medium Enterprises


In the modern globalised world, China becomes one of the largest economies with the most attractive opportunities for investment. However, the policies that underpin the Chinese economy tend to reach their limits due to the decline in returns on investment, which is also accompanied by fierce challenges in the global and local arenas (Zou et al., 2016). For small and medium-sized enterprises (SMEs), which carry the role of business innovators, the mentioned challenges include various management issues. Conflicts in the workplace are a critical organizational concern that impedes the development of firms, causing mistakes, underproduction, poor relationships in the external and internal environments, as well as promoting uncertainty. In this situation, the role of effective leadership increases as the opportunity to create and support a strategy and vision of the business.

The proposed study aims to explore conflict management practices in Chinese SMEs and understand the potential role of leadership in effective conflict resolution. The research objective is to review the current literature in the given field and conduct interviews with the leaders of Chinese SMEs to collect their attitudes and relate to the available evidence. Accordingly, the research questions can be formulated as follows: what are the leadership styles that contribute to conflict management in the context of Chinese SMEs? The importance of the identified question is related to the problem of managing various types of conflicts that are faced by small and medium organizations, including but not limited to, interpersonal, personality clashes, teamwork failures, and task conflicts. As stated by Karadakal, Goud and Thomas (2015), human resources managers have to spend 3-4 hours per week to handle conflicts, where leaders often take the role of HR professionals. Therefore, it is expected to clarify how entrepreneurs can better cope with and prevent conflicts in the workplace by applying proper leadership.

Literature Review

Organizational Conflict

Conflict can be interpreted as a combination of opposite interests, ideas, and views of two individuals or groups of people (Prause and Mujtaba, 2015). Einarsen et al. (2018) define conflict as a type of contradiction leading either to the improvements in the activity of an organisation or to its extinction. In conflicts, employees and managers can act as opponents or collaborators, who use constructive dialogue to negotiate. The modern point of view on conflicts is that in some cases, they can even be considered desirable. They can shed light on problems existing in the enterprise and provide different opinions on certain events (Einarsen et al., 2018). For example, the positive consequences of conflict may include finding solutions that would meet the interest of all parties and improving the cooperation and understanding between opponents.

Conflict management helps in increasing activity and motivation at work by stimulating curiosity; it also leads to debate, promotion of new ideas in the enterprise development, and a positive influence on the ability to change. Lewicki, Barry, and Saunders (2016) state that without complicated situations and experiences, an employee can stop in professional development. All these aspects contribute to the management process, and, consequently, conflicts should not be suppressed, but regulated. However, such disagreements may lead to certain dysfunctions, which can be handled by means of various conflict resolution strategies and the impact of a leader (Caputo and Zarone, 2019; Ebner and Parlamis, 2017). Namely, dissatisfaction, deterioration of the moral and psychological climate, poor cooperation, increased staff turnover or decreased productivity can be noted.

Challenges and Specifics of Chinese SMEs

Small and medium business is essential for the economy of China. This sector is characterised by the necessary competition and is able to quickly adapt to any kind of change in market conditions (Zhang et al. 2016). When the new niches in the consumer sector appear, more job opportunities become available, which, consequently, plays an important role in shaping the middle class. The emergence and development of different enterprises in China emphasises the above statement and indicates the need for a closer examination of the issue of conflict management in SMEs (Deng and Zhang, 2018).

In the context of globalisation and the successful penetration of Chinese business into the markets of other regions of the world, especially the US and Western Europe, some new features have appeared in Chinese SMEs. First of all, this applies to family entrepreneurship and relations as the basis of entrepreneurial activity in China, which does not fully correspond to modern realities (Kazlauskaitė et al., 2015). The reliance on kinship, family, and ties is still pertinent, but some modifications of business are taking place. The sphere of the family business is expanding, with family relations based on the Confucian concept of the importance of the family and kindred positive relations between its members and the feelings of fidelity. The responsibility arising from these relations is transferred today to the relations between the structures of the SMEs regarding the creation of a network of industries and the use of technology (Shapiro et al., 2015; Tang, Tang and Cowden, 2017). There is a tendency towards organising joint work between manufacturers and suppliers, small and medium structures with large, although they are all competitors.

In Chinese SMEs, such relationships are called network relationships and are expressed as various types of help, advice, subcontracting relations, transferring part of orders, which are based on trust and respect for each other. These relations contribute to the ritual tradition of China, maintaining or enhancing their or others’ reputation as separate individuals. As for the entire company, it promotes maintaining harmonious conflict-free relations as a whole. It is known from history that family relations appeared as a form of resolution that existed back in the 7th – 20th centuries (Hou and Li, 2019). Contradictions in southeast China between the state and entrepreneurial layer in the form of entrepreneurs creating secret societies independent of the state, subsequently transformed into “guanxi”, which refers to communication and struggle against the central government. These societies were an important factor for the success of Chinese entrepreneurs in the Asia-Pacific region (Kazlauskaitė et al., 2015). Today, network relations have become a culture or a way of effective business behaviour, and the state does its best to promote.

At the present stage, SMEs are merging with the elements of Western entrepreneurial management, shaping a hybrid Sino-Western enterprise. Professional managers seek to increase the competitiveness and economic stability of the entrepreneurial structure (Wu and Parkvithee, 2017). They consider bringing their knowledge and experience, diversifying the activities of firms, applying incentive measures to increase professionalism and encouraging employees. In addition, there is a unification of small business structures into groups, which is due to the emergence of certain difficulties in doing business, depriving them of competitive advantages compared to large ones. Although, Fukuyama noted their weakness, such as the inability to outgrow the scope of small and medium-sized enterprises. Therefore, the inability to fully utilize the market and a lack of knowledge of how to match the modern requirements reduce their stability and competitiveness.

Among the conflicts that are encountered by Chinese SMEs, there are organizational and interpersonal concerns. Many workers have personal issues or problems connected with their professional activity; sometimes, they may escalate into conflicts that can negatively influence the success of the entire firm (Kazlauskaitė et al., 2015). In a small enterprise, the manager shares a closer working relationship with personnel; as a result, difficulties and emerging problems can be identified and eliminated at an early stage (Chin and Liu, 2015). An employee should feel that he or she can turn to the manager to discuss the issue and ask for help. The task of leaders is to create an informal and friendly environment for resolving conflicts between workers. The current literature is consistent that it is beneficial to express one’s opinion on the current problematic issue and empower employees to make a decision to address both personal and organizational problems (Wong et al., 2017; Wu and Parkvithee, 2017). However, it is unclear which of the ways are the most suitable for conflict management and how they can be utilized by a leader.

Leadership Opportunities

The ability to deal with conflicts in the enterprise is crucial in the interaction with the personnel. Conflicts may emerge during interaction and communication between employees, and one of the ways to approach them is leadership as a style of behaviour (Khan et al., 2015). The proponents of this approach consider that the effectiveness of a leader does not depend on psychological characteristics, but on his or her inherent behaviour style of the way of interacting with other members of the group. At the same time, people with different personality traits can demonstrate the same leadership style.

One of the most famous classifications of leadership style belongs to Lewin, who singled out authoritarian, democratic, and laissez-faire styles and described their features (Derecskei, 2016). An authoritarian leader fully organizes a group’s activity, sets the direction of work, and gives instructions for its implementation, but he or she is alienated and unpromising in terms of communication. A democratic leader refers to the members of the group for suggestions, discusses work plans with them, and is friendly and attentive to the participants (Khan et al., 2015). A leader with the laissez-faire style of leadership intervenes little in the life of the team, leaving its members to themselves. Such leaders rarely communicate with their employees and take part in organizing group activities.

The effectiveness of the above styles for SMEs was examined in various studies that show varying results (Sheshi and Kërçini, 2017; Mohiuddin, 2017). The main concern is how a leadership style affects the relationship between students who attended an interest club after class. The results of the study by Rawat (2015) demonstrate that democratic leaders created an open and problem-oriented atmosphere in the organisation, due to which the group member worked actively, regardless of the momentary presence or absence of the leader. In groups with an authoritarian leader, the participants were unfriendly and dependent, so they worked well only when the leader was nearby (Rawat, 2015). A leader with the laissez-faire style created a friendly and game-oriented atmosphere; as a result, the group worked well only when he or she was not there.

Another widespread classification of leadership style is given by the works of Burns, who distinguished between transactional leadership and transformational leadership styles. As claimed by Tajasom et al. (2015), the transactional leader acts within the framework of the so-called prevailing rules of the game. Such leaders motivate followers, appealing to their own interests. The means of motivation are reward and punishment, which are established by the leader. At the same time, the transactional leader advocates maintaining the current state of affairs.

As for transformational leaders, they change the prevailing environment essence, motivating employees to solve problems and achieve common goals and showing how to do it. The means of motivation refers to intangible rewards, as well as the implementation of intangible values. At the same time, the transformational leader encourages followers to offer new ideas and come up with new ways to solve problems. Transformational leadership has several elements, such as an individualized approach individually working with each of the followers; intellectual stimulation: a leader encourages people to use their opportunities and make decisions independently (Tajasom et al., 2015). For SMEs, it is especially important to practice inspiring motivation: the leader sees the future, awakens optimism among followers, and inspires confidence in them.

Some experts argue that the transformational leadership style is more effective than the transactional style (Manzoor et al., 2019; Tajasom et al., 2015). A transformational leader influences various aspects of life in an organization. It enhances the psychological well-being and self-efficacy of employees, trust in the leader and classmates, enhances organizational identity. Under the influence of a transformational leader, employees are more satisfied with their activities; more often, they show civic responsibility and less often change jobs. At the same time, Ng, Kee and Ramayah (2016) mention that the success of transactional and transformational styles depends on the characteristics of employees. A transactional leader is focused on doing what is due, and his or her actions allow employees to avoid failure; therefore, it is more effective for people with a focus on promotion.

Proposed Research Design

Research Philosophy

For the proposed study, it seems appropriate to apply interpretivism, assuming that subjective meanings are an essential part of social action. The purpose of this approach is to define the main interpretations and meanings characterizing individuals and groups of people (Packard, 2017). Any social structure exists insofar as people adhere to stable models of interpretation and act in accordance with these models. Accordingly, the proposed study will study the meanings that people put into their actions and the ways in which they interpret the surrounding reality. A leader’s assessment of his or her behaviors depends not only on objective indicators of performance but also on a person’s subjective ideas about cultural and social peculiarities that exist in a certain SME.

Research Design and Data Collection

Online primary empirical qualitative research will be conducted based on interviews with the leaders of several SMEs in China. Using the method of interviews, the study participants will be asked to contribute to the proposed study by providing their answers to the predetermined questions (Saunders, Lewis and Thornhill, 2019; Bryman and Bell (2019). Such research design will allow for collecting relevant data and interpreting it in terms of the Chinese SMEs context.

Data Analysis

The attributes of the leadership style will be discussed with regard to the available literature (Creswell and Creswell, 2018). No software will be used to analyse the findings since data analysis will be based on the content analysis (Miles, Huberman and Saldana, 2013; Silverman, 2015).

Limitations / Benefits of the Approach versus Other Approaches

Modern science is based on a dialectical approach, the application of which is carried out in three main forms, including positivism, interpretivism, and realism. Compared to the chosen philosophy of interpretivism, the application of the principles of the natural sciences to study social reality is what underlies positivism. This approach is objective; it is based on testing theories and establishing scientific laws. At the same time, its general purpose is to identify cause and effect (Anderson, Fontinha and Robson, 2019). In turn, according to realism, social events and discourses are based on structures. It is only possible to observe them indirectly, and they should be described in theoretical terms. As a result, they can be called conditional in nature. Interpretivism fits the goals of the proposed study as it implies that there is no objective and single truth, and it is not possible to separate causes from effects. Moreover, the interaction between the researcher and the respondent may affect the results. The limitation of the selected approach is that the collected data is often not applicable to analysing the behaviour of a wider target group.

Ethical Issues

Confidentiality will be ensured by protecting the collected data and acknowledging the study participants that their sensitive information would not be mentioned (Anderson, Fontinha and Robson, 2019). Informed consent forms will be provided to the participants in advance, containing a brief review of the study goals and methods.

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BusinessEssay. "Leadership in Chinese Small & Medium Enterprises." January 22, 2022. https://business-essay.com/leadership-in-chinese-small-and-amp-medium-enterprises/.