SHAIC's actual and potential customers were primarily SOEs. With a growth in the number of wholly foreign-owned enterprises (WFOEs), it was possible that in the future some of the customers would fall outside of the direct administrative control of the Chinese government For the immediate future, however, understanding the administrative control mechanism operating at different government levels and identifing the important actors and gatekeepers in it remained paramount to successful marketing and selling to the state-owned sector in China.
Under the old system of a planned economy which was in place in China until the late 1970's, all enterprises belonged administratively to a central government ministry and/or a more local (provincial or municipal) government bureau. The central government link often involved administrative reporting to, and control by, a central ministry, provincial authorities, and local representative organizations or administrative bureaus. Given that SOEs were essentially manufacturing sites responsible for production output and the social welfare of all employees, the decision-making authority on many important managerial decisions (e.g. distribution) fell outside of the SOE and rested (or was shared) with one or more administrative units in this complex government control mechanism.
With industrial reform starting in 1984, the Chinese government's objective was to separate ownership from management Afthough progress had been- made, the objective had not been fully reached by 1995. More importantly, with the plight of many SOEs (two-thirds of them were reportedly loosing money in 1995. and the central government's concern about social stability (and the state-owned sector remaining the largest industrial employer), there was often a sense of a reversal of that policy and a tightening of government control. With government decentralization and reorganization (including restructuring of ministries) started in 1984 and partially (and to varying degrees in different sectors) achieved by 1995, expatriate managers - and often Chinese colleagues - were often at a total loss to identify the logic of the decision- making authority in this complex and evolving government control mechanism.
In 995, SOEs (and hence JV partners) continued to report to local, provincial, and central government authorities. Such reporting and supervision had often created the impression among foreign JV managers that a shadow management structure was operating and influencing jV operations. For companies such as SHAIC selling to SOEs, it remained difficult to identify where the decision-making authority rested and with whom. The latter was important as bureaucratic control was often exercised at the discretion of government officials within the context of vague regulations (often without clear implementation rules or publicly unknown - the so-called neibu regulations). Cultivating personal relations with such officials at various levels was critical to develop an understanding of the system and to potentially influence it Mr Broekers, as some of his foreign colleagues in other jVs, had come to realize that China 'was governed by men, not by laws'. In this context, Mr. Broekers understood the critical importance of design institutes and their engineers to SHAIC's business.
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