The Influences of Budgetary System in a Selection of Large Chinese companies in the Industry of Electronic Household Appliances

Abstract

Abstract

Budgetary control has been used and researched for years by both Western academics and practitioners. In China, it is re-emerging as a tool to implement management control, but might be used in different ways both in terms of understanding and operation. The research objective of this thesis is to examine the applicability of Western theories of change in management accounting in the context of budgeting in Chinese corporations.

Challenges can exist because of the differences between Western assumptions and Chinese reality. The current thesis focuses on difficulties Chinese companies encounter in practical and deeper ideological ways: firstly, Western market-based ideology conflicts with an ideology which has been shaped by central-planning for decades; secondly, difficulties stem from the different cultural context of China which emphasizes hierarchical politeness, kinship ties, trust based on personal relationships, collectivism and social harmony, diligence and individual modesty, and less developed modern legal regulatory systems – these all contribute to China’s own way of doing things. This thesis also focuses on the transition process in China. Based on the assumption that budgetary changes do not happen in isolation from other management accounting changes, this thesis discusses these changes which synchronically took place while the case-study companies were implementing budgetary systems. This thesis adopts a longitudinal and in-depth qualitative case study research design, after adjustments made during the learning experience of the pilot study. It takes an interpretive and constructive philosophical underpinning, which allows the researcher to observe and understand the process of change, as well as the differences between Chinese practices and Western theories.

Findings show that certain Western management accounting theories of change and Western theories of budgeting work in the case study Chinese corporations. Management accounting theories using an interpretive approach (for example, Berry et al., 1985; Scapens and Roberts, 1993; Ahrens and Chapman, 2002) lead the researcher to interpret management accounting practices from the practitioner’s points of view, and they have provided a range of terms to explain success or failure of management accounting changes. This approach together with Scapens et al.’s Institutional theory approach in management accounting have been found especially useful, in explaining the differences between Chinese vs. Western context. Furthermore, the contingency theory approach in management accounting gives a ‘platform’ which allows the researcher to assess a wide range of possible factors and their relationships with budgetary systems in studied companies. This approach is found useful in this thesis to present changes in other management accounting perspectives. Last but not least, this thesis finds existing Western literature in technical perspective of budgetary objectives, budgetary evaluation and participation, and budgetary effectiveness useful in a different context of China. By describing the change management process, an aspect which is not addressed frequently in the research literature, this thesis argues that to sufficiently understand Chinese companies’ budgetary changes, one also needs to understand unique cultural, social-economical and religious circumstances, and to adjust literature and methodology to adapt to these circumstances. This thesis provides an empirical experience concerning these issues. This thesis contributes to the understanding of management accounting change in China, and the tension which exists when Chinese companies are moving into Western management accounting practices.