Free Management Essays - Human Resource Management In China - What Barriers Are Foreign Firms Challenging
Synopsis
This paper will look at the current challenges that face foreign multinationals firms when operating in China. Since their accession to the WTO, China has further increased in appeal to the multinational companies both as a continuing base for cheap labour and, increasingly, as potentially the world's single largest consumer market.
Although still a communist state, China has actively pursued foreign direct investment (FDI) as a means to promote internal economic development. This unique context creates a dichotomy for international businesses and as a result they face challenges in China that have little or no historical precedent on which decisions can be based. The more fundamental business-related barriers to success have been identified in this paper.
The basic geography of the country is the most obvious challenge. Similar in size to the United States, China has an underdeveloped infrastructure that makes access to the 900 million people that live rurally challenging and inefficient. This not only has implications for the real size of the market but has possible human resource issues as competition increases, demand for labour grows and the labour pool recedes. In addition, the Western regions are significantly underdeveloped in comparison to the East coast. Thus skilled labour shortages increase dramatically as companies head west.
The former hard-line communist nature of the Chinese government makes restrictive government bureaucracy inevitable. Free trade in China has very different connotations as barriers exist even within the country between regions. This may well disrupt the flow of human capital - for so long seen as the major benefit from operating out of China. However, the abolishment of foreign ownership restrictions across certain key sectors and full membership to the WTO suggest that there is reason or foreign firms to be optimistic about the reduced role of the Chinese government in future economic affairs.
The cultural differences between foreign firms and their Chinese workforce arguably form the greatest human resource challenge for multinational firms. The Chinese worker is motivated by very different factors than the American worker for instance. Recognising and managing these subtle differences is the key to success. However this is not a straightforward task due to the huge language barrier and that fact that little English is spoken. The use of localised mangers to facilitate the implementation of international human resource practices is seen as a risky solution due to the general inexperience of Chinese managers.
Western and Japanese firms have tended to adopt two very different strategies in managing their Chinese workforces. It is recognised that the Japanese policy of management protectionism has had certain advantages, but it is the largely American model of a strong corporate culture and the use of a manageable level of Chinese managers that has yielded the greatest success. We will assess why this is the case.
Introduction
China is the future. It is as simple as that for the global economy. The appeal of China's unprecedented scale of low cost manufacturing - that has attracted foreign direct investment to date - is slowly being matched and surpassed by the growing maturity of the Chinese consumer. This development has meant that China is now the most attractive market in the world, bigger than the European Union, Japan, and the United States combined.
The growth of China's economy has created a unique and complex market environment. The government is officially communist yet capitalism is thriving like never before. The major urban centres of Beijing and Shanghai are thriving business hubs. This communist ideological leanings of government would traditionally favour protectionist polices to benefit domestic industries however in joining the World Trade Organisation (WTO) as a full member in December 2001 the Chinese government made a lasting commitment to the principles and benefits of free-trade and openness. However, to assume the smooth transition to an open economy would be naïve. China remains an extremely complex business environment with numerous barriers to successful trading.
First, this essay will look at the historical involvement of multinational enterprises in China and will identify the historical precedents that still shape the way foreign businesses conduct their operations in this market. Next the significant extent of the Chinese government bureaucracy and involvement in the economy - an anathema to advocates of the free-market - will be looked at in terms of the potential and real hazards faced by international managers. The issues of patents, piracy and protection of intellectual property rights is a huge concern for businesses operating in the loosely regulated Chinese market and the significance of this should not be lost on issues relating to human resources. This will be covered as will issues surrounding the guarantee of quality of products produced in China.
Finally this essay will look at the physical nature of the market in terms of its overall development and the level of domestic and increasingly foreign competition. The source of this competition will be assessed to see if cultural factors are still relevant in global business success, success that will ultimately depend on establishing a competitive business in China.
Foreign Direct Investment in China - overview
Foreign Direct Investment (FDI) in China peaked in 1993. However, the subsequent fall in FDI was reflective of the global trend that resulted from a serious of economic downturns such as the East Asian financial crash. Despite this 'fall', international investment in China totalled around $4 billion in 2003 (Datamonitor, 2004) as China continues to be a leading host for multinational activity.
China and the World Trade Organisation (WTO)
China gained full entry into the WTO in December 2002. In doing so they removed a number of tariff and non-tariff barriers to entry in many of their major manufacturing industries, they allowed foreign ownership of business of the first time in banking, telecommunications and retail (previously a foreign companies could only possess a maximum 49% share), and they removed geographical and business-related restrictions in the banking sector under its WTO obligations (Datamonitor, 2004; p15).
Entry into the WTO is likely to see foreign business activity in China grow rapidly, especially given the aforementioned appeal of these newly accessible mass markets. However, given domestic business underdevelopment is likely to create cases where the Chinese government will be tempted to protect Chinese businesses to the influx of foreign competition. Whilst this contravenes WTO regulations, it is arguably an inevitable consequence when a formally centrally planned economy is in transition to free trade. An example of the potential problems faced by foreign competitors occurred in March 2004 when the United States filed an official complaint with the WTO over what it claimed were unfair tax breaks for Chinese chip manufacturers Datamonitor, 2004; p15). This specific example provides evidence of the need for Multinational enterprises to be fully aware that restrictive government practices could be introduced to favour Chinese domestic business.
China, it must be remembered, is a vast, developing economy with enormous leverage with the WTO, consequently it extremely difficult to regulate externally. Therefore the likelihood of government protectionist policies is arguably greater than in most developing countries and new accessions to the WTO.
Governmental Bureaucracy
The remarkable turnaround in the Governments bureaucratic stance from a centrally planned economy in the 1970s to the rapid introduction of market forces - in spite of a status quo in the political monopoly - is an almost unprecedented historical development and is arguably hugely encouraging for Western multi-national enterprises looking with enthusiasm at the untapped market of approximately 1.3 billion people.
These economic developments represent a significant boost to the country's position in international relations, especially with the United States. The USA has long sought to benefit from opening up China fully to free-trade. Not only idealistically but also because as host to the world's most powerful Multinational Enterprises (MNEs) they are in the strongest position to benefit most from establishing their products in Chinese consumer markets. However, the bureaucratic nature of the Chinese government, political and trading systems is potentially hugely restrictive to the success of free trade and the promise of China as the worlds' single largest market. Success of free trade in China depends on the cooperation of enterprise and government in establishing the conditions within which capitalism is allowed to flourish. Currently signs exist to suggest that international firms will face restrictions. For example, trade is not yet even free within the country itself, restricted by China's little-known but perverse barriers to trade between provinces (Economist, 2004; p13).
China also faces the dichotomy of wanting to the benefits of international free trade whilst maintaining an authoritarian political system. The government bureaucrats are reluctant to relax economic restrictions internally in order to maintain stability and social cohesion. This may result in cases such as the restrictions on the movements of human capital between provinces. This inevitably results in high levels of intervention and regulation in the economy, clearly antagonising fellow members of the WTO.
However, the demographics of the Chinese bureaucrats are changing. The most noticeable change is that reforms have seen an increase in younger, more dynamic, better educated, pragmatic bureaucrats that are more facilitating of the change towards a market economy (Li, 1998). Being better educated in almost all cases, they are also generally more competent than their predecessors (Li, 1998; p10) this has created an increasingly modern Chinese government outlook that is more open to the benefits and process of globalisation. The clearest example of this can be seen in the government's 'Western Development Strategy' whereby Foreign Direct Investment has been actively encouraged into the areas of China other than the Eastern coastal region in a big to establish greater dispersion of development and economic activity in the country. This openness is encouraging for multinational firms from all countries and gives them a certain degree of leverage in negotiations with the authoritarian government.
Geography and the labour market
The massive potential of the Chinese market is the single-most important determinant for foreign multi-national companies to invest in China. No longer is China seen primarily as a source of cheap manufacturing labour. It is increasingly recognised as an increasingly sophisticated market. In essence the role of China in the global market is rapidly changing from a manufacturer to a consumer. This has led many commentators to concur that it is only a matter of time before the Chinese market supersedes the United States to become the dominant global economy.
However, the significance of the size of this market is somewhat reduced by the enormity of the country and the fact that the geographical spread of the population is considerable. This is compounded by the relatively poor infrastructure - by Western standards - in terms of transport and communication. Reaching this 1.3 billion plus market is not simply a matter of setting up business in the major cities on the Eastern Seaboard. The vast majority of Foreign Direct Investment in China to date has focused on the major cities in the East such as Beijing and Shanghai, While the eastern coastal region accounted for 88% of the country's total FDI during 1978 to 1999, the central region attracted 9% and the western region only a minor fraction of the total $308 billion in FDI inflows (Taube, 2002; p1).
This economic disparity, compounded by insufficient infrastructure and public transport, reduces significantly the mobility of the Chinese worker. Although it would be expected that a migration of workers from the poorer West of the country to the wealthier East coast would occur, the limited transport options and growing wealth disparities restricts this movement of labour. Thus as more and more MNEs choose to locate in China in order to remain competitive, they face the potential of an ever shrinking pool of cheap labour. It is too simplistic to look at China as a market of 1.3 billion people. There is great political, economic and social disparity between cities and prefectures. The population is spread significantly, if not evenly, across the country. Multinationals face competition for workers if they continue to think that the majority of the population live in the giant, industrialised cities in the East.
In addition it also reduces the solidarity of the consumer market. In concentrating investment on the East coast, multinationals have arguably contributed to alienating the largest percentage of the Chinese consumer market and have created a smaller rapidly wealthy consumer market instead. As this region of the country grows wealthier there are more potential problems for multinationals, especially those in manufacturing. As the economy grows, wages will increase and the competitive advantages and economies of scale derived from cheap labour costs will slowly erode. This fate befell companies based in Mexico following the creating of the North American Free Trade Association. Wages in Mexico increased significantly in the ten years following the creation of NAFTA. As a result, companies such as Volkswagen relocated many of their Mexican based facilities to benefit from the cheap labour in China (according to BusinessWeek this labour was over four times cheaper than in Mexico).
However, even China now faces cheaper human resource rivals. Vietnam and India - with a comparable population to China - are increasingly appealing to multi-national employers. The attractiveness of operating in China will arguably be reduced if multinationals succeed in creating the world's biggest economy especially if, as predicted China will soon be hit by rapidly rising wages for its skilled workers (Evans, 2005; p60). This is the great dilemma that faces this growing market and businesses operating within it.
China still has over one billion people living in poverty and living rurally. Integrating this huge potential labour market into a modern, industrialised, rapidly expanding and globally competitive economy is the challenge that both foreign multinationals and the Chinese government together need to work on in order to achieve respective success (Evans, 2005).
Unemployment
Concerns about the supply of labour are perhaps slightly over-cautious as despite insufficient infrastructure and population dispersal it is still highly likely that those living rurally with migrate to the cities to find higher paid work. The historical precedent for this has been set in every country ever to have industrialised, regardless of population size. To support this prediction, the current unemployment trends in urban areas in China show a continual rise in percentage of unemployed since 1991. Rather than suggesting that the economy is in recession, it is more likely that this suggests, following the rapid growth of the urban based economy, more and more people are heading to urban areas to find work. The rise in unemployment suggests that the current labour market is saturated. In terms of unskilled labour - principally in manufacturing - Multinationals looking to set up in China are seemingly spoilt for choice.
Unemployment in urban areas
Year Unemployment % Increase
1991 3.5
1992 3.6 2.3%
1993 4.2 16.6%
1994 4.8 13.4%
1995 5.2 9.1%
1996 5.5 6.4%
1997 5.8 4.3%
1998 5.7 -1.0%
1999 5.8 0.7%
2000 6.0 3.5%
2001 6.8 14.5%
2002 7.7 13.1%
2003 8.0 4.3%
Source: International Labour Organization 2004
This rise in urban labour pool is does not necessarily mean an endless supply of labour. Most FDI entering China has focusing on manufacturing and this has tended to follow a pattern of low-technology products. Thus the vast majority of Chinese workers are unskilled, basic labour. Commentators such as Evans (2005) claim that this will ultimately result in the arrested development of the Chinese economy that so many have so confidently predicted with supersede the American economy in the 21st Century. This shortage of hi-tech specialist labour is a source of real concern for the human resource needs of multinationals looking to locate their operations in China. For companies focusing on high-tech products or services, the production economies of scale achieved from exploiting the lost-cost Chinese labour markets will be reversed if a sufficient supply of skilled labour is not readily available.
Culture and management
Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster (Hofstede, 2003; p1)
Geert Hofstede collected data from IBM employees in 64 countries over a number of years to try and establish a common system of categorising and assessing the impact of culture on behaviour and attitudes and the consequences of this for business within each cultural context.
Hofstede's study did not include China as, due to its communist economy, IBM did not have operations in this country. However, his four dimension analysis of culture continues to be recognised today as the academic standard for cultural assessment for business. For the purposes of this paper it will be used to critically assess the culture of the Chinese worker and manager to try and gauge what impact this will have on the human resource strategies of foreign multinationals. By was of a postscript to his study, Hofstede continues to offer consultancy on country-specific culture, including countries not included in his original study. He therefore provides some insight into the role of the four dimensions in China.
1. Power distance: Represents the degree to which inequalities of power are accepted. A high power distance represents a society where great disparities of influence have been allowed to grow and imbed. Hofstede recorded that in such societies workers are not upwardly mobile. This suggests that the workforce will be effectively managed by a figure that is deemed to have high authority. Low power distance suggests that all citizens and workers or employees are relatively equal in perception. Under this system all employees should have a reasonably equal change of promotion and opportunities.
Power distance is high in China. The implications of this for foreign multinationals are that they must employ managers who are perceived to be strong. Confucian concepts of power are still prevalent in Chinese society and therefore the workplace. Thus a manager's power is more often based on their older age, wealth, and education. Thus, companies need to employ a suitably 'qualified' individual if they are to successfully manage subordinates.
2. Uncertainty avoidance: Represents the extent to which individuals accepts uncertain or ambiguous outcomes. A high uncertainty culture has low tolerance for uncertain outcomes or unstructured environments. Such societies are therefore characterised by extensive rules, laws, codes and controls in order to minimise risk. Low uncertainty countries are more favourable towards risk, dynamism and change. Such countries are often characterised by higher levels of entrepreneurial activity and multiple interest groups.
According to Hofstede, uncertainty avoidance is weak in China suggesting that employees will be more open to change - new, foreign ownership for example. This is somewhat surprising given that the country is formerly communist and therefore very rule orientated. However, China has only been communist for less than 100 years, usually not long enough for rules to become embedded in cultural behaviour.
The human resource implications are split. Firstly, the Chinese may well be open to change and new ownership and working practices. However, a lack of rules could make imposing company cultures and working practices a greater challenge. Employees may not respond well to authoritarian, rule based management - although this is less of an issue for European and US firms. Also, the benefits of China signing up to the rules and obligations of the WTO may be negated if these rules are not followed within the country itself.
3. Individuality: Represents the extent to which society reinforces the ideals of individualism or collectivism and personal relationship. It is usually reflected in work structures and patterns. Highly individualist countries such as the United States are far more likely to reward individually and financially based on merit. Employees are self motivated and are looking out for number one. In collectivist societies individuals are responsible to and for the group. Work based motivations are far more likely to cover social issues such as working environment, positive social relations, and job security.
Foreign based multinationals from Europe and America - regions where individualism is prevalent - must recognise that rewarding individuals based on performance is more likely to be a negative strategy in China and will potentially contribute to de-motivating and antagonising the collective workforce. Motivating employees in China is arguably less about money and more about providing working conditions that satisfy their collectivism wants and needs such as long-term job security and work-based socialisation needs.
4. Masculinity: This is about the extent to which cultures reinforce the work-placed male role model of control, achievement and power. High masculinity countries will, inevitably, provide more opportunities for men than women and will therefore see large levels of gender in equality. Low masculinity countries are more egalitarian and do not discriminate on the basis of gender.
Although multinationals may operate an equal opportunities policy in their domestic market, when operating in China it must be conceded that employing a disproportionate amount of female workers may antagonise the male workforce, other companies, authorities, unions, suppliers and a number of stakeholders. Alternatively, multinationals could endeavour to create a strong enough corporate culture to overcome gender issues. This, however, is arguably unlikely.
The challenge of language
A lack of familiarity with English is becoming a major stumbling block (for the Chinese) when designing and developing high-tech products for world markets (Evans, 2005; p60). English is still the language of international business and trade especially when relating to high-tech, economy-advancing products and services. It is important to realise that however cosmopolitan the citizens of Shanghai are becoming, China is still a developing country where the overwhelming majority of citizens do not speak a major European language. This installs instant barriers to managing the indigenous workforce effectively. For most multinationals it means that management will have to be through intermediaries and translators.
The language barrier is a hugely significant impediment to successful and effective communication flows and, as a result, the ability of a business to coordinate its global activities smoothly and effectively. Language competent staff are extremely important in the success of global operations yet this has been lost on many (Marschan et al, 1995). It may be the case that Japanese firms are better suited to communicating with the Chinese workforce effectively as they share certain cultural similarities and language styles. Adaptability of Japanese management to staff and vice-versa may indeed be easier for Japanese Human Resource managers. This would enable better coordination and ultimately economies of scale.
The importance of language and adaptability is questioned by the example of IBM - voted by BusinessWeek as currently the third most valuable (and therefore successful) global brand in 2004. After finding it increasingly difficult and inefficient to organise Human Resource practices on a national basis, in 1999 the company decided to pursue an international human resource policy. It was recognised that integrating the different country-specific human resource departments was as critical as integrating supply chains and financial flows. Not to do so was simply inefficient and increasingly ineffective (IRS Employment Review, 1999). The continued strength of IBM's brand and their positioning as the global market leader in business solutions suggests that they have overcome the challenge of cultural differences and language barriers by creating a powerful, effective company culture and consistent universal human resource practices. This is a powerful example for Western businesses wishing to operate successfully in China. The success of Japanese firms to date is arguably therefore less about a greater cultural compatibility and more about the belief and instilment of a strong, positive company culture.
The use of Chinese managers
One option in addressing the human resource management problem of communicating with the Chinese workforce is to use local managers. Past foreign ownership restrictions imposed by the Chinese government used to dictate that this was nearly always the case. Foreign multinationals had to concede at very least a 51% share in ownership to their domestic joint venture partner but in doing so benefited from the local knowledge of the local management. The use of local management remains a popular choice in FDI venture but may not, in China, make the most effective method of managing as the Chinese have not yet developed the necessary management skills because they have never lived under capitalism (Evans, 2005; p60).
The inexperience of Chinese management often leads to suspicion of Western managers as many still perceive it to be immoral for Westerners to make a profit in China (Papadimos, 2004). This is symptomatic of the cultural differences between China and the West. An example of the problems of inexperience managers is provided by Tsingtao - the largest beer produces in China. In the three years after this state-owned company was put on the international stock market inexperienced managers drove profitability and share price down as they made a series of bad investments (Clifford, 1997).
The warning is clear; Chinese managers need to be managed. The language barrier is so significant for most foreign businesses in China that most have to consider the use of Chinese management personnel. If these employees are bi-lingual (as they should, or rather must, be) then there should be little difficulty in managing them and their decisions.
The benefits of employing effective Chinese managers arguably make the integration of indigenous employees into the managerial framework a strategy well worth pursuing. Liu (2004) argues that research has shown that when employee and managerial goals are aligned, the effectiveness and resourcefulness of both employees and managers are increased but more significantly when the manager is Chinese and not foreign.
Employees and TRIPs
China's entry into the WTO was seen by all multinationals as a hugely important, significant and necessary step for the protection of world wide Trade Related Intellectual Property Rights (TRIPs). The Chinese counterfeit market is the chief protagonist for all piracy activity worldwide such is the scale of the illegal industry in the country. On a basic, but still extremely damaging, level this means the copy and bootlegging of consumer retail products and sale at a vastly reduced price. With the government and economy still in massive transition, the Chinese government have had little success in policing this activity with the American Chamber of Commerce in Shanghai reporting that China's current measures to punish those guilty of TRIP violations were way short of the standards required by the WTO.
Furthermore, the manifestation of basic level piracy has been the establishment of Chinese companies that produce rival products from designs stolen from Western companies. This is where the issues really arise for human resource managers especially in companies that produce high-tech, difficult to replicate products. Employees can steal product information. This is of particular concern to Western companies if the claim by Papadimos is true that the Chinese see Western multinational profit as somewhat unjust. This arguably legitimises fraudulent behaviour.
TRIPS and trust remain a huge issue for all multinational operations employing staff in China. This is perhaps the critical HR challenge as the counterfeit industry is starting to rival multinationals in speed, reach and determination (Balfour et al, 2005; p54) and, crucially, the hub of this activity is China. An example of how destructive having rival 'spies' in your workforce in such an environment is provided by Callaway Golf who recently conceded that one of their new models could be copied, and market-ready within a week
Employee dishonesty and fraudulent copy of property rights is, according to the latest white paper from the American Chamber of Commerce, one of the most critically important issues facing US businesses in China today (AmCham Shanghai, 2005).
Comparison between Japanese and Western firms
The Japanese
Japan has been tremendously successful in its export-driven expansion into the newly open Chinese markets. With China purchasing twice as many Japanese than American imports, it is clear that Japanese products and services are popular amongst the Chinese. However, the export-driven expansion strategies of the South-East Asian markets were cruelly exposed when the economic crisis in the 1990s demonstrated that they had little FDI on which to fall back for economic stability. It is a source of some puzzlement as to why the Japanese did not pursue FDI strategies in China as aggressively as they pursued export penetration into the market.
There have been many negative appraisals of the performance of Japanese multinationals in China but Masuyama (2004) puts their overall performance down to four basic - arguably culturally specific - factors:
1. Japanese firms have looked to China to provide cheap labour for the export markets - largely back to Japanese markets. US and European Multinationals have targeted China as a market of huge potential and not just a production base.
2. Japanese firms have located few research and development facilities in China as they are reluctant to transfer technology.
3. Japan has kept its production in China largely Japanese with a propensity for Chinese factories to operate as screwdriver plants for Japanese parts.
4. Japanese firms have involved far fewer Chinese or local managers than their European and US rivals.
One could argue that given the problems associated with the security of intellectual property rights and the inexperience of the Chinese manager, the Japanese strategy of management insularity and fiercely guarded protection of technological knowledge is a sensible approach to operating in China. The major business and human resource issue of employees facilitating the transfer of high-technology property rights to competitors is alleviated if that technology remains essentially in Japan. However this is a negative and somewhat short-term approach and ignores many of the positive possibilities of the Chinese market. Japanese MNEs have to be much more embracing of Chinese culture and given their close geographical proximity, it is perhaps somewhat surprising that they have been the least successful major industrialized trading bloc to exploit the Chinese market through FDI.
It is clear from these reasons that the Chinese managerial concepts of guanxi (personal relationships) and Confucianism are antagonized by the apparent Japanese suspicion of Chinese workers and managerial ability. This is extremely important to operating successfully in China and may best explain the relative failure of previously successful Japanese multinationals in operating in China.
As Japan's economy has begun recovering, their investments in China have increased, if only slowly. However successful Japanese companies will need to buck the trend of suspicion and isolation of the Chinese workforce from management and product development. Despite mild management focused xenophobia amongst the Chinese workforce, Liu (2004) asserts that co-operative goals and applying abilities for mutual benefit contribute to effective leadership even when managers and employees have different nationalities (p730). If Japanese managers and directors recognize this then the increasing investment in China has a much greater chance of paying off.
Western Multinationals
According to Hong (2004), the Chinese worker is motivated by their relationship or personal ties (guanxi) to the product and their personal relationship with their manager which will be dominated by power, wealth, education and, more importantly, age of their manager. Unlike Western managerial hierarchies which tend to be more merit-based, the Chinese still harbour Confucian ideals that shape attitudes and determine altitudes on the social and successful managerial hierarchy.
Failure to recognise this or mismanaging manager-employee relationships could jeopardize the authority a manager has over their workforce and therefore jeopardize production quality, TRIPs, and success. This is of particular concern to Western multinationals as it is clear that the Japanese and Chinese share similar cultural motivations.
Despite this apparent cultural relatedness with Japan, it is European and especially US Multinationals that have been the greatest success in China especially from a human resources perspective. In China the US company is reported to rank number one as most desirable workplace from a Chinese local applicants point of view (Urakami, 2003). Urakami also claims that the top Chinese graduates seek to work in US multinationals and that Japanese companies have difficulty attracting top-calibre management.
It is the European and especially American emphasis on a strong, positive company culture that is thought by most commentators to be at the core of there generally more successful performance than their Japanese counterparts. Wal-Mart offers a good example of this with their Wal-Mart Asia stores. The vice-president of human resources for the company, Francis Tam, agrees that corporate culture is the soul of a company that cements employees with shared values. The key to the company's success has been to instil employees with a strong sense of the company culture in all of its stores in all of its locations and this is seemingly the perfect strategy for China where the values associated with culture and belonging are fundamental to a productive and effective workforce.
The recognised value of corporate culture has therefore given European and American companies a competitive advantage in human resources in China. By truly committing to certain core positive principles and offering security, belonging and the chance of promotion, Western corporate cultures have appealed directly to the traditional Chinese values of guanxi and Confucianism and this has, and will continue to be, the driver behind successful human resource management in the region.
Conclusion
Multinationals in China face a variety of new and unique business challenges regardless of the extent of their experience in other foreign environments. The physical size of the country coupled with poor underdeveloped infrastructure suggests that as FDI and demand for labour in the big urban centres increase, labour supply might decrease. However, rising urban unemployment indicates that the migration of workers to the cities has already begun. The real challenges for foreign businesses in China are not physical, they are cultural.
The insular nature of the Chinese nations, exacerbated by a Community government, has resulted in a unique national workforce. There is recognition of the value and necessity of FDI for economic development and employment but there is a suspicion of foreign companies and vastly different worker wants and needs that are often not primarily financial. In this environment it is perhaps little surprise that the issue of technology and design counterfeiting is a problem that has grown to almost epidemic proportions. The use of Chinese managers in order to alleviate some of these suspicions is a balancing act. Chinese managers are inexperienced on the whole but are necessary to communicate effectively with the workforce. There is also research that claims that Chinese employees are more productive under localised management and the results show that the more successful American multi-nationals have been the main proponents in the use of Chinese managers.
Multinationals also need to recognise that Chinese workers, although masculine in orientation, tend to be motivated and subservient to a different style of manager than that which is popular in the West. Historical Confucian ideals place emphasis on age, education and wealth above talent and raw ability.
The success of European and especially US multinationals has begun to establish a precedent for success in the management of Chinese workers and the ultimate result of successful operations in China. A common characteristic in successful firms appears to be a strong, positive corporate culture that bonds employees on a primarily non-financial basis and successfully aligns company, managerial, and employee objectives. In doing this, successful foreign MNEs have managed to appeal to the collectivist guanxi ideals of the Chinese workers. To ignore the value of corporate culture is an option but the Japanese multinational strategy in China is evidence to suggest that this is the wrong option.
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