International Management in China: Cross-Cultural Issues (Routledge Advances in Asia-Pacific Business)

International Management in China The greatest challenge to international business today is how to manage business oper...

Author: Jan Selmer

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International Management in China

The greatest challenge to international business today is how to manage business operations across cultural boundaries. This is especially true in the case of China, which has attracted a massive amount of foreign investment and international trade recently. This new study examines three main themes: • • •

The partnership of management through joint ventures. Human resource aspects of management. The management of communication, co-operation and negotiation.

The crucial issue of trustworthiness, the different managerial practices in China and the West, the importance of being well prepared, and understanding Chinese negotiations are the major contemporary issues identified and discussed in this book. It concludes that future cross-cultural management in China will not be much easier than today, since essential elements of Chinese culture will most probably prevail and also shape Chinese organizational behaviour in the future. Jan Selmer is Professor in the Department of Management at Hong Kong Baptist University. He has published widely on issues of cross-cultural management and is an active consultant in cross-cultural training for international managers of international corporations.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Routledge advances in Asia-Pacific business

Employment Relations in the Growing Asian Economies Edited by Anil Verma, Thomas A.Kochan and Russell D.Lansbury The Dynamics of Japanese Organizations Edited by Frank-Jürgen Richter Business Networks in Japan Supplier-customer interaction in product development Jens Laage-Hellman Business Relationships with East Asia The European experience Edited by Jim Slater and Roger Strange Entrepreneurship and Economic Development in Hong Kong Tony Fu-Lai Yu The State, Society and Big Business in South Korea Yeon-ho Lee International Management in China Cross-cultural issues Edited by Jan Selmer Technological Capabilities and Export Success in Asia Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka Transnational Corporations and Business Networks Hong Kong firms in the ASEAN region Henry Wai-chung Yeung


International Management in China Cross-cultural issues

Edited by Jan Selmer

London and New York © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book has been requested ISBN 0-203-02180-0 Master e-book ISBN

ISBN 0-203-21862-0 (Adobe eReader Format) ISBN 0-415-17460-0 (Print Edition)


Contents

List of figures List of tables Notes on contributors Preface 1

Introduction: cross-cultural management in China JAN SELMER

PART I Partnership management 2

Conflicts in Sino-European joint ventures GUOLIE ZHU, MARK W.SPEECE AND STELLA L.M. SO

3

Team conflict management ZHONG-MING WANG

4

Learning modes in international joint ventures in China NIKLAS LINDHOLM

5

Building trust for successful partnership in China ELIZABETH LI

6

Future Sino-Western strategic partnership CHIANG-NAN CHAO, ROBERT J.MOCKLER AND DOROTHY G.DOLOGITE

PART II Human resource management 7

Human resource management practices in international joint ventures versus state-owned enterprises in China MALCOLM WARNER


8

Recruitment and retention of managerial staff in China ROBERT McELLISTER

9

Performance appraisal in China CHERRIE J.ZHU AND PETER J.DOWLING

10

Reward systems for local staff in China VIVIENNE W.M.LUK AND RANDY K.CHIU

11

Strategic human resource management: expatriate managers in China JAN SELMER

PART III Managing communication, cooperation and negotiation 12

Effective management communication for China WILLIAM B.CHAPEL

13

Interpersonal cooperation in Western subsidiaries in China VERNER D.WORM

14

Confucian connections in China ROSALIE L.TUNG AND IRENE Y.M.YEUNG

15

Chinese and Western negotiator stereotypes GILBERT Y.Y.WONG AND RAYMOND J.STONE

16

Chinese negotiation strategies and Western counter-strategies CAROLYN BLACKMAN

17

Sino-Japanese negotiations in China MANTAKA KANAYAMA

18

Conclusions: current issues and emerging trends JAN SELMER


Figures

3.1 5.1 5.2 5.3 5.4 13.1 13.2 17.1 17.2

A compatibility model of cross-cultural leadership teams The nature of culture differences: the national, occupational and organizational levels The Asian organization’s structure The local Chinese organization’s structure Alpha reporting units Interpersonal relations in Scandinavian joint ventures in China Optimizing interpersonal cooperation between Western and Chinese managers Chinese and Japanese perceptions of negotiation: conflict and harmony Typology of Japanese negotiation of conflict resolution tactics and contexts


Tables

2.1 3.1 3.2 3.3 4.1 4.2 5.1 6.1 6.2 7.1 7.2 7.3 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 10.2 10.3 10.4 10.5

Production of passenger vehicles by Sino-European joint ventures Correspondence between dimensions and empirically-derived meaning Differences and similarities in responses to intra- and intercultural conflict Similarities and differences between Chinese and American managers Profile of case studies Learning modes highlighted in the case studies Organization culture within the People’s Republic of China Present business conditions for strategic partnering in China Future managerial concerns Characteristics of the selected case studies Principles of the 1994 Labour Law Excerpts from Provisions on Labour Administration of Enterprises with Foreign Investment (1994) The adoption of standardized criteria and methods of PA in Chinese companies with different types of ownership People in charge of PA Methods used for PA The extent to which PA is used for communication purposes The extent to which PA is used for administration purposes The extent to which PA is used for development purposes Results of perceived effectiveness of PA Operational locations of respondents Profile of the participating companies Mean and standard deviation of population, years of service, turnover rate and benefits provision Reward management philosophy and practices of the participating companies Compensation systems for local Chinese workers


10.6 Rank-order of attraction, motivation and retention of managers, supervisors and workers 11.1 Potential objective conflicts in joint ventures 11.2 Western/Chinese SHRM differences 15.1 Summary of Chinese regional differences 15.2 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese and of Shanghainese 15.3 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese (autostereotype) and Westerners (heterostereotype) 16.1 Differences in expected and actual allowances 16.2 Western and Chinese goals and values compared


Contributors

Carolyn Blackman is Director, Centre for International Business, University of Ballarat, Australia. She is serving as a member of the Australian-China Business Council and Chamber of Commerce and the Committee for Economic Development of Australia. She has consulted on the management of technology transfer and cross-cultural relationships to Australian and global companies. Her book Negotiating China: Case Studies and Strategies was recently published by Allen & Unwin. Chiang-nan Chao is Associate Professor, Graduate School of Business, St John’s University, Jamaica, New York. He has established executive training programmes for Chinese high level managers and been invited to lecture to several Chinese corporations, government ministries and universities. He has published over eighty-five articles, books, book chapters, conference papers and cases. His research interests are in performance evaluation and international business. He is recently working closely with the China State Council to assist state-owned enterprises in their operations. William B.Chapel is Lecturer, School of Business and Economics, Michigan Technological University, USA. His doctoral dissertation and research interests are in the area of international management communication competence with an emphasis on US and Asian relationships. He is actively involved in various professional organizations and is an intercultural management communication consultant to international organizations, government units and publishers. Randy K.Chiu is Head of the Department of Management, School of Business, Hong Kong Baptist University, Hong Kong. He has been working as a practitioner, educator and consultant in the HR field for sixteen years. His research areas include human resources management, personnel psychology and cross-cultural management. Dorothy G.Dologite is Professor of Computer Information Systems, Bernard M.Baruch College, City University of New York. She has written ten books and over 100 articles published in internationally renowned journals. She © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has lectured and consulted worldwide, including in Argentina, Canada, China, Egypt, Germany, India and Russia, and has taught MBA courses at universities in Malaysia, Shanghai, Xian and Beijing. Peter J.Dowling is Foundation Professor of Management and Executive Dean, School of Commerce and Law, University of Tasmania at Launceston, Australia. His current research interests include the cross-national transferability of HRM practices and strategic HRM. He has co-authored three books: International Dimensions of Human Resource Management, Human Resource Management in Australia and People in Organizations: An Introduction to Organizational Behaviour in Australia. He has also written and co-authored over twenty-five journal articles and book chapters. Mantaka Kanayama is a Professor of Business Information Management, Yokohama Soei College and a fellow at the International Asia Institute. He has written and edited six books in the areas of development and characteristics of Chinese management. He is an active researcher and consultant to firms in ASEAN and other Asian countries. Elizabeth Li is a consultant specializing in organization development and strategic change management issues. She has been consulting in the PRC and has visited various government departments and enterprises in the process. She has delivered papers at conferences and seminars, and coauthored and contributed to books. She is currently researching for a book on foreign investment enterprises (FIEs) in the PRC. Niklas Lindholm is affiliated with the Research Institute, Swedish School of Economics and Business Administration, Helsinki, Finland. He is currently working on his doctoral dissertation dealing with learning processes within human resources functions in joint ventures in China. He has been working for a European MNC’s joint venture operation in Beijing, PRC. Vivienne W.M.Luk is Associate Professor, Department of Management, School of Business, Hong Kong Baptist University, Hong Kong. She is also Associate Director of the Business Research Centre (Consultancy and Training) as well as Director of the Wing Lung Bank International Institute for Business Development at Hong Kong Baptist University. Her areas of research interest include women in management, cross-cultural management, work-family interface and human resource management. Robert McEllister is affiliated with the Asian and International Studies, Griffith University, Australia. The working title of his PhD thesis is ‘Management Recruitment and Retention Strategies from Small to Medium Foreign Enterprises in China’. He had worked in the Australian mining industry for fifteen years before returning to academia. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Robert J.Mockler is Professor of Business, Graduate School of Business, St John’s University, Jamaica, New York, USA. He is Director of the Strategic Management Research Group and its Centre of Knowledge-Based Systems for Business. He has authored and co-authored forty books and monographs, some 100 case studies and over 200 articles, book chapters and presentations. Jan Selmer is Professor in the Department of Management and Programme Director of the Cross-Cultural Management Programme at the David C. Lam Institute for East-West Studies, Hong Kong Baptist University, Hong Kong. His research interest is in cross-cultural management with a special focus on China. He has published nine books and numerous journal articles, book chapters and monographs. His book Expatriate Management: New Ideas for International Business was published in 1995 by Quorum Books, USA. His new book Vikings and Dragons: Swedish Management in Southeast Asia was published in late 1997. In August 1996, he organized and chaired the world’s first international academic conference on Cross-Cultural Management in China. Stella L.M.So is Senior Lecturer, Chinese University of Hong Kong, Hong Kong, where she teaches marketing and advertising. Ms So gained extensive experience in the marketing research and media industries in Hong Kong and Europe before joining academia, and maintains contacts through consulting work. One of her main research and teaching areas is marketing and advertising in China. Mark W.Speece is Associate Professor, Asian Institute of Technology, Bangkok and Visiting Professor, Bangkok University, Bangkok, Thailand. He consulted from a base in Hong Kong for five years before moving to Thailand in 1994. He has extensive experience working with Western firms on Hong Kong and China and helping Chinese firms with export marketing. Much of this work was with joint ventures in China. Raymond J.Stone is Associate Professor, Department of Management, Hong Kong Baptist University, Hong Kong. He has over twenty-five years’ experience in international human resource management. He has held senior positions in Australia, Hong Kong, Japan and Korea. He has taught at universities in Australia, Japan and currently in Hong Kong. He is the editor and co-author of several books, and has been quoted on negotiating and doing business in Asia, expatriate selection and failure, international compensation and industrial relations. Rosalie L.Tung is the Ming and Stella Wong Professor of International Business, Simon Fraser University, Vancouver, Canada. She is one of the leading experts on cross-cultural management in China. She is the author © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

of eight books and numerous articles published by the top scientific journals of the world. Besides cross-cultural management in China, her research interests include various aspects of international management and organizational theory. Her research has been cited in leading international newspapers and news magazines, including the International Herald Tribune, Business Week and the Wall Street Journal. Zhong-Ming Wang is Professor and Dean, School of Management, Hangzhou University, People’s Republic of China. Professor Wang is also the VicePresident of Hangzhou University. He is an editor, associate editor and member of the editorial board for several leading Chinese, East-Asian and international journals. His main research areas include cross-cultural organizational behaviour and human resource management, personnel selection/assessment, team dynamics, organizational decision-making, leadership, organization development and international joint venture management. He has published several books and more than 100 articles at home and abroad. Malcolm Warner is Professor and Fellow, Wolfson College and Judge Institute of Management Studies, University of Cambridge, Cambridge, United Kingdom. He has written several books on management in China, such as Management Reforms in China (1987), How Chinese Managers Learn (1992), The Management of Human Resources in Chinese Industry (1995), and China’s Trade Unions and Management (1998). Gilbert Y.Y.Wong is Director, Research Degrees Programme, School of Business, University of Hong Kong, Hong Kong. His main research interest is in the cross-cultural comparison of management and business practices in Asia. He has also undertaken extensive consultancy work for large corporations in Hong Kong and multinational corporations internationally. His specialities are in staff opinion surveys, organizational development, management of multicultural work force and business development in Asia. Verner D.Worm is Research Assistant Professor, Asian Research Unit, Copenhagen Business School, Denmark. He has studied Chinese language and philosophy and Chinese economics at the Peking University. He has published two books and co-authored and contributed to others. Irene Y.M.Yeung is an MBA graduate of Simon Fraser University, Canada. Formerly, she was a personnel specialist at IBM China/Hong Kong Operations, Hong Kong. Cherrie J.Zhu is affiliated with the Department of Business Management, Monash University, Australia, where she currently is lecturing. She had previously lectured in a tertiary institute in Nanjing, China. She is a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

doctoral candidate at the University of Tasmania, working on the topic of human resource management systems in China. Guolie Zhu is the International Coordinator, Far East Advertising, Bangkok. He is a native of Shanghai, China, and has spent five years as a manager at the major Chinese company CITIC, with responsibilities in the area of international business. The topic of his MBA thesis at the Asian Institute of Technology was Sino-European joint ventures.


Preface

One of the greatest challenges to international business today is how to manage business operations across cultural boundaries. That is especially true in the case of the People’s Republic of China, which has attracted a surge of foreign investments and international trade from a multitude of countries. This book represents a unique and significant research-based response to the challenge of successfully carrying out cross-cultural management in China. The background of this book is the world’s first international academic conference on Cross-Cultural Management in China (CCMC) held in Hong Kong in August 1996. This event brought together more than 100 academics and practitioners from more than fifteen countries worldwide to share and discuss research and experience within this field. As the editor of this book initiated and organized this conference, it became an important basis for developing this contributed volume. I would like to extend my gratitude to a number of people and organizations that contributed to this book. First of all, I would like to thank the joint organizers of CCMC, the David C.Lam Institute for East-West Studies, the School of Business, and the Wing-Lung Bank International Institute for Business Development for their unfailing support and continuous encouragement. Many thanks also to all academic colleagues as well as administrative staff and student volunteers whose hard work made CCMC into a resounding success. In particular, I would like to thank Malcolm Warner and Vivienne Luk who both, in their own way, played important roles. I must also mention Stella Chow, Cindy Leung and Karen Yeung for their excellent clerical support. Hon Lam helped me to produce a consistent and well-organized manuscript. I extend my special thanks to all participating authors in this book for their commitment and unfailing patience during a long editorial process. Although this is far from the first edited volume I have participated in as an editor or a contributing author, there is always that moment of despair when one tells oneself that this is it, this is going to be the last edited volume I do. Fortunately, such fleeting moments pass quickly and are soon forgotten, at least by me, and before long there is another edited volume in the works. In developing this © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

book, however, problems and difficulties were easily overcome and I would like to compliment my academic colleagues for their ingenuity and professionalism. Last, but not least, I would like to thank Victoria Smith and James Whiting and the staff at Routledge for an excellent job done. Jan Selmer Hong Kong


1

Introduction Cross-cultural management in China Jan Selmer

INTRODUCTION From being a poor country in the 1970s, China had developed by the mid1990s and is on its way to becoming one of the economic superpowers of the world (Nolan, 1995:171; Warner, 1996). The ‘Open Door’ policy was introduced in 1978 to seek economic interdependence with the rest of the world in order to achieve the Tour Modernizations’: agriculture, industry, science and technology, and defence (Warner, 1996). In 1980, China established special economic zones in Shenzhen, Zhuhai, Shatou and Xiamen, along with fourteen other coastal cities, in order to attract more foreign investment and increase economic collaboration with other countries (Hannan, 1995). Since then, China has indeed modernized, has more than doubled its living standard, and has moved from a rigid ‘command-economy’ to a much more flexible ‘socialist market-economy’ (Warner, 1996). The economic growth has been spectacular in the 1980s and even more impressive in the 1990s with an average rate of more than 9 per cent, making China the fastest growing economy in the world (The Economist, 1997a; Lardy, 1994:3). The amount of foreign direct investment increased from an annual average of US$1.12 billion between 1978 and 1981 to US$4.37 billion in 1991. During the same time period, the total foreign capital inflow increased from under 11 per cent to over 38 per cent (Chi and Kao, 1995). By 1994, China had become the second largest recipient of worldwide FDI flows and there were nearly 240,000 foreign-funded and/or joint venture agreements worth US$270 billion, of which US$80 billion was realized (UNCTAD, 1995; Warner, 1996). To better understand how this situation came about and to provide a feeling of the direction of the movement, it could be useful to have a quick glance in the rear mirror. Just after the turn of the century, there were only a few factories using mechanical power in China, but between the wars the textile industry developed extensively, much of it Japanese-owned and managed. Many British and American businesses were also expanding and these foreign enterprises introduced external management ideas to China, like F.W. Taylor’s Scientific Management, through their production methods. Before the nationalist © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

government was defeated in 1949, it had moved to control much of the industry, including all Japanese and German enterprises after the end of the Second World War. At the time of the communist take-over the nationalist government controlled major banks, heavy industry, all railways, highways and airlines, several large trading companies, almost half of the shipping tonnage, the largest industrial enterprises and the major share of light industry. The new communist government quickly confiscated all enterprises belonging to the nationalist bureaucratic capitalists as well as foreign interests and made them state property (Chen, 1995; Warner, 1995). So, paradoxically, the policy of the nationalist government had facilitated the socialist transformation through its bureaucratic capitalism. China initiated the Soviet industrial model in 1953, emulating a product economy model, by introducing a Five-Year Plan and adopting a centralized command system of macro-management. The state planning was made up of a network of branch industries where each branch was managed by a hierarchy of authorities from central government ministries through provincial bureaux and city government sections until reaching the enterprise level. Although several reforms were introduced before 1978, they did not radically change the structure of state planning (Chen, 1995; Jackson, 1992; Warner, 1995). At the enterprise level, a Soviet model of top-down management was first established. Soviet experts poured into China, setting up hundreds of new industrial plants and training the Chinese how to run them. Executive authority was concentrated to directors, the ‘one director management system’, laying the foundation for current management practices. However, this imported system relied on technically trained managers of which China did not have many at the time and the Soviet model was weakened by reforms in 1956 and 1961, when factory directors were made responsible for implementing decisions by party committees. This system was in turn disrupted by the Cultural Revolution, discrediting managers while the power to control was given to the representatives of revolutionary workers guided by ideologically loyal party committees. Hence, there was a party structure in each enterprise operating in parallel to the administrative structure and there were no clearly defined patterns of power distribution between managers and party officials, not seldom resulting in managers trying to be both enterprise directors and secretaries of the local party committee. Enterprise leaders and other cadres were government officials who in practice enjoyed ‘iron ruling chairs’ as they could not be fired or demoted. Enterprise workers were also deployed by government labour departments according to state plan, mostly ignoring their own preferences. Assigned to a work-unit (danwei, providing housing, medical care, pensions, etc.), they enjoyed lifelong employment, rendering little incentive for workers to perform as they tended to eat out of the ‘iron rice bowl of the enterprise’ (Chen, 1995; Jackson, 1992; Warner, 1995). After 1978, an ambitious reform programme was introduced, beginning in the countryside and then moving to the cities. The general trend since then has been a gradual reduction in both content and scope of state planning control © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and the traditional prejudice against the role of the market has gradually changed and the market system has experienced great development. The system of supply and demand has improved greatly and, from being a seller’s market, the 1990s have proven to be a buyer’s market with increasing competitive pressures and with enterprises basically free to set their own prices. Fundamental changes in personnel and labour introducing contract systems have considerably weakened the traditional life-long ‘iron rice bowl’ employment system. Basically, since 1978, the Chinese economy has shifted from a product economy model to a market economy model (Chen, 1995; Warner, 1995, 1996). The sense of direction of movement gained from this quick historic glance is obvious. Despite recent mounting problems and difficulties in various sectors of the Chinese economy, a continued accelerated marketization scenario seems highly plausible. The Chinese government will expedite its reforms, further streamline its administrative structure, reduce the role of planning to a minimum, and give more autonomy to local governments. The state will turn most of its enterprises into stock companies and leave most of the macromanagement to the society. As in most modern market economies, legal and financial leverage will be the main instruments for government coordination of the economy (Chen, 1995). Today, negotiating new business and trade agreements as well as establishing business subsidiaries and joint ventures, the number of foreign business persons is increasing rapidly, expanding the areas of managerial interface between foreign business representatives and Chinese nationals. Based on that, an emerging academic literature is beginning to investigate cross-cultural management issues in China. Exploring many contemporary and critical topics, this book constitutes a timely contribution to that field of academic research and practical business application. For practising middle-managers and senior management, MBA students, academic researchers and anyone else interested in the topic, this book covers the most contentious and least understood part of doing business in China, the human side of international management. Bringing together highly relevant perspectives from leading edge researchers, inside and outside of China, the book offers relevant advice as well as describing novel research findings. Adhering to strict requirements of quality and originality, the volume tries to match the demands of both business practitioners and management education, as the writing manner of the chapters ranges from professional academic journal style to consultant normative business press style. Based on cultural traditions as well as political/institutional developments during the last half century, the book identifies and delineates three main themes: partnership management, human resource management (HRM), and management of communication, cooperation and negotiations; all representing unique as well as crucial cross-cultural human management issues in China. Part I of the book deals with partnership management. Although foreign investors can establish wholly-owned business subsidiaries in many sectors, a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

joint venture agreement with a local partner is still the most popular form of establishing business operations in China (The Economist, 1997b; Vanhonacker, 1997). Naturally, many issues and topics emerge in such partnerships and the effective management of various such cooperative ventures becomes crucial for success (Tretiak and Holzmann, 1993). In Chapter 2, Guolie Zhu, Mark Speece and Stella So deal with conflicts in Sino-European partnerships. Sino-European joint ventures currently account for the majority of production among the many automobile joint ventures set up over the past fifteen years in China. In-depth interviews with Chinese and European managers at four operating Sino-European joint ventures reveal how these joint ventures operate. All four have rapidly expanded production and hold large shares of the passenger car market. They contribute to technology transfer in the Chinese auto industry, and have high levels of local content. Despite these successes, there are substantial differences of opinion between European and Chinese managers. Most of this conflict concerns four key issues: control, personnel management, technology transfer, and localization of content. In Chapter 3, Zhong-Ming Wang identifies general strategies used by foreign and Chinese managers in joint venture management. This chapter identifies strategies used by foreign and Chinese managers to manage conflict with sameculture and different-culture managers. It is shown that important cross-cultural differences in intra-cultural and intercultural conflict management behaviour exist. Also, managers from both cultures use different strategies to manage intercultural conflict compared to intra-cultural conflict. Originating with two organizational functions, Niklas Lindholm examines in Chapter 4 how the parties in international joint ventures learn and what influences the process of learning. This chapter examines learning modes in two international joint ventures in China. Learning modes are described in two organizational functions, recruitment practice and performance appraisal. It is possible to identify that somewhat different learning modes have occurred in these two functions. Possible influences on the learning modes are discussed and recommendations are offered. The establishment of trust as the fundamental groundwork needed for effective cooperation and successful partnership is delineated by Elizabeth Li in Chapter 5. Successful partnerships with PRC organizations depend upon the integration of internal formal and informal components and their interaction with the external environment. The conclusion of a field research project involving an established joint venture attempting to merge national cultures and perspectives into an aligned corporate culture was that the fundamental groundwork needed for effective cooperation is trust. Guidelines on how to establish trust and how to enable the organization to succeed in that endeavour are discussed. In the final chapter of Part I, future prospects and problems for strategic partnerships between Western multinationals and Chinese corporations are examined by Chiang-nan Chao, Robert Mockler and Dorothy Dologite. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Establishing strategic partnerships between Western multinationals and Chinese corporations is believed to be an effective way of penetrating this difficult-to-access market. This chapter deals with business conditions for establishing strategic partnerships and future managerial concerns about Chinese markets from the perspectives of both Western and Chinese executives. The results suggest that Western executives disagree with their Chinese counterparts significantly on rating the factors involved. Both Western and Chinese executives view political stability in China as the most important concern for their future business. Western corporations need dynamic partnership strategies in China in order to benefit from this emerging market, while the Chinese need to improve their investment climate in order to compete for Western investments in the global market. Part II of the book examines HRM in China. Human resource aspects of management in China is an area of crucial concern creating a multitude of cross-cultural managerial problems. To a certain extent, such problems originate with the differences in the managerial approach of state-owned enterprises and, mostly, Western HRM practices introduced in international joint ventures in China. The degree of convergence between these two sub-sets of firms are examined by Malcolm Warner in Chapter 7. The chapter discusses the impact of the Chinese economic reforms on both joint ventures and stateowned enterprises in terms of their management and human resources. It is based on empirical research carried out in a sample of such firms. The members of a sub-set of each category are then compared and contrasted in terms of selected variables relating to management-labour relations. It concludes that there is now a degree of overlap between the HRM practices of the respective sub-sets, but the degree of convergence is at best only relative. The sourcing of managerial staff by Western firms to secure a permanent presence in China is discussed by Robert McEllister in Chapter 8, identifying the attributes needed for success as well as training requirements of those recruited. Western firms planning a long-term investment in China usually expend a great deal of time and effort in choosing the right location and suitable partner for such a strategy. However, in most cases, a similar amount of thought is not put into the future management requirements of establishing this permanent presence. Forward planning for both establishment and expansion within China must include recognition of the managerial structure required to succeed. The issues to be examined in this chapter include sourcing managerial staff, identifying the attributes needed to succeed and addressing the training requirements of those recruited. The HRM practice of performance appraisal in the PRC under changing economic systems is analysed by Cherrie Zhu and Peter Dowling in Chapter 9. The chapter discusses the HRM practice of performance appraisal in China on the basis of a literature review and survey questionnaire. Performance appraisal in the PRC, moving from a centrally-planned economy to a market-driven economy, is delineated, but the focus of this chapter is to diagnose to what extent performance appraisal is currently utilized to serve certain purposes and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

to discuss its perceived efficiency. The findings reveal that while performance appraisal is judged to be effective, it is primarily used to determine bonuses and wages. However, it is expected to be used more for communication and development purposes in the future. Reward systems brought into China from exposure to Western management philosophy and practices are discussed by Vivienne Luk and Randy Chiu in Chapter 10. There has been research on the changes in payment systems in China and the impact on employee attitudes towards pay, but little empirical research has been undertaken on the content of pay and benefits packages in foreign companies operating in China. This chapter investigates the composition of the reward system currently offered by Hong Kong and foreign companies to the local PRC employees and the effectiveness of such systems in terms of recruitment, motivation and retention of these employees. It is found that cash-forms of rewards are very valuable in this respect while non-cash incentives are less valuable and useful in rewarding employees. Part II of the book is concluded with a discussion of the strategic HRM role expatriate managers play in China by Jan Selmer in Chapter 11. Many expatriate managers working in China are assigned there for strategic reasons. Based on empirical research results, exploring their reactions to the Chinese culture and business realities, this chapter discusses to what degree and in what respect Western expatriate managers can fulfil their mission in the PRC. Implications for Western expatriate managers in China and for companies assigning them there are discussed. Part III of the book explores the areas of managing communication, cooperation and negotiations as critical and necessary components in developing and succeeding in any commercial undertaking in China. The high level of communication competence required to build the necessary personal relationships in the PRC is discussed by William Chapel in Chapter 12. To be effective in the Chinese marketplace, Western expatriates and decision makers need to understand and champion international management communication competence: a complex behavioural process that involves cultural awareness, communication knowledge and positive expatriate motivation identification. It is concluded that future international accomplishments in China will go to those who become competent in developing long-term relationships, not only during normal times, but also during periods of volatility. In Chapter 13, Verner Worm develops a framework for determining optimal conditions for interpersonal cooperation between Chinese and Western managers in Western subsidiaries in China. Western universalistic values encountering Chinese particularistic values gives rise to difficulties in interpersonal cooperation between Chinese and Western managers. Based on that assumption a model is developed; a model that shows that optimal conditions for cooperation exist when appearance, i.e. paying attention to human relations, is particularistic and essence, i.e. the way of running business, is universalistic. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Identifying and operationalizing the ‘guanxi’ (connections) concept as a standard way of developing successful business relationships in China, Rosalie Tung and Irene Yeung discuss in Chapter 14 the association between ‘guanxi’ and business performance and strategies to build ‘guanxi’. The development of successful business relationships in China and other societies influenced by Confucianism has often relied upon the establishment of the right connections with the appropriate individuals. This chapter operationalizes the ‘guanxi’ construct and presents the findings of a study of nineteen companies with operations in China. The study reveals that there is indeed a relationship between the ability to establish ‘right and strong’ connections with business performance. The chapter then discusses strategies for building connections. Gilbert Wong and Raymond Stone identify in Chapter 15 a number of common stereotypes of Chinese and Western negotiators, held by Hong Kong Chinese. A study of the literature suggests that powerful generalizations exist among academics and business people concerning the personal and behavioural characteristics of negotiators from Shanghai, Hong Kong and the West. Twentytwo specific characteristics were examined in a survey to a group of Hong Kong Chinese MBA students, academics, managers and administrators. These characteristics included perceptions of aggressiveness, honesty, arrogance, etc. The results indicated that stereotypes indeed do exist among Hong Kong Chinese regarding the characteristics and behaviour of Chinese and Western negotiators and possible consequences of the existence of such powerful generalizations are discussed. In Chapter 16, Carolyn Blackman explores two Chinese negotiation behaviours frequently identified by Western business executives—a haggling process and an emotional, dictatorial style. Interviewees’ counter-strategies and material from Chinese negotiation manuals and historical sources illuminate the main elements of the negotiating process. Based on the analysis of three case studies, advice is given to assist Western negotiators to gain a degree of control over the process and its outcomes. Completing Part III of the book, Mantaka Kanayama investigates in Chapter 17 Sino/Japanese negotiations in China. The chapter, based on an analysis of Sino/Japanese joint ventures, examines the impact of differences in the cultural influences of type of contexts on negotiations. While the number of such alliances is increasing rapidly, it is suggested that both Japanese and Chinese managers should take the time to learn the complexities of each other’s managerial philosophies and practices. This chapter offers a roadmap to achieve that. In Chapter 18, Jan Selmer extracts and refines the main findings from the book and makes conclusions about current issues and emerging trends of cross-cultural management in China. The crucial issue of trustworthiness, the different managerial practices in China and the West, the importance of being well prepared, and understanding Chinese negotiations are the major current issues identified and discussed. Looking at the future, the emerging © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

trend of entering China through wholly foreign-owned enterprises is examined together with the proactive transfer of management know-how facilitated by the increasing outward internationalization of the Chinese economy. It is concluded that future cross-cultural management in China will not be much easier than today, since essential elements of Chinese culture will most probably prevail and also shape Chinese organizational behaviour in the future. Last, but not least, it is worth noticing that despite a great effort in trying to involve scholars in China in this edited volume, Western scholars or Chinese academics residing outside China dominate among the contributing authors. That is somewhat unfortunate, since the origin and context of their research makes it typically partial, focusing on issues which foreign business representatives find problematic while undertaking cross-cultural management in China. However, as most people with cross-cultural experience will know, trying to ‘step into the other person’s shoes for a moment’ could be a very informative and rewarding experience. There are always two sides to a coin and, although little documented by systematic empirical research, I am convinced that Chinese managers and employees perceive that they have as many problems with foreign business representatives as the other way around. It is my sincere hope that any further volumes on cross-cultural management in China will be able to project a more balanced view where both ‘sides of the coin’ will be adequately presented and argued.

REFERENCES Chen, M. (1995) Asian Management Systems: Chinese, Japanese and Korean Styles of Business, London: Thunderbird/Routledge Series in International Management. Chi, P.S.K. and Kao, C. (1995) ‘Foreign Investment in China: A New Data Set’, China Economic Review 6(1): 149–55. The Economist (1997a) ‘The Asian Miracle: Is it Over?’ 1 March: 23–5. ——(1997b) ‘Multinationals in China: Going it Alone’ 19 April: 72–3. Hannan, K. (1995) China, Modernization and the Goal of Prosperity, Cambridge: Cambridge University Press. Jackson, S. (1992) Chinese Enterprise Management: Reforms in Economic Perspective, Berlin: Walter de Gruyter. Lardy, N. (1994) China in the World Economy, Washington, DC: Institute for International Economics. Nolan, P. (1995) China’s Rise, Russia’s Fall: Politics, Economics and Planning in the Transition from Stalinism, London: Macmillan. Tretiak, L.D. and Holzmann, K. (1993) Operating Joint Ventures in China, Hong Kong: The Economist Intelligence Unit. UNCTAD (1995) World Investment Report, Transnational Corporations and Competitiveness, New York and Geneva: United Nations. Vanhonacker, W. (1997) ‘Entering China: An Unconventional Approach’, Harvard Business Review 75(2):130–40.


Warner, M. (1996) ‘Joint Ventures vs. State-Owned Enterprises: Management and Human Resources in China’ in J. Selmer (ed.) proceedings of the international academic conference on Cross-Cultural Management in China, Hong Kong: Hong Kong Baptist University. Warner, M. (1995) The Management of Human Resources in Chinese Industry, New York: St Martin’s Press.


Part I

Partnership management


2

Conflicts in Sino-European joint ventures Guolie Zhu, Mark W.Speece and Stella L.M.So

INTRODUCTION Since the early 1980s, global business, including major auto companies, have viewed China as a very attractive emerging market. In 1993, China’s ratio of auto ownership was the lowest of any major country in the region. There were over 680 people per car, compared to 131 in the Philippines, 70 in Thailand, 7 in South Korea and 3 in Japan (Business Week, 1994). Not surprisingly, auto makers from Europe, USA, Japan and Korea all flocked to enter the market. As in other industries, equity joint ventures (JVs) became the prime vehicle for entry. From the late 1980s until 1994, nearly two-thirds of contracted direct investment projects have been joint ventures (China Statistical Year-book, 1995). The Chinese government had a clear preference for JVs over the other types of foreign investments, such as contractual joint ventures and wholly foreign-owned operations. Foreign investors also often viewed equity JVs as a lower risk means of market entry regardless of China’s requirements. Some Sino-foreign joint ventures have been very successful, but many have not done well. For example, one-third of Japanese JVs responding to a recent survey were not profitable (Hirano, 1993). The foreign business community periodically discovers that performance does not always match the hype of the China market enthusiasts. Since 1979, there have been three cycles of optimism followed by pessimism. Recent literature has mentioned many problems, though much of it is optimistic and does not concentrate on problems (Baumgarten and Rivard, 1991; Wharton, Baird, and Lyles, 1991; Newman, 1992a, b; Beamish, 1993; Glaister and Wang, 1993, 1994; Hirano, 1993; Hu and Chen, 1993; Itoga, 1993; Woodward and Liu, 1993; Zhang, 1993; Pan, 1994; Tsang, 1994; Imai, 1995; Speece and Kawahara, 1995). Automobile joint ventures are often considered among the more successful. China has targeted the industry for rapid growth, and forecasts production of passenger cars in 2000 at over three times 1994 levels. Virtually all of this production will come from JVs. Given these favourable conditions and strong support by the national government, have auto JVs been able to avoid common problems, or have they prospered despite problems? We used in-depth interviews to look at operations in four Sino-European JVs. These four JVs © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

accounted for two-thirds of passenger car production in 1994, and are projected to account for 71 per cent by 2000 (Table 2.1). In Europe, we talked to the top management of European parent companies. In China, we met with the top managers of Chinese parents, and with European and Chinese managers in the JVs. The research took place at the end of 1994 and in early 1995.

THE CHINESE AUTO INDUSTRY China envisions the automotive industry becoming one of the ‘pillars’ of the Chinese economy. It may well become a very important industry, despite the slowing down and difficult conditions in 1996. The auto industry has grown rapidly from 1979, when it opened up to foreign participation. The share of passenger cars in auto industry output has also increased from almost nothing to about 20 per cent of unit output in 1995. In 1981, total domestic production of passenger cars was only 3,000. By 1995, this had risen to 320,500, compared to 755,000 trucks and 374,000 buses, or about 1.5 million vehicles total production (Min and Sun 1989; Financial Times, 1996). Several domestic passenger car models, produced in small quantities prior to 1979, were completely outdated and have mostly disappeared. China still has over 700 domestic producers, but few actually produce their own engines or chassis. Most buy these from the smaller number of producers and assemble their own versions of vehicles. Nearly all passenger car output now comes from joint ventures with foreign auto makers. By mid-1994, only eight Chinese plants were allowed to make sedans. All were joint ventures, and

Table 2.1 Production of passenger vehicles by Sino-European joint ventures

SVW=Shanghai Volkswagen Automobile Company FVW=First Automobile Works (FAW)-Volkswagen GPAC=Guangzhou-Peugeot Automobile Company DCAC=Dongfeng-Citroën Automobile Company Sources: Economist Intelligence Unit; DRI World Car Industry Forecast Report, April 1994. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

included two Volkswagen plants (Shanghai, Changchun), Peugeot (Guangzhou), Citroën (Wuhan), Suzuki (Chongqing), Daihatsu (Tianjin), Subaru (Guizhou) and Chrysler (Beijing) (Min and Sun, 1989; China Trade Report, 1994; Zhang, 1995). Some other plants which produce other vehicles, such as pickups, buses and trucks, also include joint ventures, notably General Motors, which produces pickups, and Daewoo, which produces buses. Many other major auto companies are in China producing car parts in JVs. They want a part of the industry, and China has made it clear that when the freeze on new plants is ended, it will favour companies that already participate in helping Chinese auto parts producers upgrade. Even if not producing in China, many companies have established service centres to service imported (including smuggled) cars (CTR, 1994; Zhang, 1995). Beijing maintains close watch over the industry. A ban on new car plants was implemented in 1994, because Beijing wanted the industry to consolidate around a few major groups. The ban was to end by 1997. In 1996 China announced that only car companies that manufacture with at least 40 per cent local content would be allowed to operate in China. Companies that continue to simply assemble kits will be required to close. It has been policy all along that auto makers should aim for this 40 per cent local content, but the time period for achieving the goal and enforcement had been somewhat unclear. Several major producers still rely upon kits, including Chrysler’s Beijing Jeep venture. However, the four SinoEuropean JVs discussed here have no problems under this new ruling (Asian Wall Street Journal, 1996). The passenger car industry is not yet based on sales to individual consumers: 80 per cent of cars sold in 1993 were bought by state organizations, 19 per cent by non-state companies, and only 1 per cent by individuals. Very few consumers can afford a car. In 1993, a Santana sedan made at SVW cost about nine times the average urban worker’s salary. Some analysts expect that prices will fall in the future as scale expands and as local content increases. (Others are not sure that local content will lower prices because of high local costs to achieve required quality.) However, to cope with the problem now, car manufacturers have introduced leasing and instalment purchase schemes (CTR, 1994). In 1996, Beijing suspended instalment purchase schemes, as part of its drive to cool off the economy. This prevented consumer sales from getting off the ground. A tightening of credit hit the ability of companies to buy cars. Exorbitant taxes continue to drive prices up, though these will gradually decline as China implements measures to conform to WTO rules. In addition, an estimated 100,000 to 200,000 cars smuggled in 1995 escaped taxes, and further depressed the market for legal cars. As a result, car manufacturers in 1996 were operating about half capacity. Stocks of unsold vehicles were 116,000 cars in the first half of 1996. For example, one of the Volkswagen plants (FVW in Changchun) scaled back production to 24,000 in 1996 from a planned 50,000 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Jettas, though it also produces about 10,000 Audis. It is not clear that FVW can sell even this scaled back output (FT, 1996). Sagging sales may retard plans to increase output of the automotive industry to 2.7 million units by 2000, including 1.2 million cars. The freeze on new plants, which was to have ended by 1997, may be extended, although there have already been several exceptions made, by contract, if not yet in actual operation. Most observers regard these setbacks as temporary, and view the government’s attempts to achieve a soft landing for the economy as largely successful. Thus, it is likely that the auto industry will be back on track within a few years. It remains a cornerstone of Beijing’s policy for upgrading Chinese industry, bringing in modern technology and management expertise (Zhang, 1995; FT, 1996).

THE FOUR MAJOR SINO-EUROPEAN AUTO JOINT VENTURES In 1993, there were about 427,000 passenger vehicles sold in China (including imports), of which 48.9 per cent were Volkswagens. Another 17.5 per cent came from the two Sino-French JVs discussed here. There are two separate Volkswagen JVs in China, which are located at Changchun (northeast China) and Shanghai. Two French JVs are also major players in the Chinese auto industry. The French have preferred smaller ownership shares than the Germans. However, in terms of actual operations, they have implemented strategies similar to those of Volkswagen. Technology transfer, extensive training, strong orientation toward quality control, and strong marketing, including service networks, have all been part of operations. By any standard measures, all four of these JVs seem to be doing quite well.

Shanghai Volkswagen Automotive Company (SVW) The SVW was established in 1985, between Volkswagen of Germany (50 per cent), Shanghai Automotive Industry Corporation (25 per cent), China National Automotive Industry Corporation (10 per cent). Several smaller Chinese shareholders, including the Bank of China, hold the remaining shares. The operations include three plants, which produce VW Santanas and car engines. By 1993, production exceeded 100,000 cars, with sales of RMB 10.5 billion. According to one source, by 1995, production was up to 170,000, and the Santana had captured 58 per cent of the sedan market (AWSJ, 1996; FT, 1996). SVW is still expanding, and hopes to reach annual capacity of 300,000 cars and to set up a new engine plant soon. SVW has established a widespread sales network and over 220 authorized service stations. In 1993 alone, sixty-two of these authorized service stations were established. SVW works closely with suppliers so that, by 1994, local © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

content had exceeded 80 per cent. Rigorous quality assurance and frequent programmes to uncover problems and upgrade quality in SVW plants, among suppliers, dealers and in service stations, have all resulted in upgraded quality and service. A key aspect of this has been extensive training throughout all levels of SVW, suppliers, dealers and service stations. Evidence of strong customer satisfaction shows in the continued strong growth in sales in the last half of 1993, a time when economic slow-down caused most auto producers to reduce production because of slow sales.

FAW-Volkswagen Automobile Company (FVW) FVW is 60 per cent owned by First Automobile Works and 40 per cent by Volkswagen. Set up in Changchun, Northeast China, to produce the VW Jetta, it also produces some Audis now. FVW began production in 1991, with only 156 cars, but production rose very rapidly to over 8,000 the next year, and an estimated 44,000 by 1994. However, as noted above, production was scaled back in 1996 to about 24,000 Jettas and 10,000 Audis due to poor economic conditions. FVW aims at first class quality, first class service and competitiveness in cost, all while increasing local content. To achieve this, FVW is helping local suppliers upgrade to meet required quality standards. By 1993, FVW had already reached nearly 20 per cent local content. By 1994, it had signed approximately 100 letters of intent with local suppliers, about ninety-five agreements for trial manufacturing of parts, and more than fifty agreements for trial assembly of parts. FVW also has been setting up a strong after-sales service network, helping establish and upgrade service stations and spare parts distributors. Extensive training has been a key component of all of these activities. In the first two years of operation, nearly 3,000 employees went through training programmes in everything from production to quality control to servicing.

Guangzhou-Peugeot Automobile Company (GPAC) The company was launched in the mid-1980s by Peugeot (22 per cent) and Guangzhou Automobile Group Company (46 per cent). China International Trust and Investment Corp holds 20 per cent, and French banks and finance companies hold the remaining 12 per cent. GPAC manufactures 504 and 505 Peugeot pickups and sedans. Production started off slowly, with only 940 units in 1986, the first full year of manufacturing. Production was only 5,666 cars by 1990, but reached 30,000 units in 1993. As did Volkswagen, GPAC set up its own network of after-sales maintenance stations. It also worked hard to upgrade local suppliers, and had achieved almost 60 per cent local parts and components by 1993. To support these efforts, Peugeot conducted extensive training in China, and sent many Chinese managers and technicians to France for training. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Dongfeng-Citroën Automobile Company (DCAC) This second French-Chinese JV was established in Wuhan between China No. 2 Automobile Works (Dongfeng Automobile Company; 70 per cent), and Citroën Automobile Company (25 per cent). French banks own the remaining 5 per cent. Dongfeng is China’s largest producer of medium-sized trucks (185,000 vehicles in 1993; CTR, 1994), and regards this JV as a key component in its efforts to upgrade technology and maintain a position as one of China’s major automotive companies. The company is licensed to produce 300,000 passenger cars eventually, though the time frame for this target is unclear. DCAC makes Citroën ZX cars, and produced about 6,000 in 1992, its first full year. Production has grown slowly, and stood at 25,000 in 1994, against a previously announced target of 100,000, though the JV is also planning to produce 200,000 additional car engines. DCAC claimed to have achieved local content in its autos of 75 per cent by 1993.

KEY CONFLICTS IN THE JOINT VENTURES Despite relatively good performances by these JVs, there are a number of serious conflicts between the European and Chinese sides. Most of the conflicts revolve around four key issues: control of various functions in the JV and methods of control; personnel management and quality of the labour force; technology transfer; and localization of content. Generally, there is agreement among the German and French managers about issues, and among the Chinese managers, who usually differ from the Europeans about causes of problems. Most often, each side believes that it is the other side which causes most of the problems. Some Chinese regarded many problems as arising from the European management style and European attitudes about China. They contrasted their experience working with Europeans with perceptions they have about American or Japanese managers, who are the other main foreign players in the auto industry. (These perceptions were usually not based on actual experience working for an American or Japanese auto producer.) They viewed the cultural gap between Europeans and Chinese as largest, between Japanese and Chinese as smallest, and between Americans and Chinese as somewhere between these extremes.

Control This was one of the most critical issues to both sides. One Chinese manager at a French JV felt that the company was ‘very weak in generating new ideas, improving the product and performance’. He believed this was because orders were handed down from top management (which is mainly French), and did not © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

take into account lower levels of the organization, or shop floor employees, or even customers. This, in his view, was the reason for poor efficiency and lack of quality consciousness among workers. Some Chinese managers at the Volkswagen JVs also mentioned similar views. There was a strong feeling among Chinese managers that the European management style was very authoritarian and rigid. Many also felt that the European managers were quite arrogant, believing that the European way was automatically best. Chinese managers felt that the European managers always just wanted them to do things the European way, regardless of whether it fitted the situation in China. Some of them contrasted this with their perceptions that Americans were more flexible, and that Japanese managers were somewhat easier to deal with. Another thought this might be because the Europeans have relatively little experience in China compared to Americans or Japanese. However, the Europeans did not think that they controlled much. One German manager noted that the JV lacks any real authority over marketing. The Chinese government gave authority for marketing, including exclusive rights to distribute the JV’s autos, to a state company. He claimed that ‘it is true that we have our own marketing department, but we are just doing very simple documentation for the company. We are not even allowed to deliver cars to some customers unless we get exceptional permission from the top.’ French managers similarly believed that real control resided with the state, and that the European side had little real authority over marketing aspects such as product line, distribution or pricing. One manager explained: ‘In China, large companies are owned by the Government. Strategic decisions tend to be made outside the company itself, which is basically a manufacturing unit aimed at producing a centrally determined number of items.’ Another French manager added that ‘distribution is frequently regulated by…“guanxi”…[connections] and corruption’. Even Chinese JV managers agreed that the JV sometimes had little control. ‘Pricing is normally regulated and completely controlled by the Chinese Government, say Central Pricing Bureau’, one Chinese marketing manager explained. ‘We can hardly make any decisions or changes regarding the product wholesale and retailing price by ourselves. Our responsibility and duty is only how to upgrade the product quality and increase the productivity and output. Actually, we have suffered a lot from China’s traditional central planning economy.’ Corruption is a big factor which tends to reduce influence of the JV managers, because it substantially limits their ability to operate. One of the French managers noted that Chinese bureaucracy often tends to be rooted in nonmarket © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and culturally conditioned ways of behaviour. Personal connections and corruption are more important than law, and the French partner has to either live with that or stay out of China. According to him, this is all terribly costly in both time and capital during the period of JV planning, negotiation, initiating and launching. The extent of this problem was far greater than initial expectation and imagination had anticipated.

Personnel management The European managers agreed that managing Chinese staff and workers was one of the biggest challenges encountered in China. Problems were compounded by the fact that this is another area where the JVs do not have much control, and where connections and corruption play a big role. Europeans think that most workers are unskilled and lack education. Far too many are appointed to positions or delegated tasks for which they were not qualified and have no prior experience. These unskilled workers have poor efficiency, low productivity, no motivation, poor discipline and they lack any quality consciousness. One French manager summarized these views: ‘It is amazing that there are so many employees with terribly low education and technical training…. According to local labour law and employment regulations, we have little flexibility or choice in recruitment. …[Workers] are poor in discipline, weak in work motivation, and have little quality consciousness. We cannot easily hire good human capital or fire unqualified people. We face difficulties enforcing the company’s reward and penalty system. Furthermore, the corporate recruitment system has been heavily eroded by corruption and negative influence from connections.’ According to European managers, the problem is further compounded by the fact that there were too many unqualified Chinese managers assigned to the joint venture, who generally oppose any change. They were typically party committee members recruited from rural, military and political organizations which were completely unrelated to the managerial needs of the JV. Because they know nothing about the industry or about modern management, they tended to be conservative and bureaucratic, resisting change and avoiding any decision or responsibility. Such personnel problems extend into all spheres. For example, European financial managers regard managers trained in the Chinese accounting system as essentially useless for modern financial and accounting needs. Local Chinese accountants, on the other hand, regard the Western accounting system as difficult. ‘We are not accustomed to extensive computerized calculations and compilation, or the concepts which are in Western accounting books. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Obviously, under the Western accounting system, we need further training and education.’ On the Chinese side, the main personnel problem was that the European side mainly sent technical people who did not know much about managing. However, even the European managerial people who came to the JV had no knowledge of China, and were not very quick to learn. Some Chinese said that Americans were much more managerially oriented, with less emphasis on technical people. Sometimes American managers did not know anything about China either. However, they were quicker to learn because they regarded smooth management as very important, and believed that making things work smoothly would require some degree of adaptation to the situation in China.

Technology transfer Technology transfer was a factor that was an important problem to both sides, but for different reasons. For the Chinese, the purpose of the JV is access to foreign capital, advanced technology, management know-how and state-of-theart product and production process. However, some Chinese managers were quite dissatisfied. They complained that supplying blueprints and technical documents and providing manufacturing machinery and assembly line equipment was not sufficient. The most important part is organizing activities during the transfer in an understandable manner. Without extensive instruction, it is quite difficult for Chinese technicians and shop-floor workers to grasp basic ideas regarding product and process in automobile manufacturing technology. Several Chinese managers mentioned that European policy was to send only a few Chinese back to the home plants in Europe for training. Then these people were supposed to come back to China to train more people in the plants. According to some, the Americans sent more people to the US for training, and they felt this was more effective in upgrading the skills of the Chinese. They said that the Europeans were much more strict than the Americans in choosing who to go. However, this may relate to language capability. Some mentioned that Chinese preferred to go to the US for training, partly because more of them have some English language capability. Despite complaining that they have difficulty grasping the technology which has been transferred, many Chinese managers also complained that Europeans do not transfer the most advanced technology. One Chinese manager who has worked in both Volkswagen JVs believed that it is basically the German side’s fault that the plants are not ready to compete in international markets. They do not have the most advanced technology and are not set up to produce a wide variety of models with state-of-the-art technology, so they cannot compete. Chinese managers at the French JVs also want to introduce more models into the market. One noted that China is no longer a homogeneous market, but rather © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has many segments. He wants active product development and a wider variety of models, as in Europe. The Chinese managers also want to move away from mass production toward lean production and shorter production lines, so they can compete globally. They feel that the French partner has dumped mass production technology onto China because it is becoming outdated internationally. The Chinese generally believed that the Europeans want to control technology and prevent China from getting the most advanced technology. They said that Europeans are very inflexible in negotiations about the issue of technology transfer, and that the restricted training, mentioned above, keeps transfer slow. They believe the Americans are more flexible about transferring technology, and more willing to help the Chinese upgrade, but that the Japanese are even worse than the Europeans. The Europeans tend to think they are transferring technology as fast as possible under Chinese conditions. One said: ‘We believe that we are quite strong in terms of technology development and management know-how. We really make an effort in teaching our Chinese partners. However, we confront many difficulties in technology transfer because of communication problems, weak cooperation by local managers, different management style, and a large number of unmotivated, poorly educated employees. Poor performance in technology and management transfer directly affects efficiency, productivity, product quality, and the urgently demanded localization programme.’ The sheer scope of what is needed in China’s auto industry caught some of the Europeans unawares: ‘After we initiated this project, we found that the local automobile industry was not only technically backward, but a complete mess: poor horizontal communication and coordination, barely usable machinery and production facilities, terribly few technicians, and a huge unskilled labour force. Worst of all, all these problems now belong to us.’

Localization of content European managers view localization as a painfully slow process ‘because of inability of the Chinese partner to upgrade quality of its parts and components’. Technical levels in the Chinese automobile, chemical, metallurgical, machinery, electrical, instrumentation and spinning industries are low, and cannot currently meet the standards of the JVs without substantial help. The managers think localization requires investment, planning and coordination across a range of industries. By one estimate, RMB 1.5 billion will be needed to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

purchase licences, technical expertise, machinery and equipment from outside China which will allow parts suppliers to upgrade to meet quality standards. One VW feasibility study estimated that the local content programme would have to involve 181 projects at ninety different factories, sixty-three of which are situated within Shanghai and twenty-seven scattered outside. Managing and coordinating localization activities on this scale requires substantial support from local and even central government. But European managers feel that the Chinese side makes very little effort to support the programme. ‘We sometimes have the feeling that the government does not care about it at all’, one manager told us. According to one French manager, slow localization ‘is because of inability of the Chinese partner to upgrade the quality of its parts and components. It results from many factors, such as poor local automobile manufacturing equipment, machinery and plants; poor horizontal cooperation and collaboration; an unskilled labour force with poor quality consciousness. It does not necessarily mean that the French partner has not devoted its full efforts to the localization programme, for which the local Chinese partner always scolds us.’ Chinese managers do usually blame the Europeans for not moving faster in localization. Chinese managers at the German JVs admit that the Chinese side has been weak in supporting the programme. But in their view, this only makes it more clear that it is the responsibility of the German side if localization is to succeed. They criticize using funds to buy imported components, claiming that everything should be spent on upgrading the Chinese suppliers. And the Germans should commit even more venture capital and technology to support localization. One Chinese financial manager believed that ‘we need more and more venture capital for project expansion and the localization programme. However, there are serious foreign exchange difficulties and capital shortages [in the JV]’. This respondent noted that the local and central governments have provided little loan and investment support after establishment of the JV. But he nevertheless criticized the French side for not showing much effort and involvement in expansion or localization.

CONCLUSIONS AND RECOMMENDATIONS To summarize, these four Sino-European automobile joint ventures all seem to be doing very well. In terms of business objectives, they have rapidly expanded production to capture a large part of the passenger car market. Some of them actually return profits to parent companies, which is not very common in China. The JVs are helping to upgrade technology in the Chinese auto industry, and they are achieving high levels of local content. On the surface, it might seem © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

that there is little room for conflict. Nevertheless, there are substantial differences of opinion between European and Chinese managers. Conflicts seem to stem primarily from differing motivations which influence how each side evaluates the situation. The Chinese partners seem to be involved in the JVs primarily because of government policy. On a general level, Beijing has encouraged economic reform and foreign investment. It has attempted to build good relations with Europe, which gives European auto companies access. Some of the Chinese managers told us that Chinese policy aims to balance Europeans, Americans and Japanese, because China does not want any one of these to gain too strong control over any Chinese industry. They regard the Americans as more flexible and more willing to transfer technology than the Europeans. They regard the Japanese as easier to understand and deal with. However, China must maintain a strong European presence, too, even if working with Europeans is more difficult. As part of economic development for China, the government wants advanced state-of-the-art auto manufacturing technology. This is part of a broad programme to diminish the technological gap between China and the West. Beijing also wants to rescue the big state auto companies as part of its overall plan to save the badly ailing state sector. It hopes eventually to make the Chinese auto industry competitive internationally so that it can earn foreign exchange through exports. JVs are the main mechanism for achieving these goals. These policies translate into a number of incentives for Chinese companies to participate in JVs, such as preferential tax treatment, foreign exchange privileges and many other perks. What seems to be missing from Chinese thinking, however, is any detailed business analysis at the corporate level of why either side is involved in the JVs. The joint venture is an economic development mechanism for them, not a vehicle for corporate business. They are relatively unconcerned about whether there is any return on investment for the European partners or even for themselves. All they know is that China (and their company) needs capital, technology, training and that the Europeans have agreed to supply this. The JVs are judged by most Chinese managers according to how much they contribute toward these goals, not by how successful they are in a business sense. The Europeans, on the other hand, are there to make profit in China’s mythical billion-people market. The JV is a market entry mechanism for them, to help them share risk and deal with unfamiliar local markets. They want to mass produce with standardized production equipment and methods, and achieve economies of scale in the local market. They do not think the market is developed enough to support very much product differentiation, with many models. Even if they become interested in using China as a base for export production eventually, they have discovered that it is not possible to be very competitive internationally under current conditions. Production is not as cheap as it might seem. Wages may be low, but labour © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cannot currently produce anything which can meet quality standards on international markets. Managers do not understand modern management, accountants do not understand modern accounting practice, technicians do not understand modern technology which would allow the Chinese auto industry to compete. The Europeans believe that upgrading will take years. It is not a matter of simply signing a contract and starting to use off-the-shelf state-of-the-art technology for export production next year. In short, the Europeans are private business investors. They evaluate whether policies make business sense, not whether they meet economic development objectives. They see a huge and lengthy task in building up the Chinese auto industry to world standards. While many of them want to help do this, it is because they see profit in it, not because they think it is their responsibility to develop China. They apparently believe that the investment required to unduly speed the process up cannot be recovered, and so they proceed at the quickest pace consistent with profitability. No matter how successful the joint ventures seem, conflicts are unlikely to disappear. The Chinese side sees some conflict as coming from cultural differences, and contrast the Europeans with how the Americans or Japanese do things. However, while it is true that the Americans and Japanese have different management styles, they seem to have similar problems. The differences in thinking we have discussed here do not come primarily from cultural differences (Hong Kong, Taiwanese and Southeast Asian Chinese firms face similar problems in China), but from differences in system and in motivation. Systemic differences give rise to the different motivations and thinking about the role of joint ventures. These European auto JVs show that such differences are not necessarily so great that they will prevent JVs from prospering. But they also show that success does not make differences disappear. These JVs have learned to live with and progress in spite of conflicts. Most JV partners in China are state companies. It is always useful, and often necessary, to rely upon the connections which these state companies have. However, companies that go into China must understand that, unless the JV partner is private, the Chinese side will want very different things from JVs than the foreign private companies. To Chinese partners, the JV is primarily an element of national development policy. It is for building China, not for making profit. The Chinese side wants the JV to bring in capital and technology, to train local workers and managers, so that Chinese industry can upgrade its capabilities. The JV is supposed to make China self-sufficient in the products of the JV, not require imported components forever. Eventually, they want China to be able to compete internationally. At the individual level, the JV is also for building careers. However, state managers under the old system never got promoted for making their companies profitable. Market socialism under the reforms is still mostly socialism, not market, for the state companies. Managers build careers in JVs by getting the foreigners to put in money, technology, and training to help build a Chinese company. They get promoted for these things. There is little © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

reward for helping make profits which will partly go out of China to the foreign partner. Joint ventures in China can succeed, even by the profitability standards of foreign companies. But success to the foreigner is not success to the Chinese side. Perhaps the Americans and Japanese are somewhat more clear than the Europeans about the need to fit in with economic development goals. For example, Watanabe (1993), writing about Japanese auto company investment in China, recognizes this fundamental difference in motivation between private companies and the Chinese SOEs: ‘transfers of technology to China (by Japanese companies) have up until now often been decided on from a perspective totally divorced from pure business considerations’ (Watanabe, 1993:7). This is fundamentally different from most other developing countries where Japan is heavily involved: ‘The technological transfers made in Southeast Asia all came as a result of careful consideration by individual companies which then decided to invest locally’ (Watanabe, 1993:10) Kobayashi (1994) shows that Japanese companies have adapted very substantially to the Chinese viewpoint in order to do business in China. ‘The first thing that is necessary in doing business or starting up an operation there is commitment by the company itself to play a direct part in the development of China’ (Kobayashi, 1994:3). The Japanese company Kanebo responded by making these concerns its own: Our basic stance in doing business in China has been, first, to contribute to the modernization of China and the improvement of its level of business management and technology through joint ventures, technical tie-ups, and compensation trade. (Kobayashi, 1994:3) Even so, Kanebo has faced demands, for example, to expand the product line. This need to adapt to Chinese development goals has also been expressed in the American business press, for example: As long as US firms recognize that economic liberalization in China is instituted for the purpose of achieving the country’s economic objectives, there is ample room in which to find profitable areas of mutual interest. The key is to determine where a particular firm’s products or services can fit into China’s development plans. (Miller and Speece, 1986:29) Our interviews with Chinese JV managers seemed to show that Japanese and Americans are somewhat more willing to adapt, but that the Europeans think mainly about business from the perspective of their private companies. Foreign partners often just have to accept that there will be a certain level of conflict. What the Chinese want is not always consistent with good business practice in the sense that most private companies view business. It © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

is important that foreign companies realize this. They must adapt to the Chinese desire for rapid economic development, but not allow themselves to be forced into providing so much to the JV that it can never return a profit. It would rarely be possible to provide the Chinese with everything they want and remain (or ever become) profitable. However, the Chinese are quite practical, if not always realistic about what the foreign side should provide. None of the Chinese we talked to in the Sino-European JVs ever mentioned the possibility of closing the JVs. As long as the Chinese side gains substantial benefit and cannot get much more from other sources, the JV is not likely to be closed down, even if the scale of the benefit is not quite what the Chinese would like.

REFERENCES Asian Wall Street Journal (AWSJ) (1996) ‘China will require auto makers to achieve 40 per cent local content’, 5 June: 10. Baumgarten, S.A. and Rivard, R.J (1991) ‘The evolution of conditions for joint ventures in China’, Journal of Global Marketing 5(1/2):183–99. Beamish, P.W. (1993) ‘The characteristics of joint ventures in the People’s Republic of China’, Journal of International Marketing 1(2):29–48. Business Week (BW) (1994) ‘New worlds to conquer’, 14 February: 32–7. China Statistical Yearbook 1995 (CSY) (1995) Beijing: China Statistical Publishing House. China Trade Report (CTR) (1994) ‘Spotlight: auto industry’, June: 6–8. Financial Times (FT) (1996) ‘Rocky road lies ahead for China’s car industry’, 29 October. Glaister, K. and Wang, Y. (1994) ‘Management and performance of UK joint ventures in China’, Journal of Euromarketing 4(1):23–43. ——(1993) ‘UK joint ventures in China: motivation and partner selection’, Marketing Intelligence and Planning 11(2):9–15. Hirano, M. (1993) ‘Recent trends in investment and operations of foreign affiliates’, JETRO China Newsletter 104:2–8. Hu, M.Y. and Chen, H.Y. (1993) ‘Foreign ownership in Chinese joint ventures: a transaction cost analysis’, Journal of Business Research 26:149–60. Imai, S. (1995) ‘Comparison of Western, overseas Chinese, and Japanese ventures’, JETRO China Newsletter 119:15–24. Itoga, R. (1993) ‘Recent negotiations over joint venture contracts’, JETRO China Newsletter 103:2–6. Kobayashi, T. (1994) ‘Kanebo’s joint venture in China’, JETRO China Newsletter 109:2–9, 20. Miller, C.E. and Speece, M. (1986) ‘What happened to the China market?’, Business Forum, Fall: 26–30. Min, S. and Sun, W. (1989) China’s Automobile Industry: New Technology, Industry and Trade, Beijing: Commis Institute of Techno-Economics, State Planning Commission. Newman, W.H. (1992a) ‘“Focused joint ventures” in transforming economies’, Academy of Management Executive 6(1):67–75.


—— (1992b) ‘Launching a viable joint venture’, California Management Review 35(1): 68–80. Pan, Y.G. (1994) ‘Features of European equity joint ventures in China: a longitudinal study’, Journal of Euromarketing 4(1):5–21. Speece, M. and Kawahara, Y. (1995) ‘Connections and partners for small joint ventures in China’, Cross-Cultural Management: An International Journal 2(4):24–34. Tsang, E.W.K. (1994) ‘Human resource management problems in Sino-foreign joint ventures’, International Journal of Manpower 15(9/10):4–21. Watanabe, M. (1993) ‘Some thoughts on technology transfer’, JETRO China Newsletter 103:7–12. Wharton, R., Baird, I.S. and Lyles, M.A. (1991) ‘Conceptual frameworks among Chinese managers: joint venture management and philosophy’, Journal of Global Marketing 5(1/2):163–81. Woodward, D.G. and Liu, B.C.F. (1993) ‘Investing in China: guidelines for success’, Long Range Planning 26(2):83–9. Zhang, J.X. (1993) ‘Problems in direct investment in China’, JETRO China Newsletter 103:13–21. Zhang, W. (1995) ‘Automobile industry’, in Investment Opportunities in China 1996– 2000, Bangkok: Economic Information Centre, Manager Information Services Co. Ltd: 108–14.


3

Team conflict management Zhong-Ming Wang

INTRODUCTION In the Chinese traditions, team management and group-oriented values were emphasized in relation to performance evaluation, personnel selection, quality control and project management. Team management has been considered as the Chinese approach to enhance collective culture at work (Yang, 1984; Wang, 1993a, b; Bond, 1996) and become a focus in the recent studies of cross-cultural organizational studies (Wang, 1992; Triandis, 1993; Wang and Satow, 1994; Smith and Wang, 1996). The recent economic reform and organizational change since 1978 have facilitated a shift of management from equalitarianism to task responsibility, which has provided new opportunities for the development of more effective team management in China. In particular, with the rapid development of international joint ventures in China, cross-cultural coordination and adaptation have become a major topic for management training, executive development and personnel selection and decisions (Wang, 1989, 1995, 1997). Several aspects of Chinese cultural traditions have had important effects on the team management practice and group behaviour in China. Since 1949, the group approach has been reinforced and more encouraged as one of the Chinese characteristics of management practice with a new emphasis on team responsibility. In most organizations, the linkage of individual interests with the group and organizational interests has been greatly enhanced to facilitate high organizational commitment and effectiveness. Thus the cultural tradition of group approach is affecting the team conflict management in China. Current Chinese team management context has been largely influenced by the two major nationwide movements: the ‘Excellent Group Evaluation Campaign’ in the 1960s and the ‘Optimization through Regrouping’ in the early 1990s. The first managerial movement emphasized group cohesiveness and modelling behaviour. As an effective approach to labour emulation, such titles as excellent team and best enterprise have been used as a kind of social incentive for work groups or enterprise organizations with positive morale and performance, although this excellent team movement focused mostly upon © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

team technical innovations and cooperation. Research indicated that a high degree of group involvement and a fit between task requirements and group goals with clear member responsibility are the keys to the building of effective teams and the enhancement of team goal-directed behaviour (Wang, 1993a). The excellent team/enterprise movement has greatly strengthened group cohesiveness, organizational commitment and performance in Chinese industries and other organizations. This nationwide practice was successful in improving management efficiency and morale, stressing the importance of mass mobilization and participation as well as the Communist Party leadership in management and production. The second managerial movement focused upon team-job fit and group task responsibility. Although team approach was widely adopted during the 1950s and 1960s in Chinese enterprises, work groups were exclusively organized and appointed by the management. This caused problems such as overstaffing and low responsibility. Since the late 1980s and early 1990s, the practice of ‘optimization through re-grouping’ has been implemented among more than 6,000 state-owned enterprises. Supervisors of work groups were asked to reorganize their teams on the basis of voluntary grouping and work skills. In general, the two nationwide movements of team management have achieved positive results and created a favourable organizational context emphasizing both group cohesiveness and team responsibility (Wang and Heller, 1993).

INTERCULTURAL AND INTRA-CULTURAL CONFLICT MANAGEMENT IN JOINT VENTURE TEAMS Managing conflict can be difficult in work group, but it can be particularly important when two cultures are involved in international joint ventures. Effective intercultural interaction is crucial to the success of these joint ventures. Members of the board-of-directors from two cultures must work together and members of the top-management team must coordinate to run the firm (Davidson, 1987). However, intercultural interaction is not easy in many joint ventures due to their cultural differences. Some previous research has shown that clear responsibility systems for partners could, to some extent, eliminate these problems (Peterson and Shimada, 1978). These cultural differences might be reduced by assigning ethnically similar managers to the joint venture. But these solutions may not work in most joint ventures because managers from different cultures often have conflicts in coordinating their styles and approaches, and therefore must learn to work together as a team. Regarding to cross-cultural differences in intra-cultural conflict management behaviour, existing theory and research examine the links between fundamental cultural differences and conflict management behaviour. The main cultural differences are defined along the dimensions such as individualismcollectivism, and high- and low-context. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Individualism-collectivism reflects the relative importance of collective versus individual interests in the hierarchy of cultural values. Communication style can be described along a dimension called high- versus low-context. In a high-context culture, most of the information is either in the physical context or internalized in the person. Communication is implicit, context dependent, process-oriented and role-oriented. In contrast, in a low-context society, the mass of the communicated information is vested in the explicit and direct code (Hall, 1976), and sender-oriented with a personal style. Weldon and Jehn (1995) show that 1 2 3

there is no evidence that the dimensions and styles used to characterize conflict management behaviour in Western models are meaningful across the cultures; the cross-cultural equivalence of the questionnaires measures was not established; and researchers did not search for emic styles.

Differences in intra-cultural conflict management may not generalize to intercultural conflict. That is, people may use different strategies in conflict management when someone from anther culture is involved. Therefore, people working in bicultural teams might be expected to use different strategies to manage conflict with people from a different culture or the same culture. Therefore, a research project was conducted, focusing on: (a) cross-cultural differences in intra-cultural conflict management; and (b) differences between intercultural and intra-cultural conflict. This research included a search for etic dimensions of intra-cultural and intercultural conflict management behaviour, and emic constructs necessary to understand conflict management in different cultures. In the study, the strategies used by either American or Chinese managers working in US-Chinese joint ventures were compared to handle intra-cultural and intercultural conflict in their bicultural teams. Multidimensional scaling was used to uncover the dimensions that characterize the behaviours of American and Chinese managers for managing intra-cultural and intercultural conflict. One hundred and forty-two Chinese and 142 American managers who were working in the Chinese-US joint ventures participated in this study. One case involved a same-culture manager (intra-cultural conflict) and another involved a different-culture manager (intercultural conflict). All of them interacted frequently with different-culture managers. This study used cases of intercultural and intra-cultural conflict generated together with their solutions from the field interviews among managers in Chinese-US joint ventures. Both American and Chinese managers working in joint ventures read the intercultural or the intra-cultural version of the conflict and each respondent described how he would behave in that situation. Another fifty-four Americans and sixty-six Chinese managers from Chinese-US joint ventures read the above © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

responses and produced similarity ratings to indicate how similar the responses are to each other. The similarity ratings were submitted to the multidimensional scaling analyses. A two-dimensional solution was selected based on a scree diagram and the interpretability of the dimensions. The results indicate that among American responses to the intra-cultural conflicts, Dimension 1 reflects the extent to which behaviour is vengeful versus harmonious, and that a harmonious response was also tactful and calm. Dimension 2 reflects the extent to which a response is a passive versus active response to the situation. A three-dimensional solution was selected for American intercultural conflict. The results show that Dimension 1 reflects the extent to which a response is active versus passive. Dimension 2 reflects the extent to which the response is an attempt to get along (conciliatory). Dimension 3 reflects the extent to which the response is disruptive versus accommodating. The five clusters of conflict resolution are: 1 2 3 4 5

an active, direct and cooperative response: discussing with the colleague to address the problem; a passive, indirect and uncooperative response: stop sharing ideas; a conciliatory response: working with the colleague to be more of a team; an actively hostile and disruptive response: trying to get the colleague demoted; a passive and accommodating response: ignoring the colleague’s behaviour.

For the Chinese intra-cultural conflict, a two-dimensional solution was obtained. Dimension 1 reflects a response of direct versus indirect. Dimension 2 reflects a response of maintaining harmony or disrupting harmony in the workplace. The four clusters of conflict resolution behaviours are: 1 2 3 4

direct and harmonious responses: discussing the problem with the colleague; direct and disruptive responses: arguing with the colleague or bringing it to the attention of his friends; indirect and disruptive responses: retaliation; indirect and harmonious responses: telling the boss and withdrawing from the relationship.

For the Chinese intercultural conflict, a two-dimensional solution was selected. Dimension 1 reflects the response of direct versus indirect. Dimension 2 indicates the response of a constructive approach to the situation. Table 3.1 presents the correspondence between dimensions described in theory and the empirically-derived meaning of dimensions. These results provide useful information about cross-cultural differences in intra-cultural and intercultural conflict management behaviour. Table 3.2 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 3.1 Correspondence between dimensions and empirically-derived meaning

shows differences and similarities between Chinese and American responses to intra- and intercultural conflict. These conciliatory responses suggest that the colleague’s behaviour is not a problem, and the American and Chinese should work together as a team. Table 3.3 presents the similarities and differences between Chinese and American managers. American and Chinese responses to intra-cultural conflict were similar in three ways and different in four ways. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 3.2 Differences and similarities in responses to intra- and intercultural conflict

However, Chinese and American responses to the intercultural conflict were quite different. These results have important implications for existing theories of culture and conflict management behaviour. First, four of the dimensions proposed in existing theory were discovered in our data (solution-orientation, concern for harmony, approach and avoidance), but the others were not (concern for self, concern for other, direct and indirect). Generalizing would suggest that these four dimensions are etic dimensions of conflict management behaviour. The results also showed that 1 2 3

Americans were not more solution-oriented than the Chinese; the Chinese were somewhat more concerned with harmony than Americans when a same-culture manager was involved, but less concerned during intercultural conflict; the Chinese were more likely to respond and less likely to avoid conflict than the Americans.


Table 3.3 Similarities and differences between Chinese and American managers

TEAM CONFLICT RESOLUTION AND TEAM CLIMATE Another aspect of team conflict management is how people deal with inconsistency and conflicts within the groups. Since China has a tradition of favouring harmony and relationship, the team ‘conflict’ was considered as both a negative concept and a problem in teams. However, under the recent organizational reform and re-grouping, conflict resolution is also seen as a drive for team development. Wang and Wu (1996) completed a large-scale research on team conflict resolution and team climate and their effects on team performance. Altogether, 314 employees from sixty-one teams in forty organizations participated in the field study. Among them, thirty-seven teams were from the Chinese state-owned companies, twelve teams from joint © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ventures and another twelve teams from private companies. Nearly one-third were from manufacturing industries and two-thirds service industries. The results showed special dynamics in the Chinese team conflict management. Individual-level factors in team conflict management At individual level, there were significant differences between the Chinese state-owned companies and international joint ventures in such factors as group interaction, conflict resolution, value orientation and group belonging. Specifically, employees in the state-owned companies showed significantly higher degrees of group interaction (especially informal interaction), better conflict resolution, stronger group belonging and higher level of cooperative value orientation than that of the international joint ventures. Group-level factors in team conflict management At group level, there was only significant difference in conflict resolution between the Chinese state-owned companies and international joint ventures, i.e. more positive conflict management styles under the state-owned systems. While state-owned companies showed no difference from the privately-owned companies, this difference could be attributed to the cross-cultural adaptation and international business settings. Effects of team conflict management There were significant effects of team management upon team climate, specifically positive team conflict management enhanced group communication, innovations, conflict vision, participation and task accomplishment. The higher the group interaction, the stronger the team tendency towards cooperation, the better the quality of conflict management. Structural and organizational influences The effects of team conflict management on team climate were influenced by the management structures in the various organizations. Under the stateowned system, both group interaction and value orientation had more general positive effects upon team climate while conflict resolution mainly affected communication and group belonging. Under the joint venture system, both group interaction and value orientation had less effect on team climate but conflict resolution played an important role in determining the team climate. However, under the privately-owned system, group interaction had little effect on team climate while both value orientation and conflict resolution played positive roles in improving team climate. Under the present economic reforms, as Chinese management is moving towards a more decentralized, market-oriented and internationalist stage, there © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has been a trend from collectivism to individualistic working style. Therefore, team conflict management has become more important and significant for most of the organizations. Chinese society very much emphasizes collectivism, social interaction and team approaches in work situations. Especially since 1949, team building has been very popular in enterprise management. Even after the ‘cultural revolution’ when individual responsibility was encouraged, belonging to effective work groups was still considered as a priority in the needs structure of Chinese employees. However, in the recent nationwide management reform, this cultural tradition has been given new meanings by emphasizing both group responsibility and team effectiveness (Wang, 1986, 1988). Team approach has become a major strategy in the Chinese economic reform programme. This approach has integrated group responsibility and authority with team interests and enhanced work motivation and efficiency. In another field study on conflict management among forty-one teams, Wang and Zhu (1996) investigated the relationships between team conflict management approaches and group performance. The following managerial and structural implications were put forward.

Effects of ownership and organizational structures Compared with teams in the state-owned companies, work teams from international joint ventures tended to adopt a problem-solving approach, use strategies of conflict avoidance and less cooperative actions, and be more serious in evaluation of subordinates’ performance. In the service industries, teams in joint ventures adopted more competitive strategies than those of non-joint ventures, but in the manufacturing industries, work teams from non-joint ventures used more competitive strategies than those of international joint ventures.

Relationship between team management and group performance Team commitment and mutual support had no direct effects on team efficiency, but acted upon group performance through an intervening variable, i.e. high involvement. However, the conflict avoidance strategy may facilitate members’ mutual support and commitment but affect members’ task involvement and in turn reduce team efficiency.

Strategies in team conflict management Conflict resolution strategies had important influences on team members’ subsequent behaviour. A competitive strategy reduced members’ mutual support and team commitment whereas a cooperative strategy with open discussion enhanced their cooperation and self-management. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

This recent research provides systematic evidence for the understanding of the processes of team conflict management in Chinese organizations. Ownership and organizational/structural factors play crucial roles in shaping the team behaviour in conflict management.

PUBLIC BIDDING IN SELECTING MANAGEMENT TEAMS Another research area in the Chinese team conflict management is the selection of top-level managers for the director-management contract systems, i.e. deciding on who should be the enterprise director through a bidding process of public selection and competitive recruitment, a nationwide practice in management reform since 1987. Wang and Fan (1990) conducted a large-scale field survey in twenty-seven Chinese enterprises (fifteen state-owned and twelve collectively-owned enterprises). The main purpose of this project was to find out the psychological characteristics of and effective strategies for facilitating and improving the selection decisions of management teams and reducing conflict potentials for director-management responsibility contract systems. Both managers and worker representatives from those companies together with supervisors from the industrial bureaux (level above the plant) were interviewed. Applications, proposals and records of the recruitment meetings were carefully examined. It was found that the decisions of public election and competitive recruitment of top-level managers in Chinese enterprises had five important features: 1 2 3 4

selection decisions were heavily based on economic and personal information while overlooking the information about management tasks and human resources in enterprises; information gathering was more relied upon than official examinations but lack of quantitative appraisal and evaluation by subordinates; personnel decisions were made from among fewer alternatives or proposals, with more short-term benefits, and therefore often caused longterm conflict among the state, the collective and the individual interests; the public assessment and bidding process had an advantage of facilitating information gathering and utilization.

The results of this study provided systematic evidence and decision support strategies for improving the top-management team development for the procedure of director-management responsibility contract systems in Chinese organizations. With the development of Chinese economic reform, it was more and more evident that the traditional way of assigning group membership by the management was not effective in enhancing team cooperation and group performance. This reform practice has been implemented in coordination with the introduction of the labour contract system, seen as a solution to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

both the problem of ‘iron rice bowl’ and teamwork conflict. The new system emphasizes work responsibility and allows enterprises and workers to choose each other, which leads to wider decentralization and higher efficiency in management in China. Yu (1988) studied the effects of such labour contact systems in three groups in a company in Shanghai. It was found that compared to the conventional system, the new voluntarily-based team system improved interpersonal relationships and social climate within groups, enhanced formal group leadership and participation and reduced conflict in groups.

TEAM ATTRIBUTION AS A MOTIVATIONAL CONTROL IN REWARD SYSTEMS The recent Chinese economic reform started with a nationwide initiative in motivating employees through work task and incentive systems, emphasizing task responsibility. This led to a more individualistic approach to incentive design (such as a piece rate bonus system) than the previous equal-pay system. This practice discouraged collective responsibility, increased conflict in work groups and weakened team effectiveness. Surveys in the early 1980s showed that a more flexible and comprehensive multiple reward structure (combining social reward with material incentives) should be used in order to motivate the Chinese work force (Wang, 1986, 1988). In addition, some studies were carried out to examine the effects of team incentive systems on performance. In a field experiment, an individual responsibility system was compared with the team responsibility systems, under either success or failure work situations, using an assembly task and attribution measurements of five factors (effort, ability, cooperation, task and chance). The results showed that workers’ attributions of success and failure had significant impact upon their subsequent behaviour and performance. This effect was greatly affected by the organizational and structural characteristics of incentive systems. Under the team system, workers tended to attribute their performance to the team cooperation and collective efforts which may maintain or enhance their motivation, expectancy and collaboration for team performance; whereas under the individual system, workers more frequently attributed their performance to personal factors or task difficulty which reduced their motivation and increased the potential for team conflict. Under the team responsibility system, the work team as a whole was responsible for the production task and the incentive was mainly based on team performance. An important implication of this study was that a teamoriented incentive system with group responsibility would be more effective in reducing team conflict and facilitating morale, cooperation and productivity in Chinese organizations. In another quasi-experiment, Wang (1988, 1994) implemented a fiveweek team attributional training programme in which each work team met © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

in a workshop once a week after work to discuss their problems in performance. Team attributions about their success and failure were encouraged. The results showed that the team attributional training did reduce workers’ attributional biases, enhance their work motivation and result in better mutual understanding, less conflict, more cooperation and high performance. In order to measure team compatibility, both the dilemma game and the nuts game were used. Wang and Lu (1996) completed a series of experiments in defining and analysing team compatibility and strategies in team conflict management. Two major strategies were demonstrated: ‘win-stay, lose-change’ and ‘win-cooperate, lose-defect’. In the groups of high team compatibility, members tended to adopt a strategy of ‘win-stay, lose-change’ but used the latter strategy less. However, in the groups of low compatibility, members used the ‘win-cooperate, lose-defect’ strategy more while adopting a ‘wincooperate, lose-defect’ strategy less often. There were significant differences between these two groups in using the ‘win-stay, lose-change’ strategy but not in the use of the ‘win-cooperate, lose-defect’ strategy.

CONCLUSIONS AND RECOMMENDATIONS These results lead to two conclusions about cross-cultural differences in team conflict management behaviour. First, people use different behaviour to manage intra-cultural and intercultural conflict. In fact, the overseas managers showed more concern about maintaining a good relationship with Chinese colleagues than their overseas compatriots. Second, cross-cultural differences in intercultural conflict management behaviour contribute to ineffective conflict management in international joint ventures. Overseas managers may be offended when Chinese managers fail to approach them directly to discuss a problem and make the conflict public (e.g. telling friends, raising the issue in a formal meeting). The Chinese may be uncomfortable with direct overtures from the overseas managers to discuss the problem or to increase collaboration, and they may be annoyed when overseas managers do not recognize that indirect attempts to deal with the problem are meant to be constructive. To improve relations, overseas managers should appreciate indirect attempts to resolve conflict, and the Chinese should be more understanding of overseas managers’ attempts to deal with problems directly and might try to discuss problems openly. The team conflict management is not only affected by the organizational and structural contingencies, but also shaped by the strategies of team members. Among other things, team compatibility is a significant characteristic. Team members with high team compatibility tend to share information and psychological resources and exchange ideas with other members. In recent years, with the development of economic reform and organizational change, team compatibility has become a more important factor in team management. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Three components of team compatibility are identified: active cooperation, communicative coordination and information sharing. Active cooperation Active cooperation is characterized as team value orientation, group interests and team resources management style. Through active cooperation, team members are working closely toward team objectives. Communicative coordination Communicative coordination emphasizes team communication and joint working efforts. Under communicative coordination, team members are provided with specific directions and plans. Information sharing Information sharing focuses upon comprehensive and multidirectional information exchange. It emphasizes key task information and the integration of team objectives. In addition, members in the higher team compatibility groups used more strategies of problem solving and concession whereas members in the lower team compatibility groups tend to adopt more competitive strategies. Team conflict management and cross-cultural adaptation processes have been important topics of strategic human resources management and organizational behaviour in China. With the rapid development of the Chinese market economy and international joint ventures in recent years, team conflict management has been greatly emphasized. In many international joint ventures as well as in the state-owned enterprises, team management building is seen as an effective approach to strategic human resource management. As a new trend of organizational behaviour in China, team and

Figure 3.1 A compatibility model of cross-cultural leadership teams © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cooperative work is becoming an active area in both theoretical studies and practical applications. Recent research has provided systematic evidence for the processes and strategies of developing effective joint venture leadership teams. On the basis of recent IJV leadership studies, a compatibility model of crosscultural leadership teams could be proposed as shown in Figure 3.1. According to this model, there are two general approaches to either intercultural or intra-cultural conflict which would affect team management. The differences between the two approaches determine the level of compatibility of the conflict resolution strategies in cross-cultural team management. With more active cooperation, high communicative coordination and wider information sharing, this in turn influences the degree of group compatibility, which leads to a different level of performance compatibility of the leadership teams. Three theoretical components of this model need to be highlighted: 1 4

3

Strategy compatibility The degree of compatibility of the strategies adopted by both parties in managing conflict in teams is more meaningful and crucial than the strategies themselves. Group compatibility This is the core concept in this model; basically this is the psychological compatibility among leadership team members from different cultures in terms of active cooperation, communicative coordination and information sharing. Performance compatibility A high team performance is based on the performance compatibility of both partners. The compatibility of performance system would be the key in this aspect.

Three practical suggestions could be drawn from the compatibility model of cross-cultural leadership teams: 1 2 3

a personnel strategy could be taken to adjust the value-orientation and conflict management skills so as to strengthen compatibility of strategies for both inter- and intra-cultural conflict resolution; a cultural strategy would be used to facilitate the information sharing and cooperation so that a more positive group compatibility of leadership teams could be obtained; a system strategy should be adopted to enhance the networking and communication channels as well as the task structure in order to achieve higher performance compatibility of leadership teams.

These three strategies could be given to managers and specialists from international joint ventures for effective leadership teams. The recent research and practice on team conflict management has therefore provided clear and useful evidence for the improvement of the leadership team development and the team conflict management both in China and abroad. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ACKNOWLEDGEMENT This study was supported by a research grant from the Chinese National Science Foundation to Zhong-Ming Wang.

REFERENCES Bond, M.H. (1996) The Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Davidson, W. (1987) ‘Creating and managing joint ventures in China’, California Management Review 29:77–94. Hall, E. (1976) Beyond Culture, New York: Doubleday. Peterson, R. and Shimada, J. (1978) ‘Sources of management problems in Japanese— American joint ventures’, Academy of Management Review 3:796–804. Smith, P.B. and Wang, Z.M. (1996) ‘Chinese leadership and organizational structures’, in M.H.Bond (ed.) Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Triandis, H.C. (1993) ‘Cross-cultural industrial and organizational psychology’, in M.D.Dunnette and L.M.Hough (eds) The Handbook of Industrial and Organizational Psychology, 2nd edn, vol. 4, Palo Alto, CA: Consulting Psychologists Press Inc. Wang, Z.M. (1986) ‘Worker’s attribution and its effects on performance under different work responsibility systems’, Chinese Journal of Applied Psychology 1(2):6–10. ——(1988) ‘The effects of responsibility system change and group attributional training on performance: A quasi experiment in a Chinese factory’, Chinese Journal of Applied Psychology 3(3):7–14. ——(1989) ‘Human resource management in China: Recent trends’, in R.Pieper (ed.) Human Resources Management: An International Comparison, Berlin: Walter de Gruyter. ——(1992) ‘Managerial psychological strategies for Sino-foreign joint-ventures’, Journal of Managerial Psychology 7(3):10–16. ——(1993a) ‘Culture, economic reform and the role of industrial/organizational psychology in China’, in M.D.Dunnette and L.M.Hough (eds) The Handbook of Industrial and Organizational Psychology, 2nd edn, Palo Alto, CA: Consulting Psychologists Press Inc. ——(1993b) ‘Psychology in China: A review dedicated to Li Chen’, Annual Review of Psychology, Palo Alto, CA: Annual Review Inc. ——(1994) ‘Group attributional training as an effective approach to human resource development under team work system’, Ergonomics 37(7):1137–44. ——(1995) ‘Chinese management’, in M.Warner (ed.) International Encyclopedia of Business and Management, London: Routledge. ——(1997) ‘Integrated personnel selection, appraisal and decisions: A Chinese approach’, International Handbook of Selection and Appraisal, 2nd edn, Chichester: Wiley. Wang, Z.M. and Fan, B.N. (1990) ‘The task structure and information processing requirements of decision making on director responsibility systems in enterprises’ (in Chinese), Chinese Journal of Applied Psychology 5(1):1–8 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Wang, Z.M. and Heller, F.A. (1993) ‘Patterns of power distribution in organizational decision making in Chinese and British enterprises’, International Journal of Human Resource Management 4(1):113–28. Wang, Z.M. and Lu, X.H. (1996) ‘A process model of group decision making and the structural analysis of team compatibility’, working report for a project supported by the Chinese National Science Foundation. Wang, Z.M. and Satow, T. (1994) ‘The effects of structural and organizational factors on socio-psychological orientation in joint ventures’, Journal of Managerial Psychology, Special Issue: Managing Chinese-Japanese Joint Ventures, 9(4):22–30. Wang, Z.M. and Wu, T.X. (1996) ‘The effects of team management on team climate and work efficiency’, working report for a project supported by the Chinese National Science Foundation. Wang, Z.M. and Zhu, L.Z. (1996) ‘Team conflict management and its relationship with performance under different industries and organizational systems’, working report for a project supported by the Chinese National Science Foundation. Weldon, E. and Jehn, K. (1995) ‘Examining cross-cultural differences in conflict management behaviour: A strategy for future research’, International Journal of Conflict Management 3:387–403. Yang, D.N. (1984) ‘Management thought in ancient China’, Chinese Encyclopedia of Enterprise Management (in Chinese), Beijing: Enterprise Management Press. Yu, W.Z. (1988) ‘The motivational function of group structure under labour contract systems’ (in Chinese), Behaviour Science 1:80.


4

Learning modes in international joint ventures in China Niklas Lindholm

INTRODUCTION International joint ventures (IJVs) in China are frequently managed jointly by foreign investors and local partners, often Chinese state-owned enterprises (CSEs). In these IJVs, management responsibilities are shared according to organizational functions. This brings together expatriates and locals who differ in national origin, cultural values and social norms, with the attendant political, economic and legal system differences (Shenkar and Zeira, 1987). This mixture of expatriates and locals in IJVs may bring about some controversy regarding how different organizational functions need to be managed. Often the responsibility for human resources (HR)/personnel is given to the local partner. In a recent study of seventy IJVs in China, it was found that sixtysix had a local HR/personnel manager (Björkman and Lu, 1997). Expatriate managers may have different expectations from the local HR manager regarding the services the function should provide and the kind of practices that should be used in terms of recruitment, training, compensation, performance appraisal, and so on. It is often the case that expatriate managers feel urged to transfer their own management practices to the IJVs, although a great deal of cross-cultural management and expatriation literature suggests that foreign companies and expatriate managers should adjust their practices to fit the local environment (Brewster, 1993). It has indeed been identified that the transfer of foreign management practices, such as HRM practices, have contributed to problems that have impeded the running of IJVs in China (Campbell, 1988; Child, 1991; Björkman and Schaap, 1994; Von Glinow and Teagarden, 1988). In line with this, many local managers and employees are frustrated over the demands placed upon them by expatriate managers who are ignorant of local context and customs in China (Björkman, 1994). Even though expatriates and locals may adopt practices from either partner, influences are many times stronger from the managing partner firm (foreign partner) (Cyr, 1995). Nevertheless, one could also assume that completely new practices would be developed and learnt in the IJVs. In line with this thinking, it would mean that IJVs pass through noteworthy processes of learning by giving © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

for instance the HR function access to the practices of its partners (Child, 1994; Inkpen and Crossan, 1995; Hamel, 1991). The optimal learning process would require both an effective transfer of practices to the HR function from either partner, but also an adaptation of the functions to the foreign requirements conditions and, moreover, the learning of the complementary strengths of the local organization (Child and Rodrigues, 1994). This learning process is most certainly both company and function specific but has been neglected in research on IJVs (Tiemessen et al., 1996) The objectives of this chapter are two-fold. First, it aims to describe learning modes that have occurred in the IJVs, highlighted in the IJVs’ HR functions. Second, it aims to analyse these learning modes by identifying factors that seem to have influenced them. The chapter starts with a theoretical classification of IJV learning, continues to present the case studies and analyses, and subsequently ends with conclusions and recommendations for practitioners. This chapter presents qualitative data from two case studies of IJVs in China. The study was conducted in 1996, in a European multinational corporation’s (MNC) joint venture operation in China. Approximately forty interviews were carried out in Europe and in the capitol Beijing with middle or senior managers, both expatriates and locals. In addition, the author worked for seven months with HRM issues in the case company in China, thereby gaining an augmented understanding of the research phenomenon and its context.

IJV LEARNING IN THEORY Learning is defined according to the concept of experiential learning (Cyert and March, 1963). Experiential learning implies that managers often have taken-for-granted views about management practices and often transfer practices that have worked in one setting to new settings. Not until transferred practices have been proven ‘unsuccessful’ are they modified or even changed. Experiential learning is often influenced by issues like the previous experience of managers, exposure and skills of personnel. In addition, the number of expatriates in an IJV also seems to have an effect on learning (Björkman, 1994). Learning can take place through three different modes in the IJV setting (Tiemessen et al., 1996). It should be pointed out that the different modes are interrelated and used for illustrative purposes. 1

2

Learning through the transfer of practices from the IJV partners. The process through which this occurs is usually called technology transfer and has received a lot of attention in research (Tung, 1994; Kedia and Bhagat, 1988). Transfer is the movement of existing technology, knowledge or managerial practices between partners and IJVs. Learning through the transformation of practices within the IJV. This


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second learning mode is concerned with the transformation of transferred practices and the creation of new practices within the IJV. Casson (1993) has noted that this may require an adaptation of technology and managerial practices to the local environment, especially in line with cultural and institutional differences. Learning through the harvesting of practices from other units or organizations. Harvesting involves retrieving practices that have been created in other units or organizations and then implementing this knowledge in the MNC or IJVs (Tiemessen et al., 1996). Related to harvesting is the learning that occurs when firms benchmark, imitate best practice, etc.

CASE STUDIES The two joint venture case studies are part of a large European MNC with extensive operations around the world. The MNC has been present on the Chinese market since the beginning of the 1980s. To this date it has five joint ventures in China, mostly along the coastal regions. The case companies in this chapter are referred to as JV1 and JV2. Joint Venture 1 JV1 is comparatively small for the industry but was the first major IJV in China for the European MNC. The joint venture was preceded by several years of negotiations dating back to the 1980s. The joint venture has about eight expatriates, but the human resources function in JV1 is managed by an administrative manager and a local personnel manager, both appointed by the local partner. Recruitment practice in JV1 In the negotiation phase of the joint venture the issue of human resources was not given high priority. The negotiations typically centred around the issue of technology transfer. The first expatriates that arrived to the IJV Table 4.1 Profile of case studies


became surprised when around thirty employees had been transferred from the local partner to the IJV. The expatriates tried to explain to the local management that the IJV should employ selection methods, which resulted in severe conflicts with the local managers. The local manager resisted the introduction of selection practices such as multiple interviews, psychological tests and other selection criteria that were put forward by the expatriates. The employees transferred from the local partner have according to a majority of the expatriate interviewees been poorly motivated and bad performers. The screening of new applicants was also done by the local HR manager and the expatriates did not find out on what grounds a short list with a few applicants was chosen. As one expatriate manager put it: ‘I demanded to see all the resumés and was able to receive them after several weeks of persuasion. I then found out that he [the personnel manager] was trying to favour partner candidates…. I had to put a stop to it…he didn’t say hello to me for six months.’ The recruitment process in JV1 was characterized as very unsystematic by interviewees. There seemed to be no actual process developed for ‘how to go about it’ when a new person needed to be recruited. The expatriates tried to write job descriptions for the HR department but the use of them seems to have been minimal since they were in English and the local management did not understand English. In addition, the advertisements that the joint venture placed in newspapers were extremely simplistic and not even close to the MNC’s standards. None the less, after some time the local management agreed to introduce some testing for job candidates. They preferred to use a local ministry that provided some testing services, mainly because the testing was done at a very low price. The test was a psychological test which turned out to be very difficult for the expatriate managers to interpret due to the fact that it was in Chinese. In addition, there seemed to be no actual job analysis done by the test providers, so the reliability of the test proved to be low. The difficulties were pointed out by one expatriate manager in the following way: ‘We are really lagging behind on the recruitment side here…the whole process is just not there…the advertisements are really terrible…the testing is under all criticism.’

Performance appraisal in JV1 In JV1 the expatriate managers attempted to implement the global performance appraisal system that has been implemented widely in about 80 per cent of the MNC’s worldwide operations. The system was oriented to setting objectives, giving feedback on performance, improving communication, and developing future training plans. The cornerstone of the system is the appraisal discussion © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

where managers and employees meet to set next year’s objectives and review performance. The system was implemented sparsely among employees with a good command of English and was received with mixed feelings by both expatriates and locals. Some expatriates argued that the system had been received very well and others were under the idea that such systems were even difficult to implement in other parts of the world. The general point of view was that the process became extremely one-way and more of a feedback session from the expatriate managers. Some expatriate managers were quite content with this since the employees at least knew what was expected of them after the appraisal discussion. The difficulty with the system was that it seemed to be too complicated for the joint venture context. On top of language difficulties (the system was in English), some locals could not grasp the rationale behind the system. A second difficulty was the length of the process; it was generally considered as too difficult to update and actually go through. In addition, only limited training on performance appraisal was provided for managers by the MNC’s HR function. One manager argued: ‘It was so complicated so I decided to develop my own process…. I let them [the sales people] write their “future resumes” every six months so that I can see what kind of aspirations they had and where they want to go in the career…in this way I get an overall picture of my people…the HR department is not aware of this of course.’

Joint Venture 2 JV2 is the most recent IJV that the MNC has established in China. It is considered to be a big joint venture in its industry. At the moment there are around twenty expatriates working in the joint venture. The human resource function of JV2 is managed by a local manager appointed by the partner.

Recruitment practice in JV2 Already in the negotiations the MNC representatives took a great deal of time to explain to the local counterpart that the MNC has the policy to select people basing themselves on objective selection criteria like interviews, tests, etc. This led to the development of a recruitment process at the beginning of the venture operation in teamwork with the Chinese. The process resembled the MNC’s process but also had some local characteristics. The partner had the right to transfer some employees from the partner organization to JV2 and could do so if they went through the same process as the other external candidates. Some partner candidates were recruited but mainly for the factory floor since they © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

could not speak English. The issue of job descriptions took a crucial role in the development of the recruitment process. Expatriate managers took time to write accurate and clear job descriptions for the HR department to facilitate the search and scanning process. Even though the local HR manager could not speak English, the various HR officers had a good command of English and could therefore find good candidates according to the criteria set by the managers. Advertisements used by JV2 were according to the standards of the MNC. The advertisements were developed for JV2 in the sense that pictures of both expatriates and Chinese employees were included in the advertisements. Training in appropriate interviewing techniques was also provided for the HR people in JV2 by the MNC’s representative office. In the case of testing, the HR department in JV2 chose to use the same testing organization as in JV1. The experiences of these tests were similar to that of JV1. The expatriate managers could not comprehend the test results and the usefulness of the test was seriously doubted. At the time of these interviews JV2 was under the process of identifying a new partner to assist in the assessment process. One comment from an expatriate: ‘The test is really bad…. It doesn’t help me make decisions…. How do I interpret it?… I tried to ask an HR person but she did not understand either…. I do not care anymore, I make my decision solely on interviews.’

Performance appraisal in JV2 The MNC’s global performance appraisal system was implemented in JV2 as well. The difficulties with implementing the system in JV2 originated in the fact that the joint venture has three partners which all had different types of performance appraisal systems. The three different partners have until recently been using three different systems. The MNC’s global performance appraisal system has mainly been used with the upper-level staff such as expatriates and Overseas Chinese. JV2 decided to work out a new performance appraisal system in cooperation with the MNC’s representative office. A comment from an expatriate manager in JV2: ‘The problem is that we are three players in this company…. We have to develop practices that are suitable for this company and not according to the MNC!’ A task force was created with a fair share of Europeans and locals in order to create a more appropriate appraisal system for the joint venture context. A training session was arranged where managers and HR people gathered and different types of performance appraisal systems were gone through. The work is currently in progress but has been received so well that the system will be © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

implemented also in JV1 and other MNC units around China. The performance appraisal system resembles the MNC’s but has been simplified and translated into Chinese. The content of the system has also been modified to suit the central facets of Chinese culture more appropriately. As the Chinese HR manager in JV2 put it: ‘We have to make some changes in the quite direct questions that are apparent in the MNC’s performance appraisal systems…. Chinese employees are not accustomed to give feedback or criticize their bosses.’

LEARNING MODES IN PRACTICE Through the analysis of the case studies it has been identified that different learning modes have taken place in the HR functions of JV1 and JV2. According to the IJV learning classification presented above the learning modes would take the outline in JV1 and JV2 as shown in Table 4.2. In JV1 the recruitment process was to a large extent transferred from the local partner which led to conflicts between the expatriate managers and the HR function. The local management did not understand the relevance of recruiting external people for the IJV as well as the need for employing different kinds of selection methods. The expatriates did not show an understanding of the role of personnel management in CSEs in China and did not actively try to work with the local management; instead they tried to force a quick change which seems to have worked counterproductively. The recruitment process in JV1 is very similar to traditional personnel selection practices in CSEs. Several authors have highlighted the practices and processes employed in CSEs. The traditional recruitment practices in CSEs have in general been related to lifetime employment, low mobility and absolute egalitarianism. The recruitment process in JV1 could be described as a guanxi recruitment process where friends, connections and relatives were favoured (see Saha, 1993; Nyaw, 1995). Nevertheless, in JV2 a new recruitment process was developed in the sense that experiences from JV1 were utilized. The recruitment process in JV2 was both transferred, transformed and harvested by the expatriates and locals within the joint venture. They developed their own process which created mutual learning, meaning that the local management understood the Table 4.2 Learning modes highlighted in the case studies


relevance of using more objective selection criteria and methods. The expatriates on the other hand successfully harvested experiences from JV1 with support from the MNC’s representative office. The expatriate managers of JV1 were invited to share their experiences during the negotiations of JV2 and in that sense the MNC learnt from their previous difficulties. None the less, in the area of candidate testing the same difficulties were encountered all over again. In the analysis of performance appraisal practice in JV1 and JV2, it is of interest to see that the MNC tried to transfer its standardized performance appraisal system to both of the IJVs. This transfer proved to be quite unsuccessful. It could be argued that, in the area of performance appraisal, the MNC did not learn as fast as in the area of employee selection. However, later on the MNC started to develop a new appraisal system more appropriate for both the joint venture and the Chinese context. There are, however, some points that should be addressed when trying to offer explanations for the different learning modes. In the case companies the examination was focused on learning modes in IJVs highlighted in HR functions. HR practices generally consist of more behavioural-oriented practices in contrast to, for instance, production techniques. The case studies revealed that the HR functions/practices had required more learning in comparison to production functions. This is also in line with previous research that has identified some HR practices as under more influence of the cultural and institutional environment (Mendonca and Kanungo, 1994; Lockett, 1988). There is strong agreement that both culture and institutional differences will have an effect on management practices in IJVs in China (Lockett, 1988; Easterby-Smith et al., 1995; Warner, 1993; Child and Markòczy, 1993). In the two case studies, it could be maintained that a type of inertia existed in the sense that the MNC wished to transfer as much as possible of its practices to the IJV, to make it resemble the MNC. In the case of performance appraisal this seemed to be the case. The inertia generally stemmed from the MNC’s representative office which pushed for the use of the global practices. MNCs sometimes have ambitions to transfer practices to their foreign units for control purposes (Jaeger, 1983). The quote from an expatriate in JV2 describes the issue: The people over at the representative office just do not understand what kind of reality we live in over here in the joint venture…even though they are only half-an-hour down the road.’ In addition, the attitudes of some expatriates definitely affected the learning modes that were presented (Björkman, 1994). In some cases the expatriates did not seem to make an effort to try to learn from the locals’ way of doing things. Some local interviewees were under the impression that expatriates did not have a thorough understanding of China and the Chinese way of doing things. Especially in JV2, some expatriates looked at the IJV merely as an © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

extension of the MNC. None the less, such attitudes could hamper the ability to learn from the local organization’s knowledge and the attempt to find better ways of doing things. Moreover, the amount of expatriates working in the case companies seemed to have affected the learning modes (Björkman, 1994). In JV2, which is a relatively new venture, the number of expatriates was high. This most certainly has put pressure on the local management to be introduced to new management concepts and technologies. A downside to this may be that if too many expatriates are employed it can result in interference with the development and learning of local managers. Stressing the use of expatriates in management positions can also reflect a lack of trust in local employees. It has been argued that local knowledge is necessary and one should therefore use a large proportion of local managers to ensure this (Beamish, 1985). Finally, in the case studies it also became apparent that harvesting from other joint venture experiences prior to JV1 had been limited. It seems that JV1 expatriates were forced to learn from scratch about ‘how to go about it’ in China. Several expatriates raised this issue during the interviews and referred to learning by trial-and-error. The MNC’s difficulty seems to be the fact that when an expatriate’s contract expires the experiences that he/she has gathered during years in China also vanish. Another issue is the role of the accumulated Chinese experience of the MNC. The MNC has been present in the Chinese market since the mid-1980s but mainly through a representative office. JV1 was the first major commitment by the MNC in China and the role of HR was not given much priority during the negotiations of the joint venture.

CONCLUSIONS AND RECOMMENDATIONS This chapter has described learning modes (transfer, transformation, harvesting) in two IJVs in China, belonging to the same MNC. It was shown that different learning modes have taken place in the IJVs’ HR functions. In the first case company (JV1), it was identified that the recruitment process was transferred from the local Chinese partner, which resulted in conflicts between expatriate and local management. In the second case company (JV2), it was noticed that the MNC learned from the experiences encountered in the area of recruitment in JV1. They then applied this learning in the development of a new recruitment process in JV2 that became tailor-made for the joint venture setting. Consequently, all learning modes took place in the area of recruitment in JV2. Nevertheless, when examining the practice of performance appraisal it is noted that the MNC’s standardized performance appraisal system was transferred with limited success to both JV1 and JV2. Subsequently, a decision was made to transform the performance appraisal system by modifying it according to the needs of the joint ventures and the cultural setting. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The learning modes encountered and analysed in the two case studies should not be generalized too broadly. They may, however, have some practical implications for managers and companies attempting to operate or operating in China. First, the transfer mode of learning suggests that the export of standardized HR practices from MNCs to joint ventures may run into difficulties, implying a need for substantial transformation. This transformation is called for due to clear cultural and institutional differences as well as different views of human resources management held by local management. It could be proposed that these difficulties could be avoided if an MNC attempted to get the mandate to manage the HR function in a joint venture. Another proposition would be to try to appoint an external HR manager, preferably a local Chinese, educated in Western-style human resources management. Second, the transformation mode of learning suggests modifications of MNC HR practices for the joint ventures. This issue may have some implications on the selection of expatriate management. MNCs should attempt to send open-minded and culturally sensitive expatriates to their China operations. They should also possess an ability and willingness to accept and create new management processes suitable for IJVs, in cooperation and teamwork with local management. By doing so, a process of mutual learning can occur, incorporating MNC practices with the positive aspects of Chinese culture. Third, the harvesting mode of learning suggests that learning from previous experience takes an important role in speeding up the transformation process. In the scope of MNCs, this requires an effort to document and learn from previous experiences in China. It also implies the establishment of processes that support the sharing of experiences between the various MNC units in China (representative offices, joint ventures and holding companies). In addition, it also suggests the harvesting of experiences in other companies, through the attendance of China-specific seminars, active benchmarking and participation in different types of networks.

REFERENCES Beamish, P.W. (1985) ‘The characteristics of joint ventures in developed and developing countries’, Columbia Journal of World Business Winter: 13–19. Björkman, I. (1994) ‘Role perception and behaviour among Chinese managers in SinoWestern joint ventures’, in S.Stewart (ed.) Advances in Chinese Industrial Studies, vol. 4, Greenwich, CN: JAI Press. Björkman, I. and Lu, Y. (1997) ‘The management of human resources in joint ventures and wholly-owned subsidiaries in China’, paper presented at the LVMH Conference, Euro-Asia Centre, INSEAD, 8–9 February 1997. Björkman, I. and Schaap, A. (1994) ‘Human resource management practices in SinoWestern joint ventures’, The Finnish Journal of Business Economics 43:111–25.


Brewster, C. (1993) ‘The paradox of adjustment: UK and Swedish expatriates in Sweden and the UK’, Human Resource Management Journal 4:49–62. Campbell, N. (1988) A Strategic Guide to Equity Joint Ventures in China, Oxford: Pergamon. Casson, M. (1993) ‘Contractual arrangements for technology transfer: new evidence from business history’, in G.Jones (ed.) Coalitions and Collaboration in International Business, Cheltenham, Glos: E.Elgar. Child, J. (1991) ‘A foreign perspective on the management of people in China’, International Journal of Human Resource Management 2:93–107. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Child, J. and Markòczy, L. (1993) ‘Host-country managerial behaviour and learning in Chinese and Hungarian joint ventures’, Journal of Management Studies 30: 611–31. Child, J. and Rodrigues, S. (1994) ‘Social identity in the transfer of knowledge in international ventures’, working paper, Judge Institute of Management, University of Cambridge. Cyert, R. and March, J. (1963) A Behavioral Theory of the Firm, Englewood Cliffs, NJ: Prentice-Hall. Cyr, D.J. (1995) The Human Resource Challenge of International Joint Ventures, Westport, CT: Quorum Books. Easterby-Smith, M., Malina, D. and Yuan, L. (1995) ‘How culture sensitive is HRM? A comparative analysis of practice in Chinese and UK companies’, International Journal of Human Resource Management 6(1):31–59. Hamel, G. (1991) ‘Competition for competence and inter-partner learning within international strategic alliances’, Strategic Management Journal 12:83–103. Inkpen, A.C. and Crossan, M.M. (1995) ‘Believing in seeing: joint ventures and organization learning’, Journal of Management Studies 32(5):595–618. Jaeger, A.M. (1983) ‘The transfer of organizational culture overseas: an approach to control in the multinational corporation’, Journal of International Business Studies 14:91–114. Kedia, B.L. and Bhagat, R.S. (1988) ‘Cultural constraints on transfer of technology across nations: implications for research in international and comparative management’, Academy of Management Review 13(4):559–71. Lockett, M. (1988) ‘Culture and the problems of Chinese management’, Organization Studies 9:475–96. Mendonca, M. and Kanungo, R.N. (1994) ‘Managing human resources, the issue of cultural fit’, Journal of Management Inquiry 3:189–205. Nyaw, M.-K. (1995) ‘Human resource management in the People’s Republic of China’, in L.F.Moore and P.D.Jennings (eds) Human Resource Management on the Pacific Rim, Berlin: Walter de Gruyter. Saha, K.S. (1993) ‘Managing human resources: China vs. the West’, Canadian Journal of Administrative Sciences 10(2):167–77. Shenkar, O. and Zeira, Y. (1987) ‘Human resources management in international joint ventures: directions for research’, Academy of Management Review 12(3):546–57. Tiemessen, I., Lane, H.W., Crossan, M.M. and Inkpen, A. (1996) ‘Knowledge management in international joint ventures’, paper presented at Global Perspectives on Cooperative Strategies, The North American Conference, 1–3 March, Ontario, Canada. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Tung, R.L. (1994) ‘Human resource issue and technology transfer’, International Journal of Human Resource Management 5(4):807–25. Von Glinow, M.A. and Teagarden, M.B. (1988) ‘The transfer of human resource management technology in Sino-US cooperative ventures: problems and solutions’, Human Resource Management 27:201–29. Warner, M. (1993) ‘Human resource management with Chinese characteristics’, International Journal of Human Resource Management 4:45–65.


5

Building trust for successful partnership in China Elizabeth Li

INTRODUCTION The concept of family embedded within the fundamental values of Chinese culture can be used to illustrate Sino-foreign joint ventures (SFJV). Before a family is created by the union of two people, the respective parents usually have to give consent to such a marriage. A date is chosen, terms and conditions are agreed upon, and a ceremony is usually performed to seal the alliance. The marriage as a new union will usually go through a honeymoon stage before reality strikes. Contained within the new reality are the unspoken expectations by both the partners and their parents. As time goes by, the extent to which the assumed expectations are met determines the level of cooperation and trust. We are living in a world where divorce is a common phenomenon. Many young Europeans are discouraged from marriage due to the 33 per cent divorce rate. Members from cultures that are strongly family-centred find it difficult to establish trust outside the family circle (Fukuyama, 1995). If the partners, as in SFJVs, are of different nationalities, the potential misalignment of their expectations would be greater. This becomes a crosscultural issue. The cross-cultural issue further complicates the establishment of trust by contributing additional dimensions. When establishing a joint venture, both sides are likely to be concerned that they do not ‘lose out’ in the transaction. The contract established is often inclusive of clauses to protect their own side. ‘Contracts—even at their best-can reflect an understanding of costs and markets and technologies only at the moment companies sign them, then when things change, the partners don’t really try to compromise and adjust’ (Ohmae, 1992:149). Interventions from the highest levels often cause discord, then manifested in control, conflict and political activities. The gap between the partners widens and trust disappears. Lessons need to be extracted from the past and present, so that a new future can be created. The aspect of equality plays a fundamental role to building mutual trust. If one of the partners perceives itself as superior in any way, it would impose its values on the weaker partner. These measurements of superiority can be seen in © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

percentage equity split or technologies and financial contributions. This superimposition of one set of values, often without explicit discussion, onto another causes damage to the recipient’s self-esteem. In the Chinese context, this is related to the issue of ‘face’. The overt imposition often stimulates covert activities. Fundamental developments must take place before smooth operations can begin: 1 2 3 4

establishing trust; understanding the issues of current identity; understanding the issues of a new identity; creating a mechanism for a new identity.

The key to a successful future is the facilitation of these issues at the start. This chapter examines the underlying values and assumptions that affect the transformation of organizations, from a state-owned mentality towards a market-driven orientation. Data from clinical research on Alpha, a Sino-foreign joint venture, is examined and guidelines are established for transforming future organizations to ease the discord due to clashes in values and assumptions in the early stages.

THE PRC BACKGROUND The underlying values and assumptions at the national level affect the transforming economy within the PRC. The fundamental value is the dualistic existence innate within the Chinese culture and a short-term view in many interventions. In the need to remain Chinese, while learning from other cultures by importing ideologies, a conflict may arise. Two opposing forces have historically existed within China. First, the conversion and integration of foreign expertise into Chinese practices has its roots in the time of the Silk Road, in the seventh and eighth centuries. China has always been able to maintain its identity despite foreign conquest (Wang, 1991:1–10). Second, despite the need to maintain the Chinese identity, the import of technologies, expertise and ideologies is both an historical and a current phenomenon. That is, the vast size and mystique of China has attracted foreign adventurers bringing with them different outlooks. While some hoped to conquer, others focused on influencing. But none were able to shift the fundamental values and assumptions. With regard to the present economic transformation, whether it is types of scientific technological expertise or the transplant of privatization processes by developmental institutions (Hofstede, 1993:86–7), a delicate balance and sensitivity need to be established for successful integration. Values and assumptions on a national level manifest themselves in different ways within organizations. That is, national culture and organization culture are © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

often not distinguished in many analyses. On the one hand, national culture is defined as the collective programming of the mind which distinguishes the members of one group or category of people from another (Hofstede, 1990:14– 18). Corporate or organization culture is defined in a similar way except for the fact that the collective programming of the minds of original members are the values of the founder and significant leader. Therefore, the shared perception of daily practices can be considered to be the core of an organization’s culture (Hofstede, 1991:180). Within this context, the analysis of Chinese enterprises can be separated into two types: the state-owned and privatized forms. Many models and discussions on corporate culture (Schein, 1985:49–85; Swieringa and Wierdsma, 1992:10–26; Hofstede, 1991:177–200) discuss the progression towards the embedded values stressed at the deepest level. Hofstede’s model is most relevant to this study. He distinguished between values and practices (see Figure 5.1). Values and practices exist in different proportions depending on their level of application. We begin to see the complexity of the dynamics between the organization components of the formal structure and the informal structure. This section distinguishes the organizational culture of a state-owned and a privately-owned enterprise within the PRC. Eight dimensions are used to define the culture. Among these eight, two are connected with the philosophy of the founder; four are results of the task, industry and market environments (Hofstede, 1991:191); and two are specifically relevant to the People’s Republic of China. The first six dimensions were used in a study at the Institute for Research on Intercultural Corporation, now at the University of Lumburg at Maaestricht, the Netherlands, involving twenty organizations.

Figure 5.1 The nature of culture differences: the national, occupational and organizational levels Source: Reproduced with permission of the publisher from G.Hofstede (1991) Cultures and Organizations: Software of the Mind, Maidenhead: McGraw-Hill. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

1 2 3 4 5 6 7

8

Orientation depends on historical factors such as the philosophy of the founder and recent situations. Weak uncertainty avoidance would lean towards an open communication climate; and strong uncertainty avoidance would lean towards a closed communication system. In a PRC organization, process orientation tends to avoid risk taking. The bureaucratic system within the state-owned enterprises tends to reinforce this while the more nimble privatized organization encourages results. Parochial cultures tend to hire employees who have less formal education (Lee, 1991:135–9). Private enterprises have started to use contract labourers. On the surface it seems the state-owned enterprises are tightly controlled while the private firms are loose; often the opposite is true. In state-owned enterprises little pragmatic customer orientation is needed. An issue relevant within PRC enterprises (Block, 1993:34,134), employees of state-owned enterprises believe in their right to be cared for by the state, while private enterprises are moving towards a pay-by-production approach. Budgeting process in the state-owned sector has been soft, struggling to move towards a harder process.

Transforming a state-owned mentality towards that of market-orientation (see Table 5.1) needs constant understanding of where each decision is, in relation to the above mentioned dimensions, in terms of values and assumptions. Both sides need to be sensitive to each other’s natural tendencies or habits. Changes in these habits needs committed efforts which can be painful. A sense of fear and hopelessness has made it hard to invest in any sense of longterm beliefs. By functional behaviour control, conflict and politics will be the automatic reactions to situations handled without sensitivity to the issues mentioned. Misunderstanding between the two parties causes further confusion.

Table 5.1 Organization culture within the People’s Republic of China


The willingness and understanding of individuals within the system undergoing change is crucial, and such individuals must believe that change will benefit all before a smooth process can be developed (Beckhard and Harris, 1987:51–9). Consequences triggered by structuring can cause tremendous damage, as well as high apathy among the individuals participating within the change process. As a result, the demand of immediate benefit in the short term has overtaken the traditional long-term values. This tension has created a loss of control resulting in conflicts and political activities. Control, conflict and politics are three additional dynamics of organizational design. These are manifestations of values and belief systems. Through observable behaviours in these areas, certain basic assumptions can be made. Control is a system that directs members to achieve organizational goals through strategy and structure, and performance and reward designs (Robey, 1991:246). However, it is often important to assess the extent to which control systems are getting the results that they are designed to produce. Organizational conflict is often the result of misalignment between interacting parties (Robey, 1991:153). Misalignment occurs when each of these parties has different goals and objectives. The following describes what happens on one side of the union.

Control system within state-owned enterprises Control within the state-owned enterprises is confusing. The practices are generally person-centred, with the decisions being made by the most senior person in charge. Consequently, double standards are created by selective attention and strategic measurement (Robey, 1991:251). The rigid bureaucratic form with high control and narrow span encourages entitlement behaviour— ‘Do is 36 and don’t do is 36’ (a phrase commonly used referring to employee morale of the state-owned enterprises). The equitable process of distributing rewards and benefits which many state-owned enterprises still practise does not encourage accountable and responsible attitudes. Therefore, it is difficult to direct members of the organization towards the enterprise’s goals.

Conflicts within state-owned enterprises Conflicts within state-owned enterprises manifest themselves in two forms: those that are internal and those that are external. In both cases, the underlying causes are related to resource scarcity and information complexity (Lawrence and Dyer, 1984:301–4). The reward system which oils the components of the control system is divided into two types: tangible and intangible. Based on the traditional format of tangible reward, whereby distribution is based on equal sharing, it is often the intangible rewards obtained through personal influence that make a substantial difference to the individual. A formal performance appraisal system is in place in many © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

state-owned enterprises; however, a fair degree of personalization and ‘strategic measurementship’ (Robey, 1991:251) are exercised via the informal system of influence while still executing the formal structure. In this kind of circumstance, if organizational objectives are not entirely clear to the individuals due to a lack of information, then individual goals and various sub-goals may take priority over the super-ordinate objectives. Cooperation under these circumstances is difficult where ownership is by ‘all of the people’ and therefore it is difficult to trace accountability and responsibility. These factors contribute to the degree of conflict within the state-owned enterprise which often surpasses the energizing point and creates stress for the system-leading it towards the demotivating side of the conflict curve (Hill and Jones, 1992:406–7). The conflict curve pinpoints an optimal point where positive conflict enhances organizational performance and beyond that point the conflict would negatively affect performance and cause apathy and low performance. Conflict within the state-owned enterprise takes three forms. First, conflict is resolved through bargaining and negotiation efforts where selfinterests are protected by the members. Second, collaboration efforts where members can work rationally towards situations in which everyone wins are only possible when forms of long-standing relationships are present and fundamental trust is strong (Raskin, 1991:79). Third and finally, interpretive efforts, allowing both the negotiation and collaboration efforts to coexist and which do not necessarily create a right or wrong perspective, are required. Within state-owned organizations, however, the interpretive format seems to be frequently present through continuous forms of negotiation and bargaining (Lee, 1991:35).

Politics within state-owned enterprises Politics within state-owned enterprises is one of the more important aspects of their operation, based on the elements of the political model whereby members focus on sub-goals and sub-interests. Members withhold information, they negotiate compromises reached by power balance, and winning is possible only when one party has more influence (Robey, 1991:369–71). In a high power distance country such as China (Hofstede, 1993:171–3), the issue of power is particularly important. Power in the individual form includes reward, coercive, legitimate, referent, expert, articulate and self-belief (French and Bentram, 1959:150–67). The negotiations between parties are often by means of exchange and bargaining to maximize sub-goals rather than the super-ordinate goals. These are all contributing factors forwarded in the clinical study of the alpha case described in the next section.


ALPHA—THE CASE Alpha was a joint venture between a Chinese state-owned enterprise and a publicly traded Asian multinational. The Asian organization (see Figure 5.2), which had its headquarters in a major Asian city, had a strong name, image and reputation for quality products. It was more than 100 years old and the thirdgeneration owners controlled a large proportion of its shares. The elements of the management structure relevant to Alpha are the headquarters, the international holding company, and the Hong Kong division. The international holding company was formed as an intermediary organization in 1992 to manage all international activities and new businesses established by headquarters. Alpha reported to the Hong Kong division. The parent company’s brand name had existed in the Asian region for more than a century while the Hong Kong division had a fifty-year history. Recent developments in the PRC prompted the Hong Kong division to establish a subsidiary to penetrate the potential China market. Alpha was established in 1991 and consisted of 1,100 employees, while the Hong Kong division was publicly listed on the Hong Kong Stock Exchange. The majority of its shares were owned by the Asian organization. The shares of Alpha itself were complex. Both partners in the Alpha venture had extensive experience in manufacturing this product prior to the joint venture. The local Chinese partner in Alpha was a state-owned enterprise that had been in the same business as the Asian organization for fifty years. The local Chinese partner was previously involved in a similar joint venture that was dissolved. In addition to the Hong Kong division, Alpha also reported to the municipal sub-bureau which was supervised by the Central Ministry in Beijing (see Figures 5.3 and 5.4). The cooperation agreement allowed the Asian parent to use the land and facilities of the local partner for thirty years.

Figure 5.2 The Asian organization’s structure © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Figure 5.3 The local Chinese organization’s structure

Figure 5.4 Alpha reporting units

The clash of cultures Consistent with the parental reporting hierarchy and conflicting input into the venture, Alpha produced two product brands: a local brand developed before the joint venture and an imported brand licensed by the Asian partner. This type of dual system without alignment exists within other departments; however, due to the size and leadership skills of the department manager, integration is often possible. In almost all cases, there is the dilemma of two separate sets of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

operating criteria which often causes decision conflict over quality standards, production procedures, operation processes, employee behaviour and other issues. Split directives between departments and divisions escalate stress levels to a demotivation point. Due to the intensity of day-to-day operation, with all its emergencies and on-the spot decisions, problems are often treated at the symptomatic level, rather than by basic structural and policy change. The China partner resisted many of the new processes that were put in place by the senior management team (of seven people) at Alpha. The senior executives selected to represent the Asian partner were made up of five different nationalities. Only two of the seven had spent considerable time in the Hong Kong division. No experience from the Asian organization’s headquarters was represented in the joint venture. The PRC had a strong sense of identity and resisted the haphazard changes that were put in place by the representatives of its Asian partner. Credibility is often questioned and higher authority intervention is needed. Externally in the hierarchy and internally within the organization, although the annual result of the last two years exceeded expectation, the partners were unable to agree upon the reinvestment approaches. The Asian partner put high priority on a high-speed production line while the Chinese partner was looking at property and housing for the employees. Strategic differences could not be agreed upon at the higher level. The communication pattern within Alpha was fragmented and divided both by function and nationality. A ‘we/they’ division was apparent. The solidarity of the two sides was strong when it was necessary to unite. Numerous conflicts were mediated and facilitated by the managing director and the human resources manager. ‘Seagull’ managers flew in from supervising entities and complicated issues with direct reports to the Hong Kong division, international holding company and the headquarters or the municipal sub-bureau and central ministry. Both the managing director and the human resources director utilized more than 50 per cent of their time and energy managing these types of situations. Differences in the language, values and assumptions caused communication problems. The behaviour and norm was a constant competition for power and dominance of one over the other. All the formal authority was held by representatives from the Asian partner which only represented 5 per cent of the total workforce, while the PRC partner, which represented the other 95 per cent of the staff, could only assert its wishes through coercive means, which resulted in a series of ‘win/lose’ situations. As one side lost, it harboured resentments which intensified in the next conflict situation. The only form of integration available were the two positions where the managing director and the human resources manager had served as individual mediators since the beginning of the joint venture. However, it had become unmanageable for the managing director and human resources manager to effectively carry out their other responsibilities. In the same way, many of these activities were reducing the production effectiveness of the enterprise. The formal component of Alpha was not aligned. The technology and human resource structure and systems were not © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

doing what they were designed to do. That is, the formal structure of authority and control were often superseded by higher authority, internal or external to Alpha, as well as coercive activities. The informal components represented the culture of Alpha where the communication patterns, work process and integration mechanisms were in confusion. The formal and informal components were not being guided by the strategic component, which did not have an agreed-upon direction. The misalignment within and between each of the components hindered optimization of organization effectiveness.

ANALYSIS Critical issues from the initial phase at Alpha included lack of identity, conflicting directions, political activities, unstable systems and structure, general discontent, and lack of mutual trust. The issue of ‘identity’ is important. The failure to establish and agree upon an identity by the parent organizations caused a lack of trust, resulting political activities and a ‘we/they’ mentality. If the evaluation of the current state of Alpha concluded that the fundamental problem was a crisis of identity, then it is appropriate to step back from the data generated at Alpha and look at the various components of the organization in its relationship to the business environment. Alpha’s relationship to the market and its history, values and formal and informal structures all need to be considered. Each of these aspects differs as it relates to the state-owned enterprises and the share-holding enterprises. In particular, the eight dimensions of organizational culture have identified contrasting traits and expectations for the state-owned enterprises and share-holding enterprises. In the case of Alpha, the two parent organizations brought their own ideals. The Asian parent represented the private-form values while the PRC parent embraced the state-owned values. Three broad clusters were suggested by the data generated from the various interventions at Alpha: trust, culture and organizational design.

Trust Here, it is useful to go back to the opposing values between national and organizational levels. That is, the national values within the PRC operate on the premise of a long-term perspective (in other words, 4,000 years of history, the ‘Chineseness’ of China). Yet many state-owned organizations are insistent on short-term benefits and gratification. Here lies the key, in the absence of a solid legal framework within the PRC—the issue of trust within the network is essential to interactions. Within a strong clan culture where relationship is more important than law, the issue of trust cannot be ignored. The insecurity experienced during the last 100 years of social, political and economic instability has changed one of the innate national values of the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Chinese people, especially those who have given their souls and blood to state-owned enterprises. It is apparent that within private firms, especially in the family firm, long-term views reappear without interventions. Gainsharing and mutual commitment from both employer and employee are strong. However, in a state-owned enterprise, the mentality is more often protective and defensive. State-owned enterprises are adopting the bonus system as a means of compensating for these behaviours without much success in changing innate values. The lack of mutual trust was apparent among and between all levels, internal and external, to the enterprise and also in the managing director of Alpha by the Asian parent who had hired him. The lack of trust extended to political activities rather than organizational objectives. Mutual respect between subordinate and superior relationships could not be established. Because of the lack of direction and identity at Alpha, conflicts over protecting or furthering personal or sub-unit objectives were frequent occurrences. This cluster is an obstacle to establishing a mutually accepted identity as each partner tries to establish its way as the only way, which in turn makes negotiation and collaboration difficult. The power struggle for control is apparent in the interdepartmental conflicts that obstruct maximum production. The information flow—highly segregated, kept within its own territorycontributed to high divisional and departmental conflict within a highly interdependent work flow.

Culture Cultural elements within Alpha can be understood through the eight dimensions developed to understand the distinct practices between state-owned and shareholding enterprises. Alpha has not been able to align its situation according to these dimensions. The PRC partner at Alpha has a strong organization culture with communication patterns that have been in operation for the past fifty years. The confusion of identity during the transition period needs to be addressed. This lack of identity, where Alpha’s employees were uncertain about communication patterns, creates a low context. Imposing or superimposing sporadic undefined processes on an established system can cause resistance and discontent. Complex reporting situations, boundaries, relationships and directions may be contributory factors to a wavering leadership style. By Phase 3 of Alpha’s intervention, the international holding company had finalized a decision to eliminate the Hong Kong division level and both Alpha and the Hong Kong division reported directly to the international holding company. This eliminated on the Asian side one level of reporting relationship, which eliminated one layer of confusion. The PRC enterprises and Alpha are employee-oriented by nature, where the entire welfare of the worker, from the matchmaking of marriages to the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

allocation of baby quotas, is part of the responsibility of the paternal enterprise. It is understandable for the market-driven economy or participants to be interested in job orientation, where the primary concern is with work. In the same way, the parochial versus professional dimension is based on a similar philosophy with the added element of skill and education. Alpha’s mentality is definitely parochial in that many relatives and clans of the same village tend to be drawn to certain industries and enterprises. The needs and wants expressed during the workshops and in the high score of the training and development category reiterate the hope of the Asian partner to lead the workforce towards professionalism. Senior managers who lacked grounding in organization practices within the PRC created an environment lacking in sensitivity which caused tension. In the same manner, the normative perspective, entitlement concepts and soft budget mentality caused difficulties in meeting a mutually agreeable standard for working together. The lack of alignment in Alpha’s management process caused managers in leadership roles to carry on doing whatever seemed to fit their own needs and history. The different processes that were being used to manage the enterprise were shockingly varied. The performance management category raised the issues of the lack of skills and inconsistency in appraisal and job specification. Organization design The various organization components within Alpha did not fit on either a philosophical or an operational level. The discussion of trust and culture mainly focused on informal components. This section will focus on the formal components: human resources, the structure and the systems of the formal component. Training and development, reward system, performance management and aspects of quality management are included in the area of human resources. The multiple levels of both partners, the unclear roles and responsibilities, the organization systems and information flow all point to aspects of structure and system within the formal component. It is obvious from the study that each function had designed its own system according to the history and experiences of the manager in charge. Crisis of identity Fundamental to the above-mentioned clusters generated from the data at Alpha is the crisis of identity. This root cause of the various symptoms generated could be identified as the mismatch of strategic direction. The Asian partner had been operating in a mature market where high production demand had set technology as an organizational competency. However, although the PRC is a growth market, the basic resource available is human; superimposing market strategies from other markets may not have taken in the local environmental factors. The two partners at Alpha could not agree upon the reinvestment of profit. The PRC © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

partner wanted to see the capital placed in the building of accommodation for the employees, while the Asian partner preferred to place the investment in a high speed production line. This issue touches on all three clusters from the generated data: trust, culture and organizational design. The Asian partner has used the position of holding more shares of the entity to make the final investment decision, which has not appeased the PRC partner. The use of position power in terms of joint venture percentage split pushed forward decisions that would violate any previous trusting relationship. The cultural aspects could be seen through the basic orientation where one was more employee-focused and parochial and the other was oriented towards results and the job. In the case of organizational design, the utilization of a high-speed production line or the development of a system that would be able to maximize human resource would both take a very different approach. Therefore, the root cause of identity needs clarification at the strategic level, where there was still a struggle between the partners of Alpha. CONCLUSIONS AND RECOMMENDATIONS The evaluation concluded that the lack of trust at all levels of the organization, the crisis of identity, the struggle for the new identity and the lack of mechanisms, describes the present state. Therefore, it is necessary to establish trust, understand the issues making up the identity crisis, surface and negotiate the new identity, and create mechanisms that will lead to the formation of the new identity. The following will discuss each of the fundamental areas of groundwork necessary in the transformation process towards a market-driven customer orientation in detail. Establishing trust Trust issues within Alpha surfaced in many forms. Most often questioned by both the local and expatriate employees were the areas of commonality, credibility and intent. Conflict and politics festered around these issues: foreign nationals cannot understand the PRC way, they cannot operate here in the way they might work in another country, the local staff can never work to such high standards, and so forth. Importantly, there was very little intention of devoting time to understanding the differences and to closing the gaps. There was high tension on both sides of the ‘we/they’ mentality. This guideline recommends that at the onset of transformation, before moving into activities, it is necessary to manage the trust issue so as to avoid acute dysfunctional symptoms at a later date. The clarification of mutual contributions and benefits by understanding needs, wants and opportunities could begin the process. Although the process of building trust is not a one-time event, the establishment of a solid foundation is critical to the ongoing process. In establishing trust, it is important to be familiar with the national values and assumptions so that an understanding of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the interpretation of behaviour and intentions is present. If one is not native to the PRC, it would be best to engage a guide who could mediate the process. Due to the issue of ‘face’, there are often discussions that cannot be directly confronted but would be channelled through a trustworthy mediator. Understanding the issues of a current identity As demonstrated with the eight dimensions of organizational culture within a transforming enterprise, the need for establishing understanding of each of the dimensions at the beginning is critical. That is, if clarity of the present state is not understood, a forced fit perception struggles to exist, which leads to conflict and politics, taking away energy that would otherwise be focused on optimizing effectiveness. This was apparent and obvious within the daily activities of Alpha at all levels, internal and external, to the organization. Instructions, directives and decisions from supervising bodies did not take into consideration the differences in expectations and world views. This resulted in collusive and resisting type activities in many situations where resolution could only be obtained with intervention from higher authorities. It is necessary for both sides to be aware of the gaps in their expectations and to work continuously to evaluate and negotiate the most appropriate policies and procedures for each dimension which would best suit their organization, taking the demands from the macroenvironment into consideration. Understanding the issues of a new identity In order to agree upon a new identity, the conditions of the first two guidelines must be in place. There needs to be a degree of trust, and the analysis of issues within the identity crisis should be clarified. However, one of the aids to establishing this guideline would be the alignment of a shared future vision by defining core processes, purpose, objectives and goals. These activities will assist in assessing the future which would contribute to the present identity. In the case of Alpha, these activities took place only after the company was two years into the transformation process, during a management session on evaluative intervention. The interventions accomplished some of the negotiation of the new identity; however, it would take much more time to sort out the differences than if some clarification had taken place at the initial phase of establishing the fundamental groundwork. Creating mechanisms for a new identity Once the new identity has been established, organization components will have to follow. The vision of the future has been established on an organizational level, followed by mission and goals at business and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

functional levels. At Alpha these activities were carried out in management activities at every level, where the individual functions established that their unit goals tied into the organizational mission and goals. However, the replacement of the systems and structure that were already in place made it difficult to redesign all the components at the same time. If in fact these issues had been clarified and designed at the beginning, as the enterprise privatized, the fundamental groundwork would have been put into place; then, subsequent building on this foundation would have been more effective. Given the lessons learned from Alpha, some of the activities suggested could still be useful after the transformation of the enterprise. However, the degree of difficulty and effectiveness would be different if these guidelines were established prior to the start of an alliance/transformation. The basic principles of these guidelines are being applied by Beta. It has so far demonstrated that, the more these issues are clarified at the onset of the alliance, the smoother the operation.

REFERENCES Beckhard, R. and Harris, R.T. (1987) Organizational Transitions—Managing Complex Change, 2nd edn., Reading, MA: Addison-Wesley. Block, P. (1993) Stewardship, San Francisco: Berrett-Koehler. Bond, M.H. (1994) Chinese Values, Hong Kong: Oxford University Press. French, J.R.D., Jnr and Bentram, R. (1959) ‘The Bases of Social Power’, in D.Cartwright (ed.) Studies in Social Powers, Ann Arbor: University of Michigan Institute of Social Research. Fukuyama, F. (1995) Trust—The Social Virtues and the Creation of Prosperity, New York: The Free Press. Hill, C.W. and Jones, G.R. (1992) Strategic Management Theory, Boston: Houghton Mifflin. Hofstede, G. (1993) ‘Cultural Constraints in Management Theories’, Academy of Management Executive 7(1):81–94. ——(1991) Cultures and Organizations, Maidenhead: McGraw-Hill. ——(1990) Culture’s Consequences, Newbury Park, CA: Sage. Hofstede, G. and Bond, M. (1988) ‘The Confucius Connection: From Cultural Roots to Economic Growth’, Organizational Dynamics, 16(4):4–21. Hofstede, G, Bram, N., Ohauv, D.D. and Sanders, G (1990) ‘Measuring Organizational Cultures: A Qualitative and Quantitative Study across Twenty Cases’, Administrative Science Quarterly, 35:286–316. Lawrence, P.R. and Dyer, D. (1983) Reviewing American Industry, New York: The Free Press. Lee, K. (1991) Chinese Firms and the State in Transition, New York: M.E.Sharpe. Ohmae, K. (1992) The Borderless World, London: Fontana. Raskin, C. (1991) China’s Political Economy, Oxford: Oxford University Press. Robey, D. (1991) Designing Organizations, 3rd edn, Homewood, IL: Richard D. Irwin. Schein, E.H. (1985) Organizational Culture and Leadership, San Francisco: JosseyBass. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Swieringa, J. and Wierdsma, A. (1992) Becoming a Learning Organization, Reading, MA: Addison-Wesley. Wang, G. (1991) The Chineseness of China, Hong Kong: Oxford University Press. Woodward, H. (1987) ‘After Shock—Helping People Through Corporation Changes’, in K.Hess (ed.) Wilson Learning Corporation, Chichester: John Wiley.


6

Future Sino-Western strategic partnership Chiang-nan Chao, Robert J.Mockler and Dorothy G.Dologite

INTRODUCTION Establishing strategic partnership between Western multinational and Chinese corporations is believed to be an effective way to penetrate this difficult-toaccess market. This chapter investigates business conditions for establishing strategic partnership and future managerial concerns about the Chinese market from the perspectives of both Western and Chinese executives via an empirical study. The results suggest that Western executives disagree with their Chinese counterparts significantly on rating the variables selected. Both Western and Chinese executives view political stability in China as the most important concern for their future business, with Deng Xiaoping’s era finally closed. It is unclear whether or not a new era will begin. The current leaders’ visions for a new era remain unclear. If this new era begins, what impacts will it bring about on Western multinational corporations? Whatever happens, Western corporations need dynamic partnership strategies in China in order to benefit from this emerging market, while the Chinese need to continue to improve their investment climate with focuses on infrastructure in order to compete for limited global investment capital on the global market.

DIFFERENT STRATEGIC APPROACHES TO FORMULATING STRATEGIC PARTNERSHIP IN CHINA Western corporations have exercised many different strategies in China. Establishing small representative offices was an effective approach to test water when the planned economy still dominated China’s economy, and murky switches of government policies made foreign investors difficult to follow in the late 1970s and early 1980s. Compensatory contracts, a loose form of partnership in which Western firms brought in equipment, materials and/or management know-how in exchange for a predetermined quantity of finished products, were useful in the early to mid 1980s for labour intensive manufacturing in China © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

where many companies could not afford the purchase of capital equipment and management know-how. In the mid-1980s, relatively small-scale joint venture partnerships of a few million US dollars investment proved to be effective. For example, Chrysler Corp. (then American Motors Corp.) invested US$8 million in a partnership with Beijing Jeep Corp. which assembled utility vehicles from imported kits (Aiello, 1991). In the early 1990s, large-scale ventures of a few hundred million US dollar investments became widespread. For example, Motorola Inc. recently began its additional US$720 billion construction on the 8inch wafer fabrication facility located in Tianjin (Galvin, 1996). ELF Aquitaine, a French oil giant, is planning a US$2.5 billion joint venture refinery in Shanghai (Lyn, 1995). Atlantic and Richmond Corp. has successfully teamed up with China National Offshore Oil Corp. in an offshore oil development project (Bowlin, 1996). Wholly foreign-owned ventures have also been formed. To date, 78 per cent of Western companies have chosen the joint venture approach, 12 per cent the wholly foreign-owned approach, and about 10 per cent the compensatory contract approach (The China State Statistical Bureau, 1994). Although China is moving quickly toward a market economy, its present market environment is still weak and ineffective in many ways. The market environment is openly manipulated by the different levels of Chinese policy makers who have authority to approve or disapprove large key business deals. As a result, potential opportunities and substantial risks coexist in China (Clifford, 1995). What are the present business conditions for establishing strategic partnership in China? What are the future managerial concerns about this partnering? These two questions are often asked. This chapter examines these two issues from the perspectives of both Western executives and their Chinese counterparts, so as to provide Western multinational corporations with more meaningful insights for their global strategic partnership, and to offer the Chinese some proposals to improve the investment climate.

INVESTIGATION Due to the data collecting restraints in China, the studies on Western joint venture partnering in China have been largely from the perspective of the Western partners; the views of these research results have been substantially biased (Nee, 1992; Shenkar, 1994). To avoid this bias, this chapter collected opinions from the executives of both Western multinational corporations and their Chinese partners. The focal variables selected for this chapter reflected the key business conditions and future managerial concerns about building a strategic partnership with Chinese corporations. These variables were grouped to answer the research questions: 1

Volatility of business conditions for establishing strategic partnership in China: the executives participating in the study were asked to assess the key


2

business conditions, using the five point Likert scale with 5 for most desirable condition and 1 for least desirable condition. Future managerial concerns about establishing strategic partnership in China: the executives participating in the study were asked to assess the future managerial concerns about establishing strategic partnership in China, using the five point Likert scale with 5 for most concerned and 1 for least concerned (Davis and Cosenza, 1985).

The variables were structured in a questionnaire, which was then translated into Chinese using the back translation method to reduce errors. The English and Chinese versions of the questionnaire were initially distributed to a small number of executives of Western multinational corporations and their Chinese counterparts to improve the usefulness and validity of the study. Face-to-face interviews were also done to help refine the preliminary survey questions (Davis and Cosenza, 1985). Since 1992, the authors have been invited to run business seminars on strategic management on numerous occasions for Western multinational corporations and their Chinese counterparts in China and in the West. The participants of these executives were from large Chinese corporations, joint ventures, wholly foreign owned ventures, Chinese central and provincial governments and ministries, and Western multinational corporations. These executives served as the target sample for this study. Recently, the English version questionnaires were distributed to the companies’ executives whose headquarters were in Western countries; the Chinese version questionnaires were distributed to the executives in Chinese organizations. Personal interviews accompanied the data collection efforts in order to enhance the usability of the survey. Ninety-three executives participated in the survey, of whom eighteen were Western executives, and seventy-five were Chinese executives. The respondents’ background has reasonable representation for the purpose of this study.

Current business conditions Significant differences were found between the Western executives and their Chinese counterparts in present business conditions in China. The highest rating went to political stability in China. All the other variables received a combined rating of less than 4, which indicates less than desirable. For example, favourable investment environment received a combined average rating of 3.32 which was somewhat above neutral, as Western executives gave an average rating of less than 3 which means less desirable, while the Chinese executives rated 3.46 which was significantly higher than their Western counterparts. In addition, the Western executives rated Chinese laws are favourable, government restrictions and licences, and government red tape and bureaucracy significantly less desirable than their Chinese counterparts.


Table 6.1 Present business conditions for strategic partnering in China

Scales: 5=most desirable condition, 1=least desirable condition; * indicates the significant levels of 5%; the variables are rank ordered based on the combined mean ratings by the two group respondents.

As far as present business conditions are concerned, Chinese executives significantly differ from their Western counterparts. The low ratings suggest that the present business conditions are somewhat less desirable for investment. As one Western executive put it, his company believed that Indonesia had a better investment climate. On the other hand, the findings suggest that the Chinese policy makers and executives need to continuously improve the investment climate in China (Crawford, 1996). Table 6.1 presents the mean ratings of the business condition variables.

Future management concerns Significant differences were found between the Western executives and their Chinese counterparts in their future business concerns in China. Political stability in China, Chinese government incentives for joint ventures, return on investment, inflation and Chinese government red tape topped the list of future business concerns. These top-rated variables suggest that Western corporations need to be cautious in their future investment in China, since some of the concerns could become reality. The Chinese government recently adopted a new tax policy, which will greatly impact on imported equipment and materials of Western joint ventures in China (Barnathan et al., 1996). It is worthwhile noticing that the Chinese executives were significantly more concerned than their Western counterparts over Chinese government incentives for joint ventures, as several Chinese executives worried about the proposed end of tax exemption on imports of capital equipment by foreigninvested firms (Meng, 1995). Several Chinese executives indicated that the end of tax exemption of imported capital equipment would hurt both their foreign partners and themselves. However, they wished to work with their © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 6.2 Future managerial concerns

Scales: 5=most concerned, 1=least concerned; * indicates the significant levels of 5%; the variables are rank ordered based on the combined mean ratings by the two group respondents.

Western partners on some alternatives in order to offset the lost incentives from the government. Western executives were more concerned than their Chinese counterparts over poor communication systems, energy shortage and Chinese government controls. A Western executive indicated that these were still major hurdles in their strategic partnering in China. A recent report confirmed these (Tan, 1996). The findings imply that the Chinese executives might be less sensitive than their Western counterparts over the variables, such as communication system and government controls, since these have been improved significantly in recent years. Several concerns received less than 3.5 ratings, indicating that they were not as important as those which received above four ratings. Table 6.2 presents the mean ratings of these selected future managerial concerns for strategic partnering in China.

CONCLUSIONS AND RECOMMENDATIONS It is believed that present business conditions and future managerial concerns are the most important decision-making variables for strategic partnering in China these days. This study suggests that the Western and Chinese executives appear in disagreement over present business conditions and future managerial concerns for strategic partnering in China. The differences over present business conditions and future managerial concerns should not be interpreted as reasons to avoid this market. To understand these differences would enable Western corporations to better formulate their strategies in order to benefit from © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

this emerging market, and enable the Chinese to improve their investment climate to compete with other emerging markets for the limited Western investment. Based on this survey, Western multinational corporations need to evaluate carefully the issues derived from this study to formulate their strategic partnering with Chinese corporations. The following suggestions, gleaned from the study results, interviews and other research the authors have done, may be useful for Western multinational corporations and may be incorporated with future phases of the study. Partnering with a Chinese corporation is a necessary initial step for Western multinational corporations to penetrate the Chinese market, given China’s market size, potential and less than free market environment. Such strategic partnerships can, to a certain extent, protect Western multinational corporations’ interests in China (Chen, 1995). The authors discussed this with a few Western executives who had teamed up with the Chinese Public Security’s (Chinese FBI) subsidiaries, and both parties’ interests were well protected. One thing must be borne in mind before any investment commitment. When a Western company is planning to establish a partnership with a Chinese corporation, once such a plan becomes a reality, and the Western partner’s investment is in place, it is extremely difficult for the Western partner to withdraw the investment from the venture, even if the partnership becomes sour. Liquidation alternatives do not really exist, and the capital market is still primitive in China. Western partners cannot easily sell their holdings to other buyers. So partner selection is the first and foremost critical issue in doing business in China. Finding a reliable and reputable partner can help ease potential problems. A better understanding of the differences between Western executives and their Chinese counterparts would enable both partners to look for common ground and reduce potential operational disputes. It is always expedient to let your Chinese partner deal with Chinese bureaucracy, since the Chinese know better than their Western counterparts how to do this. For example, to list a company’s stocks overseas in an initial public offering requires multi-layers of approval from the Chinese government. Western multinational corporations will save time and effort if they let their Chinese partners obtain these approvals. This is also a way to test the capabilities and connections of a Chinese partner. One Western multinational executive demanded that his Chinese partner should obtain all the permits for an initial public offering. This accelerated the partnering process. Western multinational corporations can also merge with and/or acquire failing Chinese state enterprises. For establishing venture partnerships, both sides incline to inflate the investment values for a variety of purposes. Chinese partners intend to inflate land and plant to acquire ‘an equitable’ share in the venture, while Western corporations puff up the value of equipment and technology invested for tax purposes. The disadvantage is that it will take many more years before such a partnership can break even. In some partnership proposals, desperate executives of the failing Chinese stateowned enterprises © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

sometimes tend to quickly reduce the burden of both assets and employees by lowering the value of the assets and laying off employees, while central government planners try to protect assets by increasing values. Since government planners still have the authority over approval or disapproval of a partnership, Western multinational corporations have to be aware of these conflicting pressures, especially the low-priced deals which may result in massive burdens on the partnership, such as excess employees (Bangsberg, 1995). In the years ahead, China will continue to open up. However, growing ambivalence has resulted from often averse conditions, such as broken promises, shattered contracts, and economic and political uncertainty, in addition to the government officials who spread corruption. No one can afford to be out of China, but no one should put all their eggs in the China basket. Whatever happens, Western multinational corporations need to uphold their post there, as one Western executive indicated in our survey. In the times of setbacks, such as 1989’s repression, it is wise not to completely abandon China. It cost AT&T dearly in the mid-1980s when it myopically withdrew from China; and the company had to be very aggressive to catch up in the mid-1990s. Arco’s strategy of sticking around with its partnership will result in about 20 per cent annual return on its US$1.125 billion investment in the South China Sea in the near future (Smith and Brauchli, 1995). There are many other issues which Western multinational corporations are concerned with in doing business with China that were not covered in this study. Continuing changes in business environment, economic reforms and the directions of government policy makers will force Western multinational corporations to adapt their strategies in the Chinese market in the future.

REFERENCES Aiello, P. (1991) ‘Building a joint venture in China: the case of Chrysler and the Beijing Jeep Corporation’, Journal of General Management 17(2):47–63. Bangsberg, P.T. (1995) The Journal of Commerce Knight-Ridder/Tribune Business News, 27 March. Barnathan, I, Roberts, D., Borrus, A. and Kerwin, K. (1996) ‘China: a chill wind blows from Beijing’, Business Week, 4 January. Bowlin, M.R. (1996) ‘Chairman and chief executive officer’, PRNewswire, 9 January, Los Angeles. Chen, K. (1995) ‘Market-access accords aren’t likely to boost US exports to China quickly’ , The Wall Street Journal, 14 March: A10. The China State Statistical Bureau (1994–7) Combined from various sources: The China Press (1996), 14 June: 27; ‘World economy in brief’, Investor’s Business Daily, 8 January, 1996; Hillis, Scott, Reuter, Beijing, 10 January 1997; The People’s Daily (1997) 7 April: 2. Clifford, M.L. (1995) ‘Strategies new world’s road to China’, Business Week, 9 November. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Crawford, G. (1996) Reuter, Hong Kong, 9 January. Davis, D. and Cosenza, R.M. (1985) Business Research for Decision Making, Boston: Kent. Galvin, C. (1996) ‘President and chief operating officer of Motorola Inc.’, Business Wire, 9 January. Lyn, T.E. (1995) ‘High level talks on the fate of French oil giant Elf Aquitaine’s’, Reuter, 28 September, Hong Kong. Macartney, J. (1995) ‘China offers foreign investors some of the world’s fastest profits’, Reuter, 21 September. Meng, X.-g. (1995) ‘Head of the Foreign Economic and Trade Department of the State Economic and Trade Commission’, The China Daily Business Weekly, requoted from Reuter, 17 December. Nee, V. (1992) ‘Organizational dynamics of market transition: hybrid firms, property rights, and mixed economy in China’, Administrative Science Quarterly, 31:1–27. Nomani, A.Q. and Greenberger, R.S. (1993) ‘China economy is world’s No. 3, IMF calculates’, The Wall Street Journal, 21 May: B2. O’Neill, M. (1996) Reuter, 5 January. Shenkar, O. (1994) ‘The People’s Republic of China raising the bamboo screen through international management research’, International Studies of Management and Organizations, 24:1–2, 9–34. Smith, C.S. and Brauchli, M.W. (1995) ‘The Long March to invest successfully in China, foreigners find patience crucial’, The Wall Street Journal, 23 February: Al. Tan, A. (1996) Reuter, Beijing, 9 January.


Part II

Human resource management


7

Human resource management practices in international joint ventures versus state-owned enterprises in China Malcolm Warner

INTRODUCTION In the 1970s, ‘China was a poor country’ (Nolan, 1995:171); by the mid– 1990s, it was on its way to becoming an economic ‘super-power’. Economic growth has been distinctly impressive with an average rate of over 9 per cent per annum over the last decade, so real output almost quadrupled (Lardy, 1994:3), at present the fastest growth rate of any country in the world. If state-owned enterprises (henceforth referred to as SOEs) grew at 7.1 per cent per annum over this period, non-state ones surpassed this at an average of 38.5 per cent from 1990 to 1994. Foreign investment flowed into the PRC on a massive scale and by the end of 1994 there were nearly 240,000 foreign-funded and/or joint venture agreements worth $270 billion, of which $80 billion was utilized (between 1989–94), on paper at least. In this chapter, I shall argue: 1

2

3

that the transfer of management know-how to Chinese enterprises from abroad has been primarily via such foreign-funded firms, especially joint ventures (henceforth referred to as JVs), and that this proposition will be as true of the management of human resources as it is of other specialisms; that Chinese enterprises each have a management style which relates to their ownership (whether they are joint ventures or state-owned) and possibly where appropriate also the nationality of the overseas partner(s) and that this will be as true of human resource management (henceforth referred to as HRM) as of other practices; and that Chinese SOEs will eventually be influenced by the management practices of JVs and that this will be equally true of HRM as of other policies.

The main evidence presented vis-à-vis the above conjectures is derived from an empirical investigation of six Chinese enterprises (three JVs and three SOEs) all located in the Beijing area (see Table 7.1) which are compared and contrasted in terms of their labour relations and HRM policies and practices. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.1 Characteristics of the selected case studies

* plus 1,800 employees in Shanghai.


The empirical investigation (involving factory visits, interviews with senior executives, line-managers, personnel specialists and trade union representatives, amongst others) was carried out in the winter of 1995 and therefore includes the latest phase of the enterprise reforms and the newly implemented labour law (see Child, 1994; Warner, 1995). The six firms cover the following sectors: electronic components, elevators, motor vehicles, pharmaceuticals, transformers and television sets. They range from medium-to large-size in number of workers employed. Finally, conclusions are presented related to the ongoing evolution of management and HRM in the Chinese enterprise. As Nolan (1995) points out: From 1949 until the late 1970s no foreign investment was permitted in China. Under Mao, it was inconceivable that the giants of world capitalism should be allowed to invest in the country. The passage of the 1979 Law on Chinese-Foreign Joint Ventures marked a major step from Maoist-Stalinist isolationism. This was the first of numerous laws intended to encourage foreign investment. (1995:184) The effects were dramatic: foreign investment flowed into the PRC on a massive scale over the next decade. All the joint venture firms in the investigation had been founded in the 1980s. In terms of age, Schindler Elevators (with a Swiss partner) was the oldest (1980); next Beijing Jeep (with a US collaborator) (1984); last, Beijing Guoxing Electronics (with Hong Kong and Japanese co-owners) (1988). Of the SOEs, Beijing Pharmaceuticals and Beijing Peony TV were relatively old (both 1973), but Beijing Transformers was older and had been set up in 1950 (see Table 7.1). The SOEs had latterly collaborated with the China-European Community Management Institute (CEMI) from 1985 until 1990, with close relations through project-work conducted by its MBA students (see Child, 1994:3). The three JVs’ overseas partners were respectively: the US company, American Motors, then later the Chrysler Corporation for Beijing Jeep (see Aiello, 1991:47); the Swiss Group Schindler SA for Schindler Elevators; and the Japanese, Beijing Honda Electric Appliance Company as well as the Hong Kong-based Xiaoteji Corporation and local China International Trust and Investment Corporation (CITIC) for Guoxing Electronics. In terms of turnover (see Table 7.1), the enterprises varied greatly from 30 billion RMB for Beijing Jeep in 1994 to 76 million RMB for Guoxing Electronics for the same year for the joint ventures; the variance ranged from 1.5 billion RMB for Peony TV to 50 million for Pharmaceuticals for 1994 for the SOEs. The firm above which was largest by turnover was also the biggest in terms of the number of workers employed, as we shall soon see. The ratio of net profits to turnover was higher in the SOE sub-set than in the JV one, although it has been reported that most JVs are making money, with 60 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

per cent reporting a return on investment (ROI) of 10 per cent or higher, and a third over 18 per cent (see Chen, 1996:236). One must not read too much into these figures, however, given the different accounting practices in Western and Chinese usage. Since the capital-stock in the SOE sub-set was generally older, it was clear that much of it had been already written off. Often the size of organizations is defined in terms of the number of their employees. In these terms, the largest firm of all (as well as of the JVs) was Beijing Jeep (over 7,000) and the biggest SOE was Peony TV (5,400).

MANAGEMENT-LABOUR RELATIONS Labour contracts China’s ‘iron rice-bowl’ (tie fan wan) employment policy was based on the Soviet model in the early 1950s (see Takahara, 1992). It was also influenced by earlier Japanese employment practices in Manchuria pre-war and under the Occupation. The system was originally intended to protect skilled workers, but eventually spread to cover the majority of urban industrial workers. Young Chinese workers were allocated jobs by local labour bureaux. They were then assigned to work-units (or danwei) which registered their citizenship status (or hukou): many were given ‘permanent’ jobs, but not all (see Walder, 1986). Since the mid-1980s, Chinese state-owned enterprises have slowly started to abandon the ‘iron rice-bowl’ of ‘jobs-for-life’ and ‘cradle-to-the-grave’ welfare coverage for their employees, often at the expense of older and/or female employees particularly. As of 1986, Chinese enterprises had begun to introduce fixed-term labour contracts for new employees. By 1992, this procedure was extended for all eligible employees in pilot enterprises largely in North-East China and in 1995 to a wide range of SOEs (see Warner, 1995). The 1994 Labour Law restated the commitment of the state authorities to generalize the contract system throughout the economy (Josephs, 1995:567). The Law not only authorizes fixed-term contracts but also those of unlimited duration (Josephs, 1995:570). All three of the JVs in the sample had 100 per cent of their employees on individual labour contracts. One, Beijing Jeep, also had a collective contract; Schindler Elevators expected to have one signed soon. Only one of the SOEs, Peony TV, had both individual and collective contracts. Indeed it claimed to be the first enterprise in Beijing to bring in the ‘three systems’ reforms; Pharmaceuticals only had individual contracts; and Transformers had neither. Collective contracts were found in one JV (Beijing Jeep) and one SOE (Peony TV) only: such contracts were ‘new style’ collective examples and were to be found as yet in only a limited number of firms. They differed from the ‘old style’ ones in excluding joint decision-making procedures. Such contracts dealt with wages and conditions, job allocation, work-time training, benefits, holidays and so on (interviews with Ministry of Labour and All China © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Federation of Trade Unions Head Office personnel, November 1995). Neither ‘old-style’ nor ‘new-style’ collective contracts involved collective bargaining on Western lines.

Reward systems The wage grade system—usually eight levels for factory workers—had also been taken over from the Soviet model (see Takahara, 1992). As has been said of other communist economies, ‘they [the cadres] pretended to pay us, and we [the workers] pretended to work’ (anon.). Under the economic reforms, there was a move towards performance-related rewards systems. Previously, Chinese enterprises had an egalitarian wage-payment system with a flat reward structure. Since the mid-1980s, material rewards had become even more predominant. With the 1992 enterprise reforms, a new performance-based payments system was also initially implemented in selected SOEs and by 1995 was extended to most large and medium-sized ones as labour contracts had been, as we have seen above (see Warner, 1996a). More and more workers in SOEs now have their wages linked to performance over the Ninth Five-Year Plan (1996–2000), as is already the case in most JVs. Both JVs and SOEs studied here had clearly moved to the new performancebased rewards system after the 1986 and 1992 reforms. Of the JVs, Beijing Jeep had a ‘post plus skills’ system, with age, position and skills determining the basic wage plus a quarterly bonus related to sales. Guoxing Electronics had a rewards system related to age, position and skills plus a monthly efficiencybased individual bonus and an end-of-the-year collective bonus related to profits. Schindler Elevators had a similar system. Of the SOEs, Peony TV also used the above formula, plus a monthly group bonus. Transformers had the basic wage as above, plus a monthly individual bonus and a collective bonus related to total profit, which went up by one percentage point for each similar growth in profits. Pharmaceuticals had a basic wage, plus individual and group bonuses. There was no common pattern of wage-grades (the eight-grade system had definitely gone) with variations from ten to fourteen worker-grades currently. Wages varied greatly both between JVs and between SOEs in 1994. Beijing Jeep paid the most at over 1,000 RMB per month (1,500 by 1995); followed by Schindler Elevators at over 700 RMB (1,000 in 1995) and Guoxing Electronics at 550 (680 in 1995) RMB. The highest SOE, Peony TV, overlapped with the latter two at over 700 RMB (750 in 1995), with Transformers at over 550 RMB (600 in 1995) and Pharmaceuticals at over 450 RMB (500 in 1995). All the firms claimed they had an equal pay policy but this could not be empirically verified.


Social insurance Comprehensive social welfare coverage had for many years been the privilege of SOE employees in the urban sector (Minami, 1994:217). However, around one in six workers in SOEs is surplus while retired employees account for over a third of their total workforce, a heavy burden (see also Ng and Warner, 1998:181, fn. 6). Total work-related insurance and other welfare costs amount to as much as over 500 RMB per worker per year, even excluding low-cost housing. Until recently, SOEs provided social welfare provision for their employees, but a transfer of such expenditure to the individual worker is now under way (see Beijing Review, 29 April 1996:5). Under the new scheme, institutional and industrial workers pay 1 per cent of their monthly salary for medical insurance, and 3 per cent for their unemployment insurance, whereas work units add another 20 per cent for retirement provision and 10 per cent for medical care. Social insurance, after the 1992 ‘three systems’ reforms (san gaige) (see Warner, 1995) followed a common pattern in the six firms investigated in that both JVs and SOEs departed from previous ‘iron rice bowl’ practices, albeit with some variance. In Beijing Jeep for example, medical benefits were related to age and seniority, with the company paying the bulk of the costs and the worker 5 per cent, 10 per cent or 15 per cent depending on their years of service. If injured or killed, the firm paid 100 per cent of costs involved. Retirement for men was at 60 years, and for women 50 years. The company paid an average 1,000 RMB per year contributions for a pension of 50 per cent of average earnings, which was around 70 per cent of the position-wage. In Guoxing Electronics, the company paid 400 RMB per year for medical expenses, but if the costs exceeded this they paid 80 per cent, and in severe injury cases paid the whole sum. The company paid 22.5 per cent of the worker’s wages to the government pension scheme, with the individual contributing 3.3 per cent. Schindler Elevators paid all medical costs incurred, with no individual worker contribution. They were preparing a contributory pension plan, but the details had not yet been finalized. In the SOE sub-set, the social insurance arrangements were as follows. Peony TV contributed 19 per cent of the wage level to the medical scheme and expected the worker to pay 5 per cent. The retirement contribution by Peony TV was 6 per cent above the level of the government scheme, resulting in a pension of 36 per cent of salary, which was around 400 RMB per month. In Transformers, they paid 30 per cent of the total wage level for medical insurance with workers contributing 12 per cent. In Pharmaceuticals, 80–90 per cent of medical expenses were paid by the company, with the worker providing the rest. Pensions depended on wage levels, ranging from 70 per cent to 90 per cent of basic wages.


Role of the trade unions Trade unions in China tended in the past to stress production values, but also had to look after the everyday welfare of their members. They did not bargain freely, or fix wage levels as in Western countries, but were concerned with ‘mobilisation and socialisation’ (Lee, 1986:160). Unions in China were asked to discipline and to ensure the production commitment of the labour force (Lee, 1986:160). In the everyday work of the enterprise, there have been growing levels of conflict between workers and management since the economic reforms (see Chan, 1993:43). If there is a stoppage by workers, for example, the union are usually asked to intervene (see Warner, 1995:34–45). The role of the official trade union (that is, those affiliated to the All China Federation of Trade Unions—ACFTU) remained prima facie strong in both JVs and SOEs (see Ng and Warner, 1998). In terms of union membership, Beijing Jeep claimed 95 per cent (with ‘active membership’), as did Guoxing Electronics (‘a mainly social function for the union’), with Schindler Elevators claiming 100 per cent (‘a comprehensive union role’). These levels were much higher than in most foreign-funded firms (see Ng, 1994:17). Peony TV (‘comprehensive union activities’) claimed 80–85 per cent union membership, but Transformers (‘an integral role’) at 95 per cent and Pharmaceuticals at 100 per cent (‘a mainly welfare role’) were even more nominally unionized territory. In the three JVs investigated, management-union relations were generally seen as positive. In Beijing Jeep as well as Schindler Elevators, they were described as ‘collaborative’; and in Guoxing Electronics they were seen as basically ‘good’. In the SOEs, Peony TV also saw them as ‘collaborative’; in Transformers the term ‘cooperative’ was used, whereas in Pharmaceuticals they were seen as ‘normal’ for the SOE sector. The reaction of the mostly male management and the exclusively male trade union chairpersons interviewed to the new July 1994 Labour Law, implemented January 1995 (see Table 7.2) (see Josephs 1995; Zhu, 1995; Warner, 1996b), varied from apparent enthusiasm to passive anticipated compliance. In Beijing Jeep, the company would carry out the new policies stipulated, such as the new forty-hour week, based on the eight-hour day. The trade union chairman said he would negotiate overtime if the plant union committee approved this, A similar response followed at Guoxing Electronics especially vis-à-vis the five-day week. Schindler Elevators indicated compliance with the new law because (as the trade union chairman put it) it was intended ‘for the benefit of the workers’. The Peony TV union spokesperson saw the law as ‘making the trade unions more important in the plant’. The response in Transformers was that the new law ‘was necessary in a socialist market economy to help the workers’, but it ‘would take a long time to fully implement’. In Pharmaceuticals, the reaction was ‘good for workers, not so good for managers’. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.2 Principles of the 1994 Labour Law

Source: 1994 Labour Law: 1.

Workers’ Congress Plant-level IR in China was for many years undertaken by the trade unions and Workers’ Congresses, the latter revived with the economic reforms to balance the new powers of factory managers (Lee, 1986:166). The former provided the day-to-day continuity, with the latter meeting periodically to ‘rubber-stamp’ © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

policy. Those elected to the Workers’ Congress were usually drawn from the ‘party faithful’ (Warner, 1995:30). All the firms studied have had ongoing Workers’ Congresses, whether JVs or SOEs. In the former subject, Beijing Jeep and Guoxing Electronics each met once a year, with Schindler Elevators meeting twice a year. In the SOE sub-set, Peony TV met once a year as did Transformers. However, Pharmaceuticals convened twice a year. Ad hoc sessions could be called, if necessary, in all cases. In the case of JVs, their role was merely said to be mostly ‘consultative’ (see Ng, 1994:22, on the general picture). They normally did not take a direct part in managerial decision making in the SOEs either, but met as a formality to discuss policy matters such as the previous year’s company performance and the plan for the next one. The role of management Under the Dengist reforms, managers were given relatively greater powers of decision making. They are now responsible to the authorities for the achievement of profit and investment targets and for contributing tax revenues (Child, 1994:24). Since the 1984 and more importantly the 1992 enterprise reforms, the predominantly male managements now have a great deal more autonomy than in previous years, with the role of the party and union officials somewhat down graded. In the JV sub-set, there was a distinct impression of greater managerial lee-way compared with the SOE sub-set. In the former, managers are now relatively less constrained by higher authority above and by worker power below. In Beijing Jeep, management was described as ‘clearly defined’; in Guoxing Electronics as ‘decidedly autonomous’; in Schindler Elevators as ‘firm and decisive’. In the SOEs, there had also been many changes. In Peony TV, it was said to have ‘a distinctive management philosophy’; in Transformers, ‘to manage the factory and introduce the reforms’; and in Pharmaceuticals, the power of the director was held ‘to have increased recently’. In the SOEs generally, the Director-Responsibility System was said to have changed the ‘rules of the game’ over recent years. The role of the personnel director Since the mid-1980s, enterprises have had greater freedom to hire and fire (Child, 1994; Warner, 1995). Now, even if fully fledged HRM on Western (or East Asian) lines seems a little far away, many personnel policies have dramatically changed. Workers have fixed-term contracts; apprenticeships have been reformed; training has been expanded for both workers and managers in most JVs and SOEs. Even so, many employees have been resistant to change and the seasoned observer will remain sceptical about reforming entrenched personnel practices in the short to medium term. The role of the personnel director in all six enterprises studied included dealing more directly with human © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

resources and rewards but in varying mixes. In the JV sub-set, Beijing Jeep’s personnel director dealt with ‘hiring, firing and wages’; in Guoxing Electronics with ‘hiring, firing and contracts’; and in Schindler Elevators with ‘recruitment, salaries, rewards and sanctions’. In the SOE sub-set, Peony TV’s personnel director dealt with ‘labour resources and training’; Transformers’ personnel director ‘collaborated with the unions on rewards and training’; and in Pharmaceuticals that person concentrated on ‘wages and labour resources’. Recruitment and training Before the enterprise reforms, workers were assigned to enterprises by government bureaux. Recently, there have been changes (see Warner, 1996a) vis-à-vis past practice (see Warner, 1986), with a degree of variance between the JV and SOE subsets. Most of them recruited from education and technical institutions and some from their own training schools. Beijing Jeep, however, sought workers from ‘recruitment agencies’ (namely, from the labour market) and their own training schools; Guoxing Electronics from ‘outside technical schools and colleges’; Schindler Elevators from ‘universities and training schools’ as well as ‘poaching’ from other firms (using the labour market); Peony TV from ‘universities, high schools and technical colleges’; Transformers from ‘universities and technical schools’; and Pharmaceuticals from ‘universities and technical schools’. Turnover In the past, very few Chinese workers ever changed their place of work and job mobility was almost zero (Warner, 1995:48). Turnover was reported as still low in the six firms studied: it varied from 1 to 5 per cent (the latter representing a recent change), but the two cases at the upper-level were dispersed across the two sub-sets. It was less than 1 per cent in Beijing Jeep; 5 per cent in Guoxing Electronics; 1 to 2 per cent in Schindler Elevators; 2 per cent in Peony TV; 5 per cent in Transformers; and 1 per cent in Pharmaceuticals. Both cases of 5 per cent were, as we have seen, in two lower-wage firms, but turnover was not high in the third lower-wage one (case No. 6). Dismissals According to the late David Granick (1987:103) writing in a World Bank study of Chinese SOEs, the labour market was previously weaker in China than in the former Soviet Union in the mid-1980s. He made the perceptive observation that, ‘So long as social considerations in China keep the dismissal rate exceedingly low by international standards…an active labour market in the state sector will not be possible’ (1987:14). Dismissals are now easier in principle, but not so in practice (Warner, 1995:54). Dismissals were very low in all six firms: never higher than 1 per © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cent. They were in specific numbers (rather than percentages) as follows: for Beijing Jeep, six; for Guoxing Electronics, two; for Schindler Elevators, ten; for Peony TV, fifty; for Transformers, low (no specific figure given); and for Pharmaceuticals, one or two. It is therefore clear that the organizations’ cultures even in the JVs had not changed that dramatically. In some companies, workers formally resigned rather than be dismissed; others were sacked after ‘disappearing’ off the job.

Disputes Disputes in Chinese enterprises were allegedly rare in the past but apparently growing in recent times (Warner, 1995:163). As the ‘iron rice-bowl’ system is now being undermined as part and parcel of official policies to reform Chinese industry, industrial conflict has been growing, although there is no constitutional ‘right to strike’ (it was in the 1975 constitution but removed by amendment in 1982; see Warner, 1996b). The 1994 Labour Law does not change the status quo here (see Josephs, 1995:571). We have seen that the introduction of redundancies, differential material rewards and the greater social insurance burdens for individual workers have been a feature of the reforms of the early 1990s. Such reforms are being extended to the whole stateowned sector, if perhaps with growing resistance by those workers who stand to lose from them. As other workers are perceived as receiving higher wages, feelings of relative deprivation may further lead to worker discontent in this sector. The incidence of industrial conflict in the Chinese enterprise is therefore still a sensitive issue. Indeed, over 250,000 such disputes have been officially recorded since 1988, probably an underestimate if anything (see Ng and Warner, 1998:110–16). Managers and trade union chairpersons interviewed in the six enterprises studied tended to gloss over the existence and frequency of conflict. In Beijing Jeep, the number of disputes was said to be ‘small’ (a worker damaged a car and had to be fired); in Guoxing Electronics, ‘zero’; in Schindler Elevators ‘very few’ (negotiated with the union in a ‘friendly’ way); in Peony TV, ‘one’ (about salary levels); in Transformers ‘none’ (nobody moves, a ‘no contract’ contract); in Pharmaceuticals ‘some, but not intense, usually solved by joint discussion via the trade union’. Clearly, organizational transparency concerning industrial conflict was not yet a norm.

CONCLUSIONS AND RECOMMENDATIONS The initial arguments set out earlier in the chapter will now be reviewed. The first of these concerns the transfer of management know-how to China via foreign-funded firms, especially JVs. A great deal of evidence has already been written about this regarding such enterprises (see Child, 1994, for example). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The transfer of HRM has only been partial (see Warner, 1995) and indeed has been absorbed into the Chinese managerial culture but ‘with Chinese characteristics’ (Warner, 1995:145–62). There may clearly be cultural influences behind this (see Zhao, 1994). In nearly all the Chinese JVs that Child studied, ‘foreign managers observed a large difference between human resource management in their own home company and those they were obliged to accept in China’ (1994:259). The Chinese notion of personnel management was seen as geared to control and conformity with a stress on the value of work, whereas Western practice hinged on the contribution of organizational effectiveness. Indeed: Foreign personnel management tends to rely on standard practices for selection, appraisal, time-keeping, assessment of attitudes and discipline …[and] there had been various attempts to introduce Western personnel tools with varying, but never very significant, degrees of success. (Child, 1994:259) Numerous problems beset the foreign managers in Sino-foreign JVs. Employee appraisal was confounded by job demarcation; tightening up on time-keeping was spoilt by lax practices in the organizational culture; promotions were not easily accepted due to the egalitarian norms found locally and so on. Dismissing workers was still resisted in most JVs’ experiences according to such studies. It was thus easier to transfer ‘hard’ technology than its ‘soft’ counterpart: this clearly delayed improvements in productivity and overall enterprise performance. Currently, not only have JVs advanced in their use of Western-style or East Asian management practices, but also the SOEs have experienced further economic reforms (cf. Verma and Yan, 1995). It is clear from the case studies analysed in the present sample that a considerable degree of change has taken place in the last couple of years, but it is also still true that there has been less management knowledge transfer in HRM than in other specialisms like production and operations, for instance. In many ‘hard systems’ areas, substantial knowledge transfer had taken place in JVs. In Beijing Jeep the transfer-line was brand new. In Schindler Elevators the machining-centres were ‘state of the art’. However, the SOE Peony TV also had a similarly new flow-line. Improvements in ‘soft systems’ areas had also taken place. Indeed, there were advanced quality systems in all three of the above JVs. Beijing Jeep had a developed a QC programme (with the slogan ‘No quality, no sales, no earnings’) and was going to be assessed for the quality award ISO 9000 shortly, which in fact Schindler Elevators had already achieved with their TQM policy. Peony TV had also achieved this level: their slogan was ‘Market in my heart, quality in my palm and clients come first’ according to their Personnel Manager. They had adopted a Japanese-style TQM programme, as well as a complete JIT production system. Another firm in the SOE sub-set, Pharmaceuticals, also claimed to have implemented a TQC and a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

quality-assurance system. To a degree, such programmes do overlap with HRM innovations but do not in themselves represent a full move in that direction. Second, it was earlier argued that each enterprise has a management-style related to its ownership, even the nationality of the overseas partner(s); this will be equally true of HRM, we argued, as of other practices. It was evident from the empirical fieldwork that this was relatively true of the enterprises investigated, in the sense that the JVs as a sub-set had a management-style clearly different from the SOE sub-set, although that of each enterprise was distinct. The nationality of the JV partner was an important factor which shaped how the firm was managed to some degree and in turn its HRM practices. This factor was relatively stronger in the US and Swiss overseaspartner cases but less was true in the third (namely Hong Kong/Japanese). One of the SOE sub-set, namely Peony TV, appeared to have what appeared to be a Japanese-influenced management-style (see Fukuda, 1995), compared with the two other conventional Chinese-style SOEs. Management practices did not fully correlate with the ownership (and nationality) factor, as we have already seen, although there was now an overlap between the two sub-sets of firms. As far as specifically (or recognizably) enterprise-level HRM policies are concerned, there may be practices which are unspecified by state regulations. Such HRM practices may be company-specific, that is, related to the corporate policies and organizational culture, as might be the case for American or Swiss or Hong Kong/Japanese MNCs involved in JVs in China. Such HRM practices where present may well be direct adaptations to market influences. Third, we set out the argument that Chinese SOEs would be influenced by JVs in terms of their management practices; this would be equally true of HRM as of other policies. We found in the present sample that as yet there was only the beginnings of convergence, seen in the overlap between say one SOE, namely Peony TV, and the JV sub-set. There were after all separate Labour Regulations for foreign-funded companies, which had first been promulgated in 1980 (see Table 7.3 for the later 1994 version). The 1994 Labour Law, however, does try to ensure JVs and SOEs meet the same standards (see Josephs, 1995:567). It is too early to say if HRM policies have meaningfully converged even in such cases, let alone in the broad range of larger JV and SOE firms. To sum up, the first point we raised in the introduction about management knowledge transfer has been relatively well vindicated, if only partially for HRM. The second argument seems to be valid as far as ownership is concerned as JVs do have a different organizational culture from SOEs, although the ‘Chinese walls’ appear now to be crumbling and there is a degree of overlap. As for the third point on organizational convergence, we would argue that it is clearly early days as yet. The ‘iron rice bowl’ is now in retreat in not only foreign-owned firms including JVs, but also in large and medium-sized SOEs as we have seen. The rewards structure has also substantially changed, as has social insurance. Management-union relations remained positive in © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.3 Excerpts from Provisions on Labour Administration of Enterprises with Foreign Investment (1994)

Source: Ministry of Labour and the Ministry of Foreign Trade and Economic Co-operation, 1994.

most instances, even if personnel management appears to still prevail over Western-style HRM practices in terms of recruitment, training and the like.

ACKNOWLEDGEMENT The fieldwork reported in this chapter is based on research carried out in Beijing in late 1995 which was sponsored by the British Council exchange scheme, whose generous support was appreciated. I must further acknowledge the contribution of colleagues and graduate students at Tsinghua University who acted as interpreters and translators during the visits to enterprises.


REFERENCES Aiello, P. (1991) ‘Building a joint venture in China: the case of Chrysler and the Beijing Jeep Corporation’, Journal of General Management 17:47–64. Beijing Review (1996) ‘Health-care reform covers more cities’, 29 April-5 May: 5. Chan, A. (1993) ‘Revolution or corporatism? Workers and trade unions in post-Mao China’, Australian Journal of Chinese Affairs 29, January: 31–61. Chen, M. (1996) Managing International Technology Transfer, London: International Thomson Business Press. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Fukuda, J. (1995) ‘Japanese companies in China: problems of Human Resource Management’, Journal of Far Eastern Business 1:48–62. Granick, D. (1987) ‘The industrial environment in China and the CMEA countries’, in G.Tidrick and Y.Chen (eds) China’s Industrial Reforms, Oxford: Oxford University Press. Josephs, H.K. (1995) ‘Labour law in a “Socialist Market Economy”: the case of China’, Columbia Journal of Transnational Law 33:561–81. Lardy, N. (1994) China in the World Economy, Washington, DC: Institute for International Economics. Lee, L.T. (1986) Trade Unions in China, Singapore: Singapore University Press. Minami, R. (1994) The Economic Development of China: A Comparison with the Japanese Experience, London: Macmillan. Ng, S.H. (1994) ‘Industrial relations in joint ventures’, in S.Stewart (ed.) Advances in Industrial Studies Volume 4: Joint Ventures in the PRC, Greenwich, CT: JAI Press. Ng, S.H. and Warner, M. (1998) China’s Trade Unions and Management, London: Macmillan. Nolan, P. (1995) China’s Rise, Russia’s Fall: Politics, Economics and Planning in the Transition from Stalinism, London: Macmillan. Takahara, A. (1992) The Politics of Wage Policy in Post-Revolutionary China, London: Macmillan. Verma, A. and Yan Z. (1995) ‘The changing face of human resource management in China: opportunities, problems and strategies’, in A.Verma, T.A.Kochan and R.D.Lansbury (eds) Employment Relations in the Growing Asian Economies, London: Routledge. Walder, A. (1986) Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Warner, M. (1986) ‘Managing human resources in China’, Organisation Studies 7: 353–66. ——(1995) The Management of Human Resources in Chinese Industry, London: Macmillan. ——(1996a) ‘Economic reforms, industrial relations and human resources in the PRC: an overview’, Industrial Relations Journal 3:195–210. ——(1996b) ‘Chinese enterprise reform, human resources and the 1994 Labour Law’, International Journal of HRM 7:777–94. Zhao, S. (1994) ‘Human resource management in China’, Asia-Pacific Journal of Human Resources 32:3–12. Zhu, Y. (1995) ‘Major changes under way in China’s industrial relations’, International Labour Review 134:36–49.


8

Recruitment and retention of managerial staff in China Robert McEllister

INTRODUCTION Western companies contemplating entry into China are faced with numerous decisions regarding the financial and logistical requirements of such a move. While these are important considerations, it is my contention that even more important are the long-term management requirements of the Chinese venture. Many of these companies approach the China market assuming that its managerial demands are similar to those of its domestic base or its other overseas operations. A manager in China must cope, not only with those duties, but with an additional raft of unique challenges emanating from the Chinese business environment. These firms approaching China do so with the intention of establishing a long-term presence. In most cases, however, little attention is given to identifying, recruiting and training those personnel who will oversee the successful achievement of these ambitions. In many cases these enterprises have plans to expand throughout China but have given little or no thought to who it will be that will manage the expansionary ventures. Should a company place its faith in expatriate managers? Should they recruit in China? From where should they recruit in China? These are just a few of the issues informing decisions about managerial staff that face a company entering the Chinese market. If each of the 80,000 or so foreign joint ventures in China were to require only three managers the companies would need to find nearly one-quarter of a million suitable applicants just for what is still a small sector of the Chinese economy (James, 1996). A recent study by management consultants McKinsey and Co. found annual turnover among Chinese middle managers ran as high as 20 per cent among the company’s multinational clients (Meier et al., 1995). Other surveys have estimated this turnover in managerial positions to be as high as 30 per cent and companies are expanding rapidly (James, 1996). For example, Procter and Gamble saw its China operation grow by 50 per cent in 1995. Many companies are having to deal with growth rates in their Chinese operations of 20–40 per cent, meaning a requirement for commensurate increases in staff and management. At the same time they are having to deal with this ongoing turnover in managerial staff which means that there is a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

continually increasing demand for managerial talent. Currently the costs of establishing management teams in China are extremely high and this is driving the focus of many companies towards a policy of localization of management. But how soon should this policy be pursued? Is there a pool of available talent to supply the demand? What are the sources of this talent and how can the potential recruits be accessed and compared? Jonathan Woetzel, one of the coauthors of the previously mentioned McKinsey report, described the pool of local managers as coming from a ‘dysfunctional’ background in public enterprises or state bureaucracies (Kaye, 1995). These are problems facing all firms in the China market but this chapter will concentrate on the managerial challenges facing small to medium Western enterprises either contemplating, or having achieved, a presence in China. The focus will be on three key issues: recruitment, training, and retention of managerial personnel. Much of the empirical research informing this chapter was gathered over the past three years while living and studying in Hangzhou and Shanghai. During this time I had the opportunity to interview formally the majority of Western businesspeople operating in Hangzhou as well as establishing a broad base of informants in the Western business community of Shanghai. I was also able to carry out a series of interviews in Guangzhou and Shekou as well as with many Hong Kong based Western corporations. Living and studying in a Chinese student environment also gave me invaluable access to the large student population aspiring to gain employment with Western companies. Probably the most informal and unexpurgated information came from a wide network of informants cultivated through such expatriate organizations as the Hash House Harriers and the Hangzhou International Business Association where it might be said that at times there was a full and frank exchange of ideas. All these avenues of information proved invaluable and complementary to the more formal and structured research.

INITIAL ENTRY STRATEGIES Initially most firms will send a manager from their domestic operation to oversee the establishment of the new venture in China. In many cases this manager will see the appointment as short term and as an interruption to his or her career path with the company. This perception of China as a ‘hardship’ posting still exists in many companies. It provides little continuity, with a succession of management personnel literally passing each other in airport lounges as one departs to be replaced by another of similar ilk. In most cases these managers will be quite effective, particularly in the large coastal cities, Shanghai, Guangzhou or Beijing, where large expatriate populations will dampen the alienation process. There are advantages in this management policy, particularly for the home office, as they ‘know’ the manager because of previously established mutual understanding derived from that manager’s © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

history with the company. Thus there is confidence in the information and decisions communicated between China and the home office. While this policy may be effective in the short term, in certain circumstances it also has several major shortcomings. First, it assumes that all expatriate managers sent to China will be able to operate effectively in the environment. History has demonstrated that many fail, unable to cope with the demands of an alien work environment or because of personal or family pressures. In these instances the home company loses on two fronts. It loses an effective manager from its home base as well as incurring the losses associated with the transfer to and repatriation from China of the manager. Second, and even more important, it fails to provide for expansionary management requirements in China. At some stage there is a requirement that managers are capable of moving away from the more comfortable coastal environment to the more challenging cities of China’s interior. The demands facing a manager in a city such as Lanzhou or Chengdu are far more difficult than those of Shanghai or Beijing. Also the support infrastructure existing in the larger, modern centres is virtually non-existent in these interior cities. A company pursuing an expatriate ‘tour of duty’ policy towards management in China will court failure should it adopt a similar policy for expansion inland. So what type of management recruitment strategy should be implemented to support a successful long-term presence in China?

RECRUITMENT The choice is twofold: recruit from the home market and pursue a policy of expatriate management; or seek management personnel from within China. Both strategies have advantages and disadvantages but common to both is a need for in-company and in-country training. Following is an overview of some of the choices available together with the benefits or drawbacks that may accompany these choices. For the purposes of this discussion I have divided the managerial market in two, the external market and the internal market. The external is the talent pool available outside China while the internal refers to the recruiting options available within China. Within these two divisions exist several subordinate markets.

The external market Recruit ‘in-house’ This policy involves identifying those personnel within the company who have the potential to succeed in China. This potential may already have been demonstrated in another overseas posting or through on-job performance within the company’s domestic operation. The advantage of this policy is that © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the person chosen is already familiar with company policy and operational procedure. Interviews with head office senior management indicated a strong need for confidence in the validity and accuracy of information being channelled back from the Chinese operation. This information ranged from target achievement to budget to quality control to the local political situation. In most cases the domestic head office revealed a far greater degree of confidence if this information emanated from an expatriate manager than if it came from a ‘local’. Reasons for this were quite disparate. In many cases it was because head office ‘knew’ their manager and, on the basis of his or her past performance ‘inhouse’ or in other postings, was comfortable with the terminology used or parameters applied to interpret or transmit the intelligence. In other words an expatriate manager had previous opportunities to demonstrate the ability to communicate effectively with his or her superiors and establish a basis for this confidence. This then carried over to the China posting. On the other hand, those companies with ‘local’ managers tended to indicate problems communicating due to a wide range of factors including language and cultural barriers and even suspicions about the loyalty of these local managers. I will discuss these problems in more depth further on. Recruiting in-house also facilitates the recruitment process. The job description can be couched in the language of the firm’s management culture. Hampden-Turner and Trompenaars (1993) found that America’s strong analytical bias shaped that country’s management practices and in turn many of the managerial positions were filled on the ability to satisfy these criteria. Thus job descriptions are written in this common terminology and job performance is judged against these inherent biases. Potential candidates can be compared using these common criteria and in similar situations. Engholm (1989) identified that there was a predilection in American corporate culture for depending on the standard rules and theories of international business practices developed in the West. My own research indicates that this attitude still pervades the management culture of most Australian, British and European firms. Thus their management recruiting protocols are also informed by this approach. A recruitment policy that included ‘externals’ becomes very difficult to implement for these firms as it necessitates comparing potential recruits from outside this accepted business culture with others who have proved themselves within the standard accepted ‘Western’ management system. In many cases because those making the decision are ‘insiders’ there is an inherent bias against those from outside the system (Winston, 1995). Again I intend to develop this theme further when examining potential Chinese managers. What are the major disadvantages of following a recruitment policy as set out above? The obvious is that the new manager has no operational experience in China. In some cases they may have gained experience in some other overseas posting but there is a body of evidence emerging indicating that other overseas experience is not necessarily a sound indication of an ability to succeed in China. The cultural, operational, structural and social challenges of operating in the Chinese business environment are sufficiently unique to negate © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

much of the experience gained in another overseas posting. My research indicated that for many Western firms China was their first overseas venture. Many Australian companies, for instance, had experience in trading or operating in other Western nations such as Britain or the US but China was their first non-Western venture. Thus their pool of managers with Asian managerial experience was either very shallow or non-existent. It took several years before any degree of expertise in this theatre began to accumulate within management. This meant that many of the early managers going to China found it difficult to acquire any substantial intelligence about the requirements of the Chinese environment simply because no one had been there before them. However, there was still an expectation that these managers would, in the words of entrepreneur Sheldon Breiner, ‘hit the ground running’ (Kao, 1989). Such expectations meant that many mistakes were made and current information indicates that many of these initial errors continue to be repeated. There is a substantial body of work recording these errors ranging from the factual to the anecdotal and from the farcical to the career ending. My own interviews have provided me with several of these instances. In 1992 an Australian material dyeing company recognized the potential in establishing a stonewashing facility to service the growing jeans manufacturing industry in Guangdong Province. Preliminary investigations were carried out and a potential partner was identified. This was an established but ageing dyeing plant located near Foshan. An engineer was despatched from Australia to survey the plant and on the basis of his report it was decided to invest around US$1 million to refurbish the plant and convert it to a stonewashing facility. The Australian engineer, having no previous experience in dealing with Chinese joint venture partners, organized for the money to be paid to the partners, drew up the necessary plans to upgrade the plant and set a time frame for completion. This done he then moved on to his next project back in Australia assuming the China venture was well under way. Five months later, having received constant assurances from the Chinese partners about the rapid progress of the project, the senior Australian partner flew to Guangdong to arrange the first batch of stonewashing. He was greeted by an unchanged plant except for a new hardstand parking lot for the four new Jeeps parked out front and was informed that his Chinese partners were on an ‘educational’ visit to San Francisco and Las Vegas. The total investment was lost and the joint venture collapsed, not because it was poorly conceived but because of the lack of in-country experience of the Australian firm who assumed that accepted standards of business behaviour applied universally. A further drawback to recruiting in-house is the provision of a clear career path. Many companies see a China appointment as a short-term ‘hardship’ posting, part of a potential senior manager’s learning curve. This policy sees a firm accumulate a pool of ‘old China hands’ who, having done their ‘tour of duty’, return to head office expecting either promotion or a ‘soft’ posting to a city such as London, Hong Kong or Los Angeles. In many cases these expectations are not met and an air of disillusion may be created with these © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘old hands’ attempting to outdo each other with tales of how tough it was in ‘the old days’ in China. Few companies have so far demonstrated an ability to harness this managerial experience gained in China and pass it on to the next generation of middle management. Although the above scenario is a little tongue-in-cheek it is a very real problem. Two companies who indicated this to be a major concern were Burns Philip and TNT Logistics. Both had problems with managers who had spent several years in China and were now looking for further advancement within the company but at the same time wanted to retain their connection with the Chinese operation. Because neither firm’s structure allowed for this career path to be followed there was a real danger they could lose these managers to other companies able to offer such a career path. At the time of my last interview the problem had not been overcome although there was a growing awareness of the need for it to be addressed. A further negative aspect of recruiting in-house is the ‘double whammy’ factor. This is the scenario where a firm decides to send an existing manager to China. The manager fails to adapt or is unable to operate effectively in his or her new appointment. The firm thus loses twice. It has lost someone from its domestic operation who was an able manager. It has lost in its China operation through the inability of the appointed manager to succeed. There is the additional cost of repatriating the manager as well as locating and appointing a replacement. My studies have indicated that these managers who ‘fail’ in China tend to be unable to resume their previous positions in the domestic operation either because of a loss of confidence by the firm or through a personal inability to regain their previous self-assurance. My interview subjects tended to regard themselves as ‘losers’ and assumed that senior management had a similar opinion. The whole issue of in-house recruiting is complex and also involves a further discussion of the importance of training programmes and prerequisite abilities. In my summary I will briefly consider these issues. If a company decides not to recruit in-house what are the other alternatives?

Recruit potential managers from the overseas Chinese communities The sophisticated economies of Singapore, Malaysia, Hong Kong and Taiwan are an excellent source of well-educated middle managers. These economies all comprise or contain thriving Chinese business communities with long-standing links to the PRC based on kinship. Additionally, firms from these centres are already trading with and within the PRC and have established significant business networks. A Western firm able to recruit from the Chinese diaspora will gain a recruit who already has a working relationship with several PRC entities as well as some of the required cultural and language skills. Again there are problems with this strategy. As discussed with reference to in-house recruiting there is still a tendency by Western firms to harbour some inherent © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

distrust of managers not graduating from the accepted Western traditions. The recruit may need inculcation into the ethos of the firm and this will possibly entail bringing the recruit to the domestic head office prior to taking up the China appointment. In some cases the costs of such a policy can prove prohibitive. An emerging trend with this recruiting policy is that these managers recruited from the Chinese diaspora have similar perceptions of the Chinese posting. There may be a reluctance on the part of the Chinese manager to transfer to China, seeing the PRC as undeveloped or unsophisticated. Alternatively they see their recruitment by a Western company as an opportunity to access the upper echelons of the domestic head office. Their attitude is that China is a necessary, but short-term, inconvenience which will eventually enable a higher appointment. In many cases questioning revealed that the domestic head offices had no similar long-term plans for these recruits and that their ambitions of achieving high positions in the head office were unlikely to be fulfilled. There is a perception by Western companies that because someone is Chinese he or she will be able to live and operate quite easily in the PRC. Current research indicates that this is not the case and that in many instances these personnel face more difficulties than a Westerner in operating in the environment. Selmer and Shiu (in press) explored many of the problems facing expatriate Hong Kong managers in Shanghai and Beijing. Schak is also finding very similar predicaments facing Taiwanese managers in Guandong Province.1 My own research in Zhejiang Province centred on Singaporean Chinese managers who found the workforce unmotivated and hostile and were unable to socialize in the community. Many lasted only a short time before returning home to where, they claimed, labour was more amenable and responsive. My own research in Wuxi also indicated that there were similar perceptions among the Malaysian Chinese recruited by Lion Nathan to manage the operations of the Taihu Brewery. They were harassed outside working hours and ignored and abused inside the workplace. As with Dr Schak, I also found evidence of violence towards these recruits forcing them into enclaves with their own bars and restaurants. In many cases their own head offices were unaware of the extent of the problem. I also found when interviewing senior management in many head offices of Western firms that there was a perception that many of these overseas Chinese lacked loyalty and would only work for them long enough to learn their operation and identify their market potential before returning to their previous home to set up a rival operation. Several Western firms cited instances of this type of activity but my research indicated that this practice seemed to be no more endemic than in most competitive Western economies.


Identify elite students from the PRC studying abroad This is a policy that has been successfully embraced by several New Zealand companies. It entails identifying the better achieving PRC students studying in the country’s university system then offering them incentives to remain and undertake postgraduate study. While doing this the company looking to recruit them involve the students in a programme with a mix of work experience and management training. At the same time their postgraduate study is tailored to dovetail with the in-house programme. The end result, hopefully, is a potential manager skilled in Western management theory with some practical experience and company indoctrination. A key point in the successful implementation of this type of programme is the clear definition of a career path for the PRC recruit so that there is a commitment to offer opportunity to rise through the managerial ranks not just be used in middle or lower management because of their ethnicity. Fletcher Challenge and Lion Nathan have both successfully adopted this method to meet some of their future management requirements. A major drawback of this scheme is that it ties the graduate to a foreign enterprise and, if he or she excels, may even mean they may move to the New Zealand headquarters. Therefore it could be argued that the PRC loses out on a valuable managerial resource that could be employed to better their own industries. My findings at this time are open on the benefits and losses of this arrangement but from the viewpoint of the Western company it seems to have a lot going for it. The associated costs, while substantial, seem to be a sound investment in view of the possible successful outcomes. When compared with the cost of a full expatriate package the investment is minimal. The major drawback to the scheme seems to occur when the recruit arrives at his new posting in China. There is an attitude among the workers that this new manager is ‘just another Chinese’ and accordingly should receive wages similar to everyone else (Schaap, 1992). Several subjects whom I interviewed indicated that they had been put under extreme pressure to pay bribes out of their own pocket to retain production schedules or to avoid sabotage to equipment. Although this was rare, there seems to be increasing evidence of worker dissatisfaction caused by such unequal remuneration. However, in many instances I found this to be no more pronounced than similar attitudes to the differences between local and expatriate Western wages. Because this scheme has been in effect for only a few years there has been insufficient time for any managers recruited under this scheme to graduate through the company ranks. Once some of these managers begin to appear in very senior positions within these Western firms they may provide role models for other Chinese graduates to follow and this policy may gain further acceptance among both Chinese and Westerners. A further problem yet to emerge is the creation of a career path that will satisfy the requirements of the Western corporation, the PRC and the Chinese graduate.


The internal labour market Recruit from the existing expatriate population Within China there is an expanding pool of experienced middle management talent. As ventures fail or expectations are not met these personnel become susceptible to offers from new or rival enterprises. In some ways this strategy is least fraught with risk. The potential employee is already living in China so will have demonstrated an ability to operate in the environment. The disadvantage may be that, just as they are prepared to jump ship to join your operation, so in future may they show a similar lack of loyalty to you should a better offer arise. Attracting or retaining these managers may prove the most expensive option. If they are currently employed they will require a package at least equivalent if not better than that which they are currently receiving. Should they be immediately available because of the failure of their current employer there must be some questioning as to the degree of failure attributable to their management input. Also, as most live in the major metropoli of China’s coast they may be either unwilling to, or incapable of, managing a venture away from these population centres. Of course managers are not the only component of the expatriate population in China. A significant number of Western graduate and postgraduate students now live and study throughout China. These students offer several significant assets to potential employers. They usually have a high degree of fluency in the language and have established a network with their peers in the Chinese student community. Many of these students will advance to become the decision makers in Chinese industry and bureaucracy. The foreign students have proved they can live and interact with the Chinese environment. They do not require the full expatriate package, being normally willing to find their own accommodation and work for far less remuneration just for the opportunity to advance their career in China. My interviews covered many foreign students who decried the lack of opportunity to work for companies from their home countries and it seemed there was a general lack of awareness among Western companies of the available talent among these students. Most of these students have travelled extensively throughout China and with experience would prove the ideal vanguard for future expansion into the Chinese interior. Of course the main drawback is their lack of managerial, and in some cases, work experience, but it could be argued that their cultural and language ability more than compensates for this lack and that a comprehensive training programme would quickly introduce many of the required skills.

Recruit from Chinese management ranks Western firms will come into contact with talented Chinese working for private Chinese or state enterprises. A prime source of such talent has been the five-star © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

hotels in China where sophisticated in-house training programmes produce a steady flow of articulate, able lower managers. Many of the skills acquired are similar to those needed in other Western enterprises. The very nature of hotels means that every day these personnel have exposure to a wide range of foreign business persons and thus the opportunity to ‘audition’. In turn the foreign enterprise gains a recruit already possibly having foreign language or other communication skills, office procedure experience or other managerial training. The manager of the Sheraton Hua Ting hotel in Shanghai lamented that the star graduates of his latest training programme had received their awards then informed him that they were leaving for more lucrative positions with other Western enterprises. The Shangri-La chain also admitted to having the same disproportionate loss of their top trainees to other Western enterprises. Recruiting from state enterprises or government departments can also have benefits. These recruits bring with them their business networks and often this guanxi can be extremely beneficial when access to, or favourable treatment from, the government is required. The drawback often is that this is the only benefit they bring as many are incapable of making, or unwilling to make, major decisions. Thus it may be strategically intelligent to recruit such personnel but long term there is little chance of them moving to senior management positions on merit. Also, because their influence may be limited geographically they usually offer little prospect of heading up an expansion inland. As previously discussed, Western head offices tend to have an inherent suspicion of the long-term loyalties of these recruits and fail to include them in long-term promotion plans, rather seeing them as useful to specific projects or regions.

Recruit Chinese graduates Procter and Gamble has been the firm which has most successfully instigated this strategy. Over the past seven years they have recruited from throughout the Chinese university system and have put in place a programme to identify and train potential managers. They have established an excellent rapport with the various educational authorities and as a successful and high profile foreign enterprise are a prized target for Chinese graduate students. However, even they admit that Chinese universities are not graduating enough students with the capabilities of meeting the growing demand. For the more recently arrived or lower profile Western firm this strategy is not so simple. They are faced with the problem of identifying which universities are able to supply graduates with the required skills. The university system in China is of a very uneven standard and many courses fail to produce graduates able to meet the demands of modern Western management. Even should the company succeed in identifying suitable institutions they must then attract the calibre of graduate able to progress through management ranks. Often these high achievers are in great demand and tend to gravitate to the more prominent name companies even though there may © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

be less opportunity for advancement. Another problem with this strategy is that often it will be necessary to inculcate the recruit into your particular management culture and this may be difficult without transferring him or her to your home office. This can be both difficult and expensive.

Training While training and development is improving among Western firms in China, not enough is being invested to meet long-term requirements. Rather, there is still an expectation that firms will get their managers from the marketplace. This is increasingly proving to be a flawed strategy. Each of the above recruitment strategies has its own training requirements. It is essential, however, that the future policies of the company in China be identified as early as possible. This will enable both the recruiting and training policies to be tailored to best serve such future requirements. Should the company be contemplating expansionary moves into China’s interior or to smaller centres, it is essential that such a strategy be factored into current human resource policy. My research has indicated that just as many managers fail when transferred to China from their home office, so too many managers fail when transferred from the expatriate enclaves of the large Chinese coastal cities to the more Spartan surrounds of the inland. It can be argued that as fast as companies can find, train and integrate managers into their business they will be able to expand (James, 1996). Present indications are that too many Western firms, approaching China with a boom mentality, attempt expansion at a rate beyond the ability of their current management regime. Just as growth in a mature economy normally occurs in a measured, planned format, so too the same strategy should be applied to the China operation. An essential component of this strategy must be the forward planning for the provision of managers to oversee the growth process. Adler and Bartholomew surveyed fifty North American based international firms to evaluate their international human resource management systems. Their study concluded that the management recruitment, selection and retention strategies lagged far behind the general business strategies of these companies. There was little recognition of the requirement for integration of business and personnel in planning market entry strategies. Only 4 per cent reported offering crosscultural training to all managers (Adler and Bartholomew, 1992). It is necessary to make management training particular to the Chinese situation. A literature search has revealed that much of the management literature evolves from the American situation. Thus we see a plethora of training based round executive decision making, quick appraisal of situations and vertically integrated management hierarchies. A further section of the management literature is based on the experiences of the large firm, American, Japanese or Korean. Most of the literature is Western authored or edited and what little does have direct PRC experience tends to be more anecdotal than © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

instructional. Popular examples of this type of literature are Beijing Jeep (Mann, 1989) and Barefoot in the Boardroom (Purves, 1991). Before instigating a training programme for middle management in China it is necessary for the Western company to clearly identify its future policy in China. The recruitment strategies should then address the problem of sourcing the best human resource talent with the potential to meet these future requirements. In some cases this will be as basic as language, in others more complex requirements involving various skills or disciplines. The training should then not only enhance these existing talents but incorporate the skills that will be needed to carry out these future policies. The training must be industry-and area-specific. There must be a recognition that the requirements of living and managing in Lanzhou are as different from those required in Guangzhou as are those of New York from Quito.

Summary An early study of American overseas business personnel over a period of ten years indicated that only 15–40 per cent completed the full term of their assignment (Donelly et al., 1985). A more recent survey indicated that, of senior executives (those receiving salary packages of more than US$250,000) located overseas, around 50 per cent were considered ineffective or only marginally effective by their own firms. In the early 1990s research indicated that companies in the US were losing around US$250 billion annually because of early returning expatriates, mostly from developing countries (Naumann, 1993). Research has indicated that most Western companies avow their determination to establish a long-term presence in the Chinese market. Further questioning shows that they have little idea of what the management of that enterprise will be. Many seem to think that they will continue to send expatriate managers to China. Very few regard the possibility of having a Mainland Chinese as general manager within the next decade as being very likely. TNT Logistics was one exception. Their plan is for a current middle manager to achieve general manager status before 2000. There is still an attitude among Westerners that Mainland Chinese lack the ability to successfully manage their enterprises. Some of this attitude stems from a lack of trust, a fear of being used then supplanted. The rest, I would argue, comes from sheer ignorance of the potential of Chinese as a management resource. Perhaps the lead should come from the Western education system. For too long there has been a perception that as long as a student had some language and cultural skills he or she was ready for China. This may have been true several decades ago when it was the norm to send errant managers to the East more as penance than as policy. Now China is a series of complex markets each with varying degrees of sophistication. The challenges of succeeding in these markets now demand far more than merely language and cultural skills. The © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

manager who will guide corporations to success in China will be capable of being a successful manager anywhere in the world. He or she will also have an additional set of skills particular to the Chinese situation. Western management programmes should now recognize this and begin to integrate a more Chinese focus into their courses. Perhaps it is time that more time was given to exposing current middle management to the Chinese situation rather than transferring them and hoping. A feature of the companies surveyed was that at the moment few, if any, managers had graduated through the system to reach the senior position with Western companies. Whereas in Hong Kong, Singapore or Taipei there exists a group of Chinese heading up large Western enterprises, no such group exists in China. This lack of successful role models in China means that at the moment it is very difficult for companies to extract loyalty from their middle managers by offering a long-term career structure. Maybe a system of fast tracking some Chinese managers through the lower and middle ranks of Western companies will begin to produce these role models and make others more aware of the career possibilities. Western firms need to become more aware of the potential of graduate students of their own country who are studying in China. Research demonstrates that in many cases this ignorance stems from the inability of universities to market the skills of their students. Even my home university, Griffith, had a very low profile in its own city, Brisbane, with few of that city’s firms being aware of the Chinese language expertise available. I was unable to locate any Queensland firms who had been approached by the university with the aim of marketing its particular skills. Investigation revealed that this lack of cross awareness was common to most Western universities and business communities. There is a need for integrated programmes involving in-China language study combined with work experience. Companies with operations in China need to be encouraged to foster students during their studies so that the student perhaps carries out his or her language studies in the morning then works afternoons for the enterprise. The cost of such a programme would be minimal and the possibility of producing culturally and linguistically skilled future managers would be enhanced immeasurably. A positive spin off of such a programme would be that home university language programmes would become more focused through this continuous interaction and feedback. Studies of MBA programmes in Canada have also indicated the advantage of incorporating foreign study tours into academic programmes and linking them with practical ‘hands on’ business experience while abroad (Kramer, 1996). Companies need to recognize that their focus needs to be on training development, whether it be at home or in China, rather than on a constantly spiralling outlay on compensation packages to either retain their own managers or to attract those from other companies. There needs to be a change in corporate culture to recognize that well-directed investment in recruiting and training will yield far better long-term results than one-off short-term © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

recruitment ‘coups’ from rival companies. Companies need to take responsibility for increasing the supply of managerial talent within their own organization. There needs to be a far more holistic approach to a company’s management structures so that the Chinese enterprise is integrated into the total management structure and the idea of the ‘tour of duty’ is deleted. Only such an approach will allow the development of a career structure that will enable Chinese managers to progress at a rate comparable with their head office equivalents and begin to provide role models and encourage long-term commitment to the firm among Chinese recruits. There is also a role for training bodies. Currently there is a goldrush mentality among many Western training organizations who are selling training programmes inappropriate to the requirements of Chinese managers. Programmes ranging from motivational to instant decision making are being marketed. An example is I-Will-Not-Complain Ltd which runs adventure corporate bonding workshops for Chinese executives near the Great Wall. While possibly quite suitable for a minority of Chinese managers, it is totally ineffective for the majority. However, because of its success and profile, the company has produced a number of inferior imitators offering cheap copies of their programmes. As mentioned earlier there is an ongoing assumption that only practices based on accepted Western theories of management are valid. There needs to be an effort by training companies to develop programmes that, while based on sound management theory, allow for the quite different requirements of the Chinese management trainee. Research carried out in Shanghai and Beijing by International Learning Systems revealed that the programmes needed to start at a much lower and more general level than in many Western situated companies and then be continually reinforced and built on.2 Too many Western trainers tended to assume that basic knowledge accepted in Western business already existed in China and consequently aimed their training too high. This then made the whole programme ineffective. In many cases it may be necessary to offer a basic introductory programme before entering into more complex management theory. This chapter is an overview only of a complex and demanding problem. Many Western companies are drifting along applying existing management structures and strategies to China with little planning for future change. However, as stated at the outset, eventually such a mindset will prove, at best, ineffective, at worst disastrous. Some of the options I have canvassed may not suit certain companies, others may prove attractive. Some of the suggested strategies may be inappropriate due to the size of the company. The challenge is to at least address the issues raised and implement policies both in recruiting and training that will best serve the future direction of each company in China.


CONCLUSIONS AND RECOMMENDATIONS The following is a suggested check-list of best practice policies that may improve the chances of successfully choosing suitable managerial staff for China.

At home Managers should audit their own company’s human resources. Be aware of the talents within your own organization. Ensure that you know of previous overseas experience, language ability or particular cultural attributes members of your staff may possess. Firms need to be aware of existing talent pools in their own region. This pool may include university graduates with Chinese language ability, students who have lived and studied in China and have now returned. (My own research in Australia indicated that this group was of a substantial number and particularly under-utilized.) Also included should be the Overseas Chinese living locally as well as Chinese students studying in regional institutions. Firms should get involved in overseas student programmes, sponsoring suitable graduates to carry out in-country study and providing them with work experience both in the domestic facility as well as the Chinese venture. While possibly appearing expensive the overall benefits of successfully identifying and inculcating a long-term manager for the Chinese operation will far outweigh the initial investment.

In China Expatriate managers should consider ‘fast tracking’ a selection of Chinese executives through managerial ranks to create a peer group of role models who can then be identified as demonstrating possible career paths. This group may then encourage loyalty from your executive pool and minimize turnover of managerial staff. Firms need to ensure that the China operation is viewed by head office as a legitimate equal of all other operations and not as a hardship posting or necessary penance. Career paths including and utilizing the period of service in China must be clearly defined for both expatriate and Chinese managers. Even such minor matters as including the activities from China in in-house staff magazines can have a positive effect on how the China operation is perceived. Expatriate managers in China should familiarize themselves with the indigenous business community so that potential sources of managerial talent can be identified. Firms should also be aware of the standard of graduate from local Chinese universities and how they rank with those from other parts of China. This intelligence should be recorded and be made accessible to the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

firm’s human resource department. It should be made clear that each manager has a duty to update and add to this data bank of local knowledge. Where possible Chinese managers should be given the opportunity to spend time in the domestic head office to further educate them about the company’s activities, but even more importantly to instil confidence in the home office as they better understand the Chinese personnel through face to face interaction. These are what I consider to be the major policy initiatives that need to be put in place by Western firms considering expansion into China. It may be noted that none are ‘short-term fixes’. The intention is to provide some ideas about programmes that stand an excellent chance of producing a pool of skilled and motivated managers best able to instigate and oversee policies ensuring a company’s long-term success in China. NOTES 1

2

Dr David Schak of Griffith University, Brisbane, is currently carrying out this study and as yet has not published his findings. He very kindly has allowed me access to his preliminary impressions. Sharon Netto, International Learning Systems’ Shanghai manager, surveyed numerous Shanghai-based Western corporations in an effort to ascertain the type of sales management programmes that would best suit their potential clients. Prior to joining ILS Miss Netto had managed Austrade’s Hangzhou office and had made similar observations about Western firms based in that city. Craig Topp, China and Hong Kong manager of ILS, also reported similar data from Beijing surveys.

REFERENCES Adler, N.J. and Bartholomew, S. (1992) ‘Managing Globally Competent People’, Academy of Management Executive 6(3):52–65. Ansoff, H.I. (1981) Strategic Management, London: Macmillan. Donelly, J.H., Ivancevich, J.M. and Gibson, J.L. (1985) Organizations: Behaviour, Structure, Processes, 5th edn, Plano, Tx: Business Publications Inc. Engholm, C. (1989) China Venture: America’s Corporate Encounter with the People’s Republic of China, Glenview, 111: Scott, Foresman and Company. Hampden-Turner, C. and Trompenaars, F. (1993) The Seven Cultures of Capitalism, New York: Piatkus. James, R. (1996) Executive Recruitment in Asia, Radio Australia, 4 April. Kao, I (1989) Entrepreneur ship, Creativity and Organization: Text, Cases, and Readings, Englewood Cliffs, NJ: Prentice-Hall. Kaye, L. (1995) ‘No Time Like the Present: Management Training Finds a Home in China’, Far Eastern Economic Review 10 August: 65–6. Kramer, L. (1996) ‘The Development of Interest in and Preparedness for Doing International Business: The Influence of Foreign Study Tours in Executive MBA programmes’, unpublished paper, Western Business School, The University of Western Ontario, London, Ontario, Canada. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Mann, J. (1989) Beijing Jeep: The Short Unhappy Romance of American Business in China, New York: Simon & Schuster. Meier, J., Perez, J. and Woetzel, J.R. (1995) ‘Solving the Puzzle: MNCs in China’, in The McKinsey Quarterly 2. Naumann, E. (1993) ‘Antecedents and Consequences of Satisfaction and Commitment Among Expatriate Managers’, Group and Organization Management 18: 153–87. Purves, W. (1991) Barefoot in the Boardroom: Venture and Misadventure in the People’s Republic of China, Sydney: Allen & Unwin. Schaap, A. (1992) ‘Some Major Aspects of Corporate Culture of Four Equity Joint Ventures in China: An Explorative Research’, unpublished paper, Eindhoven University of Technology. Selmer, J. and Shiu L.S.C. (in press) ‘Coming Home? Adjustment of Hong Kong Chinese Expatriate Business Managers Assigned to the People’s Republic of China’, International Journal of Intercultural Relations. Winston, B.E. (1995) Be a Manager-for God’s Sake!, Virginia: Regent University School of Business.


9

Performance appraisal in China Cherrie J.Zhu and Peter J.Dowling

INTRODUCTION Performance appraisal (PA) is the process of identifying, observing, measuring and developing human performance in organizations (Carroll and Schnair, in Cardy and Dobbins, 1994:1). Along with other human resource management (HRM) functions such as reward systems, PA is an integral part of modern Western HRM systems (von Glinow and Teagarden, 1988). In a broad sense, PA tends to serve three major purposes within an organization: administration, development and communication (e.g. Butler, Ferris and Napier, 1991; Cleveland, Murphy and Williams, 1989; Williams, 1972). The administrative purpose encompasses staffing, compensation, promotion, reward and punishment systems (Silverman, 1989). The developmental aspect seeks to ‘identify and develop potential for future performance, linked to succession and personal development planning’ (Goss, 1994:51), while communication is aimed at providing feedback to employees about behaviours and results they should continue or achieve (Butler et al., 1991). In addition, PA is also used to serve the management of human resources in an increasingly complex employment legal environment. For example, performance appraisal records can provide a paper trail for a company to combat wrongful dismissal cases (Eckes, 1994). PA has been a controversial and much-discussed function in HRM for decades. The controversy mainly relates to validity, reliability and credibility (e.g. Hegarty, 1995; Lawler, 1994; Thomas and Bretz, 1994). Supporters of PA claim that it has worthwhile objectives, such as facilitating the implementation of organizational strategy, linking performance to rewards, enhancing communication between managers and their subordinates, as well as identifyNankervis, Compton and McCarthy, 1993). Schuler and MacMillan (1984: ing training and development needs (e.g. Butler et al., 1991; Greer, 1995; 248) use companies as examples to illustrate how a performance appraisal system can ‘assist executives in clarifying and articulating objectives and expectations for themselves and their employees’, and help companies to gain competitive advantages via cost reduction and improved efficiency. On the other hand, opponents argue that PA may create more problems than © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

it solves. Research indicates many reasons that account for the failures or deficiencies of appraisal practices, including inappropriate focus, inadequate training, lack of communication and subjective criteria (Lawler, 1994; Mohrman and Mohrman, 1995). PA has been criticized for focusing too heavily on an individual’s past performance, on compensation and other administrative practices rather than on future goals and developmental aspects (McNerney, 1995; Mohrman and Mohrman, 1995). Inadequate training of appraisers may create superficial and prejudiced judgements, leading to conflict between appraisers and appraisees (Silverman, 1989). Lack of communication, resulting from either the reluctance of appraisers to pass negative evaluation on to their appraisees or merely negligence, may leave appraisees unaware of problem areas. This potentially leads to demotivation, distress or continuing poor performance (Armstrong, 1988; Thomas and Bretz, 1994). Eckes (1994) points out that PA contains subjectivity and immeasurables. This is one of the major reasons why W.Edward Deming (1986, in Eckes, 1994) vigorously argued against individual PA. Despite this controversy, PA remains a major HRM tool in Western market economies (Goss, 1994). For example, research indicates that in the US, the overwhelming majority of both private and public sector organizations use some form of PA (Fisher, Schoenfeldt and Shaw, 1993). Shelton (1995:51) also reveals that PA is ‘the most universally practised human resource management programme in Australian organizations’. This has been supported by recent research conducted by Dowling and Fisher (1996) on human resource management practices in Australia. Their research data indicates that 72.8 per cent of organizations surveyed (643 out of 883) have PA for management employees, while 59.8 per cent (528 organizations) have PA for nonmanagement employees. Fung (1995:230) has argued that ‘HRM is based on the Western model of the rational employee, which may differ significantly from people of other societies’. As a major HRM activity, little is known about the extent of utilization of PA in the People’s Republic of China (PRC)—particularly in the transition from a centrally-planned economy to a market-driven economy. To date, little research has been conducted in this area, especially on PA in China’s industrial sector. This chapter first examines PA systems in China during Mao’s regime and then post-Mao economic reforms. Based on a survey of human resource practices in China’s manufacturing sector conducted by the first author in China between 1994 and 1995, the chapter outlines the current practice of PA in industrial enterprises, diagnoses to what extent PA is currently and should be utilized to serve certain purposes, and discusses survey respondents’ perceived effectiveness of PA. The chapter concludes with recommendations on performance criteria for industrial enterprises in China.


PERFORMANCE APPRAISAL UNDER THE CENTRALLY PLANNED ECONOMY (1949–78) From 1949, when the PRC was founded, to the late 1970s, the government established a centrally planned economic system modelled on the Soviet system (Hare, 1983). Under this highly centralised planning system, the operations of enterprises were strictly controlled and management practices were greatly limited. Employees were generally classified into two groups: workers and cadres. The former included all blue-collar employees while the latter generally referred to white-collar staff. According to Yabuki (1995:71), ‘the broad meaning of cadres is state institution and military “civil servants” while the narrow meaning is persons engaged in “certain specified leadership work or management work” (e.g. organisation cadres and enterprise cadres)’. Workers were administered by the Ministry of Labour and its branches at lower levels. Cadres were managed by the Ministry of Personnel. Those cadres who were both party members and managers were also under the control of the Organisation Department of the Central Committee (ODCC) of the Communist Party of China (CPC). Many policies and regulations regarding the management of cadres were issued by the ODCC, which illustrates the direct control which the CPC had over its cadres. During this period, PA was more commonly used for cadres than for workers. In November 1949 (one month after the PRC was founded), the ODCC issued The Regulation on the Performance Appraisal of Cadres’. In 1964 the ODCC circulated The Report on the Draft of Administration Work of Technical and Scientific Cadres’, specifying the regulations for appraising the performance of those cadres who were generally engaged in technical, scientific or other professional work. These technical cadres could be party members as well (Zhao, 1986). PA, or ‘personnel performance appraisal’, became a key component in personnel (i.e. cadre) administration or management (Han, 1992; Liu, 1987; Su and Zhu, 1992). The purpose of appraising cadres at this time was mainly for promotion or transfer, and the criteria for appraisal were heavily reliant on political loyalty and seniority (Su and Zhu, 1992; Young, 1989). The appraisal was usually conducted annually by the personnel department of the cadre’s organization. Each cadre was given an appraisal form which was divided into three parts: selfevaluation, peer group opinions and the assessment written by the head of the department in which the cadre worked. A narrative essay form of appraisal was adopted. Burns (1989) notes that this kind of appraisal is mainly a ‘superiorrating-subordinate’ type of system, which lacks specified criteria and other appraisal techniques commonly used in Western market economies. Therefore, the result was necessarily to increase the subjectivity of the appraisal process. PA for blue-collar workers was conducted in a much less formal and more subjective way—reflected in the emphasis placed on one’s biao-xian. This term refers to the ‘broad and vaguely defined realm of behaviour and attitudes © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

subject to leadership evaluation—behaviour that indicates underlying attitudes, orientations, and loyalties worthy of reward’ (Walder, 1986:132). A worker’s performance level depended on his/her biao-xian, which was usually discussed by one’s group members first and then decided by both the production leader and party representative or secretary of the group (Walder, 1986). As peers and leaders would make a judgement on the basis of their subjective impressions of one’s day-to-day job performance and cooperation demonstrated, personal relationships with colleagues, especially with the leaders, became the key to getting a good biao-xian (Brown and Branine, 1995; Walder, 1986). Such appraisals were characterized by vagueness, being open to individual interpretation and dominated by political ideology. Schuler and Harris (1991) note that when reviews are highly qualitative, the potential for favouritism exists, or at least the perception of it. Bernardo (1977) notes that in Chinese industry, three criteria (seniority, skill and political attitude) were constantly used for evaluation of workers’ performance. He also noted that it was difficult to specify how appraisers applied these criteria and how they weighed the importance of each criterion due to the subjectivity of the evaluation process. Thus the effectiveness of such a PA process is often questionable. The purpose of workers’ PA was primarily for job promotions, desirable transfers, the distribution of welfare benefits such as housing, and the selection of ‘model workers’ (Henley and Nyaw, 1987; Walder, 1986). It was difficult to link individual performance to compensation due to the vagueness of PA criteria. For example, in the 1977 national wage adjustment, the government stated that ‘eligibility was to be based on four criteria: political behaviour, work attitude, work performance and technical skills’ (Jackson, 1992:165; also see Li, 1991:193). However, people found that it was ‘hard to weigh political considerations against work performance, and workers themselves had different perceptions of fairness…[so] the easy way out was seniority’ (Jackson, 1992:166). Thus, as Jackson (1992:165) noted, ‘despite the push by the current leadership for the socialist principle of “pay according to work”, the implementation of wage adjustments was often marred by factors other than consideration of productivity’. Performance appraisals for both cadres and workers were totally abandoned during the chaotic ten years (1966–76) of the Cultural Revolution (Su and Zhu, 1992; Zhao, 1995).

PERFORMANCE APPRAISAL UNDER THE MARKET-DRIVEN ECONOMY (1978 TO DATE) Since the economic reforms, management practices (especially in terms of HRM) and employee behaviour have been experiencing rapid change, with the official acceptance of a market economy and the subsequent implementation of the Enterprise Law in 1988 and the ‘Regulations for Changing the Methods of Operation of Industrial Enterprises Owned by the Whole People’ in 1992 (Zhu © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and Dowling, 1994). PA, like other HRM practices such as staffing and compensation, is changing due to the transition from a planned economy to a market-driven economy. Shortly after the commencement of economic reforms in late 1978, the ODCC issued the ‘Suggestion for Implementing the Cadre Performance Appraisal System’ in November 1979. This document declared the significance of establishing a formal PA system for cadres for five major reasons. First, PA could identify cadres’ training needs, especially on the professional side, to increase their competency for building socialism. Second, it could distinguish between good and bad performers and help to make correct promotional decisions. Third, it could help implement the socialist principle of distribution, i.e. from each according to his/her ability, and to each according to his/her need. The identification of high and low performers through PA would encourage the former and motivate the latter. Fourth, it could help to break the ‘iron rice bowl’—lifetime employment regardless of performance and tenured positions for cadres. Cadres could be rewarded or punished, and promoted or demoted on the basis of PA evaluations. Finally, subordinates could evaluate their leaders in the PA process, and this would reduce the superior’s domination and put cadres under workers’ supervision as well (Su and Zhu, 1992:157). This document was a signal to abolish the ‘iron chairs’ of state cadres (i.e. tenured positions for cadres regardless of their performance). The appraisal criteria for cadres which are currently used in China consist of four broad areas known as: ‘good moral practice’ (de in Chinese), ‘adequate competence’ (neng), ‘positive working attitude’ (qing), and ‘strong performance record’ (jie) (Child, 1994; also see Brown and Branine, 1995; Burns, 1989; Han, 1992; Zhao, 1986). The four criteria were adopted with an overall grading from excellent, good, pass or poor. ‘Good moral practice’ (de) means virtue or moral integrity, which evaluates whether the cadre is in step politically with the party, and whether the cadre carries out government orders and regulations. De has always been listed on the top of a cadre’s appraisal sheet, during Mao’s regime and after (Child, 1994). Fung (1995:173) comments that ‘Chairman Mao’s slogan Red versus Expert emphasised the value of political activity over business performance’. While Mao Zedong also advocated ‘Be both red [politically reliable] and expert [professionally competent]’, Deng Xiaoping stated that ‘Red does not mean expert, however, to be expert must be red’ (Chen, 1990:352). ‘Adequate competence’ (neng) covers three main aspects: educational background; ability in leadership, management, organization, negotiation, planning, forecasting, and decision making; and physical status, which also includes age. Since the twelfth National Congress of the CPC in 1982, the decisive criteria for selecting and promoting cadres has been shifted from pure political ideology and seniority to youth, knowledge, education and demonstrated managerial capability. Thus neng has become more emphasized than before (Zhao, 1986). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘Positive working attitude’ (qing, pronounced as ‘chin’) refers to diligence and usually assesses attendance at work, discipline, initiative and sense of responsibility. The final area, ‘strong performance record’ (jie, pronounced ‘jai’), is to evaluate the cadre’s work effectiveness, including the quality and quantity as well as other contributions made to the organization. The last two criteria have been given particular attention since the economic reforms. In the old system of the ‘iron rice bowl’ (secure lifetime employment) and the ‘iron chair’ (tenured position), cadres could keep their positions or be promoted with little regard for their working attitude and achievement (Zhu and Dowling, 1994:7). However, under the market-driven economy, production and reward systems are changing, with less emphasis on egalitarianism and a stronger emphasis on efficiency and performance (Shenkar and Chow, 1989). As a result, PA has become a necessity to link performance to rewards and achievement has been given priority in appraisals. Since the reforms, some new methods for assessing cadres have been adopted (Chen, 1990; Su and Zhu, 1992). One is a computer-aided panel assessment (Ceping Kaohe in Chinese). The panel first sets up more detailed categories for each of the four major criteria (de, neng, qing and jie) and gives a weighting to each category. For example, the criterion of ‘de’ is categorized into ‘knowledge of Marxism and Leninism, understanding of state policies, ideology, commitment to work’; each item may have different weights according to the organization’s focus. Panel members then allocate marks individually to the appraisee according to his/her performance. All the marks will then be entered into a computer to obtain final assessment results. This method aims to quantify performance criteria and improve the credibility of PA. Another approach often used for PA is position-related yearly assessment (Gangwei Niandu Kaohe), which is more results-oriented. It is mainly based on a cadre’s job description and objectives set at either the time of appointment or the beginning of each year, including quantity and quality of the work and task fulfilment. These two methods of PA require detailed criteria to reduce subjectivity and informality as observed in traditional PA. However, the old methods of assessing cadres, such as ‘superior-evaluating-subordinate’ (Lingdao Kaohe) and comprehensive qualitative evaluation (Zonghe Jianding, i.e. self-assessment first, then peer group discussion and superior’s final comments) are still being used by many organizations (Su and Zhu, 1992), especially top-down appraisal, which will be further discussed in a later section. While there have been new approaches to assessing cadres, PA has also been gradually developed and become more widely used in enterprises at the worker (shopfloor employee) level since 1978. In 1979, during the national wage adjustment, criteria for wage promotion were changed to ‘work contribution, technical level and work attitude’ and each criterion was more quantified (Jackson, 1992; Li, 1991). The vague political criterion was deleted from the criteria list in 1977. However, after the Tiananmen Square Incident in mid-1989, the emphasis was again given to political attitude. In © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

June 1990, ‘The Regulation on Workers’ Performance Appraisal’ (hereafter called the Regulation) was approved by the State Council and issued by the Ministry of Labour in July 1990. This Regulation is for public sector and state-owned enterprises, and specifies the type, content, method and management of appraisals (Lu and An, 1991; Xia, 1992). The first article of the Regulation states that the major reason for conducting PA is ‘to assess workers’ ideological and political biao-xian (attitudes and behaviours) as well as work achievements, and to determine the technical level reached by the worker, and to raise workers’ initiative to build a socialist country’ (see Zhao, 1995:436). According to Zhao (1995), three major methods are currently being used for PA in China’s industrial enterprises. In the first approach the appraisal is carried on through ‘position specification’. Each job position has detailed specifications, which include quality control, technical requirements, quantified work loads, tools and machine maintenance, labour discipline, caring for the working environment, team-work cooperation, and safety of production. Zhao (1995) chose one high performing company as an example to illustrate how this system works. In this company, quality control requires each worker to self-check his or her own products, classify them according to the quality grades and stamp their working number on them. In addition, the quality inspector checks the quality of products on a regular basis before they get to the storeroom. If there is a quality problem, the relevant worker is identified, the reason for the problem investigated and a prevention method recommended. All of these processes are documented as part of the PA process. In this company, labour discipline has been specified and incorporated into a ‘position specification’ for PA. This involved a set of rules which included ‘two-must and five-forbidden’, i.e. the work of each shift must be started and must be completed according to a planned schedule, and five things are banned while working, i.e. reading, eating, chatting, being idle and leaving one’s work position without permission (Qu, 1991:35). The adoption of a ‘position specification’ based on the principles of scientific management for PA does indicate a radical change in China’s enterprise management. Before the economic reform, scientific management was criticized for helping capitalists to exploit workers, but now it is regarded as an effective technique to break the ‘big rice pot’ (the practice of egalitarianism, i.e. compensation is not linked to one’s performance) and to help managers increase productivity (Zhao, 1994). The second method, ‘management by objectives’, is quite common in Western market economies but quite new in China’s enterprises. PA is conducted within each work group, where each individual has specific objectives to complete. The last method is ‘internal subcontracting’, that is, the enterprise obtains a contract from the state, and then the project or production work is subcontracted to its internal departments or business units. Each unit is accountable for its profits or losses and the employees are appraised within such units mainly for compensation purposes. The three methods mentioned above all aim to break the old practice of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘eating from the big rice pot’ which did not distinguish high and low performers and did not link performance to rewards. However, these methods still have problems: for example, the emphasis given to political considerations, inconsistent measurement, subjectivity, static rather than forward-looking attitudes and a lack of communication (see Brown and Branine, 1995; Huang, 1994; Nyaw, 1995). They generally serve an evaluation purpose rather than developmental or communication purposes. This has been supported by our research findings and will be discussed later. Recently, a new method for PA was suggested by Peng, Bao and Wu (Zhao, 1995), which requires the development of a human resource information system (HRIS) within the enterprise, a behaviour control and motivation system and a strong link between performance and rewards. An HRIS could offer detailed information such as a job description and job specification for each position, and a job holder will have a clear understanding of work requirements and appraisal criteria. Employees are evaluated in terms of their achievement, working attitude and potential ability for promotion. The result of PA is then directly linked to individual rewards and compensation. This new method endeavours to achieve both evaluation and developmental purposes, and it is linked closely to one’s job position rather than a general classification such as worker or cadre. Currently, the extension of labour contracts to the whole workforce has offered a more realistic basis for conducting PA in enterprises. According to the Labour Law of the People’s Republic of China, ‘a labour contract is the agreement reached between a labourer and an employing unit for the establishment of the labour relationship and the definition of the rights, interests and obligations of each party’ (Article 16). The renewal of contractual employment ‘depends on employees’ performance and/or the enterprise’s need for their service’ (Child, 1994:165). Up to May 1996, 88.7 per cent (95.66 million) of enterprise employees had signed labour contracts compared to 31 per cent (35 million) in 1993 (Liu, 1996). Labour contracts with workers, as noted by Warner (1995:131), ‘were more matter of fact and were restricted to mutual obligations vis-à-vis a set of defined expectations’, such as production targets and payments. The requirements specified in the contract could supply basic criteria for PA and help enhance the appraisal’s validity. In international joint ventures (IJVs) in China (up to December 1995, the official number of such IJVs was 258,903), the distinction between cadres and workers has become blurred, and employees belong to either managerial or non-managerial groups. According to the ‘Regulations for the Implementation of the Law of the PRC on Chinese-Foreign Joint Ventures’ promulgated in 1983, IJV wage and bonus systems should adhere to the principles of ‘to each according to his/her work’ and ‘more pay for more work’ (Article 39). This has facilitated the adoption of the Western-style reward system that is more performance-related than relying on age, length of service and political ideology as typically found in most Chinese enterprises (Child and Lu, 1996). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Western style PA has now been introduced to many IJVs and is widely used. Fung (1995:212) reports in his study that Chinese employees ‘regard the concept of “pay for performance” as important for efficient organisation’. When visiting some Chinese IJVs set up by companies from Western market economies between 1994 and 1995, the first author noticed that these IJVs all conducted PA on either a yearly or quarterly basis. The criteria used consisted of factors such as knowledge of the job, quantity and quality of work, and managerial skills. However, the results of PA were used more for administration purposes, such as the distribution of a bonus, than for communication and development.

CURRENT PERFORMANCE MANAGEMENT IN CHINA’S INDUSTRIAL ENTERPRISES This section details and analyses the results of a survey conducted by the first author in China during 1994 and 1995. The survey results regarding PA practices help illustrate the current situation of performance management in China’s industrial enterprises. The survey questionnaire builds upon the work of von Glinow on best international human resource management practices (von Glinow, 1993). In the survey, 850 questionnaires were distributed to managerial and non-managerial employees in enterprises covering four major ownership categories: state-owned enterprises; collectively-owned enterprises; privately-owned enterprises; and international joint ventures. Survey results related to PA are analysed and discussed in terms of the three aspects as listed below: • • •

the existence of PA in the companies, including whether the enterprise has standardized criteria and methods for appraisal, the frequency of conducting PA, who is in charge of the appraisal and how PA is conducted; the purposes of PA, which are classified into three groups— communication, administration and development; the perceived effectiveness of PA in terms of (a) increasing employees’ performance, (b) increasing job satisfaction, and (c) the overall effectiveness of the organization.

The existence of PA In our survey, 346 respondents (78.6 per cent of the total) indicated that there were PA practices in their enterprises, and 219 of them noted that their enterprises had standardized criteria and methods of appraisal. Table 9.1 shows the adoption of standardized criteria and methods of appraisal in the enterprises with different ownerships. It is evident that international joint ventures (67.9 per cent) and state-owned enterprises (67.8 per cent) use more formal types of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

appraisal. For state-owned enterprises, this reflects the emphasis placed on PA by the state and the level of the central government’s control over state enterprises. This is especially the situation for large and mediumsized enterprises which have a consistent set of personnel practices such as PA (Zhao, 1994). For foreign joint ventures (which are mainly formed with stateowned enterprises), the formal use of PA could reflect the influence of the state and foreign companies. With regard to frequency of PA, 74.8 per cent of respondents who confirmed the existence of PA indicated that PA was conducted yearly, 14.3 per cent indicated ‘twice a year’, while 11 per cent stated ‘on a monthly basis’. Thus, the majority of enterprises in this sample conducted PA on a yearly basis. However, it is doubtful whether this annual appraisal process can help to link compensation to PA, as bonuses are usually distributed on a more frequent basis (monthly or quarterly). Tables 9.2 and 9.3 indicate respectively who is in charge of PA and how the appraisal is conducted. Table 9.2 shows that PA is primarily under the control of department managers (82.2 per cent), and Table 9.3 indicates that top-down assessment is still the main method used in PA (60.1 per cent). In some cases, department managers and line managers are jointly responsible for conducting PA, and methods of self-assessment and supervisor-assessingTable 9.1 The adoption of standardized criteria and methods of PA in Chinese companies with different types of ownership

Table 9.2 People in charge of PA

Table 9.3 Methods used for PA

Respondents may have provided more than one answer. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

subordinate are used together, thus the sum of percentages in Tables 9.2 and 9.3 is more than 100.

The purposes of PA As noted earlier in the chapter, PA is often used to serve three major purposes within an organization: communication, administration and development. In the survey the subjects were asked to what extent PA is being used currently (‘Is now’) and should be used in the future (‘Should be’). Chi-square tests were used to assess differences between existing and preferred states. The test results reported in Tables 9.4, 9.5 and 9.6 had three major indications. First, the subjects’ perception of future PA practices is highly dependent on their perception of current practices. Second, the current PA practice patterns are different from the perceived patterns in the future. Finally, the majority of items have shown differences between current and future practices and these differences are statistically significant. The details of these results are discussed below.

Communication In the context of PA, communication is seen as a function allowing for the development of a dialogue between appraiser and appraisee to improve the understanding of perceived goals and objectives, specifically, issues at work and the appraisee’s role in the organization (Schuler, Dowling, Smart and Huber, 1992). The expectation would be to draw appraisees into voicing ideas and suggestions for problem solving and decision making (Goss, 1994). Table 9.4 indicates PA is only used at a low to medium level for communication. However, there is a clear expectation that PA should give more opportunities for communication in the future. The results from chi-square tests (x2, p

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