Multinational Retailers and Consumers in China: Transferring Organizational Practices from the United Kingdom and Japan (Consumption and Public Life)

Consumption and Public Life Series Editors: Frank Trentmann and Richard Wilk

Titles include: Mark Bevir and Frank Trentmann (editors) GOVERNANCE, CITIZENS AND CONSUMERS Agency and Resistance in Contemporary Politics Magnus Boström and Mikael Klintman ECO-STANDARDS, PRODUCT LABELLING AND GREEN CONSUMERISM Jacqueline Botterill CONSUMER CULTURE AND PERSONAL FINANCE Money Goes to Market Daniel Thomas Cook (editor) LIVED EXPERIENCES OF PUBLIC CONSUMPTION Encounters with Value in Marketplaces on Five Continents Nick Couldry, Sonia Livingstone and Tim Markham MEDIA CONSUMPTION AND PUBLIC ENGAGEMENT Beyond the Presumption of Attention Anne Cronin ADVERTISING, COMMERCIAL SPACES AND THE URBAN Jos Gamble MULTINATIONAL RETAILERS AND CONSUMERS IN CHINA Transferring Organizational Practices from the United Kingdom and Japan Stephen Kline GLOBESITY, FOOD MARKETING AND FAMILY LIFESTYLES Amy E. Randall THE SOVIET DREAM WORLD OF RETAIL TRADE AND CONSUMPTION IN THE 1930s Roberta Sassatelli FITNESS CULTURE Gyms and the Commercialisation of Discipline and Fun Kate Soper, Martin Ryle and Lyn Thomas (editors) THE POLITICS AND PLEASURES OF SHOPPING DIFFERENTLY Better than Shopping Kate Soper and Frank Trentmann (editors) CITIZENSHIP AND CONSUMPTION Lyn Thomas (editor) RELIGION, CONSUMERISM AND SUSTAINABILITY Paradise Lost?

Harold Wilhite CONSUMPTION AND THE TRANSFORMATION OF EVERYDAY LIFE A View from South India

Consumption and Public Life Series Standing Order ISBN 978–1–4039–9983–2 Hardback 978–1–4039–9984–9 Paperback You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Multinational Retailers and Consumers in China Transferring Organizational Practices from the United Kingdom and Japan Jos Gamble Royal Holloway, University of London, UK

© Jos Gamble 2011 Chapters 5 & 8 © Jos Gamble & Qihai Huang 2011 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-0-230-54552-6

hardback

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Gamble, Jos, 1959– Multinational retailers and consumers in China : transferring organizational practices from the United Kingdom and Japan / Jos Gamble. p. cm. Includes bibliographical references and index. ISBN 978–0–230–54552–6 (alk. paper) 1. Retail trade–China–Management. 2. Corporations, Japanese– China–Personnel management. 3. Corporations, British–China–Personnel management. 4. Personnel management–China. 5. Consumer satisfaction–China. 6. Organizational learning–China. I. Title. HF5429.6.C5G36 2011 658.8′70951–dc22 2011011826 10 20

9 19

8 18

7 17

6 16

5 15

4 14

3 13

2 12

1 11

Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

Contents List of Tables

vi

List of Images

vii

Preface

viii

Acknowledgements

xi

Notes on the Contributors

xii

1

Introduction

2

China’s Retail Sector in Context

18

3

Transferring Human Resource Practices from the United Kingdom to China

32

4

Shopfloor Perceptions of Employment Practices at UK-Store in China

53

5

Transferring Organizational Practices: A Diachronic Perspective from China with Qihai Huang

83

6

Transferring Organizational Practices and the Dynamics of Hybridization: Japanese Retail Multinationals in China

107

7

Multinational Retailers in China: Proliferating ‘McJobs’ or Developing Skills?

141

8

One Store, Two Employment Systems: Core, Periphery and Flexibility in China’s Retail Sector with Qihai Huang

173

9

The Rhetoric of the Consumer and Customer Control in China

196

Concluding Comments

220

10

1

References

229

Index

249

v

List of Tables 1.1 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7

4.8 5.1 5.2 5.3 5.4 5.5 6.1 7.1 7.2 7.3 7.4 7.5 8.1

Summary of main research in China HRM practices transferred from UK to China Grading structure in UK-Store Contrasts between UK-Store and state owned store ‘State-Co’: Extent of consultation with employees Contrasts between state owned enterprises and UK-Store: Human resource management regimes Contrasts between UK-Store and state owned store ‘State-Co’: Employee satisfaction Contrasts between UK-Store and state owned store ‘State-Co’: Employee commitment to the company Contrasts between UK-Store and state owned store ‘State-Co’: Job security Contrasts between UK-Store and state owned store ‘State-Co’: Work effort and job security Contrasts between UK-Store and state owned store ‘State-Co’: Correlation between job security and work effort Contrasts between UK-Store and state owned store ‘State-Co’: Employee satisfaction levels Demographic profile of staff surveyed Comparison of consultation at Shanghai UK-Store and Beijing UK-Store, ‘NewStore’ Comparison of consultation at Beijing UK-Store, ‘NewStore’, and Beijing state owned store, ‘State Store’ Work pressure and job security compared: Shanghai UK-Store and Beijing ‘NewStore’ compared Work pressure and job security compared: Beijing MNC (‘NewStore’) and Beijing state owned store, ‘State Store’ Summary of Japanese firms’ parent and host country stores’ practices Training received at UK-Stores in UK and China Learning of new knowledge at retail firms in China Encouragement to learn new skills Learning of new knowledge: Sales assistants, checkout and warehouse staff Transferability of skills Comparison of store employees and vendor representatives vi

10 42 49 60 61 62 63 65 66 67

70 88 95 96 99 99 119 156 157 157 159 163 180

List of Images 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11)

Japanese Owned Store – Front Entrance Japanese Owned Store – Workers’ Entrance Bowing Practice Before the Store Opens Listening to the Japanese Store Manager’s Morning Message Store Opening Time State Owned Store Counter Demonstration – Say ‘No’ to Japanese Products Each Employee Brings Their Own Water Bottle to Work Counting Out the Customer’s Change Turning the Store into Private Space Training Employees

vii

138 138 139 139 140 217 217 218 218 219 219

Preface I was fortunate to travel independently in China for two months in 1984 and again for six weeks in 1985. These journeys inspired my desire to understand more about this country and its people. Later, I spent two years from 1988–90, studying Chinese language and literature at Fudan University in Shanghai. This was followed by a further 15 months at Tongji University, also in Shanghai, from 1992–3, while undertaking field research for my PhD at the University of London’s School of Oriental and African Studies. I recall my friend Luo Meilun who was born a citizen of the Qing Empire. Listening to his recollections of how, as a young boy, he had learnt two of the Confucian classics by heart and his queue was cut off following the downfall of the Manchu dynasty, they seemed to come from a scarcely imaginable, vanished world. Now, when I reflect on my early visits to China, it is easy to feel that they too belong to another world. In the 1980s and early 1990s, even the once ‘modern’ and cosmopolitan city of Shanghai had few new buildings, there was not much evidence of multinational companies and few imported products were available. Shops and restaurants closed early and store assistants rarely had any interest in selling you the products they oversaw. As a student at Fudan, the university needed to issue a ration coupon to allow me to buy the bicycle on which I explored every part of the city, along with postage stamp sized coupons to buy rice that small restaurants sometimes still required. In 2010, Shanghai, like many other parts of China, is a very different place. Two decades ago, even China’s largest cities ambled along at a steady but leisurely pace. Now, in the last few days, reports come in that the size of China’s economy has overtaken that of Japan, making it second only to the United States. Many of the changes that have taken place in the country over the last two decades are visible in its retail sector. The influx and spread of multinational retail firms became possible due to China’s broader social, economic and political changes. At the same time, their arrival not only reflects these changes, but also affects their course and direction. Understanding and analysing the processes at work in these multinationals, and especially the transfer of their organizational practices, is the overarching theme of this book. viii

Preface ix

The research for this book spread over eight years, encompassed various forms, and included study visits to several cities. The latter included London, Tokyo, Shanghai, Beijing, Chengdu, Tianjin, Shenzhen, Suzhou, Jinan and Guangzhou. I undertook several hundred one-to-one interviews and gathered many more anonymous questionnaires. For two chapters of this book, my colleague Qihai Huang engaged in three months participant observation research in a large British owned store in Beijing. I interviewed local managers and expatriates from Japan and the United Kingdom, but mostly local staff from all levels of the firms’ hierarchy. Even in business research in the United Kingdom, these voices are rarely heard. Such voices from China are even less audible. I suspect that for most of those I talked with, this was the first time they had ever been interviewed, let alone by a ‘foreigner’. With few exceptions, they engaged in this novel and unfamiliar process with good humour and often surprising candour, providing illuminating glimpses and insights into their working lives and sometimes their broader expectations and experiences. Most appeared to enjoy this encounter just as much as I did. Indeed, on more than one occasion I was told that staff were disappointed that I had not interviewed them! In the course of such a long research project, numerous debts of gratitude accrue. I would like to express my sincere thanks to all those companies and individuals in China, Japan and the United Kingdom who gave their time so generously. I thank, in particular, Jun Abe, Caroline Boddie, Nathalie Champel, Emily Chen, Chen Shubi, Chen Xiaohua, Dong Yanyan, Mohamed El Fanichi, Fred Fukumoto, Gao Yidao, Redtenbacher Guenter, Mathew Guildford, Heng Hong, Kazunari Honda, Mugikura Hiroshi, Huang Ke, Teruyuki Iida, Makoto Imai, Toshihiko Inaba, Tadashi Ito, Dean Jia, Joe Jiang, Jiang Yan, Masae Kanetake, Nobuo Kawabe, Yoshimi Kodama, Li Fengjiang, Li Gan, Bacon Liao, T.C. Lim, Linda Lin, Lu Zhenghong, Hakim Maaref, Takeshi Matsui, Takeo Mishima, T. Nakamichi, Hanae Nakano, Satoshi Osada, Yoshiaki Ota, Yoshikazu Otsuka, Ouyang Xiqin, Nancy Qi, Toshiko Sasame, Elaine Shen, Shi Jiangfeng, Mary Shi, Shigeki Shimozawa, Nobutaka Shiroki, Song Ze, Ian Strickland, Ken Takai, Akihiko Tanaka, Tian Hansen, Damian Toulouse, Brian Tuson, Takashi Urano, Wang Chunli, Wang Jingshi, Vincent Wang, Wang Zhengyao, Kelvin Warburton, Wei Hua, Wei Nan, Wen Dong, Bill Whiting, Bob Wilkins, David Williams, Tim Winsey, Stephen Xiao, Toshiyuki Yahagi, Mitsuru Yamada, Takahide Yamamoto, Takashi Yamashita, Yang Changhong, Andy Yoji, Frank Yu, Maggie Yuan, Zhao Menhong and Geoffrey Zhou.

x Preface

For the last 12 years, I have worked at the School of Management, Royal Holloway, University of London. I appreciate greatly the friendship of my colleagues at the School; it has an excellent ethos and has always been a supportive and congenial place to work. I am grateful as always to my family, my mother and my two brothers, Adrian and Simon, I dedicate this book to them. Jos Gamble

Acknowledgements This book is a result of research sponsored by the ESRC/AHRC under its Cultures of Consumption programme for the project ‘Multinational Retailers in the Asia Pacific’ (RES-143-25-0028). I would also like to acknowledge earlier support from a British Council China Studies Grant, the Daiwa Foundation, the Japan Foundation Endowment Committee, and Royal Holloway for ‘pump-priming’ that was essential to the success of this project. Earlier versions of many of these chapters were presented to seminars and workshops at the Universities of Warwick, Bristol, Manchester, Waseda, Leeds, Manchester Metropolitan, Kingston, De Montfort, Lancaster, the London School of Economics and Royal Holloway, University of London as well as to conferences including the Academy of International Business (AIB) in Beijing, Indianapolis, Milan and Rio de Janeiro, the Asian Academy of Management in Ipoh, Critical Management Studies in Los Angeles, the Society for Global Business & Economic Development (SGBED) in Kyoto, the International Labour Process Conference in London, the International Human Resource Management Conference in Cairns and Tallinn, the Association of Japanese Business Studies in Milan, the Retailing in Asia Pacific Conference in Bangkok, the International Institute of Sociology World Congress in Beijing, the Institute for Industrial Relations Association in Seoul, the American Association of Asian Affairs in San Diego, the International Convention of Asia Scholars in Shanghai, Knowing Consumers in Bielefeld, and the Asia Pacific Researchers in Organization Studies (APROS) conference in Oaxaca, as well as to the British Business Network in Beijing and the Sichuan Academy of Social Sciences in Chengdu. I am grateful to participants in all these events for their comments and suggestions. Chapter 3 draws on an article in International Journal of Human Resource Management, 14(3): 369–87. Chapter 4 draws on an article in Journal of World Business, 41(4): 328–43. Chapter 5 draws on an article in International Journal of Human Resource Management, 20(8): 1683–703. Chapter 6 draws on an article in Journal of Management Studies, 47(4): 705–32. Chapter 7 draws on an article in Journal of Management Studies, 43(7): 1463–90. Chapter 8 draws on an article in British Journal of Industrial Relations, 47(1): 1–26. Chapter 9 draws on an article in Work, Employment & Society, 21(1): 7–25. In all cases, the original papers have been revised, amended and updated. xi

Notes on the Contributors Jos Gamble is Professor of International Business at the School of Management, Royal Holloway, University of London. During 1988–90, he studied Chinese language and literature at Fudan University in Shanghai. He graduated subsequently with a PhD in Social Anthropology from the School of Oriental and African Studies in London. Much of his subsequent research has focused on employment relations in multinational enterprises, with an emphasis on the Asia Pacific region. He has undertaken extensive field research in China, as well as Japan, South Korea and Malaysia. Jos is the author of Shanghai in Transition: Changing Perspectives and Social Contours of a Chinese Metropolis (2003) and has published papers in a variety of leading international academic journals as well as book chapters. Qihai Huang is a Senior Lecturer at Lancaster University Management School, UK. Prior to entering academia, Qihai worked at the central government in China. Qihai holds a PhD and a MSc from the University of Bristol and a BA in Sociology from Peking University. Before joining Lancaster University, he worked at Manchester Metropolitan University and Royal Holloway, University of London.

xii

1 Introduction

Overview Rising prosperity and a rapidly commercializing economy have transformed post Mao China into the world’s largest and most rapidly growing emerging market. Until 1992, foreign firms were largely excluded from China’s domestic retail market. Since then, this sector has gradually opened to foreign involvement, a process boosted by commitments made as part of China’s accession agreement to the World Trade Organization, which it joined in 2001. China now constitutes an increasingly significant market for overseas retailers, offering the lure of substantial growth potential compared with low growth or stagnation in developed markets. Attracted by its growing economy and rising consumer spending, multinational retailers have rapidly built up their presence. Based on extensive comparative research conducted at multinational retailers from the United Kingdom and Japan, this book investigates the transfer of parent country organizational practices by these retailers to their Chinese subsidiaries. The chief intention is to contribute to debates that analyse the transfer of organizational practices by multinational firms. This study also provides insights into human resource management in multinational retail firms as well as changing labour management systems in China. In addition, it delineates some of the impacts of multinational retailers on consumer culture and the development of consumer consciousness in a developing country. Lastly, it contributes to empirical knowledge and understanding of the economically and socially significant retail industry and its operations in China. This introductory chapter outlines the rationale and motivation for this study, details the research methods and indicates the main contents. 1

2 Multinational Retailers and Consumers in China

Motivation for this study Despite substantial research devoted to understanding the transfer of organizational practices by multinational companies (MNCs) (e.g. Almond and Ferner, 2006; Boyer et al., 1998; Ferner et al., 2006; Geppert and Mayer, 2006a; Morgan et al., 2001), significant gaps remain in our understanding. Firstly, most studies focus on manufacturing industries in which overseas subsidiaries form part of a global, or at least a regional, division of labour (e.g. Boyer et al., 1998; Delbridge, 1998; Elger and Smith, 2005; Kenney and Florida, 1993; Legewie, 2002; Milkman, 1991; Saka, 2002; Sharpe, 2006; Shibata, 2008; Taylor, 1999, 2001; Wilkinson et al., 2001). Despite calls to explore the influence of sector (Colling and Clark, 2002; Ferner, 1997), we know much less about the transfer of practices by service sector firms. With respect to China, for instance, the issue of managing employees in MNC operations has attracted growing interest from researchers (e.g. Björkman et al., 2008a, 2008b; Cooke, 2005, 2009; Goodall and Warner, 1997, 1998; Taylor, 2001; Walsh and Zhu, 2007; Warner, 2008). However, with few exceptions (e.g. Gamble and Huang, 2008) the transfer of organizational practices in the service sector and retailing in particular has been rather neglected. Retailing constitutes an important service industry. It includes large multinational firms that have an impact on both workers and customers worldwide. In early 2010, for instance, the American retail giant Wal-Mart operated 8416 stores and club locations in 14 markets and employed more than 2.1 million ‘associates’ (Wal-Mart, 2010a). In early 2010, the French retail group Carrefour claimed to have 495,000 employees and over 15,500 stores in its worldwide business (Carrefour, 2010). Moreover, developments in retailing affect not only business, but also the urban and cultural landscapes (Howard, 2010b: 1). Despite this, the retail sector has been understudied generally compared with other business sectors (ibid). With few exceptions (e.g. Boussebaa and Morgan, 2008; Goldman, 2000, 2001; Hurt and Hurt, 2005), this omission is also evident with respect to analysis of the transfer of practices by multinational retailers. Lack of attention to such local market seeking service sector multinationals is a significant omission. Subsidiaries of multinationals seeking low cost labour can face pressures from employees and other stakeholders to adopt local practices. Potentially, market-seeking subsidiaries might face greater pressures of this kind since they also need to seek legitimacy among local customers. Recent years have witnessed the increased internationalization of service sector firms. This trend has been apparent in the retail sector.

Introduction 3

Although some retail firms have long engaged in overseas operations, the globalization of retailing became more pervasive in the 1990s. In their home countries, many major retailers faced limited domestic market growth opportunities (Goldman, 2001; Larke and Causton, 2005; Williams, 1992). At the same time, they anticipated the potential profits to be gained from leveraging ‘an internationally appealing and innovative retail concept’ (Au-Yeung and Henley, 2003: 11). It can be argued that for major retailers ‘international retailing is no longer simply an option; it has become a necessity’ (Akehurst and Alexander, 1995: 1). Concurrently, major developing countries began opening their markets to foreign investment in this sector (Coe and Wrigley, 2007). The Asia Pacific region, with its booming economies and large population, is particularly attractive to multinational retailers (Dawson et al., 2003; Howard, 2010a; Ness, 2005). Japanese and UK retailers have joined this trend with increasing investments in the region. China, with its fast developing economy, growing middle class and fabled market of ‘1.3 billion consumers’, is especially enticing. Secondly, although there are exceptions (e.g. Zou and Lansbury, 2009), research attention in this field has usually been limited solely to subsidiary level activities. This assumes that firm level practices accord with stereotyped national patterns of organizational practices and ignores diversity, both between and within sectors. For this study, data was collected at firms’ home country operations and their overseas subsidiaries. It traces individual organizational practices in specific firms separately, following through their distinctive narrative from the parent to host country subsidiaries. Thirdly, although this imbalance is gradually being rectified, the majority of studies focus on developed market economies. Most exceptions focus on the manufacturing sector (e.g. Cooke, 2004; Harriss, 1995; Shibata, 2008; Taylor, 1999, 2001; Walsh and Zhu, 2007; Zou and Lansbury, 2009). This neglect of developing economies provides us with a restricted and partial view of the issues involved. As Whitley (1999, 2001) argues, the relative nature and degree of organization in parent and host environments will affect the extent of transfer of firms’ parent country practices. On this basis, one might anticipate, for instance, that the host country influence on Japanese firms in the less developed and cohesive Chinese context to be relatively weak. Fourthly, many studies on the transfer of organizational practices by MNCs can be critiqued for their ‘thin’, monochrome texture, with a reliance upon survey ‘snapshots’ or interviews with a handful of senior managers and professionals. Researchers of organizations have, it seems,

4 Multinational Retailers and Consumers in China

generally been reluctant to take up Burawoy’s (2000: 2) call to engage in the kind of extended case study that can provide a ‘privileged insight into the lived experience of globalization’. Reviewing the literature, Clark et al. (1999) found relatively few in-depth case studies and little attention paid to the experiences of shopfloor employees. More recently, Cooke (2009: 19) comments on the ‘serious challenge’ in China to gaining access to employees for data collection and laments that as a result ‘the voice of employees is largely unheard’. Detailed, qualitative case studies provide the opportunity to investigate hypotheses developed in larger survey type studies and an ideal means to explore the intricacies involved in the reception and translation of transferred practices. The fact that a subsidiary has introduced, say, performance appraisal or quality circles tells us little about the actual operation of these practices and even less about the experiences and perceptions of those who participate in them. Studies on the transfer of organizational practices risk becoming like butterfly collecting, with elements apparently transferred simply ticked off a list. This overlooks the likelihood that transferred elements may be interpreted very differently in novel contexts (Ferner and Varul, 2000). While survey based data can help in the triangulation process, it provides little indication of the processes and motives involved (Ferner, 1997). Reliance upon deductive and quantitative methods also loses the richness of insights based on direct observation of workers and managers (Hodson, 2005). Moreover, research that neglects the ‘voice of those at the receiving end’ (Clark et al., 1998: 10), with managers requisitioned to speak on behalf of their workers, airbrushes out workers’ perspectives. Evidence from research on the United Kingdom retail sector (see Turnbull and Wass, 1998), demonstrates that the gulf between managerial rhetoric and employees’ experiences can be dramatic. The potential for overlooking such divergences is greater still in cross-national contexts. Given language difficulties and access constraints, it is perhaps unsurprising that in-depth research in distant countries such as China is usually the domain of anthropologists and occasionally sociologists (e.g. Lee, 1998; Pun, 2005). These researchers often focus on more marginal or peripheral segments of the labour force, such as migrant workers. By contrast, with notable exceptions (e.g. Hanser, 2008; various contributions to Lee, 2007b), few detailed accounts examine mainstream employment sectors (Zhu et al., 2008). This study aims to rise to Burawoy’s challenge through in-depth case studies and research that includes employees from all levels of firms’ hierarchy.

Introduction 5

Fifthly, it is a timely point at which to focus on the transfer of organizational practices by United Kingdom and Japanese multinational retailers to their subsidiaries in China. Firms from these countries were selected for this study given their importance both in the global economy and as sources of foreign direct investment. China is selected as the host country environment partly because developing country contexts have been less well represented in such studies, but also because it has become an important location for MNCs. From the late 1970s, and especially since the early 1990s, China has become a major destination for foreign direct investment, including substantial investment from the UK and Japan. Foreign firms play an increasingly important economic and social role in China. By 2008, some 3 per cent of businesses in China were foreign funded. They accounted for 29.7 per cent of China’s total industrial output, 21 per cent of tax, 55 per cent of imports and exports and employed 45 million people, accounting for 11 per cent of China’s total employment (People’s Daily Online, 2009). Even though foreign companies have only been allowed to participate in China’s retail sector since 1992, by 2005 the largest 18 foreign invested retailers in China already operated 4502 stores (Ernst and Young, 2006). This internationalization has continued apace. Under China’s World Trade Organization accession agreement, its retail sector was further opened to foreign entrants in December 2004. The rapid development of a highly competitive retail market has been paralleled by the emergence of a vigorous and re-energized consumerism. Despite its much discussed economic problems, Japan only lost its position as the world’s second largest economy to China in 2010. It is also a major source of foreign direct investment. Between 1979 and 2000, Japan was China’s second largest investor, with $25.74 billion of utilized investment in 19,137 projects (MOFTEC, 2004). By 2008, Japan was the third largest source of cumulative foreign direct investment in China with US$65.37 billion, behind Hong Kong and the British Virgin Islands and ahead of the United States with US$59.65 billion (U.S. State Department, 2009). Cumulatively, the UK is the largest European Union investor in China, with a total realized investment value of US$15.82 billion and 6264 projects at the end of March 2009 (UK Trade & Investment, 2009). Japanese management practices and their transfer to overseas subsidiaries has been the subject of extensive research scrutiny. Numerous studies document HRM practices within Japan (e.g. Dalton and Benson, 2002; Graham, 2003; Haak and Pudelko, 2005; Inagami and Whittaker, 2005; Rebick, 2005). An equally extensive body of studies delineates

6 Multinational Retailers and Consumers in China

work organization and HRM in Japanese plants overseas (e.g. Delbridge, 1998; Elger and Smith, 2005; Kenney and Florida, 1993; Legewie, 2002; Milkman, 1991; Sharpe, 2006; Taylor, 1999, 2001; Wilkinson et al., 2001; Whitley et al., 2003). Far less attention has been paid to UK management practices and their transfer. When research has focused on UK firms, the exploration tends to remain within the realm of economically developed countries (e.g. Edwards et al., 1996; Edwards et al., 1999; Muller, 1998; Schmitt and Sadowski, 2003). In some respects, this is rather surprising; the UK has long been a major exporter of capital and is home to a significant number of major MNCs. This lack of attention may be attributed to various factors. Firstly, Japanese firms possess more novelty value. Multinational firms from Japan emerged and spread rapidly in the 1980s; UK MNCs have been overlooked, perhaps, as part of the ‘global furniture’. Secondly, by contrast with Japanese firms, their UK counterparts are perceived to possess less distinctive and homogeneous characteristics. Additionally, whereas Japanese firms are believed to possess distinct competitive advantages in terms, for instance, of their approach to HRM and supply chain management, this is less apparent for UK firms. Selecting Japanese and UK retail firms for this study also has the theoretical rationale that they have developed in differing institutional contexts and according to significantly different business logics (Whitley, 1999). While the former is an exemplar liberal market economy, the latter is a co-ordinated market economy. Japanese firms are portrayed as strongly embedded in the domestic institutions of their home economy. They are considered to have a long-term orientation, with labour regarded as a fixed cost, extensive training and strong internal labour markets. By contrast, the UK system is typically characterized by relatively weak embeddedness, with high labour mobility and firms operating on a basis of more short term, low risk investments in fixed capital and human resource development. Where Japanese firms are generally presumed to make substantial investments in human resources, for instance, UK firms have been considered to provide minimal training opportunities (Crouch et al., 1999). While Japanese retail firms are characterized by a strong service ethic, UK firms tend to adopt a less prescriptive approach to customer service interactions. The expectation might be that Japanese firms would be more inclined to transfer a relatively unmodified version of their domestic approach to China, while UK firms would be more responsive to local differences. Lastly, given its significance both in economic terms and as a source of employment, the study of employment relations in China’s service

Introduction 7

sector is valuable in its own right. The perception of China as the ‘world’s factory’ can easily divert attention from the rapid rise of the service sector, including retailing, in that country. By 2002, services already accounted for 34 per cent of GDP and employed 211 million workers contrasted to less than 22 per cent and 49 million in 1978 (People’s Daily Online, 2004). In Western contexts, the service sector is no longer the poor relation in the study of human resource management, for instance, (e.g. Deery and Kinnie, 2004; Korczynski, 2002; Sturdy et al., 2001), including some excellent workplace centred accounts (e.g. Leidner, 1993). Research on business and management in China has steadily gathered pace. However, study of China’s service sector and employment relations within it remains in its infancy. With few exceptions (e.g. Hanser, 2008; Otis, 2007), detailed qualitative studies are especially sparse.

Research methods This book draws upon detailed, contextualized case studies of workplaces in multinational retailers. The research adopted a case study approach, with data collected over a relatively long period through mixed methods, including survey questionnaires and participant observation, as well as interviews with local employees, expatriate staff, customers and relevant government, trade union and business organizations. Although other firms were included, the most intensive and detailed research was undertaken at four key firms: one from the United Kingdom and three from Japan. Firms were selected on the basis that they operated in both their home country and China. The larger number of Japanese firms reflects the greater engagement of retail firms from that country in China compared to UK firms. Detailed study of Japanese and UK retail companies and their employees in China, backed up by research in Japan and the United Kingdom, as well as of Chinese owned stores and other multinational retailers, enabled a range of robust and systematic cross store, cross national and intra-national comparisons. The four main firms are anonymous in accord with guarantees provided to them. The UK multinational retailer ‘UK-Store’ opened its first mainland China home improvement materials store in Shanghai in June 1999. A second store, also in Shanghai, opened in May 2000. Up to April 2005, it had opened a further 21 stores in various cities. By April 2007, UK-Store had over 50 stores in various cities and had become the number one home improvement retailer in China. Strategically, the firm divides China into four regions, North, South, East and Central, and has

8 Multinational Retailers and Consumers in China

expanded rapidly in the first three of these areas. Within major cities, such as Shanghai and Beijing, the aim is to establish stores rapidly in each quadrant of the city. In this way, UK-Store seeks to gain first mover advantage and swiftly acquire substantial market share. UK-Store opened its first store in Beijing in 2003. Within three years, it had opened six stores in the city, including a ‘global flagship’ store, the largest outlet operated by the company anywhere in the world. J-Store1 and J-Store2 are leading Japanese general merchandise retail firms. The typical format in these stores is for the lowest floor to be devoted to food and the remainder to clothing and other products. J-Store1 is the least internationalized of the three Japanese firms, expansion to China in 1997 was its first overseas operation. By 2006, it had seven stores in two Chinese cities. By the end of 2009, this had increased to 13 stores in the same two cities. Its rival, J-Store2, has opened stores in several Asian countries and had nine stores in China by the end of 2005. By October 2009, this had increased to 31 outlets in China: one in the Beijing-Tianjin area, four in Shandong, eight in Guangdong, eight in Shenzhen and ten in Hong Kong. J-Store3 is a major Japanese department store. It has several stores worldwide, and opened its first store in China in 1993. By 2009, it had five stores in four different Chinese cities. As outlined above, much research on the transfer of organizational practices explores only one level of firms’ activities, typically, only expatriates or only managerial staff in the host country. The aim in this study was to include as many levels as possible: home country headquarters; home country store managers; home country employees; overseas regional headquarters; overseas subsidiary store managers; and overseas subsidiary store employees from a range of departments and all levels of the hierarchy. Research at stores and headquarters offices in Japan and the UK provided the basis to understand parent country practices, while the bulk of the field research was undertaken at eight locations in China (Shanghai, Beijing, Chengdu, Tianjin, Shenzhen, Suzhou, Jinan, Guangzhou). In several cases, repeat visits were made to stores and headquarters. Direct comparison of actual workplaces means that the variables of business sector and company are held constant, allowing these aspects to be largely discounted in the analysis. An emphasis on local employees’ perspectives provides a basis from which to interrogate assumptions derived from Western contexts. In the UK and Japan, data was collected through interviews with employees, managers, business organizations, trade unions, research institutes and academic researchers as well as survey questionnaires given to retail stores’ employees. In the UK, interviews were conducted

Introduction 9

in 2000 and 2001 with 18 employees and managers at one of UK-Store’s London stores, with the firm’s Director of Human Resources and its International Development Director. In 2001, 2002, 2003, 2004, 2005 and 2006, research in Japan included study visits to stores owned by the three MNCs and interviews at their head offices and with former China expatriates. A total of 16 interviews were also conducted at these firms’ stores in Japan. In addition to the four core case study companies, research was undertaken at a further four retail firms in Japan. In China, research at the four core case study companies included 288 interviews with local staff and expatriate managers at six UK-Stores and eight Japanese stores. Initial research at UK-Store was undertaken during two visits, each of three weeks’ duration, in 1999 and 2000. Subsequently, in 2002 and 2003, research was undertaken at UK-Stores in Shanghai, Suzhou and Shenzhen. Interviews were also conducted at the firm’s China head office. The author was allowed a free hand to select interviewees. In total, 142 semi-structured interviews were conducted with a cross-section of local staff selected from a range of departments and every level in the firm’s hierarchy including customer assistants, checkout staff, store managers, department managers, product buyers, personnel managers, warehouse staff and supervisors as well as key expatriate staff. During 2002, 2003, 2004, 2005 and 2006 research was undertaken at eight stores in China owned by the three Japanese MNCs in six different cities (Chengdu, Shanghai, Beijing, Tianjin, Guangzhou, Jinan). A total of 146 semi-structured interviews were conducted at these firms with a cross section of local employees and expatriate managers (see Table 1.1). Case study research in China was undertaken at a further 14 stores, including state owned enterprises, domestically owned private firms, Taiwanese, German, Swedish and French retail firms. The number of interviews conducted at each firm ranged from one to 32. Not all of the data is utilized directly in this study. However, it served to inform and contextualize understanding of practices in the Japanese and UK multinationals. Interviews were also conducted at government departments, consumer associations, consular offices and embassies, and with local researchers and consumers – both individually and in focus groups. A semi-structured interview protocol began with questions seeking factual information, such as employees’ educational level and duration of employment at the firm. Thereafter, interviews followed the precepts of grounded theory (Strauss and Corbin, 1998), with open-ended questions that allowed respondents space to digress and elaborate upon

10 Multinational Retailers and Consumers in China Table 1.1

Summary of main research in China

Store name and location

Number of interviews

Survey n (male/female %)

Product market

Parent country

Supermarket and department store

Japan

J-Store1 North China (1)

9

149 (27/73)

J-Store1 North China (2)

2

–

J-Store1 West China (1)

46

J-Store1 West China (2)

11

J-Store2 South China

7

148 (25/75)

Supermarket and department store

J-Store3 North China

40

49 (4/96)

Department store

5

20 (35/65)

J-Store3 East China

97 (46/54) –

J-Store3 Central China

26

–

UK-Store China Head Office

25

–

UK-Store Shanghai (1)

45

UK-Store Shanghai (2)

13

UK-Store Shanghai (3)

1

UK-Store Shanghai (4)

30

–

UK-Store Suzhou

23

–

UK-Store Shenzhen

5

Total

288

97 (65/35)

Home decoration materials

United Kingdom

– 96 (82/18)

100 (67/33) 756

their experiences. The aim was to gain insights into how the world looked from the respondent’s perspective, rather than imposing the researcher’s pre-determined categories. The author’s facility in Chinese permitted interviews with local employees in China to be conducted

Introduction 11

on a one-to-one basis without an interpreter; this enhanced the relaxed and discursive nature of the interaction. Japanese staff were interviewed in Chinese or English on a one-to-one basis or with the assistance of either a Chinese-Japanese interpreter or an English-Japanese interpreter. Repeat visits to several stores and follow up interviews, as well as use of the main target language without the presence and mediation of an interpreter, helped foster a basis of familiarity and trust between the researcher and interviewees. Most interviews took place in the workplace, in an area where they could not be overheard by workers’ colleagues or managers. Interviews were generally not recorded, instead they were transcribed directly by the author during the interview; recording interviews would have inhibited interviewees’ readiness to speak openly (cf. Milkman, 1991: xv–xvi), particularly in China. The author also has extensive research experience in China, including long-term anthropological study (e.g. Gamble, 1997, 2000, 2001, 2003), and is alert to body language and speech patterns that indicate reluctance to speak openly. In practice, most employees displayed a (sometimes surprising) readiness to talk candidly about their work, evidence for which included occasional revelations that could have created problems for them if conveyed to their superiors. Even with extensive interviews it can be difficult to capture sensitive and context embedded data. Accordingly, during 2005, a native Chinese speaking researcher undertook three months’ continuous ethnographic research at ‘NewStore’, one of UK-Store’s six stores in Beijing. During this period, he trained and operated as a sales assistant. Such participant observation research enables the capture of elusive, ambiguous and tacit aspects of research settings with rich and thick data (Linstead, 1997). This in-depth ethnographic study was akin to that conducted by Kunda (1992), Leidner (1993) and Matsunaga (2000). It followed a typical pattern for such study with ‘the ethnographer participating, overtly or covertly, in people’s daily lives for an extended period of time, watching what happens, listening to what is said, asking questions – in fact, collecting whatever data are available to throw light on the issues that are the focus of the research’ (Hammersley and Atkinson, 1995: 1). The researcher was given a free hand to observe and talk with both employees and customers. He developed relationships with employees from every level in the store’s hierarchy and both employees and customers treated him as a staff member. Interaction with fellow employees included out-of-work activities such as evening meals and cigarette breaks. Observations were also made of everyday activities in the store,

12 Multinational Retailers and Consumers in China

including interactions between employees and between employees and customers. Ethnographic research in which social scientists ‘spend extended periods of time following their subjects around, living their lives, learning their ways and wants’ (Burawoy, 2000: 27), provides an attuned researcher with numerous opportunities to listen to conversations as they happen and to observe off-guard, ‘backstage’ moments. During this participant observation research, the researcher was largely based in one department. In order to ensure that the research data was not based unduly on this particular department’s employment relationships, he also conducted semi-structured interviews with a representative selection of 120 (out of a total of 750) employees in the store, including managers, team leaders, supervisors, junior level staff and vendor representatives from all departments of the store, as well as with security guards and cleaners. Most employees interviewed were selected randomly on the shopfloor in a process that relied upon staff being free to talk at any given time. Interviews often spread over more than one meeting. Questions asked included: ‘why did you join this store?’, ‘what kind of welfare provision do you enjoy?’, ‘what are your working hours?’, ‘what training have you received since joining the store?’, ‘have you encountered difficult customers?’, ‘how would you describe your relationship with other employees here?’, and ‘how would you describe relations with other colleagues and with managers?’. Data from this participant observation research is drawn upon in the co-authored Chapters 5 and 8. The process of analysis included intensive discussion between the researchers as well as frequent rereading and interrogation of the data as delineated by Kunda (1992: 238–40). Research partnerships with regular team discussions generally ensure that their complementary insights add to the richness of the data (Eisenhardt, 1989). The value of this process was enhanced in our case, since the two authors have conducted research both independently and jointly at the firm concerned. This allowed considerable scope to compare, discuss and triangulate findings, activities that began as soon as the research was underway and that help to enhance confidence in the findings. The project’s relatively long duration and the opportunities this provided to re-visit research sites enhanced its iterative quality. Research questions, lines of enquiry and interview protocols were assessed and redefined as the researcher’s understanding grew and as new themes appeared (Elger and Smith, 2005). Interviews, conversations, overheard comments and descriptions of observed phenomena were transcribed as soon as feasibly possible. These transcripts were closely read to deter-

Introduction 13

mine ‘emergent classifications and patterns’ (Taylor and Bogdan, 1998). Transcribed data was grouped into broad themes through manifest coding (Neuman, 1997), in which, for instance, employees’ comments on ‘unreasonable customers’ (bu jiang daoli de guke) and references to the customer as god or king were collected under separate headings. Following this in vivo coding (Strauss and Corbin, 1998), the data were also divided into categories through latent coding (Neuman, 1997), that is, based on implied meanings in the text, such as ‘employees’ portrayals of customers as friends’ and ‘customers lack of trust’. In an iterative process, data were compared within and across groups to identify patterns, make comparisons and contrast new and old data. These steps helped ensure that all relevant strands were included in the analysis and given due prominence. The intention is to produce a text that conveys a fair and ‘approximate representation’ (Hirsch and Gellner, 2001: 11) of the way the people studied present and live their lives. Thus, the quotes presented are representative of the main currents detected in the research. The study also draws upon a survey based questionnaire. Over 2200 questionnaires were self completed by employees in UK, Japanese and Chinese owned firms in China, Japan and the UK, including almost 1000 from the four main case study firms. As Eisenhardt (1989: 538) argues, ‘the combination of data types can be highly synergistic. Quantitative evidence can indicate relationships which may not be salient to the researcher…qualitative data are useful for understanding the rationale or theory underlying relationships revealed in the quantitative data.’ The questionnaire is based partly upon the United Kingdom Department of Trade and Industry’s Workplace Employee Relations Survey; as such it is a well tested and robust research instrument. Specific questions and translations were discussed with several Chinese colleagues to ensure their comprehensibility and applicability in the Chinese context. The final Chinese text was back translated to English by a bilingual research assistant to ensure translation equivalence (Mullen, 1995). Employees were asked to rate questions such as ‘Superiors give employees the opportunity to raise suggestions about changes to work practice’ and ‘I always have a lot of work to do’, which were assessed with 5-point Likert scales, with anchors ranging from ‘very strongly disagree’ (1) to ‘very strongly agree’ (5). Response rates were high, for instance, 98.6 per cent for UK-Store and 99 per cent at a state owned enterprise), since the questionnaires were sanctioned and distributed by the firms’ personnel officers. Inclusion of four firms, with parent and host country data for each, allowed searching for cross-case patterns and similarities and differences

14 Multinational Retailers and Consumers in China

between each pair (Eisenhardt, 1989). Adopting mixed methods allowed triangulation using different sources. Meanwhile, undertaking research over a period of several years provided a diachronic perspective that was valuable to trace emergent trends. The longitudinal nature of the research, mixed methods of data collection and numerous opportunities to discuss earlier findings and preliminary analyses with expert respondents in the field also helped maximize the trustworthiness of the data (Lincoln and Guba, 1985).

Outline of chapters Chapter 2 outlines the economic, ideological and social context of contemporary China’s retail sector and employment relations. It presents an overview of China’s economic system and retailing in the Maoist period, the re-emergence of markets in the post Mao era, consumption and consumers in contemporary China and state policy toward foreign involvement in China’s retail sector. The chapter concludes with an examination of trends in the retail market since China’s accession to the World Trade Organization in 2001. Substantial effort has been devoted to exploring the transfer of human resource management practices within multinational companies. Particular attention has been paid to countries with ‘strong’ HRM traditions, to transfers between economically developed countries and to firms in the manufacturing sector. Chapter 3 explores the extent to which UK-Store transferred its parent country human resource management practices to China. It seeks to provide fresh insights on the phenomenon of transfer by utilizing the qualitative case study data and by focusing on shopfloor employees’ perspectives rather than purely the view of managerial staff, as has tended to be the case. Several aspects of HRM transfer are explored: communication with the workforce, work pattern, age composition of the workforce, reward system, training and employee representation. Attention then turns to the transfer of the firm’s relatively flat organizational structure to a country in which hierarchy is perceived to be highly valued, and where hierarchies tend to be quite rigid and clearly demarcated. It is suggested that structural dimensions such as the country of origin, the degree of international production integration and the nature of product markets appear to have less utility in explaining the transfer of human resource practices than institutional features of the host country environment and, above all, specific firm level practices and the presence of expatriates in key management roles.

Introduction 15

The management of host country employees is often portrayed as a particularly fraught dimension for multinational firms. The problems involved are considered exponentially greater when there are substantial institutional differences and ‘cultural distance’ between the host country and a multinational firm’s parent country, as is assumed to be the case for Western firms operating in mainland China. Using the detailed case study research conducted at UK-Store and comparative study of a Chinese state owned firm, Chapter 4 explores the veracity of such assumptions with a focus on shopfloor perceptions. The findings indicate that important dimensions of Western human resource practices can be transplanted successfully and questions the degree to which foreign invested enterprises need to adopt local practices. Indeed, transferred practices can be innovative in the Chinese context and provide a competitive source of differentiation for multinationals as employers. Chapter 5 addresses a neglected aspect in research on the transfer of organizational practices by multinational firms: the role that time plays in this process. The theoretical assumption is that as overseas subsidiaries become more embedded in the local environment they increasingly take on the practices that prevail locally. However, there have been few longitudinal studies that would allow the veracity of this assumption or its implications to be assessed. Drawing upon the research conducted at UK-Store between 1999 and 2005, this chapter provides a diachronic perspective that can trace emergent trends. Comparison between findings from the more recent research and those derived from the earlier research suggests that time does play a role in affecting transplanted organizational practices. In some respects, the organizational practices of the firm in question increasingly took on more of the ‘colour’ of those that prevailed in the host environment. However, convergence with local practices was far from total, for instance, some practices bear increasing resemblance to the firm’s parent country operation. This chapter also cautions that it is difficult to disentangle the isomorphic influences of the passage of time from factors such as the rapid withdrawal of expatriate managers from the operational level and the impact of the firm’s rapid expansion across China. Moreover, it suggests that the local-global dichotomy, upon which much of the convergence-divergence debate rests, is perhaps increasingly problematic. Chapter 6 draws upon the research conducted at the three Japanese multinational retail firms to assess a range of prominent theoretical perspectives that have been used to account for the transfer of organizational

16 Multinational Retailers and Consumers in China

practices. Approaches based upon culturalist, national business systems, industry sector, international division of labour and agency perspectives are shown to be inadequate, individually, to account for the complex patterns of transfer, local adoption and adaptation in these multinational companies. These findings highlight the value of conceptual bricolage and multilevel analysis for developing explanations that can encompass and explicate complex patterns of hybridization. The chapter also identifies important factors in the dynamics of hybridization that have been neglected or downplayed in much of the existing literature. These include the significance of context specific, firm level perceptions of sources of competitive advantage as a key motive encouraging transfer of parent company practices. Crucial factors constraining transfer are the practices and norms prevalent in local labour markets. Additionally, transfer by multinational companies to transitional economies with high levels of deinstitutionalization illustrates problematic dimensions for various theoretical perspectives, including influential neo-institutionalist models. Much has been written on the nature of skills and the extent to which there is increased skills development or a deskilling of workers in modern workplaces. Chapter 7 broadens the debate and explores these issues in the novel context of the UK and Japanese retailers’ operations in China. It explores employees’ perceptions of their skills acquisition and development. These contextualized accounts provide a basis from which to interrogate assumptions derived from Western contexts and, in particular, the popular notion developed by George Ritzer of ‘McDonaldization’. It refutes simplistic notions that service sector work in the retail sector offers only poorly skilled, dead end jobs. It indicates that, in the Chinese context at least, these firms can make a substantial contribution to workers’ skills development and enhance their job prospects. However, the chapter also ponders whether this might constitute an essential but ‘one-off’ increase in skills in transitional economies such as that of China. Research on ‘flexible’ or ‘contingent work’, derived primarily from manufacturing and production contexts in Western settings, has often been theorized in terms of a core-periphery model. Drawing upon the ethnographic research, Chapter 8 details the divergences and fault lines between regular employees and vendor representatives in UK-Store. The findings indicate that this model is insufficient to capture the complexity of employment arrangements in this context. This chapter delineates the co-existence of two employment systems and a quadrilateral relationship in which workers’ interests sometimes overlap but often compete. The research also indicates that institutional

Introduction 17

arrangements in China significantly affect the strategies that are open to firms and the consequent structure of employment relations. Chapter 9 investigates notions of ‘the sovereign consumer’ in the Chinese context. It explores the extent to which the rhetoric of the sovereign consumer and the use of the customer as a device of managerial control have been transferred to the multinational retailers’ Chinese subsidiaries. Data drawn from interviews conducted at UK-Store and the Japanese multinationals indicates that the notion of the sovereign consumer was ubiquitous and that procedures designed to inculcate management by customers or consumer control had been implemented. However, it was equally apparent that the rhetoric of the consumer not only served managerial ends, but also provided a rich and fertile resource for shopfloor workers. Meaningful, socially embedded relationships could also play a crucial role in transactions. Moreover, with respect to discipline and control, employees were fully aware that power lay with their managers, rather than disembodied consumers or even actual customers. The final chapter provides an overview of the main findings. It also highlights the main theoretical contributions and links the findings to broader themes such as the development of civil society in China. Lastly, this chapter suggests potential avenues for future research.

2 China’s Retail Sector in Context

Introduction Before presenting findings from the research, this chapter sketches the background and context to the contemporary retail sector and employment relations in China. It begins with an overview of the economic system and retailing in the Maoist period. Attention then turns to the re-emergence of markets in the post Mao era, consumption and consumers in contemporary China and the evolving state policy toward foreign involvement in the retail sector. The chapter concludes with an outline of trends in the retail market since China’s accession to the World Trade Organization in 2001.

China’s economic system and retailing in the Maoist period In Maoist China (1949–76), geo-political, economic and ideological factors all had an impact on the structure and character of the retail sector, including what products were sold and how they were sold. The geopolitical context limited China’s relations with many potential trading partners. For instance, China had no diplomatic relations with America until the early 1970s and relations with the USSR were poor after the Sino-Soviet split of 1960. Many neighbours, such as Malaysia and South Korea, viewed China with suspicion and there were military clashes with Vietnam and India. As a result, China’s foreign trade was limited and there was a fear of foreign aggression. These factors, alongside the rural guerrilla experience of the ruling Communist Party, lay behind a policy of autarky, local self sufficiency. Consequently, most products were produced in China and sold in domestically owned retail outlets. 18

China’s Retail Sector in Context 19

Before economic reforms began in 1978, China operated a command economy in which the state controlled and regulated all factors of production. After the Communist victory in the civil war, private and foreign enterprises were taken over by the mid-1950s and absorbed into the command economy. The competitive firm, the basic unit of capitalist enterprise, ceased to exist (Nolan and Wang, 1999). Instead, the authorities attempted to run the whole economy as a single factory based on administrative orders rather than competitive struggle between firms (ibid). The state decided what should be produced and how products were distributed. Jobs were assigned by the state and there was little or no freedom to make hiring decisions independent of state purview (Guthrie, 1999). Guaranteed markets and production quotas encouraged output at the expense of product quality and product diversification (Nolan and Ash, 1995). The specification of production targets resulted in a narrowing of product variety towards goods that were easy to produce with little regard for consumers’ tastes or preferences. The state’s monopoly over the pricing of both inputs and finished goods left little or no incentive for manufacturers to try to increase profits via improved product quality or greater efficiency. There were concomitant ‘deficiencies in marketing research and analysis of consumer demand, customer satisfaction and product planning’ (Richman, 1970: 47). The idea of appealing to and tailoring products to consumer tastes did not reappear in China until the late 1970s and early 1980s. In addition, for much of the Maoist era, economic policies stressed the development of heavy industry and capital investment. This emphasis sacrificed the consumption of consumer goods, housing and services (Prime, 1989). Under China’s centrally planned economy and the shortage of consumer goods that plagued Chinese households, retailing was a passive activity, limited to the distribution of basic necessities to consumers. Pervasive shortages with limited competitive forces gave rise to a ‘sellers’ market (Taylor, 1995: 39). In contrast to a buyers’ market, in which sellers need to convince potential buyers to select their product, this is not necessary in a sellers’ market. Retail stores were state owned and allocated products to sell, with no expectation that they would attempt to outdo rivals or seek to make a profit. Stores responded to administrative decisions rather than consumer preferences. Indeed, purchase of many products required ration coupons. Stores that offered the same limited range of products at the same prices had little incentive to seek to attract customers or to raise sales volumes. Faced with the same

20 Multinational Retailers and Consumers in China

limited range of products, displayed in the same way and sold at the same prices customers had little reason to compare stores. In accord with the rhetorical admonition to ‘serve the people’ (wei renmin fuwu), some leading stores such as the Beijing Wangfujing Department Store prided themselves on their good customer service (Guo and Liu, 1998). However, most accounts of the time indicate rather indifferent and unenthusiastic service provision, with store clerks often acting as ‘surly gatekeepers to scarce merchandise’ (Hanser, 2008: 26). Parish and Whyte (1984: 98) found that ‘Customers suffered not only from shortages and lack of variety but also from poor quality and service’ with ‘stores understaffed or staffed by sullen clerks’. Similarly, Letovsky et al. (1997) describe Chinese state retailers as characterized by slow methods for payment and collection of goods coupled with sales staff’s lack of basic skills in assisting customers. In Western nations, the consumer is omnipresent both as a rhetorical figure and as the cornerstone of economic progress and stability (Du Gay, 1996; Du Gay and Salaman, 1992; Keat et al., 1994; Sturdy, 2001). Often it seems that citizens’ role as producers is relegated to second place by their status as consumers. In pre-reform China, by contrast, the notion of citizens as producers far outweighed any attention to their role as consumers. Economic priorities focused on achieving self sufficiency in foodstuffs and manufactures; heavy industry was accorded priority over the manufacture of consumer durables. In an economy that stressed steel output over the production of refrigerators (Robinson, 1985), state rhetoric valorized and accorded prestige to the citizen as worker. Special status was accorded ‘model workers’ who formed the basis for propaganda that promulgated the image of productive worker as ‘hero’ and ‘vanguard’ of the revolutionary ‘masses’ (Yang, 1989). Even in family life, special status was accorded fertile mothers who produced more children; new bodies destined to become, not consumers, but rather productive ‘cogs’ in the struggle to achieve the communist utopia. Maoist socio-economic policies and ideology precluded the emergence of popular consumerism and discouraged conspicuous consumption. In addition to the limited range of consumer goods available, wage levels were relatively egalitarian and generally low. There was no market for high cost goods. There was also heavy reliance upon payment and benefits in kind, such as housing and subsidized meals in works’ canteens, with work units, or danwei, sharing many characteristics of ‘total institutions’ (Shenkar, 1996). Maoist economic policies were backed up by an austere, puritanical ethos. From the mid-1950s,

China’s Retail Sector in Context 21

‘conspicuous consumption and individual wealth creation were largely regarded as hostile acts by the CCP’ (Goodman, 1996: 227). It was an era characterized by ‘conspicuous non-consumption’ (Gamble, 2001). When the Communist Party took power, for instance, it regarded Shanghai as a parasitic, consumer city that sucked in the wealth of the surrounding countryside (Gaulton, 1981: 46). In the Republican era (1912–49), Shanghai had been China’s most cosmopolitan city and a centre of fashion, advertising, nightclubs and other forms of conspicuous consumption. During the Maoist period, and up to the mid-1980s, there were few street markets or private businesses, scarcely any nightlife and most restaurants shut by 7 p.m. From the 1950s until the late 1970s, advertising was severely curtailed and ‘castigated…as the apotheosis of the capitalist religion of consumption’ (Stross, 1990: 485). From a positive perspective, the prevailing rhetoric acknowledged that China was a poor country, but aimed to share out the resources available as fairly as possible. The prevailing ideology criticized ‘bourgeois’ habits and lifestyles. For instance, rather than hold lavish wedding feasts the Communist Party encouraged families to have simple and frugal gatherings with tea and candies (Parish and Whyte, 1984: 139). Clothing was functional and personal adornment discouraged. In this respect, the movement built on some older traditions in Chinese culture that in this case urged against undue devotion to materialism or personal spending (Stearns, 2001). During political campaigns such as the Cultural Revolution (1966–76), in particular, conspicuous consumption was frowned upon, even dangerous (Gamble, 2003: 140–1). In her autobiography, Life and Death in Shanghai, Nien Cheng (1986: 11) writes that during this period ‘[o]ne could no longer assess a man’s station in life by his clothes in China because everybody tried to dress like a proletarian’. By the 1970s, Mao’s economic policies were widely considered to have failed. While much of the rest of the global market, and particularly East Asian countries such as Japan and South Korea, made great advances in technology, trade and business, China made slow progress and remained largely isolated behind its closed doors. That said, the Maoist system was not wholly unsuccessful. Between 1960–81, annual growth of per capita GNP averaged 5 per cent (Nolan and Ash, 1995: 981). Additionally, industrial workers, especially those in the larger state enterprises, enjoyed secure employment with good social welfare provision. However, there had been an ‘absence of any significant improvement in mass consumption standards for more than two decades’ (ibid: 984). Living standards were often no better than they had been in the 1950s. For example, per

22 Multinational Retailers and Consumers in China

capita grain availability in 1977 was no higher than in 1955, barely allowing the Chinese diet to meet basic dietary needs. The average housing space per resident was only 3.6 square metres (Pyle, 1997: 24). It was under these social and economic circumstances that Deng Xiaoping succeeded Mao as China’s next leader.

Re-emergence of markets in China The story of post Mao China’s dramatic volte face in its ideology and economic policies is well known (see, for example, Naughton, 2007). Since the late 1970s, its formerly closed, autarkic and uncompetitive economy has become one of the developing world’s most open to commercial pressures and foreign trade and investment. State owned enterprises share of the economy has shrunk from comprising 77.6 per cent of total industrial output in 1978 to less than 30 per cent by 2008 (Warner, 2008: 775). One of the world’s most egalitarian societies has become one of its more unequal. China’s Gini co-efficient, a measure of income inequality, indicates the country to have become less equal than the United States (Pfeffermann and Wasow, 2005). Local retail companies, many now fully or partly privatized or corporatized, must compete to make profits and attract and retain customers just like their Western counterparts. The rapid development of highly competitive retail markets has been paralleled by the emergence of a vigorous and re-energized consumerism (Gamble, 2001; Taylor, 2003). China’s unequal society is evident in its retail stores. Increasingly, for instance, customer service work becomes a forum in which class differences are enacted and asserted (Hanser, 2008). During the post Mao era, and especially since 1992, many of the factors that prevented the emergence of a popular consumer society have been either changed radically or at least undermined, with substantive changes in ideology and economic policies. Since the late 1970s, the prevailing ideology has shifted from egalitarianism and deferred gratification to a stress upon consumption and material rewards in the present. The Partystate’s legitimacy has become deeply entwined with the ability to deliver improving living standards (Gamble, 2003). This understanding was clearly enunciated by Deng Xiaoping during his Spring Festival ‘southern inspection tour’ in 1992: Taking the socialist road is none other than step-by-step bringing about common prosperity. The proposed blueprint for common prosperity is that those areas with the conditions can develop first; other

China’s Retail Sector in Context 23

areas will develop more slowly. The areas that develop first will spur on the less advanced areas, and ultimately all will achieve common prosperity. (Reported in a front page article in Shanghai’s Xinmin Wanbao, 6 November 1993). This statement, alongside Deng’s earlier and most memorable slogan: ‘to get rich is glorious’, indicates both an emphasis on raising living standards and an acceptance of wealth inequalities. Deng also revived a Confucian notion of xiaokang, ‘small well being’ (Croll, 2006). The regime’s aim was to offer the broad masses of the Chinese people the reality, or at least the hope, of a comfortable living standard. Ideological changes have been paralleled by changes in the structure and organization of the economy. Deng Xiaoping served under Mao as a senior member of the Chinese Communist Party. In January 1975, he was granted control of economic affairs. During the early years of the Cultural Revolution, he had been criticized as a ‘capitalist roader’; his actions once in power provided substantive evidence to support this assessment. Unlike Mao, Deng recognized the importance of focusing on material incentives in order to spur China’s economy forward. Deng is credited with setting in motion policies that have changed significantly the direction of China’s economy. The first reforms took place in the agricultural sector where the commune system, set up under Mao in the late 1950s, was rapidly dismantled. From 1979–84, there was growing prosperity in many rural areas and rural residents began to engage in the development of small-scale industries. An increasing number of rural residents began to look beyond largely subsistence level farming and to undertake the supply of consumer and investment goods in the agricultural sector. The restoration of private plots, the revival of free markets and the return to limited forms of private ‘ownership’ of the means of production were significant developments in China’s transformation toward a market economy. In the late 1970s, a key policy shift took place that would steadily help bring about a transformation of China’s economy: the initiation of the ‘Open Door’ policy. Deng Xiaoping and his key advisers determined that foreign trade and investment could play a vital role in China’s economic development. By allowing foreign investment through joint ventures and cooperative licensing agreements, Deng also believed that international competition would force Chinese manufacturers to improve the quality of their products and be responsive to the specific requirements of customers (Shirk, 1993). In 1979, China established four Special Economic Zones (Zhuhai, Shenzhen, Shantou, Xiamen), a fifth, Hainan

24 Multinational Retailers and Consumers in China

Island, was added in 1988. Within these zones, foreign firms were enticed to invest with favourable tax, profit repatriation and other provisions for foreign investors. The intention was that foreign involvement would be confined primarily to these areas, so that it could be closely observed and any ‘unhealthy tendencies’ checked, and also to minimize exploitation and ensure that China captured maximum benefit from the presence of foreign firms. For these same reasons, there were tight controls over multinationals hiring of labour and employment regime. In 1979, China introduced its first joint venture law. Joint ventures were the preferred mechanism for introducing foreign direct investment, again, the intention was to maintain control and capture economic advantages. Over the following decades, there has been a gradual relaxation of controls over trade and foreign direct investment (Gallagher, 2005: 37–61). In 1984, 14 new ‘Open Cities’, mainly east coast ports, were permitted to engage in foreign trade and encouraged to attract investment. Since then, many more areas have opened up, with increasingly intense competition between regions to attract foreign investment. Wholly foreign owned enterprises were permitted in some sectors from 1986. Throughout the 1980s and early 1990s, though, the Communist Party continued to debate whether China should continue ‘opening up’ or be ‘self reliant’. These debates created concern among foreign investors that China’s door may close once again. This concern increased during the late 1980s, following the violent suppression of demonstrations across China in 1989. From 1989 until early 1992, China appeared set on a more introspective, conservative path of economic development. However, during early 1992, Deng Xiaoping embarked on his highly publicized ‘tour’ of China’s southern provinces closely associated with the ‘Open Door’ policy mentioned above, and successfully re-energized economic reform and the investment environment. Since that time, it has become increasingly unlikely that China will fully close out the outside world again. The reforms promoted by Deng were effectively sealed by China’s accession to the World Trade Organization in 2001. The nation’s economic structure has undergone substantial transformation. Foreign direct investment increased gradually during the 1980s and took off dramatically after Deng’s ‘southern tour’. Since 1993, China has been the largest recipient of foreign direct investment in the developing world. By the end of 2008, China had approved a cumulative total of 659,862 foreign investment projects, with utilized overseas investment amounting to US$883 billion. State owned enter-

China’s Retail Sector in Context 25

prises are expected to become profitable; those that cannot may be sold off, or declared bankrupt and closed down. The number of state enterprises in China fell from 118,000 in 1995 to 27,500 in 2005 (Geng et al., 2009: 162). In 1999, the National People’s Congress upgraded the role of the private sector in the constitution. Henceforth, the private sector was to be considered an ‘important part’ of the ‘socialist market economy’. Between 1980–97, the output share of private and foreign invested enterprises rose from just 0.5 per cent to 36.4 per cent (Smyth, 2000: 724). According to the director of China’s National Economic Research Institute, by 2005 the private sector accounted for 70 per cent of gross domestic product (Business Week Online, 2005). From 1979 to 2008, China’s GDP grew at an average rate of nearly 10 per cent, compared to 5.3 per cent for the period 1960–78 (Morrison, 2009: 3). Under Deng, reforms were implemented to China’s labour relations system. The general trend has been towards increased firm autonomy, flexibility and managerial control (Gallagher, 2005). Previously, under Mao’s regime, workers employed in state enterprises had a de facto tenure for life, a benefit commonly known as the ‘iron rice bowl’. In the mid-1980s, the labour contract system was introduced to remove this obligation of life employment. Under the contract system, enterprises were granted more freedom in hiring practices and workers could more select the employer of their choice. Newly hired employees had to sign a contract, specifying the duration of the period in which they would work, as well as responsibilities, benefits and wages. Nowadays, both employees and employers have a choice, respectively, in selecting which firm to work for and who to recruit. Job mobility has increased to such an extent that foreign firms report the retention of key staff to be a major problem (Walsh and Zhu, 2007; Warner, 2008). Reward systems are being reformed with a trend towards performance related systems (Cooke, 2009), and benefits such as company accommodation and free medical care replaced by a commercial housing market and contributory medical schemes.

Consumption and consumers in contemporary China Numerous commentators are in no doubt that post Mao China has undergone a consumer revolution (e.g. Chao and Myers, 1998; Davis, 2000; Stearns, 2001; Taylor, 1995). Stearns (2001: 89), for instance, describes ‘an explosion of consumer interest’, adding that ‘Without question, a consumer revolution had occurred, in a surprisingly short space of time’ (91). In China’s coastal cities, in particular, it was soon

26 Multinational Retailers and Consumers in China

easy to find evidence for this. Within a few years, the retail landscape had changed out of all recognition. There were stylish shopping plazas, advertising billboards, neon signs, lavishly furnished new restaurants, expensive nightclubs, karaoke bars, jewellery shops, brand name stores and a proliferation of foreign products. The once drab clothing of its inhabitants, especially that of the young, had been replaced by the latest fashions and accessories. In the early 1990s, the Chinese press reported a ‘shopping craze’ in places such as Shanghai (Gamble, 2003). In 1990, retail sales rose by just 0.1 per cent over the previous year. In 1993, sales rose 33.5 per cent over the previous year. Total sales of consumer goods rose from 46.4bn yuan in 1992 to 132.5bn in 1997. From 1980 to 2008, China’s economy grew 14-fold in real terms, and real per capita GDP grew over 11-fold (Morrison, 2009: 3). Few items are now subject to state plans and quotas and the prices of most inputs and finished goods have been deregulated. The share of transactions at market prices has increased dramatically. In 1978, 97 per cent of retail sector prices were fixed by the state, by the mid-2000s this had fallen to over 96 per cent being market determined (Hofman, 2005). A far more extensive range of both domestically manufactured and imported consumer products is available. Previously most consumer goods were domestically produced, with the highest cachet and status accorded those marked ‘Made in Shanghai’. By the mid-1980s, foreign consumer goods had already replaced Shanghai products at the top of the status list. Ration coupons are no longer necessary to buy products, indeed there is an oversupply of many products. These changes have fostered a re-emergence of competition, both between producers and between retailers. A greater range of types of producer and retailer is now permitted, including private firms and foreign invested enterprises. By 1988, the individual sector accounted for 17.8 per cent of retail sales compared to 0.1 per cent in 1978 (Young, 1991: 120). By 1998, 37.1 per cent of retail sales of consumer goods were already generated by the private sector (Hanser, 2008: 30). Concurrently, there has been a transformation of the retail sector with the emergence of shopping malls, private stores and refurbished department stores. Alongside this, there has been an explosion of advertising. China can be characterized as undergoing a gradual transition from a production driven economy to an increasingly consumer led economy. Work units no longer resemble total institutions. Average income levels have risen and a growing number of households constitute a ‘consumer market’. Income levels have diverged and a wealthy elite has emerged that can afford luxury items. These changes have fostered

China’s Retail Sector in Context 27

the emergence of segments of society that seek to assert their status through distinctive lifestyles and consumption habits; foreign products, such as brand name clothing and accessories, often play a big part in this. The increased availability and widespread affordability of consumer products has been a vital constituent and in many senses serves as the benchmark of China’s post Mao economic development (Gamble, 2003). The ability to consume at an appropriate level can be taken as a key ingredient of modernization with ‘Chinese characteristics’. In the first post Mao consumer boom, the emphasis was on items such as bicycles, sewing machines and watches – the so called ‘big three’. Consumers also began to enjoy a steadily more diverse and improved diet and fashionable clothing. In the early 1990s, there was a second consumer wave focused on electronic goods, particularly televisions, telephones and air conditioners. From the late 1990s, in a third wave, popular goods included computers, cars, private housing, home furnishing, travel and recreation, as well as private education and health care. In 1998, official endorsement for the commercialization of China’s property market increased demand for furniture and home improvement products, helping attract multinational retailers such as the Swedish firm Ikea and B&Q from the UK. By 2002, retail sales in China amounted to 4.8 trillion yuan, rising to 8.9 trillion by 2007. Consumer goods retail sales rose a further 21.6 per cent to 10.848 trillion in 2008. The Chinese government estimates that until 2020 retail sales will average 10 per cent growth per year (MFAD, 2009). Consumption has also taken on increased priority in terms of economic policy. The Chinese government has increasingly recognized the necessity to stimulate domestic consumption as a means to ensure continued economic growth (Croll, 2006). The terrorist attack in New York of 11 September 2001 and the SARS (Severe Acute Respiratory Syndrome) outbreak of 2003 highlighted the vulnerability of China’s export dominated growth to events in its major foreign markets. A lesson from this, allied to concern at the growing tide of calls in America for protectionist measures to reduce that country’s vast trade deficit with China, was the necessity to spur domestic consumption as a motor to power a virtuous endogenous growth cycle. In 2002, the National People’s Congress designated the expansion of domestic demand as ‘a long-term strategic principle’ (ibid). This approach is intended to help reduce the heavy reliance of China’s export industry on American consumers. One policy implemented since 1999 to raise consumption is ‘Holiday Economics’, the lengthening of the May Day and Labour Day holidays. The global financial crisis that began in 2008, has only served to

28 Multinational Retailers and Consumers in China

highlight the risks for China’s prosperity, and potentially its social stability, of heavy dependence upon American consumers.

State policy toward foreign involvement in China’s retail sector Foreign companies have been eager to exploit and promote the explosion of consumer spending in China. This includes not only brands, but also retailers keen to set up their own stores. However, although China began to reopen the country to foreign direct investment in the late 1970s it was not until 1992 that foreign retailers were once again permitted to establish retail outlets for the first time in several decades. However, the Provisions on Foreign Investment in Retailing announced in July 1992 applied strict restrictions (Wang, 2003). Foreign involvement was limited to 11 designated cities (Beijing, Tianjin, Shanghai, Guangzhou, Dalian and Qingdao, plus the five Special Economic Zones of Hainan, Shenzhen, Zhuhai, Shantou and Xiamen). Foreign investors in the sector were not permitted to establish wholly foreign owned enterprises but, rather, had to operate as joint ventures, with the Chinese party having a dominant share. Only the central government could approve retail joint ventures and foreign firms were prohibited from conducting wholesaling or operating import-export agencies. The first joint venture retailer approved by the State Council was the Japanese firm Yaohan, which opened a US$100m shopping centre in Shanghai’s Pudong area in late 1994. By the end of 1995, 14 joint venture retail companies had been approved by the State Council, among which five were from Hong Kong, four from Japan, three from Thailand and one each from Singapore and Malaysia respectively (Infomat, 2006). China has gradually opened further its vast and domestically dominated retail market to the outside world. In 1995, joint ventures were allowed to expand from single store operations to retail chains. Firms granted such permission included the Japanese retailer Ito Yokado and Makro from the Netherlands. Soon after, in 1997, the State Council again expressly forbade local governments’ approval of foreign investment in commercial enterprise. However, in an indication of tension between the centre and the provinces, by 1999, while the centre had sanctioned 20 ventures, local authorities had approved 277 enterprises (Taylor, 2003). The French multinational Carrefour has been a particular exponent of playing off the centre against local governments (Child, 2006).

China’s Retail Sector in Context 29

The Measures Concerning Pilot Projects for Commercial Enterprise with Foreign Investment, promulgated on 25 June 1999, were a further step towards liberalization. Geographical reach was expanded; retail joint ventures could now be established in all provincial capitals and cities directly under the central government – even though only one or two retail joint ventures would be likely to be approved in each pilot area. Joint venture retailers were now allowed to engage in wholesaling and chain stores could be operated, provided that they were organized as branches of the joint venture. The new measures permitted the foreign partner to hold a majority share if they had the potential to export China made products. At the same time, capital requirements were raised for both foreign and Chinese firms to ensure that large, experienced retailers set up. By the late 1990s, foreign chain stores such as Carrefour (France), Wal-Mart (US), Metro (Germany), Makro (Netherlands), Ikea (Sweden), Ito Yokado (Japan), B&Q (UK), Parkson (Malaysia), RT-Mart (Taiwan) and Lotus (Thailand) had established operations in China. Despite their recent arrival, many of these firms embarked upon ambitious expansion programmes and have already helped change the face of China’s retail sector. Carrefour, for instance, the number two retailer in the world, entered China in 1995. By 2005, it was the leading foreign retailer in China and ranked fifth in the top retailer list. Wal-Mart entered China in 1996, when it opened its first Supercenter and Sam’s Club in Shenzhen, Guangdong. By April 2008, Wal-Mart operated 100 Supercenters in China. B&Q initially entered the Asian market through a joint venture in Taiwan in 1996 and expanded into mainland China three years later. It is now the number one home improvement retailer in China; by the end of 2006, it had 48 stores in mainland China and a further 20 in Taiwan. Their flagship Beijing subsidiary is the largest B&Q store in the world (Kingfisher, 2006). Metro started operations in China in 1995. By 2006, it had opened a further 31 stores in 27 cities (Metro Group, 2006). Japanese firms’ expansion has been slower and more geographically limited than that of retailers from Europe and North America (Wang, 2010: 63). For instance, Ito Yokado opened its first store in China in 1997; by 2009, it operated just seven hypermarkets in two Chinese cities. China’s World Trade Organization accession agreement, signed in 2001, provided an important spur to foreign involvement in China’s retail sector. Since admission, many long standing market barriers and trade restrictions have been removed. China agreed to reduce import

30 Multinational Retailers and Consumers in China

tariffs, thus further opening the market to foreign products. Foreign firms can now use their own services such as storage, warehousing, packaging and advertising thus improving their access to Chinese markets and its consumers (BCCC, 2001). In accordance with WTO commitments, 100 per cent foreign ownership of retail operations was finally permitted in December 2004 and most geographic limits to their expansion were removed (Retail Asia Online, 2005). Prompted by the lifting of these restrictions, international investment increased substantially the following year. By 2005, approximately three quarters of the world’s 50 largest retailers already had a presence in China and the largest 18 of them operated a total of 4052 stores (Ernst and Young, 2006). Western retailers’ expansion gathered apace after China joined the WTO, spreading from the east coast to the interior and from large urban centres to second and even third tier cities (Wang, 2010). The increased pace and scope of investment by multinational retailers, including an increasing number of takeovers, is evident from a brief look at several leading foreign retailers. At the end 2006, Carrefour operated 90 hypermarkets, eight supermarkets and 255 hard discount stores in China – a substantial increase of 34 hypermarkets, two supermarkets and 91 hard discount stores in less than two years (Carrefour, 2006). In 2009, Carrefour opened 22 new hypermarkets; by the end of 2009 it had 156 hypermarkets. Until late 2004, Wal-Mart’s development in China was mostly limited to the eastern and southern seaboards (Wal-Mart, 2007). Since that time, Wal-Mart has expanded considerably. In February 2007, Wal-Mart purchased a 35 per cent interest in the hypermarket chain Trust-Mart, which operates more than 100 retail units. By May 2009, Wal-Mart operated 146 retail units, including 138 Supercenters, in 89 Chinese cities and employed over 50,000 staff (Wal-Mart, 2010b). Tesco, the UK’s largest retailer, embarked upon a plan to expand in China later than its main rivals. It eventually entered the country at the end of 2004 by paying £145 million for a 50 per cent holding in Ting Hsin’s Hymall, which operates hypermarkets in Shanghai and North East China. In December 2006, Tesco paid a further £180 million to increase its holdings in Hymall from 50 per cent to 90 per cent (Tesco, 2006). In January 2007, Tesco opened its first own brand supermarket in China. By February 2009, it had 62 Chinese stores, employing 21,000 people (Telegraph, 2009). In 2005, B&Q bought 13 stores from its German rival OBI (Wang, 2010: 67). In 2007, Aeon, Japan’s largest supermarket operator, announced plans to triple its number of stores in China in the next five years (China Daily, 2007).

China’s Retail Sector in Context 31

China has implemented its own strategies to counter the increased foreign competition resulting from its entrance into the WTO. Chinese retailers have pooled their resources with the intention to create large domestic firms capable of defeating or matching foreign retailers. By pooling resources in this way, and improving the quality of their goods and customer service, domestic retailers believe they can compete against the recently arrived foreign competitors. Competition between both foreign and local firms has become increasingly intense. In 2007, the top five chain stores in China were all locally owned, with Carrefour ranked sixth. However, in the same year, the largest 15 foreign chains still generated 182.5 billion yuan of sales through 3956 outlets (China Economic Net, 2008). In 2009, the sales growth rate of foreign funded chains was not only significantly higher than the sales growth rate of Chinese domestic chains, but also higher than the sales growth rate of foreign chains in 2008. The sales growth rate and the store expansion rate of the 20 largest foreign funded chains was 20.4 per cent and 15.7 per cent respectively, while these figures in 2008 were 17.6 per cent and 13.1 per cent respectively (CCFA, 2010). This chapter has sketched the broad outline and backdrop to China’s retail sector and employment relations within it. The focus now turns to exploration of the empirical findings. The following three chapters all examine dimensions in the transfer of organizational practices by the United Kingdom retail sector multinational, ‘UK-Store’.

3 Transferring Human Resource Practices from the United Kingdom to China

Introduction Substantial effort has been devoted to exploring the extent to which human resource management (HRM) practices can be transferred from one national context to another. Particular attention has been paid to the manufacturing sector, to countries with ‘strong’ HRM traditions and to transfers between economically developed countries. This chapter addresses the transfer of a retail sector firm’s human resource practices from the United Kingdom to China. Despite the global orientation of many UK firms, few studies explore the extent to which they have transferred their human resource management approach overseas. By contrast, numerous studies explore the transfer of HRM practices from countries such as Japan where these are seen to be a source of competitive advantage (e.g. Gill and Wong, 1998; Purcell et al., 1999). When research has focused on UK firms, the exploration tends to remain within the realm of economically developed countries (e.g. Edwards et al., 1996; Edwards et al., 1999; Muller, 1998; Schmitt and Sadowski, 2003). From a variety of perspectives, the expectation might be that the transfer of parent country practices in this instance would be limited. HRM has not been considered a particular strength of UK firms; retail firms operate in a multidomestic context directly serving local customers rather than as part of an integrated international production network (Rosenzweig and Singh, 1991); and there is a high cultural distance between the UK and China. This chapter first explores key factors that are considered to affect the transfer of HRM practices to overseas subsidiaries. Following this, it presents empirical evidence from research at UK-Store of several dimensions of HRM transfer: communication 32

Transferring Human Resource Practices from the United Kingdom to China 33

with the workforce, work pattern, age composition of the workforce, reward system, training and employee representation. Attention then focuses on the transfer of the firm’s relatively flat organizational structure to a country in which hierarchies are perceived to be quite rigid and clearly demarcated. By adopting a qualitative case study approach, this chapter seeks to provide fresh insights on the phenomenon of transfer. It also focuses on shopfloor employees’ perspectives rather than purely the view of managerial staff, as has tended to be the case.

Factors affecting the transfer of HRM practices to overseas subsidiaries A range of factors can promote or inhibit the transfer of HRM practices from multinationals’ parent country operations to their overseas subsidiaries (Rosenzweig and Nohria, 1994; Rosenzweig and Singh, 1991). These can be categorized broadly as aspects that are either external or intrinsic to the firm. External factors include structural characteristics such as the country of origin, the degree of international production integration and the nature of product markets. Another set of external factors inheres in the particular legislative, institutional and cultural framework of the host country. At the firm level, key aspects include the structure of the company, its commitment to the dissemination of human resource practices and the resources it devotes to this end. Country of origin Many analysts seeking to understand the nature of transfer to overseas subsidiaries utilize the national business systems (Whitley, 1992) or ‘varieties of capitalism’ approach (Hall and Soskice, 2001). According to these approaches, businesses derive enduring and distinctive features from their embeddedness in national institutional structures. The expectation is that nationally specific characteristics are likely to influence the way in which multinationals manage HRM in their overseas subsidiaries (Ferner, 1997). Researchers have found evidence that firms adopt distinctive national paths in their internationalization (Ferner and Quintanilla, 1998; Lane, 1998; Sally, 1994; Zou and Lansbury, 2009). In a recent study, Boussebaa and Morgan (2008) explore a UK retail firm’s attempt to transfer its UK instituted talent management system to its newly acquired French subsidiary. They demonstrate that institutional differences resulted in ‘talent management’ being understood quite differently in the two countries, rendering this attempt highly problematic. In a study comparing European, Japanese and US owned firms in China,

34 Multinational Retailers and Consumers in China

Walsh and Zhu (2007) found that the effects of parent company nationality were most visible in the areas of remuneration, worker representation and aspects of employee selection. However, they also report that there was little overt involvement of multinational parent companies in the management of human resources of their Chinese operations. UK and Chinese national business systems The national business systems approach provides a useful starting point, but it has limitations in terms of identifying and analysing practices in individual firms (Smith and Thompson, 1998). Movements of capital, people and ideas, for instance, are differentially constrained by national boundaries. The national business systems approach also tends to cryogenize national ‘models’ and ignore continued development. In addition, firm action is over-determined and the potential for human agency neglected. The national business systems approach has particular limitations in the context of this chapter. There are difficulties in assessing what constitutes either a UK or a Chinese national business system and distinctively ‘British’ and ‘Chinese’ approaches to HRM. Researchers report major sectoral differences in UK management practices (Child et al., 2000). Even amongst firms in the retail sector there appear to be substantial divergences. A distinctive feature of UK-Store is its relatively flat hierarchy. However, Turnbull and Wass (1998) describe a UK retail store with an internal labour market bifurcated into a primary ‘managerial’ segment and a secondary ‘shopfloor’ segment, with an absence of mobility between segments. In marked contrast to the findings from UK-Store, they report employees’ comments on being ‘treated as if you’re nothing’ (108) and ‘it’s very “Them and Us”’ (106). Both are UK retail firms, but the managerial style and approach appear to be quite different. It is also increasingly difficult to isolate key elements of a specifically Chinese HRM system. During the Maoist period, it was relatively straightforward to delineate a range of features that applied, at least, to larger state owned enterprises. Chief aspects included centrally planned job allocation, guaranteed lifetime employment, egalitarian pay systems and extensive cradle-to-grave welfare benefits (Warner, 2008). With the increasing internationalization, commercialization and enhanced enterprise autonomy of the post Mao era and especially since the early 1990s, it has become more problematic to distinguish a ‘Chinese’ approach to HRM. By the late 1990s, researchers began to characterize China’s labour management system as being in a state of transition (Ding et al., 2000;

Transferring Human Resource Practices from the United Kingdom to China 35

Warner, 1999). Labour markets have become more fluid, reward systems reformed, and the provision of benefits such as housing and medical care disentangled from enterprises. There are also substantial differences between HRM practices in private compared to state owned Chinese firms (Zhu, 2005). In their management approach some state enterprises began to look more like joint ventures, while earlier joint ventures retained older state enterprise related characteristics (Warner, 1997). The interweaving of ‘Western’ HRM and ‘iron rice bowl’ practices is such that Goodall and Warner (1998: 18) comment ‘we were able to identify in our sample very few practices or procedures that we could with confidence characterize as “local”’. Increasingly, employment practices in China appear to comprise ‘a blend of new foreign-influenced practices and remnants of the former centrally-planned system’ (Zou and Lansbury, 2009: 2355). Faced with rapid change and growing complexity in the way multinational and local elements of HRM practice combine, researchers argue for the necessity to describe and analyse each HRM practice separately rather than generalizing about across-the-board approaches to HRM (Lu and Björkman, 1997). A further limitation of the national business systems approach, which became apparent in the analysis of UK-Store and its China subsidiary, is that inputs to the firm’s organizational milieu are diverse and cannot be captured by the notion of a homogenous national business system; it is difficult to state categorically what is ‘British’ about UK-Store. Since its establishment in the late 1960s, the company has copied elements, such as aspects of store layout and the company uniform, from the American retailer Home Depot. UK-Store’s first chief executive in China was a Chinese national with experience of state enterprises, who had also lived and worked in North America. After encountering Home Depot in the US, his intention had been to replicate this business in China. However, whilst in the process of establishing China’s first ‘do-it-yourself’ (DIY) company he was recruited by UK-Store, which then provided him with additional training in the UK. These global borrowings and interconnections are further complicated by the firm’s prior experience in Taiwan, where it has had stores since the mid 1990s. This experience is both structured within the firm and embodied within the individuals who have worked there. The employee handbook used in the mainland, for instance, was a version of the one originally translated and adapted for use in Taiwan. UK-Store’s mainland China HRM consultancy firm, an American multinational, also had an input into the handbook’s final version. The consultants’ advice was

36 Multinational Retailers and Consumers in China

based upon their global experience and that of other multinationals in China. When helping adapt the firm’s pay and benefits scheme, for instance, they did this by benchmarking against other foreign retailers already operating in Shanghai. These instances indicate how business practices and ideas can ricochet back and forth across the globe, fragmenting and destabilizing conceptions of the ‘national’, and highlight the need to incorporate other elements into our understanding of the transfer of business practices. Degree of production integration and nature of product markets It has been argued that multinationals are more likely to diffuse their parent country HRM practices when there is a high degree of production integration across countries (Edwards et al., 1999). By contrast, in industries which are more ‘polycentric’ in structure, with subsidiaries geared to serving local markets rather than part of an international division of labour, the expectation is that there will be less imperative to transfer parent country practices (Rosenzweig and Nohria, 1994). Transferring parent practices may be more problematic in service sector multinationals than in manufacturing firms to the extent that the former deal with not only local employees, but also the differing expectations and cultural values of local customers. Since the stores studied in this book are not part of an integrated international production network and their express purpose is to serve local customers, the expectation might be that they would be inclined to adopt local HRM practices. Host country factors preventing diffusion and promoting local isomorphism Host country regulatory conditions, labour market conditions, local employees’ institutionalized views about management practices and cultural factors may all constrain multinationals from transferring their parent country HRM policies and practices to overseas subsidiaries. In China, for instance, local employees’ expectations have been shaped by their experience in the dependency conditions fostered by the state socialist system and this may inhibit diffusion. Among Chinese high tech firms, for instance, Francis (1996) found evidence of ‘institutional continuities’ with the state enterprise system, with the reproduction in them of state enterprise style benefits including provision of housing and social security benefits. In another example, as its business expanded, the US owned company Wal-Mart, came under pressure by the All China Federation of Trade Unions (ACFTU) to establish unions. Wal-Mart has

Transferring Human Resource Practices from the United Kingdom to China 37

always been resistant to unionization in its stores around the world. In November 2004, it stated that the company would comply fully with Chinese law, and allow voluntary action of its associates to unionize under the Federation (Financial Times, 2004). Host country employees have various sources of power they can use to block diffusion and promote local isomorphism, including those derived from their greater familiarity with the language and culture of the host country. This potential may be enhanced when the host country’s culture and language are conspicuously different from those of the multinational’s parent country. In China, few expatriates can speak putonghua, the national Chinese language, let alone regional dialects such as that spoken in Shanghai, and even fewer can read it; they cannot talk directly with their staff in their own language, let alone read legislation in Chinese. There is likely to be considerable scope for local employees to resist company practices or at least to implement them in unintended ways. Cultural differences Much attention has focused on the extent to which cultural differences influence management behaviour. One view is that the greater the ‘cultural distance’ between the parent country and the host country, the less subsidiaries will conform to local practices (Beechler and Yang, 1994). A contrasting view is that faced with significant ‘cultural distance’, multinationals may seek to ‘fit in’ by imitating local practices (Rosenzweig and Nohria, 1994). As a country perceived to have a culture markedly different to that of the UK, China provides a useful testing ground for such hypotheses. Many researchers argue that Chinese culture is a strong determinant of the way Chinese organizations are managed (Easterby-Smith et al., 1995; Lockett, 1988; Pan and Zhang, 2004). Lockett (1988) describes key aspects of Chinese culture as respect for age and hierarchical position, group orientation, the concept of ‘face’ and the importance of relationships. In the Chinese context, cultural differences are seen to inhibit transfer and enhance the need for local isomorphism. Previous studies have indeed found considerable disparity of HRM practices between China and Western countries (Child, 1994; Easterby-Smith et al., 1995). Moreover, researchers report that ‘joint ventures generally encounter conflict in terms of cultural issues and management control’ (Gong and Chang, 2008: 36). By contrast, noting the success of Western retailers in China, Wang (2010: 72) argues that cultural proximity is less important than corporate strength.

38 Multinational Retailers and Consumers in China

Firm level decisions and responses Some researchers have been, rightly, critical of international business analysts’ tendency ‘to abstract the firm from its national and international political economy context’ (Sally, 1994: 165). At the same time, it would be mistaken to underestimate the agency located within individual firms. Firms are important actors in their own right; each has its own ‘institutionalised stock of knowledge’ (Beechler and Yang, 1994: 5) and many seek to develop a distinctive approach to work organization. Nohria and Ghoshal (1994) distinguish between firms that make a strategic decision to develop ‘differentiated fit’ with distinctive local conditions and those which promote global ‘shared values’ across the company. Taylor et al. (1996) identify three generic strategic international HRM orientations that firms may pursue when setting up an overseas subsidiary: adaptive, exportive and integrative. These approaches delineate firms that, respectively, adapt HRM systems for subsidiaries to reflect the environment of the host country; export wholesale the parent firm’s HRM system to overseas subsidiaries; and those which attempt to integrate the ‘best’ practices from both the local and the parent country and use them throughout the organization. Ferner (1997) indicates that other variants are also possible. Multinationals may create a hybrid, for instance, in which host country norms mediate the influence of the parent country blueprint. The extent to which firms actively encourage diffusion and co-ordinate it from the centre differs considerably (Ferner and Varul, 2000). Moreover, not all firms act strategically in this regard. Although firms may retrospectively repackage their approach as ‘strategic’, even in large multinationals much decision making is reactive and opportunistic. Organizational inertia probably accounts for much that multinationals do with regard to the management of HRM in their overseas subsidiaries. Expatriate managers and headquarters have their own set of institutionalized views on what constitute efficient HRM practices and will tend to introduce in the subsidiary features of the parent country culture (cf. Björkman et al., 2008a: 976). The transfer of parent country HRM practices may stem largely from ‘taken-for-granted assumptions, rather than consciously strategic choices’ (DiMaggio and Powell, 1983: 149). Proponents of differentiated fit also overlook the fact that headquarters and expatriate managers with responsibility for policy making might have limited understanding of host country institutional and cultural environments. Finally, the nature of the subsidiary plays a part in the extent of diffusion. Subsidiaries established on greenfield sites are better able to

Transferring Human Resource Practices from the United Kingdom to China 39

adhere to their foreign parents’ operations than those acquired through acquisitions. The potential for difficulties of the latter are detailed well by Boussebaa and Morgan (2008). By contrast, greenfield operations do not face existing highly institutionalized practices and have greater scope to establish the employment ‘ground rules’ and recruit employees who fit with their corporate culture. This chapter draws upon interviews with a cross-section of 70 employees at UK-Store’s first two stores, both in Shanghai, which were established in June 1999 and May 2000. Although in these two ventures UK-Store was a minority holder (30%) in a joint venture with two Chinese firms, the UK side had full operational control over the stores. The first store had 190 employees and the second 185 employees. The research at a parent country store in London provided a basis for comparison. Rather than compare ideal type models of Western HRM and state enterprise practices, the interview based case study approach enabled the author to elicit employees’ reports of their own experiences of differing HRM regimes. Chinese employees were asked to contrast their experiences at UK-Store with those in their previous employers. This provided comparisons of HRM practices in a foreign invested enterprise against workers own reports of actual practices in other workplaces in China.

Findings from UK-Store UK-Store enjoys considerable success in its home market and its basic approach in China was to replicate as closely as possible its UK operation. With respect to HRM, UK-Store’s senior expatriate manager emphasized that ‘UK-Store has a strong culture, we want to bring this to China’. This approach was facilitated by operating on greenfield sites with no established workforce and by the UK side of the joint venture having full operational control. Overall business strategy was determined by corporate HQ in the UK, which had ultimate authority over all the overseas operations including that in Taiwan, but with substantial input from senior managers in China. In terms of HRM, UK-Store’s training manager explained that: We get an outline (kuangzi – literally ‘a frame’) from the UK and Taiwan, but we should develop it in our own way. Means of transfer The presence of expatriates is anticipated to facilitate the dissemination of standardized multinational practices. The expectation is that

40 Multinational Retailers and Consumers in China

subsidiaries with a high expatriate presence will adhere more closely to the management practices of the parent firm (Rosenzweig and Singh, 1991). In a study comparing multinationals in India and China, Björkman et al. (2008a: 975), confirmed that those with a higher number of expatriates had HRM practices that were more similar to those of the firms’ parent companies. Expatriate managers typically serve a key control function both through socialization (Edstrom and Galbraith, 1977) and in areas such as setting overall strategy and in finance management (Gamble, 2000). They also fulfil a crucial role in the transfer of firms’ ‘administrative heritage’ (Bartlett and Ghoshal, 1989). Expatriates spread explicit knowledge through such means as the introduction and dissemination of employee handbooks, training manuals and standard operating procedures. They also bring substantial intangible resources, chief amongst these being tacit knowledge of ways of managing the business (Taylor et al., 1996). For UK-Store’s first year of operations, the store manager and assistant store manager roles were filled by two expatriate managers. In 2000, both expatriates remained in China but were promoted to executive roles. Three new expatriates arrived in 2000, each assigned to roles requiring particular technical skills. Although UK-Store employed careful screening to select expatriates, cultural awareness training was minimal. Asked about his pre-departure preparation, a newly arrived expatriate commented: I just came in, it’s typical UK-Store. The approach is ‘just get in and stop whinging’. Responsibility for day-to-day management of the two stores had been transferred to locally recruited managers. HRM practices can be diffused from the parent country to overseas subsidiaries through various routes. In the manufacturing sector, benchmarking is a common instrument of ‘coercive comparison’ between plants and a powerful means to enhance the transfer of practices (Mueller and Purcell, 1992). At UK-Store’s first China store in the northeast Shanghai suburbs, benchmarking was largely implicit, it rested in the UK experience of the two expatriate managers and the more limited experience selected Chinese employees had gained in short training visits to the UK. However, when the second store was set up in the west of Shanghai, the first store became a direct benchmark for the new store with monthly competitions between them to see which had the highest turnover. This intra-store competition constituted a subtle

Transferring Human Resource Practices from the United Kingdom to China 41

form of pressure on the new store’s managers to adopt the practices employed at the first store, which were seen as the source of its success. Inevitably, the transmission of explicit and tacit knowledge overlaps. Thus, UK-Store’s expatriate managers not only introduced and activated training, selection and recruitment and promotion procedures, they also participated in and oversaw their operation. In selection procedures, for instance, they introduced and established the recruitment criteria and actively selected recruits who possessed the ‘motivational characteristics and skills mix appropriate to the imported form of organisational practice’ (Ferner, 1997: 26). In addition, in their daily behaviour and example they indicated to local employees the kind of work style and approach that was sought, sanctioned and would be rewarded by the firm. Their presence enabled an ongoing dialectic with local employees in which cultural values and expectations were negotiated on both sides. Despite the assumption that greater numbers of expatriates facilitates diffusion, UK-Store’s example demonstrates that even small numbers can have a great impact. At the apex of the management structure, UK-Store’s two expatriates fulfilled a pivotal and critical role in diffusing the company’s parent country practices. The extent to which UK-Store transferred its parent country HRM practices to China is indicated in Table 3.1. The final column, summarizing practices in state owned enterprises, is based upon comments UK-Store’s employees made during interviews. As indicated, the firm had transferred many of its UK practices. Moreover, many local employees at least appeared to have internalized many of the company’s values. Communication with the workforce In the United Kingdom, UK-Store provides its workforce with information on details ranging from sales targets and daily turnover to company strategy. This information is communicated through means such as daily morning briefings that are attended by all staff, the company magazine and workplace ‘huddles’. By contrast, Chinese state enterprises have tended to be secretive, with information retained both by higher levels and within departments (Child and Markóczy, 1993). UK-Store appeared to be midway between state enterprise practices and those of its parent company, with less disclosure to employees than in the UK but more than in state firms. Arguments for less disclosure tended to come from the firm’s senior Chinese director who cited the need for security in a highly competitive marketplace, an aspect that could be attributed to the institutional legacy of state enterprises.

42 Multinational Retailers and Consumers in China Table 3.1

HRM practices transferred from UK to China

HRM dimension

UK-Store (Shanghai, China)

UK-Store (London, UK)

State owned enterprises

Communication with workforce

Less disclosure than in UK

Extensive briefing on sales targets and company strategy etc

Secretive, information retained by higher levels and within departments

Hierarchy

Relatively flat

Relatively flat

Multi-layered

Reward system

Mainly fixed for lower levels Company profit bonus Mostly graduated differentials but some exceptions

Mainly fixed for lower levels Company profit bonus Graduated differentials within and between categories

Fixed rates

Non-wage benefits

Meals benefits provided after much debate

No meals benefits

Canteens

Work pattern

Full-time

Full-time and part-time

Full-time

Age composition of workforce

Mainly young employees, but older than many joint ventures (average age 27–8)

Older employees (average age 35)

Older employees (e.g. average age over 40 in an adjacent Shanghai store)

Training

As UK (if not more), increasing provision of off-the-job training

Increasingly systematic provision and more off-the-job training

Minimal and mainly enterprise based

Employee representation

Trade union ‘Grass Roots’

No trade union ‘Grass Roots’

Trade union

Few performance related rewards Limited differentials within and between categories

Work pattern In the United Kingdom, UK-Store has a large proportion of part-time employees. This parallels a general trend in the UK labour market; the proportion of part-time workers in the retailing workforce rose from

Transferring Human Resource Practices from the United Kingdom to China 43

35 per cent in 1971 to 49 per cent in 1993 (Townsend et al., 1996: 211). By 2004, they accounted for 69 per cent of the total retail workforce (Lynch, 2005). In China, by contrast, UK-Store only had full-time employees. This divergence seems related not to cultural factors but to the different labour markets, for instance, China’s lower labour costs permitted greater use of full-time employees. In addition, the firm used vendors’ representatives who, in some respects, were a functional equivalent to part-time workers (see Chapter 8). Age composition of workforce In the United Kingdom, UK-Store actively recruits older workers; each store had a target for 18 per cent of employees to be over 50 years old. The average age of employees in London was 35. In China, UK-Store employed mainly younger employees with a notional upper age limit of 45. The average age of employees was 27–28, although the firm recruited more older employees than many joint ventures. This divergence from the UK can be attributed to a variety of factors. In UK home improvement stores, older employees are often able to provide product related information because they have personal experience of the difficulties faced by customers when carrying out DIY tasks (Harris et al., 1999). In Shanghai, there is no tradition of DIY so both younger and older recruits lack such experience. As in other foreign invested enterprises (Gamble, 2000), UK-Store’s expatriate staff expressed concern that poor working habits in state enterprises had become ingrained in older workers. By contrast, younger recruits were considered easier to train. Indigenous Chinese stereotypes also supported this view; interviewees suggested that older employees would be physically incapable of the work involved as well as less adaptable. Reward system China introduced a national wage system during the 1950s. This was characterized by an egalitarian ethos, with minimal reward differentials both within categories of worker and between management and shopfloor staff. Companies also provided extensive benefits in kind, including accommodation and free medical care. In a comparative study of UK and Chinese companies, Easterby-Smith et al. (1995) found sharp differences with regard to pay and reward systems. In particular, differentials between top managers and average wages were much greater in the UK firms than in the Chinese firms. In the latter, there was ‘very strong resistance’ to linking rewards more closely with performance and to the introduction of pay differentials. Easterby-Smith et al.

44 Multinational Retailers and Consumers in China

attribute such resistance to cultural factors and anticipate that ‘there may be deep-seated differences between the two countries with regard to attitudes towards rewards which will limit the transferability of HRM ideas in this area’ (30). In recent years, however, reward systems in China have begun to change. Material rewards have become more predominant, with a shift away from egalitarian pay and benefits toward more emphasis on individual performance related rewards with greater differentials (Akhtar et al., 2008; Cooke, 2009). In UK-Store, both in the UK and in China, payment levels for employees in lower grades are relatively fixed and bonuses based upon company level performance. Unlike in the UK, in China UK-Store’s employees can reimburse a percentage of medical care costs and, from 2000, received a meals subsidy. These two aspects can both be considered as examples of local isomorphism, but the drivers were rather different in each instance. The provision of medical cover was made necessary by the absence of society wide health care. The meals subsidy, introduced only after a year of much debate, appeared to be due to a combination of institutional and cultural factors. In part, employees had grown accustomed to meals provided while on duty in other workplaces, additionally Chinese generally eat a cooked meal at lunchtime. Staff also complained about the cost of buying meals out and the lack of suitable restaurants in the store’s vicinity. During interviews in 1999, this issue was employees’ main source of dissatisfaction with UK-Store. Indeed, some interviewees clearly used the author as a ‘transmission belt’ to ensure this feeling was made known to the store managers. In 2000, employees expressed more general dissatisfaction over the reward system. Chief aspects of concern were pay levels, the bonus system and, especially among older employees, the low level of medical benefits and lack of a pension system. Ironically, given Easterby-Smith et al.’s (1995) findings, UK-Store’s employees complained that the firm had yet to introduce a performance related bonus system, although the preference was for department-wide bonuses rather than individual performance based bonuses. Employees’ aspirations and expectations, voiced through mechanisms such as ‘Grass Roots’ (see below), constituted a force for local isomorphism. Their expectations were derived partly from UK-Store’s own self presentation, but also from comparisons with other firms. Employees brought with them a range of prior work environment experiences, not least because a minimum of one year’s work experience was a requirement for new recruits, with preference given to candidates who had worked in foreign invested stores. Employees had previously worked in

Transferring Human Resource Practices from the United Kingdom to China 45

state enterprises, collective firms, private firms and various types of foreign enterprise including Japanese, German, French, Thai, Malaysian and American firms. These experiences provided the basis for a range of ‘persuasive comparisons’. From the interviews it was apparent that UK-Store’s employees engaged in continual comparison of their salary levels, bonuses, welfare benefits and working conditions both with those in employees’ former workplaces and those reported from firms of family members and friends. The main point of reference or benchmark against which UK-Store was judged was not so much provision by ‘traditional’ state owned enterprises, but that offered by other foreign enterprises. Moreover, by consistently describing itself as ‘the Number One’ European firm in its line of business, UK-Store had made a rod for its own back since it enabled employees to benchmark their own pay and conditions against those of competitor firms. Employees reasoned that if UK-Store was ‘Number One’ then, logically, their pay and benefits should match this status. Thus, isomorphic pressures derived only partly from domestic institutions. Pressures to resemble state enterprises were often second hand, that is, to the extent that other foreign firms had succumbed to pressures to resemble state enterprises. Employees’ comparisons, while not coercive, could be persuasive and were not easily ignored. Workers’ power to push for improvements rested on two main factors. First, UK-Store needed employees’ active and enthusiastic involvement to provide the kind of customer service seen as vital for the business. Second, employment in a foreign enterprise enhanced employees’ employability; the ‘quit option’ was a potent threat, especially given that UK-Store’s plans for rapid expansion were predicated on promoting employees trained in-house. An unexpected aspect of divergence was the level of differentials. Within and between categories of store level employees differentials were similar to those in the UK. However, although precise details were difficult to obtain, it was apparent that differentials between shopfloor workers and head office professional staff were greater in nominally socialist China than in the UK. While store employees’ compensation amounted to around one-eighth the level of their UK counterparts, professional staff were paid similar amounts to their UK equivalents. If expatriate managers’ compensation packages were factored into this equation then differentials were greater still. The marked disparity in differentials can be linked to the shortage of and pressure to retain appropriately skilled managers.

46 Multinational Retailers and Consumers in China

Training Training in China’s state enterprises has traditionally been quite limited and mainly enterprise based (Cooke, 2005). In the UK, training at UK-Store has tended to be piecemeal, ad hoc and on-the-job, especially for shopfloor staff. Increasingly, though, there has been a trend for more systematic provision and greater use of off-the-job training. In China, training provision at UK-Store was often more systematic and extensive than in the parent country stores, including on-going product knowledge training and a locally developed system of product knowledge certificates for customer assistants (see Chapter 7). DIY skills and product knowledge are less readily available in China compared to the UK, hence more attention must be devoted to staff training. In addition, lower labour costs in Shanghai compared to the UK allowed for more concentration on training. Even though both business sector and firm are held constant in this study there are still implicit differences. In China, for instance, simply being a large multinational is a source of competitive advantage, at least in the recruitment of employees. Until recent years at least, in popular perceptions foreign enterprises are desirable employers (Gamble, 2000). The expectation is that a foreign firm, and especially a Western multinational, would provide better pay, conditions, training and promotion prospects than local firms. This enabled UK-Store to select from a larger pool of applicants and to recruit people of a higher educational standard than would be usual in the UK. What might be perceived as rather routine, dead end jobs in Britain are more desirable in China. In early 2000, for instance, 1000 applicants responded to a recruitment advert, with fewer than 20 offered jobs. Arguably, recruits in China are generally more trainable and enthusiastic to receive training than their UK counterparts. For their part, employees remarked upon the degree of training offered by the firm. Multinationals’ subsidiaries sometimes pursue more sophisticated human resource management practices than the parent. In some instances there is ‘reverse diffusion’, with these practices transferred to the firm’s headquarters or to other plants within the corporation (Monks, 1996; Rosenzweig and Singh, 1991). UK-Store’s UK Director of Human Resources suggested that the programme of product knowledge training developed in China with certificates for shopfloor staff might provide a model for the UK operation. Employee representation State owned enterprises invariably have an organized trade union branch and foreign enterprises are legally committed to establish a union if

Transferring Human Resource Practices from the United Kingdom to China 47

requested by employees. In the UK, UK-Store does not recognize a trade union, although individual employees are not constrained from joining a union. However, it operates an in-house representative consultation system called ‘Grass Roots’ in which shopfloor employees are encouraged to voice their grievances. Once issues raised in this forum have been addressed, details of action taken and decisions reached are fed back to employees. In China, UK-Store has a union, although its main role appeared to be organizing leisure activities for employees. UK-Store has, though, introduced ‘Grass Roots’. Local employees considered this a ‘brave’ action on the firm’s part, one that few other foreign enterprises would dare to implement since they would be wary of permitting employees the opportunity to voice discontent over company practices. In the Chinese context, the transfer of this mechanism constituted a progressive development (cf. Ferner, 1997: 32). A trade desk customer assistant who acted as her department’s representative reflected: Grass Roots gives us a feeling of being on an equal level, the company wants to know what employees’ think.

Transferring a flat hierarchy Respect for hierarchy is one of the Chinese cultural values Lockett (1988) anticipates will inhibit technical and organizational innovation. He adds that a high degree of differentiation of activities is a basic feature of Chinese organizations. The pattern of organizational structure in state enterprises that emerged from interviews was, indeed, of multilayered hierarchies, with diverse job titles and managers who were distant from shopfloor staff. Typically, this remoteness was symbolized in managers’ offices, which tended to be large, plushly decorated and well enclosed. Given the cultural and institutional differences between China and the UK, the prospects for UK-Store to transfer its relatively flat organizational hierarchy do not look promising. In fact, this transfer appeared to have been successful although, as will be shown, cultural and institutional differences coloured local employees’ reception of the transferred practices. The situation at UK-Store is markedly different to that depicted in state firms. The hierarchy is relatively flat and interactions between staff at all levels are typically casual and informal, a situation symbolized in and encouraged by the use of first name terms throughout the company and single status uniforms. Managerial offices are open plan,

48 Multinational Retailers and Consumers in China

cramped and quite spartan. Moreover, managers are often not in their offices but visibly on the shopfloor. A customer assistant found: The company culture at UK-Store is very different to that at my previous company [a Hong Kong owned store]. There’s no sense of distance with higher staff. We feel that we’re friends. There’s no feeling that ‘I’m the one in charge (dangguan de), I’m the boss (tou), you’re the common people (laobaixing).’ This is from [first name of senior executive] down; everybody is very polite and treated equally. In my last job, it was a case of, ‘I’m the boss, you’re the workers; so I look down on you.’ Employees described UK-Store’s management style as ‘modern’, ‘scientific’, ‘systematic’, ‘civilized’ and ‘egalitarian’ and as having ‘human feeling’ (renqingwei). The two expatriate managers were described as ‘polite’ and ‘friendly’ and as having respect for employees and their opinions. A warehouse worker, previously employed in a state store, considered UK-Store’s management style: Very tolerant and warm hearted, the managers show concern for you. In the state store, even though I was there for one year, the managers didn’t even know my name. Here we’re very familiar with both [first names of the two expatriate managers]. Workers have a spirit of unity (tuanjie jingshen). At my last company, it always felt that ‘workers were workers and managers were managers’, but here we feel that workers and managers are together, it’s harmonious. Many shopfloor staff expressed the view that workplace relations were ‘fraternal’ (xiongdi guanxi) and that the firm had an ‘extended family atmosphere’ (da jiating fengwei) or a ‘family like feel’ (qinqi ganjue). In the loss prevention section, one of the store’s oldest employees commented: I joke that UK-Store’s way of having no distance between people is like China in the 1950s. Then everybody tightened their belts and worked together. A valuable team spirit had been built up during UK-Store’s start-up phase. There was great enthusiasm for the project and many out-of-work activities such as meals, karaoke, dancing and bowling in which both local and expatriate staff participated. UK-Store also transferred the key aspects of its relatively flat organizational structure (see Table 3.2).

Transferring Human Resource Practices from the United Kingdom to China 49 Table 3.2

Grading structure in UK-Store

Grade 2

Customer assistants, receiving desk staff, warehouse staff, clerical workers

Grade 3

Customer advisors, deputy supervisors

Grade 4

Supervisors

Grade 5

Deputy managers/team leaders

Grade 6

Assistant store manager

Grade 7

Store general manager

New recruits received messages about the company’s culture and management style during the 3-day induction training. Employees learnt that both the first expatriate managers and the company’s International Development Director had all been promoted from the lowest levels of the company. Two new recruits, interviewed immediately after their induction training, had both been left with the strong impression that the atmosphere was ‘very egalitarian’ and that there was ‘no gap between the foreign managers and employees.’ These messages were reinforced by the use of first name terms and single status uniform. In the context of contemporary Shanghai, where managers now generally wear suits and ties to differentiate themselves from shopfloor staff, UK-Store’s use of a common uniform constituted a reversion to the practice prevalent during the Maoist era. The daily morning briefings also provided a means to help ameliorate vertical divisions that could develop between departments. The positive acceptance of the relative lack of hierarchy, however, cannot be divorced from the daily example and self presentation of the first two expatriate managers. Both these managers operated as they had done in the UK, spending much time on the shopfloor and making every effort to be approachable. A deputy supervisor in the timber section remarked: It’s very difficult to find this kind of boss; they talk openly (tanxin – literally ‘speak from the heart’) with us and don’t just talk about salary. It’s difficult to find a good job; it’s even harder to find a good boss – finding both is really hard! These comments indicate the successful transfer of a relatively unhierarchical workplace. Sometimes, though, cultural differences emerged. For instance, although employees often expressed what could be construed as

50 Multinational Retailers and Consumers in China

a sense of loyalty to the company, this was often articulated in terms of an ‘emotional’ (ganqing) attachment to the particular managers. It could be that the emphasis upon personal relationships in China facilitated the adoption of a non-hierarchical structure. All staff were given English first names, which appeared on their uniforms alongside their Chinese names. In part, this practice was considered helpful for foreign customers; it was also intended to create an atmosphere of informality. In Chinese companies, lower ranking staff usually address staff senior to them in a quite formal manner, typically using both surname and job title – one customer assistant described it is a ‘military style’ approach. Thus, in this context, the introduction of first name terms across the company was a radical innovation. For a trade desk deputy supervisor, the main difference between UK-Store and his previous employee, a state enterprise, was that: The differences between the higher and lower levels are not sharply demarcated; the gap between them isn’t great. Everyone uses first names. We feel that we’re all in the same company, we’re all co-workers and all have the same objective. Here the management don’t just issue orders, it’s very harmonious. It’s like an extended family. This is due to UK-Store’s culture, it has entered the employees. The transfer and use of first name terms could be taken to indicate the transfer of a non-hierarchical approach. However, during interviews it became apparent that while this was broadly the case there were nuances that could be overlooked; whilst the form had been transferred, the content meant something rather different in the Chinese context. In practice, use of the English names was confined to particular circumstances. Notably, while customer assistants sometimes addressed deputy supervisors and supervisors by their English names, they invariably used these names for managerial staff. This could be construed as a minimizing of hierarchies and customer assistants did, indeed, describe this usage as being ‘harmonious’ and remarked that using their Chinese names would increase the sense of distance. However, a deputy supervisor added that she called staff in positions above her by their English names since, ‘to call them by their Chinese first names would not be best because they’re managers’. It appears that employees’ use of English names could rearticulate hierarchy in a new style.

Transferring Human Resource Practices from the United Kingdom to China 51

Conclusion This chapter has suggested that firm specific practices and institutional and cultural features of the host country environment, rather than country of origin, level of international production integration or product market, are the most relevant factors to analyse the transfer of HRM practices. The competitive assets of the multinational researched for this chapter appear largely firm rather than nation specific. Expectations that service sector firms are more likely to embrace local HRM practices rather than transfer those from the parent country are not supported. UK-Store’s HRM practices largely followed those of the parent company, although there were also hybrid elements including features influenced by local (or localized) institutional norms and expectations. The firm’s transfer of its parent country HRM practices could be characterized as much ‘organizational inertia’, as derived from a deliberate decision to promote ‘globally shared values’. Moreover, any strategic decision to seek ‘differentiated fit’ would have been problematic given that the firm’s head office and expatriate staff, initially at least, had little idea what cultural and institutionally derived expectations they would need to fit with. This chapter indicated that ‘cultural distance’ does not present an insurmountable barrier to the transfer of HRM practices. We should avoid over-essentializing ‘culture’: cultural values are not a monolith but a fluid and shifting repertoire with diverse strands. In transferring its relatively flat hierarchical structure, for instance, UK-Store tapped into an egalitarian ideal out of kilter with contemporary trends but reminiscent of China in the early 1950s. It could be added that although respect for hierarchy is typically perceived as an important feature of Confucian values, it might be that those at the top of society place most emphasis on hierarchy, while those lower down tend to stress commonality and the value of egalitarianism. The critical role played by key expatriate managers was evident in the communication and transfer of both explicit knowledge as well as tacit knowledge of company practices and management approach. UKStore’s apparent business success in China can be attributed in part to the transfer of the firm’s ‘administrative heritage’, particularly its organizational structure and management style. However, the human agency of the particular expatriate managers involved was vital to this transfer. Expatriates with appropriate technical and personal skills can reduce the ‘friction’ of cultural distance. Child and Markóczy (1993) suggest several possible learning processes of local managers in joint

52 Multinational Retailers and Consumers in China

ventures. These range from ‘non-learning’ to ‘integrative learning’. The latter involves both cognitive and behavioural change, it is dependent on mutual trust and requires both sides to express and share their underlying understandings and behavioural norms. UK-Store’s organizational structure and the management style of its expatriate staff appear to have facilitated just this kind of integrative learning. The evidence from UK-Store underscores the need to take great care in the selection of expatriate personnel and for multinationals to ensure potential expatriates’ cross cultural suitability as well as their technical skills. Although UK-Store appears to have transferred successfully many of its parent company HRM practices to China, they are refracted through host country cultural and institutional lenses. The relatively flat organizational hierarchy, for instance, means something rather different in the Chinese context. In transferring this parent country approach UK-Store, unwittingly, was doing something quite radical in the host country context. Extrapolating from this example, many other elements seen as ‘transferred’ might be subject to similarly subtle processes of transformation. Studies on the transfer of organizational practices need to go beyond managerial rhetoric and explore actual practices on the shopfloor and the ways in which the actors involved understand, interpret and negotiate them. These aspects are investigated further in the following chapter. This chapter also indicated that imported ‘alien’ human resource practices can be innovative and advantageous in host countries. The transfer of a relatively flat hierarchy to a country accustomed to more rigid hierarchies appeared to leverage the competitive advantage of this management approach. Finally, the findings reinforce the view that specific HRM practices in multinationals’ subsidiaries will be differentially shaped by the interplay of diverse forces (Rosenzweig and Nohria, 1994). This conclusion underscores the need to explore particular practices and to produce detailed, qualitative and contextualized case studies of workplaces, while paying attention to their insertion into local, national and global labour markets, economic and institutional structures, as well as global flows of capital and ideas.

4 Shopfloor Perceptions of Employment Practices at UK-Store in China

Introduction The management of host country employees is often portrayed as a particularly fraught dimension for multinational firms. The difficulties inherent can manifest and stymie a UK firm seeking to transfer its management systems across the English Channel to France (Boussebaa and Morgan, 2008). The problems involved are considered exponentially greater when institutional differences and ‘cultural distance’ between the host country and a multinational firm’s parent country are far larger, as is assumed to be the case for Western firms operating in mainland China. Based upon detailed case study research conducted at UK-Store and a comparable Chinese state owned firm, this chapter explores further the veracity of such assumptions. Since the late 1970s, China has sought to attract foreign direct investment. The intention is that alongside updated products, equipment and technology, foreign direct investment will also bring advanced management expertise and human resource management systems and practices (Child, 1991). While China has been enormously successful in attracting investment, researchers have observed limits to the introduction of new HRM systems and Western training practices are regarded as potentially inappropriate in the Chinese context (Ding et al., 2000; Goodall and Warner, 1997; Ilari and La Grange, 1999; Warner, 1999). More generally, studies cite the management of local employees as the greatest challenge facing foreign firms in China (Ahlstrom et al., 2005; Björkman and Lu, 1999). To avoid difficulties, analysts advise foreign firms to adapt their HRM practices to the local context and to deploy expatriates with appropriate linguistic skills and understanding of Chinese culture. This chapter 53

54 Multinational Retailers and Consumers in China

focuses on UK-Store’s import to China of a largely unmodified version of its parent country HRM practices. Its relatively open and consultative practices, including a comparatively flat hierarchy and mechanisms whereby managers actively sought workers’ opinions and were responsive to employee feedback, appeared antithetical to local norms. Despite this, its local employees seemed to respond positively to the imported HRM regime. Given UK-Store’s apparent disregard of ‘received wisdom’, this chapter investigates the factors involved in more detail. In particular, it explores the following questions: Can Western multinationals transfer successfully their parent country HRM practices? How do Chinese employees’ experiences of employment in such a firm compare with that in state owned enterprises? How do they respond to a relatively open and consultative HRM regime?

Multinational firms and employment practices in China Multinational firms face a choice between seeking to implement global HRM policies and adapting to local practices. In the Chinese context, researchers argue that Western multinationals must make adaptations to local practices (Ahlstrom et al., 2001, 2005; Björkman and Fan, 2002; Björkman and Lu, 1999; Jackson and Bak, 1998; Sergeant and Frenkel, 1998; Tsang, 1994; Verburg, 1996). Verburg, for instance, advises that ‘designing suitable strategies of employment management in a nonWestern country like China is not just a matter of implementing well established HRM practices but a process of shaping such designed practices to the specific context’ (1996: 524). Similarly, Jackson and Bak suggest ‘it may be naive…to think that Western managers can enter China with an armoury of motivational techniques which have proved useful back home’ (1998: 23). All but one of 30 foreign managers in Chinese joint ventures interviewed by Child and Markóczy (1993) observed a great difference between their home country personnel practices and those they were obliged to follow in China. In part, the legislative framework in these earlier stages of China’s ‘Open Door’ policy provided barriers to innovative practices. Foreign enterprises faced restrictions on recruitment, for instance, and it was difficult to fire unsatisfactory workers (Child and Markóczy, 1993; Tsang, 1994). At a deeper and more pervasive level, ‘organizational inertia’ has been considered to constrain foreign investors from implanting new HRM systems and practices (Warner, 1999). Ding et al. (2000: 219) conclude that the potential to ‘implant new human resource management systems and techniques is constrained by the

Shopfloor Perceptions of Employment Practices at UK-Store in China 55

Chinese context, particularly the cultural and institutional heritage of the SOE’. In their estimation, key impediments are the ‘mind-sets’ associated with organizational dependency that ‘became deep-rooted and…difficult to modify or change’ (218). Child and Markóczy (1993) explore these features in detail, and identify similarities between the behaviour of local managers in Chinese and Hungarian equity joint ventures. Shared dimensions included local managers’ reluctance to make decisions or to accept responsibility for their actions. They were also unwilling either to share information with subordinates and other departments, or to inform their foreign partners of problems. Local managers also tended to insist on strictly defined tasks which they followed narrowly to the detriment of communication and flexible working. More generally, researchers observe difficulties in ‘the recruitment, development, and retention of a competent work force’ (Ahlstrom et al., 2001: 59). Problematic aspects are reported to include lack of a committed workforce (Verburg, 1996), a poor work ethic and bad work habits especially in firms that were joint ventures with former state owned enterprises (Sergeant and Frenkel, 1998). Recent studies continue to report that Chinese employees rarely take the initiative to give critical feedback or suggest improvements (Akhtar et al., 2008: 28). Child (1991) and Child and Markóczy (1993) provide potential explanations which although focused on managers also help to account for the behaviour of Chinese workers. These include the system of industrial governance, resistance to change and national culture. Child and Markóczy consider the system of industrial governance and the corporate environment it established as the most pertinent explanation for host country managerial behaviour in both China and Hungary. Under state socialism managers learned to cope with systems characterized by paternalism, resource dependency, verticality and restrictions on free competition. Such systems fostered ‘defensive, conforming, behaviour’ (1993: 617), that included avoidance of personal responsibility and a lack of independent thinking, initiative or customer orientation. Resistance to change was also encouraged in an environment where enterprise managers could face sudden changes in regulations and personal sanctions. As indicated in the previous chapter, national culture has often been proposed to account for the values, beliefs and behaviour of workers in different countries (Hofstede, 1984). In the Chinese context, characteristics singled out include respect for hierarchy and the importance of relationships (guanxi). Lockett (1988) considers that such cultural factors would preclude implementation of Western HRM methods.

56 Multinational Retailers and Consumers in China

Based on comparative research conducted at UK and Chinese firms, Easterby-Smith et al. (1995: 56) conclude, ‘there are strong cultural factors which limit the adoption of many features of HRM in China’. Similarly, Lockett (1988) suggests that Western management methods must be adapted to fit better with Chinese conditions and culture. By contrast, this chapter suggests that it might be detrimental if firms too readily adopt ‘the Chinese way of doing things’. In the process they might squander valuable resources that differentiate them as employers in China’s labour market. Research evidence suggests a tendency towards increasing standardization in multinationals’ approach to HRM in China (Björkman and Fan, 2002). Where early Western enterprises tended to adapt their HRM practices to the Chinese environment (Child, 1991; Goodall and Warner, 1997), during the 1990s the trend was to introduce more Western HRM practices (Björkman and Lu, 1999). Björkman and Fan (2002) attribute this to foreign invested enterprises increasingly greater control over joint ventures compared to set up in the earlier period. Moreover, firms in China generally now have enhanced power to determine internal labour practices (Gallagher, 2005). Some researchers report a pronounced trend in recent years towards convergence of local firms HRM practices with MNCs and of MNCs with their parent company practices (Björkman et al., 2008b). State firms, for instance, now also place greater emphasis on training and performance based rewards. Akhtar et al. (2008: 30) anticipate that ‘in a decade or two, with some local adaptations, mainstream strategic HRM will prevail in most Chinese organizations’. However, Walsh and Zhu (2007: 264) report ‘an emerging segmentation of the labour market in China, with increasing diversity of human resource practices between the foreign owned and state-owned enterprise sector’. As indicated in Chapter 2, China’s broader business environment has undergone substantial change. Since the late 1970s, its formerly autarkic and uncompetitive economy has opened to commercial pressures, with intensifying competition between both domestic and multinational firms. The labour market has decentralized and become more flexible. Both employees and employers now have a choice, respectively, in selecting which firm to work for and who to recruit. Job mobility has increased to such an extent that foreign invested enterprises report the retention of key staff to be a major problem (Sergeant and Frenkel, 1998; Tsang, 1994; Walsh and Zhu, 2007; Warner, 2008; Weldon and Vanhonacker, 1999; Wong et al., 2001). This chapter suggests that these structural changes increasingly permit Western

Shopfloor Perceptions of Employment Practices at UK-Store in China 57

multinationals to introduce relatively unmodified versions of their parent country HRM practices.

Changing behaviour and attitudes in Chinese workplaces Child and Markóczy (1993) investigate the conditions under which managerial learning can take place in joint ventures. Although their study focuses on managers, their remarks could apply equally to shopfloor workers. Possible forms of host country managerial learning include non-learning, imitation and integrative learning. With non-learning no significant cognitive or behavioural change occurs. Imitation involves behavioural change but no cognitive change; actions may change but understanding is limited. In the case of integrative learning, local managers change both their cognitive framework and behaviour. It may come about ‘through both sides endeavouring to express and share their underlying understandings and behavioural norms’ (627). This requires receptivity and readiness to change and learn on the part of both host country and foreign managers; mutual trust is critical. Integrative learning is deemed the most effective means to develop managerial competence and culture, and as enabling local managers to take over from expatriates at an early stage. Mentoring and the introduction of consultative and more open HRM regimes could be considered as a means to facilitate integrative learning. However, Weldon and Vanhonacker (1999) question how far such Western training methods can be transferred to the Chinese context. For instance, they anticipate that cultural differences between foreign mentors and protégées may impede informal relationships. Similarly, Björkman and Lu (1999) remark that ‘shadowing’ systems and teamwork with expatriate professionals and managers might constitute important development strategies, but add that few of the 65 foreign firms they studied reported success with these methods. They suggest that this may be attributed to the performance pressures on expatriates as well as their inability ‘to create close and trustful personal relationships with their Chinese colleagues and subordinates’ (317). By contrast, Ahlstrom et al. (2001) report instances where mentoring was helpful. Tsang (2001: 45) is convinced of ‘the importance of personal coaching in inculcating local managers in the correct way of doing things’. However, he adds that if the perceived social distance between expatriates and locals is high, transfer of knowledge is likely to be impeded, and argues that this requires expatriate managers to ‘possess language capability and be culturally sensitive’ (45). It is also

58 Multinational Retailers and Consumers in China

considered important that foreign managers set a good example (Jackson and Bak, 1998; Tsang, 1994). Walsh et al. (1999) too suggest that the potential to transfer Western management practices rests heavily upon the quality of daily personal interactions between foreign and Chinese staff. It is important to build common interests and a relationship of trust. Such trust appeared absent in the US invested firm they studied; local and foreign managers’ mutual perceptions were largely negative and likely to preclude integrative learning. Some studies, however, indicate that differences in cultural background are less hindrance to knowledge transfer and harmonious working relationships than might be expected. In a study of 42 hotels in the Shanghai area, Leung et al. (1996) tested the hypothesis that Chinese employees would show a higher level of job satisfaction in firms where the cultural background of overseas managers was more similar to theirs. Contrary to expectations, they found that ‘similarity in cultural background between expatriate staff and local staff seems not to be a major factor in determining job satisfaction’ (959). As Leung et al. point out, it is easy to attribute difficulties encountered in joint ventures to cultural differences, and to neglect analysis of non-cultural factors. Similarly Li et al. (2001) found that despite larger cultural distance between Western firms compared to firms from East Asia, the former possessed other sources of competitive advantage in China. They suggest that firms can overcome the difficulty of large cultural distance by sending to China expatriates ‘who understand both cultures well’ (129). There is relatively little research evidence to indicate how Chinese workers respond to open and consultative HRM regimes. However, Leung et al. (1996: 959) found that distributive justice was positively correlated with job satisfaction and suggest that foreign firms should focus not only on pay, but also seek ‘to establish decision-making processes that are consultative, open and responsive to feedback and suggestions’. In a study of two Chinese firms, Wong et al. (2001) report organizational commitment to be a predictor of both job satisfaction and turnover. The authors recommend that firms should try to build positive, long-term relationships with their employees. Since trust plays an important part in determining organizational commitment, it is argued that ‘foreign investors may benefit by incorporating more human resource management practices that emphasize more transparent, open and fair procedures for communicating with employees and for allocation of material rewards’ (2001: 337). This chapter explores in detail to what extent a multinational can introduce such an HRM regime and how Chinese workers respond.

Shopfloor Perceptions of Employment Practices at UK-Store in China 59

Several studies explore the extent of divergence or convergence between ‘traditional’ Chinese HRM and Western-style HRM practices (e.g. Warner, 1997). Typically, analysts compare the adoption of Western practices against an ideal type model of state owned enterprise practices. The detailed case study approach employed in this chapter enabled the author to elicit employees’ reports of their own experiences of differing employment regimes. As Nichols et al. observe in the context of Turkey, foreign direct investment provides ‘a means of comparison for those workers who can see both foreign and indigenous managers in their everyday work lives’ (2002: 740). UK-Store is particularly suitable to elicit such comparisons since its basic approach has been to replicate its parent country HRM practices. In addition, the UK side of the joint venture has full operational control over the stores without an already established workforce. The firm’s preference to recruit those with work experience also ensured that most employees had worked for at least one other firm, including state enterprises, collective and private firms and other foreign firms. This chapter draws upon both the qualitative and quantitative data. In interviews at six UK-Stores in Shanghai, Suzhou and Shenzhen, a cross section of employees was asked to contrast their experiences at UK-Store with those in their previous firms. Research at a comparable state owned store, ‘State-Co’, a well established retailer in Beijing, provides a control against which to measure the findings from UK-Store. It would have been ideal to compare firms in the same part of China. However, gaining access to state firms proved extremely problematic. That said, this Beijing state enterprise constitutes a meaningful comparator since it operates in a similar metropolitan environment and is a prestigious local store. Similarly, respondents to the questionnaire at both firms were at similar levels in the hierarchy and undertook similar job roles. Six employees were interviewed at ‘State-Co’. The chapter also makes use of the survey questionnaires completed by a cross section of employees at three UK-Stores (two in Shanghai and one in Shenzhen, n = 391) and ‘State-Co’ (n = 98). At UK-Store, 70 per cent of employees were male and 30 per cent female with an average age of 27–8. By comparison, the average age of employees at ‘State-Co’ was over 30, with 67 per cent female and 33 per cent male. Contrary to analysts’ recommendations, neither of the two expatriates who filled the assistant store manager and store manager roles for UK-Store’s first year of operations possessed Chinese language skills or received extensive preparation for China posting. The store manager had no experience in Asia, and his colleague just a few months exposure to

60 Multinational Retailers and Consumers in China

Chinese business when stationed in Taiwan. Since 2000, responsibility for management of the two original stores and all subsequent stores has been transferred to locally recruited managers. As outlined in the previous chapter, the HRM regime can be considered open and consultative in various respects. UK-Store has single status uniforms and first name terms are used across the firm. Additionally, employees’ opinions are actively sought through consultative mechanisms that incorporate grass roots staff. The organizational structure is relatively flat: under the store manager are two to four assistant store managers, each trading department has one supervisor, one or two deputy supervisors and between four and 35 customer assistants. The results in Table 4.1 indicate the degree to which UK-Store had implemented a consultative HRM regime. In all dimensions, UK-Store provided a more consultative HRM regime than ‘State-Co’. It is notable that consultation over salaries showed least divergence and was the least negotiable aspect at both firms. Table 4.1 Contrasts between UK-Store and state owned store ‘State-Co’: Extent of consultation with employees Managers in my company consult employees about… Never Occasionally Sometimes Frequently n = (%) (%) (%) (%) Future plans for the workplace

UK-Store ‘State-Co’

2.1 17.0

20.1 25.5

51.4 39.4

26.4 18.1

288 94

Work arrangement

UK-Store ‘State-Co’

1.4 10.6

14.4 26.6

45.6 39.4

38.6 23.4

285 94

Changes to working procedures

UK-Store ‘State-Co’

2.8 11.7

20.8 30.9

52.1 47.9

24.3 9.6

284 94

Salary issues

UK-Store ‘State-Co’

38.9 46.2

28.8 31.2

29.1 20.4

3.2 2.2

285 93

Workplace health and safety issues

UK-Store ‘State-Co’

3.8 17.0

16.7 29.8

37.3 35.1

42.4 18.1

287 94

Shopfloor employees’ experiences of employment in UK-Store Local employees observed a range of divergences between the HRM regime at UK-Store and their former state owned enterprises (see Table 4.2).

Shopfloor Perceptions of Employment Practices at UK-Store in China 61 Table 4.2 Contrasts between state owned enterprises and UK-Store: Human resource management regimes HRM dimension

UK-Store

State owned enterprises

Work pace

Faster, more intense Fewer employees

Slow, leisurely Over-manning

Company rules and procedures

Extensive Standard Operating Procedures Dependence on systems and structures Clear division of labour

Minimal, ad hoc Dependent upon individual managers Wider job roles for managers

Discipline

Rather lax, but equal treatment

Variable, dependent upon relationship with managers

Strategy

Long-term planning

Opaque, ad hoc, changeable

Communication with workforce

Information sharing. Briefing on sales targets and company strategy

Secretive, information retained by higher levels and within departments

Relationships with co-workers

Generally good, often cross over in to private sphere

Generally good, potential favouritism problems

Relationships with superiors

Often close and harmonious Casual, informal – First name terms – Accessible managers – Open-plan offices – Same uniform for all employees

Limited and distant Formal, hierarchical – Surnames and job titles – Remote managers – Offices enclosed – Formerly single status uniform now differentiated

Favouritism/ particularistic ties

Minimal role, rational, bureaucratic

Dependence on individual in charge, arbitrary power

Opportunities for promotion and individual development

Ability-based, potentially rapid promotion Expected to take responsibility Training programmes

Seniority-based, slow, guanxi important Not expected to take responsibility Minimal training

Security of employment

Good in return for commitment

Deteriorating

Non-wage benefits

Limited but improving Meals benefits provided after much debate

Previously extensive but deteriorating. Subsidized canteens

62 Multinational Retailers and Consumers in China

UK-Store also had a better physical working environment, and employed more up-to-date retail technologies. Surprisingly, given China’s background as a command economy run through Five Year Plans, employees appreciated the clear, ‘long-term’ perspective that UK-Store communicated to its workforce. By contrast, firm strategy in state enterprises was depicted as opaque, ad hoc and changeable. UK-Store’s employees displayed higher levels of satisfaction with a range of HRM practices compared to ‘State-Co’ (see Table 4.3). UKStore had also fostered a high degree of commitment in a short space of time (see Table 4.4). For all three variables in this table one can reject the null hypothesis that there is no significance between them and the firm type. As mentioned above, retention of trained staff is a challenge for many foreign firms in China. However, when asked whether they hoped to be in their firm in three years time, 73 per cent of employees at UK-Store, compared with 49.5 per cent at ‘State-Co’ stated that they were ‘willing’. By contrast, just 2.7 per cent of those at UK-Store, compared to 13.4 per cent at ‘State-Co’ were ‘not willing’. The following investigation explores the factors that might lie behind this sense of satisfaction and organizational commitment. Table 4.3 Contrasts between UK-Store and state owned store ‘State-Co’: Employee satisfaction How would you evaluate your managers with respect to the extent they… Firm UK-Store ‘State-Co’ (n = 288–90) (n = 93–7)

2

P

Promptly tell employees about changes to the workplace

4.07

3.71

22.859