Final Decisions In The Past Chinese Managers example essay topic

Issues affecting International Human Resource Management in China The significance of culture in international HRM Managing Diversity Organisational structures in the context of globalisation HR 364 Management of international Human Resources 2004/05 Florian Kress Registration no: 04914686 Table of contents Introduction 2 The significance of culture in international Human Resource Management 2 Hofstede's five Dimensions 3 Power Distance Index (PDI) 3 Individualism (IDV) 3 Masculinity (MAS) 3 Uncertainty Avoidance Index (UAI) 4 Long-Term Orientation (LTO) 4 Important Terms 4 Gunaxi 4 Lien and Mian zi 5 Guo qi ng 5 Influences on HRM processes 5 Managing Diversity 6 Negotiating 7 Organisational structures in the context of globalization 8 Political factors 10 Economic factors 10 Conclusion 12 References: 13"Napoleon called China a sleeping dragon and said there would be woe to the world when the dragon awakes. As the world knows, the dragon is more than stirring". Introduction The Chinese believe that the Great Dragon ruled the Middle Kingdom of the world for nearly four thousand years. For most of this period China was a great trading nation. Then the dragon fell asleep for two centuries, while China collapsed under the effects of colonialism, until in 1978 Deng Xiao Ping woke the dragon up. And now the Chinese dragon is back, hungry to take its place as the economic and cultural superpower of the 21st century.

Nowadays China is often called the world's largest market. Many people might think that it is very easy to start business in China and that success is guaranteed because of the huge potential of the market. But that isn't true. Making successful business in China is not that easy as it might seem. There are many potential problems which can arise. For instance the Chinese civilisation is five thousand years old and because of that the Chinese culture, tradition and value system have a significant impact on the different business processes.

As the largest country in population, China has 50 plus different minority groups of people each have its own culture, custom, norm, tradition, even unique holidays and languages. Also, as one of the top three nations in land size, China is geographically divided into many regional centres across the nation each has unique cultural aspects in terms of tradition, value, social norm, belief, and organisational features. Those unique cultural factors will present numerous challenges to foreign investors and international joint venture managers. In this essay I want to discuss issues effecting human resource management which is, according to many foreign executives, the greatest challenge for Western companies in China today. The significance of culture in international Human Resource Management According to Hofstede the influence of national culture is important to management for three reasons.

The first is political and institutional. There are differences between the countries in formal institutions such as government, legal systems, educational systems, labour and employer's association, and the way they are used. The second is sociological. It concerns the identity of people and part of the 'who am I' in contrast to those with different identities. The third is psychological.

People's thinking differs because of their different life experiences. Activities like management and organisation are therefore culturally dependent. Hofstede's five Dimensions Hofstede proposes five dimensions in the study of national culture. Power Distance Index (PDI) The PDI focuses on the degree of equality in the country's society.

China has a significantly high PDI which indicates a high level of inequality of power and wealth within the society. This condition is rather accepted by the society as their cultural heritage, than forced upon the population. Individualism (IDV) The IDV focuses on the degree the society supports individual or collective achievement and interpersonal relationships. The low IDV typifies the Chinese society as one with a more collectivistic nature with close ties between individuals. The society encourages strong relationships were everyone takes responsibility for the other members of their group, e.g. family. The low IDV is probably caused by the Communism.

Masculinity (MAS) The MAS focuses on the degree the society support the traditional work role model of male achievement, control and power. The MAS of China is just a little bit higher than the world average, which means that there is still differentiation and discrimination between male and female. Uncertainty Avoidance Index (UAI) The UAI focuses on the level of tolerance for uncertainty and ambiguity within the society. The Chinese UAI is below the world average, which means that the Chinese society is less rule-oriented, more readily accepts change and tales more and greater risks than many other societies in the world. Long-Term Orientation (LTO) The LTO focuses on the degree the society embraces long-term devotion to traditional, forward thinking values.

The LTO of China has with 114 the highest ranking. This means that business may take longer to develop, because the Chinese society prescribes the values of long-term commitments and respect for tradition and supports a strong work ethic, which means, that long-term rewards are expected as a result of today's hard work. Important TermsGunaxiIn China no aspect of culture counts more than guan xi. Guanxi is the practice of continuously cultivating and valuing relationships. It is based on mutual respect and trust and provides value-added services or value-added technology or value-added friendship. Those companies that don't create such a network of respect, trust and value-adding interdependence are putting their investments at considerable risk.

Guanxi also plays an important role in human resource management. Good personal relationships between managers and subordinates can promote better communication in the company and help to manage the web of relationships with persons outside the firm. But Guanxi also produces a new set of costs that companies are not necessarily accustomed to in other markets. For that reason in the Chinese business context relationships are a form of social capital owned by businesspeople and associated with the company they run and whereas in the West a successful businessperson is spoken of as 'wealthy', in the Chinese context he or she is described as 'well connected'.

Lien and MianziFor the Chinese there are two components of face, lien and. Lien concerns one's reputation for integrity and morality, is prestige attached to professional reputation, knowledge, wealth and success. In China the surest way to lose face is to make another lose his or her face. To avoid such behaviour, it is common in China to use a form of indirect speech that, to western people, seems very modest and even self-effacing.

Guo qing Guo qi ng is a 2,000-year-old term, which means that China is special and the ways things are done in China are unique and superior. According to that, western manager have to learn and adapt the Chinese ways in order to be successful in doing business in China. Influences on HRM processes In China guan xi is used as primary bases for hiring new employees rather than a face-to-face interview. The Chinese prefer those well-established relationships to assess the fit between the job candidate and the organisation. This is because the Chinese don't believe that a good team member can be selected on the basis of the short encounter during a job interview. They believe that a good interpersonal relationship can only be nurtured through common experience of life in an organisation over a long period of time and in addition that one's personality can be changed through a life-long re-education and cultivation process.

But this kind of recruiting process also influences the person making the recommendation. He or she has staked his reputation with the company in question and will lose face if the employee does not a good job. The result is that the hired employee is very motivated to perform well to save face for the recommending person; instead he or she will lose face too. Managing Diversity The traditional Chinese management style is marked by the centralized planning economy and has not been a good fit with the requirements of a company operating in a competitive market. Instead of increasing factory productivity a Chinese manger is used to invest in guan xi, to maximizing leisure and to secure supplies of raw materials and machinery from the bureaucracy. The Chinese management style is also marked by the Confucian philosophy.

One of the most famous motto's offered by Confucius is: "If you are not in an administrator's position, you should not mind the administrative business". For this reason there is a low degree of participative management in Chinese organisations which is associated with a high respect for "positional authority". This means that the distinction between managers and non-managers is much more clear-cut in China than in the West. Chinese workers want to get their voices heard by the management, but they won't be involved in the decision-making process.

Beside these two facts Chinese management style tends to be portrayed as follows: o The role of middle managers in the decision-making process Chinese middle managers usually leave important decisions to a higher management level. They don't offer individual suggestions or opinions even when they are requested to do so. They are used to wait patiently for the single senior manager's decision on the correct course of action, and then carry out this manager's instructions. o Identifying decision objectives through formal meetings Chinese managers like to use formal group meetings to identify decision objectives. Directors, heads of departments and first-line supervisors normally attend these meetings.

But participation is just a formal requirement, usually these meetings are dominated by the managing director and the others support his ideas. o Collecting information and making final decisions In the past Chinese managers where used to collect information for decision-making themselves rather than from colleagues or subordinates, because they didn't fully trust them. They believed that this was the most effective way of collecting information. Nowadays Chinese managers are more aware that decision-making power must be based on knowledge, skill and capacity, for that reason they prefer information delivered by experts. However, despite many positive changes, senior Chinese manager still adopt an autocratic style as far as making a significant decision and middle managers still have no substantial influence on final decisions. o Responsibility for the implementation of decisions Although Chinese managers like to make decisions autocratically, they believe that the responsibility for implementing decisions should not be taken individually. But, as mentioned before, the Chinese middle managers are excluded from the decision-making process and because of that they don't feel responsible for implementing the decisions and try to avoid responsibility whenever possible. But the top managers also don't take individual responsibility, since the most decisions are made formal collectively through the formal group meetings, they can use collectivism as an excuse for escaping their own individual management duties.

Negotiating In China negotiations must proceed within the context of the Confucian tradition, with the key features of: o Respect for age and hierarchy o Orientation towards group so Preservation of face (lien and) o Importance of personal relationships (guan xi) Respect for age and hierarchy In a negotiation the Chinese counterparts are normally older than the Western. To show respect for age and hierarchy, older executives or / and senior managers should also be involved in the Western team. High-sounding job titles should also be devised for executives involved in China trade. Usually the real decision-makers of the Chinese counterparts will sit silently and appear to contribute nothing towards the negotiation or even won't join the meetings.

They argue that receiving reports from subordinates and giving commands strengthens their position and give them time for reflection. Orientation towards groups It can be expected that negotiations will be trough a committee. Among the members there are usual beside managers and functional technicians from the Chinese company some official representatives of commercial and other bureaucratic departments especially if the company is a state-owned one. And it is also usual that there are some unexpected changes among the members of the Chinese team during the negotiations. Preservation of face (lien and) Ceremonial occasions, for instance banquets, will happen during the negotiation process. In order to preserve face this should be treated with deep respect and consideration and long negotiating periods should be accepted.

Importance of personal relationships (guan xi) Before starting to discuss about business Chinese negotiators wish to talk about a whole range of non-business related topics. The purpose of this is to find out if an interpersonal relationship can be established before the negotiations begin, to maximis e opportunities and to ensure the success of negotiations. Many Western business people consider this initial stage of building personal relationship as a waste of time, but as mentioned before guan xi is a very important aspect of the Chinese culture. Organisational structures in the context of globalisation China has become one of the largest markets for international business due to its fastest growth rate in the world in last two decades. Many international companies have been competing for business opportunities in China in the form of joint venture or direct investment since the Chinese Government opened its market in the 1980's. As its economic reform continues, China's huge market potential has been continuously attracting the attention of international business decision makers.

Among the world's five largest developing countries - China, Russia, India, Brazil and Indonesia - China has the most potential for growth and becoming one of the largest markets for international business. To show the attractions of finding a route into the Chinese market, in the period from 1980 to 1990 per capita income in China grew by 8 per cent per year in real terms and in 1990 China's share of world gross domestic product was 15 per cent. It is estimated that this trend will continue. Foreign direct investment plays a significant role in the Chinese economy. At the end of June 2003, there were 443073 foreign-invested enterprises approved in China. The contractual foreign investment was over US$879 billion, and the actual foreign investment reached US$478 billion.

The UK's investment in China (up to the end of 2001) is made up of 3084 joint ventures, with a contractual investment of US$18.49 billion, and a realised investment of US$9.8 billion. The UK currently stands as the world's 7-largest investor in China, behind Hong Kong, Japan, Taiwan, the US, Singapore, and South Korea. The joint venture is a form of inter organisational relationship, where two companies remain independent but establish a new organisation, which they jointly own and manage. The relationships between them are formalized, either through shareholding arrangements or by agreements specifying asset holding and profit distribution.

The following table shows some reasons for choosing an international joint venture as market entry method in China. Reasons why foreign firms and Chinese firms establish joint ventures Foreign firms Chinese firms Huge market potential Government objectives to attract foreign investment Possible advantage of being 'first in' Access to technology and skills Competitor pressure Learn modern management skills Fits in with business portfolio Export opportunity Partner has local knowledge Probably, much needed finance provided by foreign firms Understands macro environment Increase market share No need to spend time building guan xi (Chinese partner has existing guan xi) Access to marketing expertise Source adapted from Daniels at al (1985) There are five key influential factors for international enterprises to enter China's market and operate successfully as joint ventures: political, economic, cultural, societal and managerial factors. The cultural, societal and managerial factors were already explained above. Political factors In China's political system there has been many power struggles since 1949. These struggles had all influences on China's economic system to a different degree. Furthermore the political factors such as: the stability of government and its policies, the trend of political reform, the development of economic and legal systems, and the efficiency of governmental agencies will have an impact on the decisions and operations of foreign investors and their joint venture businesses.

Economic factors Since the 1980's, China's economic system has changed from a centralized planning economy into a more open and decentralized market economy. Foreign investors have to pay attention to the stability of China's economic policies, the establishment of a business legal system, the consumer confidence level and actual income increase, the development of industrial infrastructure components and the growth rates of China's economy and market for their further investment and operational decisions. However, the method of the international joint venture historically has a very high rate of dissolution. Mostly these failures are very costly for the involved companies. Usually a joint venture contract is signed on the basis of 30 years. But in reality, only a few relationships last the full 30 years.

It appears the purpose of the joint venture is to allow specific, short-term objectives to be achieved for both partners. Once these have been achieved, there may no longer be perceived value for continuing with the relationship. Nonetheless the international joint venture continues to be popular for firms in terms of entering the Chinese market. But since 1997 wholly foreign-owned enterprises have grown rapidly and have become the preferred market entry method for foreign firms.

Concerns about the competence of the Chinese partner, a dislike for shared control in an international joint venture and frustration that international joint ventures often do not deliver the expected business objectives are the reasons for this shift towards wholly foreign-owned enterprises. Because of changes in the Chinese government's policy towards foreign investment it can be expected that this trend will continue into long term. However, small and medium-sized firms will continue to favour the international joint venture as a relatively quick and low cost way of gaining expertise in the Chinese market. Large firms are more likely to rely on their own resources and to use the wholly foreign-owned enterprise. But also the wholly foreign-owned enterprise isn't a perfect solution. There are three key factors that will make it difficult for foreign companies to form wholly foreign-owned enterprises in China.

First, guan xi continues to be an important aspect of Chinese society. Second, as the Chinese generally do not want foreign companies to take advantage of China, questions about cultural and economic sovereignty may evolve. Third, WTO entry means opening up of different sectors, but in reality foreign firms may find it difficult to develop their own distribution. In an organisational context there are four critical requirements for doing successful business in China: o Achieving effective coordination of external relationships and investment decisions For this it is essential to establish a strong China corporate centre with a clear mandate to lead strategy development and implantation. o Gaining control of inherently weak joint ventures You can achieve this by taking majority equity stakes, deploying expatriates in key management positions and providing outside support. o Coordinate multiple joint ventures China business units have to be created to provide focused management leadership and share services and product expertise across ventures. o Strengthening local human resources Expatriate managers have to invest heavily in training local staff, establishing China career paths for them and instilling corporate values. Conclusion As we have seen a high level of sensitivity to cultural variations is significant to be successful in making business in China. Another key element is the willingness to take a long-term view of the project because it is not unusual that the negotiation periods are going on for one year or even longer.

Guanxi is also an important aspect because making business without good personal relationships will be very difficult. For that reasons Western managers should be aware that a one-way process of learning, which means that the Chinese managers adopt the Western management style, isn't a good solution. During the next decade the Chinese market will become more and more competitive especially for foreign investors and only that companies that understand the Chinese culture can create a win-win situation and will be really successful.

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