In the late 1970s, China experienced dramatic reforms in terms of changing plan oriented economy into market oriented economy. Under the reform and opening up policies, many foreign enterprises recovered their enthusiasm and confidence of investing in China over the past decade (Cooke, 2004; Farley et al, 2004). During the several years, foreign direct investment in China was averaged around $40 billion yearly. Since 2002, China has replaced the US to, becoming the top recipient of foreign direct investment in the World. Currently, foreign owned enterprises have taken the important roles for China’s economy growth (Tsui and Lau, 2000). Generally, the large amount of population and cheap labour forces, the consistently growing consumptions and many preferential policies are the drivers for foreign owned companies to invest and they think their development in China is limitlessly potential.
However, under the Chinese context not all foreign companies gained success. Facing the differences of cultures, labour markets, and political and legal systems et al, localisation has become the main concern for many foreign companies doing business in China (Jones, 1997). While the development of localising management, many foreign firms are hiring local employees, thus the issues relating to HRM area have become the new challenge for foreign firms. Many foreign executives believe managing people effectively is the greatest challenge and opportunity for getting success in diverse host countries (Ahlstrom, 2001).
Thus, the purpose of this paper is studying the key issues of managing host country employees faced by foreign firms while operating in China. Firstly, the paper will briefly review the HRM in China to identify the main management environment and problems. Meanwhile, localising management will be observed. Then the main HRM issues: staffing, recruiting, training, appraising and retaining with which the foreign companies are dealing will be discussed. Finally, this paper will summarise some suggestions to cope with the difficulties.
2.Foreign Firms and HRM in China 2.1 The Host Country Context Most MNCs established joint ventures with local Chinese partners while entering the Chinese market (Bjorkman and Lu, 2001). The operating environments are quite complex that ‘intricate administrative and state controls highly affect not only the MNCs’ business activities but also the joint ventures’. HRM activities are restricted by ‘a complex web of employment regulations and legal systems’ (Child, 2001). Lacking skilled managers, inadequate training, the Chinese managers’ reluctance of taking responsibility and over foreign controlling powers give rise to the conflicts between MNCs and their joint ventures in managing local personnel issues. Meanwhile, ‘unforeseeable government actions refer to regulatory and tax policies, unreliable and unsteady Chinese partner relationships, and high costs of operating in the uncertain Chinese business circumstance are other difficulties (Leung and Kwon 2003). Doing business in China requires the effort of MNCs to ‘integrate the management of local joint venture into their global management systems’ (Child, 1999).
2.2 HRM in China The ‘iron rice bowl’ model is regarded as the distinction of Chinese employment and personnel management. Under this system, workers can enjoy the job security and comprehensive welfare, including schooling, housing and medical care. Wages depend on ‘seniority, policy and nepotism’ rather than on performance or ability (Warmer, 1999). In the late of 1978, the government concentrated on modernizing domestic industry in terms of introducing and implementing Western technology and management (Warner, 1999) that led to the poorly educated labours failing to adapt to the sudden evolution.
Chinese management and employees are difficult to fulfill the market economy which needs initiation, diligent studying and implementing new knowledge and skills, sharing information, and focusing on customers (Child, 1994). Meanwhile, the HRM issues are related to the cultural values: keeping ‘face’ in public; establishing and maintaining complicated ‘guan xi (personal relations)’ and the limited legitimacy in terms of combining moral and law.
Nowadays, although foreign firms have the autonomy to manage the personnel issues, many studies found the traditional Chinese HRM style still widely practiced in foreign companies (Goodall and Warner, 1997). Therefore, foreign managers have to rely on the Chinese joint venture partners to apply appropriate HRM in the ‘complex, uncertain and challenging’ Chinese context. Nevertheless, a small number of studies focusing on different nationalities found HRM in joint ventures are more closely related to foreign parent organizations particularly in the American owned firms (eg, Bjorkman and Lu 1999). Warner (1999) thought Chinese HRM has experienced huge changes during the past years particularly in the foreign owned firms. Oppositely, other researchers claimed international HRM style did not apply in China straightforwardly.
For example, Taylor (2001) found Japanese MNCs who focus on cheaper labour costs and expanding foreign markets were low in transferring the parent organizations’ management. Cooke’s (2004) study in an American owned toy manufacturing firm reinforced the opinion that parent firms have a ‘marginal’ influence on HRM. These ambiguous results reflect HRM issues are complicated.
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