International Human Resource Management in Chinese Multinationals

Jie Shen, Vincent Edwards, Jie Shen, Vincent Edwards

• Publisher: Routledge
• Year: 2006
• ISBN:
  9781134238736
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The authors explore the degree to which Chinese multinationals have a distinctive 'Chinese' approach to human resource management, in the same way as large Japanese companies are widely regarded as having a special Japanese approach. Based on extensive original research in the subsidiaries of Chinese multinationals outside China, the book examines a wide range of issues related to this key question including the evolution of human resource management in Chinese companies, the internationalization of Chinese business, recruitment and selection, rewards and compensation, performance appraisal, strategic integration, and employee relations.

Shen and Edwards give a detailed account of the international human resource management of Chinese multinational enterprises; a topic of increasing significance in understanding global economic affairs.

1
Introduction

China’s emergence over the past two to three decades as an economic giant has attracted considerable attention. Following the promulgation of the Open Door Policy by the Chinese government in 1979, particular attention has been focused on the development of the Chinese market. Key features of this policy have been the opening of the economy to the rest of the world and the acceptance of substantial foreign direct investment, largely represented by the entry of multinational enterprises (MNEs) from the advanced capitalist economies.

In contrast, the expansion of Chinese companies outside of China has only to a limited extent been the subject of serious research. Notwithstanding the preponderance of foreign investment in China, Chinese outward investment has been steadily rising. Moreover, by 2005, a number of Chinese MNEs were being mooted as the vanguard of a massive overseas expansion of Chinese companies akin to that of Japan in the 1950s and Korea in the 1970s (‘Over to Chinese MNCs’, 2005). Among the most frequently mentioned MNEs have been companies such as Haier, with its manufacturing plants in the United States and Europe, Lenovo, which acquired IBM’s PC division, TCL, the world’s largest TV manufacturer and China National Offshore Oil Corporation (CNOOC), which has become Indonesia’s largest offshore oil producer. Although initially targeting South-East Asia, the United States and Europe, Chinese MNEs have gradually expanded their horizons, entering India and South America. In recent years, more than one hundred famous Chinese brands have been registered by overseas competitors. For example, Hisense, a famous mainland electronics brand, was registered in Europe in 2004 by an overseas competitor (Chen, 2005). Key stimuli for this overseas expansion have been the acquisition of raw materials, access to foreign technology and expertise and alternative markets to alleviate the increasingly cut-throat competition in the domestic market (Aiyar, 2005; Deng, 2004; ‘Over to Chinese MNCs’, 2005).

This overseas expansion is proving to be both an opportunity and a challenge for Chinese MNEs. Overseas expansion has added a further layer of complexity to the transformation being experienced by Chinese companies as the development of a socialist market economy progresses. One of the core aspects of company transformation concerns the effective management of human resources. The aim of this book is to investigate how Chinese MNEs deal with the double pressures of responding to the changes deriving from the transformation of the Chinese economic system and those emanating from overseas locations. We have based our investigation on the review of existing knowledge as well as our own empirical research.

In this chapter, we first introduce definitions and characteristics of MNEs. Second, we discuss the nature and major activities of international human resource management (IHRM). Subsequently, we present changes in the macroeconomic context in China and discuss the internationalization of Chinese MNEs. Then we explain the methodology of the study and the structure of this book.

MNEs

A MNE is an enterprise that engages in foreign direct investment (FDI) and organizes the production of goods and services in more than one country (Dunning, 1993). Thus a MNE’s activities can be seen as global networks that straddle not only national borders but also sectoral divisions (Harzing, 1995). Sundaram and Black (1992:733) stress the influence of host environment and internal organizational factors on MNEs. They argue,

An MNE is any enterprise that carries out transactions in or between two sovereign entities, operating under a system of decision making that permits influence over resources and capabilities, where the transactions are subject to influence by factors exogenous to the home country environment of the enterprise.

MNEs are now widely seen as the ‘primary shapers’ of the international economy (Dicken, 1992) because they have the potential to shift investment and jobs across borders, influence aspects of government policy and draw on elements of a range of national business systems (Hayden and Edwards, 2001). According to Sisson et al. (1992), MNEs have also been seen as the principal agents of the internationalization of the world and regional economies. Schuler et al. (2002:42) also state:

The rise of the MNE is being accelerated because the costs associated with the development and marketing of new products are too great to be amortized over only one market, even a large one such as the USA or Europe.

MNEs appear to have characteristics that are unique or substantially different from domestic organizations. Two major differences between domestic and multinational corporations identified by Adler (1983) are multiculturalism and geographic dispersion. Multiculturalism is the presence of people from two or more cultural backgrounds within an organization. Geographic dispersion is defined as the location of various subunits of the parent corporation in different countries. A foreign subsidiary is an overseas operation or corporation that is at least 50 per cent owned by the MNE (Robinson, 1984). Thus the competitive arena for MNEs is the world. For multinationals the main effect of multiculturalism and geographic dispersion is considered to be of great complexity, because home-country philosophies and practices are inapplicable in foreign locations, and it is impossible to implement uniform personnel practices and performance standards in all locations (Adler, 1983:15). However, according to Harzing (1995), there are important future benefits of multiculturalism, such as:

• increasing creativity and innovation;

• demonstrating more sensitivity in dealing with foreign customers;

• being able to get the best personnel from everywhere;

• taking a global perspective;

• creating a ‘superorganizational culture’ and using the best of all cultures;

• greater flexibility within the organization both to adapt to a wide range of environments and to change within those environments.

Differences between domestic HRM (DHRM) and IHRM

A model of IHRM presented by Morgan (1986) (shown in Figure 1.1) is helpful in understanding activity change when HRM goes international. The model indicates three dimensions:

1 The three broad human resource activities are procurement, allocation and utilization.

2 There are three national or country categories involved in IHRM activities: the host-country where a subsidiary may be located; the home country where the firm is headquartered and ‘other’ countries that may be the source of labour or finance.

3 There are, moreover, three types of employees in an international firm: host-country nationals (HCNs), parent-country nationals (PCNs) and third-country nationals (TCNs).

Morgan thus defines IHRM as the interplay between these three dimensions: human resource (HR) activities, types of employees and countries of operation. In broad terms IHRM involves the same activities as DHRM. Dowling and Welch (2004) argue that the three functions listed by Morgan can be easily expanded into detailed HR functions. However, DHRM is involved with employees within only one national boundary. The complexity involved in operating in different countries and employing different national categories of employees is a key variable that differentiates DHRM and IHRM, rather than any major differences between the HRM activities performed.

According to Acuff (1984), Dowling and Welch (2004) and Vance and Sailer (1991), there are six basic points that distinguish the activities of IHRM

Figure 1.1 Morgan’s Model of IHRM.

Source: Adapted from Morgan, P.V. (1986) ‘International Human Resourc...