Exploring Cross-Cultural Competence in East Asia

Weiwei Ji

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN:
  9781137363091
• eBook ISBN:
  9781137363107
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

How could hybrid organizations and leaders improve effectiveness in order to increase the chances of success for their business organizations in East Asia? The author presents a theoretical framework and investigates the preferences and networkability in the corporate, market and living environment of expatriated managers in China and Japan.

1

Introduction

Setting the scene

In today’s world economy, the cross-border activities of multinational corporations (MNCs) are increasing. Thus, the role of managers based in subsidiaries is gaining in significance (Rugman & Verberke, 2001; Au & Fukuda, 2002). At the organizational level, managerial competence development is crucial for the long-term survival of any business (Porter, 1985; Prahalad & Hamel, 1990). From an individual level, cross-border managers are major actors who drive the competence development of subsidiaries. Cross-cultural competence can create individual ability and behavior supporting the goal of managerial success. Furthermore, it can be measured based on the organization’s strategic success.

International business scholars often take a resource-based view to investigate the tangible and intangible assets a firm uses to implement its strategies (Barney, 2001). Teece, Pisano and Shuen (1997) advocate a “dynamic capabilities” view to measure a firm’s capacity to dynamically deploy resources. One definition of “dynamic capabilities” is “The ability to sense and then seize new opportunities, and to reconfigure and protect knowledge assets, competencies, and complementary assets with the aim of achieving a sustained competitive advantage” (Augier & Teece, 2009, p. 412). Other researchers use “core competence” in referring to firms’ internal attributes that provide a basis for competitive advantage (Prahalad & Hamel, 1990). To avoid confusion between capabilities and core competencies, the term “core competence” is only to be used when discussing diversification strategies (Peng, 2006).

Capabilities can be divided into two categories: tangible capabilities and intangible capabilities (Hall, 1992, 1993). Tangible capabilities are resources that are observable, such as: (1) the ability to generate internal funds and to raise external capital; (2) location of plants, offices and equipment, access to materials and channels; (3) patents, trademarks and copyrights; (4) organizational control systems and practices. Human resources, innovation resources and reputational resources are intangible capabilities.

Subsidiaries are traditionally viewed either as “market access” providers or as receivers of the parent company’s technology and management transfer (Vernon, 1966). Bartlett and Ghoshal (1986) reported that subsidiaries act as contributors to or leaders of innovation projects. Subsidiaries provide the flow of resources in the MNCs (Gupta & Govindarajan, 1994). Birkinshaw, Hood and Jonsson (1998) stated that subsidiaries can contribute to “firm-specific advantage creation.” Rugman and Verberke (2001) developed a framework to assess three kinds of patterns of competence-building in MNCs: non-location-bound firm-specific advantages; location-bound firm-special-advantages; and subsidiary specific advantages. They emphasized that it is important for managers and researchers to recognize the increasing emergence of subsidiary specific advantages, since this will lead to a focus on knowledge transfer. Andersson, Forsgren and Holm (2002) focused on a relational embeddedness perspective, emphasizing subsidiary competence advantages through learning in external networks of MNCs. Patrick (2000) examined the relationships between the competitive environment, and the integration of subsidiary technological competence, and suggested that subsidiaries need to first create “general organizational competence” to be able to absorb knowledge from the external environment. Barrera (2009) compared two subsidiaries (the United States and Mexico) of an international firm, finding that the cultural competence for problem-solving skills of each subsidiary was not learned and shared.

An Eastern perspective on boundary-spanning activities

China has set long-term FDI and internationalization goals for itself. Since December 1978, foreign direct investment (FDI) into China and joint ventures (JV) with Chinese enterprises have been encouraged as the Chinese government enforced an “Open Door Policy.” The policy is aimed at acquiring modern management knowledge, providing foreign exchange and employment. Nonetheless, the country faces difficulties providing successful environments for foreign business managers.

There remain many difficulties for foreign enterprises and managers dealing with their Chinese employees in the People’s Republic of China. Lockett (1988) outlined five main problems for management in China:

1. Organizational structure: in Chinese organizations, decisions tend to be passed to higher levels and the organizational hierarchy is overloaded, which means that responsibilities are not clear and overlapped;

2. Management skills: Chinese managers lack technical and professional skills;

3. Party/management relations: the Party Committee has been the most powerful management body since the 1950s, and plays a greater and more direct management role in practice, which, similar to Soviet one-man management policies, further reinforces the problems of unclear responsibilities;

4. Operations: while Western managers have commended Japanese “Just in time” systems, in China the preferred system is “just in case,” and operational problems such as materials management, quality and safety have a significant effect on productivity and performance;

5. Motivation: salary scales were fixed nationally and promotions from one grade to another were according to fairly strict national guidelines in the late 1970s, which means pay was not an effective motivating force in China.

Because boundary-spanning managers in China have developed their managerial skills in the cross-cultural business environment in the past thirty years, it is now necessary to rethink Lockett’s (1988) five points.

In the 1990s, Child (1991) examined the HRM problems in a study of management in 30 Sino-foreign JVs; he suggested that the foreign managers make a constructive integration of local and home practices to build a lasting and effective collaborative “third approach.” As traditional Chinese culture affects Chinese organizational behavior and the management style of Chinese executives, it is necessary to examine international business from a cross-cultural perspective. Selmer (1998, 1999 & 2000) has made several investigations on cross-cultural management (CCM) issues in China. Selmer (1999) found three kinds of sociocultural adjustments—work adjustment, interaction adjustment and general adjustment—and all show a U-curve cultural shock pattern of Western expatriate managers in China. In Selmer’s (2000) later comparative study about the adjustment of Western expatriates in Hong Kong and China, he showed that the expatriates enjoyed better sociocultural adjustment to Hong Kong than to the Chinese mainland. Besides cross-cultural studies, other researchers, such as Bjorkman and Kock (1995), have used a network approach to investigate social relationships in China. They argued that in the Chinese context, social relationships (guanxi) are a prerequisite for information and business exchanges.

Over the past few decades, a considerable number of studies have been conducted on MNCs in the Chinese context. The term “Chinese context” includes studies on local and foreign firms operating in Mainland China, Hong Kong and Taiwan as well as international operations of companies from these locations (Li & Tsui, 2002). According to the World Investment Report 2012: Towards a new generation of investment policies, China still is in the top spot as investors’ preferred destination for foreign direct investment (FDI). FDI flows to China have reached a level of $124 billion, according to the latest available statistics (UNCTAD, 2012). An earlier UNCTAD report highlighted the rapid emergence of MNCs from developing and transition economies, especially firms from China (UNCTAD, 2006).

Because of the growing FDI in China and the emergence of the globalization of Chinese firms, academic interest in Chinese management research has been growing (e.g. Lu & Bjorkman, 1997; Child & Rodrigues, 2005; Alon & McIntyre, 2008). Lu and Bjorkman (1997) focus on human resource management (HRM) issues in international joint ventures; they indicate that various HRM practices are in place as responses to MNCs’ standardization and localization in China. With the rise of Chinese internationalization, Child and Rodrigues (2005) examine the patterns and motives for internationalization by Chinese firms, concluding that the Chinese cases offer an opportunity to extend theory development concerning the latecomer perspective and catch-up strategies, institutional analysis, the relations between entrepreneurs and institutions, and the liability of foreignness. The book Globalizing of Chinese Enterprises, edited by Alon and McIntyre (2008), analyzes the globalization of Chinese enterprises by differentiating research exploitation. Alon states that “the next frontier in the economic battlefield is the globalization of Chinese enterprises” (Alon & McIntyre, 2008, p. 2). In order to ensure the success of business, it is important to have a better understanding of the MNCs operating in the Chinese context.

In the decade of the 2000s, researchers expanded the investigation into management issues from an CCM perspective (e.g. Wang & Nayir, 2006), HRM perspective (e.g. Bjorkman et al., 2008) and institutional perspective (e.g. Li & Peng, 2008). Wang and Nayir (2006) studied the adjustment process of European expatriates in China, finding that those managers have close support networks. Bjorkman et al. (2008) investigated the development of HRM practices of European MNCs in China, showing that the HRM practices system in China have become significantly more similar to those of their parent companies. Li and Peng (2008) outlined three approaches to theory development in the study of Chinese management: transition environment, management mechanisms and organizational culture.

During the 1990s, the primary focus on Asian firms was on firms from the newly industrialized economies (NIEs), such as Hong Kong, Korea, Singapore and Taiwan, with a particular emphasis on Immigrant Chinese business networks because of their dominant role in Southeast Asia (Dicken & Yeung, 1999). Yeung’s (1997) study about how Hong Kong-based firms are embedded in Southeast Asia discussed transnational organizations as extra-firm, inter-firm and intra-firm networks relationships from a network perspective. An extra-firm network is a business relationship between the MNCs and external institutions; the inter-firm network is the business relationship inside of the MNCs; and the intra-firm network is the business relationship between the MNCs and other companies. The Chinese family business is the main kind of organization adopted by overseas Chinese (Chen, 2004). Immigrant Chinese businessmen have been identified with transnational economic ties as Chinese business networks are rooted in common cultural know-how (Saxenian, 2002). There is a Chinese motto, also familiar in the West: Blood is thicker than water. Several research studies have been done on this matter showing that family kinship relationships differ in fundamental ways from non-kinship relationships (Hsing, 1996; Stewart, 2003). Recently study on immigrant entrepreneurs in Malaysia and Singapore by Mustafa and Chen (2010) showed that the family and kinship network allows Chinese immigrant entrepreneurs to embed socially in both countries when transfer of resources across borders occurred. Beyond Asia, Li (1993) explained that traditional Chinese businesses in Canada have expanded into corporate-type Chinese investments. Zhou (1996, 1998) concluded that ethnic networks are playing important roles in assisting Chinese enterprises embedded locally and to forge backward and horizontal connections.

Over the past two decades, the People’s Republic of China has changed dramatically since allowing FDI (Child, 1991). Figure 1.1 displays the development of Japanese overseas FDI in China from 2006 to 2010. Clearly, the findings indicate that the amount of Japanese FDI in China is increasing; China is still the most important country for Japanese companies located in Asia (see Figure 1.2). Also, according the data from Kaigai Shinshutu Kigyo Soran published by Toyo Keizai (2010) (see Table 1.1), almost 39% of the Japanese overseas subsidiaries in Asia are based in China. However, little is known about the adjustment of Japanese expatriates in China although the adjustment of expatriate assignment is an important issue to be investigated when foreign enterprises seek success in China (Zimmermann, Holman & Sparrow, 2003).

Figure 1.1 Development of Japan’s outward FDI in China from 2006 to 2010 (US $ million)

Source: JETRO’s website: Reports and Statistics for Japanese Trade and Investment Statistics: http://www.jetro.go.jp/en/reports/statistics, created by the author.

Figure 1.2 Numbers of Japanese overseas subsidiaries in Asia

Source: Toyo Keizai: Kaigai Shinshutu Kigyo Soran, 2010, own calculation.

Table 1.1 Hofstede’s four dimensions of business culture for six Asian countries/regions

Source: Hofstede’s four dimension of business culture are listed as Z-scores by own calculation.

Figure 1.3 Position of 20 countries/regions on UAI and PDI

Note: Power distance index (PDI)—This index refers to the degree of inequality that exists between people with and without power. A high PDI score indicates that society accepts unequal distribution of power.

Uncertainty avoidance index (UAI)—This index explains the degree of anxiety a society’s members feel in uncertain or unknown situations. This dimension runs from being comfortable with flexibility and ambiguity to a need for extreme rigidity and situations with a high degree of certainty.

Source: Based on Hofstede’s four dimensions of culture, created by the author.

In Rao and Hashimoto’s (1996) research about Japanese expatriate managers in Canada, the authors found that Japanese managers used more influence in intercultural interaction with Canadians than Japanese subordinates. Also, according to Hofstede’s (1984) cross-cultural approach, the power distance index (PDI) in China is much higher than in Japan, which means that managers would rely more on superiors and on formal rules, and organizations centralize power in China. Likewise, in Hofstede’s terms, the uncertainty avoidance index (UAI) in Japan is stronger than that in China, which means Japanese managers ar...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgments
• List of Abbreviations
• 1 Introduction
• 2 Boundary Spanner Choice and International Assignments
• 3 Exploring Boundary Spanners’ Cross-Cultural Competence: Preference, Network and Adjustment
• 4 Boundary Spanners and Networks of Chinese Firms in Japan
• 5 Impact of Headquarters’ Support on Boundary Spanners’ Competence Creation
• 6 Working towards Hybrid Solutions: A Joint Venture Perspective
• 7 Creating Boundary Spanners’ Cross-Cultural Competence through Co-Leadership
• 8 Discussion
• Appendix
• Sources
• References
• Index