In the past employees have been considered as one of the factors of production, giving them as much importance as any machinery. This highhanded attitude of managers and organisations has changed and now considered more or less counterproductive. Because of development in the field of human resource management new practices like teamwork, performance appraisals and empowerment have become popular. Although they have been accepted by successive managers over the years, however sustaining these practices has not been an easy task, especially when there is not much emphasis on individual employee development and performance. Even today what we witness is that employee's input is regarded within the framework of broader business performance related objectives. To improve job performance and productivity different incentives are provided. Nevertheless it is now accepted that just monetary compensation is not sufficient to improve performance. Overall HRM itself is a relatively new idea. Buyens and De Vos (2001) observe:
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The term HRM itself is not new; one can find examples of its use 50s, especially in North America. But it is only since the 1980s that it has come to be used to denote a radically different philosophy and approach to the management of people at work (76)
According to HRM perspective:
'Each employee identifies unreservedly with the aims of the enterprise and with its methods of operating ... [with] ...mutual co-operation and harmony of interest between management and managed within the enterprise' (Farnham and Pilmott, 1986: 4).
This shared value system is very important aspect of HRM perspective. In today's HRM driven industrial relations systems there little or no space for two competing groups to co-exist with a balance of power between them. As the acknowledgement of a second group and their separate identifiable needs may weaken the commitment of employees which is unquestioned in the HRM approach and thus the benefits of HRM will erode with the fall in commitment. There is a need for homogenous values with the organisation which are same for the organisation and the employees (Geare et al., 2006). Therefore when one considers performance and productivity of workers HRM perspective is the prevalent framework within which research is conduced. In this research performance as a dependent variable is explored within the human resource paradigm.
1.1.2 China and Human Resource Management
China's evolution into a market economy in the last 25 years has brought about changes in all the economic sectors in the country. In addition urban industrial development and reforms have fundamentally changed the labour market conditions by creating different and broad institutional and economic concerns. The Chinese strategies has not been to privatise the state owned enterprises(SOEs) rather they have concentrated on restricting the SOEs while at the same time allowed private concerns to compete with these state owned concerns. This has been achieved by encouraging foreign direct investment. The major result because of this gradual strategy has been the coexistence of organisations that have different management style and environment. For example there are SOEs which have a central system run by the central government while the new private enterprises are basically driven by market forces. And in spite of reforms taking place the SOE performance has not been able to keep up with the other organisations and they have not only experienced financial losses but also are overstaffed (Lin, et al., 2001). At the same time foreign direct investment has led to a rapid growth in joint venture concerns along with the development of domestic private sector.
China is one of the fastest changing global economies today; according to some estimates it is going to be world's largest economy in thirty year's time. The changes and development in the Chinese economy would not only be crucial for China but also for the rest of the world. As the Chinese enterprises flourish they seek to remain competitive with other joint venture and multinational organizations in the field of human resource management. In a study by Zhu and Wang (2005) in trying to maintain a level playing field among different types of organizations present in the country creates challenges for the HR function both as a strategic function and also to improve their skills and experiences. They believe that there has been a visible shift from the traditional Chinese approach to HR practices to a more western approach towards Western HR values. And according to them changes are fundamentally because of changes in business environment.
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Based on the institutional theory as it will be discussed more in detail in the next chapter, this theoretical framework indicates that when organizations operate in a business environment, then they have similar social, economic, legal factors and thus to deal with these external pressures organizations tend to adopt similar practices to remain relevant and competitive (Young, Ahlstrom, & Bruton, 2004. This convergence towards similar practices is called local isomorphism. Globalisation also creates a similar environment. This is because as organizations become more globalised, managers have to have more awareness about commonly observed practices worldwide. And managers tend to behave and perform in a similar way to their competitors.
Based on this perspective organizations in China, experiencing pressures from the external environment have to adopt strategies that are comparable to other organizations in the environment and in the same way they have to restructure their organizational processes that include the human resource management system to remain competitive. Authors have pointed out that China is moving towards HR best practices because of globalisation, and others have pointed out that for strategic management human resource management is essential.
China is also evolving in the dynamic environment. There are different variables effecting how China is shaping and responding to the external forces in form of foreign culture brought about by the investor, the strict education system and the internal history, these together lead to a scenario where china has had to adopt different HR practices to remain an economic force worldwide. It is evident that MNCs are providing new experiences that are enriching the local population and this has forces local private and SOEs to adopt HR practices. However even today it is felt that since HRM is a Western management theory, it is likely to be practices first by multinational corporations and then adopted by local Chinese organisations. This transference occurs through interaction between the MNC and local organizations.
With this background this dissertation seeks to understand the human resource management in China particularly for local organizations and employees. The next section defines the purpose of the report and its objectives and research questions.
1.2 Research Aims and Objectives
In view of a brief backgrounder on the importance of human resource function and China as a growing economic force in the global arena. It is important to understand the HR practices of Chinese enterprises and how local population is responding to the difference between the HR practices of the local organizations and the multinational firms. There is a gap between the current HR practices of local organizations in China and multinational corporations, for this reason this dissertation would try to analyze the current situation in terms of present HR policies, why employees prefer multinational firms and what can be done to bring Chinese organisations' HR policy in terms of Motivation, Leadership management, Teamwork, Employee behavior.
1.2.1 Research Objectives
Following are some of the broad research objectives of this particular study:
To Study employment trends and HRM practices in China
To explore the reasons why workers prefer to work for multinationational corporations rather than for Chinese organisations
To identify the HRM measures that would reduce the brain drain occurring
To explore Chinese Cultural values that might work for Chinese organizations
To find out the future trend of human resource management in China.
1.2.2 Research Questions
Based on the above mentioned research objectives there are numerous research question that can be formulated. However to make the scope of the study major specific it is important to analyze some aspects of HRM in China in addition to studying the HRM practices and employee trends. For this reason the research questions can be divided into 4 major areas of enquiry.
HRM Practices in China:
How has HRM evolved in China in the past 30 years?
What have been the trends in terms of brain drain in favour of multinationals?
What are the reasons for this trend?
What specific measures can be taken by Chinese organisations to improve:
Motivation levels of employees
Which Chinese cultural values have been incorporated by local and multinational organisations?
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Which additional cultural characteristics can be implemented successfully?
What are the future trends in HRM practices in China?
1.2.3 Significance of Study
This study although being carried out by an inexperienced study can be significant because it tries to understand HRM in the unique case of China, which has within a period of three decades has become an important economic player in the global economy and for both strategic purposes and foreign direct investment by Chinese organisations in China and all over the world, it i is important for them to appreciate the importance of HRM function and its value in the new strategic objectives and planning in Today's organizations.
This study uses case study method to explore HRM trends and practices in China. China is one of the fastest growing economies in the world and has been developing at a very rapid pace. Therefore it is important to study HRM practices in China, to understand whether there are any significant differences between local and multinational organisations in their HRM practices. Secondly to understand how employees feel about HRM in terms of four variables mentioned above and to identify measures that can be taken adopted to improve the practices. For this reason this study relies on both secondary sources and empirical study of twenty organizations from local sector and ten from multinational organizations.
1.3.1 Secondary Research
Secondary research in terms of a detailed review of literature related to HRM in China would explore different aspects of HRM in China at a general level. The study will use different sources like research articles, books, electronic sources etc. to understand the studies that have already been carried out.
1.3.2 Primary Research
Empirical study using qualitative questionnaire made up of semi-structured questions would be administered to employees from 30 different organisations of various sizes from local and multinational organisations. The questions would be more specific in terms of 4 variables identified in the previous section and also in terms of cultural characteristics that can be used to improve HR practices for future.
1.3.3 Overview of the Study
This study is divided into 5 chapters. The next chapter is a detailed review of literature followed by chapter three methodologies. The fourth chapter is discussion and analysis followed by the concluding chapter.
Chapter 2: Literature Review
Human resource management is western management concept that has gradually been accepted around the world as an important management function. HRM has been defined by researchers and academics from different perspectives. Armstrong (2000) describes HRM as:
a strategic and coherent approach to the management of an organizations' most valued assets - people working there who individually and collectively contribute to the achievement of its objectives(6)
He has linked HRM to the strategic objectives of an organization and its performance. On the other hand Kleinman's (1997) definition is more appropriate:
The organizational function that consists of practices that help the organization deal
Effectively with its people during the various phases of the employment cycle' (p. 3).
Thus Kleinman's definition addresses HRM at a more basic level as it is fundamentally the process of managing employees in a more productive way. To achieve the organisational objectives, HRM cannot be separated from its fundamental activities of hiring, training, performance and compensation that form the fundamental policies and procedures. This chapter reviews already existing literature on HRM function, HRM in China, factors that generally impact employee behaviour and significant cultural issues in local Chinese corporation.
2.1 Human Resource Management
The way employees are regarded by management has evolved with time. This change has not taken place with just cost minimizing Talorist view but by more broader and larger overall objectives linked with business performance. Under the relatively more recent framework based on management by objectives, HRM has developed into new practices for instance creating job incentives to motivate employees (Brouwers et al., 1997 cited in Mahy et al., 2005)). An easy way to understand the implementation of HRM practices is to suppose that all the HR activity takes place under the objective of profit maximisation and utilizing their utility. However this is a rather simplistic view. This is because each organisation's experience with HR practice is unique. In terms of management sciences, it's not just profit maximisation for the shareholder; there are other stakeholders who enter into the equation. Secondly when business conditions are considered, external environment and competitive pressures are also considered. Talorist approach is considered when an organisation is not developing properly, as opposed to growing organisations that rely on product innovation and development. And competitive pressures depend on the external business and economic cycle. Organisational activity is also influenced by employment trends, labour markets. In addition wages and incentives depend on the nature of work and its impact. The incentive and benefits package has to be attractive for the employees, when their place in the organisation is not sure. Cahuc and Zylberberg, (2004 cited in Mahy et al., 2005) believe that the incentives have to be particularly attractive to workers. The bargaining process in the relationship between the worker and the employer has to be taken into consideration and in today's world firms do not exist in isolation as the stronger parties (Forth and Millward, 2004 cited in Mahy et al., 2005). Based on a research carried out in Sweden it was found that in the long-run, an organisation's compensation was determined by the market trends and not by internal practices of the organisation. Based on the previous approach when an organisation's main objective is maximisation and uses it's HRM for that, then it uses the best possible combination of monetary and non-monetary incentives to achieve profit maximisation. It is the employee behaviour ultimately that link incentives to profits. Studies show that an organisation's performance and well-being of workers has to be positively correlated with incentives given to perform. Because of these results firms have asked their workers to move from hourly rate to piece rate, however making sure that minimum wage is never less than in the previous regime. Therefore Mahy et al., (2005) conclude that job incentives have to favour the organisation's profits and also worker's well-being to act as positive synergy. Guest (2000 p8 Cited in Hall, 2004) proposes a 'simple model of HRM and Performance' that indicates that HRM practices shape employee loyalty, and employee commitment than influences employee performance, which consequently effects the organisation's financial performance. Hall (2004) is sceptical when she observes:
Whilst some significant relationships have been found between HR practices and
Performance outcomes, these are variable the difficulties identified with the measures, above, do suggest that one should not read too much into such relationships. Caution is also needed as such statistics do not provide any evidence of a causal relationship. Progressive HR practices may lead to higher performance outcomes or higher performance outcomes may lead to investment in more progressive HR practices, or these factors may both be influenced by something else which has yet to be identified and measured (p. 11).
Today the interest in how HRM contributes towards overall organisational performance is quite high. HRM field is trying to mark its importance in both theoretical and practical areas of business. And from the above discussion and definitions and work of Huselid (1995) and
Pfeffer (1995) there is still no standard consensus on what are HRM best practices especially in the international environment (Paauwe & Boselie, 2005).
2.2 Human Resource Management in China
In many cases MNCs' have acted as role models for creating awareness among local organisations of HRM concept which is fundamentally a western idea but fast becoming a vital part of overall management process. However at the same time the management culture of a country cannot be ignored. And according to some in the case of china have acted as hindrance to the transference of western-style HR practices to China. Different studies have tried to analyse the Chinese culture including Hofstede, (1997) he has identified Chinese culture based on his model as high in power distance, low in individualism, medium in avoidance of uncertainty and high in long-term orientation. Based on the first two assumptions researcher categorise Chinese practices as: deference for hierarchy, collective work through groups, face saving, and avoidance of conflict and delegation of authority to one leader. In this kind of scenario decision are hardly discussed and almost never challenged (e.g. Hofstede and Bond, Verburg et al., 1999). This trend is further stress on being equal and performing on average so as to avoid competition and conflict, at the same time building interpersonal relationship (Wang and Mobley, 1999).
Although recently China has been moving from complete collectivism and centralised approach to low power distance and a mix of collectivism and individualism. Chinese managers and organisations are opting to adopt a more individualised culture where employees are given more say and responsibility (Wang and Mobley, 1999). In this transitional stage on one hand competition and individualism is encourages, but all employees have to confirm to the organisation. Additionally collectivism is even now a predominant part of the political system. Braine (1997) indicates that socio-cultural values are emphasised. As points out, socio-cultural values are reinforced by the implicit socialist standard of cohesion, impartiality, shared support, integrity, familiarity, and respect of the law. Such beliefs and ideals have their foundations in the country's past and ideas and have sustained to impact different characteristics of work attitude and work interrelationships. The next section looks at China's historical evolution.
2.2.1 China's Evolution
Since 1978, when China introduced "Open Door Policy", it began an economic reform plan that has led to changes in management and social practices. A convergence has occurred from a socialist setup to a more westernised approach. Before 1978, China's economy was centrally planned and there was little or no room for either foreign investment or private enterprise. The government at that time determined the need to establish an organisation, the resources to mobilize and the organisational structures, human resources. Now however things have changed significantly in China. Through the reforms, Chinese government has offered tax concessions and other favourable opportunities for foreign investment. Today the Chinese government believes that foreign invest is very beneficial because it brings in new technology, new systems and processes and even management styles that are more efficient leading to higher labour productivity and development of Chinese economy. With the entrance of multinational corporations (MNCs), China has to move from a centralised economy to a market based economy. Warner (1997) commented that china had successfully transformed its "old-style command economy" to a new "socialist market economy" (p. 569). The reforms have led to changes in how organisations are run. These changes include HRM practices also. 1995 a new labour law was promulgated that defines the rights and management of human resources to both MNCs and state owned enterprises of SOEs. In addition China becoming part of WTO, it has led to more foreign investment inflow into the country. It was reported that 190 publicly listed organisations had transformed themselves from traditional organisations to hi-tech organisations (Xinhua News Agency, 2000). Thus today Chinese economy is in a transitional phase changing from a centrally planned one to a market driven economy. Because of this change both local and foreign investors have benefited from this policy leading to increased opportunities for investment, direct investment, mergers and acquisitions.
Chinese management is influenced by its rich heritage and culture. In Confucian philosophy there are five cardinal relations that are maintained between superiors and subordinates, like sovereign and subject, husband and wife; father and son; this is a vertical relationship (Selmer, 1997). Before 1978 the Chinese concerns had a bureaucratic hierarchical structure. The government had authority and say in all the organisational activities. In personnel management government appointed heads of the enterprises. In addition lifetime employment was guaranteed to all employees. It was the discretion of the labour bureau to assign jobs to different people. Salaries were determined by the government and promotions were determined based on the contribution of the individual to the communist party and seniority. All workers enjoyed similar conditions and there was equlkaity. But at the same time there was no room for human resource management. The Labour Bureau acted as an administrative unit and implemented the policies and guidelines provided by the government. Chinese management style was a hybrid of Confucian and communist styles of management. Over the years of economic reforms a consensus had developed in the Chinese leadership that here was a need to reform and recreate the existing bureaucratic hierarchical management system in place (Chen, 1995). Management power in areas of production and marketing were reassigned to the provincial level SEOs. The lifetime guarantee of employment and standard wages policy was abolished. Incentive schemes became a part of the wages. In addition a labour market was created and opened up to both MNCs and SOEs (Chen, 1995; Warner, 1995). Even in 1995 Warner wasn't sure if HRM had started in China. According to him this was HRM with unique Chinese qualities. In fact Goodall and Warner, (1997) called it personnel administration in work units rather than HRM. At this point HRM was at its very primitive state with a strong influence of Chinese culture. Wright et al. 1998 observed:
following the labour reforms and the opening of China to foreign companies, the criteria for selection and promotion of HR directors have changed. While the personnel director is still a party member in state-owned enterprises, foreign MNCs are able to hire their own HR executive. In joint ventures where the foreign firm is allowed to bring in a number of expatriate managers to fill key positions, the personnel position is typically still staffed by a party member. Often this stems from the foreign joint venture partner viewing other positions (marketing, operations, finance) as more critical to the success of the enterprise, and thus, using the HR position as a bargaining chip to throw at the state partner (p. 5).
Warner studied China's HRM practice by comparing three SOEs and three (Joint Ventures) JVs. In his 1998 study he was of the view that HRM function in China was at a status quo where there was a point of relative convergence. He further developed a model for framework of China's HRM. In his model there are three elements:
Macroeconomic and market environment
State labour legislation
Firm level HR policy determination
According to this model, external market situation determines how state legislation occurs and thus influences the HR policy of the organisation too. While the recruitment and lying off policies of an organisation act as feedback to the external market and also shapes the decision of the legislative. This model indicates that HRM in China is in transitional state, and the changes and development that have taken place in HRM have been due to the internal and external interaction of these three elements.