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The introduction of the ‘‘open-door” policy in 1978 has sparked exceptional economic growth in mainland China. A significant driving force of this remarkable economic feat remains China as one of the world’s most attractive destinations for foreign capital investment. In 2008, “foreign direct investment (FDI) inflows reached US$109 billion and recorded a period growth of 41.1% in real terms between 2003 and 2008”. The Chinese government generally welcomes foreign investment and implements a wide range of incentive policies to foreign businesses (Euromonitor, 2010). With the growing importance of the Chinese domestic market to the world economy and introduction of government incentives, large number of international companies has established operations in China. The opening up of the vast market has formed many opportunities and, at the same time, created many problems to foreign enterprises (Siu & Darby, 1999). This mainly because of the unique political, economic and cultural environment different in China, it led foreign investors or expatriates manager difficult to introduce their preferred approach in managing the employees and the organisation in China (Siu & Darby, 1999). Human resource management is one of the mostly frequently discussed ( Bjorkman & Lu, 1999), as well as managing local Chinese employees away from one’s home office is never an easy task (Gross, 2007).
The purpose of this working paper is to review the major HRM challenges of multinational enterprises (MNEs) operating in China; the issues they faces when trying to apply global corporate HR policies in Chin with a focus on their justice implications. It begins with review of the recent China employment and recruitment situations, and then the evidences of challenges issues facing of MNE in China’s HRM practices. In the following section includes several major HR critical issues in training and development and staff retaining. At the end of the section, major issues of employee’s management included leader developing, cross-cultural expatriate’s management and managerial effectiveness in cross-cultural are individually introduced. A research area is then identified in the conclusions.
Recruitment is about selecting and recruiting employees. The purposes of recruitment help MNE to meet the organization’ everyday jobs, legal and social obligations regarding the composition of the workforce. This increases organizational and individual effectiveness in the short term and the long term (Schuler and Huber, 1993). Analysed by most of the MNE industries, online advertising of recruitment is now a standard part of the recruitment process for them. It has been embraced by technology companies like IBM and cosmetics company L’oreal in China evaluates their prospects from online recruitment (Xinhua News Agency, 2010). However, many multinational companies assume that a country with a population as large as China’s would not have a labor shortage. In fact, the rising demand for Chinese labor has exceeded its supply, and hiring talented employees is even more difficult (Gross & Connor, 2007). China’s rapid economic growth has caused the country’s huge labour force faces difficulty in providing the right skills needed for many foreign companies. Research found that this is mainly due to inadequate and out-of-date university training; graduates often do not possess the required skills including computer literacy and foreign languages.
Cheap labour costs have long been history China’s advantage over other developing countries which enhance the country’s competitiveness in attracting FDI. But China’s booming coastal cities are now actually facing a shortage of manual labour, become a major issue for most MNEs manufacturing sector suffer in manual labour recruiting (CRIENGLISH.com, 2010). Guangdong, one of the economic powerhouses in South China Province, reported a shortage of half a million workers as business has skyrocketing for many companies (Xinhua News Agency, 2010). Some manufacturers closed down production lines because they could not find enough workers. “Low-wage workers are fading from the scene”, leading foreigner investors struggle with near double-digit unemployment (Xinhua News Agency, 2010). However, “higher wages could ease labor shortages by prompting factories to reduce their work forces” (New York Times, 2010). Hence the provincial authority has adjusted the minimum wage by an average of 21% to attract the labour mainly blue collar. “The rise will bring the minimum wage up to 1,030 yuan (150 U.S. dollars) in the provincial capital, Guangzhou, and to 920 yuan in Dongguan, a major manufacturing center” (Xinhua News Agency, 2010). Similarly to other booming regions like coastal cities of Fujian Province, Jiangsu Province and Shanghai City raised its monthly minimum wage rate by 13 percent to 960 yuan. According to Euromonitor (2010), “China’s productivity stood at US$6,286 per person employed in 2009, significantly up from US$2,641 in 2004 owing to the country’s strong economic performance”. Critically, recruitment of factories manual labour is becoming an issue for many MNEs in China and employers have to increase their starting pay to attract them.
Accordingly, the hiring of blue-collar is getting tougher and tougher in China because of one-child policy adopted by China in 1978. The parents with child born in late 1980 and early1990s are normally at middle-class income groups; as a result they can afford to send their children up to tertiary education. Overtime these groups of children are in the age of 20s now and are more educated and hence no longer willing to work in factories. They are far too optimistic about their career options and see no need to work hundreds of miles from their families. Besides, the new generation of workers born in the 1980s and 1990s are aware of their employment rights. For example, “unions have begun to aggressively exercise their rights by engaging in organizational efforts with large multinational companies such as Intel after informal discussions have failed” (Gross & Connor, 2007). Commonly in China, Younger Chinese become major trends in the current labor market. They not only demand higher pay but also ask for better opportunities for career development. Similarly, skilled middle managers are extremely sought after (Gross & Connor, 2007). The Cultural Revolution had invaded the education of those born between 1950 and 1965 (Wang, 2002). During that time, people of this generation were sent to the countryside to work in agriculture. The so-called “Cultural Revolution Generations” in China are less recruit due to their lacking in skills (Gross & Connor, 2007). While recruiting qualified Chinese labour is challenging from both of legal and human resources standpoint (BizTimes, 2007). Employers that are willing to take the time to understand the Chinese labour market and recent economic trend of employment will likely be successful.
Training is mainly on-the-job and is seen as a lifelong process (Fischer, 2000). It focuses on employees’ knowledge, skills, attitudes and personalities (Human Resource Development Review, 2002). These enable staff members to discharge their job related skills and duties professionally and effectively (Grzeda, 1999). Training for newly hired employees have to go classroom curriculum like company policies, labor law, company culture, compensation packages, company expectations, company goals, company KPI (Key Performance Index) and of course hands-on equipment training (Kleiman, 1997). Companies in China for example in Electronic Industries spent between 1 to 3% from the overall input cost on training. (Xiao J & Tsang M.C, 1999) But the number is gradually going up for a simple reason due to high attrition rate, particularly amongst the younger workers. The attrition rate always a worsening effect on the company as other FDI move in and attract those workers with managerial experience, offering better pay rates and further training opportunities (Randeree, 2009). The rich and wealthy companies are willing to pay handsomely for the experienced staffs of other companies and competitors. As in common, the culture of pinch staffs from one another is common in China (Wong, 1999).
Despite China’s high adult literacy rate of 94.5% in 2009, the country’s huge labour force faces difficulty in providing the right skills needed to support China’s rapid economic growth (www.euromonitor .com). Research finding has showed the local Chinese graduates do not possess the required skills including computer literacy and foreign languages due to out-of-date university training. In order to cope with skills shortage problem, training programme provided in MNEs suit various needs (Cheung, 2004). They include overseas training programmes, on-site management skills development programmes and language courses (Wang, 2002). In fact, staff Training can help MNEs in China reduce turnover. Young Chinese professionals and graduates are attracted to the training opportunities that foreign companies can offer (Shen, 2006). Most of Chinese are not well-versed in spoken English language. Many MNEs send their employees for overseas training to enhance themselves in spoken English and true understanding of Western business practices (Waxin, 2007). Besides, it also creates a closer bond between employees and a better understanding of company culture (Ritchie et al., 2001). Rather than that, every company has their own training centre equipped with comprehensive training systems and real-live hand-on training equipments. Many of them have established their own training facilities. These programs have proven effective in building company loyalty and increasing retention (Meier, 1995). These may cost heavy, but they cannot do without it. Carrefour China, an example, established a Carrefour China Institute (CCI) in Shanghai in year 2000 to train Chinese managers (China Daily, 12 AUG 2008). Since then, the school has trained about 15,000 managers, and 40,000 employees have attended a range of training programs for self improvement. Regularly, a number of local managers are sent off to Europe for further training to gain greater overseas market knowledge and experience. Wal-Mart China’s regional training centers, also located in Shanghai are other examples of winning internal training programs (Gross and Connor, 2007).
The most valuable assets of every MNE are its labor force; retaining them has become a challenge to company management because of varied employee needs (Som, 2005).Employee retention is critically benefited for an organization save the cost of turning over a staff position (Berry, 2008). For most MNEs in China, recruiting is only half the game. However, the biggest challenge that companies face, by a significant margin, is difficult to keep the talent employees as well as attract the excellent and qualified candidates among the masses. It is gradually increase complexity for companies in China to retain key talent, mainly as the lure of higher salaries affect the Chinese to abandon posts for more lucrative positions. Empirical study showed Chinese employees aged between 25 and 29 shift jobs most frequently, which implies this group of employees is the hardest to retain (www.mercer.com.hk). Hewitt’s 2009/2010 data shows that most Asian companies continue to experience double-digit voluntary turnover rate, particularly China reported the top four markets which is the highest turnover rate after India, Australia and New Zealand (www.hewittassociates.com). Obviously, the high employee’s turnover rate has become the significant issue of most organization. Significantly, it has morale and financial impact on the daily operation of an organization (Cox & Blake, 1991).
While many would believe comparatively high turnover rate in China mainly due the competition for talent along with better wages offer from competitors (Byman, 2007). MNES move in and attract those worker with managerial experience, offering better training opportunities (Whiteley et al., 2000).The survey of ‘Employee Retention in China 2006–2007′ sheds light on why employees determine to stay or leave and what organizations can do to stanch the accelerating outward flow of human talent (Howard et al., 2007). Survey respondents included 215 HR professionals and 862 employees in a wide range of organizations operating in China; while 81 % participants’ organizations were multinational (Work and life in China, 2008). To summaries the findings, the cause of turnover is the availability of better career opportunities elsewhere, particularly the growing entry of new MNES each year (Tung, 2007). HR professionals from survey described that competitors presenting a better salaries and sufficient compensation, but also noted the impact on retention of regional salary differences between China’s coastal and inland cities (Howard et al., 2007). Not surprising, organizations that face high employee turnover often suffer negative residual effects among remaining employees. In short, the misunderstanding of employees’ needs is difficult for a company to retain and prevent turnovers (Branham, 2005).However, successful companies in China rely on a relatively small group of key talent to drive the business forward (Speth and Doeringer, 2006). The key strategy of MNEs applied to retain the talents further discuss in next paragraph.
A high rate of turnover usually forces an organization to face difficult dilemmas (Wong. Wong. Hui & Law, 2001) More and more people change numerous jobs within a year rather than choose to grow in one; and this has also been a problem for corporate management. Employee turnover demands management attention because it incurs costs in rehiring, training, placement, and motivating employees (Aberra, 2008). However,high employee satisfaction with working style of an organization should bode well for retention (Howard et al., 2007). Retaining often focus on opportunities for employers to promote the right employees or tangible rewards like compensation or remuneration based on appropriate performance appraisal (Whiteley et al., 2000). For instance, a comprehensive reward system can be a kind of rewarding either pay for hours worked or pay for pieces of work completed. Besides, most companies have retention bonuses to retain the key staffs and key talents. Some of the retention programs are sponsor for further educations, overseas training, stocks option and career advancement opportunities (Branham, 2001). Of cause conditionally, the employees who took the programs like further educations or overseas training have to be borne with company for number of years pending the amount spent. Commonly, talented employees would be less likely to leave the company ones if they are well compensated and motivated (Hong & Chao, 2007 p. 217). However, sometimes retention method was inconsistent with its value in specific instances. Therefore, organizations should aware to these specialized occasions when developing strategies for retaining talent.
For foreign companies operating in China, the difficulties are magnified by the talent shortage for future leader, particularly of managers and executives. For example, approximately 60% of companies surveyed in Hewitt’s 2003 Best Employers in China study reported shortages in leadership skills (www. hewittassociates.com). It further reported many talented executive have been lured away from an MNE job into a well-paid position with a leading Chinese company. For many foreign investors, developing future leaders tends to be very difficult in China mainly of rapid turnover. A good example is the America firm Leshan-phoenix Semiconductor Cooperation, in Sichuan Province, struggling with annual turnover rates of their local managers of 20% or more (onsemiconductor.com, 2010). This is mainly because demand for strong leadership executives far exceeds supply; they are tempted to leave their current position for higher pay and a bigger title (Meridian Resources, 2007). In fact, a competent leader helps multi-national corporations work effectively in the Chinese workplace. As foreign company enter fully into China marketplace, it forming competing domestically with local corporations. High turnover makes planned, consistent leadership development extremely difficult.
Cross-cultural expatriate’s management
China is the top expatriates destination followed by the U.S., UK, Singapore and Switzerland, survey reveals (kwintessential.co.uk, 2009). But, predicament comes from greatest challenges of expatriate’s failure grown concern for many multinationals in the evaluation of managerial performance (Leunga and Kwong, 1999). Evidence, empirical figures finds Western expatriate failures in China to range as wide as 25% to 70% (Harzing, 2002; Selmer, 2002). Significantly, such high failure rates potential impact business relationships between Western expatriates and Chinese organizations. Whereby, a financial loss can be inferred, due to damage to business relationships as a result of low commitment levels commited by expatriate (Lund &Barker, 2004; Harzing, 2002). Lund &Barker (2004) further cited such financial loss is estimated to range from US$250,000 to US$ 1,000,000 per expatriate. Further, Goodall & Warner cited in Black (1988), 2007) showed there is high percentage up to 40% of expatriate managers terminated their foreign assignments early of their poor performance. Eventually it represents the organizational failure to manage human resources internationally (moinul.com, 2007). However, there might be several reasons why many expatriates fail to deliver the objectives. Research found that (Hays, 1974; Feng& Pearson, 1999), they are three exact dimensions have been recognized as related with their overseas performance: the environment, the task, and the individual. This is due to expatriates are often faced with radically unfamiliar cultures, politics, language differences, length of assignment, and legal systems (Rahim, 1983; Feng& Pearson, 1999). Sometimes, there is not inability from expatriates, but culture conflict affect local Chinese managers are less likely than their foreign counterpart to handle independent decision making responsibilities (Leunga & Kwong, 1999). Chinese and expatriate managers may have different principles in judging within their job scope as well as criteria used for performance evaluation.
Managerial effectiveness in cross-cultural
Culture is an important contextual issue in employee’s management study. In general, management is closely related to the culture (Drucker, 2003). According to Wang (2002), the communist style of education and the long history of China differentiate the cultures of organization management between Mainland China from those of Asian countries, American and European cultures. This is especially true for MNEs who have operations on a global scale and employ people of different countries, ethical and cultural backgrounds. Cultural difference can have a direct impact on individual managerial effectiveness (Goodall & Warner, 2007). It affects the motivation and satisfaction manager as well as staff; and effectiveness of key organizational systems such as recruitment, training, performance evaluation and rewards (Goodall & Warner, 2007). Sometimes cultural sensitivity drove the management effort since the different in culture of management concept. Take the case study of Japanese T.L. Electronics Company based in China for example, the Chinese workers commented the style of Japanese management is not conductive their expectation (Whiteley et al., 2000). It is generally assumed the HR management approach is due to remarkable cultural difference between the parent country and the host country. In fact, a MNE should focus on a combination of global integration and local adaptation, allowing its employees to “think globally, act locally”. To ensure global thinking, the global company has to encourage the local employees to accept the corporate culture and values. For instance, Chinese employee who employed in the Western setting is encouraged to learn the Western-style organization management and communication skills. Meanwhile, operations of the Company have to adjust to comply with the legal requirements and services that reflect the Chinese culture.
In conclusions, recruiting the right people, training in right time, retaining the best staff, and employee’s empowerment of recent human resource management are difficult tasks for any MNEs operating in China. China’s rapid economic growth has created more job opportunities but it also creates more opportunities for labour turnover to others organizations with higher paid indeed. This heavy labour turnover in China has been a substantial problem in managing Chinese employees .This hindered many multinational corporations’ localization plans because those talents who have been trained for succession have usually ended up as the focus of aggressive recruiting efforts by other organizations. Eventually, they face a dilemma of whether it is worthwhile to invest in better compensation packages and training programs, because it might possible happen with the employees leaving the organizations at the end. However, every issue has its balanced view of its advantages. Still, China Government, Provincial Government, City and Town Government give the best support to foreign investors in terms tax rebate, , free land, training cost subsidizes and so forth. Even though the labour cost (cost on training and wages) is growing fast in China but it is still cheaper than America, Europe and most of well to-do countries in Asia like Japan, Korea, Singapore, Taiwan and Hong Kong. At least, the great population of China is having highly educated workforce with hungry for knowledge, it is easily trainable.
Xinhua News Agency, 2010. ‘Chinese manufacturers learn to love labor lost’ http://news.xinhuanet.com/english2010/china/2010-03/25/c_13224772.htm
Gross, A., Connor, A. (2007). China Recruiting and Retention Issues http://www.pacificbridge.com/publication.asp?id=81
BizTimes. (2007). Employee recruitment in China is challenging New York Times. 2010. ‘Defying Global Slump, China Has Labor Shortage’ http://www.nytimes.com/2010/02/27/business/global/27yuan.html
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