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8/18/2019 Acquisitions of Chinese State-Owned Enterprises by Multinationa Corporations - Driving Forces, Ba
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Acquisitions of Chinese State-OwnedEnterprises by Multinational Corporations:
Driving Forces, Barriers and Implicationsfor HRM
Fang Lee CookeManchester Business School, The University of Manchester, Booth Street West Manchester M15 6PB, UK
Email: [email protected]
This article explores the driving forces for, barriers to, and trends and patterns of
acquisition of Chinese state-owned enterprises (SOEs) by foreign investment and itsimplications for HRM and the experience of work for the workers. It questions the levelof objectives alignment between the Chinese side and the FDI during the acquisition of Chinese SOEs. Issues related to the Chinese managerial skills and behaviour inacquisition negotiation are discussed as well as the policy making, administrative andpractical role of the local government. The article argues that FDI’s acquisition of Chinese firms creates unique management issues which require further research,particularly in the area of HRM, in order to establish the likely similarities anddifferences between acquisitions in other countries and those taking place in China andthe implications of this for the globalizing businesses.
Introduction
China has been one of the two largest foreign
direct investment (FDI) recipient countries in the
world in recent years (International Statistics
Yearbook, 2004). This is largely because of two
factors: investment incentives offered by the
Chinese government and the country’s abundant
availability of cheap labour. It has been argued
that the strong emphasis on foreign investment
and foreign trade has been one of the key factors,if not the key factor, in the unprecedented growth
of the Chinese economy in recent years. Attract-
ing FDI has been an important part of China’sopen-door economic policy since 1978 and this
proactive policy has led to the rapid increase of
FDIs in China in the last 25 years (see Table 1
and 2).
During the 1980s, the main route of FDIsentering the Chinese economy was through joint
ventures (JVs) with Chinese state-owned enter-
prises (SOEs). Into the twenty-first century,
cross-border acquisition remains the main invest-ment mechanism for foreign investment entering
the China market with an increasing level of
freedom. This trend is being accelerated by
China’s accession to the World Trade Organiza-
tion (WTO) and the introduction of a number of
laws and guidelines by the Chinese government in
2003 that are aimed to promote merger and
acquisition (M&A) activities from foreign invest-
ment. It was reported that 16% of the M&A fund
(about US$ 3.84 billion) in first three quarters of
2003 in China came from FDIs (Jin and Nie,
2004) and that M&A activities in China havebeen increasing by 20% annually in recent years(China Business, 2005). This new development is
in line with the international trend in the last two
decades in which, it is noted, the level of M&A
activities has increased considerably (Evans,
Pucik and Barsoux, 2002; Hubbard, 1999) in
response to a range of political, economic, social
British Journal of Management, Vol. 17, S105–S121 (2006)
DOI: 10.1111/j.1467-8551.2006.00481.x
r 2006 British Academy of Management
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and technological pressures and opportunities, withcross-border M&As particularly noticeable (Boxall
and Purcell, 2003). It must be pointed out at the
outset of this article that acquisitions, instead of mergers, remain the main pattern of Sino-foreign
alliances, and therefore the discussion in this article
Table1. Utilization of foreign capital between 1979–2003 (end-of-year figures), US$ m(Figures in 100 million USD)
Year Total Foreign loans FDIs Other foreign
investmentsNo. of projects Value No. of projects Value No. of projects Value
Total amount of contracted foreign capital
1979–1984 3,365 287.69 117 169.78 3,248 103.93 13.98
1985 3,145 98.67 72 35.34 3,073 59.31 4.021989 5,909 114.79 130 51.85 5,779 56.00 6.94
1990 7,371 120.86 98 50.99 7,273 56.96 3.91
1995 37,184 1,032.05 173 121.88 37,011 912.82 6.35
1996 24,673 816.10 117 79.62 24,556 732.77 3.71
1997 21,138 610.58 137 58.72 21,001 510.04 41.82
1998 19,850 632.01 51 83.85 19,799 521.02 27.14
1999 17,022 520.09 104 83.60 16,918 412.23 24.26
2000 22,347 711.30 22,347 463.80 87.50
2001 26,140 719.76 26,140 691.95 27.81
2002 34,171 847.51 34,171 827.68 19.82
2003 41,081 1,169.01 41,081 1,150.70 18.32
Total amount of foreign capital actually utilized
1979–1984 171.43 130.41 30.60 10.42
1985 44.62 25.06 16.58 2.981989 100.59 62.86 33.92 3.81
1990 102.89 65.34 34.87 2.68
1995 481.33 103.27 375.21 2.85
1996 548.04 126.69 417.25 4.10
1997 644.08 120.21 452.57 71.30
1998 585.57 110.00 454.63 20.94
1999 526.59 102.12 403.19 21.28
2000 593.56 100.00 407.15 86.41
2001 496.72 468.78 27.94
2002 550.11 527.43 22.68
2003 561.40 535.05 26.35
1979–2003 6,795.58 1,471.57 4,997.60 326.41
Sources: adapted from China Statistics Yearbook, 2004, p. 731.
Table2. Examples of utilization of foreign capital and foreign investment (end-of-year figures), US$ m
Item 2000 2002 2003
No. of
projects
Contract
value
Used
value
No. of
projects
Contract
value
Used
value
No. of
projects
Contract
value
Used
value
Total 22,347 71,130 59,356 34,171 84,751 55,011 41,081 116,901 56,140
Foreign direct investments 22,347 62,380 40,715 34,171 82,768 52,743 41,081 115,070 53,505
Joint ventures enterprises 8,378 19,648 10,380 18,502 10,380 14,992 12,521 25,506 15,392
Cooperative operation enterprises 1,757 8,117 1,595 6,217 1,595 5,058 1,547 7,479 3,836
Foreign investment enterprises 12,196 34,309 22,173 57,255 22,173 31,725 26,943 81,609 33,384
Foreign investment share enterprises 8 194 19 739 19 697 37 389 328
Cooperative development 8 112 4 55 4 272 8 86 32
Others – – – – – – 25 – 531Other foreign investments – 8,751 8,641 – 1,982 2,268 – 1,832 2,635
Sale share – 6,931 – – – – – 42 275
International lease – 24 – 130 – 131 – 129 129
Compensation trade – 12 – – – 4 – – 7
Processing and assembly – 1,784 – 1,852 – 2,133 – 1,661 2,525
Sources: adapted from China Statistics Yearbook, 2002, 2003 and 2004.
S106 F. L. Cooke
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will focus mainly on acquisition, although M&As
will be referred to where appropriate.
Despite the growing significance of interna-
tional acquisitions in China’s economy, there
have been insufficient empirical studies into the
driving forces for, barriers to and patterns of
foreign investment acquisitions in China, theirpost-acquisition strategies and operating policies
and the implications of these for the governance
structure of the firm and its human resource
management (HRM). This is perhaps in part
because research on M&As is sensitive because of
the often-required confidentiality and speed of
change (Walter, 1985) and the consequent diffi-
culty in gaining access to organizations to carry
out the study (Salama, Holland and Vinten,
2003). However, these issues are especially im-
portant for the SOEs where international acquisi-
tion practices through joint ventures (JVs) haveexisted for nearly two decades as a governmentstrategy to rescue the poor-performing state
industry. Although a considerable amount of
academic research has been carried out since the
late 1980s on international joint ventures in China
(e.g. Bjorkman and Lu, 2001; Bjorkman and Fan,
2002; Child, 1994; Child and Faulkner, 1998;
Cooke, 2002; Ding, Fields and Akhtar, 1997;
Luo, 2000a), these works focus mainly on themanagement practices of the joint ventures rather
than the acquisition process prior to the establish-
ment of the joint venture. Equally, although Luo(2000b, 2000c) has written extensively on how
foreign businesses may enter China, these works
focus primarily on the pre-acquisition process
rather than the human resource implications of
acquisition for the workforce.
In practice, confusion, conflicts and barriers
that restrict the level of international acquisition
activities in China exist widely (see Luo 2000b and
2000c for more details). This is particularly the
case in the acquisition of SOEs. This is reflected in
the fact that when implementing the strategy and
policy, the Chinese authorities have swungbetween advance and retreat, between loosening
up and holding back, ambivalence between
benefits and problems, gains and losses. Another
problem is that there is a lack of transparency and
participation from M&A experts when govern-
mental departments formulate rules and policies
that govern M&As. As a result, merger and
acquisition administrators (including other autho-
rities involved in the process) often find it difficult
to interpret and implement the regulations. In
addition to regulatory loopholes, the impact of
acquisition on local employment is another
important factor that influences the attitude of
government officials and workers towards the
acquisition. Post-acquisition changes in the man-
agement of human resources are also verysensitive issues as the cultural differences between
the Chinese ex-SOEs and the acquiring foreign
firm may be at their starkest, especially given
the fact that human resource issues often pose
the greatest difficulties and are of crucial im-
portance in M&As and post-M&A integration
(Schuler, 2001; Schuler, Jackson and Luo, 2004;
Stahl et al ., 2004). Given the Chinese govern-
ment’s determination to continue the privatiza-
tion or partial privatization of the SOEs through
domestic and international acquisitions, it is
important that issues related to internationalM&As of Chinese SOEs are discussed more fullythan has been the case so far in the existing
literature.
This article explores the driving forces for,
barriers to, and trends and patterns of acquisition
of Chinese SOEs by foreign investment and its
implications for HRM. The article draws on a
number of sources for its data. These include
interviews with three senior managers from threeex-SOEs (one in each) that have been partially
privatized (now joint ventures) through acquisi-
tion by foreign investment in the last three yearsin a large city in southern China, interviews with
two local government officials who were involved
in the M&As of SOEs and two senior officials of
the trade-union headquarters of the city. All
interviews were conducted by the author in China
in Mandarin Chinese. Each one-to-one interview
lasted about one hour. Access to these informants
was through personal contacts. The article also
draws on secondary data from journal and
newspaper articles and government reports. Most
of them are in Chinese and were collected in
China. It needs to be pointed out here that it isnot the intention of this article to report the
acquisition process of the three ex-SOEs (coded
here as BreweryCo, TyreCo and PharmaCo).
Rather, it aims to provide an overview on a
number of aspects related to cross-border acqui-
sitions in China, a rapidly developing area where
knowledge remains insufficient. Therefore, the
interview information plays an informative role
in the discussion of the article rather than taking
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precedence. Because of the sensitive nature of
some of the information, direct quotations of
interviews were kept to a minimum in this article
in order to conceal the identity of informants,
especially the government officials.
The article is divided into four main sections in
addition to this introduction section. The firstmain section reviews the driving forces for inter-
national acquisitions of SOEs in China by contem-
plating the objectives from both the Chinese and
the FDIs’ point of view. It also outlines the
patterns of acquisition of Chinese firms by
foreign investment in terms of the industries they
target. The second section questions the level of
objectives alignment between the Chinese side
and the FDI when entering international joint
ventures. Issues related to the Chinese managerial
skills and behaviour in acquisition negotiation
are discussed as well as the multiple role of thelocal government. Barriers to acquisitions forFDIs are then analysed in the context of the
above issues. This is followed by the fourth
section, which discusses the implications of cross-
border acquisitions to human resource manage-
ment, including major aspects of HRM such as
job security, training and development, pay and
performance management, industrial relations,
adoption of Western management techniques,managerial skills and post-acquisition integra-
tion. The conclusion section highlights practical
and research implications of the article, andargues that international M&As of Chinese firms
creates unique management issues that require
further research, particularly in the area of
HRM, in order to establish the likely similarities
and differences between M&As in other countries
and that taking place in China and the implica-
tions of this for the globalizing businesses.
International acquisitions in China:
driving forces and patterns of acquisitions
The development of foreign investments in China
has been through three overlapping stages since
the early 1980s. The first stage began in the early
1980s when the majority of foreign investment
came from Hong Kong, Macao, Taiwan, Japan,
Korea and countries in southeast Asia. Many of
the investors were overseas Chinese. The second
stage began in the early 1990s when MNCs from
Western countries started to use China as a long-
term development base by setting up their
production plants in China. The third stage
began after China’s accession to the
WTO. One emerging feature of FDIs is the
acquisition of SOEs, often through the stockmarket by offshore foreign investors or by MNCs
in China.
Driving forces for FDI acquisitions of Chinese
SOEs
There are a number of driving forces for the
acquisition of Chinese SOEs (Dong and Hu,
1995). First, the Chinese government was forced
to reform the ailing SOEs in the 1980s. The plan
involved three steps: reducing the intervention of
the state in these enterprises by redefining the roleof the state as a shareholder with limited
liabilities; revitalizing large and some medium-
sized SOEs by further devolving decision rights to
management and continuing economic reform
toward a fair and competitive market; and
privatization and leasing of the small and
medium-sized SOEs. As SOEs are controlled by
the state through the local government, the
performance of SOEs is a strong indication of
the administrative performance of the localgovernmental officials. For their own interest,
officials want to maximize the profit level of theSOEs. The profit level of SOEs also has a direct
impact on the tax income and consequently the
building of the infrastructure of the region.
Therefore, local officials are keen to improve
the performance of the SOEs through merger and
acquisition when it becomes apparent that anSOE cannot survive on its own. During the early
and mid-1990s, a popular way to pay off
liabilities and create working capital for SOEs
was to convert them into joint ventures with
foreign investors. Other important reasons for
the Chinese side entering into a joint ventureagreement include the desire to acquire knowl-
edge, latest technology and management skills,
and the desire to generate export income (see
Brunner, Koh and Lou, 1992; Child, 1994; Child
and Faulkner 1998; Gu, 1997; Luo, 2000b for
more details). The reform of SOEs has been
pushed to new heights since 1997 (Gu, 2003;
Li, 2003; Zhang, Li and Zhou, 2002) when the
large-scale downsizing, privatization and M&As
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involving SOEs, collectively owned enterprises,
domestic private enterprises and foreign invest-
ments took place (Cooke, 2005). The idea behind
the M&As is to let the SOEs be voluntarily
acquired by or merged with better-managed
firms. Such an approach is believed to have
combined ownership transfer with managementadjustments, technology upgrading and capital
injections (Dong and Hu, 1995).
A second driving force is to exert control over
foreign firms in China. In the early stage of the
‘open-door policy’, the Chinese government
decided that in order to control the operations
of foreign companies in China, FDIs would be
confined to joint ventures with local (state)
partners. Numerous restrictions were also im-
posed on the joint ventures in their operations,
including the management of human resources.
In addition, there was strong pressure on JVs notto lay off workers. However, the level of controland influence from the local authorities has
begun to ease off since the early 1990s (Pomfret,
1991) and foreign companies now have consider-
ably more latitude in their business operations in
China, including decisions in HR policies. The
Chinese government now permits 100% foreign
ownership in most industries and the number of
new wholly owned foreign subsidiaries surpassedthat of equity joint ventures for the first time in
1998 (Bjorkman and Lu, 2001).
A third driving force comes from the growingneeds of the profitable enterprises themselves as
part of their development strategies. MNCs can
bring the much-needed capital, advanced technol-
ogy and managerial techniques to China through
acquisitions (Jin, Qi and Li, 2003). It is true that
most of the technologies introduced to China by
MNCs may not be state of the art, nonetheless,
they are still better than those available to most
enterprises in China. The introduction of these
technologies into China will have a spill-over effect
and promote the upgrading of technology by other
enterprises in the same industry in China (Liu,2000). A fourth motive for SOEs to be acquired by
foreign firms is to attract foreign capital and to
develop international markets by association with
well-known international brand names.
The driving forces for international acquisitions
from the Chinese government and industries, the
policy change and the resultant investment envir-
onment have to some extent shaped the patterns of
acquisitions by foreign investments.
Patterns of international acquisitions in China
There are three major characteristics of acquisi-
tions of SOEs by foreign investments. A first
characteristic is that foreign investors are increas-
ing their level of investment and stock control of
the acquired SOEs, some even become solelyforeign-owned. A second feature is that foreign
investment has been shifting away steady from
traditional industries towards the new, high-tech
and high value-added industries. There is also a
growing interest in investing in light industries
and commercial industries. A third feature is that
while foreign investment prior to the 1990s had
mainly come from Hong Kong, Taiwan, Macao
and other countries in the Asian Pacific Rim,
with relatively low level of technology and in
relatively small-scale and simple operation mode,
investors since the 1990s have been large MNCs,with larger investment projects and strategicoperations. These operations also develop a
sophisticated business chain, from product devel-
opment and manufacturing to marketing, sales
and after sale services. Establishments/offices are
set up in different geographical locations in China
for strategic purposes. Some MNCs have also set
up research and development (R&D) centres and
regional headquarters in China to complete theirChina business strategy (Jin, Qi and Li, 2003).
In the 1990s, foreign firms mainly acquired
smaller SOEs that might be average performers.Into the twenty-first century, MNCs’ M&A
activities in China were becoming more strategic.
They began to target larger and profit-making
SOEs and moved from targeting individual
enterprises to targeting the whole industry, as
the Chinese Government began to open up its
industries to FDIs. For example, in the 1990s,
MNCs acquired and gradually dominated the
drinks, cosmetics, detergent and film industries.
Since the 2000s, MNCs have been expanding
proactively into China’s rubber, pharmaceutical
and household electrical appliance industry. Theacquisition pattern also changed from ad hoc
acquisitions to concentration acquisitions, pur-
posefully targeting key companies in the same
industry or all SOEs in the same geographical
locations. In the 1980s, MNCs entered the
Chinese market with capital and technology
assets. In the 1990s, they entered with their own
brand name products that replaced the Chinese
brands or acquired the Chinese brands and then
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replaced them with their own. This has typically
been the case in the car industry, with most of the
Chinese brands replaced by foreign ones through
international joint ventures (Liu, Bai and Yin,
2001). As legal restrictions are gradually relaxed,
international joint ventures as a common corpo-
rate mode is being replaced by wholly foreign-owned enterprises. Currently the attractiveness
for foreign investment is in M&A deals especially
in the manufacturing industry, most notably in
semiconductors and microelectronics, home ap-
pliances, electronic medical equipment, machin-
ery and services (e.g. retail and hotel).
In general, MNCs embark on M&A activities
in China to develop product market, to con-
solidate their international competitive position,
to take advantage of its cheap production costs
and to streamline the chain of supply, produc-
tion, marketing and sale in the same location (Jin,Qi and Li, 2003). There are two main reasons forMNCs acquiring SOEs. One is that they foresee
the upsurge of China’s economy and the en-
ormous market potential, therefore enter their
target industry and product market through
acquisitions. They intend to defeat their compe-
titors in order to monopolise the market and gain
scale of economy (e.g. Koda). This is the
investment type of acquisitions. The other reasonis that they consider the price of the SOEs on sale
is estimated too low, therefore they intend to buy
it and then make a profit by selling it. This is theopportunistic type of acquisition (Jin, Qi and Li,
2003), although the former seems to be more
dominant than the latter.
MNCs’ acquisition of SOEs – a win-winsolution?
Despite the push and pull factors that fuel the
international acquisition activities in China in
recent years, cross-border acquisitions may not
yield the desired benefits for the Chinese fora number of reasons. These include the likely
misalignment between the objectives of the SOEs/
Chinese government and that of the FDIs, the
skill gaps and opportunistic behaviour of the
Chinese managers in acquisition activities, and
the undue intervention from the local govern-
ment. For the MNCs, there are also a range of
barriers in the whole process of acquisition, from
pre-acquisition negotiation, acquisition to post-
acquisition management, that prevent their an-
ticipated benefits from materializing.
Objectives alignment?
While Chinese SOEs wish to join force with
MNCs for survival, product and technologicaldevelopment, system innovation and human
capital development, MNCs may only be inter-
ested in picking the well-performing SOEs for
acquisition rather than helping troubled SOEs to
survive (e.g. Xu, 2003). By the 1990s, MNCs
targeted mainly the well-performing large SOEs
for acquisition. They were keen to be the
controlling party by becoming the sole owner of
the acquired enterprise or controlling at least 50%
of its stocks (Chen, 1999). They tend to leave the
debt to the Chinese side and may also sell their
stocks suddenly to make a quick profit. Profitsmay be transferred out of China instead of being
re-invested for development. It has been reported
(Chen, 1999) that MNCs imported out-of-date or
second-hand equipment into China as being new,
or quoting a higher than actual price. It has also
been noted (Chen and Wang, 2003) that in the
acquisition negotiation process, the proportion of
share holdings between the two parties is often the
focus of disagreement. There tend to be major
differences between the strategic objectives of largeSOEs and that of the acquiring MNCs. Mean-
while, some SOEs are the blue-chip companies of their industry and represent the Chinese state of
the art in the international arena. Surrendering
ownership and control to MNCs may have a
negative strategic consequence to the Chinese
industry. This is particularly the case in industries
of strategic importance such as automobile,chemical and petroleum, electronics, metallic,
and aviation where large SOEs concentrate.
Even when the Chinese side owns the majority
of the shares, the MNC partner makes the
decision about what technology to introduce to
China. On many occasions, only old technologyis introduced to China; for example, the US
Government strictly forbids the export of ad-
vanced technology to other countries. Therefore,
most of the R&D activities for product develop-
ment are carried out in the United States. This
makes it difficult to materialize the wish of the
Chinese acquired enterprise to upgrade their
technology through acquisition by an American
firm (Zhan, 2003). As a result, the enterprise in
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China only serves as a cheap site for the MNC to
manufacture and assemble low value-added
components with the intensive use of a semi-
skilled labour force with little opportunity for
upskilling, a situation similar to that in other
Asia-Pacific developing countries such as Malay-
sia (Frenkel and Peetz, 1998; Wilkinson et al .,2001). In addition, the incentive for firms to
innovate or for MNCs to introduce state-of-art
technology into China may be reduced when
technology spill-over and unintentional leakage
of technical know-how enable the Chinese to
imitate the product and technology.
FDIs have brought only limited R&D activities
to China, a situation worsened by the fact that
some MNCs abolished the original Chinese R&D
departments after the acquisition and rely on the
MNC’s own R&D centre abroad for technical
support. This reduces China’s development ca-pacity. This is especially the case in the IT andtelecom industry in China, which has the highest
proportion of MNC investments and product
market share. MNCs control the majority of the
shares of the enterprise in order to maintain trade
secrets and market dominance. To a large extent,
MNCs have monopolized the development of the
IT and telecom industry and dominated the
product market in China, quashing the opportu-nity for survival and development of domestic IT
and telecom enterprises (Wang and Liu, 2002).
Another case in point is that of the film-manufacturing industry. Koda and Fuji’s price
war in China has pushed the rest of the (Chinese-
owned) photographic film manufacturers close to
bankruptcy. Koda and Fuji have now mono-
polized the film market in China and if one of
them withdrew from China or retreated from the
price war, it would undoubtedly lead to a price
increase. This is in addition to the financial and
social burdens that are transferred to the state by
MNCs through redundancy of surplus labour.
At a macro level, the monopoly of industry by
MNCs may tip the balance of the industrial sectorsin China. The monopoly of MNCs of an industry
will also suppress the growth of domestic enter-
prises. Once the industry is open to foreign
investment, the government will have little power
to influence the business strategy of the MNCs
operating in that industry, thus reducing the
Government’s capacity to oversee the strategic
balance of that industry in relation to the whole
economic structure of the country. At the corpo-
rate level, the MNC establishment in China may
become more dependent upon the rest of the MNC
in its new international labour division in terms of
product development, marketing and sales, and
concentrating solely on manufacturing (Liu, 2000).
This is reflected in the fact that many MNCs
control the most senior positions in China in orderto implement their global strategy, and force the
Chinese managers into lower positions, although
many MNCs have started to localize their profes-
sional and managerial staff.
Managerial skills and behaviour
The low effectiveness of acquisitions of SOEs has
been a focus of academic debate in China.
However, one fundamental problem has often
been neglected, that is, the role of senior managers
in SOEs in M&A activities. A number of problems may occur during the decision-making
and negotiation period of the acquisition that
may have a negative effect on the target enter-
prise. One relates to the competency and the other
the behaviour of the managers. Chinese managers
have often been criticized for their lack of
managerial skills and opportunistic behaviour in
general (Cooke, 2005). Similar problems appear
to exhibit themselves in acquisition pricing,
negotiation and post-acquisition integration.Entrepreneurs use M&As as a business strategy
to advance their own interest instead of that of theenterprise. This includes financial benefits (e.g.
salary, bonuses and stocks) and non-financial
benefits such as power to control, personal prestige
and reputation. The absence of an independent
asset-evaluation system provides an opportunity
for senior managers to use their position to reducethe SOE asset value for acquisition to bargain for
their new position and terms and conditions in the
new organization (Cai and Shen, 2002). This is
evidenced by a research report published by the
Shanghai Stock Exchange Institution, which re-
vealed that many restructured enterprises involvingthe transfer of ownership tended to make a profit
in the first year but made a loss from the second
year (Cai and Shen, 2002). This indicates that
short-term profit making may be the top priority
of senior managers instead of long-term develop-
ment of the enterprise (Cai and Shen, 2002).
The lack of a sophisticated asset-evaluation
system and the absence of an open and compe-
titive tendering for the targeted SOEs may also
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lead to a heavy loss of state assets. While tangible
assets may be valued at too low a price, intan-
gible assets, including tacit knowledge, special
skills, brand name, reputation, image and tech-
nical know-how, are often not included in the
evaluation. The Chinese have yet to learn how to
protect their intellectual property rights throughpatent rights. Other loss of intangible asset
includes the loss of famous domestic brand
names in recent years following the acquisition
by MNCs who subsequently replace well-estab-
lished Chinese brands with foreign brands. Many
Chinese brand names had national reputations
and had been established after years of hard work
(Jin, Qi and Li, 2003).
Efficiency in negotiations is also low from the
Chinese side, often involving many people and
numerous meetings. The government officials
interviewed described the negotiation process of one of the acquisitions they were involved in as amarathon. In addition to the initial intentional
discussions before the acquisition negotiation
formally started, the Chinese negotiation team
held over ten internal meetings, each meeting
involved at least half a dozen people. More
than 170 people/times from the Chinese team
were involved in the actual negotiation meetings
with the MNC representatives. By contrast, theMNC only sent two representatives throughout
the negotiations, with the senior manager only
showing his face on a couple of the most im-portant occasions. The two MNC representatives
had clear idea of what the company wanted and
were able to stick to their agenda throughout the
negotiations in spite of the repeated attempts
from the Chinese representatives to soften those
demands. In the end, the two parties signed the
deal with plenty of concessions from the Chinese
side, with the MNC basically getting what they
wanted. In addition, all the logistic costs (e.g.
chauffeured transport, banquets and gifts) of
these meetings were born by the Chinese SOE, as
part of the Chinese hospitality and face-gainingexercise. According to the government officials
interviewed, this is just a typical example of
negotiation with foreign investors. The reason
why so many people were involved from the
Chinese side is that nobody wants to take
responsibility for the decision in case it goes
wrong and yet everybody (especially those from
the local government) wants to be involved and
have a say in it.
Intervention from local governments
A unique feature in the (international) M&As of
Chinese SOEs is that the local governments tend
to have a close and direct involvement in the
decision-making and negotiation process. In
principle, SOE assets belong to all people andthe state, local governments are entrusted to look
after these assets from an administrative point
of view. Enterprise managers are employed
to manage the assets from an operations point
of view. Therefore, enterprise managers cannot
make decisions in the transfer of asset ownership
without authorization. Because of this complex
ownership and governance structure of SOEs,
local governments tend to have heavy involve-
ment in SOE M&A activities. Local governments
have a vested interest in the asset of the SOEs and
are reluctant to give enterprise managers fullautonomy to handle the M&A activities. In theabsence of a well-developed capital market and
M&A agency bodies, the M&A of SOEs will be
difficult to complete smoothly without the sup-
port and participation of the local government.
Many methods commonly used in M&As in
developed countries are not applicable in China.
In addition, an M&A agency system centred on
investment banks is not yet established. Invest-ment banks have not been able to provide
financial consultancy services to the enterprises
involved. Under those circumstances, local gov-ernments have to step in to broker the deal. The
positive role of the local governments in M&A
activities therefore includes that of an agency,
monitoring and harmonization role. Moreover,
the administration of SOEs in China is segmented
by regional administration and industrial admin-
istration. Cross-region and cross industry M&As
will disrupt the status quo and require a new
balance of interests. The involvement of the local
governments will help oversee the flow of assets
and the rebalance of the interests of different
administrative regions and industries.However, the direct and often parochial inter-
est of local governments in SOEs also creates
problems that compromise the interest of the
enterprise concerned. For example, local govern-
ments may be keen to get rid of the burden of
poor-performing SOEs, and quote a low price for
acquisitions. Some local governmental officials
may be eager to establish their own performance
record and therefore cut corners to make it easy
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for the MNCs to acquire their targeted SOEs.
Tax regulations are sometimes interpreted gener-
ously by the local tax authorities in order to
attract FDIs. A minority of government officials
are also involved in corruption and benefit from
the low pricing of SOEs (Liu, 2000). As Kracht
(2002) points out, two more forces – governmentand guanxi – need to be added to Porter’s five-
forces system of analysing the different market
forces concerning competitors, customers, sup-
pliers, substitutes and new potential competitors
as key factors determining success.
Barriers to FDIs’ acquisition of Chinese SOEs
While the intervention of the local governments
and the opportunistic behaviour of some man-
agers may be to the advantage of the MNCs,
there are a number of barriers that make theiracquisition activities a difficult task which may
dampen enthusiasm for acquisitions from FDIs.
First the existing administrative system, as
discussed above, posts a range of related admin-
istrative problems and makes it very difficult to
carry out cross-region and/or cross-industry
acquisitions. These problems include, for exam-
ple: taxation problems (based on same region,
same industry and same fiscal level) and banking
problems (bank loan based on region). Theseproblems affect mainly those MNCs that are
already in China if they wish to acquire SOEsin another region rather than those wishing to
enter China through acquisitions. Second, FDIs
may encounter difficulties in selecting SOEs for
acquisition because of the lack of information in
the market and the lack of good SOEs in the
stock market because the majority of SOEs havenot yet reached the minimum standard require-
ments for being listed in the stock market (Wang
and Liu, 2002). These problems are in part
caused by the fact that the stock market in China
is not well established and there is insufficient
transparency and information flow.Third, there is generally a lack of clear
regulatory guideline related to M&As, although
this situation is being addressed by the Chinese
government. For example, the State Restructuring
Regulations, enacted in January 2003, set out the
requirements and procedures for the approval of
the restructuring of SOEs into foreign-invested
enterprises. This is followed by the promulgation
of the M&A Regulations in March 2003, which set
out a framework for foreign investors’ acquisitions
of all types of domestic enterprises and the
restructuring of such enterprises upon acquisition,
including SOEs. Thus, the M&A Regulations will
also apply to the acquisition of SOEs, although
conflicts may arise between the two new regula-
tions (China Legal News, November 2003). In lightof the absence of a clear set of legal or adminis-
trative procedures for M&A approval, M&A
parties often have to rely heavily on administrative
approval, involving the authorization of different
administrative departments (Jin, Qi and Li, 2003).
This practice carries an inherent bureaucratic low
efficiency (Cooke, 2003). In addition, the enforce-
ment of business and employment laws in China is
not without problems as a result of variations in
the interpretation of the laws and the often-lax
approach of officials to enforcing the laws (Cooke,
2002; Warner, 1996).Fourth, as was discussed earlier, an indepen-
dent system consisting of financial and legal
agency bodies has yet to be developed in China to
provide professional services for M&A activities.
While large MNCs can tap into their global
corporate base of expertise to overcome this
deficiency, small foreign businesses wishing to
expand their operations in China will find it
difficult, if not impossible, to find their own wayin this jungle.
The growth of international acquisition activ-
ities in China creates a new set of requirements forand problems in human resources. For example,
there is a lack of managerial talent in acquisition
deals; there is also a deficit in professional staff
familiar with acquisition businesses in the existing
legal and banking industries to enable these
institutions to develop M&A businesses. Simi-
larly, post-acquisition integration will trigger
further challenges to the management that are
specific to the Chinese institutional environment.
It is to these issues that we now turn.
Implications of acquisitions for HRM inChina
Western literature on the implications of M&As
for human resource management has highlighted
the ‘human’-related challenges to post M&A
integration (e.g. Cartwright and Cooper, 1993;
Hubbard and Purcell, 2001; Marks and Mirvis,
1982; Morrison and Robinson, 1997; Nikandrou,
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Papalaxandris and Bourantas, 2000; Robinson
and Rousseau, 1994; Schraeder and Self, 2003;
Schuler and Jackson, 2001; Schuler, Jackson
and Luo, 2004; Stahl et al ., 2004; Weber, 1996).
They often point to issues such as cultural
differences, communication problems, workforce
morale, trust, management style and organiza-tional politics as barriers to integration that may
contribute to M&A failures. They point out that
financial benefits anticipated from M&As are often
unrealized because of conflicts of organizational
cultures and that cultural integration remains a
major managerial challenge (Cartwright and
Cooper, 1993). Marks and Mirvis (1982) showed
that HR issues accounted for between one-third
and half of all merger failures and ‘there is no
indication that things have improved in the last
two decades’ (Boxall and Purcell, 2003, p. 220).
While these Western lessons may have genericimplications for M&As in China, cross-borderacquisitions in China exhibit their own character-
istics of HRM that are unique to the Chinese
context. As we can see from Tables 2 and 3, MNCs
and JVs are making up an increasingly large
proportion of businesses and employment in China
whose employment policy and practice has a
strong bearing in reshaping the pool of human
resources and the experience of work for asignificant proportion of workers. Cross-border
acquisitions in China therefore have both positive
and negative impacts on HRM in SOEs specificallyand in HRM in China more generally. These HR
implications stem from changes required as a direct
result of the acquisition itself and as a longer-term
HR strategy that evolves after the acquisition
under the influence of the MNC.
Job security
One immediate concern after the acquisition is
that of job security. The majority of SOEs are
overstaffed, and downsizing has been a major
initiative in the restructuring of SOEs in the last
decade. Issues related to redundancy are often thefocus of debate in acquisition negotiations. While
the MNC aims to retain only a minimum number
of employees selected on the basis of competency,
the SOE concerned and the local government
would like the MNC to retain as many employees
as possible and offer a generous redundancy
package in order to reduce the burden of the state
and minimize the negative social impact (Jin, Qi
and Li, 2003). In some cases, however, it is not T a b l e 3 .
I n f o r m a t i o n o n f o r e i g n i n v e s t m e n t i n C h i n a ( e n d o f 2 0 0 3 fi g u r e s )
I t e m
N o . o f
e n t e r p r i s e s *
G r o s s i n d u s t r i a l
o u t p u t v a l u e
( b i l l i o n y u a n ) * *
V a l u e - a d d e d
o f i n d u s t r y
( b i l l i o n y u a n )
T o t a l a s s e t s
( b i l l i o n y u a n )
S a l e r e v e n u e
( b i l l i o n y u a n
)
S a l e s p r o fi t
( b i l l i o n
y u a n )
V a l u e - a d d e d
t a x p a y a b l e
( b i l l i o n y u a n )
E m p l o y m e n t
( i n m i l l i o n
p e r s o n s )
A v e r a g e a n n u a l
w a g e ( y u a n )
N a t i o n a l t o t a l
1 9 6 , 2
2 2
1 4 , 2
2 7
4 , 1 9 9
1 6 , 8
8 1
1 4 , 3
1 7
8 3 4
5 4 9
5 7 . 5
1 4 , 0
4 0
S t a t e - o w n e d a n d s t a t e - h o l d i n g
e n t e r p r i s e s
3 4 , 2
8 0
5 , 3
4 1
1 , 8 8 4
9 , 4
5 2
5 , 8
0 3
3 8 4
3 0 3
2 1 . 6
1 4 , 5
7 7
E n t e r p r i s e s w i t h f u n d s f r o m
H o n g K o n g ,
M a c a o a n d T a i w a n
2 1 , 1
5 2
1 , 7
4 3
4 6 8
1 , 6
2 2
1 , 6
7 5
9 3
4 5
7
1 4 , 6
9 1
F o r e i g n - f u n d e d e n t e r p r i s e s
1 7 , 4
2 9
2 , 6
9 3
6 9 2
2 , 3
0 4
2 , 6
8 5
1 8 5
7 4
5 . 6
1 9 , 3
6 6
S o u r c e : a d a p t e d f r o m C h i n a S t a t i s t i c s Y e a r b o o k ,
2 0 0 4 .
N o t e s : * F i g u r e s r e f e r t o i n d u s t r i a
l e n t e r p r i s e s a b o v e d e s i g n a t e d s i z e – w i t h
a n a n n u a l s a l e s i n c o m e o f o v e r 5 m i l l i o n
y u a n .
* * T h e g r o s s i n d u s t r i a l o u t p u t v a l u e i s c a l c u l a t e d a t c u r r e n t p r i c e s ( o r i g i n a l n o t e s f r o m C h i n a S t a t i s t i c s Y e a r b o o k , 2 0 0 4 , p .
5 1 3 ) .
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the most competent employees who are retained.
As one senior manager interviewed said:
‘In our post-acquisition restructuring this time, the
key is to select and retain the most suitable
employees. They are not necessarily the most
competent ones, but the most suitable ones. We
then help them to get into their role and startperforming as soon as possible. During the
redundancy, we don’t normally retain people
through demotion. In other words, those who are
not selected for new managerial posts will have to
leave the firm. It is difficult for demoted employees
to settle down in their new posts. They tend to look
for better opportunities elsewhere and then leave
once they find one. For those who stay, they may be
there just to mark time rather than giving of their
best to the firm, and we don’t want these people
because they don’t add any value to the firm’
(Personnel Manager of TyreCo).
Job security level in MNCs and JVs is generally
lower than that in the SOEs, especially for the
older workers, with fixed-term employment con-
tracts being the norm. The aggressive competitive
strategy of some MNCs also causes ongoing job
losses. For example, it was reported that in 1997,
Kodak launched a price war with Fuji in China.
This has led to the redundancy of 20 000
employees in 1997, followed by another 3400 in
1999 and 3000 in 2001 (Zhan, 2003).
Training and development
Acquisition creates immediate needs for training,
as the Marketing Manager of PharmaCo observed:
‘We needed to provide training to our marketing
and sales people, to inform our suppliers and
customers why the acquisition took place and what
the company’s new business strategy and policy
would be; whether or not and/or how they might be
affected. We sent our people to their companies to
answer their queries arising from the acquisition in
order to allay their worries.’
More generally, MNCs and JVs in China provide
a higher level and variety of health and safety and
skill training opportunities to their employees
than most other forms of ownership (Cooke,
2005). Many blue-chip MNCs and JVs also pride
themselves on employee training and develop-
ment. However, it should not be taken for
granted that all MNCs and JVs in China will
provide the level of skill training that is antici-
pated of acquisitions. As was noted earlier, the
majority of FDIs is mainly in the manufacturing
industries, relying on intensive labour rather than
advanced technology. The lack of R&D invest-
ment or activities may also reduce the need and
opportunity for Chinese technical staff. Another
negative impact is that the entrance of MNCs intoChina increases the employment cost of Chinese
professional and managerial staff, especially in
light of the wage war to compete for the rare
supply of local talent as skill supply increasingly
lags behind business growth. This in turn reduces
the workforce stability and organizational compe-
tence of domestic Chinese firms.
Pay, performance management and work
intensification
All three managers interviewed admitted thatwage income of their employees has generallyincreased after the acquisition, reflecting the fact
that, in China, wage levels are highest in foreign-
funded enterprises (see Table 3). This is in part
because foreign-funded businesses are required
by regulations to pay wage at a level no lower
than the average wage of the same industry in the
local area. However, the wage increase is
accompanied by longer working hours and muchtighter performance control that is closely related
to individual and collective productivity. All
three enterprises have abolished their senioritypay system and implemented a much flatter
grading system mainly linked to performance
level and the position of the individual. Work
intensification has been the case for both
managers and workers.
Employment regulations and labour disputes
There are a number of employment-related
regulations that MNCs need to follow, at least
in principle, during and after the acquisition.
These include, for example, the State Restructur-ing Regulations, the Labour Law of China (1995)
and the Trade union Law (amended in 2001). The
State Restructuring Regulations require the SOE
being re-organized to first seek the opinions of
the staff and Workers Congress of the SOE. In
addition, the Labour Law provides a general
framework of labour protection in terms of
recruitment and dismissal, pay, working time,
training, social security and health and safety
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protection and so on, which applies to all employ-
ing organizations in China. However, in contrast
to their relatively higher level of pay and training
provision than SOEs, MNCs and JVs tend to be
more pragmatic in their observation of the
employment regulations, and there are frequent
violations of certain aspects of the regulations,notably in working hours and social insurance.
There is a much lower level of union recogni-
tion and a higher level of labour disputes in
MNCs and JVs that are also more collectively
involved compared with the state sector. The
trade union officials interviewed admitted that
foreign investment firms were the most difficult
ones to tackle:
‘They will not say no to you when you ask them to
set up a trade union, they will say, ‘‘yes, we are
preparing to set one up’’. Two years later, they are
still ‘‘preparing’’ for it. Some of them who would
not set up a trade union even put up a sign at the
gate of the factory, saying: ‘‘Those who wish to join
the trade union should go to such and such place to
register’’. Nobody dare to go for fear of job loss.
(Deputy Chairman of the Trade Union Head-
quarters)
Although all three enterprises still retained the
trade unions that were established during their
SOE years, managers interviewed generally ob-
served that the unions hardly played any role in the
acquisition negotiation and subsequently played aless active (welfare) role after the acquisition, as if there had been a de facto trade union de-
recognition. This is not necessarily a result of the
foreign partners’ unsympathetic/hostile attitude
towards unionism. Rather, it may reflect the limited
role of the trade unions in major decision-making
in the enterprises (even though this is their right as
specified in the Labour Law) and the ensuing
ambiguity of organizational identity felt by the
workforce.
Adoption of Western management techniques and
workforce resistance
MNCs are often regarded as a potential source of
convergence in international HRM in that they
are expected to use their international perspective
to promote the diffusion of ‘best practice’ HR
techniques (Evans, Pucik and Barsoux, 2002;
Rubery and Grimshaw, 2003). This appears to be
the case in China, but only recently (Bjorkman
and Lu, 2001; Lasserre and Ching, 1997) after
they were granted more autonomy to operate in
China. One of the most important consequences
of foreign involvement in Chinese joint ventures
has been the introduction of a more systematic
management approach in that the systems were
defined in writing, standardized and operated ona regular basis (Child, 1994). Braun and Warner
(2002) found that a majority of MNCs in their
sample have placed a high strategic importance
to the HRM function and have attempted to
introduce internally consistent high performance
HRM practices. Bjorkman and Fan (2002)
further observed that the MNCs in their sample
had HR practices that tended to be more closely
in line with the ‘high performance HRM system’
as defined by Western HRM scholars than with
the personnel practices found in local Chinese
companies. This is in spite of the fact that theseHR ‘best practices’ were mainly Western prac-tices transferred and adapted to suit the Chinese
environment.
However, MNCs and JVs’ HR policies are not
necessarily embraced by their employees with
enthusiasm. For example, an earlier study by
Child (1994) found that, in the 30 JVs studied,
there had been various attempts to introduce
Western personnel tools with varying, but neversignificant, degrees of success. A common com-
plaint amongst Western managers was that
Chinese staff were reluctant to accept personalresponsibility (Child, 1994). Another earlier
study (Ilari and Grange, 1999) on a Sino-Italian
joint-venture motor company in southern China
also revealed that the Italian partner found it
difficult to transfer its firm-specific advantages
to the Chinese ground because of the cultural
differences in the two employment systems.
Legewie’s study (2002) on issues related to the
control and co-ordination of Japanese subsidi-
aries in China further highlights the problems of
an expatriate-based management system in trans-
ferring a typical Japanese firm’s strength, namelysocialization and networking, abroad and in
building up an efficient transnational network
of global operations. Nonetheless, there is
evidence to suggest that effort is made by MNC
managers to reconcile the twin pressures for
control and adaptation rather than satisfying one
at the expense of the other (Child and Heavens,
1999). A discernible trend is that Western HR
policies are gradually being accepted and inter-
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nalized by the younger generation of the Chinese
workforce who can no longer seek job security in
the state sector. This is reflected in the fact that
MNCs and JVs are often perceived to be the
‘most popular employers’ (Beijing Youth News-
paper, 15 November 2002).
In all three enterprises, Western managementtechniques have been implemented, notably that
of performance-related pay, ISO 9000 quality
series recognition, team working, problem-
solving and plant care. This finding is similar
to that of Evans, Pucik and Barsoux (2002).
However, according to the managers interviewed,
these initiatives have received only moderate
enthusiasm from the shopfloor workers, who
displayed compliance rather than commitment
to them. What they seemed to resent most was
the performance-related pay system and the
secrecy of bonuses (in BreweryCo, the systemhas changed three times because of the workers’complaints). This is one of the areas where the
cultural difference between the West and the East
is most distinct. The difference in organisational
cultures has often been cited as one of the
important barriers to post-acquisition integra-
tion. MNCs acquiring Chinese SOEs are likely to
encounter even more difficulties in the integration
because of the differences of national culture.
Post-acquisition integration and harmonization of
terms and conditions
Unlike Western firms that may face fierce market
competition and hostile bids, there is a relatively
lower level of competition in China, which allows
organizations more time for post-M&A adjust-
ment. While M&A failure rate tends to berelatively high in the Western economy, China
may have a lower M&A fatality rate in part
because MNCs are considered to be desirable
employers and in part because of the high
unemployment rate that may suppress any work-
force discontent for fear of job losses. In anycase, the SOE concerned may be in a very bad
shape in the first place and any change may
inject new life, or at least hope, into the
organization. However, the extent to which
anticipated improvements have been made for
those that were profit-making prior to acquisi-
tions is unknown.
The discontent caused by the gaps in terms and
conditions between expatriate and Chinese man-
agers tends to be a problem. As more and more
Chinese managers and professionals have ac-
quired management know-how and technical
competencies that were once held by expatriate
managers and professionals when foreign firms
first entered China, this closing gap of knowledge
increases the bargaining power of local managersand professionals, who are beginning to feel a
sense of distributional injustice arising from the
differentials between expatriates and local Chinese
(Leung, Wang and Smith, 2001) and demand
terms and conditions similar to those enjoyed by
expatriates. For example, Tsang’s study (2001)
revealed that a third of the Chinese managers
studied considered that the pay gap between the
Chinese managers and the expatriate managers
was unfair because their skills and efforts were
similar. Expatriate managers also saw the pay gap
as a barrier to their integration with their Chinesecolleagues, who resent pay differentials.
In all three enterprises, only a small number of
expatriate senior managers and technical staff were
based in the Chinese plant, and these tended to pay
regular visits to their home country. According to
the managers interviewed, there was a level of
resentment to their control/intervention from both
the shopfloor workers and the Chinese managers.
In one enterprise, the foreign partner had to rollback the number of expatriates and the number of
management initiatives, particularly to do with the
new pay system, and let the Chinese managers takecharge. Integration between the expatriates and
the Chinese and harmonization of the terms and
conditions between the two groups appear to be an
important issue in post-acquisition management.
Conclusions
This article has provided an overview of the
driving forces for the acquisition of Chinese SOEs
by foreign investors. These forces come from both
the political and economic needs from the Chineseside as well as FDIs’ strategic intent. While cross-
border acquisition activities have been increasing
and spreading into more and more industries, there
are a number of pitfalls in the process that may
prevent the anticipated benefits from being realized
for both sides involved and for China at a macro
level. These pitfalls may also be a source that
discourages potential foreign investors from ac-
quiring Chinese firms. Importantly, cross-border
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acquisitions trigger a range of implications for
human resource management that are unique to
the Chinese context.
Practical implications
This article has a number of practical implica-tions. For foreign investors, the infrastructure for
M&A deals in China is not yet developed and
they should rely on their own professional
support for advice. However, the entry of foreign
banks in the Chinese finance and banking
industry will undoubtedly facilitate the develop-
ment of an independent and professional finance
agency system to provide services for M&A
activities. There are also complicated and poten-
tially conflicting laws in China that need to be
followed when operating in China, in spite of the
fact that the interpretation and observation of them tend to be lax. Intervention from the local
governments also tends to be relatively frequent,
which can be a source of support as well as
interference, causing non-market behaviour. Care
should also be taken in implementing HR
strategies in order to minimize cultural clashes
and inter-group disputes. For the Chinese side,
the primary motive for foreign investors to
acquire Chinese enterprises is to grow their
business and gain competitive advantages instead
of the economic and social wellbeing of China,
although this may be a coincidental outcome.There is an urgent need for the Chinese to acquiremanagerial skills in handling acquisition negotia-
tion and post-acquisition management. The
Chinese government also has the dilemma
between, on the one hand, the need to control
the way MNCs should carry out their acquisi-
tions in China so that they are not harmful to the
balance of the macro economy of the country
and, on the other, the need to attract FDIs tocreate employment and economic growth. With
China gradually improving its policies, regula-
tions, taxation and credit mechanism, the level of
international acquisition is likely to grow, sup-
ported by international capital back-up and the
growth of healthy Chinese enterprises.
Research implications
As for research implications, there have been few
empirical studies on international acquisitions in
China, although there have been several major
studies of the management of joint ventures. As
this is a relatively new phenomenon, its impact on
China in terms of its human resource development,
R&D and technological advancement remains to
be seen. With the limited number of companies
that are listed in the stock market, full assessmentof these impacts are likely to be difficult because of
the lack of statistical information on non-listed
ones. However, one can perhaps reasonably
predict that the failure rate of international
acquisitions may be lower in China because MNCs
enter the Chinese market to take advantage of the
cheap production cost and to develop a new
market rather than trying to achieve cost savings
through synergy of two organizational systems
through a high level of integration and standardi-
zation. Therefore the need for cultural integration
may be less compelling for the acquired andacquiring party. It would be useful to carry outinternational comparative studies to explore simi-
larities and differences of international M&As in
different settings. Equally, more research is needed
on cross-border M&As in China because its
context is unique, and common analysis of the
M&A phenomena in the Western economies may
not provide an adequate analytical tool to make
sense of what takes place in China. As Baker andMcKenzie (2003) observe, Western-style mergers
between two companies are uncommon in China.
More importantly, research is needed to assess theunique impact of M&As on HRM in the Chinese
context in order to establish how M&As may
affect employees’ loyalty, identity, trust, commit-
ment and motivation at work, how these psycho-
logical feelings are managed and to what effect,
and what the implications are for managerial skills.
These research studies should take into ac-
count the diversity of foreign ownership and HR
strategy in China. Bartlett and Ghoshal (1989)
classify MNCs into four categories: multi-domes-
tic companies that are organized on a decentra-
lized basis; international organizations that areorganized to exploit the parent company’s know-
how and knowledge, with ‘core competence’
centralized and others decentralized (Leong and
Tan, 1993); global corporations that treat the
world market as an integrated whole and operate
a tightly centralized management system with
limited delegation to local subsidiaries; and
transnational corporations that combine aspects
of each of the first three types in order to be
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sensitive to local conditions, to develop compe-
titive strategies at a global level and to generate
and share knowledge throughout the corporation
(Rubery and Grimshaw, 2003). The extent to
which each of these typologies of MNCs is
present in China is unknown. However, it can
be reasonably suggested that the implications of each type for the development of China’s
competitive advantage as a nation and the
adoption of human resource strategy are likely
to differ. This may be further complicated by the
evolution of the MNC itself as part of their
business life-cycle and the development of their
international profiles. In the case of China, there
are different forms of foreign-invested enter-
prises, each carrying its own characteristics that
reflect its home country and parent company
influence, the MNC’s business strategy and the
influence of local institutional forces. Lastly, thestudy of international M&As is necessarily amulti-disciplinary and inter-disciplinary under-
taking (Cartwright and Cooper, 1995; Stahl et al .,
2004) in order to advance our currently limited
understanding of the socio-cultural dynamics in
cross-border M&As (Stahl et al ., 2004). This is
particularly important for China as the under-
standing of cross-border M&As in China requires
the collective work from the fields of businesslaw, economics, finance, organizational psychol-
ogy, human resource management and more.
Acknowledgements
The author would like to thank the two referees
for their helpful comments on the earlier versions
of this paper.
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Fang Lee Cooke is Professor of HRM and Chinese Studies in Manchester Business School, the
University of Manchester. She has written and published widely on issues related to human resource
management, business and employment in China. She also has a strong interest in researching on
outward Chinese investment and the employment of migrant Chinese in developed countries, and
has published HRM, Work and Employment in China (2005).
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