HRM of foreign firms in China: The challenge of managing host country personnel

HRM of Foreign Firms in China: The Challenge of Managing Host Country Personnel

David Ahlstrom, Garry Bruton, and Eunice S, Chan

T he People’s Republic of China is often thought of as a market with near limitless potential. One-quarter of the world’s

population live there, and their consumption of a wide range of products is growing steadily. One driver of this steady economic growth has been the large amounts of foreign investment in the country. Over the past several years, inbound foreign direct investment in China has averaged around US$40 billion annually-consistently one of the highest levels in the world. ‘4s more and more foreign firms move into China and expand their operations, they are learning that a number of challenges await them when it comes to managing Chinese workers.

In the late 197Os, Deng Xiaoping’s reforms began to bring foreign businesses back to China. Initial commitments by those firms were usually modest in terms of investment and hired personnel. Some of the most pressing problems they faced early on tended to be more external in nature: getting hard current);; working with major ministries on supplies; facing archaic, conflicting laws; and dealing with the sudden tripling and quadrupling of the prices of key goods and services. As China’s economy matured and foreign firms began to commit growing amounts of personnel and investment, difficulties often took on a local character, such as how to deal with regional governments and influential people in the locale where the firm operated, as well as how to manage the work force.

Today, many foreign firms in China, partly in response to the World Trade Organization (WTO) agreements, are continuing to expand beyond basic sales offices or modest joint ventures. This means they are hiring local employees in greater numbers while localizing management, thereby

facing a number of new challenges, particularly in the area of human resource management.

One HRM issue of great concern is that as large numbers of former state-owned enterprise workers are laid off from their jobs (perhaps 10 million state workers will enter the private sector over the next few years), the Chinese government will encourage privdte enterprises, both for-

Foreign companies are experiencing both successes and setbacks in adjusting their HRM systems to the Chinese con text, What prescriptions can be drawn?

eign and domestic, to hire these workers. But these people have little experience in a competitive market environment and often exhibit poor work habits. At the same time, foreign firms are faced with the fact that more skilled individuals are in great demand and often change jobs regularly. As the companies hire more and more local workers, they often find they are taking on employees with little training and questionable work habits while finding it difficult to hire and retain the more skilled ones. Thus one of the biggest challenges for foreign firms in China is the recruitment, development, and retention of a com- petent work force.

To better understand how companies are meeting the HR challenges presented by China’s transition economy, we interviewed people from 12 foreign firms and three local consulting firms with significant operations in Mainland China. We focused on companies that were significantly expanding their operations and localizing their

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work forces. All of them reported problems in managing the local work force for which they were able to devise solutions compatible with the local environment. Using past research on HRM in both China and the West as a guide, we asked these managers and consultants to discuss their challenges and solutions. Based on this information, we can summarize specific observations and recommendations with respect to how foreign firms select, train, appraise, reward, and retain workers in China’s transition economy.

HUMAN RESOURCE CHALLENGES IN CHINA: THE STUDY

W hat are the traditional HR practices in China? Until relatively recently, the government assigned all gradu-

ates to particular jobs when they left school. Young people typically were directed to certain professions based on early test scores and other indicators. So organizational selection processes were almost nonexistent in the pre-reform era, other than in government ministries and the mili- tary China’s labor market also placed strong con- straints on labor mobility, requiring a special permit to live in certain cities to obtain housing, food, or other benefits. The effect was to dimin- ish career development options for many workers. It also limited firms’ ability to select the right workers for specialized tasks.

Although employees were told where to live and work, they did receive the benefit of the “iron rice bowl”-job security and a comprehen- sive work unit-based welfare system that included schooling, housing, and lifelong health care. Firms thus tended to view employees strictly in terms of costs rather than any benefits they might con- fer, This tnade additional skill acquisition and training uncommon. Moreover, owing to the so- cialist egalitarian philosophy, salaries were quite even and incentive pay was uncommon. Pay increases were based largely on seniority.

Certain cultural characteristics also affected HR practices. Employment security has been of paramount concern for most workers in China, particularly those from the more isolated non- coastal regions. The turmoil of the past century and the mass starvation of the Great Leap For- ward period of 1958-1961 added to the emphasis on job security. Similarly, because of the society’s collectivist nature, most individuals are not willing to take risks and stand out from the group. In the West, risk-taking is often viewed as a learning experience if it does not turn out well. In China, however, such failures are typically punished. These characteristics influence the nature of appraisal and reward systems.

Finally, the importance of guanxi, or “connections,” in Chinese culture also plays a role in

HRM. Good personal relationships between managers and subordinates can promote better communication in the firm and help to manage the web of relationships with entities outside the firm. Guanxi influences who will be hired, and can prove troublesome for foreign firms that do not understand its implications.

The interviews for our study were held in Hong Kong and Mainland China from 1998 to 2000. The 12 firms included in the study sample represent a balance between Fortune 500 companies and small and medium-sized foreign firms with significant operations in China. All had recently been increasing the number of local employees (often those laid off from state enterprises) and localizing their management. As a result, they had been making a number of adjust- ments in their HR practices from their home country model. The people interviewed were top managers, internal HR professionals, or outside consultants who worked with foreign firms in China. The industries in which they work included electrical equipment manufacturing, con- sumer product manufacturing, hotels, pharma- ceuticals, and financial services.

Because managing human resources can be a sensitive topic, most managers in China are reluc- tant to fill out questionnaires. So to gather our information, we conducted face-to-face. sem- structured interviews on the condition of ano- nymity. The interviews were open-ended, but a standardized questionnaire was used to provide commonality without overly restricting the interview parameters. Interviewees were asked to describe the range of HRM practices in the firms they worked for or were most familiar with. After the interviews were completed and analyzed, we discussed the findings with two other senior Chi- nese managers to further refine our results. Al- though such a small sample of cases can create questions of validity, the detailed qualitative information available from these interviews is ideal for building insights in a new and rapidly changing domain such as HRM in China.

HRM in China’s Transition Economy

Human resource management remains a frlirly new topic in China. Foreign firms ttying to implement an HRM system in a Chinese subsidiary find that they must spend time to educate managerial and supervisory personnel about how to handle employees. A manager of one large Chinese enterprise described his company’s HR function:

The company actually does not have a Human Resources Department. Rather, the Personnel Office is housed under the Finance and Administrative Department, and is only focused on day-to-day ad-

Business Horizons i May-June 2001

ministrative activities such as mainte- nance of personnel records, payroll ad- ministration, basic recruitment, and benefit and compensation records management. There really is no formal HR system. In addition, the company is charac- terized by a high level of hierarchy. Deci- sions, including human resource issues, are top-down and dominated by the management’s preferences, with little integration between departments and input from direct supervisors. Little regard is given to selection process, performance appraisal, and motivation. I be- lieve this is the kind of system that many Chinese employees are accustomed to.

Foreign firms can expect most local employees to be unaccustomed to a formal HR function. Such influences on China’s recent history as the iron rice bowl system, as well as cultural characteristics and local context, must all be accounted for in building an HRM system. Respondents in our study agreed, therefore, that it was not a good idea for firms to import such systems whole- sale from overseas. Modifications had to be made, even for those firms known for effective HRM in other parts of the world.

Meeting the Selection Challenge

Selecting new employees is as important in China as it is in the West. However, the steps in the selection process can differ. Because the quality of Chinese high schools and higher education institutions may vary a great deal, a key task is to identify a pool of qualified workers. To attract numbers of quality employees, especially in the case of a factory or large retail outlet, many foreign firms use agents from Hong Kong or one of the bigger cities in China to locate workers who meet key criteria and possess the needed skills. This can be time-consuming, but it is helpful in putting together a suitable work force.

Study respondents pointed out that after locating a pool of potential employees, a foreign firm faced several key selection issues. Many managers stated that guanxi was important for hiring not only senior managers but also lower- level workers. A candidate’s connections could be internal, such as knowing someone else in the firm, or external, such as having a reference from a trusted outside party. School transcripts and diplomas were also used in the selection process, but were not seen as terribly important except in the case of managers. Interviews were usually conducted after significant screening of employees, using such documents as transcripts, diplomas, r&urn&, letters of introduction, and references. Some firms also used assessment tests to

evaluate certain skills and English/Chinese language abilities. Commented a senior manager of a pharmaceutical firm:

We carefully screen prospective employees when we are hiring large numbers for expansion. We have significant and growing manufacturing operations here in China.. [Wle use interviews to see how people conduct themselves, especially those that must regularly deal with customers, suppliers, and regulators, sometimes from outside China. English skills and an international outlook are important for higher-level staff.

Two other interviewees added that reference letters from someone important probably carried a little more weight in China than in other places. Not only is guanxi with an influential person important in China, but also the person making the recommendation has staked his reputation with the company in question and will be embar- rassed or lose face if the employee does not do a good job, particularly in a supervisory position. The result is that the hired employee is motivated to perform well to save face for the recommend- ing party. In addition, given the level of interfer- ence foreign firms can face in China, the selection of employees with strong local connections can also help overcome any potential problems that might arise with officials.

In terms of skills considered important in the selection process, foreign firms can expect prospective employees in China to have what seem to be unusual qualifications for their jobs. It is not uncommon to find people with “Such influences on China’s higher degrees recent history as fhe iron such as a Master’s or a Ph.D. work-

rice bowl system, as we/i as ing in a foreign- cultural characterisfics and owned factory or hotel. For ex-

local context must ail be ample, a number accounted for in buiiding of teachers and professors in China have left

an HRM system. M

their professions in search of jobs where the pay and benefits are quite often double or triple that of their old jobs. One employee we spoke to at a major international hotel had an advanced degree in physics and decided to give up a research and teaching position to work as a tour guide. This afforded him the opportunity to travel around the country and sometimes overseas-a coveted benefit in China. It is not at all uncommon for companies to have applicants that seem highly over-

HRM of Foreign Firms in China: The Challenge of Managing Host Country Personnel 61

qualified, although the managers we interviewed maintained that this did not seem to create any problems of underemployment or inequity as might occur in the West.

One additional competency that respondents mentioned as being important was the employee’s “global perspective.” The manager of a major U.S. retailer commented:

It takes a while to inculcate our system and culture into our employees, particularly being in the service business where high-quality customer service is important. When we hire, we look for people who are trainable, especially those who have some international experience.. This could be students in university that had some foreign friends or connections or activities that involved foreigners. We find this makes it easier for those employees to deal with a variety of expatriate managers and clientele.

A crucial part of such a global perspective is the ability to communicate with individuals from outside of China, which commonly requires proficiency in English. But it can be difficult in the

selection process to determine the actual levels of spoken En-

“Although Chinese glish. An applicant may

employees do not react appear to be able to speak English, but in

the same way as those practice it is difficult to

in a training class in the determine his actual proficiency. This relates

West, this does not mean they are not

to the problem of transcripts being somewhat unreliable; students

listening or learning. ‘I who show 12 years of English studies on their resumes may not be

able to use English to any practicable extent. References from trusted parties can be of help in this regard, as well as conducting one interview completely in English.

Training the Work Force

Our interviewees argued that firms must be careful to tailor the training of new hires to the local conditions. For example, Chinese employees are accustomed to a lecture format that encourages quiet note-taking and listening. Moreover, Chinese students are normally discouraged from expressing themselves in class on an individual basis. Nor are they used to responding aloud to questions, especially off the top of their head. Train- ing should adapt to this, Although Chinese employees do not react the same way as those in a

training class in the West, this does not mean they are not listening or learning.

To succeed in this environment, remarked one consultant, it is best to give employees some assignments to prepare before the training session so they can think about them first. They will then feel much more confident and can gradually gain confidence in extemporaneous exercises, building on things they have already worked with and understand better. It is also useful to form groups in the training sessions, then direct questions to the groups rather than to individuals. Recalled one trainer:

Many Chinese people feel uncomfortable about individually promoting their ideas publicly.. .[Tlhey feel more comfortable if they can volunteer their ideas together with their group. At first I used to give assignments and call on people individually, asking them what they thought about a problem. Later I found I got better responses when I gave small group assignments or group exercises and called upon the group for their answers. I also tried to call on a variety of people to get different people to speak, as students don’t want to feel like they are dominat- ing the session and speaking too often. If you keep these things in mind, the training session can be a lot smoother and people will start to participate. . ..Persis- tence in this endeavor is key to making sure that people do not tune out, or get singled out and lose face.

As noted before, several firms pointed out that the ability of their employees to speak En- glish was important because some of the employees would have to deal with numerous expatriate supervisory staff as well as international suppliers and customers. English skills can be particularly important for large retail chains, restaurant fran- chises, hotels, airlines, and other service organizations In one instance, employees were encouraged to attend ongoing training courses in which they were asked to listen to English language movies, television shows, and radio programs. Nevertheless, during training sessions that are conducted in English, it is important for the trainers not to use English slang, jokes, contemporary phrases, or uncommon words and expressions with which the employees are unlikely to be familiar. One consultant who works with professionals in China commented about foreign trainers from the United States:

I hear foreigners using English slang [during presentations and training sessions] such as “cutting edge,” “burger--

flipping job, ” “where’s the beef,” “the captains of industry,” and so forth. Unless you are sure the employees have spent a great deal of time in the West or watch- ing English-language television, they are probably not going to know most slang terms or less common words. Keep it simple and straightforward. For example, avoid less common words like “luggage”; it would be better to just say “bag.” Also, some foreigners seem to think that if people do not understand what they said, they should just say the exact same thing again more loudly. It is better to find a different way to say things and to avoid words that are not commonly un- derstood by non-native English speakers.

In training employees, the manner in which ideas are presentecl is also important. Another consultant mentioned that to further improve com- prehension in English language training sessions, the trainer should try to explain things in a chronological fashion--that is, “first we do this, and second we do that”-adding a lot of connecting words such as “after” and “next” and time words like “yesterday, ” “three o’clock,” and so on. Keep- ing topics in chronological order is very helpful because it is consistent with the grammatical structure of the Chinese language, in which ideas, cause-and-effect declarations, and actions are typically presented in time order. Moreover, because the Chinese language is not as strict with tenses as English is, a speaker can better clarify the order of actions and events by adding time words. It is also helpful to include a person who speaks Chinese as a co-trainer, particularly one with some business education. Such an individual can translate ideas accurately and help explain things if questions arise.

Appraising Employees. Many Chinese enterprises use non-systematic performance appraisals. Traditionally, each individual or group is judged as successful or unsuccessful based not on well-defined criteria but strictly on a manager’s or government official’s opinion. Sometimes one whole factory town might be appraised together and rewarded as a rnofan cm, or “model village.” Nearly all the foreign firms we surveyed had begun to implement a more formal appraisal system that gave employees feedback based on clearly defined criteria. Two of them still use a less formal method typical of China because of local circumstances.

The formal appraisal systems used by most foreign firms in our sample, however, were not individual systems. Consistent with the more collective nature of Chinese culture, they relied instead on the performance of either the whole organization or certain groups within it. “Most of

our appraisal approaches are group-oriented; our employees feel better about group evaluation and it tends to build a sense of camaraderie among different departments,” commented one HR manager at a major hotel. “We generally do not like to pit one employee against another. That is not a good situation in the service business, where several people must work together to deliver a service.”

To conduct appraisals, firms used productivity, profitability, and cost figures, but they were also broadening the appraisal numbers to include such figures as defects, product return rates, and customer satisfaction. More recent appraisal techniques such as evaluations of superiors and 360- degree evaluations were not commonly used.

Appraisal methods were adjusted to fit better with the central Chinese values of “face” and “harmony.” These values may complicate the direct feedback process between managers and subordinates that is a given in Western performance appraisals. The Chinese communication style is indirect, as people try to minimize the loss of face and preserve harmonious relationships. As one consultant recalled:

I remember one American boss confront- ing a subordinate in front of several [of the subordinate’s] peers about his being late. It caused that guy to lose face and angered the whole department. The boss lost the department’s respect from that point on---they thought he was too im- mature and could not handle people well.

Managers must be careful not to reprove subordinates or colleagues publicly. If this is done in the presence of others, it can cause that person to lose face and may harm the internal management processes. If a subordinate must be criticized, it is better to discreetly take him aside to explain the problem.

Chinese managers and professionals may be unwilling to give their subordinates poor ratings because of the negative impact on their personal relationships. Former state employees may also expect that not only good personal relationships will be appraised but also their political attitudes. The former reflects the Chinese emphasis on guanxi; the latter reflects the still-important so- cialist ideology. To dodge these problems, it can be better to include an appraisal system that uses regular informal coaching and evaluation by direct supervisors as well as quantitative ratings. It

is also important to train both local and foreign supervisors to explain the overall objectives of the appraisal process, the setting of appraisal criteria, and the provision of constructive feedback on performance.


Rewarding Employees

A number of firms in China have introduced performance-based pay systems. The HR managers we spoke to were quite adamant about the value and benefit of monetary bonuses, which can help foreign firms in two ways. First, the firms should avoid paying base salaries that are much higher than in firms in the surrounding market; pay inequity is a major concern for the Chinese government. Local governments typically discourage foreign firms from paying much higher base wages because it places state and local enterprises at a disadvantage for attracting workers

and is contrary to the egalitarian philosophy espoused

“But wifh the reforms in China. Second, variable bonuses do not structurally

freeing up the labor build high salaries into their

market considerably, compensation system. This is especially important in

firms can no longer counf on work force

China, where firms do not have the same flexibility in laying off workers. Even

loyalty and stability. ” foreign firms can experience impediments to reducing their operations. Commonly,

bonuses are equal to one or two months of salary and are given at the end of the year, sometimes tied to profitability or other productivity measures.

Another useful reward method is to send employees overseas for training. If that proves expensive, closer locations such as Hong Kong, Singapore, or Shanghai may suffice. Surveyed managers reported sending employees to the company’s regional or international headquarters, where they would meet high-level personnel. Such a visit can improve commitment to the firm and help employees meet coworkers with whom they may have to be in regular contact. Inter- viewees reported that sending manufacturing employees to training programs in a different part of China proved rffective for both staff development and motivation.

Retaining Employees

Before China’s economic reforms, retention was not a major issue for the country because employees were rarely given permission to leave their companies. But with the reforms freeing up the labor market considerably, firms can no longer count on work force loyalty and stability. In many foreign firms, the retention of managers and professionals has proved to be a major problem. Reviewing the operation of foreign firms in China, Weldon and Vanhonacker (1999) report:

.in one of the worst cases on record, Shangri-La Hotel lost 89 percent of its

employees in 1993.. After Shangri-La trained its employees in English language skills, service orientation, personal hy- giene, and proper hotel etiquette, their workers became very attractive to other foreign-invested firms in China, and they were easily recruited to higher-paid jobs.

Retaining well-trained and strategically important employees, particularly at a skilled or managerial level, is a vexing issue for foreign firms in China. In addition to salary, certain benefits and perquisites are also highly valued by employees in China and are practical tools for retaining a good work force. For people coming from the inland provinces, housing is quite important. This is because if they move to a new city to work, housing can be difficult to find and quite expensive. Sometimes firms also subsidize the purchase of an apartment, requiring that the employee remain with the firm in order to keep that benefit.

Another retention method that can be used is to hire family members of current employees. In China, people have a strong commitment to family, stronger than to an organization or the com- munity Firms can take advantage of this commitment to build a more loyal work force. For example, by hiring the wife of a current valuable employee, a firm can increase the loyalty of the couple toward it. The reason is that in Chinese culture the family is responsible for the conduct of its members, and individual wrongdoing causes loss of face for the entire family. Thus employees can be expected to be diligent in performing their jobs to avoid embarrassing other family members in the firm and the boss who hired them, solidifying the bond between employee and company. Because immediate family members will likely prefer to remain working together, this can also reduce the persistent prob lem of employee turnover in China.

Managers also use promises of job security as a major means of retaining employees. HR managers see this as very effective partly because of the tradition of lifetime employment in China. Foreign firms sometimes promise job security in exchange for lower salaries, especially during economic downturns. During the recent Asian financial crisis, although China’s overall economy continued to grow at a steady clip, firms depen- dent on exports to Japan and Southeast Asia suf- fered, particularly those in the travel and enter- tainment industries. Rather than laying off employees and shutting down factories or sites that had been very difficult to get started in the first place, many foreign firms and joint ventures found ways to avoid layoffs. Sometimes they cut the work week to three days, eliminated bonuses, and slashed benefits. In general, the firms we

interviewed had been able to avoid significant reductions in their work force. This proved ben- eficial because they obtained reputations as steady employers that kept people during bad times--reputations that will likely help them retain quality employees during the good times.

Employee empowerment was also seen as an important factor in job satisfaction and retention, As one consultant put it:

In the past, employees would simply be given the steps to manufacture some- thing and then do tolerance and defect checks on it. But these steps were often very mechanical, and employees did not know why they were performing certain seemingly simple quality assurance tests. One thing I found effective was explain- ing to the workers why they should be doing what they were doing; that is, during a quality control step I would explain the reasoning behind the step and what would happen if the quality assurance were not properly performed. Workers were encouraged to stay in contact with the testing agencies and customers to see the results of their work. I found this was helpful not only in appraisal and reward but also in encourag- ing the workers to experiment and improve the process themselves.

Increasingly, the desire to improve task significance and task identity is not limited to those with senior positions. Manufacturing managers stated that line workers, after one or two years on the job, were suggesting ways to improve the manufacturing process and raise productivity. None of the firms had yet implemented a formal suggestion system whereby employees would be rewarded for successful suggestions that cut costs, improved productivity, or reduced defects, but several were considering it.

Socializing the Work Force

Foreign firms in China today are confronted with having to hire growing numbers of displaced state-owned enterprise employees as the country tries to rationalize its inefficient and often out- dated state enterprise system more rapidly. Many in this situation face the problem of the newly hired workers not being accustomed to a competitive environment. The district manager of a major U.S. retail chain in China commented:

Initially we took on a lot of employees from the local state-owned enterprises. They were fairly inexpensive to hire as they have less experience and education,

but it has been an enormous challenge to train them and inculcate our corporate culture. They just did not seem interested in helping the firm and meeting its guide- lines for success. It was difficult to con- vince them that our success meant their success. Somehow I got the impression that some of them felt that for them to be successful the company had to be hurt in some way. Fortunately we have overcome that attitude, but it took time and effort.

Firms use a number of aggressive socializing techniques to overcome such problems by instill- ing a sense of professionalism and corporate culture into employees. One major U.S. retailer has introduced the corporate culture through aggressive socialization techniques and individual incentives. Employees are taught how to behave around both customers and colleagues. And rules are posted everywhere, with employees expected to memorize them.

Mentoring is another method the firms reported as helpful, especially at the supervisory level. Below that, firms would also try to assign older employees to younger ones to show them how things are done in the firm and in a competitive market environment. Altllo~lgh these approaches are promising, mentoring is still too new in China to assess its success.

RECOMMENDATIONS FOR MANAGING THE LOCAL WORK FORCE IN CHINA

I t is important to understand how both China’s recent history and its culture can affect HRM practices. Foreign firms must learn which

practices can be retained and which may have to be modified to fit the local context. Our study has revealed that firms, while adhering to general HR principles such as regular training, assessment tests for selection, incenuve pay, and performance appraisal, commonly modified these activities to fit the local conditions and culture. Figure 1 on the next page encapsulates these conditions and findings.

It has been noted several times that one of the more pressing HR problems for foreign firms is the hiring of former state employees, some 10 million of which will be laid off in the coming years. Larger companies have regularly been asked (some would say required) to hire these displaced employees, which the companies have been relucant to do because they felt the workers had bad work habits. But although these workers may bring a number of inefficient habits to the workplace, and require more training than do younger people right out of school, foreign firms can still find it advantageous to hire them. One benefit is that it builds a sense of obligation on


the part of state enterprises and government officials. In some cases, large state enterprises can be key suppliers or customers for the foreign firm; such officials are crucial because they often de- cide how various regulations are enforced. A more tangible benefit is that local townships are often willing to subsidize construction or donate buildings to foreign firms in return for hiring laid- off state-owned enterprise workers. Commented one toy factory owner:

I hired a few extra workers, more than I needed. .By selectively taking in surplus state workers, I have built obligations

from some local officials. In addition, because I am the biggest employer in the village, I can get some extra things done. The village is building me a new factory

.because I have a number of former state employees and plan to expand further. (Ahlstrom, Bruton, and Chan 2000)

Foreign firms that are major employers in a given region or are thinking about moving to a new area where they will be major employers can use this fact as a bargaining tool with the local government. They should also be keenly aware of whom they are hiring and from what

Figure 1 Summary of Human Resource Problems in China and Firms’ Responses

HR Function Problem Response

stdectior1 The quality of Chinese high schools and higher education institutions varies greatly. It is common for firms to hire a number of people who seem highly overqualified for the job. Guanxi is still very important in China.

Employ agents from Hong Kong or China’s bigger cities to help in locating qualified candidates. For higher-level positions, hire people with experience in foreign firms or a foreign environment and select people with good references and connections.

Truin ing A low skill base requires significant amounts of training-showing workers what to do and telling them it is alright to do things outside the job description. Chinese workers are used to a lecture format, quietly taking notes and listening. Chinese students are normally dis- courdged from expressing themselves individually in class for fear of losing face.

Provide significant amounts of training, emphasizing group activities and using support materials and assignments. Avoid English slang and jokes that the employees are not likely to he familiar with. Keep presentations clear and in chronological order, and include Chinese speakers as co- trainers when needed.

Appraisal Chinese firms typically employ an idiosyn- cratic system of performance appraisal. Com- munication style is indirect. as individuals try to minimize the loss of face and preserve harmonious relations. The issue of face and harmony may make direct feedback to subordinates problematic.

A group appraisal scheme is preferred, although this de- pends on the job. Avoid criticizing subordinates or colleagues in the presence of others. Link the performance appraisal system to regular, informal coaching instead of relying strictly on a quantitative rating system.

Reward Pay equity is a concern: performance-based pay is a fairly new concept

Look for group incentives and try to pay bonuses and non- cash perquisites such as overseas trips while keeping base salaries more modest to maintain flexibility. Training can also be motivational if conducted in nice hotels or overseas

Socializution

There is a persistent problem with high turn over in both lower-level and higher-level positions.

The workers from displaced state-owned enterprises are not accustomed to functioning in a competitive environment.

Use extrinsic motivators such as pay, working conditions, and housing benefits to retain employees. Use intrinsic motivators such as job security, empowerment, encourage- ment of employee suggestions, and job redesign to increase task significance and task identity. Hire family members of current employees to help build a loyal work force.

Emphasize aggressive socializing techniques and positive 1 incentives. Post rules for employees to memorize. Use men-

toring at the supervisory level. Hire former srate workers to help build obligations from state firms and government officials.

organizations. Sometimes hiring a few laid-off state enterprise workers and guaranteeing their pensions (often not a great deal of money) can go a long way toward building much-needed goodwill for foreign firms in China.

Given the continued growth of its economy, many companies ranging from Fortune 500 cor- porations down to small firms are planning to locate some operations in China. There is a need for these companies to build familiarity with the local labor market. Again, it is usually not feasible to simply export HR policies and practices whole- sale and transplant them into a Chinese subsidiary or joint venture. The context must be considered and the practices carefully modified or significantly altered to fit the local work force.

It may be quite helpful to hire an experi- enced local HR professional or consultant to help in this process. Foreign firms need to realize that regional differences in China are quite a bit larger than those in North America, possibly requiring further modification to an HR system. People in coastal China have a long tradition of working in manufacturing, trading, and hospitality industries geared toward exports and familiar with foreign firms, employers, and customers. Workers from inland China and from the shrinking state sector have much less experience with working in a competitive market environment. Quality customer service, incentive pay, and even working a full eight-hour day is a foreign concept to many in the local work force.

Most firms in our study agreed that imple- menting a good HR system is essential to managing the local work force effectively. But they also pointed out that successfully doing so is difficult and requires time and patience. Retailers, for example, remarked that it is usually third-genera- tion managers of a firm who are most appropri- ate to be localized, and firms should try to design HR policies to reflect that. For a large retailer, that could mean as many as six to seven years before management and supervisory personnel are localized and the management training program has qualified local candidates ready to enroll. Thus, it will take time for HRM to help solve many of the crucial issues facing foreign firms.

H uman resource management has a major role to play in achieving the goal of building a productive work

force in China. There is a great deal of potential among workers there. Companies are reporting solid productivity and hard-working employees. The HR function can help modify traditional Chi- nese employment practices to realize the potential of the work force, while assisting firms to avoid some of the bumps and hurdles associated with expanding their operations in China. 0

References

D. Ahlstrom, G.D. Bruton, and ES. Chan, “Foreign Firms in China: Braving a Transitional Economy,” Pro- ceedings ?f the Societ?/,for Advancement ofManage- ment-2000 International Management Conference, St. Augustine, Florida, March 30-April 1, 2000, pp. l-17.

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David Ahlstrom is an assistant professor of management at the Chinese University of Hong Kong. Garry Bruton is an assistant professor of management at Texas Chris- tian University, Fort Worth, Texas. Eunice S. Chan is a graduate student of management, also at the Chinese University in Hong Kong. Work on this article was par- tially supported by a grant from the Re- search Grants Council of the Hong Kong Special Administrative Region (Project No. CUHK4047/99H).

Business Horizons / May-June 2001

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