International Management in China: Cross-Cultural Issues (Routledge Advances in Asia-Pacific Business)

International Management in China

The greatest challenge to international business today is how to manage business operations across cultural boundaries. This is especially true in the case of China, which has attracted a massive amount of foreign investment and international trade recently. This new study examines three main themes: • • •

The partnership of management through joint ventures. Human resource aspects of management. The management of communication, co-operation and negotiation.

The crucial issue of trustworthiness, the different managerial practices in China and the West, the importance of being well prepared, and understanding Chinese negotiations are the major contemporary issues identified and discussed in this book. It concludes that future cross-cultural management in China will not be much easier than today, since essential elements of Chinese culture will most probably prevail and also shape Chinese organizational behaviour in the future. Jan Selmer is Professor in the Department of Management at Hong Kong Baptist University. He has published widely on issues of cross-cultural management and is an active consultant in cross-cultural training for international managers of international corporations.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Routledge advances in Asia-Pacific business

Employment Relations in the Growing Asian Economies Edited by Anil Verma, Thomas A.Kochan and Russell D.Lansbury The Dynamics of Japanese Organizations Edited by Frank-Jürgen Richter Business Networks in Japan Supplier-customer interaction in product development Jens Laage-Hellman Business Relationships with East Asia The European experience Edited by Jim Slater and Roger Strange Entrepreneurship and Economic Development in Hong Kong Tony Fu-Lai Yu The State, Society and Big Business in South Korea Yeon-ho Lee International Management in China Cross-cultural issues Edited by Jan Selmer Technological Capabilities and Export Success in Asia Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka Transnational Corporations and Business Networks Hong Kong firms in the ASEAN region Henry Wai-chung Yeung

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

International Management in China Cross-cultural issues

Edited by Jan Selmer

London and New York © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book has been requested ISBN 0-203-02180-0 Master e-book ISBN

ISBN 0-203-21862-0 (Adobe eReader Format) ISBN 0-415-17460-0 (Print Edition)

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Contents

List of figures List of tables Notes on contributors Preface 1

Introduction: cross-cultural management in China JAN SELMER

PART I Partnership management 2

Conflicts in Sino-European joint ventures GUOLIE ZHU, MARK W.SPEECE AND STELLA L.M. SO

3

Team conflict management ZHONG-MING WANG

4

Learning modes in international joint ventures in China NIKLAS LINDHOLM

5

Building trust for successful partnership in China ELIZABETH LI

6

Future Sino-Western strategic partnership CHIANG-NAN CHAO, ROBERT J.MOCKLER AND DOROTHY G.DOLOGITE

PART II Human resource management 7

Human resource management practices in international joint ventures versus state-owned enterprises in China MALCOLM WARNER

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

8

Recruitment and retention of managerial staff in China ROBERT McELLISTER

9

Performance appraisal in China CHERRIE J.ZHU AND PETER J.DOWLING

10

Reward systems for local staff in China VIVIENNE W.M.LUK AND RANDY K.CHIU

11

Strategic human resource management: expatriate managers in China JAN SELMER

PART III Managing communication, cooperation and negotiation 12

Effective management communication for China WILLIAM B.CHAPEL

13

Interpersonal cooperation in Western subsidiaries in China VERNER D.WORM

14

Confucian connections in China ROSALIE L.TUNG AND IRENE Y.M.YEUNG

15

Chinese and Western negotiator stereotypes GILBERT Y.Y.WONG AND RAYMOND J.STONE

16

Chinese negotiation strategies and Western counter-strategies CAROLYN BLACKMAN

17

Sino-Japanese negotiations in China MANTAKA KANAYAMA

18

Conclusions: current issues and emerging trends JAN SELMER

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Figures

3.1 5.1 5.2 5.3 5.4 13.1 13.2 17.1 17.2

A compatibility model of cross-cultural leadership teams The nature of culture differences: the national, occupational and organizational levels The Asian organization’s structure The local Chinese organization’s structure Alpha reporting units Interpersonal relations in Scandinavian joint ventures in China Optimizing interpersonal cooperation between Western and Chinese managers Chinese and Japanese perceptions of negotiation: conflict and harmony Typology of Japanese negotiation of conflict resolution tactics and contexts

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Tables

2.1 3.1 3.2 3.3 4.1 4.2 5.1 6.1 6.2 7.1 7.2 7.3 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 10.2 10.3 10.4 10.5

Production of passenger vehicles by Sino-European joint ventures Correspondence between dimensions and empirically-derived meaning Differences and similarities in responses to intra- and intercultural conflict Similarities and differences between Chinese and American managers Profile of case studies Learning modes highlighted in the case studies Organization culture within the People’s Republic of China Present business conditions for strategic partnering in China Future managerial concerns Characteristics of the selected case studies Principles of the 1994 Labour Law Excerpts from Provisions on Labour Administration of Enterprises with Foreign Investment (1994) The adoption of standardized criteria and methods of PA in Chinese companies with different types of ownership People in charge of PA Methods used for PA The extent to which PA is used for communication purposes The extent to which PA is used for administration purposes The extent to which PA is used for development purposes Results of perceived effectiveness of PA Operational locations of respondents Profile of the participating companies Mean and standard deviation of population, years of service, turnover rate and benefits provision Reward management philosophy and practices of the participating companies Compensation systems for local Chinese workers

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

10.6 Rank-order of attraction, motivation and retention of managers, supervisors and workers 11.1 Potential objective conflicts in joint ventures 11.2 Western/Chinese SHRM differences 15.1 Summary of Chinese regional differences 15.2 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese and of Shanghainese 15.3 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese (autostereotype) and Westerners (heterostereotype) 16.1 Differences in expected and actual allowances 16.2 Western and Chinese goals and values compared

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Contributors

Carolyn Blackman is Director, Centre for International Business, University of Ballarat, Australia. She is serving as a member of the Australian-China Business Council and Chamber of Commerce and the Committee for Economic Development of Australia. She has consulted on the management of technology transfer and cross-cultural relationships to Australian and global companies. Her book Negotiating China: Case Studies and Strategies was recently published by Allen & Unwin. Chiang-nan Chao is Associate Professor, Graduate School of Business, St John’s University, Jamaica, New York. He has established executive training programmes for Chinese high level managers and been invited to lecture to several Chinese corporations, government ministries and universities. He has published over eighty-five articles, books, book chapters, conference papers and cases. His research interests are in performance evaluation and international business. He is recently working closely with the China State Council to assist state-owned enterprises in their operations. William B.Chapel is Lecturer, School of Business and Economics, Michigan Technological University, USA. His doctoral dissertation and research interests are in the area of international management communication competence with an emphasis on US and Asian relationships. He is actively involved in various professional organizations and is an intercultural management communication consultant to international organizations, government units and publishers. Randy K.Chiu is Head of the Department of Management, School of Business, Hong Kong Baptist University, Hong Kong. He has been working as a practitioner, educator and consultant in the HR field for sixteen years. His research areas include human resources management, personnel psychology and cross-cultural management. Dorothy G.Dologite is Professor of Computer Information Systems, Bernard M.Baruch College, City University of New York. She has written ten books and over 100 articles published in internationally renowned journals. She © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has lectured and consulted worldwide, including in Argentina, Canada, China, Egypt, Germany, India and Russia, and has taught MBA courses at universities in Malaysia, Shanghai, Xian and Beijing. Peter J.Dowling is Foundation Professor of Management and Executive Dean, School of Commerce and Law, University of Tasmania at Launceston, Australia. His current research interests include the cross-national transferability of HRM practices and strategic HRM. He has co-authored three books: International Dimensions of Human Resource Management, Human Resource Management in Australia and People in Organizations: An Introduction to Organizational Behaviour in Australia. He has also written and co-authored over twenty-five journal articles and book chapters. Mantaka Kanayama is a Professor of Business Information Management, Yokohama Soei College and a fellow at the International Asia Institute. He has written and edited six books in the areas of development and characteristics of Chinese management. He is an active researcher and consultant to firms in ASEAN and other Asian countries. Elizabeth Li is a consultant specializing in organization development and strategic change management issues. She has been consulting in the PRC and has visited various government departments and enterprises in the process. She has delivered papers at conferences and seminars, and coauthored and contributed to books. She is currently researching for a book on foreign investment enterprises (FIEs) in the PRC. Niklas Lindholm is affiliated with the Research Institute, Swedish School of Economics and Business Administration, Helsinki, Finland. He is currently working on his doctoral dissertation dealing with learning processes within human resources functions in joint ventures in China. He has been working for a European MNC’s joint venture operation in Beijing, PRC. Vivienne W.M.Luk is Associate Professor, Department of Management, School of Business, Hong Kong Baptist University, Hong Kong. She is also Associate Director of the Business Research Centre (Consultancy and Training) as well as Director of the Wing Lung Bank International Institute for Business Development at Hong Kong Baptist University. Her areas of research interest include women in management, cross-cultural management, work-family interface and human resource management. Robert McEllister is affiliated with the Asian and International Studies, Griffith University, Australia. The working title of his PhD thesis is ‘Management Recruitment and Retention Strategies from Small to Medium Foreign Enterprises in China’. He had worked in the Australian mining industry for fifteen years before returning to academia. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Robert J.Mockler is Professor of Business, Graduate School of Business, St John’s University, Jamaica, New York, USA. He is Director of the Strategic Management Research Group and its Centre of Knowledge-Based Systems for Business. He has authored and co-authored forty books and monographs, some 100 case studies and over 200 articles, book chapters and presentations. Jan Selmer is Professor in the Department of Management and Programme Director of the Cross-Cultural Management Programme at the David C. Lam Institute for East-West Studies, Hong Kong Baptist University, Hong Kong. His research interest is in cross-cultural management with a special focus on China. He has published nine books and numerous journal articles, book chapters and monographs. His book Expatriate Management: New Ideas for International Business was published in 1995 by Quorum Books, USA. His new book Vikings and Dragons: Swedish Management in Southeast Asia was published in late 1997. In August 1996, he organized and chaired the world’s first international academic conference on Cross-Cultural Management in China. Stella L.M.So is Senior Lecturer, Chinese University of Hong Kong, Hong Kong, where she teaches marketing and advertising. Ms So gained extensive experience in the marketing research and media industries in Hong Kong and Europe before joining academia, and maintains contacts through consulting work. One of her main research and teaching areas is marketing and advertising in China. Mark W.Speece is Associate Professor, Asian Institute of Technology, Bangkok and Visiting Professor, Bangkok University, Bangkok, Thailand. He consulted from a base in Hong Kong for five years before moving to Thailand in 1994. He has extensive experience working with Western firms on Hong Kong and China and helping Chinese firms with export marketing. Much of this work was with joint ventures in China. Raymond J.Stone is Associate Professor, Department of Management, Hong Kong Baptist University, Hong Kong. He has over twenty-five years’ experience in international human resource management. He has held senior positions in Australia, Hong Kong, Japan and Korea. He has taught at universities in Australia, Japan and currently in Hong Kong. He is the editor and co-author of several books, and has been quoted on negotiating and doing business in Asia, expatriate selection and failure, international compensation and industrial relations. Rosalie L.Tung is the Ming and Stella Wong Professor of International Business, Simon Fraser University, Vancouver, Canada. She is one of the leading experts on cross-cultural management in China. She is the author © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

of eight books and numerous articles published by the top scientific journals of the world. Besides cross-cultural management in China, her research interests include various aspects of international management and organizational theory. Her research has been cited in leading international newspapers and news magazines, including the International Herald Tribune, Business Week and the Wall Street Journal. Zhong-Ming Wang is Professor and Dean, School of Management, Hangzhou University, People’s Republic of China. Professor Wang is also the VicePresident of Hangzhou University. He is an editor, associate editor and member of the editorial board for several leading Chinese, East-Asian and international journals. His main research areas include cross-cultural organizational behaviour and human resource management, personnel selection/assessment, team dynamics, organizational decision-making, leadership, organization development and international joint venture management. He has published several books and more than 100 articles at home and abroad. Malcolm Warner is Professor and Fellow, Wolfson College and Judge Institute of Management Studies, University of Cambridge, Cambridge, United Kingdom. He has written several books on management in China, such as Management Reforms in China (1987), How Chinese Managers Learn (1992), The Management of Human Resources in Chinese Industry (1995), and China’s Trade Unions and Management (1998). Gilbert Y.Y.Wong is Director, Research Degrees Programme, School of Business, University of Hong Kong, Hong Kong. His main research interest is in the cross-cultural comparison of management and business practices in Asia. He has also undertaken extensive consultancy work for large corporations in Hong Kong and multinational corporations internationally. His specialities are in staff opinion surveys, organizational development, management of multicultural work force and business development in Asia. Verner D.Worm is Research Assistant Professor, Asian Research Unit, Copenhagen Business School, Denmark. He has studied Chinese language and philosophy and Chinese economics at the Peking University. He has published two books and co-authored and contributed to others. Irene Y.M.Yeung is an MBA graduate of Simon Fraser University, Canada. Formerly, she was a personnel specialist at IBM China/Hong Kong Operations, Hong Kong. Cherrie J.Zhu is affiliated with the Department of Business Management, Monash University, Australia, where she currently is lecturing. She had previously lectured in a tertiary institute in Nanjing, China. She is a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

doctoral candidate at the University of Tasmania, working on the topic of human resource management systems in China. Guolie Zhu is the International Coordinator, Far East Advertising, Bangkok. He is a native of Shanghai, China, and has spent five years as a manager at the major Chinese company CITIC, with responsibilities in the area of international business. The topic of his MBA thesis at the Asian Institute of Technology was Sino-European joint ventures.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Preface

One of the greatest challenges to international business today is how to manage business operations across cultural boundaries. That is especially true in the case of the People’s Republic of China, which has attracted a surge of foreign investments and international trade from a multitude of countries. This book represents a unique and significant research-based response to the challenge of successfully carrying out cross-cultural management in China. The background of this book is the world’s first international academic conference on Cross-Cultural Management in China (CCMC) held in Hong Kong in August 1996. This event brought together more than 100 academics and practitioners from more than fifteen countries worldwide to share and discuss research and experience within this field. As the editor of this book initiated and organized this conference, it became an important basis for developing this contributed volume. I would like to extend my gratitude to a number of people and organizations that contributed to this book. First of all, I would like to thank the joint organizers of CCMC, the David C.Lam Institute for East-West Studies, the School of Business, and the Wing-Lung Bank International Institute for Business Development for their unfailing support and continuous encouragement. Many thanks also to all academic colleagues as well as administrative staff and student volunteers whose hard work made CCMC into a resounding success. In particular, I would like to thank Malcolm Warner and Vivienne Luk who both, in their own way, played important roles. I must also mention Stella Chow, Cindy Leung and Karen Yeung for their excellent clerical support. Hon Lam helped me to produce a consistent and well-organized manuscript. I extend my special thanks to all participating authors in this book for their commitment and unfailing patience during a long editorial process. Although this is far from the first edited volume I have participated in as an editor or a contributing author, there is always that moment of despair when one tells oneself that this is it, this is going to be the last edited volume I do. Fortunately, such fleeting moments pass quickly and are soon forgotten, at least by me, and before long there is another edited volume in the works. In developing this © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

book, however, problems and difficulties were easily overcome and I would like to compliment my academic colleagues for their ingenuity and professionalism. Last, but not least, I would like to thank Victoria Smith and James Whiting and the staff at Routledge for an excellent job done. Jan Selmer Hong Kong

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

1

Introduction Cross-cultural management in China Jan Selmer

INTRODUCTION From being a poor country in the 1970s, China had developed by the mid1990s and is on its way to becoming one of the economic superpowers of the world (Nolan, 1995:171; Warner, 1996). The ‘Open Door’ policy was introduced in 1978 to seek economic interdependence with the rest of the world in order to achieve the Tour Modernizations’: agriculture, industry, science and technology, and defence (Warner, 1996). In 1980, China established special economic zones in Shenzhen, Zhuhai, Shatou and Xiamen, along with fourteen other coastal cities, in order to attract more foreign investment and increase economic collaboration with other countries (Hannan, 1995). Since then, China has indeed modernized, has more than doubled its living standard, and has moved from a rigid ‘command-economy’ to a much more flexible ‘socialist market-economy’ (Warner, 1996). The economic growth has been spectacular in the 1980s and even more impressive in the 1990s with an average rate of more than 9 per cent, making China the fastest growing economy in the world (The Economist, 1997a; Lardy, 1994:3). The amount of foreign direct investment increased from an annual average of US$1.12 billion between 1978 and 1981 to US$4.37 billion in 1991. During the same time period, the total foreign capital inflow increased from under 11 per cent to over 38 per cent (Chi and Kao, 1995). By 1994, China had become the second largest recipient of worldwide FDI flows and there were nearly 240,000 foreign-funded and/or joint venture agreements worth US$270 billion, of which US$80 billion was realized (UNCTAD, 1995; Warner, 1996). To better understand how this situation came about and to provide a feeling of the direction of the movement, it could be useful to have a quick glance in the rear mirror. Just after the turn of the century, there were only a few factories using mechanical power in China, but between the wars the textile industry developed extensively, much of it Japanese-owned and managed. Many British and American businesses were also expanding and these foreign enterprises introduced external management ideas to China, like F.W. Taylor’s Scientific Management, through their production methods. Before the nationalist © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

government was defeated in 1949, it had moved to control much of the industry, including all Japanese and German enterprises after the end of the Second World War. At the time of the communist take-over the nationalist government controlled major banks, heavy industry, all railways, highways and airlines, several large trading companies, almost half of the shipping tonnage, the largest industrial enterprises and the major share of light industry. The new communist government quickly confiscated all enterprises belonging to the nationalist bureaucratic capitalists as well as foreign interests and made them state property (Chen, 1995; Warner, 1995). So, paradoxically, the policy of the nationalist government had facilitated the socialist transformation through its bureaucratic capitalism. China initiated the Soviet industrial model in 1953, emulating a product economy model, by introducing a Five-Year Plan and adopting a centralized command system of macro-management. The state planning was made up of a network of branch industries where each branch was managed by a hierarchy of authorities from central government ministries through provincial bureaux and city government sections until reaching the enterprise level. Although several reforms were introduced before 1978, they did not radically change the structure of state planning (Chen, 1995; Jackson, 1992; Warner, 1995). At the enterprise level, a Soviet model of top-down management was first established. Soviet experts poured into China, setting up hundreds of new industrial plants and training the Chinese how to run them. Executive authority was concentrated to directors, the ‘one director management system’, laying the foundation for current management practices. However, this imported system relied on technically trained managers of which China did not have many at the time and the Soviet model was weakened by reforms in 1956 and 1961, when factory directors were made responsible for implementing decisions by party committees. This system was in turn disrupted by the Cultural Revolution, discrediting managers while the power to control was given to the representatives of revolutionary workers guided by ideologically loyal party committees. Hence, there was a party structure in each enterprise operating in parallel to the administrative structure and there were no clearly defined patterns of power distribution between managers and party officials, not seldom resulting in managers trying to be both enterprise directors and secretaries of the local party committee. Enterprise leaders and other cadres were government officials who in practice enjoyed ‘iron ruling chairs’ as they could not be fired or demoted. Enterprise workers were also deployed by government labour departments according to state plan, mostly ignoring their own preferences. Assigned to a work-unit (danwei, providing housing, medical care, pensions, etc.), they enjoyed lifelong employment, rendering little incentive for workers to perform as they tended to eat out of the ‘iron rice bowl of the enterprise’ (Chen, 1995; Jackson, 1992; Warner, 1995). After 1978, an ambitious reform programme was introduced, beginning in the countryside and then moving to the cities. The general trend since then has been a gradual reduction in both content and scope of state planning control © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and the traditional prejudice against the role of the market has gradually changed and the market system has experienced great development. The system of supply and demand has improved greatly and, from being a seller’s market, the 1990s have proven to be a buyer’s market with increasing competitive pressures and with enterprises basically free to set their own prices. Fundamental changes in personnel and labour introducing contract systems have considerably weakened the traditional life-long ‘iron rice bowl’ employment system. Basically, since 1978, the Chinese economy has shifted from a product economy model to a market economy model (Chen, 1995; Warner, 1995, 1996). The sense of direction of movement gained from this quick historic glance is obvious. Despite recent mounting problems and difficulties in various sectors of the Chinese economy, a continued accelerated marketization scenario seems highly plausible. The Chinese government will expedite its reforms, further streamline its administrative structure, reduce the role of planning to a minimum, and give more autonomy to local governments. The state will turn most of its enterprises into stock companies and leave most of the macromanagement to the society. As in most modern market economies, legal and financial leverage will be the main instruments for government coordination of the economy (Chen, 1995). Today, negotiating new business and trade agreements as well as establishing business subsidiaries and joint ventures, the number of foreign business persons is increasing rapidly, expanding the areas of managerial interface between foreign business representatives and Chinese nationals. Based on that, an emerging academic literature is beginning to investigate cross-cultural management issues in China. Exploring many contemporary and critical topics, this book constitutes a timely contribution to that field of academic research and practical business application. For practising middle-managers and senior management, MBA students, academic researchers and anyone else interested in the topic, this book covers the most contentious and least understood part of doing business in China, the human side of international management. Bringing together highly relevant perspectives from leading edge researchers, inside and outside of China, the book offers relevant advice as well as describing novel research findings. Adhering to strict requirements of quality and originality, the volume tries to match the demands of both business practitioners and management education, as the writing manner of the chapters ranges from professional academic journal style to consultant normative business press style. Based on cultural traditions as well as political/institutional developments during the last half century, the book identifies and delineates three main themes: partnership management, human resource management (HRM), and management of communication, cooperation and negotiations; all representing unique as well as crucial cross-cultural human management issues in China. Part I of the book deals with partnership management. Although foreign investors can establish wholly-owned business subsidiaries in many sectors, a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

joint venture agreement with a local partner is still the most popular form of establishing business operations in China (The Economist, 1997b; Vanhonacker, 1997). Naturally, many issues and topics emerge in such partnerships and the effective management of various such cooperative ventures becomes crucial for success (Tretiak and Holzmann, 1993). In Chapter 2, Guolie Zhu, Mark Speece and Stella So deal with conflicts in Sino-European partnerships. Sino-European joint ventures currently account for the majority of production among the many automobile joint ventures set up over the past fifteen years in China. In-depth interviews with Chinese and European managers at four operating Sino-European joint ventures reveal how these joint ventures operate. All four have rapidly expanded production and hold large shares of the passenger car market. They contribute to technology transfer in the Chinese auto industry, and have high levels of local content. Despite these successes, there are substantial differences of opinion between European and Chinese managers. Most of this conflict concerns four key issues: control, personnel management, technology transfer, and localization of content. In Chapter 3, Zhong-Ming Wang identifies general strategies used by foreign and Chinese managers in joint venture management. This chapter identifies strategies used by foreign and Chinese managers to manage conflict with sameculture and different-culture managers. It is shown that important cross-cultural differences in intra-cultural and intercultural conflict management behaviour exist. Also, managers from both cultures use different strategies to manage intercultural conflict compared to intra-cultural conflict. Originating with two organizational functions, Niklas Lindholm examines in Chapter 4 how the parties in international joint ventures learn and what influences the process of learning. This chapter examines learning modes in two international joint ventures in China. Learning modes are described in two organizational functions, recruitment practice and performance appraisal. It is possible to identify that somewhat different learning modes have occurred in these two functions. Possible influences on the learning modes are discussed and recommendations are offered. The establishment of trust as the fundamental groundwork needed for effective cooperation and successful partnership is delineated by Elizabeth Li in Chapter 5. Successful partnerships with PRC organizations depend upon the integration of internal formal and informal components and their interaction with the external environment. The conclusion of a field research project involving an established joint venture attempting to merge national cultures and perspectives into an aligned corporate culture was that the fundamental groundwork needed for effective cooperation is trust. Guidelines on how to establish trust and how to enable the organization to succeed in that endeavour are discussed. In the final chapter of Part I, future prospects and problems for strategic partnerships between Western multinationals and Chinese corporations are examined by Chiang-nan Chao, Robert Mockler and Dorothy Dologite. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Establishing strategic partnerships between Western multinationals and Chinese corporations is believed to be an effective way of penetrating this difficult-to-access market. This chapter deals with business conditions for establishing strategic partnerships and future managerial concerns about Chinese markets from the perspectives of both Western and Chinese executives. The results suggest that Western executives disagree with their Chinese counterparts significantly on rating the factors involved. Both Western and Chinese executives view political stability in China as the most important concern for their future business. Western corporations need dynamic partnership strategies in China in order to benefit from this emerging market, while the Chinese need to improve their investment climate in order to compete for Western investments in the global market. Part II of the book examines HRM in China. Human resource aspects of management in China is an area of crucial concern creating a multitude of cross-cultural managerial problems. To a certain extent, such problems originate with the differences in the managerial approach of state-owned enterprises and, mostly, Western HRM practices introduced in international joint ventures in China. The degree of convergence between these two sub-sets of firms are examined by Malcolm Warner in Chapter 7. The chapter discusses the impact of the Chinese economic reforms on both joint ventures and stateowned enterprises in terms of their management and human resources. It is based on empirical research carried out in a sample of such firms. The members of a sub-set of each category are then compared and contrasted in terms of selected variables relating to management-labour relations. It concludes that there is now a degree of overlap between the HRM practices of the respective sub-sets, but the degree of convergence is at best only relative. The sourcing of managerial staff by Western firms to secure a permanent presence in China is discussed by Robert McEllister in Chapter 8, identifying the attributes needed for success as well as training requirements of those recruited. Western firms planning a long-term investment in China usually expend a great deal of time and effort in choosing the right location and suitable partner for such a strategy. However, in most cases, a similar amount of thought is not put into the future management requirements of establishing this permanent presence. Forward planning for both establishment and expansion within China must include recognition of the managerial structure required to succeed. The issues to be examined in this chapter include sourcing managerial staff, identifying the attributes needed to succeed and addressing the training requirements of those recruited. The HRM practice of performance appraisal in the PRC under changing economic systems is analysed by Cherrie Zhu and Peter Dowling in Chapter 9. The chapter discusses the HRM practice of performance appraisal in China on the basis of a literature review and survey questionnaire. Performance appraisal in the PRC, moving from a centrally-planned economy to a market-driven economy, is delineated, but the focus of this chapter is to diagnose to what extent performance appraisal is currently utilized to serve certain purposes and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

to discuss its perceived efficiency. The findings reveal that while performance appraisal is judged to be effective, it is primarily used to determine bonuses and wages. However, it is expected to be used more for communication and development purposes in the future. Reward systems brought into China from exposure to Western management philosophy and practices are discussed by Vivienne Luk and Randy Chiu in Chapter 10. There has been research on the changes in payment systems in China and the impact on employee attitudes towards pay, but little empirical research has been undertaken on the content of pay and benefits packages in foreign companies operating in China. This chapter investigates the composition of the reward system currently offered by Hong Kong and foreign companies to the local PRC employees and the effectiveness of such systems in terms of recruitment, motivation and retention of these employees. It is found that cash-forms of rewards are very valuable in this respect while non-cash incentives are less valuable and useful in rewarding employees. Part II of the book is concluded with a discussion of the strategic HRM role expatriate managers play in China by Jan Selmer in Chapter 11. Many expatriate managers working in China are assigned there for strategic reasons. Based on empirical research results, exploring their reactions to the Chinese culture and business realities, this chapter discusses to what degree and in what respect Western expatriate managers can fulfil their mission in the PRC. Implications for Western expatriate managers in China and for companies assigning them there are discussed. Part III of the book explores the areas of managing communication, cooperation and negotiations as critical and necessary components in developing and succeeding in any commercial undertaking in China. The high level of communication competence required to build the necessary personal relationships in the PRC is discussed by William Chapel in Chapter 12. To be effective in the Chinese marketplace, Western expatriates and decision makers need to understand and champion international management communication competence: a complex behavioural process that involves cultural awareness, communication knowledge and positive expatriate motivation identification. It is concluded that future international accomplishments in China will go to those who become competent in developing long-term relationships, not only during normal times, but also during periods of volatility. In Chapter 13, Verner Worm develops a framework for determining optimal conditions for interpersonal cooperation between Chinese and Western managers in Western subsidiaries in China. Western universalistic values encountering Chinese particularistic values gives rise to difficulties in interpersonal cooperation between Chinese and Western managers. Based on that assumption a model is developed; a model that shows that optimal conditions for cooperation exist when appearance, i.e. paying attention to human relations, is particularistic and essence, i.e. the way of running business, is universalistic. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Identifying and operationalizing the ‘guanxi’ (connections) concept as a standard way of developing successful business relationships in China, Rosalie Tung and Irene Yeung discuss in Chapter 14 the association between ‘guanxi’ and business performance and strategies to build ‘guanxi’. The development of successful business relationships in China and other societies influenced by Confucianism has often relied upon the establishment of the right connections with the appropriate individuals. This chapter operationalizes the ‘guanxi’ construct and presents the findings of a study of nineteen companies with operations in China. The study reveals that there is indeed a relationship between the ability to establish ‘right and strong’ connections with business performance. The chapter then discusses strategies for building connections. Gilbert Wong and Raymond Stone identify in Chapter 15 a number of common stereotypes of Chinese and Western negotiators, held by Hong Kong Chinese. A study of the literature suggests that powerful generalizations exist among academics and business people concerning the personal and behavioural characteristics of negotiators from Shanghai, Hong Kong and the West. Twentytwo specific characteristics were examined in a survey to a group of Hong Kong Chinese MBA students, academics, managers and administrators. These characteristics included perceptions of aggressiveness, honesty, arrogance, etc. The results indicated that stereotypes indeed do exist among Hong Kong Chinese regarding the characteristics and behaviour of Chinese and Western negotiators and possible consequences of the existence of such powerful generalizations are discussed. In Chapter 16, Carolyn Blackman explores two Chinese negotiation behaviours frequently identified by Western business executives—a haggling process and an emotional, dictatorial style. Interviewees’ counter-strategies and material from Chinese negotiation manuals and historical sources illuminate the main elements of the negotiating process. Based on the analysis of three case studies, advice is given to assist Western negotiators to gain a degree of control over the process and its outcomes. Completing Part III of the book, Mantaka Kanayama investigates in Chapter 17 Sino/Japanese negotiations in China. The chapter, based on an analysis of Sino/Japanese joint ventures, examines the impact of differences in the cultural influences of type of contexts on negotiations. While the number of such alliances is increasing rapidly, it is suggested that both Japanese and Chinese managers should take the time to learn the complexities of each other’s managerial philosophies and practices. This chapter offers a roadmap to achieve that. In Chapter 18, Jan Selmer extracts and refines the main findings from the book and makes conclusions about current issues and emerging trends of cross-cultural management in China. The crucial issue of trustworthiness, the different managerial practices in China and the West, the importance of being well prepared, and understanding Chinese negotiations are the major current issues identified and discussed. Looking at the future, the emerging © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

trend of entering China through wholly foreign-owned enterprises is examined together with the proactive transfer of management know-how facilitated by the increasing outward internationalization of the Chinese economy. It is concluded that future cross-cultural management in China will not be much easier than today, since essential elements of Chinese culture will most probably prevail and also shape Chinese organizational behaviour in the future. Last, but not least, it is worth noticing that despite a great effort in trying to involve scholars in China in this edited volume, Western scholars or Chinese academics residing outside China dominate among the contributing authors. That is somewhat unfortunate, since the origin and context of their research makes it typically partial, focusing on issues which foreign business representatives find problematic while undertaking cross-cultural management in China. However, as most people with cross-cultural experience will know, trying to ‘step into the other person’s shoes for a moment’ could be a very informative and rewarding experience. There are always two sides to a coin and, although little documented by systematic empirical research, I am convinced that Chinese managers and employees perceive that they have as many problems with foreign business representatives as the other way around. It is my sincere hope that any further volumes on cross-cultural management in China will be able to project a more balanced view where both ‘sides of the coin’ will be adequately presented and argued.

REFERENCES Chen, M. (1995) Asian Management Systems: Chinese, Japanese and Korean Styles of Business, London: Thunderbird/Routledge Series in International Management. Chi, P.S.K. and Kao, C. (1995) ‘Foreign Investment in China: A New Data Set’, China Economic Review 6(1): 149–55. The Economist (1997a) ‘The Asian Miracle: Is it Over?’ 1 March: 23–5. ——(1997b) ‘Multinationals in China: Going it Alone’ 19 April: 72–3. Hannan, K. (1995) China, Modernization and the Goal of Prosperity, Cambridge: Cambridge University Press. Jackson, S. (1992) Chinese Enterprise Management: Reforms in Economic Perspective, Berlin: Walter de Gruyter. Lardy, N. (1994) China in the World Economy, Washington, DC: Institute for International Economics. Nolan, P. (1995) China’s Rise, Russia’s Fall: Politics, Economics and Planning in the Transition from Stalinism, London: Macmillan. Tretiak, L.D. and Holzmann, K. (1993) Operating Joint Ventures in China, Hong Kong: The Economist Intelligence Unit. UNCTAD (1995) World Investment Report, Transnational Corporations and Competitiveness, New York and Geneva: United Nations. Vanhonacker, W. (1997) ‘Entering China: An Unconventional Approach’, Harvard Business Review 75(2):130–40.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Warner, M. (1996) ‘Joint Ventures vs. State-Owned Enterprises: Management and Human Resources in China’ in J. Selmer (ed.) proceedings of the international academic conference on Cross-Cultural Management in China, Hong Kong: Hong Kong Baptist University. Warner, M. (1995) The Management of Human Resources in Chinese Industry, New York: St Martin’s Press.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Part I

Partnership management

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

2

Conflicts in Sino-European joint ventures Guolie Zhu, Mark W.Speece and Stella L.M.So

INTRODUCTION Since the early 1980s, global business, including major auto companies, have viewed China as a very attractive emerging market. In 1993, China’s ratio of auto ownership was the lowest of any major country in the region. There were over 680 people per car, compared to 131 in the Philippines, 70 in Thailand, 7 in South Korea and 3 in Japan (Business Week, 1994). Not surprisingly, auto makers from Europe, USA, Japan and Korea all flocked to enter the market. As in other industries, equity joint ventures (JVs) became the prime vehicle for entry. From the late 1980s until 1994, nearly two-thirds of contracted direct investment projects have been joint ventures (China Statistical Year-book, 1995). The Chinese government had a clear preference for JVs over the other types of foreign investments, such as contractual joint ventures and wholly foreign-owned operations. Foreign investors also often viewed equity JVs as a lower risk means of market entry regardless of China’s requirements. Some Sino-foreign joint ventures have been very successful, but many have not done well. For example, one-third of Japanese JVs responding to a recent survey were not profitable (Hirano, 1993). The foreign business community periodically discovers that performance does not always match the hype of the China market enthusiasts. Since 1979, there have been three cycles of optimism followed by pessimism. Recent literature has mentioned many problems, though much of it is optimistic and does not concentrate on problems (Baumgarten and Rivard, 1991; Wharton, Baird, and Lyles, 1991; Newman, 1992a, b; Beamish, 1993; Glaister and Wang, 1993, 1994; Hirano, 1993; Hu and Chen, 1993; Itoga, 1993; Woodward and Liu, 1993; Zhang, 1993; Pan, 1994; Tsang, 1994; Imai, 1995; Speece and Kawahara, 1995). Automobile joint ventures are often considered among the more successful. China has targeted the industry for rapid growth, and forecasts production of passenger cars in 2000 at over three times 1994 levels. Virtually all of this production will come from JVs. Given these favourable conditions and strong support by the national government, have auto JVs been able to avoid common problems, or have they prospered despite problems? We used in-depth interviews to look at operations in four Sino-European JVs. These four JVs © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

accounted for two-thirds of passenger car production in 1994, and are projected to account for 71 per cent by 2000 (Table 2.1). In Europe, we talked to the top management of European parent companies. In China, we met with the top managers of Chinese parents, and with European and Chinese managers in the JVs. The research took place at the end of 1994 and in early 1995.

THE CHINESE AUTO INDUSTRY China envisions the automotive industry becoming one of the ‘pillars’ of the Chinese economy. It may well become a very important industry, despite the slowing down and difficult conditions in 1996. The auto industry has grown rapidly from 1979, when it opened up to foreign participation. The share of passenger cars in auto industry output has also increased from almost nothing to about 20 per cent of unit output in 1995. In 1981, total domestic production of passenger cars was only 3,000. By 1995, this had risen to 320,500, compared to 755,000 trucks and 374,000 buses, or about 1.5 million vehicles total production (Min and Sun 1989; Financial Times, 1996). Several domestic passenger car models, produced in small quantities prior to 1979, were completely outdated and have mostly disappeared. China still has over 700 domestic producers, but few actually produce their own engines or chassis. Most buy these from the smaller number of producers and assemble their own versions of vehicles. Nearly all passenger car output now comes from joint ventures with foreign auto makers. By mid-1994, only eight Chinese plants were allowed to make sedans. All were joint ventures, and

Table 2.1 Production of passenger vehicles by Sino-European joint ventures

SVW=Shanghai Volkswagen Automobile Company FVW=First Automobile Works (FAW)-Volkswagen GPAC=Guangzhou-Peugeot Automobile Company DCAC=Dongfeng-Citroën Automobile Company Sources: Economist Intelligence Unit; DRI World Car Industry Forecast Report, April 1994. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

included two Volkswagen plants (Shanghai, Changchun), Peugeot (Guangzhou), Citroën (Wuhan), Suzuki (Chongqing), Daihatsu (Tianjin), Subaru (Guizhou) and Chrysler (Beijing) (Min and Sun, 1989; China Trade Report, 1994; Zhang, 1995). Some other plants which produce other vehicles, such as pickups, buses and trucks, also include joint ventures, notably General Motors, which produces pickups, and Daewoo, which produces buses. Many other major auto companies are in China producing car parts in JVs. They want a part of the industry, and China has made it clear that when the freeze on new plants is ended, it will favour companies that already participate in helping Chinese auto parts producers upgrade. Even if not producing in China, many companies have established service centres to service imported (including smuggled) cars (CTR, 1994; Zhang, 1995). Beijing maintains close watch over the industry. A ban on new car plants was implemented in 1994, because Beijing wanted the industry to consolidate around a few major groups. The ban was to end by 1997. In 1996 China announced that only car companies that manufacture with at least 40 per cent local content would be allowed to operate in China. Companies that continue to simply assemble kits will be required to close. It has been policy all along that auto makers should aim for this 40 per cent local content, but the time period for achieving the goal and enforcement had been somewhat unclear. Several major producers still rely upon kits, including Chrysler’s Beijing Jeep venture. However, the four SinoEuropean JVs discussed here have no problems under this new ruling (Asian Wall Street Journal, 1996). The passenger car industry is not yet based on sales to individual consumers: 80 per cent of cars sold in 1993 were bought by state organizations, 19 per cent by non-state companies, and only 1 per cent by individuals. Very few consumers can afford a car. In 1993, a Santana sedan made at SVW cost about nine times the average urban worker’s salary. Some analysts expect that prices will fall in the future as scale expands and as local content increases. (Others are not sure that local content will lower prices because of high local costs to achieve required quality.) However, to cope with the problem now, car manufacturers have introduced leasing and instalment purchase schemes (CTR, 1994). In 1996, Beijing suspended instalment purchase schemes, as part of its drive to cool off the economy. This prevented consumer sales from getting off the ground. A tightening of credit hit the ability of companies to buy cars. Exorbitant taxes continue to drive prices up, though these will gradually decline as China implements measures to conform to WTO rules. In addition, an estimated 100,000 to 200,000 cars smuggled in 1995 escaped taxes, and further depressed the market for legal cars. As a result, car manufacturers in 1996 were operating about half capacity. Stocks of unsold vehicles were 116,000 cars in the first half of 1996. For example, one of the Volkswagen plants (FVW in Changchun) scaled back production to 24,000 in 1996 from a planned 50,000 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Jettas, though it also produces about 10,000 Audis. It is not clear that FVW can sell even this scaled back output (FT, 1996). Sagging sales may retard plans to increase output of the automotive industry to 2.7 million units by 2000, including 1.2 million cars. The freeze on new plants, which was to have ended by 1997, may be extended, although there have already been several exceptions made, by contract, if not yet in actual operation. Most observers regard these setbacks as temporary, and view the government’s attempts to achieve a soft landing for the economy as largely successful. Thus, it is likely that the auto industry will be back on track within a few years. It remains a cornerstone of Beijing’s policy for upgrading Chinese industry, bringing in modern technology and management expertise (Zhang, 1995; FT, 1996).

THE FOUR MAJOR SINO-EUROPEAN AUTO JOINT VENTURES In 1993, there were about 427,000 passenger vehicles sold in China (including imports), of which 48.9 per cent were Volkswagens. Another 17.5 per cent came from the two Sino-French JVs discussed here. There are two separate Volkswagen JVs in China, which are located at Changchun (northeast China) and Shanghai. Two French JVs are also major players in the Chinese auto industry. The French have preferred smaller ownership shares than the Germans. However, in terms of actual operations, they have implemented strategies similar to those of Volkswagen. Technology transfer, extensive training, strong orientation toward quality control, and strong marketing, including service networks, have all been part of operations. By any standard measures, all four of these JVs seem to be doing quite well.

Shanghai Volkswagen Automotive Company (SVW) The SVW was established in 1985, between Volkswagen of Germany (50 per cent), Shanghai Automotive Industry Corporation (25 per cent), China National Automotive Industry Corporation (10 per cent). Several smaller Chinese shareholders, including the Bank of China, hold the remaining shares. The operations include three plants, which produce VW Santanas and car engines. By 1993, production exceeded 100,000 cars, with sales of RMB 10.5 billion. According to one source, by 1995, production was up to 170,000, and the Santana had captured 58 per cent of the sedan market (AWSJ, 1996; FT, 1996). SVW is still expanding, and hopes to reach annual capacity of 300,000 cars and to set up a new engine plant soon. SVW has established a widespread sales network and over 220 authorized service stations. In 1993 alone, sixty-two of these authorized service stations were established. SVW works closely with suppliers so that, by 1994, local © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

content had exceeded 80 per cent. Rigorous quality assurance and frequent programmes to uncover problems and upgrade quality in SVW plants, among suppliers, dealers and in service stations, have all resulted in upgraded quality and service. A key aspect of this has been extensive training throughout all levels of SVW, suppliers, dealers and service stations. Evidence of strong customer satisfaction shows in the continued strong growth in sales in the last half of 1993, a time when economic slow-down caused most auto producers to reduce production because of slow sales.

FAW-Volkswagen Automobile Company (FVW) FVW is 60 per cent owned by First Automobile Works and 40 per cent by Volkswagen. Set up in Changchun, Northeast China, to produce the VW Jetta, it also produces some Audis now. FVW began production in 1991, with only 156 cars, but production rose very rapidly to over 8,000 the next year, and an estimated 44,000 by 1994. However, as noted above, production was scaled back in 1996 to about 24,000 Jettas and 10,000 Audis due to poor economic conditions. FVW aims at first class quality, first class service and competitiveness in cost, all while increasing local content. To achieve this, FVW is helping local suppliers upgrade to meet required quality standards. By 1993, FVW had already reached nearly 20 per cent local content. By 1994, it had signed approximately 100 letters of intent with local suppliers, about ninety-five agreements for trial manufacturing of parts, and more than fifty agreements for trial assembly of parts. FVW also has been setting up a strong after-sales service network, helping establish and upgrade service stations and spare parts distributors. Extensive training has been a key component of all of these activities. In the first two years of operation, nearly 3,000 employees went through training programmes in everything from production to quality control to servicing.

Guangzhou-Peugeot Automobile Company (GPAC) The company was launched in the mid-1980s by Peugeot (22 per cent) and Guangzhou Automobile Group Company (46 per cent). China International Trust and Investment Corp holds 20 per cent, and French banks and finance companies hold the remaining 12 per cent. GPAC manufactures 504 and 505 Peugeot pickups and sedans. Production started off slowly, with only 940 units in 1986, the first full year of manufacturing. Production was only 5,666 cars by 1990, but reached 30,000 units in 1993. As did Volkswagen, GPAC set up its own network of after-sales maintenance stations. It also worked hard to upgrade local suppliers, and had achieved almost 60 per cent local parts and components by 1993. To support these efforts, Peugeot conducted extensive training in China, and sent many Chinese managers and technicians to France for training. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Dongfeng-Citroën Automobile Company (DCAC) This second French-Chinese JV was established in Wuhan between China No. 2 Automobile Works (Dongfeng Automobile Company; 70 per cent), and Citroën Automobile Company (25 per cent). French banks own the remaining 5 per cent. Dongfeng is China’s largest producer of medium-sized trucks (185,000 vehicles in 1993; CTR, 1994), and regards this JV as a key component in its efforts to upgrade technology and maintain a position as one of China’s major automotive companies. The company is licensed to produce 300,000 passenger cars eventually, though the time frame for this target is unclear. DCAC makes Citroën ZX cars, and produced about 6,000 in 1992, its first full year. Production has grown slowly, and stood at 25,000 in 1994, against a previously announced target of 100,000, though the JV is also planning to produce 200,000 additional car engines. DCAC claimed to have achieved local content in its autos of 75 per cent by 1993.

KEY CONFLICTS IN THE JOINT VENTURES Despite relatively good performances by these JVs, there are a number of serious conflicts between the European and Chinese sides. Most of the conflicts revolve around four key issues: control of various functions in the JV and methods of control; personnel management and quality of the labour force; technology transfer; and localization of content. Generally, there is agreement among the German and French managers about issues, and among the Chinese managers, who usually differ from the Europeans about causes of problems. Most often, each side believes that it is the other side which causes most of the problems. Some Chinese regarded many problems as arising from the European management style and European attitudes about China. They contrasted their experience working with Europeans with perceptions they have about American or Japanese managers, who are the other main foreign players in the auto industry. (These perceptions were usually not based on actual experience working for an American or Japanese auto producer.) They viewed the cultural gap between Europeans and Chinese as largest, between Japanese and Chinese as smallest, and between Americans and Chinese as somewhere between these extremes.

Control This was one of the most critical issues to both sides. One Chinese manager at a French JV felt that the company was ‘very weak in generating new ideas, improving the product and performance’. He believed this was because orders were handed down from top management (which is mainly French), and did not © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

take into account lower levels of the organization, or shop floor employees, or even customers. This, in his view, was the reason for poor efficiency and lack of quality consciousness among workers. Some Chinese managers at the Volkswagen JVs also mentioned similar views. There was a strong feeling among Chinese managers that the European management style was very authoritarian and rigid. Many also felt that the European managers were quite arrogant, believing that the European way was automatically best. Chinese managers felt that the European managers always just wanted them to do things the European way, regardless of whether it fitted the situation in China. Some of them contrasted this with their perceptions that Americans were more flexible, and that Japanese managers were somewhat easier to deal with. Another thought this might be because the Europeans have relatively little experience in China compared to Americans or Japanese. However, the Europeans did not think that they controlled much. One German manager noted that the JV lacks any real authority over marketing. The Chinese government gave authority for marketing, including exclusive rights to distribute the JV’s autos, to a state company. He claimed that ‘it is true that we have our own marketing department, but we are just doing very simple documentation for the company. We are not even allowed to deliver cars to some customers unless we get exceptional permission from the top.’ French managers similarly believed that real control resided with the state, and that the European side had little real authority over marketing aspects such as product line, distribution or pricing. One manager explained: ‘In China, large companies are owned by the Government. Strategic decisions tend to be made outside the company itself, which is basically a manufacturing unit aimed at producing a centrally determined number of items.’ Another French manager added that ‘distribution is frequently regulated by…“guanxi”…[connections] and corruption’. Even Chinese JV managers agreed that the JV sometimes had little control. ‘Pricing is normally regulated and completely controlled by the Chinese Government, say Central Pricing Bureau’, one Chinese marketing manager explained. ‘We can hardly make any decisions or changes regarding the product wholesale and retailing price by ourselves. Our responsibility and duty is only how to upgrade the product quality and increase the productivity and output. Actually, we have suffered a lot from China’s traditional central planning economy.’ Corruption is a big factor which tends to reduce influence of the JV managers, because it substantially limits their ability to operate. One of the French managers noted that Chinese bureaucracy often tends to be rooted in nonmarket © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and culturally conditioned ways of behaviour. Personal connections and corruption are more important than law, and the French partner has to either live with that or stay out of China. According to him, this is all terribly costly in both time and capital during the period of JV planning, negotiation, initiating and launching. The extent of this problem was far greater than initial expectation and imagination had anticipated.

Personnel management The European managers agreed that managing Chinese staff and workers was one of the biggest challenges encountered in China. Problems were compounded by the fact that this is another area where the JVs do not have much control, and where connections and corruption play a big role. Europeans think that most workers are unskilled and lack education. Far too many are appointed to positions or delegated tasks for which they were not qualified and have no prior experience. These unskilled workers have poor efficiency, low productivity, no motivation, poor discipline and they lack any quality consciousness. One French manager summarized these views: ‘It is amazing that there are so many employees with terribly low education and technical training…. According to local labour law and employment regulations, we have little flexibility or choice in recruitment. …[Workers] are poor in discipline, weak in work motivation, and have little quality consciousness. We cannot easily hire good human capital or fire unqualified people. We face difficulties enforcing the company’s reward and penalty system. Furthermore, the corporate recruitment system has been heavily eroded by corruption and negative influence from connections.’ According to European managers, the problem is further compounded by the fact that there were too many unqualified Chinese managers assigned to the joint venture, who generally oppose any change. They were typically party committee members recruited from rural, military and political organizations which were completely unrelated to the managerial needs of the JV. Because they know nothing about the industry or about modern management, they tended to be conservative and bureaucratic, resisting change and avoiding any decision or responsibility. Such personnel problems extend into all spheres. For example, European financial managers regard managers trained in the Chinese accounting system as essentially useless for modern financial and accounting needs. Local Chinese accountants, on the other hand, regard the Western accounting system as difficult. ‘We are not accustomed to extensive computerized calculations and compilation, or the concepts which are in Western accounting books. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Obviously, under the Western accounting system, we need further training and education.’ On the Chinese side, the main personnel problem was that the European side mainly sent technical people who did not know much about managing. However, even the European managerial people who came to the JV had no knowledge of China, and were not very quick to learn. Some Chinese said that Americans were much more managerially oriented, with less emphasis on technical people. Sometimes American managers did not know anything about China either. However, they were quicker to learn because they regarded smooth management as very important, and believed that making things work smoothly would require some degree of adaptation to the situation in China.

Technology transfer Technology transfer was a factor that was an important problem to both sides, but for different reasons. For the Chinese, the purpose of the JV is access to foreign capital, advanced technology, management know-how and state-of-theart product and production process. However, some Chinese managers were quite dissatisfied. They complained that supplying blueprints and technical documents and providing manufacturing machinery and assembly line equipment was not sufficient. The most important part is organizing activities during the transfer in an understandable manner. Without extensive instruction, it is quite difficult for Chinese technicians and shop-floor workers to grasp basic ideas regarding product and process in automobile manufacturing technology. Several Chinese managers mentioned that European policy was to send only a few Chinese back to the home plants in Europe for training. Then these people were supposed to come back to China to train more people in the plants. According to some, the Americans sent more people to the US for training, and they felt this was more effective in upgrading the skills of the Chinese. They said that the Europeans were much more strict than the Americans in choosing who to go. However, this may relate to language capability. Some mentioned that Chinese preferred to go to the US for training, partly because more of them have some English language capability. Despite complaining that they have difficulty grasping the technology which has been transferred, many Chinese managers also complained that Europeans do not transfer the most advanced technology. One Chinese manager who has worked in both Volkswagen JVs believed that it is basically the German side’s fault that the plants are not ready to compete in international markets. They do not have the most advanced technology and are not set up to produce a wide variety of models with state-of-the-art technology, so they cannot compete. Chinese managers at the French JVs also want to introduce more models into the market. One noted that China is no longer a homogeneous market, but rather © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has many segments. He wants active product development and a wider variety of models, as in Europe. The Chinese managers also want to move away from mass production toward lean production and shorter production lines, so they can compete globally. They feel that the French partner has dumped mass production technology onto China because it is becoming outdated internationally. The Chinese generally believed that the Europeans want to control technology and prevent China from getting the most advanced technology. They said that Europeans are very inflexible in negotiations about the issue of technology transfer, and that the restricted training, mentioned above, keeps transfer slow. They believe the Americans are more flexible about transferring technology, and more willing to help the Chinese upgrade, but that the Japanese are even worse than the Europeans. The Europeans tend to think they are transferring technology as fast as possible under Chinese conditions. One said: ‘We believe that we are quite strong in terms of technology development and management know-how. We really make an effort in teaching our Chinese partners. However, we confront many difficulties in technology transfer because of communication problems, weak cooperation by local managers, different management style, and a large number of unmotivated, poorly educated employees. Poor performance in technology and management transfer directly affects efficiency, productivity, product quality, and the urgently demanded localization programme.’ The sheer scope of what is needed in China’s auto industry caught some of the Europeans unawares: ‘After we initiated this project, we found that the local automobile industry was not only technically backward, but a complete mess: poor horizontal communication and coordination, barely usable machinery and production facilities, terribly few technicians, and a huge unskilled labour force. Worst of all, all these problems now belong to us.’

Localization of content European managers view localization as a painfully slow process ‘because of inability of the Chinese partner to upgrade quality of its parts and components’. Technical levels in the Chinese automobile, chemical, metallurgical, machinery, electrical, instrumentation and spinning industries are low, and cannot currently meet the standards of the JVs without substantial help. The managers think localization requires investment, planning and coordination across a range of industries. By one estimate, RMB 1.5 billion will be needed to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

purchase licences, technical expertise, machinery and equipment from outside China which will allow parts suppliers to upgrade to meet quality standards. One VW feasibility study estimated that the local content programme would have to involve 181 projects at ninety different factories, sixty-three of which are situated within Shanghai and twenty-seven scattered outside. Managing and coordinating localization activities on this scale requires substantial support from local and even central government. But European managers feel that the Chinese side makes very little effort to support the programme. ‘We sometimes have the feeling that the government does not care about it at all’, one manager told us. According to one French manager, slow localization ‘is because of inability of the Chinese partner to upgrade the quality of its parts and components. It results from many factors, such as poor local automobile manufacturing equipment, machinery and plants; poor horizontal cooperation and collaboration; an unskilled labour force with poor quality consciousness. It does not necessarily mean that the French partner has not devoted its full efforts to the localization programme, for which the local Chinese partner always scolds us.’ Chinese managers do usually blame the Europeans for not moving faster in localization. Chinese managers at the German JVs admit that the Chinese side has been weak in supporting the programme. But in their view, this only makes it more clear that it is the responsibility of the German side if localization is to succeed. They criticize using funds to buy imported components, claiming that everything should be spent on upgrading the Chinese suppliers. And the Germans should commit even more venture capital and technology to support localization. One Chinese financial manager believed that ‘we need more and more venture capital for project expansion and the localization programme. However, there are serious foreign exchange difficulties and capital shortages [in the JV]’. This respondent noted that the local and central governments have provided little loan and investment support after establishment of the JV. But he nevertheless criticized the French side for not showing much effort and involvement in expansion or localization.

CONCLUSIONS AND RECOMMENDATIONS To summarize, these four Sino-European automobile joint ventures all seem to be doing very well. In terms of business objectives, they have rapidly expanded production to capture a large part of the passenger car market. Some of them actually return profits to parent companies, which is not very common in China. The JVs are helping to upgrade technology in the Chinese auto industry, and they are achieving high levels of local content. On the surface, it might seem © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

that there is little room for conflict. Nevertheless, there are substantial differences of opinion between European and Chinese managers. Conflicts seem to stem primarily from differing motivations which influence how each side evaluates the situation. The Chinese partners seem to be involved in the JVs primarily because of government policy. On a general level, Beijing has encouraged economic reform and foreign investment. It has attempted to build good relations with Europe, which gives European auto companies access. Some of the Chinese managers told us that Chinese policy aims to balance Europeans, Americans and Japanese, because China does not want any one of these to gain too strong control over any Chinese industry. They regard the Americans as more flexible and more willing to transfer technology than the Europeans. They regard the Japanese as easier to understand and deal with. However, China must maintain a strong European presence, too, even if working with Europeans is more difficult. As part of economic development for China, the government wants advanced state-of-the-art auto manufacturing technology. This is part of a broad programme to diminish the technological gap between China and the West. Beijing also wants to rescue the big state auto companies as part of its overall plan to save the badly ailing state sector. It hopes eventually to make the Chinese auto industry competitive internationally so that it can earn foreign exchange through exports. JVs are the main mechanism for achieving these goals. These policies translate into a number of incentives for Chinese companies to participate in JVs, such as preferential tax treatment, foreign exchange privileges and many other perks. What seems to be missing from Chinese thinking, however, is any detailed business analysis at the corporate level of why either side is involved in the JVs. The joint venture is an economic development mechanism for them, not a vehicle for corporate business. They are relatively unconcerned about whether there is any return on investment for the European partners or even for themselves. All they know is that China (and their company) needs capital, technology, training and that the Europeans have agreed to supply this. The JVs are judged by most Chinese managers according to how much they contribute toward these goals, not by how successful they are in a business sense. The Europeans, on the other hand, are there to make profit in China’s mythical billion-people market. The JV is a market entry mechanism for them, to help them share risk and deal with unfamiliar local markets. They want to mass produce with standardized production equipment and methods, and achieve economies of scale in the local market. They do not think the market is developed enough to support very much product differentiation, with many models. Even if they become interested in using China as a base for export production eventually, they have discovered that it is not possible to be very competitive internationally under current conditions. Production is not as cheap as it might seem. Wages may be low, but labour © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cannot currently produce anything which can meet quality standards on international markets. Managers do not understand modern management, accountants do not understand modern accounting practice, technicians do not understand modern technology which would allow the Chinese auto industry to compete. The Europeans believe that upgrading will take years. It is not a matter of simply signing a contract and starting to use off-the-shelf state-of-the-art technology for export production next year. In short, the Europeans are private business investors. They evaluate whether policies make business sense, not whether they meet economic development objectives. They see a huge and lengthy task in building up the Chinese auto industry to world standards. While many of them want to help do this, it is because they see profit in it, not because they think it is their responsibility to develop China. They apparently believe that the investment required to unduly speed the process up cannot be recovered, and so they proceed at the quickest pace consistent with profitability. No matter how successful the joint ventures seem, conflicts are unlikely to disappear. The Chinese side sees some conflict as coming from cultural differences, and contrast the Europeans with how the Americans or Japanese do things. However, while it is true that the Americans and Japanese have different management styles, they seem to have similar problems. The differences in thinking we have discussed here do not come primarily from cultural differences (Hong Kong, Taiwanese and Southeast Asian Chinese firms face similar problems in China), but from differences in system and in motivation. Systemic differences give rise to the different motivations and thinking about the role of joint ventures. These European auto JVs show that such differences are not necessarily so great that they will prevent JVs from prospering. But they also show that success does not make differences disappear. These JVs have learned to live with and progress in spite of conflicts. Most JV partners in China are state companies. It is always useful, and often necessary, to rely upon the connections which these state companies have. However, companies that go into China must understand that, unless the JV partner is private, the Chinese side will want very different things from JVs than the foreign private companies. To Chinese partners, the JV is primarily an element of national development policy. It is for building China, not for making profit. The Chinese side wants the JV to bring in capital and technology, to train local workers and managers, so that Chinese industry can upgrade its capabilities. The JV is supposed to make China self-sufficient in the products of the JV, not require imported components forever. Eventually, they want China to be able to compete internationally. At the individual level, the JV is also for building careers. However, state managers under the old system never got promoted for making their companies profitable. Market socialism under the reforms is still mostly socialism, not market, for the state companies. Managers build careers in JVs by getting the foreigners to put in money, technology, and training to help build a Chinese company. They get promoted for these things. There is little © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

reward for helping make profits which will partly go out of China to the foreign partner. Joint ventures in China can succeed, even by the profitability standards of foreign companies. But success to the foreigner is not success to the Chinese side. Perhaps the Americans and Japanese are somewhat more clear than the Europeans about the need to fit in with economic development goals. For example, Watanabe (1993), writing about Japanese auto company investment in China, recognizes this fundamental difference in motivation between private companies and the Chinese SOEs: ‘transfers of technology to China (by Japanese companies) have up until now often been decided on from a perspective totally divorced from pure business considerations’ (Watanabe, 1993:7). This is fundamentally different from most other developing countries where Japan is heavily involved: ‘The technological transfers made in Southeast Asia all came as a result of careful consideration by individual companies which then decided to invest locally’ (Watanabe, 1993:10) Kobayashi (1994) shows that Japanese companies have adapted very substantially to the Chinese viewpoint in order to do business in China. ‘The first thing that is necessary in doing business or starting up an operation there is commitment by the company itself to play a direct part in the development of China’ (Kobayashi, 1994:3). The Japanese company Kanebo responded by making these concerns its own: Our basic stance in doing business in China has been, first, to contribute to the modernization of China and the improvement of its level of business management and technology through joint ventures, technical tie-ups, and compensation trade. (Kobayashi, 1994:3) Even so, Kanebo has faced demands, for example, to expand the product line. This need to adapt to Chinese development goals has also been expressed in the American business press, for example: As long as US firms recognize that economic liberalization in China is instituted for the purpose of achieving the country’s economic objectives, there is ample room in which to find profitable areas of mutual interest. The key is to determine where a particular firm’s products or services can fit into China’s development plans. (Miller and Speece, 1986:29) Our interviews with Chinese JV managers seemed to show that Japanese and Americans are somewhat more willing to adapt, but that the Europeans think mainly about business from the perspective of their private companies. Foreign partners often just have to accept that there will be a certain level of conflict. What the Chinese want is not always consistent with good business practice in the sense that most private companies view business. It © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

is important that foreign companies realize this. They must adapt to the Chinese desire for rapid economic development, but not allow themselves to be forced into providing so much to the JV that it can never return a profit. It would rarely be possible to provide the Chinese with everything they want and remain (or ever become) profitable. However, the Chinese are quite practical, if not always realistic about what the foreign side should provide. None of the Chinese we talked to in the Sino-European JVs ever mentioned the possibility of closing the JVs. As long as the Chinese side gains substantial benefit and cannot get much more from other sources, the JV is not likely to be closed down, even if the scale of the benefit is not quite what the Chinese would like.

REFERENCES Asian Wall Street Journal (AWSJ) (1996) ‘China will require auto makers to achieve 40 per cent local content’, 5 June: 10. Baumgarten, S.A. and Rivard, R.J (1991) ‘The evolution of conditions for joint ventures in China’, Journal of Global Marketing 5(1/2):183–99. Beamish, P.W. (1993) ‘The characteristics of joint ventures in the People’s Republic of China’, Journal of International Marketing 1(2):29–48. Business Week (BW) (1994) ‘New worlds to conquer’, 14 February: 32–7. China Statistical Yearbook 1995 (CSY) (1995) Beijing: China Statistical Publishing House. China Trade Report (CTR) (1994) ‘Spotlight: auto industry’, June: 6–8. Financial Times (FT) (1996) ‘Rocky road lies ahead for China’s car industry’, 29 October. Glaister, K. and Wang, Y. (1994) ‘Management and performance of UK joint ventures in China’, Journal of Euromarketing 4(1):23–43. ——(1993) ‘UK joint ventures in China: motivation and partner selection’, Marketing Intelligence and Planning 11(2):9–15. Hirano, M. (1993) ‘Recent trends in investment and operations of foreign affiliates’, JETRO China Newsletter 104:2–8. Hu, M.Y. and Chen, H.Y. (1993) ‘Foreign ownership in Chinese joint ventures: a transaction cost analysis’, Journal of Business Research 26:149–60. Imai, S. (1995) ‘Comparison of Western, overseas Chinese, and Japanese ventures’, JETRO China Newsletter 119:15–24. Itoga, R. (1993) ‘Recent negotiations over joint venture contracts’, JETRO China Newsletter 103:2–6. Kobayashi, T. (1994) ‘Kanebo’s joint venture in China’, JETRO China Newsletter 109:2–9, 20. Miller, C.E. and Speece, M. (1986) ‘What happened to the China market?’, Business Forum, Fall: 26–30. Min, S. and Sun, W. (1989) China’s Automobile Industry: New Technology, Industry and Trade, Beijing: Commis Institute of Techno-Economics, State Planning Commission. Newman, W.H. (1992a) ‘“Focused joint ventures” in transforming economies’, Academy of Management Executive 6(1):67–75.

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—— (1992b) ‘Launching a viable joint venture’, California Management Review 35(1): 68–80. Pan, Y.G. (1994) ‘Features of European equity joint ventures in China: a longitudinal study’, Journal of Euromarketing 4(1):5–21. Speece, M. and Kawahara, Y. (1995) ‘Connections and partners for small joint ventures in China’, Cross-Cultural Management: An International Journal 2(4):24–34. Tsang, E.W.K. (1994) ‘Human resource management problems in Sino-foreign joint ventures’, International Journal of Manpower 15(9/10):4–21. Watanabe, M. (1993) ‘Some thoughts on technology transfer’, JETRO China Newsletter 103:7–12. Wharton, R., Baird, I.S. and Lyles, M.A. (1991) ‘Conceptual frameworks among Chinese managers: joint venture management and philosophy’, Journal of Global Marketing 5(1/2):163–81. Woodward, D.G. and Liu, B.C.F. (1993) ‘Investing in China: guidelines for success’, Long Range Planning 26(2):83–9. Zhang, J.X. (1993) ‘Problems in direct investment in China’, JETRO China Newsletter 103:13–21. Zhang, W. (1995) ‘Automobile industry’, in Investment Opportunities in China 1996– 2000, Bangkok: Economic Information Centre, Manager Information Services Co. Ltd: 108–14.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

3

Team conflict management Zhong-Ming Wang

INTRODUCTION In the Chinese traditions, team management and group-oriented values were emphasized in relation to performance evaluation, personnel selection, quality control and project management. Team management has been considered as the Chinese approach to enhance collective culture at work (Yang, 1984; Wang, 1993a, b; Bond, 1996) and become a focus in the recent studies of cross-cultural organizational studies (Wang, 1992; Triandis, 1993; Wang and Satow, 1994; Smith and Wang, 1996). The recent economic reform and organizational change since 1978 have facilitated a shift of management from equalitarianism to task responsibility, which has provided new opportunities for the development of more effective team management in China. In particular, with the rapid development of international joint ventures in China, cross-cultural coordination and adaptation have become a major topic for management training, executive development and personnel selection and decisions (Wang, 1989, 1995, 1997). Several aspects of Chinese cultural traditions have had important effects on the team management practice and group behaviour in China. Since 1949, the group approach has been reinforced and more encouraged as one of the Chinese characteristics of management practice with a new emphasis on team responsibility. In most organizations, the linkage of individual interests with the group and organizational interests has been greatly enhanced to facilitate high organizational commitment and effectiveness. Thus the cultural tradition of group approach is affecting the team conflict management in China. Current Chinese team management context has been largely influenced by the two major nationwide movements: the ‘Excellent Group Evaluation Campaign’ in the 1960s and the ‘Optimization through Regrouping’ in the early 1990s. The first managerial movement emphasized group cohesiveness and modelling behaviour. As an effective approach to labour emulation, such titles as excellent team and best enterprise have been used as a kind of social incentive for work groups or enterprise organizations with positive morale and performance, although this excellent team movement focused mostly upon © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

team technical innovations and cooperation. Research indicated that a high degree of group involvement and a fit between task requirements and group goals with clear member responsibility are the keys to the building of effective teams and the enhancement of team goal-directed behaviour (Wang, 1993a). The excellent team/enterprise movement has greatly strengthened group cohesiveness, organizational commitment and performance in Chinese industries and other organizations. This nationwide practice was successful in improving management efficiency and morale, stressing the importance of mass mobilization and participation as well as the Communist Party leadership in management and production. The second managerial movement focused upon team-job fit and group task responsibility. Although team approach was widely adopted during the 1950s and 1960s in Chinese enterprises, work groups were exclusively organized and appointed by the management. This caused problems such as overstaffing and low responsibility. Since the late 1980s and early 1990s, the practice of ‘optimization through re-grouping’ has been implemented among more than 6,000 state-owned enterprises. Supervisors of work groups were asked to reorganize their teams on the basis of voluntary grouping and work skills. In general, the two nationwide movements of team management have achieved positive results and created a favourable organizational context emphasizing both group cohesiveness and team responsibility (Wang and Heller, 1993).

INTERCULTURAL AND INTRA-CULTURAL CONFLICT MANAGEMENT IN JOINT VENTURE TEAMS Managing conflict can be difficult in work group, but it can be particularly important when two cultures are involved in international joint ventures. Effective intercultural interaction is crucial to the success of these joint ventures. Members of the board-of-directors from two cultures must work together and members of the top-management team must coordinate to run the firm (Davidson, 1987). However, intercultural interaction is not easy in many joint ventures due to their cultural differences. Some previous research has shown that clear responsibility systems for partners could, to some extent, eliminate these problems (Peterson and Shimada, 1978). These cultural differences might be reduced by assigning ethnically similar managers to the joint venture. But these solutions may not work in most joint ventures because managers from different cultures often have conflicts in coordinating their styles and approaches, and therefore must learn to work together as a team. Regarding to cross-cultural differences in intra-cultural conflict management behaviour, existing theory and research examine the links between fundamental cultural differences and conflict management behaviour. The main cultural differences are defined along the dimensions such as individualismcollectivism, and high- and low-context. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Individualism-collectivism reflects the relative importance of collective versus individual interests in the hierarchy of cultural values. Communication style can be described along a dimension called high- versus low-context. In a high-context culture, most of the information is either in the physical context or internalized in the person. Communication is implicit, context dependent, process-oriented and role-oriented. In contrast, in a low-context society, the mass of the communicated information is vested in the explicit and direct code (Hall, 1976), and sender-oriented with a personal style. Weldon and Jehn (1995) show that 1 2 3

there is no evidence that the dimensions and styles used to characterize conflict management behaviour in Western models are meaningful across the cultures; the cross-cultural equivalence of the questionnaires measures was not established; and researchers did not search for emic styles.

Differences in intra-cultural conflict management may not generalize to intercultural conflict. That is, people may use different strategies in conflict management when someone from anther culture is involved. Therefore, people working in bicultural teams might be expected to use different strategies to manage conflict with people from a different culture or the same culture. Therefore, a research project was conducted, focusing on: (a) cross-cultural differences in intra-cultural conflict management; and (b) differences between intercultural and intra-cultural conflict. This research included a search for etic dimensions of intra-cultural and intercultural conflict management behaviour, and emic constructs necessary to understand conflict management in different cultures. In the study, the strategies used by either American or Chinese managers working in US-Chinese joint ventures were compared to handle intra-cultural and intercultural conflict in their bicultural teams. Multidimensional scaling was used to uncover the dimensions that characterize the behaviours of American and Chinese managers for managing intra-cultural and intercultural conflict. One hundred and forty-two Chinese and 142 American managers who were working in the Chinese-US joint ventures participated in this study. One case involved a same-culture manager (intra-cultural conflict) and another involved a different-culture manager (intercultural conflict). All of them interacted frequently with different-culture managers. This study used cases of intercultural and intra-cultural conflict generated together with their solutions from the field interviews among managers in Chinese-US joint ventures. Both American and Chinese managers working in joint ventures read the intercultural or the intra-cultural version of the conflict and each respondent described how he would behave in that situation. Another fifty-four Americans and sixty-six Chinese managers from Chinese-US joint ventures read the above © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

responses and produced similarity ratings to indicate how similar the responses are to each other. The similarity ratings were submitted to the multidimensional scaling analyses. A two-dimensional solution was selected based on a scree diagram and the interpretability of the dimensions. The results indicate that among American responses to the intra-cultural conflicts, Dimension 1 reflects the extent to which behaviour is vengeful versus harmonious, and that a harmonious response was also tactful and calm. Dimension 2 reflects the extent to which a response is a passive versus active response to the situation. A three-dimensional solution was selected for American intercultural conflict. The results show that Dimension 1 reflects the extent to which a response is active versus passive. Dimension 2 reflects the extent to which the response is an attempt to get along (conciliatory). Dimension 3 reflects the extent to which the response is disruptive versus accommodating. The five clusters of conflict resolution are: 1 2 3 4 5

an active, direct and cooperative response: discussing with the colleague to address the problem; a passive, indirect and uncooperative response: stop sharing ideas; a conciliatory response: working with the colleague to be more of a team; an actively hostile and disruptive response: trying to get the colleague demoted; a passive and accommodating response: ignoring the colleague’s behaviour.

For the Chinese intra-cultural conflict, a two-dimensional solution was obtained. Dimension 1 reflects a response of direct versus indirect. Dimension 2 reflects a response of maintaining harmony or disrupting harmony in the workplace. The four clusters of conflict resolution behaviours are: 1 2 3 4

direct and harmonious responses: discussing the problem with the colleague; direct and disruptive responses: arguing with the colleague or bringing it to the attention of his friends; indirect and disruptive responses: retaliation; indirect and harmonious responses: telling the boss and withdrawing from the relationship.

For the Chinese intercultural conflict, a two-dimensional solution was selected. Dimension 1 reflects the response of direct versus indirect. Dimension 2 indicates the response of a constructive approach to the situation. Table 3.1 presents the correspondence between dimensions described in theory and the empirically-derived meaning of dimensions. These results provide useful information about cross-cultural differences in intra-cultural and intercultural conflict management behaviour. Table 3.2 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 3.1 Correspondence between dimensions and empirically-derived meaning

shows differences and similarities between Chinese and American responses to intra- and intercultural conflict. These conciliatory responses suggest that the colleague’s behaviour is not a problem, and the American and Chinese should work together as a team. Table 3.3 presents the similarities and differences between Chinese and American managers. American and Chinese responses to intra-cultural conflict were similar in three ways and different in four ways. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 3.2 Differences and similarities in responses to intra- and intercultural conflict

However, Chinese and American responses to the intercultural conflict were quite different. These results have important implications for existing theories of culture and conflict management behaviour. First, four of the dimensions proposed in existing theory were discovered in our data (solution-orientation, concern for harmony, approach and avoidance), but the others were not (concern for self, concern for other, direct and indirect). Generalizing would suggest that these four dimensions are etic dimensions of conflict management behaviour. The results also showed that 1 2 3

Americans were not more solution-oriented than the Chinese; the Chinese were somewhat more concerned with harmony than Americans when a same-culture manager was involved, but less concerned during intercultural conflict; the Chinese were more likely to respond and less likely to avoid conflict than the Americans.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 3.3 Similarities and differences between Chinese and American managers

TEAM CONFLICT RESOLUTION AND TEAM CLIMATE Another aspect of team conflict management is how people deal with inconsistency and conflicts within the groups. Since China has a tradition of favouring harmony and relationship, the team ‘conflict’ was considered as both a negative concept and a problem in teams. However, under the recent organizational reform and re-grouping, conflict resolution is also seen as a drive for team development. Wang and Wu (1996) completed a large-scale research on team conflict resolution and team climate and their effects on team performance. Altogether, 314 employees from sixty-one teams in forty organizations participated in the field study. Among them, thirty-seven teams were from the Chinese state-owned companies, twelve teams from joint © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ventures and another twelve teams from private companies. Nearly one-third were from manufacturing industries and two-thirds service industries. The results showed special dynamics in the Chinese team conflict management. Individual-level factors in team conflict management At individual level, there were significant differences between the Chinese state-owned companies and international joint ventures in such factors as group interaction, conflict resolution, value orientation and group belonging. Specifically, employees in the state-owned companies showed significantly higher degrees of group interaction (especially informal interaction), better conflict resolution, stronger group belonging and higher level of cooperative value orientation than that of the international joint ventures. Group-level factors in team conflict management At group level, there was only significant difference in conflict resolution between the Chinese state-owned companies and international joint ventures, i.e. more positive conflict management styles under the state-owned systems. While state-owned companies showed no difference from the privately-owned companies, this difference could be attributed to the cross-cultural adaptation and international business settings. Effects of team conflict management There were significant effects of team management upon team climate, specifically positive team conflict management enhanced group communication, innovations, conflict vision, participation and task accomplishment. The higher the group interaction, the stronger the team tendency towards cooperation, the better the quality of conflict management. Structural and organizational influences The effects of team conflict management on team climate were influenced by the management structures in the various organizations. Under the stateowned system, both group interaction and value orientation had more general positive effects upon team climate while conflict resolution mainly affected communication and group belonging. Under the joint venture system, both group interaction and value orientation had less effect on team climate but conflict resolution played an important role in determining the team climate. However, under the privately-owned system, group interaction had little effect on team climate while both value orientation and conflict resolution played positive roles in improving team climate. Under the present economic reforms, as Chinese management is moving towards a more decentralized, market-oriented and internationalist stage, there © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

has been a trend from collectivism to individualistic working style. Therefore, team conflict management has become more important and significant for most of the organizations. Chinese society very much emphasizes collectivism, social interaction and team approaches in work situations. Especially since 1949, team building has been very popular in enterprise management. Even after the ‘cultural revolution’ when individual responsibility was encouraged, belonging to effective work groups was still considered as a priority in the needs structure of Chinese employees. However, in the recent nationwide management reform, this cultural tradition has been given new meanings by emphasizing both group responsibility and team effectiveness (Wang, 1986, 1988). Team approach has become a major strategy in the Chinese economic reform programme. This approach has integrated group responsibility and authority with team interests and enhanced work motivation and efficiency. In another field study on conflict management among forty-one teams, Wang and Zhu (1996) investigated the relationships between team conflict management approaches and group performance. The following managerial and structural implications were put forward.

Effects of ownership and organizational structures Compared with teams in the state-owned companies, work teams from international joint ventures tended to adopt a problem-solving approach, use strategies of conflict avoidance and less cooperative actions, and be more serious in evaluation of subordinates’ performance. In the service industries, teams in joint ventures adopted more competitive strategies than those of non-joint ventures, but in the manufacturing industries, work teams from non-joint ventures used more competitive strategies than those of international joint ventures.

Relationship between team management and group performance Team commitment and mutual support had no direct effects on team efficiency, but acted upon group performance through an intervening variable, i.e. high involvement. However, the conflict avoidance strategy may facilitate members’ mutual support and commitment but affect members’ task involvement and in turn reduce team efficiency.

Strategies in team conflict management Conflict resolution strategies had important influences on team members’ subsequent behaviour. A competitive strategy reduced members’ mutual support and team commitment whereas a cooperative strategy with open discussion enhanced their cooperation and self-management. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

This recent research provides systematic evidence for the understanding of the processes of team conflict management in Chinese organizations. Ownership and organizational/structural factors play crucial roles in shaping the team behaviour in conflict management.

PUBLIC BIDDING IN SELECTING MANAGEMENT TEAMS Another research area in the Chinese team conflict management is the selection of top-level managers for the director-management contract systems, i.e. deciding on who should be the enterprise director through a bidding process of public selection and competitive recruitment, a nationwide practice in management reform since 1987. Wang and Fan (1990) conducted a large-scale field survey in twenty-seven Chinese enterprises (fifteen state-owned and twelve collectively-owned enterprises). The main purpose of this project was to find out the psychological characteristics of and effective strategies for facilitating and improving the selection decisions of management teams and reducing conflict potentials for director-management responsibility contract systems. Both managers and worker representatives from those companies together with supervisors from the industrial bureaux (level above the plant) were interviewed. Applications, proposals and records of the recruitment meetings were carefully examined. It was found that the decisions of public election and competitive recruitment of top-level managers in Chinese enterprises had five important features: 1 2 3 4

selection decisions were heavily based on economic and personal information while overlooking the information about management tasks and human resources in enterprises; information gathering was more relied upon than official examinations but lack of quantitative appraisal and evaluation by subordinates; personnel decisions were made from among fewer alternatives or proposals, with more short-term benefits, and therefore often caused longterm conflict among the state, the collective and the individual interests; the public assessment and bidding process had an advantage of facilitating information gathering and utilization.

The results of this study provided systematic evidence and decision support strategies for improving the top-management team development for the procedure of director-management responsibility contract systems in Chinese organizations. With the development of Chinese economic reform, it was more and more evident that the traditional way of assigning group membership by the management was not effective in enhancing team cooperation and group performance. This reform practice has been implemented in coordination with the introduction of the labour contract system, seen as a solution to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

both the problem of ‘iron rice bowl’ and teamwork conflict. The new system emphasizes work responsibility and allows enterprises and workers to choose each other, which leads to wider decentralization and higher efficiency in management in China. Yu (1988) studied the effects of such labour contact systems in three groups in a company in Shanghai. It was found that compared to the conventional system, the new voluntarily-based team system improved interpersonal relationships and social climate within groups, enhanced formal group leadership and participation and reduced conflict in groups.

TEAM ATTRIBUTION AS A MOTIVATIONAL CONTROL IN REWARD SYSTEMS The recent Chinese economic reform started with a nationwide initiative in motivating employees through work task and incentive systems, emphasizing task responsibility. This led to a more individualistic approach to incentive design (such as a piece rate bonus system) than the previous equal-pay system. This practice discouraged collective responsibility, increased conflict in work groups and weakened team effectiveness. Surveys in the early 1980s showed that a more flexible and comprehensive multiple reward structure (combining social reward with material incentives) should be used in order to motivate the Chinese work force (Wang, 1986, 1988). In addition, some studies were carried out to examine the effects of team incentive systems on performance. In a field experiment, an individual responsibility system was compared with the team responsibility systems, under either success or failure work situations, using an assembly task and attribution measurements of five factors (effort, ability, cooperation, task and chance). The results showed that workers’ attributions of success and failure had significant impact upon their subsequent behaviour and performance. This effect was greatly affected by the organizational and structural characteristics of incentive systems. Under the team system, workers tended to attribute their performance to the team cooperation and collective efforts which may maintain or enhance their motivation, expectancy and collaboration for team performance; whereas under the individual system, workers more frequently attributed their performance to personal factors or task difficulty which reduced their motivation and increased the potential for team conflict. Under the team responsibility system, the work team as a whole was responsible for the production task and the incentive was mainly based on team performance. An important implication of this study was that a teamoriented incentive system with group responsibility would be more effective in reducing team conflict and facilitating morale, cooperation and productivity in Chinese organizations. In another quasi-experiment, Wang (1988, 1994) implemented a fiveweek team attributional training programme in which each work team met © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

in a workshop once a week after work to discuss their problems in performance. Team attributions about their success and failure were encouraged. The results showed that the team attributional training did reduce workers’ attributional biases, enhance their work motivation and result in better mutual understanding, less conflict, more cooperation and high performance. In order to measure team compatibility, both the dilemma game and the nuts game were used. Wang and Lu (1996) completed a series of experiments in defining and analysing team compatibility and strategies in team conflict management. Two major strategies were demonstrated: ‘win-stay, lose-change’ and ‘win-cooperate, lose-defect’. In the groups of high team compatibility, members tended to adopt a strategy of ‘win-stay, lose-change’ but used the latter strategy less. However, in the groups of low compatibility, members used the ‘win-cooperate, lose-defect’ strategy more while adopting a ‘wincooperate, lose-defect’ strategy less often. There were significant differences between these two groups in using the ‘win-stay, lose-change’ strategy but not in the use of the ‘win-cooperate, lose-defect’ strategy.

CONCLUSIONS AND RECOMMENDATIONS These results lead to two conclusions about cross-cultural differences in team conflict management behaviour. First, people use different behaviour to manage intra-cultural and intercultural conflict. In fact, the overseas managers showed more concern about maintaining a good relationship with Chinese colleagues than their overseas compatriots. Second, cross-cultural differences in intercultural conflict management behaviour contribute to ineffective conflict management in international joint ventures. Overseas managers may be offended when Chinese managers fail to approach them directly to discuss a problem and make the conflict public (e.g. telling friends, raising the issue in a formal meeting). The Chinese may be uncomfortable with direct overtures from the overseas managers to discuss the problem or to increase collaboration, and they may be annoyed when overseas managers do not recognize that indirect attempts to deal with the problem are meant to be constructive. To improve relations, overseas managers should appreciate indirect attempts to resolve conflict, and the Chinese should be more understanding of overseas managers’ attempts to deal with problems directly and might try to discuss problems openly. The team conflict management is not only affected by the organizational and structural contingencies, but also shaped by the strategies of team members. Among other things, team compatibility is a significant characteristic. Team members with high team compatibility tend to share information and psychological resources and exchange ideas with other members. In recent years, with the development of economic reform and organizational change, team compatibility has become a more important factor in team management. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Three components of team compatibility are identified: active cooperation, communicative coordination and information sharing. Active cooperation Active cooperation is characterized as team value orientation, group interests and team resources management style. Through active cooperation, team members are working closely toward team objectives. Communicative coordination Communicative coordination emphasizes team communication and joint working efforts. Under communicative coordination, team members are provided with specific directions and plans. Information sharing Information sharing focuses upon comprehensive and multidirectional information exchange. It emphasizes key task information and the integration of team objectives. In addition, members in the higher team compatibility groups used more strategies of problem solving and concession whereas members in the lower team compatibility groups tend to adopt more competitive strategies. Team conflict management and cross-cultural adaptation processes have been important topics of strategic human resources management and organizational behaviour in China. With the rapid development of the Chinese market economy and international joint ventures in recent years, team conflict management has been greatly emphasized. In many international joint ventures as well as in the state-owned enterprises, team management building is seen as an effective approach to strategic human resource management. As a new trend of organizational behaviour in China, team and

Figure 3.1 A compatibility model of cross-cultural leadership teams © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cooperative work is becoming an active area in both theoretical studies and practical applications. Recent research has provided systematic evidence for the processes and strategies of developing effective joint venture leadership teams. On the basis of recent IJV leadership studies, a compatibility model of crosscultural leadership teams could be proposed as shown in Figure 3.1. According to this model, there are two general approaches to either intercultural or intra-cultural conflict which would affect team management. The differences between the two approaches determine the level of compatibility of the conflict resolution strategies in cross-cultural team management. With more active cooperation, high communicative coordination and wider information sharing, this in turn influences the degree of group compatibility, which leads to a different level of performance compatibility of the leadership teams. Three theoretical components of this model need to be highlighted: 1 4

3

Strategy compatibility The degree of compatibility of the strategies adopted by both parties in managing conflict in teams is more meaningful and crucial than the strategies themselves. Group compatibility This is the core concept in this model; basically this is the psychological compatibility among leadership team members from different cultures in terms of active cooperation, communicative coordination and information sharing. Performance compatibility A high team performance is based on the performance compatibility of both partners. The compatibility of performance system would be the key in this aspect.

Three practical suggestions could be drawn from the compatibility model of cross-cultural leadership teams: 1 2 3

a personnel strategy could be taken to adjust the value-orientation and conflict management skills so as to strengthen compatibility of strategies for both inter- and intra-cultural conflict resolution; a cultural strategy would be used to facilitate the information sharing and cooperation so that a more positive group compatibility of leadership teams could be obtained; a system strategy should be adopted to enhance the networking and communication channels as well as the task structure in order to achieve higher performance compatibility of leadership teams.

These three strategies could be given to managers and specialists from international joint ventures for effective leadership teams. The recent research and practice on team conflict management has therefore provided clear and useful evidence for the improvement of the leadership team development and the team conflict management both in China and abroad. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ACKNOWLEDGEMENT This study was supported by a research grant from the Chinese National Science Foundation to Zhong-Ming Wang.

REFERENCES Bond, M.H. (1996) The Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Davidson, W. (1987) ‘Creating and managing joint ventures in China’, California Management Review 29:77–94. Hall, E. (1976) Beyond Culture, New York: Doubleday. Peterson, R. and Shimada, J. (1978) ‘Sources of management problems in Japanese— American joint ventures’, Academy of Management Review 3:796–804. Smith, P.B. and Wang, Z.M. (1996) ‘Chinese leadership and organizational structures’, in M.H.Bond (ed.) Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Triandis, H.C. (1993) ‘Cross-cultural industrial and organizational psychology’, in M.D.Dunnette and L.M.Hough (eds) The Handbook of Industrial and Organizational Psychology, 2nd edn, vol. 4, Palo Alto, CA: Consulting Psychologists Press Inc. Wang, Z.M. (1986) ‘Worker’s attribution and its effects on performance under different work responsibility systems’, Chinese Journal of Applied Psychology 1(2):6–10. ——(1988) ‘The effects of responsibility system change and group attributional training on performance: A quasi experiment in a Chinese factory’, Chinese Journal of Applied Psychology 3(3):7–14. ——(1989) ‘Human resource management in China: Recent trends’, in R.Pieper (ed.) Human Resources Management: An International Comparison, Berlin: Walter de Gruyter. ——(1992) ‘Managerial psychological strategies for Sino-foreign joint-ventures’, Journal of Managerial Psychology 7(3):10–16. ——(1993a) ‘Culture, economic reform and the role of industrial/organizational psychology in China’, in M.D.Dunnette and L.M.Hough (eds) The Handbook of Industrial and Organizational Psychology, 2nd edn, Palo Alto, CA: Consulting Psychologists Press Inc. ——(1993b) ‘Psychology in China: A review dedicated to Li Chen’, Annual Review of Psychology, Palo Alto, CA: Annual Review Inc. ——(1994) ‘Group attributional training as an effective approach to human resource development under team work system’, Ergonomics 37(7):1137–44. ——(1995) ‘Chinese management’, in M.Warner (ed.) International Encyclopedia of Business and Management, London: Routledge. ——(1997) ‘Integrated personnel selection, appraisal and decisions: A Chinese approach’, International Handbook of Selection and Appraisal, 2nd edn, Chichester: Wiley. Wang, Z.M. and Fan, B.N. (1990) ‘The task structure and information processing requirements of decision making on director responsibility systems in enterprises’ (in Chinese), Chinese Journal of Applied Psychology 5(1):1–8 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Wang, Z.M. and Heller, F.A. (1993) ‘Patterns of power distribution in organizational decision making in Chinese and British enterprises’, International Journal of Human Resource Management 4(1):113–28. Wang, Z.M. and Lu, X.H. (1996) ‘A process model of group decision making and the structural analysis of team compatibility’, working report for a project supported by the Chinese National Science Foundation. Wang, Z.M. and Satow, T. (1994) ‘The effects of structural and organizational factors on socio-psychological orientation in joint ventures’, Journal of Managerial Psychology, Special Issue: Managing Chinese-Japanese Joint Ventures, 9(4):22–30. Wang, Z.M. and Wu, T.X. (1996) ‘The effects of team management on team climate and work efficiency’, working report for a project supported by the Chinese National Science Foundation. Wang, Z.M. and Zhu, L.Z. (1996) ‘Team conflict management and its relationship with performance under different industries and organizational systems’, working report for a project supported by the Chinese National Science Foundation. Weldon, E. and Jehn, K. (1995) ‘Examining cross-cultural differences in conflict management behaviour: A strategy for future research’, International Journal of Conflict Management 3:387–403. Yang, D.N. (1984) ‘Management thought in ancient China’, Chinese Encyclopedia of Enterprise Management (in Chinese), Beijing: Enterprise Management Press. Yu, W.Z. (1988) ‘The motivational function of group structure under labour contract systems’ (in Chinese), Behaviour Science 1:80.

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4

Learning modes in international joint ventures in China Niklas Lindholm

INTRODUCTION International joint ventures (IJVs) in China are frequently managed jointly by foreign investors and local partners, often Chinese state-owned enterprises (CSEs). In these IJVs, management responsibilities are shared according to organizational functions. This brings together expatriates and locals who differ in national origin, cultural values and social norms, with the attendant political, economic and legal system differences (Shenkar and Zeira, 1987). This mixture of expatriates and locals in IJVs may bring about some controversy regarding how different organizational functions need to be managed. Often the responsibility for human resources (HR)/personnel is given to the local partner. In a recent study of seventy IJVs in China, it was found that sixtysix had a local HR/personnel manager (Björkman and Lu, 1997). Expatriate managers may have different expectations from the local HR manager regarding the services the function should provide and the kind of practices that should be used in terms of recruitment, training, compensation, performance appraisal, and so on. It is often the case that expatriate managers feel urged to transfer their own management practices to the IJVs, although a great deal of cross-cultural management and expatriation literature suggests that foreign companies and expatriate managers should adjust their practices to fit the local environment (Brewster, 1993). It has indeed been identified that the transfer of foreign management practices, such as HRM practices, have contributed to problems that have impeded the running of IJVs in China (Campbell, 1988; Child, 1991; Björkman and Schaap, 1994; Von Glinow and Teagarden, 1988). In line with this, many local managers and employees are frustrated over the demands placed upon them by expatriate managers who are ignorant of local context and customs in China (Björkman, 1994). Even though expatriates and locals may adopt practices from either partner, influences are many times stronger from the managing partner firm (foreign partner) (Cyr, 1995). Nevertheless, one could also assume that completely new practices would be developed and learnt in the IJVs. In line with this thinking, it would mean that IJVs pass through noteworthy processes of learning by giving © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

for instance the HR function access to the practices of its partners (Child, 1994; Inkpen and Crossan, 1995; Hamel, 1991). The optimal learning process would require both an effective transfer of practices to the HR function from either partner, but also an adaptation of the functions to the foreign requirements conditions and, moreover, the learning of the complementary strengths of the local organization (Child and Rodrigues, 1994). This learning process is most certainly both company and function specific but has been neglected in research on IJVs (Tiemessen et al., 1996) The objectives of this chapter are two-fold. First, it aims to describe learning modes that have occurred in the IJVs, highlighted in the IJVs’ HR functions. Second, it aims to analyse these learning modes by identifying factors that seem to have influenced them. The chapter starts with a theoretical classification of IJV learning, continues to present the case studies and analyses, and subsequently ends with conclusions and recommendations for practitioners. This chapter presents qualitative data from two case studies of IJVs in China. The study was conducted in 1996, in a European multinational corporation’s (MNC) joint venture operation in China. Approximately forty interviews were carried out in Europe and in the capitol Beijing with middle or senior managers, both expatriates and locals. In addition, the author worked for seven months with HRM issues in the case company in China, thereby gaining an augmented understanding of the research phenomenon and its context.

IJV LEARNING IN THEORY Learning is defined according to the concept of experiential learning (Cyert and March, 1963). Experiential learning implies that managers often have taken-for-granted views about management practices and often transfer practices that have worked in one setting to new settings. Not until transferred practices have been proven ‘unsuccessful’ are they modified or even changed. Experiential learning is often influenced by issues like the previous experience of managers, exposure and skills of personnel. In addition, the number of expatriates in an IJV also seems to have an effect on learning (Björkman, 1994). Learning can take place through three different modes in the IJV setting (Tiemessen et al., 1996). It should be pointed out that the different modes are interrelated and used for illustrative purposes. 1

2

Learning through the transfer of practices from the IJV partners. The process through which this occurs is usually called technology transfer and has received a lot of attention in research (Tung, 1994; Kedia and Bhagat, 1988). Transfer is the movement of existing technology, knowledge or managerial practices between partners and IJVs. Learning through the transformation of practices within the IJV. This

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

3

second learning mode is concerned with the transformation of transferred practices and the creation of new practices within the IJV. Casson (1993) has noted that this may require an adaptation of technology and managerial practices to the local environment, especially in line with cultural and institutional differences. Learning through the harvesting of practices from other units or organizations. Harvesting involves retrieving practices that have been created in other units or organizations and then implementing this knowledge in the MNC or IJVs (Tiemessen et al., 1996). Related to harvesting is the learning that occurs when firms benchmark, imitate best practice, etc.

CASE STUDIES The two joint venture case studies are part of a large European MNC with extensive operations around the world. The MNC has been present on the Chinese market since the beginning of the 1980s. To this date it has five joint ventures in China, mostly along the coastal regions. The case companies in this chapter are referred to as JV1 and JV2. Joint Venture 1 JV1 is comparatively small for the industry but was the first major IJV in China for the European MNC. The joint venture was preceded by several years of negotiations dating back to the 1980s. The joint venture has about eight expatriates, but the human resources function in JV1 is managed by an administrative manager and a local personnel manager, both appointed by the local partner. Recruitment practice in JV1 In the negotiation phase of the joint venture the issue of human resources was not given high priority. The negotiations typically centred around the issue of technology transfer. The first expatriates that arrived to the IJV Table 4.1 Profile of case studies

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

became surprised when around thirty employees had been transferred from the local partner to the IJV. The expatriates tried to explain to the local management that the IJV should employ selection methods, which resulted in severe conflicts with the local managers. The local manager resisted the introduction of selection practices such as multiple interviews, psychological tests and other selection criteria that were put forward by the expatriates. The employees transferred from the local partner have according to a majority of the expatriate interviewees been poorly motivated and bad performers. The screening of new applicants was also done by the local HR manager and the expatriates did not find out on what grounds a short list with a few applicants was chosen. As one expatriate manager put it: ‘I demanded to see all the resumés and was able to receive them after several weeks of persuasion. I then found out that he [the personnel manager] was trying to favour partner candidates…. I had to put a stop to it…he didn’t say hello to me for six months.’ The recruitment process in JV1 was characterized as very unsystematic by interviewees. There seemed to be no actual process developed for ‘how to go about it’ when a new person needed to be recruited. The expatriates tried to write job descriptions for the HR department but the use of them seems to have been minimal since they were in English and the local management did not understand English. In addition, the advertisements that the joint venture placed in newspapers were extremely simplistic and not even close to the MNC’s standards. None the less, after some time the local management agreed to introduce some testing for job candidates. They preferred to use a local ministry that provided some testing services, mainly because the testing was done at a very low price. The test was a psychological test which turned out to be very difficult for the expatriate managers to interpret due to the fact that it was in Chinese. In addition, there seemed to be no actual job analysis done by the test providers, so the reliability of the test proved to be low. The difficulties were pointed out by one expatriate manager in the following way: ‘We are really lagging behind on the recruitment side here…the whole process is just not there…the advertisements are really terrible…the testing is under all criticism.’

Performance appraisal in JV1 In JV1 the expatriate managers attempted to implement the global performance appraisal system that has been implemented widely in about 80 per cent of the MNC’s worldwide operations. The system was oriented to setting objectives, giving feedback on performance, improving communication, and developing future training plans. The cornerstone of the system is the appraisal discussion © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

where managers and employees meet to set next year’s objectives and review performance. The system was implemented sparsely among employees with a good command of English and was received with mixed feelings by both expatriates and locals. Some expatriates argued that the system had been received very well and others were under the idea that such systems were even difficult to implement in other parts of the world. The general point of view was that the process became extremely one-way and more of a feedback session from the expatriate managers. Some expatriate managers were quite content with this since the employees at least knew what was expected of them after the appraisal discussion. The difficulty with the system was that it seemed to be too complicated for the joint venture context. On top of language difficulties (the system was in English), some locals could not grasp the rationale behind the system. A second difficulty was the length of the process; it was generally considered as too difficult to update and actually go through. In addition, only limited training on performance appraisal was provided for managers by the MNC’s HR function. One manager argued: ‘It was so complicated so I decided to develop my own process…. I let them [the sales people] write their “future resumes” every six months so that I can see what kind of aspirations they had and where they want to go in the career…in this way I get an overall picture of my people…the HR department is not aware of this of course.’

Joint Venture 2 JV2 is the most recent IJV that the MNC has established in China. It is considered to be a big joint venture in its industry. At the moment there are around twenty expatriates working in the joint venture. The human resource function of JV2 is managed by a local manager appointed by the partner.

Recruitment practice in JV2 Already in the negotiations the MNC representatives took a great deal of time to explain to the local counterpart that the MNC has the policy to select people basing themselves on objective selection criteria like interviews, tests, etc. This led to the development of a recruitment process at the beginning of the venture operation in teamwork with the Chinese. The process resembled the MNC’s process but also had some local characteristics. The partner had the right to transfer some employees from the partner organization to JV2 and could do so if they went through the same process as the other external candidates. Some partner candidates were recruited but mainly for the factory floor since they © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

could not speak English. The issue of job descriptions took a crucial role in the development of the recruitment process. Expatriate managers took time to write accurate and clear job descriptions for the HR department to facilitate the search and scanning process. Even though the local HR manager could not speak English, the various HR officers had a good command of English and could therefore find good candidates according to the criteria set by the managers. Advertisements used by JV2 were according to the standards of the MNC. The advertisements were developed for JV2 in the sense that pictures of both expatriates and Chinese employees were included in the advertisements. Training in appropriate interviewing techniques was also provided for the HR people in JV2 by the MNC’s representative office. In the case of testing, the HR department in JV2 chose to use the same testing organization as in JV1. The experiences of these tests were similar to that of JV1. The expatriate managers could not comprehend the test results and the usefulness of the test was seriously doubted. At the time of these interviews JV2 was under the process of identifying a new partner to assist in the assessment process. One comment from an expatriate: ‘The test is really bad…. It doesn’t help me make decisions…. How do I interpret it?… I tried to ask an HR person but she did not understand either…. I do not care anymore, I make my decision solely on interviews.’

Performance appraisal in JV2 The MNC’s global performance appraisal system was implemented in JV2 as well. The difficulties with implementing the system in JV2 originated in the fact that the joint venture has three partners which all had different types of performance appraisal systems. The three different partners have until recently been using three different systems. The MNC’s global performance appraisal system has mainly been used with the upper-level staff such as expatriates and Overseas Chinese. JV2 decided to work out a new performance appraisal system in cooperation with the MNC’s representative office. A comment from an expatriate manager in JV2: ‘The problem is that we are three players in this company…. We have to develop practices that are suitable for this company and not according to the MNC!’ A task force was created with a fair share of Europeans and locals in order to create a more appropriate appraisal system for the joint venture context. A training session was arranged where managers and HR people gathered and different types of performance appraisal systems were gone through. The work is currently in progress but has been received so well that the system will be © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

implemented also in JV1 and other MNC units around China. The performance appraisal system resembles the MNC’s but has been simplified and translated into Chinese. The content of the system has also been modified to suit the central facets of Chinese culture more appropriately. As the Chinese HR manager in JV2 put it: ‘We have to make some changes in the quite direct questions that are apparent in the MNC’s performance appraisal systems…. Chinese employees are not accustomed to give feedback or criticize their bosses.’

LEARNING MODES IN PRACTICE Through the analysis of the case studies it has been identified that different learning modes have taken place in the HR functions of JV1 and JV2. According to the IJV learning classification presented above the learning modes would take the outline in JV1 and JV2 as shown in Table 4.2. In JV1 the recruitment process was to a large extent transferred from the local partner which led to conflicts between the expatriate managers and the HR function. The local management did not understand the relevance of recruiting external people for the IJV as well as the need for employing different kinds of selection methods. The expatriates did not show an understanding of the role of personnel management in CSEs in China and did not actively try to work with the local management; instead they tried to force a quick change which seems to have worked counterproductively. The recruitment process in JV1 is very similar to traditional personnel selection practices in CSEs. Several authors have highlighted the practices and processes employed in CSEs. The traditional recruitment practices in CSEs have in general been related to lifetime employment, low mobility and absolute egalitarianism. The recruitment process in JV1 could be described as a guanxi recruitment process where friends, connections and relatives were favoured (see Saha, 1993; Nyaw, 1995). Nevertheless, in JV2 a new recruitment process was developed in the sense that experiences from JV1 were utilized. The recruitment process in JV2 was both transferred, transformed and harvested by the expatriates and locals within the joint venture. They developed their own process which created mutual learning, meaning that the local management understood the Table 4.2 Learning modes highlighted in the case studies

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

relevance of using more objective selection criteria and methods. The expatriates on the other hand successfully harvested experiences from JV1 with support from the MNC’s representative office. The expatriate managers of JV1 were invited to share their experiences during the negotiations of JV2 and in that sense the MNC learnt from their previous difficulties. None the less, in the area of candidate testing the same difficulties were encountered all over again. In the analysis of performance appraisal practice in JV1 and JV2, it is of interest to see that the MNC tried to transfer its standardized performance appraisal system to both of the IJVs. This transfer proved to be quite unsuccessful. It could be argued that, in the area of performance appraisal, the MNC did not learn as fast as in the area of employee selection. However, later on the MNC started to develop a new appraisal system more appropriate for both the joint venture and the Chinese context. There are, however, some points that should be addressed when trying to offer explanations for the different learning modes. In the case companies the examination was focused on learning modes in IJVs highlighted in HR functions. HR practices generally consist of more behavioural-oriented practices in contrast to, for instance, production techniques. The case studies revealed that the HR functions/practices had required more learning in comparison to production functions. This is also in line with previous research that has identified some HR practices as under more influence of the cultural and institutional environment (Mendonca and Kanungo, 1994; Lockett, 1988). There is strong agreement that both culture and institutional differences will have an effect on management practices in IJVs in China (Lockett, 1988; Easterby-Smith et al., 1995; Warner, 1993; Child and Markòczy, 1993). In the two case studies, it could be maintained that a type of inertia existed in the sense that the MNC wished to transfer as much as possible of its practices to the IJV, to make it resemble the MNC. In the case of performance appraisal this seemed to be the case. The inertia generally stemmed from the MNC’s representative office which pushed for the use of the global practices. MNCs sometimes have ambitions to transfer practices to their foreign units for control purposes (Jaeger, 1983). The quote from an expatriate in JV2 describes the issue: The people over at the representative office just do not understand what kind of reality we live in over here in the joint venture…even though they are only half-an-hour down the road.’ In addition, the attitudes of some expatriates definitely affected the learning modes that were presented (Björkman, 1994). In some cases the expatriates did not seem to make an effort to try to learn from the locals’ way of doing things. Some local interviewees were under the impression that expatriates did not have a thorough understanding of China and the Chinese way of doing things. Especially in JV2, some expatriates looked at the IJV merely as an © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

extension of the MNC. None the less, such attitudes could hamper the ability to learn from the local organization’s knowledge and the attempt to find better ways of doing things. Moreover, the amount of expatriates working in the case companies seemed to have affected the learning modes (Björkman, 1994). In JV2, which is a relatively new venture, the number of expatriates was high. This most certainly has put pressure on the local management to be introduced to new management concepts and technologies. A downside to this may be that if too many expatriates are employed it can result in interference with the development and learning of local managers. Stressing the use of expatriates in management positions can also reflect a lack of trust in local employees. It has been argued that local knowledge is necessary and one should therefore use a large proportion of local managers to ensure this (Beamish, 1985). Finally, in the case studies it also became apparent that harvesting from other joint venture experiences prior to JV1 had been limited. It seems that JV1 expatriates were forced to learn from scratch about ‘how to go about it’ in China. Several expatriates raised this issue during the interviews and referred to learning by trial-and-error. The MNC’s difficulty seems to be the fact that when an expatriate’s contract expires the experiences that he/she has gathered during years in China also vanish. Another issue is the role of the accumulated Chinese experience of the MNC. The MNC has been present in the Chinese market since the mid-1980s but mainly through a representative office. JV1 was the first major commitment by the MNC in China and the role of HR was not given much priority during the negotiations of the joint venture.

CONCLUSIONS AND RECOMMENDATIONS This chapter has described learning modes (transfer, transformation, harvesting) in two IJVs in China, belonging to the same MNC. It was shown that different learning modes have taken place in the IJVs’ HR functions. In the first case company (JV1), it was identified that the recruitment process was transferred from the local Chinese partner, which resulted in conflicts between expatriate and local management. In the second case company (JV2), it was noticed that the MNC learned from the experiences encountered in the area of recruitment in JV1. They then applied this learning in the development of a new recruitment process in JV2 that became tailor-made for the joint venture setting. Consequently, all learning modes took place in the area of recruitment in JV2. Nevertheless, when examining the practice of performance appraisal it is noted that the MNC’s standardized performance appraisal system was transferred with limited success to both JV1 and JV2. Subsequently, a decision was made to transform the performance appraisal system by modifying it according to the needs of the joint ventures and the cultural setting. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The learning modes encountered and analysed in the two case studies should not be generalized too broadly. They may, however, have some practical implications for managers and companies attempting to operate or operating in China. First, the transfer mode of learning suggests that the export of standardized HR practices from MNCs to joint ventures may run into difficulties, implying a need for substantial transformation. This transformation is called for due to clear cultural and institutional differences as well as different views of human resources management held by local management. It could be proposed that these difficulties could be avoided if an MNC attempted to get the mandate to manage the HR function in a joint venture. Another proposition would be to try to appoint an external HR manager, preferably a local Chinese, educated in Western-style human resources management. Second, the transformation mode of learning suggests modifications of MNC HR practices for the joint ventures. This issue may have some implications on the selection of expatriate management. MNCs should attempt to send open-minded and culturally sensitive expatriates to their China operations. They should also possess an ability and willingness to accept and create new management processes suitable for IJVs, in cooperation and teamwork with local management. By doing so, a process of mutual learning can occur, incorporating MNC practices with the positive aspects of Chinese culture. Third, the harvesting mode of learning suggests that learning from previous experience takes an important role in speeding up the transformation process. In the scope of MNCs, this requires an effort to document and learn from previous experiences in China. It also implies the establishment of processes that support the sharing of experiences between the various MNC units in China (representative offices, joint ventures and holding companies). In addition, it also suggests the harvesting of experiences in other companies, through the attendance of China-specific seminars, active benchmarking and participation in different types of networks.

REFERENCES Beamish, P.W. (1985) ‘The characteristics of joint ventures in developed and developing countries’, Columbia Journal of World Business Winter: 13–19. Björkman, I. (1994) ‘Role perception and behaviour among Chinese managers in SinoWestern joint ventures’, in S.Stewart (ed.) Advances in Chinese Industrial Studies, vol. 4, Greenwich, CN: JAI Press. Björkman, I. and Lu, Y. (1997) ‘The management of human resources in joint ventures and wholly-owned subsidiaries in China’, paper presented at the LVMH Conference, Euro-Asia Centre, INSEAD, 8–9 February 1997. Björkman, I. and Schaap, A. (1994) ‘Human resource management practices in SinoWestern joint ventures’, The Finnish Journal of Business Economics 43:111–25.

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Brewster, C. (1993) ‘The paradox of adjustment: UK and Swedish expatriates in Sweden and the UK’, Human Resource Management Journal 4:49–62. Campbell, N. (1988) A Strategic Guide to Equity Joint Ventures in China, Oxford: Pergamon. Casson, M. (1993) ‘Contractual arrangements for technology transfer: new evidence from business history’, in G.Jones (ed.) Coalitions and Collaboration in International Business, Cheltenham, Glos: E.Elgar. Child, J. (1991) ‘A foreign perspective on the management of people in China’, International Journal of Human Resource Management 2:93–107. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Child, J. and Markòczy, L. (1993) ‘Host-country managerial behaviour and learning in Chinese and Hungarian joint ventures’, Journal of Management Studies 30: 611–31. Child, J. and Rodrigues, S. (1994) ‘Social identity in the transfer of knowledge in international ventures’, working paper, Judge Institute of Management, University of Cambridge. Cyert, R. and March, J. (1963) A Behavioral Theory of the Firm, Englewood Cliffs, NJ: Prentice-Hall. Cyr, D.J. (1995) The Human Resource Challenge of International Joint Ventures, Westport, CT: Quorum Books. Easterby-Smith, M., Malina, D. and Yuan, L. (1995) ‘How culture sensitive is HRM? A comparative analysis of practice in Chinese and UK companies’, International Journal of Human Resource Management 6(1):31–59. Hamel, G. (1991) ‘Competition for competence and inter-partner learning within international strategic alliances’, Strategic Management Journal 12:83–103. Inkpen, A.C. and Crossan, M.M. (1995) ‘Believing in seeing: joint ventures and organization learning’, Journal of Management Studies 32(5):595–618. Jaeger, A.M. (1983) ‘The transfer of organizational culture overseas: an approach to control in the multinational corporation’, Journal of International Business Studies 14:91–114. Kedia, B.L. and Bhagat, R.S. (1988) ‘Cultural constraints on transfer of technology across nations: implications for research in international and comparative management’, Academy of Management Review 13(4):559–71. Lockett, M. (1988) ‘Culture and the problems of Chinese management’, Organization Studies 9:475–96. Mendonca, M. and Kanungo, R.N. (1994) ‘Managing human resources, the issue of cultural fit’, Journal of Management Inquiry 3:189–205. Nyaw, M.-K. (1995) ‘Human resource management in the People’s Republic of China’, in L.F.Moore and P.D.Jennings (eds) Human Resource Management on the Pacific Rim, Berlin: Walter de Gruyter. Saha, K.S. (1993) ‘Managing human resources: China vs. the West’, Canadian Journal of Administrative Sciences 10(2):167–77. Shenkar, O. and Zeira, Y. (1987) ‘Human resources management in international joint ventures: directions for research’, Academy of Management Review 12(3):546–57. Tiemessen, I., Lane, H.W., Crossan, M.M. and Inkpen, A. (1996) ‘Knowledge management in international joint ventures’, paper presented at Global Perspectives on Cooperative Strategies, The North American Conference, 1–3 March, Ontario, Canada. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Tung, R.L. (1994) ‘Human resource issue and technology transfer’, International Journal of Human Resource Management 5(4):807–25. Von Glinow, M.A. and Teagarden, M.B. (1988) ‘The transfer of human resource management technology in Sino-US cooperative ventures: problems and solutions’, Human Resource Management 27:201–29. Warner, M. (1993) ‘Human resource management with Chinese characteristics’, International Journal of Human Resource Management 4:45–65.

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5

Building trust for successful partnership in China Elizabeth Li

INTRODUCTION The concept of family embedded within the fundamental values of Chinese culture can be used to illustrate Sino-foreign joint ventures (SFJV). Before a family is created by the union of two people, the respective parents usually have to give consent to such a marriage. A date is chosen, terms and conditions are agreed upon, and a ceremony is usually performed to seal the alliance. The marriage as a new union will usually go through a honeymoon stage before reality strikes. Contained within the new reality are the unspoken expectations by both the partners and their parents. As time goes by, the extent to which the assumed expectations are met determines the level of cooperation and trust. We are living in a world where divorce is a common phenomenon. Many young Europeans are discouraged from marriage due to the 33 per cent divorce rate. Members from cultures that are strongly family-centred find it difficult to establish trust outside the family circle (Fukuyama, 1995). If the partners, as in SFJVs, are of different nationalities, the potential misalignment of their expectations would be greater. This becomes a crosscultural issue. The cross-cultural issue further complicates the establishment of trust by contributing additional dimensions. When establishing a joint venture, both sides are likely to be concerned that they do not ‘lose out’ in the transaction. The contract established is often inclusive of clauses to protect their own side. ‘Contracts—even at their best-can reflect an understanding of costs and markets and technologies only at the moment companies sign them, then when things change, the partners don’t really try to compromise and adjust’ (Ohmae, 1992:149). Interventions from the highest levels often cause discord, then manifested in control, conflict and political activities. The gap between the partners widens and trust disappears. Lessons need to be extracted from the past and present, so that a new future can be created. The aspect of equality plays a fundamental role to building mutual trust. If one of the partners perceives itself as superior in any way, it would impose its values on the weaker partner. These measurements of superiority can be seen in © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

percentage equity split or technologies and financial contributions. This superimposition of one set of values, often without explicit discussion, onto another causes damage to the recipient’s self-esteem. In the Chinese context, this is related to the issue of ‘face’. The overt imposition often stimulates covert activities. Fundamental developments must take place before smooth operations can begin: 1 2 3 4

establishing trust; understanding the issues of current identity; understanding the issues of a new identity; creating a mechanism for a new identity.

The key to a successful future is the facilitation of these issues at the start. This chapter examines the underlying values and assumptions that affect the transformation of organizations, from a state-owned mentality towards a market-driven orientation. Data from clinical research on Alpha, a Sino-foreign joint venture, is examined and guidelines are established for transforming future organizations to ease the discord due to clashes in values and assumptions in the early stages.

THE PRC BACKGROUND The underlying values and assumptions at the national level affect the transforming economy within the PRC. The fundamental value is the dualistic existence innate within the Chinese culture and a short-term view in many interventions. In the need to remain Chinese, while learning from other cultures by importing ideologies, a conflict may arise. Two opposing forces have historically existed within China. First, the conversion and integration of foreign expertise into Chinese practices has its roots in the time of the Silk Road, in the seventh and eighth centuries. China has always been able to maintain its identity despite foreign conquest (Wang, 1991:1–10). Second, despite the need to maintain the Chinese identity, the import of technologies, expertise and ideologies is both an historical and a current phenomenon. That is, the vast size and mystique of China has attracted foreign adventurers bringing with them different outlooks. While some hoped to conquer, others focused on influencing. But none were able to shift the fundamental values and assumptions. With regard to the present economic transformation, whether it is types of scientific technological expertise or the transplant of privatization processes by developmental institutions (Hofstede, 1993:86–7), a delicate balance and sensitivity need to be established for successful integration. Values and assumptions on a national level manifest themselves in different ways within organizations. That is, national culture and organization culture are © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

often not distinguished in many analyses. On the one hand, national culture is defined as the collective programming of the mind which distinguishes the members of one group or category of people from another (Hofstede, 1990:14– 18). Corporate or organization culture is defined in a similar way except for the fact that the collective programming of the minds of original members are the values of the founder and significant leader. Therefore, the shared perception of daily practices can be considered to be the core of an organization’s culture (Hofstede, 1991:180). Within this context, the analysis of Chinese enterprises can be separated into two types: the state-owned and privatized forms. Many models and discussions on corporate culture (Schein, 1985:49–85; Swieringa and Wierdsma, 1992:10–26; Hofstede, 1991:177–200) discuss the progression towards the embedded values stressed at the deepest level. Hofstede’s model is most relevant to this study. He distinguished between values and practices (see Figure 5.1). Values and practices exist in different proportions depending on their level of application. We begin to see the complexity of the dynamics between the organization components of the formal structure and the informal structure. This section distinguishes the organizational culture of a state-owned and a privately-owned enterprise within the PRC. Eight dimensions are used to define the culture. Among these eight, two are connected with the philosophy of the founder; four are results of the task, industry and market environments (Hofstede, 1991:191); and two are specifically relevant to the People’s Republic of China. The first six dimensions were used in a study at the Institute for Research on Intercultural Corporation, now at the University of Lumburg at Maaestricht, the Netherlands, involving twenty organizations.

Figure 5.1 The nature of culture differences: the national, occupational and organizational levels Source: Reproduced with permission of the publisher from G.Hofstede (1991) Cultures and Organizations: Software of the Mind, Maidenhead: McGraw-Hill. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

1 2 3 4 5 6 7

8

Orientation depends on historical factors such as the philosophy of the founder and recent situations. Weak uncertainty avoidance would lean towards an open communication climate; and strong uncertainty avoidance would lean towards a closed communication system. In a PRC organization, process orientation tends to avoid risk taking. The bureaucratic system within the state-owned enterprises tends to reinforce this while the more nimble privatized organization encourages results. Parochial cultures tend to hire employees who have less formal education (Lee, 1991:135–9). Private enterprises have started to use contract labourers. On the surface it seems the state-owned enterprises are tightly controlled while the private firms are loose; often the opposite is true. In state-owned enterprises little pragmatic customer orientation is needed. An issue relevant within PRC enterprises (Block, 1993:34,134), employees of state-owned enterprises believe in their right to be cared for by the state, while private enterprises are moving towards a pay-by-production approach. Budgeting process in the state-owned sector has been soft, struggling to move towards a harder process.

Transforming a state-owned mentality towards that of market-orientation (see Table 5.1) needs constant understanding of where each decision is, in relation to the above mentioned dimensions, in terms of values and assumptions. Both sides need to be sensitive to each other’s natural tendencies or habits. Changes in these habits needs committed efforts which can be painful. A sense of fear and hopelessness has made it hard to invest in any sense of longterm beliefs. By functional behaviour control, conflict and politics will be the automatic reactions to situations handled without sensitivity to the issues mentioned. Misunderstanding between the two parties causes further confusion.

Table 5.1 Organization culture within the People’s Republic of China

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The willingness and understanding of individuals within the system undergoing change is crucial, and such individuals must believe that change will benefit all before a smooth process can be developed (Beckhard and Harris, 1987:51–9). Consequences triggered by structuring can cause tremendous damage, as well as high apathy among the individuals participating within the change process. As a result, the demand of immediate benefit in the short term has overtaken the traditional long-term values. This tension has created a loss of control resulting in conflicts and political activities. Control, conflict and politics are three additional dynamics of organizational design. These are manifestations of values and belief systems. Through observable behaviours in these areas, certain basic assumptions can be made. Control is a system that directs members to achieve organizational goals through strategy and structure, and performance and reward designs (Robey, 1991:246). However, it is often important to assess the extent to which control systems are getting the results that they are designed to produce. Organizational conflict is often the result of misalignment between interacting parties (Robey, 1991:153). Misalignment occurs when each of these parties has different goals and objectives. The following describes what happens on one side of the union.

Control system within state-owned enterprises Control within the state-owned enterprises is confusing. The practices are generally person-centred, with the decisions being made by the most senior person in charge. Consequently, double standards are created by selective attention and strategic measurement (Robey, 1991:251). The rigid bureaucratic form with high control and narrow span encourages entitlement behaviour— ‘Do is 36 and don’t do is 36’ (a phrase commonly used referring to employee morale of the state-owned enterprises). The equitable process of distributing rewards and benefits which many state-owned enterprises still practise does not encourage accountable and responsible attitudes. Therefore, it is difficult to direct members of the organization towards the enterprise’s goals.

Conflicts within state-owned enterprises Conflicts within state-owned enterprises manifest themselves in two forms: those that are internal and those that are external. In both cases, the underlying causes are related to resource scarcity and information complexity (Lawrence and Dyer, 1984:301–4). The reward system which oils the components of the control system is divided into two types: tangible and intangible. Based on the traditional format of tangible reward, whereby distribution is based on equal sharing, it is often the intangible rewards obtained through personal influence that make a substantial difference to the individual. A formal performance appraisal system is in place in many © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

state-owned enterprises; however, a fair degree of personalization and ‘strategic measurementship’ (Robey, 1991:251) are exercised via the informal system of influence while still executing the formal structure. In this kind of circumstance, if organizational objectives are not entirely clear to the individuals due to a lack of information, then individual goals and various sub-goals may take priority over the super-ordinate objectives. Cooperation under these circumstances is difficult where ownership is by ‘all of the people’ and therefore it is difficult to trace accountability and responsibility. These factors contribute to the degree of conflict within the state-owned enterprise which often surpasses the energizing point and creates stress for the system-leading it towards the demotivating side of the conflict curve (Hill and Jones, 1992:406–7). The conflict curve pinpoints an optimal point where positive conflict enhances organizational performance and beyond that point the conflict would negatively affect performance and cause apathy and low performance. Conflict within the state-owned enterprise takes three forms. First, conflict is resolved through bargaining and negotiation efforts where selfinterests are protected by the members. Second, collaboration efforts where members can work rationally towards situations in which everyone wins are only possible when forms of long-standing relationships are present and fundamental trust is strong (Raskin, 1991:79). Third and finally, interpretive efforts, allowing both the negotiation and collaboration efforts to coexist and which do not necessarily create a right or wrong perspective, are required. Within state-owned organizations, however, the interpretive format seems to be frequently present through continuous forms of negotiation and bargaining (Lee, 1991:35).

Politics within state-owned enterprises Politics within state-owned enterprises is one of the more important aspects of their operation, based on the elements of the political model whereby members focus on sub-goals and sub-interests. Members withhold information, they negotiate compromises reached by power balance, and winning is possible only when one party has more influence (Robey, 1991:369–71). In a high power distance country such as China (Hofstede, 1993:171–3), the issue of power is particularly important. Power in the individual form includes reward, coercive, legitimate, referent, expert, articulate and self-belief (French and Bentram, 1959:150–67). The negotiations between parties are often by means of exchange and bargaining to maximize sub-goals rather than the super-ordinate goals. These are all contributing factors forwarded in the clinical study of the alpha case described in the next section.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ALPHA—THE CASE Alpha was a joint venture between a Chinese state-owned enterprise and a publicly traded Asian multinational. The Asian organization (see Figure 5.2), which had its headquarters in a major Asian city, had a strong name, image and reputation for quality products. It was more than 100 years old and the thirdgeneration owners controlled a large proportion of its shares. The elements of the management structure relevant to Alpha are the headquarters, the international holding company, and the Hong Kong division. The international holding company was formed as an intermediary organization in 1992 to manage all international activities and new businesses established by headquarters. Alpha reported to the Hong Kong division. The parent company’s brand name had existed in the Asian region for more than a century while the Hong Kong division had a fifty-year history. Recent developments in the PRC prompted the Hong Kong division to establish a subsidiary to penetrate the potential China market. Alpha was established in 1991 and consisted of 1,100 employees, while the Hong Kong division was publicly listed on the Hong Kong Stock Exchange. The majority of its shares were owned by the Asian organization. The shares of Alpha itself were complex. Both partners in the Alpha venture had extensive experience in manufacturing this product prior to the joint venture. The local Chinese partner in Alpha was a state-owned enterprise that had been in the same business as the Asian organization for fifty years. The local Chinese partner was previously involved in a similar joint venture that was dissolved. In addition to the Hong Kong division, Alpha also reported to the municipal sub-bureau which was supervised by the Central Ministry in Beijing (see Figures 5.3 and 5.4). The cooperation agreement allowed the Asian parent to use the land and facilities of the local partner for thirty years.

Figure 5.2 The Asian organization’s structure © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Figure 5.3 The local Chinese organization’s structure

Figure 5.4 Alpha reporting units

The clash of cultures Consistent with the parental reporting hierarchy and conflicting input into the venture, Alpha produced two product brands: a local brand developed before the joint venture and an imported brand licensed by the Asian partner. This type of dual system without alignment exists within other departments; however, due to the size and leadership skills of the department manager, integration is often possible. In almost all cases, there is the dilemma of two separate sets of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

operating criteria which often causes decision conflict over quality standards, production procedures, operation processes, employee behaviour and other issues. Split directives between departments and divisions escalate stress levels to a demotivation point. Due to the intensity of day-to-day operation, with all its emergencies and on-the spot decisions, problems are often treated at the symptomatic level, rather than by basic structural and policy change. The China partner resisted many of the new processes that were put in place by the senior management team (of seven people) at Alpha. The senior executives selected to represent the Asian partner were made up of five different nationalities. Only two of the seven had spent considerable time in the Hong Kong division. No experience from the Asian organization’s headquarters was represented in the joint venture. The PRC had a strong sense of identity and resisted the haphazard changes that were put in place by the representatives of its Asian partner. Credibility is often questioned and higher authority intervention is needed. Externally in the hierarchy and internally within the organization, although the annual result of the last two years exceeded expectation, the partners were unable to agree upon the reinvestment approaches. The Asian partner put high priority on a high-speed production line while the Chinese partner was looking at property and housing for the employees. Strategic differences could not be agreed upon at the higher level. The communication pattern within Alpha was fragmented and divided both by function and nationality. A ‘we/they’ division was apparent. The solidarity of the two sides was strong when it was necessary to unite. Numerous conflicts were mediated and facilitated by the managing director and the human resources manager. ‘Seagull’ managers flew in from supervising entities and complicated issues with direct reports to the Hong Kong division, international holding company and the headquarters or the municipal sub-bureau and central ministry. Both the managing director and the human resources director utilized more than 50 per cent of their time and energy managing these types of situations. Differences in the language, values and assumptions caused communication problems. The behaviour and norm was a constant competition for power and dominance of one over the other. All the formal authority was held by representatives from the Asian partner which only represented 5 per cent of the total workforce, while the PRC partner, which represented the other 95 per cent of the staff, could only assert its wishes through coercive means, which resulted in a series of ‘win/lose’ situations. As one side lost, it harboured resentments which intensified in the next conflict situation. The only form of integration available were the two positions where the managing director and the human resources manager had served as individual mediators since the beginning of the joint venture. However, it had become unmanageable for the managing director and human resources manager to effectively carry out their other responsibilities. In the same way, many of these activities were reducing the production effectiveness of the enterprise. The formal component of Alpha was not aligned. The technology and human resource structure and systems were not © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

doing what they were designed to do. That is, the formal structure of authority and control were often superseded by higher authority, internal or external to Alpha, as well as coercive activities. The informal components represented the culture of Alpha where the communication patterns, work process and integration mechanisms were in confusion. The formal and informal components were not being guided by the strategic component, which did not have an agreed-upon direction. The misalignment within and between each of the components hindered optimization of organization effectiveness.

ANALYSIS Critical issues from the initial phase at Alpha included lack of identity, conflicting directions, political activities, unstable systems and structure, general discontent, and lack of mutual trust. The issue of ‘identity’ is important. The failure to establish and agree upon an identity by the parent organizations caused a lack of trust, resulting political activities and a ‘we/they’ mentality. If the evaluation of the current state of Alpha concluded that the fundamental problem was a crisis of identity, then it is appropriate to step back from the data generated at Alpha and look at the various components of the organization in its relationship to the business environment. Alpha’s relationship to the market and its history, values and formal and informal structures all need to be considered. Each of these aspects differs as it relates to the state-owned enterprises and the share-holding enterprises. In particular, the eight dimensions of organizational culture have identified contrasting traits and expectations for the state-owned enterprises and share-holding enterprises. In the case of Alpha, the two parent organizations brought their own ideals. The Asian parent represented the private-form values while the PRC parent embraced the state-owned values. Three broad clusters were suggested by the data generated from the various interventions at Alpha: trust, culture and organizational design.

Trust Here, it is useful to go back to the opposing values between national and organizational levels. That is, the national values within the PRC operate on the premise of a long-term perspective (in other words, 4,000 years of history, the ‘Chineseness’ of China). Yet many state-owned organizations are insistent on short-term benefits and gratification. Here lies the key, in the absence of a solid legal framework within the PRC—the issue of trust within the network is essential to interactions. Within a strong clan culture where relationship is more important than law, the issue of trust cannot be ignored. The insecurity experienced during the last 100 years of social, political and economic instability has changed one of the innate national values of the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Chinese people, especially those who have given their souls and blood to state-owned enterprises. It is apparent that within private firms, especially in the family firm, long-term views reappear without interventions. Gainsharing and mutual commitment from both employer and employee are strong. However, in a state-owned enterprise, the mentality is more often protective and defensive. State-owned enterprises are adopting the bonus system as a means of compensating for these behaviours without much success in changing innate values. The lack of mutual trust was apparent among and between all levels, internal and external, to the enterprise and also in the managing director of Alpha by the Asian parent who had hired him. The lack of trust extended to political activities rather than organizational objectives. Mutual respect between subordinate and superior relationships could not be established. Because of the lack of direction and identity at Alpha, conflicts over protecting or furthering personal or sub-unit objectives were frequent occurrences. This cluster is an obstacle to establishing a mutually accepted identity as each partner tries to establish its way as the only way, which in turn makes negotiation and collaboration difficult. The power struggle for control is apparent in the interdepartmental conflicts that obstruct maximum production. The information flow—highly segregated, kept within its own territorycontributed to high divisional and departmental conflict within a highly interdependent work flow.

Culture Cultural elements within Alpha can be understood through the eight dimensions developed to understand the distinct practices between state-owned and shareholding enterprises. Alpha has not been able to align its situation according to these dimensions. The PRC partner at Alpha has a strong organization culture with communication patterns that have been in operation for the past fifty years. The confusion of identity during the transition period needs to be addressed. This lack of identity, where Alpha’s employees were uncertain about communication patterns, creates a low context. Imposing or superimposing sporadic undefined processes on an established system can cause resistance and discontent. Complex reporting situations, boundaries, relationships and directions may be contributory factors to a wavering leadership style. By Phase 3 of Alpha’s intervention, the international holding company had finalized a decision to eliminate the Hong Kong division level and both Alpha and the Hong Kong division reported directly to the international holding company. This eliminated on the Asian side one level of reporting relationship, which eliminated one layer of confusion. The PRC enterprises and Alpha are employee-oriented by nature, where the entire welfare of the worker, from the matchmaking of marriages to the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

allocation of baby quotas, is part of the responsibility of the paternal enterprise. It is understandable for the market-driven economy or participants to be interested in job orientation, where the primary concern is with work. In the same way, the parochial versus professional dimension is based on a similar philosophy with the added element of skill and education. Alpha’s mentality is definitely parochial in that many relatives and clans of the same village tend to be drawn to certain industries and enterprises. The needs and wants expressed during the workshops and in the high score of the training and development category reiterate the hope of the Asian partner to lead the workforce towards professionalism. Senior managers who lacked grounding in organization practices within the PRC created an environment lacking in sensitivity which caused tension. In the same manner, the normative perspective, entitlement concepts and soft budget mentality caused difficulties in meeting a mutually agreeable standard for working together. The lack of alignment in Alpha’s management process caused managers in leadership roles to carry on doing whatever seemed to fit their own needs and history. The different processes that were being used to manage the enterprise were shockingly varied. The performance management category raised the issues of the lack of skills and inconsistency in appraisal and job specification. Organization design The various organization components within Alpha did not fit on either a philosophical or an operational level. The discussion of trust and culture mainly focused on informal components. This section will focus on the formal components: human resources, the structure and the systems of the formal component. Training and development, reward system, performance management and aspects of quality management are included in the area of human resources. The multiple levels of both partners, the unclear roles and responsibilities, the organization systems and information flow all point to aspects of structure and system within the formal component. It is obvious from the study that each function had designed its own system according to the history and experiences of the manager in charge. Crisis of identity Fundamental to the above-mentioned clusters generated from the data at Alpha is the crisis of identity. This root cause of the various symptoms generated could be identified as the mismatch of strategic direction. The Asian partner had been operating in a mature market where high production demand had set technology as an organizational competency. However, although the PRC is a growth market, the basic resource available is human; superimposing market strategies from other markets may not have taken in the local environmental factors. The two partners at Alpha could not agree upon the reinvestment of profit. The PRC © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

partner wanted to see the capital placed in the building of accommodation for the employees, while the Asian partner preferred to place the investment in a high speed production line. This issue touches on all three clusters from the generated data: trust, culture and organizational design. The Asian partner has used the position of holding more shares of the entity to make the final investment decision, which has not appeased the PRC partner. The use of position power in terms of joint venture percentage split pushed forward decisions that would violate any previous trusting relationship. The cultural aspects could be seen through the basic orientation where one was more employee-focused and parochial and the other was oriented towards results and the job. In the case of organizational design, the utilization of a high-speed production line or the development of a system that would be able to maximize human resource would both take a very different approach. Therefore, the root cause of identity needs clarification at the strategic level, where there was still a struggle between the partners of Alpha. CONCLUSIONS AND RECOMMENDATIONS The evaluation concluded that the lack of trust at all levels of the organization, the crisis of identity, the struggle for the new identity and the lack of mechanisms, describes the present state. Therefore, it is necessary to establish trust, understand the issues making up the identity crisis, surface and negotiate the new identity, and create mechanisms that will lead to the formation of the new identity. The following will discuss each of the fundamental areas of groundwork necessary in the transformation process towards a market-driven customer orientation in detail. Establishing trust Trust issues within Alpha surfaced in many forms. Most often questioned by both the local and expatriate employees were the areas of commonality, credibility and intent. Conflict and politics festered around these issues: foreign nationals cannot understand the PRC way, they cannot operate here in the way they might work in another country, the local staff can never work to such high standards, and so forth. Importantly, there was very little intention of devoting time to understanding the differences and to closing the gaps. There was high tension on both sides of the ‘we/they’ mentality. This guideline recommends that at the onset of transformation, before moving into activities, it is necessary to manage the trust issue so as to avoid acute dysfunctional symptoms at a later date. The clarification of mutual contributions and benefits by understanding needs, wants and opportunities could begin the process. Although the process of building trust is not a one-time event, the establishment of a solid foundation is critical to the ongoing process. In establishing trust, it is important to be familiar with the national values and assumptions so that an understanding of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the interpretation of behaviour and intentions is present. If one is not native to the PRC, it would be best to engage a guide who could mediate the process. Due to the issue of ‘face’, there are often discussions that cannot be directly confronted but would be channelled through a trustworthy mediator. Understanding the issues of a current identity As demonstrated with the eight dimensions of organizational culture within a transforming enterprise, the need for establishing understanding of each of the dimensions at the beginning is critical. That is, if clarity of the present state is not understood, a forced fit perception struggles to exist, which leads to conflict and politics, taking away energy that would otherwise be focused on optimizing effectiveness. This was apparent and obvious within the daily activities of Alpha at all levels, internal and external, to the organization. Instructions, directives and decisions from supervising bodies did not take into consideration the differences in expectations and world views. This resulted in collusive and resisting type activities in many situations where resolution could only be obtained with intervention from higher authorities. It is necessary for both sides to be aware of the gaps in their expectations and to work continuously to evaluate and negotiate the most appropriate policies and procedures for each dimension which would best suit their organization, taking the demands from the macroenvironment into consideration. Understanding the issues of a new identity In order to agree upon a new identity, the conditions of the first two guidelines must be in place. There needs to be a degree of trust, and the analysis of issues within the identity crisis should be clarified. However, one of the aids to establishing this guideline would be the alignment of a shared future vision by defining core processes, purpose, objectives and goals. These activities will assist in assessing the future which would contribute to the present identity. In the case of Alpha, these activities took place only after the company was two years into the transformation process, during a management session on evaluative intervention. The interventions accomplished some of the negotiation of the new identity; however, it would take much more time to sort out the differences than if some clarification had taken place at the initial phase of establishing the fundamental groundwork. Creating mechanisms for a new identity Once the new identity has been established, organization components will have to follow. The vision of the future has been established on an organizational level, followed by mission and goals at business and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

functional levels. At Alpha these activities were carried out in management activities at every level, where the individual functions established that their unit goals tied into the organizational mission and goals. However, the replacement of the systems and structure that were already in place made it difficult to redesign all the components at the same time. If in fact these issues had been clarified and designed at the beginning, as the enterprise privatized, the fundamental groundwork would have been put into place; then, subsequent building on this foundation would have been more effective. Given the lessons learned from Alpha, some of the activities suggested could still be useful after the transformation of the enterprise. However, the degree of difficulty and effectiveness would be different if these guidelines were established prior to the start of an alliance/transformation. The basic principles of these guidelines are being applied by Beta. It has so far demonstrated that, the more these issues are clarified at the onset of the alliance, the smoother the operation.

REFERENCES Beckhard, R. and Harris, R.T. (1987) Organizational Transitions—Managing Complex Change, 2nd edn., Reading, MA: Addison-Wesley. Block, P. (1993) Stewardship, San Francisco: Berrett-Koehler. Bond, M.H. (1994) Chinese Values, Hong Kong: Oxford University Press. French, J.R.D., Jnr and Bentram, R. (1959) ‘The Bases of Social Power’, in D.Cartwright (ed.) Studies in Social Powers, Ann Arbor: University of Michigan Institute of Social Research. Fukuyama, F. (1995) Trust—The Social Virtues and the Creation of Prosperity, New York: The Free Press. Hill, C.W. and Jones, G.R. (1992) Strategic Management Theory, Boston: Houghton Mifflin. Hofstede, G. (1993) ‘Cultural Constraints in Management Theories’, Academy of Management Executive 7(1):81–94. ——(1991) Cultures and Organizations, Maidenhead: McGraw-Hill. ——(1990) Culture’s Consequences, Newbury Park, CA: Sage. Hofstede, G. and Bond, M. (1988) ‘The Confucius Connection: From Cultural Roots to Economic Growth’, Organizational Dynamics, 16(4):4–21. Hofstede, G, Bram, N., Ohauv, D.D. and Sanders, G (1990) ‘Measuring Organizational Cultures: A Qualitative and Quantitative Study across Twenty Cases’, Administrative Science Quarterly, 35:286–316. Lawrence, P.R. and Dyer, D. (1983) Reviewing American Industry, New York: The Free Press. Lee, K. (1991) Chinese Firms and the State in Transition, New York: M.E.Sharpe. Ohmae, K. (1992) The Borderless World, London: Fontana. Raskin, C. (1991) China’s Political Economy, Oxford: Oxford University Press. Robey, D. (1991) Designing Organizations, 3rd edn, Homewood, IL: Richard D. Irwin. Schein, E.H. (1985) Organizational Culture and Leadership, San Francisco: JosseyBass. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Swieringa, J. and Wierdsma, A. (1992) Becoming a Learning Organization, Reading, MA: Addison-Wesley. Wang, G. (1991) The Chineseness of China, Hong Kong: Oxford University Press. Woodward, H. (1987) ‘After Shock—Helping People Through Corporation Changes’, in K.Hess (ed.) Wilson Learning Corporation, Chichester: John Wiley.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

6

Future Sino-Western strategic partnership Chiang-nan Chao, Robert J.Mockler and Dorothy G.Dologite

INTRODUCTION Establishing strategic partnership between Western multinational and Chinese corporations is believed to be an effective way to penetrate this difficult-toaccess market. This chapter investigates business conditions for establishing strategic partnership and future managerial concerns about the Chinese market from the perspectives of both Western and Chinese executives via an empirical study. The results suggest that Western executives disagree with their Chinese counterparts significantly on rating the variables selected. Both Western and Chinese executives view political stability in China as the most important concern for their future business, with Deng Xiaoping’s era finally closed. It is unclear whether or not a new era will begin. The current leaders’ visions for a new era remain unclear. If this new era begins, what impacts will it bring about on Western multinational corporations? Whatever happens, Western corporations need dynamic partnership strategies in China in order to benefit from this emerging market, while the Chinese need to continue to improve their investment climate with focuses on infrastructure in order to compete for limited global investment capital on the global market.

DIFFERENT STRATEGIC APPROACHES TO FORMULATING STRATEGIC PARTNERSHIP IN CHINA Western corporations have exercised many different strategies in China. Establishing small representative offices was an effective approach to test water when the planned economy still dominated China’s economy, and murky switches of government policies made foreign investors difficult to follow in the late 1970s and early 1980s. Compensatory contracts, a loose form of partnership in which Western firms brought in equipment, materials and/or management know-how in exchange for a predetermined quantity of finished products, were useful in the early to mid 1980s for labour intensive manufacturing in China © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

where many companies could not afford the purchase of capital equipment and management know-how. In the mid-1980s, relatively small-scale joint venture partnerships of a few million US dollars investment proved to be effective. For example, Chrysler Corp. (then American Motors Corp.) invested US$8 million in a partnership with Beijing Jeep Corp. which assembled utility vehicles from imported kits (Aiello, 1991). In the early 1990s, large-scale ventures of a few hundred million US dollar investments became widespread. For example, Motorola Inc. recently began its additional US$720 billion construction on the 8inch wafer fabrication facility located in Tianjin (Galvin, 1996). ELF Aquitaine, a French oil giant, is planning a US$2.5 billion joint venture refinery in Shanghai (Lyn, 1995). Atlantic and Richmond Corp. has successfully teamed up with China National Offshore Oil Corp. in an offshore oil development project (Bowlin, 1996). Wholly foreign-owned ventures have also been formed. To date, 78 per cent of Western companies have chosen the joint venture approach, 12 per cent the wholly foreign-owned approach, and about 10 per cent the compensatory contract approach (The China State Statistical Bureau, 1994). Although China is moving quickly toward a market economy, its present market environment is still weak and ineffective in many ways. The market environment is openly manipulated by the different levels of Chinese policy makers who have authority to approve or disapprove large key business deals. As a result, potential opportunities and substantial risks coexist in China (Clifford, 1995). What are the present business conditions for establishing strategic partnership in China? What are the future managerial concerns about this partnering? These two questions are often asked. This chapter examines these two issues from the perspectives of both Western executives and their Chinese counterparts, so as to provide Western multinational corporations with more meaningful insights for their global strategic partnership, and to offer the Chinese some proposals to improve the investment climate.

INVESTIGATION Due to the data collecting restraints in China, the studies on Western joint venture partnering in China have been largely from the perspective of the Western partners; the views of these research results have been substantially biased (Nee, 1992; Shenkar, 1994). To avoid this bias, this chapter collected opinions from the executives of both Western multinational corporations and their Chinese partners. The focal variables selected for this chapter reflected the key business conditions and future managerial concerns about building a strategic partnership with Chinese corporations. These variables were grouped to answer the research questions: 1

Volatility of business conditions for establishing strategic partnership in China: the executives participating in the study were asked to assess the key

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

2

business conditions, using the five point Likert scale with 5 for most desirable condition and 1 for least desirable condition. Future managerial concerns about establishing strategic partnership in China: the executives participating in the study were asked to assess the future managerial concerns about establishing strategic partnership in China, using the five point Likert scale with 5 for most concerned and 1 for least concerned (Davis and Cosenza, 1985).

The variables were structured in a questionnaire, which was then translated into Chinese using the back translation method to reduce errors. The English and Chinese versions of the questionnaire were initially distributed to a small number of executives of Western multinational corporations and their Chinese counterparts to improve the usefulness and validity of the study. Face-to-face interviews were also done to help refine the preliminary survey questions (Davis and Cosenza, 1985). Since 1992, the authors have been invited to run business seminars on strategic management on numerous occasions for Western multinational corporations and their Chinese counterparts in China and in the West. The participants of these executives were from large Chinese corporations, joint ventures, wholly foreign owned ventures, Chinese central and provincial governments and ministries, and Western multinational corporations. These executives served as the target sample for this study. Recently, the English version questionnaires were distributed to the companies’ executives whose headquarters were in Western countries; the Chinese version questionnaires were distributed to the executives in Chinese organizations. Personal interviews accompanied the data collection efforts in order to enhance the usability of the survey. Ninety-three executives participated in the survey, of whom eighteen were Western executives, and seventy-five were Chinese executives. The respondents’ background has reasonable representation for the purpose of this study.

Current business conditions Significant differences were found between the Western executives and their Chinese counterparts in present business conditions in China. The highest rating went to political stability in China. All the other variables received a combined rating of less than 4, which indicates less than desirable. For example, favourable investment environment received a combined average rating of 3.32 which was somewhat above neutral, as Western executives gave an average rating of less than 3 which means less desirable, while the Chinese executives rated 3.46 which was significantly higher than their Western counterparts. In addition, the Western executives rated Chinese laws are favourable, government restrictions and licences, and government red tape and bureaucracy significantly less desirable than their Chinese counterparts.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 6.1 Present business conditions for strategic partnering in China

Scales: 5=most desirable condition, 1=least desirable condition; * indicates the significant levels of 5%; the variables are rank ordered based on the combined mean ratings by the two group respondents.

As far as present business conditions are concerned, Chinese executives significantly differ from their Western counterparts. The low ratings suggest that the present business conditions are somewhat less desirable for investment. As one Western executive put it, his company believed that Indonesia had a better investment climate. On the other hand, the findings suggest that the Chinese policy makers and executives need to continuously improve the investment climate in China (Crawford, 1996). Table 6.1 presents the mean ratings of the business condition variables.

Future management concerns Significant differences were found between the Western executives and their Chinese counterparts in their future business concerns in China. Political stability in China, Chinese government incentives for joint ventures, return on investment, inflation and Chinese government red tape topped the list of future business concerns. These top-rated variables suggest that Western corporations need to be cautious in their future investment in China, since some of the concerns could become reality. The Chinese government recently adopted a new tax policy, which will greatly impact on imported equipment and materials of Western joint ventures in China (Barnathan et al., 1996). It is worthwhile noticing that the Chinese executives were significantly more concerned than their Western counterparts over Chinese government incentives for joint ventures, as several Chinese executives worried about the proposed end of tax exemption on imports of capital equipment by foreigninvested firms (Meng, 1995). Several Chinese executives indicated that the end of tax exemption of imported capital equipment would hurt both their foreign partners and themselves. However, they wished to work with their © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 6.2 Future managerial concerns

Scales: 5=most concerned, 1=least concerned; * indicates the significant levels of 5%; the variables are rank ordered based on the combined mean ratings by the two group respondents.

Western partners on some alternatives in order to offset the lost incentives from the government. Western executives were more concerned than their Chinese counterparts over poor communication systems, energy shortage and Chinese government controls. A Western executive indicated that these were still major hurdles in their strategic partnering in China. A recent report confirmed these (Tan, 1996). The findings imply that the Chinese executives might be less sensitive than their Western counterparts over the variables, such as communication system and government controls, since these have been improved significantly in recent years. Several concerns received less than 3.5 ratings, indicating that they were not as important as those which received above four ratings. Table 6.2 presents the mean ratings of these selected future managerial concerns for strategic partnering in China.

CONCLUSIONS AND RECOMMENDATIONS It is believed that present business conditions and future managerial concerns are the most important decision-making variables for strategic partnering in China these days. This study suggests that the Western and Chinese executives appear in disagreement over present business conditions and future managerial concerns for strategic partnering in China. The differences over present business conditions and future managerial concerns should not be interpreted as reasons to avoid this market. To understand these differences would enable Western corporations to better formulate their strategies in order to benefit from © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

this emerging market, and enable the Chinese to improve their investment climate to compete with other emerging markets for the limited Western investment. Based on this survey, Western multinational corporations need to evaluate carefully the issues derived from this study to formulate their strategic partnering with Chinese corporations. The following suggestions, gleaned from the study results, interviews and other research the authors have done, may be useful for Western multinational corporations and may be incorporated with future phases of the study. Partnering with a Chinese corporation is a necessary initial step for Western multinational corporations to penetrate the Chinese market, given China’s market size, potential and less than free market environment. Such strategic partnerships can, to a certain extent, protect Western multinational corporations’ interests in China (Chen, 1995). The authors discussed this with a few Western executives who had teamed up with the Chinese Public Security’s (Chinese FBI) subsidiaries, and both parties’ interests were well protected. One thing must be borne in mind before any investment commitment. When a Western company is planning to establish a partnership with a Chinese corporation, once such a plan becomes a reality, and the Western partner’s investment is in place, it is extremely difficult for the Western partner to withdraw the investment from the venture, even if the partnership becomes sour. Liquidation alternatives do not really exist, and the capital market is still primitive in China. Western partners cannot easily sell their holdings to other buyers. So partner selection is the first and foremost critical issue in doing business in China. Finding a reliable and reputable partner can help ease potential problems. A better understanding of the differences between Western executives and their Chinese counterparts would enable both partners to look for common ground and reduce potential operational disputes. It is always expedient to let your Chinese partner deal with Chinese bureaucracy, since the Chinese know better than their Western counterparts how to do this. For example, to list a company’s stocks overseas in an initial public offering requires multi-layers of approval from the Chinese government. Western multinational corporations will save time and effort if they let their Chinese partners obtain these approvals. This is also a way to test the capabilities and connections of a Chinese partner. One Western multinational executive demanded that his Chinese partner should obtain all the permits for an initial public offering. This accelerated the partnering process. Western multinational corporations can also merge with and/or acquire failing Chinese state enterprises. For establishing venture partnerships, both sides incline to inflate the investment values for a variety of purposes. Chinese partners intend to inflate land and plant to acquire ‘an equitable’ share in the venture, while Western corporations puff up the value of equipment and technology invested for tax purposes. The disadvantage is that it will take many more years before such a partnership can break even. In some partnership proposals, desperate executives of the failing Chinese stateowned enterprises © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

sometimes tend to quickly reduce the burden of both assets and employees by lowering the value of the assets and laying off employees, while central government planners try to protect assets by increasing values. Since government planners still have the authority over approval or disapproval of a partnership, Western multinational corporations have to be aware of these conflicting pressures, especially the low-priced deals which may result in massive burdens on the partnership, such as excess employees (Bangsberg, 1995). In the years ahead, China will continue to open up. However, growing ambivalence has resulted from often averse conditions, such as broken promises, shattered contracts, and economic and political uncertainty, in addition to the government officials who spread corruption. No one can afford to be out of China, but no one should put all their eggs in the China basket. Whatever happens, Western multinational corporations need to uphold their post there, as one Western executive indicated in our survey. In the times of setbacks, such as 1989’s repression, it is wise not to completely abandon China. It cost AT&T dearly in the mid-1980s when it myopically withdrew from China; and the company had to be very aggressive to catch up in the mid-1990s. Arco’s strategy of sticking around with its partnership will result in about 20 per cent annual return on its US$1.125 billion investment in the South China Sea in the near future (Smith and Brauchli, 1995). There are many other issues which Western multinational corporations are concerned with in doing business with China that were not covered in this study. Continuing changes in business environment, economic reforms and the directions of government policy makers will force Western multinational corporations to adapt their strategies in the Chinese market in the future.

REFERENCES Aiello, P. (1991) ‘Building a joint venture in China: the case of Chrysler and the Beijing Jeep Corporation’, Journal of General Management 17(2):47–63. Bangsberg, P.T. (1995) The Journal of Commerce Knight-Ridder/Tribune Business News, 27 March. Barnathan, I, Roberts, D., Borrus, A. and Kerwin, K. (1996) ‘China: a chill wind blows from Beijing’, Business Week, 4 January. Bowlin, M.R. (1996) ‘Chairman and chief executive officer’, PRNewswire, 9 January, Los Angeles. Chen, K. (1995) ‘Market-access accords aren’t likely to boost US exports to China quickly’ , The Wall Street Journal, 14 March: A10. The China State Statistical Bureau (1994–7) Combined from various sources: The China Press (1996), 14 June: 27; ‘World economy in brief’, Investor’s Business Daily, 8 January, 1996; Hillis, Scott, Reuter, Beijing, 10 January 1997; The People’s Daily (1997) 7 April: 2. Clifford, M.L. (1995) ‘Strategies new world’s road to China’, Business Week, 9 November. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Crawford, G. (1996) Reuter, Hong Kong, 9 January. Davis, D. and Cosenza, R.M. (1985) Business Research for Decision Making, Boston: Kent. Galvin, C. (1996) ‘President and chief operating officer of Motorola Inc.’, Business Wire, 9 January. Lyn, T.E. (1995) ‘High level talks on the fate of French oil giant Elf Aquitaine’s’, Reuter, 28 September, Hong Kong. Macartney, J. (1995) ‘China offers foreign investors some of the world’s fastest profits’, Reuter, 21 September. Meng, X.-g. (1995) ‘Head of the Foreign Economic and Trade Department of the State Economic and Trade Commission’, The China Daily Business Weekly, requoted from Reuter, 17 December. Nee, V. (1992) ‘Organizational dynamics of market transition: hybrid firms, property rights, and mixed economy in China’, Administrative Science Quarterly, 31:1–27. Nomani, A.Q. and Greenberger, R.S. (1993) ‘China economy is world’s No. 3, IMF calculates’, The Wall Street Journal, 21 May: B2. O’Neill, M. (1996) Reuter, 5 January. Shenkar, O. (1994) ‘The People’s Republic of China raising the bamboo screen through international management research’, International Studies of Management and Organizations, 24:1–2, 9–34. Smith, C.S. and Brauchli, M.W. (1995) ‘The Long March to invest successfully in China, foreigners find patience crucial’, The Wall Street Journal, 23 February: Al. Tan, A. (1996) Reuter, Beijing, 9 January.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Part II

Human resource management

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7

Human resource management practices in international joint ventures versus state-owned enterprises in China Malcolm Warner

INTRODUCTION In the 1970s, ‘China was a poor country’ (Nolan, 1995:171); by the mid– 1990s, it was on its way to becoming an economic ‘super-power’. Economic growth has been distinctly impressive with an average rate of over 9 per cent per annum over the last decade, so real output almost quadrupled (Lardy, 1994:3), at present the fastest growth rate of any country in the world. If state-owned enterprises (henceforth referred to as SOEs) grew at 7.1 per cent per annum over this period, non-state ones surpassed this at an average of 38.5 per cent from 1990 to 1994. Foreign investment flowed into the PRC on a massive scale and by the end of 1994 there were nearly 240,000 foreign-funded and/or joint venture agreements worth $270 billion, of which $80 billion was utilized (between 1989–94), on paper at least. In this chapter, I shall argue: 1

2

3

that the transfer of management know-how to Chinese enterprises from abroad has been primarily via such foreign-funded firms, especially joint ventures (henceforth referred to as JVs), and that this proposition will be as true of the management of human resources as it is of other specialisms; that Chinese enterprises each have a management style which relates to their ownership (whether they are joint ventures or state-owned) and possibly where appropriate also the nationality of the overseas partner(s) and that this will be as true of human resource management (henceforth referred to as HRM) as of other practices; and that Chinese SOEs will eventually be influenced by the management practices of JVs and that this will be equally true of HRM as of other policies.

The main evidence presented vis-à-vis the above conjectures is derived from an empirical investigation of six Chinese enterprises (three JVs and three SOEs) all located in the Beijing area (see Table 7.1) which are compared and contrasted in terms of their labour relations and HRM policies and practices. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.1 Characteristics of the selected case studies

* plus 1,800 employees in Shanghai.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The empirical investigation (involving factory visits, interviews with senior executives, line-managers, personnel specialists and trade union representatives, amongst others) was carried out in the winter of 1995 and therefore includes the latest phase of the enterprise reforms and the newly implemented labour law (see Child, 1994; Warner, 1995). The six firms cover the following sectors: electronic components, elevators, motor vehicles, pharmaceuticals, transformers and television sets. They range from medium-to large-size in number of workers employed. Finally, conclusions are presented related to the ongoing evolution of management and HRM in the Chinese enterprise. As Nolan (1995) points out: From 1949 until the late 1970s no foreign investment was permitted in China. Under Mao, it was inconceivable that the giants of world capitalism should be allowed to invest in the country. The passage of the 1979 Law on Chinese-Foreign Joint Ventures marked a major step from Maoist-Stalinist isolationism. This was the first of numerous laws intended to encourage foreign investment. (1995:184) The effects were dramatic: foreign investment flowed into the PRC on a massive scale over the next decade. All the joint venture firms in the investigation had been founded in the 1980s. In terms of age, Schindler Elevators (with a Swiss partner) was the oldest (1980); next Beijing Jeep (with a US collaborator) (1984); last, Beijing Guoxing Electronics (with Hong Kong and Japanese co-owners) (1988). Of the SOEs, Beijing Pharmaceuticals and Beijing Peony TV were relatively old (both 1973), but Beijing Transformers was older and had been set up in 1950 (see Table 7.1). The SOEs had latterly collaborated with the China-European Community Management Institute (CEMI) from 1985 until 1990, with close relations through project-work conducted by its MBA students (see Child, 1994:3). The three JVs’ overseas partners were respectively: the US company, American Motors, then later the Chrysler Corporation for Beijing Jeep (see Aiello, 1991:47); the Swiss Group Schindler SA for Schindler Elevators; and the Japanese, Beijing Honda Electric Appliance Company as well as the Hong Kong-based Xiaoteji Corporation and local China International Trust and Investment Corporation (CITIC) for Guoxing Electronics. In terms of turnover (see Table 7.1), the enterprises varied greatly from 30 billion RMB for Beijing Jeep in 1994 to 76 million RMB for Guoxing Electronics for the same year for the joint ventures; the variance ranged from 1.5 billion RMB for Peony TV to 50 million for Pharmaceuticals for 1994 for the SOEs. The firm above which was largest by turnover was also the biggest in terms of the number of workers employed, as we shall soon see. The ratio of net profits to turnover was higher in the SOE sub-set than in the JV one, although it has been reported that most JVs are making money, with 60 © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

per cent reporting a return on investment (ROI) of 10 per cent or higher, and a third over 18 per cent (see Chen, 1996:236). One must not read too much into these figures, however, given the different accounting practices in Western and Chinese usage. Since the capital-stock in the SOE sub-set was generally older, it was clear that much of it had been already written off. Often the size of organizations is defined in terms of the number of their employees. In these terms, the largest firm of all (as well as of the JVs) was Beijing Jeep (over 7,000) and the biggest SOE was Peony TV (5,400).

MANAGEMENT-LABOUR RELATIONS Labour contracts China’s ‘iron rice-bowl’ (tie fan wan) employment policy was based on the Soviet model in the early 1950s (see Takahara, 1992). It was also influenced by earlier Japanese employment practices in Manchuria pre-war and under the Occupation. The system was originally intended to protect skilled workers, but eventually spread to cover the majority of urban industrial workers. Young Chinese workers were allocated jobs by local labour bureaux. They were then assigned to work-units (or danwei) which registered their citizenship status (or hukou): many were given ‘permanent’ jobs, but not all (see Walder, 1986). Since the mid-1980s, Chinese state-owned enterprises have slowly started to abandon the ‘iron rice-bowl’ of ‘jobs-for-life’ and ‘cradle-to-the-grave’ welfare coverage for their employees, often at the expense of older and/or female employees particularly. As of 1986, Chinese enterprises had begun to introduce fixed-term labour contracts for new employees. By 1992, this procedure was extended for all eligible employees in pilot enterprises largely in North-East China and in 1995 to a wide range of SOEs (see Warner, 1995). The 1994 Labour Law restated the commitment of the state authorities to generalize the contract system throughout the economy (Josephs, 1995:567). The Law not only authorizes fixed-term contracts but also those of unlimited duration (Josephs, 1995:570). All three of the JVs in the sample had 100 per cent of their employees on individual labour contracts. One, Beijing Jeep, also had a collective contract; Schindler Elevators expected to have one signed soon. Only one of the SOEs, Peony TV, had both individual and collective contracts. Indeed it claimed to be the first enterprise in Beijing to bring in the ‘three systems’ reforms; Pharmaceuticals only had individual contracts; and Transformers had neither. Collective contracts were found in one JV (Beijing Jeep) and one SOE (Peony TV) only: such contracts were ‘new style’ collective examples and were to be found as yet in only a limited number of firms. They differed from the ‘old style’ ones in excluding joint decision-making procedures. Such contracts dealt with wages and conditions, job allocation, work-time training, benefits, holidays and so on (interviews with Ministry of Labour and All China © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Federation of Trade Unions Head Office personnel, November 1995). Neither ‘old-style’ nor ‘new-style’ collective contracts involved collective bargaining on Western lines.

Reward systems The wage grade system—usually eight levels for factory workers—had also been taken over from the Soviet model (see Takahara, 1992). As has been said of other communist economies, ‘they [the cadres] pretended to pay us, and we [the workers] pretended to work’ (anon.). Under the economic reforms, there was a move towards performance-related rewards systems. Previously, Chinese enterprises had an egalitarian wage-payment system with a flat reward structure. Since the mid-1980s, material rewards had become even more predominant. With the 1992 enterprise reforms, a new performance-based payments system was also initially implemented in selected SOEs and by 1995 was extended to most large and medium-sized ones as labour contracts had been, as we have seen above (see Warner, 1996a). More and more workers in SOEs now have their wages linked to performance over the Ninth Five-Year Plan (1996–2000), as is already the case in most JVs. Both JVs and SOEs studied here had clearly moved to the new performancebased rewards system after the 1986 and 1992 reforms. Of the JVs, Beijing Jeep had a ‘post plus skills’ system, with age, position and skills determining the basic wage plus a quarterly bonus related to sales. Guoxing Electronics had a rewards system related to age, position and skills plus a monthly efficiencybased individual bonus and an end-of-the-year collective bonus related to profits. Schindler Elevators had a similar system. Of the SOEs, Peony TV also used the above formula, plus a monthly group bonus. Transformers had the basic wage as above, plus a monthly individual bonus and a collective bonus related to total profit, which went up by one percentage point for each similar growth in profits. Pharmaceuticals had a basic wage, plus individual and group bonuses. There was no common pattern of wage-grades (the eight-grade system had definitely gone) with variations from ten to fourteen worker-grades currently. Wages varied greatly both between JVs and between SOEs in 1994. Beijing Jeep paid the most at over 1,000 RMB per month (1,500 by 1995); followed by Schindler Elevators at over 700 RMB (1,000 in 1995) and Guoxing Electronics at 550 (680 in 1995) RMB. The highest SOE, Peony TV, overlapped with the latter two at over 700 RMB (750 in 1995), with Transformers at over 550 RMB (600 in 1995) and Pharmaceuticals at over 450 RMB (500 in 1995). All the firms claimed they had an equal pay policy but this could not be empirically verified.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Social insurance Comprehensive social welfare coverage had for many years been the privilege of SOE employees in the urban sector (Minami, 1994:217). However, around one in six workers in SOEs is surplus while retired employees account for over a third of their total workforce, a heavy burden (see also Ng and Warner, 1998:181, fn. 6). Total work-related insurance and other welfare costs amount to as much as over 500 RMB per worker per year, even excluding low-cost housing. Until recently, SOEs provided social welfare provision for their employees, but a transfer of such expenditure to the individual worker is now under way (see Beijing Review, 29 April 1996:5). Under the new scheme, institutional and industrial workers pay 1 per cent of their monthly salary for medical insurance, and 3 per cent for their unemployment insurance, whereas work units add another 20 per cent for retirement provision and 10 per cent for medical care. Social insurance, after the 1992 ‘three systems’ reforms (san gaige) (see Warner, 1995) followed a common pattern in the six firms investigated in that both JVs and SOEs departed from previous ‘iron rice bowl’ practices, albeit with some variance. In Beijing Jeep for example, medical benefits were related to age and seniority, with the company paying the bulk of the costs and the worker 5 per cent, 10 per cent or 15 per cent depending on their years of service. If injured or killed, the firm paid 100 per cent of costs involved. Retirement for men was at 60 years, and for women 50 years. The company paid an average 1,000 RMB per year contributions for a pension of 50 per cent of average earnings, which was around 70 per cent of the position-wage. In Guoxing Electronics, the company paid 400 RMB per year for medical expenses, but if the costs exceeded this they paid 80 per cent, and in severe injury cases paid the whole sum. The company paid 22.5 per cent of the worker’s wages to the government pension scheme, with the individual contributing 3.3 per cent. Schindler Elevators paid all medical costs incurred, with no individual worker contribution. They were preparing a contributory pension plan, but the details had not yet been finalized. In the SOE sub-set, the social insurance arrangements were as follows. Peony TV contributed 19 per cent of the wage level to the medical scheme and expected the worker to pay 5 per cent. The retirement contribution by Peony TV was 6 per cent above the level of the government scheme, resulting in a pension of 36 per cent of salary, which was around 400 RMB per month. In Transformers, they paid 30 per cent of the total wage level for medical insurance with workers contributing 12 per cent. In Pharmaceuticals, 80–90 per cent of medical expenses were paid by the company, with the worker providing the rest. Pensions depended on wage levels, ranging from 70 per cent to 90 per cent of basic wages.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Role of the trade unions Trade unions in China tended in the past to stress production values, but also had to look after the everyday welfare of their members. They did not bargain freely, or fix wage levels as in Western countries, but were concerned with ‘mobilisation and socialisation’ (Lee, 1986:160). Unions in China were asked to discipline and to ensure the production commitment of the labour force (Lee, 1986:160). In the everyday work of the enterprise, there have been growing levels of conflict between workers and management since the economic reforms (see Chan, 1993:43). If there is a stoppage by workers, for example, the union are usually asked to intervene (see Warner, 1995:34–45). The role of the official trade union (that is, those affiliated to the All China Federation of Trade Unions—ACFTU) remained prima facie strong in both JVs and SOEs (see Ng and Warner, 1998). In terms of union membership, Beijing Jeep claimed 95 per cent (with ‘active membership’), as did Guoxing Electronics (‘a mainly social function for the union’), with Schindler Elevators claiming 100 per cent (‘a comprehensive union role’). These levels were much higher than in most foreign-funded firms (see Ng, 1994:17). Peony TV (‘comprehensive union activities’) claimed 80–85 per cent union membership, but Transformers (‘an integral role’) at 95 per cent and Pharmaceuticals at 100 per cent (‘a mainly welfare role’) were even more nominally unionized territory. In the three JVs investigated, management-union relations were generally seen as positive. In Beijing Jeep as well as Schindler Elevators, they were described as ‘collaborative’; and in Guoxing Electronics they were seen as basically ‘good’. In the SOEs, Peony TV also saw them as ‘collaborative’; in Transformers the term ‘cooperative’ was used, whereas in Pharmaceuticals they were seen as ‘normal’ for the SOE sector. The reaction of the mostly male management and the exclusively male trade union chairpersons interviewed to the new July 1994 Labour Law, implemented January 1995 (see Table 7.2) (see Josephs 1995; Zhu, 1995; Warner, 1996b), varied from apparent enthusiasm to passive anticipated compliance. In Beijing Jeep, the company would carry out the new policies stipulated, such as the new forty-hour week, based on the eight-hour day. The trade union chairman said he would negotiate overtime if the plant union committee approved this, A similar response followed at Guoxing Electronics especially vis-à-vis the five-day week. Schindler Elevators indicated compliance with the new law because (as the trade union chairman put it) it was intended ‘for the benefit of the workers’. The Peony TV union spokesperson saw the law as ‘making the trade unions more important in the plant’. The response in Transformers was that the new law ‘was necessary in a socialist market economy to help the workers’, but it ‘would take a long time to fully implement’. In Pharmaceuticals, the reaction was ‘good for workers, not so good for managers’. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.2 Principles of the 1994 Labour Law

Source: 1994 Labour Law: 1.

Workers’ Congress Plant-level IR in China was for many years undertaken by the trade unions and Workers’ Congresses, the latter revived with the economic reforms to balance the new powers of factory managers (Lee, 1986:166). The former provided the day-to-day continuity, with the latter meeting periodically to ‘rubber-stamp’ © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

policy. Those elected to the Workers’ Congress were usually drawn from the ‘party faithful’ (Warner, 1995:30). All the firms studied have had ongoing Workers’ Congresses, whether JVs or SOEs. In the former subject, Beijing Jeep and Guoxing Electronics each met once a year, with Schindler Elevators meeting twice a year. In the SOE sub-set, Peony TV met once a year as did Transformers. However, Pharmaceuticals convened twice a year. Ad hoc sessions could be called, if necessary, in all cases. In the case of JVs, their role was merely said to be mostly ‘consultative’ (see Ng, 1994:22, on the general picture). They normally did not take a direct part in managerial decision making in the SOEs either, but met as a formality to discuss policy matters such as the previous year’s company performance and the plan for the next one. The role of management Under the Dengist reforms, managers were given relatively greater powers of decision making. They are now responsible to the authorities for the achievement of profit and investment targets and for contributing tax revenues (Child, 1994:24). Since the 1984 and more importantly the 1992 enterprise reforms, the predominantly male managements now have a great deal more autonomy than in previous years, with the role of the party and union officials somewhat down graded. In the JV sub-set, there was a distinct impression of greater managerial lee-way compared with the SOE sub-set. In the former, managers are now relatively less constrained by higher authority above and by worker power below. In Beijing Jeep, management was described as ‘clearly defined’; in Guoxing Electronics as ‘decidedly autonomous’; in Schindler Elevators as ‘firm and decisive’. In the SOEs, there had also been many changes. In Peony TV, it was said to have ‘a distinctive management philosophy’; in Transformers, ‘to manage the factory and introduce the reforms’; and in Pharmaceuticals, the power of the director was held ‘to have increased recently’. In the SOEs generally, the Director-Responsibility System was said to have changed the ‘rules of the game’ over recent years. The role of the personnel director Since the mid-1980s, enterprises have had greater freedom to hire and fire (Child, 1994; Warner, 1995). Now, even if fully fledged HRM on Western (or East Asian) lines seems a little far away, many personnel policies have dramatically changed. Workers have fixed-term contracts; apprenticeships have been reformed; training has been expanded for both workers and managers in most JVs and SOEs. Even so, many employees have been resistant to change and the seasoned observer will remain sceptical about reforming entrenched personnel practices in the short to medium term. The role of the personnel director in all six enterprises studied included dealing more directly with human © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

resources and rewards but in varying mixes. In the JV sub-set, Beijing Jeep’s personnel director dealt with ‘hiring, firing and wages’; in Guoxing Electronics with ‘hiring, firing and contracts’; and in Schindler Elevators with ‘recruitment, salaries, rewards and sanctions’. In the SOE sub-set, Peony TV’s personnel director dealt with ‘labour resources and training’; Transformers’ personnel director ‘collaborated with the unions on rewards and training’; and in Pharmaceuticals that person concentrated on ‘wages and labour resources’. Recruitment and training Before the enterprise reforms, workers were assigned to enterprises by government bureaux. Recently, there have been changes (see Warner, 1996a) vis-à-vis past practice (see Warner, 1986), with a degree of variance between the JV and SOE subsets. Most of them recruited from education and technical institutions and some from their own training schools. Beijing Jeep, however, sought workers from ‘recruitment agencies’ (namely, from the labour market) and their own training schools; Guoxing Electronics from ‘outside technical schools and colleges’; Schindler Elevators from ‘universities and training schools’ as well as ‘poaching’ from other firms (using the labour market); Peony TV from ‘universities, high schools and technical colleges’; Transformers from ‘universities and technical schools’; and Pharmaceuticals from ‘universities and technical schools’. Turnover In the past, very few Chinese workers ever changed their place of work and job mobility was almost zero (Warner, 1995:48). Turnover was reported as still low in the six firms studied: it varied from 1 to 5 per cent (the latter representing a recent change), but the two cases at the upper-level were dispersed across the two sub-sets. It was less than 1 per cent in Beijing Jeep; 5 per cent in Guoxing Electronics; 1 to 2 per cent in Schindler Elevators; 2 per cent in Peony TV; 5 per cent in Transformers; and 1 per cent in Pharmaceuticals. Both cases of 5 per cent were, as we have seen, in two lower-wage firms, but turnover was not high in the third lower-wage one (case No. 6). Dismissals According to the late David Granick (1987:103) writing in a World Bank study of Chinese SOEs, the labour market was previously weaker in China than in the former Soviet Union in the mid-1980s. He made the perceptive observation that, ‘So long as social considerations in China keep the dismissal rate exceedingly low by international standards…an active labour market in the state sector will not be possible’ (1987:14). Dismissals are now easier in principle, but not so in practice (Warner, 1995:54). Dismissals were very low in all six firms: never higher than 1 per © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

cent. They were in specific numbers (rather than percentages) as follows: for Beijing Jeep, six; for Guoxing Electronics, two; for Schindler Elevators, ten; for Peony TV, fifty; for Transformers, low (no specific figure given); and for Pharmaceuticals, one or two. It is therefore clear that the organizations’ cultures even in the JVs had not changed that dramatically. In some companies, workers formally resigned rather than be dismissed; others were sacked after ‘disappearing’ off the job.

Disputes Disputes in Chinese enterprises were allegedly rare in the past but apparently growing in recent times (Warner, 1995:163). As the ‘iron rice-bowl’ system is now being undermined as part and parcel of official policies to reform Chinese industry, industrial conflict has been growing, although there is no constitutional ‘right to strike’ (it was in the 1975 constitution but removed by amendment in 1982; see Warner, 1996b). The 1994 Labour Law does not change the status quo here (see Josephs, 1995:571). We have seen that the introduction of redundancies, differential material rewards and the greater social insurance burdens for individual workers have been a feature of the reforms of the early 1990s. Such reforms are being extended to the whole stateowned sector, if perhaps with growing resistance by those workers who stand to lose from them. As other workers are perceived as receiving higher wages, feelings of relative deprivation may further lead to worker discontent in this sector. The incidence of industrial conflict in the Chinese enterprise is therefore still a sensitive issue. Indeed, over 250,000 such disputes have been officially recorded since 1988, probably an underestimate if anything (see Ng and Warner, 1998:110–16). Managers and trade union chairpersons interviewed in the six enterprises studied tended to gloss over the existence and frequency of conflict. In Beijing Jeep, the number of disputes was said to be ‘small’ (a worker damaged a car and had to be fired); in Guoxing Electronics, ‘zero’; in Schindler Elevators ‘very few’ (negotiated with the union in a ‘friendly’ way); in Peony TV, ‘one’ (about salary levels); in Transformers ‘none’ (nobody moves, a ‘no contract’ contract); in Pharmaceuticals ‘some, but not intense, usually solved by joint discussion via the trade union’. Clearly, organizational transparency concerning industrial conflict was not yet a norm.

CONCLUSIONS AND RECOMMENDATIONS The initial arguments set out earlier in the chapter will now be reviewed. The first of these concerns the transfer of management know-how to China via foreign-funded firms, especially JVs. A great deal of evidence has already been written about this regarding such enterprises (see Child, 1994, for example). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The transfer of HRM has only been partial (see Warner, 1995) and indeed has been absorbed into the Chinese managerial culture but ‘with Chinese characteristics’ (Warner, 1995:145–62). There may clearly be cultural influences behind this (see Zhao, 1994). In nearly all the Chinese JVs that Child studied, ‘foreign managers observed a large difference between human resource management in their own home company and those they were obliged to accept in China’ (1994:259). The Chinese notion of personnel management was seen as geared to control and conformity with a stress on the value of work, whereas Western practice hinged on the contribution of organizational effectiveness. Indeed: Foreign personnel management tends to rely on standard practices for selection, appraisal, time-keeping, assessment of attitudes and discipline …[and] there had been various attempts to introduce Western personnel tools with varying, but never very significant, degrees of success. (Child, 1994:259) Numerous problems beset the foreign managers in Sino-foreign JVs. Employee appraisal was confounded by job demarcation; tightening up on time-keeping was spoilt by lax practices in the organizational culture; promotions were not easily accepted due to the egalitarian norms found locally and so on. Dismissing workers was still resisted in most JVs’ experiences according to such studies. It was thus easier to transfer ‘hard’ technology than its ‘soft’ counterpart: this clearly delayed improvements in productivity and overall enterprise performance. Currently, not only have JVs advanced in their use of Western-style or East Asian management practices, but also the SOEs have experienced further economic reforms (cf. Verma and Yan, 1995). It is clear from the case studies analysed in the present sample that a considerable degree of change has taken place in the last couple of years, but it is also still true that there has been less management knowledge transfer in HRM than in other specialisms like production and operations, for instance. In many ‘hard systems’ areas, substantial knowledge transfer had taken place in JVs. In Beijing Jeep the transfer-line was brand new. In Schindler Elevators the machining-centres were ‘state of the art’. However, the SOE Peony TV also had a similarly new flow-line. Improvements in ‘soft systems’ areas had also taken place. Indeed, there were advanced quality systems in all three of the above JVs. Beijing Jeep had a developed a QC programme (with the slogan ‘No quality, no sales, no earnings’) and was going to be assessed for the quality award ISO 9000 shortly, which in fact Schindler Elevators had already achieved with their TQM policy. Peony TV had also achieved this level: their slogan was ‘Market in my heart, quality in my palm and clients come first’ according to their Personnel Manager. They had adopted a Japanese-style TQM programme, as well as a complete JIT production system. Another firm in the SOE sub-set, Pharmaceuticals, also claimed to have implemented a TQC and a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

quality-assurance system. To a degree, such programmes do overlap with HRM innovations but do not in themselves represent a full move in that direction. Second, it was earlier argued that each enterprise has a management-style related to its ownership, even the nationality of the overseas partner(s); this will be equally true of HRM, we argued, as of other practices. It was evident from the empirical fieldwork that this was relatively true of the enterprises investigated, in the sense that the JVs as a sub-set had a management-style clearly different from the SOE sub-set, although that of each enterprise was distinct. The nationality of the JV partner was an important factor which shaped how the firm was managed to some degree and in turn its HRM practices. This factor was relatively stronger in the US and Swiss overseaspartner cases but less was true in the third (namely Hong Kong/Japanese). One of the SOE sub-set, namely Peony TV, appeared to have what appeared to be a Japanese-influenced management-style (see Fukuda, 1995), compared with the two other conventional Chinese-style SOEs. Management practices did not fully correlate with the ownership (and nationality) factor, as we have already seen, although there was now an overlap between the two sub-sets of firms. As far as specifically (or recognizably) enterprise-level HRM policies are concerned, there may be practices which are unspecified by state regulations. Such HRM practices may be company-specific, that is, related to the corporate policies and organizational culture, as might be the case for American or Swiss or Hong Kong/Japanese MNCs involved in JVs in China. Such HRM practices where present may well be direct adaptations to market influences. Third, we set out the argument that Chinese SOEs would be influenced by JVs in terms of their management practices; this would be equally true of HRM as of other policies. We found in the present sample that as yet there was only the beginnings of convergence, seen in the overlap between say one SOE, namely Peony TV, and the JV sub-set. There were after all separate Labour Regulations for foreign-funded companies, which had first been promulgated in 1980 (see Table 7.3 for the later 1994 version). The 1994 Labour Law, however, does try to ensure JVs and SOEs meet the same standards (see Josephs, 1995:567). It is too early to say if HRM policies have meaningfully converged even in such cases, let alone in the broad range of larger JV and SOE firms. To sum up, the first point we raised in the introduction about management knowledge transfer has been relatively well vindicated, if only partially for HRM. The second argument seems to be valid as far as ownership is concerned as JVs do have a different organizational culture from SOEs, although the ‘Chinese walls’ appear now to be crumbling and there is a degree of overlap. As for the third point on organizational convergence, we would argue that it is clearly early days as yet. The ‘iron rice bowl’ is now in retreat in not only foreign-owned firms including JVs, but also in large and medium-sized SOEs as we have seen. The rewards structure has also substantially changed, as has social insurance. Management-union relations remained positive in © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 7.3 Excerpts from Provisions on Labour Administration of Enterprises with Foreign Investment (1994)

Source: Ministry of Labour and the Ministry of Foreign Trade and Economic Co-operation, 1994.

most instances, even if personnel management appears to still prevail over Western-style HRM practices in terms of recruitment, training and the like.

ACKNOWLEDGEMENT The fieldwork reported in this chapter is based on research carried out in Beijing in late 1995 which was sponsored by the British Council exchange scheme, whose generous support was appreciated. I must further acknowledge the contribution of colleagues and graduate students at Tsinghua University who acted as interpreters and translators during the visits to enterprises.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

REFERENCES Aiello, P. (1991) ‘Building a joint venture in China: the case of Chrysler and the Beijing Jeep Corporation’, Journal of General Management 17:47–64. Beijing Review (1996) ‘Health-care reform covers more cities’, 29 April-5 May: 5. Chan, A. (1993) ‘Revolution or corporatism? Workers and trade unions in post-Mao China’, Australian Journal of Chinese Affairs 29, January: 31–61. Chen, M. (1996) Managing International Technology Transfer, London: International Thomson Business Press. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Fukuda, J. (1995) ‘Japanese companies in China: problems of Human Resource Management’, Journal of Far Eastern Business 1:48–62. Granick, D. (1987) ‘The industrial environment in China and the CMEA countries’, in G.Tidrick and Y.Chen (eds) China’s Industrial Reforms, Oxford: Oxford University Press. Josephs, H.K. (1995) ‘Labour law in a “Socialist Market Economy”: the case of China’, Columbia Journal of Transnational Law 33:561–81. Lardy, N. (1994) China in the World Economy, Washington, DC: Institute for International Economics. Lee, L.T. (1986) Trade Unions in China, Singapore: Singapore University Press. Minami, R. (1994) The Economic Development of China: A Comparison with the Japanese Experience, London: Macmillan. Ng, S.H. (1994) ‘Industrial relations in joint ventures’, in S.Stewart (ed.) Advances in Industrial Studies Volume 4: Joint Ventures in the PRC, Greenwich, CT: JAI Press. Ng, S.H. and Warner, M. (1998) China’s Trade Unions and Management, London: Macmillan. Nolan, P. (1995) China’s Rise, Russia’s Fall: Politics, Economics and Planning in the Transition from Stalinism, London: Macmillan. Takahara, A. (1992) The Politics of Wage Policy in Post-Revolutionary China, London: Macmillan. Verma, A. and Yan Z. (1995) ‘The changing face of human resource management in China: opportunities, problems and strategies’, in A.Verma, T.A.Kochan and R.D.Lansbury (eds) Employment Relations in the Growing Asian Economies, London: Routledge. Walder, A. (1986) Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Warner, M. (1986) ‘Managing human resources in China’, Organisation Studies 7: 353–66. ——(1995) The Management of Human Resources in Chinese Industry, London: Macmillan. ——(1996a) ‘Economic reforms, industrial relations and human resources in the PRC: an overview’, Industrial Relations Journal 3:195–210. ——(1996b) ‘Chinese enterprise reform, human resources and the 1994 Labour Law’, International Journal of HRM 7:777–94. Zhao, S. (1994) ‘Human resource management in China’, Asia-Pacific Journal of Human Resources 32:3–12. Zhu, Y. (1995) ‘Major changes under way in China’s industrial relations’, International Labour Review 134:36–49.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

8

Recruitment and retention of managerial staff in China Robert McEllister

INTRODUCTION Western companies contemplating entry into China are faced with numerous decisions regarding the financial and logistical requirements of such a move. While these are important considerations, it is my contention that even more important are the long-term management requirements of the Chinese venture. Many of these companies approach the China market assuming that its managerial demands are similar to those of its domestic base or its other overseas operations. A manager in China must cope, not only with those duties, but with an additional raft of unique challenges emanating from the Chinese business environment. These firms approaching China do so with the intention of establishing a long-term presence. In most cases, however, little attention is given to identifying, recruiting and training those personnel who will oversee the successful achievement of these ambitions. In many cases these enterprises have plans to expand throughout China but have given little or no thought to who it will be that will manage the expansionary ventures. Should a company place its faith in expatriate managers? Should they recruit in China? From where should they recruit in China? These are just a few of the issues informing decisions about managerial staff that face a company entering the Chinese market. If each of the 80,000 or so foreign joint ventures in China were to require only three managers the companies would need to find nearly one-quarter of a million suitable applicants just for what is still a small sector of the Chinese economy (James, 1996). A recent study by management consultants McKinsey and Co. found annual turnover among Chinese middle managers ran as high as 20 per cent among the company’s multinational clients (Meier et al., 1995). Other surveys have estimated this turnover in managerial positions to be as high as 30 per cent and companies are expanding rapidly (James, 1996). For example, Procter and Gamble saw its China operation grow by 50 per cent in 1995. Many companies are having to deal with growth rates in their Chinese operations of 20–40 per cent, meaning a requirement for commensurate increases in staff and management. At the same time they are having to deal with this ongoing turnover in managerial staff which means that there is a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

continually increasing demand for managerial talent. Currently the costs of establishing management teams in China are extremely high and this is driving the focus of many companies towards a policy of localization of management. But how soon should this policy be pursued? Is there a pool of available talent to supply the demand? What are the sources of this talent and how can the potential recruits be accessed and compared? Jonathan Woetzel, one of the coauthors of the previously mentioned McKinsey report, described the pool of local managers as coming from a ‘dysfunctional’ background in public enterprises or state bureaucracies (Kaye, 1995). These are problems facing all firms in the China market but this chapter will concentrate on the managerial challenges facing small to medium Western enterprises either contemplating, or having achieved, a presence in China. The focus will be on three key issues: recruitment, training, and retention of managerial personnel. Much of the empirical research informing this chapter was gathered over the past three years while living and studying in Hangzhou and Shanghai. During this time I had the opportunity to interview formally the majority of Western businesspeople operating in Hangzhou as well as establishing a broad base of informants in the Western business community of Shanghai. I was also able to carry out a series of interviews in Guangzhou and Shekou as well as with many Hong Kong based Western corporations. Living and studying in a Chinese student environment also gave me invaluable access to the large student population aspiring to gain employment with Western companies. Probably the most informal and unexpurgated information came from a wide network of informants cultivated through such expatriate organizations as the Hash House Harriers and the Hangzhou International Business Association where it might be said that at times there was a full and frank exchange of ideas. All these avenues of information proved invaluable and complementary to the more formal and structured research.

INITIAL ENTRY STRATEGIES Initially most firms will send a manager from their domestic operation to oversee the establishment of the new venture in China. In many cases this manager will see the appointment as short term and as an interruption to his or her career path with the company. This perception of China as a ‘hardship’ posting still exists in many companies. It provides little continuity, with a succession of management personnel literally passing each other in airport lounges as one departs to be replaced by another of similar ilk. In most cases these managers will be quite effective, particularly in the large coastal cities, Shanghai, Guangzhou or Beijing, where large expatriate populations will dampen the alienation process. There are advantages in this management policy, particularly for the home office, as they ‘know’ the manager because of previously established mutual understanding derived from that manager’s © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

history with the company. Thus there is confidence in the information and decisions communicated between China and the home office. While this policy may be effective in the short term, in certain circumstances it also has several major shortcomings. First, it assumes that all expatriate managers sent to China will be able to operate effectively in the environment. History has demonstrated that many fail, unable to cope with the demands of an alien work environment or because of personal or family pressures. In these instances the home company loses on two fronts. It loses an effective manager from its home base as well as incurring the losses associated with the transfer to and repatriation from China of the manager. Second, and even more important, it fails to provide for expansionary management requirements in China. At some stage there is a requirement that managers are capable of moving away from the more comfortable coastal environment to the more challenging cities of China’s interior. The demands facing a manager in a city such as Lanzhou or Chengdu are far more difficult than those of Shanghai or Beijing. Also the support infrastructure existing in the larger, modern centres is virtually non-existent in these interior cities. A company pursuing an expatriate ‘tour of duty’ policy towards management in China will court failure should it adopt a similar policy for expansion inland. So what type of management recruitment strategy should be implemented to support a successful long-term presence in China?

RECRUITMENT The choice is twofold: recruit from the home market and pursue a policy of expatriate management; or seek management personnel from within China. Both strategies have advantages and disadvantages but common to both is a need for in-company and in-country training. Following is an overview of some of the choices available together with the benefits or drawbacks that may accompany these choices. For the purposes of this discussion I have divided the managerial market in two, the external market and the internal market. The external is the talent pool available outside China while the internal refers to the recruiting options available within China. Within these two divisions exist several subordinate markets.

The external market Recruit ‘in-house’ This policy involves identifying those personnel within the company who have the potential to succeed in China. This potential may already have been demonstrated in another overseas posting or through on-job performance within the company’s domestic operation. The advantage of this policy is that © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the person chosen is already familiar with company policy and operational procedure. Interviews with head office senior management indicated a strong need for confidence in the validity and accuracy of information being channelled back from the Chinese operation. This information ranged from target achievement to budget to quality control to the local political situation. In most cases the domestic head office revealed a far greater degree of confidence if this information emanated from an expatriate manager than if it came from a ‘local’. Reasons for this were quite disparate. In many cases it was because head office ‘knew’ their manager and, on the basis of his or her past performance ‘inhouse’ or in other postings, was comfortable with the terminology used or parameters applied to interpret or transmit the intelligence. In other words an expatriate manager had previous opportunities to demonstrate the ability to communicate effectively with his or her superiors and establish a basis for this confidence. This then carried over to the China posting. On the other hand, those companies with ‘local’ managers tended to indicate problems communicating due to a wide range of factors including language and cultural barriers and even suspicions about the loyalty of these local managers. I will discuss these problems in more depth further on. Recruiting in-house also facilitates the recruitment process. The job description can be couched in the language of the firm’s management culture. Hampden-Turner and Trompenaars (1993) found that America’s strong analytical bias shaped that country’s management practices and in turn many of the managerial positions were filled on the ability to satisfy these criteria. Thus job descriptions are written in this common terminology and job performance is judged against these inherent biases. Potential candidates can be compared using these common criteria and in similar situations. Engholm (1989) identified that there was a predilection in American corporate culture for depending on the standard rules and theories of international business practices developed in the West. My own research indicates that this attitude still pervades the management culture of most Australian, British and European firms. Thus their management recruiting protocols are also informed by this approach. A recruitment policy that included ‘externals’ becomes very difficult to implement for these firms as it necessitates comparing potential recruits from outside this accepted business culture with others who have proved themselves within the standard accepted ‘Western’ management system. In many cases because those making the decision are ‘insiders’ there is an inherent bias against those from outside the system (Winston, 1995). Again I intend to develop this theme further when examining potential Chinese managers. What are the major disadvantages of following a recruitment policy as set out above? The obvious is that the new manager has no operational experience in China. In some cases they may have gained experience in some other overseas posting but there is a body of evidence emerging indicating that other overseas experience is not necessarily a sound indication of an ability to succeed in China. The cultural, operational, structural and social challenges of operating in the Chinese business environment are sufficiently unique to negate © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

much of the experience gained in another overseas posting. My research indicated that for many Western firms China was their first overseas venture. Many Australian companies, for instance, had experience in trading or operating in other Western nations such as Britain or the US but China was their first non-Western venture. Thus their pool of managers with Asian managerial experience was either very shallow or non-existent. It took several years before any degree of expertise in this theatre began to accumulate within management. This meant that many of the early managers going to China found it difficult to acquire any substantial intelligence about the requirements of the Chinese environment simply because no one had been there before them. However, there was still an expectation that these managers would, in the words of entrepreneur Sheldon Breiner, ‘hit the ground running’ (Kao, 1989). Such expectations meant that many mistakes were made and current information indicates that many of these initial errors continue to be repeated. There is a substantial body of work recording these errors ranging from the factual to the anecdotal and from the farcical to the career ending. My own interviews have provided me with several of these instances. In 1992 an Australian material dyeing company recognized the potential in establishing a stonewashing facility to service the growing jeans manufacturing industry in Guangdong Province. Preliminary investigations were carried out and a potential partner was identified. This was an established but ageing dyeing plant located near Foshan. An engineer was despatched from Australia to survey the plant and on the basis of his report it was decided to invest around US$1 million to refurbish the plant and convert it to a stonewashing facility. The Australian engineer, having no previous experience in dealing with Chinese joint venture partners, organized for the money to be paid to the partners, drew up the necessary plans to upgrade the plant and set a time frame for completion. This done he then moved on to his next project back in Australia assuming the China venture was well under way. Five months later, having received constant assurances from the Chinese partners about the rapid progress of the project, the senior Australian partner flew to Guangdong to arrange the first batch of stonewashing. He was greeted by an unchanged plant except for a new hardstand parking lot for the four new Jeeps parked out front and was informed that his Chinese partners were on an ‘educational’ visit to San Francisco and Las Vegas. The total investment was lost and the joint venture collapsed, not because it was poorly conceived but because of the lack of in-country experience of the Australian firm who assumed that accepted standards of business behaviour applied universally. A further drawback to recruiting in-house is the provision of a clear career path. Many companies see a China appointment as a short-term ‘hardship’ posting, part of a potential senior manager’s learning curve. This policy sees a firm accumulate a pool of ‘old China hands’ who, having done their ‘tour of duty’, return to head office expecting either promotion or a ‘soft’ posting to a city such as London, Hong Kong or Los Angeles. In many cases these expectations are not met and an air of disillusion may be created with these © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘old hands’ attempting to outdo each other with tales of how tough it was in ‘the old days’ in China. Few companies have so far demonstrated an ability to harness this managerial experience gained in China and pass it on to the next generation of middle management. Although the above scenario is a little tongue-in-cheek it is a very real problem. Two companies who indicated this to be a major concern were Burns Philip and TNT Logistics. Both had problems with managers who had spent several years in China and were now looking for further advancement within the company but at the same time wanted to retain their connection with the Chinese operation. Because neither firm’s structure allowed for this career path to be followed there was a real danger they could lose these managers to other companies able to offer such a career path. At the time of my last interview the problem had not been overcome although there was a growing awareness of the need for it to be addressed. A further negative aspect of recruiting in-house is the ‘double whammy’ factor. This is the scenario where a firm decides to send an existing manager to China. The manager fails to adapt or is unable to operate effectively in his or her new appointment. The firm thus loses twice. It has lost someone from its domestic operation who was an able manager. It has lost in its China operation through the inability of the appointed manager to succeed. There is the additional cost of repatriating the manager as well as locating and appointing a replacement. My studies have indicated that these managers who ‘fail’ in China tend to be unable to resume their previous positions in the domestic operation either because of a loss of confidence by the firm or through a personal inability to regain their previous self-assurance. My interview subjects tended to regard themselves as ‘losers’ and assumed that senior management had a similar opinion. The whole issue of in-house recruiting is complex and also involves a further discussion of the importance of training programmes and prerequisite abilities. In my summary I will briefly consider these issues. If a company decides not to recruit in-house what are the other alternatives?

Recruit potential managers from the overseas Chinese communities The sophisticated economies of Singapore, Malaysia, Hong Kong and Taiwan are an excellent source of well-educated middle managers. These economies all comprise or contain thriving Chinese business communities with long-standing links to the PRC based on kinship. Additionally, firms from these centres are already trading with and within the PRC and have established significant business networks. A Western firm able to recruit from the Chinese diaspora will gain a recruit who already has a working relationship with several PRC entities as well as some of the required cultural and language skills. Again there are problems with this strategy. As discussed with reference to in-house recruiting there is still a tendency by Western firms to harbour some inherent © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

distrust of managers not graduating from the accepted Western traditions. The recruit may need inculcation into the ethos of the firm and this will possibly entail bringing the recruit to the domestic head office prior to taking up the China appointment. In some cases the costs of such a policy can prove prohibitive. An emerging trend with this recruiting policy is that these managers recruited from the Chinese diaspora have similar perceptions of the Chinese posting. There may be a reluctance on the part of the Chinese manager to transfer to China, seeing the PRC as undeveloped or unsophisticated. Alternatively they see their recruitment by a Western company as an opportunity to access the upper echelons of the domestic head office. Their attitude is that China is a necessary, but short-term, inconvenience which will eventually enable a higher appointment. In many cases questioning revealed that the domestic head offices had no similar long-term plans for these recruits and that their ambitions of achieving high positions in the head office were unlikely to be fulfilled. There is a perception by Western companies that because someone is Chinese he or she will be able to live and operate quite easily in the PRC. Current research indicates that this is not the case and that in many instances these personnel face more difficulties than a Westerner in operating in the environment. Selmer and Shiu (in press) explored many of the problems facing expatriate Hong Kong managers in Shanghai and Beijing. Schak is also finding very similar predicaments facing Taiwanese managers in Guandong Province.1 My own research in Zhejiang Province centred on Singaporean Chinese managers who found the workforce unmotivated and hostile and were unable to socialize in the community. Many lasted only a short time before returning home to where, they claimed, labour was more amenable and responsive. My own research in Wuxi also indicated that there were similar perceptions among the Malaysian Chinese recruited by Lion Nathan to manage the operations of the Taihu Brewery. They were harassed outside working hours and ignored and abused inside the workplace. As with Dr Schak, I also found evidence of violence towards these recruits forcing them into enclaves with their own bars and restaurants. In many cases their own head offices were unaware of the extent of the problem. I also found when interviewing senior management in many head offices of Western firms that there was a perception that many of these overseas Chinese lacked loyalty and would only work for them long enough to learn their operation and identify their market potential before returning to their previous home to set up a rival operation. Several Western firms cited instances of this type of activity but my research indicated that this practice seemed to be no more endemic than in most competitive Western economies.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Identify elite students from the PRC studying abroad This is a policy that has been successfully embraced by several New Zealand companies. It entails identifying the better achieving PRC students studying in the country’s university system then offering them incentives to remain and undertake postgraduate study. While doing this the company looking to recruit them involve the students in a programme with a mix of work experience and management training. At the same time their postgraduate study is tailored to dovetail with the in-house programme. The end result, hopefully, is a potential manager skilled in Western management theory with some practical experience and company indoctrination. A key point in the successful implementation of this type of programme is the clear definition of a career path for the PRC recruit so that there is a commitment to offer opportunity to rise through the managerial ranks not just be used in middle or lower management because of their ethnicity. Fletcher Challenge and Lion Nathan have both successfully adopted this method to meet some of their future management requirements. A major drawback of this scheme is that it ties the graduate to a foreign enterprise and, if he or she excels, may even mean they may move to the New Zealand headquarters. Therefore it could be argued that the PRC loses out on a valuable managerial resource that could be employed to better their own industries. My findings at this time are open on the benefits and losses of this arrangement but from the viewpoint of the Western company it seems to have a lot going for it. The associated costs, while substantial, seem to be a sound investment in view of the possible successful outcomes. When compared with the cost of a full expatriate package the investment is minimal. The major drawback to the scheme seems to occur when the recruit arrives at his new posting in China. There is an attitude among the workers that this new manager is ‘just another Chinese’ and accordingly should receive wages similar to everyone else (Schaap, 1992). Several subjects whom I interviewed indicated that they had been put under extreme pressure to pay bribes out of their own pocket to retain production schedules or to avoid sabotage to equipment. Although this was rare, there seems to be increasing evidence of worker dissatisfaction caused by such unequal remuneration. However, in many instances I found this to be no more pronounced than similar attitudes to the differences between local and expatriate Western wages. Because this scheme has been in effect for only a few years there has been insufficient time for any managers recruited under this scheme to graduate through the company ranks. Once some of these managers begin to appear in very senior positions within these Western firms they may provide role models for other Chinese graduates to follow and this policy may gain further acceptance among both Chinese and Westerners. A further problem yet to emerge is the creation of a career path that will satisfy the requirements of the Western corporation, the PRC and the Chinese graduate.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The internal labour market Recruit from the existing expatriate population Within China there is an expanding pool of experienced middle management talent. As ventures fail or expectations are not met these personnel become susceptible to offers from new or rival enterprises. In some ways this strategy is least fraught with risk. The potential employee is already living in China so will have demonstrated an ability to operate in the environment. The disadvantage may be that, just as they are prepared to jump ship to join your operation, so in future may they show a similar lack of loyalty to you should a better offer arise. Attracting or retaining these managers may prove the most expensive option. If they are currently employed they will require a package at least equivalent if not better than that which they are currently receiving. Should they be immediately available because of the failure of their current employer there must be some questioning as to the degree of failure attributable to their management input. Also, as most live in the major metropoli of China’s coast they may be either unwilling to, or incapable of, managing a venture away from these population centres. Of course managers are not the only component of the expatriate population in China. A significant number of Western graduate and postgraduate students now live and study throughout China. These students offer several significant assets to potential employers. They usually have a high degree of fluency in the language and have established a network with their peers in the Chinese student community. Many of these students will advance to become the decision makers in Chinese industry and bureaucracy. The foreign students have proved they can live and interact with the Chinese environment. They do not require the full expatriate package, being normally willing to find their own accommodation and work for far less remuneration just for the opportunity to advance their career in China. My interviews covered many foreign students who decried the lack of opportunity to work for companies from their home countries and it seemed there was a general lack of awareness among Western companies of the available talent among these students. Most of these students have travelled extensively throughout China and with experience would prove the ideal vanguard for future expansion into the Chinese interior. Of course the main drawback is their lack of managerial, and in some cases, work experience, but it could be argued that their cultural and language ability more than compensates for this lack and that a comprehensive training programme would quickly introduce many of the required skills.

Recruit from Chinese management ranks Western firms will come into contact with talented Chinese working for private Chinese or state enterprises. A prime source of such talent has been the five-star © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

hotels in China where sophisticated in-house training programmes produce a steady flow of articulate, able lower managers. Many of the skills acquired are similar to those needed in other Western enterprises. The very nature of hotels means that every day these personnel have exposure to a wide range of foreign business persons and thus the opportunity to ‘audition’. In turn the foreign enterprise gains a recruit already possibly having foreign language or other communication skills, office procedure experience or other managerial training. The manager of the Sheraton Hua Ting hotel in Shanghai lamented that the star graduates of his latest training programme had received their awards then informed him that they were leaving for more lucrative positions with other Western enterprises. The Shangri-La chain also admitted to having the same disproportionate loss of their top trainees to other Western enterprises. Recruiting from state enterprises or government departments can also have benefits. These recruits bring with them their business networks and often this guanxi can be extremely beneficial when access to, or favourable treatment from, the government is required. The drawback often is that this is the only benefit they bring as many are incapable of making, or unwilling to make, major decisions. Thus it may be strategically intelligent to recruit such personnel but long term there is little chance of them moving to senior management positions on merit. Also, because their influence may be limited geographically they usually offer little prospect of heading up an expansion inland. As previously discussed, Western head offices tend to have an inherent suspicion of the long-term loyalties of these recruits and fail to include them in long-term promotion plans, rather seeing them as useful to specific projects or regions.

Recruit Chinese graduates Procter and Gamble has been the firm which has most successfully instigated this strategy. Over the past seven years they have recruited from throughout the Chinese university system and have put in place a programme to identify and train potential managers. They have established an excellent rapport with the various educational authorities and as a successful and high profile foreign enterprise are a prized target for Chinese graduate students. However, even they admit that Chinese universities are not graduating enough students with the capabilities of meeting the growing demand. For the more recently arrived or lower profile Western firm this strategy is not so simple. They are faced with the problem of identifying which universities are able to supply graduates with the required skills. The university system in China is of a very uneven standard and many courses fail to produce graduates able to meet the demands of modern Western management. Even should the company succeed in identifying suitable institutions they must then attract the calibre of graduate able to progress through management ranks. Often these high achievers are in great demand and tend to gravitate to the more prominent name companies even though there may © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

be less opportunity for advancement. Another problem with this strategy is that often it will be necessary to inculcate the recruit into your particular management culture and this may be difficult without transferring him or her to your home office. This can be both difficult and expensive.

Training While training and development is improving among Western firms in China, not enough is being invested to meet long-term requirements. Rather, there is still an expectation that firms will get their managers from the marketplace. This is increasingly proving to be a flawed strategy. Each of the above recruitment strategies has its own training requirements. It is essential, however, that the future policies of the company in China be identified as early as possible. This will enable both the recruiting and training policies to be tailored to best serve such future requirements. Should the company be contemplating expansionary moves into China’s interior or to smaller centres, it is essential that such a strategy be factored into current human resource policy. My research has indicated that just as many managers fail when transferred to China from their home office, so too many managers fail when transferred from the expatriate enclaves of the large Chinese coastal cities to the more Spartan surrounds of the inland. It can be argued that as fast as companies can find, train and integrate managers into their business they will be able to expand (James, 1996). Present indications are that too many Western firms, approaching China with a boom mentality, attempt expansion at a rate beyond the ability of their current management regime. Just as growth in a mature economy normally occurs in a measured, planned format, so too the same strategy should be applied to the China operation. An essential component of this strategy must be the forward planning for the provision of managers to oversee the growth process. Adler and Bartholomew surveyed fifty North American based international firms to evaluate their international human resource management systems. Their study concluded that the management recruitment, selection and retention strategies lagged far behind the general business strategies of these companies. There was little recognition of the requirement for integration of business and personnel in planning market entry strategies. Only 4 per cent reported offering crosscultural training to all managers (Adler and Bartholomew, 1992). It is necessary to make management training particular to the Chinese situation. A literature search has revealed that much of the management literature evolves from the American situation. Thus we see a plethora of training based round executive decision making, quick appraisal of situations and vertically integrated management hierarchies. A further section of the management literature is based on the experiences of the large firm, American, Japanese or Korean. Most of the literature is Western authored or edited and what little does have direct PRC experience tends to be more anecdotal than © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

instructional. Popular examples of this type of literature are Beijing Jeep (Mann, 1989) and Barefoot in the Boardroom (Purves, 1991). Before instigating a training programme for middle management in China it is necessary for the Western company to clearly identify its future policy in China. The recruitment strategies should then address the problem of sourcing the best human resource talent with the potential to meet these future requirements. In some cases this will be as basic as language, in others more complex requirements involving various skills or disciplines. The training should then not only enhance these existing talents but incorporate the skills that will be needed to carry out these future policies. The training must be industry-and area-specific. There must be a recognition that the requirements of living and managing in Lanzhou are as different from those required in Guangzhou as are those of New York from Quito.

Summary An early study of American overseas business personnel over a period of ten years indicated that only 15–40 per cent completed the full term of their assignment (Donelly et al., 1985). A more recent survey indicated that, of senior executives (those receiving salary packages of more than US$250,000) located overseas, around 50 per cent were considered ineffective or only marginally effective by their own firms. In the early 1990s research indicated that companies in the US were losing around US$250 billion annually because of early returning expatriates, mostly from developing countries (Naumann, 1993). Research has indicated that most Western companies avow their determination to establish a long-term presence in the Chinese market. Further questioning shows that they have little idea of what the management of that enterprise will be. Many seem to think that they will continue to send expatriate managers to China. Very few regard the possibility of having a Mainland Chinese as general manager within the next decade as being very likely. TNT Logistics was one exception. Their plan is for a current middle manager to achieve general manager status before 2000. There is still an attitude among Westerners that Mainland Chinese lack the ability to successfully manage their enterprises. Some of this attitude stems from a lack of trust, a fear of being used then supplanted. The rest, I would argue, comes from sheer ignorance of the potential of Chinese as a management resource. Perhaps the lead should come from the Western education system. For too long there has been a perception that as long as a student had some language and cultural skills he or she was ready for China. This may have been true several decades ago when it was the norm to send errant managers to the East more as penance than as policy. Now China is a series of complex markets each with varying degrees of sophistication. The challenges of succeeding in these markets now demand far more than merely language and cultural skills. The © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

manager who will guide corporations to success in China will be capable of being a successful manager anywhere in the world. He or she will also have an additional set of skills particular to the Chinese situation. Western management programmes should now recognize this and begin to integrate a more Chinese focus into their courses. Perhaps it is time that more time was given to exposing current middle management to the Chinese situation rather than transferring them and hoping. A feature of the companies surveyed was that at the moment few, if any, managers had graduated through the system to reach the senior position with Western companies. Whereas in Hong Kong, Singapore or Taipei there exists a group of Chinese heading up large Western enterprises, no such group exists in China. This lack of successful role models in China means that at the moment it is very difficult for companies to extract loyalty from their middle managers by offering a long-term career structure. Maybe a system of fast tracking some Chinese managers through the lower and middle ranks of Western companies will begin to produce these role models and make others more aware of the career possibilities. Western firms need to become more aware of the potential of graduate students of their own country who are studying in China. Research demonstrates that in many cases this ignorance stems from the inability of universities to market the skills of their students. Even my home university, Griffith, had a very low profile in its own city, Brisbane, with few of that city’s firms being aware of the Chinese language expertise available. I was unable to locate any Queensland firms who had been approached by the university with the aim of marketing its particular skills. Investigation revealed that this lack of cross awareness was common to most Western universities and business communities. There is a need for integrated programmes involving in-China language study combined with work experience. Companies with operations in China need to be encouraged to foster students during their studies so that the student perhaps carries out his or her language studies in the morning then works afternoons for the enterprise. The cost of such a programme would be minimal and the possibility of producing culturally and linguistically skilled future managers would be enhanced immeasurably. A positive spin off of such a programme would be that home university language programmes would become more focused through this continuous interaction and feedback. Studies of MBA programmes in Canada have also indicated the advantage of incorporating foreign study tours into academic programmes and linking them with practical ‘hands on’ business experience while abroad (Kramer, 1996). Companies need to recognize that their focus needs to be on training development, whether it be at home or in China, rather than on a constantly spiralling outlay on compensation packages to either retain their own managers or to attract those from other companies. There needs to be a change in corporate culture to recognize that well-directed investment in recruiting and training will yield far better long-term results than one-off short-term © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

recruitment ‘coups’ from rival companies. Companies need to take responsibility for increasing the supply of managerial talent within their own organization. There needs to be a far more holistic approach to a company’s management structures so that the Chinese enterprise is integrated into the total management structure and the idea of the ‘tour of duty’ is deleted. Only such an approach will allow the development of a career structure that will enable Chinese managers to progress at a rate comparable with their head office equivalents and begin to provide role models and encourage long-term commitment to the firm among Chinese recruits. There is also a role for training bodies. Currently there is a goldrush mentality among many Western training organizations who are selling training programmes inappropriate to the requirements of Chinese managers. Programmes ranging from motivational to instant decision making are being marketed. An example is I-Will-Not-Complain Ltd which runs adventure corporate bonding workshops for Chinese executives near the Great Wall. While possibly quite suitable for a minority of Chinese managers, it is totally ineffective for the majority. However, because of its success and profile, the company has produced a number of inferior imitators offering cheap copies of their programmes. As mentioned earlier there is an ongoing assumption that only practices based on accepted Western theories of management are valid. There needs to be an effort by training companies to develop programmes that, while based on sound management theory, allow for the quite different requirements of the Chinese management trainee. Research carried out in Shanghai and Beijing by International Learning Systems revealed that the programmes needed to start at a much lower and more general level than in many Western situated companies and then be continually reinforced and built on.2 Too many Western trainers tended to assume that basic knowledge accepted in Western business already existed in China and consequently aimed their training too high. This then made the whole programme ineffective. In many cases it may be necessary to offer a basic introductory programme before entering into more complex management theory. This chapter is an overview only of a complex and demanding problem. Many Western companies are drifting along applying existing management structures and strategies to China with little planning for future change. However, as stated at the outset, eventually such a mindset will prove, at best, ineffective, at worst disastrous. Some of the options I have canvassed may not suit certain companies, others may prove attractive. Some of the suggested strategies may be inappropriate due to the size of the company. The challenge is to at least address the issues raised and implement policies both in recruiting and training that will best serve the future direction of each company in China.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

CONCLUSIONS AND RECOMMENDATIONS The following is a suggested check-list of best practice policies that may improve the chances of successfully choosing suitable managerial staff for China.

At home Managers should audit their own company’s human resources. Be aware of the talents within your own organization. Ensure that you know of previous overseas experience, language ability or particular cultural attributes members of your staff may possess. Firms need to be aware of existing talent pools in their own region. This pool may include university graduates with Chinese language ability, students who have lived and studied in China and have now returned. (My own research in Australia indicated that this group was of a substantial number and particularly under-utilized.) Also included should be the Overseas Chinese living locally as well as Chinese students studying in regional institutions. Firms should get involved in overseas student programmes, sponsoring suitable graduates to carry out in-country study and providing them with work experience both in the domestic facility as well as the Chinese venture. While possibly appearing expensive the overall benefits of successfully identifying and inculcating a long-term manager for the Chinese operation will far outweigh the initial investment.

In China Expatriate managers should consider ‘fast tracking’ a selection of Chinese executives through managerial ranks to create a peer group of role models who can then be identified as demonstrating possible career paths. This group may then encourage loyalty from your executive pool and minimize turnover of managerial staff. Firms need to ensure that the China operation is viewed by head office as a legitimate equal of all other operations and not as a hardship posting or necessary penance. Career paths including and utilizing the period of service in China must be clearly defined for both expatriate and Chinese managers. Even such minor matters as including the activities from China in in-house staff magazines can have a positive effect on how the China operation is perceived. Expatriate managers in China should familiarize themselves with the indigenous business community so that potential sources of managerial talent can be identified. Firms should also be aware of the standard of graduate from local Chinese universities and how they rank with those from other parts of China. This intelligence should be recorded and be made accessible to the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

firm’s human resource department. It should be made clear that each manager has a duty to update and add to this data bank of local knowledge. Where possible Chinese managers should be given the opportunity to spend time in the domestic head office to further educate them about the company’s activities, but even more importantly to instil confidence in the home office as they better understand the Chinese personnel through face to face interaction. These are what I consider to be the major policy initiatives that need to be put in place by Western firms considering expansion into China. It may be noted that none are ‘short-term fixes’. The intention is to provide some ideas about programmes that stand an excellent chance of producing a pool of skilled and motivated managers best able to instigate and oversee policies ensuring a company’s long-term success in China. NOTES 1

2

Dr David Schak of Griffith University, Brisbane, is currently carrying out this study and as yet has not published his findings. He very kindly has allowed me access to his preliminary impressions. Sharon Netto, International Learning Systems’ Shanghai manager, surveyed numerous Shanghai-based Western corporations in an effort to ascertain the type of sales management programmes that would best suit their potential clients. Prior to joining ILS Miss Netto had managed Austrade’s Hangzhou office and had made similar observations about Western firms based in that city. Craig Topp, China and Hong Kong manager of ILS, also reported similar data from Beijing surveys.

REFERENCES Adler, N.J. and Bartholomew, S. (1992) ‘Managing Globally Competent People’, Academy of Management Executive 6(3):52–65. Ansoff, H.I. (1981) Strategic Management, London: Macmillan. Donelly, J.H., Ivancevich, J.M. and Gibson, J.L. (1985) Organizations: Behaviour, Structure, Processes, 5th edn, Plano, Tx: Business Publications Inc. Engholm, C. (1989) China Venture: America’s Corporate Encounter with the People’s Republic of China, Glenview, 111: Scott, Foresman and Company. Hampden-Turner, C. and Trompenaars, F. (1993) The Seven Cultures of Capitalism, New York: Piatkus. James, R. (1996) Executive Recruitment in Asia, Radio Australia, 4 April. Kao, I (1989) Entrepreneur ship, Creativity and Organization: Text, Cases, and Readings, Englewood Cliffs, NJ: Prentice-Hall. Kaye, L. (1995) ‘No Time Like the Present: Management Training Finds a Home in China’, Far Eastern Economic Review 10 August: 65–6. Kramer, L. (1996) ‘The Development of Interest in and Preparedness for Doing International Business: The Influence of Foreign Study Tours in Executive MBA programmes’, unpublished paper, Western Business School, The University of Western Ontario, London, Ontario, Canada. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Mann, J. (1989) Beijing Jeep: The Short Unhappy Romance of American Business in China, New York: Simon & Schuster. Meier, J., Perez, J. and Woetzel, J.R. (1995) ‘Solving the Puzzle: MNCs in China’, in The McKinsey Quarterly 2. Naumann, E. (1993) ‘Antecedents and Consequences of Satisfaction and Commitment Among Expatriate Managers’, Group and Organization Management 18: 153–87. Purves, W. (1991) Barefoot in the Boardroom: Venture and Misadventure in the People’s Republic of China, Sydney: Allen & Unwin. Schaap, A. (1992) ‘Some Major Aspects of Corporate Culture of Four Equity Joint Ventures in China: An Explorative Research’, unpublished paper, Eindhoven University of Technology. Selmer, J. and Shiu L.S.C. (in press) ‘Coming Home? Adjustment of Hong Kong Chinese Expatriate Business Managers Assigned to the People’s Republic of China’, International Journal of Intercultural Relations. Winston, B.E. (1995) Be a Manager-for God’s Sake!, Virginia: Regent University School of Business.

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9

Performance appraisal in China Cherrie J.Zhu and Peter J.Dowling

INTRODUCTION Performance appraisal (PA) is the process of identifying, observing, measuring and developing human performance in organizations (Carroll and Schnair, in Cardy and Dobbins, 1994:1). Along with other human resource management (HRM) functions such as reward systems, PA is an integral part of modern Western HRM systems (von Glinow and Teagarden, 1988). In a broad sense, PA tends to serve three major purposes within an organization: administration, development and communication (e.g. Butler, Ferris and Napier, 1991; Cleveland, Murphy and Williams, 1989; Williams, 1972). The administrative purpose encompasses staffing, compensation, promotion, reward and punishment systems (Silverman, 1989). The developmental aspect seeks to ‘identify and develop potential for future performance, linked to succession and personal development planning’ (Goss, 1994:51), while communication is aimed at providing feedback to employees about behaviours and results they should continue or achieve (Butler et al., 1991). In addition, PA is also used to serve the management of human resources in an increasingly complex employment legal environment. For example, performance appraisal records can provide a paper trail for a company to combat wrongful dismissal cases (Eckes, 1994). PA has been a controversial and much-discussed function in HRM for decades. The controversy mainly relates to validity, reliability and credibility (e.g. Hegarty, 1995; Lawler, 1994; Thomas and Bretz, 1994). Supporters of PA claim that it has worthwhile objectives, such as facilitating the implementation of organizational strategy, linking performance to rewards, enhancing communication between managers and their subordinates, as well as identifyNankervis, Compton and McCarthy, 1993). Schuler and MacMillan (1984: ing training and development needs (e.g. Butler et al., 1991; Greer, 1995; 248) use companies as examples to illustrate how a performance appraisal system can ‘assist executives in clarifying and articulating objectives and expectations for themselves and their employees’, and help companies to gain competitive advantages via cost reduction and improved efficiency. On the other hand, opponents argue that PA may create more problems than © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

it solves. Research indicates many reasons that account for the failures or deficiencies of appraisal practices, including inappropriate focus, inadequate training, lack of communication and subjective criteria (Lawler, 1994; Mohrman and Mohrman, 1995). PA has been criticized for focusing too heavily on an individual’s past performance, on compensation and other administrative practices rather than on future goals and developmental aspects (McNerney, 1995; Mohrman and Mohrman, 1995). Inadequate training of appraisers may create superficial and prejudiced judgements, leading to conflict between appraisers and appraisees (Silverman, 1989). Lack of communication, resulting from either the reluctance of appraisers to pass negative evaluation on to their appraisees or merely negligence, may leave appraisees unaware of problem areas. This potentially leads to demotivation, distress or continuing poor performance (Armstrong, 1988; Thomas and Bretz, 1994). Eckes (1994) points out that PA contains subjectivity and immeasurables. This is one of the major reasons why W.Edward Deming (1986, in Eckes, 1994) vigorously argued against individual PA. Despite this controversy, PA remains a major HRM tool in Western market economies (Goss, 1994). For example, research indicates that in the US, the overwhelming majority of both private and public sector organizations use some form of PA (Fisher, Schoenfeldt and Shaw, 1993). Shelton (1995:51) also reveals that PA is ‘the most universally practised human resource management programme in Australian organizations’. This has been supported by recent research conducted by Dowling and Fisher (1996) on human resource management practices in Australia. Their research data indicates that 72.8 per cent of organizations surveyed (643 out of 883) have PA for management employees, while 59.8 per cent (528 organizations) have PA for nonmanagement employees. Fung (1995:230) has argued that ‘HRM is based on the Western model of the rational employee, which may differ significantly from people of other societies’. As a major HRM activity, little is known about the extent of utilization of PA in the People’s Republic of China (PRC)—particularly in the transition from a centrally-planned economy to a market-driven economy. To date, little research has been conducted in this area, especially on PA in China’s industrial sector. This chapter first examines PA systems in China during Mao’s regime and then post-Mao economic reforms. Based on a survey of human resource practices in China’s manufacturing sector conducted by the first author in China between 1994 and 1995, the chapter outlines the current practice of PA in industrial enterprises, diagnoses to what extent PA is currently and should be utilized to serve certain purposes, and discusses survey respondents’ perceived effectiveness of PA. The chapter concludes with recommendations on performance criteria for industrial enterprises in China.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

PERFORMANCE APPRAISAL UNDER THE CENTRALLY PLANNED ECONOMY (1949–78) From 1949, when the PRC was founded, to the late 1970s, the government established a centrally planned economic system modelled on the Soviet system (Hare, 1983). Under this highly centralised planning system, the operations of enterprises were strictly controlled and management practices were greatly limited. Employees were generally classified into two groups: workers and cadres. The former included all blue-collar employees while the latter generally referred to white-collar staff. According to Yabuki (1995:71), ‘the broad meaning of cadres is state institution and military “civil servants” while the narrow meaning is persons engaged in “certain specified leadership work or management work” (e.g. organisation cadres and enterprise cadres)’. Workers were administered by the Ministry of Labour and its branches at lower levels. Cadres were managed by the Ministry of Personnel. Those cadres who were both party members and managers were also under the control of the Organisation Department of the Central Committee (ODCC) of the Communist Party of China (CPC). Many policies and regulations regarding the management of cadres were issued by the ODCC, which illustrates the direct control which the CPC had over its cadres. During this period, PA was more commonly used for cadres than for workers. In November 1949 (one month after the PRC was founded), the ODCC issued The Regulation on the Performance Appraisal of Cadres’. In 1964 the ODCC circulated The Report on the Draft of Administration Work of Technical and Scientific Cadres’, specifying the regulations for appraising the performance of those cadres who were generally engaged in technical, scientific or other professional work. These technical cadres could be party members as well (Zhao, 1986). PA, or ‘personnel performance appraisal’, became a key component in personnel (i.e. cadre) administration or management (Han, 1992; Liu, 1987; Su and Zhu, 1992). The purpose of appraising cadres at this time was mainly for promotion or transfer, and the criteria for appraisal were heavily reliant on political loyalty and seniority (Su and Zhu, 1992; Young, 1989). The appraisal was usually conducted annually by the personnel department of the cadre’s organization. Each cadre was given an appraisal form which was divided into three parts: selfevaluation, peer group opinions and the assessment written by the head of the department in which the cadre worked. A narrative essay form of appraisal was adopted. Burns (1989) notes that this kind of appraisal is mainly a ‘superiorrating-subordinate’ type of system, which lacks specified criteria and other appraisal techniques commonly used in Western market economies. Therefore, the result was necessarily to increase the subjectivity of the appraisal process. PA for blue-collar workers was conducted in a much less formal and more subjective way—reflected in the emphasis placed on one’s biao-xian. This term refers to the ‘broad and vaguely defined realm of behaviour and attitudes © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

subject to leadership evaluation—behaviour that indicates underlying attitudes, orientations, and loyalties worthy of reward’ (Walder, 1986:132). A worker’s performance level depended on his/her biao-xian, which was usually discussed by one’s group members first and then decided by both the production leader and party representative or secretary of the group (Walder, 1986). As peers and leaders would make a judgement on the basis of their subjective impressions of one’s day-to-day job performance and cooperation demonstrated, personal relationships with colleagues, especially with the leaders, became the key to getting a good biao-xian (Brown and Branine, 1995; Walder, 1986). Such appraisals were characterized by vagueness, being open to individual interpretation and dominated by political ideology. Schuler and Harris (1991) note that when reviews are highly qualitative, the potential for favouritism exists, or at least the perception of it. Bernardo (1977) notes that in Chinese industry, three criteria (seniority, skill and political attitude) were constantly used for evaluation of workers’ performance. He also noted that it was difficult to specify how appraisers applied these criteria and how they weighed the importance of each criterion due to the subjectivity of the evaluation process. Thus the effectiveness of such a PA process is often questionable. The purpose of workers’ PA was primarily for job promotions, desirable transfers, the distribution of welfare benefits such as housing, and the selection of ‘model workers’ (Henley and Nyaw, 1987; Walder, 1986). It was difficult to link individual performance to compensation due to the vagueness of PA criteria. For example, in the 1977 national wage adjustment, the government stated that ‘eligibility was to be based on four criteria: political behaviour, work attitude, work performance and technical skills’ (Jackson, 1992:165; also see Li, 1991:193). However, people found that it was ‘hard to weigh political considerations against work performance, and workers themselves had different perceptions of fairness…[so] the easy way out was seniority’ (Jackson, 1992:166). Thus, as Jackson (1992:165) noted, ‘despite the push by the current leadership for the socialist principle of “pay according to work”, the implementation of wage adjustments was often marred by factors other than consideration of productivity’. Performance appraisals for both cadres and workers were totally abandoned during the chaotic ten years (1966–76) of the Cultural Revolution (Su and Zhu, 1992; Zhao, 1995).

PERFORMANCE APPRAISAL UNDER THE MARKET-DRIVEN ECONOMY (1978 TO DATE) Since the economic reforms, management practices (especially in terms of HRM) and employee behaviour have been experiencing rapid change, with the official acceptance of a market economy and the subsequent implementation of the Enterprise Law in 1988 and the ‘Regulations for Changing the Methods of Operation of Industrial Enterprises Owned by the Whole People’ in 1992 (Zhu © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and Dowling, 1994). PA, like other HRM practices such as staffing and compensation, is changing due to the transition from a planned economy to a market-driven economy. Shortly after the commencement of economic reforms in late 1978, the ODCC issued the ‘Suggestion for Implementing the Cadre Performance Appraisal System’ in November 1979. This document declared the significance of establishing a formal PA system for cadres for five major reasons. First, PA could identify cadres’ training needs, especially on the professional side, to increase their competency for building socialism. Second, it could distinguish between good and bad performers and help to make correct promotional decisions. Third, it could help implement the socialist principle of distribution, i.e. from each according to his/her ability, and to each according to his/her need. The identification of high and low performers through PA would encourage the former and motivate the latter. Fourth, it could help to break the ‘iron rice bowl’—lifetime employment regardless of performance and tenured positions for cadres. Cadres could be rewarded or punished, and promoted or demoted on the basis of PA evaluations. Finally, subordinates could evaluate their leaders in the PA process, and this would reduce the superior’s domination and put cadres under workers’ supervision as well (Su and Zhu, 1992:157). This document was a signal to abolish the ‘iron chairs’ of state cadres (i.e. tenured positions for cadres regardless of their performance). The appraisal criteria for cadres which are currently used in China consist of four broad areas known as: ‘good moral practice’ (de in Chinese), ‘adequate competence’ (neng), ‘positive working attitude’ (qing), and ‘strong performance record’ (jie) (Child, 1994; also see Brown and Branine, 1995; Burns, 1989; Han, 1992; Zhao, 1986). The four criteria were adopted with an overall grading from excellent, good, pass or poor. ‘Good moral practice’ (de) means virtue or moral integrity, which evaluates whether the cadre is in step politically with the party, and whether the cadre carries out government orders and regulations. De has always been listed on the top of a cadre’s appraisal sheet, during Mao’s regime and after (Child, 1994). Fung (1995:173) comments that ‘Chairman Mao’s slogan Red versus Expert emphasised the value of political activity over business performance’. While Mao Zedong also advocated ‘Be both red [politically reliable] and expert [professionally competent]’, Deng Xiaoping stated that ‘Red does not mean expert, however, to be expert must be red’ (Chen, 1990:352). ‘Adequate competence’ (neng) covers three main aspects: educational background; ability in leadership, management, organization, negotiation, planning, forecasting, and decision making; and physical status, which also includes age. Since the twelfth National Congress of the CPC in 1982, the decisive criteria for selecting and promoting cadres has been shifted from pure political ideology and seniority to youth, knowledge, education and demonstrated managerial capability. Thus neng has become more emphasized than before (Zhao, 1986). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘Positive working attitude’ (qing, pronounced as ‘chin’) refers to diligence and usually assesses attendance at work, discipline, initiative and sense of responsibility. The final area, ‘strong performance record’ (jie, pronounced ‘jai’), is to evaluate the cadre’s work effectiveness, including the quality and quantity as well as other contributions made to the organization. The last two criteria have been given particular attention since the economic reforms. In the old system of the ‘iron rice bowl’ (secure lifetime employment) and the ‘iron chair’ (tenured position), cadres could keep their positions or be promoted with little regard for their working attitude and achievement (Zhu and Dowling, 1994:7). However, under the market-driven economy, production and reward systems are changing, with less emphasis on egalitarianism and a stronger emphasis on efficiency and performance (Shenkar and Chow, 1989). As a result, PA has become a necessity to link performance to rewards and achievement has been given priority in appraisals. Since the reforms, some new methods for assessing cadres have been adopted (Chen, 1990; Su and Zhu, 1992). One is a computer-aided panel assessment (Ceping Kaohe in Chinese). The panel first sets up more detailed categories for each of the four major criteria (de, neng, qing and jie) and gives a weighting to each category. For example, the criterion of ‘de’ is categorized into ‘knowledge of Marxism and Leninism, understanding of state policies, ideology, commitment to work’; each item may have different weights according to the organization’s focus. Panel members then allocate marks individually to the appraisee according to his/her performance. All the marks will then be entered into a computer to obtain final assessment results. This method aims to quantify performance criteria and improve the credibility of PA. Another approach often used for PA is position-related yearly assessment (Gangwei Niandu Kaohe), which is more results-oriented. It is mainly based on a cadre’s job description and objectives set at either the time of appointment or the beginning of each year, including quantity and quality of the work and task fulfilment. These two methods of PA require detailed criteria to reduce subjectivity and informality as observed in traditional PA. However, the old methods of assessing cadres, such as ‘superior-evaluating-subordinate’ (Lingdao Kaohe) and comprehensive qualitative evaluation (Zonghe Jianding, i.e. self-assessment first, then peer group discussion and superior’s final comments) are still being used by many organizations (Su and Zhu, 1992), especially top-down appraisal, which will be further discussed in a later section. While there have been new approaches to assessing cadres, PA has also been gradually developed and become more widely used in enterprises at the worker (shopfloor employee) level since 1978. In 1979, during the national wage adjustment, criteria for wage promotion were changed to ‘work contribution, technical level and work attitude’ and each criterion was more quantified (Jackson, 1992; Li, 1991). The vague political criterion was deleted from the criteria list in 1977. However, after the Tiananmen Square Incident in mid-1989, the emphasis was again given to political attitude. In © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

June 1990, ‘The Regulation on Workers’ Performance Appraisal’ (hereafter called the Regulation) was approved by the State Council and issued by the Ministry of Labour in July 1990. This Regulation is for public sector and state-owned enterprises, and specifies the type, content, method and management of appraisals (Lu and An, 1991; Xia, 1992). The first article of the Regulation states that the major reason for conducting PA is ‘to assess workers’ ideological and political biao-xian (attitudes and behaviours) as well as work achievements, and to determine the technical level reached by the worker, and to raise workers’ initiative to build a socialist country’ (see Zhao, 1995:436). According to Zhao (1995), three major methods are currently being used for PA in China’s industrial enterprises. In the first approach the appraisal is carried on through ‘position specification’. Each job position has detailed specifications, which include quality control, technical requirements, quantified work loads, tools and machine maintenance, labour discipline, caring for the working environment, team-work cooperation, and safety of production. Zhao (1995) chose one high performing company as an example to illustrate how this system works. In this company, quality control requires each worker to self-check his or her own products, classify them according to the quality grades and stamp their working number on them. In addition, the quality inspector checks the quality of products on a regular basis before they get to the storeroom. If there is a quality problem, the relevant worker is identified, the reason for the problem investigated and a prevention method recommended. All of these processes are documented as part of the PA process. In this company, labour discipline has been specified and incorporated into a ‘position specification’ for PA. This involved a set of rules which included ‘two-must and five-forbidden’, i.e. the work of each shift must be started and must be completed according to a planned schedule, and five things are banned while working, i.e. reading, eating, chatting, being idle and leaving one’s work position without permission (Qu, 1991:35). The adoption of a ‘position specification’ based on the principles of scientific management for PA does indicate a radical change in China’s enterprise management. Before the economic reform, scientific management was criticized for helping capitalists to exploit workers, but now it is regarded as an effective technique to break the ‘big rice pot’ (the practice of egalitarianism, i.e. compensation is not linked to one’s performance) and to help managers increase productivity (Zhao, 1994). The second method, ‘management by objectives’, is quite common in Western market economies but quite new in China’s enterprises. PA is conducted within each work group, where each individual has specific objectives to complete. The last method is ‘internal subcontracting’, that is, the enterprise obtains a contract from the state, and then the project or production work is subcontracted to its internal departments or business units. Each unit is accountable for its profits or losses and the employees are appraised within such units mainly for compensation purposes. The three methods mentioned above all aim to break the old practice of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘eating from the big rice pot’ which did not distinguish high and low performers and did not link performance to rewards. However, these methods still have problems: for example, the emphasis given to political considerations, inconsistent measurement, subjectivity, static rather than forward-looking attitudes and a lack of communication (see Brown and Branine, 1995; Huang, 1994; Nyaw, 1995). They generally serve an evaluation purpose rather than developmental or communication purposes. This has been supported by our research findings and will be discussed later. Recently, a new method for PA was suggested by Peng, Bao and Wu (Zhao, 1995), which requires the development of a human resource information system (HRIS) within the enterprise, a behaviour control and motivation system and a strong link between performance and rewards. An HRIS could offer detailed information such as a job description and job specification for each position, and a job holder will have a clear understanding of work requirements and appraisal criteria. Employees are evaluated in terms of their achievement, working attitude and potential ability for promotion. The result of PA is then directly linked to individual rewards and compensation. This new method endeavours to achieve both evaluation and developmental purposes, and it is linked closely to one’s job position rather than a general classification such as worker or cadre. Currently, the extension of labour contracts to the whole workforce has offered a more realistic basis for conducting PA in enterprises. According to the Labour Law of the People’s Republic of China, ‘a labour contract is the agreement reached between a labourer and an employing unit for the establishment of the labour relationship and the definition of the rights, interests and obligations of each party’ (Article 16). The renewal of contractual employment ‘depends on employees’ performance and/or the enterprise’s need for their service’ (Child, 1994:165). Up to May 1996, 88.7 per cent (95.66 million) of enterprise employees had signed labour contracts compared to 31 per cent (35 million) in 1993 (Liu, 1996). Labour contracts with workers, as noted by Warner (1995:131), ‘were more matter of fact and were restricted to mutual obligations vis-à-vis a set of defined expectations’, such as production targets and payments. The requirements specified in the contract could supply basic criteria for PA and help enhance the appraisal’s validity. In international joint ventures (IJVs) in China (up to December 1995, the official number of such IJVs was 258,903), the distinction between cadres and workers has become blurred, and employees belong to either managerial or non-managerial groups. According to the ‘Regulations for the Implementation of the Law of the PRC on Chinese-Foreign Joint Ventures’ promulgated in 1983, IJV wage and bonus systems should adhere to the principles of ‘to each according to his/her work’ and ‘more pay for more work’ (Article 39). This has facilitated the adoption of the Western-style reward system that is more performance-related than relying on age, length of service and political ideology as typically found in most Chinese enterprises (Child and Lu, 1996). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Western style PA has now been introduced to many IJVs and is widely used. Fung (1995:212) reports in his study that Chinese employees ‘regard the concept of “pay for performance” as important for efficient organisation’. When visiting some Chinese IJVs set up by companies from Western market economies between 1994 and 1995, the first author noticed that these IJVs all conducted PA on either a yearly or quarterly basis. The criteria used consisted of factors such as knowledge of the job, quantity and quality of work, and managerial skills. However, the results of PA were used more for administration purposes, such as the distribution of a bonus, than for communication and development.

CURRENT PERFORMANCE MANAGEMENT IN CHINA’S INDUSTRIAL ENTERPRISES This section details and analyses the results of a survey conducted by the first author in China during 1994 and 1995. The survey results regarding PA practices help illustrate the current situation of performance management in China’s industrial enterprises. The survey questionnaire builds upon the work of von Glinow on best international human resource management practices (von Glinow, 1993). In the survey, 850 questionnaires were distributed to managerial and non-managerial employees in enterprises covering four major ownership categories: state-owned enterprises; collectively-owned enterprises; privately-owned enterprises; and international joint ventures. Survey results related to PA are analysed and discussed in terms of the three aspects as listed below: • • •

the existence of PA in the companies, including whether the enterprise has standardized criteria and methods for appraisal, the frequency of conducting PA, who is in charge of the appraisal and how PA is conducted; the purposes of PA, which are classified into three groups— communication, administration and development; the perceived effectiveness of PA in terms of (a) increasing employees’ performance, (b) increasing job satisfaction, and (c) the overall effectiveness of the organization.

The existence of PA In our survey, 346 respondents (78.6 per cent of the total) indicated that there were PA practices in their enterprises, and 219 of them noted that their enterprises had standardized criteria and methods of appraisal. Table 9.1 shows the adoption of standardized criteria and methods of appraisal in the enterprises with different ownerships. It is evident that international joint ventures (67.9 per cent) and state-owned enterprises (67.8 per cent) use more formal types of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

appraisal. For state-owned enterprises, this reflects the emphasis placed on PA by the state and the level of the central government’s control over state enterprises. This is especially the situation for large and mediumsized enterprises which have a consistent set of personnel practices such as PA (Zhao, 1994). For foreign joint ventures (which are mainly formed with stateowned enterprises), the formal use of PA could reflect the influence of the state and foreign companies. With regard to frequency of PA, 74.8 per cent of respondents who confirmed the existence of PA indicated that PA was conducted yearly, 14.3 per cent indicated ‘twice a year’, while 11 per cent stated ‘on a monthly basis’. Thus, the majority of enterprises in this sample conducted PA on a yearly basis. However, it is doubtful whether this annual appraisal process can help to link compensation to PA, as bonuses are usually distributed on a more frequent basis (monthly or quarterly). Tables 9.2 and 9.3 indicate respectively who is in charge of PA and how the appraisal is conducted. Table 9.2 shows that PA is primarily under the control of department managers (82.2 per cent), and Table 9.3 indicates that top-down assessment is still the main method used in PA (60.1 per cent). In some cases, department managers and line managers are jointly responsible for conducting PA, and methods of self-assessment and supervisor-assessingTable 9.1 The adoption of standardized criteria and methods of PA in Chinese companies with different types of ownership

Table 9.2 People in charge of PA

Table 9.3 Methods used for PA

Respondents may have provided more than one answer. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

subordinate are used together, thus the sum of percentages in Tables 9.2 and 9.3 is more than 100.

The purposes of PA As noted earlier in the chapter, PA is often used to serve three major purposes within an organization: communication, administration and development. In the survey the subjects were asked to what extent PA is being used currently (‘Is now’) and should be used in the future (‘Should be’). Chi-square tests were used to assess differences between existing and preferred states. The test results reported in Tables 9.4, 9.5 and 9.6 had three major indications. First, the subjects’ perception of future PA practices is highly dependent on their perception of current practices. Second, the current PA practice patterns are different from the perceived patterns in the future. Finally, the majority of items have shown differences between current and future practices and these differences are statistically significant. The details of these results are discussed below.

Communication In the context of PA, communication is seen as a function allowing for the development of a dialogue between appraiser and appraisee to improve the understanding of perceived goals and objectives, specifically, issues at work and the appraisee’s role in the organization (Schuler, Dowling, Smart and Huber, 1992). The expectation would be to draw appraisees into voicing ideas and suggestions for problem solving and decision making (Goss, 1994). Table 9.4 indicates PA is only used at a low to medium level for communication. However, there is a clear expectation that PA should give more opportunities for communication in the future. The results from chi-square tests (x2, p<0.000001) indicate that the differences between current practice and one perceived in the future are statistically significant. The trends appear to indicate an increase in the use of communication in PA. It is believed in Western market economies that the communication process in PA facilitates the opportunity in a formal framework for an open and honest discussion between appraiser and appraisee, which could include criticism. It is expected that such an approach will lead to a more open and interactive workplace (Chow, 1994). Milliman et al. (1994) point out that culture does have an impact on PA. For example, they argue that in many Western countries with low power distance cultures, PA is used to allow employees to openly express their views to their superiors, whereas in some Asian countries with high power distance cultures, employees will not openly express their views. Similarly, Baird, Lyles and Wharton (1990) identified in their survey that Chinese managers gave much less significance than their American counterparts to the issue of providing positive and negative feedback in appraisals. In China, the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

party and the government often advocate workers’ participation in management; however, such mutual communication is only verbally encouraged. In reality, a relatively high power distance culture, the cultural significance of keeping harmonious relationships and the traditional concept of ‘face-saving’ all discourage an open dialogue for fear of losing ‘face’ and upsetting superiors, subsequently jeopardizing promotional opportunities (Baird et al., 1990; Child, 1994; Easterby-Smith, Malina and Yuan, 1995; Fung, 1995; Milliman et al., 1994). This was supported by case studies conducted in China by the first author in 1994, which indicated that PA was solely undertaken by line managers and there was little feedback from appraisers to appraisees. In one case the results of PA were kept confidential because management felt reluctant to pass on any negative information to appraisees.

Administration The administrative aspect of PA may be seen in a variety of contexts. However, the predominant feature of such a process is to document an audit of the workforce strengths and weaknesses to facilitate the establishment of appropriate reward systems and relative value of past performance and future promotability (Schuler et al, 1992; Silverman, 1989). In the survey questionnaire, five questions related to administration purposes, namely, ‘to determine appropriate pay’, ‘to be the basis for bonus distribution’, ‘to be used for salary administration’, ‘to document subordinate’s performance’ and ‘to determine subordinate’s promotability’. The data (Table 9.5) indicate a clear trend to increase the use of PA for administration purposes from a currently moderate-large extent. Except for the issue of determining appropriate pay, other differences between current and preferred future practices are statistically significant as indicated by chi-square results (see Table 9.5, x 2, p<0.00001). This is not a surprising finding, because many enterprises have either used or started to use PA to determine pay as part of reforms to break an ‘iron wage system’ (the centralized fixed-wage system). However, to link performance to compensation, including salary and bonus, is considered Table 9.4 The extent to which PA is used for communication purposes

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Table 9.5 The extent to which PA is used for administration purposes

Note: ns=not significant.

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highly important and it appears to be a key feature within the aspects of administration of PA in China. The emphasis placed by Chinese enterprises on the administration of performance related pay and bonus is mainly the result of Chinese industrial enterprise reform. In 1984, the state issued a document on the ‘enterprise responsibility system’, which advocated the linkage of employees’ income with their job performance. Since then, enterprises (including state-owned organizations) have started to move slowly away from the traditional ‘iron wage system’. While the government maintains control over the size of the total payroll, enterprises have been given the autonomy to set up their own remuneration systems within the state guidelines (Child, 1995; Chow, 1992; Warner, 1995). Most enterprises have begun to put more emphasis on the use of PA as a way of determining the most appropriate payment system (Easterby-Smith et al., 1995; Nyaw, 1995; Zhao, 1995). Traditionally, PA was used to document an individual’s (particularly a cadre’s) performance. This was considered an important element of personnel administration in China, because a personnel file (like a tax file number or social security number in the West) moved with the person from organization to organization. However, with the opening of labour markets, this practice is becoming less prominent in organizations with more autonomy, such as foreign joint ventures. This is because a variety of selection procedures, including interviews and reference checking, have been adopted instead of merely relying on personnel files. Therefore, PA is currently used at a moderate level for documenting performance in China. The increase of this function in the future is modest as compared with other functions. The data in Table 9.5 indicate that PA is currently used for determining promotability to a moderate-large extent. With regard to future use, it indicates an increased emphasis on this aspect of PA. This increased expectation of using PA for promotability is closely related to a significant increase in the use of PA for performance based pay, as they are all directed at the effort to link performance to reward so as to break the traditional practice of egalitarianism (Chow, 1994; Han, 1992).

Development The development aspect of PA provides a framework to assess and evaluate past performance as well as providing a benchmark for future performance and development of the individual employee (Butler et al., 1991; Cardy and Dobbins, 1994). The survey indicates that respondents considered this to be the most important aspect of PA. There were five questions related to this aspect, i.e. ‘to recognise subordinate for things done well’ (‘recognition’ in the table), ‘to evaluate subordinate’s goal achievement’ (‘evaluation’), ‘to identify subordinate’s strengths and weaknesses’ (‘identification’), ‘to plan development activities for subordinate’ (‘planning’), and ‘to lay out specific ways in which subordinate can improve performance’ (‘improvement’). The © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

first three questions focus more on the assessment of past performance, whereas the last two focus more on planning for future development purposes. Table 9.6 indicates a low-medium level of PA used for development purposes and a trend to increase in the future. By examining the questions it is evident that the data show more emphasis on the assessment of past performance than on planning future development. Traditionally, as noted previously, PA is mainly used for promotion and transfer, and these decisions are made on one’s past performance. In addition, under the centralized labour allocation system before the reforms, employees were expected to remain in one position during their life-time employment (Zhu and Dowling, 1994). During Mao’s regime, employees were always encouraged by the state ‘to be a cog in a machine’. This was evident in the survey results of Weldon and Jehn (1993) who noted that many Chinese managers agreed that ‘the employee who quietly does his/her duty is one of the greatest assets of an organisation’. Since the introduction of the ‘enterprise responsibility system’ in the late 1980s, senior managers are now under performance-based contracts to the state. As a result, these managers often focus on short-term goals during their appointment rather than considering a long-term strategy, such as investing in employee education to further develop employees’ career (Chen, 1995; Zhao, 1995).

The perceived effectiveness of PA This section of the survey consists of three questions exploring the effectiveness of PA as currently conducted by the companies. The survey participants were asked whether PA practices ‘help the enterprise to have high-performance employees, have employees who are satisfied with their jobs and make a positive contribution to the overall effectiveness of the organization’. Data in Table 9.7 lean towards the medium to high level. There could be a tendency for respondents to give a subjective assessment of their own organization. This is especially true in China where criticism and conflict is actively avoided (Weldon and Jehn, 1993). However, the positive attitudes towards PA indicate that PA has been recognized as an effective tool in individual and organizational development.

CONCLUSIONS AND RECOMMENDATIONS This chapter has examined PA in China, especially in industrial enterprises under a planned economy and post-Mao’s economic reforms. The literature review and our survey results indicate that with the development of economic reforms, PA is in a gradual transition from a political-oriented bureaucratic assessment towards a means of implementing enterprise reforms, that is, to help break the ‘iron rice bowl’ by linking performance to compensation and placing emphasis on merit and achievements. By examining the three major © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 9.6 The extent to which PA is used for development purposes

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 9.7 Results of perceived effectiveness of PA

purposes of appraisal, we have found that PA is primarily used for determining bonus and wages, and is expected to be utilized more for communication and development in the future. Despite the controversy raised in Western market economies about PA, it is being used by many Chinese enterprises to weaken the old practice of egalitarianism and to facilitate the abolition of the ‘iron rice bowl’. However, Brown and Branine (1996) point out that PA in China still faces many difficulties. For example, when the four criteria (de, neng, qing and jie) are used, it has proved difficult to interpret the grades consistently as no details are specified for each category. In addition, as revealed by our survey results, PA has not been conducted systematically. In this situation, can a Western-style appraisal form be directly introduced to China? Fung (1995) argues that to increase the effectiveness of PA in China, a Western-style appraisal system which encourages individual economic performance should be incorporated with Chinese values of satisfying performance, such as harmonious functioning in a work group and fulfilment of individual obligations towards the work unit and colleagues. Similarly, Child (1993) also claims that the introduction of foreign management practices should reconcile these practices with a Chinese perspective and incorporate Chinese methods where possible. When the first author conducted a field study in China during 1994 and 1995, she investigated appraisal criteria used in the IJVs and state-owned enterprises which she visited. Based on a conventional form of employee performance appraisal used in advanced Western economies (see Schuler et al., 1992:216), with the addition of commonly used criteria in China, ten major criteria for conducting appraisals in China’s industrial enterprises are recommended below. 1 Knowledge of the job The degree to which the employee has learned and understood the objectives and procedures of the job. 2 Quantity of work The amount of useful work over the period of time since the last appraisal. Comparison of the output of work to the standard set for the job. 3 Quality of work General excellence of output with consideration to accuracy, thoroughness and dependability without close supervision. 4 Supervisory or technical potential The employee’s ability to teach and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

5 6 7

8 9 10

increase skills of others, to manage and lead, to organize and assign work, and to communicate ideas and instructions. Dependability The reliability of the employee in performing assigned tasks accurately and within the allotted time. Awareness of cost reduction The extent to which the employee has shown concern over reducing operational costs wherever possible. Flexibility The ability to adapt to and work effectively within a variety of situations, and with various individuals or groups. Flexibility entails understanding and appreciating different and opposing perspectives on an issue, adapting one’s approach to the requirements of a changing situation. Occupational safety The extent to which the employee has abided by the occupational safety rules and regulations and shown concern for his/her and other employees’ safety. Cooperation The employee’s attitude towards his/her job, fellow workers and supervisors. Awareness of the need to understand and help solve the problems of others. Attendance and punctuality The employee’s record, reliability and ability to conduct the job within the unit’s work rules.

The definition of each criteria can be more detailed according to the job descriptions or requirements established for different positions. Each criterion may further be classified into different grades from ‘outstanding’ to ‘marginal’ performance. For example, under the criterion of ‘quality of work’ in the case of a production worker, there could be five classifications, in which 5 refers to outstanding performance while 1 refers to marginal performance. Quantified standards can be incorporated into the following classifications on the basis of job requirements. These five classifications are: 5 4 3 2 1

Exceptionally high quality Consistently accurate, precise, quick to detect errors in own and others’ work. Work sometimes superior but usually accurate Negligible amount needs to be redone. Work regularly meets standards. A careful worker A small amount of work needs to be redone. Corrections made in reasonable time. Usually meets average standards. Work frequently below standard Inclined to be careless. Small amount of work needs to be redone. Work often below standard Seldom meets normal standards. Excessive amount needs to be redone.

Performance appraisal provides supervisors and subordinates with the opportunity to review and assess individual performance on a regular basis, and performance should be assessed against an agreed set of standards. The weighting given to each criterion could vary according to different job positions and mutual agreement. The supervisor may first ask the subordinate to undertake a self-assessment of performance, and then the supervisor undertakes © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

an assessment of the subordinate performance. The rating of the assessment can be decided by the supervisor, and feedback should be given to the subordinate for training purposes or performance improvement. Recommended criteria and classifications are defined and specified. Therefore, by utilizing a more objective and measurable methodology, it is expected that the validity and reliability of the PA process will be increased if this appraisal is also conducted through both self-assessment and supervisors. To summarize, in order for earnings of employees to be indicators of performance (Child, 1994) and for the bonus system to move away from egalitarian distribution (Jackson, 1992; Warner, 1995), PA is now and will continue to be utilized in China’s enterprises as a useful tool to help raise work effort by linking compensation more closely with the fulfilment of various tasks and responsibilities. This will be necessary if Chinese enterprises are to continue to adapt to an increasingly competitive global business environment.

REFERENCES Armstrong, M. (1988) A Handbook of Human Resource Management, London: Kogan Page. Baird, I.S., Lyles, M.A. and Wharton, R. (1990) ‘Attitudinal Differences between American and Chinese Managers regarding Joint Venture Management’, Management International Review 30, Special Issue: 53–68. Bernardo, R.M. (1977) Popular Management and Pay in China, Quezon, Philippines: University of the Philippines Press. Brown, D.H. and Branine, M. (1995) ‘Managing People in China’s Foreign Trade Corporations: Some Evidence of Change’, International Journal of Human Resource Management 6(1):159–75. ——(1996) ‘Adaptive Personnel Management: Evidence of an Emerging Heterogeneity in China’s Foreign Trade Corporations’, in D.H.Brown and R.Porter (eds) Management Issues in China: Domestic Enterprises, London: Routledge. Burns, J.P (1989) ‘Civil Service Reform in Contemporary China’, in J.Y.S.Cheng (ed.) China: Modernisation in the 1980s, Hong Kong: The Chinese University Press. Butler, J.E., Ferris, G.R. and Napier, N.K. (1991) Strategy and Human Resource Management, Cincinnati, OH: South-Western Publishing. Cardy, R.L. and Dobbins, G.H. (1994) Performance Appraisal: Alternative Perspectives, Cincinnati, OH: South-Western Publishing. Chen, D.R. (1995) Chinese Firms between Hierarchy and Market: The Contract Management Responsibility System in China, New York: St Martin’s Press. Chen, S. (ed.) (1990) Contemporary Labour and Personnel Administration Handbook, Shanghai, China: People Publishing House (in Chinese). Cheng, J.Y.S. (ed.) (1989) China: Modernisation in the 1980s, Hong Kong: The Chinese University Press. Child, J. (1993) ‘A Foreign Perspective on the Management of People in China’, in P.Blunt and D.Richards (eds) Readings in Management, Organisation and Culture in East and Southeast Asia, Darwin: Northern Territory University Press. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

——(1994) Management in China during the Age of Reform, Cambridge: Cambridge University Press. ——(1995) ‘Changes in the Structure and Prediction of Earnings in Chinese State Enterprises during the Economic Reform’, International Journal of Human Resource Management 6(1):1–30. Child, J. and Lu, Y. (eds) (1996) Management Issues in China: Volume II: International Enterprises, London and New York: Routledge. Chow, I.H. (1992) ‘Chinese Workers’ Attitudes towards Compensation Practices in the People’s Republic of China’, Employee Relations 14(3):41–55. ——(1994) ‘An Opinion Survey of Performance Appraisal Practices in Hong Kong and the People’s Republic of China’, Asia Pacific Journal of Human Resources 32(3):67–79. Cleveland, IN, Murphy, K.R. and Williams, R.E. (1989) ‘Multiple Uses of Performance Appraisal: Prevalence and Correlates’, Journal of Applied Psychology 74: 130–5. Dowling, P.J. and Fisher, C. (1996) ‘The Australian HR Professional: A 1995 Profile’, working paper series, 96–04, University of Tasmania, Department of Management. Easterby-Smith, M., Malina, D. and Yuan, L. (1995) ‘How Culture-sensitive is HRM? A Comparative Analysis of Practice in Chinese and UK Companies’, International Journal of Human Resource Management 6(1):31–60. Eckes, G. (1994) ‘Practical Alternatives to Performance Appraisals’, Quality Progress November: 57–60. Fisher, C.D., Schoenfeldt, L.F. and Shaw, J.B. (1993) Human Resource Management (2nd edn), Boston: Houghton Mifflin Company. Fung, R.J. (1995) Organizational Strategies for Cross-Cultural Cooperation: Management of Personnel in International Joint Ventures in Hong Kong and China, Delft, The Netherlands: Eburon Publishers. von Glinow, M.A. (1993) ‘Diagnosing “Best Practice” in Human Resource Management Practices’, Research in Personnel and Human Resources Management Suppl. 3: 95–112. von Glinow, M.A. and Teagarden, M.B. (1988) ‘The Transfer of Human Resource Management Technology in Sino-US Cooperative Ventures: Problems and Solutions’, Human Resource Management 27(2):1–29. Goss, D. (1994) Principles of Human Resource Management, London: Routledge. Greer, C.R. (1995) Strategy and Human Resources: A General Managerial Perspective, Englewood Cliffs, New Jersey: Prentice-Hall. Han, S.J. (1992) Renshi Guanli Xue (Personnel Management), Anhui, China: Anhui People’s Press (in Chinese). Hare, P. (1983) ‘China’s System of Industrial Economic Planning’, in S.Feuchtwang and A.Hussain (eds) The Chinese Economic Reforms, London: Croom Helm. Hegarty, S. (1995) ‘How Do Your Appraisal Techniques Measure Up?’, Works Management July: 46–9. Henley, J.S. and Nyaw, M.K. (1987) ‘The Development of Work Incentives in Chinese Industrial Enterprises—Material Versus Non-Material Incentives’, in M.Warner (ed.) Management Reforms in China, London: Frances Pinter. Huang, J.F. (1994) Xiandai Qiye Zuzhi yu Renli Ziyuan Guanli (Modern Enterprise Organisation and Human Resource Management), Beijing: People’s Daily Press (in Chinese). Jackson, S. (1992) Chinese Enterprise Management: Reforms in Economic Perspective, Berlin: Walter de Gruyter. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Lawler, E.K.E. (1994) ‘Performance Management: The Next Generation’, Compensation and Benefits Review May-June: 16–19. Li, W.Y. (1991) China s Wage System, Beijing: China Labour and Personal Press (in Chinese). Liu, X.F. (1987) Renshi Guanli (Personnel Administration), Beijing: Labour and Personnel Press (in Chinese). Liu, Y.H. (1996) ‘Achievements following the Implementation of the Labour Law’, Laodong Jingji yu Renli Ziyuan Guanli (Labour Economy and Human Resource Management) (in Chinese) 8:5–6. Lu, H.J. and An, H.Z. (1991) Xiandai Qiye Laodong Renshi Guanli (Personnel and Labour Administration in Contemporary Enterprises), Beijing: China Labor Press (in Chinese). McNerney, D.J. (1995) ‘Improved Performance Appraisals: Process of Elimination’, HR Focus July: 1–5. Milliman, J., Nason, S., von Glinow, M.A., Huo, P., Lowe, K. and Kirn, N. (1994) ‘In Search of “Best” Strategic Pay Practices: An Exploratory Study of Japan, Korea, Taiwan and the US’, paper presented at the 4th Conference on International Human Resource Management, Gold Coast, Australia. Ministry of Labour of the People’s Republic of China (1994) Labour Law of The People’s Republic of China, Beijing. Mohrman, A.M. and Mohrman, S.A. (1995) ‘Performance Management Is “Running the Business’”, Compensation and Benefits Review July-August: 69–75. Nankervis, A.R., Compton, R.L. and McCarthy, T.E. (1993) Strategic Human Resource Management, Melbourne: Thomas Nelson. Nyaw, M.K. (1995) ‘Human Resource Management in the People’s Republic of China’ , in L.F. Moore and P.D. Jennings (eds) Human Resource Management on the Pacific Rim, Berlin: Walter de Gruyter. Qu, Z.C. (1991) Qiye Yuhua Guanlifa (Enterprise Optimisation and Management), China: Nanjing Press (in Chinese). Regulations for the Implementation of the Law of the PRC on Chinese-Foreign Joint Ventures (1983) 20 September, Beijing: Xinhra News Agency. Schuler, R.S. and MacMillan, I.C. (1984) ‘Gaining Competitive Advantage through Human Resource Management Practices’, Human Resource Management 23(3): 241–55. Schuler, R.S. and Harris, D.L. (1991) ‘Deming Quality Improvement: Implications for Human Resource Management as Illustrated in a Small Company’, Human Resource Planning 14(3):191–207. Schuler, R.S., Dowling, P.J. and De Cieri, H. (1993) ‘An Integrative Framework of Strategic International Human Resource Management’, International Journal of Human Resource Management 4(4):717–64. Schuler, R.S., Dowling, P.J., Smart, J.P. and Huber, V.L. (1992) Human Resource Management in Austrialia, Australia: HarperEducational Shelton, D. (1995) ‘Human Resource Management in Australia’, in L.F.Moore and P.D.Jennings (eds) Human Resource Management on the Pacific Rim, Berlin: Walter de Gruyter. Shenkar, O. (1994) ‘The People’s Republic of China: Raising the Bamboo Screen through International Management Research’, International Studies of Management and Organisation 24(1–2):9–34.

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Shenkar, O. and Chow, I.H. (1989) ‘From Political Praise to Stock Options: Reforming Compensation Systems in the People’s Republic of China’, Human Resource Management 28(1):65–85. Silverman, S.B. (1989) ‘Individual Development through Performance Appraisal’, in K.N.Wexley (ed.) SHRM. BNA Series 5: Developing Human Resources, Washington, DC: The Bureau of National Affairs. Su, T.L. and Zhu, Q.E (eds) (1992) Ren Shi Xue Dao Lun (Fundamentals of Personnel), Beijing: Beijing Normal College Press (in Chinese). Thomas, S.L. and Bretz, R.D. (1994) ‘Research and Practice in Performance Appraisal: Evaluating Employee Performance in America’s Largest Companies’, SAM Advanced Management Journal Spring: 28–34. Walder, A.G. (1986) Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley: University of California Press. Warner, M. (1995) The Management of Human Resources in Chinese Industry, New York: St Martin’s Press. Weldon, E. and Jehn, K.A. (1993) ‘Work Goals and Work-related Beliefs among Managers and Professionals in the United States and the People’s Republic of China’, Asia Pacific Journal of Human Resources 31(1): 57–70. Williams, M.R. (1972) Performance Appraisal in Management, London: Heinemann. Xia, J.Z. (ed.) (1992) Laodong Xinzheng Guanli Zhishi Daquan (Encyclopedia of Labuor Administration), Beijing: China Labor Press (in Chinese). Yabuki, S. (1995) China’s New Political Economy: The Giant Awakes, Oxford: Westview Press. Young, G. (1989) ‘Party Reforms’, in J.Y.S. Cheng (ed.) China: Modernisation in the 1980s, Hong Kong: The Chinese University Press. Zhao, L.K. (ed.) (1986) Renshi Guanlixue Gaiyao (Introduction to Personnel Management), Beijing: China Labor Press (in Chinese). Zhao, S.M. (1994) ‘Human Resource Management in China’, Asia Pacific Journal of Human Resources 32(2): 3–12. ——(1995) Zhongguo Qiye Renli Ziyuan Guanli (Human Resource Management in China’s Enterprises), China: Nanjing University Press (in Chinese). Zhu, C.J. and Dowling, P.J (1994) ‘The Impact of the Economic System upon Human Resource Management in China’, Human Resource Planning 17(4): 1–21.

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10 Reward systems for local staff in China Vivienne W.M.Luk and Randy K.Chiu

INTRODUCTION Hong Kong has long been China’s window to the world, a strategic gateway to foreign business contacts, modern technology and investment. Among various foreign investors, Hong Kong was considered to be the second largest trading partner of the PRC, accounting for 15.9 per cent of the national total in 1995 (China Customs Statistics, 1996). In 1995, 58.2 per cent of the PRC’s foreign investment came from Hong Kong and about 80 per cent of Hong Kong manufacturers have set up production facilities in the country (Almanac of China’s Foreign Economic Relations and Trade, 1995). In 1994, 26.7 per cent of China’s exports were handled by Hong Kong. Hong Kong also accounted for 56.8 per cent (US$46.9 billion) of the direct foreign investments, 51.8 per cent (US$24.6 billion) of the foreign investment projects, and 45.9 per cent (US$19.8 billion) of the utilized capital of the country (Almanac of China’s Foreign Economic Relations and Trade, 1995). The 1995 Statistical Yearbook of China reported that the foreign capital actually used by Hong Kong grew 4.99 per cent in 1994, compared to 1993. Comparing 1995 with 1994, Hong Kong import to the PRC grew 4.17 per cent, re-export by main origin increased 16.59 per cent, and re-export by main destination increased 18.9 per cent (Hong Kong Census and Statistics Department, 1996). By 1993, Hong Kong firms, including only those which operated in the southern part of the country, employed more than 3 million workers (Farh, Leung and Tse, 1995). In 1994, there were over 118,000 Hong Kong invested enterprises in China, accounting for around two-thirds of the foreign-funded enterprises in China (Hong Kong Government, 1995). Due to this massive influx of foreign investors from Hong Kong as well as other countries, Western management philosophy and practices have been brought into China, especially remuneration systems, and changes in the methods of compensation have gradually been introduced. For example, the ‘iron rice bowl’, under which employees had more or less a lifetime tenure on a job regardless of performance, is fading away and fixed wages were replaced by © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

reward systems more in keeping with a market economy (DeLisle, 1989; Chow, 1992). These changes were, in fact, driven by the top decision makers who decided that, in order to provide incentives to higher productivity, some form of incentive for individual workers is required—the policy of ‘allowing some people to get rich first’ (Chow, 1992:43). These changes to reward systems include the following: 1 2 3 4

introduce higher wage differentials; structure a new wage system—basic wages, position wages, floating wages, and subsidies (Shenkar and Chow, 1989); add performance-related pay such as payment by results schemes; and provide other benefits such as cash bonuses, promotion opportunities, paid vacations and priority claims on welfare benefits.

While there has been research on the changes in payment systems in China (see Takahara, 1992; Child, 1995) and the impact on employee attitudes towards pay (Chow, 1992), little has been done in the way of empirical research on the content of pay and benefits packages in overseas companies operating in China. Specifically, no study has been conducted to examine how reward systems affect attracting, motivating and retaining the local staff in the PRC context. The authors conducted a survey to investigate these issues in 1996. The purpose of this chapter is to report and discuss the findings of this research.

OUR STUDY The purposes of the study were to investigate the composition of the compensation system offered by Hong Kong and other foreign companies to the PRC local employees and to find out which particular components were perceived to be significant in attracting, motivating and retaining these employees. It did not aim at providing guidelines on designing reward packages for Chinese local workers. Instead, it investigated the provision of different compensation components to the local Chinese staff, including managers, supervisors and workers of overseas (Hong Kong-owned and foreign-owned) companies operating in the PRC and to determine the relative importance of these components on the perceived effect on attracting, motivating and retaining local Chinese employees. The following research questions were developed for the study: 1 2 3

what were the reward philosophy and practices of the responding companies for their local Chinese employees?; what were the compensation components which were being offered to these employees?; and what were the relative importance of these different compensation

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

components in recruiting, motivating and retaining local employees as perceived by the employers?

DEMOGRAPHICS OF PARTICIPATING FIRMS It is well known that many overseas corporations, foreign and Hong Kong alike, operating in China have more than one establishment in the country. For example, Star Paging Holding Ltd has ten operational locations in China, including Beijing, Guangzhou, Waizhou and Shenzhen. In this survey, some participating companies have more than one operational site located in different parts of the country also. There are 233 operational locations reported from 121 participating companies. The result indicates that fortyone factories/offices were being operated in Beijing/Shanghai, forty-eight in Dongguan, forty-six in Shenzhen, thirty-three in Guangzhou, thirty-four in the remaining parts of the Guangdong Provinces other than Shenzhen and Guangzhou, and thirty-one in other areas in the country. This finding seems to indicate that most of the investors preferred to set up their establishments in Southern China (Goldstein, 1992). The result agrees with the 1996 PRC Pay Level and Benefits Survey which was conducted by the Hong Kong Industrial Relations Association (HKIRA, 1996) as well as the survey results presented in the 1996 Wyatt China Personnel Practices: Local Chinese Nationals’ Remuneration (Wyatt, 1996). The HKIRA survey (1996) indicates that 22 per cent of its participants had operations in Beijing/Shanghai, 24 per cent in Shenzhen, 21 per cent in Guangzhou, and 26 per cent in the Guangdong Province. The Wyatt survey (1996) records that there were sixty-eight establishments in twenty-two different locations in the country out of forty participating companies and 45 per cent of these establishments were located in the southern part of the country. It is rather obvious that most of the joint ventures would prefer to have their operations located in the southern part of the country (Goldstein, 1992; Shen, 1994). Table 10.1 Operational locations of respondents (n=233)

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There were 121 companies included in the sample of this study. Among the participating companies, 53.7 per cent of them had their business in the manufacturing sector; textile and clothing (12.4 per cent) was the second highest, while sales and marketing (10.7 per cent) was the third. On the other hand, only one participant belonged to computers and electronics and professional services respectively (see Table 10.2). This is no surprise as the result indicated that manufacturers occupied most of the sample size in this survey. In fact, this percentage again verifies the fact that most of the foreign business enterprises operating in the PRC are factories which manufacture their products from head to toe or process supplied materials and/or assembling supplied parts. Manufacturers were the first batch of business people relocated into China once manufacturing and operational costs began to rise in the middle of the 1980s (Goldstein, 1992; Shen, 1994). Among the 121 responding companies, 66.9 per cent of them had less than eight years of history and 24.8 per cent of them were between eight and twelve years. Only 8 per cent of the respondents reported that their establishment(s) in the PRC were more than twelve years old. This figure seems to suggest that a large number of the foreign companies went into China after 1985 for its cheaper labour, land and transportation costs (Goldstein, 1992; Shen, 1994). Regarding the form of investment, 29.8 per cent and 37.2 per

Table 10.2 Profile of the participating companies (n=121)

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cent of the participating companies were wholly foreign-owned enterprises and equity joint ventures respectively. The populations of local employees in the participating companies reported by the respondents were quite variable (see Table 10.3). Generally speaking, the average number of years of service for managers was 3.68, while for supervisors and workers they were 3.40 and 2.34 respectively. Explanations for such a short length of service year may include (1) almost 30 per cent of the participating companies have less than four years of history in operating in China, and (2) labour mobility is high, especially in Southern China as many workers are free to change jobs. In terms of turnover rate, operative level positions tended to have the highest rate (31.1 per cent). Again, this result seemed to agree with the HKIRA survey (1996) which indicated that workers seemed to have the highest turnover rate also (27.2 per cent). According to the above mentioned report, semi-skilled workers, skilled workers, sales and technicians had the highest turnover. Popular reasons for turnover included personal reasons, unfavourable work environments, unsatisfactory compensation and poor health (HKIRA, 1996). The findings revealed that there was no obvious difference in the benefits provision of total compensation package among the three levels of employees: 26.4 per cent was for the managerial grade, 23.6 per cent for the supervisory grade, and 27.7 per cent for the operative level (see Table 10.3). This small difference may be explained by the fact that employers seemed to agree that take-home cash was considered most essential by local employees regardless of level of position. This suggestion can be verified with the information on salary structure found in some companies operating in the country (HKIRA, 1996). Table 10.3 Mean and standard deviation of population, years of service, turnover rate and benefits provision (n=121)

( ) standard deviation.

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PHILOSOPHY AND CRITERIA OF REWARD PRACTICES Compensation philosophy is a set of beliefs that underpins the reward strategies of an organization and is a foundation for the whole compensation system (Armstrong and Murlis, 1994). Furthermore, a well-established compensation system that is designed appropriately for the local labour environment is considered to facilitate sound human resource practices (Gerhart and Milkovich, 1992). In this study, with regard to their company’s philosophy, about 88.4 per cent of the respondents thought that their reward policy was tied in with their corporate strategy. This high percentage thus may indicate that the participating companies viewed sound human resource practices as an underlying and internal factor affecting corporate business goals, performance and direction. Most importantly, compensation philosophy should fit with organizational needs in terms of attracting the right kind of human resources, motivating the right kind of employee behaviour and retaining the outstanding staff (Gerhart and Milkovich, 1992; Lawler and Jenkins, 1992). The main criteria of their compensation management strategy reported by the respondents in this survey, in the descending order, were motivating employees (71.9 per cent), retention of staff (56.2 per cent), recruitment of potential employees (53.7 per cent), and the company’s ability to pay (50.4 per cent). This result endorses the suggestions from the literature that the goals of a compensation system are to attract, motivate, and retain employees and to maintain an effective operation within organizational and environmental constraints (Armstrong and Murlis, 1994; Gerhart and Milkovich, 1992; Hills, Bergmann, and Scarpello, 1994; Lawler and Jenkins, 1992). It is clear that most of the participating companies believed that the prime motives of rewarding employees were to motivate and retain desirable and productive individuals. Maintaining high quality is a major issue encountered by manufacturers in China today. Employers have tried different ways to train and motivate their workforce in order to produce quality outputs. In this survey, it was found that the respective turnover rates for managers, supervisors and workers were 4.49 per cent, 9.86 per cent and 31.11 per cent. The findings from the HKIRA survey (1996) also indicate this pattern It is dear that the turnover problem was more serious for lower level positions like clerks and factory workers. Therefore, finding ways and means to retain good people, especially at the worker level, and to recruit a stable workforce, is a major task faced by PRC human resources professionals today.

DETERMINANTS OF SALARY INCREASE When selecting the major determinants for salary increments for local employees, again in the descending order, individual performance and contribution was rated first, market comparison, cost of living and company © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

performance occupied the second, third and fourth positions respectively. Comparing this finding with the one in the HKIRA survey (1996), the former was identical to the latter one. This finding, again, is supported by the literature that argues: (1) a compensation system must be promptly tied with employees’ performance if it is to be used properly with maximum motivational effect (Santone, Sigler and Britt, 1993); (2) the determinants of a compensation system must include the employer’s ability to pay and the conditions of the internal labour market (Hills et al., 1994).

COMPONENTS OFFERED BY RESPONDING COMPANIES In terms of the compensation components which are being offered to the local Chinese employees by Hong Kong and other foreign companies, respondents were asked to indicate those items which were currently offered by their companies to their respective employees, including managers, Table 10.4 Reward management philosophy and practices of the participating companies (n=121)

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supervisors and workers. The results showed that the popular items included base salary, year-end bonus, annual leave, meal subsidies, overtime allowance and housing provision. The least essential components perceived by the majority of the respondents were widow’s/widower’s pension, noncontributory provident fund, laundry allowance, clothing allowance, showers allowance, childcare facility and school for workers’ children (see Table 10.5).

RELATIVE IMPORTANCE OF VARIOUS COMPENSATION COMPONENTS In examining the relative importance of the thirty-seven compensation components in recruiting, motivating and retaining local employees, in the survey respondents were asked to indicate the top five items, out of the thirtyseven components, that they thought were the most effective in attracting, motivating and retaining their respective employees. The results (Table 10.6) indicated that base salary, merit pay and year-end bonus were the three most significant items, perceived by employers, for all three levels of employees in all three functions. Generally speaking, the fourth and fifth places were occupied by housing provision, annual leave, cash allowance and individual bonus interchangeably; this pattern was found throughout all three levels of position and in all three functions. The findings of this study revealed that practically all top five rank-orders in all three functions for all three position levels were basically occupied by cashform type of reward mechanisms: i.e. base salary, merit pay, year-end bonus, individual bonus, cash allowance and overtime allowance. These findings are not surprising. Salary, as a powerful incentive, has a substantial impact on motivating performance. However, annual pay increase only raises total compensation costs without necessary changes in performance. Moreover, as the traditional egalitarian approach towards distribution of rewards is being challenged, local employees prefer the employers to make decisions on salary increase based on equity rather than seniority and equality (Becker and Yang, 1989; Child, 1991; Fan, 1995). Because of this, other cash-form types of reward mechanisms are also considered important by local Chinese employees, such as merit pay and bonuses. Merit pay is the most widely used method to pay for individual performance as it is used to motivate performance and retain outstanding employees (Gerhart and Milkovich, 1992). Chinese employees have a traditional view towards the relationship between pay and performance—the harder they work, the more they get. It is evident from the respective studies of Francesco and Taylor (1989) and Chow (1992) that most employees prefer a pay increase based on a performance basis. Year-end bonus is a traditional and popular bonus payment found in many Chinese companies, especially in the manufacturing and retailing sectors. In the urban areas of China, many employees receive bonuses up to 40 per cent of their pay package (Hui and Chen, 1996). Individual bonus was found to be © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table10.5 Compensation systems for local Chinese workers (n=121)

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 10.6 Rank-order of attraction, motivation and retention of managers, supervisors and workers (n=121)

quite popular also. It appeared as either the fourth or fifth place in two of the three functions, i.e. motivation and retention, for all three position levels except motivation for supervisors. This result suggests that individual bonus was considered by respondents to be significant in motivating and retaining employees from workers to managers, and it is welcomed by all employees alike. Again, this finding agrees with the literature. Francesco and Taylor (1989) and Chow (1992) respectively reported that the majority of Chinese employees preferred a bonus system based on individual performance due to the common acceptance of the pay for performance philosophy. On the other hand, apart from the cash-form items mentioned above, the component which appeared quite often was housing provision. This particular benefit provision is valued by the local staff in China. This may be due to the facts that: (1) employees coming from other provinces need a place to stay (Asia Law and Practice, 1995); (2) overseas companies provide better housing facilities than state-owned companies (Greene, 1991); (3) some companies allow a local employee to own his/her apartment which was allocated to them at a certain seniority level (Sensenbrenner and Sensenbrenner, 1994); and (4) employees in general cannot afford the ever-increasing real estate prices (Sensenbrenner and Sensenbrenner, 1994; Yukari, 1992).

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CASH MENTALITY All these cash-form types of reward, base salary, merit pay, year-end bonus and individual bonus, were found to be most important in attracting, motivating and retaining the local Chinese employees. This may be due to the fact that money is perceived to be very important in the Chinese mind (Chiu and Kosinski, 1995; Redding, 1990). We would like to label this psychological value as ‘cash mentality’ (Chiu and Luk, 1997) and intend to explain this syndrome in both economic and cultural terms. The attraction of monetary incentives is quite high in the PRC. With the recent exposure to Western capitalism and consumerism, people are disenchanted with ideological ‘moral’ incentives; therefore, money or cash is quite attractive (Child, 1991; Davidson, 1987). Also, as a result of the fastgrowing market economy, the recent soaring high inflation rate found in the country also explains why local employees in the PRC were so very concerned about take-home cash since the purchasing power of the RMB is going down consistently. In 1994, the official record of consumer price inflation was slightly over 24 per cent; however, the real picture was much worse as government officials failed to put their fingers on the figures accurately (Cottrell, 1995). Furthermore, Chinese people believe that, as an old Chinese saying says, the harder they work, the more they will be rewarded; the more they are rewarded, the more money they get; and the more money they have, they can invest it and make even more. In the recent economic development that has sparked the entrepreneurial spirit, the amount of money one gets not only reflects the ability of the person at work but also his or her economic and social status in a society in which money makes money. Francesco and Taylor (1989) found that Chinese employees emphasized the issue of equity as the ‘iron rice bowl’ concept began to fade away after the market economy was introduced in the country. In the past, rewards and benefits were distributed equally to maintain work relationships and societal harmony (Becker and Yang, 1989; Child, 1991; Fan, 1995), but now the era of rewarding equally despite performance difference is gone (Chow, 1992; Hui and Chen, 1996). Traditional Chinese cultural values consider an individual to be successful in life when he or she is capable of being financially self-sufficient and self-reliant (Chiu and Kosinski, 1995; Redding, 1990). Therefore, their level of achievement or success in life somehow is reflected or measured by the size of their pay cheque and the accumulated volume of their wealth. It is a strong belief that the head of a family has to provide shelter and food as well as to facilitate appropriate socialization for his/her family members (Fan, 1995; Stewart and DeLisle, 1994); therefore, it is important for them to have good financial conditions. It would bring shame if one were not capable of providing for the material needs of the members of one’s family (Chiu and Luk, 1997). Chinese people are known to be low on uncertainty avoidance (Hofstede, 1980) and on trusting; it is imperative that each breadwinner should make and save as much money as possible for future use when unexpected events arise because of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

uncertainty and the instability of the future. On one hand, unexpected events, including sudden death, the outbreak of famine and/or termination of employment, may result in sudden loss of financial income. On the other, people do not trust the government, employers, business partners or people outside of their immediate family because of the corruption commonly found in the business environment in recent years (Hu, 1996; Ni, 1996). This is also another reason why Chinese employees show less interest in indirect benefits such as life insurance, education subsidy and vacation leave as well as longterm benefits such as provident funds and severance pay.

CONCLUSIONS AND RECOMMENDATIONS In terms of the perceived effectiveness of various reward components, it was found that all top five rank-orders were basically occupied by a cash-form of reward mechanism: i.e. base salary, merit pay, year-end bonus, individual bonus, cash allowance and overtime allowance. This indicates that cashform items are found to be most effective in attracting, motivating and retaining the local Chinese employees because of the existence of the ‘cash mentality’ syndrome. This syndrome may be contributed to by the following: 1 2 3 4

Chinese culture encourages financial independence; the orientation of equity theory with which employees expect a dollar for a dollar’s day of work; people do not trust their employers and therefore the indirect forms of reward, like social benefits such as childcare facilities and holidays, are not perceived as important by employees; and, finally, the recent economic development that sparked the entrepreneurial spirit of every person, inspiring an intention of making good money by having one’s own business.

It is obvious that a cash-form of monetary payment is considered as valuable in attracting, motivating and retaining employees as cash mentality is a prevailing value of the Chinese people. In the light of this finding, in order to attract desirable individuals, employers are recommended to design their compensation system to provide employees with take-home cash as the highest proportion of the package. In fact, this is the very thing that some companies operating in China have been practising. According to the HKIRA survey (1996), the salary structure of most of the companies it surveyed consisted of five elements for local employees. They were base salary, cash allowance, bonus, overtime allowances and non-cash benefit. For managers, base salary and cash allowance constituted 89.6 per cent of their total package. For supervisors and workers, the percentages were 89.8 per cent and 80.5 per cent respectively. Long-term benefits, such as pension and life © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

insurance, and short-term benefits like childcare, education and leave are considered to be less valuable and less useful in rewarding employees. Hence, employers are recommended to spend less money on employee protection but more on immediate cash rewards. On the other hand, since the concept of individual performance related pay is well received by local employees in the PRC, monetary incentives like bonuses seemed to be effective in motivating and retaining employees. In view of the current socio-economic developments in the PRC, employers should recognize the importance of monetary reward and place more emphasis on cash-form pay in designing their compensation systems.

REFERENCES Almanac of China’s Foreign Economic Relations and Trade (1995) Statistics Almanac of China’s Foreign Economic Relations and Trade 1995/96:487–775. Armstrong, M. and Murlis, H. (1994) Reward Management: A Handbookof Remuneration Strategy and Practice (3rd edn), London: Kogan Page. Asia Law and Practice Ltd (1995) ‘China staff’, Exotic Benefits, May-June: 2–3. Becker, B.E. and Yang, G. (1989) ‘The Chinese urban labour system: prospects for reform’, Journal of Labour Research 10(4):411–28. Chi, P.S.K. and Kao, C. (1995) ‘Foreign investment in China: a new dataset’, China Economic Review 6(1):149–55. Child, J. (1991) ‘A foreign perspective on the management of people in China’, International Journal of Human Resource Management 2(1):93–107. ——(1995) ‘Changes in the structure and prediction of earnings in Chinese state enterprises during the economic reform’, International Journal of Human Resource Management 6(1):1–30. China’s Customs Statistics (1996) ‘China data—China’s top trading partners, 1995’, China Business Review 23(3):40. Chiu, R. and Kosinski, F. (1995) ‘Chinese cultural collectivism and work related stress: implications for employment counsellors’, Journal of Employment Counselling 32(3):98–110. Chiu, R. and Luk, V. (1997) ‘Perceived effectiveness of compensation components in attracting, motivating, and retaining of staff in Hong Kong: the banking sector experience’, Working Paper, Series No. WP97002, Hong Kong Baptist University. Chow, I.H. (1992) ‘Chinese workers’ attitudes towards compensation practices in the People’s Republic of China’, Employee Relations 14(3):41–55. Cottrell, R. (1995) ‘Quick, quick, slow’, The Economist, March, 334(7906):6–15. Davidson, W.H. (1987) ‘Creating and managing joint ventures in China’, California Management Review 29(4):77–94. DeLisle, P. (1989) ‘Changing employment practices in the People’s Republic of China’, Benefits and Compensation International, May: 79–84. Fan, X. (1995) ‘The Chinese cultural system: implications for cross-cultural management’, S.A.M. Advanced Management Journal, Winter: 14–20. Farh, J.L., Leung, K. and Tse, D.K. (1995) ‘Managing human resources in Hong Kong: 1997 and beyond’, The Columbia Journal of World Business, Summer: 52–9.

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Francesco, A.M. and Taylor, J.N. (1989) ‘Worker attitudes toward compensation practices in the People’s Republic of China’, Proceedings of the International Conference on Personnel and Human Resource Management: 540–9. Gerhart, B. and Milkovich, G.T. (1992) ‘Employee compensation: research and practice’, in M.D.Dunnett and M.Hough (eds) Handbook of Industrial and Organizational Psychology, Palo Alto, CA: Consulting Psychologists Press. Goldstein, C. (1992) ‘It’ll all go in the south’, Far Eastern Economic Review 155(45): 47. Greene, J.L. (1991) ‘FIEs face new labour obstacles’, China Business Review 18(1): 8–12. Hannan, K. (1995) China, Modernization and the Goal of Prosperity, Cambridge: Cambridge University Press. Hills, F.S., Bergmann, T.J. and Scarpello, V.G. (1994) Compensation Decision Making (2nd edn), Chicago: Dryden Press. Hofstede, G. (1980) Cultural Consequences: International Differences in Work-Related Values, London: Sage. Hong Kong Census and Statistics Department (1996) Hong Kong Monthly Digest of Statistics, July, Hong Kong: Hong Kong Government. Hong Kong Government (1995) Hong Kong 1995: A Review of 1994, Hong Kong: Hong Kong Government. Hong Kong Industrial Relations Association (HKIRA) (1996) The 1996 PRC Pay Level and Benefits Survey, Hong Kong: HKIRA. Hu, K.H. (1996) ‘Corruption’s harm to society and the economy’, in The Academic Office of the Seventh International Anti-Corruption Conference Secretariat (ed.) Anticorruption for Social Stability and Development, Beijing: Hong Qi Publishing House. Hui, C.H. and Chen, K.T. (1996) ‘Employee motivation and attitudes in the Chinese workforce’, in M.H.Bond (ed.) The Handbook of Chinese Psychology, New York: Oxford Press. Lawler, E.E. and Jenkins, G.D. (1992) ‘Strategic reward systems’, in M.D. Dunnett and M.Hough (eds) Handbook of Industrial and Organizational Psychology, Palo Alto, CA: Consulting Psychologists Press. Ni, H.F. (1996) ‘Corruption in the financial, stock and futures markets and its control’, in The Academic Office of the Seventh International Anti-Corruption Conference Secretariat (ed.) Anti-corruption for Social Stability and Development, Beijing: Hong Qi Publishing House. Redding, G. (1990) The Spirit of Chinese Capitalism, New York: Walter de Gruyter. Santone, T.J., Sigler, K.J. and Britt, R. (1993) ‘The strategic compensation planning process’, Benefits Quarterly 9(4):85–6. Sensenbrenner, J.S. and Sensenbrenner, J. (1994) ‘Personnel priorities’, China Business Review 21(6):40–5. Shen, G. (1994) ‘China-Hong Kong integration’, in D.H.McMiller and S.W.Man (eds) The Other Hong Kong Report, Hong Kong: The Chinese University Press. Shenkar, O. and Chow, I.H. (1989) ‘From political praise to stock options: reforming compensation systems in the People’s Republic of China’, Human Resource Management Journal 28(1):65–85. Stewart, S. and DeLisle, P.L. (1994) ‘Hong Kong expatriates in the People’s Republic of China’, International Studies of Management and Organization 24(3):105–18. Takahara, A. (1992) The Politics of Wage Policy in Post-Revolutionary China, Basingstoke: Macmillan.

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Warner, M. (1996) ‘Joint ventures vs. state-owned enterprises: management and human resources in China’, Proceedings in Cross-cultural Management in China Conference 2:167–79. Wyatt Company (H.K.) Ltd (1996) 1996 China Personnel Practices: Local Chinese Nationals’ Remuneration—Wholly Foreign-Owned Enterprises, Hong Kong: Wyatt. Yukari, S. (1992) ‘Guangdong’s reforms and their impact on society’, China Newsletter, March-April: 6–12.

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11 Strategic human resource management: expatriate managers in China Jan Selmer

INTRODUCTION The literature on strategic human resource management (SHRM) has been preoccupied with the significance to organizations of searching for a ‘fit’ between their business and human resources (HR) strategy. The ideal is to try to ‘align the formal structure and the HR systems so that they drive the strategic objective of the organization’ (Fombrun et al., 1984:37). Such a contingency approach to human resource management (HRM) can be further explained as follows: Different HRM practices serve to elicit and reinforce the appropriate behaviours in the organization. These ‘role’ behaviours cut across the specific skills, knowledge and abilities that are required to perform particular tasks. They are considered as instrumental in the implementation of the competitive strategies. HRM strategies are all about ‘making business strategies work’. (Sparrow and Hilltrop, 1994) Fombrun et al. (1984) identified the four HRM practices—selection, performance appraisal, rewards and development—as the most important in achieving this ‘fit’. Schuler and Walker (1990) defined integrated HR strategies to achieve important strategic objectives, cost-competitiveness, delegation, organizational changes, organizational effectiveness, employee competence and global competitiveness. Ultimately, the strategic mission of HRM is to provide and distribute ability and competencies internally in the corporation, which increasingly requires employees to cross national borders and become expatriates (cf. Bartlett and Goshal, 1989). The number of expatriate managers in China is substantial and growing, presumably following the expansion of foreign direct investments (FDI) as the appointment of parent firm expatriates to key positions in their organizations in China is widespread (Björkman and Schaap, 1994; Tretiak and Holzmann, 1993). There are great differences between Western and Chinese SHRM; and, although most devastating in the many collaborative ventures, foreign business © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

operations in China typically encounter an array of difficulties managing local human resources (Saha, 1993; Sweeney, 1996a, b). Based on the emerging literature and the latest research findings on the subject, the purpose of this chapter is to discuss expatriate managers in China in connection with SHRM practices and procedures.

EXPATRIATION AND THE CHINESE CONTEXT The specific company motives for international transfers of parent country nationals (PCNs), or expatriation, were first proposed by Edström and Galbraith (1977). One reason for expatriation is to simply fill positions; ‘to get the job done’. This occurs when qualified host country nationals (HCNs) are not available or are difficult to train, thus assigning managers abroad is simply done to transfer technical and administrative knowledge. Especially if recruited internally, the transferred PCN manager will make the corporate bureaucracy run smoothly and allow the parent company good administrative and financial control over its foreign operation. A second reason for expatriation is management development; giving managers international experience preparing them for future important corporate tasks. This kind of transfer will take place even if qualified HCNs are available. A third motive for expatriation concerns organizational development and presumes that frequent and large-scale international transfers of managers will create corporate-wide socialization effects and create international communication networks, thus allowing for more decentralization than available through traditional bureaucratic means. Control by socialization implies that behavioural rules are internalized by individuals, lessening the need for procedures, hierarchical communication and surveillance. Consequently, two of the three reasons for expatriation are associated with organizational control, either formal/bureaucratic control or informal control through socialization. Besides an array of other objectives and work tasks for expatriates in China, to gain and maintain control over their China operations would also be a principal motive for foreign business firms to assign their managers there (Borg and Harzing, 1995; Hoon-Halbauer, 1996:377–8; Shenkar and Nyaw, 1995). The organizational configuration of Western business firms involved in FDI in China can range from representative offices to wholly-owned subsidiaries. However, a joint venture (JV) involving Chinese counterpart(s) was the first mode of entry to China and is still the most frequent form of cooperation (Child, 1991; Shapiro et al., 1991; Tretiak and Holzmann, 1993). Although the management of wholly-owned subsidiaries involves a very complex task as bicultural interpreter, national defender and advocate and frontline implementer of corporate strategy (Paauwe and Dewe, 1995), many of these challenges are accentuated, and others are added, by the very character and context of Sino/Western JVs in China (Shenkar and Nyaw, 1995; Tretiak and Holzmann, 1993). More often than not, foreign equity holding in the JVs © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

involves the direct management of Chinese employees by expatriates, requiring cooperation with Chinese managers who typically keep the supervisory responsibility over blue collar workers and certain managerial functions/ departments such as administration and personnel (Child, 1991). Consequently, the employees and other ‘players’ involved in the management of such partnerships normally come from different countries with diverse values and norms of behaviour; they are typically recruited by different entities (the Chinese parent(s), the Western parent(s) or the JV itself), and therefore feel loyal to different organizations. They work in separate countries (the Western parent countries or in China), thus operating at different geographical and psychological distances from some major stakeholders; and they have different kinds of assignments (regular/ad hoc) and different prospects for promotion, mobility and transfer (Shenkar and Nyaw, 1995). Since the JV is owned by at least two parent firms, each typically wants to place their own expatriates or appointees in key positions in the JV organization for purpose of control. As necessary as it is to use expatriates to represent the Western parent firm(s), this arrangement results in a special situation for these managers. In China, ties to the Western parent firm tend to be much stronger than in other countries since there is little chance of an eventual transfer to the JV or the Chinese parent firm(s). Dependent on their parent company for continuous employment, since they are far away from their job market, such expatriates tend to be loyal first and foremost to their parent organization and not to the JV, thereby increasing the suspicion among the other JV partners, creating mistrust and hampering cooperation among the various groups of employees within the JV. On the other hand, the loyalty to the parent firm is even stronger among the staff transferred from or appointed by the Chinese parent firm(s). The Chinese work-unit, the danwei, provides their members with a variety of attractive benefits and allowances. The danwei could supply its members with housing (practically unavailable in the free market), child care, health care, schooling, social welfare, subsidized food staples and the privilege to purchase scarce goods and services. Besides, transferred workers know that they have little to lose if they themselves or the JV is not successful, since they can simply return to their Chinese parent company (Shenkar and Nyaw, 1995; Tretiak and Holzmann, 1993). This confrontational predicament is even further aggravated by the fact that the Western and Chinese JV partners could have a number of conflicting objectives emanating from cultural, social, economic, technical and political differences (Tretiak and Holzmann, 1993). Examples of such potential objective conflicts are summarized in Table 11.1. Consequently, HR issues in JVs have to be considered throughout the process of negotiation and partner selection. A suitable partner from a strategic point of view may not necessarily have the compatible workforce and personnel policy to permit harmonious and successful cooperation. A common example of conflicting objectives of parent firms would be the foreign parent who enters the JV to reduce manufacturing costs, thus trying to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 11.1 Potential objective conflicts in joint ventures

Source: Sweeney (1996b).

minimize training costs. On the other hand, the Chinese parent may have joined the venture to obtain a transfer of technology and know-how and would like to see a comprehensive staff training programme implemented. Such issues of conflicting objectives should be dealt with in the contract negotiation phase to design HR policies reflecting the best possible compromise. To reduce uncertainty about HR decisions as much as possible, the contract should specify in detail such issues as staffing levels and criteria, compensation, promotion and performance evaluation procedures (Shenkar and Nyaw, 1995; Tretiak and Holzmann, 1993).

CHINESE/WESTERN SHRM The personnel/HRM function in Chinese organizations is usually very different from that prevalent in the West. The role of personnel departments in China is © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

often focused on control and ensuring conformity, in stark contrast to the Western strategic HR vision as discussed above. The focus on control over staff combined with traditional attitudes often means that Chinese managers emphasize negative discipline—punishment, restrictions and personal loss of face—whereas Western managers tend to favour positive discipline—motivation through praise and reward as well as encouragement of initiative. Further, Western HRM relies on standard procedures for selection, appraisal, time-keeping, assessment of attitudes and discipline, but this is seldom the case in Chinese organizations. Attempts to introduce Western HRM practices in JVs is usually a very demanding undertaking. Western managers typically find it difficult to persuade Chinese staff to accept promotions, especially if these involve supervision of their fellow workers. There is usually resistance against introducing differential salaries reflecting responsibility or job content and against introducing performance related incentives. There could also be problems with selection and recruitment, where pressure is exerted from the local labour bureaux to employ unsuitable applicants or larger numbers than required. Firing of unsatisfactory workers could also be difficult and Chinese managers tend to be highly protective of their employees, to the extent that loyalty is appreciated even in the face of incompetence. Although training plays a crucial role in JVs, Chinese employees tend to regard attendance at a training course as a perk and especially so if the training is conducted abroad. Therefore, Chinese candidates are often selected by their superiors based on seniority instead of capacity and promise (Child, 1991; Shenkar and Nyaw, 1995; Tretiak and Holzmann, 1993). Examples of pertinent differences between Western and Chinese SHRM are outlined in Table 11.2. Such distinct differences within the area of SHRM could result in severe consequences for the Chinese and the expatriate managers in JVs. Generally, the Western model may challenge the Confucian ideals of the importance of proper human relationships: a sense of order, of vertical and horizontal relationships, of obligation to the group and a preference for harmony in interpersonal relations (Björkman and Schaap, 1994; Hoon-Halbauer, 1996:85–8; Sweeney, 1996b). Particularly, there are six crucial areas of SHRM: communication/decision-making/delegation, HR planning, managerial understanding and insight, performance appraisal, power and authority, and staff motivation (Sweeney, 1996a, b).

Communication/decision-making/delegation Chinese communication usually follows hierarchical lines whereas Western managers tend to prefer a more open communicative style. Inconsistency regarding the decision-making style advocated by Western and Chinese managers can create conflicts and inefficient use of organizational resources. The unwillingness of Chinese managers to delegate decision-making responsibility can lead to information overload resulting in severe strategic consequences. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 11.2 Western/Chinese SHRM differences

Sources: Sweeney (1996a, b) and Warner (1993, 1995:155).

HR planning To strategically develop staff as a resource renders a competitive advantage in China since well trained and highly committed staff are required for success. This is not well understood by Chinese managers. Traditionally, candidates were assigned to their future employer and staff training and development were little known concepts. Managerial understanding and insight Chinese and expatriate managers typically have a limited understanding of cross-cultural issues pertaining to each other, and there is little cross-cultural © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

awareness training offered to either group of managers as a strategy to reduce conflict or mismanagement (Björkman and Schaap, 1994; Sweeney, 1996b). Performance appraisal As employed in the Western model this is usually considered to be inappropriate in China. The Chinese tendency for saving ‘face’ makes the process of appraisal less valuable, since Chinese subordinates typically only share positive information about their performance with subordinates. Power and authority Chinese managers should be encouraged to accept responsibility, to use their initiative and imagination and to communicate across functional and hierarchical perimeters. Staff motivation The increased competition within China makes it necessary to recruit highly qualified employees, motivating and retaining them with a complete remuneration package, including salary, fringe benefits and opportunities for career advancement (Sweeney, 1996b). EXPATRIATE EXPERIENCES IN CHINA The number of expatriate managers in China is substantial, presumably following the expansion of FDI. Although many Western multinationals rely on their own PCN expatriates to represent them, at least in key positions, the use of overseas, Western trained, ethnic Chinese expatriates is becoming more popular in the belief that the common cultural heritage with the hosts will benefit the latter group of expatriates. This is not necessarily true, as anecdotal evidence shows (Björkman and Schaap, 1994). Recently, such accounts have been corroborated by empirical research findings. Based on on-site, indepth interviews, Selmer and Shiu (in press) have shown that ethnic Chinese expatriate managers from Hong Kong assigned to Beijing and Shanghai experienced severe difficulties, comparable to the worst ordeals ever reported in the literature on expatriate management (cf. Black and Porter, 1991; Schermerhorn and Bond, 1992; Stening and Hammer, 1992). A major conclusion from this study was that life and work in China seem to be different in many ways from that in Hong Kong. Paradoxically, the common Chinese cultural heritage seems to aggravate the adjustment problems of the Hong Kong managers in China instead of facilitating acclimatization. At work, they generally refrain from adapting their managerial style to local expectations. Instead, they insist, often in vain, that the subordinates adopt parent country © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

work standards and behaviours, resulting in frustration and in feelings of detachment on the part of the expatriate manager. Since they often left their families in Hong Kong, they can draw little or no support from them. Outside work, they avoid socializing with host nationals, instead living in the vicinity of and seeking the company and social interaction with other parent country nationals. Further, their leisure time is mainly spent in the seclusion of their homes (Selmer and Shiu, in press). Although based on qualitative research with no explicit comparative data, our findings seem to lend some support to the recently proposed idea that assigning expatriates to a similar culture can be as much, if not more, of a trying experience as sending them to a very different culture (Brewster, 1995; Brewster, Lundmark and Holden, 1993:27). The perceived cultural similarity seems to build up expectations of easy and quick adjustment, which could, if this is not accomplished, result in frustration, resentment and withdrawal, seriously impairing the performance of the Hong Kong expatriate managers as well as that of their China operations. In a follow-up survey, Selmer (1997b) compared adjustment and subjective well being of Western and Overseas Chinese expatriates assigned to China. It was found that while the Western expatriate managers experience a larger cultural distance from China than the ethnic Chinese expatriates, they experience a higher degree of adjustment, especially work adjustment, than the ethnic Chinese expatriates. This is a fundamental discrepancy since it can be argued that the primary function of assigning an expatriate manager to China, or to any other country, is to have that manager perform certain work tasks. If the expatriates are not well adjusted to their work, the performance of the manager as well as the foreign operation may suffer. The results of this study give empirical support to the proposition that it could be as hard, or even more difficult, for expatriate managers to adjust to a close than a distant culture (Brewster, 1995; Brewster, Lundmark and Holden, 1993:27). Cross-cultural training and preparations for expatriate assignments are activities identified in the literature both as being essential for successful adjustment as well as being badly neglected (cf. Black and Mendenhall, 1990; Brewster, 1995; Early, 1987). A very clear implication for international business firms is that cultural preparation and training could be useful not only when assigning expatriate managers to very different cultures, but also for assignments to similar cultures. However, it is also likely that the training should be different for expatriates assigned to similar as opposed to distant cultures. Whereas the latter type of preparation often includes substantial elements of cognitive training, emphasizing factual information about the host country (Gudykunst, Guzley and Hammer, 1996), the former would probably rather focus on the few essential cultural differences that exist in the close host culture. Training aimed at facilitating work adjustment in particular is not very commonly provided to expatriate managers by international firms (Brewster and Pickard, 1994; Early, 1987; Tung, 1982). On the other hand, efficient job © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

interaction skills are essential for maintaining and developing the competitive strength of international firms (Bartlett and Goshal, 1989; de Cieri and Dowling, 1995). Equipping expatriate managers with cross-cultural training concerning the job context in China, in order to enhance their interaction skills, enables them to function independently without knowing all the facts about the culture because skills training focuses on ‘learning how to learn’ in the new cultural setting (McCaffery, 1986). Hence, providing expatriates with job interaction skills training to facilitate their work adjustment in China would be a highly recommended course of action for international firms assigning expatriates there, probably not only improving the well being of their expatriate managers but also enhancing their efficiency and the firm’s competitiveness. Another implication is that the results cast doubt on the policy of some multinational firms of transferring expatriate managers within the same region of countries, in the belief that they will have fewer adjustment problems if they are reassigned to a neighbouring country with a similar culture as the previous host country (Selmer and Lee, 1994). A special case of such a misguided policy is Western multinational firms which prefer to put an Overseas Chinese expatriate in charge of their business operations in China, in the somewhat naive belief that such a move will solve all cross-cultural problems (Selmer and Shiu, in press; Björkman and Schaap, 1994).

CONCLUSIONS AND RECOMMENDATIONS Currently, there are huge differences between Chinese and Western SHRM practices. A crucial question for Western managers in China is the approach to take towards this situation. Although most clearly accentuated in jointly managed collaborative businesses such as JVs, this is an issue of common relevance to all foreign business operations in China. Three distinctive approaches are possible (Child, 1991). One approach is to exclusively use Western practices without reconciling them with the Chinese style of management. Although a number of JVs have attempted this approach, and with substantive training it can achieve quick results, this approach can cause considerable interpersonal conflict and make the Chinese staff generally unwilling to cooperate. A second approach is to accept the Chinese HR practices and limit any changes to financial and technical areas, as is frequently done in Hong Kong/ Chinese JVs, where the partners have a common cultural heritage. However, these JVs are often operating in lower technology industries and have relatively short contract periods, not warranting any new managerial system. Other JV partners have opted not to interfere in the management of Chinese staff if they can control other key parameters. A third approach involves the integration of Western and Chinese practices (Child, 1991; Tretiak and Holzmann, 1993; Sweeney, 1996a, b). Seeking to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

introduce Western practices and trying to reconcile them with a Chinese perspective, incorporating Chinese methods where possible, this integrative approach is probably the most successful in the long run (Hoon-Halbauer, 1996:367). There could be several important ingredients in the integrative approach, including acknowledgement of the importance placed on consensus and harmony by the Chinese, and addressing the problem of communication and information dissemination as well as the training and rewarding of Chinese staff (Child, 1991). Consensus formation could be allowed for by allocating sufficient time for meetings and discussions for understanding and agreement to be reached. Traditional Chinese communication methods could be used more to create awareness of company objectives and the changes required to meet them. As training is eagerly sought by Chinese employees, it is an acceptable way of introducing Western practices (Swaak, 1995; Sweeney, 1996a, b; Westwood and Leung, 1993). Training combined with job rotation to create a wide variety of skills could encourage Chinese staff to accept (more) responsibility as well as tearing down barriers between jobs and departments. To motivate good performance and to recognize responsibility and competence, an objective and systematic approach to rewarding employees should be introduced. The implementation of such an integrative approach calls for a good deal of patience and insight on the part of the Western expatriate managers. This in turn requires a knowledge of and sensitivity to the Chinese environment that expatriates currently typically do not possess. Change through consensus and persuasion instead of through the assertion of rights or superiority is imperative (Child, 1991; Wall, 1990). FDI in China, especially JVs and other modes of collaboration, is actively encouraged by the Chinese government as a way to gain access to modern management knowledge and techniques, besides providing advanced technology, foreign exchange and employment (Child, 1991). Much of this import of management knowledge is accomplished through expatriate managers assigned to China, representing their parent companies. Although the number of expatriates in each foreign operation in China is relatively low, in the foreseeable future the strategic reasons of their parent companies for using them will still be valid (Björkman, 1996; Hoon-Halbauer, 1996:377–8). Given this expectation, there are a number of ways in which foreign investors could alleviate current common problems and shortcomings in their China business operations. Foreign staff should occupy key managerial line positions for the duration of the China operation, regardless of the size of the organization. PCN expatriates will not only assist top management in devising the strategies of the firm, they will also assure and support their implementation. Additionally, foreign staff not only transfer technology and know-how, they also change the frame of reference of the Chinese staff. It is not advisable, as is now sometimes the practice, to gradually reduce the number of expatriates when the operation is established and the Chinese managerial staff is gradually trained, even if all seems to be well. It is desirable to maintain a balance of power, especially in any © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

kind of cooperative operation, otherwise there is a risk that the foreign partner could be manipulated by the Chinese side (Hoon-Halbauer, 1996:375–6). Try to use at least two expatriates, one of which should have a good understanding of financial issues and the other with production experience, both with a good general management ability. On a personal level, select managers who are patient, who have a high tolerance for frustration, who are good ‘teachers’ and who are not arrogant. They should also be able to improvise in the very complex environment where they will be working. Preferably, select managers with a charismatic leadership style embodying cultural sensitivity and creativity as well as negotiation and diplomatic skills. If at all possible, select Chinese-speaking persons and choose older people for senior managerial line positions, to reflect the Chinese respect for age and hierarchical position. Previous overseas experience is advantageous and expatriate candidates should be willing to accept assignments of at least three years. Despite their apparent cultural advantage, Overseas Chinese expatriates tend to experience special adjustment problems, especially at work, which could make them less competitive than previously believed for assignment in China (Björkman and Schaap, 1994; Hoon-Halbauer, 1996:375–8; Selmer, 1997b). Both the expatriate manager and family members should undergo a thorough cross-cultural training, including language training, although a mastery of the Chinese language is seldom a realistic requirement. However, pre-departure cross-cultural training may not be sufficient for the expatriates to reach the level of proficiency in Chinese cultural thinking and behaviours to conduct themselves in a way which would have made it possible for Chinese people to collaborate happily with them. To enhance and reinforce the natural acculturation process, post-arrival cross-cultural training can be conducted after living and working in China for four to six months (Björkman and Schaap, 1994; Hoon-Halbauer, 1996:379; Selmer, 1997a; Selmer, Torbiörn and de Leon, in press). The support of the headquarters of the parent organization is indispensable for the expatriate working in China and staff with previous experience in China should be assigned to handle the coordination of their China operations, to promote a good understanding at corporate headquarters of the complicated operational problems in China. The support should also promote cooperation and cohesion among the foreign staff and expatriates must be seen to coordinate their efforts and refrain from arguing in front of Chinese employees. Although a minority, as key decision makers it is crucial for the foreign staff to set a good example and win respect and support from the Chinese (Björkman and Schaap, 1994; Hoon-Halbauer, 1996:380). Last, but not least, it should be pointed out that the SHRM context is changing fast in China, along with the rapidly expanding and modernizing general business environment there. Significant changes in business practices are taking place and managers responsible for employees in China operations must keep themselves well informed and try to anticipate the many future changes that could affect all aspects of the SHRM function. Such issues are © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

complex and are always in a state of flux; what was important yesterday may no longer be important today. Although an increasingly demanding task, companies rely on their HR managers to provide critical information and make decisions that may determine the success or failure of the entire operation (Swaak, 1995)

REFERENCES Bartlett, C. and Goshal, S. (1989) Managing Across National Borders: The Transnational Solution, Boston, MA: Harvard Business School Press. Björkman, I. (1996) ‘Market Entry and Development in China: The Experience of Companies Selling Industrial Goods and Projects’, in J.Child and Y.Lu (eds) Management Issues in China: Volume II—International Enterprises, London: Routledge. Björkman, I. and Schaap, A. (1994) ‘Outsiders in the Middle Kingdom: Expatriate Managers in Chinese-Western Joint Ventures’, European Management Journal 12(2):147–53. Black, J.S. and Mendenhall, M. (1990) ‘Cross-Cultural Training Effectiveness: A Review and Theoretical Framework for Further Research’, Academy of Management Review 15(1):113–36. Black, J.S. and Porter, L.W. (1991) ‘Managerial Behaviours and Job Performance: A Successful Manager in Los Angeles May Not Succeed in Hong Kong’, Journal of International Business Studies 22(1):99–113. Borg, M. and Harzing, A.-W. (1995) ‘Composing an International Staff’, in A.-W. Harzing and J.V.Ruysseveldt (eds) International Human Resource Management, London: Sage. Brewster, C. (1995) ‘The Paradox of Expatriate Adjustment’, in J.Selmer (ed.) Expatriate Management: New Ideas for International Business, Westport, CT: Quorum Books. Brewster, C. and Pickard, J. (1994) ‘Evaluating Expatriate Training’, International Studies of Management and Organization 24(3):18–35. Brewster, C., Lundmark, A. and Holden, L. (1993) A Different Tack: An Analysis of British and Swedish Management Styles, Lund: Studentlitteratur. Child, J. (1991) ‘A Foreign Perspective on the Management of People in China’, International Journal of Human Resource Management 2(1):93–107. de Cieri, H. and Dowling, P. (1995) ‘Cross-Cultural Issues in Organizational Behaviour’, Trends in Organizational Behaviour 2:127–45. Early, P.C. (1987) ‘Intercultural Training for Managers: A Comparison of Documentary and Interpersonal Methods’ , Academy of Management Journal 30(4): 685–98. Edström, A. and Galbraith, J. (1977) ‘Transfer of Managers as a Coordination and Control Strategy in Multinational Firms’, Administrative Science Quarterly 22(2): 248–63. Fombrun, C.J., Tichy, N.M. and Devanna, MA. (1984) Strategic Human Resource Management, New York: Wiley. Gudykunst, W.B., Guzley, R.M. and Hammer, M.R. (1996) ‘Designing Intercultural Training’, in D. Landis and R.S. Bhagat (eds) Handbook of Intercultural Training (2nd edn), Thousand Oaks: Sage. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Hoon-Halbauer, S.K. (1996) Management of Sino-Foreign Joint Ventures, Lund Studies in Economics and Management 22, The Institute of Economic Research, Lund: Lund University Press. McCaffery, J.A. (1986) ‘Independent Effectiveness: A Reconsideration of CrossCultural Orientation and Training’, International Journal of Intercultural Relations 10(2): 159-78. Paauwe, J. and Dewe, P. (1995) ‘Human Resource Management in Multinational Corporations: Theories and Models’, in A.-W. Harzing and J.V. Ruysseveldt (eds) International Human Resource Management, London: Sage. Saha, S.K. (1993) ‘Managing Human Resources: China vs. the West’, Canadian Journal of Administrative Sciences 10(2): 167-77. Schermerhorn, J.R. Jr and Bond, M.H. (1992) ‘Upward and Downward Influence Tactics in Managerial Networks: A Comparative Study of Hong Kong Chinese and Americans’, Asia Pacific Journal of Management 8(2): 147-58. Schuler, R.S. and Walker, J.W. (1990) ‘Human Resources Strategy: Focusing on Issues and Actions’, Organizational Dynamics 19: 5-19. Selmer, J. (1997a) ‘Cross-Cultural Training for International Managers’, in R.J. Stone (ed.) Readings in Human Resource Management (Vol. III), Brisbane: Wiley. ——(1997b) ‘Which is Easier? Adjusting to a Close or a Distant Culture? The Experience of Western and Ethnic Chinese Expatriate Managers in the People’s Republic of China’, paper presented to the International Management Division at the 1997 Annual Meeting of the Academy of Management, Boston, Massachusetts, USA, 10-13 August. Selmer, J. and Lee, S. (1994) ‘International Transfer and Assignment of Australian and European Business Executives’, Asia Pacific Journal of Human Resources 32(3): 1-12. Selmer, J. and Shiu, L.S.C. (in press) ‘Coming Home? Adjustment of Hong Kong Chinese Expatriate Business Managers Assigned to the People’s Republic of China’, International Journal of Intercultural Relations. Selmer, J., Torbiörn, I. and de Leon, C.T. (in press) ‘Sequential Cross-Cultural Training for Expatriate Business Managers: Pre-Departure and Post-Arrival’, International Journal of Human Resource Management. Shapiro, J.E., Behrman, J.N., Fisher, W.A. and Powell, S.G. (1991) Direct Investment and Joint Ventures in China, New York: Quorum Books. Shenkar, O. (1995) ‘Contingency Factors in HRM in Foreign Affiliates’, in O. Shenkar (ed.) Global Perspectives of Human Resource Management, Englewood Cliffs, NJ: Prentice-Hall. Shenkar, O. and Nyaw, M.-K. (1995) ‘The Interplay of Human Resources in ChineseForeign Ventures’, in O. Shenkar (ed.) Global Perspectives of Human Resource Management, Englewood Cliffs, NJ: Prentice-Hall. Sparrow, P. and Hilltrop, J. (1994) European Human Resource Management in Transition, London: Prentice-Hall. Stening, B.W. and Hammer, M.R. (1992) ‘Cultural Baggage and the Adaption of Expatriate American and Japanese Managers’, Management International Review 32(1): 77-89. Swaak, R.A. (1995) ‘The Role of Human Resources in China’, Compensation and Benefits Review Sept-Oct: 39–46. Sweeny, E.P. (1996a) ‘Managing Strategic Change in China’, Strategic Change 5: 331–41. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

——(1996b) ‘Human Resource Management Implications of Managing Business Change in China’, in N.S.Antonio and H.Steele (eds) Proceedings of the Second South China International Business Symposium (vol. 2), Macau. Tretiak, L.D. and Holzmann, K. (1993) Operating Joint Ventures in China, Hong Kong: The Economist Intelligence Unit. Tung, R.L. (1982) ‘Selection and Training Procedures of US, European and Japanese Multinationals’, California Management Review 25(1):57–71. Wall, J.A. (1990) ‘Managers in the People’s Republic of China’, Academy of Management Executive 4:19–32. Warner, M. (1993) ‘Human Resource Management “With Chinese Characteristics”’, International Journal of Human Resource Management 4(1):45–55. ——(1995) The Management of Human Resources in Chinese Industry, New York: St Martin’s Press. Westwood, R.I. and Leung, S.M. (1993) ‘Embracing Mammon: The Acculturation of PRC Trainee Managers to US Business Culture’, in E.Kaynak and J.Nieminen (eds) Managing East- West in Turbulent Times, Proceedings of the Second World Business Congress, Helsinki.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Part III

Managing communication, cooperation and negotiation

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

12 Effective management communication for China William B.Chapel

INTRODUCTION To be effective in the rapidly expanding Asian marketplace, Western expatriates and global management decision makers need to understand and champion international management communication competence: a complex behavioural process that involves cultural awareness, communication knowledge (verbal and nonverbal) and positive motivation identification in the selection and training of expatriate personnel (Chapel, 1997). This communication process is a key element for success in China, in addition to managerial and technical expertise and product or service excellence. Conversely, failure in the international arena frequently results from an inability to understand and interact with diverse cultures, rather than from lack of technical or professional skills (Ronen, 1986; Victor, 1992). A high level of international management communication competence (or simply GeoCom) is essential for relationship building in the People’s Republic of China, as well as in other countries where Chinese majorities, or significant Chinese cultural influences, are present. Incorporating the Chinese communication model of long-term, vis-à-vis shortterm, orientation into the international management communication competence process is critical for building long-term East-West cross-cultural business relationships. Communication competence has been defined in many ways. Chomsky (1965) used the term in relation to verbal language knowledge and message performance. While verbal language proficiency, either through personal acquisition or interpreters, is essential for communication competence, it is not in itself the total requisite for success. What is needed, in addition to language, is an understanding of the cultural rules for the construction of understandable cross-cultural messages; rules allowing for message clarity between business persons of different cultural backgrounds. A leading industrial statesman in Japan once observed that: US and Japanese companies are 95% alike in their approaches and operations, but the 5% difference is what really matters. Management scholars and practitioners have effectively shared knowledge and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

achievements in the 95%; what we have not paid enough attention to is the 5 per cent difference. (Harris and Moran, 1987: x) What I believe the 5 per cent consists of is the sensitivity to, and understanding of, the uniqueness and value of other world views. Therefore, to be competent global managers, expatriates need to embrace other world views. To acquire this sensitivity and understanding requires the development of communication competence; a cognitive process that develops in two stages: enculturation within one’s native society and recognition of the reality, validity and distinctiveness of other cultural values and norms. This chapter presents relevant communication competence theory, along with pertinent Chinese cultural values and illustrations, in order to develop an understanding of management communication effectiveness for China. The purpose is to assist international managers in building positive long-term Chinese business relationships.

GLOBAL MANAGEMENT COMMUNICATION COMPETENCE (GEOCOM) Cultural awareness Van Dijk and Kintsch (1983) argued that discourse, like other complex information processing, is an operation in which mental representations concerning goals and motivations of both communicative participants interact for comprehension. While mental representations certainly are not identical, particularly in cross-cultural interactions, message producers and receivers both add meaning to communicative exchanges. For example, spoken words of friendly greeting in another’s language might well be translated properly by interpreters, yet cross-cultural communicators will still need to know the cognitive meaning of a friendly smile in contrast to a lascivious one. In other words, assumptions are drawn not only from the views expressed, but also from the way speech agents conduct themselves as participants in joint communicative ventures. To be successful in international management communication exchanges, participants must first understand conversational implications, an impossible task without considerable appreciation of both individuals’ points of view, values and goals. A significant repertoire of intercultural mental representation is necessary. An understanding of how representations are formed is first required in order to acquire the necessary cognitive tools to make sense of cross-cultural communicative exchanges in China. Early in life, people normally become proficient at dividing the world into categories. No matter in what culture we find ourselves communicating, the task is to grasp, through obvious or subtle clues, the other’s intent behind their encoded signs. To be competent in other cultures, we must understand, and be sensitive to, other cultural classification systems. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Classification systems allow human communicators to categorize things, places, events and persons. Persons are classified into social categories (referred to here as stereotypes), cognitive structures that determine much of what we expect from others. While stereotypes are generally believed to be faulty concepts, they do serve a very necessary cognitive purpose. In as much as there is an infinite multiplicity of individuals, massive information overload would occur were it not for the mechanism of classifying individuals into groups. Stereotypes perform this necessary cognitive function. Communication problems arise, however, when stereotypic information is processed in biased ways. Because personal characteristics, such as cultural differences, can be encoded in biased ways, faulty generalizations often result. Part of the cultural awareness process is the realization that stereotypes are extremely robust as ethnic, racial, cultural and other social information is universally passed down from generation to generation in all societies. In spite of this robustness, it seems reasonable to assume that, through observation of individuals not conforming to one’s learned stereotypes and through greater sensitivity, stereotypic changes can occur over time. For example, while a default classification for a Chinese manager might well be that of a high context, high nonverbal communicator, should one encounter Chinese managers who are openly explicit and direct in their communicative style, so be it! Cultural behaviour is changing at a swift pace due to increased global interaction, ethnic and social diversity, and rapidly advancing communication technology. Stereotypes provide an interesting, yet underdeveloped, area of research for international management scholars. Future inquiries might include, among countless other issues, the role of culture in stereotype formation, individual perceptions and personality, and cognitive behavioural traits that correlate with international management communication competence. A few research questions come to mind: How do stereotypes manifest themselves in verbal and nonverbal communication between US and Chinese managers? What are the implications of stereotypes for the selection, training and performance of individuals for international assignments to China and elsewhere? Hypotheses relating to these questions concern communication knowledge (skills) requisites and motivations, as well as cultural awareness factors. The issues of stereotyping discussed above are key in developing cultural awareness; the skill to coordinate verbal and nonverbal messages is the means for communicating this cultural awareness. Two interrelated, yet separate, domains are crucial in the development of this necessary communication knowledge: nonverbal behaviour and sociolinguistic pragmatics.

Communication knowledge A major historical limitation in Western research and management practice has been the emphasis placed upon language acquisition alone; a paradigm that largely ignores the distinctive importance of nonverbal components. A © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

commonly shared language is insufficient grounds to predict intercultural communication competence (Anderson, 1990; Banks, Ge and Baker, 1991; Burgoon, 1985; Fasold, 1984; Frank, 1988). It is becoming clear that an integration of verbal and nonverbal communication is central to successful intercultural exchanges, as the development and emphasis of nonverbal categories differ so widely between cultures. For example, Chinese negotiators are generally more concerned with high context nonverbal cues such as formal gift giving and hospitality protocol in order to get to know their business counterparts prior to commencing business discussions. North American and Western European managers are apt to approach negotiations in a low context manner, producing nonverbal symbols that reflect an immediate, direct approach to the discussion of business matters. The significance of verbalnonverbal interactions to GeoCom issues can perhaps best be appreciated by analysing four nonverbal functions. Scherer and Wallbott (1985) developed a framework for verbal language use and nonverbal behaviour by identifying and analysing four nonverbal functions that are similar in certain respects to traditional linguistic analysis. First, nonverbal cues function semantically by amplifying, contradicting or modifying verbal meanings. The following instance illustrates the influence of nonverbal behaviour upon global decision making in China. Subsequent to successful negotiations, the Chinese traditionally celebrate with a gan bei (‘bottoms up’) toast. Negotiators are expected to partake in a cup of libation (either alcohol-based or some sort of fruit drink). Should a key negotiator fail to imbibe, the intention of that person to live up to previously agreed upon negotiations is cast in doubt (Beamer, 1993). Thus, a single conflicting nonverbal signal of cultural significance could influence the outcome of lengthy explicit verbal interchanges. Second, nonverbal cues provide a syntactic function; they help order the sequencing and occurrences of verbal and nonverbal behaviour. For instance, eye contact and smiling are generally syntactically correct nonverbal cues when matched with congenial conversational openings. Verbal and nonverbal behaviour that is syntactically correct appears to be carefully orchestrated. A case in point is the nonverbal behaviour surrounding the giving and receiving of business cards. The Chinese manager appreciates initial verbal greetings that are accompanied by the giving and receiving of business (visiting) cards. Nonverbal orchestration takes place when the receiver of the card does so with two hands and takes time to make careful note of the name, title and other particulars on the card. The card is handled with respect and interest. To do otherwise would provide nonverbal syntactic disfunction. Third is a pragmatic function entailing expressions of social identity and personal traits, as well as conversational feedback. These factors differ by culture and include variables such as gender, age, social class and geographical origin. For example, age is highly respected by the Chinese, and to send mature and more experienced negotiators to China provides nonverbal support toward © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

developing positive business outcomes. Pragmatic functions also involve psychological states such as emotions and interpersonal attitudes. Nonverbal feedback indicates a listener’s reaction to a message. The Chinese generally communicate in a more deliberate manner than Western counterparts; verbal feedback is often delayed until the matter at hand is given thought and discussion with supervisors and peers has taken place. Fourth is the dialogic function. This concerns various relationships between participants. Nonverbal and paralinguistic signs such as seating patterns, body posture and voice quality reflect relationships of power and dominance. The Chinese manager with the highest degree of influence in a decision process will usually sit in the place of eminence at meetings and banquets. Others present will be seated in various ways that send strong dialogic nonverbal messages relating to power hierarchy. In addition to nonverbal language considerations, a knowledge of sociolinguistic differences enhances communication knowledge acquisition by reducing the instances of cross-cultural misunderstandings. Language has been studied throughout the millennia and elaborate linguistic systems are in place, yet miscommunication is still with us. Miscommunication can occur all along the communication process, from message production and message transmittal choice (channel) to message reception. Communication noise is the source of many such misunderstandings. Communication noise occurs in countless ways: as physical noise, such as the inability to read visual presentation graphics due to impaired vision; as channel noise, as experienced when there is static in a telephone connection; or as psychological noise when, for example, an international headquarters executive determines that an important memorandum from a Chinese manager is trivial and thus does not read and answer the message in a timely fashion. Further, miscommunication often occurs through faulty encoding and decoding of nonverbal cues due to a lack of understanding of paralinguistic tools, such as tonal qualities, pitch, volume, interval timing, conversational pauses and so forth. In China, for example, a single word has many meanings depending on the tone used. Spoken Mandarin Chinese has four distinct tones, as well as a fifth neutral tone, and encoding a word, such as táng (rising tone) in a restaurant will bring you sugar, but saying ta¯ng (high tone) will get you a bowl of soup. Using the improper tone changes the meaning of the word or phrase and will likely be decoded in a way that does not convey the message intended by the speaker. Paralinguistic and nonverbal choices challenge the most homogeneous relationships. When people with differing expectations interact, the situation becomes more complex, necessitating a systematic approach to the understanding of miscommunication within various cultural settings. Gumperz (1982:171) provides a classic illustration of failed paralinguistic pragmatics. Passengers crowding onto a London bus without the exact change were greeted by a West Indian bus driver with the statement ‘Exact change, please’. This statement was interpreted by the Standard English speaking passengers as being rude, even though the same statement was used routinely by many London bus © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

drivers. This misinterpretation was due to the fact that West Indian speakers of English naturally place increased vocal volume and emphasis upon the final word. Thus, the utterance was interpreted as being rude, while the driver was only trying to be polite. This paralinguistic element apparently held more credibility than the verbal utterance. Developing cultural awareness and communication knowledge are necessary, but one other ingredient is needed for a high level of GeoCom: international personnel must be motivated to become effective in global settings.

Positive motivation Much of the task of identifying motivated individuals can be ascertained through interviews with candidates for international assignments, family members, friends, supervisors and peers (Harris and Moran, 1987). As more and more multinational corporations and other organizations support global assignments as positive career development moves, the most promising people are beginning to compete for these openings. While international assignments were previously looked upon as an unwelcome occurrence that many times relegated the expatriate to a dead-end position out of the information loop at headquarters, this is no longer the case. An extended international experience is often a requisite for advanced positions. The problem, therefore, is not so much attracting candidates who are willing to go, but finding those willing to undergo the extensive training in language and culture and who have the personality qualifications to communicate effectively with foreign nationals. In selecting candidates, traditional screening techniques have favoured persons who are successful in domestic assignments or who are highly enthusiastic candidates. This practice ought to be re-examined due to a high number of sojourners that return home prior to completion of their international assignments. Kealey (1990) asserts that only about 20 per cent of those assigned overseas perform in a highly effective manner. While interviewing certain successful US managers in Beijing in 1996, I was able to make an assumption that cross-cultural training is a key ingredient for building and maintaining successful business relationships in China. On the other hand, these same managers also shared that their multinational corporations do not provide intercultural training for managers assigned to China. While international managers and engineering personnel receive extensive training in functional and technical aspects of their assignments, these same expatriates are pretty much left on their own when attempting to acclimatize themselves and their families to business and social life in China. This situation is indeed unfortunate, but it does appear that this untenable situation is beginning to change. While this argument is becoming more clear to many CEOs and other key multinational decision makers, only a small portion of expatriates are currently © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

being trained in the crucial aspects of culture that are so necessary for success within China. While the topic is being discussed in the board rooms of major US international corporations and other global organizations, only a small minority of US expatriate managers receive any cultural training prior to filling international posts. Indeed, only one in six Western managers assigned to posts in Singapore receive proper intercultural business communication training (Hailey, 1996). This lack of training, in combination with ineffective expatriate personnel selection methods, often leads to aborted or ineffective international assignments. Improved business results in China might well be achieved by selecting candidates with proper cognitive attributes, that is, a willingness to be acculturated (acclimated) to a new culture. One’s native socialization (enculturation) is not minimized or eliminated in the process, but rather the new culture is added to one’s own world view. A higher level of understanding takes place that is very similar to the result of becoming fluent in more than one language. One’s native language is enriched, not lessened, in the process. The same is true for cross-cultural communication. Many managers and other decision makers are simply not aware of the importance of communication competence to international business success or, if aware, are not motivated to acquire the communication knowledge to be effective international business persons. Much of this failure within management communication practice in recent years can be attributed to training methods and personnel selection from a Western perspective only. Limaye and Victor (1991) discuss the limitations of Western paradigms for international business communication; models that ignore the uniqueness of other world views. Improved results might well be achieved by selecting candidates with proper cognitive attributes, such as a willingness to be acculturated. The global management communication competence framework developed in this chapter is directly applicable to the design of communication strategies for success in China and other countries where large numbers of ethnic Chinese practice common cultural traditions. The domains of cultural awareness (including stereotypic perspectives), communication knowledge (nonverbal and sociolinguistic) and positive expatriate motivation discussed above contain the necessary long-term attributes that are crucial for the development of effective Sino-American business relationships. By placing emphasis upon culture and communication, in addition to management expertise and product or service quality, global organizations are able to begin to understand the importance their Chinese counterparts place on relationship building; the key to effective communication with Chinese managers. Thus, the need to examine Chinese cultural values relevant to this discussion of GeoCom. In order to make this examination of Chinese values relevant to international management communication, it will be helpful to first probe three of Hofstede’s (1980) foundational dimensions of culture variability: power distance, individualism and masculinity. Certainly there are other theories worthy of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

discussion, but these widely-cited cultural dimensions are germane to a discussion of effective management communication in China.

CHINESE CULTURAL VALUE SYSTEMS Dimensions of cultural variability Hofstede (1980) researched fundamental power relationships in the work place between boss and subordinate. In his research, various countries were classified as high power distance instances to the extent that less powerful members accept the standard of unequally distributed power; believing that their superiors are correct in their leadership decisions based solely upon that superior’s position of power. In contrast, the norm for subordinates in low power distance organizations is to attribute quality decisions to leadership skills, rather than to positions of power. The power distance variable quantified characteristics of authoritarian supervisory style within social systems, but is not meant to arbitrarily categorize all individuals within any particular society. While the PRC was not identified in that study, ethnic Chinese (Singapore, Hong Kong) were identified as being on the high end of the scale while the US was rated low. Thus, a US business person needs to understand that there is a strong hierarchical structure in Chinese societies, as well as in most Asian business organizations. To work successfully in a Chinese business environment will depend in large part upon a Western worker’s willingness to accept authority in a more complete sense than he or she is perhaps accustomed to. Quite the opposite will be true for the Chinese person working in a US business environment. That person will perhaps wait for her or his supervisor to provide strong top-down supervision and become frustrated and confused when this does not occur. The US supervisor will anticipate the person’s input and decision-making skills concerning project design and completion. Thus, to be successful in the US, the Chinese person must become assertive in the power relationship in order to receive necessary guidance and direction. Individualism, the second major cultural dimension, is perhaps the most researched of Hofstede’s cultural variables. High individualism generally correlates positively with low power distance, and low individualism (collectivism) with high power distance. Individualistic cultures stress ‘I’ relationships, while collectivities are ‘we’ oriented. Collectivist organizations nurture group interdependence; in turn the organization has a greater responsibility for its individual members. Collectivist persons (allocentrics) give primary attention to the needs of their group and are willing to sacrifice opportunities for personal gain; their sense of self is an extension of the group. Individualistic employees see themselves primarily as engineers, managers, professors, etc. and secondarily as group members of specific organizations or institutions. Individualistic persons (idiocentrics) pay more attention to their © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

own needs, taking advantage of opportunities for personal enrichment (Triandis, Brislin and Hui, 1988). An individualism index was designed, quantifying the same countries surveyed in the power distance research. The index represents relative positions of individualism within each country surveyed. The US is the highest, while Singapore and Hong Kong are at the lower end of the scale. The US business person will witness an interesting cultural situation in presentday China. While the Chinese culture is traditionally highly collectivist and generally follows high power distance management styles, there is a new strong entrepreneurial trend in business. The US expatriate will quickly learn that independence is welcomed in the newer co-culture, while at the same time supervisors are revered for their wisdom. The power distance characteristic is prevalent within Chinese family relationships as well. The family is hierarchical and extended; several generations often live together in a paternalistic arrangement. The significance of this is that the family power distance factor is also evident within most major business organizations. As mentioned above, many of China’s newer industries are in large part run by entrepreneurs. While outside investors are often welcome, Chinese families retain administrative control and family members hold the top management positions. Should someone from the US work within a Chinese organization, they will need to balance his or her independence within the highly collectivist Chinese business and family structure. The third cultural variable measures masculinity (as defined by Hofstede). According to Hofstede (1980:261), ‘the predominant socialization pattern [in high masculine cultures] is for men to be more assertive and for women to be more nurturing. In addition, there is a relationship between the perceived goals of the organization and the career possibilities for men and women.’ High masculinity involves such elements as things, power and assertiveness, while low masculinity systems value people, quality of life and nurturing. It is widely believed that management employment practices often favour males in high masculinity countries. This gender bias is consistent with faulty stereotypic gender expectations (Krueger and Rothbart, 1988). Gender reception varies greatly, from general acceptance of female managers in corporate North America to a virtual lack of opportunity in many fundamentalist Arab cultures. The US, Hong Kong and Singapore were all classified in the middle range between high and low masculinity. Due to the fact that Hofstede’s earlier research was designed by Western minds exclusively, the results of a fourth dimension, uncertainty avoidance, was determined not to be directly applicable to this present discussion of Chinese values (Hofstede, 1991). A new paradigm was developed incorporating both Eastern and Western minds: the Long-Term Orientation (LTO), which will be discussed below. Prior to the LTO, a survey was designed by Bond (Hofstede, 1991): the Chinese Value Survey (CVS). In this study, forty questions were designed by a number of Chinese social scientists from Hong Kong and Taiwan listing ten basic Chinese cultural values. One interesting CVS value is filial © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

piety. This collectivist value relates to the obedience to, respect for and financial support of parents, and the honouring of ancestors. The family remains very strong throughout China. Also, friendships are collectivist; there is no ongoing need to make many new friends, as friendships are determined by one’s group membership based on mutual dependence. The Chinese word for intimate friendship is guanxi; defined by Wenzhong and Grove (1991:177) as the linking of people with highly developed relationships through mutual dependencies. The Chinese deal with uncertainty by collectivist values and norms as discussed above and also through a well-developed and protected network of interpersonal relationships. One noticeable Chinese communication attribute is that managers are not likely to approach business matters directly as they are generally uncomfortable doing business with total strangers. Non-business matters are discussed until the stranger’s character can be appraised. In contrast, direct approach management communicators in countries such as the US or UK are less likely to spend much time getting to know a person first; perhaps not even wanting to know the other person. This direct communicative approach, when employed in China by Western expatriates, can be viewed as being rude or overly forward by Chinese host nationals, where connections and mutual dependencies are strong traits in relational systems (Bond and Hwang, 1995; Redding and Wong, 1995; Wenzhong and Grove, 1991). This importance placed on relationships in China stems from certain cultural roots in the tradition of Confucianism.

Confucian dynamism Confucianism is a set of rules for successful living that emphasizes, among other things, a long-term versus a short-term lifestyle. Confucian teaching includes obligations of relationships, family collectivities, virtuous behaviour toward others and moderate living (preserving resources as individuals and economies). It is interesting to note that this long-term approach, as practised in China and much of Asia, has been linked directly to economic growth. This phenomenon was intuitively thought to be the case for some time. Kahn (1979) proposed what has become known as the Neo-Confucian hypothesis; suggesting that the economic growth of Japan, South Korea, Taiwan, Hong Kong and Singapore is due in large part to certain shared cultural traits derived from Confucian traditions. Proponents of this argument attribute the economic success of Asia to common cultural roots; roots providing conditions for that region’s post-Second World War competitive business accomplishments. The inferred correlation between long-term Confucian values and economic growth over the past decades was quantified in a Long-Term Orientation Index (LTO) (Hofstede, 1991; Hofstede and Bond, 1988). Among the nine highest countries on the LTO index are China (1), Hong Kong (2), Taiwan (3), Japan © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

(4), South Korea (5) and Singapore (9). The LTO index also correlates positively with certain economic growth data published by the International Bank for Reconstruction and Development (World Bank) for the period 1965 to 1987. Hofstede (1991) showed a positive correlation between a country’s LTO level and per cent average Gross Domestic Product (GDP) growth. His statistical method showed a product moment correlation coefficient between a country’s LTO level and per cent average GDP growth. He based his assumptions upon an assumed linear relationship between these two parameters. While a compelling case can be presented in support of LTO cultural values as being important for economic growth, the notion that culture is the sole determinant is simplistic; market, economic and political factors clearly come to bear on GDP results. For example, China’s high GDP growth rate throughout the 1980s and 1990s must be attributed to their newly established open market directives rather than simply to dynamic Chinese cultural changes during that time frame. Indeed, in a cursory analysis of selected economies for the time period of 1987–93, I found the data did not support a strong positive correlation between LTO and GDP, suggesting other economic and political variables were present. Yeh and Lawrence (1995) provide a counter argument to a purely culture driven economic growth scenario. India is a prototypical instance where multi-influences directly impact that economy’s rising global presence. India is seventh highest on the LTO index. While the Indian culture is not tied to Confucian precepts as is China, their management communication style is closely related in many ways to East Asia (Chapel, 1996). India is growing economically due to relaxed financial constraints upon foreign investors and a rapidly expanding middle economic class of consumers. There is a widespread sense of excitement within Indian industrial circles that they will soon be a member of the most rapidly growing Asian nations. Their LTO cultural environment—in addition to a rapidly expanding middle-class market and a favourable political environment that encourages investment in India—provides assurance that India could be a key growth economy over the next several years. Major global corporations are expanding into India, as well as into China and Asia as a whole. My personal current work-in-progress and proposed future longer-term projects in China, as well as work by others, should provide additional useful qualitative and quantitative knowledge relative to long-term orientations and US expatriate success in China. A pilot survey was designed by my research group to help measure international assignment effectiveness. We intend to administer this survey over several months and to triangulate the survey results through ethnographic interviews to be conducted with US corporate personnel on long-term assignments to China. Some initial interviews took place in Beijing in the summer of 1997 with highly successful major US corporations in China. At this time, assertions can be made that business effectiveness in China is largely determined by establishing long-term trust relationships. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

While all the LTO attributes are not directly related to global management communication competence, one aspect of particular significance to long-term relationship building in China is the Confucian dimension of quick results vs perseverance towards slow results. This attribute has within it the key for developing successful long-term Chinese business relationships. While there is no direct translation into English of guanxi as defined and discussed earlier, the rich semantic intrigue surrounding the concept can perhaps be captured within a term I call peopleizing: a communication process that develops mutual relationships. Yet, the definition of the term involves much more: peopleizing is a communication strategy that imparts priority to long-term relationship building over that of the completion of short-term functional tasks.

CONCLUSIONS AND RECOMMENDATIONS Future international accomplishments in China will go to those who become competent in developing relationships that are long term. Success in international trade, as well as within multinational organizations, will be determined in large part by a management communication strategy of longterm relationship building. This prescribed communication strategy is a radical departure from current management practice prevalent in many US international business organizations. While many will disagree, arguing that culture and communication are not determinants of economic success, more decision makers are becoming aware of the importance of this component. Communication competence, in addition to managerial expertise and product systems quality, is a crucial component to success within the Chinese marketplace. It follows then that global management communication competence will become a more developed research area of interest; an enterprise involving scholars within many diverse disciplines. The academy is equipped to probe for, then supply the communication knowledge that international management practice requires. New ground is being broken and new paradigms are evolving to satisfy these requisites. Certainly all research should not be driven by pragmatism, but there is a window of opportunity to make substantive applied contributions in this area. Much of the work that has been done to date reports Western interpretations or narrowly focused cross-cultural comparisons. The connections between Confucian cultures and communication competence provide rich research possibilities that will most certainly require interdisciplinary collaboration from many areas of communication, international management and cognitive science. International candidates for postings in China should be selected and trained in the principles of GeoCom prior to making substantial financial and human resource investments in China. Further, mentors need to more closely monitor the assimilation progress of their expatriate managers and their families while they are on assignment in China and upon their return. Otherwise the current © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

situation of high premature return of international personnel will continue to occur; a costly circumstance in terms of meeting international trade objectives and preserving human well being. The dual objectives of successful international trade and the well being of international personnel will be determined in large part by a selection and training strategy that equips global personnel for long-term relationship building. One recommendation is clear at this point: dynamic and successful international management practice in China requires a high level of cultural awareness, communication knowledge and expatriate motivation to operate effectively within that burgeoning marketplace. With this in mind, intercultural communication training should be an academic and corporate priority alongside management and technical instruction. To maintain developed relationships with the Chinese requires a commitment over time, not only during normal times but also during periods of volatility due to uncertain and changing economic and political circumstances.

REFERENCES Anderson, J.W. (1990) ‘A comparison of Arab and American conceptions of “effective” persuasion’, The Howard Journal of Communications 2:81–114. Banks, S.P., Ge, G. and Baker, I (1991) ‘Intercultural encounters and miscommunication’, in N.Coupland, H.Giles and J.M.Wiemann (eds) ‘Miscommunication’ and Problematic Talk, Newbury Park, CA: Sage. Beamer, L. (1993) ‘Toasts: rhetoric and ritual in business negotiation in Confucian cultures’, Business Forum 3:22–5. Bond, M.H. and Hwang, K.-K. (1995) ‘The social psychology of Chinese people’, in M.H.Bond (ed.) The Psychology of the Chinese People, Hong Kong: Oxford University Press. Burgoon, J.K. (1985) ‘Nonverbal signals’, in M.L.Knapp and G.R.Miller (eds) Handbook of Interpersonal Communication, Beverly Hills, CA: Sage. Chapel, W.B. (1996) ‘A study of Indian management communication competence’, paper presented at the Western Regional Conference of the Association for Business Communication, Boise, Idaho, April 1996. ——(1997) ‘Developing international management communication competence’, Journal of Business and Technical Communication 11:281–96. Chomsky, N. (1965) Aspects of the Theory of Syntax, Cambridge, MA: MIT Press. Dijk, T.A.van and Kintsch, W. (1983) Strategies of Discourse Comprehension, Orlando, FA: Academic Press. Fasold, R. (1984) The Sociolinguistics of Society, Cambridge, MA: Blackwell. Frank, J. (1988) ‘Miscommunication across cultures: the case of marketing in Indian English’, World Englishes 7:25–36. Gumperz, J.J. (1982) Discourse Strategies, Cambridge: Cambridge University Press. Hailey, J. (1996) ‘The expatriate myth: cross-cultural perceptions of expatriate managers’, The International Executive 38:255–71. Harris, P.R. and Moran, R.T. (1987) Managing Cultural Differences: High-performance Strategies for Today’s Global Manager, Houston, TX: Gulf Publishing. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Hofstede, G. (1980) Culture’s Consequences: International Differences in Work-related Values, Newbury Park, CA: Sage. ——(1991) Cultures and Organizations: Software of the Mind, Maidenhead: McGrawHill. Hofstede, G. and Bond, M.H. (1988) ‘The Confucius connection: from cultural roots to economic growth’ , Organizational Dynamics 16:4–21. Kahn, H. (1979) World Development: 1979 and Beyond, London: Croom Helm. Kealey, D.J. (1990) Cross-cultural Effectiveness, Hull, Canada: CIDA. Krueger, J. and Rothbart, M. (1988) ‘Use of categorical and individuating information in making inferences about personality’, Journal of Personality and Social Psychology 55:187–95. Limaye, M.R. and Victor, D.A. (1991) ‘Cross-cultural business communication research: state of the art and hypotheses for the 1990s’, The Journal of Business Communication 28:277–99. Redding, G. and Wong, G.Y.Y. (1995) ‘The psychology of Chinese organizational behaviour’, in M.H.Bond (ed.) The Psychology of the Chinese People, Hong Kong: Oxford University Press. Ronen, S. (1986) Comparative and Multinational Management, New York: Wiley. Scherer, K.R. and Wallbott, H.G. (1985) ‘Analysis of nonverbal behaviour’, in T.A. van Dijk (ed.) Handbook of Discourse Analysis (vol. 2), London: Academic Press. Triandis, H.C., Brislin, R. and Hui, C.H. (1988) ‘Cross-cultural training across the individualism-collectivism divide’, International Journal of Intercultural Relations 12:269–89. Victor, D. (1992) International Business Communication, New York: HarperCollins. Wenzhong, H. and Grove, C.L. (1991) Encountering the Chinese: A Guide for Americans, Yarmouth, MN: Intercultural Press. Yeh, R.-S. and Lawrence, J.J. (1995) ‘Individualism and Confucian dynamism: a note on Hofstede’s cultural root to economic growth’, Journal of International Business Studies 26:655–69.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

13 Interpersonal cooperation in Western subsidiaries in China1 Verner D.Worm

INTRODUCTION Since the late 1970s, China has undergone a fundamental transformation. From being an isolated and self-reliant state China has become a dynamic country integrated in the world economy. She has opened her doors to foreign direct investments, resulting in the presence of a large number of Westerners working in joint ventures with Chinese colleagues. Naturally this development is behind the keen interest in matters concerning cooperation; matters such as how to secure smooth and effective cooperation between members of Western and Chinese cultural areas, and this has now emerged as an important object of research. Currently it is often concluded in research that cultural differences are one of the main obstacles Western joint ventures and subsidiaries in China are faced with. As the foreign investors gain a better foothold and require more influence on management issues of the joint ventures the character of the problems they face changes from a focus on external institutional barriers to focus on internal cultural conflicts. Institutional barriers are perceived as problems of diminishing magnitude as institutional adaption is easier than cultural adaption. The purpose of this chapter is to investigate the main cultural differences in interpersonal cooperation and how to overcome them in a way that is acceptable to both Chinese and Western partners. Interpersonal cooperation is understood as both communication (verbal and nonverbal) and other activities between representatives from the two cultural areas, China and the West, during the process of managing an international joint venture in China. As all management activities are carried out by people, it also comprises the ‘human side’ of these activities. Although many writers mention that cultural differences, sometimes called cultural gaps, cause problems in Western joint ventures in China (Weldon and Jehn, 1996; Chen, 1995; Lasserre and Schütte, 1995; Child, 1994; HoonHalbauer, 1994; Stewart, 1994; Tung, 1982) very little research has investigated interpersonal relations between East and West and how to improve them, but several specialists in interpersonal communication have recently discussed © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

communications issues specifically related to China (Goodwin and Tang, 1996; Chang and Holt, 1991, 1994; Tung, 1994; Bond, 1991; Hofstede and Bond, 1988). Finally some practitioners touch upon the theme of interpersonal cooperation in their books about doing business in China (Schneiter, 1992; Mann, 1989; Seligman, 1989). This author conducted a study focusing on interpersonal interaction between Scandinavian and Chinese management in Scandinavian joint ventures. The selection criteria was that the subsidiaries were operative and that they had at least one Scandinavian expatriate in the management (Worm, 1997). The focus of this study on fully- or partly-owned Scandinavian firms located in China means that there are managers and employees who represent both cultural areas. Tayeb emphasizes that organizations are restricted by the cultural characteristics of the organizational members (Tayeb, 1988). Figure 13.1 illustrates the significance of the internal environment in that from a cultural perspective the firms are placed in two cultures. This also applies to firms fully owned by Scandinavians. The physical location in China and the fact that the majority of employees are Chinese, but at the same time with Scandinavian expatriates in the management, will have a significant impact on interpersonal relations in these firms and the way they manage their human resources.

THE TWO CULTURAL AREAS In order to be able to compare two cultural areas, the concept of cultural dimensions has to be introduced. A cultural dimension is an aspect of culture that can be measured (Hofstede, 1991).

Figure 13.1 Interpersonal relations in Scandinavian joint ventures in China © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

In my book (Worm, 1997) it is shown that the differences between the two cultural areas with regard to interpersonal cooperation to a great extent can be characterized by different positions on the individualism dimension. The individualism dimension indicates the degree of looseness in interpersonal relations. Individualist cultures have looser interpersonal relations than collectivist cultures. Due to the generality of the individualism dimension, a subdivision termed universalism versus particularism is used. Universalism prescribes a norm of equal treatment for equal performance. Universalist cultures are rule-based and individuals fill impersonal roles or functions. On the opposite pole of the dimension, particularists focus on the exceptional of present circumstances. Rules are not as important as personalized relations in particularist societies. Individuals are not managers, but my friend, brother, son or a person of unique importance to me with special claims on my emotional involvement (Trompenaars, 1993). A universalist will say of a particularist ‘they cannot be trusted, because they will always help their friends’; a particularist, conversely, will say of a universalist ‘you cannot trust them, they would not even help a friend’. (Trompenaars, 1993:32) It is sufficient to say that the Scandinavian countries have high scores on both the individualism and the universalism dimensions and China is placed opposite, with high scores on the collectivism and particularism poles.

CULTURAL DIFFERENCES IN INTERPERSONAL RELATIONS An implication of the above is that Scandinavian expatriates and Chinese colleagues tend to treat interpersonal relations differently. Being particularists, the Chinese put more emphasis on personalized, trust-based relations, face, and have a different interpretation of honesty and loyalty from their Scandinavian colleagues.

Personalized relationships Members of particularistic societies, such as China, have a strong tendency to divide people into two categories: those they know and have trust-based relations with (in-group) and strangers (out-group). The treatment of the two groups is very different. In particularistic societies in-group relationships are very intimate and the interpersonal trust towards strangers is typically low resulting in an attempt to build personalized relationships with the people they by fate have to work with. The importance of fate (yuan) is being more and more recognized as a central constituent in the Chinese self and thereby in interpersonal relationships in China (Chang and Holt, 1991). It should be © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

noted, however, that in-groups in China are smaller and more family-based than in-groups in, for example, Japan (Chen, 1995). In opposition to this, the universalistic Scandinavians try to de-personalize relations in business settings. People have different roles, but the persons carrying these roles can be changed. The Scandinavian expatriates noticed how the Chinese personalized workrelated relations which they themselves would have preferred to be more rolebased in order to facilitate organizational learning. A typical statement was that ‘the employees feel they are working for me, not for the company’ (a Nordic respondent). On the other hand, the particularistic Chinese managers tended to see the Scandinavian expatriates as treating the Chinese as a labour force without paying sufficient attention to the Chinese employees. ‘The Chinese are used to be masters in their own house and will not accept it if the expatriates exclusively treat them as employees, and they are very imaginative as to ways of sabotaging the firm such as tampering with the machines etc.’ (A Chinese respondent) The statement indicates that Marxist terminology still has a certain influence on Chinese cadres, at least in the northern part of China. A central element in Marxism is that employees are not a commodity (a labour force) that can be traded like other production factors. Another implication of the above statement is that equal treatment of Chinese employees is perceived as disregard of personal matters, and consequently as disrespect of the individual employees. According to the Chinese respondent, the expatriates should pay more attention to specific cases and circumstances. It fits well with the experiences of others noting that Chinese and East Asian management is generally more focused on people, while Western management tends to be relatively more focused on work tasks (Chen, 1995).

Guanxi (networks) As mentioned, the Chinese distinguish sharply between strangers and people they know. The distinction generates an important element of interpersonal relations in China termed guanxi in Chinese, which is a dyadic personal relation or a system of dyadic personal relations formed in the interface between friends and strangers. When concerned with more than one relationship the term can be translated as ‘networks’. It is a special relationship between individuals in which each can make strong and often nearly unlimited demands on the other (Pye, 1982). In a commercial context guanxi can be described as connections or networks with business associates based on mutual interests together with a heavy emphasis on obligations and instrumentalism. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

There is a strong awareness of guanxi among Scandinavian expatriates in China. They perceive it as a way for the Chinese to protect themselves and their friends and therefore as a barrier to constructive interpersonal cooperation between themselves and their Chinese colleagues. ‘Everything in China is very personal. Many Chinese are more qualified than those we have, but they would never get a chance. It is kept within the organization. What is crucial is who your connections and friends are.’ (A Scandinavian respondent) The Scandinavian expatriates perceive Chinese networks as exclusively, or mainly, for the Chinese. It means that guanxi is seen predominantly in a negative way by the expatriates. Guanxi becomes a hindrance for foreign participation in human resource selection and thereby limits the foreign management’s participation in operating their firms in China. Networking is not unknown in Scandinavia, although it is less personalized and less common than the Chinese networks. A more constructive attitude for the expatriates would be to build their own networks with selected Chinese managers instead of just seeing the Chinese as protecting themselves. Networks are not necessarily closed to foreigners. But it takes time and a large amount of socializing to build one’s own guanxi. Foreigners in China should be aware that by building guanxi to one Chinese it may open the door to a network of other Chinese as the Chinese often are willing to introduce another member of the network to the foreigner. The importance of guanxi is so outstanding that Chinese sociologists have described their society as network-based instead of using the more common terms ‘collectivistic’ or ‘particularistic’. On the other hand, due to the low interpersonal trust towards Chinese outside the networks, the founder of the first republic in China, Sun Yat-sen, used the metaphor of a handful of loose sand to describe the Chinese people.

Face Face in the metaphorical sense is a universal phenomenon existing in varying degrees in all cultures. In terms of communication the importance of face describes the degree of indirectness in communication among people. In particularistic cultures like the Chinese, paying attention to personalized relationships points in the direction of face being important. In such cultures where shame or face play an important role interpersonal communication tends to be indirect. On the other hand, in universalistic cultures like the Scandinavian, where face plays a less important role, people communicate more directly with each other. In addition to being more important in particularistic cultures than in universalistic cultures, appropriate face and the nature of facework also differ between the two cultures. In universalistic or individualistic cultures © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

facework focuses on maintaining one’s personal identity with little concern for helping others. On the other hand, in particularistic or collectivistic societies facework is used to present the self as an appropriate member of the social in-group and people are expected to help others maintain a similarly appropriate face. Even in particularistic cultures face is more important under certain circumstances than others. Bond and Lee have argued that face is particularly important when: (1) the same people meet over and over; (2) members achieve identity through group activities rather than through individual activities; (3) criticism of superiors may threaten the social order in authoritarian societies (Bond and Lee, 1981). All three circumstances are applicable to joint venture management in China: the managers work together daily; to a certain extent they probably achieve their identity through their work; and China is an authoritarian society. This points in the direction that face is of outstanding importance in cross-cultural joint ventures with Chinese partners, where people from the two cultural areas are placed in top management positions. In China, face is not necessarily tied to one person but often to collectivities such as the family, working group and so on (Bond and Hwang, 1986). One can actually make references to a family’s face. In a well managed joint venture the Chinese employees will feel that the company enhances their face. According to Hu’s classic study, the six most important categories of face in China are (Hu, 1944): 1 2 3 4 5 6

enhancing one’s own face; enhancing other’s face; losing one’s own face; hurting other’s face; saving one’s own face; compensation (restore, retaliate, self-defence).

Since social status and prestige are major sources of face in China, enhancing and saving face are as important as causing people to lose face. Face is not built in one day or totally deprived in one critical moment, but should be seen as an ongoing process. It has been compared with a credit card. One can draw on it on many occasions, but in extreme situations it can be overdrawn. That is the exception, not the rule. Almost all Scandinavian expatriates mentioned the importance of face in China, but the majority quoted cases where they consciously or unconsciously had caused a Chinese to lose face. Most of the interviewed Scandinavian expatriates had no perception of the complexity and social dimensions of facework in China. The Scandinavian expatriates said that in general the Chinese managers were difficult to communicate with because if their responsibility area was picked on at a management meeting they would feel loss of face and stop communicating with the expatriates. Another typical problem area when people move from a universalistic to a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

particularistic culture where face is more important is that Scandinavian expatriates tended to feel that they did not receive adequate information. According to one expatriate, ‘One gets too much gossip and too little information’ (Worm, 1994:15). An extreme reaction was reported by an experienced Scandinavian expatriate, who said: ‘Once we misplaced a highranking cadre at a banquet, and as a result he left. Later on we had to figure out a way of restoring his face.’ It should be mentioned, however, that a few expatriates had a more positive perception of the face issue, saying that in the beginning the Chinese are very private, but gradually they open up and begin to tell about their problems, that is they are communicating more directly and being less afraid of losing face. These expatriates tended to have good relations with their Chinese colleagues probably because they were able to build relationships of trust with them. An often mentioned criticism of the expatriates set forth by Chinese managers was that they did not pay enough attention to saving the face of the Chinese employees and staff. The expatriates must understand the concept of face. The Chinese attach so great importance to face that they view it as a question of whether or not the expatriates possess emotions (dong qing)’ (a Chinese respondent). The face issue in particular created many communication problems with the Chinese and needless to say this was further exacerbated by the difference in communication style, the Chinese being indirect and the Scandinavian expatriates being direct.

Honesty A third field of difference related to the universalistic-particularistic dimension is the difference in the perceptions of honesty. In a particularistic culture honesty is only a norm that concerns the in-group or people with whom one has established a personalized relation. Tung has pointed out that engaging in deception to gain strategic advantages is acceptable in the Far East, including China. In the Judeo-Christian religions of the West deception is considered immoral. In China, which has not been influenced by these religions, deception is considered a neutral term and it is acceptable if it embraces ‘the greater good’, that is the well-being of the family or the network (Tung, 1994:60). The Scandinavian expatriates, being unaware of the major historical differences between the different religious systems, tended to perceive the Chinese as dishonest and did not understand how the Chinese could so unaffectedly tell a lie. ‘Honesty is not the same in Sweden and China. According to Chinese morality it is not wrong to lie’ (a Nordic respondent). A more elaborate statement was made by another Scandinavian expatriate: The Chinese are honest and loyal to persons they know, not towards people in general or abstract things like a company’ (a Nordic respondent). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Some of the Chinese respondents said that, in order to keep harmony and not to let others lose face, they would sometimes express agreement and then afterwards do something else. On the other hand a Chinese respondent felt that the Nordic expatriates were rather naive. ‘If you tell a Nordic expatriate to do things in a certain way he will do it exactly in this way. We Chinese will always try to find an easier way to reach the same goal’ (a Chinese respondent). Although Chinese culture is placed higher on Hofstede’s power distance dimension than the Scandinavian countries, it does not imply that subordinates follow orders in a straightforward way. In the Scandinavian cultural area it would be immoral to say one thing and do something else, but in Chinese culture harmony is more important than sticking to one’s words. As mentioned above China is not influenced by the Christian tradition of one God and thereby one truth. The particularist Chinese are honest with people they know and with people with whom they have trust-based relations. Nevertheless, in relation to their superiors—in international joint ventures these are often expatriates—the Chinese employees consider harmony to be more important than telling the truth. An additional characteristic of the Chinese is that they tend to feel more personally dependent on their boss than Western employees, which was referred to as ‘please your manager’ by several Scandinavian respondents. This is understandable, when the organization of the socialist work units is considered, but in strong contrast to the rule-based, ‘depersonalized’ relations which are the norm in most Western countries.

MODEL FOR OPTIMIZING INTERPERSONAL RELATIONS Smooth communication and positive feelings between the managers of international joint ventures are prerequisites for constructive cooperation between the Chinese and the foreign management. This is particularly true due to the organizational structure common to Sino-Western joint ventures, where the top-level management typically is exercised by a team consisting of a general manager and a deputy general manager. One of them is selected from the Chinese side while the other is from the Western side (Chen, 1995). Most of the problems mentioned here can be overcome by creating particularistic trust-based relations to Chinese colleagues, but the question is how is that done. Essentially, trust-based relations are built in China as elsewhere by sticking to one’s word, but still I would contend that superficial harmony is more important in China than in the Western world. Hence it follows that appearances or expressing human feelings and fulfilling obligations (renqing) are relatively more important to members of the Chinese cultural area than to Westerners. If this proposition is correct then the opposite is logically also correct, namely that substance (specific management measures) are relatively more important to Westerners than to the Chinese. The relativity © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

should be emphasized, as I am not contending that substance is not important to the Chinese. The concept of appearance contains appropriate facework and adapting communication styles to Chinese norms, such as showing respect for the Chinese, for example, by enhancing their face. Although the concept mainly contains verbal communication, it also comprises actions such as gift-giving, visiting Chinese employees, caring for the well being of the employees, giving them prestigious positions and other aspects covered by the Chinese word renqing. Renqing can often best be translated as human obligations instead of the more direct translation as human feelings, because feelings (qing) are social in Chinese tradition, whereas feelings are perceived as private in Western traditions. It is a well-known fact in China that appropriate facework is a way of achieving business goals, so it is not a question of cheating the Chinese, but respecting them. Substance involves the basic ways of conducting business and running a company according to Western standards with necessary adaptation to the Chinese tradition, like for example guanxi-building. It can be formulated as working towards managerial systems that enhance efficiency in the subsidiaries, including items like building a more formalized information system and gradual decentralization of certain decision-making processes etc. (Smith and Wang, 1996; Worm, 1997). The possible combinations of particularistic-universalistic and appearance-substance can be reduced to four because particularistic and universalistic are mutually exclusive. This is the vertical dimension of the three-dimensional Figure 13.2. The horizontal dimension shows that special combinations of appearance and substance result in different levels of acceptability among Westerners and Chinese. For example, when appearance is particularistic and substance universalistic (not particularistic) as shown in the first row then it is acceptable for Westerners because they perceive it as particularism in form, but not in substance. The Chinese are satisfied because they are given face. The model shows that in a situation where a particularistic culture and a universalistic culture have to cooperate, the optimized situation is particularistic appearance combined with universal substance. However, the model should not be misinterpreted to mean that Westerners can do as they like as long as they please the Chinese verbally. Instead, the conclusion to be drawn is that many problems could be avoided if the Western expatriates paid more attention to traditional Chinese ways of communication like facework, showing respect for Chinese colleagues and building trust-based personalized relations with Chinese staff. Some Westerners are quite good at working in particularistic cultures, which indicates that it is partly a question of selecting the right people or giving them adequate cross-cultural training. For example, in the case of picking on the responsibility area of a Chinese manager at a management meeting, if it was done face-to-face and in a way where the manager’s positive contributions were also mentioned, I will contend that it © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Figure 13.2 Optimizing interpersonal cooperation between Western and Chinese managers © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

would not be an issue at all. The Chinese do of course have ways of conveying criticism, but they are less direct than the Western ways. But on the other hand, it should be emphasized that there are certain methods in business that are difficult or impossible to accept ethically by Westerners, such as corrupt practices, which apparently are also creeping into some Sino-Western joint ventures (Stone, 1994).

CONCLUSIONS AND RECOMMENDATIONS This chapter has discussed how interpersonal cooperation in Western subsidiaries can be improved despite numerous cultural differences between China and the Western world. A key to structure the cultural differences in relation to interpersonal cooperation is the dimension particularistic versus universalistic. Chinese tend to be particularistic whereas people from the West are more universalistic. The particularistic Chinese are characterized by personalized relationships in small in-groups and the formation of trust-based networks with a heavy emphasis on instrumentalism and mutual obligations to help each other. Particularism focuses on the exceptional. Individuals are not seen as role performers, but as persons of unique importance with special claims on emotional involvement. When personalized relations are established the parties involved in the relation will protect each other’s face although it may require a white lie. If harmony is not kept, trust will disappear. The universalistic Westerners are on the opposite pole. Relations are depersonalized and roles are predominantly task-oriented. Communication is direct and sticking to the truth is a must. Interpersonal harmony is not a predominant norm in Western societies. From the above it is obvious that ‘correct’ ways of communication are more important in Chinese culture whereas the actual management task and processes are comparatively more important in the West, although the two cannot be separated completely. When studying communication processes, it has to be taken into account where the joint ventures are situated culturally, as communication has to be adapted to Chinese norms, while there can be more focus on adaptation to Western practices in certain management functions, such as budgeting. It has been illustrated that the optimal condition of interpersonal communication between the two cultural poles was a combination of particularistic appearance and universalistic substance. For Westerners expatriated to China the implication is that it is more important to have some knowledge of Chinese culture, such as knowing how to show respect for the Chinese and how to build networks with Chinese colleagues, than is normally realized. At the work-related level it is recommended that expatriates learn how to do facework. They should avoid causing the Chinese to lose face by © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

criticizing them in front of others, which will never create any positive results under any circumstances. At the same time they should learn to enhance the face of the Chinese by constantly praising the work they have done well. There should be a strong emphasis on positive aspects. Even if eight out of ten minutes of a meeting with a Chinese member of staff are used to elaborate his good qualities, he will remember and notice the last two minutes, when a problem is mentioned, but he will not feel he has lost face. Enhancing the face of one another is a strong motivator in China and it is free of charge. Enhancing and saving face is mainly done verbally—in the way people talk to each other—but it does also comprise certain nonverbal behaviour like paying a visit to a sick employee. Such behaviour is more valued in China than in the West because it is common in Chinese companies. For Chinese employees it shows that the expatriates respect the Chinese and do not just consider them as ‘labour force’. Similarly, the expatriates will have to learn to build trust-based relations with Chinese colleagues. This is mainly done like in the West by sticking to one’s word, but it is more time-consuming in China and requires the expatriates to involve themselves with the Chinese. They will have to spend time together, not only during working hours, but also during leisure time. Finally the expatriates will have to use more time on direct personal control, but at the same time try to build more depersonalized processes of control. The question of how many of the control functions can be transferred to Chinese staff or to depersonalized regulations depends on the specific circumstances in the firm and can only be decided on a trial-and-error basis. All too many expatriates are sent to China only because of their technical or managerial expertise without any consideration of their intercultural skills and ability and willingness to develop China-specific knowledge. When this is the case, even the most capable Westerners will normally not be able to create the anticipated results for their Western subsidiaries. It is not an implication of the above analyses, however, that technical and managerial knowledge should be ignored, but that it should not be the most important selection criteria for future expatriates.

NOTES 1

I would like to thank Professor John Frankenstein, Professor Jan Selmer and Professor Rosalie Tung for valuable comments on earlier drafts of the chapter and Susan Aagaard Petersen for going through the manuscript several times and coming up with many excellent suggestions for improvements.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

REFERENCES Bond, M.H. (1991) Beyond the Chinese Face, Hong Kong: Oxford University Press. Bond, M. and Hwang, K. (1986) ‘The Social Psychology of the Chinese People’, in M.Bond (ed.) The Psychology of the Chinese People, Oxford: Oxford University Press. Bond, M. and Lee, P. (1981) ‘Face-saving in Chinese Culture: A Discussion and Experimental Study of Hong Kong Students’, in A.King and R.Lee (eds) Social Life and Development in Hong Kong, Hong Kong: Chinese University Press. Chang, H. and Holt, G. (1991) ‘The Concept of Yuan and Chinese Interpersonal Relationships’, in S.Ting-Toomey and F.Korzenny (eds) Cross-Cultural Interpersonal Communication, Newbury Park, CA: Sage. ——(1994) ‘A Chinese Perspective on Face as Inter-relational Concern’, in S.TingToomey (ed.) The Challenge of Facework, Albany, NY: State University of New York Press. Chen, M. (1995) Asian Management Systems, London: Thunderbird/Routledge. Child, J. (1994) Management in China during the Age of Reform, Cambridge: Cambridge University Press. Goodwin, R. and Tang, C. (1996) ‘Chinese Personal Relationships’, in M.Bond (ed.) The Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Hofstede, G. (1991) Cultures and Organizations, Maidenhead: McGraw-Hill. Hofstede, G. and Bond, M.H. (1988) ‘The Confucius Connection: From Cultural Roots to Economic Growth’, Organizational Dynamics Spring: 5–21. Hoon-Halbauer, S. (1994) Management of Sino-Foreign Joint Ventures, Lund: Lund University Press. Hu, H. (1944) ‘The Chinese Concept of “Face”’, American Anthropologist 46:45–64. Lasserre, Ph. and Schütte, H. (1995) Strategies for Asia Pacific, London: Macmillan Business. Mann, J. (1989) Beijing Jeep, New York: Simon & Schuster. Pye, L. (1982) Chinese Commercial Negotiating Style, Cambridge, MA: Oelgeschlager, Gunn & Hain. Schneiter, F. (1992) Getting Along with the Chinese for Fun and Profit, Hong Kong: Asia 2000. Seligman, S. (1989) Dealing with the Chinese, New York: Warner Books. Smith, P. and Wang, Z. (1996) ‘Chinese Leadership and Organizational Structures’, in M.Bond (ed.) The Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Stewart, S. (1994) ‘A Look at some PRC Views on Joint Ventures in China’, in S.Stewart (ed.) Advances in Chinese Industrial Studies 4:303–17. Stone, B. (1994) ‘Sino-Foreign Joint Ventures and Government Corruption’, in S.Stewart (ed.) Advances in Chinese Industrial Studies 4:29–48. Tayeb, M. (1988) Organizations and National Culture, London: Sage. Trompenaars, F. (1993) Riding the Waves of Culture, London: Nicholas Brealey. Tung, R. (1994) ‘Strategic Management Thought in East Asia’, Organizational Dynamics 20(4):55–65. ——(1982) ‘US-China Trade Negotiations: Practices, Procedures, and Outcomes’, Journal of International Business Studies Fall: 25–37. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Weldon, E. and Jehn, K. (1996) ‘Conflict Management in US-Chinese Joint Ventures’, in J.Child and Y.Lu (eds) Management Issues in China, vol. II, London: Routledge. Worm, V. (1994) ‘Scandinavian Business Men’s Perception of the Chinese as Business Partners—Reasons, Consequences and Remedies’, working paper no. 6, Institute of International Economics and Management, Copenhagen Business School. ——(1997) Vikings and Mandarins. Sino-Scandinavian Business Cooperation in CrossCultural Settings, Copenhagen: Copenhagen Business School Press.

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14 Confucian connections in China1 Rosalie L.Tung and Irene Y.M.Yeung

INTRODUCTION In her book entitled, World Class: Thriving Locally in the Global Economy, Kanter (1995:22–3) identified the two dimensions associated with being ‘world class’. One, organizations must ‘meet the highest standards anywhere in the world in order to compete’; and two, the emergence of a social class, cosmopolitans, who are able to ‘command resources and operate beyond borders and across wide territories’. Kanter went on to state that the new social class or cosmopolitans must be rich in three intangible assets. The first is ‘concepts’, defined as the ‘best and latest knowledge and ideas’. The second intangible asset is ‘competence’, referring to the ‘ability to operate at the highest standards anywhere’. The third intangible asset is ‘connections’, that is ‘the best relationships which provide access to the resources of other people and organizations around the world’. Kanter referred to these three intangible assets as the three ‘Cs’ for thriving in the global economy. In this chapter, we will focus on the third ‘C’, connections. Specifically, we will examine connections in the context of doing business with the Chinese, in fact with countries which have been strongly influenced by the teachings of Confucius. These countries include China, Hong Kong, Taiwan, Japan and Korea. Collectively, they are referred to as Confucian societies. Depending upon estimates of future rate of economic growth, China has been projected to emerge as the world’s largest or fourth largest economy by the year 2010. Combined with that of Hong Kong and Taiwan (greater China, in short), the economic implications are even more staggering. In Confucian societies, there is a popular saying that ‘who you know is more important than what you know’. ‘Who you know’ refers to social connections with the appropriate authorities or individuals, commonly known in Chinese as guanxi. ‘What you know’ refers to technological expertise, including price and quality of tendered product and/or service. In other words, there is widespread belief among Asians and non-Asians alike that in order to succeed in doing business in Confucian societies, guanxi or proper connections are often more important than the price and quality of the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

product/service which the foreign investor has to offer. King (1991) has identified guanxi, along with face and renqing (human feelings and reciprocity) as the three key building blocks of Chinese culture. These three key building blocks pervade all aspects of societal functioning, including politics and commerce. In a survey of 2,000 Chinese from Shanghai and an adjoining rural county in the early 1990s, Chu and Ju (1993) found that over 90 per cent of those polled confirmed the importance of guanxi in their daily lives. In addition, they found that the younger generation tended to place greater emphasis on guanxi than the older people. Despite the fact that most people agree that guanxi is important, its relationship with business performance has not been explored empirically. In general, there is an absence of research on the subject of guanxi. This can be attributed to two primary reasons. First guanxi is often regarded as a sordid form of favouritism and nepotism; hence, it may be viewed as an inferior construct not worthy of scholarly investigation. Second, because guanxi relations are considered as a personal asset by the Chinese, people are usually reluctant to talk openly about their connections. In this chapter, we will examine the following issues pertaining to guanxi: (1) why does guanxi assume such a significant role in Confucian societies?; (2) how does guanxi affect long-term financial success in China?; and (3) how does one develop and maintain guanxi? The analysis is based on a literature review and an empirical study of nineteen firms with business dealings in China. Interviews were conducted with nineteen Hong Kong and non-Hong Kong firms which have business dealings with China. The non-Hong Kong firms included US, Canadian, German and Swedish companies. The companies were engaged in a diverse range of industries and services, including real estate, financial institutions, importers/exporters, and manufacturers of toys, electronic products and telecommunication equipment. These companies hired anywhere from four to over 10,000 employees in China.

ROLE OF GUANXI Why is guanxi so important in Chinese societal functioning? The answer lies in Confucianism. According to the tenets of Confucianism, each person occupies one or more roles in a hierarchical ordering of social relationships with his/her commensurate duties and obligations. Three of the five relationships pertain to the family. The strong emphasis on the family in Confucian societies results in a clearcut distinction between members of the in-group and the out-group. Yang (1994) described Chinese society as comprising a set of concentric circles. At the core is the immediate family to which the individual belongs. Next comes the extended family. At the periphery are non-family members who render special services to the individual. The more distant the circle, the weaker the tie, and the fewer role obligations to be assumed. Interaction with people in the inner concentric © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

circles is characterized by trust and sharing. Anyone who lies outside of these circles is perceived as an outsider and is usually viewed with suspicion. They found that over 80 per cent of the 2,000 respondents they surveyed would not trust strangers until they had the opportunity to know them better. Chu and Ju (1993) also found that almost three-quarters of the respondents preferred to use guanxi connections over normal bureaucratic channels to advance personal interests and/or solve problems. Patterns of social interaction in China have undergone fundamental changes under communism, especially during the Cultural Revolution (1966– 76). Shortly after the establishment of the People’s Republic of China in 1949, Confucian social relationships came under attack because they ran contrary to the communist ideal of comradeship which stresses equality among individuals. Comradeship called for an abolition of the in-group and out-group distinctions. According to Redding (1993), communist ideology produced two unexpected changes in social relations. To buffer overwhelming state control, many found solace and security in their own private spheres of guanxi networks. While the ideal of communism is to promote selflessness, it actually generated the opposite effect: because individuals could no longer trust family or friends, they began to see social relations as the means to advance personal interests. Thus, an extreme form of instrumentalism began to emerge in guanxi relations during the Cultural Revolution. King (1991) characterized this phenomenon as ‘relationology’ or ‘using people’. Many Chinese began to use others to gain special privileges and career advancement and to terminate such relationships once their usefulness was at an end. Ralston, Gustafson, Terpstra and Holt (1995) found that there was a significant increase in Chinese managers’ scores on the Machiavellianism dimension after 4 June 1989, another watershed in the evolution of present-day Chinese society. The Machiavellianism dimension is a ‘measure of the degree to which a person places self-interest above the interest of the group…self-interest may be the individual or extended family set against those beyond the intimacy of family relationships’.

GUANXI AND SUCCESS The executives in our study were presented with a list of eleven factors and were asked to rank-order these in terms of importance to long-term business success in China. The eleven factors were: choosing the right business location; choosing the right entry strategy; competitive prices; complementarity of goals; familiarity with Chinese negotiation style; flexibility in business operations; guanxi with Chinese business associates; long-term commitment to the China market; management control; product differentiation/quality; and understanding of China’s policy. ‘Long-term © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

business success’ was measured in terms of the growth of annual net income or pre-tax profits of the firm between 1991 and 1994. The firm’s financial performance was also compared to corresponding performance norms for the industry in China. Of the eleven factors, guanxi was the only item which was consistently chosen as a key success factor. The respondents attributed the significance of guanxi to the ambiguity of Chinese legislation. Despite the enactment of many laws to govern different aspects of commercial and business activities in the past decade and a half, Chinese laws remain vague. Furthermore, Chinese institutional law lacks transparency. In the absence of explicit guidelines, directives and policies are subject to the interpretation of those who occupy positions of authority or power. While recognizing the role of guanxi to financial success, most of the companies believed that guanxi, by itself, is a necessary but insufficient condition to warrant long-term success in China. The significance of guanxi alone in ensuring continued success decreased over the life of the venture. In other words, once the operation is established, other conditions have to be met in order to sustain continued success. Of these conditions, technical competence is most important. Technical competence refers to the supply of appropriate products of high quality, the adoption of suitable business strategies and the possession of in-depth knowledge of the market. Technical competence encompasses the other two ‘Cs’, concepts and competence, identified by Kanter (1995) as attributes for becoming ‘world class’. One executive we interviewed drew the analogy between guanxi and a piece of wood thrown to a drowning swimmer. The wood (which is similar to guanxi in this case) does not have inherent magical properties which will automatically rescue the swimmer. Whether the swimmer is ultimately saved depends upon how he utilizes it.’ Another executive compared guanxi to a boarding pass which enables the bearer to embark on a treasure island. There is no guarantee that they will find wealth even if they are permitted access.’ This finding about the relationship between guanxi, a salient aspect of Chinese culture, and long-term business success parallels Tung’s (1982, 1989) research on business negotiations between American and Chinese firms. Tung (1982, 1989) found that while knowledge of cultural differences on the part of the American partner will not always guarantee business success, ignoring Chinese culture, including the role of guanxi, can almost certainly lead to the failure of any venture in that country. The relationship between guanxi and long-term business success was further moderated by the nationality of the firm, years of experience, firm size and industry type. In general, Hong Kong firms assigned a higher significance to guanxi than non-Hong Kong firms. This difference may stem from the fact that the Hong Kong firms derived 100 per cent of their revenues from China while the non-Hong Kong firms were more diversified in their investment portfolio. For the non-Hong Kong firms, revenues from their China operation accounted for 5 to 45 per cent of their total sales from the Asia-Pacific region. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Years of experience also moderated the relationship between guanxi and long-term business success. Firms with ten or more years of experience in China assigned lower priority to guanxi than those with less experience. Years of experience is a function of the stage of business establishment in China. As noted earlier, guanxi is of paramount importance in the initial stages of entering the China market. Beyond a certain threshold level, however, other factors assume greater significance. Firm size also moderated the relationship between guanxi and long-term business success. Small- and medium-sized firms tended to place greater emphasis on guanxi than large companies. Since large firms can contribute substantially to the local economy, the Chinese authorities are keen to attract their investment. For example, the local Chinese government courted the investment of one company included in our study which hired 7,000 local Chinese in their manufacturing plant and built railways and bridges to improve the local infrastructure. Industry type also moderated the relationship between guanxi and longterm business success. Firms in the tertiary and exporting sectors assigned greater importance to guanxi than those engaged in manufacturing and importing. This appears to stem from the fact that firms engaged in manufacturing and importing were more localized in their operations. Once they were established in a specific business location, they did not have to expand and/or shift their guanxi networks continuously. Those in the tertiary and exporting sectors had to frequently broaden their base of operations and search for new suppliers.

HOW TO BUILD AND MAINTAIN GUANXI Since guanxi is essential to the initial set-up of business operations in China, it is important to understand the dynamics of guanxi building and maintenance. Yang (1989) described guanxi building as the transformation process whereby a basis of familiarity is constructed between two discrete individuals to enable the subsequent development of relationships. In this process, the gap between two hitherto unrelated individuals is bridged so that an outsider becomes part of the inside social circle of another person, thereby incorporating the former as an ingroup member. There are two ways to facilitate the transformation process: group identification and altercasting. Group identification can be of two types: ascribed and achieved. The two most common forms of ascribed guanxi bases are kinship and locality. Kinship refers to members of one’s immediate and extended families. Chu and Ju (1993) found that over 70 per cent of the 2,000 respondents would offer help to a relative rather than a friend. Locality refers to one’s ancestral village or province. Locality is believed to be the most important guanxi base in Chinese politics. Achieved guanxi, on the other hand, is based on common or shared experience, such as going to the same school, © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

serving in the same military unit or working in the same organization or organizational unit. Since the majority of non-Chinese investors are not related to the Chinese by blood and locality, most have to rely on the second mechanism, altercasting, for establishing guanxi. Altercasting refers to the establishment of guanxi between two individuals who have no ascribed commonality. The goal of altercasting is to rearrange the targeted person’s social network in such a way as to involve the individual who wishes to be included in it. An effective way of attaining this goal is to use an intermediary who is a mutual friend of both parties. The intermediary can vouch for the behaviour and sincerity of either party. Many non-Hong Kong firms included in our study used intermediaries to establish connections in China. Many intermediaries are ethnic Chinese who have been educated abroad and who have a good knowledge of both Chinese and Western cultures. One executive characterized the role of the intermediary as follows: The China market is like a pond full of hidden delicious food. A new fish in the pond can starve to death because he doesn’t know how to locate the food. Your intermediary is an old fish who knows where every plant and plankton is. He can show you the precise location of this food so you can eat to your heart’s satisfaction.’ The term guanxi comprises two Chinese characters meaning a ‘gate’ or ‘pass’. Since guanxi is a gate/pass that can be open or shut, once the gate has been opened, it needs to be propped open; otherwise, the gate can slam shut again. There are essentially four strategies for propping open the gate, that is, maintaining guanxi relationships. These are: tendering favours; nurturing longterm mutual benefits; nourishing personal relationships; and cultivating trust. Each strategy is discussed below.

Tendering favours Given the instrumental nature of guanxi, one way to establish relations is to offer immediate gains such as gift-giving, entertainment at lavish banquets, questionable payments, overseas trips, and sponsoring and supporting the children of Chinese officials at institutes of higher learning abroad. Many executives in our study felt that this was the quickest way to build guanxi relations in China. All nineteen companies had tendered favours in the course of guanxi building and maintenance. However, those firms which relied on tendering favours as the primary means of guanxi maintenance experienced lower levels of financial performance, while those companies which used it as a supplementary strategy met with greater financial success. Many executives also felt that while short-term gains can open doors, they cannot build longterm guanxi for three reasons. First, since these favours can be duplicated readily by others, any relationship which is based exclusively on short-term © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

gains will be unstable. Second, since technical competence becomes more important in the established phase of one’s business operations in China, questionable payments cannot substitute indefinitely for poor product quality. Third, the high costs of offering short-term gains cut into profit margins, and thus affect financial performance.

Nurturing long-term mutual benefits The goal here is to create an interdependence between the two parties to the relationship so that there will be a great cost to either side in severing such ties. As Pye (1982:89) puts it, ‘each can tax the other and expect automatic special considerations’. This interdependence increases over time. The primary benefit sought by the foreign investor is to attain business success in China; while the principal gains to the Chinese partner are the acquisition of materialistic rewards and/or enhancement of one’s political career. Those officials who are able to attract foreign investment which contributes substantially to employment and development of infrastructure in their community will have a better chance of advancing their political careers.

Nourishing personal relationships Many of the executives we studied felt that since short- and long-term gains can be duplicated by others, guanxi relations which are based exclusively on instrumental benefits can be fragile. Consequently, to maintain guanxi relationships, many felt that it was important to develop a personal relationship with the Chinese which cannot be readily imitated by others. ‘Personal’ implies that it is something specific to the two parties to the relationship, such as sharing inner feelings or personal secrets. To build an intimate relationship with the Chinese, most respondents indicated that sincerity and frankness were absolutely essential. To accomplish this, one has to acquire an in-depth knowledge of the Chinese business associate and know what appeals to his/ her personal needs. One-half of the executives interviewed felt that this strategy is less feasible now because of the strong emphasis on utilitarian gains in present-day China.

Cultivating trust Over 80 per cent of the companies included in our study indicated that trust was crucial to building and maintaining guanxi relationships. Without trust, many felt that it was virtually impossible to build guanxi. According to one executive, ‘Trust is very important in China because it is a relation-based society.’ Many interviewees adopted the following two mottoes for cultivating trust: ‘Deliver what you have promised’ and ‘Don’t cheat’. Another effective way of building © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

trust is to learn the Chinese culture, including its language. Many Chinese reason that if the investor truly tries to understand Chinese culture, they should not be considered as outsiders. These four strategies are not mutually exclusive, rather they should be viewed as complementary. None of the strategies alone is capable of building and maintaining strong guanxi relations. Given the emphasis on instrumental gains, the sheer development of personal and trustful relationships, without an accompanying rendering of short- and long-term benefits, cannot sustain guanxi ties. In other words, no guanxi connection can exist in the absence of utilitarian gains to the Chinese partner. However, the mere tendering of favours alone is insufficient to maintain the guanxi relationship since such efforts can be readily duplicated by others. Six of the nineteen companies included in our study adopted an integrated approach, i.e. used all four strategies to build and maintain guanxi, and they experienced significantly higher levels of financial performance. In general, those companies which were engaged in the exporting and service sectors tended to rely more heavily on tendering favours, whereas those in importing and manufacturing resorted more to nurturing long-term mutual benefits. Those companies with more years of experience in China usually used an integrated approach. Besides adopting an integrated approach to building and maintaining guanxi, it was also more effective to establish multiplex rather than single-stranded relationships. Multiplex relationships refer to the cultivation of more commonalities or more guanxi bases between two parties, so that the ties become stronger, more permanent and more irreplaceable.

CONCLUSIONS AND RECOMMENDATIONS The findings in our study of Hong Kong and non-Hong Kong firms point to several general conclusions about connections in China. Each is discussed along with recommendations for practitioners who seek to succeed in the highly competitive China market. First guanxi is a necessary but insufficient condition to long-term business success in China. Without establishing the appropriate networks in China, it will be virtually impossible to penetrate a market that is significantly different from that in the Western world. However, a company cannot rely on guanxi alone to ensure long-term success in operating in China because, in the established phase, technical competence gains importance. In other words, the possession of technological know-how and the adoption of suitable strategies ultimately will determine the firm’s ability to survive and indeed flourish in China in the long run. Second, to be successful, it is important to build strong relationships with the right individuals. The permanence of a guanxi connection with the appropriate people, who can influence decisions favourable to the investor, depends upon the strength of the relationship. Since there are many companies vying for the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

same outcome and courting the favour of the same key decision makers, it is important to build and develop strong and multiplex linkages with these individuals so that they cannot be easily replaced or displaced. Third, guanxi relationships are person-specific and cannot be transferred. Hence, where possible, a company should try to recruit those with good connections. Furthermore, after successful recruitment of these individuals, the company has to provide adequate incentives to retain the services of these people. Fourth, since most guanxi relationships are formed on the basis of blood, ancestral village and other institutional ties, non-Chinese may find it difficult to break into these networks. Hence, many non-Chinese firms often have to resort to intermediaries to gain the proper connections in China. This can be accomplished through recruiting well-connected ethnic Chinese to work for them or serve as consultants/advisors. Fifth, the tendering of favours, particularly the offering of short-term gains, is essential but ineffective alone in maintaining long-term guanxi relationships. To maintain strong, long-term relationships, companies must adopt an integrated approach which combines the tendering of favours with nurturing long-term mutual benefits, nourishing personal relationships and cultivating trust. Sixth, as noted above, trust is essential to long-term guanxi maintenance. This can only come about if there is a genuine attempt on the part of the foreign investor to understand Chinese culture. The cultural gap between Chinese and Western societies is indeed large. However, research shows that that gap can be bridged through understanding and patience. The practice of guanxi has come under attack in the recent past, primarily in connection with the current attempts by the Chinese government to eradicate widespread corruption. Some believe that, as China’s economy develops, greater emphasis should be placed on institutional law. However, a cursory review of the situations in other advanced or more developed Confucian societies, such as South Korea and Hong Kong, shows that modernization and the establishment of institutional law will not displace completely the reliance upon relationships and connections. Relationships and connections are among the core values upheld by these societies. Hofstede (1991) used the ‘onion’ analogy to characterize the manifestations of culture in a given society. The outer layers of the onion, such as symbols, heroes and rituals, are more susceptible to change. Consequently, while Chinese youth may desire the same clothing and popular music as the West, the core values are very resistant to change. As such, it appears that guanxi will continue to be a dominant aspect of societal functioning for some time to come in China. Furthermore, as Kanter (1995) asserted, connection is one of the three ‘Cs’ of ‘world class’ organizations. Without one of these three ‘Cs’, organizations and individuals cannot compete effectively and thrive in the global economy. Hence it appears unlikely that China will abandon a long-standing tradition which, despite its inherent problems, has now been touted by Western researchers as a key to international competitiveness. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

NOTES 1

This chapter is adapted from I.Y.M.Yeung and R.L.Tung ‘Achieving business success in Confucian societies: the importance of guanxi (connections)’, Organizational Dynamics, Autumn 1996, with permission.

REFERENCES Chu, G.C. and Ju, Y (1993) The Great Wall in Ruins, Albany, NY: State University of New York Press. Hofstede, G. (1991) Cultures and Organizations: Software of the Mind, Maidenhead: McGraw-Hill. Kanter, R.M. (1995) World Class: Thriving Locally in the Global Economy, New York: Simon & Schuster. King, A. (1991) ‘Guanxi and network building: a sociological interpretation’, Daedalus 120(2):63–72. Pye, L.W. (1982) Chinese Commercial Negotiating Style, Boston, MA: Gunn & Hain Publishers. Ralston, D.A., Gustafson, D.J., Terpstra, R.H. and Holt, D.A. (1995) ‘Pre-post Tiananmen Square: changing values of Chinese managers’, Asia Pacific Journal of Management 12(1):1–20. Redding, S.G. (1993) The Spirit of Chinese Capitalism, New York: Walter de Gruyter. Tung, R.L. (1982) ‘US-China trade negotiations: practices, procedures and outcomes’, Journal of International Business Studies Fall: 25–37. ——(1989) ‘A longitudinal study of United States-Chinese business negotiations’, China Economic Review 1(1):57–71. Yang, M. (1989) ‘The gift economy and state power in China’, Comparative Studies in Society and History 13(1):25–30. Yang, M. (1994) Gifts, Favours and Banquets, New York: Cornell University Press.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

15 Chinese and Western negotiator stereotypes Gilbert Y.Y.Wong and Raymond J.Stone

INTRODUCTION International negotiators quickly learn that the values of their home country cultures are often quite different from those of the foreign country. They also learn that cultural differences if not understood can be a major impediment to the success of a negotiation. To help international negotiators simplify the situation, a plethora of articles and books on China and how to negotiate there has arisen. Similarly, the mass media have produced an overwhelming amount of information on how to do business in China. All of these, along with past negotiator experience, have generated the demand for generalizations about the personality and characteristics of Chinese and Western negotiators. Undoubtedly these generalizations by providing a frame of reference allow negotiators to simplify cultural and value differences to interpret and organize their experiences and to increase their personal comfort level. Yet the reality is that China comprises regions which differ markedly in terms of language, ethnicity, local customs and standards of living. To talk of a uniform and homogeneous culture and of Chinese negotiators demonstrating universal behavioural characteristics is dangerous when China’s cities and provinces have been linked historically by topography into natural regions (Falkenheim, 1995). Advertisers, for example, are aware that using ‘unlucky numbers in Beijing in advertising or product names is acceptable because Beijingers are not as superstitious as the Cantonese’ (Lee, 1992). Likewise, according to Victor Fung, Chairman of the Hong Kong Trade Development Council, ‘northern consumers are much more concerned about appearance and clothing than those in the south, where consumer electronic watches, toys, appliances and other household products are in strong demand’ (Fung, 1992:39). Leading Hong Kong businessman Paul Cheng comments ‘China is not one market but rather one country and several markets. And these markets are all different. The people, the culture, the dialect, the way of life, climate, fashion and diet are all different’ (quoted in Lyall, 1996:24). Furthermore, it is argued (Ralston et al., 1996; Wong and BirnbaumMore, 1994) that the nature of the local environment may influence the creation of cultural similarities and differences. For example, there is evidence to suggest that the combination of Western and Eastern influences has produced a © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

set of values unique to Hong Kong (Ralston et al., 1992; Ralston et al., 1993). This is important because regions in China differ significantly in per capita income, distribution networks and infrastructure development (Falkenheim, 1995). It should therefore be clear that within Chinese society there exists a macroculture and a number of subcultures or subgroupings of people possessing characteristics which set them apart and distinguish them from others (Harris and Moran, 1987). Western negotiators doing business in China therefore need to be aware of regional differences and the regional stereotypes they produce. It is consequently the purpose of this study to examine some common stereotypes held by Hong Kong Chinese regarding Chinese and Westerners and to explore the regional differences which Hong Kong Chinese perceive to exist between themselves and the Shanghainese.

STEREOTYPES Stereotypes are generalizations about the characteristics of the members of a group. Such generalizations can be assigned to an in-group member (autostereotype) or to an out-group member (heterostereotype). A particular person consequently can be perceived as belonging to a particular group irrespective of his/her own personality or behavioural characteristics. Individual differences thus are given little regard as a stereotype never describes individual behaviour (Adler, 1991). The psychological economy of labelling means people have to remember less about the individual. The stereotyped characteristics can be favourable or unfavourable, inaccurate and harmful or useful and efficient (Adler, 1991; Moorhead and Griffin, 1995). According to Adler (1991:72), a stereotype can be helpful when it is: 1 2 3 4 5

consciously held; the person should be aware that he or she is describing a group norm rather than the characteristics of a specific individual; descriptive rather than evaluative; the stereotype should describe what people from this group will probably be like and not evaluate those people as good or bad; accurate; the stereotype should accurately describe the norm for the group to which the person belongs; the first best guess about a group prior to having direct information about the specific person or persons involved; modified, based on further observation and experience with the actual people and situations.

Finally, if a stereotype is believed to be true, the expectations it creates can produce a self-fulfilling prophecy. For example, if a person is treated as aggressive or arrogant, he or she in turn may respond in that way. Consequently, © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the ‘truth’ of the stereotype is confirmed. The stereotyper’s perception of reality becomes validated.

CHINESE REGIONAL STEREOTYPES Chinese appear to exhibit strong regional identity and believe that there are striking differences between people from various parts of China (Chu, 1991; Stewart and Keown, 1989; Redding, 1990). The Cantonese, for example, are described as: sagacious businessmen who know how to make people glad to withdraw their savings in order to conduct business with them. They are warm, hospitable and skilful at making friends; and with their ancient southern heritage, they are prone to take risks. They eat snakes and even rats…almost anything that moves. (Huang et al., 1994:107) the northerners…tend to view the Cantonese as vulgar, materialistic and grasping, and make jokes about their eating habits—if it’s got four legs and isn’t a chair, if it swims underwater and isn’t a submarine, if it flies and isn’t an aeroplane—the Cantonese will eat it! (Bonovia, 1989:228) traditionally open and extrovert. (Redding, 1990:110) A man from Shanghai will have it that the Cantonese have all the facetiousness of the nouveau riche, brash in the demonstration of their wealth, snubbing snobbery and forsaking culture in favour of a fast buck. (Ibison, 1993:52) Similarly, the Shanghainese are assigned very particular personality and behavioural characteristics: once considered the best business people in China. They are clever and urbane. They cannot bear Cantonese mannerisms, and consider them crude. They are good at calculating…you can only see the roles they act out, but not their true colours. (Huang et al., 1994:107) A man from Guangdong will tell you Shanghainese have all the arrogance and conceit of the aristocracy, citing their pedigree, culture and education as evidence of their superior lives as China’s ultimate urbanites. (Ibison, 1993:52) © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The Shanghainese are usually said to be more astute than other groups. (Blackman, 1997: xiii) Calling someone a ‘Shanghai person’ means saying he is a cheat and a scoundrel. Shanghainese are seen as a bit too quick witted, interested only in making a quick buck. (Johnson, 1996:13) Compared with the Cantonese, they are seen as more subtle, more suave, more sober, or depending on your standpoint, more devious. (Redding, 1990:110) Shanghai used to be a colonised city and Shanghainese have maintained a sense of superiority and regard out of town people as country people. (Xu Kuangdi, Mayor of Shanghai, Agence France-Presse, 1995:8) We Shanghaiers have always been the most open, most capable people in China. (Wang Xinguo, playwright, Johnson, 1996:13) Finally, Westerners are often perceived by the Chinese to be direct, impatient, aggressive, confrontational, naive, friendly, arrogant and hot tempered, amoral capitalists (Blackman, 1997; Bond and Hwang, 1991; Chu, 1991; Huang et al., 1994; Seligman, 1989): the Americans are the only ones who answer every time they are asked…it is a well known failing in American engineers that they cannot resist showing off how much they know. (Chu, 1991:73) when they do business with Americans, they usually control the game since Americans are rarely aware that a game is being played. (Chu, 1991:16–17) The Chinese believe that patience is a value in negotiations, particularly with impatient Americans, and they freely use stalling tactics and delays. (Pye, 1982: x)

Western negotiators’ ‘pictures’ of Chinese negotiators Clearly, regional differences have generated distinctive stereotypes among the Chinese themselves. ‘China’s billion plus people speak a multitude of dialects, consist of different ethnic groups and follow local customs that have remained substantially intact over time’ (Ralston et al., 1996:80–1). Consequently, for © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the Western negotiator, regional diversity has the potential to aggravate even further the confounding nature of doing business in China. Stone (1995), for example, found that Western negotiators doing business in China identified distinct regional differences applying to their negotiations in Guangdong, Shanghai and Beijing (see Table 15.1). Specific comments illustrating this are shown below:

Beijing ‘In Beijing, negotiators are more personable but make naive claims and demands which are simply outrageous.’ (Australian General Manager) ‘It is more political. They may have little interest if the deal is outside of Beijing. Adherence to regulations and points of principle are important.’ (American Vice President) Table 15.1 Summary of Chinese regional differences

Source: Stone (1995). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘Beijing is more bureaucratic. You need a lot of government contacts and bribery is a must.’ (Hong Kong Chinese interpreter) Shanghai ‘In Shanghai, they delight in being rude and insulting and pressure you with ultimatums.’ (Australian General Manager) ‘Negotiators in Shanghai have an inherent arrogance. They have an energetic approach and want to negotiate every little item. You get the feeling that they prefer to win the negotiation and not the deal.’ (American Vice President) ‘In Shanghai, they will argue over the last penny. They will use personal abuse and insults to wear you down and get concessions.’ (Hong Kong Chinese interpreter) Guangdong ‘In Canton, they tend to lead with their personal requirements.’ (Australian General Manager) ‘It’s the wild west. There is a lot more cleverness and deceitfulness. It’s rough.’ (American President) ‘It’s very crooked in Canton.’ (Hong Kong Chinese interpreter) OUR STUDY Building on the above, the intent of this study was to identify the major characteristics attributed by a group of Hong Kong Chinese to Shanghainese, Westerners and themselves. To do this, a convenience sample of seventy-five Hong Kong Chinese university academics and business managers were asked to rate each of these groups (Hong Kong Chinese, Shanghainese and Westerners) on twenty-two characteristics using a five-point scale. Based on the literature and an earlier study by Stone (1995) these characteristics included aggression, arrogance, secretiveness and friendliness. The results indicate that Hong Kong Chinese (HK Chinese) perceive significant differences between themselves (autostereotype) and Shanghainese and Westerners (heterostereotypes) on a number of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

characteristics. Westerners, for example, were perceived as being less aggressive than both HK Chinese and Shanghainese. Shanghainese, however, were regarded as more anti-foreign and more arrogant than the HK Chinese. Westerners in turn were seen as being more arrogant than HK Chinese. Shanghainese were described as being more bureaucratic than HK Chinese while HK Chinese were seen as more conscious of dress and appearance and more conservative than Westerners. Shanghainese were felt to be more corrupt than HK Chinese while Hong Kong Chinese were said to be more corrupt, sly and cunning and deferential to authority than Westerners. HK Chinese saw themselves as being more environmentally conscious that the Shanghainese, but less so than the Westerners. Westerners were rated as being more friendly than the HK Chinese but the HK Chinese were regarded as the more ‘money hungry’. Shanghainese were described as being more concerned with politics than the HK Chinese while HK Chinese were regarded as being more concerned with politics than Westerners. HK Chinese were felt to be more practical and down to earth than both Shanghainese and Westerners. HK Chinese were regarded as being more quality conscious than Shanghainese with Westerners being seen as more quality conscious than the HK Chinese. The HK Chinese also described themselves as ruder and more insulting, more secretive and smarter business people than Westerners. Shanghainese were seen as having a more superior attitude than HK Chinese while Westerners were described as having a more superior attitude than HK Chinese. Finally the Shanghainese were portrayed as being tougher negotiators than HK Chinese. A summary of these in-group (autostereotypes) and out-group (heterostereotypes) is given in Tables 15.2 and 15.3 below.

DISCUSSION China’s emergence as an economic powerhouse necessitates that Western business people understand the behaviour of their Chinese counterparts (Tung, 1994). As Blackman points out ‘China is a complex environment in which to do business’ (1997: x). Like Europe, China is regionally diverse. Many Western negotiators ignore this reality, however, and see China as a unitary economy instead of a lot of different regional economies (Kunkel, 1996:2). Clearly, ‘just as societal cultures can differ, regions within a society can vary, especially if that society is large and complex’ (Ralston et al., 1996:80; Goodman, 1992; Robertson, 1993). China is obviously such a society (Goodman, 1989; Jenner, 1992). Jenner, for example, talks of ‘the myth of the oneness of the Han nation’ (1992:228). It is therefore reasonable to expect that such regional diversity may produce regional stereotypes which in turn find expression in cross-cultural business negotiations. Although Blackman claims that ‘regional differences are but minor variations in an overall © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 15.2 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese and of Shanghainese

Table 15.3 Summary of significant differences between Hong Kong Chinese perceptions of Hong Kong Chinese (autostereotype) and Westerners (heterostereotype)

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Chinese approach to negotiating’ (1997: xiii), Western business people nevertheless face the challenge not only of dealing with a culture very different from their own but also face the complication of regional variations in values and behaviour (Seligman, 1989; Jenner, 1992; Ralston et al., 1996). It is obvious that the Hong Kong Chinese perceptions of the Shanghainese are remarkably consistent with the standard stereotype. Arrogance and superiority have long been characteristics attributed to the Shanghainese (Huang et al., 1994; Ibison, 1993). One Western negotiator, for example, comments The Shanghainese think they are pretty terrific’ (Stone, 1995:54). Likewise, the Shanghainese have typically been seen (and are seen by themselves) as the best business people and toughest negotiators in China (Johnson, 1996). Says Fan Zongliu, of the Pudong Development Authority, ‘Beijing people like to talk about politics. Shanghai people like to talk about stocks’ (McGregor,1996:28). Similarly, another Chinese official claims ‘Shanghai people are very famous for their financial sense. This kind of sense is higher than in other provinces. We know what keeps value, and what will rise’ (McGregor, 1996b). ‘Shanghai’, says a Japanese writer, ‘with its mixture of political intrigue and wily entrepreneurs is only for those with an advanced degree in Chinese business’ (Sato, 1995:24). Given this, it is not surprising that Shanghai is portrayed as the ‘New York of China’ and the future financial capital of China (Ralston et al., 1996; Yatsko, 1996). Again the perceptions of the Hong Kong Chinese relating to corruption, bureaucracy and pollution in Shanghai reflect not only popular images but also current press reportage. Along with Indonesia, China was rated recently as the most corrupt country in which to do business (Wallen, 1996). An American lawyer comments ‘Blind greed is destroying Shanghai’s natural advantages’ (Studwell, 1993:36). Respondents to a survey conducted by the International Business Leaders Advisory Council presented to the Mayor of Shanghai similarly complained of too much government control and interference, red tape, complex procedures and inconsistent policies (Agence France-Presse, 1996; Lococo, 1996; Wong, 1994). In China’s state enterprises and government departments, bureaucracy is a fact of life, as is deference to authority (Brislin and Hui, 1994; Pye, 1982). Pollution, which is worse than Los Angeles, is also a major problem (Lindorff, 1996). Finally, Shanghai’s greater concern with politics also appears to be a justified perception. The Chinese view, both traditional and communist’, according to Pye (1992), ‘is that politics is all pervasive.’ Says Foo, ‘Shanghai’s fears of getting into trouble with the powers in the north lead to frustrating consequences for business: It is miles ahead of Beijing in red tape’ (Foo, 1996:4). Its officials, it is claimed, operate well within the parameters provided by the state (Cheng, 1992). Not surprisingly, the combination of greed, bureaucracy and pollution has been named by one writer as the The Shanghai Cocktail’ (Studwell, 1993). This suggests that both local context and cultural values are intermingling to maintain existing stereotypes and to create new ones, making China a moving target for Western negotiators (Wong and Birnbaum-More, 1994). ‘In © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

ethnically homogeneous China’, says Falkenheim, ‘national loyalties are everything, but local loyalties are alive and well’ (1995:94). It therefore would seem prudent for the Western negotiator to be alert to regional influences before commencing any business negotiation. Although exploratory, the results indicate that many common stereotypes consistent with the literature and anecdotal evidence continue to exist. Because of the common human tendency to employ generalizations to simplify a situation and to develop expectations regarding the behaviour and treatment of members of a group, it is not surprising that cultural differences are regarded as the major source of intractable problems dogging commercial negotiations between China and the West (Pye, 1982). Brislin and Hui, for example, claim that certain stereotypical behaviours are expected of foreigners and that the Western negotiator ‘may feel frustrated that Chinese hosts do not seem to perceive individual differences…to an average Chinese citizen, people from Germany, France, England, the United States, and Canada all look the same and behave the same’ (1994:251).

CONCLUSIONS AND RECOMMENDATIONS The findings of this study have practical implications for negotiator selection, training and conduct during the negotiations. For example, the commonly held belief that Westerners are more aggressive than Chinese is challenged. As Blackman points out, Westerners are often shocked when ‘they are confronted with fierce adversarial bargaining that appears to lack the politeness and consideration they expected’ (1997: xi). Again, Western negotiators are often similarly surprised when faced with Chinese arrogance and xenophobia. Negotiators expecting behaviour characterized by avoidance of confrontation, politeness and friendliness can be thrown off balance when Chinese distrust, aloofness and disregard for harmony surfaces. ‘Rhetoric emphasizing friendship and enduring relationships’, claim Moran and Stripp, ‘is quickly overshadowed by distributive bargaining tactics’ (1991:129). ‘Western business people departing for China’, says Blackman (1997: xi), ‘are commonly advised that the Chinese value harmony, good relationships and politeness. Yet when they get to China, and enter a negotiation they are confronted with fierce adversarial bargaining that appears to lack the politeness and consideration they expected. The high pressure of such bargaining, which is often backed with threats and pep talks about the way things are done in China, takes them completely by surprise.’ Stereotyped perceptions of the Chinese as seeking harmony and the avoidance of conflict at all costs thus may put Western negotiators at a disadvantage because of the stress experienced when the reality of China differs from expectations (Ahmed and Li, 1996; Brislin and Hui, 1994). Failure by Western negotiators to realize that they may be seen as the enemies bent on economic exploitation and the negotiation as a zero sum game with the Chinese being smarter, more secretive, sly and cunning, can quickly © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

disrupt a negotiation (Chesanow, 1986; Everett et al, 1984; Kennedy, 1985; Breth and Jin, 1988). The Chinese, for example, consider deception as acceptable if it results in a greater good (Tung, 1994). To accomplish one’s objective’, says Chu (1991:44), ‘it is sometimes necessary that a falsehood be openly displayed and the truth hidden.’ Western negotiators, in contrast, find this immoral. Yet, this is fundamentally how the Chinese appear to see themselves compared to their Western counterparts. Says one seasoned Western negotiator, The Chinese turn the negotiating process to their own advantage. Because you are negotiating on their territory, they control the proceedings. They can treat the negotiation as an information gathering session; they can control the environment in terms of timing, agenda and create uncertainty. They will cut off the heat or cooling. They use the social aspect to wear you down. They control the pace of the negotiations. It is all designed to frustrate you into making impetuous decisions. (Stone, 1995:52) This is also consistent with survey findings that the Mainland Chinese are extremely ‘tough’ negotiators (Lee and Lo, 1988). Western negotiators need also to be sensitive to the fact that they are perceived by the Chinese as having an air of superiority. Directly criticizing China or a Chinese counterpart will not only cause loss of face but reinforce the negative stereotype of Western arrogance. Other stereotypes which appear to be confirmed by this study are that Chinese in general are more corrupt, more ‘money hungry’, more practical, more conservative, more deferential to authority, more concerned with politics and more concerned with appearance and dress than Westerners. For example, one interviewee in Stone’s (1995) study reported being quizzed about the financial standing of a Western banker by a Mainland Chinese business colleague. When asked why he was concerned, the Chinese businessman replied that the Westerner ‘was only wearing a Seiko’. This is also consistent with the view that many Chinese are very concerned with the relative status of the Western negotiator (Brislin and Hui, 1994). Yao (1988: 63–4, 66) for example states ‘class, rank and age are rigid and influential in China, even after half a century of communist rule…a person’s title and reputation are of primary importance…how you dress will leave your counterparts with an irreversible impression’. Comments one experienced negotiator, ‘Dress conservatively, but richly’ (Stone, 1995:69). A Western negotiator of insufficient status may therefore indicate a lack of seriousness on the part of the foreign business and cause a loss of face (Kirkbride et al., 1991). On corruption, Schippers and Tarn (1990:116) point out that ‘Bribery of officials to get things done appears to be a widespread phenomenon, and senior mainland officials publicly admit that.’ ‘All crows are black’ says Beijing academic, Zheng Yefu, ‘but the crows in the United States have rules © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and they have to follow them. Here we have no rules. In fact, there is one rule—you have to bribe someone’ (McGregor, 1996b: 32). It is estimated that paying off officials adds about 5 per cent to operating costs in China (Kraar, 1995). A study by Armstrong and Lee (1995) found a striking difference between the attitudes of Hong Kong Chinese and Mainland Chinese toward corruption. Hong Kong Chinese considered it an important ethical problem whereas the Mainlanders did not. This is consistent with the view of Schippers and Tarn (1990) that corruption in Hong Kong has almost been eradicated. It is also consistent with the findings of Xin and Pearce (1996:1654) that corruption ‘is in part a consequence of weakly institutionalized structural protection for private business’. Nevertheless, a recent survey by Hong Kong’s Independent Commission against Corruption found younger people in Hong Kong becoming more tolerant towards corruption (Wong, 1996). Corruption, argues Clifford (1996:42), is ‘deeply ingrained in Hong Kong’s financial system’. Not surprisingly, expressions of concern about the level of corruption in Hong Kong are both frequent and common (Etheredge, 1995). Westerners in turn are generalized as being more friendly, more environmentally conscious, more quality conscious, less smart as business people, more open but having a more superior attitude than the Chinese. The last point is a particularly sensitive one because, as Moran and Stripp (1991:405) indicate, the Chinese ‘have had their experience in the past of Western imperialism and superiority’. Similarly, product quality is a recognized problem in China (Lockett, 1988). In a survey by Wagner (1990), 60 per cent of joint venture respondents claimed to have quality control problems because of carelessness, poor inspection and an absence of quality control standards in China. Clearly, Western negotiators need to be alert to such factors and use them to their advantage. Finally, the continuing existence of regional stereotypes among Chinese themselves (Table 15.3) suggests that the selection of a Chinese from a different region as a member of a Western negotiating team may have implications for the conduct of the negotiation. One American negotiator, for example, says ‘PRC Chinese are prejudiced about Hong Kong Chinese. They think the Hong Kong Chinese feel superior and are always criticizing the PRC’ (Stone, 1995:61). Again an experienced Australian negotiator comments, ‘Overseas Chinese are generally treated well in China. There can, however, be some resentment if they are from Hong Kong. Hong Kong Chinese tend to be boastful and like showing off their Rolexes’ (Stone, 1995:61). Again this is consistent with the finding that among Chinese those ‘who have some kind of in group ties will be favoured’ (Brislin and Hui, 1994:52). Brislin and Hui (1994:253) claim that ‘at a social gathering where many IBM employees are in attendance, for example, one of the in groups that forms may be “Shanghainese working for IBM”. This group may temporarily exclude other Chinese who did not come from Shanghai.’ The reported antipathy between Cantonese and Shanghainese is thus given some support by this study. Again Western negotiators need to be sensitive to this and exploit it to their advantage. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

The exploratory nature of this study should be kept in mind along with the smallness of the sample size, the use of convenience sampling and the lack of Shanghainese, Beijingers and Westerners in the sample population. Nevertheless, the study does support the presence of some powerful regional stereotypes and indicates that local attachments and distinctive characteristics still remain extremely strong in China. Second, it suggests that both Chinese and Western negotiators in their planning, selection, training and conduct of negotiations could benefit from an understanding of how each is perceived and the impact this may have on the dynamics of the negotiating process. Third, an awareness of regional and Western stereotype profiles could be a valuable diagnostic tool in identifying and resolving barriers to understanding and agreement. Fourth, familiarity with Chinese autostereotypes and heterostereotypes gives Western negotiators an insight into the negotiating environment which they might face. Fifth, the study highlights the need for Western negotiators to do their homework thoroughly if they wish to enhance their chances of commercial success. Sixth, generalizations about negotiating in China should be treated as ‘the introduction’ and not ‘the conclusion’. Pye (1982), for example, reports that American business people often feel insecure and inhibited about negotiating in China for fear of upsetting the Chinese after attending cultural training programmes on doing business in China. Western negotiators therefore need to keep an open mind and adjust their approach based on their own experiences. The study also raises questions for further research. Exactly what impact do regional stereotypes have on actual business negotiations? Do self-fulfilling prophecies apply? Do people from other regions in China acquire characteristics attributed to Beijingers, Shanghainese and Cantonese once they relocate to Beijing, Shanghai or Guangdong or Hong Kong? Are similar stereotypes held by Mainland Chinese about themselves and Cantonese speaking Chinese from Hong Kong? With China’s increased industrialization, will regional differences weaken and negotiator values converge? Birnbaum-More, Wong and Olve (1995), for example, found that younger PRC managers growing up in a period of increasing industrialization were more similar to their Hong Kong counterparts than to their older PRC comrades. In conclusion, an awareness by negotiators of their own and their counterparts’ stereotypical views and a positive integration of these into the negotiating process should provide a competitive advantage when doing business in China (Kindel, 1990). In the words of Sun Tzu, ‘Know yourself, know your opponents; one hundred battles, one hundred victories’ (Chu, 1991:17).

REFERENCES Adler, N. (1991) International Dimensions of Organizational Behaviour, 2nd edn, Boston: PWS Kent. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Agence France-Presse (1995) ‘Mayor warns of arrogance’, South China Morning Post 1 March: 8. ——(1996) ‘Bureaucracy hinders Shanghai investment’, Hong Kong Standard Financial Review 19 March: 4. Ahmed, P.K. and Li, X. (1996) ‘Chinese culture and its implications for Sino-Western joint venture management’, Strategic Change 5(5):275–86. Armstrong, R.W. and Lee, B. (1995) ‘A comparison of ethical problems encountered by Hong Kong and PRC international marketing managers’, BRC Working Papers Series, Hong Kong, School of Business, Hong Kong Baptist University, December: 1–21. Birnbaum-More, P.H., Wong, G.Y.Y and Olve, N.G. (1995) ‘Acquisition of managerial values in the People’s Republic of China and Hong Kong’, Journal of Cross-Cultural Psychology 26(3):255–75. Blackman, C. (1997) Negotiating China, St Leonards, NSW: Allen & Unwin. Bond, M.H. and Hwang, K.K. (1991) ‘The social psychology of the Chinese people’, in M.H.Bond (ed.) The Psychology of the Chinese People, Hong Kong: Oxford University Press. Bonovia, D. (1989) The Chinese, revd edn, London: Penguin. Breth, R. and Jin, K.P. (1988) A Business Guide to China, Burwood, Victoria: Victoria College Press. Brislin, R.W. and Hui, C.H. (1994) ‘The preparation of managers for overseas assignments: the case of China’, in L.Kelley and O.Shenkar (eds) International Business in China, London: Routledge. Cheng, E. (1992) ‘Shanghai surprise’, Far Eastern Economic Review 155(24):64–5. Chesanow, N. (1986) The World Class Executive, New York: Bantam. Chu, C.N. (1991) The Asian Mind Game, New York: Rawson. Clifford, M. (1996) ‘Can Hong Kong learn to behave?’, Business Week 2 September: 42–3. Etheredge, J. (1995) ‘Managerial bribery and corruption in Hong Kong: towards an explanatory model’, BRC Working Papers Series, Hong Kong, School of Business, Hong Kong Baptist University, October: 1–36. Everett, J.E., Kinshnan, A.R. and Stenling, B.W. (1984) South-East Asian Managers, Singapore: Eastern Universities Press. Falkenheim, V. (1995) ‘Geographic strategies’, in J.Withey (ed.) Business in China, Toronto: McGraw Hill Ryerson. Foo, C.P. (1996) ‘Fear of Beijing threatens return to glory’, South China Morning PostBusiness 18 April: 4. Fung, V. (1992) ‘China: El Dorado is within reach’, Australasian Entrepreneur 2(8):39. Goodman, D.S.G. (1989) ‘Political perspectives’, in D.S.G. Goodman (ed.) China’s Regional Development, New York: Routledge. Goodman, N. (1992) Introduction to Sociology, New York: Harper Perennial. Harris, P.R. and Moran, R.T. (1987) Managing Cultural Differences, 2nd edn, Houston: Gulf. Huang, Q., Andrulis, R.S. and Tong, C. (1994) A Guide to Successful Business Relations with the Chinese, New York: International Business Press. Ibison, D. (1993) ‘Economic rivals push different policies’, Window 2(11):52–3. Jenner, W.J.F. (1992) The Tyranny of History, London: Penguin. Johnson, I. (1996) ‘Beijing being left Shanghai and dry’, Hong Kong Standard 8 May: 13. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Kennedy, G. (1985) Negotiate Anywhere: Doing Business Abroad, London: Business Books. Kindel, T.I. (1990) ‘A cultural approach to negotiations’, in W.C.Wedley (ed.) Advances in Chinese Industrial Studies, Greenwich, CA: JAI Press. Kirkbride, P.S., Tang, S.F.Y and Westwood, R.I. (1991) ‘Chinese conflict preferences and negotiating behaviour: cultural and psychological influences’, Organization Studies 12(3):365–8. Kraar, L. (1995) ‘How corrupt is Asia?’, Fortune 132(4):18. Kunkel, J. (1996) ‘The US and China’, Commercial Issues 27:1–3. Lee, C. (1992) ‘Marketers told of distinctions within China’, South China Morning Post—Business 27 May: 2. Lee, K.H. and Lo, T.W.C. (1988) ‘Perceptions of marketing and negotiating in the People’s Republic of China’, International Marketing Review 5(2):41–51. Lindorff, D. (1996) ‘As Shanghai again strives for glory’, Business Week 12 August: 4. Lockett, M. (1988) ‘Culture and problems of Chinese management’, Organization Studies 9(4):475–96. Lococo, E. (1996) ‘Shanghai red tape chafes investors’, Hong Kong Standard 26 January: 3. Lyall.K. (1996) ‘Hong Kong to retain the keys to China’, The Australian 20 August: 24. McGregor, R. (1996a) ‘China’s crucible’, The Weekend Australian 7–8 December: 28. ——(1996b) ‘Made in China’, The Australian Magazine 12–13 October: 32 Moorhead, G. and Griffin, R.W. (1995) Organizational Behaviour, 4th edn, Boston: Houghton Mifflin. Moran, R.T. and Stripp, W.G. (1991) Dynamics of Successful Business Negotiations, Houston: Gulf. Pye, L. (1982) Chinese Commercial Negotiating Style, Cambridge, MA: Gun & Hain. Ralston, D.A., Cheng, Y.K., Wang, X., Terpstra, R.H. and Wei, H. (1996) ‘The cosmopolitan Chinese manager: findings of a study of managerial values across the six regions of China’, Journal of International Management 2(2):79–109. Ralston, D.A., Gustafson, D.J., Cheung, F.M. and Terpstra, R.H. (1993) ‘Differences in managerial values: a study of US, Hong Kong and PRC managers’, Journal of International Business Studies 24(2):249–75. Ralston, D.A., Gustafson, D.J., Elsass, P.M., Cheung, F. and Terpstra, R.H. (1992) ‘Eastern values: a comparison of managers in the United States, Hong Kong and the People’s Republic of China’, Journal of Applied Psychology 77(5):664–71. Redding, S.G. (1990) The Spirit of Chinese Capitalism, New York: de Gruyter. Robertson, I. (1993) Sociology, New York: Worth. Sato, R. (1995) ‘Foreigners find business in Shanghai no picnic’, Nikkei Weekly 22 May: 24. Schippers, F. and Tarn, A.C.W. (1990) Management Practices in the Pearl River Delta, Hong Kong: API Press. Seligman, S.D. (1989) Dealing with the Chinese, New York: Warner. Stewart, S. and Keown, C. (1989) ‘Talking with the dragon: negotiating in the People’s Republic of China’, Columbia Journal of World Business 24(3):68–72. Stone, R. (1995) Commercial Negotiations in China, unpublished MA thesis, Ottawa: Ottawa University. Studwell, J. (1993) ‘Something is rotten in Shanghai’, Asia Inc. 2(12):36–43. Tung, R.L. (1994) ‘Strategic management thought in East Asia’, Organizational Dynamics 22(4):55–65. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Wagner, C.L. (1990) ‘A survey of Sino-American joint ventures: problems and outlook for solutions’, East Asian Executive Reports 12(3):7–11. Wallen, D. (1996) ‘Indonesia China voted most corrupt in British survey’, South China Morning Post 30 May: 1. Wong, C. (1996) ‘ICAC survey warns of sliding ethics’, Eastern Express 24 January: 1. Wong, G.Y.Y. and Birnbaum-More, P.H. (1994) ‘Culture, context and structure: a test on Hong Kong banks’, Organization Studies 15(1):99–123. Wong, J. (1994) ‘Long way to go’, The Asian Wall Street Journal 22 November: S-4. Xin, K.R. and Pearce, J.L. (1996) ‘Guanxi: connections as substitutes for formal institutional support’, Academy of Management Journal 39(6):641–1658. Yao, E.L. (1988) ‘Venturing through China’s “open door”’, Business Marketing 73(2): 63–6. Yatsko, P. (1996) ‘Field of dreams’, Far Eastern Economic Review 159(29):59–60.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

16 Chinese negotiation strategies and Western counter-strategies Carolyn Blackman

INTRODUCTION Commercial negotiations with the Chinese have a reputation among Western business people for being difficult. Discussion of negotiation experiences inevitably produces ‘war stories’—those incidents which are deeply inscribed in the memory. The problem with them is that the account is only from one side and does not produce a framework in which the interactions can be understood. Beijing Jeep: The Short Unhappy Romance of American Business in China by Jim Mann (1989) is typical of such an approach. The outcome is to produce a sense of outrage in the reader, rather than to produce reflection on the causes of the problems Westerners encounter in their negotiations, and to offer a framework for more effective interaction. My research analyses the experiences of Western business people in their negotiations with the Chinese against data from the Chinese side, from other Western actors and the literature of negotiation theory. The material was gathered by interviewing fifty Western executives about their negotiation experiences with the Chinese. These experiences covered initial contract negotiations as well as negotiations over a broad range of ongoing commercial matters. The interviewees represented equally trading, services and joint venture manufacturing sectors. They included successful and unsuccessful negotiators. Success was measured by their own assessment, by the outcomes of the negotiation and by ongoing business in China. The interviewer focused on and explored particular incidents that came up during the interview, rather than asking the interviewees about what they considered key Chinese negotiating features to be. The purpose was to understand as far as possible what the nature of the interaction was, and where problems lay for the Western negotiators involved. The counter-strategies that negotiators used to deal with Chinese negotiation strategies were then explored. The counter-strategies in themselves shed light on Chinese strategy. A number of interviewees had only negotiated one particular piece of business and it was noticeable that some of this group had failed to come to terms with the experience. As a result they had withdrawn from any further business relationship with the Chinese. Most noticeable was that they had very © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

strong feelings of dislike for the Chinese. Those who continued to negotiate business recognized that there were certain distinctively Chinese negotiation processes and consciously adapted their own behaviour to deal with those processes. They also employed strategies to advance their own interests and control what they considered to be the dysfunctional aspects of Chinese negotiation behaviour. Discussion of the findings is divided into two parts. In the first section I explore two features of Chinese negotiating behaviour that were frequently remarked upon by the Western executives in my study. These two features are a haggling process and an emotional dictatorial style. These features are also reported consistently in books and reports written by Western residents of China since the opening of China to Western trade under the Treaty of Nanking of 1842, and their remarks are added to those of present-day business people. I also look for the factors that explain why these features occur in ChineseWestern negotiation encounters. This analysis also provides a number of effective counter-strategies. The second part of the discussion consists of three case studies followed by an analysis of what happened and how better approaches could be taken by the Western side.

THE HAGGLING PROCESS ‘Marketplace haggling’ was the description often used by interviewees about their negotiation experiences in China. One labelled it ‘old-fashioned horsetrading’. It was defined as a process which began with an ambit claim and involved step-by-step trade-offs. Much was kept hidden. It was not possible to put everything out on the table and undertake a joint problem-solving exercise, as many executives were used to doing with their fellow nationals. This is consistent with the reports of many Western residents in China, both in this century and in the nineteenth century, of their negotiations with the Chinese, and indicates a continuity in Chinese negotiation practices. Rasmussen (1954), who spent thirty-eight years in China as a customs official and later wool buyer during the 1930s, wrote: The Chinese always approach matters, no matter how small, by turning as many corners as possible. You have to follow them patiently through all the twists and corners…before you reach the matter you came to discuss. A direct approach is out of the question. (Rasmussen, 1954:124) A British consul, responsible for negotiating commercial disputes between British traders and Chinese officials in the 1870s, wrote, ‘With the Chinese there is always a reserve somewhere and when you think you see the end of an affair you suddenly discover it is only the beginning turned around’ (Coates, 1988:192). © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Western perceptions of Chinese negotiation style are remarkably consistent, as the following quotation illustrates: Bargaining…is a game of bluff which requires infinite skill and patience, neither side disclosing the price it is really prepared to pay or to accept. Any display of haste or impatience is interpreted as a sign of weakness, with the result that negotiations are necessarily protracted beyond the farthest point which the Western mind would regard as reasonable. (Pawley, 1934:139; emphasis not in original) The commodity under negotiation was the life of an English woman who was captured by bandits in Manchuria. The negotiations for her release took six weeks. The executives in my own study described the process as having many ‘twists and turns’, being drawn out and having a certain dishonesty (according to Western definitions). These characteristics led to a sense of frustration even in experienced Western negotiators. When executives with little or no former experience of negotiating in China failed to identify the nature of the process, they easily became embroiled in bitter recriminations, deadlock and in some instances failed to negotiate a satisfactory outcome. The ‘haggling style’ is noted in a recent Chinese handbook on negotiating joint ventures with foreigners: ‘Negotiating a joint venture is not just marketplace haggling. It is a mixture of business, law, technology and strategy’ (Zhang, 1993:212). That such an instruction must be given indicates that many Chinese negotiators take the ‘marketplace haggling’ approach to complex international negotiations. In my data, those Western negotiators who had continued to negotiate in China over a long period, and had successful businesses measured by profit and continuity, accept the Chinese haggling process and adjust their behaviour to accommodate it. One negotiator characterized his style in China as follows: I negotiate as it goes. When I started getting my first agencies in garments and shoes in the 1960s, I was performing for days and days. We would sit at the table and go point by point, then back over it all again. Sometimes you couldn’t reach a conclusion, so we’d leave it. I’d come back two months later. Some contracts took me a week, some took me a year, coming and going. (Blackman, 1997:173) This negotiator’s strategy of leaving the negotiation and returning two months later was reported by a number of successful negotiators. It meets the needs of Chinese decision making which usually involves many parties and different levels of authority. Not being rushed into accepting Chinese pressures is © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

another important counter-strategy that is illustrated by this negotiator: ‘some took me a week, some took me a year’. From the Chinese side, Li (1988) gives a detailed account of the pressures on the Chinese chief negotiator, and of the complexity of the negotiation and decision-making processes. As chief negotiator you must bear the pressure and objectives of the leading group. This is more troublesome than the pressure of the opposite negotiator. You must not follow the line of least resistance simply because the leading group has a particular agenda. When there is a difference of opinion between the negotiating team and the leadership, it is most important to gain the support of the intermediate leading group. Once that is obtained, write a report for the leadership which analyses and weighs all factors and ask the leadership to write comments [pishi] on it. When the leadership sees that your opinion is based on thorough and balanced analysis, it will, in most circumstances, take it into account. (Li, 1988:199) An interesting item in the original Chinese account is the use of the word pishi (comment) which actually means ‘written instructions or comments on a report submitted by a subordinate’. The existence of a special term for ‘comment’ when it is in a superior-subordinate relationship indicates the level of control exercised by people higher in the hierarchy. The concept of hierarchical control is thus embedded in the language. The instructions to chief negotiators also explain other factors regularly brought up by interviewees as features of negotiating in China: repetitive questioning and detailed notetaking. The Western negotiator’s answers become the basis of subsequent questioning and cross-examination beyond anything generally encountered in the West. The tracking and retracking across the territory under discussion is the result of many people having an input into the negotiation strategy. In an effort to circumvent interrogation by the group and to force a decision, inexperienced Western negotiators focused on trying to identify the ‘decision maker’ in the group facing them and trying to influence that person. This was generally unproductive, the reason being that it was based on Western individualistic decision making, and did not take account of the hierarchy: those behind the scenes. Zhang (1993) puts in his negotiation handbook: ‘Australians…have the power to make decisions, and they expect it to be the same with us.’ This observation could well extend to negotiators from other Western nations, and it is interesting that the Chinese have noted it as a key feature of difference. Interviewees report that an effective method of dealing with the constant reiteration and ‘twists and turns’ of the Chinese team is to provide documentary evidence. If necessary, particularly after long sessions of ‘haggling’, it is useful to give the Chinese documentary evidence on one’s bottom line. Concrete information can be disseminated to the many groups involved in decision © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

making. This removes the burden of proof from the face-to-face negotiator, and ‘proves’ that what the Western negotiator is saying about his position is ‘true’. This forces the Chinese side to negotiate a new position. Schelling (1960) says that to get the other negotiator to see your point of view you need to convince him or her that what you say about your position is true, whether in fact it is or is not. In our case, if the Westerner negotiator ‘can accept an irrevocable commitment, in a way that is unambiguously visible’ to the Chinese negotiator, ‘he can squeeze the range of indeterminacy down to the point most favourable to him’ (1960:24). Sharing factual evidence is a most powerful way to demonstrate your ‘commitment’ to your position.

EMOTIONAL STYLE, STONEWALLING TACTICS Interviewees remarked upon the use of high pressure, emotionally-charged accusations and threats, and general stonewalling tactics by the Chinese. These included demanding conformity to bureaucratic codes and regulations, or to the guiding principles contained in Chinese documents (such as the Letter of Intent or Terms of Reference). This appeared to occur when Chinese demands were at odds with international best practice in technology and management, and in international legal standards. To force the Western negotiators to comply with Chinese dictates, Chinese negotiators would suddenly shout and threaten and, if they were bureaucrats, dictate to the Western negotiator. When this happened rational discussion was impossible. The Chinese argument would come down to ‘you do not know how business is done in China’ and ‘you may do it that way in your country, but in China we do it this way’. Western negotiators not only found this attitude offensive, but also unbusiness-like. Many have been invited to China because of their technical or managerial expertise and find they are being pressured into negating it. This dictatorial style is not altogether unusual in China, however, and is encountered in many areas of Chinese life. People with authority and power have a ‘bossy’ style. Teachers, lecturers, street committee ‘grannies’, employment bureau officials and mediators in civil courts instruct rather than engage in two-way dialogue. Those interviewees who are accustomed to negotiating in China generally remain civil in such circumstances but use a number of influence strategies to support their interests. These include: •

redefining the power balance: calling a recess and making it plain that they will not be dictated to. They may say, ‘I think there is no point in continuing. I think we should call a halt, we will go back to our hotel and make arrangements for going home’ or ‘I suggest we close the book. I am not prepared to continue unless Mr Li shows the same politeness to me as I show to him’, or saying ‘I cannot understand why you are behaving like

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

• •

this’ and insist that it be interpreted (because many interpreters will not interpret such a confronting statement); going back to first principles: that Westerners are there for their acknowledged expertise, and if the Chinese acknowledge them as the experts, they should listen; explaining the ultimate consequences of the actions they are being ordered to take.

While such a competitive, emotionally-charged approach may work between Chinese parties, it has the opposite effect on Westerners: it hardens their position. The two sides are converted into combatants and the common ground between them is diminished. It takes a very controlled negotiator to put the emotion aside and concentrate on the substantive matters. Apart from the culturally different communication style, another factor underlying such emotionalism is the Chinese perception that in commercial negotiations they are disadvantaged in dealing with Western companies. The following quotations from Chinese writers demonstrate this: After China started the policy of opening up to the outside world, in the process of mass developing our commercial economy with foreign countries, a lot of organisations were defrauded because of lack of negotiation knowledge and experience. (Zhang, 1993:211) Due to the popular ‘maintaining secrecy’ tactic used by international business, we cannot fully grasp the situation concerning the quality, performance, and cost of foreign products, even though we have made great efforts…foreign traders normally exaggerate the quality of their products to raise the price high. If the buyer is a layman, the seller will make big profits. (Huang, 1985:57) Recently, Chinese in both academic and business circles have shown their concern about the negative impact of joint ventures on national industry …this has made the market share of domestic enterprises decline noticeably. Another trend of concern is…the pivotal industries such as automobiles and communications are going to be monopolised by MNCs. German Volkswagen has…formed joint ventures that already dominate the Chinese auto market. The ‘unequal treatment’ policy for foreign investment has some unsatisfactory consequences. (Tang, 1995:8–9) Yet another factor contributing to the use of emotional and dictatorial behaviour in negotiations is the collectivism orientation of Chinese society. On Hofstede’s (1980) Individualism Index the US rated 91, Australia 90, Great Britain 89 and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Canada 80. Data from China produced by the same Individualism Index placed China at 36 on the scale, Beijing party members 13, Wuhan middle managers 40 (Lai and Lam, 1986). Collectivists have been described as ‘extremely hospitable, co-operative and helpful to the in-group, but rude, exploitative and even hostile to out-groups’ (Triandis, 1990). The fierceness of the hostility between groups in China was often documented by Western businessmen operating in China during the last century. In one case in 1878, a complaint was made that the Hankou authorities refused to issue transit passes to goods coming from Sichuan. The Beijing authorities ordered that passes be issued, but the Sichuan authorities refused to comply. Only after they were disciplined by Beijing did they issue the passes. But when the goods reached Guizhou they were seized by the local authorities on the ground that the passes only freed the goods from tax in Sichuan and Hubei, but not in Guizhou. Once again, Beijing had to intervene for the goods to be released (Morse, 1917:323). Many executives in the current study have observed the equivalent degree of competitiveness and lack of cooperation between Chinese groups which impacted negatively on the negotiation. So far we have focused on two features of Chinese negotiation behaviour, some of the reasons for them and counter-strategies employed by Western business people. The remaining part of the chapter documents three case studies of Chinese-Western negotiations. In these examples we will look at the context for the kind of things which could explain the process and the outcome. In studying game theory where both sides had a mixture of conflict and common interest, Schelling (1960) noted that wherever the facilities for communication are short of perfect, where there is inherent uncertainty about each other’s value systems or choices of strategy…the principles relevant to successful play, the strategic principles…cannot be derived by purely analytical means from a priori considerations. (Schelling, 1960:163) Cross-cultural negotiations fall into this category, and make it imperative that case studies be collected and analysed so that a better understanding is gained of the relationship between theory and practice. Schelling’s observation may explain the finding mentioned at the beginning of this chapter—that experience in negotiations with the Chinese is important in appropriately handling the strategic and emotional factors in Chinese-Western negotiations.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

CASE 1: A MINING TOUR A Western aid agency provided funding to the Chinese mining industry for a group of five people to undertake an overseas fact-finding tour. The Western side was very keen for the tour to go well, as it could represent future earnings and opportunities for their mining industry. As a result an enormous amount of time, energy and money was put into arranging a wealth of experiences—mine and company visits, entertainment and banquets, single accommodation in the best hotels, and travel in the latest model cars, rather than in a minibus. The cost of the arrangements meant that each member of the group would be paid $80 per day for personal expenses, rather than the standard $100 rate. When the Chinese group arrived in the airport terminal they were given a briefing by the Western tour leader and told that they would receive $80 per day in cash. This news led to a highly emotional attack by the young English-speaking interpreter, to the effect that they had been told previously that they would receive $100 and they would not accept $80, and that other groups going from China on overseas aid packages had been paid $100 as their daily allowance. The attack was so fierce it created very bad feelings between the Chinese group and the Western tour leader. Because the Western tour leader would not make any adjustment to the daily living allowance the Chinese demanded to see the officials at the funding agency. In the following days the group, represented by the young interpreter, contacted everyone known to them involved in the tour on the Western side to demand restitution of the $20 per day. They also started to attack other parts of the programme, such as the written materials and the lecturers, and wanted the interpreter supplied by the Western side dismissed. As the demands accelerated, relations between Chinese and Westerners soured to such a degree that the whole tour was in jeopardy. The Western hosts were at a complete loss as to why the Chinese were so intractable and so fierce in their demands. A third party was consulted who explained to them the underlying reason for the Chinese party’s agitation over the daily living allowance. The Chinese government allowed delegation members to keep the daily living allowance for themselves, to take home to their families or share with other members of their work department. If we do the sums on the values involved for the Chinese, it is not difficult to see the cause of their agitation (Table 16.1). Converting these values to their equivalent ‘buying power’ in the West, that $840 loss to the individual would be valued at approximately $37,500 based on a middle manager’s salary of $50,000 per annum in the country hosting the Chinese. Each person would lose the equivalent of $37,500, a total of $187,500 for the group. By converting the sum into the values of the host side, the scale of the problem as it appeared to the Chinese side is made clear. From the Western point of view, the reasoning was: © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 16.1 Differences in expected and actual allowances

1 2 3 4

‘the funding is our government money, and therefore we should be able to use it as we see fit’; ‘we are making this a really meaningful tour, packed with valuable experiences, contacts and information. We want to share the very best of our experience and our technology with the Chinese’; ‘we believe the Chinese will appreciate staying in individual accommodation of a high standard, and travelling in the comfort of high standard cars’; ‘we want to show every hospitality, because the Chinese value hospitality, and we want to make a good impression for the sake of future opportunities’.

In a heated meeting during the first week, the Western host explained to the Chinese group the reasoning behind the $20 cut in daily allowance based on thorough discussion of points 2 and 3 above. He also pointed out to the Chinese that they could have been put into an ordinary course of daily lectures and no other activities, which would have resulted in a meaningless visit. All the arrangements had been made, and he was sorry but they definitely could not be changed. It is obvious that all his reasoning was based on his own perceptions and values, and on assumptions he made about Chinese values. The Chinese had to accept the situation as it was. However, as the tour progressed they asked for many extra items which created an ongoing pressure and unpredictability to the relationship. The Westerners learnt to bargain about these extra demands. They would give the Chinese a choice of alternatives, such as different entertainments, and say, ‘well, if you want that, then you cannot also have this one’ and some financial gains were made by the Chinese in this trading. The Western interpreter was changed, but not dropped altogether as the Chinese requested. The style with which the Chinese approached the problem created its own © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

problems because: (1) it was offensive to the Westerner—it was not within the range of acceptable behaviour in a Western context; and (2) it did not explain the hidden central problem. The Western host simply could not understand why the Chinese were behaving so unreasonably. In an effort to placate them, he acted on his own values by giving more hospitality, such as visits to his home. This strategy distanced him even further from Chinese perceptions of the issue. He believed that such personalized hospitality was beyond the call of duty and the Chinese should have shown some gratitude by dropping their demands. To the Chinese such extra items were irrelevant to the main point. Although the Chinese interpreter’s dictatorial and attacking manner is a style that is common in China, Westerners have preconceptions that the Chinese are always polite and value harmonious relations. As a result the response of the Western side is to harden. Relentless pursuit of what the group wanted, without any indication of why they wanted it, and ongoing demands for extras relate to the haggling tradition that, as noted previously, negotiations ‘are protracted beyond the farthest point which the Western mind would regard as reasonable’. It is a simple matter: the Chinese do not easily take ‘no’ for an answer, and expect flexibility to be shown by the other side. What other factors could have been operating on the Chinese side? The young interpreter’s reputation was probably at stake as he was representing the wishes of a group of senior officials and party people. They would be influential in his future career progress. His role in this dispute probably resembled the one previously quoted about the chief negotiator and his relationship with his leading group. Apart from the loss of foreign exchange to each member of the group, further pressure may have existed because of deals on the distribution of the money that had been done with colleagues, prior to the group’s departure from China. Even the selection of the delegation officials could have been related to the income expected. The different goals and values of the Chinese and Western sides, as far as can be deduced or documented, are summarized in Table 16.2. This encounter illustrates three aspects of cross-cultural negotiating that can cause unexpected problems: • • •

the degree to which goals and perceptions differ between the Chinese and Western sides; the manner in which the problem is approached; the expectations about what is negotiable.

The first difficulty comes because the social, economic and historical backgrounds of the two sides are not shared, nor the motivations arising from them. The second difficulty is because of differences in the norms of acceptable behaviour in such a situation. The Chinese manner resembled the emotional dictatorial style discussed in the first part of this chapter. Unfortunately in this case it ran up against an inexperienced and inflexible © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Table 16.2 Western and Chinese goals and values compared

Western negotiator. The third difficulty is that the Chinese expected to be able to negotiate, the Westerner did not. I would like to speculate on how this situation would have proceeded if both sides had come from the same cultural (national) background. If both sides had been from the same Western country (taking it in this case as my own country, Australia) it is possible that the side with the problem would have had some preliminary chat to create a friendly relationship (very much facilitated by speaking the same language), and then gone on to discuss their problem fairly openly with the host group. Some embarrassment would have been involved, but not very much. In fact, the situation may well have been responded to with humour, as the host side recognized itself only too clearly in the desires of the other group. Some straightforward trading would have taken place, and an accommodation made. Had the negotiation been undertaken by two Chinese groups my feeling is that there would be an underlying understanding of what was motivating the other side. It would have been signalled in a non-explicit way that the other side would pick up. Some fairly spirited ‘haggling’ would take place to determine the degree of sympathy expected from the host side, a proposal would be made that included an incentive for the host side to alter their previously made © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

arrangements. Probably the asking side would have held a group function to massage the face of the host side. Both sides would retain ‘face’, because nothing had been explicitly stated, because everything would have been resolved through the negotiation (haggling) process. In analysing cases of commercial negotiation it is always difficult to fully know the factors involved because, unlike diplomatic negotiations, few, if any, records are kept. In this case study two comments made subsequent to the incident described show how cross-cultural negotiations are affected by different perceptions and values. One of the Western participants said: They wouldn’t even spend a dollar to buy an ice cream when we went out into the desert to mining sites. I wasn’t going to buy any for them!’ The tour leader had commented to the researcher that They didn’t spend anything of their daily allowance the whole six weeks they were in here!’ Obviously the Chinese and the Westerners had very different exposure to economic hardship. These two comments made by the hosts, and the attack by the Chinese interpreter, provide some evidence of the way attitudes can shape negotiation encounters. Some additional information, that the accompanying Westerner was reported by people who knew him to be ‘stern and inflexible’ although goodwilled, adds to a picture of the Western side having a sense of superiority and paternalism, expressed in inflexibility and lack of sympathy (they knew what was best for the Chinese and were unwilling to change that opinion). These attitudes would be expressed in body language and behaviour readable by the Chinese side, discouraging them from explaining all the ramifications of the problem as they saw it. My own assessment is that this case was not handled as well as it might have been. Had some accommodation been made to the underlying need on the Chinese side—money to take home to their families—by economizing on some of the previously-made arrangements, if not by $20 per day, at least by $10 per day, relations between the two sides may have been less seriously damaged, and the ongoing demands, which kept the relationship difficult, may have been modified or dropped altogether. As the tour proceeded relations did improve, and the concessions gradually gained by the Chinese assisted this. The bad feeling created between the principals in this case should not be underrated. It was extremely stressful for the Westerners involved, and left a very bitter memory of ‘what the Chinese are like’.

CASE 2: THE WINERY PRESS This case study further illustrates how different motivations and values shape Chinese and Western negotiation positions and behaviour. In contrast to the first case, this one was more satisfactorily resolved, and resolved in a way that is consistent with certain well-acknowledged Chinese cultural values. A winepress had been imported from Germany by a Chinese-European winery joint venture. As it was being transported from the Shanghai docks © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

to the winery in time for the vintage ten days later, it hit a concrete bridge, damaging the press so badly it was unusable. When it reached the winery, a huge banquet was arranged for that evening by the Chinese staff. The winery people, port authority and transport company all knew that the press had been seriously damaged, and how it had happened. However, the damage was not disclosed to the expatriate managers until the next day, after the banquet. The Chinese claimed the press was damaged before it reached China. The Western executives pursued this case for six months. During the ongoing investigation many false documents were produced to prove the innocence of the Chinese side, even though cement found in the press was matched to the cement on the bridge. The major concern on the Chinese side was that they did not want to lose foreign exchange, which would happen if they admitted liability and a new wine press had to be imported. Therefore the Chinese side (winery personnel, transport company and port authorities) closed ranks in discussions with the foreign joint venture partner and produced numerous documents of questionable validity to support their case. They tried to show that the foreign shipping company or the manufacturers in Germany caused the damage. The negotiations consisted of many ‘twists and turns’ and the element of dishonesty noted earlier in this chapter. The issue was settled by the port authorities offering to give favourable conditions to the company on all imports for eighteen months to an amount which covered the cost of a new press. The solution obeyed the laws of ‘facesaving’. No individuals were singled out for blame, no fault was publicly assigned and no outright compensation was paid. Of course implicit in the solution was the acceptance of fault by the Chinese side. In this case there are several factors at work: • • •

saving foreign currency as critical (a goal that was determined by Chinese priorities and not shared with the foreign negotiator); keeping decision making and strategizing within the Chinese group (without taking the foreign side into their confidence); devising a face-saving solution (no public statement, trade-offs rather than a legally-driven solution).

A number of Australian business people who have worked and negotiated in China for many years discussed this case with the researcher. They felt that the expatriate managers did not have a trusting relationship with their Chinese joint venture partners and may well have been arrogant towards them. This would induce the Chinese to use a complicated path to a solution, rather than a cooperative one. It is interesting that the Western executive involved in this case said of his experience with the Chinese partners, They are professional liars. They would lie and lie and lie. The cover up went on and on and on, with people lying in front of you.’ What might be a lie to him could be face-saving to the Chinese. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

We could ask, once again, as in the first case study, whether there were different expectations about what is negotiation and ‘negotiability’. Did the Westerners have a too direct approach? Were the Chinese expecting a haggling process, rather than an ‘out-on-the-table’ legal investigation? We must remember that the resolution was satisfactory. I conclude that the process, which caused so much angst, was the most important factor, and was clouded by the cross-cultural nature of the interaction. The final case study shows a negotiation style which is more effective and successful on many different planes from the two case studies already discussed.

CASE STUDY 3: TEXTILE MANUFACTURING A Western textile manufacturing company had made a joint venture with a Chinese textile company. The Chinese company came under the Light Industry Bureau. Legal documents stated that there was clear title to all plant and equipment that was coming across into the joint venture. Once the joint venture was established, the Western directors wanted to borrow working capital from the bank. The Chinese directors agreed to this. As security to the bank the Western directors proposed to use machinery that they had put in, on which there was clear title, and the machinery that the Chinese partners had put in. When they went to do that they discovered that there were funds owing to the Import-Export Bank of China for the Chinese partner’s machinery. So they had a choice: to take the partners to court or to provide a financial guarantee to the bank until the Chinese partners could sort out the problem. The Western negotiator’s solution was to say to the Chinese partner, ‘Okay you own the land, so instead of the Import-Export Bank of China having the machinery, you give them the land and let them clear the title of the machinery.’ He then discovered that the land itself was mortgaged to the Bank of China. The Western negotiator had to give the Chinese partners time to solve this problem. But in negotiation he made it very clear that the Western partners wanted it solved. He went to the deputy head of the Light Industry Bureau who said that the Bureau could sell other land that the bureau owned, but that he would need time. When the Western negotiator went to see the Minister of Light Industry, he was told that the Bureau deputy head had no right to sell any land as it was government-owned land. The Minister for Light Industry gave assurances that it would not affect their business. He said they should not let it worry them, he did understand their concern. He stated that the problem would be solved, but he could not tell them clearly how at that stage. The Western negotiator who handled the negotiations with all the Chinese parties commented: © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘It was embarrassing for the Chinese. The deputy head of the Light Industry Bureau knew that his head was on the line. The way I handled it was that every second night we had a meeting in a coffee shop at the Sheraton. It was away from the office, it was somewhere where we could talk quietly, it was a nice environment, and I just explained to him how we view things in the West, and that it is not necessarily right, but I had to try and balance it for both sides. So I said to him, “If you undertake as a friend to go away and work through this, I will undertake to get the working capital, or at least some of it up here in the form of a bank guarantee, from bank to bank, to the Bank of China underpinning the company’s working capital. So the foreign partner in the joint venture is guaranteeing funds if the joint venture company collapses.” This meant that if the joint venture did collapse it would be paid out. He was very grateful for that, and I think that is why he went on his way working through the problem. Every time I went up there he insisted on meetings and we have them now as a matter of course. He has accused me of holding more meetings than the Communist Party! We put up the guarantee. It took around six months of just nudging the Chinese to do something until finally at the end of this financial year when our auditors went to China to review the books, it showed that the title had been cleared and taken up by the Light Industry Bureau, and that all equipment put into the joint venture now has clear title.’ This case demonstrates the effectiveness of: • • •

putting one’s point of view to political or economic power brokers, those who are not facing you in the negotiation; going behind the scenes or off the record to find a way around the problem that does not leave individuals vulnerable to criticism or loss of face; helping the Chinese negotiator meet the complexities and values of his own negotiations with internal stakeholders.

It is worth noting the way the Western negotiator handled his relationship with the deputy head of the Light Industry Bureau. He explained the Western point of view, acknowledged that it might not be correct, but that he needed to be fair to both sides. This last point appears to be an important influence strategy in the Chinese context. The Chinese advice to chief negotiators quoted earlier in this chapter was to present a case that ‘analyses and weighs all the factors’, and to make recommendations based on ‘thorough and balanced analysis’. This advice conforms to the popular Chinese instruction to ‘seek truth from facts’, and to an approach that emphasizes reasonableness rather than rationality. The approach taken by the Western director contrasts with the negotiator in the first case study who imposed his point of view without taking account of the needs of the Chinese side. This negotiator took into account the needs © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

of the deputy head of the Bureau by undertaking to provide the guarantee funds. His strategy also contrasts with that in the second case study. Had the Westerner in this case study looked for a ‘Chinese solution’ from the beginning, and at the same time assured the Chinese that his company would order a new winepress while they sorted out how it would be paid for, the long dragged-out investigation procedure and the confrontations may have been avoided.

CONCLUSIONS AND RECOMMENDATIONS The ability of the person negotiating with the Chinese is of critical importance because different cultural expectations about the negotiation process, attitudes and goals can present barriers to successful outcomes. The process that typifies Chinese negotiating behaviour has been referred to as ‘haggling’ or ‘horse-trading’. This differs from generally accepted Western business negotiations which are of a more open, problem-solving style. The Chinese expect concessions to be made, and devise their strategies to accommodate this. When Westerners unfamiliar with the Chinese negotiation process expect fairly clear and open exchanges, the negotiation can quickly become confrontationist and emotional. The intricacy of relationships on the Chinese side also complicates the process, through multiple inputs into strategy, and deals between constituents. Westerners are not readily admitted into these behind-the-scenes entanglements, thus creating a difficulty for Westerners in fully grasping the goals and negotiation strategy of the Chinese side. Matters of hierarchy and control, very different from most Western experiences, colour Chinese negotiation behaviour, such as decision making and manner. Chinese perceptions of the West, filtered through the unequal treaties period and Maoist propaganda, can influence some Chinese negotiators to take emotional, moralist positions. In the three case studies two other sources of difficulty in Chinese-Western negotiations came to light. One is that both sides come from very different economic environments. No Western business person could imagine the poverty that is a continuing reality for many Chinese people. Such a difference in experience and the economic meanings of such experience make it difficult for Westerners to understand the economic priorities of the other side. The other difficulty is the ‘dishonesty’, as it is interpreted by Westerners, in the winery and textile factory case studies. Both issues require particular negotiation and relationship-building skills. The following advice will assist Western negotiators to gain a degree of control over the process and outcomes: •

goals and perceptions can be radically different and almost incomprehensible to the other side;

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

• • • • • •

any assumptions need to be checked, including the assumptions being made by the Chinese side; the process will involve an ambit claim, concessions, trade-offs and ‘facesaving’ solutions; recesses are important to allow discussion and decision making to proceed on the Chinese side; documentary and bottom-line evidence convince the Chinese to accept what the Westerner says is true; explanations which are fair to both sides are preferable to arguing only from your own position; behind-the-scenes discussions and consultation are effective as they show respect for Chinese needs and protect face.

Needless to say, a colonial attitude of superiority and righteousness is not appropriate, and is a point remarked upon by many successful Western negotiators. Throughout the writing of this chapter, I have been aware of the effect of ethnocentrism, of making judgements about Chinese negotiation behaviour that has the implication that Western behavioural norms are superior. This seems inherent in cross-cultural research, and I suggest that it can only be solved by understanding the continuities in behavioural styles that are culturally determined, and what purposes are served by such behaviours within particular systems. The evidence from my study suggests that effective foreign negotiators balance a clear concern with their own needs and goals with adjustment to a ‘Chinese’ style of problem-solving. When negotiators do not do this they frequently end up in deadlock or failed negotiations, with considerable repercussions for their business goals and personal esteem. Now that China is becoming more powerful, the issue of negotiations in business as well as in international relations is assuming greater importance and greater sensitivity. Those elements that are central to negotiation activity— perceptions, communication and assumptions—are all critically open to distortion in a cross-cultural environment. Chinese-Western and, more particularly, Chinese-American negotiation encounters are deserving of greater intellectual attention from a negotiation perspective, rather than from a purely commercial or political perspective. It is through the process of negotiation, through the actions of perception and communication, that commercial and political elements are filtered.

REFERENCES Blackman, C. (1997) Negotiating China: Case Studies and Strategies, Sydney: Allen & Unwin. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Coates, P.D. (1988) The China Consuls: British Consular Officers, 1843–1943, Oxford: Oxford University Press. Hofstede, G. (1980) Culture’s Consequences: International Differences in Work-Related Values, Beverly Hills: Sage. Huang, Y.-S. (1985) ‘Guanyu yu waishang qiatan yewude jidian benhui (A few personal experiences regarding negotiation with foreign traders)’, Jingji guanli yu yanjiu (Economic Management and Research) 5:57–8. Lai, T.L.G. and Lam, Y.W.C. (1986) ‘A study on work-related values in the People’s Republic of China’, Parts 1, 2, 3, The Hong Kong Manager Dec./Jan., Feb./March, June/July. Li, Y.-F. (1988) Waimao tanpan celue yu fangfa (Foreign Trade Negotiation Strategy and Method), Beijing: Meitan Gongye Chubanshe. Mann, J. (1989) Beijing Jeep: The Short Unhappy Romance of American Business in China, New York: Simon & Schuster. Morse, H.B. (1917) The International Relations of the Chinese Empire: Volume II: The Period of Submission 1861–1893, London: Longmans, Green & Co. Pawley, T. (1934) My Bandit Hosts, London: Stanley Paul & Co. Rasmussen, A.H. (1954) China Trader, London: Constable. Schelling, T.C. (1960) The Strategy of Conflict, Oxford: Oxford University Press. Tang, Y.W. (1995) ‘Doing business in China—the environment for joint ventures’, Price Waterhouse/Australia China Chamber of Commerce and Industry seminar, Melbourne. Triandis, H.C. (1990) ‘Theoretical concepts that are applicable to the analysis of ethnocentrism’, in R.W.Brislin (ed.) Applied Cross-cultural Psychology, Newbury Park: Sage. Zhang, J. (ed.) (1993) Waishang touziqiye shiwu shouce (A Practical Guide to Joint Ventures), Fuzhou: Jingji guanli chubanshe.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

17 Sino-Japanese negotiations in China Mantaka Kanayama

INTRODUCTION Joint venture business mania has been in full force in China for well over a decade and there has been increasing investment in China firms by foreign investors. Indeed, the international joint venture boom has been fuelled by the increasing globalization of markets; for example, favourable exchange rates versus the US dollar and Japan yen for Chinese currency, and desire among foreign investors to claim a beachhead in the relatively stable Chinese business environment. Such factors have contributed to a growing aggressiveness among Chinese firms, in particular, to enter into joint ventures with or acquire Japanese firms. For example, it was not until 1995 that a Japanese firm got involved in a bidding war with a Chinese firm as was the case with Toyota Auto Corporation and China Tianjin Auto Company. Today, such behaviour is commonplace. The number of Chinese and Japanese firms that form joint ventures and strategic alliances is increasing at an exponential rate and many have been formed between rivals in the same market. According to a Japanese government report, several Sino-Japanese joint ventures exist in the auto-supply parts industry alone. Chinese National Statistics estimate that Japanese investment in China has grown twenty times since 1986 and Japanese investment in China currently totals about US$14 billion. Joint ventures are generally difficult to negotiate and manage, but when joint venture partners have different cultural backgrounds, the complexity and number of managerial and organizational problems multiply because of fundamental differences in norms and perceptions of even basic business practices. The research literature has found the following problems to be common in Sino-Japanese joint venture negotiations. There are differences and misperceptions between management teams about the primary goals of the joint venture, not least because of inadequate language skills. Crosscultural communication problems on both sides could be due to partners’ lack of understanding of managerial perspectives such as disagreements about the decision-making process, conflicts over negotiations regarding © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

personnel practices and policies, different negotiation styles, different views of contracts and the role of the law in protecting each partner’s interests, and fundamental differences in corporate policies and practices (Chuoo Kouron, 1994). All of the above problems incur conflict, both within the joint venture and between the parent firms at virtually all organizational levels. Surprisingly, these conflicts in Sino-Japanese joint ventures are further exacerbated by attempts to resolve them. This is because Japanese managers typically attempt to resolve conflicts with their Chinese partners using methods that have proven successful with Japanese, while the Chinese in turn use conflict resolution methods on their Japanese partners that are customary in China. Thus, in addition to the existence of specific areas of conflict, different approaches to resolution of conflict and management in and of themselves become another source of conflict and a barrier to resolving the original problems. The purposes of this chapter are to examine misconceptions Chinese have about Japanese conflict resolution in organizations, to provide a conceptual framework for understanding in a sophisticated way Japanese conflict and management styles, and to discuss the practical implications of this framework relative to negotiating the operation of Sino-Japanese joint ventures in China.

CHINESE MISCONCEPTIONS Generally, Chinese believe that conflicts need to be brought out in the open in order to resolve them, so that harmony and group cohesion can be achieved. Trying to achieve harmony before major conflicts are resolved is believed to only exacerbate them further and seriously inhibit the eventual achievement of group cohesion and solidarity. Most Chinese managers in joint ventures with Japanese have come to their tasks with an inherent belief that Japanese are ‘harmony builders’, as emphasized by Japanese print and television media in their coverage of Japanese management practices. Imagine their surprise and consternation when their Japanese counterparts time and time again either refuse to confront conflicts head on or pretend they do not exist! To the Chinese mind, the goals of conflict avoidance and harmony achievement are to a large extent mutually exclusive. A high degree of harmony is viewed as an end point of a conceptual continuum, the other end point being that of extreme conflict. In other words, Chinese managers assume that the level of harmony in a Japanese firm is proportionate to the degree that conflicts are absent in the firm. It is crucial that Chinese managers who work with Japanese managers understand that the Japanese do not view conflict and harmony as two ends of the same continuum, as most Chinese do (see Figure 17.1). Further, building harmony is not the only goal of the Japanese; they also have a desire, © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Figure 17.1 Chinese and Japanese perceptions of negotiation: conflict and harmony

especially in certain situations, to simply avoid conflict in order to preserve the appearance of harmony, as most Chinese would not do. Chinese conceptualize harmony as a double continuum, but the Japanese see it as linked but separate continuums (Figure 17.1). However, it also depends on the organizational or social situation. The appearance of harmony to others outside the group is more important to group members than the actual harmony within the group. Consequently, conflict avoidance achieves the goal of apparent harmony, while direct conflict resolution behaviour would defeat that goal, because it would demonstrate to outside observers that the group lacks harmony. Thus, in cases in which the appearance of harmony is desired, Japanese will generally avoid conflict to make it appear that harmony exists, even if that is really not the case. When the appearance of harmony is desired, the ‘high conflict-no conflict’ continuum is important and the ‘no harmonyhigh harmony’ continuum becomes relevant. But Chinese will avoid conflict to make it appear that harmony is desired, the ‘high conflict’ continuum is also important and the ‘high conflict-low harmony’ continuum becomes irrelevant. Conversely, in organizational scenarios that dictate that the actual building of harmony is a desirable goal, Japanese will generally try to build harmony by confronting conflicts when necessary or using other subtle, less confrontational tactics in order to minimize the extent to which the appearance of harmony suffers in the view of outsiders. Thus, in cases in which real harmony is desired, both continuums become relevant for the Japanese.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

JAPANESE NEGOTIATION OF CONFLICTS If the Chinese do have the goals of conflict avoidance and harmony achievement, the question is whether these goals are equally important in all situations, and if not, how the contextual difference can be systematically understood. Some Japanese scholars have described the Chinese as highly influenced by culture, the same as the Japanese. However, the Chinese are not attracted by enterprise (corporate) cultures as compared to Japanese employees. In other words, the behaviour of the Chinese is not highly dependent on the situation and current circumstances. By contrast, Japanese have a high regard for the corporate culture of their organizations. Based on this basic difference between the Chinese and Japanese cultures, two contextual dimensions can be delineated: inside (uchi)/outside (soto) and public (omote)/private (ura). This distinction provides a useful means of beginning to understand the interaction between the dynamics of conflict/ harmony and differing contextual situations in Japanese firms operating in China (cf. Ishida, 1984). The ramifications of these two contextual dimensions will be examined below.

Inside (uchi)/outside (soto) negotiations Inside (uchi) and outside (soto) refer to differences in how Chinese and Japanese cultures perceive and structure in-groups and out-groups, and inclusion and exclusion within and between individuals, groups and organizations. All conditions and societies, of course, have in-group and outgroup norms; however, one difference between the Chinese and the Japanese is in the rigidity of the boundary between the norms of in-groups and out-groups within the organization. While traditional Chinese culture is very much influenced by Confucian hierarchical principles, there is also a belief that the way Chinese think is affected by almost fifty years of communist political indoctrination. The latter fact has often confounded Western management scholars. Chinese people expect to be treated equally despite differences in status and rank. In Japan no such expectation exists. What then are the criteria that mark the boundaries between in-group or outgroup status in Japanese organizations? Example of such criteria are age, university attended, rank, seniority, sex and family background. For example, age might serve to establish an inside (uchi) boundary for a group of employees who would behave much more informally among themselves than with other employees, but in China such a differentiation would not exist. In a similar fashion, the classification of another individual, group or organization as inside (uchi) or outside (soto) in large part dictates whether the negotiation of conflict avoidance or building harmony negotiation takes precedence. It is perhaps an oversimplification, but harmony achievement is more important if the other party is considered an inside (uchi), while the © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

negotiation of conflict avoidance is more important if the party is considered an outside (soto).

Public (omote)/private (ura) negotiations The concepts of ‘omote’ (as in public or front region) and ‘ura’ (as in private or back region) have no equivalent translations in the English language. So far, Japanese connote that public (omote) has to do with the behaviour, expressions, words, policies and so on that an individual or firm expresses to the public. It implies formality, legitimacy, dignity and rigidity. The private (ura), conversely, has to do with behaviour, beliefs, attitudes and policies that are privately held and tolerated. It connotes feelings and expressions that are informal, flexible and private in nature. For example, a Japanese worker in public (omote) is psychologically compelled to say that he has a fine boss and only in private (ura) amongst his ‘uchi-group’ can he complain about how incompetent his boss really is. Why is the behaviour of a Japanese worker so completely different in public (omote) than it is in private (ura)? This should be seen in relation to the uniqueness of the Japanese corporate system with life-long employment, seniority, corporate labour unions and management style and so on (Fujisawa, 1996). Public (omote) and private (ura) are not dichotomous, but dualistic in nature and they are necessary in order for Japanese society to function. For example, the degree of public control can be relaxed by allowing a formal rule to be broken. Leaving work for personal errands may be strictly prohibited, but this is a matter of public concern, and in reality the rule can be relaxed depending on the situation so that there is flexibility in its interpretation and application. In this way private (ura) relationships work as a safety valve easing tensions in the society and in the organization. To put it another way, at the private (ura) level, the society can be flexible in avoiding the negotiation of conflict behind the scenes, while at the same time, societal and organizational standards can be maintained at the public (omote) level. Again, while all societies possess these attributes to some extent, Japan is somewhat unique in the degree to which its culture permits the boundary between the two dimensions to be fluid. Some Chinese people believe that ‘rules are made to be broken’, but only if the implications of breaking those rules are utilitarian in nature. If not, Chinese believe in the inviolatable nature of laws, contracts and promises. The Japanese view such inconsistency as normal and necessary to avoid the negotiation of conflict and to foster congenial group relations. For example, in a homogeneous society like the Japanese, this is a signal to come to a mutual understanding. Thus, in the strictly public (omote) context, conflicts, especially the visible negotiation of conflict, is to be avoided, while in the private (ura) context there is recognition that the negotiation of conflict is not always avoidable. Thus, in the private (ura) context there is a much greater tolerance © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

and use of direct negotiation of conflicts and resolution tactics. Lacking such a homogeneous culture, social relations are handled differently in Chinese organizations (Fujisawa, 1996). A more comprehensive understanding of negotiation of conflicts resolution tactics in Japanese organizations can be gained by combining the concepts of inside (uchi)/outside (soto) and public (omote)/private (ura). This creates a typology of negotiation of conflict management contexts in which the dual goals of harmony achievement and the negotiation of conflict avoidance can be placed. Figure 17.2 illustrates this typology. It should be noted that the goal of avoiding the negotiation of conflict is most salient in the outside (soto)/public (omote) context. Given the differences in goals and contexts, one would expect tactics related to how the negotiation of conflict is managed also to differ. By understanding the Japanese way of conflict resolution, a foundation can be built for developing strategies for Chinese and Japanese joint venture management and operation. Hence, the next section examines differentiations in the negotiation of conflict management tactics in joint ventures between Japanese and Chinese firms.

IMPLICATIONS FOR JOINT VENTURE NEGOTIATIONS After examining the contexts and tactics of conflict resolution of joint ventures among Japanese partners, it is possible to explore the important implications of these contexts and tactics for Sino-Japanese joint venture negotiation and operation. From the Japanese perspective, most joint venture negotiations with Chinese firms begin, almost by definition, with

Figure 17.2 Typology of Japanese negotiation of conflict resolution tactics and contexts © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

‘outsiders’ and in a ‘public’ context. Thus, most Japanese and Chinese joint venture negotiations begin in the outside (soto)/public (omote) context. Chinese people tend to take a very direct approach during negotiations. They tend to ask direct questions and expect direct answers. They tend to rely on logical persuasion as a means of influence and use contracts as a means of assuring compliance with the agreement. Unfortunately, none of these behaviours and orientations are congruent with the Japanese perspective in the outside/public situation. In this context, the Japanese desire to maintain integrity and honour. Open compromise is, for them, a serious threat to one’s honour. In the outside/public context Japanese often respond to direct and negotiation-oriented approaches and tactics of Chinese negotiators with silence and vague responses. This is due to the natural incompatibility between Chinese negotiation tactics and Japanese views and responses to negotiation in the outside/public context. Is there anything that can be done to facilitate the effectiveness of negotiations in this context? There are some major alternatives that seem worth considering; six negotiation tactics as well as four operational tactics will be suggested and discussed below. Do not rush the negotiations Stability is a common means of dealing with conflict in the outside/public context for Japanese. By not rushing the negotiation or the resolution at any points of difference, incremental compromises can be made toward the resolution of the conflict. Because the compromises are small and spread out over a long time, the threat to honour and integrity and the threat of loss of face in a public (omote) setting is reduced. In other words, while the total accumulation of incremental compromise may be significant, each specific compromise is almost imperceptible. This may not be the usual tactic of most Chinese firms. But because it is not a common practice, there is no reason to believe that it cannot be used as an effective tactic in Sino-Japanese negotiations, since it complies with Japanese fundamental cultural norms. Move negotiations to the outside/private context Another basic tactic Chinese can utilize if the negotiations are taking place in a outside/public context is to try to move the negotiations toward the outside/ private context. Because the outside/private context means that the Japanese view the other party as outsiders and not part of the in-group, it is important that none of the Japanese negotiators ‘lose face’ in the presence of their peers. However, by placing the negotiations in a private (ura) context, as opposed to a public (omote) setting, it becomes possible to make compromises as long as they do not appear to cause anyone to lose face. The task is to first create a private (ura) situation and then to utilize specific tactics that facilitate compromise and avoid conflict and dispute that would cause loss of face. Thus, for example, one would not want to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

have both groups/teams go out to dinner and then in the presence of all concerned try to discuss various issues relating to the negotiation of the joint venture. However, in the context of a dinner, a person from each side might informally discuss a specific issue, reach a compromise, take the compromise back to their group later and work from there. Nemawashi—make connections outside meetings This is often an effective tactic for resolving conflicts in an outside/public situation by moving part of the resolution process to the outside/private context. This tactic would require the Chinese group/team to gather information and to get preliminary reactions from the Japanese, and thereby essentially know what the structure of the agreement would be before they were presented at the official negotiation table. Because the compromises have occurred in a private setting outside of the formal negotiation meeting, loss of face and honour are no longer severe threats. Displacement Compromises and solutions that avoid open conflicts and loss of face can be accomplished by finding an object for displacement. If something, such as past conditions, budgets or other inanimate objects of displacement can be found, then they can be used as scapegoats for the development of the negotiation. If no one has to accept direct responsibility for a particular point of conflict, then no one can lose face. This then creates the latitude for working out a compromise. For example, if the exchange rate can be blamed for the conflict around the repatriation of profits, then no one individual is responsible for the conflict and the two parties can set about finding a way to overcome the conflict caused by the exchange rate. In some ways this tactic has characteristics similar to the conflict resolution tactic of creating a superordinate goal. Third parties Another means of conflict resolution while avoiding loss of face is through the use of third parties. A third party can act as a buffer that reduces the face losing effects that direct confrontation might cause. Thus, each party can be direct and frank with the third party in both demands and replies. This particular tactic is most effective during the early part of the negotiations of Sino/Japanese management and on issues over which the parties have severe disagreement. Move to the inside/private context Yet another important general means of mitigating the natural problems of negotiating in an outside/public situation is to try to move the negotiation to © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the inside/private context. This is a very difficult approach because Chinese are not Japanese which generally means that they are not part of even the most extended circles of insiders. However, in the inside/private context, one of the acceptable conflict resolution approaches is confrontation. If confrontation is deemed necessary for resolving a particular point or several points of entrenched conflict, then the inside/private context is the appropriate context in which Japanese normally will engage in direct conflict resolution behaviour. Perhaps the most effective means of moving a negotiation into the inside/ private context is by utilizing a special third party. As mentioned, almost by definition, Chinese will remain outsiders. However, Japanese do view some Chinese as less outside (soto) than others. For example, a Chinese consultant’s experience living and working in Japan may serve to reduce the extent to which the Japanese view the consultant as being an outsider. Still, a third party who is Japanese and who has had a long-term relationship with the Japanese organization and its negotiation team members is perhaps one of the best examples of a person who the Japanese firm in China would consider to be within an extended circle of inside (uchi). Obviously, the third party must also be trusted by the Chinese team to accurately and responsibly represent their interests; otherwise, the use of this special ‘go between’ in order to move the negotiations into the inside/private context would serve no practical purpose. It might be assumed that, after a Sino-Japanese joint venture is negotiated and is operational, the dimensions of outside/public are no longer relevant. After all, employees of both firms are now part of the same joint venture organization, so there should no longer be any inside/outside distinction. Although this argument seems logical, it is not necessarily reflective of how the Japanese perceive their non-Japanese partner. The Japanese form mental concentric rings representing different degrees of inside (uchi). While the very existence of the Sino-Japanese joint venture may have moved the Chinese one ring towards the inside (uchi), it has not moved them inside all rings. Therefore, much of the dynamics discussed in relation to the combinations of contexts and negotiation tactics still apply even after the joint venture is operational.

Position as an operational tactic Within any organization there are positions both in terms of function and level that enable the occupant to play a more central role in the operational and strategic management of the firm. One of the structural tactics of ensuring that conflicts, especially those of a strategic nature, can be resolved in a more or less inside (uchi) context is to place Chinese in central line positions in the organization. To the extent that Chinese are in staff or advisory positions, they are outside (soto) the main centre of the business. Thus when they are involved © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

with Japanese in the resolution of conflict, they would be viewed as being more outside (soto) than inside (uchi), which in turn would lead the Japanese to utilize the indirect conflict resolution tactics more associated with outside rather than inside contexts, which the Chinese managers would be less effective in handling.

Acculturation of personnel However, simply having Chinese in central line positions may not be enough to move the context for conflict resolution toward inside (uchi). To the extent that the Chinese managers in the joint venture speak Japanese, understand Japanese history and culture, and are familiar with Japanese business and management practices, even if conflict arises relative to business and management practices, the Chinese would be viewed as being more inside (uchi) than outside (soto). Acculturation assignments to Japan ideally ought to be over long periods to give individuals a sufficient amount of time to develop the necessary skills and relationships so that a maximum benefit and return can be gained from the investment of placing individuals in central positions (Kanayama, 1994).

Creating inside Chinese who work in the Sino-Japanese joint ventures will need to take steps to move the context of conflict resolution toward inside situations. For example, this may require after-hours socializing, office group vacations, as well as informal meetings. This type of contact reduces the demands of conflict avoidance that come with public (omote) context. Thus, in inside situations it becomes acceptable to more openly discuss management problems and possible means of resolving the conflicts.

Use nemawashi as an operational tactic Nemawashi is a conflict management tactic that is critical in outside/public contexts, but it is also quite effective in more inside and private contexts as well. As one Japanese manager in the Toyota group joint venture, the Daihatsu Auto, commented: Using nemawashi may mean that making the management decision takes longer, but once the decision is made, the implementation will be much shorter, so from start to finish, it will take no longer and may use less time to make and implement a decision. (JP Nikkei Shinbun, 1996)

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

CONCLUSIONS AND RECOMMENDATIONS The overall conclusion of this chapter is that due to the distinct differences in the cultural influences of type of contexts, Sino-Japanese negotiations are precarious ventures to undertake with unpredictable outcomes. However, the two contextual dimensions, inside (uchi)/outside (soto) and public (omote)/ private (ura), provide a practical basis to understand the dynamics of conflict/ harmony in different situations and with these distinctions in mind a number of implications for Sino-Japanese joint venture negotiations can be derived advising suitable negotiation and operational tactics for the Chinese partner. As such, the following recommendations can be made. •

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Do not rush the negotiations, stability should be the common theme for dealing with conflicts in the outside/public context for the Chinese partner in Sino-Japanese joint ventures. By not rushing the negotiations or the resolution of any points of difference, incremental progress in compromising over time can be made toward the resolution of the conflict. Move negotiations to the outside/private context, since the Japanese view the other party as outsiders and not part of the in-group. Placing the negotiations in a private context makes it possible to make compromises as long as they do not appear to cause anyone to lose face. Try to create a private situation and use tactics that facilitate compromises, avoiding dispute leading to loss of face. Use nemawashi both as a negotiation tactic and operational tactic. Informal contacts with the Japanese partner before meetings at the official negotiation table is often an effective tactic for resolving conflicts in an outside/public situation by moving part of the resolution process to the outside/private context. Although nemawashi is a conflict management tactic in outside/public contexts, it is also effective as an operational tactic in the joint venture. Make use of non-human scapegoats as displacement and utilize third parties to avoid open conflict and loss of face. If no one has to accept direct responsibility for the particular point of conflict, then nobody can lose face, creating some latitude for working out a compromise. The buffer created by a third party also reduces the risk of losing face caused by direct confrontation. Try to move from an outside/public situation to an inside/private context. Although this could be difficult in a cross-cultural situation, it is most effective since direct confrontation is an acceptable conflict resolution approach in an inside/private context. An effective way of moving a negotiation into the inside/private context is by utilizing a special third party, culturally accepted and trusted by both parties. Place Chinese in central line positions in the organization as an operational tactic to ensure that strategic conflicts can be resolved in a more or less inside (uchi) context and not only in staff or advisory positions. As such,

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

•

the Japanese would regard them as being more outside (soto) than inside (uchi) and treat them accordingly. It is also necessary to try to acculturate these managers with Japanese business and management practices, preferably through extended assignments to Japan. Engage in more after-hours socializing, office group vacations and informal meetings to create more inside situations in which it becomes acceptable to more openly discuss management problems and ways of resolving conflicts.

This chapter has focused on the importance of the Chinese partners being informed about and exploiting Japanese negotiation contexts and tactics, but it is only half of the story. Of course, it is also very important for the Japanese partners to learn how to utilize the Chinese cultural context to their own advantage. Thus it is necessary for both Chinese and Japanese managers in such ‘organizational marriages’ as joint ventures to take the time to learn the complexities of each other’s managerial philosophies and practices. This chapter is designed to facilitate such an endeavour.

REFERENCES Chuoo Kouron (1994) Total Check’, December. Fujisawa, T. (1996) ‘The Characteristic and Problem of Sino/Japanese Joint Ventural Management’, Japan Academy of International Business Studies 210–12, 217–18, 233–5. Ishida, T. (1984) ‘Conflict and its Accommodation: Omote-Ura and Uchi-Soto relations’, in E.S.Krauss, T.P.Rohlen and P.O.Steinhoff (eds) Conflict in Japan, Hawaii: University of Hawaii Press. Japan (JP) Nikkei Shinbun (1996) 25 October. Kanayama, M. (1994) The Development of Chinese Corporation Management’, Annual, Yokohama Soei College.

© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

18 Conclusions: current issues and emerging trends Jan Selmer

INTRODUCTION The previous chapters have provided a varied and multifaceted picture of crosscultural management in China today. Despite this variety, several major current issues are repeated time and time again. The crucial issue of trustworthiness is discussed throughout the book, although most thoroughly dealt with in the chapters on partnership management. The different managerial practices in China and the West are recurrent issues in all three parts of the book. The importance of being well prepared is hard to underestimate for international managers in China and this is echoed throughout the book. Understanding Chinese negotiations is a necessity for succeeding in China, not least with any kind of partnership arrangement. Looking at future international management in China, a few distinct emerging trends can be identified. Entering China through wholly foreign-owned enterprises is becoming more common, changing the cross-cultural interface of exposure compared to joint ventures. Increasing outward internationalization enables Chinese firms to undertake proactive transfer of management know-how altering many conditions for foreign investors in China. It is finally concluded that future cross-cultural management in China will not be much easier than today, since traditional Chinese culture will prevail, shaping Chinese organizational behaviour and the management style of Chinese executives.

CURRENT ISSUES The crucial issue of trustworthiness Although trustworthiness is a naturally occurring concern in joint ventures in general and in international alliances in particular (Baily and Schenkar, 1993; Beamish and Inkpen, 1995; Shenkar and Zeira, 1992), it is a more acute problem in Chinese society, where limited trust is a fundamental premise (Fukuyama, 1995; Selmer, 1997b; Silin, 1976). Hence, the particularistic Chinese are characterized by personalized relationships in small in-groups and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

the formation of trust-based networks with a heavy emphasis on instrumentalism and mutual obligations to help each other. Individuals are not seen as role performers, but as persons of unique importance with special claims on one’s emotional involvement. When personalized relations are established the parties involved will protect each other’s face although it may require a white lie. If harmony is not kept, trust will disappear. The bottom line seems to be that one trusts one’s family absolutely but one’s friends and acquaintances only to the degree that mutual dependence has been established and face invested in them. In the case of everybody else, one makes no assumptions about their benevolence. To know your own motives well is, for the Chinese more than most, a warning about everybody else’s’ (Redding, 1990:66). The specific dilemma here is that non-trust is systemic in international joint ventures in China in that the two parties typically have different or even conflicting interests and strategies causing instability and hence distrust. China wants as much as possible of technological and management know-how while foreign business firms want commercial success while parting as little as possible with essential commercial business information. Joint ventures are judged by most Chinese managers according to how much they contribute to China’s needs of capital, technology and training, not by how successful they are in a business sense. On the other hand, the foreign partners are private business investors and proceed at the quickest pace to develop China consistent with profitability. Consequently, success to the foreigner is not success to the Chinese side. Foreign partners just have to accept that there will be a certain level of conflict. What the Chinese want is not always consistent with good business practice in the sense that most private foreign companies view business. It is important that foreign companies realize that. This dilemma creates a multitude of situations and events in the management of the partnership relations confirming stereotypes and prejudiced ideas, further reducing trust levels between partners. The lack of trust in partnerships is neatly illustrated by the double allegiance problem confronting expatriate managers in joint ventures. These managers are often being confronted with situations testing their allegiance both to the foreign parent vs the joint venture and the foreign parent vs the Chinese partner. Accordingly, it is far from trivial who is recruiting these managers and from where they are recruited. Therefore, it is proposed to hire managers from the international employment market instead of from the headquarters of just one partner in order to reduce potential conflicts and mistrust. Each side can propose potential candidates provided that they have never worked for either of the parent companies. In addition to international management skills, successful expatriate managers also need strong diplomatic skills to be able to create a relationship of trust. A central requirement to be able to succeed in a complex organization such as a joint venture in China is that managers must be able to manage the partnership relation in a formal, but more importantly, © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

informal way. Unless the two partners have been able to establish a successful relationship of trust, this will not be possible. Building trust between partners in a joint venture can be seen as the first necessary step in developing a successful alliance. Before trying to understand the issues of the current identity and the new identity and before creating mechanisms for designing a new identity, it is necessary to manage the trust issue so as to avoid acute dysfunctional problems later. Initiating the process, mutual contributions and benefits by understanding needs, wants and opportunities can be clarified. The process of building trust is an on-going process which requires the establishment of a solid foundation. In trying to establish trust, it is important to be familiar with the Chinese cultural context so that an interpretation of behaviour and intentions can be made with some accuracy.

Different managerial practices in China and the West Previously, large differences were reported between managerial practice in Western and Chinese companies. For example, Chinese human resource management focuses on control and work whereas Western practice emphasizes the contribution to organizational effectiveness. Western human resource management tools were difficult to introduce; it was easier to transfer machine technology than its human counterpart and this delayed improvements in productivity and overall enterprise performance. Although both joint ventures and state-owned enterprises in China have made recent managerial advancements, the trend is the same. Consequently, it is too early to say whether there is a general organizational convergence, although the ‘iron rice bowl’ is now in general retreat. However, Chinese style personnel management still prevails over Western style human resource management practices. One specific area of different practices is performance appraisal. Currently, it is primarily used in China for determining bonuses and wages, but it is expected to be utilized more for communication and development in the future. Despite controversies in the West about performance appraisal, it is being used by many enterprises in China to weaken the old practice of egalitarianism and to facilitate the abolition of the ‘iron rice bowl’. Rewarding Chinese staff is another area where practices are quite different from Western standards. Cash rewards such as base salary, merit pay, year-end bonus, individual bonus, cash allowance and overtime allowance are preferred over non-cash long-term rewards such as pension and life insurance as well as short-term benefits such as childcare, education and leaves. Consequently, employers should emphasize cash-form types of pay in designing their compensation systems. To achieve long-term business success in China, making use of guanxi is a necessary but insufficient condition. Without the appropriate networks, it is almost impossible to penetrate the China market which is very different from Western markets. However, in the long run, technological know-how and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

suitable strategies will determine a firm’s ability to survive and succeed in China. To be successful, it is important to build strong relationships with the right individuals. Since the same key decision makers are courted by many companies, it is important to build and develop strong and multiplex linkages with these individuals so that they cannot be easily replaced or displaced. Guanxi relationships are person-specific and cannot easily be transferred. Therefore, a company should try to recruit people with good connections and give them good incentives to stay. Non-Chinese may find it difficult to break into guanxi relationships since they are based on blood, ancestral village or other institutional ties. Instead, non-Chinese can work through well-connected ethnic Chinese as intermediaries serving as consultants/advisors. Tendering short-term gains as favours is essential but ineffective in maintaining long-term guanxi. To maintain strong, long-term relationships, firms must combine tendering favours with nurturing long-term mutual benefits, nourishing personal relationships and cultivating trust. Trust is crucial to long-term guanxi maintenance and requires a genuine attempt by the foreign investor to understand Chinese culture. Three different modes can be identified in bringing about learning of managerial know-how to change managerial practice in China. Examining the transfer mode of learning suggests that export of standardized human resource practices from multinational companies to joint ventures may run into difficulties which could be avoided if a multinational was entrusted with the responsibility to manage the human resource function in a joint venture. Another proposition would be to try to appoint an external human resource manager, preferably a local Chinese educated in Western style human resource management. The transformation mode of learning implies modifications of multinational human resource practices for the joint venture which in turn calls for open-minded and culturally sensitive expatriates. The harvesting mode of learning suggests that learning from previous experience is needed to speed up the transformation process and multinationals have to document and learn from such experience; also, processes that support the sharing of such experiences between the various multinational units in China have to be established.

The importance of being well prepared Although the number of expatriates in each foreign operation in China is relatively low, in the foreseeable future, the strategic reasons of their parent companies for using them will still be valid. Foreign staff should occupy key managerial positions for the whole duration of the China operation, regardless of the size of the organization. Expatriate management and the recruitment process are supposed to evolve alongside the joint venture. The start-up phase requires different skills from those needed later on. Communication has to be adapted to Chinese norms, since the ‘correct’ way of communication is more important in China than in the West. Since the actual management task and processes are more important in the West than in China, © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

more Western practices can be used in certain management functions such as budgeting. In other words, what has to be accomplished is a combination of particularistic appearance and universalistic substance. A practical implication of this contention suggests that it is more important for expatriates to have some knowledge about Chinese culture than is normally realized. It is recommended that expatriates learn how to do face-work, avoid loss of face and enhance the face of another person. Enhancing the face of one another is a strong motivator in China and it is free of charge. Consequently, both the expatriate and accompanying family members should undergo thorough cross-cultural training, including language training. Expatriates must also learn how to build trust-based relations with Chinese colleagues by standing by one’s word and spending time together in and out of work. Too many expatriates are sent to China only because of their technical and managerial expertise without any consideration of their intercultural skills and ability and willingness to develop China-specific knowledge. Although it should not be completely ignored, technical skills should not be the most important selection criteria for future China expatriates, or any other expatriates for that matter. Managing a joint venture is a difficult job anywhere, but the specific cultural, institutional and language circumstances make China an extraordinary challenge. Realistic job descriptions for joint venture managers are badly needed and recruiters at headquarters do not inform potential managers sufficiently of the specific role requirements for managing joint ventures in China. Managers must be aware of the unique requirements before going abroad. The expatriate in China could also need the full support of the headquarters and an old ‘China hand’ can be assigned as the contact person at home. China is changing fast and managers with employee responsibility in China must keep themselves well informed and try to anticipate the many future changes that could affect any aspect of their managerial responsibility. Recruiting suitable staff and retaining them could also be a serious problem in China. In dealing with this difficulty, certain simple steps can be explored both before entering China and after. At home, managers can audit their own company’s human resources and talents for those with overseas experience, language ability and cultural attributes. Also, companies should be aware of talent pools in their own region, such as university graduates with Chinese speaking ability, students who have lived and studied in China, local Overseas Chinese, and Chinese students studying in regional institutions. Firms should also get involved in overseas student programmes, sponsoring suitable graduates to carry out in-country study and providing them with work experience both in the domestic facility and in the China venture. In China suitable Chinese executives could be ‘fast tracked’ through managerial ranks to create a peer group of role models who can be identified as demonstrating possible career paths for their colleagues. This could encourage loyalty and minimize turnover of managerial staff. Firms also need to feature the China operations corporate-wide as legitimate and equal to all other operations and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

not as a hardship posting or necessary penance. Corporate career paths including China could be developed and China activities could be featured by in-house publications. Expatriate managers in China should get familiar with the local business community to identify potential sources of managerial talent and rank the standard of graduates from local universities as compared to graduates from other universities in China. This information should be recorded and continuously updated and made available to the firm’s human resource management department. Where possible, let Chinese managers spend time in the domestic headquarters to further educate them and let headquarters get to know them on a personal basis to better understand the Chinese managers. If a partnership is sought, it is also necessary to perform the partner selection with extreme caution, getting to know prospective partners exceptionally well. Once the Western partner’s investment is in place, it is difficult to withdraw that investment from the venture, even if the partnership has gone sour. Liquidation is not a possibility, capital markets are still primitive in China and Western partners cannot easily sell their holdings to others. Therefore, finding a reliable and reputable partner can help ease potential problems. Make sure that your prospective partner is able to contribute what the joint venture needs to be successful and spare no effort in exploring your partner’s commercial experience and capabilities, their guanxi in the Chinese society as well as their long-term intentions with the partnership.

Understanding Chinese negotiations Foreign firms are often introduced to Chinese management practices through negotiations initiating their business contacts in China. The common belief that Westerners are more aggressive than Chinese is often challenged as a result of such experiences. Preparing their trip to China, Western businessmen are typically told that the Chinese value harmony, good relationships and politeness, yet in negotiations in China they are confronted with fierce adversarial bargaining without the politeness and consideration they expected. The Chinese are very ‘tough’ negotiators and can use whatever means to turn the negotiating process to their advantage. The Chinese negotiating behaviour referred to as ‘haggling’ differs from Western business negotiations which are of a more open, problem-solving style. Since the Chinese expect concessions to be made, their strategies are devised to accommodate that. When Westerners expect fairly clear and open exchanges, negotiations can quickly become confrontationist and emotional. Westerners usually do not have much insight into the behind-the-scenes intricacy of relationships on the Chinese side, making it difficult for them to fully understand the goals and negotiation strategy of the Chinese side. Also matters of hierarchy and control influence Chinese negotiation behaviour, such as decision making and manner. Chinese (mis)perceptions of the West can © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

influence some Chinese negotiators to take emotional, moralist positions. Westerners are perceived by the Chinese as having an air of superiority and therefore should be sensitive to that fact. This stereotype of Western arrogance can easily be reinforced if Westerners criticize China or their Chinese counterparts. Other common stereotypes include that Chinese in general are more corrupt, more ‘money hungry’, more practical, more conservative, more deferential to authority, more concerned with politics and more concerned with appearance and dress than Westerners. On the other hand, Westerners are generalized as being more friendly, more environmentally conscious, more quality conscious, less smart as business people, more open but having a more superior attitude than the Chinese. Regional stereotypes among the Chinese suggest that including a Chinese from a different region in a Western negotiating team may not be a good idea. For example, there is a reported antipathy between Cantonese and Shanghainese. On the other hand, such feelings can be exploited by Western negotiators. Commercial negotiations in China should be treated as ‘the introduction’ and not ‘the conclusion’ and Western negotiators need to keep an open mind and adjust their approach based on their own experiences. Effective foreign negotiators balance their own needs and goals with adjustment to the Chinese style of problem-solving. Failing to do so frequently results in deadlock or failed negotiations.

EMERGING TRENDS Wholly foreign-owned enterprises Conventional wisdom has it that the best way to enter China is through a joint venture with a well-connected Chinese partner. Although joint ventures are still the only way for foreigners to operate in some regulated sectors and FDI is not allowed in others, there is an emerging trend of foreign firms entering China as wholly foreign-owned enterprises. Equity joint ventures and wholly foreignowned enterprises are virtually treated in the same way regarding taxation, corporate liability, foreign-exchange rules as well as import/export regulations for licensing, quotas and duties. The main differences are that wholly foreignowned enterprises can be established more quickly than equity joint ventures, are not required to have a board of directors, and are not allowed in some sectors of the Chinese economy where equity joint ventures can be established (Tretiak and Holzmann, 1993; Vanhonacker, 1997). Despite the lack of up-todate official statistics, it can be surmised that wholly foreign-owned enterprises are quickly catching up with equity joint ventures both in numbers and in terms of investment volume and that they are expected to make up half of all FDI in China by the year 2000 (The Economist, 1997; Vanhonacker, 1997). This emerging trend is mostly due to the, mostly frustrating, experience of © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

pioneering foreign companies struggling with the built-in conflicts of joint ventures in China. Chinese officials have proved to be more concerned about what foreign investors bring to China in terms of jobs, technology and foreign exchange, than how they do that. At the same time, foreign investors avoid the systemic conflict areas of joint ventures and gain the flexibility and managerial control of the wholly foreign-owned enterprises which fits very well with the current competitive situation in China. It cannot be denied that wholly foreignowned enterprises deliver effectiveness and efficiency to an economic system in which both are scarce (Vanhonacker, 1997). However, there is no single formula here. As some investments are genuine green-field, other foreign investors establish their wholly foreign-owned enterprise by buying out their Chinese partner’s stake. Although not all foreign companies can make the necessary political and social connections themselves, some of them prefer to have Chinese agents to make liaisons on their behalf and to procure land, material and services for them. The emerging trend of wholly foreign-owned enterprises also raises the issue of cultural and economic sovereignty and foreign investors must be very sensitive here and try to avoid being perceived as a foreign island but rather as a necessary piece of the Chinese puzzle (Vanhonacker, 1997). On the other hand, wholly foreign-owned enterprises and joint ventures should not be regarded as mutually exclusive ways of doing business in China. In some cases a combination of the two could be a most effective mode of operation. For example, the manufacturing plant is wholly foreign owned while joint ventures are still used for marketing and sales. Another way is to regard the two as a natural progression; initial entry and operation is undertaken as a joint venture but after gaining more experience the foreign investors can manage on their own. Last, but not least, a joint venture can be operated as a wholly owned subsidiary with their Chinese partners as silent, minority owners (The Economist, 1997; Tretiak and Holzmann, 1993; Vanhonacker, 1997). These developments will give foreign investors more control over their operations in China and more directly expose Chinese employees to new management practices without the protective cover of Chinese joint venture partners and their local managers.

Proactive transfer of management know-how The inward internationalization of China has successively progressed into outward FDI and by the end of 1992 the establishment of over 1,300 nontrade foreign subsidiaries had been approved (Zhang and Van Den Bulcke, 1994). Although the establishment of joint ventures in China with foreign partners was an important and necessary developmental phase to achieve inward technology transfer and international learning, it is based on a passive, reactive approach where the Chinese partner in the end has very few options but to terminate the relationship altogether or to tolerate how the foreign © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

partner chooses to transfer the management know-how. However, the development of capabilities for technological learning and for managing joint ventures with foreign partners within China may be transferable to the international arena. Chinese enterprises abroad can more actively pursue collaboration with whoever will benefit them most while they have the added advantage of learning effective management methods totally immersed in a modern market economy. There is evidence that Chinese companies investing abroad have a long-term objective to become ‘modern multinational enterprises’ and that these companies acquire large-scale benefits in terms of training and experience of their Chinese staff (Gang, 1992; Young, Huang and McDermott, 1996). Overseas Chinese companies and not least Hong Kong firms have played a major role in influencing Chinese managerial practices through their numerous business ventures in China. Naturally, Overseas Chinese have also been important for the outward internationalization of Chinese firms within Asia, but less so in North America. The Hong Kong connection could be very important in the early internationalization process, with distributorships followed by joint ventures established there (Young, Huang and McDermott, 1996). With Hong Kong back under Chinese sovereignty, it is expected that its emerging role as a training ground for Chinese managers could be even further developed. Chinese managers selected for an international career could take full advantage of Hong Kong’s modern management context, in terms of both managerial practices and educational opportunities, before they eventually are assigned to a modern market economy outside China (Selmer, 1997b). The increasing outward internationalization of Chinese business results in more proactive learning and transfer of management know-how, enabling Chinese managers to actively scan and seek out the information and gain the experience necessary to further develop the Chinese economy. In this way, it is expected that training and practice for developing international Chinese managers will gradually approach the way expatriate managers from any other industrialized country are accumulating international managerial experience.

Future cross-cultural management in China In China, ancient tradition and modern political ideology, woven together, have formed an intricate pattern of organizational behaviour. The result is a set of unique behaviours and norms that do not exactly match either traditional Chinese culture or modern socialist development (Lindsay and Dempsey, 1985). What happens to Chinese organizational behaviour as the society modernizes? Generally, cultural assumptions are slow to change in any society and China is no exception in that respect. Although numerous studies have found some changes in the cultural orientation of Chinese people due to modernization (Ralston et al., 1995; Yang, 1986,1988; Farh, Lin and Early, 1995), some of the most important traditional attitudes, beliefs and © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

values persist and are not likely to be replaced. For example, the importance of kinship ties for Chinese is high both in the relatively modernized economy of Taiwan and in the emerging economy of mainland China (Farh et al., in press). The personalization of economic relations has persisted in China (Solinger, 1989) and guanxi is not likely to disappear with the development of China, as the evolution of other Confucian societies has shown, since relationships and connections are among the core values in those societies. Whatever the precise impact of traditional cultures and political ideologies, ‘institution based trust’ tied to formal, legal-rational rules and structures (Zucker, 1988) is less developed in China compared with trust tied to personal and non-economic criteria (Child and Lu, 1996). It is likely that guanxi will continue to be a dominant aspect of the Chinese society for some time to come. It has also been argued that the Hong Kong Chinese cognitively and emotionally can separate modernization from Westernization. Remaining Sino-centric, they regard themselves as modern without losing their Chineseness (Bond and King, 1985). Consistently, it has been easier to introduce ‘hard’ technology than its ‘soft’ counterpart. Although recent progress has been made, ‘state of the art’ production systems have been installed and some soft production-related systems such as quality control programmes and total quality management policies have been adopted, human-related systems such as HRM or Western communication systems and practices are not easily accepted as discussed above. In other words, new technicalities can be introduced and adopted without much hesitation if demonstrated to be superior from an effectiveness point of view, but culture-based human behaviour is not as easily changed. A certain amount of contempt for Western management philosophy could also contribute to the fact that Chinese joint venture partners focus more on the supply of production technology instead of on the transfer of management know-how (Lan and Young, 1996). Also, there is a continuing importance of rules and procedures governing Chinese management and both prevailing political and economic forces make it difficult to change that within contemporary China (Child and Xu, 1991; Nee, 1992; Smith, Peterson and Wang, 1996). However, some foreign joint ventures in China operate in much less rule-governed ways. Compared to managers in state-owned enterprises, joint venture managers rely more on their own experience and training than managers in state-owned enterprises (Smith and Wang, 1994). In the near future, the quest for modernization may further change the indigenous Chinese managerial practices in connection with production-related systems, but leave human-related practices less affected. Such a scenario still leaves foreign business firms in great demand and there will still be a need to carefully prepare foreign managers for their assignments in China. In fact, with increased contacts between Chinese and foreign firms both outside and inside China, managers with China business experience will be in increasing supply and suitable expatriate candidates will be easier to find than now. © 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors

Even in the long run, it is doubtful whether current influences towards internationalization of management practices in China will substantially affect deeply-rooted cultural norms and values. Other Asian industrialized countries have kept their cultural inheritance more or less intact. Traditional culture in Japan is still very strong many decades after the initial waves of modernization and Singapore, South Korea and Taiwan have managed to preserve much of their traditional cultures despite a quick and radical modernization. China, with its 5,000 year long history and culture, is not very likely to change much in terms of its traditional culture. On the contrary, traditional Chinese culture, especially Confucianism and familism, has in many ways experienced a revival with the economic liberalization (Xing, 1995). Consequently, it is not plausible, even in the distant future, that crosscultural management in China will be a much easier task than it is today. To a large extent, traditional Chinese culture will prevail and constitute the fundamental background to Chinese organizational behaviour and the management style of Chinese executives.

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© 1998 selection and editorial matter, Jan Selmer; individual chapters, the contributors