International Human Resource Management-STS Manufacturing in China

STS Manufacturing in China

1.0 History of China’s Relations With The Outside World and the

Influence on Foreign Firms

History of China’s relation with the outside world consists of various

incidents that had an influence on the foreign firms on Chinese soil.

China, the most wealthy and powerful society of its time (Baskin, 2009) is

impressive with its tremendous technological innovations including paper

money, gunpowder, printing press and fertilizer.

Foreign powers have influenced and imposed their legal system within

Chinese territory in the last two hundred years of China’s history. They

were unable to recognize that Westerners coming to China were more

than “barbarians”, until those Westerners came to dominate them

politically (Baskin, 2009). China imported opium on a massive scale to

settle imbalances in trade accounts, However, the outbreak of Opium War

between Britain and China lead to Treaty of Nanjing which gained

concessions under the ‘unequal treaties’ which grants foreigners treaty

ports in China and immunity from Chinese law (Fenby, 2009). China’s

door was closed to foreigners as the history built a suspicious and volatile

relationship with the outside world.

Though at times China allowed foreigners and their technologies, other

times they rejected anything that was offered. In 1972, the Chinese

emperor stated that they had no need for others and that their country

fed itself and accounted for one third of global wealth (Fenby, 2009).

However, in order to achieve the material progress which Dang Xiaoping

considered essential for the nation (Fenby, 2009) the door was opened to

the outside world and his statement “You cross the river by stepping on

the stone” captured the incremental and cautious manner they were

approaching, to once again allow foreigners a foothold in the Chinese

economy.

Aishath Sheneen Ibrahim Page 1 of 8


1.1 Chinese Government’s Perception on Foreign Firms

Based on the impression and opinions that was imprinted within the

Chinese people decades ago from the foreign countries the Chinese

government was suspicious towards the foreign companies. The

unprecedented changes that occur in its social, legal and economic

institutions raises strategic challenges for foreign companies

despite China’s attractive market (Li et al., 2006 cited in Li and

Zhou, 2009) today. Foreign companies operating in China are faced

with many controversial issues with regard to making decision and

getting approvals from government and some strategic decisions

still remain with the government.

1.2 Role of Foreign Companies in China since the Reform

Began

China’s economical change from a centrally planned system to a

more market-oriented economy has increased its private sectors

growth (Trade Economics, 2009). This encouraged decentralization

that brought frequent changes in the government regulations.

Relaxation of restriction on products produced enabled the

companies to grab profitable market opportunities in any sector

that they saw fit. Foreign companies (FC) in China played an

important role in the development of the Chinese economy. China’s

decision to open the door to FCs resulted in, drastic institutional



reforms (Leung, 2008) relaxation of social and ideological controls

(Sebenius and Qian, 2008) China has seen a rapid economic growth

in the past two decades (Fenby, 2009; Leung, 2008) with an annual

GDP growth rate of 10.9% in 1995 and 10.4% in 2000 (Yao and Luo,

2010) (Refer to Appendix One) that contributed to the improved

living standard of the people. Under the Household Responsibility

System, family and collective firms were allowed to sell their

products in the open market and the Chinese incentive based

system allowed them to keep their earnings, harnessing the

motivation of individuals. In turn this socialization of ownership

would lead to improve performance in firms, as manager’s move

towards improving rate of return.

2.0 Formation of STS Manufacturing

STS Manufacturing is an equity joint venture (JV) formed in 1994 with

Shanrong Manufacturing of China and Tellsan products of United States

holding 40% and 60% of shares respectively. The JV was formed for the

benefit of both parties.

Tellsan product is an experienced supplier of Volkswagen in Germany as

such was encouraged by Volkswagen (VW) to establish their supply chain

to support the increased investment they faced from their JV with First

Auto Work in China. Furthermore, Tellsan cannot ignore China’s huge

market potential (Leung, 2008) and low cost production structure (Zhang

et al., 2009; Leung, 2008) as such found the opportunity to support VW in

China.

Shanrong was under the direction and influence of two government

authorities; Liaoning provincial government whose interest was to



maximize the contribution of the JV to their development and Ministry of

Machinery Industry (MMI) whose responsibility was to see to the

maximized growth of a broad range of machinery industries. To gain this

Shanrong needed foreign experience and technology. Thus, Shanrong

viewed the JV as a means of acquiring foreign technologies and partner

knowledge that can stimulate to their expansion (Luo, 2002).

3.0 Mark Hanson’s Job in STS Manufacturing

Mark Hanson was sent as an expatriate JV manager to re-build

relationship with Mr. Wu the Host country manager which has been

strained by the first manager Steve Johnson. As an expatriate manager

his role would have included buildings networks with the government

agencies, train and develop Host Country’s staff through interaction and

communication to achieve high performance and standard requirements

of the home country. Expatriate Managers job is to fulfill the given task of

managing the company by finding long term solution to the problems at

hand creating a cooperative environment within the organization

employees (Bonache, 2005).

3.1 Evaluation of Mark Hanson

The performance evaluation of Mark Hanson will be difficult due to

many factors that affect evaluation (Francesco and Gold, 2005).

From the beginning he has been trying to communicate with Mr. Wu

Fan the Deputy General Manager but without success. He was

unable to send employees to training due to various problems

encountered from their JV partner. The quality issue the company

faced needs to be resolved and all this is affected by the Chinese

business culture which is discussed in 4.0. Overall I can conclude

that his performance in fulfilling his job requirement is poor.



However we have to consider that Chinese are slow in building

relationship than the fast paced Westerners (Direction, 2007) and in

Chinese culture performance is not the ultimate target but building

relationship is; this culture in China contributes to his poor

performance. Therefore, his performance should be evaluated from

headquarters taking external factors into consideration. As

managers who had received cross-cultural training skill is bound to

understand the Chinese culture better (Zhang et al., 2009)

headquarter should consider giving him cross-cultural training in

order to develop his skills to improve performance.

3.2 Skills of a Joint Venture (JV) General Manager

Expatriate managers that have technical and managerial skils are

likely to succeed in such position (Cullen and Parboteeah, 2008).

Hanson has a Masters degree from a well known South-western

business school and he worked with a large automotive supplier for

two years before joining Tellsan in 1995.

As good language skill contributes towards better application of

technical and managerial skill (Cullen and Parboteeah, 2008) it is an

added advantage to possess language ability. Though Hanson was

not fluent enough he had the ability to understand the Chinese

language.

Hanson has to be more flexible and willing to learn new things in

order to deal with the unexpected problems that arise in new

situations. Furthermore, he has to be able to tolerate stress in order

to succeed in the international assignment while adapting to new

culture and work environment.



4.0 Issues in STS Manufacturing and Reasons for it Occurrence.

Issues that arise in STS Manufacturing are linked with the cultural

dimension of the Hofstede’s model in China and United States (Refer to

Appendix Two, Hofstede, 2009). Major issues STS Manufacturing face

includes:

1- Quality Control

There was a total disregard to the quality standard in the company

resulting in failed production making them fall behind schedule. This was

due to high failure rate in final inspections. They have lean

manufacturing assigning responsibility to lower levels of the organization

but it goes against Confucian notion, which is a hierarchical social

structure and social behavioral rules (Law and Jones, 2009) that creates

high power distance among lower level of organization. The most

important characterization of Chinese culture is its high collectivism and

power distance (Hofstede, 2009; Leung, 2008).

2- Choosing a Supplier

There has been considerable disagreement between the local managers

in choosing a supplier from their own network. As there are more

competent suppliers Hanson considers this as unethical. However, he has

to know that due to different cultural values and institutional systems

international business ethics pertains to those unique ethical problems.

What may be considered illegal in one culture may be considered

legitimate in another culture (Bierstaker, 2009) and this lack of common

understanding makes combating international dealings difficult. In China

this is ethical as they follow guanxi, which is a form of building long-term

relationship to deal with internal and external stakeholder whereby,

business is grounded in personal mutual trust and favors are extended on



the basis of expected reciprocity (Sebenius and Qian, 2008) and is used

extensively in the business world (Hussain et al., 2010).

Hence, inability to consider Chinese culture and build relationship network

result in problematic issues.

3- Difficulty in engaging employees in training

Training of workforce is giving high consideration in China to improve poor

performance (Chow, 2004). However, there has been a negative response

towards training from STS Manufacturing. The main reason could be due

to inability in building relationship within the JV partner. Being unaware of

the finer nuance of the local cultural and social context, Western

expatriates may quickly attribute their inevitable business difficulties to

the ineptness of their Chinese JV partners (Selmer, 2005). Thus without

blaming JV partner Hanson should consider this to resolve this problem.

4.1 Action Plan to deal with the Issues

Figure 1 shows the action plan Hanson could use to deal with the

problem.



1- Accept Guanxi Culture

Hanson should understand that the business is not going

anywhere without cooperating and respecting the Host

country’s culture. Hence, he has to be sensitive about the

differences between the social and economic concerns of

Chinese people (Leung, 2008). The way to decipher the Chinese

negotiation style and bring about mutually beneficial results is

to better understand the key elements of Chinese culture

(Sebenius and Qian, 2008) values and norms (Leung, 2008) to

which Chinese negotiators attune their business. This can

reduce unnecessary misunderstanding and irritation and build

trust among local partners. Chinese managers are usually open

to suggestion for improvement if they can see the benefits for

themselves and their workers, it should be demonstrated to

them on how an improved system could increase efficiency and

reduce damage to components (Direction, 2007). Thus, He

might be able to convince local partner to agree to engage

Chinese employees in long-term planning activities which could

enhance quality control and selection of right suppliers within

the network. According to Vilkinas et al., 2009 ‘A culture of a

combination of collectivism and Confucianism cultivates and

prefers a leadership style in which the leader maintains a

harmonious, considerate relationship with the followers’. Hence,

a leader that plays a role of a developer who cares for



subordinates in the workplace encourages teamwork in the

workplace.

2- Build relationship with Mr.Wu Fang

Mr. Wu is less receptive to change as he perceives Hanson’s

rejection towards negotiating to be to be aggressive,

impersonal, and insincere. However his acceptance towards

guanxi culture (Kuhlmann and Hutchings, 2010) and focus on

building managerial ties based on network-based strategies

(Peng and Luo, 2000) builds cooperative behavior (Hsu, et al.,

2010) which makes it easier for Hanson to build reliable and

trustful business connections. In turn it will gradually help to

solve training problem.

3- Build relationship with the Government

Chinese companies operate under various combinations of local,

provincial, and central government authority. Hanson frequently

see that political appointee delays business negotiations

through interference (Sebenius and Qian, 2008). Thus in an

environment where they compete for resources building

relationship with these authorities is an advantage. This could

help in coming to a negotiation regard to relocating their plant

in China.

.

4- Get support from Headquarters (HQ)

It can be seen that HQ do not provide sufficient support to

Hanson in terms of understanding his problems. They want to

see quick performance which cannot be gained in China.

However, he can make them see that other JV’s are successful

due to the fact that they take things slow in accordance with the

Chinese culture (Direction, 2007).



Therefore this action plan could enable better performance in the coming

years by successfully building relationship without killing it.


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International Human Resource Management-STS Manufacturing in China