Managing people in China: perceptions of expatriate managers

Managing People in China: Perceptions of

Expatriate Managers

Andrew Sergeant Stephen Fren kel

Foreign direct investment has boomed in China and East Asia more generally over the past decade. This has been accompanied by an influx of expatriate managers with responsibility for managing joint ventures and subsidiaries. The paper reviews the relevant literature and draws on interviews with expa-

triate managers with extensive experience in China, and some other East Asian countries, to identifjl key human resource management issues and ways in which these were handled. The paper discusses the

importance of individual learning and the application of knowledge of cultural d#erences to managing

foreign invested enterprises. We argue that organizations could significantly enhance future expatriate managerial effectiveness by systematically building, updating and disseminating knowledge based on the experience of expatriate managers.

M any East Asian countries have experienced unmatched rates of

economic growth over the past decade (World Bank, 1996a). China, Indonesia and Vietnam have been in the vanguard with annual average growth rates over the period 1985-94 of 7.8%, 6%, and 8% (1990-94) respectively (FEER, 1997; World Bank, 1996a). Much of this East Asian expansion has been fueled by foreign direct investment (FDI) whose value in 1994 accounted for more than half (54%) the total FDI

Andrew Sergeant, Centre for Corporate Change,

Australian Graduate School of Management, ACSM,

University of New South Wales, Sydney 2052, AUS-

TRALIA <[email protected]>. Stephen

Frenkel is a Professor at the Centre for Corporate

Change <[email protected]>.

flowing to developing countries. China has been by far the most important recipient: increasing in the 1985-94 period at an annual average rate of 215% with FDI in 1994 accounting for around 75% of total FDI for the six major East Asian host countries (World Bank, 1996b, pp. 27-28). Moreover, since 1993, China has been the second largest recipient of FDI in the world (UNCTAD, 1995). Like China, Viet- nam has only recently opened its doors to foreign investment. In early 1994, the US lifted its embargo on Vietnam. In the following year an authoritative source claimed that “Vietnam has emerged as one of the most promising host countries for FDI in South-East Asia” (UNCTAD, 1995, p. 54).

Managing People in China 17

Clearly, FDI is currently very important to China, Indonesia and Vietnam, and likely to remain so in the future. If there are major gains to be made, there are also risks. One of these is the management of human resources. Without adequate understanding of cultural and institutional differences, and ways to address emerging issues, management will be unable to take full advantage of available opportunities. This is especially important because although labor costs are low, so is productivity and quality (World Bank, 1995). Thus, to remain competitive, it is desirable to reduce unit labor costs by raising the productivity and quality of labor out- puts by more than increases in the costs of labor through improved wages and conditions of employment. With huge potential markets- there were 1,119 million people in China in 1994-early success in these countries is likely to provide a foundation for global expansion.

The purpose of this paper is to explore some of the key HRM issues faced by expatriate managers who have been working in China and to a lesser extent the other above-mentioned countries. Our intention is to draw some lessons from their experience. Of note too are the strategies adopted by companies to ensure that future management of these foreign-invested enterprises or FIEs (joint ventures and foreign subsidiaries) learn from the experience of previous managers. The plan of the paper is as follows. In the first section we briefly review the literature on HRM in China with a view to identifying major management problems. We also make passing reference to Indonesia and

Vietnam. On the other hand, we refer to a wider literature on expatriate management issues. In the second section we describe the sample of managers in our study and the methodology we adopted. Our findings are reported in the third section. These are organized in accor- dance with the issues discussed earlier in our review of management in China and expatriate relations. In the fourth section we discuss our findings, adding some pointers for more effective expatriate management of FIE employees. The concluding section comments on some organizational learning and research implications of our study.

HUMAN RESOURCE MANAGEMENT IN CHINA

Since the late 195Os, the ‘iron rice bowl’ policy has been the foundation of Chinese personnel management. As part of the state socialist system, employees have enjoyed lifetime employment security and comprehensive welfare coverage (Warner, 1996; Korzec, 1992). Employment security even extended to the point of occupa- tional inheritance, whereby a retired worker can nominate a close relative for a vacancy (Korzec, 1992). From the 1950s to the late 1970s there were rigid wage and migration controls, which made the labor system increasingly irrelevant to contemporary needs. Dur- ing the Cultural Revolution (1966-1976), a whole Chinese generation was denied access to education, and workers were rewarded for political and ideological allegiance, rather than for superior productivity. As a result, those aged between 30 and 4.5 years

18 Journal of World Business / 33(l) / 1998

have been poorly prepared for the demands of a modern competitive economy. In late 1978, the government introduced The Open Door Policy. The main focus of this policy was to mod- ernize Chinese industry, which would introduce Western technology and management skills. International equity joint ventures are the centerpiece of this strategy (Warner, 1996).

Some of the major implications. of this legacy vis a vis Chinese management and employee behavior are: problems adapting to a market economy that requires initiative, customer-focus, dili- gent application of new skills, and information-sharing; and continuing expectations of welfare provision. Reluctance to share information within organizations has been reported even where it was necessary to overcome obstacles that slowed or stopped production (Child, 1994). Modes of behavior that limit improvements in productivity and quality may be rein- forced by cultural values. The most significant of these include: preserving “face” in public; cultivation and main- tenance of guanxi (personal relationships); experience of time as synchronous and subordinate to relationships; and limited legitimacy accorded to the rule of law in contrast to demonstrations of power.

Hofstede (1991) views “face” as inte- gral to collectivist societies, describing the proper relationship between a person and the community. “Face,” according to Chen (1995), refers to a combination of dignity, self-respect and prestige, one’s social standing and position, as perceived by others. Blackman (1997) suggests that protection of

“face” requires genuine respect, and sensitive responses in public, especially where hidden agendas might exist.

Some implications of “face” for expatriate managers include the need for extreme caution and reflection in managing people. “Face” can be put to good effect through displays of public recognition for exemplary accomplish- ments at work and more generally in the design of effective reward systems. Loss of self-control by managers, through displays of anger and/or threats signal weakness, and contribute to a loss of “face” (Trompenaars, 1993, p. 71).

Chen (1995) describes guanxi as relationships that imply a continual exchange of favors which need not be founded on friendship. When applied to organizations, guanxi obligations tend to run counter to universalistic, performance-based values and systems, found in many western organizations. On the other hand, it is possible to utilize personal relationships to exploit business opportunities in Asia (Hsieh, 1996). Expatriate managers may nevertheless find a tension between cultivating personal relationships within the enterprise and managing according to universalistic, performance-based values.

With regard to time, Chinese managers tend to view time as synchronic (the merging of present, past and future), abundant in supply, and subordinate to personal relationships (Trompenaars, 1993, Chap. 9). By contrast, western managers are likely to view time as sequential, in short supply, with strict limits to the amount of time that can be given to others. Expatriate managers are likely to experience frustration in


attempting to achieve their goals in this kind of milieu, while acting in a West- ern manner may be viewed as moving with unseemly haste.

Finally, civil society in China, com- prising a national set of institutions, is accorded less significance than the local or regional community. However, in an era of rapid industrialization, the local community no longer provides a powerful basis for upholding norms. Conse- quently, transgression of norms is punished through force applied by government institutions (law makers and the police). These officials have limited legitimacy since public organizations tend to be patrimonial rather than bureaucratic: officials are not account- able to the people except through authoritarian governments. Conse- quently, the rule of law has limited force in China.

This poses dilemmas for expatriate managers: should local laws always be upheld, especially when local competitors are unfairly benefiting from eva- sion? Should relationships with public officials extend beyond legal limits but within socially acceptable bounds? And more specifically, what does bribery and corruption mean and how should managers approach practices regarded as illicit (and illegal) in the West but widely practiced in these countries?

Child (1994) has noted that the concept of HRM is absent in Chinese enterprises. This has made it difficult for foreign managers to introduce their pre- ferred approach in joint ventures. Accordingly, it is not surprising that contemporary evidence shows consider- able continuity of “iron rice bowl” practices in joint ventures (Goodall &

Warner, 1997). There is however some evidence that this is changing with more emphasis on training and career development, performance appraisal and individual performance-related rewards, and a closer linkage between personnel policy and business strategy (Brown and Branine, 1995; Warner, 1996; Goodall & Warner, 1997). The Chinese Government has introduced a wide-ranging program of labor law reform, aimed at developing a more flexible labor market (Jackson, 1994; Markel, 1994). Nevertheless, western experts have identified a set of HRM problems resulting from a combination of institutional and cultural factors. These are summarized in Table 1.

METHODOLOGY

Structured interviews were undertaken with 27 managers with extensive first hand experience of managing employees, mainly in China, but also in Viet- nam or Indonesia. The respondents were chosen from lists of major companies with operations in East Asia. Twenty four of the managers had relo- cated to the host country, for periods ranging from 11 months to 5 years. The remaining three managers had extensive experience but were not stationed in the country for periods longer than a month at any one time. Further details of the respondents can be found in the Appen- dix.

Two thirds of the relevant enterprises were joint ventures, with the foreign partner holding from 30% to 80% own- ership. The other third had a fixed contract with the government to provide a service in the country. All of these

20 Journal of World Business / 33( 1) / 1998

Table 1 Human Resourse Problems in Chinese Foreign Invested Enterprises

HRM aspect Summary of details

1. Employee Recruitment

2. Reward System

3. Employee Retention

4. Work Performance and Employee Management

5. Management- Employee Relations

6. Expatriate Relations

The market for skilled manual and white collar employees is tight resulting in rapid wage increases and high turnover rates. Poaching of employees is common. Nepotism and “over- hiring” remain a problem where Chinese partners strongly influence HR. Arranging for transfer of employees from state enterprises to a joint venture may be difficult, as it requires approval from the employee’s old work unit. New employers may be liable for economic damages, payable to the previous employers of their new recruits.

New labor laws allow state enterprises and FIEs to set their own wage and salary levels. Western joint ventures tend to pay considerably more than state enterprises. Some localities are considering maximum wage rules. These might restrict the capacity of Chinese organizations to compete for scarce skilled workers.

Wage disparity between unskilled and semi-skilled employees compared to middle and upper management has increased markedly, a trend that is expected to continue. Devising reward packages for Chinese employees has been difficult because of the range and com- plexity of nonwage benefits expected by workers as a legacy of the “iron rice bowl” tradi- tion. However, health and accident insurance, pensions, unemployment and other benefits are increasingly being taken over by the state. There are two cultural impediments to intro- ducing grater differentials in pay among workers of similar status: importance accorded to interpersonal harmony which would be disrupted by variations in earnings; and distrust of performance appraisals because in state enterprises evaluations are based on ideological principles and guanxi.

Retention of well-trained local staff has been problematic for many FIEs. In 1992, the average labor turnover for joint venture companies in China was fourteen percent, four percent less than in the southern province of Guandong. There is poaching of employees by compet- ing firms; the figures probably underestimate current labor turnover. US joint venture managers have learned to take greater control of compensation and motivation in order to retain high-performance Chinese managers.a

Workers are not socialized to develop initiative, and are rarely provided with performance feedback in Chinese enterprises. Time is not used as a scarce resource; quality of output receives little emphasis. Consequently, the work ethic is lacking. Managers are rarely rewarded for high performance in Chinese enterprises.

Managers tend to be risk averse, and may be unwilling to innovate where the possibility of failure exists. This is compounded by the problem of losing “face”. Dismissals were con- strained by previous labor laws and there is still some difficulty in retrenching workers.

Joint venture regulations grant workers the right to establish a trade union responsible for protecting the rights of workers, and organizing workers in contributing to the enterprise. In practice, they are less adversarial than in the West, tending to facilitate operational effi- ciency. Such activities include arranging technical and professional courses, and cultural

and recreational activities for employees. With the change in labor laws and the possibility of collective bargaining, unions may become more adversarial in the future. Industrial unrest has been rare in China in the past, but the incidence in recent years has risen, although this has rarely involved Western joint ventures.b

Problems include inadequate selection methods and lack of attention to cultural adaptability of manager and spouse. There has been little prior cross-cultural training. Family, education and health issues limit the attractiveness of expatriate assignments. Major repatriation problems include limited continuity in international assignments and difficulties of adjusting to more specialized and less autonomous positions at home, lack of career prospects and undervaluation of international experience. Management succession and balancing of local and international staff at Chinese firms can also be a problem.

Note: a. This limits the possibility that the local partnerwill redeploy these managers to another local enterprise under theircontrol.

b. Dismissals and inadequate working conditions, mainly reported in respect of Korean, Taiwanese and Hong Kong-owned

enterprises, have been the prime causes of disputes. The drive to increase unionization and strengthen labor laws may be welcomed by US companies, because it will force other investors who are deriving cost benefits through the neglect of labor

standards, to compete on an equal basis.


arrangements required the utilization of local staff. There were 13 manufacturing organizations which included production of health, foodstuffs, and building products, and 14 service organizations covering telecommunications, financial services and management consulting. The organizations ranged in size from representative offices with 5-7 employees, to much larger enterprises. Four of the FIEs had 300 or more employees, and nine had 200 or more.

Interviews lasted between 60 and 90 minutes. These covered topics referred to in Table 1 and issues raised by respondents (the interview protocol is available on request from the authors). In most cases the interviews were recorded. At the end of each interview the respondent was given an opportunity to add further recollections, with the recorder switched off. Participants were assured of the confidentiality of their responses. Annual reports, in-house journals, and company histo- ries were also used in interpreting the results.

MANAGING IN CHINA: THE VIEWS OF

EXPATRIATE MANAGERS

In reporting our interview findings, we use the headings in table 1 as a guide, the only exception being the inclusion of training after our discussion of recruitment.

Recruitment

Respondents claimed that there were no difficulties recruiting unskilled workers but there were severe shortages

of skilled workers. It was common for the local partner to hire lower level staff, while the recruitment of higher level staff was mostly conducted by expatriates. The means by which higher level staff were recruited included: newspaper advertisements, which were generally effective; and recruitment agencies, which have a growing pres- ence in East Asia. For the recruitment of higher level staff, most respondents used assessment procedures similar to those generally used in the corporation-typically involving two or three interviews, and sometimes the use of psychological aptitude tests. In smaller expatriate communities, word of mouth was a popular means of obtaining employees.

The status of local employees was also important. For example:

“It wasn’t just their skills, it was also their family connections and status. For example, if you were going to a meeting, the status of your translator would be quite important. You might be speaking to a Government Minister, and unless the person has some status and has the ability to talk to high level people, this would be quite difficult.”

The use of universities in China as a primary source of new recruits is growing. Several managers mentioned that competition for both high quality grad- uates, and experienced professionals, is fierce. For example: “It comes down to the lack of educated people-there is only a very small pool of educated local people who are really internationally competitive . . . it was our most persis- tent problem.”

In some parts of China, particularly the north, there was a greater need for

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consultation with government organizations, including the Foreign Enterprise Service Corporation Offices (FESCO), and the local labor bureaus. “Often FESCO will recommend people and if you reject them three times it may be a problem. We solved this problem by being proactive-we found the people ourselves and asked FESCO if we could hire them.” Another manager obtained approval for vaguely defined jobs, and kept these until they were needed: “The local government bureau was always very slow to respond with approvals, so we often would gain approvals with a broad description and then use it down the track when the need arose.”

Clearly, recruitment is important. As one manager noted: “The most important lesson we learned is that we should have selected employees better, and should have established a set of employee policies, procedures and conditions at the outset, and made it clear at Day 1.”

Training

Although previous research suggests that training is not a special problem in China, Indonesia and Vietnam, it has required substantial resources. If left to the local partner, training may be dis- pensed on the basis of status and/or reward rather than functional need. Overseas training was especially valued by employees. This was provided by a number of organizations and was conducted either at home or in a regional office in Singapore or Hong Kong. Sev- eral enterprises conducted intensive in-country training sessions of four to six weeks duration, and typically con- sultants or expatriates would fly into the

country to conduct these courses. Lan- guage training was used in some enterprises to good effect. As an expatriate manager remarked:

“There was a marked result from the English training-the training not only built their skills, but also built their self-respect and their position within the community and the workforce.”

Another manager stressed that the early training should be very simple:

“To get things up and operational you do basic training, then you start doing educa- tional programs. That might require a full program of sending people overseas to gain experience and putting them through university courses that will get them to think, unless there are overseas lecturers who are seconded to local universities, and if there are, you build relationships with these people and you look at the courses which they are offering. With our company there were 44 locals sent overseas in 1995.”

A third respondent spoke about the importance of training:

“Sometimes just knowing what is possible is the key-they [trainees] spent time at headquarters to show them how it can be done.”

Managers from larger MNCs com- monly used performance appraisals to guide training, although the systems tended to be simplified.

Rewards

In China, the premium paid to FIE employees in our sample, compared to their peers in state enterprises, ranged from 20% to 100%. This was more than in Indonesia where the premiums varied


from 20% to 50%. In Vietnam there were wide variations. A manager of a small office in Vietnam described wage relativities as follows:

“Our salaries were about tenfold the offi-

cial rates-probably about 300% of the

actual rates. We were paying more than large companies from other Asian coun-

tries such as Korea, but less than larger multinationals who in many ways were

duped when they first arrived and

couldn’t reduce it after they found out

what the market was doing.”

Geographical variations were a fea- ture of wage levels in China and Viet- nam. For example, pay levels in Ho Chi Minh City were reported to be about 50% higher than in Hanoi, though this varied according to occupation.

Respondents claimed there was a trend toward offering allowances in lieu of nonwage benefits, such as housing. In some cases training overseas was considered not only as functional, but also as a powerful reward:

“Overseas travel was the biggest one-if you are getting 150 dollars a month, to

travel overseas for two weeks is a pretty

good bonus.”

Another manager reported that his organization made substantial use of non-monetary rewards for blue-collar workers in Indonesia.

“They have a great sense of fun and they

like show and pageant and you often get a

good reaction from nonmonetary rewards, for example by having a celebration when the depot has done well, having entertain- ment or giving a free T-shirt-people do

not react cynically-it is taken in the

spirit it is meant.”

With less reliance on a mix of non-wage benefits than has traditionally been offered, developing effective reward systems for local employees is viewed as one of the most important challenges facing HR managers in FIEs. This is where knowledge of culture and how it might be applied, for example, in the construction of symbolic rewards as indicated above, is crucial for improving performance.

According to a manager with extensive experience in East Asia, there was not much difference between the reward systems used in China, Indonesia and Vietnam. He offered the following comments about rewards in Vietnam.

“The nonwage rewards included full medical insurance, a lot of company func- tions, gifts for the employees at TET [Vietnamese New Year festival] and at the holiday period. They were aimed at bringing people into the company and feeling that the company is a family. No housing was provided but it was being considered - it is difficult because land is very scarce in Vietnam and in most of these countries. The best way to do it is to subsidize a home loan through the bank- not for the company to lend money.”

Retention

Contrary to expectations, the major- ity of respondents did not experience significant problems with staff turnover. However, several managers com- plained about the impact of rising wages on their cost structures. And occasionally, key personnel could be lost to competitors. For example: “We had one very smart local guy who worked for the firm for three years, then he received an offer from another joint venture that was three times more than

24 Journal of World Business / 33(I) / 1998

we were able to pay him.” The problem was that losses of this kind had serious consequences for the business because talented employees were so difficult to find, and it requires time to train new recruits to the same level of compe- tence. Managers referred to improving the working environment, training (especially overseas training), and career progression as means of retain- ing employees. Some MNCs contract with employees to repay training costs if they leave the firm within a certain period. However, in some instances this practice has been abandoned because FIEs have found that they simply pay each other’s penalties when employees are recruited from other FIEs. One respondent noted that stability of employment was important. “Many foreign companies came in for a year and left,” a state of affairs that did not engender goodwill and loyalty to FIEs among the local workforce.

Performance Management

Several managers used adjectives such as “dismal” or “atrocious” in describing local labor productivity and quality levels. This was partly attributed to the greater use of labor intensive production processes but most managers referred to the “lack of a work ethic” and “bad work habits.” Here are some typical comments.

“Like all Chinese companies, they were

terribly overstaffed-people were not attending work, were sitting around doing

nothing or were reading newspapers- morale was low-when they see someone who is not working they don’t want to

work either. Morale improved after some

workers were sacked, particularly amongst the production workers.”

Another manager, who also managed a joint venture with a Chinese state enterprise, commented as follows:

“Their skills were initially a lot lower, and the work culture and work ethic are different-until you developed personal relationships with the employees they didn’t see any responsibility to get the work done on time. They have no concept of deadlines until you show them it is important. I would have to set deadlines and clearly communicate those, instead of people taking the initiative and saying I can get this job done in this amount of time. Clarifying goals was an important step in improving productivity. When we first went in people often didn’t understand the endpoint, and also they did not have to operate under the same time con- straints as existed in foreign companies. In most state enterprises there was no pressure whatsoever to produce a result- it was just a matter of turning up to work-it took a long while to counteract this. Giving better job definition through the training program helped.”

A third respondent with experience in China lamented the chronic lateness of employees.

“We tried to change the work ethic. We developed schedules and tried to make them show up on time . . in the end we had to provide rewards for showing up on time.”

These problems were apparently more severe where expatriates were managing a new joint venture with a former state enterprise (as indicated above). According to a manager with first hand experience, this required a different attitude:


“In these [state] enterprises they have a

very low work level-they get to work at

9.30, have two hours off for lunch to have

a sleep and go home at 4.00 and don’t do

very much work, of course for a low salary. When they come to a foreign organi-

zation, you expect that they work longer

hours, have a higher level of commitment

and receive a higher level of pay. Some

people find it difficult to transfer.”

Training and supervision also con- tributed to improvements in productivity. According to a respondent:

“As with most major technical jobs, until things get going there’s always a difficult

period because you haven’t got the people

there on-site to explain how to do things.

We didn’t have adequate staff to explain to the locals what their role was and

exactly what they had to do-they

weren’t closely supervised enough. After

a while they understood what they had to

do and they could be virtually left alone to do their job, but until they were trained up

they had to have their hands held. Produc-

tivity at the end was reasonable but still

you had to be there when they finished a

task to get them on to the new task. If a problem did arise they were unable to

solve it without an expatriate.”

As hinted at in the above quotation, improved productivity and product quality also depended on communications. A number of managers empha- sized the importance of issuing clear and simple directives. For example:

“There is a great need for patience-the

people are very competent, and as long as you are clear about what you want, they will deliver. If you are trying to manage

them you need to tell them what to do rather than rely on their initiative, and you

need to be very clear about what you want

out of them.”

Communications also meant understanding what employees were saying. Respondents referred to the Asian “Yes.” According to a manager this does “not mean that the person agrees with you, nor (sic) does it mean that he understands you; it means yes, he has heard you .”

Another manager counseled against expecting frank and open discussion with employees:

“You must understand the anxiety to

please, and you need to understand that you cannot be too confrontational. The locals will rarely disagree with you and will constantly defer to your opinion. You cannot ask leading questions, for exam-

ple: ‘I’ve heard sales are good in this area,’ because they will agree regardless of the reality. The more senior you are the more likely it is that they will exhibit anx-

iety to support, agree and help.”

Another manager explained that the mentoring system between expatriates and locals was useful for training but was also “designed to ensure that employees are happy with the jobs and satisfied with their scope of work, and the mentor may also help off-the-job with some personal issues.”

Some specific challenges also arise from cultural differences. For example, regarding the conduct of performance appraisals, a manager observed that:

“The danger is that the person who is supposed to complete the report does this and considers that they have fulfilled their duty, the person who is supposed to receive the report receives it and considers that they have done their duty, but nobody does anything about it. It is

important to ensure there is a point of action in the sequence.”


With the exception of service organizations, very few respondents adopted individual pay for performance systems. According to an experienced manager, this was because communica- tion problems were hard to overcome:

“They [local employees] are used to having enterprise-based bonuses and incentives and if you build these in, that’s fine. If you try and tie it to individual performance, then you create an administrative nightmare. A lot of companies go in there and they explain these things, but less than 50% of the people understand what they are saying, so it is better to keep things as simple as possible.”

Most of the enterprises awarded annual bonuses that comprised around 20% of employees’ salary. This was largely based on the performance of the organization as a whole. Incentive schemes were usually not used, and where they did exist, they were nor- mally not based on individual performance.

One manager devised a range of relationship-based motivators: “Besides bonuses, I used other incentives such as personal recognition, sometimes thank you notes, and 5 yuan [Chinese cur- rency] on their birthday-enough for meals for a day-which they knew was out of my own pocket.” The same manager also co-opted the local Chinese managers into the task of motivating the employees: “The department managers knew they had a job to get done. They would perform and get their people to perform if they were being looked after, so the idea was to pick their hot but- tons.”

The use of sanctions is also a means of securing compliance with higher per-

formance standards. Research mentioned earlier suggested there were obstacles to dismissing employees but that labor market reforms have apparently alleviated this constraint.

Individual dismissal remains a sensitive issue since it is viewed as a personal act that carries with it a grave loss of “face” for the dismissed employee. Dismissals that are not sensitively handled or targeted against powerful employees, can have adverse future implications. A manager who had experienced problems with a senior Chinese staff member in a joint venture in north- ern China commented as follows:

“Initially, the Chinese personnel manager was a Party Secretary whose idea of recruitment was to get males only. He was also incredibly conservative-we did a lot of talking and eventually he had to leave the organization . . . For the rest of the time I was in the country I got the cold shoulder from one of the local Board Members, even though we’d gone through a fairly exhaustive discussion process.”

In sum, managers were reluctant to use dismissals as a means of encourag- ing higher work performance. They rather relied to a greater extent on the personal relationship between manager and employee, and the mutual obligations these implied, although such relationships were typically underpinned by material incentives. Performance management was distinct in that it tended to take much greater account of issues outside the immediate working life of the employee, such as family problems. Regardless of the different approaches taken to performance management, most managers were still grappling with


the problem of poor employee performance at the conclusion of their assignment. Typically, they were achieving small incremental gains, but were dis- satisfied with the pace of change.

Management-Employee Relations

None of the respondents reported major problems with management-employee relations, although several conceded that it was difficult to gauge the tenor of such relations since workers rarely conveyed their private views to expatriate managers. Problems that were mentioned were referred to as isolated incidents and were usually related to misconduct, such as petty theft. Several respondents reported that enterprise unions facilitated management tasks. According to a widely-trav- eled manager:

It is noteworthy that there were no

“I have found that the unions are very good in these countries-they work for the company to make the company successful. Generally your top local employees are the head of the union. Our top local finance, operations, engineering, and commercial people were the union executive. They are very co-operative providing you set them up in the right way, have the right collective agreement, and train your union people in the right way. Companies coming in from the West must realize that the whole system in these countries is that the union is part of the Government. If you don’t accept it, you are fighting against the union and the Government. The unions in Indonesia tend to be a bit more Western oriented but I don’t see them as being militant.”

reports of unions taking on the function of collective bargaining, a role that might be anticipated following the labor

market reforms introduced in China in the past two years.

Expatriate Management Relations

Organizations had not apparently improved their handling of expatriate relations. Most managers claimed to be ill-prepared for, what was for three-quarters of them, a first expatriate assignment. Selection was based exclu- sively on technical and managerial skills. Only three of the organizations attempted to formally assess the cross-cultural adaptability of prospec- tive expatriate managers. One third of the managers were accompanied by their spouse. No formal assessment of spouse suitability was undertaken, although a small number of organizations conducted an informal assessment. In the larger companies pre- departure visits, typically lasting one week, were commonplace. These nor- mally occurred at the end of the selection process, and provided the manager and spouse with an opportunity to briefly experience the host country before making a commitment.

Most respondents were critical of the extent of support provided by their companies during the course of their assignment. For example:

“One big company is setting up a plant in

Zhuhai. These plants are often twenty minutes out of the center of town-there are no schools, and the kids can’t leave the compound, so it is like being in jail. As soon as they step out of the compound it’s like going into a feudal system. Multi- nationals are sending people there and the people sending them have never even been to China, and they are counseling them on what life is going to be like and

28 Journal of World Business / 3X I ) / I998

what the facilities are by reading out of a book.”

Some expatriates received very little support, and suffered from isolation in the host country. As one manager commented:

“For the really bad issues I tried to

explain the problem to people at home, but it just fell on deaf ears-they would

not make a point with the Chinese partner because they were not prepared to create friction. They just tried to tell me to do

my best, and see what I could do about it.”

Another manager observed that:

“The support was not satisfactory, there needs to be better preparation in terms of accommodation, and some willingness to

spend money from headquarters, rather than getting the Chinese business to fund all the cost of the expatriates. The people at home didn’t really understand. They could come and visit, they could talk to you on the phone, or could communicate

electronically but even if they came and stayed for a week at a time, there would be peak of understanding, but then it

would run away again . . . there were only one or two people who had a solid empa- thy for the issues.”

Bribery and corruption were issues that these managers were unaccustomed to addressing and felt in need of more organizational support. This arose partly because the law was not accorded the significance it has in the West. Lim- ited legitimacy meant that it was fre- quently and overtly transgressed. This encouraged expatriate managers to believe that competition was unfairly weighted against them if they followed Western rules of the game. Some

respondents, particularly those employed by larger organizations, reported that they had a strict company policy on bribery which required that they avoid involvement. However, most FIEs participated in the system by using a local agent to manage this aspect of business. Typically the person received a lump sum payment for ensuring the smooth passage of initiatives or paper- work through relevant government departments.

A manager of a Chinese joint venture claimed that: “... corruption is very widespread-I had a couple of officials come through my door who had been paid by person X to cause me trouble and they were duly paid by me to go away.” Another respondent with experience in several East Asian countries noted the predictability of the Indone- sian system of bribery and corruption:

“In every developing country across Asia there is a system of bribery, and in fact Indonesia is one of the better ones-at

least it is well established there-you don’t have to pay this department and that

department-you know how the system

works, and you just pay the right person, and they pass it on. It is not a serious problem for business. The locals get paid

very poorly-what do you expect?”

DISCUSSION

Our interviews with expatriate managers suggest two broad sources of improvement for managing human resources in FIEs. The first is understanding and leveraging cultural differences; the second concerns strategies for individual and organizational learning. These will be discussed in turn.


Cultural Differences: Learning and Leveraging

Although only a few respondents received cross-cultural training, they thought it was useful, and would have liked more. Other useful sources of information were identified, including recently returned expatriates, consulting companies, and information published by commercial research organizations. The following observation by a respondent testifies to the importance of preparation prior to opening up a business and managing in a foreign country:

“If we had researched more before we got there we would have saved a lot of money, but as there was such a short lead time, this did not happen. When you are working over there it is a long way from home and a long way to correct problems. You need to do more research into the way people operate, and the way business operates.”

Most managers believed that it was necessary to reside in the host country for an extended period before one could fully comprehend the issues. In this regard, a manager commented:

“Initially it was a matter of understanding the value set of the culture, the real root of the culture-what is important to them, what motivates them. You could see the outside effects of the culture-they might eat differently and they might shake hands differently, but until you understand the root of their value system it is very difficult to establish an effective managing environment.”

The most valuable source of information and advice, nominated by virtually all of the respondents, was the expatriate community in the host country. This

represented learning by experience, other people’s experience, which was always better than having to bear the costs.

Respondents varied in their beliefs about how much adaptation was required. Some organizations were determined to implement management systems that resembled as closely as possible those used at home, and a number of managers reported that this was a successful strategy, provided they were able to recruit employees with the req- uisite skills. Another manager from a large organization reported that he did not need to devise anything new, but merely adapted Western management principles to the host country culture.

Most respondents agreed that the essence of managing in the three countries lay in a sympathetic understanding and leveraging of the culture, which, as indicated earlier, may be demonstrated in tailoring techniques to the local culture, e.g. in devising new forms of performance management and reward systems. However, it also requires changes in expatriate manager behavior.

Just as making the best possible use of time is a concept that needs to be tempered in a different cultural environment, so it is with the emphasis on achievement as compared to cultivation of guanxi. In this regard, a manufacturing manager observed that:

“Business is done much more on a rela-

tionship basis, rather than a purely ‘value for money/specification meets my needs’ basis. You must establish personal relationships right through the whole of the business from the suppliers of material to customs-everything is much more on a


relationship basis and understanding that with a personal relationship comes a level of loyalty which takes a long time to establish and may be lost quite quickly.

They are not prepared to trust you until you have built that relationship, and I think we were doing it the other way around-we were doing business and then trying to develop the relationship.”

Another manager stressed the importance of spending time on developing relationships:

“Before any business meeting I would sit down and have some tea and a fifteen to twenty minute relationship discussion about how things were going, and how their family was. I did not sign any contract or conduct any business without developing a personal relationship with the person I was dealing with.”

One manager, when asked what was the most important lesson learned, summarized the feelings of most of the respondents when he stated:

“relationships, relationships, relationships . . . understand the culture and develop the relationships. Sounds simple but some people cannot do it.”

Individual and Organizational Learning

As noted in our discussion of expatriate relationships, managers received little training in the business customs and practices of the host country. There was little appreciation by senior managers or their expatriate colleagues that expectations need to be adjusted to a new time rhythm for conducting business, one which takes account of syn- chronicity, the salience of establishing and maintaining personal relationships,

impediments associated with lack of a common language, and in some cases, bureaucratic obstacles. In addition, time was needed for learning but this was rarely available. Of note too, is the fact that the average duration of expatriate assignment in our sample was two and a half years, scarcely time to capitalize on relationships and new knowledge, and potentially disadvantageous to the manager if not followed by further international experience. Indeed, the picture that emerges from our study is of expatriate managers more or less left to their own devices, an experience which is by and large repeated on repatriation. Con- sciously or not, this is a kind of ‘sink or swim’ strategy on the part of senior management of these organizations. In short, most of the participating organizations do not capture, systematize, dis- seminate and update the knowledge gained by expatriate managers in order to better equip the next generation of FIE managers.

A number of practices may be utilized to begin an incremental learning process. The first and most obvious is that managers should undertake a con- tinuous reporting process from begin- ning to end of the assignment, and a comprehensive debrief upon comple- tion of the assignment. This might take a similar form to that adopted in this study:

1. An examination of problems experienced, practical solutions devel-

oped, and important lessons learned. Moreover, this process should involve candid feedback on, and identification of deficiencies


in, the expatriate management process.

2. Where possible, it would be valuable to gather data on local employees’ views of the outgoing expatriate manager so that new managers are aware of local employee perceptions and values.

3. Where available, returned managers from a particular country should take a more active role in managing or supporting current expatriates in that country, and should be available to the current expatriate for consultation. Some of the organizations in this study utilized a changeover period during which both returning and new expatriate managers were at the FIE site in the host country for a period together.

4. It would probably be useful to give directors and senior managers greater exposure to East Asian countries where the company has business interests. Relatively fre- quent, brief visits do not provide a comprehensive understanding of cultural issues, but they may fur- nish senior managers with prelimi- nary information and demonstrate support for expatriate managers.

CONCLUSION

We began this paper by drawing attention to the massive growth of foreign direct investment in Asia, particularly in relation to China. We then briefly recounted key institutional and cultural factors that contribute to human resource management problems in that country. Following a review of these issues, we analyzed empirical data from

our exploratory interviews. These showed that major challenges lay in motivating employees, specifically in the design of performance management and reward systems and that the management of expatriate relations would benefit from serious attention. This was an unexpected finding since there is an extensive literature on this topic already pointing to the need for more system- atic policies.

We add our voice to this chorus by suggesting three avenues for policy development. The first is a much tighter linking of the management of expatriate relations with business strategy. This requires that senior management not only consider the company’s position and direction in terms of stages of inter- nationalization but also what policies should be pursued in relation to the management of FIEs and hence the nature of international assignments (Adler & Ghadar, 1990; State, 1997, Chap. 2). Second, within a broader strategy that acknowledges the inevita- bility of regional and global markets, attention needs to be directed towards organizational learning strategies that systematically build and continuously update knowledge of FIE management so that this is routinely included as part of management training and development. Third, in addition to adequate preparatory training just mentioned, other specific issues referred to by expatriate managers need attention. These include more organizational support and guidance around sensitive issues and better management of repatriation. Bearing in mind the time taken to develop relationships and learn the language and culture of the host coun-


try, longer assignments with built-in career progression may be preferable from both an individual and organizational point of view.

Although our research is exploratory, it does suggest several avenues for further investigation.

1.

2.

3.

4.

5.

Analysis of the motivational struc- ture and factors that encourage work and organizational commitment in China, Indonesia and Viet- nam. The design of more effective performance management and reward systems for employees in these countries. Research on ways in which organizational learning strategies yield positive effects. This work could examine how Japanese enterprises have successfully transferred knowledge during their involvement in strategic alliances (Camp- bell & Burton, 1994).

Research on the processes of expatriate succession may provide useful insights into techniques for transferring knowledge between successive expatriate managers.

It is necessary to repeat that China, and other East Asian countries like Indonesia and Vietnam are them- selves culturally diverse, therefore it is important to understand more fully the limits of our knowledge by continuously testing ideas in various parts of the complex reality we call “the host societies.”

Acknowledgment: We would like to thank the managers who gave their time to participate in this study, and special

thanks to James Carlopio and Doug State for comments on an earlier draft of this paper.

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APPENDIX

Table Al Characteristics of Respondents

capitul jlows

D.C.: World

Industry

Manufacturing (beverages)

Number of local employees managed by respondent

7,000

Manufacturing (beverages) Transport and distribution Manufacturing (food)

Manufacturing (industrial products)

Transport and distribution

Building products

Retail banking

Telecommunications

Construction

Transport and distribution

Manufacturing (industrial products)

Manufacturing (food)

Transport and manufacturing

Management consulting

Construction

Medical equipment

Manufacturing (food)

Financial services

Financial services


Transport and manufacturing

Telecommunications


Telecommunications

Manufacturing


Human Resources Manager 700

Chief Executive

Respondent’s position

450

General Manager

Director-employment relations

320

General Manager 300

General Manager 200

General Manager 200

Regional General Manager 200

Operations Manager 200

Director/General Manager 130

Manufacturing Manager I 00

General Manager 100

General Manager grew from 30 to 300

Project Manager 90

Management consultant x0

General Manager 70

General Manager 4s


Marketing Director 30

Managing consultant 2s

Managing consultant 25

Operations Manager IS

Business Development Manager 7

Managing partner 6


General Manager 5-12

Director/General Manager V


Documents

Managing people in China: perceptions of expatriate managers