International Business Strategy in HR of the Chinese MNCs - Dissertation Example

?Introduction With the liberalization of foreign trade and globalization multinational companies (MNCs) from emerging economies have been entering the global markets. This has led to urgency in developing a better understanding of their business strategies. The Chinese MNCs are fast tracking their way into global markets and their strategy includes acquiring established brands, gaining access to retail channels, and access to technology (Alden & Davies, 2006; Andersson, 2011). Cooke (2007) adds that the intention is not just to transfer their resources to the host country, but to learn, to gain access to, the necessary strategic assets available in the host country. In the 1990s China became the largest outward investor among the emerging economies and the eight largest supplier of FDI in the world. Only 32 of the largest MNCs out of the top 500 of the worlds were from emerging economies and out of these 32, 16 MNCs were from China (Fan, Nyland & Zhu, 2009). The ‘go abroad’ policy of the government urged the Chinese companies to expand abroad. Even though the global FDI fell by 20% in 2008, outward FDI from China nearly doubled during the period. The Chinese economy is expected to be the world’s largest by 2025 in terms of purchasing power parity (Fornes & Butt-Philip, 2011). The ‘first mover’ Chinese companies include not just the traditional industries but also the telecom and the information technology sector (Alden & Davies, 2006). China now has global economical and political power and the Chinese MNCs are drivers of international business. MNCs from emerging economies face integration difficulties and need to be locally responsive. The MNCs have started dominating the world market and how they manage their personnel on an international scale is considered critical to the success of globalizing strategies (Zhang, 2003). When firms operate across boundaries the organizational culture is secondary to the national culture. Problem statement Most studies in international business focus on the success and failures of MNCs from developed countries in developing and emerging economies. However, in recent times MNCs from emerging economies such as India and China have also been making entry into developed as well as developing nations. The theories of internationalization are based on the MNCs from developed countries. These may not applicable to MNCs from emerging economies as they lack the expertise in best practices. They particularly face issues in HR management due to lack knowledge of cultural integration. This is because the MNCs from emerging markets come from a national, cultural and institutional background that differs from the developed country MNCs. This gives rise to the importance of understanding the cultural context and its contribution in the success and failure of the emerging MNCs. Since the Chinese MNCs have been venturing overseas with the support of the government, it has been considered essential to evaluate how national cultures can make an impact on the HRM practices. Bunchapattanasakda and Wong (2011) contend that nations with comparative advantage would tend to transfer their home practices to their overseas subsidiaries but those with low comparative advantages may be forced to adopt the overseas practices. Several MNCs in Europe and the US were taken over by Chinese companies such as China Mobile and TCL but they failed to operate the takeovers successfully (Cao & Forrest, 2011). The main reason cited has been the lack of experience to handle the organization due to language and cultural barriers. The Chinese MNCs could not win the support of the stakeholders due to limited global visibility. Networking and guanxi, typical of Chinese culture, did not appear to work in western business environments. Fan, Nyland and Zhu (2009) suggest evaluating the factors that drive the Chinese MNCs to integrate their operations globally. One of the main causes of failures that have emerged is the lack of knowledge in managing human resources by the Chinese managers. Xhang (2003) found that the CMNCs had to adopt the local HR practices in UK if they wanted to succeed. However, no study has focused on the role of culture in integrating with overseas operations. It is thus felt necessary to evaluate the role that culture plays in the success or failure of the Chinese MNCs in the international environment. Research aims and objectives Thus with the aim to evaluate the international business strategy in HR practices of the Chinese MNCs, the objectives of the study are: To investigate into the reasons for success and failures of Chinese MNCs in western markets To evaluate the significance of cultural compatibility among the Chinese managers and their western counterparts To determine if a sequential foreign market entry by Chinese MNCs such as Huawei and Haier have been followed. This study would focus on the impact of cultural differences which influence the outcome of Chinese MNCs in foreign markets. The growth and development of two companies would be traced and compared. Since sufficient data is available on the subject, this study would be based on in-depth investigation into how these two companies could overcome the cultural barriers. Literature Review Culture Hofstede defines culture as the collective programming of the mind which differentiates one group of people from another (Hope & Muhlemann, 2001) and provides a sense of identity (Schein, 1992). Over time each society develops its own set of patterns and behavior which enables them to live harmoniously. The culture in which one grows up has a deeper impact on the individual and the work life than the organizational culture to which one is exposed. Hence, in a cross-cultural environment, an understanding of the cultural differences can significantly impact the outcome of the project. Attitudes towards work, authority and equality may also differ across locations (Johnson, Scholes, and Whittington 2005: 197). Forces of culture are powerful and when people from diverse cultures converge to work together, such situations are highly likely to arise. Therefore culture is an informal control mechanism and this also defines the acceptable behavior in the society (Schraeder, Tears & Jordan, 2006). Cultural impacts on organizations The four dimensions of national cultures that impact the workplace include power distance, uncertainty avoidance, individualism–collectivism, and masculinity–femininity. Chinese is a collectivist society with high power distance. This is applicable to most Asian societies whereas most western societies have low power distance and individualism prevalent; variations do exist though. Thus different cultures or different programming govern the activities, motivation and values (Gilbert & Tsao, 2000). Different cultures and mind set also lead to different perception of goals, expectations, values and proposed course of action (Friday & Friday, 2003). As literacy levels and expectations differ, so do the problem-solving approach (Pizam & Eliss, 1999). National culture impacts major business activities but these may not be applicable in an international business environment. Challenges faced by emerging country MNCs Fan, Nyland and Zhu (2009) studied the integration-responsiveness framework for Chinese MNCs in other countries. They examined the global integration, the local responsiveness and its impact on the adoption of international business strategy. They also evaluated the determinants responsible for the IBS by the Chinese MNCs (CMNC). This was a study based on secondary search where the authors enumerated the motivation for the Chinese companies to set up overseas ventures. It also charted the development and the performance of the CMNCs but no specific organization was selected for this. The study found that the Chinese economy is becoming increasingly integrated with the regional and global economy but to maintain the momentum of the domestic economy, investment abroad has to continue. One of the areas for further research suggested by the authors was to evaluate the factors that drive the Chinese MNCs to integrate their operations globally. National, cultural and institutional differences may constrain or limit the transfer of best management practices but these are more applicable to the MNCs from the developed nations. The best management practices in relation to HR are not known of the MNCs from the emerging economies. One of the factors that drive the Chinese MNCs to integrate their operations globally is the HR practices. Zhang (2003) conducted in-depth case studies of six Chinese companies in the London area. The study found that the CMNCs had to adopt the local HR practices in UK if they wanted to succeed. The motivation for Chinese companies to expand overseas is to learn in the process, they could fulfill their objective and survive only if they adopt the local labor practices. This strategy enabled them to transfer the UK best practice expertise and management into China. The Chinese management systems have to be replaced in the local organizations. However, the national business system may constrain the process and extent of transfer. Zhang and Edwards (2003) also add that the need to compete in international markets may force the Chinese MNCs to adopt the local HRM practices but the scope and extent of localization reflects the characteristics of the stages of economic development of the “country of origin”. HRM in MNCs from emerging economies is moving towards globalization or convergence. The MNCs face several challenges but the most pronounced is the cultural difference which impacts the HR strategies. HRM is the most sensitive to local context and more so in the case of MNCs from emerging economies. MNCs from emerging economies are smaller in size and are restrained on resources. Thite, Wilkinson and Shah (2012) dealt with Strategic International Human Resource Management (SIHRM) that links HRM with strategic management processes of the MNCs in emerging economies. The study found that the western management practices are now giving way to new economic and management paradigms. The authors examined the key factors such as the cultural differences, institutional differences, and the interplay between them. The management practices and process of MNCs from emerging economies needs greater research in how they fair in other economies. Greater insight is needed into their business strategies in both developed and developing economies. The cultural framework of national cultures pioneered by Hofstede has limitations and the importance of country of origin remains a consistent theme. The Indian IT companies in foreign countries were unable to attract talent because of the poor perception of employer brand. This poor perception is also enhanced by the manufacturing lobbyists through negative publicity of the Chinese brands overseas (Alden & Davies, 2006). This is the reason that the Chinese firms are struggling to establish themselves in the international market. Some Chinese MNCs such as Lenovo and TCL are struggling to establish themselves in foreign countries; others such as Haier and Huawei have engraved significant footmarks in internationalization. Haier, for instance, gained 70% of the wine cooler and 50% of the compact refrigerator market in the US by 2003. Bhuiyan (2011) identified the tacit sources of competitive advantage that the Chinese MNCs utilize. Through a longitudinal study the author found that the tacit sources of competitive advantage that Chinese MNCs derive are the technical knowledge that they acquire from the western MNCs in China, moral and financial support from the government, and the strategic intent to be established fast in the competitive world. The findings by Fornes and Butt-Philip (2011) corroborate with those of Bhuiyan as these authors too reviewed the literature on the internationalization of Chinese companies into Latin America. Fornes and Butt-Philip also discuss the characteristics and the competitive capabilities of the Chinese international firms. Globalization or convergence is essential for success in international markets but the author still suggest further area of research which includes identification of the factors responsible for success and failures in international markets for the MNCs from emerging economies. Alden and Davies (2006) investigated the CMNCs in Africa. They examined the content and conduct of these firms, their linkages to government strategy and the impact that these firms made in Africa. The authors also agree with Bhuiyan that the typical CMNC business model relies heavily on political and financial support from the state. Andersson (2011) also evaluated the difference in the internationalization process of the Chinese MNCs and the developed country MNCs, along with the motivation for the Chinese MNCs to enter developed economies. While the motivation for entering foreign markets are many, Cooke (2007) evaluated how managing human resources in host countries differs significantly due to country-specific business systems and employment environments. HRM practices in host countries can be influenced by institutional, cultural and sectoral factors. The study found that Chinese managers lack foreign market knowledge, experience and international expertise in the management of human resources. Cooke suggests that the Chinese managers need to be familiar with socio-cultural-specific business practices. These are generic lessons which the Chinese managers need to learn from their western counterparts, contends Cooke. However, whether the Chinese managers have been able to acquire an understanding of the cultural factors that influence HRM strategies in foreign countries, has not been particularly studied. Bunchapattanasakda and Wong (2010) analyzed Thai and Chinese national characteristics based on Hofstede’s cultural dimensions. They also evaluated the Chinese HRM approaches and Thai and Chinese social concepts. Differences in cultural values between Thai and Chinese managers were found and the Chinese managers were not adapting to the Thai culture. However, the Thai managers expressed satisfaction working with Chinese managers. However this study was limited to Thailand and besides, no explanations have been provided of good working relationship between the Thai and the Chinese managers. At best, this study suggests that despite cultural differences, working relationships can be maintained and success achieved. Based on existing case studies Lin (2010) evaluated the performance of the state Chinese MNCs and private MNCs in their overseas ventures. The findings suggest that the private MNCs should outperform their state counterparts although this does not necessarily translate into survival rate. This study focused on the large state-owned enterprises. The private CMNCs tend to become locally embedded and then tend to be more flexible and adaptable to local conditions. The reviewed literature thus suggests that to be successful the CMNCs have to adopt local practices in HRM as in the case of UK. However, it has also been found that without adopting local practices the Chinese MNCs could achieve success in Thailand. This gives rise to the query – does psychic distance play a significant role in the success or failure of an MNC entering a foreign market? On what basis do Chinese MNCs decide to enter a market? Theoretical framework With the above questions in mind, this study proposes to apply the Uppsala model of the internationalization process, which describes the stages of the organization’s involvement into international involvement through knowledge development. Companies with no prior experience in international business start with exporting. They then establish sales through agents, establish sales subsidiaries and then start their own production in foreign markets. Psychic distance has also been given importance in the internationalization process as companies first attempt to enter markets that are similar to their own markets in terms of culture and other social factors. This is to avoid the difficulties in understanding a foreign environment as far as language, customs, culture, education and business practices are concerned (Andersson, 2011). Psychic distance may create uncertainties between markets and hence an organization may first enter a market with short psychic distance and then gradually expand and enter countries with larger psychic distance. Data from two companies - Haier and Huawei - would be analyzed based on the Uppsala model of internationalization. Methodology The research process depends on several factors such as the purpose of research, the size of the sample, the time, duration and the budget at hand. According to Amaratunga et al (2002) as the research is concerned with problems and attitudes, the process of research should be methodical and systematic; it should follow a set pattern of data collection, analysis and interpretation, and inference drawing. Purpose of the research and the phenomenon The Chinese MNCs have been surging ahead in the global marketplace without readiness in terms of being able to manage human resources. This impacts the outcome of their overseas ventures. While the drivers of international expansion are many, and while the benefits too cannot be denied, the Chinese managers appear to lack the necessary knowledge of SIHRM. China is widely different in culture compared to the western and developed countries in which it has encountered failures. It would thus be of academic interest to understand the cultural influence and how these can be overcome to make the CMNCs international ventures successful. Thus the phenomenon under study is the attitude of the Chinese managers along with the strategic approach that the organizations adopt when moving to another country. There are gaps in the available literature and through scanning and weaving the secondary data, this gap is expected to be filled up. The theory used for this study would be the Uppsala Model of internationalization. Epistemology Epistemology is the basis of knowledge – it explores how we have acquired the knowledge. Knowledge can be acquired through four different sources – intuition – an initial idea to conduct a research, literature review which is considered authoritative, logical reasoning and empirical observation (Henrich, 2002). While there are several methods to acquire knowledge or the approach to adopt for research, the two most common methods of research are the quantitative and the qualitative methods of study. Qualitative/quantitative methods The qualitative method is an inductive method in which the researcher focuses on the subjective reality of the subject being studied. This method has several advantages such as its focus on words. It is not based on numeric figures and hence through the use of words it is possible to explain this in the simplest terms. Moreover, as the research process evolves, this method makes it possible to change the research strategy and the data collection process if necessary (Amaratunga et al, 2002). This method requires prolonged contact with the field of study. In this method the researcher sees the world from the point of the actor and hence the researcher’s involvement is essential. The quantitative method, on the other hand, is based on numbers and figures. To minimize errors the quantitative method uses co-relational designs to facilitate the right perception. This study does not require quantitative data. The findings in quantitative data are descriptive and empirical and require sophisticated statistical analysis. The study of MNCs does not require statistical analysis, which again implies that this method is not necessary for this study. Justification for the qualitative method Qualitative method requires the researcher to be involved in the study. This implies the researcher has the opportunity to extract data from several sources. Qualitative data can be obtained through multiple sources such as previous research, literature review, and case studies. It also provides greater depth as it requires interpretation of the occurrences rather than just depend on numbers and figures to arrive at a conclusion. The subject under study requires qualitative data from several sources such as from the company, from government sources, from newspaper dailies. It would be possible to corroborate data from multiple sources and identify discrepancies, if any. At the same time, it would also be possible to verify and authenticate if the same data is returned from different sources. Qualitative data has been considered the best strategy to explore and discover a new area (Jones, 2004). This is because of the inherent flexibility available in the data collection process. Again, in quantitative data there is less scope for the unanticipated (Sandelowski, 2000). The researcher can pre-set the confines and variables. Hence the data obtained remains within these limits whereas in the qualitative method, since it is an in-depth investigation, the unexpected may give a different turn to the study. This subject needs deep exploration of the causes and consequences of cultural differences and hence the qualitative method is justified for this study. In the study being based on the qualitative approach, the chances of discovering something new are high. This is quite likely in the current study because much research has already been conducted on the operations of the Chinese MNCs in overseas locations. However, knowledge about the influence of culture in managing the Chinese MNCs overseas is fragmented. Data collection Data for any study is generally gathered through two different sources – primary data and secondary data. Some studies may require data from both the sources but some can achieve the intended objectives only based on secondary data. Primary data is specific to any study and can be collected through multiple instruments such as field surveys, interviews, and survey questionnaires. Secondary data can also be collected through multiple sources. This study would be based wholly on secondary data and the justification for the chosen method of data collection has been given below. Justification for collection of secondary data The first and foremost justification for basing this study on secondary data is that the failed organizations would not be willing to comply with requests for divulging information. The successful organizations also would not be willing to reveal the secrets of their success. This is because most of the larger CMNCs are state-owned and would not be willing to share information. They would also not be willing to give interviews on the subject of cultural integration. Thus the study would have to depend upon data gathered from sources such as academic journals, newspaper dailies, company websites and government sources. Basing the study on secondary data enables the researcher to focus on assessing, evaluating and critically examining the existing data. There are other economic benefits as well as there is practically no costs involved in preparing questionnaires, travelling to conduct interviews, on telephones or any other administrative expenses. These can be time consuming as well. Moreover, the information required for this study may already be available within the secondary data collected for the purpose. This justification does not in any way undermine the potential and benefits of primary data. However, the lack of experience of the researcher and the chances of non-compliance by the organizations concerned, in addition to the cost and time factors, secondary data has been considered to be justified for this study. Attempts would be made to gather data from academic journals and government sources, in addition to company websites. As far as theories and definition on culture, organizational culture and cross-cultural factors are concerned, focus would be on academic journals. However, to obtain insider information, efforts would be made to obtain data through reliable websites and newspaper dailies. For this, search would be made through reputed search engines such as Google and Yahoo! Data on the two companies would be assimilated and evaluated against the Uppasala Model of internationalization to determine if there is a set pattern that failed organizations and successful organizations follow. This would enable the CMNCs to follow the successful path and avoid the failed path. Ethical concerns Since there is no primary data collection, the ethical issues are limited. All efforts would be made to cite the sources and provide due references for the secondary data used in the study thereby protecting the intellectual property rights of the authors and researchers. Limitations of the study It is not known how much data on the subject would be available through government sources and through company websites. Data from academic journals seem to be available in abundance as per initial search effort. This study would be wholly based on previous studies and no primary data would be gathered. Conclusion The research proposal contains the aims and objectives of the study which is focused on evaluating the international business strategy in HR practices of the Chinese MNCs. The Chinese MNCs no more lag behind the MNCs from the western countries and need investigation to evaluate the international business strategies that emerging country MNCs follow as regards to their HR practices. Preparing this proposal itself has been a learning process. To arrive at the aims and objectives of the research, the researcher has to first engage in reading through the previous studies. Only then one knows what needs to be researched and what would help the academia as well as the industries. Thus, the first chapter cannot be written unless the literature review chapter has been synthesized. Another revelation has been that all studies need not be based on primary data collection. Secondary data may have the information which needs to be assessed, evaluated and critically examined to achieve the intended objectives. References Alden, C., and Davies, M. 2006. Chinese Multinational Corporations in Africa. [Online] Available from: [Accessed 9 May 2012] Amaratunga, D., Baldry, D., Sarshar, M. and Newton, R. 2002. Quantitative and Qualitative Research in the built environment: application of mixed research approach. Work Study. 15 (1), pp. 17-31 Andersson, R., 2011. 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