Using Ownership Incentives in China - Case Study Example

Introduction In modern practices, organizations are experiencing numerous challenges in regard to the manner of human resource management. For instance, the firms are constantly striving to ensure they compete effectively in the market, and this means using the most efficient strategies at the least cost possible. Employee motivation remains the core factor that facilitates maximum employee output and eventual increase in production by the firms. The culture of employee ownership has gained popularity in most of the Western countries, with many firms finding it the ideal way of maintaining employee motivation and trust in the organization. On the other hand, the method has also been seen to reduce employee turnovers in the organizations where it is practiced. Statement of the Problem This study was particularly meant to determine the applicability of the ownership incentives approach, which has been widely popular in the US-based Silicon Valley, in China. Significance of the Study The outcome of the study are of great significance to Ben Freed and his partners in their quest to export this management culture to China with the aim of expanding their business and market globally. Analysis of the various aspects that would impact on the company’s incentive ownership culture would significantly inform the choice of practice to be adopted by the company, hence acting proactively to avert potential risks on the same. On the other hand, the findings of the study are of significant importance to employees, especially the experts based in the US, who are expected to move into a different country to introduce the new management system. The knowledge gained is important in preparing them on what to expect from the new geographical and cultural setup. Modes of exporting the local culture of employee ownership to China The local culture of ownership as practiced in the Silicon Valley could be exported to China in various ways. For instance, the mode of payment for the China-based employees, together with all other employee motivational practices done in the US, could be introduced for the Chinese employees. This would thus mean that the payment for these employees be inclusive of their normal salaries together with the stock ownership percentages as determined by their respective positions in the company (Dong, Bowles and Ho 826). With the use of employee ownership approach, the CEO is well placed in motivating the workers to be responsible and work hard considering that their own success is determined by the company’s success. Additionally, the use of this approach is important in demonstrating to the employees that the company values all stakeholders in it equally, and gives similar treatment to all its employees. As observed in the historical practices in China, however, there could be numerous challenges in implementing this considering that the workforce in China could possibly perceive such approaches by the CEO as forcing the American operational culture onto them, while overlooking the native population’s values. Another way of exporting the ownership culture to the Chinese population could involve sticking with the limiting stock ownership to the initial American team. By doing this, the CEO would be expected to formulate a different ownership culture and payment for the China-based team. However, this practice could prove challenging, especially if some of the staff in China could wish to have stock ownership in the company (Beyster and Economy 24). It could also be practical if the CEO exported the culture of ownership to China by creation of different structures of equity based on the different regions of operation. For instance, the ownership culture operations in China could be executed using different optimized methods of payment that are dependent on the region of operation and the taxation policy involved. Exporting the ownership culture to the Chinese employees could also be accomplished by sending expatriates from the US to China for the purpose of introducing the system, as well as offering the required training to the Chinese staff. The use of this approach could, however, experience culture shock for the foreign employees due to their lack of knowledge of the business traditions of the Chinese community. Factors affecting Ben Freed’s decision to offer the Chinese team similar company ownership Ben Freed’s decision to offer the Chinese team similar company ownership as the Silicon Valley team is affected by several factor, amongst which are the historical records of the employee ownership practices in China. According to the National Statistical Bereau data, at least 17 percent of the Chinese SOEs had adopted the practice by 2001 (Dong, Bowles and Ho 820). However, the subsequent setbacks resulting from the practice, amongst which were the illegal trades and government corruption, together with rampant black securities exchanges that potentially generated short-term returns, means the practice would not gain the desired popularity in the country. Additionally, the decision to offer company ownership to the Chinese employees would also be compromised by the restrictive policies put in place by the Chinese government, where the national legislation limited the development of stock-based employee ownership in both listed and the non-listed stock companies. The introduction of the new systems of operation was also vulnerable to foreseeable culture shock by the US experts coming to introduce the system in China. Culture shock involves variable experiences for the individual, amongst which are frustrations particularly as a result of lack of capacity to cope with the prevailing environmental and cultural practices (Beyster and Economy 73). There would be the inability to function and identify with the new culture as an outcome of estrangement from the cognitive frames. The system also faced the risk of being frustrated by the Chinese employees due to lack of understanding together with the unfamiliarity of the responsibilities. The political uncertainties as well as the instability of the social environment could prove a great problem to the company ownership practice in the country. The employees would prefer short-term engagements as opposed to long-term strategy of payment and motivation. The Chinese population has historically had a negative perception towards private business (Beyster and Economy 52). According to the Confucian principles, entrepreneurs are discouraged against sacrificing of the equity control to strangers in exchange of money. Company ownership culture has some entrepreneurial attributes that include flexibility, self-initiative, profit-orientation and creativity, which are often perceived as being in contravention of the society values for the Chinese. Requirements for ownership culture Employee stock ownership is one of the essential ingredients for establishment of ownership culture in an organization. However, employee ownership on its own does not enhance the performance and motivation of the employees (Rosen, Case and Staubus 124). It is observed by that combined practice of employee ownership together with employee participation results in improved performance and ownership culture creation. It is the genuine employee partnership that leads to responsible employee culture in the firm (Beyster and Economy 73). Other methods of ownership culture could involve provision of information, incentives, responsibility and skills in order to make decisions that are important for quality improvement, innovation, as well as rapid responses to change. Company ownership culture is majorly meant for enhancing work-place performance in companies, and this can be achieved through integration of business, technology strategies and the human resource. Generally, firms that are employee-owned have higher likelihood than the traditional firms to offer sufficient incentives, skills, information, and responsibility to their respective workforces. Regular and factual communication efforts by the leadership of the company would be ideal in giving the true meaning of ownership and performance of the organization. With this, there is bound to be a high satisfaction level of the employees’ interest as well as enhancing the ownership culture development (Rosen, Case and Staubus 126). In order to make this successful, the hierarchy and the system of communication therein must be flattened to facilitate unlimited information flow network, which makes the employees feel absolute involvement and ownership of the firm. On the other hand, the development of ownership company culture could be achieved through all-inclusive structure of decision making. It is evident that transformation of employees into owners needs cultivation of genuine ownership sense in which the employees assume the ownership responsibility seriously and their respective actions add value to the success of the company. Ownership culture development may require some time for implementation and it means ensuring they acquire what the company management already has (Blasi, Kruse and Bernstein 52). For instance, the employees should be given equity; their opinions on how things should be done must be considered, and they must also be given the necessary information and training. Employees should have access to the financial report of the company and develop their own communication, decision making as well as problem solving skills. Questions to ask for better evaluation of the opportunity Evaluation of the opportunities is an important aspect prior to the setting up of a business in a new destination. Ben’s evaluation of the market should be aimed at understanding the macroeconomics together with the industry investments, the market situation at hand and the study on the market opportunities of the industry. In addition, questions on the market research, investment plan and market prediction are o\important for the purpose of making right decisions for investment. Evaluation of market opportunities is meant to give a critical insight of the stability level of the industry together with market situation. The evaluation of the current situation of the industry and prediction of future endeavors is one of the essential considerations (Blasi, Kruse and Bernstein 43). There is need to critically describe the current scale of the technology industry in China together its development status. On the other hand, questions of how the micro and macro environmental factors affect the t business characteristics ought to be evaluated for the purpose of showing the developing sequel together with the future of the industry (Dong, Bowles and Ho 820). Among these is the rate of market growth, life cycle of the products, the industry scale, the core equipment and main resource status of supply, the export and import status, as well as the profit of the industry. In addition to this, it is important for Ben to ask himself about the competition the business is bound to encounter, and in response perform a comprehensive analysis of the same. The competitor situation analysis focuses on the main composing partners of the industry, as well as the major intimidating corporation of the clients (Australian Employee Ownership Association). Among other basic factors for consideration is the investigation of content that include the basic information for registration, the organization structure of the corporation, production situation, product situation, channel policies, distribution situation, human resource, and financial analysis. Through investigations on the competitors on the analysis of competition posture, he could be able to understand the entire competition environment. Another important factor worth consideration in determination of market opportunities is the channel sales investigation. In this, it is expected that Ben understands the distribution organization method of the industry by way of investigating the main dealers, understanding the lengths, scope and width of the channels, and understanding the duties of the channel participants within each sector (Liao and Sohmen 29). The controlling strategies together with the profit chares should be well investigated too. Investigation of the demand situation is a significant aspect of opportunity evaluation for every business, and this is done on the basis of the different demands of the products as well as the analysis of the individuals’ corporation. Based on the characteristics of the individual targets in business using variable investigation methods, the business is able to understand the entire demander situation, including the demand characteristics, scale and the changing stream. How to prepare the American team The American team that has all along been efficient in development of the Tech Design has to be exported to China in order to give the needed training to the employees in China on the best practices for the business. In this respect, therefore, there is need for these experts to be prepared well in order to cope with the expected culture shock during their stay in China (Zhang and Logan 32). The process of cultural and psychological adjustment in the new environment involves several stages, and they include incubation period, which is characterized by a feeling of high elation. This is followed by the crisis period due to genuine difficulties experienced by the individual at the early period of encounter with the new culture. In order to minimize the effects of cultural shock, the adjustment process can be initiated, particularly with the aim of alleviating the effects of high psychic distance from the home culture of the expatriate. Among the psychological adjustment variables is satisfaction, the feelings of acceptance, as well the ability to cope with daily activities (Dong, Bowles and Ho 820). The foreign expatriates also seek to acquire the skills and behaviors that are culturally appropriate during their stay in foreign cultures. Adjustment to interactions constitutes the most difficult adjustment dimension considering that it involves interaction between nationals of the host country who have varied beliefs, perceptions and values. Different cultures exhibit different regulations that guide what is considered proper individual guidance for the individuals within the society (Rosen, Case and Staubus 124). As a result of this, there is often the tendency of misunderstanding and conflicts arising between the host nationals and the incoming new foreigners. Such circumstance result in anxiety depression, and anger, and this undoubtedly obstruct the process of adjustment. Adjusting to the job environment is the simplest of the three adjustment dimensions in as far as countering of culture shock by the expatriates is concerned. This is because adjustment to job is helped by the similarities in the job procedures, requirements and policies in the foreign country, which may bear some similarities with those in the native country. The adjustment may not be as smooth as often imagined since efforts are still required in forging cooperation from the workers (Zhang and Logan 30). Adjusting to the general non-work environment, which is typically the major concern for the cross-cultural adjustment, includes many issues among which are health care, housing, shopping and food. Considering that culture shock involves distortion or removal of majority of the cues with which the individual was familiar, and replacing them with the strange ones, the general non-work adjustment represents the bulk of diversity and proper internalization of these facilitates better environment for efficient working. Concerns in expanding an employee ownership culture The expansion of the employee ownership culture from the US-based Silicon Valley to China was under numerous concerns that included the acceptability of the system in China. For instance, the Chinese population characteristically has different expectations of the foreign investors, in terms of the large amounts of compensation and this could significantly contravene the spirit of company ownership (Dong, Bowles and Ho 820). As far as the application of the system is concerned, the investors expect that the employee-owned enterprise compensates the employees based on the corresponding returns on the profit made. However, majority of the China-based employees, including the low and middle-management level personnel prefer short-term compensation programs as opposed to the long-term strategy introduced through company ownership culture. Another concern for the expansion of the culture is the possible hostility towards the foreign experts moving into China from the US. The Chinese national legislation is so restrictive towards employee ownership practices, and this would only get stricter with the notion that the incoming company is foreign-based (Zhang and Logan 37). The culture shock for the US experts moving into China is another barrier that could hamper the eventual initiation of the culture in China. The experts would require more time to settle in the country before introducing the new system that could equally take long to be understood and accepted by the Chinese employees. Ben’s decisions in five years or more After consideration and evaluation of all the factors involved in the startup of the business in China, it is expected that Ben makes the most ideal and cost-effective decision that would spur the firm towards realization of its goals. For instance, it is expected that over some times, the company sets up the business, following successful training and employee awareness of the new system of management and company ownership (Zhang and Logan 32). Despite the foreseeable challenges the company is bound to encounter, it is expected that the favorable measures are put in place, whereby the company is able to handle the variable employee expectations by introducing policies that best suit the individual employee desires (Blasi, Kruse and Bernstein 47). For instance, it would be ideal that the culture be voluntarily adopted by the informed employees while the unwilling ones are given time to understand it. This would mean only those employees interested in company ownership are incorporated into the system while those opposed to it receive their pays as desired. Work Cited Australian Employee Ownership Association. Employee ownership around the globe. Working paper for the Australian Employee Ownership Association, Sydney: Australia, 2008 Beyster, J, R, and Economy P. The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company. Hoboken, N.J.: John Wiley & Sons, 2007 Blasi, J, Kruse, D, and Bernstein, A. In the Company of Owners: The Truth about Stock Options (and Why Every Employee Should Have Them). New York, NY: Basic Books, 2003 Dong, X, Bowles, P, and Ho, S, S. “Share ownership and employee attitudes: Some evidence from Chinas post privatization rural industry.” Journal of Comparative Economics 30(2002): 812–835. Liao, D, and Sohmen, P. “The development of modern entrepreneurship in China”. Stanford Journal of East Asian Affairs 1(2001): 27-33. Rosen, C., Case, J. and Staubus, M. “Every Employee an Owner. Realy.” Havard Business Review 83.6(2005):122-130 Zhang, G, and Logan, J. Employee ownership Chinese style: Gradualism, regionalism, and market-‐oriented reform. Working paper for the Ohio Employee Ownership Center, Kent State University: Ohio, 2003 Read More