China and international human resource management of Nestl - Essay Example

China and International Human Resource Management of Nestl Introduction Human resources are essential to the organizational success. Human Resource (HR) management deals with the design of formal systems in an organization to ensure the effective and efficient use of human talent to accomplish organizational goals. As firms develop and expand, they identify opportunities to begin operating in other countries. A multinational enterprise is one in which organizational units are located in foreign countries. Typically these units provide goods and services for the geographic areas surrounding the countries where operations exist. Today's increasingly global, competitive marketplace has led to considerable changes in labour markets, and has transformed the practice of Human Resource Management. All Multinational enterprises face a range of challenges in managing their businesses in a country like China, which restraint, prohibit or limit market access and ownership rights. Nestl is the multi-national enterprise selected for the purpose of this study. The changes Nestl had to implement in its International Human Resource policies to start a subsidiary in China are discussed upon in the following sections. China and Human Resource Management China has one of the world's oldest civilizations, consisting of states and cultures dating back more than six millennia. It is a communist country, where state-owned enterprises still produce about one-third of the country's GNP and so government has more direct influence on corporate strategy in China (Dessler, G., 2006). According to Dessler, G. (2006), the existing human capital pool in China is influenced by the following factors: Government influence- The government's 'Iron Rice Bowl' approach consisted of practices including lifetime employment, cradle to grave welfare coverage, no layoffs/firing policies, government based pay systems, and group based rewards. It restricted the entry of unemployed into the cities through the 'Hukuo' registration system that severely restricts labour mobility. The government also insisted on the personnel file system which requires employees to transfer their government-administered personnel files to new employers before changing jobs. The Cultural Revolution- This revolution largely lowered and belittled formal university education, closing down universities and schools. Shortage of labour- The problem is that most of China's new jobs are and will be in or near cities, while most of the labour force is still in rural areas. China is therefore undergoing one of the largest human migrations in history. Shortages are not confined to professional and managerial personnel. Global competition- The managers in China face an intensely competitive global industrial environment. Whether expanding into or out of China, the challenge in globalization is competing with world-class businesses in their own markets. Therefore efficient Human Resource management is the key to success in China. A multinational enterprise like Nestl has to make certain changes in its international human resource management policies to survive in China. Nestl Nestl is a multinational packaged food company founded and headquartered in Vevey, Switzerland (Nestl, 2008). It was started in 1905 by Henri Nestl to provide an infant food product. Nestl has a wide range of products across a number of markets including coffee, water, other beverages, ice cream, infant foods, performance and healthcare nutrition, seasonings, frozen and refrigerated foods, confectionery and pet food. The company has set up factories locally, employed personnel from the country concerned and relies on indigenous raw materials in many countries. Nestl has a subsidiary in China. After 13 years of talks, Nestl was formally invited into Shuangcheng, China in 1987, by the Government of Heilongjiang province. There are various differences between the two countries which are discussed in the following section. China vs. Switzerland The cultures of China and Switzerland are different in many aspects. Geert Hofstede, a Dutch scholar and researcher, conducted research on over 100,000 IBM employees in 53 countries, and identified the following dimensions useful in identifying and comparing culture (Hofstede, G., 2001): a) Power distance- Power distance depicts the extent to which less powerful members of institutions and organizations accept that power is distributed unequally. b) Individualistic and collectivistic cultures- This dimension defines the extent to which emphasis is placed on individual or group goals. c) Masculine and feminine cultures- Masculinity/Femininity portrays the extent to which social gender roles are clearly distinct and independent. d) Uncertainty avoidance culture- Uncertainty avoidance describes the extent to which members of a culture shun ambiguous situations and look for structure in their institutions, and relationships. e) Long- term orientation- Geert Hofstede added a fifth Dimension after conducting an additional international study with a survey instrument developed with Chinese employees and managers, which is based on Confucian dynamism. Long-term orientation shows a society fostering virtues oriented toward future rewards, thrift and perseverance; they exhibit a sense of shame. According to Hofstede's cultural dimensions, a comparison can be made on the cultures of Switzerland and China, as given below in the following table. Table 1 Cultural difference between China and Switzerland Cultural dimension Switzerland China Power distance This indicates that the Swiss population has a relatively equal distribution of power and control of the society among all the members of the society. China's significantly higher Power Distance ranking indicates a high level of inequality of power and wealth within the society. Individualism vs. collectivism The Swiss population has a more individualistic nature where the people tend to take care of themselves and their close family, but tend not to 'meddle' in the matters of others. The Chinese exhibit collectivism, which may be attributed to the high level of emphasis on a Collectivist society by the Communist rule. The society fosters strong relationships. Masculinity index The country has a high index of masculinity, which indicates a strong gender differentiation in which the male population is competitive and assertive relative to the female population. China also has a very high index, though it is lower than Switzerland. So there is higher polarization between the values of Chinese men and women. Uncertainty avoidance The population is more accepting of unique and unusual situations and ideas, with greater tolerance of divergent points of view. The index value is lower than that of Switzerland. Orientation This dimension is applicable to all Asian countries and is based on Confucian dynamism. China's high Long-term Orientation Dimension indicates the society's time perspective and an attitude of persevering; that is, overcoming obstacles with time, if not with will and strength. The criticisms of the cultural dimensions are that Hofstede generalizes about the entire national population in each country solely on the basis of analysis of a few questionnaire responses. The respondents were simply certain categories of employees in the subsidiaries of a single company. Other sections of national populations - the unemployed, full-time students, the self-employed, the retired, home workers, and others - were ignored. But in this study, a multinational enterprise is considered and so the Hofstede's cultural dimensions are relevant. An understanding of these dimensions ascertains that Nestl has to make changes in its international Human Resource management policies to start its subsidiary in China. IHRM Policies of Nestl in China According to Dessler, G. (2006), the Confucian traditional belief system, ethics and behaviors, along with relationships and the concept of 'guanxi', remain at the heart of business culture and etiquette in China. Chinese people generally place great importance on relationships, ranking and protocols. China's larger cities and southern and coastal regions are more familiar with international business practice and are more likely to be aware of what is required for international trade. There are also some younger generation Chinese who, with an international education, have a more modern approach to international business. Despite this, they will still largely conform to Chinese ways of doing things. Globalization has also a major impact on Human Resource management, and has raised a number of issues such as recruitment, selection; training, appraising and compensating the employees and the characteristics of the countries being considered affect the HR decisions that must be made. The decision to start a subsidiary in China has made the following changes in the international human resource management of Nestl: 1. Organizational structure The Chinese give importance to 'guanxi' which describes the relationship or network among various parties who liaise, cooperate and support one another (Dessler, G., 2006). In practice, it is an 'in' to many aspects of life, from being introduced to a new business partner, helping smooth the path of an application through a government office or securing a business opportunity. The main way of establishing guanxi is usually by introduction through a third party who can be one of the company's Chinese employees, friends, or expatriates. The concept of hierarchy influences all aspects of Chinese life - work, school and home. Simply put, the individual is traditionally subordinate to the organisation; the minority view is subordinate to the majority; and the lower ranked official is subordinate to his/her superior. The organizational structure of Nestl is as given below (The Nestl Management and Leadership Principles, 2003, p.14): Flat and flexible organizations with few levels of management and broad spans of control, including project teams and task forces. Networking and horizontal communication are encouraged with clear accountability of the managers and the hierarchy. Clear levels of responsibility and well-defined objectives are a must. Teamwork and networking do not affect the manager's responsibility: a team has always a responsible leader. A structure which assures operational speed and personal responsibility, with strong focus on results, reducing bureaucracy as much as possible. Although Nestl makes intensive use of local managers to knit its diverse worldwide operations together, in China the company employ expatriates. These expatriates include "returnees"- Chinese nationals who went abroad for education or work experience. The expatriates know better the traditions and cultural values of Chinese. This will help Nestl to develop 'guanxi' with the Chinese. 2. Philosophical approach To start a business in China, it is necessary to build up guanxi by either visiting or living in a Chinese environment or regularly meets with the Chinese business counterparts face-to-face (Dessler, G., 2006). Reciprocating generosity and hospitality is part of maintaining guanxi. Maintaining regular contacts provides opportunities to enhance old guanxi and establish new guanxi through these contacts. Developing and nurturing guanxi can be time consuming and resource intensive. But this is a worthy investment in establishing a strong long-term relationship. Nestl believes in "Creating Shared Value". It means thinking long term, while at the same time delivering strong annual results. One of the fundamental Nestl Corporate Business Principles is that they will not sacrifice long-term development for short-term gain (Nestl, 2008). This is the philosophy followed by Nestl. The Chinese too believed in maintaining long term relationships. The company opened a plant in China to produce powdered milk and infant formula in 1990. The local rail and road infrastructure was inadequate and inhibited the collection of milk and delivery of finished products. So Nestl embarked on an ambitious plan to establish its own distribution network, known as milk roads, between 27 villages in the region and factory collection points, called chilling centres. It was a very costly solution but Nestl calculated that the long-term benefits would be substantial. 3. Recruitment and training The Nestl had to make the following changes in its policies related to recruitment and training to manage the human resources in China: Recruitment and hiring- The employer preparing to expand into China should expect to have difficulty finding the necessary recruitment services. The country had a 'labour allocation system' under which college placement services were unnecessary. Recently, the colleges have started placement cells, but they are not efficient (Dessler, G., 2006). Even some employment agencies that have emerged mainly focus on placing senior-level managers, rather than entry- or lower-level employees. Nestl recruits employees normally through its website and through recruitment agencies. But in China, since the recruitment services were inadequate, the company decided to recruit through the ChinaHR.com. The company also has arrangements with schools and colleges for placement of their students. Training and development- A MNC entering China will face a workforce supply that is substantially plagued by low skills, and potentially lower motivation at management and employee levels. In China, Nestl has to provide continuous training through the following programmes such as (Nestl GCR, 2008): i. Nestl China Management Development Programme - Its aim is to train and groom 500 key local executives with high potential for higher management positions and responsibilities. The training consists of 10 intensive modules spread over a period of 2 years. ii. Functional Core Competence and Skills- The training programmes included Marketing & Sales; Finance & Control, Value Creation, Accelerating Demand Generation, GLOBE, Basic Nutrition, Technical, Negotiation Skills, Technical Training, Customer Management Best Practice (CMBP) and HR Workshops. iii. Attitude, Mindset and Leadership- These workshops aim at continuously instilling and maintaining an entrepreneurial spirit; can-do, positive attitude with a "Walk the talk" management style, in line with the Nestl Management and Leadership Principles and the Nestl Corporate Business Principles. iv. Management Trainee Program- The Trainee Program is a two-year on-the-job training program. During the two years, there will be opportunities for you to work on different types of projects and functions; there will be opportunities for continuous development and training before taking up the specific job responsibilities based on trainee's performance, interest and our business needs. Nestl also has a project in the People's Republic of China which is being run in conjunction with the University of Berne, Switzerland. Students from the university are sent out to develop methods of assessing sustainability. This has the double benefit of training local people in the market as well as developing valuable tools that may be applicable elsewhere. 4. Employee relations Employees' relations can be better understood from the safety system, union and labour relations existing in China. Employees in China hold rather a weak position vis--vis their employer. The various actions of the government have influenced Nestl and they are as follows (Nestl, 2008): i. Safety and hygiene- Provisions of the People's Republic of China's Labor Law require employers to provide a comprehensive safety and hygiene system for employees, including any necessary protective measures (Dessler, G., 2006). The Nestl Occupational Health and Safety Management System (NSMS) was revised in line with the 2007 edition of the international standard OHSAS 18001 and reissued to all Nestl operations, reinforcing their commitment that "Safety is non-negotiable". ii. Trade Union- The Chinese strongly believes in collectivism. The only union China permits is the All China Federation of Trade Unions (ACFTU). According to the Trade Union Law, unions are to represent and organize employees to participate in democratic activities, implement decisions of members, educate the workers about ideology, and protect the special interests of women workers (Dessler, G. 2006). The ACFTU has also been more active in identifying multinationals as noncompliant and in monitoring compliance with labour standards, such as the minimum wage provisions. The company encourages employees to form representative organizations and to join (or not to join) trade unions, provided this right is freely exercised. There are Collective Bargaining Agreements in China. iii. Employee communication- Chinese employers do not take interest in soliciting input from employees regarding work-related matters and explaining to employees the bases for their pay (Dessler, G. 2006). There was little upward or downward communication due to rigid status differences which has been explained by the Power distance index of Hofstede. In China, Nestl offered free educational assistance and loans to dairy farmers, then built factories, educated managers, technical staff, and factory personnel to maintain long-term relationships with them. In China, Nestl conduct Family Day activities every year in their offices and factories (Nestl GCR, 2008). Though each event is held in different locations and each has its own unique character, all the events shared one common spirit: celebrating together the "Good Life" that working at Nestl brings the employees and their families. 5. Appraisal The Chinese culture may be potential barriers in the process of adopting western HRM techniques like the performance management system (Dessler, G. 2006). In China, 'mianzi' represents a person's image, pride, reputation and social status. It's an important part of relationship building. A person's face is also their organisation's face. Chinese people can be extremely sensitive about gaining, maintaining, giving or taking away face in all aspects of life. Two of the easiest ways to cause a person to lose face are to criticise them in public and to disrespect their seniority or status. This can cause unnecessary barriers to relationship building. At Nestl, formal assessment should take place on a regular basis, preferably once a year (Nestl, 2008). Its purpose is to provide feedback on past performance and future potential as well as on other relevant aspects concerning a staff member's work including the development of his skills and competencies. Both the positive and negative aspects of individual performance should be frankly addressed. But in China, the company the assessment of performance is based on facts rather than opinions. Objective work data such as absences, tardiness, quality records, inspection reports, scrap or waste, orders processed, productivity records, material used or consumed, timeliness of tasks or projects, cost compared to budget, product returns, and accident reports are assessed. Nestl was successful in its attempts to start its subsidiary in China after making changes in its International Human Resource policies. Nestl has become the world's largest food company with a long history in China. It has helped China save substantial foreign exchange by replacing imports with local products made from local materials of the same quality. The enterprise provides the state-of-the art technology and training. At the Nestl Shuangcheng, milk products factory in the People's Republic of China, a new spray-drying tower was added, making the factory one of the largest and most efficient in the world (Nestl, 2008). These investments enable Nestl to better the supply in China and also create a considerable number of good quality jobs and contribute to local infrastructures through taxes paid by the company and through a number of Nestl-sponsored community initiatives. Conclusion International Human Resource Management activities must be adapted to reflect what is appropriate in different countries. The management of International Human Resource is most influenced by legal, political, economic, and cultural factors, of which cultural factors are of utmost importance. China is a country where traditional and cultural values are strictly followed, even during the era of globalization. Nestl is able to survive in the complex cultural environment of China by making amendments to its International Human Resource management practices to maintain a 'guanxi' with China. The ability of Nestl to establish its subsidiary in China can be attributed to its Swiss origin, which makes it capable to accept unique and risky situations. References 1. Dessler, G. (2006) Expanding into China What foreign employers should know about human resource management in... SAM Advanced Management Journal [Internet], September 22 2006. Available from: [Accessed 6 December 2008]. 2. Hofstede, G. (1991) Geert Hofstede Cultural Dimensions [Internet], Available from: < http://www.geert-hofstede.com> [Accessed on 4 December 2008]. 3. Nestl (2008) The Nestl Creating Shared Value Report [Internet]. Available from: [Accessed on 4 December 2008]. 4. Nestl GCR (2007) Continuous Learning- Nestl People Training Review [Internet]. Available from: [Accessed on 5 December 2008]. 5. Nestl GCR (2008) Good Life [Internet], Available from [Accessed on 6 December 2008]. Read More