Finance and accounting free essays: How human resource management practices are transferred from home country to foreign countries: Case study evidence of British Retailers in China
Recent assessments of market environments around the world have revealed that retail markets in western nations such as the UK and the US are saturated. Precisely, the supply for retail products has been optimal and the demand has been stagnant. This has led to limited opportunities for market expansion of retailers in the local markets (Siebers, 2011). Consequently, established retailers in the western countries have been expanding market share through opening subsidiaries in countries with better market growth prospects as one of the solutions to the challenge they have been facing in the local markets. This explains the fact that numerous UK retailers have been opening new stores in China, among other developing nations in Asia, during the recent years (Siebers, 2011). As firm open subsidiaries in foreign markets, they sometimes transfer human resource management practices from the parent company to the subsidiaries. However, there are cases in which the transfer of those practices may be limited by various factors in the foreign markets. In cases where transfer is limited, a firm’s subsidiary may be compelled to adopt the human resource practices of the host country fully, or integrate the practices of the parent company with those of the host country. Based on this information, this chapter presents background information about human resource practices and the extent to which they are transferred from home country to the host country within multinational organizations, with particular reference to China as the host country (Siebers, 2011). The chapter presents explanations of the concepts of human resource management and international human resource management before evaluation of the extent to which foreign firms carry out ethnocentric human resource management practices in China.
Human Resource Management
Human resource management is one of the most explored concepts in history, and it encompasses all personnel management practices of managers or leaders within organizations (Kim, Wright & Su, 2010). The concept of personnel management has evolved over a long period of time, and the changes are explained in three different models. Initially, as Kim et al. (2010) explained, managers adopted a mechanistic model that involved focusing on the ongoing or routine tasks that were being carried out within organizations. As such, managers hardly paid attention to the welfare of the workers. Later, managers started adopting bureaucratic model characterized by strong control and authority over the workers (Kim et al., 2010). The bureaucratic model did not solve the dehumanizing effects on workers that were present in the mechanistic model; the focus on human welfare in bureaucratic model was low. After managers increasingly realized the importance of focusing on enhancing welfare of the workers, they started adopting human relations model, which as Kim et al. (2010) explains, is still operational until today. The human relations model focuses more on employee development and sustainability, and it involves activities meant to motivate workers and enhance their welfare. The key functions of human resource managers, as Kim et al. (2010) noted include recruiting new employees, providing opportunities for training both new and existing workers and establishing ways of retaining the existing workers.
Human Resource Management in International Context
Although most of the human resource management functions remain the same, human resource managers for firms operating in more than one country have more complex tasks than those working for firms operating within one country (Hartmann, Feisel & Schober, 2010). For instance, human resource managers for firms operating in one country are required to adhere to the labour laws and regulations of the home country, international labour laws and in some cases, regional labour laws. Human resource managers for multinational firms have an extra task of dealing with labour laws of foreign countries where a firm operates. In addition to managing employees working in branches located within the home country, human resource managers have an extra task of managing expatriates in branches located in foreign markets (Hartmann, et al., 2010). Human resource officers for firms operating only in the domestic market usually deal with workers with the same national cultural attributes or values. For instance, workers from the same country are likely to use the same language and hence, the possibility of language barrier is low. On the other hand, human resource managers for firms operating in more than one country usually deal with workers with different national cultures and values, implying that there is a need to have extra knowledge on how to manage those workers (Chung, Bozkurt & Sparrow, 2012). In short, human resource management in international context is more complex than human resource practices undertaken within home country alone. The complex factors involved in the international human resource management have a significant impact on the practice. As mentioned earlier, those factors affect the ability for a firm to transfer human resource practices to foreign countries. In order to understand this, it is vital to have a brief look at the issues involved in transferring human resource practices to China.
Brief overview of China
As mentioned earlier, the lucrative market environment in China has been attracting multinational organizations from western countries lately. There are several main factors that demonstrate why Chinese market has attracted multinational corporations. First, China has had a highly growing economy since late 1990s, with statistics showing that is has recorded an average economic growth of around 10 percent over the last one and half decades (Gooderham & Grøogaard, 2013). The positive growth of the Chinese economy is attributed to the country’s government reforms formulated in 1978 that led to a change of the local economy from command to market economy (Gamble & Huang, 2011). The recent consistent economic expansion has led to increase in levels of income among the poor, with significant percentage of low income earners moving to middle-class. By 2010, statistics showed that around 500 million low-income earners in China had moved to middle-class (Gamble & Huang, 2011). Those, among other market prospects, have attracted multinational organizations to expand their operations into the Chinese market. Consequently, the number of multinational firms venturing inn the Chinese market has been rising over time. UK retailers such as Marks and Spencer, Tesco, and Sainsbury are examples of multinational firms that have made efforts to invest in Chinese market (Iles, Chuai & Preece, 2010).
As Chung et al. (2012) explained, national culture has a significant impact on the ability of a firm to transfer human resource practices to subsidiaries. In most cases, culture of people within a nation influences there business practices as well as management practices of local firms. In some cases, multinational corporations can replicate human resource practices of the parent company in its subsidiaries without experiencing major challenges. This usually occurs in cases where there are no significant differences in national cultures of the home country and the host country. For instance, US firms operating in the UK may not need to make significant changes in human resource practices in their subsidiaries since the two countries have almost similar national cultures (Chung et al., 2012). However, UK firms are likely to face significant obstacles in transferring human resource practices from home country to China due to presence of significant differences in their national cultures. For instance, Chinese people embrace the culture of collectivism, whereas UK people embrace culture of individualism. Power distance is high between leaders and workers in China but it is low in the UK. Another issue that is presence of labour laws in China, such as the Regulations on Labour Management of Foreign Funded Enterprises, which influence management operations of foreign firms within the country (Chung et al., 2012). The presence of such issues raises the following question: to what extent are the UK firms able to replicate human resource management practices of the home country to Chinese subsidiaries? While numerous researchers have explored the issue, they have concentrated their attention on the manufacturing sector, as Gamble and Huang (2011) noted. The retail sector has received very little or insignificant focus. This shows a clear gap in researcher.
Aim of the study
The study will aim to investigate the organizational framework in context of HRM practices in UK and China with main focus been placed on how the UK companies interact with Chinese companies so that the process and delivery of HRM practices are effectively shaped.
Objectives of the research
- Establish the extent to which the HRM practices that can be considered to be Western practices are adopted in China
- To find out the organizational factors that are crucial in determining the HRM practices to be used in foreign countries by multinationals
- Examine how the managers both in home country and host country perceive HRM
Purpose of the Research
The purpose of the research will be to determine the extent to which UK firms are able to replicate human resource management practices from home country to China. This will be achieved through exploration of the human resource practices of UK firms with subsidiaries in China in both home branches and branches located in China.
Significant of the Study
The study will be of significance to the managers of UK retail firms and firms from other sectors in making them understand the factors that affect ability to replicate human resource practices of the home country in China and the extent they can do so. The managers will learn about the obstacles or challenges involved, and they will be prepared to cope with or tackle them. The study will also add richness to the literature on transfer of human resource management practices from country of origin to host country, and in particular, from the UK to China.
Qualitative method will be used to collect data for the study. Interviews will be conducted on senior managers and repatriate managers of major UK retailers with subsidiaries in China. The repatriates will qualify for interviews if they were expatriates in China for the same companies or other UK retailers.
One of the expected limitations is inability to get in touch with senior managers or repatriate managers of UK retailers with subsidiaries in China, who understand the differences between the HR practices of their firms in the home country and China. The challenge is that they may not have ample time to engage in interviews.
This chapter has given a background on how UK retail firms have been expanding their operations into Chinese market, the impact of movement to foreign markets on HR practices and overview of the China, with regard to the topic of the study. Chapter 2 presents previous literature and studies related to the issue being investigated in this study.
The extent to which a multinational firm transfers human resource practices to subsidiaries located in foreign countries has a great influence on the success of those subsidiaries. Therefore, it is quite imperative for multinational firms to examine the factors involved and carry out the required adjustments in management of people in the subsidiaries if need be (Björkman & Budhwar, 2007). This chapter presents previous literature on how multinational firms transfer human resource management practices from parent companies to subsidiaries located in foreign countries, with specific retailers investing in Chinese market. The factors influencing success of transfer of those practices are addressed in details in this chapter.
Transfer of Human Resource Management Practices within Multinational Firms
Scholars have given significant attention to the extent to which multinational organizations transfer human resource management practices from the home country to the countries where their subsidiaries are located. According to Björkman and Budhwar (2007) the existing research indicates that some multinational firms tend to adopt standardization of human resource management practices in all subsidiaries. In other words, the subsidiaries of such firms have similar human resource management practices as those of the home country of the headquarters. Björkman and Budhwar (2007) noted some factors that influence multinational firms to adopt standardizations strategy. One of the factors is that some firms view the human resource management practices conducted in the home country as similar to those of the host countries. According to Björkman and Budhwar (2007), this is common where multinational firms have subsidiaries in foreign countries with almost similar human resource management practices to those of the home country. The second factor Björkman and Budhwar (2007) noted is that some multinational firms perceive the human resource practices of the home country as superior to those of the host country, and therefore, find it better to transfer local practices to the subsidiaries located in the foreign markets. Björkman and Budhwar (2007) noted that in some cases, some firms adopt standardization process out of ignorance; they take for granted practices of the of the host country. In most cases, such firms end up failing, as Björkman and Budhwar (2007) explained. Björkman et al. (2008) noted that standardization is commonly adopted by US multinational firms especially in their subsidiaries located in Europe. Björkman et al. (2008) noted that however, multinational firms are in most cases compelled by factors in the local market such as cultural values and laws and regulations in the host countries to change the human resource management practices to suit the needs of the host countries. A study conducted by Almond et al. (2005) showed that US multinational firms change human resource practices in their subsidiaries in varying degrees depending on the amount of pressure exerted by elements of the macro-environment in the host country. Pudelko and Harzing (2007) found in their study that some multinational firms transfer practices of other countries to foreign subsidiaries instead of transferring the practices of the home country or adopting those of the host country. The study conducted by Pudelko and Harzing (2007) indicated that most Japanese and German multinational firms tend to transfer human resource management practices adopted in the US. In short, the existing research indicates that some multinational firms adopt standardization process, others adopt a hybrid strategy, others adopt practices of the host country, and others transfer practices of other countries to their subsidiaries.
Transfer of Human Resource Management Practices to Subsidiaries in China
Researchers have recently given adequate attention to the transfer of human resource practices within multinational firms to subsidiaries located in China. Past studies have found that multinational corporations tend to transfer human resource practices in varying degrees in China. Gamble (2010) found that most firms adopt hybridization strategy in designing human resource practices in their subsidiaries located in china. The study conducted by Gamble (2010) indicated that most of the multinational firms that do not adopt hybridization strategy in the subsidiaries located in China hardly succeed. China, as Gamble (2010) found out, has unique factors that call for hybridization of human resource practices. According to Warner (2009) the multinational firms with subsidiaries in China usually hire expatriates to be the senior leaders for subsidiaries in China, and then employ Chinese nationals to work in the lower levels. A study conducted by Rose and Kumar (2007) also found evidence of hybridization in the human resource practices of subsidiaries of multinational firms located in china. Most scholars have shown that adopting hybridization strategy in managing subsidiaries located in China usually leads to problems that are likely cause failure of the subsidiaries. McKenna et al. (2010) noted that failure of standardization strategy is common among multinational firms transferring human resource management practices from western countries. Although some studies have suggested there are significant similarities in the human resource practices of Asian countries (McKenna et al., 2010), the study conducted by Warner (2009) did not find evidence of significant similarity in Asian countries. Warner (2009) found that hybridization is present even in subsidiaries located in China for multinational firms with headquarters in Asian countries.
Despite most studies showing hybridization as the best strategy adopted by multinational firms in managing their subsidiaries located in China, results of some studies have suggested otherwise. Hartmann, Feisel and Schober (2010), for instance, found that multinational firms are increasingly adopting standardization strategies in their subsidiaries located in China. In fact, the study conducted by Hartmann et al. (2010) indicated that multinational firms are increasingly finding adopting standardization strategy in the management of their subsidiaries located in China to be more fruitful than adopting hybridization strategy.
Chinese Retail Sector Overview
Retail sales in China have been growing rapidly during the recent years. The growth has been attributed to the rapid expansion of Chinese economy and increasing purchasing power of the locals. The rapid growth has attracted interest of multinational retailers especially from the western nations where economic growth in most sectors has become stagnant (Siebers, 2012). As Siebers (2012) explained, the Chinese retail sector became open for foreign investors after implementation of personnel reform programs were implemented by the country’s government with the aim of ending “iron-ice bowl” system that restricted foreigners from hiring the locals. Later during 1990s, retailers from western countries, especially from the US started venturing in China. Further reforms in laws that limited operations of foreign firms in China implemented in 2004 led to increased freedom for retailers from foreign countries to operate in China. The reforms facilitated further entry of retailers from foreign countries into the Chinese market. Another factor that attracted retailers from foreign countries is rate of growth in retail sales in China. As Dawson (2011) noted, the retail sales in China doubled between 2006 and 2010, reaching US$1680 billion in 2010. Despite this, the rapid growth of the Chinese retail sector has led to challenges associated with management of people especially in subsidiaries owned by foreign firms. McKenna et al. (2010) found that failure to understand and cope with local practices of dealing with workers and other stakeholders such as suppliers has been one of the key causes of de-investment among foreign retailers in China. According to McKenna et al. (2010), some human resource practices transferred by multinational retailers to their subsidiaries in China are rejected while others are accepted. For instance, Wal-Mart has not been able to please the local employees due to low wage it offers them as a result of the low prices it sells its products. In 2007, managers for Carrefour were charged by Chinese authorities for taking bribes as display fees from suppliers (McKenna et al., 2010). The issue led to damage of image and reputation of Carrefour in the Chinese market. McKenna et al. (2010) found that full adoption of human resources practices from western nations to subsidiaries located in China has led to issues such as loss of local markets, low performance, conflict with stakeholders such as suppliers, and most remarkable, employee complaints. As multinational retailers constitute focusing on investment opportunities in the Chinese market, a question is emerging about the extent to which they should transfer human resource management practices from the home country to subsidiaries located in China. Siebers (2012) noted that multinational retailers that adopt standardization strategy when transferring human resource practices from the home country to their subsidiaries located in China fail mainly because those practices do not coincide with the customs of the locals employed in those subsidiaries. According to Siebers (2012), the new practices have little empowerment to local workers in China and hardly motivate them or add their morale. Zheng and Lamond (2009) also supported this view, arguing that management style and practices have a significant impact on the motivation and empowerment of employees. To motivate and empower them, Zheng and Lamond (2009) suggested that firms should adopt human resource management practices that rhyme with their cultural values and expectations. Zheng and Lamond (2009) argued that employee motivation and empowerment is crucial to retailers investing in Chinese market due to the fact this has a significant impact on the quality of services those workers offer to the retailers. Liang, Xie and Cui (2010) also supported this view, arguing that failure to incorporate local human resource management practices when managing employees in subsidiaries for multinational firms located in China makes the local retailers have a competitive advantage over the foreign retail investors. In order to understand in depth how investment in international markets affects transfer of human resource management practices from home country to host country, it is essential to explore the diversity factors that are involved, with specific reference to the UK as the home country and China as the host country.
Diversity Factors affecting transfer of Human Resource Management Practices to China
Numerous scholars have pointed out culture as one of the key diversity factors affecting transfer of human resource practices from home country to the host countries. One of the best explanations of how culture influences operations of multinational organizations is based on by Geert Hofstede’s framework (Evans et al., 2008). Hofstede carried out deep analysis of national cultures of 40 countries in which IBM, a multinational corporation with headquarters in the US, had subsidiaries (Evans et al., 2008). The outcomes of the framework were supported by numerous studies conducted later. Initially, Hofstede’s framework consisted of four dimensions of national culture, namely, power distance, uncertainty avoidance, masculinity/femininity and individualism/collectivism. After further studies on dimensions of national culture, another dimension called long-term orientation was added to the framework (Evans et al., 2008). To understand how national culture influences human resource management operations and activities of multinational organizations, it is vital to explore the meaning of the national dimensions described in Hofstede’s framework.
As Hofstede explained, people nurtured in different countries usually portray different attributes, with regard to the dimensions of national culture. However, there are instances whereby people from the same region share the same attributes. People from most Asian countries tend to share some elements of national culture, which are not present in people nurtured in Europe and the US (Evans et al., 2008). In the UK, for instance, people embrace individualism. As such, the UK workers are likely to show characteristics of individualism such as working independently, fighting for individual rights and focusing on personal achievements. Such workers are likely to carry out tasks independently and to rely on their minds to solve most of the emerging problems at the work place, rather than relying on the others or the management (McFarlin & Sweeney, 2014). On the other hand, people of China and other parts of Asia tend to embrace collectivism. Individuals who embrace collectivism value the achievement of the whole group or team, rather than the achievement made at personal level. Thus, workers in China are likely to work in groups and to rely on each other and the management in solving problems. As well, level of uncertainty avoidance is different between the two societies. Uncertainty avoidance is the drive to tolerate risks (McFarlin & Sweeney, 2014). The level of uncertainty avoidance among the people of UK is lower than the level of uncertainty avoidance in China and other Asian countries. Workers from the UK are more likely to take risks and to rely less on formal rules. They are likely to try new things and to deviate from the norms in some cases while working. On the other hand, workers from China are more likely to avoid trying new things or taking risks. They are more likely to follow written rules and consensus and hardly tolerate deviations from any laid down norms (McFarlin & Sweeney, 2014). The same case applies to the dimension of power distance. Individuals in societies with higher levels of power distance tend to follow formal codes of conduct. Such individuals are likely to be reluctant to disagree with supervisors. On the other hand, persons in societies characterized with lower power distance do not feel as constrained by actual or perceived differences in power, position and status. In China, there, there are higher levels of power distance than in the US (McFarlin & Sweeney, 2014).
Long-term orientation refers to the respect and attachment that people have for the traditions. People in a society with a long-term cultural orientation value respect for traditions perseverance, thrift and posses senses of personal shame (Robbins & Judge, 2012). In contrast, persons in a society with short-term cultural orientation are characterized by individualism, tertiary and organic relationships (Robbins & Judge, 2012). In China and other parts of Asia, people have long-term cultural orientation. On the other hand, the people of UK have short-term cultural orientation. In short, the cultural differences between people in different countries manifest even at the work place. A HR manager for an international company operating in both the UK and China must acknowledge and uphold the cultural differences. Otherwise, problems might emerge when dealing with the workers. This is evident in the case of the Regency Grand Hotel, a Thai five-star hotel (Gooderham & Grøogaard, 2013). When the hotel was acquired by a UK firm, the general manager, who played the role of a HR manager in the hotel, retired. He was replaced with John Becker, an American. Becker changed the management of the hotel and embraced the management approaches adopted by the UK firms. The Thai workers were unable to work with the new system, leading to poor service, stress among the workers and high level of turnover (Gooderham & Grøogaard, 2013). Thus, the need to manage workers across different cultures is one of the key impacts of the international business.
du Plessis (2010) examined the philosophy traditions that have dominated Chinese people for a long time and with influence in their national culture, namely Buddhism, Taoism and Confucianism. Although the philosophies originate from religions, they are generally understood as philosophies. Confucianism is concerned with the interaction between human beings and individual behaviours (du Plessis, 2010). The philosophy guides the basis for the Chinese people’s thinking. The main contribution of the philosophy is to ask the Chinese people to keep harmonious relationships among them, avoid conflicts and trust one another. These behaviours are portrayed by Chinese when doing business and when interacting with foreigners (du Plessis, 2010). A foreigner will find the Chinese as a group of people who like to live with peace and to interact with people from different backgrounds. They like welcoming foreigners in their country.
Taoism is a doctrine that is famous for its reliance on the principal of dualism that was introduced by Ying Yang (du Plessis, 2010).The principle of dualism is the source of a popular belief that is held by Chinese people about things that influence an individual’s success. The principle states that the kind of environment that an individual lives influences his/her fortune. Specifically, the principle refers to buildings and the surrounding physical environs, as well as the internal arrangement and layout of furniture and other properties. Many people in China hold the belief and consider it as a driving principle for the success of their businesses (du Plessis, 2010). Lastly, Buddhism is a doctrine that is based on the belief that human being is powerless and miserable and that people should always seek for spiritual emancipation. The belief that is based in the doctrine influences the perspective of the Chinese people towards life and the activities they undertake. Buddhism teaches the followers to be compassionate and to avoid being selfish and greedy. Chinese people who believe in the doctrine portray such attributes when interacting with other and with foreigners. In short, the philosophies are the basis of the Chinese culture. In turn, the overall Chinese culture influences the behaviours of Chinese people when conducting business, when dealing with foreigners and when making decisions (du Plessis, 2010).
The Unique Chinese culture is a big challenge for human resource managers, since the unique values and beliefs held by Chinese people are fundamentally different from the values and beliefs held by Britons. Due to the great influence of Confusion in China, Chinese people tend to believe more in word of mouth than any other form of contract when carrying out business activities. This is different from British culture where written contracts are preferred. In this regard, a people’s approach will be the most appropriate for human resource managers to adopt in order to develop trust with Chinese citizens when operating a standard human resource within the Chinese supermarkets.
The political practices in both the home country and the host country or between the home country and the host country affect the international HRM practices. When extending business activities into foreign countries, organizations require managers and non-managers to operate in the foreign-based subsidiaries. In most cases, organizations recruit workers and managers from both the home country and the target country. During the recruitment, there are numerous factors related to hiring in the foreign country that an organization’s HRM must consider before engaging in the practice. The recruitment practice in a foreign country is usually subject to the laws and regulations of the foreign country. For instance, a HR manager for UK firm that has a subsidiary in China is must give consideration to the local labour laws and regulations in before recruiting Chinese workers. There are several laws and regulations that foreign companies in China must adhere to when recruiting employees, including Regulations on the Control of Resident Offices of Foreign Enterprises, Regulations on Labour Management of Foreign Funded Enterprises and Regulation on Labour Management of Sino-foreign Joint Ventures.
Overall, some laws can have similarities with the requirements of laws in other countries, but there can also be significant differences. The rules and regulations guiding recruitment practice in China do not allow foreigners to be employed in any organizations operating locally without a government permit. All foreign workers are required to obtain special permission and employment certificate from local labor authority. In addition, the workers from foreign countries are required to provide details of residence in the city where they are working (Brown, 2010, p. 41). Further, the laws and regulations do not allow foreign organizations to hire Chinese citizens directly. Chinese citizens must be hired through a “local service unit.” However, approval for hiring directly may be given in some rare cases, but adherence to all other laws and regulations is a must. In the early 1980s, the Chinese central government established agencies that have been acting as intermediaries between the local market and the foreign employers. Among other reasons, the agencies were established to prevent the foreign employers from gaining unfair advantage in hiring the locals (Chen, 2011). The agencies play the role of locating and hiring locals to work for foreign employers and they reserve the right to withdraw them. They also give work permits to the locals who are employed by foreign organizations. Another unique characteristic o the Chinese system is that every worker in the country has a file that is kept by the recognized employer. Employers from foreign countries are not allowed to hold such files. However permission may be given in special cases. Workers such as lawyers and accountants in China hold special certificates and they are not allowed to work for any other employers except the officially recognized domestic employers. As well, the laws and regulations require all employers to treat their workers equally, irrespective of country of origin. Employment is not allowed for persons under the age of 16 (Chen, 2011).
In addition, the laws and regulations set standards for minimum wages, working hours, leave, working conditions and holidays. Foreign organizations are allowed to employ Chinese citizens on either temporary or permanent basis. Employers may terminate the employment contract with a one month written notice, but there are other conditions involved. In most cases, wages are paid at the end of the month. The foreign employers are required to supervise and train employees, observe certain rest periods and holidays, provide social welfare and insurance and observe safety standards. Each provincial government in china sets its own regulations regarding the minimum wage. For instance, the minimum wage in Shanghai province is set at RMB 432 per month (Garrik, 2012). In Chendu, the minimum wage is RMB 220 per month. Foreign employers are not allowed to pay anything below the minimum wage. In fact, the foreigners are expected to pay much more than the local employers. China’s labour law states that the average working hours per week should be around 8 hours per day and 44 hours per week. Employers are required to give one day off per week to their employees. Overtime work is only allowed after consultation with labourers and trade unions, unless during cases of threat to the interest of the general public or during emergency repairs. The law restricts overtime work to one hour only per day. The payment rate for overtime work is 150% the normal wages and is raised to 200% when performed during rest days, such as weekends (Garrik, 2012).
There are about 10 holidays that every employer in China must observe. They include the Chinese New Year, the spring festival, National Day, International Labor Day and January First. Employers are also required to give maternity leave of 3 months and during that period, the mother’s job must be held for return. Paternity leave is set at three days. The employer is supposed to pay for the leave and wait for reimbursement from maternity leave fund. Funeral leave of a minimum of 3 days must be given (Cooney, Biddulph & Zhu, 2012). Employers must give sick leave and compensation during the period should range between 60-100% of the normal wage. In addition, the law stipulates that employers must grant paid vacations to their employees. Lastly, employers must contribute to employee benefit kits, including maternity fund, disability insurance, unemployment insurance, medical fund and retirement pension (Cooney et al., 2012).
The HRM for the international organizations is affected by socio-economic factors such as education levels, training levels, employment trends, health of the population and wage rate in all counties whether the organization operates. For instance, numerous studies conducted recently have shown that there are difficulties experienced by foreign and multinational organizations in attracting and retaining managers from the local population in China (Chen & Dao, 2013). One of the causes of the problem is shortage of skills needed to operate in certain areas within an organization. Over the last few decades, the number of Chinese citizens accessing university education has been increasing at a high rate. However, as Chen and Dao (2013) explain, students are required to major in a single subject and hardly get opportunities to study other subjects that may help to gain basic knowledge of other fields. For instance, a person studying finance may not have an opportunity to study management and language. In addition, majority of students in China take art subjects that emphasize on perspective and theory; there is small percentage of students who pursue science subjects and other subjects that provide technical skills. According to Chen and Dao (2013), out of the total number of students enrolling in universities, only about 10% undertake subjects such as accounting, finance, medicine, engineering, nursing and qualitative and analysis. This implies that a HR manager for a firm with a subsidiary in China may need to hire managers for the subsidiary from another country other than China.
Recruitment of Nationals and Expatriates in Subsidiaries based in Foreign Countries
One of the most challenging tasks for human resource managers for during internationalization process is the management of the national and expatriate personnel. McFarlin & Sweeney (2014) identified three major approaches firms can adopt to staff subsidiaries in China, namely using Chinese employees, using expatriate employees and balancing between national and expatriate employees. In order to determine the most appropriate staffing approach, for human resource managers for multinationals need to examine the advantages and disadvantages of each of the three approaches, as well as the applicability of each the approaches in China, as McFarlin and Sweeney (2014) suggested.
The advantages of exclusively recruiting workers and managers from the home country in the foreign-based subsidiary include demonstration of trust with the local citizens, lower labour costs, increase in the acceptance of the organization by the local communities, increased number of options in the local environment, easier decision-making process and higher recognition in the local economy of the organization as a legitimate participant (McFarlin & Sweeney, 2014). One disadvantage with the approach is that it is usually difficult to balance between priorities in the home and foreign subsidiaries. Secondly, some local decisions may have to be postponed to a point where they become costly and difficult to make. In addition, the approach makes it difficult to introduce more qualified personnel from the home country. Lastly, the amount of control of the foreign subsidiaries by the human resource management officers in the headquarters may be significantly reduced (McFarlin & Sweeney, 2014).
There are several advantages of employing expatriates alone to manage the foreign subsidiary. To start with, there is increased ability to transfer business practices due to high cultural similarity with the parent company. Secondly, the approach permits closer control of the subsidiaries in the foreign countries. Further, experienced employees from the home country can be supplied in the subsidiaries (McFarlin & Sweeney, 2014, p. 79). Lastly, it is easier to establish a pool of experienced executives. The disadvantages associated with the approach include inability to adapt to the foreign culture, higher salary and transfer costs, high “foreignness” of the subsidiary, lower probability for acceptance by the local community, presence of family and personal problems, high possibility for failure, lower motivation and morale among the local managers and exposure to government restrictions (McFarlin & Sweeney, 2014).
Generally, the approach for employing expatriates alone is in direct opposition to the employment of nationals only. During the internationalization process, employing nationals alone would be the preferred approach between the two, based on the above analysis. However, there are other factors at play that determine the success of the human resource management strategies in the foreign market. A more comprehensive approach can be more advantageous, which will give consideration to the influential issues in the foreign culture. In China, it can be difficult for the human resource managers for to engage the locals in the management of the Chinese supermarkets. This is mainly due to the problem of shortage of talented individuals in china. However, other employment positions within supermarkets are not complex; the company can employ the locals to serve customers (McFarlin & Sweeney, 2014).
In the last one decade, available research shows that expatriates hardly succeed in China. McFarlin and Sweeney (2014) found in their study that about 76% of US companies investing for the first time in china recorded between 10% and 40% in expatriate failure over the last one decade. Although expatriates are more familiar with the operations of a company, they face problems emanating from culture shock, family and personal problems, inability to cope with the new responsibilities and lack of competence (Niosi, 2010). To solve this problem, human resource managers should be very careful during the selection of expatriates. They should select expatriates who can easily adjust to the foreign culture and those with the required expertise. McFarlin and Sweeney (2014) argued that in some cases, multinational firms are compelled to train locals in the host country to replace expatriates.
Summary of issues affecting transfer of HR Practices and the Suggested Remedies
As mentioned earlier, one of the challenges is the need to manage cultural differences among workers within an international organization. Human resource managers can prepare themselves to face the challenge through understanding and embracing the cultural differences of workers hired from different countries. They can apply the knowledge through developing employee management plans that suit different workers, with regard to their cultural backgrounds (Frege & Kelly, 2013). Another challenge is the lack of adequate skilled expatriates to carry out certain tasks. The problem can be addressed through providing training to the hired expatriates in the home countries and in the foreign countries so that they gain adequate skills that are needed. The human resource managers should also plan and implement training to the expatriates to enable them adapt to the overseas culture. The other challenge is the differences in labor laws and regulation between different countries in which an organization operates. The human resource managers for the international organizations can address this through reading and understanding the different labor laws and regulations of different countries and adhering to them (Frege & Kelly, 2013).
Another key challenge faced by the human resource managers for the multinational firms is communication barriers that affect the flow of information between the parent firm and the subsidiaries. This challenge is caused by factors such as geographical distance and language barrier. Implementing communication gadgets that would allow speedy flow of information from the subsidiaries and the parent company can partially address the problem (Frege & Kelly, 2013). Further, effectiveness in communication can be achieved through laying out strategies for addressing the language barriers, such as training the workers to use international languages. As well, managing stress among the expatriates who work away from their home countries is a major challenge for the international human resource management (Frege & Kelly, 2013). The human resource managers can address the issue through providing incentives to enable them adjust, such as tickets to visit family members frequently, holidays and satisfactory compensations.
There are several theories that are relevant to the current study. One of them is the framework of dimensions of national culture developed by Hofstede explained earlier. Hofstede’s framework was analysed in details under the cultural factors influencing transfer of human resource management practices. Another relevant theory is the argument of Jansenn (2001, in Siebers, 2012), that there are four ways or approaches that multinational corporations can adopt in managing people in subsidiaries based in foreign countries. The first strategy, also called adaptive approach, involves adopting the human resource management practices of the host country. The second strategy is called ‘exportive’ approach and it involves adopting human resource management practices of the parent firm in subsidiaries located in the foreign countries. The third strategy is called integrative approach and it involves integrating the human resource management practices of the home country and the host country. In some cases, this can involve adding more than two approaches through borrowing practices adopted in other countries. The last strategy is synergistic approach, which involves “consolidating and recognizing individual cultures” (Siebers, 2012). The theory developed by Perlmutter and Heenan (1979, in Zhang & Edwards, 2007) is also relevant to the current study. The theory suggests four approaches towards managing people in subsidiaries for multinational firms located in foreign countries, namely, ethnocentric, polycentric, regiocentric, and geocentric. Ethnocentric involves full adoption of human resource management practices of the parent firm in the subsidiaries located in other countries. Polycentric involves allowing the subsidiaries to have distinct human resource management practices from those of the parent company, which are usually borrowed from practices of the host country. Regiocentric involves sending expatriates from the parent company to manage subsidiaries within certain regions such as Europe. Geocentric involves adopting integrating human resource management practices in subsidiaries located in other countries through hiring managers from different nations (Zhang & Edwards, 2007).
As noted in the literature review, scholars have paid significant attention to how multinational organizations transfer human resource management practices from the parent firm to subsidiaries located in foreign countries. There is also significant attention on how diversity issues such as culture, social factors and political/legal factors affect the ability of multinational organizations to transfer human resource practices to subsidiaries based in foreign countries. The existing literature points out about how the Chinese retail sector has been expanding quickly recently, hence attracting the interest of multinational firms especially from western nations. The challenges involved in transferring human resource practices to Chinese retail sector have been addressed by a few scholars. However, some studies, such as Hartmann et al. (2010) have found that multinational firms adopting standardization approach that involves exporting human resource practices from the home country to the host country have been increasingly succeeding in the Chinese market. The study indicated that firms from western nations are increasingly opting form that approach. However, this does not imply that multinational firms should completely rule out the possibility of pressure for change of human resource management practices emanating from the diversity factors identified in the literature review. A few scholars have explored the extent to which multinational retailers transfer human resource practices to China, but there is has been insignificant focus on the UK retail firms that have invested in the Chinese retail sector. This calls for a studies aimed at filing that gap.
This chapter has presented analysis of previous literature related to transfer of human resource management practices to subsidiaries located foreign countries by multinational firms, with significant concentration on the China as the host country. The focus has been on multinational retailers investing in China. Factors that affect transfer of those practices have been explored in details. The review, however, has pointed out a gap in existing literature; there is no significant research on the extent to which UK retailers with subsidiaries in China have been transferring human resource practices to those subsidiaries.
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