Cross-Cultural Management In China: A MNC’s International HRM Plan for China Expansion
Abstract:
A giant British MNC (BP) is aiming to open its Chinese subsidiary. Being the second largest world economy, the Chinese market has utmost importance and thus 20 expatriates are chosen for the appropriate cross-cultural training and choosing the right global leader for the subsidiary is another big concern. China has a unique political system and it is culturally high context country, thus, from the start, it is important to provide adequate local counseling/advice on how to deal with the relevant political bodies together with the dynamics of the local population. At one hand BP expects the use of appropriate cross cultural training to decrease the level of damage due to high cultural differences, at other hand it expects the chosen global leader to coordinate Chinese operations with the required competence for Chinese market without jeopardizing BP organizational culture. Even though, there is a wide literature on cross cultural HR management, Geert Hofstede’s works are accepted as the norm. He offers 5 dimensions to compare cultural differences: power distance, uncertainty avoidance, individualism, masculinity and work centrality, long-term orientation. British and Chinese cultures are very different especially in terms of power distance, individualism and masculinity-work centrality. The appropriate cross-cultural training should target to provide an awareness on these differences especially focusing on issues including but not limited to language differences, gestures, body language, personal space/privacy, personality characteristics, how to provide positive and negative feedback, wardrobe, hierarchy and determination leadership. Considering all alternatives, the optimum candidate for the executive manager of the Chinese subsidiary is a Chinese native who is readily working within the company.
Chapter 1: Introduction
British Petroleum (BP) was born during colonial period in 1901 firstly to explore and exploit oil resources in Iran. In 1914 it was bought by the British government and increased its global operations from then on. In 1998, it merged with the American giant Amoco and currently employs 80K people in more than 70 countries (BP 2016: 4). Producing 3.3mn barrels of world’s daily oil output, as of 16 March 2017 the current market value (market capitalization) is 107.2 bn USD (Y Charts 2017). Bearing certain characteristics of British management culture, BP has become a truly global multi-national company (MNC) with its emphasis to being learning organization and providing a balanced work environment between individual self-development (Jackson 2002: 129). Now, BP is planning to extend its operations to Chinese market. The key concerns are how to provide an appropriate cross-cultural training for the chosen 20 expatriates together with choosing the right global leader for the Chinese operations.[1]
Chapter 2: PEST Analysis on China:
With a population over 1.3 bn and increasing 15 mn every year, China is the most crowded country of the world and the second biggest economy with 11 trillion USD (The Wold Bank 2017). The huge demand combined with competitively low labor costs offers lots of market opportunities for foreign investors, however the different political and cultural environment create risks and is a source of uncertainty.
a) Political: The political system is complicated to a foreigner. Yet it is a communist state and the main controlling organ is the Communist party of China, however there are various local and regional bodies within the system which makes difficult for foreigners to follow. At times, it becomes difficult to coordinate between the central government, local and provincial governments; all have a say in the future of the FDI. Due to immense population with various ethnic backgrounds, China employs a strong control policy which in turn leads to questionable oppressive human right practices. Even mostly on the paper, there are the risks of confiscation or contract repudiation. On some occasions the personal harm, kidnapping has happened to expatriates (Fogel 2010:20). Thus, from the start, it is important to provide adequate local counseling/advice on how to deal with the relevant political bodies together with the dynamics of the local population. In general, the Chinese businessmen prefer doing business with who they know. Thus, working through a local intermediary is crucial. It takes time get to know people in business and bureaucracy, so it is important to be patient, since unless they know you well they hesitate to work with you.
b) Economical: In China there is dual economy model that has evolved from a centrally planned economy to a controlled socialist market economic system. Normally the local companies and most of the economy are directly controlled by the Chinese government. The state-owned enterprises make the bulk of production. On the other hand, the FDI is to be attracted via special economic zones (SEZ-mostly on coastal cities) where certain liberal regulations work to provide FDI friendly economic practices. With the help of successful reforms and business friendly SEZ model, China has enjoyed becoming the primary recipient of world FDI for many years (Fogel 2010:15). The improved labor productivity due to low labor cost has traditionally let China to be net exporter with huge current account surpluses. Yet the country is net energy importer and has dependence on oil imports. Not to lose export performance, Chinese central bank employs an artificially depreciated fixed exchange rate, which ultimately increases the foreign currency reserves, now more than 2 trillion USD. Besides, the capital is not mobile and under central bank’s scrutiny. That is to say, the possible correction on exchange rate poses an economic risk together with the difficulties in capital mobility. The inflation rates are stable for the last couple of years happened between 1.5 to 2.5.
c) Social: The fore coming shapes of Chinese culture are the principle of Confucianism that emphasizes the presence of hierarchy within interpersonal relationships; the approach developed by Lao Zi, which foresees harmony in general including respect for morality and tradition; and more recently the ideology and practice of socialism which embodies egalitarianism rather than elitism (Dong & Liu 2010:225). Being Chinese is not per say related with race or ethnicity but rather a cultural concept. At the core of Chinese identity, there lies the Confucian philosophy, which foresee a collectivist society. Family has always come first and the social/work life has a hierarchical structure. Morality, self-restraint, hard-work and achievement are other important vales of Chinese culture. The obedience, respect for hierarchy and status are internalized within family. Rank (power distance) is extremely important in business relations, the rank differences should be kept while communicating. Face-to-face meetings are preferred instead of emails or phone conversations. Meals and social gatherings are not appropriate for business discussions so it is important not to mix business with socializing. Interestingly, Chinese culture awards punctuality and setting up appointments long before. Arriving late is perceived as an insult and kills reputation (Fogel 2010:27).
d) Technological: Since government controls economy and the economy is mostly centrally planned, the progress in technology is closely related with the government infrastructure investment and policies. Chinese government focuses on increasing RD level and innovation by stimulating funding a great deal of research programs. Besides, the spillover effect of the FDI is also a positive externality on the side of technological progress. Strategies are shaped around computer/IT and biotechnology. The huge numbers of Chinese graduate students especially in USA is also another policy to ensure sustainable innovation within China. Increasing need for energy comes with surge for clean energy. Chinese government is increasing the pace of government spending on clean energy to the levels of 30 bn USD annually. China is becoming competitive on producing solar panels. Nuclear energy is another alternative area where China is growing know-how. On the other hand, the market still is immature for e-commerce due to low level of credit card penetration and underdeveloped financial markets.
Chapter 3: Literature Review on Cross-Cultural Human Resources Management:
It is a widely accepted fact that people from different cultures have different views on the world, life and work and thus behave differently. Thus, conflicts are not unavoidable due to misreading and misinterpretation in cross-cultural business environments, if the staff is not trained accordingly (Xiao & Boyd 2020:555). Studies on cross-cultural human resources focus on the behavior of people from different cultures working together either as a group or organization (He &Liu 2010, 3) The topic is at the intersection of management, sociology and anthropology; mostly an organizational behavior issue. There five major theories on cross-cultural management and eight different framework. The five theories are Social Identity Theory, Implicit Leadership Theory, Value/Belief Theory, Implicit Motivation Theory and finally Structural Contingency Theory. The major eight frameworks are the Kluckhohn-Strodtbeck framework, Hall’s framework, Triandis’ framework, Hofstede’s framework, Hampden-Turner and Trompenaars framework, Schwartz’ framework, Osland and Bird’s framework and finally The GLOBE Framework (Staeheli 2003: 92)[2] Among these, the most widely used and accepted are Hoftede’s and the GLOBE frameworks.[3] Geert Hofstede has been the most influential scholar on the field and this report’s findings will be based on Hofstede’s framework.[4] Hofstede claims that “values” of national cultures are represented by five dimension: (Hofstede 2017a n.a.)[5]
Power Distance: This represents the extent of inequalities accepted and the existence of hierarchy within societies. Low scores means the inequalities and high ranks/status are not accepted normal whereas high scores the verse. China’s score is 80, very high; whereas United Kingdom is 35, a low one. That is to say, Chinese culture is sensitive to rank, hierarchy, formal leadership structures and but British tend to behave more equal in business environment.
Uncertainty Avoidance: This basically refers to prefer structured situations versus unstructured situations. This also includes sensitivity towards maintaining job security instead of focusing on flexibility. Both China’s (30) and UK’s (35) scores are low indicating that they are culturally prepared to work under unstructured situations. However, there are minor differences, Chinese are pragmatic, adaptable, entrepreneurial and comfortable with ambiguity. British are happy to change plans a s new information comes to light. Planning is not detail oriented and the planning horizons are shorter.
Individualism: This reflects whether a society is individualistic or collectivist. It displays whether individuals tend to act as individuals of part of a cohesive group (family or corporation). The fundamental issue is the degree of interdependence a society maintains among its members (Hofstede 2017b n.a.). Here the scores are on the edges of both sides, UK as 89 and China as 20. There is a big cultural gap here, individualistic British expatriates in China should pay close attention to collectivist culture of China, where people priorities the wellbeing and the interests of the group before themselves. Thus the commitments of the employees to the company/organization are low, but on the other hand relationships with coworkers are optimistic and cooperative.
Masculinity and work centrality: Hard values such as assertiveness and competition are regarded masculine whereas soft values such as personal relations, quality of life and caring others as feminine (Jackson 2002: 19). Both China and UK have the same score, 66, making both a masculine society, highly success oriented and driven. Both cultures are success driven both the motivation in UK comes from high levels of individualism (personal pursuit) whereas in China it is more about sacrifice family and leisure priorities to work. Ironically, the overcompensation at work is mostly to help family behind faraway places.
Long-Term Orientation: This dimension is described as how maintaining links with the past while dealing with the issue/challenges of the present and future (Hofstede 2017b n.a.). Low score societies prefer traditions and norms viewing societal change with suspicion. High scores imply more of a pragmatic approach. China with a high 87 score maintains a very pragmatic culture indicating truth depends very much on situation, context and time. UK has a medium 51 score.[6]
Chapter 4: Cross Cultural Training for Expatriates: How and what to train
There is a widespread recognition that training on cultural differences are helpful to overcome problems in cross cultural management (Todorovic 2013:8). As can be seen from above analysis, there is a wide cultural difference between UK and China and without proper cross-cultural training; there is high likelihood of failure in Chinese operations. In order to avoid cross cultural conflicts expatriates need to recognize cultural complexity and develop cultural sensitives. Thus they should be prepared for a different culture and be ready/courageous to experience a culture shock. This necessitates being patient and understanding, having realistic expectations and being able to learn from others (Dong & Liu 2010:232). According to Black and Mendenhall there are six fundamental cross cultural training methodologies: (Black & Mendenhall 1989: 516)
Information and Fact-Oriented Training: Facts about country, mostly via readable material. Here the expatriates are to be given reading material about China.
Attributions Training: Explanations of the behavior from the point of the native. The aim is to learn cognitive standards of the foreign country. Here, a general behavior patterns in China is explained to the expatriates.
Cultural Awareness Training: Here, mainly the attitudes, values and common behavior patterns of one’s own culture are aimed to dwell on. Thus the expatriates acknowledge why he/she behave that way as a result of British culture.
Cognitive-Behavior Modification: The focus on more about individuals and subcultures in order to help expatriates linking what they find to be rewarding and punishing. Afterwards this insight is to be used to examine reward/punishment structure in Chinese society and develop strategies to use this insight in Chinese operations.
Experimental Learning: Expatriates involve in active training as participants either in role playing, cultural simulations and even field trips.
Interaction Training: Here expatriates interact with Chinese natives or returned expatriates to actively understand the nature of life in China from first-hand experience. The methods can be in depths role playing or casual/informal discussions.
The pace, methods and content of the training should be determined in the lights of the task at the Chinese subsidiary. If the actual job/technical work in China is not a new one the training should focus culture novelty. If the job is also a new one then the training content should be divided into job novelty and culture novelty (Black & Mendenhall 1989: 524). Given that, 20 expatriates are going China to start Chinese operations, the training should be intense culture novelty, including the intense role playing methods such as Interaction Training, Experimental Learning and Cognitive-Behavior Modification. These active participation and intensive cross cultural training should mainly focus on issues including but not limited to language differences, gestures, body language, personal space/privacy, personality characteristics, how to provide positive and negative feedback, wardrobe, hierarchy and determination leadership (Dong & Liu 2010:235). Besides, the families should also be included within the trainee group (Qin & Baruch 2010:297).
Chapter 5: Choosing the Appropriate Executive Manager for the Chinese Operations
The recruitment, training and development of global leaders is a serious concern. Most MNCs are competent to develop in house global leaders since they have developed an organizational culture compatible with various cultures and also they have consistent operations thus manager pool from all around the world. For our context, choosing a suitable candidate for the head of Chinese operations is not separate from the choice for the appropriate organizational culture. Some MNCs prefer to employ their unique organizational culture derived from home country practices in new subsidiaries with the claim that organizational culture is the competitive edge. Another choice is to include various local practices in a way to enhance cultural diversity of the MNC. Finally, the organizational culture of the subsidiary is shaped according to national culture sensitivities even though that makes a real difference with the organizational culture of the home country of the MNC. Thus, first of all, the implications of national culture on the organizational culture is to be addressed. Once this is decided then, issues such as preferred nationality of the executive and preferred leadership style are to be clarified (Lombardo 2011: 490).
Leaving aside the technical and managerial skills for a successful executive, the nationality of the executive bears certain benefits and drawbacks. The executive should be Chinese, British or from a third country. If the executive is chosen from home-country operations, this will help diminishing training and recruiting costs and increasing coordination with the center. Besides, she becomes a potential for home-office senior management positions. On the other hand, this will emphasize BP as a foreign company image; and there will most probably be difficulties in understanding local culture/language and communicating with Chinese employees. If a Chinese executive (not currently working for BP) is to be chosen, it is the flip side. The Chinese subsidiary will be regarded as a local company, the relations with the local and central government people will be smooth and there will be no apparent difficulties with the Chinese employers. But on the other side, the training of the new executive will be costly; the communications with the home-country will be limited due to cultural difference and being new to company (Lombardo 2011: 493). A third option would be to hire a top-rated executive from a third-country, but I do not recommend that one at all due to the cultural differences of the countries involved and the sensitive nature of energy sector.
As indicated in PEST framework, doing business in China needs a strong local knowledge on the way of both political and business affairs. Energy is a sector that needs constant smooth relations with the Chinese government. What is more, language is by far a huge barrier in communication. Finally the huge difference between cultures makes it difficult for a non-Chinese executive to adapt and bridge the gap. Since, BP is readily starting its operations in China, I believe it will be a luxury to provide additional time for an executive to adjust local culture. Thus, preferably the best option would be to appoint a Chinese native who is readily working within the company. A second option would be to hire again a Chinese native who was extensively trained in the UK, especially with an Energy industry background. If not, a third option is to hire a native Chinese with a competent domestic energy sector background at least having bilingual skills. Of course, the prospective executive’s leadership style, her cultural fit to company are other areas to think about. Besides having utmost technical ability, managerial skills, an efficient “Global Leader” should possess major competencies such as language aptitude, diplomatic skills, emotional stability and maturity, cultural empathy, adaptability and flexibility. Furthermore she should have a high personal motivation for foreign assignment and she should make sure that her family will adapt to new environment (Jackson 2002: 88).
Conclusion
Energy is a kind of sector where the projects are long-term and in order to realize joint projects in China, a long-term commitment to develop mutual trust is important. Thus, a local-Chinese company image together with building good relations with the Chinese government and society is essential. According to Prof. Hofstede’ work, it can be claimed that UK is low context and China is a high context country. Since both countries have different cultures, without proper preparation, the cross-cultural conflict during Chinese operations is inevitable and this can escalate to harm the reputation of the company within China. Thus, the company should adhere strategic importance to the design of appropriate cross-cultural training and the choice for the right executive candidate.
Recommendations to the Board of Directors for Chinese Subsidiary
Below are the main suggestions for the success of prospective Chinese subsidiary:
– In order to fully prepare the 20 expatriates for our Chinese subsidiary, an intensive cross cultural training should include intense role playing and cognitive behavior modification exercises mostly focusing on language differences, gestures, body language, personal space/privacy, personality characteristics, how to provide positive and negative feedback, wardrobe, hierarchy and determination leadership.
– Since China is high context country and the situation of the state is peculiar, we might need to revise our organizational culture for Chinese conditions. This should be in a balanced way adapting Chinese market without losing global mindset.
– The executive for the Chinese subsidiary should have top notch managerial and technical skills, she should be a presentable Chinese native, if possible from the company. The most appropriate option will have utmost negotiations skills with the local influential figures. Her leadership style should be compatible with BP values for the local employees.
