Managing people – Foreign MNCs in China and Chinese MNCs abroad

Fang Lee Cooke, MBS, UK ANBS Fellow, Australia

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Managing people – Foreign MNCs in China and Chinese MNCs abroad

Overview of the session

Part I:Key features of and changes in employment relations (ER) in China

Part II: Characteristics of ER in western MNCs in China

Part III:Motives of Chinese firms investing abroadMajor challenges to ER of Chinese MNCs in different parts of the worldCase study of a leading Chinese IT MNC – Huawei Technologies LtdQuestions and discussions


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Part I: Key features of and changes in ER in China

Key elements influencing employment relations

Industrial sector (e.g. manufacturing v. service)

Ownership forms (e.g. state-owned, private, foreign-funded)

Labour market characteristics (e.g. bargaining power of the workers)

Employment legislation (level of provision and effectiveness)

Strength and role of the trade unions (e.g. level and nature of representation)

Product market competition and level of globalisation (pressure on employers)


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Traditional employment relations in the state sector in China

A dominant sector (80% of all urban employment in 1970s to less than 24% in 2005)

State-sponsored miniature society with extensive welfare and job-for-life

Centralisation, formalisation and standardisation of personnel policies and practices (e.g. job allocation, wage determination)

Personnel department at organisational level only play administrative role

Employees had no real voice in the business but could expect to be relatively well looked after as ‘the master of the country’


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Changes in HR policies in the state-sector in the 1990s

The need to revitalise the state sector and improve productivity and service quality

‘Three Systems’ reform in SOEs:

Fixed-term employment contract – the end of job-for-lifePerformance-related pay (wage linked to position, compete for the post) New welfare schemes in tripartite system between employer, employee and the insurance company

Withdrawal of other welfare benefits, e.g. housing

Mass scale laid-offs since mid 1990s (27 millions from SOEs)

Privatisation of small SOEs


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Table 1. Employment growth in the private and other forms of ownership between 1990-1999

Year National

growth State-owned growth (%)

Collectively-owned growth

(%)

Foreign-owned

growth (%)

Self-employed

growth (%)

Private-owned

Private-owned growth

(%) 1990 155,100 2.35 1.34 40.43 8.45 1,700,000 3.66 1991 13,900 3.07 2.23 150.00 9.64 1,840,000 8.24 1992 11,700 2.11 -0.19 33.94 6.93 2,320,000 26.09 1993 12,500 0.28 -6.30 30.32 19.12 3,730,000 60.78 1994 12,400 2.69 -3.18 40.97 28.44 6,480,000 73.73 1995 11,100 0.42 -4.20 26.35 22.19 9,560,000 47.53 1996 13,300 -0.15 -4.16 5.26 8.73 11,710,000 22.49 1997 10,900 -1.78 -4.41 7.59 8.45 13,500,000 15.29 1998 5,100 -17.98 -31.91 1.03 12.37 17,100,000 26.67 1999 9,000 -5.37 -12.79 4.26 2.08 20,220,000 18.25

Average growth

11,100 -2.06 -7.78 28.07 12.84 31.67

Sources: China Statistics Yearbook, 2000; Forty Years of China Industry and Commerce Administration Management, 2000.

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Employment relations in the new forms of ownership

Privately-owned companies and self-employed businesses

Once marginal and marginalised sector at odds with socialist ideologies

Growth since the 1980s an outcome of shift from state-controlled planned economy towards a free market economy

The need to revitalise the economy and create employment opportunities

More flexible, smaller in scale, less employment protection, worse employment terms and conditions (e.g. longer working hours, lower level of pay, labour rights), higher labour turnover rate


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Employment relations in the new forms of ownership (cont…)

Foreign-funded businesses, Sino-foreign joint ventures

An outcome of the ‘Open Door’ policy since late 1970s

China as the second largest FDI recipient country

Only allowed partial freedom in the 1980s, but now full operating rights within regulations

Blue chip MNCs as well as sweatshops

HRM practices differ from domestic Chinese firms


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Employee representation (1)

The role of the trade unions

Only one union recognised – All-China Federation of Trade Unions (no ‘trade’ characteristics)

Welfare role and training role under the leadership of the Communist Party

Unionisation level high in the state sector but low in private sector

Union presence has little impact on wage level


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Employee representation (1) (cont…)

The role of the trade unions

Trade unions more organised and competent in certain sector (e.g. large SOEs)

Misguided perceptions of managers and TU reps about their role

Union reps lack of collective bargaining or negotiation skills and other resources

Low opinion of workers on the effectiveness of the TU

Trade Union Law (1950, 2001)


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Employee representation (2) Workers’ Congress

Made up of workers’ representatives to supplement the TU

Little effect of Workers’ Congress – annual meetings not regularly held

Many companies do not have the forum in place


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Table 2. Union membership level in organisations where unions were established

Year

No. of grassroots

unions (1,000 units)

No. of employees

(1,000 persons)

No. of Female

employees (1,000

persons)

Membership (1,000

persons)

No. of female

members (1,000

persons)

Membership density (%)

No. of full-time union

officials (1,000

persons)

1952 207 13,932 -- 10,023 -- 71.9 53

1962 165 26,671 -- 19,220 -- 72.1 86

1979 329 68,972 21,717 51,473 -- 74.6 179

1980 376 74,482 25,186 61,165 -- 82.1 243

1985 465 96,430 35,967 85,258 31,492 88.4 381

1990 606 111,569 42,910 101,356 38,977 90.8 556

1995 593 113,214 45,153 103,996 41,165 91.9 468

2000 859 114,721 45,345 103,615 39,173 90.3 482

2001 1,538 129,970 50,879 121,523 46,966 93.5 --

2002 1,713 144,615 51,576 133,978 46,652 92.6 472

2003 906 133,016 50,793 123,405 46,012 92.8 465

2004 1,020 144,367 55,026 136,949 51,353 94.9 456

Source: adapted from the China Statistics Yearbook 2005, p.777.


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Employment legislation in China

Framework:

The Labour Law of China (1995)

The Trade Union Law (amended 2001)

Equal opportunity regulations

Minimum wage regulations (1993)

Other regulations specific to sector (e.g. The Civil Servants Law), ownership (e.g. MNCs and JVs), or HR function (e.g. training and recruitment)

Labour Contract Law (2008)


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Employment legislation in China (cont…) Effectiveness?

Loopholes in the regulations themselves (e.g. age differences in retirement, minimum wage)

Low level of awareness of regulations from employers and workers

Tolerance from workers of employers’ unlawful behaviour for fear of job losses

Unsympathetic attitude of labour officials towards (rural migrant) workers

Dilemma of/conflict between law enforcement and employment pressure for the state


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Part II. Characteristics of ER in western MNCs in China

Employers of choice for young graduates

Sophisticated selection and assessment process for recruitment

More extensive training and career development opportunities, including overseas training and assignments

More focus on performance management for pay as well as development purposes

Higher level of pay for regulations and competition reasons


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Part II. Characteristics of ER in western MNCs in China (cont…)

Pay more closely related to performance level instead of seniority

Higher level of adoption of western oriented HRM practices, e.g. org. culture mgnt, quality mgnt, EI to enhance performance, talent mgnt, work-life balance initiatives

Proactive in CSR but pragmatic approach to trade unionism

Key HR challenges: – retention – motivation – management competence


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For years, MNC like Wal-Mart have resisted the call for union recognition


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Part III. Chinese firms investing abroad

Four major motives for FDI (Dunning and Narula, 2004): Marketing-seeking Resource-seeking Asset-seeking Efficiency-seeking

Exactly where firms can fulfil these motives are often location-specific

Firms engage in FDI not only to transfer their resources to a host country (asset exploitation), but also to learn, or gain access to, the necessary strategic assets available in the host country (asset seeking).

J. Dunning and R. Narula, Multinationals and Industrial Competitiveness: A New Agenda, (Cheltenham: Edward Elgar, 2004)


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Motives of Chinese firms investing abroad

Pull strategies by foreign governments – tax incentives and other favourite conditions

Push strategy by the Chinese government – ‘Go global’, tax incentives, subsidies, national bank loans with preferential terms

Energy resource seeking – oil, gas, mining

Financial factors – bankrupting firms sold at cheap price, access to international fund (with low interest), to avoid trade quotas, money laundering

Knowledge and know-how seeking – to acquire technology and management know-how through M&As and JVs in R&D centres


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Motives of Chinese firms investing abroad (cont…)

Brand name product building – to form strategic alliance (often through acquisitions) with well-known western firms to overcome poor image of Chinese products

Market access – to gain access to well-connected distribution networks (often through partnership with reputable firms in the West)

Aspiration to be international players, e.g. SAIC, Haier

Increased competition or reduced demands at home – need to seek overseas market (e.g. bicycles, cars, household electronic goods)

Expansion and support of export – setting up branch offices and services centres, establishing a presence in the market

Foreign exchange reserves – if the company makes a profit


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Case study of a leading Chinese IT MNC – Huawei Technologies Ltd

Established in 1988 as an IT product trading firm in Shenzhen

Internationalization drive since 2001, now serving ¾ of the top 50 IT operators in the world

HW has rep offices in over 100 countries and over 1 billion users

Now employing over 60,000 employees, 48% of whom working in R&D

Business strategy: innovation, high quality, low cost, and excellent customer service

Globalization strategy: less developed countries first, then developed countries; occupy market first (loss-making) then make profit through maintenance and upgrades

Motives of overseas expansion: marketing and asset seeking, etc


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Huawei Headquarters 总部风光

http://www.huawei.com/multimedia_library/headquarters/administration_center.do

http://www.huawei.com/multimedia_library/headquarters/marketing_center.do

http://www.huawei.com/multimedia_library/headquarters/r&d_center.do

http://www.huawei.com/multimedia_library/headquarters/testing_center.do

http://www.huawei.com/multimedia_library/headquarters/training_center.do

http://www.huawei.com/multimedia_library/headquarters/exhibition_hall.do

http://www.huawei.com/multimedia_library/headquarters/logistics_manufacturing.do

http://www.huawei.com/multimedia_library/headquarters/staff_condominium.do


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Huawei R&D Centre

http://market.huawei.com/hwgg/photos/en/images/rd00.jpg



http://www.huawei.com/mm/rd03_new11176710474597.jpg



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Huawei HQ Staff Condominium 员工公寓百草园


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HW’s global HR strategy and challenges in ER

HR strategy: Deployment of Chinese expatriate to set up operations first

Localization to overcome language and cultural problems, also to show commitment to local economy and observation to local labour law


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HW’s global HR strategy and challenges in ER (cont…)

HR challenges: Retention due to lower pay than western MNCs

Low competence of employees in poor countries (low PC literacy and project management skills)

Cultural differences in work values

Cross-cultural issues between Chinese expat & local employees

Lack of identification of local employees with HW’s corporate culture or HW as their employer


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HW’s global HR strategy and challenges in ER (cont…)

HR responses: Promote local employees to ranks which they will not get in

western MNCs Introducing local practices to suit local employees (e.g. bank

loan guarantee letters) Cross-cultural team building through social events Sending key local employees to HW’s HQ for training and

development Deployment of locals as deputy managers to look after

personnel issues Learning by doing in developing HR practices to suit local

needs, e.g. borrow western MNCs’ good HR practices Deployment of emotional intelligence in understanding local

employees needs and provide support


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Questions?????????………. and answers!!!!!!!

Managing people – Foreign MNCs in China and Chinese MNCs abroad

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Transcript of Managing people – Foreign MNCs in China and Chinese MNCs abroad