IHRM Global Leadership Development Comparisons across Sweden China

IHRM: Global Leadership Development Comparisons across Sweden, China, and U. S. Case 1 Analysis: Building a World-Class Product Development Center for Hi-Tech Systems in China Laura Hsu Clarice Wong Tyrone Chin Kenneth Wong Heather Madison

Hi-Tech Systems Sweden (Parent country) China (Host country) USA (Third country)

Company Profile Hi-Tech Systems • Swedish company based in Stockholm, Sweden • Established in 1976 and later expanded it’s business globally • In 1992, the company established a representative office in Shanghai and in later years, created several subsidiaries in China • In 2000, Product Development Center was established in Shanghai

Company Profile (cont’d) Peter Hanson • US citizen, the head of Product Development Center of the company in Shanghai • In charge of the operation in China, including HR management • Criteria for selecting suitable staffs in China: • Experience of launching Hi-Tech Systems products in China • Familiar with Chinese culture and environment • Committable to long-term staying (at least 3 years)

Issue Peter Hanson has questioned that the lessons on how to manage HR obtained in North America and Europe apply also in the People’s Republic of China (PRC). Analysis on: 1. Cross-cultural diversity and management 2. Staffing 3. Cross-cultural equity 4. Performance appraisal of international employees, ethical issues, and social responsibility 5. Human capital development

Outline Cross-cultural diversity & management (Laura) Human capital development (Heather) Staffing (Clarice) Effective IHRM Performance appraisal, ethical issue, and social responsibility (Kenneth) Compensation (Tyrone)

Culture Profile Swede • • Punctuality and efficiency: time keeping Need attention and dislike interruptions Consensus Informality: casual wear for business occasions Detailed, careful analysis of facts and systematic presentation Less hierarchical High individualism High femininity

Culture Profile (cont’d) American • • • Punctuality: time is money Straight to the point Make decision quickly Less/no work on holiday Individual initiative and achievements Risk taker Dislike silence during negotiations Disagreement is acceptable Persistence Future oriented Company policy is always followed Sense of humor

Culture Profile (cont’d) Chinese • Moralism: influenced by Taoism, Confucianism, and Buddhism • Respect for age (elders) • Not value time: punctuality is not important • Low individualism, high collectivistic: group orientation • Hierarchy • Make decision slow • Guan. Xi: value personal relationship, social networking and connection • Harmony and “face”: saying “no” is uncommon • Negotiation skills are very important • Masculinity: gender differences

Impacts from Culture Difference Maladjustment to the cultures may cause problems on both organization and staff performance and their wellbeings • Personal impacts * Culture shock * Maladjustment to the environment * Influences on individual (personality, confidence, etc) * Influences on family

Impacts from Culture Difference (cont’d) • Job-related impacts * Malfunction and poor performance * Future career damage * Expatriate failure * Organization cost and damage

Manage Cultural Differences Successfully To cope with cultural differences successfully and reduce expatriate failure and cost, the company should establish a complete cultural training program to avoid consequent problems. • What should be included in the program? * Multicultural awareness * Social & economic environment understanding * Local morals and values * Life-style understanding * Corporate cultural norms and expectations * Suggestions from experts

Manage Cultural Differences Successfully (cont’d) • Who should be trained? Not only should the expatriates be given training, but that host country nationals should be given cultural training related to the expatriate home culture. * Swedish expatriates (PCNs) * American expatriate: Peter Hanson (TNC) * Chinese employees (HCNs)

Labor Market Characteristics: U. S. n n n Employed Unemployed 140. 5 million 64. 2% 7. 7 million 5. 2% American labor force is very mobile Wage dispersion continues to increase, leaving fewer workers in the middle; gap, however, encourages workers to acquire greater skills U. S. labor market no longer influenced by Unionism or collective bargaining

Labor Market Characteristics: Sweden Unemployment rate: 5. 9% n Swedish labor force not as mobile compared to other countries, due to employment protection legislations n Known as a “welfare state: ” gov’t pursues active market policy to find jobs, train, and relocate employees; downside with labor surpluses n In the past, Sweden was not a favored destination for high tech business operations, rather low-paying manufacturing jobs; situation reversed as during the 90’s n

Labor Market Characteristics: China n n n Labor Market 2003 2004 2005 Labor Force Unemployment Rate (%) 774. 6 782. 3 790. 1 10. 1 9. 8 9. 2 2 -Tier economy n Coastal city economies are booming; shortage of workers n Interior portions of China suffer from many who are jobless Major cities have a great need for experienced managers with knowledge in management/finance Two labor markets n Domestic enterprises n Foreign-Invested Enterprises (FIE)

Labor Market: China (cont’d) n Heavy mobility of workers contributes to problematic staff turnover n Turnover varies by region, industry, and type of enterprise Average Turnover Rates (by City) for FIEs Beijing Shanghai Guangzhou 15. 2% 14. 5% 12. 4%

Key Issues in International Staffing

General Selection Criterion Technical Abilities n Cultural/Environment Knowledge n Family Requirements n Language Competency n In addition (criteria indicating personal characteristics) are also looked for: n Effectiveness as a team member or ability to work well with others n Ability to communicate/persuade n Initiative/effort n

General Selection Process n n Pre-Selection: n Use of Harris/Brewster topology (formal/open, formal/closed, informal/open, informal/closed) to define criteria/measures, and whether to announce international assignment posting internally or externally During the selection process: n A single or combined use of assessment measures, competency tests, background data, and/or interviews

Selection Criteria Used in Sweden n n Most Swedish MNEs: impossible to generalize specific selection criterion for hiring Technical ability, however, is singled out a major factor in what is looked for in hiring n Cultural knowledge/language/personal characteristics were not as important; aspects varied depending on where the prospective candidate is being relocated to

Selection Process in Sweden n n Swedish firms tended to rely mostly on the formal/open topology in determining measures for selection Swedish firms also preferred background data and interviews to determine the best candidate for the international assignment

Recruitment by Swedish-based companies’ Chinese Subsidiary n n n Discrepancy in recruiting methods between Sweden and China Swedish expatriates (PCNs) in key positions: responsible for transfer of knowledge (i. e. , corporate culture of company); link with headquarters Important to find the right or “best” person for the international assignment

Selection Criteria/Process in Chinese Subsidiaries Criteria: § Technical competence with experience working in international company § Ericsson § Selections also made based on specific job and environment Process: § Mostly recruit internally § Clear separation of HR and line manager’s roles in the hiring process § Interviews common; assessment centers or tests used on occasion

Final Remarks Concerning Recruitment for Hi-Tech Systems’ Case n n n Hi Tech Systems’ overall recruiting approach similar compared to approaches from other Swedish-based Chinese subsidiaries (i. e. , Ericsson, IKEA) However, Hi Tech Systems also looks for drive/initiative from candidates, in addition to technical skills— important implication As recommendation for Hi Tech recruitment: n Develop relationships with people who specialize in building sources of qualified candidates n Recruit from universities

International Compensation Practices n n Sweden n Individualistic country Hi-Tech Systems n Performance-based compensation for workers n Managers use their judgment in making decisions to minimize turnover

International Compensation Practices n n United States n Dominant method: balance sheet Rationale for compensation approach: n Comparable living standards overseas would entice expatriates to undertake foreign assignments n Ease in transferring to and from the parent and host country n Degree to which the expatriate experiences a reverse culture shock upon return after completing the overseas assignment is reduced

International Compensation Practices n n United States Drawbacks of balance sheet approach: n Costly to initiate n Oftentimes create dissension from local workers over pay disparities between them and the expatriate

International Compensation Practices n n United States Peter insinuated that Hi Tech Systems employs a balance sheet approach when he asked his job candidates how would they respond if they knew, “…people may be jealous of them making much more money, traveling abroad and having much higher position than they themselves had? ”

International Compensation Practices n China n Consider the varying wages and pay formats offered by competitors n It is a challenge to find remuneration data in and on China n Perhaps lack data led Peter to presume that a performance-based approach would be viable in the Shanghai PDC n Compensation based on performance is still rejected by most Chinese

Analysis n Hi-Tech Systems n Ethnocentric approach toward remuneration n This approach ignored the impacts of culture and career development on remuneration

Analysis (cont’d) n Cultural elements n Understand what motivates people in their respective cultures n Different cultures require different forms of motivation n (i. e. ) the American perspective of equity differ from the Chinese

Analysis (cont’d) n Career development n Expatriates undertake foreign assignments with hopes of future career growth coupled with financial gain n Career development is new concept for the Chinese n Need to explain compensation plans in its entirety n (i. e. ) Deloitte & Touche

Conclusion n Peter should take into account the culture of the PRC Should institute performance-based pay plan gradually Emphasize the opportunities for career development in the remuneration plan

Performance Appraisal of International Employees

What is Performance Appraisal? n A tool used to measure the achievement of individual, group, and organizational objectives n Purpose is to identify obstacles and challenges for improvement in performance

American Characteristics and Views Result oriented n Productivity n Individual achievement n Performance appraisal rather than the person n

Chinese Characteristics and Views Chinese managers put great emphasis on “moral” characteristics and personal attributes n Loyalty n Obedience n Performance appraisal favors loyal employees n Face = “Mianzi” may effect the performance appraisal process n Private appraisal over public appraisal n Confucian concept of wu lun (five "cardinal relations") n Employees are expected to passively receive assessment. n

Improvement Needs More employees’ involvement in performance process n Link Performance to pay n Evaluate performance fairly n Develop appraisers’ skills n Empathy n Develop appraisers’ skills n Holding managers accountable n

Role of IHRM in Cross-Cultural Ethical Issues and Corporate Social Responsibility

Views on Ethics n n Concept of “bribery” n Chinese views gifts as part of Chinese business practices n As well as building trust and relationships Chinese view on Network Connections as more important n Westerners may view this as unethical favoritism

Views on Ethics (Cont’d) n Chinese believe in stability and status quo preservation principles n Peter Hanson must have patience

Expatriation and Human Capital Development in China n Traditional Expatriate Role n Recent History & Chinese Labor Market n Impact on Developing Corporate Human Capital n Training and Development – HCN & PCN n Expatriate Trends in China n Practical Aspects of Expatriation to China n General Tips on a Positive Expatriation n Conclusion – Hi-Tech Shanghai PDC’s Future

Traditional Expatriate Role n Training of HCN by PCN – travel both ways n Other roles launch new ventures, explore market opportunities, resolve issue and improve reporting to the corporate level n Recent Trends - human capital development as a multi-directional, if not fluid process n Hi-Tech – Most assignments short-term, but Shanghai PDC begins with 50% longer term expatriates

Chinese Labor Market & Recent History n n n Beijing & Shanghai - Engineering and Technology highly available Managerial Talent Scarce Frequent Job Hopping History – Until 1990 s, workers assigned to SOEs, little choice to determine career SOEs still offer many benefits, but decreasing Hi-Tech – needs to offer competitive compensation, benefits and implement retention techniques

Developing Human Capital n n n Engineer/Tech Talent easy to find Business Talent needs to be developed Various Methods of Training n Small Facilities – Mentoring and Training n Lg. Facilities – Centers of Excellence, Corp. Universities Goal of Human Capital Develop a ‘Two Way Street’ n Benefits Company & Boosts Retention Hi-Tech – Shanghai PDC is small at case time, with scale, has opportunity to implement above

Training and Development n n Lg. firms ABB, Ericcson, Motorola & Siemens Chinese Co. Es and/or Corporate Universities Swedish Research on Chinese Facilities n Employees highly value training, aids retention n Advise english, business skills, work w/in western firm n Begin training new hires, set clear goals For expatriate managers, cultural training n Continued awareness/responsiveness cultural nuances Hi-Tech – Already has Shanghai presence and good initial recruiting, but needs to think about future

Trends of Expatriation in China n n n GMAC 2003/2004 Survey China top destination, 18% of all expatriates One of most challenging due to bureaucratic and tax issues, quality of life, cultural issues Localization 30% of firms use, most use local plus Localization & Expats from other Asian countries Hi-Tech – has another PDC in Hong Kong, can potentially source for candidates

Expatriation to China Practical Aspects n n n Leading western HR firms Chinese JVs n Heidrick & Struggles’ Beijing Leading HR Consulting n Korn/Ferry China International Economic Consultants Chinese Gov’t. – Managerial Level Facilitated n License visas, certificates & resident permits to labor Shorter Term - multiple entry visas for up to 5 years Hong Kong, Macau and Taiwan – many exemption Hi-Tech – uses a lot of short-term assignments, has Hong Kong PDCs, thus rules convenient

Tips Expatriation & Repatriation n n n Repatriation – Plan before expatriation Ongoing Communication - email dist, intranet, home trips, dial-in meetings, mentoring Ongoing skill assessment – New Strengths & Gaps Pre-repatriation – 6 months – 1 year advance Reintegration – Debriefing and Reporting HR Track Career – Expatriate as Mentor Hi-Tech – Hanson is using a lot of expatriates, HR should follow similar steps

Conclusion –Toward the Future n n n Hanson looks forward growth and dev. of Hi-Tech Needs to structure the HR function Be responsive to cultural issues Key concern is retention – is making social efforts Suggestion – Should use expatriate employees as mentors to PRC employees

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