This is a paper I wrote for my Doing Business in China course as part of my ASU MBA. It was submitted following my school trip there in May, 2001.
Executive Summary
In recent years, foreign direct investment in the People’s Republic of China (PRC, China) has surged, accompanied by an influx of Western business people.[1] Indeed, U.S. firms employ almost 7 million people outside the United States, and more than 100,000 U.S. firms are engaged in some type of overseas venture. With demand for expatriate executives in China expected to increase by 400% over the next decade, and annual compensation packages ranging from $250,000 to $300,000, it is critical that these firms choose and train the right people for these posts.[2] However, evidence exists to the contrary: Studies have found that between 16% and 40% of all expatriate managers end their foreign assignments early because of their poor performance or their inability to adjust to the foreign environment. Furthermore, as many as 50% of those who do not return early function at a low level of effectiveness.[3]
The purpose of this paper is to examine the reasons expatriates are necessary for companies establishing branches in China, understand the cultural differences that make expatriate assignments in China difficult for Americans; and explore the decision criteria firms are using when choosing their expatriates, the training expatriates receive before and during their assignments, and how the expatriate experience affects an employee’s career.
Why Expatriates?
"Localization" - filling management positions with local hires rather than expatriates - is the end goal of most foreign companies with operations overseas. But recent interviews suggest that many foreign companies consider the success of their China ventures to depend on having a minimum number of expatriate managers in the field, particularly during the venture's early years. Some foreign-invested enterprises (FIEs) in China feel strongly that only managers brought up through the foreign parent's ranks have the full sense of the firm's mission, products, and competition. Others cited having a reliable source of communication and someone who understands the corporate culture as important reasons to have “one of their own’ in the PRC. The particular skills required of the position, of course, also factor into the decision to send an employee abroad.
Though more and more local Chinese are filling deputy marketing and production manager positions, FIEs still tend to post expatriates for such positions as chief financial officer, general manager, and human resources manager because the level of local expertise in these areas remains low. As a result, many American human resources experts believe that China is still many years away from the point at which locally hired executives will regularly begin to replace expatriate managers.[4]
Cultural Differences
The foundation of the cultural differences between Chinese and Americans lies with the Confucian influence on Chinese society. Confucius was a Chinese scholar and statesman who lived during feudal times over 2,000 year ago. He established a rigid ethical and moral system that governs all relationships in China. Confucius taught that the basic unit of society is the family. In order to preserve harmony in the home, certain reciprocal responsibilities must be preserved in relationships. These relationships are between ruler and subjects, between husband and wife, between father and son, between elder brother and younger brother, and between friends. Since all but the last are hierarchical (in Chinese society, men are of higher “rank” than their wives), rank and age are very important in all interactions. All actions of the individual reflect upon the family, and filial devotion is of utmost importance. The virtues of kindness, propriety righteousness, intelligence, and faithfulness are deeply revered.[5]
As a result of this reverie, business negotiations can be difficult to understand from a American cultural perspective. Chinese identify themselves with the groups to which they belong. There is not a lot of emphasis placed on the individual, but rather his or her network of relationships. When conducting business in this environment, it is critical to build trusting relationships with the Chinese. Once the relationship is recognized, there are a certain number of behaviors that are expected. First, the Chinese use the term “guanxi” which implies a web of duties and debts that must be repaid by returning favors and doing what is requested by the other party in the relationship. Relationships are serious business in China and they involve a high level of commitment and obligation. This “relationship building” is something with which American managers struggle. The American concept of “doing business” doesn’t involve these notions since trust is considered unnecessary due to the legal process of signing the deal. In China, however, the opposite is often true: After a deal is signed, then the real negotiations begin.
Another aspect of the relationships within China is saving face (mianzi). The Chinese aim to save the dignity and reputation of others by not reprimanding someone in front of his peers, not disrespecting elders and not speaking out of turn. Managers are considered to have “face” by being virtuous, upright and dependable. It is important for managers not to violate the community standards of reliability and restraint if they desire to maintain and/or gain face. This is another concept foreign to many American cultures, which value directness and, sometimes brutal, honesty.
Also inherent to business relationships is hierarchy and order. Hierarchical relationships form the backbone of Chinese society, as mentioned previously with regards to the Confucian influence. By observing the hierarchy, Chinese social order is maintained. The social order is contrary to that of American culture, which values individualism and differing opinions. The Chinese view this type of behavior as immature and disruptive. The Chinese expect people to respect the integrity and hierarchy of the group by not openly expressing emotions or disagreements. To American managers in China, understanding the dynamics of the relationships they will inevitably need to build is vital to their success.[6]
Choosing Expatriates
The importance of human resources to the investment equation in China cannot be underestimated. Not only are personal relationships a high priority in the Chinese value system, but the current level of management technology in China requires experienced leadership in the workplace. As business globalizes, American companies face an array of options for filling posts in China: selecting someone from within the foreign parent; recruiting a foreign national outside the firm in Hong Kong, China, or the United States; hiring a PRC national who has studied in the United States; or working with one of the many executive search firms that have established offices in Hong Kong and China to recruit personnel with a specific mix of qualifications. Whichever route a firm takes, technical or business skills, language ability, and familiarity with the PRC business environment are three criteria by which applicants are likely to be judged.
While a growing number of new expatriate hires are ethnic Chinese, who tend to have superior Chinese language skills and familiarity with, if not affinity for, China's culture, many experts caution companies against hiring expatriates on the basis of non-business criteria, stressing that technical skills should always come first. There is also considerable disagreement among human resources experts about the wisdom of assigning an ethnic Chinese expatriate to a China venture. Some maintain that these managers can be particularly effective in China, since they tend to be culturally vested in China in a way that most Americans are not. Others feel non-Chinese expatriates can wield more leverage in negotiations with potential Chinese partners and command greater loyalty from their local staff.
Many experts believe that business skills should always outrank language skills in importance to a company's China operations. Because China is not only one of the most volatile markets in which to do business, but also one of the world's most competitive markets, companies should send their young, skilled, "rising stars" to China, regardless of language ability or ethnic origin. Executive qualities next in importance are cultural sensitivity and tolerance for China's living and working conditions, followed by Chinese language skills.
The vast size and complexity of the China market demands the best talent that foreign companies have. Many large, diversified multinational companies are focusing their efforts on developing the talents of promising employees in China, so that the company can gain a competitive edge with its own "China expertise" - a corps of China-based employees who understand the country's business environment inside and out, and whose knowledge is not limited to a specific sector or product. If the foreign corporation decides to go after market share in a given product or geographic area, the talents of these employees are readily applicable.
Though the expatriate phenomenon is hardly new, the selection process for China continues to stump many firms. In many cases, technically qualified candidates may be unwilling to transfer overseas. Among the qualified candidates willing to take a foreign assignment, some may be intimidated by the language barriers or living conditions in China, while others with school-age children might be deterred by China's lack of international schools. Currently, only Beijing, Dalian, Guangzhou, Shanghai, and Tianjin have international schools. While human resources executives from some multinational corporations state that they send to China only those employees who have international experience, others admit that they simply do not have a sufficiently large pool of such employees to select from based on this criterion.
Once practical criteria are applied, human resources managers should attempt to make sure that candidates possess certain personality traits, as the impatient or intolerant are not well-suited for working in China. Rather, China demands flexibility, optimism, tolerance, and perseverance. Further, because an expatriate's mission typically involves training a local replacement, or at least transferring knowledge to Chinese colleagues, companies should look for candidates who have qualities associated with teachers. Expatriates also must not expect to change radically the ways of their local Chinese colleagues. Instead, a good expatriate employee will be able to adjust his or her supervisory skills to reflect how Chinese workers operate. For example, a Chinese employee may not be accustomed to resolving problems and making decisions independently, participating in a American-style business meeting, or offering suggestions to a supervisor. A good foreign manager should at least be aware of such attitudes and, if possible, use patience and encouragement to bring about greater efficiency in the work place.[7]
Training Expatriates
Though preliminary “look-see” visits by potential expatriates and their spouses to China have become commonplace, surprisingly few expatriates-to-be and their families receive in-depth training before leaving the United States. Management consultants maintain that too many companies equip these employees with no more than a handbook or a one- or two-hour orientation session before seeing them off at the airport. Indeed, only about one-third of the surveyed companies offered cross-cultural preparation programs to all family members involved in an overseas transfer, more than one-third provided no such training, and about one-third offered training to the expatriate employee and spouse. Though cross-cultural services firms report an increase in pre-departure programs for China, many of the larger multinationals report that training, if provided at all, occurs once the employee has arrived in the PRC.
When in-depth training is provided, the curricula often overlook the general cultural values and practices described, in part, in the previous section. Further, even crucial “China business” training often is lacking. Few expatriates are warned, for example, that China's volatile market - sudden tax and regulatory changes, reductions in supplies, frequent turnover of skilled labor, and other unpredictable problems – often means that meeting home-office goals and deadlines proves infeasible, or makes accurate forecasting much more difficult in China than back home. While such conditions try the patience and skills of expatriate chief financial officers and general managers, having a home office that faults the expatriate for failing to live up to corporate expectations only adds insult to the expatriate's injury. This can lead to the replacement of a manager who is just beginning to develop guanxi, and thus become more effective, with someone who will have start from the ground floor.
While Chinese language ability may not be the most important criteria in selecting an expatriate for a China post, having at least some level of comfort with the language is important. Though many expatriates are selected based not on Chinese language ability but on their technical skills, acquiring some basic Chinese can be a crucial means of establishing trust, and thus guanxi, with local Chinese colleagues. Companies that are serious about their expatriates succeeding encourage – and pay for – on-going language training, rather than simply providing them with a translator, which could be much more expensive in the long run.[8]
Returning Expatriates
Posting expatriate employees in China is an investment with both short-term and long-term components. While the expatriate's immediate mission is likely to consist of managing some aspect of the firm's China venture, in the long run the employee stands to contribute knowledge gained overseas to the home office and, more generally, enhance a company's “international outlook.”
Some expatriates complain, however, of the lack of performance evaluation methods in place for their China positions, considering the substantive differences between the American and Chinese business environments. Indeed, a common fear among American employees presented with the chance to work in China is that, by doing so, they will be bumped off of the parent firm's promotion track. This is especially true of the “rising stars,” who are likely to be the most successful. While companies appear to be trying hard to fight this misconception, and indeed many companies already consider international experience to be an essential part of career development, anecdotal evidence suggests that few FIEs in China have clear performance measures and regular evaluations in place for expatriates. Rewarding the expatriate with a substantive assignment or promotion – not simply with a horizontal move to another position – upon completion of a China posting will serve as a positive example to other employees considering overseas assignments.[9]
Conclusion
There are few easy answers to resolving the problems that arise in managing a global workforce. Working and living conditions vary among countries, cities, and companies. But, certainly, personnel administrators must begin to meet the challenge by tuning into expatriates' daily experiences. Increasingly, as American companies venture into foreign markets as complex and promising as China, they are likely to discover that attention to human resources issues, such as choosing, training, and retaining expatriates, is crucial for long-term foreign-market business success.[10]
References
References are given as endnotes. When a paragraph or section ends with an endnote, it generally means that the previous paragraph or section was adapted from the reference. When a sentence within a paragraph ends in an endnote, it means that that the fact stated in the sentence was obtained through the reference.
1. Selmer, Jan. Effects of coping strategies on sociocultural and psychological adjustment of western expatriate managers in the PRC. Journal of World Business, Spring 1999 v24 i1 p41(1).
2. Melvin, Sheila and Kirsten Sylvester. Shipping out. The China Business Review, May-June 1997 v24 n3, p30(5).
3. Kaye, Marianna and William G.K. Taylor. Expatriate culture shock in China: a study in the Beijing hotel industry. Journal of Managerial Psychology, July-August 1997 v12 n7-8, p496(15).
4. Melvin, Sheila and Kirsten Sylvester. Shipping out. The China Business Review, May-June 1997 v24 n3, p30(5).
5. Morrison, Terri, et al. Kiss, Bow, or Shake Hands. Adams Media Corporation: Holbrook, Massachusetts, 1994, p56.
6. Menasci, David, et al. China. A written assignment for Arizona State University’s International Management elective, Summer 2001.
7. Melvin, Sheila and Kirsten Sylvester. Shipping out. The China Business Review, May-June 1997 v24 n3, p30(5).
8. Ibid.
9. Ibid.
10. Ibid.
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