FOREIGN COMPANIES IN CHINA

Reasons for success and failure of foreign companies in China



Abstract

With an increasing number of foreign enterprises operating in China, there is a need to focus on the motivation of Chinese workers in such enterprises, and the way that human resource management practices address Chinese work values and motivational factors. Problems of productivity and retention of employees have been reported which reflect on the ways foreign companies attempt to motivate Chinese employees, often relying on practices drawn from concepts which work in the West. This report looks at such Western practices, explaining why they might not work in a Chinese context. Chinese work values and motivation are compared with these approaches and propositions advanced to indicate how Chinese employees may be motivated. These are then compared with current practices and attitudes within foreign firms and joint ventures in China. For the latter a study of 13 companies in Beijing is reported, and the efficacy of policies and practices is questioned. Recommendations include the need for organisations to affect structural and policy changes in the areas of rules and procedures, reward systems, corporate identity and career planning. The provision of appropriate expatriate manager training is also suggested.

Table of Content

Chapter One: Introduction4

Chapter Two: Literature Review7

Chapter Three: Methodology14

References15

Chapter One: Introduction

At the end of 1978, during its “third plenum”, the Chinese Communist Part Central Committee gave economic reform top-level priority. Following the Second Session of the Fifth National People's Congress on 1 July 1979, foreigners were permitted by law “to establish equity joint ventures together with Chinese companies, enterprises or other economic organizations … within the territory of the People's Republic of China, on the principle of equity and mutual benefit” (PRC, 1987).

Since the beginning of these economic reforms in 1979 the Chinese economy has exploded, with an average annual growth rate in GNP of 10 per cent over the last decade, with the attainment of 20 per cent in the coastal areas designated “special economic zones” (EIU, 1994). Foreign direct investment more than doubled between 1987 and 1990 (Kelley and Shenkar, 1993), despite a slow-down after the Tiananmen Square incident, with an estimate of more than 150,000 joint ventures in China. Much of this investment comes from Hong Kong (68.2 per cent in 1992) and other countries of Eastern Asia, with European countries, and even the USA (with 4.6 per cent in 1992) badly represented.

Despite this economic growth, there are indications that productivity has been a problem. This may have implications for the attractiveness of China to foreign investors, despite low labour costs. A study undertaken in the mid-1980s indicated that productivity levels were 60-70 per cent of those in Hong Kong (Locket, 1987). A recent study (Turcq, 1995) indicates a steady rise in productivity relative to wage increases over the ten years from 1980 to 1990. But many of the problems and failures of international joint ventures in China have been associated with problems in the area of human resources management, and particularly in performance motivation and staff retention ...