Introduction
Multinational firms are faced with various challenges while operating in the host country. The challenges are particularly worse for multinational companies operating in countries where there are differences in cultural and management practices between the host country and the multinational firm’s country.
Multinational firms operating in mainland China and in the UK or US face these challenges in their operations. China is one of the countries that values Foreign Direct Investment. This is because of the belief that, Foreign Direct Investment benefits a country via receiving products and equipment that are up to date.
It also brings forth advanced practices in Human Resource Management. A lot of foreign investors from all over the globe have successfully started business enterprises in china, despite the challenges they face.
The rapid economic growth that has been witnessed in China in the recent past has attracted a lot of foreign investors. Many foreign organizations have shown interest in investing in the Republic of China.
Firms that have established their operations in China are concerned about using the right management practices, in order to be successful in their endeavors. However, this has not been without various challenges that these multinational companies have had to deal with.
The process of globalization, which began a few years ago, has opened up a lot of opportunities for business to be carried out globally. The restrictions that used to hinder companies from venturing into business practices overseas have now been eliminated. The nations are currently able to venture into businesses globally.
This paper entails a theoretical discussion on international and comparative HRM. It shall then address the various challenges that a fictitious chain of supermarket, MRH, from Australia is likely to face as it establishes branches in three overseas markets namely China, the United States and the United Kingdom.
Theoretical discussion on international and comparative HRM
Different countries have their own human resource management practices that may not be necessarily identical to the Human Resource Management practices found in other countries. Multinational corporations planning to venture into other countries to start their operations there are likely to encounter some challenges while trying to adopt to the HRM practices of the host country.
Multinational companies face numerous challenges, especially in attracting and keeping qualified personnel. For example, in China, there is a massive shortage of talents although the country has been producing the largest number of graduates annually.
This is attributed to the unpractical system of education that is practiced in China. Most of the graduates pursue degree courses that are not marketable in the labor market. The graduates end up being jobless. Multinational companies have also had to deal with the challenge of expatriate failure due to the culture shock they experience once they start their operations in China.
Initially, multinational corporations operating in China tried to use Standardized Human Resource Management practices in their operations. Most managers believed that this would be very effective and efficient in their operations.
However, this approach was not workable because they realized that every country has its own unique culture as well as beliefs on the right organization behavior. Multinational corporations planning to launch their operations are likely to encounter cross-cultural and cross-national challenges.
These challenges may lead to conflicts in the strategies made. Localization of human resources by multinational corporations operating in China is very important to overcome most of the human resources challenges that most multinational companies face.
China is one of the countries that has the largest population and produces the most graduates annually. Therefore, it is considered one of the largest labor markets for multinational companies. There are numerous corporations from various countries globally that are launching their operations in China because of the numerous benefits they expect to get.
HRM is a managerial function that is mostly dependent on an organization’s arrangement as well as the state related factors. HRM is influenced by factors such as national culture and the people’s beliefs and traditions. Other factors that affect HRM include labor market and the set rules and regulations.
Each nation has its own national business system that affects the HRM practices within the country (Alon and John 2008). Some of the HRM practices such as the importance of an organization to attract and pay workers fairly are universal.
However, others are shared only within a certain region or country. The government in the US and UK is involved to a large extent in the people’s welfare as they work for various institutions. This usually happens through formulation of policies that favor workers.
Clear HRM Challenges for Entry in China
Challenge in labor management practices
According to Bergsten (2008), differences in labor management practices and employment systems between China and the UK/US are also a major challenge to multinational companies. In the past, China did not have human resource management in various corporations. They operated under some practices that had replaced the conventional human resources management.
The government was involved in managing the operations of all companies during the industrial period. It would tell the managers of these companies what they were supposed to produce. However, during the 1980’s, this practice was reformed and the practice of human resource management was introduced.
This was mostly because of the foreign investors that were already investing in China. Young people were given jobs by the government and not by the human resource managers. These jobs were considered to be permanent and no one had the authority to remove these people from the positions they held, even if they failed to perform to the required standard.
Managers in Chinese companies were therefore, de-motivated because they received no incentives and were not in a position to discipline any worker who did not perform because the positions they held were given by the government and were permanent in nature. Due to lack of motivation, most managers in China lost interest in their work and their technical skills because they were not put into practice.
When multinational companies launch their operations in China, they face a challenge in human resources because it is very hard to find qualified managers to entrust with the operations of the corporation (Bergsten 2008).
There has been a change in how multinational firms are viewed in China since they began their operations in the 1970’s (Alon & John 2008). Before the 1970’s, China had not opened up opportunities for multinational companies to operate in the country. However, after the country opened its economy to foreign investors during this period, a lot of investors ventured into various businesses in this country.
At the beginning of their operation, the multinational companies that operated in China were treated very well. They paid lesser tax than companies that operated locally. Additionally, there was no duty imposed on goods they imported (Bergsten 2008).
These companies enjoyed the support of both the government and the local people. They were admired and feared by the local people and other companies operating locally. The local people showed open preference for products and services offered by these multinational firms. However, this view has changed over the years and the Chinese people prefer to buy products from local companies.
Cultural Challenge
Apart from the human resource management challenges faced by multinational companies operating in China, there is the challenge of cultural differences. According to Stopford (1998), culture is a very important factor and it is very influential in the operation of any multinational company.
Stopford (1998) observes that people from different nations have their own view on how business should be conducted. Any multinational company planning to start its operations in China ought to study the business culture of the Chinese as well as their fundamental beliefs.
The three philosophies that have been prevailing in the Chinese culture are Confucianism, Taoism, and Buddhism. These are viewed as philosophies rather than religions.
These philosophies are upheld by the Chinese people, and may conflict with some of the beliefs that multinational corporations such as MRH may hold. This is a major challenge because such conflicts are likely to affect the running of this chain of supermarkets in China.
According to Roach (2005), language is also an aspect of culture that multinational companies have to deal with. English is still the language that is considered as the international language that should be used in business.
Most of the Chinese managers are not proficient in English; therefore, multinational companies find it very difficult to work with them (Paulson 2008.). Communication between the managers and the owners of these multinational corporations is affected since the only language that can be used by both parties is English.
Multinational companies that would like to employ Chinese managers in their firms have to spend their resources training these managers in order to have maximum returns from the services they are expected to offer. This is because the managers are very important in linking the multinational corporations with the local people.
Another challenge that the multinational corporations operating in China face is related to the consumers’ preference for products manufactured by local companies instead of those from the multinational companies in China. The wide differences that existed between products manufactured and sold by Chinese companies and those sold by multinational corporations was bridged.
The local people’s drastic change from preferring products sold by multinational corporations to preferring their own locally manufactured products is a sign of dissatisfaction with the way multinational corporations in China operate (Wilson and Adam 2005). This is a big blow to these corporations because without enjoying the support of the local people, they cannot grow or develop.
Anglo-American and Developmental mode of capitalism
Anglo American capitalism is practiced in English speaking countries, such as in the United Kingdom and the United States (Sapir 2006). China operates under developmental mode of capitalism. These differences in the systems of economy practiced in the UK/US and China are likely to cause major challenges to multinational corporations planning to start their operations in China and in the UK/US.
In China, the economic system is run under shared ethics and norms which enhance economic cooperation. For instance, it is very common for people to do business together without first signing a contract (Hsu 2007).
This is because of the shared understanding among the Chinese people concerning the nature of cultural values that exist among them. Therefore, the relationship between people engaged in a business contract is more important than even signing of business contracts.
The cultural values and the ethical habits of the Chinese people, thus, affect how they carry out their economic activities. Since cultural values held by the UK/US are different from the Chinese, business contracts are highly valued more than working on the personal relationship between those involved in a business contract.
Property in the US/UK is held privately but in China, it is not the case. In China, all land belongs to the government. It is the Chinese government which gives permits in form of ‘use contracts’ to companies and individuals who are interested to use the land.
This contract lasts for a period of 70 years when it expires. The government uses this as a way of generating income for the municipals.
The labor regulations in China are relatively few compared to the labor regulations in the UK/US (Hsu 2007). According to Wolf (2009), the minimum wage in China is also relatively low and the social welfare is not well developed.
The tariffs that are used to protect the Chinese economy may also prove to be a challenge for the multinational corporations in China. These tariffs cause a rise in the cost of importing goods such as motor vehicles and electronics.
The currency in China is also tightly controlled. The rate at which the currency is supposed to trade against international currency is set by the central bank. This is a challenge to these corporations.
In China, collectiveness is valued more than individualism, which is encouraged and practiced in the UK/US. The UK/US culture of individualism is known to collide with other cultures that practice collective way of doing things. People from China look at how their actions are likely affect the whole society not just them as individuals.
How these challenges may differ between China and US/UK
The Chinese people are very social and they transfer this quality in their business relations. They expect that before engaging in any contract, enough time will be set aside for socialization (Alon 2003). Socialization is top on their priority, then the signing of the contracts can follow but in the UK/US the system works vice versa.
In fact, the issue of socialization while doing business with other people was not something important for the entrepreneurs in the UK/US until recently when they began showing an interest, though not to the level of the Chinese people.
In China, virtues such as humility are highly regarded and everyone strives to uphold it. For the people from the UK/US, this is mostly seen as a sign of weakness. Multinational enterprises venturing to do business in China may find this as a challenge in China because they are not used to esteeming this virtue highly.
This can result to a conflict during interaction. However, in the US/UK, this may not be a major challenge.
During interaction, direct confrontation in China is something that is shunned. This could be a difficult virtue to be adopted by investors from other countries, who believe that truth should be told, regardless of whether it is likely to result to a conflict or not. Such confrontations in the Chinese context are considered shameful, but in the UK/US, they are normal.
In terms of sensitivity to time, people from the UK/US are more time conscious than the Chinese people. While people from the UK/US expect that a meeting scheduled to start at 8 in the morning should start immediately, the Chinese take this time as a mere suggestion of when the meeting is supposed to start.
The same case applies to meeting the set deadlines. People from the UK/US expect that all work should be done by the set deadline while the Chinese are okay with an extension of deadline by a few days.
Prior to the year 2000, multinational companies operating in China were revered by the locals and viewed as superior to the local companies (Alon & John 2008). Their products attracted a lot of consumers. This continued until the year 2000, when there were drastic changes in the way these firms were treated by the government and the local people.
During this year, the gross domestic product per capita in China grew to over 1000 US dollars (Alon & John 2008). In 2001, China became part of the World Trade Organization. After China joined this organization, the perception of local people about multinational companies operating in China changed.
Before any multinational corporation ventured into any project, the project has to be thoroughly scrutinized to ensure that it is meant to benefit China. The multinational corporations also started to receive equal treatment with the local corporations in terms of taxation and payment of duties for imported goods.
Therefore, the multinational corporations operating in China are operating under very strict rules as opposed to the past few years when they had a lot of freedom and preferential treatment. The strict rules guiding their operations are very challenging to these corporations.
Conclusion
Corporations that are trying to establish their business in China and in the UK/US are doing so through various means such as mergers and acquisition. Since China joined the World Trade Organization, a lot of opportunities have been opened for foreign investors to establish their businesses in China.
Operating as a multinational corporation in China has more challenges than operating the same business in the UK/US. Some of these challenges are related to human resource management practices, differences in the culture of the host country and the multinational’s culture found in the parent country and issues related with labor management practices.
The challenges that MRH chain of supermarkets is likely to face in China are different from the challenges likely to be experienced in the UK/US. In China, there are numerous challenges due to cultural related issues as well as differences in the human resources management practices.
There is also a likelihood of encountering problems in the Chinese market because China practices communism while in the UK/US, capitalism is the dominant practice. In China, this chain of supermarkets is likely to experience cultural related challenges. This is because the culture of the Chinese is very different from other cultures such as the culture of the people in the UK and US.
In China, the cultural beliefs affect the way business is conducted. Some values that are normally disregarded or considered as a sign of weakness in the UK and the US are highly esteemed in the Chinese culture. They include virtues like humility.
Some of the Chinese cultural practices also conflict with the culture of the Americans and the people from the UK. They include issues like time sensitivity. Whereas people from the UK and the US are sensitive to time, the Chinese are not. This may cause a problem to multinational companies, such as MRH, planning to start their operations in these three countries.
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