Differences Between Chinese And German Employment Systems

“Employment systems are complex structures of productive and reproductive activities, various payment schemes, and different working time arrangements” (Christiansen, Koistinen, & Kovalainen, 1999, p 1). They can be shaped by societal structures, national cultures, social welfare systems, educational and vocational training systems (Christiansen, et al., 1999). This argument successfully explains why there are so many different employment systems globally.

In addition to the structural and cultural differences, globalisation, technological innovation and workforce aging also have resulted in tremendous changes in the social and economic context (Christiansen, et al., 1999; Tuselmann, 2001; Ying & Warner, 2005). This paper discussed how and why the employment systems in Germany and China are different and the influences of globalisation.

The German employment system was chosen to be the counterpart not only because Germany is one of the world’s leading economies and a prototype of the Continental Model, but also in consideration of its close international trade relationship with China.

The attention was focused on the differences between the aspects of Trade Union role and Vocational Education and Training System (VET). The changes in China was focused on the State-owned Enterprises (SOEs) because it is still the dominant employer in China and the data are relative easily be accessed. The term of “human resource management” (HRM) was used in broad sense in order to cover more aspects of the current HRM practices. This is because HRM, first derived from Northern America after the Second World War and spread to the world, is getting popular in China but there are great variations in interpretation, understanding and practices (Cook, 2004).

Differences between German and Chinese employment systems

When we talk about the “social models” in Europe we may consider that the “Europe Model” is unique and pervasive. However, the notion of “Europe Model” is too big to reflect the natural differences between each national system, thus it was re-categorized into several sub-groups, named Nordic Model, Anglo-Saxon Model, Mediterranean Model and Continental Model (Sapir, 2006). Germany, along with France, Austria, Belgium, Luxembourg, was categorised into the Continental Model characterized with collective bargaining between unions and employers’ associations, close tie between companies and banks, the comprehensive vocational education and training (VET) system, and extensive labour market regulations (Tuselmann, 2001).

Employment system in Germany

One outstanding characteristic of the German employment system is its dual representation and legalistic structure industrial relations system. Trade unions and work councils are well established with their counterparts of employers’ association and firms respectively. Legislations and laws provided a framework for different parties (Katz & Darbishire, 2000; Schnabel, Zagelmeyer, & Kohaut, 2006).

In Germany, collective bargaining is mainly carried out at the region or sector level and the agreement is legally binding. The collective bargaining parties have been legally empowered a great sense of autonomy, so it is possible to apply the agreements without the direct intervention of the state. Wages is a good example. It is collectively negotiated and applied at the state or sector level. Therefore, individual company within a bargaining sector do not has considerable differences in terms of the wages despite the organizations’ size, structure, technology, capital intensity and global exposure (Katz & Darbishire, 2000; Schnabel, et al., 2006; Tuselmann, 2001). This leads to “a high functional flexibility while a relatively low numerical and financial flexibility” (Tuselmann, 2001, p 546-547).

Comprehensive VET system is another feature of German employment system which has successfully supplied a large pool of qualified labours. In Germany, VET is supported by the state and regulated by different labour laws. Qualifications are designed on consensus of the employers’ association, trade union and educationalist. Chambers of commerce is employed to monitor the training progress and ensure that the trainee is not exploited. The close tie between the firms and banks ensures that investment is in long term interests instead of short one so that firms have much more patience to invest into the VET system. At the same time, because the pay is collectively negotiated in the sector level, it reduce the possibility of key technicians be poached so that firms are more willing to invest into VET (Grugulis, 2007; Tuselmann, 2001).

Employment system in contemporary China

In order to catch up the rest of the world and improve the economic situation, China has adopted a series of political and economic reforms since 1979, which have resulted in great changes in the context of management practices (Zhu, Thomson, & Cieri, 2008). The government has less directly intervened into the workforce management at the enterprise level. Instead, a series of laws and regulations have been adopted to handle the employment issues. SOEs have decentralized or privatized and more and more collectively owned enterprises, privately owned firms, self-employed business as well as foreign-related businesses, such as multinational corporations (MNCs), joint ventures (JVs), were setup. The changes of ownership structure and government involvement methodology undoubtedly impacted the employment system at the macro level. The trade union role, pay structure and VET system have gone through radical changes accordingly (Cooke, 2005).

In china, the officially recognized trade union is the All China Federation of Trade Union (ACFTU), which was set up in 1920s and supported the Communist Party to fight against Japanese and Kuomintang. Since 1979 its influence has improved largely but differences are apparent due to the difference of ownership structure, enterprises size and location (Cooke, 2005; Rowley, Benson, & Warner, 2004; Ying & Warner, 2005). All the union members, despite their occupations, sectors and regions, all belong to the same Union – ACFTU. The Trade Union Law, adopted in 1995 and amended in 2001, and the Labour Law (1995) provide a legal framework and empowered union to represent, monitor and protect the members’ legal rights and interests and develop their activities according to the law (Cooke, 2005; Ying & Warner, 2005).

In terms of the pay distribution, performance-based incentive policies have been initiated but “the basic wage is still largely based on the traditional seniority-based egalitarian wage structure” (Cook, 2004, p 25) which can not fully reflect the competences and contributions of the workers. As a result some workers are low motivated and some of the key technicians have been poached by private or foreign-related companies by high wages or higher social identification (Cooke, 2005; Ying & Warner, 2005).

Another characteristic of Chinese employment system is the ineffective VET system and severe skilled shortage although China has the largest labour pool in the world. VET in China is mainly funded by the government and SOEs. But only in recent years VET received some attentions. There are considerable differences between different enterprises ownerships, sectors and regions. Most of the enterprises leaders think VET is not the core business so that very limited fund was allocated to it (Cooke, 2005). These problems make it difficult for VET to train skilled labours for the social development.

In short, compare with Germany, the trade union in China has well organized and developed. It has actively and effectively involved into the collective bargaining and disputes settlement especially after the adoption of the Trade Union Law. The pay structure has abandoned the Mao’s equality norm and some incentive policies have been introduced but failed to reflect the individual competence. At the same time, compare with the German VET systems, the Chinese VET system is less effective and fail to supply enough skilled labours to meet the social needs.

Why are they different

Employment systems are complex structures which can shaped by several factors, such as “societal structures, national cultures, social welfare systems, education and vocational training systems” (Christiansen et al., 1999, p 1). This part explores the reasons of the differences between these two systems from the perspectives of political structures and culture differences.

Political structures

In Germany, the employment relations is famous for its high degree of juridification (Katz & Darbishire, 2000; Lansbury, Bamber, & Wailes, 2004). Trade unions activities are guided and governed by the series of legislations and laws, such as the Works Constitution Act, the Co-determination Acts, the Collective Bargaining Act and the Social Security Act (Lansbury, et al., 2004). Dual representation system and various unions make it more effective to represent and protect the members’ legal interests.

In contrast, in China, there is only one officially recognized trade union – All China Federation of Trade Union (ACFTU). It is mainly guide and regulated by the Trade Union Law (2001) and the Labour Law (1995).

National culture

Cross-culture management studies and theories have acknowledged the pervasive influence of cultures on choosing HRM practices in the global business context (Aycan, 2005; Leat & El-Kot, 2007). Employment systems theories re-emphasized the importance of the cultures in the shaping of a national system. The comparison between these two countries’ cultures will provide a new perspective to understand why the German and Chinese employment systems are so different.

Hofstede’s dimension of culture scales is a powerful indicator to recognize the differences between cultures. Chinese ranks higher on power distance, long term orientation and low on individualism. Germany, however, ranks very high on individualism and very low on long term orientation (Arrowsmith, 2009). The differences between individualism and collectivism will largely affect the workers’ attitude to job satisfaction, security duty and harmony (Warner, 2008). For example, the contribution norm and egalitarianism is very popular in Chinese pay structures. The attempts from the top to increase income differentials according to workers’ performance and competence have been largely mediated by the operational managers (Cooke, 2005). While the elitism, which regards manual skill as an inferior to formal education, resulted in low attention be paid to VET development.

How has the globalisation changed the situation?

Globalisation is growing faster than ever before (Briscoe & Schuler, 2004). Organisations are more and more exposed to international exchanges and competitions. Managers interact more commonly with multi-cultural background customers, suppliers and employees (Warner, 2008). This creates great opportunities as well as threats to the organisations which are struggling to be successful in the global business.

However, the involvement in the globalisation does not guarantee a success. How to integrate the market differences, realize the business scales and transfer the knowledge beyond the physical boundary, but more importantly, how to manage and motivate the multi-culture employees play a crucial role (Friedman, 2007).

Hence, both the worldwide organisations, such as European Union (EU), World Trade Organisation (WTO), and countries, like China, Germany, UK, US, have adopted series of changes and reforms. This part aims to assess the globalisations’ influences on the national employment systems from the institutional perspective. Is it more convergent or divergent?

Convergence and divergence debate has existed in the comparative studies for a long time. Convergence theorists believe that the development of the industrialisation, globalisation, decentralizing and transfer of knowledge will lead to a convergent business management practice. However, the divergence theorists insist that the national culture and values will resist to this change and the management practice cannot be duplicated across nation borders (Warner, 2008). The core of the debate is the management practice should be localized or not.

In China, globalisation has showed its power to convergent the various practices. Studies found that China’s active participation into the global business context especially after the joining of WTO has resulted in tremendous changing in its business law, taxation and business management. These changes make the Chinese management practices are closer to the international standards and western management philosophies (Warner, 2008; Ying & Warner, 2005). For example, before the reform, the Chinese employment was high centralized lifelong “iron bowl system”. However, after two decades of massive efforts, the Chinese employment system has primarily established a market-driven, performance-based, decentralized employment system. Trade unions are empowered to monitor and protect the workers’ legal interests according to the newly amended Trade Union Law. China even tried to duplicate the German VET system in 1980s. Some of the trials failed but these movements made Chinese practices closer to German way.

Meanwhile, some of the underlying Chinese traditional values are functioning as an resistance force to stop or slow the progress of convergence. For example, performance-based pay structure were introduced to differentiate the income differences according to individual’s competences but it was mediated at the operational level due to the underlying egalitarianism (Cooke, 2005).

This controversial finding consist with the process of globalisation it is a process rather than an end-state (Hughes & O’Neill, 2008). With the development of globalisation, the management practices and philosophies come from different countries will keep conflicting, but at the same time, more similarities will be found in the international business arena.

Conclusion

Different political structures and national cultures resulted in considerable differences between employment systems. Coming from two continents, China and Germany have very little in common before 1970s. However, globalisation put these two countries, as well as the other countries, on the same arena, global business context. This creates opportunities as well as threat to these countries which are struggling to be or keep being prosperous.

Therefore, series changes and reforms have been conducted in different sectors and contexts in order to seize the opportunities. Decentralization in Germany has been conducted (Katz & Darbishire, 2000). But compare with China the German employment system change is smaller. Since 1979, China has conducted radical changes in its ownership structures, HRM practices, legislation and laws. A market-driven, performance-based and decentralized employment system has been primarily setup.

The differences between these two employment systems in terms of trade union role and VET system are still big but some similarities have been successfully identified. At the same time, the underlying long-lasting national cultures and values are functioning to resist some of the changes.

The controversial findings between convergence and divergence reflect that the process of learning and conflicting will not finish overnight. It, likes the progress of globalisation, will not be stopped or reversed.

Meanwhile, it should be taken into consideration that differences of employment systems may exist between regions, sectors and firms even in a same country (Arrowsmith, 2009). This increases the difficulties of comparative studies across the national boundaries. Much more efforts will be needed to make this issue clearer.