Key Factors Of Human Resource Management Management Essay
Human Resource management is an important factor for deciding the success or failure of an organisation. It becomes even more complex when it has to handle people from different backgrounds and in different environment. Also each country has its own way of handling it. Here the indepth study of China is done because it has a unique way of handling these issues. Moreover, China is among the fastest growing nations of the world.
Introduction of HR:
Beer defines it as, “Human resource management involves all management decisions and actions that affect the relationship between the organizations and employees – its human resources.” (Prince, 2007: 1)
“Human Resource management is defined as a strategic and coherent approach to the management of an organization’s most valued assets – the people working there who individually and collectively contribute to the achievement of its objectives.”(Armstrong, 2006: 3)
Human Resource department is very crucial because all business activities, whether it is negotiation, production or marketing, have to be carried out by people. They are, therefore, valuable assets and should be properly managed. And Human resource management is about how to use human resources effectively and efficiently in an organization. As people are different from machines or products, in the sense that they can think and feel, and moreover they differ among themselves therefore managing people is probably the most difficult task that a company undertakes. Human Resource Management has to deal with numerous complex issues, such as recruiting employees, retaining them and motivating them. The complexity of these issues is exacerbated in an international business, where a company has to manage people in an environment different from that in their home country. (Tian, 2007: 202-227)
The role of human resource management is very complex, but it becomes more difficult when the business becomes international. It then involves a number of issues which are usually not present when the activities of the firm are confined to one country. The main among them are the problems of managing in different cultures and environments, and the approaches used to select, deploy, develop and reward expatriates who could be nationals of the parent company or ‘third-country nationals’ (TCNs) – nationals of countries other than the parent company who work abroad in subsidiaries of that company. (Armstrong, 2006: 100) Even the differences in legal system, culture and economic conditions make it more complex.
For the past few decades China has been the fastest growing economy in the world, with an average annual gross domestic product (GDP) growth rate of around 9 per cent. This rapid economic growth with huge population is attracting millions of business people to China from all over the world. After the death of Mao Zedong in 1976 Deng Xiaoping gained huge importance and initiated policy changes in 1978 that have significantly transformed China.
To catch up with the global market system, China is trying to move from a plan-based economy to a market-based economy, and opened itself to capital, goods and services for business with other economies. As a result the Chinese economy has taken off like a rocket.
The most distinctive feature of the development of international business with China has been the massive influx of transnational corporations and the boom in foreign direct investment. (Tian, 2007: 1-5)
Recruitment and Selection:
These are key functions of HRM. ‘Recruitment is defined as searching for and obtaining potential job candidates in sufficient numbers and quality so that the organization can select the most appropriate people to fill its job needs. Selection is the process of gathering information for the purposes of evaluation and deciding who should be employed in particular jobs. ‘(Dowling P et al., 2008: 109)
‘The three main stages of recruitment and selection:
Defining requirements – preparing job descriptions and specifications; deciding terms and conditions of employment;
Attracting candidates – reviewing and evaluation alternative sources of applicants, inside and outside the company, advertising, using agencies and consultants;
Selecting candidates – sifting applications, interviewing, testing, assessing candidates, assessment centres, offering employment, obtaining references; preparing contracts of employment.’ (Armstrong, 2006: 409)
All the stages have their own importance so must be carried out with care and understanding.
The practices have changed, as China has moved from the planned economy to a quasi-market economy.
Recruitment and selection in China under the planned economy
Under this system, Chinese employees were classified into two groups: workers and cadres. Workers were blue-collar employees and were administered by the Ministry of Labour. Whereas cadres were white-collar staff and were administered by the Ministry of Personnel. Only cadres could perform management work and workers could not become cadres. Enterprises had no authority to recruit and select them or to change in their payroll. They only had to fill the quotas set by the state.” (Shen and Edwards, 2006: 41) The government had very strict control so the system was extremely inflexible.
Recruitment and selection under the transitional economy
In 1986 it got replaced by a more flexible system. Labour contracts have two forms, individual and collective and cover the period of employment, wages, production tasks, labour discipline and penalties. Workers are required to sign contracts with an employment period of between one and five years. Contracts can be terminated by the company on grounds of poor performance during the probationary period, violation of company rules or bankruptcy. As a result, firms gained power. Also the criteria for selecting and promoting cadres have been shifted from pure political ideology and seniority to youth, knowledge, education and managerial capability. Chinese cultural prefer for a less direct interpersonal approach, as a result Chinese organizations tend to downgrade face-to-face interviews and rely more on personal credentials for hiring. (Shen and Edwards, 2006: 42) This system was more flexible and adaptive.
Strategy of internationalisation:
HR managers have a variety of options with regard to the design of contracts, the use of external personnel services and decentralisation of responsibilities in their home markets. If a company acts in more than one country, further decisions about labour policies have to be made with regard to the degree of integration of local policies. The common strategies in context of international context: ethnocentric, polycentric, regiocentric and geocentric strategy.
‘Ethnocentric strategies have a clear focus of the company’s home market or country of origin. The parent company’s HRM practices are implemented in all subsidiaries, regardless of local contexts or cultural differences.
Polycentric strategies permit the implementation of different HRM practices in every location where the company is based. Foreign subsidiaries have the greatest level of authority and can develop country-specific HR strategies.
Regiocentric strategies in the context of HRM imply a certain degree of decentralisation and mean an adaptation of HRM practices to groups of countries with a similar cultural background. These strategies balance centralisation and decentralisation.
Geocentric strategies aim at a worldwide integration of all a company’s activities. National specific are neglected in favour of functional HR practices which represent the lowest common denominator.’
International HRM strategies differ from local HRM strategies in many respects. For example, a geocentric strategy may foster employee mobility with extensive expatriate programmes, and involve international recruitment and search for international profiles of candidates, and on the other hand a polycentric strategy might concentrate its recruitment on national markets, which involves a different set of HR management practices. (Scholz and Bohn, 2008: 9-10) But the choice of actual strategy also depends on the type of product and on mode of entry in the host country. This can be a crucial factor for the success of an organisation.
The trend towards staffing localization:
In the 1980s, when TNCs first moved into China, most of them adopted an ethnocentric staffing strategy. They adopted this strategy mainly by the fact that there were very few local Chinese who were qualified for senior management jobs. Formal management education, such as MBA programmes, started very late. This created cultural myopia with this approach. To overcome this, some TNCs went for ingenious approach to staffing, namely the hiring of talented overseas Chinese for senior management positions with their affiliates in China. These overseas Chinese were born and brought up either in mainland China or in an environment influenced by Chinese culture. They were then educated in the West, so they could become familiar with Chinese culture as well as Western culture. They played very significant role in bridging the two cultures. A good example is Wilson Wang, IBM chief representative in China, who helped TNCs to avoid cultural myopia in China
At present the approach to staffing currently adopted by TNCs in China is in fact a mixture of the staffing strategies. For instance, when Motorola first moved into China, in 1987, all the key positions were filled by parent-country nationals. However by 2003, local Chinese accounted for 84 per cent of all the management positions in Motorola’s affiliates in China. The remaining 16 per cent of key management positions were filled either by parent-country nationals or by overseas Chinese.
Retaining Chinese employees:
The Chinese labour market has now become very volatile. Talented local individuals now have many options with them. But this poses a challenge to the human resource management.
There are many approaches to retain them, but the three most common approaches by TNCs operating in China stand are:
Retention through compensation and benefits:
Offering an attractive compensation and benefits (C&B) package is one of the most effective tools for retaining the local talent in their company. The components of a C&B package vary from one case to another, but the following are normally included in the package.
The first element is the salary. Usually the salary is the largest component in a C&B package. In deciding on the salary, TNCs need to take into consideration a number of factors. For instance, China has a substantial regional differential in the level of economic development and the cost of living, accordingly the salary for equivalent positions may vary significantly.
According to a recent survey conducted by Watson Wyatt in four coastal cities in China, Beijing enjoys the highest salary level, followed by Shanghai, Guangzhou and Shenzhen.
The second element is the bonus. The bonus is based on performance, and it is used to provide boost for employees to meet certain goals. Bonus is a new feature in compensation packages in China, and now they have become very popular and have been accepted by many companies in the country.
The third element is stock options. It is the right to purchase a specific number of shares of a company’s stock at a specific price during a certain period of time. Some TNCs give stock options to all their employees while others give them only to upper-level management. The attractiveness of stock mainly options is dependent on the performance of the company.
The fourth element is known as ‘golden handcuffs. They are normally offered in the form of a contract-related gratuity. If a Chinese employee has signed a two-year contract with a TNC and work for that company for two years, for example, he or she would be given an extra year’s salary at the end of the contract.
The fifth element is known as ‘iron handcuffs’. They are punitive fines levied on employees who leave the company before their contract expires.
The sixth element is social and commercial benefits. Social benefits refer to contributions to government-run social insurance schemes, which usually cover housing, pensions, medical care, unemployment, accident etc. By contrast, commercial benefits refer to the benefits offered by an employer on a commercial basis. A company may, for instance, offer employees the opportunity to borrow money to purchase a house or a car at below-market interest rates, or even give employees extra vacation time. Both social and commercial benefits are widely used by TNCs as means to retain Chinese employees in their firms. (Tian X, 2007: 203-213)
Training and development in Chinese domestic operations:
Under the planned economy, training for workers was mainly in the form of post-employment apprenticeships and was compulsory for them. Training for cadres was only offered to those who had promotion potential and was run by schools of the Communist Party at different levels.
Now even after the reform, the training system for cadres has not changed. But the training system for workers has been changed from compulsory apprenticeships to optional pre-employment traineeships and vocational training. According to Child (1994) and Wilhelm and Xia (1993), these firms usually give priority to technical issues rather than management skills. Also it is believed that there is a serious lack of training and high-calibre employees in China. However, limited resources, inadequate means and ideological restrictions are some of the factors that describe the actual position.
In theory, workers can now be promoted to managers, but in practice it is very rare. The criteria are usually based on political ideology and interpersonal relationships. But there is shift in the emphasis from political attitudes to leadership and management ability. (Shen and Edwards, 2006: 57-58) Now a day’s even many companies spend a huge sum of their earning on the training and development of their employees. Even China has realized its importance and pays a significant attention on it.
‘In the current literature,’ expatriate failure’ is defined as the premature return of an expatriate manager to his or her home country on account of a failure to adapt to the host country.’ Culture is one of the main reasons for this. The larger the cultural difference between the home country and the host country the greater is the possibility of expatriate failure.
This has been even shown by Hofstede. “He mainly focused on the cultural differences in social relationships. For this he gathered data from more than 40 countries. He uncovered four basic dimensions along which people of differing cultural backgrounds vary: individualism-collectivism, masculinity-femininity, power distance, and uncertainty avoidance. (Frey L et al., 1999:127)
One reason for the expatriate failure may be that a wrong person is selected for the task. So to reduce the expatriate failure rates, in the first place TNCs need to select the right candidates for expatriate positions and screen out inappropriate candidates. The selection of candidates for expatriate positions should focus on the ability of these candidates to adjust and manage in different cultural settings. Unfortunately many TNCs have tended to select candidates only on the basis of their performance within the parent company at home.
The TNCs should take into account the main reasons for expatriate failure, and use the relevant criteria accordingly. (Tian X, 2007: 202-227) This can be a big loss for the companies, so they have to be very careful in selecting the deserving candidates.
Carroll and Schnair states that, “Performance appraisal (PA) is the process of identifying, observing, measuring and developing human performance in organizations (Selmer, 1998: 115)
Under the planned economy
In this period, performance appraisal was more commonly used for cadres and mainly for the purpose of promotion and transfer. There was almost no performance appraisal for workers. Usually the criteria for cadre appraisal were heavily reliant on political loyalty, seniority and the maintenance of harmonious relations with peers and subordinates. To a great degree the result of appraisals depended on the relationship (guanxi) with leaders.
Performance appraisal under the transitional economy
Now performance appraisals are widely used in Chinese organizations. According to Zhu and Dowling (1998), 74.8 per cent of firms carry out performance appraisal annually, 14.3 per cent twice a year and 11 per cent monthly. The appraisal criteria for cadres are still the traditional ones of de (political attitudes and morality), neng (capability), Qing (behaviour and working attitudes) and ji (performance and achievement).
The performance appraisal procedure usually includes self-assessment, peer group discussion and a superior’s final comments (Zhu and Dowling, 1998). This kind of procedure is different from hierarchical judgement, such as by the supervisor or line manager, and employee face-to-face appraisal, which is usually seen in the Western organizations. There is little feedback from appraisers to appraises and the results usually remain confidential because management feels reluctant to pass on any negative information to appraises so that direct confrontation is avoided and ‘face’ can be saved. (Shen and Edwards, 2006: 72-73)
“The appraisal criteria currently used in China for cadres consist of four broad areas known as: ‘good moral practice’ (de in Chinese), ‘adequate competence’ (neng), ‘positive working attitude’ (quing), and ‘strong performance record’ (jie) (Prince, 2007: 119)
Performance appraisal is particularly important to employees in material terms (Logger and Vinke, 1995) as it guides promotion decisions and compensation adjustments (Schuler et al., 2002). It also relates to the fulfilment of the expectations, job satisfaction and motivation in psychological terms. In this respect Performance Appraisal influences both the extrinsic and intrinsic motivations of employees and subsequently their job satisfaction and retention. (Shen and Edwards, 2006:73-74) It can be seen that the Chinese companies are now shifting to the western trend.
“Reward and compensation under the transitional economy
Under this system, the government still has control over the size of the total payroll, but the firms now have the autonomy to devise their own remuneration plans within the given state guidelines. By the 1990s, job responsibilities had replaced age as the most significant predictor of rewards and more advanced education and development had begun to direct pay (Child, 1994). A performance-related reward system was introduced to replace the grade-based system. Also pay was based on a basic wage determined by job level and wage category and an efficiency-based bonus. Moreover, age, job level and qualification determined basic wages. Seniority is still a very important constituent of pay. Also, the range of wages and salaries is very narrow. Most of the time, enterprises use group pay when they allocate bonuses so that everybody in the group receives the same amount, regardless of their individual performances
When operating overseas, Chinese MNEs may adopt different reward and compensation approaches because of differences in international and domestic strategies, particular objectives and the influence of other firm-specific factors and host environments. (Shen and Edwards, 2006: 85-86) Although China mainly goes by the same traditional way but in recent decades there is some shifts in its way of working.
All these are important functions of Human Resource Department and must be performed carefully by keeping various factors in its mind, especially the culture and the financial status of the firm.
After the reform in China, there is a significant shift in its working. Now it is more flexible. But the traditional values and working style is still very prominent.