The communication barrier and challenges facing entering China market

In recent years, many foreign companies have entered the China’s market. While there are many opportunities for them, they also experience problems and challenges. They might be able to enjoy cheap labor and transport, unlimited resources and a newly tapped market. However, they would confront with some problems. The problems are, mainly, human resource management, culture differences, consumer loyalty and many more.

Human resources can be said to be the core of a company’s buildup. [1] Without qualified staff working in the company, the company cannot expect to rise up to the challenge of competing with other huge companies in the market. It is an even more important aspect for a foreign company looking to expand its business in China. With a population of 1.3 billion, it’s is nevertheless a challenge for a foreign company to acquire qualified personnel. [2] It should be noted that a country having such a big population, there is bound to be different insights and conception on organizational behavior, whereby the diversity and complexity of clashing cultures may eventually result in conflicts in company strategies for foreign companies if they implement international standardized human resource management. Hence, as a measure to overcome these hurdles as well as to reduce costs in terms of wages, these foreign companies have resorted to employing locals from China.

However, this move does not solve all problems. China boasts of a population which amounts to nearly 20% of the world population and generates millions of university graduates each year, theoretically providing more than enough people to fill up whatever personnel requirements needed. Since China’s entry into World Trade Organization almost a decade ago, many foreign companies have entered into China’s market, further contributing to its rapid economic growth, though not the same can be said about the human resource management system. [3] This poses a big problem for foreign companies as it is found to be difficult to recruit, let alone to retain qualified staff. [4] 

The human resource challenge faced by foreign companies can be further segmented into four main areas, with the first being shortage of talent. [5] As mentioned above, although China has such a huge population, with millions of fresh graduates produced each year, the huge market does not possess the talent needed in today’s marketing world. [6] Current education systems emphasize a lot on passing examinations and aim less at the development of the graduates’ minds as a whole. Graduates aim to pass the exam and finish university successfully without acquiring the skill and techniques needed. They also do not have the chance to get enough practical experience when completing projects, nor are they equipped with cooperation skills and teamwork. Armed with only a piece of paper signifying their graduate status, they are not trained well and do not possess the language skills and critical strategic thinking as required. [7] All these make them unable to achieve a practical solution when the situation arises. This is a huge disadvantage and makes them not qualified to take up the job, which is proof that high grades and scholarships obtained in school does not amount to getting the skills required in the line of work. [8] 

Compensation and benefits system is another factor which poses as a challenge to human resource management for foreign companies. [9] It is not strange for workers to seek greener pastures, in which we see staff leaving companies in search for a better paid job. [10] The turnover rate in China after joining the WTO is ranked as the highest in whole of Asia, with a raise in salary of approximately 8 percent in the past five years. [11] This had led to an increase in the wage rate of employees and is expected to continue as long as China continues its current approach to attract more foreign companies.

However, in foreign companies, employees are given their wages based on their performance, efficiency and productivity, which means there is not much compensation and benefits for the Chinese staff due to their low work efficiency as mentioned above. This situation leads to dissatisfaction among employees and will further affect the company’s performance. On the other hand, Chinese employees are treated very well by domestic companies. That being said, they can acquire better compensation and benefits, especially for the qualified managerial employees. Hence, China’s government-owned corporate companies have become the main competitor to foreign companies in terms of attracting Chinese qualified employees. Due to the increased entry of foreign companies and the rapid growth in salary increment, these government-owned companies have hiked up their strategy in order to keep their qualified staff by including welfare entitlement and social insurance on top of their basic pay. This ‘five insurance one fund’ introduced by them includes media insurance, unemployment insurance, working-related injury insurance, bearing insurance, endowment insurance and house fund, proves to be a very effective strategy in keeping their staff within their companies. [12] It not only keeps the employees motivated and in high spirits, it also gives them an improved sense of job security, which drives them to strive harder and be more productive in order to help them survive the competition and remain in the company. [13] In the dawn of this issue, foreign companies have also jumped on the bandwagon by establishing different incentives and rewards in order to attract Chinese staff, though this does not come without its own hurdles.

Besides, there is also the issue of differences of social environment. That being said, the differences in culture, labor market and employment systems between China and the originating countries of foreign companies pose a big challenge in attracting qualified staff from the Chinese market. [14] Human resource management in China started off poorly. In the past, the common practice during the industry period was that the government would manage and control the company’s operations, and the managers were only informed what and how to produce the products required by the government. [15] That was during the earlier times. In the 1980s, the concept of having human resource management started to materialize after China’s opening up and President Deng Xiaoping introduction of the reforming policy attracted foreign companies to enter China’s market. [16] At that point in time, those who were assigned jobs by the government were considered as lifetime employees, a situation which was also called as ‘iron rice bowl’. [17] During this time, the human resource management was only administrative in nature hence it wasn’t functioning well. This contributed to a low working efficiency among the employees as they were not at all motivated as there was no extra incentive if they went the extra mile. Sooner or later, their technical skills are lost and need to be retrained, which takes a great effort to do so. [18] Hence it can be said that the cultural difference is a huge hurdle for foreign companies trying to acquire qualified staff in China.

Apart from the challenge of human resource management, culture appears to be the next big challenge faced by foreign companies when they look to expand their international operations within China’s market. There is no doubt that there will be a clash of cultures due to the presence of different traditions, practices and attitudes towards business. In order to allow smooth assimilation or transition of a foreign company into the China market, they first need to be aware of the fundamentals of the Chinese business culture.

For thousands of years, the Chinese have been practicing one of the three philosophy traditions, which include Confucianism, Taoism, and Buddhism. [19] They are considered to be more of a philosophical way in life rather than religion. [20] 

Confucianism emphasizes on the relationship between humans, especially how to keep a harmonious relationship with one another and to avoid conflict. Confucianism also teaches people to work towards the direction of the ideal, or ‘perfect man’, which includes all the acts of a gentleman. [21] Taoism is amous for its Yin Yang principle of dualism, as well as ‘feng shui’. It indicates that people’s fortunes are affected by their environmental conditions. Chinese businessmen most, if not all, believe feng shui to be the main element that determines their success in business. Hence it can be seen that the Chinese culture, heavily influenced by these philosophical teachings have an important role in business behavior and decision-making. In order to successfully set up a business in China, foreign companies should really take the initiative to comprehend the local practices and understandings, in addition to taking a people oriented approach so as to establish a certain level of trust with their Chinese partners to ensure a prosperous business relationship.

Besides the cultural aspect, communication remains a barrier which must be overcome. Although there is increasing usage of English as the mode of communication due to the rapid globalization and development, yet there are still a lot who are not able to communicate well and this may well be a main cause of breakdown of negotiations in conducting business. In order to overcome this barrier, foreign companies may need to look into improving their communication skills.

Another thing to be noted is consumer loyalty. All the while, the local community is used to buying products which they are familiar with, or getting services offered by a certain company with a better reputation. This buyer-seller relationship is strengthened over a period of time and this is a main factor in keeping customers tied to the brands the company carries. Foreign companies will find it hard to introduce a new product or new service into the local Chinese market as the people are used to what they are normally offered.

In order to overcome these problems and challenges, certain measures can and should be taken, so as to increase the chances of survivability of the company within the booming China market. One such way to tackle the main challenge of shortage of talents is to provide training to the workers. This is not just any mere skill training, but the training of the individual as a whole. The company might be able to gain benefits too where particular skills required can be developed and instilled, hence saving costs on recruiting skilled workers.

Regarding the matter of difference in social environment, a simple annual company dinner or small campaigns for get-togethers can be held so that there is mingling and bonding among the workers, making them more aware of the practices and mindsets of the locals, hence preventing any further misunderstandings. Besides that, short meetings or evaluation sessions can be conducted after working hours so that the employees have a platform to raise their issues, grievances and also complaints to the management level workers. Any hurdles faced within the working environment can thus be solved through effective communication.

To tackle the issue of employees leaving for better job prospects and luxuries, as seen through the ‘five insurance one fund’ introduced by government-owned companies, foreign companies can bounce back with a plan of their own, such as providing fringe benefits. For instance, personal and medical insurance can be offered to provide peace of mind for employees so they don’t have to worry about not being able to afford the rising cost of healthcare. Besides that, providing transportation means such as the company van for work purposes to ease the employees’ financial burden due to the rising price of crude oil leading to an increase in petrol prices drastically.

In terms of inefficient employees, periodical assessments can be made to grade employees’ work performances, with warning letters issued based on the results of the assessments Though it may appear as an extra source of stress for the employees, however if dealt with correctly, it is bound to increase productivity. Without just concentrating on the negative points, employers can motivate their workers by offering bonuses or pay rises for every worker who has exceeded his previous performance graded in the assessment. A simple method of cause and effect will surely push the employees to strive harder so that they can have a better life.

Cultural difference is truly a tough challenge to overcome due to the vast differences between the local culture of China and the western culture where most foreign companies originate from. The management can organize company sponsored events such as cultural activities which includes dances, movies, and talks, which can serve to enlighten them about the uniqueness of the local Chinese culture. This is done with hopes of preventing whatever conflicts that will arise due to ignorance and disrespect shown to the local beliefs and cultures. By doing this, the local people will begin to appreciate the gesture shown by foreign companies and begin to accept their presence and are willing to work for them.

In order to overcome the communication barrier, foreign companies must first ensure they have an effective human resource management. In order to achieve this, they should push for lesser vertical management layers so as to increase efficiency and effectiveness in management. The language barrier may not be as big a problem if the line of order is effective. Besides that, an effective communication takes place where suitable tools of communication are utilized. Briefings on company orders can be done orally via meetings or even through video conferences so that the employees can directly get the orders from the management level. Notices should be put up as early as possible and also in a language where the locals can understand to avoid unnecessary conflicts as well as misunderstandings.