Introduction

China is the fastest growing country around the world in the recent decades. In fact, there are many predictions on newspaper that China may surpass the current economic superpower, namely the United States of America in the next 20 years. As it is well-known that roughly 25 percent of the world population is located in China, the country’s importance and impacts towards the business, social, cultural, nature and political environmental on a worldwide basis is not something that can be taken for granted (Zheng & Lamond, 2009). Business owners, strategists, managers, as well as academicians are increasingly aware of the importance and impacts of China towards the world’s economy, well-being, peace and prosperity. Realizing such a trend and the growing importance of China market, many multinational companies are entering and investing in the country with the hope to reap gigantic financial rewards in the future (Briscoe & Schuler, 2004). However, to do business or to manage people in the country may not as easy as it seems. There are many issues and challenges that are faced by foreign businesses operating in China in the context of human resources management.

This writing is arranged as follow. Firstly, the definition and importance of HRM will be presented. Then, the article will discuss several challenges faced by foreign companies operating in China. In order to overcome these challenges, some recommendations to the foreign firms will also be presented. Lastly, conclusion on the topic will be articulated.

The Definition and Importance of HRM

Introduction to Human Resources Management. Human resource management (HRM) refers to the activities a firm carries out to manage its human resources effectively. Generally, it is argued that HRM activities and context include determining human resource strategy, staffing, performance evaluation, management development, compensation, training and development, change management, labor relations and management of international expatriates in the global context.

Importance of HRM. The importance of HRM in an organization cannot be denied. The success of implementation of strategies and tactics for a firm is highly dependent on the HRM of that particular company. Logically, people are the most basic element to the firm’s organization architecture and human capital is the sources of all types of competitive advantages. Thus, to attain success for any organization requires that HRM policies be congruent and consistent with the firm’s strategy across all workforce and time period. Specifically, it is not uncommon to found that researchers have found strong fit between HRM practices or procedures with the desired or planned strategy is required for high profitability and enduring performance of a firm. In the long run, this is very critical because the relevancy and proper implementation of HRM policies is the source of sustainable and high productivity & competitive advantage in the global economy. Besides, in the later part, it will also be discussed on the factors determining the integration of HRM into the corporate strategy.

International Human Resources Management. Consistent with the trend of globalization, international HRM is becoming more important. This is because human resources management is more complicated in an international context because of differences between countries in human capital markets, culture, legal systems, economic systems, and etc. The idea is that a set of human resources management practices and procedures that are successful in the United States may not be applicable to other places, for example, in China or India. Thus, an investigation into the application of HRM concepts at different national or cultural context is very important. It is crucial to identify the unique HRM practices for success at a particular country.

HRM Challenges in China

As we have discussed in section above, the adoption of a standardized human resource management procedures as well as practices are not relevant in China. There are various valid and strong reasons for such a scenario. Generally speaking, the main reason is that different people in different countries indeed have different culture, values, perception, upbringing situation, experiences, lifestyle and even different conceptions on organizational behavior (Wu, 2008). Such a diversity and complexity due to cross-cultural or cross-nation human resource management procedures or practices are creating various issues for the multinational companies operating in China. In the following paragraphs, the various challenges or issues faced by foreign business operating in China will be presented.

There are comparatively few prudent and sound researches or theories in the context of China’s human resource management. According to Zheng & Lamond (2009), the various human resource management framework or models specific for China is not fully developed yet. Most of the current researches on HRM in China are comparative in nature. The researchers are mainly comparing the differences between China HRM strategies and practices to those in the Western countries. Not only that, the authors also pointed out that many of the researches on HRM in China is lacking sound theoretical base, and is not likely able to contribute in enhancing the global knowledge in the field. Thus, there are essentially no relevant theories, best practices, guidelines based on rigorous theories developed by academician serving as useful references for foreign firms operating their business in China. This is particularly disadvantage and challenging towards foreign firms because there need to learn their way through trial and errors, as they are not familiar with the Chinese culture in mainland China.

Companies are competing fiercely for talents in China. It is a commonly faced problem or challenge by foreign companies in attracting and retaining qualified managerial staffs in China. One of the reasons causing such a problem is due to the inefficient educational system in China. According to Wu (2008), the major of arts in the universities in the country is a single subject, i.e., it is not related to other basic knowledge such as finance, mathematics or information technology. Many of the students can pass the exam easily and graduating from the universities with little skills and relevant techniques. Not only that, the author further argue that many of the graduates did not possess strong skill in language and they have yet to develop strategic thinking skills in management. Thus, the shortage of managerial talents in China is pretty serious. The situation is becoming worse due the fierce competition for talents in the country, as many local and foreign firms are trying hard to secure talents in their respective organization (Briscoe & Schuler, 2004). As such, the foreign firms are facing huge challenges in selecting, recruiting and retaining top talents in the country.

The impacts of ‘guanxi’ on human resource management in China. There have been some researches on examining the influence of ‘guanxi’ on the managerial decision making on business matters in China. As a general explanation, this ‘guanxi’ concept in Chinese culture means ‘relationships’ or ‘connections’. Guanxi is a network of elaborated relationships based on the foundation of trust and cooperation. In fact, for centuries, ‘guanxi’ was the main way of accomplishing everyday tasks in China. However, there are relatively few researches, if not none, that investigate how ‘guanxi’ actually affecting the HRM policies, practices, and strategies in China. This is challenging for a foreign companies as they will have little knowledge on how ‘guanxi’ is affecting the HRM in their firms, and how it will impact the Chinese workers and managers’ decision making process in daily HRM practices, such as recruitment, selection, career advance and promotion (Zheng & Lamond, 2009).

The differing conceptions and perception on human resources management in China. The concepts of HRM in China from the perspective of the Chinese differ significantly from those practiced by the Western world. Previously in China, people are usually assigned to a job by the state, and the concept of human resource management is purely administrative in nature. It is a long-held perception by the Chinese that those people who have been assigned a job were considered as lifetime employment (i.e., frequently known as the iron rice bowl of a person). Too often, the rewards for the employee are not related to the performance, and the mangers have little concern on the workers’ salary and capabilities. In the early days, the foreign companies are facing with huge challenges in changing the Chinese mindset. The foreign firms have to invest heavily in terms of financial resources and time in educating and changing the Chinese employees to ensure that the workers are competent, motivated, proactive and hard working. The foreign firms are also facing with difficulties in implementing effective and efficient performance appraisal and evaluation system for the Chinese workers to follow (Wu, 2008).

Transferability of HRM practices and framework to subsidiaries in China. As argued by Walsh and Zhu (2007), there are many foreign multinational companies that were seeking to integrate their Chinese business units with their parent company’s management system. Most of the foreign companies perceive that the Chinese employment practices are not efficient, and thus trying hard to integrate the HRM practices between headquarter and Chinese subsidiaries. However, the China’s model of employment and personnel management is very different from that of the Western world, in which the Chinese often adopt an ‘iron rice bowl’ system. In fact, it is also asserted that the traditional Chinese HRM practices, such as a system emphasize on the long term employment security, is relatively widespread in foreign owned enterprises. The authors further cited that there are researches that found out that while many of the US joint venture firms has relative autonomy in employee hiring, selection and termination practices in a firm, these firms however, largely conformed to local Chinese practices in designing and implementing the HRM practices in the company. The foreign companies largely dependent on the local Chinese managers to develop relevant HRM practices as these foreign firms perceive that the employee management system in China is complex, unpredictable and challenging (Briscoe & Schuler, 2004). Thus, the foreign companies are facing some challenges in transferring the effective HRM practices in the Western countries to China. It is unsure if the effective HRM policies in China may be equally effective in China, as the country is distinctively different from the Western world. Thus, the senior management of foreign firm should investigate the practicality of transferring their best practices in their local country to China, and if that is not possible, they should instead investigate if any best HRM practices in their headquarter can be altered to fit into the China employment and human resources context.

The workers’ salary package is becoming more expensive in China. After China joining WTO, the country’s economy is booming and expanding fast. However, the employee salary is also increasing in a faster speed, where the salary has raised approximately 8% annually in the past 5 years. The trend of wages increase in China is expected to continue into the future, and the workers are becoming more demanding. All these will increase the costs of doing business in China (Wu, 2008). Not only that, as it is also discussed above that the various business entities in the country is also facing huge challenges in securing talents for their firms, the foreign firms are now in a critical position to formulate a powerful, effective and attractive human resources management practices and system to ensure that the pay to workers are attractive and the talents are retained in the firm. All these must be critically assessed and planned as any financial spending of a firm will definitely increase the expenses for the firm.

Expatriate failure. As previously discussed, it is pretty hard to secure and retain talent in a foreign company operating in China. Such a situation urges the foreign firm to look to importing expatriate to work in the country. In fact, such a strategy is becoming more important in a globalized world. However, it is cited by Wu (2008) that most of the expatriates do not perform up to the expectation of the senior management, as they are forced to return earlier or simply performing poorly in their job in China. According to Wu (2008), the major reason for high failure rate of expatriate is due to culture shock, in which many of the fresh expatriate simply become lost, confused and nervous in China due to unfamiliar situations and differing cultural and social norms. The situation becomes worse when their existing culture clash with the others in China. Apart from that, as they are separated from their family members due to the oversea assignments, they may feel homesick, confounded, depressed, and irritable and stressed. All of these create huge challenges for a foreign company to manage expatriate well. The company has to ensure that the work, productivity and efficiency of the expatriate could be maintained at a high level. Not only is that, the foreign firm also needed to handle the knowledge passing down process from the expatriate to the local Chinese. Many of the expatriates may be reluctant to do so, as they perceived that after they passed down the required knowledge, they may lost their job in their domestic country. If all of these issues are not being tackled effectively, the financial resources spent on bringing expatriates to China will be wasted, not to mention the time invested to train up both the expatriates as well as the local Chinese workforce.

In short, we have discussed the various challenges faced by foreign businesses operating in China. It is found that the main root cause contributing to all these challenges, issues and problems, from the human resources management context, is due to the cultural and social differences between the foreign firms as compared to those from local China. Due to the cultural differences, the best HRM practices in other countries may not be directly portable to be implemented in China. Such a situation is further complicated as there is currently lacking of prudent and useful researches on effective and efficient HRM practices in China. Thus, the foreign firms often perceive that the human management in China is complex, unpredictable and challenging. Besides, the situation is becoming worse as the economy of China boom, the competition for talents in the country is heating up. This in turn is causing the wages for workforce in China to increase significantly. Faced with so many challenges at the same time, the human resource managers of foreign firms have much work to do, and are required to implement practical and yet highly effective strategies to solve the issues, in order to enhance the competitiveness of the organization.

Recommendations

As discussed above, there are many challenges in terms of formulating an effective and practical HRM practices and policies in China. To be an effective and profitable business operating in China, the human resources challenges must be tackled and solved as soon as possible. For this purposes, various recommendations for the foreign firms operating in China are provided as follow.

Knowledge is most important. First of all, the multinational foreign companies should engage or set up a research team to investigate the various issues related to HRM in China. For example, the research team should be given the responsibilities to find out the best HRM practices in China. This is because the foreign firms are lacking of experience, knowledge, information and guidance on how to implement effective and yet successful HRM best practices in China. Not only that, there are currently insufficient academic research on the subject as well. Thus, before the foreign firms able to solve or tackle the HRM challenges in China, these firms must firstly have sound and proper knowledge and information on the social, cultural, environmental and employment norms in China. Without proper knowledge and accurate information on the subject, it is impossible that these firms will be able to define, formulate or plan successful HRM strategies for their subsidiaries in China (Briscoe & Schuler, 2004).

Strategic rather than administrative. Secondly, as illustrated before, the HR management style in China is indeed relying heavily on the administrative mindset. However, to produce effective and successful HRM strategies, the HR practices in foreign firm should be designed in such a way that is consistent with the strategic direction intended by the entire organization. This can then ensure a strong linkage between HRM policies or practices to company’s missions and vision (Ming, 2002). As human is linked to the operation of the business; managing human must also consider the context and requirement of the business, and vice versa. Whatever strategy implemented by the foreign firm must be supported by the HR practices and policies.

Build HR expertise among the Chinese first-line managers. It is important for foreign business to capitalize on the local talents to implement, define or formulate effective and successful HRM practices in China. Thus, the foreign firm should strive to build HR expertise among the Chinese first-line managers, as these managers will be able to make more accurate and proper judgement that is relevant for the complicated external business environment in China (Budhwar, 2004).

Strong employee involvement and participation in formulation and implementation of the intended HRM policies and practices. It is essential for a firm to recognize the importance of encouraging employees’ participation and involvement in China. Only by including the local Chinese in the decision making process, the senior management will formulate better plan and local strategies to achieve success in China (Ming, 2002).

Concentrate on winning the talents war in China. Talents war is real, and it is not a new phenomenon in China. In fact, talents war between companies is heating up around the world. Thus, the HRM department should place great importance on winning over the talents war, by selecting, recruiting, retaining and promoting the correct and suitable talents. Ultimately, it is the talents or human capital in a company that will make a true difference in the performance of a firm.

Develop, disseminate, and promote new concepts such as job duties and responsibilities, performance standards, and evaluation criteria. Without cultivating proper mindset among the Chinese employees, it is virtually impossible for any foreign firm to achieve success in managing the workforce. Besides, if the employees have wrong mindset, the performance of a firm may not be satisfactory and the future prospect of the foreign firm will be gloomy and endangered (Budhwar, 2004). Thus, to educate the Chinese workforce is critically important. The new concepts brought over from the Western world that are relevant and could be contributing to the success of a business in China should be taught to the employees. From this perspective, effective management concepts such as employees’ duties and responsibilities, performance measurement and evaluation, proper reward system, organizational culture and employees’ roles in enhancing the performance of a company should be taught to the Chinese workforce.

Conclusion

In short, it is obvious and a well-known fact that the China economy is growing fast. Corporations and businesses understand such a trend well. In order to capture more market share around the globe as well as to enhance the growth prospect of a firm, the senior management should expand to China. However, to expand to China can be challenging, particularly from a human resource management perspective. The main reason is that the culture, social and business norms in the country is different from that of the Western world. The article identified several challenges faced by foreign firms operating in China. Among the challenges are: (a) There are comparatively few prudent and sound researches or theories in the context of China’s human resource management, (b) Companies are competing fiercely for talents in China, (c) The impacts of ‘guanxi’ on human resource management in China, (d) The differing conceptions and perception on human resources management in China, (e) Transferability of HRM practices and framework to subsidiaries in China, (f) The workers’ salary package is becoming more expensive in China, and (g) Expatriate failure. Several recommendations are provided to handle these challenges. Among them are: (a) Developing research team to investigate human resources best practice in China, (b)Ensure that HRM in China should be strategic rather than administrative, (c) Build HR expertise among the Chinese first-line managers, (d) Encourage employee involvement and participation in formulation and implementation of the intended HRM policies and practices, (e) Concentrate on winning the talents war in China, and (f) Develop, disseminate, and promote new concepts such as job duties and responsibilities, performance standards, and evaluation criteria.

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