Introduction
Human Resource Management (HRM) plays a huge role in an organisation. HRM can be used to manage both the formal and informal structure in an organisation. Which can be used as a strategy to increase efficiency when correctly managed. Nowadays, with increasing competition around the globe, companies begin to expand internationally to form Multinational Enterprises (MNE). Aside from competition, MNEs can also benefit from economies of scale, cheaper raw materials, and specialisation from other countries (Cavusgil, Knight, Riesenberger, Rammal, & Freeman, 2012). Therefore, MNEs need to determine their structure based on integration and local responsiveness level (Tarique, Briscoe, & Schuler, 2016). Therefore this essay will discuss Peter Hanson’s approaches as the head of Shanghai’s Product development centre (PDC) for Hi Tech systems. Lawrence and Lorsch (1967) stated, MNEs often faces challenges choosing the right structure due to cultural difference between the headquarters and their subsidiaries. MNEs also need to consider recruiting and selecting process, which could be problematic due to cultural differences that are also faced by Peter. Equipped with his experience in setting up new PDC in Philadelphia he is now assigned to establish another new PDC in Shanghai. This essay will also look at his unique policy in recruiting, communication, and compensation will also be analysed towards their contribution to form a more efficient PDC.
Transnational Structure
International HRM has four main type structure of organisation: Multinational, International, Global, and Transnational (Thomas & Lazarova, 2014). This choice of structure depends on the relationship between headquarters and its subsidiaries. According to Tarique et al.(2016) integration level measures the connection between a headquarters and its subsidiaries whereas local responsiveness level measures the influence of its subsidiaries to the headquarters. In this case, Shanghai's PDC act as a subsidiary to the Hi Tech's Sweden headquarters.
Under Peter's management, Shanghai's PDC adopts translational structure as evident in their HR practices. Translational structure acknowledge the importance of both efficiency and innovation as the key to an organisation's success (Bartlett & Beamish, 2014). Efficiency in an organisational structure context translates to the level of integration within the MNE that offers competitive advantages (Cavusgil et al., 2012). Whereas, innovation measures the flexibility and the responsiveness of a MNE in other countries where economies of scale or specialisation may be achieved (Bartlett & Beamish, 2014). In addition, transnational approach also promotes development of knowledge and sharing it worldwide (Thomas & Lazarova, 2014). Therefore demands the needs for a uniform set of policy and culture in the organisation. Which is evident in Peter adopting the same recruitment and compensation approach as other Hi Tech subsidiaries globally.
As the case suggests, the PDC in Shanghai is built to help develop parts for larger products in collaboration with other global PDCs. According to Cavusgil et al. (2012), coordination between subsidiaries in multiple countries can achieve efficiency, synergy, and cross-fertilisation. Peter tries to achieve these by getting people from different PDCs to facilitate communication worldwide. Peter also provide training programmes for all new employees to have meet the same standard across the company. Which according to Tarique et al. (2016) is a sign of an integrated MNE through sharing of ideas and technology globally regardless of national boundaries. Furthermore, in order to maintain diffusion of knowledge and efficient communication the PDC has to report to both Global PDC management and Hi Tech systems China country management. These interdependent relationship signifies a high level of integration which is consistent with transnational's first characteristic (Tarique et al., 2016).
The PDC in Shanghai is planned to only be responsible for product development in Chinese language area. According to case, each PDC will have to be locally adapted in order to make minor changes and adjustments for products to better fit the local market. Moreover, locally adapted PDC will increase market appeal to the product and hence help surpass competitors in China (Cavusgil et al., 2012). These intentions are shown by Peter's criteria when choosing candidates for line managers. Two of his criteria are someone who is experienced in product launching in China and familiar with the environment and culture in China. Even though the PDC will be adapted to local environment, some of the key components and resources are still under the main PDC in Sweden. This is because product development is Hi Tech systems's core competency. According to Bartlett and Beamish (2014), transnational companies keep their key resources and capabilities at home country and ex-centralised other resources to be developed in each subsidiaries worldwide. Thus, Shanghai's PDC function demonstrates this second characteristic of a transnational structure.
Lastly, if the long term vision of Shanghai’s PDC to be able to develop a completely new product and independent from the Sweden’s headquarters, it is possible for it to have a new structural relationship. To be independent from Sweden headquarters implies high local adaptation with low integration which is consistent with multinational structure. Thus, depending on the long term vision, Shanghai’s PDC may adopt multinational.
Alternative Employee Management Approaches
In establishing Shanghai's PDC, Peter plans to hire some experienced expatriates to run the PDC. As Torbiörn (1994) stated, MNEs often hire expatriates as their top management line to strategically managed and communicate with the rest of the company. Peter ends up hiring one expatriates coming from Sweden, 3 locals with overseas education backgrounds, and the rest coming from other PDC as his line managers. But this means the ratio of locals is much more lower than expatriates in the managers position which can be counter productive for the PDC. According to Toh and DeNisi (2005), local managers are better when cultural asymmetries are high between headquarters and host countries. Thus even though hiring people from other PDC might be beneficial for overseas connection, it may not be effective towards the lower staffs which follow Chinese culture.
Cooke (2014) stated that Chinese people often uses guanxi (relationship) measures in determining performances. However, Peter consciously ignored this issue and implements the same compensation formula as the one used in Western countries. Furthermore, high managers are given different formulas and not all employees are given bonuses at the same 6 months’ time period. As Cooke (2014) stated, in China there is a strong concept of unfairness in income disparity and distributive unfairness between executives and workers. So, even if this policy has worked in either Sweden or Philadelphia, such concept may not be well accepted in China where even a Renminbi salary difference can make someone change job. Hence, it may be more effective if Peter applies the same compensation measures to reduce this unfairness concept or at least give the same objective to all employees. This compensation measures has to also consider the traditional China's culture as well in order to be effective. Lastly, rather than giving short-term objective it can be beneficial to give a long-term objective for a better development and future productivity (Cooke, 2014).
Together with Hi Tech HR department, the Shanghai's PDC uses method that involves some hypothetical cases that are not reflected in real life situation. However, other company like Shell uses real case study due to the differences in Chinese cultural and educational background. Even though according to Cooke (2014), globalisation has lessened the cultural difference between Western societies and China. This recruitment approach may exclude some potential bright employees who still adopt the traditional view. Therefore a more general and practical case study should be used in selecting potential employees.
Peter mentioned that no expatriates should be open on how much their salaries are. He did this to maintain positive relationship and impose fairness in the organisation. But according to Toh and DeNissi (2005), MNEs should disclose any income disparities along with the justifications and reasonable reasons behind it. This is because locals tend to ignore the sacrifices that expatriates made to move to a foreign country (Toh & DeNissi, 2005). Thus, by openly discussed the difference in salaries, local employees will not protest about the discrepancies and does not demotivate them.
On the other hand, Peter has also made some policy to better suit the Chinese culture such as: making family-like environment, added training programme, and performance review. As Cooke (2014) stated, positive workplace environment and performance feedbacks are positively correlated to the high level of retention in a company.
Hence, the PDC should initially adapts to the local norms and start to change the view of their new employees by giving overseas trainings and in-house culture development programme to increase their exposure to Hi Tech systems's global policy. Some local culture development programme should also be given to some expatriates to give them insights to local mind-sets.
Conclusion
In conclusion, Shanghai’s PDC uses transnational structure in order to maintain its competitive level globally. It has high integration and high local responsiveness within the company. Both of which demonstrated by the HR practices from Peter Hanson. Since the long term vision was to be able to develop a new products for the Chinese language area, the relationship between Sweden’s headquarters and Shanghai’s PDC can become multinational.
Peter has done some really great changes to the standard global policy that Hi Tech systems has. But there are still some changes to Peter’s approach that can better fit the Chinese culture. This includes: compensation policy, recruitment process, transparency, and measures of performance. In some occasion Peter ignored the huge cultural asymmetry that Western countries and China has. Which can be negatively impact the productivity of the PDC. Peter will also need to consider hiring more local line managers as it would be more effective compared to expatriates with little to no local culture experiences.