East Asia’s roaring economies, led by China, are raising their competitive edge relative to the United States and Europe. The economies of East Asia grew by 9.8 percent in 2006 and those of the United States and Europe rose 2.2 and 1.3 percent, respectively. The entry of multinational corporations (MNCs) has brought the latest technology and advanced management systems to the region. While operating in East Asia, MNCs can use an ethnocentric strategy to transfer their headquarters’ practices to their overseas subsidiaries, employ a polycentric strategy to totally adapt to local situations, or adopt a geocentric strategy to balance both global integration and local adaptation.
The economic development of East Asia can also be observed by the international expansion of Asian transnational corporations (TNCs). Globalization, market forces, and technology can push management systems toward uniformity and encourage benchmarking and copying the best practices. TNCs are pressured to adopt some new practices to gain legitimacy. However, embedded customs and idiosyncratic national regimes mediate and reshape the outcome of human resource management (HRM) change.
It is worth examining whether companies operating in East Asia have adopted global HRM practices or customized them to local situations. The discussion is from both sides: Whether MNCs have transferred more global standardized models and whether TNCs have preserved more traditional practices. Eight leading companies operating in East Asia are used to investigate this issue. These companies come from various industries and countries of origin, are well established in the region, and are operating across multiple Asian economies.
Western MNCs: HSBC Holdings
Some management theories assume that a set of “best” management practices can be valid in all circumstances and help organizations perform better and obtain sustainable competitive advantage. To apply “best practices,” which are mostly derived from the West, in other countries, such as those in Asia, it is important to understand the background. The following highlights several MNCs’ company profiles, their history and involvement in Asia, as well as some of their key HRM practices in the region.
HSBC Holdings plc, number one in the Fortune Global 500 in 2007, is the world’s largest company and bank. The Holdings was established in 1991 to become the parent company to the Hong Kong and Shanghai Banking Corporation. It has a significant presence in the major financial markets. Currently, HSBC operates a network of some 600 offices in 20 countries in the Asia Pacific region. Its long history in East Asia can be dated back to the 19th century. It has been the largest note-issuing bank in Hong Kong since the 1880s, handled the first public loan in China in 1874, and was the first bank established in Thailand in 1888.
HSBC’s core values of integrity, collegiality, and diversity are reflected in its recruitment practices. A global talent management process was implemented to attract, motivate, and retain employees. Human resources (HR) professionals first visited all countries to describe key principles and nomination guidelines for talent assessment to ensure buy-in for the process. Multiple sources of data, including interviews, panel interviews, and 360-degree feedback were then used to review capability ratings for all talent nominations globally. Potential leaders and specialists were identified to fill future positions in next three to seven years.
HSBC adopts an ethnocentric approach in its rewards practices. Its grading structure, salary adjustment, and bonus scheme are inherited from its head offices. For example, to encourage employees to have a direct interest in the bank, an employee share savings plan was offered in most countries. Global bonus schemes linking employees to the achievement of long-term strategic objectives were introduced in East Asia with limited local adaptation.
Because of its large size and extensive network, HSBC can leverage its training resources across the region. The training programs are organized by regional training teams and launched by local offices. Typically, managers with one to two years’ company service would attend fundamental management skills training and those with three to five years’ company service would attend advanced courses. Young executives are required to complete a two-month induction course.
Western MNCs: Walt Disney Company
The Walt Disney Company is the third largest media and entertainment company in the world. Founded in 1923 as an animation studio, it now owns 11 theme parks. The first theme park opened in 1955 in Florida. In East Asia, the Hong Kong Disneyland theme park opened in September 2005; Tokyo Disney had opened more than 20 years earlier.
To avoid cultural friction similar to what happened at Disneyland Resort Paris, Disney has taken efforts to make their theme parks in Asia reflect the local culture. For example, in Tokyo Disneyland, “Samurai Land” replaced one of the four compass points of the American parks, creating a ride based on a classic Japanese children’s story. In Hong Kong, feng shui advisers were consulted about the layout of the park and the hotels skipped the number four when numbering their floors because four is considered bad luck in Chinese culture.
While these adaptations were made on the surface, at a deeper level, imported Disney values retain their influence and are reflected in HR practices. The same interview questions and selection processes were used in Hong Kong, Tokyo, and the United States. Recruitment of professional and higher positions from the external market are rare; rather, internal promotions and deployments are used. The emphasis of recruitment is on “making” people that fit with Disney tradition.
Most of the managerial training programs stress familiarization with Disney culture. There is also the Disney Site Experience, in which managers are sent to other theme parks for job shadowing, learning the actual operations, and understanding the Disney culture. Disney University provides training courses to all employees (or “cast members”) about quality, effectiveness, services, and safety. These courses are modified from, and matched with, its U.S. training modules.
Western MNCs: Cisco Systems
Cisco Systems, Inc., was founded in 1984 and is headquartered in San Jose, California. It designs and sells networking and communications technology and services. In 1990 the company went public and was listed on the NASDAQ exchange. Today, with more than 65,000 employees worldwide and annual sales of US$38 billion as of 2007, Cisco is one of the largest developers of routers (a device that forwards computer traffic between networks) and Internet Protocol (IP) packets. In Asia, it has subsidiaries in China, Hong Kong, South Korea, Malaysia, and some southeast Asian countries.
Cisco recognizes an inclusive and culturally diverse workforce as a business imperative. Its HR strategy aims at developing knowledgeable employees who can move quickly to areas of highest needs, thrive on change, and have strong capabilities in process. To acquire such knowledgeable employees, Cisco uses a “buy” strategy. From 1993 through 2000, it acquired 70 companies worldwide. These acquisitions provided not only technology, but also served as a source of talent needed to support its development in Asia. In terms of selection processes, Cisco uses lengthy processes originated from its U.S. model with multiple rounds of interviews. It is, indeed, company policy to have at least five rounds of interviews; the number of rounds can go as high as 16.
Cisco’s rewards schemes in Asia follow its U.S. model. All employees receive stock options, based on company performance and individual performance. Performance-based incentive programs and commission schemes are heavily used.
Cisco University was established to centrally design training programs. For example, it adopted the “3E Model” (experience, exposure, and education) development framework in early 2003. Similar training programs were subsequently introduced to China and Hong Kong. Several days’ managerial training programs were arranged and online e-training was offered. Most of these training materials, however, were written in English with limited translations to local languages.
Western MNCs: KPMG
KPMG originates from an accounting firm founded in 1917. Through a series of mergers and acquisitions, KPMG is now a Big Four auditor employing over 123,000 people in a global network of member firms in 140 countries. In East Asia, KPMG has solid foundations in China, Hong Kong, Japan, South Korea, and Taiwan.
KPMG adopts a geocentric approach in its recruitment practice. It recruits professionals from all over the world who understand Asian culture, attracts overseas graduates to return to Asia to work, and sources international talent. Besides “buying” from labor markets, inexperienced graduates are recruited as trainees and undergo a series of training programs, overseas exchange, and in-house examinations to “make” or train them up.
There are seven hierarchical levels—from top partner to bottom associate. This grading structure is globally applied and there is no local customization. Even in East Asia where people are more concerned about status, the titling system and salary structure remain consistent with headquarters.
KPMG is well known for its training and knowledge management. In Korea, KPMG was named “Best Human Resources Developer 2007.” Its training programs are designed to foster multidisciplinary capabilities and support global mobility. Each KPMG employee has their own development program that is complemented by global learning initiatives and linked to global performance management systems.
As the Asian economies are gaining importance in the global arena, the competition, in both domestic and global markets, encourages Asian TNCs to explore investment opportunities overseas. This has significantly changed the ways in which Asian enterprises are managed and work is performed, creating a new institutional environment.
Hutchison Whampoa Limited (HWL), a Fortune Global 500 company, is a leading international corporation with a diverse array of holdings, including the world’s largest port and telecommunications operations. Its business also includes retail, property development, infrastructure, and energy. HWL dates back to the 1800s in the Whampoa area (Pearl River of China) when it provided shipbuilding and ship-repairing services. While its operations now span the globe, it continues to remain based in Hong Kong. HWL’s strategy is to focus on global expansion and internationalization while locally managing its services.
With a workforce spanning various East Asian economies, HWL emphasizes diversity in recruitment. Its resourcing practices include tapping domestic and regional labor markets to find the best person for each job regardless of race, color, or gender. Networking across affiliates and cross-function movements are frequently used. HWL also uses the vacant positions of various locations to move high-caliber staff around for retention.
HWL reviews its remuneration scheme annually to ensure that packages are externally competitive. Internally, it rewards employees according to their performance and productivity. Employees enjoy comprehensive medical and insurance benefits and a wide range of product and service discounts offered by various affiliated companies.
Online training and learning resource centers are established through a Web portal. Such e-learning enables more employees to access training in a convenient manner and facilitates organizational knowledge transfer and sharing to geographically dispersed employees across East Asia at relatively low cost.
East Asian TNCs: Bank of Communications Founded in 1908, the Bank of Communications (BOCM) is one of the oldest banks and the earliest note-issuing banks of China. To operate in line with China’s economic reforms, BOCM was restructured in 1986 and thereby became the first state-owned shareholding commercial bank. Its head office was in Shanghai. It has over 2,600 outlets in 148 major cities in China and overseas branches in Hong Kong, Macao, New York, Seoul, Singapore, and Tokyo. It was listed on both the Hong Kong and Shanghai stock exchanges. Foreign investors, like HSBC, were brought in as strategic partners to enhance its organizational structure.
Since then, several changes have been observed in its HRM practices. BOCM launched a graduate recruitment program a few years ago. Its program contained features similar to those in large foreign banks. However, the program was not successful because it could not attract sufficient graduates from top-tier universities. Subsequently, BOCM reverted to its traditional recruitment methods of taking up government-assigned people.
After the reforms in the 1980s, BOCM commenced a bonus scheme that was mostly discretionary. High staff turnover rates in the banking industry plus fierce competition from foreign banks after China’s accession to World Trade Organization means that attraction and retention of people are particularly important. In 2006 BOCM formally introduced an incentive system to improve the attractiveness of its remuneration package. That incentive system has some performance based features similar to those used in MNCs.
BOCM has tried to upgrade employees’ competencies and promote the bank as a knowledge-based learning organization. A series of training courses, such as banking operations and customer relations, are provided to new employees. However, training programs are still narrowly defined in scope and focus mostly on technical aspects and job-related skills.
East Asian TNCs: YKK
The world’s largest zipper manufacturer, YKK was founded in Japan in 1934. It was named after its founder, Yoshida Kogyo Kabushikihaisha. Over the years, the letters “YKK” were stamped onto the zippers’ pull tabs, and thus YKK became known as the company’s trademark. YKK also makes other fastening products, architectural products, and industrial machinery. Its philosophy is to manufacture only high-quality zippers that would benefit the end use goods in which they are installed. Due to this guiding principle, it has evolved into a vertically integrated manufacturing system, that is, it not only produces the zippers, but also produces the machines that make the zippers, and even many of the raw materials (e.g., aluminium) that go into the zippers. Currently, YKK operates more than 123 affiliated companies in more than 70 countries. In East Asia, YKK has several plants in China and Taiwan.
When selecting candidates for its East Asian plants, YKK typically considers technical skills, education of candidates, and culture fit with the company. Young people are recruited to start at the bottom of the organizational hierarchy and climb up it slowly. It is also common to reappoint retired people to join its plants to provide consultant advice. Rewards practice in local plants follows a traditional Japanese model that is largely based on seniority and tenure. Job performance is not truly reflected in salary increases. Promotion is rotated and depends less on individual ability and job performance. Job rotation across the factory floor is common and employees are placed to work in different areas for several years to learn the practices. Quality and knowledge management are highly emphasized in the training courses.
East Asian TNCs: Haier Group
Founded in 1984, Haier Group is headquartered in Qingdao in China’s Shandong Province, and is the world’s leading white goods home appliance manufacturer. Its products are now sold in over 100 countries. It has 5,000 overseas retail outlets and over 10,000 service centers all over the world. Haier’s strategy aims at positioning the company as a local brand in different world markets. Its management philosophy is a blend of international management principles and Chinese tradition. The globalization of best practice means what works best in one subsidiary, e.g., Haier America, is shared with another, e.g., Haier Europe, and then the successful management practices are further introduced to other subsidiaries.
The globalization practice also extends to its recruitment policy. Haier considers both domestic and overseas professions. Since its corporate culture features recognition and participation of all employees, Haier has created an open competitive job bidding system. Employees who have reached the qualified skill level through training are welcome to bid for job openings.
Promotion is based upon excellence. There is a competitive system to review performance and ability. The responsibility of a manager is to establish a “race track,” that is, a personal development opportunity for every employee to develop and demonstrate their talents. Haier adopts an open and transparent incentive policy. A point system to check quality problems is set up and the workers receive a higher wage and bonus if they earn more points. Daily evaluation results are announced to all workers in the factory.
Every new employee goes to the Haier University to attend one month of corporate culture and management training before being put to work. In-house training and overseas exchange programs are offered to all employees (including managers, technical experts, and workers) who can register for the courses at will. In order for senior managers to understand the mechanism of the department, they are assigned to work at the bottom level of the department for several months.
Conclusion
In general, most of the eight MNCs operating in East Asia discussed here adopted an ethnocentric approach in rewards and training and extended global incentive schemes and training programs to East Asia. However, transferring global practices without any adaptation to local markets was not without pain. Past success or best practice in one situation did not automatically guarantee an effective transfer and adoption in another. In more recent years, a number of MNCs considered a geocentric recruitment approach to utilize the best people for key jobs throughout the organizations.
On the other hand, some traditional practices predominantly in East Asia (such as seniority-based pay, technical skill training, appointments by government) seem problematic as Asian TNCs expand overseas. Benchmarking best practices and competitive forces have been some key drivers of the reconfiguration of TNCs. However, there is no single management model that shapes the way companies are organized or their people are managed, regardless of whether Asian or Western.
Change in HR management practice involving gradual experimentation of best practices and blending with Asian characteristics will continue. As with most experimentation, the final outcomes may be difficult to predict. Greater appreciation of East Asian contexts as well as understanding the dynamic of HR management change in the region is desirable.
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