Transferring Human Resource Management Practices: A Case of Chinese Company’s Investment in Italy

1. Transferring Human Resource Management Practices: A Case of Chinese Company’s Investment in Italy William Xiaojun Wei Institute of Asia Pacific Studies, Grant MacEwan University, Alberta, Canada (Research Collaboration with Jingqi Zhu, Cardiff University)

2. Source: 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment

3. Three Stages of China OFDI: • 1982-1991:The beginning stage of China OFDI • 1992-2001:Unstable development stage • 2002-Now: Steadily, rapidly and exponential development stage • (Zhou,2009) Stage 1 Stage 2 Stage 3

4. China’s OFDI Stock by Sectors(2007) Source: 2007 Statistical Bulletin of China’s Outward Foreign Direct Investment

6. Home Country Environment OFDI Strategies of DMNCs Home Country Operations Competitive Pressure OFDI Strategies (Firm-Level) Inward Internationalization Investment Strategies (Province) Economic Growth Business (Stage) Development Operational strategies Institutional Hardship Innovation Orientation Integration Strategies Geo-Diversification Political Support FDI Strategies by CMNEs: Toward Home Country EffectsSource: Luo (2011)

7. CNOOC: Resources Acquisition • Strategic Equity Participation • Overseas Contracting Business • Wenzhouness Model • Global IPO Approach • Haier: manufacturing overseas • Lenovo: buying the boat to sail • TCL: Branding approach • Huawei: from rural to urban • Changhong: OEM Model • (Wuand Wang, 2008)

8. Literature review Globalization of MNCs Chinese MNC and HRM • Culture approach • National Business System (NBS) • Micro-level aspect • SSD Framework • Latercomer perspective • Hybrid HRM • Role of government • Culture legacy System–Society-Dominance Framework in Chinese Context

9. Research questions How do Chinese HRM practices be transferred to the subsidiaries? What’s the gap between the planned HR strategy in Chinese HQ and the real situation in reality? What factors shape the transfer process? How and Why it happens?

10. Research Design 1 CHINESE CONTEXT SYSTEM Political Economy Shared underlying properties FIRM LEVEL Interest group and Power Social actors DOMINANCE Diffusion of Best Practices SOCIETY Variety of Capitalism National business system

11. Research Design 2 • Semi-structured interviews • Company documents Analysis • Media reports Highlight the differences among the firms • Sector contrast • Forms of ownership: State-owned VS Private • Routes of entrance: M&A VS Organic expansion

12. Research design 3 • STEP 2: • Interviews in subsidiaries • attitude of local employees • Real situation in transfer • STEP 3: • Gaps • Follow-up interviews • STEP 1: • Interviews in Chinese HQ • Planned HR strategy • Documentary analysis • Who? • Both HQ and subsidiaries • Senior manager • HRM manager • Expatriate employees • Shop-floor employees • Why? • Emphasis on the importance of context • Procedural character • Enacted character • Worker response

13. The acquisition In 2005 the Qianjiang (QJ) group, leader in producing and selling motorcycles in China, acquired the Italian Benelli company to expand its business in the western market. The two companies made contact for the first time in June 2005. They were looking for an agreement that matched their relative strengths. Benelli had a trademark, knowledge of Western markets, as well as projection skills, while QJ had high-efficiency plants and low production costs. In September a deal was reached with the founding of Benelli QJ srl. Industrial activities began in October 2005.

14. The integration The industry Benelli’s company is part of the motorcycle industry, which includes companies involved in manufacturing motorcycles and related equipment, parts, accessories. Global trends Several key competitors in the motorcycle industry share the majority of worldwide sales. The industry could be described as global and highly competitive. Price, design, and engine performance are the key elements in customer choice. In Italy, the industry is very competitive, with Japanese manufacturers having the biggest market share. Benelli has a small market share, operating in a niche segment. China is the largest motorcycle market in the world and accounts for 59.1 % of market volume in the Asia-Pacific.

15. Qianjiang Motorcycle Co. (QJ Group): the acquirer large scale state-owned groupproducing and selling motorcycles: annual output in China: 1 million units In 2007, produced 1.2268 million finished motorcycles, among which 1.2031 million were sold The total assets of QJ: 3.6 billion RMB, with a total investment of 260 million RMB. Fast international expansion to markets such as Indonesia, Taiwan Austria and Italy

16. Benelli: the acquired company Benelli was founded in 1911 in Pesaro (Center Italy – Marche Region) as a family firm. In the 1930s the company was praised throughout Italy and Europe for its capacity for development and production of motorcycles as well as for winning national and international racing competitions.

17. Benelli: strenghts and problems of the company • Strengths • R&D Department: technical skills in projecting motorbike • Production plant: two assembling lines ready to start, and professional workers already trained • Brand: history and tradition • Great appreciation of Benelli’s product by the specialist press • Problems faced by the company before the acquisition • high production costs and sales prices • financial stress • strategic mistakes in production choices • weak commercial network

18. Strategic goals of the acquisition • to capitalize on Benelli’s professionalism and knowledge, in order to offer high-quality products in segments that had not yet been penetrated by the QJ Group • to re-launch the Benelli brand (a well-known and recognized brand in terms of quality and sporting competition) by leveraging its history and tradition • to use Benelli’s products/spare-parts in China, so as to increase the quality of domestically manufactured products and to further diversify production to new categories of clients • to become more and more competitive to face the leading Japanese companies in the motorbike market

19. The post acquisition activities Operations relating to administration, production, and R&D were maintained in Pesaro (Italy). The main changes relates to production operations. Innovations includes an expansion of in-house operations, such as the 3-cylinder engine assembly that previously had been outsourced. The original workforce of 45 in 2005 has increased to 100 employees. Currently, two production lines are operating: one for engine production/assembly and one for motorcycle production/assembly. The sales director and the parts quality manager are both Chinese, as was the managing director (a 40-year-old woman). The previous Italian technical director is vice managing director.

20. The new industrial plan The industrial plan involves manufacturing new products within four years. Motorcycle production had already increased from only 3 models prior to the company’s acquisition, to 9 in 2007, and to 10 in 2008. Each motorcycle model is different, with three new engines. Motorcycles are designed in the Technical Department in Pesaro. Designs and prototypes are then transferred to the QJ Technical Department, where the Chinese, in cooperation with the Italian Technical Department, take care of the industrial development of the project. Once the industrial plan for the product is completed, production begins in Italy.

21. Positive changes perceived by Benelli’s people • efficiency-building efforts to reduce some avoidable costs that had been exploding with the previous owners, leading to huge losses; • more rationality in company decision making. The previous owner loved motorcycles and sometimes made decisions that were driven by a passion for motorcycles rather than by market needs; • a new way of managing human resources (more decision-making power and more responsibility to the staff, including the young people and women; teamwork approach through periodical meetings and encouraging suggestions and ideas “from the bottom to the top)

22. Key issues faced by QJ after the acquisition • cultural differences between the Chinese and the Italians are emerging, in terms of behavior, management practice and business approach. Problems stem not only from differing organizational cultures, but also from the differing working environments in China and Italy. • there is the need to improve cross-cultural understanding between the Chinese and the Italian managers/employees • There also is the issue of QJ’s strategy outpacing its ability to execute its strategy and the availability of a team of expatriate people specifically trained on global operations. • The focus on efficiency, to be price competitive, put in shadow investments on sales activities. • there is the need to improve the worldwide strength of the brand as well as the effectiveness of the sales network and of post sales assistance and customer care

23. Main Findings and Further Research Main Findings: Systemic Effects Societal Effects Dominance Effects Corporate Strategy Corporate Relationship Further Research

24. Main Findings and Further Research Main Findings: Systemic Effects Societal Effects Dominance Effects Corporate Strategy Corporate Relationship Further Research

25. Main Findings and Further Research Main Findings: Systemic Effects Societal Effects Dominance Effects Corporate Strategy Corporate Relationship Further Research