Expats vs. Locals, Management Localization Issues for Foreign Businesses in China

1. Expats vs. Locals, Management Localization Issues for Foreign Businesses in China Dr. Ling (Irene) Deng School of Management RMIT University, Australia April 13, 2010 Presentation for Asia @RMIT

2. GLOCALThink Global, Act LocalAct Global, Think Local

3. Outline of Presentation • Literature • Research Methodology: qualitative approach Evidence from Australian Businesses Operating in China • Findings & Discussion: 3 Key issues • Achieving localization balance • Encouraging local managers’ commitment to the company • Creating an open environment • Conclusion

4. Effective Localization • Localization refers to the development of job-related skills within the local population and the delegation of decision-making authority to local employees with the final objective of replacing expatriate managers with local managers (Wong & Law 1999).

5. Effective Localization • In most foreign business operations in China, there is a strong expectation of management localization: • Cost Containment • Overcoming language and cultural barriers • Improving the morale and retention of the local Chinese managers • Improving government relations (Selmer 2004)

6. Effective Localization • Localization is effective only if local managers are competent to perform the jobs originally performed by expatriates, both in managerial and technical roles.

7. The paper’s origin: my PhD research • Research Topic: Study of Cross-cultural Leadership Effectiveness for Australian Businesses Operating in China • Research question: What key factors contribute significantly to cross-cultural leadership effectiveness in Australian businesses operating in China? • Sub-question 3:What are the key issues of management localization effectiveness? How can expatriate leaders effectively contribute to management localization?

8. Research Methodology An inductive approach which employs qualitative semi-structured in-depth face-to-face interviews • Individual interviews • 32Expatriate leader / managers (> 90% are at top management, 26 are Australian) • 2 months to 16 years’ living and working experience in China • Age average: 40’s • Focus Group and Individual interviews • 19 LocalChinese managers – direct reports to the above • Top- and middle-level executives from 30 Australian organizations • Industry: minerals and energy, manufacturing, consulting, banking, legal services, technology, building and construction, education andetc

9. Key 1: Achieving localization balance • A reasonable personnel balance of expatriate and local management based on organizational needs and personnel skills (rather than cost) and application of the same performance evaluation criteria for both local and expatriate managers.

10. The words of the interviewees’ • The cost is DEFINITELY not the issue…The key is to localize for the right reasons, not localize for the wrong reasons. It is not to save you money. You localize because they have what they call ‘local knowledge’ and they speak the language. You are not trying to save money... The mistake they have made is because they are localizing for the wrong reasons, usually to save money. They end up wasting a lot. • The fact of the matter is a lot of Chinese people, right or wrong, would rather work for a foreigner than an overseas Chinese. So that is the reality… I think you need a balance with localization. I think we almost hit the right balance. We are a foreign company with a foreign head office; you do need someone to communicate with the head office. • All successful models I have seen, for Australian, American or British company, is a few top managers will be expatriates but most of the middle, junior staff will be local Chinese. So still keep a cultural connection to the head office, but also very much adapt to the local situation. The expatriate does not necessarily mean a Western face, but that expatriate must really understand the way the company operates.

11. Comments • The precondition of management localization is that companies not lose their international connections. • Expatriate managers bring with them the corporate knowledge, connections and experience. • The value of management localization lies in skills and local knowledge. • Organizations should expect a time frame in which to progressively achieve effective management localization. • Among the younger generations especially, there is great willingness in China to do things the Western way.

12. Key 2: Encouraging local managers’ commitment to the company • By hiring qualified Chinese managers who bring honesty, willingness to learn and communication skills, thereby improving local managers’ loyalty, and paying more attention to the strategies of people management and career paths to avoid high turnovers.

13. The words of the interviewees’ • Communication. Honesty. Integrity. That become as a key issue, I think, if you are employing, how trustworthy that person is. • Yes, but with respect, I have found some people I do not trust, people who have been dishonest. Now whether they have been more dishonest than in Australia, I do not know, but there is a level of dishonesty or a level of clever deviousness or something. • When I first came to China, I replaced a Shanghainese representative who was corrupt, who was embezzling funds and running his own business from our office. The problem is, there are too many stories you hear in China about people who are able to do stuff without any consequences. So, because of that, you are always concerned about the level of trust you can place in your colleagues. • You need to provide a career path for a Chinese leader/manager. That career path should be realistic from an international perspective.

14. Comments • The local staff is a valuable resource for foreign firms in many aspects. • It is an unfortunate truth that many Chinese staff members focus primarily on helping themselves rather than benefiting the business. • Trust and honesty are two crucial values of a healthy working environment in China. • The company’s people management strategy is crucial to enhancing Chinese staff’s loyalty.

15. Key 3: Creating an Open Environment • The organization should strive to create organizational environments that encourage information sharing; to create an open door, ensure that employees have access to them and feel comfortable offering their opinions.

16. The words of the interviewees’ • You have to create a situation with people not only actively but willingly [and] voluntarily sharing information with their colleagues rather than keeping it as a power… I would push information or even push opinions and create situations [in which] there is no risk in offering opinions. • Sometimes, when [Chinese staff] are forced to talk, they do have very good opinions and very good insights. • We move the decision-making responsibilities from my office to their offices. I might guide them, focus them, mentor them, encourage them, but ultimately, they make [the] decisions.

17. Comments • Cultural difference: level of openness in expressing opinions and willingness to take responsibility for decision making. • Getting Chinese staff to speak out becomes a major challenge for expatriate managers during daily management and sometimes brings frustration. • It is especially important that people have the right level of accountability.

18. Conclusion • Pragmatic value Strategic international human resource management • Recommendation for further research

19. Questions welcome