Business strategy

International human resource management strategies of Chinese multinationals operating abroad

Di Fan a *, Mike Mingqiong Zhang

b and Cherrie Jiuhua Zhu

c

a Deakin Graduate School of Business, Deakin University, Melbourne, Australia;

b Department of

Management, La Trobe Business School, La Trobe University, Melbourne, Australia; c Department

of Management, Faculty of Business and Economics, Monash University, Melbourne, Australia

(Received 25 November 2012; final version received 1 July 2013)

Strategic international human resource management (SIHRM) is crucial for the effective leveraging of human resources in organizations to achieve the desired business strategies. There is a rich collection of studies on western multinational corporations (MNCs) in China, but few studies that explore the SIHRM of Chinese MNCs operating overseas. This study utilizes cross-level, in-depth interviews to analyse SIHRM of three large Chinese multinationals. The paper contributes to literature by addressing two contextual SIHRM issues, namely the characteristics of the SIHRM for Chinese multinationals and how their SIHRM orientation facilitates their international investment and operation. The findings indicate that organizational transformation is the starting point for latecomers matching their international HRM strategies. Their SIHRM approaches, such as forming learning organizations, reliance on host-country nationals, reconciling both home and host-country effects and promoting ‘best practices’, facilitate their international operations.

Keywords: China; host-country nationals; international business strategies; multi- national corporations (MNCs); organizational transformation; strategic international human resource management (SIHRM)

1. Introduction

After ‘go global’ 1 was firmly established as a national policy in 2004, more Chinese domestic

firms became eager to enter and compete in the international market. The World Investment

Report 2012 (UNCTAD 2012) states that foreign direct investment (FDI) from mainland

China reached US$74.65 billion in 2012, representing an increase of 13.6 times than that in

2004. The figure of Chinese multinationals ranked in Fortune Top 500 list rose from 16 in

2004to79in2012(Fortune 2012).China hasnow becomethe largestAsiansourceofoutward

FDI (UNCTAD 2012). The growing prominence of the Chinese FDI has generated a rapidly

increasing research interest in their multinational corporation (MNC) strategies.

When operating overseas, many Chinese MNCs quickly embraced the idea of aligning

human resource management (HRM) with corporate strategy, believing it would promote

the organizational performance (Luo and Tung 2007). One area that has drawn little research

attention is strategic international human resource management (SIHRM) in emerging

market multinationals (Shen 2005; Thite, Wilkinson, and Shah 2012; Zheng 2013). Shen

(2005) contends that previous SIHRM models were developed in western countries, lacking

empirical data support from developing countries. A clear research need exists to map the

patterns of generic international human resource management (IHRM) strategies of Chinese

q 2013 Taylor & Francis

*Corresponding author. Email: [email protected]

Asia Pacific Business Review, 2013

Vol. 19, No. 4, 526–541, http://dx.doi.org/10.1080/13602381.2013.821804

multinationals as latecomers, especially when they are investing in developed countries.

A related question is to examine how these firms utilize their human resources (HRs) to

compete overseas. This study attempts to address these core questions by analysing the

IHRM strategies of three large Chinese MNCs and their subsidiaries in Australia. Australia

is an appropriate empirical context since it is one of the most popular destinations for

Chinese outward FDI (Fan, Zhu, and Nyland 2012; MOFCOM [2011] 2012).

The paper begins with a twofold review of literature dealing with the importance of

linking IHRM to the implementation of internationalization strategy and the literature

concerning Chinese MNCs and their IHRM strategies. Two research questions are then

developed and the research method explained. This is followed by presenting and analysing

qualitative data generated by interviews with Chinese managers from headquarters and

subsidiaries in both China and Australia and relevant corporate archives. Finally,

implications are drawn from the findings and directions for future studies are advanced.

2. Linking IHRM to the implementation of internationalization strategy

Companies operating globally have to seek suitable internationalization strategies and

IHRM. In broad terms, an internationalization strategy refers to a company’s approaches

when extending its business operations to an international arena (Briscoe, Schuler, and

Claus 2009). IHRM is ‘the set of distinct activities, functions, and processes that are

directed at attracting, developing, and maintaining an MNC’s human resources’ (Taylor,

Beechler, and Napier 1996, 960). The explicit link between IHRM and MNC strategies has

been termed SIHRM by Taylor, Beechler, and Napier (1996) in their landmark study.

SIHRM covers HRM with the strategic management and internationalization

processes, emphasizing coordination among assorted HRM activities (Schuler, Dowling,

and De Cieri 1993). To achieve competitive advantages, HRs of a company should be

valuable, rare, inimitable and non-substitutable (Wright, McMahan, and McWilliams

1994). Such an HR can contribute to continuous competitive advantages by improving

competencies that are specific to the company, generating social relationships and

producing firm-specific knowledge (Erwee 2007). IHRM provides the tangible and

intangible resources that allow a company to outdo competitors at an international level

(Schuler, Budhwar, and Florkowski 2002).

At the corporate-level SIHRM, whether an MNC adapts its HRM to the local context

or maintains the parent company’s approach is a critical choice faced by IHRM

practitioners (Grossman and Schoenfeldt 2001; Schuler, Dowling, and De Cieri 1993).

Although a number of researchers have written on the subject of the tension between the

extent to which policies should be globally integrated and locally responsive, few

conclusions can be drawn as to what defines a globalized or a localized IHRM orientation

(Shen 2005). Incorporating Bartlett and Ghoshal’s (1989/1998) typology of international

business strategies (IBS), namely international, global, multi-domestic and transnational

strategies, the chosen IBS must fit with organizational, industrial and environmental

factors that affect the firms’ global operation (Fan, Zhu, and Nyland 2012; Luo 2001). If

the market in which the company operates requires a high degree of local responsiveness,

the firm should choose more localized strategies, such as multi-domestic and transnational

strategies (Bartlett and Ghoshal 1989/1998). This implies little interdependency between

the parent company and its affiliates. In contrast, a firm following a global strategy

manages affiliate and parent as interdependent.

There has been a tendency to utilize multiple theoretical perspectives to predict and

explain relations between corporate strategies and IHRM (e.g. De Cieri and Dowling

Asia Pacific Business Review 527

1999; Schuler, Dowling, and De Cieri 1993; Taylor, Beechler, and Napier 1996) in the

field of SIHRM. A number of scholars have developed integrative SIHRM models such as

the ‘two logic’ approach (Evans and Lorange 1989), the ‘two-dimension’ model that

includes the product, market, technology dimension and the social, cultural and legal

dimension (Paauwe and Dewe 1995), and various versions of the integrative SIHRM

framework developed by Schuler, Dowling, and De Cieri (1993), Taylor, Beechler, and

Napier (1996) and Thite, Wilkinson, and Shah (2012), which embraces a numbers of

industrial settings, internal and external influencing factors, and country contexts.

Although these models are valuable for demonstrating the links between IHRM and

internationalization strategies, they have been criticized for limitations of describing an

integrative view of SIHRM, rather than developing an IHRM strategy. For instance,

Briscoe and Schuler (2004, 60) debate that SIHRM ‘[ . . . ] needs to develop its own

strategies to hire, manage, and retain the best employees throughout the organization’s

international business (IB) activities, as well as contribute to the firm’s overall

international strategic planning’. It has limitations when applied to MNCs from emerging

economies, which are characterized by both the speed and the massive scope of change

(Thite, Wilkinson, and Shah 2012; Zheng 2013).

3. Chinese MNCs and their IHRM strategies

Scientific analysis of, and academic debate on, Chinese FDI and its characteristics has

started, with a growing number of publications in recent years (Fan Zhu, and Nyland

2012). There remains, however, a paucity of research in specific areas such as the impact

of FDI from the biggest emerging country on IHRM (Cooke 2012; Cooke and Lin 2012;

Zhu, Thomson, and De Cieri 2008). Moreover, scholars (cf. Mabey, Salaman, and Storey

1998; Warner 2003, 2012; Warner and Nankervis 2012) observe that a further advance in

research around the concept of HRM ‘with Chinese characteristics’ is evident, but there is

less evidence of research about ‘strategic HRM’ as defined in western terms.

Recent reviews, such as those of Zhu, Thomson, and De Cieri (2008), Cooke (2009)

and Zheng (2013), report the growth of SIHRM studies in China-based HRM literature,

attempting to develop an SIHRM model and test the model for Chinese MNCs (Shen 2005;

Zheng 2013). However, Shen’s (2005) and Zheng’s (2013) models draw heavily on the

previous integrative SIHRM models (cf. Schuler, Dowling, and De Cieri 1993; Taylor,

Beechler, and Napier 1996), and their concern is with intervening factors affecting the way

that IHRM practices can transfer, mix or adapt local HRM practices. Further, Cooke

(2009, 25) argues

there is a need to ‘internationalize’ the research of HRM in China. By internationalization, we should look at what the common issues are facing the HRM world globally. We need to situate the research of HRM in China in a global context through the connection of common HR issues and challenges in people management.

Given this research call, this study can be distinguished by its focus on identifying some

characteristics of the SIHRM of Chinese multinationals. Therefore, the first research

question (RQ) is proposed in this study:

RQ1: What are the characteristics of the SIHRM for Chinese MNCs?

McDonnell, Stanton, and Burgess (2011) call further empirical research on emerging

country’s MNC behaviour in advanced economies, such as Australia, as it still remains

neglected. It is reported that Chinese MNCs have been experiencing local fear, or dislike,

of Chinese investment in some popular Chinese outward FDI destinations, including

528 D. Fan et al.

Australia (e.g. Fan 2010). Such negative responses can counteract the efforts made by

Chinese firms in their internationalization process. The literature (cf. Schuler, Budhwar,

and Florkowski 2002) suggests that IHRM policies and practices play a crucial role in

building local responsiveness capability for MNCs. However, what has not been explained

is how Chinese multinationals interpret the local responses with a balance of their global

integration needs, and how they are forming IHRM strategies and building their capability

in host countries. Furthermore, Dunning (2006) argues for research to include people

management as a new trajectory for MNC research and contends that it is important to

understand the impact of IHRM on MNCs in the wealth creation process. On the basis of

the research needs, the second research question is raised:

RQ2: How do Chinese MNCs’ IHRM strategies facilitate their investment and operation

overseas?

4. Methodology

4.1. The method of multiple case studies

A quantitative approach is difficult to apply to Chinese multinationals since the robust

theoretical understanding to underpin quantitative analysis does not exist given their short

history of internationalization. This study is exploratory and non-hypothesis driven. The

research questions focus on the what, how and why factors that affect SIHRM in Chinese

MNCs. Moreover, this research is context-specific as the subject is the IHRM strategies of

Chinese multinationals. A number of international researchers (e.g. Boyacigiller and Adler

1991; Kim, Wright, and Su 2010; Tsui 2007) claim that contextualization is an important

way to develop high-impact research, and ‘deep contextualization is necessary for both

theory development and for the meaningful application of existing theory to novel

contexts’ (Tsui 2007, 1357).

A qualitative approach is appropriate because it enhances researchers’ capacity to

examine organizations and societies ‘on their own terms’ (Boyacigiller and Adler 1991,

281). A multiple case study design is chosen as it is suited to the complexity of the

internationalization process. This approach enables researchers to contain the problem of

representation and renders the evidence more persuasive and the analytical results more

robust (Jing and McDermott 2012). It also permits the researcher to conduct multiple

experiments applying ‘replication’ logic (Yin 2009).

4.2. Data collection

Authors (cf. Cooke and Lin 2012; Cooke and Saini 2010) argue that an organization’s

business strategy can be influenced by its institutional context, which has further impact on

HRM policies and practices within the organization. To minimize the influence of various

forms of institutional environment on firms’ SIHRM, three Chinese multinationals with the

same type of ownership operating in Australia are examined in this study. Therefore, both

the impact of home and host countries’ institutional context and their policies towards

Chinese state-owned MNCs are generallyconsistent. From 2005 to 2009,Australia rankedas

the most popular destination for Chinese outward FDI (MOFCOM [2011] 2012). By

December 2012, 592 Chinese multinational enterprises (MNEs) had established corporate or

representative offices in Australia (MOFCOM [2011] 2012). Three well-known Chinese

firms were chosen; all of them are state-owned MNCs, which reflects the ownership norm for

Chinese multinationals (Zhang, Zhou, and Ebbers 2011). They are also large and influential

corporations for Chinese national economy, listed among the Fortune Global 500

Asia Pacific Business Review 529

T a b le

1 .

A p ro fi le

o f c a se

C h in e se

M N C s.

C a se

C h in e se

M N C

O w n e rs h ip

M a jo r p ro d u c t/ se rv ic e

G o in g g lo b a la

L o c a ti o n in

A u st ra li a

E n tr y m o d e

E st a b li sh m e n t

m e th o d

S e c to r

R e v e n u e in

2 0 1 2

($ M il li o n )

B a n k C o

S ta te -o w n e d

C o m m e rc ia l b a n k in g ,

in v e st m e n t a n d in su ra n c e

1 9 2 0 s

N S W , V ic , W A

W O S

G re e n fi e ld

B a n k in g a n d

fi n a n c ia l se rv ic e

8 0 ,2 3 0

C h e m C o

S ta te -o w n e d

C h e m ic a l m a te ri a ls

1 9 9 0 s

V ic , N S W

W O S

M & A

M a n u fa c tu ri n g

2 7 ,7 0 7

M in C o

S ta te -o w n e d

A lu m in a a n d p ri m a ry

a lu m in iu m

p ro d u c ti o n

2 0 0 0 s

Q ld

W O S

G re e n fi e ld

In d u st ri a l m e ta ls

a n d m in in g

3 5 ,8 3 9

N o te : N o sp e c ifi c y e a r is g iv e n d u e to re se a rc h e th ic s to p ro te c t a n o n y m it y . W O S : w h o ll y o w n e d su b si d ia ry , M & A : m e rg e r a n d a c q u is it io n a n d JV

: jo in t v e n tu re . L o c a ti o n : id e n ti fi e d b y

S ta te

in A u st ra li a , V ic

– V ic to ri a , N S W

– N e w

S o u th

W a le s, Q ld

– Q u e e n sl a n d , W A

– W e st e rn

A u st ra li a . a D a te /p e ri o d w h e n th e fi rm

in te rn a ti o n a li z e d it s o p e ra ti o n s.

530 D. Fan et al.

Biggest Corporations (Fortune 2012). A profile of the case MNCs is presented in Table 1.

The three companies represent the majority of industry sectors in which Chinese MNCs

operate in Australia, namely resources, service and manufacturing. The data collection

approach is designed to generate insights regarding how industry type, ownership and

international strategies such as entry modes shape Chinese MNCs’ SIHRM consideration.

To protect anonymity, the three MNCs are coded as BankCo, ChemCo and MinCo.

To ensure validity, we collected two sources of data. The primary data were collected at

both the headquarters in China and Australian subsidiaries during two periods: June–

September 2008 and June–July 2012. Collecting the second wave of qualitative data in the

three companies aimed to: (1) recheck the consistency of IHRM policies and practices and

IBS and (2) ensure qualitative data triangulation over a four-year period. Informed by the

literature review, a set of open-ended questions were developed, focusing on the firms’

international strategies, host-country institutional environments and IHRM strategies. For

each firm, the interviewees at headquarters level comprised senior executives, who held

positions ranging from chairman, chief executive officer (CEOs), vice general manager,

HR/personnel management directors (HRDs/PMDs), to international project director or

executive member of the board of directors. All of the interviewees were identified as

executives who played important roles in strategic decision-making. At the subsidiary level,

all interviewees held one of the following positions: CEO, general manager or HRDs/PMDs

(see Table 2).

All participants were interviewed either face-to-face or through prearranged

telephone. Each interview was about 1–1.5 h in length. Some senior executives were

interviewed twice or had follow-up phone calls. Where the participants agreed, interviews

were digitally recorded; otherwise notes were taken. Extensive notes and researcher

observations/impressions were written up without delay. A majority of interviews were

conducted in Mandarin. Transcripts were sent to interviewees for comments and feedback,

which were then incorporated into the transcripts. The latter were then translated into

English and analysis was undertaken utilizing the English transcripts.

The case study method emphasizes triangulation to check and validate the information

received from various sources and examines it from different angles (Yin 2009).

Interviews were therefore supplemented with other sources of data, including observation,

field notes, company documentation (e.g. meeting minutes and annual reports) and

intranet as well as internet data to increase the reliability and accuracy of the analysis.

Table 2. Chinese MNCs in Australia: the interviewees and archives.

Chinese MNCs

Analytical code

Company level Interviewee code Archival code

BankCo MNC1 HQ HQ1, HQ2, HQ3 MNC1-DOC-2; MNC1-DOC-8; MNC1-DOC-11; MNC1-DOC-17; MNC1-DOC-18

Australian Subsidiaries

AS1 a , AS2

ChemCo MNC2 HQ HQ4, HQ5 MNC2-DOC-2; MNC2-DOC-6; MNC2-DOC-9; MNC2-DOC-11; MNC2-OB-R-1

Australian Subsidiaries

AS3 a , AS4, AS5

a

MinCo MNC3 HQ HQ6, HQ7, HQ8 MNC3-DOC-2; MNC3-DOC-3; MNC3-OB-R-1; MNC3-OB-R-2Australian

Subsidiaries AS6

a , AS7, AS8

Note: Both the case firms and the interviewees are coded to guarantee anonymity. HQ: headquarters. AS: Australian subsidiary. ‘DOC’ refers documents that were used for analysis; while ‘OB-R’ means the researchers’ observations.

a The interviews were conducted in English as the interviewees are native English speakers.

Asia Pacific Business Review 531

5. Case studies of Chinese multinationals

5.1. BankCo – the role of organizational transformation in SIHRM

BankCo is a Chinese commercial bank that re-entered into Australia around 25 years ago.

Currently, BankCo has six subsidiaries in Sydney, Melbourne and Perth (MNC1-DOC-8).

In their overseas operations, senior BankCo managers have an express preference for a

transnational strategy to promote both global integration and local responsiveness. For

instance, HQ1 claimed:

I think our current international business strategy is pretty much transnational. In terms of conducting international business in the banking industry, we also want to be ‘The World’s Local Bank’, like HSBC [Hong Kong and Shanghai Banking Corporation], which is not only our strategic orientation, but also an ideal way to balance global integration and local responsiveness. (Lines 62–64)

In pursuing this particular strategic orientation of their international operations, the

company has experienced a significant organizational transformation so as to compete

effectively. Senior executive HQ2 revealed that there is a constant interplay between

organizational dynamics, for example structural context, institutional conditionality and

even control flexibility, and the company’s international strategies:

Before 2005, we adopted a branch banking system. Each branch was a part of the head office, acting as an agency of the head office, not a sub-bank or a subsidiary. The relationship between head office and branches is not like that between headquarters and subsidiaries in a commercial sense. Under the branch banking system, the capital of local branch came from the head office, the local benefits and operating risks belonged to the head office.

In 2005, the head office launched to establish localized subsidiaries worldwide. Initially, as a trial, we set up a subsidiary in Hong Kong (HK) and listed it on the HK stock market. From a capital management perspective, once our headquarters invested in the HK company, the subsidiary would take their own risk and losses. If the subsidiary performs badly, then, like an ulcer, we will cut it off. Under the branch banking system, if the overseas branch had a problem, the head office always took responsibility.

HQ2 emphasized that, in legal terms, the branch versus subsidiary distinction was

fundamental for IHRM. The significance of organizational transformation was echoed by a

director of an Australian subsidiary, who explained:

For instance, under the branch banking system, all required capital for our foreign branches came from the head office, which could enforce our integrated capabilities. Under the current system, subsidiaries’ capabilities in terms of the required capital are more limited, so they are not able to break some limitations (e.g. the minimum amount of cash reserve) set by the host countries. Any local decision in the host country will be made by the subsidiary managers. For example, assuming I am a senior executive in an Australian subsidiary under the old branch banking system, I should be authorized to manage the company; but now I worked as a director on the board and have no direct power to intervene in the subsidiary business. So how to reconcile the need to be globally integrated and locally responsive has become an issue. Under the branch system, we had always emphasized integration, while under the headquarter-subsidiary mechanism, we can be more local responsive. (AS2, lines 4–32)

BankCo is among the top 20 banks in the world and provides comprehensive financial

services to customers across 31 countries (MNC1-DOC-11). However, according to HQ3,

AS1 and AS2, one major challenge under the old system for the company’s overseas

operation is how to attract the best local bankers in the face of its outdated performance

management and reward systems. For example, AS1 indicated:

The headquarters-subsidiary mechanism is more flexible. We can quickly make judgements regarding the change of local market conditions. The mechanism can help foreign subsidiaries

532 D. Fan et al.

overcome some limitations, such as relatively poor remuneration. Under the old branch banking system, we had to adopt a unified salary standard, which meant the salary level was comparatively lower than that of our foreign competitors. We couldn’t recruit and retain the best bankers, or even administrative staff in overseas markets. Our expatriates received low level of wages as Chinese diplomats based on the home country standard. If I find a similar job in local large companies, my salary would be much higher. Now overseas subsidiaries can decide their own salary levels in accord with the host-country market, and attract and hire qualified people. This has enhanced local competitiveness and responsiveness. (Lines 49–61, 65)

The case of BankCo illustrates how the organizational transformation, for example structural

mechanism and control flexibility, has impacted on the firms’ overseas operations through

motivating current staff and attracting new employees to build up human capital. Tichy,

Fombrun, and Devanna (1982) propose a matching model, which highlights the resource

aspect of HRM strategies and emphasizes a bidirectional fit between organizational strategy,

structure and HRM system. The BankCo case has not only indicated the implications of the

influential matching model in the Chinese MNCs’ SIHRM consideration, but also revealed

the important role of organizational transformation for SIHRM. For Chinese state-owned

companies, they do not lack strategic goals, energy and courage of conducting personnel

reform, but they do lack HRM mechanisms to fully develop employees’ potential. Without

building an IHRM strategy, it is difficult to overcome their weakness (e.g. lack of

international experience). For competing with giant global bank groups, the BankCo’s

SIHRM should be considered to match their four main benchmarks, namely the

organizational structure, business plans, performance evaluation and resource allocation

(MNC1-DOC-18).

5.2. ChemCo – reliance on learning and host-country nationals (HCNs)

ChemCo, a large state-owned company headquartered in Beijing, currently operates in six

sectors of the chemical industry (MNC2-DOC-2). In 2006, ChemCo successfully merged

with ‘the cornerstone of Australia’s plastics industry’, which owns 70% of the Australian

plastics market. Financially, ChemCo’s Australian project is successful because its initial

investment was fully returned within two years and the economic value of its Australian

subsidiary increased six times after the merger (MNC2-OB-R-1; also MNC2-DOC-6, HQ4).

All ChemCo executives interviewed (e.g. HQ4, HQ5 and AS3) considered that a

multi-domestic strategy best describes the corporation’s current strategic orientation.

Through the successful acquisition of a monopoly in Australia’s plastic manufacturing

industry, ChemCo has built a strong local presence. In contrast to BankCo and MinCo, the

ChemCo HQ empowered local managers, decentralized managerial roles and offered

Australian managers flexibility to the greatest extent. The managerial belief held by senior

HQ executives was a ‘wu wei (active non-action)’ (HQ4 and MNC2-DOC-9). Australian

executive AS3’s explanation amplifies this point:

Our international business strategy is multi-domestic. The Beijing office sticks to their promise that an Australian company managed by Australians. When I had business trips in Beijing, I was often invited by the Chairman and other managers in their family dinners or parties, I felt trust from them. Actually it is a smart way since we know best about our local trade connections and the market as well. (Lines 127–132)

An internal evaluation report regarding the merger with the Australian company states that

ChemCo can ‘indirectly and dexterously utilize Australia’s upstream oil and gas

supporting resources’ (MNC2-DOC-11). If ChemCo wants to construct a domestic

ethylene project in China, the company needs to have at least 5 million tons of refined oil

and 150 million tons of naphtha. Given the higher investment costs of matching raw

Asia Pacific Business Review 533

material, a similar project would not easily get approved by the Chinese government

(MNC2-DOC-6). This analysis illustrates how ChemCo identified and exploited local

opportunities. This strategy is consistent with Bartlett and Ghoshal’s (1989/1998)

description of the role of overseas operations in adoption of a multi-domestic strategy. The

essence of this IBS is mainly to facilitate local responsiveness and localize its operations in

host countries at the expense of global integration.

Apart from IBS consideration, the top management belief has reflected on their

SIHRM in foreign operation. For example, senior executive HQ5 pointed out:

Two of our managerial philosophies are particularly relevant to your topic [SIHRM]. They are ‘cooperative and collective management’ and ‘wu wei (active non-action)’. We emphasize staff cooperation in all subsidiaries, no matter where they are. We have merged and acquired many companies in the last 10 years. We told acquiree managers that the most important thing is not to think who the boss is. We must cooperate closely then all stakeholders can share the benefit. Once we cooperate (with foreign managers in acquired subsidiaries), we become a strong enterprise. Lao Tzu’s wu wei principle is also part of our corporation culture. The point is we let managers in overseas subsidiaries decide how they can achieve the best results. We offer autonomy to the subsidiary CEOs. (Lines 51–63)

These managerial beliefs can be found in written evidence from the official strategic

document in ChemCo (e.g. MNC2-DOC-9). The interview data illustrate the company’s

emphasis on linking IHRM with the implementation of internationalization strategy, as

explained by HQ4:

To implement our internationalization strategy, firstly we need to take care of overseas employees, especially these executives’ feelings and emotions about the acquisition. We do our best to retain all local senior managers. We don’t change human resource policy in our subsidiaries; rather, we attempt to become a learning organization. We send some expatriates to the acquired business, but ask them to learn from foreign colleagues’ experience, rather than to teach local managers how to operate business. We give our foreign managers enough time to demonstrate their performance, although not once in the past two years has their performance disappointed us. (Lines 71–80)

Australian subsidiary-level executive AS5 explained well the importance of reliance on

HCNs:

We are still pretty much an Australian company in terms of people and markets [The firm was wholly acquired by ChemCo several years ago]. Since our local employees can respond efficiently to domestic customers, we provide promotion opportunities to local employees, and reward them. Our HRM policies, in my view, have not changed much after the acquisition. Take myself as an example, I took managerial roles for many foreign companies, but at ChemCo, I feel I am managing this company. (Lines 112–114, 110–126)

This case indicates ChemCo’s approach to managing international HRs, including

promoting autonomy, building a trust relationship with foreign executives, valuing HRs,

enhancing knowledge transfer back from foreign affiliates to domestic subsidiaries and

facilitating cultural integration. This approach has become a model by many Chinese

MNCs. The core idea of this SIHRM model is to learn by participating while relying on

local executives operating the businesses.

5.3. MinCo – reconciling both home and host-country effects and promoting ‘best practice’

MinCo was established as a joint stock limited company and listed on the New York Stock

and Hong Kong Stock exchanges in the early 2000s. It is a leading metals and mining

companies in China. MinCo owns 49 subsidiaries with Standard & Poor’s ‘BBB þ ’ rating

534 D. Fan et al.

(MNC3-DOC-2). It has passed the accreditation of ISO 9000, ISO 14000 and OHSAS

18001 Standard Implementation, suggesting the company lays stress on quality control

and standardization (MNC3-OB-R-1). MinCo entered the Australian market through a

wholly owned subsidiary (MNC3-DOC-3). The current project in northern Australia

involves a mine and a refinery plant, and the firm is seeking other investment opportunities

in Australia (MNC3-OB-R-2).

MinCo’s motivation to expand their business overseas is an explicit resource-seeking

strategy as explained by HQ6:

MinCo wants to ensure the long-term supply of mineral resources from Australia. There is a serious shortage of supply from our domestic market. Many processing companies in China do not have sufficient raw materials to process. The market demand for the resources in China will be huge for a long-term. (Lines 15–17)

This HQ-level international business strategy is in line with Bartlett and Ghoshal’s

(1989/1998) international strategy – ‘low global integration and low local responsive-

ness’. The reason for investing in Australia was partly because of the similarity of mine

ores in Australia and in China, and the advanced refinery technology owned by MinCo to

process this type of ore. Thus, MinCo’s Australian affiliate can adapt and leverage the

parent company’s competencies, such as the processing technology. The international

strategy – to exploit the parent company’s knowledge and capabilities through worldwide

diffusion (c.f., Bartlett and Ghoshal 1989/1998) – is reflected in the Australian

subsidiary’s operations.

The Australian subsidiary executives view IHRM as a major challenge to their

investment goals. This is reflected in the explanation from AS7:

IHRM is a major challenge for our Australian operations. MinCo has expertise in technologies and has no problems in terms of finance and equipment. The key for success is not technology or finance but people. HRM policies and practices in our Australian subsidiaries should fit with the Australian environment which is very different from China, and should fit with MinCo’s strategic needs. (Lines 31–35)

In addition, Australian CEO AS6 argued that cultural distance and conflicts are major

issues for Chinese expatriates working with Australian colleagues:

. . . the culture gap is a big issue for Chinese companies to become an Australian entity or enter into the Australian market because they don’t understand such a gap yet. (Lines 248– 250)

In order to deal with IHRM difficulties, the IHRM strategic consideration has become

important. When asking MinCo’s SIHRM consideration, centralization appears to be

the current strategy in selecting managers. As HQ7 (the HRD at headquarter level)

explained:

The senior level positions are usually appointed through the policy of ‘promoting within’ and the HQ usually consults the executive about deputies. The HQs of MinCo control the appointment of senior positions in the Australian subsidiaries. But, decentralization is more likely in future. At this stage, our company is searching for the appropriate HRM policies. We expect to develop our own managerial skills by sending our expatriates although we use many local residents to fill in senior positions. (Lines 95–102)

However, it is clear that company HQ has a commitment to integration as HQ7 further

stated:

At employee level, we want Australian subsidiary to adopt a HRM system that is the same as Australian companies or other MNCs operating in Australia. In fact we would like our subsidiaries to adopt local ‘best practice’ HRM. (Lines 47–49, 82–87, 120–126)

Asia Pacific Business Review 535

When discussing specific IHRM policies that MinCo plans to implement in overseas

subsidiaries, it can be found that two features, such as ‘reconciling both home and host

country effects’ and ‘promoting best practice’, are embedded in their SIHRM mindset. For

example, HQ8 argued that:

We do pursue good employee practices to secure both workers’ efficiency and employee loyalty. We hope these good values can be transferred to our overseas subsidiaries. (Lines 201–203)

HQ7 echoed:

We do not want people to believe Chinese labour standards are lower than those of Western countries. We want to adopt an HRM system that has at least the following characteristics: high productivity; harmonious labour relations; abiding by host country regulations, respecting local cultures; having positive effects on the local community; learning from local firms and host managers; and transferring knowledge back to headquarters. (Lines 51–62)

Manager AS8 concurred that MinCO intended to have a long-term operation in Australia:

A long-term operation needs harmonious relations with local communities and consistent supply of qualified employees. Accordingly, HRM needs to be of high standard, particularly in remuneration and training. MinCo will not only use, but also develop, local employees. Given the short supply of skilled workers in this sector, we have to be competitive in HRM policies to attract workers. The home HRM policies and practices that are regarded as being effective, such as cost-based performance appraisal will influence the HRM policies of our Australian subsidiary. (Lines 162–177)

The MinCo case provides an example of a Chinese MNC making an effort to transfer

effective HRM practices used at home to their host-country subsidiaries, though some

practices are also common ones in the host country. These include (a) ensuring high

efficiency, monitoring and management training and development, (b) employee corporate

citizenship and understanding of organizational culture and (c) equal opportunities in

recruitment and selection of talented people.

6. Discussion

6.1. Case summaries

This study aims to address the characteristics of the SIHRM of Chinese MNCs, and how

Chinese MNCs’ IHRM strategies facilitate their investment and operation overseas. It is

evident that Chinese MNEs link their people management to their international business

strategy mindsets, that is on how the firm reconciles the need to be both globally integrated

and locally responsive. Anchoring SIHRM in the strategic components of Chinese MNCs

(e.g. their IBS consideration and international operations), strategic aspects of Chinese

MNCs’ IHRM are explored. The three case studies altogether demonstrate the four

endogenous factors identified by Schuler, Dowling, and De Cieri (1993) in their SIHRM

framework, namely the structure issue of an MNC, the MNC’s internationalization

orientation, its competitive strategy being adopted and the MNC’s international

experience in managing international operations. A brief summary of key findings is

presented below (see Table 3).

Although each Chinese MNC has its unique internationalization process, and different

approaches to recruit and manage international HRs, it was found that some patterns of

Chinese MNCs’ SIHRM can be grounded from the three case firms within the consistent

institutional environment (e.g. the same type of ownership, the same type of entry mode

and identical home and host countries for each case MNC). For example, BankCo’s

SIHRM is to reform its organization structure and HRM mechanisms so that they can

536 D. Fan et al.

attract capable bankers in host countries. Child and Smith (1987, 570) argue that when the

need to act under some emerging ‘objective conditions’ appears, organizational

transformation is then triggered. When Chinese firms expand their businesses to overseas,

their previous organizational controlling mechanism is a constraint. The findings from

BankCo are in line with the findings of Yiu, Lau, and Bruton (2007), who argue that the

organization transformation process is necessary to turn MNCs of emerging economies

into competitive players in the global market. Jing and McDermott (2012) call for more

studies to detail the transformation process of Chinese state-owned enterprises (SOEs),

because the organization transformation is one of the most significant phenomena in the

Chinese modern management world along with Chinese economic reforms in the past 30

years.

Lao Tzu’s wu wei (active non-action) thought is captured in ChemCo. Tsui et al. (2004,

17) term the wu wei thought as the ‘invisible leadership’. They argue that the invisible

leader might ‘be more desirable or appropriate’ in ‘professional organizations with a

highly educated workforce involving strong professional norms’, because these types of

leaders would be able to delegate and empower rather than direct and control. ChemCo

adopts this Chinese traditional managerial philosophy and heavily relies on HCNs, and

transfer the company into a learning organization. This SIHRM approach facilitates their

multi-domestic strategy to enhance the degree of local responsiveness. This strategy also

echoes Gong’s (2003) empirical finding – MNCs’ longer presence in a host country

requires the development of trust relationships with HCNs, and thus a reduced need to

deploy parent-country nationals (PCNs). Although the choice between HCNs and PCNs

are depending on a number of factors, such as the cultural distance between the home and

host countries, industrial setting and subsidiary characteristics (Harzing 2001), the

findings from Chem Co. reveal the Chinese multinationals’ current constraints, that is,

international human resource deficiency. China lacks personnel who possess international

management skills, sufficient knowledge about market conditions of host countries and a

good understanding of the intricacies of international business (Fornes and Butt-Philip

2011). The ChemCo case demonstrates how Chinese MNCs can overcome their HR

constraints through ‘invisible leadership’.

MinCo is an example of how to reconcile the home country effects and host country

effects to promote HRM best practice in Australian affiliates. Gooderham and Nordhaug

(2003) argue that best practices are those with which the MNC is most familiar, or those

that appear to generate higher performance, regardless of the subsidiaries’ location.

Table 3. A brief summary of key findings.

Chinese MNCs Ownership Host country IBS SIHRM

BankCo. State-owned Australia Transnational Organizational transformation (e.g. structural mechanism and control flexibility)

Transforming HRM mechanisms to overcome its lack of international experience

ChemCo. Multi-domestic Lao Tzu’s Wu Wei principle (active non-action);

Reliance on learning and HCNs. MinCo. International Reconciling both home and host

country effects; Promoting ‘Best Practice’.

Asia Pacific Business Review 537

Similarly, Brewster and Mayrhofer (2011, 53) contend that ‘in most companies and in

most circumstances, it appears that best practice is the one used in the headquarters

country’. The MinCo’s finding illustrates that these arguments may not be valid for MNCs

from emerging markets operating in advanced economies. The top management team

(TMT) of MinCo did not transpose their proven ‘effective’ home-country HRM practices

to their Australian subsidiary; rather, they have attempted to integrate local nationals into

the mainstream of management in the foreign subsidiaries. It is possible that this

management strategy is a result of MinCo’s limited international experience and its

learning status as an emerging market MNC.

6.2. Implications for theory and practice

MNCs from emerging economies have been catching the attention of the business world as

well as the academic community. There is, however, little research on the SHIRM of Chinese

MNCs to unveil how Chinese MNCs link their people management to their IBS, and how this

has influenced the firms’ overseas behaviour (cf. Cooke 2009; Warner and Nankervis 2012;

Zhu, Thomson, and De Cieri 2008). This study is an effort to address these research gaps.

This research has significant theoretical implications. First, it is one of the pioneer

studies to examine Chinese MNCs from the perspective of SHIRM and answers two future

research questions in Zhu, Thomson, and De Cieri (2008, 144) – ‘How does outward FDI

affect the integration of strategic HRM into Chinese MNCs?’ and ‘What is the role of

HRM and strategic HRM in outward FDI in Chinese firms?’ Second, through providing

new empirical data, this research reveals how Chinese companies treat outward

investment as a learning process to gain and maintain competitive and as an opportunity to

reform their outdated mechanisms, which also responds Cooke’s (2009) call for future

research on Chinese MNC managing their subsidiaries as learning channels. This furthers

our theoretical and empirical understanding of the behaviours of Chinese companies.

Third, this study has made an advance on the methodology associated with China-based

SIHRM research. Kim, Wright, and Su (2010) recommend that further SHRM research

should improve its methodological rigour, noting that most China-based SHRM studies

collected HR systems information through a single respondent. Accordingly, this study

targeted senior managers for their strategic know-how, and introduced the ‘cross-level’

unit of analysis, including both the HQs and MNC subsidiaries, and valid findings at the

two data collection waves over a four-year period. The cross-level interviews with

referring to multi-source data (e.g. archive and observation) enhance the validation of the

findings and also test the extent to which subsidiary-level executives understand the

mindset of the senior managers at the company’s headquarters.

The findings have significant implications for Chinese MNCs and HRM practitioners. To

successfully implement its international business strategy, the HR manager of an MNC must

understand the competing concepts of global integration and local responsiveness in its

expansion plans. In addition, the HR manager of HQs should liaise with expatriates and the

management team in their subsidiaries to ensure that the international expansion programmes

areimplementedasdesiredbytheTMT.Insimpleterms,astrategicinternationalHRmanager

should run all errands regarding the transfer of resources and labour from the home country to

the host country, or vice versa (De Cieri and Dowling 1999). By means of ensuring a smooth

transition of leadership and the distribution of the HRs in all subsidiaries allied to the MNC,

HR managers are responsible for maintaining HR ‘best practice’ within the organization,

hiring new employees while still promoting good working conditions for all the employees

working for the MNC in their different business units.

538 D. Fan et al.

6.3. Limitations

It should be noted that this three-case qualitative research does not aim to generalize

findings, but to obtain a better understanding of the IHRM strategy of Chinese MNCs.

The extent to which these findings are generalizable and the extent to which these SIHRM

approaches can improve Chinese MNCs’ operating performance overseas are subject to

validation from further research by using larger samples of Chinese MNCs or emerging

market MNCs.

The main limitations of this contextualizing study are the unitary of entry mode

strategy and ownership among the three Chinese MNCs. All subsidiaries in the study are

WOS and all case Chinese MNCs are large sized and state owned, though the

overwhelming majority of Chinese MNCs are SOEs. Although this particular research

design was to minimize the impact of various forms of institutional environment, future

research can explore the SIHRM in private-owned MNEs and joint-venture enterprises. In

addition, this study lacks subsidiary-level performance analysis, which is important to

indicate how MNCs’ IHRM strategies effectively lead to positive outcomes. Future study

could investigate the linkage between Chinese MNCs’ SIHRM and their organizational

performance.

7. Conclusions

As a major source of outward investment among emerging economies, Chinese MNCs

provide an ideal opportunity to study the patterns of their behaviour, whether their behaviours

are different from those of their counterparts of developed countries. Such studies have

significant theoretical and practical implications for international business. Since the research

on Chinese MNCs is still in its early stages, much work is required to obtain a better

understanding of Chinese MNCs and their SIHRM with ‘Chinese characteristics’.

Acknowledgements

We thank Associate Professor Paul S. Hempel (City University of Hong Kong), Professor Anne S. Tsui (Arizona State University), two co-editors of APBR and reviewers for their insightful comments on early versions.

Note

1. This policy was released at the 16th Chinese Communist Party (CCP) National Delegate Congress – the fourth meeting in Beijing during 16–19 September 2004.

Notes on contributors

Di Fan (PhD Monash, CPA) is a senior lecturer in strategy and process management at Deakin University. His current research interest includes International Business Strategies, Strategic Human Resource Management and Chinese Management.

Mike Mingqiong Zhang (PhD, Monash University; PhD, Nanjing University) is a lecturer in human resource management in La Trobe Business School, La Trobe University, Melbourne.

Cherrie Jiuhua Zhu (PhD, Tasmania University) is a professor of human resource management (HRM) and Chinese studies in the Department of Management, Faculty of Business and Economics, Monash University (Clayton Campus).

Asia Pacific Business Review 539

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