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Empirical studies show that national culture affects the operation and efficiency of HRM in organizations. According to Robert M. Verburg, HRM methods differ across different cultures and Mark Easterby-Smith has argued that HRM is cultural sensitive. Thus to understand the troubles SOE’s face, we must take Chinese culture into consideration. In this essay, the author examines Chinese culture (especially the role of the government, the economic system, religion and work-related values) according to Hofstede’s theory and its negative influence on the traditional personnel system, which contributes to the problems SOE’s face. Finally, the author make some reccomendations for HRM reform in SOE’s and adapts Western methods to fit into the Chinese cultural context. Things are different now. Great changes have taken place in the global social and economic environment. During the Agricultural Age, the basis for development was land and natural resources. During the Industrial Age, the basis for development was capital and machinery. During the Information Age, the basis for development is knowledge. The era of knowledge economy has arrived. Knowledge becomes a must for the development, or even the existence of all the companies. It comes to be an important course for the enterprises facing the new economic situations to learn how to attract, manage, utilise and retain the human resource that possess the knowledge they need. The advent of knowledge economy requires companies to form a new concept of HR, that is, the human- oriented concept. Globalization refers to the development an economy and any forms of governance that span much of the world.It means the integration of markets across the entire world and the increasing tendency for people , corporations and states to operate in or across national boundaries. More foreign enter into China and the employment opportunities will be conduct regardless of the nationality in favor of ability. Mobility of humanresourse.With China’s WTO accession, many in the Western world are planning to exploit the vast potential markets and considering the "benefits" that WTO membership will bring such as increased access, new markets and more opportunities to move production facilities. To benefit fully from WTO membership, however, Chinese companies will have to become players on the world, rather than just on the regional stage. Otherwise, the world will compete with China, but China will not benefit fully from entry into Western markets. We have come to realize that China's entry into WTO will bring great risks and challenges as well as the excellent opportunities to the Chinese companies, especially the state-owned companies, which are still in the process of reform. We need to quicken our pace of reform and lay a good foundation to meet these challenges. Twenty years of economic reform in China has included significant contributions to Chinese fast growing economy. However, the state-owned companies have experienced numerous problems. During the reform over the past 20 years, many inefficient factories and other production units have closed down, with the loss of millions of jobs. The process of growth of SOE’s has been significantly slowed down because of their rigid personnel system and management ‘s unwillingness to change. The public sector in some parts of China used to generate more than 50% of GDP. However, currently, there remain many state-owned enterprises that are overstaffed and unproductive. Can Chinese SOE's (state-owned enterprises) survive the challenges as well? There are many issues in SOE’s that need to be addressed, however, this paper just concentrates on the reform of human resources management , pointing out the interrelationship between HRM practice and enterprise performance. The effective reform of the state-owned companies is put on agenda. Understanding the Culture: Culture might be described as the comple pattern of living that humans develop and pass on from one generation to the next. It encompasses the norms and values of a society, including appropriate ways to treat one another. It defines the natural world and human nature. II) What is HRM and why is it proposed? What is needed here now is to define HRM (Table 1) which has theoretically been an issue for some time. Why should HRM attract so much attention? How could firms benefit from practicing HRM? HRM is a modern term for what has traditionally been referred to as personnel management or personnel administration. It goes beyond personnel management which emphasizes on technical skills and day-today function such as recruitment and selection, training, salary administration and employee relations. According to Price (1997), there are a half of dozen of definitions of HRM (see Table 1) , but the essence of HRM is as simple as to “get work done” through strategic selection of suitable staff, training and development of competent and skilled workers, provision of incentive reward systems to retain employees and overall flow of management communication, performance appraisal to increase level of transparency and plus harmonious industrial relations to reduce conflicts and achieve cost effectiveness. HRM attracts much attention because it has been portrayed as being a radical, integrated and consistent approach to tie people management to business objective . It takes a more proactive view by looking at people in economic terms as assets and liabilities which can be actively managed. Each element of HRM is integrated to fit into a pattern which ultimately meets business needs. HRM is seen to be holistic, focusing more on conceptual, higher-level concerns such as the structure and culture of the organization and the provision of necessary 9 competencies. HRM consistently uses organization’s reward systems, performance measures, promotion and learning opportunities to maximize the utilization of its human resources. In particular, they focus on the attitudes, beliefs and commitment of employees to achieve behavioral consistency and a culture of commitment that will lead firms to a higher level of productivity, profitability and competitiveness (Price, 1997:12-13). A review and research agenda put forth by Guest (1997) has endeavored to pull all those arguments together and this paper summarizes his points on the theory of HRM and its link with performance as follows. there are three types of theory about HRM, namely strategic, descriptive and normative. Strategic theories of HRM are primarily concerned with the relationship between a range of possible external contingencies and HRM policy and practice. They hypothesize that those firms that have a fit between business strategy, structure and HRM policy and practice will have superior performance. Descriptive theories of HRM attempt to capture the broad field and to address some of the interrelationships between HRM policy and practice and key outcomes. The theories emphasise that the essential inputs of a fit of HRM policy and practice such as creating employee influence, enforcing HR flow, setting incentive rewards system and pleasant work systems will lead to four key HR outcomes (i.e. 4C commitment, competence, congruence and cost effectiveness as shown in Beer et 4 al (1984)’s model) that will produce low labour turnover, loyal and faithful team of employees who commit themselves to an organisation’s profit, goodwill and effectiveness as well as to improve their individual well-being, ultimately to create social well being to the whole society (Beaumont 1993). Normative theories of HRM are more prescriptive in their approach. They provide a basis for prescribed best practice or that a set of values that indicates best practice, and hypothesize that an integrated set of HRM practices is applied with a view to achieving the normative goals of high commitment to the organization plus high quality and flexibility, then higher worker performance will result, assuming that higher worker performance would have a positive impact on organizational performance. we can distinguish the content of performance, and try to provide some measures of performance by looking at firm’s output (sales and production), time (including lateness, absence, lost working time, failure to meet deadlines), financial indicators which could include a large array of possibilities (i.e. profit, expansion plan etc.), and lastly staff attitude on work and their professionalism. By these exercises, the performance theory concludes that there may be some linkages within a broad view of performance which could explore causal links between HRM and performance. In addition to Guest’s review on HRM and performance, there is a growing body of literatures that support the correlation between high performance as a result of HRM practice and various measures of firm performance. Poole & Jenkins (1996) examined the development of comprehensive human resource management policies by surveying 909 firms in Britain, and found that HRM is one of the major keys for firms to gain a competitive edge or a lasting and sustained advantage over their competitors in the modern world. Results from Purchell (1995)’s quantitative analysis on 176 companies show that there is no direct link between human resource management strategy and corporate strategy, it is obvious though that from resource-based approach, unique human resource capabilities - development of a core competence will create competitive advantage for firms, hence could contribute to profits and growth. Chinese state-owned enterprises are operating under the transitional economy, and HR functions in most of the SOE’s have been directed slowly away from the previous mode of planned organism and transformed toward modes more related to a market-oriented system. While most of western enterprises operate under free market system, they tend to be inward-looking, and start their HRM approach from pursuing internal set of ideal practices to improve internal management and achieve fitness for gaining market advantages. Once that is established, strategic human resource management approaches are sought to respond to increasing changing external environment to gain competitiveness. Chinese enterprise may well be an opposite case. It started with the government’s open policy which brought in competition. Firms (particularly state owned enterprises) have been challenged first for profitability, then market competitiveness. If the state could exercise intervention to keep profitability and market competitiveness by price control (i.e. distorted price as mostly reflected as monopolized pricing policies), internal management to solve inefficiency problem would be largely ignored. So enterprise performance is largely affected by external factors such as the nature of market, legislation changes and own industry characteristics. Firms tend to set up business strategies to respond to these changes, and HRM strategy and practice (if necessary) would be set up to match the focused objective of achieving profitability and market advantages. Hence, to examine the relationship of HRM practice and enterprise performance in Chinese enterprises, the concept of “fit as strategic interaction” and “fit as contingency” is more applicable in the sense they emphasize more on external factors as determinants of designing HR policy and practice. In the context of Chinese enterprises, it is assumed that elements or ‘bundles’ of best (or better) practice of HRM would be those practices that concern: · selection of suitable staff from market, not allocated by the state as the planned system exercised previously; · provision of incentive reward systems by at least linking performance with payment, and practicing effective welfare scheme that will promote retention of best staff, instead of having standardized rigid wage system and ‘cradle to grave’ social welfare system (Goodall and Warner, 1997); · training and development of competent and skilled workers on on-going basis to match job descriptions & requirements rather than zhuang ye bu dui kou - work in the area with no special skills; · increasing level of transparency by exercising institutionalized performance appraisal to promote staff in stead of promotion of staff based on superiors’ personal opinions toward and relationship with subordinates as well as the length of services in firms, also by overall flow of management communication to encourage staff participation in management instead of having only Party’s authoritarian leadership over enterprise management; · exercising appropriate labor union’s power to create cohesion and to truly protect staff (workers) interest and clarify labor management relationship. HRM is a strategic and systematic approach to managing people in a way that would maximize their motivation and contribution towards meeting the organization's objectives. HRM differs from the traditional personnel management in that personnel management is much narrower and more clerically oriented. To get a clear idea of what HRM is, let’s look at the following graph: Things are different now. Great changes have taken place in the global social and economic environment. During the Agricultural Age, the basis for development was land and natural resources. During the Industrial Age, the basis for development was capital and machinery. During the Information Age, the basis for development is knowledge. It is said that the time of knowledge economy has arrived. Knowledge becomes a must for the development, or even the existence of all the companies. It comes to be an important course for the enterprises facing the new economic situations to learn how to manage and make full use of the human resource they contains. The advent of knowledge economy requires companies to form a new concept of HR, that is, the human- oriented concept. They must respect the talented people in order to value knowledge. Great efforts are still needed in HRM and HRD (human resource development). It is not hard to find that the successful MNCs (multinational corporations) unexceptionally have a modern strategic HRM system. The NO.1 cosmetic manufacturer Mary Kay in America is a good example in point. Its slogan " Working here makes you more beautiful than cosmetics do." reflects much about the HRM of the company .Now, some students in our department in the University of Foreign Studies in China, like our monitor Miss Lulu, are working part-time devotedly for Mary Kay. They all sing high praise of the HRM of the company and they all hold the opinion that working for Mary Kay is a win-win agreement. You can imagine how successful the HRM of Mary Kay is. As the competition in the future is the competition of the capability of absorbing elite, who will come together with the knowledge a company need, HRM can't be neglected. HRM has been introduced to China for almost 20 years, but it is hardly applied in SOE's. The current reform of SOE's is a systematic project, in which two main parts are concerned: 1) the external environment in which SOE's exists; 2) The internal management. Obviously, both the 2 parts are related to the management of human resource. Since the beginning of the reform policy, the underdeveloped human resource management has negatively deteriorated the difficulty of SOE's. As we know, even now, talent drainage has often happened in SOE's, not to mention after the entry of WTO. WTO membership means a fair and open competition stage for both MNCs and SOE's. And the Chinese government can no longer protect the SOE's by special policy. Without a strengthened HRM, the SOE's will lose to the foreign companies coming to China in the hot competition of attracting elite. The success experience of some foreign companies has shown us the significance of HRM .All difficulties are to be resolved by people, esp. talented people, no matter through what way. So, to some extend, the successful reform of HRM of SOE's is the gold key to the settlement of the difficulties SOE's face. The underdevelopment of HRM of SOE's has been caused by various factors, such as China's highly centralized economic planning system and inadequate development in liberal and vocational education. In order to reverse the situation, we must have a close look at the past and current human resource practice in China's public sector. Compared with the companies in the western countries, Personnel management in SOE's is immature. The traditional personnel management in SOE's is characterized by job security, guaranteed pay, and highly structured jobs, etc. But China continues the transition to a market economy, with changes occurring in work values, employment practices and HRM. The SOE's focus more on personnel administration than the integration of Personnel management with corporate strategy. The main characteristics of the traditional personnel management are as follows: i) Important decision rights are concentrated in the executive departments of the government. For example, enterprises are lacking of the power to make their own decisions in such aspects as establishment of a new institution, the appointment of an officer and the setting of wage standards and the transfers of employees. ii) The traditional personnel management is basically a kind of passive management and the functions are limited. The most common activities include the recruitment of staff, delivery of payment or pension and things like that. iii) The traditional Personnel management is often inadequately tied to overall corporate planning. The current HR matters, like training the employees to master some certain technique and resolving disputes concerning labor relations, are often the focus. iv) Lack of fund and professionals to carry out the necessary HR programs. In a SOE, it is nothing unusual to find that the people appointed to interview the applicants are often a secretary or a manager of a certain department. They don't have the needed professional techniques. v) Improper attitude towards Personnel management. Far too many managers view Personnel management as something to do only after everything else has been done. It is time to orient the traditional Personnel management of SOE's to the track of integral strategic HRD. IV) Exam the Traditional Personnel Management and Propose New Ideas. How to realize the transformation from traditional Personnel management to the modern HRM in SOE's? I will propose my ideas the following ways while examining the traditional Personnel management: (1) selection, (2) performance appraisal, (3) training and development, (4) motivation, and (5) compensation and benefits. Selection in the SOE's was a passive process. Some workers get their jobs by nepotism and bribery. Similarly, not all the managers or department directors were chosen for their education or technique expertise, but for their membership in the Communist Party and their long years of working in the companies. All this lead to the underdevelopment of selection systems in HRM. Despite a greater emphasis on performance factors since the launch of the reform policy, few companies have well-developed selection systems. To reverse this situation, we should take some foreign subsidiaries and joint ventures as examples and develop job descriptions and job specifications, using what most U.S. managers would consider standard HR methods. One notable example is Shanghai Volkswagen, which now uses interviews, surveys, and observations to analyze jobs and create job descriptions before making the decision of the selection. In Shanghai Volkswagen, the selection process consists of five steps. The following graph will show us the whole process. Physical examination From the above graph, we can see that application forms have replaced written requests, resumes have replaced extensive background checks, and informational interviews have replaced interrogations in the selection process. . Completing an application form is normally the first step in the selection procedures. The application provides basic employment information for use in later selection process Preliminary interview is used to determine whether the applicant's skills, abilities, and job preferences match any of the available jobs and their requirements. The interview screens out unqualified and uninterested applicants. Employment testing is the testing of aptitude, psychomotor, job knowledge and proficiency, interests, and personality. After employment testing, there may be a second or follow-up interview to determine the suitability of an applicant. When all of the 5 steps are conducted, the final decision is made fairly and objectively. The above selection process should be adopted by SOE'S in China, which will provide a fair opportunity to all the applicants and to get those who are really capable of the jobs. What's more, this selection process can also help to get rid of nepotism and corruption, which often rooted from bribery for some certain positions or high positions. Performance appraisals were unpopular in SOE's because employees get fixed payment which nothing directly tied to performance. Workers were guaranteed a monthly wage regardless of productivity. And thus tardiness and low working efficiency arises. Today, the method of performance appraisal gains great popularity among foreign companies. Through performance appraisal, they determine and communicate to an employee how he or she is performing on the job and ideally, establish a plan of improvement. Performance appraisal information can be used to identify an individual employee’s strength and weakness. These data can then be used to help determine the organization’s several training and development needs. Another use of performance appraisal information is to encourage performance improvement. When an employee’s performance has deteriorated or is below expectation, corrective action can be made according to the performance appraisal records. An employee may even be fired if no action can change his or her poor performance recorded. What’s more, performance appraisals are used to consider the suitability of a potential when a selection is to be conducted. Besides, performance appraisals are also used as the basic for the delivery of incentives . Incentive is the part of the payment that workers receive according to their performance. So, without performance appraisals, how can incentives be delivered fairly? Without a fair payment, how can employees be satisfied? And how can they be committed to the company they work for? The SOE's in China should design formal performance appraisal system to reverse the low working efficiency and to well follow the principle of Pay for Performance. There are various performance appraisal methods and the most commonly used ones are essay appraisal, graphic, rating scale, checklist and ranking methods. And, these methods are not totally separate; they can be used crossedly. Factors : Quality of Work, Quantity of Work, Job Knowledge, Initiative, Planning, Cost Control, Relationship with Peers, Relationship with Supervisor, Relationship with Public, Relationship with Client, Managing and Developing Subordinates, EEO/AAP Responsibilities Exempt Non-exempt Non-supervisory Supervisor Manager 1. Quality of work 20 20 10 10 2. Quantity of work 15 15 10 10 3. Job knowledge 15 15 15 10 4. Planning 10 10 10 10 5.Cost control 0 0 5 10 Subtotal 60 60 50 50 6. Relationship with others 25 25 25 25 7. Initiative 15 15 10 10 subordinates 0 0 10 10 9. EEO/AAP responsibilities 0 0 5 5 Subtotal 40 40 50 50 Total 100 100 100 100 With a growing number of foreign companies operating in China, using performance appraisals to determine rewards is becoming more common. However, there is still some resistance to performance-based pay, especially among older workers who are more accustomed to the collectivist culture that supported guaranteed wages and bonuses. In the past, SOE's in China provide workers with merely basic knowledge training, hoping they would learn the rest on the job. The lack of training and application-based education has resulted in poor quality and high scrap rates. Although firms recognize the need for training, they lack the financial resources, expert trainers, and quality facilities of their Western counterparts. Management training in most SOE’s still focus on memorization rather than action learning approaches. Several methods can be used to satisfy an organizer’s training needs and accomplish its objectives. Some of the more commonly used methods include on-the-job training, job rotation apprenticeship training and classroom training. The most practical training method in SOE’s is on-the-job. On-the-job training shows the employee how to perform the job and allows him or her to do it under the trainer’s supervision. The advantages of on-the –job training are that not much extra cost and special facilities are required, and the new employee does productive work during the learning process .For the SOE's under difficult operation, on-the-job training is no doubt a perfect choice. In the SOE’s, employees used to believe in lifetime employment that was terminated only when they reach the legal age for retirement. Today, heavily competed and dramatically restructured SOE's cannot guarantee employment. Ever since the reform of SOE’s, many have been closed down, with 50 million workers laid off. Today, job commitment in China is low, because the SOE's give lower payment compared with joint ventures. Moreover, periodic job changes are viewed as means of obtaining pay raises and promotions. The old work ethic of doing as little as possible still pervades SOE’s. Individuals still have little incentive to work hard. Pay is usually not linked to performance, and year-end bonuses are viewed as entitlements. Workers expect pay just for showing up to work. Supervisors often have to negotiate with them to get projects completed. Money is always the most important motivator. In SOE’s, many workers have enjoyed being paid above the previously enforced, government-established wage. According to Buresh (1996), people in Hubei province spend 35 to 40 percent of their disposable income on food and utilities. In Shanghai, the number is as high as 75 percent. The Chinese are highly dependent on their base pay because of the proportionately higher percentage of income needed to support their basic needs and the greater economic uncertainty of the region. A typical Chinese managerial compensation package consists of approximately 65 percent base pay, 13 percent other cash, 15 percent benefits, and 7 percent bonus perks. In comparison, reports Hewitt Associates (1994), the average managerial compensation package in the U.S. consists of approximately 40 percent base pay, 27 percent long-term incentives, 15 percent benefits, and 18 percent bonuses and perks. The difference in these compensation packages stems from Americans' tendency to value future earnings, whereas the Chinese are more financially short-term oriented. The Chinese also place a high value on the social benefits traditionally offered by organizations. For example, women usually had company-paid maternity leave with a three-year guarantee to return to the same position. Every employee was entitled by law to 22 days of paid vacation, and tenured employees had unlimited paid sick leave. Large firms sponsored schools, housing, farms, grocery stores, dormitories, holiday accommodations, entertainment, recreational facilities, and cafeterias. Food grown on company farms was sold to employees at a price that is below the market price, and discounted cafeteria meals were offered. Further discussion of the SOE’s HRM reform: Many personnel directors and executives have their jobs because of Party connections rather than technical expertise. Creativity and original thinking were neither encouraged nor reinforced under the centralized government control. Top-down communication was the norm. Common U.S. practices such as MBO, 360-degree feedback, employee involvement programs, and self-managed work teams will not easily transfer to the Chinese work environment. Business practices stemming from political corruption or organized crime activities are still realities, though they may violate U.S. laws and ethical norms. Despite the colossal changes that have occurred in China, Western managers must accept these cultural differences and patiently strive to form successful business relationships. Most current Personnel management in China’s SOE’s is still derived from the old era. In the past, China issued five-year plans, and companies were required to meet a specified output. Provinces followed these plans because of their dependence on the whole country. The government allocated all required resources, such as raw materials, equipment, and staff, and ensured full employment. Wages were determined centrally by government decree, and wage differences were based on a set of norms that most U.S. managers would describe as inequitable. It was common practice for Communist Party officials to intervene in a firm's operation and order the promotion of loyal party members, the termination of contracts, and increased salaries for friends. Nepotism was a legitimate employment device in many firms. Methods of job evaluation were unknown; quality, cost, and timeliness were not important business considerations. So changes in Personnel management are evolving slowly in China. Nevertheless, the region offers many opportunities for business growth and profits for those who understand the motivation and values of its workers. Western managers must recognize the culture and adapt their management practices if they are to attract, motivate, and retain high-quality workers. Dimiter Kiriazov has worked throughout China and is currently a graduate student at Beijing University. Sherry E. Sullivan is an associate professor in management at Beijing University. Howard S. Tu is a member of the graduate faculty at the Zhejiang University. With China’s entry into the WTO, it urges China’s SOE’s to take quick action to fend itself against the future yet fierce competition from the foreign corporations. However the most urgent reform in my eye is in the HRM area, which has its own characteristics. It is my point of view that we can reform and employ the following tactics such as selection, performance appraisal, training and development, motivation, and compensation and benefits. I propose the Chinese government, while introducing measures to improve the efficiency of the SOE's in accordance with WTO requirements, internally pay great attention to the reform of HRM (human resource management). Because it is a crucial part to make the reform complete, and more important, it is crucial for the realization of the modern and scientific management of SOE's and the success of the reforms. The reform of HRM will lead to the realization of a modern and scientific management, which will revitalize the SOE’s in China. I believe the day will come. Bibliography: References: 1. Market Report, Lie Yuanyi, 《市场报》 李元毅 2. American Society for Training and Development, Training and Development Journal 3. Lloyd L.B. yars and Leslie W. Rue, Human Resource Management , fifth edition 4. Mark A. Huselid " The impact of human Resource management practices on Turnover, Productivity, and corporate Financial Performance" Academy of Management Journal 5. H. John Bernadine and Joyce E.A. Russell, Human Resource Management: An Experiential Approach 6. Leslie F. Sorensen, ‘Appraisals at Weyerhaeuser: Improving Staff Performance,” Management Accounting, July 1990, pp. 42-47. 7. Great Profits derived from Human Resource, Wang Zhongming,《人的暴利》,王忠明 8. Keith Gooddall and Malcolm Warner, “Human resources in Sino-foreign joint ventures”, International Journal of Human Resource Management, 8:5 ,1997 pp. 569-593 9. Ed Snape, David Thompson, Fanny Ka-ching Yan and Tom Redman, “Performance appraisal and culture”, International Journal of Human Resource Management, 9-5, 1998 pp.841-861 10. http://www.sinopolis.com/Archives/Focus/WTO.htm 11. http://www.sinopolis.com/Archives/TOPSTORY/ts_010417_03.htm China Business Times, 01.04.02, 08 12. http://www.mcdonalds.com/corporate/index.html 13. http://www.microsoft.com/mscorp/values.htm 14. www.strategy-business .com/casestudy/98406/page1.html 15. http://www.thomsonlearning.co.uk/busmgt/hrm/iebm/culture_cross_national.htm 16. http://members.vienna.at/wolschner/kamikaze/ipeessay.pdf) 17. Word Count: 4921
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