Staffing composition in foreign subsidiaries in China

The master thesis about staffing composition in foreign subsidiaries in China was based on the case study of Kreon. Kreon is a Belgian company that is currently trying to set up their business in China through the opening of a Chinese subsidiary. The researcher of this paper was involved in the set-up of this business during his internship. He was sent by the headquarters, from Belgium, to develop the local market by doing market research, promoting the brand and build up a local team. It was during this process that the interest to investigate the staffing composition of foreign subsidiaries in China arose. After China opened its market in the eighties, it has been attractive to many Western companies. However, China is a particular market, presenting significant challenges for multinational companies. Even now, three decades after the big invasion of Western companies in China started, many of these companies still fail to successfully implement their business. Companies considering to enter China should carefully consider who they will put in charge of this market expansion, who will become the face of the company. Should they send someone from their headquarters or should they get someone local on board who is familiar with the way of doing business in that market? Both options will have advantages and disadvantages. This paper has the aim to link the influences of the cultural environment of the foreign subsidiary to the decisions about staffing composition made by the headquarters. The Chinese culture is described by its key cultural values, the dimensions of national culture and the issues arising from cross-cultural management. After, it is investigated how this cultural environment will influence the staffing composition. Which issues arise from cross-cultural management and how did they effect the successfulness of a market expansion? Stating these issues should give insights on the needs one has regarding its staffing composition. The second part of this study provides an empirical research that evaluates the literature review through findings from interviews with entrepreneurs in China. When describing the Chinese key cultural values, guanxi and trust have been found to be discussed extensively in the current literature. Chinese national culture is high in power distance, inequalities in power are hence accepted. The collectivist character emphasizes the group interest before personal interest and the masculinity implicates a success driven society. Differences in the dimensions of national culture between China and Belgium exist mainly on the level of individualism, uncertainty avoidance and indulgence. These characteristics result in some issues arising among Chinese and foreigners. Communication has found to be causing misunderstanding, mostly at the expatriates side. The indirect communication style and high power distance make that Chinese people avoid to cause disagreement, make commitments and prefer to remain harmony, be polite and don´t lose face. A high staff turnover has been noticed which can be based on the long-term orientation, opportunistic side of Chinese society. However this is contradictory to harmony and the high collectivism that is present. Different ways of motivating people may lead to the need for careful support and clear guidance of local staff, who are uncomfortable with responsibility and taking initiative. The personal relationships and the in-group, out-group aspect of it might cause problems in the collaboration between foreigners and locals. The influence of the cultural environment on the staffing composition has been found to depend on the parent country national side and on the cultural distance between both countries. At the parent country national culture side, power distance and uncertainty avoidance are the two dimensions that will exert the biggest influence on how a MNE will staff a foreign subsidiary. In the case of Belgium, both high power distance and high uncertainty avoidance point in the direction that the MNEs who want to open a foreign subsidiary would have a preference for staffing this subsidiary with parent country nationals. These individuals have a high demand-ability fit which will enable them to remain control over the subsidiary and improve effective communication with headquarters. However, this preferred management practice is not considering the characteristics of national culture of the host country. Cultural similarity has been used to take this into account. Low cultural similarity or high cultural distance between host country of the foreign subsidiary and parent country of the headquarters, as is the case with Belgium and China, will increase the need for intensity of integration by the organization. This increased requirement for intensity of integration can, de facto, be best achieved by staffing the MNEs overseas subsidiary with PCNs, or HCNs/TCNs who have been socialized at the parent country headquarters. High cultural distance also involves the preference for this type of employees since they can be trusted more by the headquarters, based on shared values, hence, acting as a cultural control mechanism. Although there is a general trend towards management localization based on the high cost of PCN expatriate assignment and failure of the assignment, a larger supply of alternative expatriates and the increasing competencies and ambitions of local staff, MNEs tend to fill the senior managerial, strategically important positions, with parent country nationals to assure control and accomplishment of global strategy. From the empirical study it was found that the business operations would likely to be more successful with local management because they have a better understanding of the local market and the local business practices. When appointing local management, it is very important that the headquarters have a good understanding of the differences there are between their market and the market of the subsidiary. If the headquarters don’t manage to fully understand the local market, it would be useful to send an expatriate who can bridge between local management and the headquarters. From the interviews it was learned that this expat will not be able to fully integrate in the local market. Hence, it is suggest to have a combination of local and expatriate management team that can transfer the organizational values from the headquarters into local practices.