The important distinction between Chinese

This chapter looks at the management of a multicultural global team and managing Chinese in China. Problems can occur regardless of whether companies employ Australian expatriates, or local or overseas Chinese. The distinction between mainland Chinese and overseas Chinese is very important in the effective management of organisations in China. No previous study has clarified the importance of this distinction.

The common mistake of relying on overseas Chinese as the bicultural personnel means their inadequate cross-cultural capacity can lead to missed market opportunities. Businesses need to recruit truly bicultural personnel and properly manage multicultural teams as soon as they establish operations in China. Failure to do so is a common cause of failure in cross-cultural management.

Increasingly, multinationals recognise the importance of cultural difference when it comes to managing organisations in different locations. Lawson (2002) suggested that by not recognising this, the efforts of Australian managers wanting to work with Asians has not achieved as many success stories as there might have been. Indeed, comic situations have occurred when cultural differences have not been observed.

The effect on performance

The challenge for Australian managers, as for other nationalities, is to understand the culture and use this as a basis for conducting business and managing Chinese staff in China. This cross-cultural competency directly affects the performance of many multinationals. Professor Andre Laurent, of INSEAD, Paris, observed: 'Managers who readily accept that the cuisine, the literature, the music and the art of other countries run parallel to one another, must also learn to accept that the art of management differs in other countries.'

The first challenge for Australian expat managers is to realise there are, indeed, strong cultural differences between Australia and China, and they are reflected in the behaviour of employees. Regardless of ownership of an organisation, there will always be Chinese employees working in a subsidiary or branch in China. Therefore, learning how to manage Chinese staff is an essential part of holding a management position in China.

We can use the Foster’s China experience to demonstrate how important it is for Australian managers to first understand the differences between the cultures, then to be able to manage across cultures. To understand certain Foster’s management activities, it is necessary to first understand the company’s strategies. Foster’s China was heavily focused on production, clearly demonstrated in the structures of its three joint ventures.

This was strategically planned by head office in Melbourne, based on the belief that China was backward in technologies. This is understandable because Foster’s Group originated mainly from Foster’s Brewing, which was developed from several brewing companies but primarily consisted of Carlton & United Breweries staff. In short, the largest profit-making source for Foster’s was making beer; hence its culture of brewing production dominated operational strategy.

Top-level management had a strong technical focus and there was constant heavy financial investment in infrastructure and upgrading plant and machinery. In China this was also seen as necessary because the Shanghai plant was relatively out of date. Equally, it was felt necessary to get the Quandong and Tianjin plants up to the same level to achieve consistent products.

On a day-to-day management level, there was much more frequent communication between China and the technical section at head office. This indicated a very close involvement of Melbourne operational people in China activities. The principle behind this was to ensure beer produced in China was of an international standard of consistency of quality – Foster’s standards. It was under such strategic guidelines that Foster’s China management evolved.

Stability of management personnel

China, however, is a totally different market to the rest of the world’s markets. Managers assigned to positions in China had no Chinese experience. They had to start learning the basics of culture and then business culture, as well as the day-to-day running of the business. For expatriate managers, settling into a foreign country and managing a business is a challenge in itself, without the added difficulty of dealing with an ‘alien’ culture when they had little or no past experience to draw on.

At Foster’s China operations, managers were generally given three-year contracts, not nearly long enough for them to learn the culture, settle in and then perform. In contrast, Japanese companies are noted for giving contracts for four or five years and do not expect full performance until the third year (Copeland 1987). Some companies even allow expat managers two years to learn their positions and familiarise themselves with the cultures of the host country.

Given that anything from nine months to two years has been suggested, an average of 18 months would be reasonable. Therefore, a reasonable time before Foster’s China managers might be expected to perform strongly would be three to three and a half years at the earliest (18 months to adjust plus two years to produce results).

It is reasonable to suggest that managers who held their positions for three years (and not all achieved that) were on the verge of their best performance. If sufficient time were allowed, expatriate managers should be expected to start producing results at three and a half years or at the end of a four-year term.

Training before being sent on assignment tends to reduce the time needed to adapt. Copeland (1987) suggested that Japanese who received training took only a few months to adjust. Blackman (1995) noted that a small number of very large multinationals have trained their staff for three to six months in preparation for China. This training was specifically aimed at reducing the time needed to adapt and therefore reach a high performance level sooner.

As for assisting expatriate managers to adjust to a cross-cultural management environment, research has shown a powerful correlation between inter-cultural sensitivity and training, regardless of whether the training was pre-departure or upon arrival in China (Kaye and Taylor 1997).

Foster’s managers did not receive sufficient training to enable them to reduce their adjustment time significantly. The courses that were provided were mainly for language and a few people received tuition in culture. Expats were busy with their work, getting ready to leave for China, and sorting out personal and family issues, so many of them did not even attend all the classes.

The general manager at the Shanghai joint venture in 2005 had a previous four-year appointment with Foster’s in Guangdong in the early 1990s. When interviewed during research for this book he had been in his position for 18 months and was confident in his ability to manage the brewery. The brewery had already shown significant signs of improvement and production was returning to a historical high.

These observations make it reasonable to suggest that expatriate positions should be for a minimum of six years, which was, indeed, suggested by several former executives at Foster’s during research. The frequent rotation of managers simply created a series of repeating events where trial and error ruled.

The local employees’ cultural interpretation of this short-tenure approach was that Foster’s was showing instability and insincerity about its intentions in China, leading to concerns about job security and low staff morale. The speedy sale of the Guangdong and Tianjin plants confirmed local employees’ concerns and when Shanghai Foster’s was fully converted to a 100 per cent subsidiary, some staff protested against the decision in the hope of being taken back by the Chinese party to the original joint venture. A Chinese manager recalled:

The locals also felt that a three-year posting was not long enough for an outsider to learn and understand how to manage the breweries in a Chinese context. They were aware that learning a new culture and how to live and work within it was a relatively long process, and that each individual had a different management style, which took time for staff to understand and adapt to.

It also took a long time for expatriate managers to learn how to manage local Chinese employees. When staff went on strike in Shanghai, production stopped for two weeks. The Chinese human resources manager dealt with the situation using a Chinese approach. A local manager commented: ‘Australians did not know how to deal with labour movements. They could only offer more pay, but did not understand that money was not the only motivation. We did it differently. We did home visits instead of purely offering money.’

This culturally different approach is identified by McDonald (2004), and can only be applied if management has the knowledge to manage local staff. Other studies highlight specifically that for Chinese staff, building relationships is very important for successful managing across cultures.

Consistency important in cross-cultural management

Tianjin was the only joint venture to have only one general manager under Foster’s between 1995 and 1999 (from start-up to sale). Shanghai by 2005 had its sixth general manager in 11 years. Guangdong had four general managers between 1993 and 1999. Such senior management change inevitably brought instability. A new general manager meant new systems and new management styles. Not only did a general manager need time to adjust to his new position, but staff also had to adjust to new systems and styles. Instability was heightened by senior management changes also resulting in other personnel movements, including sales and marketing people and interpreters.

For the Chinese staff, stability was extremely important: 508 (the official number) who went with the Shanghai party to the joint venture were accustomed to the state ‘iron rice bowl’ guaranteed employment system and many did not wish to join the joint venture for fear of losing this stability. Staff were given the choice by the Ministry of Light Industry of remaining in the joint venture or leaving. All who stayed made the choice in expectation of a better future. One typical Shanghai comment in an interview was:

Other international companies have done things differently in China, which has generally been appreciated by the staff involved. KSB, a German joint venture, had a general manager who got on well with the Chinese. When he was due to leave after three years, Chinese staff petitioned head office for him to stay, and he did, for another six years. He eventually left KSB and set up his own consulting firm in China.

Chinese systems, Chinese styles

As mentioned, one of the major objectives of attracting foreign direct investment to the beer industry was to introduce modern Western management systems. This concept was being widely accepted and practised in the early 1990s (Purves 1991).

The acceptance of the Australian management systems being introduced was clearly acknowledged by the Chinese during research for this book. ‘The Australians have brought very good management systems and good training to the Chinese,’ one Shanghai manager commented. What is questioned here is the appropriateness of the actual process and the effectiveness of a non-adjusted management system.

Foster’s tried to select managers from different cultural backgrounds. Three main groups were employed to manage the joint ventures: overseas Chinese with good language skills and limited cross-cultural skills; Australian expatriates with a background of working in Asia/China as well as having language skills; and expatriates of Anglo-Australian backgrounds with no language or cross-cultural skills.

In comparing these groups, the research found different styles among managers in all three. One general manager, Stewart Luk, had a Singaporean Chinese background and held a European qualification, an MBA from INSEAD. His practical experience was largely in Singapore, although he worked for Heineken in Asia.

Luk said he learnt most of his management skills from his father, who had a depth of experience in small private enterprise. ‘My management styles are very open. I let people come into my room and talk to me; very strict but open.’ However, this was not the view of his Chinese staff members. He was labelled ‘a tyrant’ by one of them.

He was primarily responsible for Tianjin, which was recognised as a successful operation by many management staff. Luk’s open style of management appeared to be very hierarchical and structured, which was not always appreciated by Chinese staff, although the high power distance culture supports the hierarchical culture. However, the collective and harmonious nature of the culture does not support individual differences. Chinese staff simply stayed away, blocking the chance of communication about any disapproved behaviour. It does appear, however, that his management style was adjusted according to the people he was managing. An Australian commented:

In Shanghai, Luk’s style of management was also accepted by expatriates. In his case it could be acknowledged as being an effective style. Luk put it this way:

Head office understood that this leadership style was appropriate at times; for example, Luk worked extremely well with his deputy general manager, who was a local Chinese, as a team in Tianjin. He was moved to Shanghai for a different primary purpose: to put discipline and a framework in place. A Foster’s executive commented:

Contrary to this, the Anglo-Australian managers with no language skills and little training in cross-cultural skills appear to have enjoyed the most successful period of management. They managed to form more comfortable mutual relationships with local employees. Their management styles were accepted as different, as being Australian and not Chinese, but as long as they made attempts at cultural links, they were accepted.

The effort of learning Chinese and the culture was much appreciated by the local Chinese. Many concessions were made to improve cultural understanding; it was the level of effort that was appreciated. Perhaps that was because the cultural gap was so large that locals had not expected Australians to make any real inroads. However, the level of acceptance for Anglo-Australian managers and overseas Chinese managers was different. The Australians’ small efforts were appreciated but overseas Chinese were expected to fully understand and behave in the local Chinese manner.

Other leadership style pointers among individuals were that some maintained a more superficial relationship in the belief that different operational systems were easier to introduce; others believed that having closer relationships with the local Chinese would enable the joint venture to run more smoothly. An expatriate who worked in China in the early days commented:

There was virtually no expression of resistance to management changes from any management personnel, although there were differences in the speed of accepting and taking up the changes. A totally different view was expressed by local employees, who certainly had resisted the changes.

It is worth noting the cause and effect of different leadership styles and how the process of management was affected. As mentioned, the leadership styles of expatriates with no language skills were all accepted without obvious contradictions; the leadership styles of expatriates with language skills and cultural skills were questioned at times; and certain overseas Chinese leadership styles were not appreciated.

It can be concluded that a more democratic style of leadership was more acceptable to the local Chinese than an authoritarian style. Littrell (2002) argued that the Chinese are more accepting of an authoritarian style of leadership, and this is supported by Hofstede’s high power distance theory. Yet the research for this book found the contrary, that local Chinese clearly prefer a more democratic style.

This has been confirmed over and over again with many other companies as well.

Expatriates’ psychological barriers

Expatriate managers often find adjusting to Chinese culture a challenge, because they have to deal with a very different way of life and perform in an unfamiliar work context (Selmer 2000). In this process of adjustment, psychological limitations in the ability or willingness to understand, accept or adopt the norms of a foreign culture can be the major barrier for expatriate managers working and living in China, according to Selmer (2000). The cause of this psychological barrier may sometimes revolve around basic human needs.

Maslow’s hierarchy of needs (Davidson and Griffin 2003) suggests that for all people, certain basic needs must be satisfied first. Behaviour differs among cultures, but the requirement for food, for example, is the one basic need of everyone. In the early days of the joint venture in Shanghai, many notes were recorded discussing the need for improvements in canteen facilities and in the quality of the food. It is common in Chinese organisations to have a subsidised canteen that provides food for all staff members. The quality is an important motivator.

Food was equally important for the Chinese and expatriate staf. Not having familiar Western food for long periods drove people to desperation from time to time. An expatriate in Shanghai recalled:

What was often not understood was the degree of psychological problems caused by what appeared to be relatively minor issues. Foster’s engaged a psychologist to monitor some of the expatriates’ behavioural changes or psychological difficulties. He was on 24-hour call by phone for three years. The HR manager and the psychologist also visited all three brewery sites three times a year. During one of the visits to Shanghai an expatriates joked, ‘He is back to see if we have gone mad.’ The psychologist replied, ‘I know you are mad, I just want to see how mad you are.’

The situation today in China is different if positions are located in Shanghai, Beijing or other major cities. These cities are often more advanced than some in Western countries. Availability and variety of Western food is vast and free cable channels are widely available in many different languages. However, if the assignments are in more remote cities, the situation would be different.

It was accepted by most expatriates at Foster’s that they were well looked after financially, had generally good accommodation and they were entitled to R&R (rest and recreation) every six months. Several talked about R&R being the only motivating factor that kept them sane. The changing environment of China and its rapid economic development has been so great that no Western companies now provide R&R as part of the employment package as expatriates can find a wide range of entertainment and recreational activities in China. In short, China is no longer considered a ‘hard place’ to live.

In 1993 and 1994, accommodation comparable to Western standard was not widely available in China. The first group of expatriates at Foster’s did lots of house hunting to find something suitable. Green Valley was the first block of Western-style apartments in Shanghai designed purposely for expatriates. It was a long way out of town so required several hours of travelling every day. It was the only expatriate accommodation available at the time; expatriates with families could not live in closer hotels because facilities were not suitable for family life with children.

This meant that each working day was, on average, 12 to 14 hours including travelling time. The situation is different today and expatriates rarely live in hotels for long periods. Other suitable accommodation is available and companies pay less to compensate for accommodation costs.

None of these would be issues that managers in Australia would need to deal with. But for expatriates in China without prior knowledge or training, dealing with these matters was difficult and frustrating. In Shanghai, the general manager had to find houses, pay children’s school fees and cope with expatriates who were depressed for one reason or another. He also had to deal with depressed and angry wives.

The need to generate motivation was much greater than in Australia. Of course, the managers themselves were under extreme pressure and it was increasingly difficult for them to perform their duties and function efficiently. The point is, an expatriate position in China has many additional dimensions of complications. Therefore it is essential that organisations have support systems and procedures that will compensate for these complications and take them into account for expatriates’ performance.

When duties include love songs

Cross-cultural management positions were vastly different from normal management positions. On top of a normal general manager’s duties there were others that were specifically related to culture. The general managers at Shanghai Foster’s found themselves being responsible for achieving blood donation quotas and ensuring birth control rates were kept within government regulations and policies. All Chinese organisations had a responsibility to ensure an annual blood donation quota was filled. They were set on a voluntary basis in theory but in reality it was compulsory. Birth control quotas to be met by organisations were set by the relevant government body.

General managers probably would not have understood why these tasks were part of their job. Clearly, multiple approaches are required to deal with multiple cultures, and studies show that those who are skilled in mono-cultural management rarely succeed in multicultural or bicultural environments (Littrell 2002).

Expatriate managers were required to frequently appear in public for all types of public relations purposes, such as sales and marketing, regardless of their actual company role. ‘We just had to appear because we were the only foreigners,’ one manager commented. These activities once extended to singing love songs in Chinese on a Shanghai radio station.

The critical point of this issue of extra duties, either mundane or serious, as in the one-child policy, was that unless general managers were trained (that is, were mainland Chinese expatriates with previous specific experience) they were not prepared for them and were likely to suffer from culture shock. Nor would they have strategies to deal with such matters, adding to their frustration and further affecting their performance and productivity.

Another key point of cultural difference in managing Chinese joint ventures was the constant discussions and negotiations related to the agreement, which would normally not be matters needing senior management attention. For instance, at Foster’s there was the memorable ‘22 families’ issue and the huge volume of documents written back and forth discussing it: the retraction from the original contract, changing the contract conditions, and the gradual drip of information rather than being upfront.

Twenty-two families lived within the compound of Huaguang Brewery. It was agreed initially during negotiations that the joint venture would pay for their relocation. The cost was initially put at around 1.6 million renminbi but was later increased to 5.6 million renminbi. It appeared that each time a figure was agreed upon, an additional factor would be brought up and additional costs were found.

‘Approval’ is part of a continuing process

The issue highlighted a cultural difference: the ability to see changes as part of a process rather than a retraction of conditions. The learning process is highlighted in a note written by one of the Australian leaders in the joint venture process: ‘Troy advises that the Shanghai Foreign Investment Commission has formally approved the joint venture. Now I understand it requires the approval of a multitude of authorities.’

In theory, this meant that if any link in the chain of government bodies did not approve, there would be no joint venture. Many communication notes in October 1993 discussed the timing and likelihood of obtaining a licence. At first the Australians thought it was just a matter of process and procedure. After five months of processing, one wrote: ‘I am still led to believe the licence should not be a problem.’

In comparison, setting up a business is relatively easy in Australia or other Western cultures. Engaging an accountant or lawyer to set up a company is straightforward. In China, approval at different levels of government is required and these requirements can differ from province to province, city to city. The complexity of obtaining a business operating licence is unique and expatriate managers cannot be prepared for it. The only effective management solution is for them to have an adaptable attitude and go along with whatever is required of them.

The general manager of Shanghai in 1993 recalled the day they obtained their business operation licence.

Financial management, an area of great importance for any organisation, was also subject to cultural differences. The Shanghai joint venture started without the support of any working capital. It was rationalised that Guangming was a profitable operation before the joint venture and therefore the operating capital could be supported by cash sales.

This did not happen. For about 18 months, Shanghai struggled to the point where ‘the joint venture is now living out of the pockets of the six expatriates’. There were notes that mentioned moving into a new office, but there were ‘no funds to buy any filing cabinets, desks, etc (trying to chase up some furniture around the plant)’. On one occasion, it is claimed the general manager and guests were served tea, ‘but there were no tea leaves in the cups, just hot water, because there was not enough money to buy any tea’.

This lack of liquidity in the operation took up much of the general manager’s and deputy general manager’s time, increasing frustration dramatically and certainly affecting productivity in general.

‘Unforeseen matters’, an appropriate term, were another cultural barrier. These were matters that the Chinese saw as normal but were unforeseen by the Australians. Local staff salary structures and canteen complaints were foreign to expatriate managers. The base salary was less than $50 a month. Additional items, including heating fees in winter, hygiene fees to compensate for poor bathing facilities, and more than 20 other items, added up to almost $250 a month per person. Understanding and orchestrating such complex packages was indeed a challenge.

Organisations need to understand that expatriates in China work under extreme circumstances because of China’s unique system and structure. It is also suggested that the measurement of success of the operation should use a range of criteria rather than financial measures only. In addition, much more time should be allowed for managers to perform.

References