Cultural Aspects of Employee Loyalty in Chinese
International New Ventures
Author: Gezi Fu
Student Number: 10884165
21 September 2015
I. Executive Summary:
The largest body of research on employee loyalty is focused on Western style companies with Western cultural backgrounds. In most cases, applying the findings from this literature may not result in the desired outcomes when applied to a Chinese case because of the large cultural differences between the West and China. This study will describe a number of cultural frameworks that have tried to quantify the differences in work culture between China and the West within international new ventures (INVs). However, these cultural frameworks fall short of functioning as tools for the formulation of effective policy in Chinese international new ventures. These shortfalls are exemplified by the interviews performed with employees of the case company, which also suggests that there is a large cultural differences between the different generations of Chinese
employees. The term ‘cultural frameworks’ describes an average difference between cultures, however the variation within a specific culture is important for the formulation of policy. This is the case in smaller companies such as international new ventures, where the smaller sample number of people/employees increases the probability that the distribution of cultural values is more dissimilar than the distribution of cultural values in general population. Additionally, it was found that the different areas of research literature that are reviewed for this thesis (more economic literature on INVs, Chinese culture, and more psychological literature on employee loyalty) offer very different angles of analysis. The literature on employee loyalty to date has mainly focused on the West, making it unclear to what extent the psychological aspects of employee loyalty that are described are affected by culture. These gaps in research, do not offer a great deal of insight to be able to predict the effect that certain policy measures will have on employee loyalty in an INV operating in China. With the lack of existing culturally focused data it is suggested that more research needs to be done on the subject. Specific theories to improve employee loyalty may
potentially work in China, these strategies have not been documented in a Chinese setting, and may not solve the problem of employee loyalty arising within Chinese INV. With these risks, we suggest that these currently practiced Western strategies first be implemented in
larger companies that have larger financial buffers than the smaller international new ventures to account for a potentially failed strategy. Some potential strategies are suggested for the case company, but these go against the mainstream employee loyalty literature but could prove to be less of a financial risk, which is a major concern.
II. Table of Contents
I. Executive Summary II. Table of Contents III. Acknowledgments
IV. Introduction V. Literature reviews
A. International New Ventures 1. What is an INV?
2. Why are INVs important?
3. What are the opportunities and advantages of IN 4. What are challenges that INVs run into?
a) Other potential problems of International New Ventures 5. What characteristics of INVs make employee loyalty a particularly
important issue? B. Culture
1. Introduction 2. Hofstede’s study 3. Schwartz’s studies 4. Culture values at work
5. Economic reform background 6. Cultural Conclusion
C. Employee Loyalty (in China)
1. Definition of / Why is Employee Loyalty important? 2. High cost of educating employees, investment 3. What factors influence employee loyalty? 4. Possible solutions
a) Personalize the job purpose/position b) Leadership style
c) Training programs D. Literature Review Conclusion VI. Case Study
A. Introduction B. Methodology C. Company description 1. Branches 2. Partnership locations 3. Manufacturer Partners
4. List of Manufacturer Partners
5. Key Activities: (Services and Products) D. Data and Research
1. Employee Demographic 2. Statement of the problem 3. Internal Situation Review 4. Issue analysis:
E. Recommendations:
1. 1- Limit the knowledge of each employee 2. 2- Financial incentives
3. 3- Hire people from outside fields and create hierarchy F. Case Conclusion
VII. Conclusion VIII. Citations
III. Acknowledgments
First, I would like to express my sincere gratitude to the University of Amsterdam Business School for their high level of educational excellence, exposure that they offer to each student that passes through their doors, and for introducing me to so many amazing mentors. This gratitude of course extends to Dr. Michelle Westermann-Behaylo, who is my thesis supervisor and has helped me understand this multifaceted topic and was always there to support me. Without her guidance and continuous help, this research would not have been possible. To Professor Roger Pruppers, who helped me explore the possibilities of my research and has become a trusted mentor for my education and beyond, Thank you. Lastly, I am grateful for Kristina Rasikh-Stipovic for always going above the call of academic duty to support the students that she interacts with, please know that this means more than you may ever know.
I would also like to express my appreciation to Sha, Lijing Guzheng Ltd for their responsiveness to my research and allowing me access to their database. Also, of course thanks goes to Lijing Sha, Wood Xu, Manling Wang and Yue Shi for their cooperation during the interview process.
Finally, I would like to acknowledge the support of my friends from University of California, Davis and University of Wageningen for their support, encouragement, and editing needed to finish this research project. Without them, I would not be able to defeat the difficulties I encounter.
IV. Introduction
Rapidly growing small to medium-sized enterprises around the world have been known for their highly important role in generating innovation, new knowledge,
employment, and various other contributions to society, as well as for the problems they face (Storey, 1994). Although INVs have existed since the golden age of the Dutch Trading Company and the East India Company, the term INV was only coined at the turn of the century because of its recent rise in popularity due to the ease of starting international businesses through technological advances(Levin institute, 2013). Domestic markets and their resources are often limited to local firms that need to seek new growth in
international markets from international new ventures. Such small organizations
complement their resources by contracting with different kinds of business networks that are extremely complex.
There are many barriers for INVs that have been researched extensively, however the research that has been done in the field to date fails to address cultural issues that impact the problems that eastern INVs face. These issues are compounded in China because the INVs are not protected by law in many respects which will be explored in this paper (Guthrie, 1999). With the INVs in China and the lack of academic research on the subject, more investigation must be done to understand how INVs operate under different cultural and governmental pressures. This paper will examine the management struggles of
employee loyalty faced by many international new ventures arising in China. Also, this research will examine the studies of INVs and theories of employee loyalty, and investigate the internal workings of the employee system, its structure and characteristics within the context of Chinese culture to more deeply understand the factors influencing Chinese employee behavior and how that can affect an INV’s success.
This company project looks at the organizational and employee loyalty struggles in international new ventures (INVs) arising out of China. As a case study, this thesis will
focus on Sha,lijing Guzheng Ltd., which has recently experienced several issues caused by generational gaps within the workplace, employee retention, and employee theft of tangible and intangible assets.
This thesis will first report an overview of the literature related to employee loyalty in Chinese international new ventures. Then, through the data submitted by the company, the analysis will review this information through the qualitative interviews to look at the issues that have arisen within the company and the resulting consequences that the compounding issues have created. Using this information, several strategies will be suggested for increasing employee loyalty in the case company. Finally, some suggestions may offer relief to the employee loyalty crisis within this company and hopefully within other INVs in China. This thesis will address three overlapping topics, INV, culture, and employee loyalty specifically within China.
Research question:
What are potential strategies that can be used to increase employee loyalty in international new ventures in China?
V. Literature reviews
A. International New Ventures:
1. What is an INV?
The majority of studies over the last several decades on multinational enterprises (MNEs) have focused on large, mature corporations. However, multinational enterprises are often much more diverse and complex than just these mature corporations, and have been expanding and extending their operations even more in the past decade(Oviatt and McDougall 1994). One type of company that has recently become more common is the international new venture. These are defined as "a business organization that, from
inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt and McDougall 1994). INVs are small to medium sized startup entrepreneurial companies that through their activities and operations, raise capital, manufacture, and sell products in several different countries. In these smaller companies it is more financially sound for them to have multiple locations to draw resources from which create diverse business opportunities. These INVs are
commonly located in advanced countries, where there are diverse and mature economic systems, and these startups are a collaboration between various different industries.
Despite its emergence as an established concept this century, international new ventures have existed for centuries. One of the most famous examples is the East India Company that was chartered by the British crown in 1600 (Wilkins, 1970). Even from the early years of modern globalization, there has been an inclination to develop an
international network in the beginning stages of a company's growth. Given our modern global economic context, this makes the study of INVs even more pertinent in
understanding business today. However, since research has predominantly focused on large, mature multinational enterprises (MNEs), the research on INVs has largely been
obscured. Their increasing prevalence and the important role that INVs play in maintaining international competition calls for greater attention and understanding of these types of enterprises including a larger range of company size as well as a greater focus on cultural issues that have been, for the most part, overlooked (Oviatt and McDougall, 1994).
2. Why are INVs important?
The growth of international new ventures is an important phenomenon. As INVs emerge and develop, they usually have multiple ownerships and multinational affiliations that are spread across different economic sectors and operate in various business locations (Shenkar and Zeira, 1987). It creates a new nexus of parent companies, spanning different cultural, political, economic and legal systems. INVs usually employ a large network of different industries and they use that network to their comparative advantage. With a major focus on cooperation and individual ownership within the business, these are mostly managed by different people at each location similar to the way that a franchise will
function in larger corporate business. This combination of complex hierarchies (or lack of) and partnerships often leads to more problematic managing strategies than traditional companies or MNEs (Shenkar and Zeira, 1987).
The academic definition of INV business is still very new and relatively untouched in the world of academic research and literature. “The ways in which they upstream or
develop networks, and the way that their vertical business relationships related to outsourcing and manufacturing, has remained fairly vague and unknown” (Partanen and Servais,2012). It is difficult to understand the way that the sourcing network of
international new ventures actually work because past studies of international businesses have not examined this topic thoroughly. In this part of the literature review, this thesis will be examining the reasoning, motivations, and importance of INVs, as well as the challenges and opportunities that this structure creates.
3. What are the opportunities and advantages of INVs?
International new ventures are now found in many countries and are becoming increasingly popular. As the world becomes more globalized, business often crosses various industries and borders. As is the nature of INVs, their use of “international expansion as a springboard to acquire strategic resources and reduce their institutional and market constraints at home”, leads to a rapid expansion of partnership growth (Luo and Tung, 2007). Perhaps the most important competitive advantage that INVs have are their use of resources that are gained through loose partnerships which connect multiple countries.
INVs are, by and large, highly entrepreneurial in their nature and incorporate resources on a global scale across a range of industries. The key to their entrepreneurial success is utilization of international expansion as a means of tapping into a broader range of resources. “The new venture creation is highly dynamic balanced process between entrepreneurial opportunity, entrepreneurial team and resources” (Zhang and Yang, 2006). This is used in advanced markets to find niche opportunities that play to the individual company’s strengths. It has had a particularly large impact on the Chinese business market as the economy continues to grow throughout the post reformation period which will be evaluated in greater detail by the case study. However the ultimate goal of INVs are the use of international expansion and networking as a catalyst for resource development and as a marketing edge over their competitors, at home and abroad. This innovation is a necessity, as INVs use this resource pool (their professional network) to mitigate vulnerabilities to institutional and market constraints at home (Coviello and Munro, 1992; Hoy et al.,1992; Mcdougall and Oviatt, 1991; Oviatt et al., 1991; Ray. 1989).
4. What are challenges that INVs run into?
One of the principal characteristics of international new ventures is the inherent risk caused by uncertainties. In one study developed in 1999 about INVs, they describe the real issue as being
“...after the new venture successfully starts working, as time goes on, the vagueness of the opportunities will increase, as well as the market uncertainties, external environmental factors would also create risk and uncertainties to the new venture and affect the entrepreneurial process” (Timmons, 1999).
INVs are small to medium sized firms which lack the resources to independently develop their services for their global clientele, requiring them to continuously depend on
partnerships in order to conduct business. In general, it is this strong networking characteristic and dependency on its relationships that distinguishes INVs from larger MNEs (Partanen and Servais, 2012). Although difficult, the loose structure with
partnerships are maintainable through effective entrepreneurship and can even be enhanced by the frequent overlapping of relationships within the network. These
partnerships are mutually dependent and the more diverse and developed a network, the stronger the relationships and connections will be within the INV. This codependency means that INVs rely heavily on soft powers and trust in managing their suppliers and contacts. It is through the maintenance of these relationships and networks that major profits are made for all parties.
One of the keys to the success of the international new venture is the balance between the opportunities and the risks. It is a constantly precarious position that the founder will need to maintain, and it is great pressure to operate under. Success may
perhaps be reached with the maintenance and balance of the company’s size, scope, and proper workings of its tangible and intangible assets(Timmons, 1999). The nature of INVs can be capricious but, with great risk there is potential for great reward. INVs are highly committed to their resources, including but not limited to their networks, employee, and knowledge, which are mostly intangible. A combination of immeasurable and
imperceptible time, energy, and finesse is required to build opportunities and connections between these organizations. This preeminence of soft power leaves them vulnerable to the loyalty of their employees(Timmons, 1999). Without the internal trust and company connections, resources can be easily be manipulated or stolen. Effective management over resources and partnerships within the company are key to an INV’s survival.
4. a) Other potential problems of International New Ventures:
● Environmental diversity: the differences between the cultural, political, economic and legal systems of the parent firm (Timmons, 1999).
With the rapid growth of industry in the country and prominent increases of its economy, it is not surprising that China is at the center of international new venture activity. The World Investment Report in 2005 named China one of the most attractive global business locations, joining India, Brazil, Russia and Mexico (UNCTAD, 2005:34). One of the reasons for this elevation in status was do to the rapid rise of international new ventures as an entrepreneurial activity in China. With the growth of INVs in China, they have received a large influx of funding from investors aboard. However, as will be further discussed in the cultural review section, there are numerous cultural difficulties that foreign countries encounter while doing business in China that differs greatly from doing business in other Asian countries such as Japan, Korea or Hong Kong. These difficulties are one of the reasons that INVs have flourished within China which is the reason that the case study of this company project was chosen.
As INVs have gained economic traction many foreign investment companies have been able to limit their direct management of Chinese companies. The typical management of international business in China, such as contractual joint ventures, licensing, processing and assembly, manufacturing and production, compensation trade, counter-trade, and export/import requires a lot of time and money to avoid unfavorable government
interference. In China there are methods that can “be used to gain access to new customers, keep existing clients, facilitate daily business transactions, or even to avoid governmental investigations” that could negatively impact a company and these are the great cost
advantages of guanxi-based business for Chinese companies (Marble, 2007). Having strong positive government connections through guanxi will help an organization avoid
investigations that will harm operations. For this reason the effort and resources that are required to manage small or medium businesses are not feasible in China without strong governmental support. This could be a reason that the international new venture style of business has become more frequent, where the connection is based on a common
relationship but maintains separate ownership with regards to each partner’s resources.
Structural complexity is due to INVs nature of loose connections, there are not many laws that exist to protect small international enterprises in cases of management issues within China. An innate issue that arises from this style is that the internal hierarchy and the relationship between the partners can be very fragile and needs to be continuously maintained (Timmons, 1999).
Guanxi roughly translated as "relationships" or "connections", is a personalized network developed from confucianism that functions in the Chinese society. It stresses a structured hierarchical interactions, in order to maintain social and economic order. “The Chinese like to do business with people that they already know and trust – good guanxi is needed for this....”(Warren-Gash,2012). Building a good guanxi is a long process that can not be built overnight, good guanxi will gradually mature over time and must be
company afloat. Having good guanxi will create a network of mutually beneficial
relationships developed outside the formal work setting (Hope, 2014). It will bring more business opportunities and can smooth transactions in both business and with the government. Without guanxi, business owners can run into many difficulties and
complications that are caused by hidden societal rules. Guanxi is a personal connection to which business partners are bounded by an implicit psychological contract in order to maintain a long term relationship and mutual commitment, as well as obligation beyond the bounds of a written contract (Kwock and James, 2013). When doing business in China, what matters most are relationships; contracts carry very little weight (Farh, Tsui, Xin, and Cheng, 1998; Standifird and Marshall, 2000). Therefore, there isn’t a strict rule of the production process or protections for the intellectual property.
Although guanxi is very important within Chinese business, it is necessary to legally enforce certain rules to protect the business functioning. As subsequently proposed in this article, there are boundaries as to what is acceptable and not acceptable when it comes to implementation and enforcement of that psychological contract. The usefulness of
contracts depends on understanding its importance from the Chinese perspective, which is that contracts are vehicles for establishing a guanxi-type relationship of mutual trust and respect. When doing business within China, sometimes contracts are just an agenda
symbolizing progress, it is merely a proof that both sides have grown close enough to want to develop a trusting business relationship (Ambler, Witzel and Xi, 2008).
Networks within INVs are business networks based on personal networks that are used to build trade. It is very delicate because this kind of business can be simply replaced by other competitor if the relationship is not continuously nurtured. One way to take a relationship between the two partners is to formalized it. With a formal agreement
between both parties there is an exchange of goals that both are able to sign off on through a contract. This way there is an agreement to refer to during times of contention or opinion difference. In order to maintain the business, the INVs need to empower the partner
company to make sure that the business arrangements are beneficial for both sides. This all would need to be maintained through regular proactive contact by the INV with the
partners.
5. What characteristics of INVs make employee loyalty a particularly important issue?
There are three external factors outlined by Zhang and Yang in their 2006 article, New Venture Creation, which influence international new ventures:
● economic environment ● personality characteristics ● cultural/political environment
The economic environment is a major focus for the study of international new ventures. There are many opportunities but also uncertainties in the market, from access to suppliers, access to customers or new markets, and competition with other INVs. This is the comparative advantage of an INV, which creates many low budget opportunities for INV owners to gain success through cooperation of employees through partnerships outside the company.
Personality characteristics tends to have a relative stable influence on
entrepreneurship. This can heavily impact the company activities. For example, having dishonest employees can affect the overall company culture and create internal trust issues that harm the company. There are three factors that affect the employee’s personal
characteristics towards loyalty status in an international new venture:
● Attitudes toward the new venture: the inability to gain fulfillment from working in a loosely structured firm setting, and uncertainty of personal future.
● Acceptance of pay-off distance: at the foundly of the INV, like many other star ups, there is not much to offer to its employees and payment is often unstable do to the nature of the business
● Awareness of entrepreneurship: employees might not have the education or mentality to understand the value of entrepreneurship especially in a developing country like China. This low regard and respect for trying new business methods can lead to loyalty issues.
The cultural environment will be discussed in more detail in the next section. However, there are many questions brought up regarding the cultural norm towards international new ventures. International new ventures are unique yet problematic because the
relationship between cultural environment, the amount of trust needed for employees and partners, and new venture opportunity cost is strongly linked by their resource based focus. ( Zhang and Yang, 2006)
B. Culture:
1. Introduction
As discussed in the previous section, it is very important to ensure employee loyalty in an INV type business. In these companies the cultural environment has a greater affect on employee loyalty behaviors because of the loose network relationships that INVs rely on. To date the largest body of research on employee loyalty is focused on western
companies. Therefore, in a large number of cases, the actual application of results that are dominated by Western culture proves almost impossible when analyzing the Chinese companies, given the large cultural differences between the two (Marble, 2007). In this section a cultural lens will be used to define the recent employee loyalty issues in Chinese labor markets. These will show that there is a connection between the culture and the employee’s work ethic to create a better understanding for management within INVs when
looking at their employees so they can have an accurate and efficient approach to addressing these loyalty issues.
Based on the Dutch academic Geert Hofstede’s study on culturally imbedded societies, there are some cultural norms that dominate a society especially in the workplace; China is a good example of this. In China, people are not educated or raised based on the idea of individualism but instead have been taught to behave in a certain way that conforms to societal expectations under a strong communist government (Hofstede, 1980). With these norms there is less of a subculture or counterculture oriented movement than in the West. Therefore, when looking at how Chinese workers function
psychologically, society has had a large drive towards group mentality in China. Whereas in the west, it is more diverse and individualized. To analyze work methods and employee efficiency, it is necessary to take work and social cultures into account, in order to see and understand why Chinese workers have become increasingly difficult to organize in recent years.
When evaluating Chinese companies it is necessary to look at them through a cultural lense because of the enormous influence that culture has on the workplace (Hofstede, 1980, 1990; Schwartz, 1994). When looking at a specific business problem in such culturally focused country, it is important to consider the cultural values that will affect business decisions. Cultural priorities will be ranked differently depending on particular national values because of this diversity, there are different expectations which affect work in every community. Therefore, looking at social behavior can help to have a deeper understanding of the importance of work related topics such as employee loyalty.
In order to evaluate culture and how it influences business, it is important to understand what value means in the context of INV studies and how their loose network functions. Values outline the desired “way social actors select actions, evaluate people and explain their actions and evaluations” (Kluckhohn, 1951; Rokeach, 1973; Schwartz, 1992).
in other words, some values transcend any boundaries of various life situations, at home or at work, public or private, and are the guiding principles. These values define social norms, nurture commonality in behavior, and provide human beings with a scale of good versus bad behavior. This structure of understanding provides a guide for companies as they expand into culturally diverse countries.
2. Hofstede’s study
Narrowing our discussion now to Chinese cultural norms, where they traditionally placed the primary emphasis on the overall health, success, and well-being of the group they belong to. With this pervading through Chinese society, people are more prone to support socialism or group engagement rather than individual activities. As shown in the graphs below from the Hofstede Center, the first graph (figure 1) looks at the data and evaluates how cultural/social norms impact the workplace behavior in China while the second graph (figure 2) looks to compare this information with the Unites States representing Western cultural norms.
Figure 2:
According to figure 2, while the differences between China and the U.S. on the Masculinity and Uncertainty Avoidance don’t differ greatly, the difference between the other four factors are quite dramatic. The Power Distance indicates the strong effect of hierarchy systems have in China, that people respect and fear the people who have authority over them which isn’t nearly as true for those in the U.S. Another extreme difference between the two cultures is Individualism, which is how much employees value self over group activity and here in Hofstede's research, it highlights how much the Chinese do not prioritise the individual. Although with this information it must be kept in mind that Hofstede’s series of studies on cultural norms is describing Chinese people before the economic reformation. His attention to the cultural impact in the workplace was unique for the 1970/80s because there was not an extensive analysis done by scholars focusing on
cultural workplace issues. Looking at institutions such as education, economy, politics, and workforce systems function there are many different cultural value priorities that can influence a workforce. With his work, employers at IBM were able to see that employee behavior could be directly correlated with the cultural norms.
However in China, following the reformation, there have been major political shifts in working culture that many corporations and international new ventures continue to experience difficulties with in China. One issue is that managers are not able to figure out the reasoning behind disloyal employee actions. For instance, an example of Chinese environmental diversity is when companies do not understand the cultural implications of contracts, that a signature and contract does not guarantee any specific obligation to the signators (Marble, 2007). Misunderstandings like these continue to happen at every level within the workplace and by first identifying values within the culture, an organization can better address strategies to deal with these problems.
3. Schwartz’s studies
In a later cultural study done by Shalom H. Schwartz in 1999, a closer look was taken at the angle of the relationship between the individual and the group. His study focused on what really held more weight in determining a group's successful outcome: individualism or communalism. This question plays an important role in looking at INVs in China, as well as to the research regarding employee loyalty. The difference between individualism and communalism may explain what causes employees to put personal benefit ahead of the communal profit, and explain at what point the individual's values come before the company's.
According to Schwartz, individuals find meaning in life largely through social relationships by identifying with the group and participating in its shared way of life.
However, the new working method in China has become the opposite of this (Guthrie, 1999). Even when people are working for a company that they believe in, including the non-profit sector, there is a need to, at a certain point, earn a higher income which leads to an early departure from the company even when they have a strong emotional connection to the mission. In his study, employees find purpose in the participation of an activity that benefits them in some way but little thought is given to the company's welfare as long as there is some personal gain. This is a major shift in work drive, which he calls autonomous, meaning that they effectively have independence from the company (Schwartz, 1999). In China the ideology of autonomy is a response to the Economic Reformation that happened right after a series of wars and the new government structure shifting to socialism and away from communism.
If, as the study suggests, people define themselves through work and their cultural values and these reflect the basic issues that the society must confront in order to regulate the workplace. However, Schwartz's conclusion that in a truly communal society, no personal conflict of interest could ever arise may not apply to Chinese organizations. Finding that balance poses a particular issue with Chinese INVs that are crossing cultural lines. The challenge for these companies is to find out what is stopping the employees in China from feeling embedded and committed to their companies. These issues will be explored in greater detail using specific details within the case study.
4. Culture values at work
There are three parts of cultural values for work: work centrality, societal norms about work, and work goals. Work centrality is the significance that work plays in a
person’s total life. This is measured in relation to four other life areas---leisure, community, religion, and family. Base on the study Schwartz did in 1987, work is likely more important to people in societies where hierarchy values are important, and worth less in societies
where affective autonomy, egalitarianism, harmony and conservatism values are important (Schwartz 1987).
Looking at the current cultural shifts in China, it is a hierarchy valued environment but due to the size of small businesses and international new ventures there tends to be a lack of authority structure. Owners of INVs in China simply do not have enough employees to create a hierarchical system. In these organizations the working method has shifted to more of an egalitarian environment where employees often have a self interested focus that compounds cultural issues because of the employee’s inability to work together as a true team.
5. Economic reform background
Following three decades of economic reformation, China's economy experienced one of the world's biggest economic booms. Today the state still retains control over major industries, telecommunications, and petroleum. Although, private entrepreneurs are expanding into new sectors at an increasing rate they continue to be strongly controlled by government authorities. China became one of the world's largest and most advanced economies during the twentieth century due to a program of economic reforms. The Economic Reformation was started in full force in December 1978 led by President Deng Xiaoping. This plan moved China from a centralised planned economy (communist) to a free market. The historical communist regime had been suppressing the Chinese economy for over three decades was shifting business as a whole (Guthrie, 1999). During this period, individualism and innovation were not only culturally unacceptable but they had become criminal acts.
After the the reformation, the situation transformed into ‘capitalism with the Chinese characteristic’, meaning that
“when private ownership of the means of production is officially recognised and plays a growing role. It is where a new bourgeoisie can openly join the communist party as the “nouveaux riches” but where the state leadership of the Chinese Communist Party still plays a dominant role in the economic and political sphere and captures” (Loong-Yu, 2015).
With the effect of the reformation taking place, Chinese people began to become more Westernized as China has become an economic powerhouse, weathering multiple global financial calamities while continuing to outgrow most of the West. Since the Chinese economy opened, private organizations have found considerable success as well as competition. Businesses have to compete, both internationally and domestically, while maintaining major focus the continued government intervention.
Although business has continued to expand, economic changes have led to
escalating ethical concerns and social stability. Laws and regulations are often applied to mediate these issues but loopholes are regularly employed by special interest groups to get around them. These issues have perpetuated the unethical actions of throughout China and are commonly found in all areas of society through government scandals, corporate fraud, and lots of family issues. (Kwock and James, 2013)
Within the communist ideology, a centrally-planned economy created a pool of passive, untrained workers with little motivation and initiative by using the iron bowl employment system. This system has caused many ongoing issues which has been extremely difficult for business leaders to address while adjusting to a more dynamic business environment.
6. Cultural Conclusion
To some extent, social norms created by the new economic reform have affected most people in China, they mainly view work as a duty or obligation instead of a right
everyone is entitled to. A healthy work mentality should be where every person is entitled to interesting and meaningful work instead of something to do for the sake of earning more money. In 1992 Surkis, distinguished four broad types of work values by respondents. The core goals that drive a person’s career are:
● intrinsic (personal growth, autonomy, interest, and creativity) ● extrinsic (pay and security)
● social (contact with people and contribution to society) ● power (prestige, authority, influence)
The employee's personal goals might not line up with the goals outlined by a manager. In these situations it is important to be clear about the expectations of both the company and the employee using strategies from agency theory to motivate both sides. This is particularly the case in smaller companies such as international new ventures, where the smaller sample number of people having to work directly together from many countries increases the probability that the distribution of cultural values is more
dissimilar than the distribution of cultural values in the general population. The pursuit of these values and their use as motivators is more likely to be successful if a combination of tactics is used by the employer.
C. Employee Loyalty in China
1. Definition and why is employe loyalty important?
Employee loyalty is defined as employees being faithful to the company, maintaining employment, seeing the priorities of the business as their own, and understanding that their investment into the company is an investment into their own future. A number of recent studies in the United States show that one out of every three employees are actively planning to leave his or her job (Keiningham and Aksoy, 2009). For those that are not actively looking to leave, a 2011 Careerbuilder.com report states that “76% of full-time
workers, while not actively looking for a new job, would leave their current workplace if the right opportunity came along” (Keiningham and Aksoy, 2009). Searching for new opportunities has become a part of today’s workforce regiment in the West and has begun to have a huge impact on Chinese companies as well.
The role of trust between owner of international new ventures and their employees has been studied as the key to its financial and non financial success. There is a growing concern about the relationship between leadership and employee loyalty in recent years (Keiningham and Aksoy, 2009). There has been an increase interest to find out how to improve employee loyalty, which is one of today’s most pressing concerns for businesses in China. This is an extremely disruptive situation for Chinese business owners that now assume that employees are constantly looking for other opportunities because traditionally they are used to employees functioning within the iron bowl system, which is a
governmental lifetime career assignment system. Under these circumstances it is
extremely difficult to find employees who are looking after the interests of their employer (Keiningham and Aksoy, 2009). Employee loyalty and the business outcome directly impacts the operation of the company. Therefore, the attitude of employees should be just as much of a concern to employers as the results of the company's financial or market performance are. Rather than focusing on only one operating element of the company, it would be more efficient to focus on the outlier that affects all three (INV, culture, and employee loyalty). For this reason, the health of the business is truly contingent on the overall employee attitude.
2. High cost of educating employees, investment
In every company, the long-term success depends heavily upon the quality of its workers and worker loyalty. Employee value can be defined in many intangible ways, not just in monetary terms; yet, as will be discussed more in the case study, having loyal employees seems to be difficult to achieve for small/medium size Chinese businesses
(Guthrie, 1999). Too much employee turnover causes nonrecoverable long term costs to the firm. Turnover like this is not only culturally disruptive but also financially costly. In the United States for example, annually “the average company loses anywhere from 20% to 50% of its employee base. Replacing a lost employee costs 150% of that person’s annual salary.” (Keiningham and Aksoy, 2009) This type of activity decreases the sense of loyalty and commitment to organizations which in turn has substantial effects on the business. Training time lost and effort of training can lead to large financial losses for a company. The greatest expense any company will invest in is human capital however within INVs this type of turnover could be the determining fact of whether or not they can remain in business due to their size and possible loss of network connections.
3. What factors influence employee loyalty?
As an employer, there needs to be thought given to what the employee actually wants out of a career and what their goals are to be able to continue to engage and maintain their loyalty. The force that is driving modern career goals is what employees personally achieve in their role and the amount of money that they can individually make. Today’s workforce is self absorbed and self interested meaning that people are more loyal to their careers than to their employers (Keiningham and Aksoy, 2009). When the
employer no longer satisfies the employee's need, they will move onto the next job rather than stay and think in terms of lifetime employment.
Much of the research that has been done on employee loyalty is very specific to a Western cultural background and are not necessarily a good fit in the Chinese international new ventures because of the wide social divide. As reviewed above in V.B.5 in the culture section, employer's attitude toward their employees have changed even more dramatically in China due to the 30 years of Chinese economic reform. It is a symptom of a larger
problem. China’s employment system called the ‘iron-bowl’, which refers to a lifetime career promised by a company once you are hired and heavily controlled by the
government. However, the concept of lifetime employment has come to an end with this current generation in China. Many big firms have started to Westernize their hiring process and using a contract system instead of promising a lifetime job. According to an article by Chattanooga Times Free Press, for many workers after generation Y, they tend to “move around until they ‘find their niche’” and there is no longer an idea of lifetime employment with these younger generations (Chattanooga 2015). Today, it is common for employees to switch jobs if they become dissatisfied or if they decide to do something else. Having the option of change is what drives the younger generation but this lack of commitment to a single employer has weakened employee loyalty (Keiningham and Aksoy, 2009). As employees see their careers operating across many employers, they no longer focus their attention solely on their current employer or the mission.
4. Possible solutions
There are many ways to improve employee engagement within companies but not all are feasible for INVs to put into practice. Considering the differences between Western industry and China as well as between MNEs and INVs, there are a few strategies that are more budget conscious and efficient than others. According to the work of Professor Qing Yao of University of Science and Technology Beijing, there are three ways to address these issues within INVs:
A. Personalize the job purpose/position to include career advancement
B. Have a good leadership structure that can create good team dynamics and a clear hierarchy
C. Create regular training programs for added employee satisfaction
A. Personalize the job purpose/position
People want to have a meaningful job, especially young graduates. They want to have a place to prove their value (LaMalfa, 2007). That is why, it is easier to gain employee
loyalty in big successful firms like Tesla, Google, because employees being committed to the success of the organization and believing that working for this organization is their best option. However, that is not the case for small to medium sized INVs (Oviatt and McDougall, 1994). These large companies have room for growth and funds to support training that small INVs do not. Employees want to have work that means something at the end of the day. That is why it is important for the employer to find out the reason why his/her employees are emotionally connected to the business, and come up with a strategy that benefits both parties. Some research has shown that “emotionally connected employees are the best employees because they are engaged and productive, and they feel validated and appreciated at work” (LaMalfa, 2007). It is important to know and have faith that the employees are not just working for benefits and money. In a way, this type of clear
communication and outlining of expectations is part of the psychological empowerment for the employees to know the company is interested in their advancement as well. With clear communication of goals, it is not necessarily the outcomes they get, but rather the
processes that will make the biggest impact. By understanding the long term goals and involving the employee in this process, when “people feel like processes are handled fairly in the organization, even if they don’t get the best for themselves” they will continue to be invested in the mission (LaMalfa, 2007). Placing company focus on the individual, their needs, and showing that they take work satisfaction into consideration can be enough to maximize employee investment. Within an INV, these considerations could have an enormous effect on company culture given the smaller size of the organizations and cooperation it takes to coordinate globally.
B. Leadership style
It is important for Chinese INVs to create small teams that are led by a single manager. Chinese culture has an ingrained respect for authority with a strong leader the newest generation of the Chinese workforce can be trained in a more hands on method to fully accept a teamwork system. It is necessary to create a team project that builds the
company culture where people are awarded as a small team led by a responsible manager (LaMalfa, 2007). By changing the company leadership culture to include teamwork with a designated team leader, it will be more productive when people are working together toward company goals rather than competing against each other for what they believe to be personal gain. Defining leadership style and employee cooperation is an organizational shift that will be very time consuming but is a necessary evolution in addressing Chinese INV systemization.
C. Training programs
Since personal advancement is a large part of the today’s working culture,
employees want to work on their self enhancement and take action to add value to their future. By offering training programs, these activities not only help the company to have better skilled employees but also lets the employees work toward their own goals as well as the firms (LaMalfa, 2007). Having training programs gives the employee something to look forward to, adds to their sense of achievement, and increases employee engagement within the company. All of these training outcomes improve employee loyalty.
D. Literature Review Conclusion
The three literature review sections above examines international new ventures, Chinese Culture, and employee loyalty overall and specifically Chinese INVs. Since the increase in international new ventures in China due to the economic reformation, not much research has touched on the importance of culture impacts the understanding of employee disloyal behavior in global companies, such as Chinese INVs. Based on this research, a small Chinese international new venture was chosen for the company project to further evaluate how these three important sectors of international business are connected.
VI. Case Study
A. Introduction
The following is a case study that takes a close look into a small enterprise in Shenzhen, China. It is an example of a typical small business in modern China and a good case to examine the Chinese style of international new venture (INV) that is discussed in the literature review in the previous section. As an example of INVs, it has a great amount of international opportunities as well as all the uncertainties that they encounter. In Chinese INV businesses, the long term success heavily depends upon the quality of its workers as well as worker loyalty. Instead of focusing on economic value of employees in enhancing customer relationships and company profits, having loyal employees has become an increasingly difficult goal to achieve for small and medium size Chinese businesses. The development of this case will use the same framework as the literature review looking at international new ventures, culture and employee loyalty issues as well as the challenges for these small businesses that are focused heavily on intangible
resources. This review will look at current methods used by the case subject as well as methods across a culturally diverse cross section to offer advice for the company that may improve the situation.
Employee disloyalty in Sha, lijing Guzheng Ltd. is like many other small/medium international new ventures in China which is a culture problem. Due to the financial constraints, these companies and their budgets are too small to have an HR department focus on engagement. It is an issue of loyalty within the company relationship that is the root of the problem. Therefore, it is more accurate to look at this case using the three sections outlined in the Literature Review; INVs, culture, and employee loyalty as a framework of analysis to evaluate these specific company issues.
B. Methodology
This case study will use quantitative and qualitative data to analyze the Literature Review based on INVs in general, Chinese cultural differences, and employee loyalty issues within the chosen case organization.
The quantitative research will include data from the company headquarters which was reported by each branch of the company. The employment information (age and number of years of service) were provided by the company log and registration. This research uses tables to indicate the numbers of employees, years of company participation, a breakdown of age of the employees into categories, and the relationship between these variables. The data is also displayed in bar charts to better show the distribution of these different groups in relation to each other. It was divided into these age groups to show that different age groups respond to their jobs differently. This research and the tables created from it exemplify the large differences between the length of working time for each age group. Also by grouping the quantitative data into different groups helps have a clear view of the distribution. It is important to have the quantitative data to show the hard facts of the issue that helps bring evidence to the analysis that is given for the case study.
The qualitative data used within this thesis was gathered from headquarters in Shenzhen which includes four interviews collected from three managers and the founder of the company. Keeping the academic literature research in mind while communicating through skype and email, I had lengthy conversations with the business owner Sha as well as with each of the managers. First, contact with the various managers was made by phone and skype communication to confirm some of the data details regarding employee status. Once phone contact was initiated, a formal email with relevant questions was sent and the interviews were done with the same three major managers/shareholders. The goal of these conversations was to discover what their opinions and experiences were within the INV
and what type of employee loyalty issues they have come across. The interviews were finished by asking an open ended question for their recommendations. After collecting the interviews in Chinese, I translated them into English and made a cultural analysis of the interviews original transcripts all of which is included in the supplemental materials section.
This qualitative and quantitative research of the company will create a good understanding of company employee activity in the study of employee loyalty. This raw data was then compiled and analyzed together with the qualitative information collected by interviews which were conducted through email correspondence from the managers and executive employees in China.
The three literature review sections were chosen because their focus on current struggles that exist within small international businesses which cause tangible and
intangible losses for these vulnerable companies. They are separate studies that dive into struggles in INVs, culture, and employee loyalty. These works show that existing issues within INV, culture and employee loyalty are issues that need to be addressed but there is little work that combine these three issues to the caliber that these three do independently on their separate issues.
The chosen case study is a small INV that has been struggling through these issues over the last fifteen years and is the perfect example of the problems addressed in the literature review. The literature review and the case together give a more comprehensive look at the struggles of this particular INV. These are not just faced by an INV but most of the time they are a combination of different problems. For instance, the case study is a prime example of the difficulties of being an INV but also focuses on how it is necessary to function differently China. The loose INV structure continues but the difficulty of operating an INV is exaggerated by Chinese cultural norms. As we will see further on in the case study, culture norms are an important factor when dealing with employee loyalty issues.
The cultural background of a group will change how situations are handled by the employee and the employer. However, this case was chosen because it exemplifies that, with the innate nature of international new ventures starting as global companies, cultural factors heighten employee loyalty issues. Reviewing specific examples from the case company compared to all three sections of the Literature Review (INV, Culture, and Employee Loyalty) and will be examined to show how these individual issues can compound within such an environment.
C. Company description
Sha, Lijing Guzheng Ltd. is a company that was founded in 2000. The founder of the company is Sha, Lijing, she was a professor at the Hong Kong Academy for Performing Arts and Shenzhen University. She dedicated her life to teaching and performing Guzheng--a Chinese traditional instrument. In the summer of 1999, after the advice from a family member and mentor that works for Cisco in Texas U.S.A to start her own company, she decide to open an office and started this small INV in the year 2000.
After the establishment of the business started, it has been rapidly growing due to the renown and reputation of Sha. She created and developed her own lineage of Guzheng teaching method, and it is unique and well known in China. Nationally recognised for her contributions to music and her performances, she is often invited to perform for the Chinese government officials including the president and international political leaders such as the president of the Republic of Cuba Fidel Castro.
At the founding of the company there were only two employees apart from Sha and because of the renown of Sha, she was able to continue to collect private students until eventually she did not have the time to teach them all on her own. The business created an environment for her professional students who had recently graduated from music
mentions a continuing issue that when employees reach a certain age, they leave the
company to open their own office, start their own business competing with the firm or they start working for a competitor who offers higher pay.
After fifteen years, the company has expended in many directions. It has become a hybrid of a profit/non-profit organization. The employee base has also expanded to not only professional students but also other performing art professionals. The company become a comprehensive traditional Chinese music center including an international exchange programs, music classes, and licensing teacher certifications. For a full list see subsection 5, Key Activities. The organization has continued to do well by organizing
international and domestic sold out concerts of up to 1500 attendees semiannually through media outreach and material translations.
1. Branches
These are organizations that are part of/within the company. ➢ Shalijing Guzheng Ltd. (沙里晶古筝有限公司)
○ Shenzhen Guzheng Association (深圳市古筝学会)
○ Shenzhen Fangyin Guzheng Philharmonic Society (深圳芳吟古筝乐团) ○ Shenzhen Sha lijing Guzheng Method Research Center(沙里晶筝法艺术研究
中心)
○ Hongfa Temple Buddhist Philharmonic Society (弘法心光乐团) ○ Shenzhen Chinese Music Co., Ltd. (深圳市国乐文化有限公司) ○ National Music Base (国乐基地)
Figure 3:
In the graph (figure 3) above is the organizational chart from Sha Lijing Guzheng Ltd. that outlines the relationship between the branches as well as the number permanent and contracted employees that are working under the branch. Other than Fang Yin, all the other branches have stable employees.
The case company Sha, Lijing Guzheng Ltd. is a “有限公司”, which is equivalent to a Limited Partnership in Western corporate law, only it is privately owned by one person under the communist government’s limit. The company owns a number of for-profit and non-profit subsidiary organizations. An owner of a parent company explained the
ownership of the non-profit organizations is really used as a means of marketing; as non-profit organizations are generally held in higher regard in the music sector in China rather than publicly owned organizations. The non-profit organizations serve as a means of increasing the brand awareness of the “Guzheng” name which is shared by one non-profit organization and several for-profit companies, and used as a means of expanding the network of the parent company to facilitate the attraction of employees, partners and customers for the for-profit side. This connection is very subtle and it is not addressed in typical company culture reviews by Western scholars. Sha states that unlike the in the West, many for-profit INVs in China have to function under the non-profit sector in name so that it creates a better relationship with the Chinese government.
On top of these business subsidiaries Sha formed under the Sha, lijing Guzheng Ltd. She also developed connections with international partners who open offices in foreign countries under the name of Sha’s method and carries Sha’s instrumental product lines. As an international new venture, the company has many loosely connected partners all
around the world. These are business partners operating independently while using the prestigious name of the Sha, lijing Guzheng Ltd. Most of the owners of these locations were students of Sha, lijing in the past that have gone on to be successful in their own right. These music professionals were educated by the same method Sha developed. These international partnerships organize exchange programs, organize performances for the students at headquarters as well as purchasing products from the parent company, Sha, lijing Guzheng Ltd.
2. Partnership locations
● Asia
○ Shenzhen (China)-4 offices, including headquarters ○ Beijing (China)-1 office
○ Shanghai (China)-1 office ○ Hong Kong (China)-1 office ○ Zhuhai (China)-1 office ○ Chongqing (China)-1 office ○ Dongguan (China)-1 office ○ Chengdu (China)-1 office ○ Kyoto (Japan) -1 office
○ Singapore (Singapore)- 1 office ● North America
○ Los Angeles (U.S.A)-1 office ○ San Francisco (U.S.A)-1 office ○ New York (U.S.A) -1 office ● Europe
○ Nurnberg (Germany) -1 office
Figure 4:
Figure 4 is a diagram of how the national and international relationships of the case company Sha, Lijing Guzheng Ltd. are related. Dotted lines are used to indicate loose
connections with companies in different countries. These loose connections are often based on personal relationships of the directors of Sha, Lijing Guzheng Ltd. with the directors of the separtate firms. Gray lines are used to indicate connections that no longer exist with companies in a specific country. Solid lines indicate formal connections between the case company and independent firms within each country. Listed above the graph is a complete list of the individual locations within each country where the Chinese daughter companies
of Sha, Lijing Guzheng Ltd. are located. The number of the partner locations were reduced within the graph for legibility.
The differences between regular international business is that regular international businesses start domestically and expand outwards after maturing as where INVs started the business because of the loose connected international ties. Therefore, the international ties are extremely important to INV businesses because it is the bases for their existence.
3. Manufacturer Partners
The manufacturing partners are involved throughout the production line process where the organization has signed exclusive contracts. For instance, they have signed contracts with Zhongzhou Instrument factor for a model of the Guzheng which can only be sold through Shalijing Guzheng Ltd. , in return the organization promises to sell 100 units each year.
4. List of Manufacturer Partners
● Zhongzhou Instrument factory (Patterned),
● Shanghai Century Publish Group (上海音乐出版社) ● Shanghai Education Publish Group (上海教育出版社
● Guangdong Science and Technology Press (广东科技出版社) ● China Record Corporation (中国唱片公司)
5. Key Activities: (Services and Products)
● Level examining: Offers a professional examining system to give out leveling grade for people that study the instrument.
● Competitions: Organizes biannual international competition for professionals and amateurs.
● Music (Instrumental) Courses: Offers classes in many different fields but focused mainly on Chinese traditional, national instruments and music theory.
● Training: Professional training including make up, dance, instrumental training etc. ● Yearly concert: Each sector of the company has its own yearly performance in city
concert hall.
● Licensing: Testing and Licensing teacher certifications.
● Yearly recording: Offers yearly personal recording for all students and professional recording publicly sold.
● Foreign Affairs Performance: Provide performance for the government when embassies from abroad are visiting or traveling abroad with the government officials to offer traditional chinese cultural performances.
● Exchange programs: Summer/Winter study abroad programs in Germany, The Netherlands, and Austria.
D. Data and Research
This section will review pertinent data to Sha,lijing Guzheng Ltd’s business, methods and demographics. The data provided is a listing of current Chinese employees at the
Shenzhen headquarters that are directly managed by Sha. First, we will look at the age demographic of the current employees, then using this information we will look closer at
the retention rate and other data to evaluate the relationship of the employees with their employer and the loyalty issues that arise.
1. Employee Demographic
Number of current employees: 42 Average Age: 40
Minimum Age: 23
Age of the employees number of Employees Percentage of current employees
20-30 14 30%
30-50 21 50%
50 or above 7 20%
Figure 5:
Figure 6:
The above tables (figure 5) show the demographic of the distribution of current employees in the program that left the company. As the bar graph shows, the largest
employment rate. This information supports the owner's concerns that individuals within this age group are not stable long-term hires.
Figure 7:
The above bar (figure 7) chart shows the diagram between all the different age groups within the company whether they are still apart of the company or not. The data and charts show the trends and commonalities that is happening in small firms in China. Most of the employees who left the company (pink) left the company to start working with
a competitor. The percentage now with competitors column has a high percentage in the 20-40 age range, which correlates with culture shift between generations which is discussed further in the culture literature review section.
Time of Working Amount of Employees Percentage of Workforce
15+ years 3 7%
10-15 years 2 5%
5-9 years 8 20%
1-3 years 31 68%
Figure 8:
In the graph, the Time of working outlines the number of years that employees worked for the company; the Amount of Employees is the numbers of current employees who are working for this certain period of time under the company; and the Percentage of Workforce is the ratio of the the Time of Working and Amount of Employees which use the percentile to reflect the date.
Figure 8 shows the distribution of employees that stay in the company for different periods of time. It showed that 31 out of 42 current employees, have been 3 years at most. This distribution shows us that for many this position functions as a jumping board to their next career goal which often is working for competitive of the firm. Though ⅕ of the
employees, which is the second largest group, have been with the company for 5-9 years which is a much longer time period and as a small organization it is very painful to lose this group of employees since they are so familiar with the firm and have valuable institutional knowledge that can only be regained through time with another employee. Sha says that
this group often leaves to start their own businesses that are based on her business model. She also says that the other two groups, the employees who stay in the company for over a decade tend to stay until retirement. These are the most loyal employees who have been working for the company since the beginning and have been going through all the
difficulties this firm encountered and are yet have remained with the company. Under Time of Working, there is a gap between the years 3 to 5 because there are no employees for year 4 and adding that year to the graph would have implied that there were. The majority of employees who worked with the firm for 1-3 years are between the age of 20-30, it may follow the concept that this company is a great place to start your career but it may also end up proving the argument that the younger generation is more individualistic than loyal (Keiningham and Aksoy, 2009).
2. Statement of the problem
What can be done to improve employee loyalty within this Chinese INV and how should the company respond and minimize the sharing of confidential information to decrease fraudulent incidents?
In China, most of the small companies are not protected by law. Unlike the West, there isn’t a contract that is signed at hiring regarding conflict of interest within the same field after the job is terminated.
3. Internal Situation Review
Even though, from the outside, the company has been doing well for the past 15 years, it has a lot of internal problems. Issues with employee loyalty were frequently brought to attention during the business interviews. Sha has continued to work within academia for the past thirty-five years. She began this endeavor on the advice of friends and families but management of the company is not as ideal as she imagined it would be. As
