Strategic Human Resource Management in the Chinese Context

Peter Lorange, 26 May 2015

It is widely recognised that the human resource dimension is critical for strategic success in two very important ways. First and foremost, an organisation must attract high quality individuals with the needed competencies and who are motivated in order to successfully implement its business strategy. Second, the availability of strategic human resources determines in itself what is a realistic, achievable strategy. Effective strategic human resource management is particularly important in China given its strong, sustainable economic growth and the sheer size of its economy and population.

A caveat is needed at this point. Effective human resources management is a challenge in itself. In China, human resource management is particularly complex and opinions vary on how to best address this challenge. Below are some thoughts on what some of the key challenges are and insights into what may be possible solutions!

The well-known shortage of certain competencies, the fierce competition for good, available human talents and the lack of loyalty in Western firms operating in China are of course making the strategic human resources management task even more challenging. In the following section, five challenges will be discussed. While each might take on a particular significance in the China setting, it might also be argued that these factors are valid in most settings.

Challenges

  1. How to achieve top line (sales) growth and profitability: This represents a challenge for many companies, especially since the stock market seems to value these dual performance requirements particularly highly (Chakrawarty and Lorange, 2008). As the number of Chinese companies listed on stock exchanges grows, this is becoming a reality for Chinese corporations too. While executives have long focused their efforts on improving marketing and sales (ie top line growth), there are also now demands to improve efficiency with cutting-edge competencies in the areas of  manufacturing, procurement and logistics/distribution to enhance the growth of the bottom-line.

  2. The ability to understand target customers, the types of innovations they value and how to communicate this to them effectively: In the past, customer segmentation received relatively little attention when a product was sold to all customer types. However, this is no longer the case. For instance, there is an already huge growing segment of relatively young, affluent, urban consumers, who place a high value on prestige. Strong luxury brands, cutting-edge design, etc calls for new categories of human competencies, both when it comes to the customer interface side, as well as when it comes to internal development activities. Furthermore, “prestige” is not simply an identification tool for the younger generation, but is a reflection of Confucianism. And, it is key for companies like Ali Baba to communicate the innovations effectively via the web and other channels. Here too, other types of emerging human skills are required (Lorange and Rembiszewski, 2014).

  3. Four contextual requirements: An effective strategy today must not only focus on sales (the customer) and the bottom line (costs), but must also emphasise the following four additional dimensions, with each calling for particular strengthening of the firm’s human resources capabilities:

    • The networked context: Many of today’s talents prefer to be with firms interacting in networks, rather than being organised in the more traditional hierarchical way. This implies that one must develop human capabilities to communicate more openly, including de facto listening. And, to treat counterparts with respect is key. Arrogance and old style, often excessive control procedures are no longer tolerated.

    • Global focus: For the first time, the outflow of investment-designated capital from China has now surpassed the inflow of such capital. The Chinese economy is becoming more and more open, not only through exports, but also through investments in subsidiaries abroad. An added sense of cross-cultural savvy is now required. The human resources function must prioritise the development of managers that can operate internationally.

    • Speed: The economic success parameters are changing faster and faster, not only in China but across the world. The technology is leap-frogging, the customer is dramatically evolving, and the modes of effective communication are entirely new. Executives must be prepared for speed, in a different way than before. Again, this calls for abandoning excessively bureaucratic procedures.

    • Flexibility: This is of course related to speed. Here too, there is a call for executing with a different mindset. Human resources executives must now spot those who “can do”, rather than those who are excessively rigid

  4. Disruptive technologies: They are here to stay! We see radically new technologies emerging, often with opportunities to “leap-frog”. One example of this, for instance, would be the case of telephony – ie going directly to mobile phones without having to invest in a fixed line network. Not surprisingly we see strong, emerging Chinese presence here, both when it comes to mobile telephony systems (eg Huawei), as well as when it comes to the sale of hand held mobile phones. These trends have strong implications regarding the strategic human resources dimension for Chinese companies. Increasingly, this calls for cutting-edge human competencies that can anticipate such developments and take advantage of them. This is true in almost all industries – from nuclear power generation (which now uses dramatically simplified technology and has a much faster construction cycle) to container shipping (which now requires dramatically less fuel consumption). Assets that may still be relatively new, and that might be typically still technologically functioning, would no more be economically viable. Managers who can understand this trend of rapid economic obsolesce is key. The image of Chinese managers as being strong “copycats” seems to be largely on retreat.

  5. Different ways to look at strategic human resources management, especially when it comes to work and motivation: There does not seem to be one best way. To better appreciate this issue, we might recall that the strategic human resources field largely until now, has been dominated by so-called western practices. This calls for several contingency approaches that might have to be considered when it comes to the Chinese context, including:

    • The relatively higher importance of family: For Chinese executives, this tends to be a key factor, both when it comes to physical proximity, as well as economic support – given that pension and health insurance are relatively less  developed in China.

    • The relatively higher focus on “me”, in contrast to “we”: Chinese society is, of course, not very focused on the individual as such. The “me” is always based on the “we”. The success of luxury brands and luxury goods, however, reflects the “me” in a status environment. This implies that for Chinese executives, what primarily matters is what might enhance personal prospects – ie a successful company, promotions, prestige etc – in contrast to the focus on team-based cultures and the relatively less attractive features of organisations.

    • Compensation: What seems to be relatively more important is the salary that can be obtained presently, in contrast to more-or-less uncertain bonuses of the future. What may motivate Chinese managers in the future is yet to be determined, and more research and debate are needed.

Conclusion

The more we see the fast-growing Chinese economic sector mature, the more we can expect strategic human resources challenges to become critical. For organisations seeking success in China, the human resource issues outlined above are certainly going to be key. As this occurs, the strategic human resources agenda will then shift from being the primary responsibility of staff to becoming a top priority for senior executives – a shift that is perhaps gradual, but indeed inevitable. Perhaps an even more profound shift is called for: Western companies may need to better educate and prepare their managers to operate successfully in China. It is perhaps not viable for Western firms to rely entirely on Chinese talents. Global educational systems, as well as the human resources profession will also need a much deeper understanding of China.

References

Chakrawarty B and Lorange P (2007), Profit or Growth? – Why You Don’t Have to Choose, Pearson.
Lorange P and Rembiszewski J (2014). From Great to Gone, Gower

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Author

Peter Lorange

Chairman Lorange Institute of Business Zurich

Peter Lorange is the owner and the president of the Lorange Institute of Business and one of the world’s foremost business school academics. For 15 years, he was the President of the International Institute for Management Development (IMD), Lausanne, one of Europe’s leading business schools. Peter Lorange is Professor of Strategy at IMD and holds the Kristian Gerhard Jebsen Chair of International Shipping. In addition to his academic background, he has gained extensive shipping know-how as director on several shipping company boards. Moreover, he has written or edited twenty books and some 120 article. His area of special interest is global strategic management, strategic planning and entrepreneurship for growth.

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