BUSINESS REPORT AN AMERICAN (USA) TELECOMMUNICATION COMPANY TAKING OVER A FIRM IN CHINA

BUSINESS REPORT 10

BUSINESSREPORT: AN AMERICAN (USA) TELECOMMUNICATION COMPANY TAKING OVER AFIRM IN CHINA

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Multinationalbusiness ventures require an assessment of various aspects affectingthe parent business and the mother country. It is important to assessequally different aspects of society ranging from socio-economic tothe political issues that may affect any particular business.Multinational business with interests in expanding their businessterritories through mergers or buyouts need to conduct a thoroughresearch on the country the target and the business and definitelythe business entity they wish to acquire (Rugman 2006). This reportwill analyze an acquisition by a Chinese telecommunication foreignbusiness entity by a United States of America multinational company.The report shall be split into two sections, Report A, and B. ReportA will comprise and analysis of the following aspects:

  1. The major cultural characteristics of both the parent and host countries.

  2. The major national business systems characteristics of both the parent and host countries.

  3. The human resource management and other employee related values and practices in the home and host country.

ReportA: HOME AND HOST COUNTRY CHARACTERISTICS

Hofstede’stheory opines that culture is a set of values governing the societyon matters related to structure in society and behavior. The behavioraffects the decision-making process (Hofstede 2010).

Theculture of an economic zone determines the rate of success for everybusiness entity found within the said body. Culture defines the typeof business or how people relate to the firm and determines the entryof the business into the society and target market (Basic books). Theculture of the home country is essential in determining what methodswill be used to acquire a foreign business entity (Zikmund, Babin &ampGriffin 2012). Proper research on the cultures of the two countriesand business entities set for a merger is crucial if success is to beobserved. However, other business statistics such as short term andlong term performance of the business must be accounted for.

Thecorrelation between culture and business practices determines thelevel of profitability that can be by a successful business entity(Kotter 2008). The level and appreciation of masculinity andfemininity within a given culture is a determinant of success withinan organization (Srite &amp Karahanna 2006). Finally, personalcontribution towards a business entity determines its growth. Thecontribution is affected by the kind of culture, whether is itindividualistic or collective.

TheAmerican Culture

Americanculture in this context has been used to refer to the culture of theUnited States of America. The American culture is centered mostly onthe liberty of an individual and the need to exercise the maximumrights as provided by the constitution (Buckley 2000). The USAculture may be based on three fundamental aspects that include theindividualism, freedom and competitiveness (Leach 2011). The threeaspects mainly paint a capitalist society, a laissez faire where thefederal government acts as a moderator.

TheAmerican culture opts for the equality of the masses. It fails toglorify family ties or pegs an individual`s influence in a societybased on who your parents are or what family an individual belongsto. The culture fundamentally holds that no individual is superior toanother (Barry 2002). The basis of relationships in the Americansociety starts with the observation of the above aspect. Forinstance, the lack of formality in a business entity or workplacedoes not signify the lack of respect or seriousness.

However,the lack of formality at the workplace would be frowned upon in somecultures around the globe (Barry 2002). Various aspects of nationalculture affect the rate of success and productivity of a givensociety. However, the application of some cultural aspects may workto favor productivity and success of some sectors at the expense ofanother (Squires 2008). National culture is essential in decisionmaking since culture determines how business entities are, powerdistributed and how the benefits are shared.

Invarious business entities in the United States, culture may notsignificantly play a major role in determining the outcome of asituation. American culture dictates the right to exercise free willin decision-making and the need to question the manner in whichthings are done (Benhabib 2002). The need to take an initiative toprovide a solution to any issue at hand is part of the Americanculture. The majority of the American people view themselves asmasters of their fate. Ferrell (2014) notes that equality thenremains as a reference point for any aspect in the American society.However, competition remains a key aspect and determinant of how muchan individual acquires and enjoys within society.

Theneed to work without supervision and volunteer is in the Americanculture where personal welfare is an important aspect of improving apersons` life.

TheAmerican culture opines that a person should share their thoughtsexplicitly with other people. On the hand, the culture also supportsthe practice of settling disputes via open discussions (Goetsch &ampDavis 2014). The working culture of the American society supports anetwork of top-down chain of command and feedback system where peopleare encouraged to offer constructive criticism in order to achievethe maximum positive results. The policy honesty the best policyassumed most if all people the society (Financial Times 2002).

Accordingto the Journal of World business, the presence single culture theobservation the status and respect for the established order varyingeffects the business models found. However, the Chinese culture doesnot mean that its business entities are less successful as comparedto the American version. The means and mode of operation may,however, differ slightly with the Chinese model inculcating more ofthe Chinese cultural values in managerial and decision-makingstructures. Decision-making at a corporate level is then affected bythe general culture observed by all the individuals in the Chinesesociety (Weber &amp Hsee 2000).

Scoringa value of 80 for its power distance evaluation, China is ranked highin the power distance index. The Chinese society observes thatinequalities in society are acceptable. However, there ispolarization of the relationship between the top and lower echelonsin society and leadership abuse has no excuse. People respectauthority and are not expected to have aspirations beyond their rankin the organization.

Decision-makingfollows a cultural concept influenced by the aspect of ‘guanxi’(Cambridge press 2002). ‘Guanxi’ is the aspect of Chinese culturethat emphasizes on the main aspect of individual trust. Thephilosophy, religion and political structures, all of which governthe Chinese society are based on the aspect ‘guanxi’. The Chineseculture combines businesses with personal relationships, an aspectthat lacks in the American culture where business entities andsociety are kept separate (Shenkar 2004). Though veering from thetraditional masculine based culture towards embracing females inbusiness entities and decision-making, the Chinese culture is moremasculine.

Thedifferences in the American and Chinese cultures are affected byHofstede’s six elements. The elements include power distance,individualism and the avoidance of uncertainty. The elements alsoinclude masculinity, long-term orientation and restraint versusindulgence. The American society has a higher masculine and higherindulgence rates as compared to the more conservative Chinesesociety. The power distance in China portrays a deeply rooted cultureof obedience and subordination towards the ruling elite unlike theAmerican system where each individual feels the need to exercisetheir right to question authority.

Thetabulation below shows the difference between the two countries:

PDI IDV MAS UAI LTO

China 80 20 66 40 118

UnitedStates 40 91 62 46 29

PDIis the power distance index. IDV – Individualism. MAS –Masculinity, UAI – Uncertainty Avoidance Index, LTO – Long TermOrientation.

Financialbusiness systems

TheAmerican Business system vis-à-vis Chinese business system

Whitley’sdefinitive works on the American business system portrays the systemas more connected with radiant feedback channels. Liberalinstitutionalism breeds capitalist tendencies (Whitley 2007). Theinstitutions provide structural stability to the American market. TheUS business systems almost always follow a non-intrusive economicapproach of a capitalist business system that is by policies (Röller&amp Waverman 2001). The aspects of institution that influenceformation of the American business systems vary. The combination ofthe various institutional influences ensures that the American marketis liberal enough to allow for capitalistic growth as compared to theChinese business system.

Accordingto Glaeser &amp Shleifer (2001) the market share attained by the USbusiness systems occurs largely from competition unlike their Chinesecounterparts.

TheUS business systems standardize their products to suit a mass marketwith little variations in quantity and quality for various incomesegments (Lampel &ampMintzberg 2012).The rate of business entry in the Chinese system is also slightlylimiting due to the active indulgence of the government (Su&amp Littlefield 2001).However, due to preferential trade zones such as the Shanghai marketsand Hong Kong, it is easier for multinationals to conduct business.

Neo-liberalismfor business systems

Alaissez faire economic system is characteristic of national businesssystems whose governments show little interference with the businesssystems. Capitalism and growth due to the resurgence of ideas on aglobal business platform necessitates the need for national systemsto standardize operation where transfer of practices is essential.Chinese authorities have influence over a majority of institutions ascompared to their American counterpart. However, the need to achieveeconomic growth has led to the privatization of most firms and themerger of firms and entry of multinationals in China.

TradeUnionism

Theapplication of trade unionism in the US business systems enables theworkers to fight and vouch for their rights at the workplace.However, it is rare in China to have trade unions catering for thewelfare of workers since the majority of the working conditions areoverseen by the government (Chen 2000). For instance, the telecomindustry in China also includes the manufacturing sector forinfrastructure and mobile phone components. Due to the availabilityof a large source of human capital, the Chinese job market offers lowremuneration packages (Ding,Goodall &amp Warner 2000).

Tradeunionism in America, popular during the 1980’s has recently seen adecline in popularity and membership. The loss of power of unions hasbeen affected mostly by the credit crunch. Collaborations betweenfederations of employers have led to the undermining of unions bymembers who opt out of the organizations. However, poor workingconditions for larger workforce in China has led to the creation ofstrong labor movements. The Chinese trade unions have stillregistered lackluster performance compared to other trade unions inemerging markets since most union posts are abused by officials.

Corporategovernance in China versus the United States of America

Corporategovernance in China has made use of a top-down approach that makesuse of a double tier system. The system has the governance andsupervisory boards that are influenced by the state. However, eachcorporation in the United States derives its leadership fromshareholders and the founder members of the company. The state onlyregulates corporate affairs via business governance policies. TheAmerican corporate system makes use a majority stakeholder decisionmechanism vis-à-vis the Chinese model.

Humanresource management

Chinahas lacked the influence of western human resource managementpractices with respect to its business systems (Bjorkman &amp Lu2001). Human resource management practices have mostly been relegatedthe little or no interference all the authorities long minimalstandards maintained (Personnel Review 2002). This is in contrast tothe American human resource practice where employee welfare is by thepresence of trade unions. The Chinese business system human resourcepractice has traditionally been characterized by the top-downapproach of exercising power with a middle levels manager who lacksthe expertise to supervise their staff (Peng 2001).

Inthe American system, the human resource model is hierarchical with atop-down approach. However, it differs from the Chinese model sinceemployee feedback from the low cadres is deemed essential to thedecision-making the process of the company. The US human capitalprides itself as a system that maintains the welfare of its employeethrough employee satisfaction to attain the maximum productivity(Storey 2001).

Multinationalcompanies operating in china have had to adhere to the Chinese modeof conducting business (Sun,Aryee &amp Law 2007).However, this is done with the inclusion of some policies thatprovide for the welfare of the employee.

ReportB: TRANSFER OF PRACTICES

Thedesirability to transfer human resource and business practices fromAmerica to China depends on various factors outlined in the previousreport. However, Gamble (2003) after a conduction of a profitabilitysurvey on the possibility of a merger or acquisition of a stake, itis necessary to survey the human resource practices applicable toChina.

Adaptablehuman resource models

Thedevelopment of the American human resource model is with respect tothe employee satisfaction and welfare. The human resource model isproactive with the inclusion of trade unionism that offers a sharpcontrast to the Chinese model (Daily &amp Huang 2001). The formationof policies by various organizations with an aim of deterring theformation of unions is a measure taken by most companies. However,Teece (2010) notes that multinational company policies are dependenton the business environment of the target company. The policiesadopted by a majority of multinational companies operating in Chinarange from the provision of better pay for their workers and theinclusion of benefits in the work contracts. The policies areformulated to ensure the workers feel compensated for the servicesrendered to the company (Hill 2008).

Humanresource systems require an essential evaluation of the effects ofboosting the morale and ensuring the employee portrays a positiveattitude. The reduction in the influence of the state over theorganization also ensures that the organization carries out itsactivities without bureaucracy associated with government controlledorganizations (Levy &amp Prakash 2003). The other provisions includebenefits such medical insurance and welfare related provisions suchas loans. However, it is essential to note that the development ofthe above measures as means to retaining employees is underdevelopedin China due to various barriers to conducting business vis-à-visconducting business in the United States.

Desirabilityof transfer

Desirabilitydepends on the implementation strategies set aside to ensure thatstrategies can be adopted properly without upsetting the Chinesebusiness culture. The participation of the organization by eachemployee is definitive to the success of the company (Li,Poppo &amp Zhou 2008).Therefore, it is desirable to transfer the human resource practiceswith caution from the mother country to the target country where themerger has occurred.

Itis feasible enough to transfer human resource practices from the USto China if empirical research concerning the business model is done(Adler &amp Gundersen 2007).

Thefeasibility of transferring human resource and successfullymotivating and retaining employees is a fundamental aspect of theprocess. Multinational companies require a strategic means ofdeveloping human resource policies that are effective. The need toeffectively transfer and ensure the Chinese workforce adopts theculture of the multinational workforce while simultaneously observingtheir culture is important (Liu &amp Diamond 2005). It is essentialthat the multinational company acquires skilled and highly qualifiedhuman resource to ensure the operations in China match those of theparent company.

Adoptionof various human resource practices and policies in the two differingconcepts should be critical of the two cultures (Warner 2004).

Themultinational company requires presenting itself as an autonomousbusiness entity devoid of any influence from the government. However,it is essential that the operations of the multinational be withinthe limits of the given Constitution of the People’s Republic ofChina.

Therefore,the Chinese business sector has created a variety of entry points forthe transfer of human resource practices without compromising on thetraditional practices of the parent company (Zhu et al. 2005).However, since multinational companies are by the constitution oftheir mother countries, they are obliged to operate and exercisehuman resource practices within the confines of their constitution.

Theadoption of human resource practices in their target countries isaffected by the parent company`s global policy. However, due to thepolitical and sensitive nature of China, it is difficult for themultinational company to expect a complete adoption of human resourcepractices without implications (Zheng &amp Lamond 2009). However, amultinational company may change the practice through the provisionof long-term contracts to staff in all cadres (Edwards &amp Rees2006). To retain the staff, the company should be able to provideincentives that will act as retainers and give the multinationalcompany an edge over its competitors.

Itis important to select a team of local or Chinese managers that arehighly skilled to ensure that the standards of the company will beupheld to attain maximum positive results. The successful transfer ofhuman resource practices requires proper implementation (Fryxell,Butler &amp Choi 2004).Due to the differences in the education system of the US and China,it is important for the multinational company to conduct managementtraining sessions for their professional staff to sensitize themconcerning the global trends. Availability of professional in theChinese job market is due to lack of training. Data from statistics,15.3% of Chinese over16 years of age are literate, 4.5% arecollege degree holders while less than 3% of the total population haspost-secondary (Ramamurti,&amp Singh 2009).It is feasible to transfer the human resource practices to China oncethe multinational company has set aside proper financial resourcetowards training of the limited number of professionals to betrained.

Itis essential to adopt the multinational company`s human resourcepolicies with specificity to the Chinese culture as earlier noted.Due to the specific and limited number of qualified educationalinstitutions, recruitment regulations are bound to create a barriertowards the start of operations immediately an acquisition or setupof the multinational company occurs (Du, Lu &amp Tao 2008). It isimportant that the company conduct employee surveys to ascertain thelevel of professionalism in the country. The localization ofmanagerial practices to suit the Chinese context should be with anaim of improving employee welfare and not competing with theauthorities (Cui &amp Liu 2000). Statistically, China`s workforceconstitutes less than 29% of professionals and managers holdingqualifications in higher education (Farrell &amp Grant 2005). Thisshows the level of human resource quality in the country. However,Lane &amp Pollner (2008) note that multinational companies shouldnot overrule the possibility of hiring them since the majority ofskilled labor in the country is through apprenticeship and mentorshipprograms.

Itis essential that the company adopt a commitment policy to everyemployee ensuring employee welfare is catered for (Tung &ampWorm2001). Further, formulation of incentives such as managementtraining, educational sponsorships should be included as incentivesto retain the employees of the multinational company (Khanna, Palepu&amp Sinha 2005). The conduction of trainee workshops in foreigncountries is essential for the managerial staff and other staff tonote the trends in the global market (Shen &amp Darby 2006). TheSino- American telecom relations are essential to the growth modelfor the American telecoms industry into the east (Datta &amp Agarwal2004). In return, the revenue repatriated to the American economywill be notable.

Theinterpersonal relations between employees and their managers shouldbe improved through social interactions to promote cohesion(Steinhardt et al. 2003). The Chinese workplace culture follows apaternalistic trend due to the Chinese culture and its Confucianaspect. However, improving the contact between employees and managersensures that the critical feedback system improves productivity whilestill maintaining the respect as required by the culture (Bozionelos&amp Wang 2006).

Itis essential for the multinational company to note that the Chineselabor structure is based on enterprise. Therefore, there is need toshift and adopt a free-market approach that combines a social systemof employee welfare (Gadiesh, Leung &amp Vestring 2007). It isessential to note that socially owned enterprises will provide amajority of the employees of the multinational company. Therefore,the need to carry out an impact assessment of the native companiesand their human resource practices is essential before transferringpractices and acquiring personnel (Newman, Thanacoody &amp Hui).However, the Chinese government has improved the businessenvironment. The direct recruitment of the Chinese professionals tomultinational companies and removal of local human capital huntershas eased the process (Tung 2007).

Conclusion

Humanresource practices necessitate a need to carry out proper researchbefore implementation of the policies. The feasibility of thetransfer is dependent on the ability of the multinational company tocombine effectively the Chinese culture and localize its policies.

Humanresource welfare including social, health insurance, social security,and pension costs vary greatly between the American and Chinesecontexts. It is evident that foreign compensatory packages in Chinavary greatly with those of socially owned enterprises (Child &ampRodrigues 2005). However, the multinationals offer better packagesand further retains more employees and is more productive. Prior tothe transfer of human resource policies and practices, it isessential to note all labor laws and regulations. Further, due to theaspect of globalization, the Chinese government has eased itsstringent terms and creating a better business environment (Thun2006). The above aspect enables multinationals to conduct businesswith ease. In the telecommunication industry, it is important to notethe legal barriers that may arise as currently the Congress isaccusing some Chinese telecom companies of corporate espionage(Sanger, Barboza &amp Perlroth 2013). However, despite the abovefactor, it is feasible to set up operations and successfully transferthe human resource policies in China.

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