Master Thesis
Pre-departure training for expatriates who are sent to China
Thesis Coach: Prof. Dr. Barbara Krug
RSM: Department of Organization and Personnel Management
First Co-Reader: Dr. Jimmy Tseng
RSM: Department of Decision and Information Management
Pamela Lau, 272351
RotterdamSchool of Management
ErasmusUniversityRotterdam
MScBAHuman Resource Management
June,2007
The author declares that the text and work presented in this Master thesis are original and that no sources other than those mentioned in the text and its references have been used in creating the Master thesis.
© P.W.C. Lau2007
All rights reserved. No part of this thesis may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the author.
The copyright of the Master thesis rests with the author. The author is responsible for its contents. RSMErasmusUniversity is only responsible for the educational coaching and beyond that cannot be held responsible for the content.
Pre-departure training for expatriates who are sent to ChinaP.W.C. Lau
Acknowledgments
The past five years have been quite a journey. Studying IBA and doing a Master in HRM at the ErasmusUniversity has truly enriched my life in many ways. In this process I have come to learn a lot and also made many good friends, which I am very grateful for.It is quite hard to believe this will be the final step towards receiving my Master’s Degree and that student life will be oversoon.
I hereby would like to take the opportunity to thank a few people for making this thesis possible. First of all, I would like to thank Prof. Dr. Barbara Krug for her coaching, advice, time and constructive feedback, steering me into the right direction. Also, Dr. Jimmy Tseng for his time and advice. Furthermore, my parents, sister and brother for their continuous support and love and having to put up with me during this whole writing process. Special thanks go out to Kirsten Tijssen, who has been a great support to me. Thank you for giving me advice and being there for me whenever I felt lost. And lastly, I would like to thank Huu Vinh Vuong, who kept motivating me and pushing me to go further in the last two months.
As someone said to me after our four-month exchange period in Bath, the UK, ended: ‘It’s time to close another amazing chapter in your life. Don’t be sad, because now it’s time to writeyour next one’.
Rotterdam, June 2007
Pamela Lau
Executive Summary
China’s domestic market is becoming increasingly attractive for foreign companies to establish their operations there, due to new business opportunities and the cheap labour force. To enable consistent business practices throughout the whole company, many MNEs are sending managers on an international assignment to China for a few years. These managers, or expatriates, are ‘utilised in foreign operations for control and accountability, their technical skills, their knowledge of products and to provide international exposure to key personnel for development purposes’ (Romero, 2002).
However, these international assignments do not always come without problems. ‘China continues to present one of the most difficult challenges to Western firms for ensuring successful, long-term assignments’ (Weiss and Bloom, 1990). The main reason for expatriate failure is the inability of the expatriate or the expatriate’s family to adjust to the new living and working environment (Weiss and Bloom, 1990; Forster, 2000; Hutchings, 2005). Companies could try to tackle this problem by providing pre-departure cross-cultural training for their expatriates.
This thesis will show that even though there still are companies that do not provide pre-departure training, from an expatriate’s point of view it is useful for expatriation to China, as it will aid the transition procedure. Pre-departure training should be provided where special attention should be given to the aspects: Culture, Guanxiand Language. Language is considered important based on the expatriates’ experience, but very often neglected by companies during the training process (Hutchings, 2005). In addition, briefings or information should be provided concerning Chinese business ethics and career opportunities for the spouse. This leads to the next point, which is the importanceof involving the spouse (and the family) in the pre-departure training process, since up to 80% of failed assignments in general is caused by the inability of the spouse to adapt to the new living environment (IOMA research report, 2005).
Hence, companies should comprehend the positiveeffect pre-departure cross-cultural training has on the adjustment of expatriates who are sent to China. Even managers who were (somewhat) familiar with the Chinese culture considered pre-departure training helpful. Training the expatriates can considerably decrease the number of failed assignments and also create a competitive advantage in the global business arena(Waxin and Panaccio, 2005).
Keywords: China, cross-cultural training, expatriate, pre-departure training
Table of Contents
Executive Summary
List of Tables and Figures
1. Introduction
1.1 Introduction
1.2 Problem Definition and Research Question
1.2.1 Problem Definition
1.2.2 Research Question
1.3 Contribution
1.4 Research Design
1.5 Structure Thesis
2. Literature Review
2.1 Introduction
2.2 International Human Resource Management (IHRM)
2.2.1 Introduction IHRM
2.2.2 International strategy and IHRM
2.2.3 IHRM practices
2.2.4 Expatriation
2.2.4.1 Reasons for expatriation
2.2.4.2 Importance of adjustment
2.3 China
2.3.1 Introduction
2.3.2 Chinese Culture
2.3.2.1 Chinese culture vs. Dutch culture
2.3.3 Guanxi
2.3.3.1 The benefits of Guanxi
2.3.3.2 The importance of Guanxi
2.3.4 Chinese Language
2.4 IHRM, China and Expatriation
2.4.1 Introduction
2.4.2 Pre-departure cross-cultural training
2.4.2.1 The importance of pre-departure cross-cultural training
2.4.2.2 Training Contents
2.4.3 Koninklijk Instituut voor de Tropen (KIT)
2.4.3.1 KIT and the China training programmes
2.4.3.2 Who gives the training?
2.4.3.3 Content of training
2.4.3.4 Benefits of KIT
3. Conceptual Framework and Hypotheses
3.1 Conceptual Framework
3.2 Hypotheses
3.3 Control Variables
4. Methodology
4.1 Research Method
4.1.1 Information gathering
4.1.2 Data gathering
4.1.3 Data collection method
4.2 Sample Selection
4.2.1 Contacting the Sample
4.2.2 Respondents
4.3 Variables
4.4 Data Analyses
4.5 Reliability and Validity
4.5.1 Reliability
4.5.2 Validity
5. Results
5.1 Introduction
5.2 Contents pre-departure training
5.2.1 Contents based on experience
5.2.2 Pre-departure Training
5.2.2.1 Characteristics of training
5.2.2.2 Training elements of pre-departure training
5.3 Useful Information provided about living and new position
5.4 Relevancy pre-departure training
6. Conclusions
6.1 Conclusions
6.1.1 Pre-departure cross-cultural training
6.1.2 Information provision
6.1.3 Relevancy pre-departure cross-cultural training
6.2 Managerial Implications and Recommendations
6.3 Limitations and Future Research
References
Appendices
Appendix I: World Investment Report
Appendix II: Hofstede’s Cultural Dimension Graphs
Appendix III: Questionnaire
Appendix IV: Quantitative Data
Appendix V: Respondents’ Answers Open Questions
List of Tables and Figures
Tables
2. Literature Review
Table 1: Successful expatriate acculturation...... 20
5. Results
Table 2: Descriptive statistics: Importance training elements based on experience...... 46
Table 3: Descriptive statistics: Importance training elements during actual training...... 48
Table 4: Descriptive statistics: Information provided by the company...... 48
Table 5: Descriptive statistics: Information regarding the new position...... 49
Figures
2. Literature Review
Figure 1: Comparison Hofstede’s cultural dimensions for China and the Netherlands...... 24
3. Conceptual Framework and Hypotheses
Figure 2: Conceptual Framework...... 33
1. Introduction
1.1 Introduction
The economy of the People’s Republic of China[1]is booming. According to the United Nations Conference on Trade and Development (UNCTAD) world investment report 2006[2], China ranked third with $72 billion in global Foreign Direct Investments (FDI) inflows in 2005, behind the United States and the United Kingdom (see Appendix I for FDI table). Due to the government’s economic reform initiatives and its increasingly welcoming attitude towards foreigners, China’s economy has averaged 9% growth[3] per year over the past two decades. Furthermore, China’s entry into the WTO has led to opening up of markets and FDI is expected only to increase. According to figures that were released by the World Trade Organization (WTO) in April 2007[4],China surpassed the United States as the world's second-largest exporter in the middle of 2006, with an export growth of 27%. It is also predicted to be largest exporter in 2008. Besides that, the country’s imports rose 20% to $792 billion in 2006.
With these figures it is no wonder that China is tagged as one of the BRIC-countries. In 2003, Goldman Sachs, a worldwide renowned investment bank, published a paper on the economic potential of Brazil, Russia, India and China (BRIC) and argued they may become among the four most dominant economies by the year 2050.
An emerging economy like China offers new business opportunities to MNEs.Especially, with China’s entry into the WTO in 2001, the country has further opened up its borders to FDI and companies are very eager to make use of this. China’s cheap labour market and its population of 1.3 billion people represent a pool of new workers and consumers for foreign companies to tap and therefore many of them endeavour to establish their business in China.
Doing business in China does not always come without problems, as can be seen in the case of Danone vs. Wahaha[5].The Joint Ventures (JVs) which were established since 1996, between the French MNE and its Chinese business partner, China’s largest beverage producer, recently turned sour in April 2007, after Danone tried to take full ownership over the ventures. Danone already held a 51% stake in the ventures, but was prohibited by Wahaha to buy the rest of the assets of the Hangzhou Wahaha Group. This was followed by Danone taking legal actions, since it claims that Wahaha has breached their contract. Thus, as this example shows, doing business in China can bring its drawbacks. Nevertheless, being successful in China can bring a lot of benefits to the company, as for Danone the JVs accounted for more than 5% of operating profits in 2006.
1.2 Problem Definition and Research Question
1.2.1 Problem Definition
Expatriation has been a popular method for MNEs to implement the parent company’s strategy and practices in their foreign subsidiaries or JVs. Although the largest part of the subsidiary’s employees will be hired in the host country itself, many MNEs send managers from the parent company to the host country for a few years to work on a project. These expatriates are usually involved in getting production started or in directing the business processes according to the parent company’s requirements.
However, not all of these assignments will run smoothly. ‘Despite lots of research, enterprises continue to be haunted by failed assignments, projects gone bad, and attrition when it comes to expatriates’ (Jack and Stage, 2005).Expatriate failure is defined by Oddou (1991) and Romero (2002) as a premature return from a foreign assignment or poor performance while the expatriate is on assignment.Additionally, they state that expatriate effectiveness is the completion of a foreign assignment with high levels of productivity during the assignment. From expatriates in general, 10 – 40% are estimated to return prematurely (Tung, 1987; Weiss and Bloom, 1990; Kline Harrison, 1994; Romero, 2002; Jack and Stage, 2005).
The costs of a failed assignment are difficult to quantify, given that it reaches further than the actual costs of the transfer and salary of the expatriate (Jack and Stage, 2005). Missed business opportunities and productivity losses also add to the bill. Estimated costs of poor management or low productivity can lie between $65,000 and $300,000 (Mendenhall and Oddou, 1985). And more recent researches mention that a failed assignment can even cost up to $1 million (Romero, 2002; Hutchings, 2005).
There are external factors that might influence the expatriate’s assignment, e.g. the overall performance of the foreign subsidiary or JV. Nevertheless, the foremost reason for apremature return is their or their family’s inability to adjust to the culture of the new environment (Tung 1987; Romero, 2002, Hutchings, 2005). Other reasons for expatriate failure include insufficient technical skills, low motivation level for being abroad and the manager’s lack of emotional maturity (Tung, 1987; Romero, 2002).Moreover, according to Copeland and Griggs (1985), a completed assignment does not necessarily mean that it was successful, as up to 50% of the expatriates performed poorly during their assignment.
In HRM literature, a lot of research has been done on expatriate adjustment and the effect of cross-cultural training (for examples see Black and Mendenhall, 1990; Selmer et al., 1998; Forster, 2000; Waxin and Panaccio, 2005). Apart from the proper selection of the expatriates – in terms of technical ability, managerial skills, cultural empathy, adaptability etc. (Phatak, 1992) – pre-departure cross-cultural training is very important in order for the transition and assignment to be successful (Black and Mendenhall, 1990; Brewster and Pickard, 1994; Forster, 2000). ‘The objective of cross-cultural training is to teach members of one culture to interact effectively with members of another culture, and to predispose them to a rapid adjustment to their new positions’ (Mendenhall and Oddou, 1991; Waxin and Panaccio, 2005). Even though many researchers have found that there is a positive relationship between cross-cultural training and expatriate performance and adjustment (Tung, 1987; Black and Mendenhall, 1990; Deshpande and Viswesvaran, 1992; Waxin and Panaccio, 2005), some studies argue that the effect still remains inconclusive (Kealy and Protheroe, 1996; Selmer et al., 1998).
Research on cross-cultural training and the adjustment of expatriates in China still is limited, although in the last few years there have been a few studies done concerning this topicand with China’s growing importance, this amount is expected only to increase (see Hutchings, 2005; Selmer, 2005). For example, in a study done by Weiss and Bloom (1990) among 26 expatriates of MNEs in China, they found that there was ‘a lack of preparation for the assignment in terms of expectations, language skills, and how to communicate with the Chinese they have to train and work with’. This matches findings of studies on cross-cultural training in general, that ‘many companies do not provide formal cross-cultural training or on a very selective basis’ (Black and Mendenhall, 1990; Brewster and Pickard, 1994; Selmer et al., 1998; Forster, 2000).
There are large differences between the Western cultures and the Chinese culture, which can be assessed using the five cultural dimensions of Hofstede (1980). It is argued that expatriate failure is greater in nations where the gap between the home and host culture is indicated (Hutchings, 2005). Hence, the HR-department should understand the significance of pre-departure training for expatriates they send to China. Subsequently, the success of a company’s International Human Resource Management (IHRM) is essential for its global competitiveness and can make or break an expatriate assignment (Stroh and Caligiuri, 1998; Bonache and Fernandez, 1999; Scullion, 1999).This study will contribute to the available literature on pre-departure cross-cultural training for expatriates who are sent to Chinaby researching the current preparation practices and stressing the importance of preparing the expatriates well before they leave for China.
1.2.2 Research Question
Interestingly, it widely differs per company how the HR-department prepares the expatriates for their foreign assignments. Most companies will provide a pre-departure cross-cultural training that can range from one day to a full week of intensive training. Nonetheless, not all companies necessarily provide this training or when they do, the training might not be sufficient (Brewster, 1995; Selmer, 2000)and evaluating its effectiveness remains difficult, due to the qualitative nature (Waxin and Panaccio, 2005). Even so, Selmer et al. (1998) assert that ‘effective training occurs when the cross-cultural content coincides in time with the psychological predispositions occurring during the various phases of the adjustment process’.
Some issues for evaluating the relevance are: is the training addressing the right subjects, is the time spent enough and does it actually help the expatriate adjust once in the country? In an earlier study done by Goodall et al. (2006) with expatriates in China, most expatriates were not satisfied with the things they learned during their pre-departure training, since the information they had gotten was mostly outdated, if not totally wrong. A consequence of insufficient preparation is that it causes adjustment problems when the expatriate is not familiar with the host country’s culture, due to large cultural differences. And when the problems are not tackled in time, this might lead to failure of the foreign assignment (Tung, 1987; Romero, 2002; Hutchings, 2005).
Expatriates who are sent to China by their company will inevitably face psychological stresses that occur when people adapt to a living and working environment in a new culture (Forster, 2000). Most companies will try to prepare and familiarise expatriates with common faced problems before they leave, by providing pre-departure training and additional information. Creating realistic expectations can help the expatriates adjust to the new environment. However, are the issues that expatriates face who are sent to China, also (sufficiently) covered in the pre-departure training? Are the training needs of the expatriate adequately reflected in the content of the pre-departure training?
This studylooks at the pre-departure preparations that expatriates have experienced for their assignment in China, and will specifically focus on the effect of pre-departure cross-cultural training. How were they prepared for their function in Chinaby their companies and more importantly, are these practices sufficient? Therefore, themain research question of this research can be formulated as follows:
In order to answer the research question, several features of the pre-departure preparation process of an MNE need to be investigated. By looking at these features,a better understanding can be created on how MNEs handle their IHRM and with the feedback of expatriates the effectiveness of these practices can be assessed. The following aspects of pre-departure cross-cultural training of expatriates need to be investigated, which can be seen as sub-questions that support the main research question.