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Int. J. of Human Resource Management 17:9 September 2006 1547– 1571

Dynamics of decision power in the localization process: comparative case studies of China-Western IJVs

Marie Wilson, Shaohui Chen and Ljiljana Erakovic Abstract International HRM has focused on the MNC and its control and compliance mechanisms, particularly the tension between ‘internationalizing’ practices and normative host-country practices. This contingency approach does not capture the complexity of MNC interactions in the local environment, however, particularly with regard to international joint ventures (IJVs). Partners to the IJV may wish to impose their own practices, and use contractual and non-contractual resource power, internationalization expertise and operational consistency requirements to gain relative decisional advantage. Case studies of four Sino-Western IJVs illustrate the dynamics of IHRM development under conditions of weak socio-legal constraint and high cultural distance between partners. Keywords

International HRM; China; international joint ventures; localization.

Introduction The extent to which the practices and processes of human resource management (HRM) can be transferred from one country to another has been the subject of considerable debate. This question is of special interest to multi-national corporations (MNCs) when they seek to establish HRM processes spanning cultures and countries (Adler, 1991; Schuler et al., 1993). It is a question that has aroused particular interest among those researching international subsidiaries (Beechler and Yang, 1994; Rosenzweig and Nohria, 1994) and international joint ventures (IJVs) (As-Saber et al., 1998; Chen and Wilson, 2003; Cyr, 1995). Until recently, considerations of internationalizing HRM often did not differentiate between MNC subsidiaries and IJVs, as both were seen as the focus of standardization pressures from multinational parents, in opposition to institutionalized local mechanisms (Schuler et al., 1993; Welch, 1994). IJVs have increasingly been differentiated, however, in the articulation of factors that contribute to innovative and/or hybridized practices – particularly in the area of HRM (Schuler et al., 2004) – and in the recognition of institutional and resource complexity that affect HRM policies and practices in joint ventures (Yan, 2001). This research explores sources of Marie Wilson, The University of Auckland Business School, Commerce C Building, 18 Symonds Street, Auckland 1020, New Zealand (tel: 64 9 - 373 7599 Ext: 87667; e-mail: [email protected]); Shaohui Chen, China Europe International Business School, 699 Hongfeng Road, Pudong Shanghai, China 201206 (tel: þ 86 21 2890 5349; fax: þ 86 21 2890 5525; e-mail: [email protected]); Ljiljana Erakovic, The University of Auckland Business School, Commerce C Building, 18 Symonds Street, Auckland 1020, New Zealand (tel: 64 9 - 373 7599 Ext: 86855; e-mail: [email protected]). The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online q 2006 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/09585190600878352

1548 The International Journal of Human Resource Management decisional power and influence in Sino-Western IJVs and examines how they contribute to Westernized, localized or hybrid HR practices. Internationalizing HRM The international HRM (IHRM) literature has traditionally focused on the MNC as a ‘head-office’ driven entity, and constructs choices as a function of environmental issues for analysis and strategic interpretation by central MNC executives (Ngo et al., 1998). The ‘parent’ metaphor of headquarters and international branch office is particularly problematic in the context of the IJV, as there is not one headquarter but two; not one organization, but at least three (the foreign MNC, the host country enterprise, which may also be an MNC, and the IJV). The practices of the IJV may represent not just their own strategy and local environment (termed ‘localization’ in the subsidiary literature) but potentially expectations by one or many MNC parents to adopt practices that are identical to the parent (standardization1). Without the coercive power of the hegemonic ‘parent’ (Geppert and Clark, 2003), there is a potential for tension between foreign MNC ‘push’ and the ‘pull’ of the local environment (Farley et al., 2004), as well as for explicit or implicit differences in the HRM assumptions of all three (or more) groups of management. Tensions between both groups of shareholders and between foreign shareholders and localized business systems, and attendant expectations, suggest that hybridized or mixed practices may reflect the relative power of parents as well as the host-country socio-legal environment. HRM practices and policies in IJVs Although the basic principles of ‘partnership’ in an IJV include equality and mutual benefit, MNCs often insist that their policies and practices are transferred and executed strictly to protect their interest (Lindholm, 2000). MNCs also gain operational efficiencies by exporting their standardized practices to guarantee operational consistency in international business (Jain et al., 1998). In terms of HRM, this may also include key appointments within the IJV to both standardize and socialize the new organization in key areas such as financial reporting, HRM and operational monitoring and reporting (Martin and Beaumont, 1999). The IHRM literature is generally consistent with the ‘new institutionalism’ approach (see Powell and DiMaggio, 1991; Westney, 1993) in the way that it emphasizes the relationship between the organization (most commonly a subsidiary) and its institutional environment, including the MNC and the host-country socio-legal systems. As Westney (1993) has noted, there are competing or contradictory institutional forces in the subsidiary environment, which act in opposition to MNC strategic intent. Imperatives for control and consistency are imposed by the ‘foreign’ MNC, in contradiction to pressures for policies and practices consistent with those in the local community that the subsidiary operates within. Rozenzweig and Nohria (1994) have applied this framework specifically to HRM issues in MNC subsidiaries, and revealed a strong country-of-origin effect. While we might expect similar influences in the IJV environment, IJVs present with multiple potential ‘countries of origin’, and within-country institutional and resource issues beyond that exerted by the legislative and regulatory environment. Yan (2001) has elaborated this view, by integrating institutional theory and resource dependence, and examining the role of contractual and non-contractual resources on the influence exercised by respective partners to the IJV. From the perspective of the ‘globalizing’ MNC, the joint venture is an extension of the MNC and yet another context for its HRM operations. MNCs may choose to exercise

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power to effect HR practices (Bjo¨rkman and Lu, 2000), by using several sources of decisional power. At the simplest level, partners to a joint venture may rely on their equity positioning (percentage of ownership) and the resulting ability to populate board and management positions with their employees or agents in order to exercise authority and determine HRM results. In addition, partners may draw on other less tangible sources of decision power, including: . Embedding of HRM practices in production systems (Meardi, 2004; Saka, 2002), thus requiring operational consistency among practices in order to guarantee operational effectiveness and efficiency, and full utilization of the transfer of technology and expertise (Kostova and Zaheer, 1999; Lindholm, 2000); . Gaining or retaining significant advantages over the resources that are vital for the JV’s survival and development, either by virtue of specialized expertise or control of scarce resources, e.g. distribution networks and/or harvest rights. These resources may be specified in the joint venture contract or represent non-contractual practices (Braun and Warner, 2002; Yan, 2001); and . Possessing prior internationalization experience such that the partners have worked through and practiced their HRM approaches in other environments, and have both a basis for expecting successful implementation of standardized, isomorphic HR practices, and a negotiation history to support it, consistent with expectations at an individual level (Carpenter et al., 2001). This is akin to Lambe et al.’s (2002) articulation of ‘alliance competence’. Our research proposition is that HR policies and practices in IJVs result from the relative power and influence of the IJV partners, and that their power bases are a function of the interaction of: (1) resource power (contractual and non-contractual; tangible and intangible); (2) internationalization experience; and (3) embedded consistency requirements. The research context The model proposed above, with three decision drivers determining the relative influence of IJV partners on HR policies and practices, represents an extension and elaboration of existing IHRM models’ emphasis on ‘country-of-origin effects’ (Ngo et al., 1998; Rozenzweig and Nohria, 1994) to acknowledge that there are also organizational effects that operate across levels of analysis (Kostova and Zaheer, 1999). Where these differences operate in favour of the locality, the likelihood of indigenous HRM practices, isomorphic with those of the host country partner, would increase. Conversely, differences in favour of the foreign MNC tend to reinforce what has historically been termed ‘standardization’. Thus the strategic drivers elaborate the tension between standardization and localization of the enterprises on human resource – and potentially other – management issues. In more homogenous contexts these differences may be expressed in small differences in practice that would be difficult to capture and link to the IJV formation process, as the partners themselves would be similar enough to make the origin of practices unclear. However, cultural distance has been increasingly scrutinized as a mechanism for explaining differences in management practices, particularly in the area of HRM (Gong, 2003). China and Anglo-Saxon countries present a high degree of cultural distance, and would be expected to exhibit considerable differences in both general management and HRM practices. Strategic drivers often result in ‘conflicting voices’ which are increased with diversity or heterogeneity

1550 The International Journal of Human Resource Management Table 1 Chinese ‘Iron rice bowl’ vs. Western HRM ‘Iron rice-bowl’ (pre-reform state sector) Employment contracts Incentives and rewards

Performance management Social security Trade union Role of HR department

Labour market characteristics

Western HRM (based on US model)

Life-time employment for urban workers; No employment guarantee; ‘cradle-to-grave’ welfare coverage; state or private welfare enterprises not permitted to discharge or fire Egalitarian pay structures, with differentiation Performance-related; on age, length of service; non-material rewards; profit-related; housing, schooling, medical care provided material profit sharing; wide variety of pay structures Moral exhortation; group rewards Financially driven; individual and group objectives Administered by enterprise; Separate from enterprises; non-contributory for workers contributory Controlled by Communist Party; Independent; worker/job links all organizations to central government protection, wage bargaining Administration; control, conformity, discipline, Strategic HRM; punishment, personnel files; strong government multi-skilling; influence job enrichment; administration No labour market; centrally planned High labour mobility job allocation

Source: Adapted from Goodall and Warner (1997)

(Hoskisson et al., 2002); this should result in greater potential for conflict in cultural distant partners forming a joint venture or partnership. This is particularly salient in China, where human resource practices remain distinct, even from those of other Asian business systems (Rowley et al., 2004) and where the socio-legal factors are relatively weak, promoting heterogeneity of HRM practices in IJVs and other foreign-invested enterprises (Geppert et al., 2003; Paauwe and Boselie, 2003). With the rise of IJV formation in China, however, there is an unprecedented opportunity to assess these potential differences in the context of markedly different sets of HRM practices and policies, and thereby document the impact of MNC drivers on the development process. Chinese practices have become increasingly Westernized, or at least converged with other international practices (Warner, 2004), but Chinese HRM is still distinctly different from that in OECD nations, and still reflective of the older system that has only recent been weakened by reform (Warner, 1996). See Table 1 for a general comparison of Chinese HRM traditions with North American HRM, as an example of Sino-Western differences in HRM policies and practices. Given the distinctiveness in practices between China and OECD nations, where greater strength in Western or Chinese decision drivers is present, the resultant impact on HR practices should be distinct and discernible. Method A framework articulating factors that are decision drivers assists us in considering which IJV partner will have a greater impact on HRM subsidiarity, that is, the extent to which JV practice and policy mimics one partner and not the other. Given that the propositions are

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concerned with how the factors of HRM standardization and localization are constructed and interact, qualitative case studies of IJVs and the founding partners appear to be the most appropriate research approach (Lincoln and Guba, 1985; Yin, 2003). Case studies allow us to generalize to theory and build a richer understanding of the interaction of complex organizational factors in distinct contexts (Eisenhardt, 1989). The ‘thick descriptions’ that we elicit underpin the generation and refinement of our models (HesseBiber and Leavy, 2004: 5). For this research, we have adopted Eisenhardt’s (1989) approach to theory development from cases, grounding ourselves in the literature and approaching our case companies with tentative hypotheses that were refined iteratively and strengthened throughout the research process. Our analysis focuses on the patterns within and across cases (Miles and Huberman, 2002), and the insights into theory that this presents. As Eisenhardt (1989: 540) notes, the within-case analysis ‘typically involves detailed case study write-ups ... [which] are often pure descriptions, but ... are central to the generation of insight’; the analysis within each case consists of the distillation of rich data from multiple sources into a structured analytical narrative (Miles and Huberman, 2002) that underpins cross-case analysis. While we have moved beyond this to link key aspects of the within-case scenarios to theory and our framework, we have reserved full integration of the results with our proposed framework for the cross-case discussion, to ‘maintain the independence of the replication logic’ within each case (Brown and Eisenhardt, 1997: 5). Research process We focus at the level of the organization, with four comparative cases, two in largescale manufacturing and two in financial services. After negotiating access to these companies, we undertook fieldwork over a three year period, 1999 –2002. Within each organization, we conducted semi-structured interviews of 1–2 hours with a structured sample of up to 20 employees, including department managers, HR managers, the CEO, CFO and Vice Presidents. The sample was structured to include informants representing the three parties, Western partner, Chinese partner and IJV. In addition, a random sample of newly recruited and transferred staff was interviewed. The range of voices included in the case study construction was an important device for both triangulation and understanding of findings, but also exploration of inconsistencies and tensions. Meanwhile, we observed the companies’ daily operations including meetings between staff and with customers. We also collected archival data regarding the companies’ policies, decision-making procedures, internal reports and external reviews to build additional points of comparison. All interviews were conducted in Mandarin/PuTongHua (except where English was the first language of the interviewee). While case interpretations are produced here in English, we will use direct quotes of respondents, presented here in English translation, within the cases. Selection of case companies The cases presented here are part of a larger research programme across manufacturing and financial services JVs in China. We selected the initial four cases in the project as a theoretical sample for development of the theoretical framework presented in this paper. In each case, the partners to the joint venture are long-established enterprises with wellestablished corporate cultures, infrastructures and management practices. In all cases the MNCs held between 40 per cent and 50 per cent of the equity stake in the business (no more than 50 per cent was available to foreign partners, and the governmental preference was that no more than 49 per cent be in foreign ownership). Two cases are selected

1552 The International Journal of Human Resource Management from both services and manufacturing to develop theoretical breadth beyond the traditional IHRM focus on manufacturing companies; this is particularly important to considerations of operational embeddedness, which has typically been associated with production. The case sites are all in large urban areas, which do not present significant infrastructure or labour market challenges to the founding and development of the IJV. All case companies (IJVs) have Anglo-Saxon (US or UK) partners and Chinese partners, without other national representation, so inter-cultural complexity (and comparison) is simplified. We acknowledge that there are distinct differences between business cultures and HRM practices in the US and UK, but also note that Anglo-Saxon systems are seen as distinct from other European systems (Brewster and Holt Larsen, 1992; Ferner et al., 2004; Schmitt and Sadowski, 2003). Further, differences between US and UK systems are small in comparison to the differences between Western and Chinese systems (Warner, 1996). Throughout the remainder of the paper, we use the term ‘Western’ for the Anglo-Saxon MNCs. We have three reasons for doing so: first, we wish to preserve and emphasize some of the distinctive ‘east-west’ elements of the IJVs; second, MNCs in both manufacturing and financial services are often not of one clear nationality; partial company ownership of a ‘US’ or ‘UK’ company may often be in another country; finally, ‘Western’ is the terminology used by our informants, from both the IJVs and MNCs. To disguise their identities, we have numbered the case companies within their industrial grouping to represent them in the following analyses and discussion. Thus, the four companies discussed in this paper will be identified as MAN1, MAN2, FIN1 and FIN2. As Table 2 demonstrates, the IJVs have all been formed in the past 10 years, and all are still operating. Our analysis focuses on the patterns across cases, and the insights into theory that this presents. Case studies Case 1 MAN1 provides manufactured transport systems for the Chinese building industry, as well as operating a sales and service network throughout China. The JV was established in 1993 and operates at a net profit of over 20 per cent, with a dominant market share in China. Part of the company’s success may be attributed to the buoyant building industry and urban development in China from the 1990s. The Western MNC partner is headquartered in the USA and is an industry leader in the sector, with international market dominance. It provides products and services worldwide as one of the five largest manufacturers in the global industry. It remains an active player in the global market, Table 2 Demographic profile of case companies MAN1

MAN2

Location Year established No. of employees Primary partners

Metropolitan 1993 300 þ American MNC; Chinese SOE

Provincial 1992 1000 þ UK MNC, Chinese SOE

Financial ‘success’

After large investment, profitable

FIN1

Metropolitan 1999 70 þ UK MNC, Chinese shareholding company. Initial cash flow Initially loss making, problems, now now profitable profitable

FIN2 Metropolitan 1995 300 þ American MNC, Chinese SOE Profitable

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‘through the combined strength of its worldwide subsidiaries’2 (company document), and occupies a dominant market share globally. Over 85 per cent of its employees work outside the US; the majority of the international employees are host-country nationals. This Western MNC has a long history of doing business with China, with ongoing operations from early in the twentieth century, which continued throughout the Cultural Revolution and significant barriers to foreign ownership and investment. Currently, it has five joint ventures and one holding company in China, and has built up a network of sales and service branches and offices in almost all Chinese metropolitan areas, employing more than 3,000 people throughout China. Prior to this JV, it had set up two other IJVs in China, and one of them has operated since 1984. The holding company was formed in 1998 to integrate business operations in China. The Chinese partner is a governmentfunded investment company. It is the leading investment company in Shanghai with responsibility for developing industry structure and infrastructure for the region. With policy and financial support from government, it has invested in many industries through strategic alliances with both domestic and international partners. It has accumulated experience and organizational resources during its development as an investment vehicle, and built up a solid organizational knowledge of investment management, including managing investments in JVs and alliances with international partners. The joint venture presents the opportunity to enter the Chinese market for the American MNC, and for the Chinese partner it represents an opportunity to gain access to advanced manufacturing technology and sales and service systems. The company CEO (an American expatriate) reports to a board of directors with equal representation from the MNC and Chinese partner, with a representative of the MNC as Chairman of the Board. In terms of decisional power, MAN1’s top management team attributes the joint venture to the expertise of the MNC parent. The Western partner ‘brings the benefits of latest technology... to China and manufactures in specialist factories in China to ensure cost effective solutions for its customers’ (Western partner document). The CFO states, ‘Our parent company (referring to the Western partner) has a very good reputation in the world. Our product and after-sales service occupy the top level in the industry. This is why our business is running so smoothly in China; there is a cool shadow under the big tree.’ He also said that as a representative of the local partner, he rarely is required to report to his local parent. In contrast, he reports routinely to the Western MNC. Throughout MAN1, all employees refer to ‘our parent company’ referring only to the Western partner. The Western partner is similar to Bjo¨rkman and Lu’s (1999) characterization of a Western MNC with a regionalized centre for institutionally distinct settings; in this case the IJV operates as the de facto China centre for the Western partner. The drivers for HR operational consistency appear complementary between the Western and Chinese parents and the JV management practices. During the MNC’s internationalization process, they established a set of flexible operational procedures, as well as parameters and instructions for localized adaptation of procedures. The JV management and operation are consistent with the MNC partner’s guidelines. The JV HR manager explained, ‘We followed the foreign partner’s procedure first as a test for conflict with local conditions. If we found something that required change, we ... suggest(ed) a better way’. This flexible, modular approach is consistent with Lindholm’s (2000) characterization of HRM globalization. Shareholding is equal, as is board membership (although there is another minority shareholder who is not involved in management), but both the CEO and chairman are Western appointments. The Chinese partner does not hold the balance of power in the JV’s management and governance structures, but have stated that allowing the MNC

1554 The International Journal of Human Resource Management greater influence in operations enhances their ability to learn about the foreign partner’s technology and other processes, including management. The JV CFO, representing the Chinese partner, sees this strategy as one that ensures that advanced technology is transferred to local staff, increasing the IJV’s competitive advantage regionally. The JV HR manager (a local appointee) also said the Chinese partner encouraged him to implement Westernized HR practices such as training and performance-based reward systems. Eventually, the Chinese partner even sent representatives of other JVs in which they were partners to MAN1 to study its practices. In terms of experience, the MAN1 foreign partner is a mature MNC with a long history of internationalization. They have set up business units throughout the world, with hundreds of different partner locations. The JV CFO indicated that the Western partner’s expertise dominated initial negotiations, ‘they have a very systematic management system and everything we met they seem to know how to deal with ... We just follow the procedures or the suggestions.’ In contrast, the Chinese partner is inexperienced in this industry, although it has invested internationally in other industries and been involved in strategic domestic and international alliances in the past. In summarizing the decisional factors for MAN1, it appears that the Western partner has greater decision expertise and experience, with a lengthy history in both the industry and international operations. While the operational systems are largely transferred from the Western MNC in support of operational requirements, we note that the MNC policy is more geocentric and allows for localized adaptation of practices as required. In terms of resources, the partners are equally represented in equity, governance and senior management. The balance of power appears greater for the Western partner on these factors, and is reflected in the adoption of the Western partner’s policies and procedures intact, although translated into Mandarin. The adopted practices include some that are highly unusual for a Chinese enterprise, including online job applications, structured interviews for selection, and performance appraisals that are not purely formative, but play a role in the determination of pay. The JV adheres strictly to all Chinese labour law and regulations, which is a strict requirement of the foreign partner’s operating principles (but not a practice adopted by most Chinese enterprises). In addition to the drivers and practices analysed within the case, the most striking aspect of the case is the Chinese JV’s total lack of industry experience, the absence of embedded practice expectations, and the relative lack of non-contractual resources transferred by the Chinese partner to the JV. In contrast, aside from the financial commitments, all other resource contributions, both contractual and non-contractual, were from the Western MNC to the JV; these included expertise, management and governance structures and personnel, operational procedures, and specialized capital assets. We should also note the very lengthy internationalization and alliance experience of both partners, particularly the extensive China experiences of the Western MNC, and the absence of active government involvement in the formation and operation of this large and very successful IJV. Case 2 MAN2 was an important project in the reform of the Chinese economy. The Chinese partner is an important state-owned enterprise (SOE) established in the 1960s. As the key Chinese player in the automotive industry, it is supported by the central government. However, it experienced many of the problems encountered by Chinese SOEs engaged in industrial operations, including low levels of design competency, myriad production problems and a lack of after-sales service, coupled with over-employment, resulting in

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financial losses to the point of bankruptcy and closure. With strong support from central government, this SOE reformed its structure and strategy towards a planned market model in keeping with the emergent Chinese national economic policy. The Chinese partner is seen as an industry leader and an exemplar of Chinese business practice and financial efficiency. Through the reform period, it began pursuing international technology alliances and joint ventures. For the Chinese partner, the JV is a milestone and turning point for its survival and development in the context of national economic reform. The JV project introduced desperately needed capital, as well as advanced technology for product design and manufacturing, and management ideologies regarding strategy, innovation, learning, service quality and human resource management. Beginning with this JV, the Chinese partner has extended its operation with other domestic and international partners. For the Western MNC, this JV opened the Chinese market and provided access to cheaper manufacturing material and human resources. The European MNC partner has had a moderate international presence since the middle of the last century. It has a ‘worldwide industrial infrastructure made up of more than ten assembly centres, engineering centres and plants’ (company document), as well as related after-sale and maintenance service centres. It is one of the five largest designer/producers in the industry worldwide. With wholly owned subsidiary offices in the primary markets of the world, it manages manufacturing and related service branches or international JVs throughout Europe and North America. The Beijing subsidiary office functions as the de facto Chinese ‘centre’. The establishment of the JV in China completed a major milestone within the Western partner’s global strategy. The JV board of directors provides representation in strict relationship to shareholding. From the beginning, the governance principles have included that the two primary partners alternate appointments for the CEO position and senior management responsibility. With the assent of the Chinese partner, the Western partner sent a very large group of expatriate managers and technical personnel to the site to hold all key positions in the organization in the early stages of the JV development (the first two levels of management). As the JV has matured, the partners have agreed to employ increasing numbers of local management and technical personnel. The decision drivers in MAN2 have evolved and changed over the 10 years of operation. In terms of operational expertise, in the beginning of the venture the Chinese partner was under huge financial pressure as well as public scrutiny as a national experimental site for economic reform. Sponsored and monitored by the government, the JV was formed for the purpose of importing advanced manufacturing technology. In the five years of negotiation leading to the JV, ‘the principles of co-operation were laid down ... [Western partner] committed itself to transferring the technology required to set up the means necessary for the production and sales. [Chinese partner] was to provide the staff, technical assistance and the civil engineering work’ (JV document). However, after just a few years, the Western partner’s management expertise became more vital for the development of the JV, particularly in the areas of marketing and HR management (JV contract). With the help of the Western partner, the JV introduced new products and ‘Westernized’ systems and policies. The drive for ‘Westernized’ practices has also changed over time. Although the JV had planned to construct a new production base, in the beginning it produced in the Chinese partner’s factory and absorbed employees from the Chinese partner, while planning and building the new site. ‘[T]he setting up of the industrial and commercial means, the recruitment and training of the staff’ (JV document) were carried out in the context of the Chinese partner’s existing policies, practices and workforce. In the beginning, the Chinese partner (and the union and local government) insisted on

1556 The International Journal of Human Resource Management consistency and continuity in the manufacturing of an existing product, in an existing plant, with existing staff. However, the Western partner transferred the technology with a large group of technical expatriates seconded to the JV, at the same time that training was initiated for transferred Chinese employees and new hires. This became the foundation for the launch of the JV over the ensuing 4 years, culminating in the transfer of operational activities to the new JV plant. From the planning stages through to the launch of the new facility, the Western partner’s expatriates occupied all positions, including HRM, in the top management team, and dominated the development of the product and market, gradually shifting practices from Chinese to a more ‘Western’ approach. Regarding resource power, the Chinese partner received strong support from the government and retained the majority shareholding in the JV, particularly when the shares of the national bank were included in a shareholding portfolio. They were, however, in desperate need of manufacturing technology and product models if they were to survive the economic reform. Its dominant position resulted in the JV’s organizational structure and staffing being transferred from the Chinese partner, initially introducing a strong Chinese public sector culture into the new venture. The continuing result of this organizational inheritance is the impact of the JV’s union and Communist Party committee in the management of the JV. The Chinese partner also ‘owned’ the local supplier and distribution networks. The resource power of the Western partner resides in their product design, manufacturing technology, marketing skills and management practices, which became increasingly important as the JV developed. Although the Western partner has fewer seats on the board and top management team, its expatriated technical staff wielded disproportionate influence in executive and management decisions, basically by insisting on key decisions before they would/could move forward to the next stage of plant development. Particularly with regard to new product innovation, manufacturing, marketing expertise and management practices, the Chinese partner expressly named the Western partner as the dominant decision maker. The Western partner had been negotiating international alliances for decades and this was evidenced, in the first instance, through a positive contribution to the JV’s negotiation process and operations that recognized both local culture and SOE requirements. Although the Chinese partner is a large and important enterprise in China, it only began international relationships of any type with the opening of the Chinese economy and the advent of this JV. Even with the full support of the government, progress on the JV agreement still took 5 years. The Western partner is characterized by the Chinese partner as a very understanding cross-cultural partner, as evidenced not only in the founding of the JV, but also in every stage of transferring technologies, training, etc. In recent years, the Western partner has reduced the size of the expatriate group and a local CEO was appointed by the board according to the JV agreement. Overall, the Western partner holds sway in all areas of decisional power. All resource power sources favour the Western partner, as their technology and human capital transfers were essential to the survival of the JV (and its Chinese parent). The Chinese parent held a greater equity stake, but acknowledges that this was over-ridden in decision-making by technology transfer considerations and its weakened bargaining position given its failing operations in China prior to the JV. The HR practices of MAN2 are distinctly hybridized. Initial systems were transferred intact from the Chinese SOE with existing staff and plant. Systems for selection and training changed dramatically with the introduction of new product processes led exclusively by expatriates from the Western partner. Although the employment relations and welfare systems are distinctly Chinese, the performance management systems are identical to those used in other Western MNC operations. The Western management

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describe the systems as distinctly Chinese, but being changed over time to be more Western; the Chinese managers describe the system as distinctly Western, and becoming more so. The HR manager and other managers indicate that the outcome would have been very different had the JV started in a greenfield site. The legacy effects of existing employees, contracts and networks were ‘too great to introduce cultural or system changes unless they were directly linked to production’. In addition to the drivers and HR practices analysed within the case narrative, we should highlight the high level of institutional scrutiny that surrounded the formation of this IJV; with high involvement from Chinese central government, and a high degree of public scrutiny, much as we would expect in the privatization or corporatization of state assets in many economies over the past two decades. This case also involves a deviation from the usual symmetry between partners of finance, equity and governance. Although the Western partner was a minority shareholder, and senior management roles were alternated (Chairman and CEO from different partners, equal representation on the board and senior management team); the extra-contractual contribution of staff by the Western MNC resulted in almost all managerial control being held by the Western MNC, including active resistance by Western mid-level production managers to all nonWestern management practices, reinforcing the power embedded in technology transfer and expertise. Consistent with this, the JV agreement was actually revised post JV formation to require HR (and other) systems as part of a broader technology transfer initiative. This latter move was seen as required by the Western MNC when the joint venture began in the Chinese partner’s existing site, and the Western managers found that operational systems and cultural imperatives were literally ‘poured in concrete’, and highly embedded in the physical and social structures of the brownfield site. In subsequently moving to a greenfield site, major changes occurred in HR systems that were operationally embedded, but the social systems were remarkably resistant to change, and still dominate key aspects of the employment relationship, resulting in a far more hybridized system than the Western MNC experiences in any of its other locations. Case 3 FIN1 provides financial services, particularly in the securities investment market, for the Chinese market. The JV was formally established in 1999, after several years of negotiation and a 1-year preparation period. It is considered a pioneer among domestic financial service providers because it has set up an international alliance in the industry. It ran at a loss through its first 2 years, in part due to de-regulation and other changes in China’s financial markets. It employs 50 staff (plus more than 20 affiliated contractors), many of them specialists transferred from the Chinese partner in the formation of the JV. In the last 2 years, because of changes of financial service regulation, the JV has capitalized on an opportunity for new services in an area opened to competition by the government, and occupies a dominant position in this profitable niche market. Although its key service market is Chinese domestic enterprises, it is aspiring to international operating standards. The Chinese partner is the market leader in Chinese financial services. It was founded in 1992 and spread quickly throughout China. During its development, it built an excellent reputation among the relevant government departments, securities exchanges, securities underwriters, and corporate and individual investors. To maintain independence and avoid conflicts of interest with the IJV, it contributed the entire JVrelated business, including staff, to the JV company. The European MNC partner is one of the industry leaders in diverse financial services, and was created by the merger of a

1558 The International Journal of Human Resource Management US-based company and a British multinational. The Western partner employs over 700 analysts and related staff in over 70 countries worldwide. ‘As the premier international investment service agency, [Western MNC] is fully committed to serving capital market participants by providing the highest quality business services and research’ (Western partner company document). The establishment of this JV was encouraged and monitored by the Chinese government bureau with responsibility for the development of China’s financial markets. The JV was seen as an opportunity to establish a sound independent evaluation and consulting service for the emerging Chinese financial market. The governmental interest was aligned with that of the International Finance Corporation (IFC), a member of the World Bank. During the years of negotiation preceding the JV, the IFC functioned as a buffer and mediator at critical points, even though it was not formally involved in the business and has only a minority shareholding. The joint venture presents the opportunity to enter the Chinese market for the Western MNC, and for the Chinese partner it represents an opportunity to gain access to the international financial markets as well as expertise on complex financial transactions and services. ‘The establishment of [JV] will undoubtedly stimulate the development of ... business in China by bridging the gap between the domestic and international ... standards’ (JV document). The company CEO (Western partner’s expatriate) reports to a board of directors that is primarily Chinese, including a chairman drawn from the senior management of the Chinese partner, who was a high level officer in the central government bureau before his retirement. The board includes the Chinese partner as the largest shareholder, the Western partner as the second largest shareholder and one board member each from the IFC and a minority Chinese partner. While this affords the JV with access to the higher levels of Chinese industry and government, it presents particular problems of control for the Western partner and the JV CEO, who are disadvantaged both in terms of the dominant Chinese partner’s organizational culture and in terms of access to board-level leverage within the firm. In terms of resource power, the JV’s business is transferred or purchased from the Chinese partner, because the Chinese partner has all the resources for developing the business in China, including necessary relationships with government, the business network and clients. In light of this, the Western MNC accepted lower management and board involvement, as well as a minority equity position. The Chinese partner’s current expertise advantage in the Chinese business environment reflects localized knowledge and reputation in the industry. ‘[JV] is endowed with a team of highly qualified staff with unparalleled experience in (financial-related services for government, enterprises and individual investors)’ (JV document). Although the Chinese partner wishes to internationalize in the longer term, they realize growth in the Chinese market will be required to make this transition. The Western MNC operates throughout Europe and North America, but has little facility or experience in Asia. They rely on the Chinese partner to gain Chinese clients and provide tailored services for them. The JV’s promotional document states that the JV ‘[combines] the latest international ... techniques from [Western partner] with special considerations for China’s economic and social system’. As the focus of co-operation is to develop the Chinese market, and the service produced is unique to the Chinese market, the MNC’s expertise is of limited value other than reputational effects. As the expatriate CEO complained, ‘we are used to doing business in our system and following our standards, but here it is so different. To get and develop the local market requires knowledge of some very funny rules and only they (local managers) know that’. His frustration was compounded as the localized knowledge was largely inaccessible to him as he spoke only English. The JV’s CFO (local partner’s representative) expressed the opinion that if the business was focused on

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exports, the situation would be totally reversed, as the resources of the Western partner would be of greater value. Cost is a key factor for the Chinese partner. As the JV’s HR manager said, ‘We are doing business here, and we know how to train our new staff, their training is too expensive. And, it is hard to explain to our staff why he (CEO) earns so high a salary; it is them doing business, after all.’ This concern about salary differentials and the expense of expatriates resulted in the Western MNC paying the expatriate CEO’s salary, outside the JV balance sheet, for the first 2 years as the price of any management representation with the JV. The majority of the JV staff were transferred from the local partner, with a management structure and philosophy transferred largely intact from the Chinese parent company. The Chinese partner not only provides space for the JV office in the same building, but also provides all administration and HR services for the JV. The Chairman of the Board (appointed by the local partner) thought it unnecessary to recruit English speakers into the company in a Chinese-speaking environment because they would have to pay them higher salaries just to interact with the Western partner and CEO. As Marschan-Piekkari et al. (1999) have noted, language is critical to building effective relationships between subsidiaries and parents, and language is often used as an informal source of expert power. Internationalization experience is much more limited in this partnership than in the prior manufacturing cases. Although the Western MNC has a significant record of international expansion in Europe and the American market, its experience doing truly international business outside its cultural and linguistic ‘home’ is very limited, particularly with regard to the requirements of doing business in Asia. This JV is the very first venture of any type for the Chinese partner. They have tried negotiating with Western MNCs in the past, unsuccessfully, and state that they are still exploring how to work with a ‘foreigner’. The negotiation process to establish this JV required almost 3 years, despite there being almost no issues of physical plant or capacity building required. Post-negotiation, the first year of operation was characterized as stressful and frustrating for the parent companies and the JV management team, as the venture was plagued by management clashes to the point of screaming matches and threats of violence in the boardroom, with the tension only exacerbated by financial losses. Most decisional power accrues to the Chinese partner in FIN1. Their control over HR decisions is embedded in equity, governance, management and direct functional transfer. In function it is more akin to a proximate, local subsidiary of the Chinese partner, or a division with a Western investor, rather than a true joint venture. Both partners were inexperienced in both cross-cultural management requirements and IJV operations, although the Western MNC is more international in scope and operation than its Chinese counterpart. The HRM practices in FIN1 stand in sharp contrast to those in the other cases. The JV contract assigned primary management responsibility to the Chinese partner. The board membership is majority Chinese, and the top management team includes all local staff with the exception of the expatriated Western CEO. All staff were transferred from the majority Chinese partner, along with their existing terms and conditions of employment. All HR policies and practices are carried forward intact from the Chinese partner. While the Western partner sought to gain Chinese expertise and market entry through this JV, reliance on the Chinese partner’s market position and products that are tailored for the Chinese market has left it in a weak position within the partnership, with very limited governance or management influence. The Chinese partner has gained the Western partner’s profile in the joint venture, but has gained little in the expected technology or knowledge transfer as the reliance on existing Chinese HRM systems do

1560 The International Journal of Human Resource Management not appear to be well-aligned with the original intent of the JV. The HR systems and business models are still almost entirely Chinese, with only minor changes to reflect learning opportunities with the Western partner. This case reflects the most unequal exercise of decisional power within the four cases presented. In a highly regulated industry sector with both Chinese and international institutional scrutiny, two firms with minimal internationalization experience or alliance competency formed a joint venture that in many respects resembles a passive investment relationship with an isolated ‘figurehead’ CEO. While in many respects, this case demonstrates that operational embeddedness and ‘brownfield’ issues are not limited to manufacturing, FIN1 is the reverse of MAN2 in the lack of alignment between partner finance, equity and managerial control. Despite significant investment (which continued through directly funding the CEO salary as an extra-contractual commitment), the Western MNC had no representation on the board or in the senior management team, other than the post of CEO, which was isolated linguistically, politically and operationally. This case also raises the issue that initially emerged in MAN1 and MAN2 regarding the importance of technology transfer (particularly with regard to supporting systems) when the target market is domestic rather than regional or international; several informants suggested that market internationalization increased receptiveness to other forms of organizing and managing. Case 4 FIN2 is ‘an international investment service company established as a strategic partnership of leading Chinese and international financial institutions and corporations’ (JV document). It is a China-based international investment company, and a leading provider of a full range of financial services to government, enterprises and individual investors. Since its establishment, the JV has grown rapidly; from a staff of about 45 to almost 200. It established a Hong Kong subsidiary and other branches in domestic financial centre cities to offer investment banking, sales and trading, and research services to clients. It has built its reputation by offering investment banking services. The JV has received several awards for excellence in the industry from both domestic and international financial review agencies. As the JV’s Chairman commented, ‘[JV] has made outstanding achievements in business development, personnel training, and improvement of operating systems, and has forged its own distinctive path forward in this new market.’ The Chinese partner is one of China’s four largest state-owned commercial banks. ‘It is mandated to provide medium- and long-term credit to the high priority industrial and infrastructure sectors’ (Chinese partner document). Since its founding in the early 1950s, it has established close relationships with many leading domestic industrial clients and policy makers. Because China’s economic reforms also introduced market systems and encouraged competition and efficiency among financial institutions, the Chinese partner has focused its capabilities in financing and funding of key state projects and long-term fixed asset development, and become the primary lender to major stateowned enterprises. It also has set up branches and representative offices in some foreign countries and regions, and has established relationships with about 600 corresponding banks worldwide. The Western partner is a global financial firm headquartered in the USA ‘with unmatched origination and distribution skills and a unique balance between institutional and retail capabilities’ (Western partner document). It provides a diversified range of services to major corporations, governments, financial institutions and individuals

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worldwide. The Western partner operates in Europe, Asia Pacific and the Americas. Globally, it has a significant presence in virtually every financial market, with more than 60,000 employees in 550 offices worldwide. Merged with a European industry leader in 1997, ‘[Western partner] has combined the complementary skills and resources of two powerful organisations ...’ (Western partner document). The JV has played a vital role in reforming and developing the Chinese financial industry by introducing advanced investment banking technology. Within China, this JV was a response from the central government to the World Bank proposal in 1993 to set up a Sino-foreign investment institution. In 1994, under the instruction and support of the State Council, the preparatory team began the negotiation for this JV. Its founding objective is ‘to serve as the leading investment [service company] in China and drive the reform of China’s state owned enterprises’ (JV document). The JV’s first Chairman (who was a high-profile Chinese government officer) proclaimed, ‘In China’s long march to meet modernization objectives, [JV] is expected to ... bring forth a world-class investment bank of China.’ In the Western partner’s global strategy, the significance and potential of Chinese enterprises’ to the international capital market was noted as a key opportunity. There are five founding shareholders, with the Chinese partner as the dominant shareholder and the Western partner as the second largest shareholder. Board membership in the JV is proportional to shareholding. The Chinese partner is represented in the position of the Chairman, but the Western partner retains the CEO position in the top management team. The high profile of the Chinese partner enables the JV to maintain close relationships with government organizations at all levels, and this social capital is an invaluable component of its market leadership. The Chinese partner also provides ‘[JV] with domestic financial expertise and customer resources and the support of their nationwide networks’ (JV document). The Western partner provides technological know-how in international business and financial standards, but also takes responsibility for the professional training and development of the JV staff. The Western partner also provides the JV with financial advisory expertise in every major market, as well as a global securities distribution network. This JV reflects relatively equal expertise and non-contractual resources between the partners, although the Chinese partner has a slightly greater shareholding. The Chinese partner has nation-wide business branches and an established customer support network, as well as well-trained business professionals and supporting human resource systems. The JV’s market focus is both domestic and international, providing financial services to domestic enterprises, as well as consulting to Chinese enterprises who are seeking foreign investment. In this strategy, the Chinese partner contributes critical knowledge of how to do business with the Chinese government and enterprises, support from the national government and close links with customers nation-wide, as well as knowledge of international market and business conventions from their existing overseas branches and international corresponding bank network. Although the Western partner lacks expertise regarding the Chinese market and enterprises, it has a ‘significant presence in virtually every financial market and a long history of providing service for foreign enterprises in domestic or host countries ... and a global securities distribution network’ (JV document). In the operation of the JV, the Western partner has contributed and ‘devoted much effort to instilling a systematic approach to investment service, an emphasis on sound business practice, solid management and a high standard of professionalism and dedication. These are the cornerstones of our successful business franchise as we continue to strive to become an industry role model in China’ (JV Managing Director, expatriate of Western MNC partner). The two managing partners’ expertise appears to be

1562 The International Journal of Human Resource Management fully utilized by the JV. From the beginning, the partners agreed formally that this JV should be managed according to ‘international’ (sic) Western standards. The initial organizational structure and business policies and practices were all similar to those of the Western partner. The JV and its Western partner had signed a Technology Transfer Agreement in the preparatory period, in which the Western partner was to ‘provide assistance and technology transfer in the areas of investment banking, direct investment, and treasury/foreign exchange operations. In addition, [Western partner] was to manage certain business areas in a manner furthering [JV]’s business objectives’ (JV contract). However, because its business base is Chinese enterprises, accepted local procedures often clashed with the Western partner’s systems. This situation worsened as top management disagreed about whether this was a problem, what might be done about it, and what the causes might be. As a result, the JV had an average CEO tenure of just over 1 year for its first 5 years of operation and the Western partner finally resorted to global recruitment of an appropriate CEO, abandoning its prior practices of expatriation. The JV’s partners and top management seemed to share a common understanding about the strategy and business systems, but disagree about what this meant at the level of operating practice. The gap between the ‘rules and reality’ caused considerable tension between the Chinese and Western managers. Underlying these disagreements were fundamental conflicts of interest as both dominant JV partners, and the JV itself, competed head-to-head for investment business in the same overseas markets. With regard to internationalization experience, the Chinese partner had previously co-operated with different foreign partners, and had international operations in Asian and Western markets through their FOREX and corresponding banks exposure. Although this may have provided them with some additional bargaining power, it also made them relatively inflexible in negotiation and subsequent operations. This seems to have contributed to tensions in the JV. The JV assembled a group of experienced financial professionals, with staff selected from the top international and domestic firms and institutions, but representatives of the Chinese partner dominated all policy and operational decision-making. The Western partner had internationalized primarily through wholly owned subsidiaries and lacked experience in JVs that might have enabled more effective interaction with a strong local partner. Although it had an ‘excellent understanding of Chinese culture and business systems’, efforts to Westernize administrative or operational systems were largely unsuccessful. In particular, the Western partners express disbelief that their Chinese partner’s relatively limited international experience resulted in an attitude that they characterize as ‘know-it-all’ and ‘inflexible’. The high turnover of CEOs was attributed to the inability to gain sufficient flexibility within the business to accomplish the technology transfer required to move the business ahead. The two partners are roughly equal in most areas of the JV decisional considerations. Although the Chinese partner has greater equity holdings, both contribute equal nonfinancial resources, with the Chinese partner having Chinese resources that are complementary to the international resources held by the Western partner. The expertise is similar, although the Western partner is seen as leading in the investment banking arena with technology transfer responsibility. This technology transfer responsibility gives it a slight advantage in the consistency arena, as technology transfer is linked to financial procedures that require Western partner training and development of the JV staff. Both partners have international experience, but neither have partnership experience of the type required for this JV. The Chinese partner has had technology transfer agreements in the past but without ongoing relationships and

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alliances that were transactional in nature; the Western partner conducts its business globally but not usually through joint ventures. FIN2’s HR manager characterizes their HR policies and practices as predominantly ‘Western’, pointing to the use of assessment centres, extensive training and incentive pay, as well as an internationally mobile workforce; while they are not traditionally Chinese, they are neither fully Western, nor similar to those of the Western partner. The HR Manager acknowledges some changes from the Western partner’s HR mandates, as he points to a full office wall of the Western partner’s policies translated into Mandarin (which appear to be largely unopened). Western expatriates within the workforce characterize the HR practices as ‘international’ rather than Western. Again, this JV was formed with extensive government and institutional oversight. While FIN2 is similar to FIN1 and the other cases with a Western MNC appointed CEO, governance appointments, shareholding and investments are symmetrical, and tend to favour the Chinese partners. Apart from the CEO and Board, however, the majority Chinese partner has dominated staffing decisions. While the Western partner has made available the specialized training specified as a contractual resource for the IJV, the JV has not utilized this resource. This may be attributed in part to the existing expertise in operations and international financial services, and to a mix of domestic and international market intentions. Both major partners have internationalized their existing operations, but neither has particular expertise in the subject of this JV; the area of practice is new to the Chinese partner, and this is the Western partner’s first foray into Asia. While the HR systems have arisen somewhat idiosyncratically, their development appears to be embedded in the social infrastructure and professional networks of the specialized bankers that were employed to the IJV (many from the Chinese partners). These professional norms form an alternative institutional force, and organizing rationale in a context where the expectations and resources of the partners are relatively weak and unfocused. Discussion As the case studies indicate, the genesis of each IJV has been unique. The partners have brought diverse interests and capacities to the joint venture, and these have affected the development of the JV and its systems. The research proposition, drawn from the IHRM literature, suggests that the balance of decisional drivers that have been reported in each case will be reflected in the HR policies and practices adopted by the JV. Alignment of HRM practices and policies The four cases presented in the previous section exhibit distinctively different partner capacities for influencing HRM outcomes in a joint venture. In MAN2, the Western partner dominates almost every factor proposed as a potential decision driver. In FIN1, the Chinese partner is far stronger. In the remaining cases, there is a mixture of advantages, with stronger relative positions in some drivers and relative equality in others. Table 3 summarizes the decision drivers that may be drawn from the case briefs. Assuming that the partners have interests in the shape of their HRM systems, the decisional power afforded by these drivers should enable them to influence the nature of HRM systems in the emergent venture. In the context of two partners from very different institutional contexts, the HRM practices should reflect the relative decision power of each partner. Strong Western partners may be able to insist on isomorphic ‘Westernized’ systems of HRM that integrate well with their control systems in other areas, and strong Chinese partners may secure isomorphic HRM practices that are normatively Chinese. Where the decision power is balanced, hybrid systems may develop. Thus, we might

1564 The International Journal of Human Resource Management Table 3 Summary of case company political ‘drivers’ Driver(s) stronger for Western partner

Driver(s) approximately equal

MAN1

- Operational consistency - Resources (technology and expertise) - Internationalization experience

- Resources (equity)

More Western than Chinese

MAN2

- Operational consistency - Resources (non-contractual) - Internationalization experience

- Resources (contractual)

Predominantly Western

FIN1

FIN2

- Operational consistency (particularly for new practices)

Driver(s) stronger for Chinese partner

Balance overall, predicted HRM

- Internationalization experience

- Operational consistency - Resources (contractual and non-contractual)

Predominantly Chinese

- Resources (non-contractual)

- Resources (equity)

More Western than Chinese

- Internationalization experience

expect MAN2 to have relatively Westernized HRM policies and practices, FIN1 to have localized Chinese HRM, and the remainder to exhibit hybrid systems that may still ‘lean’ toward the preferences of the stronger venture partner. The actual patterns of HRM practice are summarized in Table 4. The financial case study provides the most extreme examples of Western or Chinese HRM practice, while the remaining cases tend to reflect more hybridized practices – although some of this may be attributed to HRM convergence more generally (McGaughey and De Cieri, 1999). As Figure 1 demonstrates, the alignment between the decision drivers and HRM practices is consistent with the research proposition. There are some slight differences in observed patterns from what the propositions suggest, however. Based on the relative strength of the decision drivers, we might expect that MAN2 would be to be more Western in its orientation, and that FIN2 would not display such Westernized practices and policies. FIN2 has been an extremely conflictual setting for many of its initial years of operation, largely on the basis of what ‘international’ practice means, with the Chinese managers with international experience seeing this very differently than their Western counterparts. From the perspective of lower level managers in the firm, the Westernization of the HR system has arisen as a compromise against other concessions on marketing and market segmentation. Interestingly, the HR manager’s statement that they have a completely Westernized system ‘except where Chinese law prevented its application’ is viewed with some interest by other managers in

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Table 4 Summary of case company HRM policies and practices

MAN1

Westernized HRM practices

Hybrid practices

Chinese HRM practices

Policies adopted from Western MNC partner; US policy manual translated into Mandarin Standardized HR planning models

360 degree appraisal, but formative, targeted at relationship-building and communication Low levels of pay differentiation, but some ‘pay for performance’ Adherence to Chinese labour law 3

Emphasis on egalitarian pay and promotion structure

Online applications and structured behavioural interviewing Extensive training, includes management development MAN2

Initiation of HR planning

HR in top management team Recent hiring from outside and provision of technical and management training for new hires Training and career development systems

Systems adapted to reduce possibility of conflict

HR not part of TMT, but has advisory role Initial HR director is expatriate from foreign partner, remains as consultant while local HR manager appointed – develops policy documents and statements, but practice remain ‘Chinese with Western names’

Formal appraisal system, emphasizes group production targets, no links to pay

Union and Communist Party involved in daily operational decision-making

Chinese SOE staff transferred to new JV, no recruitment from labour market Low pay differentiation, no performance pay

Moves to ward job evaluation and ‘competitive pay structures’ FIN1

International partner responsible for training, but in practice limited to consulting skills for new hires; existing staff from Chinese partner lack skills to undertake advanced training; increasing emphasis on selection and development over time; Expat CEO sees as the only way to ‘gradually effect a change’

All systems and staff transferred from Chinese partner; undifferentiated pay structure, existing union and contract, no performance linkages, planning or performance management systems No HR department or position; Chinese partner handles payroll Regional recruitment based on prior experience in the sector and specified qualification Annual group review of performance against targets, not linked to pay Only compulsory legislation (e.g. pension funding) observed

1566 The International Journal of Human Resource Management Table 4 (Continued)

FIN2

Westernized HRM practices

Hybrid practices

Chinese HRM practices

Active HR consultancy; HR is ‘partner in strategy development’

Western MNC provides extensive policy documents for JV HR policies, but practices appear less Western than nomenclature might suggest (e.g. ‘pay for performance’, but applies to group, and differentiation is low) Adherence to Chinese labour law

No retention strategy, no HR planning

Graduate recruitment programme, with assessment centres Lengthy structured interview process for selection Technical and ‘soft skills’ training; formalized coaching programmes Formal performance appraisal process with some influence on pay levels ‘Pay for potential’ and some incentive structures

Practices characterized as ‘not Western, but international’ with some transferred from each partner Local HR manager, bound by JV contract to transfer Western systems to JV

the firm who suggest that Chinese law in fact prevents very little, but has been used as a rationale to prevent the implementation of many policies which were seen as either too radical or too expensive to be implemented. This is consistent with earlier studies of German and other European settings, where different foreign firms found different

Figure 1 HRM practices across cases (actual and predicted)

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degrees of latitude within the same national infrastructure, particularly if they were smaller firms with lower national profiles (Muller, 1998). Both FIN1 and MAN2 demonstrate the institutional impact of existing social structures and networks that are part of the embedded systems involved in transferring staff from one partner to the new JV. This path-dependency is the reason that many internationalizing firms prefer greenfield initiatives (Meardi, 2004). Subsequent efforts to establish a new culture and systems will be difficult in the context of existing, indigenous organizational practices and knowledge. FIN1 is the most extreme example, where one linguistically isolated expatriate is the sole agent of the Western partner, and the existing staff, infrastructure and systems are those of the Chinese partner, who is explicitly dismissive of any Western policies or practices. MAN2 presents a similar legacy of infrastructure and staffing but with a large-scale introduction of expatriates coupled with a decision by the Chinese partner to enable technology transfer through ceding management control, including HR policy, to its Western partner during formative stages of the joint venture. This may reflect in part the differences between manufacturing operations with operational embeddedness of production practices (Saka, 2002) and service industries with more flexible work practices and knowledge capital rather than operating systems at the core of their business models. While other cases include similar periods of staffing dominance, sensitive dependence on initial conditions drives these two JVs into patterns of policy and practice that reflect more than the institutional environment of Chinese industry and their respective partners. The addition of considerations of JV legacies at founding, and consistency orientations of the partners, highlights that the micro-politics of these IJVs operate on several levels simultaneously. The similarity of MAN2’s and FIN1’s HRM practices to those of their Chinese parent may also reflect what some authors (e.g. Gamble, 2003) have referred to as the weaker HRM systems of UK multinationals in comparison to their US counterparts, and in neither case had the operational elements of HRM been agreed in initial JV negotiations, as it had been in the IJV negotiations of the other cases. The cases also highlight the impact of operational embeddedness as a decision driver in HRM adaptation; the manufacturing cases quite literally poured their practices in the concrete of the new plant. Given that the majority of IHRM research on joint ventures uses manufacturing (e.g. Geppert et al., 2003; Whitley et al., 2003), standardization findings must be viewed with some caution when extrapolated to non-manufacturing endeavours. Particularly in knowledge intensive and professional industries, there is some research that supports the concept of ‘international practice’ that is locally distinctive, consistent with the views of the Chinese managers in the second financial services case (Tregaskis, 2003). We should also note that the relatively weak Chinese socio-legal environment, combined with a tendency to embrace Westernised practices, may result in underestimating the potential of national legal and business systems to determine local operational practices, regardless of partner decisional power. As the cases demonstrate, partners do not always prefer the systems from which they originate; these cases demonstrate both Chinese interests in Western systems, and Western interests in Chinese systems and practices. In some cases these may be expressed more in terms of flexibility or tolerance. We also encountered pseudo-Westernized practices and pseudo-Chinese practices, in each case using nomenclature and language to gain legitimacy for particular HR practices and policies with partners. While this type of legitimation is detectable using case studies, it is more difficult to determine in large-scale surveys which are the predominant method in the IHRM field.

1568 The International Journal of Human Resource Management Conclusion These cases highlight the complexity of the relationship between host and foreign country partner(s) and the IJV itself; it is not a matter of hegemonic foreign MNEs, constrained only by local legislation, imposing standardized practices in host countries. Hybrid practices and negotiated outcomes are much more likely. The research recasts the development of HRM practices in IJVs as negotiated as well as situated, and dependent on the relative power of the partners, with regard to contractual and non-contractual resources. This is consistent with both an institutional perspective, and recent work emphasizing micro-political processes in both subsidiaries and IJVs (Ferner et al., 2004). The findings also highlight issues of path dependency, particularly in IJVs that assume legacy systems and then try to change culture and processes over time. This is not just a matter of making key initial appointments although that seems to have played a role as well, rather it is looking at the complex institutional and inter-personal factors in the IJV setting and looking for unique determinants of action. The three proposed decisional drivers appear to capture a robust portion of the interaction, but also expose that there are still more factors at the level of the organizations(s) and their subsystems that play a role in the creation of the IJV’s systems, structures and practices. Future research may continue to investigate the particularities of these systems within IJVs, with particular attention to the impacts of both regulatory structures and the more tacit institutional structures of culture and language. The distinctiveness of the IJV scenario from the dominant logic of the subsidiary is particularly important from the perspectives of both theory development and empirical assessment of such models. Notes 1 The IHRM literature has historically used the language of ‘standardization’ and ‘localization’ to

describe the tension between culturally distinct HR practices, where standardization is seen as practices that are aligned with those of a foreign MNC parent and localization as reflecting the indigenous practices of the host country. With multiple partners, it may be more appropriate to adopt the concept of ‘isomorphism’ from institutional theory, as the IJV may attempt to gain legitimacy and resources from multiple parents (representing divergent business systems) as well as from more traditional institutional arrays. 2 Key phrases are presented in context, with the source noted. We use square brackets, [ ], where slight changes are made to a quote, either to protect anonymity or to make the quote flow grammatically with the rest of the text. Parentheses, ( ), are used where the quote is supplemented for clarity, for example when ‘it’ is used in a quote, and it would not otherwise be clear what company or object is being referred to. 3 While adherence to local labour legislation may seem like a localized practice, few large PRC organizations adhere strictly to the labour legislation, which many local companies treat as administrative guidelines only.

References Adler, N.J. (1991) International Dimensions of Organisational Behaviour. Boston, MA: PWS-Kent . As-Saber, S.N., Dowling, P.J. and Liesch, P.W. (1998) ‘The Role of Human Resource Management in International Joint Ventures: A Study of Australian-Indian Joint Ventures’, The International Journal of Human Resource Management, 9(5): 751 –66. Beechler, S. and Yang, J.Z. (1994) ‘The Transfer of Japanese-Style Management to American Subsidiaries: Contingencies, Constraints and Competencies’, Journal of International Business Studies, 25(3): 467 – 91.

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