Background

While many beneficial systems and technologies were developed in Asia long before those in Europe, there was no indigenous banking system before Western commerce arrived in the region, along with its attendant traders and colonial power structures. While banking as a structured business activity developed in Renaissance Italy, Asia relied for investment on money lenders and the pooling of family resources. The South Indian Chettiars dominated money lending in South and South East Asia, as well as in the coastal centres of China. Overseas Chinese (predominantly Fujianese) were competitors for the Indians in South East Asia.

Banking in Asia was often in the hands of Scots, who, as a result of their education, had knowledge of financial products such as life assurance, which had been initiated in the eighteenth century by Scottish church ministers. Religion in Asia, especially Islam, reduced the scope for banking in which capital and customers’ deposits were used as the basis for lending money to others. The first Islamic bank was not established until the 1970s in Dubai. So, until very recently, Western-owned banks and Western-trained bankers dominated this sector.

The case study

The Occidental Bank of the Orient (OBO) is over 100 years old. While it started business in Asia, OBO now also operates widely in Europe and North America. The bank has been in India since before independence in 1947, in China since before the People’s Republic of China was established in 1949, and in the GCC since the 1950s. Further basic data about OBO concerning organisational, financial and HRM matters can be seen in Table A3.1.

Background

The aviation sector, especially in Asia, has undergone rapid changes in both ‘demand’ and ‘supply’ factors since 2000. Set out below are the developments and trends on the demand side.

With the increasing deregulation of aviation, many new airlines were set up, offering more services and making Asia the world’s fastest growing aviation market. However, partly as a result of this expansion and growth, the sector faces the particular problem of a shortage of pilots. For example, in India more than 6,000 pilots will be required to meet the anticipated doubling of passenger traffic between 2007 and 2017. China’s General Administration of Civil Aviation warned that in 2007 it had the capacity to train only 7,000 of the 9,000 pilots who will be required by the country’s airline industry by 2010. In 2007 the no-frills Spice Jet had 15 aircraft, with 50 more on order. Alteon Training stated that India had fewer than 3,000 pilots, but would need over 12,000 by 2025, while China needs to find over 2,200 new pilots per year (which equals 40,000 pilots by 2025) just to keep up with the growth in air travel. At the same time as this growing demand the big international airlines were still training only a few hundred pilots per year.

Despite Air India (the government-owned carrier) having 800 pilots (117 of whom were foreigners), it too faces shortages, especially for Boeing 777 s; this has led to the suspension of a service to London and has threatened other routes. The crisis began when the three-year contracts with 20 pilots expired in May 2008, coinciding with the retirement of another 10 pilots, who mostly flew 777 s. The airline responded by implementing its own training (turning out three pilots per month) and sending young pilots for training overseas (to the US). However, this response did little to address the immediate need for experienced pilots, which the airline sought abroad. Indeed, India’s dozen or so carriers have scoured the globe in search of qualified captains and struggled to train Indian pilots. Spice Jet, for example, has turned to recruiting foreign pilots, with 42 (30 of whom were American), and it expected to add 30 more in 2007.

At the same time as these demand developments, there have been changes and trends on the supply side. Demand rose just as the pool of available pilots dwindled owing to decisions by many Asian countries to reduce their air forces – a traditional training ground for commercial aviation. The profession has also become less financially attractive as airlines such as Cathay Pacific became embroiled in highprofile disputes to try to cut staff costs.

In the face of those trends, Asian airlines have taken to poaching pilots, often from each other. Philippines Airlines lost 75 pilots to overseas airlines between 2005 and 2008. Despite the unwritten ‘no-poaching’ pact among Indian airlines, it still occurred. As many as 31 Boeing 737 pilots left the Jet Airways low-cost arm, Jetlite (the former Air Sahara), between March and April 2008 and joined Kingfisher Airlines. It was maintained that these pilots could fly Boeing 777 s after just four simulator sessions.

An obvious response to labour shortages is to increase the supply of commensurate training. Thus, the multi-crew pilot licence (MPL) was approved in 2006 by the International Civil Aviation Organisation, the sector’s regulatory body, to help address the dearth of pilots, particularly in Asia. The MPL was pioneered at three aviation schools (in the Philippines, Denmark and Australia). The Philippines operation was established in partnership with Alpha Aviation, a private British group, sponsoring 59 of the 104 students. Alpha was also talking to several Asian airlines about replicating its joint venture model and expects 10 more aviation schools in the region over the next five years. As the flight operations manager at the Philippines school argued, their model is clearly very attractive to Asian and Middle Eastern airlines that are facing the same need to find more pilots.

The MPL cost US$ 80,000 in 2007; it lasts 12 months and is composed of a minimum of 70 hours’ flying, including 30 hours’ solo, as well as at least 180 hours spent on simulators, although the bulk is spent in class with much of the learning coming from computer-based homework. The MPL reduces schooling time by tailoring training to specific types of aircraft and using flight simulators more than aircraft. The creation of the MPL illustrates how companies facing a recruitment crunch can use a combination of technology and smart training to fill the gap.

Case studies

The organisational, financial and HRM trends and developments at the three airlines can be seen in Table A3.2.

The problems

Staff turnover is increasing in many Chinese organizations due to the high demand for skilled labour due to the expanding economy. This goes against the traditional Chinese concept of guanxi. As a result, many companies are having to rely on expatriate labour, which is, in many instances, not accepted by the existing skilled workforce. This case examines an organization that hired a number of expatriate staff to overcome its shortages due to the increased demand for its products, the dissatisfaction of staff as a result of the expatriates being employed, and the turnover that resulted from this employment decision. The strategies adopted, resulting in a move to staff development and localization to reduce this turnover, are discussed.

Wong Yu Pharmaceutical and Textile is a major manufacturer of prescription and non-prescription Western and traditional medicines, as well as chemical-based textiles, and is located in Southern China. It commenced operation as a small, family-run business in the early 1970s, providing traditional remedies to local people, and has prospered as the economy in China has expanded and become more market-driven. Today, it employs in excess of 110 staff, many of them with appropriate qualifications in chemistry and research. Management of the organization at the different levels has been through promotion of suitably qualified staff, who were encouraged to obtain external management qualifications to allow them to take management roles within the organization.

Many of the employees have been with the company for a number of years and are extremely loyal to the organization. Conditions under which the employees work are excellent, with staff being paid above average wages, with end-of-year bonuses. All staff are made to feel as if they are part of an extended family and respect the management and, in turn, their autonomy to undertake research with new drugs and textiles is also acknowledged. This has provided Wong Yu Pharmaceutical and Textile with an entrepreneurial spirit and initiative, allowing them to compete more on innovation and quality products, as compared to organizations who produce carbon copies of overseas products, or are franchised to produce products at a cheaper unit price, due to the cheap labour cost in China.

Wong Yu Pharmaceuticals and Textile had experienced a major growth in business in the last 12 months, due to the expanding economy and increased interest by a number of countries in purchasing comparatively cheap but high quality and innovative products from the Chinese market. As part of this expansion it was necessary to increase the staff numbers and restructure the organization to achieve efficiencies in scale and to ensure that all divisions were achieving their new targets. However, due to the shortage of appropriately qualified and skilled management and other staff, and the need to put on more staff urgently, the organization used a recruitment firm to source staff from areas outside China. As a result of this, a number of expatriates, both chemical and management professionals, were hired to take certain positions of responsibility in the company. The mix of these people came from various parts of the world, with two from Singapore, two from Europe, one from the USA, and one from Australia.

Unfortunately, as the owner/manager filled the new positions in the organization, he found that many of the older and more experienced staff were giving in their resignations. As there was no shortage of positions in the industry, many were taken up by competitors almost immediately. This left a large gap in the key management and research staffing areas.

After discussing the problem with the line managers, many of whom had been working with the company for in excess of five years, to try to stop the flow of talent from the company, he was no further advanced as to the reason for the exodus of staff. He then found, through various communication channels, that a number of those managers interviewed were also considering other job offers. However, they would not give a reason as to why they wished to depart, despite the good communication that was thought to be present in the company.

In an attempt to solve the problem, he approached the HR manager, who had been a relatively recent appointment, and asked her to:

Despite the apparent commitment of staff, and pressure put on them to give reasons for their loss of commitment and dedication to a company that had taken care of them as if they were a family unit, turnover was still occurring. If it continued for too long a time, the creativity and initiative that was present would gradually dissipate, leaving the organization as just a production factory. Retention was then considered to be the priority issue, followed by methods to ensure the skills were maintained and further developed.

The HR manager had previously worked in a major manufacturing company, and had appropriate qualifications in HR and psychology. She had not, however, had much experience in dealing practically with retention issues. She did realize, though, that HR issues were becoming a high priority in Chinese organizations, with staff recruitment coming from a diminishing pool of skilled and qualified labour, and it was becoming increasingly difficult to retain staff who were being poached by competitors providing increased pay and better conditions of employment.

Having had experience in research, the first task that the HR manager performed was to revise her understanding of the literature on turnover and retention, and to discuss the issues with HR management staff in other industries. Many of them were having similar problems. She found that substantial work and research had gone into this area of management, in both China and western countries. She also realized that due to the increasing liberalization of the Chinese economy, many employees were becoming familiar with western styles of organizational structure and western attitudes. This was particularly the case with the staff who had studied for higher qualifications. The conclusion that was drawn was that the guanxi concept of loyalty and commitment to management was declining.

She then undertook a confidential survey of staff to see if there were any major areas of discontent. The survey revealed that there was some resentment with the company’s decision to hire expatriate labor into the organization, and place them in senior roles over many of the staff who had been there a number of years. The lack of internal development of staff was also a cause of dissatisfaction, and it was found that many of the company’s competitors were providing substantial training and career development opportunities for their employees.

Additionally, the conditions to which the expatriates were entitled were causing dissatisfaction among the staff. These conditions included higher remuneration, assistance with accommodation as well as assistance for those with family, such as subsidization of educational expenses. The feeling within the long-term employees was that preference was given to the foreign talent, and they could see no long-term role for themselves.

These additional benefits, coupled with the higher positions given to the expatriates and the feeling of discontent, caused the internal labor market to consider that there was an inequity in treatment. Thus the staff considered that their positions would gradually be controlled by people who they considered to be outsiders, resulting in a loss of status to their roles in the organization and the wider community.

A number of random interviews were then held with select staff to determine if there were any deeper reasons for the resignations. These interviews revealed another aspect of the changes, which was that the organizations did not have in place a development strategy to provide staff with suitable training, allowing them to increase their position and status in the company. It was considered that internal recruitment was declining.

Following the research undertaken by the HR manager, a number of suggestions were proposed. Here external research had found that many multi-nationals were adopting a policy of localization of staff, by using expatriate labour as mentors to the local staff in management and through the introduction of new methods of research.

Additionally, the conditions and benefits being paid to expatriates were gradually shrinking. Localization was a factor in this, as was the increasing expatriate immigration into China. This increased immigration allowed organizations to offer rates of pay more in line with local workers.

The solutions

The HR manager wrote a position paper to Mr Wong, the owner of the company, with the following recommendations:

Next

Following the presentation of the position paper giving the above recommendations, the following initiatives were introduced.

Management decided to adopt the plans suggested by the HR manager, with the exception of the complete adoption of recommendation 5. Their view was that there were not sufficient roles within the company to ensure that all people could be placed in jobs which fully utilized their new skills. However, partial recognition through the project teams and adequate acknowledgement of the training received through internal rewards was considered to be at least a partial commitment by the company to increase the status of the employees. Also, as mentioned, a multi-disciplinary team gradually began to take place over time, increasing the value of the human resources within the company.

As a result of the initiatives, staff turnover did reduce, although it was still above average for the industry. Generally, however, conditions were more settled, with the trend of turnover decreasing.

Lessons learnt from this study are that employees do appreciate the value that the organization places on them. In the Chinese culture, the concept of guanxi, as recognized by the intrinsic rewards and promotion, along with the special projects as reward for skills development, resulted in reduced turnover, as the employees felt that their loyalty was now being rewarded by equivalent loyalty by the company. Thus the increased job satisfaction and employee involvement through skills recognition increased commitment and reduced the number of staff looking for job alternatives.

The case study

In 2003, the foreign partner decided that a change in management was needed to bring the Guangzhou Enterprise onto a higher growth path and profitability level. From the SWOT analysis done, it was felt that the way by which the management team performance was appraised and rewarded needed an overhaul. The then prevailing practice was that the JV board would decide the quantum to be set aside from the annual net profits of the JV to be distributed to the employees. This quantum would be arithmetically divided by the headcount who had served the complete calendar year of service. The end result is that everyone would be receiving the same absolute quantum regardless of any other factor, including seniority of position or performance. This was considered to be counter-motivational to the senior level staff as their actions/decisions would have the biggest impact on the company’s profits or business and yet, in terms of rewards, they are receiving the same absolute quantum as everyone else.

Given the circumstances of the case, the question that arose was why was there no feedback from the management level staff since this directly affected them? The answer lay in the Chinese way of doing things when it was under the planned economy days and, considering the collectivist culture of the Chinese, no one would want to be seen to be rocking the boat. Neither would anyone wish to be seen as being self-centred.

Planning for success

From an industry standpoint, we were aware that in any change situation, its success was very much dependent upon the quality of its implementation. However, where the quality of solution is just as high, then the chances for success will be greatly enhanced.

In order to create the sense of urgency and resolve for people to take the plunge, we had first to create a selling line, i.e., a story that could turn itself into the tipping point. At the onset, effort was concentrated on poring through the HR statistics, payroll figures, job grading and salary system, performance appraisal system, and employee dispute records to secure a thorough understanding of the situation and avoid potential pitfalls.

In the midst of it all, the writer then found that the concept of equality could be looked at from different perspectives. At that point in time, in so far as the employees, managers, union and board of the Guangzhou Enterprise were used to, equality meant the ‘same absolute amount of dollars or RMB’ that counted. However, there was also the alternative of looking at equality being the same denomination of months of salary, e.g., every employee would get one month salary as bonus, and this meant looking at the same thing from a different angle. Be it a conceptual Quality of Solutions, Quality of Implementation, Success, or arithmetic or logic standpoint that one used to look at this matter, it would certainly appear that this was one equitable way of determining things. And this certainly looked like a solid selling platform upon which our story line would stand. However, there was still no assurance that the concerned parties would be swung in favor of this argument. They possibly could steadfastly hold on to the view that the absolute amounts had varied and this was a departure from the status quo and was thus not acceptable. Thus, a fall back argument was needed.

After further searching, an effective solution was found. This lay in the concept of ‘pay for job’ and this was not a revolutionary idea in so far as the Chinese industry landscape went. In fact, before the 1978 reform policy was enunciated by China’s then paramount leader, Deng Xiao Ping, a discrepancy already existed between the salaries of a General Manager versus that of a shop-floor operative staff, albeit the difference was not pronounced. When foreign enterprises made their foray into China, this discrepancy widened. This meant that there was already general acceptance that a position with higher responsibilities would command a higher salary. So the argument to be used to back this proposed change would be predicated upon this concept and the argument was that for the same contribution, the bonus should be corresponding to salary level rather than absolute quantum. As a matter of fact, using the absolute quantum method to reward all employees was not only archaic but unfair to those holding more senior level appointments. The degree of unfairness was accentuated the higher one went up the corporate ladder. The strength of the argument therefore lay in the unfairness to the other group of senior employees. On the basis of this back-up argument, the proposed changed now appeared even stronger.

The next step was to test this out with the HR and finance heads concurrently. Not unexpectedly, when this idea was put forth to the two of them, it was the HR head who raised objections as he persisted in holding onto the view that the resulting amounts would create issues as this was a departure from prevailing practice of doing things. What is interesting about this objection from the HR head is that he would certainly be a potential beneficiary of the proposed change once this was implemented.

Despite this, he raised his objection. This would be certainly baffling to the Western mind. The explanation of this queer incident lies in knowing his background. For decades, he had been a party cadre and steeply ingrained with the Chinese society value system, which placed the emphasis on the group (which can be the country, society, or organization) ahead of the individual. Being prepared for such an outcome, the writer then clarified with him if all employees were paid the same salary. The answer was clearly a ‘no’ and he was requested to explain the rationale for this salary disparity. He explained that it was owing to the differences in responsibility of the different positions in the company. It was, however, pointed out to him that the salary disparity was to recognize not just the responsibility weightage factor, but also that decisions made by more senior level employees would have a greater impact on the company’s profitability and growth. Bringing the point a step further, decisions did not just have an immediate impact on business operations, but more critically, on future profits as certain decisions are of a long-term strategic nature. This point was emphatically put across as it was felt that the general employee body would not see this and they needed to be aware of this.

As for the finance head, he confirmed the business growth projections. The general economic conditions prevailing at that point in time were such that the country as a whole was on an accelerated path of infrastructural expansion. Arising from this, the JV stood to gain as their production was used to support the metals industry. The financial projections showed that the bonus pie would enlarge substantially and that employees as a whole would be able to enjoy a higher quantum all round. The more senior ones would certainly end up getting substantially more than previously. This first step forward could thus be said to be resoundingly well received as both the HR and finance heads went away with the conviction that the change was for the better overall.

Since these two managers were both appointees from the Chinese side, they therefore were made the change champions to undertake the initial dialogue with the board chairman. In a subsequent formal meeting with board members and the union leadership, there was not even the slightest of resistance or objection. It is believed that the talk with the two managers was the tipping point.

With the union and the board standing behind the Guangzhou Enterprise management, the follow-on communications process to the Labour Bureau and employees was a mere formality. However, the case did not end here. As could be seen from here, the breakthrough was that the company had gained acceptance from all parties concerned that the new bonus system was salary-based and not quantum-based. This was a major psychological breakthrough in the sense that, from a quantum perspective, there was a disparity although from a salary denomination perspective it looked the same. On this basis of doing things, in the following year another departure was made. The second year’s bonus payout (i.e., using the new system) was singularly based upon absolute quantum without any reference to salary denomination. The reason for the avoidance of a reference to salary denomination is to preclude any dispute that the company used individual salary as a determinant in the grant of a bonus award. It could now be seen that there could be occasions that an effective solution might require a two-step approach instead of a singular step.

Conclusion

This case brought forth one most important lesson: i.e., the Chinese mind-set can be changed if one could find a different perspective of looking at things and this could prove to be a viable alternative to what they had. In order to achieve this, one needs to adopt a painstaking attitude in understanding their way of doing things, the historical precedent and cultural heritage, and the measurement standards used. Coupled with this is also the need to know the path of resistance, who are the likely sources of resistance. As can be seen from this case study, the entire proposal rested on building the chain of arguments around one initial concept, i.e., pay for position. This can be likened to an advertising campaign which is built upon one commercial theme and all the print and tele-media then revolve around it. The rest will be dependent upon identifying the target audience that mattered and gaining their confidence, understanding, and acceptance.

Background

Z-Park was first founded in 1980, when a researcher at the Chinese Academy of Science, Chen Chuxian, returned from a trip to Silicon Valley in California. Inspired by one of the most productive hi-tech zones in the United States, Chuxian opened the Advanced Technology Service Association, the first Chinese scientific and technological consulting firm run by a civilian and sponsored through private funds. Intrigued and attracted by the support of the Chinese Academy of Science as well as the central government, many talented scientists started to flow to the Haidan District, facilitating the growth of new ventures. In 1988, the municipal government in Beijing officially recognized the area known as Zhongguancun Electronic Street in the Haidan District as the ‘Beijing Experimental Zone for the Development of New Technology Industries’, a national innovation base with great potential (Beale, 2007). In 1991, Beijing Shangdi Information Industry Base, the first incubator in Zhongguancun Science Park, was set up. However, it was not until June 1999 that the State Council of China officially approved the ‘Note of request to expedite the building of Zhongguancun Science Park for the purpose of implementing the strategy of rejuvenating the country through science and education’. The council also instructed the municipal government and the Ministry of Science and Technology to speed up the construction process of Zhongguancun Science Park (Administrative Committee of Zhongguancun Science Park, 2002f) and to build it into the first state-level hi-tech innovation zone.

In 1999, three important clients, Beijing Science Park Bidding Co. Ltd., Beijing Science Park Construction Co. Ltd., and Beijing Science Park Guarantee Co. Ltd., were brought in to expedite the construction of Zhongguancun Science Park. By the end of the millennium, there were approximately 1,100 wholly foreign-owned companies as well as joint and cooperative ventures in Zhongguancun Science Park, accounting for close to 20% of the total enterprises (Wang, 2003). The investment by foreign-funded business had reached almost $3.5 billion USD, and the foreign exchange earned by export accumulated to $820 million (Administrative Committee of Zhongguancun Science Park, 2002b). The IT industry in China was dominated by foreign-invested enterprises, particularly in the computer manufacturing and software sectors. Even though the US firms used to control the software market, with the growing technology, capital, and managerial experience, the competitiveness of Chinese enterprising in Z-Park was expanding (Wang, 2003). With economic growth averaging at over 30% per year, Zhongguancun Science Park’s share contributing to the economic growth in Beijing increased to more than 50% of this amount (Administrative Committee of Zhongguancun Science Park, 2002b).

On January 1, 2001, the municipal government in Beijing promulgated ‘Regulations of the Zhongguancun Science Park’, which provided the legal basis and guidelines for Z-Park’s future expansion. In order to encourage further development of hi-tech enterprises in the Chinese Silicon Valley, the central government decided to set new tax policies. First, the income tax rate for foreign-funded hi-tech enterprises was cut to 15%. Moreover, if the export output reached over 40% of the gross output, the income tax would then be 10% (Administrative Committee of Zhongguancun Science Park, 2002b). The preferential policies induced new growth and lured in many globally recognized corporations, including Microsoft, IBM, Nokia, Sun, and Microsoft, which all set up their R&D centers in Z-Park. P&G and other non-tech companies were also drawn to the park, and homegrown firms like Founder, Lenovo, and UFSoft all originated in Z-Park (Beale, 2007). In 2001, Z-Park’s income generated from the trade, industry, and technology represented almost 20% of the total income of the 53 industrial hi-tech zones in China (Administrative Committee of Zhongguancun Science Park, 2002f). Many significant engineering centers and state-level laboratories were also located in Z-Park, allowing thousands of experiments and research discoveries to emerge in this developmental zone and spread nationally throughout China.

As of 2007, Z-Park was nationally the biggest and most sophisticated software development and production center with approximately 6,690 hi-tech enterprises located within the park’s area (Administrative Committee of Zhongguancun Science Park, 2002f). Among them, one enterprise’s gross revenue reached more than 10 billion RMB, while 20 others accumulated revenues of over 100 million RMB (Administrative Committee of Zhongguancun Science Park, 2002b).

Z-Park structure

Zhongguancun Science Park is located in Dongbeiwang of the Haidian district, an area that is the cross junction of Beijing’s ecological zone, hi-tech industry, and academia zone, making the park a hot breeding ground for new talents and strategic business ventures. Z-Park comprises two main zones – an R&D zone and a public service zone. While the R&D zone is circled around the park’s central green and lake, the public service zone is located at the south-east corner of the park. The zone itself is composed of a software plaza, an international software building center, an information center, an incubation center, a recreation center, and other parts. Many incubators in the Z-Park have become the starting points for the commercialization of scientific achievement, innovation, and development of sophisticated hi-tech ventures. Zhongguancun Science Park comprises three important development centers: the Fengtai Innovation Center, Qinghua Innovation Center, and the Haidian Innovation Center for Overseas Chinese Scholars (Administrative Committee of Zhongguancun Science Park, 2002b).

Z-Park is further divided into five science zones, covering an area of about 340 acres with 700,000-square meters of office space at the northwest edge of Beijing. The park is located close to internationally recognized educational institutions, including the University of Beijing, Tsinghua University, as well as the CAS (Beale, 2007). The five main subparks of Zhongguancun Science Park include Haidian Zone, Fengtai Zone, Electronic Zone, Changping Zone, and Yizhuang Zone. Haidian Zone, located in the Haidian district, comprised the Shangdi Information Industrial Base and the Yongfeng Experimental Base. Haidan Zone is a concentrated area of many scientific and engineering talents, and is also known as the leading incubator of hi-tech enterprises in the park.

Fengtai Zone is in the Fengtai district, which is located in the southern suburb, while the Changping Zone occupies the northern suburb called the Changping district. Each of the two zones covers an area of about eight square kilometers (Administrative Committee of Zhongguancun Science Park, 2002b). The Fengtai Park is the center for over 3,000 hi-tech ventures involving electronic information, bioengineering and pharmaceutics, advanced manufacture, as well as new materials and new technology. In the year 2005, Fengtai Park contributed 306 million yuan to Fengtai District, which accounted for approximately 17% of the total revenue of the district. The Yizhuang Zone of the Zhongguancun Science Park is near the starting point of the Beijing-Tianjin-Ganggu expressway.

Yizhuang Science & Technology Zone is located in the Beijing Development Area that provides a complete service network including a foreign investors’ service center, insurance companies, banks, commercial and industrial departments, import and export companies, customs service units, commodities inspection departments, and bounded warehouses. Electronics City is located in the Jiuxianqiao District of Beijing and stretches over one half square kilometer. The five zones of Zhongguancun Science Park form a strong hi-tech developmental zone along the Fourth Ring Road of Beijing (Administrative Committee of Zhongguancun Science Park, 2002b).

Workforce at Z-Park

Zhongguancun is a zone with a high concentration of intellectual talent, first-rate technological resources, and scientific accomplishments. With the total enrolment of 300,000 students, Beijing University and Qinghua University are without a doubt the two most influential among the 68 institutions of higher learning represented at Z-Park. The great number of scientific and educational institutions, including the largest national library in Asia, provides the Z-Park with a great competitive edge and potential to become the leader in the development of a knowledge-based economy (Administrative Committee of Zhongguancun Science Park, 2002c). The park represents a continuous national effort to bring a talented and creative workforce to China from all over the world, while waiting for the new generation of educated youth to mature. In fact, attractive benefits, including affordable rent, competitive salaries, and easier start-up conditions, have even drawn many Chinese expatriates away from foreign industrial zones (Beale, 2007).

Zhongguancun Science Park represents an important job market for Beijing. In 2005, total staff reached 700,000 employees, and in 2004 alone, Z-Park created 68,000 new job opportunities. The regulations set by Beijing People’s Municipal Government in 2001 aimed at maintaining the most sophisticated intellectual talent at Z-Park. According to the principles governing the construction of regulations at Z-Park, ‘the number of employees having received college education shall account for over 30 percent of all the employees; and the number of scientific and technological personnel having received college education of those enterprises producing high- and new-technology products or laborintensive new-technology enterprises that offer high- and new-technology services shall account for over 20 percent of the total employees’ (Administrative Committee of Zhongguancun Science Park, 2002a).

The census conducted by the Zhongguancun IT Industry human resources department in 2001 revealed that approximately 73% of all the employees had previous work experience and were recruited in the job market while 27% of employees came directly from the schools. The census showed that about half of the employees at Zhongguancun Science Park were younger than 29 years old and only 7.6% were older than 50 (Administrative Committee of Zhongguancun Science Park, 2002e). The continual accumulation of quality personnel has not only optimized the crowd structure but also accelerated culture transformation in Zhongguancun. Building an innovative culture at the park includes encouraging risk-taking among the employees, tolerating failure, and supplying the talent with more opportunities to fully realize their potential.

However, the combination of young and sophisticated workforce in the new and dynamic environment has produced a major side effect – serial job hopping.

Job hopping and industry performance

According to the results of the Zhongguancun IT Enterprises HR Census, average employee inflow among Zhongguancun IT companies reached about 11% of total staff number while outflow accounted for almost 7% in the first half of year 2001. The human resources flow featured three major trends. First, a large part of employee outflow represented moving to regions such as Shanghai, with more developed economies and flexible policies. A second trend was moving abroad; and a third, to different enterprises. The major reasons for job hopping at Z-Park included career development and wages. Out of the total number of employees leaving in 2001, about 17% chose companies with better development prospects, approximately 16% headed for more attractive salaries and benefits, and another 16% went for an opportunity of position advancement (Administrative Committee of Zhongguancun Science Park, 2002d).

Increased job turnover, however, was not a phenomenon exclusive to Zhongguancun Science Park. The overall turnover rate in China accelerated to a record 14% in 2005 from 8% in 2000 (not including workers who were terminated), according to a survey by consulting firm Hewitt Associates. In comparison, the 2005 employee turnover rate in the United States was approximately 3% (Lee, 2006), including terminated workers. In bustling zones including Guangdong province or Shanghai, many employers lose as many as one out of three employees every year.

A survey conducted by the Shanghai municipal government revealed that approximately 24% of young workers in the nation’s leading industrial and commercial center had switched employers at least once in 2003. Attitudes about employment in China have certainly changed since the 1970s mainly due to the new market-oriented reforms (Xinhua News Agency, 2003, http://www.xinhuanet.com). A land once known as the socialist ‘iron rice bowl’, or a haven for lifetime employment, has become a revolving-door society leading to a job hopping crisis. Under the planned economy, China was a country where loyal workers served their state-owned employers until death. The employers used to cover all the housing and medical expenses for their staff, and if the employees decided to leave, they would lose everything, making them think twice about their decision.

With the new reforms in place, however, the Chinese labor market has experienced significant changes. Among many others, medical care or housing expenses are no longer covered by the employers (Xinhua News Agency, 2003). Moreover, restrictions on labor mobility have been lowered, allowing the ambitious and talented employees to switch jobs, disciplines, and firms more freely to broaden their experience. Unlike their parents who were influenced by the Cultural Revolution – greatly valuing social status and loyalty – young Chinese workers of 2007 consider themselves free agents with endless opportunities. Rapid economic growth and an erosion of traditional values in China enable workers to live a more entrepreneurial lifestyle and find jobs that better balance their work and life (Xinhua News Agency, 2003). The top reasons for job hopping in China include better compensation and benefits, career development prospects and job dissatisfaction.

While increased job mobility undoubtedly provides workers with exciting opportunities, the fast pace at which workers are changing employers has taken its toll on many companies. Company managers fear the time around the Chinese New Year, when many employees take their annual bonus and promptly say goodbye. While the amount of bonus can reach up to several times their monthly wages, some employees will leave if they are dissatisfied with their ‘13th month pay’ (Lee, 2006). Those who plan to leave anyway for a different reason will wait just long enough to take their bonus and never come back. Increased employee mobility is generally regarded as having a negative impact on industry’s performance. Job hopping tends to drive up training and recruiting costs for employers, disrupt business, and contribute to salary increases.

Losing employees to competitors is particularly harmful for a firm because the resources possessed by these workers can be used against the former employer, thereby eroding its competitive advantage in the marketplace. When trying to solve the issue of employee retention, Chinese employers are being forced to come up with new strategies and re-evaluate how they measure up against their competitors. To recruit and keep a quality workforce in today’s cut-throat labor market, employers are now required to provide new employees with personal attention, offer better training programs, and demonstrate room for advancement. For many Chinese firms, retaining high caliber workers also involves attracting employees with compensation packages that include competitive salaries and flexible benefits (Zuehlke, 2001). For higher-skilled jobs, Chinese enterprises have started offering some of the same incentives as in Europe or the United States: retention bonuses, stock options, and housing allowances (Lee, 2006). However, not all industries follow the traditional path and, instead of hampered production, show gains from the increased employee turnover.

California’s Silicon Valley is one of the business environments contradicting the popular notion that job hopping negatively affects industry performance. Located in Northern California, Silicon Valley is the top hi-tech hub in the United States, with the largest group of engineers and venture capitalists. An innovative and decentralized system such as the one at the Silicon Valley involves a lot of technical uncertainty that requires spending lots of resources on experiments, including the ones that will not be successful. Therefore, in environments with high technical uncertainty, particularly the IT industry, the quickest way to arrive at the best solution is to conduct many independent experiments, and therefore high employee turnover might actually encourage productive innovation (Postrel, 2005). When workers switch from one employer to another, they take their knowledge, skills, and talent with them. The job hopping rate of those in the IT industry is higher than in other industries, as employees move at a fast pace and seek companies that come up with the most sophisticated technology.

According to the 2002 survey by the Federal Reserve Board economists, ‘computer industry employees are more likely to move than employees in other industries’, and the mobility rates of Silicon Valley workers are on average 40% higher than those of other employees in the IT industry (Postrel, 2005). According to Anna Lee Saxenian, an economic development scholar at the University of California, Berkeley, ‘the system’s decentralization at Silicon Valley encourages the pursuit of multiple technical opportunities through spontaneous regroupings of skill, technology and capital’ (Postrel, 2005).

Z-future

Thanks to its intellectual talent and advanced technology, Z-Park has facilitated the technological transformation and structural readjustment of traditional industries (Wang, 2003). Some of the future goals for the Zhongguancun Science Park include further rejuvenating the nation through science and technology, as well as building the park into a national development base, a training base for breeding high- quality talent, an incubating zone for new scientific accomplishments, and finally, creating the leading science park in the world (Administrative Committee of Zhongguancun Science Park, 2002b). However, due to deepening of Chinese reforms, erosion of traditional values, increasing demand for skilled workers, and greater availability of information, job hopping has become a common practice at Z-Park, causing many economists and investors to question its future prospects. With high technical uncertainty, large experimental zones, and a focus on innovation, the business environment, and its future goals, Zhongguancun Science Park closely resembles the Californian Silicon Valley. Although many fear that the rapid employee turnover at Z-Park may deteriorate its success, just as at the Silicon Valley in California, these forces could possibly increase the productive innovation of Zhongguancun Science Park and thus contradict economists’ common assumption that job hopping negatively affects industry performance.

The case study – introduction

Zheng Chang Cereal and Feed Machinery Co. Ltd. (hereafter referred to as ZC) was founded in 1918 in Liyan City, Jiangsu Province, and the factory’s name since then has changed five times. It was China’s largest food machinery manufacturer and designer. ZC had 24 branches in China and more than 30 sales offices all over the world at the time this study was conducted. It was the first and only company that had the honor of using China’s well-known trademark and obtained a quality system certificate of ISO 9001. ZC’s high-tech pellet processing machinery and complete project equipment were widely used in the fields of food and aqua-food production, pasture processing, fertilizer production, and the petrochemical industry. ZC pellet mills and turnkey projects for food processing operated in most of China’s food mills, special aqua-food mills, and additive mills. While it had 75% share of the domestic market the company had built up long-term relationships with worldwide customers; its products had been exported to many Asian, African, European, and North and South American countries.

Due to its outstanding achievements and remarkable contributions to the Chinese cereal and food industry, the Chinese government awarded ZC many special awards, such as ‘Jiangsu Provincial Award for Quality Supervision’, ‘A Civilized and Advanced Enterprise of Jiangsu Province’, ‘Jiangsu Provincial Enterprise with High Credit in Respecting Contract’, ‘One of the Top Hundred Enterprise with Patents in China’, and ‘One of the Key High-Tech Enterprises of China’. President Hao Bo had been granted the Roosevelt Business Achievements Award by the US-China Entrepreneurs Federation of the USA. ZC’s products have been honored with the title of the famous brand of Jiangsu Province for the past 10 years. The company’s details are shown in Table 1 [Table A3.3]. At the time when this study was conducted, there were 3,500 employees, of which around 85% of employees were males.

The employment relations reform at the national level

During the planned economy China developed socialist employment relations systems, such as the ‘iron rice-bowl’ (tie fan wan) and ‘iron wage’ (tie gong zi), which ensured ‘jobs for life’ and ‘cradle to grave’ welfares policy (Shen, 2007; Warner, 2004). Chinese workers were thus born into, educated by, spent all their working lives in, and then enjoyed their retirement in danwei (work unit). Decisions about human resources and services were planned ahead of time by the State. Consequently, enterprises could not use their workforce in order to obtain a strategic or competitive advantage (Child, 1994; Chen, 1995; Shen, 2007; Warner, 2004). This approach to human resource management often resulted in a mismatch of skills and human resources with enterprise needs.

The economic reforms, particularly that of san xian gai ge (three reforms), has necessitated significant changes in employment relations in China. Since the late 1990s a significant number of pieces of legislation, including the 1994 Labour Law, 2001 Trade Union Law, and 2007 new Labour Law, affecting employment relations have been introduced. The directions of the reform have allowed enterprises increasingly to recruit, allocate, and reward people according to their competence and the state of the market (Benson et al., 2000). The most important features of the Chinese employment relations reform include the shift of state responsibility for and political control on human resources to enterprise management, the abolition of the ‘iron rice-bowl’ (tie fan wan) policy of lifetime employment, ‘cradle-to-grave’ welfares and egalitarianism in pay and benefits (Benson and Zhu, 1999; Shen, 2006; Warner, 2004). The most significant steps in the employment relations reform are the introduction of the labour contract system, which became compulsory in 1994, and individual compensation schemes, recognizing differences in educational background, skills, training, performance, and work experience (Shen, 2007).

According to Shen and Darby (2006) and Zhu (2005), since the old apprenticeship system was abolished Chinese industry organizations have not provided adequate training to their employees. Training in organizational values and cultures, business or organizational procedures, understanding of business and behavioral training techniques such as teambuilding and interpersonal skills, is rare (Chow, 2004). Although promotion opportunities in theory are open to everyone, the promotion process and associated criteria often are not objective due to the fact that guanxi (a combination of interpersonal relationships and social networks) plays an important role in management development (Shen and Darby, 2006). In general, De (political and moral attitudes), neng (ability and educational background), qing (working attitudes), and ji (performance and achievement) have remained the criteria for promotion and performance appraisals (Shen, 2004; Shen and Darby, 2006).

Shen (2007) and Zhu and Warner (2005) argued that while the employment relations reform has greatly improved productivity and competitiveness of Chinese enterprises, it has also caused massive and often unfair dismissal, non-payment of wages, social and unemployment insurance, a lack of production protection and training, and inadequate social welfare. Workers have been disadvantaged due to the fact that employers or enterprise management have been given almost unlimited power over workers in employment relations (Cooke, 2005; Shen, 2006, 2007; Zhu and Warner, 2005). Privatization is a key process of the economic reform that has exerted considerable impact on employment relations.

Researchers have suggested that industrial relations are more acrimonious and labour disputes increase much faster in privately- owned enterprises (POEs) than in SOEs (Li and Rozelle, 2000; Shen and Leggett, 2004; Shen, 2007; Zhu and Warner, 2005). Together with an undeveloped labour market and inadequate social security system, many Chinese workers, especially those who are laid-off, have been losing their basic livelihoods. Therefore, the unequal employment relations and employees’ disadvantaged status have become the major causes of widespread labour confrontation in China.

Changes in employment relations at ZC

Discussion and conclusions

The economic reform has resulted in drastic changes in employment relations in ZC. Since the late 1970s, like other Chinese industries and businesses, ZC had become responsible for the use and management of its own human resources, and gradually abolished the old ‘iron rice bowl’ employment relations system. Privatization in 2001 had further pushed forward its employment relations reform. The key features of its employment relations included market and profit-orientation, pragmatism, and the focus on equity in performance appraisal and pay. There was a lack of organizational commitment to training and developing employees into a long-term competent workforce. While ZC had adopted the labour contract system it did not fully comply with the Labour Law, leaving a large number of workers not protected by any social security provisions.

The new employment relations had greatly increased the productivity and efficiency of the company. Employees were relatively more satisfied with performance management, particularly objective performance appraisal criteria and appraisal execution, than other employment relations policies and practices. Performance-based pay and the two-way selection process were highly regarded by employees because these two aspects of employment relations gave employees the freedom to choose jobs and employers, and to obtain equal and fair financial rewards. Workers have become accustomed to the idea that the ‘iron rice bowl’ of job security and enterprise-provided welfare is a thing of the past. Employees, however, were very unsatisfied with limited or non-existent training and management development opportunities, and organizational support for personal development.

Employees’ responses to the employment relations reform varied significantly according to their own personal characteristics and experiences. A general conclusion can be drawn that employees who were males, managers, aged between 40 and 50, had higher education and urban citizens, scored the highest on satisfaction with employment relations. It can be explained those people who were more satisfied with employment relations were treated better than others at this particular enterprise. The finding of this study indicates that different economic groups in China interpret the employment relations reform in different ways. It is worth noting that Chinese employees sometimes do not realize that they are disadvantaged in employment relations. Furthermore the situation is unfair to them as all firms do the same, particularly with regard to migrants from rural areas. In this study empirical evidence shows that migrants were more satisfied than urban citizens with pay even though they were often underpaid.

The changes in China’s employment relations are actually many of the direct causes of labour confrontation. Adopting effective and equitable employment relations policies and practices would greatly help prevent labour disputes from occurring. Hence, the findings of this case study have significant implications for practitioners with regard to what precautions should be taken with employment relations. Currently, like many other organizations, ZC had not signed labour contracts with all employees. As a result, a significant number of Chinese employees are not protected by the social security system. An organization should regard signing labour contracts and entitling workers to social security as an important social responsibility, especially when fringe benefits are currently diminishing. Moreover, Chinese enterprises need to pay more attention to training and development in order to cultivate talented and potential managers. Currently, ‘buying’ skilled workers and capable managers is regarded by enterprise managers as the most economical way of employing people. Such a policy is actually costly as it de-motivates employees and causes long-term strategic concerns and a lack of sustainability and personal biases. Furthermore, some economic groups, such as migrants, women, and old workers, are currently disadvantaged in employment relations. Therefore, equity in employment relations has become an urgent issue facing Chinese enterprises managers. Due to different employees having different demands and needs, enterprise managers should develop employee-tailored employment relations policies and practices, such as more work-life balance concerns for female employees with children.