THE NATIONAL CULTURES

Hofstede s Framework:
Power Distance China Taiwan US 80 58 40 Uncertainty Individualism Avoidance 40 69 46 20 17 91 66 45 62 Masculinity Orientation 118 87 29 Long Term

World Avg

55

64
Table 1
1

43

50

45

Empirical research proves that National Cultures differ in particular at the level of, usually unconscious, values held by a majority of the population. Perhaps the most notified work in studying National Cultures has been done by Prof. Geert Hofstede. His Cultural Dimensions Model is a framework that describes four different dimensions of value perspectives between cultures of different nations. These are Power Distance (PDI), Individualism (IDV), Masculinity (MAS) and Uncertainty Avoidance (UAI). A fifth dimension, Long Term Orientation (LTO) was later added by Michael Bond.

China and Taiwan s scores on these dimensions have been mentioned in the Table 1. These have been discussed in greater detail below.

Power distance Power distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally.

Source : http://geert-hofstede.com

At 80, China is one of the highest ranked countries with respect to Power Distance

i.e. a

society that believes that inequalities amongst people are acceptable. Thus, we see that in a country like China, rank based hierarchy is strictly adhered to and there is no defense against power abuse by superiors. Individuals are influenced by formal authority and are in general optimistic about people s capacity for leadership and initiative.

With a score of 58, Taiwan scores a little higher than the world average which means that up to an extent people accept a hierarchical order in which everybody has a place and which needs no further justification. Much like China, hierarchy is followed here too, centralization is popular, and subordinates expect to be told what to do. Challenges to the leadership are not well-received.

Individualism The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. As expected, China s low score on the Individuality scale (score of 20) indicates a highly collectivist culture where people act in the interests of the group over pursuing their self interests. Personal relationships are given more importance than task or company. In-group considerations affect hiring and promotions with closer in-groups (such as family), getting preferential treatment. Whereas relationships with colleagues are cooperative for in-groups, they are cold or even hostile to out-groups.

Taiwan, with an even lower score of 17 is a still greater collectivistic society than China. This is manifest in a close long-term commitment to the member group, be that a family, extended family or extended relationships. Loyalty and responsibility for not only oneself but also one s fellow members is an important characteristic of the Taiwanese culture.

Masculinity The fundamental issue here is what motivates people, wanting to be the competition,

achievement and success (masculine) or caring for others and quality of life (feminine).

At 66 China is a masculine society success oriented and driven. The need to ensure success can be exemplified by the fact that many Chinese will sacrifice family and leisure priorities to work. They are highly competitive and often compromise on personal time to achieve success at the professional level.

Taiwan scores 45 on this dimension, which is lower than the world average and is thus considered a feminine society. In feminine countries like Taiwan, people value equality, solidarity and quality in their working lives. Well being is given more importance than status and success. Moreover, decision making is achieved through involvement.

Uncertainty Avoidance The Uncertainty Avoidance Scores reflect the extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these.

At 30 China has a low score on uncertainty avoidance. The Chinese are comfortable with ambiguity. Chinese are adaptable and entrepreneurial. The majority (70% -80%) of Chinese businesses are small to medium sized and family owned.

Taiwan scores 69 on this dimension and thus has a high preference for avoiding uncertainty. Consequently, it maintains rigid codes of belief and behaviour and is intolerant of unorthodox behaviour and ideas. Innovation and thinking out of the box is resisted while security, punctuality and precision are considered to be very important characteristics.

Long term orientation This can be interpreted as dealing with society s search for virtue, the extent to which a society shows a pragmatic future-oriented perspective rather than a conventional historical short-term

point of view.

With scores of 118 for China and 87 for Taiwan, both are highly long term oriented societies in which persistence and perseverance are the accepted norm. Relationships are ordered by status and the order is observed. Pragmatism is seen embedded in this culture along with a strong propensity to save and invest.

Hall s Framework:
Another important study in this field was conducted by Edward T. Hall in 1976. Hall s devised a continuum for categorizing National Cultures as High Context Cultures or Low Context Cultures.

In his view, a high-context (HC) culture is one in which people are deeply involved with each other. As a result of intimate relationships among people, a structure of social hierarchy exists, individual inner feelings are kept under strong self-control, and information is widely shared through simple messages with deep meaning (which are mostly Non-verbal). A low-context (LC) culture is one in which people are highly individualized, somewhat alienated, and fragmented, and there is relatively little involvement with others (Hall, 1976, p. 39)2. Thus, in low context cultures, society imposes less on individuals' lives, and communication between people is more explicit, verbal or written and non personal.

Most Eastern countries, including both China and Taiwan have been categorized as High Context Cultures indicating that they are more socially oriented, with deeper bonds and less confrontations than their Western counterparts.
Source: High- Versus Low-Context Culture: A Comparison of Chinese, Korean, and American Cultures, By Donghoon Kim, Yigang Pan, Heung Soo Park
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Social Orientation In high-context (HC) cultures such as China and Taiwan, people are deeply involved with one another. These bonds imply commitment, expectation, and mutual goodwill. There is an emphasis on conformity and group orientation. This is in sync with Hofstede s individualism scores of the two countries.

Commitment Owing to the high levels of involvement, bonding and cohesiveness in society, HC countries like China and Taiwan tend towards high commitment too. A person's word is given utmost importance, sometimes even more than verbal or written communication. A first promise or commitment often serves as the beginning of a lifelong relationship. On the downside, this also leads to reluctance in trusting and interacting with outsiders and dealing with fields or relationships that are not very well known.

Responsibility Related to social orientation and commitment is the issue of responsibility. In high-context systems, people in places of authority are considered responsible for the actions of their subordinates.

Confrontation As mentioned in Hostede s framework, Chinese and Taiwanese people try to avoid direct confrontation to maintain social harmony and intimate bonds between people. Thus, there is a strong notion of face saving in HC cultures (Tse et al., 1988). This is the reason why these people often express themselves in a roundabout way, especially regarding issues that might be disagreed upon.

Communication

In HC cultures such as China and Taiwan, the intimate human relationships and the wellstructured social hierarchy and norms serve as a broad context in which human communication takes place. Most communication relies more on the physical context or is internalized in the person, and less information is conveyed verbally.

IMPACT OF MACRO FACTORS ON FORMULATION AND EXECUTION OF HR POLICIES AND PRACTICES

Although both China and Taiwan have similarly deep roots, belong to the same family , historically, culturally and ethically, and claim to be the one true representative of Chinese People, still they have both seen different historical and political changes in the past century. Despite their political separation, the two depend on each other economically and continually imitate each other in terms of economic modernization. Both China and Taiwan, experienced rapid economic growth and industrialization post Second World War. With both of them joining WTO and moving towards a more open market economy, they have spent the last few decades reforming their economic and political scenarios in an attempt to push for modernization and competitiveness. These reforms and other macro factors acting on the two economies have also had a great influence in shaping the HR Policies and Practices of the counties to its present state. Consider the labor market situations in both countries. As Taiwan adopted the Market economy a lot sooner than China, its HR policies and Employment model are a lot more liberal and market driven than its neighboring country.

China China started its economic reform journey from 1978 onwards, under the leadership of Deng Xiaoping. The central idea was to change the country from a centrally planned economy to a "socialist market economy', based on the 'Open Door" policy and the 'Four Modernizations' (of

agriculture, industry, defense, and science and technology). China s pre-reform period characterized by the Iron-rice bowl (guaranteed job security, steady income and benefits to all) is in sharp contrast with the labor-market flexibility and staffing based on employment contracts that it is now working towards. In this new scenario, performance driven reward systems have been adopted, replacing the earlier fixed wage systems. Moreover, with the flood of FDI to the country, more and more MNCs are establishing their operations in China and bringing their International Standardized HRM Policies along.

Taiwan Taiwan has had a market driven economy since longer than China. Another major point of difference is that while China is a socialist market economy, Taiwan is a capitalist market economy. Thus, it follows HR policies of performance based pay, pluralist unions, institutionalized bargaining etc. However, on the downside, high unemployment and low economic growth have plagued the nation for a long time now. As a result, a number of firms have relocated their operations to mainland China. Lack of confidence in the Taiwanese Democratic Progress Party Government has only further complicated matters.

Furthermore, the differences and similarities in the HR policies of the two nations, as framed by their political-economic Macro factors have been summed up in Table 2 below.

Statist Model

Market Driven Model Socialist Market Economy Capitalist Market Economy

China Pre-reform State ownership Command Economy Personnel Management Iron Rice Bowl Jobs for Life

China Post-reform Diversifying Market Socialism Evolving HRM Nascent labor market Individual contracts

Taiwan Diverse Ownership Market Economy Semi Mature HRM Mature labor market Unregulated

Labor bureau Egalitarian Pay and perks On-site accommodation Free medical care One Top-down union State wage determination

Transitional system Hybrid reward system Emergent housing market Hybrid mix Institutional stasis Nascent bargaining
Table 2
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Market choice Performance pay Mature housing market Market choice Pluralist unions Institutionalized bargaining

DISTINGUISHING FEATURES IN THE HRM POLICES AND PRACTICES

Staffing Practices4 In China, Post-Reform, the Iron rice bowl system of lifetime employment has been replaced by the labor contract system. In a rapidly developing economy such as China, firms generally do a lot
of hiring, even if employee turnover is low. Owing to their collectivist and High context culture, Chinese firms generally rely on close relationships they have developed during school, technological institutes and universities to fulfill their staffing needs.

Taiwan has a lot of family-owned Small and Medium Sized Enterprises (SMEs). Initially, they were owned and run only by family members. However, as the economy is opening up and growing, so the nature of staffing practices at these firms is also changing dramatically. During the recent financial crisis, many companies realized that they needed more effective
Source: Human Resource Management with Chinese Characteristics : A comparative study of the People s Republic of China and Taiwan. By Malcolm Warner and Ying Zhu Source: When in China . . . The HRM practices of Chinese and foreign-owned enterprises during a global crisis. By Jacques Jaussauda and Xueming Liu
4 3

management skills for their survival. Therefore middle level managers and skilled employees were recruited externally from formal employment agencies. The State or Private-owned Large Enterprises (LEs) in Taiwan, on the other hand have well established systems of external recruitment of managers. A comprehensive selection process of examinations, interviews and evaluation procedures is generally used to capture the best talent. Owing to security, great working environment, high compensation and social prestige, LEs are much preferred places of work, thus making their recruitment all the more competitive. Public recruitment and Campus recruitment are the commonly followed in such companies.

Training and Development Training is given a lot of importance in Chinese firms, especially with regard to the employees industry-related technical domains and marketing and management techniques. Training is mainly carried out in-house, except for managerial positions. On-the-job training under the guidance of more experienced colleagues is generally adopted for managerial positions. Chinese companies often train their blue collared employees on weekends, outside paid working time, because on week days, it is difficult for the workers to be released from production.

Continuous training is given utmost importance in Taiwan too in order to cope with market changes and link the skills of employees with needs of production. Both On the Job and professional training practices are adopted for the same.

Compensation In China, Iron wages or the fixed wage system which existed Pre-Reform, has now been changed to a flexible wage system. Thus pay is now linked to performance, skills and position and is used as a motivator for greater production. Wages are now paid on the basis of piece work wage system , bonus system , structural system and floating wage system . In fact, as of today, out of the total pay of an employee, the variable part is higher than the fixed part. This high share is justified as an incentive mechanism that contrasts with China s planned

economy until the end of the 1970s. The determination of the variable part is mainly based on individual characteristics and merit, and partly on collective performance. Bonuses are also paid every quarter and on an annual basis. However, despite the breaking down of the iron wages, Chinese firms still tend to offer more benefits to their employees than most other countries. This is a direct result of traditions inherited from the planned economy, which was marked by shortages of even basic consumption goods. Therefore, it is not uncommon to find Chinese firms, provide complementary meals and discount coupons to be used in shops and petrol coupons for their managers. As far as overtime remuneration is concerned, Chinese firms generally do not pay for all overtime worked by employees, though they should according to the labor law. Only factory workers receive pay for all their overtime hours at least those with a work contract, which became compulsory in January 2008 with the enforcement of the new labor law. For white collared employees, long working days often translate into higher bonuses.

The philosophy of harmony still plays an important role in the wage determination in Taiwan. For the same reason, although salary packages are high, especially in Large Enterprises, but the wage gap between the top managers and the lowest employee level is only about five fold as compared to some other nations (like USA) where the figure is sometimes over 20 times higher.

Career Planning To combat over manning and zero turnover of workers, the labor law of 1995 created a new labor market and encouraged mobility of labor in China.

Although most Taiwanese family-owned SMEs maintain a centralized decision making process, however recent trends show that owners have now started withdrawing from everyday managerial activities. Some high ranking managers are thus trained and promoted within the company, and are not necessarily family members.

Employee Relations

In China, Iron chair referring to the inflexibility of changing positions of shop-floor and manager was dismantled after the reforms and shop-floor and manager engagement systems were established instead.

Owing to a very pro-labor orientation of its Government policy, Taiwan has a very liberal labor environment with formal and complex employee relations. The government has enacted many laws such as the Collective Agreement Law (1982), Labor Disputes Law (1988), Labor Insurance Act (1988) etc.

REVISION/ADJUSTMENT OF HR POLICIES AND PRACTICES WHEN DOING BUSINESS IN OTHER COUNTRIES

Both Chinese and Taiwanese MNCs in other countries place much emphasis on consistency of operations throughout their foreign subsidiaries. This is done through extensive control and monitoring procedures. For this purpose, both output control and behavior control is used. Further, the foreign subsidiaries are generally not involved in high innovative processes that require a high level of discretion. The ability to measure and report subsidiaries performance accurately, make output control the preferred control mechanism. As a result, a lot of emphasis is put on meeting budgetary targets and evaluating subsidiary s performance. In addition to output control mechanisms, given the geographical and institutional distances between the HQ and the foreign subsidiary, the level of uncertainty is further reduced by complementing output control with a high level of behavior control. HQs thus tend to delegate to their subsidiaries as little work as they must rather than as much as they can.

Contradictory to their in-home principle of long term job security and relationships, Chinese and Taiwanese MNCs abroad generally employ HCNs on contractual basis on short term contracts to have the flexibility to adjust to demand fluctuations with minimum cost.5 Also, unlike in their home operations, Chinese firms largely introduce part-time employment and flexi-time working in their overseas operations. Overtime that is usually compulsory at home is reduced to the minimum level in overseas operations. At home, Chinese firms directly recruit new graduates from universities, while they recruit HCNs largely through agencies overseas. The quest for centralized control manifests itself in practices such as company-wide qualitycontrol processes designed from and controlled by the centre in China or Taiwan through

the appointment of expatriates to key managerial positions. These firms insist on appointing MDs, finance managers etc with first hand experience in, and loyalty to, the HQ s procedures for three reasons: 1) knowledge of HQ procedures; 2) trust; and 3) communication. However, the number of expatriates is often restricted by the host country s legal expatriate quota policy. A second method used to facilitate the control of subsidiaries in addition to the use of PCNs is technological platforms such as standardized online accounting systems so as to allow the HQ to monitor problems and contribute to problem-solving at the subsidiaries in real time. The third control method often used is standardized HRM practices including company wide performance appraisal criteria to help the HQs monitor overseas subsidiaries employees productivity and performance, and expenses related to HRM practices. It is worth mentioning that although the HQ develops and monitors HR practices such as appraisal schemes, the practices themselves are to a large extent host country-based.

Source: Control of subsidiaries of MNCs from emerging economies in developed countries: the case of Taiwanese MNCs in the UK. By Yi Ying Chang, Kamel Mellahi and Adrian Wilkinson