Implication of Cross-national Transfer of compensation practice: a case study of a Sino-German Joint Venture.Discuss

Implication of Cross-national Transfer of compensation practice: a case study of a Sino-German Joint Venture

Abstract Extensive research has been undertaken on the cross-national transfer of human resource management practices. However, little investigation has assessed cross-national transfer of compensation practices and little attention has been paid to German-Chinese context. This paper exams the transfer of a German-developed compensation practices from Germany to the People’s Republic of China, with a case study of a Sino-German Joint Venture in the manufacturing sector. It argues, first, that institutional constraints include national vocational education and training (VET) limit implementation of German-developed compensation system based on German VET. Second, cultural factor shapes employees’ work value and preference of compensation system. Third, but even in highly constrained Chinese context with large institutional and cultural distance, Sino-German Joint Ventures are capable to find room for manoeuvre in China. Hybridisation, a mid-way position between diffusion and adaptation, serve as a solution for MNCs to transfer HRM practices by reducing institutional and cultural constraints.

Keywords Human resource management; compensation practice; multinationals; China; Sino-German joint venture; transfer; manufacturing.

1. INTRODUCTION
In this age of fast globalising businesses, there have been numerous studies that focus on the the transfer of HRM practices within multinationals (Gamble, 2003). Particular attention has focused on US multinationals that have ‘strong’ HRM traditions and on transfers between developed countries in terms of economy (e.g. Ferner et al. 2005; Muller 1998; Tayeb 1998). Despite China’s increasingly important role in global market, the transfer of HRM from developed countries to China, a developing country, especially has been rather neglected. Similarly, increasing significance of trade partnership between Germany and China particularly in auto manufacturing industry, little researches in the field of German multinationals’ transfer of HRM practices to China. Further, there is little research in the field of cross-national transfer of compensation practices, which is one of key HRM practices.

Although little attention has been paid to China, it is vital to study the transfer of HRM from developed countries to China. Because China has attracted vast inward foreign direct investment since 1990s (Gamble, 2003). Further, recent years have witnessed the considerably increased number and scale of operations of Sino-foreign joint ventures in China (Bjorkman and Lu, 2001). Joint ventures can not only help foreign partners better understanding unique Chinese business environment and achieving strategic objectives such as cost effectiveness (Calantone and Zhao, 2001), but also help Chinese partner take advantages of transferring advanced technologies and management expertise of foreign companies (Bruton et al. 2000). It is not uncommon that Joint venture companies are in face of challenges in whether to adapt foreign style HRM practices into Chinese context and how to do it if adapting (Goodall and Warner 1999; Takeuchi, Wakabaysashi and Chen 2003). Even so, there is an increasingly growing tendency that western-style HRM practices have been incorporated into joint ventures in China (Law, Tse and Zhou, 2003). Thus, one contribution of the study is to find how Sino-foreign joint ventures deal with HRM transfer from the parent country to China.

Thus, it seems timely to focus on the the implication of transfer of HRM practices, in particular compensation practice, from Germany to China in the manufacturing sector. Specifically, the study pays attention to the transfer of German-developed compensation practices (i.e. competency based pay) to the host country (i.e. China), with a main focus on host-country effects including institutional barriers and culture conflicts, rather than country of origin effects.

This study is focus on manufacturing industry and based on a Sino-German joint venture company, Jiangsu ISRI Shuangdi Spring Co.,LTD., which specialises in manufacturing motor vehicle parts (springs). Although China’s manufacturing industry is perceived as “a key driver of its economic growth” and China is seen as the world’s factory (BBC, 2013), Chinese manufacturers are always linked with low quality (BBC, 2002). Recent news in The Wall Street Journal (2015) recently reported that China’s manufacturing industry has slipped into contraction. In contrast, German manufacturing industry plays a vital role in global manufacturing market, and German products are well-known as engineering perfection, high quality, technical superior and reliability (Wenkel, 2014). For China’s manufacturing firms that aims to improve quality, it is vital to improve human resource management because Total Quality Management emphasises that every employee has responsibility for the product quality (Slack, et. al., 2010) . Thus, transfer of German scientific HRM to China may largely contribute to quality improvement of products in manufacturing industry. Compensation can be a key HRM practice to motivate employees to focus on quality improvement.

In looking at a case study of Sino-German Joint Venture, Jiangsu ISRI Shuangdi Spring Co.,LTD., which successfully adapted German-style compensation system to Chinese context, the study seeks to answer the question, ‘How transfer of compensation practices from Germany to China within Sino-German Joint Ventures constrained by institutional and cultural factors?’ and ‘Is that possible to reduce the institutional and cultural barriers?’

The rest of this paper is structured as follows. Section 2 is literature review that outlines previous theoretical researches on multinational transfer of HRM with a focus on institutional constraints and cultural difference, concepts of competency based pay, and concepts of hybridisation. Section 3 next shows a detailed description of the data collection and analysis. This is then followed by a description of empirical findings mainly based on interviews with employees in Jiangsu ISRI Shuangdi Co. Ltd. The paper concludes with Section 5 where implications are discussed, conclusion are summarised, and research limitations are mentioned.

2. LITERATURE REVIEW
This section first focuses on introduction of competency based pay that is one of competitive HRM practices in Germany. However, the transfer of German developed compensation practices (i.e. competency based pay) to the host country (i.e. China), may be constrained by host-country effects. Thus, second, institutional barriers will be analysed, and third, culture conflicts will be outlined. Finally, MNCs may develop a hybridisation of parent-country HRM practices to deal with host-country effects.

Compensation System – Competency based pay
After performance-related pay and skills-based pay, there is competency-based pay that is regarded as the latest compensation practice to gain worldwide attention (IDS, 1996). Competency-based pay stems from the development of skill-based pay. Since 1980, a number of companies, in particular manufactory, started to link pay to the acquisition of skills to motivate manual workers to acquire skills to become ‘multi-skilled’, which overall achieving company objective of work flexibility on the shopfloor. Thus skills-based pay was born. However, skill-based pay mainly emphasised on shopfloor skills, and thus further, competency-based pay is developed to link pay with behaviour and attributes which can be applied to the managerial level.

Thus, competency based pay (CBP) is defined by Heery and Noon (2001), as:

“A payment system that relates salary progression or a cash bonus to the display of “competencies” by individual employees. Systems originate in the identification of competency, understood as the key attributes and behaviours of employees that underlie good performance in a particular organisation or job.” (Heery and Noon, 2001)

In other words, according to competency-based pay, workers will gain a specified reward if they achieve a defined level of competency. CBP pays a key role in “establishing a ‘clear line of sight’ between an improvement in demonstrated on-the-job behaviours and increased salary” (IDS, 1996). Thus, CBP can be a tool for motivating employees’ skill or knowledge seeking and acquisition by rewarding them for doing so (Murray and Gerhart, 1998).

There are three reasons why competency-based pay becomes important for companies. First, due to increased trend of global corporate reorganisation, a number of companies have shifted or has been shifting from being a product-based to people-based organisation (reference). Companies highly consider the importance of skills and personal’ qualities of their workforce, while CBP is regarded as a best compensation practice to achieve improvement of workforce qualities (Murray and Gerhart, 1998). Second, CBP helps improving on-the job behaviour. Because CBP contributes to an increase in product quality as employees with higher skills and knowledge competencies are more likely to have capability to understand the significance of every step in the process (Murray and Gerhart, 1998). Similarly, Dobbins, Cardy and Carson (1991)’s research found that CBP is associated with improving product quality because it helps enhancing workers’ understanding of a company’s system (e.g. quality inspection) thereby decreasing production variance by systematic training. Thus, it encourages work flexibility, which is the third advantage of CBP (IDS, 1996).

Some evidence shows that competency-based compensation practice has long way been practiced in Germany (Loffler, Busse and Hoppe, 2002).

Issues in the transfer of compensation system among nations
However, the transfer of German developed compensation practices (i.e. competency based pay) to the host country (i.e. China), may be constrained by host-country effects, including institutional barriers culture conflicts will be outlined.

Institutional constraints
Multinationals that operate in foreign nations within diverse institutional environment are challenged by the inherent impact of diverse institutions on HRM practices (Zaheer, 1995). According to institutional theory (Scott, 1995), companies should conform to particular rules and belief systems that are predominant in the environment (Meyer and Rowan, 1977), so as to successfully survive, because institutional isomorphism in terms of structural and procedural can gain the firm legitimacy (Suchman, 1995).

Previous study in transfer of HRM practices within multinationals have identified that institutional constraints are critical in transferring some HR practices cross nations (Ferner et al., 2012). In other words, diverse national host environments, such as national business systems, legislation, and vocational education and training systems, largely place institutional constraints on multinational companies. The constraints of national institutional context largely shape the extent to which and what HRM practices are transferred within multinationals (Pulignano, ). It is suggested that if the institutional distance between origin and host country is large, multinationals are more likely to experience difficulty in transfer HRM practices that are developed in country of origin to the host country (Liu, 2004).

Variance in vocational education and training systems
The paper focuses on one institutional constraint, which is national vocational education and training systems (VET) which play a key role in shaping different national skill and competency profiles (Hall and Soskice, 2001). Hall and Soskice (2001) in the study of “varieties of capitalism” states that different national vocational training and education significantly constrain companies’ strategies and HR strategies.

Germany, as liberal market economy, has highly developed vocational education and training (VET) system, which is called dual system of vocational education (Wieland, 2015). The dual system plays a vital role in cultivating employees with high industry-specific skills who benefit the innovative capacity of manufacturing industries in Germany. Consequently, a technically competent and flexible workforce has been shaped, which in turn contribute to technologically sophisticated and high-quality products consequently leading to German firms’ competitiveness (Streeck, 1997). Moreover, it is German HRM that highly focuses on employee training and development in particular the extensive in-house and external training schemes (Muller, 1999). In Germany, training opportunities are offered for 365 different occupations (Bosch and Charest, 2008), and there are less than 16% of employees in the labour market without vocational training (Bosch, 2000).

Supported by German government, German employers cooperate with trade unions to develop and improve occupational profiles for training and education system. This largely helps training certificates to be recognised in the labour market and further to be embedded in the compensation systems (Bosch and Charest, 2008).

However, China’s VET system differs to Germany’s in terms of three factors, according to Barabasch (2008). First, the German and Chinese VET system differ in terms of structure. The former significantly focuses on apprenticeships in the dual system and partly on vocational schools, and begin after the general education. Whereas the latter is multi-layered and can begin in school parallel to general education.

Second, in Germany, there is a law requiring secondary school leavers to acquire formal vocational education before searching for qualified jobs, which however is not available in China. Further, in Germany many young adults who do not go to universities normally choose vocational education in order to acquire gainful employment because individuals with low-skills can only jobs with very little pay, while there are many jobs in the labour market that do not required certified vocational training in China.

Third, a centralised national organisation of VET is available in Germany but not feasible in China, because of different training providers. The Germany’s training providers are schools and companies which can behave as a partner relationship regarding of training contents. However, the China’s include the government, profit-driven firms, and organisations facilitating people’s qualifying exams, which can behave as a competitive relationship.

Compared with highly developed Germany’s VET system, China’s VET system has some limitations. First, while in Germany VET is highly recognised among both employers and employees as a necessary precondition for employment, in China VET is not nationwide recognised and its negative reputation avoid many young adults from attending vocational programme, which is main reason for insufficiently qualified workers in labour market (Barabasch et al., 2008).
Second, there is a loose connection between Chinese VET and the labour market, which largely causing a problem that training programme unmet workforce needs (Sun, 2006).

Although there is large difference between the Chinese and German VET, some evidence show that Chinese government is trying to reconfiguring Chinese VET according to the German Model (Barabasch, Huang and Lawson). With guidance and support of Germany, China is engaging in developing a German-style dual system, which aim to lay a sound foundation for stabilisation of the labour market in China (Sun, 2006). Thus, Chinese VET will be close to German VET, thereby leading a decrease in their distance.

Culture difference
Considerable research indicates that cultural distance can be regarded as significant challenges for MNEs (Morck et al., 2007). Culture is defined by Kroeber and Kluckhohn (1952) as follows:

“culture consists of patterns, explicit and implicit of and for behaviour acquired and transmitted by symbols, constituting and distinctive achievements of human groups, including their embodiment in artefacts; the essential core of culture consists of traditional ideas and especially their attached values”.

There are a number of studies (Laurent 1986; Hamden-Turner and Trompenaars 1993; Hofstede 2001) that show a link between culture and organisational behaviour. National culture significantly affect different HRM practices (Lau et al., 1997). Further it is approved that culture has impact on compensation system in organisations (Yeganeh and Su, 2011), which is consistent with Huo and Steers (1993)’s study. Thus, constraints exist in transfer some HR practices between two nations with inherently different cultures (Beechler and Yang, 1994).

Chinese culture v.s. German culture
Lockett (1988) defined the key aspects of Chinese culture as “respect for age and hierarchical position, group orientation, the concept of face and the importance of relationship”. Further, Hofstede (1983) categorised five culture dimensions, including power distance, uncertainty avoidance, individualism v.s. collectivism, masculinity v.s. femininity, and long-term orientation. Hofstede centre (2015), in Diagram 1 below, defined German culture as low power distance, fairly masculinity, high individualism, uncertainty avoidance and longterm orientation. In contrast, except of masculinity and long-term orientation, Chinese culture varies on all dimensions with high power distance, low individualism (collectivism) and uncertainty avoidance.

Implication of cultural impact on compensation practice
Variation of the three dimensions of culture between Germany and China (i.e. power distance, individualism, and uncertainty avoidance) may have an impact on employees’ work value, which thereby likely influences their attitudes towards western-developed HRM practices (Pelled and Xin, 1997). First, power distance culture reflect hierarchy that are regarding of the degree of the inequality existing within countries (Maznevski et al. 2002). In large power distance culture,a certain degree of inequality is likely to be accepted in the society (Hofstede. 1983). Yeganeh and Su (2011) found that individuals in hierarchy cultural oriented nations, like China, tend to prefer job-based and hierarchical reward systems, in contrast to individuals in less hierarchy cultural orientated nation, like Germany.

Second, different national cultural contexts ( individualism versus collectivism) affect employees preferences for compensation (Gomez-Gejia &Welbourne, 1991). Because rules that governing employee compensation award decision differ among counties that are cultural collectivism-dominated or individualism-dominated (Hui et al., 1991; Kim et al., 1990). Deutsch (1975) categorised three main rules governing individuals’ reward preference, including equity (i.e. rewarding based on employees’ contribution), equality (i.e. rewarding equally), and need (i.e. rewarding based on employees’ personal needs). According to Kim et al. (1990), individuals from collectivistic culture who emphasise interpersonal relationships, thus are more likely to prefer the equality rule or the need rule. Whereas, individuals from individualistic culture who are more concern with task contribution rather than relationships, thus are more likely to prefer the equity rule. This is consistent with Hui et al. (1991)’s and Zhou and Martocchio (2001)’s studies. Thus, in China, as a collectivism-dominated nations, individuals tend to prefer the equity rule (Chen, 1995).

Similarly, a study by Yeganeh and Su (2001) further argues that, because employees in cultural collectivism dominated countries emphasise reward system that support harmony and cohesion, they tend to prefer job-based and group performance compensation systems which are non-competitive in nature. In contrast, employees in cultural individualism dominated countries tend to prefer skill-based and individual performance reward systems.

Third, cultural difference regarding uncertainty avoidance also have impact on employee preferences for rewards in terms of fixed versus variable form (Sanchez-Runde and Steers, 2001). For example, employees in more risk-oriented nations (like China) are likely to transfer 100% of their wages to variable rewards, whereas employees in more risk-averse nations (like Germany) are less likely to commit to convert more than 10% of their wages to variable rewards (Pennings, 1993).

Thus, it is argued that a nation’s unique culture has inherent impact on employees’ work value, which thereby likely influences their attitudes towards western-developed HRM practices (Pelled and Xin, 1997). In the transfer of HRM practices that shows the cultural values of western countries, it is particularly vital for HRM practices to be in consistent with the cultural work values of Chinese employees (Yu et al 2005). Lockett (1988) draws a similar conclusion and argues that western-developed HRM practices should be adapted to fit better with Chinese context and culture.

However, previous study in transfer of HRM practices within multination (e.g. Muller, 1999), have identified that even in host country with large institutional constraints and high cultural distance, it is possible that Joint Ventures are capable to find room for manoeuvre in host country. To be more specific, some level of openness and flexibility exists in each country’s business system (even one as constrained as China’s), which therefore might be solved by fitted company-specific managerial strategies (Ferner et al., 2001).

Hybridisation
To deal with those host-country constraints, some researches proposed an approach of hybridisation that involves encouraging MNCs to innovate home country developed HRM practices, rather than MNCs pushing through the practices against institutional and cultural constraints of host-country (Meardi and Toth, 2006). Because within cross-national transfer of HRM practices, the country of origin is not necessarily the ‘model’, whereas the host country is not necessarily a passive recipient of the ‘model’. Boyer (1998) first proposed the theory of ‘hybridisation’, and stated that “the notion of hybridisation becomes significant, not just as a more short-term adaptation to environmental resistance, but as a principle of transformation, indeed of genesis, of industrial models themselves, through their interaction with social and economic systems which are different from those in which they first developed”. In other words, hybridisation can be regarded as a mid-way position between diffusion (i.e. transfer of models from country of origin to oversea) and adaptation (i.e. adoption by MNCs of the host country’s prevalent models to environmental resistance).

Further, in consistent with Boyer, Dörrenbächer (2002) proposed ‘hybridisation at source’. Referring to Dörrenbächer, hybridisation should be considered as the outcome of the company’s selective transfer strategy, rather than as the balance pressures that are pushed by country of origin and constraints that are imposed by host country. Thus, a ‘pull’ hybridisation theory becomes popular that encourages MNCs to scientifically select and ‘pull’ competitive features of home-country practices (Meardi and Toth, 2006). Managers in host-country play a key role in ‘pull hybridisation’. Managers who are equipped with local knowledge and public discourse in terms of the host countries’ business rules, are more likely to implement selective transfer strategy so as to ‘pulling’ home-country practices (Meardi and Toth, 2006).

Boyer further point out a series of possible approach for adaptation, ranging from efficient transplantation of using functional equivalence, to hybridisation of adapting to host-country contexts and eventually innovating a new and superior model.

3. METHODOLOGY
The section outlines the method of the research that is a qualitative case study. The case study is a Sino-German joint venture whose company background and company issues are discussed. Next, data collection and data analysis are described.

3.1 Setting
The research approach is based on a detailed qualitative case study of a Sino-German joint venture in manufacturing sector. This approach allows me to examine hypotheses that were generated in previous studies and “to follow through complex linkages, explore processes, and uncover how decisions are really made” (Ferner, 1977:31). Therefore a case study analysis leads to the emergence of a clear picture whereby institutional and cultural factors affect shaping Sino-German joint venture’ HR practices responses.

I chose Jiangsu ISRI Shuangdi Spring Co.,LTD. to be my case study with following reasons. First, the company, as a German-Sino joint venture, has the characteristics of MNCs of relevance for my research. Second, the company successfully developed a hybrid for transferring German-developed compensation system to China, which may contribute to this study to examine the effectiveness of hybridisation in cross-national transfer of HRM practices. Third, the company is located in Jiangsu province of China, as one of the most developed provinces, which each year attracts a large number of inflow of foreign direct investments, ranked the second largest after Guangdong (Invest in China, 2006). Jiangsu ISRI Shuangdi, from Jiangsu provinces, therefore, can serve as a good example to represent join venture in China.

3.1.1 Company Background
Jiangsu ISRI Shuangdi Spring Co.,LTD. is a Sino-German joint venture company that specialises in manufacturing motor vehicle parts (springs). In 2005, Zhejiang Shuangdi Spring Co.,LTD established joint venture partnership with German company, ISRINGHAUSEN GmbH & Co. KG., and changed the company name to Zhengjiang ISRI-Shuangdi Spring Co., LTD. Later in 2008, the company created a subsidiary company called Jiangsu ISRI-Shuangdi Spring Co., LTD and built a new factory in Jiangsu as it experienced bottlenecks for further expansion due to inefficiency of factory and lack of modern management. The new factory is designed for creating high efficiency and productivity based on German-style management.

1. Former Chinese company
Zhenjiang Shuangdi Spring Co.,LTD (Shuangdi)
Shuangdi was founded in 1987 by Mr Lou. It is regarded as one of the Chinese leading spring manufacturers and differentiates itself as high quality. The company product’s line of business includes the manufacturing of springs for motor vehicle parts, such as car suspensions and spring mechanisms for clutch and transmission. The high-quality springs has helped Shuangdi to become a supplier for Valeo, SAIC and ZF Sachs, and Shuangdi’s springs are largely used on branding cars including BMW, Audi, VolksWagon in China (globalspring.cn., 2015).

2. German parant company
ISRINGHAUSEN GbH & Co.KG
ISRINGHAUSEN, is a company of the AUNDE Group and is one of the world’s leading manufacturers of innovating seating systems and technical springs. It owns 50 plants in 20 nations worldwide for producing vehicle seats to global customers. The company products is differentiated as high quality, reliability and durability (isri.de, 2014). The partnership with Shangdi was supposed to be a way for ISRINGHAUSEN to better serve ISRI’s customers in Asian market, especially China market, through Shangdi’s leading position in the China (Mr. Lou, 2015).

3. Sino-German company
Zhejiang ISRI-Shuangdi Spring Co.,LTD (Zhejiang ISRI-Shuangdi)
Zhengjiang ISRI-Shuangdi is based on the old plant in Zhejiang, Zhuji. After the alliance in 2005, Zhejiang ISRI-Shangdi experienced large increases (about 40% each year) in sales revenue from 2006 to 2010 and however experienced extremely reducing increases after 2010. Due to the inefficiency of the old plant with clogged inventory system and long throughput time, which leading to Parent company’s unsatisfactory, new plant that is named as Jiangsu ISRI-Shangdi was started to build in 2008 so as to achieving an robust and sustainable manufacturing operation with philosophy including western-style management and Japanese Just-in-time manufacturing (JIT).

Jiangsu ISRI-Shuangdi Spring Co.,LTD (Jiangsu ISRI-Shuangdi)
Jiangsu ISRI-Shuangdi, the link company, is based on the new plant in Jiangsu, Jintan, which started production in 2013. The new plant is designed with german-style operation layout and western-style management and aims to improve efficiency by buffering inventory with JIT and reducing throughput time with advanced German imported machine with high automation. The company’s strategy is becoming a leading spring manufacturing company in the Asia that is able to offer JIT to customers, which is a three-year target. In the 2015, the second year, the company started trails in June for the first customer (i.e. a Sino-France Joint Venture). The company thinks it is vital to integrating company strategy to HR strategy as employees are key to achieving JIT and it is of importance to design an incentive system to motivate employees thereby improving productivity. The company specialises clutch springs and valve springs and serves B2B customers that specialises in EG Transmitting system, stirring system, and inner combustion engine.

3.1.2 The Company Pay System
Pay system A
Jiangsu ISRI Shuangdi initially adopted the pay system A when it established, which is developed based on the pay system of the old plant, Zhejiang ISRI Shuangdi. Pay system A includes piece rate pay for grinding workers (40%), time-based pay for the rest of workers (60%). It also offered extensive welfare benefits which includes free company accommodation and the meals subsidy.

The pay system A has inherent problems. With regard to piece rate, it takes disadvantages of 1). cannot guarantee quality; 2). negatively affect employee commitment and participation (workers only work for money instead of the company); 3). causing demotivation when facing imbalance between demand for order and supply (Due to unstable and variable orders, low order during off-peak season courses employee demotivation because they are desired to produce more an dear more). With regard to time-based pay, employees are not fully motivated. The company experienced the big issue of employee dissatisfaction and high employee turnover (4 employees left in March 2015). Because piece rate employees were dissatisfied with their low piece rate and time-based employees also thought their wages were too low and even prefer being paid based on their performance because they think they are able to earn more.

Pay system B
In the face of extremely high employee turnover rate of 15% in March 2015, the company reformed the pay system in the end of March, which forms a new pay system B. The company not only increased wages by 10% for all employees, but also introduced base pay to guarantee the minimum wages for piece rate workers (i.e. grinding workers). This pay reform has achieved positive impact on employees satisfaction which can be seen from interviews.

Pay system C
In July 2015, the company finally decided to formally transfer its parent company’s compensation system – competency based pay, from Germany to China. According to German-developed competency based pay system, employees’ salary and bonus are based on employees competences including occupational knowledge, professional knowledge, working experience, capability of job planning, teamwork and leadership. Employee Rating Table (Translated Version) can be found in Appendix D. This new pay system is applied to all factory workers except grinding workers who are still paid according to pay system B.

3.2 Data Collection
I conducted 16 semi-structured video interviews representing all the key actors, which includes management teams and workers in the plant. The former includes manager Mr. Lou, manager assistant Mr Lou Junior, and production manager Mr Ma, whereas the latter includes supervisors and workers of all functions of coiling, grinding, chamfering, shot-peening, hot/cold setting and inspection and packaging. The interviews took place between April 2015 and August 2015, and lasted between 15 to 45 minutes for each. The interviews go through two period time: 1. before transferring German compensation system to the firm; 2. after transferring German compensation system to the firm. During the first period of interview, the interview questions for workers mainly focused on their satisfactions of the current pay approach and their wages, and their expectations of the German-style competency based pay. While the interview questions for management teams mainly focused on their perspectives of potential difficulties the firm may experienced if adapting German-style competence based pay to the company. During the second period of interview, employees engaged an extensive discussion over their new perspectives of the new pay system and their satisfaction.

The interview guides for both two period interviews are attached in Appendix A and B; nevertheless during the interviews I changed the questions somewhat as my respondents guided my inquires according to the stories that they told. Table 1 reveals an overview of interview data.

First, I started learning about the company, such as tracing its history from its founding to its current stage, by interviewing manager assistant, Mr. Lou junior, who could provide an overview of the company. Mr. Lou junior is the son of the general manager and also my personal contact who introduced me to the company and served as a important informant. Frequent and in-depth updates with Mr. Lou junior helped me learn more about Jiangsu ISRI Shuangdi. After generating initial ideas about the main HR problems that the company are experiencing, I started to purposefully sample by selecting 14 employees in all key functions. I asked these 14 informants to describe their work, specify the current employment term, tell their satisfaction of their pay, and explain their preference of the German-style competency pay. Coupled with my data collection and analysis of 14 informants, I next interviewed plant manager of the new plant, Mr. Ma, general manager of Zhejiang and ISRI-Shuangdi and Jiangsu ISRI-Shuangdi, Mr. Lou Senior, and general manager assistant, Mr. Lou Junior. The interviews aim to understand their initial ideas of adapting German-style pay system, their perception of the difficulties, and then seeking out their reaction and opinions after showing the interview results of 14 employees.

The interview with Mr. Lou senior was meaningful because he can be a good exemplar of traditional Chinese entrepreneurs who are rooted with traditional Chinese management mindset but are challenged by western management approaches in recent years. Mr. Lou senior discussed the current situation of the company, their initial ideas of adapting German-style pay system, a top-down view of the issues relating the transfer from Germany to China, and the company future strategy.

The interview with Mr. Lou junior was interesting because he can be a good exemplar of new generation of manager who are educated by western-style management graduating from the UK university with business degree. Mr. Lou junior is the son of Mr. Lou senior, and is the one who proposed the idea of transfer of German compensation system. He frequently attended management training and annual IMS meeting in ISRINGHAUSEN in Germany to learn German management practices. He has already introduced and activated some Western management to the Jiangsu ISRI Shuangdi. Mr. Lou junior discussed the current situation of the company, his initial ideas of adapting German-style pay system, perspective of the issues relating the transfer from Germany to China.

In addition to interviews, I studied archival materials by accessing to firm-level documents that enable me to validate impressions from interviews and minimise retrospective bias. Documents include draft employee agreements, HR documents, HR structure, Employee Rating Table (German-style point system), and draft filled employee rating table (see Table 2 for an overview of document data.

3.3 Data Analysis
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4. FINDINGS
To unpack my findings, I begin with the factory workers, describing their perspectives of old pay system and expectation of competency based pay system in the first period time of interview. Next, I explain how management team perceives the difficulty of transfer compensation system from Germany to China. Then in the second period time of interview, I outline how factory workers changed their perspectives of competency based pay system. There are key findings point to some key issues in the host-country effects including institutional barriers and culture conflicts.

Theme 1: Employees Education Background

In Jiangsu ISRI Shuangdi, employees’ education background can be found in table 3 below. It seemed that education backgrounds among factory workers are relatively low. Most of factory workers only have junior or senior high school diploma. Most of them were low-skills and did acquire certified vocational training when they entered to the company. Even supervisors in grinding, coiling, and chamfering are educated with junior high school diploma. Those supervisors acquire high skills and competencies largely through working experience rather than pre-vocational training.

Theme 2: Employees perspective of old compensation system
From the first interviews before transferring the compensation system from Germany, Jiangsu ISRI Shuangdi’s factory workers engaged in extensive discussion over their employment term (e.g. wage levels, benefits) and their satisfaction with this compensation practice. First, regarding to the question of “is it a good pay system?”. Most Piece rate workers seemed to be satisfied with their current compensation system, whereas hourly paid workers seemed to be less satisfied their compensation system and some of them are even dissatisfied with the current pay approach and prefer a change to piece rate. One hourly paid respondent thought that he could earn more if he is paid according to piece rate and he does not have motivation to work hard by paying time based pay. Second, in terms of the question as “Are you satisfied with your pay?”. Most of workers are little satisfied with the pay level. However, more than half of piece rate employees complained about low piece rate whereas a few of hourly paid workers complained they were underpaid.

According to above two questions, employees’s overall perspective of the pay system seemed not to be that bad as I expected, because I was told this is a company with high employee turnover and low employee satisfaction. It might be the pay system B that contributes to this improvement in employee satisfaction. Although employees perspectives seemed to be improved, overall employee’s satisfactions were still relatively low as most of them compliant low pay issues. Thus, a new better compensation is necessary.

Theme 3: Employees expectation of German compensation system

In addition to current employment term, factory workers engaged in extensive discussion over their perspective and expectation of German-style competency based pay. As the company ran a pilot of competency based pay to workers in coiling and chamfering who have worked for more than 2 years, thus most of employees are aware of the German approach. Table 1 shows comparison of the firm’s and its parent-country compensation practices.

It is surprising that more than half of factory workers thought the transfer of the Germany-developed compensation is worse for them due to the inflexibility of the system itself. The inflexibility largely affects pay growth for employees. For example, one respondent argued that according to the German competency based pay system, employees’ reward are correlation with their training plans (e.g. three-month training, six-month training). He argues it is not flexible that leads to ineffectiveness because if someone who reaches to the three-month training standard within two month and why should they wait another month to get pay growth.

However, less than a quarter of them thought the German approach help them acquire new skills which benefit their future career. A few of them said it depends (such as on wages). Thus, it is not surprising that more than half of workers disagreed the company to adapting it. With regards to recommendations for other changes, two supervisors suggested to link his pay with his employees (team) productivity while four employees hope company to accelerate pay growth.

It is clear that factory workers were not satisfied with the current time and performance based reward system but are resistant to the German skilled based compensation approach.

Theme 4: management team perspective of difficulty of transfer
In addition to factory workers, management team engaged discussion in extensive discussion over constraints of transfer German competency based reward system to China. The initial idea of the transfer is to find a new compensation to reduce employee turnover, enhance their satisfaction, and overall improve quality of products. Competency based pay is regarded as an approach to achieve improvement of workforce qualities and has helped the firm’s parent company in Germany improve high quality by improving on-the-job behaviour and work flexibility. Since quality has been the priority strategy in Jiangsu ISRI Shuangdi which has considerable impact on the success of its three-year target – JIT production, the company hope to learn from German compensation approach to improve overall quality of products.

The most difficulty of the transfer is how to make it acceptable to employees. The German competency based pay system that is developed according to German context, needs to be changed and adapted into Chinese context, according to Chinese unique context. Mr. Lour senior was extremely concerned about culture difference that could affect factory workers perspective of compensation. He said that the factory workers were used to accept Chinese-style time based or performance based compensation, thus it is hard to change their mind in the first place.

In addition, Mr. Lou junior found it is very hard to implement German-developed compensation system to the company. Due to difference in national vocational training and education between China and Germany, it is hard to measure criterion of occupational knowledge and professional knowledge in the competency based pay system, all of which are developed according to German VET system. In Germany with highly developed VET system, most of factory workers in the labour market are high skilled and acquired certified vocational education, whereas in China with weak VET system, there are many low-skills factory workers in the labour market and most of workers acquire knowledge from working experience without formal education. The table 3 above shows that factory workers in Jiangsu ISRI Shuangdi have low education background but learn skills and experience when they are working. Thus, there is a clear benchmark for German firms to assess employees’ education competencies, but it is not the cased for Chinese firms. Mr Lou Junior said that German competency based pay must be innovated according to Chinese context, especially in terms of criterion of occupational knowledge and professional knowledge section, before formally implementing the system.

Theme 5: a hybrid of compensation system

Jiangsu ISRI Shuangdi formally introduced and activated German-style competency-based pay system in July 2015. The extent to which the company’s parent-country competency based pay practices have been transferred to Jiangsu ISRI Shuangdi is presented in Table 2. The firm adopts a hybrid of German-developed competency-based pay and performance related pay (i.e. piece rate), which is Mr. Lou junior’s idea. The latter is applied to grinding workers and the former is for the rest of factory workers. Mr. Lou junior said that because grinding workers are key workers in the plant and piece rate is so far a good way to motivate them so as to improve effectiveness and productivity. Although competency-based pay can improve quality, it is less likely to motivate employees in terms of productivity, which thus may be not a good way for grinding workers.

In addition, Mr. Lou junior changed the German-developed compensation system so as to better fit into Chinese context. First, he changed “occupational knowledge” to “company training knowledge”. Workers’ wages are linked with how many knowledges they acquired from company training. Second, the content of professional knowledge is changed due to different VET between Germany and China. The content of professional knowledge is now set according to Chinese VET system, which include technical training, technical college education, university education. Third, he increased points weight in working experience. Fourth, he set workers wages that are fitted into broad ranges according to competencies and market rate. Specifically, he changed competency ratings and annual increase in each grade bands, which is determined by reference to Jiangsu’s labour market pay level.

Theme 6: Employees perspectives of the hybrid
It is surprising that there were not conflicts among employees as expected after formally introducing the hybrid of competency based pay. The first and most important question is employees’ perception of fairness. Chinese people in collectivistic culture seriously concern about interpersonal relationships and thus prefer job-based reward system following the equity rule (Chen 1995; Yeganeh and Su 2001). By introducing skill-based reward system where employees are paid according to their skills instead of job, some employees may receive higher wages than other whilst they are doing same jobs everyday. Thus, from theoretic view, fairness issue may be raised. However, in Jiangsu ISRI Shuangdi, most of employees were not aware of equity issues and they were committed with the new system because it is a relatively fair and reasonable approach in rewarding individuals who acquired more skills and competencies with higher wages. Equity issues seemed not to be a problem in the transfer of compensation from Germany to China in this case.

Further, according to “Are you satisfied with this hybrid of pay system”. Most employees seemed to be quite satisfied with it. One respondent said competency based pay plays a vital role in motivating them to acquire different level of competencies for pay growth. One respondent said he was satisfied because the system helps he acquire on-the-job competencies and then improve himself which benefits for his whole career advancement. Mr. Lou junior explained that this large change of employees’ perspective in competency based pay may because first employees did know the system well before the transfer; and second employees were too worried about the pay level effect though it may not a real problem.

Overall, it seems that the hybrid CBP scheme has worked well in Jiangsu ISRI Shuangdi and has been widely accepted.

5. DISCUSSION

The paper has examined implication of the transfer of compensation system from Germany to China within Sino-German Joint Ventures. Aims were to discover how the transfer is constrained by institutional and cultural factors, and whether it is possible to reduce the institutional and cultural barriers and finally achieving a successful transfer.

Four results are worth nothing. First, and the most important, the paper found institutional factor is key constraint for cross-national transfer of German-developed compensation system to China, which is consistent with previous studies (e.g. Ferner et al. 2012). Variation in vocational training and education is a key institutional constrain according to Hall and Soskice (2001), which shows a especial significance in the case study, Jiangsu ISRI Shuangdi. German-developed competency base pay system is developed according to German national business system and highly rely on the German vocational training and education system. Nevertheless, China’s VET system differ from Germany’s in terms of content and structure, which affect the criterion of measurement of professional and vocational knowledge or competencies in the competency based pay system. The variance in national VET among two counties increase difficulties in transferring the competency based pay that is developed according to German VET system.

Further, variance in VET leads to a variance of labour market where employees have different level of skills, which thus affect quality of human resource that the firm can gain. While well developed German VET system contribute to a labour market that fulfils high skilled employees, less developed Chinese VET system lead to a labour market where employees are low skilled and do not acquired certified vocational education (Barabasch et al., 2008). The evidence can been find from that most factory workers in Jiangsu ISRI shuangdi have low education background. Even supervisors only have junior high school degree and largely gain skills through working experience. Different VET systems cause different labour markets, thereby affecting the transfer of compensation system from one to another. In short, variation in national institutions does matter to transfer of compensation practices within multinationals.

The second notable finding is that, cultural factor does have impact on the multinational transfer of compensation system, which is consistent with previews researches (e.g. Laurent 1986; Hamden-Turner and Trompenaars 1993; Hofstede 2001), but this paper finds that the impact is far less serious than what those studies expected. There is the link between hierarchical culture and individuals’ preference of job-based pay, which is consistent with the research by Yeganeh and Su (2001). Evidence can be found from the resistants of factory workers against German-developed competency based pay in the first place. Most factory workers in Jiangsu Shuangdi ISRI prefer piece rate (i.e. job-based pay) rather than German-developed competency based pay, based on the first interview.

Although some researchers (e.g. Yeganeh and Su) argue that employees in collectivism culture who emphasises on equity rule and interpersonal relationships, are more likely to prefer job-based pay, this paper does not support this argument. Surprisingly, factory workers did not perceived unfairness when they receive competency based pay where employees are paid according to their skills instead of job. Although Chinese people emphasises on interpersonal relationship between colleagues, they are not feel unequal if their colleagues who receive higher wages but doing the same jobs as them. Most of them were committed with the new system because it is a relatively fair and reasonable approach in rewarding individuals who acquired more skills and competencies with higher wages. Thus, equity issues seemed not to be a problem in the transfer of compensation from Germany to China in this case.

In contrast, the link between culture of uncertainty avoidance and individuals’ preference of variable pay (Sanchez-Runde and Steers, 2001) are supported by the research. In Chinese culture with low uncertainty avoidance, factory workers in Jiangsu ISRI-Shuangdi preferred performance-related pay rather than time based pay.

Third, the study supports previous evidence that, hybridisation is of importance in cross-national transfer of HRM practices (e.g. Dörrenbächer, 2002; Boyer, 1998). Rather than pushing through the western developed HRM practices against institutional and cultural constraints and resistance of host country, MNCs should develop a selective transfer strategy, i.e. hybridisation, so as to reduce host-country effects. Jiangsu ISRI Shuangdi innovates its compensation system and adopt a hybrid of competency based pay and performance related pay. Thus, the company takes advantages of hybridisation by replacing some constraining elements of the German-developed competency based pay system, and developing the system with host-country assets. The company change criterion of occupational knowledge and professional knowledge in the German competency based pay system so as to fit into Chinese VET system in terms of content and structure. Additionally, it innovated the system by paying employees according to competencies and market rate. The competency ratings and annual increase level in each grade bands are reset with reference to Jiangsu’s labour market pay level. Thus, this not only helps employees to accept the new pay system and agree with the pay level, but also helps company to scientifically control human resource budget. Thus, it is vital to take institutional and cultural factor into account when implementing hybridisation strategy. Although hybridisation is a new concept in multinational transfer of HRM practices, this paper approves this is a reliable approach.

Further, it is local managers in the host country who play a key role in the implementation of hybridisation strategies. Hybridisation is easier to be implemented in the environment where managers are equipped with local knowledge and public discourse in terms of the host countries’ business rules, which is consistent with Meardi and Toth (2006). In the case study, general manager Mr. Lou senior and manger assistant Mr. Lou junior both play important role in the transfer of compensation system from German to China. They both have good understanding in Chinese business rules and Chinese workers’ work value, which help them seek out a best selective transfer strategy. In particular, Mr. Lou junior, graduated from prestigious UK university, equips with western management knowledge and Chinese unique culture, plays a key role in innovating compensation system. His approach of linking pay with both competencies and market rate is a essential feature in the innovative strategy, which helps the hybrid better fit into Chinese context and into local context.

Lastly, the paper also supports previous scholars (e.g. Muller (1999); Ferner et al. (2001)) that, multinational enterprises, in host environment with large cultural and institutional distance – even as constrained as China with unique context and culture – are capable to find the room for manoeuvre. Evidence can include, first, there is convergence of Chinese business model developing toward the business model in developed country. Chinese VET has been reconfiguring toward German VET (Sun, 2006), thereby leading a decrease in VET difference. Institutional barrier in terms of VET thus is following to be reduced. Second, Lloyd and Harter (2004)’s concept of “Crossvergence” shows that international HR practices has been developing towards same trends and eventually will cross at a certain point. While increased number and scale of operation of MNCs is one reason, there are a number of managers like Mr. Lou junior, who acquire top management education from western countries and diffuse those western management to their own country. Overall, the crossvergence helps decrease institutional and cultural constraints, which also help MNCs to transfer HRM practices from home country to host country. Thus it is possible that MNCs can find room for manoeuvre.

5. CONCLUSION

The paper has examined implication of the transfer of German-developed compensation practices (i.e. competency based pay) to the host country (i.e. China), with a main focus on host-country effects including institutional and cultural constraints. This paper focuses on a case study analysis that leads to the emergence of a clear picture whereby institutional and cultural factors affect shaping Sino-German joint venture’ HR practices responses. It has been suggested that, to transfer a foreign-developed HR practices, an approach recommended is hybridisation to innovate home country developed HRM practices, rather than MNCs pushing through the practices against institutional and cultural constraints of host-country.

However, there are four limitations in this paper. First, the finding is based on one company, which may affect the reliability of the results. Second, the small sample size in the interview, to some extent, results in limitation of selecting types of analysis. Third, as well as the institutional constraints and culture difference, there are other variables affecting transfer of HRM practices within Sino-foreign Joint Ventures. Their influences need to be studied in future researches.

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