Expanding Global Operations:
Mobile Phone Manufacturing in Shenzhen, China
Professor Julian Dalzell
MGMT 801: Human Resources in the Global Firm
Fall 2012

Group 4 Team Members:
Ben Alverson
Wyman Bowers
Lindsay Gilliam
Rod Jaraiedi
Alicia Parker
Yolanda Rhodes
Gabriel Saracila
Eric Seymore

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I. Introduction
The competitive pressure in today’s manufacturing landscape is more complex than ever, resulting in the need for companies to maintain high quality levels and concurrently strive to keep costs low. As a result, investing in China has become imperative for both private and public companies. The gradual adoption of free-market business principles, bolstering low labor costs, well-managed operations and supply chain efficiency all have propelled China to the forefront of business expansion. As a growing mobile phones manufacturer, we are seeking to extend our business to China in order to successfully compete in what has become a “global economy”. Our primary objective is to identify a suitable area to stage a domestic assembly operation and regional headquarters from which other subsequent Asian operations will be managed. Once the location and plan of action have been determined, we will need to facilitate staffing operations for the new site and define the parameters for the HR philosophy for the new regional organization. All planning, execution, and staffing goals must be met within 12 months.
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II. Selecting a Location
China has become one of the world’s largest mobile phones manufacturing hubs, boasting more than 50 percent share of global yield. From January to August 2011, China manufactured 699 million mobile phones, an increase of 19.3% from 2010 according to latest statistics released by China's Ministry of Industry and Information Technology. Located directly north of Hong Kong, along the Pearl River Delta, the city of Shenzhen is a major manufacturing center in China. Known as the “cell phone capital of the world” Shenzhen has about 6,000 companies involved in the production of cell phones and accessories (26). Strong research and development capabilities, the emergence of new technology, along with an ideal environment for manufacturing and commerce have transformed Shenzhen into a hotbed for high-tech and manufacturing industries. As one of China’s major financial centers, Shenzhen is home to the headquarters of multiple high-tech companies as well as the Shenzhen Stock Exchange. It is also one of the busiest container ports in China, making it conducive to trade. Our company’s decision to expand operations to Shenzhen for mobile phone manufacturing and establish a regional headquarters is based upon a myriad of incentives that the city provides:

Designated SEZ
Shenzhen has become one of the most successful Special Economic Zones (SEZ) in China, which affords the city more capitalistic, economic policies provided by the Chinese government, thus creating an economic management system that is conducive to operating business. The SEZ initiative was implemented to entice foreign investment and technology in China; an advantage that is not extended to China’s entire mainland (28).
Some exclusive policies of SEZs include: 1. Special tax incentives for foreign investments in the SEZs 2. Greater independence on international trade activities 3. Products are primarily export-oriented 4. Economic activities are primarily market-driven
The establishment of Shenzhen as an SEZ provides ideal conditions in which we are able to thrive in the area of technology and manufacturing.
Population
The establishment of an SEZ has proved to have many positive implications for Shenzhen. Not only has its economy expanded exponentially, but the enterprise created a great population surge into the city. As China’s largest migrant city, Shenzhen’s population is approximately ten million; six million of those are workers who return home on the weekends and live in factory dormitories during the week. Its migrant culture is described as “open-minded,” “tolerant,” and “innovative” which makes the city an ideal place for international and domestic start-up businesses. In 2011, Forbes magazine (Asia edition) named Shenzhen “the most innovative city on the Chinese mainland”(). Shenzhen’s dominant language is Mandarin due to the various migrant Chinese populations; however, in addition to the public service employees and business professionals, much of the younger generation can speak English.
Low Costs/Supply Chain
China touts one of the world’s largest economies with a GDP of $7.3 trillion (larger than Japan and merely second to that of the U.S.) and maintains extensive consumer purchasing power (30). It is widely known that China offers a low cost of labor, and cost considerations are driving forces behind basic supply chain and procurement strategies. Given this, many perceive China to be a premier location for foreign companies seeking to invest. According to the Bureau of Labor Statistics, in 2010, hourly manufacturing labor costs in the US averaged about $34.74. China’s labor statistics are characterized as somewhat unreliable; however, a Bureau of Labor Statistics study estimated Chinese labor at $1.41 per hour (). Currently, China’s labor has been reported to increase at an average of 17% per year (28). Although Chinese wages are rising more quickly than the US, its manufacturing labor costs are still significantly lower. Low labor costs result in cheaper production expenditures and ultimately greater profits. Furthermore, the country’s manufacturing quality continues to improve, increasing the production of complex parts, enabling companies like ours to achieve economies of scale.
Government Regulations – Doing Business
Although China is attractive to many foreign manufacturing companies because of the aforementioned reasons, it was previously even more attractive due to governmental-tax related preferential policies for foreign companies – however, as of 2008, China has gradually begun to lessen these incentives. In today’s environment, foreign, technology-oriented companies have an income tax of 25% under China’s 2008 Enterprise Income Tax Law (). This new, increased tax rate is applicable for both Chinese domestic corporations and foreign invested companies. This same Chinese law now grants a few other tax incentives for companies in China as a whole (34): * Small & Low Profit Enterprises: If an enterprise meets certain criteria for annual taxable income, number of employees, and total assets, as set forth in the Implementing Regulations, and qualifies as a small and low-profit enterprise, it will enjoy a preferential rate of 20% (). * High or New Technology Enterprises: The EIT Law grants a 15% preferential tax rate to high- or new-technology enterprises (). The Implementing Regulations set forth, among others, the following criteria is required for a company to qualify as a high- or new-technology enterprise: (i) the enterprise owns core intellectual property rights; (ii) its products or services are covered by the Scope of High- and New-Technology Strongly Supported by the State; (iii) research and development expenses are higher than a certain percentage of sales income; (iv) sales of high- or new-technology products account for a certain proportion of its total income; and (v) it hires the required number of technicians (). The Scope of High- and New Technology Strongly Supported by the State and the measures for recognition of high or new technology enterprises will be issued by the State Council at a future date. * Investors in High- and New-Technology Enterprises: Investors that hold equity interest in medium and small unlisted high- and new-technology enterprises for at least two years are entitled to an income tax deduction of up to 70% of their total investment (). This preferential tax treatment is particularly beneficial to venture capital investors focusing on high-technology enterprises. * Technology Transfer Preference: Income derived from technology transfers is exempted from income taxes if such income is less than RMB 5,000,000 in one tax year (). If the amount exceeds RMB 5,000,000, only 50% of the exceeding amount will be taxable (). * R&D Expenses:150% of research and development expenses for new technologies, new products, and new techniques that have never before been achieved in China can be deducted from taxable income. Furthermore, if an enterprise ultimately develops the intellectual property, 150% of the cost of such intellectual property can be amortized (35).
While Guangdong (the province in which Shenzhen is located) and China as a whole are gradually lessening their governmental tax-related preferential policies for foreign companies – Shenzhen is still an attractive location for manufacturing companies across the world. Erik Lassila, a partner with the private equity firm Share Capital Partners, was quoted in a 2011 Wall Street Journal article saying, “Shenzhen has been an entrepreneurial hub in China for 30 years and has been the fastest growing city in the world for about 30 years. Shenzhen is a petri dish for founding new companies” (15).
According to an HKTDC.com (Hong Kong Trade Development Council) article, in 2003, Shenzhen loosened its grips on its registered capital requirement on high-tech enterprises. The article states, “According to the new regulation, from now on, enterprises applying for import-export rights should have a registered capital of no less than RMB 1 million [140,000 USD], while production enterprises applying for foreign trade rights over their own products should have a registered capital of no less than RMB 500,000 [79,523 USD]. However, recognized high-tech enterprises or software enterprises applying for import-export rights are not subject to minimum registered capital requirements” (19).

Transparency Rating
Transparency International, an organization that has been established since 1993, is a non-governmental agency that has taken a stance against corporate and political corruption in regards to international development across the world. In Transparency International’s latest report, China ranks 75th out of 183 countries in their Corruption Perceptions Index. China also scored a 3.6 out of a possible score of 10 (with 10 indicating little to no corruption) (21). In light of the recent rating and report, many believe the Chinese government is taking swift and appropriate action to remediate corruption across the country (14). One of the most notable displays of this fact was the high profile suspension of Bo Xilai, a former Chong Qing Party Secretary, in March of this year. Subsequently, this among other things, led Chinese Vice President, Xi Jinping, to warn the Communist Party in a speech that the “pursuit of personal pleasure” and corruption could lead the party to relinquish its power (29). With the Chinese government now more conscious of exploitation and now taking an active stance against corruption – this essentially will benefit many international companies that operate out of that country.
Operational Control in Light of Government Regulations
Although there are numerous benefits to operating a manufacturing company and subsequently sending expatriates to China – there are some governmental regulations that could impact how a foreign company operates overseas. One specific example of how HR could be impacted is that the Chinese government allows male employees to retire upon reaching the age of 60 years old; consequently, if there are male foreign employees who meet or exceed that age, they could be denied visas for that reason. This gravely goes against the U.S. Federal laws that prohibit job discrimination based on age (33).
Additionally, expatriates could be subject to (and protected by) Chinese Labor laws, one of which mandates that employees can only be dismissed on very severe grounds – as China is very protective of employee rights. Also, China has strict policies regarding overseas companies and their hiring of non-management foreign workers – some cities have mandates that foreign companies cannot hire non-management employees during their initial year of operation. In some instances, a foreign employer may have to exhibit that their desire to employ non-management workers is due to the fact that there are no Chinese workers available for that position. For example, the employer in China may be required to demonstrate that no Chinese worker is available for positions outside of high-level management (2).
Also, according to an article entitled, Sending Employees to China, Allan Marson an Attorney, states “…under the newly issued Exit-Entry Administration Law of the People's Republic of China, effective from July 1, 2013, extensions of stay under an “F” visa may not cumulatively exceed the duration stated in the original visa. The law authorizes employees without a work visa to be detained for investigation, fined, deported and banned from re-entry. Employers are subject to a fine for each illegal employee up to a maximum of RMB 100,000 (approximately $16,700) and local sponsors may be fined for issuing improper invitation letters for expatriates” (33).
Living in Shenzhen
Shenzhen, China is a considerable manufacturing hub for many global corporations and as a result is often the provisional home to many expatriates from all around the world. The city is known for being a transplant locale – with very few residents who are true Shenzhen natives. A bustling and sizeable city, it is conveniently and strategically nestled within a stone’s crossing of one of the world’s largest metropolitan areas – Hong Kong. With a reasonable cost of living, the city ranks higher than Tokyo, Singapore, Shanghai, Beijing, and Hong Kong in affordability for residents. Following is an average breakdown (converted to US dollars) of many of the key expenses that may interest expatriates: * Housing: Average rent for a “secure upmarket unfurnished apartment” (3 bedrooms) is $2,775 in a central location, and $1,760 in a suburban location, per month, excluding utilities (). * Healthcare: Costs are considered to be relatively low compared to other places for doctor visit, hospital stay, non-prescription medicine, and medical insurance. Benchmark price for a private practice doctor visit for an uninsured patient is $68, and a private hospital stay per day including nursing care, medications, diagnostic tests, food, and related costs is $2,009 (). * Education: Costs are high compared to other places for items such as crèche / pre-school fees, primary school fees, high school fees and tertiary study fees. There are 264 places that are more expensive, and 515 places that are less expensive for education. Benchmark annual private international school fees (excluding extras) $22,641 for primary school, and $27,399 for high school (). * Recreation and Culture: Costs are low compared to other places for items such as books, cinema, sports and theatre tickets. Benchmark price for a latest release international cinema ticket (average of on and off peak where applicable) for one adult is $7.01, and an international fitness club membership for one adult is $30 per month (40). * Personal Income Tax: Expatriates sent to China are subject to individual income tax on China-sourced compensation. Although the rules are complex, “China-sourced compensation” generally refers to compensation received by an individual for services performed while in China, even if the individual does not have a work visa and the compensation is paid offshore. Chinese tax law provides relief to expatriates staying in China temporarily: “If an expatriate stays no more than 90 days in a calendar year and her compensation is not borne or paid by an establishment in China, she should be exempted from individual income tax: Under the China - U.S. bilateral tax treaty, a U.S. expatriate who otherwise qualifies is exempted for stays up to 183 days in a calendar year. At the corporate level [a company]…in China [is] subject to Chinese enterprise income tax. However, bilateral treaties, such as the China - U.S. bilateral tax treaty, exempt foreign employers that do not have a permanent establishment in China for tax purposes” (33).
As a result of the massive number of expatriates that call Shenzhen home at any given time – an area of the city known as the Shekou Industrial Zone, has materialized into a familiar place for many expats as it is a central locale to many restaurants, stores, bars and pubs that resemble many of those in the U.S. Shenzhen is the 4th richest city in China, and offers a dynamic city life – with a cab, subway and massive bus system that is within close proximity to everywhere, so expatriates will find there is no real need for personal car transportation. Although Shenzhen itself lacks any beaches – Hong Kong’s close proximity to outlying territories affords residents access to some of the best beaches in the world. Shenzhen is also the home to Xiaomeisha Sea World, which is a family-friendly entertainment complex that is sure to excite many expatriates and their families (36).

As the Chinese government strives to implement appealing economic, market-stimulating policies to lure competitive firms into their country, it is important that every foreign firm establishing presence in China develop a strategy tailored to suit its products, resources, and goals, all while considering the reality of the operating environment. Although there are long-term benefits from expanding an operation to (Shenzhen) China, obstacles still exist. Challenges relating to regulation, culture and business environment may arise throughout an international market entry beginning with the initial planning phase. Formulating a China strategy to stage both a domestic assembly operation, and regional headquarters that will manage subsequent Asian operations to be running in 12 months may pose difficulties but can be mitigated with proper planning. The key to developing a successful China strategy lies in recognizing and leveraging the firm’s core competencies and finding the suitable method to adapting to the Chinese business environment.
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III. Staffing for Successful Operations
Western HR Practices versus Chinese Adaptation of Human Management
Comparing Western HR practices with those of their Chinese counterparts is difficult given the age of the practice within each region. Most IHRM concepts were derived from advanced western practices and there has been little research done on HR practices resulting in international firms’ implementation of standardized HR applications. Chinese HR platform is still at an “embryonic stage due to the socialist regime” (42) . The history of the Chinese business environment has evolved immensely since moving from a Soviet style communist regime to a “socialist market economy”. This was based on the “Open Door” policy and the “Four Modernizations” of agriculture, industry, defense, and science/technology. Before this policy was implemented, HR was a political issue and was strictly controlled by central government and labor bureaus. These changes have occurred within a short period of 30 years; and modernization of their business environment is still evolving as globalization has become a reality. With China focusing on economic reforms, the results have included a growing number of Chinese FDI firms included on Forbes’s Fortune 500 list, which is a blatant increase from only four companies that appeared on the list when it was first published in 1995.

Known for low cost investment and potential for their consumer market, China is a key component for Western businesses as it relates to their value chain. A strong need for people investment is paramount in maintaining the demand for business opportunities within China. Before recent foreign investments and multinational partnerships, China has been somewhat isolated from the influence of Western HR practices, resulting nonexistent parallel developmental practices from the Chinese in the West. Subsequently, because of labor, social-economic, and regulatory environments, there has been a need for a transfer of HR practices from Western organizations to Chinese factions in order to attract, manage, and develop local talent. This creates many challenges that will be discussed in the next section and MNCs such as our proposed mobile phone manufacturer need to consider when selecting a hybrid HR platform. A consideration of how China has begun managing their HR has changed dramatically and regional adaptation to local practices has emerged. Lastly, we must consider recruiting the growing number of northern area MNCs within China as Shenzhen may be affected given its geographic location.

Chinese HR Challenges
Many challenges face MNCs when strategizing an HR platform for this new venture. We must explore these aspects while proactively circumventing before they become more of a risk factor. * Shortage of labor pool: This challenge is a result of the focus on education shifting to politics and farming instead of the needed marketing and strategy planning that guides staffing within a MNC investment. Also, capitalism was positioned as an “evil practice” that was demeaned and derogated throughout this time. The shortage of talent can also be attributed to the influx of foreign investment starting in the 1980s given the generation gap with the capable workers versus potential retirees. This can be alleviated by deploying expats to the region according to their business acumen and technical expertise. A company must also consider its governmental position within China regarding MNC expats and the level of investment expat programs require. * Local Pool of Talent Composition: Utilizing the local labor market is imperative for this venture’s success. However, there are many aspects to this challenge that need to be considered. First is the cost effectiveness of hiring local management. One study proved that a Chinese executive’s salary is only 20-25% of an expat’s plan (3). A caveat to this concern is that rising income and minimum wage requirements may move the needle to a fair and comparable compensation level. Another aspect to note is conflict between expats and local managers could arise. Expats may urge local individuals to work in the cultural environment deemed necessary by the main HQ without sufficient training or cultural sensitivity. Both of the above aspects (cost and conflict) result in higher expenses such as losing competent managers and decreased productivity. Lastly, a major consideration is the percentage of educated individuals currently in the Chinese talent pool. The shortage of labor has been attributed to the brief span of 30 years in which China has cultivated the level of talent needed to establish and maintain its MNCs. According to The Economist, only around 3% of the population has a college degree and the MBA program wasn’t even introduced in China until 1996. Exhibit 1 will show the disparity of educated talent in comparison with the US, which is a cause for concern. Chinese universities tend to focus on “academic skills” (reading, writing, etc.) that promoted higher exam scores as opposed to leadership, creation, risk-taking, and teamwork skills. * Recruitment Methods: Widely recognized, recruitment, development, and retention of high performing professionals can be a problem faced by FDI projects. As mentioned above, the level of business school curriculum as well as the number of institutes has led to challenges in partnering with campus recruiting. This results in Chinese executives lacking international competence. Also, the generation gap between 45+s, who have working experience but low English language skills, and those under 25 that have the language skills but lack working experience attributes to the shortage of ideal talent. Consequently, recruitment methods have to be fine-tuned to effectively reach the right talent. According to Huo and Glinow, Chinese believe that the top five attributes for their talent pool should include organizational direct benefits, such as motivation, initiative, company knowledge, leadership and loyalty as is displayed in Exhibit 2. These skills motivate the Chinese to carry on the guanxi tradition, which further increases the cultural distance from the Western world. Some ways to diminish this concern is for a MNC to focus on skills instead of nationalities. Exhibit 3 will summarize pitfalls mentioned above in regards to talent acquisition and ways to mitigate these risks. * Cultural Diversity: MNCs must manage cultural diversity that effectively expands the operation and knowledge base. In doing research, there has been a dire need for increased cultural and diversity research as it relates to ethnicity, disability, religion, etc. MNCs must take action to foster employee loyalty, feelings of belonging, and commitment to the company.

In order for the regional HQ and manufacturing plant to be successful in the timeline we are presenting, we must make sure to position our employee value proposition from the onset of the HR process in order to establish brand recognition as well as reputation throughout the region. This includes well defined career paths and growth opportunities for our expats as well as the local employment pool. We must be competitive in our methods as local, talented employees can use MNCs as stepping stones for training grounds to our competition. Exhibit 4 shows some of the reasons that experienced talent moves to the competition so we must consider these when implementing our strategies. Local managers will have the understanding of the market as well as the relationships that expats lack in this venture and can prove a viable resource, especially in the long-term. This will further the chance of tapping into other markets once we have achieved success in Shenzhen.

In addressing the challenges for establishing the necessary staffing of a multinational corporation such as ours, a brief examination of the recent history of the relationship between China and foreign corporations seeking to conduct business in China will provide a foundation from which one can assess the models for staffing in China. Prior to 1975, there were no private commercial entities, as most Americans would think of them today, in existence in China as state owned enterprises (SOE) were the vehicle of choice in China. The reason for this was that there were no private commercial markets for such an entity to operate. By the late 1970’s and into the mid-1980’s, quasi state entities, often times with limited minority foreign ownership, but foreign ownership nonetheless, began to emerge. These enterprises enjoyed limited commercial latitude as they were technically controlled by the state, but the regulation and oversight had lessened during these years. In the decade of the 1990’s, SOE’s were, either partly or in their entirety, sold. Emerging in their place was a new model of SOE’s, with some commercial principles, domestic private firms and foreign majority-controlled companies. At the turn of the century, there occurred a resurgence of SOE’s, but many of the foreign investment and privately controlled companies remained. This history, which greatly impacts the current business climate, produces a unique and often challenging environment in which foreign multinational corporations wishing to do business in China must operate.
Though Beijing does not coordinate all aspects of the Chinese economy, foreign direct investment must be viewed in light of the above outlined historical context as it is greatly shaped thereby. China did not join the World Trade Organization until 1997, which coincides with the continued liberalization by the state of markets within China. This gradual opening attracted manufacturing and other foreign investment into special economic zones and industrial parks created by the state for just such a purpose. From 2000 to 2009, foreign direct investment into China increased 81% (). Moreover, much of the development to attract foreign investment has occurred at the local government level. Therefore, it will be critical to incorporate into our staffing strategy the inclusion of the local government. As one U.S. diplomat has opined, “In the United States you can do whatever you want unless the government says you can’t. In China you can only do what the government permits you to do” ().
Therefore, at a minimum, the following should be completed as required by the Shenzhen local government: 1. The establishment of a wholly foreign owned enterprise (WFOE) in Shenzhen, which is a limited liability company wholly owned by a foreign corporation 2. Procure a business license for both of the manufacturing site and regional office 3. Procure the additional legal documents required for trading and manufacturing enterprises 4. Engage a local consulting company, such as Tannet Consulting Limited (Shenzhen), to assist with the above in addition to tax, legal and other requirements particularly related to human resources functions
With the background above established, the particular staffing strategy suggested is a hybrid model utilizing both a regiocentric and polycentric approach. The regiocentric model would be utilized for staffing the regional office. The advantages of this model provide for interaction between executives transferred to regional headquarters from subsidiaries and sensitivity to local conditions. As for the manufacturing site, a polycentric model would, broadly speaking, enable host-country nationals to perform the majority of the work, thereby eliminating the language barrier and engendering support and cooperation from the local Shenzhen and national Beijing governments. Moreover, a polycentric model would be a less costly approach to attract the necessary workforce for the manufacturing site.
As our company is certainly not the first to enter into China to do business, it may be of assistance to briefly examine the conclusions of three foreign corporations who already conduct business in China. Sony Ericsson, a global provider of mobile multimedia devices, Atlas Copco, a global group of companies developing and manufacturing industrial tools and construction equipment, and SvenskaKullagerFabriken, a global supplier of products and services in the rolling bearing and seals business, all are manufacturing dominant companies who chose and successfully implemented a polycentric staffing model for their subsidiaries in China. The managers of the three companies agreed that this was the correct model to deploy for a manufacturing facility. Naturally, the regional headquarters will not deploy a polycentric approach, but instead a regiocentric approach to staffing for the aforementioned reasons provided.
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IV. Human Resources Philosophy
In the current global economic environment, there is a continuous increasing competition between companies to take over the new developing markets. In order to accomplish this, one of the important success factors includes properly staffing the international offices and/or sites. The staffing philosophy is an important issue because it decides how a firm views the world in relation to itself and how it wants to manage human resources in different countries. To a great extent, it also decides the formulation and implementation of corporate and operational strategies and their evolution into various stages of internationalization. HR managers at the international level must not only select people with skills, but also employees who can mix with the organizations’ culture.
In our particular case, the decision was to use the polycentric approach for the manufacturing site and the regiocentric approach for regional office. In the case of a polycentric approach, where the motto is ‘when in Rome do as the Romans do’, staffing requires host country nationals to be hired in order to manage subsidiaries, while parent-country nationals occupy higher level managerial positions at corporate headquarters. This type of staffing is used when the company sees profit potential in a foreign country but find the foreign market difficult to understand. In most of the cases there is also a governmental pressure on the companies in order to hire their own citizens (25).
Some of the advantages of having a polycentric approach for the manufacturing site include:
1. Employing host-country-nationals (HCNs) eliminate language problems for the employee and their family members. In our case, we might not be able to find too many western managers fluent in local Chinese.
2. Greatly reduces the problems related to the culture adjustments therefore minimizing the costs associated with the awareness trainings.
3. Even though high salaries may have to be given to attract HCN applicants, it still works out cheaper for the company in the long run as compared to employing parent-country-nationals (PCNs).
4. In our manufacturing site, it is very important for the managers to thoroughly understand the local work ethic and problem solving approach as well as how/when/if the issues/problems are being communicated to the managerial level by the employees. Some cultures are somewhat reluctant to admit mistakes or failures to the foreigners just because of the perceived “weakness” mentality. Having a local managing the site might elevate this issue.
Some of the disadvantages of a polycentric staffing approach are:
1. Usually between PCN managers at headquarters and the HCN managers at site there are language barriers, conflicting national loyalties and differences emanating from personal values. This may create weak linkages to the corporate headquarters (6, pg 82).
2. Lack of exposure to international assignments among PCN managers at headquarters and lack of career mobility among HCN managers due to their stagnation in subsidiaries will ultimately affect the strategic decision-making capabilities, reducing their market share and customer base and their position in the foreign country vis-à-vis their competitors (25).
For the regiocentric approach, the international staff is transferred within the same region. This particular strategy is useful when the company sees benefits if the functions are shared across regions(25).The theory behind this selection process is that nationals of the region in which operations actually take place are better able to deal with language and cultural problems than are managers from outside the region (31).

Usually, the regional headquarter organizes collaborative efforts among local subsidiaries, it is responsible for the regional plan, local research and development, local executive selection and training, product innovation, cash management, brand policy, capital expenditure and public relations. One of the disadvantages of a regiocentric staffing approach is that it can produce federalism at a regional rather than a country basis and constrain the organization from taking a global stance.
Major Functions of International Human Resource Management
International human resource management involves four functional areas: * Recruitment and selection: Recruitment and selection are the processes through which an organization takes in new members. Recruitment involves attracting a pool of qualified applicants for the positions available. Selection requires choosing from this pool the candidate whose qualifications most closely match the job requirements. In our case, we can have three possible types of employees:
1. Parent country national (PCN). The employee’s nationality is the same as the organizations. For example, a US citizen working for a US company in China.
2. Host country national (HCN). The employee’s nationality is the same as the location of the subsidiary. For example, a Chinese citizen working for a US company in China.
3. Third country national (TCN). The employee’s nationality is neither that of the organization nor that of the location of the subsidiary. For example, a German citizen working for a US company in China.
Considering that the manufacturing site will be in China and the fact that we implemented a polycentric approach for the site, the recruitment in this case will focus mostly on HCNs.
The advantages of having a HCN employed for the site is that for the selection criteria we can focus on candidates that demonstrated both managerial and technical expertise as well as a demonstrated ability to adjust to an international company’s policies. The other selection criteria related to language barrier, adaptability in a new culture, government requirements to hire locals, are already fulfilled in this case.

Alternatively, the decision to implement a regiocentric approach for the regional office will involve a recruitment and selection of a TCN. We need to focus on a candidate from the Asian region which is not only familiar with the Chinese culture, but also has an experience in other Asian countries as well. * Training and Development: Training aims to improve employees’ current work skills and behavior, whereas development aims to increase abilities in relation to some future position or job (6, pg 132). It is important in training to consider the cultural factors such that to maximize the training effectiveness. Considering the polycentric approach for staffing for the site helps because of the similar backgrounds of the trainers and trainees. The teaching/learning methods are familiar for both sides involved.
Another important aspect of training is related to the use of “corporate language” in order to bridge a clear communication between HQ and subsidiaries. Even though HCNs are familiar with the host country language and customs, they need to be able to clearly communicate to the business the results and performance of the site, reducing as much as possible the “lost in translation” scenario.
In our particular case, having the regiocentric staffing approach for the regional office needs to include equal training for the TCNs as well as the PCNs in order to avoid the perception of inequitable treatment in situations where they work in the same foreign location (6, pg 148). * Performance evaluation: For a company with a polycentric approach, we need to develop local performance appraisal procedures specific to this region rather than use an overall generic standardized procedures. For a performance evaluation to be effective for both employees and company, it needs to be oriented to the improvement of the work performance of employees.

* Remuneration and benefits: As we mentioned above, one of the reasons why a polycentric approach was chosen was the reduced cost of employing a HCN in the China site such that the company can minimize the expenses associated with hiring a PCN (training, re-location, family, etc). The cost might still be an issue even in the HCN case if there are few qualified applicants for the site’s managerial positions. For our case, we need to consider both approaches to compensation: the Going Rate and the Balance Sheet such as the 1st approach (Going Rate) will be applied for our HCNs in China site, while the 2nd approach will be applied for the TCNs in the regional HQ.

As a general conclusion, approach to staffing starts with focusing on the results you want to accomplish rather than worrying about the seats that need to be filled (20).

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V. Plan of Action
Developing and opening a manufacturing facility and regional office will, without doubt, require much planning and coordination. While considerable time and effort must be dedicated to finance, production, marketing, government relations and other functions in order to bring the new business unit into operation, our discussion will be concentrated on the human resources function. Our plan will predominantly focus on the higher level objectives that must be met, the order in which major tasks should be completed, and the method in which these items will be accomplished. Additionally, potential pitfalls will be outlined as well as corresponding strategies to mitigate them. Prior to reviewing these items, it is vital to review the rationale behind one of the key decisions in our start-up plan.
Recruitment Strategy
As a new entrant into the Chinese and broader Asian market, our organization will need to fully staff both the manufacturing facility and regional office with a great deal of precision in order to provide a stable foundation for future organizational success. In order to affect a successful start-up within the time parameters established by senior leadership, we will employ the services of a professional recruiter and head hunter. While the organization is versed with new start-up operations, several factors led to our decision to use a recruiter and head hunter as opposed to more traditional, in-house recruiting: * Chinese Labor Law: Labor laws in China, as in the United States, are established at the national level. While these laws dictate basic worker rights and employer obligations, they do not represent the full set of labor laws by which an organization must abide. In addition to national laws, local or provincial labor laws may be enacted that provide additional restraints for MNC’s operating within their geographic confines. The practical result of this structure is a series of labor laws that will vary from locale to locale, requiring a higher level of local expertise. In general, Chinese labor laws offer a much higher level of worker protection than comparable laws in the United States. As a result, an increased emphasis is placed on the recruitment process, ensuring the each position is filled with a competent and skilled individual that will offer value to the organization for years to come. Failure to identify and hire the right candidate could result in costly financial or operational ramifications. A seasoned recruiter will have a much richer understanding of the local labor laws, the protections and limitations afforded by them, and ideal strategies to recruit qualified candidates that represent a good fit for the organization. * Chinese Culture: As a new WFOE in Shenzhen, our company does not benefit from a diverse understanding of the Chinese culture and its subtleties, nor does it have any established relationships with local governmental or academic institution officials. Additionally, we have only a cursory knowledge of regulations and other requirements that must be met prior to hiring employees. A professional, experienced recruiting firm will have established relationships with officials at local and regional universities, the City of Shenzhen, officials from Guangdong Province, and contacts at applicable national governmental offices. While these relationships may not be required for success, having them will prove to ease the transition, increase the speed with which we may begin our operation, and ensure that all economic development incentives are fully exploited. The recruiter will also have a much greater sense of what makes up a competitive compensation package, what local customs are, and how best to attract qualified candidates. Additionally, given the fact that much of the recruitment effort will be focused on screening candidates, the proficiency in local Chinese dialects afforded by a seasoned recruiter will be of tremendous benefit. * Middle Management: As previously outlined, Shenzhen, and much of China, suffers from a shortage of qualified middle managers that exhibit a satisfactory level of practical experience in the technology oriented manufacturing arena. As a result, additional resources will need to be applied to this endeavor to ensure that the organization is able to attract and retain qualified individuals. In addition, recent global news centered on the Foxconn manufacturing group, a cell phone manufacturer with locations in China, demands that additional scrutiny be applied to selection of managers. In the case of Foxconn, according to The Telegraph, managers, in addition to operating a military-like environment, reneged on promises to employees (44). As a result, protests, strikes, and even worker suicides ensued. Failure to properly devote the necessary attention to line managers and middle managers could serve to be a costly mistake.
Based on these factors, is comes as little surprise that many companies in Shenzhen choose to employ the services of a qualified recruiter and headhunter. Shenzhen Human Resources Center, Co., Ltd., according to its website, manages approximately 69% of the personnel files in Shenzhen and has served over one hundred thousand clients (39). As part of their services package, they offer assistance with labor contracts required for full-time positions under Chinese law, diploma and identification card verification which serve as vital tools to narrow down the applicant field. While we may ultimately select a different recruiting and headhunting firm, knowing that most manufacturers and many of our competitors have chosen to retain the services of an outside firm is critical.
Implementation Timeline
The timeline for fully implementing our staffing plan and being prepared for operations will begin on July 1st and conclude on June 30th. Major activities to be accomplished by month are as follows: * July: Existing human resources staff, along with select senior management, will be tasked with preparing specifications for a recruiter and headhunter service provider and letting it out for bid. Concurrently, legal counsel and other necessary service providers will be identified and procured. Key managers from functional areas, with the assistance of human resources, will define the organization of the new operation, key positions, and core position requirements. Approval of the completed package will be sought from senior management. Research on permitting and regulatory requirements will be conducted to identify deadlines and necessary procedures. * August: Bids will be received from recruiting and headhunter firms and a partner will be selected. Official work with the recruiter will begin, defining duties, coordination of efforts between the recruiter and existing HR staff, setting priorities and the like. The plan for bringing positions online will be finalized with input and recommendations of the recruiter. Staff, along with the recruiter, will develop job descriptions, compensation packages, performance evaluation criteria and other related items (hereinafter referred to as position packages) for all third country national positions for the regional office operation. * September: Preliminary discussions will be held with officials from Guangdong province and Shenzhen regarding available employment incentives, training subsidies, and establishing a temporary training facility for line managers and line workers, both skilled and unskilled. Position packages for all TPN positions will be finalized and the search for qualified candidates will begin. Position packages for middle manager (HCN) positions are developed and the search for middle managers begins. * October: Permitting and regulatory registration activities related to employment are finalized, pending satisfactory outcome from governmental officials. Preliminary development of line manager and other HCN managerial positions begins. Staff will develop preliminary plans for transitioning TPN’s into Shenzhen, including considerations for obtaining visas, work permits, moving the employee and immediate family, employee accommodations, health care, education, and related items. * November: The selection of TPN candidates is finalized, and plans to transition TPN’s into Shenzhen are finalized. TPN transition activities, according to the finalized plan are initiated. Any non-employment driven permitting and regulatory registration activities are finalized. Line manager and other HCN managerial position packages are finalized with input of newly hired TPN’s. * December: Advertising and recruiting efforts for line manager and other HCN managerial positions begin. Visas, work permits, and other TPN transition items are finalized, pending satisfactory outcomes by governmental officials. Preliminary position packages for skilled worker (HCN) positions are commenced. * January: Efforts related to transitioning TPN’s continues, including any supplemental requirements for work permits, moving considerations, and employee accommodation selections are made. Advertising and recruiting efforts for skilled positions are undertaken. * February: TPN transitions to Shenzhen are finalized and the employees relocate near the end of the February, for a March 1st start effective start date in Shenzhen. Position packages for unskilled positions (HCN) will be developed. * March: All TPN’s are fully operational in Shenzhen. Advertising and recruiting for unskilled positions will begin. Activities of this month, along with April and May, will be focused on conducting job fairs, college recruiting, sorting candidates, conducting interviews, and verifying credentials. Additionally, operational work will be focused on setting up temporary training facilities for line workers and managers. * April: Activities will be focused on interviewing, conducting job fairs, sorting applicants, and verifying credentials. Employment contracts for newly hired or prospective employees will be developed within the statutory guidelines. * May: Activities from March and April continue. Line managers and other HCN managerial positions are hired and begin work. Preliminary orientations and general training begins. * June: Skilled positions are fully filled and begin work. A three to four week training timeline is allotted for line workers. It is unlikely that the actual training per individual will last the full three to four week period as the temporary training facility will not be of sufficient size to train all new hires at once. Unskilled positions will be finalized and will begin work approximately two weeks prior to start-up. Training will be conducted for unskilled positions. All training will be conducted with the expertise of seasoned managers and workers from other successful manufacturing facilities and TCN’s for the Shenzhen location. All full-time worker contracts will be completed as required by law. Completion of any staff quarters for migrant workers will coincide with the start date of those employee populations. * July: The new mobile phone manufacturing facility goes live July 1.
Key Success Factors * Attitudes: In order to ensure that our organization is successful during all phases of our global expansion, attitudes are key throughout each step. We must ensure that we maintain the appropriate polycentric and regiocentric attitudes. We must understand that while each of these philosophies has positives and negatives, there may not be a single theory that works solely independent from the others. As our business and our personnel develop in this new market, we must develop our attitudes with it and tailor our philosophies to grow together. We must stay diligent throughout this process and ensure that we approach all challenges in a timely manner with a strategic vision for the future in mind. * Personnel Recruitment and Selection: As with any organization, selecting the right personnel for the right position will either make or break you. It is vital that we hire competent, proficient, and dedicated personnel to staff our new facility. We must ensure that the staffing firm that we contract with understands how important it is for us to place personnel effectively in order to avoid high turnover and redundant training costs. * Compliance and Cultural Adaption: In order to ensure a successful start date of 1 JUL, we must ensure that we comply on different levels throughout the staffing process. First and foremost, we must ensure government compliance. We must conduct thorough research and ensure accuracy at all levels so that our staffing practices do not violate any Chinese labor laws. As stated above, we must ensure that we recruit and select the right personnel the first time in order to avoid turnover and, in the case of Chinese Labor Law compliance, any fines or penalties that may be associated with infractions. We must also ensure that we comply with the timeline established above. We must not deviate from the schedule unless absolutely necessary. If we do encounter a delay, which is very likely, we need to ensure that we meet those challenges immediately with updated and modified schedules. Finally, we must ensure cultural adaptation. We want our personnel to enjoy their work and feel like they are part of a team no matter what nation they hail from. The key to ensuring our people are happy is to understand them and understand how to motivate them. Without proper cultural adaption on our part, we run the risk of alienating our personnel and thus in turn experiencing a high turnover rate or some form of labor stoppage.
Potential Pitfalls * Inadequate Compensation: In order to ensure that we are able to recruit and retain the most qualified personnel for all positions, we must ensure that adequate compensation is both offered and accounted for. If our wages and packages are too low, we will be unable to attract suitable personnel to hire. If our wages and packages are too high, we run the risk of poor financial performance based on labor costs. We must ensure that proper research is done in order to offer a wage that is competitive and that this wage is properly accounted for during the planning process. * Lack of qualified personnel: In order to ensure success, we must ensure that qualified personnel are available to contribute to that success. Proper research on the labor pool in China should be done in order to ensure that proper talent exists in all areas that we require. The reality is, if Shenzhen and the surrounding region, do not offer what we require to operate and if the labor model is unsustainable in order to grow our business and our people, then we may need to consider alternate sites and/or strategies. * Loss of Culture: As a complement to one of the key success factors of cultural adaptation, the loss of culture can be a key pitfall when developing and staffing a new operation. In order to ensure success, we must ensure that we stay true to our corporate culture and team mentality as well as adapting to the culture in Shenzhen as we expand. Our identity as a firm will dictate the personnel we hire, especially as responsibilities for those personnel are increased. We must not sacrifice our strategic business culture in order to adapt locally, and we cannot alienate local cultural practices in order to stay true to our business philosophy in other locations. It is a quite a dichotomy and must be dealt with delicately. As long as we promote team culture for the benefit of the firm, and recognize and adapt to local cultural differences, we will avoid this pitfall and ensure success.
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VI. Conclusion
As we strive to grow our business and maintain a low cost, high quality benefit for our customers and shareholders, expansion into China has been identified as a key factor in our success. The primary determinant in our global expansion and immediate success will be the successful staffing and operation of our Shenzhen facility by July 1st. As we plan and execute this new venture, the personnel we select as employees will determine our success or failure. Diligent research and planning, team mentality, positive attitudes, and appropriate human resource philosophies are vital to ensuring efficient and effective overseas operations. As we expand globally, we must ensure that our plan is appropriate and is executed accordingly, and that we ensure longevity in the region and provide both our customers and shareholders the value they deserve.

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Exhibits
Exhibit 1:

Exhibit 2:
SOURCE: Jin et al, 1997: p. 11
Exhibit 3

Exhibit 4

Source (China Business Review, 2006)