Using Ownership Incentives in China

Case Overview

PeriRaden is a California-based company, launched by Roy Weber - CEO, that specializes in mobile technology. They are focused on expanding their business into foreign countries, specifically China, and are faced with the challenge of introducing the employee ownership culture of the Silicon Valley to their target workforce in China. Although, ownership incentives have proven to be very Successful in the US, there are several reasons why it may not be as effective in China. The core objective of this study is to address all discussion questions and to intelligently propose an effective solution that will meet the demands of the Chinese workforce and fit within the scope of PeriRaden's business culture and overall compensation philosophy.

The Chinese Workforce

Besides being the world's oldest continuous civilization, with records dating back to 3500 BC, China has experienced substantial economic success since initiating its economic reform in the late 1970s. It is now the world's fastest growing economy and has the second largest GDP in the world. It is also home to the world's largest population, which equates to the world's largest labor pool. Naturally, this is appealing to many corporations looking to expand. China represents a seemingly limitless source of labor. What's more is that their individual buying power and levels of consumption are also increasing along side their growing economy. Although, it may seem like China is full of opportunity, there are some caveats to that foreign companies should be aware of. According to Doing Business 2013, SmartRegulations for Small and Medium-Size Enterprises, 10th edition, (a Co-publication of the World Bank and the International Finance Corporation), China is ranked at number 91 on the ease of doing business scale (excluding Hong Kong and Taiwan). This is a stark contrast to the US, which was ranked at number 4 on this scale. This is most likely due to China's traditional and very highly regulated business climate. China's government is also very involved in many aspects of commercial trade. Also worth acknowledging is that, although China's population is gigantic, it is expected to become a more senior population over the next 15 years; in terms of age distribution. The following chart, generated by the Natural Bureau of Statistics, shows how the key population of prime working age will shrink significantly by 2028. This massive shift in age distribution is most-likely a result of the country's strict single child law. Although the 60-64 age group is expected to double by 2028 and the 35-45 age group is expected to decline, this could be advantageous for PeriRaden's stock option incentive program since the senior age group will be more focused on building a nest egg. According to the research of Debbie Liao ad Philip Sohment in the case details, Chinese entrepreneurship is often discouraged by the traditional Confucian principles and dominant Chinese social values. Although, this can be viewed as a threat to entrepreneurial ventures in China, it could also represent an opportunity to recruit talented entrepreneurial-minded employees looking for a place to contribute their ambitions. East Meets West These two iconic landmarks are good examples to visualize when thinking of the two very different business landscapes. The Golden Gate Bridge facilitate trade and transportation; while the Great Wall of China restricts both. Each landscape requires its own approach.

Discussion Points

Although PeriRaden would like to keep a global company ownership incentive model, it would be best to survey potential Chinese candidates and ask them if such a model would be desirable. Perhaps a better solution would be to make the plan more flexible in order to appeal to those interested in immediate cash now rather than long-term stock equity. Not only would this appeal to the younger Chinese work force, but there are also younger US employees that might find immediate incentives more appealing as well. This would allow the model to truly be universal and relevant to each office; regardless of geographic location. An ownership culture does not necessarily have to include stock ownership by employees. Sometimes, rewarding individual or team performance can create the sense of ownership. Traditionally, the large performance-based bonuses were reserved for upper management, but by sharing this with the low to mid level employees you can create the same cause-effect motivation that stock ownership creates in the Silicon Valley. Roy Weber must learn what incentives would most appeal to his target workforce in China and any other country he would like to enter. He should begin by asking the "sea turtles"/(haigui) for their thoughts. The case details indicated that these Chinese nationals who studied or worked abroad and returned back to China are already familiar with the Silicon Valley way of business. This group is critical, because they know both cultures well and would be able to help Roy understand if his incentive plans would be successful in China. He should also ask his US team how happy they really are with the current ownership package. They might have some good ideas that could translate to the China project. There were several concerns in expanding the Silicon Valley employee ownership culture to China. Among these concerns are the traditional Confucian and societal norms that are, in many ways, contradictory to the entire "employee ownership idea" and to entrepreneurship in general, but times are changing and China is not exempt form this change. Roys decisions might look much better in five or more years; especially with China's aging population. the key to this case and to many others is to approach it with an open mind.