Feature article Governance in practiceFeature article Governan.docx

Feature article Governance in practiceFeature article
Governance in practice
• A cultural environment
in which people feel
not only safe to speak
up but expected to, is
essential to achieving
an organisation’s
governance objectives.
• Every member of your
team needs to be held
accountable for doing
their part to protect
the interests of the
organisation and its
stakeholders.
• Inspire people to
want to behave with
integrity and contribute
to the full extent of
their potential, and
governance standards
are likely to be
achieved.
Ego, greed, power, risk
taking, responsibility,
morality … the reasons
people break the rules

and fail to meet expected
ethical standards are
varied and at times
complex. Influencing
the way people choose
to behave is essential to
any organisation’s ability
to meet its governance
obligations.
In Australia, the link between
culture and governance is firmly
on the minds of the regulators. The
Australian Securities and Investments
Commission (ASIC) has in recent years
brought an especially strong focus
to bear on organisational culture
and its influence on how employees
behave. Both ASIC and the Australian
Prudential Regulation Authority (APRA)
have emphasised corporate culture as
a key area of risk.
The link between poor culture and
poor conduct has driven both
regulators to actively review company
practices linked to culture. Critical
decisions including incentives
payments and other rewards are of
particular concern. Whistleblowing
policies and complaints processes
have also been under the microscope.
Misconduct in the financial services
industry provides recent example
of the impact of poor organisational
cultures on risk, compliance and

organisational performance. In April
2015 top executives from Macquarie,
ANZ, NAB and CBA faced a Senate
inquiry to respond to questions about
their financial planning and wealth
divisions. The Australian Financial
Review reported at the time, that the
financial planning scandal at CBA alone
led to ‘thousands of clients losing
hundreds of millions in retirement
savings from receiving inappropriate
financial advice.’
These cases and others like them
have drawn intense public criticism
of perceived lack accountability for
behaviour at all levels of business.
Customers and shareholders alike,
expect leaders to create corporate
cultures that ensure their interests and
rights are protected. The pressure is
on for boards and senior leaders to not
only achieve superior financial results,
but to ensure approaches taken are
both ethical and prudent.
Desirable culture
A cultural environment in which
people feel not only safe to speak
up but expected to, is essential to
achieving an organisation’s governance
objectives. Just as important is
for people to have a deep sense
of personal accountability and the
courage to stand up for what is right.

Reflect for a moment on the cultural
environments you have observed have
an enabling or detrimental impact.
Among the most common examples of
cultures that undermine governance
and ultimately business success are
the following.
Culture driven governance: Why
influencing behaviour is an essential
governance strategy
By Karen Gately, Co-founder, Ryan Gately
271Governance Directions June 2017
No bad news. In these organisations
people are expected to be optimistic
and forward looking, to a fault. Little
time or attention is given to the things
that need to improve. People who
raise concern are typically regarded
as being pessimistic, obstructional or
a non-team player. To succeed people
soon learn to not talk about the things
leaders don’t want to hear.
Blame. While its critical to hold people
accountable for the standard of their
contribution and conduct, leaders
who look to apportion blame for all
issues or short comings, create an
environment in which people do the
same. When we constantly look outside

of ourselves for the reasons things
go wrong, we fail to bring the level of
personal accountability needed to
enable a whole team to thrive.
‘Got ya’. Leaders who focus on
catching people out doing the wrong
thing, create a climate of fear and
hesitation. When people feel the need
to protect themselves from unfair
punishment, they are most likely to
play it safe and limit their contribution.
They are entirely unlikely to put their
hand up when things go wrong, or to
ask for help.
‘Do as I say, not as I do’. Reflect for a
moment on when you have observed
leaders espouse values or enforce
policies they themselves fail to live up
to. Cultures in which leaders say one
thing and do another will inevitably
struggle to establish the standards
of integrity and conduct required to
effectively govern a business.
Creating desirable culture
Creating a desirable workplace culture
takes both a ‘top down’ and ‘bottom up’
strategy. Every member of your team
needs to be held accountable for doing
their part to protect the interests of the
organisation and its stakeholders.
Lead from ‘the top down’
As always in business, success begins

with leadership. The most important
role any leader can play to influence
compliance and optimise results is
to motivate people to want to make a
positive difference to the organisation
and the people they serve.
Every leader irrespective of their
seniority has a responsibility to
contribute to developing a desirable
culture. To achieve high standards of
compliance and effective controls,
leaders need to place priority on a
culture that inspires people to behave
with integrity and assume responsibility.
The approaches encouraged and
accepted at every level of the
organisation are ultimately what drive
success. Put simply, if you want people
to do the right thing, and bring courage
to their role, Leaders need to behave
that way.
Responsible for the selection
and performance of the CEO and
leadership of the Board, the Chairman
has ultimate opportunity to influence.
The approaches taken, priorities held
and decisions reached by the Chair
and other Board members, have
significant impact on the way the CEO
and their leadership team in turn think
and behave.

Ultimately the way the chair allows
the board to operate, and manages
the CEO, sets the standard that
can reasonably be expected from
everyone else. Those who accept
ineffective people leadership or
allow unacceptable behaviour to go
unaddressed are equally responsible
for failed efforts to achieve acceptable
standards of governance.
CEOs who effectively leverage the
spirit and talent of their team to drive
governance standards are those who
should be rewarded. The CEO should
be expected to listen to and learn from
people at all levels of the organisation
and adopt a collaborative approach to
lifting commitment and performance.
They should be expected to value and
respect successful behaviour and the
contributions people make to driving
improvement and achieving results.
Among the most important steps
you can take to ensure leaders have
a positive impact on culture and
governance include these:
1. Recruit and promote leaders who
are culturally aligned. Never appoint
to a leadership role someone
who you doubt is capable of
leading by example and holding
people accountable to acceptable
standards of behaviour. No matter

how attractive their professional
skills and qualifications, if they
can’t influence the standards of
behaviour needed, keep looking for
someone who can.
Creating a desirable workplace culture
takes both a ‘top down’ and ‘bottom
up’ strategy.
272
2. Reward leaders who take
ownership. Hold up as an
example those who demonstrate
commitment to influencing a
culture of trust, respect, integrity
and accountability. Recognise
and reward those who have a
positive influence on the standard
of conduct achieved by not only
their team, but people across the
organisation.
3. Teach leaders to manage behaviour.
It’s common for people to be
promoted to leadership roles
due to their technical strengths.
All too often however they lack
the leadership skills needed to
succeed. It’s essential to invest in
developing the ability of leaders to
set clear expectations and coach
their team to behave successfully.

Especially important is ensuring
leaders are able to engage in
tough conversations and influence
the way people, think, feel and
ultimately behave.
4. Address misalignment. Holding
leaders accountable to behaving
in ways others are expected to, is
critical. An inconsistent approach
to holding anyone accountable
is damaging to culture, but it’s
especially so when the people
being ‘let off the hook’ are in
leadership positions.
Lead from ‘the bottom up’
Inspiring people to take ownership for
their own conduct is critical to driving
governance standards. Influencing the
decisions every person on the team
makes and the actions they take is
essential to any organisation’s ability
to meet its lawful obligations and
effectively manage risk.
Leaders need to influence people
to consistently think and behave in
desirable ways; getting them involved
is an important way of doing that. Being
invited to participate and having the
opportunity to share ideas or insights
matters to how motivated most people
feel to comply and strive.
Consider how much more likely you are

to ‘buy in’, align with an idea or conform
to an approach if you have been
involved in its development. How much
more likely are you to ‘step up’ and
assume ownership and invest energy if
you feel informed and consulted?
Inspire people to want to behave with
integrity and contribute to the full extent
of their potential, and governance
standards are likely to be achieved.
Among the most important steps any
leader can take include these.
Empower every member of the team
Holding people accountable first
requires that we empower them to
take ownership of their role. It’s not
enough to simply expect people to
be fully responsible they must also
be allowed to be. Reflect on whether
you have experienced or witnessed
the disempowering impact of a micro
manager. People soon stop thinking
for themselves, making decisions and
speaking up when constantly second-
guessed and undermined.
Sharing in the process of decision-
making and entrusting people to work
autonomously within the boundaries
laid down by policies and procedure,
are important ways of empowering
them. Only when people are truly
empowered can they fairly be held

accountable for the outcomes reached.
Of course it matters to measure,
assess and apply standards, as
does coaching people to make good
decisions and learn. But this shouldn’t
be at the expense of expecting and
allowing people to take responsibility
for the outcomes they impact.
Ensure clarity: Awareness and
understanding
Clarity begins with defining what
desirable behaviour looks like.
Success ultimately depends on the
conscious awareness people have of
not only what is expected, but also the
standard of their own conduct. Never
underestimate the extent to which
people can be unaware of how their
behaviours adversely impact other
people or the organisation.
Getting people involved in initiatives
such as reviewing policies, developing
processes and implementing
programs creates the opportunity
for them to learn how things fit in
and why certain behaviours matter.
Designing approaches and dealing
with challenges or obstacles that
arise is invaluable experience that
builds awareness, understanding and
ultimately engagement.
With greater understanding of why

policies and procedures matter, people
are more likely to hold themselves and
others accountable to those standards.
A powerful influencer of governance
standards is the courage people feel to
speak up and challenge inappropriate
conduct. Most people are more likely
to do that when armed with knowledge
and support.
Create connection
Human beings are fundamentally
motivated by the need to belong
— that is the need for acceptance
through meaningful relationships. This
need motivates most people to engage
in behavior that will lead to approval.
Leaders need to create an environment
in which people feel a sense of
belonging and therefore desire to do
what is considered right.
Focus on building emotional ownership
of the organisation and its mission.
Help people to feel a personal
No matter how attractive their professional
skills and qualifications, if they can’t influence
the standards of behaviour needed, keep
looking for someone who can.
273Governance Directions June 2017
Feature article Governance in practice

connection with the organisation
and they are more likely to work hard
to protect it. Focus on how every
individual on the team is able to make a
difference to enabling the organisation
to thrive. Draw a clear line of sight
between what you need to achieve and
the behaviours that will allow you to
get there.
Build trust and respect
Unquestionably the most critical
foundations of any successful
relationship are trust and respect.
When people trust, and respect the
leaders and colleagues they work with
they are more likely to take ownership
for the impact of their behaviour.
Fundamentally people are more likely
to take actions to cultivate successful
relationships, when they care about
people and are keen to gain approval.
Leaders are wise to purposefully invest
in developing strong relationships
across an organisation. Focus should be
placed on the depth of trust and respect
people feel. Ensure every member
of your team understands the non-
negotiable requirement to do their part
to foster healthy working relationships.
Support this objective by developing
the ability of people to have open and
honest conversations about behaviour.

Listen and learn
All too often leaders underestimate
the power of the insights their team
can provide. Spend time listening to
the people on your team about what
is working and what needs to improve.
Invite people to share their perceptions
of the changes needed to better
enable the organisation to achieve its
governance obligations.
Allow people to be open in sharing
their views about the standards of
behaviour they observe. Expect that
they express their opinions with respect
and sensitivity, but encourage also
that people be completely honest.
Listening to people is an important
way of building trust. When we listen
with the intention of gaining greater
understanding, we demonstrate respect
for the other person’s contribution.
Karen Gately can be contacted on
(03) 9670 6711 or by email at
[email protected]
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274
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1573
NEW PERSPECTIVES ON STRATEGIC MANAGEMENT
PROCESS
Pop Zenovia Cristiana, Borza Anca
Department of Management, Faculty of Economics and Business
Administration,
“Babeş-Bolyai” University of Cluj-Napoca, Romania

[email protected][email protected]
Abstract: For developing economies the development of
enterprises should be a
strategic goal, this way of thinking may become viable only as a
result of a
combination of judicious analysis based on specific local
economic aspects and a
set of actions to correct any slippage or amplify existing
development trends taken
by the managers. A better leadership would unequivocally lead
to a better strategy
but sometimes the lack of information, first about the external
environment,
continuously undergoing quick and radical changes, the
political problems and the
complexity of the implementation of the strategy or the costs
that it implies are not
taken into consideration. Therefore managers have two options:
to establish
strategies, which would lead to the achievement of the
objectives; evaluate them on
the basis of economic efficiency or to identify an already
existent strategy and to
adapt it to the environment changes in which the enterprise
carries on its activity.
This paper aims at discussing and explaining from a theoretical
perspective, the
evolution and the advantages and disadvantages of the strategic
management
process, in order to convey the managers a modality to achieve
competitiveness and
evaluate the position of the firm. In the first section, we explain
the the necessity of
strategic management process. In the second section we present

the different
evolution stages. The third section presents our conclusions
regarding the
advantages and disadvantages of the strategic management
process, fundamental
for the strategy success. The financial crisis did affect the
Romanian economy and
Romanian enterprises early in 2009 registering an impact of the
crisis identified in
the need of the managers to rethink their strategies, to improve
their management
skills and perspectives on the role of the employees after the
crisis. In this paper we
try to underline the evolution stages of the strategic
management process with its
own characteristics by which both Romanian or foreign
managers can evaluate the
position of their enterprise and can take improvement measures,
which may help
sustain or gain competitiveness that has been affected by the
crisis.
Keywords: strategies, strategic management process, manager,
strategic
planning, development, performance
JEL classification: L1, M11, C41
1574
1. Introduction
With the works of Meyer and Heppard, McGrath and

MacMillan, in 2000 began the
integration of two research fields and namely that of
entrepreneurship and strategic
management. This integration appears as a necessity because the
entrepreneurs
needed a more rigorous perspective over their strategic planning
for the purpose of
profiting well from market opportunities under conditions of
uncertainty (Kraus,
Kauranen & Reschke, 2011:59). Just at the beginning of 80s two
prolific authors in
the field, Schendel and Hofer argued that strategic management
can be seen as a
process. It is interesting that this process relied on the
entrepreneurial work which is
in any enterprise and it is aiming to adapt the enterprise` s
operations with the
necessity of its development and renewal; but we will discuss
these in the next
chapter. That is why we will observe the use of strategic
management concepts at
entrepreneurship level in the specialized literature (Covin &
Slevin, 1991).
2. The evolution of strategic management
Paitsch condenses this evolutionary process into four phases.
Phase 1 contains
financial planning which was focused on the enterprise budgets
achieved annually.
The operative control was aiming to improve the economic
result by combining
efficiently the production factors (Peitsch, 2005:48). Grant
positions this phase
between 50s and 60s. Wheelen and Hunger consider this phase
contains a basic
financial planning, in which information focuses on the ideas

provided by the sales
department requiring sometimes much time on gathering useful
information, and the
planning horizon is usually 1 year (Wheelen and Hunger,
2010:5).
Passing to a new phase, the second one, is called forecast-based
planning
(Istocescu, 2005:66), the managers relied on the budgets from
different years and
on the environment analysis to achieve allotting the resources.
The economic
forecast from the 60s was on short-term, the planning within the
enterprise being
formal; it desired diversification and synergy achievement by
creating special
departments for planning (Grant, 2010:17). The planning
horizon is this time longer,
namely from three to five years because the managers already
take into
consideration projects that last more than a year (Wheelen &
Hunger, 2010:5).
Figure 1: The evolution of strategic management
Source: Grant, 2010:17
1575

In the third phase the planning is the outcome of more careful
analysis of competitive
environment and was as a response to the speed-up in technical
changes and
different circumstantial cycles, the implementation and control
being considered as
subsidiary activities (Peitsch, 2005:48). At the same time the
different strategic
alternatives are taken into consideration, they were emphasized
by the achievement
of strategic portfolio, of PIMS analysis that was aimed at
evaluating the changes that
appeared in competitive position of the enterprise or
introducing market
segmentation strategies. Being dissatisfied with what they have
done so far with the
achieved planning, the managers call on consultants; they can
offer sophisticated
and innovative techniques (Wheelen & Hunger, 2010:5). It can
be understood why
in this period appears two specialized magazines as: “Strategic
management
Journal” and “Journal of Business Strategy”.
In the 1990s the strategic management triggers a search for the
achievement of a
competitive advantage by using the resources and competencies,
the maximization
of the shareholders` s value, reorganization and alliances. The
managers`
suggestions and engagement from the lowest level is invaluable
even if it is not
aiming to forecast in the future but especially to achieve urgent
strategies for
probable scenarios (Wheelen & Hunger, 2010:6). Strategic
innovation, new business

models and destructive technologies introduced as a notion by
Clayton M.
Christensen, professor from Harvard Business School to
emphasize the new
innovations, are defining elements of the strategy for the New
Economics considered
as being the third industrial revolution. The new millennium
which marks the fourth
phase is characterized by a strategic management which relies
on CSR and ethics
in business, the achievement of standards and the application of
global strategies
(Grant, 2010:17). Thus the new directions of strategic
management can be summed-
up beginning with the year 2000, period in which only a
certitude remained namely
that some economies even thriving, have a quite raised indebted
level for a peace
period (Grant, 2010:457). General Electric can be regarded as
an enterprise which
fulfilled successfully the pioneer role of strategic management
passing through all
these phases in the 80s (Wheelen & Hunger, 2010:6).
The main stages of strategic management process are the
formulation,
implementation and evaluation of the strategy (Barney, Hesterly
& Hesterly, 2010:6).
Understood as a process, the strategic management is thus a
series of stages which
do not necessarily present a linear sequence but it rather points
out certain
interdependences between stages and according to Japanese
models they overlap
(Raps, 2008:24). These stages start from the formulation of
strategy, then contain
all the concrete actions to achieve it and they develop until the

final evaluation.
Although in the case in which the outcome of this process is
excellent, it is important
that the companies are not satisfied with (David, 2011:288).
The evaluation phase is the end of the strategy process and at
the same time it is
also the basis for the next stages (Barney, Hesterly & Hesterly,
2010:6). The
distinction between them is made more in didactic and
analytical aim (Raps,
2008:15). The evaluation consists of a process to question all
decisions at all the
levels within the enterprise. It can be extremely risky to wait to
the end of the year to
achieve this stage (David, 2011:290). The stages proposed by
Barney, Hesterly and
Hesterly will be discussed further on.
An alternative to this classification presented above is offered
for example by Welge
and Al-lea Laham (2008: 185-187) and by Borza et al. 2009).
These authors consider
1576
that the next phases represent the basic components of the
strategic management
process: the planning of strategic objectives, the strategic
analysis of external
environment and of the enterprise and prognosis, strategy
elaboration and its
evaluation, the implementation of the strategy and its control.
Strategy formulation, according to Popa must be rigorous,
(Popa, 2004: 60) contains
first the development of a vision and mission. It is equally

important to identify the
opportunities or the dangers from the enterprise external
environment as well as to
establish the strong and weak internal points (Barney, Hesterly
& Hesterly, 2010:6).
We identify a similitude with the SWOT analysis. Although,
according to Grant this
model is very widespread, the classification in four determinant
factors of an
enterprise strategy is not quite correct. The first two categories
characterize the
external environment and the other the internal environment
(Ilieş et al., 2005:99).
Grant questions the division of internal factors in strong and
weak points giving Steve
Jobs as example, the founder of Apple who suffers pancreas
cancer. Taking these
aspects into consideration, the question that can be put is how
Steve Jobs can be
viewed as a strong point of the company or a weak one?
Another example would be
the effects that global warming has over the auto industry. It
can encourage the
states government to raise taxes supporting public transport and
disadvantaging
private transport but on the other hand enabling the apparition
of new types of car
(Grant, 2010:12). The central elements would be fixing the
enterprise long-term
objectives and also offering alternative strategies from which
the enterprise benefits
a lot. The concepts about strategy start from the presupposition
that the formulation
of strategy is ambiguous, it must be changed into a precise idea
about how to redirect
the organizational conduct (Jäger, & Beye, 2010:97).

The formulation of strategy as a starting point for strategic
management (Kaplan &
Norton, 2004:5) approaches problems as to enter the
international market, to
allocate favourably the limited resources, to analyze the
potential mergers or
formation of joint venture and sometimes even to avoid an
hostile taking- over.
Having the best perspective over the enterprise, the manager is
the only one who
has the authority and capacity to evaluate the consequences and
the major
ramifications that any strategic decision might have.
According to Hart there are five typologies for the formulation
of strategy identifying
different models used at many management levels. Within the
authoritative model,
the formulation is made by a strong leader supported by a few
from his top
managers. The others within the enterprise are only good
“soldiers”, merely
executors. The enterprise environment is not complicated and
the organizational
structure must be simple to enable keeping an efficient control
(Brown, 2004:213).
There are three kinds of programmes for strategy
implementation (Lynch, 2009:492).
The complex implementation programmes are used when the
enterprise must
achieve major changes in the strategic direction that must be
followed. A tight
coordination is essential to succeed in leading by new
strategies, because surely
they will confront with a serious resistance. If for example the
environment in which
the enterprise carries its activity is uncertain or the research

results are doubtful,
then the gradual implementation programmes will be used. In
this case the strategic
approach is flexible, the calendars, tasks and even the
objectives can be changed
in compliance with the current events; it may be even the
possibility of leaving aside
some strategic fields. In case in which after an analysis it
reaches to the conclusion
that none of the two types of implementation mentioned above
is the best way to
1577
follow, then programmes for selective implementation will be
applied in which only a
major programme is elaborated but only in certain fields.
According to the traditional approach of strategic management
the formulation of
strategy relies exclusively on situational analysis of external
and internal
environment (Grant, 2010:26) being in our view rather a
consequence of this.
Resources-based vision implies a careful analysis of the
enterprises resources and
abilities. In contrast, according to stakeholders vision the
formulation of strategy
must be achieved in compliance with those rights and
expectancies (Bordean,
2010:14).
The next stage approaches the way in which the strategy is
implemented and
includes the development of organizational cultures and it is
aiming to support the

strategy by organizational structure, redirecting marketing
efforts, the preparation of
the budgets, the development and use of informatics systems
and the correlation of
compensation system with the organizational performance
(Barney, Hesterly &
Hesterly, 2010:6). According to Popa the implementation must
be systematic and
effective (Popa, 2004:60) because it is aiming to change an
already existent stage
in a desired one (Raps, 2008:27). Two distinct models emerge in
the specialized
literature to examine the implementation of strategy: descriptive
models which only
present the process and activities-based models namely how the
process of
implementation ought to be proceeded (Tapinos, Dyson, &
Meadows, 2008:3).
The dynamics renders well the main feature of this stage
because the employees
mobilization is needed to implement an already established
strategy and discipline,
engagement, sacrifice is also needed. Thus, in our view
strategies that cannot be
implemented is not viable and according to Lynch not even the
paper in which it was
written values (Lynch, 2009:13). The difficulty of this stage is
the attempt to
implement, to put into practice a new idea in a system which
already is within the
enterprise (Raps, 2008:27). Thus the specialized literature
concerns more to
discover why the implementation was successful in one
organization and in the other
was not.
In Germany the implementation stage fell into place at the same

time with the
evolution of information systems simultaneously emphasizing
the necessity to
introduce new rules within the enterprise (Raps,
2008:27).Implementing the strategy
could be more important than selecting it to explain the effect
over the performance
(Leitner & Güldenberg, 2010:176).
Concerning the importance of the link between strategy and its
implementation, this
was synthesized by Raps after studying many authors from the
field in the following
table. If for example the quality of strategy implementation is as
inferior as the
strategy then the outcome will be unequivocally a completely
failure. If the strategy
is very good and its implementation leaves much to be desired,
then for the
enterprise will be unfortunately a failed chance.
Table 1: The importance of link between strategy and its
implementation
Strategy of inferior quality of superior quality
the implementation of an
inferior quality strategy
failure a failed chance
The implementation of a
superior quality strategy
preventable danger successful
Source: Raps, 2008:27

1578
The final stage of the strategic management process is the
evaluation of the strategy
by which the validity of a strategy is tested and then modified
due to the ongoing
changes of the enterprise environment. There are three
elementary strategies of
evaluation: the re-evaluation of internal and external factors
which were the basis for
the present strategies, the measuring of the performances and
taking corrective
actions. The re-evaluation is necessary because a strategy which
now is successful,
it may not be successful in the future. All the three stages of the
strategic
management process will be implemented on all the enterprise
hierarchical levels.
In this way the communication and interaction of all those
implied has a vital role
(Lynch, 2009:13). Pettigrew and Whipp` researches pointed out
the formulation and
implementation of strategy must not be viewed as two distinct
stages and rather as
being part of an ongoing experimental and repetitive process
(Lynch, 2009:493).
Although this should be the tendency towards the managers
ought to turn their
attention many times there are major differences between what
have been
formulated and what was really implemented. Norton and
Russel identified a solution

to this problem by introducing “a strategic management office”,
three primary
functions of this would be the achievement of strategic
management framework that
will contain the leadership convention and the proper process.
The second function
is to appoint the responsible person for this whole strategic and
essential process of
reference to the stage of its implementation. The third function
is that of coordinator
or consultant together with other departments such as the IT
assuring the operation
(Norton & Russel, 2011:8). The process of strategy revision
must be redefined
annually, Norton being one of the prolific authors in this field.
Norton proposed six
stages of strategic management process. The first stage contains
the development
of strategy; it contains a clear formulation of the enterprise
vision. In the second
stage the strategy is expressed from a more general form to
specific objectives,
initiatives and budgets and the quantification passes from
strategy to action (Norton,
2010:3).
An alignment of the organization is in the third stage. By this it
can be understood
the achievement of an ongoing adjustment between strategy and
objectives at
department level. This alignment must take place not only
internally but also
externally with the enterprise partners and clients. The fourth
stage links strategy
and operations. If, for example, the next strategic objective
establishes a diminution

of the cycle of a product development by 50%, it cannot be
achieved if someone
does not realize how to reorganize the product development
process. The strategic
management process is increasingly decentralized, it is
recognized the fact that the
planning must be at the lowest levels. So did Dusney, allotting
this process to the
division. It must be emphasized this process is one of learning,
helping, educating
and supporting and it truly has positive effects over the
enterprise performance
(David, 2011:16).We could not affirm that in reality within the
enterprises this
strategic management process is as clearly divided and its
development takes place
in the arrangement proposed by diverse authors. Many
enterprises organize formal
meetings to discuss again the vision, mission, strategies,
performance, objectives
and the politics encouraging the creativity of its own employees
because without
communication and appropriate feedback this process cannot
work at optimum
parameters (David, 2011: 16).
1579
3. Conclusions
The advantages of the strategic management application within
the enterprises are
summed up offering new clearer visions over the enterprise and
a clearer focus over
what it is important from a strategic point of view (Wheelen &

Hunger, 2010:6). But
David offers new perspectives. In his opinion the
communication is improved by an
ongoing dialogue and a participation of the employees at taking
decisions. By
profound understanding he refers to both the opinions of the
others and the
enterprise situation and also to the reason for which it is
planned. A bigger
engagement is absolutely necessary to achieve the objectives, to
implement the
strategies and an assiduous work. The expected outcome is that
both the managers
and employees have as a task the enterprise success (David,
2011:16) receiving an
award for this. It must also be mentioned the positive
psychological impact by
reducing the conflicts from the enterprise interior due to satisfy
the need of stability
of each individual by planning of the future (Popa, 2002:45).
Other advantages would sum up to a systematization of the most
important decisions
that would facilitate the managers attempt to improve
developing them
simultaneously the thinking regarding the management and the
development of
managerial attitudes (Popa, 2002:46).
The disadvantages of strategic management can be reflected by
an obvious feature,
according to our opinion, and namely that it is an expensive
process either we
measure it from a financial point of view by using market
analyses, special software
programs or the need of appellation at a consulting firm; from
the work force point of
view because the specialization in different fields and its

reallocation will have to
take place, sometimes even its excessive solicitation; from the
time allotted point of
view (Istocescu, 2005:48) because for example an owner will
have to look after not
only the daily activities but also the strategic ones; from human
or psychological point
of view because the strategy formulation, implementation and
control does not sum
up only to follow some steps and to know the enterprise
internal and external
resources but also to admit your own limitations or drawbacks
and to know when it
is the moment to withdraw or to delegate or to ask help of a
third person.
A consensus within the strategic management hardly can be
reached (Nag,
Hambrick & Chen, 2007:935), because it includes fields such as
the sociology,
psychology and economics (Mazzarol & Reboud, 2009:150). We
can however affirm
the academic environment had a serious contribution in
providing many ways of
thinking over the strategy and implicitly over strategic
management. But we think that
the collaboration with the business environment was extremely
profitable, more than
in any other field, the contribution being unquestionable
because it led to the
evolution of methods to implement the strategy.
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turism, Risoprint
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(2009), Antreprenoriat.
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strategic management
and innovation in the small firm, Edward Elgar, Cheltenham
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strategic management,
really? inductive derivation of a consensus: defenition of the
field, Strategic
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Raps A., (2008) Erfolgsfaktoren der Strategieimplementierung:
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Balanced Scorecard make
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Management: Grundlagen–
Prozess–Implementierung, Gabler, Wiesbaden.
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Management &
Business Policy, Prentice Hall, London.

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International human resource management strategies of Chinese
multinationals operating abroad
Di Fan
a
*, Mike Mingqiong Zhang
b
and Cherrie Jiuhua Zhu
c
a
Deakin Graduate School of Business, Deakin University,
Melbourne, Australia;
b
Department of

Management, La Trobe Business School, La Trobe University,
Melbourne, Australia;
c
Department
of Management, Faculty of Business and Economics, Monash
University, Melbourne, Australia
(Received 25 November 2012; final version received 1 July
2013)
Strategic international human resource management (SIHRM) is
crucial for the
effective leveraging of human resources in organizations to
achieve the desired
business strategies. There is a rich collection of studies on
western multinational
corporations (MNCs) in China, but few studies that explore the
SIHRM of Chinese
MNCs operating overseas. This study utilizes cross-level, in-
depth interviews to
analyse SIHRM of three large Chinese multinationals. The
paper contributes to
literature by addressing two contextual SIHRM issues, namely
the characteristics of the
SIHRM for Chinese multinationals and how their SIHRM
orientation facilitates their
international investment and operation. The findings indicate
that organizational
transformation is the starting point for latecomers matching
their international HRM
strategies. Their SIHRM approaches, such as forming learning
organizations, reliance
on host-country nationals, reconciling both home and host-
country effects and

promoting ‘best practices’, facilitate their international
operations.
Keywords: China; host-country nationals; international business
strategies; multi-
national corporations (MNCs); organizational transformation;
strategic international
human resource management (SIHRM)
1. Introduction
After ‘go global’
1
was firmly established as a national policy in 2004, more
Chinese domestic
firms became eager to enter and compete in the international
market. The World Investment
Report 2012 (UNCTAD 2012) states that foreign direct
investment (FDI) from mainland
China reached US$74.65 billion in 2012, representing an
increase of 13.6 times than that in
2004. The figure of Chinese multinationals ranked in Fortune
Top 500 list rose from 16 in
2004to79in2012(Fortune 2012).China hasnow becomethe
largestAsiansourceofoutward
FDI (UNCTAD 2012). The growing prominence of the Chinese
FDI has generated a rapidly
increasing research interest in their multinational corporation
(MNC) strategies.

When operating overseas, many Chinese MNCs quickly
embraced the idea of aligning
human resource management (HRM) with corporate strategy,
believing it would promote
the organizational performance (Luo and Tung 2007). One area
that has drawn little research
attention is strategic international human resource management
(SIHRM) in emerging
market multinationals (Shen 2005; Thite, Wilkinson, and Shah
2012; Zheng 2013). Shen
(2005) contends that previous SIHRM models were developed in
western countries, lacking
empirical data support from developing countries. A clear
research need exists to map the
patterns of generic international human resource management
(IHRM) strategies of Chinese
q 2013 Taylor & Francis
*Corresponding author. Email: [email protected]
Asia Pacific Business Review, 2013
Vol. 19, No. 4, 526–541,
http://dx.doi.org/10.1080/13602381.2013.821804
http://dx.doi.org/10.1080/13602381.2013.821804

multinationals as latecomers, especially when they are investing
in developed countries.
A related question is to examine how these firms utilize their
human resources (HRs) to
compete overseas. This study attempts to address these core
questions by analysing the
IHRM strategies of three large Chinese MNCs and their
subsidiaries in Australia. Australia
is an appropriate empirical context since it is one of the most
popular destinations for
Chinese outward FDI (Fan, Zhu, and Nyland 2012; MOFCOM
[2011] 2012).
The paper begins with a twofold review of literature dealing
with the importance of
linking IHRM to the implementation of internationalization
strategy and the literature
concerning Chinese MNCs and their IHRM strategies. Two
research questions are then
developed and the research method explained. This is followed
by presenting and analysing
qualitative data generated by interviews with Chinese managers
from headquarters and
subsidiaries in both China and Australia and relevant corporate
archives. Finally,

implications are drawn from the findings and directions for
future studies are advanced.
2. Linking IHRM to the implementation of internationalization
strategy
Companies operating globally have to seek suitable
internationalization strategies and
IHRM. In broad terms, an internationalization strategy refers to
a company’s approaches
when extending its business operations to an international arena
(Briscoe, Schuler, and
Claus 2009). IHRM is ‘the set of distinct activities, functions,
and processes that are
directed at attracting, developing, and maintaining an MNC’s
human resources’ (Taylor,
Beechler, and Napier 1996, 960). The explicit link between
IHRM and MNC strategies has
been termed SIHRM by Taylor, Beechler, and Napier (1996) in
their landmark study.
SIHRM covers HRM with the strategic management and
internationalization
processes, emphasizing coordination among assorted HRM
activities (Schuler, Dowling,
and De Cieri 1993). To achieve competitive advantages, HRs of
a company should be

valuable, rare, inimitable and non-substitutable (Wright,
McMahan, and McWilliams
1994). Such an HR can contribute to continuous competitive
advantages by improving
competencies that are specific to the company, generating social
relationships and
producing firm-specific knowledge (Erwee 2007). IHRM
provides the tangible and
intangible resources that allow a company to outdo competitors
at an international level
(Schuler, Budhwar, and Florkowski 2002).
At the corporate-level SIHRM, whether an MNC adapts its
HRM to the local context
or maintains the parent company’s approach is a critical choice
faced by IHRM
practitioners (Grossman and Schoenfeldt 2001; Schuler,
Dowling, and De Cieri 1993).
Although a number of researchers have written on the subject of
the tension between the
extent to which policies should be globally integrated and
locally responsive, few
conclusions can be drawn as to what defines a globalized or a
localized IHRM orientation
(Shen 2005). Incorporating Bartlett and Ghoshal’s (1989/1998)

typology of international
business strategies (IBS), namely international, global, multi-
domestic and transnational
strategies, the chosen IBS must fit with organizational,
industrial and environmental
factors that affect the firms’ global operation (Fan, Zhu, and
Nyland 2012; Luo 2001). If
the market in which the company operates requires a high
degree of local responsiveness,
the firm should choose more localized strategies, such as multi-
domestic and transnational
strategies (Bartlett and Ghoshal 1989/1998). This implies little
interdependency between
the parent company and its affiliates. In contrast, a firm
following a global strategy
manages affiliate and parent as interdependent.
There has been a tendency to utilize multiple theoretical
perspectives to predict and
explain relations between corporate strategies and IHRM (e.g.
De Cieri and Dowling
Asia Pacific Business Review 527
1999; Schuler, Dowling, and De Cieri 1993; Taylor, Beechler,

and Napier 1996) in the
field of SIHRM. A number of scholars have developed
integrative SIHRM models such as
the ‘two logic’ approach (Evans and Lorange 1989), the ‘two-
dimension’ model that
includes the product, market, technology dimension and the
social, cultural and legal
dimension (Paauwe and Dewe 1995), and various versions of the
integrative SIHRM
framework developed by Schuler, Dowling, and De Cieri
(1993), Taylor, Beechler, and
Napier (1996) and Thite, Wilkinson, and Shah (2012), which
embraces a numbers of
industrial settings, internal and external influencing factors, and
country contexts.
Although these models are valuable for demonstrating the links
between IHRM and
internationalization strategies, they have been criticized for
limitations of describing an
integrative view of SIHRM, rather than developing an IHRM
strategy. For instance,
Briscoe and Schuler (2004, 60) debate that SIHRM ‘[ . . . ]
needs to develop its own
strategies to hire, manage, and retain the best employees

throughout the organization’s
international business (IB) activities, as well as contribute to
the firm’s overall
international strategic planning’. It has limitations when applied
to MNCs from emerging
economies, which are characterized by both the speed and the
massive scope of change
(Thite, Wilkinson, and Shah 2012; Zheng 2013).
3. Chinese MNCs and their IHRM strategies
Scientific analysis of, and academic debate on, Chinese FDI and
its characteristics has
started, with a growing number of publications in recent years
(Fan Zhu, and Nyland
2012). There remains, however, a paucity of research in specific
areas such as the impact
of FDI from the biggest emerging country on IHRM (Cooke
2012; Cooke and Lin 2012;
Zhu, Thomson, and De Cieri 2008). Moreover, scholars (cf.
Mabey, Salaman, and Storey
1998; Warner 2003, 2012; Warner and Nankervis 2012) observe
that a further advance in
research around the concept of HRM ‘with Chinese
characteristics’ is evident, but there is

less evidence of research about ‘strategic HRM’ as defined in
western terms.
Recent reviews, such as those of Zhu, Thomson, and De Cieri
(2008), Cooke (2009)
and Zheng (2013), report the growth of SIHRM studies in
China-based HRM literature,
attempting to develop an SIHRM model and test the model for
Chinese MNCs (Shen 2005;
Zheng 2013). However, Shen’s (2005) and Zheng’s (2013)
models draw heavily on the
previous integrative SIHRM models (cf. Schuler, Dowling, and
De Cieri 1993; Taylor,
Beechler, and Napier 1996), and their concern is with
intervening factors affecting the way
that IHRM practices can transfer, mix or adapt local HRM
practices. Further, Cooke
(2009, 25) argues
there is a need to ‘internationalize’ the research of HRM in
China. By internationalization, we
should look at what the common issues are facing the HRM
world globally. We need to situate
the research of HRM in China in a global context through the
connection of common HR
issues and challenges in people management.
Given this research call, this study can be distinguished by its
focus on identifying some

characteristics of the SIHRM of Chinese multinationals.
Therefore, the first research
question (RQ) is proposed in this study:
RQ1: What are the characteristics of the SIHRM for Chinese
MNCs?
McDonnell, Stanton, and Burgess (2011) call further empirical
research on emerging
country’s MNC behaviour in advanced economies, such as
Australia, as it still remains
neglected. It is reported that Chinese MNCs have been
experiencing local fear, or dislike,
of Chinese investment in some popular Chinese outward FDI
destinations, including
528 D. Fan et al.
Australia (e.g. Fan 2010). Such negative responses can
counteract the efforts made by
Chinese firms in their internationalization process. The
literature (cf. Schuler, Budhwar,
and Florkowski 2002) suggests that IHRM policies and practices
play a crucial role in
building local responsiveness capability for MNCs. However,
what has not been explained

is how Chinese multinationals interpret the local responses with
a balance of their global
integration needs, and how they are forming IHRM strategies
and building their capability
in host countries. Furthermore, Dunning (2006) argues for
research to include people
management as a new trajectory for MNC research and contends
that it is important to
understand the impact of IHRM on MNCs in the wealth creation
process. On the basis of
the research needs, the second research question is raised:
RQ2: How do Chinese MNCs’ IHRM strategies facilitate their
investment and operation
overseas?
4. Methodology
4.1. The method of multiple case studies
A quantitative approach is difficult to apply to Chinese
multinationals since the robust
theoretical understanding to underpin quantitative analysis does
not exist given their short
history of internationalization. This study is exploratory and
non-hypothesis driven. The

research questions focus on the what, how and why factors that
affect SIHRM in Chinese
MNCs. Moreover, this research is context-specific as the
subject is the IHRM strategies of
Chinese multinationals. A number of international researchers
(e.g. Boyacigiller and Adler
1991; Kim, Wright, and Su 2010; Tsui 2007) claim that
contextualization is an important
way to develop high-impact research, and ‘deep
contextualization is necessary for both
theory development and for the meaningful application of
existing theory to novel
contexts’ (Tsui 2007, 1357).
A qualitative approach is appropriate because it enhances
researchers’ capacity to
examine organizations and societies ‘on their own terms’
(Boyacigiller and Adler 1991,
281). A multiple case study design is chosen as it is suited to
the complexity of the
internationalization process. This approach enables researchers
to contain the problem of
representation and renders the evidence more persuasive and the
analytical results more
robust (Jing and McDermott 2012). It also permits the

researcher to conduct multiple
experiments applying ‘replication’ logic (Yin 2009).
4.2. Data collection
Authors (cf. Cooke and Lin 2012; Cooke and Saini 2010) argue
that an organization’s
business strategy can be influenced by its institutional context,
which has further impact on
HRM policies and practices within the organization. To
minimize the influence of various
forms of institutional environment on firms’ SIHRM, three
Chinese multinationals with the
same type of ownership operating in Australia are examined in
this study. Therefore, both
the impact of home and host countries’ institutional context and
their policies towards
Chinese state-owned MNCs are generallyconsistent. From 2005
to 2009,Australia rankedas
the most popular destination for Chinese outward FDI
(MOFCOM [2011] 2012). By
December 2012, 592 Chinese multinational enterprises (MNEs)
had established corporate or
representative offices in Australia (MOFCOM [2011] 2012).
Three well-known Chinese

firms were chosen; all of them are state-owned MNCs, which
reflects the ownership norm for
Chinese multinationals (Zhang, Zhou, and Ebbers 2011). They
are also large and influential
corporations for Chinese national economy, listed among the
Fortune Global 500
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Biggest Corporations (Fortune 2012). A profile of the case
MNCs is presented in Table 1.
The three companies represent the majority of industry sectors
in which Chinese MNCs
operate in Australia, namely resources, service and
manufacturing. The data collection
approach is designed to generate insights regarding how
industry type, ownership and
international strategies such as entry modes shape Chinese
MNCs’ SIHRM consideration.
To protect anonymity, the three MNCs are coded as BankCo,
ChemCo and MinCo.
To ensure validity, we collected two sources of data. The
primary data were collected at

both the headquarters in China and Australian subsidiaries
during two periods: June–
September 2008 and June–July 2012. Collecting the second
wave of qualitative data in the
three companies aimed to: (1) recheck the consistency of IHRM
policies and practices and
IBS and (2) ensure qualitative data triangulation over a four-
year period. Informed by the
literature review, a set of open-ended questions were developed,
focusing on the firms’
international strategies, host-country institutional environments
and IHRM strategies. For
each firm, the interviewees at headquarters level comprised
senior executives, who held
positions ranging from chairman, chief executive officer
(CEOs), vice general manager,
HR/personnel management directors (HRDs/PMDs), to
international project director or
executive member of the board of directors. All of the
interviewees were identified as
executives who played important roles in strategic decision-
making. At the subsidiary level,
all interviewees held one of the following positions: CEO,
general manager or HRDs/PMDs

(see Table 2).
All participants were interviewed either face-to-face or through
prearranged
telephone. Each interview was about 1–1.5 h in length. Some
senior executives were
interviewed twice or had follow-up phone calls. Where the
participants agreed, interviews
were digitally recorded; otherwise notes were taken. Extensive
notes and researcher
observations/impressions were written up without delay. A
majority of interviews were
conducted in Mandarin. Transcripts were sent to interviewees
for comments and feedback,
which were then incorporated into the transcripts. The latter
were then translated into
English and analysis was undertaken utilizing the English
transcripts.
The case study method emphasizes triangulation to check and
validate the information
received from various sources and examines it from different
angles (Yin 2009).
Interviews were therefore supplemented with other sources of
data, including observation,

field notes, company documentation (e.g. meeting minutes and
annual reports) and
intranet as well as internet data to increase the reliability and
accuracy of the analysis.
Table 2. Chinese MNCs in Australia: the interviewees and
archives.
Chinese
MNCs
Analytical
code
Company
level Interviewee code Archival code
BankCo MNC1 HQ HQ1, HQ2, HQ3 MNC1-DOC-2; MNC1-
DOC-8;
MNC1-DOC-11; MNC1-DOC-17;
MNC1-DOC-18
Australian
Subsidiaries
AS1
a
, AS2
ChemCo MNC2 HQ HQ4, HQ5 MNC2-DOC-2; MNC2-DOC-6;
MNC2-DOC-9; MNC2-DOC-11;
MNC2-OB-R-1
Australian
Subsidiaries

AS3
a
, AS4, AS5
a
MinCo MNC3 HQ HQ6, HQ7, HQ8 MNC3-DOC-2; MNC3-
DOC-3;
MNC3-OB-R-1; MNC3-OB-R-2Australian
Subsidiaries
AS6
a
, AS7, AS8
Note: Both the case firms and the interviewees are coded to
guarantee anonymity. HQ: headquarters. AS:
Australian subsidiary. ‘DOC’ refers documents that were used
for analysis; while ‘OB-R’ means the researchers’
observations.
a
The interviews were conducted in English as the interviewees
are native English speakers.
5. Case studies of Chinese multinationals
5.1. BankCo – the role of organizational transformation in
SIHRM

BankCo is a Chinese commercial bank that re-entered into
Australia around 25 years ago.
Currently, BankCo has six subsidiaries in Sydney, Melbourne
and Perth (MNC1-DOC-8).
In their overseas operations, senior BankCo managers have an
express preference for a
transnational strategy to promote both global integration and
local responsiveness. For
instance, HQ1 claimed:
I think our current international business strategy is pretty much
transnational. In terms of
conducting international business in the banking industry, we
also want to be ‘The World’s
Local Bank’, like HSBC [Hong Kong and Shanghai Banking
Corporation], which is not only
our strategic orientation, but also an ideal way to balance global
integration and local
responsiveness. (Lines 62–64)
In pursuing this particular strategic orientation of their
international operations, the
company has experienced a significant organizational
transformation so as to compete
effectively. Senior executive HQ2 revealed that there is a
constant interplay between
organizational dynamics, for example structural context,
institutional conditionality and

even control flexibility, and the company’s international
strategies:
Before 2005, we adopted a branch banking system. Each branch
was a part of the head office,
acting as an agency of the head office, not a sub-bank or a
subsidiary. The relationship
between head office and branches is not like that between
headquarters and subsidiaries in a
commercial sense. Under the branch banking system, the capital
of local branch came from
the head office, the local benefits and operating risks belonged
to the head office.
In 2005, the head office launched to establish localized
subsidiaries worldwide. Initially, as a
trial, we set up a subsidiary in Hong Kong (HK) and listed it on
the HK stock market. From a
capital management perspective, once our headquarters invested
in the HK company, the
subsidiary would take their own risk and losses. If the
subsidiary performs badly, then, like an
ulcer, we will cut it off. Under the branch banking system, if
the overseas branch had a
problem, the head office always took responsibility.
HQ2 emphasized that, in legal terms, the branch versus
subsidiary distinction was
fundamental for IHRM. The significance of organizational
transformation was echoed by a
director of an Australian subsidiary, who explained:
For instance, under the branch banking system, all required
capital for our foreign branches

came from the head office, which could enforce our integrated
capabilities. Under the current
system, subsidiaries’ capabilities in terms of the required
capital are more limited, so they are
not able to break some limitations (e.g. the minimum amount of
cash reserve) set by the host
countries. Any local decision in the host country will be made
by the subsidiary managers. For
example, assuming I am a senior executive in an Australian
subsidiary under the old branch
banking system, I should be authorized to manage the company;
but now I worked as a
director on the board and have no direct power to intervene in
the subsidiary business. So how
to reconcile the need to be globally integrated and locally
responsive has become an issue.
Under the branch system, we had always emphasized
integration, while under the
headquarter-subsidiary mechanism, we can be more local
responsive. (AS2, lines 4–32)
BankCo is among the top 20 banks in the world and provides
comprehensive financial
services to customers across 31 countries (MNC1-DOC-11).
However, according to HQ3,
AS1 and AS2, one major challenge under the old system for the
company’s overseas
operation is how to attract the best local bankers in the face of
its outdated performance
management and reward systems. For example, AS1 indicated:
The headquarters-subsidiary mechanism is more flexible. We

can quickly make judgements
regarding the change of local market conditions. The
mechanism can help foreign subsidiaries
532 D. Fan et al.
overcome some limitations, such as relatively poor
remuneration. Under the old branch banking
system, we had to adopt a unified salary standard, which meant
the salary level was
comparatively lower than that of our foreign competitors. We
couldn’t recruit and retain the best
bankers, or even administrative staff in overseas markets. Our
expatriates received low level of
wages as Chinese diplomats based on the home country
standard. If I find a similar job in local
large companies, my salary would be much higher. Now
overseas subsidiaries can decide their
own salary levels in accord with the host-country market, and
attract and hire qualified people.
This has enhanced local competitiveness and responsiveness.
(Lines 49–61, 65)
The case of BankCo illustrates how the organizational
transformation, for example structural
mechanism and control flexibility, has impacted on the firms’
overseas operations through
motivating current staff and attracting new employees to build
up human capital. Tichy,
Fombrun, and Devanna (1982) propose a matching model, which
highlights the resource

aspect of HRM strategies and emphasizes a bidirectional fit
between organizational strategy,
structure and HRM system. The BankCo case has not only
indicated the implications of the
influential matching model in the Chinese MNCs’ SIHRM
consideration, but also revealed
the important role of organizational transformation for SIHRM.
For Chinese state-owned
companies, they do not lack strategic goals, energy and courage
of conducting personnel
reform, but they do lack HRM mechanisms to fully develop
employees’ potential. Without
building an IHRM strategy, it is difficult to overcome their
weakness (e.g. lack of
international experience). For competing with giant global bank
groups, the BankCo’s
SIHRM should be considered to match their four main
benchmarks, namely the
organizational structure, business plans, performance evaluation
and resource allocation
(MNC1-DOC-18).
5.2. ChemCo – reliance on learning and host-country nationals
(HCNs)

ChemCo, a large state-owned company headquartered in
Beijing, currently operates in six
sectors of the chemical industry (MNC2-DOC-2). In 2006,
ChemCo successfully merged
with ‘the cornerstone of Australia’s plastics industry’, which
owns 70% of the Australian
plastics market. Financially, ChemCo’s Australian project is
successful because its initial
investment was fully returned within two years and the
economic value of its Australian
subsidiary increased six times after the merger (MNC2-OB-R-1;
also MNC2-DOC-6, HQ4).
All ChemCo executives interviewed (e.g. HQ4, HQ5 and AS3)
considered that a
multi-domestic strategy best describes the corporation’s current
strategic orientation.
Through the successful acquisition of a monopoly in Australia’s
plastic manufacturing
industry, ChemCo has built a strong local presence. In contrast
to BankCo and MinCo, the
ChemCo HQ empowered local managers, decentralized
managerial roles and offered
Australian managers flexibility to the greatest extent. The
managerial belief held by senior

HQ executives was a ‘wu wei (active non-action)’ (HQ4 and
MNC2-DOC-9). Australian
executive AS3’s explanation amplifies this point:
Our international business strategy is multi-domestic. The
Beijing office sticks to their
promise that an Australian company managed by Australians.
When I had business trips in
Beijing, I was often invited by the Chairman and other
managers in their family dinners or
parties, I felt trust from them. Actually it is a smart way since
we know best about our local
trade connections and the market as well. (Lines 127–132)
An internal evaluation report regarding the merger with the
Australian company states that
ChemCo can ‘indirectly and dexterously utilize Australia’s
upstream oil and gas
supporting resources’ (MNC2-DOC-11). If ChemCo wants to
construct a domestic
ethylene project in China, the company needs to have at least 5
million tons of refined oil
and 150 million tons of naphtha. Given the higher investment
costs of matching raw
material, a similar project would not easily get approved by the
Chinese government

(MNC2-DOC-6). This analysis illustrates how ChemCo
identified and exploited local
opportunities. This strategy is consistent with Bartlett and
Ghoshal’s (1989/1998)
description of the role of overseas operations in adoption of a
multi-domestic strategy. The
essence of this IBS is mainly to facilitate local responsiveness
and localize its operations in
host countries at the expense of global integration.
Apart from IBS consideration, the top management belief has
reflected on their
SIHRM in foreign operation. For example, senior executive
HQ5 pointed out:
Two of our managerial philosophies are particularly relevant to
your topic [SIHRM]. They are
‘cooperative and collective management’ and ‘wu wei (active
non-action)’. We emphasize
staff cooperation in all subsidiaries, no matter where they are.
We have merged and acquired
many companies in the last 10 years. We told acquiree managers
that the most important thing
is not to think who the boss is. We must cooperate closely then
all stakeholders can share the
benefit. Once we cooperate (with foreign managers in acquired
subsidiaries), we become a
strong enterprise. Lao Tzu’s wu wei principle is also part of our
corporation culture. The point
is we let managers in overseas subsidiaries decide how they can

achieve the best results. We
offer autonomy to the subsidiary CEOs. (Lines 51–63)
These managerial beliefs can be found in written evidence from
the official strategic
document in ChemCo (e.g. MNC2-DOC-9). The interview data
illustrate the company’s
emphasis on linking IHRM with the implementation of
internationalization strategy, as
explained by HQ4:
To implement our internationalization strategy, firstly we need
to take care of overseas
employees, especially these executives’ feelings and emotions
about the acquisition. We do
our best to retain all local senior managers. We don’t change
human resource policy in our
subsidiaries; rather, we attempt to become a learning
organization. We send some expatriates
to the acquired business, but ask them to learn from foreign
colleagues’ experience, rather
than to teach local managers how to operate business. We give
our foreign managers enough
time to demonstrate their performance, although not once in the
past two years has their
performance disappointed us. (Lines 71–80)
Australian subsidiary-level executive AS5 explained well the
importance of reliance on
HCNs:
We are still pretty much an Australian company in terms of

people and markets [The firm was
wholly acquired by ChemCo several years ago]. Since our local
employees can respond
efficiently to domestic customers, we provide promotion
opportunities to local employees,
and reward them. Our HRM policies, in my view, have not
changed much after the
acquisition. Take myself as an example, I took managerial roles
for many foreign companies,
but at ChemCo, I feel I am managing this company. (Lines 112–
114, 110–126)
This case indicates ChemCo’s approach to managing
international HRs, including
promoting autonomy, building a trust relationship with foreign
executives, valuing HRs,
enhancing knowledge transfer back from foreign affiliates to
domestic subsidiaries and
facilitating cultural integration. This approach has become a
model by many Chinese
MNCs. The core idea of this SIHRM model is to learn by
participating while relying on
local executives operating the businesses.
5.3. MinCo – reconciling both home and host-country effects
and promoting ‘best
practice’
MinCo was established as a joint stock limited company and
listed on the New York Stock

and Hong Kong Stock exchanges in the early 2000s. It is a
leading metals and mining
companies in China. MinCo owns 49 subsidiaries with Standard
& Poor’s ‘BBB þ ’ rating
534 D. Fan et al.
(MNC3-DOC-2). It has passed the accreditation of ISO 9000,
ISO 14000 and OHSAS
18001 Standard Implementation, suggesting the company lays
stress on quality control
and standardization (MNC3-OB-R-1). MinCo entered the
Australian market through a
wholly owned subsidiary (MNC3-DOC-3). The current project
in northern Australia
involves a mine and a refinery plant, and the firm is seeking
other investment opportunities
in Australia (MNC3-OB-R-2).
MinCo’s motivation to expand their business overseas is an
explicit resource-seeking
strategy as explained by HQ6:
MinCo wants to ensure the long-term supply of mineral
resources from Australia. There is a
serious shortage of supply from our domestic market. Many
processing companies in China

do not have sufficient raw materials to process. The market
demand for the resources in China
will be huge for a long-term. (Lines 15–17)
This HQ-level international business strategy is in line with
Bartlett and Ghoshal’s
(1989/1998) international strategy – ‘low global integration and
low local responsive-
ness’. The reason for investing in Australia was partly because
of the similarity of mine
ores in Australia and in China, and the advanced refinery
technology owned by MinCo to
process this type of ore. Thus, MinCo’s Australian affiliate can
adapt and leverage the
parent company’s competencies, such as the processing
technology. The international
strategy – to exploit the parent company’s knowledge and
capabilities through worldwide
diffusion (c.f., Bartlett and Ghoshal 1989/1998) – is reflected in
the Australian
subsidiary’s operations.
The Australian subsidiary executives view IHRM as a major
challenge to their
investment goals. This is reflected in the explanation from AS7:
IHRM is a major challenge for our Australian operations.

MinCo has expertise in technologies
and has no problems in terms of finance and equipment. The key
for success is not technology
or finance but people. HRM policies and practices in our
Australian subsidiaries should fit
with the Australian environment which is very different from
China, and should fit with
MinCo’s strategic needs. (Lines 31–35)
In addition, Australian CEO AS6 argued that cultural distance
and conflicts are major
issues for Chinese expatriates working with Australian
colleagues:
. . . the culture gap is a big issue for Chinese companies to
become an Australian entity or
enter into the Australian market because they don’t understand
such a gap yet. (Lines 248–
250)
In order to deal with IHRM difficulties, the IHRM strategic
consideration has become
important. When asking MinCo’s SIHRM consideration,
centralization appears to be
the current strategy in selecting managers. As HQ7 (the HRD at
headquarter level)
explained:
The senior level positions are usually appointed through the
policy of ‘promoting within’ and
the HQ usually consults the executive about deputies. The HQs
of MinCo control the

appointment of senior positions in the Australian subsidiaries.
But, decentralization is more
likely in future. At this stage, our company is searching for the
appropriate HRM policies. We
expect to develop our own managerial skills by sending our
expatriates although we use many
local residents to fill in senior positions. (Lines 95–102)
However, it is clear that company HQ has a commitment to
integration as HQ7 further
stated:
At employee level, we want Australian subsidiary to adopt a
HRM system that is the same as
Australian companies or other MNCs operating in Australia. In
fact we would like our
subsidiaries to adopt local ‘best practice’ HRM. (Lines 47–49,
82–87, 120–126)
When discussing specific IHRM policies that MinCo plans to
implement in overseas
subsidiaries, it can be found that two features, such as
‘reconciling both home and host
country effects’ and ‘promoting best practice’, are embedded in
their SIHRM mindset. For
example, HQ8 argued that:
We do pursue good employee practices to secure both workers’

efficiency and employee
loyalty. We hope these good values can be transferred to our
overseas subsidiaries. (Lines
201–203)
HQ7 echoed:
We do not want people to believe Chinese labour standards are
lower than those of Western
countries. We want to adopt an HRM system that has at least the
following characteristics:
high productivity; harmonious labour relations; abiding by host
country regulations,
respecting local cultures; having positive effects on the local
community; learning from local
firms and host managers; and transferring knowledge back to
headquarters. (Lines 51–62)
Manager AS8 concurred that MinCO intended to have a long-
term operation in Australia:
A long-term operation needs harmonious relations with local
communities and consistent
supply of qualified employees. Accordingly, HRM needs to be
of high standard, particularly
in remuneration and training. MinCo will not only use, but also
develop, local employees.
Given the short supply of skilled workers in this sector, we have
to be competitive in HRM
policies to attract workers. The home HRM policies and
practices that are regarded as being
effective, such as cost-based performance appraisal will
influence the HRM policies of our
Australian subsidiary. (Lines 162–177)
The MinCo case provides an example of a Chinese MNC making

an effort to transfer
effective HRM practices used at home to their host-country
subsidiaries, though some
practices are also common ones in the host country. These
include (a) ensuring high
efficiency, monitoring and management training and
development, (b) employee corporate
citizenship and understanding of organizational culture and (c)
equal opportunities in
recruitment and selection of talented people.
6. Discussion
6.1. Case summaries
This study aims to address the characteristics of the SIHRM of
Chinese MNCs, and how
Chinese MNCs’ IHRM strategies facilitate their investment and
operation overseas. It is
evident that Chinese MNEs link their people management to
their international business
strategy mindsets, that is on how the firm reconciles the need to
be both globally integrated
and locally responsive. Anchoring SIHRM in the strategic
components of Chinese MNCs
(e.g. their IBS consideration and international operations),

strategic aspects of Chinese
MNCs’ IHRM are explored. The three case studies altogether
demonstrate the four
endogenous factors identified by Schuler, Dowling, and De
Cieri (1993) in their SIHRM
framework, namely the structure issue of an MNC, the MNC’s
internationalization
orientation, its competitive strategy being adopted and the
MNC’s international
experience in managing international operations. A brief
summary of key findings is
presented below (see Table 3).
Although each Chinese MNC has its unique internationalization
process, and different
approaches to recruit and manage international HRs, it was
found that some patterns of
Chinese MNCs’ SIHRM can be grounded from the three case
firms within the consistent
institutional environment (e.g. the same type of ownership, the
same type of entry mode
and identical home and host countries for each case MNC). For
example, BankCo’s
SIHRM is to reform its organization structure and HRM
mechanisms so that they can

536 D. Fan et al.
attract capable bankers in host countries. Child and Smith
(1987, 570) argue that when the
need to act under some emerging ‘objective conditions’ appears,
organizational
transformation is then triggered. When Chinese firms expand
their businesses to overseas,
their previous organizational controlling mechanism is a
constraint. The findings from
BankCo are in line with the findings of Yiu, Lau, and Bruton
(2007), who argue that the
organization transformation process is necessary to turn MNCs
of emerging economies
into competitive players in the global market. Jing and
McDermott (2012) call for more
studies to detail the transformation process of Chinese state-
owned enterprises (SOEs),
because the organization transformation is one of the most
significant phenomena in the
Chinese modern management world along with Chinese
economic reforms in the past 30
years.

Lao Tzu’s wu wei (active non-action) thought is captured in
ChemCo. Tsui et al. (2004,
17) term the wu wei thought as the ‘invisible leadership’. They
argue that the invisible
leader might ‘be more desirable or appropriate’ in ‘professional
organizations with a
highly educated workforce involving strong professional
norms’, because these types of
leaders would be able to delegate and empower rather than
direct and control. ChemCo
adopts this Chinese traditional managerial philosophy and
heavily relies on HCNs, and
transfer the company into a learning organization. This SIHRM
approach facilitates their
multi-domestic strategy to enhance the degree of local
responsiveness. This strategy also
echoes Gong’s (2003) empirical finding – MNCs’ longer
presence in a host country
requires the development of trust relationships with HCNs, and
thus a reduced need to
deploy parent-country nationals (PCNs). Although the choice
between HCNs and PCNs
are depending on a number of factors, such as the cultural
distance between the home and

host countries, industrial setting and subsidiary characteristics
(Harzing 2001), the
findings from Chem Co. reveal the Chinese multinationals’
current constraints, that is,
international human resource deficiency. China lacks personnel
who possess international
management skills, sufficient knowledge about market
conditions of host countries and a
good understanding of the intricacies of international business
(Fornes and Butt-Philip
2011). The ChemCo case demonstrates how Chinese MNCs can
overcome their HR
constraints through ‘invisible leadership’.
MinCo is an example of how to reconcile the home country
effects and host country
effects to promote HRM best practice in Australian affiliates.
Gooderham and Nordhaug
(2003) argue that best practices are those with which the MNC
is most familiar, or those
that appear to generate higher performance, regardless of the
subsidiaries’ location.
Table 3. A brief summary of key findings.
Chinese MNCs Ownership Host country IBS SIHRM

BankCo. State-owned Australia Transnational Organizational
transformation
(e.g. structural mechanism and
control flexibility)
Transforming HRM mechanisms to
overcome its lack of international
experience
ChemCo. Multi-domestic Lao Tzu’s Wu Wei principle
(active non-action);
Reliance on learning and HCNs.
MinCo. International Reconciling both home and host
country effects;
Promoting ‘Best Practice’.
Similarly, Brewster and Mayrhofer (2011, 53) contend that ‘in
most companies and in
most circumstances, it appears that best practice is the one used
in the headquarters
country’. The MinCo’s finding illustrates that these arguments
may not be valid for MNCs
from emerging markets operating in advanced economies. The
top management team
(TMT) of MinCo did not transpose their proven ‘effective’

home-country HRM practices
to their Australian subsidiary; rather, they have attempted to
integrate local nationals into
the mainstream of management in the foreign subsidiaries. It is
possible that this
management strategy is a result of MinCo’s limited
international experience and its
learning status as an emerging market MNC.
6.2. Implications for theory and practice
MNCs from emerging economies have been catching the
attention of the business world as
well as the academic community. There is, however, little
research on the SHIRM of Chinese
MNCs to unveil how Chinese MNCs link their people
management to their IBS, and how this
has influenced the firms’ overseas behaviour (cf. Cooke 2009;
Warner and Nankervis 2012;
Zhu, Thomson, and De Cieri 2008). This study is an effort to
address these research gaps.
This research has significant theoretical implications. First, it is
one of the pioneer
studies to examine Chinese MNCs from the perspective of
SHIRM and answers two future

research questions in Zhu, Thomson, and De Cieri (2008, 144) –
‘How does outward FDI
affect the integration of strategic HRM into Chinese MNCs?’
and ‘What is the role of
HRM and strategic HRM in outward FDI in Chinese firms?’
Second, through providing
new empirical data, this research reveals how Chinese
companies treat outward
investment as a learning process to gain and maintain
competitive and as an opportunity to
reform their outdated mechanisms, which also responds Cooke’s
(2009) call for future
research on Chinese MNC managing their subsidiaries as
learning channels. This furthers
our theoretical and empirical understanding of the behaviours of
Chinese companies.
Third, this study has made an advance on the methodology
associated with China-based
SIHRM research. Kim, Wright, and Su (2010) recommend that
further SHRM research
should improve its methodological rigour, noting that most
China-based SHRM studies
collected HR systems information through a single respondent.
Accordingly, this study

targeted senior managers for their strategic know-how, and
introduced the ‘cross-level’
unit of analysis, including both the HQs and MNC subsidiaries,
and valid findings at the
two data collection waves over a four-year period. The cross-
level interviews with
referring to multi-source data (e.g. archive and observation)
enhance the validation of the
findings and also test the extent to which subsidiary-level
executives understand the
mindset of the senior managers at the company’s headquarters.
The findings have significant implications for Chinese MNCs
and HRM practitioners. To
successfully implement its international business strategy, the
HR manager of an MNC must
understand the competing concepts of global integration and
local responsiveness in its
expansion plans. In addition, the HR manager of HQs should
liaise with expatriates and the
management team in their subsidiaries to ensure that the
international expansion programmes
areimplementedasdesiredbytheTMT.Insimpleterms,astrategicinte
rnationalHRmanager
should run all errands regarding the transfer of resources and

labour from the home country to
the host country, or vice versa (De Cieri and Dowling 1999). By
means of ensuring a smooth
transition of leadership and the distribution of the HRs in all
subsidiaries allied to the MNC,
HR managers are responsible for maintaining HR ‘best practice’
within the organization,
hiring new employees while still promoting good working
conditions for all the employees
working for the MNC in their different business units.
538 D. Fan et al.
6.3. Limitations
It should be noted that this three-case qualitative research does
not aim to generalize
findings, but to obtain a better understanding of the IHRM
strategy of Chinese MNCs.
The extent to which these findings are generalizable and the
extent to which these SIHRM
approaches can improve Chinese MNCs’ operating performance
overseas are subject to
validation from further research by using larger samples of
Chinese MNCs or emerging

market MNCs.
The main limitations of this contextualizing study are the
unitary of entry mode
strategy and ownership among the three Chinese MNCs. All
subsidiaries in the study are
WOS and all case Chinese MNCs are large sized and state
owned, though the
overwhelming majority of Chinese MNCs are SOEs. Although
this particular research
design was to minimize the impact of various forms of
institutional environment, future
research can explore the SIHRM in private-owned MNEs and
joint-venture enterprises. In
addition, this study lacks subsidiary-level performance analysis,
which is important to
indicate how MNCs’ IHRM strategies effectively lead to
positive outcomes. Future study
could investigate the linkage between Chinese MNCs’ SIHRM
and their organizational
performance.
7. Conclusions
As a major source of outward investment among emerging
economies, Chinese MNCs

provide an ideal opportunity to study the patterns of their
behaviour, whether their behaviours
are different from those of their counterparts of developed
countries. Such studies have
significant theoretical and practical implications for
international business. Since the research
on Chinese MNCs is still in its early stages, much work is
required to obtain a better
understanding of Chinese MNCs and their SIHRM with
‘Chinese characteristics’.
Acknowledgements
We thank Associate Professor Paul S. Hempel (City University
of Hong Kong), Professor Anne S.
Tsui (Arizona State University), two co-editors of APBR and
reviewers for their insightful
comments on early versions.
Note
1. This policy was released at the 16th Chinese Communist
Party (CCP) National Delegate
Congress – the fourth meeting in Beijing during 16–19
September 2004.
Notes on contributors
Di Fan (PhD Monash, CPA) is a senior lecturer in strategy and
process management at Deakin
University. His current research interest includes International

Business Strategies, Strategic Human
Resource Management and Chinese Management.
Mike Mingqiong Zhang (PhD, Monash University; PhD, Nanjing
University) is a lecturer in human
resource management in La Trobe Business School, La Trobe
University, Melbourne.
Cherrie Jiuhua Zhu (PhD, Tasmania University) is a professor
of human resource management
(HRM) and Chinese studies in the Department of Management,
Faculty of Business and Economics,
Monash University (Clayton Campus).
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