Final draft

RELOCATING KNOWLDGE
IN CHINA:
OVERCOMING DIFFICULTIES
IN THE TRANSFER
A Case Study Approach
Stockholm Executive MBA 2005
Authors: Unai Diego Amundarain
Irati Diez Olazabal
Supervisor: Pr. Christian Maravelias

Relocating Knowledge in China
SUMMARY
China has been the focus for companies and multinational for their investments in the
last years. It has become the most important growing economy and a subject of research
for economic agents and investigators. Much has been discussed and studied about
making business in China, but as the possibilities of this market are huge, so are the
different topics that could be argued about. This paper refers to one of those concrete
themes: Foreign companies relocating knowledge in China and analyzes the difficulties
that companies deal when trying to insert knowledge into a Chinese context; giving
some guidelines in order to overcome possible barriers.
The decision to move to China is almost always enhanced by cost reduction or market
quota expansion. However some hidden factors that could affect on the companies
suitable performance are not taking into account in the relocation analysis process.
Problems arise once the settled company observes a double barrier in its way to do
business in China: on one hand, the difficulty of relocating its own procedures from the
source and on the other hand, dealing with people who have totally different cultural
background.
The theories analyzed refer to the difficulties of transferring routines attached to sticky
characteristics, and the distinctiveness of the Chinese context, mainly focused on
personal relations and related to cultural incompatibilities.
On the empirical part, the data collected from the interviewed companies confirm the
theories analyzed. But further contributions are achieved from the information obtained
of two successful companies in China.
In the analysis and conclusion some issues are discussed, and parameters to develop a
suitable adaptation practice are illustrated based on the whole research process.

AKNOWLEDGEMENTS
First of all, we will like to thank all people who have helped us through our research
project. We particularly thank Professor Christian Maravelias from Stockholm
University, for his guidance, support and constructive feed-back.
We are grateful to have Mr. Laurent Sié’s (ESC Pau MBA Manager) assistance from
the beginning until the end of our thesis. We thank him for being one of the key players
that has given us the opportunity to develop the empirical part in China. Helping and
empowering us to take advantage of this opportunity.
We sincerely and deeply thank Mr. Eric Tarchoune (General Manager of Dragonfly
Group and Vice-president of the French Chamber of Commerce in China) first for
giving us the opportunity to perform our thesis in China, and second, for his hospitality,
amiability and his generosity during our stay in Shanghai.
In addition we present our gratitude to the people of PREMO and TUBACEX, the
companies that we had the pleasure to contact with, for their time and disposition
provided. We would like to give them our best wishes in all their business careers.
A special thank to our families for making our stay in China a reality, and for their
continuous support and encourage.
Finally, we give our special thank to Iban Martin and Fernando Morales for their help,
friendship and patient demonstrated during this adventure, and for sharing with us this
unique experience.

INDEX
1. INTRODUCTION ................................................................................... 1
1.1. CONTEXT .................................................................................................... 1
1.2. PROBLEMATIC .......................................................................................... 2
1.3. AIM ................................................................................................................ 2
2. THEORIES ............................................................................................... 3
2.1. STICKINESS IN THE TRANSFER OF ROUTINES ............................... 3
2.1.1. Analyzing the difficulty of transferring practices within the firm ... 4
2.1.2. Overcoming Stickiness in the Transfer ............................................ 9
2.1.3. Limits to the Transfer to Other Contexts ......................................... 10
2.2. CHINESE CONTEXT................................................................................... 12
2.2.1. Implicitness and guanxi ................................................................... 12
2.2.2. Obstruction to relocate knowledge in China .................................... 14
3. METHODOLOGY ...................................................................................18
4. EMPIRICAL MATERIAL ......................................................................24
4.1. PREMO GROUP .......................................................................................... 24
4.1.1. Starting Up the Company in China ................................................ 25
4.1.2. Transfer of Routines ........................................................................ 27
4.1.3. The Personality of Premo Wuxi ....................................................... 28
4.1.4. Communication throughout the Company ....................................... 30
4.1.5. Confronting Difficulties ................................................................... 32
4.2. TUBACEX .................................................................................................... 33
4.2.1. Starting Up the Company in China ................................................ 33
4.2.2. Transfer of Routines ........................................................................ 34
4.2.3. Personality of Tubacex Shanghai .................................................... 35
4.2.4. Communication throughout the Delegation ..................................... 36
4.2.5. Confronting Difficulties .................................................................. 37

5. ANALYSIS ................................................................................................38
5.1. THEME 1: STICKINESS IN THE TRANSFER OF ROUTINES .......... 38
5.1.1. Analyzing the Difficulty of Transferring Practices within the Firm.. 38
5.1.2. Overcoming Stickiness in the Transfer ............................................ 41
5.2. THEME 2: CHINESE CONTEXT IMPLICITNESS ................................ 43
5.2.1. Implicitness and guanxi ................................................................... 43
5.2.2. Obstruction to relocate knowledge in China ................................... 44
6. CONCLUSIONS ....................................................................................... 50
7. ASSESSING THE RESULTS ................................................................. 55
8. DIRECTIONS FOR FURTHER RESEARCH ..................................... 56
REFERENCE
APPENDIX
PREMO INFORMATION
TUBACEX INFORMATION
COMMUNICATION CHANNEL
QUESTIONNAIRE
INTERVIEWS
TRANSCRIPTS

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1. INTRODUCTION
1.1. CONTEXT
The new era of globalization has been the axis for some countries to have an economic
emerging chance. China has been the focus for organizations all around the world, being
a potential market for foreign investments. The main opportunities for enterprises reside
on; the possibilities of acquiring a bigger market share in an economical emerging
country, the low labour cost in an increasing business oriented workforce and, being on
the nucleus of a future economical groove.
The huge flows of foreign investment capital into the Chinese economy since the early
1980s have been accompanied by the parallel flow of knowledge into the country.
Knowledge Management (KM) in China is distinctive, constrained somewhat by
technological limitations, but influenced more significantly by psychological factors
(such us cultural values) among groups and social levels (Burrows, Drummond and
Martinsons, 2005). Consistent with their cultural traditions, the Chinese favour informal
and implicit forms of communication, preferring to transfer knowledge through
interpersonal contact rather than through formal and-or written means (Martinsons and
Westwood, 1997).
These factors associated to the Chinese culture don’t difficult the entrance of foreign
companies, but the management and processes in day to day operations. The
competency and survival is affected in the long run if the company doesn’t confront
these different characteristics. When the objective of foreign enterprises resides on
replicating knowledge from the “main plant” to the Chinese subsidiary, both
organizations need to implement managerial processes to transfer and receive
knowledge (Teece, Pisano and Shuen, 1997, Eisenhardt and Martin 2000, Winter 2000).
These managerial processes are part of organizational routines, a set of possible

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performances for a particular task (Pentland and Reuter, 1994) which contribute to
organizational stability (Cyert and March, 1963, Nelson and Winter, 1982). Routines
may be thought of as both “effortful accomplishment”, such as systems and procedures,
and “automatic responses”, such as taking for granted methods of organizing or problem
solving (Pentland and Reuter, 1994).
1.2. PROBLEMATIC
Because routines are idiosyncratic to particular companies, they are therefore sometimes
impossible, and almost always difficult, to copy. They tend to be inherently “sticky”,
this means they are difficult to acquire and difficult to change (Tranfield, Duberley,
Smith, Musson and Stokes, 2000).
Moreover, when this flow of sticky knowledge is transferred to the Chinese context, it is
constraint by some psychological factors (such us cultural values in China) that impede
this knowledge to be managed (Burrows, Drummond and Martinsons, 2005).
How can foreign companies overcome difficulties in the transference, and relocate this
knowledge in a context constrained by cultural values?
1.3. AIM
The aim of this thesis project is to reveal the factors that companies need to take into
account when transferring routines to a Chinese context, and to give guidelines to
facilitate the relocation process.

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2. THEORIES
The theoretical part lumps together academic material about the two research subjects;
first one related to the complexity of relocating knowledge into other context, and
second one, related to the difficulty of implementing this knowledge into the Chinese
working environment.
Firms accumulate a collective understanding about the execution of organizational
tasks, which is tacitly (i.e., without explicit articulation or codification) updated and
refined to achieve continuous marginal improvements in performance (Zollo, Reuer,
and Singh, 2002). It is important to consider also the knowledge held by the actors
involved in carrying out the routine (Hayek, 1945; Minkler, 1993).
2.1. STICKINESS IN THE TRANSFER OF ROUTINES
The ability to transfer best practices internally is critical to a firm’s ability to build
competitive advantage through the appropriation of rents from scarce internal
knowledge. Like a firm’s distinctive competences may be difficult for other firms to
imitate, its best practices could be difficult to imitate internally (Szulanski, 1996).
The word transfer is used rather than diffusion to emphasize that the movement of
knowledge within the organization is a distinct experience, not a gradual process of
dissemination, and depends on the characteristics of everyone involved. Transfers of
best practices are thus seen as dyadic exchange or organizational knowledge between a
source and a recipient unit in which the identity of the recipient matters, moreover the
cognitive abilities of both the source of knowledge (Foss and Pedersen, 2002) and the
recipient (Gupta and Govindarajan, 2000; Tsai, 2001) are key factors.

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2.1.1. Analyzing the difficulty of transferring practices within the firm
The notion of internal stickiness connotes the difficulty of transferring knowledge
within the organization. The point of departure for the analysis of internal stickiness is
Arrow’s (1969) classificatory notes on the transmission of technical knowledge. Arrow
observed that the capacity of a social conduit of knowledge is inherently constrained
and hence social conduits are costly to use. Referring to Arrow, Teece (1976) argued
that the ease or difficulty to transferring technical knowledge is reflected in the cost of a
transfer. More recently, von Hippel (1994) introduced the notion of “sticky
information” to describe information that is difficult to transfer, stickiness being
reflected in the incremental cost of transferring the information.
Cost and eventfulness
Cost could be a poor descriptor of difficulty, however. First, deciding exactly which
portion of the cost of a transfer actually reflects difficulty – the increment- is a matter of
conjecture without a base case – the cost of the same transfer without such difficulty.
Second, cost might fail to discriminate between problems that are equally costly but
qualitatively very different. Some problems are resolved routinely or by prespecified
contingency plans with relatively little effort from all but the most directly involved
participants (Szulanski, 1996).
Therefore, transfers that involve the most nonroutine problems will be perceived as the
most difficult, other things being equal. This suggests that the notion of eventfulness,
the extent to which problematic situations experienced during a transfer are worthy of
remark, is conceptually related to the notion of difficulty (Szulanski, 1996).
Eventfulness could be translated into an outcome-based descriptor of stickiness. If an
organization has effective routines to handle all aspects of a knowledge transfer, it
should be able to specify milestones, budgets, and expectations for the transfer process
rather accurately. To the extent that the transfer turns out to be sticky, requiring ad-hoc

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solutions, some of those milestones are likely to be missed, budgeted cost will be
exceeded, and some of the participants’ expectations about the transfer will not be fully
met (Szulanski, 1996).
Combining the notion of eventfulness with the Szulanki’s (1996) stages model (Fig 1)
provides four different descriptors of stickiness, one for each stage of the transfer. The
process model suggests that the problems encountered as the transfer unfolds will vary
according to the stage of the transfer.
During the initiation stage, problems will stem from efforts to identify needs, identify
knowledge that meets those needs, and assess the feasibility of the transfer. During the
implementation stage, problems will reflect efforts to bridge the communication gap
between the source and the recipient or to adapt the practice to the recipient’s needs.
During the ram-up stage, problems will reflect the struggle to achieve satisfactory
performance. Finally, during the integration stage, problems will reflect efforts to
achieve and preserve routine use of the new knowledge in the recipient. The more these
problems require participants to develop ad hoc solutions- that is, the more remarkable
the problems are- the higher will be perceived eventfulness of the transfer.
ORGANIZATIONAL ROUTINES
T
R
A
N
S
F
E
R
Initiation
Integration
Implementation
Ramp-up
INTERORGANIZATIONAL ROUTINES
Figure 1

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Origins of internal stickiness
Research suggests that four sets of factors are likely to influence the difficulty of
knowledge transfer: characteristics of the knowledge transferred, of the source, of the
recipient, and of the context in which the transfer takes place (Leonard-Barton, 1990;
Teece, 1976; Rogers, 1983).
a. Characteristics of the knowledge transferred
Causal ambiguity
Lippman and Rumelt (1982) argued that difficulty in the replication of a
capability is most likely to emanate from ambiguity about what the factors of
production are and how they interact during production. Key to their argument is
the motion of irreducible uncertainty. Polanyi (1962) suggested that the
undefinable portion of knowledge is embodied in highly tacit human skills.
Tacitness could also be a property of collectively held knowledge (Winter, 1987;
Kogut and Zander, 1992) and it is often singled out as a central attribute of
knowledge with respect to its transferability (Spender, 1993; Nonaka, 1994;
Grant, 1996).
Unproveness
Knowledge with a proven record of past usefulness is less difficult to transfer.
Without such a record, it is more difficult to induce potential recipients to
engage in the transfer (Rogers, 1983) and to legitimize controversial integration
efforts (Goodman, Bazerman, and Conlon, 1980; Nelson and Winter, 1982).

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b. Characteristics of the source of knowledge
Lack of motivation
A knowledge source may be reluctant to share crucial knowledge for fear of
losing ownership, a position of privilege, superiority; it may resent not being
adequately rewarded for sharing hard-won success; or it may be unwilling to
devote time and resources to support the transfer.
Not perceived as reliable
An expert and trustworthy source is more likely than others to influence the
behavior of a recipient (Perloff, 1993). When the source unit is not perceived as
reliable, is not seen as trustworthy or knowledgeable, initiating a transfer from
that source will be more difficult and its advice and example are likely to be
challenged and resisted (Walton, 1975)
c. Characteristics of the recipient of knowledge
Lack of motivation
The reluctance of some recipients to accept knowledge from the outside is well
documented (Hayes and Clark, 1985; Katz and Allen, 1982). Lack of motivation
may result in foot dragging, passivity, feigned acceptance, hidden sabotage, or
outright rejection in the implementation and use of new knowledge (Zaltman,
Duncan, and Holbeck, 1973).
Lack of absorptive capacity
Recipients might be unable to exploit outside sources of knowledge; that is, they
may lack absorptive capacity (Cohen and Levinthal, 1990). Such capacity is
largely a function of their pre-existing stock of knowledge (Dierickx and Cool,
1989) and it becomes manifest in their ability to value, assimilate and apply new
knowledge successfully to commercial ends.

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Lack of retentive capacity
A transfer of knowledge is effective only when the knowledge transferred is
retained (Glaser, Abelson and Garrison, 1983; Druckman and Bjork, 1991). The
ability of a recipient to institutionalize the utilization of new knowledge reflects
its retentive capacity. In the absence of such ability, initial difficulties during the
integration of received knowledge may become an excuse for discontinuing its
use and, when feasible, reverting to the previous status quo (Zaltman, Duncan,
and Holbeck, 1973).
d. Characteristics of the context
Barren organizational context
Intrafirm exchanges of knowledge are embedded in an organizational context,
the characteristics of which may affect their gestation and evolution. Like a
plant, a transfer that unfolds fully in one context may grow poorly in another or
stagnate in a third. An organizational context that hinders the gestation and
evolution of transfers is said to be sterile. Prior research shows that formal
structure and systems, sources of coordination and expertise, and behavior-
framing attributes of the organizational context affect the number of attempts to
transfer knowledge and the outcome of those attempts (Bower, 1970;
Burgelman, 1983; Goshal and Bartlett, 1994).
Arduous relationship
A transfer of knowledge, especially when the knowledge transferred has tacit
components, may require numerous individual exchanges (Nonaka, 1994). The
success of such exchanges depends to some extent on the ease of
communication (Arrow, 1974) and on the intimacy of the overall relationship
between the source unit and the recipient unit (Marsden, 1990). An arduous
(laborious and distant) relationship might create additional hardship in the
transfer.

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2.1.2. Overcoming Stickiness in the Transfer
The challenge of the firm leveraging knowledge assets is to replicate, or re-use spatially,
knowledge embedded in superior routines (Rivkin, 2000; Winter, 1995). The firm
possessing superior routines is supposedly in an advantageous position to copy its own
routines because it has full access to templates or working examples of those routines
(Rivkin, 2000; Winter, 1995). Access to those templates confers on the firm advantage
because in the process of copying the routines, problems that arise with the replica can
typically be resolved through closer scrutiny of the original template (Winter and
Szulanski, 2001). Thus, competitive advantage derived from the exploitation of
knowledge assets through the replication of routines derives from preferential access to
such templates during the process of knowledge re-use. The assumption in this line of
thinking is that the existence of a template within the focal firm automatically translates
into easier and more effective knowledge re-use (Szulanski and Jensen, 2004).
General rules and procedures have to be incompletely specified when transferred across
contexts, precisely because contexts are different. As a consequence, the application of
general rules to specific contexts always involves incomplete specification and missing
components (Reynaud, 1998). Interpretation and judgment skills are required for
completing general rules, such as, for example, to know what routines to perform when
(Nelson and Winter, 1982; Hill, Hwang and Kim, 1990). Furthermore, context matters
because it leads to routines that strongly differ in terms of power of replication, degree
of inertia and search potential (Cohendet and Llerena, 2003).
According to Houman (2003) the learning of routines by individual actors (recipients of
knowledge) and the ways in which the actors comply with the sets of corresponding
routines performed by other actors (sources of knowledge) may be enforced chiefly
through a mixture of two channels: (1) organizational training and incentives and (2)
peer-based relationships.

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Firstly, organizations may provide training and incentive structures designed to elicit a
specified pattern of behavior (Houman, 2003). According to this (functionalist)
viewpoint, the organization imposes ‘‘the routine’s order’’. As the ability to comply
with routine expectations serves as a target for measuring and controlling individual
performance, individual members have to learn the system of coordinated messages and
add these fragments of knowledge to their existing repertoire of skills. Individuals
perform a small fragment of the routines that in combination constitute the assembly
line leading to the production of the desired outcome.
Secondly, peer relationships formed laterally between individuals provide a mechanism
for learning compliance with the ruling procedures for coordination (Weick, 1979). A
mutual equivalence structure by which team performance relies on reciprocal and
mutual adjustment of behavior is a second channel for enforcing and preserving
collective routines. This pattern of self-organizing routines is found in organizations
that rely strongly on the skills of individual craftsmen and professionals, where patterns
for engaging in productive routines may be shared among a collective of craftsmen
organized in a specific socio-economic context (Granovetter 1992; Kristensen 1999).
Vocational training and craft apprenticeships are commonly referred to in this way. In
terms of social ordering, actors construct their actions individually and relate them to
the existing web of interrelations, understanding that the system consists of their own
and others’ interconnected actions (Weick and Roberts 1993).
2.1.3. Limits to the Transfer to Other Contexts
Limits to the transfer of routines to other contexts are the most important implication of
specificity. The nature of the transferred knowledge is often addressed as an important
limit (von Hippel, 1994). For instance, the more tacit and complex, the more difficult it
becomes to accomplish transfer (Simonin, 1999; Argote, Ingram, Levine and Morelan,
2000; McEvily and Chakravarthy, 2002). Besides, the articulation of knowledge is
necessary in order to be able to transfer it. Articulation requires simplification, which

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means that finer aspects of the knowledge might have to be removed or be
unintentionally lost (Boisot, Griffiths and Moles, 1997).
When removed from their original context, routines may be largely meaningless (Elam,
1993), and their productivity may decline (Grant, 1991) giving rise to serious
suboptimality and hampering performance when they are automatically transferred onto
inappropriate situations (Cohen and Bacdayan, 1994). Problems with transferability
arise because it may not be clear what is essential about the routines and what is
peripheral (Lippman and Rumelt, 1982; Nelson, 1994; Winter and Szulanski, 2001;
Szulanski and Winter, 2002); because the routine might be incompatible with the new
context (Madhok, 1997); or because it might prove impossible to copy some elements
of the routine due to problems in transferring tacit knowledge (Hill, Hwang and Kim,
1990; Grant, 1991; Langlois and Robertson, 1995; Nonaka and Takeuchi, 1995). When
the experience is transferred to appropriate situations, routines benefit the organization.
They not only provide a major determinant of the nature of short-run organizational
responses to familiar and unfamiliar environmental stimuli, but they do so efficiently by
decreasing the effort spent on decision making and implementation (Stinchcombe 1990,
March and Simon 1958).
An important consequence of limits to the transferability of routines across different
contexts is that no such thing as a universal best practice can possibly exist (Amit and
Belcourt, 1999). There can only be local ‘best’ solutions. An implication of this
argument is that the possibility of replicating routines inside the firm is improved, at
least to the extent that firms provide somewhat homogenous environments (Hodgson,
1988; Hill, Hwang and Kim, 1990; Kogut and Zander, 1992).

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2.2. CHINESE CONTEXT
As China slowly opens its economy to what the Chinese collectively perceive as the
"outside world", it finds itself vulnerable to the unavoidable influences and changes that
arrive with anything foreign and different. The more significant areas subjected to these
external influences are those of China's social ideology, political stance, business ethics
and management style (Pang, Roberts and Sutton, 1998).
Success may be less likely when transferring a corporate culture to a nation (per se
China) that few other countries can claim to understand. China has a strong national
culture, stemming from its history of a closed-door policy, which guarded the leakage of
information and restricted external influence of any kind, so that its people only know
one way of doing things - the Chinese way (Pang, Roberts and Sutton, 1998).
2.2.1. Implicitness and guanxi
Explicit knowledge is comparatively rare in China due to the strong cultural preference
for personal, social and economic relationships (Burrows, Drummond and Martinsons,
2005). Guanxi the Chinese term for “relationship”, plays an important part in how the
business and personal world operates in China (Tsang, 1998). The use of guani is the
most favored practice in China, whether in business or social life. Understanding and
accepting this fact can often ensure success, whereas not recognizing the potential of the
Chinese guanxi and not adapting operating systems to it, may court problems (Pang,
Roberts and Sutton, 1998).
The advantage of “relationship” is that brings with it certain privileges; better pricing,
preferred response times, reduced bureaucracy. The value of the collective comes into
play: who you are as individual is not nearly as important as who you are as part of an
organization, family, team, or community. Therefore, making good connections and
maintaining them will enhance personal, family and organizational status. Part of
making and maintaining good connections is giving and returning favors (Kaminsky,

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2005). What is special about guanxi in Chinese society is its important instrumental
value: guanxi embodies reciprocal obligations of the parties involved with respect to the
acquisition of resources. This instrumental use of guanxi arose and persisted in Chinese
society in terms of both cultural and structural factors (Tsang, 1998).
Therefore, knowledge throughout Chinese society is shared primarily with fellow in-
group members. But business innovation and coordination can be hindered by in-group
rivalries, as well as by the few opportunities (such as quality circles) and incentives
(such as suggestion bonuses) employees are offered to share their knowledge (Burrows,
Drummond and Martinsons, 2005). This reliance on interpersonal contact inhibits
codification and restricts information access much more than technological factors
(Martinsons, 2004).
Chinese decision making by corporate managers, as well as by government officials, is
comparatively implicit, relying on analogical and correlative thinking (Nisbett, 2003).
The Chinese tend to manage knowledge more informally and personally, potentially
limiting technological innovation and business performance. The prevalence of this tacit
knowledge, or how we do things, has frustrated the government’s effort to systemically
develop nationwide knowledge bases. Information systems designed to capture reusable
and transferable knowledge are also rare, as are data warehouses and intranets for
enabling widespread access to organization-specific knowledge. This narrow view of
available business and technological options tends to favor incremental rather than
groundbreaking innovation, and requires outsiders to read the tea leaves in order to
understand the thinking and tacit knowledge of those in power. This difficulty
interpreting messages and signals has impeded economic modernization and constrained
technological innovation in China. Consequently, despite increasingly widespread
application of IT across China, personal interaction remains the preferred form of
knowledge transfer (Burrows, Drummond and Martinsons, 2005).

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2.2.2. Obstruction to relocate knowledge in China
The organizational knowledge-use process (Choo, 1998) is constrained by Chinese
cultural factors (such as acceptance of status differences). The Chinese culture
"encourages complex hierarchically based interrelationships and interdependencies"
(Redding, 1980) and is "collective oriented" (Hofstede, 1980). This suggests that the
Chinese are a communal race, existing in groups whose social norms take precedence
over individual needs. The Chinese strongly support the idea of looking forward and
planning ahead rather than assuming a current consumption. This dimension can be
associated with the Chinese collectivist and distrusting nature, which views "outsiders",
namely foreign investors and expatriates, as short-term players who do not fit into their
long-term plans, and who are therefore not readily trusted or easily accepted (Pang,
Source: Choo, 1998
Making sense of the external environment
Scanning conducted by a few insiders and trusted advisors
Tendency toward groupthink
Difficult to interpret novel or foreign situations
Creating organizational knowledge to
- develop new capabilities
- design new products
- enhance existing offerings
- improve organizational processes
Restricted use of external sources
Prevalence of top-down information flows
Decision making
Analogical and correlative thinking encourages incremental innovation
CHARACTERISTICS TYPICAL OF CHINESE ORGANIZATIONS

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Senior managers tend to rely on trusted advisors to analyze and interpret the external
environment, limiting overall corporate sense-making while encouraging a groupthink
mentality that makes it difficult to comprehend novel of foreign situations. A focus on
selecting and socializing individual workers tends to be more effective in China,
whereas the development of a supportive company culture is more difficult due to the
strong respect for tradition in a hierarchical structure of Chinese society (Chow, Deng
and Ho, 2000).
The creation of new knowledge is hampered by senior managers restricting external
inputs and unidirectional (top-down) information flows within Chinese companies. At
the organizational level, substantial learning in China occurs through the observation
and benchmarking of competitors, but knowledge sharing among companies and
universities is weak due to a lack of both incentives and infrastructure. However, status-
based hierarchies in China restrict the kind of vertical transfer of knowledge. Chinese
managers rarely acquire or accept knowledge from their subordinates (Martinsons and
Westwood, 1997).
It is also commonly observed unidirectional flow of knowledge from foreign firms to
their Chinese partners, rarely the reverse. Knowledge transfer between partners in Sino-
Western joint ventures is also limited by competing interests, lack of trust, and large
cultural distances (Martinsons and Hempel, 1995).
Current literature (Hofstede, 1980, 1991; Kedia and Bhagat, 1988; Laurent, 1986;
Schneider and de Meyer, 1991; Sutton, 1995) maintains that when national and
organizational cultures come into conflict, the first is likely to override values in the
second. It further suggests that in China cultural differences restrict the degree of
transferability and the ability of management to operationalize certain management
practices; and to achieve cultural change successfully it is important to understand the
perceptions of the different groups within an organization (Pang, Roberts and Sutton,
1998).

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Consequently it seems that the Chinese are disinclined to accept corporate cultures that
do not reflect their own cultural norms. Therefore, it is proposed that the transference of
corporate culture into Chinese society should be a change (adaptation) process (Pang,
Trust is a valuable gift, and, for an "outsider" is the only real passport into Chinese
community. Prior to acceptance, an "outsider" can expect constant suspicion, resistance,
and endless probing. The Chinese will only listen to the reason of those they trust (Pang,
Interaction and communication are fundamental components of daily life. A mastery of
communication skills within the Chinese context will enable a quicker and smoother
integration into that society. The level of trust between individuals often dictates the
way they communicate. From observation, two diverse forms of communication exist
among the Chinese. Communication between "accepted" members of a group is free
and uninhibited, whereas communication in the presence of an "outsider" restricts the
freedom of expression (Pang, Roberts and Sutton, 1998).
The choice of words is important when communicating with a Chinese person, as
misinterpretation may lead to misunderstanding. Likewise, given the indirectness of
Chinese communication, one would be wise to "read between the lines" for double or
hidden meanings. Often, a seemingly harmless statement made by a Chinese person will
hide a message within the apparent message. Although the Chinese do not deliberately
hide the truth, they frequently do not offer it in a straightforward Western manner
(Pang, Roberts and Sutton, 1998).
An understanding of the Chinese characteristics, as values dictating behavior, is
essential to successful transference of corporate culture, whereas a lack of
understanding is a significant barrier when doing business in China (Pang, Roberts and
Sutton, 1998).

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Theoretical Part Summary
As a summary of the theoretical part, academics confirm that the different stages of the
transfer of best practices depend on different characteristics that influence the difficulty
of knowledge transfer: characteristics of the knowledge transferred, of the source, of the
recipient, and of the context. There are some assumptions to overcome the stickiness of
these characteristics: the templates, general rules and procedures, training and incentive
structures and peer-relationships formed. However, limits when transferring knowledge
to other context emerge precisely because contexts are different.
The Chinese context influenced by its strong national culture it becomes vulnerable to
the unavoidable influences and changes that arrive with anything foreign and different.
Chinese cultural factors, as interpersonal relationships, status base hierarchies or
unidirectional flows of knowledge restrict vertical transfer of knowledge, and force the
transference of organizations to become an adaptation process.

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3. METHODOLOGY
Research Design
The master thesis was carried out at Stockholm’s University, as a case study with two
Spanish subsidiaries in China called PREMO Group and TUBACEX. We were full time
researches at ESC-Pau for the theoretical part of the case, and the empirical part was
developed in Shanghai collaborating directly with a team of contact people at the case
firms. The whole research was supervised by one instructing professor from
Stockholm’s University.
Qualitative Case Study Approach
The research approach in exploring the transfer of routines from two Spanish companies
to subsidiaries established in China was qualitative, and the selection was guided by
four primary factors (Creswell, 1994). First, a choice was made on studying
organizational routines from the symbolic -- interpretive perspective and through
employees organizational beliefs (see, Schultz (1994) for the empirical application of
functional vs. symbolic-interpretive perspectives). Second, the research purpose was
focused around an aim to increase understanding about the phenomenon in question as
is typical of qualitative studies (Creswell, 1994; Stake, 1995). Consequently, the
research questions became more of the "how" and "what" type than the "who" or "how
many" type. Third, our world view, prior experience and preferences as researchers
were and still are in favor of a qualitative, interpretive approach when studying the
transfer of organizational routines through different contexts. Fourth, the case
organization had its own wishes concerning research questions and methodology. The
company representatives hoped for a very open and in depth research approach,

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allowing ideas to emerge rather than being limited by existing models or predefined
topics of study.
Within the qualitative approach, there are several alternative research strategies, of
which an exploratory, holistic, single case study was selected (Creswell, 1994; Yin
2003). The choice was made based on several factors: the above-mentioned nature of
question setting; poor research available about the controversy between the stickiness of
routines and their possible transferability to Chinese context; expected cross-national
approach and the four month's scope reserved for data gathering; a unique or even
extreme case at hand (Yin, 1994; Miles and Huberman, 1994); and the primary interest
of looking at knowledge transactions among different units of the same organization
established in different countries. The choice of two different types of subsidiaries, one
a distribution network (TUBACEX) and the other one a production plant (PREMO
Group), was made in order to analyze the transfer of routines from different
perspectives.
Case Organization and Sample
To develop our empirical part of the research, we first contacted a person in Gipuzkoa’s
Chamber of Commerce in Spain, from whom we obtained several contacts in China.
One of them was the embassy of Spain in Shanghai, where we headed up once we
arrived there. We handled an interview with one of the representatives in this institution,
who helped us contacting with two companies, PREMO Group and TUBACEX.
Therefore, organizational routines, their transferability to Chinese context and the
stickiness of routines were examined in these companies mentioned above.

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PREMO Group and TUBACEX
Both companies have their origins in Spain but they operate and are currently well
known all over the globe. Many features justify the selection of these case companies
for the study: their industry that show obvious routine environment, their large size,
they being multinational and high performers. An integral part of the selection of the
case was the willingness of the companies’ management to be involved in the study, and
gain more understanding about how routines are understood in China in relation to their
headquarters in Spain.
Gipuzkoa’s Chamber
of Commerce
Spain
August 2, 2005
Embassy of Spain
Shanghai - China
October 11 & 13, 2005
TUBACEX Asia
Shanghai, China
November 1 & 7, 2005
PREMO GROUP
Wuxi, China
October 27,
November 4 & 11, 2005

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Data Collection
The main method for data collection was interviews and informal meetings. Yin (2003)
states that the interview is one of the most important sources of case study information.
A single case study on 2 companies in China, PREMO Wuxi in the Jiangsu province,
and the other one TUBACEX in Shanghai, was elaborated. These 2 companies provided
a demanding context for research, undertaking primarily through a selective and flexible
use of semi-structured group and individual interview techniques.
The key methods were group and individual interviews, and analysis of company
documentation, researcher observations, and respondent comments. In PREMO Wuxi,
expatriates and manager interviews were carried out in an interview tour at the local
sites of the case firm. In the other company, TUBACEX, an individual expatriate was
interviewed also at the local site in Shanghai. Some days before the interviews one copy
of the questionnaire was sent to the person designated to meet us.
Research interviews were conducted within a three weeks time frame, even though the
contacting process started in August. In PREMO Wuxi, the first visit lasted the whole
day. The site visit included the general manager interview and the technology manager
interview. During the interview day, interviews took place in a small conference room
reserved for that purpose and a small visit to the different departments in the plant.
Besides, we also had lunch and discuss the topic in an informal way. This meeting gave
us the possibility to get more personal information to enrich our thesis. The second visit,
the quality manager was interviewed, and it lasted the whole morning. The last
interview consisted on a telephone interview to the human resource manage that lasted
about 45 minutes.
The interviews in TUBACEX were carried out in the expatriate’s office. The first one
lasted the afternoon but another day had to be appointed as we run out of time.
However, we also had the chance to have an informal meeting during dinner time and
recollect different interesting perspectives.

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At the start of each interview, we introduced ourselves and the project and explained the
purposes of the study. The main question setting in the interviews was very open-ended,
starting with the chosen general topics and probing to more detail where necessary. At
the end of each discussion, the respondents were thanked for their time and the good
discussion.
After each interview day, the notes were checked and completed to ensure their
completeness and understandability, and the last field notes were written down. After,
all hand-written notes were typed on computer files. The interview data were pre-
analyzed right after the interviews.
Data Analysis
The empirical material gathered during the interviews is sorted in two groups, one for
each company. The structure followed in both companies starts with a short introduction
about the company’s requirements to establish in China. It continues with the transfer of
routines from headquarters to China, which is the basement to analyze the transfer of
routines. The personality of both companies is also gathered to understand the
characteristics that can obstruct in the transfer. The communication among both
companies is analyzed in order to study the difficulty that is created when the two
cultures interact based in their cultural values and habits. The last part refers to the
actions companies take in order to avoid or to overcome the difficulties in their way to
succeed in the transference.
After the preparatory analysis, some data category and classification sketches were
already available for the two question areas of the study: the transferability of routines,
and how they are affected by the Chinese context. The categories were further
developed in light of some theoretical background and while analyzing and reanalyzing
the data, which meant incrementally improving the analysis-framework and returning to
the data set several times. The last draft of the analysis collects the two question areas
mentioned classified by themes. Each theme follows theoretical statements and these are

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compared with the corresponding data collected in the empirical part. The result of this
analysis, the difficulties in the transfer and how it is affected by the Chinese context, is
the springboard for the final conclusions.
Conclusions were drawn and verified, cross-checking with data, comparing with
companies’ documentation and theories.
Methodology Considerations
Yin (2003) states that there are four conditions or criteria for judging the quality of
research design: construct validity, internal validity (for explanatory or causal case
studies only), external validity and reliability.
The question of validity in this exploratory case study dealt with establishing correct
operational measures for the concepts being studied (construct validity), truth value for
findings (internal validity, credibility), and the domain to which findings can be
generalized (external validity, transferability) (Yin, 1994; Miles and Huberman, 1994).
The validity of the particular research design was under threat due to the use of only
selected quotes and examples, self-designed variables and translations, and just two case
firms with a limited sample.
Reliability means demonstrating that the operations of the study, such as the data
collection procedure, can be repeated with the same results (Yin (1994) also referred to
as confirmation and dependability, see also Miles and Huberman, 1994). We took
various measures to improve the reliability of research findings. For instance, data
collection and analysis methods and procedure were documented in much detail.
According to Yin (1994), use of a case study protocol and developing a case study
database are good ways to improve the reliability and repeatability of the study.

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4. EMPIRICAL MATERIAL
4.1. PREMO GROUP
The PREMO Group is a Spanish holding company consisting of five different business
units which develop, manufacture and sell products and solutions in the inductive
component business (see Appendix I).
At the end of the 90´s, the company producing only in Spain started to notice a very
competitive environment, coming from the competitors and clients’ movement to new
emerging markets onto the global economy. This delocalization was caused by low
labor costs, low-priced providers and appropriate structural costs from these promising
markets.
PREMO Group was forced to make a reactive decision to face the new situation. In
order to survive in a short-medium term, the organization decided to follow its
competitors’ strategy; the delocalization of the production plant. Two different
emplacements were debated at PREMO Group: El Salvador or China.
El Salvador
The location’s attractiveness, due to its geographical position was the main motivation
for this first choice. North America represented a relevant market quota for PREMO
Group, as they already had an established distribution net and corporate key clients.
China
Recognized as one of the most important emerging market, plant inversion in China was
the focus for PREMO’s main customers.

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As a result of an extensive analysis of both countries, three major factors enhanced the
company to choose China as the best alternative. All mentioned above, these three
characteristics corresponded to the low labor costs, the high level of supply partners and
their respective low fees, and the potentiality of China as a market. Government politics
was another minor factor that influenced the company towards China. These politics
consisted on economic subsidies, implanting facilities and the country’s stability by the
Government control.
4.1.1. Starting Up the Company in China
Delocalization process
Going into the Chinese market without any prior experience required an external help.
PREMO Group hired the services of an international consulting, InterChina. The
consultancy tasks dwell in plant’s localization analysis and later acquisition and
installation. It was not until 2001 when PREMO Group opened a new manufacturing
plant in Wuxi, a town near Shanghai in China. The production process was wholly
relocated, and a General Manager and a Human Resources Manager were expatriated
for the new factory’s launch. As the principal resource of the production process in
Spain was labor force, the hiring practice took relevance against other issues at the
beginning. The machinery was standard and easy to run up, therefore only engineers
and production responsible people were sent to make the first move; install the
equipment, and form the new Chinese workers in assembly tasks.

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Creating the structure
The organizational structure in PREMO is characterized by high degree of hierarchy,
based on a centralized system of decision making process.
The managerial posts are occupied by the expatriates coming from Spain, except the
sales manager that is in charged of all the sales in the Asian market, and therefore the
company needs a local person to perform this task. The human resources department is
joined to the general manager and it is in charge of the recruitment process of the
company and the administration and organization of employees. Between the workforce
and the manager layer there is a supervisor and engineer unit that coordinates the
information and work flow in a horizontal direction among the company’s layers.
GENERAL MANAGER
QUALITY
MANAGER
PRODUCT
MANAGER
TECHNOLOGY
MANAGER
SALES
MANAGER
HUMAN
RESOURCE
MANAGER
SUPERVISORS AND ENGINEERS
WORKFORCE

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4.1.2. Transfer of Routines
The transfer of routines in PREMO Group is a production level transfer; this means that
the total production process is translated, from the organization’s implantation to
machinery and explicit sequences of labor tasks.
The initiation of the transfer process begins in Spain, where the board of directors
decides to transfer the knowledge the company possesses. Since this knowledge from
headquarter is not collected in any explicit way, all transfer and decisions will be
developed by the General Manager and expatriates in PREMO Wuxi. This means, that
the tacit knowledge the expatriates integrate will be the only information resource to
manage the entire transfer process, including formation of employees.
The implementation of best practices is produced in day to day operations, due to the
undocumented knowledge and the lack of a programmed strategy. Therefore, the
company’s priorities are based in short term rather than in long term.
The beginning of the routines performance starts when the expatriates form the principal
Chinese supervisor group. The expatriates transfer their knowledge of how to do things,
so this group is able to form lower level employees and manage their daily operations.
Once the expatriates have clear that this supervisor unit has integrated all knowledge
needed, problems arise when information is transferred to the low level staff. The most
common trouble is the lost of information while trying to transfer it through the
hierarchical structure. The expatriates have difficulties identifying where the
information misses.
In the integration stage, to achieved and preserved routines in PREMO Wuxi,
expatriates have a daily control over their subordinates, while at the same time labor
force is being supervised by these subordinates. For instance, the supervisor’s rate is
from 10 to 20 for each 100 employees.

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4.1.3. The Personality of Premo Wuxi
The expatriates
The expatriates in PREMO Wuxi form two groups. The main group consists on
permanent expatriates, the general manager and the human resource manager. They
have been living in China since the implantation of the company. They were specifically
hired to run the company in China. The other group is compound by six people and they
constantly visit the factory when a process requires them. The average duration of the
stay is usually about 6 months, divided in three different journeys along the year. These
people belong to PREMO Group in Spain, and thanks to their skills and accumulated
knowledge acquired in the headquarter, they have been chosen to help in the transfer
process.
Characteristics of the expatriates
The permanent expatriates’ first contact with the company was throughout formation
and adaptation period, trained in company’s features like the product, the processes, the
customers and business performance. Despite this coaching, the factor of experiencing
these features abroad, made their adaptation to the new environment more difficult.
However, these two people were hired cause to their prior experience in other
businesses. The work these two people are doing is really significant for the sustainable
growth the company is achieving. Their success is based basically on the adaptation
capability they have demonstrated during PREMO Wuxi’s life. The intensive and well
management of human resources, and the proper administration of internal as well as
external resources, have been key factors in this adaptation process.
However, the vision of PREMO Wuxi as a company is not fully developed as there are
some factors that still need to be improved in order to build a strong corporate culture.
For instance, most of the Chinese workers don’t have the feeling of being part of
PREMO Wuxi’s project. Besides, the company does not make any attempt to create a

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global organization vision integrating all employees and making them part of the
mission.
As PREMO Group has been always a Spanish holding group, its international
experience sums up to only representative offices abroad. As a result, the expatriates
coming from Spain have not a widespread international experience. However, this
group is characterized by having an extensive experience in PREMO Spain. They know
well all the organizational processes and procedures, and consequently they are in
charge of transferring their knowledge and know how to the Chinese workforce.
The Workforce
Because the production process in PREMO Wuxi is based in assembly process, the
work requirements don’t need high level performance and qualification. Therefore, the
recruiting activity is based basically on low formation employees. Besides, their high
rotation level and non significant character of the contracts make the company to
periodically incorporate employees.
Apart from this group, the engineers form a higher educational level work unit, and
have more responsibilities in the company. However, only 5% the availability of
qualified people, engineers in this case, is not high in the labor market, companies
including PREMO Wuxi, try to retain them offering a little higher salaries. Besides their
availability, these qualified people are prepared to develop more complex tasks that
require more analytical skills, becoming higher their shifting and retraining costs when
changing companies. Consequently, maintaining them in the staff becomes more
important for organizations.

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Characteristics of the Workforce
In these daily activities, in order to achieve a continuous work flow, employees are
formed to elaborate a very specific assembly task; this means that each employee
repeats his own task in a daily routine. Once the labor force learns to reproduce the
process, always based on a sample, a high production level is reached. However,
although PREMO Wuxi’s employees possess high and fast learning capabilities,
creativity and innovation skills are harder to be developed among them. Moreover, their
low education level adds a low decision making capacity.
Even though this unit is very efficient it needs a continuous guidance and control to
perform its duties. For instance, it is very common the wrong reproduction of a piece in
a repetitive situation because the Chinese employee is able to copy and perform easily,
but not to recognize possible errors and variations in the assembly sequence. Therefore,
the levels of defective components are high because the lack of employees´ autocorrect
capacity.
Employees’ lack of vision for future consequences in bad production and lack of auto-
correction is linked with the low group perception, due to the individual and repetitive
performance tasks.
4.1.4. Communication throughout the Company
Chinese workers in PREMO Wuxi are close-minded and very difficult to open. “They
need time to trust people and build relationships” (A. Alsina, 2005). In addition
beginning to share ideas and making suggestions it takes long time.
In PREMO Wuxi the communication process takes a very important role due to the
company’s structure, the context and the culture.

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As the company’s structure is very hierarchical between the bottom line and the higher
managers, and the information flows from upper statements to the lower ones, the
communication process passes throughout many layers. Due to these many layers, and
the different communication and understanding capabilities of everyone involved in the
network, the information flow suffers a loss or a possible misunderstanding all over the
company.
The context of the company is quite particular because Spanish expatriates and Chinese
supervisors work in an English speaking environment. At the same time in the low level
of the company the labor force can only work in Chinese. Consequently, as the
information has to be translated to different languages, first Spanish-English and then
English-Chinese, there is also a possible loss or misunderstanding among the different
levels.
There are two different culture roots in PREMO Wuxi, the Spanish one and Chinese
one. Despite the English is the language in which they communicate, the difference of
culture makes many times to misunderstand information. Even though expatriates and
subordinates speak in English, their perception and interpretation of the whole process
of communication could vary significantly. For instance, the Chinese people don’t have
the same corporal language as Spanish have, or the same message is interpreted
differently.
Another aspect of the Chinese culture is dealing with competition created among the
employees. The labor force in PREMO Wuxi knows that the information is a valuable
resource in the company. Each employee that receives any kind of information tries to
use it for his/her own advantage without any contribution to the knowledge expansion.
This is also considered as an information loss cause.
There is another misinterpretation about the Chinese culture that PREMO Wuxi
challenges in every business operations, the harmony. Chinese like to live in a constant
harmony with their environment and relationships. This means that they always try to

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not have problems or disappoint others, to feel themselves in a comfortable atmosphere.
For example, a company needs a specific component and contacts a Chinese supplier for
it. Although the supplier doesn’t know certainly if the delivery is going to be on time,
he accepts the deal because he sincerely will try to do his best. However, he doesn’t
really pay attention to possible consequences of the not satisfactory delivery. Although
for an occidental company this could be seen as hiding information or even a lie, for a
Chinese company this is a way of maintaining a well-being state.
4.1.5. Confronting Difficulties
These last four years in PREMO Wuxi the managers and expatriates have learned to
deal with some adverse situations coming from the incompatibility of the two different
cultures. To prevent these types of incongruities, one of the criterions the company has
decided is to always send the same expatriates across borders, depending on the
knowledge transfer necessities. This norm helps to overcome two barriers. The first one
refers to the trustiness of Chinese employees towards the expatriates. Because Chinese
employees are close minded and it takes them time to trust on people, the fact of seeing
the same people coming from abroad increments their confidences and the expatriates
become more reliable in PREMO Wuxi’s environment. The second one deals with the
expatriates adaptation costs to the new context. As their familiarity increases each time
they visit the plant in China, they get to know better the area, the habits, the language
and the culture in general. This makes easier for both the company and the expatriates
themselves to minimize costs in the adaptation process.

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4.2. TUBACEX
TUBACEX, is an industrial Group founded in 1963, dedicated to the manufacture and
sale of special seamless stainless steel tubes, exporting to over 50 countries all over the
world. Total sales have converted TUBACEX into the second producer worldwide, a
leadership where total integration of the production processes has demonstrated being a
key factor in success. (see Appendix II).
TUBACEXis vertically integrated company, from the raw material supply to the
distribution of the tubes to the final customer. The Head Office located in Llodio
(Alava), Spain has branches in Austria and USA with delegations in Italy, France,
Holland, Germany, Poland, Czech Republic, Hungary, Canada, China and Korea.
According to TUBCEX Asia, the next 15 years, the 80% of the total nuclear plants (20
approx.) will be built in China. The reason of this energetic expansion is due to the
country’s fast developing growth. This emerging country will be multiplying its
energetic source demand, consequently the demand of electricity, the gas, and all factors
related to them will increase. All these aspects have been target of multinational
energetic producers in the world. Being TUBACEX provider of these companies, it
moved to the country in 1995 and has been growing gradually. In 2004 they established
a commercial department in Shanghai.
4.2.1. Starting Up the Company in China
TUBACEX Asia began its international performance ten years ago. The delegation was
located in Beijing composed by 2 people, the sales manager for the whole Asia and his
secretary. It was not until last year, the beginning of 2005, that a commercial
department in Shanghai was opened. Two people from Spain came as expatriates to
start up the unit, the sales manager of Asia and joint commercial manager. Four other
people where hired for administrative tasks. In this recruiting process the joint
commercial manager was in charge to prepare all the material for the interviews.

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The structure of TUBACEX in Shanghai
The sales manager in TUBACEX Asia is the nucleus of the sales network. He organizes
and distributes resources and information and is in charge of the whole department. He
is the main axis of TUBACEX Asia. The agents are local people, independent to the
company; this is they work under a commission’s agreement. They are the ones who do
the search of the last customer, and preserve exclusively the relationships with them.
Their quantity depends on the current market’s demand. According to I. López (2005)
the agents spearhead the value chain of the company and that is why the company’s
sales depend on them.
4.2.2. Transfer of Routines
Although TUBACEX Group possesses production plants in different countries all
around the world, China doesn’t seem yet as a location to invest in. Therefore there is
not a process and routine transference from production plants. However, despite a
commercial department in China is present, TUBACEX doesn’t follow a routine
transfer plan. The reason of this lack of procedure transference is linked to the
company’s strategy. TUBACEX Group follows a multi-domestic strategy; this means
Sales
Manager
Joint commercial
manager
Administrative
staff
Agent
Agent
Agent
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer

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that for each country they expand, they acquire an adapted strategy for that context. As
a result, all the procedures performed in TUBACEX Shanghai are home created.
However, although there is no any routine or best practice transference, there exists
knowledge relocation from expatriates to local employees in a Chinese context. This
knowledge transfer refers to training practices and employees’ adaptation to the
company’s vision.
4.2.3. Personality of Tubacex Shanghai
Characteristics of the expatriates
The sales manager was in charge of opening the office in Shanghai. He had a previous
experience for four years in Korea also as a sales manager. So he had already
accumulated enough experience during those years to properly manage the department
in Shanghai. He doesn’t dominate the Chinese language but he knows cultures from the
East quite well and this allows him to manage himself in an Asiatic environment.
The joint commercial manager was recruited specifically to come to work in the office
in Shanghai. Because TUBACEX uses a multi-domestic strategy, the adaptation process
to the company was less costly; the joint commercial manager was only formed for his
work in china. His main tasks at the beginning of the settlement had been, apart from
the recruitment of the administrative staff, to form, guide and control the employees.
The commercial department receives huge amount of pressure from different fronts, the
agents, headquarter, or even the customers. That is why the expatriates had been forced
to learn and develop interpersonal skills in order to gain the trust of relations.
Characteristics of the administrative staff
The four people working in this delegation have all University degrees. Their tasks are
related to administrative management. Since the first time they are hired, they are

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responsible for a specific performance. However, as time passes by, their
responsibilities increase and they are assigned more developed tasks. This evolution is
due to the formation they receive from the upper management, the expatriates.
Characteristics of the agents
The agents form an independent group in the company. They tend to be difficult to
manage because their autonomous nature. Besides this difficultness, it also needs to be
added the cultural barrier that affects their communication process. TUBACEX is aware
of the importance of this unit, because it knows that the agents are the ones who have
the contact with the last customer and they are responsible of the image the company
gives. Therefore, all these aspects force the company to increase control in their agent’s
network.
4.2.4. Communication throughout the Delegation
When entering in the Chinese market, TUBACEX expatriates had to deal with different
communication barriers. The language is the most important barrier for communication,
although expatriates communicate in English, the expansion of this language is not as
big as they thought before they came. Therefore, the delegation had problems finding
English speaking Chinese.
Another obstacle for expatriates is the way Chinese people negotiate. For instance,
Chinese people need to have relationship or at least a previous contact with the dealer
before starting a negotiation. Another way to negotiate is during informal hours, for
example lunch times. To offer a gift is a common habit among partners; so Spanish
businessmen not accustom to this manners could feel themselves confused.
One of the biggest problems they have to face is hiding information, even coming from
staff employees. There are some factors that boost locals to hide information. First,
there is a willingness to maintain a suitable work environment, without discussion or

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disputes. Second, according to I. López (2005) there is a deep enthusiasm among
Chinese to earn money, which creates a rivalry and competence environment.
The training of employees is harder in China because they lack interpersonal skills
when dealing with people they don’t know. They don’t have initiative, and don’t
express their feelings. This makes managers more difficult to offer them an appropriate
formation.
4.2.5. Confronting Difficulties
Since the foundation of the delegation, the expatriates in TUBACEX Shanghai have
learnt how to confront some of the difficulties revealed before. For instance, to adjust to
the difficulty of hiding information and Chinese lack of emotion externalization, the
Spanish managers have started to increase their empathy skills and try to catch internal
feelings.
As the company wants the Chinese employee to feel part of TUBACEX Asia project, it
is embarked in a continuous formation thought. The aim of this formation is to get a
right integration of the Chinese in the company’s structure. The expatriates try to
motivate, concrete the tasks, guide and help them in their professional development.
The delegation is aware that to be successful and avoid internal difficulties the human
resources management is a key factor in order to establish a competent multicultural
work environment.

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5. ANALYSIS
The theories and data collection gathered in previous chapters and their consequent
analysis divided in two main themes: Stickiness in the transfer of routines and Chinese
context implicitness. The division of these two themes will facilitate the analysis and
comprehension of the study, and they will conduct the research towards the answer of
our problematic statement:
How can foreign companies overcome difficulties in the transference, and relocate this
knowledge in a context constrained by cultural values?
5.1. THEME 1: STICKINESS IN THE TRANSFER OF ROUTINES
The ability to transfer best practices internally is critical to a firm’s ability to build
competitive advantage through the appropriation of rents from scarce internal
knowledge (Szulanski, 1996).
5.1.1. Analyzing the Difficulty of Transferring Practices within the Firm
The notion of internal stickiness connotes the difficulty of transferring knowledge
within the organization, reflected in the incremental cost of transferring the information
(Szulanski, 1996).
According to Szulanski (1996), deciding exactly which portion of the cost of a transfer
actually reflects difficulty is a matter of conjecture without a base case. In both
companies, PREMO and TUBACEX, there is no transfer base case to compare with.
In one hand, for PREMO, it is the first time a transfer occurs to other context. However,
there is no transfer cost analysis because the company’s transfer analysis is based in

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survival factors, not transfer costs. In the other hand, TUBACEX’s situation does not
part from best practices transfer; instead it parts from new strategy plan for the
delegation. Therefore the company does not take into account transfer costs.
Being eventfulness conceptually related to the notion of difficulty, transfers that involve
the most nonroutine problems will be perceived as the most difficult, to the extent that
the transfer turns out to be sticky, requiring ad-hoc solutions, other things being equal
(Szulanski, 1996).
Both PREMO and TUBACEX have no previous transfer experiences and no transfer
documentation; therefore their transfer processes are based in non routine situations, and
day to day implantation. This lack of experience makes more difficult to reach a
dynamic situation, and it increments adaptation and formation costs everyday in the
companies. However this time costs and day to day adaptation costs have been
reconverted in relevant inversion, due to the flexibility to the new context that the
companies have acquired in their daily adjustment efforts.
Research suggests that four sets of factors are likely to influence the difficulty of
knowledge transfer: characteristics of the knowledge transferred, of the source, of the
recipient, and of the context in which the transfer takes place (Leonard-Barton, 1990;
Teece, 1976; Rogers, 1983).
Causal ambiguity and unproveness are two characteristics of knowledge transferred that
influence the difficulty (Szulanski, 1996). From one side, the knowledge transferred in
PREMO is best practice transfer that comes from 2 roots. First, the company’s
performing way, how the operations are performed technically that is not documented
and therefore most difficult to transfer. Second, the tacit part of these operations, what
employees know and have learned in the process, which is very difficult to make it
explicit. In the other side, the knowledge transferred in TUBACEX refers to training
practices and employees’ adaptation to the company’s vision, instead of best practices
transfer. This knowledge has also some tacit components stored in expatriates’ minds.

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The characteristics of the source of knowledge consist on lack of motivation and not
perceiving the source as trustworthy or knowledgeable (Szulanski, 1996). Therefore,
initiating a transfer from that source will be more difficult and its advice and example
are likely to be challenged and resisted (Walton, 1975). As PREMO’s alternative to
survive in the market is to transfer knowledge from the source, the motivation for this
transfer in the company is high, and the knowledge it contains is considered as relevant
for the transfer. In TUBACEX as the motivation to expand in new markets is high there
is no factor in the source that impedes to push ahead with the transfer.
According to Szulanski (1996), lack of motivation, lack of absorptive capacity and lack
of retentive capacity are the characteristics of the recipient that difficult the transfer of
knowledge. As both companies are subsidiaries implanted in China that deal with
Spanish expatriates as general managers, there is a high motivation to receive all
knowledge possible from headquarters. However, this feeling is lost once it passes
through the next layers in the companies. Therefore the lack of motivation comes up
when trying to transfer to Chinese employees. The absorptive capacity or the ability to
value, assimilate and apply new knowledge successfully to commercial ends (Cohen
and Levinthal, 1990) is low among PREMO’s employees. Even though employees
possess high and fast learning capabilities, they need continuous guidance and control
due to their low commitment to new knowledge. In TUBACEX, as employees are
formed to understand their integration in the company’s structure and to develop their
professional skills, the knowledge assimilation and integration is very significant.
Barren organizational context and arduous relationship are included in the
characteristics of the context. An organizational context that hinders the gestation and
evolution of transfers is said to be sterile (Szulanski, 1996). Besides, when the
knowledge transferred has tacit components, may require numerous individual
exchanges (Nonaka, 1994). The success of such exchanges depends to some extent on
the ease of communication (Arrow, 1974) and on the intimacy of the overall
relationship between the source unit and the recipient unit (Marsden, 1990). Both
companies, PREMO and TUBACEX deal with the same context; the knowledge

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transference from Spanish expatriates to Chinese employees, and both find difficulties
in communication and cultural factors, as the language or the interpretation of the
information, which obstruct the transference process.
In conclusion, there are three general ideas about the factors that affect the stickiness.
First idea, the tacit and non documented part of knowledge and the characteristic of the
context to which knowledge is transferred, affect in same way to both companies,
obstructing or interfering within the transfer. Second, other factors that interfere in the
transfer are attached to companies’ characteristics and differ from company to company.
In PREMO for example, because the company’s workforce is low formational level
their absorptive capacity is low and a continuous control and guidance is needed over
them. However, TUBACEX works with higher level educational employees and their
retentive capacity is very significant. Last idea refers to the characteristics that have
improved the transferability. The lack of prior experience and base case in the
companies have made their transfer process more adapted to the new context, more
flexible, but however more expensive.
5.1.2. Overcoming Stickiness in the Transfer
According to Rivkin, (2000) and Winter (1995) the firm possessing superior routines is
supposedly in an advantageous position to copy its own routines because it has full
access to templates or working examples of those routines.
PREMO and TUBACEX’s case studies reveal that superior routines are transferred
from headquarter in Spain to China, without any template or working examples. Instead
the companies trust on people’s tacit knowledge to relocate the knowledge. The
experience the companies have shown during their knowledge transfer process
illustrates that the way to reach a routinized behavior has costs a lot of time, efforts and
resources. However, the expatriates’ day to day guidance and control efforts have given
the companies a gradual adaptation capability, which has directed PREMO and

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TUBACEX towards a successful transference result. Consequently, general rules and
procedures have to be incompletely specified when transferred across contexts,
precisely because contexts are different (Reynaud, 1998).
In the case of PREMO, although it doesn’t use any template to the transfer of best
practices, there exist informal patterns that make this relocation straightforward. For
instance, the company has decided to always send the same expatriates across borders,
depending on the knowledge transfer necessities. This practice created by the company,
has been the substitute tool of the template in the integration process.
According to Houman (2003) the learning of routines by individual actors and the ways
in which the actors comply with the sets of corresponding routines performed by other
actors may be enforced chiefly through a mixture of two channels: Firstly, organizations
may provide training and incentive structures designed to elicit a specified pattern of
behaviour (Houman, 2003). Secondly, peer relationships formed laterally between
individuals provide a mechanism for learning compliance with the ruling procedures for
coordination (Weick, 1979).
PREMO’s channels to make employees learn the routines have been based mainly in the
control over them. The company has adopted this manner to proceed since the
workforce requirements are based on non-qualified employees and the high rotation
ratio. This factors make the company not to achieve a proper group belonging and the
impossibility to create planned training programs. As a result, it is impossible for the
company to follow a decentralization strategy and lead the employees to make
decisions, take initiatives. Thus, PREMO’s development as a company is hindered by
the lack of innovation through the workforce.
TUBACEX realizes that the characteristics to be successful in its environment are close
related to human management expertise. On one hand, it has developed a well
structured training and incentive programs based on daily guidance and motivation
practices. On the other hand, the expatriates have built a healthy group environment

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integrating the Chinese workers in the company’s structure. The result of this
management style has become the base to develop several features, as employees’
absorptive capacity, employees’ responsibilities extension and the increment of
expatriates’ dependence over employees’ knowledge, making them more valuable in the
network.
5.2. THEME 2: CHINESE CONTEXT IMPLICITNESS
5.2.1. Implicitness and guanxi
In relation to Marsden (1990) the success of knowledge exchanges depends to some
extent on the intimacy of the overall relationship between the source unit and the
recipient unit. Because there is a strong cultural preference for personal, social and
economic relationships in China, personal interaction remains the preferred form of
knowledge transfer. Consequently, explicit knowledge turns out to be comparatively
rare in China (Burrows, Drummond and Martinsons, 2005).
According to A. Alsina (2005), the quality manager in PREMO Wuxi, Chinese workers
in the company are close-minded and very difficult to open to new people. They need
time to trust people and build relationships. That is one of the reasons the company
decided to send always the same expatriates. Chinese workers after a time start having a
bit of confidence in those they use to see and talk to. The Chinese will only listen to the
reason of those they trust (Pang, Roberts and Sutton, 1998).
Here is where the “Guanxi” takes place, Chinese term for “relationship” (Kaminsky,
2005). The guanxi plays an important part in how the business and personal world
operates in China, every individual has his own network of relationships, and here is
where the value of the collective comes into play: who you are as individual is not
nearly as important as who you are as part of an organization, family, team, or
community. At the beginning it is difficult to be part of the guanxi of a person you have
just known. For instance, Tsang (1998) put forward that if person A wants to make a

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request of person C, with whom he does not have any guanxi, he may seek out a
member of his guanxi network, B, who also has guanxi with C, and ask B to introduce
him to C. By doing so, a guanxi base is established between A and C.
Hence, Chinese people give a lot of importance to their relationships net; that is why it
is difficult to get into. But when being in it, the opportunity to get a broader level of
connections is released. Therefore, making good connections and maintaining them will
enhance personal, family and organizational status.
Being the fact of maintaining relationships with others so delicate and significant in the
Chinese culture, the preference for implicit communication is evident. Consequently
implicit ways of knowledge are more used rather than the explicit ones. This matches
with A. Alsina’s (2005) report, “beginning to share ideas and making suggestions takes
long time to them”.
5.2.2. Obstruction to relocate knowledge in China
In addition to the implicitness found in the Chinese social interaction, other hidden
factors that obstruct the management to relocate knowledge can be perceived through
the analysis. These obstacles are referred to features related to the work environment,
interaction and communication difficulties and the structure of the company.
Work environment
Business innovation and coordination can be hindered by in-group rivalries, as well as
by the few opportunities (such as quality circles) and incentives (such as suggestion
bonuses) employees are offered to share their knowledge (Burrows, Drummond and
Martinsons, 2005).

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The previous statement coincides with what is going on in PREMO Wuxi. The rotation
level of the standard worker is very high; there are not promotion opportunities or even
incentives for new ideas. The job they have to perform is repetitive and they are there
just to do so. Moreover, as collected in the empirical part, each employee that receives
any kind of information tries to use it for his/her own advantage without any
contribution to the knowledge expansion; there is not a group belonging spirit.
Employees only socialize with the members of their own guanxi. Consequently, the
knowledge transfer in this environment is almost impossible. This reliance on
interpersonal contact inhibits codification and restricts information access much more
than technological factors (Martinsons, 2004). Understanding and accepting this fact
can often ensure success, whereas not recognizing the potential of the Chinese guanxi
and not adapting operating systems to it, may court problems (Pang, Roberts and
Sutton, 1998).
But the case of TUBACEX differs from PREMO’s one. The two categories of local
people working in Shanghai are administrative employees and commercial agents. To
have a feed-back from them is essential for the expatriates in order to achieve a good
level of coordination among different parts in the delegation. The agents have the
contact with the customer, and the administrative staff runs all the administration of the
department. They are indispensables in the day to day labour, and so does any relevant
information they could gather in this practice. The expatriate executives know this and
thus, they try to encourage suitable knowledge diffusion throughout the branch. It has
been difficult and intense, but they have finally reached a point where a state of trust has
been developed and information flows extensively. Trust is a valuable gift, and, for an
"outsider" is the only real passport into Chinese community (Pang, Roberts and Sutton,
1998).
The knowledge acquisition between companies differs because the work requirements
of each company vary. Therefore the recruited personnel for PREMO have different
skills than the recruited personal in TUBACEX.

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The principal work force in PREMO is based on the standard worker: An employee
who performs repetitive tasks, almost like an automat. He is not required to think about
nothing, only to perform his task. In this scenario, the implicitness is more patent as the
business innovation and coordination can be hindered straightforwardly. Chinese are
close at the beginning of the relationships and won’t change if there is no willingness to
do so.
The second, TUBACEX, holds qualified workers who have different tasks to do.
Dynamism is required to perform these tasks and managers need from them to think and
develop solutions in order to advance in the day to day work. At the beginning is
difficult to get them to open because of their culture, but it is possible to reach high
levels of explicitness in the knowledge transfer. In these circumstances the hinder of
innovation and coordination is not such a problem; there is an internal drive that denies
it.
The premise of Burrows, Drumond and Martinsons (2005) about innovation and
coordination hinder through in group rivalries, few opportunities and incentives is
endorsed by the empirical information illustrated. As a result, the same way these three
factors can contribute to the obstruction of coordination and development when not
giving enough relevance to them, PREMO’s case, they can facilitate the management
when taking them into account, TUBACEX’s case.

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Interaction and Communication
Interaction and communication are fundamental components of daily life. A mastery of
communication skills within the Chinese context will enable a quicker and smoother
integration into that society. The level of trust between individuals often dictates the
way they communicate (Pang, Roberts and Sutton, 1998).
Consistent with Arrow (1974), the success of knowledge exchanges depends to some
extent on the ease of communication. Both companies, PREMO and TUBACEX
coincide in including communication and language as a barrier in the transference
practice.
The communication process in PREMO and TUBACEX starts in expatriates mind,
Meaning A. Expatriates codify their meaning according to their personal language and
vocabulary, Language A. Then, the meaning is translated to English language and it is
sent. The employees receive the data translate the data, and decode it according to their
personal vocabulary, Language B, to get the underlying information, Meaning B.
Therefore, Meaning-B will be more or less different from Meaning-A, a distortion that is
inherent in PREMO and TUBACEX communication (see Appendix III).
Culture is also an influence determining the communication effectiveness.
Communication is more effective between persons with similar cultural backgrounds.
Culture is relatively independent of social position in many cases. For instance, a
voluntary association leader could probably communicate better with the people in his
own group, because of their similar cultural background, than he could with a leader in
the same organization located in a different geographic area (Beaulieu, 1992).
Cultural differences in PREMO and TUBACEX make many times to misunderstand
information. The perception and interpretation of the message tends to be misinterpreted
because both cultures have different ways of perceiving the message. For example, the
way Chinese people interact in order to maintain harmony with their surrounding

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relationships, could be understood as hiding information for Spanish people. Moreover,
because the corporal language, including gestures and signals differs between the two
cultures, makes diffuse the communication process. In fact, Spanish expatriates are used
to exteriorize their emotions by gestures while Chinese employees hide their feelings or
at least don’t exteriorize them in the same way, creating a confused understanding
communication channel. Besides, the choice of words is important when
communicating with a Chinese person, as misinterpretation may lead to
misunderstanding. Likewise, given the indirectness of Chinese communication, one
would be wise to "read between the lines" for double or hidden meanings (Pang,
Structure
A focus on selecting and socializing individual workers tends to be more effective in
China, whereas the development of a supportive company culture is more difficult due
to the strong respect for tradition in a hierarchical structure of Chinese society (Chow,
Deng and Ho, 2000).
The creation of new knowledge is hampered by senior managers restricting external
inputs and unidirectional (top-down) information flows within Chinese companies.
Status-based hierarchies in China restrict the kind of vertical transfer of knowledge.
Chinese managers rarely acquire or accept knowledge from their subordinates
(Martinsons and Westwood, 1997).
Chinese culture, society and consequently formed economical units, based on ladder
hierarchical structure, have done along the years the Chinese employees to become
accustomed to work in a “you order I obey” way. This has shaped the mode in which
employees behave. They are used to receive orders and perform tasks, not to generate
proposals or to take initiatives. Foreign companies that settle in China their plants and
recruit Chinese employees realize about this subject after a while. For instance, this is
the case of PREMO and TUBACEX.

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PREMO’s structure, very hierarchical between the bottom line and the higher managers,
emulates Chinese organizational configuration, so Chinese employees have no problem
to adapt themselves to traditional ways of working, they feel comfortable in a hierarchy.
But also, this makes them to behave in the traditional way, not participating in the
company’s progress, or in other words, not involving in the company’s culture. This has
created the information to flow from upper statements to the lower ones, but not in the
contrary way.
In the other hand, TUBACEX, while it is a small delegation, it has had easier to implant
a more dynamic structure. It is a small network where everybody has accessibility to
anybody. Chinese employees, little by little and more because requirement than because
pleasure, had to start developing initiative and own solutions. Moreover they have had
the support of the expatriate executives. Here, both vertical directions, and even
horizontal information flow is available.

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6. CONCLUSIONS
The theoretical part shows different statements written by academics about the
idiosyncrasy of routine or knowledge transference and about the Chinese context and its
particularities when foreigners want to integrate their knowledge in a context affected
significantly by its culture. In addition, the empirical part provides to the reader a real
and contemporary perspective of the subjects related to the problematic.
It is through the analysis part where a contribution is added to the research. By
comparing or even confronting the theories and empirical answers, some important
assumptions have been developed. For a clear understanding and a better recompilation
of the contribution achieved in this analysis, a classification on the main factors related
to the subject has been performed. Thus the knowledge transfer into the Chinese context
depends on three different blocks:
1- The kind of company and its requirements and necessities.
The tangibility of this idea is patent through the whole analysis part. Although the
theoretical part does not really discuss this variable, the empirical part first and then the
analysis illustrate noticeably that the sort of company and its own characteristics
influence on the stickiness of the transfer process. Depending on the business and the
strategy, one company will require other resources and knowledge transfer necessities
different from others.
Because the recipients and sources of knowledge are different and consequently their
characteristics vary from company to company, the stickiness level of the transfer also
varies. For instance, in our research, the nature of the two companies interviewed is
different. Additionally, it is patent how they both use different knowledge transfer and
management strategies to achieve the desired work environment

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2- The characteristics of knowledge transferred
It is proved that when the knowledge to be transferred has some tacit components
influences the difficulty in the transfer. This tacit component comes from two different
aspects: the documentation level of practices and the people who own the knowledge to
be relocated.
The lack of documentation of best practices or a base case of knowledge relocation
increments adaptation and formation costs in day to day implantation, slowing down the
way to reach a successful dynamic situation.
The second aspect referred to the tacit component stores in people’s mind also impedes
a successful exchange, being difficult to exteriorize what it is in mind. This exchanges
becoming dependant to some extent on the ease of communication (Arrow, 1974) and
on the intimacy of the overall relationship between the source unit and the recipient unit
(Marsden, 1990).
3- The characteristics of the context to which knowledge is transferred.
When removed from their original context, routines may be largely meaningless (Elam,
1993), and their productivity may decline (Grant, 1991) giving rise to serious
suboptimality and hampering performance when they are automatically transferred onto
inappropriate situations (Cohen and Bacdayan, 1994).
Problems with transferability arise because the routine might be incompatible with the
new context (Madhok, 1997). In the case of China, it has a strong national culture and
has guarded the leakage of information and restricted external influence of any kind, so
that its people only know one way of doing things - the Chinese way (Pang, Roberts and
Sutton, 1998).

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For instance, our research about the Chinese context has revealed that there exist some
factors coming from the culture that are strongly attached to the Chinese way of doing
things. The use of guanxi, the preferred form for personal interaction, the strong trust
among close relationships that dictates the way they communicate, and the hierarchical
and centralized structure of organizations and work environment that Chinese are used
to, difficult the relocation of knowledge and day to day operations of foreign companies
when establishing in China.
Revealed the main variables that affect to the knowledge relocation into the Chinese
context, it is time to answer to the research question. To have a successful transfer into a
Chinese context, companies must take care of the following four key factors:
1- Adaptability and flexibility according to the new context
The lecturers agree that the firm possessing superior routines is supposedly in an
advantageous position to copy its own routines because it has full access to templates or
working examples of those routines (Rivkin, 2000; Winter, 1995). But they also state
that general rules and procedures have to be incompletely specified when transferred
across contexts, precisely because contexts are different (Reynaud, 1998).
Although it seems that these assumptions are confronted, the true is that companies
must handle both issues in the transference process. A firm that has everything
documented and planed before the transfer, will be more prepared and will spend less
time implementing routines and transferring knowledge. However, during the transfer
and when relocating knowledge, people, in this case expatriates, need to be flexible and
adapt their documentation and behavior to the specificities of the new context.
This approach to overcome the stickiness in the transfer is appropriate for any company
with its own particularities, because all companies need to be proactive, planning and
adapting their strategies to business environments in order to be competitive.

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