Int. J.

of Human Resource Management 17:2 February 2006 295–315

Factors affecting international staffing

in Chinese multinationals (MNEs)

Jie Shen

Abstract While the existing models explain factors determining approaches to

international staffing of multinational enterprises (MNEs) from developed countries,
there is little known about MNEs of developing and transforming economies. This
qualitative empirical research explores the factors determining international staffing in
Chinese MNEs and argues that Western models are generally applicable to the Chinese
context. However, the same categories of determining factors have sometimes different
underlying meanings or varied contents. Contrary to the prevailing literature, this study
shows international experience is a catalytic agent of change rather than a determinate of
international staffing approach. Moreover, some factors that have not been much
considered in the literature have been evidenced to be important factors affecting
international staffing particularly in Chinese MNEs. Further study directions and
implications for practitioners are also discussed.

Keywords International human resource management (IHRM); international recruit-

ment and selection; model; Chinese MNEs.

Introduction
While scholars have recognized that ‘IHRM for many firms is likely to be critical to their
success, and effective IHRM can make the difference between survival and extinction for
many MNEs’ (Schuler et al., 2002: 42), IHRM is underdeveloped (Dowling et al., 1994;
Harzing, 1995; Brewster and Scullion, 1997). Moreover, most IHRM concepts were
mainly derived from advanced Western economies. There is relatively little empirical
research that documents the IHRM strategies and practices of international firms,
particularly firms that have their headquarters outside North America (Scullion, 1994;
Shen, 2004). Whether Western models are equally powerful when applied to MNEs from
developing or transitional economies (e.g. Chinese MNEs) remains debatable. By using
an inductive approach, this study looks into what differences might exist between the
current theories and the Chinese context, in terms of factors shaping international
recruitment and selection policies and practices. This is a topic that has not been much
considered in the literature.
From 1978, under the leadership of Deng Xiaoping, China embarked on a strategy of
economic reform moving the economy from a sluggish Soviet-style centrally planned
economy to a ‘socialist market economy’, based on the ‘Open Door’ policy and the ‘Four
Modernizations’ (of agriculture, industry, defence, and science and technology) (Goodall
and Warner, 1999; Warner, 1995). The economic reform has resulted in fast growth of

Dr Jie Shen, University of South Australia, Division of Business, School of Management, City West
Campus, SA5001 Adelaide, South Australia, Australia (tel: þ 61 (0) 8 8302 0477; fax: þ 61 (0) 8
8302 0512; e-mail: [email protected]).
The International Journal of Human Resource Management
ISSN 0958-5192 print/ISSN 1466-4399 online q 2006 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/09585190500404739
296 The International Journal of Human Resource Management
privatized enterprises, foreign invested enterprises (FIEs) and joint ventures (JVs), and
significant change in human resource management. The change is mainly reflected in the
disappearance of life employment (tie fan wan) and fixed salaries (tie gong zi), which
have been replaced by employment contracts (lao dong he tong) (Child, 1994; Nolan,
1995; Peng, 2000). In recent years, industrialization in China has progressed to the point
where it is now called the world’s manufactory. China has become one of the largest
recipients of foreign direct investment in the world.
The recent two decades have also witnessed the rapid development of Chinese MNEs.
The latest statistics from the Ministry of Commerce showed that for the past 20 years,
Chinese firms have grown stronger. In 2002, the turnover from China’s top 500 industrial
companies accounted for 68 per cent of the gross domestic product (GDP) of the country.
With growing strength, more and more companies began to set their eyes abroad. There
were only three Chinese enterprises among Fortune’s first ever list in 1995. In recent
years, with China’s deepening economic reforms, more enterprises entered the list.
Statistics showed that 12 Chinese companies have been listed among the world’s top 500
engaging in fields from telecommunication to banking.1 ‘Yet, little is known about
Chinese MNEs’ (Liu and Li, 2002: 699). Therefore, there is a great need to understand
the global management of Chinese MNEs as more and more are entering and taking
important positions in the global market (Shen, 2004; Shen and Edwards, 2004).
Shen and Edwards (2004) have explored international recruitment and selection
policies and practices of Chinese MNEs. According to them, the staffing approaches of
Chinese MNEs are categorized into three groups: ethnocentric, polycentric and an
ethnocentric approach having a strong polycentric tendency. According to Perlmutter
(1969) and Perlmutter and Heenan (1974, 1979), the ethnocentric approach to staffing
results in all key positions in a multinational being filled by PCNs. The polycentric
approach is one in which HCNs are recruited to manage subsidiaries in their own country
and PCNs occupy positions at corporate headquarters. Table 1 presents an overview of
Chinese international recruitment and selection approaches, and the reasons for these
approaches in the ten companies.
There are also considerable variations in international staffing activities, i.e. selection
criteria and procedures. Chinese companies have different emphases on party loyalty and
personal moral attributes (De). They adopt dual approaches to the criteria for expatriates’
and HCNs’ recruitment and selection. The approach to HCN management in terms of
recruitment and selection is generally host-based, especially the recruitment and
selection system and process and the way of dealing with the departure of HCNs.
Therefore, HCNs’ recruitment and selection criteria and procedures vary between host
environments.
Shen and Edwards have not, however, examined the reasons why Chinese MNEs
adopt such policies and practices. So what factors drive the Chinese MNEs to use
different approaches? Clearly, there are existing theories that would provide answers
to this question for MNEs of developed countries. Would these theories be applicable to
Chinese MNEs?

Literature review
Staffing in the international environment is about who is going to run the various
geographically dispersed operations (Sparrow et al., 1994) and is a major strategic IHRM
practice that MNEs have used to help coordinate and control their far-flung global
operations (Dowling and Schuler, 1990; Hendry, 1994; Dowling et al., 1999). As Duerr
(1986: 43) has argued, ‘Having the right people in the right place at the right time
Table 1 International staffing approaches and the main reasons in the case Chinese MENs
Company Staffing approach Major reasons for the approach Main reasons for using expatriates
Company A Ethnocentric approach with strong A mixture of coordination, Coordination and control, low
polycentric tendency control and local responsiveness availability of qualified HCNs
Company B Ethnocentric Coordination and control Coordination and control, trouble
shooting
Company C Ethnocentric Coordination and control Coordination and control, trouble
shooting
Company D Ethnocentric Coordination and control Coordination and control, trouble
shooting

Shen: International staffing in Chinese MNEs

Company E Ethnocentric approach with strong A mixture of coordination, Coordination and control, low
polycentric tendency control and local responsiveness availability of qualified HCNs,
trouble shooting
Company F Ethnocentric Coordination and control Coordination and control
Company G Ethnocentric Coordination and control Coordination and control
Company H Polycentric Perceptions of non-transferability of Coordination, trouble shooting, financial
home HRM systems management, culture diffusion, low
availability of qualified HCNs
Company I Polycentric Perceptions of non-transferability of Coordination, trouble shooting, financial
home HRM systems management, culture diffusion, low
availability of qualified HCNs
Company J Ethnocentric approach with strong A mixture of coordination, Coordination and control, low
polycentric tendency control and local responsiveness availability of qualified HCNs,
trouble shooting

Source: adapted from Shen and Edwards (2004).

297
298 The International Journal of Human Resource Management
emerges as the key to a company’s international growth’, so international staffing is of
considerable importance to an MNE’s success (Hamill, 1989; Welch, 1994; Dowling
et al., 1999). Staffing foreign operations is also important because many MNEs have
difficulty in assembling international management teams combining knowledge of local
market conditions with local and organizational competence (Pucik, 1984). International
recruitment and selection also has strong impact on other IHRM policies and practices.
For example, the presence of expatriates has significant effects on the HRM practices of
MNEs. An MNE with an ethnocentric staffing approach tends to employ parent-based
IHRM policies (Rosenzweig and Nohria, 1994). Dowling et al. (1994) argued that a
firm’s staffing policy affects reward and compensation. If a firm has an ethnocentric
staffing policy, its compensation policy should aim to retain parent-country nationals.
If staffing policies follow a geocentric approach, the MNE needs to consider establishing
a system of host-based pay. The view of Dowling et al. has been supported by Shen
(2004), who argued that international reward and compensation systems are affected by
international staffing approaches in Chinese MNEs.
The staffing problems facing international firms are more complex than in domestic
firms (Scullion, 1994; Shen and Edwards, 2004). An MNE faces many choices when
dealing with international recruitment and selection in relation to staffing approaches,
recruitment and selection criteria and procedures. Paauwe and Dewe (1995) argue that as
almost all employees at the middle management and more operative levels are usually
recruited locally, there is no difference between international and domestic HRM. This is
not the case when candidates for upper management posts are being recruited. Various
options for international assignees are available, including parent-country nationals
(PCNs), host-country nationals (HCNs), third-country nationals (TCNs), mixed and ad
hoc. There are four general approaches to international staffing policies. Apart from the
above-mentioned ethnocentric and the polycentric approaches, there are the geocentric
and the regiocentric approaches (Perlmutter, 1969; Perlmutter and Heenan, 1974, 1979;
Dowling et al., 1999):

. The geocentric approach utilizes the best people for the key jobs throughout the
organization, regardless of nationality.
. The regiocentric approach to international staffing is that a multinational divides its
operations into geographical regions and transfers staff within these regions.

Each approach has its own advantages and disadvantages. The major advantages of the
ethnocentric approach are good communication, coordination and control links with
headquarters. There are many problems engendered by the ethnocentric management
style, such as an inability to utilize fully the talents of non-home-country nationals,
discontent among local national managers, high costs of using expatriates, difficulty in
adapting to the host-environments and re-entry problems. The advantages associated
with the use of host country nationals include familiarity with culture, knowledge of
language, reduced costs, good public relations, and low turnover of HCN managers. The
main disadvantages of a polycentric policy are the difficulty of bridging the gap between
subsidiaries and headquarters and the limited career paths of HCNs and TCNs. There are
two main advantages to the geocentric approach: it enables a multinational firm to
develop an international executive team, and it overcomes the ‘federation’ drawback of
the polycentric approach. The major disadvantages of the geocentric approach are the
difficulty in obtaining work permits in host countries and high costs of training and
relocation. The main advantages of the regiocentric approach include allowing manager
transfer between regional headquarters and subsidiaries as an MNE gradually adapts its
 Shen: International staffing in Chinese MNEs 299
staffing policies. The disadvantages of this approach include causing federalism on a
regional basis and limiting career paths for managers within the region.
The choices on approaches to international staffing can be affected by many internal
and external factors. Some authors, such as Dowling et al. (1999), Evans and Lorange
(1989), Paauwe and Dewe (1995), Schuler et al. (1993), Shen et al. (in press) and Taylor
et al. (1996) have developed integrative IHRM models that combine multiple factors and
a variety of IHRM policies and practices. More specifically, Hamill (1989) and Welch
(1994) developed frameworks explaining intervening factors associated with
international staffing in British MNEs and Australian MNEs respectively. According
to these authors, effective international staffing policies and practices seek for the ‘fit’
between a firm’s strategy, characteristics and external environment. Firm characteristics
and external environment can be easily expanded into a variety of host-contextual and
firm-specific factors. Host-contextual factors are related to the host-country’s indigenous
influence while firm-specific factors are inherent in an MNE and are related to the
country where it originates, the industry that it competes in and its firm specific attributes
(Welch, 1994).

Host-contextual factors
Hayden and Edwards (2001) have argued that differences between national business
systems limit the diffusability of employment practices as their introduction to other
countries is subject to the ‘constraints’ posed by the recipient systems. Host-contextual
factors mainly include the political, legal, economic and socio-cultural factors. Political
risk conditions create an environment of uncertainty and political exposure (Sundaram
and Black, 1992). Needing to manage this uncertainty, MNEs may act to exert control
over the situation by sending more PCN employees and imposing policies and practices
prescribed by headquarters (Pucik, 1992). The legal system in the host country can
determine a company’s management staffing philosophy (Von Glinow and Teagarden,
1988; Welch, 1994). Chinese MNEs may need to use more expatriates when operating in
politically unstable regions and comply with host legislation on employment, such as
constitution of workforce in overseas subsidiaries.
The economic factor relates to the basic economic position and extent of economic
development of a country or countries in a region from the perspective of investment by
the MNE (Schuler et al., 1993). The most relevant indicators of the economic factor are
specific prosperity and purchasing power. Paauwe and Dewe (1995) have argued that the
differences in purchasing power and competition in the local or regional labour market
should be taken into account in IHRM. Escalating costs have moreover encouraged
MNEs to consider replacing expatriates with local managers (Brewster and Scullion,
1997). Erdener and Torbiörn (1999) argued that the use of HCNs might increase
transaction costs if managerial talent in the local country is scarce. Tung (1982)
discovered that US and European firms tended to use parent-country nationals (PCNs) in
less developed nations, but preferred host-country nationals (HCNs) in countries
classified as developed.
Cultural distance is another potential determinant of management staffing policy.
Evans (1986) argued that global firms select and retain those people in any given
countries who most closely fit with their own cultural values. The view of Evens has been
supported by many scholars, such as Boyacigiller (1990) and Welch (1994), who stated
that the closer the host country is culturally, the more likely it will be seen as a desirable
foreign posting, or pose less problems for expatriate and family adjustment. Hossain and
Davis (1989), however, argued that socio-cultural factors are perhaps the most important
300 The International Journal of Human Resource Management
variables that internationally operating managers must take into consideration. Firms
gravitate towards staffing patterns that give the lowest risks in relation to cultural
frictions between the parent and the subsidiary, and help reduce transactions costs
(Erdener and Torbiörn, 1999). The socio-cultural factor is also related to the host labour
market. The limited availability of management and technical skills in some countries is
one of the major reasons for employing expatriates and management transfer in MNEs
(Scullion, 1994: 88).

Firm-specific factors
The firm-specific factors mainly include international strategy, international organization
structure, organizational culture, stage or mode of internationalization, size of
international operation, international experience, type or niche of industry, reliance
on international markets, top management’s perception of home HRM and economic
ownership (Hamill, 1989; Schuler et al., 1993; Shen et al., in press; Welch, 1994). ‘While
it is recognized that strategy –structure responses have IHRM implications, the IHRM
function has tended to be regarded as a tool for the implementation of the strategy –
structure changes made in response to the organization’s environment’ (Welch, 1994:
153). According to Welch, it has been widely agreed that ethnocentric policies would fit
with global industries; polycentric policies fit with multidomestic and geocentric policies
fit with transnational industries.
Control is one of the most important reasons for using or transferring expatriates
(Edstrom and Galbraith, 1977; Scullion, 1994). Cultural control of foreign subsidiaries
through organizational acculturation may be a critical mechanism by which MNEs can
maintain hegemony over increasingly complex global operations (Selmer and de Leon,
2002). Traditionally, expatriate managers have served as control representatives of the
home office in ensuring that the foreign subsidiary adheres to corporate goals and
objectives (Peterson et al., 1996). Expatriates play an essential role in controlling foreign
subsidiaries through the socialization of local managers (Borg, 1987; Harzing, 1999;
Welch, 1994). Some scholars, such as Hunt (1984), Evans (1986) and Welch (1994),
believe that organizational culture could be modified to ensure it is appropriate to the
organization’s needs and environment, and can be managed by HRM (i.e. through
staffing).
Moreover, the need for control is linked to the organization’s stage of
internationalization, and therefore has impact on international staffing approaches
(Welch, 1994). Firms at the early internationalization stage usually pursue a high level of
control by using an ethnocentric approach. When growing into the mature multinational
phase, the firm needs to coordinate global manufacturing and marketing activities, and to
shift IHRM activities into the geocentric approach (Adler and Ghadar, 1990; Dowling
et al., 1999; Welch, 1994). Evans and Lorange (1989) stated that there are various phases
of the product life cycle (PLC) in different markets and each requires a different type of
managers. For example, cost-conscious management will be more important in the
maturity phase than in an emerging phase, where managers with entrepreneurial skills are
more appropriate. Therefore, recruitment and selection will differ from one phase of PLC
to another. The phases of internationalization relate to the internationalization modes as
well, including export, sales offices, foreign direct investment with foreign production,
licensing, franchising and international joint venture. For example, as Hamill (1989: 22)
pointed out, ‘the employment of expatriates will be lower in acquisitions by comparison
with green-field sites’. Scullion (1994: 90) echoed Hamill’s view by arguing that a key
reason for using senior expatriates is to maintain trust in key foreign businesses,
 Shen: International staffing in Chinese MNEs 301
following large international acquisitions. Most Chinese MNEs have recently entered
into the international arena and are at the early stage of internationalization. Hence, it is
possible for them to adopt different international staffing policies from those MNEs that
have been long competing internationally.
A limitation to the stage of internationalization theory is the type of industry involved
(Welch, 1994). Logger et al. (1995) argued that a service company is more vulnerable
than a manufacturing firm in the early stages of foreign operations, as it has not generally
experienced that preparatory stage of exporting which allows exposure to some of the
inherent difficulties involved in offshore business ventures. The impact of this on
international recruitment and selection is that there is a tendency to rely heavily
on expatriates in their early stage of business. However, in service sectors, such as the
banking and insurance industries, Boyacigiller (1990) argued that HCNs may provide
important links to the local business community and thus play a key strategic role in
gaining new business for the branch. Rapid technological changes may also affect an
MNE’s staffing approach. Subsidiaries employing advanced technology requiring
specific skills and expertise not available locally tend to use more expatriates (Delios and
Bjorkman, 2000; Fields et al., 2000; Hamill, 1984).
Some authors have suggested that there is an association between international
experience with international staffing (see Brewster, 1988; Ferner, 1997; Hamill, 1984;
Milliman et al., 1991; Tung, 1982). Generally, MNEs with limited international
experience tend to have a high usage of expatriates while large MNEs with
lengthy experience of employing expatriates tend to use fewer expatriates than they used
to. Chinese MNEs vary in the type of industry and international experience. Thus, they
are expected to adopt a certain pattern of international staffing policies and practices
according to particular type of industry and international experience.
However, while the linkage between international operation size, reliance on
international markets and top management perception of home HRM systems with
IHRM in general, especially their impact on international orientation have been well
documented (see Dowling et al., 1994; Ferner, 2000; Flood et al., 1996; Hayden and
Edwards, 2001; Jackson and Schuler, 1995; Taylor et al., 1996; Welch, 1994), their
impact on international staffing has yet to be much explored as a result of a lack of
empirical research. The type of economic ownership has not been highlighted yet as a
determinant of IHRM in the existing literature. Gunnigle (1992) argued that company life
cycle and industrial sector, rather than ownership per se, are the key factors impacting on
management approaches to employee relations among foreign-owned companies in
Ireland. However, it is regarded as one of firm-specific factors that have a bearing on an
organization’s choice on domestic HRM practices. According to Bjorkman and Lu
(1999), Verburg (1999) and Ding and Akhtar (2001), when China opened its doors to
foreign investment in the late 1970s, foreign invested enterprises (FIEs) were granted
authority to run their businesses through market-oriented mechanisms. For instance, FIEs
were empowered to determine the size of their staff, recruit personnel through the
external labour market according to business needs, design reward systems based on
performance and use various incentive schemes to retain key personnel. These policies
were not granted to state-owned enterprises (SOEs) and collective-owned enterprises
(COEs). Therefore, it is necessary to look into the impact of size of international
operations, reliance on international markets, top management perception of home HRM
systems and economic ownership on international recruitment and selection in the
empirical research.
This study will later test the factors discussed above so as to develop an international
staffing framework, demonstrating the relationships between international recruitment
302 The International Journal of Human Resource Management

Figure 1 A model of international recruitment and selection (adaptation of Hamill, 1987 and
Welch, 1994).

and selection policies and practices and various factors associated. Those factors that have
an impact on international staffing in Chinese MNEs will be shown in Figure 1. Figure 1
also includes some factors that are peculiar to staffing in Chinese MNEs but not really
relevant to other national MNEs.

Methodology
Welch (1994) has argued that an exploratory qualitative methodological approach assists
in identifying underlying relationships, patterns and trends that could be interpreted as
linkages or interrelations between IHRM activities and various factors. In order to
provide answers to the questions of ‘how’ and ‘why’, it is necessary to understand the
processes involved. This approach is especially appropriate to this study as Chinese
MNEs are new in the international domain and an inductive approach would be helpful to
derive a more accurate and valid understanding of the phenomenon. This study used
semi-structured interviews for collecting data from ten Chinese MNEs. The case
companies are denoted by letters A –J, and the companies’ profiles are shown in Table 2.
The selection of the case companies is for the following reasons:

1 The case companies consist of seven service and technology import/export agencies
and three manufacturing companies, covering a range of financial services,
electronics, an airline, health products and natural resources trading, technology
import and export and shipping services. The number of employees varies from 800
to over 80,000 worldwide. These variations provide opportunities to examine the
impact of different firm-specific factors.
2 The latest statistics from the Ministry of Commerce showed that for the past 20 years,
the majority of Chinese MNEs are SOEs.2 This trend is consistent with the proportion
of economic ownership of the sample of this study. Among the ten case companies,
seven are state-owned enterprises (SOEs), two are collective share-holding firms and
one is a private share-holding enterprise.
3 The case companies largely represent the current international entry strategy and
industry pattern of Chinese MNEs. Chinese outwards investment is largely concentrated
on trading, logistics (such as shipping), financial and airline services and electronics
production sectors. The case companies generally follow Chinese MNEs’ common
international entry modes, i.e. normally start with entry into the East and South East
Asian regions, and then expand into North America and Europe (Luo et al., 1993).
Table 2 The profiles of the case companies
Company Ownership Foundation Location of Industry No. of No. of overseas Years of internationali-
year headquarters type employees/ subsidiaries zation experience
overseas
employees
A SOE 1929 Beijing Banking 18,000/500 24 (559 branches) 72
B SOE 1988 Beijing Airline 13,000/450 37 13

Shen: International staffing in Chinese MNEs

C SOE 1952 Beijing Investment agency and 800/280 28 49
technology trading
D SOE 1955 Beijing Investment agency and 1000/100 10 46
technology trading
E SOE 1961 Shanghai Shipping 80,000/50,000 125 40
F SOE 1950 Beijing Natural resources trading 15,000/600 44 51
G SOE 1959 Beijing Investment agency and 2000/300 30 42
technology trading
H Share- 1984 Qiandao Electronics 30,000/3,000 160 17
holding
I Share- 1969 Qiandao Electronics 14,000/940 8 5
holding
J Share- 1988 Guangzhou Health products 1000/50 5 13
holding

303
304 The International Journal of Human Resource Management
Interviews with different people at different levels within an organization help obtain
more insightful information from different managerial perspectives. In total 30
interviews were carried out between February and September 2001 in both China and the
UK. In each case company one general manager who was in charge of HRM, one HR
manager at headquarters and one executive manager at the UK subsidiary were
interviewed. All the case companies have subsidiaries in the UK. While this study
investigates the impact of intervening factors worldwide, it takes a closer look into the
UK subsidiaries, which is believed to help provide insight into the impact of host-
contextual factors resulting from the striking differences in contextual environment
and institutional characteristics between China and the UK. We asked the general and
HR managers at headquarters about what factors have affected their decisions on
corporate-wide staffing policies. The executive managers, however, were asked about the
effect of intervening factors on staffing practices within the UK subsidiaries. The
interview questions are shown in Appendices 1 and 2. By collecting data both in
subsidiaries and at HQs we were able to explore both subsidiary-specific and corporate-
wide international staffing policies and practices. Company documents, reports and
magazines, particularly those relating to IHRM policies, were also collected whenever
available during the research.
Theory building requires the highest level of interpretation and abstraction from the
data in order to arrive at the organizing concepts and tenets of a theory to explain
the phenomenon of interest (Hancock, 1989). Data were coded into four categories:
international staffing policies and practices; firm-specific factors; the impact of
associated factors worldwide; and the impact of associated factors in the UK. Each
category includes certain subcategories. Table 3 provides examples of data coding.
The data analysis consists of two successive phases. In the first phase we found the
patterns of international staffing polices and practices among the case companies.
First, we put the same or similar staffing policies and practices in the same category.
Second, we identified the companies that adopted those staffing approaches. Third, we
analysed the pattern of the characteristics of those companies and host-country
environment. In the second phase we explored the possible relationships and patterns
across four categories, e.g. the significance between staffing policies and practices and
firm-specific and host-contextual factors. Next, we will present the major findings of this
study.

Results
Factors associated with international recruitment and selection
Contextual factors Political factors. All respondents expressed that the case companies
are not willing to invest or are more likely to downgrade scales of their operations in
politically unstable regions. This is because the implementation of international strategy
is sometimes constrained by the inability of PCNs to handle eventualities in those
regions. The common statements of respondents are: ‘we are cautious in investing in the
regions in trouble or potentially unstable’, ‘we withhold operations in the war zones’ and
‘no company is interested in developing business in politically unstable regions’. The
respondents also stated that the relationship between China and other countries
influences considerably Chinese MNEs’ investment strategy and consequently affects
their HR planning. Political factors also affect staffing approaches and related policies.
Control becomes overwhelmingly important when operating in politically unstable
regions. Under such circumstances the case companies normally send more expatriates
including flexpatriates who take short-term assignments but not relocate to overseas
 Shen: International staffing in Chinese MNEs 305

Table 3 Examples of data coding

Coding category Examples
International staffing Company A appoints 91 per cent PCN
policy and practice executive managers, 39 per cent PCN
middle managers and 0.5 per
cent shop floor workers. The positions
of deputy executives are open to
HCNs. Company A is not willing
to appoint PCNs to shop floor
workers in the overseas subsidiaries.
– Company’s documents

In company H, all
managerial positions are open to HCNs.
Management is not willing to appoint
PCNs as shop floor workers.
– General, HR and the UK executive
managers
Firm-specific factor Company A has 72 years international
experience. Company H has 17 years
international experience.
– Companies documents
Company H regards the availability
of qualified HCN managers in developed
countries is very high and in developing
countries is not high.
– General and HR managers
The impact of associated factors PCNs in company A prefer to work in Western
worldwide countries.
– HR and the UK executive managers

Company H does not send shop

floor workers to overseas operations for
economic reasons.
– General and HR managers

The impact of associated factors in Company A employs a limited number

the UK of expatriates in order to comply
with UK legislation.
– HR and the UK executive managers

Company H appoints less PCN executive

managers in its overseas plants than
in overseas sales offices.
– General and HR managers, and company’s
documents

operations. HCNs are also likely to be offered short-term contracts due to companies’
lack of long-term business planning. The HR and General Managers also universally
reported that political instability affects their expatriate selection criteria. The case
companies are likely to emphasize the candidate’s international experience and
coordination ability rather than technical skills when assigned to politically unstable
306 The International Journal of Human Resource Management
regions. The interviews also revealed that the case companies are very concerned with
party loyalty in the expatriate recruitment and selection process.

Legal factors. Interviews showed that the number of expatriates is restricted by the host
country’s expatriate quota systems. In order to curb the utilization of expatriates many
countries pursue strict expatriate employment quota policies. For instance, the number of
expatriates in UK subsidiaries is restricted and is based on the scale of investment. The
case MNEs cannot send as many expatriates as they sometimes wish to. Therefore, they
have to consider placing a limited number of expatriates into key positions. Overall 20
managers mentioned that some positions, such as chief accountants, have to be filled by
HCNs in some countries. Nineteen respondents also pointed out that legislation
influences not only recruitment but also the laying off of workforce. The case Chinese
MNEs are very cautious about laying off HCNs before their contracts expire because
they are concerned that if something goes wrong, HCNs would sue them.

Economic factors. Labour costs have a significant influence on international staffing

policies in the selected firms. Interviews with managers from companies H and I revealed
that these two firms adopt the polycentric staffing approach partly because under their
current host-based salary policy, employing HCNs is cheaper. Companies A, B, C, D, E,
F and G adopt a host-based reward and compensation policy for HCNs and a ‘post-based’
reward and compensation policy for expatriates. Because of limited differentials in the
salaries between Chinese management and non-management, employing a local manager
in Western countries is more expensive than using an expatriate manager in these
companies and employing a non-management HCN is cheaper than using an expatriate.
These companies tend to employ a large number of expatriate managers and a small
number of non-management expatriates out of concern over labour costs.
Technological development is one of the economic factors relating to the availability
of qualified staff in host countries, and has an impact on recruitment and selection
policies and practices. According to the HR managers and executive managers in
companies H and I, the two companies use more expatriate technicians in developing
regions, such as Africa and the Middle East, than in Western countries. These two
companies use mainly local technicians and product designers in American and
European subsidiaries. In addition, the overall economic condition of the host country,
such as working environment, living standards and social stability, is closely linked to
‘location of assignment’, which affects the attractiveness of international assignments in
specific locations. The interviews revealed that PCNs in the case companies are normally
reluctant to take assignments in developing countries, but love working in developed
countries. The relatively lower availability of PCNs for working in developing countries
is a reason for the case companies to use more young and energetic expatriates but less
internationally experienced managers. This has therefore led to different approaches to
expatriate recruitment and selection criteria.

Socio-cultural factors. The interviews show that the preference and availability of
qualified local employees in local labour markets affect the case companies’ staffing
approaches. Most case companies have difficulty in recruiting Mandarin-speaking
HCNs, therefore, they sometimes have to use more expatriates than they want to.
According to managers of companies H and I, these two companies have experienced
more difficulties in recruiting qualified HCN managers in developing countries than in
developed countries. Local employment practices strongly influence employment
policies and practices in the case companies. Unlike in their home operations, Chinese
 Shen: International staffing in Chinese MNEs 307
firms largely introduce part-time employment and flexi-time working in their overseas
operations. Overtime that is usually compulsory at home has been reduced to the
minimum level in overseas operations. At home, Chinese firms directly recruit new
graduates from universities, while they recruit HCNs largely through agencies overseas.
Moreover, the impact of differences in Chinese and host cultures on international staffing
is reflected in recruitment and selection criteria. The interviews show that the selected
Chinese MNEs adopt dual approaches to recruitment and selection criteria for PCNs and
HCNs. The case companies are only concerned personal moral merits in expatriates’
rather than in the HCNs’ recruitment and selection.

Firm-specific factors Companies H and I pursue an international differentiation

strategy and have a decentralized global area division structure to ensure a high quality of
products and responsiveness to fluctuations in market demand. High national
responsiveness has been achieved through adopting a polycentric staffing approach
(i.e. employing and developing a large number of HCN managers). The headquarters are
primarily responsible for executive recruitment and advising subsidiaries on key
appointments. Companies B, C, D, F and G have pursued a global segmentation strategy
by dominating and focusing on specific markets, such as international air transport,
government technology import and export projects and scarce minerals trade but operate
worldwide. Worldwide negotiations and comparisons necessitate corporate-wide
integration and coordination. The ethnocentric IHRM approach and a global
functional structure have enhanced the control and coordination mechanism.
Companies A, E and J pursue a global differentiation strategy and have a mixture of
global area divisional structure and global functional structure, focusing on integration
of widely dispersed units and at the same time on the quality of products and services that
are responsive to local needs. In order to facilitate the control mechanism and at the same
time localize downstream activities, such as marketing, sales and services, these three
firms fill all top management positions in subsidiaries with expatriates and employ a large
number of HCNs in middle management positions. As the executive manager of the UK
subsidiary of company A said, ‘We found it difficult to explore the local market due to
lack of localization of employment. We are now correcting our staffing policies.’

Organizational culture. In companies H and I work is done mainly according to the

rules rather than orders from the top. The rules change and resources are reallocated
according to the nature of tasks or projects. This kind of culture requires an adaptive and
localized style of management. The chairman of company H once commented, ‘Our
culture is not contradictory with the local culture. What we do is to combine them
together.’3 Such combination is adaptation rather than acculturation, and it has become
the premise for adopting a polycentric staffing policy. In the remaining firms, however,
activities are also carried out basically according to the rules. However, there are power
centres from which the major decisions are made and instructions are sent. The
instructions sometimes transcend the existing rules. This kind of culture requires
considerably centralized IHRM. The use of expatriates to enable control and
coordination of overseas operations is a key issue for these firms. The exception of
companies A and E who employ relatively more HCN managers than other firms in the
same group is due to their high reliance on international markets, which will be analysed
in a later section.

Stage or mode of internationalization. Overall, the ten case companies are categorized
into two groups: the internationalization stage and the globalization stage. The first
308 The International Journal of Human Resource Management
category comprises of companies A, B, C, D, E, F and G as companies C, D, F and G
have only sales offices abroad while companies A, B and E are in service industries.
Their parent companies wholly own overseas sales offices and the overseas subsidiaries
in the service sector. Companies H, I and J have entered the global stage by establishing
overseas productions. Their entry mode for overseas productions was through either
setting up joint ventures or Chinese investment. The pattern of staffing emerges in the
way that the internationalization stage group is prone to pursuing an ethnocentric staffing
approach while firms at the global stage tend to employ a polycentric staffing policy. For
example, company H set up a refrigerator factory in the US in 2001, employing only
three expatriates out of 220 local employees.

International experience. The data reveal that international experience is a factor

causing changes in international staffing approaches, particularly the change from the
ethnocentric approach to the polycentric approach. Companies A, E and J initially
adopted a purely ethnocentric IHRM approach. Later, they found it difficult to explore
local markets because PCN managers were incapable of meeting local customer demands
owing to a lack of experience and local knowledge. With the increase of international
experience in handling local employees, these firms have been gradually moving away
from an ethnocentric to a polycentric staffing approach. Therefore, the number of HCN
managers has gradually increased. However, the data have not shown a clear pattern of
the impact of international experience on staffing, as the polycentric staffing approach
was regarded associated with either adequate or inadequate international experience,
so was the ethnocentric approach. Managers from both polycentric, including companies
H and I, and ethnocentric companies, such as companies B and J, regarded that their
international approaches resulted from the lack of international experience. Moreover,
managers from the remaining companies also regarded that their ethnocentric approach
was due to adequate international experience. As General Manager from company C
stated, ‘We are well-experienced. Our own people know how to get jobs done.’

Type or niche of industry. There are a number of similarities in staffing approach

between the three manufacturing firms. According to the managers from companies H and
I, the high growth in the domestic electronics industry requires specific skills and
expertise that are not always available in the home country. The chairman of company H
stated, ‘Localization is not only in products, production and marketing, but also in
management. The core of localizing management is using HCNs.’ Therefore, these two
firms are largely reliant on HCNs. Company J also employs a large number of HCN
managers by adopting an ethnocentric approach with a strong polycentric tendency. These
three companies exercise ‘financial control’ over overseas plants without interference in
management (i.e. the headquarters control investment and oversee sales and profits).
Companies B, C, D, F and G are all in service or trading industries, and exercise
‘management control’ over overseas subsidiaries’ day-to-day operations. Their
centralized management requires large PCNs to fill key positions. Managers from the
bank (company A) and the shipping firm (company E) reported that these two firms tend to
employ more local managers, as HCN managers play an important role in exploring local
markets.

Size of international operations. Another pattern of staffing emerges, associated with

the size of international operations. The case companies with larger international
operations (especially larger overseas subsidiaries, such as companies A, E and H), tend
to employ more HCN managers, which is likely to lead to a polycentric or an
 Shen: International staffing in Chinese MNEs 309
ethnocentric approach with a strong polycentric tendency. A small international
operation is likely to lead to the use of PCN mangers. Company J is at the global stage of
internationalization. It does not pursue a polycentric staffing approach because of its
small international operation. As in the words of one manager from the firm, ‘We do not
bother using many HCN managers in small operations. We will consider it when our
overseas subsidiaries expand.’

Reliance on international markets. The study shows that the extent to which an MNE
relies on international markets affects its staffing approach in a similar way that size of
international operations does. Table 4 indicates that the more a firm is reliant
on international markets the more likely is it to rely on HCN managers.

Top management’s perception of home HRM systems. Managers in the case companies
generally perceived that the home HRM systems are ineffective and the transfer of home
HRM overseas may be not advantageous. Therefore, the main reason for the case
companies to use expatriates is not for transferring HRM abroad or acculturation. One
important aspect of management perception of home HRM is the availability of qualified
staff at home for international assignments. The respondents from companies A, B, C, D, F
and G reported that the availability of candidates has always been high. But it is difficult to
assess the real availability of qualified staff because the criteria for judging if candidates
are qualified are neither clear nor absolute. For example, companies A and E often found it
difficult to find suitable PCNs with knowledge of local markets, language or management
ability. However, in general, the lack of qualified staff in these firms is not seen to be
severe. The high availability of candidates is one reason why these firms see no need to
improve their weak expatriation and repatriation policies. In contrast, managers from the
two electronics companies reported that the availability of qualified staff is quite low
because of special skills needed, which make them rely on many HCN managers.

Economic ownership. In considering the influence of economic ownership, all

managers interviewed stated that they have not taken ownership into consideration when
formulating international staffing policies. Non-state-owned enterprises, such as share-
holding or private companies, used to be less constrained in being creative in recruitment
and selection in domestic operations. With the rapid economic reform, the Chinese
government has relinquished its role in economic activities and management of SOEs.
Moreover, according to the managers from seven SOE companies A, B, C, D, E, F and G,
such interference has never come to international operations because ‘we need to meet
international standards’ and ‘on the contrary, SOEs may have received more support

Table 4 Reliance on international markets and staffing approach

Reliance on international markets Staffing approach
High
Companies H, I Polycentric

Medium
Companies A, E, J Ethnocentric approach with strong polycentric tendency

Low
Companies, B, C, D, F, G Ethnocentric
310 The International Journal of Human Resource Management
from the government than SHEs do’. The executive managers of companies E, G, H and I
also emphasized, ‘We only adopt policies that we think are good’.
Besides the factors discussed above, personal moral merits and trust emerged as two
important elements determining international staffing approaches of the case Chinese
MNEs. Personal moral merits are implicit criteria for expatriate recruitment and
selection. The HR Manager of company A said, ‘Although today Chinese society
becomes more tolerant of personal moral issues, we are cautious about using people who
have moral problems as other people may not have faith in them’. Such a statement has
been generally supported by other respondents. The personal moral merits together with
political loyalty are also called ‘soft aspects’ by Chinese managers. Zaheer et al. (1998)
argue that trust in interorganizational exchange relations clearly matters. Trust was also
frequently mentioned by respondents as a factor influencing international staffing
policies. In the words of the HR Manager of company C, ‘You can not trust anyone. You
can rely only on someone you know well.’ Such a statement was commonly expressed by
respondents during interviews. As a result of the trust concern, the case Chinese tend to
send as many expatriates overseas as possible although this is sometimes constrained by
other factors, such as the intention to localize.
By summarising the discussions above, we develop a model of determinates of
international staffing in the Chinese context and present in Figure 1.

Conclusions
The rapid internationalization of Chinese firms has led to a need for studying Chinese
MNEs. For Chinese MNEs, formulating and implementing simultaneously integrative
and responsive IHRM policies, which are a key to success in the international arena,
requires an understanding of the factors affecting these policies. Although not well
developed there are some existing models explaining determinates of international
staffing policies of MNEs from the developed countries. However, this study has
provided insight into the impact of various factors on international staffing in Chinese
MNEs, which has not been much considered. It lends support to the existing literature
arguing that host-contextual factors including political, legal, economic and socio-
cultural factors, and firm-specific factors including international strategy, international
organization structure, organizational culture, stage of internationalization and type of
industry are major determinates of international staffing policies and practices. It,
therefore, concludes that the extant IHRM models, mainly derived from Western MNEs,
are generally applicable to Chinese MNEs. However, the same categories of factors have
different contents when applied to the Chinese context. For example, political factors
normally point to the status of political stability in a region, in Chinese context; however,
they also mean Party loyalty.
The model developed in this study is based on, but different from, the existing
international staffing models, such as Welch (1994) and Hamill (1989). In particular,
international experience has been reported to be a determinate of international staffing in
the literature. It has been argued that the more the MNE is experienced, the more likely
for it to adopt a polycentric approach (see Tung, 1982; Brewster, 1988; Hamill, 1984;
Milliman et al., 1991; Ferner, 1997). However, this study draws a different conclusion as
there is no clear pattern of the impact of international experience on international staffing
in the selected Chinese MNEs. It can be argued that international experience is a catalytic
agent of change but not a determinate of international staffing approaches. Also,
economic ownership has an impact on domestic HRM, but its influence on IHRM has not
been confirmed by this study.
 Shen: International staffing in Chinese MNEs 311
Size of international operations, reliance on international markets and top
management perception of home HRM systems have been evidenced as determinates
of IHRM policies in general by past studies. There is yet a lack of study considering
whether these factors affect international staffing. This study, thus, makes contributions
to theory by exploring and confirming their impact on international recruitment and
selection. The case Chinese MNEs are also very concerned with trust and personal moral
merits when recruiting and selecting international managers. Trust is explicit and
personal moral merits are implicit, but both have an impact on MNEs’ decisions on
international staffing. As these two factors are not suitable to be classified into either of
the existing categories, this study labels them as ‘other factors’.
This study has some limitations. Although as indicated in the methodology, the
selection of case companies represents the current pattern of overall Chinese MNEs’
activities; because of the small number of case companies it is safe to say that the findings
of this study may not be generally applicable. Further studies should conduct a large-
scale survey so as to collect more inclusive data. The findings of this study are widely
applicable. However, as the current study is conducted in one single national context, one
should be cautious in applying its findings to other national contexts, as every MNE has
unique firm-specific factors and may operate in strikingly different host environments.
Moreover, this study has not explored the interrelation of factors and the interplay of
IHRM activities. For example, trust is likely to do with limited international experience
(e.g. small-size international operations). Further studies could also examine these issues.
Yet, while it is recognized that HRM problems become more complex in the international
arena, there is evidence to suggest that many companies underestimate the complexities
involved in international operations (Scullion, 1994). The implication of the findings on
various factors shaping international recruitment and selection for professionals in MNEs is
that when formulating and implementing international recruitment and selection policies
and practices, they need to take account of host environments, their various firm-specific
factors, and some factors particularly relevant to their own national contexts. When
operating in a new host country, MNEs should review and adjust their existing international
staffing practices in order to be responsive. Due to the fact that every MNE has unique firm-
specific characteristics, no ‘best practice’ is available for them to copy. MNEs need to seek
for the best for their particular firms, which may not be suitable for others.

Notes
1 Source: www.rieti.go.jp/en/index.html (accessed on 5 May 2004).
2 Source: China International Trading Year Books (1993 – 2001), China Outward Economy and
Trade Press.
3 www.peacehall.com/news/gb/china/2003/01/200301311609.shtml (accessed on 31 January
2003).

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Appendix 1: Interview questions for general and HR managers

1 Can you please describe your company’s international recruitment and selection policy, e.g.
the percentages of different nationals filling the senior positions of overseas subsidiaries?
2 How long is the average period for expatriation? Why does your company use expatriates
abroad?
3 Does your company recruit internally or externally for expatriate positions? Does your
company use psychological tests when selecting expatriates? Do expatriates bring assistants
who may be potential successors with them?
4 What are the methods and criteria for HCN and PCN selection?
5 What are the effects of political factors of host countries on IHRM in our company?
6 What are the effects of legal factors of host countries on IHRM in your company?
7 What are the effects of socio-cultural factors of host countries on IHRM in your company?
8 What are the effects of economic factors of host countries on IHRM in your company?
9 What are the effects of international strategy on IHRM in your company?
10 What are the effects of organizational structure on IHRM in your company?
11 What are the effects of organizational culture on IHRM in your company?
12 What are the effects of stage and mode of internationalization on IHRM in your company?
13 What are the effects of international experience on IHRM in your company?
14 What are the effects of size of international operation on IHRM in your company?
15 What are the effects of type or niche of industry on IHRM in your company?
16 What are the effects of reliance on international markets on IHRM in your company?
17 What are the effects of senior management’s perception of the home HRM on IHRM in your
company?
18 Are there other factors affecting your company’s IHRM?
 Shen: International staffing in Chinese MNEs 315
Appendix 2 Interview questions for executive managers

1 How does the UK subsidiary conduct recruitment and selection, e.g. the percentages of
nationalities filling the senior positions?
2 What are the methods and criteria for HCN selection?
3 What are the effects of political factors of host countries on IHRM in the UK subsidiary?
4 What are the effects of legal factors of host countries on IHRM in the UK subsidiary?
5 What are the effects of socio-cultural factors of host countries on IHRM in the UK subsidiary?
6 What are the effects of economic factors of host countries on IHRM in the UK subsidiary?
7 What are the effects of international strategy on IHRM in the UK subsidiary?
8 What are the effects of organizational structure on IHRM in the UK subsidiary?
9 What are the effects of organizational culture on IHRM in the UK subsidiary?
10 What are the effects of stage and mode of internationalization on IHRM in the UK subsidiary?
11 What are the effects of international experience on IHRM in your company?
12 What are the effects of size of international operation on IHRM in your company?
13 What are the effects of type or niche of industry on IHRM in the UK subsidiary?
14 What are the effects of reliance on international markets on IHRM in the UK subsidiary?
15 What are the effects of senior management’s perception of the home HRM on IHRM in the UK
subsidiary?
16 Are there other factors affecting your company’s IHRM?