Before the economic reform, state-owned enterprises (SOEs) had dominated the Chinese

economy. The operation and management of the SOEs were strongly influenced by traditional
culture and communist ideology. The Chinese culture has been marked by collectivism and
Confucianism, with an emphasis on respect for hierarchy, in-group harmony, reciprocity, and
loyalty (Chen, 1995). These culture values, together with tight bureaucratic control from the
government, shaped the pre-reform HRM system in the SOEs, which was characterized by
lifelong job security, seniority-based promotion and wage increases, and extensive welfare
programs (Warner, 1996; Yu et. al., 2005). The so-called iron rice bowl employment system
that emphasized egalitarianism and workforce stability, however, has been criticized as
incompatible with the new economic environment.

Culture and Values

An organizations culture plays an important role in motivating its employees to devote
themselves to the firm. It is more likely that employees are likely to maintain their loyalty and
commitment to the organization, when they share its ideals and values. In China, history plays a
pivotal role in its cultural and social norms, resulting in thousands of years old customs and
practices remaining unchanged. HR professionals in multinationals realised that while they can
influence Western HR practices in China, the organizations rules and regulations cannot be
imposed on the local workers. Understanding the different aspects of the Chinese System is of
great significance when understanding the business system (Zhao, 1991).

Human Resource Problems in China

Over the years, extensive research has been conducted to understand the problems faced by
organizations, especially HR managers, when establishing or running an enterprise in China.
With a high level of foreign investment directed into China, the number of multinational
corporations is increasing rapidly, and significant issues have arisen in recruiting and
maintaining a successful workforce. Retention of well-trained staff (local staff for foreign
firms) has been problematic for many organizations. Average turnover for joint
venture companies in China has increased over the last few years. One reason for
this is the poaching of employees by competing firms. In many cases, foreign
managers have taken greater control of compensation and motivation in order to
retain high-performance Chinese managers.
Work Performance and Employee Management

Workers are not socialised to develop initiative and rarely provided performance feedback (in
Chinese enterprises). Time is not used as a scarce resource; quality of output receives little
emphasis. Consequently, the work ethic is lacking. Managers are rarely awarded for high
performance in Chinese enterprises. This leads to them being risk averse and unwilling to

innovate where the possibility of failure exists. Furthermore, this is compounded by the problem
of losing face. Previous labour laws constrained dismissals, and there is still some difficulty in
retrenching workers. The impact of rising wages on an organizations cost structure has created
problems with staff turnover. Talented employees are difficult to find, with time required to train
new recruits to the same level. Organizations competing to maintain dominance in the
marketplace cause a struggle to retain and keep high-performing individuals loyal to the
organization. In some cases, employees look for stability and value it above other factors like
training and wage. With some foreign ventures only remaining in China for a short time,
goodwill and loyalty to the organization diminishes.

The Flight of Human Talent

The typical Chinese organization has experienced a substantial increase in turnover, with some
experiencing even worse problems with retention. This escalation in rate of labour turnover is a
worrying sign, especially for HR professionals, who now need to analyse the reasons in order to
ensure their organizations can keep the matter to a minimum. HR managers expectations for
new employee tenure in China is lower than most other parts of the region, with a general belief
that Chinese employees are not expected to stay as long as employees in other world regions.
Contrary to the norm, turnover has become an accepted practice among Chinese employees.

Two of the top reasons for employees leaving are the lack of growth with the current employer
and the availability of better opportunities elsewhere. Insufficient compensation is also another
important reason, with the regional salary differences between Chinas coastal and inland cities
having an impact on retention. Employees often give external factors as their official reason for
leaving, especially when the real reason represents a problem they dont want to expose.
Departing employees focus on what new employers are offering, having no inclination to bring
up any sensitive issues, like a poor relationship with their boss.
Why Employees Stay

High employee satisfaction with important aspects of work bodes well for retention. One of the
keys to gaining employees commitment is strong leadership. Employees are most likely to stay
with an organization if they had a good manager or boss and were recognised for individual
contribution. Work that provides opportunities for accomplishment is normally a strong driver
for retention. The two tangibles compensation and benefits are overrated as being important

retention drivers. While employees may cite compensation as a reason for leaving an
organization, satisfaction with salary is not a strong driver for retention. While an organization
needs competitive salaries, compensation alone is insufficient for retaining valued talent.
However, a conclusion of ignoring compensation cannot be reached. With labour costs surging in
China, organizations need to conduct frequent salary surveys to stay in touch with the market.
Employee Motivation in China

The development of incentive schemes within Western companies tends to focus on the
satisfaction of such needs as job design, participation in decision-making, promotion
opportunities and working conditions and pay. Due to the difference in cultural influences and
work values, some of these concepts may not be applicable in China. Traditional Chinese culture
can be associated with a series of cords, such as high power distance, collectivism and Confucian
philosophy. In such a collectivist society, needs such as achievement, competence and
independence are contrary to the Chinese work values of egalitarianism and harmony. Group
loyalty and national unity may need to be addressed before psychological needs. This is
especially important for foreign managers of multinationals and joint ventures in China, who
need an understanding of the culture and people, prior to formulating motivational policies and
practices. According to Katz (1980), Chinese enterprises use a paradigm of rule enforcement,
external rewards and internalized motivation to motivate their employees. Role enforcement
refers to the acceptance of role prescriptions and organisational directives because of their
legitimacy. In the case of external rewards, material incentives have been found as a major
motivator to stimulate productivity. Although individual bonus and performance-related bonus
have existed for a couple of decades, a tendency prevails towards egalitarian distribution of
bonuses and other incentive payments. Progress has been made to link payment to a persons
level of responsibility, education and training, as well as the profit performance of the enterprise.