Peter Hanson Teaching Notes Professor Ingmar Björkman, Swedish School of Economics, Helsinki, Finland Overview The case describes the HRM challenges facing Peter Hanson, who has been assigned the task of starting up a product development center in Shanghai, China. The case can be used to illustrate the issue facing every multinational firm and international executive of how and to what extent to adapt management practices to local circumstances and/or to integrate them with those of the parent company. Which approach should Peter Hanson take with respect to HRM policies and practices concerning both local employees and expatriates in order to build a world-class product development unit in China? Classroom Use This case can be presented in a 90-minute or a 3-hour session. The discussion headings below will indicate how much time could be devoted to a 90-minute session instructors can extrapolate accordingly for a longer session. The 90-minute format works best with MBA students and managers, while the issues and material that I cover in 90-minute sessions may be too extensive for undergraduate students. The class discussion follows the order of the questions given to students as they prepare for the session. Discussion Questions 1. What were the strategic rationales for the establishment of the Product Development Center in Shanghai, China? 2. Evaluate the approach to managing people in the Product Development Center. What should Peter Hanson, the leader of the center, have done differently? Why? 3. What should he do now? Why? Introduction (20 min) I use this case as an introduction into international HRM. I typically begin the session by providing an overview of the range of HRM issues and challenges facing
corporations as they internationalize their operations. I then proceed to presenting the seminal integration differentation framework developed by Yves Doz and C. K. Prahalad. When presenting the framework I discuss, first, how different industries can be placed in different parts of the matrix, and, second, how firms within the same industry may pursue different strategies. I subsequently ask the students to place the different functions, R&D, finance and control, manufacturing, marketing, and HRM in the matrix. The differences between R&D (characterized by high degree of integration) and HRM for rank-and-file employees (characterized by high degree of differentiation) provides a useful background for the later discussion of how HRM issues were handled in the Product Development Center (PDC). 1. What were the strategic rationales for the establishment of the Product Development Center in Shanghai, China? (15 min) The students present a range of strategic rationales for the establishment decision, some of which are overlapping: The need to pay more attention to the rapidly growing Chinese market. The goodwill that may be obtained vis-à-vis the Chinese authorities through the establishment of a product development unit in the country. Product development for the Chinese-speaking markets is better carried out close to the Chinese market, as among other reasons it allows for better and faster adjustment and development of products to fit local tastes. Regional differences in technologies and standards may make it easier to carry out product development activities in each region as it provides access to locally embedded knowledge. China has a large pool of ambitious, intelligent persons whose salary level is considerably lower than in the other locations in which the company is operating. Hence, by locating a PDC in China, Hi Tech Systems may tap into this labor pool.
After having discussing the arguments for establishing the unit in China, I ask the students to outline what they see as requirements for the PDC to become successful. Among others, the following points can be made: The competency level of the PDC has to be world-class. The unit must be characterized by a high level of innovation. The PDC will have to be seen as a trustworthy and competent unit by the other PDCs within Hi Tech Systems. Otherwise, the new PDC will not be invited to take major roles in global product development projects together with PDCs in other countries. The unit must be able to draw on the knowledge of other PDCs on a continuous basis, especially in the beginning of its operations. The PDC must build close ties with the marketing and sales units in China so as to get input into the development work. I end the discussion on these issues by asking the students whether they, when at home attempting to answer question 2 (Please evaluate the approach to managing people in the Product Development Center. What should Peter Hanson, the leader of the center, have done differently? Why?), had begun by analyzing the strategic objectives of the unit. According to my experience, only a minority of the students has made an explicit analysis of the strategic fit of the HRM practices of the PDC! Please evaluate the approach to managing people in the Product Development Center. What should Peter Hanson, the leader of the centre, have done differently? Why? (30 min.) I begin the debate by pointing to the difference between the staffing of PDC positions with expatriates and with local employees. I then discuss these two employee groups separately. 1. Expatriates When examining HRM for expatriates, I place the focus on recruitment and performance management. Concerning the former I emphasize the focus Peter Hanson
put on identifying people who (i) had excellent track records and high status among product development people in the whole corporation (this would make it easier to recruit other expatriates, and would increase the status of the PDC in different parts of the corporation; (ii) were located in different PDCs (this would give the PDC access to a large social network); and (iii) had experience from developing products for the Chinese market (this would be useful for the product development work itself, and might also increase the likelihood that the persons would better understand the challenges of working and living in China). If there is enough time, one can here add a general discussion of the different roles that expatriates may play both in this particular case and in general. This may also provide a good background for a discussion of performance management for the expatriates. When discussing performance management, I point to how Peter Hanson stressed HRM objectives like coaching, employee retention and job satisfaction in performance objective setting and evaluation. If there is enough time, the special case of Chinese returnees may be given separate attention. This group has a number of advantages but also encounters particular challenges of its own. 2. Local Employees I use a standard overview of the full range of HRM practices that can be found in any organization as the starting point for the discussion. I then ask the students to evaluate what the company has done concerning each of the practices. This typically leads to an animated discussion of a variety of practices, including recruitment and selection, career management, and performance management. Subsequently, I ask the students to list the kinds of factors that should be considered when deciding on the HRM policies and practices in a unit like the focal PDC. When discussing the answers provided by the students, the following factors are discussed: Cultural factors.
Institutional factors, in particular legal and labor market considerations. Corporate factors, including HRM policies and tools as well as the support that can be obtained from the corporation in China. The focal unit, including its strategic objectives, the human resources requirements of the strategy, what might constitute an appropriate organizational culture, and the workforce that it may recruit. I use the following figure when discussing cultural issues: I point to the fact that there today are competing value systems co-existing in China, and that many of the young well-educated persons likely to be hired by High Tech Systems are likely to be under the influence of a mixture of emerging and traditional values. I also suggest that this group actually may prefer to work for a multinational corporation whose HRM practices differ from that of local corporations. Hence, it can neither be automatically assumed that HRM practices used in local companies would be seen as more appropriate by local employees, nor that local practices are necessarily more efficient that those used by Hi Tech Systems in Sweden or the United States. Rather, one may try to develop third solutions that would contain important elements of the foreign companies HRM policies and practices from other parts of the world, but that would also be differentiated from those of local firms. The
integration differentiation framework is useful as a way to conceptually structure this discussion. I tend not to spend much time on legal factors, while I point to the tight labor situation for high performers in Shanghai, as both foreign and local firms are investing heavily in research and development operations in this area. Finally, I bring up the question of the alignment across the different HRM practices, i.e. their internal fit. What should he do now? Why? (15 min) Here, I typically only spend relatively little time on discussing the students suggestions apart from pointing to the importance of considering the factors that were presented when evaluating the present HRM practices (see above). Instead I present the students with the following slides that describe what has happened after the writing of the case:
Conclusions (10 min) In the final wrap-up, I revisit the integration-differentiation framework, and I suggest that it can be used for analyzing IHRM issues. I conclude by again pointing to the importance of examining the (i) internal fit across the HRM practices and (ii) the external alignment of the HRM practices with:
the strategy of the unit the (intended) workforce of the unit the technology and work organization of the unit the organizational culture of the unit the intended level of integration with the rest of the MNC. Readings The following article provides an overview of HRM practices in foreign investment companies in China Björkman, I. and Lu, Y. (1999). The Management of Human Resources in Chinese- Western Joint Ventures. Journal of World Business, 34, 306 324.