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Where is the Chinese MNCs’ Theory Z?

To date, China is an important source of outward foreign direct investment in North America. Figure 1 shows the value of Chinese investment in the USA has increased very rapidly in the previous 15 years. Many Americans work in Chinese multinational corporations (MNCs). Initially, many Chinese MNCs tried to apply the management styles they had successfully used in China to MNCs in North America. Then many problems happened. A World Bank study found that differences in managerial styles and corporate culture were regarded by 85% of Chinese chief executives with experience in failed MNCs as the main reason for the failure. The fails led to a variety of reactions among the local workers, such as an intention to leave, stress and lower productivity and so on.

For example, in Haier, the largest white-goods manufacturer in China, the workers must stand on a set of footprints outlined on the floor when they make mistakes in their Chinese plants. When they tried to apply this approach in their plant in North Carolina, the local workers didn’t accept it.

Fuyao Glass Industry Group, a giant Chinese glassmaker, started their business in Ohio in 2014 and hired 1,500 local employees. Some employees complained that Fuyao disciplined workers for absences if they didn’t request their paid time off far enough in advance. They complained that Fuyao’s operation felt like “a little bit of a hostage situation.” As a result, the local employees didn’t feel a sense of belonging to the entity and lacked psychological attachment to these MNCs. This type of psychological attachment to an organization is known as organizational identification (OI) and has been thought to be essential for employees’ good performance.

Comparison of Management Styles

There are no universal management styles that can suit the diverse the culture contexts in organizations. The comparison of managerial characteristics between America and China is shown in table 1.

Geert Hofstede is a well-known pioneer with his research into cross-cultural groups and organizations and played a major role in developing a systematic framework for assessing and differentiating national cultures and organizational cultures. Hofstede’s cultural model is the most widely used model in the field. The model includes five dimensions, which are known as power distance, individualism-collectivism, masculinity, uncertainty avoidance and long- vs. short-term orientation. The first, power distance is from the organizational perspective; it can be defined as the degree of inequality among people that the population of a country considers as normal: from relatively equal (that is, small power distance) to extremely unequal (large power distance). The other four cultural dimensions refer to personal characteristics. Individualism-collectivism: Individualism is the degree to which people in a country prefer to act as individuals rather than as members of groups. Masculinity-femininity is the degree to which tough values like assertiveness, performance, success and competition, which in nearly all societies are associated with the role of men, prevail over softer values like quality of life, maintaining warm personal relationships, service, care for the weak, and solidarity, which in nearly all societies are more associated with women’s roles. Uncertainty avoidance can be defined as the degree to which people in a country prefer structured over unstructured situations. Structured situations are those in which there are clear rules as to how one should behave. These rules can be written down, but they can also be unwritten and imposed by tradition. Long- vs. short-term orientation: On the long-term side, one finds values oriented toward the future, like thriftiness (saving) and persistence. On the short-term side, one finds values oriented toward the past and present, like respect for tradition and fulfilling social obligations. Hofstede has suggested that only a difference of 20 or more on a cultural dimension can be material. Based on Table 1, the American culture has a big difference on three dimensions with the Chinese culture; power distance, individualism-collectivism, and long-term-short-term orientation. On the dimension of masculinity-femininity and uncertainty avoidance, American and Chinese cultures are not much different.

Theory Z

Companies from other countries, such as Japan, have figured out how to operate successfully in America. Ouchi’s Theory Z theoretically explains how Japanese MNCs operate. The organization process of theory Z is as the figure 2. The Japanese managers create incentives, such as lifetime employment (in certain major companies), which spur employees to create intimate, involved, and cooperative work relationships with their peers, superiors, and subordinates. Involvement leads to the development of trust relationships and highly cohesive work groups. Sullivan stated employees will feel satisfied with their lot in the social environment created and which increases their sense of autonomy, and in turn improves the productivity.

The management problem faced is how to help Chinese MNCs perform successfully in North America. If Chinese companies are to succeed and thrive in North America, they will need to understand and mitigate these cultural differences. Where is the Chinese MNCs’ Theory Z that can help Chinese MNCs operate successfully in North America?

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