JOINT BUSINESS VENTURE OF ALDI MULTINATIONAL COMPANY IN CHINA’S MARKET
A recent report about the market trends around the world has revealed that the number of United Kingdom’s and the United States’ retail stores is high to the extent that these businesses have become saturated in the local markets. Precisely, the supply of retail products in the domestic markets has reached optimal levels, but their demand has remained stagnant. This has limited the expansion of retail stores in the local markets. As a consequence, multinational retail stores in western countries have been looking for an opportunity to expand their market share by opening new subsidiaries in form of joint ventures in countries where the prospects of market growth are better than those in the local markets. Particularly, this explains why numerous retail stores such as Aldi are planning to open new branches in countries with a large market base due to high population of people such as in China. This paper will represent how Aldi retail to can apply the concepts of human resources and international HRM of the extent to which it will be able to execute ethnocentric HRM on China market. To ensure successful entry, the company will have to consider the cultural beliefs and values of the locals in China, and find the right composition of expatriates and nationals for the various job positions that will be open in the Chinese market.
Globalization to some extent has opened new business opportunities for business to expand their trade and investment opportunities beyond their local market through a process known as internalization. During the process, businesses encounter some challenges which affect their ability to gain successful entry into the foreign markets. As such, they must come up with strategies that will enable their products and services to be accepted in the foreign market. Among these strategies include HRM practices that include the choice of recruitment processes that an organization must adopt to facilitate success of the entry into the new markets (Brown, 2010).
China is an example of a country that organizations have been considering in their international process because of its lucrative market (Briscoe, Schuler & Tarique, 2013, p. 125). As Gooderham & Grøogaard (2013, p. 361) indicate, the rapid expansion began in 1978 when the Chinese government implemented reforms to change to a market-free economy. The constant economic growth has enabled a large population of the local population to move from low to middle income earners, and has developed taste and preferences for foreign goods. Furthermore, all these attributes makes China as one of the lucrative markets for organizations that intend to expand their business ventures into its market (Cooney, Biddulph & Zhu, 2012, p. 55).
Thus, for a multinational company such as Aldi chain distribution store that has headquarters in Germany; it will need to assess accessing the labor market using practices of HR. HRM has many practices that are carried out by HR managers. Retention of competent employees is one of the outcomes of HRM. In addition, the main purpose of HRM is to recruit competent employees. The second function of HR is to train employees so that they acquire additional knowledge and skills which sometimes include those that are knowledgeable and skilled. Retention of employees is important to an organization and Garrik (2012) defines the term as encouraging making workers to remain in an organization for long time. HR is frequently described using two distinct forms: soft and hard HR. Soft HR model emphasizes on self-direction of employees in commitment, self-regulated behavior, and trust at the center of strategy approach to people. Conversely, hard HR model stresses on rationalism of specific fit and emphasizes on management performance and instrumental approach towards management of the employees (Björkman & Budhwar, 2007). The essay will present an analysis of how Aldi chain store can use HRM practice in recruiting, reward, training, appraisal, and employee involvement. The essay will show that Aldi multinational corporation will need to consider that culture and values shared by the Chinese worker so that it can implement strategic HRM practices that will facilitate its acceptance in the Chinese market.
AlDI Company Profile
Aldi is a German multinational chain store that operates in more than 18 countries with almost 10,000 stores. According to Björkman et al., (2008, p. 972), it is a leading global discount supermarket chain with an estimated turnover of €50bn. Aldi supermarket was started by brothers Karl and Theo Albrecht in 1946 and since then, the business has opened many stores in various countries that include Peninsula, Denmark, France, United Kingdom, Australia, Switzerland, and Poland. The chain supermarket has over 2,500 regional stores that are located in Germany, and the store specializes in selling items such as food, sanitary articles, and other inexpensive household goods. Due to the inexpensive prices of its products, Aldi Company has been planning to add China as the fourth marker after America, Australia, and Europe. The company intends to compete with other giant stores such as Tesco and Carrefour that have struggled to succeed where discount supermarkets have failed. Having reached saturation point at the local market, Aldi Company has been seeking to expand its market share, and China is one of its potential move (Chen, 2011, p. 68).
One of the strategies that the company should use is by using HRM practices in recruitment and training of employees. This will enable the company to gain a competitive advantage against its competitors. However, understanding China’s market environment will assist in establishing viability of Aldi Company opening a joint venture in China.
3.1 Host country profile
China is a market boom for inward direct investment from multinational corporations. One of the reason is the large geographical with variety of business opportunities in multiple directions that offer enormous scope for development of product and market penetration. China has large population of people that consequently leads to high consumption power which makes it an investment destination (Anghel, 2012, p. 46). In addition, China has proactive industrial and licensing polices that have been implemented by the government to create confidence among multinational organizations that provide stability and security of investments for the companies. China industry is well advanced in technology and industrial research, which provides easy entry for multinational organizations that are planning to market their products in the region. One of the products that Aldi Corporation sells is beverages, and according to China’s market, the profit rewards from the beverage industries is very high. Currently, the revenue rate from the beverage industry is over 30 percent despite the high competition and segmentation that is experiences in businesses selling soft drink. Moreover, the consumption rate of beverages and household items is expected to become the world’s largest following a report from Association for China Food Circulation. China has also advanced in technological innovation capabilities that are steadily forging to match their counterparts in other countries (Kim, Wright & Su, 2010, p. 70).
3.2 PESTEL Analysis of China
China booming economy has been facilitated by a strong political system that has allowed new regulations to be passed by its Congress to attract foreign investments. China has strong policies that ensure that investors’ money is safe and foreign companies can invest in any industry; moreover, the government has also been focusing on e-commerce to market its products in the international market niche. The government has also established functioning legal systems that focus on the areas of economic growth. The government has prioritized on passing laws designed to professionalize and modernize expansion of business that includes attracting foreign investors. Thus, the government has a strong commitment towards production and distribution of goods that are lacking in the local markets and impressive political support, which puts in place multinational organization that are willing to invest in the country on the path of growth and success (Siebers, 2011).
During the past one and a half decades, China’s economic growth has been increasing steadily with a GDP at 10 percent growth rate. Since 1978, the Chinese government made reforms that changed its market environment to a free-market economy. The results of poverty have been reduced significantly due to increase in average income and individualistic and entrepreneurship initiatives opportunities that are present in China. For instance, in 2010, China was ranked the second-largest economy in the world with an average growth rate of 10 percent and generating $4.814 trillion, which by that time, was one-third of United States’ economy. The high economic growth has been boosted by technology products, which is an advantage for businesses to grow their products in the China’s market (Brown, 2010, p. 64).
Furthermore, China has tremendous rate of skilled workers and extensive export business. The economic development in China has led to rapid urban growth and increase in Small-Medium-Sized Enterprises (SMEs). The GDP rate has been adding value to the country’s population by increasing the purchasing power of the consumers. Due to the high population in China, companies are getting boost due to cheap labor costs, which means that companies can hire many employees without increasing the cost of doing business (Zhang & Edwards, 2007, p. 2160).
Besides the agricultural sector, village enterprises have increased in number in the rural areas which contributes to the increase in the country’s GDP. China’s currency competes with hard currencies such as the United States dollar, which has been facilitated by the cooperative relationships between the Chinese government and international organizations (Siebers, 2011).
The country’s demographic factors play an important role in determining the HRM practices that Aldi should use during joint business venture. They can have a great potential to change the social and cultural trends of the employees that the corporation will be recurring in the foreign country, which has an impact on other social factors of workers such as lifestyles, religion, and organizational culture. Mover, China is officially over 1.3 billion in population and the rate has been increasing despite attempts by the government to implement stricter rules for birth control (Chen, 2011, p. 78). Thus, it can be said that China has a large supply of workforces and competition for jobs. In addition, this implies that Chine population are seeking employment and investment opportunities in other countries to cope with poverty that is cause by lack of jobs for sustaining the mass population. Moreover, this is also an opportunity for multination companies that are seeking to employ workers in the foreign country (Siebers, 2011).
China has has advanced technologies that include communication devices, and the internet. These technologies provide a dense network that is built by most students from oversees; in addition, advancement in technology has boosted cooperation between China and European countries (Almond et al., 2005, p. 47). Technology agreement is mode of bilateral agreement that stimulates the expansion of multination companies in the country. Other technologies that are present in China are involved in the development of new products, services, and new mechanism of distribution such as e-commerce that relies on the internet, including mobile communications. However, China does not have safer online payment systems and as a result, this makes China market to face high levels of uncertainties in the long-term orientation. China also has low credit card penetration, which means that its market is not yet open to online payment systems such as the ones used in the United States and foreign countries (Siebers, 2011).
Undoubtedly, China biggest concern if the increasing rate of environmental pollution that is caused by caused the high concentration of industries emitting greenhouse gases. According to World Trade Organization (WTO), the numbers of cities with clean air were pointed to be seven out of ten with about one third of 404 cities having the highest content of carbon dioxide in the air (Chung, Bozkurt &Sparrow, 2012). Water scarcity is also considered to be an issue; northern parts of China experiences water scarcity that to some extent, the country has experienced slowed economic growth. Currently, the government has realized the importance of environmental protection and is actively involved in climate change talks and conventions that deal will prevention of transportation of hazardous waste products and safer ways of producing goods in industries (Iles, Chuai & Preece, 2010).
To attract foreign companies in the country, China has formed a relatively complete business laws. For instance, China has implemented Chinese-Foreign Equity Joint Venture to allow multination companies to enter the market and recruit the local employees to acquire skills needed in those businesses. In addition, China has provided laws and statutes for the purpose of operation, liquidity, and termination process of enterprises from foreign companies. Currently, China has revised its laws in the field of business by deleting those that are obsolete from its Constitution and adopting international agreements as stipulated by WTO (Iles, Chuai & Preece, 2010).
Why to go there?
One of the advantages the company has is its nature of operation; Aldi offers discount products to its customers that reduces prices of products relative its rivals. There is no multinational supermarket that has tried this in China; therefore, this will be a great opportunity to the company. Another reason is that over the past few decades, the population of middle-income earners has expanded (Liang, Xie & Cui, 2010, p. 2080). Most people that were previously poor have ascended from poverty to an emerging middle class, which include annual disposable income of U.S$10,000. The consumption of affluent and middle-income earned in China is growing by 17 percent and by 2020, incremental spending in urban China is estimated to account for $1.5 trillion. Even though there is an increase in the number affluent populations in urban China, consumption of household item will still remain to be high because of the high number of middle-class income earners who are the biggest consumers of these goods (Chen & Dao, 2013).
Emergence of new generation is another factor that attracts the opportunity of rapid expansion of foreign in China. The biggest population is that of young people who were born from 1990s and onwards (Hartmann, Feisel & Schober, 2010, 170). Young generations spend more than older people; in fact, according to a Global Consumer survey, young people in China said that they were motivated to spend and have become the dominant force in the consumer market (Chen & Dao, 2013, p. 96). Due to the high population of consumers, multinational corporations such as Aldi, this makes the company to target China as a promising competitive environment for its products. Other reason includes the low number of retail stores that are currently operating in China. There are about 100 bog stores in China, but they have specialized in selling electrical appliances; there are fewer competitors offering household products such as food, household items, and beverages. The market share of leading retail stores in China is only at 8 percent, which means that there are few multinational retail stores that are operating in China. Another reason is that there are a large number of unemployed workers that have the right skills and knowledge needed in HRM (Siebers, 2012).
4. HRM strategy
HRM mangers working in global organizations are faced with unique staffing choices. Same for Aldi Company, there are various aspects that should be considered when selecting employees for different positions in the company. The company can decide to employ expatriates from its home country to fill in the various job positions that will be opened in the new joint venture in China. Conversely, the company can decide to recruit new employees in the host country to fill in the various job positions. Depending on the choice the company will take, there should be balance between national and expatriate employees (Niosi, 2010). Thus, there are various strategies of HRM that the company can during global staffing. These strategies include polycentric and ASK models.
The model is a staffing option that Aldi Corporation can use to hire country host nationals for the various job positions that will be available in the company ranging from room clerk all the way up to the executives. Polycentric staffing is simply a strategy used by multinational organizations to hire managers and employees using different satellite offices managed as unique national identity. The method is used to hire employees and managers locally to minimize cultural and communication challenges. Polycentric staffing is feasible in European countries where most people are educated and understands the operations of a company easily. It has advantages as well as disadvantages. Country’s host nationals will get to learn the operations that include political, laws, and culture at the foreign location. Use of local employees from the host country will show that the company is committed to working together and helping the local communities. The company will also get cheap labor; however, there interest of the foreign company and the locals may conflict due of social and cultural differences (Gamble, 2010).
ASK model of staffing in HRM
The model is suitable for Aldi that planning to form a joint venture in China because it is internationally known for its successful work in training of soft skills, outsourcing and project development for youths and their placement in various jobs. ASK model is recognized for its outsourcing and provision of consultancy services in the fields of HR, payroll management and training of soft skills. It model covers recruitment, training, employee motivation, communication, performance management, and employee’s benefits. The model has some advantages that include access reducing employee-related risks, improved HR efficiencies, and reducing employment risks (Gamble, 2010).
Selection and Recruitment
The two models can be used by Aldi Company to hire employees and managers that will include expatriate and China’s host nationals. Before hiring process is done, there are various ways that the company should use to ensure that it will have the right candidates for the various jobs positions in the new joint venture it will create in China (Gamble, 2010).
5.1 Recruitment and selection
The recruitment and selection process will involve various stages before a candidate as approved to be fit to occupy a vacancy in the new subsidiary in China. These steps include:
Actions before advertising
Aldi Corporation will need to appoint a committee that will be in charge of examining if the detail of jobs posted in advertisements fit the type of persons that the company is seeking. There are wider needs that go beyond and proper planning at the first stages of recruitment will save time and energy before the selection process is complete. Job planning will help the company to understand China’s labor market and the various skill-sets that most work-seeking employees have (Zheng & Lamond, 2009).
Aldi will include the main tasks and responsibilities that the job comprises. Notably, job description should not be complex and lengthy, but should show the main requirements of task. They include the main purpose of the job, task, and its scope. This will assist candidates to match their qualifications with those that are posted regarding the various vacancies that the company will be offering (Gamble, 2010).
This will include the ideal person the company will be seeking with specific qualities that include the profile of a person’s skills and features the committee will be looking for. However, these demands will need to be modified to meet specification of particular posts depending on the nature of labor market in China. The appointing committee will be needed to be systematic and selective to prevent margin of error (Gamble, 2010).
The purpose of advertising a job will be to show a candidate that he or she has the right set of qualifications that the company is looking for. Thus, advertisement will include details of the jobs and is needed of the appointee (Gamble, 2010).
Membership of appointing committee
In case the appointment committee will be more than two, it is important that they comprise men and women. Composition of the appointing committee should be decided by the relevant authority delegated by the head of the HR manager of that department (Gamble, 2010).
Methods of selection
The selection process can be conducted using Munro Fraser’s Five-Fold Grading System. The selection system comprise five areas that candidates are tested before they are hired based on the interviews, questionnaires, online aptitude tests, and any other additional information that is needed during the process. The system is used to test candidates based on the following:
Munro Fraser’s Five-Fold Grading System
1). Easily recognizable appearance that include bearing, speech, and appearance.
2). Educational merits acquired that include experience and training.
3). Innate abilities that include understanding learning.
4). Individual motivational goals that include how consistent and determined they are in following them up as well as success rate.
5). Emotional stability and adjustment which is how individual can cope with stress and persevere during difficult moments (Gamble, 2010).
There is no guidance on the method the company should used to short-list its candidates for interviews. If the number of applicants will be high, it may be necessary for the committee to call references decide who should be short-listed for interview (Warner, 2009, p. 2170).
Arrangements before interview
Proper preparation should be made before interview sessions begin to ensure that the candidate and the committee are well set. The committee will be required to review the candidates’ papers carefully, including job descriptions and the person specification before the interview begins. However, the requirement process should be conducted to only those that are interested in the job position; those that are not should not be short-listed for interview (Rose & Kumar, 2007).
During the Interview
The purpose of the interview will be to obtain further information regarding the qualifications of a candidate for a particular job position though questions. The interviewers can use open-ended and closed questions that relate solely to the purpose of finding the right candidate for the job. Members of the appointing committee should meet 15 to 30 minutes before the interview begins to decide what questions should be included for the candidates and procedural matters, for examples, members should give each enough time between interview sessions to share notes about a candidate’s performance. Interviewer questions should cover a range of topics from skills, aptitude tests, background of candidates, and their academic qualifications. Administrative officer should be present during interview to record notes about the success of the process which should then be handed to the head of the faculty posts for recommendations and appointment. During interviews, discriminatory activities should be discouraged such as those based on religion and sexual orientation (Robbins & Judge, 2012).
In case there are desirable candidates fitting a particular job position, the chairman of the faculty posts should ask for votes to be cast so as to select the right candidates for the job positions. If majority committee members vote for a particular candidate, the he or she will reserve the right to take over the job position which those voted for by the minority will lose (McKenna et al., 2010, p. 855).
Communication with successful candidates
In some cases, the chairman of the faculty posts may decide to speak to the favored candidates after an interview to congratulate them, but this should not be done before formal approval is obtained. No letter should be sent to candidate after an interview showing an offer for employment (McFarlin & Sweeney, 2014, p. 21).
Formal approval of appointment
In case candidates will be appointed for the different job positions, the appointing committee should make recommendation in form of a letter and return it to the recruitment officer. A letter of appointment will be sent to the officer with a receipt of a form that shows that a decision has been reached and the candidate has been selected for the job position (Gamble & Huang, 2011).
5.2 Training and development
It is a function that is concerned with human resource management aimed at benefitting the job performance of the selected candidates. Te training and development for employees and managers for the various job positions in Aldi Company joint venture in China’s market will include processing of orders, receiving or deliveries, delivering goods to departmental stores, keeping inventory records, stock rotation, and doing stock checks (Pudelko & Harzing, 2007). In addition, managers and employees will get the training that they need that include health and safety and introduction to the company’s departmental systems. The company will apply chartered procurement and supply standards to ensure members keep the right skills and knowledge up-to-date which will be conducted in conferences, seminars, and courses (Evans et al., 2008, p. 270).
However there are different training and development approaches that Aldi supermarkets can use to identify the global differences in HRM approaches. This can be explained using Hofstede’s theoretic framework that describes effects of culture and values of employees with difference ethnic backgrounds on HRM. For instance, the company will need to apply the concept of individualism versus collectivism that defines how some cultures prefer to work as a group of individually towards achieving a goal. For example, China is communist society, which means that during training of workers, the company will consider working with the in a collective group so that they can align with the company’s goals (Garrik, 2012, p. 40). In China, scores high for collective responsibility and low for power distance, which means that the company will need to organize works in teams and encourage its trainer to practice participative leadership (du Plessis, 2010, p. 190).
5.3 Reward management
The corporation will use reward management which is a motivational practice used to reward employees and managers for their success and achievements. The company will set goals and establish objectives that which the selected workers will use, and those that achieve high performance will be rewarded for their efforts, There are various ways the company can as rewards such as giving out money, writing a thank-you-handwritten note, inviting their spouses to a luncheon, giving them a vocation day, sending them a banquet of flowers, public thank you, sending the a birthday gift, and many others. Rewards can be extrinsic (those that satisfy basic needs, security, safety, and survival) or intrinsic (those that satisfy higher needs) (McFarlin & Sweeney, 2014).
Performance management and appraisal
These are two terms that are two terms that synonymous, but different in meaning. Performance management is comprehensive and involves maximum dialogue between those that are concerned. Performance appraisal involves making top-down assessments whereby the seniors make performance ratings of their subordinates during appraisal meetings. For example, the company can decide to appraise its employees by counting the objectives they have achieved and paying them for the success. Performance can involve reviewing bonuses and remuneration so that employees can plan what to do in the next performance period (Dawson, 2011).
Employee involvement includes engaging employees in managerial and decision making activities so that they feel that they are part of the company’s vision and objectives. Employee involvement can take various forms that include quality of work life programs that make employees to participate in service establishments. The company will be required to involve employees from the host country various decision-making processes and activities so that they feel that they are a team and responsible for the completion of its goals. For example, one of the goals of Aldi supermarkets is attract a large customer based by providing the best customer care (Frege & Kelly, 2013, p. 221).
As firms open new branches in foreign countries, sometimes it requires that that transfer HRM practices from local country to a foreign country, but during the process, there are many HRM challenges that a business are likely to encounter. In some cases, the transfer of HRM is hindered by different issues that are present in foreign countries. To solve this problem, firms are forced to to practice HRM practices of the country, or combine their practices from the home country with those from the foreign country. However, as business open new markets in China; they require talented and highly qualified employees on their disposal, which require human resource practices to become more competitive. Retention of employees today requires organizations to put different HR measures to cope with the cultural and ethnic diversities that the management faces in a foreign country.
The most importance aspect that the company should consider when deciding to start a joint venture in China’s market is the culture that is shared among the Chinese population. The company should employ Chinese nationals which will demonstrate trust with the local citizens. This will lead to an increase in organization acceptance, reduced labor costs, easier decision making, and higher recognition of the company in Chinese local markers as an active participant. The company should also recognize the unique beliefs that are shared by the Chinese people. Chinese people believe in spoken words than a written contract when doing business; this is greatly influenced by Confucianism doctrine that teaches them to trust each other rather than using a written contract (Swiston, 2007, p. 63). Thus, this means that the company will need to efforts and build trust by understanding their cultural differences.
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