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The challenging relationship between the Global HQ and the Chinese local subsidiary

# Cross-cultural # China

· Cross-cultural

A critical aspect that several foreign companies must face in managing a local branch or a production site in China is the challenging relationship between the Head Quarter and the local subsidiary. This challenge involves in particular the following aspects:

  • The Corporate vague perception of the local reality and the difficulty of building a trust relation between Corporate and local subsidiary.
  • The balance between decentralization and centralization in the organization and decision-making process.
  • The communication processes between Headquarter and local branch.

The local management – whether expatriates or Chinese – often have to handle a situation where the Head Quarter misunderstand, don’t trust and has a distorted perception of the real operational situation in China. The local subsidiary is generally seen as a very different and negative reality, that is difficult to understand and explain to those who have never been there, “inhabited” by local employees who are too easily considered as incompetent, inefficient and slow-learners. This judgment is generally based on reports and remarks of people who have spent just a short time (one or two weeks) in the Chinese subsidiary.

The judgment is mostly reconsidered by those who, sent to China for a much longer period of time (a couple of years), had the chance (and the time) to pay attention and to get to the heart of the problems, suspending the initial judgment and building a more structured and well-founded analysis frame.

Whether a reliable expatriate manager sent by the HQ to the local subsidiary “in order to have an idea of how things really work” or a Chinese manager – or “returnee” chosen for his wider knowledge of the local market and of the local culture, they are both in the same condition: they feel responsible to give to the Head Quarter (functional or business structure) a realistic overall view and they face  the challenge of transferring the differences and the complexity of China in a balanced way.

Those who act as a “bridge” play a leading role in building a well-grounded map; in fact they are supposed to explain the local specificities to the Corporate without losing sight of the global perspective under pain of being perceived as too much “sided with the other side” (like if it was an enemy field) or - even worse - of complaining and finding excuses to justify what doesn’t work.

Evident factors clearly affect the interaction between Corporate and Chinese branch like logistic distance (and especially cultural distance) and the different stage of development of certain managerial and technical skills of Chinese employees. A frequent situation of start-up or of initial reinforcement makes flows and processes, still in developing phase, much more complex and not effective. The above-mentioned situations should be analyzed and well understood in order to provide support and correction – if necessary - working on an objective “content” level and cutting the subjective perceptions often fostered by easy stereotypes.

At individual and behavioral level it is interesting to analyze the strong effect of people attitude: factors like the attitude of listening, the humbleness and the curiosity towards diversity and the sensitiveness to the cultural differences make the relation between foreign and local personnel, and between local branch and HQ easier.

Even though volumes have been written on the qualities of a successful manager in China, it is essential to point out that the communication is always bilateral therefore the Manager sent to China need to have conversation partners able to listen to matters more complex than expected.

It is important to underline that sometimes, to find people adaptable to the context, the HQ decides to send overseas talented young managers who cannot boast a sound leadership experience; therefore their role both of leader in the local branch and of reliable reporter of “How does China look like” is much more difficult.  In fact in “China CEO: Voices of Experience from 20 International Business Leaders”, with regard to the propensity to “localize” more and more  the “Bridge” role between local branch and Corporate, the writers, Juan Antonio Fernandez and Laurie Underwood highlight that: “ From many points of view, having a deep knowledge of the Corporate is more important than having a deep knowledge of China”. In this respect, the expatriate sent to China has an essential part in decoding the respective cultures; besides, “speaking the same language” of the Corporate and knowing its processes and its personnel thoroughly, they should count on a broader capital of trust and influence with the HQ than a local manager and they should better handle the Corporate expectations. As L’Oreal CEO Paolo Gasparrini asserts: “The one who leads China development must be a trustworthy source”.  “ It is my responsibility sometimes” – he adds – “of firmly negotiate and of harshly struggle if  I think that some Corporate proposals are not suitable for the local context”. (Fernandez, Underwood, 2006).

In fact China is living a particular situation where the Western Companies top management - worried by its slack economy and attracted by the Chinese exponential growth and by the Chinese high potential market - pins his expectations of rapid development on the local branch still inexperienced in staff training, processes and structure effectiveness, quality standard. If the local branch is not given the right time to be trained and structured enough to come up to the HQ expectations, the trust and the relationship with the Corporate may be jeopardized by the danger of  not fulfillment of a too much ambitious “commitment”, sometimes not well negotiated or supported by “lesson learned” or reasonable grounds. It is evident that all this leads to a lack of supporting measures from Corporate to the local subsidiary.

Concerning this, in order to make the local subsidiary successful, it’s extremely important to settle the HQ “commitment” in China, not just from a top managers point of view - who knows very well the market trend and, as already mentioned before, shows great interest to China, but also from a second level managers point of view because they are supposed to provide information and technical support to the colleagues in charge of setting-up new processes and of strengthening an “expertise” in China. It often happens that these managers- part of that Corporate population who frequently has a wrong vision of China and of the local subsidiary- feel China far, hard to understand and as a constant threat for the relocation impacts on their hometown: the result is an unconscious temptation to hamper China.

Moreover, Head Quarter and local branch relationship is strongly affected by HQ organizational decisions of centralization and decentralization, by the Corporate organizational culture and by the geographical expansion approach (aggressive and “colonizing” on one hand, open and pioneering on the other).

From the organizational point of view, it is clear that at least the big multinational companies more and more aim at a globalization and centralization of tools, platforms and processes. Pursuing important and shareable aims of efficiency, standardization, and responses to more and more global customers, the managers tend to sacrifice the local specificity fomenting power dynamics for which the center can and want exercise control over the local units relying on an amount of data and information more and more reachable and tend to repeat mechanically management tools not always suitable or useful for the local branch.

In particular, this situation could get worse if the Head Office should decide to enforce an organizational culture of “colonization” and imposition of business and working procedures which are successful in the HQ but absolutely dreadful in the local reality. The fact that many decentralized branches, that experienced this kind of relation with their HQ tend to build effective relation with Chinese branches trying to avoid the past mistakes, is eloquent.

In case of small-medium companies we witness the opposite risk because the propensity to centralization decreases and since the Corporate does not have a well-structured role of controller and “governance”, the local subsidiary has more freedom. As A. Arduino, M.C. Bombelli and J. Gonzalez highlight in “Sotto il Cielo una famiglia – Gestire le persone e le organizzazioni nel piu’ grande mercato del mondo”: “It often happens that results of projects lacking of a basic global design are grounded to the single manager without the chance to share and to settle best practices.” This may lead to a sense of insecurity in the Chinese branch structure where the change of the managerial style is perceived as an instability factor.

As for the communication process, the flow of information between local subsidiary and Corporate generally follows two different models:

  • Expatriates act as filter and make the information exchange easier
  • The local employees directly interact with Corporate staff

Those models, never clearly precise, has “pros” and “cons” that must be understood and faced up. The first model offers the obvious advantage of making the mutual understanding easier because people belong to the same culture (both, national and organizational) and knowing very well the HQ organizational structure, the employees and “who does what”, for the expatriate is very handy getting in touch with the “right” person. Nevertheless, the risk of this model is the “bottleneck” phenomenon for which the Corporate and the Local branch rely on the expatriate too much asking to intervene on issues that could be directly solved without his help. The second model offers the opposite advantages and disadvantages. In fact, in this case the cultural distance has big influence especially when the communication is based on technological media that highlight certain stable cultural differences like the use and the perception of the silence, the propensity to voicing opinions, to assume risks or to stray from standard procedures. Past experiences show that the two above-mentioned models are more effective in the communication process if integrated and if the expatriate finds chances in which he supports and facilitate the conversation - without replacing the local personnel – and acting as “trainer” for both HQ and local subsidiary‘s staff.

It’s clear from the above given context that the HR function plays a leading role both at local and Corporate level. The local HR in particular is in a very tricky situation because on one hand he lives the complex relation with his functional Corporate HR and on the other hand the responsibility of his role and the sensibility in reading the organizational dynamics calls for his function of  “business partnership” in order to support the local management and to awaken the Corporate (not just HR) to build a win-win fruitful relation.

From a strategic standpoint, the first contribution of HR is certainly to help the organization to underline and to better understand the complex relation between HQ and local branch, to read in the right way the organizational dynamics assisting local managers in preparing a structured and systemic analysis of the reality where they operate to be shared with the Corporate. With regards to the Head Quarter, the HR can help to evaluate which is the best centralization and decentralization policy and at what extent the local branch can use tools and processes to reach an agreement on which are the fundamental and unquestioned principles and targets to freely operate. HR function should also work together with the HQ top management to make the lower level personnel understand that commitment towards China means cooperation with overseas colleagues to reach common targets.

Another classical and important contribution of the HR lays in recruiting valuable people with the right qualities and attitude and successfully carry on measures to correct the perception of the local reality, especially when this perception affects the chance to find good candidates who can be negatively influenced by a wrong picture of the local reality. As the relation between HQ and Chinese branch suffers from a conceivable difficulty of understanding due to cultural distance, HR should also take the responsibility to provide local and head office staff with all the necessary cross-cultural tools, paying attention not to choose damaging solutions that foster stereotypes and superficially classify the differences. Training and coaching programs on cross-cultural relation should firstly work on developing a constructive and sincere interest in the other in order to facilitate a genuine connection among people and to promote interaction and exchange opportunities useful for the HQ and the local branch relation.

On a more operative level the experience teaches that if the visits of people sent by the Head Office to China and from the Chinese branch to the HQ were better organized and structured, it would be much wiser and more profitable. Besides, the leading role of HR in increasing technical, functional and managerial skills of the local staff has an inestimable value for the improvement of Chinese branch results and therefore for the trust and respect of the HQ for the local subsidiary.

It is clear that the above suggested action plan implies that corporate and local branch HR cooperates together with an open-minded mentality and driven by common values.

From this remark, valid also for all business functions and for the top management, we draw the conclusion that an improvement of the relation between Corporate and Chinese branch has considerable effects on business results and it calls for a constant commitment and promise from both parties to look for shared solutions not just based on the individual good will, but also able to work in a structural and systemic way on several levels: strategy, organization, processes and finally behaviors.

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