INTERNATIONAL HUMAN RESOURCE MANAGEMENT / Write an essay according to the case study to discuss how HRM can help address the issues encountered in internationalisation.

INTERNATIONAL HUMAN RESOURCE MANAGEMENT / Write an essay according to the case study to discuss how HRM can help address the issues encountered in

internationalisation.

Order Description

Case 4. The globalisation of Chinese telecom corporations: the case of Huawei

Cooke, F.L. (2012) ‘The globalisation of Chinese telecom corporations: strategy, challenges and HR implications for the MNCs and host countries’, International Journal

Of Human Resource Management, 23(9): 1832-1852.

The globalization of Chinese telecom corporations: strategy, challenges
and HR implications for the MNCs and host countries
Fang Lee Cooke*
Department of Management, Monash University, Melbourne, Australia; School of International
Business, Southwestern University of Finance and Economics, Chengdu, China
This paper investigates the motives of internationalization of two leading Chinese
multinational corporations, their entry strategy and strategic responses to overcome
internationalization barriers. In particular, we explore the political strategy and the
corresponding political behaviour these two firms adopt to facilitate their
internationalization process. We also examine the business strategy and human
resource strategy they deploy in their internationalization endeavour and what impacts
these may have on host country development, including human capital development
and employment creation.
Keywords: globalization; Huawei; human resource; MNC; political capital; social
capital
Introduction
Interests in the internationalization of Chinese firms have soared in recent years
(e.g. Erdener and Shapiro 2005; Alon and McIntyre 2007; Luo and Tung 2007; Boisot and
Meyer 2008). This expanding body of studies has shed light on the motives, entry
strategies and performance of internationalizing Chinese firms across different ownership
forms. These studies often adopt an institutional, cultural or strategic management
perspective in their investigation. However, detailed studies of high-tech firms in highly
competitive industries such as the telecom industry remain limited. This is in spite of the
fact that these firms’ internationalization strategy and operating environment in the host
countries may differ from those in the manufacturing, construction and mining industries,
which make up the bulk of the Chinese outward investment (see National Bureau of
Statistics 2010).
In addition, while ‘China is currently the most active internationalizing economy
among the developing countries’ (Child and Rodrigues 2005, p. 382), ‘the ability and
determination of Chinese firms to address their international competitive weaknesses,
and the strategies they employ to do so, have been inadequately recognized’ (Child and
Rodrigues 2005, p. 402). For instance, few studies have been conducted to examine how
Chinese firms deploy political and social capital to overcome their competitive
disadvantages and what human resource management (HRM) practices they adopt to
support their internationalization. The importance of political perspective and social capital
theory is beginning to be recognized in the international HRM literature (e.g. Kostova and
Roth 2003; Child and Tsai 2005; Edwards, Colling and Ferner 2007; Ma¨kela¨, Bjo¨rkman
and Ehrnrooth 2009). Furthermore, Shenkar (2004, p. 169) argues that international
ISSN 0958-5192 print/ISSN 1466-4399 online
q 2012 Taylor & Francis
http://dx.doi.org/10.1080/09585192.2011.579920
http://www.tandfonline.com
*Email: fang.cooke@monash.edu
The International Journal of Human Resource Management,
Vol. 23, No. 9, May 2012, 1832–1852
business (IB) studies should look at ‘the diverse political landscape and the various
constituencies that multinational enterprise (MNE) must contend with (but often solicits the
support of) when seeking to launch or expand foreign investment’. This argument is highly
relevant in the developing country context, an area that remains under investigation in IB
studies.
The Chinese business system contains a number of unique institutional and cultural
characteristics, such as the enduring role of the government and the importance of
relational management between firms and institutions. Chinese firms abroad face strong
liability of foreignness (LOF) associated with the political and business system of
the parent country. Studying internationalizing Chinese firms, therefore, offers an
opportunity to extend existing IB theories (Child and Rodrigues 2005). Given the fact that
many other developing economies ‘are also characterized by a heavy institutional and
political involvement in their business systems’ (Child and Rodrigues 2005, p. 404; also
see Dunning and Narula 2004), the case of China has wider theoretical and empirical
implications for IB management.
Moreover, emerging studies on HRM of Chinese multinational corporations (MNCs)
(e.g. Liu and Li 2002; Shen 2005; Zhang and Edwards 2007) have observed how human
resource (HR) practices in the Chinese subsidiaries overseas may differ from those in their
parent company in China and those adopted by local firms in the host countries. They have
also revealed key challenges to the HR function in the cross-cultural setting. What remains
little explored, however, is how Chinese MNCs’ business strategy may impinge on theirHR
strategy on the one hand, and how and to what extent the HR strategy may support and/or
constrain the fulfilment of business strategy on the other. This is a significant research gap
given the fact that few Chinese firms are seen to be truly internationally competitive and that
HR capabilities of Chinese firms are considered underdeveloped and heavily influenced by
the Chinese cultural traditions (Cooke 2005; Warner 2005; Wei and Lau 2005).
This paper aims to fill some of this research gap through the study of two leading
Chinese-owned MNCs in the telecom industry – Huawei Technologies Ltd (hereafter
Huawei) and ZTE Corporation (hereafter ZTE). We choose the telecom industry because
this is a knowledge-intensive sector that has not only a relatively high level of global
competition hinged on rapid technological innovation but also global integration and
resource sharing (e.g. market, technology, business process) among competitors in order
to remain competitive by complementing each others’ strengths. Huawei (private-owned)
and ZTE (state-owned) were formed around the same time and are competitors. They are
considered to be the two top telecom firms in China, which are now presenting some
serious challenges to the market position of global giants (e.g. Child and Rodrigues 2005;
Dickson 2009). They offer important materials for the study of Chinese MNCs not least
because of the nature of their business (e.g. knowledge intensive, rapidly changing
technology, high level of national security concern, and highly competitive global market)
but also because of the prospect of these materials being used as a building block for
comparative studies of MNCs from emerging and transitional economies such as India, the
IT industry of which is highly competitive globally.
We bring together different perspectives on MNCs as an integrated analytical
framework (see Figure 1) to investigate the motives of internationalization of these two
leading Chinese MNCs, their entry strategy, challenges and strategic responses to
overcome LOF, and the likely impact on both the host country (spillover effects) and the
MNCs themselves. In particular, we explore the political strategy and corresponding
political behaviour Chinese firms adopt to facilitate their internationalization process. We
examine their business strategy and HR strategy in their internationalization endeavour
The International Journal of Human Resource Management 1833
and what impacts these may have on host country development, including human capital
development and employment creation. Our study is guided by the following research
questions:
(1) What are the motives that drive the internationalization of Chinese telecom firms?
(2) What challenges do they encounter in their internationalization process?
(3) How do they leverage competitive advantage, including the deployment of HR, in
the international market where their competitiveness is not evident?
(4) What spillover effects may Chinese MNCs have in host countries, particularly in
developing countries?
Integrating IB theories in the study of Chinese MNCs
Motives of internationalization and entry strategy
According to Dunning and Narula (2004), there are four major motives for FDI:
market-seeking, resource-seeking, asset-seeking and efficiency-seeking. Exactly where
firms can fulfil these motives are often location-specific. Outward direct investment (ODI)
from developing countries is generally directed towards other developing countries.
As internationalizing firms from developing economies become more established in their
developing country markets, they increasingly target investment opportunities in more
advanced economies (Buckley, Cross, Tan, Xin and Voss 2008). International joint
ventures (JVs) are the preferred entry mode, especially early in the internationalization
process, and host country governments tend to have a strong influence on the level and
direction of ODI (Buckley et al. 2008).
In emerging economies, greenfield, acquisitions and JVs have been the most common
entry strategies (Meyer, Estrin, Kumar and Peng 2009). As Child and Rodrigues (2005,
p. 381) noted, ‘Chinese firms are generally making such investments in order to address
competitive disadvantages’. While developing countries have been the major destination
Motives of internationalization
•••••
Market-seeking
Resource-seeking
Asset-seeking
Efficiency-seeking
Exploitation of competitive advantage
Entry strategies
••••
Greenfield development
Mergers and acquisitions
Joint ventures
Organic expansion
Liabilities of foreignness and responses
• Unfamiliarity with the host country’s
culture, language, policies, regulations
and other institutional arrangements
• The need to coordinate across geographic
distance
• Lack of experience in managing risks
associated with increased political and
economic risks in many developing
countries
• Adopting local practices (isomorphism)
• Localization of staff (social capital)
• Alliances/linkages with stakeholders/
institutional actors (external resources
and political capital):
o To gain local knowledge of and access
to markets and distribution channels,
access to technology and managerial
expertise, connections with
government, legitimacy with
customers and local communities
o To shape local institutions and coevolve
Spillover effects
• Positive spillovers: technology and
knowledge transfer, skill transfer,
human capital development, job
creation, creation of linkages with local
suppliers and distributors, and raised
productivity of local firms
• Negative spillovers: the crowding out
of local firms, no long-term transfer of
knowledge, technology or skills, poor
labour standards, and negative
environmental impacts
Figure 1. Integrating perspectives on the internationalization of firms.
Sources: Child and Rodrigues 2005; Child and Tsai 2005; Cooke 2008; Driffield and Love 2007;
Dunning and Narula 2004; Oetzel and Doh 2009
1834 F.L. Cooke
countries for Chinese ODI, significant inroads have also been made in developed countries
(Alon and McIntyre 2007; Cooke 2008).
Liabilities of foreignness
LOF is one of the key issues that have been studied in the IB field (e.g. Zaheer 1995).
Internationalizing firms are believed to face a number of challenges associated with their
foreignness. These include, for instance, unfamiliarity with the host country’s culture,
language, policies, regulations and other institutional arrangements such as the role of the
trade unions. Other challenges include the need to coordinate across geographic distance,
lack of experience in managing risks associated with increased political and economic
risks in many developing countries (e.g. Zaheer 1995; Child and Rodrigues 2005;
Oetzel and Doh 2009). To mitigate LOF, firms may implement various practices, such as
employing local staff, adopting local practices and becoming ‘isomorphic’ with the host
country environment to gain legitimacy and increase the MNC’s prospect of long-term
survival and business success (e.g. Zaheer 1995; Oetzel and Doh 2009).
Oetzel and Doh (2009) argue that studies on LOF have primarily focused on MNCs
operating in developed countries. As such, perspectives derived from these studies may be
insufficient in explaining the growing presence of MNCs in developing countries, the
effectiveness of their strategy in overcoming their LOF, and their impact on the social
development of host countries. In addition, since the LOF perspective is primarily
concerned with how MNCs conceptualize their LOF and subsequently what strategy they
may adopt in relation to the host country, this conceptualization has important
implications for the economic and social development of the host country and the extent to
which MNCs view host country organizations as their partners (Oetzel and Doh 2009,
p. 110).
Given the inherent disadvantages of Chinese firms, there are several major challenges
that may affect their ability to implement their internationalization strategy successfully.
These include insufficient technical and management competence, capital constraints,
image problems associated with low-cost and low-quality products. This is in addition to
their perceived undesirable attitude towards business ethics and social responsibility,
most notably in their approaches to intellectual property rights and labour standards
(Cooke 2008). What strategy, then, do Chinese firms adopt to overcome their LOF? This
issue is particularly important in other developing countries where Chinese investment has
been significant and the Chinese firms’ strategy may have a stronger impact on these
countries’ development than they may on that of developed countries.
Overcoming LOF: institutional and political perspectives and linkages
Institutional theories on the strategic choice of MNCs in host countries emphasize on the
institutional constraints imposed upon firms (e.g. Schief 2010), particularly those in
emerging economies where governments continue to have significant involvement
in business affairs (Peng 2000; Child and Tsai 2005). Within the institutional perspective,
firms are assumed to play ‘a passive and reactive role’ (Child and Tsai 2005, p. 96).
In critiquing the insufficient attention given by institutional theories to the role of firms in
dealing with institutional constraints, authors from the resource dependence perspective
argue that firms are able to mobilize resources to ‘establish a degree of independence from
institutional demands’ (e.g. Child and Tsai 2005, p. 99). However, it is the political
perspective, one which is beginning to gain attention in IB studies, that ‘regards firms as
The International Journal of Human Resource Management 1835
having a potentially proactive role in relation to their environment’ (Child and Tsai 2005,
p. 96; also see Ferner, Tregaskis, Edwards, Edwards, Marginson, Adam and Meyer 2011).
Child and Tsai (2005, p. 96) further argue that, when combined, institutional and political
perspectives offer much greater explanatory power to illuminate our understanding on the
‘co-evolutionary processes between institutions and firms’. In a similar vein, Edwards et al.
(2007, p. 201) argue for an integrated political economy approach that examines the
interrelationships between markets and institutions on the one hand, and the material
interests of organizational actors on the other. They argue that the focus should be ‘on how
actors look to protect or advance their own interests, the resource they use, and the
resolution of conflicts’ (Edwards et al. 2007, p. 203).
At the practical level, Oetzel and Doh (2009, p. 112) argue that collaborations between
MNCs and local institutions can help embed the firm ‘in the social fabric of the developing
country’ and gain long-term competitive advantage. From the host countries’ point of
view, it has been argued that linkages1 between foreign investors and local institutions,
especially local firms, are ‘essential prerequisites for FDI to have a lasting and sustainable
effect’ (Hansen et al. 2009, p. 122, also see spillover effects later).
These strands of arguments suggest that MNCs can and should play a proactive role in
shaping the evolution of the institutional environment through their strategic interactions
with institutional actors in the host country. This opportunity, and indeed responsibility, is
even more significant in developing countries, where both institutions and markets are
largely in a state of flux. However, when contemplating MNCs’ role in shaping host
country environment, it is important to examine also the role of the home country
government as a domestic institutional actors. Scholars on the internationalization of
Chinese firms (e.g. Nolan 2001; Child and Rodrigues 2005; Buckley et al. 2008) have
commonly observed the influence and involvement of the Chinese government in the
internationalization decisions of Chinese firms. These studies essentially see government
intervention as an institutional factor. Some authors (e.g. Nolan 2001) even argue that
without the support of the government, Chinese MNCs are unlikely to be able to compete
in the global market. However, few studies have investigated how Chinese firms develop
and exploit their political capital, often in the form of connections with the government,
proactively and strategically to fulfil their international expansion agenda. As we shall see
later, governments of home and host countries in developing economies have played an
important role in shaping business opportunities for the Chinese telecom MNCs. These
firms also actively cultivate other forms of capital to embed their business in the
host countries.
Overcoming LOF: strategic HRM, social capital and competitiveness
Scholars on international HRM argue that HRM plays an increasingly important role in
supporting MNCs’ business strategy and subsidiary performance (e.g. Bartlett and
Ghoshal 1989; Taylor 2007; Colakoglu, Tarique and Caligiuri 2009). Moreover, recent
studies (e.g. Kostova and Roth 2003; Wilkinson, Eberhardt, McLaren and Millington
2005; Lengnick-Hall and Lengnick-Hall 2006; Taylor 2007; Ma¨kela¨ et al. 2009) have
highlighted the crucial role of social capital in the successful implementation of MNCs’
business strategy. According to Adler and Kwon (2002, p. 23), social capital is
‘the goodwill available to individuals or groups. Its source lies in the structure and content
of the actor’s social relations. Its effects flow from the information, influence, and
solidarity it makes available to the actor’. Adler and Kwon (2002) further differentiate
social capital into ‘bonding’ (internal) social capital and ‘bridging’ (external) social
1836 F.L. Cooke
capital. Bonding social capital helps actors within a firm to work together to achieve shared
goals, whereas bridging social capital ties actors together in social networks outside the
firm, enabling firms to generate value from these networks. It is argued that social capital
creates ‘a psychological environment conducive to collaboration and mutual support’ and
is ‘likely to lead to positive and cooperative behaviors’ (Kostova and Roth 2003, p. 301).
The importance of personal social ties in helping firms to develop internationally has
been acknowledged (e.g. Anderson 1993; Ellis 2000; Ma¨kela¨ et al. 2009). Other authors
(e.g. Luo and Chen 1997; Tsui and Farth 1997) have also argued that the social network
(or known as guanxi in the Chinese context) held by local managers gives them
competitive advantage over expatriate managers for marketing and sales positions. It is
believed that culturally skilled employees are able to negotiate more competently and
therefore perform more effectively (Earley and Peterson 2004; Shapiro, Ozanne and
Saatcioglu 2008).
The practice of deploying social ties and social capital to achieve organizational goals
is nothing new in China. In fact, guanxi has long been an interesting topic for study
and recent works on guanxi in the business context argue that guanxi has a positive and
important impact on organizational performance by lowering the transactional costs
and gaining competitive advantage through privileged access to rare resources such as
government ties (e.g. Standdifird and Marshall 2000; Park and Luo 2001). Although some
scholars are sceptical about the positive effect of guanxi on firms’ performance and
suggest that it is playing a diminishing role in the Chinese marketizing economy
(e.g. Guthrie 1998; Zhang and Zhang 2006), many argue that social network is necessary
in developing countries where legal institutions tend to be weak and local government
officials hold excessive power and will remain a crucial factor for long-term business
success (e.g. Luo 2001; Park and Luo 2001; Warren, Dunfee and Li 2004). What is less
known is how Chinese MNCs create social capital through their HR strategy to gain
competitive advantage and the extent to which the host country environment presents
opportunities and constraints for them to do so.
Spillover effects
There is now a substantial body of studies, often from the economic perspective, that
attempts to measure spillover effects of FDI in the host country (Driffield and Love 2007).
Findings of these studies point to different conclusions, from large positive effect to little
effect or even negative effect. More recent studies suggest a contingency approach that
links spillover effects with a number of factors (see Driffield and Love 2007). Positive
spillovers from MNCs in developing countries include technology and knowledge
transfer, skill transfer, human capital development, job creation, creation of linkages with
local suppliers and distributors and raised productivity of local firms (Driffield and Love
2007; Oetzel and Doh 2009).
Notably, studies on the spillover effects of FDI in developing countries have largely
pointed to a negative picture, in part, because of the low capacity of local firms and regions
to absorb new knowledge and technology and to raise productivity (e.g. Buckley, Clegg,
Cross, Liu, Voss and Zheng 2007; Hatani 2009). More importantly, it has been argued that
MNC strategies are creating a pattern of FDI that has a low development potential for the
majority of FDI recipient countries in the developing world (e.g. Stiglitz 2002; Dunning
and Narula 2004; Luo 2004; Yamin and Sinkovics 2009). Although the amount of FDI into
developing countries has been rising sharply in recent years, research evidence suggests
that this has yielded only negligible resource commitment to and positive spillover effects
The International Journal of Human Resource Management 1837
on the local economy. Some research findings actually point to the negative impact of
MNC activities on the host country’s economic, social and environmental development
(e.g. Dunning 2006; Oetzel and Doh 2009; Yamin and Sinkovics 2009).
Guided by the analytical framework developed in Figure 1, the rest of the paper
investigates how the two Chinese telecom MNCs enter host countries, what strategy they
adopt to overcome barriers and develop their business, and what likely impact their
business activities may have on the host countries. Key findings are summarized in
Figure 2.
Research methods
A case study approach was adopted for the data collection for this exploratory study. This
approach was chosen because, as Edwards et al. (2007, p. 204) argue, ‘case studies allow a
deep exploration of how the market and the institutional contexts in which MNCs are
embedded inform the way they operate, and permit an exploration of the interaction
between actors at a range of levels’.
Semi-structured interviews were conducted with a total of 33 employees (21 at
managerial level) of Huawei and ZTE. Eighteen informants came from Huawei and 15
from ZTE. Interviews were carried out between December 2007 and October 2009. Four
of the informants are of Indian origin based in ZTE’s and Huawei’s Indian operations.
The rest of the informants are Chinese. The Chinese managers were either based abroad at
the time of the interview or had worked abroad until shortly before the interviews, as the
head of a subsidiary operation or major business units of Huawei or ZTE. These Chinese
managers have all worked in three or more host countries, mostly developing countries,
where Huawei and ZTE have subsidiaries. They have worked for Huawei and ZTE for 6 to
11 years and were promoted through the rank. This international exposure gives them
great insights into the overseas operations of the case study firms. For confidential reason,
this paper will not reveal in which countries they had worked or where they were based at
the time of the interview. No more than two informants were interviewed at each
subsidiary operation. The 12 non-managerial employees interviewed were IT
professionals who had worked for the company for at least two years at the time of the
Motive of internationalization
• Market-seeking
• Resource-seeking (R&D)
Entry strategy
• Organic growth (i.e. small offices to
start with, then grow into multi-site
subsidiaries with marketing, sales,
R&D, services and manufacturing
functions)
• Joint ventures
LOF and other challenges
• Lack of market presence and brand
reputation
• Lack of language and cultural
awareness
• Negative stereotype image of
Chinese products
• Strong host country resistance due to
ties with government and ideological
alliance
• Expansion plan (e.g. acquisition)
being blocked by host countries
• Lack of identification of HCNs with
the firm
Embedding and expansion strategy
• Mobilizing political capital (ties with
governments)
• Developing other political and social
capital (e.g. CSR, training centres)
• Developing and deploying social
capital (employment of HCNs)
• Acquiring organizational
resources/competences through
alliances with global and national
telecom giants
• Linkages with host country
institutional actors for co-evolution
(e.g. corporation institutions involving
local and foreign MNCs, governments,
universities, NGOs, local
communities)
• Developing business with national
governments
• Developing wholly-owned
subsidiaries and regional headquarters
to consolidate resources and reinforce
market presence
Spillover effects on host country
• Shaping industrial norms
• Employment creation
• Raising human capital level
• Contribution to economic and social
development
Potential spillover effects
• Crowding out local firms
• National security threat to host
countries
Impacts on/implications for the MNCs
• Growing presence in the global market
• High financial cost
• Organizational infrastructures and
competence development lagging
behind rapid expansion
• Learning from other MNCs and local
partnersin host countries
Figure 2. Global expansion of Chinese MNCs: challenges, strategies and impacts.
1838 F.L. Cooke
interview. Access to the 33 informants was gained through personal contacts. Interviews
were carried out individually over the telephone or face to face by the author. Each
interview lasted between 50 to 90 min. Detailed notes were taken during the interviews.
Interview information was supplemented by company documents and media reports.
This secondary data was drawn from the information published on the corporate websites
as well as media sources in both Chinese and English language. As Huawei and ZTE are
high-profile Chinese companies, there has been a considerable amount of media reporting
on both companies’ performance and management decisions in China. Their international
expansion move also features regularly in IB magazines and host country media.
In addition, both companies have extensive websites published in Chinese and English.
Huawei also has an in-house magazine called ‘Huawei People’ that is published in both
Chinese and English. These sources of information prove useful as they not only
supplement the relatively limited number of interviews but also triangulate (Yin 2003)
information provided in the interviews. Given the difficulty in gaining access to leading
Chinese firms for data collection and given the fact that there is a relatively substantial
amount of information available from public sources on these firms, it has been quite
common for researchers to draw substantially on secondary data to inform their studies of
Chinese MNCs (e.g. Child and Rodrigues 2005). Nevertheless, caution has been taken in
interpreting these materials to avoid bias.
Findings and analysis
Background of Huawei and its international expansion
Founded in 1988 as an IT product sales and distribution company based in Shenzhen
(southeast China) by an ex-army officer, Huawei has developed into a leading supplier of
next-generation telecom networks and currently serving nearly three quarters of the
world’s top 50 operators. It has operations and representative offices in more than 100
countries and regions round the world which serve over 1 billion users. Nearly three
quarters of its sales come from the international market. Highly innovation-driven,
Huawei invests 10% of its revenue in research and development (R&D), in which 48% of
its 62,000 employees are deployed. Huawei has over 20,000 patents and has set up at least
12 R&D centres in different parts of the world to strengthen its position in the region and
customize both products and services. These include Silicon Valley and Dallas of the
USA, Bangalore in India, Stockholm in Sweden and Moscow in Russia. In addition,
Huawei has set up over 30 training centres worldwide to help its customers and local
people study advanced management and technologies.
The growth path of Huawei is typical of that of MNCs from an emerging economy.
In other words, it grows into a strong firm first in the home market. Then, it branches out to
other developing countries to avoid competition with the industry’s giants as it builds up its
expertise before entering developed economies. Targeting initially at developing countries,
Huawei was prepared to take risks in high-risk countries and regions. For example, Huawei
entered Russia and its neighbour states in the mid-1990s when other MNCs were stepping
out of the region due to political and financial uncertainty. It has grown from being a small
representative office in an ordinary neighbourhood to having a strong presence in the
region with offices in prime locations on par with prestigious western MNCs. Similarly,
Huawei first entered the African market in 1998 and has now representative offices and
technical service centres in over 30 countries across the region, including two regional
headquarters in Egypt and South Africa. By 2007, Huawei employed over 2500 employees
in Africa, out of which more than 60% were host country nationals (HCNs).
The International Journal of Human Resource Management 1839
Huawei’s internationalization was achieved mainly by setting up new representative
offices and partnerships with prestigious MNCs and national firms in the host country.
Huawei has increased its speed of internationalization since 2001, turning its attention to
the more developed countries while deepening its expansion in developing countries.
Huawei first established its presence in the UK and Germany in 2001, Sweden in 2001
(R&D centre) and 2003 (sales representative office), France in 2003, Italy in 2004 and the
Netherlands in 2005 after signing the contract with Telfort to supply the Dutch operator’s
UMTS network. By 2004, Huawei’s overseas sales had surpassed that of the domestic
market. In 2006, Huawei’s sales revenue was US$11 billion. It now has most of Europe’s
major telecom corporations among its customers.
Huawei’s European headquarters is strategically located in the UK. It is believed that
establishing a presence in the UK allows Huawei to tap into this dynamic and innovative
telecommunications market and raise its profile in other European markets. Having won
one of the top prizes in the ‘Most Globally Competitive Chinese Companies Award’
initiated by Roland Berger Strategy Consultants (Roland Berger Strategy Consultants
2007), Huawei is deemed one of the best performing Chinese companies in Europe.
If Huawei’s expansion in Africa is mainly market-seeking, then its establishment in
India is both market- and resource-seeking by tapping into its IT talent pool. Initially
launched as a small software development operation in India in 1999, Huawei opened an
R&D centre in 2001. Huawei’s Indian R&D centre hub around Bangalore is its largest and
most important asset outside China, employing over 1300 staff by 2007. An additional
investment of US$100 million was earmarked for further development in the next few
years and another 1000 R&D engineers were planned to be recruited.
Background of ZTE and its international expansion
Founded in 1985, ZTE is a state-owned enterprise (40% owned by the government) and
was listed on the Shenzhen Stock Exchange in 1997 and in Hong Kong in 2004. It is
China’s largest listed telecom equipment provider specializing in offering network
solutions for telecom carriers worldwide. Similar to Huawei, over 10% of ZTE’s annual
revenue is invested in R&D aimed at enhancing product quality, reducing cost and
achieving higher sales. Nearly half of all ZTE’s staff are involved in R&D. The company
owns over 1000 patents, with more than 87% of these being original innovations. ZTE was
reported to rank first among its competitors with the most number of handset patents in
China. In the first half of 2007, it also topped the league table among the Chinese
manufacturers and was in the 5th position in the world with sales volume of 15 million
units (Unstrung 15th November 2007). ZTE is widely regarded as one of the leaders of
China’s 3G industry, occupying about 30% share of the total 3G equipment market in
2008. ZTE has over 40,000 employees globally and its revenue in 2008 was around
US$6388 million.
ZTE’s firm growth and globalization process share much similarity with that of
Huawei, as it looks abroad for new growth opportunities. ZTE’s internationalization
effort has intensified since the early/mid-2000s and has similar global footprints as
Huawei. Headquartered in Shenzhen, ZTE has at least 13 wholly owned R&D centres in
North America, Europe and Asia and has undertaken research partnership with global
electronic giants such as Texas Instruments and Motorola and Agere Systems.
The company has become an important global player in the telecom industry, offering
products that cover every sector of the wire line, wireless, service and terminal markets
with 500 operators in over 140 countries and regions. In 2002, ZTE entered the UK
1840 F.L. Cooke
market for similar reason as Huawei. It set up a factory and customer service centres
there. ZTE entered the Indian market seriously from 2003 and has establishments in
Delhi, Bangalore and Mumbai. It offers a complete spectrum of telecom solutions to the
market and has collaborations with a number of Indian-owned telecom giants. ZTE’s
Gurgaon factory began its production in 2005 and has the annual capacity to build
equipment to handle up over 3 million lines of traffic based on the CMDA standard.
By 2007, ZTE employed over 500 people in its Indian subsidiary, over 75% were HCNs.
ZTE (India) won the ‘Best of Chinese Companies in Emerging Markets’ award initiated
by Roland Berger Strategy Consultants (Roland Berger Strategy Consultants 2007).
ZTE set up its business operation Malawi in 2004 and a number of other African
countries subsequently.
Global business strategy
Despite its huge success, Huawei remains a privately owned enterprise (including
employee share ownership as performance incentive in the period of firm start-up). Its
CEO believes that this will allow the firm more autonomy and flexibility in business
decision-making. Huawei’s organizational structure is led by its strategy and marketing
department. The key components of its business strategy are innovation, high quality, low
cost and excellent customer service by giving top priority to meeting customers’
requirements to enhance its competitiveness and profitability. Customer service is central
to its mission statement. In addition to its commitment to providing good customer
services, managers interviewed reported that Huawei’s customer focus strategy is
achieved through active engagement with customers. These include setting up training
centres globally to provide training to customers and inviting potential customers and
customers to Huawei’s headquarters for training and inspections.
ZTE adopts a product differentiate strategy tailored to different markets. For example,
ZTE is known in Malawi for its cheap K1500 handsets, but produces expensive modern
handsets for the Chinese market. Like Huawei, ZTE’s competition strategy in the
international market typically hinges on high quality and reliability, lower prices and
faster customer services than that of flagship multinational giants such as Ericsson, Nokia
and Motorola. In other words, the internationalization of ZTE (and Huawei) is to be
achieved through the internationalization of market, talent and capital. Compared with
Huawei, ZTE appears to be less aggressive in its global expansion strategy. ZTE
specializes more in manufacturing and has largely been focusing on developing countries,
whereas Huawei has opted on system integration and has made more inroads into the
western markets. The different focus between ZTE and Huawei in their product
market also affects the extent to which they are accepted by host country governments and
businesses, notably in India. For example, while security clearance was granted more
readily with the type of application ZTE filed, Huawei’s application was met by a high
level of security alarm and its approval delayed by the Indian government due to Huawei’s
business focus on after sales maintenance (e.g. Willing 2006).
Challenges to developing the international market and strategic responses
Managers interviewed identified a number of key challenges during their firm’s
internationalization process, particularly in their early stage of internationalization. First,
lack of presence and brand reputation in the market is perhaps the most significant
challenge. Most people in the host countries have never heard of these two Chinese firms.
The International Journal of Human Resource Management 1841
Worse still, Chinese products carry the inherent disadvantage of being associated with low
quality and low technology. Second, host country resistance is another formidable barrier
to establishing their markets, especially in developed countries. ZTE and Huawei have
taken a number of strategic actions to overcome these barriers, as discussed below.
Cost leadership
Cost leadership plays an important role in both firms’ business strategy that enables them
to win contracts. They target developing countries first to open the market. Developing
countries are poor countries and sensitive to price. The strategy of Huawei and ZTE is to
break into these markets with price advantage first. Once they have developed their
reputation and brand, they then go for the developed countries, often through alliances
with global giants.
A number of informants revealed that ZTE’s and Huawei’s European market had not
been making much profit as the products were given to the customers (e.g. British Telecom
(BT)) virtually free in order to develop the market and build up confidence from the
customers. It is believed that once prestigious telecom giants such as BT use Huawei’s
product, then it will have a strong market presence and confidence. Profit of Huawei’s
overseas businesses comes mainly from product upgrading and maintenance.
It must be noted that the tax refund policy operated by the Chinese government to
support strong Chinese firms to compete internationally has played a crucial role in both
firms’ low pricing strategy, especially in the early years of their international expansion.
However, the Chinese government has been facing increasing pressure from its trading
partner countries and the WTO to reform its tax refund policy that has benefited Chinese
MNCs like Huawei and ZTE. Although ZTE will continue to be protected by the
government due to its state ownership, interviewees admitted that the cost advantage of
Huawei is weakening due to the uncertainty of the tax return policy and the rising labour
cost in southern China and other developed regions in the country.
The low-cost success of ZTE and Huawei, while at the same time providing speedy
customer services, is also achieved through the use of excessive overtime of its Chinese
employees and internalized performance pressure. These practices are justified by the
traditional Chinese work ethics that values obedience, diligence, humility and
perseverance, and by the traditional Chinese paternalistic value of mutual reciprocation
between the company and the employees. However, Huawei and to a lesser extent ZTE,
which is less dependent on overtime, are likely to encounter legal and cultural challenge in
implementing these practices among their HCN employees. In this sense, localization will
have a negative impact on both firms’ low-cost strategy.
Developing and deploying political capital
Both ZTE and Huawei have relied heavily on their political capital not only in developing
the firm in China, but more importantly in developing their overseas markets, particularly
in developing countries. As a state-owned enterprise, the political tie of ZTE with the
government is to be taken for granted. For Huawei, it was reported that its founding CEO
was the director of the Information Engineering Academy of the People’s Liberation
Army that is responsible for telecom research for the Chinese military defence. Huawei’s
deep tie with the army provides the necessary political patronage and R&D partner that
have played a crucial role in Huawei’s rapid expansion, first domestically and then
globally.
1842 F.L. Cooke
When the Chinese government leaders visit other developing countries, they are often
accompanied by the senior management team of Huawei and ZTE. These two firms use
these opportunities to donate their products to the host countries to develop good will
which may lead to important business opportunities, often with the national government of
the host countries. Most of these donations and business deals coincide with presidential
visits involving the nations.
It is in the African continent that both ZTE and Huawei reaped the most benefit from the
Chinese government’s long-standing financial support to and political ties with African
governments. By contrast, state visits between the Chinese and western governments have
been much less frequent and less high profiled. No direct contractual agreement has been
reported between Huawei/ZTE and the western governments. Instead, they target
prestigious western telecomgiants for business partnerships.Acommon observation among
managers interviewed is that the media in western host countries tend to take an alarmist and
even hostile approach to reporting the business move of their firm. Subsidiaries of ZTE and
Huawei are instructed by their headquarters to take a low profile and avoid contact with the
media or interviews. Keeping a low profile is a typical Chinese culture, but the intention here
is mainly to reduce the chance of making publicity blunders and raising more alarms.
In addition, both Huawei and ZTE play an active role in corporate social responsibility
(CSR) to demonstrate their commitment to host country development. For example, they
donate to local charity causes, provide relief to victims of natural disasters, sponsor
education and employ local people. The primary motive for engaging in these CSR
activities is to gain local acceptance or at least to reduce host country resistance.
Compared with Huawei, ZTE has a much more sophisticated CSR statement on its
corporate website, covering issues such as environment and sustainability, human rights
and dignity, health and safety, engagement with stakeholders and so on.
Not all governments of developing countries are keen to accept Chinese IT firms, which
have close ties with the Chinese government. The entry of Huawei and ZTE to India had
met with strong opposition from politicians and national business communities for national
security and competition reasons. Visa applications of Chinese expatriates to work in the
Indian subsidiaries were problematic. In Africa, managers interviewed admitted that
relationships with certain African governments still need to be improved. Huawei’s
managers further admitted that political resistance from developed countries tends to be
even stronger and makes it difficult for the firm to develop businesses. For example, an
attempt by Huawei to merge with the US company 3Com was blocked in 2008 for
government security reason. Huawei’s £10 billion deal with BT in 2009 also caused much
concern for similar reasons. The nature of Huawei’s and ZTE’s relationship with host
country governments will affect the way HCNs perceive Huawei and ZTE as prospective
employers and their ability to implement HR policies to support their business strategy.
Partnership with local firms and universities
Both ZTE and Huawei make effort to develop partnership, for example by being subcontractors,
with leading telecom firms in host countries to tap into their technical
expertise, networks, customer base, brand reputation and other corporate resources and to
minimize competition and resentment from host countries. They also develop joint
training programmes with universities and national telecom companies in developing
countries to help them develop an IT skill pool. However, managers interviewed admitted
that these training investments are more intended for gaining local acceptance of the firms
than for human capital return. They are practically sunk costs.
The International Journal of Human Resource Management 1843
Improving management process
Audited by KPMG, Huawei employs prestigious MNCs (e.g. Hays Group and Mercer) to
improve its internal management system. This enables Huawei to adopt advanced
management techniques used by leading MNCs and bring itself closer to the global
players’ standards. This includes adopting management practices that are not commonly
used by Chinese enterprises, such as outsourcing. For example, Huawei (India) outsources
a significant proportion of the projects it gets from its Chinese parent company to its Indian
vendor partners like Infosys, Wipro, Satyam and FutureSoft. The outsourcing decision is
not based on cost but a strategy to tap into the skills and knowledge of Indian firms.
Similarly, ZTE makes use of prestigious consultancy firms to provide professional
management services, such as the HRM functions (see below). Its ‘customer focus’ and
‘precautious action is critical’ company ethos have been the main driving force in the
company’s quality management system, which includes a range of international quality
insurance accreditations.
Deployment of human capital and social capital
Overseas subsidiaries of Huawei and ZTE typically started with a small team consisting of
one Chinese expatriate manager, one or two Chinese expatriate employees and a local
administrator. Many have grown into a much larger operation within a few years. Chinese
expatriates were deployed during the initial set up of the overseas operation. More local
employees will be hired once the operation takes off. On average, around 70% of both
firms’ employees in their overseas operations are HCNs. Many senior managers in the
subsidiaries are HCNs and grew up with Huawei or ZTE in their country. They were
promoted through the rank. Having HCNs as managers is seen as a more effective way to
communicate with local staff.
Managers from Huawei revealed that its long-term staffing intent is localization,
with a motto: ‘internationalization through localization’. However, key and high-risk
positions, such as finance and purchasing, are likely to be staffed by Chinese in the
foreseeable future in order to avoid local collusion. This is a strategic mindset shared by
ZTE. In addition to promoting their HCN employees to managerial positions internally,
the overseas operations of both firms have been filling their key managerial and
technical posts (e.g. sales managers, account managers) from the external market in the
host countries for their skills in the field, knowledge of the industry and customer
relationship management experience. The two firms’ inclination to deploy HCNs for
customer interface positions is perhaps not surprising since Chinese are well known for
giving importance to developing informal social network for personal and business
gains. This finding is in line with previous works, as reviewed earlier, which argue that
social capital can lead to enhanced organizational performance and that attention
should be given by organizations to develop, maintain and exploit such relationships
(e.g. Ferner et al. 2011).
Recruitments in Huawei’s overseas operations are carried out by local recruitment
agencies. This outsourcing enables Huawei to tap into expertise necessary for effective
recruitment of local employees and allows the overseas operations to develop rapidly
without having to develop a full in-house HR department. Managers interviewed revealed
that some countries, such as India, have more HR available than others, for example
Nigeria. In their initial days at Huawei, some Nigerian employees did not even know how
to use a computer. It was a challenging task to train them up, but they have been trained up
and are now training other local employees.
1844 F.L. Cooke
Similarly, ZTE’s overseas subsidiaries outsource some of their HRM functions to local
HR partners to tap into their expertise. For example, ZTE (UK) outsources a significant
part of its HR function to Aztec HR to help design its HR strategy, HR policies and
procedures, cultural values, performance management, employee handbook and HR
infrastructure. According to the managers interviewed, this not only enables ZTE to
develop its HR strategy, procedures and practices that are in tune with local norms and
expectations but also helps it benchmark itself against leading western telecom firms.
Challenges to HRM in host countries and management responses
Managers interviewed identified a number of challenges to managing local and Chinese
expatriate employees in their overseas operations. First, wage level for inexperienced new
local recruits may be low as remuneration is based on performance level. Indeed, retention
of competent local staff has been a challenge, as Huawei’s and ZTE’s wage levels are
lower than those of their western competitors in the local market.
Second, local employment laws are different from those of China and as a foreign firm,
they need to abide by these laws more stringently than they would be in China. This causes
difficulties in staffing level at times, especially when overtime is needed in short notice to
meet deadlines or to solve customers’ problems promptly. It is common for Chinese firms
to request their staff to work overtime, paid or unpaid, in short notice. However, working
overtime may be discouraged in some countries for legal, social and cultural/religious
reasons. Chinese employees will be requested by their Chinese managers to work the
overtime instead. This differential treatment causes a sense of unfairness from the Chinese
employees. Their Chinese managers handle this grievance by ‘educating them and giving
them reward and recognition’ (Manager 3, Huawei). However, managers of both firms
reported that the reliance of overtime is now much less than in the early stage, as both
firms are now more geared up with better professional development and support for their
international operations.
Third, how to strike the balance between employee development and cost-effective
deployment of staff is sometimes a dilemma, as HCN employees demand training and
development opportunities and then leave for more prestigious western MNCs (also see
below). Cultural difference in work values is a fourth difficulty identified. Three managers
who have worked in Africa mentioned that African employees have a more relaxed
attitude towards work and their efficiency is lower than that of the Chinese employees.
These managers tend to send Chinese employees to work on tasks that are urgent.
Fourth, multicultural and diversity management is another issue. Huawei is perhaps
one of the few Chinese firms that have taken on the concept of multiculturalism and
diversity management proactively. However, cross-cultural teamworking is not always
smooth and a range of pragmatic management interventions are deployed to overcome the
problem. It appears that Huawei is more articulate in its corporate diversity management
statement than ZTE.
Fifth, lack of identification from the local employees with their employer and lack of
acceptance of the Chinese firms’ corporate culture are the twin challenges that have
contributed to retention problems. Although Huawei and ZTE are seen as employers of
choice in China, offering sparkling career prospects to ambitious engineer graduates, staff
turnover is a problem of both firms’ overseas operations, particularly in less developed
countries. Local employees tend to join Huawei or ZTE for the training and then quit to
join the operators of western MNCs for higher pay and prestige. Huawei and ZTE
subsidiaries have tried different methods to retain staff within the constraint of corporate
The International Journal of Human Resource Management 1845
HR policy. For example, HCNs are sent to their headquarters for training and development
so that they can better understand the Chinese culture and their corporate culture. Good
HR practices used by western MNCs are adopted, such as providing African employees
with guarantee letters to the bank so that they can raise a mortgage for their house. When
allocating bonus, local employees may receive a favourable share. When local employees
have improved their skills and competence level, they are given a higher level of
responsibilities and rewards. HCNs are appointed as deputy managers to deal with issues
of local staff as they are more familiar with the local culture and customs than the Chinese
managers. To compensate the lower salary level of same grades, Huawei and ZTE offer
higher grades than their western competitors to local employees of the same skill level.
These HR interventions are partially effective. Nevertheless, more trained staff have
stayed than those who have left, as one manager puts on a brave face. What is needed, as
identified by managers interviewed, is greater flexibility in reward and recognition at the
local level in order to retain excellent local employees.
The uneven development of HR competencies at the subsidiary level and the lack of
capacity to provide support from the HR headquarters are to some extent contributing
factors to some of the HR problems identified above. When asked if their corporate HR
strategy is adequate in supporting their global business strategy, managers interviewed felt
that there is no blueprint available to provide guidance for Chinese MNCs in their
internationalization process. As such, both firms are adopting a trial and error approach.
Managers operating overseas admitted that they have a relatively high level of autonomy
in managing their daily activities as long as they conform to the broad regulations of the
company and meet their annual performance targets. Many of the HR interventions are
designed and implemented at the local level to suit local needs. This is, in part, because
both firms are expanding so quickly that their headquarters cannot cope with all the queries
and demands from local operations. In comparison, Huawei managers seem to have
slightly more autonomy than their ZTE counterparts.
For both firms, effective HRM and employee retention appear to be more crucial to
their Indian operations than elsewhere. Both firms have extensive HR policies and
practices developed locally to enhance employees’ engagement. In particular, ZTE (India)
pays close attention to employees’ requirements and issues, as it believes that
understanding employees’ feelings is important in effective decision-making. It is also
interesting to note that competence in dealing with industrial relations (IR) issues are
emphasized when recruiting HR professionals in ZTE (India), whereas this is not
mentioned in ZTE (China) where IR (and trade unionism) does not feature.
In both companies’ overseas operations, a range of reward and recognition programmes
have been developed locally, particularly in India and Pakistan where recognition plays an
important role, as it does in China. In India, annual recognition rewards include best team
players, best managers, best innovators, best projects, best quality adherences, best
mentors, best trainers and so forth. Huawei and ZTE have ‘Family Day’ events that enable
the families of employees to develop a deeper understanding of and bonding with the
company. This is a particularly popular management technique in south Asian countries.
Birthday parties and wedding celebrations for their employees are also commonly held in
these countries in line with the local traditions.
Discussion
The primary motives of both Huawei and ZTE’s international expansion have been
market-seeking and resource-seeking (R&D capacity and close to customers). It becomes
1846 F.L. Cooke
evident that they face many unique challenges as well as common ones encountered by
other MNCs in becoming a global player. Huawei and ZTE overcome some of these
challenges through the development and deployment of political capital and social capital.
These include engagement with governments and local communities, CSR activities such
as donation and charity events, employment of local employees, sponsoring local
education and training of IT skills through the funding of training centres and partnership
with host country universities and national firms. Huawei and ZTE also develop
partnership with world’s leading IT giants to tap into their brand reputation, technical
expertise and market/distribution channels. The mobilization of political capital and
alliances with competitors and client firms prove important for Chinese MNCs when their
organizational resources, including technical, financial and HR and brand image, are
insufficient for them to become players in the global arena. At a deeper level, the
philosophy underlining ZTE and Huawei’s IB strategy reflects the Chinese traditional
value that emphasizes on harmony in order to gain local and global acceptance and to
avoid direct competition and confrontation. This strategy has strong HR implications.
Internally, the two companies’ HR strategy does play an important role in supporting
their IB strategy. Findings from this study, however, suggest that neither ZTE nor Huawei
has developed an integrated global HR strategy that is supported by a sophisticated HR
system from their corporate headquarters. Instead, it is a mixture of HR practices
transferred from the parent company, initiatives developed by managers at the subsidiary
level and perceived best practices adapted from western MNCs. This pragmatic approach
reflects that of what Farndale and Paauwe (2007) classified as less transnational firms.
Stroppa and Spieß (2010) argue that firm size affects the level of support expatriates
receive and those from larger firms tend to receive more support than their counterparts in
smaller firms. We would add here that the capability of firms in managing global
operations is an important factor in the level of support expatriates and subsidiaries
receive, especially young firms that are internationalizing.
In addition, ZTE’s and Huawei’s employment of HCN employees and sending them to
their headquarters for training as well as sending Chinese employees abroad is a dual
strategy to develop social capital to support their business strategy. This exchange
enhances the mutual understanding of different groups of employees and helps embed
their corporate culture in HCN employees. As Inkpen and Tsang (2005) pointed out,
shared goals and shared culture are two important facets of cognitive social capital, an
argument supported by Stroppa and Spieß (2010). However, expatriation and inpatriation
are costly HR practices and not all HCN employees will be sent to the corporate
headquarters for cultural simulation.
The important role of cultural values in the strategic HRM in MNCs is well recognized
(e.g. Zhang and Albrecht 2010). Indeed, how to encourage HCN employees to share
Huawei’s cultural norms and values remains a challenge identified by managers
interviewed. Although the high performance and speedy customer response culture
practiced by Huawei (and to a lesser extent ZTE) is often achieved through virtually
compulsory overtime imposed on the Chinese employees, this managerial prerogative may
not be readily accepted by HCN employees. As Fleming (2005) noted, paternalistic
management style may be resisted by employees for various reasons. Without employees’
acceptance of organizational norms and values, the opportunity for firms to leverage
employees’ cognitive social capital for organizational good remains limited (Taylor
2007). Nevertheless, ZTE’s and Huawei’s deployment of HCNs, though contingent upon
many factors, gives the firms immediate access to local language, culture, network and
other resources. This makes it easier for Huawei and ZTE to win customers, in addition to
The International Journal of Human Resource Management 1847
gaining local acceptance through the demonstration of their commitment and contribution
to the host country economic development.
Conclusions
This paper makes a number of related contributions to the existing understanding of the
internationalization process of Chinese firms and MNCs more generally. First, it mobilizes
a number of theoretical perspectives in IB and development studies to examine different
aspects of the internationalization process of Chinese firms through an integrated
analytical framework. Although each theoretical perspective has been effective in
explaining certain aspects/processes of the internationalization, a single perspective is
insufficient to understand the whole process of internationalization. In addition, some of
these perspectives (e.g. political perspective and social capital theory) have only started to
gain attention in international HRM studies, but are offering great explanatory power. We
argue that in order to develop a comprehensive understanding of the internationalization of
Chinese firms, we need to investigate their motives, entry strategy, challenges they
encounter and their responses to overcome them, and the likely spillover effects. We argue
that these aspects of internationalization interact and shape each other, including the HR
strategy and outcome not just for the firm but also for the host countries. For example, to
assess the spillover effects of MNCs on the host country, we need to examine their motives
of internationalization, the LOF firms face and the strategy they deploy to overcome them
in the specific context of the host countries. We found that Huawei and ZTE have positive
spillover effects on host countries, for example through CSR, employment and human
capital development activities. However, the politics of their CSR strategy should not be
overlooked. In addition, the likely negative effects (e.g. national security of host countries)
may need to be examined as the penetration of Huawei and ZTE in the host countries
deepens.
A second contribution is that the study adds to our qualitative understanding ofMNCs.
The combination of these theoretical perspectives and the investigation of a range of
internationalization issues through a case study approach enable us to identify new issues
and extend existing IB/international HRM theories. For example, Huawei and ZTE are
collaborating with local institutions and other actors (e.g. other foreign MNCs and local
corporations) in the host countries to legitimize their presence and embed themselves.
Cuervo-Cazurra and Genc (2008) argue that managers of MNCs from emerging
economies are able to manoeuvre more easily, compared with their counterparts from
developed economies, in developing countries, which share similarly poor institutional
and political conditions with their home countries. The finding of this study extends their
argument in that Chinese managers interviewed felt that they tend to have more bargaining
power and are able to win through situations more easily in developing countries than
they can in developed countries. It further suggests that Chinese MNCs may play a more
prominent role in shaping the institutional environment of developing countries.
This advantage, however, may come at a price. For example, the political ties Chinese
MNCs develop with governments in developing countries may contribute to resistances in
the developed world due to the association with corruptions and poor records of human
rights in developing countries. In addition, the political strategy deployed by western firms
differs considerably from that of those from developing countries (Faccio 2006).
Therefore, the political capital and organizational competence developed by Chinese
MNCs in dealing with situations in developing countries may not be transferable or
applicable when dealing with western MNCs.
1848 F.L. Cooke
Third, this study adds to our limited empirical knowledge on the internationalization of
young Chinese firms in the high-tech sector, particularly the different situations they
encounter in different parts of the world in their globalization endeavour. The study of
Chinese MNCs has conceptual and managerial implications for the study of MNCs from
other developing countries, an understanding that is to date underdeveloped but of
growing significance. Studying the linkages between the Chinese MNCs and institutional
actors in the host countries also has policy implications, particularly for developing
countries that seek contributions from FDI to raise their technical competence and human
capital. The analytical model we have developed here provides a useful framework
through which to explore many of these issues.
This study has a number of management implications, particularly for new MNCs
from emerging economies. One is the importance of aligning its internationalization
strategy and execution plan with the local development needs in order to reduce host
country resistance and gain local acceptance. Another is to mobilize the political, social
and cultural capital of stakeholders in both the parent and host country to maximize
the resources available to the corporation to fulfil its internationalization plan. Still
another implication is to develop a corporate vision on its HR strategy, but with a high
level of local responsiveness. Learning from other MNCs and well-performing local
firms in the host country is an effective way to develop the subsidiary’s HR capability
rapidly. In particular, understanding the local culture and effective management of local
employees, including winning their identification and engagement with the firm, is the
key to success.
This paper has a number of limitations in terms of its methodology. First, access to
HCN employees and other stakeholders in host countries across regions has been difficult
due to resource constraints. This has restricted the sources of information to enable the
construction of a more nuanced global picture of Huawei and ZTE, particularly the likely
impacts or spillover effects of these businesses on developing countries in both
quantitative and qualitative terms. Second, these are snapshot case studies, and as such,
many stories are anecdotal. Third, the case study of the two leading telecom firms may not
be representative of ChineseMNCs across sectors in terms of their HR strategies as well as
challenges they encounter during their international expansion process. In-depth
longitudinal case studies as well as quantitative studies with large sample size from a
wide range of industrial sectors will be useful to deepen our understanding of a topic that is
significant not only from an IB and management perspective but also from a global
economy and development prospect.
Acknowledgements
I would like to thank the reviewers for their constructive comments on the earlier version of this
paper. This research was supported by a grant from the ‘Project 211(Phase III)’ of the Southwestern
University of Finance and Economics, Chengdu, China.
Note
1. ‘A broad definition of linkages includes transactions between foreign affiliates and local
business and non-business entities like universities, training centres, research and technology
institutes, export promotion agencies and other official or private institutions involve
longer-term collaborations between the parties (UNCTAD 2001)’ (Hansen, Pedersen and
Petersen 2009, p. 122).
The International Journal of Human Resource Management 1849

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