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The role of cultural values on a firm's

strategic human resource management


development: a comparative case study of
Spanish firms in China

Authors: Yingying Zhanga; Chad Albrechtb


Affiliations: a CUNEF, Complutense University of Madrid, Madrid, Spain
b
Huntsman School of Business, Management and Human Resources, Utah
State University, Utah, USA

Published in: The International Journal of Human Resource Management, Volume 21,
Issue 11 September 2010 , pages 1911 - 1930
Publication Frequency: 15 issues per year

To cite this Article: Zhang, Yingying and Albrecht, Chad 'The role of cultural values on a
firm's strategic human resource management development: a comparative case study of
Spanish firms in China', The International Journal of Human Resource Management, 21:11,
1911 - 1930

Abstract
This paper attempts to better understand the role of cultural values as a human resource
contributor to a firm's strategic development. Comparative case studies of two Spanish
subsidiaries in China were made using on-site, in-depth qualitative research in both Spain and
China. We then examine how this difference in management affects the firm's overall
strategic development and, hence, its performance. The results of the study suggest that
cultural values, as a human resource contributor, do indeed affect a firm's overall strategic
development and, hence, the firm's resulting success or failure. Throughout the paper, the
management by values (MBV) framework is used as a lens to further examine and better
understand this process.
Keywords: China; culture; management by values; Spain; strategic human resource
management; values

Introduction
This paper examines the role of cultural values as a human resource contributor to a firm's
strategic development. For the last several decades, strategic human resources management
(SHRM) has been proposed as a key element that can help a company gain and sustain a
competitive advantage over other firms (e.g., Betcherman and Gunderson 1990; Hendry and
Pettigrew 1992; Brewster 1993; Schuler, Dowling and De Cieri 1993; Lundy 1994; Truss and
Grattan 1994; Dyer and Reeves 1995). Despite agreement that SHRM adds value to a firm's
success (Schuler 1992), there has been no consensus on the process by which human
resources contribute to the firm's strategic development. Most research on SHRM has
concentrated on how human resources practices, policies, systems, and strategies must be
aligned with external factors, such as the environment and firm strategy, in order to
experience superior firm performance.

Many researchers have suggested that organizations adopt particular organizational strategies
that align with human resource management philosophies (e.g., Dyer 1984; Schuler and
Jackson 1987). This congruence between human resource practices and organizational
strategies has been suggested as a reason certain firms achieve superior firm performance
(Delery and Doty 1996). The commonly theorized models of SHRM: 'best practices' vs. 'best
fit' (Boxall and Purcell 2000), or universalistic, contingency and configurational perspectives
(Delery and Doty 1996), are based on this same assumption. However, in the recently
developed configurational models, researchers have attempted to develop effective HR
systems that 'fit' with other organizational characteristics, often referring to firm strategy
(e.g., Miles and Snow 1984; Arthur 1992; Dolan, Mach and Sierra 2005).

These various theories do not seem to satisfy the criticism that SHRM lacks a solid
theoretical framework and foundation (i.e., Bacharach 1989; Boxall and Purcell 2003; Wright
2003). On the one hand, there is no clear boundary between strategic human resources and
operational human resources, or, as Baron and Kreps (1999, p. 30) argue, 'that strategic
human resources are too important to leave only in the hands of human resource
professionals, and instead should be managed by general managers.' On the other hand, little
attention has been given to how the human resource function of an organization contributes to
the firm's overall strategy. Instead, researchers seem to focus on managing human resources
and their success in implementing business strategies (Schuler and Tarique 2007). Current
research does not provide a conclusive answer to 'how' the human resource function of an
organization contributes to gaining and sustaining superior firm performance.

In order to address this important issue in SHRM, scholars such as Dolan, Garcia and Richley
(2006) have recently developed a management by values (MBV) model that relates cultural
values to other organizational elements of the firm.

In this paper, we use the MBV framework as a lens to further examine and better understand
how cultural values contribute to the strategic human resource management of an
organization. We then examine how this difference in management affects the firm's overall
strategic development and, hence, its performance. In using the MBV lens, we contrast the
human resource strategies of two Spanish subsidiaries located in China. These two
subsidiaries have achieved significantly different financial results. Because the two
subsidiaries have very different control and development-oriented cultural values, we are able
to contrast the different values of the two companies and better understand how cultural
values affect SHRM. Because of our in-depth study, this paper highlights the importance of
cultural values in strategic human resources, and therefore, increases our overall knowledge
of the relationship between SHRM and the competitive advantages of firms.

The paper begins with a theoretical description of the field of SHRM and its challenges.
Following the literature review, we provide a description of the two Chinese subsidiaries that
are analyzed, including various details about each organization. Following these descriptions,
we present the research methods that are used to analyze the organizations using the MBV
lens. This is followed by an analysis of the research. Finally, we provide a brief discussion
regarding the conclusions and implications of the research.

Theoretical perspectives

In an increasingly global business environment, it is extremely important to build and sustain


a competitive advantage over other firms. The role of human resources in gaining and
sustaining this competitive advantage is becoming increasingly clear (Schuler and Tarique
2007). However, the 'black box' of how human resource management contributes to strategic
management and superior firm performance in global competition is, unfortunately, still not
fully understood. As a result, the need for explanatory models in a turbulent environment is
becoming increasingly important (Lengnick-Hall and Lengnick-Hall 1988). When firms are
slow to react to different environments, their likelihood of long-term survival is reduced
(Miles, Snow, Meyer and Coleman 1978).

While the volume and scope of SHRM research has grown significantly, the field is still
characterized by the absence of a generally accepted definition and solid theoretical
framework (e.g., Dolan, Valle, Jackson and Schuler 2003; Wright 2003; Boxall and Purcell
2003). Examples of confusion and misconception in published SHRM research include:
reference to SHRM as an extension of Human Resource Planning; confusing SHRM with
Human Resource Strategy; and simply mentioning SHRM as a way for firms to gain
competitive advantages (Mirvis 1985; Ulrich 1987; Rothwell, Prescott and Taylor 1998;
Wright 2003). An attempt has been made in the following sections to investigate and focus on
the intersection of these different streams of research.

SHRM and firm performance

Among other approaches, SHRM has been perceived as the pattern of planned human
resource deployments and activities that enable the firm to achieve its goals (Wright and
McMahan 1992); or those decisions and actions that concern the management of employees
at all levels in the business and the implementation of strategies directed towards creating and
sustaining a competitive advantage (Miller 1987).

In the 1980s, various theories emerged in response to uncertainties in human resource


management, attempting to bridge human resource management and strategic management,
and to justify the contribution of human resource management to firm performance. Indeed, a
growing number of experts now believe that the key to a firm's economic success can be
contributed to the effective management of its human resources (Ulrich and Lake 1991;
Huselid 1995). Current literature suggests that effective human resource management can be
a source of sustained competitive advantage (Wright and McMahan 1992; Pfeffer 1994).
These researchers contend that a proper configuration of human resource practices may not
only help an organization sustain its competitive advantage, but also significantly contribute
to a firm's superior performance (Huselid 1995).
Schuler and Jackson (2005), in their analysis of the various models and theories used by
researchers studying human resource management, stress the interdisciplinary nature of such
research. They conclude, for example, that numerous perspectives are based on sociological
(institutional theory), economic (human capital, transactional costs), managerial (agency
theory or resource-based theory), or psychological (role-behavior perspective) perspectives.

Human resource management performance linked research, where the basic issue is that of
the 'fit' between human resource management and business strategy, asserts that theoretical
human resource management frameworks differ between US and European perspectives
(Boxall and Purcell 2003). Most researchers in the US take an implicit managerial approach,
focusing on the benefit to shareholders, while researchers in Europe tend to emphasize the
importance of balancing the interests of multiple stakeholders such as employees, unions,
governments, and society (e.g., Brewster and Hegewish 1994). Four different approaches of
how human resources relate to strategic management have been suggested: universalistic,
contingent, configurational, and complexity (Delery and Doty 1996; Becker and Gerhart
1996; Youndt, Snell, Dean and Lepak 1996; Boxall and Purcell 2000; Colbert 2004).

The universalistic approach takes a 'best practices' perspective (Huselid 1995), the central
argument being that the contemporary environment facing most organizations is turbulent
and uncertain, and thus top employee involvement is needed at all levels. Many studies
attempt to provide empirical evidence that proves that organizations that employ certain
human resource policies and practices have greater levels of organizational effectiveness than
those that do not (e.g., Arthur 1994; Macduffie 1995; Huselid 1995). For example, Delaney
and Huselid (1996) find support for the hypothesis that human resource practices that
improve general employee skills, motivation and work structure are positively related to the
performance of the organization. Referring to the strategic human resource management
field, Delery and Doty (1996) raise concerns about whether human resource practices
independently affect organizational performance or are embedded in a broader and internally
consistent configuration of other corporate practices (e.g., Dolan et al. 2005).

In contrast, the contingency perspective argues that HR policies must be consistent with other
organizational elements in order to be effective. This perspective suggests an appropriate fit
between human resource strategy and the external environment in which the organization
operates. The absence of an external fit would lead, in the contingency perspective, to
suboptimal performance. Youndt et al. (1996) provide empirical support for the relationship
between external fit and performance. However, other studies have suggested conflicting
results regarding this relationship (e.g., Delery and Doty 1996). Wright and Snell (1998)
proposed a theoretical argument suggesting that these two points of view are not necessarily
contradictory and that firms can design systems that promote flexibility while concurrently
attaining a level of fit between human resources and organizational strategy.

While some researchers explain differences in human resource management practices through
an overriding contextual variable such as strategy, there are others who point out that there is
a multiplicity of factors involved. These studies point to both external factors such as culture,
legislation, the national economy, and the structure of the industry sector; as well as to
internal factors, such as the size of the organization, its history and traditions, organizational
structure, and the technologies used as contributors of human resource management strategy
and success (Jackson, Schuler and Rivero 1989; Kane and Palmer 1995).
There are also those who advocate a mixed positioning view, proposing approaches that
combine more than one perspective. For example, Macduffie (1995) speaks of different
'organizational logic' depending on the system of production used. His work supports the idea
that for each type of human resource system, there exists differentiated human resource
management practices that reveal interrelationships and internal consistency, resulting in
higher levels of productivity. Arthur (1992, 1994) identifies the difference between cost and
innovation strategies reflected in the differences between mass and flexible manufacturing.
For each alternative strategy and system, he identifies a corresponding system of industrial
relations. Based on this increasing concern for interaction effects and system-level
characteristics, Colbert (2004) proposes complexity to extend the application of a resource-
based view (RBV) of the firm to the SHRM literature.

To assess the performance of the Spanish subsidiaries in China, both human resource
management performance and firm performance measures are used. The human resource
management related outcomes include: level of employee morale, level of average employee
tenure, rate of employee promotion, and rate of employee turnover. The firm performance
measures include: profits, sales growth, level of performance on parent-prescribed objectives,
overall performance, and performance relative to competitors. In addition, other indicators
are used to assess the level of achievement of the initial established goals, which include
financial, commercial and other, depending on the original strategic goals of the organization.

Management by values

Differentiated from following a strategy proposed and designed by top management, Dolan
and his colleagues (i.e., Dolan and Garcia 2002; Garcia and Dolan 2003; Dolan et al. 2006)
propose a value management process that contributes to a firm's sustainable development.
These researchers suggest that in a turbulent international business environment, business
executives are challenged to rethink existing managerial models to sustain strategic
advantages. Based on the previous managerial philosophies of management by instruction
(MBI) and management by objective (MBO), management by values (MBV) highlights the
emerging importance of shared values among stakeholders to sustain the strategic
development of a firm.

The core element of MBV is its triaxial model, which is divided into three dimensions:
ethical-social values, economic-pragmatic values, and emotional developmental values. MBV
suggests that a real recognition and sharing of the importance of values in these three
dimensions contributes to an authentic consensus and synergy in beliefs and behavioral
outcomes. Through the chain of beliefs, values, norms, attitudes, behaviors, and outcomes,
people working within the organization share the same value system and, together develop
the strategy of the organization (Dolan et al. 2006).

As has been defined by the authors, values are generally understood as, 'The strategic choices
we make regarding what is required to achieve our goals. In turn, these choices are derived
from basic suppositions or beliefs about human nature and the world around us' (Dolan et al.
2006, p. 36). Beliefs are 'structures of thought developed and deeply-rooted over the years
from learning and experience that serve to explain and make sense of reality' (Dolan et al.
2006, p. 36). Subsequently, values form the 'rules of the game' or norms, as a consequence of
the values and norms that precede it. Attitude has been described as 'an evaluating
tendency/factor' towards other people, deeds, events, things, etc. (Dolan et al. 2006, p. 38).
To modify behavioral outcomes, it is better to change the values underlying the conduct
rather than the attitudes. MBV suggests that by collectively sharing and committing to
common corporate cultural values, organizations develop their competitive strategy and
sustain their advantages in a dynamic world.

China's emerging market and Spanish firms in China

Studies that focus on the emerging success and competitiveness of Chinese firms (Zeng and
Williamson 2003) show that strategy and human resources contribute to the success of
Chinese firms (e.g., Chen 2002; Wang and Kang 2002; Tang 2004). While it is commonly
acknowledged that people represent the most important asset of the firm, how they are
managed and how they add value to a firm's performance remains unclear. Nevertheless,
many scholars advocate the importance of strategic human resource management, although
each with different assumptions, paradigms and related concepts (Hendry and Pettigrew
1992; Brewster 1993; Schuler, Dowling and De Cieri 1993; Truss and Grattan 1994; Dyer
and Reeves 1995).

Bearing the various perspectives of strategic human resource management in mind (e.g.,
Delery and Doty 1996; Boxall and Purcell 2000; Colbert 2004), this paper adopts an open-
structured, inductive, qualitative methodology focusing on Spanish firms in China to explore
a unique context for theory construction.

While contextualization is important for Chinese management research (Tsui 2006), an


overview of Spanish firms in China is necessary to better understand the context of this study.
Spain's interest in China has been economic in nature and is less developed than other types
of exchanges (e.g., cultural). Although the importance of Spain's presence in China during the
last quarter of last century has been acknowledged by the Spanish business world (Bregolat
2007), the lack of Spanish presence in the Chinese market (when compared with that of other
European principal countries) affects the positive bilateral collaboration between Spain and
China in terms of practical business development and implementation.

In 2003, there were only 500 Spaniard expatriate residents in China, compared with more
than 5000 German, British and French. There were also only 200 Spanish subsidiaries,
compared with literally thousands of subsidiaries from other European countries (Bregolat
2004). This fact suggests that there is a noted absence of big Spanish companies in China.

Recently, however, large Spanish companies such as Telef nica and Acciona have
invested in China. Furthermore, Spanish exportation to China in 2003 was only 0.6% of total
exports from Spain, and Spanish investment in China was only 0.05% of total Foreign Direct
Investment (FDI) in China.

The turning point for Spain-China relations occurred when diplomatic ties were established
between the two countries in 1973. Since then, economic and commercial relationships have
increased significantly. Although the Tiananmen Square incident in 1989 provoked many
countries to impose economic penalties for China, Spain maintained the mixed commission
of Economic Affairs and Credits to China. Maintaining this relationship has spawned several
Spanish entrepreneurial investments in China. In 2000, the Marco Asia Pacific Plan of the
Spanish government stated: 'The insufficient level of Spanish presence in Asia is
unsustainable and clearly contrary to the political, economic and social interests of today's
Spain.' In 2005, the governmental Chinese Plan assigned €690 million to boost a Spanish
presence in China within five years. Spain's recent investment boom in China indicates that
41.27% of total Spanish investment in China occurred in 2002 and 2003. Nevertheless,
Spanish investments in China are still significantly lower than those of other countries (Serra
2004).

Several attempts have been made to explain the lack of investment of Spanish firms in China
(e.g., Fanjul 2003; Soler 2003; Fernandez 2004; Barciela 2004; Serra 2004). The Spanish
investments that have been made in China have been mostly by small and medium sized
enterprises in the manufacturing sector. Spanish firms in China face challenges and
difficulties associated with insufficient resources, both financial and human. Spanish
companies also lack experience, communication and networking. In short, Spanish
investment in China is going through a sharp learning curve calling for creative formulas and
integrative business models.

Theories and practices developed by management scholars have been primarily derived from
observations of formal organizations in highly developed Western economies, especially in
the US, Canada, and Western Europe (Boyacigiller and Adler 1991). Tsui et al. (2004) argue
that findings from such studies may not necessarily be transferable to other underdeveloped
economies. Consequently, Tsui (2006) advocates an 'inside out' approach to identify truly
important management issues within a Chinese context instead of a literature-driven 'outside
in' approach. Furthermore, it has been suggested that in order for research on Spanish firms to
be successful, the research must break away from the mimesis of other Western countries
(Serra 2004).

Research methodology

The following two research questions guide this study: first, among the pioneering Spanish
firms, why do some China-based Spanish subsidiaries perform better than others? And,
second, how do cultural values intervene in human resource strategies to achieve superior
performance?

In order to further explore the 'black box' of how cultural values affect and sustain strategic
development and superior firm performance, it has been suggested that a case study
methodology is considered advantageous (Yin 2003). Scholars such as Khatri and Budhwar
(2001), Boxall (1996), and Becker and Gerhart (1996), claim that most of the quantitative
studies in SHRM have provided varied results and suggest a lack of in-depth qualitative
studies as one of the critical limitations of existing SHRM research.

Since the objective of this study is to understand the role of cultural values in SHRM, and to
explore why some China-based Spanish subsidiaries perform better than others, we propose
to collect and analyze the data using two qualitative case studies. By using inductive
qualitative methods, this research should provide a deeper understanding and full contextual
information of the phenomena being studied (Tsui 2006). Hopefully, this will provide a
foundation for more complete theory development (Eisenhardt 1989; Berg 1998; Hunt and
Boxall 1998; Purcell 1999).

In order to make the two case firms comparable and to maximize the insights of this study,
the sample cases were selected based on their performance under a similar context and
background. The research design follows three rationales: (1) a study involving similar
contexts for comparability; (2) multiple sources of evidence; and (3) deep semi-structured
interviews and on-site observations.

Various researchers have suggested that most SHRM studies have been limited because they
only collect data from human resource managers (Boxall 1996). As a result, various other
sources of information - such as lower-level employees, strategic decision makers, and other
organizational members, for the most part, have been ignored. To avoid this problem in our
study, and to take full advantage of all organizational members' knowledge, ideas, and input,
we studied managers and employees from many different levels within the two organizations.
To triangulate the data collected from the case sites, information was later obtained from
third parties and other post-study sources.

Case selection

Researchers have suggested that when selecting firms to examine, it is important to first
identify the phenomena to be studied (Stake 1994). Due to the limited number of Spanish
multinationals in China, care was exercised in choosing companies that were relevant for
studying Spanish companies in China.

Following qualitative techniques of theoretical sampling, two Spanish subsidiaries in China


were selected based on their similarities and differences. The two companies chosen for
analysis were FMSA and YZSA. Both of these Spanish based, multinational organizations
have been doing business in China for more than 10 years. In addition, both companies have
been conducting business in the same industry (i.e., massive consumer goods) and have
headquarters in the same region of China. The two companies are under the umbrella of the
same ownership group, but have completely independent management teams, structures, and
policies.

At the time of this study, one of the companies, FMSA, had achieved significant success in
China and was the leader in its chosen market. The other organization, YZSA, was still
experiencing net losses after 10 years of operation in China.1 Details of both companies'
performances are presented in Table 1. In addition to the internal similarity of the two
organizations, the two firms also have similar external socio-economic circumstances as well
as similar customers, owners and investors. Such similarities allow us to focus on the human
resource implications of each organization.

Table 1 A summary of performance evaluation of the firms in this study.


Performance criteria FMSA YZSA
Notes:
1
The overall performance is evaluated based on the equal moderation of ten indices. A case
is considered as a 'superior performer' when more than 70% of indices valued as high and
Table 1 A summary of performance evaluation of the firms in this study.
Performance criteria FMSA YZSA
there is no indexes valuated as low. A case is considered as a 'lesser performer' when more
than 70% of indices valued as low and there is no indexes valuated as high.
2
The rate of employee turnover is reverse considered. That means: it is counted as 'high in
performance evaluation' if the rate is low, while counted as 'low performance evaluation' if
the rate is high, and 'moderate performance evaluation' stays the same.
-Profit -High -Low
-Sales growth -Moderate -Low
-Level of performance on parent-prescribed -High -Low
-Overall performance -High -Low
-Relative performance to competitors -Leader (High) -No 5 (Moderate)
-Level of employee morale -High -Low
-Level of average employee tenure -High -Low
-Rate of employee promotion -High -Moderate
2
-Rate of employee turnover -Low -High
-Level of achievement of the initial
-High -Low
established goal
% High: 90% -
% Moderate: 10% 20%
% Low: - 80%
Total: 100% 100%
1
Overall evaluation Superior performer Lesser performer

Data collection and analysis

The data for the study was collected based on Stake's (1994, p. 242) view of 'spending
substantial time on site, personally in contact with activities and operations of the case,
reflecting, revising meanings of what is going on.'

Semi-structured questions were used during the data collection process, combining
qualitative techniques of Fontana and Frey (1994) with interviewing, of Adler and Adler
(1994) with observational techniques of Hodder (1994) with the interpretation of documents
and material culture and of Clandinin and Connelly (1994) and with personal experience
methods. In both case sites, data were collected through a variety of methods: unstructured
and semi-structured conversations, formal and informal interviews, documentation reviews,
and direct observations on-site with CEOs as well as junior and senior management, both in
the Spanish headquarters in Spain as well as at each of the Chinese subsidiaries in China.
This triangulation across various techniques of data collection is particularly beneficial
because it provides multiple perspectives on an issue, supplies more information on emerging
concepts, allows for cross-checking, and yields stronger substantiation of construct
(Eisenhardt 1989; Orlikowski 1993).
Data collection focused on the decision making process, the implication of strategic human
resource management and the underlying cultural value factors. At both case sites, data were
collected by meeting with different levels of managers and employees referring to their work
and the evolution of the firms in China. Observations were also made by visiting factories,
markets and offices in China, as well as using other data such as experts' opinions and
second-hand documentation to triangulate the first-hand data.

Results

In describing the data collection and analysis, company information is presented first,
followed by the cultural value results in terms of hierarchy of beliefs, outcomes, and the
triaxial models presented by MBV.

Company description

As indicated previously, the study involved gathering data at both companies' headquarters in
Spain as well as the subsidiaries in China. Table 2 provides various characteristics of the two
companies, followed by a detailed description of each organization.

Table 2 A comparative data of the firms and their subsidiaries in this study.
AGLM
Company data FMSA YZSA
Note: 1USD = 8.27 RMB in 2001.
Industry Massive consumer goods Massive consumer goods
Spanish capital with headquarter Spanish capital with headquarter in
Ownership
in Spain Spain
Group size in
2000 employees 1500 employees
Spain
Group structure in Corporate office, factories, and Corporate office, factories, and
Spain laboratory laboratory
Brands in top three in Spain and Brands in top three in Spain and
Reputation
worldwide worldwide
Family controlled with Family controlled with professional
Management
professional management teams management teams
Corporate services with matrix Corporate services with matrix
Structure
structure for business units structure for business units
Created time In 1960s In 1920s
Group size in
2000 employees 1500 employees
Spain
Subsidiary data FMSA YZSA
Investment started In late 1980s In early 1990s
Activities Production, commercialization and Production, commercialization and
Table 2 A comparative data of the firms and their subsidiaries in this study.
AGLM
Company data FMSA YZSA
exportation to other Asian exportation to other Asian countries
countries
Started with IJV with a local Started with IJV with a local partner
Ownership partner and became 100% foreign and became 100% foreign capital in
capital in 1996 1998
Location South of China South of China
Initial registered
1 million USD 1.2 million USD
capital
Company size 1200 employees 200 employees
New brand creation for China's New brand creation for China's
Brand strategy
market market
Mainly through own distribution
Mainly through distributors to cover
Distribution channel to cover different regions
different regions in China, and
strategy in China, reaching even remote
managing directly few key accounts
countryside
Leader of their principal products
One of the five well-known brands for
Market position in Chinese market since the
their principal products
beginning
Financial result Annual profits of 9.6 million USD Annual losses of 1.6 million USD
Rotation of
middle-level 5 years 1,5 years
managers
Average middle-
level manager's 8000RMB / month RMB 5000 / month
salary
Spaniard, has been incorporated in-
Current General Chinese Singaporean, has been
company five years ago, previously
Manager profile working in FMSA for 10 years,
had been working in another Asian
(leadership) promoted from marketing area
country for eight years
Expatriate
3 Spaniards, 3 southeast Asian 3 Spaniards, 2 Russians, 1 American,
managers
with Chinese background and 3 Asian with Chinese background
numbers

Both FMSA and YZSA are in the massive consumer goods industry and both belong to the
same Spanish conglomerate, AGLM, with headquarters in Barcelona, Spain. As one of the
leading consumer goods conglomerates in Spain, AGLM has gained its reputation in local
and international markets over the last 100 years. Most of its brands enjoy top rankings in
their respective sectors. Operated for four generations by the same family, AGLM has
evolved and is now being managed by professional executives, with family members still
serving on board committees and in various honorary positions.

The conglomerate is composed of numerous independent groups diversified in different


consumer goods industries. The functioning of each group is nearly independent at both the
strategic and the operational levels with some coordination at the corporate level. Each group
has its own corporate services such as finance, human resources, and legal. In the case of
FMSA and YZSA, the two subsidiaries are in the food sub-industry; both providing corporate
services to their regional subsidiaries. The size of the two firms in Spain is relatively similar,
with each having approximately 1500-2000 employees in their corporative offices,
laboratories and factories. FMSA and YZSA have been adopting similar marketing strategies
by differentiating themselves with brand, exceptional service and high quality. Both of these
brands have been positioned as one of the three most well-known brands in Spain. Despite
the similarities described above, the culture of each of the Chinese subsidiaries possesses
significantly different characteristics.

FMSA

Created in 1964, the group expanded rapidly in the 1980s with several acquisitions of other
competitors in the industry. By the end of the 1980s, the management team viewed China as a
strategic opportunity. Therefore, in 1988, the company built a factory with the local
government of a second-tier city in South China. Delegating the project creation to a
Taiwanese citizen who had lived many years in Spain, the joint venture was created with
local state partnership including US$1 million of initial registered capital.

The company achieved major successes in the first market launch of its totally new Chinese
brand. FMSA China has been profitable since its second year in China and has maintained its
leadership in the country since inception. The company differentiates itself through branding,
quality and a strong distribution channel that covers consumers throughout the country. With
more than 10 years of development in China, FMSA's Chinese brand has become so well
known that most Chinese consumers consider it to be a Chinese company.

By 2001, FMSA China achieved annual profit of US$9.6 million and was the market leader
with a 45% market share. Its plants included 1200 employees, not including non-
manufacturing professionals. In 1996, FMSA acquired the shares of its local partner and
became a totally foreign capital investment company in China. The management team is
comprised primarily of overseas Chinese and local Chinese, with an average retention period
of five years.

YZSA

Created in 1926, YZSA has transformed itself into a market leader in Spain. In the early
1970s, YZSA returned to the control of the founding family after several large fusion and
acquisitions with American partners. In 1992, YZSA, after seeing the success of its brother
company FMSA, decided to create a joint-venture with a Chinese partner to begin business
within China. YZSA, much like FMSA, also chose a partnership with another second-tier city
in South China. With an investment of US$1.2 million initial registered capital, YZSA China
created a new brand for the Chinese market, following an established strategy of
differentiation and distribution. However, unlike FMSA, YZSA hasn't demonstrated any
evidence of financial success in China. In fact, YZSA China has suffered operating losses
since its inception. In 2001 alone, it experienced US$1.6 million in losses.

Even though YZSA was listed as one of the top five foreign brands in China with roughly
15% market share, the company suffers from high competition from local brands. The
company has also received several negative reports on some of its products. As a result,
YZSA has had to eliminate some of its unprofitable and outsourced products to reduce losses.
In 1998, YZSA also acquired the shares of its local partner, and became a totally foreign
capital investment in China. The size of the company remains around 200 employees with the
average retention at the manager level at roughly 1.5 years.

Certainly the two firms have followed a very similar strategy in developing their businesses
within China. However, our qualitative research into the two companies has shown very
different practices. These differences are especially noticeable in each organization's culture
and human resource practices. Following the beliefs-value hierarchy tree of MBV, the
analysis provides the following results.

Hierarchy of beliefs and outcomes, and triaxial models

In the next few sections the beliefs, values, norms, and cultures, as well as the attitudes,
behaviours and outcomes of these two comparative firms are exposed to verify the MBV
model. Table 3 summarizes these comparisons with specific quotes to illustrate the
differences in each organization.

Table 3 Organizational cultural comparison of the studied firms.


Organizational
FMSA YZSA
culture 3
Cultural
Development-oriented 1 Control-oriented 2
orientation:
Notes:
1
According to Dolan et al. (2006, p. 70), it is defined as: those that aim to drive forward by
new values of personal development and continuous learning (i.e., creativity, autonomy,
variety, risk-taking, etc.).
2
Accoring to Dolan et al. (2006, p. 70), it is defined as: those that aim to rationalize the
company by traditional values of hierachical control (i.e., order, odedience, loyalty, security,
etc.).
3
Cultural orientation definition adopted from Dolan et al. (2006, p. 71).
Survival
Self-actualization 'At the beginning, the payment in this
'Besides my better economic income foreign company was better than
compared with my friends, I feel others. However, now there is no more
Example:
challenges in my works and advantages in this sense. By the
satisfactions in self-realising.' moment, I continue here. But who
Middle level Sales Manager knows what is the next.' Middle level
Administrative
Manager
Expanding/diversifying Focusing/concentrating
'Since the beginning of the creation, 'We had more diversified product
Example FMSA has grown significantly. Now families. However, it seems they are
we have several lines of production, not working well. So we are cutting
and are building up a new joint back and concentrating only on our
Table 3 Organizational cultural comparison of the studied firms.
Organizational
FMSA YZSA
culture 3
Cultural
Development-oriented 1 Control-oriented 2
orientation:
venture for a different group of core products now.' General Director
products.' in China
Country Manager
Company first
People first/Company first 'It is almost impossible to work with
'We have training programs for our the company's policy and make it
employees based on the needs and functioning. Many times I have to pay
their achievement. More formalized by my own pocket in order to make
Example: policies are still in the process of the sales done.' Middle level Sales
formulation, since the company Manager
grows quickly and we need to 'It was a common practice in China
formalize it.' Middle level and profitable for the company. But
Administrative Manager the company's policy forbad to do so.'
Middle level Financial Manager
Norm
Compliance Flexible Inflexible
'Managers and workers share the 'The company forbids the use of
same canteen for lunch. It is the internet in office to avoid personal
same condition for all.' Middle level usage of this tool. Some colleagues
Personnel Manager '… I always tell installed the program by themselves.
my people that things are One noon after lunch when I was back
Example
transparent. Come to me for to office, I saw our General Manager
comments and suggestions (and we was seating in front of our computer
are open to change current norms and desintalling this program by
and systems).' HQ representative in himself.' Middle level Personnel
China Manager
Attitudes Positive Negative
'To be frank, I don't understand these
Chinese people. Why do they behave
as such?' General Manager
'I am happy working in FMSA. I
'…Well, as said, there is no much
work hard,
opportunities in the company. The
but I am also well rewarded by
former marketing Assistant Manager
Example payment and sales outcomes. I earn
left because of his disappointment
more than most of my friends. And
regarding his pormotional chance. He
you see, this is my own car.'
thought he could be promoted after the
Sales Representative
leaving of Spanish expatriate since he
was actually doing all stuffs. But
nothing happened.' Officer
Outcome Superior performer Lesser performer

Beliefs, values, and cultures


Beliefs and values are very difficult to express at the organizational level. As a result, we use
organizational culture to examine believes and values in a relatively tangible way. Dolan et
al. (2006) suggest two broad general orientations that reflect different thoughts on the ideal
way of thinking about and practicing business management. These general orientations
include: control-oriented cultures and development-oriented cultures. As was shown in Table
3, the two firms YZSA and FMSA both adopted very different cultural orientations.

Differentiating from YZSA, FMSA possesses a development oriented organizational culture.


Using the MBV lens as a reference point, the culture of FMSA includes three dimensions:
self-actualization, expanding/diversifying, and people first. As is illustrated by various quotes
from interviewed managers at the FMSA subsidiary in China, the company demonstrates
strong cultural values on the aspects of employee self-realization while the company
expanded itself in the industry. In this aspect, FMSA has shown an inclination toward people
first, even though there has been an intention to standardize company policy to facilitate the
workflow for future company growth.

This demonstrated development culture was also supported by other collected data. For
example, FMSA had a broadminded creative program to integrate the corporate image; this
program included changing the corporate name and designing a new interactive web page to
encourage a more creative corporate image. This new image is internationally focused with
English being the principal language, instead of the customary Spanish that is normally used
by Spanish companies. FMSA China self-actualized, acted with continuous expansion, and
with a people orientation to fulfill its ambitions and challenges. People working in the
organization perceived opportunities to grow together with the organization, and develop
themselves not only through numerous training programs but also in business practices.

In contrast, YZSA seems to have a control-focused culture. As is shown in the quotes from
various managers, the company's purpose was to survive instead of self-realize. The research
on YZSA also reveals that the organization is more security oriented. This was reflected not
only in its web design, but also with YZSA's product presentation that merely mirrors a
traditional Spanish catalogue. Under its company-first culture approach, managers and
employees merely perform their work with few opportunities for growth and development.
The implementation of company norms was imposed with little consideration of the
employees' perception and input. Supervision and control over different levels of the
hierarchy within the organization have created distrust between colleagues and supervisor-
subordinates. As a result, people within the organization tended to close their territory to
protect themselves. This phenomenon was reflected in all employees' minds, from the general
director to the line operators within YZSA China.

Norms

Despite the formalized norms and systems in the subsidiaries of both FMSA and YZSA, the
reality and 'rules of the game' (Dolan et al. 2006, p. 37) differed significantly. For example,
FMSA showed flexibility with norm compliance. This led to compliance and the
development of cultural values within the organization. In contrast, YZSA's abidance with
norms demonstrated the organization's inability to adapt to the local culture. This contributed
to the control-concentration culture that existed within the organization.
On one side, the existing opportunities to grow in FMSA allowed their stakeholders
(especially their employees) to participate in the decision-making process. Within the
organization there were norms and policies, but at the moment of execution and
implementation, the organization was flexible, providing space to change in accordance with
the culture of the organization and the needs of the employees. In other words, the company
was flexible and open to changes when it needed to be. This was very advantageous as
business was growing at such a rapid pace that norms quickly became obsolete and the
organization needed to be able to adapt to those rapid changes.

In the case of YZSA, the control over norms was strict and inflexible as shown in the quotes
on Table 3. However, the policies of the company failed to be implemented and executed as
formalised because of the organization's obsoleteness and high rotation of management. This
high turnover created a knowledge gap between management successions in the company. As
a result, the efforts of company management were dedicated to 'putting out fires' or
controlling behaviors of employees rather than concentrating on business development.

Attitudes, behaviors, and outcomes

As stated by Dolan et al. (2006, p. 38), 'an attitude is a consequence of the values and norms
that precede it, and [it] is an evaluating tendency/factor, either positive or negative, towards
other people, deeds, events, things, etc.' As a result of the very different cultural values and
norms within FMSA and YZSA, people, as a valuable resource contributing to organizational
performance, demonstrated different attitudes toward their work. This resulted in different
behaviors and outcomes. These outcomes at the individual level affected both the group and
firm level. In general, there were positive attitudes in FMSA and negative attitudes in YZSA
China.

General observations on the site of FMSA demonstrated a dynamic and positive atmosphere
in the company. In addition to the quote illustrated in the Table 3, several interviewees at
FMSA also used terms such as 'happiness,' 'fairness,' and 'opportunities' to describe their
attitudes toward the organization. These positive attitudes toward their work contributed to
the dedicated behaviors of employees on-the-job. On the other hand, the general attitudes
inside of YZSA were negative, at both the upper, middle, and lower management levels. Not
only did the Chinese employees distrust the Spanish owners and managers, but even the
general manager (Spanish expatriate) expressed his own dissatisfaction towards the Chinese
employees, which from our perspective, contributed to an environment of distrust.

In fact, within YZSA, mistrust was so prevalent that several employees were even involved in
fraudulent activity. However, those who were involved in fraud were rarely fired, creating the
expectation within the organization that unethical acts would, indeed, be tolerated. This
treatment of violators seemed to encourage, rather than discourage dishonest acts within the
organization. For example, in one situation, a sales representative admitted to setting up a
fake bank account in order to steal another colleague's commission. However, this individual
was never fired and continued to work in YZSA. When we questioned the general controller
(Hong Kong expatriate) why the individual was never fired, he explained that the
organization already had a small sales force, and that it was not the right time to fire a high
sales performer.

Triaxial model
Viewed from the MBV triaxial model, FMSA combined the three dimensions of economic,
social and emotional values to help organizational members achieve a balance of work and
life. On the one hand, YZSA's focus was principally on the economic pragmatic values and
had a very limited focus on the social and emotional aspects of the organization. Our research
suggests that the strong focus on short-term economic results in YZSA contributed to the
negative middle and long-term performance of the organization.

Discussion

Some of the top managers at FMSA commented that the success of FMSA in China could be
the result of the company's initial success in the Chinese market. As a result of this initial
success, the organization had a foundation upon which it was able to build. This positive
experience reinforced the initial positive culture of the organization and also allowed the firm
to reinvest in its own organizational development.

In contrast, YZSA was never able to generate positive results, which created a vicious
negative cycle for the organization. The distrust between the Spanish managers and the
Chinese employees further reinforced a control-oriented culture that ultimately had a negative
effect on the firm's financial success.

Our research suggests that YZSA's initial focus only on performance-driven financial results
was a main contributor to the negative corporate culture as well as the organization's lack of
values and beliefs. Given that both YZSA and FMSA were under the same umbrella
organization, it should have been easy to transfer the organizational structure designs and
controlling procedures from one organization to the other. However, interviews with
individuals at the Spanish headquarters in Spain revealed that, while it is possible to transfer
design and control from one organization to the other, transferring the culture of one
organization to the other is extremely difficult, if not impossible. Our research suggests that
the intangible issues such as the corporate culture, values, and relationships within each
organization is what made one organization financially successful and the other organization
financially distressed.

The case study at YSZA shows that while control is necessary for firm operation, oppressive
control is extremely destructive. In the MBV framework, it is suggested that strategic
evolution should, 'be away from oppressive control and towards development [… of…] a
dynamic continuum along which each company has to find its own position and style at its
own pace' (Dolan et al. 2006, p. 70). A development-oriented culture facilitates flexibility to
norm compliance and positive attitudes in general - this, in turn, reinforces the organizational
culture.

Using the MBV lens, we are able to see how human factors and values are essential to a
firm's strategic development. Taking a holistic approach from all three-dimension of the
value system instead of focusing only on the economic value perspective provided
equilibrium to organizational development. Although this research examined only two
companies, its findings are very helpful in understanding the influence of cultural values on
strategic development through human resource management. The paper suggests that the
treatment of people, as guided by human resource functions and theory, can make a huge
difference in the operational performance and profitability of organizations.

In conclusion, it was the cultural values of each organization that defined the norms and
attitudes within each organization. These cultural values, in turn, affected the behaviors and
success of each firm. Regardless of how similar the initial strategies proposed by each
company were, the outcome of culture within the organizations was extremely different.
Managers at YZSA have attempted to resolve issues by adjusting their strategies at 'top
managerial levels' through control, and have failed to involve their people in the process. This
resulted in constant negative outcomes for the organization. It is under the MBV lens that we
are able to better understand these phenomena. As a result, this study confirms the
importance of human factors' contribution to firm's strategic development, and underlies the
intervention of cultural values in this process. The comparisons between FMSA and YZSA
suggest how two very different outcomes can occur within very similar organizations. The
results suggest the effectiveness of the theory of MBV in bridging strategy and human
resources, namely strategic human resource management.

Future research

Because of the qualitative nature of comparative case studies, the conclusions of this study
are suggestive rather than generalizable. This is especially true when studying cultural values,
which are, by nature, very suggestive, depending on the interpretation and definition of each
one.

Future research that tests the functionality of cultural value factors' in human resource
management and firm strategic development is currently needed. This is especially true of
research using MBV instruments. Future research could also include cases using different
contexts and variables, such as further replication of Spanish firms in countries other than

China. By employing the validated 33 values questionnaire of Dolan, D ez, Fern

ndez, Martin and Mart nez (2004) to aggregate a firm's strategic vision, mission, and
objectives, a new inventory could be designed to measure firm performance. Such an
inventory would further contribute to our understanding of how values comprising corporate
cultures correlate to firm performance. Since there is no current consensus to study strategic
human resource management, the opportunities provided in emerging markets may help add
value in the theoretical development of this field. Currently, the theories that have been
developed in established markets and their applicability to emerging markets is
underdeveloped and questionable (Tsui, Schoonhoven, Meyer, Lau and Milkovich 2004).
Further studies in emerging markets would not only make a theoretical contribution, but
would also be useful to practitioners as they develop new enterprises in these countries. By
better understanding how developing human resource strategies align with firm strategies and
the role that cultural values play in this process, we can significantly improve the
performance and competitive advantages of a firm. This is especially critical in the case of
China's emerging market, as companies are under pressure to react towards constant change.
This constant change makes strategic planning extremely difficult. In these types of
conditions, a 'fit' between human resource strategy and firm strategy could even be dangerous
as the firm's strategy would constantly be changing - suggesting an even greater need for
further research in this area (Lengnick-Hall and Lengick-Hall 1988).

Notes

1. The names and part of the data of the two companies are modified for confidentiality.

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List of Tables
Table 1 A summary of performance evaluation of the firms in this study.
Performance criteria FMSA YZSA
Notes:
1
The overall performance is evaluated based on the equal moderation of ten indices. A case
is considered as a 'superior performer' when more than 70% of indices valued as high and
there is no indexes valuated as low. A case is considered as a 'lesser performer' when more
than 70% of indices valued as low and there is no indexes valuated as high.
2
The rate of employee turnover is reverse considered. That means: it is counted as 'high in
performance evaluation' if the rate is low, while counted as 'low performance evaluation' if
the rate is high, and 'moderate performance evaluation' stays the same.
Table 1 A summary of performance evaluation of the firms in this study.
Performance criteria FMSA YZSA
-Profit -High -Low
-Sales growth -Moderate -Low
-Level of performance on parent-prescribed -High -Low
-Overall performance -High -Low
-Relative performance to competitors -Leader (High) -No 5 (Moderate)
-Level of employee morale -High -Low
-Level of average employee tenure -High -Low
-Rate of employee promotion -High -Moderate
2
-Rate of employee turnover -Low -High
-Level of achievement of the initial
-High -Low
established goal
% High: 90% -
% Moderate: 10% 20%
% Low: - 80%
Total: 100% 100%
1
Overall evaluation Superior performer Lesser performer

Table 2 A comparative data of the firms and their subsidiaries in this study.
AGLM
Company data FMSA YZSA
Note: 1USD = 8.27 RMB in 2001.
Industry Massive consumer goods Massive consumer goods
Spanish capital with headquarter Spanish capital with headquarter in
Ownership
in Spain Spain
Group size in
2000 employees 1500 employees
Spain
Group structure in Corporate office, factories, and Corporate office, factories, and
Spain laboratory laboratory
Brands in top three in Spain and Brands in top three in Spain and
Reputation
worldwide worldwide
Family controlled with Family controlled with professional
Management
professional management teams management teams
Corporate services with matrix Corporate services with matrix
Structure
structure for business units structure for business units
Created time In 1960s In 1920s
Group size in
2000 employees 1500 employees
Spain
Subsidiary data FMSA YZSA
Investment started In late 1980s In early 1990s
Activities Production, commercialization and Production, commercialization and
Table 2 A comparative data of the firms and their subsidiaries in this study.
AGLM
Company data FMSA YZSA
exportation to other Asian exportation to other Asian countries
countries
Started with IJV with a local Started with IJV with a local partner
Ownership partner and became 100% foreign and became 100% foreign capital in
capital in 1996 1998
Location South of China South of China
Initial registered
1 million USD 1.2 million USD
capital
Company size 1200 employees 200 employees
New brand creation for China's New brand creation for China's
Brand strategy
market market
Mainly through own distribution
Mainly through distributors to cover
Distribution channel to cover different regions
different regions in China, and
strategy in China, reaching even remote
managing directly few key accounts
countryside
Leader of their principal products
One of the five well-known brands for
Market position in Chinese market since the
their principal products
beginning
Financial result Annual profits of 9.6 million USD Annual losses of 1.6 million USD
Rotation of
middle-level 5 years 1,5 years
managers
Average middle-
level manager's 8000RMB / month RMB 5000 / month
salary
Spaniard, has been incorporated in-
Current General Chinese Singaporean, has been
company five years ago, previously
Manager profile working in FMSA for 10 years,
had been working in another Asian
(leadership) promoted from marketing area
country for eight years
Expatriate
3 Spaniards, 3 southeast Asian 3 Spaniards, 2 Russians, 1 American,
managers
with Chinese background and 3 Asian with Chinese background
numbers

Table 3 Organizational cultural comparison of the studied firms.


Organizational
FMSA YZSA
culture 3
Cultural
Development-oriented 1 Control-oriented 2
orientation:
Notes:
1
According to Dolan et al. (2006, p. 70), it is defined as: those that aim to drive forward by
new values of personal development and continuous learning (i.e., creativity, autonomy,
Table 3 Organizational cultural comparison of the studied firms.
Organizational
FMSA YZSA
culture 3
Cultural
Development-oriented 1 Control-oriented 2
orientation:
variety, risk-taking, etc.).
2
Accoring to Dolan et al. (2006, p. 70), it is defined as: those that aim to rationalize the
company by traditional values of hierachical control (i.e., order, odedience, loyalty, security,
etc.).
3
Cultural orientation definition adopted from Dolan et al. (2006, p. 71).
Survival
Self-actualization 'At the beginning, the payment in this
'Besides my better economic income foreign company was better than
compared with my friends, I feel others. However, now there is no more
Example:
challenges in my works and advantages in this sense. By the
satisfactions in self-realising.' moment, I continue here. But who
Middle level Sales Manager knows what is the next.' Middle level
Administrative
Manager
Expanding/diversifying
Focusing/concentrating
'Since the beginning of the creation,
'We had more diversified product
FMSA has grown significantly. Now
families. However, it seems they are
we have several lines of production,
Example not working well. So we are cutting
and are building up a new joint
back and concentrating only on our
venture for a different group of
core products now.' General Director
products.'
in China
Country Manager
Company first
People first/Company first 'It is almost impossible to work with
'We have training programs for our the company's policy and make it
employees based on the needs and functioning. Many times I have to pay
their achievement. More formalized by my own pocket in order to make
Example: policies are still in the process of the sales done.' Middle level Sales
formulation, since the company Manager
grows quickly and we need to 'It was a common practice in China
formalize it.' Middle level and profitable for the company. But
Administrative Manager the company's policy forbad to do so.'
Middle level Financial Manager
Norm
Compliance Flexible Inflexible
'Managers and workers share the 'The company forbids the use of
same canteen for lunch. It is the internet in office to avoid personal
same condition for all.' Middle level usage of this tool. Some colleagues
Example Personnel Manager '… I always tell installed the program by themselves.
my people that things are One noon after lunch when I was back
transparent. Come to me for to office, I saw our General Manager
comments and suggestions (and we was seating in front of our computer
Table 3 Organizational cultural comparison of the studied firms.
Organizational
FMSA YZSA
culture 3
Cultural
Development-oriented 1 Control-oriented 2
orientation:
are open to change current norms and desintalling this program by
and systems).' HQ representative in himself.' Middle level Personnel
China Manager
Attitudes Positive Negative
'To be frank, I don't understand these
Chinese people. Why do they behave
as such?' General Manager
'I am happy working in FMSA. I
'…Well, as said, there is no much
work hard,
opportunities in the company. The
but I am also well rewarded by
former marketing Assistant Manager
Example payment and sales outcomes. I earn
left because of his disappointment
more than most of my friends. And
regarding his pormotional chance. He
you see, this is my own car.'
thought he could be promoted after the
Sales Representative
leaving of Spanish expatriate since he
was actually doing all stuffs. But
nothing happened.' Officer
Outcome Superior performer Lesser performer