Strategies Adopted by Domestic or Foreign Firms for Reducing Staff Turnover - Essay Example

?Discuss Strategies Adopted By Domestic or Foreign Firms in China to Reduce Turnover of Their Staff and Assess the Effectiveness of Specific MeasuresTable of Contents Introduction 2 Discussion 4 Strategies Adopted by Domestic firms for Reducing Staff Turnover 4 Strategies Adopted by Foreign Firms to Reduce Staff Turnover 6 Critical Evaluation 9 Conclusion 11 References 14 Introduction The gradual increase in the staff turnover has emerged as a serious problem and a major barrier to the sustainable growth of both the domestic and the foreign companies operating in China. As a consequence, the Human Resource Management (HRM) teams working in these organisations have been facing rising pressure to deal with the problem and ensure the sustainable performance of the company. As a matter of fact, instability in the staff turnover rates have been widely criticised as a major cause for the hindering productivity of firms operating in the modern day context (Hom & et. al., 2012; Guthrie, 1999; Huselid, 1995; Sheridan, 1992). In the year 2010, it was observed that the average staff turnover rate of China had increased by 19% over the past years’ record, which was quite high in comparison to the other countries of the world (Berger, 2012). The study of this problem states that the major factor driving the staff turnover rate to increase somewhat incessantly indicates to the demographic factors of the Chinese economy, which comprises of low cost Chinese labour and the behaviour of the employees, giving much emphasis on their salary structure. The fact was further justified when the HR professionals of China reported that in the early years of 2000s, around 73% of the employees on an average, in China, had resigned from their previous jobs and moved to the other because of a higher pay structure (Howard & et. al., 2007). Apart from stating the reasons for the Chinese employees to leave the job, the HR professionals of China have also stated that the implementation of strategies focused on high employee satisfaction is the best method to deal with the ongoing problem of increment in the staff turnover. The various organisations are also struggling hard to retain their employees by implementing effective organisational strategies for the reduction of staff turnover rate (Dessler, 2004). In this essay, the key area of study have been concentrated on the identification of the strategies adopted by the domestic as well as the foreign firms in China for reducing their staff turnover rates and subsequently, assessing the measurable effectiveness of those strategies in the current scenario of the economy. Discussion Strategies Adopted by Domestic firms for Reducing Staff Turnover The continuous increase in the employee turnover rates has evidently emerged as a major barrier to the effective performance of both domestic as well as the foreign firms of China. Although the problem’s epicentre is same, the strategies adopted by the two groups have been observed as quite different. For instance, to ensure better retention of the productive professionals in the organisation and mitigate the issue of increasing staff turnover rates, domestic firms in China have adopted certain distinctive strategies at organisational level, which principally focus on pay structure design efficiency, better training and developmental aids to ensure performance satisfaction to the employees and enrich management-employee relations. The Chinese firms usually believe that the best strategy of retaining the employees is to provide them with the best deals in comparison to those offered by other employers (Ferreira & Alon, n.d.). Few of these strategies that the Chinese firms have adopted for reducing the issues of staff turnover have been explained below. Considering the fact that a majority of employees decide to leave their current job being influenced by the pay hikes they shall obtain from joining another organisation, domestic firms in China often tend to emphasise regular pay hikes and increments to be delivered to their employees. In many instances it can be identified as the first and foremost strategy that the Chinese firms apply for reducing the staff turnover rate. Correspondingly, the currently reviewed data revealed that employers who provide their staff members with high salary package usually have to face a lower attrition rate in China. Due to this reason, the Chinese firms attempt at increasing the monetary compensation as one of their major and preliminary weapon for reducing the staff turnover rates (Schuler & Jackson, 2008). In the similar context, delivering significance to the fact that non-monetary compensation may further support in increasing the effectiveness of monetary benefits delivered to the employees and help the domestic firms to obtain greater degree of employee satisfaction, many of the domestic firms of China have taken commendable initiatives to implement training strategies as an effective tool for retaining the staff members along with managing the sustainable development of the firm. Initially, the Chinese domestic firms used to hire proficient and skilled staff due to which, the employers had to face a huge problem of increasing staff turnover owing to the higher bargaining power of the skilled professionals in China. However, in the present situation, the domestic firms can be observed to focus on recruiting less-skilled staff members and assist them with requisite training and development programmes so that the bargaining power of the employees remain manageable and staff retention can be maintained for a longer tenure. The Chinese firms also feel that training somehow acts as a motivator to the staff and also develops a unique image of the company in front of the employees. It has also been observed that often the employees are faithful towards the firm, which provides them with value for growth and development through training, which can be reviewed as a major part of the staff retention programs initiated by domestic firms in China, currently (Tanyu, 2013). Perceived organisational control, which is often influenced by the relationship amid the organisation and the employees, also acts as a major tool to retain staff members for a longer tenure, keeping them satisfied and focused in the work (Allen & et. al., 2003; Eisenberger & et. al., 2002). Based on a similar understanding, the domestic firms in China have been concentrated on developing effective communication style in order to help the employees to co-ordinate with the top level management and sort out their problems regarding job satisfaction. It is expected to assure the staff with greater degree of organisational support and thus, contribute to their loyalty towards the firm, which will in turn bind them for a longer tenure, reducing their retention rate on the whole. Nonetheless, one of the major barriers that have been observed in the communication style is the absence of the vision of the firm being shared by the staff members perhaps owing to the lack of know-how and adequate skills among the organisational leaders of the HR personnel. Thus, setting a strong vision of the firm can be deemed as one of the significant ways through which, the communication style of the firm can be improved allowing better retention of the staff members. Consequently, the practical implication of involving the staff members in the shared vision of the firm has been initially developed by the domestic firms allowing retention of the employees and reducing the rate of staff turnover (Tanyu, 2013). Strategies Adopted by Foreign Firms to Reduce Staff Turnover In the year 2010, it was observed that a majority of the foreign companies had to suffer a substantial loss due to 18.5% staff turnover rate, which had a serious implication on the Foreign Investors’ decisions in favour of the Chinese business sector (Berger, 2012). Among the various foreign firms operating in China, the practices of reducing staff turnover vary from one firm to the other. But the similarity among all the foreign firms operating in the Chinese market indicates to the incorporation or the significance delivered to the Chinese culture in developing effective management practices. The foreign firms operating in China also delivers due significance to the prevailing competition in the local markets when designing the strategies when intending towards reducing the staff turnover rates (EU SME Centre, 2011). For instance, developing a rational compensation structure, including both monetary and non-monetary rewards can be identified as one of the major strategies set by the foreign companies or multinationals (MNCs) so that the employees can be retained for a longer period. According to a recent research conducted by a group of MNCs in Chinese foreign market, it has been observed that the major reason for the Chinese employees to move to the other firms is that the Chinese employees are more concerned about the high paid salary structure than the non-monetary compensation and long-run job security rewarded by their employers (Wu, 2008). Hence, the MNCs thus decided to take into consideration the Chinese economy and their consumption features while setting the salary structure and also abiding with the policies implemented by the government concerning the wage or the salary. The other trend that is prevalent in the Chinese culture is to be paid on the basis of performance. With regards to this belief, the foreign firms of China have been struggling to make the Chinese employees understand the differences between the variable pay and the additional benefits that will be provided by the firms. However, the foreign firms in China strictly abide with the Chinese law and regulations for the payment of additional benefits to the employees. To be noted in this context, the additional rates of benefits differ in the various regions of China but the MNCs decided to consider the highest rate of benefit with an intention to reduce the staff turnover by triggering the key motivation concern of the employees to gain the benefits of a better pay structure (Fan, 2006). To be mentioned in this regard, although rewarding productive employees with stock option is a restricted policy according to the Chinese governmental policies, many of the foreign firms in China have been implementing this system in a revised way in order to reduce the staff turnover rate substantially. The firms usually use this stock option for allotting few of their senior employees with designations and work experiences. Nearly 16.5% of the foreign firms in China have included specific stock plans as their rewarding strategy, while about 8% of the companies offer stock options directly for reducing the staff turnover. As per the stock option, the firms issue a letter to the employees mentioning the number of shares and their issue price. At a point, when the employee desires to cash those shares, the firm makes the transaction on their name and repays the employees in terms of Chinese currency. The tax levied on this amount is already deducted before the receipt of the money and is generally paid by the company on behalf of the employees. Notably, it has become one of the effective strategies towards reducing the staff turnover rate, within the foreign firms operating in China (Fan, 2006). According to the review of the foreign firms in China, apart from better pay options, poaching of employees can also be regarded as one of the major reasons behind the increasing rates of staff turnover. This system has been frequently observed among the Chinese staff members irrespective of domestic or foreign firms, which can also be categorised as a major ethical concern faced by the firms operating in the country. Thus, in context of this serious problem, the foreign firms intend to take the help of rules mentioned as per Article 99 of the People’s Republic of China Labour Law, which states that if an employer hires an employee without the ending of contract of their previous job must bear all the economic damages to the earlier employer. The new employer therefore must verify that the employee has successfully completed the contract of the previous employer before hiring them. Strictness in the imposition of this practice can further contribute to the enhanced morale of the staff members towards their employer organisation and thus, this practice can prove successful in reducing the staff turnover rate within the foreign firms in China to a certain extent (MOFTEC, 1994). The other management practice that has been introduced by the foreign firms in China is appraising the performance of employees through recognition as well as adequate compensation. The foreign companies based in Beijing and Shanghai appraises their employees in accordance to their performances so that they can be more productive and can be retained for a longer period. Their appraising performance comprises of setting the individual goals for the employees and appraising and paying them adequately based on their performances. The majority of the foreign firms have been reported to derive success through the implementation of the strategy of appraising staff performance (Mak, 2003). Critical Evaluation As discussed above, raising the pay level or compensation in the forms of monetary benefits based on employee performance at regular intervals has been enacted as one of the effective tools for reducing the staff turnover rate in the domestic firms as well as the foreign firms of China. Advantageously, the strategy has not only reduced the staff turnover rate but has also attracted many new employees to the domestic firms (IIES, 2011). In the year 2010, the rate was reduced to certain extent in comparison to the previous year, which can also be asserted as a major advantage of the strategy to the domestic firms (Berger, 2012). However, when concentrating on its long-run effectiveness, pay hikes have often been criticised to create a long lasting impression on the employees. In addition, continuous increase in employee wages may result in serious distortion within the economic periphery of the country as it may increase customer purchase capacity unduly and also augment the cost of living within the society, making it quite challenging for smaller organisations to gain a foothold in the market (Rynes & et. al., 2004). In comparison to pay hikes, emphasising training and development programme, as applied in many of the domestic firms of China, can be argued to be more effective in motivating better employee morale towards the organisation and reducing their turnover rates gradually. With the application of this strategy, employees are likely to gain better satisfaction through recognition and performance based appraisals feeling to be valued within the organisation. However, it is worth mentioning that training and development have been implemented in the work culture of China since long, which have proved to be of limited effects in reducing employee turnover, fundamentally because the workforce tend to be strongly attracted towards pay hikes. In addition, the training and development strategy is often criticised to be quite expensive and may also result in substantial losses to the company in terms of waste of time and manpower, affecting the working culture negatively (Wang, 2006). A similar limitation can also be witnessed when assessing the effectiveness of maintaining a fruitful employee relation, which can be quite costly but shall be of limited effect in enhancing employee morale. Nevertheless, effectiveness of this particular strategy in retaining employees tends to be comparatively more beneficial than training although it results into a complex communication style in the firms (IIES, 2011). Comparative to the strategies applied by the domestic firms, the foreign firms have been using stock options to reward their employees and retain them for a longer tenure. The major limitation of this process is that it is one of the restrictive policies of the Chinese government (Fan, 2006). Nevertheless, the foreign firms operating in China pay due attention in practicing their HR policies with utmost significance to the Chinese Labour Law. However, on the other hand, in a survey conducted by few of the HR consultants of China, it has been observed that the foreign employers are using performance appraisal for reducing staff turnover without keeping the Chinese culture into consideration, which again raises questions on the effectiveness of the employee retention strategies applied by the companies (Mak, 2003). Conclusion Undoubtedly, increasing staff turnover rate in China has emerged as a growing HR affecting both the domestic as well as the foreign firms’ sustainability. In order to cope with the problem, many strategies have been implemented by the domestic as well as the foreign firms so that they can retain their employees for longer. Correspondingly, the study reveals that strategies set by the domestic and foreign firms operating in Chinese market have been focused on applying different notions of HRM into practice, although both the groups have been concentrated towards ensuring highest degree of employee satisfaction and motivation. However, the major difference that have been observed in both the cases is that the domestic firms mainly emphasise the effective adoption of strategies, which can be easily implemented and set on the organisational level whereas the foreign firms takes into consideration many of the factors such as the China Labour Law and also the Chinese culture perhaps to create a balance between the diversified dimensions of the work culture. The domestic firms usually attempt to adopt the provision of training and development of the staffs so as to raise the moral within the employees and making them satisfied within the workplace. As per their noted expectations, the domestic firms intend to satisfy the self-esteem and value needs of the employees through training and development as well as employee relation management as a strategic measure to increase the employee retention rate in the company. It is worth mentioning in this context that while domestic firms need to face limited issues when dealing with the national and the corporate cultural differences, foreign firms face a disadvantage in the form of widened cultural paradoxes. It is thus that the foreign firms believe that the managers of the firm must be provided with trainings so that they can take special initiatives for reducing the staff turnover rate of the firm. The other distinct feature of the foreign firm’s strategy to increase staff retention in comparison to that of the domestic firms is that it not only sets strategies for reducing staff turnover by providing benefits to their employees but also concentrates on the continuous development of the firm, offering the staff with better scope to develop their career in the international platform. In terms of the compensation and benefits provided to the staff, it has been often observed that the domestic firms concentrate on the increase of the salary level of the employees only. But in case of foreign firms, it concentrates on the provision of compensation allowing fixed salary along with the variable pays such as the stock option and other monetary and non-monetary benefits in order to ensure greater degree of employee satisfaction. 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