Using Ownership Incentives in China

This paper is a case study of Tech Design Company. The paper will discuss possible ways, in which the Company CEO could export a local culture of workers’ ownership to China. The paper will also discuss the various factors that may affect the founders of Tech Designs Company to offer the Chinese team an ownership system that is similar to Silicon Valley team, and whether the ownership culture requires stock ownership by the workers of the Company. Additionally, the paper will examine possible questions that the CEO should ask in order to better evaluate the available opportunities in the market. Finally, the paper will highlight ways, in which the CEO should prepare his American team who have worked towards the development of Tech Designs Company and the nature of his decisions in five years period.

Question One: How Could Tech Design’s Founder and the C.E.O Export a Local Culture of Worker’s Ownership to China?

Employee ownership system can be described as the ownership of employees where they become a part of the company either directly or indirectly, partially or wholly. The success of Tech Design Company that was founded by Ben Freed is extremely attractive and worth mentioning. From the presented article, it is apparent that the success of the new company is facilitated by how flexible it is with regard to the adoption of new management and reward systems. Meanwhile, the Tech Design Company aims at extending this business to the Chinese people. The employees’ ownership culture that was developed in the Silicon Valley has a tangible and an understandable risk and reward system (Sull, 2005). The reason behind this is that the system has led to the success of the company in some states, such as America, and has resulted in the failure of the company in China.

However, the Tech Design’s founder and the CEO can export a local culture of workers’ ownership to China through various ways. One of the ways is through the provision of similar equity structures and strategies for all the workers of the company regardless of the office location. By doing this, the founder and the CEO will demonstrate his commitment towards establishing a global organization culture through treating all the international teams on the same equitable terms. This will ensure that some of the teams located in various regions do not demand an increase in their remunerations due to their views on the job opportunities coming from wealthy areas. However, this approach can make the Chinese team feel discriminated since they will have the perception that the company’s founder and the CEO is adopting an American-dominated approach that neglects the Chinese management style as well as their business values. This may lead to unnecessary conflict between the employer and the employees who feel that their values are not addressed appropriately.

In addition, the Tech Design’s founder and CEO can also modify the equity structure depending on the regional location of the company. In this alternative, he can accommodate the regional tax regulations and also the cultural needs that are valued or required in a particular region. Additionally, the founder and the CEO can set up a flexible ownership structure when the Tech Design’s Company establishes other offices in other regions. For example, as stated in the case, the founder should be ready to pay the high salary package being demanded by the Chinese people. However, this approach can lead to an increase in complexity of the company’s bookkeeping and tax reporting.

In addition, the founder and CEO can also decide not to hire new staff immediately after launching the Chinese office. In this case, he can transfer some of his employees to work in the new office. These employees can be given the mandate to hire, train, and cultivate a Chinese team that will be familiar with the terms of work (Congdon & Gall, 2013).  This approach will help the founder address his limited experience in the state through the use of some of the workers whom he has transferred to the place. However, the strategy can lead to a huge time waste that would otherwise be used to develop other offices since the employees who will be transferred to the place have limited experience on some of the Chinese business operations.

Further, the founder of the Tech Design Company can also decide to use diverse ownership mechanisms for the Chinese workers. In this choice, the founder and the CEO will differentiate the financial and psychological ownership to avoid the Chinese staff from demanding higher salaries than it is expected. This will enable the founder to build a culture of ownership and loyalty through the use of its own incentive structure.

Question Two: Factors that Will Affect Ben Freed’s Decision

There are various factors that affect the founders of Tech Designs Company to offer the Chinese team an ownership system that is similar to those of the Silicon Valley team. One of them is the available company resources and expected growth. The reason is that in starting a new office in China, the founder of Tech Design’s Company requires resources that will be used to compensate the new workers and also orient those that he will transfer to the country. In addition, he should consider the expected growth of the company since if minimal growth is achieved, there would be no need of offering the employee ownership system as this is expensive.

The other reason that affects Ben Freed’s decision is the number of workers that he expects to hire in the new Chinese office. The reason is that the effectiveness of the employee ownership is affected by the number of employees in a firm. In addition, the ownership system used in Silicon Valley is very expensive; therefore, using it on numerous Chinese workers will be costly thus hindering the development of the Tech Designs Company.

Additionally, the short-term and long-term company goals also affect the founder’s decision. The goals that the organization has planned to attain, either short-term or long-term, must be given proper consideration in order to ensure that the company achieves them. Therefore, if the development of employee ownership system will enable them to work towards the achievement of those goals, then Ben Freed may decide to adopt the system to the Chinese people.

Further, the support from the Tech Design Company Board of Directors will also affect Ben Freed decision to offer employee ownership system to the Chinese Company. The reason is that the founder of the company cannot implement any management or rewarding system without the assistance of the board of directors or the stakeholders. In addition, the board of directors can refuse to support the idea of using the same ownership system that is used in Silicon Valley in the Chinese office since the office is new, which may create a leadership disagreement.

The expected reaction from the current workers of the Tech Designs Company also affects the founder’s decision. If the employees will react negatively towards the adoption of the same ownership system to the Chinese, then the founder of the company should not adopt the system. However, if the current employees support the system, then the founder of the company should adopt the system since it will not demoralize any company worker. The reason is that some workers may feel that Ben Freed is undermining the business values of the Chinese due to the implementation of American ownership systems.

Another reason that will influence Ben Freed’s decision is job responsibilities of the workers and the expertise levels of the new employees that will be hired. If the employees to be recruited will not play a major role in the success of the company, then Ben Freed should not adopt a similar system to the Chinese office since the office in Silicon Valley is the main office. In addition, the ownership system can cost the company large amount of money that can hinder its growth, which is the key goal of the company stakeholders (Bishop & Kaupins, 2006).

Further, the legal regulations and the tax to be paid for the equity compensation in China and America also affect the decision of Ben Freed. This is accounted for the fact that the ownership system requires long legal procedures and a higher tax than other systems; thus, it should not be adopted. The reason behind this is that it will raise the cost of running the Tech Designs Company instead of helping in its development. Therefore, if huge taxes are to be paid, then the founder of the company should think of starting the company in another country instead of starting it in China.

In addition, the weight that the Chinese company will carry and the effect of spread of ownership on more parties will also influence the decision that Ben Freed will make. If the Chinese company does not play a major role in the success of the Tech Designs Company, Ben might decide not to implement the equity and ownership system being used in the Silicon Valley. Therewith, if the spread of ownership system will result in negative effects, the founder of the company can decide to use other managerial systems rather than making each employee a shareholder of the company.

Question Three: Whether Ownership Culture Requires Stock Ownership by the Workers

In a business setting, the ownership culture does not require stock ownership by the workers of any company such as the Tech Designs Company (Matějka, Merchant, & Van der Stede, 2009). The reason behind this is that giving stock alternatives and grants cannot automatically promote any commitment of the workers. In addition, the ways, in which individuals think about their grants and stock options, affect how they view the company they are associated with. Therefore, any ownership that includes monetary materials should always be linked to psychological ownership rather than cultural ownership.

However, establishing an ownership culture in any company is influenced by the worker participation in making the decisions that are related to the duties that they perform. Therefore, companies that aim at promoting an ownership culture should implement the participatory management system since it empowers the employees to take part in the decision-making activities within the organization where they are employed. However, the decisions, in which the company employees are involved, cannot be referred to as executive decisions since they have a limited influence in building an ownership culture within a company. Nevertheless, researchers elucidate that when employees are constantly involved in the organizational decision-making process, they feel vested in their firms and this results in the creation of an ownership culture in the organization. Therefore, employee participation in the decision-making of an organization is a vital element in the creation of an ownership culture.

Additionally, not all workers are willing to be shareholders of the company, even within a startup environment. Employee ownership culture requires a great sense of personal responsibility, and not all employees will be ready for the extra commitment that is required since most of them may be occupied in other fields. Furthermore, the strategic employees or those that adopt the employee ownership strategy are usually willing to sacrifice and do extra work so as to grow the organization, and subsequently, the founders and management can recompense them accordingly. The general employees or those who are not the stakeholder of the company may not perform extra duties since they are only interested in their job security. According to research by Gross (2007), 22% of the employees in the United States prefer a classic employee contract rather than being a part of the organizational management. The study also shows that most organizations develop ownership cultures through empowering their employees thus making them develop a passion for the duties that they perform in an organization.

Question Four: Questions that Ben Should Ask in Order to Better Evaluate the Available Opportunity

Apart from making decisions concerning the Tech Designs Company as well as developing the best strategies that can be used to ensure the success of the company, Ben Freed could ask himself, his investors and the experts in Chinese business certain questions (Blasi, & Kruse, 2010). Questions that he should ask himself include the following.

What amount in percentage of the firm’s stock pool should he share with the company’s new employees? This question will enable Ben Freed make effective decisions regarding the number of employees he should hire to work in the new company in China. The question is also important for proper allocation of the available resources between the company and the employees.

Should all the hired workers or only those who are best in their job receive stock options after being hired? The question will enable him to determine the most appropriate rewarding system so as to motivate the workers to perform their duties in the most appropriate ways. This will ensure that the company achieves its set objectives and goals.

What combination should the new equity reward be based on? The question will help Ben Freed to evaluate the formula that should be used in rewarding the key employees. This formula can either be based on merit, commitment or salary.

How frequent and at which rate should the stock options be offered? The question will help the founder avoid confusion and also properly plan ahead with regard to the trading of stock options thus enhancing the success of the Tech Designs Company.

Who will be appointed to monitor the workers’ compensation? The question will help appoint one of the trusted employees to monitor the compensation of the workers so as to ensure that workers are paid timely and are also fully compensated. That will ensure that there are no complaints from the workers, which will safeguard the reputation of the company.

Does the human resource of the company involved in the hiring procedure have the required knowledge and skills? This question will help the founder determine whether the human resource requires further training in order to ensure that they hire employees who are qualified for the job. This will lead to the success and growth of the company since there will be proper selection of workers on the basis of competency and ability to perform tasks that require necessary skills and knowledge.

Questions that Ben Freed should ask his investors so as to ensure that he has their support include:

Do they support non-US shareholders? The question will enable Ben to understand some of the views of the investors before he can adopt the employee ownership in the Chinese office. In addition, he can also learn some of their concerns to ensure that he makes the right decision. This question will also enable Ben to determine whether the investors can fully cooperate with other shareholders who are not US citizens for the general good of the company.

What are their performance expectations of the new employees? The question will assist Ben to determine the kind of the workers he should hire and also set the best rewarding system for them. Furthermore, the question will enable him to outline the appropriate duties and roles to the new workers.

What is their view of ownership culture? Since ownership culture is the culture that Ben Freed aims at creating in the Tech Designs Company, he should get their perception of the system to enable him determine whether it is the best method according to them.

Have they worked in other similar situations? The question will assist the founder to evaluate their opinions on the employee ownership system depending on their experiences. If they are not experienced, the founder can hire other experts to help him in the decision-making process.

If the employees meet the set target, would the investors support accelerated vesting for them? The question will help him learn some of the goals and targets he should set for each employee and for the company as a whole.

Some of the questions that Ben Freed would ask the experts in Chinese business include the following.

What are some of the expectations that the Chinese workers have when working in an American company? The question will help him understand the Chinese business culture in order to be fair to the new employees and also help him fit in the new market. For example, the Chinese workers focus more on short-term needs; thus, they base their salary package on stock options.

What is the compensation given to the Chinese employees and does their compensation vary depending on the job level? This question will help the founder offer fair remunerations and also reward systems for the new workers who will be hired to work in the Chinese office. In addition, it will enable Ben Freed to deal with the issue of the Chinese workers demanding higher salaries since they view the European and American companies as rich foreign companies; therefore, they must have additional demands as stated by Chao Li.

What do the Chinese workers consider as fair ownership system in a startup business? This question will help Ben decide on the best ownership or managerial system to adopt in the Chinese office. Further, he will understand whether the Chinese are interested in the psychological ownership or financial ownership in the organization.

Should the founder transfer some of his early employee to the Chinese office (reverse exporting) or should he hire new Chinese employees? The question will help the founder uphold the reputation of the company since transferring of non-Chinese workers to work in a Chinese company would be seen as a form of discrimination.

What criteria and procedure should be used when hiring Chinese managers who are effective in promoting the culture of employee ownership? This question will enable him to employ only the competent workers so as to promote the growth and development of the Tech Designs Company. In addition, the Chinese business experts will help the founder understand the qualities of good managers who can maintain a good reputation of the company.

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