Háskóli Íslands

Hugvísindasvið Kínversk Fræði

How CCP Shanghai Manages Diversity

through Strategic Human Resource Management

Ritgerð til B.A.-prófs

Sindri Sigurður Jónsson Kt.: 280796-2989

Leiðbeinandi: Geir Sigurðsson Maí 2018 Executive Summary This thesis aims to examine strategic human resource management and how it can be configured to manage diversity in a transnational company. Specifically, CCP’s Shanghai office was taken as an example because it is an Icelandic company with a branch located in China, which has a diverse workforce. In order gain a better understanding of the underlying cultural values of both countries, Iceland and China were compared via Hofstede’s cultural dimensions. Those cultural values serve as a foundation towards interpreting how employees in the Chinese affiliate might perceive HRM activities differently than in the parent enterprise. A four-step process towards managing diversity was formulated by the researcher to serve as a theoretical framework for judging the performance of CCP Shanghai’s strategic HRM activities. An in-depth qualitative interview was subsequently conducted with CCP Shanghai’s HR Director Helen Hu. The information gathered from previous research and the findings of the qualitative interview were compared using the diversity management framework to gauge where CCP Shanghai excels and where they can improve. Overall, CCP Shanghai can be described according to Hofstede’s cultural dimensions as a: collectivist, feminine, and indulgent organization with low power distance, a long-term orientation and low uncertainty avoidance. The company is highly effective in managing diversity through analyzing contextual factors, facilitating learning and development, promoting inclusion and creating an organizational culture. Additionally, CCP Shanghai’s innovative use of communication in their performance appraisal process is commendable. The two factors which could be improved for CCP Shanghai’s diversity management would be creating a reward for local employees as a substitute for not being able to receive company shares, and also fixing the unequal gender distribution within the company. Specifically, more females should be hired into the programming department as there are currently none. This can potentially limit CCP Shanghai’s organizational performance and hurt their corporate image.

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Acknowledgements I would like to thank Helen Hu and Sophie Froment for their generous help and insight, as well as the entire CCP team for their contribution. Thank you to my parents for proofreading and consistently motivating me. I also extend my gratefulness to Svala Guðmundsdóttir for her constructive advice and lessons regarding human resource management. Last but not least, I thank my instructor Geir Sigurðsson who guided me through this thesis.

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Table of Contents

1. INTRODUCING CCP ...... 6

2. HUMAN RESOURCE MANAGEMENT AND DIVERSITY ...... 7

2.1 EQUAL OPPORTUNITY EMPLOYMENT ...... 8

2.2 MANAGING DIVERSITY ...... 9 2.2.1 Context ...... 10 2.2.2 Learning & Development ...... 10 2.2.3 Inclusion ...... 10 2.2.4 Organizational Culture ...... 11 2.2.5 Communication ...... 11

3. COMPARING ICELANDIC & CHINESE CULTURE ...... 12

3.1 HOFSTEDE’S CULTURAL DIMENSIONS ...... 12 3.1.1 Power Distance ...... 13 3.1.2 Individualism vs. Collectivism ...... 13 3.1.3 Masculinity vs. Femininity ...... 14 3.1.4 Uncertainty Avoidance...... 15 3.1.5 Long-Term vs. Short-Term Orientation ...... 16 3.1.6 Indulgence vs. Restraint ...... 16

3.2 HOLISTIC COMPARISON ...... 17

4. HOW CCP SHANGHAI MANAGES DIVERSITY THROUGH HRM ...... 18

4.1 CONTEXT ...... 18 4.1.1 The Chinese economy ...... 18 4.1.2 China’s social and cultural history...... 19 4.1.3 Employee Demographics ...... 19 4.1.4 Recruitment & Selection ...... 20

4.2 LEARNING & DEVELOPMENT ...... 21 4.2.1 Training...... 21 4.2.2 Long-Term Orientation ...... 21 4.2.3 Low Uncertainty Avoidance ...... 22

4.3 INCLUSION ...... 22 4.3.1 Low Power Distance ...... 23

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4.3.2 Collectivism...... 24

4.4 ORGANIZATIONAL CULTURE ...... 23 4.4.1 Femininity ...... 24 4.4.2 Indulgence ...... 24 4.4.3 Compensation ...... 24

4.5 COMMUNICATION...... 26 4.5.1 Performance appraisal ...... 26

5. CONCLUSION ...... 28

WORKS CITED...... 30

List of Figures Figure 1. Diversity Management Flowchart Figure 2. Iceland compared to China per Hofstede’s Cultural Dimensions’ Scores

List of Tables Table 1: Standard and additional benefits provided to each employee of CCP. Table 2: Benefits provided to relocated employees of CCP.

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1. Introducing CCP CCP Games is an Icelandic video game company founded in 1997 by Þórólfur Beck, Reynir Harðarson and Ívar Kristjánsson. The company’s headquarters are in Reykjavík, with offices also located in Shanghai and London. Hilmar Veigar Pétursson has been the CEO of CCP Games since 2004. Over the course of its 20-year history, CCP has produced 7 games, highlighted by their fan-favorite EVE Online. EVE Online is a massively multiplayer online role-playing game (MMORPG) which is set in space and takes place 20,000 years in the future. The game is known for its complexity and open world dynamics, offering a variety of different options in gameplay which includes but is not limited to: exploration, mining, combat, and politics (Garratt, 2007). While CCP is mainly known for EVE Online, they also produce several other games in other genres such as virtual reality and first-person shooters. The CCP office in Shanghai is home to the development team of the game Gunjack. Gunjack is a virtual reality arcade shooter which is set in the EVE Online universe. The objective of the game is to defend a mining operation using a turret (Gunjack, n.d.) Because Gunjack is set in the same EVE Online universe, the development teams in Iceland and Shanghai frequently work together. This creates logistical obstacles as well as the need to manage diversity (Helen Hu, personal communication, 2017). Iceland and China are not only far apart in location, but are also massively different in terms of culture, work habits and environment. CCP are very proud of their diverse personnel as they publicize the following on their website: “We stand united. We are individually diverse yet banded together in common purpose and resolve” (Culture – CCP Games, n.d.). This quote embodies CCP’s motive to bring not only their staff, but also their player community together to innovate and push the boundaries of the video game industry (Company – CCP Games, n.d.). CCP faces the challenge of managing diversity on a daily basis and utilizing strategic human resource management to overcome their differences to create a forward-thinking and dynamic workforce.

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2. Human Resource Management and Diversity Human Resource Management (HRM) is an umbrella term used to describe all organizational activities concerned with job analysis and design, recruitment and selection, training and development, performance appraisal, as well as compensation (Wilton, 2016, p. 4). The central purpose of HRM is to provide a framework for the relationship between employer and employee in order to achieve corporate goals (Wilton, 2016, p. 4). Thus, for HRM strategies to be successful, they must be consistent and compatible with a firm’s structure and goals (Jones & George, 2015, p. 347-8). Strategic HRM is the process of utilizing HR activities to attract and retain employees and gain competitive advantage (Jones & George, 2015, p. 347-8). A good example of strategic HRM is increasing workplace diversity to broaden cultural horizons, beliefs, and values within the firm. However, simply having a more diverse workforce does not create competitive advantage. It is rather the increased value placed on diversity and inclusion that can separate a firm from its competition. With greater tolerance for individuality, management can effectively build a collaborative atmosphere in which personal differences are encouraged rather than becoming a source of conflict. This promotes innovative solutions, thereby enabling access to increasingly diverse markets, and enhancing the firm’s corporate image to create competitive advantage (Shen et al, 2009, p. 235-7). Diversity is the state of being different and it can be interpreted in a variety of ways. Factors of diversification include but are not limited to: “age, gender, marital status, social status, disability, sexual orientation, religion, personality, ethnicity, and culture” (Shen et al, 2009, p. 235). These factors all contribute to a person’s individuality and their social group belonging. Knowingly or not, employers often decide on whether a person is fit for a job based on these attributes. This is the essence of discrimination, which limits the potential hiring pool to those only fitting a preconceived stereotype. Understandingly, many firms make it a focal point to limit and eradicate discrimination in their HR activities. By avoiding discrimination, companies gain the benefit of having the largest possible pool of applicants and therefore having the best chance of finding the most suitable employee for the job (Shen et al, 2009). The claim that workplace diversity improves organizational performance has been increasingly studied over the past decade, mainly showing a positive correlation between the two variables. For instance, Vivian Hunt’s Diversity Matters report for the management consultant firm McKinsey & Company showed a positive correlation between racial and

7 ethnic diversity and financial returns (2015, p. 3). Firms in the top quartile for ethnic and racial diversity were 35% more likely to have financial returns above their industry mean. In addition, firms in the top quartile for gender diversity were 15% more likely to have financial returns above the industry mean (Hunt et al, 2015, p. 3-4). However, studies such as this have faced recurring criticism because diversity is difficult to quantify or measure effectively (Shen et al, 2009, p. 237). Even when quantitatively analyzed, the results do not always reflect individual differences between how subjects identify with their culture, ethnic background, gender, age, religion, etc. Therefore, it is important to consider conducting a qualitative analysis in addition to collecting statistical data when investigating diversity in the workplace. Despite these criticisms, most HR specialists agree that organizations with a more diverse workforce are better able to “win top talent, improve customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns” (Hunt, 2015, p. 1). By providing increased access to constantly shifting demographic markets, and a more positive corporate image, diversity can be a useful tool that should be implemented into every organization’s identity (Shen, 2009, p. 238-9). There are two main recognized approaches to implementing diversity into HRM: equal opportunity employment and managing diversity.

2.1 Equal Opportunity Employment Equal opportunity (EO) employment is a strategic HR tactic aiming to nullify or ignore differences between individuals in an organization to ensure equality of treatment (Wilton, 2016, p. 307). Thus, managers will ignore social groups and stereotypes as if they do not exist. While this approach seems theoretically sound, it does not directly deal with the present and past perceptions that exist towards underrepresented social groups. The basic concept of the EO strategy is that managers can present evidence that all individuals have equal opportunity to get a job and/or promotion without any form of discrimination. Being able to present such evidence gives validation that the company does not perform discriminatory actions, which is a hugely important step for all corporations. However, many have criticized the EO approach as being inadequate with dealing with stereotyping and prejudice in the work environment, as it is often viewed as an administrative activity and not an embedded responsibility within the entire workplace. In addition, by ignoring differences between individuals, the positive effects that diversity can contribute to organizational performance

8 will be lost trying to establish neutral treatment of workers (Wilton, 2016, p. 309). Partially from these criticisms, a contrasting approach formed, called managing diversity.

2.2 Managing Diversity Managing diversity differs from the EO approach as it is focused on utilizing diversity rather than nullifying it. By emphasizing the value of diversity, firms are better able to hire and retain top talent, thereby creating competitive advantage over other companies in the same sector (Wilton, 2016, p. 310). Putting diversity into practice however, is a difficult task. There is no universal guide on how to handle a diverse workforce or how to manage cultural differences. However, this author formulates a four-step thematic process based on previous research, which can provide a framework towards effective diversity management (Wilton, 2016; Shen et al, 2009; Ortlieb and Sieben, 2013). As depicted in Figure 1 below, the four steps are; analyzing context, facilitating learning and development, promoting inclusion, and creating an organizational culture. In the center of this process is communication, as it plays a vital role in each step of managing diversity.

Figure 1. Diversity Management Flowchart

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2.2.1 Context Analyzing contextual factors is the employer’s first step in managing diversity as their approach must meet organizational needs and capabilities. These factors can include business strategies, consumer demands, regulatory obligations and corporate social responsibilities (Wilton, 2016, p. 315). In addition, employers must take into consideration the cultural and social history of the country they are located in. For example, organizations based in China and Iceland have different laws, social responsibilities, and potential applicant pools. Therefore, it is necessary to consider these factors when laying the groundwork for strategic HRM.

2.2.2 Learning & Development Another important function in diversity management is facilitating learning and development, as in order to challenge preconceived ideas, one must be open to learning about new cultures and ways of thinking. Firms often utilize training programs in order to increase cultural intelligence and awareness among management and employees. Unfortunately, many of these training sessions are single-culture specific, limited in duration and generalize values without proper foundation (Earley & Peterson, 2004, p. 113). Learning and development of diversity must be a responsibility among all levels of the organization, and not simply an HR department task. Senior management, line-managers and staff alike must share the responsibility of valuing cultures within the organization (Shen et al, 2009, p. 245).

2.2.3 Inclusion Promoting inclusion of employees in organizational activities (both formal and informal), can cause them to re-examine stereotypes and break down barriers within the cultural dynamics of the workplace (Wilton, 2016, p. 312). Mitchell et al (2015) studied the effects of leader inclusiveness on performance through status and team identity and showed a positive correlation between the two factors (p. 229). Not only is inclusion important in improving organizational performance, but it can also empower employees and prevent discrimination in the workplace. This is best described by gender equality trainer Marta Rawluszko (2009): “Inclusive organizational culture not only means lack of discrimination and harassment, but it also means elimination of other messages that may lead to exclusion and lowered sense of self-worth” (p. 54). This idea leads directly to the final step in managing diversity, which is cementing an organizational culture.

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2.2.4 Organizational Culture Organizational culture can be defined in a multitude of ways. Simply put, it is the “consistent, observable patterns of behavior within an organization” (Watkins, 2013, para. 4). Organizational culture can also be further described as a sense-making process that is shaped by incentives and constantly evolving. This means that employees are able to share their values, beliefs and experiences collectively to create their own culture within an organization. An organizational culture is dynamic as it develops and adapts over time, depending on the business strategy, human resources and market environment (Watkins, 2013, para. 12). Ultimately, the way that employees collectively identify themselves as an organization shapes the underlying culture of the company.

2.2.5 Communication At the heart of this four-step process is communication (See figure 1). Effective diversity management is contingent on proper communication, and therefore must be considered throughout the entirety of this process. As reported by Rawluszko (2009): “Communication and differences in communication styles create the space for professional development of male and female employees, therefore they allow the conscious use of diverse ways of expressing one’s own opinions and interests, carrying out discussions and making decisions” (p. 55). This quote encapsulates the importance of communication as the end goal for all organizations is to create an inclusive work environment in which diversity is valued and deeply rooted in the organizational culture. Therefore, it is important for all employees to be able to communicate their thoughts and beliefs without fear of judgement or backlash.

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3. Comparing Icelandic & Chinese Culture One of the biggest forms of diversity originates from culture. Before examining the different dimensions of culture, it is vital to first understand the meaning of the concept. Geert Hofstede defined it as: “the collective programming of the mind which distinguishes the members of one group or category of people from another” (Hofstede, 2011, p. 3). This collective programming results in diverse social groups which individuals can identify with and gain a sense of belonging. When two or more cultures clash, it can often cause conflict or tension between groups or individuals. Therefore, it is important for organizations to be aware of cultures and even educate their employees on how to collaborate with people of different backgrounds when working together as a team.

3.1 Hofstede’s Cultural Dimensions Geert Hofstede formulated six main aspects of national culture: individualism vs. collectivism, power distance, uncertainty avoidance, masculinity vs. femininity, long-term orientation vs. short-term orientation and indulgence vs. restraint (Hofstede, 2011, p. 8). Figure 2, depicted below, shows Iceland’s scores on Hofstede’s cultural dimensions’ scales in comparison with China.

Figure 2. Iceland compared to China per Hofstede’s Cultural Dimensions’ Scores.

Overall, there seems to be a significant difference in almost all the cultural dimensions between Iceland and China. The following sections will compare each of the dimensions individually, highlighting the possible impact it could have on CCP Shanghai.

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3.1.1 Power Distance Power distance is defined as “the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally” (Hofstede, 2017). This dimension explains how individuals from varying cultures experience a difference in the working relationship between superiors and subordinates. In China it is more common that workers accept their role within a hierarchy, even with instances of power abuse and authoritarian style of direction. This is reflected in their high score of 80 in power distance. Iceland contrastingly, has a low score of 30 (see Figure 2). Therefore, they are used to a more level “playing field,” with managers being much more approachable and accessible (Hofstede, 2017). Employees in Iceland often speak to their superiors with more informal candor than in China. Icelandic workers generally address each other by their first names, while in China, one would address their superior with their surname and title. This indicates that Chinese culture emphasizes hierarchy and that it is crucial to show superiors respect in a working environment. Operating a branch of an Icelandic company in Shanghai, the management of CCP faces a predicament in terms of establishing relationships with employees. If they adhere to the local culture, an authoritarian style of leadership would be enforced, in which subordinates expect to be told what to do rather than being consulted. However, since management roles within CCP Shanghai are often headed by expatriates (Helen Hu, personal communication, 2017), this dynamic may not be within their comfort zone. The superior- subordinate relationship is further complicated with the difference in candor between the separate cultures. According to Hofstede, an Icelandic manager would expect employees to feel comfortable coming to them and talking openly about their feelings or performance. However, this is not the norm in China as employees are more concerned with saving face and showing respect toward their superiors (Hofstede, 2011, p. 9).

3.1.2 Individualism vs. Collectivism This dimension is based on “the degree of interdependence a society maintains among its members” (Hofstede, 2017). Often the discernible factor between individualism and collectivism comes down to a question of “I” or “We.” Persons from individualist cultures tend to focus on their own self-image and their direct family, while collectivists are more centered on social groups and extended family. As displayed in Figure 2, Iceland is a relatively individualist culture with a score of 60. China on the other hand, covers the other side of the spectrum with a score of 20, denoting a highly collectivist society (Hofstede,

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2017). Collectivist cultures prioritize maintaining harmony and relationships, while individualist cultures usually express their opinions more freely and choose tasks over relationships in a work setting. In a collectivist environment such as China, CCP will face another contradicting perception to the norm in Iceland. This dilemma may manifest itself within the organization as it is not certain whether management should focus on the individual or the collective. Certainly, employees will have both individual and team commitments which they will be responsible for. However, it is necessary for management to convey the importance of proving oneself as an individual as well as working together with others as a team.

3.1.3 Masculinity vs. Femininity This dimension is characterized by the difference between “wanting to be the best (masculine) vs. liking what you do (feminine)” (Hofstede, 2017). In a masculine society, competition, achievement and success are the most important values. Feminine societies contrastingly, value caring for others and quality of life. China is regarded as a masculine culture, as shown in Figure 2, with a score of 66. However, since China is also collectivist culture, masculinity is less conspicuous in daily organizational life. While standing out from the crowd is usually rewarded in masculine societies, collectivists do not agree with this perspective. Therefore, many Chinese workers value competition and success highly, but would not isolate themselves from their group of coworkers to prove so. Iceland however, is considered a highly feminine society with a distinctly low score of 10. Thus, the focus is generally more on well-being than status, and equality. Often, this dimension is considered controversial because of the difference in perspective on gender roles. Feminine societies predominantly believe that both men and women should be modest and caring, while masculine societies believe men should be more assertive and ambitions than women. Consequently, women generally take very few political positions within masculine countries. This directly contradicts Iceland’s perspective on gender equality, as it recently became the first country to legally enforce equal pay. Men and women in Iceland must be paid equally for performing the same job within an organization, which is not the case in countries such as China (nr. 10/2008). CCP Shanghai is challenged yet again with a dichotomous perspective between the two cultures. Undoubtedly, female workers in CCP Shanghai will be paid equally because of the pre-existing values of the company’s headquarters in Iceland. However, when it comes to

14 characterizing the values of the firm, CCP Shanghai must adopt an approach to define the appropriate work/life balance of their employees. According to the local culture in China, leisure time is not considered a priority as employees are more willing to sacrifice time with their family and friends to work longer hours (Hofstede, 2017). This is not the case in Iceland and CCP’s management must address this difference in perspective in order for employees to know what is expected of them. Indeed, all firms value success, achievement and hard work (all characteristics of a masculine society), but at what cost? CCP Shanghai must decide to what extent to they emphasize employee happiness, well-being and quality of life.

3.1.4 Uncertainty Avoidance Uncertainty avoidance is constituted as “the extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these” (Hofstede, 2017). Countries with a high uncertainty avoidance will generally try to avoid unstructured situations, while countries with low scores do not mind spontaneity. This is the only dimension in which Iceland and China are both classified in the same category. As seen in Figure 2, Iceland scores a 50 in uncertainty avoidance, which is technically low, and China scores an even lower 30. These 20 points may not seem significant, however, there are still slight differences in how uncertainty is perceived in these two countries. For example, fatalistic beliefs are pervasive in Icelandic culture (possibly originating from unpredictable ecological conditions) and they often present as a dismissal for the need of long-term planning as something is bound to change. The Icelandic popular phrase “þetta reddast” embodies this idea and can be loosely translated as “it will all work out somehow” (Einarsdóttir et al, 2015, p. 174). This notion shows that Icelanders are somewhat comfortable with uncertainty as it is rooted in the culture. According to Hofstede (2017) however, people from China are even more comfortable with ambiguity than Icelanders, as their culture and language is highly pragmatic and adherence to laws and rules is more flexible to the given situation. Consequently, empiricism is highly valued in Chinese culture and philosophy – meaning that truth is not always absolute but rather derived from the senses and experience. Given that both Iceland and China have low uncertainty avoidance, it is logical to infer that CCP Shanghai operates with an open mind towards spontaneity and ambiguity. This is not necessarily the case, as each organization is different and may not necessarily reflect the standard set by national cultures. However, being able to share a common point of

15 view can serve as a foundation towards connecting and sharing other values and beliefs within an organization, which helps promote an inclusive environment.

3.1.5 Long-Term vs. Short-Term Orientation This cultural dimension is defined as “how every society maintains links with its own past while dealing with challenges of the present and future” (Hofstede, 2017). China scores a very high 87 and is therefore known as one of the most long-term oriented societies in the world. Conversely, Iceland scores a low 28, denoting a short-term oriented society (See Figure 2). Long-term orientation originates from Confucian values such as: perseverance, thrift, and status (Hofstede, 2011, p. 15). China has already been established to be a pragmatic culture, and this dimension further enhances that perspective. Hofstede (2017) suggests that people of Chinese descent have a propensity to persevere to achieve results; save and invest; and also adapt traditions to changing conditions. Short-term orientated cultures such as Iceland however, are more centered around social obligations and personal stability. Additionally, Icelanders tend to focus on the present time and believe that traditions are sacrosanct (Hofstede, 2011, p. 15). Because CCP Shanghai manages employees from both short and long-term orientated societies, the main concern becomes deciding between the two strategies. Both orientations have their pros and cons, but the dominant orientation of the firm will most likely directly influence their business strategy. If a short-term orientation is adopted, achieving short-term results will be a priority and the firm will not be afraid to spend money and resources to seize the current market. Contrastingly, if a long-term orientation is embraced, the focus will be on long-term prosperity, perseverance and saving funds and assets.

3.1.6 Indulgence vs. Restraint Hofstede (2017) defines this dimension of indulgence vs. restraint as “the extent to which people try to control their desires and impulses.” Indulgent cultures exhibit weak control while restraint cultures have a strong control of their impulses. As shown in Figure 2, Iceland scores a 67 in this dimension, indicating an indulgent culture. China however, has a low score of 27, denoting a restraint culture. The noticeable differences in this dimension come down to the gratification of needs and the emphasis on leisure time. China’s society is definitively restraint as gratification of needs and desires are not emphasized and leisure time is not high on the list of priorities. Icelandic culture however, is considerably more indulgent and places

16 a higher value on leisure and gratification (Hofstede, 2017). Another interesting observation is that generally, indulgent countries view freedom of speech as more important than restraint countries. This is definitely applicable in the comparison of Iceland and China. Iceland’s government believes in the right of free speech while Chinese authorities have often been accused of repressing freedom of speech. The difference in emphasis between indulgence and restraint could greatly impact CCP Shanghai as it pertains to employee satisfaction. Because CCP develops video games as a business, it directly connects to leisure activities. Therefore, CCP’s employees may value indulgence higher than workers in other industry sectors such as finance or education. Management ultimately controls the degree of indulgence as they select the number of work- free days, length of working hours, number of company events, etc. Employee satisfaction is often correlated with these decisions.

3.2 Holistic Comparison Iceland and China both have extremely unique and distinct cultures that juxtapose each other in almost all facets. According to Hofstede’s dimensions, China is considered a collectivist, masculine and restraint society with high power distance and a long-term orientation. Contrastingly, Iceland is considered an individualist, feminine and indulgent society with low power distance and a short-term orientation. The only cultural dimension in two countries have in common is low uncertainty avoidance, in which China scores slightly lower than Iceland. These cultural dimensions provide insight into the behavioral direction that the majority of Icelandic and Chinese people identify with. However, that is not to say that all persons within these cultures conform to this generalized trend. Within every culture there are subcultural groups and outliers that resist the “normalized” behavior of their society. Therefore, it is important to treat models such as Hofstede’s as a cultural overview of behavior, but not a generalization that paints entire cultures with a single brush. CCP Shanghai certainly faces some tough decisions when it comes to managing cultural diversity, as there are a multitude of differences in the perspectives between these two countries. Ultimately, their management must commit themselves towards learning these differences and promoting an inclusive work environment in which varied opinions and beliefs are valued and respected. Thereupon, an organizational culture can begin to form and develop to strategically create competitive advantage.

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4. How CCP Shanghai Manages Diversity through HRM This chapter will discuss the various HRM activities of CCP Shanghai, focusing on the management of diversity and their position on Hofstede’s cultural dimensions. To gather this information, an interview was conducted with CCP Shanghai’s Director of Human Resources, Helen Hu. The qualitative results will be analyzed utilizing the diversity management framework provided by the author in the earlier theoretical section of this thesis.

4.1 Context A series of contextual factors will be examined in this section, specifically the factors that impact CCP Shanghai the most, as it would be impractical to go into detail for all of them. The evolution of the modern Chinese economy will be summarized, as well as the roots of China’s cultural and social history. This will provide an image of the work environment in which CCP Shanghai operates. Subsequently, the employee demographics and the recruitment and selection process of CCP Shanghai will be explored as it relates to diversity management.

4.1.1 The Chinese economy The Chinese economy has changed immensely in the past four decades, going from a centrally planned economy to a more decentralized system based on market socialism and privatization (Fu & Kamenou, 2011). After Mao Zedong’s regime ended in 1978, Deng Xiao Ping decided to enforce an open-door policy to allow for foreign direct investment in China. This period fundamentally changed China’s economy, as it had never seen this amount of influx in outside investment previously. Through a combination of Foreign Direct Investment (FDI), Special Economic Zones (SEZ) and State-Owned Enterprises (SOE), China’s economy continued to develop rapidly. Throughout this economic growth, China shifted gradually towards a more privatized market environment, becoming a friendly nation for global corporations to open foreign affiliates in (Naughton, 2007). CCP is currently reaping the benefits of being able to operate in Shanghai as it opened up their platform to a new player base, consumer market and potential hiring talent pool that what previously difficult to access.

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4.1.2 China’s social and cultural history The role of China’s social and cultural history must be accounted for when operating a foreign branch of a global company in China. As it would be impossible to capture the entirety of China’s rich history in a short text, I will focus more on the influence of Confucianism on Chinese culture. Many cultural researchers, including Hofstede and Bond (1988) believe that Chinese culture is heavily rooted in Confucianism. A theory popularized by the futurologist Herman Kahn in 1979, states that East Asian countries inheritance of Confucian values contributes to their competitive advantage in the business environment (Hofstede & Bond, 1988, p. 6-7, 21). This theory is arguably still relevant today, as Confucian values such as thrift and perseverance are persistent in Chinese society and culture, although they are now often attributed to long-term orientation. Confucius’ teachings are based on pragmatism and ethics. A few main principles of Confucianism include: stability of unequal relationships, family values, saving face, virtuous behavior towards others, working hard and not spending more than necessary (Hofstede & Bond, 1988, p. 7-8). The impact of Chinese culture and Confucian values on CCP Shanghai’s operations will be undeniable as the majority of their workforce identify with this culture.

4.1.3 Employee Demographics In total there are 60 employees working for CCP Shanghai. Of them are 46 men and 14 women. This means 20% of the workforce is female, which is generally low, but not uncommon in the video game industry. According to IGDA (international game developers association) in 2016, roughly 72% of their survey respondents within the video game industry were male with 23% females, and 5% other (Weststar & Legault, 2016, p. 10). Interestingly, the programming department of CCP Shanghai consists entirely of men. While this may slightly increase cohesiveness of the department, it can be considered a weakness as there are no female perspectives represented behind the coding of the games produced. Many believe it safe to assume that because code is a universal language, there are no gender differences in programming. This assumption is questionable however, as there has shown to be a significant gender bias present in the software development community (Terrell et al., 2017, p. 1). For example, Terrell et al. studied the extent to which gender bias exists when pull requests are judged on GitHub, an open source community. The results showed that women’s pull requests were accepted 4.1% more often than men’s (a statistically significant difference), however this was the case only when they were not identifiable as women. When

19 combined with qualitative data, they concluded that the results of gender bias in the online software development community was troubling (Terrell et al., 2017). Therefore, CCP Shanghai should consider hiring more female programmers and developers. This could result in improved organizational performance and corporate image. The average age of CCP Shanghai employees is 28-29 in the development team and 32-33 in management (Helen hu, personal communication, 2017). According to IGDA, this is quite standard within the video game development industry, as they found that 46% of survey respondents were in the age range of 25-34 (Weststar & Legault, 2016, p. 10). The majority of CCP Shanghai’s employees are of Chinese descent, or 50 in total (83%). The remaining 10 are expatriates from various countries such as the United Kingdom, Canada, United States, France and Iceland. Hiring an expatriate is significantly costlier than hiring a local employee. This can vary due to relocation costs, tax differentials, visas, etc. Expatriates are more commonly in senior positions as they have usually been with the parent company for an extended period of time and are sent over to the foreign branch to train the local employees. The number of expats in CCP Shanghai went from 25 in 2014 to 10 in 2017 to decrease spending after a difficult but necessary period of layoffs (Helen hu, personal communication, 2017).

4.1.4 Recruitment & Selection CCP Shanghai recruits mainly through a public social hiring channel. This includes LinkedIn and 51job. The two websites are quite similar in many ways, but the main difference is that LinkedIn is transparent, while 51job is confidential. When using LinkedIn, the personal information of an individual is always available for viewing. 51job however, uses a different method as the only information displayed is name, background and working experience. You can access also the individual’s age, gender and nationality by paying more for the service as an employer (Helen Hu, personal communication, 2017). CCP also provides a referral bonus for employees who help the company find talent in the recruitment process. This creates an internal referral scheme as one of their hiring channels. CCP’s HR department has found with the addition of this channel, they have increased bonuses and loyalty by 20%. Each employee therefore becomes an ambassador for CCP as they look for new candidates to join the company (Helen Hu, personal communication, 2017).

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During the hiring process, the most important quality to gauge for CCP is the potential employee’s capabilities and what he/she can bring to the company. In order to do so, the first round in the selection process is a remote test (e.g. programming, art design). The second round is a face-to-face interview with the HR manager. Before they arrive to the office for their interview however, the potential candidate must also take a personality test. This helps HR to understand more about the person to get a more complete image besides just the interview. (Helen Hu, personal communication, 2017).

4.2 Learning & Development Learning and development of employees is a crucial step towards effective diversity management. As mentioned previously, training helps educate employees on business strategies, organizational goals and cultural differences. During this part of the diversity management process, firms often define their long-term or short-term orientation as well as the extent of their uncertainty avoidance.

4.2.1 Training When an employee joins CCP Shanghai, they go through a one-day orientation process where they are introduced to the CCP culture, values, organization, intranet and available tools and resources. The direct manager of the hired employee will assign a mentor to help get them acclimated and trained for the job. Therefore, CCP utilizes a number of training methods including mentorship and on-the-job training. This allows current employees to transfer the values of the company and culture on to the new employee. While CCP Shanghai does not utilize specific cultural training programs, instead they preach an organizational culture of acceptance and unity. This is reflected in their statement on culture as posted on their website: “We stand united. We are individually diverse yet banded together in common purpose and resolve” (Culture – CCP Games, n.d.). Therefore, instead of targeting different cultures and educating through specific training programs, CCP enforces an environment built on tolerance in which each culture is accepted, and individuals come together to form a common resolve (Helen Hu, personal communication, 2017).

4.2.2 Long-Term Orientation CCP Shanghai can be described as a long-term orientated business, as they are focused on long-term prosperity instead of spending to increase current market share. Partly, this is due

21 to the fact that CCP is serves a niche market. In the recent years, CCP’s focus has been on developing virtual reality games in addition to their flagship game EVE Online. While virtual reality gaming systems have not yet become a staple in most households, the platform holds immense potential for the future as it is further developed into a truly immersive experience. In a conversation with Iceland’s national news source known as Morgunblaðið, Hilmar (the CEO of CCP) announced the company would be putting their virtual reality game development on hold for the next 2-3 years. The reason behind the decision was lack of technology in the platform and slow growth in the market over the next couple of years. As a result, the company laid off close to 100 employees out of roughly 370 in total. Meanwhile, the company will be shifting their focus on the PC and phone platforms for game development (Ásgrímsson, 2017). Despite this, CCP remain committed to virtual reality for the long-term as Hilmar stated: “Virtual reality will eventually change the world” (Ásgrímsson, 2017). It is clear that CCP is focused on long-term prosperity and they are not afraid to make considerable changes in order to adapt to the video game markets’ dynamic conditions.

4.2.3 Low Uncertainty Avoidance CCP Shanghai has a low uncertainty avoidance, similar to both China and Iceland according to Hofstede’s cultural dimensions. This means that employees of CCP generally do not feel threatened by ambiguous or unknown situations. As self-proclaimed pioneers, CCP Shanghai’s employees must be unafraid to venture into the unknown and innovate. Their endeavor into virtual reality video game development is the embodiment of this low uncertainty avoidance. Several of the founders and first CCP employees had worked previously in a company known as OZ, which was creating one of the first VR browsers from 1995 to 1998 (Pétursson, 2016). Therefore, CCP owes part of its lineage to OZ, which was innovating VR in its earliest form. It can be said that uncertainty and exploring the unknown are values which CCP built its foundation on and still live by to this day as an organization.

4.3 Inclusion CCP Shanghai consider themselves a tightly knit group who work collaboratively well together. In order to bring the employees closer together, they host a local staff meeting monthly outside of work. In such events, they share food and drinks, often with different cultural implications such as during the dragon boat festival, Chinese New Year, holidays,

22 birthdays, etc. This supports team building and inclusion, which connect to Hofstede’s cultural dimensions, specifically reducing power distance and building a collectivist mindset.

4.3.1 Low Power Distance Power distance in CCP Shanghai aims to be low as managers and employees frequently interact and work together. The low power distance of CCP Shanghai is reflected in their office layout, with open spaces and no barriers between employees to induce a collaborative environment. There are only two private offices in CCP Shanghai, one for the head director of the Shanghai department and one for the HR director. According to Helen Hu, the HR director of CCP Shanghai, it is important to have a closed space for HR to be able to communicate with employees privately (personal communication, 2017). This creates a feeling of safety as employees are actively encouraged to voice their opinions and thoughts. While there is a hierarchical structure within the organization, CCP Shanghai takes a more hands-off approach towards management as employees have substantial freedom in their work compared to the local norm. This management style empowers workers to take responsibility of their own work and often leads to increased creativity and enhanced performance.

4.3.2 Collectivism As a group, CCP Shanghai are quite close and can be considered a collectivist organization. Individuals within the firm focus on building 关系 “guan xi” as it is known in Mandarin. This term can be directly translated as “relationships” or “connections.” In further detail, guan xi describes interpersonal social relationships which often form a network in the business environment (Servaes, 2016, p. 461). In collectivist cultures, maintaining harmony and relationships is paramount, and CCP Shanghai is no exception. Individuals within CCP should feel as a part of something bigger than themselves. This promotes the feeling of acting on what is best for the group and creates a sense of teamwork and harmony. In turn, inclusion among employees is deeply present and valued within CCP Shanghai (Helen Hu, personal communication, 2017).

4.4 Organizational Culture “We are fearless, we are bold, we are innovative” (Company – CCP Games, n.d.). These are the words that CCP has chosen to characterize their organizational culture. Innovation is the

23 driving force behind the CCP as they aim to be at the forefront of the gaming industry in creating virtual worlds and realities. In terms of Hofstede’s cultural dimensions, CCP Shanghai’s organization can be classified as feminine and indulgent. This is further proven through their benefits and compensation.

4.4.1 Femininity As a feminine organization, the management of CCP Shanghai care innately about employee wellbeing. Each individual within the organization is encouraged to balance work and life. This is reflected in CCP Shanghai’s flexible approach to management. Employees are expected to achieve certain goals set by management, but they are not restricted to specific methods or working hours (Helen Hu, personal communication, 2017). However, just because CCP Shanghai is categorically a feminine organization, it does not infer that competition, achievement and success is sacrificed. Instead, it can be argued that their femininity motivates employees to perform at a higher capacity through a sense of empowerment and job satisfaction.

4.4.2 Indulgence As CCP is directly involved in the leisure industry, it is almost natural deduction that the organization is more indulgent than restrained. This happens to be the case with CCP Shanghai as they emphasize gratification of needs and leisure time. The HR director of CCP, Helen Hu described in the qualitative interview a speech made by Hilmar to the HR team during the first time she visited Iceland. In this speech Hilmar highlighted the importance of “bringing fun to work” (Helen Hu, personal communication, 2017). This came as quite a surprise to Helen as she had never heard that kind of motto working with a company from her native land of China. Let alone as a direct idea from the CEO of the company himself. Helen believes that this motto is part of the reason why CCP has high employee satisfaction and a lot of rehire employees (personal communication, 2017).

4.4.3 Compensation Compensation and benefits are important motivators in forming an organizational culture. For every employee, the benefits are the same. Below is a table containing a list of benefits provided to all employees which appears on CCP’s website (Careers – Benefits & Relocation – CCP Games (n.d.)):

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Table 1: Standard and additional benefits provided to each employee of CCP. Standard Benefits: Additional Benefits: Healthcare Family friendly offices & work practices Sick pay Creative and fun work environment Maternity, paternity, parental leave Games/libraries Sabbatical Flexible working Disability insurance Canteen Vacation Fruit/drinks/cookies Onsite discounted services Fitness facilities or grants Fun club

The benefits provided by CCP are undeniably substantial, as they go above and beyond to satisfy the well-being of their employees. In the case of relocation such as the expats working in Shanghai, CCP will provide the following benefits (Careers – Benefits & Relocation – CCP Games (n.d.)):

Table 2: Benefits provided to relocated employees of CCP. Relocation Benefits: Immigration paperwork for employee and relocating family Full-service packing and shipping of household items door to door Flight ticket and airport transportations for employee (and family when applicable) Temporary complimentary accommodation Relocation bonus

Here we can see in detail, why hiring expats can be two to three times more expensive than hiring a local (Careers – Benefits & Relocation – CCP Games, n.d.). In the case of compensation, the amount is based on professional experience and time spent with the company. For example, CCP has a level system in place, in which P1 is denoted as professional one, an entry level position. Employees in this level are paid much less as P4 or P5, as they have around 20 years of professional experience. In order to go up a

25 level there are working and capability requirements for each that must be met. There are also regular salary review reports which examine the compensation of each employee (Helen Hu, personal communication, 2017). Receiving company shares as compensation can be a motivating factor for employees, but CCP Shanghai has had a difficult experience with that. The argument for receiving company shares is that employees become motivated as they become personally invested in the firm. Because there are strict limitations for Chinese locals exchanging foreign company shares into RMB (Chinese currency), they usually do not receive any company shares as compensation. It is possible for locals to receive company shares, but it would not be practical as they cannot exchange it for RMB. The expats however, are allowed to receive company shares if they would like. This is a collective negotiation process between employees and Helen Hu as well as Sophie Froment, CCP’s senior vice president and head director of Human Resources (Helen Hu, personal communication, 2017).

4.5 Communication Throughout each step of managing diversity, communication plays a significant role. Communication is the tool in which employees can express their ideas and thoughts in a meaningful way to be interpreted by others within the organization. In CCP Shanghai, the role of communication is nowhere more present than in their performance appraisal process. This is due to the fact that assessing performance of employees is a delicate but necessary procedure in which management and employees must have an open discussion to determine where both parties can improve and how.

4.5.1 Performance appraisal Before 2016, CCP’s performance appraisal activity was not unlike others in the industry, as they produced annual employee rankings for performance review. This annual review ranked employees according to the following categories: outstanding, excellent, and meeting expectations. However, HR noticed that employees were not happy about this ranking system, specifically when they were ranked as only meeting expectations. In response to this, HR decided to change the wording from “meeting expectations” to “great performance.” While this had a positive effect at first, eventually employees also caught on to this and did not feel happy about this system. It was at this point, at the start of 2017, when CCP Shanghai’s HR decided to completely overhaul their performance appraisal system. They

26 removed the entire ranking system and replaced it with a monthly short 1-on-1 conversation between the people managers and relevant employees. HR created specific conversation topics for each month to address such as objectives for the coming year, team morale, personal strengths and development. (Helen Hu, personal communication, 2017). HR came to the conclusion that the ranking system that was in place did not help to create better performance. Therefore, they needed to improve their communication with employees and decided to replace the workload from an intensive review conducted once a year, to a short but targeted discussion between employees and their managers. This creates a better structure for people managers to follow and gives them the tools to communicate directly with employees in a frequent manner. In addition to the performance reviews, if a manager notices an employee performing exceptionally, they send an email to the global CCP manager to nominate for a promotion case with a proposed level and title. The global manager can accept or reject this proposed promotion based on the performance evaluation (Helen Hu, personal communication, 2017).

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5. Conclusion Overall, CCP Shanghai can be described according to Hofstede’s cultural dimensions as a: collectivist, feminine, and indulgent organization with low power distance, a long-term orientation and low uncertainty avoidance. These cultural dimensions have a significant impact on how CCP Shanghai manages diversity through the four-step process of analyzing context, facilitating learning and development, promoting inclusion, and creating an organizational culture. All the while, keeping communication at the forefront of HRM activities, especially performance appraisal. Due to the vast difference in cultural nature between Iceland and China, CCP faces a juxtaposition of values and perceptions in their workforce that can be extremely difficult to manage. However, CCP Shanghai skillfully maneuvers around these cultural differences quite successfully. It is clear that the contextual factors surrounding China played a considerable role in CCP’s growth and development as a global video game developer. Not only was the economy booming but the increased access to a new large player base and employee talent pool helped CCP become the company it is today. Inherently, the Chinese cultural values of Confucianism also provide the firm with an altered business mindset of long-term prosperity, thrift and perseverance when compared to the traditional Icelandic norms. Facilitating learning and development has allowed CCP Shanghai to effectively train their staff to be long-term orientated and embrace uncertainty. CCP utilizes a number of different training methods including mentorship and on-the-job training. This allows current employees to transfer company values and culture on to newly hired employees. Instead of utilizing specific cultural training programs, CCP Shanghai enforces an organizational culture of acceptance and unity. Moreover, the focus on virtual reality within the company embodies their view towards long-term orientation and low uncertainty avoidance. CCP Shanghai believes that VR is the future of gaming and they are committed towards innovation and long-term prosperity by entering that market. The promotion of inclusion is deeply present in CCP Shanghai’s HRM activities, specifically through their monthly staff meeting outside of work. This supports team building, reduces power distance and builds a collective mindset within the company. Low power distance is also exampled by CCP Shanghai’s open office space design which encourages collaboration in the work environment. Furthermore, the emphasis on building “guanxi” or personal relationships/networks within CCP Shanghai is an important factor for their attainment of harmony and teamwork.

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CCP Shanghai’s organizational culture is formed through their driving force of innovation in creating virtual worlds and their common resolve to push the boundaries of the video gaming industry. In addition, by putting the wellbeing of their employees at the forefront of priorities for management, CCP achieves a proper balance between work and life. This results in higher job satisfaction of employees, and ultimately creates a sense of empowerment and motivation. CCP Shanghai do a good job of clearly outlining the benefits and compensation model each employee is to receive, but they could improve by trying to figure out how to further invest the senior local employees as they are not able to give them company shares as a form of motivation. Perhaps the solution is to create another results- based (monetary or non-monetary) reward for those employees. Communication is quite a resonant tool within CCP Shanghai’s diversity management activities, but nowhere is it more present than in their performance appraisal process. Last year, the HRM department completely overhauled their annual performance review. Going from a yearly, written, ranking based system to a new method of monthly, targeted, 1-on-1 conversations between managers and employees. This shows CCP Shanghai’s commitment to using effective communication to driving better performance and increasing employee satisfaction and wellbeing. The main criticism towards CCP Shanghai’s management of diversity, centers around gender distribution. The scarcity of female employees is pervasive within the video game development industry, and CCP Shanghai is no exception to this. Only 20% of their employees are female which is only slightly below the industry average, but still a less than ideal distribution. In addition, at the time of the interview conducted with Helen Hu, there were no female programmers working for CCP Shanghai. This is an area where CCP can certainly improve in their HRM activities. The number of female programmers is very limited in China, but gender bias is an issue which cannot be ignored. CCP Shanghai is in a prime position to spearhead a movement against gender bias in the video game development industry but fail to take advantage due to their lack of action in this matter. If there are zero local female options for hire to the programming department, then CCP should consider hiring a female expatriate to help provide a different perspective to the team in this department. Not only could this create better code for the game, but it could also result in competitive advantage through a more positive corporate image.

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