Question

You are a consultant who has been hired to advise the manager of an international HRM function, (based in London), that is considering setting up a new office in either Beijing, China or South Africa. You find out that the firm has been keen to expand its operations into emerging markets, but has little experience of foreign subsidiaries, and how to staff them. The manager tasked with developing the strategy has no international experience.

Advise the company about the issues and challenges they will need to evaluate in order to ensure effective international staffing across culture in each territory and how they can overcome them, and about management of cross cultural staffing that will maximise high team performance. As part of your discussions include detail on leadership, motivation, communication, negotiation and decision making. (4000 words) (LO 1,2,3,4, 5)

Answer 1

Globalisation has led to tremendous growth in the exchange of trade , technology and capital transfers across the globe. It has tremendously benefitted the developed nations who have a high per capita income and a consistently higher economic growth rate to enjoy the benefits of comparative advantage in the arena of international trade and hence seek active outsourcing of their businesses to the less developed economies which have lower per capita and a low and slow rate of economic growth.

The gain is on both sides -- in the form of lower costs of production ( for the rich nations) if undertaken in less developed economies ( because of exchange rate differences) and an inflow of foreign investment both in the form of direct investment -FDI and portfolio investment--FPI for the less developed economies. This benefits them in the form of a multiplier effect -- accelerating the output and employment opportunities of the nations thereby speeding up their economic growth process.

In the given case study the employer firm is based in London, UK, which is looking forward for advising on foreign subsidiaries and staffing them since they are considering setting up offices in Beijing , China, or South Africa--both of which are not as developed as UK, though in comparison China has greater potential than South Africa in terms of resources and technology yet when in matters of government policies it is still in the process of embracing liberalisation in the real sense and appears to have more inclination towards protectionism and policies promoting its own industries at the core. Since foreign investment essentially depends mostly on the government policies and its approach to the foreign companies--a restrictive foreign policy could limit the growth of foreign firms and inhibit their chances of enjoying the economies of scale ( lower per unit costs resulting from large scale production).

South Africa on the other hand is a developing economy which has proven its as an attractive foreign investment destination because of its growing per capita income and hence a rise in the aggregate demand of its country’s population, not to forget the large amount of unutilised resources in the form of land and cheap labour which are available there.

However , the govenment policies are not consistent and hence a roadblock to foreign investors since an unastable govenment and arbitrary policies will adversely affect the foreign company’s risk taking ability -- a firm cannot efficiently operate with too many risks in fray.To add to this factor is also another notable factor that the labour found is mostly unskilled or semi skilled and are more suited for industries involving agriculture and allied activities and the manufacturing sector.

Setting up foreign subsidiaries is as risky as profitable. It is beneficial to the company since it boosts its growth prospects in the international markets. It can make its presence felt in the international trade arena thereby moving ahead of its domestic competitors . This will definitely lead to an increase in the market (control) power of the company especially is it has close competitors for its goods and services.On the international front, it will face the competition of other firms both existing and new which will automatically lead to a survival policy formulation whereby in order to survive in the highly competitive international market (both goods and services market and factor market) the company might reformulate its policies to make it more flexible in nature and efficient in terms of improvement in the quality of its goods and services to either match to the competitive international standards or to raise the bar higher by providing goods and services of even better quality.

A company initially has to address the issue of what are its staffing requirements -- does it need to employ its own staff from its home offices or can it rely on the available labour in the other countries wherein it seeks to expand its markets. In case of sending its own staff, it may be easy from the point of view of setting up an office since the staff already know their duties and responsibilities and accustomed to the work culture of the organisation -- like meeting the given deadlines, promoting team cooperation, tackling clients--especially the demanding and risky ones and so on. However the policy of staffing is not so easy, the staff sent from home country may not be able to adapt to the newer cultural and social conditions present there--this leads to various other issues like stress which affect the productivity of an average employee of the company thereby hampering his or her effective contribution to the company’s growth.

If the company chooses to start its offices in Beijing, China, then it will enjoy the benefits of an efficient infrastructure and ever improving technology as also availability of skilled labour force.It market expansion could be rapid , since China is a populous country , and the company can in time penetrate into the markets .The growing recognition given by Chinese government to international investment be seen in the form of developing Beijing as an important hub for trade and investment by promoting infrastructural growth in the city.

In case the company is seeking to employ managers from the home country while employing local Chinese for lower positions --a policy keeping in mind the experience of the company’s staff and their expertise in comparison to the newer staff to be recruited for the Chinese office, Such a policy could prove efficient in case of communication issues between the subsidiary and the headquarters.

Though there could be communication problems between these managers and the newly recruited staff. Especially since most of the Chinese are literate in their local language and not in foreign languages-- this could be a major roadblock for communication,

    A good option is to consider employing Chinese at the top management level who could effectively communicate and motivate the staff there by enhancing both his own leadership skills as well as improving the prospects of growth prospects of the company in surviving in its new market. Since they (--qualified Chinese managers) are aware of their market conditions and risks involved and have a deeper insight into the actual unforeseeable risks--like changes in demand, government policies and so on . They will be able to take better decisions and also prove to be an asset in negotiating various deals for the company -- starting from staff recruitment, their wages, parent company expectations of the staff and so on to seeking to make client contacts, negotiating with the clients and establishing good client relationships.

However , the parent company runs into the risk of over dependence on such local personnel who do not have as good knowledge of the company’s work culture and expectations as its own employees in its headquarters.

South Africa, can also prove to be a good destination for establishing its subsidiary. Though choosing an appropriate city could be a challenge-- Whether it be Johannesburg, Cape Town, Durban, Pretoria and so on. The growing infrastructure and living standards in these cities have proven that they are all good destinations for foreign investment.

The major staffing and recruitment issues could be the same as discussed for setting up the Chinese subsidiary but the underlying issues are that there could a possibility of shortages of skilled managers and labour. Moreover the traditional socio-cultural outlook present in the African society along with high rates of illiteracy could prove a road block in the initial stages for the subsidiary of the company.This could lead to effective communication issues--especially with the differences in the work related culture between the developed UK and the slow and developing South Africa.

A good executive officer( -- who can effectively gauge the market conditions, and seek to motivate the staff to promote the goals and objectives of the parent company highlighting the gains that they would receive from working for such a multinational company- in the form higher salaries to improved work experience--) can effectively solve such issues of staffing.

However , the manager seeking to develop such a strategy for the parent company should engage in a serious research of the social, economic, political conditions of both the nations before seeking to develop the strategy. This will immensely benefit the company especially in times of making decisions --especially spontaneous decisions--such a knowledge will help the manager grasp the intimate details of the delicate risks involved and give the company an edge over its competitors.

A personal visit to these countries and a study of the work culture promoted there as well as the social customs prevailing, including the flexibility of the population in adapting themselves to newer work habits will definitely prove helpful to the manager in developing an effective strategy for the company. A good suggestion is to undertake a course in the local language as this will remove many communication roadblocks.A working knowledge of the exchange rates between the parent company's (UK) currency and the Subsidiary company country--either China or South Africa is also very important since a cost - benefit analysis has to be prepared for the business operations in these subsidiaries. It is also advisable to undertake a serious study on the Purchasing Power Parity(PPP) between the countries before deciding the preferred destination for setting up the subsidiary.

A good manager for motivating the staff will seek to gain the trust of the staff . This becomes a very important goal when the staff are working in a new foreign location--seeking to build trust automatically leads to easy communications this further enhances the leadership skills of the manager and improves his confidence levels in negotiating risky and profitable deals for the company which lead to both the growth of the subsidiary as well as the parent company and also lead to personal growth (of employee productivity.)