Staffing Policies, Labour Relations, and Expatriate Compensation Package - Case Study Example

INTERNATIONAL BUSINESS GROUP 39 0166FSBFSB0216 (MBAE) Abstract Expatriation has proven to be both an opportunity and a challenge to multinational corporations. Due to the many challenges facing expatriates, there are stages that companies go through before taking their expatriates overseas. This report offers information on the challenges and steps made by Harrods Departmental Store before sending the managers to Brazil, India, China, Russia and Saudi Arabia. The paper will first highlight the cross-cultural proficiency of each country in relation to Hostede’s cultural dimensions and Hall’s low-context and high-context culture theory. The report will provide market attractiveness information of each country in terms of the types of staffing policies, labour relations, and expatriate compensation package. It will offer some challenges facing expatriation such as managing change, responding to market, embracing new technology and competing, recruiting and staffing. In addition, the report will detail out the advantages and disadvantages of expatriation referring to corporate examples of success and failure of expatriates. Lastly, the paper will offer recommendations that the company can follow in order to ensure the success of expatriation. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Literature Review & Critical Analysis 5 Cross-Cultural Proficiency 5 Power distance 7 Individualism 7 Masculinity 8 Brazil has an intermediate score while China, Saudi Arabia and India have high scores for masculinity and are therefore regarded as masculine cultures (Powell, 2006). Masculine cultures show their commitment to lead as team leaders. In addition, employees and managers are more decisive and assertive, and companies emphasize on competition and performance. Russia as a feminine culture, shows tender values like care for others and personal relationships. 8 Uncertainty avoidance 8 Long term and short term orientation 8 Countries’ Labour Relations 8 Staffing Policies 10 Expatriate Compensation Package 11 Cross-Cultural Training 11 Advantages of Expatriates 12 Disadvantages of Expatriates 12 Challenges 13 Competing, Recruiting & Staffing Globally 13 Embracing New Technology 14 Managing Change 15 Responding to the Market (Total Quality Management) 16 Conclusions & Recommendations 17 References 19 Appendixes 22 Hoftede Representation of Countries 22 Summary of Advanatges and Disadvanatges of Expatriates 23 Introduction Globalization has promoted free trade and has led to the growth and expansion of businesses. More and more companies can now exploit foreign markets with no strict rules and regulations (Welch and Bjorrkman, 2015). Many companies have recognized the importance of diverse team and how it contributes to the success of the business. Therefore, organisations have implemented diversification of human resource and have recruited both expatriates and local employees (Aycan, 2007). Companies are able to grow and expand into new markets if they have market knowledge of these foreign countries. In order for an expatriate to live and work in a new country, he or she should have the ability to lead in a new culture (Welch and Bjorrkman, 2015). Expatriates should adapt to the culture of the host country and should be able to incorporate it with the culture of the organisation. Expatriation may be challenging to business organisations but can also create competitive advantage (Adler, 2007). Expatriate managers who are able to adapt well in a new country and manage the employees effectively have a better chance of leading a business towards achieving organisational goals and objectives. Different countries have different cultures that affect the proficiency of expatriation (Lazarova and Caligiuri, 2001). Therefore, organisations have the objective of preparing their managers before sending them overseas. This report will offer the market attractiveness information of China, Brazil, Saudi Arabia, Russia and India. In addition, it will describe the challenges facing expatriates and the advantages and disadvantages of expatriation to an organisation. In addition, the report will provide some strategies that the company can follow for successful expatriation. Literature Review & Critical Analysis Cross-Cultural Proficiency According to Hall’s Low and High Context, there are different behaviours that are witnessed in high context and low context cultures (Nishimura et al., 2014). High-context cultures are witnessed in countries such as India, Russia, China, Brazil and Saudi-Arabia while low-context cultures are seen in countries like the United States, Australia and British. High context cultures value relationships based on trust and unity. In their interactions, they use non-verbal communication style more often and are sensitive to conflict. People in this culture are close to each other and change processes are slow (Samovar, Larry and Richard, 2004). They learn by observing others before practicing. On the other hand, in the low context culture, relationships are not valued as they believe in one’s accomplishments. In their interactions, there is more use of verbal communication and people are free to express their opinions. In low context cultures, change take place fast and people learn by following directions and explanations (Nishimura et al., 2014). Therefore, when an individual from low context culture moves to a high context culture, he or she is likely to be faced with huge challenges. Moving British expatriates to Russia, China, Saudi Arabia, India and Brazil, which are high-context cultures, will bring about cultural challenges due to cultural differences. In addition, Hofstede carried out a research study concerning the effect of culture values in the workplace. He researched how diverse people interact with regard to six different groups of cultural dimensions (Hofstede, 2001). The first dimension is power distance which highlights the extent to which cultures and societies accept that power is unevenly distributed in the community. The second category is individualism versus collectivism. An individualist culture portrays a preference for an individual rather than a group. On the other hand, a collectivist culture values the loyalty to a group rather than an individual (Hofstede, 2001). Uncertainty avoidance category is based on the extent to which people prefer and accept unstructured and risky situations. Based on this notion, cultures with high uncertainty avoidance often appreciate and accept predictability and structured situations and prefer established rules and regulations (Hofstede, 2001). Conversely, countries with low uncertainty avoidance cultures accept and appreciate unstructured circumstances and situations and are considered innovative and risk takers (Hofstede, 2001). Another culture dimension according to Hofstede is masculinity versus femininity whereby the masculine cultures show a dominance of tough norms and values like assertiveness, achievement and material success whereas feminine cultures show a dominance of tender values like care for others and personal relationships (Hofstede, 2001). The next category is long-term versus short-term orientation. A society with long-term orientation searches for virtue while short-term orientation society has a strong concern based on establishing the truth. Power distance Brazil, China, India, Saudi Arabia and Russia are considered high power distance cultures. They have cultures that believe hierarchy should be respected since people in a certain corporation are not equal. It is expected of people to show respect to elderly and people in higher positions. A company’s manager takes responsibilities and the employees follow. People accept hierarchy structure and in business, managers make decisions and employees are required to listen (Powell, 2006). On the other hand, Britain has low power distance and hierarchy is put in place just for convenience as managers are often accessible. Communication is informal and employees are required to engage in decision making. Individualism People in China, India, Saudi Arabia, Russia and Brazil are integrated into strong unified groups. In these countries, people in companies are expected to build trustworthy relationships. They are collectivistic societies as people value family and extended relationships (Powell, 2006). Employer and employees have a close relationship and are considered family. However, in Britain, people do not value relationships as such, and success in business is considered one’s accomplishment. Masculinity Brazil has an intermediate score while China, Saudi Arabia and India have high scores for masculinity and are therefore regarded as masculine cultures (Powell, 2006). Masculine cultures show their commitment to lead as team leaders. In addition, employees and managers are more decisive and assertive, and companies emphasize on competition and performance. Russia as a feminine culture, shows tender values like care for others and personal relationships. Uncertainty avoidance India and China have low scores on uncertainty avoidance while Saudi Arabia, Russia and Brazil have high scores (Powell, 2006). People in these countries have strong need for rules and regulation for a structured life and people are expected to obey these laws. Long term and short term orientation China and Russia have long-term orientations and thus searches for virtue while short-term orientation societies such as Saudi Arabia and Brazil have strong concern based on establishing the truth (Powell, 2006). They are considered normative cultures as they have great respect for tradition. When managers from Britain move to these countries, they will be faced with the challenge of getting accustomed to employees’ behaviours in the workplace. Countries’ Labour Relations Labour relation has become important in this era. Labour relation is the relationship between employees and management (Blanpain and Baker, 2010). In India, the major players of the country’s labour relations are the government, employees and employers. The representatives of these players include trade unions, legal courts as well as employer associations. Due to globalization there are additional actors such as the community and consumers (Blanpain and Baker, 2010). The government has established a number of laws to eliminate unfair practices, discrimination, minimum wage and child labour. There are 12 Central Trade Union in India that safeguards the rights of the employees. Child labour is a huge challenge for Indian’s labour relation due to the large number of children employed in the agriculture sector (Harry et al., 2015). In Saudi Arabia, the major body managing and governing the relationship between an employer and employee is the Labour Regulation which was established in 2005 (Blanpain and Baker, 2010). The expatriate’s population make up about 27% and the government is trying to reduce this number and increase employment of locals. The labour relation ensures that local employment is 75% or more (Harry et al., 2015). Employees are expected to underwrite 2% of their monthly pay to the worker’s compensation plan. On the other hand, China has strict laws that give employees privileges and protect them from discrimination and exploitation. For example, employees are entitled to be paid the full amount on time and should not be overworked (Harry et al., 2015). All employees should be entitled to insurance cover and are free to form trade unions. The government enforces the labour laws and trade unions ensure employees’ rights are protected. In China, the government gives employers the ability to dictate pay as well as working environment. In Russia, labour relations are controlled by the Labour Code of the Russian Federation and the federal laws. Employees are protected by labour rights and every employee is required to sign an employment contract before starting work (Harry et al., 2015). The employers are expected to offer positive working environment to the employees. The Labour Code which was formed in 2002 protects employees from discrimination and exploitation. In addition, Brazil has a complex labour legislation that manages the relationship between employees and employers. Labour relations in the country are governed by the Labour Relations Act. Employees are protected by law from discrimination (Harry et al., 2015). Staffing Policies International businesses are more complicated than local businesses. In order to survive, human resource managers must choose the right staffing policy with regards to the needs of the company (McPhail et al., 2012). The three types of staffing policy for international companies include ethnocentric, polycentric and geocentric staffing. According to ethnocentric policy, employees from home country occupy top positions in global organisation. This staffing policy works well when the host country lacks experienced workers (McPhail et al., 2012). This policy may work well in China where there is lack of experienced employees. Polycentric policy designate that host country employees occupy the top positions. This provides local employees with a chance to improve their knowledge and performance (McPhail et al., 2012). This policy can be effective in Russia, India, Brazil and Saudi Arabia. This can facilitate organisational learning of the foreign market and will offer an opportunity for local individuals to improve their careers (Jun, Centry and Hyun, 2001). However, promotions should be limited to specific positions and should not encompass corporate top positions. According to geocentric policy, the top ranking positions is given to an employee who deserves the position irrespective of the background, culture or country (McPhail et al., 2012). This policy is difficult to implement due to costs of relocations, pressure and cross-cultural issues. Expatriate Compensation Package Before going to work internationally, expatriates are expected to agree on compensation packages (Harvey and Fung, 2000). A country must prepare to negotiate a compensation package with a manager before sending them overseas. Expatriation is considered an expensive strategy and thus companies must first evaluate the benefits of using expatriates (Harvey and Fung, 2000). Expatriates require to be kept financially wholly. They often want to maintain their financial status they had in their country of origin. Therefore, their compensation packages must be carefully evaluated and assembled. Some factors to consider before deciding on the amount of compensation package to be paid include relocation costs, cost of living, and insurance requirements etc. In addition to salary requirement and financial status of the expatriates, it is also important to consider tax rules and reduction and hardship compensation (Harvey and Fung, 2000). Employer can also evaluate salary statistics and all factors that affect expatriates financial status. Cross-Cultural Training In order for any company to carry out its operations successfully in international countries, it requires the help of expatriates (Forster, 2000). Expatriates are expected to incorporate the culture of the company with the culture of the international market. In order for expatriates to succeed internationally, they should undergo some training. Expatriates may undergo cross-cultural training (Forster, 2000). This helps the expatriates to make judgment calls. They will not be able to understand why host culture people behave the way they do. The main role of the expatriate training and development is to create cultural awareness. This is because, effective cultural training may assist people to adjust to different cultures of other people (Forster, 2000). This training assists expatriates to cope with uncertainties and risks associated with the new culture. In the past, multinational corporations placed less urgency on offering cross-cultural training but today, many companies have discovered the importance of training their expatriates in order to ensure success (Forster, 2000). Advantages of Expatriates One advantage of sending managers overseas is that they are able to offer additional knowledge, skills and technology to the local employees (Jun, Centry and Hyun, 2001). This creates a competitive advantage for the company. Sending managers overseas also offers an opportunity for the company to control and coordinate all the international subsidiaries. In addition, the company is able to institute range of international experienced managers (Aycan, 2007). In addition to transfer of technology, there is a transfer of business and management practices. Coca-Cola is an example of a company that has succeeded overseas. The company often uses polycentric staffing policy in their operation overseas. It ensures that before a manager is sent overseas, he or she undergoes training in order to ensure that he blends well in the new country. This has led to their success in countries like Australia, Africa, and China. Disadvantages of Expatriates One major disadvantage of expatriation is premature return of expatriates. Expatriates may decide to return back to their countries as a result of culture shock and inability to adapt (Aycan, 2007). Expatriates are also faced with language barriers and the company may need to employ a translator. Hiring a translator may distort the communication channel and may result to communication problem in an organisation (Aycan, 2007). Different management philosophies, unique business operational systems, attitudes towards productivity, unique currency system etc. may be challenges facing expatriates and may inhibit performance. For instance, one company that has failed in foreign market is eBay. Although eBay is very popular in the west, the company was unable to survive in China. The cultural differences between the two countries led to the challenge of responding to customers need. Customers preferred to develop trust between them and the company and this never happened which led to eBay’s failure. Challenges Competing, Recruiting & Staffing Globally One of the major competitive issues facing multinational corporations and expatriate is competing, recruiting and staffing globally (McPhail et al., 2012). Globalization has led to huge changes in the recent years. Companies from different countries can now do business with few trade restrictions. Globalization is referred to as the integration of different nations across the globe that has brought about the free flow of products and services, people, and knowledge from one nation to another (McPhail et al., 2012). Globalizaton is beneficial to organisations but has also resulted to negative results. The benefits of globalization include technological advancement in developing countries due to free flow of ideas from developed countries and improved communication between different cultures and organisations (Welch and Bjorkman, 2015). It has reduced trade and tariff barriers and has led to the increase in partnerships with foreign companies. Globalization has affected the human resource management of multinational companies as a result of different cultures, laws as well as business practices (McPhail et al., 2012). Multinational companies are therefore faced with the issue of identifying capable managers and employees, adjusting compensation for expatriates and developing cultural training programs for employees. Companies are also faced with the war for talent. For example, in countries such as China, due to lack of enough expertise, companies compete for talent (McPhail et al., 2012). Embracing New Technology Embracing new technology is considered a challenge for many expatriates and local employees (Cortada, 2009). Changing a process that employees are familiar with by introducing automation process or new technology can bring challenges to an organisation. Different countries have different technologies used in business operation. When an expatriate move to another country, he or she is required to get accustomed to the technology used in the company (Cortada, 2009). The expatriate can feel disadvantaged in relation to mastering the new technology and therefore may need some extra support such as training and development. Technology changes the way things are done in an organisation and the way employees communicate. Therefore, mastering technological use is essential to ensure success of an expatriate (Cortada, 2009). In addition, an expatriate’s role in a multinational corporation is to monitor and control financial distribution, earn profit for the business and spread knowledge in technology transfer (Cortada, 2009). They are expected to offer new technology for the local employees to adapt. The adaption of new technology may result to resistance from employees. Additional cost is required for the training of employees to ensure they master the new technology in order to achieve success. Investment in technology and technology transfer has been a challenge for many multinational corporations such as Harrods Departmental Store. Managing Change Many factors trigger the need for change in an organisation, one of them being expatriation (Palmer and Dunford, 2008). Organisational change as a result of expatriation may entail change of strategies, operations and structures and change of attitudes for the purpose of boosting organisational effectiveness. Harrods Departmental Store will be faced with many challenges due to expatriation. Expatriation has brought about organisation change in many ways (Palmer and Dunford, 2008). For instance, expatriation may result to changes in operations. Local employees or the expatriates will be forced to change their operations and strategies in order to blend well in the organisation. Cultural adjustment is required when an expatriate is sent to a different country with different culture. In addition, apart from the change of strategies and operations, due to the language barrier that may exist between local employees and expatriate, quality and constructive dialogues will be impossible. The change that is required is hiring of translator or language learning (Palmer and Dunford, 2008). Due to the changes taking place in the workforce, resistance by employees may result. Resistance may be due to poor communication (Palmer and Dunford, 2008). Expatriation starts with the decision makers and it is their responsibility to ensure that they communicate the changes to the employees. Unfortunately, communication of changes due to expatriation is inadequate and thus causes resistance. In addition, ego of expatriates and employees may affect their ability to adapt to change (Palmer and Dunford, 2008). Ego makes employees act in their own interests and may resist change. Also, when an expatriate is introduced to a new culture, employees often feel excluded as they are not given an opportunity to express their ideas and opinions. They end up being frustrated and may resist any changes that come as a result of expatriation (Palmer and Dunford, 2008). Lack of trust and requirement to master new skills and technology intensify employee resistance. Therefore, managing change means that decision makers need to manage employee resistance and this may prove to be very challenging. Responding to the Market (Total Quality Management) The development of the Total Quality Management requires organisations to understand the customers’ definition of quality in terms of goods and services. When an organisation focuses more on the quality of its production procedure, fewer quality challenges occur when the products reach the customer (Ferraro, 2010). Different countries have markets with different tastes and preferences. Expatriates will be faced with the challenge of total quality management due to the lack of knowledge about the new market (Ferraro, 2010). In addition, different organisations in different countries have unique ways of operations which are expressed in the context of culture. The process, practices, traditions and values entail factors that define how the management as well as the employees impart the success of an organisation through the achievement of organisational goals and objectives (Ferraro, 2010). Observing organisation culture as well as a country’s culture is very essential in the delivery of quality products and services. Nevertheless, it is important to review and readjust the culture in order to be in line with the economic, social and technological changes. Cultural differences have made it very hard for expatriates to implement total quality management (Ferraro, 2010). In addition, lack of effective leadership may have a negative impact on the implementation of Total Quality Management. For example, conflict may result due to cultural differences between the expatriates and the local employees (Ferraro, 2010). Expatriate managers may not understand the needs of the employees and this will make it hard for them to understand the needs of the customers. Total quality management and effective market response have been regarded as the responsibility of both the employees and the management (Ferraro, 2010). Due to cultural issues facing expatriates, employees involved in product manufacturing and service delivery are not motivated to be effective in total quality issues. Conclusions & Recommendations Globalization has simplified how companies do business. Multinational companies are faced with many challenges when they decide to send their managers overseas. Some of the challenges facing these companies include embracing new technology, managing change, competing, recruiting and staffing globally and responding to market’s need. When managers go overseas, they are faced with cultural shocks due to differences in cultures and thinking. Therefore, before sending managers overseas, companies should consider cross-cultural training. Without cross-cultural training, expatriates will pass judgement on other cultures and they will not be able to understand why host culture people behave the way they do. There are a number of strategies that the company can implement in order to succeed in foreign market. One way of tackling cross-cultural differences is to gain cross-cultural proficiency that will assist in connecting people with foreign counterparts (Dickmann, Sparrow and Brewster, 2008). Managers are expected to have a profound knowledge of foreign culture. It is possible for managers and organisation leaders to achieve deep cross-cultural interactions by being inquisitive and curious about foreign cultures. Cultural knowledge is important since managers will be able to avoid offensive behaviour when interacting with people from different culture (Dickmann, Sparrow and Brewster, 2008). Effective cross-cultural proficiency is possible through effective communication. Effective communication is a core prerequisite for developing good relationships between expatriates and local employees (Dickmann, Sparrow and Brewster, 2008). In order to overcome the challenge of responding to the needs of the market, the structure of an organisation should encourage motivation and effective leadership that form the basis of organisational success. An organisational structure should emphasize on empowerment, motivation and teamwork (Solomon, 2011). According to Maslow Motivation theory, in order for an organisation to succeed, there is need for motivation of employees. The organisation should implement a culture that supports teamwork, group decision making, and open communication (Solomon, 2011). This would enable every individual in an organisation to be involved in the implementation of Total Quality Management (TQM) and ensures the needs of the market are satisfied. References Adler, N 2007, International Dimensions of Organizational Behavior, Thomson South-Western, Mason Aycan, Z 2007, Expatriate adjustment as a multifaceted phenomenon: Individual and Organizational level Predictors. The International Journal of Human resource Management, vol. 8, no. 4, pp. 434-456. Blanpain, R & Baker, J 2010, Comparative labour law and industrial relations in industrialized market economies. 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Appendixes Hoftede Representation of Countries China Saudi Arabia Brazil India Russia Summary of Advanatges and Disadvanatges of Expatriates Read More