IHRM Strategy of Nandos for Joint Venture in China - Essay Example

IHRM Strategy of Nando’s for Joint Venture in China Executive Summary The purpose of the study is to analyze the human resource strategy that if implemented by Nando’s will effectively suit the company’s decision to establish a joint venture in China (Priem and Butler, 2001). In a joint venture the company will require recruiting some local staff of China and also will need to relocate some of their expatriate staff from within their organization in order to manage new venture alongside those of their joint venture partner that is Tricon Global Restaurant, Inc. To develop an effective strategy the business environment and company profile is critically evaluated. The recruitment policies, training and development, reward management, performance management and employee involvement in Nando’s are centered upon in order to recommend appropriate HRM strategies (Carpenter, Sanders and Gregersen, 2001). Moreover, the host country’s economic drivers, the organizational issues, cultural issues also effect effective strategy implementation. Various models have been implemented for evaluation of international business environment in China. By examining all these factors, the HRM strategy is linked with the overall business strategy of Nando’s. After a detailed analysis appropriate recommendations are provided to Nando’s that will support the strategic human resource plan of the company for establishing joint venture with Tricon Global Restaurant, Inc. in China. Table of Contents 1. Executive Summary 2 2. Introduction 4 3. Company Profile 4 4. Industry Drivers 5 4.1 Host Country Profile 5 4.2 PESTEL Analysis 6 4.3 Why to Go There 7 5. HRM Strategy 8 5.1 Recruitment and Selection 8 5.2 Training and Development 9 5.3 Reward Management 11 5.4 Performance Management and Appraisal 12 5.5 Employee Involvement 14 Conclusion 15 Recommendations 15 Reference List 18 2. Introduction The renowned chicken chain Nando’s has expanded their business further across the country in the past few years with increasing revenues. Nando’s international is a fast food chain first created in South Africa, had a rapid development worldwide but was not successful everywhere (Datta, Guthrie and Wright, 2005). In a continuous complex trading environment, the company has been performing satisfactorily. Despite of its long success history the company is facing expansion problems and are striving to overcome them. The organization has decided to expand its business through joint venture and which will require more staff to be hired. In their recruitment process, Nando’s face challenges that their new staff may not have any experience of working as a family and may lack commitment to their tasks. Proper training and human resourse management is crucial to effective manage their culturally diverse employees. South Africa which is the parent location of Nandos is facing an economic downturn (Wright, Dunford and Snell, 2001). The recent phase of capitalism that can be referred to as globalization has a complex impact on all classes of national political economies. Recession has led to changes in the consumer behaviour. The recession has led to job losses of many people and mounting prices of products. This has drastically changed the shopping habits of the consumers and they are spending less. As a result the sales of Nando’s are dropping along with increasing prices (Meredith Belbin, 2011). The prevailing conditions of the South Africa’s economy has made necessary for Nando’s to take steps to improve its business by globally expanding its business through joint venture and also improve its operations in the local country. Such diversification can come with certain human resource challenges which can be addressed by implementation of strategic human resource management. 3. Company Profile Nando’s has positioned itself as an international casual dining restaurant chain which was originated in South Africa. It proclaims itself as their home of legendary Portuguese flame-grilled piri-piri flavoured chicken and also serves vegetarian options. The restaurant is perceived to be a favourite place for teenagers (Child and Tse, 2001). Nando’s has identified franchising as a strategy for continuous development and growth. The restaurants of Nando’s are located in Australia, Canada, Malaysia, Singapore and South Africa. The restaurant was named the best large company to work for in UK and the organization has strong values of pride, passion, commitment and integrity. The mission of Nando’s is to efficiently and continuously deliver the “Nando’s experience” to their consumers (Luo and Tung, 2007). They wish their consumers will come to discover how special it feels to join the Nando’s family. Additionally, their mission is to offer a good experience of their traditional hospitality, warmth and enjoyment through their food and service. With an increasing popularity nowadays Nando’s restaurants and their addictive sauces and grocery range can be found all over the world. 4. Industry Drivers 4.1 Host Country Profile Nando’s wants to establish its business in China by forming a joint venture with Tricon Global Restaurants, Inc. There is a sustained economic growth in China which will surely make the country the words largest economy by 2030 (Gamble, 2003). China has a huge and a competent labour force, entrepreneurial culture and gigantic infrastructural investments which are supporting China’s growth. Along with such prospects there are many challenges which include maintaining social stability and facing the environmental challenges. The companies that are seeking to set up its operation in China, it is necessary for them to analyse China’s history, context and culture. Because of the importance of China in the world’s economy it is worth setting up business in the country. China is playing a powerful role in today’s business world and the role that the country will play in the next 50 years makes it likely to establish China as the leading economy in the world (Björkman and Xiucheng, 2002). There are many gaps that exist in China provide many opportunities for the businesses to cover these gaps and to fill these gaps many local and international brands are emerging. China is observed to be a low cost manufacturing area but it will be difficult for the country to sustain this position as there are many other low cost countries. In order to sustain this position the country needs to shift up the value chain into services and IT business. The following factors are contributing to Chinas growth: A huge and skilled workforce- China is home to 20% of the world’s population. In addition to a large population, the Chinese are also very literate. The literacy rate in the country 93% as compared to other Asian countries and these people are very hard working (Peng, 2001). An entrepreneurial culture- In spite of the history of state owned enterprises, there is a strong history of entrepreneurship of the Chinese people. A developed and strong university system- The country has excellent universities which are producing an extended pool of proficient graduates. 4.2 PESTEL Analysis PEST analysis is a vital management tool which takes into consideration the macro environmental factors which is essential for any new or established business. The analysis will help Nando’s in efficient decision making regarding its joint venture in China and in other management processes (Liu and Li, 2002). As observed in the China’s economy it is not easy to manage international business in China and the factors that impact on the international businesses in Chain are described through a PESTEL analysis below: Political factors- The political factors that impacts international business in China are the government regulations and legal issues. Government regulations comprise of both formal and informal policies which the organizations needs to abide by, has an increased impact on the country. Many people argue that the political force is the most unsettled force. Over the past few years, the government of China is focussing on the development of e-commerce. The legal structure for e-commerce is still in its premature stage and the country has less experience for drafting e-commerce legislation for some topics such as intellectual property rights security and taxes (Hongoro and McPake, 2004). There are no regulations for supporting the privacy, recognition of digital signatures, consumer rights and validation of electronic contracts till now. Economic factors- Over the past five years, it has been observed that there has been a significant increase in GDP rate in China. According to reports, if China continues to do extremely well at this rate, it may go beyond US GDP very soon. Some positive economic factors are groan rate of investments, plentiful and capable workforce, amplified export business and prospective urban growth (Wöcke, Bendixen and Rijamampianina, 2007). Chinas GDP rate depicts that every citizen is adding more and more values to the society and this is in turn increasing the purchasing power of people. Labour costs in the country are extremely low and this is why the leading organizations are hiring labour from China. Social factors- The social and cultural aspect of China has a vital role as the demographics change constantly. There is a fluctuating population growth and age distribution and this simultaneously can change social trends and cultural values. The family size and social behaviours hugely impacts on how the decisions are taken. Some more social factors are consumer lifestyles, education, religion and emigration. China possesses a collectivistic culture. The literacy rate in China is observed to be 90% as the country emphasises on education and so the majority of its population are literate. There are over 420 million internet users all over China (Pollitt, 2006). With increased internet access, the Chinese people prefer to shop online. Technological factors- The foremost technological problem in China is that the progress of the business to consumer industry does not possess a secure and stable online payment system. The Chinese buyers are on an elevated uncertainty avoidance level and because of this the problem is strengthened. Moreover, it is observed that there had been only one percent credit card penetration in the country which reveals that the extensively used payment method had fewer acceptances in China and the payment system to support online credit card transaction is also facing low utilisation (Eyre, 2007). 4.3 Why to Go There Over many years a joint venture between a Chinese company and a foreign company was the only way for the foreign investors to start up business in the country and hence, a relevant legislation always existed for a long time and is very extensive. A Chinese partner is prone to be familiar with the domestic market and have a well established network with Chinese businesses (Cox, Zagelmeyer and Marchington, 2006). It will prove to be very beneficial for Nando’s to establish a business in china because of the following advantages: Very flexible and streamlined management system. Existence of intellectual property rights, company secrets and technologies can be protected. Setting up business in China will be cost effective due to presence of low cost labour in the country. Chinese consumers earn more flexible income and they desire the quality, brand and service associated with the western brands (Morgan and Zeffane, 2003). Consumers tend to buy goods at restaurants, stores that are franchises and therefore Nando’s can help fulfil the needs of the country’s fast growing middle class and prosper in the Chinese market. 5. HRM Strategy 5.1 Recruitment and Selection Recruitment process is one of the vital activities of Nando’s Hr department and they recruit people internally and externally who meets the criteria. The organization follows an online recruitment system where the interviewees can submit their resume. The page which shows career opportunities is the most important segment of the website (Sumukadas and Sawhney, 2004). Nando’s prioritizes the people of local areas to prepare a local version of their restaurants in the respective countries of their operations. The company also went into partnership with the online job research companies such as Global Recruitment resource for filling the vacancies which are not immediately available to fill in with internally. The organization identifies the suitable group of people very quickly, in a cost efficient manner and legally. Nando’s opens 30 restaurants each year in various counties therefore creating a lot of vacancies (Chow, Lau, Lo, Sha and Yun, 2007). The HR of the organization always encourages the applicants to contact the local management team. The company frequently tries to maintain preference for any group of applicants is strongly disproved. Nando’s follows Rodgers seven point selection plans for recruiting best people for the company. In the selection process they assess the applicants’ physical constitution, achievements, aptitude, interests, character and conditions which are described in details in the following diagram. Figure 1: Rodger’s Seven Point Plan in Nando’s (Source: Pine, 2002) Moreover, Nando’s job interviews include question-answer sessions which are conducted by the hiring manager. The interview process of the company is kept simple and this session takes only 10 minutes to complete (Pine, 2002). The interviewers initiate the interview process with a casual interaction which is followed by simple questions regarding availability, career objective and interest in the job. They also ask certain questions regarding personality gauging questions such as what are their favourite restaurants and how they can deal with their difficult customers. Though this analysis, Nando’s can align their HR strategy with their business strategy. 5.2 Training and Development Nowadays, the multinational organizations such as Nando’s are more widespread and there is a requirement of highly successful employees and therefore they need to train their employees for making them useful and successful resources of their company. Cultural training of a company aims to make all its culturally diverse employees to adjust themselves in the foreign culture and work flexibly in the new business environment (Jin Hoare and Butcher, 2008). In multinational organizations there exist two types of international training for the newly joined employees such as pre-departure training and pos-arrival training. Post-arrival training focuses on real-time training, global mindset training and self interest based training. Various other training methods are In-house training and off job training which are effective in managing a company’s culturally diverse workforce (De Cieri, Fenwick and Hutchings, 2005). In-house training involves training on business ethics, customer service, supervisor trainning, employee training and multicultural workforce training. The off job training is provided through classroom lectures, audio visual techniques, simulation method, vestibule training, role playing, case studies and by providing programmed instructions to the employees. There is an increased importance of training in Nando’s to manage its culturally diverse staff. From these training programs the employees will be able to learn new skills, improve their existing capabilities and develop a positive attitude to the changing work environments. Development activities are more powerful when integrated with various other HR activities (Edwards and Kuruvilla, 2005). Frequent training is crucial to achieve a competitive edge and retain loyal employees. Continuous learning will increase employee commitment in Nando’s and will provide employees the flexibility of working in the different cultural environment in China. Training assures that continuous learning is necessary to perform various tasks in the organization. Training will prepare the employees of Nando’s for the future jobs. Nando’s has decided to expand its business which will require more staff to be hired. Nando’s will face issues that their new employees may not have any experience of teamwork and may lack dedication to their job (Shen, 2005). Proper training and human resource management is crucial to effective manage their culturally diverse employees. The following training and development strategies are initiated by Nando’s for preparing their employees to adapt in the Chinese market. Figure 2: IHRM strategy of Nando’s (Source: Edwards and Kuruvilla, 2005) 5.3 Reward Management Organizational, national and cultural specific issues critically influence the development and implementation of IHRM strategy. Organizational specific factors that are centred on are looking at the human resources as a valuable asset that can help them gain a competitive advantage (Edwards and Kuruvilla, 2005). The changes in the business environment due to globalization, changing demographics of the staff, technological changes and increased focus on profitability through growth. The human resource personnel have to analyse the prevailing culture of a country in which it will establish its business for achieving its goals and objectives. Reward systems are designed for the employee motivation and development with the goal of attaining more desirable performance results. A transparent reward system serves as a vital tool of employee management. It is important to focus on the specifics of a company and organizational culture at the time of planning, understanding an interpreting an effective reward system (Gamble, 2003). Nando’s has implemented monetary and non monetary reward systems for appraising their employees’ extraordinary performance. Monetary rewards consist of bonuses, contests, profit sharing and pay hikes. Non-monetary rewards are provided in the form of offering flexible working environments such as providing the employees to select their own working hours instead of typical 9to5 timings of a company, offering rewards based on specific individual interests, provide monthly or annually awards to the employees who continuously excel in their field, etc (Liu and Li, 2002). The employees are awarded with 28 days paid holiday in a year and also provide the desirable employees with 20% staff discount card. Nando’s have an objective to ensure that they have a motivated and dedicated workforce. In order to keep employees performing effectively and efficiently they require to be motivated by rewards. With an effective reward system the employees encourages the workforce to move up the career table. 5.4 Performance Management and Appraisal Performance management is a method that ensures that the workforce of an organization achieves the objectives of the company and the organization thereby attains the targets that it had set in the strategic plan. Performance management is conducted by an organization to make aware its employees that they are performing satisfactorily in their respective tasks or not (Peng, 2001). Appraisal programs presents a formal process to communicate organizational goals and individual employee performance expectations, encouraging accountability for attaining those targets, identifying developmental requirements, evaluating performance using suitable measures, enhancing individual and organizational performance, and using the results of the appraisal as a source for appropriate staff actions (Peng, 2001). Several methods have been formulated to gauge quality of performance appraisals. All the methods of performance appraisal are highly effective for the defined purposes for specific organizations. Figure 3: Methods of Performance Appraisal (Source: Liu and Li, 2002) There is a need to measure individual performance for Nando’s to gain a competitive advantage in the host country. The human capital of the organization is a source of added value. Most relevant cause behind the development of specific performance management practices is the business strategy (Liu and Li, 2002). The business strategy of Nando’s is specific to its organizational culture. These strategies describe how Nando’s will compete against the direct competitors in China that offers the identical products or services. Nando’s frequently conducts staff survey to determine the performance effectiveness of their employees and based on that that the staff is rewarded more than their basic pay. Individual performance is measured in Nando’s by 360 degree performance management appraisal, that serves the purpose of highlighting the weakness and strengths of the workforce and it also recognizes the requirements of development (Liu and Li, 2002). In this process the organization involves 8-12 people who include supervisors, team members, co-workers, subordinates and customers. The training provided to the people depends on the results of the appraisal and also on the learning system they prefer to follow. The 360 appraisal and the staff survey are comprehensive in nature as the response are generally achieved from many perspectives and provides input for the behaviour and outcome. Performance management is as strategy which relates with the activities of any organization which is rooted in the HR policies. 5.5 Employee Involvement There is a strong link between the HRM strategies and organizational performance as the vital factor that affects the performance of an organization is its human capital. Due to this reason development of organizational commitment needs effective HR strategies (Sumukadas and Sawhney, 2004). HRM strategies have a huge impact on the abilities, attitudes and behaviours of the employees who are crucial to the success of an organization. Employee involvement clears the fact that each employee of an organization is considered as a unique individual and each of them plays a fundamental role in helping an organization to meet tits specific goals. Every employees input is implored and valued by his/her management. The employees and management realize that each employee is involved in successfully running the business operations (Sumukadas and Sawhney, 2004). The employee involvement strategies adopted by an organization promotes safety and health in a workplace, improves morale of the employees, results to increased productivity, ensures team coheresion and employee empowerment also helps to cultivate innovation that contributes to organizational success. Nando’s ensures an increased employee involvement in the organizational task. The company aligns its goals with the employees and an efficient leadership contributes to increased employee engagement. The employees who feel a personal connection to their job are the most dedicated employees (Child and Tse, 2001). Nando’s ensure that their brand is infused with the organizational purpose and aligns it to the employee programs that boost their engagement in organizational tasks. However to manage the culturally diverse workforce of the newly established unit in China, Nando’s can practice certain employee involvement activities to improve business performance and work ethics. These activities involves keeping the employees updated about the happenings of the business, providing them autonomy that they can tap into their skills in address certain problems, allowing flexibility that lets the employees to create their own work schedule along with deadlines based on the objectives that are shared with them (Child and Tse, 2001). Additionally, rewarding success is another vital employee engagement activity in which the employees are paid a fair wage with established incentives for innovative ideas and hard work that can lead to improved business. Conclusion A number of multinational organizations are experiencing difficulties in their international operations because of ineffective international human resource management. The report critically focused on the relevance of global human resource management strategies and its implications in multinational organizations such as Nando’s. In addition to training the expatriates on the local country languages and cultures the organization, it is crucial for Nando’s to develop long term strategic and global orientation of its managers and employees. Nando’s has decided to enter into joint venture Tricon Global Restaurant, Inc. in China in order to realize the cost efficiencies, to expand its business and as a strategy to establish its business in the new market. In order to be successful Nando’s requires a great deal of trust among the organizations involved in joint venture as well as a high degree of lucidity about the direction of the venture. For the joint venture to be successful the company needs to adapt an effective human resource strategy which will create an effective global workforce. By implementation of global HR strategies, Nando’s can realise when to use expatriates, when to hire locals and how to create and manage the new set of culturally diverse employees. Recommendations Appropriate strategy formulation requires to be done by Nando’s for entering the Chinese market, profitably operate in Chinese market conditions and manage culturally diverse human capital. International HRM strategy formulation is based on the following factors: Strategies based on national factors- Adopting polycentric approach Nando’s will need to hire Chinese nationals for positions in the organization (Morgan and Zeffane, 2003). Adopting such approach is beneficial as Chinese national scan guide better Nando’s regarding local market conditions and culture. Local employees are also cheaper, as this involves no relocation expenses and premium reparation for working overseas. Nando’s needs to understand how Chinese culture vastly differs from American culture to successfully operate business on the land of China. China follows their tradition critically and it is therefore necessary to realize that the western style culture will be acceptable to them or not and accordingly decision has to be taken in hiring and training Chinese locals (Morgan and Zeffane, 2003). Figure 4: Difference in cultural values in American and Asian countries Cultural Values Expressed West (America & most European countries) East(The Chinese and Most Asian cultures) Type of Logic Linear (More causal relationships and direct associations between A and B) Spiral (more roundabout and subtle) Expression of Agreement and Disagreement More argumentative, willing to express disagreement verbally More difficult to say no even if one means no, disagreement expressed nonverbally Communication of Information More meaning is in the explicit, verbal message. Use of direct language Meaning is often implied or must be inferred Use of indirect language patterns Expression of Honesty More overt, one is more likely to ask the person to “speak their mind” or “get it out on the table” Subtle, nonverbal Expression of Self “I”-oriented Sender-oriented “We”-oriented Receiver-sensitive Thinking Orientation More rule based or based on application of abstract principles such as regulations or laws Tends to take context and the specific situation into account in rule interpretation The Individual Has to have rights and greater need for individual achievement. Group duty preservation of harmony (Source: Datta, Guthrie and Wright, 2005) Strategies based on cultural factors- Language difficulties and lack of adaptation of new payment technologies can create problems for Nando’s in recruiting local people. Cultural misunderstandings arising from miscommunication are one of the biggest challenges which Nando’s can face in China (Datta, Guthrie and Wright, 2005).  Therefore Nando’s needs to develop increased understanding of Chinese culture to successfully recruit Chinese nationals, train them and operate in such market. In order to succeed in China, Nando’s needs to realize it cannot implement the same business model which it used to follow in their own country as Chinese characteristics are extremely connected to traditions. Strategies based on organizational factors- HR professional needs to take up certain responsibilities in providing suitable expatriate welfare. Incentive packages needs to be provided to the organizational employees who are going to work in the Chinese environment (Datta, Guthrie and Wright, 2005). Cultural training needs to be provided to the expatriates of Nando’s to ensure that they can familiarize the expatriates with the language and cultural norms of China which will support the implementation of appropriate training of the locals. Reference List Björkman, I. and Xiucheng, F., 2002. Human resource management and the performance of Western firms in China. International Journal of Human Resource Management, 13(6), pp. 853-864. Carpenter, M. A., Sanders, W. G. and Gregersen, H. B., 2001. Bundling human capital with organizational context: The impact of international assignment experience on multinational firm performance and CEO pay. Academy of management journal, 44(3), pp. 493-511. Child, J. and Tse, D. K., 2001. Chinas transition and its implications for international business. Journal of international business studies, 32(1), pp. 5-21. Chow, I. H. S., Lau, V. P., Lo, T. W. C., Sha, Z. and Yun, H., 2007. Service quality in restaurant operations in China: Decision-and experiential-oriented perspectives. International Journal of Hospitality Management, 26(3), pp. 698-710. Cox, A., Zagelmeyer, S. and Marchington, M., 2006. Embedding employee involvement and participation at work. Human Resource Management Journal, 16(3), pp. 250-267. Datta, D. K., Guthrie, J. P. and Wright, P. M., 2005. Human resource management and labor productivity: does industry matter?. Academy of management Journal, 48(1), pp. 135-145. De Cieri, H., Fenwick, M. and Hutchings, K., 2005. The challenge of international human resource management: Balancing the duality of strategy and practice. The International Journal of Human Resource Management, 16(4), pp. 584-598. Edwards, T. and Kuruvilla, S., 2005. International HRM: national business systems, organizational politics and the international division of labour in MNCs. The International Journal of Human Resource Management, 16(1), pp. 1-21. Eyre, E., 2007. Serving up training (fast food restaurants). Development and Learning in Organizations: An International Journal, 21(4), p. 89. Gamble, J., 2003. Transferring human resource practices from the United Kingdom to China: the limits and potential for convergence. International Journal of Human Resource Management, 14(3), pp. 369-387. Hongoro, C. and McPake, B., 2004. How to bridge the gap in human resources for health. The Lancet, 364(9), pp. 1451-1456. Jin Hoare, R. and Butcher, K., 2008. Do Chinese cultural values affect customer satisfaction/loyalty? International Journal of Contemporary Hospitality Management, 20(2), pp. 156-171. Liu, H. and Li, K., 2002. Strategic Implications of Emerging Chinese Multinationals:: The Haier Case Study. European Management Journal, 20(6), pp. 699-706. Luo, Y. and Tung, R. L., 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of international business studies, 38(4), pp. 481-498. Meredith Belbin, R., 2011. Management teams: Why they succeed or fail. Human Resource Management International Digest, 19(3), p. 63. Morgan, D. and Zeffane, R., 2003. Employee involvement, organizational change and trust in management. International journal of human resource management, 14(1), pp. 55-75. Peng, M. W., 2001. The resource-based view and international business. Journal of Management, 27(6), pp. 803-829. Pine, R., 2002. Chinas hotel industry: serving a massive market. The Cornell Hotel and Restaurant Administration Quarterly, 43(3), pp. 61-70. Pollitt, D., 2006. Training provides the recipe for success at Nandos. Training & Management Development Methods, 20(5), pp. 553-556. Priem, R. L. and Butler, J. E., 2001. Is the resource-based “view” a useful perspective for strategic management research?. Academy of management review, 26(1), pp. 22-40. Shen, J., 2005. Towards a generic international human resource management (IHRM) model. Journal of Organisational Transformation and Social Change, 2(2), p. 83. Sumukadas, N. and Sawhney, R., 2004. Workforce agility through employee involvement. Iie Transactions, 36(10), pp. 1011-1021. Wöcke, A., Bendixen, M. and Rijamampianina, R., 2007. Building flexibility into multi-national human resource strategy: a study of four South African multi-national enterprises. The International Journal of Human Resource Management, 18(5), pp. 829-844. Wright, P. M., Dunford, B. B. and Snell, S. A., 2001. Human resources and the resource based view of the firm. Journal of management, 27(6), pp. 701-721. Read More