Chinalco Mining Company - Case Study Example

Chinalco Mining Company: Report The Aluminium Corporation of China, known as the Chinalco Mining Company is a owned entity that is a holding and investment management company. With the head offices of the corporation being located in Beijng China, it has risen to be the second largest producer of alumina in the world and the third largest primary aluminium producer. (www.chalco.com.cn). This report offers an assessment of the business expansion scenario of the Company in the Democratic Peoples Republic of Congo and reflects upon the options that may be available to the Company in order to capitalize on its investment in the Congo. This report also examines alternate staffing strategies and recommends the geocentric staffing method to eliminate the problems of regionalism and lack of integration or the imposition of parent country policies, i.e, China on the Congo. The Chinalco Company: The Chinalco Company is one of the largest diversified metal and mining companies in China. The Company carries out mining and exploration activities, while also providing technical and engineering services to the mining industry. The Company became a Fortune 500 company in 2008 and has been aggressively pushing to become a global presence. China has experienced some significant amounts of economic growth in recent years, i.e., a growth rate of circa 9% for the last about six years or so. It is in a position to enjoy unprecedented industrial growth; but as Whewell (2008) points out, despite its current huge appetite for raw materials, China has limited natural resources and is self sufficient only in coal. It has been executing some ambitious plans to address this need for raw materials, i.e., it has started looking to the undeveloped or under developed countries which are rich sources of raw materials in order to meet its needs. One of these is the Peoples Republic of Congo, where a $9 billion deal was recently signed between a State owned firm in Beijing, i.e., China Railway Engineering Corporation, and the Peoples Republic of Congo (www.bbc.co.uk). This deal aims to beef to the infrastructure of the Congo to a significant extent, by laying about 2400 miles of road, 2000 miles of railway, 32 hospitals, 145 hospitals and two universities. In exchange for this investment into the infrastructure of the country, the Republic of Congo has offered the Chinese Government , i.e, through its state entity Chinalco, a large part of its natural resources, i.e., 10 tons of copper and 400,000 tons of cobalt. This improved infrastructure is also likely to be very beneficial to Chinalco, because it allows raw materials and minerals available in the Congo to be easily transported from the mining sites out of the country so that they can be exported to China. This functions as a win-win deal for China, because it is able to gain access to vast amounts of mineral wealth which help its industries to thrive, and it has free rein to exploit these resources without any need to pay taxes to the African Governments. As a result, a one time investment in infrastructure enables a continuous, tax free exploitation of the mineral wealth for many years. The deal that Chinalco has procured roughly means that they will be able to access the copper and cobalt mineral resources at a price of about $2000 per ton, which is about $4000 per ton less than that available in the world markets.(Whewell, 2008). Hence, the Company has been able to secure itself a very profitable deal. This is also the case in Peru, where Chinalco’s proposal to invest in the Toromocho mines is on such attractive financial terms that it will provide the company with a 2000% return on its investment. (Simpson, 2008). In this instance however, work on the mines would displace the inhabitants of a small village nearby; hence Chinalco has offered them cash compensation. The ability to put down cash has been beneficial to Chinalco in this instance and allowed them to proceed with their plans with relative equanimity from the local population. Business expansion scenario: One of the major problems Chinalco needs to address in the Congo is (a) local resentment at the Company’s high handed methods of procuring tax free advantages in access to minerals and (b) the appropriation of all managerial positions by Chinese contractors and managers. If the Company is to successfully integrate within the local economy, it might be worthwhile to ensure that there is also some local representation at top management levels within the Company. Secondly, it may also be possible to divide the mining activities among local and Chinese employees such that some divisions are manned entirely by local employees, or their representation in the Chinalco work base is greater. Thirdly, it may also be advisable for Chinese contractors and managers already working in the Congo area to not isolate themselves within their own colonies, but for them to make an effort to mingle with the local population and gain their appreciation and trust, so that they also feel a sense of inclusion in the Company. Staffing: Research studies carried out on human resource practices in Africa have shown that there are several areas of shared concern that have been highlighted from the perspective of employees. One of these was the question of unfairness in the application of HR policies since the employees claimed unfairness and inconsistency. Poor communication was also one of the issues, as also insufficient line management commitment.(Browning and Edgar, No date). The findings in Browning and Edgar’s study also suggested that most of the problems could be resolved if the human resource department starts playing a more central role in implementing human resource policies, training line managers to carry out their duties more efficiently and by increasing the levels of communication with employees. It may be noted that what appears to be generous economic development that benefits the host country by boosting its infrastructure is in fact, beneficial only to Chinese workers and not to workers from the host country. In general, the Chinese Government has tended to utilize Chinese labour rather than local labourers in exploiting the mineral wealth, i.e., Chinese workers are brought into the African countries. Chinese subcontractors who have the support of the State are able to outbid the local Congolese businesses and they are also keen to work in the Congo because they receive three times the pay they would otherwise receive in China (Whewell, 2008). While this arrangement is no doubt beneficial and attractive for Chinese employees and contractors working in the Congo, it has generated resentment and dissatisfaction among local employees, because they are unable to gain any benefits from the infrastructure improvements introduced Organizations that are characterized by most staff members sharing the same culture, or in other words, those who are members of the same sub-group, and such organizations are ethnocentric in their staffing strategy. Yoram (1976) has pointed out that ethnocentric organizations may have several characteristics in common, specifically in relation to the processes of decision making, the control mechanisms that are used and their political identification. Staffing in these organizations in particular, has a significant impact on the behaviour of the expatriate managers and the behaviour of nationals of the host country. An ethnocentric staffing procedure seeks to ensure that there is integration with the policies that are set out from headquarters, but in practice such staffing policies disrupt organizational effectiveness and create several problems, which are detailed below as follows: (a)An ethnocentric policy appears to reduce the chances of local area nationals securing managerial positions, either with the subsidiaries of the organization or at headquarters. This produces a negative reaction in employees, which may manifest itself in one of two ways. On the one hand, if the employees are young and ambitious, they may work with the subsidiary organization for some time and then seek employment with competitors where similar restrictions on promotion may not exist. In the case of older employees who are not so ready to jump ship to competing organizations, they tend to stay on in the organization as disinterested and dissatisfied employees. (b) an ethnocentric policy also impacts on managers due to the difficulties they face in adaptation to the local cultural and political environment; they tend to prevent local subordinates from participating in managerial decisions. This results in the subordinates from the host countries resenting the ethnocentric approach and mistrusting the top management (c) despite the awareness that managerial patterns in subsidiary organizations may need to be adapted to suit local requirements, the general tendency at ethnocentric organizations is to implement a uniform policy across all subsidiary organizations (d) The status of expatriate managers increases in the host nations as compared to their status in their home countries or at headquarters; this tends to make them insensitive to local needs (e) political factors may also influence the levels of satisfaction of local area workers in ethnocentric organizations, because managerial policy may tend to give priority to the national and political interests of the home country rather than the host country. A polycentric staffing approach is used in international firms, where each local subsidiary is treated as a separate entity and allowed plenty of leeway in decision making, such that hiring of local managers from the host countries is also permissible. Polycentric staffing is thus almost the direct opposite of ethnocentric staffing. Senior management positions are filled up at headquarters by parent country nationals, however the senior management positions at the subsidiary offices are filled up by local country nationals. There are several advantages associated with the polycentric approach. Firstly, the cultural myopia problem that is associated with ethnocentric staffing is eliminated because appointing host country nationals to managerial positions in the host country (Tian 204). Polycentric staffing is also a more cost effective measure; since managers hired are from the local host country, therefore they are paid lower salaries than their counterpart expatriate managers brought in from the parent country are automatically paid much higher salaries, which involves a much greater investment for the organization. The weaknesses associated with the polycentric approach arise out of cultural differences existing between management teams comprised of local host country employees and those teams comprised of parent country employees. This could give rise to differences in operational objectives and methods which are based upon differing cultural orientation and national loyalties, which could be a source of conflict. It may bring the different teams in opposition to each other and may thus not serve the interests of the organization, because it could produce a rift between the policies of the parent country organization and its subsidiaries. This in turn could produce a situation where the parent organizations is able to exert very little control, if at all, on the subsidiary organizations, which emerge as little kingdoms in their own right. A geocentric staffing strategy requires that an organization be able to recruit the best people possible from the global marketplace in order to fill up key positions (Gowan, 2004). The recruitment process is likely to be successful when the right person is selected for the right job and in the right organization, taking cultural differences into account. Hence, this means that in selecting the right person for a particular job, it may be necessary to look beyond geographical boundaries in order to recruit the best person from the global arena, which would also involve the assimilation of any cultural differences that may arise. A geocentric staffing strategy thereby ensures that for every job the best fit is assured. Rowan (2004) offers the view that if a geocentric staffing strategy is to be useful, then it is necessary for the organization to develop a value proposition that is likely to attract the best employees and this value proposition must also be adjusted in such a way that it allows scope for the existence of cultural differences. She highlights research that has examined the concept of national culture and cultural differences, both on a general basis as well as specifically how it impacts upon attitudes and values in relation to the work ethic. Rowan (2004) also discusses the views offered by Trompenaars and Hampden-Turner (1998), who have stated that because of the disappearance of geographical boundaries with the advent of technology and the Internet, it is very likely that ultimately, a common culture will be created worldwide. Therefore, on this basis, Rowan (2004) states that if an organization is to follow a geocentric staffing strategy, it must seek to somehow deal with the complexities involved in propagating a message that communicates its desirability as a place of work to employees across most of the world’s cultures. As opposed to the polycentric staffing method where subsidiaries are allowed almost total independence and ethnocentric staffing where control is almost exclusively from the parent organization, a geocentric organization seeks to employ the best talent for managerial positions, irrespective of the national and cultural identity of the manager in question. As a result, it represents an ideal situation that lies between the ethnocentric and polycentric approaches and may be best suited for corporations functioning in the current global atmosphere of competition. Since the most talented and best suited person is suited for a particular post, there is no room for resentment to arise from other employees on the grounds of cultural or regional identity.(Tian 204). Moreover, it also helps to address the problems of disintegration that arise out of polycentric staffing. A regiocentric staffing policy would tend to incorporate the kind of staffing practices that are particularly suited for certain regions. This policy may offer the advantages of application of a policy that can serve the nature of the firm’s business and its strategy for its products. It allows the corporation to demonstrate some sensitivity to local problems, however this also has the disadvantage of producing a policy of federalism and narrow adherence to regional interests that prevents a more global policy from being implemented. Where Chinalco is concerned, it may be noted at the outset that the Company appears to be applying an ethnocentric approach where the policies of the parent country are the only ones valid. No managers are hired from the host country of the Congo at all, therefore this policy has given rise to a great deal of resentment from local employees, who are not really seeing and enjoying the benefits of the mining activity that is taking place in their country. Applying the advantages and disadvantages of all of the above approaches to the problem of staffing at Chinalco, it may thus be concluded that all the disadvantages of the ethnocentric approach which have been cited earlier will apply, i.e, a failure to promote local managers and a rift arising between the host and parent teams. At the same time however, applying a polycentric approach that allocates a much higher level of autonomy and power to the local subsidiary organizations may not be advisable in this case, because local Congolese employees may not possess the necessary knowledge and skills to manage the mining operations to the desired levels of efficiency. Thus, a geocentric approach may work much better because it would ensure that the best employee is selected for each managerial position, irrespective of their national or cultural background. In actual practice however, there could be some problems arising out of additional costs that could accrue from an implementation of a geocentric policy which would allow the employment of more Congolese and foreign nationals. In accordance with international regulations that apply in the western countries, parity in pay that is required (Tian, 204) could produce a rise in costs of operation for Chinalco. Conclusions: On the basis of the above, it may be noted that Chinalco’s presence in the Congo has not been well received because the local workforce is inadequately represented in the Company’s employee base. Despite the large investments in infrastructure, the benefits arising to the local economy are limited, with the Chinese company gaining the rights to tax free mineral exploitation that allows it to net tidy profits. One of the salient aspects the Company needs to address in its human resource strategies may be the need to ensure that the local population is better represented in the workforce. The geocentric staffing policy may be the most efficient solution that could be implemented, because it would ensure that the best fit is achieved between person and job, which would eliminate much of the local resentment that currently plagues Chinalco in the Congo region. This could also help to address any grievances that the local population may have about staff and managerial appointments because the best person for a particular job is selected. References: “About Chinalco”, Retrieved November 24, 2009 from: http://www.chalco.com.cn/zl/web/chinalco_en_show.jsp?ColumnID=122 Gowan, Mary A, 2004. “Development of the recruitment value proposition for geocentric staffing”, Thunderbird International Business Review, 46(6): 687-708 Kamoche, Ken N, 2004. “Managing human resources in Africa”, Routledge Simpson, John, 2008. “Peru’s copper mountain in Chinese hands”, BBC News, June 17, 2008 Tian, Xiaowen, 2007. “Managing International Business in china”, Cambridge University Press. Whewell, Tim, 2008. “China to seal $9 bn DR Congo deal”, BBC News Report, Retrieved November 24, 2009 from: http://news.bbc.co.uk./1/hi/programmes/newsnight/7343060.stm Yoram, Zeira, 1976. “Management development in ethnocentric multinational corporations”, California Management Review, 18:34. Read More