International Human Resource Analysis - Essay Example

 International Human Resource Analysis Introduction This project attempts to check the feasibility of opening a subsidiary company by a multinational in a foreign land. The project has for its subject a European multinational company, which has never made such a venture before, thereby demanding a comprehensive study of all the factors that are likely to affect it. Firstly, the project discusses the present strategy and structure of the company in the light of a multinational enterprise. It gives a vivid description of the organisational structure of the company and the benefits and advantages that the company is likely to enjoy by opening a foreign subsidiary. The purpose of the project is to conduct a research on the above subject and formulate a strategy for the company from the perspective of a Human Resource Consultant. However, during the course of the project it was realised that in order to open a foreign subsidiary, it is very important to make a study of the present socio-economic condition prevailing in the foreign nation. This instigated a detailed discussion and analysis of various systems of the foreign nation. In this regard, emphasis has been given to the socio-economic institutional mechanism and other human resource management systems prevailing in the organisations of the foreign country. The fundamental job of any human resource professional is to evaluate the success of implementing the HR strategies in that organisation. This requires extensive research and analysis of HRM in different institutional settings. Lastly, the project makes an evaluation of the feasibility of transferring human resource management practice to the new subsidiary. It not only explains the strategic reasons for choosing a particular strategy but also tries to detect the influence of the strategy on the new subsidiary. Research Methodology This project is primarily based on primary research. The main focus of the research is to study the Indian FMCG market, where the European company has been planning to open its subsidiary unit. The project has for its subject a fictitious organisation which has its presence all over the world, especially in the United States of America. A number of secondary data has been provided in this regard. Organisational Structure and Strategies of the Multinational Company One of the most important responsibilities of the managers in any organisation is to create an effective organisational structure. One of the unique characteristics of this organisation is that, every individual is perfectly informed of his responsibilities and duties and the various processes of interactions and communication is very well synchronised (Business Insight, n.d.). Cognitive Capacity of the European Multinational Company It is seen that as firms tend to expand their business internationally, managers face information processing demands. Multinational organisations are more equipped to identify and interpret critical information available all over the world. This is because operating in multiple shores has exposed them to a variety of foreign customer base, investors, and employee communities, cultural and sociological structures. Cultural heterogeneity is one area that this company has to take into consideration because it directly influences the company’s ability of processing information, identifying environmental changes and reacting accordingly (Ruigrok & Warner, 2001, p.5). Strategies of the European Multinational FMCG Company as a Multinational Enterprise There are several advantages that this company enjoys by having subsidiary branches in different parts of the world. Firstly, this company can achieve economies of scale and scope in the foreign country. This European FMCG company manufactures products in the domestic market and exports the good through agents in the foreign market. Apart from this, the company also has its trading set-ups abroad, which makes transportation of products across borders easier and faster. Another method taken up by this company is to invest in the foreign country and set up the manufacturing facilities locally. Transfer of Technology The difference in technological competencies is an important factor depending on which an organisation plans to open its subsidiary unit. In this case, the European company has plans to open its subsidiary in India because of less number of entry barriers. India is a country which is showing rapid growth in technology and science. India possesses the required technological competence and its technological expertise also fulfils the criteria required by an FMCG company. Geographical factors also play an important role in determining the location at which the mother company decides to open its subsidiary (Lovas & Hansen, 2004, p.3). A World wide Investor This company is a multinational investor. In the previous decade it had extensive trading and manufacturing businesses across Europe, America, Africa, Asia and Australia. However, its business is concentrated in America. It is the oldest and the largest multinational operating in the United States. This section of the project discusses the growth of this industry, especially in the United States where it has the most conspicuous presence. As a matter of fact, this company happens to be the largest investor in the United States. Due to a number of reasons United States has been a favourite destination of foreign and multinational investors. The country’s resources, size, existence of a free market economy and trade regulations have instigated the foreign investors to invest in the country. Studies have shown that this organisation have earned more financial returns from US than that of its domestic equivalents (Jones, 2002). Strategies of the Company to maintain Competitive Advantage in Foreign Markets The success story of this company will stand as an epitome for various multinational companies. The key role is played by the management of the company. It is seen that the transfer of information and knowledge can be done much faster and more efficiently within an organisation than between two independent organisations. Huge costs are involved in communicating knowledge and sharing technology. However, this firm has been technologically sound in transferring knowledge and information across borders. It initially started at a slow pace but grew rapidly soon after. Sales grew at a rapid pace and by the end of 1930; sales had exceeded $90 million. In 1964, sales figures had reached $140 million. Among different FMCG products, soap had an oligopolistic market structure of operation in the United States. It formed a major part of the chemicals industry. This company sold packaged and branded commodities and invested heavily in advertising. There were substantial throughput economies in the soap industry. The most important followers in the industry were Procter and Gamble, Colgate and Palmolive. The company launched a huge marketing campaign to counter the very dominant company, Procter and Gamble (Jones, 2002). Analysis and Discussion of the Host Nation’s System (i.e. Socio Economic Institutional Mechanisms and Employment/Human Resource Management Systems) The FMCG sector in India happens to be the fourth largest in the economy. The market size of the sector is $13.1 billion and is a lucrative hunt for foreign investors. It has an MNC presence and is characterised by a well established network distribution system. It is also characterised by the presence of intense competition between the organised and the unorganised sector. Despite it, operation costs generally remain low. This is the key reason why multinational corporations consider the country to be favourable place for operation. Abundant availability of raw material and cheap labour cost gives this country a comparative advantage over other nations. Value of the FMCG market was $11.6 billion in 2003. It is expected to reach $33.4 billion in 2015, which is three times the present value. Penetration levels and per capita consumption of commodities like jams, hair washes, skin care products and tooth pastes indicates the existence of untapped markets in the sector. Development of the entire economy of the country, especially the stupendous growth of the middle class and the rural sectors has helped the manufacturers of branded products to expand their operation in the sector (IBEF, p.1). Figure 1: FMCG Market Size (Source: IBEF, p.2) This sector also encourages Overseas Corporate Bodies (OCBs) to invest in this country. This phenomenon is all the more conspicuous in the food processing sector. However, there are certain exceptions, like malted food and alcoholic beverages. Other than these, some of the products are reserved exclusively for the small scale industries. “24% of foreign equity is permitted in the small scale sector” (IBEF, p.2). The rules governing the operations of foreign companies are very flexible in India. Government has abolished licensing in many food and agricultural products, with a few exceptions like alcohol, hydrogenated animal fat, cane sugar, oils. It has also removed quantitative restrictions from most food products. The 2004-2005 Union Budget recognised 85 numbers of items that would be excluded from list of reserved items. This has consequently led to the expansion of the FMCG product market thereby generating greater number of opportunities in the sector (IBEF, p.2). Figure 2: Household Income Distribution (IBEF, p.2) The FMCG sector in India is the fourth largest in the economy and generates employment for a large portion of the population. It employs about 3 million people in the sector. Food processing sector forms a major part of the FMCG sector. It accounts for 6.3% of the gross domestic product and 13% of India’s exports to foreign countries. The most important characteristic of this sector is the presence of foreign players and their subsidiaries. Some of them are HLL, Procter and Gamble and Nestle. All of them together launch numerous products across the nation. At present situation this sector is booming and is expected to increase by more than 60% by the end of 2015 (IBEF, p.3). Human Resource Practices in FMCG sector in India It is evident that proper people management enhances performance in organisations. The Indian FMCG industry follows a three dimensional people strategy. People strategy means those strategies and employment practices that an organisation undertakes in order to utilise its people to their maximum effect (Gratton & Truss, 2003, p.). Before investing in a foreign country it is very important to make a study of the human resource management practices prevailing in the country. Many of the Indian organisations have become an integral part of the global economy. Today, India has become a significant contributor to the world economy. A number of HR leaders in the country were interviewed on this subject by the Society for Human Resource Management. These interviews brought into fore a number of factors pertaining to market trends, and especially the “challenges and opportunities about talent in the Indian HR context” (SHRM, 2009, p.3). In addition to this, a number of other information was also revealed like the cultural aspects of the economy, the socio economic condition which determine the manner in which HR and organisational leaders attract, develop and retain talent. Today the HR functions and strategies have undergone a sea change. Previously it was based on personal relations and ones association with society. However, with the advent of rapid modernisation, the HR strategies and practices prevailing in organisations have undergone stupendous change. The growing challenge that the Indian HR managers are facing is the shortage of talent against increasing demand for the same. Organisations are faced with the pressure of attracting and retaining talent. “India is a country in transition. Historical, socio-economic and cultural factors strongly influence Indian HRM and talent mindset” (SHRM, 2009, p.5). Studies have shown that countries in Asia have a natural temperament for diversification though they do not generally follow a definite pattern or strategy while diversifying. According to a recent study, Indian organisations are seen to attract talent from various fields and groups. Women-force has always gone underutilised in India. Nowadays, the trend is to include more and more women in the corporate world. This has been the result of the changing culture. The only drawback that foreign investors are faced with is the lack of infrastructure in the economy. This fact was presented at a survey conducted by the ‘World Economic Forum’. Indian organisations have been increasingly emphasising on talent management in order to attain competitive advantage. If a business is planning to open its subsidiary in a foreign country it must understand the mindset of the people pertaining to the cultural scenario of the nation. If certain business wants its workforce to be efficient in solving problems, it has to have a vivid idea of the way in which work is looked at in the foreign country. The organisational structure also has an important role to play in this context. The type of leadership followed in the organisation, hierarchical or collaborative, is of utmost importance in business. Factors like innovativeness and risk taking capabilities of the country also form the basis of determining an organisation’s decisions. Such questions are important in order to understand and analyse the mindsets of people working in the organisation. Awareness of the above factors not only establishes and improves work relationships, but also helps in establishing a strong foundation for the company while strategically developing new product lines (SHRM, 2009, p.6). The chart given below, puts forward some of the HR practices prevailing in Indian organisations. Figure 3: HR Practices Prevailing in Indian Organisations (SHRM, 2009, p.6) Evaluation of the feasibility of transferring one Human Resource Management Practice to the new Subsidiary, including the Strategic reasons behind it This project aims to develop a performance management system in the subsidiary. This should be done with the sole motive of maintaining performance standards of employees at par with the standards set by the mother organisation. “Human Resource Management (HRM) involves all management decisions and practices that directly affect the people, or human resources, who work for the organisation” (Shahnawaz & Juyal, 2006, p.1). Managing employee performance involves the following process. Firstly, the managers have to meet their employees and communicate their expectations regarding the performance of the organisation. In this case, the company is planning to open a subsidiary in a foreign country, which makes it all the more important to set performance standards in the organisation. The organisation must also specify the manner in which employees’ performance will be measured against the set standards of the organisation. Apart from that, employees should also be made aware of the fact that their performance helps the organisation to achieve its mission (OSP, 2007, p.2). The most important part of the system is ‘communication’. It is an “ongoing communication process, undertaken in partnership, between an employee and his/her immediate supervisor that involves establishing clear expectations” (Bacal, 1999, p.3). In this regard, another important aspect that needs to be looked into is managing performance competencies. “Every performance management system must have two core components if it is to be successful: a set of specific performance achievements, and clear expectations of how they are to be achieved” (Warner, 2002, p.5). The organisation can even formulate a work strategy which shall be presented in the form of a document before the employees. It can be presented as work plan formats depending on the kind of work that is assigned to them. As part of the process, these documents will be signed as well as dated by both employees and their supervisors. Every employee’s progress towards those expectations will be measured, documented, reported, and discussed at the time of work process. It is expected that supervisors and managers will keep communicating the changes and work plan modifications during the course of work as and when necessary. Again, these kinds of modifications will also be signed and documented by the employees and their supervisors (OSP, 2007, p.3). Such demands of the management help frame a guideline that helps the employees to achieve the goals of the company (Stankard, 2002, p.5). This company plans to make the Indian subsidiary one of the largest fast moving consumer goods company. It thereby must possess the ability to attract and groom the talented people. The company has a number of managers assuming senior level responsibilities in different subsidiaries of the company across the globe. Since the Indian culture is quite different from the western culture, it is most important to implement a performance management system. It is seen that organisations without a proper system of managing people usually have lower productivity than those with proper means of performance management. Moreover, a company planning to open a subsidiary in a foreign nation is more likely to have a chaotic organisation structure. This would not only deteriorate the productivity of the employees but also of the organisation. Moreover, it indirectly adds to the cost of the company. The most important responsibility during the inception days are played by the HR department of an organisation. Managing employee performance happens to be one of the most important aspects of human resource management. However, it is equally important to have a system of payment which is related to the performance of individuals. The performance management system involves the implementation of a performance related incentive system. This is done to encourage individual performance and a proper system of rewards boosts up the motivation level of the employees. A proper system of pay increase in relation to the employee performance can evolve a direct correlation between employee services and the productivity of the organisation. It is also suggested that the internationally affiliated practices should be implemented in the system as the company already has a multinational existence. However, it should also ensure that the conditions should suit the Indian conditions and must be transparent, measurable, accountable and directly linked to deliverables (Mishra & Mishra, n.d. p.5). Conclusion Opening a subsidiary company by a foreign multinational indeed involves a great deal of study and research. During the course of the project it was revealed that the host country had certain inherent qualities which favoured the development of the company. Nonetheless, India too possesses an established market for FMCG products which is increasing at a stupendous rate. It would be a wise decision to tap and explore this market. The primary concern is however, the clash the human resource practices ensuing from the cultural differences of the two countries. It is important to study the feasibility of human resource practices before implementing it in the organisation. A proper human resource management system goes a long way in enhancing individual performance which gets manifested in the overall growth of the organisation. References Bacal, R. 1999. Performance management. McGraw-Hill Professional. Business Insight. No Date. Organisational Structure of the Multinational Companies. [Online]. Available at: http://www.rededemobilidade.org/business-management/organizational/organizational-structure-of-the-multinational-companies [Accessed on August 26, 2010]. IBEF. No Date. The Great Indian Bazaar. [Pdf]. Available at: http://www.ibef.org/download/indianbazaar_jan19.pdf [Accessed on August 26, 2010]. Jones, G. December 9, 2002. Unilever-A Case study. [Online]. 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