Cosmetic Company - Culture as an Important Element in Human Resource Management - Case Study Example

Mini Case of XYZ Cosmetic Company Introduction XYZ is a big cosmetic company based in Shanghai China. The company was founded in 2003 as a partnership between two friends who had met in the University. The company has grown to become one of the leading cosmetic companies in Shanghai. The firm has also expanded into other regions within China. Currently, the XYZ has a workforce of about 200 employees. The employees are from diverse backgrounds including foreigners. However, majority of them are local Chinese. Foreigners make a very small proportion of the company’s workforce. In the recent past, XYZ has been considering expanding beyond the Chinese market. This was made clear in 2011 when the company’s CEO talked about opportunities in the larger regional and global markets. Specifically, the CEO talked about venturing into the Indian market, which he considered as having a large potential for XYZ. Since then, the company has made several steps towards becoming an international cosmetics company. I joined XYZ as an intern in April 2012. I was a student intern in the company for six months until early October when my internship ended. Working as a student intern provided me with a unique opportunity to look into the internal environment of the firm. I was particularly more concerned with the human resource management. Although XYZ had a great human resource function, it had one major problem especially with regard to its objective of expanding internationally. The company’s workforce was mainly Chinese, which means that expanding to foreign markets would be a challenge because the Chinese would not be deeply conversant with the nature of business in foreign markets. This paper analyzes the challenge on international staffing facing XYZ Company. The analysis focuses on the current challenges and possible alternatives for ensuring a successful transition from being a domestic company to an international company. The analysis will apply two main theories including the theory of globalization and IHRM (International Human Resource Management). The Story XYZ has a large workforce. Since its formation, the company’s workforce has grown significantly from 12 employees to the current 200 employees. This growth is indicative of the company’s growth in terms of operations, capacity, and coverage. In the financial year 2011/2012, the company had a market share of 47 percent, which made it the largest cosmetics company in terms of market share. However, the Shanghai market is becoming saturated as more cosmetic companies emerge. This has led to the company’s management considering looking for more opportunities across China and beyond. According to Fu (2013), the cosmetics market in China has grown at a compound rate of 15.8 percent between 2001 and 2011. Currently, the industry comprises of over 5,000 companies, with majority of the firms being small and medium sized companies. This means that companies such as XYZ are facing intense competition in China and need to look for opportunities beyond the domestic market. However, XYZ faces a human resource challenge as it considers international expansion. Expanding into foreign markets will require expansion of the human resource capacity. The main problem is that the company has had a workforce dominated by Chinese locals. From the top management to the bottom level, the employees are predominantly Chinese. While this has worked effectively for the company over the years, expanding into foreign markets will prove difficult because different countries have different cultures. Not all countries share the same culture with China. From the internal perspective, XYZ’s employees may find it difficult to fit in different cultures. Externally, the company may not be received well by customers from foreign markets because of the cultural disparities. To explore these challenges deeper, it is important to apply globalization and IHRM theories. The Theories Globalization is a common phenomenon affecting businesses across the world. Currently, there are many companies that are operating across borders because of the concept of globalization. Companies expand internationally for various reasons including the need for exploring new market opportunities as well as avoiding intense competition in domestic markets. However, not all companies that try to expand internally are successful. One of the main reasons for this is the failure to understand the cultural dynamics in business globalization. In business globalization, companies should understand the cultural differences between the home country and the foreign country. Greet Hofstede came up with the Hofstede cultural dimensions theory to help companies in understanding the cultural differences between countries. The Hofstede cultural dimensions compares countries based on five cultural dimensions including power distance, masculinity, individualism, long-term orientation, and uncertainty avoidance (Melkman & Trotman, 2005).When considering expanding into a foreign market, a company should apply the Hofstede cultural model in understanding the most effective strategies to use. For example, if there are significant cultural differences in terms of masculinity, this would affect how a company constitutes its workforce. Another important theory based on the globalization concept is IHRM. The field of human resource management has undergone major changes over the years. Currently, IHRM is an important theory that every company considering international expansion should consider. IHRM covers all the elements of managing people in the international context (Dowling, Festing & Engle, 2008). IHRM includes all the typical functions of human resource management. However, it is based on understanding the cultural differences in the international context. For example, IHRM’s staffing function considers the most appropriate staffing alternative for companies based on various issues such as cultural differences, foreign policies, cost of labor, and availability of qualified people. Problem Statement and Alternatives XYZ Company has a great vision of expanding internationally. Considering the current situation in the Chinese market, the company has a good reason for venturing into foreign markets. According to Backaler (2014), one of the main reasons for companies to venture into foreign markets is to access new markets. Currently, the Chinese cosmetics market is industry is saturated with many cosmetics companies. This means that XYZ has a small opportunity for growing within the domestic market. Although the company has a large market share within Shanghai, this could be short-lived in case another cosmetic company adopts more competitive approaches to attract more customers. However, XYZ needs to adopt a new approach to its human resource management to successfully expand internally. The current human resource management as constituted cannot be effective in the multicultural global environment. Specifically, XYZ cannot be successful in America and European markets with the current Chinese-dominated workforce. This is because America and Europe are quite different from China in terms of culture. According to Hofstede’s cultural model, China is a collectivist country while American and most European countries rank high in individualism (Oyserman, Coon & Kemmelmeier, 2002). This implies that approaches to managing human resources in America and Europe are different from the approaches applied in China. For example, in China, XYZ prefers collective rewarding of employees. During my internship, it was common for the management of the company to organize company-wide ceremonies to reward employee teams, departments, or units that had achieved impressive results. It was rare to see individual rewards in the company. This organizational culture would have to change in the US and European markets where individualism dominates. In these markets, giving individual rewards and recognition would be more favorable than collective rewards. XYZ Company needs to adopt the IHRM model in the international business environment. Currently, the company’s human resource management is based on the domestic market. China is one of the least culturally diverse countries in the world (Morin, 2013). This makes XYZ’s current approach to human resource management appropriate. However, not all countries have low cultural diversity. In fact, globalizing is creating more cultural diversity across the world. Countries such as America are more culturally diverse than China. This means that the current Chinese-dominated workforce may not be appropriate in a more culturally diverse foreign market. The Predominantly Chinese workforce cannot be effective in the global market. The company needs to consider cultural diversity. Culture is an important element in IHRM. Modern organizations seeking to operate internationally should respect the cultural diversity in the international arena. With regard to human resource management, global organizations should have culturally diverse workforces that exemplify the diversity in the market place. Currently, XYZ does not meet this standard. According to Shen et al. (2009), cultural diversity is a source of competitive advantage and enhances the quality of organizational life. XYZ will not have a competitive edge in the international arena with the current composition of the human resource. Fundamentally, XYZ Company will experience problems in staffing its international operations. Expanding into foreign markets will necessitate the expansion of the human resource. The company will have to employ more employees to manage the international businesses. However, this may not be an easy task especially with the current human resource management that favors Chinese nationals. One of the problems will be getting qualified employees for the foreign operations. This may be a challenge because some qualities and skills may be rare especially in leadership and management. The company may not find these skills and qualities within the Chinese market. It is important to note that one of the key qualities in international business management include cultural understanding. The company has to seek individuals with such skills and qualities to manage the foreign operations. Another potential challenge in staffing would be the cultural diversity. As already noted, international companies should consider cultural diversity when expanding. Finally, the company will have to contend with the different laws in different countries regarding staffing. Some countries put a threshold on the percentage of local and foreign employees that a foreign company can employ. To address these challenges, XYZ has several alternatives Alternatives 1. Ethnocentric Approach – in the ethnocentric approach, an organization employs people from the home country especially in the top management positions. This staffing approach is preferred during the early stages of internationalization when the organization is more focused on transferring the organizational culture and strategies to the foreign countries. XYZ can adopt this approach by transferring some of the current employees to the foreign offices and employing Chinese nationals. This approach would be effective in ensuring that the current organizational culture is spread to the foreign offices. 2. Polycentric Approach – the polycentric approach entails employing the locals in the host country. Rather than transfer employees from the home country, XYZ could employ the local people in the foreign countries where it establishes operations. For example, when venturing into the US market, the company would employ US citizens. This approach is appropriate because the local people have the advantage of understanding the local cultures. It also enhances the company’s image in the foreign market. 3. Geocentric Approach – the geocentric approach does not favor either the ethnocentric or polycentric approaches. Instead, it is based on employing qualified employees from across the world without considering their nationalities. This approach is appropriate considering the globalization of labor where labor movement has intensified. Additionally, applying this approach will enable XYZ to get qualified people for its foreign businesses. Considering the three alternatives above, the most appropriate for XYX is the geocentric approach. This is because the company needs a radical shift in its current human resource management strategy to fit well in the international arena. The geocentric approach will ensure that the company has a globally diverse workforce, which will reflect the global nature of the company. Moreover, the geocentric approach will enable the company to get the qualified personnel to fill the different positions in its foreign operations. Conclusion Several lessons have emerged from this assignment. First, the importance of IHRM has been emphasized. XYZ does not apply the IHRM concept currently, which is a major challenge for its imminent international expansion. Second, culture is an important element in human resource management. Organizations need to understand cultural elements in their markets and align their human resource strategies to these cultural elements. Failure to do so could have adverse effects on the organization. Finally, the international business environment is quite different from the domestic business environment. Organizations wishing to expand internationally need to understand the implications of such expansion before actually expanding. This is especially the case with the human resource management strategy. References Backaler, J. (2014). 5 reasons why Chinese companies go global. Forbes. Retrieved from http://www.forbes.com/sites/joelbackaler/2014/05/06/5-reasons-why-chinese-companies-go-global/ Dowling, P., J., Festing, M., & Engle, A., D. (2008). International human resource management: Managing people in a multinational context. 5th Ed. Cengage Learning. Fu, Y. (2013). Potentials of Chinese cosmetic market. Retrieved from https://www.theseus.fi/bitstream/handle/10024/63667/Fu_Yong.pdf?sequence=1 Melkman, A., & Trotman, J. (2005). Training international managers: Designing, developing and delivering effective training for multi-cultural groups. Hants, England: Gower Publishing, Ltd. Morin, R. (2013). The most (and least) culturally diverse countries in the world. Retrieved from http://www.pewresearch.org/fact-tank/2013/07/18/the-most-and-least-culturally-diverse-countries-in-the-world/ Oyserman, D., Coon, H. M., & Kemmelmeier, M. (2002). Rethinking individualism and collectivism: evaluation of theoretical assumptions and meta-analyses. Psychological bulletin, 128(1), 3. Shen, J., Chanda, A., D’Netto, B., & Monga, M. (2009). Managing diversity through human resource management: An international perspective and conceptual framework. The International Journal of Human Resource Management, 20(2), 235-251. Read More