The Feasibility of the Company Saints Construction Expansion to China, Germany or the USA - Case Study Example

Feasibility Study of Saints Construction Expand to China Introduction Many current matters which have consequences for the construction industry havebeen talked about to a significant level in the perspective of the developed and industrialized countries. Saints Construction is a British manufacturer of digging and earth moving equipment for the construction sector. Production facilities are focused currently in Northampton and in Belfast, Northern Ireland. The board has determined its expansion overseas considering viable sites for the production facilities to be in China, Germany or the USA. This study analyses the feasibility of the company Saints Construction expansion to these countries on the basis of the perspective strengths and weaknesses of the developed and developing countries as their potential site for investment (Baron, 2003). HRM in USA Strengths In the USA HRM exerts importance on the degree to which the process is formalised. For example during the implementation of the Total Quality Management (TQM) by the company MPS, its employees were directed to follow certain rules and regulation prescribed for the processes and procedures of TQM which were benchmarked in compliance to certain standards in the industry (Thelen, 2004). The country’s follows a direct feedback strategy for its employees and workers. Staff feedback and opinion surveys are followed annually to ensure that the work force needs are taken care and in compliance to this the compensation and benefits are framed and compared with the competitors to increase staff retention. The HRM structure is more individualistic and independent as well as achievement oriented in USA thereby framing policies towards the benefit of the organisation and employees (Erickson, 1996). The Reward system is planned in a way where compensations and incentives are dependent on target oriented work, giving the team or an individual the motivation to work as they do not have much say on the working norms (Thelen, 2004). Performance appraisals are conducted by the management where they would rate a group or individual staff on the basis of target achieved giving everybody a fair platform to measure their performance output thereby encouraging them to work extra and achieve targets for a better appraisal which would help them earn perks. USA human resource policies emphasise on anti unionism and are against sex discrimination (Erickson, 1996). Weaknesses The labour protection laws followed in USA are not covered to a large extent towards the welfare of the workers and staff. The total working hours sometimes exceed 40 hours per week. On the other hand the management level HRM policies are much better structured for the benefits of the higher ranks which lead to work force-management conflicts (Dobson, 2009). USA would face a huge labour shortage problem and increased tax rates due to growing aging population. USA HRM is mechanistic making it more regulations and norms oriented rather than structuring it towards the employee benefits. It lacks humanity and the rising number of immigrants in USA is causing racism. The employee-management relationship is based more on the economic front therefore only depending on the pays and perks for their professional target outputs rather than considering them as an individual or group having a common interest towards the benefit of the organisation (Erickson, 1996). The HRM policies lack empathy towards its staffs. Due to racism there is a discrimination of position based on the nationality. They follow an ethnocentric practice where the higher management positions are reserved for the American nationality. They outsource employees and labours from developing countries and pay them inadequately as compared to the staffs of USA nationality and expect higher outputs from them (Drummond, Ensor and Ashford, 2012). The Expatriates are substituted by local managers and the policies are framed based on the mother country, USA without giving much importance to the welfare of the workers and staffs of different nationality. For example work holidays are given in only in Christmas without giving much head to the festivities of the other nations therefore depriving the employees from India or China working in USA (Dobson, 2009). HRM in Germany Strengths The HRM policies in Germany are not generally as formal as it is in the USA. The organisational charts and the formal grading system is less as compared to USA. Hence in Germany, organisations follow a line management system to delegate work to its workers as opposed to the reporting system followed by the USA (Drummond, Ensor and Ashford, 2012). Communication between the staff and the employers in Germany are mainly followed on the basis of line management and grievance redresses through trade union or work council. The working hours of the labours in Germany are in accordance to the benefits of the workers and do not exceed the limit of 35 working hours per week and an additional overtime work hour limit of 130 hours per year thereby providing a sustainable work condition in the organisation (Dobson, 2009). Germany is less autonomous and there is a lack of entrepreneurialism as they are more dependent on trade unions and work council groups who delegate authority and speak on behalf of the workers. Hence the management has less power to exert over the staffs. The HRM policies are designed to protect the employees in Germany from social dumping. They depend more on the worker’s participation (Whittall, 2005). In the year 2002, the European Union (EU) has implemented the single currency policy, the Euro which has benefitted the countries in Europe to a great extent in terms of economy, culture, politics, HRM. These efforts had led to the concept of “Europeanization". The EU has made an effort to standardize the HRM policies throughout the country linking it with the institutional, geographical, organizational, and cultural aspects among the European countries as a force of convergence (Eichhorst and Marx, 2011). Weaknesses Due to strict control by the government of Germany over the employment policies, the working hours, minimum wages and public holidays are fixed and structured towards the staff benefits leading to disruption in work flow as workers gain more power to bargain for their rights and show unwillingness to do overtime even if companies are willing to pay extra money for it. The trade union leaders are given greater power to bargain for the staff thereby creating conflicts with the management and denying on working for more hours and demanding greater pay during company crisis (Hollensen, 2011). Germany has scarcity of raw materials therefore the opportunity of industrial growth and employment welfare is comparatively low as compared to other countries. With the development of industries in low- cost labour countries, Germany would face tough competition from Asian countries like China and India in terms of labour outsourcing, since there is no stringent authority exercised by the union in these developing countries. They are ready to work overtime and content with extra work perks and benefit therefore leading to a loss of work as company would avoid off shoring their facilities in Germany (Whittall, 2005). HRM in China Strengths The Chinese HRM policies give more stress to an individual capabilities and scorings in the employment test during selection of a candidate and their knowledge about the culture and traditions followed in china. Therefore china give emphasis on the culture familiarity more than the technological knowledge and past experiences as that could be nurtured through training and inductions (Carter and Estrin, 2005). Performance Appraisals is a means to determine the accomplishment of an individual’s or organization’s purpose. The function of this tool is to recognize possible problems and disputes arising during work and the improvement it can make in the employee performances. Different countries have various techniques of performance appraisal but China has an altogether different approach towards it due to the organizational structure followed in China (Cooke, 2008). The human resource management pays greater importance on the ethical and personal characteristics like loyalty and obedience towards the company’s management. The performance appraisal in China emphasizes more on the purpose of evaluating rewards and punishing rather than measuring the employee’s potential abilities or future prospects. There is a system of assessment instead of a performance appraisal (Kim and Zou, 2009). As China is a developing country with low cost labour, the expenditure on training and induction is comparatively low in comparison to the other countries, therefore companies planning for off shoring can outsource their production facilities in China with much lesser operational and employment costs. The time allotted for training is also less as they concentrate on work output and skill development during practical work experience rather than separating time duration only for training with would affect work productivity (Cunningham and Rowley, 2008). The HRM policies of China give major importance to the “pay for performance” and other incentive schemes for the welfare of its employees and factory workers. The compensation policies in China is divided into two parts that is the fixed income and the incentive based income in order to protect and secure its employees from loss of earnings. In China more emphasis is given on ethical conduct and traditional values. They are high in collectivism and low in individualism (Kotler and Andresen, 2011). It is a low cost labour country thereby creating opportunities for employment to its citizens in various national and international industries as companies invests a lot in offshoring facilities in China (Cooke, 2008). Weaknesses The employee grievance feedback policy is not followed by China thereby leading to difficulty in appraising performance of employees. The value of time and punctuality is low in china as compared to that of America. Chinese culture and language creates a barrier for foreign investors. Language becomes a barrier for communication with the Chinese consultants, contractors, sub-contractors and workers, due to varied culture between citizens of China. In spite of technological advancement, china depends more on manpower than machinery (Cunningham and Rowley, 2008). Hence according to the National Bureau of Statistics of China at the end of 2013 there were over 78000 construction enterprises work initiation in China among which 699 are foreign construction enterprises (Kotler and Andresen, 2011). Therefore there is a high level of market competition among the players and in order to survive in the fast changing dynamics of the Chinese market, the foreign companies’ needs to develop effective marketing strategies like understanding the type of product or service to be introduced, strengthening the human resource management policies by recruiting, selecting and retaining the right manpower for efficient running of the business in China. Adapting to the social, cultural, legal, economical and technological environment of china is very important for the foreign investors planning to expand its business. They should overcome the language barriers to acquire and retain new customers as well as create long lasting relationships with its employees and customers (Kim and Zou, 2009). Analysis of the Benefits and Challenges Arising from Off shoring Production Benefits When an organization is outsourcing production to another foreign country it is recognized as off shoring production. In order to compete in the global market the companies set up their manufacturing bases or outsource machinery and finished goods to lower cost countries or offshore producers to lower their operation costs and to reach economies of scale. This has played a significant role in reorganizing and improving the companies’ supply chain (Levy, 2005). Off shoring is considered to be one of the major marketing strategies for companies planning to expand their facilities and diversify as it gives a competitive edge to them to survive in the fast changing market. The companies that are planning to offshore are mainly from the west like Europe and America and generally targeting to off shoring in countries like India, China and Malaysia etc. China is considered as the second most popular off shoring country and its major strengths are in low cost labour and advanced technology manufacturing. By off shoring production processes and supply chain to countries like china the companies can lower its manufacturing and operational costs thereby lower the product prices, creating higher demand and attracting new customers (Jensen and Pedersen, 2012). Cost reduction and cost saving are the key factors to off shoring and outsourcing which leads to higher profitability, cash flow and value addition to products. Improving core competencies is another benefit of off shoring in china as it helps in achieving competitive edge, enhances customer satisfaction and advances business performances. Certain environmental factors such as initiating globalization, supply chain advancements, increased efficiency of suppliers globally, enhances service quality and customer satisfaction (Levy, 2005). China is a country where availability of low-cost labour is high. Therefore companies’ off shoring has an advantage of cost saving by availing low cost man power who would work even in day night shifts thereby initiating the usage of capital equipments more effectively and by hiring local engineers for developing new technologies and machineries at much lower rates as compared to developed countries (Dobson, 2009). In the construction market of China, the foreign construction companies off-shoring their production base has the advantage of better information management facilities due to the introduction of Chinese government’s new policies launch in 2003 for the advancement of information technology and other management skills (Kumar, Kwong and Misra, 2009). By the year 2008, the policies and programs which proved to be successful were expected to match the global information management standards which are followed by the leading players and markets around the world. Information technological advancements like connecting the executives and managements through the intranet system were one of the breakthroughs (Banfield and Kay, 2012). Challenges The biggest challenge of off shoring is its political risk and the cultural risk. Obstacles like loss of control, flexibility and critical expertise, inadequate capacity of service providers and the apprehensions on loss of job are the areas of concern. These factors lead to loss of core competencies, competitive advantages, market growth and lower staff morale (Kumar, Kwong and Misra, 2009). The main reason for off shoring failures is the greater emphasis on deciding on the off shoring country rather than the facilities to be off shored as well as assessment of the risk of outsourcing. Two main challenges are associated to off shoring that are operational and structural (Boxall and Purcell, 2009). Operational risks occurs when the production facilities off shored does not work as good as it was thought to work and structural risk takes place due to unhealthy relationships with the service providers. Like in case of china the greatest barrier to off shoring is the language and culture of the country. Foreign countries need to be acquainted to the advantages and disadvantages if the offshoring country’s culture and traditions (Briscoe, 2008). Offshoring low cost labour countries may generally exhibit strict principles and have very less flexibility towards change. Offshoring to countries where they lack expertise and knowledge on project management may lead to higher set back (Collings and Wood, 2009). Other offshoring challenges are concerns over retaining intellectual property rights, legal and political issues faced by foreign companies (Jensen and Pedersen, 2012). Pay and Reward System of Saints Construction The Human Resource Management department of Saints Construction has pay and reward policies in which the company follows the base salary scheme, incentive pay schemes, bonuses and group incentives, cafeteria approach (Deal and Kennedy, 2008). The company also generates a culling quota in which the bottom 5% of performers each year is potentially dismissed. Analyzing the HRM strategies of the company, they may extend the individual pay performance scheme and base salary scheme in the new site where the employees would be rewarded on the basis of their performance after a base fixed salary allotted to them for a particular work output for a specified time period as this would encourage them to work harder and more effectively (Hampden-Turner, 2009). In the cafeteria approach, the employees would be allowed to choose certain benefits from a basket of options like transport, accommodation, relocation, education facilities, insurance, medical facilities etc. This would instil a sense of belonging and importance among the employees motivating them to greater efficiency. Inclusion of these benefits other compensations bonuses during festivals, leaves, family visit travel allowances; employee wellness programs may boost the morale of the workers (Bate, 2008). They can be honoured with financial and non financial rewards which will increase the employee’s retention as they are getting the prospects to develop their careers in responsive and ethical working environment. Whereas the policy of dismissing 5% of the bottom performers should not be incorporated in production department based in China as there would be discrepancies such as measurement problems, recognition problems, individual defensiveness and jealousy which would create a negative impact on other co workers as well as damage the work culture and environment (Cameron and Quinn, 2011). The Extension of HR Practice across National Contexts Human resource may fall in between an increasingly controversial about the effect of off shoring for business production facilities. Though it is considered that off shoring reduces labour cost as well as other human resource expenses, it adds to labour anxiety where they feel their job is being threatened (Edwards, et al., 2006). The risk of off shoring is causing a major damage to the employee self-esteem due to the threat of job security which determines an employee’s job satisfaction. Off shoring is fundamentally about the price of human resources as well as it is usually the biggest expense factor in most of the organization and this is the reason why human resource plays a major role in both the decision making process of job expansion and managing it once it is initiated (Davis, 2011). Off shoring is therefore creating a negative impact on the morale of the employees who till now had been able to hold on to the job. It is very tough for countries like china or India which are very culturally strong to accept a completely new western culture and accommodating itself to the work environment and processes (Dickmann, 2009). The human resource management strategies followed by a foreign country may not prove to be viable for an Asian country like China. People of china are known to be principally very stringent and strong. They follow a bureaucratic style of management where there are certain rules and code of conducts which are followed (Edwards, et al., 2006). Countries like the United Kingdom when outsourcing their production facilities in China are setting up organization and hiring Chinese employees but following the human resource management strategies of their parent country which is creating confusion and work environment which is not satisfactory for the Chinese citizen. Shift duties, flexible working hours, informal hierarchy and pay per week are some of the factors which are affecting their morale (Jackson, 2007). Another barrier is the language. It is very difficult for the people in china who only speak Chinese to work for a British based firm. The language barrier creates a lack of understanding and delegation of duties among the employers and the employees due to lack of communication thereby leading to discontent in work culture. Harmony is not created between the employers, employee relationship (Dowling, 2008). Conclusion The economic growth in China has led to the growth of construction industry in the market. The adequate opportunities in the fast growing market of China is attracting foreign investors to offshore its construction company facilities here. Though the market is dynamic and high in competition it is viable to generate high market share and profits. There are certain cultural, languages and administrative barrier which may lead to failures for the foreign companies to invest in the risky market of China, therefore measures should be taken, proper strategies should be planned to understand the external environment of the China construction industry before deciding on the offshore venture to survive, compete and perform in the market. Reference List Banfield, P. and Kay, R., 2012. Introduction to Human Resource Management. 2nd ed. Oxford: Oxford University Press. Baron, D. P., 2003. Business and its Environment. Upper Saddle River, New Jersey : Prentice Hall. Bate, S., 2008. Strategies for Cultural Change. 4th ed. Oxford: Butterworth Heinemann. 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