Saints Construction Expand to Germany - Case Study Example

Feasibility Study of Saints Construction Expand to Germany Table of Contents Introduction 4 Political Factor in the HRM Context 4 Industrial Relations of Germany 4 Labour Contract Law of China 5 US Labour Law 5 Economic Factor in the HRM Context 5 FDI and GDP of Germany 5 FDI and GDP of China 5 FDI and GDP of US 5 Social Factor in the HRM Context 6 Germany 6 China 6 United States 6 Technical Factor in the HRM Context 6 Germany 6 China 7 United States 7 Strength and Weakness of Germany 7 Strength and Weakness of China 7 Strength and Weakness of United States 7 Recommendation for Saints Construction to Invest in Germany 8 Offshoring Production 8 Offshoring and International Competitiveness 8 Offshoring in Global Economy 9 Benefits from off shoring production 9 Challenges from off shoring production 9 Policies on Pay and Reward 10 Recommendations for the Extension of HR Practice 12 Conclusion 12 Reference List 14 Introduction Globalisation refers to the opening of nationalistic and local perspectives towards a broader viewpoint of an interdependent and interconnected world with the free transfer of services, goods and capital around the world. Globalisation has led to the increase of international trade as well as cultural exchange and is also augmenting the interconnectedness of various markets. IHRM is regarded as a growing subject having link with several disciplines such as public policy, global business, economics, communications, strategy and political science (Thomas and Lazarova, 2013). Global management of human resources implies to performing all the actions across nations, customs and institutional context. With an augmentation in the activities of global business, most of the organisations expect their staff to encompass knowledge of global workplace (Rasmussen, Mylonas and Beck, 2012). The main purpose of this paper is to carry out a feasibility study to analyse the weaknesses and strengths of different countries as possible sites of investment. Recommendation will be provided to the Saints Construction, which deals in the construction sector towards expanding its business in the respective country. Furthermore, the policies on reward system of Saints Construction will also be taken into consideration. Political Factor in the HRM Context Industrial Relations of Germany The industrial relations of Germany remained stable throughout 1980s (Doellgast and Greer, 2007). However, there have been latest developments in the industrial relations of Germany which contributed to the latest progress of its economy and labour market. Generally, the economy of Germany has achieved new strength whereas the trade unions are forced against the defensive situation since 1990s (Whittall, 2005). The shifting forms of the corporatist integration as well as the rebuilding of German production have played a major role in deteriorating the trade union supremacy resources. The economy of Germany was hit hard by the financial crisis, but it has recovered and has performed well in the year 2011, with a GDP of 3%. The major pillars of the German commerce as well as drivers of its GDP are the construction, services and manufacturing sectors. The key features of the German industrial relation are the ‘Works Institution Act’ and the ‘Collective Agreement Act’. The Collective Agreement Act specifies that the trade unions and employers can perform as collective/communal bargaining parties. The tasks of works council are controlled by Works Institution Act (Brinkmann and Nachtwey, 2013). Labour Contract Law of China The ‘Labour Contract Law’ of China increased the contract coverage of the migrant as well as other low wage employees and also raised the ratio of employees with officially authorised social insurances, without adverse affect on the employment. When the condition of employees in most of the countries has deteriorated or stagnated, the Labour Contract Law helped to enhance the situation of employees in China which is considered as the strength of the country in terms of HRM practice (Freeman and Li, 2013). US Labour Law The US Labour Law mediates the duties and rights of labour unions, employers and workers in the US. The ‘Fair Labour Standards Act’ establishes overtime rights and minimum wage for the workers of private sectors (Erickson, 1996). Economic Factor in the HRM Context FDI and GDP of Germany The FDI inflow in the country in 2015 is €5964 million (Tradingeconomies, 2015a). Germany is a well-developed country with enormous industrial capability. Germany is also the top exporter of automobiles, chemical and machinery. It enjoys the accessibility of highly competent labour. The GDP of the country has also increased as compared to previous year (Tradingeconomies, 2015b). FDI and GDP of China The FDI inflow in China in 2015 is $1195.62 hundred million (Tradingeconomies, 2015c) which is less than Germany and US. For the previous five years, the economy of China has experienced considerable growth rate in terms of its GDP. It has been assumed that if China maintains this GDP rate and continue to grow then it will exceed the GDP of US shortly. The GDP rate of China indicates that every individual is adding values towards the society (Tian, 2007). FDI and GDP of US The FDI inflow in US in 2015 is $42670 million (Tradingeconomies, 2015d). The country has a well-developed economic structure including a GDP of more than $16.75 trillion. Though, the soaring budget insufficiency puts the country’s economic prosperity at serious risk because recently the deficit amounts to $506 million (Krusell et al, 2000). Social Factor in the HRM Context Germany Germany is regarded as the most popular nation of European Union. The citizens are well educated with cosmopolitan and modern views. There is equal amount of cultural diversity and plurality in the style of living. However, it faces some challenges such as immigration issues, aging population and reducing incomes. The culture of business is considered as unique in Germany. The employees are having good academics as well as technical proficiency. They give more importance to facts then emotions in the workplace. All these factors signify the strengths of German people (Woodford, 2010). China The social or cultural factors are religion, consumer lifestyle, emigration and education. China represents the collectivistic culture. The literacy rate is more than 90% which focuses on the fact that China put emphasis on education and is regarded as the strength of China (Turley, 2010). United States USA faces the aging population problem, which can result in the severe labour shortage as well as rising rates of tax in the near future. Nevertheless, the well-built healthcare and education system is regarded as the strength of the country. Illegal immigration is on rise in USA which is augmenting the threat of racial biasness (Hamilton and Webster, 2012). Technical Factor in the HRM Context Germany Germany is high on uncertainty avoidance which signifies that the German people feel threatened by unknown situations. They show less courage to face the ambiguous situations and therefore depend highly on the experts to come out of the problem (Hofstede, 2015a). This is regarded as the weakness of Germany. China The Chinese consumers are low on the level of ‘uncertainty avoidance’ so the problem of technical proficiency is not strengthening in the country. This is regarded as the strength of the country (Hofstede, 2015b). United States In the United States, the dimension of uncertainty avoidance is low which signifies that the people are less concerned about the uncertainty and ambiguity. This is regarded as strength of US (Wennekers et al, 2010). Strength and Weakness of Germany Strengths: The ‘Labour Law’ of Germany focuses on the safety and health issues of the labours at the workplace and therefore it is regarded as strength of the country. In terms of strength, Germany has higher FDI inflows than China. The employees of German companies are having good academics as well as technical proficiency which will assist Saints Construction to add value in their construction work. Weaknesses: The FDI inflow of Germany is less than US so it is regarded as weakness of Germany. Germany is high on uncertainty avoidance which signifies that Germans have less courage to face the ambiguous situations. Strength and Weakness of China Strengths: The Labour Contract Law helped to enhance the situation of employees in China. The GDP growth rate is good and is regarded as strength of the country. China represents the collectivistic culture and the literacy rate is also very high representing the urge of people towards the education. China is low on ‘uncertainty avoidance’ and is regarded as strength of the country. Weakness: The country has fewer amounts of FDI inflows than Germany and US so it is a weakness for China. Strength and Weakness of United States Strengths: The ‘Fair Labour Standards Act’ of US is considered as strength as strength as it will help the workers to get extra pay if they work overtime. US have better FDI inflows as compared to Germany and China and thus it is regarded as the strength of the country in terms of growth of nation. The country is low on uncertainty avoidance and is considered as strength of US. Weaknesses: The aging population problem in US can lead to the shortage of labour and illegal immigration is augmenting the threat of racial biasness. Recommendation for Saints Construction to Invest in Germany As Saints Construction is a construction company therefore the ‘Labour Law’ of Germany will prove as beneficial because it focuses on safety and health issues of the labours at the workplace. Due to this reason, it is also considered as the strength for the company. US have better FDI inflows and GDP growth as compared to Germany and China, but then also Saints Construction should choose Germany as a possible site of investment because it has to recruit new workers and the by seeing the growth potential of Germany it is considered as the best location for making investment. This is because international business is on rise in this country as the legal and economic system has been enhanced (Woodford, 2010). In Germany, there is equal amount of cultural diversity and plurality in the style of living. The employees of Germany are having good academics as well as technical proficiency; therefore it will be turn into strength for Saints Construction because they require employee for the construction work. The company have to employ 1000 workers so; the accessibility of high competent labour along with technical proficiency will provide benefits for the company as the capable workforce will add worth to the process of production. Offshoring Production Offshoring means when a business shifts its production or service location to another country or abroad. It includes manufacturing or production in another nation with less stringent labour regulation or lower wages (Hinkelman, 2008). Offshoring and International Competitiveness Companies offshore advanced jobs in order to access knowledge and skills of high quality in spite of saving costs. The inferior cost of labour-intensive, unskilled processes are the major driver for companies which offshore jobs of less superiority. The offshoring of the advanced jobs is viewed as a part of international strategy of the companies to attain international competitiveness by means of access to distinctive knowledge as well as talented individuals abroad (Jensen and Pedersen, 2011). Offshoring in Global Economy The literature on the context of offshoring states that minimising wages by means of offshoring results in wealth creation only for shareholders. It may be possible that it does not lead to creation of wealth for employees and countries, and that most of the displaced employees have problem ‘trading up’ to more skilled jobs. It decouples the connections between the geographic location and economic value generation. The outcome is the generation or creation of international commodity markets especially for particular talents (Levy, 2005). Benefits from off shoring production The companies receive several benefits from offshoring production. Most of the companies make use of offshore production in order to take benefit of the wage gaps among developed and developing countries, keeping profits high and prices low by lowering the labour costs (Auer, Besse and Meda, 2006). It also helps to transfer management control of a business to supplier in different nation (Kumar, Kwong and Misra, 2009). Off shore production also provides the advantages of labour flexibilities and cost efficiencies (Sweeney and McFarlin, 2014). Saints Construction will get the benefit of skilled and competent labour, new knowledge or ideas and technological expertise from the offshoring production. The skilled labour will add value to the production process by applying their technical proficiency in the relative field. Offshoring will also offer Saints Construction the facility of expanding its operations in the geographical markets of Germany (Kehal and Singh, 2006). This will help the construction company to improve their productivity. The good infrastructure facility of Germany will help the company to carry on their operation by means of several transportation systems and will help to save time and thus boost the process of production (Bardhan, Jaffee and Kroll, 2013). Challenges from off shoring production Most often, offshoring is criticised because it transfer occupations to other nations. It includes the challenges of language difference, geopolitical risk as well as poor communication. It has been argued that poor communication may lead project failure (Pedersen et al, 2013). Moreover, poor infrastructure facility may affect the timeliness and quality of production (Oecd, 2007). There is also a risk of security in the service offshoring (Nassimbeni, Sartor and Dus, 2012). The main challenge for the Saints Construction from the offshoring production will be the high labour costs and unemployment (Tradingeconomies, 2015e). Germany has no provision of minimum wage, which will also hamper the operation of the company (The Guardian, 2012). However, due to the global changes, Germany is welcoming inflow of immigrants which allows cheap workforce from the Eastern Europe. Policies on Pay and Reward In Germany, various policies on pay and reward exist which provide benefits to the workforce. Saints Construction apply individual performance scheme, which will be discussed in detail. By linking the pay and reward theories of Germany with that of the company’s theory it would be analysed that how much opportunities does Saints Construction have in terms of paying rewards and benefits to its workers. It is assumed that Saints Construction applies following pay and reward policy. This section will evaluate whether the existing policies will extend to the new site or not. Talent management practice: Saints Construction provides training to their workforce relating to their work which helps them to grow and stay profitable in their respective field. In this way the company is managing and improving the talent of its workforce. This practice will provide benefit to the company in the German market as providing training and growth to the new workers will increase their ability of performing the job in a better way. Performance and reward management: Saints Construction includes compensation program in terms of its performance and reward management practice. The compensation program of the company is deliberated to help the company attract, motivate and retain their workforce. Germany HRM policy includes offering variable pay to the workers and they are eligible to take part in the incentive program which rewards group, individual employee and entire performance of the company. The eligibility for the incentives is based on the role as well as performance of the workforce (Milkovich, Newman and Milkovich, 1999). So, Saints Construction should apply this compensation policy in the Germany as it will help them to fit well with the culture of Germany. Performance related pay: In Germany, almost 70% of the organisations employs the practice of paying the workforce on the basis of their performance. Among this, 40% of the firms pay their employees on the basis on their merit and the rest of them pay in terms of their productivity (Kurdelbusch, 2002). Saints Construction also pays their workforce on the performance basis therefore this practice can be extended to then new site as it matches well with the HR practice of German companies. Benefits: Saints Construction offers several benefits to their staff. They offer several programs in order to cover finances, retirement and health. Health is regarded as major concern in the construction business so Saints Construction should focus on the health program of new workers in Germany also. In Germany, paying health and finance benefits to worker is considered as one of the main HR policy. The schemes or plans which will be offered by the company in Germany will be disability protection, vision and medical coverage and the scheme of life insurance (Kurdelbusch, 2002). Adoption of these programs will provide Saints Construction the opportunity to offer these benefits to the new recruited employees. Employee relation: Saints Construction focuses on the relation of employees by including direct interaction channels in its HR practice. Employee relation practice is very common in Germany as it helps in generating diverse culture. The Company develop positive connections with their workers through encouraging honest and open communication (Ferner, 2000). Learning and growth: In Germany, the companies have faith in the worth of mentoring as well as training their workers and because of this, they offer learning and growth programs in order to exploit the professional growth of the workers. This will provide benefit to Saints Construction to develop the skills of the new recruits (Brown, 2000). Appointing expatriates: For Saints Construction, the benefit of appointing expatriates will be that they know the culture and products of the company as well as possess the business and technical skills which are not accessible locally (Aycan et al, 2000). Cross cultural training program: Conducting cross cultural training program helps Saints Construction to offer education or training to the workers with the purpose of increasing staff knowledge, performances and skills towards cultural responsiveness and cultural competency. It is essential as it assists to develop effectual interaction between the staffs (Brewster, Mayrhofer and Morley, 2004). Individual performance management scheme of Saints Construction: As per this scheme, the annual pay of the workforce is based on their performance and the employees who do not perform well, 5% of them are dismissed each year to maintain efficiency in the manufacturing and production process. Basically Saints Construction applies performance based inducement scheme. As high skilled labours are required for the construction work, so the inefficient employees are eliminated for the betterment of the company. Recommendations for the Extension of HR Practice This section will provide suggestions on whether the existing policies of Saints Construction would be extended to the new site. It is recommended that Saints Construction should adopt these policies on the new site except the existing individual performance management scheme because this scheme will grow fear in the minds of the new employees that they will be dismissed for their bad performance. It may turn out that the workers might not focus on their existing work because of the all-time fear of dismissal. Instead of this scheme, Saints Construction should provide training to those employees who are not performing well and then make them efficient to contribute equally in the assigned work. This will increase the number of skilled labour and will also help to complete the work in less span of time. Saints Construction should extend its talent management practice across national context by providing training to the new recruits. It will help to enhance their talents and will result in more productivity. The reward management practice should also be extended to the new site as it will help to attract and retain the new workforce in Germany. It is recommended that the company should extend its employee relation practice in Germany as it will assist them to create a diverse culture across national context. Extending cross cultural training program in Germany will assist Saints Construction to offer training to the new recruited staff with the purpose of increasing staff knowledge and performances and skills towards cultural responsiveness. The technical, functional and managerial abilities are vital for the construction employees to carry out their task. Furthermore, adaptability to every situation, location-specific abilities and personal characteristics are very essential to perform a work across national contexts. While selecting the employees, the company should make selection not just on their technical proficiency but also on their cross-cultural fluency (Kurdelbusch, 2002). Conclusion The paper is designed to focus on the markets of China, USA and Germany by taking into consideration their political, social, technological and economic factors which further helps to recognize their weaknesses and strengths. Identification of weaknesses and strengths assist in making decision as to where Saints Construction should make investment for better opportunity. It has been recognised that Germany is the better country for starting new business. Off shoring will also offer Saints Construction the facility of expanding its operations in the geographical markets of Germany. The company will also get the advantage of skilled and competent labour, new ideas and technological expertise. By implementing the pay and reward program, Saints Construction will be able to enhance the performance of new employees and this will ultimately result in the improved financial performance. Reference List Auer, P., Besse, G. and Meda, D., 2006. 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