The Role of Middle Management in the Joint Venture - Case Study Example

The Role of Middle Management in the Joint Venture Introduction In today’s highly competitive global environment, the organizations are seeking to develop and sustain their competitive advantage by entering new global markets. There are different market entry strategies which the organizations use to go for international expansion. Prior research has shown that cross-border alliances, particularly international joint ventures (IJVs) are perhaps the most popular means of international expansion (Ernst & Halevy, 2004). Although the joint ventures are rapidly increasing in the world however, they are difficult to develop, control and handle. When a company goes for international joint venture, the complexity of operations increases and it becomes really challenging for the company to manage and employ different national categories of workers. Instead of using domestic HRM practices, it becomes important for the company to go for international HRM practices. There are various differences between domestic and international HRM for example, international HRM needs more HR activities, broader perspective and involvement in the personal lives of workers. The high risk exposure of the organization needs a broader perspective of HRM to handle the external influences. While external environmental forces like the legal system, political system, state of the economy, and organizational forces like partner differences and contract terms contribute to failures, a large proportion of IJV failure can be attributed to inefficient management of human resources (Arino & Reuer, 2004; Beamish & Kachra, 2003). The global expansion of the companies became more frequent in 1980s, Laurent (1986) concluded about the International Human Resource Management, “The challenge faced by the infant field of international human resource management is to solve a multidimensional puzzle located at the crossroad of national and organizational cultures” (101). In this case study, I will not only evaluate the role of middle managers, but I will also provide a deep insight of cross-national HRM practices, pursued by the successful international joint venture of Lafarge in China. ROLE OF MIDDLE MANAGEMENT IN INTERNATIONAL JOINT VENTURE Managing human resources in International joint ventures should not be limited to staffing, controlling and monitoring but management has to think beyond that for making the joint venture successful. IJVs typically represent a long-term collaborative strategy and require active day-to-day Management of a wide variety of human resource (HR) issues (Narula & Duysters, 2004; Evans et al., 2002). Lafarge in China, integrated all important functions of HR such as rewards, compensations, training and development, performance management, best corporate practices etc. In the entire process of Human resource management in International joint ventures, management quality has a huge influence on employee satisfaction, organizational efficiency, output and development of the company. Although the policies are made by the top management, however, middle management plays a very important role in implementing the policies and directing the people. Middle management is the key layer of organizational hierarchy which interacts with senior management and subordinates. In the case of Lafarge in China, middle management has really played a very important role in making the joint ventures successful. Yeager et al. (1994) found in their study in China that in the successful Chinese joint ventures there existed a genuine appreciation for the complexity involved and for the length of time required in China to bring a project to fully functioning status (169). Therefore, it is very important to evaluate the actions and role of middle managers of Chinefarge, which was one of the successful joint ventures in China. According to Paul N. Gooderham, Odd Nordhaug (2003), the international management of human resources includes a variety of tasks which are as follows. 1. Human resource acquisition 2. Human resource development 3. Compensations 4. The design of work systems 5. Labor Relations Therefore, for the evaluation of the role of middle management in the successful joint venture of Lafarge in China, I will take into account the above-mentioned aspects of HRM. Although all these areas are also included in the domestic HRM however, their practices are more complex in the cross-national HRM. The middle manager has really played a very important role in the change process and achieving the operational efficiency. It has stated in the case, “Middle managers were very important, because many jobs had to be done through them, and they were key to internal communications”. An Analytical Model Of HRM – Environmental HRM Model This environmental model of HRM shows that there were various factors which management of Lafarge had to consider for making a successful venture. These factors acted as opportunities as well as constraints for the company. The macro-environmental factors such as socio, economic, institutional and cultural factors were directly influencing the company. It was the challenge for the managers to introduce the best practices of Lafarge in China, although there were huge cultural differences between the parent company and its venture. The second level of micro-environmental factors in the diagram shows that Chinefarge had to maintain its relationships with the parts of the company (Primary elements) and it had to build close relationships with external factors such as customers, competitors etc. (secondary elements). My analysis will evaluate the role of middle managers in consideration to all these factors (Given Diagram). An Analytic Model of HRM for Lafarge in China Source: Goodhall, K. & O. Nordhaug, 2003, International management: Cross-boundary challenges 1. Human resource acquisition Retaining and deploying the people was the major requirement of the company. The redesign of HR functions in Lafarge in China focused on learning organization methodology. Instead of hiring complete staff, the company focused on learning on job, instructing on field and educating within groups. The middle management really cooperated to adopt the learning organization methodology of Lafarge in China. One factor that influences the recruitment of new employees is the extent to which an internal labour market exists in the subsidiary and in the MNC as a whole (Goodhall & Nordhaug, 2003). The company employed new Chinese middle managers and also went for expatriate managers. The idea was to build a strong management team which could help Lafarge in China. When Chinefarge was founded, 1,300 individuals were working in Huaibei Mining Company (HMC). Out of these 1100 were production individuals and 200 were managers or technical staff. The major task for the management was to select the skilled workforce out of 1100 workers because the major workforce consisted of peasants. For the selection of the skilled labor force, tests, appraisals and interviews were conducted. The production people were all inherited from HMC however; some new management staff was recruited. Even in the selection of the senior, middle and junior management, the new foreign boss conducted the interviews. This step was to ensure the selection of highly qualified managers that could contribute in the success of joint venture. Because of the various operational inefficiencies, the focus of the senior management was towards the development of the policies and procedures; however, it was the middle management who put great efforts in the selection and retention of qualified labor. The middle managers drove a demand of innovation and proactive approach. The focus of HR was to focus on new acquisitions and career management however, middle managers really supported the process of change. Human Resources Planning and Procedures: Before the execution of any plan, proper HR planning was must for Chinefarge. The senior management defined new operating procedures such as Employee Handbook, contract renewal system, focused training programs, new job evaluation procedures, professional planning, career development however, the middle managers contributed a lot towards the execution of the plans. Although the same managers were also managing HMC before the foundation of Chinefarge and the programs such as Position Skill Wage System, Excellent Employees etc., were also introduced in HMC. However, because of the poor implementation such programs had never appeared successful. Therefore, through proper communication and execution of HR procedures, the middle managers really helped to bring a change in the organization. 2. Human resource development This area of cross-national HRM deals with the development and maintenance of the competencies among the employees. The change process of Lafarge joint venture was not very simple because of many operational difficulties such as inadequate training of existing workforce, frequent shut downs, poor performance management system, poor discipline, inadequate health conditions, morale problems and lack of profitability. The middle management handled the resistances to change very carefully and put great efforts in making the venture a success. Even the Chinese plant manager admitted the fact that the implementation of management methods had to be conducted through middle managers because they could not talk to everybody individually. Work attitudes and practices: In the International Human Resource Management, the development of human resources should be based on the particular needs of the organization. Therefore, in Chinefarge, there was a need to introduce the programs that may result in the development of the work force. Since middle managers were directly dealing with the workforce therefore, changing the attitudes and practices of workforce was very important. To accomplish this aim, Employee Handbook was produced and distributed to everyone. Formalization of rules and regulations was a very right decision of the management. According to Marie Kraemer, “It is imperative that firms develop even-handed and standard policies that apply to all employees. The employer’s goal is to treat all “similarly situated employees” alike in like situations”.1 Managers communicated the regulations very clearly to the workforce that serious actions would be taken, in the case of rules violation. Although the General Manager who took very tough disciplinary measures left the company, still because of the middle managers the pressure on the staff to follow the rules sustained to be forceful. One interesting aspect is that after introducing the Employee Handbook the resistance from Trade Union was also reduced. As mentioned in the case study, Changing the attitudes of workers was a major challenge for the middle managers and through constant communication, tough discipline and actions, they accomplished it. The plant manager commented that the critical decision to train and develop the middle managers had started to pay off. It is interesting to note that with time the nature of problems changed for the managers. Training and Development: Chinefarge emphasized on systematic training and even middle managers were sent for training and development. The middle managers really managed the workforce very efficiently and the Plant manager commented that the decision of sending the middle managers on training was a very wise decision. 3. Compensations In this aspect of cross-national HRM, the rewards and incentives are covered. Previously the financial incentives such as bonuses of $117 were distributed equally to all the workers. The middle manager took the strong step to clearly distinguish between good and bad and they managed the compensation and reward authority very honestly. Performance Appraisal: For addressing the corporate, departmental and individual needs of the organization, a proper performance appraisal system is very important. Therefore, Chinefarge introduced the performance-related pay system. Since middle managers were delegated the authority to control the whole process of performance appraisal, therefore, middle managers played a very important role in implementing the new performance appraisal system against high opposition of the workforce. According to a Chinese middle manager, “At the beginning, the managers were afraid of hurting their faces and relationships.” Gradually the middle managers got the experience and through their input they enhanced the effectiveness of new performance appraisal system. Although the Chinese notion of equality in Chinese culture was not easy to overcome however, middle managers successfully accomplished that. The middle managers had a lot of responsibilities and of they could not be fair with their subordinates, then the company would find it difficult to implement the policies. Lafarge has recently tried to integrate the performance management system (PMS) and personal development plan (Figure 1) with the other elements (recruitment, selection, training, and compensation) of the HR system. (Ashok Som, 2003).2 Middle managers really made huge efforts to implement the new performance system. 4. The design of work systems The way the organization structures, distinguishes and distributes the tasks and responsibilities is covered in this area of cross-national HRM. Working conditions: Previously the workers were not given the proper working conditions; however, the management felt the need of upgrading the health and safety conditions of the plant. As mentioned in the case study, the investment of more than one million RMB in health, placement of safety management structure, safety meetings and physical examinations of the workers upgraded the health and safety conditions of the plant. Middle managers not only focused on enhancing the output of the workers, but they also provided the desirable working conditions to the work force. Authority of Middle Managers: The middle managers did not have enough authority when joint venture was founded however; the senior manager empowered them by providing the authority of wages, appraisal, reallocations, labor contracts and reallocations. Although middle managers were delegated the authority however, they had to face a great resistance to change. Throughout the process of change, the middle managers performed their responsibilities very honestly and sincerely. Reward Systems: Chinefarge faced various problems while recruiting the workforce because various skills were not available in the local community. It had become necessary to introduce a new reward system, so that company could go for external hiring, attracting and retaining the employees. The company introduced the differential reward system in order to attract and retain the workers. Middle managers played a very important role in communicating to the employees about the importance of this system thereby reducing the opposition. For keeping the reward system fair, the middle managers also avoided gifting in the company. Corporate Culture: Understanding the culture and designing the rewards accordingly is very important for the development of a good corporate culture. The culture of Lafarge to make the employees feel at home was consistent with the Chinese Culture therefore; Chinese expatriate managers did not face any problem in adjusting the culture. Furthermore, through cooperation with the Chinese middle managers, they became successful in designing the targeted corporate culture of Chinefarge. One reason for the success for Chinefarge was its highly interactive and supportive culture. Culture shock can lead to negative feelings about the host country and its people and a longing to return home (Harris & Moran, 1979). Therefore, retaining the external employees became easier for the company because of its corporate culture. Non-Financial Benefits: For motivating the workforce, the middle managers also introduced some promotional programs such as ‘Excellent worker’ award and ‘Employee of the Month’ award. The middle managers played a very important role in making the selection process fair and honest. The fair system also promoted the employees motivation and enhanced their productivity level. 5. Labor Relations This area includes the negotiations of management with the labor force, so that all aspects of cross-national HRM could be covered properly. When we look at subsidiaries of MNCs, it is clear that the type of influence on decision making that their employees are granted are likely to be affected by the policy practices common to host country competing firms (Goodhall & Nordhaug, 2003). Communication: In the beginning of the joint venture, Chinefarge managers lacked the mutual trust. Therefore, through the proper internal communication, the Chinese middle managers won the trust of expatriates and senior managers. Similarly, for enhancing the relationships with the labor force, the middle managers also increased their interactions with the employees. Basically the whole range of public relation activities and relationships of Chinefarge were improved. The Trade Union: The middle managers knew the fact that relationships with the Trade Union would be beneficial for the company therefore; they supported the union for difficult decisions. In response the Trade Union also supported the middle managers whenever rules were violations. Therefore, Chinefarge soon established a good position in the industry and its financial profits also increased with time. Future OF Lafarge in China Lafarge has really pursued best business practices in its international joint venture with Huaibei Mining Company (HMC). The company has successfully integrated the approaches of HR including recruitment and selection, rightsizing, retraining and redeployment, performance appraisal management, compensation and reward system. Although Lafarge founded a successful international joint venture however, the company also faces many key challenges in future. Key challenges for Lafarge in the future include maintaining the change momentum, fast and effective integration of acquired companies and transfer of “best practices”, and attracting and retaining a diverse workforce thorough their internationalization program (Ashok Som, 2003).3 Lafarge has its operations in Australia, Bangladesh, Belgium, Brazil, Canada, France, Germany, Italy, Portugal, Turkey, UK, USA and many other countries.4 It operates in a diverse atmosphere with different cultures, languages and people. Although, the practices of the company are excellent in the industry and in the world, however, it has to maintain the constant change in momentum. Lafarge has to be quicker in the implementation of its policies and it further needs to enhance its external and internal communication, in order to manage the people. In my opinion, for the meeting the Lafarge standards of operational excellence, it needs to apply the best practices of quality, IT, marketing, production, communication and business along with HR practices. CONCLUSION Managing human resource in a global expansion is not really easy and it is evident from Lafarge in China. From the above evaluation, I am of the view that the HR function in all kinds of international ventures has to consider two major tasks. First of all, it should motivate people and provide them appropriate ways to show their skills and compatibility of styles. Secondly, managing human resources should not be only based on the organizational needs but it must also consider the strategic context such as utilization of managerial capabilities in other settings. The role of middle managers in Chinefarge has shown that for any venture to be successful implementation, execution and communication of programs and planning is as important as the formulation of strategies. It also underpins that development of an excellent HR function is a business strategy that focuses on individuals as a foundation of competitive advantage. However, Chinefarge has to maintain the change momentum in future for the further development of the company. Bibliography Arino, A. & Reuer, J. (2004). Designing and Renegotiating Strategic Alliance Contracts. Academy of Management Executive, 3: 37-48. Beamish, P. & Kachra, A. (2004). Number of Partners and JV Performance. Journal of World Business, 39: 107-120. Ernst, D., & Halevy, T. (2004). Not by M&A Alone. The McKinsey Quarterly, 1: 6-10. Evans, P., Pucik, V., & Barsoux, J. (2002). The global challenge: Frameworks for International Human Resource Management. Boston, Massachusetts: McGraw-Hill. Goodhall, K. & O. Nordhaug, 2003, International management: cross-boundary challenges, Wiley-Blackwell, 3: 87-101 Goodall K. & M. Warner, 2003, Lafarge in China: Cross-National HRM Wiley-Blackwell, pg.102-128 Harris, J.E. & Moran, R.T. 1979. Managing cultural differences. Houston: Gulf. Laurent, A. 1986. The cross-cultural puzzle of international human resource management, Human Resource Management, 25: 91–102. McDonald, Frank, & Fred Burton, (2002). International business ITBP Textbooks Series, Cengage Learning EMEA, pg. 321 Narula, R., & Duysters, G. (2004). Globalization and Trends in International R&D Alliances. Journal of International Management, 10: 199-218 Som, Ashok, 2003. Human Resource Management, Wiley Periodicals, Vol. 42, 3: 271-288 Tayeb, H. 2005. International human resource management: a multinational company perspective. Oxford University Press, pg. 169 Individual Assessment Methodology – Appraisal and Personal Development Plan Figure 1 Source: Internal Company Document, Paris Read More