Operations Management and an International Perspective - Case Study Example

Business Report Name Name of Institution Business Report Introduction Baosteel is a Chinese State-Owned Enterprise that serves the global steel industry. The company was established in 1978, and it has experienced growth that has been primarily driven by the evolution of the Chinese economy. The establishment of a successful subsidiary in Germany is a testament to the success of the organisation as many successful Chinese firms find it difficult to transition to global operations (Linke & Klossek, 2009). This paper considers operations management in Baosteel’s international business. A critical challenge for many global companies is finding the right workforce to facilitate the attainment of organisational objectives. The purpose of this report is to examine how the Chinese firm has approached the human resource function and whether its strategies have worked in an international environment. The first section provides an overview of the global steel industry. This is followed by the use of the PESTELI framework to gain an understanding of the environment in which Baosteel Europe operates and how the factors in the external environment affect the human resource strategies. International Human resource management issues at Baosteel Europe are then identified, followed by recommendations on the course of action that the firm should take to solve its human resource problems. Global Industry Analysis Steel is a commodity that has been central to the progress of humanity as a whole since its invention. The features of steel that have made it an important component in construction are its strength and durability when compared to other materials. Steel also meets sustainability requirements owing to its ability to be recycled and reused with zero waste (World Steel Association, 2015). However, the cost of steel is also high when compared to alternative materials. The overall importance of steel means that the steel industry plays a significant role in the global economy. According to the International Trade Administration (IDA, 2016), steel is a heavily traded commodity that has experienced many challenges in recent years as a result of changes in the market, shifts in export and import levels, and a reducing global demand for the product. The financial crisis of 2008 and 2009 also had a dampening effect on an industry that was experiencing growth as a result of the development of China (IDA, 2016). Despite the challenges, the global production and capacity for steel-making have increased over the past decade. Total production in 2005 was 1.1 billion metric tonnes, a figure that grew to 1.6 billion metric tonnes in 2015. It is also worth noting that 2014 witnessed the highest steel production in history with the industry producing 1.67 billion metric tonnes of steel (IDA, 2016). When it comes to location, 69% of steel is produced in Asia and Oceania. The European Union follows with 10% and North America with 7%. In 2015, China was the leading producer of crude steel in the world, followed by Japan, India, the US, Russia, South Korea, Germany and Brazil (IDA, 2016). In the period between 2005 and 2015, most steel producing nations have invested in increasing their capacity to produce steel, with Asia and Oceania accounting for an outstanding 89% of global steelmaking capacity (IDA, 2016). These statistics points to a trend where the region will retain its position as the dominant steel producer for the foreseeable future if it utilises its enormous capacity. When it comes to market share, five of the top ten leading manufacturers of steel come from China, with nine of the top ten coming from the Asia and Oceania region. According to the International Trade Administration, ArcelorMittal is the leading steel producer, with its output accounting for 6% of global production. China’s Hesteel Group, Japan’s Nippon Corporation, POSCO, and Baosteel Group rank second to fifth respectively (IDA, 2016). Apart from being a widely-traded commodity, steel has a variety of uses. Most of the steel that is produced in the world is used in building and construction. Other essential uses of steel are in the production of mechanical equipment, automotive manufacturing, metal products, electrical equipment, and a variety of domestic appliances (IDA, 2016). It is, therefore, apparent that the leading producers of steel have to customise their products to suit the needs of a market that demands a broad product range. Company Analysis The PESTEL Analysis is a tool for analysing the external environment in which a business operates. Robinson et al. (2016) note that the tool’s importance is that it can allow an organisation to develop strategies that deal with the factors that have an impact on the functioning and performance of the organisation. Given that this report focuses on International Human Resource Management at Baosteel Europe, the PESTELI analysis will concentrate on the factors in Germany’s and China’s external environment that have a bearing on human resource management at Baosteel. Political Factors Germany is a mature democracy that has a Federal government system which encompasses the Federal, State, and Local Levels. One of the distinct features of the German economy is the lack of government guidance in business. There are provisions that protect business and non-business interests from abuses, but companies generally operate with minimal regulations. However, it is essential for firms like Baosteel to work with the trade offices of local governments as they have a significant impact on regulations and providing assistance to certain industries (PWC, 2014). Economic Factors Germany is Europe’s largest economy and the fifth largest in the world (CIA World Factbook, 2017). The primary economic challenge has been high levels of unemployment and low levels of growth. The main reason for unemployment is the high costs of living coupled with strong protections for employees. The implication is that firms avoid hiring new employees, while highly skilled employees also avoid shifting to new jobs because they will lose long service rights (PWC, 2014). Social Factors Germany has Europe’s largest population, but it faces issues such as an ageing population, lower incomes due to Europe’s economic crisis, and immigration issues (PWC, 2014). Some of the features of German society include high labour organisation and efficiency, good employment relations that are protected by law, high expectations on fringe benefits like canteen meals and child care, and short working hours with a minimum of 20-day holiday entitlement (PWC, 2014). Germany also has a strong social security system, and foreign workers from areas outside the EU have to seek residence and work permits (PWC, 2014). Technological Factors As one of the leading economies in the world, German has highly advanced technological systems. Internet penetration is high, with the countries 87% penetration making it the eighth in the world (CIA World Factbook, 2017). The country also has an advanced transport system, meaning that local and international movement of workers is efficient. The internet and communication technology also implies easy communication and the possibility of having dynamic virtual teams. Environmental Germany has statutes and laws that cover environmental protection with much of the regulations coming from the EU (PWC, 2014). Legal Factors In the area of human resource management, Germany’s legal system offers very strict labour laws that protect employees from dismissals. For example, Employers need to give four weeks’ notice before termination, but the period has to be extended if the employee has served for a long duration. The notice is also extended when it is determined that an employee will experience economic hardship after losing his/her job. Companies also have to negotiate with workers' representatives in cases of mass layoffs. The legal system also covers fringe benefits, wage and salary levels, and health and safety. Industry Factors Germany is ranked seventh in steel production, fifth in steel exports, and second in steel imports (IDA, 2016). As a manufacturing-oriented economy, it is evident that the steel industry plays a dominant role in the economy making it an attractive market for Baosteel. The attractiveness is enhanced by the German government providing both direct and indirect aid to the steel industry. For example, the German Government set aside £3.67 billion to subsidise the cost of energy for steel producers and also encouraged local governments to use steel that is produced in the country (Beattie, 2015). German workers are also famed for their high skills and efficiency, meaning that it will be easy for Baosteel to handle functions like forecasting, purchasing, and supply chain management in the German steel industry. International Human Resource Management at Baosteel Europe Operations management defines the management of the resource used to produce and deliver goods and services (Slack et al., 2010). Operations management is a critical activity because all organisations produce and deliver goods and services. In recent decades, globalisation and integration of global economies have necessitated the production of goods and services in international locations. Businesses have had to consider the effects of international operations on their expansion strategy, innovation and learning, product design, supply chain management, forecasting, and human resource management. This report concentrates on the international human resource management at Baosteel’s European subsidiary. According to Barnes (2008), human resource management is concerned with how people are managed as individuals. As stated, operations management focuses on the management of the resources that are used to produce and deliver goods and services. It is apparent that people are the most critical resource that is available to organisations and that without collaboration between individuals, businesses will be unable to meet their objectives. The importance of human resources becomes crucial in the case of a Chinese organisation like Baosteel. The structuring of organisations has been the subject of research for many years with the conclusion being that there is no one best way to structure an organisation (Barnes, 2008). However, there has been a consensus that organisational structures can be viewed from the centralization, formalisation, and specialisation dimensions (Barnes 2008). The Baosteel case shows that the organisation employs 55 workers in Germany, but that the Shanghai office controls the internal structures in Germany. The case also describes a formal structure where one Chinese department head supervises four tandems that consist of a German and Chinese worker. These examples show a high degree of centralization and formalisation at Baosteel’s European subsidiary. According to Barnes (2008), centralization and formalisation can lead to a lack of worker autonomy and flexibility. Lazarova, Peretz and Fried (2017) argue that autonomy in human resource management is associated with better subsidiary performance. Therefore, the organisation needs to re-examine centralization and formalisation at the European Subsidiary to boost performance in an industry that is facing reduced demand for steel. Human resource management involves two main activities. The first involves identifying the type and number of people needed to manage an organisation. The second action involves coming up with programs and initiative to attract, develop, and retain the right workforce (Slack et al., 2015). While Baosteel has achieved success in identifying workers and attracting them to the organisation, the evaluation of the case shows that its human resource strategies inhibit the development of German employees. The case indicates that all department heads are Chinese Nationals and that each German employee has to be partnered with a Chinese employee (Linke & Klossek, 2009). Baosteel has also enforced a strategy where certain business units are reserved for employees from China. These include the New Business department which is led by a Chinese national and the Steel trading department that excludes all other nationalities. When it comes to advancement to senior management positions, one of the requirements is that an employee has to work at the Shanghai headquarters. A second requirement is for prospective senior managers to master the Chinese language (Linke & Klossek, 2009). These strategies are disadvantageous to German employees who decide to remain loyal to the firm as they do not have the same career advancement opportunities as their Chinese counterparts. At the same time, the Chinese employees who want to move to foreign countries like Germany to get international experience are given specialised training that prepares them for working in a different culture. As a global player with a transnational outlook, Baosteel Europe needs to ensure that it offers the same training and development opportunities to its diverse workforce. China has witnessed dramatic economic growth over the past two decades with its economy rising to become one of the largest in the world. In the same period, China has also seen an improvement in the standards of living that has reduced the attractiveness of moving to the Western world (Linke & Klossek, 2009). The result is that Baosteel is experiencing challenges in convincing Chinese employees to leave their families, generous incomes, and high quality of life for foreign countries that often have very different cultures. At the same time, a review of German society shows reduced regional migration and as well as a reluctance to leave secure job opportunities that offer generous rewards (PWC, 2014). An international firm like Baosteel requires access to a broad pool of qualified employees to be successful. The demographic changes in China and Germany are such that Baosteel has access to a dwindling pool of skilled employees who can run the European subsidiary of one of the top five steel producers in the world. The Baosteel case also raises issues that are related to the benefits and compensation aspects of human resource management. According to Linke and Klossek (2009), the company decided to add the German workers to the Chinese bonus system that covered both Chinese expatriates and employees in China. While this strategy is laudable, it is important to note that most organisations provide bonuses that are tied to seniority (Schweiker & Grob, 2017). The above evaluation of training and development at Baosteel shows that German employees do not have access to the same career progression opportunities like their Chinese counterparts. Therefore, the German division has to be congratulated for including Germans in the bonus system, but the lack of career development prospects means that none of the German workers will be in a position to earn the same bonuses as their Chinese colleagues. A related issue comes from the aforementioned demographic changes in China that have reduced the attractiveness of moving to foreign countries. Baosteel Europe has resorted to increasing compensation and providing job guarantees for the spouses of Chinese workers who accept to relocate to Germany (Linke & Klossek, 2009). The evaluation of Germany’s social environment also shows a reluctance to switch jobs, especially for experienced workers (PWC, 2014). However, the Baosteel case does not mention any additional benefits for Europeans who join the company. Evidently, Baosteel Europe needs to evaluate these issues to create uniformity in how it rewards its human resources. The importance of national culture in international human resource management cannot be understated. According to Dordevic (2016), national culture has a powerful influence on values attitudes, and behaviour and also on the preference for human resource management policies and procedures. An evaluation of the Baosteel case shows that the firm has attempted to respect German culture through strategies like allowing employees to leave early and not work extra hours as is the norm in China. However, some areas require improvement. It is acceptable that shared language plays a critical role in bridging different cultures. This realisation has prompted many multinational firms to adopt a single corporate language to facilitate communication, formal reporting, and create a greater sense of belonging in the company (Piekkari, 2006). Baosteel Europe has failed in this regard because of the use of German, English, and Chinese across different functions like procurement and steel trading (Linke & Klossek, 2009). The case study also mentions the lack of physical interactions between the employees who work together on a day to day basis. Apart from the 1-week visit to China, German workers have not had the opportunity to build relationships with those they interact with on a daily basis. These cultural issues inhibit the development of a shared organisational culture and commitment that is vital for corporate performance (Abdul Rashid, Sambasivan & Johari, 2003). Recommendations and Conclusion The first issue that is highlighted in the case relates to the organisational structure at Baosteel’s European and Chinese locations. It is noted that the firm has a high degree of centralization and formalisation. It is recommended that the company reduces centralization and formalisation to encourage autonomy and the flexibility needed to operate in a rapidly changing business environment (Lazarova, Peretz & Fried 2017). Regarding training and development, it is recommended that Baosteel adopts uniform training and development policies. In particular, new German and Chinese employees should go through the same orientation and onboarding process in the early stages of employment. Lessons in the Chinese language should also be provided to German employees to allow them to reach senior management positions. The demographic challenges can also be mitigated by providing a path to employment to Germans to encourage them to move to the firm. Equal rewards and compensation will also go a long way in attracting both Chinese and German nationals. Finally, it is recommended that the company considers having a single corporate language to enhance communication, build a shared culture, and to improve overall efficiency. The paper notes the importance of the steel industry to the functioning of the global economy. The paper also identifies Baosteel’s position as a leader in the steel industry and as an example of a Chinese firm that has successful global operations. An evaluation of the external environment with an emphasis on international human resource shows Germany to be a favourable location for doing business. The paper identifies the international human resource issues that face the company and limit its success. These are in the areas of organisational structure, training and development, demographic changes, benefits and compensation, and cultural issues. The paper recommends ideas like shifting away from centralisation and better orientation strategies that should allow Baosteel Europe to take advantage of the favourable business environment in Germany. References Abdul Rashid, Z., Sambasivan, M., & Johari, J. (2003). The influence of corporate culture and organisational commitment on performance. Journal of management development, 22(8), 708-728. Barnes, D. (2008). Operations management: an international perspective. Cengage Learning EMEA. Beattie, J. (2015). Steel industry is protected by other EU countries - why is it not in the UK? Daily Mirror. Retrieved 27 April 2017 http://www.mirror.co.uk/news/uk-news/steel-industry-protected-eu-countries-6671639 Đorđević, B. (2016). Impact of National Culture on International Human Resource Management. Economic Themes, 54(2), 281-300. IDA. (2016). Global Steel Report. International Trade Administration. Retrieved 27 April 2017 http://www.trade.gov/steel/pdfs/07192016global-monitor-report.pdf Lazarova, M., Peretz, H., & Fried, Y. (2017). Locals know best? Subsidiary HR autonomy and subsidiary performance. Journal of World Business, 52(1), 83-96. Linke, B.N., & Klossek, A. (2009). Baosteel Europe. In S. Sohm, B.M. Linke, & A. Klossek (Ed), Chinese Companies in Germany: Chances and Challenges (pp. 82-91). BertelsmannStiftung. Piekkari, R. (2006). Language effects in multinational corporations: A review from an international human resource management perspective. Handbook of research in international human resource management, 536-550. PWC. (2015). 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