Challenges faced by LMVH - Essay Example

?Introduction: LVMH is one of the well-established conglomerate headquartered in Paris, France offering luxurious brands throughout the globe. It is divided into five main groups consisting of companies responsible for prestigious brands. Its commitment to constant growth is evident from its continuous expanding business. LVMH has stronghold in several areas of the world most dominantly in Europe, Asia and America. Despite its global presence, people at LVMH had little to do with international experience. Realizing the need for international expertise, LVMH devised a policy of rotating its employees on the international assignments so that they can learn the required skills and perform exceptionally well. The international transfer department is responsible devising policies related to the international assignments. As regarded by LVMH “international mobility” is the essence of career development which helps the potential candidates to acquire the requisite competencies. This case study delineates the procedure of international mobility. This assignment focuses on some of the key issues of international mobility so as to bring in light the challenges faced by the company and ways to tackle with them. Challenges faced by LMVH: LVMH, being a global company, required the expertise of personnel having international experience. To assure the availability of potential human resource who could operate anywhere in the dominated market, company decided to build in a pool of such asset by moving them internationally as part of their career development process. International mobility is the reality which has become pertinent for almost every global organization to work effectively in a cut throat competition. International assignments are considered as one of the most potent means of developing “Global leaders” (Stroh & Black, 2005). Its importance can be exhibited by the graph (Appendix A) showing results of a survey conducted by Engineering and Construction industry. International mobility, as it is called, is not entirely an easy process; it stores in several challenges that the company is still facing despite devising a strategic plan. Some of these are as follows: The package for the international mover is initially devised at the corporate level; companies are given autonomy to accommodate the needs and demands of the candidate. This at times become quite frustrating, time consuming and even more expensive when dealing with the potential subject’s non-technical requirements. The situation grows even more problematic when people try to compare there package with others holding same position in different companies within the group. LVMH follows a “balance sheet approach” to devise an appropriate salary for the expatriates. This approach is widely used owing to its advantages for an international assignments; it treats all the employees with equity without creating a difference in their salaries owing to the market rate of the host country, this in turn reduces the chances of uncertainty thus encouraging employees to take on the assignment (Stroh & Black, 2005). However, the increase in the firm size surges the administrative burdens and thus the cost. “Security benefits” is yet one other concern that needs to be dealt with appropriately when laying out the package. Security packages generally differ in each country. Devising a package keeping in view the host countries requirement at times is problematic owing to the complexities involved in it. Every country has its own rich culture strongly held by its dwellers. Cultural differences strongly impede the process of adjustment by a foreigner because of differing managerial values (Bigoness &Blakelly, 1996). Thus to ease out the process, LVMH believes in the training its employees. However training process is time consuming and the adjustment is left on the employees to deal with. Moreover devising and then implementing appropriate cost effective policies for managing international assignments and recruiting process pose a significant risk to the parent company (Reiche, 2006). Once the individual had moved out to the host country with his family, providing him with the essential support is also challenging as it may motivate or de-motivate the employee thus challenging the success of the organization. Dealing with a range of host country’s obligations and associated risks such as immigration, compliance to tax and regulatory obligations and local employment policies is also a challenging task on part of the parent company (Hook, 2008). These are just few of these challenges mentioned that LVMH has to deal with owing to the complexities involved in it. A graphical view of some of these challenges is shown as figure 11 in Appendix A. International Transfer Policy: Dealing with a vast variety of international moves at such a large scale becomes difficult to handle and deal with in the absence of already established rules and procedures. Keeping in view the complications involved, LVMH developed a “International transfer department” to deal with the issues relating to international transfers. Clearly defined policies and procedures improve efficiency, results in greater consistency and saves resources (Sinclair, 2004). International transfer department dealt with five main important functions: 1. To develop packages for the expatriates so that an equity is maintained among the companies within the group. This indeed was an essential task because leaving entirely on the companies for developing packages for their employees would have created quite an uproar and disturbance when comparing the packages of people occupying same positions within the same group. The department working at the corporate level effectively details out a package which later can be tailored according to the requirements of the employees by the concerned companies. 2. Assisting the companies within a specific group to deal with international transfer’s issues. To keep a control on a sensitive issue of international mobility, having already set policy helps in tackling with problems arising out of such issues. 3. Helping the companies with on the time information and advice on country specific issues such as labor laws. Every country has its own set of laws and policies which need to be strictly followed. In order to ease this tiresome and tedious task, international transfer department develops its own bank of information about different countries rules and policies. On the basis of this information it provides the concerned company with advices on issues relating to it. 4. Assisting LVMH in its internal mobility policy. Owing to its sensitivity and crucial importance for the company’s success, it was essential for the company to have a separate department with its defined policies so that they can devote their resources and help the company to adhere to its strategic move of international mobility. 5. Surveillance of international transfer data. Keeping a constant check on the international movers, the requirements as forwarded by the companies and the Ready to go on the list was one role of strategic nature played by the department. Before 1987, each company had its own policies for international movement and they used to tackle issues related to it according to their requirements. As such there wasn’t a body at the corporate level responsible for smoothening the flow. At times problems aroused such as packages developed differed from employees of other companies having same positions, spending too much of the monetary resources in gathering information about foreign laws etc. to tackle with these issues, a department having its set policy for international move was developed which helped in easing the sensitive part of career development. Today every company owns a set of policies on international transfer as devised at the corporate level. It just focuses on the general principles rather then being specific. LVMH believed in giving a specific level of autonomy to its companies so that they can work well according to their own requirements. Thus presence of international transfer policy was indeed essential as it helped in harmonizing the process. In the absence of such laid down policies, imagining a well managed and organized flow of personnel at such a large scale with satisfied packages would have been entirely impossible. International Adjustment: According to LVMH, motivation for the potential candidate behind his international transfer lies primarily in the challenging nature of the assignment. However, owing to the wide differences in cultural, social, economic and environmental factors many concerns were put forth by the candidate before accepting the assignment. A graph showing the results of a survey conducted by the Engineering and Construction Industry is presented as figure III in Appendix A. LVMH gave considerable importance to the issue of international adjustment and devised certain policies thus assuring the successful adjustment of the individual. Its adherence to balance sheet approach helped in ascertaining that the move does not result in any gain or lose by the potential mover. To remove any differential in salary, LVMH provides the required allowances so that the individual can make up for the increase or decrease in the salary due to exchange rate. Availability of suitable accommodation at the reasonable price in the host country is of prime concern for the potential mover. LVMH is provided with the details about the market rates by a consultancy firm which helps in finding a suitable accommodation and also in calculating the allowance and the percentage of salary to be contributed by the individual. LVMH assists the individual in moving to the host country by spending on their own account for the transport cost, helping them settle there, finding schools for children, helping them in their enrollment etc. Other issues such as security benefits, pension funds, and incentive packages are all appropriately dealt with keeping in view the host country and the parent country’s requirements so that any differential can be adjusted by the company based on the balance sheet approach. According to Hofstede (1980) and Trompenaar (1993), there are peculiar cultural differences across countries thus exhibiting dissimilar working values and behaviors. Laurent (1986) also proved peculiar managerial values across nations. These differences are mitigated up to some extent by giving pre-movement training. Such training helps in adjusting in an entirely unknown environment having tough values. Owing to the extensive time required for such trainings, at time it becomes impossible for such trainings and the individual has to move without it. However, the personnel of the host country working in the same company are expected to help out the new comer to cope up with such a drastic change. As opposed to the balance sheet approach employed by LMVH, several companies use either of parent company-equivalent approach or local national approach. Moreover the packages as proposed to the expatriates by LVMH are less attractive in comparison to that of other multinational organizations. These differences can be seen in terms of house allowances, car allowances, club membership, hardship or site allowances and danger allowances. The package is good enough to help in the transfer and adjustment. One reason suggested for such a difference is to avoid the individual in restricting his career for that specific country. Moreover in today’s ever competitive environment finding cost effective ways of performing activities effectively and efficiently is regarded as a competitive advantage for that specific country. LVMH assures that its expatriate package is at the same time cost effective and attractive. Recommendations: As argued before and evident from the case study that developing “Global Leaders” plays a significant role in the success of any organization. It is a key to competitive advantage. According to a research by Carpenter, Sanders and Gregersen (2000), executives with international experience heading US firms were more competitive and successful as compared to the ones having no such experience. International mobility as followed by LVMH is indeed the most expensive investment on an individual by the company with an expectation of gigantic results. However, the companies fail to get the expected results thus resulting in colossal damage. To avoid such possibilities managers need to comprehend the best practices. Though LVMH view international mobility as a strategy for career development, but it should not be just limited to ones own development rather needs to have a broader view of its positive results in terms of coordination and control, technology transfer, innovation, information exchange (Stroh & Black, 2005) and knowledge transfer (Bonache, 2001; Hocking, 2004; Tsang, 1999; Lazarova & Tarique, 2005). LMVH must ensure that people who are being send out for the international project has the required skills to work in the competitive environment and are well aware of the compliance issues (Hook, 2008). For this purpose the international transfer department can devise a schedule of transfers on yearly basis and before time inform the concerned companies so that the potential candidates can be given training way before hand. Apart from training, there are several other ways to ease out the international adjustment such as “briefings, visits and shadowing and host sponsor role (Harris & Dickmann, 2005). Moreover repatriation can be eased out by “pre-departure career discussions, a mentor at the host country, family repatriation programs, employee debriefings and succession planning” (Harris & Dickmann, 2005). As mentioned in the case study, LVMH is highly ethnocentric at the higher level and thus most of the expatriates are French. In such a situation an ethnic distance is created which may hinder the local employees understanding with the top management (Grossman & Schoenfeldt, 2001). A polycentric approach should be emphasized to provide equal opportunities. Instead of choosing the potential expatriate on seniority basis, required skills needs to be assessed so that there exists equal chances of career development for every managerial level. Conclusion: The bottom line story is that LMVH being a young structure needs a lot of improvement to face the challenges posed by the international mobility. International assignments, as evident from above, have become increasingly important for all organizations working around the globe. Assigning the right person for the right international assignment is the essence of the organization’s success. Moreover maintaining the interest of the employee in his assigned tasks and providing hi with all the support is yet another task that should be dealt with appropriately. Culture barriers also pose a significant challenge that requires attention of the senior management and proper training schedules as mentioned above should be acted upon at the earliest. Though compensation package is not the major motive behind accepting the international assignment, yet it is of significant concern for the employees and thus needs to be competitive yet cost effective to compete in the cut throat market. Compliance to the international markets is very essential and the moving employee should be adequately informed about the prevalent rules and laws of the host country so as to avoid any failure. LMVH invests huge amount on its international mobility and so must also concentrate its resources on such policies and procedures which ensure confirm return from the huge investment. Appendix 1: Figure 1 Figure II: Figure III: Bibliography: Hofstede, G., (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organisations Across Nations. Second Edition. Trompenaar, F. and Woolliams. P., (2003). A new framework for managing change across cultures. Henrey Steward Publications, Volume 3, Journal of Change Management Osborn, D., (1997).The international mobility of French managers. Volume 15. European Management Journal. Bigoness, J. and Blakely, G., (1997). A cross national study of managerial values, Journal of international business studies. Hocking, J.B., Brown, M.E. and Harzing, A.-W. (2004). A Knowledge Transfer Perspective of Strategic Assignment Purposes and Their Path-Dependent Outcomes. International Journal of Human Resource Management. Gregersen, H.B. and Black, J.S. (1992) Antecedents to Commitment to a Parent Company and a Foreign Operation, Academy of Management Journal. Grossman, W. and Schoenfeldt, L.F. (2001) Resolving Ethical Dilemmas through International Human Resource Management: A Transaction Cost Economics Perspective. Human Resource Management Revie. Reiche, B., (2006). The effect of international staffing practices on subsidiary Staff retention in multinational corporations, Published in International Journal of Human Resource Management Lazarova, M., & Tarique, I., (2005). Knowledge transfer upon Repatriation. Journal of World Business, 40(4). Jonathan Hook, (2008). International Mobility in Engineering and Construction Industry. Published by Price Water House Coopers. 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