Saints Construction Expansion into China - Essay Example

Saints Construction Expansion into China Table of Contents Introduction 3 2. Feasibility Study 3 2 Strengths and Weaknesses of Potential Sites 3The U.S 3 Germany 4 China 4 2.2 Rationale for Choosing China 5 2.3 Off shoring Production, Benefits and Challenges 6 3. HRM policies 7 3.1 1nfluence on Pay and Reward Policies of Saint 7 3. 2 Extension of HR Practice across national contexts 10 4. Conclusion 11 Reference List 12 1. Introduction Globalization has induced firms, especially of the western nations to expand into foreign nations from where they can achieve resource and cost benefits (H. Zhao and G. Zhu, 2000). Saint Constructions, a British manufacturer of digging and earth moving equipment for the construction sector, is considering expanding their activities into a foreign nation and thereby participating in the globalized work environment. The firm’s production facilities are currently focused in Northampton and in Belfast. The plan for developing a new business site abroad would employ approximately 1000 workers. It is anticipated by the company that the Belfast site would soon be closed down. The company has selected the U.S, Germany and China as potential nations for such expansion. The current paper analyses the potential sites and assess the various feasibility factors and human resources aspects associated with the chosen site. 2. Feasibility Study 2.1 Strengths and Weaknesses of Potential Sites The U.S Strengths- Since the political and the legal environment existing in the U.S is well organized, the regulations established in respect of protecting the rights of workers are well implemented and requires to be strictly followed by organizations. The U.S HRM (human resource management) policies and labour markets are well organized. Wages are regulated to meet the purchasing power existing in the market. HRM policies established in most companies of the U.S takes into consideration aspects such as adequate power distance, frequent performance monitoring and strict industry guided payment measures. Decentralization and increased market expansion have led to the availability of greater job opportunities. Workers of the U.S are highly skilled and technologically efficient, making the same quite expensive as compared with other nations. Also the localization effect existing in the U.S is dominant. This means that firms who chose to expand into the U.S must radically incorporate the conditions existing in the nation rather than following the parent nation regulations (Erickson, 1996). Weaknesses- Implementations of regulations in the labour markets are not effective in few of the economic sectors such as the construction and production industrial segments. Although the standards of living of the general workers have enhanced, unemployment still persists. From the social point of view the U.S faces the challenge of labour shortage. An ageing population is the main crux of the issue of lack of labour availability. Culturally, the mindset of the people is quite liberal, however a number of cases associated with racial discrimination has impacted inflow of expatriate employees in the recent times Germany Strengths- Recruitment and payment culture existing in Germany is directed towards an overall development of the society. Employee selections and promotions are based on skills and performance efficiency solely (Eichhorst and Marx, 2011). There exists strict rules and regulation in respect of basic pay for workers in different sectors. The labour market activities and trends are vigilantly monitored by the sound administration system of the nation. Political interference into providing adequate support to the labourers and preventing their exploitation is common, a feature enjoyed by the financially smaller organizations. Performance assessment and accordingly setting incentive and reward policies are crucial aspects of the German HRM (Ellguth, Gerner, and Stegmaier, 2014). Weaknesses- Labour, although is abundantly available, is expensive and is also characterised with high skill and knowledge. However due to lack of all round economic development, unemployment persists in Germany. Also the international integration of the German economy is not wide spread. Since labour is expensive, most organizations rely upon the cheap workforce inflowing from other European nations (Grahl and Teague, 2004). Capital and resource mobility is highly restricted. Collective barraging and unionization of workers are not encouraged (Whittall, 2005). In the near future, the extensive increase of the aged population may affect the level of skills and also unemployment. China Strengths- HRM practices in China are radically influenced by the eastern and western practices. Employee markets are highly deregulated and administrative HRM systems and policies are radically impacted by the organizational core values and the morals of the employees (List, 2001). Team work and greater power distance are characteristic features of organizational HR. Frequent communication between employees and superiors is encouraged and is considered to be effective towards motivating employees to perform better. Training and development in Chinese organization is given relatively high importance (Jiang and Prater, 2002). Performance management systems in most Chinese organizations are based upon regulations set by the organizational superiors, rather than the formal codes of the company (Cunningham and Rowley, 2008). Following ethical means and indulging in fair practices are also part of the performance evaluation systems. Self evaluation techniques are also indulged in during performance assessment and appraisal (Erber and Sayed-Ahmed, 2005). Socially, being one of largest nation in terms of population, it has abundant labour which is both skilled as well as cheap (Carter and Estrin, 2005). There exists strong lobbying and a sound set of labour regulations backed by collective bargaining and unions. Interpersonal relationships are also crucial in the Chinese HRM polices, also known as the Guanxi System (Huang, 2008). Weaknesses- Also working population numbers are seen to consistently decline as compared with the non working population (Qu and Brocklehurst, 2003). The technological awareness and skills of Chinese workers are low. This leads to the requirement of enhancing training related needs. Another crucial weakness which foreign organizations face is in respect of the scattered population. While some cities are massively population dense, many urban areas are seen to lack population density. For such reasons development is not uniform across the nation. HR managers therefore find it difficult to procure skilled workers in the less urbanized locations (Cunningham and Rowley, 2008). 2.2 Rationale for Choosing China Saint Constructions, due to their nature of activities requires expanding to a nation where labour is abundantly available, a characteristic feature strongly present in China (Khanna, Palepu, and Sinha, 2005). It would be feasible if the selected nation is expatriate friendly (Zhang and Song, 2002). China had begun experiencing globalization ahead of most Asian nations and therefore has abundant numbers of foreign employees. Saint would therefore face no or very less issues in respect of labour movement and inducing cultural alignment (Deng, 2004). China’s integration with European business units is seen to be rather smooth. Since the Chinese organizations HRM systems are radically influenced by the western systems, it would be easier for Saint to integrate their policies in the nation (Yuqing, 2006). Moreover the openness to foreign direct investments and international joint ventures existing in China is more favourable than that which exists in Germany and the U.S. Saint’s pay and reward policies are fundamentally based on performance, an aspect similar with that existing in China. However competition and general industry standards of pay are also required to be considered to avoid massive turnover (Fan, 2006). 2.3 Off shoring Production, Benefits and Challenges Off shoring business activities has emerged as a common phenomenon with the rise in the global integration of business activities. Setting international production locations would benefit Saint Constructions to acquire the wider range of expertise and skills. The Chinese are known for their technical skills and their ability to carry out business operation incurring low costs. Saint can hugely benefit from such factors (Weidenbaum, 2005). The advantages received from low production costs can be utilized for bringing in better technology and other resources from western nations. Hence through such off shoring a merger of the expertise of both the U.K and China can be brought together. Through such off shoring, Saint can suitably establish a strong market for itself in China as well as in Asia as a whole (Huang, 2003). It also facilitates distribution of risks. Setting a manufacturing location only in the U.K might be risky in case the market conditions become adverse and consequently revenues might be affected (D’Agostino, Laursen and Santangelo, 2013). Demand and the ability to continue production without interruption becomes more widespread as a result of international expansion. Generally firms belonging to the construction industry consider off shoring their activities by analysing the existence of labour conditions. China being an extremely populous nation possesses both skilled and semi skilled labourers. Moreover influx of human resource from neighbouring developing nations such as India can be an added advantage for Saint (Bryson, 2007). Off shoring in general is seen to create a positive impact upon developing nations, such as China India (Jensen and Pedersen, 2012). The middle class community are facilitated with increased job opportunities and rapid income growth. Despite many gains, the outcomes of off shoring are not certain. Although off shoring has provided economic growth in most developed nations, the growth has not been equal. For instance, few urban regions in China still face issues of unemployment and income disparity (Chiu, Wai-Mei Luk and Li-Ping Tang, 2002). However from the HRM perspective, off shoring business activities leads to better selection and diversification of employee skill sets. While undertaking such off shoring production activities, firms are required to merge their exiting HRM policies, with the labour conditions and policies existing in the nation into which the expansion is being made. This would pose as a radical challenge for firms who belong from a developed nation of the west and are considering expanding into a developing nation of the east (Zhu and Warner, 2004). Not only do HRM strategies of the developed and the developing nation differ from each other but also the cultural aspects associated with the European and Asian nations vary vastly (Gamble, 2003). Although off shoring business activities is largely perceived as advantageous, if not cautious a firm may face numerous issues. Through expanding into a new nation Saints risks to expose their operational methods and share valuable resources. If not controlled and monitored properly, such factors can get exploited (Levy, 2005). In order to develop a strong market, Saint is required to merge itself with existing businesses in China. Hence it is essential to synchronize the manner in which Saint operates with that of their partnering firms in China. If such collaborations are not sound, business activities might get jeopardised. Many at times it is seen that firms who outsource their activities lose customer focus (Bunyaratavej, Hahn and Doh, 2007). The clients of Saint existing in the U.K and that of China are radically different due to their differentiated needs and objectives. Hence it might be challenging for Saint to understand the demands of the new clients in China and accordingly develop functional plans. However the perceived challenges can easily be overcome though efficient management and marketing tactics (Oshri, 2011). 3. HRM policies 3.1 1nfluence on Pay and Reward Policies of Saint Saint may consider developing a payment system on the basis of analysing the existing pay structures of other multinational organizations. The pay scale set for employees, must be competitive while at the same time matching the responsibilities associated with their jobs. The company must take into consideration the inflation rates before setting a fixed pay scale for the workers and employees (Kuvaas, 2006). Saint must establish a pay scale for their business in China by taking into consideration the existing inflation levels so that purchasing power of workers is not affected. Employees are highly affected with the lifestyle they are able to procure from the pay received. Being a developing nation, China has adequately high levels of inflation as compared with other western nations. This requires organizations expanding into the nation, such as Saint to frequently modify and upgrade their compensation systems. Additionally, in order to maintain certain degree of parity with the pay system existing in the U.K, Saint must clearly state that employees who do not meet the required expectation and responsibilities of the job, may be subject to payment reduction. Hence indirectly the company can implement few aspects of the performance based pay system in China as well. Industry standards must be considered by Saint while establishing pay packages. Although Chinese workers crave for better pay packages, the overall cost of labour is adequately low as compared with other nations. Therefore even if Saint goes by the industry standards for establishing salary for the workers, labour costs are not likely to increased very highly or disrupt their basic motive of expanding into the nation of China (Stone, Stone-Romero and Lukaszewski, 2007). Moreover by considering the industry standards, Saint can avoid any labour union resistances likely to emerge. It would not be suitable for Saint to implement the individual performance management scheme for providing compensation, as it does in the U.K. The performance management scheme aptly sets a basic pay for employees considering the level of responsibilities and skill associated with their jobs and standardizes the work performed by each employee. Since the employees in China are highly competitive in terms of pay, organizations which pay better are able to retain employees for longer periods of time. Accordingly, Saint is required to modify their payment systems adequately so as to align the same suitably with the needs existing in the market of China. Saint Constructions must establish a reward system which is justified and recognized those employees who perform better than others (Cooke, 2005). In this manner it can suitably pay skilled and efficient employees higher financial and non financial rewards. Reward systems in Saint Constructions newly established base at China, needs to incorporate both monetary and non monetary aspects. The non monetary aspects would include providing inflated job titles, good infrastructural facilities for working, transportation benefits and so on. The financial rewards are largely associated with providing incentives and performance pay. Earning rewards is considered to be important for Chinese workers due to their general competitive character. Most employees strive to earn increased rewards and exhibit their competencies. Through implementation of such reward policies, Saint can encourage workers to perform better. However such competition must not lead to discrepancies and disputes. To avoid issues, Saint must clearly mention the requirements that permit employees to earn rewards. Chinese employees prefer that clear performance goals are set and informed. Hence such steps are essential. Saint may also be in a position to easily establish their culling system, as practiced in the U.K. Since attrition rates in China are adequately high, replacing non performing workers with new recruits can easily be implemented. It is also required to be noted, that employee unions and labour organizations in China are weakly established. Moreover majority workers in China are used to being replaced and retrenched as they are a characteristic phenomenon associated with globalization. Thus less resistance are likely to arise when Saint carried out such employee dismissal practices in China. Also, due the existence of abundant labour, replacing the dismissed workers would not perceived challenging (Hau-siu Chow, 2004). Individually Based Performance Related Reward Systems (IBPRRS) must be strongly encouraged to be practiced in the newly set up production base of Saint in China. Chinese workers prefer individual performance evaluation rather than group appraisal or comparison between workers. Saint’s policies in respect of compensation must be based on equality rather than equity. The equality principle facilitates workers to collectively organize and ensure better implementation of rights. The equity based rewarding system considered that standards must be set in terms of performance and those employees who perform above the set standard would be provided with increased pay. However it may also be possible that employees without meeting the set standards might be able t o deliver extraordinary performance. Hence the later is seen to me more justified (Bozionelos and Wang, 2007). Chinese employee’s retention within an organization is adequately dependent upon the level of compensation received. Competition is an important aspect existing amongst employees in China. Skilled labourers are constantly on the look for better job opportunities and also to enhance their potential capabilities so that they may be eligible for better paying job opportunities (Wong, Ngo and Wong, 2002). Saint must take advantage of such eagerness existing amongst the workers of China (Shen, 2004). 3. 2 Extension of HR Practice across national contexts HR practices across the globe have undergone a sea of change with the advent of globalization. HRM practices are crucially impacted by the political, economic and other factors existing in the external environment (Edwards, et al., 2006). Organizations those are willing to broaden their activities across national boundaries, such as the case for Saint Constructions, must consider incorporating HRM aspects which facilitate countering competition, attracting sufficient talent and improvement of organizational performance. Saint construction must consider developing HR strategies through incorporation of environmental conditions existing in the nation of expansion. While doing so the main areas which Saint needs to focus upon are; work culture integration, management of staff, competitive and effective pay practices, selection and repatriation processes (Edwards, et al., 2006). Most importantly, while formulating the HRM strategies from the international context, Saint must understand the nature, diversity and the cost of talent acquisition in the expanding nation. While entering a new site, saint must crucially focus upon cultural integration. The Chinese work culture is seen to be radically different that the type of work culture followed in the European and more specifically in the context of Saint. Chinese workers prefer having less power distance. They stress upon direct and easy communication with superiors. Hence Saint must incorporate effective communication channels in their new business site in China. Since China since the last decade has been experiencing high rates of globalization and influx of foreign organization and employees, their adaptability with the international business environment is adequately strong. A large number of Chinese organizations have begun adopting the international HRM practices so that they are able to increasingly participate in international trade. Since the general society in China is open and liberal towards foreign workers, expatriate employees are able to adjust themselves easily (Lau and Ngo, 2004). Labour markets in China are based on the concept of localization. International firms who expand their operations into the nation are required to develop HR policies considering the labour skills, costs and union power (Edwards, et al., 2006). HR tactics in China are required to be based upon the local conditions and labour needs. This is also an essential feature of the international HRM policies. Globalization requires international firms to be easily able to adapt to the conditions of the expanding nation. This becomes especially important for Saint as being a European firm; it requires expanding into a developing nation in Asia. Just as employees expect direct communication with superiors, organizational leaders demand excellence, loyalty and obedience (Edwards, et al., 2006). There is also a common cultural tendency existing in the nation of China whereby employees rely upon the opinions of others. In western nations such a system is not prevalent. As a result employees are accustomed of being judged by their superiors. The opinions provided by co-workers and superiors also play a motivating role (Adithipyangkul, Alon and Zhang, 2011). Such factors are not prevalent in most European firms such as in Saint. At the U.K base of Saint Constructions. Mangers at Saint are traditionally less involved towards frequent communications or indulging in motivating practices directly. As a result Saint must consider incorporating direct communication and frequent interaction of superiors and subordinates for their overall base in China. Communicating motivation and employee participation must be considered by Saint. 4. Conclusion In order to survive competition and earn higher profits, it is essential for Saints Manufacturing to consider expanding into foreign nations and diversify their market potential and inherent risks. Such international diversification would also benefit Saint to acquire additional benefits in the form of expertise, resources and costs. From the feasibility analysis carried out, it has been seen that China is one of the most suitable destinations for making such an expansion. The paper has adequately examined the various HRM practices prevalent in China which requires to be considered by Saint while they expand. 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