Successful Domestic Company Goes Global!

MGT 510 Week 9 Assignment 2 – Successful Domestic Company Goes Global!

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Create a guide to leveraging expatriates. The guide should include four to six (4-6) sources that address benefits and challenges of sending expatriates to other countries.

In today’s era of globalisation, overseas expansion offers a lucrative opportunity to earn revenue and profits by exploiting the untapped potential. The first step towards this project is to send expatriates to the chosen countries to explore the markets and customers. Expatriate, also known as expats are the person who goes to the foreign country on the international assignment. As this employee is aware of the working, business culture and all other process of the company and help the employees of new subsidiary to follow and understand them. (Lee and Croker, 2006).Organisations send their employees from host country to foreign country to support such projects. We are also planning to expand our business to overseas. For this we have to choose two countries to start with and need two expatriates to be sent to those countries. This guide book aims to throw light on the various benefits and challenges of sending expatriates to other countries.

Benefits:

Expatriates are familiar with the broad objectives and philosophy of the parent company, thus enabling the employees of subsidiary in foreign country to understand and adopt them well.

Expatriates are likely to have tacit knowledge of global operations and help the local employees to identify and meet the company’s objectives. They are the means of applying the strategic control over the subsidiary (Philips and Fox, 2003). They help in imitating the same policies and procedures as prevailed in parent country with certain country specific customisation. This automatically increase the efficiency and effectiveness of the subsidiary.

It is very important to imbibe the same culture in the subsidiary as that of the parent company for proper alignment of personal and organisational goals. Expatriate help the management of subsidiary to implement the same management style so as to hold the basic cultural norms.

It becomes easier for parent company to coordinate with the management to control the processes through effective communication made possible by the presence of expats.

Expatriates acts as a catalyst and facilitates the bidirectional flow of information, knowledge and resources between parent company and overseas subsidiary. Expatriates are not only used for coordination but also for the knowledge transfer, improving business relation to dominate the international market (Dowling et. al 2008).

It has been observed that the local employees feel happy and energetic while working under the guidance of an expat. The process of embracing the new philosophy different from their own country gets simplified. Working with an expatriate, can be a motivational factor for the local employees (Mendenhall, 2007).

Expatriates possess managerial as well as technical expertise necessary to develop the organisational structure and control systems.

Parent company can get information about the local environment, market conditions, political and legal scenario, social and cultural values, and level of technological advancement and economic situation of the foreign country.

Challenges:

It may be possible that expat can misunderstand the political equations of the host country thus creating the problem for parent company. It may also lead to ban on the entry of parent company in the host country if found guilty of violating any political or legal requirements.

It is very important for expatriate to have the knowledge of local language and culture in order to expand business in the host country. If he doesn’t hold experience of dealing with local staff, he won’t be able to achieve the ends.

Since expats have to leave their home country to reside in the foreign country for an uncertain period of time, it is very critical to keep them motivated and full of spirit. Thus rewarding and training them is very expensive affair for the home company. They need to revamp the compensation structure for expats.

An expatriate may return home before the maturity of the time period thereby leading to his failure. There may be many reasons like family not able to adjust, emotional breakdown and unable to cope with new environment. The use of expatriate employees by organizations in their foreign subsidiaries represents a substantial investment with costs of expatriate failure reaching exorbitant levels (Baruch, 2004)

An expat may not perform efficiently in the absence of a competitive compensation package. Compensation of expatriates is regarded as a key component in the effectiveness of global operations (Lowe et al., 2002). This reinforces why it is imperative for organizations to effectively compensate expatriates, regardless of location (Dwyer, 1999; Freedman and Vardy, 1998).

Thus, it can be concluded that, expatriates are ambassadors who are capable to assist the organisation to set up a successful business in a foreign country. Though, there are some challenges in taking international assignments, they can be negated if managed properly.

Examine the major benefits that this report can provide for the organization, and suggest two (2) uses for the information contained therein. Justify your response.

The aim of this report is to comprehend the requisite information related to expatriation. It covers various topics like benefits and challenges of expatriation, criteria for selecting the countries for overseas expansion, measures to be taken by expats to become successful in foreign country, compensation structure for expats, etc. This report is a guiding instrument for both the potential employees looking for international assignments and the parent company interested in overseas expansion.

The major benefits accruing to the company are discussed below:

Company can assess the real scenario existing in any country before making decision related to expansion.

This report will help the management to design a competitive and exclusive compensation package for the expats.

The major benefits accruing to expatriates are discussed below:

Employees can consider the various benefits and challenges of expatriation before committing to the international assignment.

They can weigh the benefits against the disadvantages thus clearing the situation before hand.

They would be able to understand the political, economic, social and technical environment prevailing in the host country.

They would also come to know about the measures needed to be taken before packing for another country.

Use of the Information: The employees can go through the books mentioned in the subsequent section before packing for the relocation. They will guide them thoroughly. Secondly the employer can use the information to encourage the selected employees to become expats. It will also help them to select proper candidate suitable for expatriation. Various qualities have been mentioned which are necessary to be present in an expat for success in foreign country.

3. Analyse the major factors (e.g., distance, cultural background, knowledge of the related countries, languages spoken, relatives who may live in another country, etc.) that would influence your choice of countries into which your company would expand. Recommend two (2) countries for expansion. Provide a rationale for your response.

We are a UK based cell phone manufacturing company; highly successful in domestic market; supplying various types of mobile models to cater the different types of customer needs. In order to grow our business and leverage our well established domestic reputation, we are planning to expand in India and USA. Whilst, there are general international environment influences that dominate the decision of doing business with a country, there are country specific factors too which affect this choice making. Writing a report for the consideration of Board, I have analysed the following factors which have influenced our choice of country: (Retrieved from http://www.slideshare.net/CharteredAccountants/thoughtleadershippaper-businessesexpandinginternationally)

Political Stability and Social Climate: India is a democratic country with a stable government and favourable political scenario. It possess a diversified social climate composed of many beliefs and practices. This provides a broad range of acceptance level for foreign products among Indian nationals.

USA is a democratic country with one of the most powerful government in the world. The social climate of the country is conducive for new products introduction as nationals especially youngsters believe in novelty.

Regulatory Environment: The government of India favours the foreign investments for the development of the country with a sound corporate governance framework. Thus it would be easy for us to negotiate and complete the legal procedures successfully.

USA is the most powerful economy of the word with the tag of one of the most developed countries. The regulatory framework is bit complex but favourable for foreign entrants. The tax regimen in the country is business friendly.

Location and Infrastructure: Location wise, India and USA are feasible countries where we can start our new subsidiaries. The convenient way of travel is airline. The distance can be covered in a day. We can also think of setting manufacturing units in the respective countries to get the full access of local markets of both the countries. The problems like power outages is predominant in India but can be overcome with proper measures. On the other hand, USA being a developed country with enormous wealth and resources, there is no problem of outages. The communication infrastructure in both the countries is efficient and reliable.

Incentives and Innovation: India is an emerging and fast-growing market with enormous scope of new products. The purchasing power of Indians varies in a broad range thus creating all types of customers preferring cheapest to costliest products. Indian market favours innovation and unique products. USA is known for investing heavily in research and development and offers grants and incentives for innovative organisations.

Cultural Compatibility: Cultural customs of any country deeply affect the success of a business. The culture of both the countries are quite different and will take time for assimilation. But the welcoming news is that both the cultures are open and offer ample of scope for new products. Though Indians are little stringent with their customs and traditions, Americans are very flexible and open minded. Another favourable aspect is language. Though in India, many languages prevail simultaneously, English is the official language in both the countries thereby facilitating the transactions and bridging the communication barriers.

Local Workforce: An efficient work force is the key to success for any business. In India, the cost of labour is lower as compared to USA. The managerial employees are available at a lower rates than other countries. The additional benefit is that the skill set of Indian labour is excellent with varied and deep knowledge that can provide competitive edge to any company. The workforce in USA is expensive but experienced with global outlook.

Thus, after considering the above mentioned factors, we have chosen India and USA for overseas expansion.

4. Determine three (3) criteria that you would consider when deciding which employees to send abroad. Justify your response.

Generally, technical expertise is seen as one of the most critical criteria while selecting employees for international assignments but as stated by “Black et al, 1999, “Focusing on technical skills can result in an instant selection process, where potential candidates with cross-cultural skills and similar technical skills can be overlooked when decisions makers are trying to find suitable candidates within the organisation for international assignment. As observed there can be many predictors of success on foreign assignment which are individual as well as organisational specific. The various traits of an individual’s personality affects the decision of selecting expatriates. We would check the different traits of employee’s personality that are critical in determining the success on international assignment. They are mentioned below:

Tolerance for Ambiguity: This measures the degree to which an individual can cope and adjust in unfamiliar situations. It is defined as tolerance for ambiguity as the tendency to perceive ambiguous situations as desirable (Budner, 1962). A new country may possess many factors that can be unfavourable like extreme climatic conditions, less developed conveyance facilities, excessive crowd, difference in time zone, food patterns, etc. that can affect the productivity of expats. So before selecting any employee, we will test them on tolerance for ambiguity scale developed by Budner, 1962. This will give a clear picture of employee’s capability of dealing with novelty, complexity and insolubility. This dimension when combined with resistance to stress leads to a clear personality type in the above mentioned situations.

Respect for Other’s Beliefs and Flexibility: An individual’s ability and willingness to show respect and compassion for other’s beliefs and values is highly important. An employee needs to be non-judgmental and open-minded for the traditions and customs prevailing in foreign country. They should be ready to revere the trends and cultural norms of host country. Further, they should be flexible enough to leave their notions and accept other’s philosophies.

Cross Culture Suitability: “According to Dowling and Welch, (2004) important Things to consider when assessing the candidates cross-culture suitability, is language skills, culture empathy, the attitude toward new cultures and the level of personnel and emotional stability.” The potential expatriate should be sensitive enough to create natural relationships abroad.

Apart from the above mentioned criteria we would also check the suitability of candidates on the basis of other characteristics like open mindedness, trust, level of expectations, personal control, social adaptability, self-confidence, empathy, work ethics, professional competence etc.

5. Propose the major methods and / or incentives you would use in order to encourage the selected employees to become expatriates. Provide a rationale for your response.

As a result of an increasing global market place, the need for exchanging employees between the different geographical locations have increased (Adler, 2008), and in this context expatriates have become extremely important for international companies. The pre-departure phase is crucial for the rest of the expatriate process as it is concerned with identifying the initial motivation for an employee to accept a foreign assignment and make sure the right people are sent for the right reasons (Black and Gregersen, 1999). The management’s ability to motivate the employees and give them the right incentives to become expatriate is very crucial factor for determining the success of expats.

Though intrinsically, an employee’s motivation depends upon needs, wants, perceptions, and values, organisation can motivate them extrinsically which would fulfil the intrinsic needs. Money is the prime motivator. We will offer very handsome salary package along with high monetary bonus to encourage our selected employees. They will be coached about the worth of foreign assignment and level of status attached with it. This also acts as a motivating force. However, these extrinsic rewards are often secondary (Richardson and McKenna, 2001). Often expatriation takes roots in a higher level of needs when using Maslow or Alderfer’s pyramids of needs as illustration (Brooks, 2006). This implies that expats are motivated when their higher order needs are fulfilled that gives them a sense of accomplishment and recognition. According to a study made by Richardson and McKenna (2001), it was established that expats can be divided into four categories depending upon the type of motivational needs namely the explorer, the refugee, the mercenary, and the architect. The explorers love novelty and are eager to explore new places and culture. They like to develop themselves personally in the new culture. We would select such employees for foreign assignments and motivate them by giving them an opportunity to discover the new country with other benefits. Another category is of refugees who want to go to a place that is some or the other way connected to their homes. We can motivate our employees by asking them to take job in that country where their relatives and friends are based. This group of employees look for professional advancement and remain on high spirits while working in other countries. The third category is of mercenaries who accept such assignments for money. We can find if our selected employees fall in this category and motivate them by offering exorbitant salaries. The last category is of architects who are inclined towards taking career growth options and believe in personal growth along with that. We can see if our employees fall in this category, we can promote them before posting into another country. This would give them an intrinsic motivation to perform well as more accountabilities and responsibilities will be attached.

Expatriate training is also a high motivating factor that increases the probability of success in the host country and thus the motivation of employee. Training enhances certain characteristics of the chosen expatriate, especially self-efficacy, which they claim to be essential to intrinsic motivation (Templer, Tay and Chandrasekar, 2006). “In the international context, expatriate training may help clarify a wide variety of worker expectations, leading to a higher congruency between expectations and subsequent job experiences. This should lead to more positive attitudes, and … more job satisfaction.” (Nauman, 1993). Cross Cultural training leads to less uncertainty about the new culture and hence, a reduction in culture shock. Employee become relaxed and gets confident about his success on the new assignment.

Other extrinsic factors can be used to equip the expatriates by contributing with more practical initiatives, such as pre departure visits, help with setting up financial arrangements, finding appropriate housing and schooling for children, post-arrival orientation, host country social support and general counselling (Sims and Schraeder, 2004). We will assist our employees in settling in the host country.

Another critical aspect of motivating the employee is to give them full assurance about the support from the headquarters. They will feel more comfortable and confident while accepting the expatriation when we will guarantee a full-fledged transfer of requisite knowledge and transparent communication. Communication between the expatriate and HQ is essential for motivation because it reduces the feeling of being ‘out of sight, out of mind’ (Caligiuri and Colakoglu, 2007) as well as serving as a consistent reminder of his importance while abroad.

The whole package will be designed keeping in mind the currency, inflation and purchasing power figures prevailing in the host country. Along with the base and variable pay, bonus and various allowances like cost of living allowance, education allowance, hardship and danger allowance, automobile allowance, etc. will be offered. In order to protect our expats against the volatile inflation rates in host country, we will give a portion of salary in the home country currency which will be credited in the bank situated in home country. The rest amount will be credited in the currency of host country. We will give tax protection to our expats by reimbursing the expats for the difference in the tax amount between home country and host country.

Thus we will use the combination of above mentioned methods and incentives to motivate our selected employees to take foreign assignment and become expats.

6. Recommend one (1) strategy to ensure that both the Executive Committee and the Board of Directors are committed to the expansions. Justify your response.

The one strategy that ensures that that both the Executive Committee and the Board of Directors are committed to the expansion is the adoption of Balanced Score Card Approach in our company. The application of this approach confirms that we are committed to translate our crafted strategies into actions. Since we are a successful brand name in domestic market, we want to make it as our competitive strength in the foreign market also. Therefore we have planned for overseas expansion. In order to achieve this strategic mission, we are working towards the alignment of four distinctive and core areas namely, finance, customer management, internal processes and innovation and learning in the organisation. This step would increase the organisation’s abilities to create future economic value. This approach focuses on the adoption of high performing financial measures that would ensure sustainable financial inflow for the organisation. We are committed to develop customised and value added product and service for our customers to gain high customer loyalty. Then we have planned to follow a strategic trajectory that would incorporate investments in employee coaching, information technology and innovative practices that would dramatically improve our financial performance.

We are in the process of restructuring the important managerial processes like compensation, resource allocation, team goal setting, continuous feedback and learning. BSC is the instrument which we need to navigate to a better and sustainable future. The BSC Approach will enable us to monitor our financial performance while simultaneously tracking the growth in building competencies and capabilities and acquiring the strategic intangible assets which are instrumental for the success of our company.

The strategic decision of expanding overseas is one of the decision that would enable us to achieve growth and revenues.

7. Recommend two (2) books that the selected expatriates should take with them when they go overseas. Provide a rationale for your response.

I would recommend the following books for expats to take along with them to the foreign country:

Name: Expert Expatriate: Your Guide to Successful Relocation Abroad–Moving, Living, Thriving (English)

Author: Melissa Brayer Hess

Rationale: This book contains all the information and support an expat needs while relocating to a new country. This book will help to avoid mistakes and unpleasant situations. It will help in reducing the cultural shock. It entails all the basics that should be prepared with before leaving for another country and also gives a list of resources that can be of help. It covers topics like learning the language and culture in new country, information needed to start the new job, type of support needed from employer, learning about the living conditions in the host country, looking for schools and employment opportunities for spouse, soliciting tax, insurance and financial advice, exploring health care options, finding sponsors that may help in settling in the host country, etc. It ensures a hassle-free relocation.

Thus, this book is a complete package that will act as a guide for new expedition right from beginning till the expats settle peacefully.

Name: Living and Working in India: The complete practical guide to expatriate life in the sub-continent

Author: Chris Rao and Dr. Ian Beadham

Rationale: I would suggest this book because it contains all the information relevant in Indian context; beneficial for our expats as we have chosen India as one of the countries for expansion. This book is very useful for anyone who is novice to India and wants to work there. India is the country of diversity whether it is food, ethnicity, traditions, language or religion. This book throws light on the numerous topics knowledge of which is pertinent while staying and working peacefully in India. It covers topics like Indian history, general information related to geography, language, climate, religion, economy, currency, water, electricity, etc., life in India, immigration related information, employment scenario, travel, business norms, money, housing, health, education, etc. it is a comprehensive guide for understanding life in India.

8. Outline a guide for expatriates who will reside within another country for one to two (1-2) years. The related guide should cover the following topics: selecting items to pack, accommodating a vehicle (i.e., leave behind or send overseas), shipping or selling furniture, moving pets, and arranging accommodations for children and / or family residing in another country for the discussed length of time.

Before relocating to another country for an assignment, expats should keep in mind few basic yet important things. They are mentioned below in brief:

Items to Pack: Hand bag should contain items like passport, visa, tickets, children birth certificates, medial certificates, bank and credit card information, government ID number, cheque book, phone and address book, receipt of expensive items (if any), other important documents, survival kit in case if baggage is delayed or lost, a pair of clothes, personal care items, foreign language dictionary, travel alarm clock, diapers, etc.

Checked Baggage can contain items like shampoo, soap, toothpaste, personal grooming items, instant tea, coffee, sugar, towels, travel iron, travel charger, power bank, hair dryer, multi voltage pin, pleasurable items like music cds, portable music system, books, camera, packaged food, swim suit, decorative items, coffee mugs, pillows, packaged food, clothes, etc.

Freight can include household essentials which may not be available in the host country, set of dishes, cooking utensils, kitchen equipment, computer, dvd, cloth hangers, dual voltage appliances, sports and hobby equipment, books, activities, toys, games for children, art and crafts, bed linen, baby food, etc.

It is important to confirm with the airlines regarding their luggage restrictions.

Vehicle: It is advisable not to take the car or any vehicle along to another country as they can be made available by the company. But if anyone decides to send the vehicle overseas, they do so beforehand to minimize the time spent after arrival without conveyance.

Furniture: Although company provides furnished quarter but living with new furniture may give a feeling of loneliness. It is advisable to first check the type of furniture which would be available. Furniture like study table, file cabinets, leisure chairs, bean bags, tea table, kitchen cabinet, etc. can be taken to host country. One should not carry any fragile or antique furniture along with.

Pets: It is advisable not to take pet to the foreign country because of different climatic conditions. But for a long time, one can carry their pets after proper confirmation from airlines and doctor. Presence of pet will make children feel at home and comfortable. Pet health certificates, medical prescriptions should be kept along.

Accommodation: One should look for properly furnished house in a good area with the help of relocation consultant. It is necessary to live in the proximity of school, park, hospital, airport, transportation system, recreational facilities and hypermarket. It is important to check the living conditions to ensure the well-being of the spouse and children. Sometimes company assists in arranging for accommodation which is the easiest way to handle. But if not, one should take the assistance of agents. It is critical to check the internal conditions of house like seeping, ventilation, etc.

9. Develop a framework for your presentation. The framework should include the following:
a. Relevant visuals

This graph shows the Hofstede’s analysis of Indian culture which is important to consider to protect the expats against cultural shock. It indicates that people feel easy and more confident while working in group rather than individually. Secondly, they prefer hierarchical nature of power distribution both in professional as well as personal life. Tolerance for ambiguity is low that indicates that Indian people do not like unknown and want to work in certain conditions. Their society is less motivated to compete and succeed with a long term orientations. India is a pessimistic society who believes in restraining their desires. (Retrieved from http://geert-hofstede.com/india.html)

These scores indicate that Americans are less dependent on each other and believe in liberty and justice for all. They do not believe in power hierarchies and treat everyone equally. They are ready to accept new ideas and products and love to innovate. The American society is driven by achievement, competition and success. They have a short term orientation with a focus on present. They do not control desires and impulses and work hard to fulfil them. (Retrieved from http://geert-hofstede.com/united-states.html)

b. Statistics that support the decision to expand into the identified countries.

India is a developing country with a GDP of 1.877 trillion USD and third largest purchasing power in the world. 31% of labour force is available in service sector which is highly skilled and updated. The cost of labour is cheaper. Thus offers an ample of scope to expand.

USA is a developed country with a GDP of 16.77 trillion USD indicating a high potential of earning. It has 22% of global GDP and 17% of global PPP (Purchasing Power Parity). It invests heavily in research and development and provide ample of opportunities to the new marketers.

c. A feasibility study of your company’s proposed expansion to the countries in question

The feasibility study of expansion includes the SWOT analysis of the scenario. The strengths of overseas expansion can be explained by enormous potential of the chosen countries that would help in gaining sales and revenues. It can be matched with the organisational capabilities and reputation earned in domestic market. The weakness lies in improper management and decision making. As expansion is a strategic decision, it needs to be carried out with utmost diligence. The opportunity is the market reciprocity of the respective countries, which is very high and attractive for marketers. The threat lies in uncertainty and cultural shock. The political, economic, social and technical environment of India and USA is very volatile and complex. Management needs to be highly vigilant and cautious while making decisions.

The other relevant information about countries is mentioned in the previous section of the report.

d. Information related to renting or buying land or a building

It is advisable to rent a land/ building for the start-up of new business as purchasing property in a foreign country would call for many legal complexities which would take much time. It can be started on a rented land and can be purchase later once, the company gets established in the market. We need to contact property brokers for getting space for the company set up in foreign countries.

e. Any other information relevant to the case for expansion
The Company should take care of human resource and should be ready to commit enormous financial resources to achieve this end.

References:

Lee, L. Y., & Croker, R. (2006). A Contingency Model to Promote the Effectiveness of Expatriate Training. Industrial Management and Data Systems

Dowling et. Al. (2008). International Human Resource Management: Managing People in a Multinational Context

Phillips, L. and Fox, M.A. (2003), “Compensation Strategy in Transnational Corporations”, Management Decision

Furuya, N., Stevens, M.J., Oddou, G., Bird, A., & Mendenhall, M. (2007). The Effects of HR Policies and Repatriate Self-Adjustment on Global Competencies Transfer

Baruch, Y. (2004). Managing Careers: Theory and Practice

Lowe, K.B., Milliman, J., De Cieri, H. and Dowling, P.J. (2002). International Compensation Practices: A Ten-Country Comparative Analysis

Dwyer, T.D. (1999). Trends in Global Compensation

Black et. Al. (1999). Expatriate Training and Development

Budner, S. (1962). Intolerance for Ambiguity as a Personal Variable

Dowling, P. J., & Welch, D. E. (2004). International Human Resource Management: Managing People in an International Context

Adler Nancy J. (2008). International Dimensions of Organizational Behavior

Black J. Stewart, Gregersen Hal B. (1999). The Right Way to Manage Expats

 Richardson Julia and McKenna Steve. (2002). Leaving and Experiencing: Why Academics Expatriate and How They Experience Expatriation

Brooks Ian. (2006). Organisational Behaviour. Individuals, Groups and Organisations.

Templer Klaus J., Tay Cheryl, and Chandrasekar N. Annand. (2006). Motivational Cultural Intelligence, Realistic Job Preview, Realistic Living Conditions Preview, and Cross-Cultural Adjustment, Group & Organizational Management,

Nauman Earl. (1993).Organizational Predictors of Expatriate Job Satisfaction

http://geert-hofstede.com/india.html

http://geert-hofstede.com/united-states.html

http://www.slideshare.net/CharteredAccountants/thoughtleadershippaper-businessesexpandinginternationally