Managing People in Global Markets Colette A Frayne

Managing People in Global Markets Colette A. Frayne, Ph. D. Professor of International Management Orfalea College of Business All materials in this packet copyright © by C. A. Frayne & Associates, Inc. Do not quote, cite, reproduce or otherwise infringe on this copyright without written permission.

Challenges of Managing People in Global Markets Session Overview Challenges of Managing People in Global Markets Human Resources Trends in China

The Importance of IHRM The primary causes of failure in multinational ventures stems from a lack of understanding of the essential differences in managing human resources, at all levels, in foreign environments. Certain management philosophies and techniques have proven successful in the domestic environment; their application in the foreign environment too often leads to frustration, failure and underachievement. These “human” considerations are as important as the financial and marketing criteria upon which so many decisions to undertake multinational ventures depend. (Desatnick & Bennett) Copyright © Frayne & Associates, Inc.

The Globalization Challenge for HRM A critical determinant of an organization’s success in international business is the management of its human resources As more firms move outside their domestic borders, globalization of world markets continues to gain momentum A large proportion of the workforce in an increasing number of firms is located in other countries There is a need for closer links between corporate strategy & human resource management Copyright © Frayne & Associates, Inc.

What is International HRM? To define the scope of IHRM, we must first understand what is meant by domestic HRM Domestic HRM: Those functions undertaken by an organization to effectively utilize its human resources • • Human Resource Planning Staffing Performance Evaluation Training & Development Compensation Labor Relations Benefits & in-house communications Career Development International HRM: Interplay among four dimensions, namely, HR functions, types of employees & countries of operation, firm internationalization stages Copyright © Frayne & Associates, Inc.

Dualities Confronting Organizations Managing Today’s assets Satisfying customer needs Short term Competition Low cost Customer profitability Differentation Centralization Unit performance Change Taking risks Building tomorrow’s Being ahead of customer Long term Partnership High value-added Customer satisfaction Integration Decentralization Corporate integration Continuity Avoiding failures

Variables Affecting HR in International Firms Complexity of Operating Environment Stages of Firm Internationalization Experience in International Markets Entry Mode in Foreign Market Strategic Importance of Operations Credibility/Responsibility of Domestic HR

HR Trends in China One area of substantial change has been China’s HR market More foreign companies entering China Chinese state-owned enterprises privatize China’s dynamic private sector catches up with the rest of the world Growing numbers of entry-level white-collar workers Continuing shortages of both mid-level and senior level managers Increasing shortages of blue collar workers

White Collar Workers Most promising market Traditionally China has had very low levels of education Fifty years ago, 2 out of every 10, 000 received a college education Class of 2005 estimated at 3. 4 million Chinese Ministry of education reported that proportion of 18 -22 year-olds attending Chinese universities last year was 15%, compared to 7% in 1995 Competition for jobs is much fiercer

White Collar Workers Chinese government estimates nearly 800, 000 of the 2005 college graduates were still jobless in September 2005 Large pool of technical workers (China graduated 219, 600 engineers in 2003, which represented 39% of all grads Nearly 60% of all degrees were in engineering and the physical sciences In 2004, 4. 2 million new students enrolled in Chinese universities Results are a large well-educated technical workforce Shortages remain in areas such as marketing/sales

Mid-Level Managers In 90’s, China experienced growth in both higher education and foreign investment Many worked foreign companies and now have 5 -10 years of quality work experience Demand still outstripping supply Local mid-level managers are ideal to run factories and offices Local Chinese fill almost all mid-level white collar jobs Best mid-level (local Chinese from top universities with 5 -10 years experience at leading companies), competition remains stiff 5 years from now, competition may ease

Senior Managers China still lacks a large pool of very experienced senior managers 2004 survey of American Chamber of commerce in Shanghai indicated 40% of foreign companies report having trouble filling top management positions for operations in China Chinese in their 40’s & 50’s went thru a severe interruption in their education during the Cultural Revolution from 66 -76 Many MNCs began using expats Trend towards using local managers, returnees or other overseas Chinese Stiff competition for a limited number of top level Chinese managers Entrance of local Chinese firms into the market for top management talent (reverse brain drain)

Blue Collar Workers China may not retain its dominant position Companies in southern Guangdong province (hotbed of FDI and labor-intensive manufacturing have complained of labor shortages China’s 1. 3 billion population (much of which remains underemployed in the agricultural sector Estimated 170 million surplus workers out of the 800 million in China’s rural areas Appeal of becoming a migrant worker and traveling to find a job in a coastal city has dropped

Blue Collar Workers A shortage of nearly 2 million migrant workers alone in the Pearl River Delta region (large manufacturing hub in southeastern China) Some claim the shortage is specific to southeastern China…Shanghai is still attracting large numbers of factory workers Structural problems are emerging…in 80’s, the SEZ on east coast was extremely successful where workers traveled hundreds of miles to get to factory jobs. . now…factories may have to move to regions where workers are located

How Serious is Growing Shortage of Manual Labor? China now has 88 vacancies for every experienced skilled blue collar worker and 18 vacancies for every factory technician Wages are increasing on China’s East Coast Some corporations are moving to cheaper inland regions of China or to southeast Asia (Vietnam) Demographic changes unfold. . one-child family-policy (70 s), number of people between 15 -19 is predicted to decline from 124 million to 103 million by 2010 While China remains the “factory of the world”, labor shortages and rising wages will affect the strategies of firms looking to use China as a manufacturing base

Concluding Thoughts… Several unexpected developments China is producing a number of univ grads, especially in technical fields Talent is plentiful and cheap Still a supply gap for experienced local mid-level managers Severe shortage of top-level managers A shortage of manual laborers in arising on the East Coast Factories’ production, increase in prices…adds to the difficulty of doing business in China While China has been successful in educating the engineers to innovate and design new generations of high tech products, it soon may not have the workers needed to produce them or the managers needed to supervise them Firms entering China or considering entry in China should be aware of these difficulties

Challenges of Managing People in Global Markets In order to build, maintain, and develop their corporate identity, multinational organizations need to strive for consistency in their ways of managing people on a worldwide basis. Yet, and in order to be effective locally, they also need to adapt those ways to the specific cultural requirements of different societies. While the global nature business may call for increased consistency, the variety of cultural environments may be calling for differentiation.

Criteria for Selecting Managers for International Assignments COMPETENCE Technical knowledge ADAPTABILITY PERSONAL Characteristics Interest in overseas work Age Leadership Ability Relational abilities Education Experience, past performance Cultural empathy Family adaptability Sex Area Expertise Appreciation of new mgmt styles Health Language Appreciation of environmental constraints Social Acceptability

Factors Determining the Choice Between Local & Expat Managers in MNC’s Availability of managers - in company & host nation numbers cost Competence of managers market technical administrative Corporate objectives control management development corporate citizenship Environment legal cultural political economic

Importance of IHRM Virtually any type of international problem, in the final analysis, is either created by people or must be solved by people. Hence, having the right people in the right place at the right time emerges as the key to a company’s international growth. If we are successful in solving that problem, I am confident that we can cope with all others (Duerr) Copyright ©Frayne & Associates, Inc.