The Business Forum

"It is impossible for ideas to compete in the marketplace if no forum for
  their presentation is provided or available."         Thomas Mann, 1896


DOING BUSINESS IN INTERNATIONAL MARKETS
A Human Resources Perspective

Author:  Richard Polak
Contributed by: Polak International Consultants Inc.

 

 

When your company sets sail for new markets, strategic human resource planning can be instrumental in safeguarding ventures to dry land and into working condition.  Too often though, when companies expand they leave human resources stranded at the dock, and it isn’t just the niceties that have been left behind.   Studies indicate that active management of human resources directly impacts the bottom line by significantly increasing shareholder value and sales per employee and lowering employee turnover.  A strategic view of human resources, especially in planning and executing new ventures, can help seize new opportunities and minimize liabilities by identifying the specific tasks and skills needed for success early on and then deploying the best qualified staff efficiently.  All companies with employees have a human resource strategy but few have taken the time to articulate, examine and fine-tune their approach to managing their most important asset.

Strategic Human Resource Planning

In order to establish global criteria and standards for identifying, motivating and managing talent, strategic thinking demands human resource professionals understand their company’s products, market, structure, culture and goals.  A global view is important because managing across borders and cultures is complex and decisions made can have a worldwide impact on practices and costs.  Consequently, the objective is not to dictate but rather guide managers and human resource professionals wherever they are located thus ensuring decisions are not only consistent with corporate policy but also reflective of the local markets.  The strategy becomes the company’s benchmark for staffing, designing and implementing compensation and benefit programs. 

An effective strategy should touch on the elements we call the Four Cs:

      Competencies for professionals to help select the best candidates, measure performance and promote from within as much as possible. 

      Compensation of employees, to effectively recruit and retain staff in each market while maintaining consistency in designing and implementing pay structures and benefits.

      Culture of the company which can be disseminated a variety of ways including standardized company logos, training programs and global business practices, standards and ethics.

      Costs including the liabilities of human resource programs budgeted and managed through guidelines on salary increases, renewals of employee benefit plans and preferred financing systems for all programs.

Human Resources in New Markets

Regardless of the form your business ultimately takes, in a new market it is important that human resources contribute to the decision making process as early as possible with rough projections of the skills likely to be required, how the jobs will be filled and the approximate costs.  Whether or not the company anticipates having its own staff on the ground, at some point it will become necessary to deploy talent to the new location from a variety of sources. 

Most international companies utilize expatriate staff in the initial stages of expansion, to seed the new operation with knowledge of the company, its products and to hire and train local staff.  Assignments can be for short periods—up to a year, or long-term—usually three to four years.  Depending on the objective of the assignment and the company’s expatriate philosophy, staffing may include junior as well as senior staff.  Truly global companies place high value on international experience and cultural diversity; from this seasoned cadre of managers the future leadership is drawn.

As your company identifies potential locations, you must be proactive and examine the pros and cons of doing business in various countries by researching tax, labor, social security and typical employee benefit environments relevant to expatriate and local national employees, as well as evaluating the availability of local candidates.  You may, for example, consider how your potential competitors are staffed and the cost associated with government mandated programs as well as those necessary to remain competitive.

Your understanding of hiring laws, recruiting, provisions for employment contracts, mandated benefits and dismissal is critical in helping the company identify new markets and decide how best to enter them.  For example, visa requirements may make it difficult or require long lead times before transfer of staff into a country is feasible.  Labor laws differ in important respects from the United States; the concept of “employment at will” is uniquely American because many countries protection of “acquired rights” could make reducing pay or benefits in economic downturns nearly impossible.  Additionally, you may need to prepare to negotiate with unions or collective bargaining units.  Finally, tax and social charges must be considered, as these costs are often higher in some countries and considerably less in others.  For the novice, chartering through these mystifying international waters can be challenging, frustrating and often disastrous undertakings; however, for the experienced international professional these same international waters are seen as exciting and successful business ventures.  

The next chart shows a company with little or no business strategy.  The HR department has not considered that Third Country National’s could be a valuable resource.  Further, expatriates were selected poorly and without any sense of competencies critical to the success of the organization.  The structures in place are outdated and as a result, retaining valuable employees will be difficult.  Additionally, local nationals have defined their own benefits packages leaving the organization vulnerable to potential liabilities relative to employment contracts, legal entities, substandard facilities and payroll.

Establishing your own presence

Acquisitions

Acquiring another company entails a large investment of capital and people.  The terms Purchase and Sale Agreements usually require a due diligence be undertaken to uncover potential liabilities which could affect the terms of the agreement, for example unfunded pension liabilities, unwritten employment promises and pending lawsuits.  Most experience human resource managers will also conduct a post sales audit to identify operating costs, compensation and benefit practices through:

  1. Benchmarking the new company’s compensation and benefit programs against competitive practice in the market. 

  2. Comparing pay structures with those of your company as well as your global human resource strategy.

  3. Identifying human resource practices not in compliance with local labor, tax or social legislation that could pose a liability for the parent company.

  4. Comparing funding systems for employee benefits with your global strategy to identify more efficient means of delivering benefits.

Generally, companies tread lightly when it comes to amending compensation and benefit packages of staff at acquired companies until the dust has settled and insecurities have abated. It is imperative you retain critical staff and not have them abandon ship before the ink is dry.

Starting from Scratch

Starting your own foreign-owned enterprise involves a number of separate yet intertwined processes that will involve not only your Human Resources department, but also your Legal and Finance departments as well. 

  1. First, deepen your understanding of the country’s labor, social security and typical employee benefit practices.  This will provide a basis or framework for designing a recruiting plan and developing forecasts associated with the cost of employee programs and social contributions.

  2. Next, finalize the organizational chart and develop a staffing plan with cost projections.  Consider the skills necessary for a successful start-up operation and determine the number of employees and type (expatriate verses local hires) needed.

    1. In the initial stages of development, a short-term assignment (up to one year) may be an inexpensive means of exporting company knowledge of products, services, structure and policies. 

    2. Longer-term goals call for a greater commitment of resources. However, a long-term assignment (three or four years) can be an expensive and at times costly undertaking due to tax equalization issues, movement of household goods and pay increases to accommodate costs of living adjustments.  A significant percentage of international assignments fail to achieve their objectives and end prematurely for an equally significant number of reasons.  The biggest culprits tend to be poor candidate selection, vague goals and a lack of succession planning and transition of job responsibilities to local hires.  Nevertheless, these factors can be mitigated with careful planning and management.  Further, expatriates have a proven record of accomplishment and know the company and its products, thus able not only to export company policies and procedures but also to ensure the quality hiring and training of local talent, including their replacements.

    3. A local hire is an unknown, unproven in the company, and therefore cannot be expected to know about the company or its products as well as current employees.  Conversely, a local hire is likely to be less expensive, know the local market better and be more comfortable with the language and cultural than an expatriate.

  3. It is critical to identify pay practices and benefit programs for expatriates and local hires, in order to facilitate recruiting candidates and negotiating employment contracts.

    1. Benchmark data will help to identify competitive practice for total compensation, including base salaries, bonuses, perquisites and allowances.  Surveys are available in most markets and include data for both expatriates and local hires.

    2. An expatriate pay policy will help define each cost element associated with moving and maintaining an international assignee. 

    3. From your investigation into local market conditions, develop an outline of competitive employee benefit programs and estimate the costs of occupational and state provided benefit programs. 

  4. Depending on the country, creating a legal entity may be a pre-requisite for hiring staff, establishing benefit programs and payrolls.  Remember to recruit as much as possible during the legal entity phase. 

  5. In later start-up phases when a physical office is required or necessary, companies often begin with leasing space for their operations in a commercial building that provides amenities such as furnished office space and a shared receptionist.

  6. Finally, identify a local payroll provider to process payroll, including employee withholdings for tax, social security and when applicable, employee benefit programs.

Solving the International HR Puzzle

Defining your International Human Resource strategy will allow you to clearly identify areas where improvements are needed, in order to maintain your current business as well as posturing for future growth.  Sustaining your business success requires continuous reviews and revisions to company policies, plans and programs based on market trends, competitors and legislative changes.  With the critical pieces of the HR puzzle identified, you can develop a blueprint to formulate your International Human Resource strategy and chart a plan for sailing successfully into international markets.  


Polak International Consultants, Inc. specializes in international human resources consulting.  The entire staff has experience in HR issues that multinationals must address outside of the US - benefits, compensation, legal, actuarial, intercultural, etc.   This "process" as described above is the result of decades of experience, drawn from a multi-discipline team actually in the field gaining hands-on experience.


Disclaimer

The Business Forum, its Officers, partners, and all other
parties with which it deals, or is associated with, accept
absolutely no responsibility whatsoever, nor any liability,
for what is published on this web site.    Please refer to:

legal description


The Business Forum
Beverly Hills, California, United States of America

Email:  [email protected]
Graphics by DawsonDesign
Webmaster:  bruceclay.com


   Copyright The Business Forum Institute - 1982 - 2015  ** All rights reserved.
 The Business Forum Institute is not responsible for  the content of external sites.

Read more