Internationalization: Japanese manufacturing company

This report was written to review the process of internationalization of one Japanese manufacturing company in Singapore. Impacts from financial crisis in year 2008 forced the group companies to exercise cost-cutting measures in their global operations, and localization is the only way to save costs and to maximize the utilization of local expertise and responsiveness to meet global competition.

The review focuses on several front-end aspects of international HRM activities during the process of internationalization. Literature review on the topics of strategic IHRM, staffing systems, cultural differences and expatriate selections were studied and compared with the current organization structure and its HR management approaches and practices. Issues and problems arises from expatriate assignments were reviewed for future development. Comprehensive evaluation activities and areas of improvement were recommended for the company to leap forward.

1. Strategic Human Resources Management in International Context

Strategy Human Resources Management (SHRM) is a process that allowed a company to bring its core resources together for strategic planning, for example core competency, core processes, cultural, structure and human resource to align with the company strategy to achieve its goal and objectives, see figure 1.

In the context of international field where the firm operation involves in various countries and employing different national categories of workforces, the SHRM will look into broader perspective, for example in the area of six identified human resource activities in domestic context internationalization [Dowling P.J 2008]. Some of the additional international HRM’s activities implemented by the HR department when Mastec progressed into internationalization are given in Table 1. The terminology of employee category are such as, i) PCN:- employees born and live in parent (home) country (headquarter), ii) HCD:- employees born and raised in the host country (where the subsidiary operate, and iii) TCN:- employees born in a country other than the host and parent country, were introduced into the company human resource system.

The implementation of the strategic IHRM depends on the stage of the company at during the process of internationalization. Adler and Ghadar’s model (1990) based on Vernon’s life-cycle theory distinguishes three phases in the international product life-cycle [H. Scullion, 2005]. The first phase (“high-tech”) focuses on products, research and development that emphasizing on technical competency and role of functional area. The second phase (“growth and internationalization”) concentrates on business growth and market penetration in local and foreign country. The third phase (“maturity”) put pressure on the lower price and cost-control measures due to global competition. In the modern technology world, product life-cycle has been shortened to 3~5 years, which allowed Adler and Ghader to suggest a fourth phase. The fourth phase emphasis that a firm must pursue differentiation and global integration in order to achieve cost-control measures. This is the main reason for headquarter in Japan to reorganize the business structure in Southeast Asia. The parent company has seen the maturity of the market in Southeast which triggered their decision to implement cost-control measures. However, detail examines at each of the subsidiary shown that there are mixture of phases which the subsidiaries are experiencing. For example, Vietnam and India are in the first phase which focuses on products and developing technical competency.

Human Resource Activities

International Human Resource Activities

Human resource planning

administrative activities in foreign subsidiary, cross-border risks management, political risk, terrorism and welfare

Staffing

Staffing approach in subsidiaries in Vietnam, India, Thailand and Malaysia. Recruitment of HCNs for host-country operation, etc.

Training and Development

Cross-cultural training, language translation, pre-departure training

Performance management

Evaluation of expatriate performance, overseas assignment ROI evaluation and staffs evaluation for foreign subsidiary

Compensation and Benefits

Tax equalization, overseas housing and posting allowances, return air ticket benefits, health-care, etc.

Industrial Relationship

different taxation law, compliances with host government policy, and compliances with general acceptable practice of doing business.

Table: 1

The other approach to strategic IHRM implementation was contributed by the two logic of Evans and Lorange which suggested ‘product-market logic’ and ‘social-culture logic’ [Evans & Lorange, 1989]. Both raise a question how a firm operates in a different product markets and diverse social-culture environment, which effectively establish human resource policies. Product-market logic implied that various phases of produce life-cycle need different focuses of manager which dictates the HR activities to concentrate on core competency, entrepreneurial skills and technical know-how. Social-culture logic suggested that for a firm to operate in various counties, employing people from difference social-culture backgrounds influences HR activities into providing training and education of cultural difference. Focusing on encouraging open communication, an “open-minded” listening, discouraging “silo” and facilitating activities that required less sentence structure will get around language and cultural different barriers [H. Buknall, 2005]. The argument stressed the important of willingness to listen, letting the other party to clarify any doubt without making self assumption to achieve effective communication.

Since Mastec had gained the status of regional headquarter in year 2009, the HR activities had started to look into above requirement, but the implementation process is still at a learning stages. This is the reason why only expatriate from Singapore was allocated to subsidiary operation in Vietnam, whereas Thailand and India still managed directly from Japan. The effectiveness of current organization structure to manage the subsidiary and how effective it can perform its role as regional headquarter and maintaining the similar level of corporate government as before need to be evaluated.

2. Staffing Approach and Human Resource Orientation

As a firm progressing toward internationalization, management and control become more complex due to operation in geographical dispersion and multiculturalism. In leveraging those factors, the multinational firm can adopts centralized or decentralized approach which ever fits the complexity of its environments. Majority of Taiwanese’s MNC likes Foxconn and Acer Computer practicing centralized control system. Prahalad and Doz refer centralized approach as ‘global integration’ with strict control and decisions making from headquarter. Decentralized approach is more towards ‘local responsive’ that gives some decision making autonomy to its subsidiary in order to ‘best’ modify it product and services to meet local market demands [Prahalad, 1987]. Typical decentralized control company is a joint venture alliances. One of a reference company which operates very successfully under decentralized system is Johnson & Johnson.

The IHRM literature used four approaches to managing and staffing its subsidiary, called ethnocentric, polycentric, geocentric and regiocentric [Perlmutter, 1979]. Through these four types of management orientations, companies can clearly change from one orientation to another, depending on the needs of the company [Mujtaba, 2006]. This statement was proven by the decision of headquarter to change management system in Southeast from pure ethnocentric to regiocentric. Detail explanations of each type of the staffing approached are given as follows:

2.1) Ethnocentric.

Is a staffing approach where subsidiaries are managed by staffs from PCN. In ethnocentric approach, PCNs are dispatched to fill in key position of a subsidiary in host-country. The mind set of management is ‘what work at home, will work here’ [Guergana K.S. & Mujtaba, 2009]. Some of the reasons to pursue ethnocentric management system are lack of qualified personal, competency or special technical knowledge in HCNs. The need for centralized control, risk management, needs for parent-subsidiary to maintain good communication and coordination are another reasons to practice ethnocentric management. However, there are several limitations associated with ethnocentric system where HCNs has limited opportunity for career promotion and leads to high turnover. Adaptation of expatriates to host country takes much longer time and often leads to poor decision and cross-cultural conflict may occur [Zeira, 1976]. High operating cost to sustain expatriates expenses being viewed as unjustified by HCNs. Typical example of ethnocentric approach company are Japanese firms such as Panasonic, Sony and Hitachi. In Mastec organization, the staffing approach for subsidiaries in Thailand, Vietnam and India adopted ethnocentric system due to lack of competency of HCNs and the needs for corporate communication. Most of the customers in India and Thailand are Japanese manufacturers, therefore an expatriate with Japanese language ability to communicate with customer’s parent company in Japan is still vital.

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2.2) Polycentric

In polycentric staffing approach, multinational firms rely on the HCN to run the business operation and rarely PCN are transferred to foreign subsidiary. Each subsidiary is treated as an independent business entity with decision making autonomy. In some cases, PCN belief that foreign markets are too difficult to understand and therefore a join venture alliance was formed. The benefits of polycentric are local subsidiary has more leverage to run business operation and achieve fastest local response to market demand. Polycentric system allows continuity of management by HCNs in foreign subsidiary. Language barrier, cross-cultural adaptation problems and high relocation cost to sustain expatriate expenses were eliminated. The disadvantage of polycentric is bridging gap between HCNs and PCNs at headquarter due to language barrier, conflicting of national loyalties and compliance to headquarter HRM policies. There are potential risks of subsidiary become federation, isolated from headquarter and not pursuing corporate business goals [Dowling P.J 2008]. In Mastec’s organization, the establishment of subsidiaries in Indonesia and Malaysia was under joint venture alliance and operate under polycentric system. In order to maintain a reasonable level of control and to provide managerial and engineering support, virtual assignments system was implemented with frequent business trips to visit the subsidiary company by the respective manager.

2.3) Geocentric

The management style in geocentric staffing system focuses on global operation to draw best talents and resources. Each subsidiary and headquarter are interdependent of each other to make unique contribution based on their comparative advantages. An example of this company is Mercedes Benz, where the company sources raw materials around the world from the lowest-cost perspective and assembles their cars in Germany where the best technology is located. The strengths of geocentric approach are multinational firms able to develop a pool of global executive for deployment throughout the global organization. It encourages career development and promotion of high-potential executive regardless of nationality. However, in the process of collecting wisdoms and deploying expertise globally, host government may intervenes recruitment using immigration control to encourage employment of HCNs. Extensive international socializing between PCN, HCN and TCN to support geocentric staffing system needs centralized control which reduced independency of subsidiaries and the staffing decision is time consuming. High cost associated with cross-cultural training, relocation expenses and the need to have compensation package with international standard gives substantial financial burden to the firms.

2.4) Regiocentric

Regiocentric staffing approach focuses at a specific geographic boundary, but used a pool of managers from the subsidiaries within the region. Several regional headquarter can be formed such as in Asia, Europe and Middle East which will report to headquarter in parent country. The regional headquarter gains decision making autonomy to operate their business. HCH will be able to interact with PCN posted in the regional headquarter. Parent company is able to maintain reasonable compliances to headquarter HR policy and manage risks control with PCN staffed in regional office [Dowling P.J 2008]. However, there is a potential of federation at regional rather than a country basis. Career prospect also limited to regional level and lack of opportunity for HCN or TCN to explore headquarter working experience.

One should remember that the four management orientations are not mutually exclusive. Therefore, they can take place all the time within same organization for its departments or product lines [Guergana K.S. & Mujtaba, 2009]. The current organization structure of Mastec clearly demonstrating the application of various management styles within an organization.

3. Managing Cultural Differences

Culture can be defined as shared of beliefs, values of a group of person, ways of thinking and living [L. Laroche, 2007]. It encompasses what we are taught to think and response to any given situation by the society in which we are raised. In multinational business context that operating globally, one has to be sensitive and understand the cultural ways of doing business. An example is, in Japanese culture, some of the decision making process is executed through informal advance discussion to reach a consensus called ‘nemawashi’ [Jon Miller 2007]. Greert Hofstede has defined culture as:

” Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.”[Geert Hofstedeâ„¢ Cultural Dimensions, 2009]

The statement implied that if we have an insight view of different people behaves in different cultures, we will tend to interact with the people in other countries more effectively to create successful business results. The Hofstede’s five cultural dimensions of study can be applied to have broader views of national culture.

Power Distance: Most of the countries in Southeast Asia region exhibits large power distance. In such organization, most of the power centralized in the hands of few key staffs. Subordinates have high dependency on their bosses and are unlikely to approach and contradict with their bosses directly.

Individualism: Countries in Southeast Asia are a mixed of individualism and collectivism. Thailand, Indonesia and Vietnam are more collectivism due to the people from birth onwards are integrated into cohesive groups, high respect for royal family and family oriented. In Japanese culture, ‘individual opinions’ almost do not exist and employees will act according to the interest of their group ~ the group come before individual. American and Australia countries exhibit high individualism where people are more self-oriented.

Masculinity: Refer to the societies where gender roles are clearly distinct. In masculinity society male are supposed to be assertive, tough and material success oriented. Female are supposed to be more modest, tender, submissive and concerned with quality. In Asian society, especially Korean and Japanese company, the masculinity culture is stronger, where female staffs are expected to serve tea whenever there is an important visitor.

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Uncertainty Avoidance: This can be defined as people tolerance toward uncertainty or ambiguity. It indicate to what extend the cultural intricate a person to exhibit the feeling of uncomfortable and nervous in unstructured situations. Country of USA and UK exhibit low level of uncertainty avoidance whereas Japan and Singapore exhibit high level of uncertainty avoidance. An example, Japan tends to have strict laws and procedures to which their people adhered closely.

Long-Term Orientation: Long-term orientation versus short-term orientation. This fifth culture is said to deal with ‘Virtue regardless of Truth’. Values associated with long-term orientation are thrift and perseverance and values associated with short-term orientation are respect for tradition, fulfilling social obligations, and protecting one’s ‘face’. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C. This dimension also applies to countries without a Confucian heritage such as Brazil. [Hofstede, 1994, Geert Hofstedeâ„¢ Cultural Dimensions, 2009]

Beyond the economic and political-legal issues, a country’s cultural environment (communications, religion, values and ideologies, education, and social structure) also has an important implications when it comes to a company’s decision about when and how to do business there [Bohlander/Snell 2007]. Asian society comprised of various cultures and traditional customs inherited from different countries. It is vital for a global manager or expatriate to fully aware of the respective culture before departing for international assignment. Some manager can adopt culturally appropriate behaviors, but that does not apply all the time in all cultural setting [Dowling P.J, 2008]. Therefore, it is essential for HR to arrange and facilitates cultural training to equip expatriates with necessary skills to cope with the new environment in foreign country.

4. Expatriates Selection

Hiring and deployment people to effectively perform international assignment is a crucial decision because failure in expatriate assignment will cause huge financial loss, damaging a business, and distance a relations between subsidiary and parent company. One can concluded that an expatriate failure represents a selection error, compounded in some cases by poor expatriate management [Eugene & Nic, 2002]. Recruitment and selection is a process of searching potential job candidates and gathering information for the purpose of evaluating and deciding best people for a particular vacancy. The factors involved in expatriate selection can be assessed from individual and situation aspects. Individual factors are i) technical ability, ii) cross-culture suitability, and iii) family requirement, whereas situation factors are categorized as i) culture or country requirement, ii) language, iii) MNE requirement.

Technical ability of an employee to perform the required tasks is the most important consideration, given most of the reason for international assignment is to ‘fill up position’. That means, special skills and competency or important roles will be assigned to the expatriate. In most of the developing country such as Vietnam and India, lack of HCN’s staffs ability required parent company to dispatch expertise to do the jobs as well as knowledge transfer. Giving that reason, an effective skill of expatriate is also important to translate technical or managerial skills to HCN.

Cross-culture suitability or ability to adapt to foreign environment is crucial for an expatriate to operate independently in foreign environment. The desirable attributes shall include cultural empathy, adaptability, diplomacy, language ability, positive attitude, emotionally stability and maturity [Caligiuri, 2000]. An employee with high ‘coping skill’ enabled him to survive and mix into local culture. Apart from culture ability, individual’s personality, communication skills and attitude to foreigner are also important factors for expatriate to build up personal network in foreign country, hence contribute to successful of international assignment.

Family requirement determines the ability of family members to adapt to the new foreign environment, particularly spouse. The responsibility of spouse to setup new home, plus the down side emotional feeling of leaving behind a career, friends and social support network may cause burden to an expatriate and affected the work performance. The major causes of expatriate failure are family adjustment causing premature departure, poor performances, lifestyle issues, work adjustment, business climate and repatriation issues, and other opportunities arise. By far, the biggest factor tends to be a spouse’s inability to adjust to his or her new surroundings [Riki Takeuchi, 2002]. Disruption to children education, the need to take care of aging parents and custody of children for a single parent may cause the selected candidate to reject the international assignment. In order to avoid burden of trailing spouse, the manager assigned to India is without accompanying by his spouse and children.

Country or cultural requirement may impose restriction to employ PCN or TCN. Multinational firm need to demonstrate that HCN is not available, or providing a training program to transfer knowledge to HCN before the host government will issue working permit. An example is in UK, working permit for Japanese language translation is easy to obtain compared engineering jobs. In some country, working permits only issued to expatriate where trailing spouse is not permitted to work, which may create adjustment problems. Or work permit only issues to male expatriate (eg. no work permit for woman expatriate in Middle East country).

MNE staffing policy is another important decision to meet company objective, for example knowledge transfer, management development or organization development. The motivational of HCN, HCN’s career progression and keeping the lowest cost of business operation also need to be considered. However, for the reason of corporate control and the need for special skills, staffing of PCN cannot be avoided. Other situational factors are mode of operation, duration and type of assignment and amount of knowledge transfers will affect the staffing policy.

The ability to speak local language linked to the capability to learn local culture. Differences in language are recognized as major barrier to effective cross-cultural communication. Even though, many multinational firms places language at less important criteria and they view language as a mechanical which is manageable by individual. Expatriates who are able to speak local language will be regarded as part of the local society which make business communication much easier and friendlier. The other important aspect of language is the ability to understand corporate language. Some multinational firm from non-English speaking countries may adopt corporate communication using the language of parent country (eg. Japanese or Korean) as a standard way of reporting. Prospective candidate may be eliminated from the potential pool due to a lack of competency in the common language [R.Marschanp, 1999]. Therefore, language ability may limit the multinational firm ability to select the most appropriate candidate. The requirement of Japanese language to communicate with Japanese customers has placed restriction of expatriate selection in India & Thailand.

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5. Lessons Learned

The decision of headquarter in Japan to change management system in Southeast Asia region has put great pressures on Mastec’s HR management to looks beyond local context. Throughout the process of implementing IHRM activities, numerous valuable experiences have been learned for future improvement although there is no major problems arise. Those experiences suggested that IHRM does not only facilitate and supporting business units but plays a strategic roles to initiate the planning process and monitoring the implementation throughout the organization. The close coordination between HR department and individual business units in the implementation process is essential to realize the company objections. Several experiences gained are examined below for learning process:

5.1) Mis-match of expectation: Lack of cultural understanding: It is not surprise that the cultural training was ignored because HR department has taken for granted that Singapore is a multicultural country. The expectation manager from the HNC in term of responsiveness and local staffs management have causes conflict under visible management system. This had resulted the manager to fly more often to the destination to resolve the issues.

5.2) Lack of cultural understanding: In India, holding hands between male-and-male indicate good relationship and trust of each other. However, this practice has given a culture shock to the Japanese expatriate when a local customer tried to hold his hand during the walks for lunch after a serious business discussion.

5.3) Insufficient expatriate arrangements: The last minutes decision of selecting a candidate for job assignments in Vietnam has given surprises to the spouses. In order to keep his job performance, the expatriate agreed on the assignment and leave behind his ill parent to be taken care by his spouse alone. Frequently, the expatriate has to return to home at his own expenses for traveling cost.

5.4) Lack of communication channel: The above mentioned expatriate does not has communication channel to relay his personal problem to the company. Approaching directly to his boss could be misinterpreted into demanding for extra benefits. The issue may be solved if HR could approach ‘open-minded’ discussion or using mentoring approach.

5.5) Language barrier: Due to the unique communication requirement with Japanese expatriate of customers and potential local candidate for jobs assignment in Thailand and India was eliminated. This has slowed down company objective to reduce operating cost toward regiocentric management system.

5.6) Lack of broader perspective: Due to different compensation package for overseas assignment between Japanese and Singapore expatriate, a potential local candidate who has Japanese language ability rejected the offers for job assignment in India. The difference of compensation especially in hardship country has viewed as unjustified and less attractive by local staff.

5.7) Lack of cultural understanding: A newly expatriate Japanese manager exercises his authority to force a group of employee to work during the cultural national holiday in Thailand (Buddhist festival celebration). The manager has promised to his customer to dispatch his employees to support production and will pay triple salary for the over-time working hours. Without understanding the cultural practice of religious celebration in Thailand, he applied pure ethnocentric management style that worked well in Japan into Thailand society. That incident caused cultural conflict between that group or worker and the expatriate.

6. Conclusions

The internationalization process of Mastec is still at an early stage where there are still many activities needed to put in place to strengthen its operation. Mastec need to look beyond its coverage of IHRM studies in the area of training and development, performance management of expatriate, management of repatriates, succession plan, industrial relation, and human resources management in host-country. The issues and problems that arise could be avoided if the proper pre-departure trainings were conducted before expatriate assignment. ‘People before Products’ is a philosophy of the founder of Panasonic Group company, Konosuke Matsushita (1984-1989), emphasize on cultivating the potential ability and development of workers before business [Konosuke Matsushita, 2007]. For example, Samsung Electronics used internal developed ‘Local Expert’ program to train employees to better understand the international business environment [Tony Michell, 2010].

We can also predict that in long run there is possibility for parent company decision to move toward to polycentric system in Southeast Asia region subjected to successful of current arrangement. Therefore, it is crucial for Mastec to implement more IHRM activities in order to demonstrate its independency and capability to manage the regional business. At the same time, it is essential to gain respect and trust from headquarter by adopting strong corporate governance, cooperation and compliances to headquarter HR policies in Japan.

7. Bibliography

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