"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

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:

²      Competencies for professionals to help select the best candidates, measure performance and promote from within as much as possible. 

²      Compensation of employees, to effectively recruit and retain staff in each market while maintaining consistency in designing and implementing pay structures and benefits.

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

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.

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.