Executive Summary
This report outlines the analysis and evaluation of an Australian Company that is seeking global expansion to Indonesia. The analysis entails company description, human resource practices and general structure. The evaluation of the host country is provided with reference to the business culture and comparison given to the parent country with the use of Hofstede’s study. Further, the human resource functions are reviewed with respect to the culture. The report additionally provides recommendations for the best human resource approach to take in order to gain global expansion by suiting the host country.
Introduction
The concept of globalization has become crucial with most companies and businesses seeking to take advantage of the opportunities created by globalization to gain expansion and global dominance. However, it has become crucial to businesses, companies and analysts that, the expansion strategies effective in the global market are distinct from country to country. This is mainly because of the fact that the culture, governance and uniqueness of each country determine their acceptance or rejection of global companies.
Since the main aim of businesses is profit-making through targeting to meet the needs of the customers, the personal skills of knowing the expectations of people of different cultures and knowing how to deal with them guarantee success. This report provides an analysis of an Australian company that has plans of expansion to Indonesia. The report provides the analysis of the company, the culture of the host company and the human resource functions to make use of. This is because of the personal relations encompassed in the functions. It further provides recommendations that intend on making the global expansion strategy as effective as possible.
Company Description and Profile
The company under discussion is a composite picture of a financial banking institution that has had its existence in Australia for the last 60 years. The company initially started as a bank in Australia before later incorporation into a public limited company. It is a group of companies that engage in banking, investment and other financial services globally. It has its operation in more than twenty-five countries mainly in Australia, Europe, parts of Asia and now owing to the strategic trade partnerships between Australia and Indonesia; it is seeking to expand to Indonesia in the next two-year period. It ranks among the top twenty most successful and largest companies in Australia and as the second-best bank. Having an asset base of AUD$ 450 billion and 375, 125 shareholders, the company has maintained listing and trading on the Australian stock exchange market.
The company is based on a commitment to customer service with over 5 million global customers based on personal banking. The company seeks to provide financial products and services for individuals and businesses geared toward availing financial solutions to them. The values of the company in relation to the customers include convenience, responsibility and simplicity. Convenience is mainly in terms of accessibility to the company’s products and services through appropriate, reliability, high speed and accuracy of service and an environment of friendliness through offering customers value and respect. The responsibility lies in ensuring the security and privacy of customers, providing necessary information to customers to enable them to attain financial literacy and establishing responsible lending mechanisms. Simplicity relates to offering products and services that are simple for the ordinary customer to understand, increasing the speed and process of account opening as well as ensuring clarity and simplicity with customers and ensuring established feedback mechanisms.
The Company has approximately 37, 000 employees around the world. It carries out employee management to enable the employees to achieve their best through effective customer service, integrity in decision making and valuing the interests of all the stakeholders such as the customers, shareholders and the entire community in their day-to-day operations. The guiding human resource functions for the company are performance management and the process of recruitment and training. The company values are embodied in the culture in which they look for the selection and training of their employees. These values are mainly integrity, excellence and accountability and the general following of rules and the code of conduct yet maintaining a creative and innovative spirit. At the training process, the employees are engaged in learning the company values and given support materials and mentorship. Performance in the company is measured through surveys and continuous training especially on global strategies to ensure productivity and growth for expertise while maintaining relevance.
The banking industry in Australia has been characterized by strength and profitability owing to the factors of non-interest income growth, cost containment and general growth of the financial services (Laker, 2004). Laker argues that the industry is based on continuous consolidation and concentration to increase the strength and capital base of the institutions. Further, he attributes the growth to the convergence of the Australian capital market, increased global expansion of the financial institutions and attributes the industry characteristic to the increased service diversification to include insurance companies and investment firms offering financial management services.
Analysis of the Host Country
Indonesia is an emerging economy that has maintained trade partnership relations with Australia. Further, this relationship has been enhanced by the donor assistance Australia has channeled to Indonesia to help it grow and develop along with other donors such as the US, Europe among others. Ranking fourth in terms of large population size in the world, Indonesia is a developing country that has a significant part of its economy sustained and sponsored by foreign investment.
The large population and the uniqueness of this nation in terms of culture and geographical alignment place it as a global strategic expansion destination for the Australian Company. The political climate of Indonesia is not yet stabilized due to the developing nature and high population. The political analysis of the nation encompasses the issues of laws and regulations, tax policies, trade tariffs and restrictions and the general stability in governance (Abdullah & Santoso, 2004).
The Asian crisis that affected the banks owing to increased capital flows and weak markets was a display of political influence. Indonesia having a large population embarked on a market-based economy but the government-controlled crucial sectors such as regulations of banking. The crisis initiated the formation of the Indonesian Bank Restructuring Agency and Indonesian Banking architecture that oversee the industry (Djiwandono, 1998). The characterization of the crisis of 1980-1990 in Asia with limitation and heavy regulation facilitated the government to promote fair competition through allowing new entrants into the industry, widened network and reduced segmentation (Abdullah & Santoso, 2004).
The regulations in place include the Basel capital accord for assessing capital adequacy, the appointment of compliance directors, the establishment of a special investigation unit, consolidated supervision, insurance programs and other market regulations (Goeltom, 2005). The political situation is further volatile due to increased capital flows from the government and through grants and aids (Goeltom, 2005). Abdullah and Santoso (2004) argue that other requirements for foreign banks include having an international reputation, ranking among the top 200 largest banks in the world and initial capitalization being the minimum level of IDR 3 trillion or an equivalent.
The economic situation in Indonesia has been analyzed on the basis of interest rates, economic growth, inflation levels, exchange rates and other economic indicators (Goeltom, 2005). Reports show that the banking industry of Indonesia has and still facing improvements due to the improved economic conditions owing to the post-Asia crisis (Laker, 2004). The improvements have been evident from the declined inflation rates and stabilization of the exchange rate (Goeltom, 2005). However, Goeltom (2005) argues that the high oil prices and other natural disasters are likely to increase the rates of interest and inflation while the banking risks such as credit, market, liquidity and foreign investment need consideration. He further asserts that there has been increased privatization of government-owned banks and the encouragement of mergers and acquisitions to strengthen the economy.
The social aspects of Indonesia mainly encompass the aspects of its culture, population, age distribution, health and other issues such as language. Indonesia ranks as the fourth most populated nation (Laker, 2004). Located in Asia, it is a diverse nation with more than 350 ethnolinguistic groups and hence has multiple dialects with the common language being Bahasa Indonesia (Abdullah & Santoso, 2004). The nation is dominated by the Islamic religion and governance embraces the Islamic laws (Alder, 2008). This is further seen in the banking industry with the encouragement of sharia banking (Abdullah & Santoso, 2004). According to Hofstede (1980), Indonesian culture can be stipulated as management taking a formal hierarchical structure and being centralized, encouragement of teamwork, focusing on maintaining personal relationships and with no inclinations to avoiding uncertainty in future actions.
Technology is a basic structural tool for global expansion due to the fact that it allows for global networking and reduces the cost of operation of an industry (Laker, 2004). This can be analyzed in terms of the rate of technological change, automation, application of new inventions and technological incentives (Djiwandono, 1998). Despite the fact that has been continued growth and expansion of technology globally with massive new inventions, the adoption of information technology in Indonesian banks is relatively low with comparisons to other countries (Abdullah & Santoso, 2004). They further assert that internet banking is at its initial stages and the majority of the citizens are either not knowledgeable on the same or are resistant and suspicious to change in such terms. Kurnia (2005) argues that although the level of internet penetration is low for Indonesia, the benefits from it cannot be undermined.
A comparison of the culture of Australia and Indonesia is shown through the Hofstede analysis study (Hofstede, 1980). The study further outlines dimensions that form the basis of characterizing cross-cultural research differences. These are provided as individualism which relates to preferences of either working alone or in groups, masculinity/ femininity which refers to gender dominance, power distance which refers to the level of equality in the distribution of power and wealth while uncertainty avoidance refers to the extent levels to which people are threatened by uncertain events or the lack of support structures.
Jones (2007) gives a comparison of the reference of the Australian and Indonesian culture to the Hofstede study. Although there are cultural differences between Australia and Indonesia, he argues that for the dimension of uncertainty avoidance, both cultures are similar since they do not both experience fear of the unknown or in decision making and both tend to plan for the future. Jones (2007) further argues that for the dimension of masculinity/ femininity, both tend to have minimal differences with Australians shifted to masculinity order, unlike Indonesians who tend to be good at maintaining personal relationships. He also asserts that the two dimensions of power distance and individualism, are very distinct differences. Australians are individually motivated and have decentralized management. Indonesians on the other hand tend to have management systems that adopt a formal hierarchy and are centralized while individuals are highly collective and team-oriented (Jones, 2007).
The Analysis of Human Resource Functions
When companies seek global expansion, they have to consider using strategies that help them achieve their objective (Abdullah & Santoso, 2004). The human resource of the organization plays a major role in ensuring that the employees of the organization are properly managed and effective. This is because the proper management of employees benefits into effective customer service, retention and eventual loyalty (Davies, 2008). The global expansion has challenges that require experience and expertise based on an effective understanding of the country in question so as to enable the company to not only achieve global entry but also help in the maintenance of a competitive edge in the market (Adler, 2008). It is normally required that managers make use of international human resource functions to be adequately prepared through proper placement for effective results (Jones, 2007). Dowling and Welch (2004) outline the functions of human resource management as recruitment and selection, expatriation and repatriation, compensation and performance management. This section shall emphasize the functions of recruitment and selection as well as expatriation and repatriation.
Every organization requires the services of employees at different capacity levels. The employee plays an important role as the brand and representative of the company since she or he is the one directly involved in the actual implementation of the objectives of the company (Davies, 2008). It is for this reason that the function of recruitment and selection comes in. This function requires the human resource manager to select the person that is most appropriate for a given function (Adler, 2008). Appropriateness entails looking at matching the required competencies to the actual performance of the individual as well as best suiting to the culture and values of the company. Dowling and Welch (2004) have argued that for recruitment and selection for international basis, the approaches of ethnocentric based on the selection of home nationals, geocentric that does not regard nationality and polycentric that employs host-country nationals may be used.
Expatriation is the process of transferring home country staff to the host country but mainly on managerial levels of the subsidiary branches (Alder, 2008). This requires special management through training, effective preparation, development and proper placement since the process of returning expatriates home due to poor job performance are very expensive (Davies, 2008). Repatriation involves returning expatriates back to the working environment of their home country (Adler, 2008). This process requires effective preparedness through reorientation programs to help them readjust to their home environment life to enable them to be effective (Dowling & Welch, 2004). The recruitment and selection of staff for the Indonesian branch require the use of effective human resource functions. Dowling and Welch (2004) argue that this branch has the option of using three approaches of international human resource management. These are the ethnocentric approach, geocentric approach or polycentric approach.
The ethnocentric approach requires that filling in managerial posts with the employees who are home country nationals in this case Australia due to their knowledge of the company’s values and practices (Dowling & Welch, 2004). In this approach the aim would be to maintain control and command for consistency with the policies of the headquarters, to fill gaps with local talent, to safeguard intellectual property especially in joint ventures, to help managers develop a global outlook and to counteract high turnover existing among the local employees (Adler, 2008). Jones (2007) argues that in this context, this approach would be effective with the culture of Indonesia since it would best lead to the adoption of a formal hierarchy with the management centralized.
The geocentric approach, according to Dowling and Welch (2004), would require the selection and recruitment of employees regardless of either being from Indonesia or Australia. The aim of this approach is to attain the most appropriate staff though it is expensive and complicated (Alder, 2008). Jones (2007) points out that the effectiveness of this approach with reference to the business culture would be advantageous to the extent of the similarity of the dimensions of uncertainty avoidance and masculinity/ femininity. This is due to the fact that the employees all would have the cultural orientation of planning, equality in available opportunities and the courage to face the future.
The polycentric approach would require employing of Indonesian nationals in the management and subordinate levels (Dowling & Welch, 2004). This approach is aimed at promoting local morale and motivation, developing local talent, cutting down on costs and maximizing the adaptations of the Indonesians to the products and services of the company (Adler, 2008). This approach would be effective due to the fact that the employees would have already developed a bond with their fellow nationals. Adler (2008) argues that global expansion requires teamwork and collaboration with one purpose and the working of all the people collectively to ensure that it becomes a success. Jones (2007) points out that the individualism dimension of Indonesian culture presents them as being highly collective, being group motivated and expressing high degrees of teamwork. The adoption of the polycentric approach would thus be the best suited for this kind of team-based global expansion.
Expatriation is the process of transferring home country staff to the host country but mainly on managerial levels of the subsidiary branches (Alder, 2008). This requires special management through training, effective preparation, development and proper placement since the process of returning expatriates home due to poor job performance are very expensive (Davies, 2008). This function would in this case be based on the abilities of adaptability, technical competence and leadership. Adaptability, in this case, would be based on self-maintenance and independence, the ability to develop relationships that are satisfactory with the nationals of Indonesia and having cognitive sensitivities and skills for the perception of the happenings in Indonesia as well as the ability of the family of the employee to adapt to Indonesia and their age (Adler, 2008). This would also be influenced by the perceptions of developing countries of which Indonesia is one.
Technical competence would be necessary for terms of past global experience and the eventual outcome as well as the ability to converse in the Indonesian language (Dowling & Welch, 2004). Leadership would be necessary due to the culture of Indonesia where leadership is respected and orderly and the possession of good communication skills. Abdullah and Santoso (2004) assert that the expatriates in this case scenario would require to be prepared in terms of the general understanding of Indonesia in terms of the political structures, housing, compensation norms, job openings after repatriation, health conditions, taxes, education, sale of homes, salary distribution, transport of goods and climate. Jones (2007) argues that expatriates would require practical skills for familiarization with routines of Indonesia such as schooling, shopping, dressing and socializing among others. He further argues that the expatriates would require cultural training to enable them to have an open mind in terms of beliefs, ideas and attitudes to be encountered together with the need to learn the foreign language
Repatriation is the process that involves returning expatriates back to the working environment of their home country (Adler, 2008). Although the cultural differences between Australia and Indonesia are not such diverse, repatriation is necessary especially for employees that find it hard to adjust, problems of adjusting for the family, inability to perform with the main reason being the inability of the spouse to adjust to the environment (Jones, 2007). This could further be motivated by the culture of collectiveness, the fact that Indonesia is less developed, the dominance of Islamic religion and the political structure with the dangers of natural disasters due to the geographical location (Binhadi, 1994). This process requires effective preparedness through reorientation programs to help them readjust to their home environment life to enable them to be effective (Dowling & Welch, 2004). Repatriation can also be due to a long duration of service in Indonesia and now one seeks retirement to their home country Australia (Alder, 2008). The company needs to set up repatriation programs that enable the repatriates to be mentored and be mentors while engaged in useful employment and in giving advice on effective global expansion strategies and ways of enhancing the subsidiary in Indonesia. Alder (2008) further stipulates that this would call for effective compensation plans to enable the repatriates to adjust to their home country.
Recommendations
Global expansion like in this instance would require the use of effective international human resource strategies, effective cultural strategies and aim at maximizing acceptance at the host country. The company in this instance would require adopting the recruitment and staffing strategies that ensure effective adaptation of the Indonesians to the products of the company. It is also recommendable that effective customer service, market research and effective communication are achieved together with good marketing strategies. The company has to look for ways of maintaining its competitive advantage.
Conclusion
This report has outlined the analysis and evaluation of an Australian Company that is seeking global expansion to Indonesia entailing company description, human resource practices and general structure. The evaluation of the host country is provided with reference to the business culture and comparison given to the parent country with the use of Hofstede’s study. In addition, the human resource functions have been reviewed with respect to the culture and recommendations made on the same.
Reference List
- Abdullah, B. & Santoso, W., 2004. The Indonesian banking industry: competition, consolidation and systemic stability. Web.
- Adler, N., 2008. International Dimensions of Organizational Behavior. Austria: Thompson-South Western Publishing.
- Binhadi, J., 1994. Financial Deregulation and Bank Supervision: The Case of Indonesia Financial Sector Reforms, Economic Growth, and Stability: Experiences in Selected Asian and Latin American Countries. Washington D.C.: World Bank.
- Davies, G., 2008. Customers and their needs. Canterbury: IFS School of Finance.
- Djiwandono, S., 1998. Monetary policy and the banking system in Indonesia: Some lessons.
- Dowling, P. & Welch, D., 2004. International Human Resource Management: Managing People in a Multinational Context. Austria: Thompson publishing.
- Goeltom, M., 2005. Capital flows in Indonesia: challenges and policy responses. Web.
- Hofstede, G., 1980. Culture’s Consequences: International differences in work-related values. Beverly Hill: Sage Publications.
- Jones, M., 2007. Hofstede: Culturally questionable?.
- Kurnia, S., 2005. E-Commerce Adoption in Developing Countries: an Indonesian Study.
- Laker, J., 2004. The Australian Banking System- building on strength.