Managing In a Global Environment

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The objective of this report is to examine and make a critical analysis of the different human resources aspects connected with the expansion of an organization into international markets. This report presents the issues concerning the human resource issues in respect of an organization functioning on a hypothetical case in Australia. The activities of the organization include the construction of multi-story apartments in all major cities of Australia, like Melbourne, Sydney, Brisbane and the Gold Coast. The company’s headquarters is situated in the city of Melbourne. There has been a sluggish trend in the property development and construction sector in the past few years in the Australian context. There are two factors mainly responsible for the sluggishness; (i) shortage of labour and (ii) low affordability of the people to buy or construct houses. The Australian company, therefore, was scouting around other international markets for expanding its activity and found United Arab Emirates (UAE) as one of the potential markets for further expansion and diversification of the existing market. In the UAE, construction is one of the major sectors in the economy and the industry is occupying the third position in the industrial sectors of the economy. Quite unlike Australia, the construction sector has experienced tremendous growth in recent years with the continued growth and prosperity of the largest cities in the country. Apart from the growth in the industrial sector, there are other favorable factors like a stable government and a strong economy. The development in the construction sector is more prosperous with the nation having the second highest per capita expenditure next only to Japan.

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Cultural difference is one of the several barriers that hinder global expansion. The intensity of this barrier becomes more when an organization plans to expand in a market that has very different from that of the country from which the firm originates. This is quite evident in the case of the Australian company expanding into the UAE. There are several cross-cultural communication factors, which the management has to consider the ability of the company to understand and deal with differences between low and high context cultures. Similarly, the aspects of neutral and emotional cultures, small and large power distances in cultures and individualist and collectivist cultures need serious consideration, while the firm is contemplating to expand in a market with a very different culture. Expatriation is one of the efficient HR strategies, which can be pursued while any multinational firm tries to expand in newer markets. This strategy is considered the best one, as the expatriates possess the potential to carry along with them the organizational goals, values, strategies and even corporate culture into the proposed destination and inculcate them in the workforce in the new country. The ability of the employees to fit into the new environment/country is the foremost consideration for the HR executives. It is not enough if the technical and managerial skills and abilities of the employees who aspire to migrate to a new country. The ability of the employee to adapt to the work and cultural environment in the new country is the most important factor that needs to be considered. It is also equally important the interests and positions of the returning expatriates be taken care of once they return to the home country after completing the assignment. They should not get a different treatment simply because they have served in an alien country. The returning expatriates should be provided with opportunities for promotion along with greater flexibility in the matter of work-life balance. Training and development in different areas of domestic operation, the developments of which would have been missed by the expatriates due to their continued absence from the home country is another area, which needs the attention of the HR executives. It is an important part of the responsibility of the expatriate HR manager to overcome the large power distance issues in negotiations and personnel management. To achieve this, the techniques of open and close communication might be used by the expatriate of the HR manager, which will ensure that there is close coordination between the workers and counterparties.

Introduction

This paper is an attempt to make a critical examination of the human resource issues connected with the expansion of an imaginary organization originating from Australia into the United Arab Emirates market. The report will address the human resource issues of the hypothetical organization engaged in the construction of multi-story apartment buildings in the country of Australia desirous of expanding into the United Arab Emirates, where the construction industry is witnessing rapid growth with a multitude of opportunities. Even though the report does not intend to elaborate on the real issues involved in the international expansion of the imaginary organization, it intends to cover the salient aspects covering the issues, plans, strategies, which need to be considered. The topic becomes interesting and significant as the human resources issues have a greater bearing on the efforts of the organization to expand into the United Arab Emirates market.

The human resources issues covered under this study revolves around the HR aspects of the hypothetical organization, which is based in Australia specializes in the construction of multi-story apartment buildings in major cities of Australia like Melbourne, Sydney and Brisbane. The activities also extend to the region of the Gold Coast. The company is having its headquarters operating from Melbourne. The organization is controlled by a CEO who is acting under the direction of a board of directors having 12 active members. A senior manager for each department heads the functional areas like marketing, finance and human resources. The senior managers are is responsible for the performance of their departments. It is assumed that 50 full time employees are working in the various departments including finance, administration, sales and project management. These full-time employees have been spread across the different regions of Australia where the company is having its operations. In addition, there are a large number of construction workers, who are employed on a contractual basis.

Rationale for Expansion

The sluggish trend in the real estate development and construction sector in Australia has been continuing for the past few years. Issues like shortage of labour and less affordability among the people have been the main cause for the sluggishness in the industry. The year 2006 witnessed the thirty-year low unemployment rate in Australia. (Department of Employment & Workplace Relations: 2006). The data for the year 2008 data shows a continuing unemployment rate in the country, which has reached the level of 4.3% (Appendix 1). The issue of labour shortage had a tremendous impact on the construction industry. This is because of the dependence of the industry on a large number of skilled workers for which there has been a shortage. The shortage of skilled labour has resulted in costs escalations due to a higher rate of wages and delays in completing the projects. There is a general tendency to increase in wage rates of employees due to shortage and higher unemployment rates. In particular, the construction industry has been the worst hit with the continuously increasing wages. This phenomenon is exhibited in Appendix 2 & 3.

The sharp decline in the affordability of housing has been the recent issue faced by the Australian economy in recent periods. There has been an alarming increase in the prices of property prices, which has forced people to resort to large home loans. In addition, the Reserve Bank of Australia has enhanced the interest rates, which also had an impact on the affordability of the people. Increasing inflationary tendency and increase in petrol prices also affected the progress of the industry largely. A cumulative effect of all these factors has resulted in the reduction of the disposable income of the people and the affordability to buy houses. The effect of this change in these economic activities has reflected on the construction industry in the form of a sharp decline in property sales and a reduction in general activity in the construction sector. Therefore, it has become essential for a firm engaged in construction activities to find alternative markets to sustain its growth and prosperity. It has also become important that such an alternative market has the potential to grow and possesses high demand for property and construction. This necessity to look for alternative markets forms the basis for expansion into the international markets.

Considerable insights in doing business with the United Arab Emirates can be gained from the reports of the Australian Trade Commission (2008) on the United Arab Emirates. Austrade’s (2008) data estimates UAE as being one of the world’s richest nations with a per capita GDP of US $ 17, 547. Historically the country has been excessively dependent on Oil for the growth and functioning of the economy. However, since the year 1980, the country changed its focus to other sectors to reduce its dependence on oil alone. For instance, Dubai one of the Emirates has shifted its focus on trading. This has made the Emirate as the leading import point for various commodities into the UAE and other Middle Eastern countries.

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As per estimates of the country, the building and construction industry in UAE is the third-largest sector of the economy. The industry has been experiencing rapid growth in recent years with the continued building expansions in the major cities of the country. According to the Australian Trade Commission (2008) estimates, the per capita expenditure on construction in UAE is the second largest in the world, the first being Japan. There are other positive factors like the stability of the government and the presence of a strong economy. In addition, the property development sector is showing continuous prosperity and growth. These factors make UAE a favorable destination for the expansion of the Australian construction company to ensure future growth and for a profitable diversification of its revenue base.

Managing in a Global Environment

The cultural difference happens to be one of the greatest barriers to the international expansion of businesses. The cultural differences are enlarged when a firm expands into a country, which is having a very different cultural orientation from the home country. This is the case when the Australian construction firm wants to expand into the United Arab Emirates market. The barriers are felt at the highest level in respect of communication among managers and subordinates. Communication forms an integral part of management in general. While it comes to the management of the organization’s staff in a different country, the role played by communication becomes even more important. Communication is an important tool that enables managers to understand and deal with their subordinates more effectively. The issue with cross-cultural communication for management assumes greater importance in the light of differences between low and high-context cultures. The differences in neutral and emotional cultures, small and large power distances in cultures and individualist and collectivist cultures are the main elements to cultural differences, which pose significant issues to the management of human resources in transnational corporations.

Power Distance

Hofstede (1991, p.27) defines “Power distance” as the “dependence” connection between managers and their subordinates. According to Hofstede (1991, p.26) most of the Arab countries such as the UAE have cultures with large power distances. This is quite different from the conditions existing in Australia. Australia, as a country is characterized as having a small power distance. In the country, all differences and disagreements are handled in more upfront and open manner. However, the workforce in the UAE culture has a different nature. The workers would like to avoid confrontation with their superiors. Therefore, they may not be interested in any open arguments or negotiations on issues of difference or other conflicts when it comes to the question of settlement. This calls for a special quality in the Australian HR manager to try to have open up communication and the manager should be prepared to look for visible cues so that he can get a clear view of the needs and thinking of the workers.

Cultural Context

Bovee and Thill (2006) find differences in context between cultures, which need to be taken into account by the Australian management for making their decisions on human relations issues.

Business Communication Essentials
Source: Bovee, C & Thill, J 2006, Business Communication Essentials, Pearson Education, New Jersey, p 13.

Bovee and Thill find that the cultural context influences “physical cues, environmental stimuli and implicit understanding that conveys meaning between two members of the same culture” (2006, p. 12). The context spectrum shown above elucidates the fundamental differences in the culture in the Australian and UAE contexts. Even though Bovee and Thill (Ibid) have not listed Australia anywhere in their exhibit on the context spectrum, it can reasonably be assumed that Australian context culture can find a place somewhere between the contexts of Germany and Britain. According to Hooker (2003, p. 15) a high context culture of UAE implies that workers and even managers will try to keep their calm even at tense moments and will refrain from saying anything candidly. This behavior can be found, especially in circumstances where there is no consensus from them. People in this culture prefer to maintain utmost harmony and they consider it as an important quality. However, it is for the Australian management to realize that, although the locals would like to avoid conflicts, there would still be issues, which they would like to address and solve amicably. The locals do not prefer to debate on the issues on the face, as it may happen in the context of the Australian workplace.

Human Resource Functions

Expatriation and Repatriation

Expatriation can be considered as a good HR strategy to pursue when the firm would like to expand into new overseas markets. Since the expatriate is best positioned to represent the goals, values, strategies and cultures of an organization in the new marketplace, the strategy of expatriation fits very well with the expansion idea of any firm. According to Perkins expatriates establish a “corporate memory” in the new market (1997, p. 62).

Before deciding on any other HR issues, the Australian HR manager has the important job of selecting the right candidates to post as expatriate staff and this selection is very critical as the expatriates represent the organization on foreign soil. This task is so critical that any mistake done in this respect would prove very costly to the organization. According to studies in the field of expatriation and managers’ performance, conducted by Mendenhall, Dunbar & Oddou (1987, p. 331) approximately between 20% – 50% of expatriates do not complete the full term of their expatriation and return to their homeland before completing the assignment. Such kinds of acts from the expatriates cost the firms somewhere between the US $ 55 000 and the US $150 000. Shannonhouse (1996) based on a study on the costs of expatriation, reports the firms might lose up to $ 1 million towards the costs of each expatriate failure. This loss results from the interaction of factors like loss of networks as well as unrealized business opportunities. These costs are invisible costs incurred by the firms, nonetheless, they impact the bottom line of the company. The ability of the employee to fit into the new country environment is one of the critical factors that the HR manager has to consider before making his choice of expatriate employees. Even though technical and managerial capabilities weigh with the consideration of different people for expatriate positions, there is the need to consider additional softer attitudes of the prospective expatriate staff to adapt themselves to the completely new environment. There is a vast difference in the cultures of the UAE and Australia. UAE is not only a different country; it has considerable variations in a work environment where the work ethics and communication systems have a world of difference as compared to that of Australia. There is also the status and positioning of the families of the proposed expatriate staff, which needs the attention of the HR manager. In some cases, while the expatriate can adapt himself very well to the circumstances in the new country, his immediate family may find it difficult to adjust themselves to the new environment. The inability of the immediate family to become accustomed to the new environment may lead to the expatriate staff abandoning the mission and return to the home country. This issue may be addressed to some extent, by the HR manager by extending the testing process to the family members of the expatriate staff while conducting formal tests of potential expatriates. These tests typically include personality, psychological and adaptability components.

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Once the expatriate completes the assignment abroad and returns to the homeland with his/her family the situation of repatriation arises. In general, there seem to be a lot of myths and misconceptions concerning repatriation. These misconceptions are the result of the neglect of this area of cross-cultural management by academics and researchers without any remarkable contributions. According to Brewster (1991, p. 88) this academic neglect is based on the assumption that expatriate “re-entry was straightforward”. However, this stand has been disproved by some recent studies. To cite an example, the studies conducted by Black, Gregersen & Mendenhall (1992) and Stroh (1995) show that there is a typical reverse cultural shock while the expatriates return. This shock inhibits the efforts of the expatriate to settle in the home country and he may find it difficult to readjust to the existing circumstances of his own country. The studies report a possible increase of expatriate turnover rates upon coming home up to 25% higher than the turnover rate in respect of managers who are located domestically. The expatriates come home with the expectation that their experience in the foreign country would pave the way for promotions and career advancements on return to the home country. When this does not happen, the expatriate is frustrated and leaves the job to find better avenues. According to Howard (1974, p. 24) under these circumstances, the expatriates feel undervalued, especially when the expatriates come home with a higher status, seniority and prestige earned in the overseas country.

Negotiations

The cross-cultural issue of power distance and cultural context has a significant impact on the negotiations between staff and management. UAE has a culture in which there exists a large power distance, unlike in the context of Australia. In such a culture, normally the workers have the idea that their dependence on their superiors is very high. Therefore, there is a tendency among the workers in these cultures, which will make the workers feel hesitant to talk with their superiors. They would like to avoid disagreements and confrontations in work situations. Budhwar (2004) analyzed HR and cultural issues of Asian countries. However, Hofstede (1991, p. 26) has identified the similarity of the UAE’s (Arab) culture in many areas with most of the Asian cultures, more specifically for the prevalence of power distance in work situations. Budhwar’s (2004) remarks the existence of large power distance makes the firms reluctant to resort to face-to-face confrontations. The firms are also found to be hesitant in executing performance appraisals and providing feedback to workers. This knowledge should educate the Australian HR manager or the expatriates functioning in the UAE and lead them to the understanding, that the local workers operating in the UAE will not question a misleading or incorrect order. This is because of the large power distance between the workers and superiors, which prevents them from resorting to such means. The negotiations in the context of UAE have also to be considered in the light of power distance. The leaders should understand that good progress in the negotiation process might not necessarily represent the reflection of the true progress of the negotiation process. Based on this premise, the local negotiators may seem to be appreciative of the progress, but in reality, the thinking of the negotiators may be directed in the opposite direction. This situation may lead to an eventual breakdown of negotiations. Alternatively, the negotiations might come to a grinding halt to the surprise of the Australian side. It has to be understood, that because of the existence of large power distance, which is an inherently cultural factor, it might be difficult to break the situation. Under the circumstances, the management must try to offer open communication, as the best alternative, and they have to look for visual cues to gauge the direction in progress.

Recommendations

It is recommended that the expansion of the organization into the UAE can well be perceived as a strategic move of the firm. With the slowing business and economic situation within Australia, the expansion into UAE will enable the organization to make use of the opportunity to ensure sustained growth. This move would also bring to the firm more avenues of enhancing its revenues, which can fit into the strategic plans of the firm. However, the organization has to understand that with such a move into the new market, the firm has to face several challenges, and some of these challenges might be cultural. The firm has to be prepared to meet these challenges so that it can ensure that it turns all the available opportunities to its advantage. The organization should not underestimate these challenges as they influence the human resources function of the organization, which is an important function of the organization. It is the responsibility of the HR manager to plan for the expansion and devise strategies for the preparation to ensure a smooth entry and transition into the new market.

The manager must appreciate the influence of the cultural differences existing between the countries of UAE and Australia. The HR manager should also understand that to meet the challenges of expansion there is the need for careful planning and preparation. Yet another recommendation in this area is that the organization makes use of the expertise of one or two expatriates to oversee the operations in UAE in the initial stages until such time the organization establishes itself in that country. There must be a preparatory process undertaken by the HR manager to test the local managers for their adoption of the role of the expatriate. The HR manager must consider the needs and preferences of the immediate family of the proposed expatriate. There is also the need to prepare the repatriation strategies, to be implemented when the expatriate returns after completion of the assignment. It is the function of the HR manager to ensure that the interests of the retuning expatriates are protected once he returns to the home country upon completion of their assignment. This implies that the expatriates should be provided with career advancement opportunities suitable to the experience gained by them abroad. There is the need to ensure the expatriates are given greater flexibility in work/life balance. Further, they should also be imparted the necessary training and development in those areas related to domestic operations, which might have changed from the time the expatriates left the country on their assignment in the foreign countries. The use of appropriate communication methods and tools will enable the HR manager to overcome the large power distance issues in negotiations and personnel management. This will also ensure that the workers and counterparties do not feel neglected or isolated, which is very important in the process of negotiation.

Conclusion

A great opportunity for growth can be found in the global expansion plan of the property developer into the UAE market. However, such an expansion plan also places some potential threats in the realization of the opportunities and these threats stem from the massive cultural differences between the people and work environments of the countries of UAE and Australia. The cross-cultural differences and the issues emanating therefrom cannot be easily fixed and there are no tailor-made methods to overcome these problems. Even though some insight can be drawn by attending to workshops or reading professional works on this issue, they might not be in a position to provide a fuller understanding of the implications of the cultural differences on the performance of the expatriates and the resultant growth of the organization in the alien soil. The best approach, in this case, would be to realize that the people and work environment in the UAE will be different and to prepare the people to face the reality of the cultural differences. This calls for serious adjustments in the communication methods to try to reach “their level” and to deal with them accordingly. Open communications would have the ability to make all people understand the essence of the issues in their proper perspectives. Once the understanding is clear, there will be numerous ways of solving the issues. Openness and honesty are the critical factors in this direction. It is vitally important the make all the parties involved understand that some misunderstandings might crop in and such misunderstandings are unintentional. This understanding should be created at the beginning of the process of expansion and settling in the alien country.

Bibliography

Australian Bureau of Statistics (ABS) (2008), Economic Indicators, Various issues.

Australian Bureau of Statistics (ABS) (2008), Housing Finance, Cat. No. 5609.0.

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Australian Bureau of Statistics (ABS) (2008), Labour Force, Cat. No. 6202.0.

Australian Bureau of Statistics (ABS) (2008), Labour Price Index, Cat. No. 6345.0.

Australian Trade Commission (Austrade) (2008). “United Arab Emirates profile”. Web.

Black J., Gregersen HB. & Mendenhall ME. (1992). Global Assignments. Successfully Expatriating and Repatriating International Managers, Jossey-Bass Publishers: San Francisco.

Brewster, C. (1991). The Management of Expatriates, Kogan Page: London.

Bovee, C. & Thill, J. (2006). Business Communication Essentials, Pearson Education: New Jersey.

Budhwar, PS. (2004). Managing human resources in Asia-Pacific (1st ed), Routledge: London.

Department of Employment & Workplace Relations (2006), “The Unemployment Rate Falls Yet Again”, Media Release.

Hofstede, G. (1991). Cultures and organizations: software of the mind – intercultural cooperation and its importance for survival, Harper Collins Business: London.

Hooker, J. (2003). Working across cultures, Stanford University Press: California.

Howard, C. (1974). “The returning overseas executive: Culture shock in reverse”, Human Resource Management, Vol. 13, Issue. 3, pp. 22 – 26.

Mendenhall M., Dunbar M., & Oddou C. (1987). “Expatriate selection, training and career-pathing: A review and critique”, Human Resource Management, Vol. 26, Issue. 3, pp. 331 – 345.

Perkins SJ. (1997). Internationalization – The People Dimension: Human Resources Strategies for Global Expansion, Kogan Page: London.

Shannonhouse R. (1996). “Overseas failures”, USA Today International Edition, 8A.

Stroh L. (1995). “Predicting turnover amongst repatriates: Can organizations affect retention rates?”, International Journal of Human Resource Management, Vol. 6, No. 2, pp. 443 – 56.

Appendices

Australia’s Unemployment Rates
Appendix 1 – Australia’s Unemployment Rates
Australia’s Unemployment Rates
Appendix 1 – Australia’s Unemployment Rates
Wage Rate Index
Appendix 2 – Wage Rate Index
Industry Wage Rate Index
Appendix 3 – Industry Wage Rate Index

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