With the rapid expansion of Asian companies, outbound investment continues to expand at a rapid pace. Many successful Asian companies in particular the Chinese ones have ambitious plan in “going global” and have made major breakthroughs. The emphasis on the Belt and Road Initiative has given new impetus to companies to tap on the opportunities and hop on the bandwagon of globalization. With the rapid expansion of global markets, many companies are struggling to balance the paradoxical demand to think globally and act locally. When companies try to globalize, many of them adopt an “entrepreneurial” approach: rent an office, send a team and start the business. This kind of “hit and run” mentality has the quick mover advantage, however, this may also lead to lack of structure and consistency
Organization Structure – Making it Right the First Time
One of the first questions in globalization is to design a proper organization structure and manpower plan for the overseas subsidiary. This is important to set the scene for governance structure which drives approval and decision making authority. Rather than just replicating the model at the headquarters, companies are often facing with the dilemma on whether the structure is functionally aligned or geographically aligned as this will have a significant impact on the extent of control and autonomy between the parent company and overseas subsidiary. The functional aligned model is usually more centralized as overseas employees report directly to functional heads at the parent entity. This allows the parent to have more control on the brand, policies and processes as well as company culture due to tighter reporting lines and more control on local resources. This can counter the disadvantage of a decentralized structure which often results in silos and operational redundancy. Proper delegation of authority need to be defined upfront to prevent prolonging the decision making process and cause inefficiencies in day-to-day business.
Manpower Plan – Must Have vs. Nice to Have
In addition to resolving the dilemma on organization structure, companies are trying to cope with recruitment requisitions from different departments. A systematic manpower plan that aligns with the organization structure is crucial in balancing the talent demand and supply. The detailed plan should include the first 6 to 12 months headcount by grade for each department and timeline for getting the newhires on board to align with the different stages in setting up the overseas subsidiary. During the initial stage, the manpower plan will consist of “must have” positions that are critical for business and regulatory purposes. Some roles could be initially combined to leverage resources and ensure a lean organization. When business at the overseas subsidiary starts to bloom, there could be more specialized roles to cater for business needs and the increasing volume.
Global Mobility Program – Consistency vs. Flexibility
The people challenge poses as the most critical issues in globalization and access to global talent is the main factor in determining the success or failure of overseas expansion. Part of the talent pipeline can come from the headquarters to leverage expertise at home and facilitate succession planning. The expatriate packages of these home grown experts are often negotiated on a case by case basis which might create internal inequities and set precedents. For those companies with traditional global assignment policies, the assignees’ packages are typically quite generous which offers full package of allowances and tax equalization to incentivize expatriates and keep them “whole”. The market trend is to ensure vigorous segmentation to define different types of assignments (e.g. long term, short term, permanent transfer, etc.) and their related expatriate package to balance between consistency and differentiation. Some companies are taking a step further to differentiate packages within the overall policy framework based on cost containment and business needs.
Policies and Processes – Global vs. Local
Apart from global mobility programs, the same dilemma also applies to other policies and processes. A broad brush globalized approach might stifle agility and engagement; but a free-hand localized approach might cause inefficient resources utilization and lack of check and balances. One of the challenges companies face as they operate in multiple, new global locations is dealing with different and complex legal requirements and different cultural contexts regarding the workforce. Local inputs and customization is vital in navigating along these complexities. The million dollar question is how to strike a balance in developing integrated global policies and process to ensure consistency while allowing customized implementation at the local level to enable rapid business growth? Process flow charts and responsibility matrix that upfront define roles and accountabilities between the parent and the overseas entities can ensure all parties understand the approval authorities and manage expectations. This can ensure global consistency and standards drive efficiency and economies of scale whereas local flexibility drives compliance with different statutory requirements and respect for local diversities. Global integration and local optimization are twin goals attainable through proper role and process definition.
Address: 11/F, Capital Centre,
151 Gloucester Road,
Wanchai, Hong Kong
Tel: +852-3996 7868
Copyright © Pretium Partners Asia Limited 2020. All Rights Reserved.
Pretium Partners WeChat Official Account