Effective governance on global human resource
Lack of strategy may hinder Asian companies
In April, Indian IT multinational Tata Consultancy Services (TCS) announced it had crossed $10 billion in annual revenues with double-digit profit growth fuelled by game-changing technologies like cloud computing. TCS said it had undertaken the largest ever hiring effort in the firm’s history by adding almost 40,000 new staff. In all, TCS has over 238,000 consultants in 42 countries. TCS is not alone among Asian companies with an expansive business and a global presence.
Asian multinationals have long been growing their businesses outside their headquarter country. The last decade, in particular, has seen a significant rise in Asian companies globalizing. And the global ambition is not pursued by just the large, well-established organizations but by companies of all sizes.
As they globalize, Asian MNCs have begun to evolve their HR functions to manage global companies. Asian MNCs have understood the strategic role of HR in a global company. In fact, some Asian MNCs have demonstrated more strategic use of their HR than developed country MNCs. In these companies, HR is often at the top table, playing an active part in expansion activities, brought in early in M&A discussions, involved in assessing HR legislative requirements, planning attraction of needed talent, and deciding the nature of compensation and benefits. These companies have fared much better in the global marketplace than their peers.
Having said that, there are still major gaps in the development of sophisticated HR, talent management and global HR governance systems in Asian MNCs, for example components critical for Asian MNCs to manage their globalization effectively.
The Towers Watson 2012 Asian MNC Study, surveying more than 100 Asian MNCs, presents key insights about the globalization strategies of Asian MNCs, which are firms headquartered in an Asian country and with operations in at least one more country outside its home or headquarter country. The study found that although successful in expanding their businesses beyond the home country, these Asian MNCs nonetheless faced some critical challenges, the key being effective global HR governance or oversight.
Asian MNCs participating in the study said that in managing their global business they face challenges such as clear definition of roles and authority of different stakeholders, incentivizing local leadership to work toward common organizational goals, as well as achieving synergies and efficiency in their global operations through aligned processes and common technology platforms. Many of these challenges can be effectively addressed through appropriate governance philosophies and frameworks.
Effective HR governance involves appropriately guiding and managing key stakeholders, driving operational efficiency and aligning people assets and liabilities to business objectives. Given the fast pace and extent of globalization of Asian MNCs, developing sophisticated HR talent management and compensation and benefits governance systems is key for effective management of their globalization process.
Asian MNCs realize that their governance processes are not the most effective or efficient. More than half of the respondents feel that the global governance process in their firms needs improvement.
Weak governance of employee benefits and compensation
A particular concern is that the benefits and compensation governance structures for benefits and compensation of the participating Asian MNCs are weak. A high percentage of the Asian MNCs surveyed said their compensation and benefits programs are controlled centrally at headquarter level.
The lack of employee compensation and benefits governance in Asian MNCs can pose risks and prevent profitable growth. For example, we found that 64 percent of the respondents do not fully understand their employee benefits liabilities outside their headquarter country and 51 percent have no established method of monitoring their compensation arrangements in foreign locations.
It is essential that global companies maintain a balance between central and decentralized HR programs with an effective global governance framework in place to oversee and monitor costs, risks and liabilities.
Asian MNCs must understand that benefits management is a specialized skill and strategic oversight of finance is important to manage the substantial financial risks posed by employee benefits. One-fifth of Asian MNCs with operations in North America and/or Western Europe do not involve the finance function in benefits management. Another 22 percent involved finance only to a slight extent. Asian MNCs would do well to learn from the experience of many US multinationals, many of which suffered substantial losses in the recent financial crisis due to the sudden increase in employee benefit service costs.
We also found little global consistency in rewards components such as benefits, compensation, sales compensation and training & development. A global company needs to function like a borderless organization in the development, implementation and administration of all HR programs. The low level of consistency in the programs of Asian MNCs could create problems. For example, there have been instances in Asian MNCs where the compensation of certain internationally mobile executives has been greater than the CEO’s compensation. No doubt, such situations can lead to conflict of interest or reward principles that are detrimental to the organization.
Underestimating cultural challenges
Another important challenge faced by Asian MNCs relates to the complex issue of cultural understanding and assimilation. Cultural understanding includes the general understanding of the local culture, ability to manage the brand perception, getting buy-in from key local customers, managing a culturally diverse workforce, overcoming language barriers, etc.
Our study suggests that Asian MNCs underestimate the cultural challenges, thinking that it is easy to manage cultural differences. They tend to impose a certain management style to help them deal with difficult staff issues but that does not necessarily lead to a successful organization. It usually only helps satisfy home country guidelines which are often incongruent with local cultures.
Globalizing Asian MNCs have to deal with understanding different cultures, ways of interacting, management styles, and issues around control. Often, there are real concerns about whether headquarter should impose its management style in other countries. The question then becomes one of organizational culture verses national cultures of entities established or acquired overseas and the balance thereof.
As Asian MNCs pursue globalization and rapidly enter new markets, the challenge of cultural understanding becomes bigger. The ones that get it right will be those who are open to learning, comfortable with some level of uncertainty and understand the importance of addressing critical culture issues early.