Wine Industry Analysis of China
China, India & Wine| May 19 2011 | Assessing the global environment and developing solutions for Australian international managers: a WebQuest. (5461 words)| Sheena Bobeechun Troy Credlin Sarah Duff Audrey James. | Table of Contents Executive Summary3 PESTL Analysis4 Political & Legal Factors (Author – Sarah Duff)4 Economic Factors (Author – Sheena Bobeechun)5 Social & Cultural Factors (Author – Audrey James)7 Technological Factors (Author – Troy Credlin)8 Managing Ethics (Author – Audrey James)9 Strategy & Entry Mode (Author – Sheena Bobeechun) 11 Global Human Resource Management13
Linking with Strategy (Author – Sarah Duff pp. 13-15)13 Staffing Policies14 Training & Development14 Performance measurements15 Engagement (Author – Troy Credlin pp. 16 -18)16 Compensation18 Labour Relations issues18 References20 SEE References23 Executive Summary The Australian Government is in the process of developing strategies to encourage West Australian wine makers to export their wine to either China or India. This report seeks to examine the global business environment and provide a deeper understanding of its risks and their implications for the international wine managers.
Throughout this report discussions will lead to conclusions about management responses to firm level factors such as formulation strategy, developing alliances, creating a firm architecture and managing human resources when operating internationally. Key theoretical concepts and frameworks will also be included as a guide for understanding our recommendations. Our key recommendations have been organised into four main aspects. These are; the risk appetite, managing ethics, strategy and entry mode, and human resource management policies.
Through our risk appetite analysis we found China to be our recommended country of choice when exporting wines from Australia. This conclusion came as China held predominantly less political and legal risk factors and stronger trade agreements, a higher demand for wine and less risky taxing systems, a more socially and culturally accepting culture towards wine, and more appropriate infrastructure and manufacturing capacities when compared with India. Our analysis of ethics management has also provided some strong recommendations to international managers to keep in mind.
These include abiding to the guidelines for correct sales and distribution of wine due to legal age factors, including pollution policies in managerial practices, and developing a Corporate Social Responsibility program. Analysis of risk appetite and ethics managements has allowed us to conclude a recommended strategy option of a differentiation business-level strategy and a multi-domestic global strategy for the Australian wine makers and an entry option of direct exporting. Based on the previous recommendations human resource management policies have also been formulated.
These include linking local and home country strategies to form a competitive advantage through staffing policies, training, development and appraisal methods, engaging policies, and labour relations issues. PESTL Analysis Political & Legal Factors China China is currently ruled by the Chinese Communist party and operates under a fundamentally socialist system (CIA 2011). While its government is relatively stable it is entrenched with a degree of corruption, creating political risk implications and political violence unrest (EDC 2011).
Its government policies, rules, and regulations are often unclear and the legal systems are also fairly weak and frequently contain loopholes (EDC 2011). China’s recent accession to the World Trade Organisation (WTO) is one of many trade agreement policies it shares with Australia. Becoming a member of the WTO provides an inclusion of international business laws leading to improved trade and investment (McFarlin & Sweeney 2011). The Australian Government is also in the process of undertaking Free Trade Agreements (FTA) with China in order to reduce barriers to business across the board (DFAT 2010).
A TFA agreement would essentially reduce risks of doing business in China through reinforcing WTO principles, promoting stronger trade and commercial ties facilitating Australian exporters to expand their business into key markets, and enhancing Australia’s broader economic, foreign policy and strategic interests (DFAT 2010). China’s laws relating to legal drinking ages, advertising and promotion of alcohol are more loosely enforced compared to many other countries. There is no strict legal drinking age, although legal alcohol purchasing age is enforced in some parts of China as 18 years of age. Hanson 2011). India India operates under a fundamentally democratic system. Its legal system is based on English common law where laws are codified and there is a single hierarchy of courts (CIA 2011). While India’s political system is democratic it is complicated by tensions over religion, ethnicity, a patronage system, corruption, and extreme diversity, which is highlighted by the varied political cultures across the country (EDC 2011). Trade between Australia and India is continuing to improve as trade liberalization progresses and tariff rates are brought down (DFAT 2010).
Australia is also considering FTA with India and is currently conducting a joint FTA feasibility study. An FTA would improve Australia’s broader economic and foreign policy strategies with India. The legal drinking age in India varies across states. The legal minimum age to purchase alcohol ranges from 18 years old in some states to 25 years old in others. Specifically in Delhi the legal purchase of alcohol age is 25 years (GAPA 2006). Advertisement of alcohol is also illegal in some states of India due to The Cable Television Network Amendment Bill 2000, which completely prohibits the advertisement of cigarette and alcohol (GAPA 2006).
Analysis Based on the above findings, we can conclude that China would have predominantly less political and legal risk factors compared to India. While both countries governments were entrenched with corruption and some forms of uncertainty, China’s progression over India in terms of trade agreements policies (such as the FTA) provides for a more stable political and legal environment to operate within. Furthermore, India’s high legal drinking age and laws associated with liquor advertising make China’s market seem more appropriate for exporting of wine.
Economic Factors China The Chinese economy is moving along at a strong but steady pace, with GDP growth of around 10% for the past 5 years (DFAT 2011). GDP, measured in US dollars based on the Purchasing Power Parity (PPP) was $9. 872 trillion in 2010, $8. 95 trillion in 2009 and $8. 204 trillion in 2008 (CIA 2011). The GDP per capita was $7,400 in 2010, ranking it 125th compared to the world. Moreover, unemployment rate has been at a low level (less than 5%) since 1990, currently sitting at a healthy 4. 3% (ADB2011). It is estimated that 2. % of the Chinese population live below the poverty line (CIA 2011). Interest rate has been rising since October 2010 (Global-rates 2011) and is currently at 6. 28% (Sainsbury 2011). Interest rates can be expected to rise again in the future in order to curtail inflation (ABC2011), which is has been on the rise since July 2009 and was last reported to be 5. 3% in April 2011 (TradingEconomics 2011). The current import duty on bottled wine is 14% and for bulk wine is 20%. Added to this are a further 10% consumption tax and VAT of 17%. WineChinaExhibition 2011) Also, from July 1, 2006, the Consumption Tax Management Regulation for the wine market came into effect, further reduces the cost of importing wine (ChinaBizIntel 2011). For Beijing more specifically, the GDP per capita is 22,000 Yuan (UNESCAP 2011), and it was classified as China’s wealthiest city by Hurrun Research Institutein 2010 (Mu 2010). Urban unemployment rate is extremely low, lying between 0. 8% and 1. 8% (UNESCAP 2011). Beijing has a wine duty of approximately 48%, but it is also one of the top five mainland Chinese cities for wine consumption (AsianPalate 2011) India
India has been enjoying high GDP growth since trade liberalization on 1991, and has been experiencing a stable growth rate of above 5% during the past decade (ADB 2011). GDP was $4. 046 trillion in 2010 based on the PPP, and per capita GDP was $3,400, ranking it 163rd worldwide (CIA 2011). The unemployment rate was quite high in 2010 at 10. 8% and it is estimated that a massive 25% of the Indian population live below the poverty line (CIA 2011). Moreover, interest rate in India has been following an upward trend since February 2010 and is presently 6. 5% (Global-Rates 2011). Inflation has been “exceeding expectations” and was last reported to be at 8. 8% (TradingEconomics 2011). A 150% custom duty and several additional taxes are imposed on wine imports (SA 2011). Delhi has a per capita income of Rs 78,690 which makes it the third richest state in India (TheEconomicTimes 2011). New Delhi is one of the states with the lowest unemployment rate (GNCTD 2011), as it is a very busy city being the capital of India. Wine is taxed at the state level as well, with a maximum state tax of 25% and VAT in Delhi is 20% (ILO 2011).
However, recently “inline with Delhi government measures to promote wine and beer over hard liquor, the Excise department has proposed reducing duty on wine by at least 25 per cent”, which is expected to reduce the price of wine (Sobhana 2011). Importantly, Delhi wine consumption comprises 23% of total wine consumption in India (ImaginMor 2011). Analysis Based on the above factors, China has a higher per capita income, lower unemployment and a lower level of poverty, implying potential higher demand for wine.
Both interest and inflation rates have been rising in both countries; however India has a much higher inflation rate, which may provoke higher wage demands from employees and raise costs when doing business. On the other hand, interest rates in China have been increasing and if it follows the same trajectory, it means that the cost of borrowing and investment will increase. The tax system in India presents a great risk as wine will be taxed twice, both at the federal and the state level, whereas import duties in China are much lower, despite the 48% excise duty in Beijing.
Based on these economic factors, Beijing seems to pose less risk compared to Delhi. Social & Cultural Factors China The registered population in China is 1,336,718,015 people. Out of the overall population alcohol can only be consumed legally to those aged 18 and above in China,and 73% of the population is aged between 15-64 (WineChinaExhibition 2011)(CIA 2011). Wine is popular among the Chinese culture as it holds historical values. It is known as the ‘Water of History’, which means an alcohol banquet which was a must for the banquets of ancient emperors and kings.
Wine is present in the history of China through Tu Kang, the God of Wines. Wine was traditionally used as a libation in the Chinese culture to express honour and respect to ancestors and was drunk while writing poetry (Pieter 2000). It is now mainly consumed during festive seasons and occasions and used as a cooking ingredient (WineCultureChina 2007). Toasting wine during celebrations demonstrate that guests are wishing for happiness, health and longevity for host. Those who refuse to join the toast shows lack of respect and politeness (TravelChinaGuide 2011). Besides this, the Chinese society believes that wine carries many health benefits.
It is consumed during mainly by white collared, middle aged male and female as it is seen as an esteem drink that relates to high standards and well being of a society (WineCultureChina 2007). Many people in China are conscious about their health and physical appearance and wine is believed to contain antioxidants which reduces the risk of heart disease and is a source of anti aging (WineAustralia 2011). Moreover, wine also is believed to be good for digestion (WineCultureChina 2007). Beijing is known to be one of the largest wine consumers in the country (WineCultureExhibition 2007) with the population of 12. 14 million people (CIA 2011). India India’s total population is at 1,189,172,906. 65% of the population are aged between 15-64 (CIA 2011). The main religions in India are Hinduism 957,284,189 of the population, and Muslims 159,349,169 of the population (CIA 2011). The Hindu culture permits their devotees to consume alcohol; however wine is not popular among them. More hard alcohol such as rum and spirits are used. On the other hand Islam’s prohibit their culture from consuming alcohol. Old Monk is dark rum consumed widely among the Indians (Inchincloser 2011).
Majority of the Indian population live in rural areas where people are more conservative and are unaware of the health benefits of wine. Wine is also rarely consumed as most people are not able to purchase a good bottle of wine as the pricings are higher compared to rum. Wine contains Tannin, which contributes towards the good effects of wine (WineAustralia 2011). In India tea and onions are used daily which contains Tannin (IndianFoodandCulture 2008), hence leading the Indian community to not purchase wine as it cost more. Analysis Looking at the above factors China would be a better location to export wine compared to India.
India would be a risky market since the majority of the population is either Hindu or Muslim, which implies restrictions to alcohol. Moreover, many Indians are still unaware of the health benefits of wine, and the fact that they consume a lot of tea and onions means that they do not need to consume wine to get these benefits. Indians, unlike Chinese do not view wine as a necessary element of the socializing process. Therefore, the Chinese market seems less risky and it would be more profitable for our company to export wine to Beijing. Technological Factors China
China is continuing to invest in its public infrastructure, spending billions upgrading its roads, rail and power grid. With some US$1. 03 trillion dollars to spend during 2011 – 2015 (China Daily 2010) just on urban infrastructure and plans for another 3. 05 trillion Yuan for rural infrastructure in the next 5 years (China Daily 2010), China is definitely on the right track to improve upon an already extremely capable country. This increase in infrastructure spending is good news for both domestic and international corporations as it drastically improves logistics and lowers costs involved in transport of goods and services.
China is tipped to become one of the world’s largest wine manufacturers in the next 50 years meaning an increase in local knowledge and supporting services which help reduce costs and improve efficiency. India India, like China, is currently investing large amounts of money to improve its infrastructure however it “continues to suffer from poor regulatory environment leading to time and cost overruns” (Austrade 2011). India is estimated to spend an estimated US$500 billion on the infrastructure and resources sector from 2007-2011 (Austrade 2011).
There is concern regarding the technological expertise in large infrastructure projects and meeting international standards (Austrade 2011). This leaves only a few companies with the capabilities to undertake such projects and as such greatly hindering the countries will to expand and grow. Analysis Both China and India offer significant improvements and spending on current infrastructure however India suffers from poor regulation and knowledge meaning China has greater potential to get the most benefits from its investments into infrastructure.
Additionally, China’s large manufacturing capacity coupled with cheap labour and extensive infrastructure makes it a prime choice for a new company to consider international expansion. Managing Ethics The organization should understand and take into consideration all political and legal practices in China. The firm should also abide to regulations within the Chinese country and take account of societal concerns. For example, the legal age to consume alcoholic beverages in China is 18 years or over, therefore the firm must ensure that advertisements and distribution for their wine is appropriate.
If the company abides to appropriate guidelines, in the long run it will gain greater customer loyalty and avoid future litigations in China. Having ethical values which are the moral judgments concerning the right and wrong doings in the business will help the firm create a positive image towards the Chinese community (McFarlin & Sweeney 2011). Most wine industries are associated with pollution due to various factors. To avoid this stereotyped thinking, our vision is to be environmental friendly, bottling and storing wine in China using eco-friendly methods.
Wine conventional chillers often use hydro chlorofluorocarbons (HFC) in their refrigeration system which has great global warming potential that affects the Ozone layer, however we will use hydrocarbon (HC) refrigeration instead as a substitute because it uses less coolant and brings less harm to the environment (Weber & Bahner 1999). Reusing glass bottles will also reduce carbon release to the environement. There is an unprecedented consumer focus on food integrity and a rapidly growing concern about ecological sustainability, hence recycling bottles will have a positive impact on consumers’ perception of our product Penn 2009). The use of Polyethylene terephthalate (PET) bottles for packaging can be used as it does not require much energy to produce compared to glass and it is hence more eco-friendly compared to glass (Baguley 2010). Developing a Corporate Social Responsibility (CSR) program will increase awareness and change the society’s perception towards the wine industry. Having a CSR program shows that the firm is responsive towards the well being of the people, planet and profits and it also helps the firm sustain competitive advantage (McFarlin & Sweeney 2011).
Firms that invest in CSR programs are investing in sustainability and wider economic, social, and environmental goals (ICAP 2011). innovative advertisements and campaigns concerning the negative effects of alcohol such as drunk driving and underage drinking. Besides that employees should also be awarded and treated fairly for their contribution in making the firm a better place. Ethics does not only focus on the moral believes and principles used by the organization, it also impacts on the cultural adaptation of the firm in the foreign country which in this case refers to China (McFarlin & Sweeney 2011).
Chinese culture is very different from Australian culture therefore, venturing into this country requires the firm to understand the Chinese culture well. The management appointed to market the wine must be well versed with the buying behaviour of the Chinese culture. The Chinese culture focuses on family orientation, individuals purchasing behaviour is affected by the purchasing habits of the older generations. Chinese customers purchase items based on information received by word of mouth from people they trust. They are a collective society and are willing to follow the thoughts of groups in order to feel accepted.
The ‘Mianzi’ and ‘Guanxi’ cultures influence the buying behaviour in China, this saying shows that a person is assumed to be rich, generous and have good taste (Luo 2009). The firm’s perspective should focus on cultural relativism as the Chinese culture relies on values to make ethical decisions. Cultural relativism is a perception that ethical behaviour of a country is determined by its distinctive culture, laws and business practices. Foreign companies that enter a cultural relativism country will have to follow their practices although it may not be common in their home country (McFarlin & Sweeney 2011).
Another issue in China is regarding human rights violation; companies tend to take advantage over the cheap labour and in some cases child labour is being exploited (Shah 2010). China is currently ranked 78th with a score of 3. 5 out of 10 by the corruption perception index 2010 (Transparency International 2011). We will be dealing with the popular occurrence of pervasive corruption and we will have to know where to draw the line on cultivating the political connections that can help us navigate the country’s complex regulatory terrain. (Dean 2010).
In a recent survey, many business operations in China were guilty of fraud involving government officials. The Beijing Major and Communist Party Secretary were given a death sentence for being involved (McFarlin ; Sweeney 2011). The firm should take consideration of all these factors before exporting to China and be sure of all their legal procedures. Strategy ; Entry Mo de Australia is nowadays at the forefront of new-world wines, and has a strong reputation on the global stage, regularly winning competitions around the world with wines of true quality. ANiceDrop 2007) The reason behind the success of Australian wines is largely the fantastic climate offered by most of the southern part of the country. Researchers have shown that the “clean and green” image of Australian wine also contribute to its increasing global popularity (WFA 2002). Our strategy will revolve around using this existing reputation of Australian wines to provide the best quality wine to the Chinese market, as well as extending this ‘clean and green’ approach in our packaging and distribution chain. Providing premium quality wine will help us differentiate ourselves from competitors.
The market we are exporting to; Beijing, is one of the wealthiest cities of China as seen from the PESTL analysis. Our product will not be competing on the basis of price due to the presence of locally-produced wines and other exporters’ wines (such as South-African wines, French wines, NZ wines). On the contrary, due to the premium quality of our wines, our prices are expected to be relatively higher than the average price. Hence, we will be targeting a niche market of Beijing, which compromises of the upper-middle class and the upper class or the wealthier citizens who represent the demand for premium-quality wines.
Moreover, this category of consumers will be more concerned about ecological sustainability and the Australian wine industry is already seen as being “green” (Bowling 2010), but we will still re-enforce this perception by incorporating the ‘clean and green’ awareness in our packaging and distribution as well, through the use of recycled bottles and other sophisticated means, as highlighted in the previous section (Ethical Challenges and Recommendations). In light of the above, our business-level strategy will be a focused differentiation strategy. Hanson et al. 2008) From the global aspect, we are expanding our market from Australia to Beijing in China. Since this is our first tread in the global marketplace, a multi-domestic strategy is recommended. This strategy is adopted in the case of low global integration and high local responsiveness. Since China is our only international market, we will have low global integration; our production base is not large enough to develop economies of scale and all our actions will be centrally controlled in Western Australia.
On the other hand, the fact that we are exporting only to China implies that we will have the flexibility to change our production pattern to meet the Chinese consumers’ preferences; for instance if the Chinese prefer white sparkling wine to red wine, we will be able to alter our production of wine (in this particular case, grow more white grapes) without restraining other markets (as China is our only overseas market) in order to satisfy this preference. Hence, the degree of local responsiveness to the Chinese demands will be high, China being our sole overseas market.
After having made the decision to follow a focused-differentiation strategy at the business level and a multi-domestic strategy at the international level, an evaluation of the most profitable way to get or products to potential customers in Beijing needs to be carried out. Of the various methods of foreign market entry, exporting is most commonly used by small businesses as start-up costs and risks are limited, and profits can be realized early on (ForeignTrade 2011).
According to McFarlin and Sweeney (2011), exporting is fairly inexpensive compared to joint ventures or strategic alliances, involves no ownership risks, gives easy and quick access to the foreign market, and enables easy movement out of the market without incurring significant costs if needed. By opting to export as opposed to other means of market entry, we will also have to face the tariffs on wines in china and Beijing, however we believe that the benefits of exporting will outweigh the costs.
Hence, we opt for exporting over the other means of entering the Chinese market due to the size of our business and due to the fact that it is the first time we are venturing out in the international market, hence minimal risk is desirable. There are two main categories of exporting; direct exports where the exporter has a direct contractual relationship with the importer overseas whereas indirect exports are characterized by contractual relationship with an intermediary, usually in the country of export. (Austrade 2004) In our context, we believe that exporting directly will be beneficial since we know our target market, i. . the Beijing market. Moreover, selling directly to customers helps create an opportunity to establish a closer relationship with the overseas market. (TradePort 2010) It is worth noting the importance of good logistics and communication when exporting. Moreover, currency fluctuations are also a problem, but since the Yuan is pegged against the US dollar, this risk is more or less mitigated. In addition to selling directly to our targeted market, we will also hire an export agent who will function as our representative on a commission basis.
The export agent will also have a small staff to work in the export department. Source: McFarlin ; Sweeney 2011 As shown above, we are using the basic structure to international business since we are new to the international arena. Global Human Resource Management Linking with Strategy The IHRM activities of the WA wine making company will focus on selecting, training, developing, appraising and rewarding employees. These activities must be strategically aligned with our market entry (exporting) and our overall strategy (multi-domestic strategy) in order to create a competitive advantage.
This will ultimately allow the company to out perform competitors, in terms of identifying new international business opportunities, adapting to changing conditions worldwide, sharing innovation knowledge throughout the firm, and maintaining a high performing, committed overseas work force (Walker 2003). As our strategy has been identified as the Multi-domestic strategy, HR activities and goals will be specifically developed and implemented for the Chinese (Beijing) subsidiary in order to cater for their specific local responsiveness.
While HR activities for the Chinese subsidiary may vary considerably with those of the West Australian, they will still be based on the companies overall core values and concepts in order to create a cohesive business structure. Staffing Policies As we have chosen exporting as the market entry mode it is appropriate for the international subsidiary to consist of an export department that will market the wine products abroad and be supported by a small staff.
While there are many options for staffing international operations, the most suitable seems to hire locals in the Beijing subsidiary- Host country nationals (HCN)- and then send headquarter staff out from WA on a more short-term over seas basis and use technology such as teleconferencing and email to keep connected. The short term international employee (STIE) will come from the West Australian wine company, and ideally have a marketing and business background in order to utilize the appropriate skills for developing the market strategy, distribution systems, and recruitment of local staff.
The STIE will not require relocation, as they will only be needed in the Chinese subsidiary as a start up process. This option is suitable as it is fairly inexpensive as relocation is not required. We also found the use of a STIE required as some form of control from the home country company is necessary in order to implement appropriate IHRM strategies to gain a competitive advantage. The STIE will also help to recruit a small number of HCNs. This local staff will act as a supporting team to carry out duties such as order processing and delivery, promotion, advertising, and customer relations.
It is appropriate to hire a local Chinese staffing team in order to reduce costs (compared with using expatriates) and also to leverage skills and capabilities of locals. The will allow for a stronger competitive advantage in terms of superior grasp of local culture, business practices, and language. “Going local” in staffing foreign operations can also bring public relations benefits and relieve government pressures to create jobs (Briscoe, Schuler ; Clause) Training ; Development
Training and development for STIE will be vastly different compared to the training and development of HCNs. In terms of the STIE training, preparation must be carried out before, during and after any assignment in order to help them be effective in achieving their assignments as quickly as possible and to minimize any adjustment difficulties (McFarlin ; Sweeney 2011). Preparations in cross cultural training such as briefings on, living rrangements, business practices, political/legal conditions, health and security issues, and policies and personnel in Beijing should be carried out in order to improve the STIEs ability to adjust to new cultural environments as well as boost job performance (McFarlin ; Sweeney 2011). These preparations should be fairly rigorous as there is a high degree of cultural toughness for employees assigned to China due to a vastly different environment in terms of interactions with locals and communication norms in the business and social context.
In terms of training and development IHRM policies for HCNs, there are a number of possible strategies companies may base their policies on. While an invest-in-employees strategy approach is desirable in order to produce high levels of commitment and increased performance, it may be unrealistic to base all training and development policies on this strategy due to significant costs involved. Therefore the Beijing subsidiary training and development policies should strive for an invest-in-employee approach while keeping in mind and cost containing measures.
As a result the Beijing subsidiary can expect outcomes from such training and development policies to create improved HCN performance, retention, and job security. Performance measurements Managing international employee performance is a challenging task, due to differing cultural values and experience-localized practices for performance management that vary considerably (McFarlin ; Sweeney 2011). Research has shown that when multinationals tailor performance appraisal to the local context, their foreign subsidiaries tend to perform better.
But certain best practices attributes should be reinforced such as company values that are considered important for all employees (Fey et al 2009). Therefore a mix of Chinese and West Australian IHRM practices should be adopted when developing performance appraisals, especially for HCNs. Performance appraisals should be carried out as major milestones are completed for. This will allow for performance information to be fresh in the mind to give a more accurate rating compared with the traditional 1-2 times a year performance measurements.
In terms of how performance is actually measured, scales must be altered in Beijing due to different business laws and tax rules, and challenges associated with currency conversion and profit repatriation, which make it harder to calculate profits. Even though China has recently lowered its currency exchange and repatriation rules, the complexity of regulatory institutions proceed to obscure true performance of a subsidiary. This means performance is better measured through a different set of benchmarks developed based on criteria such as cultural toughness and other environmental factors such as economic and political stability.
Because Chinas overall assignment difficulty will be higher more weight must be placed on their achievements in performance appraisals. In order to improve performance the appraisal must be accompanied with rigorous forms of feedback, and rewards must be contingent on results. Engagement Due to our employee’s varying cultural backgrounds, their motivations will differ greatly. McFarlin and Sweeney 2011 discuss 5 theories of motivation and these will be used to help explain the reasons behind reward/motivation systems implemented. For the component of the company that is based in Western Australia, the employees are most likely Australian.
This includes such things as the manufacturing and finance divisions of the company. Source: Itim 2009 A quick look at Hoftsede’s dimensions show that Australia is a very individualistic country with moderate masculinity, uncertainty avoidance and low long-term orientation and power distance. This suggests that individual rewards and autonomy is valued by Australian employees. For this reason, the performance management system will be mostly individually based with some organisational based rewards. Individual| Organisational| End of year bonuses| Company shares| Internal promotion opportunities| |
Employees will be paid an annual salary (including superannuation) with the opportunity to earn end of year bonuses and company shares. This follows Herzberg’s two factor theory as these are motivators. The system is based on individual performance. The inclusion of company shares gives the employees a sense of belonging to larger purpose (Maslow’s belongingness). The company will also provide a safe work environment through the use of health and safety standards throughout the company’s daily operations. This is in line with the Herzberg’s hygiene factor and Maslow’s safety needs.
Employees will be made aware of their opportunity to gain through their hard work (Expectancy theory) at the beginning of employment and during annual evaluations where managers will sit down with employees to discuss their progress, issues and set goals for the short and long term future (Maslow’s Self-actualisation). Regular training will be provided and internal progression will be favoured over outside recruitment (Maslow’s safety and esteem needs). For the small division of local employees based in Beijing, a separate set of HR polices will apply due to cultural differences.
Source: Itim 2009 A quick look at Hofstede’s dimensions for China shows that China is a very collectivist country with high power distance, long term orientation and moderate amounts of masculinity and uncertainty avoidance. In this case, individualistic rewards will not motivate these employees. There will be less of a focus on performance and their associated rewards (note that this is in opposition to the Expectancy theory). The reason for this is that the Chinese would rather see social benefits than their individual gains (also in opposition to Maslow’s Self-Actualisation.
In this instance, the local Chinese employees will receive annual salaries with the following options. * The company will pay a percentage of employee income into a social benefit fund, * The company will also pay money into a pension fund for each employee, * The company will offer mortgage assistance, and * The company will offer or pay for child care Employees will be offered continuous training and attention to assist in retention of the staff on top of other benefits offered. Compensation
Australian based employees| Local Chinese employees| Expatriate| Paid in AUS$| Paid in Local Yuan| Will be paid in a mixture of Australian Dollar and Chinese Yaun. | The expatriate is a short term option so 80% of his salary will be paid in Australian dollars to an Australian bank account. The remaining 20% will be paid into a local Beijing bank account. Increased living expenses due to the move will be covered by the firm. The majority of payment in Australian dollars will also help the expatriate avoid paying double income tax (for each country) also as Beijing income tax is quite igh (as high as 45% for above 100,000 yaun) (Beijing Observer 2011). Labour Relations issues Australia Australia has a union density of approximately 23% (McFarlin ; Sweeney 2011) but this number has been slowly declining in the last decade (Bray et al. 2009). However, unions are still play a part in labour relations in Australia. Any employee concerns will be reasonably dealt with and unions will have the full support of the company provided work continues as per usual. Any issues will be discussed in the presence of all parties concerned and a compromise will be made within reason for the company and employee/s.
Australian workers are also protected by the Fair Work Act which was passed in 2009. This act sets standards for employment such as weekly hours, minimum pay rates, parental leave, sick leave, public holidays etc (Fair Work Act 2009). All employers in Australia are required by law to follow these guidelines. This ensures that all employees have some protection against unfair or illicit activities of employers. China In China, there is one union, allowed by law, called the All-China Federation of Trade Unions (ACFTU) which covers 10 national industries (McFarlin ; Sweeny 2011).
The threat of union action is very low in Beijing as, by law, strikes are illegal (McFarlin ; Sweeney 2011). Both independent and internal unions are discouraged and suppressed (McFarlin ; Sweeney 2011). For this reason, employees do not get to voice their issues as much as compared to employees in Australia. As such, there is not much to be concerned with managing unions in Beijing. Based on motivation and retention systems, employees should not feel to the need to involve a union. References ANiceDrop 2007, Australia Wine: A Guide to finding the best wines and wineries in Australia, Available from: ; http://www. nicedrop. com/; [17th May 2011]. Asian Development Bank 2011a, People’s Republic of China: Economic Data, Available from: ;http://www. adb. org/PRC/main. asp; [14th May 2011]. Asian Development Bank 2011b, India Fact Sheet, Available from: ;http://www. adb. org/Documents/Fact_Sheets/IND. pdf; [14th May 2011]. AsianPalate 2011, Beijing, Available from: ;http://www. asianpalate. com/asian-food-wine/culinary-capitals-asia/beijing; [14th May 2011]. Austrade 2004, Your Guide on the Road to Export Austrade 2011, Food and Beverage to China, Available from: http://www. ustrade. gov. au/Food-and-beverage-to-China/default. aspx [15th May 2011]. Austrade 2011, Infrastructure to China, Available from: http://www. austrade. gov. au/Infrastructure-and-construction-to-China/default. aspx [15th May 2011]. Austrade 2011, Infrastructure to India, Available from: http://www. austrade. gov. au/Infrastructure-to-India/default. aspx [15th May 2011]. Australian Broadcasting Corporation 2011, China surprises with interest rate hike, Available from: ;http://www. abc. net. au/news/stories/2010/10/20/3043233. htm;[14th May 2011]. Baguley, D 2010, ‘Glass or PET?
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