Starbucks Corporation (Starbucks) is a specialty coffee retailer of hot and cold beverages, coffee-related accessories, complementary food items, teas, and other non-food related products. Starbucks has retail stores in 39 countries and about 146,000 employees. The company operates primarily in the United States (U.S.) with headquarters in Seattle, Washington (Starbucks, 2007).
In the early 1970s, Starbucks was established and the first location was in Seattle’s Pike Place market in 1971. By 1982, Starbucks began supplying coffee to restaurants and coffee shops. Starbucks expanded the business in 1996 to new locations in Japan, Hawaii, and Singapore. Other locations in Taiwan, New Zealand, Thailand, and Malaysia were created in 1998. Starbucks continued to expand globally in 1999, by reaching locations in China, Korea, Kuwait, and Lebanon (Starbucks, 2007).
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In a hypothetical situation, Starbucks will acquire a similar business in Mexico. The company will explore locations within Mexico and identify the human resource (HR) challenges that will arise from this expansion. Mexico has unique cultural and regulatory factors that need consideration for the development of Starbucks stores. The organization’s effectiveness to succeed in Mexico is dependent upon solving any issues that result from the growth of Starbucks in a new country.
Starbucks will address recruitment and selection practices to use in the newly acquired company. Another HR decision is determining the appropriate mixture of expatriates and nationals to ensure the acquisition is successful. The skill and abilities of employees, along with training and development practices, are an essential part of the company’s organizational strategy to achieve goals. The HR department of Starbucks has a considerable amount of research and decision making to ensure this acquisition successful.
Mexico’s DemographicMexico is prepared to become the wealthiest country in Latin American between 2008 and 2010 in basic gross domestic product (GDP). The middle class is expanding with employment growth and rising incomes. Mexico has the second highest population in Latin America after Brazil. The population is young, with the average age of 27.5 years in 2006 (Country Insight, 2007). A survey in 2006 found, in the United States, that 30% of new customers are college graduates and the average age of a new Starbucks customer is 42 (Harris, 2006). Retail investors view Mexico as a major attraction because of the large size of the Mexican market (Country Insight, 2007).
Tourism in Mexico plays an important role in the economy. Past presidential elections and hurricanes have steadily declined tourism, but latest indications show that the industry is marketing toward higher-end tourists who are willing to spend more (Country Insight, 2007). The increase in tourism with high-end vacationers will produce a good market for Starbucks.
Human Resource ChallengesUnder the Mexican labor laws, an employee’s daily minimum wage must be at least U.S. $4.50, and includes minimum statutory fringe benefits. Very few Mexican residents receive this low minimum daily wage. The fringe benefits include annual vacation compensation of at least six working days at 125% of the salary, an annual bonus of at least 15 days of salary, a profit sharing program that equals 10% of pre-tax earnings distributed among all employees except high officers, and variable payroll contributions for Social Security and worker’s housing. Social Security contributions can be as high as 22.57% of the payroll salary. Worker’s housing contributions are 5% of the payroll salary (Abogados, 2008).
The basis for severance payments for termination cases is the actual daily salary of the employee. Salary can consist of any type of bonus, commissions, and any other payment that provides additional economic benefit and may include cars or club fees. To calculate the severance compensation, divide the total of all these services in the last calendar year by 365 or the actual period worked in the year. Severance payments are also dependent upon the type of termination (Abogados, 2008).
The three types of termination are termination with fair cause, termination without fair cause, and termination by mutual agreement. Termination without fair cause allows the employee to collect three month’s salary, 20 days of additional salary for each year of employment, a seniority premium equal to 12 days for every year of employment, prorated vacation, annual bonus, and profit sharing for the year of termination. These additional salary requirements continue to accrue after the date of termination until the date of payment. Termination with fair cause permits the employee to many of the same benefits except the three’s months salary and additional 20 days. Employees generally do not consent to a mutual agreement unless termination compensation exists. This payment usually equals less than the termination without fair cause (Abogados, 2008).
Many of the employment laws in Mexico are similar to the United States. The right to form unions, the right to worker’s compensation, the right to safety, the right to be free from forced labor, and the right to be free from discrimination. Mexicans must consist of at least 90% of the employees in a Mexican company. According to the Commission for Labor Cooperation (n.d.), the most important Mexican labor and employment law to realize is “there is a single court in every state that deals with most labor and employment disputes, including collective labor relations, unjustified terminations, disputes about whether an on-the-job injury occurred, and equal pay problems”(p. 1). In Mexico, to discriminate against workers because of sex, their social status, political opinion, disability, ethnicity, national origin, or age, as well as other grounds, is illegal. Overtime pay in Mexico must equal twice the amount of regular wages (Commission for Labor Cooperation, n.d.). In 2007 and 2008, the government is pushing for a new labor market bill to reduce the strictness in employment legislation. Congress must obtain a two-thirds vote to pass this bill and that will be complicated. Shortages of skills remain an issue in Mexico (EIU Viewswire, 2006).
All the regulations in Mexico that differ from those in the United States will present challenges for Starbucks. Hiring a consulting firm or a group of attorneys who are well versed in the Mexican labor and employment laws will aid Starbucks in understanding and interpreting these laws. Going global can be risky if performed improperly and leaves no room for wrong interpretations of the laws and regulations. Understanding the daily wage versus an hourly wage, discrimination policies, along with the termination packages can affect the profits of Starbucks immensely.
Starbucks must evaluate the turnover, labor, and skills availability in the Mexican market. The need for multilingual employees is a necessity to serve the members of the community and the tourists. Scarcity of workers who speak English is a common problem for investors. Mexico, a country much ridiculed from those critical of the United States trade agreement because of its lower labor costs, has observed companies adjust investment decisions. Skilled labor is an issue receiving more attention as companies seek low-cost sourcing programs and workers with a high competency in English (Jackson, Houdard, & Highfield, 2008).
As Starbucks and other companies look to venture into Mexico, the need to understand cultural differences and to study different management practices proves critical. Attention to human resource management is necessary when making strategic choices in the various business avenues available in Mexico. Researchers believe that most companies do not give enough attention to human resource issues. To maximize performance issues such as recruiting, selection, training, compensation, and performance management that require thorough planning and organizing human resources, strategic management is a requirement. Understanding these human resources issues contributes to employee motivation, performance, satisfaction, and empowerment. These factors are critical aspects to an organization’s effectiveness. The common personnel problems that companies encounter are in the areas of loyalty, staffing, decision-making, promotions, compensation, and performance management. Human resource management practices can be the most challenging undertaking for companies, especially when handling cultural changes (Rao, 2001).
Mexicans view joint ventures as an opportunity to increase their economic status and as a career opportunity. As more companies move to Mexico, U.S. practices are becoming more acceptable. The ideas of quality circles, flat organizations, teamwork, pay-for-performance, and a careful selection process are more customary. In Mexico, the cultural view of work and personal life activities intermingles. Because of this attribute, hiring and recruiting mix both personal and work activities (Rao, 2001).
Commonly multiple interviews for managerial level positions are performed in an effort to select a candidate who demonstrates a good fit. Hiring qualified personnel with joint ventures will achieve the company’s objectives. Developing a strategic recruitment practice to generate a qualified labor source to ensure effective employee selection is recommended. Employees with adequate technical, organizational, and interpersonal skills should be selected. Bilingual skills are very important in the selection process. Social referrals are widely used in Mexico in the selection process. According to Rao (2001),Social referrals are used. However, the credentials are looked at only as a courtesy. The credentials are not looked at close enough. I specifically know a couple of social referrals, known to the upper hierarchy, who did not perform up to the company standards. These employees had to be removed, taking care, that no disruptions were caused in the social hierarchy. Social referrals are both good and bad. On the positive side, employees are sometimes the best recruiters (p. 16).
Mexicans have a strong sense of loyalty toward their bosses. The idea of corporate loyalty is not part of the culture. This results in high employee turnover. To increase organizational loyalty, frequently conducting company-oriented training sessions assists in conquering this issue. The training sessions help develop and instill a sense of commitment, loyalty, and understanding of the company. Orientation programs should provide information on the company’s mission, goals, and strategies that provide the employees with opportunities for socialization, which is valued, by the Mexican employees. Rao (2001) states that U.S. companies usually placed low emphasis on such training programs and invest little. Both U.S. and Mexican companies consider training costly, but many joint ventures have found training programs to have considerable benefits. Ford’s executives believe the joint venture with the Hermosillo plant in Mexico concerning the training and development programs are the main reasons for increased commitment, satisfaction, and a reduction in employee turnover. Starting with selection and all the way through retention practices, human resource policies can influence employee satisfaction and motivation and consequently the performance of the organization (Rao, 2001).
Based on the research of human resource practices and polices in Mexico, the recruitment and selection process can be based on social referrals. Using the existing employees acquired through the purchase of a similar company, Starbucks will continue using the social referral policy. At least two expatriates with Spanish speaking abilities will be sent to each Starbuck’s coffee shop to oversee the transition. This will allow coverage for all shifts. All other employees will be nationals. An assessment of skills necessary for the positions will completed to ensure all skills are identified. Goldstein’s model, which consists of the assessment phase, the training and development phase, and the evaluation phase, will be used (Dreher & Dougherty, 2001). The employee skills necessary will be bilingual, with good interpersonal and communication skills. The employees must possess a cheerful attitude. The ability to read and follow directions in making different items on the menu is another necessity. Establishing relationships with local colleges will prove beneficial in hiring personnel with these abilities in conjunction with the social referral method. Training sessions on the procedures will be offered with face-to-face, hands-on sessions.
In auditing the effectiveness of the human resource management, the collection of data will be performed. The data will include hiring statistics such as the acceptance rate, hiring rate, and hiring projections, turnover ratios, exit interviews, employee complaints, and the human resource budgets and expenditures. The level of complaints will consist of, but not limited to, discrimination, harassment, and safety. Another method for auditing will be internal interviews asking what are the perceptions of the company and its goals, the strengths and weaknesses of management, the relations with coworkers, what HR functions work well and what needs improvement, and any other issues the employees cares to discuss. Customer satisfaction cards will be available at all Starbucks locations to obtain results concerning customer service. A legal audit of personnel files and recordkeeping, pay equity, job descriptions, legal postings, Equal Employment Opportunity, Affirmative Action, Worker’s Compensation, and other Mexican legislature is a requirement.
ConclusionAs Starbucks moves into Mexico with the recent acquisition, many human resource management obstacles will be observed. Understanding the difference legislation Mexico has compared to the United States will be a large undertaking. Complying with these laws while being profitable, will determine the market prices for the coffee products. Reducing turnover, hiring the right people, offering a high-level of training and development is a critical factor for Starbucks. Understanding the culture, along with the skills and abilities necessary to provide excellent customer service will determine the success of the company. Audit results will provide the HR department with information to improve the process.
If Starbucks follows the guidelines of Mexico, while instilling U.S. policies, a successful and profitable business should develop. Working in a foreign country can be successful or a failure. Understanding the culture and values of the country, as well as the people, will provide opportunities for Starbucks, the Mexican government and the Mexican people.
ReferencesAbogados, V. (2008). Mexican labor relationships. Retrieved , from http://www.solutionsabroad.comCommission for Labor Cooperation. (n.d.). Foreign Worker’s Guide to Labor and Employment Laws. Retrieved , from http://www.naalc.orgDreher, G. & Dougherty, T.W. (2001). Human Resource Strategy. [University of Phoenix Custom Edition e-text]. New York, NY: McGraw-Hill. Retrieved , from University of Phoenix, rEsource, MMPBL530-Human Capital Development Web site.
Harris, C. (2006). Starbucks wants to open 40,000 new stores. Seattlepi. Retrieved , from http://seattlepi.nwsource.comJackson, M., Houdard, F., & Highfield, M. (2008). Room to grow: business location, global expansion and resource deficits. Journal of Business Strategy 29(1), p. 34-39. Retrieved , from EIU Newswire database.
Mexico an expanding consumer market. (2007). Retrieved , from Country Insight database.
Mexico: Business environment at a glance. (2006). Country overview. Retrieved from EIU Viewswire database.
Rao, P. (2001). Human resource issues: US-Mexico joint ventures. Retrieved , from http://www.usmcoc.orgStarbucks. (2007). Starbucks Corporation overview. Retrieved , from MarketLine Business Information Center database.
The following report is an overview of Dell Company as it expands its computer business into the Indian market. This paper identifies the challenges facing Dell as it expands into India, including the cultural and regulatory factors involved. In addition this paper will identify the staffing strategies employed by Dell including the recruitment and selection process of its business managers.
This paper will discuss the changes to Dell’s organizational structure as it expands into the Indian market. A competitive analysis is also made, which shows the strategic alternatives and choices for the future
Industry Identifications
During this century it is estimated that Economic and political world power is will shift eastward toward China, Japan and India. These countries are expected to challenge the centuries-old dominance of Europe and America. The worldwide PC industry may be one of the first industries to feel the presence of the new eastern rivalries. The challenges that will no doubt befall other industries will be felt first through the PC market as the expanding Asian PC industry provides an early and substantial threat to the companies of Europe and America.
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In both manufacturing and consumption, Asia/Pacific represents the most dynamic region of the worldwide PC industry. The U.S. market remains robust, but growth will slow as saturation approaches. In contrast, the short-term, high-growth regions are Asia/Pacific, Japan, and Latin America. On the manufacturing side, U.S. PC companies depend on Asian suppliers. The Asian foundry has enabled U.S. players to gain and maintain substantial market share on the world market, however tested and confident Asian manufacturers are now gearing up for expansion across the Asia/Pacific and into the United States. Soon U.S. PC suppliers will be competing with aggressive Asian companies in both regions.
Asian players, primarily Japanese and Korean corporations, are not strangers or novices in the U.S. market. Toshiba has been a perennial leader in the laptop market. NEC has enjoyed mixed results. Many others tried to compete in the United States in the late 1980s, predominantly as IBM clone suppliers. That initial foray was short lived and largely unsuccessful, but a second, better-planned, assault is imminent. The new waves of Asian suppliers are not just me-too players scrambling for low-end market share. Instead, manufacturers are looking for strong, early positions in the race to provide the next-generation personal computing devices that are project as such a huge opportunity in the consumer market.
The people at Dell believe that their continued successful will require teamwork and continuous learning on the part of each team member in order to develop and grow. Dell focuses on building a pipeline of talented, diversified individuals in order to meet current and future staffing needs in order to develop Dell’s leaders of tomorrow. They focus on attracting top candidates with the skill sets they require by working on the basis of early recruitment and full utilization of their pipeline program. This strategy has supported their mission statement fully until now. But if Dell plans to take a large amount of the market share in India, it will have to change its mission and strategy according to the needs of these customers.
Dell’s new mission statement: To be the most successful computer company in the world at delivering the best customer experience in the markets we serve and providing special service and support to the markets that are highly differentiated on terms of cultural and demographic basis.
This statement shows that the customers in the region of Asia-Pacific, China and India to be precise have special needs that have to be satisfied. Since it is known from business practice that every market has different characteristic and different customers with their own needs to be satisfied, Dell has to give special attention to the markets of China and India.
Until now Dell has had success with its applied business model, but in order to gain the trust of customers in the Asia-Pacific region it will have to change its model according to these markets special needs and wants in order to gain customer satisfaction and loyalty. For example, the people in this region are not used to surfing on the Internet and making purchases of the products they need. People in Asia-Pacific are used to going to a specific retail chains where they can visually obtain the information, product or service they are looking for. Dell does not offer this option, so in order to gain customers in this region Dell will have to partner with retail chains in this region in order to offer its products to its customers.
Organizational Effectiveness
When a company hires experience they hire habits, both good and bad. With this in mind, any organization looking for good employees should not use experience as the only hiring criterion. Indians are as diverse in their cultural orientations and work habits as they are in the regions in which they are raised (Valanju, 2006). Any organization that is interviewing a prospective employee, should keep in mind that employees that have spent a significant part of their lives in one particular region of India may have certain generic attitudes inherent in those regions that living or being raised for a long period in one specific region will have a significant impact on his or her ethical outlook. Living in one region of India can also have a marked impact on work ethics such as attitude, dedication, initiative and acceptance of responsibility. For these reasons foreign companies will usually consider including an Indian national when conducting an interview thus preventing the employer from missing any subtle cultural nuances.
Probably the most restrictive issues facing companies that are expanding in India are the regulations. Manish Sabharwal of TeamLease, who campaigns for their reform, feels that, for much of Indian industry, “they are a thorn in the flesh, not a dagger in the heart.” The labor laws have become an extra cost–for example, in bribes paid to inspectors–but not a huge barrier to business.
Yet in most conversations with manufacturers, labor laws still loom large. The most notorious is Chapter 5B of the 1947 Industrial Disputes Act, which bars establishments with more than 100 workers from laying off employees without the permission of the state government. This deters employment. Mr. Sabharwal, pointing to a firm that bought machines rather than give permanent employment to 16 tea-boys, says it encourages the substitution of capital for labor.
What is more worrying in India than labor laws, however; is that some parts of the country deter investment because they are so badly governed–and those parts are very big. Some 60% of the increase in India’s population between now and 2050–the “demographic dividend” that is raising such big hopes will come in four northern Indian states with rotten infrastructure and education systems. But what are most troubling are the corrupt governments.
Bad state governments compound another disincentive to investment in manufacturing that is partly the central government’s fault: the indirect tax system. A 2002 study found that India’s cascading import duties, excises, sales taxes and octroi (a tax on goods in transit) accounted for nearly one-half of a price disadvantage of roughly 30% suffered by manufacturers compared with their Chinese counterparts. Since then, most states have introduced a value-added tax at a centrally set rate, and a transition to a national goods-and-services tax has been announced. But the lack of a single market in India causes unnecessary delays and expense for industry.
As any person would expect in a system where so much is at the discretion of government officials, corruption is endemic. As Ms Basu notes: “Entrepreneurs have to spend significant time in dealing with permits, clearances and inspections, and end up paying substantial ‘rents’ to the inspectors.” One foreign manager, monitoring the costs his reputable international building contractor was incurring in constructing a new office block, describes his horror at some of the prices. He called all the contractor’s suppliers and subcontractors to his office, along with some independent competitors, and held an open auction. That saved him $2m in a single day. Collusion between contractor and vendor is so common it is probably not even recognized as corrupt.
This is an aspect of business that nobody likes to discuss, except to say that at least things are getting better. That may be true: Mr. Yog, for example, of Xander, the property fund, thinks that last year’s opening of the property market to foreign investment has already had a salutary effect. In a business especially prone to “black money” transactions, for the purposes of laundering, tax evasion and bribery, foreigners help clean things up–or sometimes find they are unable to compete. The new breed of Indian multinationals too, listed on American or European stock exchanges, have high ethical standards. But contractors seeking their business say that, even in those companies, the kickback culture survives at lower-levels.
Staffing Strategies
Dreher and Dougherty (2001) state that hiring the right people means more than just securing employees who possess the knowledge, skills and abilities required to perform a particular job; these people must be able to acquire new knowledge and skills as jobs and environments change. Therefore, it is imperative for companies who wish to stay on top of the competition to develop and maintain high quality recruitment systems. The recruiting system is especially important when the hiring is being done in a foreign country.
Employers expanding overseas sometimes fall to a trap that prevents them from attaining their goals. Employees become so focused on the cultural challenges that they overlook the talent that they already have. For these companies, sometimes the best option is to promote and transfer employees who have already worked their way up the corporate ladder. The problem is that many of these workers have spouses who also work. Therefore, they are unable to simply leave the country and expect their spouses to leave their positions. As a result, the most qualified people to effectively oversee foreign operations are often the last people available for the job. However, with the complexities of growing a business overseas and the costs of training current employees deciding whether to train current employees as ex-patriots or employee local talent is not an easy decision (Solomon, 1999). Therefore, it becomes important to get expert advice to help with staff issues when it comes time to begin the hiring process for expansion overseas.
According to Frauenheim (2006) Dell is planning thousands of new hires in India. According to Park (2004) Dell has already added 700 jobs in 2003 with only 1000 of them coming from the United States. Specifically, where did these employees come from and where will Dell find the latest round of employees? Well, Frauenheim states that for the most part Dell can tap into the streams of students graduating each year from the country’s universities to fill slots. But when it comes time to hire the hundreds of midlevel and senior manager positions these expansion plans will require expert advice. The most successful companies in Asia will be those that are the most successful at hiring the best managers.
While it is not difficult to find managers in India, any organization looking to expand in India and hire the best Indian managers should expect to have to pay for them. According to Frauenheim, mid-level managers can make $30,000 to $40,000 and executives, such as a country general manager, can pull in $200,000 to $250,000. These salaries reflect the fact that average salaries for Indian managers in the technology and business process outsourcing industries rose about 15% last year, and should approach that level of growth this year.
One strategy to dealing with the growth in Indian salaries is to start pulling in managers from other industries such as manufacturing. Hiring Indians who have worked in the United states for a while is thought to be very valuable because they would take with them a learned US business culture. In addition a ranking of 155 countries by ease of doing business in 2006, the World Bank and its affiliate, the International Finance Corporation, list India at 116, two places below Iraq, 56 below Pakistan and 25 below China (“Still in the Way,” 2006). These statistics reflect on India’s diversity, and the differences between the regions within India. And the way they are governed.
In March 2006, Dell said it has created an effort to search globally for managers to fill the 20, 000 person increase in its Indian workforce expected in the next three years. That is nearly a doubling of its current workforce. According to Helmholz Dell’s director of executive talent acquisition “It is too early to tell how difficult it is to find management talent in India” (2006) But he says a critical issue related to managers below the senior level will be how firms hold on to them. “At the lower and mid level, you’ve got higher attrition rates,” Helmholz says. “The company that has a better retention strategy will win.”
Organizational Structure
Smart corporate strategists know that adaptable organizational structures drive winning strategies in turbulent markets. So they map and remap their business units quickly with shifting market opportunities.
According to Eisenhardt & Brown (1999) patching is the strategic process by which corporate executives routinely remap businesses to changing market opportunities. It can take the form of adding, splitting, transferring, exiting, or combining chunks of businesses. Patching is a reorganization strategy that allows managers to focus on the best opportunities and leave the less promising opportunities behind. Using this technique allows managers to constantly adjust their businesses to match changing market opportunities. With the patching strategy managers are likely to focus on high potential businesses while using less corporate resources on low-potential operations. Thus patching is an effective strategy in businesses that are experiencing mergers, expansions and rapid growth in creating economic value for the corporation.
Dell Computer regularly uses patching to focus more closely on target markets. For example, in 1994, Dell split into two segments. The transaction which deals with customers who buy equipment one or two at a time; and the relationship segment that works with customers who buy in quantities of greater than 50 units at a time. Since that time Dell has announced a new split almost quarterly. As a result Dell’s commercial relationship accounts are now segmented into corporate and small business accounts while government accounts are split into three segments; federal, state, and local. Dell’s nonprofit sales are further divided into segments such as education and medical. All this segmentation has resulted in managers that are tightly focused on increasingly specific market opportunities.
Patching is usually executed in small changes; however managers occasionally make medium to large segment changes. At Dell, small moves, such as splitting the government business into state and local divisions, are the normal. But Dell’s managers occasionally make a large move, such as shifting their Asian business from a country focus to a channel focus (Eisenhardt, K, 2006). Large segmentation changes are more challenging than small ones. But managers at patching companies, such as Dell can usually make large moves more effectively than their traditional competitors. The reason is that they are much more flexible due to frequent re-patching while their competitors are, by comparison, out of shape (Eisenhardt). Dell has used their patchin
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