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Growing Companies Hit Global Home Runs

June 1, 1997
Related Topics: Global Business Issues, Managing International Operations, Growth, Featured Article
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International investments are skyrocketing. Large U.S. multinationals alone doubled their investments to $96 billion from 1995 to 1996, according to a 1996 United Nations report. More and more, a huge percentage of company revenue is coming from outside U.S. shores. According to "Hoover's Company Profiles" (1996):

  • Intel Corp., with its 41,000 employees, earned 45 percent of its revenue outside the United States.
  • Colgate-Palmolive Co.'s 37,000 employees brought in 70 percent of revenue from outside the United States.
  • Reebok International Ltd. (even running behind its competitor, Nike,) made 42 percent of revenue in 139 countries (7,000 employees).

Clearly, huge multinationals are trading vigorously across borders. But it's becoming equally true for the "little leaguers" too. Hundreds of small- and medium-sized American firms are stepping up to the plate on the global playing field -- with spirit and esprit -- expecting to score home runs in the international marketplace.

Small- and medium-sized companies face many of the same challenges that larger, more experienced corporate entities already have encountered, namely, developing policies to compensate, select and relocate assignees -- all while they experience cultural unfamiliarity, new laws and new rules. At the same time, these diminutive dynamos may face greater financial restraints, a limited number of people available for assignments and fewer managers with international expertise.

But don't feel too sorry for these little leaguers. The successful ones also are more agile and responsive to the marketplace, and as a result can be rewarded with very rapid growth. To overcome the disadvantages of diminutive company size, human resources professionals at smaller companies must build internal structures correctly from the beginning, get personally involved and utilize outside experts when necessary. More than ever, they recognize they must treat international assignees as valuable commodities -- people to be respected and communicated with continually because the corporate investment in them is enormous. Unlike bigger firms, it takes longer to recover from costly mistakes in a small company, and misguided decisions regarding expatriates reverberate throughout the small business with the sting of a triple play.

Being small isn't always a disadvantage.
Jim Coppens, corporate manager of international benefits of Baxter Health Care, headquartered in Deerfield, Michigan, is in a unique position. He has experienced global growth in both small and large companies, having just relocated from Lisle, Illinois-based Tellabs Inc. to Baxter, which has worldwide sales of approximately $6 billion, 45 percent of which is generated outside the United States.

One of the disadvantages small- and medium-sized companies must overcome, he says, is the lack of financial resources. Another is the difficulty of smaller businesses to address HR issues as comprehensively as their larger counterparts. And third is the potential among smaller staff for there to be fewer senior managers, as well as HR professionals who have international experience.

"Almost anything you do internationally -- compared to domestically -- is more complex," he says. Unless individuals have experience in some of these areas themselves, they're not going to have an appreciation or an understanding.

According to Howard Rasheed, an assistant professor at Pensacola, Florida-based University of West Florida who holds a doctorate in international strategic management, small- and mid-sized companies with more experienced teams and CEOs who had international experience yielded faster international revenue growth than companies that were headed by CEOs with only domestic experience.

"Our research particularly highlights that if you don't have experience at the top, you're not going to be successful. We did find that top management teams with high experience used joint ventures more than any other entry-mode strategy. We think this is because joint ventures require more involvement of the top management team," says Rasheed.

Even if the executive team has some global expertise, these execs may not recognize the importance of human resources in the globalization process. Small-firm executives, especially those who look at HR as a trailing administrative function, immediately acknowledge the heavy hitters --legal costs and obvious financial costs -- but often don't fully appreciate the other expenses associated with having expatriates: setting up compensation and benefits plans, calculating taxes for U.S. salaries, finding housing and schooling, and conducting cross-cultural training.

Despite these barriers, however, there are some advantages to being small. Since small companies don't have many field human resources people, the individuals who are involved drive everything, resulting in faster and more efficient work processes. "There's not as much organizational politics to work through. These HR professionals are going into a green field oftentimes, having to design things from scratch and deal directly with the countries for designing, developing, implementing and monitoring the plans as they move forward. So you become very intimate with the details," says Coppens.

Larger organizations may have more resources, processes and structures in place, but there's also more politics. And, surprisingly, since small- and medium-sized businesses tend to grow at a faster rate, the growth promises more opportunities for individuals at headquarters. Thus, high attrition rates for returning expatriates may prove to be less of a problem. Managers at these smaller organizations realize they need the international experience of the employee. They value it and make use of it upon return. So although the number of employees with global experience may be very small, their retention rates may be better.

Build strong infrastructures early on.
Company leaders at The IAMS Co., maker of premium pet foods with headquarters in Dayton, Ohio, wanted to establish global operations the right way. They started in the Netherlands by first sending employees to Eindhoven, Netherlands, in 1991 and then into Singapore and Latin America in 1993. The company has approximately 1,400 employees, and sales are more than $600 million. Executives are targeting the international marketplace for the majority of the company's new growth.

IAMS' execs chose the Netherlands for the first expansion because the market was favorable in a couple of ways: Many Dutch are English-speaking, and those who distribute the company's products maintain a high level of professionalism.

"The advantage we have is in being privately held. We can make decisions very quickly, react to the market quickly and be proactive in making those decisions. There's not a lot of red tape. We do what needs to be done," says Anita Wray, director of employment.

When the company first went international, it had nothing, no global staff or operating guidelines. Its leaders selected an individual who was successful at headquarters to start up the Eindhoven office. "We didn't even have a relocation policy, let alone any type of expatriate program or cross-cultural training in place," says Wray. "So we punted, learning as quickly as we could to put things in place."

IAMS' leadership team decided to seek advice from attorneys and international human resources consultants to quickly pull together the international assignment policy. "We knew we were going to have more people take international assignments, and we had to turn things around rather quickly," says Wray. It was an opportunity to start from scratch and develop a policy and a program that could grow with the company.

"We want our employees to be able to focus on getting to that job, relocating and not having to worry about the details of how that's going to take place," says Wray. "We don't need them to worry about what to do when they arrive, what'll happen to their kids, where they're going to live and what they'll do about learning a language. We have to compete with the big companies when it comes to their international policies, benefits and compensation," she says. "We want the assignee to view us as the best place to work."

It's quite a challenge to head into an unknown playing field. "It didn't take us very long to decide that we wanted to go to the experts to discover best practices and develop a policy that's fair to the employee," says Wray.

Rely on outside experts.
Because IAMS doesn't have a lot of management levels, Wray benefited from the opinions and research of global specialists. Then she brought the knowledge back to the assignees, the finance and human resources professionals, and the company president. It took just a very short time to pull together a strong policy. Because of the company's size, and its forecast double-digit growth in the number of expatriates over the next year, it was important for HR to institute policies that would be uniform, but flexible.

IAMS' corporate philosophy strives to ensure that all employees receive consistent, fair and equitable treatment. The international assignments generally fill an organizational need as well as develop employees with significant long-term management potential, enhancing the employee's knowledge of international operations for future positions.

Part of this philosophy is reflected in the performance-management system of the company. Performance appraisals also include a career- and succession-planning component. Says Wray: "In a small company, you don't have as many people to choose from [for international assignments]. Selecting candidates is something we're addressing right now. As we continue to grow, we have to know how to choose the right person."

Being small makes communication easier and more frequent.
With only six expatriates, IAMS' departments can communicate with the respective expatriate by sending home-country magazines, newsletters and other relevant information. Wray also builds relationships with the spouses and frequently keeps in touch with them by phone to be sure everything is going well and to see if there's anything the company can do to improve their experiences. "As we move forward and more people are on assignment, we're going to have to formalize this a little more," says Wray. "We're going to have to assure we keep open communication. It's key."

Terry Robinson agrees. As international human development director for Des Moines, Iowa-based Principal International Inc., she's in charge of several key aspects of international staffing. The company began its international expansion with Spain and then moved into Mexico, Argentina, Chile, Hong Kong, Indonesia and China, and now is moving into India.

Robinson's challenges? She supports 16 global personnel as well as helps to globalize the mindset of the 120-person Des Moines-based staff. The parent company, Principal Mutual Life, is well-established, but the international subsidiary, Principal International, is treated like a start-up.

Because of its commitment to its customers, Principal International executives believe in providing extra personal attention. Because of its size, Robinson is able to boast that global personnel are recipients of such attention. With only 16 expatriates there's ample opportunity for HR managers to stay in close touch with their assignees. HR also has mechanisms in place to facilitate regular communication: an annual conference for global personnel so they can share concerns, a monthly newsletter, multifunctional cross-cultural work groups that videoconference regularly, as well as the expected e-mails and voicemails. Company policy dictates two home visits per year, one in which the expatriate is required to be in the office for five days of meetings with co-workers at headquarters.

Surprisingly, extremely close personal attention even extends to the selection process and the predeparture home-finding trip. For example, Robinson is considering a candidate now. Once the individual has completed the Overseas Assessment Inventory (OAI), an assessment tool that helps to determine the potential for success of a specific candidate, Robinson arranges the predeparture visit. Astoundingly, she (or another global HR representative) will actually escort the potential assignee and partner to the location for the visit.

"We usually spend quite a bit of time with the expat and spouse looking at housing, schools, the community and meeting with people in the office. While I'm taking them around, I'm also assessing if I feel they're going to be suitable in the environment because I can watch their reactions to situations," says Robinson. "It's an absolutely fabulous way to build relationships."

Although she admits this type of attention is exceedingly time-consuming, and may not be possible as the company's international cadre continues to grow, she uses it as an opportunity to get to know the candidate --and the site -- better. Not only is she developing strong communication ties with would-be expats and their families, but she also relies on established personnel in the destination for information and help with new candidates' predeparture trips. In this way, she fosters communication between the home and host locations. Furthermore, she uses the opportunity to be responsive to the needs of people in the destination.

Principal International's strong personal commitment also is reflected by the fact that its candidates don't talk about the financial arrangements of the relocation until global HR managers believe the individual actually wants to take the assignment. In other words, the person must have a strong commitment to the assignment itself, rather than just to the assignment package and remuneration.

This personal commitment is important as the company moves toward its goal, which is to institute a worldwide, comprehensive global education and training program to bring all of its workforce together. Principal Financial has put together a pyramid with the four core values of the company for developing a common understanding of the visions. The four core values are quality, customer service, integrity and financial strength.

"Using our global personnel, we want to communicate those core values and interpret them to our local member companies' cultures so they truly understand what a 'team culture' means because there's not really a common definition around the world," Robinson says. Part of the task of the global personnel is to go to those countries, learn those cultures and their way of doing business and help the organization integrate those learnings. "The global personnel can help steer us in the right direction so we don't make a lot of mistakes early on," says Robinson. Consequently, HR spends a lot of time on training its global personnel to live and operate internationally. "We offer an extensive predeparture process as well so expatriates will understand that one of the roles they're going to play is being a liaison and helping interpret information back and forth to help the company channel its energies in the right direction," says Robinson.

Provide useful assistance.
Although not many HR practitioners -- from small or large firms -- are able to escort their candidates to Jakarta, Hong Kong or Prague, there are a number of activities that will assist small- and medium-sized firms in their HR endeavors as they enter the global playing field.

First off, HR must become a good business partner --whether it's opening a sales office or an R&D facility, or obtaining an acquisition or establishing a joint venture -- this is central. HR must understand the company's international business goals and communicate frequently with the business leaders to be sure it's meeting the company's objectives. Understanding the underlying business needs will help drive the way HR should design the compensation and benefits structure, identify the employee-relations issues and determine which individuals might be best-suited for the international operation.

HR global managers need to do their homework so they can develop processes that will lead to compensation and relocation packages that are equitable and fair to all expatriates -- not only U.S. expatriates. Think about your program globally and what you'll need as you grow. You want to establish procedures that have a global perspective, that don't address expatriates as an anomaly, but that set a precedent for future assignees.

"Identify a good human resources consultant that has a strong international network. When you're starting from a zero-knowledge base, international consultants can be the best resource for an organization," says Baxter's Coppens. "Oftentimes they're not budgeted at the beginning. The potential liability and problems that can arise when you aren't sure of what you're doing can cost you more in the long run." So it's important to allocate some up-front dollars to pay for these consultants. When the start-up isn't budgeted properly, HR managers can be left trying to do things on a shoestring. And then there's potential trouble awaiting.

For example, an expert must do a full benefits analysis of what your company needs to provide in the destination. There are all kinds of ways to court trouble. In some countries, benefits, and even bonuses, become part of the employee's contractual rights that must be continued once offered. And, in many countries, employment contracts are necessary.

Also consider the impact and financial drain of globalizing on domestic management and staff resources. "Budget and staff constraints allow expansion to only a couple of targeted countries at a time. There's always concern about the amount of sales/marketing budget allocated to international expansion because we haven't come close yet to reaching all prospective clients in the United States and have to weigh our investment in international business vs. the relative lower cost of U.S. marketing," says Kris Deveau, human resources manager at EnvisioNet Computer Services Inc., in Augusta, Maine. "Furthermore, international travel obviously takes time and requires high-level staff. When senior management leaves for one to two weeks at a time, other projects may be pushed to the back burner."

Consequently, an important consideration is to allocate enough HR staff to adequately complete the job of establishing operations internationally. Some global HR managers have said that staffing and HR issues internationally are tenfold more complicated than domestically, and it takes that much extra effort to accomplish the job.

As the leagues of small- and medium-sized organizations look outside their home bases to increase sales, their challenges multiply along with their revenues. Human resources professionals within those companies who staff and support the business team are the ones who help ensure an international win. Creating solid structures, processes and programs that are built on the groundwork of responsiveness and communication will help to sustain growth in no small way -- and score some smashing home runs.

Workforce, June 1997, Vol. 76, No. 6, pp. 72-83.

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