Part 1. 3
United States. 5
Part 2. 7
Part 3. 10
Payment Scheme. 10
Expanding overseas for Saints Construction based in the UK is a good idea for its business aspirations. Business enterprise should always be looking for opportunities for growth and development, particularly in both established and emerging markets. The company can only hope to continue being successful by expanding its businesses to other countries and capitalizing on the benefits. The strategy is also useful because the company will be able to guarantee sustained profitability even when the market I one country is not at its best.
There are some strengths and weaknesses of expanding overseas to countries that have potential as investment sites. The key strengths of investing in China are cheap labour, a weaker currency and a continuously growing market. China has one of the world’s largest populations, making it an extremely lucrative investment destination because of the availability of cheap labour (Bottelier 2007, 53). Opening up a production site in China will be beneficial for Saints Construction because the company will be able to reduce the number of wages it will pay to the employees.
The other key benefit of investing in China is that the currency is valued much lower than that of other major countries of the world. That means the company will be able to get more resources and profits from each dollar because the business can be valued through the Chinese currency. The ever expanding market in China is the third key reason to invest in China because the potential for growth is extremely lucrative. Several global businesses now have headquarters in Chinese cities because the markets are ever expanding, and the potential for profitability is increasing, as well.
There are some weaknesses to observe when investing in China because they can be significant hindrances to the business. First, as much as China has embraced the free market principles in its business society, the country is still governed by a Communist government. The laws and regulations for doing business and governing the new production facilities, therefore, will be different, and this can affect profitability. The political landscape of China can be detrimental and costly for foreign investors especially if they do not have a good understanding of the laws of the land (Carter & Estrin 2005, 824).
The rules for accounting in China, too, differ to those of several other capitalistic countries. This factor has been a crucial reason for the failure of several foreign investments in China because audits, reporting financial statements and capital requirements differ. The result is that a company can end up losing a significant amount of income because of a lack of understanding of the guidelines of doing business in the country (Doellgast & Gospel 2011, 118). The difference in business and financial rules in the country is a serious weakness for investing in China because it will be difficult to consistently account for all the business expenses.
Germany is a lucrative investment destination for oil companies because there are very well set-up infrastructure and the availability of several financial institutions to offer financing options. Saints Construction will be able to reap several rewards in the future by investing in Germany because the nation has some of the best infrastructures globally. Setting up a production site will take a relatively short amount of time, and finding qualified labour in the country will not be a problem. There are several oil drilling companies set up in the North Sea, and thus finding suitably qualified professionals to help the company set up will not be a problem (Herrigel 2008, 112).
Another benefit of choosing to invest in Germany is that there are numerous appropriate financial institutions that will offer aid. German banks, as well as the numerous international financial institutions set up in the country, have excellent deals for oil and gas companies. Germany is a popular destination for several enterprises within the oil and gas industry, and this has effectively led to the establishment of the finest financial institutions in the country (Kitschelt & Streeck 2004, 75). The low-interest rates coupled with sound financial advice from the banks make Germany an excellent choice for investing.
The key weaknesses of choosing to invest in Germany are that the country is progressively turning to fossil fuels and the market size is getting smaller. As of 2013, some business and individual investments in renewable sources of energy in Germany were already amounting to €100 billion (Kitschelt & Streeck 2004, 74). The country is turning more and more towards the renewable sources of energy such as geothermal, wind and solar energy. The oil industry in the country is likely to play a very small role in the energy sector shortly because the demand for fossil fuels will have decreased tremendously.
An increasing number of employees in the energy sector in Germany are turning to the renewable energy sector. As of 2010, the number of employees employed in the sector was roughly 367,000, and this figure is expected to grow by 117,000 by 2020 (Herrigel 2008, 114). The declining reliance on oil and gas means that the industry will shrink over the next few years, and finding labour will become much more expensive. This weakness means that the high initial costs that the company spends investing in the market will not be worth the effort.
The United States, perhaps, is the most attractive country in terms of investing in the oil and gas industry. The main reason for this is that the United States still has large reserves of untapped fossil fuels within its territories. Opting to invest in the country leaves the opportunity for further expansion within the country in the future. The fact that a majority of the fossil fuel deposits in the United States are yet to be exploited leaves a mouth-watering opportunity for further growth shortly (Iles 2013, 83). The United States shows potential for growth in the oil and gas sector than any other country in the world.
The United States is also a good potential destination for investment because it has one of the most productive global economies. From a human resource perspective, the employment force of the United States will always be increasing, and this means that it will be easy to staff the production facility in the country. The working culture in the nation will help to spur the new production facilities, and to have the foreign employees gel with the cultures in the country will ensure success (Katz & Darbishire 2000, 21). The successful business environment in the country will be a key factor in getting the right employees and achieving success.
There are a number of weaknesses of choosing to invest in the United States. First, unlike most developing countries in the world, labour is not going to come cheap, and the company will have to spend heavily to get the right employees for the jobs. Opening a production facility will involve finding suitably qualified employees in the country, a task that will consume considerate resources. The initial wages for the company will be high because the standards and minimum wages that will apply to all employees will be higher than investing in other countries (Katz & Darbishire 2000, 50).
Another significant disadvantage of investing in the United States is that the company will have to contend with the strict tax laws. The company is going to have to pay its employees significantly more than in most other countries of the world because there are strict tax laws to comply with. In addition to this, there are corporate taxes that the production site must contend with, and this will further cut into the income that the company will make. The tax laws in the country happen to be one of the most significant hindrances to direct foreign investments in the United States as they contribute to decreasing income (Iles 2013, 88).
China is the most appropriate recommendation for investing for Saints Construction because it offers the best potential for growth and expansion. The Chinese energy sector has been expanding exponentially for the decades because of the massive growth of its own economy. China is among the largest consumers of oil in the world, making it a key destination for investing in the industry (Bottelier 2007, 57). The likely success of the company is good news for the human resources department because the company will be able to access the best labour in the country cheaply. The reason for this is because it will not be possible to achieve the same amount of success in the United States and Germany.
China is the right choice also because of the easy availability of cheap labour. About 650 million of the Chinese population still lives a rural lifestyle, meaning that it will be easy to find labourers for the production site at a low cost. The significant extent of China’s labour makes it a lucrative investment destination because Saints Constriction will never have to spend beyond its means on wages. In addition to this, the company will be able to prosper without having to follow the stringent conditions that are otherwise present in the United States and Germany.
There are a number of benefits and challenges of offshoring production in the approach that Saints Construction has chosen. The first benefit of offshoring is that it reduces the number of operations that the main production site back in the United Kingdom will have to handle. A different production site might handle some of the operations that the main production site is handling, and this will be crucial in offering a chance to make future plans(Doellgast & Gospel 2011, 127). Offshoring will also enable the company back in the United Kingdom expand its operations appropriately based on the markets that are yet to be exploited.
The other benefit of offshoring is that it presents a company with an opportunity to exploit another market (Doellgast & Gospel 2011, 131). The main production site is located in the United Kingdom, and this helps in exploiting the available market and expanding the market share. Offshoring will open up another market option, and this will help improve the visibility and reputation of the company. Operating in a new market will allow Saints Construction to build up on its client list and open a new avenue of profitability on another continent. An additional market to exploit will be beneficial as the company can expand to supply new markets and maximize profitability.
Offshoring also reduces the reliance of the company on a single market, instead opening up other alternatives. The company will benefit from offshoring in case there are unexpected changes in the British market that cut down on its profits. Thence, it can benefit by operating in another market because they can still gain and cover for the losses experienced in the domestic market (Edwards 2011, 54). Offshoring is an excellent risk strategy for a firm because it guarantees that it is still profitable despite hindrances, and that it can meet the demands of all its employees.
Offshoring, most importantly, helps to increase the overall size of the firm. Saints Construction can only achieve its ambitions of being a leading company in the oil and gas industry by increasing its scope of operations. The company’s operations in another company will progressively lead to its growth because there will be more income and more profits (Brewster, et al. 2013, 84). A progressively increasing profitability capability means that Saints Construction will be in an even better position to remunerate their employees appropriately and offer better payment schemes. The act of offshoring will help the company achieve its long-term goals of being a driving force within the industry.
Offshoring, though, can have some challenges that can threaten the overall future of the company. First, the act of offshoring requires huge financing for the entire process to be possible. Relocating skills and expertise as well as the costs of setting up in a new location makes it very difficult to reap any benefits soon (Blinder 2006, 2). The financial outlay for the company is likely to be quite high, significant enough to merit the retrenchment of 750 employees from the Belfast production site. The high financial costs will be a significant challenge that will determine if the company can remain profitable because setting up in another country will always be costly. A good financial plan will be crucial if the company wants to avoid the challenge of inadequate financing as this reason can determine if the company will ever be able to be productive.
Secondly, domestic laws and regulations will be different when offshoring to another country because the rules in the United Kingdom will not necessarily apply in other countries. The variation in laws and the manner of doing business is likely to slow down the process of setting up a new production site in a foreign country. Domestic regulations in some instances can vary significantly, and they can have a detrimental impact on the ability of the company to make profits. China, for example, is an example of such a destination because the laws governing business activities in the communist state vary from those of the United Kingdom. The laws for financial accounting and other accounting principles will be different, and income can be lost by failing to understand the variations. Adapting to a new environment will always be a challenge, and the lack of a proper plan will be a significant challenge to the process of offshoring (Carter & Estrin 2005, 827).
The existing company policies on pay and reward will require careful scrutiny before any decisions can be made. Depending on where the company will invest, there will be some regulations, laws and cultures to consider when implementing a pay scheme. The financing available to the company perhaps will be the most crucial determinant of the type of pay scheme that the company adopts for its overseas operations. Provisions will also have to be made in case the plans for the offshore company become successful and warrant implementation back in the United Kingdom.
Saints Construction currently utilizes an individual performance payment scheme to remunerate its employees. Research shows that labourers in China would prefer a scheme that considers the principles of fairness and equality within the workplace. The individual performance related scheme would only be a success in the country if it applied to every employee (Brewster, et al. 2013, 81). Each will contribute positively if they know that they are on similar payment levels depending on the type of work they perform. An equity system will also enable the provision of the culling system where the company can dismiss the low-achieving employees on an annual basis.
The choice of a payment scheme for operations within Germany and the United States will depend on existing labour laws, the set minimum wages and the qualification of the employees. The company will not be in a position to set very low wages because they might not be in line with the laws of the country. The set minimum wages offer an insight into the type of expenditure that a company will incur by paying the employees working in the respective countries (Doellgast & Gospel 2011, 146). The qualifications of the employees will also be influential in determining a pay scheme because highly qualified employees will definitely be paid differently from other employees, even those doing the same job.
The existing policies should be extended to the new site because the company does not want to significantly alter its operations and create equity for the employees still in the United Kingdom. Any changes in the payment schemes in the new production site might mean getting a different human resource management team (Blinder 2006, 3). The operations of the company are likely to change because the expectations of the employees will be different. The company will not be able to retain its image by changing the way employees represent the company by altering the payment schemes. The best way forward for Saints Construction is to maintain the current method of paying its employees as it has already proven to be successful. The production site in the new location will be able to pick up on its operations based on the way employees in the United Kingdom approach their responsibilities.
The company should extend the current policies to the new production site to prevent any problems with the employees working on the UK sites. A change in the payment schemes that benefit the employees in the foreign location will result in calls for equity from the employees in the Belfast and Northampton production facilities. The employees of both sets of companies will agitate that their contribution is equal towards the growth and progress of the company and that an equitable method of paying them be adopted. The individual performance payment related scheme that is currently being used by the company has yielded significant success, and it might just be relevant to retain these policies. This approach will reduce the burdens that the employees are likely to cause, and this will allow for rapid growth and expansion for the new production facilities.
Having an alternative plan, too, is a good idea in case changes happen shortly. Saints Construction should not just limit themselves to the current individual performance payment scheme that has served them well. Changes in the industry mean that the employees will always have new demands, and this will influence the type of policies implemented in both production sites. The company needs to consider all the challenges of offshoring to a new location to ensure that the employees remain as productive as possible. Another important decision that has to be made will regard the number of employees that the company will send from its production facilities in the United Kingdom. There is a need to ensure continuity in the operations of the company, even in an overseas production plant. The reason for this is that the overall objectives of the company have to be followed for there to be any hope of success. Offshoring will be a good idea for Saints Construction because the company will be able to grow into the future.
Blinder, A., 2006. Offshoring: the next industrial revolution? Foreign Affairs, March/April.
Bottelier, P., 2007. What India can learn from China and vice versa, China and World Economy 15(3): 52-69.
Brewster, C.; Sparrow, P.; Vernon, G., & Houldsworth, E., 2013. International Human Resource Management. Chs.8 and 9.
Carter, C. & Estrin, A., 2005. Opening of China’s trade, labour market reform, and impact on rural wages, The World Economy 28(6): 823-839.
Doellgast, V., & Gospel, H., 2011. Outsourcing and international HRM. In Edwards, T. and Rees, C. (eds) International Human Resource Management: Globalization, National Systems and Multinational Companies, Harlow, Pearson. Ch.15.
Edwards, T., 2011. The Transfer of Employment Practices across Borders in Multinational Companies, In Harzing, A. and Pinnington, A. (eds) International Human Resource Management, London, Sage. Ch.8.
Herrigel, G., 2008. ‘Roles and Rules: Ambiguity, Experimentation and New Forms of Stakeholderism in Germany, Industrielle Beziehungen 15, 2, 111-132.
Iles, P., 2013. HRM in North America and Western Europe: The emergence of a ‘Western’ HRM model? In Iles, P. and Zhang, C. (eds) International Human Resource Management: A Cross Cultural and Comparative Approach, London: CIPD.
Katz, H., & Darbishire, O., 2000. Converging Divergences: Worldwide Change in Employment Systems, Ithaca, Cornell University Press. Ch.2, 17-70.
Kitschelt, H., & Streeck, W., (eds.), 2004. Germany: Beyond the Stable State, London: Frank Cass.