Strategic human resource management across cultures: the case of Asda Stores

Introduction to Wal-Mart and ASDA Stores Ltd

Strategic management by multinationals entails the need to accommodate cultural differences in managing to ensure that human resources can be optimised to yield a competitive advantage for the organisation. This requirement applies to ASDA stores which also operates across national boundaries. ASDA stores ltd is a fully owned subsidiary of Wal-Mart Stores Inc which is located in the United States. The global retail giant employs over 2.1 million employees worldwide with a revenue base of over $ 421.8 billion (OneSource Information Services, 2011). The retailer operates under three distinct divisions namely: Wal-Mart US, Wal-Mart International and the Sam’s Club. The Wal-Mart US continues to contribute the greatest percentages to the net sales of the whole group with the latest financials (for the year ended January 2011) indicating that the division contributed over 62% of the net sales for the entire group (Global Data, 2011). This division operates exclusively in the USA and Pueto Rico by maintaining various stores in the region. Sam’s club also mainly operates in the USA and is recorded to have contributed about 11.8% of the group’s net sales in the year ended January 2011 (OneSource Information Services, 2011). The International division operates subsidiaries of the group in over 14 countries across the world. Most of these subsidiaries are fully owned with some being joint ventures. The subsidiaries include: Wal-Mart de Mexico, Suburbia, S. De, Operadora Vips, Operadora Suburbia, and Banco Wal-Mart de Mexico in Mexico; Wal-Mart Centroamerica in Guatemala; ASDA Group Ltd, ASDA Stores Ltd, Netto Foodstores Ltd, Netto Foodstores South Ltd, Erteco UK ltd, , Netto Foodstores North Ltd, International Produce Ltd, Mclagan Investments Ltd, Isis Reach Belvedere Ltd, the Burwood House Group Ltd, Box Sutton UK Ltd, ASDA Supermarkets Ltd, Power4All Ltd, ASDA Financial Services Ltd, Porth Investments ltd, ASDA Storage Ltd, ASDA Souhthbank Ltd, Bandsound Ltd, and others in the United Kingdom; Wal-Mart Brasil Ltd in Brazil; Wal-Mart Chile SA in Chile; Massmart Holdings and Game Stores in South Africa;  Seiyu GK, Seiyu Foods and Ssv Inc among others in Japan; and Seiyu Ltd in Indonesia; Wal-Mart Argentina in Argentina; and Wal-Mart Canada Inc and others in Canada among others (OneSource Information Services, 2011).   

Wal-Mart’s strategic management goal is to pursue the goal of being the global retailer of choice. It has accordingly sought to expand into more countries in addition to the 14 that they are already operating in. Their status as a leading multinational is well established. The company runs over 40 wholly owned subsidiaries internationally in countries such as Canada, United Kingdom, Japan, Guatemala, Brazil and South Africa (Global Data, 2011). These subsidiaries are run under the Wal-Mart international division. The organisational structure followed by Wal-Mart is a modified version of both the divisional and the matrix systems with varying degrees of both components. At the highest level, the company is divided into three divisions which include Wal-Mart US, the Sam’s Club, and Wal-Mart International (Global Data, 2011). The three divisions are headed by executives who report to the group’s CEO.

While the Wal-Mart US and the Sam’s Club predominantly operate within the USA, the Wal-Mart International is primarily tasked with the responsibility to oversee the operations of the group’s subsidiaries worldwide (Morningstar, 2011). Each of the subsidiaries is regarded as a unit which a complete array of business functions which include financial management, marketing, research and development and other functions. They seldom share any business functions. This functional aspect of Walmart’s strategic management approach ensures that each division is able to fully concentrate on its mandate hence the likelihood of success being realised. The managers in charge of each of the subsidiaries act as the CEOs of the specific subsidiaries and make reports to the parent company as appropriate (Morningstar, 2011). Moreover, the subsidiaries are allowed high latitude in determining their mode of operation and their approach in marketing themselves in the markets. This approach is both tactical and strategic. The freedom to determine the mode of operation enables the companies to adopt a local outlook and therefore capture their respective target markets with relative ease. Many societies tend to embrace organisations they consider as one of their own and this provides the justification for this approach. Besides, managers feel more satisfied and more motivated when they are allowed to design the systems hence giving them more authority over the subsidiaries and getting them to be fully accountable for the results posted by the subsidiaries (Thom and Wenger, 2011). Various other issues may also arise that make it impossible for multinationals to enforce uniformity in management and operational systems in their subsidiaries. For instance, rules regarding labour relations differ from country to country necessitating such certain to changes to ensure compliance. Moreover, cultural values differ from one country to another and it is absolutely necessary that the management styles and operational systems be largely reflective of the cultural values of the host cultures (Thom and Wenger, 2011). One good example can be drawn from the staff management systems between the Wal-Mart US and their subsidiary in Japan. In the latter organisation, the management systems are more geared towards promoting team accountability and team effort while in the former, individual achievement is emphasised.

In the implementation of internationalisation strategies, multinationals choose to enter foreign markets through a number of methods. The use of exports is most commonly used in the initial stages by most multinationals. Other methods include the use of strategic alliances, setting up of marketing centres in the targeted markets, entering into joint ventures in the markets, and even acquiring fully owned subsidiaries in such markets (Morningstar, 2011). Wal-Mart is predisposed towards the use of wholly owned subsidiaries with only a few of their foreign outlets being joint ventures (Morningstar, 2011). The use of fully owned subsidiaries is advantageous to the organisation in that it ensures that the parent company is in full control of such subsidiaries and therefore not prone to any disagreements with any partners.

ASDA Stores Ltd operates predominantly in the UK and it specialises in retailing of both food and non food items (OneSource Information Services, 2011). Although it is a subsidiary of Wal-Mart, ASDA has the liberty to pursue all growth strategies it deems necessary including the decision to venture into new markets. The retail industry in the United Kingdom is greatly saturated and this limits the ability of any organisation to record impressive growths hence forming the rationale for ASDA’s intention to venture into the Chinese market which is an emerging economy and therefore more promising.

Socio-economic systems and HRM practices in China

China is one of the emerging economies in the world with the highest rate of sustained growth over the last three decades; hence it is of keen interest to strategic managers. The country is emerging from a socialist economy where most activity in the market was state-controlled and is steadily edging towards being a market economy (Fred, et al, 2006). The rapid economic growth rates experienced in China are a source of attraction of investors who view the Chinese market as having more potential than their saturated markets in the developed world. For instance, whereas the UK retail industry is riddled with intense rivalry, the Chinese retail industry can be described as one with low levels of rivalry with the growing market sizes greatly contributing to this status (Global Data, 2011). As analysts would intimate, markets with lower level of rivalry tend to provide organisations with higher prospects for growth than those that have high rivalry levels. Some of the indicators of low rivalry include expanding economies and low market dominance by the largest players. These factors make China favourable. The traditional Chinese mindset was characterised by thrifty spending where as much savings as possible were made for future use (Fred, et al, 2006). This cultural norm has also been changing steadily with more and more of the consumers preferring to spend more of their incomes to enhance their personal gratification. This factor, coupled with the fact that the increased market activity has been contributing to rising levels of disposable incomes among the Chinese, is responsible for the growing levels of demand (Myloni, Harzing and Mirza, 2003). The market is therefore ideal for investment by ASDA.

The complexity of the Chinese market may also be found in the multiplicity of their regulatory organs with often overlapping roles between the central government and the local governments (OECD, 2011). It is a challenge in strategic decision making where the organisation is required to make accurate findings on which authority to report to in view of the fact that any conflicts with the administrations can be detrimental to the well being of the business. These weaknesses mainly stem from the fact that the Chinese market systems are yet to fully mature and businesses must beware of such inherent weaknesses in order to perform well in the market (OECD, 2011). It is also important to note that the Chinese population are greatly proud of their identity and would only consume foreign products only when they find it impossible to find similar products of the same quality amongst their local companies. The same applies to foreign organisations. This socio-cultural aspect is highly relevant to any foreign organisation that intends to operate in the market. Where an organisation is perceived to be strongly foreign, its chances for performing well in the market are dimmed. To ensure that such eventualities are prevented, a foreign organisation should endeavour to portray itself as a Chinese company by ensuring that the operational and management styles are as much as possible in conformity with the local practices (Pudelko and Harzing, 2007). The composition of the staff should equally be dominated by the locals with some of the management positions as well being held by them. Such moves are important in helping such organisations to gain acceptance locally.

When examining the strategic human resource management practices suitable for the Chinese market, it is important to differentiate between what are legal requirements and which ones are just common practices that have gained acceptance in the country with time. The HRM practices in China are greatly influenced by the cultural backgrounds of the population (Pudelko and Harzing, 2007). The cultural beliefs shape the expectations of the employees who then influence the management practices in the organisations. For instance, China which has a high context culture is dominated with a hiring system based on recommendation where people within the organisation recommend others for employment based on their knowledge of such candidates (Pudelko and Harzing, 2007). This system creates a family-like structure in the organisations where the employees are largely responsible for each other and accountable to each other. It therefore follows that lines of responsibility are best assigned to working teams where the team members act as supervisors for each other to ensure that the teams perform up to expectations. In this setting, practices bent on encouraging individual achievement as is common in the West are generally frowned upon. The Chinese also largely expect authoritarian leadership styles more than the other styles (Hempel, 2011). This is because this society is a high power distance society. Under this system, decisions originate from the top and communicated to the subordinates who are then expected to implement the instructions as given. Minor decisions can be made at the team level on how to go about the implementation. This belief is largely based on the cultural aspect of the Chinese where the leaders were expected to be the sources of wisdom and goodness and who would serve selflessly for the public good (Hempel, 2003). The implication of this expectation is that the persons appointed to any management positions would need to be experts who would be able to know what to do at any point (Edwards and Zhang, 2003). This is unlike the democratic leadership settings where the manager would simply need to get the experts to provide a solution and would therefore not necessarily need to be a technical guru.

China is however changing and is appearing keen to enforce its new labour laws which got enacted to bring the country at par with the international players. For instance, the labour laws have tremendously raised the minimum wage requirements hence making it impossible for companies to thrive on cheap labour (OECD, 2011). This change can be a challenge in strategic management, especially where an internationalisation programme was approved based on the perceived cost benefits. The use of employees who are on long term fixed contracts has also been restricted hence organisations are required to ensure that their long term employees are on permanent and pensionable employment. There have also been moves to encourage employee appraisal in order to encourage productivity in companies and discourage the traditional models that emphasised on the length of service as the sole basis for salary reviews in organisations (OECD, 2011). On the whole, the differences between the Chinese and the UK labour systems are constantly reducing in the face of attempts to bring the Chinese HRM regulations and practices to international standards.

Adoption of parent company’s HRM practices

Once a subsidiary has been set up in a foreign country, the strategic management teams are often faced with dilemma on whether to pursue full localisation of the HRM practices or to maintain the practices acknowledged by the parent company. There are advantages and disadvantages to both sides. Where the adoption of the parent company’s practices is pursued, the subsidiary may have a hard time portraying itself as a local company (Easterby-Smith, Malina and Yuan, 1995). In cosmopolitan environments where the culture is cosmopolitan, this may not result in any negative effects. However, the Chinese as has been stated above are highly sensitive to their cultural values and are bound to treat such an organisation less favourably (Stockman, 2000). The advantage of maintaining same management practices is that the parent company can easily monitor the subsidiary’s activities and understand them without undue strain. Moreover, the company would not need to spend any resources in training managers and expatriates being sent to the subsidiaries by the parent companies. Localisation on the other hand ensures that a company is portrayed as a local company and therefore able to appeal to the emotions of the target market with relative ease (Easterby-Smith, Malina and Yuan, 1995). This emotional appeal is considered to be essential in creating brand awareness and establishing a relationship between the brand and the customers (Easterby-Smith, Malina and Yuan, 1995). Chances of organisational success are therefore high where localisation is pursued. However, this step comes with the disadvantage of a potential miscommunication between the subsidiary and the parent company. Mischievous managers may use localisation as tools to avoid accountability to their international superiors hence bring about an erosion of the benefits supposed to be derived from the localisation.

The strategic management practices at ASDA are in line with the UK labour regulations and also tend to conform to the expectations of the populace. The UK has stringent laws that emphasise the payment of the prescribed minimum wage which ASDA adheres to religiously (Pudelko and Harzing, 2007). Other conditions requiring that pension submissions be made on behalf of the employees and medical insurance provisions among others are also well adhered to. The employment terms for employees are also restricted by law and companies are not allowed to place employees on indefinite contract terms. Accordingly, ASDA pursues the option of granting their employees permanent and pensionable employment terms (Global Data, 2011). This practice can effectively be adopted by the Chinese subsidiary as it would not be in violation of any laws in China. In fact, the regulatory agencies in China have been taking measures to enforce the rules on minimum wage and terms of service for the Chinese employees.

The reward systems at ASDA UK are also in line with the cultural practices in the UK. The society in the UK is largely individualistic and tends to emphasise more on individual performance. Accordingly, employees are allocated specific responsibilities which they are individually responsible for and appraisal is done based on their performance as compared to the set objectives (Pudelko and Harzing, 2007). Reward systems are therefore used to encourage productivity at the individual levels. Some of the rewards available to the employees include bonuses, commissions, and financial gifts which are awarded on merit. The annual salary review is also based on performance. It is therefore quite common to find individuals who are talented but relatively new to the organisation earning higher salaries than their more experienced colleagues. This perspective is however contrary to the Chinese cultural expectations and cannot be fully implemented in its entirety and remain effective. Prudence in strategic human resource management requires some level of compliance with the dominant national culture. The Chinese culture is more collectivist than the UK culture and over-emphasis on individual performance in the Chinese context may be counter productive (Zelog, 2011). In China, the wealth of experienced is a highly valued any move to disregard this aspect may disorient the employees and reduce their productivity. Collective responsibility is hailed and is the basis on which organisational operations are organised (Zelog, 2011). In this regard, aspects of the ASDA UK systems can be implemented albeit in a modified fashion. For instance, the merit systems and the reward systems can be based on teams where each team is assigned specific responsibilities and the team members rewarded based on the performance of the whole team.

Another aspect of the strategic human resource management practice that would be difficult to replicate in the case of China is the recruitment of new employees. The parent company in the UK mainly pursues open and transparent recruitment process where positions are open to any talented individuals seeking employment (Hayden, et al, 2002). In the UK, talent and skills matter more to employers than their personal backgrounds. Little emphasis is therefore laid on the applicants’ personal lifestyles before any decision to employ them is made. This scenario is however very different in the case of China. Although this is not a legal requirement, cultural expectations make it difficult for managers to completely disregard the fact that their subordinates expect them to follow the recommendation system which is prevalent in China (Luo, 2008). According to the Chinese, integrity is more central to a good working relationship than skills which can easily be acquired with adequate exposure. It is therefore critical that the new employees be persons they know sufficiently well. This situation is likely to present the management with a dilemma in that, while they may not want to lose any brilliant talents while recruiting, they would also want to keep the employee morale high and sustain productivity levels. Similar differences would also attribute to the democratic leadership style common in the UK. Some measures of democratic leadership can be applied successfully especially by utilising the team structure in which the employees are accustomed to working.

References

Easterby-Smith, M., Malina, D., Yuan, L., 1995. How culture-sensitive is HRM? A comparative analysis of practices in Chinese and UK companies. The International Journal of Human Resource Management, 6(1), pp. 31-59

Edwards, C., Zhang, M., 2003. Human Resource Management Strategy in Chinese MNCs in the UK: A Case Study of Six Companies. Research and Practice in Human Resource Management, 11 (1), pp. 1-14

Fred, B.C., Bates, G., Bergsten, C.F., Lardy, N.R., Derek, M., 2006. China : the balance sheet : what the world needs to know now about the emerging superpower. New York: Public Affairs

Global Data, 2011. ASDA Stores Ltd: Strategic Analysis Review. (Online) Available at: http://globalbb.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=e8d5e6b0-8765-4094-9734-aa698eb5a198&file=file.pdf (Accessed 10 September 2011)

Hayden, P., Lee, S., McMahon, K., Pereira, M., 2002. Wal-Mart: Staying On top of the Fortune 500. A Case Study on Wal-Mart Stores Inc. (Online) Available at: http://www.slideshare.net/11121988/wal-mart-case-study-by-dhimant (Accessed 7 September 2011)

Hempel, P., 2011. Managing Knowledge Workers: Can Hong Kong learn from Taiwan? (Online) Available at: http://www.cb.cityu.edu.hk/mgt/document/Applied%20Articles/Applied%20Articles/Hempel%20-%20Knowledge%20Workers.pdf (Accessed 10 September 2011)

Luo, L., 2008. The Individual-Oriented and Social-Oriented Chinese Bi-Cultural Self: Testing the Theory. The Journal of Social Psychology, 148 (3)

Morningstar, 2011. Wal-Mart Stores Inc. (Online) Available at: http://globalbb.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=18068865&file=file.pdf (Accessed 10 September 2011)

Myloni, B., Harzing, A.W., Mirza, H.R., 2003. Host country specific factors and the transfer of Human Resource Management practices in Multinational Companies, paper presented at the 7th Conference on International Human Resource Management, June 4-6, 2003, Ireland: Limerick

OECD, 2011. OECD Rural Policy Review: China. (Online) Available at: http://www.oecd.org/document/33/0,3746,en_2649_34413_42230497_1_1_1_1,00.html (10 September 2011)

OneSource Information Services, 2011. Wal-Mart Stores Inc. (Online) Available at: http://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=30257&Process=CP&Report=UNIFIEDSUMMARY (Accessed 10 September 2011)

Pudelko, M., Harzing, A.W., 2007. Country-of-Origin, Localisation or Dominance Effect? An empirical investigation of HRM Practices in Foreign Subsidiaries. Human Resources Management, 46 (4), pp. 535-559

Pudelko, M., Harzing, A.W., 2007. How European is Management in Europe? An Analysis of Past, Present and Future Management Practices in Europe, European Journal of International Management, 1 (3), pp. 206-224

Stockman, N., 2000. Understanding Chinese Society. Cambridge: Polity Press

Thom, N., Wenger, A.P., 2011. Organisational Structures in Multinational Corporations. (Online) Available at: http://www.iop.unibe.ch/lehre/lizentiatsarbeiten/Liz-Scheidegger-Anne-Marie.pdf (Accessed 10 September 2011)

Zelog, W., 2011. Chinese Management Style: Modern Chinese Corporate Culture. (Online) Available at: http://ti.uni-due.de/ti/de/education/teaching/ss09/managecultureEastAsia/studentischeArbeiten/15.Chinese%20management%20style%20of%20SOEs.pdf (Accessed 10 September 2010)