Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
An Analysis of SES’ Motives for Globalisation in Nigeria and its Effects on The Company
List of Abbreviations
Table of Contents
|1. Scope of Research|
|2. Outline the Nature of the Problem|
|3. Rationale behind the Investigation and Personal Motivation|
|4. Aim and Objectives of the Research|
|II. Literature Review|
|1.1 The Concept|
|1.2 The Drivers of Globalisation|
|1.3 Identifying a Successful Global Company|
|1.4 Network Theory|
|2. The Organisational Challenge|
|2.1 Establishing a Wholly Owned Subsidiary|
|2.2 The Challenges in Nigeria|
|2.3 Organisational Structure|
|3. The Management Challenge|
|3.1 Cross Cultural Challenges|
|3.3 Productivity & Performance Management|
|3.4 Compensation & Benefits|
|III. Research Methodology|
|1. Reasons for Foreign Expansion|
|2. Market Entry Strategy|
|3. The Management Challenge|
|3.1 Organisational Challenges|
|3.1.1 Organisational Structure|
|3.1.2 Adapting the Organisational Structure|
|3.2 Human Resources Management Challenges|
|3.2.1 SES’ Core Competencies Requirements|
|3.2.3 Performance Evaluation|
|3.2.4 Performance Management & Development|
|3.2.5 Compensation & Benefits|
|184.108.40.206 Main Elements of SES’ Compensation Policies|
|220.127.116.11 Additional Benefits for Expatriate Employees|
|18.104.22.168 Ensuring Equality|
|V. Conclusion & Recommendations|
|1. Adapting the Organisational Structure|
|2. Decentralization as opposed to Centralization|
|3. Human Resources Management|
|3.2 Performance Evaluation|
|3.3 Compensation and Benefits|
The following content will consists of an analysis of SES’ reasons to grow the company with a subsidiary in Nigeria and how that can have a long-term effect on the whole corporation. Then the key elements that need to be addressed in that respect will be identified in order to examine how the company can best adapt for long-term growth. Completed by recognizing they key theories that address these challenges in order to find the key elements that can hinder the successful internationalisation of SES on globally. Findings will be gathered through discussions with SES employees in corporate management who are currently analysing the impact of their growth on the whole structure and operations of the company. Furthermore, interviews with employees who have been on assignment or have been re-located in Nigeria will be conducted and in order to receive first hand knowledge regarding the experience of working in Nigeria and the main challenges it poses for an efficient performance of employees and the subsidiary.
This allows me to find the differences between the theory and the reality and accordingly recommend how the company can process to not let operations become inefficient because of its growth.
1. Scope of Research.
This research consists of primarily looking at the main differences between conducting business in continental Europe, more precisely Luxembourg, to the working environments in Nigeria. This entails identifying the main issues areas that need to be addressed when expanding in an emerging market and how this can affect the global activities of the company, relating them to academic theories about the general corporate management to assess the best possible managerial solutions.
2. Outline the Nature of the Problem.
The nature of the problem lies with the development of our world economy since it rehabilitation period post-WWII and how the re-construction our world has encouraged many different nations around the world to create alliances and negotiate common goals. It has forced many different societies and cultures to co-operate with each other to increase their trades and ties towards individuals’ and business’ own achievements of growth and wealth. However, efficient and successful multinational relationships, not only between individuals, but mostly between corporations, can become very difficult to create and maintain for a long-term period. As businesses want to expand in foreign markets, it creates many challenges, from establishing their subsidiary all the way to creating profits and growth – especially in the cases of emerging markets.
3. Rationale behind the Investigation and Personal Motivation.
The reasoning behind pursuing this investigation is to make the audience aware of the various challenges faced by companies when expanding their operations abroad.
More precisely focused on expansion challenges in an emerging market – such as in Nigeria.
Expanding operations in the Nigerian market creates many different challenges for managers, due the high differences in cultural aspects, the political and socio-economical situation of the country, the lower amount of qualitative infrastructure that can create uncomfortable and unsafe situations for domestic and international employees, and so hinder the effective functioning of business operations.
SES Satellites S.A is one of not many Luxembourgish companies to be present on a global scale in its respective industry that is not in financial services. My motivation arises from the size and scope of this complex and competitive industry– that has started not so many years ago and is not even close to reaching its level of full maturity in its industry life cycle. Especially considering the vast possibilities of vertical and horizontal expansion strategies possible for a company such as SES – under the form of space management and exploration, media-broadcasting and digital management.
SES currently has 2 employees in Nigeria, so it is in my interest to investigate how SES can proceed towards establishing and maintain successful operations of its foreign subsidiary as it grows.
4. Aim and Objectives of the Research:
The aims of this research are to:
- Identify the key motives of SES’ expansion in Nigeria in order to remain competitive.
- Assess the main expansion challenges in Nigeria.
- Recommend the best possible approach to enter a developing market such as Nigeria.
- Demonstrate how an additional subsidiary in Nigeria can have consequences on the long-term performance of the whole company.
- Examine how the management has to adapt its organizational structure to sustain the efficiency of activities on a global scale.
II. Literature Review
1.1 The Concept
Defined as the process of social, political, economic, cultural and technological integration among various countries around the world (Hodgetts, Doh and Luthans, 2006), Globalization is now a commonly used term in the business world, but the globalization process that has defined the world for what it is today has only really begun after WWII, when the world order and global economy started its healing process and new international relations increased and developed, not only between governments, but between individuals and businesses. Giddens (1990) defines globalization as ‘the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa’, which emphasises on the interdependence of economic actors that stems from the co-operation between individuals on a global scale.
1.2 The Drivers of Globalization
There are various reasons why companies globalize their companies with foreign expansion strategies, but it is generally the fact that the global economy offers more economic value than the domestic economy. Thus, the main reason is increasing profits by accessing new markets and capitalise on new opportunities that can benefit the business through economies of scale and reduce the proportion of cost to revenue (Perkins, 2006). Companies generally also seek for opportunities in foreign markets to gain new knowledge and experience that might not yet be present in their home market; objective knowledge that can be transferred to the home market or additional markets for future references and thus gain a competitive advantage.
Companies then use this revenue for additional projects or to protect other of their markets that are more competitive, they gain capability and capacity that their competition can’t access. The attractiveness of globalising companies lies also within the fact that in many countries labour force, infrastructures and assets can be exploited more cheaply than in the home market, giving the opportunity to operate on assignment and projects with less costs and thus less risk involved. (Beamish, Killing and LeCraw, 1991), illustrated the pressure for companies to globalise and pressure for local responsiveness varying with the industry:
Pressure for global integration
|Pressure for local responsiveness|
For a company to be competitive, it has to be capable to respond quickly to foreign market changes, then there will be accompanying change in the organisation structure, such as basic structure arrangements, (Hodgetts, Doh and Luthans, 2006). This especially the case of a satellite company where the two core areas of operations are aerospace management and telecommunications.
1.3 Identifying a Successful Global Company
There is no definite or measurable way to determine when a company has successfully globalised and capitalised on their foreign expansion, as this heavily depends on the company’s own objectives which might not always be to maximise profits. It firstly begins through the thorough analysis of the market towards recognizing the opportunities, which is then followed through the successful implementation of corporate policies and corporate management decisions in order to develop the brand and position of the company in the foreign market. In the longer term, is then about preserving newly created partnerships and alliances and have a longer-term strategy with the adequate management to further driver growth in the expansion market (Javashree, & Al-Marwai, 2010). In a measurable way, a successful foreign subsidiary can be identified as successful when the amount of revenue collected can cover the costs of the operations of that internationally located subsidiary.
1.4 Network Theory
The subsidiary of a company in an emerging market can only be successful if its initial approach for the entry strategy was thoughtful. It often happens that companies’ expansion fail due to lack of knowledge regarding the market or a wrong implementation of the strategy because of poor management. The creation of a successful network is paramount towards creating knowledge-based proactive and thus self-sufficient subsidiaries for a successful globalization (Castells, 2010), so establishing contact and employing HCNs is considered as vital when expanding into a new territory as it offers more opportunities to find key resources such as labor, special knowledge, rare competencies and even a certain form of influence (Holden, 2002). The Financial Times (1999) observed that that knowledge is “elusive and the task to tying it down, encoding it and distributing it is tricky”, which is the very core corporate activities, and this pushes business to find new ways to find easier access and acquire knowledge, such as through personal connections rather than research, as a key element of its internationalization strategy (Holden, 2002).
2. The Organisational Challenge
2.1 Establishing a Wholly Owned Subsidiary
A wholly owned subsidiary is a foreign business division, which is wholly owned and controlled by the corporation. It is often the primary choice as it is mostly believed managerial control and efficiency is at an optimum without outside partners that can stem from other international expansion strategies, such as mergers, joint ventures and alliances (Hodgetts, Doh and Luthans, 2006).
In most emerging market economies, the establishment of a subsidiary by a foreign MNC is generally welcome as it brings new employments and can benefit the economy through its introduction of products and technologies otherwise unknown to the host market.
However, in most emerging markets, in the longer term governments will pressurize these companies to develop local operations by co-operating with local actors as there is a constant fear that international MNCs can put local corporations out of business.
2.2 The Challenges in Nigeria
The World Bank’s International Finance Corporation has conducted research and a survey with enterprises to establish a country profile of Nigeria (World Bank, 2014). Even though Nigeria is in full growth and development and they are more multinational companies present in the economy, the study has recognised three major issue areas that affect MNCs’ operations in Nigeria; mainly access to finance, electricity and corruption.
While hard access to finance for the company in question might not be relevant, poor infrastructures and access to electricity can create many problems as these deficiencies create barriers to productive operations and communication with customers (Deloitte, 2014). This would become an even greater threat when the company wants to build and develop its own infrastructures, especially in the case of a telecommunication company where the long-term objective is certainly to build teleport facilities that enable the downlink and uplink of data to and from satellites.
2.3 Organisational Structure
The organisational structure is how employees and the various subsidiaries of the organisation group their relationships, competencies and activities in order to best meet their objectives (French, 2010). However, as the context changes and the company grows, a structure that works well at HQ level may not be appropriate for its foreign subsidiary.
In terms of control, it can be centralized or decentralized.
The first describing the hierarchical control process as heavily dependent on senior management at HQ, leaving the subsidiary little room to operate autonomously or without supervision. This more regulated approach is essential if headquarters want to ensure strategic coherence with its foreign subsidiary. The latter approach applies the opposite conditions. With such an approach, headquarters give their subsidiary more authority about decisions and operations. Thus, spans of control are widened and could entail the employment of local staff as opposed to HQ staff. Thus, a subsidiary has greater capacity to make their own decisions and respond quicker to events in their respective market even though this means less coordination with headquarters’ activities (Hodgetts, Doh and Luthans, 2006).
3. The Management Challenge
3.1 Cross Cultural Challenges
The main challenge for organizations is to establish a common culture in their foreign subsidiaries as it can be offset by the influences of national cultures (Jacob, 2003). National cultural is the strongest influencer of an individual’s or corporation’s culture which in modern times is the most common understood aspect of culture. We are reminded that this modern understanding of culture is largely part to nationalism and colonialism in the histories of various societies (Eagleton, 2000). Deresky (2011) illustrated In order for the performance of a foreign subsidiary and the whole to be strong the company has to adapt to their general human resources policies to best react to the cross-cultural challenges.
When expanding and opening a subsidiary abroad, the workforce necessary to set off the subsidiary needs to be chosen wisely in order to fill the positions as efficiently and adequately as possible.
The primary choice for HRM is to send current employees on expatriate missions or relocation, as Torrington, Hall and Taylor (2008) recognizes the advantage that it is it less expensive and time-consuming, as there isn’t any necessity for employment advertisements or prolonged recruitment processes such as test and interviews. Additionally, internal recruits require less training and adaptation time, as they are familiar with the corporate culture, operations and policies. In a more technological and knowledge extensive industry, Brewster, C., Mayrhofer, W. and Morley, M. (2004) recognize that corporations prefer to recruit internally for their foreign management positions, as they will have the ability to use knowledge that was exploited in their previous position.
On the other hand, external recruitment gives a company the opportunity to add new skills and knowledge to the company’s workforce. This is more expensive and time consuming, as sometimes, external recruitment agencies and consultants have to be hired in order to find potential employees with specific skills or experience.
Perlmutter (1969) has recognized three different staffing approaches for MNC’s.
First being the Ethnocentric orientation, signifying more employees will be sent on expatriate mission, that major strategic decisions are made at HQ and that that foreign subsidiary has little autonomy in that regard, however it is the preferred choice if MNCs want to keep effective control and communication with its subsidiary. Furthermore, it ensures the successful transition of corporate values, operations and policies. This also entails that senior management positions abroad are more likely to be given to PCNs (parent country national) and TCN (third country nationals) rather than recruits from the home country.
Perlmutter’s Geocentric approach disregards nationality as a competitive or cultural advantage in favour of competencies with the aim to create nationality and competence diversified team to develop global differentiation and integration. With this approach, PCNs, HCNs and TCNs can be employed at any position or level.
The Polycentric approach entails that the subsidiary manages itself autonomously in terms of strategic decisions and operations in order to best adapt to local markets. This staffing approach focuses more on the employment of HCN (Host country nationals), reducing the adaptation time, the expensive and time consuming trainings such as a cultural awareness program.
3.3 Productivity & Performance Management
General performance appraisal has a wide scope, but is generally defined as the process of identifying, observing, measuring and developing individual performances in order to achieve company objectives (Mead and Andrews, 2009), however, Fenwick (2004) has evidence that performance management and appraisal is perceived differently across cultures and that there is a certain dependence on the industry and the country of expansion. It is rarely possible to set the same sales performance indicators between an established and a emerging market, as the company finds itself at a different state during its expansion process. Such as that in more collectivist societies, character assessment is perceived as uncomfortable as there is a preference for ‘being’ rather than ‘doing’ (Schneider and Barsoux, 2003).
However, various business activities are unlikely to carry the same amount of importance in an organization as emerging market have less economic value and less opportunities to capitalise on to realistically realise equal financial results as the domestic branch.
3.4 Compensation & Benefits
As one of the core areas of inter-cultural management, suitable reward strategies and compensation policies are of paramount importance in order to attract, retain and motivate the workforce and enhance the company’s performance.
Yet, is it certain that a universal compensation policy that is effective at HQ, will not be effective in a emerging market subsidiary, especially in an emerging market with strong cultural differences, due to the country’s general institutional arrangements (e.g. educational system) and the level of prosperity of that said society (French, 2010).
As Bailey (1993) noted, compensation packages have to vary because of differences in legally mandated benefits, taxation laws and employee expectations depending on their cultural background and their expectation based on local practices.
Typically, an expatriate compensation package consists of a base salary, additional benefits, allowances, incentives and taxes (Hodgetts, Doh and Luthans, 2006), which are also defined depending if it is a full time relocation or a temporary mission.
The base salary for en expatriate is adjusted to the wage averages of the country in question, however these salaries can be paid in the home or local currency. Benefits are then added onto the base salary and these can come under various quantitative or qualitative forms; such as providing extra vacation or provide subsidies for family visits. Under allowance, it is understood that expat employees can receive payments from its employer in order to provide the employee with the same standard of living in terms of housing, education or general living expenses (Hodgetts, Doh and Luthans, 2006).
III. Research Methodology
In this context, the research conducted was rather straightforward after having already worked for SES several times.
First of all, the company was generous enough to share their confidential internal documents, such as their compensation and benefits policy, risk management policy and more general documents about how the company operates. It was interesting to see the differences in policies between the ones used in Luxembourg and the policies used in other subsidiaries that SES Satellites already opened across various markets, such as Ethiopia or South Africa on the African continent, which also differ even though these markets are considered as somewhat similar. Having being able to see the differences between various policies depending on subsidiary location, this has given a good starting point to analyse how they have made these decisions and how they can proceed in a similar, or indeed different way for their operations in Nigeria. The theories were researched based on the main issues areas that needed to be addressed for this research.
As secondary data, collecting reports from organisations as the World Bank and Deloitte such as the enterprise surveys or industry reports have given an insight into Nigeria’s general socio-political and economical health and thus, giving a clearer idea about Nigeria’s business and social practices, ethics and code of conduct in order to best identify the main constraints for MNCs to conduct business in Nigeria. Yet, it is evident that reports from organisations such as the World Bank and Deloitte are not a completely accurate representation of Nigeria’s economy as real life practice often differs from these research conclusions, but they still identify the main issues that MNCs face when they expand their operations into Nigeria.
Secondly, primary data was gathered under the form of interviews (see appendix), with employees of SES Satellite based at headquarters in Luxembourg, who have been fortunate enough to be sent on assignment in Nigeria for a number of weeks or for a temporary re-location. It was important for this research to find employees who have been on foreign assignments less than one year ago, in order to best assess the Nigerian environment in its current health, as it is known to have quickly changing environments due to the general political and social instability.
This has given me first hand knowledge on how business operations differ in Nigeria as opposed to Luxembourg. They have explained to me the factors that worried them prior to their departure, such as the general living and working conditions, their point of contacts in Nigeria and about the general Nigerian business practices.
It has been explained to me arrangements they have made with the human resources department and senior management in order to ensure their well being towards efficient performance while on assignment. More importantly however, have they explained to me that theories and rumours about business practices in Nigeria differ strongly to the real-life examples and experiences they have had in Nigeria and how, even if well prepared, a certain culture shock will arise. Additionally, this survey was useful to find out more about SES’ general approach towards foreign expansion. In terms of its research approach and market entry strategy and how the company can adapt its operations towards more efficient international operating capacity and improve the general relationship between the subsidiaries and the headquarters in Luxembourg.
The survey subjects have required that they identity remains anonymous in order to protect their employment positions.
1. Reasons for Foreign Expansion
Like the majority of companies that expand their company and operations abroad, SES’s main motif to open a subsidiary in Nigeria was to find new sources of revenue and increase profits. Logical, as SES in mainly a telecommunication company and as Africa has experienced the fastest growth in telecommunication technologies and distribution in the last five years and growth that expected to continue in the coming years.
With a first mover advantages, the company is first in line to create alliances and partnerships with local businesses towards the successful launch and implementation of SES product and services. The company has recognised significant growth potential and economic value, as it does not seek to benefit from Nigeria’s economic development, but the company seeks to be part of Nigeria’s development process. This does not only entail supplying the country’s remote villages with Internet and mobile connectivity or television access, but also developing broadcasting, media and communication infrastructures in order to create social benefits that can have a positive sociological and economical impact on Nigeria’s economy.
Furthermore, even though SES already has established subsidiaries in South Africa and Ethiopia, Nigeria would be used as an additional hub to focus on conducting business activities more focused in West Africa and this would effectively divide the African continent in three divisions (west-, east- and south Africa) in which SES operates. This allows SES to seek for new business ventures in Nigeria’s neighbouring countries or other West African countries.
2. Market Entry Strategy
SES Satellites states “partnership” as one of its core company values, however, the preferred market entry strategy for the Nigerian market, was to establish a new wholly owned subsidiary.
SES’s management has not identified businesses relevant enough, in order to try to merge or create a partnership or alliance. These market entry strategy would have proven too time consuming and costly, as this would have required significant time to successfully develop the partnership with expatriate or new SES employees with employees from a different company. On the positive side, SES would have had access to knowledge and data already collected from the Nigeria company, however there would have been no certification regarding the usefulness of this knowledge with regards to SES strategic direction.
A new wholly owned subsidiary was the preferred choice anyway, as this gives the company more freedom regarding their research and development process in Nigeria.
3. The Management Challenge
3.1 Organisational Challenges
3.1.1 Organisational Structure
SES’s structure is defined as a functional organisational structure. Meaning that the various departments are divided based on their speciality. SES’s is divided in 7 different departments, which are Commercial, Development, Finance, Legal, Marketing, Technology and the Human Resources department. These various departments then have the responsibility over their respective subordinate departments in the various SES office locations. This means that the chief officers of the various departments have full control regarding the strategic direction and have full authority when it comes to implementing these decisions.
Figure 1 – SES’s organisational chart:
This more formal organisational structure signifies that the company has a more centralised decision making process, as the senior management wants to keep high levels of controls and co-ordination. These various subsidiaries have to follow general company policies, with minor adaptations to their respective markets. This centralised structure was also encouraged due to the complex technological nature of the industry and the generally large capital investments made which exposes the company to high level of risks and responsibilities.
It is recognised that this tight controlling and decision-making policy might be useful in order to keep company objectives aligned and minimise the risk exposure by having the senior management review strategic decisions. However, employees recognise that this is a very time-consuming process and that the senior management might not always completely understand the point of views of employees and development researches towards a specific project, mostly because they do not have the same understanding and perception of a specific market and its environment.
This mechanistic structure combined with a relatively tall organizational structure is believed to becoming out-dated as the company continues its growth pattern.
3.1.2 Adapting the Organisational Structure
SES now counts 23 different subsidiaries across the globe, where each of them has a general manager who controls the various head of departments of each subsidiary. These 23 general managers report to the chief officer, hence the tight controls and the time consuming procedures. The reasons for such an approach, was that the markets, even if they are on the same continent or part of neighbouring countries, had different needs and wants at the point of SES’s entry into the market.
However, as the company grows, settles itself in the new markets and as these mature, SES can narrow the line of product and services, the company can loosen the span of control and decision making and make a clearer division between continents.
SES currently has two employees settled in Nigeria, which are host country nationals who serve as a point of contact to initiate discussions with potential customers.
The right approach would be to have a more geographically divided structure, so grouping the operations in Africa and establish official African headquarters. The managers from the various office locations in Nigeria would subsequently report to a newly created position of CEO Africa as opposed to the senior management in headquarters.
This would allow the company to cater the resources in Africa to the Nigerian market and make faster decisions to respond to environmental changes. A new senior management in Africa that reports only to the CEO of the company is less costly and time consuming than having the various head of departments at HQ have responsibility and control.
3.2 Human Resources Management Challenges
3.2.1 SES’s Core Competencies Requirements
SES has stated core competencies they seek from employees; teamwork, relationship management, communication and influencing, problem solving, accountability and decision making, knowledge and skills, change and innovation. Of course, these core competencies are adapted to the departments and employment title and the company understands that some employees are not able to fulfil all these requirements, but the company always seeks to group teams as such that one team can fulfil the competencies requirements when working on a project.
SES has currently two employees in Nigeria.
Both are country nationals; the first is considered as a general manager as he is the first point of contact for potential customers. He was employed due to his more technologically intensive educational background, which is needed, as SES is a technology company, and for the business management practices he has gathered through experiences in his previous employments.
The second employee is a marketing agent; also a host country national that has an educational background in marketing and business management, her role is to grow the SES brand in Nigeria and make local businesses aware of SES’s presence and the capabilities they bring to the market.
To initiate the subsidiary and the first discussions with local actors, it was essential for SES to have HCNs present, as they have certain knowledge about the market. Furthermore, they are more accustomed to the local culture and local business etiquettes. They are also more aware of the threats posed for doing business in Nigeria, such as corruption. More importantly, their local knowledge was of benefit to deal with administrative steps such as receiving the business licenses and permits. In short, SES was using a polycentric approach to best adapt the initial creation of the subsidiary to the Nigerian market. Importantly, their network was of value of SES as it enabled to have initial contact points for the company to start its expansion process in Nigeria.
Even if the general manager has a certain technological knowledge, he does not possess enough knowhow to engage in highly technical discussions when it comes discussing small details of operations and deals. This is where SES needs to shift to a more geocentric approach, meaning that nationality and cultural background are disregarded in favour of competencies and ability, however the company still sets a high level of importance of employing HCNs as they are of very useful use to guide PCNs and TCNs about conducting business in Nigeria and connecting them with their industry contacts.
In short, SES recognised the importance of experimental knowledge, knowledge gained through experience, but is certain that this experimental knowledge can be gathered more quickly and more efficiently with the guidance of HCNs.
Nevertheless, the nature of the industry makes objective knowledge, knowledge transferred from one market to another, very important. Hence the importance of a geocentric approach in order to bring previously collected intelligence and technologies to the Nigerian market.
The cultural differences do often not worry the human resources department of SES. The company mostly deals with small differences by sending employees on teamwork building skills. A process that has always proven useful as it brings the employees closer together on a personal level and thus facilitates their co-operation and teamwork on a professional level.
3.2.3 Performance Evaluation
At SES, individual performance is measured by setting a maximum of 6 targets per employee. At least half of these targets must be quantifiable targets, which are measured based on the actual achievement versus the set targets on a linear base while a holistic rating is used to assess non-quantifiable targets, targets which are mostly set with the subordinate and work towards a common goal or company objective.
SES’s sales employees’ performance evaluation is mostly based on the revenue and net backlog gathered in one fiscal year. With annual revenue defined as the total revenue recognised by the company and net backlog defined as contractually obligated revenues that will incur in the future.
SES’s individual performance rating table:
|Rating||Definition||Personal Performance Rating Percentage (PRP)|
|2||Strong development needed||30% – 50%|
|3||Some development needed||55% – 90%|
|4||Meets expectations||95% – 110%|
|5||Highly effective||115% – 135%|
|6||Exceptional||135% – 150%|
The company recognised that their performance evaluation methods have to be adapted for the employees in Nigeria, due to the simple fact that the subsidiary is only at the beginning of its establishment process in Lagos. For example, it is impossible set the same revenue figures as a target for a sales’ employee’s performance evaluation, as in the shorter term it is impossible for the Nigerian subsidiary to create a new substantial revenue stream due the emerging market nature of the Nigerian economy.
3.2.4 Performance Management and Development
SES recognised performance management as a tool for employee development and organisational improvements. The company does so by translating business objectives into individual objectives for employees, a method used to ensure that all employees are working towards a defined common goal.
SES’s performance management consists of several elements:
- Setting new objectives based on the business objectives.
- Development planning that assesses employee competencies against what is required for the job to identify development opportunities.
- On-going feedback.
- An interim review at least once per year.
- An evaluation of employee performance against the previous year’s objective
SES then groups the development opportunities into five categories:
- Customer facing
- Professional development
These are part of a leaning curriculum called MOMENTUM, which are a series of workshops in order to establish a common understanding and vocabulary and thus, solidify the common company culture. Which is vital for Nigerian HCNs employees to undertake in order to understand the company’s cultures and for them to understand how the industry works and how SES proceeds towards achieving the objectives.
For new and expatriate employees, the MOMENTUM workshop series can be adapted with the Nigeria business etiquettes and culture in mind. Looking at Nigeria’s socioeconomic and political health, compliance training and development in topics such as how to handle fraud, anti-bribery and corruption when in contact with other individuals, businesses or Nigerian government officials are essential, as the socio cultural differences between Nigeria differ strongly from other markets. SES’s selection of soft skills and management training is taken with a “leaders as teachers” approach, which consists of videos and interactive simulations. Often from higher levelled employees who have made these experiences themselves and know how to share them for future references, when employees might encounter a similar uncomfortable or challenging situation so that they have the knowledge and expertise to tackles these situations.
3.2.5 Compensation and Benefits
22.214.171.124 Main Elements of SES’ Compensation Policies
The compensation policy for employees at SES consist of a yearly base salary (YBS) and a additional Bonus Target (BT), comprising of a percentage of the yearly base salary that is determined by the job grade, usually 9%, 11.5% or 17.5% of the YBS.
Then the personal performance rating percentage (PRP) is taken into account, and will account for 70% of the bonus target. The remaining 30% of the bonus target depend on SES’s overall financial performance.
To calculate these remaining 30% of the BT, SES calculates the Company’s Financial Performance Level (CPL) under the termed Actual vs. Actual achievement (AVA); the difference in SES’ reported EBITDA from the current year compared to the previous year is calculated as a ratio. In addition the Actual vs. Budget Achievement (GPL), which is calculated by determining the ratio of the actual financial results against the budgeted figures of the department the employee operates in.
SES’s compensation and bonus policies were thought out as such that employees’ total yearly revenue does not only depend on their individual performance, but also on the performance of their own department and the overall financial performance of the company. This is to encourage and remind employees that they are part of global company even if they only operate in a certain market.
126.96.36.199 Additional Benefits for Expatriate Employees
Usually, domestic employees do not spend more than one working week on an expatriate assignment; rarely it can become two working weeks. Above that, assignments abroad, which are mostly in emerging markets such as Nigeria, will extend to a period of as long as 2 years. A significant period for an employee to leave his comfort zone domestically and accustom himself to a new environment for a certain period of time. Everything above that period of time will be considered as a permanent relocation.
At this stage, SES firstly subsidies a Life Risk Insurance from reputable insurance companies carefully chosen by SES that would cover the employee abroad and his family domestically in terms of living support, education and health in case events such the death, inability or illness of the employee. The same would be the case if the family re-located with the employee. This is the first precaution taken by the company, as expatriate missions in Nigeria prove to be relatively dangerous due to the living conditions and political instability.
188.8.131.52 Ensuring Equality
SES is aware that some discrepancies can be created between HCNs, temporarily and permanently relocated employees regarding the compensation and benefits they receive.
Nevertheless, the company still has to respect the various laws and regulations regarding the employment laws. Nevertheless, employees whether they are HCNs or TCNs will always receive the same compensation and benefits plan as others in their country of activity in correspondence to their job grade and employment title.
SES ensures that all employees, not depending on location, will receive the same standard of living everywhere, meaning that the compensation and benefits will ensure the same mentally and physical wellbeing of the employee. This entails the procurement of appropriate living conditions for the employee or the compensation adequate to do so himself, to receiving a company car to facilitate the transportation within the country in terms of time and comfort. Sometimes, it can go to unusual length, such as the procurement of security personnel or armoured cars.
An example, a employee in Singapore might not receive a company car due to the inefficiency of this mode of transport in Singapore, but the base salary might be slightly higher to compensate for the high living costs of buying and renting real estate. In Nigeria it would be the opposite, as costs to rent or buy are significantly lower, but the methods of transportation available in Nigeria are too inefficient for SES’s operations, which make the procurement of a company car for an employee inevitable.
V. Conclusion & Recommendations
1. Adapting the Organisational Structure
The company’s current organizational structure is considered as rather tall, with a narrow span of control. However as SES increase the number of subsidiaries, the controlling and decision making process becomes too time consuming and thus inefficient. The senior management of each department in headquarters has to review the whole research and development process in order to make the final decisions, even though they see the bigger picture and take the whole company’s health and strategic direction into account, their review process towards a decision can sometimes lack the necessary relevant knowledge and insights. This is due to the fact that they do not have experience the market with their own eyes, as they might not have had the possibility to travel to Nigeria.
It is recommended that SES transforms its more functional organizational structure to an Global Area Division structure. So the various subsidiaries should be grouped into a international division structure, preferably to be grouped by continent, as the markets from the same continent mostly tend to have key similarities.
Figure x: Recommended organizational structure
With this approach, International Operations would be divided into the 3 main geographic areas. The international operations division should be run by the executive committee, so the chief officers of the different departments.
A Vice President would head the various geographic areas.
In the case of Africa, a newly appointed VP would be permanently located in one SES’ African offices, whether it is South Africa, Ethiopia or Nigeria is of no real importance.
The important detail as that the appointed VP for SES Africa has the responsibility over the subsidiaries in his areas, subsidiaries which are managed by general managers, who control the various departments established within their subsidiary. So the Nigerian subsidiary would be responsible for its own human resources management, its own marketing and its own implementation of strategies in accordance with SES’ objectives and with the permission of the executive committee where needed.
The VP for SES Africa will report in a constant and timely manner about SESs subsidiaries in Africa, he is also the employee who receives guidance towards SESs strategic direction in Africa. It is then his responsibility to effectively communicate these strategic directions with his own managerial solutions and adapted corporate policies to his subsidiaries and employees.
He has the authority to make his own strategic decisions as long as they are correlated with SESs objectives that the executive members have instructed him to follow.
With such a structure, international operations are considered to have the same level of importance as domestic operations, outlining SES’ willingness to exploit new opportunities in emerging markets such as Nigeria.
In general, it gives the subsidiary more autonomy, which is aimed at improving the reaction time when dealing with environmental or economic changes in the Nigerian economy and accelerates the process of research and development towards a specific project or contract with a customer.
This outlines SES’ long-term commitment to the Nigerian market, which gives confidence to potential customers and industry actors while conducting business with SES.
2. Decentralization as opposed to Centralization
With a adapted organisational structures in order to better incorporate the Nigeria subsidiary into the company’s hierarchy, it would be preferable for SES to generally decentralize their decision making process. The centralized decision making process was always preferred due to the high capital investment and thus the high level or risks and responsibilities involved.
However, due to this approach, the company admits that it has sometimes failed to react quickly enough to changes in the market and industry, due to the simple fact that the review and decision making process was too time consuming as it had to up through multiple stages in the hierarchy before even reaching the executive management.
Recommendation are as such that the span of control and decision making has to be more decentralised, and thus give the Vice Presidents of the various locations more autonomy and responsibility in order to better manage the challenges posed in Nigeria.
This will also allow a senior management member to focus more thoroughly on one type of market, in this case the grouped international operations of SES’ African subsidiaries.
3. Human Resources Management
SES does not recognize many challenges when it comes to the staffing of the Nigerian subsidiary. The company has a preference to grow the subsidiary through the re-location of current SES employees, for the simple fact that they bring they bring objective knowledge, so knowledge that has been collected previously in other markets, in order to bring their ideas and technology to the Nigerian market.
However, network theories and its importance towards successful expansion in an emerging market such as Nigeria is vital. Hence why SES also has to emphasise on the employment of Nigerian or African nationals as they bring their network of contacts can be of great use to establish relationship with local actors and businesses.
In order to create a team atmosphere between employees from different cultural backgrounds, the company already has the right approach by mostly sending them on assignments together or to teambuilding courses, where dealing with uncomfortable situations as a team brings the employees closer together on a private level, which transfers into more efficient working performance as the mental and physical health of employees are taken into account rather seriously towards the overall strong performance of SES.
3.2 Performance Evaluation
SES has to adapt its performance evaluation and management policies to the circumstances of the Nigerian market. For the sales people, this signifies setting sales or revenue targets that are more realistic as the subsidiary can struggle to generate any kind of revenue in the first years after its establishment. The same shall account for the holistic ratings for other employees.
Here is a proposed adapted Personal Performance Rating Percentage table:
|Rating||Definition||Personal Performance Rating Percentage (PRP)|
|2||Strong development needed||20% – 40%|
|3||Some development needed||40% – 60%|
|4||Meets expectations||60% – 80%|
|5||Highly effective||80% – 90%|
|6||Exceptional||90% – 100%|
With this table as part of SES’ performance evaluation policy, the expectations are lowered in order to best compensate for the early expansion stage the subsidiary finds itself in and lower amount of economically valuable opportunities.
3.3 Compensation and Benefits
It is right for SES to add additional benefits to the compensation packages of expatriate employees, but perhaps the company should put less focus on tangible benefits, should as a higher salary or the use of a company vehicle and appropriate accommodation, and more on intangible benefits. Such as that employees on temporary or permanent re-location have the priority when it comes to promotion to higher levels in the corporate hierarchy. This gives employees even more incentives to volunteer for re-location in emerging markets, but it also creates an incentive for them to do well as a good performance in harsh environments will be considered as additional competency.
To conclude, it is evident that a company’s foreign expansions mainly fail due to the lack of knowledge gathered before entering the market, upon which the wrong entry strategy might have been implemented. It is often the case that not enough relevant resources have been collected or that the data collected might have been misrepresented due to cultural differences or lack of experimental knowledge and experience gathered. The main solution is to use network theories, so setting high importance on the employment of HCNs in order to better understand the dynamics of the Nigerian market. With initial resources efficiently allocated, it can contribute greatly to the Nigeria economy, impacts that are generally felt by a developing market such as Nigeria and subsequently and incrementally supported by local individuals.
A good performance of the Nigerian subsidiary can benefit the whole company’s performance, however the senior management of SES has to react quickly to this size increase by adapting their organisational structure, if it wants to retain the efficient management of operations and business activities in order to stay competitive. Once the company is behind in terms of reacting to market changes because of too time consuming controlling and decision making processes, it will be very difficult to regain the time lost to the market and competition and even harder to stay competitive in the long term.
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Survey Questions and Answers:
|1. What is your department in the company?
2. How much time did you spend in Nigeria and what were the reasons for your assignment?
3. Did you have previous experience in conducting business activities in an emerging market such as Nigeria prior to your departure?
4. What were the benefits received for the actual stay in Nigeria and post assignment?
5. What were the main challenges of conducting business in Nigeria?
6. How did SES conduct research and collect data prior to its expansion in Nigeria?
7. From 1 to 10 – How important is internationalization for SES?
8. Which best describes SES’ expansion strategy in Nigeria?
9. From 1 to 10 – how are the right interpretation and communication of expansion strategies from senior management important?
10. What do you consider the main issues of globalizing the company?
11. Do you think that there is a correlation between the globalization of a company and its overall performance?
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