27 Jan 2013
As the European economy continues to stumble, more and more companies are looking beyond their comfort zones to seek growth in emerging and developing markets. But with each new international endeavour comes a set of new challenges, from localising the business platform to gaining access to the top local talent.
Global Arena is an online platform that matches businesses with business destinations around the world that can offer them favourable conditions. Through market research and an applied unique algorithm, Global Arena gives customers a unique perspective on the dynamics and trends of global business environments and foreign direct investments. Peter Storm, CEO of Global Arena, shares what can make or break a company’s venture abroad.
What are the key areas where companies are targeting growth?
CEOs have been targeting growth in emerging markets, and more specifically markets that are in earlier stages of development. They are chasing growth in emerging markets where there is sound demographic development combined with people moving into middle-income groups.
Today, young companies have to consider the design of the company, while bearing in mind if they want to operate globally. They are known as ‘born global’ companies, and Global Arena is a good example of this type of company.
We developed our initial capabilities for European markets but following the economic crisis we quickly had to adjust to the new reality and that meant our strategies had to be expanded to emerging markets. We provide information and insight into where growth opportunities and talent hotspots are in these markets. That means that we also have had to adjust our model, our sourcing, and our operations into these markets.
Which factors matter most when companies locate global operations?
Increasingly talent has become a defining issue. Companies will look at demographic developments, buying capacity, expendable income, families emerging into middle income, countries emerging to middle income economies. But what matters most at the moment is the ability to have a growth market with a well-developed talent supply.
In one of our latest researches we found that markets that are growing the most at the moment are also countries where the talent gap and the skills gap are the largest. It means that the way companies normally operate at the moment – targeting talent, recruiting people, organisational development, learning development, etc – these normal practices do not apply, work well or even begin to cover all the numerous problems that companies will encounter if they operate in these emerging and developing economies.
The classical response to this issue, specifically from companies that have enough money, is to apply international assignments and international mobility. They can just move people to the job. Now increasingly, really talented employees want to have choices and they expect a level of internationality to their jobs. What companies are experiencing is that if they go into these markets they may end up being in places where their talented employees don’t want to go. That is one of the key problems.
Another issue to consider is that in the past, companies would normally have had a sufficient supply of people with the skill set ready to engage in a job and to start working in a certain function immediatley. Albeit, companies now find themselves in the situation where people rely more on their learning capabilities instead. They can be trained for a job but they don’t bring the skill sets that a company readily needs. This means that the job itself must be redefined with much narrower responsibilities. And once they are trained they may leave. That is one of the biggest challenges. A company based in a large city or urban area will face high pressure from employees leaving after a company has invested a lot of time and money on training them.
Companies that operate around natural resources do not have the choice of where to operate and so have to bring talent to the job, or they have to source talent or a skilled workforce in places where there are no skills available. They also face competition. Training is a tremendous investment, but once employees complete it, there is the risk of losing them soon after.
Everything that companies have learned to do in terms of the HR policies and strategies most likely won’t work. They must reinvent the way they localise business, and deal with local circumstance, and that can be difficult because it has to do with learning new skills. They also need a new strategy that really connects people in terms of local habits and cultural expectations and needs.
What is the main threat to companies’ performance across all key markets?
We consider that talent supply is rapidly emerging as the number one issue for global operations. Companies might also not be able to bring the talent to the place where business opportunities really happen in foreign markets. One of the things Global Arena does as a company is to identify gaps in talent supply and demand. What we find in our work is that in almost all cases the search for talent must be a cross-border strategy. We often identify top-five talent hotspots within a region, this cross-border environment, where companies should be targeting talent and installing training facilities in order to attract people from these talent hotspots into their operations.
Talent hotspots are typically fast-growth urban areas. That certainly does not mean tier one cities alone, tier two and tier three cities are also included in that list as long as they have fast growth, a clear academic capability, preferably with international aspects, and there must be some sort of meaningful cluster of business around a certain industry or activity.
Companies must target and identify these hotspots and see how to source the talent there, in order to determine if you will be carrying out part of your operations there, or if you will be sourcing people there and then convincing them to move into your operation in the neighbouring company or region.
In what strategic areas do you see CEOs planning to make a change to their global operations?
Ten years ago companies started to realise that the way that you produce good services for
western markets was different from the way you do that for emerging markets. At first companies tried to copy their western models in emerging markets, typically by sending a set of ex-pats, management and senior product leaders, and they would implement the business and hire locally for lower echelons of employees.
But increasingly people began to realise that they needed to start hiring indigenous talent and leadership, and let them build the organisation in a way that will allow companies to bring customised products and services for that specific market, effectively into the marketplace. That is even more difficult. To develop leadership can take years, and by looking at the pattern of availability of talent, the loyalty and people’s willingness to spend a number of years with the same employer takes a lot of time and patience. But there is really no way around it.
A CEO who manages to bring in local talent and local leadership to build a localised business is successful. It is important to have the right product in the right distribution with the right marketing initiatives, and adequate cultural language to speak about these products and services. The ability to have local leadership and local talent, driving the business in these markets is the real differentiator for companies that are successful in operating in difficult emerging markets.
Have talent constraints impacted on the competitiveness of companies on a global scale?
With soaring unemployment in Europe, it’s hard to imagine that even in western markets access to talent and having it available at the right place is considered to almost 50 percent of the CEOs an obstacle to growth. In emerging markets that is an even higher percentage. They believe that if they could operate faster, they could sell more products and services, and they could be more profitable if they could have access to the right talent. There appears to be a skill gap between what the labour market provides and what these companies need in order to succeed.
As people face hardship in Spain, Greece and Portugal, one might have thought that it would lead to labour arbitrage. That has not been the case. What has continued to happen is that it has been difficult for companies to attract the right kind of talent, and specifically people that are willing to move globally.
A lot of children grow up online, connected to the world all the time, but it is only a small number of people that are actively seeking or exploring all opportunities they have to travel.