CASE APPLICATION 1

Maersk and HR Management Challenges in China

Although one of the world’s biggest shipping line leaders, Danish company Maersk is increasingly worried
about the future of the Chinese market. In a recent interview with the Wall Street Journal, Søren Skou,
the head of the company’s container-shipping division in mainland China, expressed his concern. One
issue mentioned is the fact that some of the traditional advantages China was representing, its abundant
pool of cheap labor, are rapidly shrinking, and personnel costs are going up. According to Chinese
government data, wage income for urban households rose 13 percent year to year in the first half, and
average monthly income for migrant workers rose 14.9 percent. This comes on top of other common
problems related to human resource management in China, which all Western companies have
experienced in one way or another. These issues have been known for a long time, at least since the
beginning of Deng’s Open Door Policy, which in 1979 opened China to foreign direct investment. One
problem is the availability of a qualified manager to lead operations. China has experienced such a high-
speed growth that the pool of local talents has dried up quite quickly, and importing managers from
overseas is not as simple as it may appear. Expat managers, the usual choice for the top management and
often for the middle management too, present other challenges, including cultural fluency and language
skills in the complicated Chinese business environment. Even organizing a banquet can be a daunting
experience for someone not acquainted with the local culture. In addition, expats who have a solid
experience of the country and speak Mandarin are in such high demand that they are normally very
expensive. An alternative is to hire local talents and to train them to function in Western companies. While
this seems a reasonable choice, it may be very expensive and the process painfully slow, especially if the
hiring is done privately bypassing the expensive, government-owned labor center, FESCO. Furthermore,
once the manager is hired, a series of efforts needs to be made to retain the employee. One of the
solutions Maersk and other international corporations have found is to move part of their business further
west, in the center of mainland China, where labor costs are lower than on the coast, and to hire better
educated, English-speaking younger staff. For instance, the Maersk branch in Chengdu, Sichuan Province,
employs more than 2,000 people, with the average age of its employees no higher than 25.

Discussion Questions

1. Why does human resource management represent one of the major challenges faced by foreign
companies entering the Chinese market?
2. What are the main issues expat managers generally face?
3. Why don’t foreign companies simply hire local staff instead of reaching out for foreign managers?
4. What advice would you give companies such as Maersk on their human resource management
policies?

CASE APPLICATION 2

Measuring Output, Not Hours Worked

Despite being a world-renowned business, BAE Systems Naval Ships has hardly changed its working
arrangement at its Glasgow sites on the River Clyde, explains Chris Westcott, who is the Head of Employee
Relations. Employees are expected to work fixed hours, and paid overtime for extra hours worked.
However, when faced with real affordability challenges, BAE Systems did something fundamentally
different that tapped into knowledge, expertise, and discretionary effort of the work force. Four and a
half years on from that realization—and after hours of hard work from the HR team, the entire
professional and executive staff and almost half the employees in the manufacturing division moved to
“smart working.” In essence, what mattered was output, not attendance with the staff being empowered
and trusted to determine their own working schedules, and take time off if their work is completed for
the week. Employees, irrespective of their status, could work flexibly, deciding when they start and finish
work. The concept seemed tough to get to grips with initially, but it really boiled down to trust. For BAE
Systems, this marked the advent of schedule-based working (SBW). A sizeable percentage of production
employees in Glasgow could take time off if they complete their weekly targets. In essence, Friday is free
time if all the work for the week is completed by Thursday. Westcott, however, emphasized that targets
and quality standards must be achieved. But workers were willing to put in all their effort to get it as they
valued the new arrangement and the challenge. The biggest challenge of the whole project was convincing
the work force and the influential trade unions. Therefore, this minimized the risk of the project for all
involved, particularly the two trade unions, NMB and Unite, which were of the view that something had
to be done to secure the long-term success of the business. The organization has been careful to maintain
open lines of communication throughout, with teams taken offsite for a day to explore the SBW concept
prior to its launch in each area. Introducing SBW has been a significant achievement for BAE Systems.
According to Westcott when the pilot was set up and they realized they had achieved target on Thursday
afternoon and could go home, it was a revolutionary vision that has come to stay. And soon after,
employees came up with ideas for improvement, such as rotating staff that had to stay late to finish a
job—as well as suggesting process improvements, and requesting new tools and training to help them
stay on schedule. While the program has so far taken several years, and significant investment, there has
been a fundamental cultural change—attracting accountability for output, ownership of work and trust,
and discretionary effort is on the rise. For BAE Systems, the project is viewed as the single best thing to
have ever been done. It has not only reshaped the role of HR in the business, but has allowed an
understanding of the business that HR would not have achieved if it had focused only on the traditional
HR issues.

Discussion Questions

1. Why do you think an organization like BAE would want to adopt schedule-based work (SBW)
pattern?
2. What possible difficulties can you identify as a result of the proposed changes?
3. Analyze the role of HR in embedding the new vision into the culture of the organization