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INTERNATIONAL MANAGEMENT
CHALLENGES IN THAILAND
CLOTHING INDUSTRY
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Table of Contents 1. Introduction ..................................................................................................................................... 4
1.1 | Company Profile .............................................................................................................................. 4
2. Cultural Environment ....................................................................................................................... 5
2.1 | Cultural and Social Factors .............................................................................................................. 5
2.2 | Halls High-‐And-‐Low Context Cultures ............................................................................................. 5
2.3 | Language ......................................................................................................................................... 5
2.4 | Hodstede’s Typology of Culture ...................................................................................................... 6
Power Distance Index (PDI) .................................................................................................................. 6
Uncertainty Avoidance Index (UAI) ...................................................................................................... 6
2.5 | Education System ............................................................................................................................ 6
2.6 | Superior-‐Subordinate Relationships ............................................................................................... 6
3. International Management Issues .................................................................................................... 8
3.1 | Advantages and Disadvantages of Joint Venture ............................................................................ 8
3.2 | Restrictions of Labour Law .............................................................................................................. 9
3.3 | Decision-‐making Style ..................................................................................................................... 9
3.4 | Impact of Globalisation (Technology) ............................................................................................. 9
3.5 | Problem of Ethnocentrism .............................................................................................................. 9
3.6 | Cross Cultural Miscommunication ................................................................................................ 10
3.7 | Short Term problems .................................................................................................................... 11
Human Resource ................................................................................................................................ 11
Organization Dynamics ...................................................................................................................... 11
Negotiation ........................................................................................................................................ 11
3.8 | Long Term Problems ..................................................................................................................... 11
Building a Team of Talents ................................................................................................................. 11
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4. Strategic Recommendations ........................................................................................................... 12
4.1 | Sponsorships at Universities ......................................................................................................... 12
4.2 | Appointing Leaders with Intercultural Competence ..................................................................... 12
4.3 | Cross-‐Cultural Training for Managers ........................................................................................... 13
4.4 | Appropriate Management Structure ............................................................................................ 13
4.5 | Formal and Informal Employee Orientation Programs ................................................................. 13
4.6 | Effective Performance Appraisal Systems ..................................................................................... 13
4.7 | Structured Career Development Plans .......................................................................................... 14
5. Action Plans for Recommendations ................................................................................................ 15
5.1 | Cross-‐Cultural Training Program ................................................................................................... 15
5.2 | Operational Training of Thai Staff ................................................................................................. 15
5.3 | Performance Appraisal System ..................................................................................................... 16
6. Appendix ........................................................................................................................................ 17
Appendix 6.1 | Competitive Rivalry within Thailand Clothing Industry ................................................. 17
Appendix 6.2 | Comparison of Hofstede’s Cultural Dimensions ........................................................... 18
Appendix 6.3 | Organisation’s Bureaucracy and Cultural Dimensions .................................................. 18
7. References ..................................................................................................................................... 19
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1. Introduction
1.1 | Company Profile Cerrotore is a Singapore luxury fashion brand and intends to internationalise to Thailand. This report aims to critically evaluate the current clothing industry, addressing the international management challenges faced by the company in terms of managing its operations overseas; taking into consideration various cultural contexts and theories. In addition, strategic recommendations with brief action plans would be incorporated.
Thailand’s competitive clothing industry is further illustrated in Appendix 1.
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2. Cultural Environment
2.1 | Cultural and Social Factors Differences in cultural and social context between Singapore and Thailand determines the approach in which Cerrotore undertakes in its international management strategies. Acknowledging and understanding the cultural differences in Thailand is a critical step towards a successful venture since cultural manifestation affects the decision making and negotiation processes. Similarly, the social factors affect the availability and quality of the labour market, impacting the operations of Cerrotore.
2.2 | Halls High-‐And-‐Low Context Cultures Both Singapore and Thailand have a high-‐context culture due to Asian roots. High-‐context culture tends to have a more indirect style of communication (Wurtz, 2005), where most of the meaning lies in the physical context like facial expressions or tone of voice (Gamsriegler, 2005). Hence, information and culture rules remain implicit and non-‐verbal communication should be emphasised.
2.3 | Language In the luxury fashion business, service is a critical success factor for Cerrotore. Proficiency in a language used in the country of operation is essential for communication between the staff and customers as differences in language may cause miscommunication. The official language of Thailand is Thai. Being a Singapore company; Cerrotore’s administrative language is in English. Hence, it is essential to bridge the gap of language barriers.
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2.4 | Hodstede’s Typology of Culture Using Hofstede’s typology of culture, Cerrotore is able to compare the culture of Thailand vis-‐à-‐vis Singapore (Refer to Appendix 2). Power Distance Index and Uncertainty Avoidance Index are picked for a detailed comparison as they have a more significant impact.
Power Distance Index (PDI) PDI measures the distribution of power in the society. Both Thailand and Singapore have a relatively high PDI, implying that most organisation structure is centralised; control is expected and attitude towards authority is formal. Both countries’ are somewhat similar with their decision making authority being centralised and negotiation styles being formal. Therefore, it will be easier for Cerrotore’s management style to fit into Thailand’s culture.
Uncertainty Avoidance Index (UAI) UAI measures the society’s tolerance for uncertainty and reflects its comfort level in ambiguous situations. Even though Singapore’s score of 8 reflects very low uncertainty avoidance, Singaporeans still abide to many regulations due to its high PDI. In contrast, Thailand’s score of 64 reflects a preference for avoiding uncertainty; rules and policies are needed to eliminate the unexpected.
Despite the prominent gap between Singapore’s and Thailand’s UAI, both countries are similar in terms of having strict regulations. Management style has to be adapted to account for the differences.
2.5 | Education System The education system in Thailand reflects the quality of workforce that Cerrotore could hire. Although Thailand’s education system is able to prepare Thais for the workforce, most of the lessons are conducted in Thai. The education system reflects a lack of proficiency in English and up till now English language teaching in Thailand has not prepared Thais for a changing world (Wiriyachitra, 2001). Therefore, this presents a challenge for Cerrotore which targets international customers.
2.6 | Superior-‐Subordinate Relationships It is crucial for Cerrotore to understand the superior-‐subordinate relationship and the work ethics of the Thais to know whether an authoritarian or autocratic management style best suits Thailand. There is deference to authority in the Thai’s society; however this may not be an autocratic or power-‐driven relationship. Thais are passive employees who seldom voice out
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their opinions and make decisions because they are afraid of making mistakes. There is also a lack of initiative in the Thai workforce as they only work under clear instructions.
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3. International Management Issues
3.1 | Advantages and Disadvantages of Joint Venture
The Thai Foreign Business Act prohibits foreigners from registering a 100% owned alien company, foreign shareholders could only have a maximum ownership of 49%, with 51% held by Thai shareholders. The entry mode for the business is thus restricted to partnership or joint ventures with a Thai corporation.
Having access to international knowledge through network relationships is an imperative for internationalising companies (Stephanie & Dan, 2013). Therefore, an international joint venture (IJV) into Thailand with a local partner would greatly assist the company in entering and operating in the country.
The IJV allows the company to target Thailand’s large domestic market and emphasise on the benefits of shared investments and risks, leveraging on access to key information and strategic resources i.e. business relationships. However, the drawbacks for IJV includes profit sharing with the partner and most significantly the level of control that the company have.
This could be managed by effectively choosing the right partner that best serve the company’s needs. The partner should allow a considerable amount of management and operational control over activities in Thailand to ensure the continuation of the international venture. Managers should also support management’s objective by enforcing control over the daily operations and be trained in cross-‐cultural engagement i.e. understanding of employees with unique Thai background.
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3.2 | Restrictions of Labour Law With reference to Deloitte’s paper on Thailand Employment practices, the company is required to have fully paid-‐up capital of THB 2 million for every foreign employees hired; limited to the first ten employees (2013). This signifies a tough stance by the Thai government to protect domestic jobs by regulating the foreign employment.
The complexities of labour laws requires that businesses employ a minimum number of Thai staff per foreign employee. Currently, the ratio that companies have to main is 4 Thai employees per Non-‐Thai employee.
The company will have difficulty increasing control through input of more locals into supervisory levels as these guidelines limit the company’s authority in Thailand since it would have to place greater emphasis in their hiring and management structure.
3.3 | Variations in Decision-‐making Style With a percentage of the company’s positions being filled by Thai nationals, it is inevitable that certain decision-‐making authority will be distributed to the locals. Thais are less confident, requiring several consultations with other parties to reach an assured decision (Communicaid, 2013). This is also reflected in Hodstede’s Typology of Culture where Thai employees have high PDI.
However, decision making speed positively influences the company’s performance and growth (Baum & Wally, 2003 cited in Kownatzki, Walter & Floyd, 2012). Therefore the company has to effectively manage the process of decision making to ensure efficiency in their operations.
3.4 | Impact of Globalisation (Technology) The pervasiveness of technology impacts multiple stakeholders and poses a challenge to Cerrotore. Employees may struggle to adapt to changing technologies and this makes them work under greater mental pressure and anxiety (Qi, 2008). Consumers are also affected as technological advances leads to issues of invasion of privacy; such as confidential information which the businesses could exploit.
3.5 | Problem of Ethnocentrism Stemming from a country with relatively stronger economic, political and business climate, it is inevitable that Singaporean managers may believe their way of doing things is superior. The challenge is recognizing cultural differences and being cross-‐culturally sensitive.
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Systems and procedures that used to work in Singapore may not be effective in Thailand, there is a need to adapt the corporate culture to be all-‐inclusive and consider the disparities in beliefs and work practices. A standardised system would then be unproductive, as Thais may not view Singaporean practices as relevant. The unavoidability of ethnocentrism, results in Thai locals not being handled decision making authority, disparities in expectations; leading to conflicts.
3.6 | Cross Cultural Miscommunication Effective communication, which occurs only when the interpretation of message is similar, is particularly important with respect to joint ventures (Gyenes, 1991).
Language difficulties caused by semantics or connotations, represent one of the biggest barriers to cross-‐cultural communication (Munter, 1993). The business could face communication issues within and outside the organization. (Thai employees may not be willing to communicate in English as they feel they don’t speak English well, especially those with creative suggestions but could not illustrate properly. Another example would be publicly reprimanding a Thai employee and causing him to “lose face”, affecting the employee’s willingness to work.)
Cross cultural communication problems is a huge challenge to the business as it could arise due factors like language deficiency and misinterpretation of message.
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3.7 | Short Term problems Human Resource Cerrotore has its own set of unique organization values and culture. It faces the challenge of transferring organization values and culture to Thailand operations whilst ensuring that skills needed for the transfer are accessible and feasible in Thailand.
Organization Dynamics Cerrotore’s diverse business operations in different national boundaries is tricky for effective communication, coordination and control. An effective organization design involves the degree of centralization, differentiation and integration. These are problems to consider when designing the organization structure.
Negotiation Negotiation process for an international business can be complicated due to different ideologies. Cerrotore needs to find a solution for negotiation to take place especially in cross-‐culture context. Negotiation may be regarded as manifestations of culture because it embodies an individual code of conduct oriented towards dispute resolution. (Aman Garcha, 2007)
3.8 | Long Term Problems Building a Team of Talents Cerrotore is expecting growth in its business operations, offering a wider range of products. For such growth to sustain, Cerrotore needs a team of talents. Challenges are faced in recruitment where there are strict hiring policies and the quality of the recruits correlates with Thailand’s education system. In terms of training, cultural differences and lack of language proficiency are major obstacles.
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4. Strategic Recommendations
4.1 | Sponsorships at Universities Recruiting fresh graduates from the university would be an effective solution for Cerrotore’s short and long term human resource issues. Cerrotore could better instil its organisational values into them as they have not adopted previous corporate cultures.
To maintain a team of talents, Cerrotore could offer scholarships and vocational training to undergraduates, these corporate scholarships are granted to the direct beneficiaries of employees so as to maintain their loyalty to the company (Wisconsin 2013). Working with universities to implement a program for Cerrotore’s industry helps save cost and time needed for training.
4.2 | Appointing Leaders with Intercultural Competence In the multicultural context of operations in Thailand, where positions are filled by Singaporeans and locals, communication problems and conflicts arise due to perceptual differences among employees (Ochieng & Price, 2010).
Therefore, appointing a leader with intercultural competence and respected by both locals and Singaporean employees could help improve the intercommunication in the company. These leaders could use their influence over the employees to disseminate information effectively due to their knowledge of the dynamics and linkages present in the company. However, it may take time for such leaders to develop its relationships with the different groups of the companies and not necessarily available at the time of entry.
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4.3 | Cross-‐Cultural Training for Managers Singapore managers should be sent for cross-‐cultural training, where a holistic approach of providing both cognitive and experiential engagement could better train the managers with intercultural competence (Irving, 2010). It would allow these managers to empathise the cultural differences, aware of communication symbols and thus able to make cultural-‐sensitive decisions.
4.4 | Managing the Mix of Parent-‐Country and Local Employees As the business is required to employ local workers, it is essential that they have a fair distribution of Singaporean and Thai managers. A proportion of locals in leadership position helps ensure non-‐discrimination and assists in spreading the responsibility and decision-‐making authority between Singaporeans and Thais; ultimately decreasing the perception of ethnocentrism as the business is perceived to allocate equal opportunities.
Local managers hold country specific competences and the business could leverage on the locals having exceptionally good relationships with other business counterparts. Therefore, it needs to strive toward an optimal mix of local and foreign management (OECD, 2002).
By matching an organisation’s bureaucracy to Hofstede’s Dimensions (Refer to Appendix 3), a Full Bureaucracy would prove to be effective while operating in Thailand as the locals are less comfortable with risks and thus require formalised systems with written rules. A highly centralised organisational structure is needed as it results in greater control, reducing uncertainty within employees.
4.5 | Formal and Informal Employee Orientation Programs While doing business in Thailand requires getting to know the business partners, a company has to first support its employees in understanding one another. Singaporean employees are uncertain about working in a foreign environment whilst Thai employees are uncertain about working for a foreign company. The typical formal orientation programs include seminars, presentations, training, mentorship etc which all employees have to participate in so as to know what is expected and how they can fit into the overall business goals. Informal orientations also play a major role.
4.6 | Effective Performance Appraisal Systems Since training is expensive, it is essential to evaluate the success of training programs. Performance appraisal is also used intentionally to improve employee performance (Tuytens & Devos, 2012). A performance appraisal system allows Cerrotore to consistently access the
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effectiveness of its training and the efficiency of its employees. Performance appraisal will allow Cerrotore and its employees to realise the areas of improvement; ultimately bridging the performance-‐expectations gap.
4.7 | Structured Career Development Plans It is a common belief that the overall level of developmental support provided by an organisation is critical to attract, motivate, and retain employees (Kraimer, et al., 2011). Career development motivates employees to work harder, and is a way to retain talents. Cerrotore can prevent talents from leaving the organisation to join a competitor’s brand by recognising their efforts and providing promotion opportunities. Potential leaders could be promoted to take on more responsibilities and serve as role models for the others.
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5. Action Plans for Recommendations
5.1 | Cross-‐Cultural Training Program By providing individuals with an explanation for norm violations in Thailand may be adequate to prevent cross-‐cultural bias (Castillo & Mallard, 2012). Employees who are assigned to Thailand’s office should go through a cross-‐cultural training. Before the assignment, cultural handbooks which include an introduction of Thailand’s historical, political, economic and cultural dimensions will be given out to all assignees. This gives them an overview of what to expect and be mentally prepared.
After which, an orientation will be organised for the expatriate and Thais to mingle and know one another better through activities that foster teamwork. This allows mutual understanding through interaction. In a country like Thailand where connections with people are emphasized, the business could mould its orientation programs using an informal approach to allow employees to socialize. Social activities like a company outing to Thailand’s attractions, or even a home-‐cooked dinner at a Thai manager’s house help create an invaluable friendship; reducing cultural miscommunication and enhancing work productivity.
5.2 | Operational Training of Thai Staff Cerrotore emphasises on the quality of services provided to its customers, hence the training of ground-‐work operational employees is critical. All employees have to go through a series of training programs before they can serve customers in the store. This includes an English language proficiency course which trains employees to converse in English and a customer service course which teaches the employees how to provide quality service. Simulations and role-‐playing will be adopted in the trainings to provide employees with a realistic context to learn how to handle real life situations.
After completion of these courses, they will be attached to a senior staff to go through two weeks of on-‐the-‐job training before they are allowed to serve any customer. Cerrotore could utilise the university sponsorship program to look out for potential employees to be emplaced into leadership positions in Cerrotore.
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5.3 | Performance Appraisal System Since Thais are face-‐saving people, performance appraisal has to be done properly without hurting their feelings. The management could devise a system to assess individual’s performance; ascertain if any problems arise due to inadequate or ineffective trainings; provide additional training and resources; and terminate employees who consistently fail to achieve goals when necessary.
The appraisal process could start with managers sitting down with individual employee to identify areas for improvement and if additional training is required. Then, managers could discuss their expectations and set goals with the individual. Checklists could be listed for employees to fulfil since Thais are less proactive and requires instruction.
Since the performance appraisal should be design in a way that it best fits the culture and employees, it requires a systematic approach to avoid embarrassing or hurting Thai employees.
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6. Appendix
Appendix 6.1 | Competitive Rivalry within Thailand Clothing Industry
Thailand clothing industry is now flourishing and experiencing a constant growth for the past fifty years. Consistently with the relaxation of international trade barriers, Thailand clothing industry generates the most revenue for the country. The country comparative advantages of cheap labour and property have attracted many local and foreign investors to want a piece of the market share. Especially in Bangkok city, many competitor international luxury fashion brands have already made their presence. Government of Thailand tries to promote its capital city Bangkok as a regional fashion hub and shopping paradise for luxury goods. (Tovikkai & Jirawattananukool, 2010)
Some of our competitors offering the same tier products in Thailand are COACH, D&G and Club 21. Buyer power is strong as consumers are spoilt with a wide range of similar choices. Thailand is renowned for its counterfeit products, these products can be cheaper substitute for AKB4 apparels although quality might be compromise. Adopting a geocentric strategy, AKB4’s supplier power is low as AKB4 can source for the best bargain in the countries it has its operations in. Barrier to entry to our trade is high as AKB4 is already an established international brand in the fashion industry.
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Appendix 6.2 | Comparison of Hofstede’s Cultural Dimensions
Appendix 6.3 | Organisation’s Bureaucracy and Cultural Dimensions
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