NEW YORK - Human resource considerations should be paramount when investment companies consider going global, and yet usually, they are given the lowest priority, according to Sheryl Colyer, global head of human resources at Citigroup Asset Management of New York. Colyer spoke at the National Investment Company Service Association east coast regional meeting held here earlier this month. The priority given human resources could be decisive in a company's success or failure abroad, she said.
Staffing is one of the critical issues for a company when entering new markets, according to Colyer. A company's approach depends on whether it is expanding overseas by acquiring an existing company or by building ones own, new operation, she said. Citigroup has both formed several joint ventures and made acquisitions in Latin America while it has created its own operations in Asia.
Regardless of whether a company chooses to build its own or acquire existing operations, companies must decide if they are going to hire locally or send workers from existing offices and pay expatriate costs, according to Colyer.
"We really need to think about this hard and fast and consider it up front," said Colyer. When going into other markets, there are certain skills needed, she said. In some cases, those skills will not be found locally. If some people have the necessary skills, there can be stiff competition for them and a company will probably pay a premium for the skills.
Companies should have specific plans with regard to expatriate issues, she said. When Citigroup reviewed its expatriate costs, it found that many people were "career expatriates," meaning they and their families lived abroad permanently, according to Colyer. That is not the best system because it does not make the best use of workers' experiences and because expatriate employees are, in general, more expensive than people hired locally, she said.
"What we've learned from this is to certainly have an exit strategy in terms of sending someone over to do specific things," said Colyer. "The plan is to train and transfer the skill and knowledge to someone in the other country or [to] rotate them out. We now look at the expatriate situation to be something not more than a 3-year assignment."
When a company buys an existing overseas operation, retention of the existing employees is a key concern. When doing a cost/benefit analysis and determining whether it is advantageous to go into another country, companies must figure in the cost of retention packages, according to Colyer.
"Often we don't [do this] and we have found that it is a significant cost to retain," she said. "We try to phase that in over time." Usually, it can be paid out over a two-year period, she said.
"What we have found is that if you're not careful with your comp and benefit packages and how you staff your leadership in these countries, you become the recruiting ground or training ground for other firms," Colyer said. "It's important to note that, if a company is entering that country, they will pay a premium for that skill that you have spent many hours and dollars training."
Furthermore, with regard to compensation, companies need to determine which jobs are global, meaning they require certain compensation regardless of location, according to Colyer. The majority of jobs are not like that.
"A one-size-fits all philosophy won't work," she said. "A pay scale out of New York may not be appropriate in Taiwan. Complications around a global pay scale severely disrupts the pay practices when you have other businesses in those countries."
Understanding what resources are available and at what cost, specifically with regard to human capital, is critical before moving into new markets, according to Sanjay Vatsa, vice president of global operations and business strategies and solutions at Merill Lynch Investment Managers of New York.
"In some countries, people are less expensive than gas and water," said Vatsa. "You have to understand the data mix in that country before you can adopt a process and implement a system."
While it is always important for companies to be explicit with regard to how they measure performance, it is particularly important when working globally because of the independence global offices are given, according to Colyer.
"It is so important to be clear on the success criteria in terms of how you are going to measure the employee that you have across the world," said Colyer. "I can't overemphasize this. We don't do a good job, in general, of being clear with the success criteria - how will you be measured? What are the goals? We [at Citigroup] don't do it well when they're sitting in the same office, never mind when operating around the globe. This becomes critical because of the way compensation is perceived [and regulated] differently around the world."
For example, Citigroup has encountered situations in Latin America in which an employee's pay and title are associated with what type of car they can receive, and in Japan, where regulations impede a company from offering stock options at the same time as salary. It is imperative to make it absolutely clear what benefits come with any given position, she said.
Having a clearly defined organizational strategy is also important when going into new markets, said Colyer. Companies can either have a functional structure, where employees report back to the central office, a regional structure, where they report to a regional business manager, or a combination of both, said Colyer. Citigroup uses a combination of the two. In Asia, Latin America and Europe, it has regional business managers to whom wholesalers and people with other functions report, but these people have a direct connection with and report back to the home office as well. Having that dual approach can be complicated, she said.
"There can be a lot of misunderstanding around who makes final decisions about things," she said. "In our structure, because we do this combination, it appears as if we are decentralized, when in essence we are very centralized because a lot of our decisions are really out of New York. We like to think we are making them in a decentralized fashion, but... the regions around the globe really are not as strong in decision-making as we would like them to be."
The goal is to make decision-making regional, but this has to be achieved gradually, she said.
"You want to get the decision-making to where the work is actually being done because you can certainly find yourself in this U.S.- centric thinking that does not hold true across the world," she said.
Culture is another critical factor, but is often overlooked because it is not tangible, according to Colyer. For example, when Citigroup Asset Management merged with an insurance company in Taiwan and got a part of its asset management business, the local Citigroup office was changed to the local name. That caused unexpected problems, according to Colyer.
"It was perceived [by employees] that it was better to work for a non-local entity and so the Citigroup name was important and [local workers] joined because of that," said Colyer. "When the name was going away and the local entity name would now be the name of the company, we ran into some severe retention issues because the employees identified with the name Citigroup as opposed to the local company, and they did not want to work for that local entity even though we would still be part of it. Don't underestimate or overestimate the brand name of your entity around what that means from an organizational cultural standpoint. And certainly when you're doing marketing to your customers, understand the implications to your employees."
Employees and resources need to be specifically dedicated to human resources when expanding globally, said Colyer.