HRM Assignment Example – Case Study on La Gusto Coffee

The case study report is focused on La Gusto Coffee, an Italian coffee bar chain that is planning to expand its business to China. The report identifies several key HRM (Human Resource Management) considerations that are helpful for the company as it prepares to open its first stores in Shanghai and Beijing. These considerations include challenges related to major cultural differences, ad-hoc staffing policies, and ethical issues related to reward practices, and migrant workers.

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The report further also discusses the most effective IHRM staffing strategies(Welch, 1994) that La Gusto Coffee could adopt, including a geocentric staffing model. Moving forward, the report identifies several difficulties that an expatriate most probably faces while adapting to China, such as cultural differences, language barriers, administrative procedures, and social isolation. To overcome these challenges, the report recommended that companies should provide support and guidance in every possible way, to help expatriates adapt to their new environment.

Overall, the report highlights the importance of cross-cultural training, language support, administrative support, and support for housing, work-life balance, health, and social connection to help expatriates succeed in China. It also emphasized the need for companies to prioritize ethical considerations related to migrant workers and reward practices when setting up operations in China.

Human Resource Management Assignment – Case Study on La Gusto Coffee

Introduction

The success of every company lies in building networks and expanding their business. If a company decides to open its franchise and stores in other countries, they are in for a roller coaster ride. To increase revenue, meet yearly targets, balance the financial statements, and create a permanent brand, companies generally expand their business to other countries. No doubt this will double and triple the demand and business, but it’s not just that. There are many advantages agreed upon, but there are similar challenges too. If the challenges are dealt with professionally with smart tactics, then no one stops the business from becoming a huge success and generating a larger revenue than before (Jones, 1998).

Expanding business from Italy to China is smart but challenging to execute. La Gusto Coffee is an Italian chain and having around 30 stores in Italy and it also proved to be a successful venture in the UK, Spain, and France. Now it’s companies’ time to step foot into the Asian Market making it a successful venture too. The main aim of the coffee store is to expand the business and make it a unicorn brand shortly. Making a billion-dollar brand is not easy and the key to it is to open franchises and expand in the regions that have potential target audiences (Bates, 1995).

La Gusto Coffee chain is a loved brand in Europe and that’s the only reason the brand is trying to provide its quality to Asian markets too. Offering quality services and gaining the trust of the customers in a foreign market will not be an easy task but taking risks at this point of business is a smart move. The more experimentation in the right direction, the more success of the business.  The company is ready to take a leap of faith in the Asian territory hoping the China market will catch its unique services.

While expanding a business in a different continent altogether, there will be thousands of challenges but the main challenges that the company may face are listed below.

A. Key challenges

1. Cultural differences:
   There is no denying the fact that European countries have an entirely different culture than Chinese culture(Vaiman, 2015). Even though the time differences are not the same, there is a seven-hour gap. So, creating a business in China with a European brand will not just be challenging but also an intriguing task. The eating style, the preferences, the choice of clothes and food, everything will be different. But why will the coffee business have a chance of flourishing in China? Studies have shown that eight people out of ten prefer drinking coffee in China, and hence if the coffee company has done a detailed SWOT analysis, they can understand the preferences and flourish even in China.

   Moreover, Chinese people speak Mandarin, and Erupoe mixes French, Spanish, and English. Where European culture favors an individualistic approach, Chinese people are more family-oriented. So, grabbing the attention of the whole family towards the coffee will be a demanding task matter how deep dive into it, the cultural differences will never end. If a business is meant to flourish in the Asian continent, the efforts must be put in more than a hundred percent (Easterby-Smith, et al., 1995).

   People look different, people communicate differently, people pay in different currencies. Maintaining the overall balance will be a tedious task for the business. The coffee franchise has already opened up in the UK, France and other countries in Europe but due to the same continent there, the issue was not much. China being an Asian country having a grip on the market in the initial days will be difficult. But if these challenges and market differences are overcome, then the brand will successfully establish itself in China and can eventually grow in other Asian countries too.

2. Legal and regulatory requirements:
   The legal norms and policies are totally upside down in China and Europe. Shifting or expanding the business across continents will require a lot of paperwork and policy shifts. The brand owner will require patience to handle the process smoothly without any hassle. Well, saying without hassle would be the wrong term, because there will be a lot of hassle and until and unless the paperwork is not sorted, establishing the La Gusto Coffee Chain will remain a dream (Cooke, 2008).
   Even laws such as criminal law, land policies, labor laws, and contract laws should be considered and thoroughly understood so that companies will not get in trouble in the future in China. If all the paperwork and terms are done without any problem then one of the biggest challenges will be solved and a step will be taken towards expanding the brand and business in China. It is not as tough as we think, excluding a few major challenges but establishing a business should have a proper foundation and then only it can run perfectly and generate revenues.
3. Language barriers:
   Of course, European culture has languages mixed with English, Spanish, French, German, and Italian. But in China, the main communicating language is Mandarin, and only a few people know and speak English. If franchises are opened in Europe, it is easy to attract customers and communicate in an impactful way, which in turn adds to business growth and loyal customers (Selmer, 2006).
   Gaining Customer trust in a foreign land is a difficult task and will need local support. A translator will be needed at the starting steps to help you understand the Chinese market and get a hold of the needs of the customers too. Getting to know the customers, target audience, and a perfect place is not a day’s task. It will take weeks and even more to settle down the brand here successfully and effectively. Although once established, it will gain traction through the infrastructure and building, making the first customer and the loyal customer will be challenging for many reasons.
   Keeping all these barriers in mind, especially the language it will be a difficult task to establish a brand presence in China but seeing through the challenges at the opportunities is what a business person aims at.

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4. Recruitment and staffing:
   This is another key challenge the brand will face while expanding its business in China. The General Manager of the business can handle the operations from the headquarters in Italy, but here in China, too, one manager, supervisor, store manager, baristas, and other staff members should be hired. Now, conducting interviews, and finding the right person in China can be a tedious process. With the help of the General Manager, it is important to find a reliable source of contacts in China that can help find the proper staff for the business (Qiu Zhang, 2004).

Key cultural differences

1. Communication styles:
   The communication styles are different in Europe and China, which is very obvious. The Chinese mainly speak Mandarin and very little English. Even the people who know English prefer speaking their native language over it, which makes this expanding business task a lot more tedious (Chapel, 2002).
   Even if the brand image is already established due to the online platform, retaining and communicating with the customers will be a challenge. Social media services should be leveraged as much as the company can to build and create a brand faster. One of the most crucial things to keep in mind is that there will be competitors with this language advantage over the newly established European brand.
   Though Communication style will play a major role in building a customer base, the company has to understand that most of the business is in services and products. If the services they provide are top-notch, the rest of the things will happen through word of mouth.
2. Business Etiquette:
   Business Etiquettes define the ways by which the company interacts with other customers, suppliers, partners, and distributors. It will determine how business will grow and go. Handling business in a foreign land with completely different and alien business ways is a demanding task. The business has to follow the ways of China but of course, they can add their magic to it to stand out from the crowd (Pauluzzo & R., 2010).
   It is very crucial to maintain business etiquette while handling a business which is a very obvious thing. But while expanding a business to an altogether different continent this becomes even more important to understand the business etiquette of the region or continent you are in. La Gusto Coffee may be a leading business in Europe because it understands the European Market and has a grip on the market and customers and their needs.

   Coming to the Chinese market their etiquette and ways of doing business are entirely different. China has a different culture, Chinese brands follow a different way to market and sell their products and hence the business way of China will be different too. If La Gusto Coffee is entering a global continent market then it is important for the General Manager sitting in Italy to understand that business runs differently here and operations will be taken forward accordingly.

3. Work culture:
   Due to the time difference which is seven hours, the very first thing that is operating a business sitting in Italy headquarters to China is impossible, and hence hiring a General Manager in China who can maintain the work culture and understands it properly will be a requirement. The work culture, the holidays everything will be different and to manage it company has to play smart too in a practical way. Europeans love to have their freedom and work individually whereas Chinese people will prefer to work in teams and take the business forward that way (Cooke &F.L., 2009).

   Work Culture defines the success of the business and having a productive and defective work culture that brings out the best in the employees is a must. Though European and Chinese cultures can be different, the productivity of shops should not decline. Work culture barrier is a major concern but companies can use it to their advantage by playing smarter.

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4. Individualism vs. collectivism:
   European culture encourages people to work with an individualistic approach and work that way. This way productivity increases and everyone can contribute properly to the business with individual approaches and strategies for the expansion of the business.

   In China, people are more family-oriented and prefer to work in teams rather than individual work. Their collective approach towards working makes them better team players and helps them conclude with a decision of the collective team. No culture is wrong. Both cultures have their pros and cons but ultimately everything boils up to the growth of the business. Though both cultures are different, the company should adopt a continent-wise plan if it wants the business to flourish.
   These key challenges will be faced by the La Gusto coffee business no matter how successful they are in Europe with their franchises, expanding business in China will create a lot of demands and difficulties. China is a challenging market and the language barrier makes it even more difficult. However overcoming them and establishing a successful venture in China will be a game-changing strategy because once settled in China, they can practically kick off the business in all the Asian countries.

B. STAFFING STRATEGY

As a human resource manager, it is crucial to cover the hiring and staffing process with quality. It is not about selecting the one who came first base. A proper interview session will be conducted and candidates will be selected through the process. Hiring staff for the continent change business is a difficult task, but also without hiring someone, the business won’t work.

The General Manager for China, Supervisors, Store Managers, and baristas will be needed to get started with the coffee house. However, staffing is a tedious task because evaluating the interested candidates according to their language will not be a fair enough decision. Having only Chinese staff in the shop will be good but no diversity and work culture will be seen. Neither should be hiring done in a way that people sitting in Headquarters are given the tasks, this will show superiority towards the business, and without local input, there is no way it will survive in the foreign market with staff sitting in Italy.

The solution to this is following a geocentric method of hiring (Jiang, 2019). The economy is becoming global and reaching heights because of that. The staffing strategy should be planned in a geocentric way where staff members will from all over the place. Just just Chinese or Europeans but other cultures also. This helps in breaking down the cultural barrier and provides benefits to the company because of the variety and skilled staff.

If the company is being expanded to a foreign territory it is important to follow the geocentric approach for hiring the staff as they will all be from different areas and will be able to manage various types of customers without language issues. The geocentric hiring model allows staff members and teams to be versatile and best in their work. Having a local manager is a must who understands the business and market of the foreign market. There will be different cultural personalities in the staff and the organization/ shop will look like it fits the marketing needs of today’s generation.

Though this staffing strategy may have a few disadvantages like loss of local insight, hiring a local general manager will solve that problem. Also, the hiring process will become a lot more expensive to fund for various members, their salaries, living expenses, and other such expenses for the employees who come from different countries. But, a geocentric team can do wonders for the business and every penny spent on the team will be worth it when La Gusto becomes a billion-dollar brand.

Staffing and Hiring are important aspects of the business hence while choosing the staff the company should not only look at the surface but have an in-depth analysis of the person knowing whether he/ she is suitable for the job or not. Once the company has the perfect team in the foreign territory then half of the problem is solved here itself. Therefore, investing in hiring skilled candidates is never a bad option.

C. Difficulties of Expatriates

1. Differences in culture: Changing the country is an alien experience. Expatriates will face difficulties in adapting to the different cultural norms and practices in China, which will alter their ability to build relationships and work effectively with colleagues. To remove this, the company must provide cross-cultural training and support to help expatriates understand Chinese culture and build relationships with local colleagues (Reiche, 2018).
2. Barrier of Language: The language barrier will also be a huge challenge for expatriates.Since Mandarin is a complex language and is difficult to learn. To address this, companies should provide language training and support to help expatriates communicate effectively with colleagues and clients.
3. Administrative Procedures: Administrative procedures in China are not simple, and also sometimes it is time-consuming, which will be a frustrating experience for expatriates. To overcome this, companies should provide support and guidance to help expatriates navigate the administrative procedures required for living and working in China (Warner, 2010).
4. Accommodation and Housing: Selecting suitable housing and accommodation can be a daunting task for expatriates, particularly in large cities such as Beijing or Shanghai. Selecting an area, locality as per their needs, and distance from the shop will hugely affect their decisions. To overcome this, companies should provide support and guidance to help expatriates find suitable housing and accommodation and to ensure that their living arrangements are safe and comfortable.
5. Balance in Work and Life: Work-life balance is not easy in China. Since many companies prefer a strong work culture, long working hours and high productivity can be a daunting challenge for a new joiner. Moreover, as a disciplined country, they prefer everything on time. To address this, companies must prioritize a work-life balance and provide a supporting hand to help expatriates maintain a healthy work-life balance (A.U., 2014).
6. Health and Self-Safety: Health and safety can be a concern in China, especially in those cities where air pollution takes on toll. To overcome this, companies should provide support and guidance to help expatriates stay healthy and safe and to ensure that they have access to medical care when needed (Chan, 2012).
7. Social Isolation: Expatriates may also face social isolation and loneliness in China, particularly if they are living in a new and unfamiliar environment. To address this, companies should provide support and guidance to help expatriates build social connections and to ensure that they have access to social and cultural activities that can help them feel more connected to their new environment.
8. Understanding the legal and regulatory environment: Expatriates may also face difficulties in China’s legal and regulatory environment. Having a complex legal system, China prefers to strictly adhere to its laws that may be different from the legal system in their home country. Expatriates will struggle to navigate the complex regulatory environment, which will eventually lead to legal and financial difficulties. To cope with this,  expatriates should work with local advisors and experienced legal experts to navigate and understand the complex regulatory environment in China. This will help them to ensure that they are inclined with local laws and regulations and by this, they will avoid major legal and financial difficulties.

The key to overcoming these challenges is to provide support and guidance to the expatriates to help them adapt to their new ambiance. By prioritizing cross-cultural training, language support, administrative support, and housing support, companies can help expatriates succeed in China.

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D. Issues of European Countries Setting in China

When a European MNC is set up in China, ethical issues arise in the context of migrant workers, decent work (ILO), and rewards. These issues can have crucial impacts on the well-being of workers, as well as on the reputation and operation successfully in the company. It becomes essential for any  MNCs to prioritize their ethical considerations while setting up in China and to work to ensure that their operations are in compliance with relevant laws and regulations and that they adhere to international standards for labor and human rights.

Migrant Workers

Migrant workers in China are among one of the most vulnerable populations and they are often subject to poor working conditions. Migrants constitute a large portion of China’s workforce, and they may face issues such as stretched working hours, low pay, and limited access to healthcare and other benefits. MNCs have a responsibility to make sure that their operations do not contribute to the exploitation of any migrant workers. This includes implementing fair labor practices and providing adequate training and support for their workers. Companies must also work with local organizations and government agencies to address issues related to migrant workers (Hesketh, 2008).

Decent Work (ILO)

“Decent work” is defined by The International Labour Organization (ILO) as work that is work-productive, results in a fair reflected income, provides overall social protection, and allows workers to enjoy basic rights. Making sure of decent work for employees is crucial in maintaining a healthy and sustainable workforce. MNCs in China should stick to the standards set by the ILO and local labor laws to provide decent work for their employees. This includes addressing issues such as child labor, forced labor, and discrimination. Companies should also consider providing opportunities for professional development and advancement for their employees.

Reward

Reward systems in China are a concern for MNCs as workers may not be paid fair wages, and are provided with adequate benefits. This can lead to issues such as high turnover rates including low morale. MNCs must prioritize providing fair compensation for their employees to locate and retain their true talent. This includes providing fair wages, benefits, and opportunities for advancement. Companies should also consider implementing performance-based reward systems to motivate employees and promote productivity.

Overall, ethical considerations are considered as a critical factor for MNCs setting up in China. Companies must focus on their fair labor practices, ensuring decent work for employees, and providing fair compensation. This apart from supporting the well-being of workers, also contributes to the overall success and sustainability of the business. MNCs should work hand in hand with local organizations and government agencies to promptly resolve issues related to migrant workers and to ensure compliance with local labor laws and international standards. By prioritizing ethical considerations, MNCs can build a positive reputation and contribute to the development of a sustainable workforce in China (Easterby-Smith. 1995).

Conclusion

The case study report on La Gustocoffee’s of Italy in expansion to China signifies the importance and necessity of considerations of HRM while entering any new market. The report identifies numerous challenges that are related to major cultural differences, inducing staffing policies, and emerging ethical issues that the company needs to address beforehand to succeed in China.

The report emphasizes the importance of adopting an effective IHRM staffing strategy, focussed on a geocentric staffing model, to make sure that the company has the right talent in place to operate smoothly in China. Moreover, this report also provides several important recommendations for overcoming the discrepancies that an expatriate may face while adapting to China, such as cultural differences, language barriers, administrative procedures, etc.

The report further highlights the ethical issues that relate to all migrant workers and reward practices that companies need to take care of when setting up operations in China. Given the growing concern over decent work practices and migrant worker rights, companies need to ensure that their operations comply with ILO standards and local regulations to avoid any negative impact on their brand reputation (Mak, 2012).

Overall, the report emphasizes the importance of cross-cultural training, language support, administrative support, and support for housing, work-life balance, health, and social connection to help expatriates easily settle in China. Furthermore, It also underscores the need for companies to prioritize ethical considerations related to migrant workers and reward practices while setting up operations in China.

As La Gusto Coffee plans to expand its business operations in China, the company must carefully consider the important HRM considerations to ensure that it operates successfully in this new market while also upholding ethical standards and maintaining its brand reputation. By looking at these factors, La Gusto Coffee can position itself for success in China and can achieve its growth objectives in this important market in the long run.

Recommendations

To help the company expand the business and flourish exponentially, I would like to add my suggestions and recommendations to the topic which might make this whole business expansion process a lot easier for the business.

1. The staff should be educated about the continent expansion terms and keep them fully prepared for the same so that sudden shocks and surprises can be avoided.
2. Cultural differences will be a huge barrier while expanding business and hence providing cross-cultural training to the staff members will be an amazing step towards better growth. This will ease the process of expanding the business.
3. When staff is shifted or moved from Italy to China, the company should make sure that the employees are provided with travel and accommodation facilities. After all, they are the backbone of the business, and moving to a different place is as new to them as it is for the business.
4. The company should introduce paid leaves, bonuses, and incentives which is performance-based to the employees which will encourage them to work from a foreign land and be their most productive selves.
5. To meet the financial yearly goals, the company should be in cost-saving mode in the first quarter to save money and achieve goals.
6. While expanding the business, the company should choose a place with low rent costs to save capital on fixed assets.
7. The company should take care of the health benefits and provide medical insurance to the employees when needed showing that their employees’ health is the top priority.

Providing these benefits to the employees will make them trust in the company and in turn will be productive and yield better results which will be an asset for the brand.  These were a few recommendations from my end which if the company incorporates then the challenges faced will be less while expanding the business.

References

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