Going global: upgrading management capacity

Economic globalisation in the region has created tremendous opportunities for SMEs to access new markets…however, only a few SMEs are able to make the best of these opportunities, partly because they often lack effective management systems.

After years of driving his business forward, with a high-energy, hands-on approach common to owners of SMEs, Pablo Garcia decided to “just step back.”

He introduced a devolved management style, allowing his talented and motivated employees a high degree of freedom to make decisions on research and development, operations and other aspects of the business.

“This meant I was able to work on the business (in a strategic role) rather than within the business,” says Mr Garcia whose companies Manzana and 2Touch Technologies develop and sell teaching and learning tools such as interactive whiteboards for classrooms.

“And I observed with a good deal of pleasure that if I left for a month, the place wouldn’t tip over, it would keep running on its own,” he says.

“And that reassured me because, of course, that’s the mark of a sustainable business.”

Mr Garcia’s business, which has expanded from New Zealand to Australia and is now targeting the US and Great Britain, is one of 10 case studies detailed in a new APEC project report. The report aims to help Small and Medium Enterprises (SMEs) in the region better understand, through the experience of others, the importance of strengthening human resources management to take advantage of global trade. It describes real life issues and problems that these 10 diverse SMEs faced – such as attracting, developing and retaining a skilled, motivated workforce - as they grew and entered new markets, and the strategies and practices they deployed to overcome them.

“SMEs constitute over 90 percent of enterprises in the APEC region. Despite their number, less than 10 percent survive beyond the enterprise founder’s lifetime,” says Reiko Toyoshima, a program officer from Japan’s Institute for International Studies and Training, which spearheaded the project.

 “This low survival rate is often attributed to the fact that most SMEs have not established appropriate internal human resource management structures, which are considered critical to attract, develop and retain a quality workforce for enterprises’ competitiveness,” she says.

“Meanwhile, economic globalisation in the region has created tremendous opportunities for SMEs to access new markets and to collaborate with foreign investors,” continues Ms Toyoshima, who has been organizing various projects for APEC’s Human Resources Development Working Group.

“However, only a few SMEs are able to make the best of these opportunities, partly because they often lack effective management systems to develop human resources that can cope with the various challenges of liberalization, including stringent international market requirements.”

Building SME Human Resource Capacity

The report is a useful standalone reference for SMEs wanting to compete in the global market. But APEC has taken this further, developing a program aimed at building the capacity of SMEs to strengthen their human resources management – using the report and its case studies as teaching materials. A framework has also been developed (based on analysis of the case studies) to guide SMEs on some steps to take to upgrade their human resource systems.

The program was trialed last year in Seoul in the form of a seminar – with Korean SME owners, representatives of large companies with SMEs in their supply chain, officials from government agencies and others taking part. Most gave the seminar, with its interactive format and in-depth discussions, top marks and described the teaching methods as “extremely effective.”^[1]

“The participants were able to learn lessons from the diversity of SME cases of different economies, some of which included unique business operation and management know-how in the global market,” one participant said.

Ms Toyoshima says the program now needs to be replicated in other APEC economies so that more SMEs can benefit, and follow-up programs developed to equip SMEs with practical measures and methods to introduce human resources management changes.

Challenges for SMEs: Upgrading Skills

One difficulty SMEs often face is how best to strengthen staff skills to meet the growing needs of their business, the APEC report says. Some of the case studies describe their strategies – including VietSoftware International Incorporated, a software development and services company based in Viet Nam. Since 2006, the company has grown from some 20 employees to about 200, providing IT outsourcing to global clients.

A key concern for VietSoftware was the qualifications of local software engineers and other workers, which were often lower than international standards. Poor English language, inter-personal and other “soft skills” needed to interact and build relationships with foreign clients were also lacking. Chairman and CEO Le Xuan Hai says the company established a training department.

 “Training needs are collected and analyzed by the training department who then will come up with a plan, and, after the plan is approved by management, training activities will be implemented,” Mr Hai says.

As well as intensive in-house training and coaching, the company encourages staff to obtain certificates in training courses identified by the company. The company pays between 70 and 90 percent of the costs of these courses and awards bonuses to staff that successfully complete them, he says.

For Mr Garcia, the New Zealand entrepreneur, a challenge has been to develop a workplace culture of creativity and innovation. His team needs to be highly motivated to create and sell cutting-edge products – such as interactive teaching aides. He introduced a goals metrics system, to encourage staff to develop ideas that could make a significant contribution to the company. As well as annual salary reviews and quarterly performance reviews, employees were rewarded if they successfully developed their idea.

Another challenge was retaining young, educated and talented employees who are “easily tempted to greener pastures.”

“The skills that we need are out there and there is a lot of competition for those skills,” he says. “These days it’s hard to keep young people for three years.”

As well as paying competitive salaries, he started offering “incentives that perhaps are less financial but more lifestyle orientated.” Workplace social activities were introduced, and, for example, staff are taken out to lunch once a week. Flexible working hours and arrangements have been put in place with some staff often working from home.  

“That flexibility seems to be a large part of keeping our guys on board,” he says.

Despite these successful practices, Mr Garcia says his human resource challenges are ever present. Now that his company is eyeing new markets on different continents and in different time zones, new strategies are needed.  But he is determined to find the right ones to expand his business. This is a global world, he says, and “we need to spread our wings a bit.”

[1] The comments are based on a feedback questionnaire sent to all participants of the seminar.