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Challenges of Managing Operations and Personnel in a Foreign Subsidiary

Global trade has undergone rapid and significant changes in recent decades. For instance, globalization has increased trade between different nations, allowing the smooth transfer of information, goods, and services. With most of the world’s population living in the emerging and developing markets, the international trade is consistently shifting from basic need to consumption-oriented economy. This has led to the emergence and growth of multinational enterprises that control about 20% of the foreign global trade (Oppong, 2018). Nevertheless, managing operations and personnel in foreign subsidiaries face numerous challenges that require effective solutions to overcome. 

Effective management of operations requires a stable political and economic environment. However, this is not the case in most emerging economies that are always associated with all forms of instabilities. Despite relying on foreign investment to drive their economies, most investors fear investing in politically and economically unstable countries due to potential eruption of wars, civil unrest and coups that may result in massive losses.  Political instability increases political uncertainty which slows down the economic growth as investors cannot make informed and productive economic decisions (Jalloh et al., 2017). It also affects the organization’s ability to gather, utilize and distribute raw materials, products or services to the desirable customers.

Inadequate or underdeveloped industrial infrastructure is traditionally associated with emerging markets. Infrastructure deficiency affects business operations due to high operational costs associated with the self-provision of infrastructure. For example, manufacturers can neither obtain raw materials nor supply their produce to the customers in time.  In the end, the high cost of operations attributed to poor infrastructure will result in poor performance and losses. These negative outcomes are always felt in both the social and economic sectors. When people cannot sell and buy, the economy declines, leading to poor living standards and poverty.

Additionally, government bureaucracy and poor regulations policies significantly affect the management of personnel in foreign subsidiaries. For example, some policies may aim at protecting the local monopoly companies and local workers by increasing taxes to foreign subsidiaries. Therefore, companies trying to enter such markets will face significant challenges that may force them to exit. Some compliance policies require foreign companies to employ the majority of local workers, who may not possess the required expertise. This may result in the additional cost of training local workers to meet the required standards or importing qualified personnel.

Today’s businesses are increasingly contributing to the environmental degradation, emission of greenhouse gases and destruction of the existing ecosystems by overusing the available limited natural resources (Żelazna et al., 2020). The call for sustainable business models to address these challenges has a serious impact on operations and personnel management. Organizations have to incorporate the right technology, which requires the right personnel and infrastructure, to run businesses that positively impact the environment, society and economy. The creation of corporate social responsibility defines the roles of organizations in solving these global challenges. Despite being voluntary, social responsibility is increasingly becoming a regulatory requirement. Therefore, corporations spend a huge amount of money to design and implement business models that positively contribute to the development of society, economy and environmental protection. The investment capital may be even larger in developing economies due to other challenges such as poor infrastructure, policies, and technology.

Smooth management of operations in foreign subsidiaries requires establishing go-market strategies to help foreign businesses succeed in adapting to the new environment. Entering new markets involve facing new challenges such as economic instabilities, inadequate infrastructure, and unfavorable regulatory policies. Therefore, management must learn from past mistakes, if any, and understand what works best for the company and customers. A good understanding of the new markets also provides management with the necessary information regarding competitors and local supply chains. This information may help formulate effective business strategies to help grow the company above the competitors.

Finding the right partners and building strong relationships with local businesses and the government can significantly help nurture and train the local workforce instead of importing qualified personnel. With their local expertise and knowledge, local partners can bring many benefits. For example, working closely with local logistics and storage firms may expand your access to new customers. Having the right partners can also help managers establish effective teams to drive their strategies and achieve success. Moreover, working closely with the government and other business is good for enhancing corporate social responsibilities through joint ventures and investment. Herawaty and Raharja (2019) noted that joint ventures could add value to the existing supply chains and distribution channels by combining the available knowledge and resources. 

In conclusion, emerging markets are increasingly becoming the new focus points as they harbor the majority of the global population, meaning potential customers and consumers for different products. Taking advantage of the globalization and favorable foreign trade policies, multinational enterprises have continued to enter new markets. Despite their success, the operations and management of foreign subsidiaries have remained a great challenge owing to numerous factors, including poor infrastructure, instabilities, and cultural barriers. Therefore, it is imperative to overcome these challenges to develop sustainable business models that increase productivity and profits.

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