9 Challenges You Face When Hiring in an Emerging Economy
Hiring and Retention in Developing Nations
Whether you’re hiring in India, recruiting in China, or opening an office in the Philippines, the obstacles are often the same. Because of their rapid growth, hiring and staffing a team in an emerging economy will always present challenges in terms of language, skills and retention. But if you equip yourself with a plan and certain expectations at the beginning, you can navigate the complicated waters of expanding your business into developing nations.
Why are Emerging Economies Such a Big Deal?
When most people think about emerging economies and developing nations, they tend to think of one word: “cheap.” But the importance of these countries far exceeds a single word. Rather, emerging economies often combine two specific things: 1. a rapidly growing economy that’s hungry for expansion and 2. an educated workforce that comes at low cost. Additionally, emerging economies are often friendly towards foreign companies because their governments recognize that investment is a means of fueling its economic growth. As an incentive to foreign businesses, governments often create special economic zones that bring in money, create local jobs, and helping improve infrastructure, all of which are received in exchange for reduced taxes and an ease of doing businesses for those companies that invest.
But the importance of emerging economies goes deeper. To give an example of why emerging economies are so important, consider China. Twenty years ago, companies wanted to be in China to gain access low-cost manufacturing to compete globally. Today, being present in China is about access to low-cost manufacturing and labor that not-so-coincidentally happens to be in the largest consumer market in the world. Those companies that were there at the beginning have a foothold that latecomers are trying to secure now. If you want cheap, you can get cheap in any number of countries that you may have never heard of.
Hiring and retaining people for your business amidst such a complex backdrop can be difficult and frustrating. To help you confront this problem, here are 9 challenges you’ll face when hiring employees in developing nations and ways to deal with them.
Challenges with Hiring in Developing Economies
1. Finding the Right Skills
A few years ago, I played host to two engineers from my office in India who were spending about a month in the United States for training. Though clearly intelligent and educated, I could tell from my phone conversations with them in the months leading up to their visit that they were missing some fundamentals. One day, while working in our test lab, I handed one a wrench and the other a test part, and asked them to disassemble it while I did something else. What followed was a lengthy exchange between them in their native tongue about what to do with the wrench.
When recruiting and hiring in a developing nation, you’ll face this type of challenge on a frequent basis and it takes effort to find talent that meets your need. Not to say it doesn’t exist, but it’s important to spend time finding the right people for your business. Remember that the norms you may be used to in your home country (such as knowing how to use a wrench) may not be common knowledge in the economy where you are trying to hire. Consequently, you may have to spend extra time screening candidates with practical questions in the interview to know what it is you will be getting. As for my Indian engineers, a short 5 minute lesson taught them a new skill.
2. Grasp of Concepts
Along the same lines as the previous point, finding people who understand the concepts and strategies of your business can also present challenges. To give you an example, four years ago, my wife and I hired a guide to do an all-day hike on the Great Wall of China (an amazing experience, by the way). On the drive from our hotel in Beijing to the Wall, the owner of the company, Gary (his English name), spoke to us about his little company. When I asked what his biggest business challenge was, I was very surprised at the answer. Marketing? No. Transportation and logistics? No. Funding? No. Gary’s biggest challenge, he said, was “finding local tour guides who understand what Western travelers want.” According to Gary, when Chinese tourists travel, they tend to visit a site for a brief period of time, then seek to spend the rest of their time shopping. Gary described how hard it was for him to hire employees who understood that Westerners were more interested in the site than shopping. It was the classic example, though, of how cultural and local differences can heavily influence the success of your business abroad.
When hiring talent in emerging economies, don’t be hasty. Find people who can understand and demonstrate knowledge of the concepts and nature of your work. This is not just a degree in a particular field. Rather, through your interview process, verify the candidate understands the principles and framework of your business. If you feel the candidate will challenge your system every step of the way, it’s best to keep looking for someone who makes a better fit.
3. Complexity of Labor Laws
It goes without saying that each country has its own laws pertaining to employment, so keep in mind that the rules and processes for hiring labor and paying employees in the local nation may differ significantly from your own. Some countries, for example, require employees to sign labor contracts with their employers that expire after a period of time (usually annually). Others require a minimum wage to be paid by employers to help stimulate the local economy. Finally, to open an office in a special low-tax economic zone, your company may be required to commit a certain level of investment over time in order to be eligible for all the benefits you seek. If this will be your first employee in that country, you should consider hiring a local consulting firm or a local expert in labor relations to ensure you are compliant with local law.
4. Competing With Pay Inflation
Another potential challenge you’ll face when recruiting and hiring in emerging economies is the potential for rapid increases in inflation and wages. Be sure to tie local pay increases to the economy you’re working in and not to the economy of your home nation. A business working with a 3% rise in wages in the United States will rapidly lose people in Indonesia, where wage increases are between 6% and 10%. In an economy abundant with opportunity, you will have to be on top of your game in order to remain competitive when seeking top talent, so be sure to go local when issuing merit raises and setting wage structures.
5. The Language Hurdle
An obvious roadblock, but one that cannot be ignored. The language issue can be something that can make or break a candidate (and your company!). Think about what it is that you need from this employee if hired, how you will be interacting with them, and how they will interact with their key stakeholders.
If the candidate you’re hiring will regularly interact with foreign colleagues in person, consider an interview setting that mimics the work environment to assess their comfort level. Conversely, you may want to intentionally talk to them over a phone during your interview process if they will be communicating with you mostly over the phone. One of the most frustrating challenges you will face when working across a language barrier is being unable to communicate effectively with the employee after they’ve been hired.
6. That Thing Called Intellectual Property
Something many managers overlook in today’s global business environment is the importance of hiring candidates who recognize and understand the value of intellectual property, or IP. Despite what the local government laws may suggest, your employees are really the ones who may ruin your attempt to retain your company’s ideas.
Simple questioning about how a candidate did something or achieved something in the past can help you assess their position on IP. For example, if they secured software for their entire team by loading one license onto multiple machines, you may want to educate the candidate about your company’s stance on IP and ethics. Similarly, if he or she says they passed competitors data to a supplier to get insight into pricing, it may be a red flag. And if they mention a website where they can download software for free as a means of reducing cost, you should be concerned.
7. The Unexpected Cost of Training
Growing a global business requires commitment. While most everyone wants to say they’re global, only with risk will you obtain the reward. This dedication can consume significant amounts of time, cash and patience, in terms of training and developing employees half way around the world. Travel expenses, phone calls, meetings, logistics, etc. Training your employees and making them effective at doing what it is you hired them to do is no small feat and one that should not be overlooked. Don’t underestimate the challenges of training someone 12 time zones away. If you try to be overly frugal, you’re setting yourself up for failure.
8. Employee Retention in Emerging Economies
Even if hiring in developing nations is not a challenge for you, retaining talent in emerging economies will be. Because there is such a demand for skilled people in emerging economies like India, Brazil and the Philippines, for example, jobs are plentiful. The result of this, however, can become a nightmare for companies trying to recruit and compete for the same talent pool; the company that moves into the building next door may pay 3% more than you, serving as a major threat to your ability to hold on to your staff. Fortunately, there is more to retaining employees than just salary, so be sure to create retention strategies that differentiate your firm.
Examples of retention strategies for employees in emerging economies can include the following:
1. To combat the cost of transportation and snarling traffic, get a company bus that shuttles employees to and from the office each day.
2. If the working hours of your offshore employees are unusual to ensure sufficient overlap with your home office, considering offering free meals to employees who will not be home for dinner.
3. Rather than recycling old IT equipment that you replace every few years, consider an employee buy-back program where employees can purchase the used equipment for far less than they could if new.
4. If cost-of-living is a challenge in the local city where your office is, provide a housing and food allowance to employees.
5. If local staff seeks more education but does not have the means to pay for it, considering offering classes after working hours to your employees.
Aside from legal restrictions, there are any number of things you can do to help retain the employees you worked so hard to hire and train. Be creative.
9. The Draw to Economic Zones
Though closely related to the previous point, this one deserves to be spiked out by itself. For those of us in the West where opportunity exists in nearly every city around us, remember that the same is not true in emerging economies. An unexpected byproduct of the special economic centers created by local governments is that they tend to draw people from elsewhere in the country. However, the trend also tends to separates families. Your employees in places like Pune, India or Shenzhen, China, for example, will often leave families, spouses and children behind in order to obtain work, returning home only once or twice a year. For this reason, consider (if possible) offering the employee a company-paid ticket home a few times a year, or fund to bring his or her family to them. Though the draw for work is very important, it presents you with a retention risk over the long haul if they opt to leave the job to be back with their families.
Emerging economies are essential to growing a global business, but when it comes to hiring and retaining employees in the local region, you are likely to face many challenges as described above. But by preparing yourself and establishing a competitive strategy to attract and retain a talented staff, you will succeed.