Starbucks Corporation (Starbucks) is a specialty coffee retailer of hot and cold beverages, coffee-related accessories, complementary food items, teas, and other non-food related products. Starbucks has retail stores in 39 countries and about 146,000 employees. The company operates primarily in the United States (U.S.) with headquarters in Seattle, Washington (Starbucks, 2007).
In the early 1970s, Starbucks was established and the first location was in Seattle’s Pike Place market in 1971. By 1982, Starbucks began supplying coffee to restaurants and coffee shops. Starbucks expanded the business in 1996 to new locations in Japan, Hawaii, and Singapore. Other locations in Taiwan, New Zealand, Thailand, and Malaysia were created in 1998. Starbucks continued to expand globally in 1999, by reaching locations in China, Korea, Kuwait, and Lebanon (Starbucks, 2007).
In a hypothetical situation, Starbucks will acquire a similar business in Mexico. The company will explore locations within Mexico and identify the human resource (HR) challenges that will arise from this expansion. Mexico has unique cultural and regulatory factors that need consideration for the development of Starbucks stores. The organization’s effectiveness to succeed in Mexico is dependent upon solving any issues that result from the growth of Starbucks in a new country.
Starbucks will address recruitment and selection practices to use in the newly acquired company. Another HR decision is determining the appropriate mixture of expatriates and nationals to ensure the acquisition is successful. The skill and abilities of employees, along with training and development practices, are an essential part of the company’s organizational strategy to achieve goals. The HR department of Starbucks has a considerable amount of research and decision making to ensure this acquisition successful.
Mexico’s DemographicMexico is prepared to become the wealthiest country in Latin American between 2008 and 2010 in basic gross domestic product (GDP). The middle class is expanding with employment growth and rising incomes. Mexico has the second highest population in Latin America after Brazil. The population is young, with the average age of 27.5 years in 2006 (Country Insight, 2007). A survey in 2006 found, in the United States, that 30% of new customers are college graduates and the average age of a new Starbucks customer is 42 (Harris, 2006). Retail investors view Mexico as a major attraction because of the large size of the Mexican market (Country Insight, 2007).
Tourism in Mexico plays an important role in the economy. Past presidential elections and hurricanes have steadily declined tourism, but latest indications show that the industry is marketing toward higher-end tourists who are willing to spend more (Country Insight, 2007). The increase in tourism with high-end vacationers will produce a good market for Starbucks.
Human Resource ChallengesUnder the Mexican labor laws, an employee’s daily minimum wage must be at least U.S. $4.50, and includes minimum statutory fringe benefits. Very few Mexican residents receive this low minimum daily wage. The fringe benefits include annual vacation compensation of at least six working days at 125% of the salary, an annual bonus of at least 15 days of salary, a profit sharing program that equals 10% of pre-tax earnings distributed among all employees except high officers, and variable payroll contributions for Social Security and worker’s housing. Social Security contributions can be as high as 22.57% of the payroll salary. Worker’s housing contributions are 5% of the payroll salary (Abogados, 2008).
The basis for severance payments for termination cases is the actual daily salary of the employee. Salary can consist of any type of bonus, commissions, and any other payment that provides additional economic benefit and may include cars or club fees. To calculate the severance compensation, divide the total of all these services in the last calendar year by 365 or the actual period worked in the year. Severance payments are also dependent upon the type of termination (Abogados, 2008).
The three types of termination are termination with fair cause, termination without fair cause, and termination by mutual agreement. Termination without fair cause allows the employee to collect three month’s salary, 20 days of additional salary for each year of employment, a seniority premium equal to 12 days for every year of employment, prorated vacation, annual bonus, and profit sharing for the year of termination. These additional salary requirements continue to accrue after the date of termination until the date of payment. Termination with fair cause permits the employee to many of the same benefits except the three’s months salary and additional 20 days. Employees generally do not consent to a mutual agreement unless termination compensation exists. This payment usually equals less than the termination without fair cause (Abogados, 2008).
Many of the employment laws in Mexico are similar to the United States. The right to form unions, the right to worker’s compensation, the right to safety, the right to be free from forced labor, and the right to be free from discrimination. Mexicans must consist of at least 90% of the employees in a Mexican company. According to the Commission for Labor Cooperation (n.d.), the most important Mexican labor and employment law to realize is “there is a single court in every state that deals with most labor and employment disputes, including collective labor relations, unjustified terminations, disputes about whether an on-the-job injury occurred, and equal pay problems”(p. 1).
In Mexico, to discriminate against workers because of sex, their social status, political opinion, disability, ethnicity, national origin, or age, as well as other grounds, is illegal. Overtime pay in Mexico must equal twice the amount of regular wages (Commission for Labor Cooperation, n.d.). In 2007 and 2008, the government is pushing for a new labor market bill to reduce the strictness in employment legislation. Congress must obtain a two-thirds vote to pass this bill and that will be complicated. Shortages of skills remain an issue in Mexico (EIU Viewswire, 2006).
All the regulations in Mexico that differ from those in the United States will present challenges for Starbucks. Hiring a consulting firm or a group of attorneys who are well versed in the Mexican labor and employment laws will aid Starbucks in understanding and interpreting these laws. Going global can be risky if performed improperly and leaves no room for wrong interpretations of the laws and regulations. Understanding the daily wage versus an hourly wage, discrimination policies, along with the termination packages can affect the profits of Starbucks immensely.
Starbucks must evaluate the turnover, labor, and skills availability in the Mexican market. The need for multilingual employees is a necessity to serve the members of the community and the tourists. Scarcity of workers who speak English is a common problem for investors. Mexico, a country much ridiculed from those critical of the United States trade agreement because of its lower labor costs, has observed companies adjust investment decisions. Skilled labor is an issue receiving more attention as companies seek low-cost sourcing programs and workers with a high competency in English (Jackson, Houdard, & Highfield, 2008).
As Starbucks and other companies look to venture into Mexico, the need to understand cultural differences and to study different management practices proves critical. Attention to human resource management is necessary when making strategic choices in the various business avenues available in Mexico. Researchers believe that most companies do not give enough attention to human resource issues. To maximize performance issues such as recruiting, selection, training, compensation, and performance management that require thorough planning and organizing human resources, strategic management is a requirement.
Understanding these human resources issues contributes to employee motivation, performance, satisfaction, and empowerment. These factors are critical aspects to an organization’s effectiveness. The common personnel problems that companies encounter are in the areas of loyalty, staffing, decision-making, promotions, compensation, and performance management. Human resource management practices can be the most challenging undertaking for companies, especially when handling cultural changes (Rao, 2001).
Mexicans view joint ventures as an opportunity to increase their economic status and as a career opportunity. As more companies move to Mexico, U.S. practices are becoming more acceptable. The ideas of quality circles, flat organizations, teamwork, pay-for-performance, and a careful selection process are more customary. In Mexico, the cultural view of work and personal life activities intermingles. Because of this attribute, hiring and recruiting mix both personal and work activities (Rao, 2001).
Commonly multiple interviews for managerial level positions are performed in an effort to select a candidate who demonstrates a good fit. Hiring qualified personnel with joint ventures will achieve the company’s objectives. Developing a strategic recruitment practice to generate a qualified labor source to ensure effective employee selection is recommended. Employees with adequate technical, organizational, and interpersonal skills should be selected. Bilingual skills are very important in the selection process. Social referrals are widely used in Mexico in the selection process.
According to Rao (2001),Social referrals are used. However, the credentials are looked at only as a courtesy. The credentials are not looked at close enough. I specifically know a couple of social referrals, known to the upper hierarchy, who did not perform up to the company standards. These employees had to be removed, taking care, that no disruptions were caused in the social hierarchy. Social referrals are both good and bad. On the positive side, employees are sometimes the best recruiters (p. 16).
Mexicans have a strong sense of loyalty toward their bosses. The idea of corporate loyalty is not part of the culture. This results in high employee turnover. To increase organizational loyalty, frequently conducting company-oriented training sessions assists in conquering this issue. The training sessions help develop and instill a sense of commitment, loyalty, and understanding of the company. Orientation programs should provide information on the company’s mission, goals, and strategies that provide the employees with opportunities for socialization, which is valued, by the Mexican employees.
Rao (2001) states that U.S. companies usually placed low emphasis on such training programs and invest little. Both U.S. and Mexican companies consider training costly, but many joint ventures have found training programs to have considerable benefits. Ford’s executives believe the joint venture with the Hermosillo plant in Mexico concerning the training and development programs are the main reasons for increased commitment, satisfaction, and a reduction in employee turnover. Starting with selection and all the way through retention practices, human resource policies can influence employee satisfaction and motivation and consequently the performance of the organization (Rao, 2001).
Based on the research of human resource practices and polices in Mexico, the recruitment and selection process can be based on social referrals. Using the existing employees acquired through the purchase of a similar company, Starbucks will continue using the social referral policy. At least two expatriates with Spanish speaking abilities will be sent to each Starbuck’s coffee shop to oversee the transition. This will allow coverage for all shifts. All other employees will be nationals. An assessment of skills necessary for the positions will completed to ensure all skills are identified.
Goldstein’s model, which consists of the assessment phase, the training and development phase, and the evaluation phase, will be used (Dreher & Dougherty, 2001). The employee skills necessary will be bilingual, with good interpersonal and communication skills. The employees must possess a cheerful attitude. The ability to read and follow directions in making different items on the menu is another necessity. Establishing relationships with local colleges will prove beneficial in hiring personnel with these abilities in conjunction with the social referral method. Training sessions on the procedures will be offered with face-to-face, hands-on sessions.
In auditing the effectiveness of the human resource management, the collection of data will be performed. The data will include hiring statistics such as the acceptance rate, hiring rate, and hiring projections, turnover ratios, exit interviews, employee complaints, and the human resource budgets and expenditures. The level of complaints will consist of, but not limited to, discrimination, harassment, and safety. Another method for auditing will be internal interviews asking what are the perceptions of the company and its goals, the strengths and weaknesses of management, the relations with coworkers, what HR functions work well and what needs improvement, and any other issues the employees cares to discuss. Customer satisfaction cards will be available at all Starbucks locations to obtain results concerning customer service. A legal audit of personnel files and recordkeeping, pay equity, job descriptions, legal postings, Equal Employment Opportunity, Affirmative Action, Worker’s Compensation, and other Mexican legislature is a requirement.
As Starbucks moves into Mexico with the recent acquisition, many human resource management obstacles will be observed. Understanding the difference legislation Mexico has compared to the United States will be a large undertaking. Complying with these laws while being profitable, will determine the market prices for the coffee products. Reducing turnover, hiring the right people, offering a high-level of training and development is a critical factor for Starbucks. Understanding the culture, along with the skills and abilities necessary to provide excellent customer service will determine the success of the company. Audit results will provide the HR department with information to improve the process.
If Starbucks follows the guidelines of Mexico, while instilling U.S. policies, a successful and profitable business should develop. Working in a foreign country can be successful or a failure. Understanding the culture and values of the country, as well as the people, will provide opportunities for Starbucks, the Mexican government and the Mexican people.
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