Age gap in the technology industry

Welcome to Observateur’s second blog about globalization and global indicators!

This week, we welcome a new team member in our team, Ivy. Ivy is from China and finished her exchange semester in Germany a while ago. Now, she is a final year student in marketing.

For this second blog we chose age gap as an indicator in order to analyse human resources management in the technology industry from a global perspective. Globalization has made boundaries more permeable where distance becomes almost irrelevant, it also has increased the expansion of international commerce and the growth of many MNC’s, including those from the technology sector. As companies are seeking for strategies to overcome the challenges posed by globalization, their employees had slowly become a source of differentiation, managing experienced versus talented workers is a major issue in the technology industry. In this blog, we will collect data from 2 important MNC’S in this particular industry which are IBM and Microsoft.      

Table 1: Age gap between the two countries representing the two regions

Companies/Countries	USA	China
IBM	45.6	32
Microsoft	44 and +	26.5

Table 2: Employee tenure rate

Companies
IBM	8
Microsoft	3

Why there is an age gap between employees from the East versus employees from the West in the technology industry?

We will answer to this question by analyzing 2 different aspects: the rapid evolving market in this particular industry and the saturated knowledge but experienced employees from the previous generation versus the new talented generation with great potential.

1    The evolving market of technologies

  

The history of IT development in most part of Asia is not as long as that in US. Take China for example, IBM, Microsoft entered into China market in late 1990s, while DELL began its business in China in 2005. The education of IT and high-tech started late in China. Not many Universities provided programs for IT and high-tech until 2000. After 2000, a large number of IT and high-tech graduates started their career in this industry. So the average age of IT employees in China is quite young. 

IT industry is a fast moving industry. The employee’s turnover rates remain high in Asia. The reason for high turnover rates varies among different countries. The average salary of Asian employees is not as high as that of American employees even for those working in different branches of the same company. A large number of Chinese IT employees leave the industry after working two to four years, so more than 50% of Chinese IT employees only have an experience of less than four years. Situation is different in India; many India IT employees seek to find jobs in US. Very few Indians can get degrees higher than bachelor. Most of them choose to go to America after graduation. If a company has a high turnover rate, it will be not healthy for them to grow. The costs of hiring replacements and training new employees will be very high. The high turnover rate might become an obstacle for the development of the whole industry in the long term. So managers in IT companies such as IBM, Microsoft and Dell should consider how to keep employees in Asia market. Companies can provide employees with higher salaries, better working environment and welfares.

2    Experience versus talents

Age discrimination in IT industry exists in both America and Asia. But the situation in Asia is worse. In America, if you are above 45 years old and work in IT industry, it will be impossible for you to switch to another company in the same industry. But if you are an IT employee in China, you will be considered old when you turn to 30. 

Employers in Asia tend to hire young graduates. They think employees in IT industry must keep learning new knowledge to make themselves competitive. It will be easier for young graduates to be fast learners. And employees need to work intensively to catch up the project schedules. This kind of task requires them to have bodies in good condition and being able to work under great pressure. Employers think it will be hard for staff older than 30 to manage the projects.

On contrary, American employers value experience more. They prefer experienced employees neither too young nor too old. After many years working in IT industry, many American employees become expert in this field. They can get high salaries and be respected by their colleagues and the society. But in Asia, due to culture differences, the society looks down to technical staff, including IT technical employees. If Asian technical employees do well in his job, they will be promoted to manager. Some of them find they can achieve higher social status and higher salaries as managers; they just leave the industry and go to other companies to pursue a better career. Other technical employees who have been promoted know nothing about management. They struggle as managers and end up leaving their companies.

To solve these problems, managers in both US and Asia should eliminate age discrimination. Managers in US need to treat employees equally regardless of their ages. When US companies, like Microsoft, Dell and IBM, expand their business to Asia, they should stress on long term benefits and pay more attention to employees’ experience and professional skills. In addition, more scientific management systems which can help promoted technical staff to perform better at work should be built in Asian companies.

How MNC’s in the technology industry manage its global workforce?

In this section, we will have a closer look of the internal HR policies in the two companies mentioned above and the purpose of such practice.

IBM: Globally integrated enterprise

According to IBM’s CEO Samuel Palmisano, the vision of a globally integrated enterprise is about doing the right tasks, with the right skills, in the right places. This vision about IBM posed significant challenges for IBM’s human capital and its approach to human resource management. The IBM case study by Boudreau stated that IBM had to face with the problem of how to deploy its more experienced and expensive workforce located in developing countries to projects that increasingly were located in developing countries, while at the same time up skill the developing-country workforce to offer IBM a long term cost and effectiveness advantage.

In order to solve this problem, in 2003, IBM projected a unique program calls workforce management initiative (WMI) with a forecast cost of more than US$100 million over the course of five years. By definition, WMI at its core is a series of strategies, policies, processes and tools that enable optimal labor deployment, built on a foundation of learning. 

On the figure posted below, we can see that the development team of WMI has thought clearly about different challenges that IBM is dealing with and that they needed to change in order to transform its HR management strategy to one’s of its strength.

This investment made by IBM was indeed a strategic decision in terms of international HR management and the expected payoff is now a reality. IBM job’s repertoire has shifted from a million individuals to only 331 roles. In some cases, this achievement can give IBM analysts an understanding whether certain qualifications and experiences are associated with improvement in sales quotas or not. There is only one global application transaction thanks to the data base system by WMI and this centralization is solving the talent supply management issue. Using the same language to communicate (defined by the Taxonomy) has improved capacity management by matching demand and supply more accurately and efficiently. The number of idle workers is decreased and the fill rates are improved to over 90% in global delivery.

This system helped IBM to move one step toward its CEO’s vision of a globally integrated enterprise. Over five years, IBM invested US $230 million in this project but received a large sum of US $1.5 billion benefits!

Microsoft: enable people and businesses throughout the world to realize their full potential. 

Microsoft is considered by many as an ideal place to work, and the company has won several awards for its commitment to diversity and their flexible work arrangements in the past. Since 2005, Microsoft aimed to be an employee-driven organization by offering employees flexibility, work/life balance, flexible benefit plans. According to Priyadarshini, Microsoft has adopted the `` Performance Culture Model`` as the best approach to drive its success where all the critical people metrics are categorized and measured. There are up to nine different categories such as diversity, talent management, manager capability, etc. with many performance measures.

                                          Microsoft India HR growth model

From the beginning Gates said that his employees were the greatest assets of the company: `` it’s the effectiveness of our developers that determines our success`` and `` take our 20 best people away, and Microsoft will become an unimportant company``. The Placement Offer data over the past few years has confirmed that Microsoft is an aggressive recruiter and is often the first company to offer jobs to elite graduates, as well as head hunting talents at others companies. Microsoft values their employee’s creativity and analytics abilities rather than their experience.

Hiring the right people is very important for Microsoft, they adopted the ``n minus 1`` strategy which means less people are employed than are required. It is crucial to hire the right people rather than just filing a position. Microsoft also focus on motivating its workforce, the HR department invest in understanding employee’s needs and give them the opportunities and environment to allow self-development.

Microsoft also adopted a consistent reward system where employees has two annual reviews where they can discuss with their managers about their performance evaluation and negotiate pay increases, bonus awards and stock options if an employee is considered a long-term asset of the company. This system offers two rewards paths available, allowing those with technical skills to advance as experts and those with strong conceptual skills as managers.  

Blog Extension

 

Thanks to all the comments which have let us gain further insights into our blog's topic. Some readers thought our wording "aging gap" means age distribution in China and America. We think it is necessary to make it clear that we are comparing the differences between average age of IT employees in China and that in America and investigating the reasons behind.

There is also a commenter thought that U.S held no more importance in experience when it came to IT companies. In our blog, we explained that there is age discrimination in IT industry of both two countries. When we say that Americans value experience more, it doesn't mean that they always put experience before age. They will consider more about experience when hiring and laying off employees, while Chinese managers tend to hire fresh graduates. As it is stated by another commenter, Americans value on experience and Chinese value on certificates. Americans prefer employees with experience neither too young nor too old. This can also be supported by the example in the same comment that when young employees come in and take over, the first to go are the order ones (beyond 50) and the completely inexperienced ones.

One of the commenter mentioned about the influence which aging problems will bring on China IT industry in next 20 years. We believe that this issue will affect the average age of Chinese IT employees. For example, there will be more “old” employees in 2050 in IT industry than that in today. But we should also consider other factors, such as new technology, changing perceptions and new management systems. For instance, maybe in the future, more advanced technology allows fewer people to do more tasks. There are fewer employees needed in IT industry. So companies will lay off old employees and hire new and young ones. In this situation, the average age of Chinese IT employees may still stay low.

The comments also make some suggestions on improving the blog's content. Many of them are also interested in why there is a bg difference in the average age of employees in IBM China and Microsoft China. Maybe we can have a deeper look into manage systems and recruitment process in IBM China and Microsoft China and further discover the reasons behind in our future study of international management.

References

Society for human resource management. (2012). Strategic Hr Management - Case Study. Retrieved February 22, 2012, from http://www.shrm.org/Education/hreducation/Documents/Boudreau_IBM%20Case%20Study%20with%20Teaching%20Notes_FINAL.pdf

IBM Global Business Services. (2012). Human Capital Management. Retrieved February 22, 2012, from http://www-935.ibm.com/services/us/gbs/bus/pdf/gbe03071-usen-talentpart1.pdf

Scribd. (2012). Microsoft's HR Strategy - An Analysis. Retrieved February 22, 2012, from http://www.scribd.com/doc/13286642/HR-Planning-Strategy-at-Microsoft-Inc

CRI Online. (2012). IT Young Graduate Employment Strategy. Retrieved February 22, 2012, from http://gb.cri.cn/2201/2005/04/11/1425@511316.htm

Sina Blog. (2012). Age of employees in IT industry. Retrieved February 22, 2012, from http://blog.sina.com.cn/s/blog_5af292480100qjbd.html

Bricklin. (2012). The Value of Experience. Retrieved Februar 22, 2012, from http://www.bricklin.com/experiencevalue.htm

   

    

MNCs vs. SMEs

Welcome to our first blog, we are 3 exchange students from 3 different countries. Our group name is Observateurs!

Alice is studying in Canada but originally comes from Vietnam.

Guillaume is half French, half Polish but lives in Germany and studies in the Netherlands.

Paul is French and studies there but got some professional experience in Germany.

We hope that our international profile will help us to share our perspective throughout the 4 blogs. 

In this blog, we would like to speak about an international phenomenon that a lot of people would think is true and show you how limited it might be:

‘’ONLY multinationals companies can succeed in today’s globalized world!!!’’

 BUT SMALL AND MEDIUM COMPANY SIZED ENTERPRISES (SMEs) CAN BE AS SUCCESFULL THANKS TO ADVANCED TECHNOLOGY, LESS CULTURAL BARRIERS AND SUPPORTIVE GOVERNEMENTAL ENGAGEMENT.   

In today’s world, globalization is THE current trend, every firm wants to participate and have their own share out of it. Of course that Coca-Cola, KFC, Adidas have already internationalized and still conquer the world. It is very common to think that multinationals are the only players in globalization. In our first blog, Observateurs will try to demystify this perception and then prove that SMEs also have a great chance to go global.

Advanced Technology

Internet

Since the beginning of public internet usage in the late 1980s,  the global coverage has dramatically increased and its access has become easy and cheap. No company can afford not to have internet presence, as it is the most cost-effective link to the largest possible customer base. Although the dependence on this medium of communication has increased significantly over time, it brought with it the advantage of fast information transfer and the possibility of simplified connection between company internal elements like server systems and employees and company external elements like virtual conferencing with business partners. All these aspects have empowered entrepreneurs to have an easy access to the market they are targeting and have a large customer reach at relatively low cost. This situation diminished the risk of starting a business, as the cost of entry is becoming ever lower. 

Logistics

The constant increase in efficiency and effectiveness of logistics operations has changed the global perception of the timeliness of transaction and production. With every transport route becoming shorter and all production processes becoming more efficient and thus cheaper, consumers expect decreasing delivery time, putting competitive pressure on that part of business. Large scale transportation companies like DHL and UPS take an oligopolistic stance in many markets, as the entry costs for truck and ship fleets are very high. But although globalization has lead to limits in this industry, small and medium size enterprises (SMEs) can make use of those large networks, as they can provide the service of fast delivery at small transaction volumes. The approach of faster global transportation is certainly not ecological, but in terms of bringing supply closer to demand, it has opened a new way of doing business, where even the most remote consumer can purchase from anywhere at any time. 

 

Cultural differences

The decision to go global and enter new markets can be very profitable but can also cause losses. The risks and chances balance is determined by the strategic decision and how the firm will implement its business overseas. One important factor that all enterprises going global need to account for is: cultural differences. For the multinationals, it seems to be easier for them to prevent this type of problem thanks to their resources (business intelligence, market analysis, investment fund, networks). Cultural identity is unique and crafted by the social beliefs and habits norms of the population in a particular region.

First, the problem of cultural differences is somehow minimized nowadays thanks to the importance attributed to education and knowledge in the third world countries. In fact, most of the actual generation of entrepreneurs can speak at least two different languages.

Second, the human capital transfer and easy interconnectivity between countries can also diminish cultural differences and widen people perspectives and better understanding of different cultural beliefs. Immigration, travel, social platform, media diffusion, etc. have played a great role in decreasing barriers in communication and cultural differences.

Third, the native people point of view has also changed during the past decade vis-à-vis investment from abroad. In developing countries, the entry of a new firm usually means more jobs opportunities for the local habitants and a chance of improving their quality of life in the first place. Finally, to avoid failure from cultural differences, SMEs should be aware of this issue and adopt cautious developmental strategies.                         

Supportive government engagement

ð  Worldwide organizations

o   Foundation of the WTO in 1994: aims to supervise and liberalize the international trade. It keeps the countries from closing their borders and consequently help the companies to think global.

ð  Regional organizations that also help to some regional engagement. As well as the WTO, these organizations lead the countries to less protectionism and less trade barriers.

o   Free Trade Agreement between 2 or several countries: North America Free Trade Agreement, ASEAN Free Trade Organization

ð  Government policies that generally support international trade

Subventions are often dealt to SME in order to help their international development

An example of SME that chose to go global: Lingo24

Lingo24 is a translation company based in UK. It was founded in 2001 in Scotland (by Christian Arno, 22) and got global pretty quickly as it was employing people in France, in China, in New Zealand and in the USA only two years after its creation. The company is now implanted in 10 countries, it has clients in more than 60 countries and its turnover reaches 4.67 million Euros in 2009.

Considering its success, Lingo24 placed number 81 on The Times’ Fast Track 100 List (fastest growing translation agency in the UK) in May 2011. The company could even belong now to the flourishing category of micro-multinationals. Indeed, Lingo24 stays a SME as there are less than 250 employees and the turnover does not extend 43 million Euros (European Union definition) but it presents some of the aspects of multinationals mostly because of its internationalization.

Blog Extension

The confusion that many readers had about whether or not the applicability of our analysis towards the ability of SMEs to go global is limited for specific industries or can be applied industry-wide is founded, but we did specify that in most cases SMEs that are effectively able to reach a global market most often are found in dynamic tech environments. It is true that some markets are excluded from this trend, like some local food production sector. 

When it comes to funding for SMEs, some readers were saying we did not give enough detail about the current situation and were wondering about the ease these firms have to request proper funding. So as a matter of fact, in Europe, there is a venture capital fund which actively supports the business processes of SMEs by giving targeted funding for promising projects. It is very simple to request such a funding, as it can be done through online applications. The only possible drawback is that when a project seems risky, the management of the venture capital fund will require a controlling share in the business, to be able to channel funds more effectively and avoid wasteful use of resources, especially in uncertain market conditions.  

Many of you stated that our example was good and illustrated well the phenomenon we wanted to speak about: SME’s can make it global. However, you also pointed the fact the translation industry, especially on the internet, represents a niche and consequently an exception. We actually understand what you are saying: doing business with/on the internet makes it easier and SME’s certainly would have difficulties to go global in other industries. We also precized that this business shift is actually possible thanks to the development of new technologies and the internet is the main element of the technological revolution that we lately experienced.