What

was the change and why did it occur?

In an increasingly globalised economy, Pacific Brands has been defying the odds by manufacturing locally. Unfortunately for Pacific Brands, as a result of increased borrowings to finance acquisitions over the last few years and the impact of the financial crisis, Pacific Brands financiers have requested they drastically change their business strategy to reduce debt levels and to remain competitive. In reply to this, the company has decided to close all its Australian manufacturing plants over the next 18 months and source its merchandise from southern Chinese factories with the CEO stating manufacturing in Australian is no longer a competitive advantage to the company. Consumers may love the warm inner glow of buying Australian but they don't like paying for it and in the words of the company's CEO Sue Morphet...the rise of cheap offshore manufacturing has meant that Pacific Brands could no longer afford to make clothes in Australia...and if people wanted to pay $200 for a pair of underpants it would be a vastly different story. Offshoring for the purpose of this discussion can be defined as the relocating of one or more aspects of a firm's business processes to a location in another country for the purpose of lowering costs. This makes Pacific Brands a multi-national enterprise (MNE) as according to when an organisation is in the multinational phase of internationalisation, the organisation's principal concern is to take advantage of production costs in certain countries. Offshoring manufacturing to China allows the company to survive and compete against cheaper foreign brands by creating the competitive advantage that manufacturing in smaller consumables (i.e. clothing) lends itself to, with very high benefits of global integration thanks to economies of scale in production and low transportation costs. What type of employee profile will the company wish to seek when recruiting based on their 'cost-reduction strategy?' If Pacific Brands is to pursue the competitive strategy of cost-reduction to gain competitive advantage, the company should seek employees displaying the following role behaviours: relatively repetitive and predictable behaviours, a rather short-term focus, primarily autonomous or individual activity, modest concern for quality, high concern for quantity of output (goods or services), primary concern for results, low risk-taking activity, and a relatively high degree of comfort with stability. HR practices that maximise efficiency by enabling management to monitor and closely control employee activities are required to successfully implement the cost-reduction strategy. HR practices to enable this include; clearly defined and reasonably fixed unambiguous job descriptions, jobs designed with a narrow focus and narrowly defined career paths which encourage efficiency and specialisation, performance appraisals with a short-term results-orientation, monitoring of market pay levels intently to make remuneration decisions, and minimal levels of employee training and development. How could Pacific Brands strategically implement their 'cost-reduction strategy'?

The globalisation of business is increasingly making it more important to have strategies, policies and processes in place that enable a MNE such as Pacific Brands to operate more efficiently. A significant aspect in the management of a MNE relates to the area of strategic international human resource management (SIHRM) which is defined as HRM issues, functions, and policies and practices that result from the strategic activities of a MNE and that impact the international concerns and goals of those enterprises. Schuler offer's an integrative framework of SIHRM. The framework consists of; Strategic MNE Components (Inter-unit linkages and Internal operations), SIHRM Issues/Functions/Policies and Practices, Exogenous and Endogenous Factors, and MNE Concerns and Goals. The integrative framework provided by Schuler and colleagues has the potential to assist in the implementation of Pacific Brands 'cost-reduction strategy' and therefore each component relevant to the company's strategy will be succinctly discussed. Strategic MNE Components Inter-unit Linkages (including SIHRM Policies and Practices) According to the framework, Pacific Brands needs to coordinate or integrate its units that are spread across the globe in some form and to some degree and the increasing global competition pressures on MNE demands that each MNE develop a network of dependencies and interdependencies between its global units. The integration of units needs to be completed using a cost effective system that promotes efficiency, increases responsiveness and coordinates learning between the various branches of the company. Internal Operations (including SIHRM Policies and Practices) Although it could be said the linkage of the company's units is a major strategic concern for Pacific Brands, just as important is the internal operations of the units themselves. Matching and adapting HR practices with the 'cost-reduction strategy', local culture and legal system is imperative and advises when unit managers are attempting to encompass Pacific Brands concerns and goals of being competitive, locally responsive and flexible, they need to create HR practices that match the company's strategy, local culture and laws. SIHRM Issues Pacific Brands needs to be aware of the level of autonomy it will grant the local unit, how much control it will enforce, and how it will coordinate the unit. As discussed earlier, Pacific Brands is undertaking a cost-reduction strategy and therefore to successfully implement the strategy the company must monitor and closely control employee activities while still however being responsive to local needs of the unit (flexibility in the level of autonomy provided and control over the unit). SIHRM Functions The Functions of SIHRM are comprised of three areas which are: the MNE's HR orientation; the time, energy and financial resources devoted to operating the HR organisation in the MNE and the location of those resources and the HR organisation. Pacific Brands needs to ascertain the most efficient management of its HR with its competitive strategy of 'cost-reduction' in mind. Equally as important is the extent of time, energy and financial resources. Under a 'cost-reduction strategy' it could be said that this area is crucial

because if the costs, time and energy are too high then the full potential of the strategy will not be realised and Pacific Brands will loose its competitive advantage in implementing the strategy. The location of SIHRM operations according to Schuler et al. (1993) can vary considerably across MNEs from the headquarters to the local units. Exogenous and Endogenous Factors External influences such as industry competitors represent exogenous factors for Pacific Brands. Pacific Brands through studying the actions of its competitors have made the decision to implement a 'cost-reduction strategy' to remain competitive, and must devote more attention to SIHRM issues when their competitors are operating more globally. It could be said that the decision to offshore to China is not without an element of risk, however and the level of foreign investment being injected into China, Pacific Brands decision is a calculated one. Endogenous Factors are characterised as internal influences such as Pacific Brands competitive strategy. As discussed the company's 'cost-reduction strategy' has been the driving influence on its decision to offshore to China with the aim being to gain competitive advantage by lowering production costs. Concerns and Goals The final portion of Schuler and colleagues SIHRM integrative framework, concerns and goals, has five components which are: global competitiveness, efficiency, local responsiveness, flexibility, and organisational learning. Pacific Brands has adjusted its HR strategy to remain globally competitive and survive as illustrated with its change in competitive strategy. With the change in competitive strategy, Pacific Brands have sought to increase efficiency through economies of scale in offshoring their manufacturing to China. Due to intense global competitiveness, Pacific Brands must ensure they utilise the most appropriate methods and processes to make and deliver their products worldwide and realise that every possible source of competitive advantage must be identified and utilised. Local responsiveness to laws and cultures is imperative as is the ability to be flexible to changing conditions from technology, strategy or the competition. A major goal of MNEs should be facilitating learning and transferring this learning across units, however when pursuing a cost-reduction strategy the MNE should implement minimal levels of employee training and development. So in the case of Pacific Brands it could be said that although transferring the learning across units is a key goal, the level of training would be minimal. Conclusion From dramatic economic events that have encompassed the world leaving no nation unscathed, Pacific Brands has had to adapt to the changed corporate environment by adopting a 'cost-reduction strategy' by offshoring manufacturing operations to China. It was made aware to ensure other costs associated with the offshoring do not impact on the competitive advantage of the 'cost-reduction strategy'.

The implications for the HR administration of how they would implement HR policies into China concluded that as a FIE, Pacific Brands HR policies and practices have the strong potential to 'transfer' across and would likely be 'expected' by the Chinese entity. When recruiting and selecting employees, preferred behaviours for employees such as predictable behaviour, short-term focus, individual activity, high concern for quantity of output/results were desirable and HR practices that maximise efficiency by enabling management to monitor and closely control employee activities are essential. A SIHRM integrative framework was discussed and it was suggested Pacific Brands needs to link its organisational units together in a cost effective and efficient way, consider how much autonomy each unit will have, being locally responsive and flexible, and matching and adapting HR practices to the local culture and legal system. Pacific Brands has made the decision to implement the 'cost-reduction strategy' to remain competitive and survive, but if economic conditions continue to deteriorate it could be said that it is increasingly important that they strategically implement their strategy in the most effective and efficient way in order for the MNE to be flexible to changing economic conditions in order to remain globally competitive.