The Concept of Globalisation and its Effect on International Businesses - Assignment Example

The following is a critical analysis of the concept of globalisation and its effect on international businesses with specific emphasis on challenges international managers face across cultures, and how new functions like International Human Resource Management (IHRM) are endeavouring to make these challenges manageable. The essay will also attempt to critically assess the assumption that globalisation and cultural contact are leading the way to a homogenisation of cultures, and that future international managers will no longer have to employ current measures of contending with cultural differences when managing a multicultural workforce. Staring off with the complex aspect of culture, the essay will then delve into further studies on globalisation and international business with the help of relevant literature and applicable real-time cases. It is evident that globalisation has and is constantly resulting in increased amounts of inter-cultural contact, increased pressure on organisations to exploit opportunities abroad and expand accordingly, and the consequent challenges of managing a culturally diverse workforce. Culture itself is an intangible but volatile entity that is constantly evolving and is manifested through shared values that are propagated between individuals in any particular society, thus forming group dynamics. Schein (2004) refers to these shared values as collective solutions that a group has reached, to align their internal abilities to be able to contend with external forces, and that have worked and have been passed on to newcomers into the group. These values are expressed in the group’s behaviour, in terms of the way they do things, the clothes they wear – referred to as symbols, language(s) they speak etc (Buchanan and Huczynsky, 2004; Mullins, 2007; Schein, 2004). All of the above though, are the collective representation of a group’s thinking process. Hofstede, however, distinguishes between collective and individual thinking, referring to these processes as ‘mental programming’ (1997; 2001), and argues that each individual member in a society has a personality influenced by the culture of his/her social environment apart from their own family. And as each individual develops their mental program determined by these factors, the collective programming of all these individuals put together distinguishes their group from others. This is evident when we discuss national cultures, and associate people of certain nationalities with values and symbols unique to their culture(s). Hofstede further divides different national cultures into five separate dimensions signifying the underlying mental programming of societies across the world. These dimensions have been widely used by international managers over the years to better understand cultural differences in the effort to invest in international markets. These dimensions are as follows: Power Distance refers to the amount of inequality that exists in a particular group. This inequality is normally endorsed by the less powerful members of a given group as much as it is by the more powerful ones. This phenomenon varies between cultures, making some societies rank higher in the power distance index and some lower. Hofstede concludes that most Asian countries fall into the high power distance group because of their historical and religious backgrounds which is clearly visible in their institutional and organisational structures (1994). In an organisational context this means a higher gap between management and their subordinates. Western countries, on the other hand fall into the low power distance group and hence there is not a huge gap between management and staff (or between parents and children at the family level) (Hofstede and Bond, 1988; Buruma, 1995; Cleary, 1991; Mullins, 2003). Subordinates are expected to be involved in decision making and even though hierarchy exists, it is purely to distinguish roles rather than persons. Individualism and Collectivism refer to the extent to which individuals are integrated into groups. Individualistic societies present loose ties between individuals and one is responsible for oneself and their immediate family. Collectivism refers to societies where people, often from birth, are integrated into strong, cohesive family groups, and are protected by these groups, which often involve extended families, in exchange for unquestioning loyalty (Hofstede, 1994, 1997). Both individualism and collectivism are often reflected in societies at schools and organisations. For example, at the work place in an individualistic society, relationships are given less importance than the tasks at hand whereas it is the relationships that matter in a collectivist society where people are embraced as part of the group and not as potential resources. Hofstede calls these approaches ‘calculative’ and ‘moral’ respectively (1994). Masculinity and Femininity refer to values carried out by societies (countries) that range from ‘assertive’ and ‘competitive’ (masculine) to ‘modest’ and ‘caring’ (feminine) in terms of how people operate at different levels of society. Hofstede suggests that this is a distribution of the roles between the sexes and that in masculine countries the women are more assertive and competitive but not as much as the men, whereas in feminine countries women and men carry similar values of modesty and caring, and that feminine countries are more likely to focus on relationships, solidarity and compromise than do masculine ones (1994). Western countries, with their weaker cultures and low power distance are placed in the feminine category (Hofstede and Bond, 1988), which can be argued as contradictory to the individualism and collectivism dimension, as the west is seen as individualistic without much emphasis on relationships. On the other hand, most Asian and Middle Eastern countries are placed in the highly masculine society, which again goes against their collectivist ideologies. Uncertainty Avoidance refers to a group’s “tolerance for uncertainty and ambiguity: it ultimately refers to man’s search for truth” (Hofstede, 1994 cited in Jackson, 1995, pg153). This dimension explores into how willing a society is to take risks by venturing into the unknown. It explains how culturally prepared a group is to “feel either uncomfortable or comfortable in unstructured situations” (Hofstede, 1994 cited in Jackson, 1995, pg 153). Hofstede says that people in uncertainty avoiding cultures regulate themselves with strict rules and security measures, and that on a philosophical level, they believe in absolute truth (1994). On the other hand, uncertainty accepting cultures do not limit themselves to their own opinions but are open to change and accepting of views from outside. Religiously, they are more relativist and allow different beliefs to operate simultaneously (Hofstede, 1994). In this respect, the west has been placed in the uncertainty accepting cultures due to its multiculturalism and low power distance, whilst the Asian counterparts are placed in the uncertainty avoiding cluster. Quality of Life Vs Quality of Life is a dimension derived from the masculine and feminine category. It is believed, according to Hofstede (1994), that people in feminine countries stress more on quality of life which is evident from their short-term association with their workplaces as opposed to masculine countries where people stress more on careers and long-term association with their organisation(s) (Robbins, 2003). As discussed earlier, westerners with their short-term orientation, tend to avoid any discussions about their workplace in their own time, whilst the Asian counterparts become more like family members of the organisation where their professional activities are intertwined with personal life. This again confirms earlier assessment that Europe is more feminine apart from the contradiction that feminine countries stress on relationships. Hofstede is not clear in that he does not explain if feminine countries stress on relationships purely on a familial level or also at the workplace. In any case, for the international manager, it would help to understand these differences in association, which would prepare him/her to the possibility of less loyalty by a western workforce and probably a high staff turnover, as opposed to stronger ties and long-term associations in other cultures. Globalisation, in retrospect, is a culmination of all the above dimensions by the bringing together of cultures. It then becomes highly difficult for international managers to manage a workforce that expresses all these differences under the collective umbrella of one organisation. It is now vital to understand how, in the context of a multicultural workforce, managers can impart the core values and objectives of an organisation whilst keeping in check with individual differences amongst staffs. Dowling et al summarise this challenge by saying, “...the International Organisation will be called on to operate across a wide variety of competitive environments and yet somehow balance these diverse social, political and economic contexts with the requirements of the original home context.” (2008, pg 25). The challenge then, is to achieve corporate objectives by communicating to a diverse workforce, in possibly different geographic areas carrying different cultural clusters. The IHRM function has partly helped in achieving this objective. IHRM is a relatively recent addition to the field of human resources, developed mainly because of the rapid pace at which businesses are getting internationalised as a result of globalisation (Scullion, 2001; Lechner, 2009). Even though IHRM’s operations are based on the same four parameters of domestic HRM mentioned above, it is much more complex as it deals with sensitive cross-cultural issues and calls for proper education of the local behaviour in terms of culture, values, business practices, and employment laws of the host country of a subsidiary of any multinational corporation (MNC) (Torbiorn, 1997). Hence IHRM can be defined as, “the HRM issues and problems arising from the internationalisation of business, and the HRM strategies, policies and practices which firms pursue in response to the internationalisation of business” (Scullion, 1995 cited in Scullion and Linehan, 2005, pg4). The parameters of HRM are then extended into three main issues for IHRM, namely, the management and development of expatriates; the internationalisation of management throughout the organisation; and, creating a new corporate culture that would reflect on internationalising the whole organisation, by focusing on increasing the international experience of staff, to be able to effectively counter the frequency of cross-cultural interactions as a result of investing abroad (Hendry, 1994). As a result, IHRM covers a much wider spectrum of worldwide management of people (Dowling et al, 2008), and is concerned with how MNC’s manage their ‘geographically dispersed’ workforce by being able to dispose their resources to obtain and maintain ‘local’ and ‘global’ competitive advantage (Schuler et al, 2002, single quotes mine). This clearly indicates IHRM as a means of strategic importance for MNC’s, as it plays a key role in achieving the competitive edge that firms aim for, and is also key in achieving a balance between “the need for control and coordination of foreign subsidiaries, and the need to adapt to local environments” (Adler and Ghadar, 1990 & Milliman et al., 1991, cited in Scullion, 2001, pg5). In other words, the need is for the organisation to implement common practices, like structure and technology that transcend national differences and form a commonality as to how the business operates across cultures (Kerr et al, 1973 & Hickson et al, 1979 cited in Mullins, 1999), whilst not ignoring the essential differences in how these practices are communicated and applied to the local workforce of a given foreign subsidiary (Hofstede, 1997; Keeley, 2003). Having established the key differences between domestic and international HRM, it is now important to understand in depth, the processes and practices that make up the HRM function, and how they are modified and applied internationally. As discussed earlier, the HRM function carries the parameters of staffing, appraisal, rewards and development. Mullins (2007) integrates these parameters and suggests that no matter how big or small an organisation is, there is still a need to address the key functions of recruiting and training staff (staffing), motivating staff through ‘performance appraisals’ and ‘rewards’, and re-training and ‘developing’ staff throughout the course of their employment, whilst complying with the employment laws of the land. Here, we get an intertwined picture of the various parameters in relation to the end result they produce. For example, appraisals and rewards produce increased levels of motivation in staff. With a brief look at these factors in the domestic context, we shall discuss them in detail in the international context. Staffing as mentioned above refers to the recruitment and initial training stages of the HR function. It also includes delegation of certain roles to certain individuals according to their competencies (Robbins, 2003; Torbiorn, 1997). But the main objective logically is to assign these roles to improve the overall performance of the organisation (Bearwell and Holden, 2003). Appraisal refers to the managerial operation of constantly studying staff behaviour and performance in order to propose areas of improvement highlight potential and establish a clear structure of duties for staff (Mullins, 2007; Robbins, 2003; Dubrin, 2004). Very importantly, a good appraisal scheme can improve communications by giving staff the opportunity to talk about their ideas and expectations, and how well they are progressing (Mullins, 2007). An appraisal also forms the basis for giving rewards, promotions and other progressive incentives (Mullins, 2007; Robbins, 2003). Rewards are a way of motivating staff by appreciating their effort in a job well-done. These efforts can be seen by direct observation or through performance appraisals (see above) depending on the size of the organisation (Mullins, 2007). Researchers believe that rewarding motivates staff to perform better, or be consistent, in line with the self-esteem level of Maslow’s theory of motivation as it gives them the recognition they crave for (Dubrin, 2004). Development refers to the ongoing process of training of staff during the course of their employment due to factors like a change in culture, technology and other operational factors (Hofstede, 1997; Robbins, 2003). It can again also be a direct result of a performance appraisal scheme which may have identified room for improvement, or a potential for career progression for staff, which consequently calls for further training and development of the staff (Bearwell and Holden, 2003). The above factors, as discussed earlier, become much more complex in the international realm, as it deals with a ‘complex network of individuals, structures and laws’ (Scullion, 2001). Going in the same order as above, the same parameters have been extended over the years by various researchers to justify and counter the challenges of IHRM. The staffing factor, for example, has been extended to the selection, recruitment and training of expatriates (Iles, 1994; Welch, 1994); the development factor has been extended to the management and development of expatriates (Hendry, 1994); The appraisal and rewards factors follow the same basic concepts of domestic HRM, but are extended to identifying ways of communicating these schemes across cultures and how they are perceived by the local workforce (Scullion, 2001). Although most initial research laid its focus on the challenges of expatriation, more recent research places an equally important emphasis on the “compensation and ‘repatriation’ of expatriates” (Welch, 1994 cited in Scullion, 2001). Staffing in the international context takes many dimensions, as it deals with the processes of expatriation, where parent country nationals (PCN’s) are recruited, trained and transferred to a firm’s foreign locations; recruitment of host country nationals (HCN’s), where a firm’s foreign subsidiary is operated by nationals of that country; and third country nationals (TCN’s), where individuals of a third country are recruited to work in a firm’s foreign location (Scullion, 2001; Torbiorn, 1997). The first two (PCN’s and HCN’s) however, are the most common options used by international staffing as they reflect the main challenge of ‘central versus local’ cultures in relation to the corporate and social culture of the parent company, and that of the host company of a foreign subsidiary, with the main dilemma being which of these cultures are to be used for the firm’s overseas operations (Dowling et al, 2008; Trompenaars and Hampden-Turner, 1997; Torbiorn, 1997). Expatriates are considered, “trustworthy employees sent abroad to represent the interests of the company” (Boyacilliger, 1990 & Nohria and Ghoshal, 1997 cited by Bonache et al, 2001). Even though many MNC’s still widely follow the practice of expatriation, many disadvantages have been identified over time as expatriation is a relatively expensive process of finding the right staff with the required competence levels of operating abroad, which includes the ability to study and understand the cultural differences, personalities and other features of diversity (see Hofstede, 1997; Dowling et al, 1999, 2008). Hofstede’s five dimensions of culture-related values give us a good picture of national cultural differences and how certain values represented in one culture may differ from those represented in another (1997). The training and development parameter, in an international context, is directly linked to the above discussion on expatriation, and is defined as the process of the continuous fostering of a global corporate culture through a network of global leaders by enhancing the employees’ cross-cultural competence, and increasing their contributions to the organisation’s global objectives (Evans et al, 2002). Dowling et al (2008) emphasise on what they call pre-departure training of an expatriate, where the employee is given inter-cultural training in order to acclimatise him/herself with the new culture. Development, on the other hand, aims to “increase abilities in relation to a future position or job” (Dowling et al, 2008, pg137). Harzing and Ruysseveldt (2004) continue that in terms of the individual, the development factor provides with international experience and career prospects, whilst the organisation gains through having a knowledgeable workforce upon which to base future investments (also see Dowling et al, 2008). In other words, to be successful in the global economy, a MNC should be able to keep developing their employees in key skills of global management by providing them with opportunities and exposure in the international realm. An effective performance appraisal scheme again plays an important role in identifying talent and potential amongst employees (Mullins, 1999). In the case of HCN’s, staff from various cultures is temporarily transferred to the firm’s headquarters (HQ) or its domiciles for training on corporate culture, before being transferred back to their local areas (Dowling et al, 2008). This practice has been criticised by many scholars as ethnocentric (Clark et al, 2000) as it places importance on the parent culture as a “lens to see, perceive and solve problems” (Avruch and Black, 1991), but is still one of the best proposed practices as it defines a uniform corporate structure across cultures by educating HCN’s in the parent culture, and by letting them propagate this culture to their local workforce (see Hofstede, 1997). In Keeley’s (2003, pg9) words, “Competitive advantage in a global economy requires that a MNC be able to tap the talents of local HCN managers; to do this the MNC’s must be able to attract, retain and develop talented HCN managers”. Keeley continues to argue that if HCN’s are not considered for a MNC’s overseas operations, they not only forfeit local talent, but may also be in breach of local anti discriminatory laws (2003). The appraisal and rewards factors can again be discussed within the frame Hofstede has provided in his five dimensions. As discussed earlier, the main concern is of communicating performance appraisal to a foreign workforce in a manner they would relate with and take aboard to further progress themselves. Hofstede’s dimensions can then be applied to this action of cross-cultural communication, where managers can discern employee behaviour through their appraisal scheme and then implement further strategy leading towards training and development (Mullins, 2007; Hofstede, 1997; Rollinson et al, 2005). Lastly, repatriation of expatriates is a topic of equal importance for MNC’s as this process carries its own weight in terms of compensations, re-acclimatisation and further prospects for the returning expatriate. Research suggests that coming ‘home’ is a more difficult and painful process for an employee than going abroad (Adler 1996), and as expatriates are sent abroad for lengthy periods of time, they are ‘out of sight, out of mind’ of the parent company during that time (Allen and Alvarez, 1998 & Hammer et al, 1998 cited in Scullion and Linehan, 2005). In other words not much planning is done for the repatriation of the employee and not much thought is given to his/her future career development (Dowling et al, 2008). In principle, three main problems are faced by employees on repatriation as observed by Clague and Krupp (1978, cited by Mayrhofer, 2001), namely readjustment to the organisation, which carries the responsibility of the company to appropriately place the returning employee in the organisation’s hierarchy, as this may have a significant impact on the employee’s career, and, if ignored by the company, may lead to frustration for the employee (Dowling et al, 2008; Mayrhofer, 2001; Adler, 1996); Re-acclimatisation to the old environment, is more a concern for the returning employee’s family, as they are under pressure to get settled right away. But research suggests that this calls for another adjustment period for the family (Dowling et al, 2008); the psychological aspect, which refers to the psychological contract every employee has with their organisation in terms of financial and relational contexts (Robbins, 2003; Mullins, 2007). In the case of repatriation, the psychological expectation of the employee is normally for the company to recognise his/her now developed international experience in terms of a raise in salary or further career progression (Dowling et al, 2008). If these factors are not addressed by the company effectively, there is a danger of frustration from the employee as well as the prospect of losing personnel. Cross cultural communication is another factor to be faced in the international realm. Lantieri and Patti (1996) describe this challenge by saying, “we all have an internal list of those we still don’t understand. We all have biases, even prejudices, toward specific groups”. This is especially true when dealing with a multicultural workforce, as it is not always possible to understand some people due to differences in the way they speak. According to Dupraw and Axner (1997), culture is often at the root of all communication problems, anc our culture influences how we approach problems and participate in groups and communities. Exploring the ways in which various groups within one’s own society have related to each other over the past is the key to opening channels for cross cultural communication (Dupraw and Axner, 1997). In Hofstede’s words, the world is full of confrontations between people, groups and nations, who think, feel, and act differently, but at the same time, they are exposed to common problems that demand cooperation for their solution (Hofstede and Hofstede, 2005). This means it would be helpful, especially in the context of an organisation, to have common goals and objectives set by the organisation, as part of its core culture, which then gives a commonality of purpose to individuals no matter what their cultural differences, as communication in this case may be tuned towards solving common problems that arise in the process of achieving these objectives. Another way to express the same points as above is to become more aware of cultural differences, as well as exploring similarities, as this may help communication between people and groups, and may mean that cultural differences do not necessarily have to divide groups from each other (Dupraw and Axner, 1997). Anthropologists Avruch and Black compliment the above views by saying that when we do not understand the people we are conversing with, we tend to label them as ‘abnormal’, ‘weird’, or ‘wrong’ (1993), as people’s different communication styles reflect deeper philosophies and worldviews, which are the foundation of their culture, and understanding these philosophies gives us a broader picture of what the world has to offer us (Dupraw and Axner, 1997), and understanding the history of a group will give us a better perspective of their culture (Hofstede, 1997). Such knowledge is an absolute pre-requisite for international managers, as, according to Morgan (2006), people in an organisation are ‘organised’ in some way or the other through different cultural traits and personalities, in order to achieve set objectives. Hence it would help management working across cultures or managing a diverse workforce to understand these traits for effective communication of objectives. Morgan extends his argument by saying, “individuals are the basic building blocks around which an organisation functions, and communication is the effective cement which holds the organisation together” (2006). In conclusion from the above, the impact of globalisation is evident in the sense that not only are organisations forced to exploit overseas investments, but the entire process of human resources has been given a new dimension, to contend with the pressure. The kind of global economic and cultural integration as discussed above has seemingly created a certain degree of homogeneity across nations, threatening the individuality of the original cultures by the growing popularity of universal brands and shopping centres worldwide (Paul and Kapoor, 2008). For example, when IKEA, the home furniture brand expanded into the United Arab Emirates (UAE) market in 1991, the firm had been careful to adapt to local culture in its operations and also in product range, but as globalisation accelerated in the last two decades, there is now a homogenisation of the local Arab culture and the Scandinavian cultural background of IKEA (IKEA, 2007), along with all the cultural demographics represented in the UAE. In other words, the individual cultures are yielding to a cultural culmination created by the brand. Individuals and groups are finding it easier to co-exist with each other as a result of this culmination, and this has made it easier on managers in managing diversity. The question to be asked, however, is if this homogeneity means abandonment of original cultural values being completely replaced by the new ones. 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