Management of People in Multinational Enterprises - Essay Example

ISSUES RELATING TO INTERNATIONAL HUMAN RESOURCE MANAGEMENT Introduction International Trade has always been an important constituent of a country’s economic system. Industrial Revolution had led to an increase in International trade both in terms of frequency and quantity. But it was perhaps with the advancement in technology that gave international trade and thus multinational enterprises the strong position that they enjoy today. Geographical boundaries between countries have begun to fade away Wit Multinational Enterprises dominating the trade and economy of almost every country,. While this has generally benefited the people living the country by providing them wide range of products, availability of all kinds of products, competitive prices and increased job opportunities, it has had a challenging impact on the multinational enterprises. Such companies also known as MNCs have been facing issues of managing its resources and operations in the global arena. Of these, management of people has been an important issue that will be discussed in this paper. Before moving further, it is important to understand the term International Human Resource Management which is both distinctive and similar to human resource management. International Human Resource Management P. V. Morgan defines International Human Resource Management or IHRM as ‘the interplay between three dimensions: … human resource activities, types of employees and countries of operation’ (Dowling, Festing and Engle, 2008). Thus IRHM is an extension of the typical human resource management which includes six functions: human resource planning, staffing, performance appraisal and management, training and development, compensation and motivation and industrial relations. While all these activities are included within IHRM, the function of IHRM is includes managing the different types of employees. In IHRM, three kinds of employees are defined: host country employees, home country employees and other country employees. In the same manner, countries of operation include three kinds of countries: host country, home country and other country. Host country is where the company is operating; home country refers to the country where the company maintains its headquarters and other country is any country that is related to the company in terms of labor, finance etc. (Dowling, Festing and Engle, 2008). Issues Relating to International Human Resource Management (5) Globalization has greatly changed the way that companies operate and do this and IHRM is one function that has been developed as a result of increase in globalization at such a rapid rate. The expansion of companies in different countries has made the function of IHRM necessary as globalization has brought together people from different countries, cultures, status and gender. This has made diversity common in every workplace today and for the company to survive in the increasingly competitive world, it is important that companies are able to manage diversity. Managing Diversity The biggest issue that IHRM has to successfully manage is the diversity that is common in every workplace, be it a local organization or a multinational organization. In order to successfully manage diversity, it is important to understand the concept of diversity first. Diversity does simply mean understanding the different kinds of people working in the organization. Rather diversity is an appreciation and celebration of the differences within the organization. The first step towards managing diversity is realizing that diversity is an asset for the company rather than a liability. Managing diversity thus entails preventing discrimination at any level and working towards developing a culture of inclusiveness. The employees also need to be informed about the importance of diversity for the organization. The culture of inclusiveness entails that employees develop a sense of ownership with the organization, whether they belong to any culture, race or religion. The issue that arises when managing diversity is that managers often do not commit to the notion of managing diversity. While they have been taught about the importance of diversity, they do not believe in it completely; and thus their actions contradict their thoughts. When leaders are not convinced, the employees within the organization are also not convinced. The right training of the leaders is therefore imperative when managing diversity. Properly managing diversity in the international human resource context requires that managers are able to properly manage the employees, their recruitment and selection, their training and development along with their motivation and compensation. Thus, managers need to choose the right strategy in order to attain the functions mentioned above. Choosing the Strategy There is no right strategic IHRM policy. Companies need to develop their own strategy based on how the company is operated and intends to operation in the future. The right approach is evaluated by considering the relationship of the host country and the home country. In IHRM, there are three broad approaches to managing diversity: standardize, adapt and hybridize. In each approach, the relationship between the host and the home country is different and each strategy has its own benefits and there is no right strategy. Choosing the right strategy depends upon the nature and the people within the organization. Standardize In this approach, the company follows the human resource management strategy of the home country. When MNCs expand into other countries, they do not change their human resource management according to the needs of the new employees. Rather the strategy remains the same and employees are expected to adapt to the original strategy. In this manner, the strategy remains unchanged or standard regardless of the expansion of the MNC in any other country. The MNC assumes that the home country is more intelligent and trustworthy when compared with the host country. Such approach is also known as the ethnocentric approach. The standardize approach allow the company to save more costs and gain stronger control over the operation of the MNC. However, since such a strategy does not consider the culture and system of the host country, they save issues of motivating the employees. Such organizations are often perceived as rigid. The employees of the host country do not usually develop a strong sense of ownership with the MNC and thus this leads to issues of decreased productivity and increased turnover (Padala and Suryanarayana, 2010). Adapt Also known as the polycentric approach, this approach focuses on adapting the human resource management strategy according to the culture and system of the host country. Host country nationals are hired in key positions to run the company and occupy prominent positions of managers and even CEOs. The philosophy behind adopting such an approach is valuing the skills and education of the local people. It is assumed that since the local people will be responsible for the daily operations of the company and they would ultimately be the end consumer, therefore they know best how to handle the employees within the company. There are several advantages in adopting this approach. The issues of communication between managers and their subordinates are removed to a great extent since language problems and cultural barriers are removed. Turnover is decreased and productivity is improved as employees develop a sense of ownership with the company when they see their own people occupying the key positions in the company. However, this approach is also not without its problems. It becomes difficult to coordinate between the home country and the host country. Since the approach between the countries is difficult, management becomes difficult to a great extent. Conflicting values, cultures and attitudes makes it difficult to seamlessly incorporate the strategy of the home and the host country. Hybridize This approach is also referred to as the Geocentric Approach. This approach is most adopted by transnational companies that disassociate themselves from their host countries to a great extent. In this approach, the company develops a strategy is the best suitable for the growth of the organization. A global approach is considered where the contribution of the home country and the host country both is appreciated. A combination of standardize and adopt strategy is considered in hybridize strategy where the best of each country is considered and adopted. This approach offers the benefit of benefiting from both the countries and developing a strategy where both the employees and the company can take advantage. A global perspective to the situation is achieved and coordination and communication within the subsidiary and the headquarters is achieved. The biggest issue is such a strategy where both philosophies of both the countries are adopted seamlessly. Often there is a conflict in culture and attitudes of both the countries and it becomes quite difficult to adopt this approach. This approach is also the most costly as it requires extensive amount of time and capital for training the employees and the managers to make them comfortable with the approaches of both the countries. However, these are startup costs and if implemented properly can lead to the maximum coordination and communication between host and home country where each belief that their commitment to the organization is valued. Culture of the Organization While the human resource management strictly controls the strategy of an organization, the culture within an organization is shaped by both the managers as well the employees working in the firm. The culture of an organization can be broadly categorized into two types: adaptive and non-adaptive. Ralph Kilman defines adaptive culture as a culture that entails “a risk-taking, trusting and proactive approach” (Kotter, 2008). In such cultures, change is appreciated and organizations continuously adapt themselves to external changes in the environment. An example of adaptive organization is Samsung that continuously updates its cellphones to meet the changing needs and demands of the consumers. Samsung places strong emphasis of developing new ideas and have created a culture where employees with new ideas are encouraged to pursue their ideas without facing any negativity from the managers. When organizations do not adapt to the changing environment and become stagnant, they risk being forced out of business in this competitive market. A non-adaptive culture is in contrast with the adaptive culture (Nelson and Quick, 2007). An example of non-adaptive culture can be Nokia that was once the leader in cell phones. However, since Apple and Samsung have launched their smartphones, Nokia has taken a third position and risks being acquired by Microsoft. This is because Nokia despite its strong financial position was unable to adapt to the changing consumer needs for smartphone and therefore has been stagnant. Cultural Theories and the Critical Evaluation MNCs, when expanding into new boundaries, need to have a basic understanding of the cultural values and norms the society in order to develop a competitive edge in the increasing competitive workplace. Cultural values and attitudes change from one country to another and understanding of these are necessary to prevent miscommunication and lack of coordination. Numerous theories have been presented to develop an understanding of the differences and similarities between two cultures and societies. These theories aim to focus on the core differences so that coordination and communication is improved. Of these, three theories have gained prominence and they will be discussed in this paper. Hall and Hall: High Context vs. Low Context Cultures Hall’s theory of High Context v. Low Context Culture broadly divides cultures into two groups: high context culture and low context culture. In high context cultures, such as those found in Asian and Middle Eastern countries, non-verbal communication plays an important. In such cultures, many messages are sent and acknowledged without words being said. In such cultures, diversity is low while these cultures have strong and rich histories. On the other hand, low context cultures put less emphasis on context and more on words. Such cultures depend on the use of language and words in order to communicate their messages clearly (Hall, 1976). The biggest criticism against this theory is said this theory develops a stereotypical view of the people. Cultures and individuals often adapt to the diversity in the society but this theory does not take into account the changing cultures as globalization is on the increase. According to Holiday et. al, 2010, such theories undermine the individuality of the person and attempt to understand the person without interacting with him. When people are understood in this respect, there often occurs a drift in communication. For instance, when Asians are considered different from Europeans because of their cultural context, there occurs a feeling of untrustworthiness among the Asians. However, this theory u a rudimental picture of the differences in cultures and therefore can be taken as a starting step towards building better communication and understanding of the cultural differences (Akasu and Asao, 1993). Hofestede’s Five Dimensions of Culture Hofstede’s Five Dimensions of Culture is another theory that aims to provide a framework for cross-cultural communication. These dimensions were developed by Hofstede after examining a number of employees from forty different countries and societies. Originally four dimensions were introduced in the model which includes: individualism-collectivism, uncertainty avoidance, power distance, masculinity-femininity but later long term orientations was also added (Hofestede, 1991). The first dimension: individualism- collectivism refers to the way people consider their identity within a group; whether their identity is separate or considered part of the group. The second dimension, uncertainty avoidance, refers to the way individuals deal with uncertainty and the degree to which they avoid it. The third dimension, power distance, refers to way power is distributed in a society. The fourth dimension, masculinity-femininity, refers to the way cultures adopt masculine and feminine attitudes and lastly the fifth dimension of orientation refers to the way societies plan their future. Hofstede’s theory, much like Hall’s theory, is criticized because it stereotypes nations as one ethnic group while nations are made up of different ethnic and social groups that work differently from each other. Hofestede’s theory ignores this aspect. Also as globalization is increasing, people are crossing borders and therefore borders do not necessarily restrict cultures and the way people behave or think. In this manner, Hofstede’s model has been considered outdate in today’s work. Critics also argue that the dimensions for measuring differences between the cultures are not enough to understand the disparity between two cultures. When Hofstede created this theory, he conducted surveys on employees of one company, IBM. Critics argue that one company cannot be induced to provide answers for the entire countries. Also Galit Ailon questions the use of surveys as the method of understanding national cultures (Ailon, 2008). Yamagishi, Jin and Miller, 1998 argue that this model is divided into five dimensions and these dimensions do not present a holistic picture of the culture. Rather different aspects of the culture are explained which presents issues of applying the model practically (Silverstone, 2005). Despite these criticisms, Hofstede’s model is the most used model for understanding cross-cultural differences. Hofestede’s study was one of the first studies in examining cultural differences and served as a guideline for many future researches. New dimensions have been added to the theory to expand the cultural differences to more levels. Trompenaar’s Seven Dimensions of Culture Fons Trompenaar’s Seven Dimensions of Culture are quite similar to that Hofstede’s Dimensions. Trompenaar developed these dimensions after studying Hofstede’s work and experiencing cultural difference first hand when he worked in six different subsidiaries of Shell Company. Trompenaar’s Seven Dimensions include: universalism vs. particuralsim; individualism vs. collectivism; neutral vs. affective relationships; specific vs. diffuse relationship; achievement vs. aspiration; time orientation and internal vs. external control. Some of Hofstede’s criticism can be applied also the Trompenaar’s model also. Trompenaar also depended on surveys to evaluate cultural differences. However, Trompenaar’s model is more accurate considering that it is relatively new and is able to study the change in the people over the period of time. References  Ailon, G. (2008). Mirror, mirror on the wall: Culture's Consequences in a value test of its own design. The Academy of Management Review, 33(4):885–904 Akasu, K. andAsao, K. (1993). Sociolinguistic Factors Influencing Communication in Japan and The United States. In Gudykunst, W.B. (Ed). Communication in Japan and the United States, State New York: University of New York Press, Albany, pp. 89-118. Dowling, P., Festing, M. and Engle, A., (2008), International Human Resource Management: Managing People in a Multinational Context, Ohio: Cengage Learning EMEA Hall, E.T. (1976). Beyond Culture. Garden City, New York: Doubleday. Hofstede, G. (1991). Culture and Organisations. New York, McGraw-Hill Holliday, A., Hyde, M. and Kullman, J. (2010). Intercultural Communication. An advanced resource book for students. New York: Routledge Kotter, J. P (2008) Corporate Culture and Performance, UK: Simon and Schuster Nelson, D. L. and Quick, J. L. (2007) Understanding Organizational Behavior, Ohio: Cengage Learning EMEA Padala, S. and Suryanarayana, N. (2010), Approaches to International Human Resource Management, Retrieved from http://www.articlesbase.com/international-business-articles/approaches-to-international-human-resource-management-3249167.html Silverthome, C. P., (2005) Organizational Psychology in Cross Cultural Perspective, New York: NYU Press Read More