IHRM Strategies in International Business - Essay Example

International Human Resource Management Executive Summary In this era of globalisation, every organization wishes to spread its business worldwide and gain competitive advantage. For doing business globally, the firm needs a very efficient international HRM approaches. These approaches are often overlooked by the MNCs. International human resource management can be gathered as a method of securing, motivating, preserving and effectively utilising human resources in international business locations around the world. International business deserves an efficient IHRM as globalisation of industries is leading to mobilisation of capital and also for eliminating the chances of failure or underperformance in the overseas market. An international firm implements various strategies such as Geocentric, regiocentric and ethnocentric in addressing challenges faced by them in managing their diverse workforce. Many challenges are faced by MNCs in addressing global workforce management issues. These issues are found related to ethnocentrism, expatriation and poor knowledge transfer. MNCs are finding out ways to manage complex global structures in the context of international HRM and knowledge management. Table of Contents Executive Summary 2 1. Introduction 4 2. IHRM Strategies in International Business 4 3. IHRM Issues in Global Firms 5 3.1. Ethnocentrism Issues 6 3.2. Expatriation Issues 7 3.3. Poor Knowledge Transfer 8 4. MNCs Managing Complex Global Structures 9 4.1. Managing in International HRM Context 10 4.2. Knowledge Management Context 11 5. Conclusion 12 Reference List 14 1. Introduction International human resource management (IHRM) wholly spotlights on controlling human resources in the global organizations. It is understood to be the process of performing HRM activities such as recruiting, compensating, organizational expansion, performance evaluation, employee motivation in the global context (Dowling, Festing and Engle Sr, 2008). IHRM is considered to be a complex procedure in many MNCs. The international operations of MNCs have many complexities which are often underestimated by the firms and hence it can be gathered that firms tend to overlook the relevance of IHRM. The failure of the business in global environment is a result of faulty human resource management practices. Increasing international competition among the organizations has led to the increasing importance of developing IHRM practices. There is a shortage of international managers which serves to be a problematic situation for the international firms (Quintanilla and Ferner, 2003). The MNCs fails to realise that the success and failure of the firm depends on how efficiently a firm applies its human resource management strategies. In order to achieve organizational goals, the MNCs need to fabricate integration among the human resource practices of its subsidiary firms located in different parts of the world (Tsai, 2001). The MNCs requires ensuring a considerable amount of flexibility in their IHRM approaches because MNCs have employees from different countries having distinct cultural background. Attaining flexibility in the IHRM strategies can contribute to the superior performance of the employees. The objective of the report is to conduct an in depth analysis of the challenges faced by the IHRM and the strategies adopted by the global firms in addressing them. 2. IHRM Strategies in International Business Developing effective IHRM strategies are essential for the global firms to prosper. The philosophy of corporate management is a vital challenge as it helps in deciding how the organization sights the world and in what ways it wishes to manage its human resources in different parts of the world. The companies trading globally hence can be divided into four parts depending on their management strategies (Omar Sharifuddin Syed-Ikhsan and Rowland, 2004). In Ethnocentric approach, all the essential management positions are found to be held by home country nationals. In the initial stages of the international business, this approach proves to be beneficial as at this stage the organizations remain focussed on transplanting a part of their businesses well in their parent country. The companies adopting ethnocentric approaches perceive that their parent country nationals are much intellectual, consistent and trusted as compared to foreign nationals. Geocentric approach is applied by the MNCs in their operations by identifying that subsidiaries and headquarters makes an inimitable contribution with its unmatched proficiency (Richardson and McKenna, 2000). The strategy facilitates an MNC to develop a global team of executives which aids in gaining an international perspective and an inner group of labour in order for deployment all through the international firm. The strategy supports collaboration and sharing of resources across units. Regiocentric strategies are implemented by the MNCs when they realize that synergistic benefits can be achieved by sharing functions athwart regions. If the company follows regiocentric approach, the global employees are transferred within the same region of their occupation. This approach facilitates communication between staff transferred to regional headquarters from regional subsidiaries. It replicates some compassion to the local conditions as the local subsidiaries are appointed mostly by home country nationals (Harzing, 2002). Thus, a multinational company can select among various IHRM strategies in areas of international staffing and managing of workforce. 3. IHRM Issues in Global Firms Globalisation gives rise to various challenges for the human resource managers. At the organizational level, the firms face challenges related to the standardisation of human resource management policies with regard to their local customs (Stahl, Miller and Tung, 2002). At the micro level, there lay various challenges relating to expatriates and parent country employees. Lack of abilities can give rise to communication issues among expatriates. Global MNCs face numerous challenges in managing their human resources. Some of them are discussed in detail in order to analyse what measures are used by them in dealing with such issues (Kostova, Roth and Dacin, 2008). Figure 1: Issues in global firms 3.1. Ethnocentrism Issues A large number of MNCs bring to use the ethnocentrism approach in order to sustain the highly competitive global market. Ethnocentric approach means that the company desires to stick to the home country practice, head office within the home country are in charge of taking important decisions. The vital positions in the company are held by the home country employees and the management practice of the head office is followed by the subsidiaries. There are few reasons for the MNCs to take up the ethnocentric approach. The company might perceive that there a lack of talent in the host country who can be assigned the important positions in the company. The firm may feel that this approach will serve the best way for maintaining an efficient corporation culture. MNCs abiding to the ethnocentric approach deal with a lot of issues. The subsidiaries might generate issues of adaptability to the local government. Increased relocation fee and salary costs happen to be a challenge for the global corporation. Transferring managers into subsidiaries eventually gives rise to personal and family issues (Caligiuri, Phillips, Lazarova, Tarique and Burgi, 2001). Failure rate is observed to get hiked and simultaneously the approach negatively affects the morale and motivation of the employees. The subsidiaries even face issues relating to the margins of the local government. Ethnocentrism is known to arise from one culture dominating other to a large extent. The ethnocentrism approaches has lost support over many years. There exists many global products but there is a shortage of global people. The prosperity of the global business depends on how efficiently its product is supplied to their customers by their employees, whose performance is affected by morals that continues to vary in an unexpected way from those of the business managers (Björkman, Barner-Rasmussen and Li, 2004). 3.2. Expatriation Issues Figure 2: Expatriation Issues As the organisations turn to globalise, the international firms face many challenges in using expatriates for fulfilling complex tasks. MNCs use expatriates for business control and also for facilitating fresh entry in the market. Recruiting and developing expatriates for long term international assignments is observed to remain unproductive. The expatriates’ success rate in completing assignments effectively is very low (Pires, Stanton and Ostenfeld, 2006). Thus, it can be gathered that there lies many issues in the international HRM in controlling expatriates. The expatriates of the multinational companies are facing productivity issues due to some reasons which include insufficient selection criteria (Goh, 2002). Some other arising problems are faulty training of the expatriates in order to make them prepared to cope up with the culturally diverse environment and ethics of the parent country. It can be analysed that there lies an inadequate international HRM practices that are leading to expatriate issues. The MNCs are failing to discover appropriate training strategies for getting work done by expatriates (Forster, 2000). The employees often find themselves working in a firm with no business plans, inadequate information regarding competitive market, few documented human resource policies and to name a few. In order to reduce the costs associated with the expatriate failure, the human resource management in the multinational companies are striving to enhance their capabilities and strategies for managing expatriation issues while and after the expatriates are assigned with the international assignments. Inefficient expatriate management can threaten a global organizations performance and skills within the parent country (Yahya and Goh, 2002). The organization and the human resource management policies both in combination needs to manage the global human resource and encourage a large number of employees in taking foreign assignments. Through this approach the expatriates will realise that the firm supports them and it will attempt to contribute the success of expatriates in accomplishing the overseas assignments. Appropriate human resource policies must be designed in managing the expatriates and for their better performance in the overseas business. 3.3. Poor Knowledge Transfer Efficient knowledge transfer is considered extremely vital in the international HRM practices in the multinational firms. It is also realised that knowledge transfer serves as a complex process and a lot of barriers are confronted in effective knowledge transfer process. There exist four sets of factors that influence the difficulties in transferring transactional knowledge in the global firms (Jackson and Schuler, 2010). The features of the knowledge transferred leads to faulty knowledge transfer issues. There are problems relating to source including lack of motivation and faulty absorption capacity. The context in which transfer takes place generates issues, such as desolate organizational context and strenuous relationship. The major barriers to internal knowledge transfer are found out to be recipient’s incapability to absorb the knowledge and casual ambiguity among the source and the receiver. Some theoretical issues also hamper the knowledge transfer such as variety of theoretical perspectives including organizational deeds, dependence on resources and theory of institution (Taylor, Napier and Mayrhofer, 2002). Social issues refer the extent to which the units’ regulatory and cognitive profiles of the parent nation and the recipient country are identical or distinct. Individual issues crop up relating to approach of transfer coalition’s members including their dedication and trust in the home country. It should be noted by the international firms may have barriers in transferring knowledge but the issues needs to be addressed through effective international HRM strategies. If the employees of the organization are motivated to share knowledge they can be directed through various logics (Mendenhall and Stahl, 2000). It is found that employees are hesitant in the field of knowledge sharing and in such a condition the strategies designed for knowledge management will not generate desired results. Hence, these factors should be kept in mind by the international HRM department for reviving the issues pertaining to the knowledge transfer. 4. MNCs Managing Complex Global Structures With the increasing issues resulting from the globalisation, a vast number of MNCs are finding out ways in addressing them. The global firms develop a model in enhancing the human resource management. The first step described in the model is to prepare human resource strategies. Keeping in mind and analysing the objectives of the organization, the global firms needs to prepare themselves for coping up with the challenges of the changing trends of the global market. After analysing the objectives of the firm and as per the functional and non functional requirements it needs to implement the strategies for improving the HR practices. After implementing the strategies, the HR management needs to measure the success of the implemented strategies. The effectiveness of the strategies can be measured through HR audit, standards and metrics of the organization. The employees’ productivity will automatically increase, the dedication among the workforce will boost in attaining the desired goals of the firm and the firm will prosper if the strategies affect positively in the management. If the strategies are not giving out desired results then the management can take steps in improving or innovating strategies that suits well to the nature of the global firm. By implementing this HR system standard model, the multinational companies can discover positive changes in their business and will prosper in the competitive world. Figure 3: HR System Standard Model 4.1. Managing in International HRM Context Multinational firms attempt to manage complex global structures in context of international HRM. Issues in International HRM lead to the introduction of IHRM policies and practices (Foss and Torben, 2004). They help in addressing such challenges and successfully running the businesses of a global firm. The international HRM strategies are adopted by the MNCs in gaining the competitive advantage, remaining efficient, for being locally responsive, gaining adaptability, flexibility and for being able to convert the learning process across their internationally dispersed units. International HRM practices involve a vast range of human resource activities. Their perspectives are much broader, have much external influences, involvement in the employees’ personal life and are more responsive to changes in the employee requirements as a result of changes in the international strategy (Scullion, Collings and Gunnigle, 2007). Efficient HRM practices are the keys for success of any global organization. International HRM successfully enhances the abilities of the culturally diverse employees in order to achieve the organizational goals and efficiently address its needs. The strategies of the International HRM is focussed in developing expatriates to accomplish more diverse tasks, assignments and cope up with the challenging conditions. It helps the expatriates to better realise cultural variations across the various countries. International HR managers deals with more complex heterogeneous functions and focuses on various additional aspects by involving more in a workers personal life. International HRM deals with distinct group of workforce for which the human resource policies and practices might vary (Schuler, Budhwar and Florkowski, 2002). International HR managers are attempting to gather the cultural differences in the multicultural atmosphere. IHRM manages few external influences such as control of host government, business and other interest demands and work groups. The strategies of IHRM supplies regulation on taxation and compensation aspects. Their practices highlights on management training in order to deal with the diverse workforce, their orientation and to deal with the issues of the international environment and hence managing complex global structures effectively. 4.2. Knowledge Management Context Knowledge conceives as a resource that is utilised to create profits out of the risks faced by the multinational firms. From the managerial point of view of the global firm, it is a superior knowledge about areas of risks that helps the international human resource managers to develop and maintain beneficial applications of physical and human resources. The global firms adopt distinct knowledge management techniques. Knowledge is incorporated in many aspects of the global firm including processes, technology and structures and all of them lie within the context of an organizations cultural beliefs and values. Knowledge management gains efficiency by using Information Technology. Involvement with the local management organizations serves to be a technique in enhancing knowledge management (Tsai, 2001). In addition, the research and development team is constantly developing innovative strategies in enhancing the knowledge management process. The communication channels are being used on a frequent basis in order to make the knowledge management process more profitable. Figure 4: Knowledge Management Techniques Efficient technology is the platform of effective knowledge management system. Technological advancement triggers the opportunity of mobilising knowledge. This is more important for the MNCs where knowledge is stretched on remote areas. Internet Communication Technology (ICT) constitutes knowledge management systems that are designed such as way that leverages and makes codified knowledge available in the global firms. In addition the technology works well in the process of storage and retrieval of the information. The recipients retrieve this information in order to convert them into useful knowledge. The organizational knowledge management system leads to efficient information transfer by intensifying the workers contracts beyond the ordinary communication lines. Hence, in daily global working environment, ICT needs to be included in order to facilitate employee’s search of new information in their immediate professional channels. Knowledge management system enables workers to expand their channels to a broader range of connections. 5. Conclusion The major purpose of the international HRM is to increase and enhance the contribution of the employees of the organization. The objective of the international HRM is to maintain a harmonious environment within all the units of the global firms and manage human resources in much better way. Better management of human resources can lead to decreased operating costs. Faulty human resource management can hamper the firms in various ways and the MNCs will fail to meet the changing trends of the global world. The relevance of international HRM is misunderstood by the global firms which makes the human resource management process more complex and leads to the generation of numerous issues that can hamper the business and employee morale of the global firms. When the firms decide to establish its business worldwide, some changes in the human resource management practices becomes mandatory. Human resource management policies applied in the local firms differ from the HRM policies applied in the global firms. The international HRM policies must be different in various nations because the global firms need to achieve identical result independently where their businesses exist. International HRM helps to support a firms strategic planning and hence a suitable structure of management needs to be designed in order to make the organizations capable to achieve its goals through productive human resources. International HRM efficiency is the key to sustain in their globalised world and gain a competitive advantage. The international HRM realises the proper management of managing three categories of employees that exists in the international business those are Parent country nationals, host state nationals and the third state nationals. By conducting an in depth analysis of the issues faced by the global firms it can be concluded that the international firms needs to focus more on the relevance of the international HRM practices and avoid paying less attention to such serious issues. Issues lies in the knowledge transfer process which needs attention of the global firms which can be done through various knowledge transfer mechanisms. An international firm who makes less effort in transferring knowledge may perceive that such behaviour may be disappointing for the local workforce. Motivation and enhancing abilities of the local staff is much essential to develop the knowledge management system. Though the MNCs are now trying to deal with the human resource issues by taking up many strategies, more innovative measures are required to be taken by these international firms in dealing with ethnocentric, expatriation and poor knowledge transfer issues. Reference List Björkman, I., Barner-Rasmussen, W. and Li, L., 2004. 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