How Is the HRM Function of Multinational Companies Organized - Essay Example

? How is the HRM function of multinational companies organized and what are the specific issues of International HRM for multinational companies operating across borders? The Multinational Corporations other than international trade represent the key force behind the process increasing interdependence among economies termed as globalization. The European countries view the multinationals as the source of ‘European integration’. Increasing Mergers and acquisitions, with ongoing joint ventures have increased ‘multinational penetration’ and integrate the productions of the different member states. The MNCs play a significant role in the process of international trade as they play the main vehicle by which the maximum amount of goods and services penetrate around the world and they are “the principal agents of internationalization of the world” (Ferner, 1994). The study of the Human Resource Management in the context of the multinational corporations needs no justification as according to United States 73 million people were employed by the MNCs in the year 1994 which represents almost 20% of the employment in the industrial sector worldwide. Moreover almost 40% of the working population depends indirectly on the MNCs for employment. As these companies employ people of different countries with different cultural economical and social backgrounds, the strategies, policies and practices concerning with the Human Resource Management of these companies are perhaps the most complicated among all managerial works. The larger the company will be in terms of the exposure and geographical reach the more will be the number of the employees of the company and hence more complicated will be its management .An effective human resource management is very necessary in order to gain competitive advantages in the market as the MNCs compete to capture the market share of countries. (Tayeb, 2005, pp. 4-5; Noe, Hollenbeck, Gerhart, & Wright, 2005) Organization Human Resource Management System in a MNC Human resource management involves achieving goals of the company through management of the employees of the company and is essentially the invention of the Americans. HRM system is based on the assumption that all personnel activities of the employees are integrated not only with each other but also strategically with the objectives of the organization as a whole and it is the function of the HRM to utilize this asset to the best use of the organization. HRM designs the management system to ensure human talent is effectively and efficiently used in order to meet the goal of the organization. This system of management emerge because of the requirements of the companies and the labor market conditions prevailing in the country. The system of management gain importance mainly in the ‘non unionized companies’ of the country. With the success of the management in the country it becomes increasingly famous in other developed countries mainly the European nations as they adopt the system with changeable scales of success. (Tempel, 2001, pp.113-114) With the growth of a multinational company the workforce of the organization changes and hence the law and the needs of the company also changes. So the activities of the HRM need continuous change. HRM considers how the human resource contributes to the overall strategies of the companies and hence are implemented in regard to the overall strategy consideration of the company. Porter in 1985 divides the functioning of companies into two parts. First comes the primary activity which involves inbound and outbound logistics, marketing and sales activities and operations. The second part is the supportive activities of a company which includes infrastructure and technological development, procurement and HRM. This is because HRM along with the other supportive activities ensures the effectiveness and efficiency of the former activities. A fundamental question that often arises is whether a better HRM strategy creates more market value or the financially successful companies allocate more resources for initiatives of the HRM system of the organization. Studies reveal that hiring ‘the right people’ for the company, supporting their productivity and the creative thinking of these people increase the share value and performance of the company and helps in creating a competitive advantage for the organization. The first activity of the HRM consists of Strategic HR management which includes HR effectiveness, HR measurement, HR technology, HR planning and HR retention. The second activity is to provide Equal Employment opportunity through compliance, diversity and affirmative action. The third activity is staffing which involves job analysis, recruiting and selection of candidates. The fourth activity involves maintaining employee and labor relations through employee rights and policies, maintaining privacy and transparent management relations. The fifth activity of the system is risk management and protection of the employee’s health, safety and security of them and a proper planning of disaster and recovery. The other activities involve training, career planning, managing the performance and overall HR development. The compensations, incentives and other benefits provided to the employees are also managed and the concern of the HRM system. (Tempel, 2001, pp. 113-114; Mathis, Jackson, 2007, pp. 4-8; Shong, 2008, p. 93) The implication of the system of human resource management differ among companies due to the difference in the structural factors affecting the MNCs, differences in the style of the management of the companies, the difference in the method of growth the company is adopting and also due to difference in the maturity level of the company and job division. In ‘multi domestic’ companies the corporate headquarters of the country take least initiative in exerting the home country’s influence on the HRM sector of the company. According to the style of the management the MNCs can also be differentiated. The polycentric style of management believes that countries differ among themselves in terms of their culture, their political and legal backgrounds, thus the management of human resource in companies following the polycentric management style is generally handed over to the managements recruited locally adapting the conditions prevailing in the local environment. The ethnocentric style of management believes that the practices of the home country superior to that of the host countries and hence the decision making power resides in the hands of the home country management. According to Evans and Lorange (1989) the polycentric system decentralizes the HRM in the hands of the local subsidiaries and develops few guidelines for the international network of the human resource. The head quarters of the company are responsible for handling the recruitments and advising on appointments. In contrast to that the ethnocentric companies innovate human resource management in countries they operate. They have much more centralized HRM system. The detail of the management guidelines are decided by the company according to which the subsidiaries shape their behavior. The effect of the ‘country of origin’ is much less in those companies. Moreover MNCs that have expanded through Greenfield investments are more able in influencing the HRM policies whereas the MNCs that acquire existing operational structures for expanding are less likely to influence and hence have to adopt the existing HRM practices of that corporate culture. A globally diversified firm has more complexities in the context of increasing ‘global hyper competition’ and this is increasing the challenge of the Human resource management system. The top level management of the company is in search of appropriate ways in managing the emerging new markets for enjoying a competitive advantage and the HRM system need to continuously support these efforts. There are many challenges for the HRM system given the complexity of managing the international operations. So the crucial component in order to implement a global strategy is the system of International Human Resource Management which is gaining increasing reorganization as the major determinant of the success and failure of an organization. (Tempel, 2001, pp. 114-117; Schuler, Jackson 2007, p. 431;Shong, 2008 p. 94) The need for International Human Resource Management system There has been a huge development in the study of the international Human resource management over the years as with increasing internationalization and globalization the system is getting more and more complicated. A large number of sophisticated theoretical works have been contributed on this field in the recent years. Scullion (2001) identified the main reasons behind the increasing interest in IHRM. Firstly internationalization and global competition increased the number of the MNCs and also their significance which results in increase human resource mobility. Secondly the quality of the human resource management is a crucial determinant of the success and failure of a MNC in international business. Failure or underperformance in the international commitments is costly both in terms of human capital and financial capital. Moreover it also hampers the relations with the foreign customers which have an indirect cost associated with it. Finally the growing evidence that the HR strategies play significant role in implementation and control of policies in international firms is the reason behind the growing importance of IHRM in MNCs. (Harzing, Ruysseveldt, 2004) The International Human Resource Management (IHRM) systems have different underlying philosophies and thus three orientations can be distinguished. The three orientations are adoptive, export-oriented and integrative. HRM system designed for the subsidiaries by the MNCs with adaptive orientation reflect the local environment. Export oriented MNCs transfer their parent HRM system to their subsidiaries. Finally the integrative oriented approach has the HRM system that resembles and originates from both the parent company and the subsidiaries. The central issue of MNCs is to recognize the ‘best fit’ for the strategy of a firm, its structure and the IHRM approach. While on the one side strategies considering the global issues are significant determinant of the IHRM policy and its practices, IHRs on the other are ‘strategic resource’ which affects a firms’ formulation and implementation of strategies (Harzing, Ruysseveldt, 2004, pp.65-68; Edwards, 2007, pp.37-38; Perkins, Shortland, 2006, pp.35-36 ). Thus the international activity of a MNC and IHRM are interrelated and dependent. The impact of international activity of a MNC on the International Human Resource system of the company differs according to ‘the stage of internationalization’, ’ the global nature’ of the company and the choices the company makes in handling the international operations.(Briscoe, Schuler, Claus, 2008, p. 29; Hutchings, Cieri, 2007, p. 114) Specific issues of IHRM The International Human Resource Management system has been formed in the expectation that it will be able to solve the global issues of human resource such as Global staffing, compensation and pension schemes, the health care system and the development of the management system of the global enterprise. Recruitment and selection of global employee, providing them with need training programs and maintenance of global labor relations are also the issues considered by IHRM. The IHR is expected to provide the enterprise with strategies regarding effective cross border assignments, professional networking globally, and effective team environment that will help in customizing people from different countries and different corporate cultures and also to help the enterprise in administering these strategies. The modern form of business involves fragmentation of the overall organizational works for which the organizations should integrate the IHRM coherently in order to create more strategic approach for assessing the cost and the benefit from the international work. The core of the IHRM system contributes to ‘the strategic goals’ of the company and to the ‘life goal ‘of the present and the future individuals who are the internationalists. Employing individuals from different countries increases the cultural diversity within the organization. There may be problems related to language and communication and adjustment among the employees which an effective IHRM can function to alleviate these problems. (Briscoe, Schuler, Claus, 2008, pp 31-32: Dickmann, 2008, p 17: Keller, 2010, pp.1-3) The different strategies that the IHRM considers in order to handle multicultural environment are adaptation which means openly acknowledging the cultural gaps and work around them, structural intervention which involves bringing changes in the team and managerial intervention that is bringing within the environment a higher level manager. The other way outs are ‘task related selection’ which means that team members should be selected on the basis of their ability of doing the required work and not on the basis of ethnicity in order to maximize the productivity and the effectiveness of the team environment. The team members need to focus on increasing the cooperation and collaboration between the team members which increase ‘mutual respect’ by reducing prejudice. Cultural dominance within a team reduces the productivity of their team work and hence the team members should focus on distributing the power on the basis of the ability of the individuals and not on the basis of cultural dominance. There is need for the larger organizations to adopt more sophisticated and flexible IHRM policies in order to gain legitimacy. Moreover, in order to work effectively in the global environment the IHRM policy should encourage the employees to work more cooperatively among themselves to add value and innovations to the organization by moving away from competition and imitation. A well developed IHRM policy should be able to differentiate the decision making at the corporate level and their acceptance by the subsidiaries. Secondly through significant collection of data and its analysis the IHRM should be able to refer strategic changes for the global organization. (Aswathappa & Dash, 2007, pp. 55-57: Stahl & Bjorkman 2006, p. 24: Cooke, 2003, pp. 101-102) The demand side and the supply side of labor in different countries is also the concern of the international human resource management system. It is a pre-requisite for an international organization to have a well maintained and coordinated HRM system that according to the needs of the organization meet the demand for human resource for the purposed of capacity building, innovation and sustain a proper knowledge base for further research and development in the organization. In the world of fragmented production the IHRM system also needs to ensure that production is being held in the optimal way in minimum cost. For that a thorough and comparative study of the resource availability of each member country is needed by the IHRM. The Foreign Direct Investment of an MNC also depends on the flexibility of the human resource system of the global organization. (Strategies Information Management and Human Resource development, 2004, p.110) Employees of these MNC organizations often argue that the HRM system is a worst ‘bureaucratic force’ that enforce rules that are not always necessary and restricts creativity. Despite all these criticisms HRM system is of huge importance in any multinational company especially due to the huge government regulations that are increasingly enacted these days. Therefore it can be said that the competitiveness of the organization depends on its IHRM system in the world of increasing population and competition. References Noe, R.A., Hollenbeck, J.R. Gerhart, B. & P. Wright (2005) Human Resource Management, 5th edition, McGraw Hill. Tayeb, M. H (2005), International Human Resource Management, Oxford University Press Tempel, A. (2001), The Cross National Transfer of Human Resource Management Practices in German and British Multinational Companies, Rainer Hampp Verlag Mathis, R. L & J, H, Jackson, (2007), Human Resource Management, Cengage learning Schuler, S R & S, E, Jackson, (2007), Strategic Human Resource Management, Wiley-Blackwell Shong, J, L, C (2008), International Management, Lulu.com Scullion, H (2001), International Human Resource Management, Human resource Management, London, International Thompson Harzing, A, W & J, V, Ruysseveldt, (2004), International Human Resource Management, SAGE Briscoe, D, R, Schuler, R, S & L, M, Claus (2008), International Human Resource Management, Taylor & Francis Dickmann, M. (2008), International Human Resource Management, Taylor & Francis Keller, M (2010), International Human Resource Management, GRIN Verlag Aswathappa & Dash (2007), International Human Resource Management, Tata McGraw- Hill Edwards (2007), International Human Resource Management, Pearson Education India Perkins, S. J & S. M, Shortland (2006), Strategic International Human Resource Management, Kogan Page Publishers Stahl, G. K & I, Bjorkman (2006), Handbook of research in International Human Resource Management, Edward Elgar Publishing Cooke, W.N (2003), Multinational Companies and Global Human Resource Strategies, Greenwood Publishing Strategies Information Management and Human Resource development (2004), Information service and Use, Vol-24, issue -2, pp 109-113 Hutchings, K. & H. D. Cieri (2007), International Human Resource Management, Ashgate Read More