How institutional and cultural issues impact International HRM - Essay Example

?INDIVIDUAL WRITTEN ASSIGNMENT Assignment Question: "Critically explore and examine how al and cultural issues impact International HRM with specific reference to two MNCs of your choice from different regions”. Introduction International human resource management is an important emerging phenomenon in international business. There is a sudden growth of interest over this due to the rapid growth of industrialisation and globalisation. Globalisation has revolutionized the way organisations function; it has been enhanced by continuous technological advancement, the Internet and Information Technology. Organisations have to expand both as an organisation and as a business. Businesses, which have been internationalized because of intense globalisation, have to introduce more new products and services. Competition dictates these companies to be always changing and innovative. The importance of borders between different countries is reduced, and similar events and phenomena in countries throughout the world are more easily linked. The identities of cross-border structures are strengthened, and the power of organisations operating only within the nation state is weakened. This essay will provide an analysis on the literature available on International Human Resource Management and how companies deal with the challenges of globalisation and of managing employees of different culture. Concepts and Theories International human resource management has its origin in the 1980s, as a reaction against the more functional approach embodied in personnel management (Cray and Mallory, 1998). McKern (2003) stated that during the early years of the post-war development of the modern international corporation, organisational structures evolved slowly in response to geographical and market diversity. It was easy for management to change structures incrementally. But now changes in the organisation are based on complex environmental factors. International HRM was born. Guest (1990 as cited in Cray and Mallory, 1998) says that ‘the apparent novelty of HRM lies in the claim that by making full use of its human resources a firm will gain competitive advantage’. HRM Paradigms Human resource management is the strategic and coherent approach to the management of an organisation’s most valued asset – the people. Due to the emergence of various forces in globalisation, organisations and businesses have become global as a result of technological innovations, and the introduction of more development in communications and transportation. There are two paradigms focusing on HRM. The universalist paradigm, which is dominant in the United States and widely used elsewhere, assumes that the purpose of the study of HRM is to improve the way human resources are managed strategically within organisations (Harris et al., 2003). In contrast, the contextual paradigm searches for an overall understanding of what is contextually unique and why. Many management researchers find the universalist paradigm ironically excluding much of the work of HR specialists in such areas as compliance, equal opportunities, trade union relationships and dealing with local government. This paradigm is not helpful in regions like Europe, where significant HR legislation and policy is enacted at European Union level (e.g. freedom of movement, employment and remuneration, equal treatment) as well as those of particular countries or sectors (Brewster et al, 1996, qtd. in Harris et al, 2003). HRM is now considered the determinant factor in the success or failure of international business. The success of global business depends most importantly on the quality of management in an organisation. There is a shortage of international management talent that constrains implementation of global strategies (Scullion and Paauwe, 2004). There is a lot of challenge placed on the manager in managing an organisation of different culture. Along this line of thought is the concept on comparative human resource management that explores the extent to which HRM differs between different countries or between areas within a country or different regions of the world. On the other hand, International HRM examines the way in which international organisations manage their human resources across these different national contexts. There are complex problems or issues found in international context which are not found in the national setting (Harris et al, 2003). International HRM handles different institutional, legal, and cultural circumstances which the organisation has to face in its operations. It also has to look at other management practices like cost-effective ways that can help the organisation. Countries differ in many situations. A performance appraisal system may work in the UK but not in other countries like the Middle East. Organisational culture vs. National Culture Hofstede (1984, cited in Mead, p. 8) defines culture as “the collective programming of the mind which distinguishes the members of one human group from another … [and] includes systems of values; and values are among the building blocks of culture”. Cultural differences influence the practice of international HRM. There are two cultures common in an organisation: the national culture and the corporate culture. The national culture refers to the country’s customs, tradition and values; while corporate or organisational culture refers to the practices of the founder and the employees within the organisation. (Hofstede, 1990) International HRM explores how global organisations manage the demands of ensuring that organisations have international coherence and cost-effective approach to the way it manages its people in all the countries it covers, while at the same time ensuring that it is responsive to the differences in assumptions and in what works from one location to another. This is very relevant to managing an organisation of different culture. There are countless other issues that have to be addressed by the assigned senior manager and staffs. According to Mead (2005, p. 3), ‘national culture influences how managers and employees make decisions and interpret their roles… [and] differences between national cultures create important opportunities for growth and development, but also can cause serious problems if they are not understood.’ The values of a particular group of people create a form of influence on the organisational culture. A culture is particular to one group and not others; it is learned and is not innate; it is passed down from one generation to the next; and that culture includes systems of values. Cultural differences are a key factor to globalisation. National values in other countries are more pronounced in the way people dress, talk, act socially, and in their religious ways. Cultural influences are a major concern. Most low-rank employees can be recruited in the country where business is built. Senior staff and other managerial jobs are from the country of origin. Cross-cultural concerns therefore are inevitable. This makes additional demands on the skills of the managers in handling employees of different orientation and culture. HR managers working in an international environment are obviously subject to the impact of multi-country, regional and global change and dynamism than managers in a single-country operation (Harris et al., 2003). Different countries do have different values which affect the way people organise, conduct and manage work. The HR manager is faced with interpreting the actions and attitudes of the employees, negotiate with groups that have not only different goals but different methods of reaching to the company and different expectations of the other employees’ behaviour. The problem on selection of staff depends on different factors, and one of these is the strategic decision coming from the main headquarters, if the organisation has a subsidiary or branch in another country. The main office has to decide which principle the branch office, or other branch offices throughout the world, will have to follow. Change is also concerned with customer satisfaction, or that which focuses on competitive edge, the means by which it is attained is the efficient use of the labor force. This is the change that involves the quality of the work force. It is important that firms should ensure that the selection, appraisal, training, and reward systems are the best possible, so that they are able to attract and retain a high-quality labour force (Molander and Winterton, 1994). The role of the International HR Manager HR managers working in an international environment are obviously subject to the impact of multi-country, regional and global change and dynamism than managers in a single-country operation (Harris et al., 2003). Different countries do have different values which affect the way people organize, conduct and manage work. The HR manager has to be aware of the cultural differences. He/she is faced with interpreting the actions and attitudes of the employees, negotiate with groups that have not only different goals but different methods of reaching to the company and different expectations of the other employees’ behaviour. Moreover, other normal HR activities such as recruitment and selection, training and development, reward and performance appraisal, may all be affected by cultural values and practices in the host country. In other words, the adoption of policies for HR should be given careful study. The problem of integration One of the key issues for managers in international organisations is the problem of integrating employees from several cultures. At one level the problem is the familiar one of overcoming value and behavioural differences that arises when employees from different cultures must work together (Cray & Mallory, 1998). Senior managers and staff should know how to be flexible in answering to the needs of the middle- and lower-level staffs of the organization. The branch office should be designed to accommodate different levels of tolerance for ambiguity and complexity. The problem of integration across geographic distance and cultural diversity is one that can be expected to become more prominent and more intricate as organisations grow (Cray & Mallory, 1998). The problem on selection of staff depends on different factors, and one of these is the strategic decision coming from the main headquarters. Harzing (2004, p. 251) provides three types of orientations for organisations. These are ethnocentric, polycentric and geocentric. a. Global organizations with the ethnocentric staffing policy prefer to appoint parent country nationals (PNC) to top positions at their subsidiaries. b. Organizations which follow a polycentric staff prefer to choose host country nationals (HCN). c. Firms with a geocentric staffing policy simply choose the best person, regardless of nationality. They are called third country nationals (TCN). Another staffing procedure is known as the regiocentric (Heenan and Perlmutter, 1979, cited in Harzing, 2004, p. 252) in which managers are moved on a regional basis. The Entry of MNCs in China When China opened its market to the world, Chinese firms had to introduce flexibility in their HRM. Some authors say that human resource management in Chinese firms is undergoing a ‘metamorphosis’ (Ding et al., 2005, p. 235). With the WTO accession, China partnered with international organisations; one of these being the global automakers. World car manufacturers have had their eyes on China because of its high economic growth and low per capita car ownership rate (Goh and Garg, 2008, p. 59). China is engaged in many ways with multiple businesses, for example providing outsourcing processes, delivering spare parts and components, or involved in joint ventures and mergers and acquisitions. There are however complaints of Chinese protectionism. For example, in terms of intellectual property rules, foreign car manufacturing firms have to invest in a minority holding joint venture with a local firm. This exposes them to a transfer of trade secrets and technology in exchange for little benefits. As a result of this development, the European Commission investigated and threatened legal action against China, citing WTO regulations (Datamonitor, 2006). Goodall and Warner (1997, 1998, 1999 cited in Bjorkman, 2005, p. 258) made a series of studies on Chinese-western joint ventures and domestic Chinese companies. The researchers analysed HRM practices of these companies and found that some Chinese-owned firms had adopted western HRM practices. These firms did not adopt standardization in their HRM practices. But in some studies, like that of Bjorkman and Lu (2001 cited in Bjorkman, 2005, p. 258) there were differences in HRM practices by Chinese firms. There were standardisation indices noted in the studies. To have standardized products or marketing strategies means having standard product for a common market. Standardisation sees the world as one entity with a common market (Herbig, 1998, p. 47). Corporate Governance in Siemens The German firm Siemens has heavily invested abroad. It has made a strategic decision to grow globally and find its place in the international market as the German market has become saturated. But there is stiff competition in electronics in the international market, thus, Siemens has to provide big capital in R&D. With respect to governance, German firms like Siemens have to adjust to the complexity of international firms. Globalisation has not transferred economic and corporate governance systems, but only reinforced it. Traditional systems in German firms remain in corporate governance. But managers have to adjust to the growing complexities of global firms (Borsch, 2009, p. 319). Conclusion Organisations have grown and have become global. The apparent novelty of HRM is its full use of human resources. With globalisation taking an active role in the context of HRM, institutional issues come in. State involvement in Europe has underlying social security provision. In Europe, the state has a more interventionist role in the economy, provides far more personnel and industrial relations services and is a more substantial employer in its own right by virtue of a more extensive government-owned section. In China, firms have institutionalized perspectives, making their HRM practices very different from the Western-style HRM. Most firms in China are state-owned firms (SOEs), some are joint ventures. HRM practices are traditional, and labor unions under a common state-controlled labor federations. But now, with the introduction of China as the new economic superpower, with its WTO membership, the government has introduced reforms. Chinese firms are more ‘marketized’ and HRM flexible. Former leader Deng Xiaoping was able to introduce drastic reforms on Chinese enterprises but the subtle complexities in these firms with respect to governance have remained because of what ideology advocates in terms of people management. (Ding et al., 2005, p. 235) IHRM’s primary challenge is tackling cultural differences in organisations. An organisation in another environmental setting will create a culture by itself that will have to cope with the existing culture of the country. Organizational culture is different from the existing national culture. Although firms have to adjust to cultural diversity, some traditional ways in corporate governance have remained. Effective human resource means efficiently handling the various cultures within organisations. Cultural influences are a key factor in the effective implementation of International HRM. Much focus and study should be afforded on cultural factors to include organisational and national culture. References Bjorkman, I., 2005. Transfer of HRM to MNC affiliates in Asia-Pacific. In: P. Budhwar (ed.) 2005. Managing human resources in Asia-Pacific. USA and Canada: Routledge. Borsch, A., 2009. Globalisation, shareholder value, restructuring: the (non) transformation of Siemens. In: T. Clarke and J. Chanlat, ed. 2009. European Corporate Governance: readings and perspectives. USA and Canada: Routledge. Part 5. Cray, D. and Mallory, G., 1998. Making sense of managing culture. London: International London Business Press Inc. Datamonitor, 2006. Chinese automotive trade rules: driving Europe to extremes. Available at: MarketWatch: Global Round-up. www.datamonitor.com [Accessed 2 January 2012] Ding, D., Ge, G. and Warner, M., 2005. Evolution of organizational governance and human resource management in China’s township and village enterprises. In: M. Warner (ed.) 2005. Human resource management in China revisited. USA and Canada: RoutledgeCurzon. Goh, M. and Garg, M., 2008. ChangAn automotive co. – making supply chains work. Asian Journal of Management Cases, 5(2), 2008: 57-71. DOI:10.1177/097282010800500203 Harris, H., Brewster, C., and Sparrow, P., 2003. International human resource management. London: Chartered Institute of Personnel and Development. Harzing, A., 2004. Composing an international staff. In: A. Harzing and Ruysseveldt, J. V. (eds.) 2004. International human resource management (2nd ed.). London: Sage Publications Ltd. Herbig, P., 1998. Handbook of cross-cultural marketing. New York: The Haworth Press, Inc. Hofstede, G., 1993. The interaction between national and organizational value systems. In G. Hudland and Dunning, J. (eds.) Transnational corporations: transfer pricing and taxation. London: Routledge. McKern, B., 2003. Managing the global network corporation. New York: Routledge. Mead, R., 2005. International management: cross-cultural dimensions. Oxford, UK: Blackwell Publishing. Molander, C. and Winterton, J., 1994. Managing human resources. New York: Routledge. Scullion, H. and Paauwe, J., 2004. Management: recent developments in theory and empirical research. In A. Harzing and Ruysseveldt, J. V. (eds.) International human resource management (2nd ed.). London: Sage Publications Ltd. Read More