Domestic and international HRM policies and practices - Essay Example

Identify and critically discuss the major variables which influence the differences between domestic and international HRM policies and practices In order to critically and comprehensively discuss the major variables influencing the difference between domestic and international human resource management (IHRM) we must examine the effects of globalisation which instigated the transformation of the world economic order and gave prominence to one global economy during the 1980s to 1990s. To evaluate the core discrepancies of HRM and its strategic advantages, we must first utilise a logical means of analysis and then we can understand international human resource management (IHRM). The effects of 'globalisation' are being felt all around the world today (Diken, 2003). In the 1980's large firms instigated the fourth generic growth strategy of internationalisation (Ansoff, 1965;Dollar, [n.d]), as the rise of world trade, foreign direct investment (FDI), mergers & acquisitions and technological expansion gained ever increasing momentum (Hawawini et al. 2004). The opening of foreign markets, trade liberalisation and developments in new technologies, including the onset of e-commerce is changing the way businesses operate (Bladwin & Wypolsz, 2004). The non-stability of monetary policy among other environmental changes, contributed towards global recession throughout the 1980's affecting all economies and corporations. The UK shifted in employment, from manufacturing to a service sector economy (Hirschey, 2000). The environmental transformation has proliferated competition creating awareness for organisational responsiveness, flexibility and quality with the financial bottom line justified (Harzing & Ruysseveldy, 2004). An analysis by Storey (2002:6) recognises that "HRM emerged on the scene as a historically-situated phenomenon" in the 1980's, responding to the new competitive diversity, as confidence fell with traditional management practices and thereby securing a position in strategic management. Thus HRM, more precisely strategic HRM, (SHRM) has become central towards business strategy assisting businesses to repel the economic downturn of the last two decades and now is commonly practiced and studied as academia (Maybey, 1998). The historical development of SHRM, originated in succession with the paternalist view point, personnel, human relations, industrial relations & personnel management, HRM, SHRM and was succeeded by IHRM (Ryan, 2005; Hall & Hitch, 1939). However, Dickman goes on to state that "it is necessary to go beyond strategy and structure to focus on processes to begin to understand how sophisticated international HRM may contribute to increased efficiency, responsiveness and innovativeness." (2001: 1) Ryan (2005) states that the HRM mantra achieves five key variables these being: flatter structures, cohesive cultures, strong leadership, productivity through people and customer focus. In practice HRM is largely third position on the managerial agenda (Ryan, 2005:5). In short, HRM is concerned with the management of people, the employer-employee relationship or labour regulation which has existed since the first form of formal organisation (Kamoche, 2001). HRM is also seen as the differentiating factor between successful and unsuccessful organisations, more important than technology or finance in achieving a competitive advantage. This is more so in the service sector throughout the UK (Marchington & Wilkinson, 2005). HRM is predominately undertaken by an organisation to operate its human resources successfully and includes: planning, staffing, performance management training and development, compensation and industrial relations. However, there is much heated debate and scepticism put forward on whether HRM is differentiated from personnel management and industrial relations, as some claim HRM makes apparent the contemporary reality of today's competitive environment (Beardwell et al. 2004). Regardless of the continuing debate, it is generally accepted that the functional responsibility traditionally falls under the HRM umbrella. It also involves the integration of goals throughout the firm, with the employer committed to the value of human labour (Guest, 1987). One must recognise that HRM practices are used in every organisation to manage employee issues, but the degree of use varies. Nonetheless, HRM originated as a US based concept with the 'Michigan model' being the first of its kind (Warner & Joynt, 2002). The economic growth of the 1990's was associated with multinational companies (MNC's) and FDI expansion as 53,000 MNC's controlled 450,000 subsidiaries, accounting for 25% of world output in developed economies and now the figures have risen extraordinarily. The organisation of economic cooperation and development (OECD) concede that FDI has exonerated and achieved record levels of inflow and outflows as capital movement is not restricted (Beardwell et al. 2004). This environmental change has created the need for new management prescriptions for MNC's as conventional HRM is restricted in this respect. Therefore International HRM (IHRM) was and is required to manage further intricacy with HRM being IHRM in MNC's. Human resource practices provide a potentially effective mechanism for instituting appropriate control over subsidiaries and affiliates. IHRM tackles issues which had previously not been addressed. Further, MNC's strategic precedence is vital in shaping HRM strategies that are approved. Scullion (1995:352) (cited in Storey 1992) delineates the role of IHRM as 'the HRM issues and problems arising from the internationalisation of business, and the HRM strategies, policies and practices which firm peruse in response to the internationalisation process'. Dowling (1988) (cited in Dowling & Welch, 2004) argues, IHRM involves embracing riskier broader external influences with new perspectives and more involvement in the employee's personal life. This illustrates one of the main differences between HRM and IHRM. IHRM is about the worldwide management of human resources and raises questions about the employer-employee relationship in the global era. An example of this increased involvement between employees and the HRM functional unit is the increased use by IHRM of expatriate employees; this is best described as a person who transfers from one nation to another to complete an assignment, with IHRM dedicating various models to showcase this. The primary motives for using expatriate labour are to fill positions, to provide management development opportunities and to support organisational development (Harzing & Ruysseveldy, 2004). The international environment is complex compared with domestic influences, although some firms see this as demanding (Worthington et al. 2001). This can be attributed to a number of factors, not least because of international taxation and relocation, administrative services for expatriates, language translation services and host government relations (Begg, 2003). The requirement of local administrative information and language services, are intended to relieve the burden of host country policies, due to legal policy differences. Although, Janssens et al. (2004) argues that English is the global language and speech barriers are minimal. Moreover, government relationships are crucial, as bribes and gifts are given within the third world. The possibility could exist that International tax be paid in domestic and host nations, therefore an incentive to accept overseas assignments must be given. On average, MNC's individually incur $1.2 million in expenses for overseas assignments. A study by Price Waterhouse revealed that 5% of internationalisation is doomed to fail (Dowling & Welch, 2004). This justifies the growth of strategic alliances internationally (Luo, 2005). Furthermore, Bossard & Peterson's (2005) empirical research concludes that it is critical for MNC's to develop a new type of cosmopolitan manager and executive, in order to reduce the propensity of failure and advocate international assignments. What is more, HR managers dispersed internationally are faced with increases in labour diversity and a whole range of associated problems. Such managers are paid further premiums on salaries even on desirable locations raising question about the financial bottom line and the cost effectiveness of such assignments. (Stroh, 2000). The reward process for expatriate employees in comparison to domestic employees is not equal which may create problems for IHRM. The HR department needs to ensure that the expatriate employee understands housing arrangements, health care and all aspect of the compensation package provided for the assignment. Also the personal lives of employee are open to cultural differences as opposed to domestically. The major benefit, however, of utilising the expertise of the expatriate employee is their knowledge of the company culture, processes and functions which greatly reduce the 'learning curve' involved. However, when viewed from another perspective Grainger and Nankervis point out that the early views by of IHRM were rather one-sided and limiting. As globalisation is increasing, it is becoming apparent that to conceptualise MNC's expansion as purely that of Western companies expanding into third world areas has proved to me inaccurate. (79) This west to east flow of globalisation has proven to be false. Current research into IHRM practices is required as too often MNCs are relying on old data and speculations derived based on these early trends. As Scullion and Brewster found in their 1999 research "there have been significant changes in the nature of international operations which have resulted in a growth in expatriation which does not follow the traditional from - developed - to underdeveloped country pattern." (48) What was once the accepted pattern of this west to east flow is now becoming quite outdated as emerging technology in the east continue expanding westward. International operations involve a great number of risks and uncertainties, which are demanding, illustrated by the threat of terrorism, creating a great deal of speculation and revenues for understanding entrepreneurs. However Schuler et al. (1993) has an integrative framework of IHRM, which is a conceptual framework that attempts to indicate HRM activity to varying requirements of integration in tandem with local strategic responsiveness (Huczynski & Buchanann, 2001). Additionally, the maturity of international operations changes the emphasis of HR activities at a later stage that may allow for high quality local labour and broaden HRM tasks of recruitment, training and compensation. Consequently many multinationals have an international human resource department (Dowling & Welch, 2004). The majority of variables that influence the difference between domestic and international HRM are: culture, the industry, environmental uniqueness, home nation reliance and attitudes of senior management (Dowling & Welch, 2004). Firstly, we should discuss the cultural environment. There are numerous definitions of the term culture, but what is universally accepted is 'a person or a group or society share a distinct way of life with common values and behaviours that are transmitted over time in a gradual, yet dynamic, processes' (Phatak, 1995) (cited in Dowling & Welch, 2004). The cultural environment in each country is varied; this is because no two counties are the same, leading to the development of unique beliefs and opinions. IHRM demands management to perpetually evolve in response to a culturally diverse environment, however failing to do so may lead to 'culture shock', developing self alienation and the desire to return home. MNC's require the movement of labour across national borders, thus an understanding of cultural sensitivities is imperative as these difference can often inhibit the organisation (Dowling & Welch, 2004). The clashes of culture in MNC's is common but maybe avoided, 'Mosaic Marketing Services Group' a US corporation, which purchased 'Stretch the Horizon' a UK national business for 19 million in 1992 and proposed, big US style plans for greater market share with mergers & acquisition, key to reaching objectives is a good illustration of this. Recently 'Mosaic Marketing Services Group' announced the closure of its UK branch 'Stretch the Horizon' as the 166 million debts emerged. 'Mosaic Marketing Services Group' endorsed that the reason for business failure was the clash of culture on an operational level which was further intensified by the introduction of a new US manager to rectify the growing debt. Further, the big idea's streaming from the US created grounds for speculation and uncertainty among the 200 employees in the UK workforce. In short, the HRM department was undifferentiated in its approach towards 'Stretch the Horizon' and did not anticipate the strong effect of culture (Rubach, 2002). This lack of planning and understanding of cultural differences, unfortunately, led to the loss of all these jobs. Therefore, an awareness of cultural differences is essential for HR managers at the company headquarters as well as the host location and any business activity must be culturally suitable. Beardwell et al. (2004:693) states that "culture is notoriously difficult to define". However, there are management practices which are globally accepted regardless of the culture. Also, this highlights the point of nations being more alike (Hofstede, 1984 cited in Huczynski & Buchanann, 2001). The key is to understand and anticipate cultural differences and determine ways to make them assets not liabilities. The global economy includes many countries with unique national business systems (NBS). The last ten years has a significant body of analytical literature corroborating the empirical underpinnings of the notion of distinctive national business systems (Ferner, 1997).Historically all countries followed a distinctive path to a predominantly capitalist/free-market system with economies revolving around unique external influences (Sloman & Sutcliffe, 2001). The environmental distinctiveness has helped shape the industry composition. Britain's industrial composition is characteristic of voluntary market driven associations, with and between capital and labour where the employer is largely responsible for employee training and development. The capital based financial system is largely unregulated by intermediaries and financial short-termism exists. Further the effort-reward relationship and collective bargaining is socially regulated within the state (Ferner & Hyman, 1998). The UK embraces a lesser degree of standardisation, specialist production facilities, concentration on core business activities and more differentiated markets subsist. Chandler (1990) characterises the UK business system as 'personnel capitalism'. Concerning the UK business system, Lane asserts (1995) that it is individualist and financier dominated. In contrast, the US economy is typical of 'competitive managerial capitalism' and emphasised exceptionally large vertically integrated firms with standardised output and gains from scale economies as the domestic market is large and homogeneous. The large consumer base in the US and UK has assisted the growth of MNC's and introduced new innovative organisational structures capable of supporting these large firms, notably encouraging expansion of the multidivisional structures (Ferner, 2000). Moreover, Whitley (1992) argues that the US and UK are within arms-length of contractual relationships between firms as both nations have so-called deregulated markets with flexible entry and exit policies (Porter, 1998). He further denotes that MNC's based in these atomistic markets are better suited to operating in the international economy. In MNC's the HRM behaviour that is exhibited is significantly influenced, directly or indirectly, by a country of origin's NBS. hich encoragingtedstrated ' owingntriesess sysytems e notion of distictive being the first of its kindnships between firmsThe reliance of MNC's on the country of origin is a persuasive but often-ignored factor, expressed as the MNC's deep-rooted business principles. Before deciding to internationalise, firms maintain market power in domestic sectors as this facilitates the ability to operate, overseas. Porter (1998) analysed the role of HRM in multi-domestic and global industries via his value-chain model, concluding that HRM operating over national boundaries still contains a flavour of the expanding country. The globalising of MNC's identifies the strong entrenchment within their domestic market (Ferner, 2000). Further, Ferner (2000) labels the reproduction of MNC overseas behaviour as 'isomorphism'. Conversely, the adoption of dissimilar behaviour is known as 'differentiation'. Also, the debate on relocation commends the view of firms internationalising, to escape from constraints of the singe domestic market. For example, many UK established MNC's produce in the Far East to break away from unionisation, the minimum wage act and cost reduction in a range of operational functions (Huczynski & Buchanann, 2001). Moreover, a number of MNC's can affect government policies of the host nation resembling the manner of a monopoly of sorts (Marchington & Wilkinson, 2005). IHRM and its complex strategies, programs, processes and procedures are fundamental to the ultimate success or failure of the MNC (Dickman, 2001: 3) The attitudes of senior management differ from one nation to another. However, Perlmetter (1969) (cited in Beardwell et al. 2004) initially defined four types of organisation based on the senior management's mindsets, which reflect the extent of home, host and global values which are perceived as important or not. Although it is argued that the above mindsets are the underpinning of multinational strategic IHRM, based around the underlying thinking of HRM. Perlmetter (1969) is also criticised by many as the four mindsets lack detail and are open to interpretation. To resolve this solution Adler & Ghader (1990) (cited in Beardwell et al. 2004) put forward the product life cycle (PLC). Similarly, Milliman & Von-Glinnow (1990) use the organisational life cycle in their discussion; both schemas are designed to analyse IHRM in MNC's, both parent and host country, over time and with strategic changes. It is understandable that management continually seek to be aware of the environment and have created unique attitudes and beliefs to remedy the solution (Curator & Hodgetts, 2004; Fardon et al. 2002). The convergence and divergence debate currently stand on par with each other, although MNC's can be seen as a driving force for convergence, as it promotes standardised HRM foundations that are applicable across national boundaries. The UK can be considered as weak in divergence as there is no overall trend. The convergence of nations may not be in complete terms, but there are some underlying similarities which subsist and continue (Warner & Joynt, 2002). However there are grounds for thinking that the national model will remain the same (Ferner, 1997). In all fairness, it is difficult to predict the future implications of this tenuous debate. However, "as the pace of internationalism has accelerated, and the scope broadened to include various sizes and types of organisations, the need for cross-cultural awareness and understanding of the daily operations of international business has become more salient." (DeCierie, Fenwick & Hutchings, 2003: 4) which requires the strategic alliance of company polices in conjunction with the dual roles required to modern IHRM. In conclusion, the overpowering effects of globalisation have created environmental volatility and a base for increased competition. This required management to explore further strategic theories and models, which came in the form of HRM to shed light on the dilemma. Thus, HRM has provided the impetus for organisations to repel the economic problems associated with the 1980's, although there is an ongoing debate about all aspects of HRM. The 1990's was marked with large firms seeking to internationalise to achieve MNC status and management again need a strategic tool to manage the sophistication of the global environment. Therefore IHRM was instigated as a model for managing the extra labour activities, which addressed HRM issues with the diverse conditions, key to this was the expatiate manager/employee. By in large, the extra HRM activities which have been discussed show the need for information to be generated about any potential assignments with the cost and failure rates being displayed. The variables that influence the difference between HRM and IHRM are: culture, the NBS, the industry, environmental uniqueness, home nation reliance and the attitudes of senior management. The cultural environment cannot be over emphasised on the part of the MNC or the expatriate employee and must be fully understood if the firm wishes to be a success abroad and domestically. 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