International Human Resource Management in the European Perspective - Case Study Example

International Human Resource Management in the European Perspective Introduction The increasing number of cross-border alliances and mergers both within Europe and between Europe and other parts of the world has made it imperative for students of management to have a thorough understanding of the European context for human resource management. International human resource management is an important emerging phenomenon in business and organizations. It was considered in its infant stage some three decades ago, but there is a sudden growth of interest over this phenomenon due to the rapid growth of industrialization and global organizations. Cray& Mallory (1998) say it was a reaction against the more functional approach embodied in personnel management. Relative to this phenomenon is another growing trend which is globalization. Organizations and businesses have become global as a result of technological innovations, and the introduction of more development in communications and transportation. The internet and information technology have revolutionized the way organizations and businesses work. Globalization is not new. This has been with the world business and economy since the centuries after Columbus and da Gama started their voyages from the Mediterranean. Globalisation has revolutionized businesses and organisations. A commonly accepted definition of globalization by economists, says Van Der Bly (2005, p. 875), is that it is the “international economic integration that can be pursued through policies of ‘openness’, the liberalization of trade, investment and finance, leading to an ‘open economy.” The importance of borders between different countries is reduced, and similar events and phenomena in countries throughout the world are more easily linked. Background There are various factors that contribute to the growing interest in International HRM, and these are: 1.) HRM is now considered the determinant factor in the success or failure in international business (Black et al., 1999, cited in Scullion & Paauwe, 2004), and also the success of global business depends most importantly on the quality of management in the MNC (Stroh and Caligiuri, 1998, cited in Scullion & Paauwe, 2004); 2.) Underperformance or failure in international assignments continues to be costly, both in human and financial terms; 3.) The implementation of global strategies is frequently constrained by shortages of international management talent (Caliguiri and Cascio, 1998, cited in Scullion & Paauwe, 2004); 4.) SMEs are becoming internationalized in recent years, hence the need for more knowledge on International HRM. 5.) There is growing evidence that HR strategy plays a more significant role in implementation and control in the international firm (Scullion and Starkey, 2000, cited in Scullion & Paauwe, 2004). The people are the organization’s greatest asset, and human resource is to manage or maximize this special asset. This has a further link to HRM’s definition: “HRM emphasizes that employees are critical to achieving sustainable competitive advantage; that human resources practices need to be integrated with the corporate strategy, and that human resource specialists help organizational controllers to meet both efficiency and equity objectives” (Bratton, 1999, p. 11). One of the first explicit statements of the HRM concept was made by the Michigan School (Fombrun et al, 1984, cited in Armstrong, 2006, p. 4), which held that HR systems and the organization structure should be managed in a way that is congruent with organizational strategy (hence the name ‘matching model’). Human resource policies should be integrated with strategic business planning (Legge, 1989, cited in Armstrong, 2006, p. 13). But Sisson (1990) suggests that a feature increasingly associated with HRM is a stress on the integration of HR policies both with one another and with business planning more generally. Storey (1989) states that ‘a characteristic of HRM is its internally coherent approach’ (Armstrong 2006, p. 13). HRM Paradigms There are two paradigms focusing on HRM. The universalist paradigm, which is dominant in the United States, is widely used elsewhere. This paradigm assumes that the purpose of the study of HRM, and in particular strategic human resource management, is to improve the way that human resources are managed strategically within organizations. The ultimate aim of this work is to improve organizational performance, as judged by its impact on the organisation’s declared corporate strategy (Tichy, Fombrun and Devanna, 1982; Huselid 1995, cited in Harris et al., 2003). Another kind of paradigm is the contextual paradigm which searches for an overall understanding of what is contextually unique and why. Many management researchers find the universalist paradigm ironically excludes much of the work of HR specialists in such areas as compliance, equal opportunities, trade union relationships and dealing with local government. The universalist paradigm has strength – a simple, clear focus, a rigorous methodology, and clear relationships with the needs of industry. In Europe much of the research is located in the contextual paradigm, concerned to develop a critique of the relationship between owners and/or managers and the employees and the society in which the organisations operate (Mayrhofer et al., 2000, p. 9). The European Context Human resource management (HRM) has achieved significant importance in the last few years, in practice and in the literature. The growth of major international trading ‘blocks’ – in South East Asia, North America and, in its most advanced form, in Europe – has accelerated these trends. (Brewster and Hegewisch, 1994, p. 1) HRM as a concept has come to Europe from the United States. It has been subject to significant criticism in Europe. Poole (1990) and Hendry and Pettigrew (1990, cited in Brewster and Hegewisch, 1994) start from the Beer et al. (1985) model and wish to amplify it to include environmental factors. Hendry and Pettigrew add three headings: under ‘economic’ they include ownership and control, organizational size and structure, the growth part of an organization, industry structure and markets; under ‘technical’ they refer to skill, work organization and labour force requirements of technologies; ‘socio-political’ encompasses the institutional framework, particularly the national educational and training system. (Brewster and Hegewisch, p. 3) The Convergence and Divergence Debate Convergence theory suggests that antecedents specific to the organization explain the existence of HR policies, while country specific differences are less significant (Sparrow et al., 1994; Weber et al., 2000; Tregaskis et al., 2001, cited in Brewster et al., p. 18). This is linked to Max Weber’s theory of bureaucracy and rationalization on long-term convergence. Weber argued that whether the economic system is organized on a capitalistic or a socialistic basis, applying technical knowledge efficiently requires the adoption of the bureaucratic system with its universal characteristics. Brewster (1995) argues that the European model is a model of convergence in HRM. European countries are more heavily unionised than the US, and also most other countries. In many European countries the law requires union recognition for collective bargaining. Many of the union functions in such areas as pay bargaining, e.g. are exercised at industrial or national level – outside the direct involvement of managers in individual organisations – as well as at establishment level (Hegewishch, 1991; Gunnigle et al., Traxler et al., 2001, cited in Gooderham, 2004, p. 20). On the other hand, studies of HRM in the US have tended to take place in the non-unionised sector (Beaumont, 1991, cited in Gooderham, 2004, p. 21). The constant assumption in research programmes in the US has been the link between HRM practices and no-unionism. “In the US a number of … academics have argued that HRM [the concept and the practice] is anti-union and anti-collective bargaining” (Beaumont 1991a, p. 300, cited in Gooderham, p. 21). Furthermore, state involvement in HRM in Europe is not restricted to the legislative role. Compared to the US the state in Europe has a greater involvement in underlying social security provision. Equally it plays a more interventionist role in the economy, provides far more personnel and industrial relations (IR) services and is a more substantial employer in its own right by virtue of a more extensive government-owned section. Moreover, Gooderham et al (2004) stresses that in a historically unique experiment, EU countries have agreed to subordinate national legislative decision-making to European-level legislation. These affect upon the way people are managed and direct effects through the EU’s adoption of a distinct social sphere of activity. In particular it would appear that the European Community Social Charter and its associated Social Action Programme are having an increasing legislative influence on HRM (Brewster and Teague, 1989; Brewster et al., 1993, cited in Gooderham, 2004, p. 21). European Management is described as “emerging, and cannot be said to exist except in limited circumstances; it is broadly linked to the idea of European integration, which is continuously expanding further into different countries; reflects key values such as pluralism, tolerance, etc., but is not conscious developed from these values; and, is associated with a balanced stakeholder philosophy and the concept of Social Partners” (Thurley and Wirdenius, 1991: p. 128, cited in Gooderham, 2004, p. 21). European competitiveness has been continuously challenged. In 1995 the European Commission formulated a study for the loss of European Union competitiveness on the world economic scene, and the findings presented at ESADE (Escola Universitaria del Maresme) entitled ‘Flexible Working Practices: The Challenges for Europe,’ examined the challenges to the European Union and explores some non-conventional ways of responding to the challenges. (Serlavós & Aparicio-Valverde, 2000, p. 37) The Report focused on the need to increase competitiveness and combat high and persistent rates of unemployment to support more labour flexibility. The negative sides reported were unemployment rates in Europe which doubled those of the USA and triple those of Japan, and the levels of social protection that are costly, raising very high public deficits. Flexibility of labour markets is now one of the governments’ lists of priorities as they attempt to show their concern for the needs of companies forced to compete on a wide-open global market where capital, information, goods and services, now move freely and at very high speeds. (Serlavós & Aparicio-Valverde, 2000, p. 38) The European countries have clearly opted for a model based on technological innovation, diversification of high value-added goods and services, and investments in capital and human resources. However, Spain made an opposite move by using unskilled labour with a low rate of productivity and low labour costs (Alvarez, 1996, cited in Serlavós & Aparicio-Valverde, 2000, p. 38). The need for flexible working practices is really one of Europe’s challenges at the advent of the twenty-first century. According to Serlavós and Aparicio-Valverde (2000, p. 38) flexibility is understood as the “corporate objective of being able to quickly and effectively respond to the changing demands of the environment.” This definition can be understood as flexible working practices. Atkinson (1984, cited in Serlavós & Aparicio-Valverde, 2000, p. 39-40) argued that companies are striving for three types of flexibility, and these are: 1. Functional flexibility – in this instance, employees can perform different tasks and functions within their organization. 2. Numerical flexibility – in this situation, companies can easily and quickly reduce or expand their total number of employees in order to strike the perfect balance between the workforce employed and the workforce actually required. 3. Financial flexibility – here companies attempt to link labour costs to performance both individual and corporate. There are various positive features of flexibility. In addition to enabling organisations to quickly and effectively adjust to changing demands in their environment without suffering major upheaval, there are concrete advantages such as lower wage and other costs related to salaries, the possibility of quickly finding substitute employees, and increased opportunities for employer to acquire employees with specific skills (Lenz, 1996, cited in Serlavós & Aparicio-Valverde, 2000, p. 45-46). Other advantages point to the positive results of part-time employment as a good way of reconciling work and family demands in a setting like Europe, where although 40 percent of the women are part of the labour market, the family is still considered to have the great responsibility in caring for children and other dependents and transmitting social and cultural values (Serlavós & Aparicio-Valverde, 2000, p. 46). However, flexibility should not be a goal but a strategy for responding to certain needs. Indiscriminate use of flexible working practices can lead to a series of problems. Some of these problems are: 1. Flexible working practices, performance and industrial safety – When employees take their leave from one company to another company, they will have to adjust to the new culture, and learn the ropes of the new workplace. This requires ample time and may result in a lot of mistakes and accidents. It was found in a study in France by Francois (1991, cited in Serlavós & Aparicio-Valverde, 2000, p. 47) that the risk of industrial accidents is consistently higher among temporary employees. 2. Organisational health and sustainable flexibility Flexibility also requires setting certain limits at the organisational level. According to the Report to the European Union, flexible contracting is HRM’s equivalent of just-in-time or lean production. With these systems, only the resources actually in use are physically present in the company, thus saving warehousing costs and the need to manage idle resources. But in this situation, the company may find itself short of employees.( Serlavós & Aparicio-Valverde, 2000, p. 47) 3. The dual labour market and a decrease in aggregate demand The growing number of people with short-term contracts and no idea of what their job and economic situation will be like in the near future will emerge in this situation. 4. Changes in the concepts of work and life style Handy (1986, cited in Serlavós & Aparicio-Valverde, 2000, p. 49) argued that there will come a time that we would move from full-time employment to part-time work which could involve moving and changing careers, and so forth. The European Workshop as commission by the European Commission concluded: 1. Flexibility is necessary but not enough. There are also loopholes to this concept. 2. Flexibility may not necessarily be improvisation. Companies have to apply planning and strategic HRM. 3. Flexibility can be seen as an opportunity for certain segments of the population to enter the job market, but in this situation, jobs become precarious, employees are insecure and less involved in their work. 4. Technology may not be enough to create more jobs to compensate for those left behind by employees. 5. Flexibility must be managed in such a way that a balance is struck between the demand for competitiveness and the need for social cohesion. References Armstrong, M., 2006. A handbook of human resource management practice. London: Kogan Page Limited. Bratton, J., 1999. Human resource management phenomenon. In J. Bratton and J. Gold, Human resource management: theory and practice. London: MacMillian Press Ltd., pp. 3-11. Brewster, C. & Hegewisch, C., 1994. Human resource management in Europe: issues and opportunities. In C. Brewster & C. Hegewisch, eds., 1994. 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New Challenges for European Human Resource Management. Great Britain: MacMillan Press Ltd. pp. 37-50. Storey, J., 1995. Human resource management: a critical text. New York: Routledge. Van Der Bly, M., 2005. Globalization: a triumph of ambiguity. Current Sociology 2005, 53 (875), DOI: 10.1177/0011392105057153. Read More