International and Comparative HRM - Assignment Example

International and Comparative HRM Introduction In today’s highly complex and dynamic global business environment, multinational organisations have experienced an increasing workforce diversity, which further aggravates the dilemmas of human resource management (Sparrow & Hilltop 1997, p.201). MNCs often have trouble in managing their diverse workforces because they operate within different contextual factors unique to the different cultural backgrounds in different countries. Transfer of best HR practices to host countries is often problematic due to the varying environmental factors between host countries and countries of origin (Tungli & Peiperl 2009, p.153). As argued by Edwards et al. (2001, p.201), the intricate connection between markets and institutions, and the physical benefits of actors ultimately influence the transfer of HR practices within MNCs. This paper will critically evaluate the manner in which host and home country environments interrelate to yield the forces that eventually influence the transfer of HR practices within British MNCs operating in China. This evaluation will consider the cultural, institutional, and organisational barriers or facilitators while citing examples of specific HR practices that are more likely to be adopted in the Chinese national cultural and institutional context. Nature of MNCs Within the context of increasing interconnectedness and interdependence of nations, businesses have successfully expanded their operations beyond national frontiers thereby leading to the rise of MNCs (Ferner & Quintanilla 1998, p.710). MNCs can simply be understood as corporations that have their headquarters in one state and operations spread out in several other countries as suggested by the word multinational. MNCs are naturally oligopolistic powers that tend to dominate markets while joining forces with other great businesses to gain monopoly. MNCs explore the latest advanced technologies to deliver excellent value products and services across their chains. In most cases, MNCs invest heavily on research and development of new improved technologies for maximum efficiency in chain operations. MNCs have grown significantly in the recent past thereby contributing immensely to the global GDP (Edwards, Marginson & Ferner 2012, p.2). The scope of MNC’s operations has increased further, following the prevalent deregulation of global economies to eliminate barriers to foreign domestic investment. The level of transfer of HRM practices in different types of MNCs varies exceedingly, because they adopt varying strategies to the transfer of HRM practices across different nations. Generally, MNC’s apply three main strategies in transferring HRM practices across different host nations namely the ethnocentric, polycentric and the geocentric strategy. The ethnocentric strategy entails transferring the HR practices of the parent company to host countries while the polycentric strategy involves employing local workforce and adapting HRM practices of the host country. Unlike these two strategies, the geocentric strategy focuses on employee talents and the most effective HRM practices regardless of nationalities. In the multinational firm, decentralization of operations leads to localization. For that reason, transfer of HRM practices in the multinational firm is very low, as they strive to win local legitimacy; the international firm, on the other hand, has no overseas investments, thus, is not faced with the adaptation versus standardization dilemma. Transfer of HRM practices in the transnational firm is low since individual foreign markets are responsible for their own marketing, research and development. Contrariwise, transfer of HRM operations is extremely high in the global firm since it outlines a single global strategy for its overseas subsidiaries. Role of HRM within MNCs Increasing competition in today’s highly complex and fast-changing global business environment requires innovative management approaches that can guarantee business survival and long-term profitability (Pudelko & Harzing 2007, p.1). Human resources are the most valuable assets the organisation because they are a source of competitive advantage; consequently, employee involvement is a primary determinant of organisational performance (Scholz & Muller 2010, p.3). HRM is a strategic management function that concerns itself with the recruitment, training, and development of personnel, among other things such as performance appraisal, communication and labour relations from the perspective of an organisation. Since MNCs often encounter dual pressures emanating from the concurrent needs to integrate internationally and to achieve differentiation in international subsidiaries, HRM plays a central role in helping these entities to strike a balance between local and global forces (Muller-Camen 1998, p.732). Generally, HRM helps MNCs to address effectively local differences while implementing practices that are critical for their global strategies. Thus, HRM in turn influences the extent to which MNCs achieve their global strategies and objectives. By balancing between the conflicting pressures for local responsiveness and international integration, MNC succeed in creating the appropriate level of localness while retaining their global outlook. MNC often strive to maintain HRM practices that enable them to address local concerns while still developing an international workforce that can fit in a wide range of global capital and labour market environments. Localization vs. Standardization MNCs often face the dilemma of maintaining a consistent HRM system across their chains while still responding to the concerns of local cultural environments within which they operate (Reiche, Lee, & Quintanilla 2009, p.5). The primary point of departure in the localization versus standardization argument is whether or not is possible to identify a set of valid HRM best practices that are transferrable across diverse cultural and institutional contexts. Critics remain sharply divided on the question of whether or not international best practices in HRM do exist, and whether or not they should be adapted to the local context in which MNCs operate to maximize effectiveness. Nonetheless, the dominant perspective across a vast body of research is that congruence between management practices and national culture is imperative for the success of MNC subsidiaries. Multinational firms adopt management practices within the national culture and institutional framework of their host countries, because they need to gain local legitimacy. Therefore, HRM practices of UK subsidiaries operating in China will be greatly influenced by China’s national culture and institutional context. For instance, China’s national cultural and institutional framework that supports highly centralized and hierarchical national business systems with formalized authority and governance, will greatly influence HRM practices of UK subsidiaries operating in the country. Contextual Influences Management practices in MNCs vary significantly, based on the diverse cultural and institutional factors in the national environment within which MNCs operate. The extent to which MNCs successfully transfer their HRM practices overseas depends largely on the distance between the national culture of the host and parent countries. Both the national business systems and the institutional framework in existence within host countries can either promote or obstruct transfer of HRM practices from parent-companies to their overseas subsidiaries. Generally, permissive institutional frameworks that have fewer formal institutions allow MNCs significant flexibility to transfer their management practices to their overseas subsidiaries. Contrariwise, cohesive and integrated national institutional systems result to the formation of distinctive business systems that undermine transferability of HRM practices from parent companies to their global subsidiaries. Chinese vs UK MNCs Business Contexts MNCs operate within varying national cultural and institutional contexts; the different contexts in which MNCs operate inevitably impede localization as an internationalization strategy. The Chinese culture has traditionally been categorized as “high in power distance, low in individualism, moderate in uncertainty avoidance and masculinity, and high in long term orientation” (Zhang & Edwards 2003, p.4). The decision making process in Chinese culture entails avoidance of conflict and the entrustment of full managerial authority to the appointed leader, which implies that decisions made by managers are hardly debated or questioned publicly. Chinese employees are socialized to avoid competition or disagreements amongst themselves and to establish cooperative relationships that help to advance organisational interests while treating each other with mutual respect and fairness. Nevertheless, it has been observed that China is progressively shifting its orientation from absolute collectivism and high power distance to a blend of collectivism with individualism and lower power distance (Zhang & Edwards 2003, p.5). In recent years, Chinese firms have started to adopt more individual-led management culture while granting their employees significant responsibilities and rights at the same time; even so, employees are expected to conform to the organisation fully. In that respect, it is obvious that collectivism is central to the Chinese management culture due to its socialist political system inclination. China’s socio-cultural values are stressed by the country’s implicit socialist ideal of solidarity, mutual assistance, friendship, equality, honesty and obedience of the law, which can be traced throughout the country’s history and ideology. The Chinese business organization setting was defined by a centrally planned economy system before the 1980s. As a result, China was characterized by highly centralized and hierarchical national business systems with formalized authority and governance. Government agencies were responsible for setting production targets and the direct assignment of staff to state-owned-enterprises (SOEs), and corporate managers were incapable of accountability or independent decision-making. However, China has been moving progressively towards a market-oriented national business system since the 1980s, a trend that has yielded many reforms in the country’s corporate management systems. The state has gradually relaxed its massive control on economic and human resource deployment planning by delegating its authority to the corporate level, in recognition of the role of market forces in regulating markets. Nonetheless, the ongoing institutional reforms in China are still low, especially in SOEs, which still take on both production and social responsibilities within China’s version of market economy. The government still exerts considerable control on operations of organisations operating in China. Factors such as the dual authority system and collective accountability, which are still evident in China’s national business environment, despite its move towards a market economy further inhibit transferability of UK HRM practices to China. Subsequently, MNCs operating in China are subject to limited freedom in the selection of workers, partly due to historical challenges such as the serious issue of excess labour and problems in hiring and holding quality workforces. Contrariwise, the UK business context has been characterized with management practices that are not only moderately low on uncertainly but also on power distance, while remaining moderately high on masculinity, and high on individualism (Brewster 2007, p.770). Following such cultural ideals, the HRM context in the UK is characterized by individual independence and success. Moreover, uncertainty, dissent and risk taking, which are discouraged in the Chinese cultural context, are readily acceptable in the UK context. Similarly, the UK HRM context emphasizes equality while diminishing the influence of hierarchy. In terms of gender relations, the UK HRM context clearly differentiates sexual roles and places high value on masculine attributes of assertiveness; the UK HRM context also values money and possessions. The gradual increase in individualism in the UK has led to the resultant decline in the power distance in the UK context and the widespread progressive flattening of hierarchical structures across the UK. The UK corporate management system exists within a mature market economy that not only encourages single line decision-making, but also individual responsibility unlike before the 1980s, when corporate governance was a plural structure involving the government, managers and trade unions. The managerial-centred corporate governance structure in the UK business context enables managers to conduct their operations without government interference; authority to make decisions within UK firms flows from the centre of command downwards in the management hierarchy. In recent years, increasing competition within the global business environment has compelled corporations in the UK to abandon the formal centrally controlled systems in preference of the more profit-led and flexible customer-oriented flatter governance structures. This flexible corporate management system allows management to respond quickly and effectively to issues and to take more responsibility for corporate decision-making. Corporate efficiency is the single most reliable performance measurement criteria and the basis for management career progression. Distance between Chinese and UK contexts Generally, the Chinese and UK national cultural and institutional contexts are distantly apart; Chinese context’s high power distance and low individualism are greatly opposed to UK cultural context’s moderately low power distance. Nevertheless, China’s moderate uncertainty avoidance and masculinity, and high long-term orientation are highly comparable to UK cultural context’s moderately low uncertainty avoidance, and moderately high masculinity. Institutional differences between China and UK’s corporate governance contexts further undermine transferability of HRM practices in UK MNC subsidiaries. China’s corporate management is still transitioning from a centrally organized-hierarchical system to a market-focused and devolved system. Certain conventional Chinese features such as state control and a less developed labour market continue to limit corporations’ autonomy in production and HRM. Contrariwise, corporates in the UK context operate in a mature labour market environment and are relatively free of government control. The UK corporate is also progressively favouring autonomous economic financial units and customer-oriented corporate structures. The fact that Chinese firms are subject to complicated historical familial networks and direct government intervention suggests that UK subsidiaries operating in China have limited autonomy, due to the myriad institutional and cultural differences between the two states (Zhang & Edwards 2003, p.9). Attempts to transfer HRM practices The differences that exist between the parent and host country’s national regulation, institutions, cooperate systems, and culture have a significant influence on the level of adaptation of HRM practices that will be required. MNCs from innovative economies such as the UK tend to transfer the ideas and practices of what they consider effective HRM systems to their global subsidiaries (Chang, Wilkinson & Mellahi 2007, p.2). Critics have observed that certain western HRM practices are transferrable into China’s national cultural and institutional contexts today. This has been made possible by the progressive transformation of China’s economic, social and business system towards a more market-led system since the 1980s. For that reason, UK subsidiaries face less stringent change in management practices compared to Chinese subsidiaries operating in the UK. Parent characteristics such as MNC’s international competitive strategy influence the manner in which resource transactions are structured between subsidiaries and headquarters, thus transfer of HRM practices. Since foreign subsidiaries of multinational firms are rather independent from headquarters, they get their inputs from local environment and are majorly influenced by local competition with different firms. The resources developed by the MNC in one side does not automatically yield competitive advantage for its subsidiaries located abroad since their need to gain local legitimacy compels them to adapt features of their host countries (Myloni, Harzing & Mirza 2006, p.6). Contrariwise, overseas divisions of global MNCs depend on their parent organizations, thus, they rely on the resources developed in one part of the firm to establish competitive advantage. In that case, global firms seek international consistency rather than local legitimacy and are not pressured to conform to local standards or the institutional norms enforced by different countries, thus are more likely to have a high rate of transfer. Firms with many years of experience in overseas business have a wider set of HRM practices and are less likely to transfer parent HRM practices to their global subsidiaries. Due to high uncertainty, newly internationalizing firms are more likely to transfer familiar management systems, including HRM practices, to their subsidiaries at the beginning. Management values affect transfer of HRM practices in the sense that companies that have a firm belief in the importance of HRM and people in the organization would most certainly emphasize internal development of HR competencies, culture and commitment to the firm. Level of parent control determines transfer of HRM practices; precisely, MNC that exert excessive control over their overseas subsidiaries, through formal coordination mechanisms, are more likely to transfer their HRM practices (Myloni, Harzing & Mirza 2006, p.8). In addition, since communication between the parent and subsidiaries is a way of control, overseas subsidiaries that are in constant communication with their headquarters are more likely to adopt parent HRM practices. UKStore Case Study Analysis UKStore opened its first shop in mainland China’s Shanghai in 1999 and a second one in 2000 but at the close of 2003, the company had 11 operational stores (Gamble 2006, p.9). Interestingly, UKStore has managed to transfer most of its parent company HRM practices to its subsidiaries in China successfully. For instance, the company deployed two expatriates to fill the assistant store manager and store manager roles in its China subsidiary for the first year of operations, even though they had no background experience in the Chinese context. It was only after 2000 that the company transferred management responsibility in all its stores to managers that had been recruited locally; even so, the overall HRM regime in UKStore is still open and consultative at so many levels. UKStore provides single status uniform for all its employees and first-name terms are used when addressing workforces throughout the store. Moreover, employees are consulted on all crucial decisions in the store through consultative forums. UKStore’s organisational structure is relatively flat in comparison to native Chinese firms. For instance, the store has 2-4 assistants working under the store manager while each trading department has 1-2 deputy supervisors and a maximum of 35 customer assistants working under one supervisor (Gamble 2006, p.10). Specific HRM practices MNCs ability to attract, retain and motivate employees has increasingly become a significant competition factor in the international business environment. MNCs are concerned with how to adopt effective HR policies that are transferrable across cultural and institutional contexts (Rovai n.d, p.8). China’s distinct dissimilarity from other countries due to the country’s highly different culture, institutions and mind-sets make it the most far-off environment in which MNCs experience difficulties establishing effective HRM policies. UK subsidiaries operating in China have adopted western style policies to their recruitment and retention. It is very difficult for the UK subsidiaries to hire local managers due to the acute shortage of management talent within the Chinese context. The educational infrastructure in the Chinese context is not adequately developed to support the production of highly trained human resources to meet the high demand for local management talent (Rovai n.d, p.2). Precisely, the insufficient number of local business schools and universities offering business-related courses limits China’s local education system, and this contributes to the dearth of highly qualified candidates to fill management positions in MNC subsidiaries operating in China. Overall, managing human resources within the international context is undeniably the most daunting task facing MNCs today, due to the myriad differences between home and host countries. China’s highly distinct national cultural and institutional context makes it a foreign environment for many MNCs hoping to expand their operations in the Chinese market. China’s high power distance and low individualism are greatly opposed to UK’s moderately low power distance while its moderate uncertainty avoidance and masculinity, and high long-term orientation are highly comparable to UK’s moderately low uncertainty avoidance, and moderately high masculinity. 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