Concepts on International Human Resource Management for Corporations Multinational - Literature review Example

 Concepts on International Human Resource Management for Corporations Multinational Introduction Many organizations are operating globally and becoming global due to the changes in the external market factors, as globalization and development of technologies and communication. These expansions to different markets and environments push organizations to employ strategic management and operational activities to ensure competence as these enterprises are not only expanding, but are likewise becoming competitive. One of the core instruments of competence is the people that makeup the organization. Hence, HRM is greatly considered by MNEs. E. Menipaz and A. Menipaz (2011) pointed out that if MNEs focus on their HRM activities, it will provide immense impact on their performance. It will be the thrust of this paper to examine the concept and application of HRM for MNEs. This paper will discuss the difference between domestic and international HRM, drivers of standardization, role of subsidiaries, factors of localization and its impact to culture and institutionalization context. Domestic HRM vs. International HRM Human resource management (HRM) is one of the organizational functions that are concerned on developing manpower and providing them with fair and beneficial labor practices. According to Edwards and Kuruvilla (2005), HRM is the process of efficiently and effectively developing, allocating, and utilizing human resources for the attainment of the goal of the organization. Subsequent to globalization, the scope and responsibility of HRM personnel have also expanded and broaden--from a domestic HRM to international HRM or briefly known as IHRM. One of the commonalities between domestic HRM and IHRM is in terms of the HRM practices that the two cover. Precisely, both domestic and international HRM are composed of the practices such as HR planning, job analysis, recruitment and selection, performance appraisal and benefits administrations. Both are responsible in training and developing human resources in preparation of future promotion. Both of them provide support to the organization as to how to handle manpower to achieve organizational objectives. Although such, the two differ in terms of the complexity and difficulty of the human resources they have to handle. Domestic HRM handles employees of a company located within one national boundary. This entails managing people, most likely with similar values, cultural background and origin, principles and language. Formulating HRM practices, policies, procedures, and programs in such type of HRM is less challenging compared to IHRM. IHRM handles employees of a company which is located across the globe or in the international setting. This entails dealing with human resources who have different cultural background, values, norms, and languages. Aside from that, IHRM needs to handle the different labor policies of the parent country (headquarter office), the host country (location of subsidiary firms), and the other countries from which the organization seeks for workforce, research and development team and finance team. Thus, as the scope of the responsibility of HR personnel becomes wider and broader, their challenge of effectively managing manpower also becomes tougher. Factors Driving HRM Practice Standardization Two of the factors that motivate organizations to standardize their HRM practices are the following: (i) firms’ level of maturity or experience in the industry and (ii) the firms’ size and structure. Multinational enterprises’ (MNEs) level of maturity in the industry drives them to standardize their HRM practices. Level of maturity, in this sense, refers to the degree of global experience and competitiveness those MNEs gained throughout their operations in the same setting (Dowling, Festing, & Engle, 2008). This factor drives MNEs towards standardizing HRM practices, since level of maturity permits them to have a greater level of flexibility in terms of adjusting to a different cultural environment. This is so, for given the “wealth of international experience” that matures MNEs possess (Dowling, Festing, & Engle, 2008, p. 219), they are better equipped and prepared in facing the complexities of global operations and in formulating effective HRM solutions for the good of the entire company. The firm’s size and structure also drive them towards standardizing their HRM practices, since those factors affect the efficiency and effectiveness of the operations and management of MNEs (Tempel & Walgenbach, 2007). Size and structure may serve as a hindrance for MNEs to oversee and manage their human resources, and at the same time, ensure the effectiveness of their HR practices. As a solution, MNEs tend to standardize their HRM practices to make it uniform across subsidiaries. Standardizing HRM practices appear to be advantageous for MNEs, given that it promotes transparency, consistency and uniformity in terms of organizational policies, procedures, and employee treatment across the subsidiary firms. Such value being promoted may motivate and drive employees to perform their tasks better. The Role of Subsidiary Firms It is placed by Bartlett and Ghoshal (2002 as cited in Holtbrugge & Mohr, 2011) that MNCs require a “transnational network,” wherein subsidiaries should not only contribute to value creation, and not function as mere arms of the company that focuses on one market, but it should be a contributor to the overall performance of the MNE. This means that the main role of subsidiaries is not on a particular facet of business but also to augment the MNE’s performance in general. IHRM helps subsidiaries in completing this role through staffing, intercultural training and management teams, rewards and evaluation. In turn, the need for interdependencies of subsidiaries will also affect the recruitment process, training and knowledge transfers, and alignment of employees to the goals MNC. There are different types of subsidiaries that play roles on IHRM, particularly in knowledge transfer mechanisms. These include the global innovator, integrated player, local innovator and implementer. (1) The global innovator is considered as the originator of knowledge, which will be dispersed to other units. (2) While, the integrated player functions similarly with the global innovator as it also conducts transfers of knowledge; however, this unit is still dependent on knowledge inflows. (3) The local innovator is sufficient and independent in its own sphere, whereby, it has the local duty to create pertinent knowledge. However, this subsidiary is relatively incompetent in the international level. Lastly, (4) the implementor does not conduct or enjoin in creating knowledge; hence, he does not also provide knowledge inflow (Dick & Merrett, 2007; Luo, 1999; Schmid & Kretschmer, 2007). The table below provides an overview of the differentiation of these types of subsidiaries. Types of subsidiaries and their roles (Schmid & Kretschmer, 2007) Based on the above discussion, as a starting company, it may be advisable to begin as an integrated player. This will ensure that the company is still connected and integrated to the global innovator while also creating knowledge and value of its own. This subsidiary allows the alignment with the originator and still contributes novel knowledge to the MNE. Factors Driving Localization of MNE’s HRM Practices Dowling, Festing, and Engle (2008) identified that the cultural environment and the institutional environment are among the driving factors of the localization of HRM in MNEs. The cultural environment plays a significant role in causing the localization of practice. This is because culture greatly affects the work and relationships among people within the organization. The failure to adopt or incorporate local culture may hinder the performance and interdependencies of the several units of the MNE. For instance, the study of Lowe et al. (as cited Dowling, Festing, & Engle, 2008) showed that an MNE may aspire for “stronger corporate performance”, but the local culture will hinder its implementation. Hence, it affects the performance of the subsidiary (Dowling, Festing, & Engle, 2008). The MNE is pushed to adapt to the local preferences as the subsidy may become ineffective. However, despite the need to localize HRM practices, it is also important that its practices are aligned with the MNE to ensure that it is in accord with the company’s guidelines. On the other hand, also a driving factor for HRM localization is the institutional environment. Examples of these institutional factors are industrial relations and education system of the host country. That is, the type of relations in the industry aids in shaping the relations among the subsidiaries to the employees (local and expatriate) and to other businesses. This will also affect the type of qualification for employees, in which it may influence recruitment and selection process. Some countries have high-employment qualification, while others have lower (Dowling, Festing, & Engle, 2008). Therefore, most of the MNEs are driven to localization to cater to these institutional differences to be effective and productive in the host country’s market. The Impact of Culture and Context to HRM Practices Recruitment and Selection. These processes are influenced by IHRM through the decision making and consideration between host country nationals or the parent country through expatriates. Hence, in IHRM recruitment and selection has become more difficult as there are numerous considerations for the organization. For instance, MNEs are favoring expatriates due to loyalty, communication with the MNE, perception of more educated developed. However, this may also be a problem as hiring host country nationals is also effective, cost-efficient and is progressing (Vaghefi, Paulson, & Tomlinson, 1991). Evidently, the selection and recruitment has become more complex. Training and Development. Among the most important impact of IHRM is on the training and development of the employees. The training and development activities of the employees require a wide coverage of topic and activities. This includes transitions and adjustment on culture, language, technology, and human changes. This is also crucial as this component of IHRM should consider the balance and integration of the host and parent company (Vaghefi, Paulson, & Tomlinson, 1991). Compensation. IHRM affects compensation mechanisms as the manager has to consider the coordination with the payment systems in other regions as there is a significant difference in currencies (Aswathappa, 2008). This means that the MNE may choose to employ a standardized system or adapt to the local pay system. Hence, it affects the entire process and has to be relative the tax laws and regulations in certain countries including the employee benefits. This is also closely related to the performance evaluation mechanisms of the MNE. Task Distribution. IHRM may result to diverse workgroups. Although this has advantages, it may also be difficult for the diverse members to agree on their tasks, purpose and responsibilities (Aswathappa, 2008). This implies that a diverse workforce may have difficulty in providing tasks to the employees. This is a great challenge in IHRM as managers are faced with the issue of properly distributing responsibilities that will show equality and fairness among the members. Conclusion The competitive nature of the international market for MNEs increases the need to properly manage business resources including the human assets. The application of international human resource management plays a vital role in the success and sustainability of MNEs in new markets. The above discussion exhibits the different ways and types of IHRM for MNEs, in which managers can utilize to improve HRM practices for both subsidiaries and parent company. Therefore, knowledge on its concepts, best practices and application is the finest armor for managers to ensure that these resources are maximized and used to an advantage. References Aswathappa, K. (2008). International HRM. New Delhi: Tata McGraw-Hill. Dick, H., & Merrett, H. (Eds.). (2007). The internationalisation strategies of small-country firms: The Australian experience of globalisation. UK: Edward Elgar Publishing Limited. Dowling, P. J., Festing, M., & Engle, A. D. (2008). International human resource management: Managing people in a multinational context. London: Thomson Learning. Edwards, T., & Kuruvilla, S. (2005). International HRM: National business systems, organizational politics and the international division of labour in MNCs. The International Journal of Human Resource Management, 16(1), 1-21. Holtbrugge, D., & Mohr, A. T. (2011) Subsidiary Interdependencies and International Human Resource Management Practices in German MNCs. 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