Multinational Organizations Must Retain and Develop a Workforce with a Global Mindset - Essay Example

Multinational Organizations must retain and develop a workforce with a global mindset of the Submission: Table of Contents Table of Contents 2 Introduction 3 International Human Resource Management 4 Desired Skills and Capabilities 4 Approaches towards IHRM 5 Multinational Organizations 6 Staffing in Multinational Companies 6 Theories and Practices in International Human Resource Management 7 Organizational Life Cycle Model 7 Organization Design 8 Contingency Models 9 Conclusion 12 References 13 Bibliography 14 Introduction Globalization has influenced the individuals for improving different aspects related to travel, economies, technology and communications. The growth of multinational enterprises has led to more permeability in the traditional business conduct and as a result there is significant changes in the economic growth rates of a nation and increase in diversity of employees participating in the international process leading to more complexity and uncertainty. For example, the top 100 corporations form 14% of the global sales, 12% the assets and 13% of employment (UNCTAD, 2004).Multinationals dominate the area of world trade with around 63000 transnational corporations accounting for two third of the total international trade (UNCTAD, 2004). The top ten international multinationals have the annual sales more than the tax revenue of the Australian government (The Economist Newspaper Limited, 2000a). Nearly 60% of worldwide trade takes place between two associated parts of multinationals (The Economist Newspaper Limited, 2000b). There has been growing uncertainty about the physical location of the creation of economic value. Multinational companies operates in a flawless manner as global organizations with its human resource spread worldwide and passing the works to be done forwards and backwards through the internet or the customized intranet of individual corporations. Thus it is difficult for the tax systems to identify the amount of economic activity taking place in a particular physical location (The Economist Newspaper Limited, 2000b). Mergers and acquisitions foster economic integration and acts as potential force for globalization (Brewster, Sparrow & Vernon, 2007). International Human Resource Management In the recent times, a global transfer of work is witnessed either in terms of new creation of work or through the outsourcing of individual or a unit’s work. This increasing trend of globalization is rapidly affecting the nature of organizations and the type of jobs viable at different countries across the world. For most of the multinational corporations the largest single unit of operating costs comes from the people who work for the enterprises. Moreover, the skills and knowledge incorporated in the human resource of corporations has increasing become the key to the success of the company. Thus on both the cost and benefit aspect of the organization, human resource management is extremely important for the sustainability and success of an international organization. Thus the demand for specialists in the human resource management field who are ready to adapt to the increasing international orientation, has increased over the years and their functions in these organizations have become clearer (Brewster, Sparrow & Vernon, 2007). Desired Skills and Capabilities The specialists in human resource management need additional set of skills and a different mindset in order to address the additional complexities in managing an international workforce. It has been observed that an individual working in an international environment must be proficient in influencing and negotiating skills, strategic thinking, and interpersonal skills; conceptual and analytical abilities. They also need to be knowledgeable in the areas of international business, international labor regulations, local labor markets, difference in culture, international finance and also compensation and benefits structure prevalent worldwide. Human resource managers who operate internationally also need to maintain a wide range of relationships between the headquarters, regional and subsidiary managers; headquarters and local employees and the regional and local communities (Brewster, Sparrow & Vernon, 2007). Approaches towards IHRM IHRH has 3 approached. The first approach focuses on cross cultural management by examining the human behavior from an international viewpoint. The main factor responsible for the rising internalization of employment is the existence of cultural differences between the different nations.There is differences in national values and attitudes. The general responsibilities of a human resource manager such as recruitment, selection, training and development, performance appraisal are affected by cultural practices and values in the different host countries (Dowling, Festing & Engle, 2008). The second approach describes, analyze and compare the human resource system in across different countries. It is noted that different countries differ with respect to labor markets, employment laws, educational systems, trade unions and also have regional and cultural differences. Finally the third approach emphasizes on the aspects of human resource management of multinational companies (Dowling, Festing & Engle, 2008).It analyses the way in which international organizations manage their human resources across all the nations where they operate. The organization which operates internationally does not only take into account what is allowed and what is not in different countries but also concentrate on strategies which are cost effective. The main purpose of this essay is to discuss the third approach which concentrates on the human resource management in multinational corporations. Multinational Organizations A multinational corporation is an organization with independent business units operating in various countries. These companies accelerate global economic development, technological transfer and deepen globalization. They have grown domestically as well as internationally through mergers and acquisitions and also by setting up wholly owned subsidiaries across different nations (Hunya, 2012). In multinational companies, there are two types of employment: home country employment and external country employment. Human resource management in international companies is more complex than managing employees in a national set up. This is due to the differences in the headquarters and the subsidiaries. Some multinational companies discriminate among employees on the basis of age, gender, race or religion but in order to retain and develop a workforce with a global mindset, these international companies need to incorporate equitable employment avoiding the cultural differences across nations. Managing human resource in the international organizations depends on the attitudes, and the different motivational tools (Harzing & Pinnington, 2014). Staffing in Multinational Companies Staffing is an important aspect of human resource management. The nature of staffing in international corporations depends on the companies approach towards globalization. The multinational countries adopting the ethnocentric approach toward staffing employ home country national in all the top management posts in order to establish the culture of the home nation among all the employees. The international companies that emphasizes on maximum adaptation of local conditions employ the polycentric staffing approach by posting local nationals at high levels of management. The companies adopting the geocentric staffing approach appoint managers for various international projects irrespective of their nationality to ensure that the best practices are recognized and replicated in all the subsidiaries of the company (Kaynak,Mockler& Dologite, 2014). Theories and Practices in International Human Resource Management The models which have significantly influenced the field of international human resource management are organizational life cycle model, organization design and contingency models. Organizational Life Cycle Model According to the life cycle theory, there are various stages of the life of a corporation. The different stages are start-up, growth, maturity, decline and revival. The company must ensure that as it move along these stages, the human resource management practices of the enterprise must fit the stage of life cycle of the organization to derive organizational competence. Thus businesses pass through a number of stages while the extent of internalization increases the nature of this process is changing due to the progress in communication technology and the rising number of cross-border partnerships and acquisitions (Crawley,Swailes&Walsh, 2013). A company starts internalization by exporting its products to other nations. When the market for the product is established in the importing country, the company decides to set up sales offices in those nations. In the next stage, the company exports different parts of the product for compilation in local offices and finally they the enterprises set up subsidiary units in the exporting nations. Thus the corporation must change its human resource management practices and policies such that they fit the stages of lifecycle of the organizations. When an enterprise increases the extent of internalization, it must concentrate on the staffing of the employees at high levels of management. It also emphasizes on the benefits and compensation of the expatriates. Since employing expatriates are more expensive than employing local nationals from the host country, the multinational corporations must on the training and development of local talents. The international companies must identify the local talents and train them in developing a global mindset. The multinational companies must provide the local nationals with the deep knowledge on the international business, finance, and the labor practice which are prevalent worldwide (Dowling, Festing & Engle, 2008). The increasing internalization of an enterprise leads the creation of international assignments and thus the number of expatriates rises within the organization. It has been observed that the expatriates fail to perform due to difficulty in adjusting to a new environment; inability to cope with huge oversees responsibility, family problems and lack of technical competence. Thus a multinational company must increase its engagement with its employees and take necessary steps to solve the difficulties faced by the expatriates. Increase in the number of expatriates lead to the rise in the operating costs of the multinational companies as the compensation and benefits offered to them are more than the local nationals. Moreover, the company needs skilled human resource managers to handle the complexity and uncertainty involved in an international workforce. In order to retain the talented and skilled employees, the company must focus on the welfare and satisfaction of the employees. Thus as the company expands internationally, it must also invest in recruitment and selection of local nationals instead of increasing the number of expatriates as it increases the cost of operation (Briscoe, Schuler & Tarique, 2012). Organization Design The organization design is a crucial component for the human resource management framework of any enterprise. The design of an organization evolves from the mission of the company and the human resource strategies adopted by the management. The organization design includes the job design, distribution of work among the employees, reporting relationships. It also includes the strategies for motivating the workers, incorporating change, inspiring creativity and increasing the productivity. The two main components of organization design are job design and human resource planning (Burke &Cooper, 2005). The job design indicates the classification of jobs, the job profile of new recruits and the relationship that exists between the employees and the other members of the enterprises. The job design of an enterprise has two objectives. It must satisfy the requirement of the organization and ensure operational efficiency. The job design must also fulfill the needs of the job holder in terms of his or her interest, accomplishment and challenge faced by the employee. The human resource planning involves the assessment of requirement of staff with the level of skills and capabilities required in the organization and also the formulation of strategies for implementation of the plan (Briscoe, Schuler &Tarique, 2012). The organization design of a company changes as its approach towards globalization changes. The structure of the enterprises changes as it incorporates internationalization. The job design of the company should be restructured to incorporate the high compensation and benefits of the expatriates. Contingency Models When an enterprise reaches the stage where it operates through wholly owned subsidiaries or through the mergers and acquisitions, joint ventures or international alliances and partnerships, it becomes a complex system with many linked subsidiary units dispersed over diverse geographical locations. The business strategy of the multinational companies provides a direction for managing the various units. The business strategy of a multinational is governed by the degree of integration and local responsiveness which is necessary for operating worldwide (Rugman, 2002). Integration is defined as the degree to which a company operates by getting unified with the headquarters and the subsidiaries. This provides a number of competitive advantages of better quality, economies of scale and standardization (Rugman, 2002). The local responsiveness is defined as the extent to which the subsidiary units spread across various nations respond to the local differences. This leads to modification of the product according to the needs of the local customers, adjust to the local culture and competition in the sector, and operate by adhering to the government rules and regulations. It also includes the process of attracting local talents and entering the local business networks. According to the degree of integration and the local responsiveness, multinational corporations can be divided into the following four types (Rugman, 2002). International Business Strategy: This is the simplest type of strategy with limited need for integration and local responsiveness. This business strategy does not have the need for setting up operating units across nations and mainly focuses on export of goods or services (Peng, 2013). Multi-domestic Business Strategy: In this strategy, local responsiveness is maximum and but the degree of integration along the subsidiary units is low. This indicates high costs due to replication efforts in various countries. Moreover, there is too much local autonomy in this strategy (Peng, 2013). Global Business Strategy: Global strategy is the development and distribution of standardized products across all the nations of operation to gain the maximum benefits from low costs of products. These types of strategies minimize local responsiveness (Peng, 2013). Transnational business Strategy: An international corporation which aims at achieving high degrees of both integration and local responsiveness through global learning and diffusion of innovations is said to adopt the transnational business strategy (Peng, 2013). The need for both integration and local responsiveness indicates that the geographically disperse and have different goals and thus are required to be integrated to an extent. This can be reached if the enterprises are globally competitive, efficient, locally responsive and also able to transfer skill across the different subsidiary units. Researchers have identified two groups of factors which influence the international human resource management policies and strategies; the exogenous factors which indicate growth due to additions from outside the organization and endogenous factors which include development due to internal growth. The exogenous factors include the characteristic of the industry, the culture in the local areas and the inter-organizational networks. The endogenous factors involve the organizational structure, the corporate and business level strategies and organizational and industry lifecycles (Harris, 2012). The contingency approach towards human resource management states the human resource management practices which are most suitable for the organizational environment and structure is chosen for achieving the overall objectives of the enterprise. This approach is also called the best fit approach towards the human resource management. Conclusion In this era of globalization, big corporate houses are rapidly increasing the degree of internalization in their operations. This has an effect on the jobs created in a country and also in the structure of the existing job profiles. The number of expatriates increases with increase in international assignments and this in turn increases the operating costs of the enterprises as the cost of retaining the expatriates is higher than local nationals. As result there is an increasing need to develop and retain local talents with global mind-set in order to operate cost effectively and to sustain in the industry against intense competition from other multinational corporations. Also, there is a rising demand for specialists in the field of human resource management for an international workforce. References Brewster, C., Sparrow, P. &Vernon, G. (2007). International human resource management. London: Chartered Institute of Personnel and Development. Briscoe, D., Schuler, R. & Tarique, I. (2012). International human resource management: Policies and practices for multinational enterprises. New York: Taylor & Francis. Burke, R. J. &Cooper, C. L. (2005). Reinventing Human Resource Management: Challenges and New Directions.New York: Psychology Press. Crawley, E., Swailes, S. & Walsh, D. (2013). Introduction to International Human Resource Management. Oxford: OUP. Dowling, P. J., Festing, M. &Engle, A.D. (2008). International human resource management: Managing people in a multinational context. Boston: Cengage Learning EMEA. Harris, M. M. (2012). Handbook of Research in International Human Resource Management. New York: Psychology Press. Harzing, A. & Pinnington, A. (2014). International human resource management. California: Sage Publications. Hunya, G. (2012). The Role of Multinational Companies in International Business Integration.Retrieved fromhttp://wiiw.ac.at/the-role-of-multinational-companies-in-international-business-integration-dlp-2704.pdf Kaynak, E., Mockler, R. & Dologite, D.G. (2014). Multinational Strategic Management: An Integrative Entrepreneurial Context-Specific Process. London: Routledge. Peng, M. (2013) Global strategy. Boston: Cengage Learning. Rugman, A. M. (2002).International business: Strategic management of multinationals. New York: Taylor & Francis. The Economist Newspaper Limited. (2000a). The world’s view of multinationals. Retrieved fromhttp://www.economist.com/node/276872 The Economist Newspaper Limited. (2000b).A survey of globalisation and tax. Retrieved fromhttp://www.economist.com/node/276995 UNCTAD. (2004).World Investment Report: The Shift Towards Services. Retrieved from http://unctad.org/en/Docs/wir2004_en.pdf Bibliography Briscoe, D. R., & Schuler, R. S. (2004). International human resource management: Policy and practice for the global enterprise. New York: Psychology Press. Inkson, K., Arthur, M. B., Pringle, J., & Barry, S. (1998). Expatriate assignment versus overseas experience: Contrasting models of international human resource development. Journal of world business, 32(4), 351-368. Schuler, R. S. (1992). Strategic human resources management: Linking the people with the strategic needs of the business. Organizational Dynamics, 21(1), 18-32. Schuler, R. S., & Florkowski, G. W. (1996). International human resources management. Handbook for international management research, 351-390. Schuler, R. S., Budhwar, P. S., & Florkowski, G. W. (2002). International human resource management: Review and critique. International Journal of Management Reviews, 4(1), 41-70. Welch, D. (1994). Determinants of International Human Resource Management Approaches and Activities: A Suggested Framework. Journal of Management Studies, 31(2), 139-164.   Read More