HRM of Multinational Companies in Developing Countries - Literature review Example

Running head: INTERNATIONALIZATION STRATEGIES AND IMPLICATIONS FOR INTERNATIONAL HUMAN RESOURCE MANAGEMENT OF MNCS FROM EMERGING COUNTRY Internationalization Strategies and Implications for International Human Resource Management of MNCS from Emerging Country [Writer’s name] [Institution’s name] Internationalization Strategies and Implications for International Human Resource Management of MNCS from Emerging Country Introduction 'Currently, the topic of human resource management (HRM) has become one of the most documented in the management literature'. (Schuler & Jackson, 1999). Moreover, the increased level of globalisation and internationalisation of business, the growth of new markets, such as in Eastern Europe, China, India, South East Asia, and Latin America, and an increased level of competition amongst organizations at national as well as international level has helped given birth to new theories of HRM. (Budhwar & Sparrow, 2002). For organisational global strategies to be successful, developing international managers is essential to achieve the goal, because they play a vital role in crucial competition. For example, managers (top management) construct the strategies which the organisation will carry out, and the implementation of the firm's policies. Baron and Kreps (1999) states 'company policy including human resource is best done at least the participation of line managers in the field.' Therefore, HRM to developing international managers, whether they come from parent, host or third party countries, has a strong linkage to corporate strategy, organisational behaviour, and management. However, there are numerous problems to develop international managers. Hence, in this essay, difficulties in cultural differences, managing host country manager and building corporate language will be analysed, thereafter relative response will be suggested. Current industrial relations studies highlight the fact that there is a the assimilation of labour practices of the MNC has to be according to the host country’s practices (Goddard 2004; Jacoby 2005), Institutional theory and MNC Institutional theory helps in understating the intense pressures on MNCs from underdeveloped countries (DiMaggio and Powell 1983). Institutional theory is based on the fact that coercive and normative problems in the environment that result in organizations having to change their practices according the Host country. According to Kim and Gray (2005) the above mentioned competitive pressures which exert pressure on organizations to imitate their competitors in the marketplace, taking into consideration practices that have proven to be effective and can be applied in their international operations. Thus as per the Institutional theory the before mentioned pressures are based on the postulation that the best possible strategies, decisions and practices may be considered at any particular point (Kostova and Roth 2002). International markets give rise to greater homogenization, as the organizations contend with similar products and pace of the technical changes taking place in the market (Duysters and Hagedoorn 2001). Therefore, it is can be said, the HRM practices of MNCs may change in to an emerging global paradigm, or, maybe, a more model which promotes developed countries (Smith and Meiksins 1995). Keeping in mind the Institutional theory, If management policies in a MNC develop towards assimilation, there is a `country of origin effect'- whereby most MNCs start activities in a region and have a single headquarters. When an MNC comes into a new country, it may bring its own unique organisational culture or international HRM policies or adopt local employment laws. Many writers may stress that local or `host country' effect is more compelling than the `country of origin' effect with regards to HRM practices e.g., in the African system of work organisation, the head of the group is seen as the father and is expected to provide for the group members. Management style is a variant of organisational culture and can be subjected to issues if taken from country of origin and applied elsewhere. Similarly, employment practices with regards to the development of human resources may become standardised to provide a consistent `high performance' within the organisation. Employment terms such as wage levels, holidays, benefits or working hours are usually locally determined, even though there may be some international guidelines that will incorporate organisational employment principles. Resource Based Theory and MNC The resource based theory The concept of strategy formulation and the resource based view are inextricably associated; Grant (1991) identifies three ways in which the resource-based approach can be tailored to develop a successful and revealing long term strategy. Firstly MNC‘s of underdeveloped countries should adopt a strategy that takes advantage of the internal primary resources and core competences. Next it is very important that the MNC ensures that it fully utilizes the available resource base and therefore operates efficiently. Finally the firm must routinely evaluate the effectiveness of long-standing resources and the need for new resources. Many MNC that have managed to perform well in the long-term share the following commitments “nurturing talent, developing technologies and building capabilities” (Grant 1991), which provide flexibility to adapt to changing market conditions. The RBV examines two distinct levels of the firm structure, firstly the resources followed by the manner in which “resources are deployed to create competences” (Johnson & Scholes 1999). There are three distinct groups of resources, tangible, intangible and human resources. Tangible resources are quite simply the physical and financial assets of the MNC; however in terms of understanding the value of these resources the associated factors must be comprehended. Namely the “age, condition capability and location of each of these resources” (Johnson & Scholes, 1999, p.155). Inherently the value and benefit conferred by intangible resources is difficult to classify, the two major categories are reputational assets and technology rights owned by the firm. Both the products and company can be supported by a favourable reputation that among other things will allow the firm to charge a premium price relative to the industry. Thirdly each firm possesses human resources, these are the skills and knowledge that the employees provide, and examples include team work and the level of ability to efficiently achieve set objectives. Equally important is the internal environment in which operations take place, known as the organisational culture, the term encompasses the “values, traditions and social norms of an organisation” (Grant 1991). In the Middle East, religion can have a significant bearing on a person's behaviour while in some countries the women staffs is required to wear a veil. It is also crucial to regard the way in which the new worker in the new community communicates with other colleagues e.g. in Saudi Arabia, it is considered rude to stand more than a foot away from another person. Whilst communicating with new cultures some behaviour may cause ineffective communication or difference of opinion. Factors National differences could result in dominant effects of local cultures on the HRM practices of the firm. Nevertheless, there is much criticism on regarding the fact that culture and institutions have a strong influence on the HRM practices (Brewster 2002; Sorge 2004). MNC’s from underdeveloped countries introducing them selves in new countries tend to pay a lot of attention on the culturalist tradition; they consider culture as an integrative, normative tool. The majority of these culturalist experiences have conflated cultural differences with the culture of the host country distinctions (Bacharach 1989). Theorists studying the Institutional accounts, propose that MNC firms from underdeveloped will follow the embedded formal rules and traditional customs so that their organization can follow the legal standards of the host country and thus be more effective in their operations (DiMaggio and Powell 1983). Social transactions continue to be intergraded in order to give rise to a particular social setting according to the host country In the MNC (Hollingsworth and Boyer 1997). The nature and degree of implementation of local practices of the host country is, thus, because of the regulatory institutions, or rational factors like the condition prevailing in the local market, the laws regarding ownership, the condition prevailing in the external market. Even factors and variables based on behaviour and attitudes like if the local organization is involved in joint or licensing projects with partners who are citizens of the host country (Davis, Desai and Francis 2000). therefore, at a social level, the MNC will have a benefit if it follows the local norms in terms of attaining the local legitimacy and thus this will m result in lower costs to the organization due to the above mentioned norms Multi national companies face the problem of recruiting the correct personnel to balance the pressures and grow globally. Therefore the problem of international HRM arises and the global- local question is more often the issue MNC’s face. Global-local is when companies have to deal with local issues in a global organization. It affects the organization as a whole but the root cause of it lies local Firstly, taking an overview to the difficulties in developing international managers, the significant issue is high rate failure, which is mainly concerned in confusing and misunderstanding local culture. An explicit description of culture can be identified as the differences among art, literature, symbol, and food etc. Simultaneously a subjective culture might be concerned in believes, attitude and value. 'Characteristic of culture is so subtle a process that one is not always conscious of its effect on values, attitudes, and behaviours' (Warner, 1993). However in essence, the multinational company is supposed to be confronted with a different culture in order to fully appreciate the effects. In addition, same business decisions or actions taken by international managers could lead total different effects from parent country to another. As For managers, they have to live and work in a country which is completely new to them , such differences can prove difficult, Verburg (1996) demonstrated that certain 'quick fix' management approaches, suggested by many Western management specialists. At the meanwhile, it is probably that there are different perspectives, which have implications for the perception of objectives between underdeveloped countries and the West on time. As a result the attainment of short-term aims as a sign of individual achievement might not be suitable (Scarborough, 1998). Such diversities can also be occurred in business negation, motivators to employees, and organisational appraisal system. These culture diversities for multinational companies (MNCs) to develop managers can cause a crucial problem, i.e., culture shock. Culture shock is a psychological disorientation caused by misunderstanding or not understanding the cues from another culture (Mendenhall, 2000). It cannot be simply ignored, according to chaos, confusions and wrong business decisions will be raised to international managers without a profound understanding of local culture. These features also directly result to inefficacy, or even overseas assignments' failure. To explicitly understanding culture, especially to expatriate and third countries managers, can prove complicated issues, and manage organisations abroad with numerous unfamiliarities might be even harder. Therefore, these difficulties together with psychosomatic disorders to expatriates cause a high failure rate for MNCs to develop their international managers. Next, according to the difficulties to expatriate and third country managers, MNCs may desire to seek alternatives such as extending localisation and develop host country staff, in particular for manager. Nevertheless, it also requires MNCs to pay many attentions, which is not easier job compared with sending expatriate managers. There are three perspectives in the following. First problem is to develop host country manager, which might lack international orientation. MNCs establishing branches, subsidiary or offices are various, yet there is strong linkage to companies' global strategies. Consequently an apparent international orientation can emphasize the importance of international operations in terms of organisational goals and objectives. Situating in this environment, managers attempt to focus on domestic issues and minimise differences between international and domestic environments. However, there is a great deal of unpredictable transferability between domestic and international business notions, which embarrasses developing international managers. Desatnick and Bennett (1978) proposed that if the MNC does not realize that there are differences in managing human resources in overseas environments, weather it be due to ethnocentrism, sufficient information, or international perspective they factor raise a lot of problems in international operations. Secondly, managing host country staff is another challenge to international managers and MNCs. Overall, difficulties in developing and recruiting skilled or appropriate international managers confront MNCs' IHRM strategies. Product quality to product-line employees and managing-art to top management are vital to MNCs; on the contrary, Unsuccessful selecting and developing local managers do enhance the corporate cost, hence to decease the competitive advantages in global market. Similar to cultural differences, host country staff recruited by MNCs normally inherits local culture background, which cannot easily remove shortly. In terms of international operations, occasionally those traditions bring a few advantages to management; nonetheless some will bring disadvantages in managing host country manager. Thirdly, building a corporate language also challenge MNCs to develop their international managers. When MNC start their operations in a new country they need to take the language into consideration as well (Marschan-Piekkari & Welch, 1999). MNCs will not only concentrate managers' business operation ability but also language and cooperative abilities to both expatriates and host country staffs, especial for managers. They have to operate in an environment in which multiple languages are used; many MNCs have nominated one official language as the basis of communication within the company, such as English. Marschan-Piekkari and Welch (1999) illustrated that for companies emerging from countries whose langue is known at an international level reported few language problems while they establish business in English speaking countries. It is difficult for companies internationalising out of United Kingdom, U.S or Australia, especially those with a language little used in the international arena, to adopt such an approach. Once language standardisation built, managers and employees need to adapt new environment and communication mechanism, which may raise some opposite responses. Evidence from Finland reported by Welch (1999) showed resistance to using or learning corporate language occurred and confusions caused afterwards. Moreover, it will influence the criteria to selecting and acquiring staff, also managers and HR specialists are required to consider appraisal, training and development again. Thus, it has much more influence in developing international managers. These facts can effect total goals, strategies and cost and impact communication top-down. Even though there are many difficulties for multinationals to develop their international managers, for attractive market potentials and profit, MNCs will never cease their wheel to internationalisation. Based on the issues analysed above, the responses suggested to MNCs are enhancing the HR functions to be more flexible and practical and performance the strategic HR policies. Conclusion As conclusion, with gradually increased globalisation, more and more multinational enterprises expand business worldwide; they are developing international managers, which however is not an easy job. It is misunderstood that all Western modern management practices can transplant to countries. Many difficulties are confronted including high rate failure, cultural shock, issues in managing host managers, and language problems. Those confusions and problems postponed performing organisational strategies and decease competitive advantages. However challenges do exist in routine business operations, which necessitate MNCs to constantly concentrate their HRM strategies, functions, and policies in developing international managers. References Baron, J.N. and Kreps, D.M. (1999), Strategic Human Resource: Frameworks for General Managers, U.S.A: John Wiley & Sons, p5-7 Brewster, C. (2002), "Human resource practices in multinational companies", in Gannon, M.J., Newman, K.L. (Eds),The Blackwell Handbook of Cross Cultural Management, Blackwell, Oxford, . Budhwar, P.S. & Sparrow, P.R. (2002), 'An Integrative Framework for Understanding Cross-national Human Resource Management Practices', Human Resource Management Review, p377-403 Davis, P., Desai, A., & Francis, J. (2000);L Mode of International Entry: An Isomorphism Perspective. 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