International Human Resource Management Issues - Literature review Example

Multinational corporations (MNCs) frequently establish new subsidiaries in different host countries. Identify and discuss some of the main HRM challenges and obstacles MNCs face and outline some of the HRM strategies managers can employ to overcome these obstacles.

Multinational Corporations (MNCs) own and control productive resources in more than one country. They involved in foreign direct investments (FDI) and had become the driving force for modernisation. Most of the MNCs are strongly rooted in the national culture with two-thirds of their production taking place in the home countries and also two-thirds of the employees having the same origin with the MNCs (Harzing & Pinnington 2015, p.51). Globalisation, technological advancements, and increasing global competition have altered the environment and procedure of production functions and market demand. Consequently, these have an influence on the roles of human resource management (HRM) in the organisation because the HRM is responsible for ensuring the organisation has efficient and productive workers to match the global requirements (Boxall & Purcell 2011, p.18). HRM controls the largest element of cost in any organisation and should, therefore, be managed effectively to control organisation’s cost. MNCs have great significance in the global HRM because of they account for more than 30 percent of the global trade. Currently, there are more than 82,000 MNCs and over 810,000 subsidiaries across the globe that provides employment to over 80 million people. MNCs develop their policies that govern their operations, and the subsidiaries have strong link with a business system of the home country. The increasing demand for organisational performance has heightened emphasis for the organisations to embrace innovation and offer the right products and services to the customers at a competitive price and on time. To meet these requirements, the pressure mounts on the employers to establish new strategies, structure and practices and change from the traditional approaches of doing things (Beardwell & Thompson, 2014). Among the necessary changes includes improving workers skills, enhancing their flexibility, streamline communication, cooperation and confidence between the worker and organisational leaders. HRM function is emerging into a strategic function that gives organisations a competitive advantage in a globalised business environment. The roles of HRM in MNCs are complex and require unique strategies to satisfy both national and international expectations.

The emergence and growth of MNCs are facilitated by many factors such as globalisation because it leads to freedom of movement of workers, technology, products and services across the national borders (MacIntosh, 2013, p.234). MNCs emerged to market their products and services in the global market or exploit other resources available across borders. The global integration of production, the emergence of major economic integration such as the European Union (EU), liberalisation of trade, research, and marketing that have facilitated major companies to investment overseas to gain competitive advantage.

The growth of MNCs has influenced business operations across the globe because of the flow of international standards into the national perspective (Beardwell & Thompson, 2014). Also, the flow of foreign direct investment (FDI) has a direct influence on the business operations because it alters the configuration and process of competition within the local business context. Furthermore, MNCs leads to the emergence of new organisational structures that increase the competitiveness of the business environment at the national level (Guest, 2011). These changes in business structures and competitive force of the business impact the HRM policies and practices on recruitment and selection of employees, remunerations, and education and training standards.

MNCs play a critical role in the growth of the global economies because they account for the largest bulk of FDI across the globe (Beardwell & Thompson, 2014). According to Peng (2015, p.572), there was a transnational investment of about 1.5 trillion dollars as of the year 2011, and over 90% of the global MNCs are established in the developed economies, but they operate various subsidiaries in the developing economies. Although initially the MNCs focused on the developed economies, there is a shift in the modern world because the developing economies are becoming the focus of the MNCs (Harzing & Pinnington 2015, p.52). For instance, as of 2011 the developed economies attracted about 680 billion dollars in foreign direct investments while the developed economies attracted 750 billion dollars (Peng 2015, p.572). There is an emerging power shift as demonstrating east as the new destination for MNCs especially India and China.

The MNC institutions influence the employment policies and practices across the globe which creates persistence in national diversity (MacIntosh, 2013). These institutions are embedded in economic activities, and their complementarities within nations result in lasting national disparities in management practices. Although most MNCs retain some certain home characteristics, there is also a tendency towards convergence of dominant practices whereby the culture of certain strong nations such as the U.K. and U.S. influence the HRM practices of the subsidiaries in other parts of the globe (Nolan, 2012, p.364). Sometimes the MNCs take advantage of the diversity among nations to break down the production functions into different activities, and each production function are located in different countries (Liang-Hung & Yu-Ling, 2009). The management of the duality of global integration of production and decentralisation pose significant challenges to the MNCs HRM especially in developing policies and strategies.

The management of human resources depict some global elements in the harmonisation of practices and routine cross-border practices (Bamber, Lansbury, and Wailes, 2011, p.366). Also, there is a local element in the HRM practices particularly the adaptation of the HRM practices in the local perspective. Global integration is caused by the linkages of MNC operations across the globe. It is the configuration of organisational functions to appear similar or different across the nations as well as the linkage of business activities across the nations (Barry & Wilkinson, 2011). Therefore, the integration of MNC activities across the globe influences the HRM policies and practices.

The HRM focuses on maximising organisational integration, employees’ flexibility, commitment, efficiency, quality and innovation as their underlying policies and practices. HRM policies and practices in MNCs play a crucial role because they act as means of controlling and harmonising international operation (Bamber, Lansbury & Wailes, 2011). They influence the organisational culture and the employees operating within the MNCs. Therefore, there is a strong emphasis to ensure the effective recruitment, selection, motivation and retention of employees to enhance individual and organizational performance.

HRM Challenges and Obstacles MNCs Face

The HRM in MNCs experience many challenges and obstacles in their practices due to the complexity of the work related to bigger size of the organisations, the long distance between the subsidiaries and the parent company, the complexity of various national legislations, differences in levels of economic growth in various countries, cultural differences of various countries, etc. (Wilcox, 2006). As MNCs expand their operations to other countries the structure of management and operations becomes more complex. The increasing complexity of MNCs results in an increase of HR functions and activities. They have to handle additional tasks and employees with a diverse background. The burden of additional tasks and complexity of workforce diversity can be quite challenging and expensive to implement.

The internationalisation process involves selection of expatriates and their relocation to host countries. In most cases the roles of the employees might change when moved to the host country requiring the HRM to restructure their tasks (Wilcox, 2006). The HRM has the responsibility to provide training to the local citizens in the host country to take over the tasks formerly carried out by the expatriates. Expatriates may have the necessary qualifications, but they lack familiarity with the local regulations and business environment. However, recruiting and training local workers may have several advantages because they are familiar with the business environment and national regulations. Also, it is cheap to recruit workers locally than hiring expatriates because of the low cost involved although the locals are less experienced.

The HRM of MNCs faces external influences than the local organisations. For instance, they are influenced by the country’s legal systems as well as the differences in the level of economic developments between the host country and the parent country (MacIntosh, 2013). These influences affect the decision-making process and other HR practices of the HRM in the host country.

There is also another issue of risks and insecurity involved in decision-making. For instance, the expatriate may decide to terminate the employment contract and relocate to their home country. The decision by the expatriate to relocate to their home country can be very costly to the HRM and the entire organisation because the expatriate will have fallen short of the expectations by the HRM (Liang-Hung L. & Yu-Ling, H., 2009, p. 2017). Furthermore, expatriates have to be paid higher salaries than the local citizens of the host country; there is relocation cost and sometimes cost for personal development. These are some of the hurdles the HRM of multinational corporations has to face in their practices.

Employing and retaining workers with a diverse background to implement international strategies is one of the main challenges facing the HRM in the MNCs (Cheung & Wong, 2013, p.335). Recruiting workers from each host country require the management to have adequate knowledge about diverse national systems. Furthermore, there is a challenge with management of the diverse workforce. In a globalised economy, people are moving freely to look for employment across the globe. MNCs are incorporating workers from all walks of life because of the attractive remunerations they offer to their workers. Furthermore, MNCs are emerging to be the best employers in terms of work flexibility. The emerging international labour laws are imposing varying conditions on the MNCs which they have to comply with. All employers have to accommodate laws on equality when employing their workers. There are more women in employment than ever before (Casey, Skibnes& Pringle, 2011, p.621). There physically challenged employees, employees of diverse age and diverse cultural background, etc. The HRM has the challenge of ensuring the needs of these diverse workers are met. These employees have different aspirations and require different approaches for motivation. The young workers are after are likely to be motivated by finances and prefer flexible working environment while the older workers may require other forms of motivation and more stable jobs. Therefore, HRM has to develop strategies that will ensure all these employees are satisfied if they have to improve employees’ productivity.

The MNCs face two antagonistic forces that have been referred as internal consistency and local isomorphism (Clark & Claydon, 2014). Internal consistency is the scope in which the subsidiaries adopt international standards or the influence of the parent companies while international isomorphism refers to the scope in which MNCs adapt to local conditions. MNCs are expected to adhere to certain local conditions as much as possible while at the same time they have certain controls of the parent companies (Nolan, 2012). The major concern is whether the HRM should transfer the employment policies and practices to the host countries or whether they should adopt the local practices and apply them in their context (Adler, 2002). Organisations incorporate various strategies during recruitment and selection process of the workforce to meet the requirements of the parent companies and subsidiaries. The effort has been to standardise the HRM policies and practices through developing a model that can be applied across all subsidiaries for effective operations and cost efficiency (Casey, Skibnes& Pringle, 2011, p.624). However, cultural organisational conflicts with local culture hence the HRM cannot implement a uniform model to achieve similar effects.

Various nations exert a different level of influences on the HRM practices. For instance, in the U.S. the HRM broader influence compared to Europe because in Europe the states influence on organisations is much higher (Clark & Almond, P. (2006). This implies the government regulations and legislations have a greater influence on the MNCs in Europe than in the US thus MNCs has the narrower freedom to decide on the management of employees. The country of origin has a greater influence on the institutions and culture of the MNCs and their HRM practices and policies in than the host country.

Furthermore, in the individualistic style of the U.S. people give the HRM the freedom to implement various strategies than in other countries with more rigid culture such as the U.K. (Clark & Claydon, 2014). The HRM have to adopt different strategies for various countries to match the local culture while at the same time trying to maintain the culture of the parent country. They face a challenge as they try to balance between requirements of the home country and the local environment (Edwards, Colling & Ferner, 2007). This may seem weird since globalisation implies borderless nations. However, studies have established that the institutions and culture of the MNCs country of origin or the employees working drawn from the nation of origin influence the operations of the MNCs to reflect their country of origin (Valor, 2005). For instance, the HRM practices of Japanese MNCs can be contrasted with the U.S. MNCs in the sense that Japanese MNCs focus on establishing global relations and are highly centralised whereas the U.S. MNCs have globally standardised systems and elaborate structures of control (Clark & Almond, 2006). Another contrast is whether the nation of origin is of high or low culture. MNCs originating from western nations have low culture whereas those of Eastern nations have high culture.

Training and development of workers are another crucial role played by the HRM. Workers have general knowledge and qualifications, but they rarely have the expertise required in the specific organisation. Employee training ensures that the organisation has the most competent workforce (Beardwell & Thompson, 2014). The HRM identifies the knowledge gap and prepares training schedules to close the identified gaps, assess and identify the staff potential as well as plan the career. The HRM in a multinational organisation has to ensure the training and development conform to the international standards. The employees likely to be engaged in the international operations of the MNC require additional training on the international languages and other cultural practices of the relevant countries where they are expected to relocate (Boxall & Purcell 2011, p.243). HRM may experience challenges in designing training and development, determining the training requirement that satisfies the organisations needs and fulfils career goals. Besides the different requirements for various assignments, the workers have a different level of educational qualifications which is quite challenging to the HRM.

The integration of MNC activities can be achieved in two ways. The first approach involves segmentation whereby the local operations involve distinct roles to take advantage of the local factors such as specialised skills and cheap labour (Casey, Skibnes & Pringle, 2011). The other roles are supplied by the national operations or can be supplied other players or jointly between the local and national subsidiaries. This integration creates a web or chains of activities linking the MNC that generate synergies from vertical integration (Young & Thyil, 2009). In other words, every national subsidiary forms a discrete segment of an autonomous manufacturing process. Another arrangement of the MNC is through replication whereby various subsidiaries are established in various nations to provide similar roles to each other. The subsidiaries have similar technology and business profile to offer services to the local market thus they produce synergies from horizontal integration. The integration results in a very complex global production networks and workforce structures.

MNCs are faced with a challenge of developing policies and practices to achieve centralisation and decentralisation of organisations. Centralisation is about global integration while decentralisation is about local responsiveness (differentiation) (Clark & Claydon, 2014). This implies integration of HRM functions will differ depending on the level of the employees. Those at the lower level of the organisation’s hierarchy are highly differentiated compared to the employers at the higher level of the organisation hierarchy.

The culture of the host country influences the HRM activities because they have to conform to the culture of the host country and at the same time pursue the broader goals of the mother organisation (Bamber et al., 2011, p.368). Striking a balance between the host countries culture and regulations, and those of parent country can be quite challenging to the HRM. They may experience resistance from national regulations and policies.

HRM Strategies to Overcome the Obstacles

The HRM of MNCs adopts various strategies enhance organisations competitiveness by overcoming the challenges. The issue regarding whether various subsidiaries can adapt uniform international standards in different business environments attract significant responses from the researchers (Cahusac & Kanji, 2014). Arguably, the HRM policies and practices should relate to the overall corporate goals of the organisation. For MNCs having their presence in more than one nation, they should implement the best practices. These should be the practices the HRM are familiar with or have the guarantee for better returns from the organisation (Harzing & Pinnington, 2015, p.52). Having standardised practices across various subsidiaries is very crucial because it saves the cost of developing the same strategies for all countries when the business has its operations. It also encourages mutual learning that enables organisations to share the best practices across the globe. This approach also promotes ethical principles of fairness and equality because the HRM treats all employees equally across the globe irrespective of their background.

The HRM should observe the international labour laws to avoid conflict with the employees and labour unions. Of course, most MNCs are regarded as the best employers because of providing flexible working environment and higher salaries than the minimum wage rate set most governments in the host nations (Peng, 2015). However, since in some cases salaries differ significantly (up to three times) between expatriates and the local employees, HRM should harmonise the salaries and offer relevant allowances to the expatriates to cater for their additional cost of being in a foreign country (Boxall & Purcell, 2011). Harmonisation of salaries for all workers makes sense for all workers performing similar roles and having significant salary variations can be the cause of demoralisation and underperformance.

The HRM should also adopt uniform policies and practices for all nations and modify the practices in countries where they find incompatibility. Also, they should develop comprehensive programmes for training their workers and provide an opportunity for career growth (Young & Thyil, 2009). They should avoid discriminating the workers and all workers should be given equal opportunity for career growth. These strategies should focus on achieving greater employees and organisations productivity.

In conclusion, HRM has a significant role in the growth and performance of MNCs. The MNCs are spreading their operations across the borders to take advantage of opportunities available in other countries, reduce the cost of operations and come closer to the market. MNCs are the main source of foreign direct investments in both developed and developing economies. Nations have realised the significance of MNCs in stimulating economic growth. This trend is expected to continue even in the future due to globalisation and technological advancement. Furthermore, the MNCs are investing heavily in research and development thus offering prospective for further growth of MNCs. As the MNCs expand their operations, their structures of management become more complex and pose more challenges to the HRM. The HRM require strategies to overcome those challenges and improve the MNCs performance.