The Impact of Globalization on Strategic Human Resources Management: The BP Oil Corporation - Literature review Example

? THE IMPACT OF GLOBALIZATION ON STRATEGIC HUMAN RESOURCES MANAGEMENT OF A MULTINATIONAL COMPANY: A CASE STUDY OF THE BP OIL CORPORATION Course Title Name of instructor Name of institution Date The Impact of Globalization on Strategic Human Resources Management of a Multinational Company: A Case Study of the BP Oil Corporation CHAPTER 1: BACKGROUND OF THE STUDY Introduction The wave of globalization has affected business operations in the world to a large extent and BP Oil Exploration Company is no exception. The changes in ideology and technology which are associated with the global economy have changed companies especially in their approach to management. According to Armstrong (2009), companies now apply the systems approach where human resource information systems are used to manage all aspects of the human resource from all over the world. It is notable that the management of many companies in the world has invested time and money in expansion of their businesses leading to internationalization of companies. Growth of businesses in the world which is brought by globalization has led to the increase in the number of workers within companies. There are many economic, political and social cultural effects of globalization on companies. As a result many studies have been conducted to determine how the rise in globalization affects the strategic management of human capital. The methodologies used by such studies seek to answer questions that help companies to successfully meet the challenges caused by the turbulence of the economies within different regions. This research paper gives a critical evaluation and discussion of studies done on the impact of globalization on the strategic human resource management of a multinational company with a case study of BP oil Exploration Company. The methodology which is suitable for answering the research question is presented in the paper in addition to recommendations necessary for attainment of suitable inferences on the topic under discussion. Case Study: BP Oil Exploration Company BP is an international oil company whose headquarters are based in London. Among the energy companies, BP is the third largest in the world. This company has a vertical integration and is involved in both oil and gas exploration. In addition, the multinational company deals in energy areas of production, petrochemicals, oil refining, marketing and distribution. The operations of BP are spread all over the world in more than eighty countries. This demonstrates that the company is one of the biggest employers in the world. As a result strategic human management within BP has been impacted by the globalization of world economies which characterize modern day business operations. The approaches applied in staffing of the company and the compensation mechanisms have been influenced by the global economies and therefore vary within its various subsidiaries in different regions of the world. The exploration and production sector of BP Company has been internationalized into more than thirty countries across the world with a human resource of more than 20 000 employees. Globalization is therefore likely to affect the company more than companies which have not been internationalized. The complexity of strategic management of BP’s human resource is due to this internationalization which leads to complicated staffing, evaluation of the human resource and compensation. In addition, there are social cultural, legal and economic systems in the different countries where the oil business of the company operates which affect its human resource. Various countries and regions have different labor markets with varying labor laws and compensation systems which have an implication on the strategic plans of the company. Research Questions 1. To determine the extent to which globalization has affected multinational companies 2. To evaluate the implication of globalization on the strategic human resource management of multinational companies. JUSTIFICATION FOR THE STUDY A lot of studies have been conducted on globalization and its impact on the management of human resource. However, a clear definition of globalization has not been presented. Moreover, different studies have demonstrated different approaches of studying globalization in the perspective of its impact in the strategic management of human resource as explained by Chitakornkijsil (2010). Though, it is important to note that researchers have not disagreed on the fact that globalization has had a big impact on the management of employees especially in multinational companies. This is because globalization has been found to be the force behind the changes in Trans-border economic, political, social cultural and technological changes. Because of globalization, countries, individuals, industries and businesses have aggregated in the pursuit of similar economic goals and they have shown interrelation in the way they affect and influence each other and the global economy in general. Globalization has increased the competitiveness of the oil industry. The aggressiveness of companies in the scramble for opportunities has increased significantly in the world. This calls for a company to have a strategic plan on the management of its human resource who act as the central strength for growth and competiveness. Choo, Halim and Keng-Howe (2010) add that globalization has caused the flow of talent across borders which makes companies lay proper strategic management for their human resources because they cannot afford the valuable expertise which enhance growth and development. This indicates that the changes in the strategic plan of a company have been affected by the growth in the global economy. According to Farazmand (2004), the rate of integration of companies into the global economy is not in the same level because there are many variables within the concept of globalization which affect the extent of internationalization of companies. This means that the extent to which globalization affects the strategic management goals of companies vary. Research on the impact of globalization on multinational companies has not sufficiently measured the nature of globalization among companies in terms of their global supply chain, market presence and the corporate culture as determined by the human capital. This therefore calls for research in the strategic management of staff which ensures that the presence of the company is felt it its host country in addition to the use of staff in making the supply chain more efficient. CHAPTER 2: LITERATURE REVIEW Introduction The role of the human resource department is becoming increasingly important to the business functions of companies. As a result, the human resource management function of companies has been incorporated into their strategic plans and goals. As said by Hin, Isa & Hee (2011), human Resource management is the design and implementation of practices and values by business organizations and companies which aim at facilitating the human resource function in order to enable the human capital to effectively and efficiently reach the goals and objectives of the company. This chapter is a literature review on the implication of globalization on the management of human resource. The chapter will discuss the management of human resource in terms of staffing and compensation of human capital because these two functions determine the success of the company. Strategic Human Resource Management According to Malik and Aminu (2011), there is a direct coloration between the policies and practices of management and the productivity of the human capital. BP Company has strategic management plans in selection and training of its staff to enable the achievement of its objectives through being competitive in the oil exploration and production. This is what has contributed to the immense success of the company in all its international business operations. Malik and Aminu (2011) add that business systems affect the performance of a business organization. The multinational nature of BP has led to the internationalization of its human resource management systems. This has an implication of the performance of its human resource because it is through the use of such systems that effective management is made possible. Choo, Halim and Keng-Howe (2010) asserts that due to the globalization of business operations through internationalization, the human capital of companies varies from one region to another depending on the economic, technological and political climate of that region. This means that the strategic management policies of a company should consider such factors in staffing. The strategic human resource management of BP has a policy for the recruitment of its staff which varies from one region of its operation to another. The skills required by employees who work in the oil exploration industry are determined by the education and employment policies within a specific region in addition to the availability of industries which would offer working experience to the potential employees of a company. The corporate culture of BP varies in different regions depending on the attitudes of the staff on their work. Malik and Aminu (2011) emphasizes that these attitudes are determined by the approaches used by the company in staffing and compensation. Globalization has enabled BP to venture into new market opportunities across the world. In addition, the supply of oil has been made more efficient through its strategic management of human resources who ensure efficiency in the business operation and communication across the company’s branches in many regions of the world. Malik and Aminu (2011) asserts that for a company to eliminate the negative implications of the globalization in its business performance poor working culture in some region, a system approach should be applied in the management of its human resource. This is illustrated by the research finding on the advantages of the system approach in human resource management as opposed to the focus on specific practices. According to Chitakornkijsil (2010), the application of the systems approach in the management of Human resource is motivated by the fact that traditional transactional practices in HR management are way too outdated to fit the demands of globalization. The system approach on the other hand facilitates the creation of value for the organization. Therefore transformational approaches and practices should be applied by the human resource managers to effectively manage its human capital across the world. Farazmand (2004) explains that the approaches international companies use in the management of its staffing subsidiaries vary from one region to another. As a result, a company may decide to supply its human resources from its home country or employ people from within the host country. In addition, a company may select its employees from a third country instead of its home or host nations. However, most multinational companies have strategic human resource management approaches which allow recruitment of staff from the home country, host country and other third countries. Chitakornkijsil (2010) says that in the cases where a company sends employees from its home country to the host country, the headquarters of the company takes the responsibility of making all decisions. In this approach, the home country employees usually take the top managerial positions but the human resource movement applied by the company’s subsidiaries is normally that of the host country. The human resource management which uses staff from the host country is motivated by the belief that one region is different from another in terms of social cultural and economic systems. In this approach, the local practices of conducting business functions are adopted by the company’s subsidiaries which consider them appropriate. Farazmand (2004) emphasizes that this approach has been considered the as the most suitable method of management of staff because it is flexible in the manner that local institutions can be used to train the staff or they would be sent to the company’s home country for training. The globalization in business functions has enabled a third approach in staffing where employees are drawn from a third country depending on their expertise in the business. The approaches used in the management of the human resource of a multinational company various from one corporation to another. However the advantages of one approach over another should be considered by companies which operate in a global scale in the design and implementation of their human capital as explained by Hin, Isa and Hee (2011). For example the use of staff within the host country is advantageous because such employees are familiar with the political, economic and social cultural environment which affects business operations. Moreover, the use of the local staff in the operation of the company promotes the perception of the community on the company which leads to the acceptance of the products of the company by the local people which make the company’s customers. Therefore a company is considered by the local people as the legitimate company which acts as the leader in the development of the local economy. Malik and Aminu (2011) say that there are difficulties associated with the use of employees from the host country by a multinational company such as the challenges associated with effective and sufficient control of the company’s subsidiary. As a result, there are difficulties in decision making which leads to the postponement of some critical decision which affect the company directly. Furthermore, the local employees may not be adequately qualified hence the strategic approach to human resource management which exploits the host country’s staff usually leads to the recruitment of unqualified staff. In return, this approach causes the inefficiency in the operations of the company. On the other hand Yueh-shian (2011) asserts that it is appropriate for a multinational company to hire staff from the hoist country because strategic management plans in training can be applied to make such staff knowledgeable and qualified for the demands of their work. Some companies have found it hard in communicating to the personnel of their subsidiaries within the host country which leads to the breakdown of the unity of command in the management of the company. On the other hand, Hin, Isa and Hee (2011) explain that the application of the expatriate in business functions of a multinational is advantageous because staff from the home country is more familiar with the business culture of the company, its goals, objectives and mission. In addition, staff from the home country is more likely to be familiar with the policies of the company. The expertise and competence of staff from the home country is also likely to be higher as compared to employees from the host country. Cultural unfamiliarity and language barrier are demonstrated by Malik and Aminu (2011) as the setbacks of the use of staff from the home country by a multinational company. In addition, staff from the home country may take longer to adjust to the political, economic and social cultural environment of the host country. Moreover, the costs of transfer of compensation from the home country in terms of time may reduce the motivation of the expatriate staff. The compensation of the BP staff varies depending on the differences in the payment and staff motivation practices in different regions of the world where the company oil exploration business activities have been invested. Yueh-shian (2011) explains that the economic circumstances of countries vary with the differences in the exchange rate and therefore the strategic policies in the compensation of staff of a multinational corporation should consider economic factors which affect the payment of its workers in different regions of the world. Different approaches therefore should be used in compensating workers depending on the cultural and economic forces associated to the region. The compensation of expatriate managers by a multinational company determines the success of the company. The strategic plans of the company in compensation use various approaches which are influenced by the forces of globalization. According to Yueh-shian (2011), ethnocentric approach in compensating expatriate mangers is more simplified while the polycentric methods are made complex because the mobility of the managers is limited to certain regions hence their compensation is specific to that region. On the other hand the geocentric approach where managers operate across many regions is complicated by the fact various regions have different demands on the responsibilities of the manager. The expatriate compensation approach is described by Malik and Aminu (2011) as a method of compensating the management of an international company where expatriate managers are enabled to enjoy the same living standards in the foreign country as their home country. This type of compensation is in form of allowances, base salary, benefits, tax differentials and premiums on Foreign Service. The benefits that the expatriate managers enjoy include medical and pension benefits which are equivalent as those received by the managers in the home country. The Foreign Service premium paid to these mangers on the other hand comprises of the extra pay which they receive for living and working in foreign land. Companies compensate their expatriates for the tax which is levied on their income both by the home country and the host country. The compensation allowances given to these managers include hardship, house and educational allowances. The base salary of a multinational expatriate manager is usually at the same level with mangers in the same position of management within the home country. These forms of compensation promote the performance and motivation of the managers. Malik and Aminu (2011) argue that globalization has played the central role in the strategic management of human resources of multinational companies. The best strategies of human resource management have therefore spread throughout the world through their applicability in facilitating the success of companies. The competitiveness in the global economy has therefore compelled multinational companies to adopt human resource systems which are considered to be best in the management of employees. Malik & Aminu (2011) add that because of the importance of human resources in the operations of companies and the impact of globalization, many researchers have studies the implication of globalization in human resource management using various approaches and methodologies. In accordance to Yueh-Shian (2011), the practices in strategic human resource management more commonly originate from the developed economies and spread across the world to the developing countries. Since human capital is the determinant of the success a company through its experience, knowledge, skills and expertise, proper management of employees is the most important consideration for the enhancement of the efficiency and effectiveness of the operations of a company. The competitiveness in skills and level of training which has been caused by globalization, has led to the emphasis in the importance of human capital management in all companies as explained by Hin, Isa & Hee (2011). As pointed out by Farazmand (2004), the degree of SHRM in a company is parallel with the level of globalization and the growth of a company into the global economy is a process that is reversible because companies are propelled by the global competition into a forward momentum towards success. The management of the company’s human resource therefore applies strategic corporate strategies which make the company to be engaged in constant change to overcome the increased risks in business practices which are associated with the rise in globalization. CHAPTER 3: METHODOLOGY The six research articles selected for analysis are relevant to the topic of study. In addition, all articles seek to answer questions related to the research questions of the study. The literature presented by the articles explains at length the issues of globalization in relation to strategic corporate management of the human resource. Moreover the hypothesis in the articles is important in evaluative analysis of the topic in order to come up with accurate conclusions. The articles enabled the selection of a suitable methodology for the study which is presented in the following section. A survey is done using a structured questionnaire designed to answer the research questions. The designed questionnaire is aimed at the degree of globalization of the case study and how globalization has affected the strategic policies of managing and compensating its staff. A pilot study is carried out to test the questionnaires among human resource executives of BP Oil Exploration Company. The aim of the pilot study was to determine whether the questionnaire was valid in answering the research questions in addition to identifying the biases of the executives on the human resource management approaches. Moreover, the interpretation of the questionnaire was tested by the pilot study to ensure that it is designed in a proper length and layout. The participating executives did not encounter difficulties in interpreting questions in the questionnaire and neither were there any leading questions. The comments of the respondents on the questionnaire were taken into consideration when improvements were made through the amendment of some questions and the general structure. A case study of BP Oil Exploration Company was suitable for the study because the company is internationalized and therefore has been affected by globalization in its strategic management of employees. Data for the study was collected from executives within the Human Resource department of the company’s subsidiaries using a random sample. The random sample was picked from a list of executives and their addresses which was obtained from the company’s headquarters in London. The collection of the data was made possible through email because executives in the international subsidiaries of the company would not be realistically reached directly. The data collected was on the impact of globalization in the strategic management of the company staff. The case study enabled the generalization of the study findings which were used to answer the research questions and thus enable the researcher draw inferences based on the research findings. The collection of data using electronic mail involved inclusion of a return email with the identity of the respondents concealed as a way of ensuring ethical consideration in research. The questionnaires set to the subsidiary companies of the BP Oil Exploration Company via email targeted 100 respondents among the executives of the company. Out of the 100 email addresses to which questionnaires were sent 11 were invalid. A high response rate of 61.7% was achieved because 55 respondents filled the questionnaires and sent them back through the return email address. The response was high compared to similar studies done within England which reflects a success in the research through a suitable methodology. Limitations The sample size was relatively small since the random sample for the study was selected from among the executives of the company in addition to the fact that not all executives filed the questionnaires. A larger sample size would have included employees of the company and their response to the impact of globalization on the strategic management of human resource. The generalization of the research findings would have been more accurate with a larger sample size. The limitations of the research have however been overcome by the high rate of responses from the study sample. Discussion Research on the impact of globalization on strategic management human resource is more biased towards expatriate strategic management approach. The parent country executives are considered important in promoting the success of companies as compared to the use of staff from the host country. As illustrated by Yueh-Shian (2011), the use of local staff from the host country in the subsidiary companies of an international corporation leads to the need for training of the staff in order to meet the global standards of skills and knowledge on a specific field. Some companies however employ staff from a third country which would be the home country or any other country as a way of ensuring opportunities for all as demonstrated by Chitakornkijsil (2010). The control of the strategic HR practices of companies is due to the differences in the political, economic and social cultural implications on the operations of a company which are brought about by globalization. As said by Malik and Aminu (2011) the internationalization of companies therefore applies strategic management approaches such as training of staff and use of qualified staff from the home country so that the challenges which result from globalization are overcome. This is important in promotion of a company’s operations so that annual revenue is increased and competitive advantage over other companies dealing on the same products is achieved. Conclusion Because of the rise of globalization and internationalization of companies, there are political, economic and social cultural issues which must be addressed by companies in their strategic plan of managing their human capital. The competitiveness in the professionalism and legitimacy of employees and management of companies is caused by globalization. The strategic management of human resource therefore must apply appropriate methods or approaches in the management of employees within the subsidiaries of a company in foreign countries. This is to ensure that legal frameworks and ethics are practiced as a way of ensuring that the success of the company in the foreign country is effectively attained. The acceptable legal and ethical consideration of a company enables it to be recognized by the host country as the legitimate contributor to the economic growth of that country. In addition, there are regional labor laws and trade agreement which affect a multinational company as a result of the globalization of the economy into mutual economic agreements. For a company to successfully meet its objectives, the compensation of its staff and executives should be considered in its strategic management goals for the human capital. Expatriate compensation approach as a motivation method for the executives of a company within a foreign country is considered as the appropriate approach. This is due the fact that globalization leads to the diverse influence of the global economy on various regions. The exchange rates of different countries are not the same in addition to the differences in taxation policies. Therefore executives should be compensated in accordance to the economic environment within their home country. The strategic approach in compensating staff of a multinational company who are obtained from the host country usually uses the local labor policies to avoid conflict with the legal system of the region. Proper compensation of human capital of any company is vital in ensuring efficiency and effectiveness in attainment of the goals and objectives of the company. Recommendations Companies should apply an appropriate approach in its strategic management in the screening of its human resource to enable them overcome the challenges of the globalized economy such as competition for expertise. The internationalization of companies leads to the need of employing subordinate staff from the host country. This leads to the need for ensuring that the skills and knowledge of the staff meets international standards. The staffing policies of a company should be designed to meet the goals and objectives that the company hopes to attain. In addition, the strategic management of the staff of a multinational company should adhere to the regional labor laws and legal framework. This will ensure that the company is accepted by the host community in addition to avoiding legal conflict with the local laws on business operations. Expatriate employees of a multinational company should be compensated appropriately through adequate pay and training. The rise in globalization necessitates that expatriates are trained on the local language and culture do that they can adjust to the business functions of the company which are affected by both local and international forces. Moreover, training of company executives enables them to be flexible to the business needs associated with different regions through the formation of strong business networks. Studies on the impact of globalization on the strategic human resource management of multinational companies should also focus on how the turbulence of the global economy affects the human capital. This will ensure that proper strategies are laid to prevent the loss of human expertise by a company to its competitors. This is because a failing economy may lead to poor compensation of a company’s employees in the host country who would seek better working conditions and compensation within with other companies. References Armstrong, M 2009, Armstrong's Handbook of Human Resource Management Practice, Kogan Page, eBook Collection (EBSCOhost), EBSCOhost, viewed 8 December 2011. Choo, S.S., Halim, H. and Keng-Howe, I 2010. The Impact of Globalization on Strategic Human Resources Management: The Mediating Role of CEO in HR. International Journal of Business Studies, 18(1)101-124. 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