Human Resource Management in the Multinational Context - Research Paper Example

?HRM in the multinational context College: Introduction Pressure from global competition has increased the need and strategic value of having motivated, skilled and adaptable employees as well as relevant HRM strategies to develop and support the workforce. HRM’s strategic perspective requires a firm to adopt relevant human capital initiatives that are likely to bring about maximization of shareholder value and competitiveness. In the context of multinational companies, human resource strategies adopted must be aligned with the market situations across national boundaries (Shen 2005, p. 83). While it is important to adapt the local context, diffusion of centrally initiated and competitively differentiated strategies is also significant. In the multinational context, effective HRM strategies must be well integrated both horizontally and vertically. Aim of the study This study aims at exploring the role of HR in the multinational context. The study will examine the changing role in HRM to identify the challenges faced in HRM as well as organizational behaviour. The study will also demonstrate the importance the theories of HRM and organizational behaviour exploring the various HRM practices such as selection, recruitment, training and rewards system. These practices will be linked with relevant organizational behaviour tools such as motivation and empowerment. Business today is no longer limited to the countries’ national boundaries. Large multinationals do significant percentage of their business activities outside their home market and country; this has resulted from continued establishment and strengthening of business in the overseas by multinationals. Competitiveness in these corporations has largely been determined by their effectiveness in the international market, this is in turn determined by effectiveness of global managers particularly the international human resource managers who can function effectively in the international business activities. IHR practices are critically important in determining the effectiveness of multinationals (Caligiuri et al 2010, p. 3). Abbreviations The following initials have been used in this study and have their whole interpretation as given below: HR: Human resource HRM: has been used to refer to human resource management and in other contexts to refer to human resource managers IHRM: refers to international human resource management ISHRM: refers to international strategic human resource management MNCs: refers to multinational corporations HR role in driving effectiveness in the company Alignment of HRM strategy in MNCs is of important when it comes to strategic implementation (Chew & Horwitz 2004, p. 33). This is the alignment of HHRM systems and policies with the organizational goals and policies in order to achieve the established operational goal and competitive strategy of the firm. HRM system must be deemed as a source of the firm’s competitive advantage in any multination for it to be successful (Sparrow et al 1994, p. 268). IHR function constitutes of corporate HRM group managing the various roles and practices of personnel management. This HRM group has about 500 level managers who carry out the global service program. In line with the company’s philosophy, the HRM group manages the various subsidiaries in line with the markets they operate in, for instance, the company applies varying HR standards in different market operations. Salary standards are applied differently in different market and the aim is to ensure that their salary scale remains competitive in the markets. Multinationals like Coca Cola staffs its operations from the local personnel and only engages expatriates where the system demands. According to Caligiuri et al (2010, p. 3), successful MNC companies manage their global staff in ways that match their strategic needs as well as the demands of their markets. Global market offers different external environments and varying skills and capabilities in the global labour market HR plays a critically important role in managing the companies’ global operations and enhancing their competitiveness. IHRM policies and practices play important role in strengthening interunit linkages in various ways including staffing policies, comprehensive planning of human resource, compensation policies, performance appraisals, and development and training of staff. Changing landscape of HRM and organizational behaviour Personnel management as earlier referred has changed to human resource management or the HRM, which has also changed to international human resource management or the IHRM. While there is no much difference between HRM and IHRM, the difference in context of management has brought emerging changes in HR approach between the two. HRM is carried out in domestic context while IHRM occurs in the multinational or global context (Scullion & Kenneth 2000, p. 1061). In addition, IHRM is largely complex as compared to the HRM in the domestic context. Domestic HRM primarily involved three main areas that include work relations, employment relations and industrial relations. Employment relations capture roles such as selection, recruitment, promotion, compensation and reward system, and training and development while industrial relations capture the representational role of HR. work relations encompass labour division and workforce deployment in the production process (Hiltrop et al 1995, p. 94). With the dramatic change in industrial and economic development, HRM has evolved to include much more than the traditional roles of HR. globalization as well as internationalization owe much to the changing HRM role and the establishment of international framework of human resource management. One of the complexities in IHRM rises from employee diversity where HR has to deal with expatriates, impatriates, host-country nationals and third-country’s nationals (Schmitt & Sadowski 2003, p. 409). The other source of complexity rises from managing workforce from varying national cultures, which makes it hard to transfer some organizational behaviour and HR approaches and tools from one country to another (Smith 1992, p. 41). For instance, different cultures yield different motivational factors. There are countries like Japan where teamwork and group approach to work is highly desired by workforce wile in other cultures, working independently is a motivation to the staff. Strategic approach to the management of global HR (SGHRM) function has further complicated the human resource functions (Plessis & Huntley 2009, p. 413). SGHRM argues that development of HR managers that are globally sophisticated is one of the major challenges facing IHRM, the strategic framework of global HR advocates for alignment of HR functions and goals with the strategic goals of the firm to attain competitive advantage (Taylor et al 1996, p. 974). HR function operates as HRM in the subsidiaries exploring the various roles of HR in a domestic set up. However the company also utilizes SGHRM in order to ensure that the various policies and practices of HR function in the various subsidiaries are aligned with the company’s objectives and goals (Ferner 1997, p. 21). Importance of the HRM and organizational behaviour theories and framework IHRM model was developed to capture HR’s influence on MNCs outcomes through its policies and practices (Treven 2006, p. 121). From contingency theory, IHRM HRM must be consistent with organization’s strategy while the Universalistic theory argues that HRM should complement the strategy of the company (Wright et al 2005, p. 875). SGHRM model has been important in the consideration of international variables like culture and how the variables influence HR systems. SGHRM system shapes the organizational culture bringing in the traits and practices that enhance effectiveness in HR function (Kiessling & Harvey (2005, p. 26). Motivational theories like Maslow theory are highly considered in the management of organizational behaviour through motivation. The theory provides the various needs in their hierarchy showing HR how they should be met in their order or priority in effort to enhance employee motivation. Maslow theory has been used by global HR managers to identify and meet the needs of their diverse workforce. Hofstede theory of cultural dimensions has been of great input in global HRM, it has particularly enabled global HR managers to understand different national cultures and thus learn how to motivate the employees in each cultural set up while still integrating the various HR activities within the organizational goals and objectives. IHR uses different motivational factors to reach to the company’s diverse workforce depending on their cultural set up (Edwards 1998, p. 702). Influence of HRM practice and organizational behaviour as intervention mechanisms to drive the organizational performance HRM and organizational behaviour National culture influences organizational practices and individuals behaviours and perceptions. Organizational culture and practices influence attitudes and work behaviours at individual level and at organizational level, national culture influences organizational culture and behaviour of staff and this way influences HRM policies and practices. Hofstede introduced four cultural dimensions at national level; these include power-distance, individualism v collectivism, masculinity v femininity and uncertainty avoidance (Hofstede 1980, p. 79). These four dimensions of national culture have gained much popularity in the understanding of management across cultures. Sociocultural variables like power-distance and individualism v collectivism affect an organization’s internal work culture and this in turn influences HRM practices such as performance management, reward system and work design (Sheehan 2006, p. 133). For instance, where national culture is collectivistic, HRM is influenced to adopt teamwork approach to work design while in an individualistic culture HRM may design work in a way that members work independently. The tow variables also influence HRM choice of motivation factors and thus influence the reward and performance management systems. Power distance plays an important role in determining those responsible for decision making while uncertainty avoidance helps in assuring that what is supposed to be done is actually done. Power distance constitutes the paternalism concept that gives a clearly differentiated hierarchy of relationships between subordinates and seniors Strategic IHRM practices Staffing: Staffing involves effective human resource planning, selection and recruitment of employees. Effective IHRM applies staffing strategy that enhances cultural-fit and success (Marschan-Piekkari 1999, p. 378). Staffing has operational implications in multinationals. Adoption of ethnocentric, polycentric or geocentric determines the implications of staffing to the subsidiary’s operations. Geocentric involves sourcing staff from across the organization without considering their nationality while ethnocentric involves filing the positions in the MNC by the parent company. Polycentric involves staffing MNC operations with the host country’s nationals. Effective HR identifies the most appropriate approach to staffing based on the possible operational implications (Kallenboch & Moody 1994, p. 951). For instance, in new subsidiaries that require people with experience to start operations, it is advisable to use ethnocentric approach to staffing while in existing subsidiaries, it is advisable to use polycentric approach to staffing where local staff are sourced from the local labour market and deployed in the operations and management with the help of expatriates where necessary. For instance in the context of Apple and Coca Cola for instance, staffing takes ethnocentric approach when the company is opening new subsidiaries and requires expatriates otherwise for existing subsidiaries, the company sources for staff from the local labour market. Polycentric approach to staffing helps in boosting the staff’s sense of belonging where they don’t feel controlled by the parent company. It also boosts the image and reputation of the company by contributing to the country’s economic development through employment. The ability to tap the desired talent plays an important role in driving the effectiveness of organizational performance and is a source of competitive advantage (Boudreau & Ramstad 2005, p. 17). Multinationals like Apple, Nestle and Coca Cola, the company offers the best compensation benefits and this helps in tapping the best market talents in the various market operations. Training and development: IHRM also has the responsibility to train staff and develop them for the benefit of the MNC as well as for their benefits. Training involves evaluating the training needs of the staff and identifying relevant training programs. Training is more often offered to staff and it is short-lived. Development is often given to managers and focuses on long-term goals of the company like effective succession and effective organizational culture. Through training and development, employees’ skills, abilities, knowledge and competences are enhanced and this increases their productivity and performance, which in turn increases profitability of the company (Marchington & Grugulis 2000, p. 1105). IHR managers conduct evaluation of training needs and this helps in identifying relevant programs that match the staff needs. Training and development has been a key source of effectiveness in employees as well as organizational performance in multinationals. Training and development also forms a source of employees’ job satisfaction and motivation and thus plays an important role in shaping the culture and the behaviour of the organization (Farley 2005, p. 57). Compensation and reward system: Global HRM encounter challenges when developing compensation and reward systems for MNCs. Of great importance in these systems is comparability issue across countries and subsidiaries. National and organizational culture also influences people’s perception and value of various rewards in the compensation system (Hofstede 1980, p. 172). For instance, in a performance-driven culture HRM must compensate on performance basis while in other cultures where compensation is entitlement-oriented compensation is based on things like years of service or experience. Compensation for expatriates tends to resemble the practices of parent company where it is mostly performance-based. Compensation for staff is primarily determined by the local market competitiveness whereby a multinational sets its compensation benefits to match the market competitors. Compensation design in most MNCs is a driven by organizational considerations, which are amenable to the managerial control (Caldwell 2003, p. 984). National culture also influences the type of rewards that will motivate staff, for instance, in some countries like United States, promotion and remuneration review are critical rewards in motivation while in Japan, group appreciation is a critical motivator for staff (Caligiuri & Stroh 1995, p. 495). Pay for performance are mainly accepted in masculine cultures or in individualistic culture where individual appreciate rewarding of their achievement. Pay for performance might however not work in collective cultures where employee relationship and personal needs influence pay decisions (Lachman et al 1994, p. 44). Most multinationals for instance uses variable compensation system across globe for staff and a global compensation system for expatriates. A variable compensation system helps the company to integrate the varying national culture into the compensation system and thus yield a motivated global workforce. This is a key factor in driving productivity and performance (Lawler 2005, p. 165). Performance management system: performance management system forms one of the key components of SIHRM and is one of the critical business drivers. When viewed as one of the strategic tools, performance management is a powerful addition to the management action. SIHRM recognizes that all employees and management engage in activities that are directly connected to strategic direction, intention and interest of the multinational (Kelly 2001, p. 541). Five major constraints facing SIHRM in implementation of effective performance management system, these include volatility of international market environment, non comparable data, long-term versus short-term approach, and the variable levels if different markets’ maturity. Essential part of the performance management system is the establishing of employees’ performance goals that are aligned with organizational goals. The other important aspect is the measuring and monitoring of performance and giving feedback on results and behaviour of employees. Performance management also involves providing performance based rewards, facilitating staff development by identifying their training needs and coming up with appropriate training programs to improve their skills, capabilities and competences (Novecevic & Harvey 2001, p. 1252). Performance management may also involve providing career development opportunities and advice, and promotion. Implementation of parent company’s performance appraisal system involves two elements namely implementation and internationalization. Implementation requires successful adoption of the performance appraisal policies and practices, which in turn requires to be internationalized in the various subsidiaries (Caligiuri & Stroh 1995, p. 496). It is important that multinationals recognize that different subsidiaries have different attitudes towards the performance appraisal system, which challenges the diffusion of practice. The companies IHRM should also pursue standardized performance appraisal system that is focused on global cohesion. Central to performance management is performance appraisal of staff, which occurs once in a year or semi annually and involves analysis of staff’s current performance, their overall capabilities and the future potential. Performance appraisal facilitates informed decision in setting the future performance goals, promotion, compensation and development. Performance appraisal involves assessment of employees’ performance and the potential of employees (Caligiuri et al 2010, p. 84). The main purpose of performance assessment is to enhance relevant changes in future performance, promotion and compensation. The other important element of performance appraisal is future development; this involves evaluating upcoming challenges, career opportunities and competence requirements. Performance management is critically essential in driving employees’ productivity and the performance of the organization. Performance management can be used to empower staff by providing them with relevant performance advice, counselling, career advice and rewards like remuneration reviews and promotions (Tsui & Nifadkar 2008, p. 426). These factors improve staff’s job satisfaction, motivation and productivity thus improving organizational performance. Conclusion This study has explored the changing roles and practice of HRM towards globally strategic HRM model, which has combined some of the domestic HRM roles like selection and recruitment into staffing policies and emphasized on human resource planning, performance management, compensation policies and staff development and training. The study has also explored the various strategic IHRM practices and policies and discussed how the practices are linked to the organizational behaviour. Organizational and national cultures have been identified as key factors that influence SIHRM (Chew & Horwitz 2004, p. 32). The study has identified that SIHRM is a complex activity that requires global managers to adopt relevant approaches in order to effectively implement the relevant practices and policies. In regard to staffing, the nature of the subsidiary largely influences IHRM staffing approach determining whether ethnocentric or polycentric or geocentric is more effective. Hofstede’s four dimensions of national cultures have been identifies as essential in the understanding and managing of the diverse global workforce (Hofstede 1980, p. 143). The four dimensions guide managers in identifying the best approaches to compensation systems, performance management systems, and reward systems by looking into the various factors that motivate factors in different national cultures where the company operates. This study can be used by global HRM managers who wish to build effective practices and policies of HRM in their MNCs. The study could also be used by companies that wish to launch global operations; it could help identify some of the challenges encountered in SIHRM and possible solutions. References Boudreau, J & Ramstad, P (2005), Talentship and the new paradigm for Human Resource Management: from professional practices to strategic talent decision science, Human Resource Planning, 28 (2), 17-26. Caldwell, R (2003), The changing roles of personnel managers: old ambiguities, new uncertainties, Journal of Management Studies 40(4), 983-1004. 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