International Human Resource Management - Essay Example

The following work is an analysis of the issues faced in the realm of International Human Resource Management (IHRM) in relation to the case of Contact PLC, a UK based firm that produces and sells office communications equipment, which also has a subsidiary in Faro, Portugal. The essay will address the problems in the staffing, appraisal, rewards, and development parameters within human resource management (HRM) (Fombrun et al, 1984), but in an intercultural context for Contact’s Faro operation, with the help of relevant literature and theories to support any claims and conclusions, and to come up with some meaningful recommendations. In order to delve further, it is important to establish IHRM and its functions in today’s multi-national companies (MNC’s). IHRM Definition and Concept: “...the International Organisation will be called on to operate across a wide variety of competitive environments and yet somehow balance these diverse social, political and economic contexts with the requirements of the original home context.” (Dowling et al, 2008, pg25) IHRM is a relatively recent addition to the field of human resources, developed mainly because of the rapid pace at which businesses are getting internationalised as a result of globalisation (Scullion, 2001). Even though IHRM’s operations are based on the same four parameters of domestic HRM mentioned above, it is much more complex as it deals with sensitive cross-cultural issues and calls for proper education of the local behaviour in terms of culture, values, business practices, and employment laws of the host country of a subsidiary of any MNC (Torbiorn, 1997). Hence IHRM can be defined as, “the HRM issues and problems arising from the internationalisation of business, and the HRM strategies, policies and practices which firms pursue in response to the internationalisation of business” (Scullion, 1995 cited in Scullion and Linehan, 2005, pg4). The four parameters of HRM are then extended into three main issues for IHRM, namely, the management and development of expatriates; the internationalisation of management throughout the organisation; and, creating a new corporate culture that would reflect on internationalising the whole organisation, by focusing on increasing the international experience of staff, to be able to effectively counter the frequency of cross-cultural interactions as a result of investing abroad (Hendry, 1994). As a result, IHRM covers a much wider spectrum of worldwide management of people (Dowling et al, 1999, 2008), and is concerned with how MNC’s manage their ‘geographically dispersed’ workforce by being able to dispose their resources to obtain and maintain ‘local’ and ‘global’ competitive advantage (Schuler et al, 2002, single quotes mine). This clearly indicates IHRM as a means of strategic importance for MNC’s, as it plays a key role in achieving the competitive edge that firms aim for, and is also key in achieving a balance between “the need for control and coordination of foreign subsidiaries, and the need to adapt to local environments” (Adler and Ghadar, 1990 & Milliman et al., 1991, cited in Scullion, 2001, pg5). In other words, the need is for the organisation to implement common practices, like structure and technology that transcend national differences and form a commonality as to how the business operates across cultures (Kerr et al, 1973 & Hickson et al, 1979 cited in Mullins, 1999), whilst not ignoring the essential differences in how these practices are communicated and applied to the local workforce of a given foreign subsidiary (Hofstede, 1997; Keeley, 2003). Parameters of HRM and IHRM: Having established the key differences between domestic and international HRM, it is now important to understand in depth, the processes and practices that make up the HRM function, and how they are modified and applied internationally. As discussed earlier, the HRM function carries the parameters of staffing, appraisal, rewards and development. Mullins (1999) integrates these parameters and suggests that no matter how big or small an organisation is, there is still a need to address the key functions of recruiting and training staff (staffing), motivating staff through ‘performance appraisals’ and ‘rewards’, and re-training and ‘developing’ staff throughout the course of their employment, whilst complying with the employment laws of the land. Here, we get an intertwined picture of the various parameters in relation to the end result they produce. For example, appraisals and rewards produce increased levels of motivation in staff. With a brief look at these factors in the domestic context, we shall discuss them in detail in the international context. Staffing as mentioned above refers to the recruitment and initial training stages of the HR function. It also includes delegation of certain roles to certain individuals according to their competencies (Robbins, 2003; Torbiorn, 1997). But the main objective logically is to assign these roles to improve the overall performance of the organisation. Appraisal refers to the managerial operation of constantly studying staff behaviour and performance in order to propose areas of improvement, highlight potential and establish a clear structure of duties for staff (Mullins, 1999; Robbins, 2003; Dubrin, 2004). Very importantly, a good appraisal scheme can improve communications by giving staff the opportunity to talk about their ideas and expectations, and how well they are progressing (Mullins, 1999). An appraisal also forms the basis for giving rewards, promotions and other progressive incentives (Mullins, 1999; Robbins, 2003). Rewards are a way of motivating staff by appreciating their effort in a job well-done. These efforts can be seen by direct observation or through performance appraisals (see above) depending on the size of the organisation (Mullins, 1999). Researchers believe that rewarding motivates staff to perform better, or be consistent, in line with the self-esteem level of Maslow’s theory of motivation as it gives them the recognition they crave for (Dubrin, 2004). Development refers to the ongoing process of training of staff during the course of their employment due to factors like a change in culture, technology and other operational factors (Hofstede, 1997; Robbins, 2003). It can again also be a direct result of a performance appraisal scheme which may have identified room for improvement, or a potential for career progression for staff, which consequently calls for further training and development of the staff. The above factors, as discussed earlier, become much more complex in the international realm, as it deals with a ‘complex network of individuals, structures and laws’ (Scullion, 2001). Going in the same order as above, the same parameters have been extended over the years by various researchers to justify and counter the challenges of IHRM. The staffing factor, for example, has been extended to the selection, recruitment and training of expatriates (Iles, 1994; Welch, 1994); the development factor has been extended to the management and development of expatriates (Hendry, 1994); The appraisal and rewards factors follow the same basic concepts of domestic HRM, but are extended to identifying ways of communicating these schemes across cultures and how they are perceived by the local workforce (Scullion, 2001). Although most initial research laid its focus on the challenges of expatriation, more recent research places an equally important emphasis on the “compensation and ‘repatriation’ of expatriates” (Welch, 1994 cited in Scullion, 2001). It is now vital to understand these factors in detail to proceed further and apply them to the case of Contact Plc. Staffing in the international context takes many dimensions, as it deals with the processes of expatriation, where parent country nationals (PCN’s) are recruited, trained and transferred to a firm’s foreign locations; recruitment of host country nationals (HCN’s), where a firm’s foreign subsidiary is operated by nationals of that country; and third country nationals (TCN’s), where individuals of a third country are recruited to work in a firm’s foreign location (Scullion, 2001; Torbiorn, 1997). The first two (PCN’s and HCN’s) however, are the most common options used by international staffing as they reflect the main challenge of ‘central versus local’ cultures in relation to the corporate and social culture of the parent company, and that of the host company of a foreign subsidiary, with the main dilemma being which of these cultures are to be used for the firm’s overseas operations (Dowling et al, 2008; Trompenaars and Hampden-Turner, 1997; Torbiorn, 1997). Expatriates are considered, “trustworthy employees sent abroad to represent the interests of the company” (Boyacilliger, 1990 & Nohria and Ghoshal, 1997 cited by Bonache et al, 2001). Even though many MNC’s still widely follow the practice of expatriation, many disadvantages have been identified over time as expatriation is a relatively expensive process of finding the right staff with the required competence levels of operating abroad, which includes the ability to study and understand the cultural differences, personalities and other features of diversity (see Hofstede, 1997; Dowling et al, 1999, 2008). Hofstede’s five dimensions of culture-related values give us a good picture of national cultural differences and how certain values represented in one culture may differ from those represented in another (1997). Hofstede categorises these values into power-distance, which refers to the hierarchical structure of an organisation (or society) where a high power-distance indicates a larger gap between management and staff; individualism versus collectivism, which refers to the priorities given to the achievement or activities of an individual or a group. Cultures with high individualism do not give much importance to groups; Uncertainty avoidance, which refers to the extent to which a particular group is willing to take risks; Masculinity versus femininity, which refers to how assertive or modest and caring a group is; and, long-term versus short-term orientation, which refers to the extent to which employees are willing to commit themselves to the interests of their organisation (Hofstede and Bond, 1988; Hofstede, 1994, 1997). It is therefore vital for MNC’s to educate their expatriates on these various issues to operate effectively overseas. The training and development parameter, in an international context, is directly linked to the above discussion on expatriation, and is defined as the process of the continuous fostering of a global corporate culture through a network of global leaders by enhancing the employees’ cross-cultural competence, and increasing their contributions to the organisation’s global objectives (Evans et al, 2002). Dowling et al (2008) emphasise on what they call pre-departure training of an expatriate, where the employee is given inter-cultural training in order to acclimatise him/herself with the new culture. Development, on the other hand, aims to “increase abilities in relation to a future position or job” (Dowling et al, 2008, pg137). Harzing and Ruysseveldt (2004) continue that in terms of the individual, the development factor provides with international experience and career prospects, whilst the organisation gains through having a knowledgeable workforce upon which to base future investments (also see Dowling et al, 2008). In other words, to be successful in the global economy, a MNC should be able to keep developing their employees in key skills of global management by providing them with opportunities and exposure in the international realm. An effective performance appraisal scheme again plays an important role in identifying talent and potential amongst employees (Mullins, 1999). In the case of HCN’s, staff from various cultures is temporarily transferred to the firm’s headquarters (HQ) or its domiciles for training on corporate culture, before being transferred back to their local areas (Dowling et al, 2008). This practice has been criticised by many scholars as ethnocentric (Clark et al, 2000) as it places importance on the parent culture as a “lens to see, perceive and solve problems” (Avruch and Black, 1991), but is still one of the best proposed practices as it defines a uniform corporate structure across cultures by educating HCN’s in the parent culture, and by letting them propagate this culture to their local workforce (see Hofstede, 1997). In Keeley’s (2003, pg9) words, “Competitive advantage in a global economy requires that a MNC be able to tap the talents of local HCN managers; to do this the MNC’s must be able to attract, retain and develop talented HCN managers”. Keeley continues to argue that if HCN’s are not considered for a MNC’s overseas operations, they not only forfeit local talent, but may also be in breach of local ant discriminatory laws (2003). The appraisal and rewards factors can again be discussed within the frame Hofstede has provided in his five dimensions. As discussed earlier, the main concern is of communicating performance appraisal to a foreign workforce in a manner they would relate with and take aboard to further progress themselves. Hofstede’s dimensions can then be applied to this action of cross-cultural communication, where managers can discern employee behaviour through their appraisal scheme and then implement further strategy leading towards training and development (Mullins, 1999; Hofstede, 1997). Lastly, repatriation of expatriates is a topic of equal importance for MNC’s as this process carries its own weight in terms of compensations, re-acclimatisation and further prospects for the returning expatriate. Research suggests that coming ‘home’ is a more difficult and painful process for an employee than going abroad (Adler 1996), and as expatriates are sent abroad for lengthy periods of time, they are ‘out of sight, out of mind’ of the parent company during that time (Allen and Alvarez, 1998 & Hammer et al, 1998 cited in Scullion and Linehan, 2005). In other words not much planning is done for the repatriation of the employee and not much thought is given to his/her future career development (Dowling et al, 2008). In principle, three main problems are faced by employees on repatriation as observed by Clague and Krupp (1978, cited by Mayrhofer, 2001), namely readjustment to the organisation, which carries the responsibility of the company to appropriately place the returning employee in the organisation’s hierarchy, as this may have a significant impact on the employee’s career, and, if ignored by the company, may lead to frustration for the employee (Dowling et al, 2008; Mayrhofer, 2001; Adler, 1996); Re-acclimatisation to the old environment, is more a concern for the returning employee’s family, as they are under pressure to get settled right away. But research suggests that this calls for another adjustment period for the family (Dowling et al, 2008); the psychological aspect, which refers to the psychological contract every employee has with their organisation in terms of financial and relational contexts (Robbins, 2003; Mullins, 1999). In the case of repatriation, the psychological expectation of the employee is normally for the company to recognise his/her now developed international experience in terms of a raise in salary or further career progression (Dowling et al, 2008). If these factors are not addressed by the company effectively, there is a danger of frustration from the employee as well as the prospect of losing personnel. Application to Contact Plc and Conclusions The case presented for this essay, of Contact Plc, brings forward many of the issues discussed so far, and the theories and literature covered can be effectively applied to the case to understand the underlying IHRM problems. Contact’s Director of HR, Phil Cooper, by sending the email survey to present and past expatriates effectively launches a performance appraisal scheme, through which he can identify the areas of concern relevant to the expatriates to cater for further improvements, especially as Contact plans to expand further internationally. The responses that Phil Cooper received are very much in line with what can be expected of returning expatriates, in that by applying the main problems of repatriation; they feel let down by the company in terms of not recognising their now obtained international experience, which is evident in the employee’s statement that no one was interested in his Portuguese experience. This is in line with the employee’s psychological contract with the company. This is also true to the employee who says he/she is not being given the job they are ready for, suggesting expectations of progression, or to the employee who finds it financially more difficult in the UK than in Portugal, suggesting an expectation of increase in pay. Furthermore, one employee goes on to say that he/she had not been made aware of all the structural changes in the organisation and now feels lost, which has been discussed as the problem of readjustment to the organisation. In the case of the performance appraisals in which the Portuguese staffs were not very interested, it may be that the mode of communication with the staff may have been hindered by cultural factors. The employee stresses that the Portuguese staff were not willing to discuss factors on current performance and future developments. This could be because of a high degree of power-distance in Portuguese culture as suggested by Hofstede (1994), which restricts their levels of interaction with superiors. Because of this discrepancy, future goals and objectives are not being communicated effectively, which has resulted in the low motivational levels shown by the Portuguese staff. As far as the Portuguese staff not getting appropriate training from Contact’s practice of sending UK training managers to train them on corporate issues is concerned, this may simply signify the importance of having HCN managers rather than PCN ones, which may prove more effective in the sense that they speak the same language and are from the same culture. This may also be true to the above case of power-distance where HCN’s may be more effective in conducting performance appraisals and communicating the organisation’s objectives to staff in a way that would motivate them. This can also diffuse tensions arising between PCN’s and HCN’s in terms of the PCN’s being paid considerably more than the HCN’s. The fact that a large percentage of Contact’s employees have left the company sometime after being repatriated implies elements of dissatisfaction that incorporate all of the above factors in one way or the other (see Dowling et al, 2008). It can be concluded that Contact Plc is facing classic issues that are part of IHRM and enough educational resources are available for the company to research into and implement for their overseas operations. A strong recommendation would be to focus more on finding HCN talents to manage local operations for a far more effective performance by local staff. In this case, the salad-bowl approach of organisational culture can be applied, with the corporate culture of the parent company as the salad dressing that incorporates the various cultures (or flavours in a salad) representing the organisation across cultures (Robbins, 2003). References Adler, N.J. (1996) International Dimensions of Organisational Behaviour, 3rd edn. 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