Multinational Enterprises Regulation - Essay Example

Introduction In any company, human resources functions cover all practices regarding employees. This may include issues to do with staffing, creation of reward schemes, employee development, creation of work standards, and the process of overseeing change in terms of employee management, as well as succession planning. On a local level, HRM functions in ways that meet the requirements of the working personnel. In multinational corporations, though, HRM functions are created to fulfil requirements on a more global scale. A multinational corporation’s HRM policy is created to source for or locate workers in various regions of the world, in order to meet the organisation’s requirements, while taking into account the different environmental influences that the company is subject to as a result of the different external socio-cultural environments. HRM Knowledge in Multinational Corporations According to Gooderham, Grgaard, and Nordhaug (2013), international HRM is based on factors such as consistency, expertise, internationalisation experience, and resource power. These factors realise objectives such as the functional re-alignment of operations owing to a multinational corporation’s global operations, and the localisation of HRM policies when necessary (Harzing and Pinnington 2011). In the practice of HRM within the majority of multinational corporations, there is usually the transfer of the company’s HRM practices and policies, which is referred to as ‘knowledge transfer’, to various foreign organisational units (Hollinshead 2010). This process takes place in several stages as the multinational corporation in question first needs to determine what needs to be transferred, and then carries out the actual process of transferring the HRM knowledge. The last stage involves the utilisation, by the foreign branches, of the transferred knowledge. The transfer process needs to not only occur from the multinational corporation’s headquarters to the foreign branches, but also between the subsidiaries themselves (Sirkin, Hemerling, and Bhattacharya 2008). The transfer of HRM knowledge and practices to subsidiary organisations from the headquarters of the multinational corporation is based on the assumption that it is best for the organisation to make use of the most superior practices in order to retain its competitive edge over the local firms in places where subsidiaries are based. According to Gold (2009) and Liu (2004), HRM policies can be transferred to subsidiaries when the information resources of the parent company are evidently more superior to business practices of organisations in other nations. However, if the multinational corporation in question comes to the decision that it is better for its subsidiaries to generate low value-added operations, then HRM practices and policies will not be viewed as being extremely vital in the realisation of profit maximisation (Som 2006). This means that it will be unnecessary from any information transfer to take place. Given that the majority of multinational corporations are based in developed nations, though, there is a greater tendency for them to enable some level of knowledge transfer in regards to HRM functions whenever they create subsidiaries in developing nations (Sparrow, Brewster, and Harris 2004). The Human Resources Management Intentions in the MNC’s Native Nation and Foreign Branches From the viewpoint of the nation of origin, there are cultural and institutional variables that have to be taken into consideration when considering knowledge transfer. There are also distinct HRM models that have to be evaluated for effectiveness, as well as the result of the dominance of the home system. The native country of the multinational corporation in question naturally has a strong influence on determining how labour is managed. According to Khavul, Benson, and Datta (2010), the parent corporation is based on an institutional environment that is situated in its home country. There are distinct tendencies and characteristics of the home country that become reflected in the operations and functions of the MNC. The MNC may actually view these features as being a part of its corporate shape and identity. It is these features that will determine the international orientation of the MNC in regards to HRM functions. This means that polycentrism and ethnocentricity are qualities of multinational corporations of assorted national origins. According to Scullion and Linehan (2005), American and Japanese MNCs exhibit ethnocentricity to a greater extent than MNCs in European nations. This is because multinational corporations from the U.S. and Japan tend to have cultural characteristics that are perceived in various regions of the world as being more valuable than local cultural qualities. In any setting where an MNC has subsidiaries in other nations, the inferiority or superiority of the host system is the factor that determines its receptiveness to the MNCs HRM practices. A host setting that has a permissive environment will hardly pose any constraints on multinational corporations and their operations (Matthews and Zander 2007). This means that MNCs will be more likely to be successful in enforcing business practices from their country of origin in such an environment. Alternatively, MNCs could be kept from implementing HRM business practices that are regularly practiced in their nations of origin if their subsidiaries are based in a nation that has constraining cultural environment that is distinctive and highly regulated. The MNC’s subsidiaries, in such a case, are more likely to utilise local resources, or even employ specialized market knowledge to block any possibility of experiencing the diffusion of their policies if they still believe the MNC’s host nation’s HRM practices to be superior to those of the local nation. The transfer or implementation of HRM policies and practices in various economies by MNCs is a characteristic of the global economy. According to Perkins and Shortland (2006), nations can actually be factored into global commodity supply chains in relation to societal endowment; thereby having their inferiority or superiority emphasised upon. The perceived inferiority of a nation’s HRM business system determines how HRM policies will be implemented in it by foreign MNCs (Yiu, Lau, and Bruton 2007). It is subsidiaries based in developing nations in regions such as Latin America, Asia, and Africa that are more likely to have MNCs from developed nations that use their own HRM practices. This is because dominance, in economic terms, is a function of diffusion. MNCs from developed nations tend to be more dominant in the way they implement their HRM practices in subsidiaries based in developing nations (Yaprak and Karademir 2011). Dominant states also tend to be more able to encourage the adoption of their own understandings of capitalism by the organisations in other nations. According to Vo (2004), companies from strong economies tend to carry over their host nation’s characters to their different branches abroad instead of adopting the host nation’s practices. Moreover, host nations may also be empowered by their possessing of characteristics such as economic power and internal strength. According to Tayeb (2005), the three factors that determine HRM knowledge transfer include administrative strategy, international business strategy, and the nature of the multinational corporation’s subsidiary. The Effective transfer of HRM Business Knowledge in terms of Practices and Policies International business strategy functions as being a source of HRM contingencies that can impact an MNC’s human resource operations. According to Edwards, Gunnigle, Quintanilla, and Wächter (2006), here are predictable relationships that exist between the choice of HRM policies and business strategy. There are MNCs, however, that work to involve personnel issues in the function of decision-making, and not in relation to subjects such as production, technology, or finance. In such cases, it is normal for the HRM policies that are decided upon to be short-term. These HRM policies are usually not created to capitalise on the company’s resources. According to Perkins and Shortland (2006) every company has an administrative heritage body that is not perceptible, but which basically determines how things are done in the firm. This administrative heritage is usually based on factors such as its transformational leader’s values and norms, the culture of the home nation, the company’s history in regards to internationalisation efforts, and prevailing social systems. According to Ferner (2004), it is the beliefs held by an MNC’s senior management about HRM that determines how well the MNC will implement HRM knowledge transfer to various nations overseas. The subsidiary’s features in regards to size, ownership, function, and age also play a fundamental role in determining the HRM policies that it embraces. According to Edwards and Rees (2011), HRM plans and policies become more formalised and standardised as the MNC develops in size, and stops relying on the exterior labour market. According to Barmeyer and Davoine (2006), it is subsidiaries that are created by means of Greenfield investments that are more likely to hold fast to the stipulations that are spelled out by their foreign parent MNCs than other more independent ones. Different HRM Levels An MNC could actually focus on one or more features of HRM practice when seeking to effect knowledge transfer to subsidiaries (Edwards 2004). There are also incidences where the MNC allows for the subsidiary to have HRM functions and practices which resemble those of the parent nation, while other are more in tune with the local business culture. According to a study documented by Bamber, Lansbury, and Walles (2011), many US based MNCs have definite HRM policies regarding aspects such as hours of work, wage rate, job contract terms, holiday, and retirement that take into consideration the local regulations. This is because these MNCs are usually subject to stringent institutional arrangement and are thus not affected by the HRM practices of their nations of origin (Gerhart and Fang 2005). Other HRM features such as salary structure, job design, and promotion are not determined by local regulations, however, and can thus be altered to suit the MNCs home practices more easily (Ferner 2009). The creation of a multinational corporation’s policies is something that is determined by the function of parallel forces such as the host nation, home country, organisational effects, and industrial effects. The aim is for the MNC to realise internal consistency with the local business environment (Dowling, Festing, and Engle 2013). Some HRM practices may be exposed to the pressure to adapt to local customs, while other HRM practices may be faced with greater internal consistency. What is evident is that it is not common for the influencing force to be constant. According to Briscoe and Schuler (2008), the effect of the host country on an MNC can be adjusted by the ratification of critical business legislation which will directly impact on one or even more HRM policies. In addition, the effect of a nation’s industry can be altered by changes made to the host nation’s macro-industrial policies (Chang, Mellahi, and Wilkinson 2009). When one force effects change, there may be different forces that effect interaction changes, leading to adjustments of HRM policy due to the existence of new configurations. There are also other factors such as institutional distance and cultural distance that affect the creation of HRM policies in an MNC’s subsidiary (Bonaglia, Goldstein, and Matthews 2007). Every subsidiary has to preserve internal legitimacy with its parent company, while establishing external legitimacy with the local settings in its host environment. In cases where the subsidiary is faced with pressure to conform to suit the parent company, there has to be a discussion so that there can be an agreement on the HRM policies that the subsidiary will adopt, and to determine the best balance that will also prompt a positive local response in the host nation. There are different ways in which subsidiaries determine what their HRM policies will be. In the integration approach, the subsidiaries accept policies and plans from the MNC headquarters without effecting any change (Contractor, Kumar, and Kundu 2007). The aim, in this approach, is to realise internal legitimacy. In the adaptation approach, the subsidiary becomes isomorphic, which is a difficult undertaking. This is because the MNC has to cater to the requirements of multiple environments which appear to be in conflict with one another (Almond and Ferner 2006). Subsidiaries that adopt this approach usually use negotiation to cater to the requirements of the parent company as well as the host nation. The resistance approach is used by subsidiaries that seek to establish a significant level of autonomy without being influenced unduly by the host nation or parent company. The subsidiary may point to potential business opportunities or even institutional constraints as a reason for its desire to avoid implementing transferred knowledge, or even centralisation efforts. Conclusion There is no singular approach that can be used across the board as the best example for MNCs and their subsidiaries in the determination of HRM policies and practices in foreign lands. Many MNCs try and use a hybrid strategy in determining the best way for their subsidiaries to perform well in host nations. 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