Challenges that Large MNCs Face in Management - Coursework Example

Challenges That Large MNC’s Face in Management The essay outlines the common factors influencing large Multinational Corporations (MNCs) and their management within host countries. It explores MNCs management system and the manner in which they benefit their parent companies. The international staffing policies and three-tier employee categories such as HNCs, PCNs, and TCNs also show the levels of multinational employees, globally. MNCs find it difficult in employing expatriates since they are quite expensive to maintain, so they resort to local HR managers to operate most of their subsidiaries. International performances of the MNCs reduce because of the compensation policies, which are not compatible with the management of other affiliates. IHRMs must devise a method to counter the problems before they escalate to influence the whole MNCs networks. There must be compatibility in the management of the management of all the MNCs and their related subsidiaries for their success. Since the Host -county employees of every branch understand the social, political, and environmental MNCs prefer employing local HR managers. There is a distinction between the polycentric, ethnocentric and the geocentric minded MNCs. First, the ethnocentric MNCs incorporate PCNs for the significant overseas management positions. Second, polycentric MNCs use HCNs in every bit of their operations. Third, geocentric MNCs select suitable person for jobs irrespective of nationality. Keywords: Multinational Company, International Human Recourse Management (IHRM), and Subsidiaries Table of Contents Abstract 2 Introduction 4 Performance of the human resource managers 4 Growth of International Business and Workforce 6 Subsidiary Staffing Policy 7 Technological Factors 9 Social Factors 9 Debt Financing 10 Facing the International Compensation Challenge 10 International Benefit and Compensation 11 Expatriate Compensation Balance Sheet 12 The Compensation of the Host-Country National Managers 13 Conclusion 14 14 Bibliography 15 The challenges that large MNCs face in management Introduction Multinational Corporations (MNC) conduct varied operations in many countries, globally. The MNCs have a chain of subsidiaries under one management distributed globally (Houldsworth et al. 2007, p.4). MNCs have substantial property and assets in more than one foreign country and benefits from the operations of the conglomerates. Current advancement in technology and the world economy has influenced the status of multinational companies positively or negatively depending on the approach of the organization. Multinational corporations have strong global, local subsidiaries network, and each subsidiary has a particular role to play in the development of the MNCs interests (Haile 2002, p.1). Performance of the human resource managers Regional and national HRMs control and ensure the perfect performance of firms they head under the international joint management. Large multinational corporations have HR managers with particular roles in ensuring that international compensation policies are fairly to all regional counterparts. The fairness increases the motivation of the employees in the global corporation’s network hence the development of the international economy. Development of the global economy has a vast influence in business and the human resource management specifically. These practices are important realities faced by the multinational corporations performing business abroad. MNCs coordinate policies and rules that perfectly balance the requirements and aspirations of the parent country nationals (PCNs), third country nationals (TCNs), and the host country nationals (HCNs).The most complicated area of the international human resource management is compensation. Global MNC and the local policies must be compatible, and their pay systems should conform to local domains for employee compensation. For the perfect performance of the multinational corporations, the MNCs should be very rational in the consideration of the incentives and the rewards among the employees from all county categories. Development of the MNCs started many years ago with big companies being under the management of the Americans. Recently the growths of the multinational corporations have globally flared extensively. MNC are the outcomes of the growth of the global economy, and the economic growth of the world is positively dependent on the Multinational corporations (Pedersen et al. 2012, p.158). Growth of the international companies is in the developing economies outside the traditional economic world power such as America and Japan. Consumer demands in developing countries rise with the increase of technology enabling them to capture 50% of the world Gross domestic products (GDP) soon. With the increase in MNCs and global employment rates, creation of stateless corporations is paramount leading to their evolution. The process is possible by international alliances, in collaboration with other MNCs with the common interest around the world. MNC recruitment procedure for expertise is active domestically and internationally following three-tier category rules. The rules apply to the creation of international cadre of managers, professionals, and workers of diverse cultural backgrounds. Many grand MNCs such as Nokia, Gillette, Sony, Wal-Mart, and Wipro already have their international cadre of managers managing both international and local subsidiaries. MNC have expanded the global growth of economy increasing their markets domestically and internationally by employing dedicated and dynamic expatriates for perfect performance. For instance, American owned MNC employ nearly seven million individuals outside America and more than 100,000 performing overseas inform of Job outsourcing companies (BPO).There are diverse challenges influencing the performance of the multinational corporations attributed to global or local environmental factors. Growth of International Business and Workforce High growth rate of the MNCs focuses on the diverse efforts from the country of the origination and abroad. Americans no longer consider the developing economies as the sources of cheap labor. Developing countries are the new avenues for business expansion and market base of the increasing purchasing power of the middle class. Because of the technological advancements, many MNCs crave for investment opportunities in the developing economies for the capture of new markets. Big international companies such as Citibank have expanded their business influence in Asian continent because of the increase of its Credit card facilities in Thailand. Colgate and the Palmolive have stretched their business operations in almost 194 countries globally stabilizing its operations. AT & T Bell Laboratories have 52,000 employees abroad working in 105 countries. McDonald’s International operates expanding its branches 22,000 restaurants in 106 countries including China and India. Majority of MNCs subsidiary workforces are from host-country nationals. Nike and Reebok companies, for instance, manufacture their products overseas in firms owned and controlled by foreign nationals. Because of these factors, the total numbers of employees Data in the United States various from the current one existing aboard. All these factors have propelled the International Business Machine (IBM), and the Citibank engaged in the long time international operations. Ford Motor Company has enjoyed a prosperous business in the Europe for decades and the company currently employ less than its total workforce in America does. The employees of American multinational corporations enjoy the three categories of the employees’ workforce like HCNs, PCNs, and TCNs. The Wal-Mart Home and international depots grow rapidly internationally with almost 75% of employees working outside United States with 70% benefits coming from overseas sales. Coca-Cola, Pepsi, Mobil, Citicorp, and Motorola are increasing their investment and revenues by expanding their scope of MNCs operations outside the United States. Oil companies like Exxon, Texaco, and Mobil enlarged their global market influence to be compatible with their competitors like British Petroleum and Royal Dutch Shell. With the increase of three types MNC employee category many foreign-owned companies steadily increase in the American market system. The Japanese Automobile Company Toyota and Nissan recruit and train their American Workforce to fit the standards and procedures required by the Mother Company. BMW and the Mercedes produce their products in the United States because of lower wage rate, better tax rates, and the availability of advanced technology. Many multinational companies prefer America for investment, and many American nationals are working in these firms. With the current statistics, there are around 37,000 MNCs globally absorbing a population of 73 million individuals. Subsidiary Staffing Policy International human resource management (IHRM) is required in the current expansion of global business activities. The International HRM includes moving of individuals around the world and managing the daily corporate managerial activities. The perfect and active IHRM supports the MNC’s HR managers to organize and implement their policies and domains in their central headquarters (Bos & Painter-Morland 2011, p.107). Responsibilities of the MNC HR manager is to recruit train and transfer the PCN abroad, access and organize company policies and missions locally and internationally. There are various confusions faced in the recruiting and the staffing of international operations concerning the three categories of employees of an international company. Country groups involved in the international HRM duties are the host-country where the subsidiary is situated, home country where the corporation headquarters and other supportive nations. For example, the P&G firm employs Indian citizens (HCNs) in its Indian operations and dispatch some American nationals (PNCs) to Sub-Saharan Africa on a mission. The company can also send some Italian worker on a project its Mexican operations as (TNCs). Researchers and the practitioners have given a lot of attention to the engagement of expatriates or the host-country nationals in the management of MNCs. Most MNCs with an ethnocentric mindset tend to incorporate PCNs for the significant overseas management positions. The polycentric minded MNCs use HCNs in every bit of their operations while the geocentric minded MNCs select suitable person for jobs irrespective of nationality. There are formal and informal networks in the staffing policies pertaining to the MNCs domestically and internationally. The three types of employee groups have diverse cultural backgrounds. The MNCs’ HR managers coordinate policies and procedures to manage the company’s home country and subsidiaries globally restructuring the international compensation and reward systems (Zheng 2013, p.93). The policies and procedures must perfectly balance the requirement of HCNs, PCNs, and PCNs because its failure may lead to problems in the international operations. Significant challenge for the MNC’s HR manager is working with the high profile management team in supporting the required global mind- set. The international mindset requires an HR manager with the ability to think globally drafting and implementing HR policies supporting the international staff orientation development. The justification for assigning international managers is the development of technology and international operations related to MNCs ’global perspective. The recruitment, selecting, training, and the development of outstanding employee of the multinational companies are connected the strategic positions. Success of most multinational corporations is dependent on the global venture and effective management of its human recourses. For positive results of MNCs success, the HR managers must staff their multinational business operations with technically proficient personnel’s who are cost-effective. Most big MNCs would always depend on the HCN than expatriate because they are cheaper since they stay in their country. For example, The American AT&T Bell Laboratories reduce the number of PCN employees to HCN managers in their international business operations. The expatriates are quite expensive and cost almost three times as resident managers. MNC’s have a significant challenge in sponsoring the company executive expatriates proving to be exorbitant in hiring. Technological Factors Prosperity of the MNCs is dependent on the technological infrastructure and technical advancement of the host country. The current advancement in the information technology and the digital revolution leads to the rapid information interchange thereby increasing the rate of business transactions (Marinova &Marinov 2012, p. 208). The broadband connectivity and the technical training have become important factors in the business operations of the modern world. Internet has enabled the international job searches online creating many opportunities locally and abroad increasing the living standards of individuals. The level of technology of a country would explain the skills and understanding of the locals therefore countries with advanced technology develop economically. Social Factors The development and inception of the MNCs face drawbacks by the demographic factors like religion and culture. Culture correlates many elements to time, object, names, color, and attitude. The business operations of MNCs and their subsidiaries face drawbacks because of the small sales caused by lack of coordination between the producers and the customers (Mayrhofer &Brewster 2012, p.539). The language barrier is also a motivating factor in the well-being of the MNCs and their immediate subsidiaries. For example, the General Motors plunged into low sales while introducing its new produced Nova Car because the name of the car meant opposite in Spanish. The multinational company faced a great challenge in the sales of the particular unit because of the fear of customer in the performance of the car. Debt Financing It would be challenging to a corporation to sell corporate bonds at affordable rates. Particularly, it is challenging to high advance rates for asset-backed securities. When the company has access debt, it may be able to pay its obligation leading to insolvency. Acquiring the debt capital is a process that is contingent on the availability of funds in the global credit markets, interest rates, and corporation’s existing debt operations. The multinational companies MNCs commonly invest in the long- term projects and depend on the long-term financing. They have access to both the foreign and domestic sources of funds. Before MNC make a final decision it is in order for it to consider the all the financing form available. When the MNCs consider debt financing, they have the same set of options (Crespi & Dutrenit 2014, p.189). They can engage in a public placement of debt in their country or the international debt offering. Facing the International Compensation Challenge International business activities bring several challenges to the MNCs’ HR managers that they could not have experienced within their countries. Multinational companies face varied political systems coupled with unique laws and regulations (Zolner et al 2012, p.56). They face different economic situations, and tax policies are causing problems and opportunities. Opportunities created by the differences motivate the MNCs to expand their international operations in business activities. As MNCs advance in their international operations through growth, acquisition or cross-national alliance, the autonomy of the multinational operations leads to differences in compensational benefits. MNCs involve in performing business in a different culture, economic development, laws, regulations, and labor unions. The actions of labor unions are to determine the wage policies in some countries like Australia where the Government and Unions negotiate for pay rates. In Hong Kong, the Labor Unions are dormant, and the free Market determines the wage rates. Varying factors among the international community’s influence the international compensation system making it very difficult in finding the MNCs to determine the compensational package. MNCs’ HR managers have difficulties in determining TCNs’ hardship allowances in the developing economies globally. Expatriates face same problems of operating international business in different parts of the world employing various categories of workers in domestic and international arena. Many MNCs underestimate complexities involved in international enterprises and any failure of the company in the international arena is a product of bad human resource management. International Benefit and Compensation Multinational companies have active policies, which considers all the factors related to cost and significantly supports the objectives of businesses in the Global market. The MNCs’ HR managers should concentrate on the organization’s international goals and the employee individual characteristics while drafting a competitive expatriate compensation package (William & Gilmore 2012, p.156). Since MNCs success depends on its international qualified workforce, the HR managers must ensure that remuneration is fair among its three labor pools of international managers. The task should be cost effective to increase the overseas employee productivity and the worker’s performance in every field of assignment. The middle managers and the supervisors who are expatriates managers in the international assignments get numerous packages of benefits unlike the PCNs, HCNs, and TCNs with no attention (Jacque 2014, p. 519). Significant differences among the three labor pools of international managers are overseas premiums, House allowance, Cost-of-living allowance, Tax Equalization, Repatriation allowance, and Performance –based bonuses. Special status of the international managers reflects in the calculation of the compensation benefits. The managers also receive additional to salary the taxes and benefits with many more allowances as the overall compensation to accept global position. Foreign Service premium advances according to the expatriate’s level in the company, the family size, and the location. The American Department of State established a hardship list to enable the organizations give managers the hardship allowances as the percentage of their base salary. The cost of living allowance (COLA) assist PNC or TNC enjoy standard of life abroad as they would have experienced in their home countries. The additional benefits are the housing allowance with the tax equalizations. The MNCs’ differ in policies pertaining to the employee contributions to housing allowance and tax equalization. The PNCs pay no more revenue and no less than if he or she stayed home. Expatriate Compensation Balance Sheet Compensation program of both the PNCs and TNCs is very vital for the managing reward systems. The benefits plans for the expatriate managers must be very competitive, motivating, affordable and readily understandable, consistent with global revenue management, and simple to express. Numerous expatriate compensation methods have developed to satisfy the needs of the MNC objectives. Many people in the United States use the expatriate compensation programs (Machado 2015, p.66). The MNCs depend on the balance sheet method, which is commonly applicable in the North America, European and the Japanese international organizations to compensate expatriates. Essential aspect of the MNC is to check if the expatriates neither benefit nor lose financially compared with their home-country peers. The balance sheet facilitates the mobility of the expatriate staff in a cheaper manner possible. Fundamental philosophy of the balance sheet methodology is to motivate the global movement by making international assignments in an economically attractive country. Balance sheet issues a compensation package that balances an expatriate manager’s expenditure power in the host country with spending power in home country (Nordhaung 2013, p 279). The factor that may affect correct functioning of the balance sheet is the cost and inequity between the expatriate managers and the local, national managers. There are multinational companies, which pay their employees adequately for consumption in the United States like the Amoco Corporation. If the cost of living is greater for its employees abroad than at home, the company pays the employees additional money. Moreover, if any case an employee faces a hardship because of the assignment the Corporations gives an extra international Service premium inform of hardship allowance. The compensation packages can be very expensive for an organization thereby requiring proper management. The global balance sheet approach tries making all international employees equal such as the experienced executive on continuous transfers. The Compensation of the Host-Country National Managers When Multinational Corporations create, international strategies there are some managerial and administrative matters that are incorporated. For instance, when the MNCs are The structuring of the compensation policies for their HCN managers is necessary to adjust for the differences in compensation among different countries (Walsh et al. 2011, p.156). The competition among the rival companies with their subsidiaries located in the same country influences the salary of the HCN managers. Involvement of the HNC managers by the MNCs to manage their international subsidiaries has become more popular nowadays. The America MNCs’ in Mexico are replacing their expatriate managers with HCN managers because of the conflict between the Mexican nationals and the expatriate managers. The Mexican Managers resist the cultural imposition representing the United States expatriates. Conclusion The article shows how the international benefits and compensation systems are complex in the real practice of the MNCs, with greater hopes of the advancement of the international business globally. There are problems regarding the MNCs HR managers, like the struggle of power to control the subsidiaries in the overseas operations. There are three ways for MNCs to recruit and select workers to manage their global operations. For example the sending someone from HCNs, hire someone in HCNs, hire someone from TCNs. The MNCs HR managers always hire best candidates to work overseas regardless of their job category. The choice must be affordable to maximize foreign employee’s performance. The MNCs HR manager must ensure that the remuneration is fair among its labor pools of all managers regardless of nationality. International benefits and compensation show a particular salary difference in many countries. 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