The Extent to Which MNC Subsidiaries Act and Behave as Local Firms - McDonalds - Case Study Example

The Extent to Which MNC Subsidiaries Act and Behave As Local Firms Name Professor Institution Course Date Introduction International Human Resource Management field has experienced a great attractiveness in recent years as integration of countries becomes closer and the globalization and internationalization discussion gains momentum (Myloni, Harzing & Mirza 2007, p.2057). While many literatures demonstrate that human resource practices in numerous US affiliates of multinational companies adopt local strategies with disparities among particular practices, others think otherwise. Therefore, this essay will critically analyze the extent to which MNC subsidiaries act and behaves as local firms versus the extent to which their practices resemble those of the parent company. Using McDonald’s as the company of choice, and to put the essay into context, the paper will discuss the degree to which multinational enterprises internationally standardize their HRM and work practices. In addition, the paper will explain the extent to which MNEs are locally to cultural work practices. The Extent to Which MNC Subsidiaries Act and Behave As Local Firms McDonald’s remain one of the leading fast food restaurants in the world. Despite being a big brand, the company has faced stiff competition in its domestic market from KFC, Subway, Burger King and Wendy's among others forcing to review its strategy to remain competitive. Pangarkar and Subrahmanyan (2011, p.126) argued that expansion is one of the strategies which have been pursued by McDonald’s to neutralize competition. Today, McDonald’s now operates in several countries including Australia, the UK, France, China, and India among others in pursuance of global opportunities (Pangarkar & Subrahmanyan 2011, p.126). The research shows that the company has enjoyed success in other countries due to its adoption of both the global and local standards. According to Taylor, Beechler and Napier (1996, p.962) IHRM has played a very important role in the adoption of local or global responsiveness. Schuler and Rogovsky (1998) argued that IHRM is the glue which integrates the multinational and its subsidiaries togethers and serves as process for management and control of global operations. As such, there have been numerous MNEs’ endeavors to transfer IHRM practices to their subsidiaries overseas. Pangarkar and Subrahmanyan (2011, p.122) state that McDonald’s adopts global standards at its overseas subsidiaries in order to maintain competitiveness. Some of the areas where the company adapts the global standards are selection and recruitment, remuneration. McDonald’s IHRM coordination practice involves standardizing compensation policy. Whereas tangible compensation rates differ based on the economic situations and domestic wages of different countries, McDonald’s structure of executives’ compensation levels are more standardized (Myloni, Harzing & Mirza 2007, p.2059). In this way, the company created a global compensation policy which operated as a practice for the compensation of senior executives in McDonald’s subsidiaries in Australia. This guide considers five levels of management with full remuneration divided between a predetermined income part, a performance-based fringe benefits and management bonus. Additionally, every executive was working on personal employment contracts which were agreed on outside any collective agreements which might have been practiced in the subsidiaries. Senior managers at the top management level are entitled to additional incentives whilst the performance based part of their wages was worth 50 percent of the total remuneration (Gamble 2003, p.373). The practice of harmonizing the compensation of managers at the subsidiary to match that at parent company is competitive strategy which is perceived by the employees as a fairness policy. However, the practice has also been criticized by managers from more successful subsidiaries. The managers from successful affiliates have felt that they need more compensation based on performance as compared to less performing subsidiaries. Resource dependency and resource-based theory view can be used to explain McDonald’s adaptation of global standards (Myloni, Harzing & Mirza 2007, p.2059). These two theories provide a platform for analyzing the effect which organizational features could bear on transfer of international human resource management practices. The resource based theory make the assumption that the adoption of global standards is believed to be due to belief that local resources are not enough to steer the subsidiary forward as the parent company and have competitive advantage. On the other hand, Myloni, Harzing and Mirza (2007, p.2059) argued that resource dependency theory is formulated on the assumption that a firm is unable to create the required resources for the organizational sustenance and thus it relies on other aspects. IHRM research has established that the more reliance on the multinational, the greater the level of parent control (Taylor, Beechler & Napier 1996, p.961). As a result, several researchers have put their focus on the corporate level firm context; have considered the factors linked to their parent features like management values, international experience and global competitive strategy. Similarly, the research has concentrated on the connection between parent company and the subsidiary as well as communication and control (Teagarden and Von Glinow, 1997). In agreement with a resource-based theory, a multinational company is regarded as a system of the resource transaction within the affiliates situated in different nations. Taylor, Beechler and Napier (1996, p.961) posited that a global competitive strategy for a multinational determines how the resource factors are arranged between the headquarters and subsidiaries. Recruitment and selection is an important strategy multinational endeavour to perform well in other countries. Having the right employees at the right time enable a multinational and its subsidiary to have better service and attract more customers. Using IHRM practices, McDonald’s Australia uses strategic recruitment and selection to identify and deploy their staffs. Strategic recruitment is described as the strategic alignment of recruitment with business goals in order that strategic needs of an organization be converted into a suitable recruitment specification. The situation, the alignment of an applicant’s goal and the business’s goal matches and create “best fit”. The effectiveness of the organization is created when recruited staffs understand the market and combine business strategies and his expertise to attain the set goals (Myloni, Harzing and Mirza 2007, p.2059). The factor driving this globalization practice is that the staffs from head office have international experience of the market. To achieve strategic international recruitment and selection, the McDonald’s Australia draws some of its employees for the key position from the parent company and mixes them locals with global exposure. In particular, the subsidiary recruits managers from the parent company. The argument is that managers from the parent company understand the MNEs policies, hence they are brought to influence the diffusion of the multinational’s standard practices. The anticipation is that subsidiaries with more presence of expatriates are more likely to conform to the multinational management practices. Gamble (2003, p.374) claimed that managers from parent company generally perform a “control function” such as setting a general strategy and management of finance. According to Myloni, Harzing and Mirza (2007, p.2059), IHRM studies also points out that such managers satisfies a critical role of transferring ‘administrative heritage’ of the firm. Expatriate managers disseminate explicit knowledge by introducing and distributing training manuals, standard operating policies, and employees’ handbook. Furthermore, managers from headquarters bring significant intangible resources such as tacit knowledge which can be used to manage the subsidiary (Taylor, Beechler & Napier 1996, p.961). Market reports reveal that McDonald’s hires its internal managers from the parent company in the US to work in its subsidiaries across the globe. In this way, the company maintains its standard practices. McDonald’s also uses global strategies in product provision. In some cases, the company sells the same product it offers in parent market and foreign market to a new market in order to attain the economies of scale (Pangarkar & Subrahmanyan 2011, p.125). For instance, McDonald’s offers burger, fillet fish fries, and sandwiches, Coke, Milkshakes and Pepsi in Australia just as any other market. Another reason for offering product in other markets is that the world has become a global village through globalization. As such, Hill (2005, p.27) claimed foreigners cross the borders to work, learn and settle in other countries. In the process, they carry with them their culture. For example, if an American who is loyal to McDonald’s settles in Australia, he or she will still look for the company products. Similarly, globalization has made people to accept foreign cultures such as eating junks or health foods. Therefore, some of the McDonald’s products have been accepted in foreign countries. Research shows that McDonald’s is also responsive to the local cultural work practices. The MNE adapt the local practices by adhering to local laws, adapting local HRM practices in the recruitment of its employees. Ketchen and Short (2011) a company that applies multi-domestic strategy tailor products to focus on the local requirement rather than what it offers in global markets. Both Hindus and Muslim who do not consume beef and pork respectively reside in India. As such, selling Big Mac which is made from beef and pork would have put McDonald’s at loggerheads with customers. Therefore, Pangarkar and Subrahmanyan (2011, p.125) the company replaced Big Mac, with Maharaja Mac which was made of mutton patty. In addition, McDonald’s adapts local law, customs, and regulations when operating in foreign countries to enable smooth operations. One of the instances which the company uses local practices is paying corporate tax, adhering to licensing laws and submitting its employee’s income tax. Similarly, Myloni, Harzing and Mirza (2007, p.2059) pointed out that the company abides by environment, and health and safety laws. For Instance, McDonald’s Australia has been taking part in an environment program dubbed “Sydney Water Every Drop Counts” in a bid to save water (McDonald’s Australia 2017). In addition, the company alos report carbon emission into the atmosphere as required by Greenhouse and Energy Reporting Act 2007. The reason for this is that, by differing with local institutions about the law, customs and laws, it limits coordination of international human resource practices. Path dependency theory holds that relying on foreign laws, historical factors and cultural practices may hinder operations on MNE from Western in Eastern (Hausner, Jessop, & Nielsen 1995). Companies are now using local cultural practices to recruit and manage employees. Ronen and Shenkar (2013) opined that exporting foreign culture to another as whole results in poor performance. As such, MNEs managers now use various IHRM theories to manage subsidiaries. Hofstede dimension is one of the most recognized theories in the area of cross-cultural management. Ralston et al. (2008, p.12) contended that there are differences in cultural factors which can affect communication, performance and negotiations not only between business from different cultural background but generally among people. Hofstede’s dimensions comprise of individual vs. collectivism, uncertainty avoidance, power distance, long vs. short-term orientation and masculinity vs. femininity (Maude 2011, p.112). While in Eastern countries collectivism is the dominant culture, Western countries embrace individualism. In such situation, McDonald’s employs most of the locals to help expatriates employed to settle and perform. Conclusion In conclusion, McDonald’s expansion into other countries has largely been a story of success that demonstrates that foreign markets could have numerous opportunities for a company. In countries like India and Hong Kong, McDonald’s increased its customers, sales and brand awareness. However, McDonald’s has not escapee challenges posed by operating in other countries such as having to produce products which conform to local culture, government controls and opposition from health activities. Therefore, this paper concludes that multinationals ought to conform to local culture and laws to be successful in international markets. 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