Performance Management in Multinational Corporations - Essay Example

PERFORMANCE MANAGEMENT IN MULTINATIONAL CORPORATIONS By Student’s Names Code + Course Name Professor’s Name University/College name City, State Date Executive summary Researchers have developed a keen interest in the fast rise of Multinational Corporations (MNCs) in developing nations, therefore, leading to the pressure of developing a better understanding how such corporations deploy managerial strategies and handle its diffusion. The role and impact of expatriates on performance management among MNC is also explored resulting to the conclusion that it can expensive to extensively use expatriates. The difference in performance management and human resource practices among MNC in both developed and emerging nations is evaluated with an identifiable characteristics of smaller MNC in emerging nations compared to developed nations. Nevertheless, MNC in emerging nations are experiencing faster growth as is seen in China and India. The difference in performance management among different MNC is also compounded by the difference in cultural practices across different nations. The paper, therefore, explores the actions taken by MNCs in developing economies to ensure growth through managerial strategies and expatriate management. Hence, the paper also takes into account the Western orthodoxy in trying to investigate the diffusion of corporation strategies in the emerging and the developed markets. Despite the uprising of emerging advances regarding globalization of commerce and trade, important dissimilarities can be observed in the manner of organization of business activities in different nations, particularly, the management of their employees. Therefore, managing of employees in different MNC should be specific for each nation so that nuances across different MNC are put into considerations in identifying and utilizing the best performance management strategies. Table of Contents Executive summary 2 Introduction 4 The Role of Expatriates 5 MNCs and Developing Economies 6 Country of Origin Impact on MNCs Strategies 8 Conclusion 11 Recommendation 12 Reference List 13 Introduction In the modern society, the success of a company is no longer guaranteed only through the introduction of new products to the market but also through effective management of their human resource. The success a company achieves in its human resource management is often transparent, with regard to the source, unlike the success achieved through other methods such as the introduction of new production technology (Chang, Wilkinson & Mellahi 2007, p. 405). Previously, performance appraisal was used as the main guide for evaluating employee performance within companies. However, most companies have supplemented this method with Performance Management (PM) as a more comprehensive human management strategy (Ferner 2009, p. 540). Hence, through continuous training, performance appraisal and feedback, goal setting and performance related pay, companies can use PM to turn employee efforts into desired results by incorporating strategies into individual employee effort (Chang, Wilkinson & Mellahi 2007, p. 404). PM can also strengthen individual employee commitment to the organization and work in motivating their good performance. Similarly, it can help in other strategies key to the organization’s long-term success such as knowledge management, succession management, change management and organizational learning (Chang, Wilkinson & Mellahi 2007, p. 405). Therefore, an appropriate performance management helps an organization to plan for its present while preparing for its future business endeavors through managing employee performance. This paper, therefore, widens the horizon of international human resource management (HRM) to encompass HRM practices including strategies from developing nations. It seeks to examine the manner in which strategies used in HRM of MNCs in developing nations are formulated and how they practically operate by primarily outlining issues relating to emergent MNCs. This report shall be significant in identifying and assessing how performance management ideas are shared between the West and East including opportunity and motive that is behind the international transfer of HR practices and policies (Corbett-Etchevers & Mounoud 2011, p. 166). The Role of Expatriates Multinational corporations (MNCs) particularly require effective performance management to manage expatriate employees critical to their strategy formulation and implementation (Rasli et al. 2012, p. 210). For instance, the company can establish units in foreign countries, and empower employees within those countries with information that the parent company feels is important for them to function effectively. Expatriates can also be sent to function as coordinators and act on behalf of the parent company in the foreign country (Rasli et al. 2012, p. 210). Expatriates have a paramount role in the achievements of MNCs in their respective countries even though they may be expensive when utilized. Therefore, it is imperative that MNCs develop effective PM strategies to manage expatriate employees (Rasli et al. 2012, p. 211). However, literature towards this end is always scarce. For instance, studies regarding domestic systems particularly goal setting, training and development, and performance related pay are readily available while similar studies of expatriates are almost nonexistent. For example, it is not clear whether performance goals should be set by the parent company or by the foreign unit for an engineer moving from France to the USA (Rasli et al 2009, p. 211). Also, how should the development and training of the engineers be held? Similarly, whose system and standards should be used to evaluate their performance? Current research is limited to performance appraisal. MNCs and Developing Economies A report from by UNCTAD (2010, p. 4) shows that even though “developed-country transnational corporations (TNCs)” explain the majority of international “foreign direct investment (FDI)”, transition and emerging nations have risen as an important outward investors accounting for a single quarter outflows in global FDI in 2010. The greater part was contributed majorly by Asian countries. Correspondingly, in the last 15 years, the growth rate of TNCs numbers especially from emerging and transition economies has surpassed the numbers from already developed nations (UNCTAD 2010, p. 5). Countries from the Asian continent are dominant among 100 largest emerging country TNCs. Moreover, these emerging nations are committing their finances in underdeveloped countries resulting in hefty “South-South flows” of investment (UNCTAD 2007, p. 8). Furthermore, the equilibrium of economic power is estimated to shift to the eastern part of the world in novel world economy. Nations from the East especially India and China are continuously evolving as the most appealing outward and inward business destination nations. The ever increasing significant emerging economies has resulted to an increase in strategic studies on the subject (Tillmann & Goddard 2008, p. 81). However, studies on worldwide HRM does not pay sufficient interest to MNCs from developing nations (Kolk 2012, p. 80). In emerging counties, MNCs are smaller with relatively little capital and global knowledge when compared to MNCs in developed nations. Therefore, this difference restricts the capability of emerging nations to pass on management policies to other affiliates (Maizura et al. 2010, p. 220). Despite the increasing appreciation of studies on these strategies relative to some progressive Asian economies that include “Japan, Korea, Taiwan and Singapore", there are limited studies on worldwide emerging economic giants such as India and China (Ferner 2009, p. 540). Past studies on MNCs had recognized double pressures related to the importance on conformity to the” home country (push force) and the host country (pull force)” institutional settings in embracing HRM policies and habits (Rasli et al. 2012, p. 212). In addition, little is known with regard to the specific mechanism in which these pressures impact on the policies and habits at subordinate levels of MNCs in emerging economies. Past studies comparing the HRM practices has identified the national origin of firms in the Asia Pacific as the core influence of HRM habits in those regions (Muratbekova-Touron 2009, p. 607). This includes its national culture and institutions. However, these studies fail to address institutional and cultural differences affecting the spread of HRM habits and strategies by corporations operating from emerging economies to developed economies (Chang, Wilkinson, & Mellahi 2007, p. 405). Major research questions relate to examination of matters relating to the transfer of human resource habits from nation to nation within MNCs. The spread has to consider the cultural, local and institutional context in addition to incentive and capability of the local managers to put into practice best HRM habits (Muratbekova-Touron 2009, p. 607; Martin & Beaumont 1998, p. 674). Studies have suggested that coordination and control measures and spread of management strategies in any MNC are affected by a number of internal and external factors. When the integration level between the subsidiary and headquarters is high, it necessitates better and advanced coordination and control measures (Siegling, Nielsen & Petrides 2014, p. 66). With respect to the external factors, MNCs from developing nations experience a “double hurdle” of liabilities, that is, liabilities “of foreignness” and that related to the country of origin with seemingly inferior international image (Corbett-Etchever & Mounoud 2011, p. 167). These limiting factors constraints are further compounded by liabilities of “smallness and newness” (Corbett-Etchevers & Mounoud 2011, p. 167). As noted by Guillen and Garcia-Canal (2009, p. 24), MNCs may have to grapple with the competitive disadvantage and liability arising from joining and embracing the field relatively late without sufficient resources and capability common with already reputable MNCs in developed economies. In addition the depth and extent of incorporation and interaction between subsidiaries and headquarters will affect numerous multinationals. Internal factors affecting the spread of MNC such as culture of the organization, leadership, hierarchy of authority in emerging economies can be dissimilar to those of developed economies since the two economies have differences political, financial and cultural differences (Guillen & Garcia 2009, p. 25). Country of Origin Impact on MNCs Strategies Among problems facing MNCs is the ability to strike a balance between local adaptation and worldwide integration. The nationality of MNCs has been shown to be of much influence in determining this balance (Siegling, Nielsen & Petrides 2014, p. 66). Contrary to Ohmae’s (1999, P. 151) view of nationless corporations and a borderless world, institutional and cultural determinants in the firm’s host country are considered significant determinants that arise from a firm’s context by Goksoy, Ozsoy & Vayvay (2012, p. 91). Scholars, such as Ferner (2004, p.366) and Gamble (p. 378, 2003) investigated how foreign subsidiaries are managed and handled by MNCs concluding that the country of origin has the most significant impact on MNCs’ influence over their branches. In support of this finding, Harzing and Sorge (2003, p.190) asserted that though multinationals are highly globalized, their control practices and global coordination are largely determined by their mother country. Empirical evidence suggests that most MNCs still maintain elements of their original country in their operations. This can be attributed to unplanned choices driven by institutional and cultural features of parental nation of the MNC or to maintenance of these elements by employees in the institution (Harzing & Sorge 2003, p. 188). In many instances, U.S. MNCs are different when compared to Japanese MNCs with regard to these nations’ style of HRM (Ferner 2009, p. 545). In Japan, strong multinationals are common but lack formal centralization in addition to being heavily dependent on forming global networks. MNCs in the U.S. seem to have elaborate and standardized worldwide system of control in place (Muratbekova-Touron 2009, p. 609). A country’s cultural context may influence the impact of the parent country international HRM habits. This follows a study done by Hall (1976) that described instances of “high context” encompassing less explicit activities and those of “low context” with minimal impact and more explicit activities. Most Western nations are perceived to be “low on cultural context” unlike most nations from the eastern part of the world that are “high on cultural context” (Fernández Moya 2010). Thus, the interaction between organizational and national culture is an important success factor in international acquisitions, alliance and mergers. As previously stated, “there is fairly little research on the globalization of emerging economy firms either into developed economies or other emerging economies ” (Siegling, Nielsen, Petrides 2014, p. 66)). Most of literature concerning emerging economies chiefly use “institutional theory” followed by “transaction cost theory, resource-based theory, and agency theory” to develop conceptual viewpoints (Tillmann & Goddard 2008, p. 84). Moreover, MNCs from developing nations are going into more developed nations for exploration purposes and into other developing nations for commercial exploitation. Hofstede (2007, p. 413) suggested that whereas Japan and Korea globalized through greenfield expansions in the past, discovering their own affiliates that alleviated cultural disharmony, India and China are currently expanding their reach majorly by acquisitions in most Western countries. Besides, their rate internationalization is dissimilar to that of established Western MNCs and that of rapidly emerging nation’s MNCs. In addition, the two nations commonly combine the use of FDI and export coupled with concurrent strategy, instead of using them as distant alternatives (Hofstede 2007, p. 414). MNCs from most developing economies are not very large when considered in absolute terms. However, they are gradually gaining importance in many countries as most companies have now undergone global diversification. Among the primary benefits that these MNCs have are insights to more powerful global growth markets possessing a wide variety of low-cost resources such as natural resources, production labor and engineers. Aside from their small sizes, most MNCs in the emerging nations are in their nascent stages of globalization and therefore have limited global experience (Fernández Moya 2010, p. 457). Correspondingly, Hofstede (2007, p. 413) suggested that organizational customs, influence and decision-making in MNCs from developing economies can be notably distinct when compared to those of developed economies because of economic differences and national culture. Conclusion Despite the currently witnessed emerging advances regarding globalization of commerce and trade, important dissimilarities can be observed in the manner of organization of business activities in different nations, particularly, the management of their employees (Robins 2012, p. 14). The cultural values framework pioneered by Hofstede (2007, p. 415) demonstrated the shortcomings of globalist models of international HRM that emphasized one-best-way. Incentives for performance in multinational companies is a challenging issue too. Most managers do not know on what grounds to reward employee effort according to what is deemed to be fair, just, and hence most rewarding mechanisms are based on employee performance. Cultural factors in countries of operation also influence managers’ thoughts on a good performance. Since cultures differ from country to country, it, therefore, adds a complicated variable to standardization of reward mechanisms that can be employed by MNCs. Culture mainly refers to the relationship the MNC has with the existing institutions in the country of operation such as central governments, trade unions, or lobby groups. The MNC has to abide with the set standards of employee motivation, treatment and rewards in respective countries of operation while also making sure such compliance does not significantly reduce their profit margins. A good relationship with lobby groups may help the MNC to push for the implementation of some of its management policies within the host countries. Similarly, charitable acts such as community development projects or environment-friendly policies may see governments relax some laws considered stringent by the MNC, for example, pollution levels, and methods used to determine them. Recommendation Increased investments by emerging nations in other emerging nations and in developed nations, especially through acquisitions and mergers means that it is paramount that management practitioners familiarize themselves and fathom the manner in which emerging nation’s MNCs act and strategize spread, control and coordinate management practices. Global HR management practice and literature have, at length, been entrenched in Western ideas without much cross-pollination and with more focus on management of expatriates, consequently, showing the bias by most Western scholars. Apparently, neither the U.S. nor the universal model can be applied to most emerging MNCs. applicability to most emerging MNCs. The rising significance of the East’s MNCs, popularly referred to as the new West, may necessitate the development of newer models that would assist in understanding the strategies utilized by Asian MNCs, specifically Indian and Chines MNCs, in exercising corporate controls in a competitive and divided world. In this century’s knowledge economy in which creative industries and services enjoy the economic landscape that is advancing in transitioning and developing economies, the practices and theories applicable to Western MNCs dominant in last century’s industrial economy are gradually been supplemented and replaced by novel economic and management patterns. Consequently, reexamination of the management practices and approaches of MNCs from fast developing nations such as China may continue to be a core research question in the coming decade due to the speed of increasing influence of such nations and the employment opportunity created. Also, the MNCs should carefully factor in how communities within the host countries affect their productivity and employ strategies perceived by the local communities to be fair and just such as employing representatives of local communities in policy-making capacities. In most cases, MNCs succeed in an environment where the immediate community views them as beneficial. This is largely because the local communities, usually, form the immediate markets for the MNCs’ products and services, and act as the immediate source of labor. Moreover, conflicts between locals and the company may lead to legal tussles that may prove expensive to the company financially and in terms of brand imaging. Reference List Corbett-Etchevers, I. & Mounoud, E 2011, A narrative framework for management ideas: Disclosing the plots of knowledge management in a multinational company, Management Learning, vol. 42, pp.165–181. 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