The Management Issues Faced by Multinationals in Host Nations - Essay Example

The Management Issues Faced by Multinationals in Host Nations Introduction The emergence of a world economy characterized by international trade, foreign competition, direct foreign investment, and multinational enterprises, implies substantial change in the environment determining industrial relations. The process of globalization involves all areas of public life, including economy, politics, social sphere, culture, ecology, and safety. It is one of the most influential forces determining the future global development of MNEs (multinational corporations). The basic sphere of globalization is the international economic system, i.e. global manufacture, national economies and the world market. Globalization and low barriers to trade propose MNEs unlimited opportunities to expend their businesses overseas. Thus, in host countries they face numerous challenges and threats which have a great impact on their profitability and market position. In many cases, the management issues faced by multinationals in host nations are merely a magnified version of issues faced by these enterprises in their home countries. MNEs and Corporate Structure MNEs are vitally concerned with the environment affecting their interests which encompass employment opportunities (i.e., the availability of jobs); conditions of employment, such as employment stability and the potential for advancement, income and the determinants of income, fringe benefits; and the employer/employee representative structures responsible for negotiation and administration of employment contracts. In many cases, environmental factors which influence the corporation are similar to those of the home country (Mckern 2003). Following Mckern (2003): the traditional view of the international environments in which MNCs operate is based on the opposing forces of national responsiveness and global integration. In the multinational the forces for responsiveness are strong and the integration forces weak, as in packaged goods, household appliances, and beverages" (p. 2). Many elements interact to define the environment which, in turn, affects employment opportunities, conditions of employment, and the necessity and substance of specific public policies. Traditional management practices do not change greatly when a company goes abroad. This is explained by the fact that MNEs a magnified version of issues and problems faced by these enterprises in their home countries. Organization structure is one of the examples which prove this statement. Organization structure relates to management decision-making authority and the broader issues of autonomy and control. Of special relevance is the organization of the industrial relations function at the subsidiary level and the question of control in industrial relations management (Budhwar & Debrah 2001). The structures are fairly flat at the smaller subsidiaries, such as New England Drawn Steel, Mt. Pleasant Chemical Co., and Fujitsu America. They become more complex at the larger firms, such as Mitsubishi Aircraft, Murata, and Sanyo Manufacturing. At home country, as company size grows, senior management titles tend to change from manager and director to vice-president and executive director. Also, as the complexity and size of the organizations advance, basic line management structures tend to move from the purely functional. Product line development and the nature of the production process are also seen as important influences on organizational development (Rugman et al 2006). MNEs with a narrow product line and a basically single production process, such as Auburn Steel, are typically organized around distinctive functional units. These structures are the same in their local subsidies around the world. Following Mckern (2003) The complexity of the environment of multi-business corporations implies that organization structures and processes need to respond to the special circumstances of each business and region. This imperative suggests an organizational response that is highly differentiated across the corporation's disparate activities (p.3). Diversity in markets and production processes, as found at Mitsubishi Aircraft and Sanyo, lead to product-line and/or other forms of more complex structures. All of these companies face the same problems in their host countries (Budhwar & Debrah 2001). Conversely, the parent company could allow market-seekers more autonomy, as implied by the general management link (Rugman et al 2006). The general management link is again the more appropriate, given the need to integrate nearly all operations (including technology, finance, and production) transnationally. There is some technical contribution from the parent company that is implemented at the subsidiary. This could be the product itself (i.e., at Mitsubishi Aircraft, Murata, and Sanyo); specialized production equipment (i.e., at Honda, KOHKOKU, Murata, New England, and Sanyo); or processing system (i.e., at Auburn and Mt. Pleasant) (Rugman et al 2006). GlobAl and National Culture The most disputable issues concerning the difference between MNEs subsidy and its staffing policies is the question of culture. Some critics (Rugman2005) suppose that MNEs adopt a new approach to organizational culture based on traditions and values of the host country. Thus, it is possible to disagree with these notions and prove that organizational culture developed by MNEs are a magnified version of its home country. In general, culture is a major factor in the appropriateness of management's methods of motivation. In addition to arrangements for the carrying out of organizational processes, HR management has a responsibility for creating a climate in which people are motivated to work willingly and effectively. Organizational climate is a general concept and difficult to define precisely. It is more something which is felt. It can be likened to our description of the weather and the way in which the climate of a geographical region results from the combination of environmental forces (Hood, 2004). Some of these forces are better understood than others. In MNEs, management is faced with more complex problems concerning cultural diversity and national management practices. The challenges faced by MNEs are built on the idea that people and organizations engage in basically consistent, value-maximizing calculations or adaptations within certain constraints and competitive advantage (Buckley & Ghauri 1999). In home country, organizational culture is based on traditions and values followed by the majority of employees, while in MNEs the culture is based on diverse cultural values and traditions. Following Trompenaars (1993). culture is affected by universalism vs. particularism, specific vs. diffuse, individualism vs. collectivism, neutral or emotional factor, achievement vs. ascription. In time dimension Trompenaars underlines the influence of sequential and synchronic actions. in MNEs, environmental problems involve the inner-directed orientation and outer-directed orientation of people towards the nature and the world around them (Buckley & Ghauri 1999). In order to help ensure its survival and future success the MNEs must be readily adaptable to the external demands placed upon it using appropriate structure and support of its HR management team. According to Armstrong (2003) " the concept of HRM could be regarded as a philosophy governing how employees should be treated in the interests of the organization" (p. 8). Cultural diversity is the main concern of a manager in both the home and the hose country. Hood (2004) underlines that: "This is felt to be most feasible where an appropriately strong and supportive corporate culture exists" (p. 13). The task of the manager is to remove prejudice from the organization and the individuals it employs, to ensure that all employees, regardless of gender, ethnic origin, religion and lifestyle, receive equal treatment in the organization. Organizations which have a multi-country operation or business should give some thought to how intercultural differences impede or enhance business. Language is the important issue of every culture. Usually, multinational organizations choose an official language, often English. Also, some companies arrange local affairs in the language of the country if not all employees speak the official language. Attention to language skills in recruitment and opportunities for employees to learn another language are commonplace solutions which need no discussion (Rugman, 2005). In home countries the corporation is influenced by social norms and values transmitted by previous generations through the process of socialization such as family influence and/or formal education. In a curious sense managers may be viewed as carrying culture around with them. The same processes are typical for MNEs but they face with the diverse cultural context and cultural conflict. For MNEs, these changes require a new look at how culturally diverse employees are motivated. Managers have at their disposal several ways in which to increase employee motivation and performance, and an effective manager learns how and when to use each approach (Rugman, 2005). Many of these differences result from a lack of understanding concerning the various cultures and how they affect behavior both inside and outside turn, would lead to actual high levels of work. In some societies such as Japan much more emphasis is placed upon age, seniority, status and professional qualifications whereas in others, like the USA, respect tends to be earned on the basis of job performance. There may also be very different approaches to policies of pay and promotion. It is possible to agree with critics that the concern of social behavior and good manners in each country vary. Following Hood (2004) the previous area is closely connected with the national differences in culture which cause people to look at the same issue in different ways. The solution is to ensure that there is a shared understanding of these differences, and deliberate action to make choices in a way that enables all cultures to work in the most effective manner. In MNEs corporate culture is the product of the firm's history and development which may, for multinational organisations, be a mixture of experiences in a number of national marketplaces. It is, therefore, unique to the individual organisation and carves out a path for behaviour and practices which may be distinct from other firms operating within the same locale cultures and management styles are highly simplified for the purpose of analysis, it is possible to project different corporate and business cultures for firms operating out of countries on the basis of this thinking (Rugman, 2005). The management competences of a successful global manager include mobilization of staff and workforce. These competences are based on workforce diversity policies and help to create healthy environment and friendly organizational atmosphere, motivate and inspire international employees. Effective cultural communication is the core of successful organizational performance (Brewster & Harris 1999). Staffing and industrial relations Staffing and industrial relations are another area of concern for MNEs. The traditional view of employee relations' has often been associated in particular with the activities of trade unions and their officials. Trade unions may be seen as existing, primarily, to promote the best interests of their members, and to improve their quality of working life and general standard of living. Through the process of collective bargaining, trade unions endeavor to improve their members' terms of employment and conditions of work. Good management-staff relationships are not limited to trade unions and employment legislation existing in a country. A central feature of employee relations in the international organization is managing through people and regulating the employment relationship in accordance with the legal regimes. In sum, by adapting to local cultural conditions firms can operate successfully across the nations (Rugman, 2005). Indeed, it is possible to argue that the divergence of cultures actually offers international firms an advantage over their international competitors as it permits scope to identify national strengths and weaknesses and develop strategies which tap into these critical resources. Equally, exposure to different cultures provides opportunities for learning new ways of doing business and improving company performance (Brewster & and Harris 1999). For instance, an example of the industrial relations significance of having Japanese-dominated boards appears premature at best. The strategic direction of the subsidiary is being determined nearly exclusively by Japanese nationals whose industrial relations experience in Japan is distinctive and unique, and differs substantially from a U.S. experience. This implies caution, if not reticence, by boards in addressing industrial relations issues at the subsidiary level, and concern about accurately interpreting the U.S. industrial relations environment relative to strategic decisions and subsidiary performance evaluation (Mckern 2003). The patterns of reporting and top-level control linkages have already been discussed. The key linkage was between the subsidiary and parent-company general management in six of the nine Japanese cases and five of the six foreign-owned cases. Other linkages existed in every case, of course, but these were evidenced in technical, marketing, logistics, and other similar areas (Rugman, 2005). According to Hood (2004) the president-to-president form of parent-subsidiary control is most common, and is accompanied by considerable autonomy at the subsidiary level. As in both the Japanese and foreign-owned companies, the evidence indicate parent-company participation in decision-making at the subsidiary level typically focused on technical and financial matters and varied by industry (Rugman, 2005). Critics underline that the reporting and control functions of management are influenced by the size of the organization rather than its geographical location and relations with the home country management. IBM Corporation is a vivid example of successful implementation of International Human Resource concept. Many of its current employment and personnel practices were developed during the depression in the USA and many were ahead of their time. The company scrapped payment-by-results methods for its manufacturing employees treating all employees as salaried staff and in effect offering them lifetime employment. Around the same time the company introduced job enlargement and flexible working and embarked on a programme of involving all employees in the design of new products. Employee training has always been a major feature of the company (Mckern 2003). IBM is often cited as a model for human resource management practice and one that others would do well to emulate. Some organisations consider their workforce purely as an economic asset, expendable at any time. Others are more concerned about the welfare of their employees and consider not only their job role, but also their personal well-being. Differences of this kind obviously have a bearing on the way in which managers co-operate with staff lower down the organisation, training and individual development. Implicitly, differences of this kind impact on motivation and loyalty. In MNEs, training tactics and methods, strangles and policies are similar to the home country practices. The only difference is that they are influenced by native and foreign culture. At the international level the main stages of training need, however, to be related to the context of the external environment in which the organization is operating. Different stages of training will be most appropriate at different times. There are a wide range of forces acting upon international organizations and which make the need for change inevitable. Training for change is vital for the long-term survival of an organization. Increasing emphasis is being placed on both the need for continuous training to support change and on training as a vital investment for the future (Armstrong, 2003). Awareness that HRM need to be able to operate across cultures is leading to a new agenda for the establishment of career paths and new demands for skills and learning. Sending successful domestic managers abroad to conduct the activities of the firm in foreign markets has, for a long time, been considered less than ideal. (Armstrong, 2003). For instance, McDonald's corporation is one of the vivid examples of management practices. In all countries and regions, the company pursues the human-centered approach investing in people and demonstrating a continuous commitment to training standards. Employees, for their part, receive positive recognition for good training achievements. Job evaluation does this by emphasizing new values or by focusing on existing values to which more attention needs to be given. And this process is much more effective if it is not imposed by management but provides for employees to be involved in defining the value system in which they work (Rugman et al 2006). Resource Management and Technology For successful performance every organization needs to know what resources it possesses, how those resources are used and how they are controlled. Resource management covers physical resources such as land, plant and machinery; financial resources; and human resources. Resource management lies not only in assessing the viability of a particular strategic proposal, but also in assessing the ability of the organization to adapt to change. The main questions raised in the articles under analysis include the following (Rugman et al 2006). Can the firm deal with changes in demand or can it withstand a price war with its competitors Has it the financial backing to invest in new technology Is the age profile of its staff sufficiently balanced to ensure succession Many such questions deal with issues of resource balance (Rugman et al 2006). Technology transfer and maintenance of technological capabilities and mainly implemented via the line organizations responsible for engineering and production. Mitsubishi Aircraft, Honda, Sanyo, and Murata have no formally designated organizational entity dealing exclusively with technology transfer. The use of technical specialists was fairly extensive, however. Mitsubishi reported seven Japanese engineers assigned to the San Angelo, Texas plant to coordinate technical aspects of its split-production system (i.e., between the United States and Japan). Effective resource management is the best process currently available for improving operating effectiveness and creating a competitive advantage (Rugman et al 2006).. The design retains needed principles from the traditional system; incorporates workable principles, and builds a new team-based system that works to accomplish corporate objectives. The importance is that the process of effective resource management will be of extreme importance in the next 10 years and continues to advance rapidly and change becomes imperative. Following Buckley & Ghauri (1999) MNEs are "much fuzzier. as their capability to control the allocation of resource may be exercised through a variety of cooperating agreements or networking agreements" (p. 67). When an organization develops a highly committed work force, coupled with enlightened management, its self-managed multifunction teams will be able to take on the challenges of the future. With a team-based organizational structure, transformational leadership, and empowered employees, any organization will be equipped with the necessary and proper tools to compete and succeed in the highly competitive business environment of the future (Hood, 2004), Conclusion In sum, MNEs transfer their culture, business philosophy and management practices to the host country and adapt them to local needs. In the host country, they face the same challenges and problems they have in the home country. The main challenge faced by MNEs is effective management and employee relations which depend upon different strategies including a spirit of unity and co-operation, which can be achieved through leveling of cultural differences. Management has to balance the need for adaptability in meeting the challenges and opportunities presented by change with, at the same time, preserving an atmosphere of stability and continuity in the interests of members of the organization. The management challenges and problems faced by MNES in host nations are a magnified version of problems found on home countries. Generally, the more differentiated the product at the subsidiary, the greater the parent's technical influence and control The major parent-subsidiary reporting link is via the parent's general management rather than the international division or export department. Bibliography Armstrong, M. 2003, Human Resource Management. Kogan Page. Behavior. 2nd edn. Boston: Kent Publishing. Brewster, C. and Harris, H. (eds). 1999, International HRM: Contemporary issues in Europe. London: Routledge. Buckley, P.J. Ghauri, P.N. 1999, The global Challenge for Multinational Enterprise. Pergamon. Budhwar, P. S., Debrah, Y. 2001, Rethinking comparative and cross-national human resource management research. International Journal of Human Resource Management. 12 (3), 497 - 515. Hood, N. 2004, The Multinational Subsidiary: Management, Economic Development and Public Policy. Palgrave Macmillan. Mckern, B. Managing the Global Network Corporation. Routledge, 2003. Rugman, A.M. 2005, The Regional Multinationals: MNEs and 'Global' Strategic Management. Cambridge University Press. Rugman, A.M., Collinson, S., Hodgetts, R. 2006, International Business. Financial Times Management; 4th edition. Read More