International HRM in Context - Essay Example

INTRODUCTION…………………………………………………………………………………………………………………………………2 DEFINING HRM IN MNCs CONTEXT……………………………………………………………………………………………………2 DIFFERENT SKILL SETS OF PEOPLE IN DIFFERENT COUNTRIES……………………………………………………………..3 IMPACT OF DIFFERENT CULTUREs ON MNCs OPERATING IN USA, RUSSIAN and FINLAND………………….3 DIFFERENCE IN HRM POLICIES IN UNDER-DEVELOPED vs. DEVELOPED COUNTRIES……………………………4 CULTURE AS AN AGENT OF CHANGE………………………………………………………………………………………………….4 EVIDENCE OF MNCs FOLLOWING UNIFORM POLICIES IN DIFFERENT COUNTRIES……………………………….5 LANGUAGE AS AN INTEGRAL PART OF HRM POLICIES………………………………………………………………………..5 RESEARCH LIMITATIONS…………………………………………………………………………………………………………………….6 FLEXIBILITY IS A NECESSITY IN HRM POLICIES OF MNCs………………………………………………………………………8 REPLICATING A COMMON CULTURE……………………………………………………………………………………………………9 CONCLUSION…………………………………………………………………………………………………………………………………12 INTRODUCTION: Multinational Corporations operate in more than one country. They have production facilities in different countries around the world. Often they operate in countries which have entirely different culture than the culture of their home country. This impacts the company’s human resource management policies. This essay is going to discuss the impact of different home culture and the culture of host country on the HRM policies of an organization. The essay will first describe the areas that come under HRM of the organization and how they are affected by the different cultures of home and host country. It will consider examples of various MNCs operating in different countries and will conclude with the outcome of the essay. DEFINING HRM IN MNCs CONTEXT: Human Resource Management is a broad term for personnel policies, recruitment and staffing, training and development, redundancy and other broad issues involving the workforce of an organization. Human Resource Policies are influenced by internal and external policies of an organization. Internal policies include management style and degree of centralization. The culture of host and home countries comes in the external factors of the organization. Together with government policies, culture makes the most important factor influencing the human resource management policies of multinational organizations. The problem arises when a company operates in two countries one of which is developed and other is a developing organization. A company may have very strict recruitment and staffing policies of an organization. However, it may not be able to follow such stringent policies when operating in a developing country. Similarly, the Multinational Corporations may also not have luxury of having a high-level staff in the organization given that the culture of a developing country may not put too much focus on high level of education. DIFFERENT SKILL SETS OF PEOPLE IN DIFFERENT COUNTRIES: This may lead the MNC to hire people that do not meet their criteria of recruitment and selection. This is one way the culture of a developing country may affect the MNC organization’s HRM policies (Amba-Rao, 1994). Apart from cultural difference, the legal environment of business dawns an important influence on the HRM practices. The studies done in the field state those legal requirements are the driving force of all managerial practices including Human Resource Policies in different parts of the world. Similarly, the culture, proficiency in foreign language, ability to follow foreign policies and having different objective from a job are all important factors that impact the Human Resource Policies in host and home countries. (Kilduff, 1992) IMPACT OF DIFFERENT CULTUREs ON MNCs OPERATING IN USA, RUSSIAN and FINLAND: In a study done on the subsidiaries of MNC companies located in Russia, Finland and the United States of America lead to the finding of a lot of factors that affect the organization’s Human Resource Policies when it has presence in different parts of the world. The study revealed that the culture of a country shapes the Human Resource Policies of an organization. Same organization located both in developed and underdeveloped countries tend to follow different HRM strategies in different countries. For example, in Russia and the United States of America, it was found that employees were involved in the decision making process for motivation. However, things were different in Finland. In Finland, there was more focus on training on employees and workers were controlled using performance related pay. (Bjorkman, Fey, & Park) Hence, one can say that in developed world money becomes the secondary tool of motivation, but the culture of developing world and importance on materialism makes it the best motivator in the developing world. DIFFERENCE IN HRM POLICIES IN UNDER-DEVELOPED vs. DEVELOPED COUNTRIES: Hence, any organization try to have presence in underdeveloped countries must involve the use of money in order to attract superior Human Resource and in order to retain them for long-term. There was a lot of debate on whether the presence of MNCs in developing world leads to development of technology in the host countries. In a research, it was found that the answer to this question is affirmative. Presence of multinationals in developing countries leads to technology spillover effect. It makes the culture of developing world more acceptable towards technological revolution. (Guardo & Giovanni 2007) CULTURE AS AN AGENT OF CHANGE: In other words, the culture of developing world does not allow for an immediate change. However, MNCs can build long-term strategies for technological revolution in the developing world. This long term planning can have advantages for both the developing and developed countries and hence organizational policies should be based on patience and should take into consideration the culture of other countries before the Human Resource Policies gap between the home and host countries can be bridged. There was a study done on the Human Resource Management policies of European, Japanese and American Multinational Corporations. EVIDENCE OF MNCs FOLLOWING UNIFORM POLICIES IN DIFFERENT COUNTRIES: The main crux of the study was that there were no significant differences between the Human Resource Management policies of home and host countries. There may be geographical or cultural distance between the countries, but the Human Resource Management policies were quite similar for MNCs located in different parts of the world. The main differences between Human Resource Policies among the MNCs located in different parts of the world were longer employee retention by Japanese and European firms as compared to American organizations. (Erden & Erden 1988) LANGUAGE AS AN INTEGRAL PART OF HRM POLICIES: Similarly, American policies were more rigid in terms of language proficiency of its employees in different parts of the world. A recent finding that agreed with the above studies was that it was European and Japanese MNCs that do well in the developing world where English is not a common language. The reason for the success of these organizations is that these organizations do not insist on learning English. Similarly, it was also found that European and Japanese organization do well in the developing world because they pay higher salaries and because of the fact that the culture of developing world is materialism and hence American organizations fail to do well in these organizations because of their rigid policies and less importance given to the culture of host countries. (Peterson, Sargent, Napier, & Shim, 1996). The above study was consistent with the study done on HRM policies for American MNCs. The study reflected that the lack of focus on materialism by the American MNCs is hampering their progress in the developing world which has a materialistic culture and poverty in the developing world means that the people of the third world countries are motivated more by money than any other tool of motivation. (Yuen & Kee, 1993) RESEARCH LIMITATIONS: There is lack of research done on the difference in cultures of different units of multination companies operating in different parts of the world. This has resulted in inability of these organizations in creating Human Resource policies that reflect the culture of the host countries in their policies. It was also found that higher the importance given to the culture of host countries, the better policies will be developed by these organizations in HRM context. (Bjorkman, Barner-Ramussen, & Li, Managing Knowledge Transfer in MNCs: The Impact of Headquarters Control Mechanisms, 2004). Another study confirmed the finding of this paper and determined that language is the most important part of culture. Therefore, it is important for MNCs operating in more than one country to develop policies that are transferred to the host country in their own native language. All HRM policies should also be devised in national language of host countries because a lot of important details are lost in translation that are vital to the decision making process. As a result, it would serve both the host and home country well if the organizations use the national language of different countries for knowledge transfer. This way the culture of host country will be respected and better results will be achieved through policy announcements of MNCs (Yadong & Shenkar, 2006). Another study that was done on a mass scale by researchers from ten different countries found out that the lack of research is the main obstacle in the development of better Human Resource Policies by MNCs that can solve the problem of their usage of policies in different parts of the world and different countries. The study focused on the development and use of “cultural-based” policies that can help MNCs around the world to achieve high levels of profits and to fulfill their targets of growth. (Teagarden, et al., 1995) In a recent study done in Chinese setting, it was found that China is taking an initiative to bind all the MNCs operating in China to respect their culture and to use the Chinese culture in development of HRM policies for China. The finding of the study is that such laws are likely to increase the productivity of MNCs in China because Chinese people do not want to learn English. After the implementation of this law there will be a major change in the HRM policies for MNCs operating in China. This is a good way of making MNCs follow different and customized strategies for both home and host countries. (Jaussaud & Liu, 2011). However, a study done in German setting negates the efficacy of Chinese law. The study finds out that those organizations that follow the policy or coordination and follow uniform policies around the world are more successful. Therefore, any successful MNC should follow same policies around the world despite the differences in cultures. Any organization that follows different policies is not as successful as those organizations which promote the culture of uniformity for both home and host countries (Festing, 1997). FLEXIBILITY IS A NECESSITY IN HRM POLICIES OF MNCs: In the light of Festing’s findings, we can say that the Chinese law may lack long-term efficacy and the government may have to repel it in the future. Another study done in the field of Human Resource management finds out that all the subsidiaries of MNCs are under the strong influence of the parent company irrespective of the culture of host country. Hence, big MNCs are not making any effort into creating customized HRM policies for its operations in different parts of the world. (Martinez & Ricks, 1989) Figure 1: Impact of Culture and Ownership on Decision Making Source: (Hannon, Huang, & Jaw, 1995) The model promulgated by Hannon, Huang and Jaw gives us an idea how HRM policies are developed by MNCs that are located in countries that have different cultures. The model gives a fair idea of the fact that as soon as the company’s global presence increases it cannot use uniform polices. The above model is a lesson for contemporary multinational firms to follow more flexible and decentralize HRM policies if they want to succeed in different countries. The study finds out that the more concentrated the company, there are more chances that it would follow rigid HRM policies. But as soon as the company’s dependence on centralization decreases, there is more focus on the culture of and policies of host countries. Although this finding is not in line with the previous studies done, but it gives us a rational direction and reasoning of how HRM policies are developed for companies that have presence in different parts of the world and that are exposed to various different cultures. (Hannon, Huang, & Jaw, 1995) In a study done in India context, the researcher argued that the organizations and MNCs should not be given any choice. They should be forced to follow the culture of the host countries and should reflect it in their management policies including HRM policies. If these organizations fail to comply then Trade Union should take action against such MNCs in order to benefit the workforce of the developing country. The study also argues that MNCs are involved in resource exploitation of countries where they can find cheaper resource. And India being a nation of 1 billion people has been victimized by the MNCs of the world (Sodhi, 1994). Another study done in German context negates these find. The study states that common HRM strategy can be used because when MNCs enter a nation they bring their culture with them and play a role in the development of common culture, where uniform HRM policies can be used with full efficacy (Edwards & Ferner, 2004). REPLICATING A COMMON CULTURE: Another study agrees with the Edward & Ferner findings. The study argues that the arrival of MNCs in Nigeria have helped the country develop a culture that can be compared with the home countries of these organizations. As a result, uniform HRM policies can be used in Nigeria despite the fact that there are tremendous cultural differences between Nigeria and some of the countries from which these MNCs have originated. Again a uniform HRM policy can be used in both the home and host countries. (Anakwe, Igbaria, & Anandarajan, 2000). This model of change is reflected in the change of culture of Polish enterprises as soon as French businesses entered the market. Figure 2: Creation of a Common Culture for HRM Practices Source: (Hurt & Hurt, 2005) The model describe in the figure 2 tells us how the entry of MNCs leads to development of a common space for both home and host countries culture. This leads to a culture where the similar HRM practices can be followed and implemented. Hence, MNCs can use uniform HRM policies for both and home and host countries if they develop a common space before using the uniform strategies so that there is no resistance from the people of host countries. (Hurt & Hurt, 2005) Figure 3: Factors Determining the Customized HRM Policies for Host and Home Countries Source: (Kwok & Tadesse, 2006) It can be seen in the figure that MNCs are exposed to variety of different business environment. They are exposed to Host-Country environment, International business community and home country environment. All of these have bearing on the management policies of MNCs. They also have a bearing on HRM policies of MNCs. Hence, HRM policies and other management policies in MNCs are a function of all these pressures that lead to the different HRM policies for different countries. (Kwok & Tadesse, 2006). According to another study, Macroeconomic implications of an economic have special bearing on the company’s HRM policies. In a country where unemployment is high, MNCs can exploit the resources by employing people at very low wages. They may also try to develop HRM policies that will be focused on training and development of workforce. Similarly, in an economy where employment level is high, HRM policies of MNCs would be different such as providing self actualization to people and providing them with empower or more delegation of important tasks to make sure job satisfaction of workers is high. (Hart & London, 2004) CONCLUSION It can be concluded from that paper that HRM policies is a function of various economic, business and regulatory pressures. 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