Strategic Issues HRM

Strategic Issues in HRM

Owing to the globalization, many companies have begun setting up their business boundaries beyond a single place. They are going from their primary market to other countries in order to have access to the much larger international market (Heidenreich, 2012). In management terms, the foreign countries where these businesses attempt to set up are the host countries while the country where the corporation has its head office is the home country. Multinational companies are a function of sovereign companies, each focusing on its domestic markets. But the independence of the subsidiary is not always true since a lot of times the subsidiary also has to borrow the policies of the parent company. While multi-nationalization is an organization wide phenomenon, dealing with the employees, from recruiting to managing is the job of the human resource department. It is assumed that Human resource management is a soft skill; however effective practice within the organization demands a much strategic focus in order to confirm that the organizational goals can be achieved via human resource. Today, when the terms ‘strategy’ and ‘human resource’ are combined, it means that the human resources becomes responsible for adopting the steps and practices to achieve the longer term organizational goals and objectives (Jiang, 2012).

There are not only the huge advantages that the multinational are benefitted from the host and the home country but also, there exist several critical strategic issues that these companies have to face. However, there are a lot of advantages the host country gets from multinationals in the form of investment opportunities, income for unemployed resulting in a much better standard of living. Speaking of multi-nationals, the main idea behind these multinational organizations is that they organize as per the local responsiveness in order to be efficient worldwide (Shah, 2012). This local responsiveness does not always hold true; some firms borrow the policies of the parent company assuming it to be better for the overall corporate results.

Misalignment of subsidiary from overall corporate strategy

Moving from one country to another creates the problem of misalignment between various departments and the overall corporate strategy. Usually the problem occurs when the human resource department is not aligned with the parent company’s mission and vision as it begins operations in another country to adapt as per local standards. The drift in one department of the organization causes the entire subsidiary to shake up as a result of unguided principles and policies.

Cultural diversity

Besides the merits of multinationals, one major strategic issue that the Human resource manager faces is based on the fact that when companies go global they tend to have a diverse workforce in their organization. And it is this organizational diversity that makes managing people across various religious, cultures, and standards, a major problem in implementing the goals of the organization as a team. Talking of diverse workforce culture, when a company moves from a country where unethical practices are considered to be the norm to a country that has stringent policies against any unethical practice, it is at that time when the problem for the management takes a start. For example, in countries such as Saudi Arabia, where bribery is thought to be the norm to run the business but such a practice is highly disregarded and looked down at in countries such as Brazil (Rose, 2012). Then managing employees from such a background becomes a problem for the manager in order to ensure that the disease of unethical does not spread in the organization.

Recruitment, selection and placement problems

Recruitment, selection and placement of the employees are the main functions of the human resource managers. However, this function is important and is viewed as the backbone of any business which guides the success or failure of the organization. Studies have also identified the three forms of approaches used to employ people beyond the local boundaries. Of the three approaches quite often multinational companies adopt the ethnocentric approach (CHOY, 2007). For instance had the company have a policy of employing people only from the parent company, the practice of ethnocentrism can pose a difficult situation for HR managers challenging them to train such nationals as per the local standards, policies and demands of the consumers such as American employees going to Saudi Arabia. Given the limited independence to select and recruit the people as HR wills, this diverse workforce tends to pose a problem of controlling of human power, their communication and remuneration.

The differences of employment practices

Another problem that the human resource faces is with respect to the employment practices. Under this are the problems of age, racial, sex and cast discrimination arises of which gender discrimination is very common (Wu, 2008).Given the differing laws and rules in each country it is important for the human resource to go by those laws to sustain and succeed beyond borders. For instance, countries such as India are really high in gender discrimination by restricting management and engineering position to men and softer skills jobs to women. Research by Pudelko (2007) clearly shows that when the a MNC moves from a country that does not offer equal employment opportunities such as India to a country that gives equal employment opportunity such as Thailand, the manager explicitly tends to discriminate the jobs based on gender in the latter case as followed previously in the other country. This happens because the HR manager is accustomed to policies adopted and practiced in the parent company and would be likely to follow the same policies at the subsidiary.

Basic salary and other forms of compensation

Human resource has the major function of motivating its employees to keep them committed to the organizational goal and mission. This motivational strategy largely comes from the compensation that the human resource manager engages in. Other than the selection problems, what is of particular challenge for the HR employer and the employee working in the organization is how to compensate employees in the multi-national context. The concern is how to appropriately measure and manage the compensation of the human power within the organization relative to employee contribution and performance in the MNC. And this is the basic function and duty of the HR managers towards their employees to regularly appraise the performance of its workers and keep giving proper constructive feedback (Sepura, 2009). For instance, if a company is based in the US, it tends to evaluate its employees based on performance only while that is not the case in Japan. Japanese firms value seniority and experience and would evaluate performance based on the employees experience in the industry and his position in the hierarchy (Harzing, 2006; Kono & Clegg, 2001).

Strategic Issues HRM
Strategic Issues HRM

Having offices in both developed and developing countries there tends to be a huge gap in the salary payout. For instance, workers working in US might earn 5 times more than their counterparts working in any underdeveloped nation, example India or Pakistan with the same skill set. Here comes the challenge for human resource to make sure that wherever it operates must do so in acceptable and fair boundaries. Nike a well-known company outsourced its manufacturing to Pakistan where under aged children worked for extensive long hours at a very low pay out of around 60 cents (Buckley, 2000). Quite similar is the case of MNCs that operate in low cost countries. In this case, the human resources management may face the ethical issue of whether to narrow the gap in compensation.

When it comes to paying basic salary, it is observed that a lot of MNCs that are fair in their practices want to and try to pay its workers a fair wage that is in line with the wage of their parent company. They also do so to retain and attract the best employees and avoid extensive training costs, but then again such practices are seen as disruptive for the local companies and the economy as a whole. The problem comes in when the local companies are not able to pay as much and this lead to disruption of the entire wage structure (Timo, 2005). As a result of this, the healthy competition falls out and they themselves fail to compete and work towards the economic growth. However, as a result of this factor the human resource is unable to decide again what compensation can work best for the employees. And how can this compensation make the organization seem as a non-disrupting entity which exists for the good of the economy (Marin, 2010).

Industrial relation factors

Freedom, voicing the opinion and autonomy are some concrete terms that are quite popularly used and practiced in countries such as Germany, UK and USA. Industrial relation factors pertaining to workers, employer and unions may vary from country to country. For instance, in much developed and open economies such as Germany, co-determination is the rule. This means that a lot of firms in Germany have their employees speak up and voice their opinion in corporate strategy and company operations such as wage and hour setting but that might not be appreciated elsewhere. For instance in countries like Japan where there is high power distance and a lot of centralization, employee contribution in these areas might not be the norm (McCrae, 2004). Here comes an issue that must be worked over by the human resource manager and this tends to greatly impact the HRM practices. If a multinational company appoints a local from Japan as the head of HR and have some workers from the parent company shifted to the subsidiary, this can create conflicts between the employer and employee. Because the head might not be familiar with the idea of employees collaborating and working together on issues of pay or perhaps other HR related issues, he might consider the employee to be interfering in matters he is not responsible which creates an uncomfortable working environment within the firm.

Attempting a balance between global and local amalgamation

One key challenge facing the MNC Human resource is how to attempt a balance between the global amalgamation and the local adaptation. The dilemma for the human resource is the fact whether it should go by the policies and practices of the home country because it views those practices to be much fair or should it adopt local policies which can be exploitative. When the human resource decides to adopt a fair culture for its employees based on ‘not-so-local’ practices they are accused of exporting the practices of another country and trying to impose it on locals ignoring their traditional and cultural values (Chen, 2008). However, when the human resource decides to go by the standards of the country where they are operating, a problem originates of ‘trying to exploit’ the employees that work under it and not being there for the better living standards of the host country citizens just because the policies of that country are generally exploitative in nature. This puts the practices and workings of the human resource manager at question as to which root to take. All in all, the country of origin for these MNCs is seen to be the major influence in shaping what balance to take (Almond, 2011). Quite a lot of research has been conducted on this issue and it was eventually comprehended that the way MNCs manage their foreign subsidiaries tends to be out of the result of the national origin (Harzing, 2003).Elaborating on the view, Harzing (2003) concluded that although MNCs are quite internationalized, their major controlling practices are determined by their country of origin.

Transferring the policies from the parent company is also much more problematic for the service oriented industries than the manufacturing firms. Because service provision requires the firm to deal with employees and the expectations of the customers who have differing cultural values, the burden of localization falls on the human resource to meet the local customer demands (Gamble, 2003).

Cultural differences

The major cultural differences between various countries demand human resource department to act in accordance with the culture of the country’s foreign subsidiary. Lingual skills form another sort of barrier to most organizational growth. When a company is moving to another country they must make sure they are well aware of that company’s priority and value system in order to enhance the intercultural communication in cross-cultural management (Gullestrup, 2002). A lot of times, employees from the local context tend to prefer to be spoken in their own language because they tend to feel ethnocentric of their culture. For example, in Saudi Arabia, the locals do business in their own language and prefer to be spoken in Arabic only. A company moving to another country must also educate its employees of various languages to settle in well with the local populace. The difficulty for the human resource manager is when they have no knowledge of the culture of another country and do not have the required training to deal with the ethical dilemmas (WriteWork, 2004)

When there is a drift between the values of the parent company and the subsidiary that’s where human resource department has to come in and get to a congruent solution. Culture clashes are the most prominent problem in these businesses. When the company decides to shift, it must have an adaptive approach to its subsidiary, where there is high independence between the parent and the subsidiary and the corporation is much consistent with the local environment (Grewal R, 2008). However, given the senior management, usually it’s the other way round. Subsidiary is expected to borrow a lot of rules from the parents creating cultural differences to take over the legitimacy. Generally, US MNCs have an organizational structure that is often more centralized and formalized; in contrast, Japanese MNCs have strong but informal centralized co-ordination with a network of Japanese expatriate managers, yet are likely to adapt HRM practices to local conditions due to the perceived periphery status of subsidiaries. Now given the different cultures in each country it becomes difficult for the human resource to organize people from one country to the other with the cultural air being so different (Caprar, 2011).

Local labor laws

When a company begins its operations beyond its borders, it is important for them to recognize that the local employment relationship is governed by local labor laws. There are certain countries that favor the employees while there are others that favor the employer. Contrasting the labor laws in America and Europe, there is considerable difference in each area. Taking an example of US, they usually have really brief offer letters stating the pay, compensation, bonus or stock options and at the same time it also includes a statement favoring the employer that sates that the employees might be terminated at any time by the company without giving reasons. This concept of employment is a form of employment contract that is not recognized in any other country because it is seen as harsh and as a result it does not have a legal standing in the court. However, companies that have operated in Japan, Brazil or China would not be appreciative of such HR practices had the parent company been in US had the employer adopted the same policies.

Communication glitches

Communication forms the backbone of any organization. It is only effective when taught rightly by the superior management in the company. Had the communication not been so strong and transparent, it can lead to major ethical problems for the organization as a whole and the HR particularly who is primarily concerned with the effective training of its people. It is the duty of the human resource manager to prepare its employees communication via training. It must be noted that broken communication can lead to corruption problems (Lager, 2010). Corruption might not be that big issues in the developed economies but developing economies do pose a question mark. In a survey in 2012 by Ernst and Young, around 39% people said that corruption occurred quite often in the developing countries (Newswire, 2012). Countries such as Pakistan and Brazil are rated quite high on the corruption continuum. A problem that occurs for the human resource is to prepare its employees shifting, or moving to these countries on how to deal and communicate with the people in such countries.

Four level training to avoid merger failure

It is important to make sure that a harmonious organizational culture is maintained and there is no merger failure of subsidiary and the culture (Weber, 2004). It is extremely important for the managers to train and orient their employees before shifting them to the international operation. Yet a lot of countries even today do not have structured or systematic overseas oriented training practices in order to acquaint them to the foreign country economics and practices. A lot of organizations are realizing the worth of international businesses and have been trying to incorporate the special training in their operations for their employees. This sort of training has four basic levels. The first level deals with cultural awareness. This initiative must be undertaken to acquaint the employees of the cultural differences and it impacts the business outcomes. The second level knowledge must deal with attitude formation as to how the attitude can lead to a particular type of behavior towards other. For instance, managers who form stereotypes tend to view their foreign based employees with a critical eye and unconsciously have a favorable or unfavorable behavior towards them. Level three is the factual knowledge of the country the subsidiary is going to be developed in. And lastly the problem comes of building up skills and adapting to those skills such as language adjustment (Weber, 2004).

Conclusion

However, in order to overcome the problem of strategic differences within the MNC, firms must look into the generic strategic international orientations when crossing the local borders to step in the international market. MNCs and the human power can help and create a hybrid of the strategic orientations in order to make sure that the practices of the host country are molded blue print of the home country corporation so that it meets the local demands of the customers, enable employees to adapt to the local standards to counter the overseas problems and ensure an alignment between the subsidiary and the parent entity.

References

Harzing, A.S., 2003. The relative impact of country of origin and universal contingencies in internationalization strategies and corporate control in multinational enterprises: Worldwide and European perspectives. Organization Studies, 24(2), p. 187.

Almond, P., 2011. Re-visiting ‘country of origin’ effects on HRM in multinational corporations. Human Resource Management Journal, 21(3), pp. 258-71.

Anabel Marin, S.S., 2010. Heterogeneous MNC subsidiaries and technological spillovers: Explaining positive and negative effects in India. Research Policy, 39(9), pp. 1227-41.

Buckley, S., 2000. The Littlest Laborers: Why Does Child Labor Continue To Thrive In The Developing World?

Caprar, D.V., 2011. Foreign locals: A cautionary tale on the culture of MNC local employees. Journal of International Business Studies , 42, pp. 608–28.

CHOY, W.K.W., 2007. Globalization and Workforce Diversity: HRM Implications for Multinational Corporations in Singapore. Singapore Management Review, 29(2), pp. 1-19.

Wu, C., 2008. Overt employment discrimination in MNC affiliates: home-country cultural and institutional effects. Journal of International Business Studies, 39(5), pp. 772-94.

Shah, F. A., 2012. A Critical Review of Multinational Companies, Their Structures and Strategies and Their Link with International Human Resource Management. IOSR Journal of Business and Management, 3(5), pp. 28-37.

Gamble, J., 2003. Transferring human resource practices from the United Kingdom to China: the limits and potential for convergence. International Journal of Human Resource Management, 14(3), pp. 369-38.

Gullestrup, H., 2002. The Complexity of Intercultural Communication In Cross-Cultural Management. Intercultural Communication and Changing National Identities, (6), pp.1-19.

Grewal R, C.M.D.F., 2008. Navigating Local Environments with Global Strategies: A Contingency Model of Multinational Subsidiary Performance. Marketing Science, 27(5), pp.886-902.

Harzing, A.W.K., 2006. Response styles in cross-national mail survey research: A 26-country study, International Journal of Cross-Cultural Management, 6, 243-266

Heidenreich, M., 2012. The social embedded of multinational companies: a literature review. Socio-Economic Review, pp. 549–79.

Jiang, K., 2012. How Does Human Resource Management Influence Organizational Outcomes? A Meta-Analytic Investigation Of Mediating Mechanisms .Academy of Management Journal, 55(6), pp. 1264-94.

Kono, T. & Clegg, S., 2001. Trends in Japanese management. Continuing strengths, current problems and changing priorities, Houndmills, New York: Palgrave.

Markus Pudelko, A.-W.H., 2007. HRM practices in subsidiaries of US, Japanese and German MNCs: Country-of-origin, localization or dominance effect? International Business review, pp. 1-40.

McCrae, R.R., 2004. Personality and Culture Revisited: Linking Traits and Dimensions of Culture. Journal of cross cultural psychology, 38(1), pp. 52-88.

Newswire, C., 2012. Only 52% of Canadian companies protect themselves against corruption risks when buying into business globally: Ernst & Young. Regional Business News.

Timo, N., 2005. A survey of employee relations practices and demographics of MNC chain and domestic luxury hotels in Australia. Employee Relations, 27(2), pp. 175-92.

Weber, R. A., 2004. Cultural Conflict and Merger Failure: An Experimental Approach. Management Science, 49(4), pp. 400-15.

Chen, R., 2008. The Cost of Doing Business Abroad in Emerging Markets and the Role of MNC Parent Companies. Multinational Business Review, 16(3), pp. 23-39.

Rose, C., 2012. The Corner House Case and the Incomplete Incorporation of the OECD Anti-Bribery Convention in the United Kingdom. Tulane Journal of International & Comparative Law, 20(2), pp. 351-83.

Sepura, 2009. Code of Business Conduct and Ethics. Sepura, pp. 1-6.

WriteWork contributors, 2004. Ethical difficulties faced by multinational companies in today’s business world.

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My name is Steve Jones and I’m the creator and administrator of the dissertation topics blog. I’m a senior writer at study-aids.co.uk and hold a BA (hons) Business degree and MBA, I live in Birmingham (just moved here from London), I’m a keen writer, always glued to a book and have an interest in economics theory.

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