HumanResource Management in Multinational Enterprises
HumanResource Management in Multinational Enterprises
Thehuman resources management policies and practices is one of thecurrent issues of concern for the multinational companies. This isbecause the increase in the significance of the concept ofglobalization, which has resulted in the entry of corporations to theinternational market. The present study addresses the differencesbetween local and international human resource management practices,factors that drive the standardization of these policies, role ofsubsidiary, factors driving the localization of HRM practices, andthe impact of institutional and cultural contexts on HRM practices.
1.Factors that differentiate between domestic and the internationalhuman resource management
Insightinto employees’ private life
Multinationalcompanies put more emphasis on the private lives (including theconsideration of family issues) of their employees, especially thoseworking in foreign countries. This is driven by observations andresearch showing that most of the expatriates sent to foreigncountries fails, not because of poor performance, but as a result ofinappropriate adaptation of the members of their families (Poor,2008). Consequently, the multinational corporations evaluate thepersonal life and family relations of employees during the selectionphase. In addition, some multinational corporations are able to usemodern technology (such as global databases for human resource), totrack their expatriates and conduct their satisfaction surveys. Thismeans that the international human resource management practicesinterfere with the privacy of employees. This is unlike the domestichuman resource management practices where performance is not affectedby improper adaptation.
Differencesin the effect of external environment
Differentcountries react in varying ways towards the existence ofmultinational corporations. Some of them give a significant degree offreedom to these corporations while other countries limit theirautonomy to an extent of ordering that all expatriates shouldundertake language exam (Poor, 2008). This means that the differentgovernment subjects the multinational corporations to challenges thatincrease the complexity of the international human resourcemanagement practices. In addition, the change in culture as well asinstitutional setting that expatriates operate makes the IHRMdifferent from domestic human resource management. This implies thatthe HRM models of organizations that operate in differentinstitutional, legal, and economic environments cannot be compared tocorporations operating in one country. The HRM practices used in theenvironment or the context of the parent country need to be adjustedto the environment of the country hosting the branch or thesubsidiary.
2.Standardization of HRM practices
Theprocess of standardizing the HRM practices is mainly affected by twofactors. First, strategic issues affect drive the process ofstandardization of HRM practices in different ways. This is based onthe notion that the multinational corporations operate in theworldwide context, which include nation, inter-organizationalalliances and networks as well as the external context of the entireindustry (Dowling, Engle, Festing, 2008). The interplay of thesefactors affects both the goals of the multinational corporation andIHRM strategy. Secondly, the cultural environment drives the processof standardizing the HRM practices by necessitating the adoption ofappropriate practices for human resource management. Continuedinternationalization of organizations attracts the attempts bymultinational corporations to use the worldwide basis instandardizing the HRM practices.
Theadoption of a worldwide corporate culture is advantageous in threeways. First, it facilitates consistency in the operations of allsubsidiaries of a multinational corporation, which are located indifferent countries (Dowling, Engle, & Festing, 2008).Consistency reduces the duration that employees working in a foreigncountry need to adapt to the working environment of that country.Secondly, the adoption of global corporate culture enhances thecapacity of the multinational companies to create a large pool oftalents. The worldwide culture creates an atmosphere that facilitatesemployees’ collaboration. This attracts a large number of employeeswho wish to interact and work with diverse populations (Kokemuller,2014). Third, the adoption of worldwide corporate culture helpsmultinational companies in streamlining their operations in differentsubsidiaries, which leads to an increase in revenue streams. This isbecause global culture reduces the difficulties of global expansion,thus allowing the company to exploit the investment opportunitiesavailable in different parts of the world.
3.The role of subsidiary
Subsidiariesplay a significant role in the network of transactions that arecarried out by multinational corporations. This network oftransactions comprises of products flow, capital flow, and knowledgeflow (Harzing & Noorderhaven, 2005). The flow of knowledgebetween subsidiaries, both local and international, of any givenmultinational corporation is considered as the most important of thethree. The mechanism of the flow of knowledge between subsidiarieshas two basic aspects (including the magnitude and directionality ofthe flow), which are used to distinguish between four subsidiaryroles, namely global innovator, integrated player, implementer, andlocal innovator (Harzing & Noorderhaven, 2005). Global innovatorsact as fountainheads or centers of excellence for other units. Theseinnovator subsidiaries depend on their innovation to developproducts. Integrated players engage in the transfer of knowledge toother subsidiaries, but they also receive some knowledge from otherbusiness units. Implementer subsidiaries do not take part in theprocess of knowledge creation, but depend on the inflow of knowledgefrom other units. Local innovators are self-standing units that takepart in the process of knowledge creation, but they do not transferthat knowledge to other units. This implies that the subsidiary rolemainly depends on the direction of the flow of innovation orknowledge.
Acompany that is just starting to expand internationally should adoptthe subsidiary role of the integrated player. This means that itssubsidiaries should engage in the process of creating knowledge,transfer the knowledge to other units, and be ready to receiveknowledge from other units (Harzing & Noorderhaven, 2005). Thisis important because most of the subsidiaries, especially thoseopened in the foreign countries will experience new challenges thatmight necessitate research and development to ensure their survivalin the new environment. The pool of knowledge created throughresearch and development should then be shared among thesubsidiaries. The process of sharing knowledge can reduce the chancesfor one subsidiary being overwhelmed by challenges that have alreadybeen faced by other units.
4.Factors that drive the localization of HRM practices
Culturalenvironment and institutional environment are the key factors thatdrive localization of HRM practices. Members of any given communityshare common attitudes, values, and behaviors, which are transmittedgradually in a dynamic process (Dowling, Engle, & Festing, 2008).Consequently, the citizens of a given country share a similar mentalprogram that leads to the development of the national culture. Thismeans that effective HMR policies and practices should be based onthe local or the national culture because national culture variesbetween states. For example, residents of different national havevarying perceptions towards subordinate-manager relationship andmotivational processes (Dowling, Engle, & Festing, 2008).Localized HRM policies and practices help the members of staff inindividual subsidiaries to identify themselves with the local unit.
Institutionalenvironment shapes the expectations and behavior of employees indifferent subsidiaries. In addition, institutional pressures havesignificant impact on practices adopted by the human resource(Dowling, Engle, & Festing, 2008). Institutional pressure,values, and norms may be influenced by the national business system,which is characterized by industrial relations and the educationsystems. Differences existing in the national business systemnecessitate the localization of HR policies and practices fordifferent subsidiaries in order to ensure that they are consistentwith the institutional environment.
Themultinational corporations can reap many benefits from localizationof HRM practices and employment of local people instead of sendingexpatriates to their foreign subsidiaries. First, localization of HRMpolicies and practices enhances the relations between the governmentof the host country and foreign investors. This is becauselocalizations lead to the development of the local workforce, whichhelps the foreign units to operate with minimum conflict with foreignauthorities, and garner a higher level of buy-in from the foreigngovernment (Noruzi & Westover, 2011). Secondly, localizationsenhance communication, which in turn improves the businessperformance of units located in foreign countries. This is based onthe notion that local-to-local communication is more effective thanforeign-to-local communication.
5.Impact of culture and institutional context
Cultureand institutional contexts affect both external and internal employeerecruitment and selection processes. Research shows that there is amarginal preference from employers to fill job vacancies from within(Leat & El-Kot, 2007). In addition, job skills and experience aremore significant in employee the selection than their capacity to fitinto the organizational culture. However, there are somecircumstances (such as the desire to avoid uncertainty and ambiguityand legislative constraints) that may necessitate the considerationof the capacity of employees to fit into the organizational cultureor select them from outside of the organization.
Stafftraining programs are designed and offered by organizations with theobjective of enhancing employees’ competence. Organizationsconsider a wide range of factors when designing employee trainingprograms. For example, organizations should identify whether itsemployees regard themselves as members of work groups and whethergroup employee training initiatives can be more effective compared toindividual development (Leat & El-Kot, 2007). In addition, someorganizations prefer internal development of required skills insteadof buying the skills from outside.
Differencesin the organizational culture as well as the institutional contextrequire organizations to consider whether the compensation scheme fortheir employees should be determined by the order of seniority orindividual performance (Leat & El-Kot, 2007). In addition, someemployees and organizations may prefer their compensation to belinked to behavior, performance, or relationships. For examples,organizations operating in countries in which culture ischaracterized by a high level of uncertainty avoidance prefer linkingcompensation with employee seniority (Leat & El-Kot, 2007).
Efficiencyof task distribution depends on the design of work systems, which isin turn influenced by organizational structure and culture. In mostcases, organizations adopt hierarchical structure, which ischaracterized by the existence of clearly defined reporting relationsand tasks. However, some employees are team focused, which impliesthat they may prefer tasks to be assigned to teams instead ofindividuals. This is common among the Asian communities wheregroupism is preferred to individualism (Leat & El-Kot, 2007).
Thedomestic and the international human resource management policies andpractices are mainly differentiated on the basis of the extent towhich they interfere with employee privacy and specific effect of theexternal environment. The process of standardizing the HRM practicesis mainly driven by strategic issues and cultural environment.Subsidiaries are classified into four groups (including innovators,implementers, integrated players, and local innovators) depending onthe flow of knowledge. The process of localization of HRM practicesis mainly driven by institutional environment and culturalenvironment.
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