Globalization has resulted in the increase of global activity of multinational national entities, which has necessitated in the adaptation of all their business functions including the human resources management. Increased global travel, extensive global communications, free trade, improving education, migration of large numbers of people, increased knowledge sharing, pressure on costs, search for new markets, homogenization of cultures, and e-commerce have been the cause for internationalization and is not limited to large companies but also includes many small and medium enterprises (SME).
Impact of IHRM on the Internationalization
A Multinational Enterprise (MNE), when it is trying to internationalize, Human Resources (HR) department is increasingly called to help contribute to the internationalization efforts.
Country Selection: While selecting the country to expand the operations, the HR department is called in to provide the expertise on the availability of manpower and the competitive wages scenario.
Global Staffing: The issue about global staffing or the number of people who have to be relocated to startup operations, the number of people who are required to run the operations, the availability of the people, the capability of the company to find new employees or train existing employees if they are not available or if they can be recruited from the host country.
Recruitment and Staffing: The processes to be adopted to recruit the talent in the host country to make the operations successful.
Compensation: The method of compensating its expatriates and the locally recruited employees.
Standardization and adaptation: The decision whether the HR policies will be standard across the global locations or adapted for each location. The International HR functions include managing the international assignees, their taxes, visas, and assistance with international relocation.
In the early part of the 20th century, management theorists advocated the universalistic theory which argued for “one best way” of work organization and they had prescribed bureaucracy as a rational and efficient model of organizations. An example for this is Henry Ford’s car assembly methods and employment practices. On human relations ground, this theory was first challenged in the 1950s and 1960s but the implication was still that there were a “one best way” of organizing activities, but with an emphasis on the needs and abilities of human beings which, according to these theorists, had been ignored by the old school of theorists. Other thought that different technologies required different management styles . This was later developed into contingency theory which said that the survival of an organization depended on efficient and optimum performance. This is achieved by responding appropriately, based on the fit or match between the structural characteristics of the organization and contextual and environmental variables. So, an increase in environmental complexity has to be matched by an appropriate increase in decentralization to achieve high performance. To further this argument, the moderating effect of national culture was introduced by researchers
“Culture is the characteristic way of behaving and believing that a group of people has developed over time and share”. In this context, groups mean either the country, region or the company. Culture guides them on what the appropriate behavior is and the group transmits this information to successive generations or to the new employees. This affects every aspect of the management process including the thinking and the problem-solving process. Internationalization is subject to cross-cultural differences.
Since the culture is embedded in the manager’s frames of references, they guide the managerial actions and choices. According to Geert Hofstede’s cultural dimensions, the six dimensions that determine the culture are power distance, uncertainty avoidance, individualism/collectivism, long-term orientation, indulgence, and masculinity/femininity. According to Dr. Fons Trompenaars, who came to similar conclusions as Hofstede, there are five distinct cultural factors that need to be considered: Universalism vs particularism, Collectivism versus individualism, neutral versus emotional, diffuse versus specific, and achievement versus ascription. Global Leadership and Organizational Behavior Effectiveness (GLOBE) research project categorized countries on cultural dimensions such as assertiveness, future orientation, gender differentiation, uncertainty avoidance, power distance, institutional collectivism, in-group collectivism, performance orientation, and humane orientation, which appears to be a synthesis of both Geert Hofstede and Fons Trompenaars.
In high-inequality (high power to distance) cultures people are afraid of those in power and hence do not question the authority. The management style will be paternalistic and autocratic with the organization being highly centralized and rigid hierarchical chain of command. In low-inequality cultures, this is the opposite so the management style will be participative or consultative. In organizations, employees with less tolerance for ambiguity will tend to avoid making decisions on their own. So senior managers in such cultures will have to take all the decisions. In those cultures where there is a high tolerance for ambiguity, employees are willing to take risks and hence they are more entrepreneurial. The managers are ready to let subordinates do that and hence the organization is decentralized. In individualistic cultures, the relationship is contractual while in collectivist cultures, this is both contractual and emotional. So a shop floor employee in a factory works for the prescribed hours but demands overtime after normal work hours. The work does not spill into the family life. While in the second case the boundary between personal and professional life is blurred.
While selecting or recruiting personnel, U.S and other western cultures depend on formal processes and focus on specialism. While Middle Eastern cultures look for informal processes such as recommendations from friends and family. In Japan, people with broad educational qualifications are selected and trained for months to create people who can fit into any role based on the need. Some countries such as U.K depend on an apprentice program for training prospective employees. In France, the companies are required by law to spend a certain percentage of time and finances to train employees after recruitment. Job expectations are explained by different motivational theories such as achievement motive , the hierarchy of needs, and hygiene and motivating theory . According to McClelland, the needs of employees of developed nations are higher when compared to those from not so developed nations. Similarly, in individualistic nations, there is a need for higher achievement when compared to collectivistic nations. Performance appraisals, reward, and promotion policies are also affected by the cultural attitudes, with collectivistic nations having team-based appraisals.
Non-cultural issues such as skills and expertise play an important role with highly skilled employees getting more autonomy in any culture. The person’s position in the company’s hierarchy also has a similar effect. Market conditions, production technology, industry, the size of the company, and organizational culture also affect the HRM practices.
Once a company decides to go international, the HRM has to decide on the orientation of parent-subsidiary relationship. According to Perl Mutter, this orientation can be ethnocentric, polycentric, regiocentric, and geocentric, which specifies the degree of domination that the multinational enterprise’s (MNE) headquarters wants to exercise on the Human Resources (HR) practices of the subsidiary.
The HRM practices help a company in deciding the orientation that has to be followed by the organization based on the culture and the market situation. The HRM decides on the acculturation processes and how it can be achieved. This can be done by including cross-cultural training in the induction program and conducting awareness programs for all the staff who might be in a position to deal with these issues. According to Derr and Oddou, this has to be supplemented by extensive in-house seminars on local politics and laws, family adaptation, and international finance. Other options include language courses for the employee and the family, which companies such as NatWest, ICI, and Phillips have implemented. HRM practices for the selection and recruitment practices, pay and benefits, career development, industrial relations, and organizational culture have to be developed taking this into consideration.
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