essay of international human resource management.doc

International Human Resource Management MBSP 0139International Human Resource ManagementMBSP 0139The Importance of International HRM Word count: 3282 The module leader: David ALLSOP Student: ID: 02059496 Hand-in date: 13/05/05IntroductionMore and more companies need to operate in foreign markets and compete on a global scale to remain viable. Because traditional sources of competitive advantage are becoming less effective, many companies are looking to new areas for ideas on how to gain competitive advantage. To generate a competitive advantage, the resource must be valuable, rare, imperfectly mobile, and inimitable (Barney,1991). Human resource management (HRM) is one of these areas (Ngo, et al.,1998)Taylor et al. (1996:960) define international HRM(IHRM) as: “The set of distinct activities, functions and processes that are directed at attracting, developing and maintaining as multinational corporates(MNCs) human resources.” It is thus the aggregate of the various HRM systems used to manage people in the MNC, both at home and overseas. IHRM becomes more and more important as globalisation forces demand organisations to design and implement a global strategy. It is the people within an organisation that underpin its effective operation. Therefore, effective IHRM is a significant determinant of the failure or success of the international company(Caliguri&Stroh, 1995).To effectively leverage human resources to implement the intended strategies of organisations, researchers have begun to explore the theoretical and empirical linkages between HRM and strategy in the domestic and international contexts(Taylor, et al., 1996). According to Schuler et al.,(1993), Strategic Human Resource Management(SHRM) can be defined as “human resource management issues functions, and policies and practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of those enterprises.”.A major theoretical concern underlying the field of IHRM is the tension between global integration and local adaptation. On the one hand, MNCs desire some level of consistency in their HRM practices across countries (global integration). On the other hand, MNCs have to adapt their HRM practices to norms and regulations in the host country (local adaptation). Well-chosen HRM is critical for gaining competitive advantage in various cultural and industry settings(Pfeffer,1994). This essay will firstly review the theories about IHRM to demonstrate that because of culture and institutional factors, MNCs should make adaptation in different host countries for their HRM practices. Then how HRM functions should be carried out internationally will be discussed.Contingency model of HRM policiesAccording to the contingency model, multinational firms must align their managerial practices to global and local political, economic, social, cultural and other dynamic environmental conditions. Lawrence and Lorsch(1967) argued that MNCs whose internal organisational features best fit the demands of their external environment will achieve the best adaptation. According to Galbraith(1973), there are three major elements of a contingency perspective: “First, there is no one best way to organize. Second, ways of organizing are not equally effective. Third, the best way to organize depends on the nature of the environments within which the organisation operates.”When host-country political, economic, demographic, legal, social and cultural environments impose severe constraints on MNCs global business strategies, foreign companies may be forced to conform to many local management policies and practices (pulling effects) to implement global objectives. Many examples have shown how the wholesale adoption of parent-firm management practices in foreign subsidiaries may not suitable because different societal beliefs, values and cultural norms of the host-country environment wherein the subsidiary is embedded(Shenkar & Von Glinow, 1994). For example, in Germany, management by objectives(MBO) was favourably received because Germany prefer decentralization. However, in France this technique was not very well received because there is ambivalent view towards authority(Trompenaars, 1993).When the parent and subsidiary do not have similar forms of economic, political, social and other contingencies, conflicts may happen between the two in optimal configurations for management practices. The MNC parent company may push for adoption of HRM policies which reflect home-country and corporate culture, strategic imperatives, CEO philosophies and social values in the host country(pushing effects). For example, US firms IBM and Motorola successfully formed a set of global human resource policies regards to corporate culture, training and work design for Chinese operations. Furthermore, during the 1980s many Japanese facilities in the US tried and succeeded in transfer certain aspects of Japanese-style HRM policies to American firms(Yang, 1998).Cultural Values TheoryCulture is “the collective programming of the mind that distinguishes the members of one group of people from another”(Hofstede, 2001: 9). Therefore, each culture has a set of fundamental values which will act as strong determining factors for the ideologies that people have and it will affect human resource practices, strategy and performance (McGuire, et al., 2002).Hofstede(1980) uncovered differences in work-related values across countries. He found four dimensions of culture: individualism, power distance, uncertainty avoidance and masculinity.Individualism describes the relationship between an individual and his or her fellow individuals in society. The opposite is collectivism which has a tight social framework and in which people expect to have a wider social responsibility to discharge because others in the group will support them. Highly individualistic countries are the USA, Great Britain and Netherlands. Low individualism countries are Pakistan and Taiwan. Power distance involves the way societies deal with human inequality. In organizations this is the degree of centralization of authority and the exercise of autocratic leadership (Torrington, et al.,.2005)Uncertainty avoidance reflects how a society deals with uncertainty about the future, a fundamental fact of human existence. Japan, Belgium and France ranked relatively high in uncertainty avoidance while the USA ranked somewhat below midpoint.Masculinity deals with the degree to which societies subscribe to the typical stereotypes associated with males and females. In Hofstedes sample, Japan and Italy ranked highest in masculinity. The USA ranked fairly high on the masculinity dimension, placing it near the top one-third. Neo, et al.(1998) argued that cultural differences have a major influence on HRM practices used in MNCs. In addition, Newman and Nollen(1996) found that practices that are congruent with national culture would lead to better organisational performance.The cultural values model predicts that globalisation strategies are more likely to exist in companies operating in cultures similar on power distance, uncertainty avoidance, individualism-collectivism and masculinity-femininity while localization strategies are more likely for companies operating in cultures dissimilar on these dimensions.Institutional Perspective Institutional theory recognizes that while MNCs are faced with pressures to adapt to the institutional demands of the host countries, there is also pressure for internal consistency within the organisation. Isomorphism is a key concept of instutionalism. It is the extent to which organisations adopt the same structures and processes of other organisations within their environment(Davis, et al.,2000). External isomorphic pulls refer to pressure from the subsidiarys operating environment to apply practices more closely to local rules Internal isomorphic pulls provide pressure for subsidiary to have structure and practices similar to that of company headquarters(Davis, et al.,2000). There are opposite views of whether external or internal isomorphic pulls are stronger. One view argues that external isomorphic pulls have more influence in shaping the internal structure of subsidiaries than internal isomorphic pulls(Rosenzweig & Nohria,1994). The host countrys economic system, government policies, regulatory constraints can shape external isomorphic pulls. The other view of institutional theory suggests that internal isomorphic pulls are stronger than external isomorphic pulls. Strong internal isomorphic pulls lead to parent isomorphism because the desire for internal equity results in convergence of the internal structure of the subsidiary with the internal structure of the parent company. The reasons for parent isomorphism are the degree of interdependency of resource sharing and the degree of collective cognitive and social beliefs within the organisation (Rosenzweig & Nohria,1994). Therefore, institutional theory leads us to predict that, when there is a high degree of difference between mandated regulations and laws between the home and host countries and a high amount of dependency and interaction with the host market, an organisation will pursue a localized approach. Conversely, a globalize approach is predicted when there is a high degree of resource sharing and a low degree of autonomy (Lloyd & Hartel, 2004). SIHRM OrientationsThe MNCs SIHRM orientation determines its overall approach to managing the tension between integration and the resultant pressure for internal consistency and differentiation and the pressure for external consistency (Taylor, et al., 1996).Exogenous and endogenous factors influence the design of the SIHRM system of the firm. The exogenous factors include country characteristics, industry characteristics. The endogenous factors include the structure of international operations, HQs international orientation, experience in managing international operations and competitive strategy(Taylor, et al., 1996).According to Taylor, et al.(1996), there are three generic SIHRM orientations in MNCs: adaptive, exportive and integrative. In an adaptive SIHRM orientation, top management of the MNC attempts to create HRM systems for affiliates that reflect the local environment. This approach is consistent with a polycentric approach to MNC management as defined by Perlmutter(Perlmutter & Heenan, 1979).In an exportive SIHRM orientation, top management of the MNC attempts to transfer all of the parent firms HRM system to its subsidiaries, replicating in its overseas affiliates the HRM policies and practices used by the MNC in its home country. It is consistent with an ethnocentric approach to MNC management.In an integrative SIHRM orientation, MNCs attempt to take the best approaches and use them throughout the organisation in the creation of a worldwide system. The focus of this orientation is on substantial global integration with an allowance for some local differentiation. It is consistent with geocentric approach to MNC management.Convergence and DivergenceThe globalisation leads to the debate about convergence and divergence in the study of international management. The convergence view argues that managers around the world embrace attitudes and behaviours common to managers in other countries although there are cultural differences. Globalisation, contextual contingencies and business environment are regarded as cosmopolitan forces which lead to more homogeneity among organisations(Ralston et al.,1997). The divergence view argues that the world is maintaining cultural dissimilarities. Therefore, management needs to consider cultural differences in decision making (Fisher & Hartel, 2004).However, McGaughey and De Cieri(1999) argue that neither completely convergent or completely divergent. They proposed that organisations may respond in one of the four different modes of convergence-divergence dynamics depending on the degree of influence of certain variables, namely integration, assimilation, separation and novelty. In integration, some core characteristics are remained and some alternative practices are adopted. Assimilation occurs when an organisation uses the alternative norms by losing at least some part of the core cultural characteristics. Separation refers to a situation where each group deliberately avoids integration or assimilation and preserves its core characteristics. The failure to use Management By Objective in Chinese cultures is an example of separation(McEvoy and Cascio, 1990). Novelty occurs where neither core characteristics nor alternatives are maintained and a novel form of practice is created. For example, the HRM practices of Japanese companies have the following characteristics: lifetime employment, periodic recruitment and selection, consensus decision-making and company-wide welfare system, which are categorized as high-cost practices; job rotation, internal training, internal seniority promotion, small group activities and cross-functional job assignment, which are categorized as low-cost practices. Japanese companies only transfer the low-cost practices to their overseas subsidiaries and they adopt local HRM practices such as external recruitment and selection at the same time in China (Wong &Hendry,1997). This is an example of integration mode because Japanese companies try to use integration mode to have centralized control of HRM strategy and responsiveness to local circumstances.Furthermore, according to Martin & Beaumont (1999), ethnocentric transfer of US parent companys best practices rarely worked effectively because these practices failed to reflect the cultural and institutional circumstances of the Scottish subsidiary. For example, the Scottish HR team felt that headquarters preferred management style of managing without unions was inconsistent with their aims of securing employees commitment and in improving performance in the subsidiary. The convergence-divergence debate in employment relations is very important for MNCs. The convergence views argue that although different nations have distinct national models of industrial relations. With the time going, the logic of industrialization will force convergence. There will be more universal patterns of workplace practices (Kerr, et al., 1964). The development and spread of Japanese and American HR practices all over the world show such diffusion of HRM practices within and across countries.However, government policies, regulatory constraints can make MNCs companies adapt to local subsidiaries characteristics. For example, American MNCs are anti-union whereas Japanese ones are willing to work with unions. Therefore, MNCs should adapt their home-country practices in their dealings with trade unions in host countries (Sharma, 2001). Employment RelationEmployment practices are embedded in distinctive national contexts. There are many aspects of a national business system which limit the scope a MNC has to transfer practices. They include the system of employment law, the nature of key labour market institutions (i.e. unions and work councils) and cultural barriers.For example, Broads 1994 study of a Japanese transplant in the UK, found that the parent companys insistence that the subsidiary operate the system called High Involvement Management conflicted with the expectations of British managers who were not used to devolving duty for operating decisions to shop-floor employees. This demonstrates the way in which the institutional and cultural characteristics of national business system constrain the transfer of employment relationship (Harzing & Ruysseveldt, 2004).International Recruitment and SelectionMNCs can choose four types of staffing policies: ethnocentric, polycentric, geocentric and region-centric (Dowling et al. 1999). An ethnocentric approach results in all key positions at headquarters and subsidiaries in a MNC being filled by parent country nationals. The polycentric approach is one where host country nationals are recruited to manage subsidiaries in their own country and parent country nationals occupy key positions in headquarters. In a geocentric approach the best people are found for key jobs throughout the firm, regardless of nationality. In the regional approach, host country managers may be transferred between the countries of a region to regional headquarters but there is limited mobility of managers outside the region(Storey, 2001).Those managers who can adapt to the dual forces of pull and push, link global management policies to the specific environments, be sensitive to local culture and practices and be willing to be flexible while keeping professional standards may be most likely to succeed in international market(Farley, et al.,2004).For example, according to Whitley(1999) in the same MNC, British management has fewer scruples about making workers redundant, because separation between management and workers is quite high compared to their German counterparts. This shows that there is divergence between different countries management. In addition, private employment agencies are widely used in China, but it is prohibited in Germany and Spain.International Training and DevelopmentThe development of the global firms requires senior managers who are not only internationally mobile but who in their minds can also travel across boundaries by understanding the international implications of their work(Barham & Antal,1994). Including a mix of nationalities as