The urge to reduce cost and fierce competition in business have driven companies to find best solutions to increase revenue while keeping costs as low as possible. Expanding into foreign market could be a sweet temptation for companies in order to increase revenues and market share. We call such companies that operate worldwide as Multinational Companies (MNCs) or Multinational Enterprises (MNEs) while we refer the expansion process as Globalization. Nowadays, globalization is almost a common issue within the business world because of the undeniable benefits and necessity of going abroad.
Currently, we witness there are so many large and small and medium enterprises (SMEs) have broaden their presences into foreign markets. However, the processes of expanding businesses abroad should not be viewed as ordinary activities since they requires massive and demanding changes in order to survive the intense competition and other complicated aspects. To deal with such changes, companies require staffs or employees having distinct qualities such as people who can endure the process and help the company to build their new ‘structure’ within foreign markets.
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For the very least, this team of pioneers must consist of people with interests in international matters, multilingual language capabilities, and knowledge on managing cultural diversity in workplace (Delaney, 2002). In short, we will find that the difference between general HRM and International HRM lies on the ability of multinational companies to deal with cultural diversity, gender issues, and diverse needs of local markets. In order to obtain benefits of being a multinational company, therefore, the company should employ appropriate approaches into International Human Resources Management (IHRM).
For this reason, in this paper, we will elaborate several issues on IHRM II.
Strategy of International Human Resource Strategy (IHRM)
In a lecture material, International HRM is generally about how multinational companies or enterprises manage their geographically dispersed workforces. By meaning, Taylor (1996) defines IHRM as a range of people management functions, processes and activities which involve consideration of more than one national context.
Since IHRM deals with issues in more than one national context, therefore, we might see that multinational companies face several challenges in order to meet local responsiveness in which those challenges become contemporary issues in IHRM: ? International presences mean that multinational companies need to address the variations in customer demands ? Winning local market is characterized by local competition rather than multinational competition ? In some places, there is a strict political barriers that may prevent multinational companies to do specific action?
Local Legislation may force multinational companies to provide products or services prevent full standardization of product - leading to more tailored approaches. Concerning the needs to cope with above challenges, International HRM increasingly promotes and develops cross-cultural competence. This is imperative since enhancing competence for international workers have two complex dimensions: Dispersed geographic locations means that multinational companies should coordinate operations to be effective.
The presence of multiculturalism implies that multinational companies should foster coordination to be effective. In order to foster good communication between headquarters and local offices, usually, headquarters appoint expatriates on short & long-term assignments in foreign offices for a variety of purposes including to acquire & transfer knowledge, to develop and manage subsidiaries, to maintain communication from headquarters, and to strengthen the development of global competencies.
In order to succeed in overseas, in lecture material, we find that the key success of expatriates is their ability to conduct cross-cultural adjustment to a host country, understanding laws, language, gender issues, and customs & practices. In this manner, Sparrow and Hiltrop (1994) list some ccompetencies of intercultural issue for expatriates that are important to be effective international managers:
- Ability to conduct effective communication and interpersonal skills
- Cross-cultural awareness and sensitivity (debating rules, negotiation, non-verbal communication, humour, awareness of own culture).
- Ability to work in diverse teams
- Understanding linguistic richness
Above competencies as listed by Sparrow and Hiltrop (1994) emphasize the idea that cultural issues become significant elements in IHRM since MNCs involve the interaction and movement of people across national borders.
Under such circumstances, the appreciation of cultural diversity and understanding on the importance of this diversity is essential. This is due to the new environment, which a MNC faces in foreign market, requires many behavioural adjustments in a relatively short period of time.
Or else, people will experience a cultural shock when dealing with cultural diversity. III. Case of IHRM III. 1 Case of HRM in China Instead of taking in effect any regulation that addresses their relation to business strategies, in China, they are still developing the rules and regulations for human relations and recruiting and labour. On January 1, 1995, the Chinese came up with a new labour law that outlined some of the human resources policies in China, but is vague in many areas.
According to Ames Gross, for every ten jobs in China, there is only one qualified person (Gross, 1996). Culture also becomes an obstacle from foreign companies in entering China. This is because multinational companies in China are finding it hard to attract and keep talented managers. “According to a survey released in October by management-consulting firm Hewitt Associates, 43% of senior managers and leaders in China voluntarily leave their organizations each year, compared with just 5% in Singapore and 11% in Australia” (Wozniak 2004).
Edward Turner, managing partner of Shearman & Sterling, a law firm in Hong Kong, says that the fact underlying the huge turnover is that many Chinese companies are overpopulated with managers and under managed. Moreover, Wozniak also reveals, “companies seeking to draw from a larger pool of experienced managers by recruiting, for instance, in other Chinese-speaking locales such as Hong Kong and Taiwan may lead into problems. According to Hewitt officials, 66% of senior managers hired from outside the company and outside China either quit or are replaced within their first 18 months on the job” (2004).
The reason is that managers from Hong Kong and Taiwan often are poorly accepted in mainland companies because of language, cultural and political differences. Moreover, according to a study in examining what motivates people to stay conducted by Grey Global Group, an advertising company that employs more than 350 people in China, turns out that compensation came fourth on the list of factors motivating staff to stay with the company. The factors that do retain the staffs are acknowledgment of a job well done, training and feeling part of a bigger thing (Wozniak 2004).
Eric Rosenkranz, Gray’s president for Asia Pacific, says managers are facing the turnover in fast-growing China and staff retention has always been a problem, which is natural. In such an explosively growing economy, where demand far outstrips supply, the best people will always be recruited. The main drawback of Chinese is most of the local are not usually familiar with Western business practices and normally do not speak English. Therefore, it can be tricky trying to recruit them as employees for a Western firm. In the past, Gross says, “When Chinese people finished school they were assigned to a certain factory for work” (1996).
Moreover, those state-nm businesses did not keep adequate records of their employees’ backgrounds and accomplishments. Consequently, it is often difficult for Western recruiters to evaluate the backgrounds of locals – unless they have already worked for foreign companies. The biggest opportunities for recruiters in China today are the returnees. There are many potential returnees located in Europe, the U. S. and Australia, people who want to return home in order to build their countries for nationalistic reasons since the mainland experiences business booming.
Gross and Dyson reveals, “employment structure has undergone a vast change since China opened to outside investment and development in the early 1980s. At that time, a potential employee had little or no choice as to job assignments. Entering into an employment arrangement meant that the employer would supply housing, children’s education, health-care and even food” (1997). Moreover, during the period, the state has forced every single university graduates to accept positions that the state selected for them according to the needs of the state, not the employees.
Since then, as the country is more opened to foreign companies, the graduates can seek their jobs that suit their needs. However, there is still a big deal difference in terms of salaries between local and foreign employees. Gross (1996) reveals, “Salaries for local people in the major cities – Beijing, Shanghai, are normally somewhere between US$3,000 and $7,000 per year. Expatriates from Europe and the U. S. can earn $75,000 to $100,000 or more, while Taiwanese and Hong Kong ex-pats earn somewhere around $65,000 to $90,000.
Moreover, gross says that expatriates also get other benefits such as expensive housing, education, and hardship benefits while locals receive insurance and housing allowances, and returnees require packages somewhere in between the locals and the ex-pats. The reason is that most foreign companies assess that local employees lack of basic skill for working in global mindset, the English language so that foreign companies are paying local employees much lower than their expatriates counterpart and the returnees.
Case of HRM in UK
Women’s involvement in the labour market is steadily increasing. There is also a growing convergence between the participation of women and men in paid work. The most significant difference between the sexes is the pronounced pattern of gender segregation in different industrial groupings and occupations. If in the past decades, we seldom find women head large corporations, at present, we might see that many of them are being the CEOs of large companies such as HP’s Carly Fiorina.
In the UK and other countries, it is common that the labour market continues to include strongly gender-segregated industries. Some are heavily male-dominated such as engineering whilst others are mainly female-dominated such as hairdressing. Another differentiation is on the number of working hours. This is true since men are overwhelmingly concentrated in full-time work, while large numbers of women work part-time and this is closely associated with their responsibilities for children and other dependants.
Under these circumstances, women remain disadvantaged compared to men. The notion points out the definition of occupational segregation, which means women are concentrated in lower skilled and lower paid jobs with less access to vocational training and education. Female employment in the UK is now at the highest rate ever, “… with women comprising 45 per cent of the workforce and just below 70 per cent of women in employment” (Kirton and Greene, 2000). The largest employment rate increase in the last decade has been among women with below five-year-old children.
In order to minimize the negative impact of diversity, the British legal and regulative framework for diversity and equality is set out in several Acts. It means that UK organizations can be held legally liable for cases of discrimination on grounds of gender, race, and disability. 1. Sex Discrimination Act (SDA) (1975) that covers discrimination on grounds of gender, marital status and gender reassignment 2. Race Relations Act (RRA) (1976) that deals with discrimination on grounds of color, race, nationality, or ethnic or national origins 3.
Disability Discrimination Act (DDA) (1995) that cope with the issue on discrimination against people with disabilities. Disability is defined as a physical or mental impairment, which has a long-term adverse effect on the person’s ability to carry out normal day-to-day activities IV. Cultural Diversity IV. 1 Importance of Dealing with Cultural Diversity Concerning the cultural diversity, we find that many companies that have been doing business internationally for decades suddenly fail. We might raise a simple question regarding to it, “How come?
” In contrast, there are also companies that relatively do not have extensive experience in operating in foreign countries becoming successful multinational corporations. There are several practices concerning managing cultural diversity. One of example is a MNC that decides to expand into foreign countries by sending an expatriate general manager under the auspices of local HR department manager since the local person is familiar with the host country’s HR practices. Although this practice seems attractive, however, in the end, it might cause serious problems.
A case on an Australian mining company operating Indonesia is a good example explaining this issue. Dowling, Welch & De Cieri (1989) explain that the local manager conduct common practices in Indonesian HRM by hiring his relatives rather than applicants with the required technical competence. On the other hand, the Australian’s General Manager considers this as nepotism, a negative practice in Australia according to his own value system but it turns out to be on opposite in Indonesian.
The above case shows the importance of managing cultural diversity for MNC aims at expanding into other countries. Therefore, the situation suggests that there is not single panacea when dealing with IHRM strategy. Majlergaard says that it is important for MNCs to identify quick- wins IHRM strategy and ensure that the MNCS review their HRM policies and practices regularly in order to find out whether they are up to date with market requirement or need changing or adjusting. Change in IHRM policy and practice and Its Influence on International Organisations.
Previous section emphasizes on the importance of managing diversity in IHRM. There is good example shown by several multinational companies when dealing with changes in IHRM policy and practices. The United Nations Conference on Trade and Development (UNCTAD) in its annual survey of foreign direct investment uses “index of transnationality”, which is an average of ratios of foreign assets to total assets; foreign sales to total sales; and foreign employment to total employment, as tools to measure the effectiveness of IHRM policy for MNCs.
Out of the ten companies, we do not find any U. S. firm like Coca-Cola and McDonald’s. Both are ranked 31st and 42nd, respectively. The reason is the two companies still have larger size of domestic market, in the U. S. Therefore, we can summarize that the key to successful IHRM policy and practices is to build as many as branches in foreign market so that any MNCs can obtain important lessons in managing cultural diversity. More importantly, we can see that for companies that have a very large domestic market, like U.
S. companies, will likely to face difficulty in managing cultural diversity since local HRM’s policy will influence all aspects of how the company organizes its activities when expanding into foreign markets. IHRM policy and practice As a company grows from a scratch in a paper into a worldwide-operated company, they soon find that managing people become tough challenges since they should find appropriate method of bringing all elements of the company, the human resources, into one that the company envision.
Therefore, in order to obtain a success in managing human resources in MNCs, the company should come with appropriate human resource strategy since knowledge workers in a MNC need updated information on continual basis. Dean and Mary Tjosvold (1995) in their book titled Psychology for Leaders: Using Motivation, Conflict, and Power to Manage More Effectively point out that “Top management sets policies; managers make decisions and solve problems; and employees do their assigned tasks”. Based on the above statements, it is obvious that top managements are responsible to create a healthy working environment.
It means that a company needs spirit of corporate entrepreneurship in order to improve the company’s performance. According to Watson (1998), human resource strategy is the general direction or objective that a company follows in order to help the company continues growing in the long term. V. Finding the Right HR Policies The first is integration of HRM in two senses: integrating HRM into an organization's corporate strategy, and ensuring an HRM view in the decisions and actions of line managers.
In this manner, AMS should involve selecting the HRM options consistent with (and which promote) the particular corporate strategy. The option is determined by the type of employee behaviour expected (e. g. innovation) needed to further support the corporate strategy. For instance, MNCs should determine the HRM policies in relation to recruitment, appraisal, compensation, training, etc. differ according to whether the business strategy is one of innovation, quality enhancement or cost reduction.
This is imperative for MNCs since the companies typically deal with thousands or hundreds of thousands employees in many countries, each with distinctive HRM policies and practices. This situation suggests that MNCs should create a system that match both the company and individual needs through appropriate recruitment and selection or reward and punishment strategy, for instances. VI. Conclusion Companies as they grow are expanding into foreign market in order to increase market shares, hence increase revenues.
Those companies that share such characteristics are called Multinational Companies (MNCs) or Multinational Enterprises (MNEs). However, expanding into foreign market is not merely the matter of appropriate marketing and sales strategy. It also suggests that those companies need the right international human resource management (IHRM) as well. In this paper, we have shown while IHRM is basically similar to general HRM, however, IHRM put emphasis on cultural and gender issues since from one country to another, both issues have different treatment.
Cultural issues become a significant element in IHRM since MNCs involve the interaction and movement of people across national borders. There are many companies that have been doing business internationally for decades suddenly fail while there are also companies that relatively do not have extensive experience in operating in foreign countries becoming successful multinational corporations. The key is not the marketing or sales performance but the right strategy in their IHRM. We also have provided attractive findings that out of top ten most foreign-oriented multinational, there are no U. S. originated companies in the lists. We can conclude form the findings that the key to successful IHRM policy and practices is to build as many as branches in foreign market so that any MNCs can obtain important lessons in managing cultural diversity. More importantly, we can see that for companies that have a very large domestic market, like U. S. companies, will likely to face difficulty in managing cultural diversity since local HRM’s policy will influence all aspects of how the company organizes its activities when expanding into foreign markets.
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