List of Figures
Figure 1 Main influencers that affect international HRM
Figure 2 Illustration of HR practice transfer under the ethnocentric strategy
Figure 3 Illustration of HR practices adapted in subsidiaries towards local culture under the polycentric strategy
Figure 4 Illustration of universal HR practices under a global strategy
List of abbreviations
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In their work Briscoe, Schuler, and Claus (2009) point out the challenges that globalisation poses on human resource (HR) practices of Multinational enterprises (MNEs). These include the requirement of a global mindset throughout HR functions such as attracting, engaging, and retaining employees for all countries. Although a MNE operates global it still has to consider and adapt to local conditions and moreover HR managers have to work on their competencies in order to adequately respond to the circumstances.
The above summarized statement of Briscoe, Schuler, and Claus (2009) is valid for several reasons which will be explored in the following essay.
The interconnection of countries and their companies worldwide has significantly influenced HR practices over the past decades and will continue to do so. This phenomenon is commonly known as globalisation. The actual 'beginning of globalisation is hard to determine and definitions of its start reach as far as 3,000 years back, whereas others state the emergence of state communities after the fourteenth century in Europe as the beginning (Adekola and Sergi, 2007, p. 1).
According to Adekola and Sergi (2007, p. 44) globalisation is a trend just like leaner organisations or product and service alliances which all have a strong impact on MNEs and in order to remain competitive they have to adapt to these growing trends. Contrastingly, the OECD (2010, p. 9) identifies MNEs as the "most important driver of globalisation, as they embody simultaneously the international transfer of capital, highly skilled labour, technology, and final and intermediate products". It is difficult to identify the correct causal connection whether MNEs triggered globalisation or if globalisation is merely a phenomenon that MNEs have to adapt to. However, it is certain that the pace of globalisation has increased over the past decades and the term and the implications it has are more present than ever before and human resource managers (HRM) have to consider them. (Mendenhall, 2006)
"HRM policies and practices are becoming crucial because they can act as mechanisms for co-ordination and control of international operations." (Bartlett and Ghosal, 1991 cited in Myloni, Harzing, and Mirza, 2002, p.4)
Generally, there are is a distinction of three stages in which companies operate internationally. Simply using foreign countries as sales markets is the first stage, on the second stage companies shift a part of their production to foreign countries and in the last truly global stage firms have corporate offices in different countries and they all interact with each other. An example of a global company that went through these three stages is Nike that started off with just exporting their goods from the US, then they started producing in other countries and now they have administrative offices in Austria, Canada, Hong Kong, the Netherlands, and the US. The results of this global expansion were cost benefits, a global reputation, and increased market share. (Adekola and Sergi, 2007, p.34)
The OECD (2010, p.8) identifies two main paths for "economic integration across borders", international trade and foreign direct investment. The dimension of globalisation is more complex than ever with international production networks, technology, and increased human mobility being the key drivers. Even before the global stage it is common for companies to produce in foreign countries but beyond that it is increasingly common that developing countries serve as locations for research and development (R&D) activities. (OECD, 2010, p.9).
Standardisation of HRM practices across all offices and factories of a MNE seems to be a good idea at first because many functions can be executed from one single control point which is efficient in primary HR cost reduction; however, a MNE that fails to factor in local differences is likely to not be successful (Bradley, Hendry, and Perkins, 1999, pp.120).
"One of the essential questions facing a multinational enterprise (MNE) overseas is the extent to which the management of human resources is, and in fact should be, adapted to local conditions." (Lindholm, Tahcanainen, and Björkman, 1999, pp.143)
A company has to consider some of their HRM dimensions when opening a subsidiary in a foreign country and check whether they need to be adapted. As identified by Noe, Hollenbeck, Gerhart, and Wright (2000, p.536) HRM is influenced by four main factors, the culture, the economic and political system, and by the human capital. Economic System
A closer look on what influences HRM practices reveals the strong impact of culture on how and which practices from the company of origin are transferred to a subsidiary in a foreign country. HRM functions that are affected by a country's culture include the communication with the work force, the hierarchy, reward system as well as non-wage benefits, work patterns, training, and employee representation. (Gamble, 2010, p.377)
StoreCo is a UK multinational retailer that offers 'Do it yourself' (DIY) goods. When this MNE opened up a subsidiary in China, it had to take into account the different culture, human capital, and economic and political systems. The subsidiary in China was called DecoStore and when it opened a store in 1999 it was the first major British retailer on the mainland of China. The local chief executive was a Chinese business man who had lived and worked in the USA and received further training in the UK for this position. The UK headquarter had full operational control on how the store is run and the major part of how the store was operated was a copy of the UK mother of which most approaches were very different from those in the in China common state-owned enterprises (SEOs). For example flat hierarchies that are expressed by the use of first names and the same uniform for everyone were implemented in DecoStore although this was completely uncommon in the Chinese SEOs. A working environment with a flat hierarchy was new to the employees and the transfer was difficult but the result was that employees were very satisfied with their work environment and their relationship towards the managers. Another example of how UK practices were adapted in the Chinese subsidiary is the provision of off-the job training which was not present in Chinese SEOs. StoreCo correctly understood the differences in human capital in China in comparison to the UK and actually off- the job training for Chinese employees was provided even more than for the British counterparts. Whereas in the UK most employees already have skills in this area and product knowledge, in China DIY is a new phenomenon and the required expertise cannot simply be acquired on the existing labour market but has to be created through the provision of training. Another benefit the company has through providing education is that this increases its attractiveness on the labour market which in turn makes it possible to recruit from a larger source of people with higher education. However, some stronger changes in the HR practices were made to adapt to the local culture of China like the granting of meal benefits. At first meals, just like in the UK stores, were not a part of the reward system and it was only altered after long debates and StoreCo's realisation that this was the main source of their employees' dissatisfaction. The reason for this is that meals play an important part in the daily routine of Chinese and the UK headquarter did not consider this cultural difference at first. (Gamble, 2010)
The HR managers of a company's headquarter have to develop strategies on how to lead the globally distributed offices, stores, and production facilities. There are three basic options MNEs have to chose from when choosing a HRM strategy for their subsidiaries; the ethnocentric, polycentric or global strategy (Tayeb, 1998)
Under an ethnocentric orientation the HR practices of the headquarter are used for all international subsidiaries. Decisions are made by headquarters and only then brought to the subsidiaries through expatriates from the country of origin. A polycentric approach on the other hand means that the HR practices are adjusted to the respective culture of the host country and that key positions are held by local professionals. Under the global strategy the HR functions are globally equal and practices are developed and implemented for all subsidiaries. The management is not bound and operates across borders without being much influenced by local cultures. (Jackson, 2002, p.46; Cornelius, 2001, pp.369)
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Figure 2 Illustration of HR practice transfer under the ethnocentric strategy (source: author)
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- culture economic system political system human capital global headquater foreign subsidiary local polycentric ethnocentric