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Multinational Companies MNC

1 Introduction

Over the past couple of years Multinational Companies (MNC) had to face a number of new challenges in their daily business. Globalization changed numerous things for global players. Normally the structure of a typical MNC shows a focus on their main resources and departments like finance, technology, marketing, sales and production. This is because they want to have a large number of customers and also want to make a good profit.

But if they neglect these new challenges coming up with the globalization they might not be successful anymore (Mendenhall et al., 2003). A big challenge MNC’s have to manage is their workforce diversity (Stern, S. 2008). Diversity means any sort of difference between two or more people.

These differences might exist in terms of age, gender, race, education, social status and other terms. To manage this diversity MNC’s have to implement strategies that knit all employees together into a dynamic workforce (Miller, Dollar, 1950).

Because of this enormous diversity one of the key success factors of MNC’s is the recruitment and selection of labor who offer valuable individuality. These individuals are forming the values and beliefs of an organization (Mullins, 2007).

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The management of this diversity is a challenge of the human resource management. In this paper I will focus on how MNC’s can improve their HRM and make their company staying successful in terms of managing diversity. It is hard to become a major player in the global market without an effective HRM.

There are two major challenges within global HRM namely building global corporate cultures and developing global leaders that have to be mastered in order to manage diversity and be successful in the global business environment (Mendenhall et al., 2003).

2 Enhancing global business strategy

Today more and more companies expand their activity internationally or are already an existent global participant. This requires new strategies. The HRM can contribute a lot to the success of an enterprise, if it adopts a truly globalize strategy in alignment with the corporate strategy (Mellahi et al, 2003).

2.1 Tasks of an international HRM

The human resource management has to establish processes and policies which enable people to learn new skills required to compete successfully in a global business environment. A truly international HRM also involves the ability to move people easily from country to country. As companies become more global, they need talented managers with global experience.

These people also need assistance in building international task forces and teams. Managing the administrative details associated with international assignments beyond the recruiting process is a complex issue. Therefore a good knowledge of the cultural differences and possible barriers is necessary (Holbeche, 2004).

Human resource management needs to develop the policies, the processes and administrative agendas which have to become standardized and implemented in all locations. Though practices may differ between countries, a company needs some common standards across its subsidiaries that are strategically aligned with the organization's mission, for example a worldwide standard for senior management in evaluation, compensation and development. With this HR the organization can create social capital in locally adaptive ways and serve as a buffer between globalization and localization of strategic practices (Gomez et al., 2005).

A company that is in the lead in implementing and creating a global HRM and is capable of all these tasks can develop a strategic resource, which is hard and expensive to imitate quickly.

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2.2 The mission of international HRM

When a company decides to go global, it does so to create unique competitive advantages, that is not possible in the domestic market. Therefore it has to adapt its strategy to define the new goals and the measures to meet them. Business strategies, which organizations adopt to maintain competitiveness, should be developed in conjunction with their human resource departments (Lengnick-Hall et. al 1988; Schuler et. al, 1984; Tichy et. al 1982). It is quite clear that the change from local to global has an impact on the techniques used in human resources management.

By implementing HR issues in the mission, this will help enhancing the global business strategy. The mission can be defined as the reason why organizations exist. The purpose of an organization is the heart of the mission, but it is also made up by organizational beliefs, values and business definition (De Wit et al. 2004).

To be strategic, human resource practices are expected to maximize employees' effectiveness in accordance with their organizations' missions, objectives and goals (Lengnick-Hall et al. 1988; Schuler et al. 1984; Tichy et al. 1982).

When the mission is consistent and compelling to the employees, it can be a source of motivation and create an emotional bond between the members of the organization, which again can result in better performance tied up to the mission (De Wit et al. 2004).

In a global organization, it is harder to create a mission that ties together people from many different parts of the world, and it is therefore crucial in creating a global mission, to consult and integrate HR issues into it.

There are very different ways in businesses around the world in handling HRM, and therefore in trying to decrease the differences between domestic and international HR, it can help make the subsidiaries to work towards the same goals. The mission outlines the fundamental principles guiding strategic choices, and if it has guidelines on how to handle different HR issues, the different subsidiaries will use a somewhat similar HR management.

To be able to integrate HR with global strategy development and implementation, senior members and top management of the organization need to promote HR issues, and try to address them in the development and implementation stage (Mendenhall et al. 2003).

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Employee behavior is perhaps the most critical challenge that multinational organizations have to deal with (Bartlett & Ghoshal, 1990). In Multinational Companies there is a huge potential of conflicts, because of its diverse personalities. As a consequence of this tensions will arise among employees.

Although these tensions are inherent to MNC and also desirable (Kilmann, 1985), they require increased levels of collaboration. An organization must therefore enable their employees to accept the tension and behave as one company.

Nevertheless, in many large and multinational companies, employees tend to be silo-focused. They view their membership and loyalty as belonging to a certain subunit in the organization. Consequently they behave in a manner that benefits their subunit but could be detrimental to the organization as a whole. This kind of thinking of course leads to a higher effort of coordinating and collaborating employees to have a successful organization (Joyce, 1986).

Many problems can arise out of the silo-focused way of thinking. Collaboration between units is hindered by personal conflicts between unit leaders, resources might be withholded from each other and insufficient communication between different units leads to a lack of trust in the whole organization. According to Sy & D’Annunzio (2005), there are two major reasons for silo-focused behaviors.

First, most employees reside in the same function (and often the same unit within the function), throughout their careers. They always work with the same people and probably never had the chance to work with other elements of the organization. Second, MNCs with complex structures require a higher degree of collaboration, compared to small companies with simple line structures. Mostly, employees have not developed the necessary social skills for this high degree of collaboration.

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Often, the “command and control” thinking in traditional hierarchical organizations is simply turned over in complex MNC’s, where it is predestined to fail. Therefore, possible measures to mitigate silo-focused behavior are providing trainings for social skills, defining clear expectations for behavior in the organization, working across functions to learn about different points of view and most importantly building relationships between employees of different units (Sy & D'Annunzio, 2005).

As a multinational company works in a global market it must be prepared to detect all possible changes in the global environment and it has to be able to communicate and adapt the identity of the company to them (Ali & Camp, 1996).

4.1 Cultural diversity

Nowadays cultural diversity plays an important role in a company. The criteria discriminating these groups include race, geographic origin, ethnicity, gender, age, functional or educational background, physical and cognitive capability, language, lifestyles, beliefs, cultural background, economic category, tenure with the organization and sexual preference (Seyman, 2006).

The company can’t offer quality products or services to the customers if it doesn’t understand and take in account the impact that the culture has in all the processes (Maddock, Lois Viton, 2008). Workers usually think that their behavior hasn’t got any influence on the final product or service, but to be effective, every part must have a clear vision of the company and a clear mission on it.

The social, political and enterprise structure depends on everyone in the company, so the internal area and the human resources, one of the most important areas of a company, must be developed with the rest of the company to achieve their goals (Seyman, 2006).

The misunderstanding and ignoring of different cultures, language and historical background lead to disasters in the field of setting up multinational business. To avoid this, a general knowledge of another nation’s culture and history is essential. So general cultural knowledge, if coupled with prejudice and prejudgment, is an obstacle to effective global management (Ali & Camp, 1996).

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4.2 Communication and language barriers

One important challenge beneath culture is language barriers. Communication is essential for management. Yet communication relies upon a shared language, a pre-requisite that does not exist in many international business situations and that is when the problems start. The most pronounced manifestation of the language barrier at work can be found in the relationship between a multinational parent company and its network of international subsidiaries.

Several factors contribute to the difficulty of achieving and sustaining effective communications and a productive, collaborative relationship. Even if an employee is relatively competent in the language of the other party, loss of rhetorical skills is always present as the use of humor, symbolism, sensitivity, negotiation, persuasion and motivation requires a very high level of fluency (Harzing & Feely, 2008).

5 Managing diversity in MNC’s through HRM

To manage workforce diversity in MNC’s it’s a challenge for the human resource management to establish a global corporate culture. To identify with the corporate culture of the company is the most important thing for the staff. That is why building a global corporate culture is one of the most important challenges for Multinational Companies.

But also the management in MNC’s has been changing. There is a need for global leaders. The formation of such global leaders is also a part of the human resource management.

5.1 Need for global corporate culture

The situation within global enterprises has been changing for many years. According to the cheap labor in eastern world and other factors, there has never been such a need for understanding the different cultures in multinational companies (Crocket, 2003).

Cultural empathy, integrity, and comfortability in dealing with people from various cultures, along with effective performance, highlight the necessity to think and act in relevant cultural terms. This does not mean that today’s managers must know in detail the cultural and historical backgrounds of other nations. Rather, it means that global managers need to think and act with an open mind and in socially responsive ways to events at home and abroad (Ali & Camp, 1996)

To be able to work efficiently in the global market and industry it is very important to build a corporate business culture. A corporate culture can be explained by convening several different cultures represented by numerous different workers, working in a Multinational enterprise (Mendenhall, et. al., 2003). As the word Multinational enterprise already expresses that the company is acting global, it is common that numerous different people with different cultures are working for this company (Stern, 2008).

Furthermore every culture has its own methods, values, beliefs, habits, language and so on. Organizations acting global can never work without interference of the leader board to create a global corporate culture. That is why a Multinational company has to offer corporate values, beliefs, methods, habits and working processes all set in the global corporate culture.

Of course it is necessary to respect local cultures because if an organization does not respect the local cultures, workers will not be satisfied and can never identify with the company they are working for (Mendenhall, et. al., 2003).

In former times there was the so called colonialism style of leading people. Colonialism can be understood as the control of overseas colonies by imperial powers. A foreign power rules a large group of people and the foreign power uses the colony for wealth and has more advanced technology than the people of the colonies (Glossary, 2005). In other words the headquarters and the top management delegated the work to their staff and controlled the output. This is not possible anymore.

They have to create clear global corporate values. These corporate values assist to improve workforce and working processes as the staff all over the world can identify with the vision and values, the corporate culture, of the headquarters and all other subsidiaries (Reggie, Fabish, McGaw, 2005).

The global corporate culture should assist to create a standardized culture with respecting local cultures so that the Multinational Company has a unique and corporate appearance to the outside. This global corporate culture should be written down with all its values, certain behaviors towards customers, suppliers, stake- and shareholders, its working processes, communication methods and team forming habits (Lotti, Mensing, Valenti, 2006).

A very interesting article states that there has to be paid much attention with forming cooperation concerning the global corporate culture. It says that the company cannot be global until its board of directors does not reflect the countries and regions in which it operates. The board of directors has to focus on regarding and respecting all cultures convened in one company. All these different criteria of all convened cultures have to be adapted to fit in the company’s global corporate culture (Nair & Chandran, 2006).

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Accenture made a survey within 900 C-suite executives in the U. S., the UK, France, Germany, Italy, Spain, Japan, Canada and China. These executives were asked to identify the greatest challenges with building global companies. Another thing Accenture wanted to know from these executives, was if there is a receipt how a Multinational company can succeed in the increasingly global market.

The result to this question was that they found out that their chief concern is the ability to maintain a common corporate culture around the world. It means that half of the respondent executives believe that their companies are ready to succeed in this increasingly global market. It became very important that Multinational companies maintain their core values and their corporate identity across many cultures.

Another thing getting very important is that the industry becomes knowledge based. Important as well is to understand local customs and ways of doing business in certain countries. A Multinational company needs the ability to service clients and customers effectively. Therefore they have to learn numerous things about how to deal with foreign countries and their cultures before they start to set up a global corporate culture in their company (Foster Mark, n. d.).

5.2 Developing global leaders

The implication of managers has changed during the time. In a constantly changing world it is important to develop global leaders. Nowadays business works on a bigger field, within more different cultures than years ago. The more companies pursue global strategies, the more global leaders they need. How to find and train future global leaders has become a task for the human rescores management in global companies (Allen, 2000).

5.3 Why global leaders?

It is important for the whole company that the leaders and the team of executives have the right skills and take the right decisions. The leaders should have global experience. If they do not have international experience they risk handling their work tasks incorrect. They will also have problems to communicate with their new employees from other cultures. Global leaders have to read their market right. This means that it is impossible to sell the same thing, the same way in different countries.

There are different requirements that have to be profiled. So human resource management has to be adjusted to the countries they are working in. Leadership models have to differ because the importance of variables as relationships, short-term profits, hierarchies, ethics, and risk are different from culture to culture (Hofstede, 1994).

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The book Cultural Dimensions of International Mergers and Acquisitions shows that leaders build structure and control mechanisms based on their personal experiences and their national culture. Because they have such a big influence on the company’s strategy it is important that companies have good educated global leaders.

Otherwise they might not be acclimatized to the global environment. The way to control a firm in France might not be the same way to control it in China. This example points out very clear that the way of leadership has to be adapted to local markets (Cardel et. al, 1998).

5.4 How to form a global leader?

Some requirements for global leaders are that they have to be flexible, open and ethnocentric. They should also have the right background, which should feature an early international experience. This means for example an education from an international school with exchange programs and different teaching languages.

On the other hand there are statistics showing that 50% of the learning how to be a global leader takes place though work experience, 30% through interpersonal relationships with bosses, peers, subordinates and professional contacts and only 20 % through formal education and training. This statistics can be interpreted in ways that through the right training on the job, nearly every manager can become a global leader (Lobel, 2007).

How the company develops global leaders is very important for the company’s success, because 80% of their education take place on the job and not through earlier education. Aside from the development of global leaders it is for sure that global leaders are very important for companies because when a company enters a new market, the leader has to be keen to know what employees in the new country are needed to be able to compete in this market. They have to balance global integration with the local responsibility (Mendenhall et. al 2003).

Global leaders have to learn themselves to integrate into a different social system. It is apparent that it is hard to find individuals that have all the right requirements to be good global leaders. Leaders should try to develop a global mindset. This means that they should be open minded, flexible and not egocentric.

A very radical approach to encourage the open mind of global leaders is to abandon managers with homeless people. After such an experience leaders are usually less selfish and more open to other life styles and cultures. A less radical method to encourage a global mindset is the establishment of cross-border teams or projects (Mendenhall et. al 2003).

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6 Conclusion

In a growing global market companies tend to meet challenges if they do not focus on developing their HRM. It is hard to see the financial gaining of HRM and therefore many companies tend to focus on other aspects that are easier to measure and see the results of. But when operating in a global market with subsidiaries all around the world, the focus on HRM is crucial in creating a united company that works towards the same goals and visions. This is not possible without a well developed HRM strategy.

A big challenge of HRM is building a global corporate culture. This means that the mother company needs to set corporate values, beliefs, programs, structures and rules. On the one side, it should help the company to deliver a corporate view of the company to the public. On the other side, it should help the staff working for the multinational company in the whole world to easily identify with the company with the help of the global corporate culture.

The main issue of the next challenge of HRM is to find good global leaders, this because they affect the whole company’s opportunity to expand globally. The managers are the ones that make decisions about activity in the new global areas. Is hard to develop good global leaders, and the HRM has problems to find effective education for them. The leaders not only have to have the right education but also the right background, to become successful.

All in all, focusing on only one of these prospective is not sufficient enough as they are linked together. MNC’s have to work on all of them to get a more effective HRM and a possible competitive advantage through this. HRM can be a tool to make the subsidiaries feel like a part of the global company, and work towards the same goals.

Bibliography

Business Journals

Ali, A. J., & Camp, R. C. (1996). Global managers - qualities for effective competition. International Journal of Manpower, 17 (6/7), 5-18

Gomez, C., Sanchez, J. I. (2005). HR's strategic role within MNCs: helping build social capital in Latin America. International Journal of Human Resource Management. Vol. 16, Issue 12

Harzing, A., & Feely, A. J. (2008). The language barrier and its implications for HQ subsidiary relationships. Cross Cultural Management: An International Journal , 15 (1), 49-61

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Mendenhall, M. E., Black, J. S., Jensen, R. J., Gregersen, H. B. (2003). Seeing the Elephant: Human Resource Management Challenges in the Age of Globalization. Organizational Dynamics, Vol. 32, No. 3, 261-274

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Books

Cardel, M., Soderberg, A., Torp, J. E. (1998). Cultural Dimensions of International Mergers and Acquisitions. Walt de Gruytet, ISBN 3-11-015800-0. Berlin, 23 – 56

De Wit, B., Meyer, R. (2004). Strategy: Process, Content, Context. 3rd Edition. South Western Educ Pub. 118 – 134

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Databases

Hofstede, G. (1994). Cultures and Organization – Intercultural Corporations and its Importance for survival, Harper Collins, 23 – 27

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Mellahi, K., Frynas, J. G. & Finlay, P. (2005). Global Strategic Management. Oxford: Oxford University Press, 15

Miller, N.E., Dollar, J.C. (1950). Personality and Psychotherapy, McGraw-Hill, 12 - 46

Internet

Foster, Mark, n. d., Maintaining a Common Corporate Culture is a Big Concern for Global Executives, Accenture. Available at www.accenture.com/Global/Accenture_Blogs/Accenture_High_Performance_Business_Blog/Maintaining+a+Common+Corporate+Culture+Is+a+Big+Concern+for+Global+Executives.htm. Downloaded on the 11h of June, 2008

Glossary, n. d.. Available at www.historyteacher.net/EuroProjects/DBQ1998-1999/glossary24-99.htm. Downloaded on the 11th of June, 2008

Nair, Chandrean, 31st of August 2006, Columnists: Multinationals and responsibility – Cracking the colonial corporate culture. Ethical Corporation. Available at www.ethicalcorp.com/content.asp?ContentID=4483. Downloaded on the 11th of June, 2008.

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