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Global Multinational Equality
The Relevance of Innovative Human Resource Programs to Facilitate Global Expansion of Multinational Companies (MNC’s) from the UK
As globalization requires a constant mobile workforce, these traditional compensation packages are becoming less and less adequate. Challenges develop as the need to create a global culture where employees located in different parts of the world can feel a sense of equality within the organization, companies must implement a core compensation program that is essentially similar everywhere.
A global economy has emerged as companies all over the world are joining forces through alliances, mergers, joint ventures, acquisitions, and the like. The mobility of the workforce is increasing as companies recruit employees worldwide.Multinational corporations are looking to foster collaboration among their foreign business units.
Competitive pressures have increased the strategic value of a skilled, motivated and adaptable workforce, and the HRM strategies to support and develop it. A strategic perspective of HRM requires the firm to identify and adopt human capital initiatives likely to enhance competitiveness and shareholder value.
A key question considered here is the extent to which multinational firms adapt internally consistent human resource strategies across national boundaries to address these issues. Case-study data on how eight multinational firms in Singapore apply strategic approaches to human resource management are presented.
Findings show that while some adaptation considering local context occurs, the diffusion of headquarters and centrally initiated, but competitively differentiated strategies across cultural boundaries, is significant. Effective human resource strategies were understood as ‘configurational’, integrated both vertically and horizontally.
As modern organizations increasingly operate in a global economy, it is imperative for human resources services to address the company’s most pressing strategic challenges. This would therefore imply a fundamental shift in the role of human resources from transaction and administration to strategy and business transformation through innovative programmes which supports the global strategy of the company.
In their drive for global expansion and to achieve competitive advantage, multinational companies would require innovative HR programmes which would enable them to anticipate critical workforce trends, shaping and executing business strategy, identifying and addressing people-related risks and regulations, enhancing workforce performance and productivity, and offering new HR services to help a company improve and grow. However, when IT efforts "go global, issues and challenges typical of IT development and support are magnified.
1.2 Background: Human Resource Evolution
First Generation HR Transformation represented a fundamental shift in HR’s role, from transactions and administration to strategy and business transformation.
First Generation HR Transformation focused on changing the existing relationship between employees, managers, and HR. With technology as a key enabler and process re-engineering playing a pivotal role, this First Generation effort sought to help make employees more self-sufficient, whilst asking them to take more responsibility for their own careers.
It also sought to help remove HR from the middle of the employee/manager relationship by making managers more responsible for handling their employees’ HR needs. Over the past ten years, HR Transformation has led to a major restructuring of HR operations and processes transforming the way HR services are delivered. Yet, there is still much work to do.
1.3 Global Expansion Challenge
Companies today face significant HR challenges that barely existed a few years ago, much less a decade ago. Global competition and an ageing workforce are combining to create a talent shortage that is expected to last well into the 21st century. Companies are already struggling to find people with critical skills, and the problem will only become worse.
As a result, companies around the world are turning increasingly to outsourcing and non-traditional sources of labour, such as offshore workers, retirees and telecommuters. HR’s effectiveness will hinge on anticipating workforce trends, finding the right talent, and learning to harness the full potential of workers whose values and work habits are very different from those of the existing workforce.
2. UK MNC’s: Achieving Global Expansion
According to Alfred (2007), to achieve global expansion, the next Generation of HR Transformation will look outside the function to help companies achieve their desired results and growth in an environment where competition is global and talent is scarce. Next Generation HR Transformation should focus on developing specific services that are directly linked to strategic challenges such as increasing revenue through new market entry or mergers and acquisitions. This shift will require HR to build services in new or non-traditional areas, such as
- Workforce planning
- Talent management
- Mergers and acquisitions
- Global workforce security
- Change management
- Global mobility
The next decade will provide HR within UK MNC’s with significant opportunities to help make a difference to the company.
2.1 UK MNC’s: Innovative HR Programmes
Lebarty (2006), defines innovative human resource programmes of a company as:
"Any intentional introduction or change of HRM program, policy, practice or system designed to influence or adapt employee the skills, behaviors, and interactions of employees and have the potential to provide both the foundation for strategy formulation and the means of strategy implementation that is perceived to be new and creates current capabilities and competencies" (Lebarty, 2006).
A number of authors have explored the links between individual HR practices and corporate financial performance. For example, Lam and White (1998) reported that firms’ HR orientations (measured by the effective recruitment of employees, above average compensation, and extensive training and development) were related to return on assets, growth in sales, and growth in stock values.
Using a sample of banks, Richard and Johnson (2001) examined the impact of strategic HRM effectiveness (ratings of how effectively a variety of HR practices were performed) on a number of performance variables. They found that strategic HRM effectiveness was directly related to employee turnover and the relationship between this measure and return on equity was stronger among banks with higher capital intensity (greater investments in branches).
Reducing Costs Through Shared Services Centres, Self-Service, & Outsourcing.
Develop uniform HR processes recognising local regulatory requirements to help foster a low-cost, administrative delivery model. Create a self-service culture for employees and managers. Establish global employee shared services centres focused on delivering HR administrative support to multiple geographic areas, thereby reducing administrative overhead. Outsource key services that can be more efficiently managed and administered externally.
Streamlining Technology and Information Management
Improve information access to help companies more efficiently manage their human capital assets, provide employees and managers with enhanced access to information, improve HR reporting, and address growing compliance requirements. Reduce HR technology operating costs by consolidating multiple technologies, technical infrastructure, and IT skills.
Managing People Globally
Help enable the company to respond to the interdependencies of global markets by managing human assets globally rather than nationally or regionally thereby improving competitiveness in the international marketplace.
Enabling HR to Shift its Focus From Administration to Strategy
Remove the administrative component of the work of business HR professionals, enabling them to provide more value-added services and to focus on consultative and analytical interactions with line managers. Facilitate HR’s transition to a strategic partnership with the company by upgrading talent and skills within the HR function.
2.2 Approach to Domestic Environment
One influential category of factors that has been highlighted from previous research is the issue of the domestic environment, often referred to as the “host country” effect, with attention being paid to the influence of such variables as local culture, and legal, social, economic, and political systems (Beechler and Yang, 1994; Dowling et al, 1999).
Researchers additionally suggest that the greater the cultural distance between the home and the host country, the harder it will be for the multinational to transfer home country philosophies and practices (Ferner, 1997). As a result, UK MNCs are faced with a “think global”, “act local” paradox (Dowling et al., 1999). That is, while the multinationals are pursuing global expansion and integration, they are forced to be responsive to the demands in each area in the countries and regions within which they operate (Doz, 1986).
With this in mind, it is therefore imperative for UK MNC’s to put in place HRM practices that are consistent with national development plans of their intending host countries, (Florkowski and Nath, 1993). In several European countries, particularly Germany and Austria, workforce representation in the company, legal rights of consultation and co-management in specific areas are of prime importance.
Conversely, in Britain there is no obligation to recognise unions or establish structures of employee representation with the result that MNCs from more regulated economies have the option to set up subsidiaries without any workforce representation.
2.3 Approach to Employees
According to research, UK MNC’s in their drive for expansion would consider a polycentric or regiocentric staffing approach. Whichever approach is eventually chosen, the next issue that would come to mind would be effective recruitment and selection issues. There are three types of employees to be considered which are; employees from the parent company / home country who will be known as expatriates, employees from the host country and other employees who are neither from the home or host countries.
According to Ferner (1997), the type of government policies and the nature of legal and labour market conditions in the host countries, plays a key role in influencing UK MNCs’ strategies and policies by either encouraging or impeding certain industrial relations practices. For example, in a developing country, a host government may dictate hiring procedures, as in the case of Malaysia in the 1970s when the government made it mandatory for all foreign firms to provide additional employment for the indigenous Malays (Dowling et al., 1999) and with the current policies in Saudi Arabia and the Philippines where indigenous employment quotas of 75 and 95 per cent have been imposed respectively.
The three types of employees mentioned must be incorporated into the HR strategy of the UK MNC, despite their advantages and disadvantages. Integrating these employees into the company’s system and getting them to function across functional lines efficiently can be a challenge and daunting task and according to Ferner (1997), the first stage in the process is to establish the culture within the MNC and how this can be propagated within the global operations.
According to Thompson & Strickland, (1999), organisational culture can be defined as the shared values, assumptions, norms, and the personality of the organisation. This can be evident in the way the organisation conducts its activities such as the way it raises capital, the treatment of its staff .
This can also be broken down onto formal and informal relationship that exists within it. Formal relationship include the hierarchical work relationships within and between functional business areas, while informal relationships are created through people working and socialising with each other on a regular basis, and it cuts across functional barriers .
According to Sheng, Pearson & Crosby (2003) an organizations culture can be viewed as a system of inputs and outputs, inputs include values on competition or service, values on money, time, facilities, space and people, assumptions that have worked so well in the past e.g. the way the company closed a deal, communicate. Outputs would be would be the effects of the inputs, e.g., organizational behaviours, company’s approach to technology, strategies, mission statement, change, image, products, services, appearance, etc.
In light of the about definition, it is therefore imperative to manage the cultural diversity through process and knowledge sharing. The main issues to consider in light of the above are:
- HRM practices and expatriate employees in multinational corporations (MNCs)
- HRM practices and host-country nationals as employees of MNCs
- Comparative employment systems
22.214.171.124 HRM practices and host-country nationals as employees of MNCs
A crucial issue in HRM and host-country nationals (HCNs) is the extent to which an MNC elects to transfer its national or global HRM system to a particular subsidiary or allow the subsidiary to develop (or maintain existing) employment practices rooted in indigenous practices.
This seems to depend upon a range of factors, including the structure of the MNCs market (is it a globally unified or diverse?), the significance of a given subsidiary to the MNC’s overall operations, the importance of specific employee behaviors as the MNC’s source of competitive advantage, the degree to which the MNC controls the subsidiary (in joint-venture situations) and the extent to which host-country culture and employment laws differ from those of the MNC’s home country (the greater the differences, the less likely the transfer of home-country practices) (Taylor, Beechler, and Napier, 1996). Empirical work on the transfer of HRM practices is extensive and varied (e.g., Rosenzweig and Nohria, 1994; various articles in Jain, Lawler, and Morishima, 1998).
Boselie et. al’s (2005) meta-analysis of 104 articles found that training and development, contingent pay and reward schemes, performance management (including appraisal) and careful recruitment and selection were the top-four HRM practice-level categories used by different researchers.
These are seen to reflect the main objectives of most conceptualisations of a ‘strategic’ HRM programme (Batt, 2000: 587) namely, to identify and recruit strong performers, provide them with the abilities and confidence to work effectively, monitor their progress towards the required performance targets, and reward them well for meeting or exceeding them
According to Cooke (2003), human resource management for MNC’s operating on a global scale would involve five key functional areas which include: 1. recruitment and selection, 2. development and training, 3. performance evaluation, 4. remuneration and 5. labor relations.
3.1. Recruitment and selection
Recruitment and selection are the processes through which an organization takes in new members. Recruitment involves attracting a pool of qualified applicants for the positions available. Selection requires choosing from this pool the candidate whose qualifications most closely match the job requirements.
In companies that function in a global environment we have to distinguish different types of employees. Traditionally, they are classified as one of the three types:
- Parent country national. The employee’s nationality is the same as the organization’s. For example, a UK citizen working for a UK MNC in india.
- Host country national. The employee’s nationality is the same as the location of the subsidiary. For example, an indian citizen working for a UK MNC in india.
- Third country national. The employee’s nationality is neither that of the organization nor that of the location of the subsidiary. For example, a swedish citizen working for a UK MNC in india.
Briefly, classification of employees might seem to us unimportant. However, such mode of thinking is not adequate since in many organizations an employee’s classification is tied to remuneration, as well as benefits and opportunities for promotion.Since staffing as the function of international human resource management becomes increasingly more complex, these classifications do not cover all employees (Briscoe, 1995). For example, within the European Union, citizens of member countries can work in other member countries without a work permit. Hence, how to classify a German citizen working for a French company in France is not clear.
In an international organization, the managing and staffing approach strongly affects the type of employee the company prefers. In a company with an ethnocentric approach, parent country nationals usually staff important positions at headquarters and subsidiaries. With a polycentric approach, host country nationals generally work in foreign subsidiaries while parent country nationals manage headquarters positions. An organization with a geocentric approach chooses the most suitable person for a position, regardless of type.
In its approach to recruitment and selection, an organization considers both headquarters’ practices and those prevalent in the countries of its subsidiaries. Local culture always influences recruitment and selection practices, and in some countries, local laws require a specific approach.
For example, in international manufacturing and processing facilities in Mexico, companies recruit with a sign announcing job openings outside the facility or by employees introducing family members who are looking for jobs. Another example is Hungary, where government attempts to combat unemployment have led to the requirement that an organization must get permission from the Ministry of Labor before hiring an expatriate.
In choosing the right candidate, a balance between internal corporate consistency and sensitivity to local labor practices is a goal. Different cultures emphasize different attributes in the selection process depending on whether they use achievement or ascribable criteria.
When making a hiring decision, people in an achievement-oriented country consider skills, knowledge, and talents. Although “connections” can help, companies generally only hire those with the required qualifications. In an ascribable culture, age, gender, and family background are important. An organization selects someone whose personal characteristics fit the job.
3.2. Development and training
The overall aim of the development function is to provide that adequately trained personnel in a company are capable to fulfil their goals, as well as to contribute to better performance and growth with their work (Armstrong, 1996). The development of employees can be treated as a special field of human resource management that includes planned individual learning, education, organization development, career development and training.
At the international level, human resource development professionals are responsible for: 1. training and development of employees located in subsidiaries around the world, 2. specialized training to prepare expatriates for assignments abroad, and 3. development of a special group of globally minded managers.
Creation and transfer of international human resource development programs may be carried out in two ways:
- centralized and
With a centralized approach, training originates at the headquarters and corporate trainers travel to subsidiaries, often adapting to local situations. This fits the ethnocentric model. A geocentric approach is also centralized, but the training develops through input from both headquarters and subsidiaries staff. Trainers could be sent from various positions in either the headquarters or subsidiaries to any other location in the company.
In a decentralized approach, training is on a local basis, following a polycentric model. When training is decentralized, the cultural backgrounds of the trainers and trainees are usually similar. Local people develop training materials and techniques for use in their own area.
To maximize training effectiveness, it is important to consider how trainees learn most effectively. Cultural factors have a strong impact on training practices in different parts of the world. For example, in North America, where power distance is small, the relationship between the trainer and trainees tends toward equality.
The trainer and trainees use first names, and the trainees feel free to challenge or question what the trainer says. In Malaysia, where power distance is large, a trainer receives greater respect. Students use his surname and title, and he is an expert that students rarely challenge.
As global competition increases, it is increasingly important for successful companies to have a group of managers with a global perspective. Companies must identify managers with global potential and provide them with various training and development opportunities.
For example, having one or more international assignment(s), working on cross-national teams and projects, and learning other languages and cultures contribute to making a manager more globally minded. In addition, an organization should include not only parent country nationals, but also host country nationals and third country nationals in this group (Treven, 2001).
3.3. Performance evaluation
In companies, the performance evaluation is most frequently carried out for administration or development intentions (Cleveland and others, 1989). For administration purposes, performance evaluation is called for when the decisions on work conditions of employees, promotions, rewards and/or layoffs are in question.
Development intention of performance evaluation is oriented to the improvement of the work performance of employees, as well as to the enhancement of their abilities on the ground of the adequate training program and advising employees regarding behavior in the work environment.
In Western multinational companies, performance appraisals are usually done yearly and use a standarized evaluation form. Sometimes, the organization also requires supervisions to discuss the results of the appraisals with each employee.
Performance evaluation is challenging for any organization. At the international level, the complexity is greater because the organization must evaluate employees from different countries working in different subsidiaries. The need for consistency across subsidiaries for performance comparisons conflicts with the need to consider the cultural background of employees to make the evaluation meaningful.
For example, in Mexico, an individual’s public image is important, and public criticism of an employee might be justification for leaving a company. Consequently, the delivery of a balanced performance review, including both strengths and weaknesses, requires tact and delicacy.
As with other functions, the approach to performance evaluation depends on the organization’s overall human resource management strategy. A company with an ethnocentric approach is likely to use the same performance evaluation process used at the headquarters for its subsidiaries. Some companies translate evaluation forms into local languages, whereas others use the original language everywhere.
A company with a polycentric approach develops local procedures within each country. Finally, a company with a geocentric approach uses the same performance evaluation system worldwide, but it has universal applicability. Developing a global system is the most challenging.
3.4. Remuneration and benefits
Remuneration of employees has a key role in acquiring new employees and is important for employees as well as for the employers. Pay is the basic resource of living of the employees, while benefits cover better health care, the possibility of spending holidays in the company’s holiday facilities at a favourable price and also other advantages.
The decisions the employers make concerning remuneration are a factor that has an impact on the expenses of their company as well as on the ability of selling the products at a competitive price in the market (Treven, 1998). The decisions about remuneration may also enhance the ability of the employer to compete for employees on the labor market. The rewards he warrants make the standing personnel either want to keep their jobs or quit.
In developing an international system of compensation and benefits, an organization has two primary concerns. The first is comparability (Briscoe, 1995). A good compensation system assigns salaries to employees that are internally comparable and competitive within the marketplace.
For example, the salary of a senior manager is usually higher than that of a supervisor, and each position should receive an amount within the local market range. The international organization must also consider the salaries of people who may transfer from other locations. The second major concern is cost. Organizations strive to minimize all expenses, and payroll is one of the largest.
Renumeration and benefits are closely tied to local labor market conditions, even when an organization takes an ethnocentric or geocentric approach. The availability of qualified local people to fill positions, prevailing wage rates, the use of expatriates, and local laws interact to influence the level of renumeration and benefits.
For example, if there are few applicants available for positions, the renumeration for those positions generally increases. To reduce expenses, the international human resources manager might then consider bringing in an expatriate.
A company usually develops a policy, which could apply globally, to offer salaries and benefits representing a specific market level. For example, a large successful multinational company that emphasizes the quality of its products and employees could have a global policy to pay the highest wages everywhere it operates. Another company could offer top salaries in the country where it does research and development, yet pay average wages in the country where it manufactures.
3.5. Labor relations
The labor relations function identifies and defines the roles of management and workers in the workplace. The concept of labor relations varies greatly in different parts of the world. In the United States, for example, labor relations are often a formal relationship, sometimes antagonistic, between labor and management defined by a union contract. In Japan, the relationship between management and unions is cooperative, and management often appoints union leaders (Hodgetts, Luthans, 1994).
In many countries, the government regulates labor relations practices. Consequently, in this function, more than other human resources management functions, an organization may have to be polycentric. However, even though labor relations are local level issues, it is good corporate strategy to coordinate a labor relations policy across subsidiaries.
UK MNCs: Half of the UK MNCs operate shared services centres and have international HR policy formation bodies. They are far less likely, compared to US and other European MNCs, to have a worldwide approach to workforce management. UK firms consistently aim to pay a greater proportion of employees (managers, LOG and key group) in the top or 2nd quartile.
Nine in ten UK firm have performance appraisal for their managers while seven in ten have formal appraisals for their LOG. Use of forced distribution is uncommon as is the use of 360-degree feedback. An overwhelming majority of UK MNCs tend to recognise trade unions for collective bargaining purposes.
Formally designed teams and problem-solving groups are commonly found in UK MNCs as are a large number of communication mechanisms with meetings between line managers and employees, newsletters/emails and systematic use of the management chain the most commonly found communication mechanisms.
Although the majority of UK MNCs have succession planning and formal management development programmes these tend to be comparatively less than other MNCs. UK MNCs make considerably greater use of parent country expatriates than third country expatriates. This may reflect the short geographical proximity and cultural similarity between the UK and Ireland.
UK MNCs tend to have considerable discretion over the various HR policy areas, much more than US firms. IT based networks and services
A key development in HR service provision over the past two decades has been the increased use of information technology (IT). This is all the more relevant in MNCs, where IT systems may be used to monitor policy implementation and performance, and also to facilitate communications and networking, across borders.
It thus provides an insight on the extent to which corporate management has access to HR data on its international operations and can compare performance on HR metrics across sites and countries. We specifically examined the usage of IT based HR information systems (HRIS) and ‘shared services’ provision on an international level.
In regard to the diffusion of HRIS, respondents were asked whether the worldwide company had an “HR Information System (such as PeopleSoft or SAP HR) that holds data relating to the firms international workforce”. The responses for both foreign and Irish-owned MNCs are outlined in figure 3.1. Just over half (54 per cent) of all MNCs in Ireland reported the use of HRIS that operates on an international basis. This is a similar figure to that found in the parallel UK study, where some 52 per cent used such a system (Edwards et al., 2007).
However, among MNCs in Ireland, a greater proportion of foreign-owned MNCs (56 percent) than Irish-owned MNCs (44 per cent) reported the use of HRIS on an international basis.
There were some discernable differences in regard to ownership. As indicated in figure 3.2, American firms were the highest users of HRIS (70 per cent), while the ‘rest of the world’ MNCs is the least likely. This again resonates with the UK findings where US MNCs were among the greatest users of HRIS and Japanese MNCs the lowest (Edwards et al., 2007). The impact of sector on the take-up of HRIS is outlined in figure 3.3. Among Irish MNCs, the service sector accounted for the greatest number of firms with HRIS. However, among foreign-owned MNCs multi-sector firms were by far the largest users, followed by those in the service