How does HRM fit into and contribute to a firm’s international business strategy? Discuss in relation to the key factors influencing international HRM in the global context.
Changing trends in globalization, technology, diversity, and e-business have a direct impact on all aspects of business, including human resource management (HRM). Because of this there is an increasing demand for flexibility. HRM has become quite a challenge in the international context. It is a discipline that relies entirely on people and people and their behavior is determined by shared values. Since values often change from one generation to the next, from one nation to another and from culture to another, the rules of HRM are continually changing. The impact of globalization and internationalization in the increasingly competitive business arena needs to be analyzed. This paper will look at how HRM fits into and contributes to a firm’s international business strategy and will discuss the key factors that influence international HRM in the global context.
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Economic growth is not always stable and can be very unpredictable, affected by periods of stagnation or even decline; economies can also suffer from the effects of disasters, natural calamities, war and terrorist threats. The higher the level of uncertainty, the more in-depth planning and focus on strategies are needed to manage each situation. Human resources are probably the most important asset within organizations, and their management is viewed as a core competence on the international business arena. Today HRM has out grown the common perception of being strictly an administrative objective, and is now one of the most important departments in the development and performance of a company (Myloni, Harzing & Mirza, 2007).
Pressures for change in the traditional concepts of the human resource function within companies have been building for more than a decade (Song, Dyer & Thieme, 2006). Probably the most important factor determining this is globalization. One important consequence of the process is multiculturalism within companies. The corporate arena is growing more diverse in racial and ethnic terms and the task of HRM to maintain a pleasant working environment and promote understanding and respect among the various groups. The role of HRM is to also ensure the adaptation of employees who come from other cultures into their new working environments. Ang & Massingham (2007) discuss standardization versus adaptation whereby “standardization refers to a common approach to business throughout the world, while adaptation requires a different approach in each market” (Ang & Massingham, 2007: 6). This is an important decision as the decision drives the organisations ability to cut costs and respond to the local market demands.
Another trend in business is the development of multinational conglomerates, the concentration of capital through mergers and acquisitions. This raises another problem for HRM, to maintain and enforce corporate cultures (Riad, 2007). This is a difficult task, cultural changes take place at a slow pace, and they need time to come about, which of course is the one resource that is lacking from today’s business world - time! In a changing business environment, characterized by high competition levels, internationalization has become a strategy with good potential for increased performance. The role and importance of international human resource management (IHRM) practices within organizations that pursue global growth strategies is vital (Taylor, 2007). A study of Chinese multinational companies operating in the UK (Maximizing the return on HR investment, 2004) found it useful adapting to the local culture and they used it as a means to transferring best practices and expertise back to China as well as to their other global subsidiaries. Examining the growth and development of successful companies in foreign countries can shed light on the cultural challenges faced by a multinational organization in local contexts.
The boom in technological development has had a major impact on all aspects of life and in business. As far as HRM is concerned, it has even changed the meaning of basic notions, such as what it means to be ‘at work’. The Internet, out of all new developments, has the most profound effect on HRM. The technological advances permit whole new ways of using information for managing human resources. Employee data can easily be stored and manipulated with the use of computers and connectivity. The internet now allows for a much more efficient and cost effective recruitment process (Hoye & Lievens, 2007). The internet has also affected how future employees look for a job, these days job seekers can surf through hundreds of available jobs and find out everything about the company through company websites or “employees’ weblogs, chatrooms, electronic bulletin boards, and independent websites presenting company information” (Hoye & Lievens, 2007: 372). Online career development is another up and coming area, with IBM having created ‘Blue Opportunities’, a program offering thousands of employees various training opportunities via an “employee only Internet site that erases country borders” (Davis, 2007: 54). In only its second year, received the ‘Society for HRM’s Innovative Business Solution Award’. This could be of great value to many other multinational corporations as it “expands participants’ skills and knowledge of other departments, functions and corporate resources, and it also improves mentoring skills, acquiring technical qualifications and retaining talent” (Davis, 2007: 54). This is very important in today’s global environment as there has been a shift in employee expectations, creating “the migrating employee” of the American culture, as opposed to the life-long employee from the Japanese culture.
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The best approaches to recruitment and selection are based on a series of common principles that represent the basis for performance. First of all, recruitment is considered a value-added process that plays a fundamental role in the growth of businesses. Selection and retention are continual priorities in the context of internationalization, and should be connected to and sustained by progressive measurement of employee performance (Pires, Stanton & Ostenfeld, 2006). Efficiency improvement is the top objective, and it can be more easily achieved when sustained by quality feedback. International recruitment does not refer only to the selection of candidates, but also to their integration in the company. Wang’s (2005) HR organizational strategy for global technology innovation and organizational development was an effective way of integrating personnel into an organizations system. The strategy emphasizes HR practices “encouraging team responsibilities, enhancing organizational culture and building up customer relationships through participation and empowerment” (Wang: 482).
The approach to recruitment and selection in an international context has to be integrative and strategically planned, connecting the many complexities of expertise and cultures to other HR functions. Thus, the traditional boundaries between various HR sub-functions (such as international recruitment, selection, development and rewards) weaken in a global perspective, leaving space to cross-functional integration and co-ordination, aimed at achieving better efficiency (Ashkenas, Ulrich, Jick & Kerr, 1995). Human resource practices that were previously considered and designed separately, like expatriate management, creating new local operations, talent management and the role of HR outsourcing, can all be, in this case, considered selection processes which call for entire system consistency and integrity (Sparrow, 2006).
The convergence and consistency of HR functions under a single umbrella are the two fundamental requirements of internationalization strategies. At the same time, convergence is required vertically as well, between various internal areas of expertise such as HR, corporate communications and marketing (Sparrow, 2007). The concept of employment branding becomes extremely important in the case of internationalization strategies as a means of effective talent recruitment and retention (HR Brand-Building in Today's Market, 2005).
Another important issue concerns the implications of cultural specificity in the context of international HRM. Multinational organizations face the challenge to develop beyond centralized and culturally dependent HR practices, balancing efficiently local and global HR dynamics (Harzing, 2001). The cultural factor is extremely important when analyzing recruitment and selection processes. Literature suggests that there is no evidence that cultural distances inside organizations are being reduced despite globalization strategies (Sparrow, 2006). Nurturing diversity means supporting cultural integration and, at the same time, broadening the perspective on different cultures (Taylor, 2007), to understand the way in which differences, as well as increasing economic disparities, modify perception of diversity, and how HRM initiatives and programs can support these broader perspectives (Hall, 1977). Traditional functional and cultural confines are challenged by initiatives that favor cross-cultural interaction and cooperation. Furthermore, in the context of internationalization, the expansion of linguistic, ethnic and cultural diversity within the organization is phenomenal, fueling continual change of the organizational culture (Scullion, H., Collings, D.G. & Gunnigle, P., 2007).
When properly managed, diversity can stimulate performance and effectiveness, functioning as an incubator for new abilities and skills. But if mismanaged, it can create tension and conflict, with potentially destructive consequences. Distances create tensions that can be constructive or destructive. Conflict should be seen as a driver for change, a positive force (Edmonson & Smith, 2006). From this point of view, organizations need the conflict that arises from cultural diversity in order to be successful, because the phenomenon brings to surface diverging views and can create new ways of performing business. Feedback is a central concept of this approach. Cultural diversity is an opportunity because it can educate organizations and prepare them for future situations by stimulating members to increase their knowledge and skills, directly influencing their productivity (Weiss & Hughes, 2003). However, this poses a management challenge to channel the constructive force of diversity and the tensions it creates toward assuring unity in the pursued objectives (Bartlett & Ghoshal, 1998).
Other challenges that companies face in an international context include the capacity of responding efficiently to local demands, as well as the need for flexibility and adaptability (Aycan, Al-Hamadi, Davis & Budhwar, 2007). A further challenge may be represented by the means and techniques through which information and knowledge can be transferred successfully across the different units of the company, units which are situated in dispersed geographical locations. Responding to these challenges, the strategies focused on communication are extremely effective and innovative (Wang, Z. 2005), being based on the same principles that underpin the organizational culture: openness, closeness, personalization of all relationships, entertainment and transparency. The use of internal publications, as well as encouraging feedback at all levels, can help maintain companies flexible and open to ideas (and also complaints and suggestions), accounting for the competitive edge required to become a winner in a harsh environment (Ang & Massingham, 2007).
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In order for a multinational company to manage and function as a coherent whole, it is important for all of its employees to share the same values. Transmitting to new employees the values of the corporate culture is a challenging task (Aycan, Al-Hamadi, Davis & Budhwar, 2007). The company should organize the necessary training procedures in order to make sure that new employees fully encompass the company’s mission, vision and key values (Riad, 2007). In addition, leaders have to implement all the communication strategies that are needed, at both formal and informal levels, in order to make sure that the new employees adopt the company values.
In a global context, businesses need to adapt to different challenges and requirements, and come up with various changes in the way they conduct business in order to survive. Performance is probably one of the most important requirements of any market, and talent is crucial to obtaining it. The effects of organizational change include the demand for employees to acquire more skills, to do more work and work longer hours. This is why the effects of change can create uncertainties in job security and people are constantly pressured to perform. This can be discussed in terms of action and reaction: change meets resistance. In the context of change, special attention has to be dedicated to retention programs, as means of fostering talent and preventing unwanted high turnover costs. All in all, the new corporate style of businesses are moving forward at a fast pace. HR must have internationalization strategies to keep up with the ever changing pace. This global growth calls for expertise and consistency in HR management. There are benefits and many challenges that cultural diversity brings to an international organization and HR management should now be focused on balancing global coordination with an understanding of local needs.
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