As organizations continue to expand businesses across an extensively global environment, they put great effort towards finding new and ever more efficient ways through which they can advance their competitive positions. In recent years, the persistent march of globalization has begun threatening, and in several cases, decreased many of the important fundamentals of competitive advantage that drive organizational performance. As entry costs into markets decrease and product markets expand, a vast number within the realms of businesses have come to understand that “sustainable competitive advantage originates more from a firm’s internal resource endowments and its resource deployments” (Lado & Wilson, 1999).
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As a result, organizations now view the human resource practices and systems that underpin them as a vital component for securing sustainable competitive advantage. Not only are organizations becoming aware that the practice of doing businesses are culture bound, but also that the structures and systems for people management are uniquely determined by forces of tradition. In a research based on best practices of about 250 companies, Harris and Brannick (1999) present practical examples of how successful organizations source, recruit and retain excellent employees; the underlying factor identified as “culture”.
International Human Resource Management should be studied within the context of the ever changing business and economic environment, as the flow of both the foreign and home business context in which firms operate is vastly changing. In taking on these different perspectives, it is imperative that multiple levels of analysis are used when studying IHRM i.e. the PEST environment (political, economic, social, and technological factors) as well as the industry, firm and cultural environment.
The extent to which the practices of human resource management can be transferred between countries has been at the fore of considerable debate. Bartlett and Ghoshal (1991) argue that HRM practices and policies are becoming crucial as they can act as instruments for the control and co-ordination of international operations. On the other hand, Adler and Bartholomew (1992) assert that HRM constitutes a major restraint when organizations try to enforce global strategies.
While previous research has mostly focused on differences in national cultures (Hofstede,
2001), the implications of these differences for the role of managers in multinational corporations (MNCs) have hardly been researched. This essay will attempt to evaluate if national culture matters in international resourcing and talent management. To do this, it is important to analyse culture. Therefore, the first part of the essay will critically review culture, national culture and the convergence and divergence debate. The second part is a critical evaluation of national culture on international resourcing and talent management. The third and final part of the essay concludes with a summary/concluding section with possible areas for future research.
Culture (Organizational And National)
To properly understand the cultural implications of human resource within an organization, it is paramount to understand the culture concept. Although there are several definitions of culture, the term is generally used in describing a shaping process. As Phatak (1995) explains, ‘an individual is not born with a particular culture; rather he or she gains it through the process of socialisation which starts at birth’. Geert Hofstede (2001), a seminal writer on culture refers to culture as ‘software of the mind’, and identifies 5 dimensions of culture: the power distance dimension, individualism versus collectivism, masculinity versus feminism, uncertainty avoidance and long term versus short term orientation. Hofstede asserts that there are different levels to culture, resembling layers of an onion, and ranging from the easy to observe outer layers i.e. behavioural conventions and observable practices, to the more ‘difficult to figure out’ inner layers such as values and assumptions.
Management scholars have presented a range of definitions for the concept of ‘organizational culture’ (Ravasi & Schultz, 2006). Schein (2004) states that it refers to “the practice organizations develop around handling its people” (p.7). Hofstede (1998) defines organizational culture as a collective programming of the mind which distinguishes members of one organization from the other (p.478). Whilst there isn’t a single widely accepted definition, it appears that there is some agreement that the definition should comprise a number of assumptions, social phenomena and behaviours held by members of an organization that help in shaping the ways in which they respond to their external environment, and to each other ( Ngo & Loi, 2008).
In recent years, the concept of national culture has begun to acquire an increasing prominence in organizational studies and this is largely due to the pioneering work of Hofstede (1980). In the interaction of human resource management (HRM) and national culture, one theory regarding both practice postulates that greater cultural distance between two entities will adversely affect the acceptance and transfer of HR practices from a local subsidiary to a foreign multinational company, while another suggests that corporations will try to abide by local management customs when they are faced with considerably large cultural distance from a foreign sub-unit (Gamble, 2003).
Ample degree of support for each of these postulations are present in existing literatures on national culture and the capability of HR practices to be successfully implemented across such cultures. Hofstede’s (1980: 372) note that “organizations are culture-bound” and the debate has laid emphasis on whether organizational culture serves to overpower some cultural norms related to a particular nation.
Another interesting contribution to the debate is Sparrow et al.’s 1994 study of HR managers and CEOs from across twelve countries. After giving out surveys and conducting a cluster analysis, Sparrow and his colleagues distinguished five clusters of countries (Sparrow, et al., 1994: 278). They are:
Anglo-Saxon Cluster: Australia, Canada, Germany, Italy, United Kingdom and United States.
Latin Cluster: Argentina, Brazil, Mexico.
Cultural Island 1: France
Cultural Island 2: Korea
Cultural Island 3: Japan
Identifying these clusters gives credibility to the assertion that significant differences based on national culture creates a different effect with regards to the efficiency of HRM practices constituted by MNCs. Further analysis revealed that despite the significant differences enough to justify categorization into various cultural clusters, there were certain practices i.e. resourcing items e.g. workforce size management, recruitment and training, performance management items and corporate responsibility for which convergence across clusters was existent (Sparrow, et al., 1994).
The fact that in spite of divergent national cultures, these convergences in HRM exist shows that although variances occur through mechanisms such as levels of individualism and collectivism, the predominance of hierarchical societal structures, and the embracing of free market capitalism, there is ample amount of common ground on which international HRM can rest, especially when other determinants that moderate the efficiency of HRM practices in foreign subsidiaries are considered.
Convergence And Divergence
There have been emerging literatures on human resource management (HRM) strategies of multinational corporations (MNCs) over the last decade. Majority of this literature has focused on determining the factors that are behind the acceptance and implementation of these strategies and differentiating between different types of MNC strategies (Dowling et al, 1999). Over the last few decades, the debate on the convergence and divergence of work values continue to be in the forefront as multinational companies have struggled to comprehend the diverse value systems of their multi domestic operations, and if the cross-societal values pertaining to their workforces are becoming more alike or not (Ralston et al., 1993). Most of this argument surrounding the convergence-divergence debate centres on national culture and its effects on the viability of human resource practices within a given realm of operation.
The wind of globalization has stretched the geographical reach of firms, broadened the mindsets of executives and plunged international business into new territories, one of such, the concern with national culture. While traditional international business research was concerned with legal/economic issues and organizational structures, the last two decades have seen the significance of national culture becoming increasingly important largely as a result of Hofstede’s (1980) classic work.
A review of the literature on cross-cultural applicability and global HR gives an insight into few key determinants that influences the ultimate efficiency of HR practices across national boundaries and the distinction of those practices across diverse localities. In the mid-1980s, Laurent (1986) wrote on the state of International Human Resource Management and concludes that “the challenges facing the growing subject field of international human resource management is to decipher the multidimensional puzzle of organizational and national cultures”.
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DOES NATIONAL CULTURE MATTER IN IRTM?
As businesses have transcended national boundaries, organizations face the challenge of conflicting requirements from global standardization and local customization, which has crucial implications for HR functions. With this, knowledge of cultural differences becomes critical. Existing research provides evidence that organizations adapt to a certain degree to national cultures in which they operate (Schuler and Rogovsky, 1998). Additionally, subsidiaries that are consistently managed with national cultural expectations tend to perform better that their counterparts that act otherwise (Newman and Nollen, 1996).
National culture plays a very important and significant role in international resource and talent management. Ma and Allen (2009) argue that the theories describing national cultural values can give valuable insights into understanding the recruitment and the management of employees in organizations. Previous literature on international HR by Posthuma, et al., (2005) also supports the idea that national cultural values have an impact on HR practices such as selection, compensation, and turnover. Aycan et al (2000) assert that the increasing demands of the globalized and liberalized business environments have made researchers and practitioners to start paying more attention to the study of culture as an explanatory variable.
Following Ployhart’s (2006) call for research on the effectiveness of staffing systems across cultures, Ma and Allen (2009) integrate the framework of Hofstede’s (1998) cultural values with Barber’s (1998) process model of recruitment to unravel a cultural value-based model of recruitment in order to support the research on the role of national cultural values in international resourcing. (Fig.1). In the model, Ma and Allen (2009) establish the possible impact of the five dimensions of cultural values of Hofstede on the relationships between major elements of recruitment and the outcomes suggested by Chapman et al., (2005) e.g. organization attraction, job pursuit intentions, acceptance intentions, the applicants’ overall assessment of the attractiveness of the organization.
Thus, one of the major contributions of the framework is a specific recognition of the fact that the varying dimensions of national culture are extremely important during different recruitment exercises, depending on the intent of the parties involved and the nature of their interactions. Since there are significant differences in cultural values, substantial research have examined how these values differ based on various cultural dimensions (Hofstede, 1980; Gupta & House, 2004).
In the international human resource management field, Hofstede’s dimensions have also been found to be relevant in explaining the differences in HR practices in multinational companies (Ferner, 1997). However, the fundamental analytical question is how far the behaviour of MNCs from different countries is informed by national differences in business systems.
Firstly, it is noted that ‘local isomorphism’, a practice of organizations to behave as local firms and adjust their systems to local circumstances, is expected in certain areas of HR/IR due to constraining factors of host country rules and regulations. Secondly, some systems of national business systems make little or no sense if isolated from the group of features in which they are incorporated in the home country. Lincoln et a1.,(1995) assert that in this circumstance, the system does not travel well and states that it is important to understand how national cultures would fit into each other when resourcing . Lincoln et al., goes on to state an example of Japanese MNCs; that they may find it difficult to adapt to the techniques of home country personnel management in their foreign operations because the extensive formal systems that exist are so deep-rooted in the Japanese corporate culture
Furthermore, Japanese MNCs in Europe prefer using expatriate managers because of the difficulties involved in sourcing for managers within the local labour markets that will have the appropriate degree of commitment, given that the managerial inter-firm mobility in Europe is more closely connected to a pursuit of career advancement (pp. 430-1). In other words, what Diilfer (1990: 264) refers to as ‘degree of strangeness’. This can be said to be between the host and home country, and this will create difficulty for the MNC to incorporate the practices and philosophies of the home-country.
This practice can be problematic though, as reported by Dowling, Welch & De Cieri, (1989) about an Australian expatriate general manager who was internationally resourced to head a new mining venture in Indonesia. The local Indonesian manager in charge at the host country could not figure out why the Australian expatriate was upset when he found out that he (the Indonesian) had hired most of his extended family rather than recruiting staff with the needed technical competence. In this circumstance, the Indonesian was simply making sure his obligation to his family was fulfilled. As he was in a position to give them jobs, it was an obligation to do so. The Australian, however, saw the Indonesian’s actions as a negative practice and nepotism, according to his own value system (Dowling, Welch & De Cieri, 1989).
In spite of the methodological cross-cultural research concerns, it is widely recognised that insensitive cultural behaviours and attitudes, stemming from misguided beliefs, ignorance or “what works at home will work here” are not only inappropriate but often are the major causes of international business failure that could put an expatriate’s job on the line as he has failed in his foreign operation. Therefore, to be able to retain the best talents in an organization to perform effectively in foreign locations, a cultural awareness is essential for a HR manager both at the corporate headquarters and at the host location as practices of the host country are often based on value systems peculiar to that country’s culture, and will be determined by actions such as hiring, promotion and compensation (Tung, 1993).
Comparative research has paid a great deal of attention to the systemization of work within firms considering national differences. French firms are said to rigidly separate tasks within and between different strata in the organizational hierarchy (Poirson, 1993), while German firms show a much more blurry horizontal differentiation of functions and tasks (Sparrow and Hiltrop, 1994: 270-3).
Cross-cultural influences most definitely have an impact in the processes of international resourcing and the retention of talent as tribal, ethnic and national borders become more porous. There is an important need for organizations to exploit aspects of the targeted host culture to aid maximum co-operation with local customs in foreign operations.
In a study of Greek firms to determine the link between culture and management, Myloni et al (2004) address the areas of recruitment and selection, as well as compensation. In the study, it was found that in the area of recruitment, Greek firms use less standardized methods of selection, prefer internal recruitment and make use of references and recommendations than their multinational subsidiaries. This is associated with the high level of family orientation of the Greek culture to employ people they are familiar with, basing their selection on less objective criteria than their multinational subsidiaries. In the area of compensation, differences were found with regards to the level at which basic pay is determined as Greek companies rely a great deal on national or/and industry collective agreements while in multinational subsidiaries, basic pay is determined mainly at company and individual levels (Myloni et al, 2004).
In the country of origin, personnel function structures and national culture has been used to clarify the differences of management policies of IR/HR of corporations. One of these discussions is addressed by Yuen and Hui (1993). In comparing Japanese and United States MNCs in Singapore, they concentrate on personnel function discrepancies in the business cultures of the two home-countries. They mention that in the US, management of labour is based on a model of recruiting and firing, high mobility of labour and market-determined wages, which is also known as ‘economic-contractual’ model. In contrast, the model of Japanese HRM is grounded on ‘multidimensional employment relations’, also known as the ‘human capital model’.
Wursten (undated) argues that when analysing national cultural differences and its influence on international resource and the management of talent, one of the fundamental elements to take into account is the difference in thinking patterns and reasoning between cultures. Wursten goes on to analyze eight competencies often used by recruiters to illustrate a cultural understanding need, along with the need for adaptation to the environment the expatriate would work in. They are sound judgement, strategic vision, planning & organizing, drive for results, adaptability, delegating, fostering team work and competence. Cultural competent recruitment enables managers to predict the likely outcomes of management techniques and management policies in different national contexts, and to modify them where these approaches could be dysfunctional (Wursten, undated)
The practice of National Cultural is not the only factor that influence international management practices. It is also influenced by certain elements such as workforce nature, competitors in the industry, the history and management of the organization, and organizational culture. Burman and Evans (2008) argue that before an initiative of cultural change, an assessment of the needs required to be able to identify and understand the current organizational culture should be carried out. Evaluations may be done through employee surveys and interviews, focus groups and observation where necessary, and other in-house research, to be able to clearly identify the areas that are in need of change. The organization must then make an assessment to clearly recognize the new, desired culture to be able to design a change process. According to Cummings & Worley (2005, p. 491) “this is specifically of relevant for equitable treatment control, employee integrity, and security of jobs”.
This essay is an attempt to straighten out some matters of contention regarding the effect of national culture and its influence on multinational corporations. A considerable body of evidence is visible to show that MNCs of the various national origins across the globe act in significantly different ways and most especially, the IR and personnel issues relating to cross-national management. Harzing and Hofstede (1996) argue that since national cultures appear to be collectivistic or individualistic, specific cultural values could inhibit change while others facilitate adaptation to change. Societies that are more open to change are identified with low power distance, individualism and low uncertainty avoidance. In addition, it is easier to foster innovation and change in loose culture rather than tight culture. Loose culture also symbolizes high diversity tolerance and it is suggested that CEOs of MNCs should support these values, most especially in the framework of high paced industries.
The findings of this study also raise certain questions that are considered appropriate for future research. For example, are MNCs from certain countries more likely to transfer their own practices to host countries and less likely to adopt local practices in ‘lenient’ host countries? What implications are obvious for managing IR and HR in a global context when MNCs choose to embody typical national characteristics?
Today’s business environment is without doubt getting increasingly complex, dynamic, highly competitive, and extremely volatile. Therefore, one major challenge for organizations and corporations is that they must be global and systematic in managing their human capital and resources in a differing cultural environment if they wish to have any hope of gaining and sustaining a competitive advantage in the years to come.
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