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Globalization of business is taking place at faster rate which is forcing mangers to tackle with complex issues as they seek to gain or sustain a competitive advantage. Due to unprecedented level of foreign competition at home and abroad, firms are beginning to recognize not only that international business but also finding and nurturing the "Human Resources" required to implement an international or global strategy is of critical importance.
Effective human resource management (HRM) is essential, especially for small and medium firms where international expansion places additional stress on limited resource, particularly people. Internationalization increases the complexity of an organization and of the environment it is concerned with.
Defining Global HRM:
Typically HRM refers to those activities which utilize human resource effectively in an organization. These activities would include the following:
Human resource planning
Training and development.
Compensation (remuneration) and benefits.
This is a typical HRM, but when HRM goes global or international some of the above mention activities changes.
According to P.V.Morgan international or global HRM have three dimension i.e.
Human resource activities.
Types of employees.
Human Resource Activities.
Human resource activities in global HRM are broadly divided into three activities which can be easily expanded into typical six HR activities. These are:
Types of employees.
There are three categories of employee when we look the employee of an organization from global perspectives.
Host-country nationals (HCNs)
Parent -country nationals (PCNs)
Third -country nationals (TCNs)
The country categories involved in Global HRM are:
The host country where a subsidiary may be located.
The home country where the firm is headquartered and
Other countries that may be the source of labor, finance and other inputs.
The Need for Global HRM:
Due to globalization business process is expanding which require improvement in temporal and functional flexibility in the business processes and to accomplish this corporate are spreading their recruitment net even beyond their state boundaries.
The search for skills and the competencies at the middle level managers and upwards has today become an international affair. This resulted in greater diversity among the human resource deployed at various workplaces within and outside the nation. A need thus arises to manage these cultural and institutional differences between countries where the business has spread, so as to keep the productivity and profitability on par with global competition.
In the age of globalization, strategic management of human resources is becoming critical for organizational survival. Global business environments demand flexibility and rapid response. There is growing realization that the human dimension provides the key to flexibility and adaptability in organization.
Orientation to the organizational culture is a vital for all new joiners. Managers need to understand the dynamics of cross cultural adaptation. Intercultural management requires the ability to get inside the head of people from other to know how and why they view the world with their basic values and beliefs and solve problems.
Intercultural communication and the management skills cannot be learnt by simply gathering information about other cultures. This may reduce some uncertainty and decrease prejudice, but it does not give authentic cross - cultural knowledge. The only way we learn intercultural communication and management is through some sort of experience, coupled with cross-culturally validated management principles.
Shrink in product life cycle:
In a globalized business environment, product life cycle have shrunk to months demanding everything to happen faster. Consumers today want services at the speed of thought. In this fast paced e-world, decisions are required to be made in real time, which means instantaneous communication between businesses located in different countries and also affording accesses to information and knowledge to all associate with decision making. There is a time to integrate the functionally and geographically separate units by securing the cooperation of the entire workforce through effective communication.
To organize, inspire, deploy, enable, measure, and reward the value-operational work, there must be an effective communication from corporate headquarters to different units located in different countries and cultures and to accomplish this HRM should invariably get internationalized. It is only through a clear understanding of difference between countries in terms of culture diversity and value- system that managers can effectively communicate with the employee pool of international horizon and accomplish business goals.
MECHANISMS OF GLOBAL HRM INTEGRATION
While control has been defined as any process in which a person, group or organisation determines or intentionally affects what another person, group or organisation will do , coordination refers to the means through which the different parts of an organisation are integrated or linked together to accomplish a collective goal .
In line with the approach by Kim , the present study views global integration as comprising both the above tools of control and coordination that are used to achieve consistency of business activities overseas. An overview of different mechanisms of HRM integration is now presented.
For the purposes of structure and clarity, Kim et al.'s (2003) classification of four global integration modes -
The four categories of integrating mechanisms are conceptually independent, collectively exhaustive, and detailed.
Centralization is generally referred to as the most direct form of control and is widespread in classifications of control in the international management literature.
In terms of centralization as a means to integrate HRM, empirical studies have highlighted the exercise of headquarters authority in determining senior management pay, recruitment and development as well as other financially sensitive HR issues like headcount and salary expenditure. However, in qualitative studies, such direct forms of centralized parent control are found to be rare compared to other more 'unobtrusive' forms. Case study evidence suggests that rather than being determined in a purely mechanistic way, centralization should be viewed as an outcome of the dynamic parent-subsidiary negotiation process whereby the source of centralization may in fact lie at the regional, not the global level.
Formalization-based mechanisms refer to the standardization and thus codification of work procedures and policies on a global basis. Representing a largely impersonal and indirect form of control, formalization-based mechanisms have been labeled in different ways such as impersonal coordination, often in association with the Weberian notion of 'bureaucratic' control that seeks to limit subsidiary management's role and authority.
The formalization, or 'bureaucratization' of HRM in MNCs, characterized by attempts to devise and implement common international HR structures and guidelines, has been shown to be commonplace.
While some studies depict global HR policies as a means of creating a common language across countries, others argue that such formalization efforts are dependent on other less formal 'social' control mechanisms for their overall effectiveness. As an extension of centralized control, illustrate how policy creation and implementation are also negotiated processes, reporting increasing subsidiary involvement in the former and some scope for interpretation of the latter.
This category includes those tools that facilitate the international flow of information whether it is via simple databases or via more complex electronic data interchanges. Information-based integration has been interpreted as a means for headquarters to communicate and regulate information that is central to strategic decision making. Hence this is one of the key areas through which the HR function could position itself is in its role in global HRM.
Information-based integration of HRM was mostly restricted to the use of databases shared internationally (e.g. corporate intranet) or via electronic communication tools. Through these media information was stored on a range of HR-related topics, including employee information, culture surveys, training material and company HR policies.
People-based mechanisms incorporate the transfer of managers and the various forms of committees or taskforces whose mandate is to integrate business operations. While the use of expatriates has traditionally been viewed as a personal form of monitoring and supervision, more recent research suggests that MNCs deploy expatriates for much broader purposes including the fostering of shared values and the transfer of knowledge. While some studies have demonstrated, expatriates significance in effecting the resemblance between parent and subsidiary HR practices. The integration of HRM in this group format is suggested to be on the increase in connection with the rise of informal networking and knowledge transfer 'spaces'.
Four major tasks of Global HRM
Management training and development
Selecting individuals with requisite skills to do a particular job
Tool for developing and promoting corporate culture
View People as Resource.
The form and substance of a company's response to global markets opportunities depend greatly on management's assumptions and beliefs (both conscious and unconscious) about the nature of the world. The worldview of a company's personnel can be described as :
Ethnocentric Orientation :
A person who assumes his or her home country superior compared to the rest of the world is said to have an ethnocentric orientation. The ethnocentric orientation means company personnel see only similarities in markets and assume the products and practices that succeed in the home country will, due to their demonstrated superiority, be successful anywhere.
At some companies, the ethnocentric orientation means that opportunities outside the home country are ignored. Such companies are called domestic companies. Ethnocentric companies that do conduct business outside the home country can be described as international companies. They adhere to the notion that the products that succeed in the home country are superior and, therefore, can be sold everywhere without adaptation. In the ethnocentric international company, foreign operations are viewed as being secondary or subordinate to domestic ones.
Valuable managerial knowledge and experience in local markets may go unnoticed. For a mfg. firm, ethnocentrism means foreign markets are viewed as a means of disposing of surplus domestic production. Even if consumer needs or wants differ from those in the home country.
The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes management's belief that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed. The term multinational company is often used to describe such a company. Polycentric orientation is Less expensive to implement.
Regiocentric Orientation :
In a company with a regiocentric orientation, management views regions as unique and seeks to develop an integrated regional strategy. For example, a US company that focuses on the countries included in the NAFTA is a regiocentric orientation.
Geocentric Orientation :
A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated world market strategies. A company whose management has a regiocentric or geocentric orientation is known as a global or a transnational company.
Centralized, Decentralized or Integrated? :
Centralized, Decentralized or Integrated? The ethnocentric company is centralized in its marketing management (home country superiority) The polycentric company is decentralized (there are so many differences in cultural, economic, and marketing conditions that it is impossible and futile attempt to transfer experience across national boundaries). The regiocentric company is integrated on a regional scale, and the geocentric company is integrated on a global scale.
Management Training & Development
Training the manager to do the specific job & management development which can happen over the course of a career
Job transfers are opportunities for broad international experience that will enhance the management & leadership skills of executives
Training expatriate manager & spouse - cultural, language & practical training to reduce failure
Repatriation of Expats - prepare them for reentry into the home country (15% of returning expats leave w/i 1 year, 40% w/i 3 years)
Management development as a strategic tool - especially transnational
Strong unifying corporate culture & information management network to assist in coordination & control
Need to be able to detect pressures for local responsiveness & that requires cultural understanding
Two groups usually evaluate the performance of expats - host nation & home office managers. Both are subject to bias
More weight should be given to on-site manager appraisal than off-site (soft variables).
Former expat who served in country could be involved in the appraisal.
When on-site prepares, off-site should be consulted before it is complete to balance.
How compensation should be adjusted to reflect national differences - according to prevailing country standards or equalize pay on a global basis
How should expatriate managers be paid:
Ethnocentric - how much home country expats should be paid
Polycentric - lack of managers' mobility among national operations -> pay can be kept country specific
Geocentric - pay the international executives the same basic salary regardless of country of origin or assignment
Balance sheet approach to expat pay = equalizes purchasing power across countries.
Strategic Role of International HR
Strong fit between HR practices & strategy is required for high profitability. Sustained source of high productivity & competitive advantage in the global economy
HR policies need to be congruent with strategy - 4 Strategies pursued by international business
Multi-domestic = create value by emphasizing local responsiveness
International = transferring core competencies overseas
Global = realizing experience curve & location economies
Transnational = doing all these thing simultaneously
International Labor Relations
company can counter its bargaining power with the power to move the plant to another country
International business will keep highly skilled tasks in the home country & farm out low-skilled tasks to the foreign plants
International business will attempt to import employment practices & contractual agreements from its home country
Organized labor has responded by
Trying to establish international labor organizations
Lobbying for national legislation to restrict MNEs
Achieve international regulations on MNEs through UN
Not very successful because
Unions want to cooperate but compete with each other for jobs
Wide variation in union structure
Divergent ideologies about role of union in society & class conflict.
Problem faced in Global HRM:
Almost in every field of HRM, there is one or two problems occurs when domestic HRM goes globally. Some of them are as follow:
Training and Development:
The transfer of training techniques across cultures is fraught with difficulties for both trainers and trainee. Trainers working within multicultural setting need to be especially sensitive to their trainees' needs and socio-cultural learning backgrounds. Both trainers and participants in the workplace bring to training courses a baggage of past and present educational experience that impact their reaction to organizational learning approaches.
Recruitment and selection:
Due to globalization many organization begin with the simple but difficult situation of having multiple candidates for each international position instead of a single choice. International human resource professionals often report that it is difficult enough to identify one employee, who can perform the international job, will accept the assignment.
Most international selections are still being made almost exclusively by line management, who do not share this decision - making process with IHR. This can mean that IHR is seen only as policy implementers and not as strategic business partners. Best practice here is for IHR to employ a value-added assessment selection system, to be consulted reviewed and included in these decisions.
Career planning and management:
In these days of globalization, rapid change, mergers and acquisitions is very difficult to accomplish career planning and management.
In fact, many excellent international assignment candidates are demanding to know what is next for them if they accept the international assignment. They want to ensure the company will value their international experience and, to the extent possible, help them with next steps in their career.
Compensation and benefits policies:
International assignment compensation and benefit policies vary widely across organizations. Many of them offer very lucrative packages; apparently making the assumption that financial incentive leads to superior international performance. The risk here is that this type of policy may attract those who see the financial reward as the single or most important motivation for the international assignment. The best practice is to seek candidates who see the financial reward as the single or most important motivation for the international assignment. The best practice is to seek candidates who balance financial motives with those of career development and international experience.
Domestic HRM Vs Global HRM:
Managing people globally is not the same as managing people in the domestic context. Though there is no difference between domestic and global HRM in terms of functions such as human resource planning, staffing, performance evaluation, training and development, compensation, industrial relation. Bit global HRM is more diverse, complex to practice than domestic HRM. Moreover, global HRM is highly susceptible to change.
Dowling et al (1993) suggest that global HRM differs from domestic HRM in the following factor:
Global HRM involves more functions and activities.
It has broader scope and a global view of issues.
Employees' lives are more involved i.e. employees' family lives are also taken into consideration in the international relocation and training decisions.
It involves change in emphasis as the domestic business evolves to become global firm.
It involves exposures to risk that arise out of different political, socio-economic, cultural environments.
It is subject to more external influence in the form of state actions, ideological, cultural difference across the nations.