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Pattern of Multinational Corporation based on cultural difference

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Published: Mon, 5 Dec 2016

With the development of economical globalization, the internationaloperation has become an important trend of development for enterprises.Multinational corporations are playing more and more important roles in theworld economy. While getting the big world market, they have to be facing morecomplex internal and external management environments. The cultural differenceis a noticeable influence factor. With more practice of management, moremanagers and scholars began to pay attention to this problem and do a lot ofresearches. How to reduce the adverse influence of culture difference inmultinational corporation’s human resource management (HRM) has become afocus in the field of trans-culture management.

Subsidiaries and joint ventures in foreign countries are primary vehicles to market products internationally and to take advantage of the manufacturing capabilities of other countries (Li and Scullion 2006). Providing with the competitive labor cost and abundant resources, China now is the ideal manufacturing powerhouse where foreign investments have been booming up over the past decade. However, “if there are major gains to be made, there are also risks. One of these is the management of human resources (Sergeant and Frenkel 1998)”. Challenged by mainly the culture differences, managing the Chinese employees is never an easy task for a foreign manager. The high rate of turnover has been a substantial problem in managing Chinese employees in joint ventures in the People’s Republic of China (Beamer, 1998). Many of the foreign executives still hold the concept that Chinese employees are eager to work for foreign companies in order to learn those advanced management knowledge and so on, and simply believe that the employees’ commitment is driven by such attitude. And therefore behave like evangelists on a mission to convert Chinese people to Western business practices (Jean 2009). However, as mentioned by Courtois (2009), the expectations and characterizations of Chinese nationals are shifting. Mentioned by Gross (2007) as well, “most importantly, there is the need to ensure that differences in local practices and management are ironed out. At the very least, such differences should be understood and respected”. In another word, it is crucial that foreign managers shall understand the importance of learning how culture difference could be a key issue when managing Chinese employees and therefore make sure that they have the right attitude on managing Chinese employees before they start it.

Cross-cultural researchers have argued for the need to develop frameworks that can help people from different cultures overcome obstacles to work together productively (Bond 2003). Some of the typical Chinese culture which are easily to be involved in work must be fully understood and foreign executives shall be aware of how to play with these culture differences so that enable themselves to manage people in an effective way. Such management which is based upon learning the culture and behavior of Chinese employee will help the company to form a stable and efficient HRM method in the long run. With increasing of the practical experience gained by foreign executives, more and more typical work related Chinese culture has been familiarized by western countries. Such as “face” and “guanxi”, were once and maybe still are the hard culture concepts for foreign executives to deal with when managing Chinese employees.

Another challenging issue foreign managers have to face is that there is no such mature HRM knowledge in China. In earlier time, Child (1994) pointed out HRM is absent in Chinese companies while recently Li et al. (2007) mentioned that “in China, HRM policy and practice are in a state of flux”. Therefore, this has made it difficult for foreign managers to introduce their preferred approach in joint ventures (Sergeant and Frenkel 1998).

Literature Review

Human resources management theory

Human resources management functions

Human resource management (HRM) is a function in an organisation wherein it focuses on employee-related activities. In other words, it deals with the management of, recruitment of and providing direction for the people who work in the organisation. It is usually involved with issues that are related to people. Among these is the process of hiring, organisation development, compensation, wellness, employee motivation, administration, performance management, safety, training, communication and the benefits . Similarly, Ledge (2005) states that human resource management is the management of a workforce and it can be both an academic theory and business practice. In addition, According to Lipiec (2001), human resource management is the process of coordinating an organisation’s human resources, or employees, to meet organisational goals. Human resource professionals deal with such areas as employee recruitment and selection, performance evaluation, compensation and benefits, professional development, safety and health, forecasting, and labour relations.

Price (2004) defines human resource management as a belief of people management on the idea that human resources are significant factors in maintaining the success of a business. He discussed that a company obtains a competitive advantage by practicing an efficient usage of its personnel, using their expertise and creativity to reach the organisation’s purposes. Moreover, human resource management (HRM) seeks to employ capable, flexible and committed personnel. In contradiction, Bach (2005) stated that HRM is unitarist, the interests of employees and other stakeholders are marginalised, there is a great importance on the individual firm that is channeled on each employee, there is a logical playing down of external and collective issues.

Some of the challenges today in human resource management are maintaining a diverse workforce, dealing with major technological changes, keeping up with governmental regulations, handling corporate restructuring and downsising, and formulating strategies essential to personnel management . These challenges need to be addressed in order to render an effective management of human resources.

It is said that the philosophy of human resource management is based on the simple belief that human resources are the most important asset in achieving and sustained business success. This realisation became the driving force behind the creation of human resource management resulting in organisations taking a strategic approach to the management of their people. The true worth of human resource management is becoming more widely understood as human resource management steadily interweaves all aspects of people management and development within the company . Thus, the HR has to gain knowledge of and become skilled at in the host country because the setting may be diametrically opposed to the home nation. Even on a more personal note, managers in HR have a lot to do with the employees in the company. Especially in a foreign country, the manager should be aware of the local practices and traditions if there are any. The fringe benefits the company offers may have to be adjusted in relation to what the host country deems acceptable. Considering all these responsibilities and the ramifications involved if there is no proper implementation, the position as HR manager should be handled by one who has relevant qualifications and experience.Although the knowledge may be gained and experience earned, it is necessary primarily because the tasks involved calls for managerial functions. They may not be very necessary if the need is for HR staff. As a member of the staff, there will be a lot of information to be gleaned and eventually, imbued. However, as the position specifically requires managerial functions, so should there be expertise in the field.HRM should not be underestimated. Efficient management is no mean feat, especially in a foreign setting like in host countries where there are a myriad of differences in the social, cultural, political, economic and ethical aspects.

Overall, it can be said that the human resource management is not just about the functional responsibility of a company. More so, there is a need for managers to participate in the practices of the human resources in a daily basis. In other words, the human resource management is not just a mere department of the company but it entails the active participation of the head of the company such as the manager (“Human Resource Management,” 2007). we adopt a holistic perspective in considering the impact of the country’s environment as well as the multinational corporations (MNCs) strategy on human resource (HR) practices. More importantly, we argue that within MNCs human resource management (HRM) is playing a central role in the process of balancing local and global forces. HR can be critical in helping MNCs’ deal with local differences while also helping the company implement practices that are critical for its global strategy. Specifically, we argue that HR plays a key role in developing social capital, which may provide the necessary “substitutes” for formal control that would otherwise be neglected. Our contribution lies primarily in outlining how this new role of creating human capital confers on HR the task of filtering mission-critical practices through a “localization mesh” that ensures success. In addition, given the importance of social capital as an informal mechanism that allows MNCs to coordinate and integrate activities, we suggest ways in which an MNC can build social capital within the context of the Latin American pan-regional cultural values.

2.3 International Human Resource Management

International human resource management or IHRM is about the management of people in the international environment. By international, IHRM implies that it involves the intersection of multiple fields in the management. For instance, it includes the human resource management as well as international management. Through the phenomenon of international human resource management, one is able to gain a broader meaning and understanding of the traditional HRM (Academy of Management Human Resource Division, 2004). Many expatriate human resource (HR) policies, particularly in the area of compensation, remain rooted in the past because they continue to favor the expatriate over local staff and do not take into account the increasing qualifications and aspirations of these local employees. Inequitable treatment leads to low commitment and poor work performance among local staff. More importantly, inequitable treatment creates tension between local and expatriate employees and causes the local staff to be less willing to be cooperative or supportive of the expatriates with whom they have to work. Without local support, expatriates may experience greater difficulty adjusting to their new jobs and the new environment, which is a contributing factor in the failure of expatriates. It is critical that multinational companies are aware that some existing HR practices have potentially unintended negative consequences and that neglecting the impact of these practices on local employees hurts the effectiveness of the organization as well as the ability of expatriates to succeed in their assignment.

According to Briscoe and Schuler (2004), there is an increasing need to discuss the issue on international human resource management because the conduct of business is increasingly international in scope and managing human resources is critical to the successful conduct of global business. With the emerging trends such as globalisation and modernisation, the process of international human resource management is greatly affected. Particularly, the changes incurred by international human resource management have been greatly shaped by these trends. Through globalisation, there is a perceived disappearance of the national or geographic boundaries. The conduct of business activities from one country to another has become highly possible through the globalisation process. And with the aid of modernisation, the conduct of business affairs or activities has become faster and more convenient.

Budhwar and Debrah (2001) provide various factors that paved the way for the increased need in human resource management by business organisations. According to them, human resource management is all the more important because of the increasing levels of globalisation as well as internationalisation of business, the growth of new markets (such as in Africa, Eastern Europe, China, India, South-East Asia and Latin America), the growth of new international business blocs (such as NAFTA, the European Union, ASEAN) and an increased level of competition among firms at both national and international level. And so, it seems to be that the world develops to become a ‘global business village,’ thereby increasing the need to know the ways in which managers in various parts of the world cope with the problems and issues that are related to the management of human resources.

This study aims to get a clearer picture of why multinational companies (MNCs) send out expatriates. It identifies three organizational functions of international transfers: position filling, management development and coordination and control. Based on an empirical study with results from 212 subsidiaries of MNCs from nine different home countries, located in 22 different host countries, it shows that the importance that is attached to these functions differs between subsidiaries in MNCs from different home countries, between subsidiaries in different host regions and in addition varies with the level of cultural difference. Sees position filling as most important for subsidiaries of US and British MNCs and in the Latin American and Far Eastern regions. It argues that these differences might have important consequences for expatriate management. It sees management development as most important for subsidiaries of German, Swiss and Dutch MNCs and as tending to occur more in Anglo-Saxon countries than in the Far East.

Indeed, the internationalisation of almost all business is evident on the prevalence of MNCs/MNEs (Multinational Corporations/Multinational Enterprises). And so, as the business organisations become more active in the international arena, the need for human resource management becomes more crucial. But as one tends to venture into the international business, there are more problems and issues that need to be addressed. And so, the globalisation of business presents the managers and the organisations more challenges and difficulties especially in the field of human resource management.

This has been confirmed by Clark et al. (1999) by stating that while there is an increasing number of organisations that seek to operate in foreign markets, there is also an increasing challenge for the international management of human resources. Among the key three challenges to international HRM are marginality, parochialism and ethnocentrism. With this, it is essential to develop a better understanding of, and sensitivity to, the impact of different national settings on the management task.

2.4 Significance of Human Resource Management

The need for human resource management by business organisations, especially the major ones, is crucial to its success. In fact, this aspect cannot be eliminated by organisations if they are to ensure an effective and successful conduct of business. This is because human resource management serves as an organisational function that realises the goals of the company. With the effective management of human resources, the company is also effective in the conduct of its activities or the delivering of its business. And so, it can be said the human resource management is integral to the success of every business organisations.

Jahn (1999) considers the humans as the greatest assets of the organisation. Because without the humans, organisations will not be able to complete the everyday functions such as cash flow management, dealing with customers, communicating through all forms of media as well as making business transactions. Indeed, it is the humans and their potentials that drive the organisation. The human resource management ensures that employees are able to meet the goals of the organisations. In other words, HRM maximises the productivity of an organisation through the process of optimising the effectiveness of its employees. And in spite of the ever-increasing pace of change in the business world, this mandate on HRM is unlikely to change in any fundamental way. According to Encyclopedia of Small Business (2002), the basic mission human resources will always be to acquire, develop, and retain talent; align the workforce with the business; and be an excellent contributor to the business.

Furthermore, the managing of international employees by multinational and domestic organisations is perceived to be important in the changing landscape of the business environment. In fact, there has been a fundamental change in the global thinking, as evident in the actions, of the organisations. With this, human resource management is important in realising the need for organisations to remain innovative in what may be contracting and rationalising markets or even markets that are being shaken up by new entrants and new competitive behavior. Meanwhile, the initiatives which are aimed at improving the financial, temporal as well as functional flexibility are introduced in order to address the need to deliver the radical cost improvements. And with the increasing flexibility, there is also the desire of the firms to change their employee and their sense of involvement (Brewster, Harris and Sparrow, 2004).

Today, the true worth of employees among business firms is more widely expressed through human resource management. The idea that human resources are the most important asset in achieving and sustained business success becomes the driving force behind the creation of human resource management resulting in organisations taking a strategic approach to the management of their people. Since this conceptual realisation, human resource management has become increasingly influential in the fashions and implementations of corporate strategy.

A review of the origin guides us in providing an adequate definition of strategic HRM. Management development as defined by Bromley as follows: “A conscious and systematic process to control the development of managerial resources in the organization for the achievement for goals and strategies” (Molander,C. (1986) Management Development. Bromley: Chartwell-Bratt) “The traditional concept of workforce or succession planning (forecasting vacancies and/or new knowledge, skills, and abilities, identifying/cultivating in-house and outside talent pools) is more important than ever in a fast paced environment.” (Robert Kreitner., 2001). The idea Human Resource Management (HRM) came from the U.S. in the 1980s because the companies in USA were developed at that time, because of this, the models of Strategic HRM were emerging. The strategic HRM pays its attention to the manpower planning. It focuses on the effective management of people. It views people as a source of competitive advantage. HRM is a strategic way of developing, motivating and gaining the potential of both the people and the external resources.

The combination of a globalized workforce with massive mobility is compelling organizations to work with growing numbers of people from different cultures, with different customs, values, beliefs, and practices. This article describes some of the factors HR managers and company leadership must account for to create global people policies and practices that reflect the common culture of the organization, yet adapt to local realities and business needs. Cases drawn from the author’s consulting work with multinational business not only describe specific challenges faced by those firms, but also highlight the broader trends that all global companies need to understand and manage. As multinational corporations become increasingly central to the world economy, the need to attract and retain executives to manage these corporations gains in importance. For the multinational executive, the traditional business functions of marketing, finance, production and personnel must be synthesized with unfamiliar political, economic and sociocultural systems. These unique dimensions of the multinational executive’s job require a reward/compensation system that considers these diverse variables. Through a detailed literature review and discussions with specialists in the field, thirteen factors were identified as being unique to the multinational executive’s job: (1) size of the company, (2) number of expatriates abroad, (3) industry characteristics, (4) relative inflation, (5) relative living costs, (6) cultural differences, (7) currency fluctuations, (8) relative buying power, (9) difficulty with communication systems, (10) freedom to act enjoyed by the executive, (11) key strategic and financial measures for which the executive is responsible, (12) exposure to different legal systems, and (13) working under different political systems. These factors were then presented (via questionnaires) to samples of international line executives and human resource management executives, who were asked to rate the desirability of using these variables in a compensation program for international executives. The similarities and differences of opinions contained in their responses were analyzed, and reasons for the differences were studied and documented. Finally, using statistical techniques, the researcher developed a set of decision-making systems that incorporated many of the traditional and nontraditional variables developed earlier in the research. Customer satisfaction has become a very important aspect of business management in the high technology market. Companies that provide products and services worldwide often are concerned that customer satisfaction may be impacted by cultural differences. This study examines measures of customer satisfaction in areas around the world to determine whether or not there is a difference in satisfaction scores provided by Help Desks. A sample of more than 11579 surveys from three large international companies in the computer and medical electronics areas was used. The statistical results at a 5% confidence level indicate there is a difference in customer perception in Help Desk support between that provided to US customers than that provided to Thailand customers. The results clearly indicate that companies need to understand these differences in order to optimize the use of their resources and to adjust their service offerings to respond to their different customer needs and expectations. A growing body of research has challenged the commonly accepted view that multinationals have evolved into globally integrated networks, demonstrating instead that such organizations are sites of conflict between competing rationalities emerging from distinctive national institutional contexts. However, this research has neglected professional service firms (PSFs) in spite of them often being held as exemplars of the integrated network model. This article redresses this imbalance by focusing, in particular, on how PSFs seek to coordinate the horizontal flow of their human resources as a mechanism of inter-unit knowledge sharing. The purpose of this paper is to examine the effect of individual factors on the transfer of human resource management (HRM) knowledge in Chinese subsidiaries of multinational corporations, and to explore the relationships between individual factors and introduce the concept of joint effect-integrated capability. Based on the notion that certain factors can affect knowledge transfer (KT), Cindy¼ˆ2008¼‰ examines the effect of four factors, i.e. cultural difference and adaptability, language and communication, working relationship, and motivation and willingness, on the transfer of HRM knowledge. Data were collected through semi-structured interviews conducted between January and April 2004 and an exploratory data analysis was carried out with the assistance of Nvivo software. The study has found that Chinese HR managers have the ability of all four factors to facilitate the transfer of HRM knowledge. The findings further suggest that integrated capability-joint effect could be generated from the four factors and affect the transfer process jointly. When the capability is positive, it facilitates the transfer. Conversely, when the capability is negative, it impedes the transfer. The findings not only extend the understanding of the effect of single factor on KT, but also the interrelationship between individual factors, their joint effect-integrated capability and the transfer process. Existing research has concentrated on studying the effect of single factor on KT, knowledge management by and large. There is little research investigating the correlations between individual factors. He addresses this gap and introduces the concept of joint effect, integrated capability. So-called cross-culture human resource management, the enterprise is cross-cultural human resources management. Cross cultural enterprises, just as its name implies, it is to point to by from different cultural backgrounds and cross-cultural differences exist composed of staff. In cross-cultural in human resources management, enterprise or the company is due by the two countries or multinational companies in the host country composed of partnership and across the nation, the government and international business management of cross-cultural economic entity, so the cultural factors of influence multinational enterprise is comprehensive.

Research method and methodology

There are two research methods, that is ,qualitative and quantitative research methods. The former focuses on a descriptive method,the laster is to be gathered from the source are in descriptive form and thus may vary based on the source or the respondent. quantitative research method can be useful for the study if the focus is on driving towards a point or deriving a particular information based on the other information that were gathered. We try to combine both the qualitative and quantitative research method.

2.1qualitative and quantitative research

While the research will be using statistical means for the interpretation of the data, descriptive assessment will also be combined to give the researcher more insight concerning the cultural adaptability of companies in the foreign market as well as issues regarding the human resource management of the corporations.so one of the most important approaches for this research is the semi structured interview which can provide abundant objective information and help me to gain insight into the related problems and phenomena. Interview can be more in-depth and can address more complex hypotheses and it is easier to obtain the appropriate respondent through interview (Alderman 2009). In order to explore the ideas behind related problems, both foreign managers and representatives of Chinese employees will be interviewed as I believe that comparison of ideas from both sides will help this research to generate more depth and objective view towards the research question. Moreover, the information provides by Chinese employees could explore the idea of how Chinese employees view their foreign managers’ management methods, and that paves the way for further analysis. The interviewed will be conducted with both structured questionnaire and free talk. The aim of such a design is to collect basic required data for analysis and obtain any new ideas could possibly be given by interviewees at the same time as the interview goes on.Besides, through interview, other specific HRM practices could be explained in a detail way, issues such as recruitment, performance management, training, retention, etc. These information are essential for the research to deploy the analysis of HRM issue. Beside, with these data gained from the interview and the previous review of related literatures, a qualitative analysis could be achieved eventually.Another effective approach is email contact with key persons in the organization. Such approach is particular effective as the way of operating it is relatively easy and free. When the research proceeds, some new information may need to be acquired in order to help develop necessary analysis in different stage of the research. Through email contact, such information acquisition could be achieved in an effective way. Telephone interview could be more effective compared to email contact, however, considering that the topic of the conversation may not be that free as it involves different culture and ideas about other people’s behaviour and so on, therefore, telephone interview is not an appropriate approach for this research.In addition, one of the superior managers from headquarters who is in charge of the overall HRM within the whole group will also be contact through email. By doing so, a view on managing Chinese employees in the subsidiary from the parent company could be derived, which could help the research to achieve a more complete analysis towards the topic. Meanwhile, email contact could also be perceived as an effective way to prove the information gained from interview. Questions in the email will be designed differently according to the position and the role of the receiver within the company.

2.2Comparative research

Comparative research focus is found the differences and similarities between different cultures, and then determine what theory is applied to all cultures, which is only applicable to a particular cultural background. This method is not the premise of so-called body culture, only different culture of the similarity is believed to be the universal phenomena. Most experts and scholars all previous is adopted the method of comparison research of cross-cultural management problems, because in the management of cross-cultural environment, you need to identify the differences between the different cultures, and only after comparing to identify.

2.3 Data Collection Design

For the research strategy of this study, the fundamental idea is to make comparison of related literatures and empirical experiences provided by communicating with related employees in the case study, so that to obtain depth understanding of opinions explained by those related literatures and to explain the practical situation with more relative literature reviews, therefore, to achieve a more overall and practical research on this topic through such comparison.For the research design of this study, basically, this research will be conducted based on a case study of a multinational manufacturing company in China. Before that, relative literature review will be processed in order to generate more accurate analysis and ideas on the research question. The ultimate quality and success of research are often a reflection of the time and effort invested in developing research ideas and concepts, a stage of planning that includes becoming familiar with the literature (Congdon and Dunham 1999). Then, taking the advantage of the fact that I had been working for the company for almost 5 years and had built up good relationship with all related managers and other employees, I can easily get access to the company and get sufficient information as required for this research. Besides, the company is showing great interest of this research and would like to cooperate with my work since this research could somehow help them to improve the management of Chinese employees in some way.

This research adopted the personal administered questionnaire. Clark et al, (1998) stated that the great advantage of the personally administered questionnaire is that the researcher has more control, can clarify or repeat any questions and can strengthen open-ended questions by allowing larger answers and asking supplementary questions. Through this process, new factors maybe identified and a deeper understanding of the


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