With the growing rate of organisations across national and international borders, it is imperative that management procedures in a multicultural environment function properly. 'Globalisation' and 'internalisation' are responsible for playing a huge role in managers that can function effectively in various parts of the world in terms of business interest (Foster 2000). The increase of international business in recent times indicate that the activities of Multinational corporations (MNCs) are equally rising, which also points to the fact that MNCs play a role in facilitating the transfer of resources, technology, management practices, products and services from home country to host country. As nations become more integrated and businesses are done across borders, areas of concern such as people management, recruitments, training and repatriation, reward and career development, becomes critical for HR managers for the strategic planning and success of the organisation.
MNCs have a positive impact on economic growth of host country by supplying capital, technology and management resources that are absent in their subsidiaries. On the other hand, there are concerns and anti-sentiment about negative effects that foreign firms may inflict on the economic and non-economic system of their host country, especially in developing economies (Jeon & Ahn 2004). However, the main focus of this essay looks at the differences between home and host country culture, its impact upon HRM practices in MNCs and the approaches they seek to reconcile these differences. In analysing this, the question that comes to mind is; what do MNCs do when they meet different societies and to what extent do they affect HRM where it's concerned? To clearly answer this question, the essay is structured into different parts. The first part looks at the importance of cultural differences between home and host country. The second part discusses how HR practices differ in areas such as recruitment, selection and training. The third part of this essay suggests different strategies MNCs can adopt to address cultural differences. The fourth part is a conclusion of the essay.
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Culture is seen as the driving force that is behind the behaviour of every human being. According to Moran, Harris and Moran (2007), culture is seen as dynamic and gives people a sense of belonging, a sense of who they are and how they should behave. Browaeys and Price (2008, p.9) on the other hand state that 'one can never use the term "culture" without being obliged to give a range of definitions that contradict each other". It is argued that although there are various definitions of culture, there is a possibility of regarding it as a meaningful concept. Culture differs and people disagree on what they are, whether they are widespread or exceptional differences, or if the differences are deep-seated or superficial. Culture cannot be easily isolated as it also has considerable impact on the economic and political conditions of a nation. Hofstede (1980) defines national culture as ''the collective programming of the mind that distinguishes the members of one group of people from another''. Cultural differences may reflect in the norms, behaviour and values of the society and so, the awareness of national culture is essential to managers in MNCs as it is usually complex and affects business operations. For example, the operation of a MNC like McDonalds in Saudi Arabia is influenced by the culture of the society as it closes its doors to business at the time of the five prayer period. Also, a manager operating in Saudi Arabia will be expected to mix business and pleasure due to the fact that an Arabian businessman sees nothing wrong in mixing business transactions with pleasure.
The term Home County Nationals or Parent Country Nationals (PCN) simply means the residence of the home country where the headquarters is located, while Host Country Nationals (HCN) refers to the residents that host the MNCs abroad (Vance and Paik, 2006). Huge changes occur when it comes to the cultural differences of both Home and host country i.e. the differences in socio cultural setting, the political system, economic and technological development. In a multicultural setting, the workforce or the people that are behind or responsible for such transfer and implementation of the strategic business plan will have to adjust to some external and internal factors as well as cultural factors of the countries they intend to do business with. Dowling et al (2008) assets that it is significant to observe that the degree at which some organisations that are internationalizing cope with its HR practices really determines its ability to carry out and accomplish its corporate and expansion strategies. Deresky's (2006) notion of National culture is that particular culture of a society which comprises the shared values, assumptions, understanding, and goals that are learned from earlier generations, is imposed by present members of a society and passed on to succeeding generations. The problem this presents for MNCs is that this may lead to a salient challenge when there is little or no sensitivity of knowledge whatsoever between MNCs firms. This may also affect their personal life and businesses, as well as making huge mistakes that could probably have been avoided. One of these common mistakes is the assumption of knowing the best way to conduct business in another country.
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Changes are caused by national differences and factors like organisation-specific, the carry-over effect of the HCN (home country National) and the Host country environment (Yeun and Kee, 1993). 'Local isomorphism', a practice of organisation to behave as local firms and adjust their systems to local circumstances is expected in certain areas of HR due to constraining factors of host country rules and regulations. Some areas of business might make no sense if it is isolated from the set of character in which there are incorporated in the home country. For example, for Japanese MNCs, it might be very challenging to adjust to the techniques of home country personnel management in their overseas operations because the all embracing formal system that exist are so deep-rooted in the Japanese corporate culture (Lincoln et al., 1995).
To address the question of the home and host country cultural effects on MNCs, the question of how these differences affect HR practices in MNCs subsidiaries comes into light. With regards to the Management of staffs in an organisation, when it comes to host and home country, it is important to look at the possible impact cultural diversity has on HR practices. The socio-cultural aspect is one area HR should consider when making international staffing decisions. First, is the general social norm and second is that of 'women' and international staffing. In general social norms, a typical example is 'nepotism', a system whereby family members are hired. This staffing approach may be applicable for some cultures in the Middle East and Asia while some other cultures may see this as unjust. Factors such as gender or age, family ties are considered in some cultures whereas in other cultural backgrounds, the main focus is on the technical competence of the applicant to do the job. Segalle et al, (2001) suggests that the importance of these factors should be considered and given a more traditional look as to where culture has a deep part to play in international staffing. In some parts of the world, like the Asian and Islamic societies, despite national laws that may prohibit discrimination at company headquarters, the cultural norms are held very high when it comes to staffing of women employees. The aspect of training in some countries is made by the management while in others countries, companies spend time and money to provide a lawful training process (Tayeb, 2005). In terms of recruiting process, in countries such as Africa, some recruitment are still done on an informal level, through a friend or acquaintance. For countries that are more advance, an oral interview can be conducted or interview in form of a written test. The internationalisation of business between nations across border can lead to a huge change in cultural diversity between home and host country national and this change affects the practices HR
It is evident that in managing a global work force, the process, practices, systems and the structures developed to execute those strategies should be equally different as the creation of global strategies can be quit challenging. The demands that come with the attempt of MNCs to maximize their capacity to respond to the needs of the host countries (local responsiveness), at the same time, trying to maintain their corporate structure worldwide (global intergration),(Caligiuri and Stroh, 1995). How organisations address the labour market, for example, multi domestic; why subsidiaries practice the best polices in the market in terms of business strategy. Take for example coca cola and the taste of its sweetness around the world. For the multi domestic, whatever fits is what they will adopt at the global level. They may be small bits of localisation but it is basically the same around the world. An example is also Big Mac and the choices of food they have in United States as to the one in South Africa.
Perlmutter's (1969) created four typologies approach that can be adopted by management. They are; ethnocentric, ploycentric, regiocentric and geocentric. They tend to move towards the notion that staffing in terms of recruitment and selection is largely based on international transfer of expatriates. In the Ethnocentric approach, the managerial positions are filled with expatriates from the Home country which makes them in charge. They are familiar with the headquarters (PCN) and all decisions are made as well from headquarters. The need for this strategic control by the Ethnocentric approach can be seen as the working challenges created by cultural detachment or the nature of industry, mainly where product complexity and security concerns are very high (Harzing,1999). With Polycentric however, they accept the general of doing things but there is still some kind of base control from headquarters. Some decisions are made by the subsidiaries and local managers are hired (Host Country Nationals) to fill key positions. The strategic advantage of this approach is that here, managers are naturally familiar with the local culture, the language and way of conducting business. HCNs are more likely to be accepted by the people both from outside and within the subsidiary. The Regiocentric relates to a greater recognition of the regional way of doing things. Although promotions to headquarters are still limited, they get to move around but not too far away from their region. It helps to build international competencies. While the Geocentric select the best talent for important jobs regardless of nationality. With these typologies, it is clear how crucial it is when it comes to applying these strategies to HR practices but again, knowing the right one to apply is always a bit of a challenge.
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In conclusion, factors associated with conflict between home country and host country include differences in political system and laws which regulate business operations. Furthermore, since the success of a MNC depends on the input of its workforce, and their adjustments to their external environment, and as expatriates become crucial in current international business, it is important to state that an understanding of the external environment in which an organisation operate or plans to move into is the starting point for the development of both its business and HR strategy. Therefore, to ensure organisational effectiveness, MNCs are not only required to send expatriate that will adjust to local conditions of the host country, HR should also put into consideration the business strategy of the firm in-line with host country regulations as well as external factors.
The performance of global development of MNCs is increasing by the day but organisations are not only faced with the different challenges across the home and host country cultures. They also face the challenge of what strategies they will have to adopt to maintain their competitive advantage. The four typologies by Perlmutter, (1969) suggest that for organizations to be more effective globally, it needs to incorporate the typology that suits the organization. It is of importance that HR in MNCs know the right approach to apply in order to strike some form of balance between the home and host country, as well as the staffing approach considered best for the organisation. In this essay, we suggest that the geocentric approach is a strike of the balance mentioned by Perlmutter (1969) as the system not only recognises both Home and Host country, but also allows for the improvement of the best people for the positions, in spite of the location.