Human resources manager in international expansion

ABSTRACT

The worldwide dimension of Human Resources work may not have high influence in some businesses. But in some business it does posses a lot of influence. Some organizations that have world wide activities, needs to be staffed but with some different comparisons in the terms and conditions of employment. This is where the importance of international human resource management and the role of international human resource manager arise. International human resource manager must be responsible for framing new Human resources policies and strategies that gets in line with the location’s ethical and religious issues for which managers need to posses both explicit and tacit knowledge. This research highlights the importance of this knowledge and its transfer from the parent country to the host country in line with the other objectives of this research.

INTRODUCTION

The growth of significance in International Human Resource Management originates from the augment of globalization. This substantial growth can be seen very obviously over the past half century. This term explains the propagation of international trading relations, foreign direct speculation, worldwide mergers and acquisitions, quicker and affordable transport and swift technological revolution. Amalgamation of markets multi-nationally was involved by globalization and the involvement was done on a regional level as well which is enthused by the rise of potential and authoritative markets in china, India and Eastern and Central Europe.

Multinational companies are yet other visible manifestations of globalization. As companies expand domestically to a certain level they then try and expand internationally. This is when the role of International Human Resource Management comes into action. The objective of this research is to

1. Identify the role of International HR Manager.

2. To provide justification for the chosen geographical area.

3. To discuss the role of IHRM in relation to company’s global involvement.

The chosen geographical location for this research is India, for which the justification would be revealed during the course of the research.

LITERATURE REVIEW

International HRM can be defined as ‘the set of distinct activities, functions and processes that are directed at attracting and maintaining an MNC’s human resources. It is thus the aggregate of the various HRM systems used to manage people in the MNC, both at home and overseas.’ Taylor, Beechler and Napier, 1996, pg: 960.

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There are various models that best explain the International Human Resource Management. These models have been put forward to illustrate how the HR function is configured. The Schuler et al. (1993) model explains us the integrative frame work of international HRM. This is a conceptual frame work that tried to record HRM activity to the diverse strategic requirements for integration and local responsiveness. Schuler et al. (1993) defines strategic international HRM as ‘Human Resource Management issues, functions, policies, practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of the enterprise.’

“International Human Resource Management can also be referred to as a scrupulous type of devolution activity and spreading out of HR role. As and when an organization starts to develop its international activities, the organization inexorably sets up the degree of decentralization, but internationalization is not just a form of decentralization. This is considered to be one of the most complex forms of the same and involves different types of language, culture, economic and political systems, legislative frame works, management styles and conventions and diversification that stay within those national boundaries.” (Torrington, Hall and Taylor, 2005, pg: 695).

Perlmutter (1969) proposed a model that was purely network based, illustrating the globalization of companies. This model was initially implemented in the international human resource management prose, rather than the international business field from where it originated. Kobrin (1994) ‘identified the classification in human resource management issues such as training, recruiting, selecting people and resources as the prime reason why international Human resource theorists adopt the Perlmutter’s model widely.’ Perlmutter (1969) initially defined three organizational types based on management’s mindsets. They are ethnocentric, polycentric and geocentric organizations. Later he came with the fourth type of organization which is called the regiocentric organization.

“THE ETHNOCENTRIC MINDSET reflects a spotlight on home country values and methods of operating. The consequence is the key positions are filled by the parent country nationals which give them a high degree of direct control over the subsidiaries.

THE POLYCENTRIC MINDSET focuses on host country values and methods of operating. The key positions are filled by local employees and the parent company is less interested in homogenizing the organizational culture.

THE GEOCENTRIC MINDSET focuses on global operation methods and values. These values are not nationally specific but transcend national boundaries and become almost multi-cultural. This approach involves best people for the job and the selection is done from all over the global organization.

THE REGIOCENTRIC MINDSET recognizes regional operational methods and values. The organization is normally structured along regional geographic lines (e.g.: Europe, America, Asia Pacific Rim) and employees are transferred within these regions allowing certain degree of integration and recognizing regional diversity.” Perlmutter (1969).

ROLE OF INTERNATIONAL HUMAN RESOURCES MANAGER

The primary role of the human resources manager of a company that is expanding internationally for the first time is to formulate new HR strategies and policies based on the organization’s business policy. They must keep in mind the issues in the geographical location where the company is going to operate. Those issues may be varied starting from political issues, labor issues, religious issues and diversity issues.

The next important role would be the transfer of knowledge. ‘Knowledge is defined in terms of its explicit and tacit qualities’ (Nonaka and Takeuchi, 1995). Polyani (1962) states that ‘tacit knowledge is the one that can be articulated and explicit knowledge is something that cannot be articulated.’ Both these knowledge has different methods of acquisition and accumulation purposes. Lam (2000) argues ‘that explicit knowledge is mostly generated through reckoning and inference and can be acquired through learning, training reading and listening and tacit knowledge is acquired through exposure in different environments, face to face communications. Close interaction plays a critical role in diffusion of this knowledge.’

As per the above argument by Lam (2000), we can say that it is mandatory for an international human resources manager to posses both explicit and tacit knowledge. Explicit knowledge will help the manager in framing international HR policies and strategies based on organizational objectives. This can also be addressed to as the internal factors in international expansion. Where as the external factors include the political issues, the opportunities and threats which they might experience. This requires the manager to posses’ abundant tacit knowledge which is acquired through experience.

To be more specific on the roles we can consider the work of Tregaskis, Glover and Ferner (2005). They examined the role of international HR networks in 13 different Multi-national companies and outlined the role of the HR manager. These include

“1. Global policy development.

2. Global HR policy accomplishment.

3. Best practice conception and allocation.

4. Utilization of the distributed HR expertise.

5. Creating buy-in to policy initiatives.

6. Information Exchange.

7. Socialization of the HR community.”

These roles are self explanatory and it underpins the relevant knowledge requirement of the person involved in the international setting.

JUSTIFICATION OF THE CHOSEN AREA

This research will proceed further based on the assumption that the UK based organization is planning to expand its operations in India. India is one of the largest democracies in the southern Asia. India draws a high level of international attention with a GDP of growth rate of 8.1 percent in the first quarter of the financial year 2005-2006. This increased from 1.9 percent in 1995 to 3.4 percent in 2004. Major growth rate can be found in the industrial and the services sector with a growth rate of 8 percent in 2005.

There are quite a few challenges that the organization might have to face during its expansion in India. This is outlined by Beardwell and Claydon (2007, pg: 626).

“INFRASTRUCTURE:

The combination of weak authoritarian mechanisms and the improper flow of FDI which is found more in non core sectors have restricted the flow in core sectors and Energy. Wider skill up gradation seems to be essential in India for e.g., more manpower is required in the information and the communication Industry.

CORRUPTION:

This is another challenge that could be faced by the organization. This is the reason that the FDI flow in china is comparatively higher. The government of India has implemented the Rights to Information Act in 2005. Setting up of the vigilance commission is also an important step taken by the government.

GROWTH WITH EQUITY:

Despite the fact that there are more jobs being created, these jobs are in the unorganized sector with poor wages and benefits and there is less job security. But the government is taking necessary steps to improve job opportunities and enhance skills development by ensuring education for all.

Beardwell and Claydon (2007, pg: 627), outlines the advantages an organization that enjoy despite the arousing the challenges. They are

LANGUAGE:

Advantage of wide knowledge in English language is evident in most graduates who come from across a million universities in India which makes recruiting quality candidates very easy.

SKILLS:

Highly skilled people from the field of software and information technology are one of India’s competitive advantages. India though highly recognized for unskilled cheap labor produces a number of graduates from the field of mathematics and science from a number of colleges.

DEMOCRACY:

The egalitarian nature of the Indian state provides a sustainable distribution of resources with an equitable distribution of resources and opportunities. This may help India address the challenges of poverty, inequality, low equality and per-capita income.

DIVERSITY:

The key to understanding the Indian context is its diversity. Managers with an experience in a diverse organization are regularly equipped to adjust as well as respond to the increasingly diverse international work place.

PROSPECTS:

India on description of its competitive advantage continues to gain employment within global division of MNC. The probability of this change happening is high with a projected growth of 9-10 percent which was predicted by the World Bank.”

DISCUSSION AND EXAMPLES

IHRM and Company’s Global Involvement

This discussion will mainly focus on role of IHRM in company’s global involvement followed by examples of two organizations. Vernon’s (1996) stage model of organizational change and the steps are listed below

PHASE 1. DOMESTIC:

Focus is on the market, with unique products and services. ‘There are no requirements of cultural diversity and the HR needs are not demanding in international terms. I.e. expatriate assignments & cross-cultural’ (Dunbar, ET. Al., 1989).

PHASE 2. INTERNATIONAL:

There is an increase in competition and international markets gain significance for profit. The HR now performs vital role in attaining control of local operations.

PHASE 3. MULTINATIONAL:

The product/ service reaches maturity, there is a rise in competition and a fall in price. The best people are chosen for international postings for increasing profits and the recruitment of international manager would be from those with the knowledge of parent culture.

PHASE 4. GLOBAL:

The previous three stages were based on hierarchical structures. This phase functions on the postulation that the business unit will need to operate in all the three phases continuously. ‘It is in this stage the demarcation between the expatriate and local managers disappears and management of dual demands of integration and local responsiveness takes place in the organization.’ (Doz and Prahalad, 1986).

Phase I

Domestic Phase II

International Phase III

Multinational Phase IV

Global

Primary

Orientation Product

or Service Marketing Price Strategy

Strategy Domestic Multi Domestic Multi National Global

World Wide

Strategy Allow Foreign Clients To buy Product/service Increase market

Internationally, Transfer technology abroad. Source, Produce and Market Internationally Gain global strategic competitive advantage

Staffing

Expatriates None (Few) Many Some Many

Why sent? Junket To sell control or transfer technology Control Coordination and Integration

Whom Sent? ——————– ‘ok’ performers, salespeople Very good performers High- potential

Managers and top executives

Purpose Reward Project ‘to get

Job done’ Project and career development Career and organizational development

Career

Impact Negative Bad for domestic career Important for global career Essential for executive suite

Professional

Re- entry Somewhat difficult Extremely difficult Less difficult Professionally easy

Training and

Development None Limited Longer Continuous throughout career

For Whom No one Expatriates Expatriates Managers

Performance

Appraisal Corporate bottom line Subsidiary bottom line Corporate bottom line Strategic positioning

Motivation

Assumption Money motivates Money and adventure Challenge and opportunity Challenge, opportunity, advancement

Rewarding Extra money to compensate for foreign hardship ______________ Less generous, global packages ____________

Career

‘Fast Track’ Domestic Domestic Token international Global

Executive

Passport Home country Home country Home country, token foreigners Multinational

Necessary

Skills Technical and managerial Plus cultural adaptation Plus recognizing cultural differences Plus cross- cultural interaction, influence and synergy

Source: Adler and Ghadar, 1990 cited on Beardwell and Claydon 2007.

The table illustrated above was proposed by Adler and Ghadar, (1990), which illustrated the IHRM in relation to the company’s global environment relating various aspects with Vernon’s model of organizational change.

Examples

The two organizations that will be considered as examples in this research are Barclays bank and British airways.

“Barclays is a UK based organization which is expanding globally at a considerable rate. Barclays bank has been operating in India for just a span of two years. Within a short span of time they have gained the title as the most respected foreign banks of the country. This bank is led by Mark Jones, who is the Managing Director in Asia. The company has its own corporate social responsibilities. In 2008 52.2 million pounds was invested in community projects and over 57, 361 employees in over 50 countries was involved in one of them.” www.barclays.in (2009).

Theoretically speaking Barclays in now on PHASE 3. THE MULTINATIONAL STAGE, as illustrated by Vernon (1996). The organization employed a director who has the knowledge of the parent culture. They have five branches across India and currently have their efforts focused on financial inclusion, entrepreneurship, and education and Helping people into Employment. The ethnocentric and polycentric mindsets of Perlmutter’s (1969) model best suits the company’s International HR management practices because; Barclays’ key positions are filled by parent country nationals as well as nationals from the host country.

“When considering the case of British Airways, they are slightly different from Barclays. This difference occurred because British airways are a huge organization with over 80 years of history. Though they have their hubs only in London, they have their operations in six continents and in over 69 countries and India is one of them. They serve to more than 36 million passengers every year. They believe in offering diversity, more development, better training than their competitors.” www.britishairways.com (2009).

This organization’s international HRM strategy can be compared in contrast with the permutter’s (1969) geocentric and regiocentric mindsets of the people because; they involve best people from all over the globe and at crucial stages employees are transferred within a particular region. British airways is currently in the PHASE 4 which is the GLOBAL PHASE as they are operating on all the prior three stages.

CONCLUSION

This research analyzed the international human resource management using a range of academic models and theories. The role of human resource manager during a first international expansion was clearly related to the knowledge transfer and the organizational strategies and policies. This research can be a useful tool for a domestic company whose future plan is to expand their business globally.

After analyzing the advantages and challenges in India it gives the organization a clear picture as to what are the issues that can be expected, both internally and externally. Advantages are those which the organization must be prepared to utilize, and the challenges are something which they must be ready to face. Keeping in mind the role of the IHRM in organization’s global involvement, the stages for organizational change, and the advantages and challenges they might face in the host country, the organization can really make an excellent start in their proposed geographical location.

REFERENCES

1. All about British Airways, available at http://www.britishairwaysjobs.com/baweb1/?newms=info1 accessed on 24 August 2009.

2. About Barclays (2009), available at http://www.barclays.in/about/about_us.htm accessed on 24 August 2009.

3. Adler, N. and Ghadar, F. (1990) ‘strategic human resource management: A global perspective’, in Pieper, R. Human Resource management: An International Comparison. Berlin: Walter de Gruyter.

4. Beardwell, J. and Claydon, T. (2007), ‘International Human Resource management’, HUMAN RESOURCE MANAGEMENT: a Contemporary Approach, Edition 5, PP: 562-664.

5. Doz, Y.L. and Prahalad, C.K. (1986) ‘Controlled variety: A Challenge for Human Resource Management in the MNC’ Human Resource Management, 25, Edition 1, PP: 55-72.

6. Kobrin, S.J. (1994) ‘Is there a relationship between a geocentric mindset and multinational strategy?’ Journal of International Business Studies, third quarter: 493-511.

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11. Polyani, M. (1962), Personal Knowledge. Chicago: University of Chicago Press.

12. Schuler, R., Dowling, P. and De Ceiri, H. (1993), ‘An international framework strategic international human resource management’, Journal of Management, 19, 2: 419-459.

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14. Torrington, D., Hall, L., Taylor, S. (2005), Human Resource Management, Prentice hall, Edition 6; PP: 693- 778.

15. Vernon, R. (1996) ‘international investment and international trade in the product cycle’. Quarterly Journal of Economics May.