What a Multinational Company?
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Published: Tue, 02 Jan 2018
For better understanding this is important to discuss what a multinational company is in first place. In short words multinational company can be defined as a company or an organization that serves or produce in more than one country is known as multinational company. Other names use for such kind of organizations is Multinational Corporation (MNC), Transnational Corporation (TNC) or Multinational Enterprise (MNE). Multinational organization can be engaged in manufacturing, services or the exploitation of natural resources in the operating countries. Different writers described different definition of multinational companies. According to Moore & Lewis (1999, P. 21) stated that “an enterprise that engages in foreign direct investment (FDI) and own or controls value – adding activities in more than one country is known as multinational enterprise”. As Jones (1996, p.4) says “An MNE is usually defined as firm that controls operations or income generating assets in more than one country.” There is a long list of multinational firms like Sony, Nestle, Wal-Mart Stores, General Motors, Ford Motor, ConocoPhillips Microsoft, Nokia, Toyota Motors, Intel, Coco-Cola, Sony, IBM, Nike and Citigroup etc.
Now the main question is about the multinational companies of different origin adopt different approaches of HRM practices. To discuss this section this is really important to discuss the HRM practices in first place, to define what HRM is and then its practices will be discussed throughout this essay step by step, and then practices of HRM in broader context for the MNCs or MNEs.
HRM is modern word use in the businesses, which can be defined as “a model of personnel management that focuses on the individual rather than taking collective approach”. (www.dictionary.bnet.com). As Pennington & Edwards (2000, P. 4) stated that “Human Resource Management (HRM) is a new way of thinking about how people should be managed as employees in the workplace”. It can be classified into two schools of thoughts.i.e. Hard HRM & Soft HRM. Both types of HRM are under studies of different authors in detail.
Now to concentrate on the question directly a survey is going to be under studies “Country of origin effects and HRM in multinational companies” which took place in 2007 by P. Edwards et al. In which he discussed 302 UK based multinational companies, which cover both UK – owned and overseas – owned companies. This study will play an important part in the essay to get the conclusion either multinational companies of different nationalities have different HRM approaches and practices or not.
2- Challenges In Multinationals
According to Brett, Jeanne & Kristin, 2006, international business’s nature is going under a sea change. The globalisation, multi-nationalisation, and the geographical diversification is pushing companies towards change in their management structure and style. Multinationals now need to consider regional market conditions and develop strategies to cater to each of the regional markets.
Culture shock is the big challenge for multinationals, the difference brings the different thinking ways and working ways, and it needs time to adjust it. In most cases the expatriate manager prefer to emphasize and require the home office or home country values on the host country’s employees instead of accepting and learning within the new culture. (Adler, 2002)
Lack Of Cross Cultural Training
In fact, most multinationals ignore this training program during the staffing management. However, the better understanding about culture block can help managers to improve the effectiveness of staffing management. For example, The managers at Bell Canada were totally asked be training about Muslim laws of drinking and the treating of women there before he or she assigned a project for Saudi Arabia such like constructing the telephone system in there. (Adler, 2002)
Family problem for PNC manager is another challenge. The overseas employees always think of their family. Sometime, such emotion will effect the concentrations in their work. These difficulties are usually underestimated. What the organization should do is to assist expatriates’ family to adapt their new environment. (Dolan, 1996)
3- HRM Functions In MNCs
Team members of multinational companies come from different countries with the different culture, economic, religions and habits. All of these differences bring the different thinking and working methods, thus, how to manage the multicultural team is a big challenge for the HRM in the multinationals. In the article “Managing multicultural team”, the author states that “Communication in Western cultures is typically direct and explicit. In many other cultures, meaning is embedded in the way the message is presented. The differences can cause serious damage to team relationships” (Jeanne Breeet , Kristin Behfar, and Mary C. Kern, 2007) .
Retaining Subsidiary Staff’s Retention
It can be argued that the retention of staffing in the multinationals’ subsidiary conducts huge influence. The transfers between the PCNs, HCNs and the TCNs are the big issues in the staffing management strategy. Scolders identify that the HCNs and TCNs who are sent to the corporate headquarters (HQ) called inpatriates. As this article mentioned before, the ethnocentric approach, the polycentric approach, the regioncentric approach, and the geocentric approach are the four major nationality staffing policies in the international staffing, by analyzing the complex and the new situation appear in the relationships between the HQ and subsidiary, B. Sebastian Reiche (2007) explores the international stiffing-related retention strategies . Firstly, he claims that a pluralistic and consensus-driven approach to international staffing enhances the retention capacity of international staffing practices through increased responsiveness to and involvement of the respective local unit. He states that the knowledge and skill from the local staff can help multinationals to reduce the risk and culture-bound in the local market. He also believes that this approach can improve the loyalty of local staffs, and the local staff can achieve individual career plan to cohere the institutional development plan. At the same time, he states that the PCNs still act as the vital role for informal controlling and coordination in the multinational companies. Secondly, he indicates that expatriation of local staff can help to retain the MNCs’s retention. In this approach, he states that the “inpatriates can share their social and contextual knowledge of the subsidiary environment with managers at the HQ. And also inpatriates tend to be accepted by HCNs more willingly than foreign personnel.”
HRM is all concern about the employees at the work place, but the demands from HRM gone up as the education rate grown up. As Pennington and Edwards (2004, P.4) stated that “As a level of education become higher, a greater proportion of the population world – wide expect more than fair treatment, they seek a range of intrinsic rewards such as job satisfaction, a degree of challenge, a sense of career progression and satisfying relation with co – workers”.
Selection & Recruiting:-
The main function of HRM is selecting and recruiting, no matter the firm is domestic or multinational. Staffing issue for domestic managers and MNC’s managers are not very different for recruiting for the middle management or ground floor workers, but for selecting and recruiting of top management then the choices come like parent – country national (PCNs), Host – country national (HCNs) or third – country national (TCNs). According to Parlmutter (1989) divided into three main categories.
‘Ethnocentric’ where top management favours PCNs managers, who are posted abroad for a period of time. ‘Polycentric’ where top management give choice to subsidies to fulfil management posts themselves, and ‘Geocentric’ when top management recruits managers globally and post them anywhere in the world. For example Japanese style of HRM don’t rely on interviews and job advertisements, they select the people from the universities and the most top MNCs can afford the students from the most prestigious university. According to Keeley (2001, P.62) stated that “unlike the most Western companies detailed job description rarely exist. The company seeks to determine if the prospective employee has the type of personality that fits in well with the atmosphere at the company.”While US MNCs rely on “interview must” attribute of HRM practices in their subsidies.
In China, they had no selection processes per se when they first started. Senior managers were appointed by community government-officials. Most of the new hires were based on employee referrals. Selection criteria were based on nepotism and contacts. Hiring decisions are influenced by the following in china:
- A person’s ability to perform the technical requirements of the job
- A personal interview
- A person’s ability to get along well with others already working here
- Having the right connections (e.g. school, family, friends, region, government, etc.)
- The company’s belief that the person will stay with the company
- An employment test in which the Person needs to demonstrate their Skills
- Proven work experience in a similar job
- A person’s potential to do a good job, even if the person is not that good when they first start
- How well the person will fit in the company’s values and ways of doing things
- Future co-workers’ opinions about whether the person should be hired
(Huczynski, Andrzej / Buchanan, David, 2001)
A most important attribute in Japanese style of HRM is called “Shushinkoyo” which means life or long term employment. This is considered the success key of Japanese HRM as stated by Keeley (2001, P.65) “Nevertheless, a number of scholars both Japanese and non – Japanese have praised ‘Shushinkoyo’ and have attributed the success of Japanese enterprises to its practice.” Here this shows that multinational companies from Japan apply different approach for selection the new recruits while US MNCs rely on a different phenomena of selection and recruitment.
Performance & Appraisal:-
This is the HR attribute which has significant attention from both academics and practitioners, the appraisal system in US MNCs use to reduce the labour force as stated in Edwards (2007, P. 40) that “some US companies, GE for instance, have become known for using the appraisal system to remove the lower- performing employees from the workforce on a regular basis and /or to identify those in need of ‘remedial’ action for their performance level.” But in Japanese MNCs the companies gives the life time or long term employment as mentioned by Keeley (2001) that it is one of the best attribute of Japanese HRM in small Japanese enterprises or Japanese MNCs. Differences can b seen in the Edwards (2007) survey of Japanese and US multinational companies based in UK, where he stated that “US companies are more likely to emphasise the importance of behaviour in relation to corporate values, while Japanese firms give lower importance rating to quantitative or qualitative individual evolution criteria, and criteria based on corporate values.”
In large organizations the performance review on periodic basis, this is second task of organizations HR departments, after hiring an employee and on the basis of performance employee get bonuses, promotions and rewards. Performance appraisals give opportunity to the workers (individual/group) to get prepare for the future goals of firm.
Pay, Compensations, Rewards & Benefits:-
Compensations like hourly wages and annual salaries while benefits are like life insurance, pensions and sick pays etc. According to Cherrington (1995) stated that compensation should be legal and ethical, adequate, motivate and fair, and should be able to give employment security to the worker. Pay compensation and rewards are not really different from each other, but in simple words rewards is the term use to motivate and to get the future goals by means of workforce for an organization, the reward system plays an important role, by reward (individual/group) the workers get appreciation and get themselves more committed to the firm. These are the some of the main features and functions of any (domestic/MNCs) firm HR department.
In Japanese style of HRM they use a Japanese term ‘Nenko Joretsu’ which means seniority system, where in Japanese HR management the wages goes up with the age and experience, as stated in Keeley (2001, P. 76) said that “though nenko is most often translated as ‘seniority’”. While US and Europe MNCs apply the performance related pay system. This is the most important phenomena of MNCs HR system when they go to borderless business. According to Edwards (2007, P. 46) stated in his survey that “Nationality has some effects. For example, American firms are likely to give organisational performance a higher importance rating for the KEY GROUP than others firms. UK firms are more likely emphasis individual output measures for LARGEST OCCUPATIONAL GROUP.” It shows the difference in attribute of HR practices and approaches in multinational firms.
Training & Development:-
This is one of the important as well as crucial task for HR department for a firm operating globally, in this area of HRM multinational companies of different origin follow different approaches, for example according to Tung (1981) stated that “by comparing US, European and Japanese corporations, American’s firms it seems tend to underestimate the importance of training, whereas most European and Japanese organizations see this as a highly important area of attention”. The objectives and goals of training and development are to make sure the skilled and willing workers are available in the organization. Training and development are important to create a smarter working environment.
In China, medium and large companies have formal training programmer and many have established special facilities for teaming purposes. Because of the lower educational level in the rural areas, the quality of the rural labour force is significantly in urban areas. Experienced, well-qualified staffs are in short supply. To disadvantage of hiring Key personnel from a shallow pool of talent, they invest heavily in training. Training is an important investment in human capital. Training improves an individual’s performance and increase organizational effectiveness. (Ahlstrom & Garry, 2001)
Japanese MNCs pay less attention to training and development attribute of HRM, the reason might be the less mobility of workers in the Japanese firms, as they use the term ‘Shushinkoyo’. According to Keeley (2001, P. 88) stated that “A study of the Japan Productivity Centre found differences in the attitudes towards training in Japanese and American firms.” Where Keeley stated that from the study and respond of both countries towards training issue were positive but American firms were strong and more positive then the Japanese firms and he also stated that Japanese firms arrange training on ‘request’ basis. A strategy which makes a firm successful is not easy to implement when they go beyond the borders, because of the barriers which might be language, religion, culture and legislations etc. As Keeley (2007, P.89) stated that “HR practices which makes a firm successful in domestic environment are difficult to implement in their overseas subsidiaries.”
4- HRM Approach In Multinational Firms:
Now in this essay some of the multinational firm’s characteristics will be studied to see do they get affected by the country where they belong to in their HR practices and approaches or not? There are many MNCs, the country which has most MNCs is USA, and after that are Europe, Japan and Germany.
There are many writers who discussed the issue of ownership and HRM in MNCs like Evan, Lank and Farquhar (1977), Barlett & Goshal (1989), Rozenzweig & Nohria (1994) and Innes & Morris (1995) etc, which prove that the issue of ownership has been in discussion from ages, as according to Economist (1995) said that “the issue of ownership is central to the number of important policy – related and academic debate in the area of HRM and IR, One line of argument is that, with increasing globalization MNCs are becoming stateless players, detached from individual nation states”.
MNCs of different origin work in the host country by applying its local mechanism of HR practices and approaches, because it is not possible to work and apply 100% approaches of the parent – country, as according to Rozenzweig & Nohria (1994) said that “a rank – and – file IR issues are more likely to exhibit ‘local isomorphism’ ”. There are many arguments about the affection of country of origin on MNCs HR practices, the reasons are many for MNCs to adopt different approaches of HRM, as Ferner (1997) described that “in short, it is imperative to take into account the dynamic of nationality as a factor affecting the behaviour of MNCs. The modernization of political institutions, the rapid pace of technology, the internationalization of product itself and changing pattern of international market and competition, all are likely to modify to pre – existing national structure – although not necessarily in the direction of convergence of different national systems on a single model”.
Now the essay will point out some differences in Chinese and American Human Resource Managements. China is one of the fastest growing economy of the world, according to Zhu (2005, P.2) explained that “the past two and half decades of reforms and impressive economic growth have witnessed an unprecedented enthusiasm for the establishment of foreign – invested enterprises (FIEs). Many foreign companies have expended their operations into china, attracted mainly by the sheer size of its potential market”. There are many multinational firms in China like Aluminium Corp (ACH), China Petroleum & Chemical Corp (SNP) and China Unicom (CHU) etc.
The main practice of HRM is selection and recruitment as mentioned above, and the difference between the process of selection of Chinese and USA approach is, in USA model of HRM job interview is essential for filling a major position, while in Chinese HRM mostly jobs are allocated by government and interview process is not common. In reward system the USA model of HRM offers a variety of incentives system, while Chinese HRM system is different from USA, in Chinese system salary ranges are narrow, group reward system is common, but the pay system is more motivate than American pay system. In performance appraisal USA model of HRM believes in two way communication, while in Chinese model supervisor have absolute power and authority to evaluate subordinates, in USA participative management is welcome and encourage, but in Chinese HRM collective leadership is common, and in major decision making, the involvement of workers is symbolic.
The difference can be seen in different origin or nationality MNCs that the US MNCs are significantly more like to collect information on employee attitude bring together HR managers from different countries and use HR international shared services, Japanese organizations are less likely to collect data centrally, while French origin MNCs acting more likely in US style of HRM practices, and German origin MNCs firms follow Japanese style of HRM practices. (Jackson, 2002)
The best example is British American Tobacco (BAT), which is operating in a number of countries in the world, i.e. Pakistan, South Africa, UK, Japan, Saudi Arabia and many more. As this is an American based firm, and American have an ‘interview must’ attribute in their HR practices, they apply the same approach for selecting and recruiting in the host – country Pakistan, and the adopt some practices of Pakistan HRM practices (host – country) like monthly payment of salaries instead of weekly wages, so its means BAT reflected their parent – country HRM practices in some ways and in subsidies like UK, BAT apply the same HR practices and approaches as the parent – country have, because the culture difference is not very distinct from each other i.e. UK and USA. (www.bat.com) & (self experience as a worker of BAT in Pak)
This essay was carried out to see, do multinational organizations of different origin have different approaches to international human resource management? There were some evidences that showed the answer as ‘Yes’ they get affected by its country of origin in on or other way, but it is also proved that the most of MNCs adopt ‘the best fit’ policy when MNCs start operating in a host country, because of the obstacles in the host country, i.e. language, religion, norms and values, culture and legislations.
Writers in HRM field have different opinion about the behaving of MNCs, so the best option for MNCs is to apply the ‘best fit’ approaches of the HRM practices, means combination of both (Parent & Host countries) HRM practices. The issue of ownership country of MNC has been in discussion for ages, but still there is not a 100% accurate answer came out as according to Ferner (1997) said that “but existing research has failed to systematically explore differences”.
All these discussion and researchers efforts bring the conclusion that in some HR attributes in MNCs they follow the a universal approach while in some they follow the different approaches in HR practices, according to the survey by Edwards (2007) stated that “throughout the report, we have noted the persistent influence of nationality. There are clear national differences in all four area of HR/ER: Pay & performance, Learning & development, employee involvement and employee representation.” But the bottom line can be that: yes! Multinational firms of different origin can be effected by the parent – country HR practices when the run business in other part of the world instead of the home – country.
There are some obstacles for multinational companies which can stop them to apply the 100% parent – country HR practices in their subsidies like legislation of the host country, rules and regulation and more, there is term used in Edwards (2007, P.29) survey of Multinational companies in UK called discretion or local autonomy. Which shows multinational companies of different origin give the power of decision making and freedom to their subsidies? In that survey the high discretion power firms are Japanese, which means Japanese multinational companies give more freedom to their subsidies comparatively to American, French and other Multinational firms of different origin. But another thing can be the law enforcement of subsidies (host – Country), the example can be Germany where the rules and regulation are strict so the difference in practices of HR of a multinational firm would not be as bigger as in Pakistan, because of the law enforcement, like differences would be less in Europe but it would be greater in Asia.
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