EXPLORATION OF HUMAN RESOURCE MANAGEMENT FUNCTIONS FROM AN INTERNATIONAL HRM PERSPECTIVE Vs. DOMESTIC HRM PERSPECTIVE

INTRODUCTION

“The globalization of business is making it more important than ever to understand how multinational enterprises (MNEs) can operate more effectively. A major component of this understanding appears to be the field of human resource management, and in particular, the field of international human resource management”. (Schuler et al. 2002)

International Human Resource Management has increasingly been recognized as a central challenge. In today’s dynamic hypercompetitive marketplace IHRM has become an evolving phenomenon, reflecting the growing recognition that the effective worldwide management of human resources is arguably a major determinant which makes the difference between survival and extinction in International Business.

IHRM focuses on the operation of international firms in host countries. Its ultimate concern is being able to manage strategically in situations which involve crossing national boundaries.

According to (Boxhall 1992) IHRM is being “concerned with the human resource problems of multinational firms in foreign subsidiaries (such as expatriate management) or more broadly, with the unfolding HRM issues that are associated with the various stages of the internationalization process. (Wall & Rees 2004 p 282)

The complexity involved in functioning in different countries and employing different national categories of employees is the most important variable that differentiates international HRM from domestic HRM.

EXPLORATION OF HUMAN RESOURCE MANAGEMENT FUNCTIONS FROM AN

INTERNATIONAL HRM PERSPECTIVE

Vs.

DOMESTIC HRM PERSPECTIVE

The primary objective of the HRM function is to ensure that the most effective use is made of its human resources. To accomplish this, HR professionals contract a range of activities. The five functional areas that will be discussed are: 1. recruitment and selection, 2. training and development, 3. performance evaluation, 4. remuneration and benefits and 5.labor relations.

However, the scope and complexity of the role of the IHRM manager at British Airways is increased as the primary focus is to undertake a global perspective of managing the human capital of its subsidiaries across international borders. These compelling issues which the IHRM manager faces are likely to be more severe than the domestic HR manager. A useful model of the nature of IHRM is presented in Figure 1

British Airways is the world’s largest international airline. Its headquarters is based in London. British Airways services its global network from a centralized operation. The British Airways group consists of British Airways Plc and a number of subsidiary companies throughout the world.

As the IHRM manager of the organization one critical factor that influences the degree to which international and domestic activities of the HR function differs is the “socio-cultural environment”.

Socio-cultural environment refers to the values and attitudes toward achievement, risk-taking, work, and social organization of authority, status, roles, institutions, and social systems. Geert Hofstede classified national cultures according to four dimensions: 1. Individualism vs. Collectivism, 2. Power Distance, 3. Uncertainty Avoidance, 4. Masculinity vs. Femininity. ( See Appendix 1 )

The need to work more effectively in multi-cultural environments is an issue for both IHRM managers and Domestic managers as organizations now have increasingly diverse workforces. From an IHRM perspective this is critical as the IHR manager have to consider the political legal environment, trans-national political orientation, government policies and regulations when interacting with employees who have different educational and cultural backgrounds and value systems. Whereas the Domestic HR manager operates under a system where there are homogenous values, attitudes and similar social organizations. Therefore the IHR manager has to be aware of the implications of cultural differences when establishing HR policy decisions.

RECRUITMENT & SELECTION

The recruitment and selection process is vital. It refers to the processes through which an organization takes in new members. Recruitment involves attracting a pool of qualified personnel for positions available. Selection requires choosing from this team of candidates whose qualifications most closely match the job requirements.

Recruitment and selection from a Domestic HR perspective is more extensive in terms of the use of sources available for recruitment, objective selection criteria, and more sophisticated selection techniques.

In international recruitment and selection the IHR manager must consider both headquarters’ practices and those ...

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RECRUITMENT & SELECTION

In international recruitment and selection the IHR manager must consider both headquarters’ practices and those prevalent in the countries of its subsidiaries as national culture and in some cases local laws requires specific approaches to the recruitment and selection practices.

Traditionally, MNCs have used parent-country nationals (PCNs) in order to ensure that policies and practices of the headquarters are carried out correctly. However, due to cost issues firms have increasingly had to turn to third-country nationals (TCNs) or host-country nationals (HCNs). As a result IHR managers have found themselves with co-ordination and control issues. As stated by (Dowling et al 1999) This is the reason why expatriates are still used in order to act as structure reproducers, building local talents, protecting company interests and transferring a firm’s corporate culture.

Consequently, there are no set standards or circumstance when an IHR manager should hire a PCN, TCN, HCN. Whether an organization should hire locally, globally or use expatriates may also depend on its general staffing policies i.e ethnocentric, polycentric, geocentric and regiocentric approaches. ( See appendix 2 ).

There are various advantages and disadvantages related to hiring PCN, TCN, or HCN. (See Table 1)

According to Griffin and Pustay (1997) an IHR manager selects the most promising candidates for international assignments based on the following criteria: “Managerial competence (technical and leadership skills, knowledge of the corporate culture), Appropriate training (formal education, knowledge of the host market and its culture and language), and Adaptability to new situations (ability to deal simultaneously with adjusting to a new work and job environment, adjusting to working with HCNs, and adjusting to new national culture.” (p741).

These attributes are critical as the primary cause for expatriate failure is the inability of the manager and or family to adjust to the new locale.

At British Airways the organization has adopted a polycentric approach towards recruitment as they access their flight crews and administrative staff from within the host country subsidiaries in an effort to reduce staff relocation costs and to cater to the needs of passengers from different cultural backgrounds.

TRAINING & DEVELOPMENT

The general aim of the training and development function of HRM is to adequately provide trained and skilled personnel within the organization with the capacity to fulfill organizational success. As an IHR manager the fact that globalization is rapidly increasing, has made it essential that an organizations human capital adopt and operate from a global perspective.

For the domestic manager this may include planned individual learning, education, organization development, career development and training.

From an international perspective this facilitates expatriate training, and the development of international staff and multinational teams.

IHR manager’s implements training and development programs for knowledge transfer in MNCs from two perspectives: centralized and decentralized approaches. ( See Appendix 3)

However it is imperative in order to maximize training effectiveness, he/she must comprehend the cultural factors which affect employees as this strongly impacts on training practices throughout the world. For example in the North America where ‘power distance’ is small, the connection between trainer and trainees tends toward egalitarianism. Whereas in countries such as Malaysia where ‘power distance’ is large, the trainer encounters a greater degree of respect.

There are several motives as to why an IHR manager could adopt a centralized approach, as it may aim at facilitating specific firm-based training to increase corporate culture awareness. This fits the ethnocentric approach.

British Airways has adopted such approach as HCN managers are sent to headquarters for training and upon returning training programs are tailored to suit local situations.

The geocentric approach is also centralized, but training develops through input from both headquarters and subsidiaries staff.

With the decentralized approach training is developed on a local basis following the polycentric model as the cultural backgrounds of trainers and trainees are usually similar.

PERFORMANCE EVALUATION

As stated by the ACAS (2001): “appraisals regularly record an assessment of an employees’s performance, potential and development needs. The appraisal is an opportunity to take an overall view of work content, loads and volume, to look back on what has been achieved during the reporting period and agree objectives for the next year”. (Foot & Hook 2002)

For the IHR manager the complexity of this HR practice is more intricate as developing a global system is challenging. These managers have to evaluate employees from various host countries and implement systems that are consistent across subsidiaries, considering the various cultural backgrounds and implementing fair and equitable practices throughout. For example, an IHR manager who has to evaluate employees in subsidiaries in countries such as Mexico must understand that an individual’s public image is important and thus public criticism is grounds and justification for resigning from a company.

See Figure 2 for the Basic components of Performance Management

REMUNERATION & BENEFITS

The remuneration process plays an integral role in acquiring and retaining employees. Pay is the primary resource of living for employees, while benefits include activities such as health and pension schemes. There are two primary concerns when developing compensation and benefits scheme. The first is comparability (Briscoe 1995). A good compensation system assigns salaries to employees that are internally comparable and competitive within the market place. The second major concern is cost.

For an IHR manager there are several influences on pay determination that needs to be taken into consideration. These are; beliefs about the worth of the job, individual characteristics, labour market conditions, remuneration and policy strategy, strength of bargaining groups, the cost of living and government policies. Policies are usually developed, which could apply globally, to offer salaries and benefits representing a specific market level.

The availability of qualified local personnel, the use of expatriates, and local laws also interact and influences the level of remuneration and benefits schemes that are to be established. For example if there is a labor shortage or lack of skilled personnel to fill a position, the remuneration for those positions are generally high. To reduce expenses, the IHR manager may consider the option of recruiting an expatriate.

EMPLOYEE RELATIONS

Labor relations pose an especially complex task for both Domestic and International Human Resource managers. The concept of this HR function is to define the roles of management and workers in the workplace. For both managers labor relations often reflect the laws, culture, social structure, and economic conditions of the country.

From and international perspective national differences in economic, political, and legal systems create a variety of labor relations systems, and the strategy that is effective in one country or region can be of little value in another country. IHR managers usually adopt a combination of centralization and decentralization approaches with some decisions being made at headquarters and others being handled by HCNs managers.

SOCIO-CULTURAL ASPECTS OF CHINA

The People’s Republic of China (PRC) is one of the world’s fastest developing economies. Much of this growth has developed from the opening of the PRC economy to foreign joint ventures and multinational firms in an effort to move toward a “socialist market economy”.

There are four main features of the Chinese culture that are said to be imperative in comprehending Chinese management and organizational behaviors. These are; respect for age and hierarchy, ‘face’ and harmony, group orientation and personnel relationships (guanxi). The underlying factors of these issues are said to be history, national culture and religious background.

Confucianism has a profound impact on the Chinese way of thinking. It has permeated Chinese organizational behavior resulting in a largely autocratic managerial style.

Guanxi has a big influence in the daily life in China and is often stressed that personal networking, guanxi, is the most important factor when doing business in China.

Geert Hofstede argues that the Chinese culture is collectivistic. “This refers to a tight social framework in which group members (relatives, clans, organizations) focus on the common welfare and feels loyalty to one another”. (Lecturers notes 12.11.05). As a result China has a society that fosters strong relationships in which everyone takes responsibility for their fellow members of the group.

China ranks high on power distance. This refers to “the socially determined unequal distribution of power among individuals and institutions within a particular culture”. (Lecturers notes 12.11.05) As a result of the large power distance there is great distance between managers and subordinates. This has lead to different approaches in communication, where Chinese managers believe that problems are not the concern of staff. Chinese employees rarely take initiatives and normally pay more attention to maintaining a harmonious relationship.

Masculinity is said to be relatively high, indicating the gender differences within the country. According to Hannagan “this pertains to societies in which social gender roles are clearly distinct, i.e. men are supposed to be assertive, tough and focused on material success”. From a cultural perspective “the more ‘masculine’ a society, the more it values outcomes, assertiveness and materialism. Less concern is shown for quality of life.” (Hannagan 2002)

Hofstede’s analysis of China also states a Long-term Orientation, indicating a society’s time perspective and an attitude of perseverance.

EXPANDING INTO THE CHINESE MARKET

The ability to transfer knowledge effectively across borders is a key characteristic of successful multinational enterprises (MNEs).

The following are some HR initiatives British Airways could employ in staffing their Chinese subsidiary.

The multinational enterprise could adopt an ethnocentric approach to staffing the subsidiary. An expatriate manager should be hired as the subsidiary manager and should work directly with other key HNC middle-managers to effectively implement strategic HR planning for the organization. This designate should demonstrate strong leadership qualities, promoting and implementing transparent management policies which would allow employees to feel united with management and would aid in alleviating the power distance culture which exists in Chinese organizations.

The organization should adopt a localization approach to recruitment, by selecting local staff not only to reduce costs but also to have a pool of employees who has a fair understanding of the local market. These practices should be systematic, involving diverse channels, including newspaper advertising, headhunting, and visits to universities.

An effective training and development system should be implemented for locals as this would satisfy their thirst for knowledge and it will also give them the message that the company is committed to their development. It would also address the issue of locals faring poorly in terms of taking initiatives and taking on responsibilities, particularly if they are reluctant to do so because of their lack of skills or knowledge.

Training and development would also equip locals with the skills and expertise needed for upward mobility. Appropriate empowerment measures not only make employees’ jobs more motivating and rewarding, but that employees in turn will add more value to the organization.

Staff should be evaluated in accordance with their performance as performance-based wage and promotion systems well suits Chinese people’s work philosophy. Performance management is vital in order to retain local staff. Hence a well-planned performance management scheme should be implemented. Techniques should be developed to evaluate which employees need more training and development and how to reward in the most suitable way.

For a Chinese, salary related to performance is vital for motivation. Therefore bonus packages would be considered a very good reward system to make people work hard as well as retaining Chinese employees. However, it is imperative to have constant dialogue with each employee and identify what is important for him or her lives, as people are motivated by different things.

CONCLUSION

Acc. to (Poole 1999) What is happening today in the field of HRM is nothing short of revolutionary. It has been accepted both from a domestic and international standpoint that employees create an important source of competitive advantage.

The role of the IHR manager however will vary depending on the organizations strategy on international orientation and the approach it takes to IHRM.

It is critical therefore that these managers are able to interpret international organizational strategy and develop IHR policies and practices which supports that focus and would in-turn enable them to maintain sustainable competitive advantage.

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