Difference between international and comparative HRM

The growth in international trade and globalisation has encouraged firms to expand their operations worldwide, which has resulted in the emergence of new markets such as China, India, South East Asia and Latin America. This trend has also been accompanied by an increased level of competition amongst firms at both national and international level. The challenge of managing a workforce worldwide with different cross-cultural skills, competencies and demographic characteristics means that managers can no longer rely on traditional HRM models developed for Anglo-Saxon countries. Many firms underestimate the complexities involved in international operations, and there is some evidence to suggest that business failures in the international arena may often be linked to poor management of human resources (Desatnick & Bennett, 1978). Western academics and practitioners have thus moved from traditional international HRM issues to the area of comparative HRM. In order to maximize cross-national management capabilities, there is need to understand how employees in different national settings respond to similar concepts within their particular functions. This essay has been structured as follows. In the next section, I will examine the difference between international and comparative HRM. I will then look at the way comparative HRM assist academics and practitioners appreciate the differences in the strategies and processes in MNCs. A conclusion is then presented.

Difference between international and comparative HRM

International HRM has been defined as HRM issues, functions, policies and practices that result from the strategic activities of MNEs (Scullion, 1995). IHRM deals principally with issues and problems associated with the globalisation of capitalism. It involves the same elements as domestic HRM but is more complex to manage, in terms of the diversity of national contexts and types of workers. The emphasis is on the MNCs’ ability to attract, develop and deploy talented employees in a multinational setting and to get them to work effectively despite differences in culture, language and locations. International HRM tends to mitigate the impact of national culture and national employment practice against corporate culture and practices.

Comparative HRM, on the other hand, is a systematic method of investigation that seeks to explain the patterns and variations encountered in cross-national HRM rather than simply describe HRM institutions and practices in different societies. According to comparative HRM literature, different national business systems arise from differences in specific historical, cultural and institutional heritage in certain countries. Comparative differences occur due to decisive historical events such as the process of industrialisation or due to the legacy of pre-modern forms of social organisation. Hofstede’s (1980) adopted the ‘culturalist’ perspective where he argued that national business styles emerge due to ingrained cultural attitudes and mental schemas. He described culture under five dimensions which are power distance, individualism, masculinity, uncertainty avoidance and long-term orientation. Other researchers claim that HR management practices differ between nations due to the presence of specifically national institutions such as education, banking services or state/legal support.

In what ways (if at all) does an understanding of comparative HRM assist academics and HR practitioners appreciate the difference in the strategies and processes in MNCs which are often termed as International HRM?

The contrasted view to a divergence point mentioned above is that some academics claim that with HRM policies and practices are becoming universal (tending more towards the dominant American models) and that country-of-origin effects are no longer relevant. The pressure to build standardised operations internationally is strongest in sectors where competition is highly internationalised and where firms compete on the basis of a similar product or service across countries such as in cars and fast foods. They have put forward several reasons to explain this trend. Firstly, all MNCs operate in one global market and therefore have to respond to the same environmental pressures such as globalisation and technology, the growth in international trade and the move towards an internationally-integrated financial system. Secondly, the widespread practice of benchmarking ‘best practice’ in terms of cost, quality and productivity may also have contributed to convergence of international HRM models for e.g. Japanese style ‘lean-production’ system in the 1980s and 1990s. Moreover, these pressures towards convergence stem in part from the influence of MNCs themselves through their ability to transfer practices across borders and erode country-of-origin effects. Finally, the formation and development of like-minded international cadres mostly from American or European business schools may have contributed to homogenised international HRM policies and practices.

Since the early 1990s, the international HRM literature has been dominated by models and typologies aimed at identifying how international HR fits with organisational strategy. Bartlett and Ghoshal (1998) argue that the main issue for all multinational companies is the need to trade-off the advantages global efficiency namely the coordination of its operations to achieve economies of scale and scope as opposed to the need to differentiate its products and services to meet the local demands. They also identified a third pressure, namely worldwide innovation and learning, whereby firms are encouraged to support innovation and learning across their network of subsidiaries rather than simply relying on research and development at the headquarters. MNEs then follow the appropriate HRM policies and practices according to the structure of the organisation, the competitive strategy chosen or stage of corporate evolution reached. Below, the Taylor’s (1996) model of strategic international HRM has been described.

Exportive

This is essentially a model where the HQ management takes home country management approach and try to implement them in their foreign subsidiaries in order to achieve economies of scale. In this model, there is a system of hierarchy and a centralised control. This is especially useful in instances of uncertain political environment and high risks demanding greater control from corporate parents. Given this pattern of centralisation, there is a considerable amount of ‘forward policy transfer’ and less ‘reverse transfer from subsidiaries to the HQ, i.e. they rely mainly on the technical know-how of the parent company. Global firms offer products or services that are standardised to enable production to be carried in a cost-efficient way. Their subsidiaries are not subject to rigid control except over the quality and the presentation of the product or service. This structure is normally associated with the American firms with their formalised, bureaucratic control and a dominant finance system to internalise risks.

Adaptive

Differences in the host environment demands and conditions mean that overseas subsidiaries have to operate independently. This is common where departing from established practices in host environments is unlawful. For example, in some Germany, there is a legal obligation to negotiate with employee representatives concerning major organisational changes. In other cases, transferring practices may be legal but would go against traditional practices at the risk of losing goodwill from staff. Firms may decide to forgo HQ control if there is the possibility to exploit most efficiently the local labour markers. For example, MNCs which origin from high-cost highly regulated economies such as Germany may well choose not to transfer important elements of their HR systems such as collective bargaining or apprenticeship if they move to lower wage, lightly regulated economies such as China.

Integrative

It is also argued that the more management processes and activities can be integrated across geographical boundaries, the easier it is to share resources and knowledge. They can identify and best use the skill and management talent that exists across the MNC network allowing for both global integration and local differentiation.

As mentioned previously, international HRM processes consist of the same activities as domestic HRM but applied in an international context. These include an accurate human resource planning to ensure that the MNCs have the right people at the right place around the world, good staffing policies that capitalise on the world-wide expertise of expatriates and locals, performance appraisals that fit with the competitive strategies of the HQ, adequate training and development to ensure that expatriates do not suffer from ‘culture shock’ and compensation policies that are strategically and culturally relevant. The focus in international HRM strategy is how MNEs coordinate their geographically dispersed operations strengthening the organisational culture, promoting commitment and encouraging willingness in employees to act in the interests of the firm.

Recruitment and selection of international managers

Employees play a crucial role in sustaining and coordinating their geographically dispersed operations. The challenge is that of resourcing international operations with people of the right calibre. Traditionally, MNEs sent expatriates, i.e. a parent country national abroad to ensure that the policies and procedures set by the parent -company were being followed as well as to bring expertise to the local employees. However, the high number of expatriate failures has meant that more and more MNEs are turning to host country nationals to satisfy the international staffing needs. The prominent reason to explain international assignment failures was the inability of the expatriate or his family to cope with the ‘culture shock’. Researchers revealed that international business travellers faced problems in their personal lives and were victims of stress. Moreover, changes in legislative conditions affecting labour relations combined with security issues have made it more costly to use expatriates at senior management positions at subsidiary level. The advantages of employing local nationals are that they are familiar with local markets, the local communities, the cultural setting and the local economy. They speak the local language and are culturally assimilated. They can take a long-view and contribute for a long period (as distinct from expatriates who are likely to take a short-term perspective). Expatriates are only used as technical troubleshooters and general management operatives. This means academics need to find the best ways to recruit and select local managers and help them cultivate a global perspective rather than a narrow outlook on how to conduct business in the local environment.

International pay and reward and performance management

The concept fair pay and reward is also subject to different interpretations depending on the national business system. Triandis (1998) differentiated between vertical cultures which accept hierarchy as given whereas horizontal cultures accept equality as given. In individualistic cultures, there are few rules and norms about correct behaviour and employees expect to be rewarded on their own merits and performance. Countries like US feature at the higher end of the individualistic spectrum. On the other hand, collectivism emerges in societies that have many rules and regulations about correct behaviour. In these societies, employees accept rewards or recognition on the basis of their seniority, efficiency and conformity with the organisational values rather than on the basis of their creativity or professionalism (Pascale and Athos, 1981). China is an example of a collectivist society. In such societies, rewards for individual performance or differentiating between employees are not acceptable.  Indeed, the prevailing view is that it takes the contribution from everyone to achieve continuous improvement (‘kaizen’) in Japanese enterprise. Singling one employee may cause him to lose face and consequently a loss of goodwill for the expatriate manager.

Moreover, an understanding of the body language is vital for senior expatriate managers when providing feedbacks. While in individualistic society, it is perfectly acceptable for a subordinate to participate in a discussion with his senior, in collectivist societies such as India, disagreeing with one’s supervisor is considered disrespectful. Furthermore, countries like Korea and Taiwan prefer more subtle ways of communicating feedbacks. Up-front reprimand or performance appraisal is likely to clash with the society’s norms of harmony and the employees may view it as a personal affront. Understanding these local customs and mapping them across countries is an exciting field of study for researchers interested in global performance management systems.

Training and development

Training and development is vital to ensure that the workforce remains competent and flexible by developing the ‘know-how’ thought necessary for success in the company and on the job. Scholars have highlighted the importance of national culture on training and development in terms of the hard and soft approach. The hard approach views employees in the organisation as a mere resource to achieve goals of the organisation while the soft approach views them more as valued assets capable of development (Tyson and Fell, 1986). This approach obviously influence the level amount of institutional (percentage GDP) spent on education. The German tradition adopts the soft approach and relies on formal apprenticeship, functional rotation and career path where technical expertise is gradually developed. UK which support the hard approach, believes that the individual is responsible for funding his own education and career advancement. This difference in national training and education systems will mean that the skill and competence profile of the workers available on the labour market will vary from one country to another.

Comparative studies have also shown that there are national differences in the way that managerial careers and management development are organised. Both Japan and France rely on elite recruitment, that is, future managers are decided at the point of entry based on their exceptional qualifications. This contrasts with the American belief of self-improvement where the philosophy is ‘it’s never too late to change’.

Also, there are also noticeable differences in the teaching and learning style across countries. The idea of working in groups is more natural to Asian than individualist Anglo-Saxon managers. German and Swiss managers favour structured learning environments and coming to the ‘right’ answers and are tolerant of confrontation. Asian countries, in contrast, are more concerned about status differences and may be unwilling to exchange ideas against their mentors. This will consequently impact on the format of delivering training for the practitioner, whereby the Asian employees might prefer lecture-type training and German and Swiss might prefer the seminar-type interpersonal interaction.

Employment relations

Finally, the type of employee relations pursued by the MNE depends principally on the national business systems characteristics of the both the home and host countries. According to Hall and Soskice (2001), there are two varieties of capitalism: Liberated market economies and coordinated market economies. In liberal market economies, firms coordinate their activities primarily via hierarchies and competitive market arrangements.  Market relations are characterised by arm’s length exchange of goods and services and formal contracting. The demand and supply of goods and services are regulated though market mechanisms. There are comparatively fewer state controls. Nations like US and UK fall under this category of market. Consequently, US MNEs adopt a short-termist shareholder value mentality which means they are less willing to offer secure employment to their workers. Therefore, management of labour in the US mirrors the economic model of demand and supply, with market determined wages, hire-and-fire practice and many workers employed on a temporary basis. Employers in US are also more resistant to trade union organisations than in other developed industrial democracies and the legal support for trade union organisations and collective bargaining are relatively weak in the US compared to those in other countries.

In contrast, in coordinated market economies, firms depend more heavily on non-market relationships to coordinate their activities with other economic actors. These non-market modes means there is greater reliance on private information inside networks and a greater reliance on collaborative relationships. Coordinated market economies are also characterised by a higher degree of government intervention. Countries such as France, Italy and China are examples of such economies. To illustrate, countries like Germany and Japan have adopted the long-termist approach whereby the interests of stakeholders are considered rather than simply of shareholders. This means these MNEs can offer its employees long-term employment. German trade unions are considered as a powerful stakeholder in the labour market and have the right of ‘collective bargaining’, i.e. employers need to so consult their workers before any major changes are carried out.

To conclude, the basic purpose of examining human resource from a comparative and international perspective is that it contributes to an understanding of the extent to which there are differences between organisations and their subsidiaries located in different countries. The main difference between comparative and international HRM is comparative HRM seeks to explain the differences arising between different business systems while IHRM downplays the importance of host and home country differences. The greater cultural distance between home country and host country, the harder it will be for the MNCs to transfer home country philosophies and practices. This impact on the way HR practitioners have to implement their policies but opens up new avenues for research for the academics.

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