Hrm in a globalized economy executive summary
The report aims to discuss aspects of Human Resource Management in light of the ever changing business world given the globalization of businesses today.
Globalization has seen changes in the way businesses work and are expected to deliver investor value. Companies started competing not just with local competitors but with organizations across continents which forced companies to relook at continuously innovating and providing a unique value to its customers to retain them. Talent Sourcing and Talent Development within an organization have become a science that identify and accept that diverse employee base form the backbone of a business and are responsible for contributing towards achievement of organization’s global goals and directly impacting competitiveness and delivering that Investor value.
Early in the 1800s during the times of Industrialization, the approach to managing workforce was primitive task drive approach. Historically, Henry Ford’s assembly lines and Studies of Frederick Taylor such as the time and motion studies thought of improving productivity by putting employees in line with mechanics. They tried to boost productivity by designing the way work is carried out. They focussed purely on productivity since productivity was what gave profits and therefore competitive edge. Workforce was put them in the same league as machines inviting organization conflict and distraction from the goal.
As globalized environment changed the rules of the game, Organizations realized that employees and their talents is the single most important supply of sustainable competitive advantage. Employees are the ones that deploy scarce resources optimally. To survive and to succeed, organization need to leverage its human resource capital’s talents to develop new products and services and creating value for customers. This marked change in attitude of managements saw the emergence of concept of Global Human Resource Management which characterizes implementation of personnel policies to maximize objectives of organizational integrity, employee commitment, flexibility and quality at a global level.
Global Human Resource Management hence becomes very important since globalization and international operations bring with them challenges beyond a simple Human Resource Management program at a local level. Global Human Resource Management not only covers
International recruitment
Appropriate training and development
Deployment of these resources
But also goes beyond simple HRM in maintaining affable international industrial relations.
With international operations, managing the employee base worldwide has its own challenges.
P Morgan: There are 2 sets of variables when it comes to HRM in for an International Organization
First -employee types
Second – Political, labour laws, culture, legal environment, economic, and practices prevailing in different countries
A successful HRM model for an international organization is the successful interplay between these 2 sets.
Clearly there is a need to go beyond basic HRM practices to include:
More functions and activities
In depth wisdom of employment law of the host country
Close involvement with employees personal variables
Provide for external influences
Exposure to newer hurdles and risks
Managing differential pay packages
Managing ethnic, gender differences
More liasoning activities
More travel and coordination
Higher management of unknown risk variables beyond the country where the headquarters are based
It is imperative that Human Resources Management models are deployed in a global context to ensure success.
Main Body
The Concept of Globalization:
While Global trade itself is not a new concept, Globalization is. Globalization can be defined as “a process of trade and investment transcending political boundaries undertaken by an interaction of people, processes, entities and spurred on by advances in political systems, technology, business ethics and affecting culture, environment & societies leading to cross border prosperity.”
International trades have been undertaken historically. Traders have traded goods and services over large distances travelling by land and sea.
Eg, The silk route that connected the Western World with Central Asia & China during the Middle Ages.
As time progressed further, we see that cross-border trade, investment & immigration boomed.
Eg. Since the middle of the 20th Century to today world trade has exponentially grown by 20 times. Only in the last 5 years of the 20th Century, foreign investment currency flow went to US$ 827 billion from a meagre US$ 468 billion.
This has had an impact on fiscal policies of governments that have opened up its economies in a controlled manner, both domestically as well as beyond their borders.
Eg. The 1991 Financial Budget given by then Finance Minister of India, Dr. Manmohan Singh was figuratively the door to globalization for India. India hasn’t looked back since in terms of its growth and prosperity. India adopted a free-market economic system. This greatly increased its own production potential and created a bouquet of opportunities for its own companies and organizations across the world for international trade and investment.
Companies started growing by virtue of the geography of their businesses and operations:
HRM in the face of such Globalized businesses:
In such a dynamic environment today Human Resource Management in a global paradigm involves the manpower planning of staffing requirements the world over, selection of the right candidates, training & development of employees for global operations. Since it is established that human resources form the backbone of any strategy, implementation of any strategy to succeed globally with Human Resource Management at its core can provide a strategic competitive edge.
Human Resource function in this environment has to provide a support function to line manager by providing guidelines, searching, training, and evaluating employees. With an effective HRM function deployed, the organization would be able to leverage the knowledge, experiences and the skills of its distinctive employee bases the world over.
The Increasing Diversity of the Workforce:
As Globalization gains steam and becomes the norm, the employee base of multinationals has become varied and rich with nationals from all over the globe. Human Resources across companies have become homogenized, enriching the organizations with depth of knowledge about variables affective markets both within the countries as well as between them. The most successful organizations are ones which utilize this resource to the maximum. Having an experienced employee from a remote market on the team is a natural consequence towards better understanding new market dynamics and new consumer behaviour.
Culture in different countries or the mode of doing business in different countries is also different
Deal Focus & Relationship Focus
Country wise distribution:
Formal Culture & Informal Culture
Country wise distribution:
Therefore HRM today for an international organization, has to consider
Differences in HR practices in the local organizations
Perception of HR as a function.
Attitude and actions of headquarters towards HR
Resistance to change in a myriad of different situations
Cultural differences in teaching and assimilating styles
The Changing Nature of the Workplace:
“A diverse organisation will out-think and out-perform a homogeneous organisation every single time”. A. Lafley, CEO – Procter & Gamble
Global competition presents a case for Global co-operation. Today, more than ever before, employees find themselves rubbing shoulders with someone from a different culture, race and society on an everyday basis.
HR departments in these multinationals have to recruit, develop and retain people who have vastly different backgrounds. This has resulted in new skills to succeed such as sensitivity and other relational aspects.
This is termed as “cultural intelligence”.
Cultural intelligence is defined as the capability to adapt effectively across different national, organizational and professional cultures (Earley, Ang and Tan, 2005).
Today employees across industries are given job roles globally, taking them around the world. In this new environment employees from home country as well as the expatriate have to learn how to work with each other given that they not only think and communicate differently but also execute differently.
The Human Resource Departments need to develop their cultural intelligence to manage this diversity in their companies.
The departments have to allow for newer challenges in the face of international employee deployment such as
Managing international assignments
Employee and family adjustment
Selecting the right person for a foreign assignment
Culture, communication and gauge
Language and communication
Staffing Function in an International Organization:
Staffing in an international organization goes beyond simply forecasting requirements and selection of the right candidates to fit a job description. It is also a tool to develop and promote the organization’s own value system and culture.
In an international scenario the following models could be deployed:
An Ethnocentric staffing policy
A Polycentric staffing policy
or a Geocentric staffing policy
ETHNOCENTRIC STAFFING POLICY:
In this policy, top management positions filled by parent-country nationals. It is actually the best suited to international organizations.
Advantages:
If the host nation does not have qualified managers, the vacancies can easily be filled
The culture of the HQ is easy to spread.
Easy transfer of key skills and operating procedures
Disadvantages:
May result in bitterness in host country
Deterrent to cultural diversity
POLYCENTRIC STAFFING POLICY
When this policy is deployed Host-country nationals manage subsidiaries and parent company nationals hold key headquarter positions. Multi-domestic organizations can benefit from this
Advantages:
Help rich cultural diversity
Implementation is cost effective
Easy transfer of key skills and operating procedures
Disadvantages:
Limits chances of host country employees getting exposure outside their own nation
Possibility of gap in mission, values and work culture between HQ and host country operations
GEOCENTRIC STAFFING POLICY
This policy seeks best people, regardless of nationality. Transnational organizations and Global entities can benefit from this
Advantages:
Optimum deployment of optimum resources
Employees get exposure to different cultures
Creates a centralized value system
Disadvantages:
Local immigration policies may inhibit 100% deployment
Higher costs associated with training and relocation
May require complex Compensation structures to succeed.
The Expatriate Dichotomy:
Further when a citizen of one country works in another country, HRM needs to take care of a myriad of issues without which there is a strong chance of failure and a premature return of the employee to his home country
The costs associated with failure are not low and are generally estimated at three times the expat’s annual salary in addition to the costs associated with relocation
The issues that can crop up when expats are deployed:
Immediate family may not adjust to a new environment
The employee may not adjust
Other personal issues
Culture shock
May not be able to cope up with bigger responsibilities
Based on how complex the business is and strength of the HR function, it is important to deploy the ideal staffing policy.
Recruitment and Selection:
International Labour Market Sources
Parent Country Nations (PCNs)
PCNs are managers who are citizens of the Country where the MNC is headquartered.
The reasons for using PCNs include
The desire to provide the company’s more promising managers with international experience
The need to maintain and facilitate organisational coordination and control
The unavailability of managerial talent in the host country
The company’s view of the foreign operation as short lived
The host country’s multi-racial population
The belief that a parent country manager is the best person for the job.
Host Country Nationals (HCNs)
HCNs are local managers hired by MNCS
The reasons for using HCNs
Familiar with the culture, language
Less expensive, know the way things done, rules of local market
Hiring them is good public relation
Third Country Nationals (TCNs)
TCNs are managers who are citizens of countries other than the one in which the MNC is headquartered or the one in which it is assigned to work by the MNC.
The reason for using TCNs
These people have the necessary expertise
They were judged to be the best ones for the job.
Selection procedure of Expatriates
Use of selection test
Technical Ability
Cross cultural requirements
Following traits are identified s predictors of expatriate success
Cultural empathy
Adaptability
Diplomacy
Language ability
Positive attitude
Emotional stability and maturity
Family requirements
Multinational requirements
Management philosophy or approach
The mode of operation involved
The duration of assignment
The amount of knowledge transfer inherent in the expatriate’s job in foreign operation
Language skills
Expatriate Success factors
Willing and motivated to go overseas
Technically able to do the job
Adaptable
Good interpersonal skills and be able to form relationship
Good communication ability
Supportive families
Adaptability to cultural change
Work experience with cultures other than one’s own
Previous overseas travel
Knowledge of foreign language
Ability to integrate with different people, cultures, and type of business organisation
The ability to sense developments in the host country and accurately evaluate them
The ability to solve problems within different frameworks an from different perspectives
Sensitivity to subtle differences of culture, politics, religion and ethics in addition to individual differences
Flexibility in managing operations on a continuous basis, despite of lack of assistance and gaps in information
Globalized HRM role
Two major types of adjustments that an expatriate must make when going on an overseas assignment.
Anticipatory adjustment
Carried on before he leaves for the assignment
It is influenced by following factors
predeparture training
pervious experience
In-country adjustment
Takes place on site
It is influenced by following factors
Ability to maintain a positive outlook in high pressure
Jobs as reflected by the role he plays in managing, authority he has to make decisions, newness of work-related challenges and the amount of role conflicts
Organisation culture
Non work factors – toughness with he faces new cultural experience, family adjustment with new country
Socialisation factor – to know what is what and who is who
Expatriate Training and Development
Need for Training to Expatriate
Cost of expatriate failure is very high
To build a team of internationally oriented, committed and competent personnel
Minimize personal problems such as politeness, punctuality, tactfulness, orderliness, sensitivity, reliability, tolerance and empathy
Improve overall management style
Pre-departure Training- Emphasises on cultural awareness and business customs of the country of posting to cope with unexpected events in a new country.
Post-departure Training – helps in minimising culture shock and depression that usually sets in a new country and culture.
Cultural Integrator
An individual who is responsible for ensuring that the operations and systems are in accordance with the local culture.
He advises guides and recommends action needed to ensure this synchronisation.
Even though expatriate are trained before being sent abroad, they are still not totally prepared to deal with the day-to-day cultural challenges because they lack field experience.
He is responsible for handling problems between the subsidiary and host cultures.
He may be from parent country or host country who has intimate knowledge of the company’s culture and can view operations from both sides.
He can only advice ore recommend a course of action.
Management philosophy and training
Ethnocentric companies will provide all training at the HQ.
Polycentric companies will rely on local managers to assume responsibilities for seeing that the training function is carried our wherever appropriate.
Geocentric companies organise training courses in different parts of the world, where a particular function is best carried out.
Regiocentric companies organise training courses in different countries of the region.
Cultural Awareness Training
There are five types of pre-departure training
Area studies that include environmental briefing and cultural orientation
Cultural assimilators
Language training
Sensitivity training and
Field experience
To decide the rigour and level of training, following factors are important
degree of interaction required in the host culture
similarities between home and host cultures
If interaction is low and similarities are high, then training should be on task and job related issues rather than culture related issues.
If interaction is high and similarities are low, then training should be on cross cultural skill development as well as task.
Preliminary visits
average duration will be about one week
A well planned overseas trip for candidate and spouse provides a preview to access their suitability for job, introduction to host country management, accommodation required, and schooling facilities available.
Language training
Types of cross cultural training
Environment briefing about geography, climate, housing and schools
Cultural orientation to familiarise with cultural institutions and value system of host country
Cultural assimilators to provide intercultural encounters
Language training
Sensitivity training to develop attitudinal flexibility
Field experience to make expatriate familiarise with the challenges of assignment
Cultural Assimilators
It is a programmed learning technique that is designed to expose members of one culture to some of the basic concepts, attitudes, role perceptions, customs and values of another culture.
These assimilators are developed for one culture where the candidate is currently working and the other culture is where he is proposed to be posted.
Type of assimilators
The trainee read a short episode of cultural encounter and choose an interpretation of has happened and why.
Critical incidents: to be identified as a critical incident, a situation must meet at least of the following conditions:
An expatriate and a host interact in the situation
The situation is puzzling or likely to be misinterpreted by the expatriate
The situation can be accurately interpreted if sufficient knowledge about the culture is available
The situation is relevant to the expatriate’s task or mission requirements
Compensation Management
Factors Influencing Compensation Programmes
Compensation decisions are strategic decisions and play a key role
It should be consistent with overall strategy, structure and business needs of MNC
It must attract and retain the best staff
It must facilitate the transfer of international employees in a cost effective manner.
It should give due consideration to equity and ease at administration.
It requires the knowledge of employment and taxation laws, customs, cost of living index, environment and employment practices, the knowledge of labour markets and industry norms, foreign currency fluctuations.
Paying Expatriates: unique problems
Discrepancies in pay between PCN, HCN and TCN
The need to vary expatriate compensation depending on the life cycle of the expatriate’s family
Compensation issues related to re-entry into the parent country organisation
Approaches to Expatriate’s Compensation
Going Rate Approach
Base salary remains linked to the salary structure of the host country.
Required information is obtained through compensation surveys and published information.
This approach is favoured by polycentric organisation
Advantage
Equality with local nationals and expatriates of different nationals
Simple approach
Attract the nationals of PCN and TCN if location is a high-pay country
Disadvantage
Transfer from a developed country to a developing country
Fighting for getting favourable posting and resisting low pay country postings
Problems when the expatriate’s repatriated to the home country
An export or import or franchising arrangement
Company appoints an export manager who reports to chief of marketing and all operations concerning export and imports are controlled by the home office
Balance Sheet Approach
It links the salary of expatriates and TCNs to home country salary structure.
Assumption – Foreign assignees should not suffer financially due to transfer
Salary package is divided into goods and services, housing, income taxes and reserve.
Cultural Impact and Compensation Policy
National cultural difference
High power-distance – the compensation system should reflect hierarchical divisions in the firm.
Low power-distance – the salary system should be more egalitarian and performance based.
Individual cultures – rewards should be given on an individual basis.
Collectivist cultures – they should be team based.
Culture with high masculinity – compensation policy focus on social benefits, quality of work life and equity.
Culture with high uncertainty avoidance – structured and consistent pay plans are preferred with no variable plans and discretionary allocation.
Culture with low uncertainty avoidance – pay should be linked to performance.
Performance Management in International Organisations
Performance Management and its link with other HR Processes
Reward Management
Human Resource Planning
Training and Development Process
Relationship with strategy
Multinational Performance Management
Whole vs part
Non-comparable data
Volatility of the international environment
Separation by time and distance
HQ-subsidiary interdependence
Ethical and legal issues
Market Maturity
Performance Management of expatriates decisions and play a key role
Setting clear goals for each unit, each department and each employee
Goals must be mutually supportive and balanced for long and short term needs.
Setting standard and measurement criteria for evaluating each type of goal
Formal monitoring and review of progress towards these objectives
Using the outcomes of the review process to reinforce desired employee behaviour through differential rewards and identifying training and development needs.
Variables that Influence Performance of Expatriate
Compensation Package
Nature of Assignment
Role Clarity
Psychological Contract – HQ’s support
Environment of the Host Country
Cultural Adjustment
Critical Success Factors & Recommendations:
The Impact of Diversity and the Changing Nature of the Workplace on Human Resource Functions in Work Organizations:
Given the era of Globalization, managing diversity at the workplace has become a business issue for the HR Department and no longer simply a moral, social, or legal concern. The challenge is no more creating a diverse employee demographic, but empowering one that already exists due the natural global nature of the business.
Despite all the hype around Diversity and the pros of having a multicultural workplace, organizations still tend to reflect:
Soft implementation of highly expensive Diversity Management Programs
A poor gender ratio when it comes to higher managerial positions
Poor integration of disabled people into the employee base.
Senior management teams not reflecting ethnic diversity.
Some critical success factors to ensuring that diversity is leveraged well by organizations include:
A) Clear organization wide understanding of the business case for Diversity.
The HR department along with the senior management and the line managers need to be clear about the need to be diverse and embrace new cultures and ethnic backgrounds into their folds. Going beyond corporate trainings and having blurred notions of how multi-cultural employee base would help the organization to gain competitive edge over local competition in remote markets, all levels of the organization need to clearly articulate how a diverse human resource base would help reach the organization goal and hence their own individual goals. Further they understand that a multi-cultural workforce can improve their organization’s adaptiveness and change readiness. This would clearly improve the culture within the organization to recruit, develop and retain the best staff.
B) Assessment of Current Situation.
HR departments that are particularly successful at managing diversity routinely spend time, money and effort in gauging the ever changing composition of the workforce given geographical expansions, attrition and new recruits. They routinely assess not just numbers associated with the above dynamics but also behaviours, and culture associated with these changes.
Eg. Eastman Kodak created a specialist external diversity panel to conduct an outsider review of the current situation. The Management of Eastman Kodak assessed recruitment policies to address cultural imbalances and even cultural blocks to retaining and developing a multi-demographic employee base.
Without the above HR Departments would only end up paying lip service to managing diversity or spending huge amounts on expensive specialist corporate trainings on managing diversity without actually creating a basic inclusive work culture. Ergo, wasting time and effort on initiatives that are unsustainable in an environment where self assessment itself is not done.
C) Managing Diversity is a top-down approach.
Successful diversity management initiatives are ones that have high visibility of the senior management team.
Eg. Back in mid 90ies, Lou Gerstner identified diversity as a key strategic initiative for IBM globally. He was a strong proponent of leveraging differences to address new markets. He established eight task forces representing various ethnic groups, allocating executive sponsors from his direct reporting team and insisting on specific measurable results within specified timelines personally reviewing progress on the results.
Many HR departments have gone beyond simply including diversity management in their employee handbook and actually championed setting up panels and councils that include senior executives. Diversity management may require fundamental changes to the very culture of the organization and hence require stewardship by the senior executives.
D) HR initiatives need to promote cultural harmony rather than address cultural imbalances.
Initiatives from HR need to promote creating a multi-cultural environment. Simply having reservation seats and quotas and fancy cultural training and diversity training is not enough. HR Departments need to ensure that minorities have the same opportunities and such initiatives are an integral part of their day to day working rather than simply an extra curricular task!
Ensuring objective appraisal systems, rewards and recognition and universal training and development opportunities is key to promoting an all encompassing holistic HR approach.
E) Objective assessment of the Diversity management initiative and scientific assessment of programs are key.
Many HR Departments have succeeded in developing measurable diversity management programs.
E.g. the Hyatt Hotel Group the world over ties approximately 15% of the bonus potential to diversity goals.
HR Departments that have been successful in managing diversity have translated it into a core competency used to assess the performance of management.
F) Diversity Management principles are all encompassing and wholesome enough for everyone to participate.
If the Diversity Management programs are only a bastion of the senior management, the entire exercise would be superficial and unsustainable. In order to result in successful recruitment, retention and development of employees in a globalized world, it is important that it is an inclusive program cascading throughout the organization.
E.g. IBM created specific task forces but more importantly invited participation in the form of inputs to help these task forces in creating an inclusive culture.
Managing diversity and the every changing workplace in the face of globalization is not the prerogative of the senior management alone but is to be implemented at the grass root level where managing diversity to retain and recruit top talent is a challenge in itself.
These critical to success factors for managing diversity are not complicated models however they are tough to actually execute and require a motivated effort on the part of the Human Resources team and buy-in from the entire organization.
Conclusion:
Clearly Globalization has brought about a paradigm shift to International Trade providing it with a great boost.
I feel, employees form perhaps the most critical resource base since they are the ones to deploy other resources and hence, in today’s Globalized world, competitive advantage can be gained only by effective Human Resource management.
A natural caveat to be issued in such a varied workplace is greater requirement from organizations to focus on differences between ethnic and cultural groups in attitude and performance at the workplace. Diversity requires Human Resources Department to find similarities and recognize differences as workplaces get more and more diversified.
The test for Human Resource Departments therefore is to manage and appreciate the diverse workforce.
With a multinational approach to
Staffing
Recruitment and Selection
Compensation Management
Performance review and management
An organization can leverage the human potential to succeed regardless of the geography and the ethnic composition in its employee base.