Managing International Business In Emerging Economies Management Essay
The purpose of this paper is to highlight the HR strategies from the point of view of African MNCs. The paper will give an overview of International Human Resources and why it is considered important. It will give details on the staffing strategies employed by Multinationals, the reason for the each staffing approach and their limitations. It will further analyse the type of staffing used by MNCs all over the world and the issues they encounter. Finally, this report will scrutinize the staffing policies used by African MNCs in other emerging economies and the issues with these policies.
The world had become a global place and this makes companies expand in their bid to also become global. With these expansions, the companies develop to be multinationals and have to employ a diverse group of people to work in each location. Finding the right staff and using the right staffing strategy is always a difficult challenge because failure of the staff performance leads to loss of resources and can have huge impact on the multinationals. This makes multinationals link Human Resource Management (HRM) decisions and practices with the company’s overall objectives and strategy and this directly contributes to the company’s success. As a result, this makes international human resource within the multinational essential.
1.2 What is International Human Resource Management?
Before outlining what International Human Resource Management (IHRM) entails, it is important to first give an overview of the general field Human Resource Management (HRM). HRM refers to the activities an organisation carries out to use its human resources effectively. The activities include determining the firm’s HR strategy, performance evaluation, management development, compensation and labour relations (Redman and Wilkinson, 2009). Usually, it deals with staff in one national boundary. IHRM involves HRM activities in an international environment. This is in line with French (2007) who states IHRM is the ways in which an organisation deals with the management of people in more than one national boundary. This makes it more complex because of the dealing with other HR activities such as: host-government relations, international taxation, international relocation and orientation, administrative services and support for expatriates and global managers and language translation services.
IHRM is the management of organisational personnel in an international environment (Redman and Wilkinson, 2009). According to Rugman and Collinson (2009), IHRM is the process of selecting, training, developing and compensating personnel in overseas positions. Morgan as cited in Dowling and Welch (2004) sees IHRM as the relationship between three dimensions which are: human resource activities, the type of employees and the countries of operation. IHRM is having critical knowledge about the important aspects of the global context of a company’s operations and how effective human resources can make the company a success internationally.
The definitions show that employees which IHRM affect are exposed to additional knowledge and potentially have more responsibilities that their other counterparts in the headquarters due to their international experience. The international managers also learn and understand the culture, language and business operations of the location they are assigned to. This makes them invariably global managers.
1.3 Why is International Human Resource Management important?
According to Tayeb (2005), the effective organization of HR internationally is a key determinant of the success or failure of the MNC in international business. Schuler et al (1992) say IHRM is important because the characteristics can facilitate or hamper the MNCs in their attempt to achieve their goals and objectives. This idea is closely related to Ray (2007) who states that: “the success and failure in cross-border business has been linked to effective HRM”. IHRM can enable the MNC achieve the business objectives it has set out to accomplish.
2.0 Staffing Policies
In the recent times, it has been observed that the management of MNCs expands their business ventures by focusing on international markets. According to Perlmutter (1969), the factors that have generated this new viewpoint is growing world markets and international customers along with global competition, the increasing availability of managerial and technical know-how in foreign markets, advancement of technology and telecommunications and various geo-political considerations. (Lorentz et al, 1993). To achieve this universal trend, the MNCs need to have appropriate personnel to run the subsidiaries for it to be a success.
To be successful, the MNCs need to adopt an approach which will be suitable for the control of their international activities. These staffing policies can be categorized into four. They are:
2.1 Ethnocentric approach
The Ethnocentric model was first developed by Perlmutter in 1969. This approach according to Treven (2000) is strategy in which the home country policy prevails. The headquarters make the important decisions, the staffs from the headquarters hold the key positions in the subsidiaries and all the management practices are adapted from the headquarters. Treven (2006) further states this staffing approach is consistent with all the subsidiaries all over the world. This is why the managers are brought in from the headquarters to develop the MNC’s practices and ensure this is constant in all their subsidiaries.
This approach is used to ensure the values and management practices of the parent company are effectively embedded in the subsidiary. This will bring about close control and organization of the international subsidiaries. The staffs of the subsidiary are exposed to a multinational orientation from the experience gotten at the parent company (Harzing and Ruysseveldt, 2004). Dowling and Welch (2004) along with Hill (2005) state the advantages of the ethnocentric approach. The authors say the core competency is produced in the home country and is transferred to the host country under the guidance of expatriate managers. These managers have the knowledge to create value through core competencies and they also contribute to the maintenance of the corporate culture. The ethnocentric approach support MNCs embrace this staffing policy from these benefits they receive.
However, there could potentially be some downside to the ethnocentric staffing approach. High cost is involved in the relocation of staff to an overseas office. There is also denial of advancement to host country nationals. This trend may lead to resentment and diminishing the public image of the firm. The employees may experience difficulties to adapt to the local language and culture of the country there are in and this can make the working conditions complicated (Gomez-Mejia et al, 1995).
2.2 Polycentric approach
This issues with the polycentric approach is
2.3 Geocentric approach
2.4 Regiocentric approach
3.0 Staffing Issues in MNCs
Due to rapid globalization, like the changes occurring in Brazil, Russia, China and India, there is increasing need for ‘global operators’: people capable to work in diverse foreign locations. Numerous Western countries are losing specialist skills and knowledge as people are retiring, due to the ageing population (United Nations, 2009). Within this complex global environment, MNCs continue to struggle with ways of managing International Assignees (IAs) (Tahvanainen et al, 2005). IAs are considered as agents of direct control; assisting the socialisation of subsidiary staff, thus enhancing coordination; develop social capital through networking activity; and perform important boundary spanning and knowledge transfer activities (Harzing, 2001). Companies understand the need of IAs for growing globally, but in general they consider IAs as a high cost and maintenance group (Welcha et al, 2009).
Staffing issues are complex in the international environment (Torbiorn, 1997), strategic alliances and cross border mergers in emerging and culturally distant markets; the decision points relating to different approaches to international staffing; the problem of shortages of international managers, particularly in emerging markets, where there is often fierce competition between MNCs and local organizations to recruit and retain high quality staff; the requisite supports necessary in order to ensure a satisfactory outcome from the organisational and individual perspective; and the management and utilisation of knowledge flows which may accrue (Evan et al, 2002; Minbaeva and Michailova, 2004; Schuler et al, 2004). These expose important issues and emphasize “the requirement for more research to better understand how expatriate assignments can add value in different contexts” (Collings et al. 2007: 202).
In this paper, will look into the reasons that leads to the employment of expatriates in the traditional assignment from the outlook of changing patterns of global staffing (Collings et al, 2007). It will also focus on the following areas to understand the context in a better light; forms of IAs; appropriateness of IAs under different circumstances; and the issues associated with these IAs (Collings et al, 2007).
It is important to understand the reason why MNCs use expatriates, before considering the challenges associated with them. The practice of using expatriates to manage business in foreign locations has been practiced since 1900 (Collings et al, 2007). “Indeed, even at this stage, locals were viewed as inferior and restricted to lower level jobs while parent country nationals (PCNs) were afforded superior conditions, similar to modern day expatriates (Moore and Lewis, 1999:66-67)” Organisations realised the advantages of using known people and socialised into the organisation in minimising the agency problems (Jensen and Meckling, 1976) linked with managing diverse organisations from an early stage (Collings et al, 2007). This is because these individuals were trustworthy and were expected to act in the favour of the organisation, compared to local managers from the host country(Collings et al, 2007). Hence the concept of expatriate came into existence as an effective tool to handle the agency issues in management due to separation by distance.
Edstro¨m and Galbraith (1977) proposed three reasons for using expatriates. Firstly, to fill the position when appropriate host country nationals (HCNs) were not available. Secondly, to develop the competence of the individual manager. Thirdly, to increasing knowledge transfer within the MNC and to sustain organizational structure and decision processes. it is important to note that IAs usually had more than one motivation (Sparrow et al, 2004)
However, research suggests there is little evidence of a significant decline in the use of long-term assignments but does identify the growing use of alternative forms of international assignments (Dowling and Welch, 2004; Fenwick, 2004; Mayerhofer et al, 2004; PricewaterhouseCoopers, 2005; Scullion and Collings, 2006c; Tahvanainen et al, 2005). A recent survey reported that 62% of respondents suggested that their organizations were seeking alternatives to long-term assignments (GMAC, 2005). This suggests that what is happening is the emergence of a portfolio of international assignments within the MNC (Roberts et al., 1998).
The four different IAs that will be discussed are
Short-term assignments (STA) are considered as the most popular form of non-standard assignment (Tahvanainen et al., 2005).
“Short-term international assignment can be defined as a temporary internal transfer to a foreign subsidiary of between one and twelve months duration.”
According to PricewaterhouseCoopers (2005) over 50% of companies surveyed accept the use of STA to increase their operations in the future, with the emerging markets of Asia and Eastern Europe.
According to Tahvanainen et al. (2005, P. 665) STA are used in MNCs for Problem solving or skills transfer, maintaining control and managerial development reasons. Other motives could be to temporarily import the talent required to train the local workforce, project based needs, to eliminate the cost (Melone, 2005).
Taxation issues for projects over six months, the possible problems such as alcoholism, failure to build effective relationships with local colleagues and customers and work visas and permits (Tahvanainen et al., 2005).
Frequent flyer assignments, or international business travellers (IBT). The IBT has been defined as ”one for whom business travel is an essential component of their work” (Welch and Worm, 2006, P.284)
IBT does not have to relocate themselves or their families; advantage of face-to-face interaction; According to Welch and Worm (2006) IBTs are mainly suitable in the developing markets or volatile countries where people would be hesitant to relocate; suitable for European and south East Asian contexts, where many capitals can be reached with a short flight; suitable for tasks such as annual budget meetings; they can develop important networks with key contacts in foreign markets; minimise the impact of international work on dual career couples.
IBTs report frequent Stress and other health issues ( De Frank et al, 2000; Welch and Worm, 2006); According to Welch and Worm (2006) consecutive frequent short trips creates serious family problems than infrequent yet longer absences; Firms underestimate workloads of the individual and allow less time to finish the back log when they return. This could cause significant pressure to cram a huge amount of work into a business trip (Scullion and Collings, 2006c)
“Commuter assignments and rotational assignments have grown in importance in recent years (Scullion and Collings, 2006c)
Previously it could be defined as where an assignee travels from his home base to a post in another country, usually on a weekly or fortnightly basis (PricewaterhouseCoopers, 2005). While the latter are defined as where staff travel from his home base to a post in another country for a short time followed by a period of time off. (Welch and Worm, 2006).
In both the instances family does not re-locate with the assignee.
According to PricewaterhouseCoopers (2005, P.17) an increase commuter assignments have been reported in the recent years, 11% of organisations surveyed had written policies for them. This approach is particularly successful in the Chinese context.
According to the geographical situation of Europe, Euro commuting and frequent visiting is a feasible option to expatriate transfers (Mayrhofer and Brewster, 1997).
There are issues due to compensation, taxation and social security.
According to a recent review ”there are serious concerns about the viability of commuter arrangements over an extended period of time due to the build up of stress from intensive travel commitments and the impact on personal relationships” (Dowling and Welch, 2004, P.68)
“As a result of increasing decentralisation and globalisation of work processes, many organisations have responded to their dynamic environments by introducing global virtual teams, in which members are geographically dispersed and coordinate their work predominantly with electronic information and communication technologies. This trend has accelerated since the late 1990s due to the growth of the internet and other communication technologies (Hertel et al, 2005)”.
In global virtual teams, staffs does not have to relocate but are responsible to manage international staff from the home base (Dowling and Welch, 2004) and usually lead to some a jointly achieved outcome involving some degree of cross-cultural interaction.
According to PricewaterhouseCoopers (2005, P. 17) The number of organisations using this approach has significantly fallen from 7% in the 2002 survey to only 4% in 2005.
Lately there has been a rapid growth in this area, Global Virtual teams are utilised to help global firms to use the best talent wherever it is located (Maznevski et al, 2006).
It has been argued that this approach is most appropriate for routine tasks and that there are certain circumstances where face-to-face communication is essential (Hertel et al., 2005; Maznevski et al., 2006).
According to (Collings et al. 2007) additional research on virtual assignments are essential and could focus on the situation in which such assignments would be suitable and the important factors which contribute to their effectiveness.
There is an emergent debate over the issue related to the conventional expatriate assignment (Dowling and Welch, 2004). Some of the issues that could be identified are as shown in the figure below.
Supply side Issue
The major challenge to traditional expatriate assignment is the supply side issue of availability, this is one of the key strategic HR concern confronted by MNCs (Scullion & Starkey, 2000). Scarcity of international managers is an important issue faced by the international firms and it also limits the execution of global strategies in these firms (Evans et al., 2002; Scullion, 1994). Research signifies current supply for global managers is very less compared to the growing demand (Caligiuri & Cascio, 1998; Quelch & Bloom, 1999).
According to ((Artice: Changing patterns of global staffing in the multinational enterprise: Challenges to the conventional expatriate assignment and emerging alternatives) Under the supply side issues, four important trend could be identified- dual as shown in the figure below careers issues, the limited participation of women in international management, repatriation issues, and weaknesses of talent management systems at the international level. Broadly these issues can be grouped as issues concerning the recruitment and retention of potential expatriate employees.
Sparrow et al. (2004, P.139) conclude that only few organisations had a good cost control system associated with expatriate assignments, it also emphasized that usually MNCs had limited knowledge of the benefits from different types of IAs. It is also argued that the generally the cost associated with the IAs is around three to five times, an Individuals home salary per annum (Selmer, 2001).
One of the most important challenges for the organisations and academics is to device a tool to precisely measure the cost and benefit associated with IAs (Collings et al, 2007).
A recent study by (PricewaterhouseCoopers, 2005, P. 9) suggested that three quarters of organisations surveyed considers cost reduction in IAs as a priority issue in the development of international assignment practices. According to (GMAC, 2005) only 14% of organisations surveyed, measured return on investment (ROI) of IAs, even though only 14% of the organisations were making an effort to measure ROI, 65% organizations were trying to reduce costs associated with IAs. McNulty and Tharenou (2004) have devised a theoretical model of expatriate ROI.
Demand side issues
Due to the rapid growth of the emerging markets such as China, India and Eastern Europe there has been a significant impact on both the demand and supply of international managers. Some of the countries those are identified as high potential sites for inward FDI in the period 2004-2007 are Central and Eastern European (CEE), India and China by the UNCTAD (2004). As the market grows in these countries, the demand for the competent IAs increases significantly to manage business in these distant countries. It may also result in competition between MNCs for highly competent managers with the context specific knowledge to conduct business in emerging markets (Bjo¨rkman and Xiucheng, 2002; Michailova and Worm, 2003).
There is also a growing demand for expatriate employees in small and medium enterprise (SME) and international joint ventures (IJVs) due to rapid growth in this areas, which in turn increases the demand for IAs further more(Anderson and Boocock, 2002) (Schuler et al., 2004). Research emphasizes the significance of staffing and the top management team’s international experience to the performance of international SMEs (Monks et al, 2001).
Expatriate performance and expatriate ”failure”
One of the most significant issues in the global staffing literature is expatriate failure. This is a serious issue for the organisations considering the cost factor associated with expatriates. Direct cost such as training, reallocation, etc and indirect cost such as damaged relations with host country organizations (Dowling and Welch, 2004). There has been growing and ongoing debate on the measurement of expatriate failure and number of authors has called for a broader conceptualisation of expatriate failure (Briscoe and Schuler, 2004; Scullion and Collings, 2006b).
Measuring and managing expatriate performance has always remained an issue due to the involvement of numerous factors like technical knowledge, personal tuning to the distant culture and environmental factors which could be political or cultural (Cascio, 2006; Oddou and Mendenhall, 2000).Other factors which has a significant impact on performance is the irregularities of the host environment and the support provided by the home base (Cascio, 2006; Oddou and Mendenhall, 2000).
Numerous factors need to be considered while developing a performance management systems for IAs as discussed above and also factors such as the impact of exogenous factors like influence of foreign exchange fluctuations on the business performance (Black et al, 1999); clearly articulating the key performance objectives and standardising the appraisal procedure across the countries. Briscoe and Schuler (2004, P. 203) “postulate that the key to the success of managing the performance of expatriates is recognising the need to adapt the appraisal system to take into account the host context, and they demonstrate the limitations of operating with standardised systems.”
The changing nature of career in the international context poses a new challenge. Two key trends could be identified that employees are looking for career mobility and a low level of commitment towards a particular organisation. Secondly, trend in self-initiated IAs (Inkson et al, 1997; Suutari and Brewster, 2000).
Recent researches suggest that that the employee considers international assignments as a means to develop individual competence which could provide them with career mobility and also valued in the job market (DeFillippi and Arthur, 1996; Parker and Inkson, 1999; Stahl et al, 2002). According to the literature on the boundaryless career (Arthur and Rousseau, 1996) international assignments may be more advantageous from an individual career perspective than from organizations perspective. The loyalty and commitment of an employee towards the organisation is growing inversely.
Due to the emphasis on self developments employees concentrates on generic skills which could gain them career mobility rather than focusing on organization specific skills (Collings et al, 2007). Secondly, the other major issue is of employee’s loyalty towards organisation (Collings et al, 2007).
support Boyacigiller and Alder (1991) who observed that IHRM literature has concentrated basically on the America and not researched from the viewpoint of an international perspective. Although this study dates a while back and many other researchers have written on different IHRM activities due to increasing and rapid internationalization, this has still failed to encompass IHRM from emerging markets to emerging nations. We can therefore conclude that there has been limited study on African multinational human resource management activities especially when this involves the company moving into another emerging market. Studies done on the staffing policy of multinationals have focused majorly on firms in developed countries going into emerging countries