Human Resource Management: Differences in Multinational

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Introduction

Human resource development (HRD) provides a strategic roadmap for the utilization of cultural diversity amongst employees in multicultural multinationals. It is becoming imperative to understand the operations of multinational enterprises due to the globalization of business; however, while there is no conventional agreement for the term globalization in economics, it is used to refer to international integration in commodity and labour markets (Bordo, Taylor & Williamson 2003, p. 187).

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On a global scale, the effectiveness of these corporations can be critically determined by the kind of HRD systems that they put into place. The systems start a check from the type of people who are recruited into the multinationals and the appraisal methods during their tenure all through their entire time with the companies. Management of these varied people has a direct bearing on the performance of the companies they work for.

In most cases, it is how their appraisals are conducted that determines their usefulness to the firm. There is no decision of which single method is the best way to have performance management or to conduct appraisals. Multinationals continue to use various HRD strategies with the aim of reducing hindrances of the employee’s performance due to cultural differences and also to capitalize on that diversity so that they can continue being successful in their business activities.

Cultural diversity

Culture covers vast societal issues that are shared such as values, customs, behaviours and artefacts. This is handed down from one generation after another through learning. Kalman (2009, p.4) defines culture as the way of life of a particular people. In the current economic environment of globalised businesses, cultural difference is a major issue that is dealt with on many fronts. This is because organizations operate in multicultural environments and employees have diverse cultural backgrounds. In multicultural multinationals, international human resource management (HRM) is one key area that is highly affected by intercultural differences.

Cultural difference is a major factor that has to be dealt with when global HRM is involved. The cultural differences relate to the corresponding human resource practices. A miscommunication on the understanding of these practices may lead to severe consequences for the company. Dalton (1998, p.109) explains that a country’s culture entails certain values and symbols which the locals interpret in particular ways. The beliefs, language and norms that outline the behavioural pattern are also different. He notes that a particular learned behaviour develops in an individual as the person grows up from childhood to adulthood in a specific place and that this should be taken into account when dealing with the individual.

According to Forsgren and Johanson, 1992, p.47, multinational enterprises need to learn the work and business culture of subsidiary countries in which they operate and adjust their approaches accordingly so that they can succeed in their business. Good cultural knowledge is important in formulating marketing strategies, public relations, mass communication and personnel management in multinational companies.

For instance, most people in the west work from Monday to Friday, with Saturday and Sunday being the weekend. In the Middle East, the working days are from Sunday to Thursday, with the weekend being on Friday and Saturday. This not only requires the companies to adjust to a different working culture, but also to differing communication times and days.

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Analysis of the strategy

The basic components of international HRM and development concern staffing, management training and development, compensation policies, and performance appraisals. Intercultural differences affect all the above, and if left unchecked, could easily cripple the operations of a multicultural organization that employs people from different cultures and operates in various parts of the globe. Staffing for multinationals in which employees have been transferred from the host country or parent company to a different location to the subsidiary is an example of such a situation.

Appraisals are done by the HRD for people of diverse backgrounds and assessors may not necessarily be from the same cultural background as the appraised. There are also differences in what people value, which affects the reward schemes like bonus compensations.

Management training and development

The professional approach to HRD involves several aspects that are addressed differently in various places. Strategic international HRM is one area that has picked up throughout the world. To some extent, services such as recruitments are outsourced from consulting firms which also multitask (Mayer & Davis 1999, p. 167). Information on the official websites for firms like Price Waterhouse Coopers and Deloitte & Touche explains that they perform a range of duties such as assurance, recruitment, auditing, and financial advisory services among others business related services (Price water house coopers, 2010, p.1 of the official website).

Concerning HRD, apart from recruitment, they perform a variety of tasks like restructuring entire organizations and making appraisals. In cases where this is internally done, then global HR managers are obligated to undertake the aforementioned duties.

Cultural considerations should be made at these levels whether the particular business is handled by outsourced professionals or not. This should be in the positive sense and not used for victimization or discrimination. The focus on organizational effectiveness and employee development is achieved through the efficient running of the system, which checks on how the diverse cultures can promote the business.

Staffing

Every organization tries to equip itself with the best staff possible. This, however, is a challenging issue for both local and international organizations. Global staffing is a sensitive aspect of global HRD; therefore, multinationals need to be well versed with its logistics (Pucik 1996, p. 76). Normally, differences across cultures and countries are barriers to overcome. Employees may be expatriates, host-country nationals, or third-county nationals.

These employees may find difficulty in adjusting to the new environment, or are finally completely unable to do so. Reasons such as the physical conditions like temperatures, religion or foods contribute to the barriers. For the company, a particular country’s laws, especially those related to tax, customs and procedures for background screening are some of the issues that have to be endured. Consequently, the environment in a country should be evaluated before setting a business in a foreign country.

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Staffing currently takes three generalized forms: ethnocentric, polycentric, and geocentric (Storey 2001, p. 43). In ethnocentric staffing, strategic management positions are all filled by the nationals of the parent country of the company. This solves any problems of qualified managers in the host country, unifies the corporate culture, and leads to transferring core competencies. On the down side, the policies normally produce resentments in the host country and sometimes lead to cultural myopia.

The resentment is caused by the limited job advancement opportunities for the host country nationals who believe the company is discriminating against them and this view may lower the productivity of a company (Roberts, Ellen & Ozeki 1998, p. 96) and may also increase the rate of human resource turnover. Cultural myopia leads to failure in understanding the host country’s culture and the differences with the parent country. A good understanding is necessary for management and the marketing of the company.

With polycentric staffing, the subsidiaries are managed by the host country nationals, while key headquarter positions are left for the nationals of the parent company. Multi-domestic businesses are best suited by this kind of arrangement. It not only helps to alleviate myopia, but it is also cheap to implement and helps in transferring the core competencies. However, it limits the host country’s nationals’ experience to only within their country and generates gaps between the operations of the host country and the parent company (Cherrington, Reitz & Scott 1997, p. 589). Management transfer is also lacking within the company’s structure, leading to a lack of integration. This in turn makes it difficult to experience positive outcomes from business activities that are run in different locations.

Geocentric staffing best suits global and transnational businesses. It allows companies to maximize the use of their human resources. Moreover, managers get equipped to work with a number of cultures. Another benefit is the building up of a strong unifying culture and informal management networks that ease company operations. The policy reduces cultural myopia and creates value from location economies. However, the implementation of the policy is sometimes limited by national immigration laws. Furthermore, the training and relocation of staff makes the system expensive. Compensation structures are also complex, expensive, and sometimes even problematic.

Preventive measures

To reduce the above incidences, preventive measures are taken in advance. For example, prior to departure, the foreign employees are oriented and trained in the challenges they may meet in their new job placements (Conger, FineGold & Lawler 1998, p. 653). Areas considered include, among others, language, culture, history, local customs, and the living conditions in the host nation. During their assignments, they are helped to continue expanding skills and career planning, together with home-country development. The lifestyle, workplace conditions and employees of the destination are pre-mentioned in their briefing. The figure below provides a general view of such a preparation.

Compensation policy

Differences in locations of the company branches and the culture of the employees affect the compensation rates of the company. Compensation for the host country nationals in the multinationals that are venturing into a new market is a matter that the HR managers keenly investigate prior to the company’s operations (Dutton 1999, p. 68). For instance, in most multinationals, the remuneration rates awarded are normally slightly above the prevailing wage rates in the given country. Variations in tax, living standards, and other factors that affect particular employees are all considered in the package that they take home.

This explains why most multinationals are the best payers in the job market in any region of the world. They therefore attract some of the best employees the market has to offer which consequently helps in their operational performance.

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For several branches within the country, the factors considered are normally the minimum wage which differs in various parts of a country from the big cities to the small counties. The working times in that country include annual holidays, the time of the month for pay, paid personal days, times for vacation, the weekly working hours, and allowed probation periods. Restrictions may include overtime payments, hiring and termination rules, and regulations covering several practices like medical cover and retirements benefits.

As cultural background plays significant roles in determining the remuneration guidelines for employees in different parts of the world, they should be considered in fixing compensation rates. For example, in North America, emphasis is made on individualism and high performance, and compensation practices are tuned to encourage along this lines. The Europeans stress social responsibility, while the Japanese tradition is to prioritise age and company service as the basic determinants of compensation (Barton & Bishko 1998, pp. 67-69). Most expatriate compensation costs between three to five times the host country salaries per annum.

This varies depending on the foreign exchange rates. In this category of employees, the country of origin/culture determines the cost of compensation. People of American origin command a higher pay to those from other parts of the world. In Europe and Asia, people shun conspicuous wealth and Italians value teamwork more than individual initiatives. The pay cheques therefore vary for all the above reasons.

Why expatriates fail in culturally different environments

Expatriates fail to successfully perform in their duties in most cases for several reasons, and vary mainly for various nationals. For individuals from the United States, it is mainly the inability of the spouse, family members or the manager to adjust to the new culture or because of family problems. The managers may have personal or emotional immaturity that affects their work away from home (Duane & Hitt 1990, p. 52).

At times managers are promoted and assigned duties in a different country and this presents the managers with the challenge of adjusting to a different work environment, this new environment may be dynamic compared to the one the managers worked in before to earn their promotion. For the Europeans, it is the inability of the spouse to adjust that mainly leads to the employee’s failure to perform. Similarly for the British, the inability of the spouse to adjust to the new environment may lead to failure in their performance. The Japanese also find it difficult to adjust and assume greater responsibilities in unfamiliar working environments (Kopp, 2006, p. 589). They certainly experience personal and emotional problems. Technical competence may also be another problem that the Japanese may face.

Appraisals

Appraisals are normally aimed at reviewing the performance and potential of employees, and are sometimes linked to a reward review. They enhance the performance of both the employers and employees by identifying their strengths and weaknesses (Wood 2003, p. 356). This enables determining which areas they are best suited to improve in. While it is not a legal requirement to introduce appraisal schemes, legislation is in place to accommodate its usage (Welch 2007, p. 275).

Normally, this takes the form of bonuses and salary increment among others. Generally, there is usually a link between the appraisal system and the reward review, although it is preferable that these take place at different times (Murphy & Jensenand 2001, p. 87). Hence, cultural values should be well understood in structuring the reward scheme, because it is important to understand what is valuable for people in order to provide a reward that is likely to motivate them. Without this understanding, the rewards after appraisals may be ineffective.

Conclusion

Cultural differences are part and parcel of the diverse nature of global businesses. Multinationals will need to adjust their approaches and integrate the cultural knowledge of the people in subsidiary countries so that business processes like mass communication, marketing, public relations and personnel management can go on smoothly and in turn contribute to the success of the business in the new country.

The key to successful intercultural employee performance development strategy in a multicultural setting is to have a clear understanding of the different cultures and develop employee appraisal strategies that take into consideration the work culture of the people in the subsidiary country. Besides this, factors like taxation and living standards which often vary by counties should be considered when developing the appraisal strategy.

Managers from the host company should be provided with training opportunities that will familiarise them with the business practices in the new working environment especially the cultural aspects of doing business. These employees should also be assisted to settle down and be taught on the challenges that they are likely to encounter when they begin working in the new country. By building the cultural competence of its employees, multinationals firms are assured that they will minimize the challenges of cross cultural communication and therefore be more successful in their business ventures.

References List

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Bordo, M, Taylor, M & Williamson, J 2003, Globalization in historical perspective, University of Chicago Press, London.

Cherrington, D Reitz, H & Scott, E 1997, Effects of contingent and non contingent reward on the relationship between satisfaction and task performance, Journal of applied Psychology, 55(6), pp. 531-536.

Conger, J, FineGold, D & Lawler, E 1998, Appraising Boardroom Performance, Harvard Business Review, Jan-Feb,76(1),pp. 136-148.

Dalton, G 1998, Global challenges. Informationweek, (700), 19ER-20ER.

Duane, R & Hitt, A 1999, Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership, The Academy of Management Executive, 13(1), pp. 43-57.

Dutton, G 1999, Building a Global Brain, Management Review, pp. 34-38.

Forsgren, M & Johanson, 1992. Managing networks in international business. U.S.A: Routledge.

Kalman, B, 2009. What Is Culture?. Ontario: Crabtree Publishing Company.

Kopp, R 2006, International human resource policies and practices in Japanese, European, and United States multinationals, Human Resource management, 33(4), Pp. 581-599.

Mayer, R & Davis, J 1999, The effect of the performance appraisal system on trust for management: A field quasi-experiment, Journal of applied Psychology, 84(1), Pp. 123-136.

Murphy, K & Jensenand, M 2001, Performance Pay and Top Management Incentives, Journal of Political Economy, 98(2),pp.225-265

Price water house coopers, 2010. Our services (Description). Web.

Pucik, V 1996, Human Resources in the future: An Obstacle of a champion of Globalization? CAHRS Working Paper Series. Web.

Roberts, K., Ellen, E & Ozeki, C 1998, Managing the global workforce: Challenges and strategies, Academy of Management Executive, 12(4), pp. 93-106.

Storey, J 2001, Human resource management: a critical text, Routledge, New York.

Wood,S, 2003. Human Resource management and performance. International Journal of Management Reviews, 1(4), pp. 367-413.

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