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(page 325) HRM theory and practice have been products of the Anglo-American cultural environment. Do you feel they are losing their relevance as MNEs become more internationalized? Or do they have universal relevance, needing only modification in different environments? |
Relevance of HRM The argument that HRM has lost relevance rests on the Western individualist assumptions that underlie HRM theories and practices. It can be pointed out that much attention is devoted to aligning workers’ roles and rewards with those of the firm – a process in which managers play a crucial part. For example, the notion of empowerment rests on individual responsibility, and is contrasted with the view of employees as mere units of labor, commonly associated with large organizations. |
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The cultural environment of HRM National cultures of both parent and subsidiary firms influence HR policies and practices. A familiar pattern has seen Western firms from individualistic cultures expanding into developing countries with more collectivist cultures, where Western HR practices must be adapted. IHRM is also adapting to the expansion of emerging multinationals from developing countries. Universal applicability of HRM theory and practices Few would claim that a single theory could apply universally. The HRM theories discussed here take account of different types of organization. International HRM has evolved as firms become more internationalized, and is now recognized as a subject area in its own right. It is arguable that the same issues, such as manager-employee relations, arise in all organizations, and theories are helpful in clarifying the different roles and relations. However, it is now clear that differing environments are central to that discussion – which was perhaps not widely acknowledged in the past. |
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(page 329) What means are available for improving working conditions and security of employment for workers in developing countries? Will improving conditions and wages inevitably result in investors moving operations elsewhere? Give some country examples.
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Improving working conditions for workers in the developing countries |
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One of the traditional means of improving working conditions is through independent trade unions, which can represent workers’ interests and negotiate on their behalf with management.. They played important roles in both Europe and the US. However, independent trade unions are banned in many developing countries where authoritarian governments see them as vehicles of political dissent. Other possibilities:
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Will improving conditions and wages
result in investors moving operations elsewhere?
Not necessarily. Much depends on the industry – textiles and clothing do seem to suffer from the race to the bottom. However, most investors have multiple reasons for choosing a particular location, and low wages is only one of them. If improving labor standards sends investors rushing for the exit, it could be argued that these were not the type of investors the country should have been attracting. Vietnam can be cited, having attracted investors when China was becoming more costly. Mexico is another location which has benefited from low costs. It saw investors leave in favor of China, despite the higher costs of transport to reach US markets (see CF 4.2).
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(page 333) Assume that you are the HR director for a parent company based in the UK, with subsidiaries in the US and China. What factors will you take into account when designing reward systems for these differing locations? |
First, summarize what a reward system comprises. The company could have an identical reward system operating in these two locations, but even if it did, it would probably not operate in practice in the same way, as these cultural environments are so different.
Some factors in the US subsidiary:
Some factors in the Chinese subsidiary:
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(page 341) Argue for or against the following statement, giving your reasons: 'Trade unions ceased to be relevant in the globalized economy'. |
Arguments in favor of the statement: that trade unions have ceased to be relevant:
Arguments against the statement that trade unions have ceased to be relevant:
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(Page 346) What are the challenges of working in a cross-cultural team? Based on your own experience of cross-cultural teams, make a list of suggestions for enabling them to function smoothly, so that all feel involved in the decision-making.
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Cross-cultural teams and transnational managers |
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The transnational manager develops a range of competences across different cultures, such as communication and motivation. In addition, the transnational manager is able to coordinate disparate units into a coherent whole, while retaining local responsiveness. |
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Challenges of working in a cross-cultural team The challenges of working in a cross-cultural team stem from the differing cultural backgrounds of the team members. They will differ in their attitudes to team work in general and in their expectations of the specific team. Some team members are likely to be from low-context cultures and others will be from high-context cultures. The members will have differing view of the task orientation: some will feel that establishing social relations is just as important as carrying out tasks, while others will be task-oriented. Some will feel more natural in a team environment, whereas others, especially those from individualist cultures, will find it more difficult to adapt to a team way of working. Suggestions for enabling cross-cultural teams to function smoothly You may probably have experience of working in teams, if only in the context of group assessments or exercises. Some of you may wish to contribute suggestions to the list and might probably be familiar with groups where one or two people dominate, and the others are turned off, possibly withdrawing from participation. Some possible suggestions:
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In what ways does IHRM contribute to the MNE’s overall competitive strategy?
For the MNE, IHRM has a strategic role and should support overall corporate strategy. Three areas are highlighted in the chapter: labor productivity, organizational flexibility and social legitimacy.
Cost-effective use of labour is important for any firm, but is critical in industries where low-cost labour is essential to competitiveness. The firms in these sectors often outsource manufacturing in low-cost countries. Although relying on independent contractors, these operations must be aligned with the HR strategies and policies of the brand owner.
Organizational flexibility in the international context involves IHRM directly, and underpins competitive strategy. The firm seeks to enhance performance in differing locations, involving a number of structural and operational choices. In decentralized organizations, local managers have considerable decision-making authority. However, they must be attuned to overall corporate goals, and their HR policies must be co-ordinated from the centre, even though they have responsibilities for local staffing and recruitment.
Social legitimacy – This aspect of IHRM recognizes the diversity of social and cultural environments in which the firm operates. Working practices and norms of behavior differ in each location, but at a deeper level, the view of the individual employee and his/her relationship with the employer differs according to the cultural environment. It is now recognized by MNEs that reward systems and work-life balance must reflect cultural differences.
The MNE seeks to gain maximum benefit from the diverse resources and capabilities which foreign locations offer, and it is now recognized that IHRM plays a crucial role in achieving this goal.
Examine differences in national institutional environment between developed and developing countries, and assess the implications for HRM?
First, explain what is meant by the ‘national institutional environment’. Both public and private institutions are relevant. On the formal level, there are government departments, regulatory bodies and courts. The political and legal systems of the country are linked, in providing a framework for enacting and administering laws and policies. In developed countries, employment law, labor standards and health & safety law tend to be more evolved and better enforced than in developing countries. Employment rights (including the right not to be unfairly dismissed) are usually established in employment protection legislation. We associate such rights with developed countries, but developing countries have them in varying degrees: for example, India has relatively strong employment protection rights. Health and safety legislation exists in most countries, but enforcement and redress for harmful effects differs markedly between developed and developing countries.
The implications for HRM:
Companies must be aware of local employment laws, including protection from unfair dismissal and redundancy.
Companies must be aware of local health and safety rules. When there is an accident resulting in injury and damage, they will be liable under local law for the harm if the company was responsible. Similarly, the company may suffer harm from the activities of another firm. In these situations, the workings of the legal system may well be slow, cumbersome and not entirely transparent. These characteristics are more likely to be found in developing than developed countries (see Chapter 5)
The international joint venture is recognized for its potential in achieving competitive advantage in new markets, but poses HRM challenges which are often underestimated. What are the challenges, and how can they be resolved?
First, define the international joint venture. The two founding companies are usually from different countries. The new company created tends to be in the home country of one of the ‘parents’.
The challenges include:
Disagreement between the two parents on the nature or operations of the new business. They will have different HR policies, and must agree on which policies to adopt for the new firm. The new policies could be a blend.
Management of the new firm often reflects that of the dominant partner in the joint venture. However, in a developing or emerging economy, the company which invests more capital is usually the foreign partner. In this situation, the HR policies should adapt more to the local environment, which gives the local partner a position of relative strength, creating possible conflict with the foreign partner. Agreeing management roles in the early stages can help to avoid conflict.
The new firm takes on its own identity, culture and policies as it grows, making it different from either of the parent firms. They may wish to retain control, feeling that this is necessary in the interests of the parent company. However, those in the new firm sees its own interests as paramount. In the early stages, therefore, it is helpful to consider how they envisage the new firm in the longer term. It may well thrive to a greater extent if the parents adopt a flexible approach to guiding it
What IHRM issues arise in the cross-border merger or acquisition? In what circumstances should the acquirer look to integrate, or alternatively, keep distinctive, the acquired organization?
The issues which arise in cross-border M&A:
• Whether to integrate the new company or keep it separate.
• Whether the acquired company needs to be restructured, and, if so, how.
• How the acquisition fits in with the strategy of the new owner.
• How to allocate staff to key positions in the acquired firm.
• How to incorporate the differing culture of the acquired company.
Integrating the acquired organization versus keeping it distinctive:
If the acquired company is a well-known brand, it might be appropriate to keep its distinctive qualities, including its structure and staff, who are committed to the brand. If the acquirer takes over a rival company in the same sector as itself (such as the acquisition of one supermarket chain by another), then it is appropriate to assimilate the acquired business, rebranding shops. A middle way is the collaborative partnership, in which the acquired firm retains its identity and culture, but its strategy is directed largely by its new parent (Body Shop, now owned by P&G, is an example of this approach).
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Vietnam (page 327) |
Describe the main features of Vietnam’s institutional environment. How do these factors impact on the work environment and labor relations?
Vietnam is making the transition from a planned economy to a market-led one, under the guidance of its communist leaders. The state still dominates strategic sectors, and legacies of bureaucratic state machinery remain. Corruption remains a major problem, and progress in eliminating corruption is slow. Market reforms and inward investors have brought prospects of job creation on a large scale. With low wage levels compared to China, Vietnam’s plentiful supply of keen workers is a source of comparative advantage. Poor industrial relations have been a problem.
Workers in the key export sectors have endured poor conditions and have little voice in labor relations. Labor unions exist, but are state-controlled, and firms in these industries are typically foreign investors, on whom the state is depending for job creation.
What are the attractions of Vietnam for foreign investors?
Some which are highlighted
in the case study:
Low wages.
Diligent workforce.
Weak employee rights
Reasonably stable government. It is communist led, but a National Assembly of elected representatives is a sign of political reform.
What are the prospects for better employment protection and improved labor relations in Vietnam?
Members of the National Assembly have shown they are willing to criticize officials, and this could be a sign of growing awareness of social and political issues at grassroots level. The government has a weak human rights record and weak stance on employment protection. With considerable labor unrest, the government could decide to follow China’s example and strengthen employment rights. However, it would be reluctant to antagonize foreign investors. Thus, the likelihood of improvement is probably slim, especially if foreign investors are on the lookout for more advantageous locations. On the other hand, if social unrest becomes a perceived threat to communist leaders, they might feel that improving workers’ rights is necessary simply to maintain political stability and retain power.
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Strategic cross-roads |
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Questions
What are the key elements in GAECD's business success?
GECAD was a start-up company in the period following the fall of communism in Romania, in the early 1990s. Its entrepreneurial founders were inspired by the opportunities presented by the new market freedoms. They were able to adapt in an environment of weak resources and weak institutional development. Romanian IT experts were encouraged to focus on anti-virus software largely because of the thriving virus industry next door in Bulgaria. This situation led them to specialize in the area, which became highly important in the following years. The global IT companies recognized this expertise, which they were keen to acquire. This is an example of an SME playing a role in innovation, which is then taken up by large MNEs.
Describe the corporate culture of GECAD. How can its employee involvement and commitment be replicated in larger organizations?
GECAD’s founder and CEO takes pride in the fact that his managers were offered jobs with Microsoft, but only 10% took them up. GECAD is highly egalitarian – the CEO sits alongside other workers. All employees are empowered to take initiatives and develop new ideas. This is the company’s source of strength and employee motivation.
Replicating this culture is something which large organizations struggle to do. A number of suggestions can be also considered, for instance, flatter organizations, employee empowerment and recruitment policies that prioritize creative talents (see p. 461 on Google, which hires creative people, but leaves many feeling rather directionless in the large organization which Google has now become).
BusAd 170
Chapter Review:
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Updated on 05/05/2015
