Globalization of business activities has over the recent past happened at rising rates. With the rapid growth of technology, coupled with constant innovations, several corporate organizations have targeted to operate in global scale. With the advent of multinational corporations, the landscape of human resource has undergone a lot of transformations that have given it a new definition.
It is important to note that the definition of human resource management has not remained the same given the international dimension added to it (Edwards & Rees 2006; Brewster & Harris 1999). The degree to which a corporation or company can be considered to be multinational is normally determined by looking at and assessing human resource management policies it has put into place and implementation of the same; these policies are considered alongside other facets of organizational structures and functions.
In ethnocentric corporations, human resource policies are formulated at the head quarters, home countries, and then supplied worldwide to other subsidiary corporations. It has been argued that this is not an appropriate strategic policy formulation for a multinational corporate organization with international human resources (Briscoe & Schuler 2004). International human Resource Management is concerned more with global management of human capital of a given multinational corporation.
The main aim of IHRM is to empower a multinational corporation to achieve success in its global operations; this means the corporation being competitive world all over, being efficient in its international operations, adapting to the global business environment and adapting to the same within the shortest time possible, being locally responsible (in every geographical region of its operations) and being able to transmit learning to all its globally dispersed subsidiaries.
The main themes of this paper are about institutional factors that can potentially Influence IHRM practices and policies in developing countries. It also examines the implications of International Human Resource Manager. There are many actors that really influence the process of International Human Resource Management. However, for the purposes of this paper, the main focus will be on three institutional factors. Institutional factors that can Influence IHRM practices and policies in developing countries Institutional strategies and policies
Different multinational corporations have different human resource management approaches. Several studies have found out that there is substantial national variance in terms of human resource management (Cooke 2002). This has mostly been witnessed where the parent country’s strategies seem to dominate how a multinational corporation manages its human capital. This is referred to as ethnocentric or forward diffusion strategies (Keeley 2001). This ethnocentric approach has been a big hindrance to the diffusion of parent practices into other subsidiaries.
More research studies that have been done have also drawn focus to the influence which the parent country has on how strategic decisions regarding human resource management is done by a company in the host country. Most developing countries pursue different trade policies and strategies; they are these strategies and policies that inform how the multinational corporations operate and interact with other corporations from other developing and developed nations as explained by Kidd et al (2001, pp. 154-163). The fact is that these developing nations have different cultures from the host nations.
Due to these differences, it has become an uphill task to transfer human resources management strategies amongst the developing nations. Moreover, different nations come up with changing legislations regarding labor management. These legislations are on policies that may concern minimum wages payable to an employee, the number of expatriates allowed in a foreign owned corporation and also the work status of such expatriates. Developing economies have different economic systems governed by different economic policies and strategies (World Book Encyclopedia 1994).
Some economies are centralized while others are liberalized. In the centralized economies, it becomes a bit more difficult for foreign-owned corporations to get foreign expatriates and according to Dutkiewicz and Espino (1997, p. 22), a corporation may be forced to hire purely locally; the issue here is that centralized economies are under direct governments’ control. With respect to this, different governments come up with certain restriction or legislations that may be different from the home country of a parent corporation.
Different countries also have varied legislations regarding human capital and multinational corporations are expected to comply with the legislations of the host countries. One area in which legislations differ is in terms of income. Income taxes may vary and have different ranges. This is always likely to have negative impact on the attitude of employees who are transported or exported to countries where income taxes are high. Besides, due to currency fluctuation in the global financial market, managing the salaries for the expatriates becomes a big challenge to International Human Resource Management process.
Political factors Politics is one of the major factors that directly impact on IHRM. The political activities in the developing economies have significant influences in the IHRM. Elaboration of this point is evidenced by the fact that different developing nations have varied political environments. The political environments of developing nations are more dynamic in comparison to the political environment of Western developed and other developed nations. Due to this, International Human Resource Management process faces more challenges in the developing economies than developed countries.
The causes of these challenges emanate from the fact that the political landscape is characterized by varied opinions by different rival politicians giving promises to the people during electioneering periods; this has made the political environment of the nations to be unstable and hence unpredictable in terms of efficient and effective IHRM policies implementation (Sparrow 2009). Political factors are intertwined with economic factors; this is in the sense politics determines economic activities in the countries. The role of politics in this sense is strong in the developing countries where poverty indices are still low.
Political instability and or elements of social conflicts may scare away foreign direct investments; and most importantly, foreign workers may fear working in such economies. The effect of this scenario is ineffective transfer of human capital to certain regions. However, political stability and relative peace in these economies are likely to benefit multinational corporations as far as IHRM is concerned (Sparrow 2009). Within the political environment, there are several pressure groups and institutions that represent different interests of particular individuals.
Labour unions are some of the mostly prominent pressure groups shaping the political landscapes. The availability and the latent influence exacted by the labour unions are some of the dominant factors considered when multinational corporations are deciding on countries to expand their operations to. The multinational corporations consider critically the potential cost and other limiting factors associated with the influence of labour unions. The structures of labour unions, their priorities and legislations and practices vary greatly amongst the developing nations.
Some of the unions are organized based on the basis of shared industries while others are organized according to occupation of the members. There are nations where labor unions play a major role in labor relations and, low, are allowed to have representations in the boards of multinational corporations. Otherwise, there are also developing nations where independent labour unions are suppressed. Moreover, in some countries labour unions are only mainly concerned with safeguarding personal interests of workers; such interests are commensurate wages and better working conditions.
In other nations, labour unions are actively involved in political process and activism. The presence of labour unions may be both beneficial and disadvantageous to multinational corporations. However, it is the prerogative of individual Multinational Corporation to decide whether it is to venture and carry out its expanded operations in a country of choice. However, it is important to mention that there are varied implications of the dynamic labor unions to the International Human Resource Management, especially in developing nations where labour unions are fully involved in mainstream politics and activism.
These unions are not just a collection of workers, but also of individuals with political motivation. The consequence of this is that political issues may get into the core business of a multinational corporation thereby jeopardizing its business objectives. Therefore, International Human Resource Managers have to deal with more diversified labour issues than the national human resource managers. Organizational culture Organizational culture is one of the institutional factors that affect the IHRM.
An organization’s culture is a popular concept in the theory of organizational management. It is used to refer to the underlying fundamental assumptions, shared norms and values that determines and informs the behavior of individuals attached to the organization; it serves as a behavioral control and provides a framework within which employees are to carry out organizational duties. Research has shown that there is evidence of potential ability of organizational culture in informing the values of the employees (Perkins 2000).
Nonetheless, further studies have shown that an organizational culture may instill values and norms that are not consistent with those of national culture to its employees. Consequently, the both national and organizational cultures are likely to conflict at international level. Focusing on organizational culture, it is crucial to note that when a corporation goes multinational, it is likely to face challenges in situations it establishes subsidiaries in countries where its culture is potentially in conflict with the national culture of the host country.
It therefore implies that an internationalizing corporation requires carrying out of thorough audit of the new regions of operations and reforming its organizational culture to conform to the national culture of the host state. This may include changing its human resource policies and harmonizing them with those of the host state (Perkins 2000). Every organization has its own culture, which it uses to remain distinct within the global sphere (Joynt & Warner 1996). However, this may not stand due to varied national cultural practices of different nations.
As has been discussed earlier, the organization will be forced to adapt to cultural practices of the host countries; this may mean employees working in each subsidiary have differing norms and values. This situation is extensively discussed and explained by Heath (2005, p. 233). The organizations may find it appropriate to adapt to the cultures in the host countries. The implication of this is that the organization is most likely to lose its organizational cultural identity; but still the organization has to operate as a unit on the world business platform.
Taking for instance, operating in a purely Muslim country will need restructuring how human capital is managed in the organization. The relationship between men and women in Muslim countries are not as liberal as other non-Muslim nations. Therefore, the organization is faced with lots of cultural dilemmas in terms of IHRM. Joint ventures and acquisitions are some of the ways through which multinational corporations expand their operations. Given the varied organizational cultures of the developing countries, integrating human capital to work as a unit is likely to be faced with some challenges on the basis of cultural conflict.
This situation may be more evident where two multinational corporations come together just to form a joint venture. However, the organizational culture of the acquiring corporation may dominate the whole negotiation. But it is also important to note that, with this respect, organizational culture may not be a problem where a multinational corporation expands its operations to regions where its culture is identical or closely related to the host’s national culture and organization (Perkins 2000).
Due to different and varied national and organizational cultures, a multinational corporation may consider localizing recruitment of its human capital. The advantage of this is that there is no need to grapple with cultural issues since human resources are tapped locally; the employees are already familiar with their own national culture and are able to form a uniform organizational culture (this is where the organization has decided it will allow its organizational culture to vary regionally or geographically). This is exemplified where multinational corporations expand within the developing Muslim states.
Adoption of new technology and effecting new changes form an important part of an organizational culture. Employees and other stakeholders have different opinions regarding new changes; due to this, it is important that they are well prepared for such changes. Otherwise, any form of change may not get their support, especially when change involves the corporate organization going global with its business operations. An organization may be forced to ensure that its potential expatriates are well informed on the imminent changes and how they are likely to be affected.