Human Resources Management in Multinational Enterprises (Research Paper Sample)

Human Resources Management in Multinational Enterprises
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According to a recent survey, the world has become more globalized, dynamic and competitive than ever before. As the number of multinational firms continues to increase, the need to become competitive in the international market has become a central theme in the management sector. The search for elements of global competitive advantage is taking a central place in management literature. A significant number of analysts have focused their attention on the field of human resources management as a component that can be exploited to create competitive advantage in the global competitive market. This essay will examine various aspects of human resources management applied by multinational enterprises, MNE.
The term ‘human resource management’ does not have a fixed definition. However, the term describes all distinctive endeavors which an organization undertakes to utilize their human resources optimally and effectively. These undertakings include employees staffing, HR planning, development, performance management, employee relations and compensation to mention a few. These activities are common in management of human resources at domestic and international level. However, there exist distinct differences between domestic human resources management and international human resources management. Consequently, more specific definitions exist that differentiate the two levels of human resources management (Hofstede, 2010).
Domestic human resources management is straightforward and less complex as a result of few considerations involved in the management. It refers to all activities taken by an organization to manage the human resources effectively within a specific nation or a country’s boulders. The management is prominent among small and medium organizations that operate within a domestic market. Hillman and Wan (2009), define DHRM as development of talents and management of human resources in an organization to meet domestic working conditions, terms, and requirements.
Management of human resources at international level is commonly referred to as International Human Resource Management, IHRM. In broad sense, IHRM is the worldwide management of human resources in a global organization. The precise definition of human resources management is given by Matthews and Zander (2008), who define the IHRM as the management of human resources in their external and internal environment in order to meet experience of multiple stakeholders. Since the management involves consideration of both domestic and international working conditions, IHRM tends to be more complex and comprehensive. IHRM is prominently used by multinational enterprises to achieve sustainable competitive advantage in global markets (Matthews & Zander, 2008).
Standardization of HRM practices is a major aspect of designing an IHRM strategy. There are numerous factors that drive standardization of HRM practices among multinational enterprises. However, the two key factors include stage of maturity and strategic issues. A strategic issues factor refers to the ability of an organization to direct human resources undertakings towards attaining competitive and financial goals in the global competitive markets. The stage of the maturity factor refers to the experience that an organization has in regard to standardization of the human resource management. Organizations with long experience in IHRM practices will be more likely to standardize their HRM practices than those with short experience in this aspect of management.
A number of managers have questioned whether or not it is advantageous for a multinational enterprise to adopt a common culture in all its subsidiaries in different parts of the world. In regard to the doubt, Hofstede (2009), conducted a survey which concluded that, as long as there are a shared values and practices an MNE, it beneficial to adopt a common and worldwide corporate culture in all of its subsidiaries. However, he adds that, it is essential to ensure that the global culture is flexible enough to address the dynamics and complex changes that are common in the international markets.
The primary role of any subsidiary company is to increase resources of the parent company and to reduce parent control. Subsidiary management has some degrees of strategic choices and can make some decisions independent of the parent company. However, the entire company is keen in the internal management of the subsidiary as it can affect the entire company. The freedom of strategic choice among subsidiaries companies results in variations in the strategies. The variations in the strategic context result in flow of knowledge and ideas among the subsidiaries (Gupta, 2009).
According to Gupta (2009), subsidiaries have four roles based on knowledge, capital, and products flow. The roles include local innovator, integrated player, global innovators and implementer. The global innovator and integrated player share similarity of being sources of knowledge. The knowledge is transferred to other affiliated organizations in other parts of the world. The two subsidiaries, however, differ in the sense that, a global innovator receives little or no knowledge from other units while the integrated player receives a large amount of knowledge from other units.
Implementer and local innovator roles are similar in that they operate at low outflow. The local innovator has the full responsibility of creation of knowledge in most of its main functional areas. There is low inflow of knowledge in the subsidiary and less transfer of knowledge to other units. On the other hand, the implementer is open to flow of know-how where it receives a large amount of knowledge. However, it transfers little or no knowledge to affiliated companies overseas. Global and local innovators transfer a large amount of knowledge while implementer and integrated players transfer much know how to affiliated companies.
A new company, which is expanding in the international market, has little experience, information and knowledge about the international market. Such a company cannot transfer a significant amount of know how to other companies. In addition, the company requires much information and knowledge from other companies that have a long history in the market. Therefore, the best role of a new company expanding to the international market is implementer role. In this role, the new company will rely on knowledge know-how from its peer subsidiaries or parent company.
In addition to standardization, localization is a major aspect of designing IHRM strategy. Localization is a situation where a company adopts management practices used by domestic companies in the host country. Localization of HRM practices for an MNE is driven by two factors namely institutional characteristics and cultural environment. Different nations have different cultures that affect the human resources management. Consequently, it may be possible to standardize the management of the human resources in all the nations and still maintain success in all the subsidiaries. Most of the employees working in foreign countries are likely to experience cultural challenges (Bae & Lawler, 2012). As a result, most MNE would opt for localization of the HMR rather than standardization of the practices.
Institutional characteristic also plays a major role in localization of the HRM. For instance, Canon is an MNE enterprise with its parent company in Japan. In Japan, the company is structured on the traditional concept of seniority. However, the company’s subsidies in US tend to take goal-oriented structure that is different from the parent company in Japan. Consequently, the company is forced to localize most of the key functions of its subsidiary’s operations. HRM is one of the key functions, and the practice is also localized to avoid challenges that may result from standardization of the HRM practices (Bae & Lawler, 2012).
Localization of HRM practices has a number of advantages. First, localization helps a company to develop new network links in the host country. Localization means that competent local managers replace expatriates in top management positions. These managers have the knowledge of the sma...