Chapter 2 - International HRM: Policies and Practices for MNEs PDF

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Chapter 2 from the book....

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STRATEGIC INTERNATIONAL HUMAN RESOURCE MANAGEMENT (SIHRM) AN INTRODUCTION •

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SIHRM → part of IHRM that focuses on creating and implementing IHRM policies and practices that help achieve an MNE’s international vision and objective (its international strategy) o Strategic management → collection of competitive moves and business approaches that managers employ in running a company and that are derived from its international strategy Strategy → signals an organization’s commitment to specific markets, competitive approaches, and ways of operating. Strategies are developed in either or both of 2 ways: 1. Pro-actively → forward-looking plan to deal with anticipated market forces 2. Reactively → response to what the firm is experiencing in the marketplace Specific strategies are formulated because of two very compelling needs: 1. Need to actively shape how their firm’s business will be conducted 2. Need of molding the independent decisions and actions initiated by departments, managers, and employees across the company into a coordinated company-wide game plan HR issues are among the most critical issues for successfully competing in the international marketplace o HR should be providing input to the international strategic decision-making at every step of internationalization

EVOLUTION OF THE MULTINATIONAL ENTERPRISE To place IHRM in the strategic context of the MNE we should analyze the development of the international firm • •

As a firm internationalizes, it must make a choice of methods of market entry As firms increase their levels of international activity, their IHRM responsibilities become increasingly complex

Portfolio Investment

Exporting

Sales subsi diary/local sales office

Licensing

Franchising

Contracting or Sub-contracting

STAGE 1 OF THE INTERNATIONALIZATION PROCESS - Financial investments in foreign firms - HR is not likely to be very - Usually occurs while the firm is relatively small - Export through the use of direct sales to foreign customers or through import/export firms, or through foreign distributors - Relatively little impact on the organization and IHRM STAGE 2 OF THE INTERNATIONALIZATION PROCESS - If export sales or imports are successful enough, the firm is likely to next establish its own sales or purchasing offices in those countries where sales or imports are large enough to warrant such efforts - Offices are managed by a sales manager or purchasing agent chose for sales and/or product knowledge, not for any foreign experience or capability STAGE 3 OF THE INTERNATIONALIZATION PROCESS - Firm usually located foreign firms that have the experience to manufacture their products – with minimal technology transfer - Person from the parent firm involved → person who negotiates the license agreements and/or handles whatever technology transfer is required - IHRM plays a very minimal role in the licensing of manufacturing - Another form of licensing - Franchisor may help out by providing training and marketing the services or products - Franchise businesses are usually owned locally, the impact on IHRM is pretty minimal - Contract of the manufacture or assembly of a firm’s products to an existing local firm - As firms manage their supply chain on a global basis, they sub-contract all or most of their manufacturing to firms abroad → advantage from lower labor and operating costs - Few individuals travel to foreign locales to transfer necessary technology and to monitor the quality of the manufacturing and final products - Marketing will still be handled by the parent firm

STAGE 4 OF THE INTERNATIONALIZATION PROCESS - Subsidiaries can be developed in a number of ways: • Green-field → acquiring an open “field” to build the subsidiary from scratch • Brown-field → purchase existing buildings to develop the subsidiary inside • Acquisition of existing foreign-owned business → easiest access to new markets - From an IHRM standpoint • Star-up project (fields) → requires staffing and creating all IHRM policies and Wholly Owned practices for a totally new workforce Subsidiaries • Acquisition → poses different challenges: accepting the IHRN practices of the acquired firm or partially or totally changing them to those of the new parent firm - Major challenge for the firm and for IHRM is to integrate the acquired firm’s practices with those of the parent. - The knowledge base and competencies required of the parent firm’s IHRM department are clearly more complex and complicated - Between US and Mexico → special characteristics favorable to the foreign parents - “Twin plants” established to attract investment and create jobs in Mexico along the Maquiladora (Special US-Mexican border → parent firms receive special treatment with cheap Mexican labor form of Subsidiary) - Products are then to be exported to US other countries with only the labor-valueadded subject to import and export tax STAGE 5 OF THE INTERNATIONALIZATION PROCESS - Two or more firms create a new business entity with shared ownership and managerial responsibilities → limited objectives and a planned limited life - Employees will normally be assigned to the entity from each of the partners, with International Joint specific managerial and employee responsibilities previously negotiated Ventures - Problems for HR → having to choose to adopt or develop HR practices for the IJV’s multinational workforce to issues concerning the merger and interaction of 2 or more national and corporate cultures - Most easily consolidate the scope of activities and the parent firms ’ position in the International Mergers global marketplace - IHRM activities in IM&A are specially important in the pre-merger due diligence phase and Acquisitions and in post-merger integration - Informal or formal partnerships or agreements that do not result in an independent International Alliances, legal entity → other forms of linkages to operate internationally Partnerships and - No new legal entity is created → firms involved can relatively easily and quickly Consortia dissolve the relationship as the situation warrants AUXILIARY METHODS OF INTERNATIONALIZATION Approaches firms can se to further internationalize their operations at any stage - Initial reason for outsourcing (form of sub-contracting) → reduce costs, improving quality, freeing the company resources - More directly linked into management of the business → closer managerial and Outsourcing technical involvement by the parent firm with the service provider - HR activities: planning, managing, and execution - Involves the relocation of one or more aspects of a firm’s business processes to a location in another country for the purpose of lowering costs - Function is now performed by an entity owned by the firm but staffed with foreign personnel in an off-shore location → still part of the parent firm Off-shoring - HR responsibilities are the same, albeit in another country’s legal system and culture, as they are with the function being performed “at home” - Contributes to an atmosphere of anxiety among workers who feel their jobs are being threatened → recruitment and retention may be the greatest challenges THE BORN-GLOBAL FIRM - Some new enterprises are born global and almost immediately operate across the globe (internet products, IT applications, and other specialized product with global niches – from the IT industry) - IHRM activities of these firms are focused primarily on frequent international business travel of key individuals and legal protection of intellectual property rights (patents, trademarks) in the various countries in which they operate, the hiring of key local staff, and the management of international project teams for local client service

IHRM AND THE EVOLUTION PROCESS OF INTERNATIONALIZATION - Businesses typically pass through a number of stages as they increase their degree of internationalization: exporting, establishing sales office overseas, assembling imported parts and manufacturing locally. - Each stage makes unique demands on the HR department. MNE BUSINESS STRATEGY The nature of an MNE’s business strategy is guided by the extent of integration and local responsiveness required by the firm to manage its worldwide operations. •

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Integration: the extent to which the subsidiaries and the headquarters develop a unified whole and can provide the MNE with a variety of competitive advantages ▪ Economies of scale ▪ Improved quality ▪ Standardization Local responsiveness: the extent to which subsidiaries respond to local differences: ▪ Modification of products or services in order to fulfill local customer needs. ▪ Respond to local competition and culture ▪ Comply with government regulations ▪ Attract local employees ▪ Penetrate local business networks

Integration and local responsiveness form a framework that can be used to describe an MNE’s business strategy:

Integration

High Low

Local Responsiveness Low High Global Transnational International Multi-domestic

There are four types of MNE’s business strategy:

International

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Multidomestic •

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Global

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Transnational

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Quite limited local responsiveness and quite limited integration. This strategy begins with export or import and may be limited to licensing or subcontracting. Involves no overseas offices or operations, other than possibly small sales offices. Responds to high needs, values and demands of local market. Subsidiaries operate independently witching each country, operations in other countries and often fairly independent of the parent company headquarters. MNE may coordinate its major country subsidiaries with regional headquarters in order to more effectively manage its international operations. A unified strategy which is implement for all countries. Subsidiaries are connected to the headquarters; and are dependent on resources, brand identities, ideas, policies and know how. Global and multidomestic at the same time. Transnational firm has a global focus but works hard to be seen as a local firm. Transnational firm operates as a global network, with each subsidiary given responsibility related to its capabilities and strategic mission.

Headquarters’ International orientation and MNE business strategy The orientation of senior executives is classified in three: ethnocentrism, region-centrism or poly-centrism, and geocentrism. The key strategy issues in these orientations is the degree of domination od the MNE headquarters over subsidiary management and HR practices as compared to the degree of localization of subsidiary practices.

Managers use home-country standard as a reference in managing international activities. • Centralized decision making and high control over operations. • In this case, managers follow an international business strategy or a global business strategy. ➔ IHRM practices for international operations tend to copy parent-company practices and are very centralized. •

Ethnocentrism

Poly-centrism or Regio-centrism

Similar countries in a region, with host-country standard increasingly used as a reference point in managing company operations. • Follows a multidomestic strategy that emphasize decentralized and autonomous operations of wholly owned subsidiaries. ➔ IHRM practices tend to be decentralized and local subsidiaries tend to be much more likely to be left alone to follow local HRM practice.

Geo-centrism

Managerial outlook is one of the creating a global network and a preference for following a transnational strategy that is integrative and interdependent among various elements of the global organization ➔ IHRM practices tend to be more eclectic, borrowing best practices from around the world, rather than giving preference necessarily to either headquarters or local practices.

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IHRM Strategy •

IHRM Strategy: the creation and implementation of IHR practices that help achieve an MNE’s business strategy. o Involves the strategic management of the HR function and department. o Can serve as a guide that helps to shape and govern the firm’s international activities. o Is implemented through IHRM policies and practices.

IHRM Strategies and MNE business strategy • •

IHRM strategy’s effect on organizational effectiveness is dependent on how well the IHRM strategy fts with and supports the MNE’s business strategy. IHRM strategy has to deal with the issue of whether to standardize IHRM policies and practices from headquarters, to localize them to meet local conditions or do both.

Three types of IHRM strategies:

Integration

High Low

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Autonomous • •

Receptive

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Local Responsiveness Low High Receptive Active Autonomous Each subsidiary has the freedom to develop and implement its own IHRM policies and practices that support local rules and conditions. This strategy has a decentralized HR function with a small HR department at headquarters and the majority of HR decisions made at the subsidiary level. Most suitable when the MNE has a multidomestic strategy and a regioncentric IHR orientation. Each subsidiary is tightly connected with headquarters with very little freedom to adapt to the local conditions. This strategy has a centralized HR function with a large HR department that exercises considerable control over HR decisions. Most suitable when the MNE has a global strategy and ethnocentric IHR orientation.

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Active

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HR at headquarters and HR at subsidiaries try to balance the control over HR decision-making. Most suitable when the MNE has a transnational strategy and geo-centric HR orientation.

RESEARCH ON SIHRM Models/Frameworks for understanding SIHRM (Strategic International Human Resource Management) In order to understand the role of IHRM in MNEs, researchers have suggested several SIHRM models or frameworks. One of the earliest models showing how IHRM is connected to the different strategic requirements of the MNE is the following: The model has 5 parts: 1. Strategic MNE components • Two components: o Inter-unit linkages: how MNEs manage the different dispersed operating units and describes how they balance the competing pressures for differentiation and integration. o Internal operations: how each unit operates within its local environment, laws, politics, etc. 2. Exogenous factors o External forces that are beyond the MNE’s control but can create challenges that affect an organization’s IHRM issues, functions, policies and practices. 3. Endogenous factors o Issues that are internal to the firm: structure of the firm, stage of internationalization, business strategy and headquarters’ international orientation. 4. IHRM issues, functions, policies and practices • IHRM issues: issues that result from the inter-unit and intra-unit needs and challenges. • IHRM function: includes the resources (time, energy, money) allocated to the HR department or unit, and the location of those resources and HR decision-making. • IHRM policies and practices: involve the development of general guidelines on how individuals will be managed and specific HR initiatives or activities (formal policies of the organization and the actual daily practices that employees experience) 5. MNE concerns and goals • Utilizing and integrating appropriate IHRM practices and policies that enhance overall performance of the MNE on several criteria (they are five) ▪ Global competitiveness ▪ Efficiency ▪ Local responsiveness ▪ Flexibility ▪ Organizational and transfer of learning...