International Human Resource Management Practices in Multinational Corporations

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Introduction

In the face of globalization and tremendous business opportunities away from home, organizations have been expanding their business to other countries (Muhammad Akram Ch., 2011) (Farhad Nezhad Haj Ali Irani, 2011) and reap these benefits. With this trend, these organizations have been facing a lot of new challenges that had not confronted them while they were operating in their home country. Moving to a foreign location has also brought about many challenges for the Human Resource Management practices (Friedman, 2007) (Johngseok Bae, n.d.). When an organization goes to a business in a foreign country, it has to take decisions related to its human resource in the foreign location.

 

Centralization vs. Localization

There are two important aspects when it comes to taking decisions related to Human Resource Management: Extent of Centralization and Extent of Localization. These organizations or Multi-National Corporations have faced the issue of deciding the extent to which they should localize their human resource practices or keep them centralized in the organization across locations. To understand, we discuss the two phenomena and analyze their pros and cons.

Centralization or standardization is when the foreign subsidiary uses the same human resource management practices as used by the parent organization in its home country. The policies and ways of working are same as used by the company in other location and they are consistent in the company on an overall level. The major reasons to support centralization are the control-oriented strategy of the organization, centralized decision making, and consistency. According to (Anne-Wil Harzing, 2005), the aims of global centralization are consistency, transparency, ease of administration, efficiency and effectiveness, sense of equity and economic reasons.

The control can be kept at an international level when the multi-national corporation has same human resource management practices across locations. The uniformity in structure and methods allows for the control to be retained at the central level as it is easier to understand and comprehend the decisions if a uniformity is practiced is there. This uniformity supports centralized decision making and also gives complete control to the global headquarters of the multi-national corporation. Centralization promotes consistency and easy management also. Consistency has its cost benefits in technology adoption and easy management as it does not require many costly changes as the companies go to various locations. While other things like technology and capital good can be relatively easy to copy, a strong human resource strategy and its resulting committed workforce are very difficult to copy and can provide a competitive advantage to multinationals on a global level (Sparrow P, 1994).

Centralization can be achieved by keeping fixed staffing procedures and criteria, appraisal system, Staff rotation and corporate code of conduct at different locations of the firm.

The limitations of centralizations are that it keeps the multi-national corporation aloof from the local culture of the host country. The human resource practices of the parent company may not be apt for the host country at all.

Localization refers to using localized human resource management practices which suit the foreign countries workforce. Localization is the process where multinationals allow their international subsidiaries to tailor their HRM practices according to the host country location in which they operate. Localization of human resource practices gives the following advantages to a multi-national corporation. Respect for local culture and tradition, adaptation to local institutional requirements, adaptation to the education system in the host country and local human resource practices and culturally apt workplace policies and employee expectations.

Localization of human resource policies inadvertently gives the feel of the host country to the foreign affiliate of the multinational corporation. The institutional practices of the host country like government policies and local laws relating to employment are important and must be adhered to by the multinational. Localization enables this. The education system of countries varies starkly and when recruiting employees using centralized norms, it can create a problem. The localized processes give an opportunity to mold the human resource management to the local variables of the host country and therefore provide the effective workforce to the organization in the foreign location. The employee satisfaction and motivation depend highly on it. If the expectations of the employees in the host country are different and the human resource practices of the global multinational are not in line with them then it will lead to a downfall in performance. The localization can also lead to personal relationships and accessibility which will help ease the workplace for its employees. (Xaxx, n.d.)

The case for localization is further strengthened by the comparative study of companies in China and Netherlands. It shows that dealing with a workforce having entirely different norms and values is a very difficult aspect in the management of joint ventures. The study refers to the different value system in China which makes it difficult to manage the human resource in the foreign country. It concludes that compared to the western trends, Chinese personnel policies will remain more rules oriented. (Robert M Verburg, 1999)

The debate between centralization and localization is rife but practically a mix of both is seen to have the best effect when it comes to achieving the outputs. In the context of globalization, the complex process of managing human resource across borders frequently contains elements of both convergence and national diversity (Javier Quintanilla, 2003). According to (Ingmar Bjorkman, 1997), the study done in the context of Chinese-Western Joint ventures reveals that a variety of western human resource management practices have been implemented in China. However, very few western companies make a total transfer of practices from the foreign company's home country operations. For example, the criteria used for selection, performance appraisal and promotion may be similar to western countries but the methods of selection and appraisal need to be localized. Also, localized training programs and retention schemes need to be applied.

Another study (Ingmar Bjorkman, 1999) in context to China suggests that having a regional HR department within mainland China is crucial for the success of human resource strategy.

Based on the centralization or localization of management practices, multi-national corporations are classified as ethnocentric, polycentric and global (Perlmutter, 1969). Ethnocentric corporations are those where the management practices of foreign affiliates resemble the practices of the corporation's home country. In polycentric corporations, the practices of foreign affiliates are adapted to the culture of the host country and conform to local practices of its culture. If the management practices adhere to a worldwide standard, then they are referred to as global organizations. An interesting finding by (Ji Li, 2008) shows that when a multinational corporation has a high level of globals, it is more likely to have a high commitment to human resource management in their host countries.

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