This paper is about globalization that it is the leading factor to greater convergence in HRM Policies and practices in multi-national organizations all over the globe. This paper is going to be discussing about what is globalization and the positive and negative effects on the HR department of a multi-organization. This paper is going to be discussing the that how in many business sectors there is now an increasing emphasis on adopting a strategic approach to HRM where HRM practices are more closely aligned to business strategy. This shift in emphasis has created challenges and opportunities for organizations and the HR profession. Equally it has created changes in responsibilities for the delivery of HRM, with line managers increasingly being expected to take a more active role in the delivery of human resource management.
The outline of the paper is as follows:
- HRM and Globalization
- The Convergence Theory and Globalization
- The Divergence Theory and Globalization
- The Implications of Increased Competition and Workforce Diversity
- HRM and Business Strategies
- Opportunities Faced by the HR Managers
- Challenges Faced by the HR Managers
Globalization can be defined as a way that the world is getting interconnected both economically and culturally. Globalization is actually the process of economic, technological, political and socio-cultural forces.
There are four dimensions to globalization: 1) building the global economy of the world, 2) formation of the world opinion, 3) democratization i.e. the emergence of a global community and 4) the creation of global political institutions. As we know that globalization is the process of economic, technological, political and socio-cultural forces. Globalization has some positive and negative effects as well. The positive effects of globalization in any economy is that, it has opened a broader concept of communication throughout the world, it helps on bringing in investment in a country, with the help of globalization people and companies now have access to different products of various countries, there is a consistent flow of capital and cash in the developing countries, there is also an increase in the production sector of the companies due to demand for their products worldwide.
HRM and Globalization
Virtually every activity of the HR department is affected directly or indirectly by the internationalization of the company’s business. The need to do international succession planning arises, as do policy decisions about the use of foreign nationals and expatriates in the assignments abroad. Internal barriers to international assignments need to be identified and reduced and the company must identify external sources of needed talent. Then within a wide variety of legal constraints, the HR department must select qualified people who can be assimilated into the company and the local culture. (Armstrong 2000)
Orientation, development and training gain considerably in complexity and importance. The success of a foreign national or expatriate’s performance depends heavily on effective placement and development of the employee. Compensation for the employees becomes more complex too. Adjustments, allowances and incentives along with unique benefits packages for the employees, add considerably to the company’s compensation cost and the HR department’s involvement in customizing individual compensation packages for the employees.
The Convergence Theory and Globalization
Globalization is something which has created an unequal balance within the world. The convergence theory believes that national boundaries are going to be eroded in the political, technological and business areas and therefore the local differences in culture will be erode as well and the outcome would be one global culture. And when this happens it must be remembered that globalization amplifies the cultural diversity of an organization. And this can create challenges for the HR department; therefore the managers need to be aware of the culture diversity within the organization so that they can guide the managers when they take decisions. HR managers and the HR department further their contributions to the organization by being informed about cultural differences among the company’s international operations. Projects and innovations that have been successful in one country are often duplicated and applied in others (Fullmer 1983).
Awareness of cultural differences can enable succession planning and other departmental efforts to provide equal employment opportunity for women in ways that are beneficial to the employee’s needs and the company’s objectives. In fact equal employment opportunity is so central that HR departments are devoted to this challenge.
The Divergence Theory and Globalization
If we look at the divergence theory we will see that it is completely opposite from the convergence theory. In divergence theory the cultural diversity will usually persist or even be reinforced by the rejection of superficial commonality. And it doesn’t believe that the world is a global village, it sees as more of a global pillage. Despite economic pressures toward convergence, resilient differences in cultural and institutional contexts produce divergent employment relationships. The growing diversity of the workforces and the increased globalization of many companies present unique employee relations challenges to HR departments. Departmental policies and practices, even those based on experience and sound research, may have to be modified or even discarded in dealing with different groups. Domestic goals of equal employment opportunity may conflict with laws and culture in other countries. For example, separation of women from men or members of different ethnic groups may be practical and even legal necessity in many developing nations. Domestically and internationally, employee relations may be strained by perceptions of discrimination and reverse discrimination and which may occur when job assignments, promotion and rewards favor one group over the other (Fullmer 1983).
The Implications of Increased Competition and Workforce Diversity
The growing globalization of business also means grater movement of employees among countries. As employees are relocated, human resource specialists and human resource managers are challenged to make adjustments that are fair to the employee and the company while keeping competitiveness in mind. There are six issues facing the HR managers in the global companies. For example, the first issue that is being faced by the managers in Asia- Pacific region is that they have to manage the immigrants or expatriate expectations. The second issue that is being faced by the HR managers is that they have to add additional appropriate values to the foreign employee’s salary package for them to stay and work for their organization. The third issue that is being faced by the managers is that they have to localize the expatriate’s salary. The fourth issue that is being faced by human resource managers is that they have to keep a check on the costs, which are they have to maintain a particular cost. The fifth issue that the managers of globalized companies are being faced with that they have to worry about global pension schemes for their employees. And the last issue that is being faced by the human resource managers is that the integration of human resource planning with the foreign employee’s salary packages (Albrecht, 2001).
The implications of increased competition and workforce diversity are considered to be countess. One obvious implication is that the HR department will be pressured for additional employment flexibility and additional child care and elder care assistance by their workers. This flexibility probably achieved through flexible benefits, flexible schedules, part time workers, telecommuting and temporary workers. Rapid rises in health care costs and slow productivity growth rate will put a downward pressure in real (i.e. inflation and tax adjusted) wage increases, causing compensation of the employees, to almost certainly be used more closely to performance of the employee of the company (Armstrong 2000).
Ultimately the company has a competitive advantage in a way that adds value to the company or it fails. HRM is one of the ways a company can gain a competitive advantage, which is not easily duplicated by any other company, as in the case of technology. Creating a productive and enjoyable work environment is the dual responsibility of human resource managers and human resource experts. HR managers are responsible for marshaling the organization’s human and nonhuman resources to achieve the company’s business objectives. HR managers and professionals provide the people expertise, procedures and systems that enable the HR managers to meet their challenges (Zammuto 2008).
HRM and Business Strategies
The use of strategy in human resource management has become a new cornerstone in business. More and more firms are now developing their organizations with independent human resource departments. These practices have transformed organization productivity and worker satisfaction enormously and have led organizations to work more effectively and efficiently. Organizations, recently troubled by economic turmoil and the hard global financial crisis are now making sure that the assets (human resource) that they have trained and developed over time are retained. Though a number of people are downsized, employees that the organization knows have uniqueness are retained even at higher pay scales.
For example, a study made on the perceptions of senior managers and their views on human resource management strategies; it was found that human resource management is considered an important aspect in the running of an organization. Senior managers support the human resource management function which shows the values and organizational culture that transcends from upper management. The study showed that each respondent organization had a human resource director at a high level of management. Further research revealed that human resource management is seen as a means to effective leadership development. And therefore, most firms develop the sector in their organization in the hope to create, re-enforce or sustain its current personnel leadership status. Though managers are optimistic about the effects of human resource management on competitive success of an organization, studies show that a positive association between HRM and productivity exists, but there is no concrete empirical evidence to state that HRM resulted in the increase of productivity (Armstrong 2003).
According to managers, pro-active solutions to HRM problems help identify employee needs well in advance to take adequate and effective decisions. It also provides them with time to develop new projects, and implement them more successfully. They realize the need of solving the problem before it can exist and to do that, a pro-active strategy must exist.
More and more organizations are clearly stating their strategic HRM policies in writing to integrate it into the organizational culture and values. Such pro-activeness is clearly evident with the number of labor unions falling the past 8 years considerably. There relations with their organizations have drastically changed and workable compromises are now sought after, because most of their needs are already being filled through organizational HR sectors. For example, a study also shows 81.1% of the respondents reporting increased level of pro-activeness of their personnel functions over the last five years. (Armstrong 2003)
Human resource management is increasingly being shaped by cost efficient behavior and competition enhancing behavior. Labor flexibility has been the greatest outcome of this drive, followed by outsourcing and downsizing. In this respect, it is essential that organizations are now ‘learner’ organizations. Thus, organizations not only have to pro-active but to a certain degree, are also reactive. The multinational corporations around the globe have adopted four approaches towards HRM and they are as follows:-
- Geocentric: The geocentric policy is best suited for global and trans-national companies around the world. This policy employs and seeks the best individuals for employment regardless of their caste, creed, sex or religion etc. The advantages of this policy is that it makes use best of the employment and it helps the executives to work in a number of different cultures, it helps the employees to gain experience. And this policy helps to build a strong culture of the company and creates an informal network of communication. The disadvantages of this policy is that national immigration policies can limit its implementation, it is very expensive to implement and especially when the company has to relocate itself and the compensation structure of the company can create problems for this network.
- Regional: The regional policy is basically best suited for companies that are not expanding themselves globally. This policy does not provide a great deal of experience for the employees to gain experience or to work in a diverse culture.
- Polycentric: The polycentric policy is best suited for the multinational corporations because all the headquarter positions of the company are held by the parent company. What happens in this is that the host companies usually have subsidiaries of the parent company. The advantages of this policy is that the myopia culture within the company is alleviated, and it helps to transfer the core competencies of the parent company to the subsidiaries and plus it is not expensive to implement within the company. the disadvantages of the policy is that there is a limited opportunity for employees to gain experience and it usually creates a gap between the parent and the host companies.
- Ethnocentric: The ethnocentric policy is related with staffing of the organization, here it means that all the key positions in the company are filled by the parent company nationals, for example, Unilever opens a branch in India all the head positions will be filled by the British nationals who work in Unilever England. This policy is best of international business because they do not want to lose with the parent company. The advantages of this policy are that there is a unified culture within the company and it helps to transfer core competencies to the other branches of the business around the globe. The disadvantages of theis policy are that it creates hostiles in the host countries and this kind of culture can lead to myopia. To overcome ethnocentrism the management who is communicating overseas and across cultures, open mindedness is consider very important and it is very effective for communication. To overcome any sort of ethnocentrism the management must remember to acknowledge distinctions, avoid any sort of assumptions and it not suppose to make any sort of judgments.
Opportunities Faced by the HR Managers
Globalized HR management places a wide variety of new pressures on traditional HR activities, but at the same time it is the manager’s ability to meet those challenges that provides an opportunity to make significant contributions to the company. With better qualified people executing the company’s strategy on a global scale, mangers can work with the HR department to create a source of competitive advantage for the company. For managers and the HR department to be a source of competitive advantage, the department generally must evolve to support the organization’s transformation from a domestic to an international to a global oriented company. This evolution requires an awareness of the assumptions and employee rights that are likely to be encountered in the international arena and rethinking of the department’s structure and activities (Daft, 1997).
Managers and the HR departments must assess the effectiveness of their international efforts to ensure effective employee relations. Often the department is called on to sever as a troubleshooter in helping managers address employee relations and other human resource issues of the company. In dealing with immigrants or foreign employees, HR managers and HR department will face even more diversity in the workplace in the coming years. Although some companies may see it as a threat, but such opportunity represents an opportunity for developed nations because of the coming labor shortages many countries may face. For example, Japan’s Ministry of labor reports that a survey of 268 companies has revealed that these firms are already unable to recruit even a quarter of new they would like, the slow growth of labor force combined with growing numbers of retirees in Japan will require managers and HR departments to seek more foreign nationals at home and abroad. Employers with ongoing diversity programs and those companies with extensive international operations probably have gained a competitive advantage by being prepared to manage the highly diverse workforce of the twenty-first century. Diversity increases as foreign nationals are transferred to home country and it also increases as jobs are transferred to other countries (Werther & Davis, 1996).
Challenges Faced by the HR Managers
It is a known fact that the purpose of HR management is to improve the productive contribution of people to the organization in ways that are considered to be strategically, ethically and socially responsible. And as any business becomes more global in their outlook, managers and the HR departments face different kinds of new challenges in supporting the objectives of the organization and its people. International HR management policies mostly rely upon the objectives, practices and professionalism (Schuler & Jackson, 2007).
Human resource managers and HR departments are mostly confronted with unfamiliar laws, languages, practices, competitors, attitudes, management styles, work ethics and many more. For example, the Asian-Pacific region’s managers when are transferred to US they are seldom prepared to recognize that women deserve equal professional opportunities, since women have a different status in Asian-Pacific companies compared to those in the United States. It must be remembered that the employees must learn to balance the potential excitement of an international job with unique personal, career and family complexities. Both employees and the organization are also faced with ethical dilemmas, since foreign cultures and laws may vary widely from standards in the home country. To responds to the internal and external challenges the mangers and the HR departments must be flexible and proactive (Armstrong, 2003).
The globalization of business affects compensation management which as we know is a part of HR. Compensation analysts must focus not only on equity but on competitiveness too. Companies that compete globally may find that using local area salary surveys in the home countries may ensure equity in the home labor market, but benchmarking wages and salaries among home country competitors, especially if they all are in developed nations like US, which may lead to labor costs that are too high to compete with foreign operations that have lower compensation costs in countries like China and India. For example, jobs have to be restructured so that the use of labor less expensive, the companies should automated their operations or should move their operations to lower cost countries like China so that their products can be produce at the least minimum cost. The companies move their operations to these countries so that they can survive in this competitive world of business (Dunning, 1999).
Most commonly these challenges affect the executive compensation plans, although along with the executives; professionals, managerial and technical workers are also heavily affected. When international projects or assignments are temporary that is under a year, the employee is paid his or her regular salary along with adjustments. Adjustments would include transportation, living expense and living space to the employee.
In the end beyond the impact on traditional HR activities, global challenges affect the organization in more than one way. Perspectives do change. Outlooks become more global as the top- level managers become more aware of international developments. Those in the organization who lack this kind of perspective or are unable to develop it fail to grasp the growing changes in global competition. Strategies and policies become culture bound and do not benefit from the rich diversity of viewpoints found internationally.
Global HR management affects the company and the HR department in countless ways. Some of the company concerns raised for the department include the challenges of troubleshooting, workplace diversity and cultural awareness. In the process of learning about a foreign culture the international HR managers get a bonus i.e. they become aware of their own cultural values and heritage and may decide to capitalize on or modify some of their accustomed behaviors. Another advantage is that the HR managers recognize that many cultures coexist in workplaces as well. It helps the HR mangers in the global organization, in dealing with cultural and other employee related differences.
- Armstrong, M.,2003.A Handbook of Human Resource Management Practice: Fully Updated to Reflect Current Thinking, Practice and Research. Kogan Page Publishers
- Albrecht, M H.,2001.International HRM: Managing Diversity in the Workplace. Blackwell Publishing
- Armstrong, M.,2000.Strategic Human Resource Management: A Guide to Action. Kogan Page Publishers
- Chang, C.,2008. The Effectiveness of Using a Global Look in an Asian Market. Journal of Advertising Research. New York
- Daft, R. L.,1997. Management. The Dryden Press
- Dunning, J. H.,1999.Governments, Globalization, and International Business. Oxford University Press
- Fullmer, R.M.,1983. the New Management. New York: Macmillan Publishing Company
- Schuler, R S. & Jackson, S. E.,2007. Strategic Human Resource Management: Text and Readings. Blackwell Publishing
- Werther, W.B. & Davis, K.,1996. Human Resource & Personnel Management. McGraw-Hill
- Zammuto, R F.,2008.Accreditation and the Globalization of Business. Academy of Management Learning & Education. Briarcliff Manor