Today, the working world is changing and becoming more demanding, especially where the environmental factors have contributed to globalization, intense competition, and speed. People need to change with it and so do organizations, to be flexible, keep learning and be committed. In today’s global economy, firms are facing 2 major issues: Internationalisation and the effective usage of International Human Resource Management (IHRM). As firms expand globally, professionals who operate internationally should understand how cultural differences affect management style. The understanding of the impact of IHRM on Competitive Advantage would be logical to understand the background of the issue.
Background of MNE
Sundaram and Black, in their work, describe MNE or a multinational enterprise as an enterprise that carries out business transactions within or between two autonomous entities, functioning using a structure of decision making that allows influence over resources and potential, where the operations are exposed to influence by issues exogenous to the home country background of the enterprise. (King 2006)
Nevertheless, it is broadly established that an MNE is any enterprise that makes use of FDI structures and systematizes the fabrication of products and services in more than a single nation. Two primary differences amongst domestic and multinational enterprises pointed out by Adler (1983) are multiculturalism and geographic dispersion. (Zimmerman 2006) Multiculturalism is the attendance of citizens belonging to two or more cultural backgrounds in a corporation. Geographic dispersion is described as the sites for different subunits of the parent corporation spread across various countries. (Hiatt 2008)
An overseas subsidiary is a foreign country operation or a firm that is as a minimum owned in half by the concerned MNE. Multinational enterprises are usually considered as the ‘primary shapers’ of the global economy since they can turn around investment structures and job scenarios across borders, manipulate portions of government policies and exploit components of a variety of public business frameworks. (Bissell 2006)
Relation with globalization
Globalization is a systemic procedure through which the worldwide economic body is being transformed into a more incorporated and autonomous global economy. As per Dickens (1998), the internationalization procedures entail the plain expansion of economic operation across national borders. It is, fundamentally, a qualitative course of action, which results in a more wide-ranging geographical prototype of economic operation.
On the other hand, the process of Globalization involves not just the geographic expansion of economic operations across national borders but in addition ― and more significantly ― the purposeful amalgamation of such globally dispersed operations. Globalization had connotations with regards to the framework under which inter-corporation competition takes place. The construct of globalization intrinsically necessitates standardization and integration for MNEs. (Kuhn 2007)
Corporations and enterprises that perform well in the markets often base their operations on strategies designed to keep comprehensive standardization of products and services in mind and position themselves to take advantage of economies of scale which was thrown open by the implementation of standardization. MNEs respond to such elements by varying and transforming their management frameworks. Harmonizing the interaction of necessity to compete on a global scale with that in the local host perspective is a prominent test for the MNEs. (Wilson 2006)
Relation with IHRM
To proceed in this discussion fruitfully one must understand the key characteristics of International Human Resource Management (IHRM). The following are some definitions of IHRM in the literature:
- IHRM is related to human resource management matters, operations, strategies, and practices that are consequential of the strategic actions of multinational corporations and have implications for the international issues and objectives of enterprises.
- IHRM is the human resource management concerns and difficulties that occur as a result of the internationalization of business activities, and the human resource management plans, policies, and strategies that organizations devise as a reaction to the process of internationalization.
- An MNE’s IHRM framework is constituted by the set of distinctive operations, functions, and activities that are intended for drawing, developing, and sustaining an MNE’s human resources and that is considered as the summative of the different HRM systems which are made use of to manage the workforce within the MNE, both in the home country and overseas. (Lieber 2007)
Consequently, IHRM may be characterized as the comprehensive activities within the different HRM frameworks exploited by the MNE to manage the workforce overseas. (Black & Mendenhall 2007)
Background of IHRM
Since the beginning of the last decade of the previous millennium, there has been a rising focus on IHRM, implicating the increasing acknowledgment that the effectual management of human resources globally is a key causal factor of success for businesses engaging in international activity. In an investigative research initiative dubbed as Priorities for Competitive Advantage (1992), IBM and Towers Perrin (a global consulting firm) carried out a survey sampling 2,961 executives, scholars, and professionals belonging to twelve different nations across North America, Europe, the Asia/Pacific and Latin America in regards of their perspective on international competitiveness in the twenty-first century.
The consensus of thoughts amongst the survey participants was that, in the upcoming times, human resources and their effectual management may be as necessary for an organization’s global competitiveness as various other key corporate resources, like technology or investments. (Halcrow 2007)
There are many instances of IHRM’s increasing significance in research literature inclusive the following:
- The past few years have been witness to the speedy growth of global operations and global competition that has led to a swelling in the number of and control of MNEs which implies that the part IHRM that grows in importance.
- The effectual management of HR on an international scale is gradually being more recognized as a major resource playing a key role in the process of gaining competitive advantage in international business. It is gradually being recognized that the resourceful implementation of international business plans would bank on the competence of organizations to devise apt human resource structures for the conscription and development of their global managers. (Becker 2007)
- As MNEs continue to push their business operations across national boundaries, IHRM has been subject to greater attention as a valuable means of control. The accomplishment of suitable HRM activities may potentially increase MNEs’ extent control on overseas business dealings and thus enhance overall productivity.
- There is mounting substantiation to imply that the human and financial cost of failure in a foreign country is more rigorous than those in the context of domestic business and that many organizations undervalue the complex character of the HRM issues involved in overseas operations.
- The scarcity of efficient international managers is a major constriction with regards to the successful execution of international strategies and many organizations miscalculate the complexities associated with HRM difficulties occurring on account of international business activities. (Hofstede 2005)
Importance of IHRM to international business
Brewster (2002) proposed that coincident issues that relate to transforming into a global outfit, transferring knowledge, and being multi-domestic result in vital issues about IHRM. Establishing, maintaining, and gaining knowledge through large-scale networks entails a fresh set of skills of the managers and several new-fangled challenges for the companies’ human resource management policies and frameworks. HRM is of elementary significance in acknowledging a resourceful and effective multinational organization for the reason that IHRM allows the corporation to cope with control and trans-cultural matters that are both global and peripheral in the context of the firm’s operative structure. (Barney 2006)
Again, the concept of internationalization gives birth to a range of new issues in terms of managing employees across national boundaries, particularly about the extent of central integration of guidelines versus the degree of localized managerial independence. The assimilation-delineation dichotomy is of growing significance in the discussions about strategic IHRM, wherein the capability to strike a practical balance in this arena has been acclaimed as the property of a transnational corporation. As per the work of Welch (1994), implementing the constructs of delineation and integration in the human resource management context, an MNE meaning to sustain its general identity and policies could take advantage of a global, geocentric direction in personnel management strategy and practices. However, to remain receptive to local alterations simultaneously firms are required to implement a polycentric IHRM course. (Cameron 2005)
It is often argued that the rationale underlying IHRM is to allow the MNE to be successful internationally. This involves being:
- Competitive across the globe;
- Locally receptive;
- Flexible and compliant within the shortest span of time;
- Competent enough to transfer information, knowledge, and experience across their geographically dispersed divisions. (Barlow 2007)
IHRM policies and practices of the MNE or MNEs
IHR Management, in this context, can be defined as the art of creating industrial relations of any kind, between people engaged in the industry, such as the relation between employers and employees, relation between individuals entering into commercial contracts, relation between investors and debtors, etc, to maintain true cooperation of all concerned. The efficiency of management lies in not only making the employees work, but to make them work willingly, sincerely, and consciously, by employing new knowledge, new methods, new designs, new machines, and novel techniques of production and by allaying mistrust and antagonism. In this case, the most important aspect is to form an aligning context between the different national cultures. (Martucci 2008)
To understand this statement it is important to analyze and evaluate a cross-culture difference particularly in the context of organizational culture and national culture. China and UK would be a good example of this. China is fast becoming an economic power with might and the direct impact is recognizable in UK’s business culture. UK use to follow a specified mode of ethical and mandatory code of conduct like dress code and other such variables but with the emergence of China into the bigger scene a homogenous format of business culture is seen to be developing at a brisk pace. Chinese businesspeople from diverse regions have revealed distinct individuality. In business transactions among themselves, Chinese on the odd occasion put into practice “cold calling,” or arriving devoid of an appropriate foreword. (Mantouvalou 2008) Being behind schedule for a rendezvous is considered a severe affront in Chinese business culture.
Similar to in UK business culture, if any individual would be late for an appointment, in that case, a call should be made informing the Chinese business partner declaring the predictable impediment and at the same time allow them to make modifications or rescheduling. (De Cieri 2008) Before visiting a Chinese business associate, it will no doubt be a marvelous idea to get ready by going through aspects of the Chinese language, culture, history, and geography. These sorts of initiatives are appreciated by Chinese businessmen. Thus it is needed to comprehend the differences with many vivid studies with the help of IHRM. (Manning 2004)
IHRM Case Study of Telstra
In the past few years, Australia’s mobile telecommunications industry has rapidly flourished and it has been predicted that there will be a further 6% increase in the services market this year. (Jones, 2009, 1265-1287) Their mobile penetration rate is almost 90.1% with approximately 18 million customers in Australia evidencing the fact that in Australia the mobile phone services are extremely competitive and developing very fast as their estimated growth rate last year was 54.4%. (Jones, 2009, 1265-1287)
Also, the mobile phone saturation rate in Australia had reached 100.76% last year. (Jones, 2009, 1265-1287) Telstra is one of the foremost important media and Telecommunications companies of Australia. During the years of its establishment, it was controlled and operated by the Australian government. In this context, Telstra holds the largest market share in mobile communication holding about 45%. However, lately, it has been facing competition from Optus. (Dowsett, 2009, 1-7)
The emphasis in Telstra is on good relationships and sound terms and conditions of employment between employees and the organization with the consent of both parties. Determining the work-pay relationship with the method of Collective bargaining is too backdated and should be removed from the organizations. It is required by the organization to reveal its gratitude and recognition of the efforts of its employees. Individuals and groups of employees should be rewarded properly for their particular contributions to the organization.
The package rewards may include both tangible and intangible rewards. Working in a renowned and progressive company, which can be the pride of an employee can be a significant reward element. (Hargreaves 2007) The participation of the whole staff in the process decisions making in the workplace can boost up the interests of the employees. This authorizes the employees in their duties and emphasizes teamwork, creativity, innovation, and discretion in solving problems, improvement in quality of production, etc. As the purpose of any organization is to thrive and be persistent in its endeavors, every employee of the organization must appreciate it, realize the competitive nature of the business, try to solve the problem, and take possession of their contribution to presentation and quality, which is focused on customer service. (Roy 2008)
Telstra Corporation has had to face both ups and downs while having to operate under the existing regime. Telstra Corporation currently shows very good signs in the market after having to gain access and commercially negotiating the possible pricing outcomes with proper IHRM policies that ultimately result in a competitive advantage. Market researchers have predicted that Telstra Corporation will show rapid development in the Australian mobile market during the fiscal year 2009-2010 with better advertising facilities backed by revenue from international expansion especially in China and New Zealand thanks to the efficient IHRM policies. (Ryan 2009)
Disadvantages of IHRM
In the modern International Human Resources Management (IHRM) system it is assumed that the organizations should be team flavored performance-oriented, managerially led, and very competitive. Along with all these qualities, the organizations should have a humanitarian working environment. (Sims 2006) Organizations should have flexible working conditions. The business process should be improvement-oriented, employees should be efficient and milt skilled so that they can tackle the increasing pressure and new challenges in work as required in today’s organizational infrastructure. If a trade union exists in an organization, its function is to create a link between the employees and the management. It can create an environment in which communications can be held between groups of employees and the organization. (Chamberlain 2009)
Some critics feel that scientific methods are not applicable in the art of management, which mainly concerns human beings, such as International Human Resources Management (IHRM). The efforts to manage industry scientifically have worsened the relationship between employers and employees. Their point of view is that though in International Human Resources Management (IHRM) framework though workers get absorbed into a comparatively more employee-friendly group-oriented associative work culture, still the feeling of individuality remains in them. This is a reason behind their half-hearted contribution to the progress of the organization.
But it is not so. Using practices or policies of scientific methods of management like IHRM, need a trained mind which is used to unbiased observation and is not amenable to hasty conclusions and untenable theories. IHRM instructs the managers to be detached and impartial. (Dierickx 2006) The development of industrial relations to make a company productive is an evolutionary process and depends on the initiative, constructive thinking, and discipline on the part of all engaged in the industry. The form of relationship between the employee and the management with which the unitary ideology is concerned is about hundred years old issue. (Aguinis 2009)
It can be concluded that healthy relations among countries, the management, and the employees only can bring prosperity to the company. Thus the International Human Resources Management (IHRM) system is not simply about trade unions and industrial relations. It is a definition that portrays the projection and maintenance of understanding, togetherness, and essential values and ethics as accepted by both the management and the workers of the companies. Thus it is a managerial frame of reference that does not easily bring itself together with companies or social positions which are distinctively more politically influenced. Instead of all drawbacks in IHRM ideologies of management, it has numerous facilities. Thus this approach could always be followed by the companies for finding solutions to their management-employee problems and all these factors would lead to competitive advantages for the MNE/MNEs. (Dierickx 2006)
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