Topic 1: International HRM and the Internationalisation Process Introduction

International HRM Workbooks: International HRM and the Internationalisation Process

MASTERS PROGRAMMES MODULE.

INTERNATIONAL HUMAN

RESOURCE

MANAGEMENT

WORKBOOK

Topic 1:

International HRM &

The Internationalisation

Process

Topic 2:

Cultural and Behavioural

Contexts

Topic 1: International HRM and the Internationalisation Process Introduction

Introduction

This topic overviews the International Personnel / HRM Module and address the issue of why it is necessary and useful to study international HRM even for those working in a seemingly purely domestic context. You will engage with contemporary debates about the nature of comparative analysis and consider whether or not it is likely that people management practices will become similar across different nations.

The comparative role of the personnel function in different nations will be explored. The factors impacting upon the nature of HRM which are most likely to result in international differences in practice will be highlighted and their effects discussed. Unit two will build on this analysis and will explore the factors which have brought about and which are promoting, further internationalisation. The stages of the internationalisation of business will be explored and the impact of these on the nature of HRM will be considered. The multi-national organisation can either manage HR in a uniform way across the globe or allow HRM matters to be dealt with on a purely local basis, or, alternatively, use a combination of international and local techniques, and the factors pointing to one or the other of these approaches will be considered. A regional case study will provide an opportunity to compare and understand the cultural specificity of many people management practices.

Contents

-Unit 1: The nature of international HRM

-Unit 2:The Internationalisation of Business and the Options for HRM in the MNCUnit 1: The Nature of International HRM

Learning Outcomes

This Unit will enable you to:

1.Explore the nature of international HRM

2.Understand the problems arising in comparative analysis

3.Evaluate the evidence and debate the case for and against convergence in HRM policy and practice

4.Understand the differing role of the personnel function in different national settings

5.Identify factors likely to determine the nature of HRM in a particular nation and debate the significance of these factors

Interest in international HRM has increased in recent years with the continued globalisation of industry, commerce and trade, such that there are now few aspects of life which are not touched by international business. Personnel professionals are increasingly having to be aware of international issues and manage within a context of national and cultural differences and it seems likely that the process of internationalisation will continue, some arguing that the process is an inevitability of capitalism. The academic study of international HRM has emerged recently with a plethora of books, articles and new international HRM journal launches during the 1990s and, essentially, there are two approaches to the study of international HRM which concern themselves with:

-The management of international staff (the management of multi-national corporations [MNC] managers)

-Comparative analysis of different nations HRM systems.

The former approach emerged in the USA during the 1980s and the literature within this approach has been dominated since by US writers reflecting, perhaps, the significance of multi-national corporations for the US economy. Study of the latter approach has been dominated by European scholars. It is clear that international HRM is a discipline in its own right with its own agenda, and it is not simply domestic HRM on a larger scale. There is an increasing body of theory in the discipline and the subject now has a recognisable identity.

Why Study International HRM?

A good question, if your current or anticipated work is with a wholly domestic, perhaps public sector, organisation such as a hospital or local authority:

Discussion Point(s):

1.Identify the reasons why a local authority personnel officer might benefit from the study of international HRM.

Any personnel professional needs a degree of awareness of international issues as there are very few organisations, public or private sector, that do not at the very least engage in trade, as suppliers or purchasers, with foreign based companies and, similarly, there are now many business that consist of an increasingly multi-cultural work-force.

It will be argued below that the internationalisation of business will, inevitably, increase, with the continued extension of free trade agreements and with the emergence of new economic powers with different bases of competitive advantage: for example, it is predicted that China will become the worlds number one economic power within twenty years and along-side this emergent economy it is expected that the existing Asian tiger economies will continue to prosper. Clearly the emergence of new trading patterns has implications for many aspects of business including HR activities. That, for example, labour costs are profoundly cheaper in the emerging economies, which also, often have highly skilled work-forces, implies that, alongside increasingly liberalised world trade, western organisations will no longer be able to compete on the basis of low cost production or service delivery. HR will thus need to change to ensure, that western labour forces are well trained, continuously developing, and that high employee commitment is engendered through a social partnership approach to employee relations.

There are some aspects of organisational operations which are undoubtedly universal, such as the use of production technology, basic book-keeping and product / service promotion, but there are some aspects which are highly specific to the national and cultural context in which the organisation is based and HRM is undoubtedly one such area. The personnel manager working outside her or his home country, needs a high degree of sensitivity to the established approaches to HRM in the host country as an attempt simply to transfer in experience from a different context is highly likely to be unsuccessful.

Heightened Interest in International HRM

1)

One significant reason accounting for the raised profile of international HRM for many personnel professionals in recent years is the increasing incidence of international joint ventures; a high failure rate of such joint ventures has usually been associated with ignorance of the national customs and cultures of the companies involved as well as a failure to understand working practices and laws. Thus, there has been considerable demand for the education and professional development of personnel professionals to be substantially internationalised.

2)

In recent years HRM has undoubtedly risen up the strategic agenda for international firms as it is

recognised that firms with the most productive workforces possess an international competitive advantage over rivals. Porter in his seminal work on the competitive advantage of nations poses the question of why a nation achieves international success in a particular industry:

Switzerland, for example, is a landlocked nation with high cost labour, strict environmental laws and few natural resources - least of all cocoa. Yet it is a world leader in chocolate, not to mention pharmaceuticals, banking and specialised machinery. Similarly, Japan has few natural resources and yet from a shattered post-war position has built itself up into one of the most formidable economies in the world, rivalling, and in some industries superseding, the United States. What both Switzerland and Japan lacked in natural resources they strongly compensated for in human resources, nurturing the education skills and abilities of their populations.

3)

Expenditures on personnel typically represents a very large proportion of a multi-nationals total spending and it is increasingly recognised that HR matters thus require a more strategic perspective.

It is also increasingly recognised that sustained competitive advantage is best derived from developing the capabilities of the organisations assets, notably its people, rather than relying on mergers and acquisitions for growth. Mobilising the organisations knowledge and disseminating its organisational learning are increasingly recognised as vital processes in attaining and maintaining international competitiveness.

The international organisation must consider how its value is generated internationally (why not merely remain a series of quasi-independent local businesses?) and Joynt and Morton suggest that there are at least three primary sources: technical, operational and relational. It is the latter area that is most crucial for most international businesses, and relational value comes about through ensuring effective internal relationships between managers and employees and among the internationally dispersed workforce and through external relationships between employees and the organisations customers and clients. It is, of course in this, relational area, that international personnel / HRM has significant influence and personnel / HRM policies can ensure that international competitive advantage is leveraged.

Taking a national perspective, Tayeb notes that human resources managed well, is an asset equal if not superior to a nations other natural and technological resources. Higher productivity, leading to lower costs, and greater motivation, leading to better service, can both result in competitive advantage. The case of Switzerland as well as the cases of Singapore, Hong Kong and Japan illustrate well that it is possible for an economy to be hugely successful without much in the way of natural resources but with well developed and managed people. The only way in which countries can stay rich in the long term is to have more productive, i.e. more educated workers. Nation states formerly competed for control over natural resources whereas it can be argued that today they must compete to produce the best-educated and most productive labour force.

Managing Diversity

Although some countries such as Japan are ethnically and culturally very homogeneous, many countries around the world, such as the USA, France, Germany, the Netherlands and the UK are themselves ethnically and culturally highly diverse such that organisations within a single country may well have employees from a wide variety of racial and cultural backgrounds. Tayeb notes that population diversity, especially in cultural and ethnic terms, has been on the increase in the decades following World War II and has accelerated somewhat in recent years. Although a countrys prevailing HRM practices, and certainly its legal framework, may be uniform, many nation states, such as the UK, Belgium, China, Switzerland and India, contain distinct national cultures within their boundaries, necessitating a high degree of cultural awareness and sensitivity. Other countries, such as Germany, contain a high number of guest workers, such employees perhaps representing over 10% of the work force, and clearly there is thus a need to manage this sort of diversity too.

Thus the study of international HRM can aid in understanding such heterogeneous work forces and enable the domestic HR manager to formulate and implement more effective HR policy. Studying international HRM enables the HR professional to recognise that the cultural mix of employees is not a problem but an asset, a rich resource, to be developed and built upon. In many organisations in the west there does seem to be a move from assimilation to multi-culturalism and from a morality issue stance to a business will benefit stance.Discussion Point(s):1.How would you define the difference between an assimilation approach and a multi-cultural approach?International BusinessBennett defines international business as any commercial activity that involves crossing national frontiers, which implies that the organisation might not necessarily have plants or operations in another country but may merely be buying from foreign suppliers or exporting to foreign customers. There is thus a range of degrees of internationalisation.Discussion Point(s):To increase your awareness of the pervasiveness of international business, reflect upon the extent to which international firms affect daily life:1. Think about some of the products and services you use either at home or work and identify

- where they are made / delivered from?- who owns the organisation that makes the product / delivers the service?

As Tayeb notes multi-national firms play a significant role in our life... they shift around the globe natural resources, products and services; they recruit people in different countries and introduce alien management styles and ways of doing things into host countries... all the while influencing peoples tastes and lifestyles as well as accommodating them. Some of the more powerful multi-national firms can even influence economic and political practices of whole nations

Extent of International Activity & EmploymentRecent research reveals the following:-One in three products sold anywhere in the world crosses an international boundary on its way to market;-Between one third and one half of the UK economy (including public sector organisations) is involved in international trade / activity; in Germany it is over 50%;

-Approximately one half of UK private sector employees are employed directly or indirectly by foreign owned companies;

-At least one in six UK employees is working for a Japanese company;

-The Internet and E-commerce are increasing the international flow of goods and services and increasing organisations and individuals exposure to international business;

-It is estimated that over two million US citizens live and work abroad and that there are two million EU citizens working and living in EU countries other than their home one;

-There are approximately 8 million non-EU citizens working within the EU.

Personnel / HR managers can be involved in international people management issues in any of the following situations:

-The operation of parent country firms in foreign locations (perhaps not surprisingly, the vast majority of multi-nationals, 87%, employ expatriate staff);

-The operation of foreign firms in the home country;

-Government agencies and not-for-profit organisations involved in international work;

-The employment of foreign citizens.

Joynt and Morton have concluded that the reality today is that most companies consciously or unconsciously experience one or more aspects of international people management.

Problems and Issues in Conducting International Business

The following issues and problems arise for the organisation beginning to engage in international business:

-Information on foreign countries needed by the firm may be difficult (perhaps impossible) to obtain in advance;

-Deals may well have to be transacted in foreign languages and under foreign laws, customs and regulations;

-Numerous cultural differences will have to be taken into account even if the organisation is merely trading with foreign companies;

- Control and communication systems are normally more complex for foreign than for domestic operations;

-Risk levels are likely to be higher; there may be a political risk that foreign governments could expropriate the firms local assets, or war or revolution might interfere with trade. There are commercial risks such as unpredicted market failure, promotion strategies or even products and services themselves failing to appeal to foreign customers;

-International managers require a broader range of management skills than do managers who are only concerned with domestic operations;

-Large amounts of work crucial to the well being or even existence of the enterprise might have to be left to intermediaries, consultants and advisers;

-It is more difficult to observe and monitor trends and activities, especially the actions of competitors, in foreign countries.

Discussion Point(s):

1.In the case of private sector firms, identify the range of reasons for engaging in international business.

The Process of Studying Comparative HRM

There are two key issues which need to be considered in the study of international HRM involving, as

much of the subject does, making comparisons between national systems of HR:

1.What is the purpose of comparative analysis and what are the problems?

2.To what extent are HRM principles and practices becoming similar, i.e. converging, or to what extent are they diverging, between the organisations of industrialised nations?

These issues underpin much of the subsequent analysis and discussion of international HRM and are considered below.

1. COMPARATIVE ANALYSIS

Why undertake comparative studies of HRM? The existence of transnational companies makes comparative analysis a necessity for international personnel professionals although comparative analysis is useful for personnel professionals per se as there are many lessons to be learnt from an analysis of HRM practice in other cultural contexts. There are, however, some dangers in undertaking comparisons of HRM, in particular, the process might amount to little more than cultural tourism; finding what they do in... with a view to transferring good practice elsewhere. This process can be quite superficial and ignore the fact that most HRM practices are deeply rooted in their particular cultural contexts such that straight transfer will always be problematic. On the other hand, not engaging in comparative study leads to parochialism and cultural isolationism, perhaps resulting in a reinvention of the wheel. There is thus a need to develop knowledge of HRM practice elsewhere but this knowledge must be supported by cultural understanding as a basis for informed action.

Problems of Comparative Analysis:

There is a range of problems, which pose difficulties for comparative researchers:

-Lack of data;It is only relatively recently that many countries have begun to keep detailed records of their economic performance and employment patterns.

-Lack of comparable data;Statistical comparisons are hindered because of the different methods of data collection and analysis which are used; statistics are usually collated by governments and it may well be the case that the government concerned produces statistics in such a way as to prove its policies are working. Manipulation and bias are almost to be expected in government statistics and thus should not be seen as the exception. There are, too, significant differences in methods of calculating even quite fundamental data such as unemployment statistics or trade union membership densities.

-Breaks and consistence;There are often gaps in data series and significant changes in calculation methods.

-Time lags;International comparative statistics, in particular, are noted for being published a long after the time period they are describing and, again, there are significant differences between nations in the speed with which data is compiled.

-Translation of concepts; Some employment concepts do not equate or translate exactly, for example, the definition of youth training varies between the UK where it has tended to mean the percentage of young people on government pre-employment training programmes, and Germany where the equivalent concept refers to young people in employment as apprentices. Even where exactly the same words and concepts are used they can mean quite different things.

Discussion Point(s):

1. What other problems and issues might be identified with comparative analysis?

There have been relatively few large scale international comparative quantitative surveys although the Price Waterhouse Cranfield Surveys (reported in, for example, Brewster, C. and A. Hegewischs Policy and Practice in European HRM) attempt such quantitative comparisons on key dimensions of HRM. Although the survey techniques and questionnaires used in the Price Waterhouse Cranfield Surveys have been highly rigorously designed and pre-tested, and the sample organisations in the 12-16 countries surveyed are carefully selected on the basis of representative stratified sampling, there are, nonetheless, criticisms of the approach. There are enormous difficulties involved in creating a questionnaire that is completely compatible in all the national employment settings surveyed as meanings of words change in context and in translation.

There are also criticisms of the research methodology. It is argued, for example, that the findings are more likely to represent rhetoric rather than reality as the survey questionnaires are completed by senior organisational managers who clearly have a vested interest in presenting their organisations as progressive. Similarly, the surveys tend to cover large organisations which may be quite atypical of organisations within their home or host country and, further, large organisations tend to manage FIR in more progressive ways than smaller organisations. Another area of criticism relates to the use of quantitative research techniques more generally, the internationally standardised questionnaire approach involves respondents working to a pre-determined agenda with only limited scope for highlighting the reality of management in their organisation.

2. CONVERGENCE OR DIVERGENCE IN HRM?

Although it might be the case that multi-national corporations attempt to adopt a core of standardised people management policies and procedures, there is currently significant debate about whether or not HRM policy and practice will converge among different firms in different nations, i.e. will the same sorts of HRM policies and techniques be adopted by different organisations in nations across the world? Some argue that this will happen whereas others suggest that there will be continued, or maybe even increased, divergence in HRM policy and practice.

Increasingly internationalised economic contexts and market places suggest that certain principles of people management might become universal or, at least, common trajectories in people management might be pursued and there are, indeed, many forces prompting convergence.

2.1. Forces for Convergence in HRM Policy and Practice

The following forces are likely to prompt convergence in HRM policy, if not practice:

-In the case of the European Union, member states are committed to moving towards ever closer union:

The further integration of the European Union through the Single European Market and the introduction of a single currency will enable the fuller consummation of this union.

-EU Social Chapter Protocol:

EU social law impacts significantly in some areas of HRM although there are doubts about the extent to which member states will wish to pursue closer social union and thus fundamental aspects of domestic industrial relations are likely to remain intact.

-A global market place that is becoming increasing liberalised:

Most developed nations are members of the World Trade Organisation and thus cannot restrict significantly, through high tariffs or otherwise, the entry of imports into their markets. Thus domestic firms are increasingly exposed to foreign competition and forced to review their competitive advantage and, in turn, their methods of operation.

-Common social and political features of developed economies:

The basic political system in most developed economies is founded upon liberal, capitalist principles and thus independent trade unions and free collective bargaining are well established giving a uniform basis for HRM across many nations.

-Common, contemporary problems:

With a globalised market place, organisations around the world tend to experience recession at the same time and also face the same competitive pressures such as the need for greater efficiency, for cost control with quality enhancement, arising from globalised competition.

- Quality competition:

As a result of this globalised competition, firms throughout the developed world have had to shift their generic competitive strategies from a cost basis to differentiation and quality and it is argued that this shift is resulting in the universal recognition that HRM is critical to business success and, in turn, the adoption of standardised, good people management practices.

-Sectorial shifts:

The universal shift in developed nations from manufacturing to services has required common changes in employment patterns and has prompted the adoption of similar techniques for managing the new type of work-force. For example, service delivery generally requires more employment flexibility than manufacturing and a common trend across developed nations seems to be the numerical and functional flexibilisation of labour markets.

-Dominance of global / trans-national / multi-national companies:

The corporate cultures of such companies and their transnational structures are likely to promote the international standardisation of HRM practices, particularly those aimed at management. Marxist economists argue that the concentration of capital is an imperative force in capitalist economies and thus big, international, businesses inevitably squeeze out smaller domestic, businesses and the standardisation of HRM and industrial relations across countries, it is argued, will inevitably follow.

-Common technology:

Technology carries with it its own imperatives for work design and management: for example, an airline or a car manufacturer both use standardised equipment and facilities, which, to be utilised competitively, demands certain organisational design and management styles. It is thus argued that in cases where technology is a major component of production or service delivery, similar people management techniques will have to be used wherever the firm is located.

-Common people management methods and the logic of scientific management:

The science of, for example, Tayloristic approaches to work organisation, seems to contain an irrefutable logic and an undoubted feature of the C20 was the pervasive spread of rationalism and the scientific paradigm. Hard facts pushed out more qualitative, impressionistic, context specific, an interpretation of situations and concomitantly, there has been a search for universalistic, standardised techniques.

-The financial control model of strategic control:

Increasingly, firms are controlling their subsidiaries using tight financial ratio controls, which, it can be argued, forces local managements into adopting standardised management practices as the only way of achieving their benchmarked targets.

-Benchmarked productivity and quality targets in multi-nationals:

Similarly, this may force the adoption of standardised management practices.

-International dissemination of management theory:

Most managers in developed countries will have had some exposure to western,

predominantly, US. management theory through business education courses.

- Excellence - one best way - studies:

Management texts and case studies are widely disseminated: the current author was interested to find Mintzberg and Quinn (the US corporate strategy text) in use, in translation, in a business school in a remote south Russian town in the late 1990s.

- Geographical mobility of managers:

Particularly from and between the USA and EU states.

-Centralised management training and development:

The sharing of business experience and management education across the multi-national enterprise is creating a world-wide managerial work-force with more commonality rather than less (Schuller and Huselid, 1997).

-Transfer into Europe of Japanese methods:

A standard interpretation of the Japanese system of people management gained wide

currency in other developed countries during the 1980s and undoubtedly prompted the introduction of standard people management polices derived from what was believed to be the essence of the Japanese way.

-HRM as a management model or ideal:

In a similar way to the influence of the ideal of the Japanese system in the l980s, the HRM model enjoyed considerable currency during the 1990s prompting the introduction of standard, good practice policies. However, the extent to which policy was successfully translated into practice is debatable.

-Enterprise focus:

There is evidence that internal labour markets and terms and conditions of employment are being prioritised over external even in countries that have traditionally assigned a key role to national level bargaining. Although the enterprise focus might work for divergence in HR practices within a nation, there is some evidence that it is allowing multi-nationals, once constrained by national agreements, to implement the same HR practices internationally.

-Internationalism of Trade Unions:

There is some evidence that trade unions are internationalising and certainly, within regions, such as the EU, they are watching HR policy and practice in the various subsidiaries of multi-nationals and prompting debate on comparative HR standards within, for example, European works councils.

-An imperative of capitalism:

Those working from a Marxist perspective argue that convergence in labour - management relations is an imperative of capitalism, such that, for example, managements are compelled to de-skill and routinise work to ensure the extraction of maximum surplus value from workers efforts and thus to prevent being competitively disadvantaged by clinging to non-optimal ways of working. All capitalist enterprises will settle on the lowest common labour practices, and checks and balances introduced by any one state in the form, for example, of high quality labour law and employment standards, reflecting perhaps a worker-dominated party in power, will be eroded by competition from enterprises in other states with weaker standards. Such an economy would become uncompetitive and thus the standard of living would decline and a pro-capitalist party would be swung into power. Any divergence that is found in labour -management relations, it is argued, merely reflects the various stages of capitalism through which the economies are passing.

Discussion Point(s):

Review the above factors which point to international convergence in people management policy and practice:

1. What do you feel might be the most important factors likely to result in the convergence of people management policy?

2. What factors are likely to impact upon the realisation of HRM policy in practice?

2.2 Forces for Diversity in HRM Practice

Those supporting a universalistic or convergence perspective would argue that a business is a business wherever you go; managers have to deal with customers, competitors, creditors and so on regardless of where they are located and, they would argue, it is thus to be expected that management practices will become the same the world over. However, there is an equally strong argument that as organisations and management styles are cultural solutions to social problems, and that as nations differ culturally so profoundly, then convergence in management practice is not to be expected. Hollingshead and Leat argue that to a varying degree across national systems, organisations have considerable autonomy in deciding which are the most appropriate and desirable HR policies to adopt... this implies considerable discretion over decision making.

There is perhaps a degree of convergence in policy but divergence in practice: while convergence can be noted in formal structures, difference and continued divergence is evident at the informal level.

Comparing cross-nationally similar organisations by size, industry sector, technology etc. (the usual determinants of employment systems) reveals significant diversity: it seems that it is perfectly possible to achieve comparable performance through significantly different methods. Factors that seem to be pointing to continued divergence are considered below.

-Significant differences in labour markets remain:

For example, there are still very different patterns of labour market flexibility such as the ratio of full-time to part-time posts and in skill demarcations:

In Spain and France labour markets remain very rigid, in Italy, labour markets are, reportedly, loosening up steadily and growing more flexible whereas in Holland, as in the UK, labour markets are fully flexible.

-Insulated national, even regional, labour markets:

There is relatively little labour force movement between nations and even between EU member states.

Some clearly identifiable flows are, however, identifiable such as:

From Ireland to the UK and Germany

From France to Germany

From Italy to Germany

From France to Netherlands

From Germany to Luxembourg

From Germany to Switzerland

From Canada to the USA

From Mexico to the USA

From Korea to Japan

There are, however, few examples of European, let alone, international, labour markets and thus there is no imperative for the convergence of, and no need for the integration of, HRM in multi-nationals.

-Different historical and political traditions:

These are more significant for HRM policy and practice than for most other functional areas of the business.

-Different interpretations of international laws:

For example, the main vehicle for EU law, EU Directives, do not apply universally across the Union but have to be enacted in domestic law and thus enacted in a way appropriate to the circumstances of the member state. Although the member states are required to enact domestic legislation to enable the achievement of the intent of the Directive, it does seem that the scope for interpretation is resulting in EU law with subtle differences between member states.

An additional issue here is the variety in enforcement mechanisms that are available to employees of member states: the UK, for example, has a good record of enforcement of EU legislation whereas some southern member states of the Union seem to hinder employees efforts at legal redress.

-Social structures, social identity and solidarity:

Clearly many HRM practices are wholly influenced by a nations social structures. There are significant social differences between nations and these seem very persistent.

-Distribution of power and status in society:

Some states have highly unequal distributions of wealth and power, e.g. UK or France, whereas others are more egalitarian, e.g. Sweden or New Zealand, and research shows that these differences are getting wider. Clearly, the continuation of such disparities will work against the universalisation of many work practices.

-Resurgence of interest in national sovereignty and subsidiarity within the EU:

Although a European approach to HRM might be identifiable and be distinct from a US or Japanese approach, there are undoubtedly significant differences remaining, and indeed, being reinforced, between the European nations individual methods of people management. Certain elements of the system across Europe may be converging, arising perhaps, out of EU social and employment Directives, but other areas of HRM remain as distinct as ever.

-Growth of regional cultures:

Many nations have quite distinct regional cultures and these are increasingly being asserted, as is the case, for example, with the break-up of the Russian empire or, in the UK, with devolution to Scotland, and this factor is likely to prompt even further divergence in HR policy and practice.

-Vast differences in education systems:

The evidence reveals that education systems and methods remain quite distinct.

-Transfer of standard management methods across the multi-national corporation:

Case study research within multi-nationals reveals that, in practice, standard HRM methods are significantly adapted. For example, a company that adopts a corporate wide system of job evaluation such as the Hay system which seems, to those from individualistic cultures such as the USA or UK, to represent the ultimate in scientific rationality, may find that foreign subsidiaries do use the system, albeit reluctantly. However, closer investigation may well reveal a continuation of traditional, culturally specific, practice, which is being cleverly wrapped up in the official, corporate-wide, system. It is noted that some larger Chinese State Owned Enterprises have achieved a relatively high degree of autonomy in the management of their people and that their personnel staff are increasingly being trained in western HRM management techniques. However, this training in HRM is not resulting in convergence with western practice. Although distinguishable HRM practices are emerging in these large Chinese corporations these practices have a distinctive Chinese character and are being grafted on to, rather than replacing, the traditional system.

-Privatisation and de-regulation of industries:

Throughout the developed world privatisation of formerly public sector concerns has been widespread and is resulting in a move away from standardisation and giving rise to diverse and enterprise specific employment practice.

-The HRM model:

Those organisations that have been pursuing versions of the HRM model might, in doing so, in fact, be promoting diverging employment practice. HRM is all about individualism and placing an emphasis on internal labour markets rather than standardised, national markets. Delegation of people management responsibilities to line managers, a fundamental element of the HRM approach, is also acting to create diversity in people management policy and practice even within organisations and thus is likely to perpetuate international divergence.

-De-centralisation of HRM policy and practice:

Decentralisation of HRM policy to individual subsidiaries or even operating units is currently regarded as good corporate governance and, clearly, represents another factor likely to result in greater divergence in HR practice even between firms within the same corporation.

-Prioritisation of corporate vs. national culture:

Some multi-nationals attempt to establish, internationally, a strong corporate culture and although there may be a degree of international convergence in the above the water-line manifestations of culture (artefacts, ways and patterns of working), everywhere, at the deeper, and more important cultural levels, national culture largely over-rides corporate culture.

-Significance of Small Medium Enterprises in the economy:

If SMEs account for a high percentage of economic activity, as is the case in many economies, then it is to be expected that there will be significant diversity in HRM practice within, even, a single nation as informality, flexibility and individuality generally characterises management in SMEs.

Discussion Point(s):

1. What do you feel might be the most important factors supporting continuing differences between the people management policy and practice of different nations?

On Balance?

It has been suggested that full international convergence on principles of good management practice may not come about but that a standard approach to people management might be found across the nations of a particular region. A North American and a Japanese model of people management (perhaps HRM) can be identified but there are no identifiable standard Asian or European models or even approaches to HRM. Holden questions can there ever be a European model of HRM given the diversity of European cultures which commentators have placed within different cultural groupings, e.g. Scandinavian, Latin, Anglo, which have differing characteristics?

Standardisation of HR practice across a multi-nationals subsidiaries might seem a more likely area of convergence. However, the adoption of similar policies, i.e. convergence, tends to be found only in areas of employment practice which are influenced by purely internal factors, i.e. forces from within the company. In areas of employment where external influences are strong, divergence is likely to remain. The balance between the two sets of forces might determine whether or not management practice will eventually converge or diverge across multi-national corporations. Thus, similar employee development policies might be found across all the multi-nationals subsidiaries but both individual and collective employee relations matters might be quite different and might, further, be getting dissimilar. It is argued that organisations will find it increasingly difficult to isolate themselves from external influence particularly as governments in developed nations extend the scope of employment law, and thus there may be inevitable pressure for divergence.

Clearly, some HRM policies and practices are more transferable than others, although there always seems to be a need for modifications and adjustments in order to render imported ideas more compatible with the particular culture and circumstances in which the organisation operates. Schuller and Huselid cite the example of US multi-national, PepsiCo, which provides a foundation of HR practices that are modified to meet country specific requirements.

Elements of diversity thus remain within a framework of pressures for convergence. The research is increasingly revealing convergence in some areas of HR practice at the same time as continued or accentuated divergence in others. Research reported by Holden, for example, comparing privatised southern Chinese companies and UK companies, found a pattern of convergence for which there is evidence elsewhere: convergence is found with regard to hard HRM policies such as manpower planning and flexibilisation of work, but divergence is found in softer, culturally sensitive areas bound up with, for example, motivational issues such as reward management, employee involvement, employee development, and, of course, collective bargaining.

It is important to remember that the same organisational objectives can be achieved using quite different people management methods and rather than searching for one model of world-wide or even regional best practice, learning from diversity is, perhaps, the way forward.

Discussion Point(s):

On balance, what do you think?

Weigh the arguments for and against the convergence thesis and respond to the assertion of one leading writer that:

by 2020 we will see corporations throughout the world using essentially the same people management approaches and techniques: there is an unquestionable logic and rationality underpinning the sorts of techniques currently being honed in US and UK corporation which will inevitably squeeze out less good practice.

Comparative Role of Personnel Functions

Organisations within some nations have a well-established personnel management / HRM functions while in other, equally advanced and successful nations, there may be no identifiable PM / HRM function at all. For example, in the case of France, Bournois notes that before the 1980s the function of personnel management hardly existed and staff management was confined to administration and social relations. Although PM might now have got itself established in France HRM has not passed the crawling stage.The status of personnel management in France is in contrast, of course, to the UK where the personnel function within large organisations at least, achieved a high profile role during the 1960s as a result of the power of trade unions supported by legislation and encouraged also by legislation requiring organisations to undertake systematic training and development (Industrial Training Act, 1963). Interestingly, however, France has done a lot of catching up compared to the UK in terms of the strategic influence of personnel as the latest Cranfield / Price-Waterhouse survey reveals:

Percentage of PM / HRM directors belonging to the Board

FSENFINDKUKPIRLNLTD

HR belongs to the Board:848473716149494644423730

A related issue here is that of the typical background of those undertaking personnel roles; in many countries such as the UK or the Netherlands, senior personnel managers do not originate from even personnel related backgrounds, whereas in other countries, there is a stronger career and professional structure.The following areas of difference in typical national provision of personnel management services can be identified:Policy and Planning

In some cultures the personnel management function will be well established with a high profile and there will be well articulated, written, HR policies which are widely disseminated and thoroughly implemented. In other, perhaps equally developed and industrialised, cultures, however, personnel management may well be effective but work largely on an informal basis through influence and organisational politics with little being formalised or written. The degree to which HRM policies are formulated and the planning horizon taken may well be related to a countrys positioning on Hofstedes uncertainty avoidance continuum: Bournois notes, for example, that Frances five year law for employment, designed in the mid 1990s to re-launch the economy and re-deploy employment, confirms the planning attitude of the French. In contrast, some nations, such as the UK, feel less anxious about uncertainty and unpredictability and thus, it might be expected, that there would be more of an emphasis on flexibility in such cultures and less evidence of detailed planning.Rules and ProceduresIn some cultures, those, for example, scoring highly on Hofstedes uncertainty avoidance continuum, there is a preference for rules and procedures. Holden notes, for example, France and Germany have a much higher uncertainty avoidance index than do Britain and Sweden. In other words, the Germans and French feel a much greater need for rules and regulations than do the Swedes and British. Thus in French and German organisations, personnel managers are more likely to have large rule books which are observed in every day practice than would be the case in British or Swedish organisations.Employment LawA countrys employment law structure may be so highly developed as to largely define and constrain the personnel function: for example, in Germany a variety of laws sets a frame for personnel management (7Domsch and Hanns) and in France human resource managers are well aware of the driving force of the state and the law (Bournois). In the UK, by contrast, although the scope of employment law is ever widening and litigation is ever increasing, the majority personnel generalists will spend only a small percentage of their time dealing with legal matters. A strong, legally constituted, framework of works councils such as exists in Germany or the Netherlands with legal duties to make decisions over a wide range of personnel matters, gives personnel managers limited room to manoeuvre (Paauwe) and largely constrains the function to providing policy guidance with no decision making power in its own right.

Level and Extent of Collective BargainingThe growth of union influence and the establishment of collective bargaining in the years after the second world war, was in many countries, such as Sweden and the UK, responsible for the emergence and strengthening of professional personnel management functions. However, the existence of national level bargaining structures in many countries, as opposed to enterprise level bargaining, places strong restraints on the HRM function in the individual organisation. Thus the PM I HRM function in many European organisations has a lower profile, especially as collective bargaining is such a key area of HRM, than the function typically enjoys in the UK, Australia or the USA.

Range of PM Activities

The balance of other activities typically undertaken by personnel departments are likely to vary, for example, in some cultures employee development will be a very high profile PM activity whereas in others training and development may either be low profile generally or undertaken directly by ordinary managers rather than PM professionals. In the case of the personnel function in German organisations, on a scale of 0-100, employee development comes out as 91, that is the highest score of all personnel activities. Soderstrom notes that in Sweden, as an important part of the countrys social history, personnel management has always focused on human values and social welfare whereas in other cultures even though PM may have originated out of a concern for social welfare matters, the profession has made strenuous efforts to distance itself from these origins.

In former communist countries, personnel management remains largely an administrative activity and recent research in Chinese State Owned Enterprises reveals that personnel management is still limited to job allocation, payment of wages and the provision of welfare benefits. Under this, one of the few remaining centrally planned economies, recruitment and placement of employees has to be carried out according to a system of labour quotas and thus enterprises are severely restricted in whom they can hire and fire. As workers have life-time employment security there is little incentive for them to train or enhance their skills and so this side of personnel management is also completely under-developed. Similarly, wage structures are rigid and are usually determined outside of the enterprise leaving no scope for personnel management within the enterprise to engage with this crucial area of resourcing and relations.

PM and Line Managers

In some nations, notably the USA, Sweden and the UK, progress has been made towards adopting the HRM model and thus delegating considerable responsibilities for people management back to line managers thereby offering a challenge to the traditional, administrative support role of the personnel department. In such cultures the PM function has tended to become more strategic, devising policy and providing consultancy services to line and senior managers on how to enhance corporate performance through people. The personnel function has in such a context become a major change agent being fully integrated into the strategy formulation process. In other cultures, the personnel function might still be responsible for most of the operational elements of people management, in Germany, for example, Domsch and Harms note that currently, in the majority of German companies, personnel management is not or only a little integrated in the corporate strategy.

PM: Balancing Concern for Employees and the Employer

Paauwe argues that contrary to USA and UK approaches in which personnel management is increasingly seen as just representing the line management perspective in meeting strategic demands, the Dutch and Continental western European perspective sees the personnel manager as the only expert who can reconcile both the strategic demands of the market place and the justified claims of employees themselves in terms of fairness. Thus in some cultures it might be expected that personnel management might have a degree of independence from the dominant management values in the organisation.

Outsourcing PM

Just as personnel I HR management is becoming established as an identifiable entity within organisations in some countries, in others, where well established personnel functions have been the norm, many personnel activities are being outsourced. The international personnel manager thus needs to consider whether activities which would normally be undertaken in-house might be better achieved through the use of external providers in the new country of operation. An assessment of the strength and quality of the external consultancy market would be required. In countries such as the USA, the Netherlands and the UK, internal personnel functions are increasingly being re-designated as internal consultancy providers to emphasise the role of the function in supporting line managers in their achievement of business objectives. In other countries, such as Germany, the personnel function often retains its status as a discrete, professional department.

Discussion Point(s):

You have been working as a generalist personnel and development manager with a Romanian based subsidiary of Starsoft International, but are about to be seconded for a year to the companys Bulgarian operation. You are conscious of the fact that personnel management might mean something very different in Bulgaria to the accepted definition in Romania and have thus decided that you will need to undertake some preliminary research about the actual role and function of PM within the Bulgarian subsidiary and, as importantly, about the potential of PM, within a Bulgarian context, i.e. what could the PM function be like?:

1.How will you research the actual role and function of PM within the subsidiary and within Bulgaria as a whole?

2.Devise a series of questions you might put to your current opposite number in the Bulgarian operation to explore the nature of PM and, in particular, the role and function in this subsidiary company.

3.A head of section, i.e. a line manager, from the Bulgarian company is about to visit your company here in the Romania: devise a series of questions you might put to her about the role, function and influence of the personnel department in Bulgaria.Personnel Professionalism

The extent to which a nations personnel managers have developed as a profession varies significantly. The USA, Australia, Germany, the Netherlands and Sweden have well developed professional institutes also (respectively: Society of HRM, Australian SHRM, Institut fur Personalwesen and Arbeitswissenschaft, NVP, SPF). Certainly the extent to which personnel, as a profession, or even a function, is able to ring-fence its legitimate territory varies significantly even between organisations within the same country and, between nations, activities which in one country might be a natural area of involvement for personnel might, in another country, be a preserve of a different functional area.

The role of personnel professionals in achieving organisational change is known to vary significantly between nations; in some nations the expectation is that personnel, if it exists as a profession at all, will be wholly reactive, merely implementing policy devised elsewhere, whereas, in many western nations, the expectation is that the personnel function will be more proactive, being a driver of organisational change and achievement.

The International Personnel Department

The personnel function working on an international scale can be regarded as differing from the purely domestic personnel function in the following ways:

-More functions and activities:

for example, articulating and disseminating international HRM policy and balancing central policy with national subsidiaries multifarious policies.

- Fuller involvement in the non-work lives of employees:

managing all aspects of expatriation including support for the expatriate work-force and their families.

- Broader perspective:

an awareness and understanding of different cultures and HRM systems.

-Higher risk I higher cost:

costs of expatriate pay, special development programmes etc. (costs which are estimated to be three times as high as for employees at home).

-Management development:

the identification and movement of managerial talent around the organisations different national operations. The international development of the management cadre is important in enabling the identification of talent and also the identification of areas of the business where that talent is needed. In this way the international personnel function makes a vital contribution to organisation learning.

Discussion Point(s):

1.Develop and add to the above list of points about the role and function of the international personnel department addressing the question of how such a department can add value to the multi-national.

Overview of Factors Impacting on the Nature of HRM in Different Nations

A wide range of factors determine national HRM practices and some of the key factors are overviewed below. Many of these factors will, subsequently, be explored in more detail:

-Social structure of societye.g. class divisions, social mobility, stability vs. dynamism in the society, the role of the family:

Some societies are very rigidly structured by class and there is limited scope for social mobility, whereas other societies are more egalitarian perhaps with more fluidity between classes. In most economically developing countries the family is the primary building block in society and takes considerable priority over work. It is the norm for relatives to work together and there is strong allegiance to extended family.

Discussion Point(s):

1.Consider the likely implications for HRM arising from operating in:

a) a highly stratified society with limited social mobility

b) an egalitarian society with minimal differences between social classes and good inter-class mobility.-Age structure of societyThe greying of populations in many western countries has implications for HRM. In the early l990s five people of working age were supporting each person over 65 in Europe but this will have reduced to 3 by 2030. By comparison, the newly industrialised countries (including, for example, China and Brazil) will have much younger populations for the first half of the C2 1. Thus, HRM in some countries will have to give particular attention to the recruitment and retention of older workers and, particularly, reconsider the desirability of early retirements. Relatively untapped groups will have to be actively brought into the labour market and this has implications for equal opportunities policies, for training and development and for approaches to working time and locations. In the case of economies with a predominantly young work-force, attention will have to be given to the training and development of inexperienced workers.

-Economic circumstancesE.g. stages of economic development; state of the economy, whether it is buoyant or depressed; inflation levels.

-National cultureIncluding sometimes significant regional cultural differences as in countries such as the UK. Russia and India; however, as Tayeb notes, cultural context should not be viewed as a straight jacket, stifling organisations deviation and initiatives. In every society we witness variations among individuals and organisations in, for instance, their values, behaviours, priorities, preferences, functions and objectives ... people and firms have choices to make. However, the extent of freedom of choice may be wider in some cultural contexts than in others.

-Norms and customsLike culture, these influence but do not, perhaps, determine, the nature of HRM

-Formality and informality - Specific vs. Diffuse rolesIn some cultures formality characterises all aspects of business and thus HRM, and in such settings individuals roles are quite precise perhaps defined in terms of hierarchical positioning and job descriptions. In other cultures work and social roles are diffuse and blend into each other and informality characterises the approach to HRM perhaps even in large organisations. A basis for management power and personal influence in these latter cultures is not so much what the individual knows as who they know and how sensitive they are to the cultural setting.

-Extent of the informal economy:

In the case of some countries the existence of an extensive informal economy carries significant implications for personnel / HRM: clearly, in organisations which do not have official status the management of people is likely to be largely ad hoc and probably quite capricious depending largely upon the whim of the controlling entrepreneur. The informal economy might represent over 50% of economic activity in industrially developing countries but it estimated to represent about 40% of Russian GDP and in the case of Germany about 15%. The perhaps unexpectedly high figure in Germany is explained by that countrys high taxation and social security rates which cause many small businesses, and even a few larger ones, to go under-ground.

Labour market characteristics

Discussion Point(s):

1.Identify 7-8 key national labour market characteristics that might significantly determine the nature of HRM (e.g. unemployment levels I mobility).

2.Explore how differences in each of these characteristics that you have identified are likely to impact upon the practice of HRM.

-Extent and type of unemploymentThere are significant variations between nations, for example, the EU average in the late l990s was approximately 12%, with some nations above this figure, e.g. Germany, still tackling the problems of the east, and some, e.g. the UK, at 5.4%, significantly below the average.

There are also significant regional differences with concentration in some regions and the persistence of core of long-term unemployed.

-State measures to relieve unemploymentSuch measures as Frances system of giving employers lengthy exemptions from social security contributions if they employ long-term unemployed people, may have the effect of distorting the lower skill end of the labour market.

-Labour market participationThe extent to which a population are involved in paid employment varies between countries: in some countries, such as Italy, relatively low involvement (61.4%) in traditional paid employment may be reflected in the importance of self-sufficient agriculture or the operation of a strong informal economy.

The involvement of women in formal, paid employment varies significantly between cultures, often reflected in the presence or absence of gender equality law: some societies perpetuating low female involvement by an absence of equality law. The position of women in society and in business enterprises in some, particularly, Islamic societies, is very different from Western societies and personnel professionals operating in such cultures might be tempted simply to condemn whereas an attempt at understanding is likely to be more useful.

The gender segmentation of labour markets is often similar across societies (e.g. most train drivers and virtually all pilots in Israel, Germany, South Africa and Sweden are men) but some societies are making more progress than others in opening up opportunities for women in fields where they have traditionally been excluded and, similarly, some nations, such as the USA, have begun to even out the gender imbalance in managerial posts.

- Internal or external labour marketsIn the cases of Germany and Japan there is evidence that strong internal labour markets still characterise big organisations at least, and a high proportion of workers might thus be characterised as core employees. The UK, by contrast, is characterised by an externalised labour market with a high proportion of peripheral workers, working on atypical contracts and with much mobility between organisations.

Discussion Point(s):

1.Consider the likely implications for HRM arising from operating within a culture where there are expectations of strong internal labour markets.

- Legal structuresIn some countries there is a single, national, employment law framework whereas in other countries, regions have quite considerable powers to regulate employment matters and the regional law may take precedence in some areas or add to national law in other areas. Within the UK, there are significant employment law differences between Scotland and in the Province of Northern Ireland and England and Wales. In the case of Germany, a Federation of Lander, each Land has its own parliament with considerable delegated powers with regard to employment matters. Similarly, in the case of Australia, there are considerable powers with regard to employment matters which are devolved to state level and this does result in legislative and policy differences between states (Hollingshead and Leat).

- Laws protecting the individualSignificant differences exist between even developed, industrialised nations, in the extent and effectiveness of laws covering such areas as worker protection from unfair dismissal, redundancy, transfer of undertakings, discrimination, and work-place health and safety risks.

The effectiveness of enforcement mechanisms is also crucial: some states are noted for having prima facie acceptable employment law but aggrieved employees either find it difficult to get their cases heard by labour courts or the labour courts have an in-built tendency to favour employers (e.g. the British employment tribunals make it very hard for employees to claim unfair dismissal) or are only empowered to award small amounts of damages.

- Laws regulating collective employee relationsEspecially laws governing the roles of trade unions and collective bargaining which provide constraints and / or opportunities for international HRM practitioners.

- Role of the state in business affairsThe degree of autonomy enjoyed by the business is likely to vary enormously between states: in addition to the regulation of employment matters, levels of taxation and corporate social security contributions will impact on the scope of HRM. The state can influence business in a myriad of additional ways.

Tayeb notes that in most developing countries the government plays an all-pervasive and crucial role in the management of the economy as well as in politics. Almost all of them pursue protectionist industrial and economic policies. Even in France, Japan, and SE Asian countries, governments play a far more active role in the management of the economy than taking a relatively hands off approach as in the USA and UK.

In some developing countries such as India, the state encourages firms to use labour-intensive technology rather than the latest in high technology, as a way of increasing employment levels.

-State ownership of businessIn most developed countries, state ownership is in rapid decline with either the full privatisation or commercialisation of once state owned and controlled enterprises taking place even in states with socialist governments and corporatist industrial relations traditions. In some European nations the state has thus been backing off from public ownership, instigating large scale privatisations, on the grounds of ideology and efficiency. In other European nations however, such as France, the state remains a major employer, accounting for 23% of the active labour market. In the cases of less developed countries, the state is often the major employer as is the case in some former communist countries too and also in China. In China State Owned Enterprises still account for 70% of total employment. From the perspective of HRM, state enterprises, in developed countries at least, have usually observed all points of employment law very carefully and have also acted as exemplars of good employment practice, and thus the significant decline in state ownership and control potentially has a diluting effect on good HRM practice. It might thus be expected that in the case of a state with a high percentage of employment in state organisations that HRM policy and practice in the private sector will be of a higher standard too.

In many developing countries the state keeps afloat commercially failing state enterprises by printing money and writing-off their unpaid debts out of fear of generating further unemployment. Similar approaches, for similar reasons, towards state enterprises in Europe are not unknown: a

major challenge for the EU Competition and Transport Commissioners during the 1990s was to prohibit several states from further bailing out their commercially unsuccessful airlines. In a free-trade area, such state bailouts, of course, are highly anti-competitive with some firms, for example, in this case, Lufthansa, having to compete according to normal commercial rules with a corporate like, for example, Iberia, which received huge state handouts.

In protectionist societies, such as many developing countries, governments tend to own and control a large number of organisations, whereas in countries with more liberal attitudes towards trade and commerce, the private sector is the major owner and controller of firms.

-Role of the state in regional aidThe granting of regional aid can take the form of inducements or tax breaks to attract inward investing firms, particularly firms which will generate employment. In Nepal, for example, the government encourages job creation plans by luring industries to the backward areas and by giving such firms financial help, tax relief and low cost land (Tayeb).

In the case of a free-market area such as the EU, the granting of such regional aid by the governments of individual member states could be highly divisive and disadvantage other member states that didnt have similar resources and so in such contexts, regional aid has to be co-ordinated throughout the area. Much controversy within the EU has resulted from UK successes during the 1990s in attracting Direct Foreign Investment from Japan by the offer of lavish inducements.

-Role of the state in social securityThe extent of and access to social security safety net provision has a significant impact on the nature of HRM, as does the level of taxation. Income taxation rates vary significantly between even EU member states with some having rates as low as 25% and others having rates that approach 50%. Clearly, higher taxation generally equates with better social security provision.

Discussion Point(s):

1.Identify the likely implications for an organisations HRM of operating within a country where the state offers a good, high, level of social security protection compared to a country where there is little state social security provision.

-Nature of the competitive environmentIs the economy dominated by big organisations working in monopolistic or duopolistic ways or are there many firms with fierce competition? Does the countrys legal environment promote few or many competitors?

Discussion Point(s):

1.What are the likely implications for an organisations HRM of operating in an economy with a high degree of competition and what are the likely implications of operating in an environment of low competition?-Balance between agriculture, manufacturing and service employmentMany western countries have now become mainly service and knowledge based economies, Sweden, for example, derives over 60% of GDP from private and public services and the UK, over 70% with approximately 75% and 80% of the respective work-forces employed in service sector roles. Service sector work, thus, demands proportionately more labour than manufacturing but also, importantly, generally, requires higher quality labour and thus, economies dominated by public and private services are more likely to take HRM seriously than those economies with a preponderance of manufacturing or agricultural jobs.Druker has remarked that competence is no longer a resource but is the resource for organisations in developed countries and thus the personnel function is likely to need to devote increasing effort to employee and organisational development.The employment split, between manufacturing and services is some major economies is as follows

(residual figures represent employment in agriculture, forestry and fisheries):France:services, 64%, manufacturing, 29%

Netherlands:services, 69%, manufacturing, 26%Sweden:services, 68%, manufacturing, 30%Australia:services, 70%, manufacturing, 25%USA:services, 72%, manufacturing, 25%

-Quality of the work forceThere are significant national differences in education levels, with some developed economies managing to get by, for most of the C20, with relatively low education levels and limited on-going vocational education and training. Importantly, there are significant cultural differences in prevailing attitudes towards learning and change.

-Sizes and structures of business enterprisesIn some cultures, notable Chinese, there is a strong preference for small, family-owned, businesses with at most 20-30 employees: a vast majority of the firms operating in countries with a high proportion of Chinese population like Taiwan and Hong Kong fall into this category. In the UK small business tend to dominate in the service sector but in Germany there are an estimated 3 million manufacturing SMEs, Mittelstand companies, employing fewer than 100 people and these account for half the countrys industrial turnover and about two thirds of manufacturing jobs.

In countries like the USA and the UK, however, the average size of firms is very much larger than this, even for small firms. Similarly, in Australia, for example, there is considerable concentration of employment, the top 1% of employing organisations, these organisations employing 24% of all employees (cited by Hollingshead and Leat).Discussion Point(s):1.Identify the implications for HRM generally in an economy if the majority of employment is in small firms compared to large enterprises.-Rate of founding of firmsSome economies, especially those dominated by SMEs, have a high turnover of businesses and in younger firms, HRM, like other aspects of management, will tend to be fluid, experimental and uncertain.

-Role and significance of religionReligion can form the basis of a class system and hence create a barrier preventing certain groups from obtaining particular categories of jobs such as management posts.

-Levels of worker motivation and commitment to organisationsIn many cultures work performance is downplayed in favour of pleasant and unstressed working relationships and paid employment is seen as marginal to the individuals identity. In contrast, in Japan for example, when someone faces the question what kind of work do you do? it is interpreted as meaning what company do you work for? Japanese people rarely introduce themselves by stating their occupation or profession but give the name of their employer instead. The existence and strength of a work ethic varies significantly between societies.

Discussion Point(s):1.Consider the implications for HRM of operating within a culture where there is only a weak work ethic.-Attitudes towards the morality of the pursuit of wealthHofstede identified a Confucian dynamic underpinning the success of some far-eastern economies, which is similar in some ways to the Protestant ethic, which drove the industrial revolution three centuries earlier in western economies. This Confucian dynamic consists of a long-term orientation involving persistence, ordering relationships by status, and observing this order, thrift, personal steadiness and stability, respect for tradition and having a sense of shame. This contrasts with values that are now more typically found in the west and the claimed absence of a work ethic in many less developed countries.

-Identities of the main stakeholders in firmsHRM policy and practice will be influenced by the nature of shareholding in an economy. The texture of HRM is likely to be quite different within organisations dominated by banks and large institutional investors from organisations whose shares are held by small, private investors based in the local community.Remarkable differences exist in the ownership of companies across countries particularly with regard to the degree of concentration of ownership. In the case of the majority of top companies in France, Germany and in the Asian countries there are typically single shareholders who own more than 25% of the shares whereas in the UK and USA only in about 16% of top companies does a single shareholder dominate to such an extent. In the former regions, it is more normal for the founding family to not only own a significant chunk of the business but also to remain actively involved in the operation of their business. Clearly, the concentration of ownership means that these owning individuals or institutions tend to have a high degree of exposure to commercial risk and are likely to be more involved in the operation of their business and are, potentially, likely to take a longer term view of its development than investors who have a minor holding that they can easily dispose of.-Balance of control between stakeholdersSimilarly, the nature of HRM will be influenced by the typical country norms for the distribution of profits between shareholders and employees: in some economies, profit distribution is very much skewed in favour of shareholders such that there is likely to be little scope for enhancing the quality of people management.

-Importance of collective bargaining in fixing wages and conditions of serviceIn societies where collective bargaining is well established and accepted by all parties, the nature of employment relationships are likely to be more harmonious than in societies where employees have very little power or influence to determine key aspects of their employment.

-Extent of employee participation in decision makingSocieties differ significantly in the expectation that employees to be involved in decision making. Clearly, in contexts where employees expect to be involved in decision making, the nature of people management will be quite different from societies where there is no such expectation.

Discussion Point(s):

1.Identify the full range of implications for HRM of operating within a culture where, in contrast to the Romania, there is an expectation of a high level of employee involvement in both operational and strategic decision making.-Expectations regarding work-hours, holidays etc.

Not only are there significant national variations in the typical length of the working week, an average of 36 hours in Germany compared with 44 hours in the USA, and with regard to paid holidays, 5 weeks and two weeks respectively, but the intensity with which work is carried out varies significantly. In some societies, although working hours may seem short, the pace of work may by quite frenetic whereas in other societies, longer hours at work may conceal a more leisurely work pace.

-Attitudes towards individualism and collectivismIn strongly individualistic and strongly collectivist societies HRM will differ in some quite fundamental ways.

-Attitudes towards authorityThe acceptability of the western notions of management and hierarchy varies between nations and thus the foundations of people management may be quite different.

- Dominant organisational paradigmsWhat is the underlying and shared management model of the nature and purpose of business? For example, does the enterprise have a long or short term orientation? In Japan HRM practices are scrutinised in terms of their ability to generate long-term competitive advantage. In France HRM practices reinforce protectionism, in Sweden and the Netherlands, they enhance social welfare and in the USA they are adapted to fit with the current competitive market faced by the organisation.

-Prevailing levels of prosperityNaturally, the more affluent the society, then higher quality of people management practices are likely to be found although this will depend upon the distribution of wealth and prosperity in the society.

-Backgrounds of people involved in managing personnel mattersThe level of professionalism and the status of those responsible for people management policy in organisations will, naturally, have a qualitative influence on the nature of HRM.

-Comparative wage levels for different types of workIn some economies there is relatively limited dispersion of earnings and the ratio of managerial earnings to employee earnings might be as low as 3:1. In other economies, however, this ratio may be of the order of 20:1. Clearly, the tenor of HRM will be quite different in the latter economy compared to the former.

-Managerial status, attitudes and behaviourSome societies will be characterised by authoritarian management styles perpetuated by compliant work-forces whereas other societies will tend towards democratic management and a participative work-force.

Working in teams, assume that you are advising the following organisation on the issues outlined in the brief below:

Quick Fix Motor are a Romanian based motor vehicle accident repair specialists, owned by Basel-Lorrach, a major European motor vehicle direct insurer, and have expanded rapidly in recent years with 20 accident repair body-shop branches throughout mainland Romania. Each branch, employing between 50 and 60 specialist accident repair technicians and fitters and 10-15 administrative support staff, undertakes accident repair for Basel-Lorrach motor policy holders and also undertakes substantial third party work. Quick Fix Motor are noted for being a good employer and have had a high profile centralised personnel / HRM function, led by a main-board HR Director, from the outset. The personnel / HRM function has been able to establish leading edge practice in most areas of HRM: Quick Fix Motor are accredited as Investors in People, although non-union, employee relations are good with a well developed company wide works council system in place, and staff involvement and communication are regarded as exemplary. The company places a strong emphasis on functional flexibility and team working combined with performance pay.

Quick Fix Motor have been very successful as they have cut out the middle-man in the process of ensuring cost effective but efficient accident repair work, and it seems timely to begin a strategic expansion into Europe as the concept of motor vehicle insurers directly undertaking accident repairs, is as yet unknown in many countries. The company has undertaken preliminary market analysis and has decided to investigate the establishment of 10 sites, 5 in France, 3 in Germany and 2 in Denmark. These sites will have to be established from scratch as the motor accident repair industry in each of the countries concerned is highly fragmented with many, mainly small, businesses, mostly dealerships, offering body-shop services.You are asked to provide HRM consultancy advice around the following questions:

1)Identify the eight most important factors likely to impact upon HRM in the proposed start-up subsidiaries and highlight the ways these factors are likely to make HR policy and practice different from UK practice.

2)Explain in detail how you would investigate the local HRM context in the countries concerned.

3)How would you go about setting up a HRM function within the new subsidiaries and what would be your priorities?Unit 2:The Internationalisation of Business and the Options for HRM in the MNC

Learning outcomesThis Unit will enable you to:

1.Identify the stages of the internationalisation of business and evaluate the corresponding organisational forms

2.Identify the approaches to HRM available to the multi-national corporation3.Explore the distinctive features of HRM in the case of Japan and use this analysis to explore the cultural dependency of HRM

Historical Phases of lnternationalisation1)Multi-Domestic Era:Multi-nationals emerged in the period c. 1920-1950 but with largely autonomous foreign manufacturing subsidiaries: this was a reflection of the characteristic national protectionism of the period, which, in many economies, severely restricted imports, and by the fact that there were significant differences in customer preferences. Communication and logistical problems also pointed to multi-domestic, stand-alone enterprise.

2)Global Era:During the period c. 1950-1980 there were world-wide reductions in tariff barriers which, combined with declining logistic costs, enhanced information flows and greater alignment of consumer preferences (perhaps as a result of marketing efforts) resulted in the growth of multi-nationals with centralised and standardised production in specific locations and with exports to the full range of markets served.

3)Transnational Era:

From the l980s some commentators state that the re-fragmentation of international markets has resulted in flexible manufacturing, with multi-nationals producing smaller, tailored batches and thus responsiveness has been the key organising principle for the multi-national to enable world-wide efficiency and world-wide learning.

Market Requirements and Ideal Types of Firm

PeriodMarket requirementsPerformance criteriaIdeal type of firm

1960sPriceEfficiencyEfficient firm

1970sPrice, qualityEfficiency, qualityQuality firm

1980sPrice, quality, product lineEfficiency, quality, flexibilityFlexible firm

1990-2000sPrice, quality, product line, uniquenessEfficiency, quality, flexibility, innovative abilityInnovative firm

1.Multi-Domestic Industries

This is the first phase of the internationalisation of business and is grounded in the cultural, social and political differences between countries. To respond to this diversity, the early multi-nationals established quasi-independent subsidiaries which, overall, formed confederations with little communication to or from HQ and with little communication between themselves. The multi-nationals international strategies amounted to a series of domestic strategies, as competition in country A was more than likely independent from competition in country B. During this period, differentiation was required to ensure national responsiveness. In some industries this need for national responsiveness partly remains the case to date: for example, there are persistent differences in national tastes for branded packaged goods and although the multi-national might produce a very similar, if not identical, product in different markets, the product will be branded quite differently.

Discussion Point(s):

1.What sort of international activities might be on the agenda for personnel functions within firms at this stage of internationalisation?

2.Global Industries

During the second phase of internationalisation a degree of convergence of consumer demands was engineered and thus the multi-national could begin to achieve scale efficiencies and integration. In this phase, the dominant generic strategy was one of cost leadership. During this phase, multi-nationals began to achieve inter-dependencies between their operations in different countries, with specialist production in one country feeding into the supply-chain of another subsidiary in another country, for example, Ford sources major components for final assembly at Dagenbam, England from its factories in Ghent, Belgium and Koln, Germany.

3.Transnational Industries

The final stage of internationalisation is when the multi-national corporation has developed the ability to transfer knowledge and diffuse innovations speedily around the world. Such a phase is marked by the creation of independent but integrated subsidiaries (parts of a whole) that achieve a local and a global focus. The multi-national is now able to be nationally responsive while at the same time being integrated. The generic strategy associated with this phase is undoubtedly one of differentiation and the multi-national in this phase sustains competitive advantage through leveraging core competence and organisational capability (e.g. responsiveness). The corporations strategic business units are located wherever the most favourable conditions for production can be found in terms of Porters diamond:

-Favourable supply conditions

-Favourable demand conditions

-Balanced or stable competitive rivalry

-Supportive infrastructure.

The corporation achieves leverage from country specific advantages.

Head-Quarters Orientation Towards Subsidiaries

There are basically three types orientation that the HQ might have towards foreign subsidiaries (See Appendix: Three Types of HQ Orientation):

1)Ethnocentric:

Home country oriented, involving the transfer of home country practice to foreign subsidiaries (perhaps associated with the global industry phase).

2)Polycentric:Host country oriented, involving the acceptance and use of host country practice (perhaps associated with the multi-domestic industr