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Should the academic study of International HRM have country or company as the main unit of analysis

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Should the academic study of International HRM have country or company as the main unit of analysis? Justify your answer with reference to International and Comparative dimensions of HRM. Introduction: Internationalization is not a new term and it has probably been used for centuries in various Political, Social, Government circuits etc. However, its popularity in the context of business has really occurred during the last three decades with the evolution of communication and transport technolog
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  Should the academic study of International HRM have country  or  company  as the main unit of analysis?Justify your answer with reference to International and Comparative dimensions of HRM.Introduction:Internationalization is not a new term and it has probably been used for centuries in various Political, Social,Government circuits etc. However, its popularity in the context of business has really occurred during the lastthree decades with the evolution of communication and transport technologies, the growing economic marketsacross the national borders, the constantly increasing pressure of competition, improved mobility of peopleand necessity for knowledge and market access (Griffin and Pustay, 1998, in Özbilgin, 2004).The communication and transportation technologies have probably played an important role in ‘opening’national borders and in that way enabling a vast majority of businesses to spread their activities outside of their Home country arena. In those new environmental conditions many academics have seen MultinationalCompanies (MNC’s) as a logic step in the development of international capitalism. The consequences werethat many MNC’s have managed to achieve unprecedented economic and political success although this journey of becoming a successful international player proved to be quite difficult to realize as they have had tooperate between divergent National, Regional and Political economic context.“ The challenges of the international context have encouraged international companies to develop new waysof doing business or to transfer their established practices between their home and host countries. Whilesome companies have adopted ethnocentric approaches, choosing to transfer their home-country practices totheir international operations, others have diversified or localized their business practices to the specific conditions of the host countries (Adler 1991). At the operational level these strategic choices are translated into choices for functional areas in business, including human resource management  .”(Özbilgin, 2004).MNC’s dominate today many Industrial Sectors (e.g. car, electronics, oil etc) and are increasingly coming todominate Service Sectors in particular telecommunications and financial services. According to 2003 figuresfrom the United Nations Conference on Trade and Development there were 65000 MNC’s that wereemploying 54 million people Worldwide in direct or indirect way. That is an increase of app 30 million from1990 (Dowling and Welch, 2004, in Edwards and Rees, 2006). So, the growth of MNC’s is seen as one of thedriving forces of the process of internationalization.(Edwards and Rees, 2006)It was suggested that this growth of internationalization has led to a more strategic role for HRM and thereforethat the need for a systematic approach to studying International HRM has been increasingly recognized. TheHuman Resource Management is now seen as a core factor in achieving an efficient and at the same time aneffective Multinational company. One significant indicator and evidence of this is the rapidly growing body of research on the IHRM strategy and practices of MNC’s in North America (Brewster and Harris, 1999) as wellas in Europe with the aim to remove the obstacles for the international trade within EU (Brewster and Scullion,1997, in Harzing and Ruysseveldt, 2004).The main reason for the growth of interest in IHRM as outlined by Scullion:-The pressure of global competition has led to increased mobility of human resource-The effective management of HR is being recognised as a major factor in success or failure ininternational business.-Shortages of international management talents-The rapid growth of SME internationalisation-With the move from traditional hierarchical organizational structures towards the network MNCorganization; there is growing evidence that HR is playing a more significant role including also strategyimplementation and control of MNC’s(Harzing and Ruysseveldt, 2004)Although there is lack of consensus on demarcation of the scope and academic study of IHRM, here we willanalyse and examine whether the academic study of IHRM should have Country or Company as the mainunit of analysis by considering two dimensions of HRM i.e. International and Comparative.Page 1 of  5  Analysis:As indicated above, for the purpose of this analysis it is useful to consider HRM as having two approachesand influences: Comparative and International.The Comparative HRM approach stresses the way in which different national cultures influence HRMpractices. It suggests that HRM practices present within the particular Society reflect National, Cultural or Local conditions that all firms have to conform to. In this sense Comparative analysis is rather conservative asemphasising continuities within Societies and differences between Societies rather than change within andacross Societies.Comparative perspective on HRM identifies different approaches to the analysis of HRM i.e.i) Cultural and ii) Institutional.i) The first set of explanations comes from a cultural perspective -> national styles, values, moral… etc arestable and very difficult to change as cultural heritage or “rules of the game” are seen as comfortable, familiar and therefore efficient for the society over the centuries. So, from it follows that each society is unique,organizations within those societies are unique operating on culturally specific codes and therefore the style of management are also unique (Hofstede, 1980, in Smith, 2007). However, the cultural approach raises certainconcern as most societies are multi-cultural, multi-religious, influenced by other societies, everything changesso it does each society and culture also ignores divisions between classes in the same society. So, a culturalexplanation does not provide a complete explanation of the differences between HRM in different nations.ii) On other hand institutional factors can be seen as the main explanation of national differences. Nationalrules guide organizations, managers and employees within organizations to conform to national ways of doingthings. Therefore organizations cannot be immune from the institutional context which they are influenced byand the difference between countries and their political, social and legal institutions create differences in their strategies and therefore they are likely to show the difference in their respective HRM. The difference in rulingparties, employment legislation, education, labour market, trade union etc has a direct effect on HRM withinemploying organizations. However, even though the influence of the national element is so obvious it isequally obvious the existence of diversities within national context itself which casts certain doubts andreservations on this approach. We also cannot ignore external influences which in many cases lead toknowledge being shared between different countries which lead towards adaptation, modification and evenstandardization of certain processes within firms.The International HRM approach primarily examines the HR policies within MNC’s i.e. what is common toMNC’s in regards to the management of people as HRM puts people at the centre of the firm as aknowledgeable and renewable resource capable of delivering competitive advantages to the firm in businessenvironments where competition is more intense and innovation oriented.International perspective on HRM also identifies different approaches to the MNC and HRM:1) The Business Strategy and Economic approach &The growth of MNC’s has had significant implications on International HRM and a main agenda for IHRM is toget an answer whether MNC’s seek to standardise practices and adopt common strategies to coordinate andcontrol functional areas of business including HR as you would expect considering the fact that there arecommon things between MNC’s irrespective of their country of srcin and therefore stresses the importance of the firm as the unit of analysis.2) The Industrial Relations and Organisation Studies approachOn other hand there are views that MNC’s are national firms with international operations and therefore reflecthome country practise especially where we have strong states and strong firms (British MNC’s, JapaneseMNC’s, German MNC’s etc) or a combination of Home, Host or Hybrid practices. Further to this, while we canprobably agree that technology and products can be free from the national element, on other hand all peopleare marked by their history, beliefs, work ethic etc and therefore IHRM practices simply reflect country of srcinpractice in quite a significant way.(Smith, 2007)Page 2 of  5  Bartlett and Ghoshal research of successful enterprises on the international market is today probably the mostused approach in explaining and presenting different types of internationalization and its connection to or dependence on business strategy and organisation structure as well as their interaction with environmentalfactor and the implications these have on IHRM.It is worth pointing out that the view that HRM depends on its connection to business strategy is mainly Anglo-American view while for instance Japan represents organization centric view of HRM (i.e. its connection to firmstrategy where careers are embedded in the firm for long period) and then the Chinese case where stateplays powerful role and therefore HRM depends on its connections to state strategy.So, through the process of internationalization Bartlett and Ghoshal have identified three Strategic Objectivesthat MNC’s have to consider in order to build and sustain competitive advantages for MNC’s (i.e. Differencesin input and output markets – the existing national differences to be used for MNC’s advantages; Economiesof scale – the scale of production increases by increasing the volume of firms output & Economies of scope –less expensive to produce more products within the same firm, as defined by Ghoshal 1987):-MNC’s operate in different national locations and they need to consider  Multinational Flexibility  that willenable them to be responsive to the local demands.-They also need to consider  Global Efficiency  i.e. cheapest and fastest coordination of MNC’s in order toenhance revenues and at the same time lower costs.-The last one is to spread knowledge under pressure for MNC’s to respond to rapidly involving markets –so the last pressure is for  Worldwide Learning  .These are the Key Influences on Strategy and Structure on MNC’s and Key Forces on HRM Practices withinMNC’s.The changing international environment and these competing pressures on international scene, Bartlett andGhoshal took into consideration and they suggest that these forces have pushed companies to developdifferent business or competitive strategies and organisational structures in order for MNC’s to be ready tomeet those demands: Multi-domestic strategy  => this business strategy can achieve Global Efficiency  objectives mainly byincreasing revenues by responding to differences in local preferences and government regulations. MNC is adecentralised federation where Country of Origin effect is not present. The impact of this strategy on HRM isthe nation-specific HRM policies implies and therefore no IHRM as such. International strategy  => it can achieve Worldwide Learning  objectives and it is associated with Vernon’s(1966) PLC model. MNC is co-ordinated federation with the main task of transferring Home countryknowledge and expertise to its subsidiaries. The impact on HRM is that IHRM now becomes more explicit butonly as key points of contact between Home and subsidiary HRM. Global strategy  => it can achieve Global Efficiency  objectives by locating production in low cost labour countries and for instance keeping R&D at Home country. MNC is a centralised unit with standardiseproduction approach with aim in achieving cost efficiency and therefore it limits MNC’s flexibility. IHRMbecomes highly critical as it reflects Home country policies and practices and it depends heavily on homeexpatriates. One of the main concerns of Host countries is that their operations become dispensable duringthe economic downturn. Transnational Strategy  => it recognises that in today’s climate it might be necessary to pursue all threeStrategic Objectives in order to build a strong and successful MNC and therefore be able to respond to bothglobal efficiency and national responsiveness strategic demands.So, MNC while developing global rules under pressure to meet the needs for internal consistency within them,at the same time if necessary they can also ignore global rules when local rules favour their interest (Dahan,Doh & Guay, 2007, in Smith, 2007). MNC represents an integrated network structure comprised of subsidiaries, each with a strategic role for a certain area, usually called “centres of excellence”. The keyimpact on HRM is for development of International executives and personal mobility in order to hold the firmstructure together. This also includes the transfer and exchange of knowledge. So, the concern of Hostcountries from Global approach disappears as each sub-unit will be given a specialist and critical role in thefirm.Further to this, as a result of a large scale empirical test of more than 100 MNC’s in 9 countries based onBartlett and Ghoshal typology gave us three ideal types of MNC’s (Harzing, 2000): Global, Multidomestic &Transnational Companies. Bartlett and Ghoshal see Transnational organisations as supreme structure for building a strong and operationally successful MNC in an international context.(Harzing and Ruysseveldt, 2004)Page 3 of  5  However, today’s reality is that very few MNC’s will neatly fit any of these three ideal types. There are nationaldifferences between MNC’s and the implication of it is that while they are facing common internationalorganisational challenges they will not imply the same or ‘best’ strategy based on their business objectives asthey are influenced by the country of srcin factor. This also applies for MNC’s within the same IndustrialSector and within the same National economy where we can see how MNC’s pursue different strategicobjectives, for instance Japanese car MNC’s in UK – Toyota/Nissan unionised and Honda non-unionisedapproach (Elger and Smith, 2005).The case study of Swedish MNC Swedco actually suggests as MNC becomes more mature the influence of the country of srcin may erode as in the Swedco’s case where the senior management perceived the UKmanagement performance and development practices as being highly desirable. (Harzing and Ruysseveldt,2004).Further to this, within Transnational companies there are multiple interest groups each one is looking at their own interests and priorities where strategies emerges as a result of compromise between them. Therefore wecannot ignore the importance of firm’s politics in MNC’s as highlighted through the case study of the ABBtransnational company (Bartlett and Ghoshal, 1998, in Edwards and Rees, 2006).Case study:My current company Damovo UK Ltd used to be part of Ericsson Enterprises performing the role of asubsidiary that focused on direct sales and services in the UK market. There were in total 19 subsidiariesacross the Globe each one focusing on its local market demands. Ericsson Enterprises strategy was Globalstrategy aiming to achieve Global efficiency objectives for a long time. The business was performing extremelywell for more than two decades. However, during the economic downturn in 2000 all subsidiaries were soldtogether through acquisition to Apax Partners. The new company Damovo Group Ltd was formed with HQ inUK/Scotland even though there was no ‘real’ Home Country as Ericsson Enterprises with this sale started anindirect business strategy in this sector. The new owner tried to restructure Damovo group (based in 19different National arenas across 4 Continents) in order to make a truly Transnational company. That approachfailed soon after it started, in a couple of years. The Global Team, (comprising mainly the resources from UK)which operational cost reached app £20 million per annum was dismissed including the ‘Global HR’ teamwhich again was mainly formed by the resources from UK. Since then quite a few subsidiaries were sold andthe remainder of the Damovo group, 10 countries across 2 Continents, has now adopted a Multi-domesticstrategy as the dominant approach with the aim to achieve Global Efficiency objectives and at presentDamovo Group Ltd is performing quite well. Now I can understand why Damovo Group Ltd failed in its srcinalattempt as well as why the new/latter approach worked exceptionally well, so far. In the former approach itwould appear that the Senior Global Management team completely ignored the Host Country effect in itssubsidiaries, their strong Culture effect and no emphasis was given to the knowledge transfer anddevelopment of international executives (i.e. they were primarily employed from UK). In the latter approach allthese factors were taken into consideration including the vary nature of Damovo Group Ltd i.e. each countrybeing mainly and heavily specialised in its own local market demands and conditions for over two decades.Conclusion:From the above it becomes evident thatIHRM currently experiences various challenges and dilemmas, for  example:There are divergent and convergent forces within IHRM so does IHRM argue in favour of a unique MNC formand standardized HR practices or country of srcin concept of MNC and HR practices that reflect homecountry practice?Further to this, does it argue in favour of standardised or nationally different versions of IHRM with Americanand Japanese HR practices being perceived as ‘best practise’ and therefore influencing all MNC’s in thetransfer of those practices?Although one thing is certain in the IHRM approach i.e. the HRM strategy is made within the firm but for abetter understanding of the nature of IHRM in MNC’s it would appear that we need to study IHRM in context of firms, industry and their environment in ever so changing economic and business conditions (Jackson andSchuler, 1995). So, the academic study of IHRM may need to use multiple levels of analysis when studyingIHRM such as Firm, Industry, Institutional, Cultural, Political, Economic, Subsidiary as well as Individual asthey all have important implications when studying the influences on HRM strategy in the MNC’s. Thereforeany study in contextual isolation will most likely fail to enhance our knowledge on this matter (Adler, andGhadar, 1990, in Schuler, Budhwar and Florkowski, 2004).Page 4 of  5
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