HR in MNC’s
I recently had the privilege of joining a truly global organisation, having previously been employed at a large New Zealand based corporate. Below are some of my reflections after six months in this role on the differences between HR in a national corporate versus a multinational.
I myself am hopeless in the garden, but have always admired people with a ‘green thumb.’ My grandmother is one woman who has an incredible ability to grow anything, regardless of the elements. I have always been intrigued by one tree in her garden, a crab apple she grew from a seedling. Over the years, the crab apple has outgrown every other tree, and stands tall, demanding its stately position in the yard. Through numerous seasons, grandma has diligently trained the branches that now span in all directions. The roots have extended so far they encroach on the plumb and feijoa plots, and still continue to annihilate anything that gets in the way. It was touch-and-go one year, grandma decided to graft a pear tree onto the apple tree, and initially it was not quite the success she had hoped – you can still see the scars. Yet now, both species, following a lengthy period of integration, have a healthy symbiotic relationship, that enables them to produce wonderful fruit from the one tree, in an unpredictable New Zealand climate. More recently, grandma has felt confident taking cuttings for all of her friends, so that they too can share her joy in their own backyard.
Biological metaphors are useful, because they help us to comprehend phenomena in ways we might not otherwise be able to understand them. Multinational companies (MNCs) come in many forms, and have evolved as powerful political, economic and social forces with turnover in some cases larger than some countries’ GDP. Thus, the study of multinationals is becoming increasingly important. Strikingly, there seems to be very little research on the development, operation and behaviour of multinational organisations. To this end, I have introduced this biological metaphor of an MNC as a crab apple tree in order to illustrate the relationship between an organisation and the Human Resources (HR) function.
In doing so, I propose that HR is to today’s multinational organisation, as my grandmother is to her garden, and that the role of HR is to assist MNCs by guiding their “origins, growth, reproduction, structure and behaviour”. HR achieves this by performing a series of key activities.
The Gardeners’ Art
The primary focus for multinational companies is to generate a return for their shareholders, and do so by optimising operations and processes across borders. The rapid rise of MNCs has been regarded as the “primary shaper of the contemporary global economy.” This places the activities of the International HR function into perspective. HR activities in multinational companies differ from those in domestic firms, due to the additional breadth of responsibilities such as management of international assignees; the broader perspective required in relation to global operations; the greater involvement in personal lives, particularly when entire families are being relocated on international assignment; the increased scale, number of people, the challenge that comes with this greater diversity; and the complexity of external factors, e.g. dealing with multiple currencies.
The term talent management is not uncommon to HR; however, within an international context it takes on a completely new meaning. Issues relating to the location, cost, diversity, mobility and shortage of labour are heightened when the are considered on a global scale. Global workforce planning and forecasting requires managing a “mobile global workforce, located in acquired enterprises in foreign locals, plus those located in traditional subsidiaries, joint ventures, and partnerships, and involves local hires, hires from countries around the world, and employees from any operation on assignment to another operation”. Information relating to education, literacy, skills, language and unemployment becomes increasingly important to IHRM practitioners making decisions on how or where to staff a particular operation. If required skills are not available in a particular location, HR is tasked with sourcing that talent from within our outside the organisation.
Training and Management Development
IHRM must make decisions in relation to all types of training in multiple locations, across a variety of cultures and in numerous languages. Who should deliver the training? Should it be delivered virtually or via interpreter? Is it developed centrally or locally? Are their legal obligations to train in particular countries? What is the level of education, approach, or education system in a particular country? Which learning style will be best suited to the culture? These are all key questions that HRM must overcome when implementing training in MNCs. Following on from above, HR’s role in the preparation of international assignees is critical to ensure success. Another key priority for IHRM is identifying these high potential employees and developing a cadre of managers with a global mindset, that can cope with numerous conflicts and uncertainties, and are sensitive to multiple cultures. This kind of leadership and cultural competency development is critical for succession planning, and thus to the success of the multinational organisation in the future.
Compensation and Benefits
Managing a global workforce also involves managing rewards and reward systems internationally. Different standards of living, costs of living, currencies, exchange rates, interest rates, inflation rates and tax rates may need to be considered when making staffing decisions. In addition, industrial relations, employee representation and union presence; or government provided or mandated benefits may affect decisions regarding where to locate operations, for example: overtime, compulsory bonuses, severance payments, contract requirements, tax, paid time off, hours worked per week, social welfare benefits, holidays and vacations, pension plans, parental leave, or stock options. This makes it difficult to implement a compensation and benefits systems that is perfectly equitable across multiple subsidiaries. Equally, calculating expatriate remuneration is not a perfect science.
Given the highly competitive global landscape in which MNCs operate, performance, particularly the performance of employees is crucial. IHRM is the custodian of a MNCs performance management system globally. These systems must assist managers to evaluate performance, provide relevant feedback, make decisions about promotion and job assignments, identify high potential employees, manage employee engagement, motivation, development and retention and manage unsatisfactory performance.
Performance management is important as employee measurement is closely linked to each of the activities discussed so far. For that reason, cultural fit with respect to the appropriateness of the performance criteria, competencies, method of appraisal, and performance feedback” is critical. Cultural dimensions such as power distance, collectivism, harmony and face should always be considered when introducing a performance management process. This is where the standardarsation vs. localisation debate comes to life, and is a perfect example of how IHRM practices need to be well thought out and communicated rather than blindly applied universally, or MNC’s risk creating tension within the business. In addition, given the cost and time involved in International assignments, it is important that expectations for assignees are clear, and their evaluation process is effective. This can cause difficulties in deciding who might be the most appropriate person to measure the international assignees progress, hence why 360 feedback for international assignees is common, which in itself requires a lot of administration for IHRM.
CSR and Ethics
The size and scale of multinational organisations generally indicates the greater number of stakeholders, particularly employees. Consequently, their activities are followed closely by the media, consumer bodies, NGOs, trade unions, and international bodies. The logic follows that as organisations get larger, they take on a greater level of Corporate Social Responsibility (CSR) that is, supporting the welfare of those within the communities in which they operate, and limiting damage to the environment. The key aspects of CSR are environmental and human sustainability. Sustainability has heightened the awareness of the triple bottom line concept “people, planet, profit”. It can be common for multinational companies to have a CSR policy, to subscribe to the direction of governing organisations such as the UN, ILO or OECD, or for US multinationals, to comply with Sarbanes-Oxley laws. IHRM often plays a role in writing, communicating or policing CSR policies and initiatives, as well as playing a direct role in promoting employee welfare and work life balance. International ethics is a minefield, given that ethics are relative, and moral dilemmas are difficult to navigate. International code of ethics policies that set out universal principles might assist with the management of acceptable employment practices such as child labour, bribery, discrimination, or health and safety requirements. However, It is then left up to IHRM to police and educate staff on the organisations ethical values.
Strategic HRM (SHRM)
These five activities that have been discussed are commonly cited as being fundamental to HRM within MNCs. In addition, there is one other activity of overarching importance – the strategic role of HRM in MNCs. SHRM has been defined as: “a pattern of planned human resource deployments and activities intended to enable an organisation to achieve its goals”. This definition unmistakably shows that all of the activities discussed so far have the potential to be strategic or of strategic importance, provided they are aligned with organisational goals.
There are several factors that influence the strategic role of HRM in MNCs, namely the: level of internationalisation present, level of horizontal or vertical integration, company structure, corporate strategy, ownership, and country of origin and host country characteristics.
Greenskeeper, Landscaper, or Nursery Person?
Just as the role of a horticulturalist depends entirely on the characteristics of the garden, so too the role of HR differs based on the characteristics of the firm and the environment in which it operates. Each of the five HR activities discussed has the potential to be strategic provided they contribute to the achievement of organisational goals, sustained competitive advantage, and ‘fit’ the organisational structure and strategy. This potential can be realised in a number of ways, for example HR might be involved in strategy formulation or implementation; intended or emergent strategy; corporate or business unit strategy. From this, we can conclude that there are “variations in the roles of the corporate HR function in different types of international firms”, and that multiple internal and external factors will contribute to HR’s ability to be strategic, which is consistent with Harvard model of SHRM.
The challenge for HR is to adapt and respond quickly to an ever changing, dynamic, global environment. This will be an ongoing challenge for HR given the pace of change in the twenty first century and beyond.
In some ways, managing HR in and MNC is much like my grandmother navigating the turbulence in her garden and the memorable crab apple tree, that has survived decades of expansion, competition with other plants, restructuring and pruning, coplanting with other species, and branching off into new locations … all in an unpredictable climate.