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Human Resource Issues in Multinational Corporations Essay

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Updated: Feb 27th, 2022

Introduction

The purpose of this paper is to identify the human resource issues faced by multinational corporations (MNCs). The reason is that many international organizations are triggered by economic liberalization to expand their operations in an effort to establish their global reputation (Emadi-Coffin, 2002).

The paper starts by reviewing the literature related to international human resource management as the core focus of the study. Then there is a discussion of the findings related to the human resource challenges faced by MNCs as well as the strategies to overcome the challenges.

Some researchers have observed the many challenges facing MNC that are related to human resource management (Gomez-Mejia, Balkin & Cardy, 2004, p. 329). Therefore, this paper attempts to investigate a number of the challenges that face MNC in regard to HRM and the strategic solutions thereof.

Conceptualizing IHRM and its significance

Shen (2005) explained international human resource management in terms of formation as a set of unique actions, processes and occupations that are adopted to attract, develop and retain the human resources of multinational corporations. At domestic level, human resource management covers all the models, strategies, policies, processes and practices which firms employ to manage and develop human resources (Rudman, 2007).

As literature suggests, international HRM and domestic-based HRM differ in that the former relates to multinational organizations while the latter relates to national businesses (Du Plessis, 2010).

Therefore, in the last twenty years, there has been a shift from personnel management to human resource management and recently to international human resource management. The causes of these shifts were noted by Lundy (1994) who stated that HRM emerged due to “changes in the functions, substance, boundaries and goals of the original personnel management function (p.693).

Just like it is a typical idea in domestic-based HRM that efficient management of people plays a vital role in the success of the enterprise, Scullion and Starky (2000) advice that efficient management of human resources in MNC is a crucial determinant of success in global business.

This is the reason why understanding the management of the staff in the global context is so crucial. Hartel et al (2007) explain HRM as the formal part of a firm responsible for all features of the management of people. On the other hand, IHRM is considered as the transaction amid three dimensions: HR activities, different types of employees and countries of operation (De Cieri, Fenwink & Hutchins, 2005).

Hence, it can be argued that the difficulty of operating at global level and employing varying countrywide groups of employees is a major factor that makes a distinction between HRM and IHRM, rather than the key discrepancies between actions. Dowling and Welch (2004) identified several factors that contribute to the complexity of IHRM which include: more HR activities, the need to have a wider perspective, more involvement in personal issues of employees, shifts in emphasis due to different workforce mix of expatriate and local employees, risk exposure and broader external influences.

Literature review

According to Bures and Vloebergs (2001), the challenges of IHRM are not simply because of the variations in national cultures, but also variations in administration options, business strategies, orientations, tactical and strategic elements and choices of administrative inheritance (p.146).

Shen (2005) asserts that the major purpose of IHRM have the tendency of assisting MNCs to best employ their human resources in the global context. Since MNCs’ activities are engaged in HRM, it is true that IHRM is more challenging than domestic-based HRM. A number of variables such as cultural disparities, cultural shock, different shared meaning and organizational values that conflict with their national cultures add to the challenges of IHRM.

Dowling and Welch (2004) argued that when MNC develops compensation policies, it attempts to satisfy the following goals: aligning the policies with overall strategy and structure, attracting and retaining staff, facilitating cost-effective transfer of foreign worker, and providing equity and ease of administration. Key variations can occur in the package of the employee depending on the link between the base salary and home country or the fourth country which eventually challenge IHRM in standardizing (Dowling and Welch, 2004).

While globalization entails a substantial shifting in the direction of standardizing working conditions and of particular components of management structures in MNC, including the components of human resource management, the force of local culture, labor market practices and institutional arrangements continue to increase pressure for deviation (McGraw & Harley, 2003). The approach towards the process of standardizing working conditions is apparently tricky.

There are numerous ways of accomplishing this, but to begin with, the IHRM is compelled to reflect on the existing culture and regulations of the concerned nation. Despite having highly developed practices and favorable working conditions at home country, it is incorrect for MNCs to presume that transferring those practices and condition to foreign countries can escape the resource restraints imposed by certain legislations and conditions in the host nation.

Du Plessis (2010) maintains that the human resource guidelines and practices of MNCs ought to be a mix of domestic-based HRM arrangement, aspects in the host nations and specific aspects for the business. Obviously, this demonstrates the slight difference of the policies and conditions in each host nation.

However, this claim differs from one forwarded by Florkowski and Raghu (1993) that MNCs are usually expected to modify their plans and programmes to attain conformity all through the firm including work conditions and payment schemes. Proper implementation leads to the reduction of contradiction within the organization.

However, arranging this to ensure the accommodation of different cultural inclinations would be quite expensive in terms of money and time to the concerned firm. But, Carr (2006) is of the opinion that the human resource managers for MNCs should decipher that business process will require being 80 percent standardized.

Findings and discussions

The review of the literature suggest that there are many challenges facing multinational corporation related to host country factors, businesses processes factors and diverse cultural factors.

This is reinforced by Du Plessis and Beaver (2008) when he admits that the many issues that constrain MNCs include political-legal, different cultures, language barriers, labor market and employment practices. Schmitt and Sadowski (2003) consider pay and working conditions as the enormous challenge and argue that pay must be distributed equally across different countries. This section of the paper discuses the major challenges identified in the literature and their solutions.

Changes in global environment as a challenge to MNCs

The international business environment is changing rapidly thus demanding new approaches to business. On top of the changes in regulations, consumer behaviors and diversity, the economic environment across the world has experienced notable changes (Gomez-Mejia, Balkin & Cardy, 2004).

These changes have demanded managers including HRM to adopt cost-efficient policies to ensure sustained business. For many MNCs, the focus is to develop a corporate culture that might create competitive advantages and eventually sustain the firm in the threatening economic climate. Therefore, multinational corporations are challenged to move away from conventional approaches of aligning corporate cultures with national cultures.

In this respect, international human resource managers are tasked with building a learning working environment where employees are flexible enough to move in tandem with global changes (Du Plessis & Beaver, 2008).

Employees must be driven to embark on processes of achieving and learning the knowhow, skills and behaviors that can help corporations to establish strongly in the international market. For this challenge, MNCs and particularly HR managers are required to build an organizational culture that can permit human resources to rotate to other countries and learn the problems that lie in foreign environment. However, this is always difficult for HR managers and expensive to the company.

Reducing cultural shock as a challenge to MNCs

Generally, apart from controlling and monitoring the financial distribution and profitability of an organization, expatriates are expected to widen up their skills and knowledge in technology. They are expected to provide the new knowledge to be adapted by the locals and therefore have high respect at the workplace (Du Plessis & Beaver, 2008).

Their role is considered as uniquely significant since their main task is to maintain the philosophy of Multinational Corporations (MNCs) as well as the organization structure. Living or working in a new cultural environment presents a lot of challenges to the expatriates and are supposed to make adjustment in their way of living in order to succeed in their assignments.

Literature on expatriation indicates that people from different cultures may face difficulties in understanding each other’s behavior and values towards another (Du Plessis & Beaver, 2008). Therefore, this may result in cultural crash. The adjustment of an expatriate employee depends heavily on the HRM polices on training offered to expatriates

In response to cultural shocks, Du Plessis (2010) explains how international human resource managers have realized that employee relation differs significantly from one country to another and that the policies applied to motivate employees in a particular country might be useless in another. Conventional expectations will always surface when employment relationship is concerned due to its bio-centric nature.

Indeed, it is debatable whether IHR managers should attempt to change the lingering views or not. The intangible cultural vigor between western organizations and their off-shore outsourcing opportunities in various fields including employment work ethics, the expectations for enduring relationship development as well as job-specific commitment is equally important to organizations for them to bring the practice to long-term success.

Compensation strategy as IHRM challenge

According to Emadi-Coffin (2002) internationalization of MNCs has brought a host of HRM challenges regarding international benefits and compensation. HR managers in multinational corporations are focusing on the strategic goals and building an extensive compensation plan. This is being done in terms of considering base salaries, short-term and long-term benefits, incentives and growth opportunities.

The goal of such kind of plan is to make sure that MNCs’ long-term and short-term goals coexist in the compensation structure without overlapping, which would copy a single compensation plan for the same goal (Dowling & Welch, 2004). The purpose of strategizing is also tailored to make sure that the compensations structure enhances employee attraction and retention, motivating them to work hard and ultimately increase the profitability of the business.

The international compensation structures are becoming increasingly challenging for international HR managers as organizations become more and more global. With increased internationalization of businesses, the conditions of employment and compensation of employees vary significantly amid different labor pools of nationality groups of human resource and also differ amongst MNC (Dowling & Welch, 2004).

These polices can create strong internal conflicts within an organization at any phase of globalization. There are broad variations both between nations and among MNCs within countries regarding how to compensate employees. Despite international compensation playing a vital role in promoting global opportunities for MNCs, the fundamental challenge is that salary levels as well as pressures from labor unions are different between countries and the organizations cannot standardize the compensation policies (Dowling & Welch, 2004).

Therefore, managers should try to design compensation systems that stick to local laws and regulations while sticking into international MNC policies.

Conclusion

The increasing globalization of MNCs is exposing the firms to new challenges that are related to human resource management. One of the challenges is associated with changes in the global environment that IHRM might deal with by enhancing a learning organization culture.

The challenge of expatriation can be solved by training expatriates before sending them on foreign assignment to reduce cultural shock (Beitler, 2005). The challenge of standardizing the international compensation system can be solved by designing systems that stick to local laws and regulations while into international MNC policies.

References

Beitler, M 2005 Expatriate training and support. Web.

Bures, A & Vloeberghs, D 2001, “Cross cultural patterns of internationalization and human resource management issues.” Competitive Review, no.122, p.48.

Carr, D 2006, “Gotcha! Deploying a common global system.” Baseline, no.54, p.42.

De Cieri, H, Fenwink, M & Hutchings, K 2005, “The challenge of international human resource management: balancing the duality of strategy and practice.” International Journal of Human Resource Management, vol.164 no.6, pp.584-598.

Dowling, P & Welch, D 2004, International human resource management: managing people in a multinational context. South Western Thompson, Mason.

Du Plessis, A 2010, “International human resource management: an overview of its effect on managers in global organizations.” Interdisciplinary Journal of Contemporary Research in Business, vol.2 no.4, pp.178-192.

Du Plessis, A J & Beaver, B 2008, “The changing role of human resource managers for international assignments.” International Review of Business Research Papers, vol.4 no.5, pp.166-181.

Emadi-Coffin, B 2002 Rethinking international organization: deregulation and global governance. Routledge, London.

Farley, J, Hoenig, S & Young, J 2004, “Key factors influencing HRM practices of overseas subsidiaries in China’s transitional economy.” International Journal of HRM, vol.15 no.4, pp.688-704.

Florkowski, G & Rahgu, N 2003, “MNC responses to the legal environment on international HRM.” International Journal of HRM, vol.4 no.2, pp.305-324.

Gomez-Mejia, L, Balkin, D. & Cardy, R 2004, Managing Human Resources. Pearson, New Jersey.

Hartel, C, Fujimoto, Y, Strybosch, V & Fitzpatrick, K 2007, Human resource management: transforming theory into practice. Pearson Education Australia, Melbourne.

McGraw, P & Harley, P 2003, “Industrial relations and HRM practices in Australia and overseas-owned workplaces: global or local.” The Journal of Industrial Relations, vol.45 no.1, pp.1-22.

Schmitt, M & Sadowski, D 2003, “A cost minimization approach to the international transfer of HRM/IR practices; Anglo-Saxon multinationals in the Federal Republic of Germany.” International Journal of HRM, vol.11 no.6, pp.1061-1081.

Scullion, H & Starkey, K 2000, “In search of the changing role of the corporate human resource function in the international firm.” International Journal of HRM, vol.11 no.6, pp.1061-1081.

Shen, J 2005, “Towards a generic international human resource management IHRM model.” Journal of Organizational Transformation and Social Change, vol.2 no.2, pp.83-102.

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