Introduction
International human resource management has become an important emerging phenomenon in business. Globalization is one of the key drivers to this trend. The term globalization has a wider meaning in that it involves many fields of knowledge to include economy, business, science, medicine, and many more.
Globalization in this context is the advancement in technology, for instance the Internet and, subsequently, the Information Revolution. We can now connect and conduct business with the rest of the world so easily. With just a computer with internet connection, you can connect with anyone anywhere which has an internet connection as well. Business organizations have become global, and so-called national borders seemed to be ignored at present.
International HRM emphasizes management of organizations whose operation is international. Human resource management is a significant factor in business success; quality management is of paramount significance in the new global business (Scullion & Paauwe, 2004, p. 66). Managers performing in an international arena have to disregard failure, if not this can be costly for both the individual managers and the organization.
Additionally, there is a shortage of talent in international human resource management (Caliguiri and Cascio, 1998, cited in Scullion & Paauwe, p. 66) that international organizations have to continuously train their managers, and the location for this training should also be in the international scene. On the other hand, small-and-medium enterprises have to join the quest in the international business scene, hence knowledge and expertise in International HRM is a necessity.
Universal Retail Corporation (URC)
The case study and subject for this paper is a composite company, the Universal Retail Corporation. By its name, it is a retail business, selling consumer products ranging from cosmetics to clothes, food, and many items manufactured in Australia.
The head office is in Australia, and it is focusing its expansion to an Asian country, the Philippines. Like any other expanding business, URC’s prime concern at present is how to jumpstart its international objectives with respect to its Philippine subsidiary. There are many issues to be addressed, for instance the cultural aspects and the problem of integration, and training and development including cross-cultural training (CCT) for the managers and employees.
International HRM handles different institutional, legal, and cultural aspects which the organization has to face in its international operation. It has to look at other management practices like cost-effective ways that can help the organization. Obviously, countries differ in many situations, for example policies, regulations and laws with respect to foreign investments.
Some HRM functions may work in Australia, but can work differently in the Philippines. Issues such as cultural integration, recruitment and selection for senior and junior staffs, training, health and safety, performance management, legalization, have to be addressed by the human resource manager.
Some of the internal factors that influence decision making in an organization operating internationally are the senior managers’ psychological make-up, the organizational strategy, resources, organizational history, policies and systems, and organizational culture, among others. There are other environmental factors that include labor markets, the national, regional, and world economies, financial markets, ethical and religious systems, factors in the green environment, and other industry interests.
Cultural aspect is a relevant factor. The retail establishment in the Philippines will create a culture by itself and will also have to cope with the existing culture of the country. Organizational culture is different from the existing national culture.
A study by Hofstede (1980, cited in Franke et al, 2002, p. 5) revealed that some aspects of national culture are associated with economic growth. The Philippines has been under colonial powers. It was discovered by the Spaniards in the sixteenth century, and was under Spanish rule for four centuries until the Americans came and introduced the educational system. The Spaniards, with the friars, were responsible for introducing Christianity.
The Philippines was further subjected to colonial power by the United States until it gained independence and became a democratic republic. World War II erupted and the Filipinos fought side by side with the Americans.
The presidential form of government based on the American system has been introduced to the Philippine political system. Up to now this is the form of government the Filipinos observe and has been accustomed to. It also saw despotic rule under President Marcos who ruled for almost twenty years, bringing its economy down. The economy could hardly recover until then.
Theoretical framework: Kluckhohn-Strodtbeck framework and the Hofstede framework
The values of the particular group of people, the Filipino people, are one form of influence on the organizational culture. A culture is particular to one group; it is passed down from one generation to the next.
Hofstede (1990) saw the distinction between two cultures present in this situation. Hofstede and his associates argue that the two cultural systems are essentially separate. The national culture is derived from early socialization, while the corporate or organizational culture springs from specific organizational culture mainly through the nationality of the founder.
Culture is a system shared by a group of people, who share the same dialect or language, during a specific time, and in a common geographic area or region (Triandis, 2002, p. 16).
Hofstede’s (1990, cited in Cray and Mallory, 1998, p. 49) study focused on culture-approach but toward a culture-free approach. This has some impact on the study of comparative field, particularly on two organizations.
The framework used in this paper focused on two universally accepted ways in studying cultures of the world. In Kluchhohn-Strodtbeck framework, it makes comparisons of culture in six different ways. The questions asked here can help the manager in studying two different cultures:
- Do people believe that the environment has some control over us but that it also controls us, and that we are all a part of nature?
- Do people realize the importance of past happenings, the present events, or the future events?
- Do people believe that others can easily be controlled and cannot be trusted, or do we believe that they can be left alone and are responsible enough to work on their own?
- Do people long for fulfillment in life, a not-so-responsible life, or something religious?
- Do people believe that they are responsible for others and their welfare?
- Do people like to do their job privately or even in the presence of other people?
Another framework proposed by Hofstede was borne out of his research on 116,000 IBM employees from different countries. Hofstede’s study has proposed four dimensions for studying different cultures. These four are “power distance, uncertainty avoidance, individualism and masculinity” (Katsioloudes and Hadjidakis, 2007, p. 50). Country factor analysis revealed these four features in culture (Cray and Mallory, 1998, p. 50).
Power distance refers to how society accepts the seeming inequality in the distribution of power within an organization. For example, there is always inequality in the workplace: there is a boss and there are the subordinates. But how is this set-up accepted in different countries?
This can be explained in some countries, for example in the Philippines, Malaysia, and Mexico, employees recognize the boss-employee set up, which means they recognize the authority of the manager as the one who can command – they respect it and do not attempt to bypass it. This way allows for a kind of organizational structure which is centralized and autocratic. This is somehow in contrast to some countries where people only recognize equality.
Uncertainty is present in countries where there is a strong sense of nationalism. Another one is individualism, which refers to the individualistic character of some groups. The fourth dimension, masculinity, refers to people’s regard for their masculine values, for instance, assertiveness and materialism. (Katsioloudes and Hadjidakis, 2007, p. 50)
Rationale for expansion
Universal Retail Corporation’s venture in the Philippines has to be carefully studied in line with existing political, economic, socio-cultural and technological considerations. In other words, will URC find smooth flowing of business considering the four factors in its entry to the Philippine business?
Political
Government legislation and economic policy may affect a firm’s pricing and credit policy and often there are regulations concerning products, promotions, etc.
At present, the political climate is stable. There is no political instability, and investments have been flowing in. The newly elected president, Benigno Aquino III, and his young government, are encouraging investors to conduct business in the country.
The House of Representatives, the legislative branch, has been cooperative by passing laws supporting the government’s economic policies. President Aquino, who succeeded Gloria Macapagal Arroyo, is a popular president, and many critics believe he will succeed due to the support of the different sectors of society, and the majority of the population.
Economic
The economic environment encourages foreign investment; a great percentage of the workforce is composed of skilled laborers, professionals and experienced Filipinos who have seen work in many countries especially the Middle East.
Majority of the workforce are now working in foreign countries and their remittances is now one of the reasons why the economy has survived all these years. Even if the Philippines sends millions of workers abroad, there is still a large percent of unemployed in the country. Generation of jobs from foreign and local investors is the focus of the new government.
Socio-cultural
Culture includes all activities which characterize the behaviour of particular communities of people, such as legal, political and economic factors. Nationalism and dealings with governments are often considered to be the major problems facing a firm trying to sell overseas. Most governments play either participating or regulatory roles in their economies. (Jobber and Lancaster, 2003, p. 228)
Cultural differences are a key factor to globalization. This makes additional demands on the skills of the managers in handling employees of different orientation and culture. One of the key issues for managers in international organizations is the problem of integrating employees from several cultures. A common problem is overcoming value and behavioural differences amongst employees of different culture. (Cray & Mallory, 1998, p. 7)
The senior manager and staff may face the problem of integration as the manager comes from Australia and the middle- and lower-level managers and staffs are Filipinos. Senior managers and staff should know how to be flexible in answering to the needs of the middle- and lower-level staff of the organization.
The branch office should be designed to accommodate different levels of tolerance for ambiguity and complexity. Issues on cultural integration can be addressed with training and development and motivation. The management and employees have to work together, and management should know how to work it out with employees of a different culture.
When training Filipino employees, their culture has to be taken into consideration, including their way of life. The employees should receive on-the-job training and the necessary motivation, constructive criticism, and other methods that are in line with their cultural values. Some selling approaches may not be applicable in certain cultures. A careful study of the way of life of the Filipino people should be incorporated in the training module.
Australian managers may not find it difficult to deal with Filipino employees. Filipinos have been used to the boss-employee set up where employees see the manager as their boss and can command them as subordinates.
This is widely accepted in the Philippines due to their historical background, the hundreds of years they were under colonial rule by Spain and the United States of America. Filipinos are used to the centralized and autocratic system. Australian managers will adjust so easily with their situation in the Philippines, considering that there are also many Filipino expatriates in Australia. The Filipino way of life is not strange to Australians.
Technological
Technological innovations can aid in the installation of a retail branch in the Philippines. There are engineers, technicians and many IT professionals available in the pool of local talents. They are so well-versed in technology.
There is an advantage when it comes to technology because the Philippines is an open economy. Technological equipment and materials have been flowing in from abroad, specifically from the United States and China. This cannot be a disadvantage but in fact can aid in the operation of URC in the Philippines.
Technological changes, in the form of products coming in from other countries, have aided the Philippine economy. URC can provide more changes by bringing in manufactured products from Australia. Information Technology, automation, and other technological innovations can be applied at URC Philippines, while the local workforce accepts it and can provide the necessary expertise.
Comparative analysis of Australian and Filipino cultures
Australian culture
Australia is a diverse society but the inhabitants are predominantly Anglo-Celtic. The diversity can be attributed to ethnic, linguistic and cultural in nature. Majority of the people speak English. About 170 languages come from the aboriginal and Torres Strait islanders. A small percent of the population speak fluent Italian, Greek, Chinese and other European and Asian languages.
Most Australians are Christians, divided into Catholics and Anglicans, but some 23% of the population do not have any religion, nor committed to a particular religion. Different ethnic groups and nationalities have migrated to Australia, although a big percent comes from the UK and Ireland. Many Filipinos have also migrated to Australia in search of jobs. (Mylett and Zanko, 2002, p. 23)
A constitutional monarchy with the Queen of England as its queen, Australia is a federation of nine states, and has a parliamentary form of government. It has a growing, progressive economy, the reason why it is an attraction for migration from many Asian countries. It is a member of APEC, an association of Asian-Pacific countries, and is the sixth wealthiest among the member countries.
Australians live a higher standard of living than most countries in Asia. It has a large international investment. Manufactured goods are some of its exports. GDP depends on tourism, education and from the service sector. The workforce is 8.3 million mostly concentrated in the manufacturing sector. (Mylett and Zanko, 2002, p. 24)
Like many other English-speaking countries, ownership of businesses is mostly institution based, but some 28% of the business sector is foreign owned. Multinational corporations also account for about 18% of the private sector. Private sector businesses come from the United States United Kingdom, New Zealand, etc. (Mylett and Zanko, 2002, p. 25)
The Filipino culture
The Philippines is an archipelagic country in Southeast Asia, and is composed of 7,100 islands. It has a long coast lines spanning some three major islands, namely Luzon, Visayas and Mindanao. Like Australia, it is ethnically and culturally diverse, with Tagalog (or Filipino) as the national language. English is the second language. Political units are divided into province, towns, and barangays. (Ofreneo, 2003, p. 390)
Economic development has not been too good for this Asian country, but this year, there are brighter predictions in the economic sector mainly due to the recent election of President Benigno Aquino, a popularly-elected president.
A big contributory factor to the GDP and economic growth comes from dollar remittances of OFWs (Overseas Filipino Workers) who work in various capacities in the different parts of the Middle East, Europe and the United Kingdom, and also in the United States. Out of these factors, the peso has been performing well in the stock market. (Official Gazette, 2010)
HRM functions
The Human Resource manager has to be aware of the cultural differences. He/she is faced with interpreting the actions and attitudes of the employees, negotiating with groups that have not only different goals but different methods of reaching to the company and different expectations.
Moreover, other normal HR activities such as recruitment and selection, training and development, reward and performance appraisal, may all be affected by cultural values and practices in the host country. In other words, the adoption of policies for HR should be given careful study.
Recruitment and selection
The problem on selection of staff depends on different factors, and one of these is the strategic decision coming from the main headquarters. The main office has to decide which principle the Philippine branch will have to follow.
Harzing (2004, p. 251) provides three types of orientations for multinational corporations (MNCs). These international orientations are ethnocentric, polycentric and geocentric.
- Global organizations with the ethnocentric staffing policy prefer to appoint parent country nationals (PNC) to top positions at their subsidiaries. In other words, the Philippine retail office will have Australian nationals to occupy top positions to include manager and other key positions.
- Organizations which follow a polycentric staff prefer to choose host country nationals (HCN) or Filipino citizens.
- Firms with a geocentric staffing policy simply choose the best person, regardless of nationality. They are called third country nationals (TCN).
Another staffing procedure is known as the regiocentric (Heenan and Perlmutter, 1979, cited in Harzing, 2004, p. 252) in which managers are moved on a regional basis. The study of Harzing (2004, p.253) provides information on the relative use of PCNs for the managing director position in foreign subsidiaries. This is important in formulating policies for the branch office in the Philippines.
Performance Management
Performance is something that an employee contributes to the organization according to his/her own capabilities and talents.
Performance management is an HRM function that focuses on improving the performance of employees. It aims to emphasize their capabilities and individual talents that should contribute to the entire performance of the organization. Performance management also aims to provide the means through which the staff can provide better results in such a way that the customers will be benefitted in the end (Armstrong, 2000, p. 1).
Performance management strategy focuses on what is involved in managing the organization. This is managing within the context of the business. The organization has to let every employee know that performance management strategy concerns everyone in the business – not just managers. (Armstrong, 2000, p. 2)
On the other hand, managers are not the only ones accountable for their performance, but responsibility is shared between managers and team members. The strategy should be to involve everyone in the team, and that everyone is jointly accountable for the results; if something goes wrong, all should be blamed for the fiasco.
Performance management also involves communication, this time between the supervisor and the employee. Both have the reciprocal need to communicate what needs to be done in order to establish a clear understanding for the employee’s job function, on how the employee can contribute to the success of the organization’s objective, and how to do the job so well to make the entire process of work a success. (Bacal, 1999, p. 3)
Performance management is concerned with improvement, employee development, satisfying the needs and wants of the customer, and also satisfying the stakeholders’ expectations. (Armstrong, 2006, p. 215)
Recommendations
There are a number of actions or measures that URC should prioritize in its expansion to the Philippines.
- URC should have a website available to the Filipino consumer. Filipinos are now adept in web browsing and social networking. The company can focus on this side of marketing.
- Management should not be more focused on PCN (parent country national) staffing; instead it should try to hire Filipino managers since there many Filipino professionals who are very qualified to the position. In so doing, URC can help lower down the country’s unemployment rate and the Filipino workforce may not have to go and look for jobs abroad.
Conclusion
Globalization is one of the reasons why businesses have become global. There are many kinds of globalization, for instance, the globalization of economies, where goods can be manufactured in one country and can be shipped or delivered to retail stores and direct customers at the shortest time. Technology has allowed globalization to prosper. Outsourcing is one aspect of globalization, where services and products can be manufactured by another organization or country.
The management of Universal Retail Corporation is right in its decision to expand in the Philippines. The Philippines is a growing economy with a large population whose culture has been influenced by many factors, and with some colonial mentality particularly on goods coming from abroad. URC consumer goods can be an attraction to Filipinos. URC can also outsource its products from other countries, meaning manufacturing cannot just be confined to Australia but to other countries and organizations.
HRM functions have provided a thorough analysis for URC expansion. There maybe a few hindrances in URC’s entry, but as a whole, the operation can be smooth flowing, considering that both countries have been ‘allies’ economically and geographically.
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