The Distinguishing Features of HRM in a Developing Economy - Essay Example

? Question; Examine the distinguishing features of HRM in a developing/ emerging economy of your choice. (HRM) Practices in India The Distinguishing Features 1. Introduction The Indian economy is the fourth largest economy in the world. It is one of the most attractive destinations for business and investment opportunities due to its huge manpower base, diversified natural resources and strong macro-economic fundamentals. The response to liberalization has created opportunities for technological upgrading and sophistication, resource mobilization from new sources, highly competitive input/output markets, and high growth and HRM issues associated with strategic initiatives of diversification, mergers and acquisitions, restructuring, joint ventures, strategic alliances and overall economic internationalization (Som, 2002). The workforces of firms are seen as the main resources that enable competitive advantage. The practices of Human Resource Management (HRM) have led to dramatic developments in developed countries such as the United Kingdom and the United States of America, as well as many developing economies such as India (Budhwar and Khatri, 2001). The Indian economy is characterized by huge growth in Foreign Direct Investments (FDI) made by multinational corporations entering different sectors of the economy. This economic status requires companies that tend to invest in the Indian economy to have special and modernized people management practices. Human Resource Management (HRM) systems and practices may vary from one country to another, as cultural and national factors influence the ways that human resources are managed across the globe. In this paper I will illustrate the distinguishing features of various HRM systems that Indian people practice in their organizations in terms of recruitment and retention, training and development, and performance and reward management. Challenges facing Indian HR practices will also be examined. 2. Culture in India Culture in India is predominantly affected by the following factors: 2.1 Power distance Many Indians believe that power and wealth are unequally distributed within the country and that this situation is badly in need of change. Strong organizational hierarchy leads to the occurrence of both respected and disregarded positions among employees. The caste system, which is largely accepted in India, cannot be changed, although barriers between castes are shrinking and ‘untouchability’ was declared illegal in 1949. Caste is thought to be determined by behavior in former lives and is therefore accepted as fate. This affects the entire life of Indians, including their social status and profession (Khan-Panni and Swallow, 2009 {in Hollinshead 2009}). 2.2 Uncertainty avoidance In India there is a relatively low level of uncertainty compared to other countries. Structures and traditions play key roles in reducing uncertainty, as Indians respect traditions, caste and heritage; elements that determine their role in society (Khan- Panni and Swallow, ibid {in Hollinshead 2009}). 2.3 Long Term Orientation India has a long-term orientation rank of 61 (the world’s average score is 48). Relationships and trust are relied upon more heavily than schedules and deadlines, as in Indian society time is perceived differently than in Western culture (Khan-Panni and Swallow, ibid {in Hollinshead 2009}). 2.4 Individualism As collectivistic values are not highly important in Indian society, extended family is considered a holy and untouchable matter. This is a possible interpretation for India’s index of individualism score (48) that is close to the world average. The extent that privacy and solitude have been adopted in individualistic countries is not found in India. This situation may cause conflicts as westerners may find Indians overpowering and may be ashamed by personal questions (Indax, 2003). However, conducting business in India requires building strong personal relationships (Khan- Panni and Swallow, ibid {in Hollinshead 2009}). 2.5 Masculinity Indian society can be situated between a patriarchal and gender-neutral social order. Such a demarcation places India’s masculinity index rank slightly above the world average. In conclusion, major Indian national culture can be summarized through the following characteristics (Tayeb, 2005{in Hollinshead 2009}): Low concern for privacy Collectivism and extended family Large power distance (respect to superior positions) Emotional dependence Law abiding but may bend the rules for friends and relatives Creativity, hard work, tenacity, and ability to cope with harsh conditions Inflexible social stratification (adherence to caste system) Disciplined, yet emotional Honest, trustworthy, yet considerable corruption in public service Ambitious and money oriented High rate of illiteracy, especially amongst lower caste individuals in rural areas 3. Challenges Facing HR practices Since economic liberalization in 1991, a huge number of international firms have penetrated the Indian markets. As these international firms carried with them innovative investment opportunities, Indian firms were forced to adopt fundamental changes in their HR practices. This competitive marketplace made Indian companies hurry to shift focus towards attracting and retaining high-performance employees. They sought quality people with innovative skills and training in accordance with key strategic objectives. In these regards, contemporary HR practices have come a long way from traditional HR operations, specifically in managing the recruitment process and handling staff appraisals (Chatterjee, 2007). Over the last decade, India's extensive manpower has played a central role in its economic success. The success of Indian companies is not based on superior access to raw materials, technology or patents, but built fundamentally upon human skills. The synchronization between strategic planning and innovative HRM practices will be vital as India continues along the global journey (Chatterjee, 2007). No doubt each society has a unique set of national reflections that guide particular managerial beliefs and actions. In Indian society an emerging perspective is the influence of globalization on technological advancements, business management, education, and communication infrastructures. These influences are having a converging effect on managerial mindsets and business behaviors (Chatterjee, 2007). Since liberalization, Indian organizations and managers have become busy with issues of transformation and growth. Restructuring, reengineering, realignment of systems, structures, tasks and technologies have all become central areas of concern. The economic transition to an open market, as well as increased competition from internal and external sources has put pressure on all aspects of these organizations. There has been a big need among the managerial cadre to build capabilities, resources, and competencies, strategies -- macro as well as micro HRM activities -- that translate into strategic HR roles and enhanced organizational learning capabilities. Indeed HRM specialists are under severe pressure to bring about large-scale professionalized changes in their organizations in order to face the challenges brought about by economic liberalization (Rao et al., 2001; Som, 2002). 4. Features of (HRM) Practices in Indians Firms The caste system is applied in India in almost all aspects of life, including education and employment. Some companies even specify federal jobs to be occupied by a single caste group. Trade unions are also organized along caste lines. Such categorization poses organizational challenges because these groups carry their personal differences to the workplace. Regardless of the progressive characteristics of the Human Resource Management (HRM) practices in India, polices employed by the majority of firms in India are still influenced strongly by traditional social, cultural, economic and political forms. The effect of cultural factors such as power inequality is reflected in the Human Resource Management practices of hierarchy and bureaucracy (Tayeb 2005). Chatterjee (2006) argued that half of India’s current population of 1.1 billion people is less than 25 years of age; this demographic is considered a distinguishing feature of the Indian workplace. Meredith (2007) pointed out that while this fact is a demographic dividend for the Indian economy, it is also a danger sign for the country’s potential to create new jobs at an alarming rate. Those external and internal factors are considered to be distinguishing features of the various functions of Human Resource Management (HRM) in India compared with firms in other countries. The difference in practice appears clearly in the main three components of Human Resource Management (HRM) systems; these include: Recruitment and Selection, Training and Development, and Performance and Reward Management. 5. Technical Services Industry as Special Case In the past decade many changes have been implemented in the area of Indian technical services and the associated HRM practices of recruitment and retention. Despite the weakness of the higher education system in the country and its inability to cope with the global imperatives, as well as a primitive infrastructure, there has been a rapid increase of private educational institutions. The emergence of a new culture of ‘job hopping’ amongst employers who can demonstrate their world class competencies, has a deep effect in the recruitment problem. This phenomenon of turnover has seen a chain reaction in entry level salaries, and an increase in graduates has created significant social and economic disruption to the Indian labor market (Chatterjee, 2006). Global technical service competition has made India a battlefield of recruitment for the best workers in this specialized field. The best example of this is with IBM. IBM’s Indian workforce has more than doubled in two years to a cadre of 53,000. This outcome has emerged with the elimination of 20,000 jobs in high cost markets like the U.S., Europe and Japan. The R&D centre of IBM is staffed by 3,000 world class engineers and is being recognized for its ability to innovate on all areas -- from simple processes, software, semiconductors, to supercomputers. It is notable that IBM dominated the recruitment market for India in technical services in 2006. This leading company recruited 10,000 employees out of a total of 25,000 people that were recruited to the technical services industry. The distinction of IBM as an employer of technically qualified personnel has also been acknowledged in the popular press (Business Week, 2007). 6. Recruitment and Retention Recruitment and selection systems and strategies employed in companies represent the first step towards success. For this reason, countries pay special attention to the process (Ghosh and Geetika, 2007). A study by Indian Express (2001) revealed that many Indian public sector firms consider family and community more important than work productivity. These companies base their recruitment and selection activities on factors such as ascribed status and social and political connections. While the hiring process can be performed in many ways -- placement agents, media advertisements and direct recruitment -- Employee Referral Programmes (RPs) are perhaps the most preferred hiring method for most IT organizations in India, as RPs cultivate greater and more efficient cultural bonding. Such perceptions indicate the influence of cultural assumptions on the recruitment and selection practices of India compared with some developed countries like the UK; such systems are oftentimes viewed by these country’s firms as breeding extreme nepotism within the recruitment and selection process (Mehta, 2005). Such differences in perception indicate the influence of cultural factors on Indian recruitment and selection practices. 7. Training and Development Training and development now represent a challenging type of investment that yields benefits from a firm's human capital. Studies recently conducted linked investment training employees and overall organizational performance. Reports from some developed countries like the UK indicate that firms spent a total of ?38.6 billion in 2007 towards training and development of their employees. This figure clearly reveals the extent that firms in the UK view training and development of employees as a valuable means of achieving business excellence. Firms put significant emphasis into the cost-benefit analysis of such activities to measure the actual monetary gains returned on investments. Human Resource Development (HRD) activities have two objectives in India. The idea is that such types of investment not only help to achieve business gains, but also essentially realize that such activities offer employees responsibility and liability towards the objectives of firms (Singh and Krishnan, 2007). NASSCOM (National Association of Software and Services Companies) pointed out that the Indian IT corporate training market is expected to yield approximately ?80 million within 2010 (Naukhri, 2007). Although many Indian companies in the IT sector are convinced HR development is the best tool to realize goals and maximize profits, many other organizations view training and development as only a need-based activity and treat it as an expensive activity to invest in. 8. Performance Management Performance management is a tool that evaluates individual and team ways of realizing organizational objectives. It is the appraisal system and feedback scheme by which firms are able to monitor the development of skills and attitudes of their workforce and measure them against organizational and personal development goals (Sturo, 2009). It is not sufficient to use performance appraisal systems to motivate employees, as studies conducted previously in the UK revealed that 80% of companies have performance appraisal systems in place, yet half of employees and managers are unhappy with the way these systems are monitored and evaluated. Still, effective performance management systems have become important to many firms in India. For example, Rallis India Limited, which is currently one of India's largest agrochemical companies, has installed an on-demand performance management system called the Emp. track to manage performance of its employees. It has been implemented to assist the company's human resources department implement global HR practices. Ultimately, Indian firms are investing in Western performance management systems and are obtaining long term benefits from the implementation of such systems (PRLog, 2008). 9 Reward Management Reward strategies adopted by organizations differ according to cultural contexts. Whatever the type of reward, these activities can enable firms to adopt the conception of the motivational factors of its workforce, so companies could design reward strategies based on such understandings (Harzing, 2004). Bonuses are applied in approximately all private companies in India, with the exception of insurance corporations, educational institutions, hospitals, chambers of commerce, federal banks and social welfare institutions which are not entitled to a bonus under the Act. On the other hand, the payment of a bonus is not executed if the employee is dismissed from service for fraud or misconduct on the premises or for theft, misappropriation or the like. Companies in India today, as elsewhere, are facing competitive globalized markets. With a massive scarcity of talented individuals, a growing number of firms have started recognizing the need for rewarding and reinforcing the good performance of their workforce (Vishwanath, 2009). Similar to many other developing countries, reward management systems in India follow the trend of paying comprehensive reward packages that are continuously reviewed and amended according to the changing motivational needs of today's workforce. Conclusions Despite historical and traditional roots remaining deeply embedded in the subjective world of Indian managers, Indian HRM culture has changed dramatically in recent years. As the Indian economy becomes more globalized, international concepts are increasingly verging into a national context. While there is recognition of world class human resource capability as being vital to global success, India has a different perspectives on HRM. The main areas in these regards include: Indian firms with a global outlook; global firms seeking to adapt to the Indian context; and HRM practices in public sector undertakings. Regional variations in terms of industry size, provincial business culture, and political issues play very relevant roles. The nature of hierarchy, status, authority, responsibility and similar other concepts vary widely across the nation’s system maintenance. Many academic studies in the field of HRM have found out that Human Resource Management (HRM) systems vary according to contextual factors. Cultural differences existing between different nations also determine the ways in which people management issues are dealt. The Indian recruitment and selection practices still shows evidence of preferential treatment to a certain extent, the presence of which may be due to the existence of a collectivist culture at the workplaces of Indian firms. With the exception of the IT sector, Indian firms still tend not to invest heavily. Ultimately, it is hoped that Indian firms will be progressively engaging in such activities as the economy grows. Moreover, evidence suggests that performance management has started to become an important area of concern and investment. References Business Week. 2007. A Red-HA Big Blue in India, Sept 3. Avaliable: http://businessweek.com/magazine/content/07_36/b4048052.htm Chatterjee, S.R. 2006. Human resource management in India. In A. Nankervis, Chatterjee, S.R. & J. Coffey (Eds.), Perspectives of human resource management in the Asia Pacific (41-62). Pearson Prentice Hall: Malaysia. Chatterjee, S. R. 2007. Human Resource Management in India: ‘Where From’ and ‘Where To?’, Research and Practice in Human Resource Management, 15(2), 92-103. Harzing, A.W. and Van Ruysseveldt, J. (eds.) 2004. International Human Resource Management, London, Sage Hollinshead, G. 2009. 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