The Relationship of National Culture to Human Resource Management - Essay Example

International Human Resource Management International Human Resource Management WORD COUNT: 1500. BOX A What is the Relationship of National Culture to Human Resource Management? Before the 1980s, the practice of management was generally perceived as universal. However, Hofstede (1980) showed that national cultures have consequences on human resource management (HRM). It then became understood that HRM practices varied depending on contextual factors including industry and size of the organisation. However, with the rapid globalisation, organisations are realising that national differences in the business environment are increasingly influencing HRM strategies and practices. From this perspective, the purpose of this paper is to research on the relationship of national culture to human resource management with the acknowledgment that national culture actually influences HRM. In the context of this research, national culture shall be considered to be the collective set of customs, beliefs, behaviours and norms that distinguish the populations of different sovereign nations. On the other hand, HRM will be considered to be the organisational function that is designed to maximise the performance of human resources (employees) in accordance with the organisational strategic objectives. Culture generally has a significant and considerable impact on the approaches organisations use to manage their employee. For example, British management theories will generally mirror the British background in which they were designed. Ideally, this means that it may not be possible to separate British management from British culture. However, HRM, among all other management practices, appears to be the most influenced and affected by cultural differences (Trompenaars & Hampden-Turner, 2004). Essentially, cultural differences will have significant implications on the design of HRM strategies and how appropriate they will be. The typical work environment is characterised by business (organisational) goals. However, in international HRM, cultural differences give rise to divergent preferences and perceptions that consequently shape general organisational behaviour such as management style and decision making, work motivation, performance appraisal, rewarding, communications, work orientation and definition of objectives (Milikic, 2009). Further, apart from organisational culture, national culture will impact on HRM practices such as staffing, career development, management and compensation. Nations may differ in many significant aspects such as the educational characteristics of the labour force and regulatory and institutional environments, but cultural differences and especially cultural values shape HRM strategies. Comparative analyses of national cultures have been used to show that the concept of universal management is largely misinformed (Lowe, Milliman & Dowling, 2002). This is mainly because, by first acknowledging the existence of diverse national cultures, it can be understood that each culture has historically developed its own unique and specific ways of organising and managing its human resources. In the same way, each culture has historically developed unique and specific blind spots in the practice of organising and managing human resources. Specific examples include the “pay for performance” strategies successfully implemented in the UK and US and the “quality circle program” of Japan (Tayeb, 2005). However, these strategies may not be freely interchangeable with those implemented in other nations that have their own unique cultural backgrounds. Therefore, leadership style and strategic decisions will be influenced by the national culture specific to a particular nation. According to Stone, Isenhour and Lukaszewski (2008), obedience and loyalty to superior figures is imperative in cultures described as “high power distance”. Therefore, in such a culture, HRM will basically use performance appraisal basing on the criteria of behaviour rather than results. Essentially, employees are exposed to less risks of disciplinary action by following established rules and procedures instead of making the organisation vulnerable to losses (Dianna & Stone-Romero, 2008). Therefore, HRM practices are characteristically specific to certain countries. For example, Japan and the US differ widely in terms of culture and when culture is applied to HRM, it can be seen that in Japan, unlike the US, the policy of life-time employment is widely used. Further, US organisations generally spend less on recreational and social activities that organisations in Japan. When multinational organisations introduce and implement the HR function in their subsidiaries abroad, they will do so in view of cultural differences between the host nation and the nation of origin (Rasim, 2006). In every nation, the institutional contexts, political environment, legislation, corporate governance, economic environment and social norms will be founded on its unique national culture, and this may prevent convergence of HRM practices with any other nation. For example, studies have shown that unlike the US culture, the Japanese culture facilitates the implementation of shorter hierarchical structures with flexible control systems and job definitions based on self-discipline (Ferres, Connell & Travaglione, 2004). It has also been shown that cultural differences are not only pronounced between different continents or regions. For example, Ferres, Connell & Travaglione (2004) also found that within Europe, the UK has more decentralised decision making than Germany and organisations in the UK spend more on the development of middle-level management and the wellbeing of employees. Therefore, it can be seen that the relationship between national culture and HRM practices is one in which it may not be fully possible to standardise HRM practices across all national cultures. Any attempts to transfer certain practices from certain cultural backgrounds to other nations with incompatible cultures will most probably fail. Another study on whether HRM practices of the developed world can be applied to developing nations. It was found that very nature of being developing nations reflected on the culture of such nations (Zupan, & Kase, 2009). It follows, therefore, that the virtue of being developed countries will develop on those developed countries’ national cultures and, consequently, their HRM practices. This means that the transferability and applicability of HRM practices across different cultures will not work. Analysing this concept from the perspective of developed and developing countries, it can further be shown that in their own context, the HRM practices of the developed countries are not necessarily poor or ineffective since they work within their own cultures. Rather, it is the cultural differences that will hinder the successful implementation in the developing countries. Hofstede proposed six dimensions through which national culture can meaningfully be used by comparison and they included power distance index (PDI); individualism vs collectivism (IDV); masculinity vs femininity (MAS); and uncertainty avoidance index (UAI) (Stone, 2009). From the perspective of these views, it is suggested that the relationship between national culture and HRM can also be one in which national culture has an effect on the development and effectiveness of HRM. Hence, for multinational organisations to achieve the business goals and objectives, the HRM strategies must be developed in the context of the host nation’s culture. The framework provided by Hofstede is a reflection of human feelings and thinking that also form the fundamental problems most societies need to manage, but the solutions vary between countries with different cultures (Stone, Isenhour & Lukaszewski, 2008). The recruiting and selecting process is one of the key roles of HRM. Before the process, it is imperative to analyse the culture of the nation in which it will be conducted. If a particular nation is characterised by a national culture of individualism, the HRM strategies will be designed in a way that the potential employees can be transferred to any location within the host nation or overseas subsidiary (Zupan & Kase, 2009). This is because in individualism culture, employees will be more focused on their careers than family and would not be bothered by being separated from them for long periods. While such culture drives individuals to seek progress and success at whatever possible costs, collectivism will require HRM strategies to be designed differently. Collectivism is founded on family and social life and in such culture people tend to want to be close to family and friends and will not welcome being separated from them for long periods (Zupan & Kase, 2009). For instance, if a Chinese firm wishes to venture into the UK market, there will be considerable cultural issues to consider. The Chinese national culture has been described as exhibiting moderate masculinity and uncertainty avoidance, high collectivism and high power distance (Lowe, Milliman, & Dowling, 2002). These are fundamentally different from the UK culture but the Chinese firm will tend to use recruitment and selection strategies designed and developed in China that have been said to usually target friends or family (Ferres, Connell & Travaglione, 2004). However, on the other hand, the UK system uses interview panels, aptitude tests and application forms in the recruitment and selection process. Therefore, the HRM team will have to design its processes and strategies according to the host nation they are targeting within the UK. Likewise, any UK multinational company that plans on venturing into the Chinese market will have to develop its recruitment strategies according to the Chinese system. Then for the sake of developing training programmes, which is also a function of the HRM team, it is imperative to consider how the employees will behave and react towards such programmes. This is in recognition that although such behaviour and reaction may be based on the individual, it is also largely a function of national culture (Lowe, Milliman, & Dowling, 2002). WORD COUNT: 1499 BOX B How Can Consistency of International Compensation Across International Locations Be Achieved When Local Environments Differ? Compensation may be viewed as the systematic approach by organisations designed to provide monetary value and associated benefits in exchange for the services and work of employees (Fernandez-Alles, Cuevas-Rodriguez, & Valle-Cabrera, 2006). However, compensation may not be such a straightforward concept in the context of operating multinational organisations in different countries that have different cultures with increasingly diverse ranges of employees. As economies are increasingly globalising, they can be seen to show interdependence and promote the elimination of barriers and mobility of workers and one of the consequences has been the growing number of multinational companies (Phillips & Fox, 2013). Therefore, the multinational companies are required to adapt HRM strategies in order too succeed and the adaption of effective and appropriate compensation is imperative. International compensation systems must be designed to align with local contexts in of the jurisdictions in which they are applied. Essentially, that means they must adapt to the local cultural and institutional contexts (Zingheim & Schuster, 2009). From that perspective, this section of the paper will explore ways of how consistency can be achieved in different local environments. International organisations operate in various locations that have both similarities and differences. Within the different locations, compensation is mainly based on economic, individual, institutional and organisational factors (Milkovich & Newman, 2008). Therefore, any changes that these factors may impress in different jurisdictions across the world will further be mirrored in any organisational changes that may be required when different compensation systems are designed in different countries. Hence, consistency can be promoted when the compensation systems are designed to adapt to the cultural expectations of the employees (Tosi & Greckhamer, 2004). For example, it has been shown that nations with the high power culture are best suited for hierarchical compensation systems that feature large earning discrepancies. This is thought to be a reflection of differences in the employees’ positions and status as seen between subordinates and superiors. On the other hand, nations with low power distance need a compensation system that is more egalitarian characteristics as a reflection the narrower earning discrepancies as well as with shared incentives. According to Milkovich & Newman (2008), countries with the uncertainty avoidance culture have more focus on fixed remuneration and the compensation systems are typically tend towards internal equity and are centralised. Individualism culture is characterised by compensation systems that are founded on individual performance and are also based on the exclusive use of extrinsic rewards while the collectivist culture has compensation systems founded on group performance and intrinsic rewards (Gomez-Mejia, Makri & Lazara, 2003). In nations with masculine culture feature compensation systems that encourage inequalities based on gender where masculine characteristics are stereotypically rewarded. On the other hand, feminine culture feature compensation systems that are more egalitarian than the masculine and are not founded on stereotype (Fernandez-Alles, Cuevas-Rodriguez, & Valle-Cabrera, 2006). International organisations that operate in uncertainty avoidance culture are encouraged to base their compensation systems on skills and length of service for the sake of stability. Hence, it is imperative for them to base compensation on performance (Fernandez-Alles, Cuevas-Rodriguez, & Valle-Cabrera, 2006). However, the way compensation systems are developed and deployed in different countries that the multinational organisations operate depends generally reflect the organisations stance from the perspective of two pressure categories. One pressure category demands the adaptation of the local context with which the organisation operates and the other compels the organisation to formulate compensation strategies that support and comply with organisation’s global strategy rewards (Gomez-Mejia, Makri & Lazara, 2003). The pressures that market-based economies and globalisation create provide the international organisations with unprecedented opportunities to develop global mindsets to address global challenges. In the context of international compensation, the global mindset facilitates the adoption of attitudes and values that enable functional priorities, corporate business and the way employees are compensated to be balanced on a global scale. The employment relationship may also be viewed as a social contract involving governments, employers and employees and not simply the employer-employee relationship. The expectations and relationships of these stakeholders form the social contract and when deciding how the employers will be compensated, different ideas will arise not only within the stakeholders but also the jurisdictions under which they are located rewards (Gomez-Mejia, Makri & Lazara, 2003). Multinational businesses that strive to standardise their international policy in a bid to treat both expatriates and local employees equally promote the efforts to create consistency in international compensation across different local environments. However, contemporary arguments point towards strategic flexibility in achieving consistency rather than national culture (Bloom & Milkovich, 2007). Some studies have shown that some of the widely known cultures such as Germany’s industry-wide bargaining and Japan’s life-time employment are showing signs of weakening as they respond to the influences of a global economy. This new school of thought suggests that conventional assumptions regarding international compensation should be modified. It is opined that conventional thoughts should abandon the notion that expatriates should always be compensated profoundly differently from local employees. Agreeably, there still exist substantial differences in compensation systems. For instance, the same multinational business that operates in Bratislava ans Shanghai will be very different in their management and compensation policies. While the Shanghai subsidiary may have more emphasis on bonuses that aim to retain skilled employees and also housing allowance, the Bratislava subsidiary will most likely emphasis on performance-based remuneration and sharing profits (McCallum & Olson, 2010). However, the market-based economies present a logic that suggests such differences will eventually narrow out as global businesses deal with similar pressures. They will all be impacted upon by similarly intense competition for not only critical skills but also market and the competition will be the function of global financial markets (Fernandez-Alles, Cuevas-Rodriguez, & Valle-Cabrera, 2006). All the multinational businesses will be seeking to leverage the large amounts of increasingly available information and aim to harmonise global and regional systems. However, even as the multinational businesses are up against similar pressures, there is great variation in responses. In the European Arena, French companies are gradually altering their compensation systems and tending towards systems that encourage sharing work in order to address unemployment (Chen, Choi & Chi, 2010). On their part, British systems allow stakeholders to deploy systems that are more variable and may include schemes based on performance stock options. From this, it can be seen that even in a business environment where players face similar challenges created by market-based economies they have the flexibility to determine compensation systems. The varying responses businesses have for globalisation is manifestation that compensation systems are engrained in the relationship employers and employees in the global economy have (McCallum & Olson, 2010). Further, such relationships stem from economic, political and social contexts. It is acknowledged that compensation systems vary highly across different locations and are a reflection of cultural, legal and economic differences. However, such differences have traditionally been founded on cultural differences more than the other factors. In order to enable effective consistency in compensation, multinational businesses must first identify the local business processes the new compensation system is designed to support (Sims & Schraeder, 2012). They then need to document how the processes were traditionally compensated in every relevant location. Then the compensation systems need to be compared to others in different locations and the different and similar points noted. Finally, they can determine the differences that the different cultural and regulatory regimes required s as well as the ones that can possibly be standardised across different locations. Aspects to be considered in the above suggestion include who the compensation system is targeting, the scope of the issues related to sticking to conventional compensation based on culture and why the compensation needs to be made consistent across locations (McCallum & Olson, 2010). From the perspective of who the compensation is targeting, all employees will be affected but differently to some extent. Then, the scope of issues will inform the problem the consistent compensation actually aims to solve. It is imperative to determine whether the issues affect all the locations in which multinational businesses operate (Fernandez-Alles, Cuevas-Rodriguez, & Valle-Cabrera, 2006). Although this is not to mean that organisations should not consider individual cultures of the locations in which they operate, they should structure their compensation systems in ways the can be applies across different cultures. International compensation should consider recruiting and retaining qualified employees in different cultures and be designed to equally motivate employees from different cultures (Schwartz, 2006). According to Fernandez-Alles, Cuevas-Rodriguez and Valle-Cabrera, (2006), some multinational businesses address the consistency matter by using the international headquarters approach. In this approach, the businesses compensate all expatriates as though they all come from one geographic headquarters and assume that they get compensated on the same balance sheet programme. 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