Why Multinational Corporations Seek To Transfer Their Home-Country HRM Policies to Their Overseas Subsidiaries - Essay Example

 1. Introduction The strategies of multinational organizations are quite complex having to address a wide range of issues related to different cultural and economic conditions. In this context, many firms chose to promote similar policies in regard to their various sectors aiming to reduce relevant risks. In the HRM area such practices are quite common. In fact, it has been proved that a high percentage of organizations prefer to transfer their home-country human resource management policies to their overseas subsidiaries. At a first level, this practice can be possibly considered as justified allowing the easier establishment of the organization in the host country, at the level that no time is wasted on the preparation of locals for working in key positions of the organization’s branch in the host country. The reasons for which organizations transfer their home-country human resource management policies to their overseas subsidiaries are presented and evaluated in this paper. Emphasis is given on the difficulties of this project and on the possible ways for resolving the problems involved. 2. Why multinational corporations seek to transfer their home-country human resource management policies to their overseas subsidiaries. The most common reason for the transfer of home-country human resource management policies to overseas subsidiaries is the need of organizations for promoting homogenous policies in all their sectors so that conflicts and failures are minimized. Such issue is highlighted in the study of Wilton (2010) where reference is made to the example of Japanese firms that had to establish branches and operational units abroad. Japanese firms tend to promote team working and task sharing; however, after entering the US market the Japanese firm had to align their HRM strategies with the US laws and ethics (Wilton 2010). In order to avoid conflicts with local laws and culture, the Japanese firms transformed their HRM policies promoting ‘task demarcation and functional specialization’ (Wilton 2010, p.141). From a similar point of view, Sparrow (2009) notes that firms may chose to transfer their home-country human resource management policies to their overseas subsidiaries in order to reduce costs related to training of new employees. Such perspective can be valuable only if the time during which the home country HRM policies are used in the overseas subsidiary is limited; if such practice is continued for a long period of time, then the cost involved would be much higher compared to the development of new HRM policies, aligned with the local culture. This means that expatriates who are send to work to overseas subsidiaries for supporting the transfer of their firm’s HRM policies to these units, should be given a time framework for finishing their tasks. On the other hand, it is perceived that the promotion of policies, which have been already tested in the home country, should be preferred (Stahl and Bjorkman 2006). Introducing new policies is always risky, especially if taking into consideration the physical distance between the mother company and its subsidiaries (Stahl and Bjorkman 2006). Most important, the HRM policies developed in the home country are fully aligned with the organization’s mission and values (Stockhammer 2011). This means that these policies have been structured in such way so that they support effectively the needs of the organization in regard to the achievement of its targets. It is also assumed that these policies cannot harm the organization’s image in the market, being aligned with organization’s ethics and beliefs (Stockhammer 2011). A different perspective of the efforts of firms to transfer their HRM to their overseas subsidiaries is presented in the study of Tempel (2001). According to the above researcher, through the years, the employees of the organization have become familiar with their organization’s HR policies (Tempel 2001). For example, in a firm where team sharing has been the basis for the development of daily organizational tasks, employees tend to follow the rules of the specific HR policy. If the particular firm establishes a subsidiary in a foreign country, then employees in the parent company, based in the home country, would expect to cooperate with employees in the subsidiary on the same basis. Introducing a totally new HR policy in the subsidiary would result to failures in communication and cooperation between employees in the subsidiary and those in the parent company (Tempel 2001). In other words, promoting the HRM policies of the parent company to its subsidiaries is a decision based on the need of the organization for avoiding delays in the development of its activities, as these delays often result because of misunderstandings or lack of cooperation among employees in different organizational units. 2.1 Difficulties that multinational corporations face when trying to transfer their home-country human resource management policies to their overseas subsidiaries. According to the issues developed above, the transfer of home-country HRM policies to the overseas subsidiaries of organizations is often unavoidable. Still, the firms that use such strategies, have to face a series of challenges. Stahl and Bjorkman (2006) explain that the structure of each organization’s operations in a foreign country is depended on a series of factors, including the sources available locally, the local culture but also the organization’s aims, in terms of the desired performance of the particular subsidiary. In this context, if the HRM policies of a firm are transferred to one of its overseas subsidiaries it is possible for the following problem to occur: ‘a lack of fit may exist between the structure of the organization’s operations and its HRM policies’ (Stahl and Bjorkman 2006, p.468). The organization’s top managers need to take initiatives for reducing the relevant differences and gaps. Otherwise, it is quite possible for long – term conflicts to appear in the subsidiary, a fact that would result to the decrease of the performance of the specific unit. At the next level, the relationship between each organization and its home country cannot be ignored. Reference is made in particular to the ethics, the culture and the laws of the home country, as they have been used for the development of the organization’s mission and vision (Wood 2009). The country-of-origin effect, as included in the Four Influences Framework of Edwards and Ferner (2002), promotes the idea that the practices of each organization are fully aligned with the ethics and the rules of the home country (Edwards and Ferner 2002, cited by Wood 2009, p.304). It would be quite difficult for any organization to introduce radical changes to its HRM policies, following the rules and the culture of another country, as such activity would require the re-structuring of many organizational operations (Wood 2009). Vance and Paik (2010) note that expatriates are valuable in explaining the values of the organization to the employees of the overseas subsidiaries. They also believe that expatriates can help to the limitation of risks related to the establishment of overseas subsidiaries (Vance and Paik 2010). Reference is made, for example, to the role of expatriates in ‘preventing the leaking of valuable information during the establishment of a firm’s overseas subsidiary’ (Vance and Paik 2010, p.111). However, the ability of expatriates to respond to the demands of their role is not guaranteed (Vance and Paik 2010). The risk for failures in performing accordingly to the organization’s needs is higher when expatriates have not been appropriately trained or if they have been hired rather recently, meaning that they are not fully aware of the organization’s ethics and culture (Vance and Paik 2010). Wood (2009) notes that there is no effective technique for checking the potentials of expatriates to respond to the demands of their role; from this point of view, transferring the HRM practices to an overseas subsidiary is always risky for organizations that operate globally. According to Dickman and Baruch (2009) the risks of organizations related to the appropriateness of their expatriates could be controlled if organizations would focus not only ‘on the technical skills of expatriates but also on their motivation and adaptability for knowledge transfer’ (Dickman and Baruch 2009, p.18). The practices followed by organizations in order to reduce risks when transferring their HRM policies to their overseas subsidiaries are differentiated. The culture of the home country but also the financial status of the organization can highly affect the practices of organizations for facing difficulties related to the transfer of HRM policies to the overseas subsidiaries. For example, German firms focus highly on centralization of operations (Mudenhall et al. 2001, p.67). This means that the overseas subsidiaries of these firms are fully controlled by their parent company, the ethics and the culture of which are fully aligned with the German culture and laws. It is assumed that expatriates of German firms are highly skilled in facing any difficulties that can possibly appear when transferring the HRM policies to the overseas subsidiaries. Japanese firm use a similar practice when trying to transfer their HRM policies to their overseas subsidiaries. According to Keeley (2001) Japanese firms are likely to follow the following strategies for facing difficulties related to the transfer of their HRM policies to their overseas subsidiaries: ‘a) promotion of company philosophies for strengthening the ties between the organization and its employees and b) the emphasis on socialization process for supporting team-work’ (Keeley 2001, p.91). At the next level, Caligiuri et al. (2010) refer to an indicative example that shows the potential effectiveness of multinationals in establishing HRM strategies that can be applied worldwide: Renault introduced an process for measuring the satisfaction of its customers in regard to its headquarters in Rome (Caligiuri et al. 2010); the above process allowed to the customers to state their view in regard to the quality of services provided by the firm’s employees in the specific unit (Caligiuri et al. 2010, p.30); in other words, the above process reflected the performance of employees in each unit as revealed through the testimonies of customers. It was then proved that this process could be effectively used in all the firm’s units worldwide. In other words, Renault has proved that a HRM strategy can be successfully established in the overseas units of a multinational organization. 3. Conclusion The potentials of the firms to develop effective policies in regard to their activities worldwide are related to a series of factors. Usually, the effectiveness of a strategy in the home country indicates its ability to perform well in the firm’s overseas subsidiary, but there are always chances for failures. It has been made clear that each organization tends to use different practices and criteria for transferring its HRM policies to its overseas subsidiary; most commonly, such plans are influenced by the national culture in regard to business practices, as revealed through the examples of German and Japanese firms presented above. On the other hand, the difficulties that a firm faces when trying to transfer its HRM policies to its overseas subsidiaries are not many; they do exist but they can be effectively handled by adopting well designed plans, as explained earlier. In any case, the benefits expected are more, compared to the difficulties involved, so that the efforts of firms to transfer their HRM to their overseas subsidiaries should be characterized as fully justified. References Caligiuri, P., Lepak, D., Bonache, J. (2010) Managing the Global Workforce. Hoboken: John Wiley and Sons. Dickman, M., Baruch, Y. (2009) Global Careers. Oxon: Taylor & Francis. Keeley, T. (2001) International human resource management in Japanese firms: their greatest challenge. New York: Palgrave Macmillan. Mendenhall, M., Kuhlmann, T., Stahl, G. (2001) Developing global business leaders: policies, processes, and innovations. Westport: Greenwood Publishing Group. Sparrow, P. (2009) Handbook of international human resource management: integrating people, process, and context. Hoboken: John Wiley and Sons. Stahl, G., Bjorkman, I. (2006) Handbook of research in international human resource management. Cheltenham: Edward Elgar Publishing. Stockhammer, P. (2011) Conceptualizing Cultural Hybridization: A Transdisciplinary Approach. New York: Springer. Tempel, A. (2001) The cross-national transfer of human resource management practices in German and British multinational companies. Munchen: Rainer Hampp Verlag. Vance, C., Paik, Y. (2010) Managing a global workforce: challenges and opportunities in international human resource management. New York: M.E. Sharpe. Wilton, N. (2010) An Introduction to Human Resource Management. London: AGE Publications Ltd. Wood, G. (2009) Human resource management: a critical approach. Oxon: Taylor & Francis. Read More