“IHRM is important because the conduct of business is increasingly international in scope and managing human resources is critical to the successful conduct of global business. ” (Dennis R. Briscoe, Randall S. Schuler 2004) The Academy of Management Journal pointed out: “It is instrumental to harness the productive potential of their employees in order to achieve superior performance”
Youndt et al. 1996) This point of view is very likely to be true as technique develops faster and faster and thereby technical competitive advantages are levelled out really quick. Consequently the effective management of human resources (HRM) as the second element of a company’s capital seems more and more to be the crucial element for success. Due to the increasing number of multinational corporations(MNC) and the fact that business isn’t done nationally anymore the pattern of HRM have been extended to international human resource management (IHRM) for the businesses mentioned.
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These companies have to evaluate their HRM whether they still support the most effective way the international business is run. The way the business is done concerning the international human resources is outlined by a firm’s IHRM policies can be seen in their IHRM practices. Alan M. Rugman et al. (2003, p. 329) states that IHRM is the process of selecting, training, developing, and compensating personnel in overseas positions. 1. 1 The three components of IHRM – a description R. S. Schuler et al. 1993) published an integrative framework of IHRM in MNEs which mentions three main components of IHRM: the issues, the functions and the policies and practices. What about The issues deal with the problems and needs of the MNE between and within the subsidiaries. As it is one company an ideal mixture of differentiation and integration must be fund, supported and adopted. It must be able to react and perform locally as good as possible on the one hand. But on the other hand there is the essential need for global coordination, implementation and control of strategies. What to do
Secondly the functions were mentioned including outlining the HR orientation and allocating the resources. This includes everything concerning the HR like staffing, training, compensation, etc. as earlier mentioned. How to do it These two lead to the policies which constitute the guidelines for the MNE and it’s subsidiaries. They set the frame for the management. It is possible that the guidelines are a non specific statement as well as a clear advice for every affiliate. Policies can regard the way individuals are managed in general or the also can implement initiatives or visions.
On the whole IHRM policies have also to be suitable for realising the overall strategy developed for the international business by the headquarters. The last mentioned policies will be the key issue of this work but it is necessary and useful to give an overview of the complexity of the subject as they influence the changing policies. So for this reason we will firstly have a closer look on which new issues and functions do arise if a MNE sets up a subsidiary in China later on. 1. 2 Key elements concerning IHRM – the details 1. 2. 1 Recruitment
Recruiting the most appropriate candidate in the IHRM context raises the question where from he or she should be chosen. Looking back in history MNE used managers from their home country to make sure that those policies and plans given by the headquarters were met. They were also called expatriates. Another advantage of using an expatriate was the amount of control a headquarters had over the subsidiary by using this way of staffing. The parent country national(PCN) would be to bring core knowledge and transfer the MNE’s key characteristics to the subsidiary.
In addition the manager would be able to bring new knowledge back to the headquarter and develop his own personality and abilities from which the company would benefit. He would be a liable trouble-shooter and connection. This would include a significant amount of support needed from the MNE. An example for that would be the adjustment to new business practices, language or culture which is not always easy. Consequently it’s an expensive decision. The alternative would be to recruit host-country nationals (HCN). With this decision new weaknesses and insecurity arises.
The subsidiary might not be able to fulfil the headquarters expectations towards coordination, control and transfer of core values. More rules and regulations might be required. By using this way a significant advantage is gained; the local responsiveness would be much higher than if a PCN would have been chosen. A MNE could also try to socialise the HCN (or TCN) to become used to needs, practices and values of the parent country. A solution sometimes used in these cases is the recruitment of a third-country national(TCN).
He might be a balanced mixture of both advantages and disadvantages in example due to the possible fact that he is more socialised with the host country culture but understands the business needs of the parent country. The final decision influenced by the host country’s environmental conditions. If the conditions are stable and certain it is less risky to run a business based on rules. But if, due to changes and insecurity, action and decisions, representing complex core values is required, rules and regulations might not be enough to ensure that business is done in the way the headquarters would expect.
It has to be mentioned that this is a strategic question which deals with the decision whether a company focuses on an ethnocentric, polycentric, regiocentric, or geocentric orientation. The ethnocentric practices lead to an adaptation of the parent company’s HRM system using PCNs whereas a polycentric strategy means to recruit HCNs. A regiocentric decision would lead to staffing from the natural or cultural region with consequently less corporate control. Recruiting the best people from all over the world is the method of the geocentric approach.
Strategic HR decisions are linked with the IHRM issues leading to specific policies. 1. 2. 2 Training and Development The main question for staff training is the question of responsibility for deciding what when how and where to teach. This depends on the extend to which the units in the different countries are linked to the centre. Is it useful to organise trainings within the headquarters and advice the subsidiaries what and how to teach their staff? Is there a reason for local adjustments towards content or method? These considerations have to be done to set up useful policies.
Developing more global policies becomes more complicated if units are in different environments. This is also based on the fact that in different environments different management styles and practices are required; especially if HCNs have been recruited. Logically management would be less centralised but more supervised in general to ensure conformity. An example is the need of some countries for training about how to work in a team (Wall and Rees, 2004). A second would be the fact that Chinese people in a Western MNE have to learn how to work independently and with more freedom.
They also might have to be taught to contribute and criticise in evaluations to improve processes as they may be used to a more hierarchical structure, where independent thinking was unwanted. Additionally different cultures expect a different amount of training and developmental opportunities. 1. 2. 3 Performance measurement As performance measurement and appraisals are always an important but regarding cultural differences a difficult process they will require local adjustments in every global MNE. This fact lets the process become even more complicated if headquarters want a comparable standardised comparison.
In this case questions might be developed centrally but locally adjusted and the appraisals given back to the units have do be adjusted as well to ensure that the effect won’t be a wrong one. Another issue would be taxation. As tax rates and systems differ significantly between countries standardisation of compensation in general gets complicated. For HCN as they might earn relatively more or less than a person in the same position in another country as well as for PCN as they might have to pay different taxes because the are foreigners. 1. 2. 4 Compensation
The first aspect relevant to mention is the fact mentioned earlier that it might be very or even too expensive to pay for a PCN in a new subsidiary even if he might be seen as the best suitable one. In this case a company has to start recruit the best person affordable instead of the best person in total or they might have to change the structure of financing the PCN or the compensation policies. Secondly the mix of base salary and benefits might differ essentially from country to country. If this is the case like between the United States and Germany a MNE has to think about the effects of a standardised compensation scheme.
As outlined above internationalisation gives numerous reasons for changes in a company’s policies mainly due to environmental differences. IHRM should include a comprehensive human resource planning and staffing policies capitalising on the world-wide expertise PCNs, HCNs and TCNs. The performance appraisals should be anchored in the headquarters and the subsidiaries. Compensation policies should be developed on a strategic and culture sensitive basement. Training for operations within the host country is likely to be a competency of the subsidiary while general strategic training a development might be handled by the headquarters. R. S. Schuler et al. 2002) It is very unlikely to find a company where all these generalised theses are true. Every country has unique attributes and every single company different requirements. 2 The expansion of a Swedish MNE to China – an example To give an example of how an expansion may bring changes to the IHRM the differences between Sweden and China which might have an influence will be pointed out in the following. They will be brought forward to a market entry of IKEA into China. 2. 1 Sweden and China – a comparison Cultural differences are still best categorised and described by Hofstede’s dimensions.
Dimension ChinaSweden Power distance HL Collectivism HL (M) Masculinity HL Uncertainty avoidance ML (M) Long-term orientation HM Source: adapted from Worm (1997) Hofstede (1980) The most important links to IHRM of these differences according to each dimension are: As power distance is high in China hierarchical organisational structures are a much more common than they are in Sweden where power distance is low. Chinese people are used to fulfil given roles rather than speaking up or discuss topics with their superior. Swedish culture is more about consulting and the boss’s role is more democratic.
Swedish “people have grown up in a society where it is okay – and expected of one – to speak up, to speak your mind and express your own opinions / feelings to ‘authority’ and people in senior positions, such as the boss, your teacher, etc. ” (IKEA management training, Cross-Ways 2002) As in collectivistic countries like china the group is more important than the individual or a specific task the difference is quite obvious to Sweden where the person itself is most important and the task has the priority compared to any group related issues. A Swede is more likely to risk an interpersonal conflict to deal best with a given task.
In countries with high masculinity – as China is and Sweden is not at all – careers and money are some of the most desirable aims. An assertive, self secure behaviour is accepted and usual. Intuition is not common as it is in feminine countries like Scandinavia. Towards the avoidance of uncertainty Swedish people tend to be less formal and having fewer rules than a Chinese would set up. Chinese are more common with fitting into roles and adapt to rules than to act with a higher degree of freedom and independence. This is also linked with the existing higher power distance. …if I do not take any initiatives and only do what I have been told, I cannot be held responsible for any mistakes, instead the responsibility should lay with the boss… ” (Prof. Selmer Hong Kong Baptist University, 2003) Regarding the differences in long term orientation Chinese people are more likely to abandon present wellbeing for (greater) future gratification. A Swede would expect faster gratification. This does not weaken the Chinese’s desire to gain career development or money but it builds a long term desire or objective. 2. 2 The “IKEA way” – an international company from Sweden
IKEA is a typical Swedish company with Swedish habits included in their corporate values and behaviour. Therefore it is an excellent example. IKEA’s HR idea is to be strongly committed to creating a better everyday life for ourselves and our customers by giving down-to earth, straightforward people the possibility to grow, both as individuals and in their professional roles. (IKEA 4 1999) The values that IKEA stands for are represented by people’s behaviour like solidarity, openness, honest, simplicity and never say never. (IKEA 5 2001) These values are claimed to be transferred globally.
IKEA has a central HR department from which local adjustments are made (J. Carlsson, IKEA, 2003). IKEA argues that Its HRM is decentralised and that the global department only steers and works out strategies to guide the local HR departments (L. Gejroth, IKEA (HR), 2003). IKEA believes in every single individual and its abilities and competency, its wishes to grow and its wants to take responsibility in and for ONE organisation (IKEA 3 2003). 2. 3 Changes due to an expansion of IKEA to China – an example These sometimes significant divergences have to be taken into account if a Swedish company decides to set up a subsidiary in China.
The special modulation of IRHM and their policies required because of the differences between the two countries will be presented by using IKEA as a practical example. It will be paid attention that general recommendations for Swedish companies will be well-defined from necessary adaptations only due to IKEA’s unique corporate culture. As we have done before we will go thought the key elements and point out which changes IKEA as a Swedish company might has to implement. 2. 3. 1 Recruitment Recruitment is always about finding the right one for the right job.
But having the right person in the right position becomes even more important as Chinese people tend to do as they are told and a mistake might be ignored as it won’t have happened in Sweden where a subordinate would speak up. Additionally it has to be taken into consideration what a Chinese person might do in this position what a Swede would never ever think about. Which competencies would he or she have? This is based on existence of the group-thinking of Chinese people and their non standardised behaviour towards people within and out of a specific group (particularism).
As recruiting western PCNs in China is extremely expensive (training & compensation) and a huge amount of local knowledge is required due to cultural differences localisation might be the most suitable solution if skilled people are available. IKEA represents special values so the recruiting process has to focus in particular on selecting people who are also able to fulfil the expected roles related to the core values rather than on other skills or language which are easier to adapt or learn than values.
In addition IKEA will always need PCNs to make sure that the unique corporate culture survives and to link the subsidiaries to create and back the feeling of being ONE organisation. 2. 3. 2 Training and development Training is likely to be even more important as Swedish practices are not common in China. Because of the hierarchical structure teamwork has to be developed and introduced. They do need help to understand what the Swedish way is about. A Chinese will need some time and coaching to get used to flat hierarchies including consulting a superior and speaking up if he disagrees.
This is especially important to enable the company can gain from the local knowledge. “You can make a Chinese into what you want as long as you are clear of what you want since they are so eager to learn. However, if you are not clear, they will turn out to be whatever they want – to make money without any rules. Hence, if they are not guided properly there may be a Wild West. ” (Tham, Managing Director, Hong Kong, 2003) A vital fact to focus on is to make sure that given information is understood. A Chinese might be afraid of loosing face by saying that he didn’t understand.
A more sophisticated way of rechecking seems to be essential. This is related to the high masculinity in Chinese culture. Opportunities for training and personal development have a strong influence on the motivation of a Chinese. “They need to see that they can learn new things and grow with the company. ” (Selmer 2003) As companies but IKEA in particular focus on retention and making trained and skilled people stay possibilities for that must be offered in a greater extend.
The HR department might have to broaden the definition of training within the MNE IKEA and it is very likely that the amount of money spent on training will be significantly higher. 2. 3. 3 Performance measurement As there is no doubt about the general importance of performance measurement the question here would be about the most effective way and special requirements or expectations. On condition that the specification of the needs of a company is put in a measurable context results should lead to personal development plans. These should be discussed with the individual as a Chinese does focus on personal improvements.
This is another useful element for retaining employees. For IKEA this would lead to the situation that global measurement criteria ensuring the unique company performance will have to be locally adjusted. 2. 3. 4 Compensation Traditionally money was seen as the most desirable compensation backed with the theory of masculinity. Consequently pay for performance was common and a tool for motivation. As Hofstede 5th dimension of long term orientation comes into account additional benefits as a part of an aimed long term security can be recognised.
Their importance increases if a company can’t or doesn’t want to compete with the high salaries of other firms. This is the case with IKEA. They should then introduce a special fund or pension scheme to be attractive to the Chinese. 2. 4 Employing Swedish expatriates in China As the transfer of Swedish characteristics is essential to maintain the “IKEA-values” the employment of Swedish managers might be even more important. The main advantages and disadvantages for employing a Swedish expatriate in china are summarised and can be seen in the following survey.
Positive: – Ability to transfer the headquarters? culture to the foreign operation – Political understanding of the headquarters? organization – Effective communication between headquarters and the subsidiary – Greater ability of expatriates to transfer know-how from the parent to the subsidiary – Measure of control over the subsidiary – No need of well-developed international internal labour market – Faster substitution of expatriates Negative: – The private life of expatriates is severely affected This approach to staffing limits the promotion and career opportunities of local managers, which may lead to low motivation – Parent country nationals are not always sensitive to the needs and expectations of their host country subordinates – Tensions between the expatriate executives and the HCNs philosophical issues such as the clash of cultures – Expatriates are very expensive in relation to HCNs The pros and cons of international staffing policies adapted from http://www. grin. com/en/preview/13039. html They have to be kept in mind if recruiting guidelines are measured. A Swedish Company enters China – a conclusion We have outlined several differences in the ways how a Swedish company would run a business compared to those Chinese people are used to. This does not mean that it will be impossible but that the amount of adaptation needed will be higher and the process longer. This includes more and different training. PCNs might not be used that extensive due to costs and rising complication but for IKEA still they will be a key instrument for the transformation of values and maintaining the feeling of being one company.
An adaptation in these cases always includes a slight diversification of the values. The IKEA way of openness or “never say never” might not be as stressed in China as it is in Sweden. To bring in the components of IHRM described earlier the issues of IHRM of a MNE acting in China will include a new local demand or sensitivity. Consequently, as functions are equal policies have to be changed to ensure that the result is the same for the whole MNE. BIBLIOGRAPHY Wall, S, and Rees, 2004. International Business 2nd ed. , Pearson Education Ltd A.
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Institute for Economics and Management Vienna (WUW) available from http://www. grin. com/en/preview/13039. html Malin Nilsson and Anna Wiberg, 2003. Human Resource Management – The Key to Success in Emerging Markets? – The Case of Lindex, Master, Graduate Business School and School of Economics and Commercial Law, Goteborg University Following Quotations from the above work by Nilsson and Wiberg were used: Cross-Ways, (2002). The Skills of Intercultural Communication for IKEA Trading China. Management Training. 7-15 November. Selmer, Jan, B. A. M. Pol. Sc, P. D,. Docent, Professor Department of Management, Hong Kong Baptist University, Hong Kong, October 2003-10-30. Carlsson, John, Trading Area Manager, Central China IKEA, Shanghai, October 2003 Tham, Chee Lung, Managing Director EIM, Hong Kong, October 2003. Gejroth, Lars, HR Department at IKEA Helsinborg 2003-11-15 IKEA 3 (2003) Purchasing HR directory, received by John Carlsson. IKEA 4 (1999) Our Human Resource Idea, Inter IKEA systems B. V. IKEA 5 (2001) The IKEA symbols–Leadership by example, Inter IKEA systems B. V. www. ikea. com