International Human Resource Management
After reaching to a global scale, company may be bound to utilize numerous resources and opportunities associated with global presence. The opportunities can be explored and obtained through employing balance between centralized integration and local adaptation approaches in by human resource functions. When companies achieve global scale then they should not be unperturbed but they may have many opportunities to avail by carrying global scale. The basic purpose of exploring this issue is to see what companies are doing and what they should do after reaching to global level.
In fact, international Human Resource Management helps to avail opportunities such as adapt to local market differences, exploit global economies of scale, exploit economies of global scope, tap into the best locations for activities and resources, and maximize knowledge and experience transfer between locations. This issue of exploring the opportunities can minimize the weaknesses of a global company and strengthen its operations in a big way. In this report, it has been discussed that what the major obstacles and challenges associated to these opportunities as well as how centralized integration and local adaption supports to exploit all these opportunities to make a company, a top level company of the globe. There are several examples of huge companies such as Pepsi, Coke, Microsoft, HP, Dell and Motorola to understand the statement in a very obvious and straightforward mode.
It has been argued that world’s economies are increasingly integrating into one global economy, and the competitive pressures to establish and maintain a global presence and the opportunities that abound therein have taken on great importance. The geographic dispersion, multiculturalism, different legal and social systems, and the cross-border movement of capital , goods, services and people that the international firm faces adds a need for competency and sensitivity is not found in the domestic firm. Now the question is what local firms expect from foreign corporations? The development of domestic industries through the potential positive consequence of multinational corporations’ (MNCs) activities, notably via the avenues of transfer of technological and management expertise and sustained economic growth, are among the foremost expectations. Social and economic development depends on several factors, such as investments from the private and public sector in education, health, safety, infrastructure, and technological innovation, and private companies. MNCs as well as local Small and Medium Enterprises (SMEs) have a crucial role to play in this regard. However, having companies set up in a given area in itself is not a guarantee for fostering development.
The global scope of business activity has expanded dramatically since the 1970s. Since then not only has the scope increased but also firms has increase their international operations in a number of ways. The global presence of a firm looks at the whole world as one market. But as per the experience of global MNEs, running a global company is more complicated than managing a multinational or international firm.
How global presence of a firm can help to achieve global economies of scale and to exploit of global scope:
In case of global presence, it’s very important for a firm to achieve economies of scale. Now the question is how a firm can achieve global economies of scale to exploit economies of global scope? To review and understand the ways of reaching at global scale, it is needed to align the direction, direction of a company can only be observed by reviewing its objectives, mission and vision statements. Firstly, companies achieve their vision and mission like they first accomplish national economies of scale and then they expand their business in other countries and markets by availing different expertise and knowledge of the world level technicians, scientists, experts, managers and skilled workers. Companies do not attain global level very effortlessly; they have to pass through different stages and challenges to come up to global levels (ref). The global scale is only possible when they plan, target and subsequently desire to acquire top ranking.
They can exploit the opportunity of getting global scale by getting cheap labour, technology, low shipment cost, and other expenditures by finding low production countries of the world.
There are three things involved in the production or cost of production. For example, if you produce electricity by purchasing material such as furnace oil in bulk, cheap labour and low overheads so that you can reduce the average production’ cost and attain the global economies of scope.
For example, Man diesel and Power management utilized both centralizes and local adaptation approach to minimize labour cost in host countries and in Germany. They use both key experts from head office and general managers from the host companies to run and manage operations in all the countries of the world as per their International HR policy (ref). Local people are working as general managers in the power stations to perform normal and basic HR functions and keep updating to the key Personnel in the head office. If head office finds any problem in the operations of any subsidiary then they guide from technical and management perspective to local management of Man Power Management (ref).
When companies achieve economies of scale then they can come up strongly to market its products all over the world. The more companies market product as per local adaptation the more they get customers and increase sales in a great way. When the revenue achieves then companies achieve economies of scope. After reaching at the economies of scope, there is no going back, it means companies rarely get losses at that level. The looses of these companies are not pure losses but they consider less profits from previous to current yeas as a loss for the company. For example, Nestle earns a lot of profits last year suppose $10 billions but this year they earned $5 billion, so reduction in profit is the loss of Nestle.
In short, companies reach economies of global scope by leveraging their market power and by providing coordinated services. There are challenges that hinder global organizations greatly which are as follows:
- Need for central coordination
- Being locally responsive
EXPLOITING ECONOMIES OF GLOBAL SCALE
The basic idea of achieving economies of scale is same as when more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale (ES) are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realised (ref).
For example-When a company buys inputs in bulk – for example, potatoes used to make French fries at a fast food chain – it can take advantage of volume discounts. (In turn, the farmer who sold the potatoes could also be achieving ES if the farm has lowered its average input costs through, for example, buying fertiliser in bulk at a volume discount.
Some researchers argued that global presence automatically expands and enhances operations and assets of the company. With large sales volume, a company can achieve economies of scale and sales can be increased by efficient marketing and production strategies as per the situation and condition. These strategies are made by efficient professionals from the head quarters or from the local associated branches and offices where the same country employees also operate.
There are several researchers who have proved that international human resource management is rightfully applicable and helpful to undertake potential opportunities and these opportunities can be utilized through adopting proper approach. The balance of local adaptation is also essential because same culture, locations, languages and people are different in which it is important to handle the operations related to human resource management very carefully. Local management have better idea that how to perform normal HR activities and global policies implementation. Their roles can be ranged from General Managers to janitorial staff.
Economies of scale is an opportunity for becoming a greater firm but it can automatically achieved when companies decrease fixed, capital and operating cost of production as well as pooling purchasing power by spreading fixed over larger volumes of production.
For example, research and development cost of certain pharmaceuticals companies is treated as assets in terms of patents and formulas such as a pill or liquid medicine. In case of Merck Pharmaceuticals, if they are benefiting from research and development through heavy volume of sales for several years then they are reducing average per unit cost along with operating and capital cost. So, the fixed cost related and onetime fee of scientist can be used to reduce average per unit cost and reaching economies of scale.
There is another example is suitable to this approach like by spreading purchasing of fast running items over few selected suppliers can also convert global presence of firm into global competitive advantage. A case of Marriot is very important, this hotel invested in lodging business and due to this business, its purchase related to furnishings, linens, and beverages items were increased dramatically. The management of this hotel can do an agreement with Pepsi for soft drinks, and other specific vendors for other fast turnover items, this approach can also help this hotel to convert its global presence into competitive advantage. In short, we can clearly state that creating critical mass in selecting items or fast turnover items can be helpful for global player to avail the opportunity to build centres of excellence for the development of specific technologies and/or products.
Tap into the best locations for activities and resources
There are many activities that a global company performs all over the world. These activities include sales, distribution, production and procurement. There are various advantages of tapping into different locations and resources, for example performance enhancement, cost reduction and risk reduction.
- Efficient performance like Nokia’s cell phone product development in China.
- Cost Reduction was done in a way that TI’s Software development in India.
- Risk reduction was done like Nike’s manufacturing in China, Vietnam, & Korea.
There are many challenges that are faced by multinational companies during their operations for tapping into best locations and these obstacles and challenges are:
- Low cost but low skills labour observation.
- The Challenge in capturing the strategic benefits of optimal locations is to excel in coordination across dispersed locations:
- For example, HP’s ProLiant ML150 designed was developed in Singapore, it was reviewed in Houston, and engineering design was carried out in Taiwan, manufactured in China & India.
Adapting to local market differences
One of the most desirable opportunities for a global company is that it should be ready to observe local market differences from a wide viewpoint and try to be heterogeneous as compare to the other companies in the market. The segments such as language, income level, customers buying behaviour and channels of distribution should be considered very clearly. It is necessary in all types of global scale companies to some degree. The example of this activity can be cellular companies or manufacturers must adapt their products to different languages and the magnitude of background noise on the street. By adapting national level diversity and innovation like adaptation of products, services, and processes, a global company can gain competitive advantage in three basic areas.
- Market Share.
- Price realization.
- Competitive position.
One of the major challenges of business is that when companies offer standard products to the customers then they cannot achieve a large market share, price realization, and unique or competitive position in that particular market. For example, the basic products of Nestle consumer products cannot be offered to those locations where customer will not reach. Customers need difference in everything according to their needs and desire. Standard products only fulfil the needs of uniform customers. On the other side, to meet the needs such as different features and attributes, adaptation of location market difference and innovation is required.
What local firms expect from foreign corporations: entering their market?
When MNC’s enter into a local market of any country then the local population and government expect a lot of positive changes in the system. These changes can be attributed to economy, finance, and market and production knowledge. The major effects of international companies are on the economy of the local country by employing local people.
How a multinational enterprise (MNE) can coordinate and balance the approaches of CENTRALISED INTEGRATION and LOCAL ADAPTATION.
The third, an integrative SIHRM orientation attempts to take ‘the best’ HRM approaches and uses them throughout the organization in the creation of a worldwide system. The focus here is on substantial global integration with an allowance for some local differentiation. An integrative approach combines both characteristics of the parent company’s HRM system with those of
its international affiliates. Transfer of HRM policies and practices occurs and
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