Introduction:
It is now widely accepted that Human Resource management is not the same in all parts of the world as previous research shows dissimilarities in HR practices depending on the country (Vaiman & Brewster, 2015; Budhar & Sparrow, 1998). Globalization and the expansion of MNCs have dragged attention on how organizational practices and particularly HRM practices are differentiated across countries (Papalexandris & Panayotopoulou, 2004). This essay will hence expand on the factors underpinning these differences. Dissimilarities and their implications will then be further explored. Finally, strategies for multinational firms will also be looked at.
HRM practices can be defined as a system that attracts, develops, motivates, and retains employees to ensure the effective implementation and the survival of the organization and its members (Schuler & Jackson, 1987). HRM practices are also conceptualized as a set of internally consistent policies and practices designed and implemented to ensure that a firm’s human capital contribute to the achievement of its business objectives (Delery & Doty, 1996).
Despite the idea of a standardization of HRM practices widely, the transference of these practices is problematic due to the very nature of their differences (Verburg et al., 1999).
Why do HRM practices differ?
Managing human resources in organization requires understanding of the influence of both internal and external environment as both affect internal work culture and HRM practices (Aycan et al., 2000). The internal environment involves organizational (internal) culture whereas the external environment is influenced by the institutional culture and socio-cultural environment which themselves are impacted by the social-political environment (institutions for instance). Managers implement HRM practices based on their assumptions about the nature of both the task and the employee. Two forces have shaped these assumptions. (Aycan et al., 2000). Vaiman & Brewster, drawing on theory, have identified these two forces as two main strands of explanation for the differences in HRM practices (Vaiman & Brewster, 2015; Sorge, 2004). They are culture and institutions (Vaiman & Brewster, 2015; Sorge, 2004; Brewster, 2006).
The role of national culture seems to be crucial in explaining cross-national HRM differences. In fact, national cultural values that reinforce human resources are more likely to produce predictable behaviour and better performance, as employees are not distracted from work if HRM practices are in accordance with national culture values (Schuler & Rogovsky, 1998).
Culture can be defined as “the acquired knowledge that shapes values, originates attitudes and affects behaviour, and which members of a society (or a social group use to interpret experience and generate social behaviour” (Vaiman & Brewster, 2015). Culture can be national but also organizational or at the group level (Schuler & Rogovsky, 1998). Culture thus has implications when it comes to the interactions between individuals. In fact, the strong relationship between culture and HRM appears in the communication function (Papalexandris & Panayotopoulou, 2004). National culture also defines organizational culture and therefore simultaneously impact and shape HRM practices as national culture defines accepted behaviour and practices that are implementable (Papalexandris & Panayotopoulou, 2004; Aycan et al., 2000).
Hofstede’s cultural dimensions model is widely used in literature as it allows for classification and distinction of types of culture. The five dimensions are power distance, individualism, masculinity, uncertainty avoidance and long termism (Hofstede, 1983). These differences affect HRM practices in several ways. In high power distance countries for example, socio-political connections are more valued than hard skills (Papalexandris & Panayotopoulou, 2004).
Culture itself is influenced by other factors, such as history or socio-economic context. Romania for instance scored a surprisingly low score of power distance after the economics and social reforms put in place after 1990 (Aycan et al., 2000).
The second explanation for HRM practices differences is institutions. Institutions encompass both the basic physical environment of a nation (size, age, infrastructure, profile) as well as the manner in which society is structured (educational system, legal system, labour market, class structure). These elements feed the differences between countries and hence the differences in business systems (Vaiman & Brewster, 2015).
The most cited model is the one of Hall and Soskice which distinguishes two types of economies: Liberal Market Economies (LMEs), which are more Anglo-Saxon and, Coordinated Market Economies (CMEs) generally associated with Continental Europe. LMEs focus on maximizing short-term returns and shareholder value. Their approach to recruitment is also different. External recruitment is relied upon to meet the skills gap. In contrary, CMEs focus on balancing the demands of several stakeholders to achieve legitimacy. Internal recruitment is also preferred (Aycan, 2005; Vaiman & Brewster, 2015; Hall & Soskice, 2001).
Some institutional factors do apply to HRM directly. Employment law for example will have different implications according to the country. Laws on equal opportunities for women require different organizational behaviours in the USA and the European Union for instance (Vaiman & Brewster, 2015).
It is important to mention that these two factors are not sufficient enough to fully explain the differences in cross-country HRM practices. Firstly, cultural model do not take into account intra-country cultural differences for instance. Secondly, the cultural approach does not take into account environmental factors. Moreover, Hofstede believes in cultural stability over time (Hofstede, 1983). This approach is therefore incomplete as cultural values do change in accordance with socio- economic development of a nation (Papalexandris & Panayotopoulou, 2004). Moreover, the variety of capitalism approach is very dichotomous and therefore overly simplifies cross-country differences. It is also quite focused on Western, educated, industrialized and developed countries. This theory struggles to explain variations within different market economies. Within countries differences are also ignored and the model does not take into consideration institutional changes (Hall & Soskice, 2001; Vaiman & Brewster, 2015).
How do they differ? HRM differences and implications
Cultural and institutional factors affect different elements of HRM practices. Recruitment and selection are strongly influenced by culture as recruitment is based on hard criteria (job related knowledge, previous experience, education) in masculine cultures, which are highly focused on performance, and universalism, and soft criteria (interpersonal skills) for more feminine cultures, which are oriented towards status (Aycan, 2005; Aycan et al., 2000). This can hence have implications on the interview process for instance.
Furthermore, the presence of unions or work councils also influences the recruitment process as it might put pressure on the organization to advertise job opening internally first. The labour market structure also plays an important role in the way firms will recruit. Although the Chinese labour market is very dense, highly skilled labour can be hard to find (Aycan et al., 2000).
Additionally, the status of the employee is also strongly defined by both institutions and culture. In small power distance culture, employees will be more integrated in the decision making process whereas inequality is expected with large power distance (Schuler & Rogovsky, 1998).
Individual rewards based on the equity principle are valued more in individualistic or performance-oriented cultures compared to collectivistic ones, where group- based and non-economic rewards such as affiliation and recognition are valued (Aycan, 2005). Employees’ ownership plans are also prevalent in countries with higher individualism (Schuler & Rogovsky, 1998). Also, power distance is negatively correlated with employee ownership plans (Aycan, 2005).
In masculine culture countries, reward, merit pay, management by objectives are practices consistent with the culture.
What constitutes good performance is also very relative to culture. In individualistic cultures, performance is measured through employee productivity, quality of output etc. … Emphasis is placed on the individual and work outcome rather than the group and the process. In collectivist cultures, loyalty to the group is more valued than the end result. In fact, high-performing employees who stand out in the group are disliked as they may disturb group harmony and invoke jealousy. Productivity is important, but social and relational criteria are more valued when evaluating employees. Such criteria include good human nature, harmony in interpersonal relations, trustworthiness, a respectful attitude, loyalty and deference towards superiors (Aycan, 2005).
Performance measurement itself is also strongly linked to culture. In high performance-oriented or low power distance cultures, performance evaluation is conducted yearly, and performance evaluation is used to encourage objective assessment of employees. On the other hand, in low performance-oriented, high power distance or high collectivistic cultures, performance evaluation is not systematic. It involves a top – down process in which superiors evaluate the performance of subordinates based on superior’s impressions and opinions of colleagues (Aycan, 2005). Regardless of the cultural context, performance feedback, when negative, is neither easy to give or receive.
Institutional factors, such as the industry type or job-type, organizational structure, sector and size, shape the performance appraisal criteria and method. Performance criteria are more specific and outcome-focused in private-sector organizations or product-oriented organizations relying on advanced technologies (Aycan, 2005).
Training and development activities are essential in terms of survival and growth, as well as obtaining of a competitive advantage. There is a correlation between low investment in training and low performance orientation.
For countries with high power distance for example, selection for training will not be based primarily on performance, but on group membership.
Institutions will also play a strong role on training and development. In countries with workforce with limited skills, firms will invest a larger budget into training and development (Aycan, 2005).
Finally, in countries with strong uncertainty avoidance, job descriptions and specifications will be very detailed and fixed in the long run (Schuler & Rogovsky,1998). Moreover, in collectivist cultures, job descriptions will greatly involve the group. Institutional factors such as the firm size also impacts this factor. Job descriptions and specifications will be defined in detail in large rather than in smaller organizations (Aycan, 2005).
However, there might be a certain sense of convergence in some aspects of HRM such as teamwork, performance, recruitment processes (Brewster, 2006), Interviews as a process of selection has become a norm even though the interview style might be different (Aycan et al., 2000).
Which strategies for global firms
International Human resources management is a significantly more complex task than managing human resources in one country given the dual requirements of systematizing their management processes (global integration) and remaining aware of the differences between countries (local responsiveness), which mean that it is not possible, or rational, to manage people in exactly the same way in different circumstances (Brewster, 2006). MNEs are therefore firms that need to be local and global at the same time.
National characteristics influence firms’ international HRM strategies. Subsidiary located in countries strongly different to the home country are more likely to be independent from the HQ as these subsidiaries create their own local culture. (Farndale et al., 2010).
MNEs can therefore centralize their practices across international operations or decentralize and allow for organizational sub-cultures. However, as previously mentioned, it is impossible to avoid adaptation to the local environment. Alternatively, MNEs can recruit individuals who share some of the values and beliefs of the home culture or attempt to modify employees’ national cultural beliefs. (Vaiman & Brewster, 2015).
Conclusion:
HRM practices are therefore strongly culturally and institutionally bound. Centralized approaches are thus by definitions challenged, as each country is different, influenced by different cultural and institutional environments. Global businesses are also different and require unique solutions (Dowling & De Cleri, 1993). Adapting to the local environment is thus essential, as the adaptation of Western cultural values may not be effective in other socio-cultural environments despite a slight convergence in certain practices.
It is also important to consider the fact that cross-cultural studies are flawed and therefore are not necessarily a true reflection of reality as the results might be the product of methodological artefacts such as differences in response styles (Aycan et al., 2000).