The implications of globalization for HR

resource management

1.5 The implications of globalization for HR

The greatest challenge facing HR professionals working in an international capacity is how to operate effectively at both a global and a local level (Hall, 2005); to have the ability to think globally but act locally (Hatcher, 2006). This is important because it has been increasingly recognized that country and local context infl uence the HR practices of multinationals (Cooke, 2004a). Although many smaller organizations now operating in the global market-place tend not to employ specialist HR professionals there is still a need for managers to think in this way.

Key Concept

The unitary ideology promotes a common purpose and shared values and ways of behaving.

Teamwork and employee commitment are emphasized. Anyone who challenges this ideology is treated as dysfunctional and subjected to training or disciplinary action.

The concept of free-market capitalism is associated with profi t maximization and indi-vidual rewards (Klein, 2008). Indiindi-vidual rewards are a characteristic of the closely entwined relationship between HR and a unitary ideology (particularly in larger organizations), while profi t maximization has driven the need for HR functions to demonstrate they add value to an organization (and that their activities contribute to sustaining competitive advantage).

Whilst profi t maximization may not be important to public sector and non-profi t organiza-tions, the maximization of performance (against budgets) and the drive for added value cer-tainly are (Mankin, 2009). Globalization presents HR professionals with the opportunity to deliver a wide range of HR interventions that add value to an organization. In order to

People Management, 30 October 2008, p. 18. © James Fleck, Dean of the Open University Business School and Professor of Innovation Dynamics.

Bahl, R. (2010) Super Power? The Amazing Race Between China’s Hare and India’s Tortoise. New York, NY: Portfolio/Penguin.

Kaletsky, A. (2010) Capitalism 4.0: The Birth of a New Economy. London: Bloomsbury.

Magnus, G. (2011) Uprising: Will Emerging Markets Shape or Shake the World Economy?. Chichester:

John Wiley and Sons.

Activity

1. How is government intervention in business different in China than in the UK or US?

2. Can you identify a fi rm in each country that illustrates a particular difference revealed by your answer to the fi rst question?

achieve this they need to work in partnership with key stakeholders at both a strategic and operational level. Managing these stakeholder relationships is a challenging and complex task and is infl uenced by how the HR function is structured (see Chapter 4). To be successful HR professionals must understand global trends and the issues that matter most to stake-holders (Ulrich and Brockbank, 2005). This knowledge needs to be integrated with an under-standing of the global economy regardless of the size of an organization and the sector it is operating in. In larger organizations the ability of managers to integrate and coordinate organizational structures and processes that are globally dispersed is becoming ever more critical (Lasserre, 2007). This has major implications for HR practices that involve organization development, management development, and work design.

Much of the existing literature on the role of HR is dominated by Anglo-American perspec-tives. However, there are important differences in practice between the US and the UK in areas such as employee relations, human resource development (HRD), and employment legislation (Larsen and Mayrhofer, 2006). Indigenous responses to HR are now emerging across the Middle East, Asia, India, and China. For instance, there are examples of sophisti-cated indigenous approaches to HRD in the developing economies of India and China, although training costs are minimized in the Chinese manufacturing sector (Mankin, 2009).

FDI companies invest in HR more than indigenous companies and this is helping in the trans-fer of HR practices between developed and developing economies. This trend is not restricted to Western multinationals. For instance, the South Korean car manufacturer Hyundai has applied some of its own HRM policies in India, particularly training programmes which have been designed to reinforce employee loyalty to the company (Lansbury et al, 2006).

The impact of the global recession has highlighted HR’s role in decision-making processes that affect the short- and long-term viability of an organization (e.g. redundancies and reten-tion respectively). The retenreten-tion of key employees (often referred to as ‘core’ or ‘knowledge’

workers) is critical in most organizations and sectors. The retention argument was used by some banks as a justifi cation for continuing the practice of paying huge bonuses. In contrast, companies such as Motorola, Fedex, and Caterpillar ‘slashed’ salaries and bonuses for execu-tives (Guerra and Chung, 2009). The global recession has prompted a more critical examina-tion of the HR funcexamina-tion and the extent to which it adds value or is simply expendable.

Unfortunately there has been limited and inconsistent evidence that HR interventions do add value by impacting positively on employee and organizational performance. A major research study for the Chartered Institute of Personnel and Development (CIPD) by Purcell et al (2003) revealed that it is possible only to discern some positive associations between specifi c HR practices and performance (e.g. training, career development and communica-tions). Maybe this is why HR functions still have a relatively poor track record in evaluating the effectiveness of HR strategies, policies, and practices. Those functions that have been able to demonstrate added value have been better placed to ‘ride out’ the economic storm (as illus-trated by organizations that sustained pre-recession levels of investment in learning and development in order to maintain competitive advantage. You may fi nd it useful at this point to refer to Chapter 8 on the outcomes of SHRM.

Table 1.4 sets out the key organizational requirements that HR functions need to address.

All the themes covered in the table will be discussed in subsequent chapters. Although these requirements are biased to multinationals, many affect other types of organization to a lesser or greater extent. For instance, non-profi t organizations operating in several countries or

THE GLOBAL CONTEXT OF STRATEGIC HUMAN RESOURCE MANAGEMENT 17

Table 1.4 Implications of globalization for the HR function Organizational requirements HR implications The development of global

leaders with a global perspective

Developing leaders who can think and act from a global perspective is a critical success

• Management and leadership development initiatives that focus on the development of leadership skills. This includes in-house and external programmes.

• Regulating an organization’s CSR policy.

• Educating managers to behave in ethically and socially responsible ways.

This can be achieved through workshops, courses, conferences and seminars, mentoring programmes, and executive coaching.

• Identifying and developing less senior managers who demonstrate potential senior managerial talent. This can be linked to organizational systems for career development and succession planning.

• Building employee commitment to the organization’s objectives, values, and norms.

• Sustaining employee engagement.

• Designing, implementing, and sustaining effective approaches for recruitment and selection, promotion, reward, and retention.

• Promoting ethical management and leadership as part of daily activities (HR professionals as role models).

• Informal mentoring and coaching (can include upward coaching).

Adaptable and fl exible

• Creating and sustaining new forms of organizational structures with cultures based on cooperation and collaboration.

• Implementing an appropriate reward strategy.

• Regulating work design.

• Management training in change management processes.

• Keeping departments and employees affected by an impending merger or acquisition informed about the change using multiple communication channels (refl ecting an organization’s communications policy in conjunction with its employee involvement or employee participation strategy).

• Educating management about potential reorganization options and the implications for the organization and its workforce of those options.

• Designing and sustaining performance management systems.

• Keeping departments and employees affected by an impending merger or acquisition informed about the change using informal communication channels.

(continued)

Organizational requirements HR implications Managing supply chains

The offshoring and outsourcing of parts of the supplier chain (e.g. production) has resulted in the dispersion of core assets and the creation of competence clusters around the globe. The number of global organizations has continued to rise and the number of employees, primarily managers, relocating abroad continues to increase. However, there is a lack of consistency in preparing managers for international assignments. For instance, many US companies are sending employees abroad without any preparation.

• Creating and sustaining new forms of organizational structures.

• Building global teams that can handle problems of diversity and distance.

• Training local customer service/call centre staff in British or American language and voice skills (as well as product and customer skills training).

This is important as it helps create empathy with the customer.

• Training local, indigenous managers in modern management techniques and behaviours.

• Cross-cultural training for managers: educating them in ‘cultural fl uency’ (i.e.

the ability to work effectively within and between multicultural environments).

• Increasing the cultural competence of employees generally.

• Preparing employees and managers for expatriation.

• Promoting fairness and equity of treatment.

• Facilitating the activities of global teams.

• Preparing employees and managers for expatriation.

Managing a diverse age. It is likely that those organizations with cultures

• Diversity education and training programmes. These communicate the importance of diversity and help to remove barriers, such as employees not understanding the value of diversity.

• Designing appropriate recruitment and selection processes.

• Designing and implementing diversity and equal opportunities policies.

• Developing cross-cultural teamworking and communication skills.

Cross-cultural training, traditionally restricted to preparing employees for expatriate assignments, can be used to help domestic employees interact with colleagues from diverse cultural backgrounds.

• Training immigrants in technical and customer service skill.

• Re-skilling and retraining of older employees beyond the traditional retirement age.

• Providing employees with opportunities to improve their basic literacy and numeracy skills to give them the potential to break out of the low-wage cycle.

• Adjusting the design and management of performance management systems in multinationals to refl ect how performance is impacted by different cultural contexts.

• HR professionals acting as role models in the promotion of cultural sensitivity.

• Helping employees to understand how they can learn from team experiences.

Table1.4 (continued)

THE GLOBAL CONTEXT OF STRATEGIC HUMAN RESOURCE MANAGEMENT 19

• Systems for the identifi cation and monitoring of core competencies and skills (particularly an effective performance management system).

• Training and development programmes to enable employees to upgrade or learn new competencies and skills.

• Linking skills updating to retention strategies (e.g. promotion/succession planning; rewards).

• The promotion of lifelong learning.

• Developing alliances with regional and national institutions (e.g. Learning Skills Councils in Britain; labour-market partnerships in the US).

• Ensuring management development initiatives are developing new capabilities and not simply reinforcing old ones, which may have human and ecological consequences.

• The promotion of lifelong learning and facilitation of informal workplace learning. and needs to keep innovating in order to sustain its competitive advantage.

• Developing a global culture of continuous learning, engagement, and commitment which instils employees with a spirit of innovation.

• Helping employees to unlearn old behaviours and skills and to learn new ones.

• Creating new ways to work.

• Supporting technological entrepreneurship (i.e. activities that support innovation through the creation of new resource combinations).

• Promoting the role of informal groups and social networks as sources of innovation and problem solving.

• Facilitating the activities of informal groups and social networks.

Knowledge management

• Developing employee competencies in knowledge creation, sharing, and transfer and linking this to retention strategies (e.g. rewards; personal development).

• Creating a learning infrastructure that maximizes opportunities for organizational learning and knowledge sharing between organizations.

• Improving employee familiarity with technology-based KM systems through the utilization of new technologies to deliver e-learning programmes around the globe.

• Facilitating KM processes involving both electronic and face-to-face interactions.

• Identifying and improving opportunities for knowledge creation, sharing, and transfer.

Source: adapted from Mankin (2009) with additional sources: Rigg, 2007; Burgelman et al, 2008; Marin, 2008; Varma et al, 2008; New York Times, 2009b; Ulrich et al, 2009.

Table1.4 (continued)

regions and competing for funding need senior managers to have effective global leadership skills; and all organizations operating in global markets, from small business to multination-als, need to understand about change management (Mankin, 2009).

Conclusion

This chapter has provided an overview of the global context and explained how several specifi c global trends are impacting on organizations. These trends include the rapid development of different information and communications technologies, increased competition in global markets, changing organizational structures, and the emergence of new business models. In order to appreciate global trends it was necessary to discuss globalization and the principal concepts associated with it, such as free-market capitalism. Globalization is a term widely used to explain the apparent global convergence of political, economic, social, and technological trends over the last decades. However, as was highlighted, it is an emotive and highly contentious concept that is characterized by a polarization of viewpoints, essentially around the economic and social perspectives on globalization. Following this discussion, the fi nal section highlighted, in tabular format, examples of specifi c implications for the nature and style of strategic human resource management (SHRM) across a range of sectors. Many of the issues covered by the table will feature more prominently in subsequent chapters.

Summary

This chapter has discussed the global context in respect of several issues:

● The two principal perspectives on globalization (economic and social) and the dominance of the economic perspective .

● The drivers for globalization (e.g. advancements in technology and communications, global competition and changing organizational structures) along with the implications of these drivers for organizations.

● The causes and consequences of the global recession.

● The emerging economies of China and India and the potential for a shift in economic power from the developed nations of the West to these developing nations in Asia and the Far East.

● The potential for HR professionals to deliver a wide range of HR interventions that add value to an organization in a global context.

Review questions

1. What are the principal perspectives on globalization and to what extent are they convergent or divergent?

2. What are the principal causes and consequences of the recent global recession?

3. Summarize how globalization is impacting on organizations generally.

4. What are the principal implications of globalization for the human resource (HR) function in larger organizations?

5. To what extent are Western business models and HR practices relevant to emerging economies such as China and India?

THE GLOBAL CONTEXT OF STRATEGIC HUMAN RESOURCE MANAGEMENT 21

End-of-chapter case study AirAsia: a Malaysian success story

AirAsia, the international budget airline, is often touted as one of Malaysia’s success stories. Malaysia is a relatively small but high-growth economy and is one of the most resource-rich countries in the world. Malaysia underwent a major privatization programme between 1983 and 2000 which achieved mixed results. Malaysia Airlines, the principal competitor of AirAsia in Malaysia, is an example of a company that was privatized and then renationalized when it nearly went bankrupt. Despite such setbacks, Malaysia, in common with many other developing countries, is now on the brink of graduating to the level of more advanced economies such as Korea, Taiwan, and Singapore. However, this progression is potentially at risk from competition from lower-wage economies such as China, India, and Vietnam. There are also potential internal threats to the country’s political stability.

AirAsia had two Boeing 737-300 aircraft and RM40 million (approximately £8 million) debts when it was bought by Tony Fernandes for RM1 (approximately 20 pence) in 2001. The fi rm was relaunched with three aircraft in 2002 and within 7 months it was making a profi t. Since then the company has gone from strength to strength by adopting and then adapting the low-cost business model that was working successfully in the US and Europe (e.g. South-western Airlines, Ryanair). By 2009 the airline had 7,500 employees and was making a net profi t of RM506 million (approximately just over £100 million). In the same year the fi rm’s long-haul carrier, AirAsia X, was chosen as the World’s Best Low-Cost Airline for 2009 by more than 16.2 million travellers in a survey conducted by London-based consultancy Skytrax. The airline continues to expand rapidly and in March 2011 announced the launch of a new joint venture company with the travel fi rm Expedia which will offer a range of value fl ights, hotels, and holiday packages in the Asia Pacifi c market.

Tony Fernandes believes that ‘the biggest, most important thing to my passengers is the low fare’.

However, to make sure the low-cost model works ‘you have to make sure you have the right people, focus and discipline’. He argues that it is pointless doing something just because other airlines are doing it: ‘being on time, safe and effi cient are important. The rest are really added frills’. Consequently, AirAsia has dropped any services that cost extra money such as free in-fl ight entertainment, free meals, and refreshments. Customers are encouraged to purchase tickets online. The fi rm always looks for the cheapest airports to land in and lands as far away from the airport lounge as possible because this reduces landing fees; passengers have to walk to the lounge as buses are not provided. The fi rm schedules most of its fl ights so that the same personnel can work on both legs of a journey and return home on the same day, thus eliminating the need to pay for overnight hotels and meals. Longer fl ights are only considered if they make business sense. The fi rm does not own any technology such as computers and mobile phones as it is cheaper to rent the equipment. Tony Fernandes describes this strategy as the ‘ultra low cost business model’. In terms of the fi rm’s commitment to its employees it has published a range of commitments, such as to develop a safety culture and provide employees with appropriate training, and clearly defi nes for all employees their responsibilities and accountabilities.

The fi rm has also set up the AirAsia Academy, which trained over 15,000 employees in 2009.

Sources

Vincent, J.R. and Rozali, M.A. (2005) Managing Natural Wealth: Environment and Development in Malaysia.

Washington: RFF Press.

Telegraph (2007) http://www.telegraph.co.uk/fi nance/markets/2807593/First-Asian-low-cost-carrier-heading-this-way.html (accessed 4 May 2011).

Tan, J. (2008) Privatisation in Malaysia: Regulation, Rent Seeking and Policy Failure. Abingdon: Routledge.

Ze, S. and Ng, J. (2008) The AirAsia Story: How a Young Airline Made it Possible for Everyone to Fly and Became a Runaway Success Practically Overnight. Kuala Lumpur: Kanyin Publications.

AirAsia (2009) Annual Report. http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AirAsia_AR09.

pdf (accessed 4 May 2011).

Ang, J.B. (2009) Financial Development and Economic Growth in Malaysia. Abingdon: Routledge.

Pepinsky, T.B. (2009) Economic Crises and the Breakdown of Authoritarian Regimes: Indonesia and Malaysia Comparative Perspective. New York, NY: Cambridge University Press.

Hill, H., Yean, T.S. and Zin, R.H.M. (2011) Malaysia’s Development Challenges: Graduating from the Middle (Routledge Malaysian Studies Series). London: Routledge.

New York Times (2011) http://markets.on.nytimes.com/research/stocks/news/press_release.

asp?docTag=201103291840PR_NEWS_USPRX____SF73786=Search (accessed 4 May 2011).

Case study questions

1. What are the potential business implications for AirAsia of the trends identifi ed in this chapter?

2. What are the potential HR implications of AirAsia’s low-cost business model?