Importance Role Of Human Resource Management Business Essay

A study on the importance role of human resource management (HRM) and its practices in multinational companies (MNCs) operation.

This research proposal is to investigate on the roles of human resource management in operating a multinational business and how it is practicing in multinational companies. The roles and the practices of human resource management are the independent variables that determine the success of operation a multinational company.

1.0 Objectives:

To investigate on the roles of human resource management in operating multinational companies.

To investigate on the how human resource management is practicing in multinational companies.

To investigate on whether there is significant influences between the practicing of human resource management and the operation of multinational companies.

2.0 Research Question:

What are the roles of human resource management in managing multinational companies?

How human resource management is practicing in multinational companies?

How the practicing of human resource management influences the operation of multinational companies?

3.0 Introduction:

There are four main elements needed to conduct a business, which are capital, land, labor and entrepreneur. A business cannot run smoothly with the absent of either one of the elements. Undisputedly, labor is the most important asset in conducting a business. The reason is the success or failure of a company is determined by the employees of the company, because the employee is the one create and undermine a company’s reputation (Cliffs Notes, n.d.). Besides, according to human capital theory that developed by American economist Gary Becker, focus on the skills and performance of employees is important and it is one source of way to increase company’s competitive advantage (, 2007; Economy Professor, n.d.).

Nowadays, companies foresee the important of employees’ well-being and interaction with companies, so, human resource management is being extremely important in dealing and interacts with representatives of all source of production (, n.d.). Microsoft is the example company that realized the value and effectiveness of their employees. It is one of the richest and successful companies in the world that is employee-oriented companies (News and Technology, 2010). Human resource management (HRM) is the utilization of people within an organization is a function of broad range of dynamic factors (Gerald, R. Sherman, D. and Darold, T., 1995). It involves in employing people, designing and developing those related resource and fully utilise them to maximize the company’s profit (, n.d.). It also complement with the sole goal to motivate their employee to prove their ability and to add value to the company (, n.d.). HRM is playing the central role of balancing the local and global force (Informaworld, n.d.). While helping in settle local differences, it also helping the multinational companies (MNCs) in implementing critical global strategies (Informaworld, n.d.). It provides significant support and advice to line management and carrying the important position in develop calibre employee to increase the competitive advantage of a company in multinational market (Management-Hub, 2010).

4.0 Significance of Study:

This proposal is to study out the roles of human resource management and how it can be practicing in operating multinational companies. This information is helpful for the multinational companies to understand the important of human resource management and its influences on the operation of multinational companies.

5.0 Literature Review:

There are more and more companies went into globalisation due to the benefits of the greater trade and competition, higher economic growth and etc. (Economics Helps, n.d.). However, there are high rate of failure when a company is dealing with the international firm or operating a business in multinational scale (All business, 2002). The reasons are mainly due to the different national and corporate culture and the difficulty of one control and deal with resources especially workforce in several firm and is in multinational scale (All business, 2002). The strategy of managing different workforce in different nation is varying. HRM in international is carrying more and complexity roles. However, the main and important function of HRM is still the managing of people but across national boundaries other than just the home country headquarters (HQ) (, 2007; Economy Professor, n.d.).

5.1 Roles of Human Resource Management (HRM) in Multinational Companies

There are various types of existence of MNCs in international business. There are terms such as Ethnocentric, Polycentric, and Geocentric used to denote the differences types of MNCs (, 2000). The roles of HRM are different in different nation as well as different types of MNCs.

The various roles of human resource management in multinational companies can mainly being categorized in to five main areas:

5.1.1 Recruitment and selection

Recruitment is one of the HRM roles that carried out by managers in all types of concerns when the business activities are carried out (Management Study Guides, 2009). Recruitment is a process to discover sources of manpower to meet the requirement of staffing schedule and stimulating them to apply for job in an organisation (Gurpreet, R., 2007). However, in MNCs, the recruiting process must be carried out under further consideration of the adaptation of the culture, international rewards system, and the types of one MNCs exist, and etc. (Stuart, W. and Bronwen, R., 2004). For example, MNCs that practice Ethnocentric will fill the key position in subsidiaries by the employees in home country, however, for MNCs that are polycentric will recruit the host country nationals to manage the subsidiary in their own country and Geocentric MNCs recruit the suitable people regardless of their nationality (Stuart, W. and Bronwen, R., 2004). It is important to suit the recruiting process with the recruitment policies of the MNCs in order to add value to a MNCs operation.

5.1.2 Training and development

Human resource management in international is also responsible for training and the development of employees. The quality and the development of employees improved through training and education is factoring that determining the profitability of a company in long-term (Zero Million, 2009). Training can increase the job satisfaction of the employees, reduce the turnover, and improve the performance and skills of employees and it is also the other way of motivation given to the employees that would benefit the companies in return (Management Helps, n.d.). In different types of MNCs there are different types of training for their employees. MNCs that are Polycentric is more likely to offer training that provides cultural awareness and personal flexibilities (Patricia, H., 2002;, n.d.). For example, employees are sending for cross-cultural training, language training, environmental briefing and so forth. This would help them to adapt to the cultural and perform their job well (Stuart, W. & Bronwen, R., 2004; Management Helps, n.d). On the other hand, for Ethnocentric MNCs, their training is more centralized (, n.d.).

5.1.3 Remuneration

Employees’ remuneration is the compensation or rewards that given by company to employees according to their performance. Remuneration is one way to motivate employees to perform effectively and efficiently (Management Study Guides, 2009). The remuneration in multinational companies is increasing complex due to the currency fluctuation, different HR staff remuneration policies and practices as well as the different labour law in different nation. Salary is the psychological needs of employees in the Maslow’ hierarchy needs (Ezine Article, 2010). It reflects also the performance of employees and determines their standard of living, while planning for the remuneration, the salaries of the employees especially for those transfers from other location must be considered (, n.d.) The methods and scheme of remuneration is varied in different MNCs. The cost of remuneration for Ethnocentric MNCs will be high compare to Polycentric and Geocentric as it transfer the staffs from headquarter (HQ) to fill the key position (, n.d).

5.1.4 Labour relations

The HRM department in MNCs is responsible not only for recruiting and firing but also contacting job references and administering employees’ benefits, such as subsidy in housing (Wisegeek, n.d.). The staff in HRM department must be act as ‘people person’ to understand and identify individual employees’ needs and career goals in order to meet the ‘matching processes’; which is matching the needs of the organization and the needs of the employees (, n.d.; Cliffs Notes, n.d.). In MNCs, there is complex employees mix in term of cultural, educational, religious and etc. Different types MNCs have different ways of interaction with the employees in order to solve the conflict as well as generate overall sense of belonging of employees to company (Associated content, 2009;, n.d.). For instance, Ethnocentric MNCs have to avoid ‘cultural myopia’ when interact with the employees, they have to understand the cultural and the labour right in order to comfort the employees, administering employees’ benefits and not to against the laws. (Stuart,W. & Bronwen,R., 2004).

5.1.5 Initiative of workforce alignment to company objective

Workforce alignment is a specific process that tying the employees goal to overall company objectives (Dresser Associate, 2006). This is important especially for MNCs that operate in different nations, the employees in different nation that shared the same goal is the main factors that push a company to next higher level of success as it accomplish the company business plan toward a much more realistic situation (Dresser Associate, 2006; Success Factors, 2010). Knowledge Infusion Research shows that, when employees know their contribution impact company success, both employees and company performance will increase (Dresser Associate, 2006). Communicating the company goals, collaboration of employee, strengthen accountability and employee engagement is important steps for workforce alignment (Success Factors, 2010). The practices of Ethnocentric MNCs are standardization, as the key position is hold by employees from HQ, it is easier for them to control and align their workforce, and however, polycentric that practicing localization may face problems of existence gap between HQ and subsidiaries staffs (Stuart,W. & Bronwen,R., 2004).They may have to pay more efforts in aligning the workforces. Understanding and sharing the same company goals, collaboration and interaction of both HQ and subsidiary employees are important factors that bring MNCs to achieve company long-term goals (Success Factors, 2010).

5.2 The practicing of HRM in multinational companies

Globalization and MNCs are two closely interlinked phenomena (Markus, P., 2007). MNCs is considered as the important key for globalization process, on the other hand, MNCs also needs to become more and more competitive in order to survive in globalized world economy (Markus, P., 2007). As the importance for MNCs to continue growing, there is central debate around management of MNCs which are to be standardization or localization (Markus, P., 2007).

5.2.1 Standardization vs Localization Standardization

Standardization is global integration of parent company policies and practices (Pawan S. Budhwar., 2004). It is also refers to the level of central coordination by the HQ to closely integrate the operation of subsidiaries in worldwide in order to achieve global efficiency through economies of scale (Markus, P., 2007). Many Japanese companies such as Canon, Toyota and Matsushita have traditionally emphasized on the standardization and efficiency (Markus, P., 2007). Another example is American MNCs IBM has a relatively standardized HRM practices for examples, in their recruitment and training process (Markus, P., 2007). According to institutional theory and perspective, there are three major factors that affect an organization to be standardization which are coercive isomorphism, mimetic isomorphism and normative isomorphism (, 2007). Coercive isomorphism of MNCs is influence by a powerful constituency, such as government has imposed certain pattern on the organization that they have to follow. However, mimetic isomorphism is where the MNCs is in the situation of uncertainty adopt the pattern exhibited by the organization in their home country that is viewed as successful, and normative isomorphism is where the MNCs is affected by the professional organization that acts as the disseminators of appropriate organizational pattern in the environment (, 2007). Localization

However, previous research shows that national cultural and institutional characteristic have limited the transfer of HRM practices (, 2007). The transfer of HRM practices to overseas subsidiaries is limited and might force the MNCs to localize their HRM practices (, 2007). Localization is the practices and policies of host countries is locally differentiate (IEE Explore, 2010). In other words, the subsidiary is acts and behaves as local and is different from the parent company. European companies such as Philips and Nestlé are the proponent of localization (Markus, P., 2007). In order to survive in the nation, majority MNCs will adapt to the cultural and localize their practices. For example, the subsidiaries of American in German is practices not only the regulation but also the German concept of codetermination, if they do not adapt to the local practices, Wal-mart for example, they frequently suffer low performance (Markus, P., 2007). Another example is subsidiary of Canon in America tends to be more on the performance oriented in their incentives structure than the structure of parent company that emphasize on seniority (Markus, P., 2007).

The opposing forces of standardization and localization are the challenge for HRM practices in MNCs operation, MNCs that able to strike the delicate balance between standardization and localization will have a good performance.

6.0 Methodology:

Theoretical framework for this study:


Independent variables Dependent variable

7.0 Primary data collection:

Generally, this primary data collection is going to be done to help achieve the objectives of this study. This primary data collection can be done by doing survey at multinational companies that locate in Penang, such as the world number one chipmakers Samsung Corporation, Dell Inc. and Toshiba Corporation.

The reasons of choosing these three MNCs are to look into the HRM practices in MNCs that originated from three different countries based that operate in same industry. Samsung Corporation is the leader in Asia in producing LCD monitor that originated from Korea, Toshiba Corporation, is originated from Japan, a country that have inspiring management system and Dell from United State.

A set of question comprising of 50 questions which involving multiple choices are given to the staffs involve in the human resources department, and managerial level of these three MNCs. The total respondents will be 100 staffs.

The results that get from this survey will be analyzed by using Excel and presented in suitable form such as histogram, pie chart and etc.

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